-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, YKjMf444pUk9SfwdCOHHM2MtkU012oGLfHCtfm3T1ml7sZ/hLFZjxH+t6HaOYpMP 1ZlJ25jf2tOx+YX+ba4ukA== 0000038475-95-000003.txt : 19950615 0000038475-95-000003.hdr.sgml : 19950615 ACCESSION NUMBER: 0000038475-95-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950315 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOURTH FINANCIAL CORP CENTRAL INDEX KEY: 0000038475 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 480761683 STATE OF INCORPORATION: KS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-04170 FILM NUMBER: 95521003 BUSINESS ADDRESS: STREET 1: 100 N BROADWAY STREET 2: P O BOX 4 CITY: WICHITA STATE: KS ZIP: 67202 BUSINESS PHONE: 3162925339 10-K 1 ============================================================================= UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________ FORM 10-K (Mark One) _X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1994 OR ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 0-4170 Fourth Financial Corporation (Exact name of registrant as specified in its charter) Kansas 48-0761683 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 100 North Broadway Wichita, Kansas 67202 (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code: (316) 261-4444 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par Value $5.00 per share (Title of Class) Depositary Shares, each representing a 1/16th interest in a share of Class A 7% Cumulative Convertible Preferred Stock, Par Value $100.00 per share, Liquidation Preference $400.00 per share (equivalent to $25.00 per Depositary Share) (Title of Class) Indicate by check mark whether 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. _X_ As of March 1, 1995, the aggregate market value of the voting stock of Registrant held by nonaffiliates of Registrant was approximately $747,615,000. Such value was computed by reference to the reported last sales price of such stock on March 1, 1995. At March 1, 1995, 27,602,896 shares of Common Stock, par value $5 per share, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the April 20, 1995 Annual Meeting of Stockholders of Registrant (the "1995 Proxy Statement") to be filed pursuant to Regulation 14A are incorporated by reference into Part III of this report. =============================================================================== TABLE OF CONTENTS Item Page PART I 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 4. Submission of Matters to a Vote of Security Holders. . . . . . . . PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . 8. Financial Statements and Supplementary Data. . . . . . . . . . . . 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. . . . . . . . . . . . . . . . . . . . . . . PART III 10. Directors and Executive Officers of the Registrant . . . . . . . . 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . 12. Security Ownership of Certain Beneficial Owners and Management . . 13. Certain Relationships and Related Transactions . . . . . . . . . . PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Information. . . . . . . . . . . . . . . . . . . . . . . .. Appendix A PART I Item 1. Business. General Fourth Financial Corporation ("Registrant" or the "Company") is a bank holding company headquartered in Wichita, Kansas, which offers a broad range of bank and bank-related services through its subsidiaries, BANK IV Kansas, National Association ("BANK IV Kansas"), BANK IV Oklahoma, National Association ("BANK IV Oklahoma"), and BANK IV Missouri, National Association ("BANK IV Missouri"). At September 30, 1994, the Company was the 71st largest, as measured by total assets, among bank holding companies in the United States. The Company is the largest bank holding company headquartered in Kansas and, at December 31, 1994, had total consolidated assets of $7.73 billion, total deposits of $5.65 billion, and stockholders' equity of $602.1 million. BANK IV Kansas, whose predecessor was originally organized in 1887, is the largest commercial bank in Kansas and, at December 31, 1994, had approximately 12.0% of all insured deposits in Kansas. BANK IV Kansas, the only major statewide bank in Kansas, has 87 offices in 36 communities. BANK IV Oklahoma has 56 offices in 23 communities. BANK IV Missouri, acquired in January, 1995, has three offices in Independence, Missouri. The three BANK IV banks provide a wide range of commercial and retail banking services. Each separate BANK IV market-based unit is under the management of a local president. Trust and customer investments, mortgage banking, commercial finance and leasing, and bank card services are each managed on a line-of-business basis. At December 31, 1994, the BANK IV banks held total assets of $6.71 billion in various fiduciary capacities and exercised investment authority over $2.39 billion of these assets. Also on that date, the BANK IV banks serviced a $1.46-billion residential mortgage loan portfolio, of which $682.7 million was serviced for others. The BANK IV banks operate the VIA system, a network of 340 automated teller machines located in Kansas, Oklahoma, and Missouri at which approximately 12.7 million electronic banking transactions were initiated during 1994. In addition, Registrant owns several other subsidiaries which perform various financially-related services. These subsidiaries include a community development corporation, which makes loans and investments to promote redevelopment in low- and moderate-income neighborhoods of the communities served by the BANK IV banks and to finance small and minority-owned businesses; a subsidiary of BANK IV Kansas which offers non-deposit investment products and services at offices of the BANK IV banks; and a company which reinsures credit life and health insurance policies. Such subsidiaries in the aggregate do not account for a material portion of the Company's revenues or profits. Recent Acquisitions During 1994, the Company acquired two banks located in Kansas and a bank and a federal savings bank located in Oklahoma. The Kansas banks acquired were Emprise Bank, National Association, Hutchinson, Kansas ("Emprise"), and First National Bank and Trust Company in Dodge City, Dodge City, Kansas ("Dodge"). The Oklahoma acquisitions included Equity Bank for Savings, F.A., Oklahoma City, Oklahoma ("Equity"), and Metro Bank of Broken Arrow, Broken Arrow, Oklahoma ("Metro"). The following table sets forth for each 1994 acquisition the amount of assets of the acquired financial institution at the date of acquisition, the amount paid by the Company, the number of shares of common stock of the Company issued, and the accounting method used to account for the acquisition. Accounting Bank Assets Cash Paid No. of Shares Method ---- ------ -------- ------------ --------- (In thousands) Equity $491,506 $90,720 - Purchase Emprise 258,731 31,206 - Purchase Dodge and Metro 144,999 - 590,710 Pooling 36(1) 70,300(1) Purchase -------- (1) To acquire minority interests in Dodge and Metro. During January and February 1995 three acquisitions were completed. In Oklahoma, the Company acquired Stillwater Federal Savings Bank, Stillwater, Oklahoma ("Stillwater"), and Security Bank and Trust Company, Blackwell, Oklahoma ("Security"). The Missouri bank acquired was Standard Bank & Trust Company, Independence, Missouri ("Standard"). For the 1995 acquisitions, the following table sets forth the amount of assets of the acquired financial institution at December 31, 1994, the amount paid by the Company, the number of shares of common stock of the Company issued, and the accounting method used to account for the acquisition.
Accounting Bank Assets Cash Paid No. of Shares Method ----- ------ ---------- ----------- ----------- (In thousands) Stillwater . . . . . . . . . . . . . . . $95,503 $ - 368,981 Purchase Standard . . . . . . . . . . . . . . . . 85,190 - 315,000 Pooling Security . . . . . . . . . . . . . . . . 46,851 8,197 - Purchase
As of March 1, 1995, the Company has no binding commitments, agreements, or understandings to acquire any additional financial institutions, but additional acquisition agreements may be negotiated or entered into at any time. Though the Company considers strategic acquisitions which can be made on favorable terms, the Company's focus has now shifted from growth by acquisition to internal growth, enhancement of revenues, and greater efficiency. Competition BANK IV Kansas is the largest of approximately 460 commercial banks in Kansas, and as of June 30, 1994 (the latest date for which statewide information is available), held approximately 15.5% of the total bank deposits in Kansas. As of June 30, 1994, BANK IV Kansas ranked 120th largest, as measured by total assets, out of approximately 10,600 commercial banks in the United States. BANK IV Oklahoma is the second-largest of approximately 350 banks in Oklahoma. BANK IV Missouri is one of approximately 475 commercial banks in Missouri and is one of over 30 commercial banks headquartered in the Missouri portion of the metropolitan Kansas City market. There are one or more other commercial banks located in each BANK IV community, resulting in strong competition in all areas of bank services. The principal methods of competition in the commercial banking industry are price, service, and interest rates paid to depositors and charged to credit customers. In addition, banks compete for loans and deposits with other types of financial institutions such as savings and loan associations, credit unions, money market mutual funds, and finance companies. Increasingly, banks also compete for both consumer and commercial loans and for deposits with large retail and commercial enterprises. Among other things, this increased competition has resulted in banks being required to accept lower interest rates on loans and to pay interest on a larger percentage of their deposits. Lines of Business and Reportable Segments Registrant and its subsidiaries engage primarily in commercial banking. Registrant and its subsidiaries, therefore, did not engage in material operations in separate reportable industry segments for the last three fiscal years. Employees As of March 1, 1995, Registrant and its subsidiaries had a total of 3,520 full-time-equivalent employees. Registrant had 985 full-time-equivalent employees. BANK IV Kansas had 1,632, BANK IV Oklahoma had 876, BANK IV Missouri had 25, and Fourth Financial Insurance Company and BANK IV Community Development Corporation each had one. Regulation and Supervision Federal Regulation. The Company is subject to the Bank Holding Company Act of 1956, as amended (the "Act"), and to regulation by the Board of Governors of the Federal Reserve System (the "Board"). The Act limits the nonbanking activities which may be engaged in by the Company and its subsidiaries to those so closely related to banking or managing or controlling banks as to be a proper incident thereto. In determining whether a particular activity is a proper incident to banking or managing or controlling banks, the Board must consider whether performance of an activity by an affiliate of a bank holding company can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency. The benefits of the activity must also outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices. The Act also prohibits bank holding companies from acquiring substantially all the assets of, or owning more than 5% of the voting shares of, any bank which is not already majority-owned, or of any nonbanking company, without the prior approval of the Board. The Board may not approve an application to acquire before September 29, 1995, shares or assets of a bank located outside the state in which the operations of the applicant's banking subsidiaries are principally conducted unless such acquisition is specifically authorized by a statute of the state in which the bank whose shares or assets are to be acquired is located. For a description of recently enacted changes in federal law, see the section below captioned Recently Enacted Federal Legislation. The Company, its nonbanking subsidiaries, BANK IV Kansas, BANK IV Oklahoma, and BANK IV Missouri are all affiliates of each other within the meaning of the Federal Reserve Act. As such, they are subject to certain restrictions on loans by the BANK IV banks to the Company or such nonbanking subsidiaries and on investments in and loans secured by their stock or other securities. The Company and its subsidiaries, including the BANK IV banks, are also subject to certain restrictions on the issuance, underwriting, and distribution of securities. In addition, the Board may examine the Company or any of its subsidiaries. As a bank holding company, the Company is a legal entity separate and distinct from its subsidiaries. The principal sources of funds available for dividends on the Company's common stock and its preferred stock are dividends from the BANK IV banks and cash and other investments held by the Company. The approval of the Comptroller of the Currency (the "Comptroller") is required if total dividends declared by a national bank in any one year exceed the bank's net profits for that year plus the profits for the two preceding years retained by the bank. In 1995, the BANK IV banks may pay an aggregate of approximately $39.9 million (in addition to their 1995 net profits) in dividends to the Company without obtaining regulatory approval. The Comptroller's approval was required and obtained for dividends paid by BANK IV Oklahoma in 1994 and for some of the dividends paid by BANK IV Kansas in 1994. Because of the financial strength of Registrant and the banks' anticipated earnings capacity, the BANK IV banks expect to be able to obtain permission, if required, from the Comptroller to pay dividends in 1995 to the extent justified by their respective financial conditions and subject to the capital requirements described below. Recently Enacted Federal Legislation. The recently enacted federal Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 will increase the ability of Registrant and other bank holding companies to make interstate acquisitions and to operate their subsidiary banks. Commencing on September 29, 1995, adequately capitalized and adequately managed bank holding companies will be permitted to acquire banks located anywhere in the United States without regard to the provisions of any state laws prohibiting such acquisitions. Interstate acquisitions will not be permitted, however, if the potential acquirer would control more than ten percent of the insured deposits in the United States or more than 30 percent of insured deposits in the home state of the bank to be acquired or in any state in which such bank has a branch. States may enact statutes increasing the 30 percent limit and may also lower such limit if they do so on a non-discriminatory basis. States will also be permitted to prohibit acquisitions of banks that have been established for fewer than five years. The Board of Governors of the Federal Reserve System is required to consider the applicant's record under the federal Community Reinvestment Act in determining whether to approve an interstate banking acquisition. The new statute also permits, after June 1, 1997, interstate branch banking in all states by adequately capitalized and adequately managed banks, but a state may enact specific legislation before June 1, 1997 prohibiting interstate branch banking in that state, in which event banks headquartered in the state will not be permitted to branch into other states. A state may also enact legislation permitting non- discriminatory interstate branch banking in such state before June 1, 1997. Applications for interstate branching authority will be subjected to regulatory scrutiny of compliance with both federal and state community reinvestment statutes with respect to all of the banks involved in the proposed transaction. Registrant is unable to predict the effect, if any, of such new legislation on it. Capital Guidelines. Bank holding companies, such as the Company, and their bank subsidiaries are required to maintain three capital ratios which measure capital adequacy. Capital is separated into "Tier I capital" (as applied to the Company, common stockholders' equity and Preferred Stock, less certain intangible assets) and "Tier II capital" (as applied to the Company, the allowance for credit losses limited to 1.25% of risk-weighted assets). The first two ratios, which are based on the degree of credit risk in the company's assets, provide for weighting assets based on assigned risk factors and include off-balance-sheet items such as loan commitments and stand-by letters of credit. The ratio of total capital (Tier I capital plus Tier II capital) to risk-weighted assets and off-balance-sheet commitments and contingencies must be at least 8.0% and the ratio of Tier I capital to risk-weighted assets and off-balance-sheet commitments must be at least 4.0%. The capital leverage ratio supplements the risk-based capital guidelines. Banks and bank holding companies are to maintain a minimum ratio of Tier I capital to average adjusted total assets of 3.0%. These ratio requirements are minimums. Any institution operating at or near those levels would be expected by the regulators to have well-diversified risk, including no undue interest rate risk exposures, excellent asset quality, high liquidity, and good earnings and, in general, would have to be considered a strong banking organization. All other organizations and any institutions experiencing or anticipating significant growth are expected to maintain capital ratios at least one to two percent above the minimum levels, and higher capital ratios can be required if warranted by particular circumstances or risk profile. A bank's deposit insurance premium is based, in part, on the bank's capital levels. The Federal Deposit Insurance Corporation is the single insurer of deposits in financial institutions. Deposit insurance premium rates range from 0.23% to 0.31% of a bank's assessment base (as defined), depending on the bank's supervisory rating by the bank's primary regulator and its capital level. (The Federal Deposit Insurance Corporation has proposed, but not adopted, a reduction in premium rates.) A bank is typically defined to be "well capitalized" if it maintains a Tier I capital ratio of at least 6.0%, a total risk-based capital ratio of at least 10.0%, and a leverage ratio of at least 5.0%. It is the Company's intention to maintain sufficient capital in each of its bank subsidiaries to permit them to maintain a "well capitalized" designation. The capital ratios for both of the Company's subsidiary banks exceeded the "well capitalized" regulatory capital requirements at December 31, 1994. Pending and Proposed Federal Legislation. There are various pending and proposed bills in Congress that would restructure the federal supervision of financial institutions. The Company is unable to predict with any certainty the effect any such legislation would have on the Company and its subsidiaries. State Regulation. Each of the three states in which the Company's banking subsidiaries are located has laws (described below) limiting interstate acquisitions of banks headquartered in such state. Such state laws will be for the most part pre-empted by the recent federal legislation described above. One or more of such states may amend their laws in response to the federal legislation before it takes effect, but the Company is unable to predict the likelihood or nature of any such amendments. Kansas. A Kansas bank holding company is prohibited from acquiring, directly or indirectly, any voting shares in any Kansas bank if, after such acquisition, all of the Kansas banks in which such bank holding company or any subsidiary of such bank holding company has ownership or control of any voting shares would have, in the aggregate, more than 15% of the total deposits of all banks domiciled in Kansas plus the total deposits, savings deposits, shares and other accounts in savings and loan associations, federal savings banks, and building and loan associations in Kansas as determined by the Kansas bank commissioner on the basis of the most recent reports to supervisory authorities which are available at the time of the acquisition. The statute contains an exception from the 15%-of-statewide-deposits limitation in the case of an acquisition that the Kansas bank commissioner determines would be in the public interest to prevent the failure or probable failure of the acquired bank. As of December 31, 1994, BANK IV Kansas had approximately 12.0% of the total deposits of all Kansas banks, savings and loan associations, federal savings banks, and building and loan associations according to the most recent information available to the Company. Bank holding companies located in Nebraska, Missouri, Colorado, Oklahoma, and Arkansas are permitted to acquire banks and bank holding companies located in Kansas upon obtaining the approval of the Kansas State Banking Board. Among the factors to be considered in granting such approval are whether existing subsidiaries of the applicant are operated in a safe, sound, and prudent manner, the adequacy of services being provided by existing subsidiaries of the applicant, whether the applicant proposes to provide adequate and appropriate services in the communities served by the Kansas banks to be acquired, whether the proposed acquisition will result in a Kansas bank or bank holding company located in Kansas that has adequate capital and good earnings prospects, and whether the proposed acquisition is in the interests of the depositors and creditors of the bank or bank holding company which is the subject of the proposed acquisition and in the public interest generally. Such acquisitions are also subject to the deposits limitation described above. No application can be approved unless the state banking board finds that the laws of the state or jurisdiction in which the applicant bank holding company is located permit a Kansas bank holding company to acquire a bank located in that state or jurisdiction on terms that are substantially no more restrictive than those established under the Kansas statute. The Kansas statute would also permit Iowa banks or bank holding companies to acquire Kansas banks and bank holding companies if Iowa were to adopt appropriate reciprocal legislation. Oklahoma. The Company is permitted under Oklahoma law to acquire additional banks, but such banks must have been in existence and continuous operation for at least five years. Oklahoma prohibits a multi-bank holding company from acquiring any additional banks if such acquisition would result in the bank holding company having direct or indirect ownership of banks located in Oklahoma that would have in excess of 11% of the aggregate deposits of all financial institutions located in Oklahoma which have deposits insured by the Federal Deposit Insurance Corporation or National Credit Union Administration. As of December 31, 1994, BANK IV Oklahoma had approximately 5.4% (5.6% on a pro forma basis) of the total deposits of insured Oklahoma savings and loans, credit unions, and banks. This restriction is not expected to affect the Oklahoma acquisition activities of the Company in the near future. Missouri. The Company is also permitted under Missouri law to acquire additional banks. Missouri law prohibits an adjoining-state bank holding company from obtaining control of any bank if the total deposits in that bank together with the total deposits in all banks controlled by the adjoining-state bank holding company exceed 13% of the total deposits in all depository financial institutions in Missouri which have deposits insured by an agency of the federal government. As of December 31, 1994, Standard Bank & Trust Company, the predecessor of BANK IV Missouri, had only approximately 0.1% of the total deposits of federally insured depository financial institutions in Missouri as of June 30, 1994, the latest date for which information concerning deposits in Missouri financial institutions is available to the Company, so Missouri's 13% restriction is not expected to affect the Missouri acquisition activities of the Company in the near future. Government Monetary Policy and Economic Controls The earnings of Registrant and the BANK IV banks are affected by the policies of regulatory authorities. An important function of the Federal Reserve System is to regulate the national supply of bank credit in order to affect the level of economic activity. Among the instruments used to implement these objectives are open market operations in U.S. Government securities, changes in the discount rate on member bank borrowings, and changes in reserve requirements. These instruments are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may also affect interest rates charged on loans or paid for deposits. Statistical Disclosure The information required by Guide 3, "Statistical Disclosure by Bank Holding Companies," has been integrated throughout the attached Appendix under the captions "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," and such information is hereby incorporated herein by reference. Executive Officers of the Registrant Listed below are the names and ages of all executive officers of Registrant and offices held by them with Registrant (and, in the cases of Mr. Knudson, Mr. Greer, and Mr. Keller, with the BANK IV banks).
Name Age Positions and Offices -------- ----- ---------------------- Darrell G. Knudson 57 Chairman of the Board, President, and Chief Executive Officer of Registrant and Director of BANK IV Kansas and BANK IV Oklahoma K. Gordon Greer 58 Chairman of the Board, President, and Chief Executive Officer of BANK IV Kansas Edward F. Keller 54 Chairman of the Board, President, and Chief Executive Officer of BANK IV Oklahoma Michael R. Ritchey 55 President, Trust and Asset Management, and Senior Trust Officer of Registrant James J. Gartner 53 Executive Vice President, Risk Control Group, of Registrant John F. Guettler 49 Executive Vice President and Director of Human Resources of Registrant Clayton D. Pledger 49 Executive Vice President, Operations and Technology, of Registrant William J. Rainey 48 Executive Vice President, Secretary, and General Counsel of Registrant Michael J. Shonka 47 Executive Vice President and Chief Financial Officer of Registrant David L. Strohm 43 Executive Vice President and Treasurer of Registrant
Mr. Knudson is a member of the Executive Committee of Registrant. There is no family relationship between any of the executive officers of Registrant. Mr. Knudson was elected Vice Chairman of Registrant effective December 31, 1990, Chairman of the Board on July 1, 1991, and President on March 16, 1992. Mr. Knudson was Vice Chairman of First Bank System, Inc., a Minnesota-based multi-bank holding company, from 1982 until his resignation in 1990 to join Registrant. Mr. Greer has been Chairman of the Board of BANK IV Kansas since December, 1992, and President of BANK IV Kansas (or its predecessor BANK IV Wichita) since March, 1989. He was a director and President of the Company from September, 1990 through March, 1992 and was also Chairman of the Board of BANK IV Kansas (or its predecessor BANK IV Wichita) from January, 1991 through December, 1991. Mr. Keller has been Chairman of the Board of BANK IV Oklahoma since December 31, 1992, and President of BANK IV Oklahoma since July, 1994. He was Chairman of the Board and Chief Executive Officer of The Fourth National Bank of Tulsa prior to its acquisition by the Company in December, 1992. Mr. Ritchey has been the Senior Trust Officer of the Company and its subsidiary banks and responsible for their trust operations for more than five years. He was elected Executive Vice President of Registrant in February, 1990, and was elected to his present position in January, 1993. Mr. Gartner was Senior Vice President and Senior Credit Officer of First Bank South Dakota, N.A. (from July 1987) and Senior Credit Officer of First Bank North Dakota, N.A. and First Bank East Grand Forks, N.A. (from 1990) until he became employed by Registrant in February, 1992. Mr. Guettler was elected Senior Vice President of Registrant in December, 1988, and Executive Vice President in January, 1995. Mr. Pledger supervises the Registrant's operations and technology functions. Mr. Pledger was Senior Vice President of NCNB Corporation (and predecessor companies) with responsibilities in various operating divisions (cash management, item processing, deposit operations, electronic payments, corporate trust, commercial loan and depository services) from 1981 until he was employed by Registrant in his present capacity in June, 1991. Mr. Rainey was Senior Vice President, General Counsel, and Secretary of Valley National Corporation (Arizona bank holding company) from 1987 to 1991 and Vice President and General Counsel of Cabot Corporation, Boston, Massachusetts (specialty chemicals and energy) from 1991 to 1993. He has been employed by Registrant in his present position since February, 1994. Mr. Shonka, Registrant's Chief Financial Officer, was elected Senior Vice President of Registrant in January, 1988, and Executive Vice President in December, 1994. Mr. Strohm was elected Executive Vice President of Registrant in September, 1990 and Treasurer in 1986. Mr. Strohm has been responsible for supervising Registrant's funds management, treasury, and asset and liability management functions since 1983, and mortgage, commercial finance and leasing, and finance and accounting since 1993. Directors of the Registrant Listed below are the names and principal occupations of Registrant's directors.
Name Principal Occupation ----- ----------------------- Lionel D. Alford President, Alford, Inc. (investments and consulting) Thomas R. Clevenger Investments Jordan L. Haines Chairman of the Board of Registrant until his retirement in 1991 Joseph M. Klein President, CCI Corporation (truck parts distributor) Lawrence M. Jones Chairman and Chief Executive Officer, The Coleman Company, Inc. (manufacturer of outdoor recreational products) until his retirement in December, 1993 Darrell G. Knudson Chairman of the Board of Registrant Fred L. Merrill, Sr. Chief Executive Officer, Cereal Food Processors, Inc. (flour mills) Russell W. Meyer, Jr. Chairman and Chief Executive Officer, The Cessna Aircraft Company (general aviation aircraft manufacturer) Laird G. Noller President, Noller Enterprises (automobile dealerships) Patrick E. O'Shaughnessy Chairman and Chief Executive Officer, Lario Oil & Gas Company (oil exploration) Robert F. Vickers Trustee and Administrator, The Vickers Trusts Ken Wagnon Owner, franchise restaurants and other investments, and President, Capital Enterprises, Inc. (accounting and management services)
Item 2. Properties. Kansas The only significant real property owned by Registrant is a building located in Wichita, Kansas, acquired in January, 1994 to be remodeled for use as a data processing and operations facility. BANK IV Kansas owns substantially all of its banking facilities, but the land on which some of such facilities are located is leased and 13 branch facilities, including five branches located in supermarkets, are leased entirely. Registrant believes that all of such properties are well maintained and suitable for their intended purposes. Described below are the principal buildings operated by BANK IV Kansas. Wichita Registrant and BANK IV Kansas occupy a four-building complex located in downtown Wichita, Kansas. The Fourth Financial Center is a ten-level office building located at 100 North Broadway. The building is located on an 88,450-square-foot tract of land and contains approximately 396,000 square feet of gross area, which includes a 25,000-square-foot enclosed courtyard. The building contains approximately 312,000 rentable square feet, of which BANK IV Kansas and Registrant utilize approximately 170,000 square feet with the balance being leased to tenants. The Operations Center is a five-level office building located adjacent to Fourth Financial Center and connected by an enclosed pedestrian walkway. The 63,000-square-foot building is located on a 13,020-square-foot tract of land and houses operating functions of Registrant and its subsidiaries. A 450-car, six-level parking garage and walk-in bank facility is located just west of Fourth Financial Center and is connected to it by an enclosed pedestrian walkway. Another building, Exchange Place, is located one block west of the Fourth Financial Center. Exchange Place is located on five tracts of land, two of which are owned by BANK IV Kansas and three of which are leased. The leases on the three leased tracts expire on August 31, 2003, and on December 31, 2009. The building, constructed prior to 1903 with various additions to the basic structure being completed through 1957, is an eight-level structure plus a full basement, a mezzanine floor, and an eighth floor mechanical area. The building contains approximately 147,000 square feet of rentable space of which BANK IV Kansas and Registrant are currently occupying approximately 123,500 square feet and the remaining 23,500 square feet are leased. Topeka BANK IV Kansas owns the BANK IV Tower, a 16-story office building in downtown Topeka, Kansas containing 230,000 rentable square feet. At February 1, 1995, BANK IV Kansas occupied approximately 83,000 square feet of the building and approximately 121,500 of the remaining 147,000 square feet was leased. A 260-car, ten-level parking garage is attached to the building. Townsite Plaza Development, Inc., a subsidiary of BANK IV Kansas, owns and operates three buildings located immediately east of the BANK IV Tower above a municipal subsurface garage. The three buildings, constructed between 1976 and 1981, contain an aggregate of approximately 138,000 square feet of rentable space, of which a total of approximately 116,000 square feet was leased as of February 1, 1995. Oklahoma BANK IV Oklahoma does not own any major building facilities. Under a lease which expires in 2004, it leases 61,000 square feet in the BANK IV Center Building in downtown Tulsa which is used as the BANK IV Oklahoma headquarters. Under a lease which expires in 2004, it also leases 33,000 square feet in the BANK IV Tower in Oklahoma City as headquarters for its Oklahoma City activities. BANK IV Oklahoma owns 41 of its 60 banking facilities and leases the rest. BANK IV Oklahoma believes its facilities are substantially all well-maintained and generally suitable for their intended purposes. Missouri BANK IV Missouri owns all three of its banking facilities in Independence, Missouri, which contain an aggregate of 20,000 square feet, all of which is occupied by the bank. Item 3. Legal Proceedings. The Registrant and its subsidiaries are defendants in various legal proceedings that arise in the ordinary course of business. Claims in various amounts of up to approximately $20,000,000 have been asserted in some of these proceedings. However, after consultation with legal counsel, management believes that potential liabilities, if any, arising from these claims would not have a material adverse effect on the Registrant's business or financial condition. Item 4. Submission of Matters to a Vote of Security Holders. No information is required in response to this Item as no matters were submitted to a vote of Registrant's security holders during the fourth quarter of the fiscal year covered by this report. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. (a) Market Information. The Common Stock of Registrant is traded in the national over-the-counter market. The NASDAQ symbol for the Common Stock is FRTH. Information concerning the high and low bid prices for the Registrant's Common Stock for each full quarterly period within the two most recent fiscal years is contained in the attached Appendix under the caption "Quarterly Financial Data" and is hereby incorporated by reference. (b) Holders. There were approximately 6,056 holders of record of Registrant's Common Stock at March 1, 1995. (c) Dividends. The information concerning the payment of dividends by Registrant during the past two fiscal years contained in the attached Appendix under the caption "Quarterly Financial Data" is hereby incorporated herein by reference. The information concerning restrictions on the ability of Registrant's subsidiaries to transfer funds to Registrant contained in Item 1 under the caption "Regulation and Supervision," in Note 19 -- Restrictions on Intercompany Funds Transfers of the Notes to Consolidated Financial Statements contained in the attached Appendix, and under the caption "Parent Company Funding Sources and Dividends" in the attached Appendix is hereby incorporated by reference. Item 6. Selected Financial Data. The information required by Item 301 of Regulation S-K, contained in the attached Appendix under the caption "Selected Consolidated Financial Data," is hereby incorporated by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The information required by Item 303 of Regulation S-K, contained in the attached Appendix under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations," is hereby incorporated by reference. Item 8. Financial Statements and Supplementary Data. Set forth below are the consolidated financial statements of Registrant and its subsidiaries, appearing in the attached Appendix, which are hereby incorporated by reference: a. Consolidated Statements of Condition b. Consolidated Statements of Income c. Consolidated Statements of Changes in Stockholders' Equity d. Consolidated Statements of Cash Flows e. Notes to Consolidated Financial Statements f. Report of Independent Auditors g. Reports of Other Auditors The information required by Item 302 of Regulation S-K, contained in the attached Appendix under the caption "Quarterly Financial Data," is hereby incorporated by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. No information is required in response to this Item. PART III Item 10. Directors and Executive Officers of the Registrant. The information required by Item 401 of Regulation S-K will be contained in the 1995 Proxy Statement under the caption "Election of Directors" and is hereby incorporated by reference. The information required by Item 405 of Regulation S-K will be contained in the 1995 Proxy Statement under the caption "Compliance with Section 16(a) of the Securities Exchange Act of 1934" and is hereby incorporated by reference. Information concerning the executive officers of Registrant is contained in Item 1 of this report under the caption "Executive Officers of the Registrant." Item 11. Executive Compensation. The information required by Item 402 of Regulation S-K will be contained in the 1995 Proxy Statement under the captions "Compensation of Directors and Executive Officers," "Compensation Committee Interlocks and Insider Participation," "Report of Compensation Committee on Executive Compensation," and "Company Performance" and is hereby incorporated by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information required by Item 403 of Regulation S-K will be contained in the 1995 Proxy Statement under the caption "Stock Ownership" and is hereby incorporated by reference. Item 13. Certain Relationships and Related Transactions. The information required by Item 404 of Regulation S-K will appear under the caption "Transactions with Management" in the 1995 Proxy Statement and is hereby incorporated by reference. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) The following documents are filed as part of this report: (1) Financial statements: the financial statements, notes, and independent auditors' reports described in Item 8 to which reference is hereby made. (2) Financial statement schedules: none. (3) The following exhibits:
Exhibit No. Description ---- ----------- 3.01 - Restated Articles of Incorporation and amendments (Exhibit 3.01 to Form 10-Q for the quarter ended June 30, 1992, previously filed by Registrant).* 3.02 - Certificate of Designation (Exhibit 3.02 to Form 10-K for year ended December 31, 1991, previously filed by Registrant (the "1991 10-K")).* 3.03 - Form of Deposit Agreement (Exhibit 3.03 to 1991 10-K).* 3.04 - Form of Depositary Receipt (Exhibit 3.04 to 1991 10-K).* 3.05 - Bylaws. 10.01 - Amended and Restated Fourth Financial Corporation 1981 Incentive Stock Option Plan (Exhibit 4(a) to Post-Effective Amendment No. 2 to Form S-8, Regis. No. 2-80907, previously filed by Registrant).* 10.02 - Amended and Restated Fourth Financial Corporation 1986 Incentive Stock Option Plan (Exhibit 10.02 to Form 10-K for the year ended December 31, 1990, previously filed by Registrant).* 10.03 - Revolving Credit and Term Loan Agreement, dated as of July 1, 1987, between Chemical Bank and Registrant (Exhibit 10.04 to Form 10-K for the year ended December 31, 1987, previously filed by Registrant).* 10.04 - First Amendment dated as of July 1, 1989, to Revolving Credit and Term Loan Agreement (Exhibit 10.04 to Form 10-K for the year ended December 31, 1989, previously filed by Registrant).* 10.05 - Second Amendment dated as of November 15, 1989, to Revolving Credit and Term Loan Agreement (Exhibit 10.05 to Form 10-K for the year ended December 31, 1989, previously filed by Registrant).* 10.06 - Third Amendment, dated as of March 29, 1991, to Revolving Credit and Term Loan Agreement (Exhibit 10.06 to 1991 10-K).* 10.07 - Fourth Financial Corporation 1993 Employee Stock Purchase Plan (Exhibit 10.07 to Form 10-K for year ended December 31, 1993, previously filed by Registrant (the "1993 10-K")).* 10.08 - Fourth Financial Corporation 1993 Incentive Stock Option Plan (Exhibit 10.08 to 1993 10-K).* 10.09 - Fourth Financial Corporation Amended and Restated Non-Employee Directors Deferred Fee Plan (Exhibit 10.09 to 1993 10-K).* 10.10 - Fourth Financial Corporation Non-Employee Directors Stock Option Plan (Exhibit 10.10 to 1993 10-K).* 10.11 - Credit Agreement dated as of July 1, 1994, between Registrant and Continental Bank N.A. (Exhibit 10.01 to Form 10-Q for the quarter ended June 30, 1994).* 10.12 - Credit Agreement dated as of January 3, 1995, between Registrant and Bank of America Illinois. 10.13 - Credit Agreement dated as of January 3, 1995, between Registrant and NationsBank of Texas, N.A. 10.14 - Form of Severance Agreement. 10.15 - Fourth Financial Corporation Amended and Restated Executive Employees' Deferred Compensation Plan (Exhibit 4(a) to Form S-8, Regis. No. 33- 55364, previously filed by Registrant).* 21 - Subsidiaries of Registrant. 23.01 - Consent of Ernst & Young LLP. 23.02 - Consent of Arthur Andersen LLP. 23.03 - Consent of Sartain Fischbein & Co. 23.04 - Consent of GRA, Thompson, White & Co., P.A. 27 - Article 9 of Regulation S-X Financial Data Schedule for the December 31, 1994 Form 10-K. [Exhibits 10.01, 10.02, 10.07, 10.08, 10.09, 10.10, 10.14, and 10.15 are compensation plans required to be filed as exhibits pursuant to Item 14(c).] ___________ * Document has been previously filed with the Securities and Exchange Commission and is incorporated by reference and made a part hereof.
(b) Reports on Form 8-K None. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FOURTH FINANCIAL CORPORATION By: /s/ Darrell G. Knudson ------------------ Darrell G. Knudson Chairman of the Board Date: March 13, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Registrant and in the capacities and on the dates indicated.
Signature Title Date ---------- ------ ---- /s/ Darrell G. Knudson Chairman of the Board March 13, 1995 ------------------ Darrell G. Knudson (Principal Executive Officer) /s/ Michael J. Shonka Executive Vice President March 13, 1995 ----------------- Michael J. Shonka (Principal Financial Officer) /s/ Barbara M. Noyes Vice President and Controller March 13, 1995 ---------------- Barbara M. Noyes (Principal Accounting Officer) /s/ Lionel D. Alford Director March 13, 1995 ---------------- Lionel D. Alford /s/ Thomas R. Clevenger Director March 13, 1995 ------------------- Thomas R. Clevenger /s/ Jordan L. Haines Director March 13, 1995 ---------------- Jordan L. Haines /s/ Lawrence M. Jones Director March 13, 1995 ----------------- Lawrence M. Jones /s/ Joseph M. Klein Director March 13, 1995 --------------- Joseph M. Klein /s/ Darrell G. Knudson Director March 13, 1995 ------------------ Darrell G. Knudson /s/ Russell W. Meyer, Jr. Director March 13, 1995 -------------------- Russell W. Meyer, Jr. /s/ Fred L. Merrill, Sr. Director March 13, 1995 ------------------- Fred L. Merrill, Sr. /s/ Laird G. Noller Director March 13, 1995 --------------- Laird G. Noller /s/ Patrick E. O'Shaughnessy Director March 13, 1995 ------------------------ Patrick E. O'Shaughnessy /s/ Robert F. Vickers Director March 13, 1995 ----------------- Robert F. Vickers /s/ Ken Wagnon Director March 13, 1995 ----------- Ken Wagnon
FOURTH FINANCIAL CORPORATION INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Pages ----- Management's Statement of Responsibility for Financial Reporting . . . . . . . . . . . . . . . . . . . . . A- Consolidated Statements of Condition. . . . . . . . . . . . . . A- Consolidated Statements of Income . . . . . . . . . . . . . . . A- Consolidated Statements of Changes in Stockholders' Equity. . . A- Consolidated Statements of Cash Flows . . . . . . . . . . . . . A- Notes to Consolidated Financial Statements . . . . . . . . . . A- - A- Report of Independent Auditors. . . . . . . . . . . . . . . . . A- Reports of Other Auditors . . . . . . . . . . . . . . . . . . . A- - A- Selected Consolidated Financial Data . . . . . . . . . . . . . A- Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . A- - A- FOURTH FINANCIAL CORPORATION MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR FINANCIAL REPORTING FINANCIAL STATEMENTS Management of Fourth Financial Corporation is responsible for the preparation, integrity and fair presentation of the accompanying consolidated financial statements. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles and, as such, include some amounts that are based on judgements and estimates of management. The financial information appearing elsewhere in this annual report on Form 10-K is consistent with the information in the consolidated financial statements unless otherwise stated. INTERNAL CONTROLS OVER FINANCIAL REPORTING Management is responsible for establishing and maintaining an effective internal control system over financial reporting. The system contains monitoring mechanisms, and actions are taken to correct deficiencies identified. There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even an effective internal control system can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of an internal control system may vary over time. Management assessed the Company's internal control system over financial reporting as of December 31, 1994. This assessment was based on criteria for effective internal control over financial reporting described in "Internal Control-Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes that, in all material respects, Fourth Financial Corporation maintained an effective internal control system over financial reporting as of December 31, 1994. The Audit and Examination Committee of the Board of Directors is comprised entirely of outside directors. The committee, among other responsibilities, meets periodically with management, the independent auditors, and the general auditor to ensure that they are carrying out their respective responsibilities related to internal control systems, auditing procedures and financial reporting matters. The independent auditors and the general auditor have access to the committee, without the presence of management, to discuss the adequacy of the internal control system over financial reporting and any other auditing or financial reporting matters which they believe should be brought to the attention of the committee.
FOURTH FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CONDITION December 31, ------------------------- 1994 1993 ----------- ----------- (Dollars in thousands) Assets: Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 435,879 $ 320,660 Interest-bearing deposits in other financial institutions . . . . . . . . . . . . 499 3,025 Federal funds sold and securities purchased under agreements to resell . . . . . 4,670 6,063 Securities: Held-to-maturity (market value-$1,834,900 and $1,807,580, respectively) . . . . 1,944,614 1,805,819 Available-for-sale (at market value). . . . . . . . . . . . . . . . . . . . . . 939,080 1,117,776 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,436 39,107 Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 719 474 Loans and leases: Total loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,005,667 3,351,912 Allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . (71,874) (67,617) ---------- ---------- Net loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,933,793 3,284,295 Bank premises and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . 156,318 145,719 Income receivable and other assets . . . . . . . . . . . . . . . . . . . . . . . 164,726 96,165 Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,606 66,960 ---------- ---------- Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,729,340 $6,886,063 ========== ========== Liabilities And Stockholders' Equity: Deposits: Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,032,913 $ 977,944 Interest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,614,235 4,458,619 ---------- ---------- Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,647,148 5,436,563 Federal funds purchased and securities sold under agreements to repurchase . . . 933,706 491,627 Federal Home Loan Bank borrowings . . . . . . . . . . . . . . . . . . . . . . . . 441,097 250,000 Other borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,001 23,002 Accrued interest, taxes, and other liabilities . . . . . . . . . . . . . . . . . 57,636 56,603 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,685 20,283 ---------- ---------- Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,127,273 6,278,078 ---------- ---------- Minority interest in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . -- 1,135 Stockholders' Equity: Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 100,000 Common stock, par value $5 per share Authorized: 50,000,000 shares Issued: 27,251,225 and 27,165,962 shares . . . . . . . . . . . . . . . . . . 136,256 135,830 Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107,201 106,102 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292,962 244,810 Treasury stock at cost (355,466 and 111,518 shares) . . . . . . . . . . . . . . (10,018) (3,245) Stock option loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,894) (1,795) ---------- ---------- Stockholders' equity before net unrealized gains (losses) on available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . . . 624,507 581,702 Net unrealized gains (losses) on available-for-sale securities. . . . . . . . . (22,440) 25,148 ---------- ---------- Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . . 602,067 606,850 ---------- ---------- Total liabilities and stockholders' equity. . . . . . . . . . . . . . . . . . $7,729,340 $6,886,063 ========== ==========
The accompanying notes are an integral part of the financial statements.
FOURTH FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, ----------------------------------- 1994 1993 1992 --------- --------- --------- (Dollars in thousands, except per share amounts) Interest Income: Interest and fees on loans and leases . . . . . . . . . . . . . . . . . $304,609 $262,865 $269,259 Interest on short-term investments . . . . . . . . . . . . . . . . . . . 921 2,098 4,730 Interest and dividends on investment securities: Taxable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161,370 159,476 143,350 Tax-preferred. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,469 19,338 21,329 Interest and dividends on trading securities . . . . . . . . . . . . . . 105 136 220 -------- -------- -------- Total interest income. . . . . . . . . . . . . . . . . . . . . . . . 483,474 443,913 438,888 -------- -------- -------- Interest Expense: Interest on deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 157,524 158,079 183,460 Interest on borrowings . . . . . . . . . . . . . . . . . . . . . . . . . 48,032 19,150 10,396 Interest on long-term debt . . . . . . . . . . . . . . . . . . . . . . . 998 2,273 3,675 -------- -------- -------- Total interest expense . . . . . . . . . . . . . . . . . . . . . . . 206,554 179,502 197,531 -------- -------- -------- Net Interest Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . 276,920 264,411 241,357 Provision for credit losses. . . . . . . . . . . . . . . . . . . . . . . 275 6,965 21,358 -------- -------- -------- Net Interest Income After Provision For Credit Losses. . . . . . . . . . . 276,645 257,446 219,999 -------- -------- -------- Noninterest Income: Trust fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,041 18,577 17,828 Service charges on deposit accounts. . . . . . . . . . . . . . . . . . . 38,306 33,575 27,628 Bank card fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,173 10,385 9,740 Investment securities gains. . . . . . . . . . . . . . . . . . . . . . . 3,632 1,486 2,904 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,683 22,259 22,694 -------- -------- -------- Total noninterest income . . . . . . . . . . . . . . . . . . . . . . 97,835 86,282 80,794 -------- -------- -------- Noninterest Expense: Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . 126,279 117,291 103,008 Furniture and equipment. . . . . . . . . . . . . . . . . . . . . . . . . 22,529 23,534 19,611 Net occupancy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,729 16,699 15,444 FDIC insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,598 13,117 12,124 Bank card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,273 3,295 1,224 Amortization of intangible assets. . . . . . . . . . . . . . . . . . . . 10,154 12,549 5,821 Merger and integration costs . . . . . . . . . . . . . . . . . . . . . . 2,847 7,634 4,798 Net costs of operation of other real estate and nonperforming assets . . (1,064) 3,339 2,497 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,090 56,884 54,022 -------- -------- -------- Total noninterest expense. . . . . . . . . . . . . . . . . . . . . . 250,435 254,342 218,549 -------- -------- -------- Income Before Income Taxes, Extraordinary Item and Cumulative Effect of a Change in Accounting Principle . . . . . . . . . . . . . . . 124,045 89,386 82,244 Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,923 22,676 19,548 -------- -------- -------- Income Before Extraordinary Item and Cumulative Effect of a Change in Accounting Principle. . . . . . . . . . . . . . . . . . . . . . . . . 83,122 66,710 62,696 Extraordinary item -- tax benefit from utilization of net operating loss carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 130 Cumulative effect of a change in accounting for income taxes . . . . . . -- 10,582 2,373 -------- -------- -------- Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 83,122 $ 77,292 $ 65,199 ======== ======== ======== Net Income Applicable to Common and Common-Equivalent Shares . . . . . . . $ 76,122 $ 70,292 $ 59,248 ======== ======== ======== Primary Earnings Per Common Share: Income applicable to common and common-equivalent shares before extraordinary item and cumulative effect of a change in accounting principle . . . . . . . . . . . . . . . . . . . . . . . . . $2.83 $2.27 $2.18 Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- .02 Cumulative effect of a change in accounting for income taxes . . . . . . -- .40 .09 ----- ----- ----- Net income applicable to common and common-equivalent shares . . . . . . $2.83 $2.67 $2.29 ===== ===== ===== Fully Diluted Earnings Per Common Share: Income before extraordinary item and cumulative effect of a change in accounting principle. . . . . . . . . . . . . . . . . . $2.74 $2.20 $2.12 Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- .01 Cumulative effect of a change in accounting for income taxes . . . . . . -- .35 .08 ----- ----- ----- Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2.74 $2.55 $2.21 ===== ===== ===== Dividends Per Common Share . . . . . . . . . . . . . . . . . . . . . . . . $1.04 $ .98 $ .88 ===== ===== =====
The accompanying notes are an integral part of the financial statements.
FOURTH FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Preferred Stock Common Stock Treasury Stock Stock Net Unrealized --------------- --------------- -------------- Capital Retained Option Gains (Losses) Shares Amount Shares Amount Surplus Earnings Shares Amount Loans on Securities Total ------ -------- ------ -------- -------- -------- ------ ------- ------ ------------- ------- (In thousands) Balance, December 31, 1991 As previously reported . . . . . . 882 $ 3,087 24,903 $124,515 $101,603 $156,332 -- $ -- $(1,226) $ -- $384,311 Adjustment for pooling of interests -- -- 591 2,954 197 3,373 -- -- -- -- 6,524 ------ -------- ------ -------- -------- -------- ---- ------- ------- ------- -------- Adjusted balance. . 882 3,087 25,494 127,469 101,800 159,705 -- -- (1,226) -- 390,835 Net income. . . . . . -- -- -- -- -- 65,199 -- -- -- -- 65,199 Issuance of preferred stock. . . 250 100,000 -- -- (3,080) -- -- -- -- -- 96,920 Issuance of common stock under stock option plans . . . . -- -- 163 813 1,657 -- -- -- -- -- 2,470 Cash dividends: Preferred stock . . -- -- -- -- -- (5,951) -- -- -- -- (5,951) Common stock. . . . -- -- -- -- -- (16,768) -- -- -- -- (16,768) Pooled companies. . -- -- -- -- -- (2,305) -- -- -- -- (2,305) Net change in stock option loans . . . . -- -- -- -- -- -- -- -- (18) -- (18) Capital transactions of pooled companies. 90 554 152 763 1,537 -- -- -- 175 -- 3,029 ------ -------- ------ -------- -------- -------- ---- ------- ------- -------- -------- Balance, December 31, 1992 . . . . . . . . . 1,222 103,641 25,809 129,045 101,914 199,880 -- -- (1,069) -- 533,411 Net income. . . . . . -- -- -- -- -- 77,292 -- -- -- -- 77,292 Purchase of stock for treasury . . . . -- -- -- -- -- -- (112) (3,245) -- -- (3,245) Issuance of common stock: Stock option plans. -- -- 199 993 2,414 -- -- -- -- -- 3,407 Acquisition . . . . -- -- 109 544 2,555 -- -- -- -- -- 3,099 Cash dividends: Preferred stock . . -- -- -- -- -- (7,000) -- -- -- -- (7,000) Common stock . . . -- -- -- -- -- (22,705) -- -- -- -- (22,705) Pooled companies. . -- -- -- -- -- (2,657) -- -- -- -- (2,657) Net change in stock option loans . . . . -- -- -- -- -- -- -- -- (726) -- (726) Capital transactions of pooled companies. (972) (3,641) 1,049 5,248 (781) -- -- -- -- -- 826 Adjustment for unrealized gains on available-for-sale securities . . . . . -- -- -- -- -- -- -- -- -- 25,148 25,148 ------ -------- ------ -------- -------- -------- ---- ------- ------- -------- -------- Balance, December 31, 1993 . . . . . . . . . 250 100,000 27,166 135,830 106,102 244,810 (112) (3,245) (1,795) 25,148 606,850 Net income. . . . . . -- -- -- -- -- 83,122 -- -- -- -- 83,122 Purchase of stock for treasury . . . . -- -- -- -- -- -- (355) (10,018) -- -- (10,018) Issuance of common stock: Stock option plans. -- -- 81 407 968 -- 40 1,169 -- -- 2,544 Directors deferred compensation plan. -- -- 4 19 90 -- 2 35 -- -- 144 Acquisition . . . . -- -- -- -- 41 -- 70 2,041 -- -- 2,082 Cash dividends: Preferred stock . . -- -- -- -- -- (7,000) -- -- -- -- (7,000) Common stock . . . -- -- -- -- -- (27,662) -- -- -- -- (27,662) Pooled company. . . -- -- -- -- -- (308) -- -- -- -- (308) Net change in stock option loans . . . . -- -- -- -- -- -- -- -- (99) -- (99) Capital transactions of pooled company. . -- -- -- -- -- -- -- -- -- (198) (198) Net change in unrealized gains (losses) on available-for-sale securities . . . . . -- -- -- -- -- -- -- -- -- (47,390) (47,390) ------ -------- ------ -------- -------- -------- ---- -------- ------- -------- -------- Balance, December 31, 1994 . . . . . . . . . 250 $100,000 27,251 $136,256 $107,201 $292,962 (355)$(10,018) $(1,894) $(22,440) $602,067 ====== ======== ====== ======== ======== ======== ==== ======== ======= ======== ========
The accompanying notes are an integral part of the financial statements.
FOURTH FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, ----------------------------------- 1994 1993 1992 ----------- ----------- ----------- (In thousands) Increase (Decrease) in Cash and Due from Banks Cash Flows From Operating Activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 83,122 $ 77,292 $ 65,199 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Minority interest. . . . . . . . . . . . . . . . . . . . . . . . . . . 84 355 426 Provision for credit losses. . . . . . . . . . . . . . . . . . . . . . 275 6,965 21,358 Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . 27,552 29,075 20,065 Accretion of discounts on investment securities, net of amortization of premiums . . . . . . . . . . . . . . . . . . . 12,577 15,901 9,447 Write-down of other real estate owned. . . . . . . . . . . . . . . . . 409 4,392 2,875 Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . 6,473 (5,625) (958) Investment securities gains. . . . . . . . . . . . . . . . . . . . . . (3,632) (1,486) (2,904) Write-down of goodwill, core deposit intangibles, and premises and equipment associated with pooling transactions, and other asset write-downs . . . . . . . . . . . . . . . . . . . . . . . . . . 1,148 2,228 -- Gains on sales of premises and equipment, other real estate owned, and other assets . . . . . . . . . . . . . . . . . . . . . . . (2,861) (2,587) (3,399) Gain on sale of credit card loans. . . . . . . . . . . . . . . . . . . -- -- (169) Provision for losses on other real estate owned. . . . . . . . . . . . -- -- 328 Change in assets and liabilities, net of effects from purchase of acquired entities and branch sales: Trading account. . . . . . . . . . . . . . . . . . . . . . . . . . . 28 3,062 4,125 Loans held for sale. . . . . . . . . . . . . . . . . . . . . . . . . 109,926 (109,631) 2,087 Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,775 317,242 (30,371) Accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,408) (10,996) 14,704 Interest receivable. . . . . . . . . . . . . . . . . . . . . . . . . (6,738) 3,737 4,092 Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . 306 (3,014) (7,933) ---------- ---------- ---------- Net cash provided by operating activities . . . . . . . . . . . . 291,036 326,910 98,972 ---------- ---------- ---------- Cash Flows From Investing Activities: Purchase of banks, net of cash acquired . . . . . . . . . . . . . . . . (87,818) (2,468) (7,662) Branch sales, including cash and cash equivalents sold . . . . . . . . . (36,271) -- -- Proceeds from settlement of sales of available-for-sale investment securities . . . . . . . . . . . . . . . . . . . . . . . . . 603,458 -- -- Proceeds from maturities and prepayments of available-for-sale investment securities. . . . . . . . . . . . . . . . 212,311 -- -- Purchases of available-for-sale investment securities. . . . . . . . . . (546,451) -- -- Proceeds from settlement of sales of held-to-maturity investment securities . . . . . . . . . . . . . . . . . . . . . . . . . -- 14,443 81,680 Proceeds from maturities and prepayments of held-to-maturity investment securities . . . . . . . . . . . . . . . 529,559 1,058,235 954,181 Purchases of held-to-maturity investment securities. . . . . . . . . . . (593,395) (1,503,082) (1,348,678) Proceeds from sales of premises and equipment, other real estate owned, and other assets . . . . . . . . . . . . . . . 14,335 16,495 29,227 Purchases of premises and equipment. . . . . . . . . . . . . . . . . . . (19,157) (35,039) (19,115) Purchase of mortgage servicing rights. . . . . . . . . . . . . . . . . . (355) -- (1,247) Purchase of consumer loans . . . . . . . . . . . . . . . . . . . . . . . -- -- (60,751) Proceeds from sale of credit card loans. . . . . . . . . . . . . . . . . -- -- 4,038 Change in assets and liabilities, net of effects from purchase of acquired entities and branch sales: Interest-bearing deposits in other financial institutions. . . . . . . 2,538 4,321 5,579 Federal funds sold and securities purchased under agreements to resell. . . . . . . . . . . . . . . . . . . . . . . . . 18,308 200,715 9,025 Loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . (465,129) (213,109) 132,075 ---------- ---------- ---------- Net cash used in investing activities. . . . . . . . . . . . . . . (368,067) (459,489) (221,648) ---------- ---------- ---------- Cash Flows From Financing Activities: Transfer associated with the assumption of deposits and other liabilities, net of premium paid. . . . . . . . . . . . . . . . . $ -- $ 91,832 $ 75,411 Repayment of long-term debt. . . . . . . . . . . . . . . . . . . . . . . (15,598) (15,125) (17,560) Purchase of minority stockholder interest. . . . . . . . . . . . . . . . (36) -- -- Acquisition of treasury stock. . . . . . . . . . . . . . . . . . . . . . (10,018) (3,245) -- Dividends on common stock. . . . . . . . . . . . . . . . . . . . . . . . (27,662) (22,705) (16,768) Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . . (7,000) (7,000) (5,368) Proceeds from exercise of stock options. . . . . . . . . . . . . . . . . 2,544 3,407 2,470 Net change in stock option loans . . . . . . . . . . . . . . . . . . . . (99) (726) (18) Proceeds from issuance of preferred stock, net of offering costs . . . . -- -- 96,920 Capital transactions of pooled companies . . . . . . . . . . . . . . . . (364) (2,405) (2,398) Change in liabilities, net of effects from purchase of acquired entities and branch sales: Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (297,239) (414,665) (155,176) Federal funds purchased and securities sold under agreements to repurchase. . . . . . . . . . . . . . . . . . . . . . . 395,095 166,033 171,364 Federal Home Loan Bank borrowings. . . . . . . . . . . . . . . . . . . 132,800 250,000 -- Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,827 (5,457) (18,471) ---------- ---------- ---------- Net cash provided by financing activities. . . . . . . . . . . . . 192,250 39,944 130,406 ---------- ---------- ---------- Increase (decrease) in cash and due from banks . . . . . . . . . . . . . . 115,219 (92,635) 7,730 Cash and due from banks at beginning of period . . . . . . . . . . . . . . 320,660 413,295 399,871 Adjustment for pooling of interests. . . . . . . . . . . . . . . . . . . . -- -- 5,694 ---------- ---------- ---------- Cash and due from banks at end of period . . . . . . . . . . . . . . . . . $ 435,879 $ 320,660 $ 413,295 ========== ========== ========== Supplemental Disclosures: Cash payments for: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 206,248 $ 182,162 $ 204,081 ========== ========== ========== Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,392 $ 32,317 $ 21,404 ========== ========== ==========
The accompanying notes are an integral part of the financial statements. FOURTH FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 - Summary of Significant Accounting Policies Basis of Presentation The consolidated financial statements include the accounts of Fourth Financial Corporation and its wholly-owned subsidiaries (the "Company"). All significant intercompany balances and transactions have been eliminated. The consolidated financial statements for prior years have been restated to reflect the poolings of interests detailed in Footnote 2 - Acquisitions. Certain reclassifications of previously reported amounts have been made to conform with current year presentation format. Securities The Company adopted Financial Accounting Standard ("FAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities" on December 31, 1993. Management reviewed the December 31, 1993 debt securities portfolio and classified the debt securities as either held- to-maturity or available-for-sale. Debt securities acquired subsequent to December 31, 1993 were similarly classified. Debt securities are classified as "Held-to-maturity" when management has the positive intent and the Company has the ability to hold the debt securities to maturity. Held-to-maturity securities are stated at cost, adjusted for amortization of premiums and accretion of discounts, both computed on the constant yield method. The prepayment history of each mortgage-backed security pool is used to recalculate the yield for amortizing and accreting the premium and discount on these securities. Amortization, accretion, and interest on held-to- maturity securities are included in "Interest and dividends on investment securities." Marketable equity securities and debt securities that are deemed to be available-for-sale for the implementation of asset and liability management strategies, possible liquidity needs, and other purposes are classified as "Available-for-sale." Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported in a separate component of stockholders' equity. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Amortization, accretion, and interest and dividends on securities classified as available-for-sale are included in "Interest and dividends on investment securities." Realized gains and losses and declines in value judged to be other-than-temporary on available-for- sale securities are included in "Investment securities gains." The cost of securities sold is based on the specific identification method. Securities held for sale to customers and in anticipation of short-term market movements are classified as "Trading securities." Securities held for trading are stated at market value. Gains and losses, both realized and unrealized, are reflected in "Other noninterest income." The specific identification method is used to determine the cost of securities sold. "Other securities" include equity securities for which there is no readily determinable fair value, and are carried at cost. Dividends on these equity securities are included in "Interest and dividends on investment securities." Loans and Leases Loans are reported at the principal amount outstanding, net of unearned discount. Interest income on loans is accrued based on the unpaid principal and the applicable rate. The net investment in direct financing leases consists of the sum of all minimum lease payments and estimated residual values, less unearned income. Unearned income on discounted loans and leases is accreted and included in "Interest and fees on loans and leases" on a basis approximating a level yield on the net investment in the loans or leases. Residential mortgage loans and educational loans held for sale are stated at the lower of cost or market value. These loans are analyzed on an aggregate basis to determine the lower of cost or market value. Net gains or losses on the sale of these loans, including adjustments to market value, are part of normal operations and are reflected in "Other noninterest income." The specific identification method is used to determine the cost of loans sold. A loan is placed on nonaccrual status when principal or interest is due and has remained unpaid for 90 days or more unless the loan is both well secured and in the process of collection. A loan is also placed on nonaccrual status when there is reasonable doubt as to the ability of the borrower to continue to pay principal or interest. At the time a loan is classified as nonaccrual, interest previously recorded but not collected is reversed. Interest payments received on such loans are generally recorded as a reduction in carrying value unless such carrying value is deemed to be collectible. A loan is not reclassified as accruing until all principal and interest payments are brought current and the borrower has demonstrated the ability to service the loan in accordance with its contractual terms. Other Real Estate and Nonperforming Assets Other real estate and nonperforming assets include assets acquired from loan settlements and foreclosures. These assets are carried at the lower of the loan carrying amount or fair value minus estimated selling costs and are included in "Income receivable and other assets" in the consolidated statements of condition. At the time of acquisition or repossession, any write-down necessary to record an asset at its fair value is charged to the allowance for credit losses. A valuation allowance for estimated selling costs is recorded through a charge to "Net costs of operation of other real estate and nonperforming assets." Losses and gains as well as net costs associated with these properties are also included in "Net costs of operation of other real estate and nonperforming assets" in the consolidated statements of income. Allowance for Credit Losses The allowance for credit losses is the amount deemed by management to be reasonably necessary to provide for possible losses on loans or leases that may become uncollectible. Additions to the allowance are charged to expense as the provision for credit losses. Loan and lease losses and recoveries are charged or credited directly to the allowance. It is the Company's policy to charge off any loan or portion of that loan when it is deemed to be uncollectible in the ordinary course of business. An evaluation of the overall quality of the portfolio is performed to determine the necessary level of the allowance for credit losses. This evaluation takes into consideration the classification of loans and the application of loss estimates to these classifications. It is the responsibility of management in each of the Company's markets to classify its loans as pass, special mention, substandard, doubtful, or loss. The classification criteria are established by the credit administration function of the Company, which is independent of all lending functions, and are intended to be consistent with the criteria applied by federal banking system examiners. These classifications take into consideration all sources of repayment, underlying collateral, the value of such collateral, and current and anticipated economic conditions, trends, and uncertainties. The Company has an independent loan review function which reviews the loans periodically. The Company's bank subsidiaries also are subjected to periodic examinations by the Office of the Comptroller of the Currency. Loss factors are developed by loan type and classification using historical loss data and statistical modeling techniques. The application of these loss factors to the portfolio classifications, combined with analyses of general economic conditions, trends in portfolio volume, maturity, and composition, and estimates of potential future losses on specific large loans and those loans requiring special attention, provide management with data essential to identify and estimate the credit risk inherent in the portfolio. The allowance for credit losses reflects the result of these estimates and is deemed to be adequate at each balance sheet date. Loan and Loan Commitment Fees The Company generally recognizes loan and loan commitment fees as revenue when received and related costs as expenses when incurred. FAS No. 91, "Accounting for Nonrefundable Fees and Costs Associated with Originating Loans," provides for the deferral of such fees and direct loan origination costs and the amortization of such fees and costs over the lives of the related loans as an adjustment of yield. However, the adoption of FAS No. 91 would not have a material effect on operating results. Bank Premises and Equipment Land is stated at cost, and buildings and equipment are stated at cost less accumulated depreciation. For financial reporting purposes, depreciation is included in operating expenses and is computed principally on the straight-line method over the estimated useful lives of the related assets. Accelerated methods are generally used for income tax purposes with deferred income taxes provided for timing differences. Additions, major replacements, and improvements to buildings and equipment are added to the asset accounts at cost. Maintenance, repairs, and minor replacements are charged directly to operating expense. The costs incidental to the operation and maintenance of buildings, net of income received from tenants, are reflected as "Net occupancy" expense in the accompanying consolidated statements of income. Income Taxes Effective January 1, 1993, the Company adopted FAS No. 109, "Accounting for Income Taxes." There are two components of the income tax provision, current and deferred. The current income tax provisions approximate taxes to be paid or refunded for the applicable period. Deferred tax expense or benefit is recognized for the change in deferred tax liabilities or assets between periods. Deferred tax liabilities or assets are recognized on the temporary differences between the bases of assets and liabilities as measured by the tax laws and their bases as reported in the financial statements. Recognition of deferred tax assets is based on management's belief that it is more likely than not that the tax benefit associated with certain temporary differences, operating loss carryforwards, and tax credits will be realized. A valuation allowance is recorded for those deferred tax items for which it is more likely than not that realization will not occur. Prior to January 1, 1993, the Company accounted for income taxes in accordance with Accounting Principles Board Opinion (APB) No. 11, "Accounting For Income Taxes." Under APB 11, the income tax effects of transactions were recognized in the years in which they entered into the determination of reported income, regardless of when they were recognized for tax return purposes. When income and expenses were recognized in different periods for tax purposes, applicable deferred taxes were provided in the financial statements. Interest, Currency, and Financial Futures Contracts In the normal course of business in meeting the investment and financing needs of its customers and managing its own exposure to fluctuations in interest rates, the Company is a party to various interest rate, foreign currency, and financial futures contracts. From time to time, interest rate swaps are used to modify the interest sensitivity position inherent in the repricing characteristics of specific assets or liabilities. The net interest received or paid on the interest rate swaps is accounted for as an adjustment to the interest income or interest expense on the assets or liabilities, respectively, that the swap was intended to modify. The Company enters into forward foreign currency contracts to assist customers with their foreign currency needs related to foreign manufacturing operations, exporting, or importing. These customer- driven contracts are generally hedged with offsetting contracts. The market value gains and losses relating to currency exchange contracts are recorded at settlement in "Other noninterest income." Gains and losses associated with futures contracts, entered into as trading positions, are marked to market and recognized currently in "Other noninterest income." 2 - Acquisitions Purchase Transactions During 1994 and 1993, a total of five business combinations accounted for as purchases were completed. The following table presents information regarding these purchase transactions.
Acquisition Company Acquired Company Assets Date Location Abbreviation Acquired Cash Paid - ----------- --------------------------------------- --------------- ------------ ------------- (In thousands) 1994 - ---- May 26 Equity Bank for Savings, F.A. Oklahoma City, OK . . . . . . . . . . "Equity" $ 491,506 $ 90,720 May 31 Emprise Bank, National Association Hutchinson, KS. . . . . . . . . . . . "Emprise" 258,731 31,206 ---------- -------- 750,237 121,926 ---------- -------- 1993 - ---- May 14 Guaranty Bancorporation Tulsa, OK . . . . . . . . . . . . . . "GB" 82,606 4,386 May 28 Bancshares of Woodward, Inc. Woodward and Waukomis, OK . . . . . . "BOW" 130,192 17,859 May 28 F&M Bank Services, Inc. Derby, KS . . . . . . . . . . . . . . "FBS" 61,565 8,068 ---------- -------- 274,363 30,313 ---------- -------- $1,024,600 $152,239 ========== ========
Supplementary information regarding the cash paid in these purchase transactions is presented in the following table.
1994 1993 -------- -------- (In thousands) Fair value of assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . $750,237 $274,363 Fair value of liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . (660,742) (253,378) Cost in excess of net assets acquired . . . . . . . . . . . . . . . . . . . . . 32,431 9,328 -------- -------- Cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,926 30,313 Cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,108 27,845 -------- -------- Net cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 87,818 $ 2,468 ======== ========
For each of these transactions, the consolidated statements of income include only the income and expenses of the acquired company since acquisition. The purchase price has been allocated to the net identifiable assets acquired based on their fair values with the excess allocated to cost in excess of net assets acquired. The effect on results of operations for 1994 and 1993, had the purchase transactions occurred at the beginning of these years, was not material. On November 10, 1994 the Company completed the sale of three Equity branches which were identified at the time of acquisition as potential sale targets. In these transactions the Company transferred deposit liabilities and sold loans secured by these deposit liabilities and bank premises. The sales price of these branches was utilized in determining the fair value of assets and liabilities acquired in the Equity business combination. The following table presents information regarding these sales. 1994 ------------ (In thousands) Fair value of assets sold . . . . . . . . . . . . . $ (485) Fair value of liabilities transferred . . . . . . . 38,048 Reduction of cost in excess of net assets acquired. (1,292) -------- Net cash paid . . . . . . . . . . . . . . . . . . . $ 36,271 ======== A fourth Equity branch was sold on January 6, 1995. The following table presents information regarding this sale. 1995 ------------ (In thousands) Fair value of assets sold . . . . . . . . . . . . . . . $ (81) Fair value of liabilities transferred . . . . . . . . . 6,629 Reduction of cost in excess of net assets acquired. . . . (132) -------- Net cash paid . . . . . . . . . . . . . . . . . . . . . . $ 6,416 ======== Poolings of Interests On June 30, 1994, the Company issued 590,710 shares to acquire First Dodge City Bancshares, Inc. ("First Dodge") in a business combination accounted for as a pooling of interests. Total assets acquired amounted to $144,999,000. The consolidated statements for the prior periods have been restated as if the entities had been combined at the beginning of the periods presented. Included in "Merger and integration costs" for 1994 is a charge of $1,124,000 to conform the amortization of intangible assets of First Dodge to the Company's accounting policies. Other adjustments to conform the accounting policies of First Dodge to the accounting policies of the Company were immaterial. Also on June 30, 1994, the Company issued 70,300 shares and paid $36,000 in cash to acquire the minority interests of two of First Dodge's subsidiaries. As prescribed by APB 16, the acquisitions of the minority interests were accounted for as purchases. The fair market value of shares issued and cash paid totaled $2,118,000, which exceeded the net assets acquired by $951,000. The effect of the 1994 pooling of interests on previously reported selected operating results is as follows:
Three Months Ended Year Ended March 31, December 31, ---------------------- 1994 1993 1992 ------------------ -------- -------- (Dollars in thousands, except per share data) Interest income: Company. . . . . . . . . . . . . . . . . . . . . . $104,424 $433,467 $427,119 Pooled company . . . . . . . . . . . . . . . . . . 2,531 10,446 11,769 -------- -------- -------- Combined . . . . . . . . . . . . . . . . . . . . $106,955 $443,913 $438,888 ======== ======== ======== Net interest income: Company. . . . . . . . . . . . . . . . . . . . . . $ 62,797 $257,966 $234,722 Pooled company . . . . . . . . . . . . . . . . . . 1,576 6,445 6,635 -------- -------- -------- Combined . . . . . . . . . . . . . . . . . . . . $ 64,373 $264,411 $241,357 ======== ======== ======== Net income: Company. . . . . . . . . . . . . . . . . . . . . . $ 20,201 $ 75,691 $ 63,306 Pooled company . . . . . . . . . . . . . . . . . . (1,672) 1,601 1,893 -------- -------- -------- Combined . . . . . . . . . . . . . . . . . . . . $ 18,529 $ 77,292 $ 65,199 ======== ======== ======== Net income applicable to common and common-equivalent shares: Company. . . . . . . . . . . . . . . . . . . . . . $ 18,451 $ 68,691 $ 57,355 Pooled company . . . . . . . . . . . . . . . . . . (1,672) 1,601 1,893 -------- -------- -------- Combined . . . . . . . . . . . . . . . . . . . . $ 16,779 $ 70,292 $ 59,248 ======== ======== ======== Primary earnings per common share: Company. . . . . . . . . . . . . . . . . . . . . . $ .70 $ 2.67 $ 2.27 Pooled company . . . . . . . . . . . . . . . . . . (.08) -- .02 -------- -------- -------- Combined . . . . . . . . . . . . . . . . . . . . $ .62 $ 2.67 $ 2.29 ======== ======== ======== Fully diluted earnings per common share: Company. . . . . . . . . . . . . . . . . . . . . . $ .68 $ 2.54 $ 2.19 Pooled company . . . . . . . . . . . . . . . . . . (.08) .01 .02 -------- -------- -------- Combined . . . . . . . . . . . . . . . . . . . . $ .60 $ 2.55 $ 2.21 ======== ======== ========
The following table presents the five 1993 business combinations accounted for as poolings of interests.
Company Acquired/ Company Assets Shares Date Location Abbreviation Acquired Issued - ------------------ ------------------------------------- ------------ ------------ -------- (In thousands) February 12, 1993 Southgate Banking Corporation, "SBC" $ 62,628 451,310 Prairie Village, KS May 28, 1993 Nichols Hills Bancorporation, Inc., "NHB" 97,869 469,906 Nichols Hills (Oklahoma City), OK September 17, 1993 Commercial Landmark Corporation, "CLC" 465,060 1,874,812 Muskogee, OK December 3, 1993 Western National Bancorporation, Inc., "WNB" 206,288 1,110,695 Tulsa, OK December 10, 1993 Ponca Bancshares, Inc., "PBI" 117,275 478,395 -------- --------- Ponca City, OK $949,120 4,385,118 ======== =========
In connection with the WNB transaction, the Company issued an additional 108,748 shares to acquire the minority interest of Western National Bank of Tulsa. This acquisition of a minority interest was accounted for as a purchase as prescribed by APB 16. The fair market value of shares issued totaled $3,099,000, which exceeded the net assets acquired by $1,673,000. Pending Acquisitions Pending acquisitions as of December 31, 1994 are summarized in the table below.
Assets of Bank Anticipated Subsidiary at Number of Closing Company Acquired/ Company December 31, 1994 Cash Shares Accounting Date Location Abbreviation (Unaudited) Paid Issued Method - ---------- ---------------------------------- ------------ ----------------- ---------- --------- ---------- (In thousands) 1995 - ---- January 6 Oklahoma Savings, Inc. Stillwater, OK . . . . . . . . . . "OSI" $ 95,503 $ -- 368,981 Purchase January 27 Standard Bancorporation, Inc. Independence, MO . . . . . . . . . "SBI" 85,190 -- 315,000 Pooling February 3 Blackwell Security Bancshares, Inc. Blackwell, OK. . . . . . . . . . . "BSB" 46,851 8,197 -- Purchase -------- ------ ------- $227,544 $8,197 683,981 ======== ====== =======
The effect of the pending SBI acquisition on selected operating results if it had been consummated prior to December 31, 1994 is as follows:
Year Ended December 31, ------------------------------------------ 1994 1993 1992 -------- -------- -------- (Dollars in thousands, except per share amounts) Interest income: Company. . . . . . . . . . . . . . . . . . . . . . $483,474 $443,913 $438,888 SBI. . . . . . . . . . . . . . . . . . . . . . . . 5,789 5,552 5,807 -------- -------- -------- Combined . . . . . . . . . . . . . . . . . . . . $489,263 $449,465 $444,695 ======== ======== ======== Net interest income: Company. . . . . . . . . . . . . . . . . . . . . . $276,920 $264,411 $241,357 SBI. . . . . . . . . . . . . . . . . . . . . . . . 3,733 3,649 3,485 -------- -------- -------- Combined . . . . . . . . . . . . . . . . . . . . $280,653 $268,060 $244,842 ======== ======== ======== Net income: Company. . . . . . . . . . . . . . . . . . . . . . $ 83,122 $ 77,292 $ 65,199 SBI. . . . . . . . . . . . . . . . . . . . . . . . 2 817 717 -------- -------- -------- Combined . . . . . . . . . . . . . . . . . . . . $ 83,124 $ 78,109 $ 65,916 ======== ======== ======== Net income applicable to common and common-equivalent shares: Company. . . . . . . . . . . . . . . . . . . . . . $ 76,122 $ 70,292 $ 59,248 SBI. . . . . . . . . . . . . . . . . . . . . . . . 2 817 717 -------- -------- -------- Combined . . . . . . . . . . . . . . . . . . . . $ 76,124 $ 71,109 $ 59,965 ======== ======== ======== Primary earnings per common share: Company. . . . . . . . . . . . . . . . . . . . . . $ 2.83 $ 2.67 $ 2.29 SBI. . . . . . . . . . . . . . . . . . . . . . . . (.03) -- -- -------- -------- -------- Combined . . . . . . . . . . . . . . . . . . . . $ 2.80 $ 2.67 $ 2.29 ======== ======== ======== Fully diluted earnings per common share: Company. . . . . . . . . . . . . . . . . . . . . . $ 2.74 $ 2.55 $ 2.21 SBI. . . . . . . . . . . . . . . . . . . . . . . . (.03) -- -- -------- -------- -------- Combined . . . . . . . . . . . . . . . . . . . . $ 2.71 $ 2.55 $ 2.21 ======== ======== ========
3 - Assumption of Deposits On April 2, 1993, $99,399,000 of deposits and other liabilities were assumed by the Kansas bank subsidiary from a failed bank in Mission, Kansas. A premium of $1,141,000 was paid to the Federal Deposit Insurance Corporation ("FDIC") to assume these deposits. 4 - Cash and Due from Banks The subsidiary banks are required by federal law to maintain reserves against their deposit liabilities. These reserves can be maintained in the form of vault cash or balances at a Federal Reserve Bank. The average cash and Federal Reserve balances maintained as reserves were $145,158,000 for 1994 and $118,485,000 for 1993. Cash and due from banks also includes checks in process of collection and balances maintained at correspondent banks for services rendered. 5 - Securities Debt securities classified as held-to-maturity are those securities management has the positive intent and the Company has the ability to hold until maturity. The available-for-sale securities include marketable equity securities and those debt securities deemed to be available-for-sale for the implementation of asset and liability management strategies, possible liquidity needs, and other purposes. The following table presents the amortized cost and estimated fair value of debt securities classified as held-to-maturity and carried at amortized cost. Held-to-maturity
December 31, 1994 December 31, 1993 ------------------------------------------ ------------------------------------------ Gross Gross Estimated Gross Gross Estimated Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair Cost Gains Losses Value Cost Gains Losses Value ---------- ---------- ---------- --------- ---------- ---------- ---------- --------- (In thousands) (In thousands) U.S. Treasury obligations. $ 98,971 $ 2 $ (5,996) $ 92,977 $ 16,329 $ 155 $ (6) $ 16,478 Obligations of U.S. government agencies and corporations: Mortgage-backed. . . . . 1,577,095 339 (89,622) 1,487,812 1,753,662 13,449 (12,239) 1,754,872 Other. . . . . . . . . . 262,469 33 (14,261) 248,241 4,259 106 (1) 4,364 Obligations of states and political subdivisions. . 3,834 -- (207) 3,627 16,838 280 (76) 17,042 Other securities: Collateralized auto receivables . . . . . . -- -- -- -- 12,364 88 -- 12,452 Foreign debt securities. 2,050 -- (2) 2,048 2,155 5 -- 2,160 Money market mutual funds . . . . . . . . . 195 -- -- 195 212 -- -- 212 ---------- ------- --------- ---------- ---------- ------- -------- ---------- Total. . . . . . . . . $1,944,614 $ 374 $(110,088) $1,834,900 $1,805,819 $14,083 $(12,322) $1,807,580 ========== ======= ========= ========== ========== ======= ======== ==========
The amortized cost and estimated fair value of the held-to- maturity debt securities at December 31, 1994 are shown below by contractual maturity.
December 31, 1994 ------------------------------- Estimated Amortized Fair Cost Value ---------- ---------- (In thousands) Due in one year or less . . . . . . . . . . . . . . $ 1,961 $ 1,891 Due after one year through five years . . . . . . . 363,533 343,173 Due after five years through ten years. . . . . . . 2,025 2,024 ---------- ---------- 367,519 347,088 Mortgage-backed securities. . . . . . . . . . . . . 1,577,095 1,487,812 ---------- ---------- Total . . . . . . . . . . . . . . . . . . . . . . $1,944,614 $1,834,900 ========== ==========
The following table presents the amortized cost and estimated fair value of securities classified as available-for-sale and carried at estimated fair value. Available-for-sale
December 31, 1994 December 31, 1993 ------------------------------------------ ------------------------------------------ Gross Gross Estimated Gross Gross Estimated Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair Cost Gains Losses Value Cost Gains Losses Value ---------- ---------- ---------- --------- ---------- ---------- ---------- --------- (In thousands) (In thousands) U.S. Treasury obligations. $283,759 $ 102 $(16,869) $266,992 $ 297,891 $10,518 $ (78) $ 308,331 Obligations of U.S. government agencies and corporations: Mortgage-backed. . . . . 136,482 1,190 (7,634) 130,038 215,889 4,530 (1,571) 218,848 Other. . . . . . . . . . 282,737 25 (13,890) 268,872 299,900 7,179 (803) 306,276 Obligations of states and political subdivisions. . 167,811 7,883 (888) 174,806 222,130 21,266 (463) 242,933 Collateralized credit card receivables. . . . . 62,579 -- (4,061) 58,518 -- -- -- -- Corporate notes and bonds. 41,208 19 (2,567) 38,660 39,567 710 (40) 40,237 -------- ------- -------- -------- ---------- ------- -------- ---------- Total debt securities. . 974,576 9,219 (45,909) 937,886 1,075,377 44,203 (2,955) 1,116,625 Equity securities. . . . . 1,290 68 (164) 1,194 1,172 -- (21) 1,151 -------- ------- -------- -------- ---------- ------- -------- ---------- Total. . . . . . . . . $975,866 $ 9,287 $(46,073) $939,080 $1,076,549 $44,203 $ (2,976) $1,117,776 ======== ======= ======== ======== ========== ======= ======== ==========
The amortized cost and estimated fair value of the available-for- sale debt securities at December 31, 1994 are shown below by contractual maturity.
December 31, 1994 ------------------------------- Estimated Amortized Fair Cost Value ---------- ---------- (In thousands) Due in one year or less . . . . . . . . . . . . . . $ 89,189 $ 90,036 Due after one year through five years . . . . . . . 636,866 606,205 Due after five years through ten years. . . . . . . 94,837 93,582 Due after ten years . . . . . . . . . . . . . . . . 17,202 18,025 -------- -------- 838,094 807,848 Mortgage-backed securities. . . . . . . . . . . . . 136,482 130,038 -------- -------- Total . . . . . . . . . . . . . . . . . . . . . . $974,576 $937,886 ======== ========
The fair values of securities are based upon available market data and estimates which often reflect transactions of relatively small size and which are not necessarily indicative of prices at which larger amounts of particular issues could be readily sold. Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties. The following table presents equity securities which do not have a readily determinable fair value and are carried at cost. Other securities
December 31, ------------------------------- 1994 1993 ---------- ---------- (In thousands) Federal Home Loan Bank stock. . . . . . . . . . . . $ 37,645 $ 24,911 Federal Reserve Bank stock. . . . . . . . . . . . . 14,242 12,637 Other equity securities . . . . . . . . . . . . . . 1,549 1,559 -------- -------- Total . . . . . . . . . . . . . . . . . . . . . . $ 53,436 $ 39,107 ======== ========
The book value of securities pledged to secure public deposits and for other purposes, as required or permitted by law, aggregated $1,622,605,000 at December 31, 1994. The sales price, gains, and losses realized from the sale of available-for-sale investment securities are detailed in the following table. This table does not include proceeds from nor realized gains and losses attributable to prepayments of available-for-sale securities.
1994 ----------- (In thousands) Sales price of available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . . $603,458 ======== Gross realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,485 Gross realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,931 -------- Net gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,554 ========
The following table presents the sales price, gains, and losses realized from the sale of securities, prior to the adoption of FAS 115 on December 31, 1993. This table does not include proceeds from nor realized gains and losses attributable to prepayments of securities.
1993 1992 ------------ ------------ (In thousands) Sales price of securities . . . . . . . . . . . . . . . . . . . . . . . . $ 14,443 $ 81,680 ======== ======== Gross realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . $ 230 $ 2,695 Gross realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . 43 49 -------- -------- Net gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 187 $ 2,646 ======== ========
Not included in the table above are $299,685,000 of 1992 sales of short-term Treasury Bills related to the restructuring of the securities portfolio obtained with the assumption of deposits from a Tulsa, Oklahoma savings and loan association ("S&L"). These securities were sold within 14 days of maturity; thus the market risk had been substantially eliminated as a pricing factor, and a gain of only $5,000 was realized. On February 23, 1995, the Company sold approximately $424,000,000 of fixed-rate debt securities classified as available-for-sale, resulting in a gross realized loss of $22,400,000. An income tax benefit of approximately $8,000,000 will be recorded in connection with these securities transactions. The debt securities sold consisted primarily of U.S. Treasury obligations and obligations of U.S. government agencies. 6 - Loans and Leases The composition of the loan and lease portfolio was as follows:
December 31, 1994 December 31, 1993 --------------------- --------------------- Amount Percent Amount Percent ----------- --------- ----------- --------- (Dollars in thousands) Commercial: Commercial and industrial . . . . . . . . . . . . . . . . . . $1,018,753 25.4% $ 889,024 26.5% Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . 227,300 5.7 196,029 5.8 Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . . 129,742 3.2 77,962 2.3 Bank stock. . . . . . . . . . . . . . . . . . . . . . . . . . 25,173 .6 46,453 1.4 Real estate: Construction. . . . . . . . . . . . . . . . . . . . . . . . 133,853 3.3 92,636 2.8 Permanent commercial real estate and other. . . . . . . . . 688,779 17.2 513,270 15.3 Lease financing . . . . . . . . . . . . . . . . . . . . . . . 86,098 2.2 40,195 1.2 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,546 .7 35,964 1.1 ---------- ------ ---------- ------ Total commercial loans. . . . . . . . . . . . . . . . . . . 2,337,244 58.3 1,891,533 56.4 ---------- ------ ---------- ------ Consumer: Secured by 1-4 family residences, less unearned discount. . . 979,847 24.4 786,637 23.5 Residential mortgage loans held for sale. . . . . . . . . . . 206 -- 110,132 3.3 Consumer, less unearned discount. . . . . . . . . . . . . . . 476,034 11.9 414,635 12.4 Credit card . . . . . . . . . . . . . . . . . . . . . . . . . 130,098 3.3 93,007 2.8 Educational . . . . . . . . . . . . . . . . . . . . . . . . . 82,238 2.1 55,968 1.6 ---------- ------ ---------- ------ Total consumer loans. . . . . . . . . . . . . . . . . . . . 1,668,423 41.7 1,460,379 43.6 ---------- ------ ---------- ------ Total loans and leases. . . . . . . . . . . . . . . . . . $4,005,667 100.0% $3,351,912 100.0% ========== ====== ========== ======
The Company manages exposure to credit risk through loan portfolio diversification by customer and market, as well as by type. Although the aggregate legal lending limits of the Company's bank subsidiaries totaled $84,958,000 at December 31, 1994, the Company had no single lending relationship with an aggregate loan amount outstanding in excess of $20,000,000. The Company principally lends to businesses and individuals in Kansas, Oklahoma, and the contiguous states and to Kansas and Oklahoma based customers that do business in other states. Nonaccrual loans and troubled debt restructurings are summarized below:
December 31, --------------------- 1994 1993 -------- -------- (In thousands) Nonaccrual loans . . . . . . . . . . . . . . . . . . . . . . . . . . $29,097 $34,040 Troubled debt restructurings . . . . . . . . . . . . . . . . . . . . 503 290 ------- ------- $29,600 $34,330 ======= =======
The effect of nonaccrual loans and troubled debt restructurings on interest income was:
Year Ended December 31, ---------------------------- 1994 1993 1992 ------ ------ ------ (In thousands) Interest income which would have been recorded pursuant to the original terms . . . . . . . . . . $5,098 $4,060 $4,588 ====== ====== ====== Interest income recorded . . . . . . . . . . . . . . . . . . $1,384 $1,504 $1,176 ====== ====== ======
In the ordinary course of business, the Company has made loans to directors and executive officers of the Company and its significant subsidiaries. Loans to these customers were transacted on the same terms, including similar interest rates and collateral terms, as those prevailing at the time for comparable transactions with unrelated persons and, in management's opinion, did not involve more than a normal risk of collectibility or present other unfavorable features at the time they were made. An analysis of aggregate loan activity with this group, including their immediate families, companies in which they are principal owners, and trusts in which they are involved, follows:
1994 -------------- (In thousands) Loans outstanding at December 31, 1993. . . . . . . . . . . . . . . . . . . $ 78,815 New loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,092 Repayments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (123,700) Other changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,182) -------- Loans outstanding at December 31, 1994. . . . . . . . . . . . . . . . . . . $ 74,025 ========
Other changes include loans outstanding at December 31, 1993 to directors elected or retired in 1994, loans purchased or sold during the current year, and any other loans outstanding at December 31, 1993 to related individuals or entities not considered to be related parties at December 31, 1994. 7 - Allowance for Credit Losses Changes in the allowance for credit losses are as follows:
1994 1993 1992 ------- ------- ------- (In thousands) Balance at January 1, as previously reported . . . . . . . . . . . . . . . . $66,368 $73,055 $70,669 Adjustment for pooling of interests. . . . . . . . . . . . . . . . . . . . 1,249 1,340 1,334 ------- ------- ------- Balance at January 1, as restated. . . . . . . . . . . . . . . . . . . . . . 67,617 74,395 72,003 Allowance for credit losses of purchased banks . . . . . . . . . . . . . . 5,449 3,266 1,739 Allowance for purchased loans. . . . . . . . . . . . . . . . . . . . . . . -- -- 3,424 ------- ------- ------- 73,066 77,661 77,166 Provisions charged to operating expense. . . . . . . . . . . . . . . . . . 275 6,965 21,358 Recoveries on loans and leases previously charged off. . . . . . . . . . . 12,550 9,864 7,313 Loans and leases charged off . . . . . . . . . . . . . . . . . . . . . . . (14,017) (26,873) (31,442) ------- ------- ------- Balance at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . $71,874 $67,617 $74,395 ======= ======= =======
8 - Bank Premises and Equipment A summary of land, buildings, and equipment appears below:
December 31, 1994 December 31, 1993 ------------------------------- -------------------------------- Accumulated Book Accumulated Book Cost Depreciation Value Cost Depreciation Value -------- ------------ ------- -------- ------------ -------- (In thousands) Land . . . . . . . . . . . . . . . . . . $ 25,892 $ -- $ 25,892 $ 23,313 $ -- $ 23,313 Buildings and leasehold improvements . . 171,159 77,588 93,571 156,795 72,724 84,071 Furniture and equipment. . . . . . . . . 120,406 83,551 36,855 112,807 74,472 38,335 -------- -------- -------- -------- -------- -------- Total. . . . . . . . . . . . . . . . $317,457 $161,139 $156,318 $292,915 $147,196 $145,719 ======== ======== ======== ======== ======== ========
Depreciation expense amounted to $17,634,000 in 1994, $16,029,000 in 1993, and $14,803,000 in 1992. 9 - Intangible Assets Included in intangible assets are the following items:
December 31, 1994 December 31, 1993 ------------------------------- -------------------------------- Accumulated Book Accumulated Book Cost Amortization Value Cost Amortization Value -------- ------------ ------- -------- ------------- ------- (In thousands) Cost in excess of net assets acquired . . $ 96,795 $24,813 $71,982 $ 68,250 $19,249 $49,001 Value of core deposits assumed. . . . . . 29,180 16,453 12,727 29,184 12,726 16,458 Purchased credit card relationships . . . 9,300 1,049 8,251 -- -- -- Purchased mortgage servicing rights . . . 7,886 5,240 2,646 5,749 4,248 1,501 -------- ------- ------- -------- ------- ------- $143,161 $47,555 $95,606 $103,183 $36,223 $66,960 ======== ======= ======= ======== ======= =======
The cost of purchased entities in excess of the fair value of net assets acquired is being amortized on a straight-line basis over a period of twenty years. The value of core deposits assumed, purchased credit card relationships, and the purchased mortgage servicing rights are being amortized using accelerated methods over the estimated periods benefitted, not exceeding ten years. 10 - Deposits The book values of deposits are presented below:
December 31, ----------------------------- 1994 1993 ------------ ------------ (In thousands) Noninterest-bearing deposits . . . . . . . . . . . . . . . . . . . . . $1,032,913 $ 977,944 Interest-bearing deposits: Interest-bearing checking deposits . . . . . . . . . . . . . . . . . 959,755 937,937 Savings deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 1,123,208 1,261,008 Time deposits under $100,000 . . . . . . . . . . . . . . . . . . . . 2,127,815 1,896,743 Time deposits of $100,000 or more . . . . . . . . . . . . . . . . . . 403,457 362,931 ---------- ---------- Total interest-bearing deposits . . . . . . . . . . . . . . . . . . 4,614,235 4,458,619 ---------- ---------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,647,148 $5,436,563 ========== ==========
11 - Purchased Funds, Borrowings, and Long-Term Debt The following schedules summarize, by category, purchased funds, borrowings, and long-term debt. Federal funds purchased and securities sold under agreements to repurchase
December 31, 1994 December 31, 1993 -------------------- --------------------- Amount Rate Amount Rate -------- -------- --------- -------- (Dollars in thousands) Federal funds purchased . . . . . . . . . . . . . . . . . . . . $391,970 5.85% $367,726 2.96% Securities sold under agreements to repurchase. . . . . . . . . 541,736 5.66 123,901 3.27 -------- -------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $933,706 5.74 $491,627 3.04 ======== ========
Federal funds purchased and securities sold under agreements to repurchase generally mature daily or on demand. Federal Home Loan Bank borrowings
December 31, 1994 December 31, 1993 -------------------- --------------------- Amount Rate Amount Rate -------- -------- --------- -------- (Dollars in thousands) Federal Home Loan Bank borrowings . . . . . . . . . . . . . . . $441,097 5.72% $250,000 4.01% ======== ========
At December 31, 1994, Federal Home Loan Bank ("FHLB") borrowings included $291,800,000 with an average rate of 5.88% that matures in 1995. The remaining balance matures in 1996 ($100,000,000), 1997 ($24,297,000) and 1998 ($25,000,000). Other borrowings
December 31, 1994 December 31, 1993 -------------------- --------------------- Amount Rate Amount Rate -------- -------- --------- -------- (Dollars in thousands) Treasury tax and loan . . . . . . . . . . . . . . . . . . . . . $23,001 5.20% $23,002 2.75% Note payable. . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 6.19 -- -- ------- ------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $43,001 5.66 $23,002 2.75 ======= =======
Treasury tax and loan borrowings generally mature daily or on demand. The $20,000,000 note payable at December 31, 1994 was borrowed under the Company's committed line of credit from a correspondent bank. Pursuant to this line of credit, the Company was required to maintain capital ratios above the regulatory "Well Capitalized" standard and the ratio of nonperforming assets to total loans plus other real estate owned could not exceed 4.0%. At December 31, 1994 the Company was in compliance with these covenants. This committed line of credit was replaced by two new Credit Agreements, entered into on January 3, 1995. The prior note was paid off and $20,000,000 was borrowed under the new agreements. Under the new Credit Agreements, the Company may borrow up to $100,000,000 on a revolving basis at any time prior to January 3, 1996. Amounts borrowed under the Credit Agreements may have maturities not to exceed 90 days. Interest rates based on, at the Company's option, the lenders' published "reference rate" or rates tied to the London Interbank Offered Rate exist. A facility fee is charged on these commitments. The Company is required to maintain consolidated stockholders' equity at a certain level and maintain specific ratios related to leverage, risk-based capital, and nonperforming assets. Long-term debt
December 31, 1994 December 31, 1993 ----------------- ----------------- Amount Rate Amount Rate ---------- ------ ---------- ------ (Dollars in thousands) Term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,375 8.60% $13,125 8.60% Mortgage indebtedness and other notes payable . . . . . . . . . . 310 10.85 6,926 5.83 Subordinated debentures . . . . . . . . . . . . . . . . . . . . . -- -- 232 6.38 ------ ------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,685 8.75 $20,283 7.63 ====== =======
The parent company's term loan with an unaffiliated bank requires semiannual installments of $4,375,000, due the last day of March and September through March 1995. The Company is required to maintain a ratio of consolidated equity to consolidated assets above the level required by the Federal Reserve Board of Governors; maintain investments in subsidiaries below 140% of consolidated equity; and maintain a level of consolidated tangible net worth exceeding consolidated funded debt. At December 31, 1994 the Company was in compliance with all of the terms of the agreement. The mortgage indebtedness and other notes payable of $6,926,000 in 1993 includes $6,063,000 from the current year pooling-of-interests acquisition. The acquired balance was paid off at the acquisition date. Certain buildings and real estate have been pledged as collateral on mortgage indebtedness and other notes payable. Maturities of this long-term debt for years subsequent to December 31, 1994, are as follows: Years ended December 31, (In thousands) ------------------------ -------------- 1995 . . . . . . . . . . . . . $ 75 1996 . . . . . . . . . . . . . 29 1997 . . . . . . . . . . . . . 32 1998 . . . . . . . . . . . . . 14 1999 . . . . . . . . . . . . . 2 Thereafter . . . . . . . . . . 158 ---- Total . . . . . . . . . . . . $310 ==== The subordinated debentures were also obligations of a pooled company. A variable interest rate based on the base rate per annum of Commerce Bank, Kansas City, MO was required on the $188,000 of debentures due July 31, 1994. The remaining $44,000 of debentures bore a fixed interest rate of 8% and were due April 28, 1997. These debentures were redeemed by the Company in 1994. 12 - Preferred Stock
December 31, ----------------------------- 1994 1993 ------------- ------------- (Dollars in thousands) Class A cumulative convertible preferred stock, par value $100 per share Authorized: 250,000 shares Issued: 250,000 shares (at liquidation preference) . . . . . . . $100,000 $100,000 Class B preferred stock, no par value Authorized: 5,000,000 shares . . . . . . . . . . . . . . . . . . -- -- -------- -------- $100,000 $100,000 ======== ========
On February 24, 1992, the Company issued 250,000 shares of nonvoting Class A Cumulative Convertible Preferred Stock. This preferred stock was issued in the form of 4,000,000 depositary shares each representing a 1/16 interest in a share of preferred stock and each having a liquidation preference of $25.00. Dividends are payable quarterly (beginning June 1, 1992) at an annual rate of $1.75 per depositary share. The depositary shares are not redeemable by the Company prior to March 1, 1997. However, they may be converted at the election of shareholders into a total of 3,448,275 shares of the Company's common stock at a conversion price of $29.00 per common share. At the Company's annual meeting in April 1992, the stockholders authorized 5,000,000 shares of a new class of preferred stock, designated Class B Preferred Stock. The Board of Directors has been authorized to set the dividend, voting, conversion, redemption, and other rights of this stock when and if issued. 13 - Merger and Integration Costs The components of merger and integration costs related to the 1994, 1993, and 1992 pooling-of-interests transactions are detailed in the following schedule.
Year Ended December 31, ---------------------------------- 1994 1993 1992 -------- -------- -------- (In thousands) Premises and equipment writedowns . . . . . . . . . . . . . . . $ 177 $1,252 $ 696 Severance and other compensation. . . . . . . . . . . . . . . . 821 2,970 886 Systems conversion costs. . . . . . . . . . . . . . . . . . . . 269 1,579 1,940 Legal, accounting, and other transaction costs. . . . . . . . . 306 829 522 Conform intangible asset amortization policies. . . . . . . . . 1,124 -- -- Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 1,004 754 ------ ------ ------ $2,847 $7,634 $4,798 ====== ====== ======
14 - Income Taxes Effective January 1, 1993, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by FAS No. 109, "Accounting for Income Taxes." Shown separately in the 1993 Statement of Income is the cumulative effect of adopting FAS No. 109 as of January 1, 1993 which increased net income by $10,582,000. Two pooled companies elected early adoption of FAS No. 109 effective January 1, 1992, resulting in a $2,373,000 increase in 1992 earnings. At December 31, 1994, the Company had net operating loss and general business credit carryforwards of $61,446,000 and $330,000, respectively, which can be carried forward to reduce future federal income taxes payable. These carryforwards are principally related to previous tax losses of banks and S&Ls acquired in 1994, 1993, and 1992. Utilization of the carryforwards is limited by tax law to the future earnings of and other limits on the use of tax attributes of acquired companies. Net operating loss carryforwards expire in years 2000 through 2007 and general business credit carryforwards expire in years 1995 through 2002 if not utilized. For financial reporting purposes, a valuation allowance of $12,608,000 has been recognized to offset the deferred tax assets related to these carryforwards and other deferred tax assets whose realization is uncertain. If realized, the tax benefit of $11,794,000 associated with certain net operating loss carryforwards to which this valuation allowance relates will be applied to reduce "cost in excess of net assets acquired" recorded in connection with acquisitions accounted for as purchases. The net change in the valuation allowance for deferred tax assets for 1994 was a decrease of $603,000. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of December 31, 1994 and December 31, 1993 are as follows:
December 31, ----------------------------- 1994 1993 ------------ ------------ (In thousands) Deferred tax assets: Net operating loss carryforwards. . . . . . . . . . . . . . . . . . . $29,575 $ 8,159 Provision for credit losses . . . . . . . . . . . . . . . . . . . . . 22,518 18,954 Securities fair value adjustment. . . . . . . . . . . . . . . . . . . 14,346 -- Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . 2,584 2,043 Core deposit amortization . . . . . . . . . . . . . . . . . . . . . . 2,163 1,857 Write-down of other real estate owned . . . . . . . . . . . . . . . . 1,808 5,446 Merger and integration costs accrual. . . . . . . . . . . . . . . . . 1,175 1,132 Pension contribution. . . . . . . . . . . . . . . . . . . . . . . . . 1,093 1,018 Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 345 ------- ------- Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . 75,262 38,954 Valuation allowance for deferred tax assets . . . . . . . . . . . . . (12,608) (13,211) ------- ------- Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . 62,654 25,743 ------- ------- Deferred tax liabilities: Securities fair value adjustment. . . . . . . . . . . . . . . . . . . -- (16,078) Purchase accounting adjustment. . . . . . . . . . . . . . . . . . . . (6,492) (4,173) Discount accretion. . . . . . . . . . . . . . . . . . . . . . . . . . (4,518) (3,145) Leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,798) (2,121) State taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,184) (2,343) Depreciation expense. . . . . . . . . . . . . . . . . . . . . . . . . (2,535) (1,825) Loan origination fees . . . . . . . . . . . . . . . . . . . . . . . . (1,226) -- Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (735) -- ------- ------- Total deferred tax liabilities. . . . . . . . . . . . . . . . . . . (22,488) (29,685) ------- ------- Net deferred tax asset (liability). . . . . . . . . . . . . . . . . $40,166 $(3,942) ======= =======
Significant components of the provision for income taxes are as follows:
Liability Liability Deferred Method Method Method ------------ ------------ ------------ December 31, December 31, December 31, 1994 1993 1992 ------------ ------------ ------------ (In thousands) Current: Federal . . . . . . . . . . . . . . . . . . . . . . . . . $29,535 $24,297 $17,099 State . . . . . . . . . . . . . . . . . . . . . . . . . . 4,915 4,004 3,447 ------- ------- ------- Total . . . . . . . . . . . . . . . . . . . . . . . . . 34,450 28,301 20,546 ------- ------- ------- Deferred: Federal . . . . . . . . . . . . . . . . . . . . . . . . . 7,123 (5,850) (239) State . . . . . . . . . . . . . . . . . . . . . . . . . . (650) 225 (759) ------- ------- ------- Total . . . . . . . . . . . . . . . . . . . . . . . . . 6,473 (5,625) (998) ------- ------- ------- Total income tax expense. . . . . . . . . . . . . . . $40,923 $22,676 $19,548 ======= ======= =======
Tax effects of investment securities transactions included in the above amounts are $1,271,000 in 1994, $520,000 in 1993, and $581,000 in 1992. The components of the provision for deferred income taxes for the period ended December 31, 1992 are as follows:
December 31, 1992 ------------ (In thousands) Provision for credit losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,547) Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (944) Write-down of other real estate owned. . . . . . . . . . . . . . . . . . . . . . . . . . . . 932 Bond discount accretion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 Leasing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 Employee benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (385) State taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372 Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318 ------- Provision for deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (998) =======
The effective income tax rates differ from the federal statutory rates for the reasons shown in the following table.
Liability Method Liability Method Deferred Method ------------------- ------------------- ------------------- December 31, 1994 December 31, 1993 December 31, 1992 ------------------- ------------------- ------------------- Amount Rate Amount Rate Amount Rate --------- -------- --------- -------- --------- -------- (Dollars in thousands) Income tax expense at federal statutory rate . . . $43,416 35.0% $31,326 35.0% $28,031 34.0% Tax-preferred income on obligations of states, political subdivisions, and U.S. possessions. . . (5,695) (4.6) (6,552) (7.3) (7,080) (8.6) Goodwill and purchase accounting amortization. . . 1,027 .8 1,271 1.4 986 1.2 State taxes, net of federal income tax benefit . . 2,697 2.2 2,737 3.1 1,693 2.1 General business credit. . . . . . . . . . . . . . -- -- -- -- (232) (.3) Benefit of net operating losses and alternative minimum tax credits . . . . . . . . . (927) (.7) (4,090) (4.6) (5,208) (6.3) Other, net . . . . . . . . . . . . . . . . . . . . 405 .3 (2,016) (2.3) 1,358 1.6 ------- ---- ------- ---- ------- ----- Actual income tax expense. . . . . . . . . . . $40,923 33.0% $22,676 25.3% $19,548 23.7% ======= ==== ======= ==== ======= ====
15 - Employee Benefit Plans The Company and its subsidiaries have two types of pension plans. The Company's defined benefit plan covers substantially all employees. The supplemental executive retirement plan provides for payments equal to the benefit which would have been paid under the pension plan and the savings and investment plan if certain Internal Revenue Code limitations had not been imposed including Section 415, Section 401(a)(17), and the Section 401(a)(4) prohibition on deferred compensation as eligible compensation under the pension plan. The plans' funded status and amounts included in the consolidated financial statements are presented below:
December 31, 1994 December 31, 1993 ------------------------- ------------------------- Supplemental Supplemental Defined Executive Defined Executive Benefit Retirement Benefit Retirement Plan Plan Plan Plan ---------- ------------ ---------- ------------ (In thousands) Actuarial present value of benefit obligations: Vested benefit obligation . . . . . . . . . . . . . . . . $(19,360) $ (838) $(20,425) $ (737) ======== ======= ======== ======= Accumulated benefit obligation. . . . . . . . . . . . . . $(20,765) $ (915) $(21,695) $ (799) ======== ======= ======== ======= Projected benefit obligation. . . . . . . . . . . . . . . $(27,223) $(1,120) $(28,234) $(1,169) Plan assets, at fair value. . . . . . . . . . . . . . . . . 20,375 -- 20,086 -- -------- ------- -------- ------- Funded status . . . . . . . . . . . . . . . . . . . . . . . (6,848) (1,120) (8,148) (1,169) Prior service benefit not yet recognized in periodic pension cost, being amortized over 10 years. . . . . . . . (1,311) (7) (1,641) (1) Unrecognized net (asset) obligation from date of initial application, being amortized over 15 years . . . . (2,181) 89 (2,541) 104 Unrecognized net loss from past experience different from that assumed and effects of changes in assumptions. . 8,525 201 10,499 378 -------- ------- -------- ------- Accrued pension cost included in consolidated statements of condition . . . . . . . . . . $ (1,815) $ (837) $ (1,831) $ (688) ======== ======= ======== =======
Effective January 1, 1994, the pension plan was amended to reduce the pension benefits by approximately 10%. Both the projected benefit obligation and the prior service benefit reflected this change at December 31, 1993. The accumulated benefit obligation at December 31, 1993 was not affected by this plan amendment. The assets of the defined benefit plan are administered by the trust division of a subsidiary bank and consist of a wide variety of diversified securities including common stocks, corporate bonds, and U.S. Treasury obligations. During 1994, the trust's investments in commingled funds for qualified employee benefit accounts were converted to the Funds IV equity and bond mutual funds. Contributions to the plan are based upon the Projected Unit Credit Actuarial Funding method and are limited to amounts that are currently deductible for tax reporting purposes. Net pension cost includes the following components:
Year Ended December 31, ---------------------------------- 1994 1993 1992 -------- -------- -------- (In thousands) Service cost-benefits earned during the year. . . . . . . . . . $2,968 $2,329 $1,441 Interest cost on the projected benefit obligation . . . . . . . 1,891 1,579 1,414 Actual (return) loss on plan assets . . . . . . . . . . . . . . 419 (2,119) (1,397) Net amortization and deferrals. . . . . . . . . . . . . . . . . (2,167) 691 (314) ------ ------ ------ Net periodic pension cost . . . . . . . . . . . . . . . . . . $3,111 $2,480 $1,144 ====== ====== ======
Assumptions used in the accounting include:
As of December 31, ------------------------------------ 1994 1993 1992 -------- -------- -------- Discount rates. . . . . . . . . . . . . . . . . . . . . . . . . 8.00% 7.00% 7.00% Average rates of increase in compensation levels. . . . . . . . 4.70% 4.70% 4.70% Expected long-term rate of return on assets . . . . . . . . . . 8.75% 8.75% 9.25%
The Company and its subsidiaries also maintain a contributory savings and investment plan for substantially all employees. The savings and investment plan and related trust qualify under Section 401 of the Internal Revenue Code as a qualified profit-sharing plan and trust. According to the plan, an employee may contribute from 2% to 4% of base salary, which the employer then supplements with a contribution of 50% of the employee's contributed amount. Employees may contribute up to an additional 11% of base salary in pre-tax dollars, but without further employer contributions. The plan also provides for an additional matching contribution of up to an additional 2% of the employee's eligible compensation based on the Company's achievement of established earnings-per-share targets. Vesting in the employer contributions ranges from 20% with three years to 100% with seven years of service. During 1994, employees could elect to invest in one or more of five investment funds, in 10% increments. These funds included a Fourth Financial Corporation common stock fund, a fixed-income fund, an equity fund, an international equity fund, and a money market fund. Forfeitures are used to reduce the Company's contributions. The expense for this plan plus similar plans of pooled companies which were merged with this plan was $2,383,000 in 1994, $1,996,000 in 1993, and $2,111,000 in 1992. This expense includes additional matching contributions of $1,026,000, $629,000, and $625,000 for 1994, 1993, and 1992, respectively, attributable to the achievement of performance goals. The restatement of prior period financial statements for the poolings of interests resulted in the inclusion of SBC's contributory Employee Stock Ownership Plan ("ESOP") and PBI's noncontributory ESOP. Both plans covered substantially all employees with one year of service. Contributions to these plans were determined by the respective Boards of Directors of SBC and PBI. In 1993 and 1992, expense of the plans totaled $230,000 and $247,000, respectively. The SBC ESOP was terminated February 12, 1993 and all stock was allocated to the participants. The effective termination date of the PBI ESOP was January 4, 1994. The Company does not provide medical coverage for employees subsequent to retirement. Approximately 67 employees who retired prior to January 1, 1995, who were between age 55 and age 65 ("Early retirees") at retirement and who had at least ten years' service have continued participation in the Company's health plan until age 65, but the plan requires that the full cost of providing coverage under the plan be paid by the covered retirees. FAS No. 106, which establishes accounting standards for "Employers' Accounting for Postretirement Benefits Other Than Pensions," was not adopted as it would not have a material effect on the Company's statement of condition and operating results. 16 - Stock Option and Stock Purchase Plans The Company grants options to key employees under incentive stock option plans at prices equal to the market value on the date of grant. Terms of the plans generally provide for the exercise of the options for periods of up to ten years, as determined by the Board of Directors. The following schedule details the shares reserved for issuance at December 31, 1994 under each of the plans, as well as the number of shares under option and exercisable, both also at December 31, 1994.
December 31, 1994 ----------------------------------------------------- Shares Shares Reserved for Under Shares Issuance Option Exercisable ------------ ------------ ------------ 1981 Stock Option Plan (1) . . . . . . . . . . . . . . 148,091 80,925 62,486 1986 Stock Option Plan . . . . . . . . . . . . . . . . 800,398 766,969 158,169 1993 Stock Option Plan . . . . . . . . . . . . . . . . 996,000 523,000 5,332 --------- --------- ------- 1,944,489 1,370,894 225,987 ========= ========= =======
____________ (1) Options may no longer be granted under this plan. The following table presents information regarding stock option transactions and prices:
Shares Under Option ------------------------------------------------------------------------- 1994 1993 1992 ----------------------- ----------------------- ----------------------- Price Price Price Number Per Share Number Per Share Number Per Share ---------- ------------ --------- ------------- ---------- ------------ Balance at January 1 . . . . . . . 798,038 $17.00-30.38 684,339 $14.80-29.88 518,297 $14.80-23.50 Granted. . . . . . . . . . . . . . 685,000 26.75-31.06 299,100 27.50-30.38 248,900 22.87-29.88 Exercised. . . . . . . . . . . . . (85,305) 17.00-28.75 (172,747) 14.80-23.20 (74,858) 14.80-23.20 Terminated or canceled . . . . . . (26,839) -- (12,654) -- (8,000) -- --------- -------- -------- Balance at December 31 . . . . . . 1,370,894 17.00-31.06 798,038 17.00-30.38 684,339 14.80-29.88 ========= ======== ========
An optionee may pay the option exercise price by tendering stock of the Company having a market value equal to the exercise price. The optionee must have held the tendered stock for at least six months before it can be used to exercise an option. Transactions under this program are accounted for as the purchase and reissuance of treasury stock. The following is a summary of activity:
1994 1993 1992 ---------- ---------- ---------- Shares tendered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,899 45,399 23,954 Shares issued under the stock option plans (including reissued treasury stock). . . . . . . . . . . . . . . . . . . . . . . . 22,785 75,720 37,891
An optionee also may borrow the amount of the option exercise price from the Company. The loans under this program bear interest at the Company's base rate adjusted quarterly and mature annually. Although the Company reserves the right not to renew any loan at maturity, it is the Company's present intention to allow each borrowing for employees to be renewed for additional annual periods. At a minimum, Company stock valued at 125% of the loan amount must collateralize the loan. Such loans, which amounted to $1,894,000 and $1,795,000 at December 31, 1994 and 1993, respectively, are reported as a reduction of stockholders' equity. The Fourth Financial Corporation 1993 Non-Employee Directors Stock Option Plan (the "Directors Option Plan") was approved by stockholders and adopted in 1993. The plan will terminate, for the purposes of granting options, in ten years unless the plan is earlier terminated by the Board of Directors. The Directors Option Plan provides that each year, on the first Monday following the Company's annual meeting of stockholders, each non-employee director of the Company will automatically receive an option to acquire 2,000 shares of the Company's common stock and each non-employee director of the Company's subsidiaries will automatically receive an option to acquire 1,000 shares of the Company's common stock. Options issued under the plan are immediately exercisable and will expire ten years from the date of grant. At December 31, 1994, there were 499,700 shares reserved for issuance under the plan of which 81,700 were under option. The following table presents information regarding stock option transactions and prices under the Directors Option Plan:
Shares Under Option ------------------------------------------------ 1994 1993 ----------------------- ----------------------- Price Price Number Per Share Number Per Share ---------- ------------ ---------- ------------ Balance at January 1. . . . . . . . . . . . . . . . . . . 43,000 $29.50 -- $ -- Granted . . . . . . . . . . . . . . . . . . . . . . . . . 44,000 27.50 44,000 29.50 Exercised . . . . . . . . . . . . . . . . . . . . . . . . (300) 27.50 -- -- Terminated or canceled. . . . . . . . . . . . . . . . . . (5,000) -- (1,000) -- ------- ------- Balance at December 31. . . . . . . . . . . . . . . . . . 81,700 27.50-29.50 43,000 29.50 ======= =======
Under the 1988 Employee Stock Purchase Plan, which expired in April, 1993, and the 1993 Employee Stock Purchase Plan which replaced it, employees are offered the option to purchase shares of the Company's common stock at 85% of the lower of the fair market value of such shares on the date granted or one year thereafter. Options issued under the plan are exercisable one year from the date of grant. At December 31, 1994, 696,247 shares were reserved for issuance, including 242,694 shares under option. No options under the plan were exercisable at December 31, 1994. Additional data regarding the Employee Stock Purchase Plan are as follows:
Shares Under Option ------------------------------------------------------------------------- 1994 1993 1992 ----------------------- ----------------------- ----------------------- Price Price Price Number Per Share Number Per Share Number Per Share ---------- ------------ ---------- ------------ ---------- ------------ Balance at January 1. . . . . . . 180,597 $24.81 165,078 $23.06 214,611 $16.36 Granted . . . . . . . . . . . . . 268,384 23.74 192,109 24.81 178,534 23.06 Exercised . . . . . . . . . . . . (53,753) 23.74 (71,259) 23.06 (111,612) 16.36 Terminated or canceled. . . . . . (152,534) -- (105,331) -- (116,455) -- -------- -------- -------- Balance at December 31. . . . . . 242,694 23.74 180,597 24.81 165,078 23.06 ======== ======== ========
17 - Earnings Per Common Share Earnings per common share are based on the following weighted average numbers of shares outstanding.
1994 1993 1992 ---------- ---------- ---------- Primary . . . . . . . . . . . . . . . . . . . . . . . . . . 26,914,657 26,324,549 25,901,186 Fully diluted . . . . . . . . . . . . . . . . . . . . . . . 30,362,932 30,355,263 29,488,679
Primary earnings per common share were computed by dividing net income applicable to common and common-equivalent shares by the weighted average common and common-equivalent shares outstanding during the period (common share equivalents include the preferred stock of pooled companies). Fully diluted earnings per common share were computed by adjusting net income for interest expense (net of income taxes) associated with pooled companies' convertible debt. The adjusted net income was then divided by the weighted average of common and common-equivalent shares outstanding plus the number of shares which would have been outstanding during the year had the Class A convertible preferred stock and the pooled companies' convertible debt and preferred stock been converted in accordance with their respective governing instruments. Stock options outstanding have been excluded from the computations as they were not materially dilutive. The adjustment of net income for the pooled companies' convertible debt interest expense (net of income taxes) was as follows:
1994 1993 1992 ------ ------ ------ (In thousands) Interest expense adjustment . . . . . . . . . . . . . . . . . . . $-- $4 $85
18 - Dividends Per Common Share Dividends per common share represent the Company's historical dividends declared without adjustment for the poolings of interests. The following table presents dividends declared by entities pooled during 1994, 1993, and 1992 prior to their combinations with the Company.
1994 1993 1992 --------------------- --------------------- --------------------- Per Per Per Equivalent Equivalent Equivalent Pooled Entity Historical Share Historical Share Historical Share - --------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- First Dodge City Bancshares, Inc. . . . $58.46 $ .52 $132.00 $1.17 $142.73 $1.27 Southgate Banking Corporation . . . . . n/a n/a -- -- -- -- Nichols Hills Bancorporation, Inc. . . n/a n/a .43 .48 -- -- Commercial Landmark Corporation . . . . n/a n/a .93 .72 -- -- Western National Bancorporation, Inc. . n/a n/a -- -- -- -- Ponca Bancshares, Inc. . . . . . . . . n/a n/a .99 .81 .15 .12 KNB Bancshares, Inc. . . . . . . . . . n/a n/a n/a n/a 3.06 .22 Mission Hills Bancshares, Inc. . . . . n/a n/a n/a n/a 1.51 .44 United Bank of Kansas, Inc. . . . . . . n/a n/a n/a n/a 17.78 .61 Fourth National Corporation . . . . . . n/a n/a n/a n/a .25 .44
19 - Restrictions on Intercompany Funds Transfers Restrictions imposed by federal law limit the transfer of funds to the Company and certain other affiliates from a subsidiary bank in the form of loans or other extensions of credit, investments, and purchases of assets. Transfers by a subsidiary bank to the Company or any such single affiliate may not exceed 10% and transfers in the aggregate may not exceed 20% of the bank's capital, surplus, and undivided profits, after adding back the allowance for credit losses and subtracting certain intangibles. Based on these limitations, approximately $56,638,000 was available for transfer to the Company at December 31, 1994. In addition, the approval of the Comptroller of the Currency is required if dividends declared by any of the Company's national bank subsidiaries in 1995 exceed the bank's net profits for that year combined with its retained net profits for 1993 and 1994. In 1995, the subsidiary banks may distribute to the Company (in addition to their 1995 net profits) an aggregate of approximately $39,944,000 in dividends without approval from regulatory agencies. 20 - Derivatives and Other Financial Instruments with Off-Balance-Sheet Risk In the normal course of business in meeting the investment and financing needs of its customers and managing its own exposure to fluctuations in interest rates, the Company is a party to various financial instruments. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Statements of Condition. Derivative financial instruments held for trading purposes: The Company enters into forward foreign currency contracts to primarily assist customers with their foreign currency needs related to foreign manufacturing operations, exporting, or importing. These customer-driven contracts are generally hedged with offsetting contracts. The Company's net position in forward foreign currency contracts plus due from bank accounts denominated in foreign currencies cannot exceed $2,500,000 on a daily basis. The market value gains and losses relating to forward foreign currency contracts are recorded at settlement in "Other noninterest income." The contracts held at December 31, 1993 all matured in January 1994. The contracts outstanding at December 31, 1994 will all mature by March 15, 1995. The Company maintains a trading account in which it takes positions in the interest-rate futures markets based on expectations of future market conditions. Interest rate futures contracts are commitments to either purchase or sell designated financial instruments at a future date for a specified price and may be settled in cash or through delivery. Initial margin requirements are met in cash or other instruments and changes in the contract value are settled daily and the gains or losses recorded in "Other noninterest income." The interest rate futures generally have contractual terms of up to six months, although the instruments are rarely held that long. It is the Company's policy to limit the contracts outstanding to $5,000,000. The contract amounts of derivative financial instruments held for trading purposes at December 31, 1994 and 1993 were as follows:
Contract Amount ------------------------- December 31, ------------------------- 1994 1993 ---------- ---------- (In thousands) Forward foreign currency contracts Commitments to purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $390 $1,506 Commitments to sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 461 211 Interest rate futures contracts . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
The following table presents the fair value of derivatives held for trading purposes at December 31, 1994 and on average for 1994. As permitted by FAS No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments," comparable disclosures for December 31, 1993 and on average for 1993 have not been presented.
1994 -------------------- Fair Value -------------------- Average Year-end for year --------- -------- (In thousands) Forward foreign currency contracts Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 464 $ 1,989 Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394 1,991 Interest rate futures contracts Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ -- Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- * ____________ * Less than $1,000.
The fair values of forward foreign currency and interest rate futures contracts represent an estimate of the accounting loss the Company would incur if any party to the financial instrument failed completely to perform and any collateral proved to be of no value to the Company. The net trading revenues arising from the Company's derivative trading activities for 1994 were not significant. Derivative financial instruments held for purposes other than trading: From time to time, interest rate swaps are used to modify the interest sensitivity position inherent in the repricing characteristics of specific assets or liabilities. Interest rate swaps involve the contractual exchange of fixed and floating rate interest payments based on established notional amounts. The notional amounts do not represent direct credit exposure. Credit exposure is limited to the net difference between the calculated pay and receive amounts on each transaction which is accrued as interest receivable or payable and generally netted and settled quarterly. The net interest accrued and received or paid on the interest rate swaps is accounted for as an adjustment to the interest income or interest expense on the assets or liabilities, respectively, that the swap was intended to modify. Net interest income for 1994 includes $1,544,000 attributable to interest rate swaps. The effect of interest rate swaps on 1993 was to increase net interest income by $19,000. At December 31, 1994 and 1993 interest rate swaps were as follows:
December 31, 1994 ----------------------------------------------------------------- Weighted Notional Average Weighted Average Rate -------------------------- Amount Term Received Paid ---------- -------- ---------- ---------- (In thousands) Receive fixed rate . . . . . . . . . . . . $151,000 18 months (1) 6.05% 5.90% Pay fixed rate . . . . . . . . . . . . . . 100,000 4 months 5.79% 4.25%
December 31, 1993 ----------------------------------------------------------------- Weighted Notional Average Weighted Average Rate -------------------------- Amount Term Received Paid ---------- -------- ---------- ---------- (In thousands) Receive fixed rate . . . . . . . . . . . . $ 51,000 29 months (1) 5.89% 3.47% Pay fixed rate . . . . . . . . . . . . . . 200,000 10 months 3.44% 3.94% - ------------- (1) The term of $50.0 million of these swaps may extend up to an additional 48 months after the initial term depending on the variable rate index at the end of the initial term and each quarter thereafter as compared to that same index when the swaps were initiated.
Activity in interest rate swaps is summarized below:
Receive Pay Fixed Rate Fixed Rate ---------- ---------- (Notional amounts, in thousands) Balance, January 1, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,000 $ -- Additions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 200,000 -------- -------- Balance, December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,000 200,000 Additions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 -- Maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (100,000) -------- -------- Balance, December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . $151,000 $100,000 ======== ========
At December 31, 1994, the Company was committed under agreements with the Federal National Mortgage Association and Federal Home Loan Mortgage Corporation to sell $4,080,000 of 10- to 30-year fixed-rate residential mortgage loans with coupons ranging from 8.59% to 9.39%. Residential mortgage loans held for sale included $206,000 of such loans at December 31, 1994. These commitments were all met in January 1995. Other financial instruments with off-balance-sheet risk: Single-family mortgage loans which the Company's subsidiaries originate for sale are sold without recourse. However, the Company is obligated under recourse provisions related to $39,873,000 of loans associated with its purchased mortgage servicing. The Company assesses the credit risk of these and other loan commitments when evaluating the adequacy of the allowance for credit losses. Commitments to extend credit are agreements to lend to a customer as long as the customer is in compliance with the conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company uses the same credit policies in making commitments as it does for direct extensions of credit. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, real estate, equipment, and income-producing commercial properties. Standby letters of credit irrevocably obligate the issuing bank to pay a third-party beneficiary when a customer fails to repay an outstanding debt instrument or fails to perform some contractual non-financial obligation. Standby letters of credit are primarily issued to secure bonds from insurance companies, provide security for self-insured portions of workers compensation insurance, and collateralize guaranties or secure loans to other financial institutions. A commercial letter of credit is issued to facilitate trade or commerce. Under the terms of a commercial letter of credit, drafts will be drawn when the underlying transaction is consummated as intended. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Substantially all letters of credit mature within two years. The following table summarizes the contract amount of the Company's commitments to extend credit.
Contract Amount ------------------------- December 31, ------------------------- 1994 1993 ---------- ---------- (In thousands) Commitments to extend credit: Standby letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 101,440 $ 91,810 Commercial letters of credit. . . . . . . . . . . . . . . . . . . . . . . . . . . 24,181 13,728 Credit card lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 480,809 329,183 Funding of 1-4 family residential mortgage loans. . . . . . . . . . . . . . . . . 51,192 117,151 Other loan commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,328,674 1,015,098
21 - Fair Values of Financial Instruments The following table presents the carrying amounts and fair values of the Company's financial instruments at December 31, 1994 and 1993.
1994 1993 ------------------------ ------------------------ Carrying Fair Carrying Fair Amount Value Amount Value ---------- ---------- ---------- ---------- (In thousands) Trading instruments: Debt securities . . . . . . . . . . . . . . . . . . $ 463 $ 463 $ 474 $ 474 Equity securities . . . . . . . . . . . . . . . . . 256 256 -- -- Foreign exchange contracts Assets. . . . . . . . . . . . . . . . . . . . . . -- 464 -- 208 Liabilities . . . . . . . . . . . . . . . . . . . -- (394) -- (1,505) Nontrading instruments: Cash and due from banks . . . . . . . . . . . . . . 435,879 435,879 320,660 320,660 Interest-bearing deposits in other financial institutions . . . . . . . . . . . . . . 499 501 3,025 3,072 Federal funds sold and securities purchased under agreements to resell . . . . . . . . . . . . 4,670 4,670 6,063 6,063 Securities. . . . . . . . . . . . . . . . . . . . . 2,937,130 2,827,416 2,962,702 2,964,463 Loans and leases. . . . . . . . . . . . . . . . . . 4,005,667 3,944,021 3,351,912 3,376,884 Deposits. . . . . . . . . . . . . . . . . . . . . . (5,647,148) (5,643,023) (5,436,563) (5,479,009) Federal funds purchased, securities sold under agreements to repurchase, and other borrowings . . (976,707) (976,707) (514,629) (514,629) Federal Home Loan Bank borrowings . . . . . . . . . (441,097) (440,268) (250,000) (251,402) Long-term debt. . . . . . . . . . . . . . . . . . . (4,685) (4,729) (20,283) (20,646) Interest-rate swaps relating to: Securities Assets. . . . . . . . . . . . . . . . . . . . . -- -- -- 26 Liabilities . . . . . . . . . . . . . . . . . . -- (5,045) -- (24) Loans Liabilities . . . . . . . . . . . . . . . . . . -- (1,571) -- -- Deposits Assets. . . . . . . . . . . . . . . . . . . . . -- 824 -- 154 Liabilities . . . . . . . . . . . . . . . . . . -- -- -- (721)
The carrying amounts in the table are included in the Statements of Condition under the indicated captions. The following methods and assumptions were used by the Company in estimating its fair value disclosures in accordance with FAS No. 107, "Disclosures About Fair Value of Financial Instruments." Because there is no market for many of these financial instruments, the Company has no basis to determine whether these estimated fair values would be indicative of the value that could be obtained in an arm's-length sale. Cash and due from banks: The carrying amounts reported in the consolidated statements of condition for cash and due from banks approximate those assets' fair values. Interest-bearing deposits in other financial institutions: Fair values of these fixed-rate certificates of deposit were estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates with similar maturities. Federal funds sold and securities purchased under agreements to resell: The carrying amounts of federal funds sold and securities purchased under agreements to resell approximate their fair values. Securities: Fair values for debt and equity securities were based on quoted market prices, where available. If quoted market prices were not available, fair values were based on quoted market prices of comparable instruments. Loans and leases: Except for variable-rate one-to-four-family mortgage loans, the fair values of variable-rate loans that reprice in accordance with indices were estimated to be equal to carrying values. A significant portion of a credit card portfolio's value results from the ongoing cardholder relationship that generates receivables and fees over time. This relationship value is not defined as a financial instrument and therefore not disclosed under FAS No. 107. The carrying values of the credit card receivables approximate their fair values. The fair values for one-to-four- family variable-rate and fixed- rate mortgage loans were based on quoted market prices of similar loans, adjusted for differences in loan characteristics. The fair values of other fixed-rate loans were estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms. Because the allowance for credit losses provides for the credit risk inherent in the loan and lease portfolio, neither the cash flows nor discount rates were adjusted to reflect changes in credit risk subsequent to when loans were originated. Nonperforming loans have not been discounted. Deposits: For deposits with no defined maturities, demand deposits, interest-bearing checking deposits, and savings deposits, FAS No. 107 defines fair value as the amount payable on demand at the reporting date (i.e., their carrying amounts). Included in "Intangible assets" at December 31, 1994 was $12,727,000 (net of accumulated amortization) representing the value of core deposits assumed in deposit assumption transactions. The value of the core deposit relationships built by the Company over time was neither considered in the fair value amounts nor recorded as an intangible asset in the statements of condition. The carrying amounts for variable-rate certificates of deposit approximated their fair values at the reporting date. Fair values for fixed-rate certificates of deposit were estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates with similar maturities. Federal funds purchased, securities sold under agreements to repurchase, and other borrowings: The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings approximate their fair values. Federal Home Loan Bank borrowings: The carrying amounts of the variable-rate FHLB borrowings approximate their fair values. A discounted cash flow analysis, using the current rates on FHLB borrowings of similar maturities, was used to estimate the fair values of the fixed-rate borrowings. Long-term debt: The fair value of the Company's long-term debt was estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. Off-balance-sheet instruments: No premium or discount was ascribed to loan commitments because virtually all funding will be at current market rates. The estimated fair values of the interest rate swaps generally represent an estimate of the amount the Company would receive or pay to terminate the agreement at the reporting date. These values were based on dealer quotes with respect to the amortizing swaps. For swaps with fixed maturities, the estimated values represent the present value of the cash flow stream discounted at current interest rate spreads. Fair values of forward foreign currency and interest rate futures contracts were based on quoted market prices. 22 - Commitments and Contingencies At December 31, 1994, the Company was committed to make future rental payments under several long-term lease agreements for land, buildings, and equipment. There were no material capital leases. Future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 1994 are as follows:
Years ending December 31, (In thousands) ------------------------- -------------- 1995 . . . . . . . . . . . . . $ 4,491 1996 . . . . . . . . . . . . . 4,021 1997 . . . . . . . . . . . . . 3,583 1998 . . . . . . . . . . . . . 3,392 1999 . . . . . . . . . . . . . 2,697 Later years . . . . . . . . . 13,089 ------- Total . . . . . . . . . . . $31,273 =======
Total rental expense (net of sublease income, which is not material) amounted to $5,214,000, $5,676,000, and $7,005,000 for 1994, 1993, and 1992, respectively. The Company and its subsidiaries are defendants in various legal proceedings that arise in the ordinary course of business. Claims in various amounts of up to approximately $20,000,000 have been asserted in some of these proceedings. However, after consultation with legal counsel, management believes that potential liabilities, if any, arising from these claims would not have a material adverse effect on the Company's business or financial condition. 23 - Condensed Financial Information of Parent Corporation In the following condensed financial information of Fourth Financial Corporation (parent only), investments in subsidiaries are recorded using the equity method of accounting. Fourth Financial Corporation (Parent Only) Condensed Statements Of Condition
December 31, ------------------------ 1994 1993 ---------- ---------- (In thousands) Assets: Cash in subsidiary banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,954 $ 862 Interest-bearing deposits in subsidiary banks. . . . . . . . . . . . . . . . . . . 12,543 1,856 Securities repurchase agreement with subsidiary bank . . . . . . . . . . . . . . . 16,600 23,100 Investment securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,111 893 Trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256 252 Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,983 18,281 Investments in bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 490,688 492,195 Investments in other subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . 31,544 46,615 Other assets (including receivables from subsidiaries of $4,964 in 1994 and $4,718 in 1993) . . . . . . . . . . . . . . . . . . . . . . 11,789 9,803 Cost in excess of net assets acquired. . . . . . . . . . . . . . . . . . . . . . . 48,240 42,157 -------- -------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $634,708 $636,014 ======== ======== Liabilities And Stockholders' Equity: Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,000 $ -- Other liabilities (including amounts owed to subsidiaries of $46 in 1994 and $314 in 1993). . . . . . . . . . . . . . . . . . . . . . . . . 8,266 9,744 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,375 19,420 -------- -------- Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,641 29,164 Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 602,067 606,850 -------- -------- Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . . $634,708 $636,014 ======== ========
Fourth Financial Corporation (Parent Only) Condensed Statements of Income
Year Ended December 31, ---------------------------------- 1994 1993 1992 -------- -------- -------- (In thousands) Dividends from subsidiaries: Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $126,245 $ 76,449 $ 57,580 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000 470 250 Fee income (principally from subsidiaries) . . . . . . . . . . . . . . . . 59,636 57,382 39,370 Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,587 1,775 3,555 Investment securities gains (losses) . . . . . . . . . . . . . . . . . . . (5) 161 -- Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 315 -- -------- -------- -------- Total income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205,463 136,552 100,755 -------- -------- -------- Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . 36,987 33,023 21,660 Furniture and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . 9,699 11,532 8,204 Net occupancy (includes rent paid to bank subsidiaries of $2,515 in 1994, $2,371 in 1993, and $1,632 in 1992). . . . . . . . . . 3,399 3,039 2,024 Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,225 2,482 2,407 Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,209 2,279 3,593 Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,187 2,180 1,780 Fees paid to bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . 404 42 196 Amortization of cost in excess of net assets acquired. . . . . . . . . . . 3,300 2,765 2,713 Merger and integration costs . . . . . . . . . . . . . . . . . . . . . . . 1,886 1,936 2,386 Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,205 12,655 6,766 -------- -------- -------- Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,501 71,933 51,729 -------- -------- -------- Income before income taxes, cumulative effect of a change in accounting principle, and undistributed net income of subsidiaries. . . . 128,962 64,619 49,026 Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,018 4,030 1,573 Cumulative effect of a change in accounting for income taxes . . . . . . . -- 681 384 Net income of subsidiaries in excess of (less than) dividends received . . (50,858) 7,962 14,216 -------- -------- ------- Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 83,122 $ 77,292 $65,199 ======== ======== =======
Fourth Financial Corporation (Parent Only) Condensed Statements of Cash Flows
Year Ended December 31, -------------------------------- 1994 1993 1992 -------- -------- -------- Increase (Decrease) in Cash and Cash Equivalents (In thousands) Cash Flows From Operating Activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 83,122 $ 77,292 $ 65,199 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization. . . . . . . . . . . . . . . . . . . . 8,454 7,728 6,400 Write-down of goodwill associated with a pooling transaction and other asset write-downs . . . . . . . . . . 1,061 1,250 -- Net income of subsidiaries (in excess of) less than dividends received. . . . . . . . . . . . . . . . . . . . . . . . . 50,858 (7,962) (14,216) Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . (108) (889) (275) Investment securities (gains) losses . . . . . . . . . . . . . . . . 5 (161) -- (Gain) loss on sale of equipment . . . . . . . . . . . . . . . . . . 25 (8) 377 Change in assets and liabilities, net of effects from purchases of acquired entities: Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,308) (4,561) (707) Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . (1,299) 1,411 1,218 -------- -------- -------- Net cash provided by operating activities. . . . . . . . . . . . 140,810 74,100 57,996 --------- -------- -------- Cash Flows From Investing Activities: Purchase of banks, net of cash acquired. . . . . . . . . . . . . . . . (90,720) (30,043) (9,951) Purchases of premises and equipment. . . . . . . . . . . . . . . . . . (6,971) (11,001) (3,310) Proceeds from sales of premises and equipment. . . . . . . . . . . . . 10 25 1,559 Purchase of available-for-sale securities. . . . . . . . . . . . . . . (368) (901) -- Proceeds from sales of available-for-sale securities . . . . . . . . . 5 -- -- Investments in subsidiaries. . . . . . . . . . . . . . . . . . . . . . (500) (15,290) (57,520) Liquidation of subsidiaries. . . . . . . . . . . . . . . . . . . . . . 637 -- -- -------- -------- -------- Net cash used in investing activities. . . . . . . . . . . . . . (97,907) (57,210) (69,222) -------- -------- -------- Cash Flows From Financing Activities: Net change in commercial paper . . . . . . . . . . . . . . . . . . . . -- (425) (2,751) Net change in other borrowings . . . . . . . . . . . . . . . . . . . . 20,000 (5,850) (7,256) Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . -- -- 1,028 Repayment of long-term debt. . . . . . . . . . . . . . . . . . . . . . (15,045) (14,065) (10,502) Acquisition of treasury stock. . . . . . . . . . . . . . . . . . . . . (10,018) (3,245) -- Dividends on common stock. . . . . . . . . . . . . . . . . . . . . . . (27,662) (22,705) (16,768) Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . (7,000) (7,000) (5,368) Proceeds from issuance of preferred stock, net of offering costs . . . -- -- 96,920 Proceeds from exercise of stock options. . . . . . . . . . . . . . . . 2,544 3,407 2,470 Purchase of minority stockholder interest. . . . . . . . . . . . . . . (36) -- -- Net change in stock option loans . . . . . . . . . . . . . . . . . . . (99) (726) (18) Capital transactions of pooled companies . . . . . . . . . . . . . . . (308) (1,670) (2,263) -------- -------- -------- Net cash provided by (used in) financing activities. . . . . . . (37,624) (52,279) 55,492 -------- -------- -------- Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . 5,279 (35,389) 44,266 Cash and cash equivalents at beginning of year . . . . . . . . . . . . . 25,818 61,207 16,941 -------- -------- -------- Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . $ 31,097 $ 25,818 $ 61,207 ======== ======== ======== Supplemental Disclosures: Cash and cash equivalents: Cash in subsidiary banks . . . . . . . . . . . . . . . . . . . . . . $ 1,954 $ 862 $ 642 Interest-bearing deposits in subsidiary banks. . . . . . . . . . . . 12,543 1,856 4,665 Securities repurchase agreements with subsidiary bank. . . . . . . . 16,600 23,100 55,900 -------- -------- -------- Total cash and cash equivalents. . . . . . . . . . . . . . . . . $ 31,097 $ 25,818 $ 61,207 ======== ======== ======== Cash payments for: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,165 $ 2,306 $ 3,786 ======== ======== ======== Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,455 $ 21,689 $ 16,094 ======== ======== ======== Detail of entities acquired: Fair value of bank stock and other assets acquired . . . . . . . . . $ 77,629 $ 20,986 $ 7,784 Cost in excess of net assets acquired. . . . . . . . . . . . . . . . 13,091 9,328 2,167 -------- -------- -------- Cash paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 90,720 $ 30,314 $ 9,951 ======== ======== ========
FOURTH FINANCIAL CORPORATION REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Fourth Financial Corporation We have audited the accompanying consolidated statements of condition of Fourth Financial Corporation as of December 31, 1994 and 1993 and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the 1992 financial statements of Commercial Landmark Corporation, Western National Bancorporation, Inc. or Ponca Bancshares, Inc., which statements reflect interest income constituting 14% of consolidated interest income. Those statements were audited by other auditors and our opinion, insofar as it relates to data included for these companies, is based solely on the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Fourth Financial Corporation at December 31, 1994 and 1993, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in Notes 1, 5 and 14 to the consolidated financial statements, in 1993 the Company changed its method of accounting for income taxes and investment securities. /s/ Ernst & Young LLP Ernst & Young LLP Wichita, Kansas January 17, 1995, except for the last paragraph of Note 5, as to which the date is February 23, 1995 WESTERN NATIONAL BANCORPORATION, INC. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Western National Bancorporation, Inc.: We have audited the consolidated balance sheets of Western National Bancorporation, Inc. (Western, an Oklahoma corporation) and subsidiary as of December 31, 1992 and 1991, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1992 (such financial statements are not presented herein) prior to the pooling of Western with Fourth Financial Corporation (see Note 2 to the consolidated financial statements of Fourth Financial Corporation contained herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Western National Bancorporation, Inc. and subsidiary as of December 31, 1992 and 1991, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1992, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Tulsa, Oklahoma March 11, 1993 COMMERCIAL LANDMARK CORPORATION AND SUBSIDIARIES Independent Auditors' Report The Board of Directors and Stockholders Commercial Landmark Corporation and Subsidiaries Muskogee, Oklahoma We have audited the accompanying consolidated balance sheets of Commercial Landmark Corporation and Subsidiaries as of December 31, 1992 and 1991, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Commercial Landmark Corporation and Subsidiaries as of December 31, 1992 and 1991, and the results of their operations and their cash flows, for the years then ended, in conformity with generally accepted accounting principles. /s/ Sartain Fischbein & Co. February 19, 1993 SARTAIN FISCHBEIN & CO. PONCA BANCSHARES, INC. Independent Auditors' Report The Board of Directors Ponca Bancshares, Inc. Ponca City, Oklahoma We have audited the accompanying consolidated balance sheet of Ponca Bancshares, Inc. and Subsidiary as of December 31, 1992 and the related consolidated statements of earnings, stockholders' equity and cash flows for the period from inception (February 4, 1992) to December 31, 1992. These financial statements are the responsibility of management. Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ponca Bancshares, Inc. and Subsidiary as of December 31, 1992, and the consolidated results of their operations and their cash flows for the period then ended in conformity with generally accepted accounting principles. /S/ GRA, Thompson, White & Co., P.A. GRA, THOMPSON, WHITE & CO., P.A. September 16, 1993
SELECTED CONSOLIDATED FINANCIAL DATA Year Ended December 31, ---------------------------------------------------------- 1994 1993(1) 1992(1) 1991(1) 1990(1) ---------- ---------- ---------- ---------- ---------- (Dollars in thousands, except per share data) Summary Income Statement Information: Interest income . . . . . . . . . . . . . . . . . . $ 483,474 $ 443,913 $ 438,888 $ 492,036 $ 482,193 Interest expense. . . . . . . . . . . . . . . . . . 206,554 179,502 197,531 278,281 299,070 Net interest income . . . . . . . . . . . . . . . . 276,920 264,411 241,357 213,755 183,123 Net interest income (fully tax-equivalent)(2) . . . 285,706 274,630 252,664 226,929 198,123 Provision for credit losses . . . . . . . . . . . . 275 6,965 21,358 43,926 49,527 Noninterest income. . . . . . . . . . . . . . . . . 97,835 86,282 80,794 83,542 65,960 Noninterest expense(3). . . . . . . . . . . . . . . 250,435 254,342 218,549 211,376 188,258 Net income before extraordinary item and cumula- tive effect of a change in accounting principle. . 83,122 66,710 62,696 31,766 5,304 Net income. . . . . . . . . . . . . . . . . . . . . 83,122 77,292 65,199 33,163 9,204 Net income applicable to common and common- equivalent shares. . . . . . . . . . . . . . . . . 76,122 70,292 59,248 33,163 9,204 Per Common Share Data(4): Earnings per common and common-equivalent share: Primary . . . . . . . . . . . . . . . . . . . . . $ 2.83 $ 2.67 $ 2.29 $ 1.33 $ .40 Fully diluted . . . . . . . . . . . . . . . . . . 2.74 2.55 2.21 1.30 .40 Fully diluted as originally reported(1) . . . . . 2.74 2.54 2.16 1.24 .98 Common dividend(5). . . . . . . . . . . . . . . . . 1.04 .98 .88 .88 .88 Book value(6) . . . . . . . . . . . . . . . . . . . 18.67 18.73 16.65 15.29 14.68 Average common and common-equivalent shares outstanding (000s). . . . . . . . . . . . . 26,915 26,325 25,901 25,008 22,814 Year-end common shares outstanding (000s) . . . . . 26,896 27,054 25,809 25,016 24,795 Year-end common shares outstanding assuming full dilution (000s). . . . . . . . . . . 30,344 30,503 30,169 26,032 25,453 Earnings Performance Ratios(7): Return on assets. . . . . . . . . . . . . . . . . . 1.13% 1.16% 1.10% .57% .17% Return on total stockholders' equity. . . . . . . . 13.94 13.72 13.06 8.78 2.61 Return on common stockholders' equity . . . . . . . 15.34 15.25 14.39 8.84 2.63 Summary Statement of Condition Information: Year-end assets . . . . . . . . . . . . . . . . . . $7,729,340 $6,886,063 $6,712,696 $5,790,555 $5,899,188 Year-end loans and leases . . . . . . . . . . . . . 4,005,667 3,351,912 2,922,576 2,881,931 3,065,193 Year-end allowance for credit losses. . . . . . . . 71,874 67,617 74,395 70,814 64,065 Year-end long-term debt . . . . . . . . . . . . . . 4,685 20,283 35,935 53,348 23,887 Year-end common stockholders' equity. . . . . . . . 502,067 506,850 429,770 382,522 363,942 Year-end stockholders' equity . . . . . . . . . . . 602,067 606,850 533,411 385,609 366,453 Average assets. . . . . . . . . . . . . . . . . . . 7,331,210 6,681,439 5,917,051 5,780,064 5,329,309 Average loans and leases. . . . . . . . . . . . . . 3,584,022 3,038,112 2,899,130 2,996,076 2,904,427 Average investment securities . . . . . . . . . . . 3,035,350 2,937,396 2,308,543 1,952,698 1,452,593 Average deposits. . . . . . . . . . . . . . . . . . 5,564,070 5,443,857 5,026,398 5,061,336 4,616,020 Average common stockholders' equity . . . . . . . . 496,206 460,979 411,758 375,346 349,698 Average stockholders' equity. . . . . . . . . . . . 596,206 563,291 499,242 377,857 352,209 Asset Quality Ratios: Allowance for credit losses/year-end loans and leases . . . . . . . . . . . . . . . . . . . . 1.79% 2.02% 2.55% 2.46% 2.09% Nonperforming assets/year-end loans plus other real estate and nonperforming assets . . . . . . . .88 1.31 2.01 3.44 4.45 Allowance for credit losses/year-end nonperforming loans. . . . . . . . . . . . . . . . 242.82 196.96 190.39 116.72 75.20 Net charge-offs/average loans and leases. . . . . . .04 .56 .83 1.26 1.17 Capital Ratios: Stockholders' equity/assets(7). . . . . . . . . . . 8.13% 8.43% 8.44% 6.54% 6.61% Leverage ratio(8)(9). . . . . . . . . . . . . . . . 7.16 7.52 Tier I risk-based capital(9)(10). . . . . . . . . . 11.05 12.68 Total risk-based capital(9)(10) . . . . . . . . . . 12.30 13.93 Common dividend payout ratio(11). . . . . . . . . . 36.75 36.70 38.43 66.17 220.00 ____________ (1) Prior year financial statements have been restated to reflect poolings of interests, refer to Notes 2 and 3 of the Notes to Consolidated Financial Statements. Fully diluted earnings per share as originally reported represent historical earnings per share as reported in the Company's annual report for the year indicated. (2) Stated on a tax-equivalent basis assuming a marginal tax rate of 35% in 1994 and 1993 and 34% in the previous years. (3) Noninterest expense included nonoperating charges of $2.8 million, $7.6 million, and $4.8 million for 1994, 1993, and 1992, respectively. (4) Adjusted for the five-for-four stock split effected as a 25% stock dividend on March 1, 1990. (5) Dividends per common share represent historical dividends declared without adjustment for the poolings of interests. (6) Refer to Note 1 of the Notes to Consolidated Financial Statements regarding the adoption of FAS No. 115 as of December 31, 1993. (7) Based on daily averages for all statement of condition items. (8) Tier I capital/fourth quarter average assets less certain intangibles. (9) Not computed for 1992, 1991, and 1990 to reflect poolings of interests. (10) Tier I capital is composed of common stockholders' equity less certain intangibles plus preferred stockholders' equity. Tier I capital does not include any unrealized gain or loss on securities available for sale. Total capital is Tier I capital plus the allowance for credit losses (limited to 1.25% of risk-weighted assets). Both capital amounts are divided by risk-weighted assets. (11) Common dividend per share divided by primary earnings per share.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Performance Summary Net income for 1994 was $83.1 million compared to $77.3 million for 1993 and $65.2 million for 1992. Fully diluted earnings per share were $2.74, $2.55, and $2.21 for 1994, 1993, and 1992, respectively. For 1994, return on assets and return on common equity were 1.13% and 15.34%, respectively. Return on assets was 1.16% for 1993 and 1.10% for 1992; return on common equity was 15.25% and 14.39% for the respective prior periods. These financial results reflect acquisitions accounted for as poolings of interests for the entire three-year period, as prior periods have been restated. However, acquisitions accounted for using the purchase method of accounting are only included in the results of operations for the periods subsequent to acquisition. The following schedule details the acquisitions completed during 1992, 1993, and 1994.
Number of Acquisition Company Accounting Assets Cash Shares Date Company Acquired/Location Abbreviation Method Acquired Paid Issued - ------------- ------------------------------------ ------------ ---------- ---------- ---------- -------- (In thousands) 1992 - - ------- July 31 Farmers and Merchants Bank, "FMB" Purchase $ 66,827 $ 8,921 -- Colby, KS September 9 KNB Bancshares, Inc., "KNB" Pooling 99,256 -- 267,390 Prairie Village, KS October 30 Mission Hills Bancshares, Inc., "MHB" Pooling 94,762 -- 358,709 Mission Woods, KS December 11 Southern Bancorp, Inc., "SBI" Purchase 64,510 9,951 -- Tulsa, OK December 30 United Bank of Kansas, Inc., "UBK" Pooling 122,885 -- 663,739 Liberal, KS December 31 Fourth National Corporation, "FNC" Pooling 368,325 -- 1,639,941 Tulsa, OK 1993 - - ------- February 12 Southgate Banking Corporation, "SBC" Pooling 62,628 -- 451,310 Prairie Village, KS May 14 Guaranty Bancorporation, "GB" Purchase 82,606 4,386 -- Tulsa, OK May 28 Bancshares of Woodward, Inc., "BOW" Purchase 130,192 17,859 -- Woodward and Waukomis, OK May 28 F&M Bank Services, Inc., "FBS" Purchase 61,565 8,068 -- Derby, KS May 28 Nichols Hills Bancorporation, Inc., "NHB" Pooling 97,869 -- 469,906 Nichols Hills, OK September 17 Commercial Landmark Corporation, "CLC" Pooling 465,060 -- 1,874,812 Muskogee, OK December 3 Western National Bancorporation, Inc., "WNB" Pooling 206,288 -- 1,110,695(1) Tulsa, OK December 10 Ponca Bancshares, Inc., "PBI" Pooling 117,275 -- 478,395 Ponca City, OK 1994 - - -------- May 26 Equity Bank for Savings, F.A. "Equity" Purchase 491,506 90,720 -- Oklahoma City, OK May 31 Emprise Bank, National Association "Emprise" Purchase 258,731 31,206 -- Hutchinson, KS June 30 First Dodge City Bancshares, Inc. "First Dodge" Pooling 144,999 -- 590,710(2) ---------- -------- --------- Dodge City, KS $2,935,284 $171,111 7,905,607 ========== ======== ========= ____________ (1) An additional 108,748 shares were issued on December 3, 1993 to acquire the minority interest of WNB's bank subsidiary. (2) An additional 70,300 shares were issued and $36,000 cash paid on June 30, 1994 to acquire the minority interest of First Dodge's two bank subsidiaries.
Three deposit assumption transactions also were completed during the three-year period ended December 31, 1994.
Transaction Liabilities Cash Date Location Assumed Paid --------------- --------------------------- ------------- ------------ (In thousands) March 27, 1992 Hays, KS $ 46,484 $ 57 December 31, 1992 Tulsa, OK 349,355 14,856 April 2, 1993 Mission, KS 99,399 1,141 -------- ------- $495,238 $16,054 ======== =======
Net income for both 1993 and 1992 included cumulative effects of a change in accounting principle or an extraordinary gain. A new accounting standard, Financial Accounting Standard ("FAS") No. 109 - Accounting for Income Taxes, was implemented effective January 1, 1993 and resulted in an addition to 1993 income of $10.6 million ($.35 per fully diluted share). Two of the companies acquired in pooling-of- interests transactions in 1993 had elected to adopt FAS No. 109 early, resulting in the $2.4-million ($.08 per fully diluted share) income item in 1992. An extraordinary item of $130,000 ($.01 per fully diluted share) in 1992 reflects the utilization of a net operating loss carryforward by First Dodge, a pooled company. Income before the extraordinary item and the cumulative effect of the change in accounting principle was $83.1 million, $66.7 million, and $62.7 million for 1994, 1993, and 1992, respectively. Net interest income increased by $12.5 million to total $276.9 million for 1994 as compared to $264.4 million for 1993. The increase in net interest income was principally related to the increased volume of interest-earning assets from purchase acquisitions and internal loan growth. Total average interest-earning assets were $6.6 billion for 1994, a $598.8-million, or 9.9%, increase over the prior year. Comparing 1994 and 1993, average loans and leases increased $545.9 million. The increase in net interest income attributable to the increased volume of interest-earning assets was partially offset by a decrease in the net yield on earning assets to 4.30% in 1994 from 4.54% in 1993. The decline in net yield reflects the impact that the cyclical increase in interest rates has had on the Company's cost of funds. The provision for credit losses totaled $275,000 and $7.0 million for 1994 and 1993, respectively. Pooled companies accounted for $4.6 million of the provision for 1993. The lower 1994 provision reflects the strong allowance for credit losses and continued improvement in credit quality as demonstrated by a lower level of nonperforming assets and fewer net charge-offs. Noninterest income was $97.8 million in 1994, a $11.5-million increase over the 1993 noninterest income of $86.3 million. Investment securities gains recognized during 1994 totaled $3.6 million compared to $1.5 million for 1993. Fees collected in the normal course of business increased $9.0 million or 10.7% to total $93.7 million for 1994 from $84.7 million for 1993. Approximately 63% of the increase in fee income was attributable to business combinations accounted for as purchases. Increases in trust fees, service charges on deposit accounts, and bank card fees were also due to business development, the larger customer base, and price changes. Noninterest expense totaled $250.4 million in 1994, down $3.9 million as compared to 1993. For 1994 the gains on the sales of other real estate and nonperforming assets exceeded the costs of operation of such assets by $1.1 million. In 1993 the $3.3 million of net costs of operations of other real estate and nonperforming assets was primarily attributable to a pooled company. Merger and integration costs associated with poolings of interests totaled $2.8 million and $7.6 million for 1994 and 1993, respectively. Operating expenses (noninterest expense less merger and integration costs and net costs of operations of other real estate and nonperforming assets) increased 2.4% to total $248.6 million in 1994. The Company's efficiency ratio (operating expense/fee income plus tax- equivalent net interest income) was 65.51% for the current year compared to 67.54% for the prior year. Operating expense in 1993 included $5.9 million of accelerated core deposit and purchased mortgage servicing amortization, data processing hardware depreciation, software amortization, and other unusual items. Between 1993 and 1992 income before the extraordinary item and the cumulative effect of the change in accounting for income taxes increased $4.0 million to total $66.7 million for 1993 from $62.7 million for 1992. The $23.1-million increase in net interest income was related to the increased volume of interest-earning assets principally attributable to acquisitions. The larger customer base plus aggressive sales efforts resulted in a larger volume of service charge transactions, expanded brokerage and annuity sales activities, and additional merchant and credit cardholder sales volumes which contributed to the $5.5-million increase in noninterest income. The $14.4-million decrease in the provision for credit losses between 1993 and 1992 reflected a strong allowance for credit losses and improvement in credit quality as demonstrated by a lower level of nonperforming assets and fewer net charge-offs in 1993 as compared to 1992. The $35.8-million increase in noninterest expense principally reflects the Company's substantial acquisition activity in 1993 and 1992. Net Interest Income For 1994, net interest income amounted to $276.9 million, representing an increase of $12.5 million or 4.7% over the $264.4 million earned during 1993. On a fully tax-equivalent basis, net interest income increased 4.0% to total $285.7 million in 1994 from $274.6 million in 1993. The increase in net interest income was attributable to the increase in earning assets associated with acquisitions and loan growth. Total average interest-earning assets were $6.6 billion for 1994, a $598.8-million or 9.9% increase over 1993. Purchase acquisitions completed in 1994 and 1993 account for most of this increase. Comparing 1994 and 1993, average loans and leases increased $545.9 million or 18.0%. Approximately 59% of the increase was attributable to internal loan growth with the remainder due to purchase acquisitions. Average investment securities only increased $98.0 million or 3.3% as the proceeds from maturities and prepayments were used to fund loan growth. Average deposits did not increase significantly. The increased deposits from acquisitions were offset by attrition, a reflection of increased bank and nonbank competition. As a result, the increased earning assets were principally funded by increases in federal funds purchased and securities sold under agreements to repurchase of $242.7 million and Federal Home Loan Bank borrowings of $251.1 million. Average interest-earning assets of $6.0 billion in 1993 were $704.7 million larger than the 1992 average interest-earning assets of $5.3 billion. This increase, principally due to acquisitions, resulted in the $23.1-million increase in net interest income for 1993 as compared to 1992. During both 1994 and 1993, the increase in net interest income attributable to the increased volume of interest-earning assets was partially offset by a decrease in the net yield on earning assets. The 1994 net yield of 4.30% declined from 4.54% for 1993 and 4.73% for 1992. The declining net yield reflects the difference in repricing characteristics of the Company's assets and liabilities. Its deposits and borrowed funds have a shorter duration than its loans and securities. Consequently, as interest rates decreased in 1992, interest-bearing liabilities repriced faster than interest-earning assets resulting in a higher net yield during that period. However, during 1993, as the proceeds from investment security maturities and prepayments were reinvested at the lower rates which prevailed through 1993, the net yield declined. During 1994, the Board of Governors of the Federal Reserve System increased the discount rate 175 basis points. The resulting higher market interest rates were reflected in the increasing cost of interest-bearing liabilities and a lower net yield. Loan fees included in net interest income amounted to $11.2 million, $11.5 million, and $8.5 million for 1994, 1993, and 1992, respectively. The increase in loan fees between 1993 and 1992 reflected an increase in the volume of residential mortgage loan originations associated with home purchases and the refinancing of existing mortgages, both of which were stimulated by the relatively low mortgage interest rates. The pace of residential mortgage loan originations decreased during 1994 as mortgage interest rates increased. Also during 1994, origination fees were waived on $47.8 million of loans (1,321 loans) originated under the Company's new program for low-to-moderate income borrowers. The following table provides the dollar volume and the number of residential mortgage loan originations during each of the last three years.
Year Ended December 31, -------------------------------------------- 1994 1993 1992 ---------- ---------- ---------- (Dollars in thousands) Residential mortgage loan originations: Dollar volume . . . . . . . . . . . . . . . . . . . . . . . $385,337 $451,966 $288,921 Number of loans . . . . . . . . . . . . . . . . . . . . . . 5,887 6,789 4,190
The following table summarizes the changes in net interest income on a fully tax-equivalent basis, by major category of interest-earning assets and interest-bearing liabilities, identifying changes related to volumes, to rates, and to both volumes and rates. Nonaccrual loans are included in the loan volumes used to calculate the following analysis of net interest income; however, interest collected on such loans is usually recorded as a reduction in loans outstanding and is excluded from interest income.
1994 vs 1993 --------------------------------------------- Change Total Attributable to --------------------------------- Change Volume Yield/Rate Combination -------- -------- ---------- ----------- (In thousands) Increase (decrease) in: Interest income: Loans and leases(1) . . . . . . . . . . . . . . . . . $ 41,758 $ 47,276 $ (4,557) $ (961) Interest-bearing deposits in other financial institutions . . . . . . . . . . . . . . . (136) (157) 62 (41) Federal funds sold and securities purchased under agreements to resell . . . . . . . . (1,041) (1,255) 648 (434) Taxable investment securities . . . . . . . . . . . . 1,894 6,917 (4,881) (142) Tax-preferred investment securities(1). . . . . . . . (4,294) (2,545) (1,920) 171 Trading account securities(1) . . . . . . . . . . . . (53) (60) 9 (2) -------- -------- -------- -------- Total interest income change. . . . . . . . . . . . 38,128 50,176 (10,639) (1,409) -------- -------- -------- -------- Interest expense: Savings and interest checking . . . . . . . . . . . . (1,543) 1,564 (2,964) (143) Time deposits . . . . . . . . . . . . . . . . . . . . 988 944 44 -- Federal funds purchased and securities sold under agreements to repurchase. . . . . . . . . 15,311 7,329 4,941 3,041 Federal Home Loan Bank borrowings . . . . . . . . . . 12,357 9,920 959 1,478 Other borrowings. . . . . . . . . . . . . . . . . . . 1,214 748 241 225 Long-term debt. . . . . . . . . . . . . . . . . . . . (1,275) (1,104) (335) 164 -------- -------- -------- -------- Total interest expense change . . . . . . . . . . . 27,052 19,401 2,886 4,765 -------- -------- -------- -------- Increase (decrease) in net interest income on a taxable equivalent basis(1) . . . . . . . 11,076 $ 30,775 $(13,525) $ (6,174) -------- ======== ======== ======== Decrease in taxable equivalent adjustment. . . . . . . 1,433 -------- Net interest income change . . . . . . . . . . . . . . $ 12,509 ========
1993 vs 1992 --------------------------------------------- Change Total Attributable to --------------------------------- Change Volume Yield/Rate Combination -------- -------- ---------- ----------- (In thousands) Increase (decrease) in: Interest income: Loans and leases(1) . . . . . . . . . . . . . . . . . $ (6,450) $ 12,925 $(18,554) $ (821) Interest-bearing deposits in other financial institutions . . . . . . . . . . . . . . . (197) (156) (65) 24 Federal funds sold and securities purchased under agreements to resell . . . . . . . . (2,435) (2,141) (586) 292 Taxable investment securities . . . . . . . . . . . . 16,126 43,940 (21,380) (6,434) Tax-preferred investment securities(1). . . . . . . . (3,026) (973) (2,119) 66 Trading account securities(1) . . . . . . . . . . . . (81) (45) (48) 12 -------- -------- -------- -------- Total interest income change. . . . . . . . . . . . 3,937 53,550 (42,752) (6,861) -------- -------- -------- -------- Interest expense: Savings and interest checking . . . . . . . . . . . . (5,979) 8,462 (12,810) (1,631) Time deposits . . . . . . . . . . . . . . . . . . . . (19,402) 3,780 (22,492) (690) Federal funds purchased and securities sold under agreements to repurchase. . . . . . . . . 3,019 4,614 (1,041) (554) Federal Home Loan Bank borrowings . . . . . . . . . . 6,415 6,415 -- -- Other borrowings. . . . . . . . . . . . . . . . . . . (680) (350) (431) 101 Long-term debt. . . . . . . . . . . . . . . . . . . . (1,402) (1,530) 220 (92) -------- -------- -------- -------- Total interest expense change . . . . . . . . . . . (18,029) 21,391 (36,554) (2,866) -------- -------- -------- -------- Increase (decrease) in net interest income on a taxable equivalent basis(1) . . . . . . . 21,966 $ 32,159 $ (6,198) $ (3,995) -------- ======== ======== ======== Decrease in taxable equivalent adjustment. . . . . . . 1,088 -------- Net interest income change . . . . . . . . . . . . . . $ 23,054 ======== ____________ (1) Computed on a tax-equivalent basis assuming a marginal tax rate of 35% in 1994 and 1993 and 34% in 1992.
The following table presents average balances, income and expense, and yields and rates for 1994, 1993 and 1992.
1994 1993 1992 -------------------------- -------------------------- -------------------------- Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate Balance Expense Rate ---------- -------- ------ ---------- -------- ------ ---------- -------- ------ (Dollars in thousands) Assets: Interest-Earning Assets: Loans and leases(1)(2). . . $3,584,022 $304,938 8.51% $3,038,112 $263,180 8.66% $2,899,130 $269,630 9.30% Interest-bearing deposits in other financial institutions . . . . . . . 1,715 97 5.63 5,249 233 4.44 8,233 430 5.23 Federal funds sold and securities purchased under agreements to resell . . . 19,663 824 4.19 60,025 1,865 3.11 119,501 4,300 3.60 Investment securities: Taxable . . . . . . . . . 2,829,210 161,370 5.70 2,711,570 159,476 5.88 2,075,687 143,350 6.91 Tax-preferred(1). . . . . 206,140 24,905 12.08 225,826 29,199 12.93 232,856 32,225 13.84 Trading securities(1) . . . 2,227 126 5.58 3,348 179 5.31 4,048 260 6.49 ---------- -------- ---------- -------- --------- -------- Total interest-earning assets(1). . . . . . . 6,642,977 492,260 7.41 6,044,130 454,132 7.51 5,339,455 450,195 8.43 Cash and due from banks . . . 382,247 346,361 311,646 Bank premises and equipment, net . . . . . . . 153,245 134,400 115,932 Income receivable and other assets . . . . . . . . 138,580 167,781 179,591 Intangible assets, net. . . . 85,194 63,086 44,498 Allowance for credit losses . (71,033) (74,319) (74,071) ---------- ---------- ---------- Total assets. . . . . . $7,331,210 $6,681,439 $5,917,051 ========== ========== ========== Liabilities And Stockholders' Equity: Interest-Bearing Liabilities: Interest-bearing deposits: Savings and interest checking . . . . . . . . $2,178,052 $ 52,755 2.42% $2,116,957 $ 54,298 2.56% $1,856,594 $ 60,277 3.25% Time under $100,000 . . . 2,014,562 87,907 4.36 1,986,635 89,796 4.52 1,874,455 106,945 5.71 Time of $100,000 or more. 386,044 16,862 4.37 392,341 13,985 3.56 433,702 16,238 3.74 ---------- -------- ---------- -------- ---------- -------- Total interest-bearing deposits . . . . . . . 4,578,658 157,524 3.44 4,495,933 158,079 3.52 4,164,751 183,460 4.41 Federal funds purchased and securities sold under agreements to repurchase . 637,956 27,245 4.27 395,290 11,934 3.02 260,364 8,915 3.42 Federal Home Loan Bank borrowings . . . . . . . . 413,741 18,772 4.54 162,603 6,415 3.95 -- -- -- Other borrowings. . . . . . 42,433 2,015 4.75 21,946 801 3.65 28,737 1,481 5.15 Long-term debt. . . . . . . 9,427 998 10.58 18,320 2,273 12.41 31,390 3,675 11.71 ---------- -------- ---------- -------- ---------- -------- Total interest-bearing liabilities. . . . . . 5,682,215 206,554 3.64 5,094,092 179,502 3.52 4,485,242 197,531 4.40 -------- -------- -------- Noninterest-bearing deposits. 985,412 947,924 861,647 Other liabilities and minority interest in subsidiaries . . . . . . . . 67,377 76,132 70,920 ---------- ---------- ---------- Total liabilities . . . 6,735,004 6,118,148 5,417,809 Preferred stockholders' equity . . . . . . . . . . . 100,000 102,312 87,484 Common stockholders' equity . 496,206 460,979 411,758 ---------- ---------- ---------- Total stockholders' equity . . . . . . . . 596,206 563,291 499,242 ---------- ---------- ---------- Total liabilities and stockholders' equity . $7,331,210 $6,681,439 $5,917,051 ========== ========== ========== Net interest income(1). . . . . $285,706 $274,630 $252,664 ======== ======== ======== Rate Analysis: Interest income/ interest-earning assets(1). 7.41% 7.51% 8.43% Interest expense/ interest-earning assets . . 3.11 2.97 3.70 ----- ----- ----- Net yield on earning assets(1) . . . . . . 4.30% 4.54% 4.73% ===== ===== ===== ___________ (1) Income and rates are stated on a tax-equivalent basis assuming a marginal tax rate of 35% in 1994 and 1993 and 34% in 1992. (2) Nonaccrual loans are included in loans and leases.
Provision for Credit Losses The provisions for credit losses were $275,000, $7.0 million, and $21.4 million for 1994, 1993, and 1992, respectively. The provisions for 1993 and 1992 include $4.6 million and $5.8 million, respectively, associated with the current and prior year poolings of interests. The lower provision for credit losses in 1994 reflects the strong allowance for credit losses and continued improvement in credit quality as demonstrated by fewer net charge-offs and a lower level of nonperforming assets. Net charge-offs for 1994 totaled $1.5 million or .04% of average loans as compared to net charge-offs of $17.0 million or .56% of average loans for 1993 and $24.1 million or .83% of average loans for 1992. Nonperforming loans at December 31, 1994 were $29.6 million, down from $34.3 million at year-end 1993 and $39.1 million at year-end 1992. The ratio of allowance for credit losses to nonperforming loans increased to 242.82% at December 31, 1994, compared with 196.96% at December 31, 1993 and 190.39% at December 31, 1992. Noninterest Income Total noninterest income was $97.8 million for 1994, representing an increase of $11.5 million or 13.4% over the $86.3 million recorded for 1993. Investment securities gains and unusual revenues increased $2.5 million and fees collected in the normal course of business increased $9.0 million or 10.7% to total $93.7 million for 1994 from $84.7 million for 1993. Approximately 63% of the increase in fees collected in the normal course of business was attributable to business combinations accounted for as purchases. Investment securities gains realized during 1994 totaled $3.6 million compared to $1.5 million in 1993. Substantially all of the securities gains recognized in 1994 were recorded in the first quarter when, in anticipation of rising interest rates, the Company elected to sell $448.7 million of its available-for-sale securities. In addition $151.2 million of investment securities principally acquired in the Equity acquisition were sold with no gain or loss recognized. The $1.5 million of investment securities gains recognized in 1993 were due principally to called bonds. During the second quarter of 1994 a gain of $471,000 was realized on the sale of the Company's investment in a data processing company which had been accumulated through various bank acquisitions. The most significant changes in fee income between 1994 and 1993 occurred in trust fees, service charges on deposit accounts, and bank card fees. Trust fees increased $2.5 million or 13.3%, service charges on deposit accounts increased $4.7 million or 14.1%, and bank card fees increased $3.8 million or 36.5%. Exclusive of purchase transactions, 1994 trust fees, service charges, and bank card fees each increased approximately 10% over the amounts earned in 1993. The increase in trust fees was the result of increased sales efforts and the introduction of Funds IV, a family of seven publicly traded no-load mutual funds managed by the trust division. The increase in service charges was attributable to both consumer and commercial customers. These increased revenues were due to commercial and retail account pricing changes, a reduction in waived fees, and a larger volume of fee-based transactions. The increased bank card fees reflect internal growth plus the acquisition of Equity, including its credit card division that serviced approximately 77,000 customer accounts. Brokerage and annuity sales commissions were $3.6 million for 1994 compared to $5.4 million for 1993. The $1.8-million decrease in brokerage and annuity sales commissions reflects a reduced volume of brokerage transactions associated with uncertain market conditions and the impact of an internal reorganization on this business. Foreign currency trading profits and foreign transaction fees increased 45.9% to total $1.1 million for 1994. The Company enters into foreign currency contracts primarily to assist customers with their foreign currency needs related to their foreign manufacturing operations, exporting, or importing. Other fee income for 1994 included an $82,000 loss on the sale of residential mortgage loans held for sale as compared with mortgage- loan-sales gains of $584,000 realized for 1993. Also included in other fee income were fees for providing data processing services to correspondent banks of $120,000 and $666,000 for the years ended December 31, 1994 and 1993, respectively. These services have been substantially discontinued. Total noninterest income was $86.3 million for 1993, as compared to $80.8 million for 1992. Investment securities gains were $1.5 million in 1993 and $2.9 million in 1992. The 1992 lawsuit settlement gain of $1.5 million was attributable to a pooled company. Fees collected in the normal course of business increased 11.2% to $84.7 million for 1993 from $76.2 million for 1992. The increased fees were principally due to increased service charges on deposit accounts and brokerage and annuity sales fees. Real estate loan service fees declined $883,000 between 1993 and 1992 due to accelerated prepayments on serviced loans in 1993 caused by the high volume of mortgage loan refinancings which was stimulated by low interest rates. The following table provides an analysis of noninterest income segregated between fees collected in the normal course of business and other revenues for the past three years.
Percent Change --------------- Year Ended December 31, 1993- 1992- -------------------------------- 1994 1993 1992 1994 1993 -------- -------- -------- ------ ------ (Dollars in thousands) Fee income: Trust fees . . . . . . . . . . . . . . . . . . . . . $21,041 $18,577 $17,828 13.3% 4.2% Service charges on deposit accounts . . . . . . . . . 38,306 33,575 27,628 14.1 21.5 Bank card fees . . . . . . . . . . . . . . . . . . . 14,173 10,385 9,740 36.5 6.6 Brokerage and annuity sales commissions . . . . . . . 3,620 5,355 3,530 (32.4) 51.7 Trading account profits and commissions . . . . . . . 921 770 840 19.6 (8.3) Real estate loan service fees . . . . . . . . . . . . 2,654 2,399 3,282 10.6 (26.9) Safe deposit rent . . . . . . . . . . . . . . . . . . 1,611 1,443 1,273 11.6 13.4 Travelers and official check fees and item handling charges . . . . . . . . . . . 2,442 2,205 2,335 10.7 (5.6) Foreign currency trading profits and foreign transaction fees . . . . . . . . . . . . . . . . . . 1,100 754 526 45.9 43.3 Insurance premiums. . . . . . . . . . . . . . . . . . 1,967 1,564 1,369 25.8 14.2 Other . . . . . . . . . . . . . . . . . . . . . . . . 5,897 7,662 7,802 (23.0) (1.8) ------- ------- ------- Total fee income . . . . . . . . . . . . . . . . . 93,732 84,689 76,153 10.7 11.2 Other revenues: Investment securities gains . . . . . . . . . . . . . 3,632 1,486 2,904 1.4X (.5) Gain on sale of credit card loans . . . . . . . . . . -- -- 169 Gain on sale of acquired stock. . . . . . . . . . . . 471 -- -- RTC reimbursements . . . . . . . . . . . . . . . . . -- 107 68 57.4 Lawsuit settlement. . . . . . . . . . . . . . . . . . -- -- 1,500 ------- ------- ------- Total noninterest income. . . . . . . . . . . . . . $97,835 $86,282 $80,794 13.4 6.8 ======= ======= ======= Fee income/average assets . . . . . . . . . . . . . . 1.28% 1.27% 1.29% Noninterest income/average assets . . . . . . . . . . 1.33% 1.29% 1.37%
Noninterest Expense Noninterest expense amounted to $250.4 million, $254.3 million, and $218.5 million for 1994, 1993, and 1992, respectively. Noninterest expense for each of these years includes certain nonoperating items such as net costs of operation of other real estate and nonperforming assets, merger and integration costs, and other unusual items. Gains from sales of other real estate and nonperforming assets exceeded the costs of operation of such assets, resulting in a net gain of $1.1 million in 1994 as compared to the net costs recorded in 1993 and 1992 of $3.3 million and $2.5 million, respectively. The costs of nonperforming assets in 1993 were principally attributable to a pooled company. As detailed in Note 13 of the Notes to Consolidated Financial Statements, merger and integration costs for each of the years included write-downs of excess facilities and equipment, severance and other compensation, system conversion costs, legal, accounting, and other costs all associated with the merger and integration of pooling-of- interests acquisitions. Operating expense amounted to $248.6 million and $242.7 million for 1994 and 1993, respectively. The 1993 operating expense included several unusual items: $1.2 million accelerated data processing hardware depreciation and software amortization related to the Company's commitment to improve its technology and systems; $2.8 million of additional core deposit intangibles amortization and $768,000 of FDIC exit/entrance fee amortization both associated with disintermediation of acquired deposits; and an acceleration of purchased mortgage servicing rights amortization associated with a more rapid pay-off of mortgage loans serviced for other investors. Amortization of purchased mortgage servicing rights was $993,000 in 1994 as compared to $2.1 million for 1993. Exclusive of these unusual items, operating expense increased $11.9 million, which was attributable to business combinations accounted for as purchases. The Company's efficiency ratio (operating expense/fee income plus tax- equivalent net interest income) was 65.51% for 1994 as compared to 67.54% for 1993. Operating expense increased $31.9 million or 15.1% to total $242.7 million for 1993 from $210.8 million for 1992. The Company's efficiency ratio was 67.54% for 1993 as compared to 64.12% for 1992. In addition to the unusual 1993 expense items, the increased operating expenses and efficiency ratio reflect operating expenses of purchased business combinations subsequent to consummation (including intangible asset amortization) and normal inflation-related and other cost increases. The large number of acquisitions completed in 1992 and 1993 required a substantial commitment of resources for thorough assessment of credit and other business risks; software systems conversion and operations consolidation; and advertising, training, and other costs associated with changing to the BANK IV sales and credit culture, products, and services. The following table presents an analysis of noninterest expense for the past three years.
Percent Change --------------- Year Ended December 31, 1993- 1992- -------------------------------- 1994 1993 1992 1994 1993 -------- -------- -------- ------ ------ (Dollars in thousands) Salaries and employee benefits . . . . . . . . . . . . $126,279 $117,291 $103,008 7.7% 13.9% Furniture and equipment. . . . . . . . . . . . . . . . 22,529 23,534 19,611 (4.3) 20.0 Net occupancy. . . . . . . . . . . . . . . . . . . . . 17,729 16,699 15,444 6.2 8.1 FDIC insurance . . . . . . . . . . . . . . . . . . . . 12,598 13,117 12,124 (4.0) 8.2 Bank card. . . . . . . . . . . . . . . . . . . . . . . 3,273 3,295 1,224 (.7) 1.7X Advertising and public relations . . . . . . . . . . . 9,436 8,481 6,429 11.3 31.9 Communication. . . . . . . . . . . . . . . . . . . . . 4,269 3,778 2,681 13.0 40.9 Postage and freight. . . . . . . . . . . . . . . . . . 6,764 6,259 5,474 8.1 14.3 Supplies, printed materials and forms. . . . . . . . . 4,906 5,241 5,371 (6.4) (2.4) Federal Reserve service fees . . . . . . . . . . . . . 1,729 1,510 1,103 14.5 36.9 Loan acquisition and maintenance . . . . . . . . . . . 3,003 2,425 2,518 23.8 (3.7) Outside service fees . . . . . . . . . . . . . . . . . 3,222 4,642 6,127 (30.6) (24.2) Consulting fees. . . . . . . . . . . . . . . . . . . . 1,575 1,670 1,703 (5.7) (1.9) Other professional fees and examinations . . . . . . . 5,111 5,725 6,159 (10.7) (7.0) Amortization of intangible assets. . . . . . . . . . . 10,154 12,549 5,821 (19.1) 1.2X Other . . . . . . . . . . . . . . . . . . . . . . . . 15,991 16,485 16,031 (3.0) 2.8 -------- -------- -------- Total operating expense . . . . . . . . . . . . . 248,568 242,701 210,828 2.4 15.1 Net costs of operation of other real estate and nonperforming assets . . . . . . . . . . . (1,064) 3,339 2,497 33.7 Merger and integration costs . . . . . . . . . . . . . 2,847 7,634 4,798 (62.7) 59.1 Minority interest. . . . . . . . . . . . . . . . . . . 84 355 426 (76.3) (16.7) Lawsuit settlement . . . . . . . . . . . . . . . . . . -- 313 -- -------- -------- -------- Total noninterest expense. . . . . . . . . . . . . $250,435 $254,342 $218,549 (1.5) 16.4 ======== ======== ======== Noninterest expense/average assets . . . . . . . . . . 3.42% 3.81% 3.69% Noninterest expense less noninterest income/average assets . . . . . . . . . . . . . . . . 2.08% 2.52% 2.33% Operating expense less fee income/average assets . . . . . . . . . . . . . . . . 2.11% 2.36% 2.28% Operating expense/fee income plus tax-equivalent net interest income. . . . . . . . . . 65.51% 67.54% 64.12%
Income Taxes Effective January 1, 1993, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by FAS No. 109, "Accounting for Income Taxes." Shown separately in the 1993 Statement of Income is the $10.6 million cumulative effect of adopting FAS No. 109 as of January 1, 1993. Two pooled companies elected early adoption of FAS No. 109, resulting in a $2.4-million increase in 1992 earnings. Income tax expense amounted to $40.9 million, $22.7 million, and $19.5 million for 1994, 1993, and 1992, respectively. The higher tax expense in 1994 was attributable to a higher level of income before taxes. Income tax expense for 1993 was reduced by changes in the valuation allowance for deferred tax assets principally associated with net operating losses of pooled entities. In 1992, alternative minimum tax ("AMT") credits were recognized, reducing the tax provision to the amount which would have been recorded using the AMT provisions of the tax law. At December 31, 1994, the Company had net operating loss and general business credit carryforwards of $61.4 million and $330,000, respectively, which can be carried forward to reduce future federal income taxes payable. These carryforwards are principally related to previous tax losses of banks and S&Ls acquired in 1994, 1993, and 1992. Utilization of the carryforwards is limited by tax law to the future earnings of and other limits on the use of tax attributes of acquired companies. Net operating loss carryforwards expire in years 2000 through 2007 and general business credit carryforwards expire in years 1995 through 2002 if not utilized. At December 31, 1994, for financial reporting purposes, a valuation allowance of $12.6 million offset the deferred tax assets related to these carryforwards and other deferred tax assets whose realization is uncertain. If realized, the tax benefit of $11.8 million associated with certain net operating loss carryforwards to which this valuation allowance relates will be applied to reduce "cost in excess of net assets acquired" recorded in connection with acquisitions accounted for as purchases. Statements of Condition Total assets amounted to $7.7 billion, $6.9 billion, and $6.7 billion at December 31, 1994, 1993, and 1992, respectively. During 1994 and 1993, the Company completed five bank and S&L acquisitions accounted for as purchases and one bank deposit assumption transaction. Assets acquired in these six transactions totaled $1.1 billion. The statements of condition for all of the periods presented include six business combinations accounted for as poolings of interests. In aggregate the pooled companies had assets of $1.1 billion. The following sections describe the changes in the major Statement of Condition categories. Loans and Leases Period-end loans and leases increased $653.8 million or 19.5% to total $4.0 billion at December 31, 1994. Loans added through bank and S&L purchase transactions totaled $296.5 million and net internal loan growth was $357.3 million. Increases were realized in both commercial and retail categories. The commercial loan categories increased an aggregate of $445.7 million or 23.6% to total $2.3 billion at December 31, 1994. Retail loan categories increased $208.0 million or 14.2% to total $1.7 billion. In addition to the effect of acquisitions, these increases were attributable to a continued emphasis on business development efforts and increasing credit demands associated with the strengthening of the economy in Kansas and Oklahoma. Total loans also increased between December 31, 1993 and 1992. Loans added through bank purchase transactions totaled $121.7 million. Net internal loan growth was $307.6 million. During 1992 and 1991, both commercial and retail loan demand were affected by an uncertain economic environment, and except for the origination and refinancing activity in loans secured by 1-4 family mortgages, most loan categories showed little change. Total loans decreased $183.3 million or 6.0% to $2.9 billion at December 31, 1991 from $3.1 billion at year-end 1990. The decreases, which were realized in almost all categories, were attributable to the lack of loan demand and the effect of implementing enhanced underwriting standards which emphasize cash flow rather than collateral-based lending. Credit card loans decreased $16.3 million, or 16.9%, between year-ends 1991 and 1990 as an affinity group exercised its option to purchase its portfolio from the Company. The Company makes most of its loans within Kansas, Oklahoma, and the contiguous states and to Kansas- and Oklahoma-based customers that do business in other states. The Company's commercial and industrial loans principally are made to middle market and small businesses. At December 31, 1994, the Company had 15 lending relationships in which the aggregate loan amount was $10.0 million or more. The Company had no single lending relationship with an aggregate loan amount outstanding in excess of $20 million. The Company had no industry concentrations greater than 10.0% of total loans outstanding and no foreign loans at December 31, 1994. The following table shows the composition of loans and leases for the past five years.
December 31, ---------------------------------------------------------- 1994 1993 1992 1991 1990 ---------- ---------- ---------- ---------- ---------- (In thousands) Commercial: Commercial and industrial . . . . . . . . . . . $1,018,753 $ 889,024 $ 752,956 $ 744,281 $ 846,321 Agriculture . . . . . . . . . . . . . . . . . . 227,300 196,029 169,742 176,812 162,392 Energy. . . . . . . . . . . . . . . . . . . . . 129,742 77,962 55,754 60,053 69,091 Bank stock. . . . . . . . . . . . . . . . . . . 25,173 46,453 51,967 52,994 65,076 Real estate: Construction . . . . . . . . . . . . . . . . . 133,853 92,636 67,036 94,610 113,279 Permanent commercial real estate and other . . 688,779 513,270 450,494 438,571 453,539 Lease financing . . . . . . . . . . . . . . . . 86,098 40,195 29,490 27,166 25,235 Other . . . . . . . . . . . . . . . . . . . . . 27,546 35,964 40,685 62,526 80,760 ---------- ---------- ---------- ---------- ---------- Total commercial loans. . . . . . . . . . . . 2,337,244 1,891,533 1,618,124 1,657,013 1,815,693 ---------- ---------- ---------- ---------- ---------- Consumer: Secured by 1-4 family residences, less unearned discount . . . . . . . . . . . . 979,847 786,637 701,917 644,318 661,580 Residential mortgage loans held for sale. . . . 206 110,132 501 2,588 923 Consumer, less unearned discount. . . . . . . . 476,034 414,635 477,791 463,200 458,550 Credit card . . . . . . . . . . . . . . . . . . 130,098 93,007 82,354 80,126 96,405 Educational . . . . . . . . . . . . . . . . . . 82,238 55,968 41,889 34,686 32,042 ---------- ---------- ---------- ---------- ---------- Total consumer loans. . . . . . . . . . . . . 1,668,423 1,460,379 1,304,452 1,224,918 1,249,500 ---------- ---------- ---------- ---------- ---------- Total loans and leases. . . . . . . . . . . $4,005,667 $3,351,912 $2,922,576 $2,881,931 $3,065,193 ========== ========== ========== ========== ==========
Commercial and Industrial: The Company's commercial and industrial portfolio includes loans to businesses engaged in services, manufacturing, wholesaling, retailing, financial services, public utilities, construction, mining, and agribusiness. The largest industry concentrations are service businesses and manufacturing, each representing approximately 5% of total loans. Agriculture: Loans secured by feeder cattle and other livestock accounted for approximately 65% of the agriculture portfolio at December 31, 1994. The remainder of the agriculture portfolio is secured by equipment, farm assets and accounts receivable and inventory, none of which represent a significant concentration. Energy: Loans secured by proven oil and gas reserves constitute substantially all of the energy loan portfolio. Generally, the Company will loan no more than 60% of the discounted value of such proven reserves. Annual engineering reports are required on all production loans of $250,000 or more. These reports include cash flow analyses on all properties and provide estimates of remaining recoverable reserves, rates of recovery, operating expenses, and taxes. There are no oil rig acquisition loans, and loans to well-servicing companies and suppliers are not material. Bank Stock: Loans for the purpose of purchasing or holding a material interest in a bank make up this portfolio. Commercial Real Estate: At December 31, 1994, approximately 49% of the portfolio was in the Kansas markets of Wichita, Topeka and Kansas City. The Tulsa and Oklahoma City markets represented an additional 34% of this portfolio. Permanent commercial real estate loans include loans in the Company's market for small office buildings/parks; neighborhood strip shopping centers; small manufacturing machine shop buildings; office warehouse properties; medical offices; apartment buildings; and loans secured by farm land. Also included in this portfolio are loans for purposes other than funding the acquisition of the collateral properties and in which cash flows from the properties are not the principal source of repayment. Approximately 68% of the loans in the permanent commercial real estate portfolio are floating rate loans. Most of the remainder of this portfolio are "mini-perms" with five-year maturities. Secured by 1-4 Family Residences: The 1-4 family residence portfolio consists of loans secured by residences located primarily in Kansas and Oklahoma. The majority of the loans are permanent first mortgage loans with the remainder consisting of home equity credit lines and other loans secured by second mortgages. Residential Mortgage Loans Held For Sale: Residential mortgage loans held for sale are carried at the lower of cost or market value determined on an aggregate basis. Maturity Distribution and Interest Sensitivity of Loans The maturity distribution of loans outstanding as of December 31, 1994 (excluding real estate-secured by 1-4 family residences, consumer, credit card, educational, and lease financing) by type and sensitivity to changes in interest rates is as follows:
Remaining Maturity -------------------------------------------------- Over One Year One Year Through Over Five or Less Five Years Years Total ---------- ---------- ---------- ----------- (In thousands) Commercial and industrial . . . . . . . . . . . . . . . $ 616,210 $328,479 $ 74,064 $1,018,753 Agriculture . . . . . . . . . . . . . . . . . . . . . . 194,422 29,407 3,471 227,300 Energy . . . . . . . . . . . . . . . . . . . . . . . . 79,892 36,227 13,623 129,742 Bank stock . . . . . . . . . . . . . . . . . . . . . . 25,058 50 65 25,173 Real estate-construction . . . . . . . . . . . . . . . 97,349 32,427 4,077 133,853 Real estate-permanent commercial and other . . . . . . 135,578 372,376 180,825 688,779 Other . . . . . . . . . . . . . . . . . . . . . . . . . 19,451 7,826 269 27,546 ---------- -------- -------- ---------- Total . . . . . . . . . . . . . . . . . . . . . . $1,167,960 $806,792 $276,394 $2,251,146 ========== ======== ======== ========== Loans with fixed interest rates . . . . . . . . . . . . $ 328,624 $306,275 $ 58,291 $ 693,190 Loans with floating interest rates . . . . . . . . . . 839,336 500,517 218,103 1,557,956 ---------- -------- -------- ---------- Total . . . . . . . . . . . . . . . . . . . . . . $1,167,960 $806,792 $276,394 $2,251,146 ========== ======== ======== ==========
Nonperforming Assets Nonperforming assets consist of nonaccrual loans, troubled debt restructurings, and other real estate and nonperforming assets. A loan is placed on nonaccrual status when principal or interest is due and has remained unpaid for 90 days or more unless the loan is both well secured and in the process of collection. A currently performing loan also may be placed on nonaccrual status when there is reasonable doubt as to the ability of the borrower to continue to pay principal or interest. Nonaccrual loans at December 31, 1994 included $7.9 million of these "performing/nonperforming" loans. Troubled debt restructurings are those loans for which the original contractual terms have been modified to provide a concession because of a deterioration in the borrower's financial condition. Other real estate and nonperforming assets include assets acquired from loan settlements and foreclosures. Generally, principal and interest payments received on nonaccrual loans are applied as reductions of principal. For this reason and because of charge-offs, the book value of such loans understates the remaining contractual obligation of the borrowers. As of December 31, 1994, the carrying value of nonaccrual loans had been charged down to 77.52% of the customers' contractual principal obligations. Also, the carrying values of other real estate and nonperforming assets have been written down to current estimates of their fair values less a reserve for the estimated costs to sell the properties. Interest income of $1.4 million has been included in income for the year ended December 31, 1994 on loans which at year-end were considered nonaccrual loans or troubled debt restructurings. Interest of $5.1 million would have been recorded for the year if these loans had been current in accordance with their original terms. The following table presents nonperforming assets and those loans which are contractually past due 90 days or more as to principal or interest payments at December 31 for the past five years.
December 31, -------------------------------------------------------- 1994 1993 1992 1991 1990 ------- ------- ------- ------- ------- (Dollars in thousands) Nonaccrual loans . . . . . . . . . . . . . . . . . $29,097 $34,040 $37,169 $ 55,751 $ 80,613 Troubled debt restructurings . . . . . . . . . . . 503 290 1,906 4,918 4,576 ------- ------- ------- -------- -------- Total nonperforming loans . . . . . . . . . . 29,600 34,330 39,075 60,669 85,189 Other real estate and nonperforming assets . . . . 5,679 9,787 20,097 39,963 53,695 ------- ------- ------- -------- -------- Total nonperforming assets . . . . . . . . . . $35,279 $44,117 $59,172 $100,632 $138,884 ======= ======= ======= ======== ======== Past due loans (90 days or more) . . . . . . . . . $13,194 $ 9,108 $10,863 $ 6,007 $ 7,547 ======= ======= ======= ======== ======== Nonperforming assets/year-end loans plus other real estate and nonperforming assets. . . . .88% 1.31% 2.01% 3.44% 4.45% ==== ==== ==== ==== ==== Nonperforming assets/year-end assets . . . . . . . .46% .64% .88% 1.74% 2.35% ==== ==== ==== ==== ====
Nonperforming assets decreased $8.8 million or 20.0% between December 31, 1994 and 1993. At December 31, 1994, total nonperforming assets represented .88% of total loans plus other real estate owned and nonperforming assets and .46% of total assets as compared to 1.31% of total loans plus other real estate owned and nonperforming assets and .64% of total assets at December 31, 1993. Banks and S&Ls purchased during 1994 added $652,000 to the 1994 nonperforming asset total. The 1994, 1993, and 1992 pooling-of-interests combinations accounted for $21.6 million, $34.4 million, $62.3 million, and $89.0 million of nonperforming assets at year-end 1993, 1992, 1991, and 1990, respectively. Management continues to focus on asset quality. An emphasis is placed on pro-active management of problem credits, early detection of potential problems, and timely charge-offs. A due diligence team is responsible for assessing potential problem loans in banks to be acquired prior to the execution of a definitive agreement. A separate work-out department is responsible for the resolution and collection of problem assets. An analysis of nonperforming loans by type is provided in the following table. There are no significant concentrations of nonperforming assets in any one market or industry.
December 31, ------------------------------------------------------------------- 1994 1993 1992 1991 1990 ----------- ----------- ----------- ----------- ----------- (Dollars in thousands) Commercial: Commercial and industrial. . . . . . $14,674 $14,789 $13,330 $23,330 $38,088 Agriculture. . . . . . . . . . . . . 1,283 1,526 1,449 1,250 766 Energy . . . . . . . . . . . . . . . 1,221 510 184 402 2,508 Bank stock . . . . . . . . . . . . . -- -- -- 41 -- Real estate: Construction . . . . . . . . . . . 905 1,343 1,883 7,029 5,756 Permanent commercial real estate and other . . . . . . 8,422 11,741 16,316 22,246 30,391 Lease financing. . . . . . . . . . . 208 107 188 384 495 ------- ------- ------- ------- ------- Total commercial loans . . . . . . 26,713 30,016 33,350 54,682 78,004 ------- ------- ------- ------- ------- Consumer: Secured by 1-4 family residences, less unearned discount. . . . . . . 1,334 2,384 3,861 3,752 4,454 Consumer, less unearned discount . . 1,553 1,930 1,864 2,235 2,731 ------- ------- ------- ------- ------- Total consumer loans . . . . . . . 2,887 4,314 5,725 5,987 7,185 ------- ------- ------- ------- ------- Total nonperforming loans. . . . $29,600 $34,330 $39,075 $60,669 $85,189 ======= ======= ======= ======= ======= Nonaccrual loans/nonaccrual loans and prior charge-offs . . . . . 77.52% ======
Potential Problem Loans Certain loans classified for regulatory purposes as doubtful, substandard, or special mention are included in the nonperforming loan table. Also included in the classified loans are certain other loans which are deemed to be potential problems. Potential problem loans are those loans which are currently performing but where known information about trends or uncertainties or possible credit problems of the borrowers causes management to have concerns as to the ability of such borrowers to comply with present repayment terms, possibly resulting in the transfer of such loans to nonperforming status. These loans totaled $12.2 million at December 31, 1994. Allowance for Credit Losses The allowance for credit losses is the amount deemed by management to be reasonably necessary to provide for possible losses on loans that may become uncollectible. Additions to the allowance are charged to expense as the provision for credit losses. Loan losses and recoveries are charged or credited directly to the allowance. It is the Company's policy to charge off any loan or portion of that loan when it is deemed to be uncollectible in the ordinary course of business. An evaluation of the overall quality of the portfolio is performed to determine the necessary level of the allowance for credit losses. This evaluation takes into consideration the classification of loans and the application of loss estimates to these classifications. It is the responsibility of management in each of the Company's markets to classify its loans as pass, special mention, substandard, doubtful, or loss. The classification criteria are established by the credit administration function of the Company, which is independent of all lending functions, and are intended to be consistent with the criteria applied by federal banking system examiners. These classifications take into consideration all sources of repayment, underlying collateral, the value of such collateral, and current and anticipated economic conditions, trends, and uncertainties. The Company has an independent loan review function which periodically reviews the loans and the classifications. The Company's bank subsidiaries also are subjected to periodic examinations by the Office of the Comptroller of the Currency. Loss factors are developed by loan type and classification using historical loss data and statistical modeling techniques. The application of these loss factors to the portfolio classifications combined with analyses of general economic conditions, trends in portfolio volume, maturity, and composition, and estimates of potential future losses on specific large loans and those loans requiring special attention provide management with data essential to identify and estimate the credit risk inherent in the portfolio. The allowance for credit losses reflects the result of these estimates, and is deemed to be adequate at each balance sheet date. As of December 31, 1994, the allowance for credit losses equaled $71.9 million or 242.82% of nonperforming loans. Comparatively, the allowance for credit losses amounted to $67.6 million or 196.96% of nonperforming loans at December 31, 1993. The strong coverage ratio of the allowance for credit losses to nonperforming loans at December 31, 1994 reflected the continuing emphasis management is placing on resolving problem loans, managing the risk profile of the Company, and prudently reserving for identifiable risks. The following table summarizes the changes in the allowance for credit losses for the past five years and presents selected related ratios.
1994 1993 1992 1991 1990 ---------- ---------- ---------- ---------- ---------- (Dollars in thousands) Balance at January 1, as previously reported . . . $ 66,368 $ 73,055 $ 70,669 $ 62,721 $ 42,395 Adjustment for pooling of interests. . . . . . . . 1,249 1,340 1,334 1,344 1,363 ---------- ---------- ---------- ---------- ---------- Balance at January 1, as restated . . . . . . . . 67,617 74,395 72,003 64,065 43,758 Allowance for credit losses of purchased banks . . 5,449 3,266 1,739 464 2,827 Allowance for purchased loans . . . . . . . . . . -- -- 3,424 -- 2,165 ---------- ---------- ---------- ---------- ---------- 73,066 77,661 77,166 64,529 48,750 Charge-offs: Commercial and industrial . . . . . . . . . . . 3,921 15,465 16,379 22,578 15,814 Agriculture . . . . . . . . . . . . . . . . . . 68 214 121 215 503 Energy . . . . . . . . . . . . . . . . . . . . . 314 371 254 1,690 1,127 Bank stock . . . . . . . . . . . . . . . . . . . -- -- -- 852 250 Real estate construction . . . . . . . . . . . . 98 269 881 2,492 4,628 Permanent commercial real estate and other . . . 852 3,954 4,655 6,199 8,952 Lease financing . . . . . . . . . . . . . . . . 249 246 258 477 728 Other. . . . . . . . . . . . . . . . . . . . . . 87 71 293 420 741 Secured by 1-4 family residences . . . . . . . . 702 701 1,082 1,547 1,262 Consumer . . . . . . . . . . . . . . . . . . . . 3,915 3,971 5,255 5,918 3,375 Credit card . . . . . . . . . . . . . . . . . . 3,811 1,611 2,264 2,472 2,046 ---------- ---------- ---------- ---------- ---------- Total charge-offs. . . . . . . . . . . . . . . 14,017 26,873 31,442 44,860 39,426 ---------- ---------- ---------- ---------- ---------- Recoveries: Commercial and industrial . . . . . . . . . . . 5,371 4,628 3,554 3,355 2,136 Agriculture . . . . . . . . . . . . . . . . . . 458 272 309 155 252 Energy . . . . . . . . . . . . . . . . . . . . . 74 206 230 936 1,319 Bank stock . . . . . . . . . . . . . . . . . . . 88 148 38 -- -- Real estate construction . . . . . . . . . . . . 872 220 112 132 388 Permanent commercial real estate and other . . . 2,072 1,377 409 463 296 Lease financing . . . . . . . . . . . . . . . . 59 91 232 87 34 Other. . . . . . . . . . . . . . . . . . . . . . 283 425 37 245 175 Secured by 1-4 family residences . . . . . . . . 547 304 179 243 48 Consumer . . . . . . . . . . . . . . . . . . . . 1,888 1,696 1,608 1,185 470 Credit card . . . . . . . . . . . . . . . . . . 838 497 605 418 300 ---------- ---------- ---------- ---------- ---------- Total recoveries . . . . . . . . . . . . . . . 12,550 9,864 7,313 7,219 5,418 ---------- ---------- ---------- ---------- ---------- Net loans and leases charged off . . . . . . . . . 1,467 17,009 24,129 37,641 34,008 Provision for credit losses . . . . . . . . . . . 275 6,965 21,358 43,926 49,323 ---------- ---------- ---------- ---------- ---------- Balance at December 31 . . . . . . . . . . . . . . $ 71,874 $ 67,617 $ 74,395 $ 70,814 $ 64,065 ========== ========== ========== ========== ========== Loans and leases at year-end . . . . . . . . . . . $4,005,667 $3,351,912 $2,922,577 $2,881,931 $3,065,193 Average loans and leases . . . . . . . . . . . . . $3,584,022 $3,038,112 $2,899,130 $2,996,076 $2,904,427 Net charge-offs/average loans and leases . . . . . .04% .56% .83% 1.26% 1.17% Allowance for credit losses/year-end nonperforming loans . . . . . . . . . . . . . . . 242.82% 196.96% 190.39% 116.72% 75.20% Allowance for credit losses/year-end nonperforming assets. . . . . . . . . . . . . . . 203.73% 153.27% 125.73% 70.37% 46.13% Allowance for credit losses/year-end loans and leases. . . . . . . . . . . . . . . . . 1.79% 2.02% 2.55% 2.46% 2.09%
The allowance for credit losses has been allocated by loan category. It should be recognized that such allocations are not necessarily indicative of future loan losses and that all of such allowance, except for the $1.3-million allowance for purchased loans included in the secured by 1-4 family residences and $3.3- million allowance for purchased loans included in consumer, is available to absorb losses on loans for any category. The allocation of the allowance for credit losses by loan type is as follows:
December 31, -------------------------------------------------------------------- 1994 1993 1992 1991 1990 ------------ ------------ ------------ ------------ ------------ (In thousands) Commercial: Commercial and industrial. . . . . . $23,178 $25,058 $29,499 $30,087 $21,850 Agriculture. . . . . . . . . . . . . 808 1,618 3,242 3,000 2,594 Energy . . . . . . . . . . . . . . . 1,232 973 1,105 1,386 2,490 Bank stock . . . . . . . . . . . . . 172 446 968 820 497 Real estate: Construction . . . . . . . . . . . 2,923 1,409 1,929 2,189 5,289 Permanent commercial real estate and other . . . . . . . . . . . . 16,311 17,680 17,602 17,760 15,436 Lease financing. . . . . . . . . . . 395 393 933 315 381 ------- ------- ------- ------- ------- Total commercial . . . . . . . . . 45,019 47,577 55,278 55,557 48,537 ------- ------- ------- ------- ------- Consumer: Secured by 1-4 family residences . . 2,633 3,863 4,974 5,743 6,302 Consumer . . . . . . . . . . . . . . 10,589 9,376 7,768 5,281 4,668 Credit card. . . . . . . . . . . . . 4,596 2,479 3,699 2,243 2,517 Educational. . . . . . . . . . . . . -- -- -- -- -- ------- ------- ------- ------- ------- Total consumer . . . . . . . . . . 17,818 15,718 16,441 13,267 13,487 ------- ------- ------- ------- ------- Unallocated. . . . . . . . . . . . . . 9,037 4,322 2,676 1,990 2,041 ------- ------- ------- ------- ------- Total. . . . . . . . . . . . . . $71,874 $67,617 $74,395 $70,814 $64,065 ======= ======= ======= ======= =======
The following table compares the allocation of the allowance for credit losses by loan type expressed as a percentage of the total allowance for credit losses to the percentage of loans in each loan type to total loans:
December 31, ---------------------------------------------------------------------------------- 1994 1993 1992 1991 1990 -------------- -------------- -------------- -------------- -------------- (1) (2) (1) (2) (1) (2) (1) (2) (1) (2) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Commercial: Commercial and industrial. 32.2% 25.4% 37.4% 26.5% 39.7% 25.8% 42.5% 25.8% 34.1% 27.5% Agriculture . . . . . . . 1.1 5.7 1.8 5.8 4.4 5.8 4.2 6.1 4.0 5.3 Energy . . . . . . . . . . 1.7 3.2 1.5 2.3 1.5 1.9 2.0 2.1 3.9 2.3 Bank stock . . . . . . . . .2 .6 .7 1.4 1.3 1.8 1.2 1.8 .8 2.1 Real estate: Construction . . . . . . 4.1 3.3 2.1 2.8 2.6 2.3 3.1 3.3 8.3 3.7 Permanent commercial real estate and other . 22.8 17.2 26.4 15.3 23.7 15.4 25.1 15.2 24.1 14.8 Lease financing . . . . . .5 2.2 .6 1.2 1.3 1.0 .4 .9 .6 .8 Other . . . . . . . . . . -- .7 -- 1.1 -- 1.4 -- 2.2 -- 2.6 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total commercial . . . . 62.6 58.3 70.5 56.4 74.5 55.4 78.5 57.4 75.8 59.1 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Consumer: Secured by 1-4 family residences. . . . . . . . 3.7 24.4 5.5 26.8 6.7 24.0 8.1 22.5 9.8 21.6 Consumer . . . . . . . . . 14.7 11.9 13.8 12.4 10.4 16.4 7.5 16.1 7.3 15.0 Credit card . . . . . . . 6.4 3.3 3.7 2.8 4.8 2.8 3.1 2.8 3.9 3.2 Educational . . . . . . . -- 2.1 -- 1.6 -- 1.4 -- 1.2 -- 1.1 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total consumer . . . . . 24.8 41.7 23.0 43.6 21.9 44.6 18.7 42.6 21.0 40.9 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Unallocated. . . . . . . . . 12.6 -- 6.5 -- 3.6 -- 2.8 -- 3.2 -- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total. . . . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ____________ (1) Allocation of allowance for credit losses by loan type as a percent of total allowance. (2) Loans by type as a percent of total loans.
Investment Portfolio The year-end book values of investment securities for each of the last three years is presented in the tables below.
Held-to-maturity December 31, ---------------------------------------- 1994 1993 1992 ---------- ---------- ---------- (In thousands) U.S. Treasury obligations . . . . . . . . . . . . . . . . . . . . . $ 98,971 $ 16,329 $ 300,707 Obligations of U.S. government agencies and corporations: Mortgage-backed . . . . . . . . . . . . . . . . . . . . . . . . . 1,577,095 1,753,662 1,738,379 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262,469 4,259 293,626 Obligations of states and political subdivisions. . . . . . . . . . 3,834 16,838 222,335 Other securities: Collateralized auto receivables . . . . . . . . . . . . . . . . . -- 12,364 28,935 Corporate notes and bonds . . . . . . . . . . . . . . . . . . . . -- -- 10,580 Foreign debt securities . . . . . . . . . . . . . . . . . . . . . 2,050 2,155 -- Money market mutual funds . . . . . . . . . . . . . . . . . . . . 195 212 220 ---------- ---------- ---------- Total debt securities, at amortized cost. . . . . . . . . . . . $1,944,614 $1,805,819 $2,594,782 ========== ========== ========== Market value in excess of (less than) book value. . . . . . . . . . $ (109,714) $ 1,761 $ 45,842 ========== ========== ==========
Available-for-sale December 31, ------------------------- 1994 1993 ----------- ----------- (In thousands) U.S. Treasury obligations . . . . . . . . . . . . . . . . . . . . . $266,992 $ 308,331 Obligations of U.S. government agencies and corporations: Mortgage-backed . . . . . . . . . . . . . . . . . . . . . . . . . 130,038 218,848 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268,872 306,276 Obligations of states and political subdivisions . . . . . . . . . 174,806 242,933 Other securities: Collateralized credit card receivables. . . . . . . . . . . . . . 58,518 -- Corporate notes and bonds . . . . . . . . . . . . . . . . . . . . 38,660 40,237 -------- ---------- Total debt securities . . . . . . . . . . . . . . . . . . . . . 937,886 1,116,625 Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . 1,194 1,151 -------- ---------- Total debt and equity securities, at estimated fair value . . $939,080 $1,117,776 ======== ==========
Other securities(1) December 31, ---------------------------------------- 1994 1993 1992 ---------- ---------- ---------- (In thousands) Federal Home Loan Bank stock. . . . . . . . . . . . . . . . . . . . $37,645 $24,911 $ 1,166 Federal Reserve Bank stock. . . . . . . . . . . . . . . . . . . . . 14,242 12,637 8,500 Other equity securities . . . . . . . . . . . . . . . . . . . . . . 1,549 1,559 3,665 ------- ------- ------- Total other equity securities, at cost. . . . . . . . . . . . . $53,436 $39,107 $13,331 ======= ======= ======= ____________ (1) Equity securities that do not have a readily determinable fair value.
At December 31, 1993, the Company elected to adopt FAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." In accordance with FAS No. 115, prior period financial statements were not restated to reflect the change in accounting principle. Pursuant to FAS No. 115 the securities classified as available-for-sale are carried at fair value. The total carrying value of the available-for-sale securities portfolio included unrealized losses of $36.8 million at December 31, 1994 and unrealized gains of $41.2 million at December 31, 1993. Exclusive of the adjustment to fair value for the available-for- sale portfolio, total investment securities increased $52.4 million between December 31, 1994 and 1993. Acquisition transactions accounted for as purchases added $269.3 million of investment securities. However, offsetting this increase was the use of the proceeds of maturities and prepayments for loan growth. Between December 31, 1993 and 1992 the investment securities portfolio increased $313.4 million, exclusive of the adjustment to fair value for the available-for-sale portfolio. Acquisition transactions accounted for as purchases added $112.0 million. The remainder of the increase was attributable to the Company becoming more fully invested. Excluding U.S. Treasury obligations and obligations of U.S. government agencies and corporations, there were no security holdings of any one issuer at December 31, 1994 that exceeded 10% of consolidated stockholders' equity. The tables below summarize the maturity and yield distribution of debt securities in the investment portfolio at December 31, 1994.
Held-to-maturity Maturing ------------------------------------------------------------------------------------------ After One After Five Within But Within But Within After One Year Five Years Ten Years Ten Years Total ---------------- ---------------- ---------------- ---------------- ------------------ Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield -------- ------ -------- ------ -------- ------ -------- ------ ---------- ------ (Dollars in thousands) U.S. Treasury obligations . . . . $ 645 4.79% $ 98,326 5.95% $ -- --% $ -- --% $ 98,971 5.95% Obligations of U.S. government agencies and corporations: Mortgage-backed(1) 237 6.76 291,742 6.47 85,051 5.56 1,200,065 5.75 1,577,095 5.87 Other. . . . . . . 122 4.50 262,347 6.08 -- -- -- -- 262,469 6.08 Obligations of states and political subdivisions(2) . . 999 5.89 2,835 6.06 -- -- -- -- 3,834 6.02 Other securities: Foreign debt securities. . . . -- -- 25 8.45 2,025 11.54 -- -- 2,050 11.50 Money market mutual funds. . . 195 5.00 -- -- -- -- -- -- 195 5.00 ------ -------- -------- ---------- ---------- Total. . . . . . $2,198 5.50 $655,275 6.23 $ 87,076 5.70 $1,200,065 5.75 $1,944,614 5.91 ====== ======== ======== ========== ========== ____________ (1) Mortgage-backed securities have been included in the maturity tables based on their final maturities. (2) Yields on tax-preferred securities are shown on a fully tax-equivalent basis assuming a marginal tax rate of 35%.
Available-for-sale Maturing ------------------------------------------------------------------------------------------ After One After Five Within But Within But Within After One Year Five Years Ten Years Ten Years Total ---------------- ---------------- ---------------- ---------------- ------------------ Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield -------- ------ -------- ------ -------- ------ -------- ------ ---------- ------ (Dollars in thousands) U.S. Treasury obligations . . . . $27,789 5.33% $255,970 5.51% $ -- --% $ -- --% $283,759 5.49% Obligations of U.S. government agencies and corporations: Mortgage-backed(1) -- -- 638 7.02 18,697 6.91 117,147 7.68 136,482 7.57 Other. . . . . . . 4,383 7.09 269,341 5.57 9,013 8.03 -- -- 282,737 5.67 Obligations of states and political subdivisions(2) . . 56,517 13.00 61,348 12.82 32,744 12.66 17,202 14.16 167,811 12.99 Collateralized credit card receivables . . . . -- -- 9,713 6.39 52,866 6.09 -- -- 62,579 6.14 Corporate notes and bonds . . . . . 500 7.35 40,494 6.49 214 9.13 -- -- 41,208 6.51 ------- -------- -------- -------- -------- Total. . . . . . $89,189 10.28 $637,504 6.32 $113,534 8.28 $134,349 8.51 $974,576 7.21 ======= ======== ======== ======== ======== ____________ (1) Mortgage-backed securities have been included in the maturity tables based on their final maturities. (2) Yields on tax-preferred securities are shown on a fully tax-equivalent basis assuming a marginal tax rate of 35%.
At December 31, 1994 the held-to-maturity portfolio included $637.9 million of floating-rate mortgage-backed securities guaranteed by U.S. government agencies or corporations. The yields on these securities float with various indices, principally the Federal Home Loan Bank ("FHLB") Board 11th District average cost of funds index, which reduces the interest rate risk associated with these investments as the changes in these indices have historically correlated with the changes in the Company's cost of funds. Also included in the held-to- maturity portfolio at December 31, 1994 were $663.0 million of collateralized mortgage obligations ("CMO"). These investments are secured by mortgage-backed securities guaranteed by agencies or corporations of the U.S. government. Of this CMO portfolio, $140.6 million also float on a monthly basis, most with the FHLB 11th District average cost of funds. The remaining $522.4 million of fixed-rate CMOs in the held-to-maturity portfolio are comprised of classes with an anticipated average duration of two to three years. The December 31, 1994 available-for-sale mortgage-backed securities portfolio was comprised principally of securities issued by U.S. government agencies and corporations with an estimated average duration of up to three years. In February 1995, the Company sold $424.0 million of fixed-rate debt securities classified as available-for-sale, resulting in a gross realized loss of $22.4 million. The debt securities sold consisted primarily of U.S. treasury obligations and obligations of U.S. government agencies. Deposits Total deposits increased $210.6 million or 3.9% between December 31, 1994 and 1993. During the second quarter of 1994, the Company acquired $548.0 million of deposits through acquisitions accounted for as purchases. The increased deposits from acquisitions were partially offset by attrition associated with increased bank and nonbank competition and the sale of three branches with deposits totaling $37.9 million. In response to the increased bank and nonbank competition, time deposit products have been offered which provide the customer with the opportunity to reprice the instruments during their term. At December 31, 1994, $207.5 million of these adjustable-rate time deposits were outstanding. In late December 1994, the Company initiated a special time deposit promotion for deposits with 7-month and 13-month maturities, and in January 1995, the Company introduced a new money market savings product which has a rate that is tied to a money market fund index. Core deposits (demand, interest checking, savings, and time deposits under $100,000) represented 91.3% of total deposits at December 31, 1994 compared to 92.8% at December 31, 1993. The following table sets forth, by time remaining to maturity, certificates and other time deposits of $100,000 or more:
December 31, 1994 ----------------- (In thousands) Under three months . . . . . . . . . . . . . . . . . . . . . . . . . . $128,481 Over three through six months . . . . . . . . . . . . . . . . . . . . 58,259 Over six through twelve months . . . . . . . . . . . . . . . . . . . . 97,504 Over twelve months . . . . . . . . . . . . . . . . . . . . . . . . . . 119,213 -------- $403,457 ========
Brokered deposits were immaterial at December 31, 1994. The following table provides a breakdown of average deposits and average rates paid, by type, for the past three years.
1994 1993 1992 -------------------- -------------------- -------------------- Average Average Average Average Average Average Balance Rate Balance Rate Balance Rate ---------- -------- ---------- -------- ---------- -------- (Dollars in thousands) Noninterest-bearing deposits. . . . . . . . $ 985,412 -- $ 947,924 -- $ 861,647 -- Interest-bearing deposits: Interest-bearing checking deposits. . . . 967,119 2.20% 900,333 2.47% 730,577 3.07% Savings deposits . . . . . . . . . . . . 1,210,933 2.60 1,216,624 2.63 1,126,017 3.36 Time deposits under $100,000. . . . . . . 2,014,562 4.36 1,986,635 4.52 1,874,455 5.71 Time deposits of $100,000 or more . . . . 386,044 4.37 392,341 3.56 433,702 3.74 ---------- ---------- ---------- Total interest-bearing deposits . . . . 4,578,658 3.44 4,495,933 3.52 4,164,751 4.41 ---------- ---------- ---------- Total deposits . . . . . . . . . . . $5,564,070 $5,443,857 $5,026,398 ========== ========== ==========
Short-term Borrowings Short-term borrowings include federal funds purchased, securities sold under agreements to repurchase, Federal Home Loan Bank borrowings with a maturity of less than one year, commercial paper, notes payable, treasury tax and loan accounts and other borrowings. Amounts and interest rates related to short-term borrowings for the last three years were as follows:
1994 1993 1992 -------- -------- -------- (Dollars in thousands) Federal funds purchased: Outstanding at year-end . . . . . . . . . . . . . . . . . . . . . . $391,970 $367,726 $260,505 Average interest rate at year-end . . . . . . . . . . . . . . . . . 5.85% 2.96% 2.92% Average outstanding during the year . . . . . . . . . . . . . . . . $471,437 $328,758 $199,433 Weighted average interest rate . . . . . . . . . . . . . . . . . . 4.21% 3.00% 3.38% Highest outstanding balance at any month-end . . . . . . . . . . . $545,495 $474,856 $339,511 Securities sold under agreements to repurchase: Outstanding at year-end . . . . . . . . . . . . . . . . . . . . . . $541,736 $123,901 $ 65,089 Average interest rate at year-end . . . . . . . . . . . . . . . . . 5.66% 3.27% 3.49% Average outstanding during the year . . . . . . . . . . . . . . . . $166,519 $ 66,532 $ 60,931 Weighted average interest rate . . . . . . . . . . . . . . . . . . 4.46% 3.10% 3.58% Highest outstanding balance at any month-end . . . . . . . . . . . $541,736 $129,208 $112,345 Federal Home Loan Bank borrowings: Outstanding at year-end . . . . . . . . . . . . . . . . . . . . . . $291,800 $175,000 $ -- Average interest rate at year-end . . . . . . . . . . . . . . . . . 5.88% 3.76% --% Average outstanding during the year . . . . . . . . . . . . . . . . $268,548 $ 77,534 $ -- Weighted average interest rate . . . . . . . . . . . . . . . . . . 5.63% 5.05% --% Highest outstanding balance at any month-end . . . . . . . . . . . $341,800 $175,000 $ -- Commercial paper: Outstanding at year-end . . . . . . . . . . . . . . . . . . . . . . $ -- $ -- $ 425 Average interest rate at year-end . . . . . . . . . . . . . . . . . --% --% 2.80% Average outstanding during the year . . . . . . . . . . . . . . . . $ -- $ 184 $ 1,118 Weighted average interest rate . . . . . . . . . . . . . . . . . . --% 2.85% 3.85% Highest outstanding balance at any month-end . . . . . . . . . . . $ -- $ 625 $ 3,528 Notes payable: Outstanding at year-end . . . . . . . . . . . . . . . . . . . . . . $ 20,000 $ -- $ 5,961 Average interest rate at year-end . . . . . . . . . . . . . . . . . 6.19% --% 6.57% Average outstanding during the year . . . . . . . . . . . . . . . . $ 22,965 $ 3,156 $ 10,276 Weighted average interest rate . . . . . . . . . . . . . . . . . . 5.44% 7.93% 8.06% Highest outstanding balance at any month-end . . . . . . . . . . . $ 60,000 $ 5,884 $ 13,360 Treasury tax and loan and other borrowings: Outstanding at year-end . . . . . . . . . . . . . . . . . . . . . . $ 23,001 $ 23,002 $ 17,306 Average interest rate at year-end . . . . . . . . . . . . . . . . . 5.20% 2.75% 2.67% Average outstanding during the year . . . . . . . . . . . . . . . . $ 19,501 $ 18,361 $ 17,325 Weighted average interest rate . . . . . . . . . . . . . . . . . . 3.92% 2.97% 3.51% Highest outstanding balance at any month-end . . . . . . . . . . . $ 23,344 $ 26,768 $ 25,397
The increased volume of securities sold under agreements to repurchase includes the effect of the Company's emphasis on a cash- management service which sweeps customers' investable deposits into over-night securities repurchase agreements. Some portion of these funds were new funds for the Company and the remainder were previously in interest-bearing deposit accounts with the Company. Asset and Liability Management Interest Rate Risk: The Company evaluates its interest rate risk using various tools, including interest sensitivity simulation and gap analysis. From time to time, interest rate swaps are used to modify the interest sensitivity position inherent in the repricing characteristics of specific assets or liabilities. The net interest received or paid on the interest rate swaps is accounted for as an adjustment to the interest income or interest expense on the assets or liabilities, respectively, that the swap was intended to modify. Additional information about the Company's interest rate swaps is included in Note 20 of the Notes to Consolidated Financial Statements. The following table presents the Company's interest sensitivity gap position as of December 31, 1994. Most assets and liabilities have been included in the table based on the timing of their contractual maturities or repricing characteristics. Fixed-rate mortgage-backed securities are included in repricing-maturity categories based upon estimates of prepayments provided by a third-party market information service. These estimates may vary depending upon both the volatility and the level of market interest rates in relationship to the coupon rates of the underlying mortgages. Interest-bearing checking and savings deposits are included in the under-three-months category. This table does not indicate the effect the repricing of assets and liabilities would have on net interest income. Also, it does not reflect interest rate exposures, such as basis risk (the changing relationships between asset rates and liability rates of similar maturity), prepayment risk, intra-period sensitivity, and the effect of interest rate floors and ceilings.
Repricing Maturity ---------------------------------------------------------------------------------- Over Three Over Six Over One Under Through Through Through Over Three Six Twelve Five Five Noninterest- Months Months Months Years Years bearing Total ---------- ---------- ---------- --------- ---------- ----------- ---------- (Dollars in thousands) Assets: Loans and leases. . . . . . $2,054,228 $ 186,492 $ 333,239 $ 929,612 $463,008 $ 39,088 $4,005,667 Investment and trading securities . . . . 712,211 158,854 242,679 1,574,368 249,737 -- 2,937,849 Other earning assets . . . 4,670 -- 100 399 -- -- 5,169 Nonearning assets . . . . . -- -- -- -- -- 780,655 780,655 ---------- ---------- ---------- ---------- -------- ---------- ---------- Total assets . . . . . . $2,771,109 $ 345,346 $ 576,018 $2,504,379 $712,745 $ 819,743 $7,729,340 ========== ========== ========== ========== ======== ========== ========== Liabilities and stockholders' equity: Deposits. . . . . . . . . . $2,832,084 $ 346,542 $ 420,075 $1,011,139 $ 4,395 $1,032,913 $5,647,148 Federal funds purchased and securities sold under agreements to repurchase . 933,706 -- -- -- -- -- 933,706 Federal Home Loan Bank borrowings . . . . . . . . 324,297 91,800 -- 25,000 -- -- 441,097 Other borrowings. . . . . . 43,001 -- -- -- -- -- 43,001 Long-term debt . . . . . . 4,412 12 26 204 31 -- 4,685 Other liabilities . . . . . -- -- -- -- -- 57,636 57,636 Stockholders' equity . . . -- -- -- -- -- 602,067 602,067 ---------- ---------- ---------- ---------- -------- ---------- ---------- Total liabilities and stockholders' equity . . $4,137,500 $ 438,354 $ 420,101 $1,036,343 $ 4,426 $1,692,616 $7,729,340 ========== ========== ========== ========== ======== ========== ========== Interest rate swaps . . . . . $ (51,000) $ (86,000) $ 14,000 $ 123,000 $ -- $ -- $ -- Repricing gap adjusted for interest rate swaps. . . (1,417,311) (178,632) 168,482 1,620,067 717,053 (909,659) -- Cumulative adjusted repricing gap. . . . . . . . (1,417,311) (1,595,943) (1,427,461) 192,606 909,659 -- -- Cumulative adjusted rate- sensitive assets/ rate-sensitive liabilities . .67 .68 .74 (*) (*) (*) ___________ (*) Not meaningful.
The Company has a negative cumulative repricing gap in the one- year horizon. Consequently, a rising rate environment would adversely impact the net interest margin. Simulation modeling has demonstrated that a sudden and large increase in rates or a dramatic narrowing in the spread between asset yields and liability costs could result in a significant adverse impact on the net interest margin; however, the adverse impact is more moderate if interest rates increase gradually. The adverse impact of rising rates could also be mitigated by loan growth. As described in Note 5 of the Notes to Consolidated Financial Statements, the Company sold $424.0 million of low-yielding, fixed-rate securities in February 1995 to reposition its statement of condition to reduce the Company's interest rate sensitivity. The proceeds of the sale are being used to reduce short-term borrowings and reinvest in variable rate or short-term instruments. Liquidity: The Company's consolidated statements of cash flows are presented elsewhere in this report. These statements distinguish cash flows as operating, investing, and financing. They provide a historical accounting of the Company's ability to generate cash required to meet its customers' and creditors' demands. Certain statement-of-condition items and ratios are indicative of the Company's liquidity position at December 31, 1994. The loans-to-deposits and loans-to-assets ratios averaged 64.4% and 48.9%, respectively, during 1994. Also during 1994, average core deposits (demand, interest checking, savings, and time deposits under $100,000) represented 92.1% of total deposits and 69.9% of average assets. At December 31, 1994, federal funds purchased, securities sold under agreements to repurchase, Federal Home Loan Bank borrowings, and other borrowings totaled $1.4 billion. At that same date, additional borrowing liquidity was available in the form of $763.6 million of unpledged investment securities classified as either held-to-maturity or available-for-sale which could secure short-term borrowing requirements. In addition, the available-for-sale securities could be sold. Regular maturities and prepayments of investment securities, particularly the mortgage-backed securities, also generate significant liquidity. Scheduled principal reductions and prepayments on the mortgage-backed securities approximated $76.0 million during the fourth quarter of 1994. As disclosed in Note 20 of the Notes to Consolidated Financial Statements, the Company had commitments to extend credit at December 31, 1994, including standby letters of credit of $101.4 million, commercial letters of credit of $24.2 million, unused credit card lines of $480.8 million, commitments to fund 1-4 family residential mortgage loans of $51.2 million, and other loan commitments of $1.3 billion. Some of these commitments will not be fully utilized, others will expire without being drawn upon, and the commitments will not all be used at the same time. Accordingly, management anticipates that the Company has ample liquidity to meet these and other demands. Capital Resources At December 31, 1994, total stockholders' equity was $602.1 million or 7.79% of total assets compared to $606.9 million or 8.81% of total assets at December 31, 1993. Exclusive of the net unrealized gains or losses on available-for-sale securities, stockholders' equity was $624.5 million and $581.7 million at December 31, 1994 and 1993, respectively. For 1994, total stockholders' equity averaged $596.2 million or 8.13% of average assets. The prior year average equity was $563.3 million or 8.43% of average assets. Banking system regulators apply two measures of capital adequacy to banking companies: the risk-based capital and leverage ratios. The risk-based capital rules provide for the weighting of assets and off-balance-sheet commitments and contingencies according to prescribed risk categories ranging from 0 to 100%. Regulatory capital is then divided by risk-weighted assets to determine the risk-adjusted capital ratios. The leverage ratio supplements the risk-based capital guidelines by placing a constraint on the degree to which a banking company can leverage its equity capital, regardless of the balance sheet composition. The leverage ratio is computed by dividing Tier I capital by quarter-to-date average assets less certain intangibles. The following table presents the Company's risk-based capital and leverage ratios together with the required minimums. The ratios exclude the net unrealized gains or losses on available-for-sale securities as prescribed by the regulators.
December 31, ------------------------------- 1994 1993 ------------ ------------ (Dollars in thousands) Tier I capital: Common stockholders' equity . . . . . . . . . . . . . . . . . . . . . . $ 527,529 $ 484,782 Preferred stockholders' equity. . . . . . . . . . . . . . . . . . . . . 96,920 96,920 Less intangible assets (1) . . . . . . . . . . . . . . . . . . . . . . (84,709) (65,458) ---------- ---------- Total Tier I capital . . . . . . . . . . . . . . . . . . . . . . . . 539,740 516,244 ---------- ---------- Tier II capital: Allowance for credit losses (2) . . . . . . . . . . . . . . . . . . . . 61,041 50,879 ---------- ---------- Total regulatory capital. . . . . . . . . . . . . . . . . . . . . . $ 600,781 $ 567,123 ========== ========== Risk-weighted assets and off-balance-sheet commitments and contingencies . . . . . . . . . . . . . . . . . . . . . $4,883,179 $4,070,170 ========== ========== Adjusted average assets (3) . . . . . . . . . . . . . . . . . . . . . . . $7,539,414 $6,860,492 ========== ==========
Regulatory Minimums ---------- Risk-based capital ratios: Tier I . . . . . . . . . . . . . . . . . . . . . . . . 4.00% 11.05% 12.68% Total . . . . . . . . . . . . . . . . . . . . . . . . . 8.00 12.30 13.93 Leverage ratio . . . . . . . . . . . . . . . . . . . . . 3.00 7.16 7.52 ____________ (1) All intangible assets except purchased mortgage servicing rights of $2.6 million and purchased credit card relationships of $8.3 million are subtracted from capital. (2) The allowance for credit losses is limited to 1.25% of risk-weighted assets. (3) Quarter-to-date average assets excluding the net unrealized gains or losses on available-for-sale securities and all intangibles except purchased mortgage servicing rights and purchased credit card relationships.
Subsequent to December 31, 1994 the banking system regulators amended the regulatory capital rules to limit the amount of deferred tax assets that are allowable in computing the regulatory capital ratios. If the amendment to the regulatory capital rules limiting net deferred tax assets included in Tier I capital had been effective at December 31, 1994, the Company's risk-based and leverage ratios would have been as follows:
December 31, 1994 ----------------- Risk-based capital ratios: Tier I . . . . . . . . . . . . . . . . . . . . . . . . . 10.90 Total. . . . . . . . . . . . . . . . . . . . . . . . . . 12.15 Leverage ratio . . . . . . . . . . . . . . . . . . . . . . 7.06
As indicated in the preceding tables, the Company's risk-based and leverage capital ratios substantially exceed the minimums required by banking system regulators. Under regulations adopted by the Federal Deposit Insurance Corporation, a bank is typically defined to be "well capitalized" if it maintains a Tier I capital ratio of at least 6.0%, a total risk-based capital ratio of at least 10.0% and a leverage ratio of at least 5.0%. It is the Company's intention to maintain sufficient capital in each of its bank subsidiaries to permit them to maintain a "well capitalized" designation. The capital ratios for both of the Company's subsidiary banks exceeded the "well capitalized" regulatory capital requirements at December 31, 1994. For 1993, the Company's board of directors had authorized the purchase of up to 500,000 shares of the Company's common stock to be used for general corporate purposes. A separate board of directors action in December 1993 authorized the purchase of an additional 71,518 shares to be used to acquire the minority interests of the subsidiaries of First Dodge City Bancshares, Inc., a 1994 acquisition. A total of 111,518 shares were purchased in 1993, 40,000 shares for general corporate purposes and 71,518 shares specifically for the pending acquisition. The purchase of up to 500,000 common shares, or the equivalent in depositary shares representing interests in the Company's Class A Cumulative Preferred Stock, or a combination of the two was authorized for 1994. A board of directors action in April 1994 specifically reserved a portion of this previous authorization to be used for the acquisition of Oklahoma Savings, Inc. ("OSI"). At December 31, 1994, 355,466 shares of the Company's common stock had been purchased to be used in the OSI acquisition, which was consummated on January 6, 1995 and the shares were reissued. For 1995 the Company's board of directors has authorized the purchase of up to 500,000 common shares, or the equivalent in depositary shares, or a combination of the two. Pending Acquisitions A discussion of acquisitions pending at December 31, 1994 is included in Item 1, "Business," of PART I of this Annual Report on Form 10-K. Shares of the Company's common stock will be used to consummate the OSI and Standard Bancorporation, Inc. acquisitions. Funding for the pending cash purchase acquisition will be provided by available funds. Parent Company Funding Sources and Dividends The ability of the parent company to fund various operating expenses and dividend requirements is dependent in part on its ability to obtain funds from its bank subsidiaries. Historically, these funds have been primarily provided by intercompany dividends. Intercompany dividends amounted to $144.2 million, $76.9 million, and $57.8 million for 1994, 1993, and 1992, respectively. The approval of the Comptroller of the Currency ("Comptroller") is required if total dividends declared by a national bank in any one year exceed the bank's net profits for that year plus the profits for the two preceding years retained by the bank. In 1995, the subsidiary banks may distribute to the parent company (in addition to their 1995 net profits) an aggregate of approximately $39.9 million in dividends without approval from regulatory agencies. Because of the financial strength of the parent company and the anticipated earnings capacity of both the BANK IV banks, it is anticipated that the banks will be able to obtain permission from the Comptroller to pay additional dividends in 1995 to the extent justified by their respective financial condition. At December 31, 1994, the parent company had approximately $31.1 million of cash and short-term investments. The parent company's borrowings at the same date totaled $24.4 million, composed of a $4.4- million term loan which bears interest at 8.6% and matures in March 1995 and $20.0 million borrowed under its line of credit. On January 3, 1995 this line of credit was replaced by two new credit agreements. These credit agreements provide the Company with a combined $100.0- million line of credit for a one-year period. The credit agreements subject the Company to certain restrictions and covenants related to, among others, consolidated stockholders' equity and the maintenance of specific ratios related to leverage, risk-based capital, and nonperforming assets. The parent company is currently in compliance with all restrictions and covenants under these agreements. Recently Issued Accounting Standards In May 1993, the Financial Accounting Standards Board issued FAS No. 114, which addresses the accounting by creditors for impairment of certain loans. It is applicable to all creditors and to all loans, uncollateralized as well as collateralized, except large groups of smaller-balance homogeneous loans that are collectively evaluated for impairment, loans that are measured at fair value or at the lower of cost or fair value, leases, and debt securities. It applies to all loans that are restructured in a troubled debt restructuring involving a modification of terms. The Statement requires that, when evaluating the need for an allowance for credit losses on impaired loans that are within the scope of this Statement, the loss accrual be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral-dependent. FAS No. 114 was amended by FAS No. 118 in October of 1994 to allow a creditor to use existing methods for recognizing interest income on an impaired loan. It also amended the disclosure requirements of FAS No. 114 to require information about the recorded investment in certain impaired loans and about how a creditor recognizes interest income related to those impaired loans. FAS No. 114, as amended by FAS No. 118, is effective for fiscal years beginning after December 15, 1994. The Company has not completed the analyses required to estimate the impact of FAS 114; however, the Company does not believe the adoption of the new rules will have a material adverse effect on its financial condition. Effects of Inflation and Changing Prices Virtually all assets and liabilities of a banking organization are monetary in nature. As such, they represent obligations to pay or receive fixed and determinable amounts of money which are not affected by future changes in prices. Changes in interest rates are the greatest determinant of bank earnings. However, interest rates do not necessarily move in the same direction or with the same magnitude as prices of other goods and services. A financial institution can manage the risk of changes in interest rates by matching the maturities of its liabilities against the maturities of its interest-earning assets. How well the institution copes with changing interest rates may then be determined by examining its net yield on earning assets and analyzing its asset and liability structure. Accordingly, reference to the various supplementary schedules shown elsewhere in this report will assist in the understanding of how the Company is positioned to react to changing interest rates.
Quarterly Financial Data (Unaudited) 1994 ---------------------------------------------- 4th 3rd 2nd 1st ------- ------- ------- ------- (Dollars in thousands, except per share data) Summary Income Statement Information: Interest income . . . . . . . . . . . . . . . . . . . . . $131,317 $127,336 $117,866 $106,955 Interest expense. . . . . . . . . . . . . . . . . . . . . 60,853 54,923 48,196 42,582 -------- -------- -------- -------- Net interest income . . . . . . . . . . . . . . . . . . . 70,464 72,413 69,670 64,373 Provision for credit losses . . . . . . . . . . . . . . . -- -- -- 275 -------- -------- -------- -------- Net interest income after provision for credit losses . . 70,464 72,413 69,670 64,098 Investment securities gains (losses). . . . . . . . . . . (50) 56 62 3,564 Other noninterest income. . . . . . . . . . . . . . . . . 24,911 24,107 22,508 22,677 Noninterest expense . . . . . . . . . . . . . . . . . . . (63,534) (64,163) (60,606) (62,132) -------- -------- -------- -------- Income before income taxes. . . . . . . . . . . . . . . . 31,791 32,413 31,634 28,207 Income tax expense. . . . . . . . . . . . . . . . . . . . 9,735 10,691 10,819 9,678 -------- -------- -------- -------- Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 22,056 $ 21,722 $ 20,815 $ 18,529 ======== ======== ======== ======== Net income applicable to common and common-equivalent shares . . . . . . . . . . . . . . $ 20,306 $ 19,972 $ 19,065 $ 16,779 ======== ======== ======== ======== Per Common Share Data: Earnings per common and common-equivalent share: Primary . . . . . . . . . . . . . . . . . . . . . . . . $ .76 $ .74 $ .71 $ .62 Fully diluted . . . . . . . . . . . . . . . . . . . . . .73 .72 .69 .60 Common dividend . . . . . . . . . . . . . . . . . . . . . .26 .26 .26 .26 Book value (period-end) . . . . . . . . . . . . . . . . . 18.67 18.51 18.36 18.50 Market value (period-end) bid . . . . . . . . . . . . . . 30 1/2 29 3/4 28 3/4 25 1/2 Market value (bid): High . . . . . . . . . . . . . . . . . . . . . . . . . $ 32 1/2 $ 30 $ 31 1/4 $ 28 3/4 Low . . . . . . . . . . . . . . . . . . . . . . . . . . 29 1/4 27 3/4 26 25 1/4 As Previously Reported: Net interest income . . . . . . . . . . . . . . . . . . . $ 70,464 $ 72,413 $ 69,670 $ 62,797 Net income. . . . . . . . . . . . . . . . . . . . . . . . 22,056 21,722 20,815 20,201 Net income applicable to common and common-equivalent shares . . . . . . . . . . . . . . 20,306 19,972 19,065 18,451 Fully diluted earnings per common share . . . . . . . . . .73 .72 .69 .68
1993 ---------------------------------------------- 4th 3rd 2nd 1st ------- ------- ------- ------- (Dollars in thousands, except per share data) Summary Income Statement Information: Interest income . . . . . . . . . . . . . . . . . . . . . $112,614 $114,050 $110,678 $106,571 Interest expense. . . . . . . . . . . . . . . . . . . . . 44,662 46,835 45,222 42,783 -------- -------- -------- -------- Net interest income . . . . . . . . . . . . . . . . . . . 67,952 67,215 65,456 63,788 Provision for credit losses . . . . . . . . . . . . . . . 639 205 2,895 3,226 -------- -------- -------- -------- Net interest income after provision for credit losses . . 67,313 67,010 62,561 60,562 Investment securities gains . . . . . . . . . . . . . . . 355 168 208 755 Other noninterest income. . . . . . . . . . . . . . . . . 22,478 21,032 20,174 21,112 Noninterest expense . . . . . . . . . . . . . . . . . . . (61,353) (66,511) (62,920) (63,558) -------- -------- -------- -------- Income before income taxes and cumulative effect of a change in accounting principle . . . . . . . 28,793 21,699 20,023 18,871 Income tax expense. . . . . . . . . . . . . . . . . . . . 8,165 4,997 4,615 4,899 -------- -------- -------- -------- Income before cumulative effect of a change in accounting principle. . . . . . . . . . . 20,628 16,702 15,408 13,972 Cumulative effect of a change in accounting principle . . -- -- (5) 10,587 -------- -------- -------- -------- Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 20,628 $ 16,702 $ 15,403 $ 24,559 ======== ======== ======== ======== Net income applicable to common and common-equivalent shares . . . . . . . . . . . . . . $ 18,878 $ 14,952 $ 13,653 $ 22,809 ======== ======== ======== ======== Per Common Share Data: Earnings per common and common-equivalent share: Primary . . . . . . . . . . . . . . . . . . . . . . . . $ .71 $ .57 $ .52 $ .87 Fully diluted . . . . . . . . . . . . . . . . . . . . . .68 .55 .51 .81 Common dividend . . . . . . . . . . . . . . . . . . . . . .26 .24 .24 .24 Book value (period-end) . . . . . . . . . . . . . . . . . 18.73 17.82 17.61 17.28 Market value (period-end) bid . . . . . . . . . . . . . . 28 3/4 29 3/4 30 1/4 30 3/4 Market value (bid): High. . . . . . . . . . . . . . . . . . . . . . . . . . $ 30 $ 31 $ 30 3/4 $ 31 Low . . . . . . . . . . . . . . . . . . . . . . . . . . 25 3/4 28 1/2 26 3/4 28 1/2 As Previously Reported: Net interest income . . . . . . . . . . . . . . . . . . . $ 66,267 $ 67,215 $ 65,456 $ 62,262 Net income. . . . . . . . . . . . . . . . . . . . . . . . 20,182 16,702 15,403 24,196 Net income applicable to common and common-equivalent shares . . . . . . . . . . . . . . 18,432 14,952 13,653 22,446 Fully diluted earnings per common share . . . . . . . . . .68 .55 .51 .81
The quarterly price range of the Company's common stock is the closing bid price, as reported by the NASDAQ national market system. Such over-the-counter market quotations reflect inter-dealer prices without retail markup, markdown, or commission and may not necessarily represent actual transactions. Information for previously reported quarters has been restated to reflect acquisitions accounted for as poolings of interests. EX-3 2 EXHIBIT 3.05 BY-LAWS FOURTH FINANCIAL CORPORATION Table of Contents PART I - MEETINGS OF SHAREHOLDERS Section 1.01 Annual Meetings Section 1.02 Postponed Election of Directors Section 1.03 Special Meetings Section 1.04 Notice of Shareholders' Meetings Section 1.05 Nomination for Election to the Board of Directors Section 1.06 Quorum Section 1.07 Organization of Shareholders' Meetings Section 1.08 Voting Rights at Shareholders' Meetings Section 1.09 Proxies Section 1.10 Records of Voting at Meetings Section 1.11 Adjourned Meetings and Notice Thereof PART II - DIRECTORS Section 2.01 Powers of Board of Directors Section 2.02 Number of Directors Section 2.03 Term of Office Section 2.04 Acceptance of Office Section 2.05 Vacancies Section 2.06 Organization Meeting of Board Section 2.07 Regular Meetings Section 2.08 Special Meetings Section 2.09 Quorum Section 2.10 Vote of Directors; Proxies Section 2.11 Fees PART III - OFFICERS AND EMPLOYEES Section 3.01 Officers and Employees Section 3.02 Terms of Office Section 3.03 Surety Bonds Section 3.04 The Chairman of the Board Section 3.05 President Section 3.06 Vice Presidents Section 3.07 Treasurer Section 3.08 Controller Section 3.09 Secretary Section 3.10 Officers Pro Tempore Table of Contents (Continued) PART IV - COMMITTEES Section 4.01 Appointment and Organization of Committees Section 4.02 Executive Committee Section 4.03 Audit and Examination Committee Section 4.04 Compensation and Personnel Committee Section 4.05 Asset, Liability and Investments Committee PART V - SEAL Section 5.01 Form Section 5.02 Authority to Use Seal PART VI - STOCK Section 6.01 Form of Stock Certificates Section 6.02 Transfer of Stock Section 6.03 Determining Shareholders of Record Section 6.04 Registered Stockholders Section 6.05 Registrars and Transfer Agents Section 6.06 General Authority Section 6.07 Control Share Acquisitions PART VII - MISCELLANEOUS Section 7.01 Execution of Instruments Section 7.02 Waiver of Notice Section 7.03 Meeting by Conference Telephone Section 7.04 Emergencies Section 7.05 Action Without a Meeting PART VIII - INDEMNIFICATION Section 8.01 Indemnification PART IX - CHANGES IN BY-LAWS Section 9.01 Amendments BY-LAWS FOURTH FINANCIAL CORPORATION PART I - MEETINGS OF SHAREHOLDERS Section 1.01 Annual Meetings - ---------------------------- The regular annual meeting of the shareholders of the Corporation for determining the number and electing members of the Board of Directors for the ensuing year, receiving and acting upon reports of officers as to acts, appointments, and transactions during the preceding year, and transacting such other business relative to the management of the Corporation as may lawfully come before it, shall be held at its main office on the third Thursday of April each year, or on such other date or at such other place as the Board of Directors may in any year or years designate. Section 1.02 Postponed Election of Directors - -------------------------------------------- If, for any cause, the annual election of directors is not held on the date fixed by these By-Laws, the Board of Directors shall order an election to be held on some other day, of which special notice shall be given in accordance with the Articles of Incorporation and these By-Laws. Section 1.03 Special Meetings - ----------------------------- Special meetings of the shareholders of the Corporation, for any purpose or purposes, may be called by the Board of Directors. Any call for a special meeting shall state the purpose of the meeting. The business transacted at a special meeting shall be limited to that stated in the call for the meeting, but the call for the meeting may state that any proper corporate business may be transacted at the meeting, in which case any proper corporate business may be transacted. Section 1.04 Notice of Shareholders' Meetings - --------------------------------------------- Except in specific instances where other notice is required by law or by the Articles of Incorporation, notice of any annual or special meeting of the shareholders, stating the time, place, and purpose of the meeting, shall be sufficient if mailed by United States mail, postage prepaid, to each shareholder of record at the address shown upon the books of the Corporation, not less than ten days nor more than 50 days prior to the date set for such meeting. Section 1.05 Nomination for Election to the Board of Directors - -------------------------------------------------------------- No person shall be eligible for election to the Board of Directors at any shareholders' meeting unless such person is nominated as provided herein. Nominations for election to the Board of Directors by shareholders may be made by the Board of Directors or by any shareholder of any outstanding class of capital stock of the Corporation entitled to vote for the election of directors. Nominations, other than those made by the Board of Directors, shall be made in writing and shall be delivered or mailed to the President of the Corporation not less than 14 days nor more than 50 days prior to any meeting of shareholders called for the election of directors; provided, however, that if less than 21 days' notice of the meeting is given to shareholders, such nomination shall be mailed or delivered to the President of the Corporation not later than the close of business on the seventh day following the day on which the notice of meeting was mailed. Such notification shall contain the following information to the extent known to the notifying shareholder: 1. The name and address of each proposed nominee. 2. The principal occupation of each proposed nominee. 3. The total number of shares of capital stock of the Corporation that to the knowledge of the notifying shareholder will be voted for each of the proposed nominees. 4. The name and residence address of the notifying shareholder. 5. The number of shares of capital stock of the Corporation owned by the notifying shareholder. In the event that any person so nominated shall at any time prior to any such meeting become ineligible or unable to serve as a director because of death, disability or incapacity, or shall withdraw as a nominee, the Board of Directors or the shareholder who nominated such nominee may nominate a substitute by delivering a written nomination to the President of the Corporation. Nominations not made in accordance herewith may, in the Chairman's discretion, be disregarded by the Chairman of the meeting, and upon the Chairman's instructions, the vote tellers may disregard all votes cast for each such nominee. Section 1.06 Quorum - ------------------- A majority of the outstanding capital stock represented in person or by proxy shall constitute a quorum at any meeting of shareholders unless otherwise provided by law. Less than a quorum may adjourn any meeting from time to time. Section 1.07 Organization of Shareholders' Meetings - --------------------------------------------------- The holders of a majority of the outstanding shares entitled to vote and represented at any meeting of the shareholders may choose persons to act as chairman and as secretary of the meeting. However, in the absence of such choice the Chairman of the Board of Directors, or in the Chairman's absence the President of the Corporation, shall act as chairman of the meeting. The Secretary of the Board of Directors, or in the Secretary's absence a person appointed by the chairman of the meeting, shall act as secretary of the meeting. Section 1.08 Voting Rights at Shareholders' Meetings - ---------------------------------------------------- In all elections of directors, each shareholder shall have the right to vote the number of shares owned by such shareholder for as many persons as there are directors to be elected, or to cumulate such shares and give one candidate as many votes as the number of directors multiplied by the number of such shareholder's shares shall equal, or to distribute them on the same principle among as many candidates as such shareholder shall think fit. In deciding all other questions at meetings of the shareholders, each shareholder shall be entitled to one vote on each share of stock owned by such shareholder. A majority of the votes cast shall decide every question or matter submitted to the shareholders at any meeting at which a quorum is present, unless otherwise provided by law or by the Articles of Incorporation. Section 1.09 Proxies - -------------------- Shareholders may vote at any meeting of the shareholders by proxies duly authorized in writing, but no officer or employee of the Corporation shall act as proxy. Proxies shall be valid only for one meeting, to be specified therein, and any adjournments of such meeting. Proxies shall be dated and shall be filed with the records of the meeting. Section 1.10 Records of Voting at Meetings - ------------------------------------------ In the case of any meeting of the shareholders, a record shall be made showing the names of the shareholders present and the number of shares held by each, the names of shareholders represented by proxy and the number of shares held by each, and the names of the proxies. This record also shall show the number of shares voted on each action taken, including the number of shares voted for each candidate for director. This record shall be included in the minute book of the Corporation. Section 1.11 Adjourned Meetings and Notice Thereof - -------------------------------------------------- Any meeting of the shareholders, whether or not a quorum is present, may be adjourned from time to time by the vote of a majority of the shares present in person or represented by proxy, but in the absence of a quorum no other business may be transacted by such meeting. If any meeting of the shareholders is adjourned for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given as in the case of an original meeting. Otherwise, it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned meeting other than by announcement at the meeting at which such adjournment is taken. PART II - DIRECTORS Section 2.01 Powers of Board of Directors - ----------------------------------------- The Board of Directors shall have power to manage and administer the business and affairs of the Corporation. Except as expressly limited by law, all corporate powers of the Corporation shall be vested in and may be exercised by the Board of Directors. Section 2.02 Number of Directors - -------------------------------- As prescribed by the Articles of Incorporation, the Board of Directors shall consist of not less than three nor more than 25 persons, who need not be shareholders. Section 2.03 Term of Office - --------------------------- As provided in the Articles of Incorporation, each director shall serve for a term ending on the date of the third annual meeting following the annual meeting at which such director was elected. Section 2.04 Acceptance of Office - --------------------------------- Each person elected or appointed a director of the Corporation must file with the Secretary a written acceptance of the office before exercising the functions thereof. Section 2.05 Vacancies - ---------------------- Any vacancy occurring in the Board of Directors shall be filled by the majority vote of the remaining directors of the class in which such vacancy occurs or by the sole remaining director of that class if only one such director remains, or by the majority vote of the remaining members of the other two classes if there be no remaining member of the class in which the vacancy occurs. A director so elected to fill a vacancy shall serve for the remainder of the then present term of office of the class to which he or she was elected. Section 2.06 Organization Meeting of Board - ------------------------------------------ Following the annual meeting of the shareholders, the chairman or the secretary of the meeting shall promptly notify the directors- elect of their election, and they shall meet promptly for the purpose of organizing the new Board of Directors, appointing committees of the Board and officers, fixing salaries for the ensuing year, and transacting such other business as may properly come before the organization meeting. Section 2.07 Regular Meetings - ----------------------------- The regular meetings of the Board of Directors may be held on call of the Chairman of the Board, the President, or the Secretary at the main office of the Corporation on such dates as the Board of Directors may from time to time by resolution establish. When any regular meeting of the Board falls upon a holiday, the meeting shall be held on the next business day unless the Board designates some other day. Regular meetings of the Board of Directors may also be held at such other times and places, within or without the State of Kansas, as the Board itself may from time to time determine. There shall be mailed to each director at least ten days prior to any regular meeting a written notice of the time and place thereof. Section 2.08 Special Meetings - ----------------------------- Special meetings of the Board of Directors may be called by the Chairman of the Board or the President of the Corporation, or at the request of three or more directors. Each director shall be given at least two days' notice of the time, place, and purpose of any special meeting, which notice may be given in person, by telephone, by mail, by telegraph, or by any other effective method. Section 2.09 Quorum - ------------------- A majority of the directors shall constitute a quorum at any meeting unless otherwise provided by law. Less than a quorum may adjourn any meeting, from time to time, and the meeting may be held, as adjourned, without further notice. Section 2.10 Vote of Directors; Proxies - --------------------------------------- A majority of those directors present and voting at any meeting of the Board of Directors at which a quorum is present shall decide each matter considered unless otherwise provided by law or by the Articles of Incorporation. A director cannot vote by proxy or otherwise act by proxy at a meeting of the Board of Directors. Section 2.11 Fees - ----------------- Each director shall receive such annual fee, such fee for each Board meeting attended, and such fee for each meeting of any Board committee attended as the Board shall fix from time to time. PART III - OFFICERS AND EMPLOYEES Section 3.01 Officers and Employees - ----------------------------------- The officers of the Corporation shall be a Chairman of the Board of Directors, a President, one or more Vice Presidents, a Treasurer, a Controller, a Secretary, and such other officers as from time to time in the judgment of the Board may be required for the prompt and orderly transaction of the business of the Corporation. The Chairman of the Board and the President shall be members of the Board of Directors; other officers may, but need not, be members of the Board of Directors. Two or more offices may be held by the same individual, but no individual may hold at the same time the offices of Vice President, Secretary, and Treasurer. All officers shall be elected, appointed or employed and their duties prescribed by the Board of Directors. Nevertheless, the Board of Directors may delegate to the President the authority to prescribe the duties of other officers of the Corporation not inconsistent with law, the Articles of Incorporation and these By-Laws, and to appoint other employees, prescribe their duties and dismiss them. Section 3.02 Terms of Office - ---------------------------- The Chairman of the Board of Directors, the President, and any other officer who is a member of the Board of Directors shall hold office until the next organization meeting of the Board of Directors unless in the meantime such officer shall resign, be disqualified, or be removed from office. Any vacancy occurring in the office of Chairman of the Board of Directors or President shall be filled promptly by the remaining members of the Board of Directors. Each other officer and employee shall hold office or employment at the pleasure of the Board of Directors; provided, however, that the Board of Directors may delegate to the Chairman, the President, and such other officers as it deems appropriate the Board's authority to remove and to dismiss such other officers and employees. Section 3.03 Surety Bonds - ------------------------- Each officer and employee of the Corporation shall give bond of suitable amount with security to be approved by the Board of Directors, conditioned for the honest and faithful discharge of such officer's or employee's duties. At the discretion of the Board, such bonds may be schedule or blanket form and the premiums shall be paid by the Corporation. The amount of such bonds, the form of coverage, and the name of the company providing the surety therefor shall be reviewed by the Board of Directors annually. Section 3.04 The Chairman of the Board - -------------------------------------- The Chairman of the Board shall preside at all meetings of the Board of Directors. The Chairman shall be the Chief Executive Officer of the Corporation unless such duty is delegated to the President. The Chairman shall have general executive powers as well as the specific powers conferred by law, by the Articles of Incorporation, and by these By-Laws, and shall supervise the carrying out of the policies adopted or approved by the Board of Directors. The Chairman shall also perform such other duties and have such other powers as may be assigned from time to time by the Board of Directors. Section 3.05 President - ---------------------- The President shall, in the absence of the Chairman of the Board, preside at meetings of the Board of Directors. The President shall have general executive powers as well as the specific powers conferred by law, by the Articles of Incorporation, and by these By-Laws, and shall have the powers and duties usually incident to the office of President. The President shall also perform such other duties and have such other powers as may be assigned from time to time by the Board of Directors. Section 3.06 Vice Presidents - ---------------------------- Each Vice President shall have such powers and duties as may be assigned by the Board of Directors. Section 3.07 Treasurer - ---------------------- The Treasurer shall be responsible for the funding of the activities of the Corporation and its subsidiaries and for managing the investment of the funds of the Corporation and its subsidiaries. Section 3.08 Controller - ----------------------- The Controller shall keep proper records of all transactions of the Corporation, cause all duly authorized expenses of the Corporation to be paid, and prepare complete financial reports for each regular meeting of the Board of Directors. Section 3.09 Secretary - ---------------------- The Secretary shall be responsible for the minute book of the Corporation. In this minute book the Secretary shall record the proceedings of all regular and special meetings of the Board of Directors and the shareholders and the reports of the committees and directors. The minutes of all meetings of the Corporation shall be signed by the Secretary and the presiding officer. The Secretary shall also maintain and properly preserve the organization papers of the Corporation, the returns of elections, the Articles of Incorporation, the By-Laws and any amendments thereto. The Secretary shall also maintain proper records of all contracts of the Corporation. Section 3.10 Officers Pro Tempore - --------------------------------- The Board of Directors may, during the absence or disability of any officer, or upon the refusal of any officer to act, delegate such officer's powers and duties to any other officer, or to any director, for the time being. PART IV - COMMITTEES Section 4.01 Appointment and Organization of Committees - ------------------------------------------------------- The Board of Directors shall appoint, at its annual organization meeting, the committees specifically provided for in these By- Laws and shall designate the chairman of each committee. The Board of Directors may appoint other committees from time to time and assign them such powers and duties as it deems desirable. The Chairman of the Board of Directors and the President of the Corporation shall be ex-officio members of the Executive Committee and may be members of such other committees (other than the Audit and Examination Committee and the Compensation and Personnel Committee) as the Board of Directors directs. Each committee member shall serve until the next annual organization meeting of the Board of Directors and until a successor is appointed. The Board of Directors may increase or decrease the membership of any committee and appoint additional members to any committee. The Chairman of the Board of Directors may designate a person to serve in place of any committee member who becomes unable to serve because of death, resignation, incapacity, or absence. Unless these By-Laws otherwise require or the Board of Directors otherwise specifies, each committee may adopt rules of procedure, designate the time and place of its meetings, and specify the number of members (not less than a majority) which constitutes a quorum. Each committee shall keep minutes of its meetings and shall make reports of its activities at each regular meeting of the Board of Directors. Section 4.02 Executive Committee - -------------------------------- There shall be an Executive Committee consisting of at least five directors. The committee's responsibilities shall include (1) advising executive management as may be required on significant matters of strategy, policy, and business direction and (2) making recommendations to the Board of Directors as to the payment of dividends on the Corporation's securities. In addition, the committee may exercise, and by this By-Law is granted authority to exercise, all powers of the Board of Directors except those powers that the entire Board of Directors alone may exercise. Section 4.03 Audit and Examination Committee - -------------------------------------------- There shall be an Audit and Examination Committee consisting of at least four independent directors of the Corporation and at least one independent director of each of the Corporation's subsidiary banks. At least two members of the committee shall have banking or related financial management experience. No member of the committee shall be a large customer, as determined by the Board of Directors, or shall be an active officer or employee of the Corporation or of any of the Corporation's subsidiaries. The committee's responsibilities shall include (1) serving as, and performing all functions required to be performed by, the Audit Committee of each of the Corporation's subsidiary banks, (2) recommending to the Board of Directors the selection of the Corporation's independent auditors and overseeing the scope and performance of their services, (3) reviewing the Corporation's accounting policies, significant accounting estimates, and financial reporting, (4) reviewing the adequacy of internal controls and reporting thereon as required by applicable laws and regulations, (5) overseeing the Corporation's internal audit and compliance activities, (6) monitoring compliance with laws and regulations and reviewing reporting thereon, (7) monitoring compliance with policies of the Board of Directors, (8) regularly assessing the adequacy of the allowance for credit losses at each of the Corporation's subsidiary banks, and (9) reviewing the results of regulatory examinations, the responses thereto, and the corrective actions taken. The committee shall have access to outside legal counsel of its own choosing. Section 4.04 Compensation and Personnel Committee - ------------------------------------------------- There shall be a Compensation and Personnel Committee consisting of at least five directors, none of whom shall be an active officer or employee of the Corporation or of any of the Corporation's subsidiaries. The Committee's responsibilities shall include making recommendations to the Board of Directors concerning (1) the election, promotion, and compensation of the officers of the Corporation, (2) the nomination of candidates for election to the Board of Directors, (3) management succession planning, and (4) the Corporation's compensation and benefits programs and policies. The Committee shall also perform the functions prescribed for the administrative committee under such employee benefit plans as the Corporation may from time to time adopt. Section 4.05 Asset, Liability and Investments Committee - ------------------------------------------------------- There shall be an Asset, Liability and Investments Committee consisting of at least four directors of the Corporation and at least one director of each of the Corporation's subsidiary banks. The Committee's responsibilities shall include (1) monitoring compliance with the Asset and Liability Management and Investment Policies of the Corporation and its subsidiary banks, (2) reviewing the composition and performance of, and transactions in, the investment portfolios of the Corporation and its subsidiary banks, (3) monitoring the liquidity of the Corporation and its subsidiary banks and reviewing their funding plans, and (4) reviewing risks associated with interest-rate movements and hedging activities. PART V - SEAL Section 5.01 Form - ----------------- The following is an impression of the seal adopted by the Board of Directors of this Corporation: Section 5.02 Authority to Use Seal - ---------------------------------- The President, any Vice President, the Secretary, and any other officer designated by the Board of Directors shall have authority to affix the seal to any document requiring it and to attest the Corporation's execution of such document. PART VI - STOCK Section 6.01 Form of Stock Certificates - --------------------------------------- Certificates of stock of the Corporation shall be numbered and shall be entered on the books of the Corporation and its registrars and transfer agents as they are issued. They shall exhibit the holder's name and number of shares, the name of the Corporation and the state of its incorporation, the par value of shares represented thereby, and the total number of shares of stock which the Corporation is authorized to issue. They shall bear the signature of the Chairman of the Board, President or Vice President (which may be engraved, printed, or impressed) and shall be signed manually or by facsimile process by the Secretary, Treasurer, or any other officer appointed by the Board of Directors for that purpose, to be known as an Authorized Officer, and the seal of the Corporation shall be engraved thereon. Each certificate shall recite on its face that the stock represented thereby is transferable only upon the books of the Corporation properly endorsed. Section 6.02 Transfer of Stock - ------------------------------ The stock of the Corporation shall be assignable and transferable only on the books of the Corporation upon surrender of the certificate representing such stock properly endorsed by the holder named on such certificate or by an agent appointed in writing by such holder. A transfer book shall be kept in which all assignments and transfers of stock shall be made. Every person becoming a shareholder by such transfer shall, in proportion to such shares, succeed to all rights of the prior holder of such shares. Section 6.03 Determining Shareholders of Record - ----------------------------------------------- The Board of Directors may close the stock transfer books of the Corporation for a period of not less than ten days and not more than 60 days preceding the date of any meeting of shareholders, or the date for payment of any dividend, or the date for the allotment of rights, or the date when any change, conversion or exchange of capital stock shall go into effect, or in connection with obtaining the consent of shareholders for any purpose. As an alternative, the Board of Directors may fix in advance a record date, not less than ten days and not more than 60 days preceding the date of any such event, for the purpose of determining the shareholders entitled to receive notice of and to vote at any such meeting, or to receive payment of any such dividend, or to receive any such allotment of rights, or to exercise rights in respect to any such change, conversion or exchange of capital stock, or to give such consent, notwithstanding any transfer of any stock on the books of the Corporation after such record date. However, in no event shall the record date fixed by the Board of Directors be prior to the date of the meeting of the Board of Directors at which the record date is fixed. Section 6.04 Registered Stockholders - ------------------------------------ The Corporation may treat the holder of record of any share or shares of stock as the holder in fact thereof, and accordingly shall not be bound to recognize any equitable or other claim to, or interest in, such share or shares on the part of any other person, whether or not the Corporation has express or other notice thereof, except as expressly provided by law. Section 6.05 Registrars and Transfer Agents - ------------------------------------------- The Board of Directors may, by resolution, appoint such registrars and transfer agents as it deems convenient for the conduct of the affairs of the Corporation and may prescribe the powers and duties of such registrars and transfer agents. The Board of Directors may change such registrars and transfer agents at its pleasure. Section 6.06 General Authority - ------------------------------ The Board of Directors may make all such rules and regulations as it may deem expedient concerning the issue, transfer, and registration of certificates for shares of the capital stock of the Corporation and concerning the replacement of lost, stolen, or destroyed certificates. Section 6.07 Control Share Acquisitions - --------------------------------------- The Kansas Control Share Acquisition Act (Chapter 93, 1988 Session Laws of Kansas) shall not apply to control share acqui- sitions of shares of the Corporation, nor shall the Corporation have the right provided by Section 10 of such act to call for redemption shares acquired in a control share acquisition, nor shall an objecting stockholder have the dissenters' rights provided for by Section 11 of such act. PART VII - MISCELLANEOUS Section 7.01 Execution of Instruments - ------------------------------------- All agreements, indentures, mortgages, deeds, conveyances, transfers, certificates, declarations, receipts, discharges, releases, satisfactions, settlements, petitions, schedules, accounts, affidavits, bonds, undertakings, proxies, and other instruments or documents may be signed, executed, acknowledged, verified, delivered or accepted in behalf of the Corporation by the Chairman of the Board, the President, any Vice President, the Treasurer, the Controller, or the Secretary. Any such instruments may also be signed, executed, acknowledged, verified, delivered, or accepted in behalf of the Corporation in such other manner and by such other officers or employees as the Board of Directors may from time to time direct. Section 7.02 Waiver of Notice - ----------------------------- Whenever these By-Laws require or permit notice to be given to any director, officer, or shareholder, such person may sign a written waiver of such notice which shall be in all respects tantamount to notice. Section 7.03 Meeting by Conference Telephone - -------------------------------------------- Any meeting of the Board of Directors or of any committee may be held by conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other simultaneously. Participating in any meeting so conducted shall constitute presence at the meeting in person by all persons so participating. Section 7.04 Emergencies - ------------------------ In the event of an emergency declared by the President of the United States or the person performing the functions of the President of the United States, the officers and employees of the Corporation will, to the extent possible and subject to applicable governmental directives during the emergency, continue to conduct the affairs of the Corporation under such guidance from the directors as may be available, except as to matters which by statute require specific approval of the Board of Directors. In the event of a state of emergency or disaster of sufficient severity to prevent the conduct and management of the affairs and business of the Corporation by its directors and officers as contemplated by these By-Laws, any two available members of the then incumbent Executive Committee shall constitute a quorum of that committee for the full conduct and management of the affairs and business of the Corporation. In the event of the unavailability, at such time, of a minimum of two members of the then incumbent Executive Committee, any three available directors shall constitute the Executive Committee for the full conduct and management of the affairs and business of the Corporation, in accordance with the foregoing provisions of this section. This By-Law shall be subject to implementation by resolutions of the Board of Directors passed from time to time for that purpose, and any provisions of these By-Laws (other than this section) and any resolutions which are contrary to the provisions of this section or to the provisions of any such implementing resolutions shall be suspended until it is determined by the interim Executive Committee acting under this section that it is to the advantage of the Corporation to resume the conduct and management of its affairs and business under all the provisions of these By-Laws. Section 7.05 Action Without a Meeting - ------------------------------------- Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without notice and without a meeting if all members of the Board of Directors or committee, as the case may be, consent in writing to the proposed action and if such written consent is filed in the minutes of proceedings of the Board of Directors or committee, as the case may be. Any action so taken by unanimous written consent shall have the same force and effect as action taken at a meeting of the Board of Directors or committee, as the case may be, by unanimous vote of all members. PART VIII - INDEMNIFICATION Section 8.01 Indemnification - ---------------------------- The Corporation shall (a) indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, or employee of the Corporation or of a subsidiary of the Corporation, or is or was serving at the request of the Corporation as a director, officer, or employee of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit, and (b) indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (other than an action by or in the right of the Corporation), by reason of the fact that he is or was a director, officer, or employee of the Corporation or of a subsidiary of the Corporation or is or was serving at the request of the Corporation as a director, officer, or employee of another corporation, partnership, joint venture, trust, or other enterprise, against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with any such action, suit or proceeding. Indemnification shall be afforded to the fullest extent permissible under the Kansas General Corporation Code or the indemnification provisions of any successor statute, and not further, and shall be subject to any applicable procedural requirements and standards of conduct on the part of the persons to be indemnified prescribed by that statute. The foregoing right of indemnification shall in no way be exclusive of any other rights of indemnification to which any such person may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, and shall inure to the benefit of the heirs, executors, and administrators of such a person. The Corporation may, but shall not be required to, purchase liability insurance indemnifying the directors, officers, and employees of the Corporation and its subsidiaries. PART IX - CHANGES IN BY-LAWS Section 9.01 Amendments - ----------------------- These By-Laws may be amended upon vote of the holders of a majority of the shares of stock of the Corporation represented at a meeting of the shareholders at which a quorum is present. These By-Laws may also be amended upon vote of a majority of the entire Board of Directors at any meeting of the Board, provided ten days' notice of the proposed amendment has been given to each member of the Board of Directors, but the authority of the Board of Directors to amend these By-Laws shall at all times be subject to the superior authority of the shareholders. In the case of any By-Law the provisions of which are prescribed by law or by the Articles of Incorporation, no amendment may be made unless the By-Law, as amended, is consistent with the requirements of law and of the Articles of Incorporation. EX-10 3 EXHIBIT 10.12 ================================================================== CREDIT AGREEMENT Dated as of January 3, 1995 between FOURTH FINANCIAL CORPORATION and BANK OF AMERICA ILLINOIS ================================================================ TABLE OF CONTENTS Page ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Certain Defined Terms . . . . . . . . . . . . . . . . . . 1 1.2 Other Interpretive Provisions . . . . . . . . . . . . . . 14 1.3 Accounting Principles . . . . . . . . . . . . . . . . . . 15 ARTICLE II THE CREDITS. . . . . . . . . . . . . . . . . . . . . . . . . . 15 2.1 Amounts and Terms of Commitment . . . . . . . . . . . . . 15 2.2 Note. . . . . . . . . . . . . . . . . . . . . . . . . . . 15 2.3 Procedure for Borrowing.. . . . . . . . . . . . . . . . . 15 2.4 Conversion and Continuation Elections . . . . . . . . . . 16 2.5 Voluntary Termination or Reduction of Commitment. . . . . 17 2.6 Optional Prepayments. . . . . . . . . . . . . . . . . . . 17 2.7 Repayment . . . . . . . . . . . . . . . . . . . . . . . . 18 2.8 Termination Date. . . . . . . . . . . . . . . . . . . . . 18 2.9 Interest. . . . . . . . . . . . . . . . . . . . . . . . . 18 2.10 Facility Fees. . . . . . . . . . . . . . . . . . . . . . 19 2.11 Computation of Fees and Interest . . . . . . . . . . . . 19 2.12 Payments by the Company. . . . . . . . . . . . . . . . . 19 2.13 NationsBank Agreement. . . . . . . . . . . . . . . . . . 20 ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY . . . . . . . . . . . . 20 3.1 Taxes.. . . . . . . . . . . . . . . . . . . . . . . . . . 20 3.2 Illegality. . . . . . . . . . . . . . . . . . . . . . . . 21 3.3 Increased Costs and Reduction of Return . . . . . . . . . 22 3.4 Funding Losses. . . . . . . . . . . . . . . . . . . . . . 22 3.5 Inability to Determine Rates. . . . . . . . . . . . . . . 23 3.6 Survival. . . . . . . . . . . . . . . . . . . . . . . . . 23 ARTICLE IV CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . 23 4.1 Conditions of Initial Loans . . . . . . . . . . . . . . . 23 (a) Credit Agreement and Note . . . . . . . . . . . . 23 (b) Resolutions; Incumbency . . . . . . . . . . . . . 23 (c) Organization Documents; Good Standing . . . . . . 24 (d) Legal Opinion . . . . . . . . . . . . . . . . . . 24 (e) Payment of Fees . . . . . . . . . . . . . . . . . 24 (f) Certificate . . . . . . . . . . . . . . . . . . . 24 (g) Other Documents . . . . . . . . . . . . . . . . . 25 4.2 Conditions to All Borrowings. . . . . . . . . . . . . . . 25 (a) Notice of Borrowing . . . . . . . . . . . . . . . 25 (b) Continuation of Representations and Warranties. . 25 (c) No Existing Default . . . . . . . . . . . . . . . 25 ARTICLE V REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . 25 5.1 Corporate Existence and Power . . . . . . . . . . . . . . 25 5.2 Corporate Authorization; No Contravention . . . . . . . . 26 5.3 Governmental Authorization. . . . . . . . . . . . . . . . 26 5.4 Binding Effect. . . . . . . . . . . . . . . . . . . . . . 26 5.5 Litigation. . . . . . . . . . . . . . . . . . . . . . . . 26 5.6 No Default. . . . . . . . . . . . . . . . . . . . . . . . 27 5.7 ERISA Compliance. . . . . . . . . . . . . . . . . . . . . 27 5.8 Use of Proceeds; Margin Regulations . . . . . . . . . . . 28 5.9 Title to Properties . . . . . . . . . . . . . . . . . . . 28 5.10 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 28 5.11 Financial Condition. . . . . . . . . . . . . . . . . . . 28 5.12 Environmental Matters. . . . . . . . . . . . . . . . . . 29 5.13 Regulated Entities . . . . . . . . . . . . . . . . . . . 29 5.14 No Burdensome Restrictions . . . . . . . . . . . . . . . 29 5.15 Copyrights, Patents, Trademarks and Licenses, etc. . . . 29 5.16 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . 30 5.17 Insurance. . . . . . . . . . . . . . . . . . . . . . . . 30 5.18 Full Disclosure. . . . . . . . . . . . . . . . . . . . . 30 ARTICLE VI AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . 30 6.1 Financial Statements. . . . . . . . . . . . . . . . . . . 30 6.2 Certificates; Other Information . . . . . . . . . . . . . 32 6.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . 32 6.4 Preservation of Corporate Existence, Etc. . . . . . . . . 33 6.5 Maintenance of Property . . . . . . . . . . . . . . . . . 33 6.6 Insurance . . . . . . . . . . . . . . . . . . . . . . . . 33 6.7 Payment of Obligations. . . . . . . . . . . . . . . . . . 34 6.8 Compliance with Laws. . . . . . . . . . . . . . . . . . . 34 6.9 Compliance with ERISA . . . . . . . . . . . . . . . . . . 34 6.10 Inspection of Property and Books and Records . . . . . . 34 6.11 Environmental Laws . . . . . . . . . . . . . . . . . . . 35 6.12 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . 35 ARTICLE VII NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . 35 7.1 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . 35 7.2 Consolidation, Merger, etc . . . . . . . . . . . . . . . 36 7.3 Asset Dispositions, etc. . . . . . . . . . . . . . . . . 37 7.4 Transactions with Affiliates . . . . . . . . . . . . . . 37 7.5 Negative Pledges, Restrictive Agreements, etc. . . . . . 37 7.6 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . 37 7.7 Change in Business . . . . . . . . . . . . . . . . . . . 38 7.8 Accounting Changes . . . . . . . . . . . . . . . . . . . 38 7.9 Financial Covenants. . . . . . . . . . . . . . . . . . . 38 ARTICLE VIII EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . 38 8.1 Event of Default. . . . . . . . . . . . . . . . . . . . . 38 (a) Non-Payment . . . . . . . . . . . . . . . . . . . 38 (b) Representation or Warranty. . . . . . . . . . . . 39 (c) Other Defaults. . . . . . . . . . . . . . . . . . 39 (d) Cross-Default . . . . . . . . . . . . . . . . . . 39 (e) Insolvency; Voluntary Proceedings . . . . . . . . 39 (f) Involuntary Proceedings . . . . . . . . . . . . . 40 (g) ERISA . . . . . . . . . . . . . . . . . . . . . . 40 (h) Monetary Judgments. . . . . . . . . . . . . . . . 40 (i) Non-Monetary Judgments. . . . . . . . . . . . . . 40 (j) Change of Control . . . . . . . . . . . . . . . . 41 8.2 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . 41 8.3 Rights Not Exclusive. . . . . . . . . . . . . . . . . . . 41 ARTICLE IX MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . 41 9.1 Amendments and Waivers. . . . . . . . . . . . . . . . . . 41 9.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . 41 9.3 No Waiver; Cumulative Remedies. . . . . . . . . . . . . . 42 9.4 Costs and Expenses. . . . . . . . . . . . . . . . . . . . 42 9.5 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . 43 9.6 Successors and Assigns. . . . . . . . . . . . . . . . . . 43 9.7 Set-off . . . . . . . . . . . . . . . . . . . . . . . . . 43 9.8 Automatic Debits of Fees. . . . . . . . . . . . . . . . . 44 9.9 Counterparts. . . . . . . . . . . . . . . . . . . . . . . 44 9.10 Severability . . . . . . . . . . . . . . . . . . . . . . 44 9.11 No Third Parties Benefited . . . . . . . . . . . . . . . 44 9.12 Governing Law and Jurisdiction . . . . . . . . . . . . . 44 9.13 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . 45 9.14 Entire Agreement . . . . . . . . . . . . . . . . . . . . 45 SCHEDULES [OMITTED] Schedule 5.7 ERISA Compliance Schedule 5.11 Permitted Liabilities Schedule 5.12 Environmental Matters Schedule 5.15 Copyrights, etc. Schedule 5.16 Subsidiaries and Minority Interests Schedule 5.17 Insurance Matters Schedule 9.2 Lending Office; Addresses for Notices EXHIBITS [OMITTED] Exhibit A Form of Notice of Borrowing Exhibit B Form of Notice of Conversion/Continuation Exhibit C Form of Compliance Certificate Exhibit D Form of Legal Opinion of Borrower's Counsel Exhibit E Form of Promissory Note Exhibit F Form of Commitment Termination Extension Date Request Exhibit G Form of Quarterly Compliance Certificate CREDIT AGREEMENT ---------------- This CREDIT AGREEMENT is entered into as of January 3, 1995, between FOURTH FINANCIAL CORPORATION, a Kansas corporation (the "Company"), and BANK OF AMERICA ILLINOIS, an Illinois banking corporation (the "Bank"). WHEREAS, the Bank has agreed to make available to the Company a revolving credit facility upon the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties agree as follows: ARTICLE I DEFINITIONS ----------- 1.1 Certain Defined Terms. The following terms have the following meanings: "Adjusted Total Assets" shall have the meaning set forth on the date hereof under applicable regulations of any regulatory agency having authority on the date hereof as such regulations are applicable to the Company, or if such regulations are amended hereafter to define Adjusted Total Assets more restrictively, as set forth in such later amended regulations. "Affiliate" means, as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the other Person, whether through the ownership of voting securities, by contract, or otherwise. "Agreement" means this Credit Agreement. "Applicable Margin" means (i) with respect to Base Rate Loans, 0%; (ii) with respect to Offshore Rate Loans at such time as the Company is Well Capitalized, 0.375%; and (iii) with respect to Offshore Rate Loans at such time as the Company is not Well Capitalized, 0.50% at any time that the principal amount of the Loans outstanding is less than 50% of the Commitment or 0.625% at any other time. "Attorney Costs" means and includes all fees and disbursements of any law firm or other external counsel, the allocated cost of internal legal services and all disbursements of internal counsel. "Available Commitment" means $25,000,000 on the date hereof and thereafter until such date as the outstanding principal amount of the Loans exceeds $25,000,000; and from the date the outstanding principal amount of the Loans exceeds $25,000,000 and thereafter, the Available Commitment shall equal the Commitment. "Bank" has the meaning specified in the introductory clause hereto. "Bank's Payment Office" means the address for payments set forth on the signature page hereto in relation to the Bank, or such other address as the Bank may from time to time specify. "Bank Subsidiaries" mean Bank IV Kansas N.A., Bank IV Oklahoma N.A. and any other banking institution which may be a Subsidiary of the Company from time to time. "Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. Section 101, et seq.). "Base Rate" means, for any day, the higher of: (a) 0.50% per annum above the latest Federal Funds Rate; and (b) the rate of interest in effect for such day as publicly announced from time to time by BofA in San Francisco, California, as its "reference rate." (The "reference rate" is a rate set by BofA based upon various factors including BofA's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate.) Any change in the reference rate announced by BofA shall take effect at the opening of business on the day specified in the public announcement of such change. "Base Rate Loan" means a Loan that bears interest based on the Base Rate. "BofA" means Bank of America National Trust and Savings Association, a national banking association. "Borrowing Date" means any date on which a Borrowing occurs under Section 2.3. "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in Chicago or San Francisco are authorized or required by law to close and, if the applicable Business Day relates to any Offshore Rate Loan, means such a day on which dealings are carried on in the applicable offshore dollar interbank market. "Capital Adequacy Regulation" means any guideline, request or directive of any central bank or other Governmental Authority, or any other law, rule or regulation, of general application, whether or not having the force of law, in each case, regarding capital adequacy of any bank or of any corporation controlling a bank. "Change of Control" means the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 20% or more of the outstanding shares of voting stock of the Company. "Closing Date" means the date on which all conditions precedent set forth in Section 4.1 are satisfied or waived by the Bank (or, in the case of subsection 4.1(e), waived by the Person entitled to receive such payment). "Code" means the Internal Revenue Code of 1986, and regulations promulgated thereunder. "Commitment" has the meaning specified in Section 2.1. "Commitment Termination Date Extension Request" means a request substantially in the form of Exhibit F attached hereto, duly executed by a Responsible Officer of the Company. "Compliance Certificate" means a certificate substantially in the form of Exhibit C. "Contingent Liability" - means any agreement, undertaking or arrangement by which any Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the indebtedness, obligation or any other liability of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the shares of any other Person. The amount of any Person's obligation under any Contingent Liability shall (subject to any limitation set forth therein) be deemed to be the outstanding principal amount (or maximum principal amount, if larger) of the debt, obligation or other liability guaranteed thereby. "Contractual Obligation" means, as to any Person, any provision of any security issued by such Person or of any agreement, undertaking, contract, indenture, mortgage, deed of trust or other instrument, document or agreement to which such Person is a party or by which it or any of its property is bound. "Conversion/Continuation Date" means any date on which, under Section 2.4, the Company (a) converts Loans of one Type to another Type, or (b) continues as Loans of the same Type, but with a new Interest Period, Loans having Interest Periods expiring on such date. "Default" means any event or circumstance which, with the giving of notice, the lapse of time, or both, would (if not cured or otherwise remedied during such time) constitute an Event of Default. "Dollars", "dollars" and "$" each mean lawful money of the United States. "Double Leverage Ratio" means the ratio of (a) equity investments of the Company in its Subsidiaries to (b) total equity capital of the Company; in each case as reported in the Company's FRY-9LP financial statements. "Environmental Claims" means all claims, however asserted, by any Governmental Authority or other Person alleging potential liability or responsibility for violation of any Environmental Law, or for release or injury to the environment. "Environmental Laws" means all federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authorities, in each case relating to environmental, health, safety and land use matters. "ERISA" means the Employee Retirement Income Security Act of 1974, and regulations promulgated thereunder. "ERISA Affiliate" means any trade or business (whether or not incorporated) under common control with the Company within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code). "ERISA Event" means (a) a Reportable Event with respect to a Pension Plan; (b) the failure to make a required contribution to a Pension Plan if such failure is sufficient to give rise to a Lien under Section 302(f) of ERISA; (c) a withdrawal by the Company or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations which is treated as such a withdrawal under Section 4062(e) of ERISA; (d) a complete or partial withdrawal by the Company or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (e) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (f) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (g) the imposition of any liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Company or any ERISA Affiliate. "Eurodollar Reserve Percentage" has the meaning specified in the definition of "Offshore Rate". "Event of Default" means any of the events or circumstances specified in Section 8.1. "Exchange Act" means the Securities and Exchange Act of 1934, and regulations promulgated thereunder. "FDIC" means the Federal Deposit Insurance Corporation, and any Governmental Authority succeeding to any of its principal functions. "Federal Funds Rate" means, for any day, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Bank of New York (including any such successor, "H.15(519)") on the preceding Business Day opposite the caption "Federal Funds (Effective)"; or, if for any relevant day such rate is not so published on any such preceding Business Day, the rate for such day will be the arithmetic mean as determined by the Bank of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by the Bank. "FRB" means the Board of Governors of the Federal Reserve System, and any Governmental Authority succeeding to any of its principal functions. "GAAP" means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the Closing Date. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "Indebtedness" of any Person means, without duplication: (a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (b) all obligations, contingent or otherwise, relative to the face amount of all letters of credit, whether or not drawn, and banker's acceptances issued for the account of such Person; (c) all obligations of such Person as lessee under leases which have been or should be, in accordance with GAAP, recorded as capitalized lease liabilities; (d) all other items which, in accordance with GAAP, would be included as liabilities on the liability side of the balance sheet of such Person as of the date at which Indebtedness is to be determined; (e) whether or not so included as liabilities in accordance with GAAP, all obligations of such Person to pay the deferred purchase price of property or services, and indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse; and (f) all Contingent Liabilities of such Person in respect of any of the foregoing. For all purposes of this Agreement, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer. "Indemnified Liabilities" has the meaning specified in Section 9.5. "Indemnified Person" has the meaning specified in Section 9.5. "Independent Auditor" has the meaning specified in subsection 6.1(a). "Insolvency Proceeding" means (a) any case, action or proceeding before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors, or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors; undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code. "Interest Payment Date" means, as to any Offshore Loan, the last day of each Interest Period applicable to such Loan and, as to any Base Rate Loan, the last Business Day of each month, provided, however, that if any Interest Period for an Offshore Rate Loan exceeds three months, the date that falls three months after the beginning of such Interest Period and after each Interest Payment Date thereafter is also an Interest Payment Date. "Interest Period" means as to any Offshore Rate Loan, the period commencing on the Borrowing Date of such Loan or on the Conversion/Continuation Date on which the Loan is converted into or continued as an Offshore Rate Loan, and ending on the date one, two, three or six months thereafter as selected by the Company in its Notice of Borrowing or Notice of Conversion/Continuation; provided that: (i) if any Interest Period would otherwise end on a day that is not a Business Day, that Interest Period shall be extended to the following Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day; (ii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and (iii) no Interest Period for any Loan shall extend beyond the Revolving Termination Date. "IRS" means the Internal Revenue Service, and any Governmental Authority succeeding to any of its principal functions under the Code. "Lending Office" means the office or offices of the Bank specified as its "Lending Office" or "Domestic Lending Office" or "Offshore Lending Office", as the case may be, on Schedule 9.2 ("Lending Offices, etc."), or such other office or offices as the Bank may from time to time notify the Company. "Leverage Ratio" means with respect to the Company and its Subsidiaries on a consolidated basis, at any time, the ratio of its Tier One Capital to its Adjusted Total Assets. "Lien" means any security interest, mortgage, deed of trust, pledge, hypothecation, assignment, charge or deposit arrangement, encumbrance, lien (statutory or other) or preferential arrangement of any kind or nature whatsoever in respect of any property (including those created by, arising under or evidenced by any conditional sale or other title retention agreement, the interest of a lessor under a capital lease, any financing lease having substantially the same economic effect as any of the foregoing, or the filing of any financing statement naming the owner of the asset to which such lien relates as debtor, under the Uniform Commercial Code or any comparable law) and any contingent or other agreement to provide any of the foregoing, but not including the interest of a lessor under an operating lease. "Loan" means an extension of credit by the Bank to the Company under Article II, and may be a Base Rate Loan or an Offshore Rate Loan (each, a "Type" of Loan). "Loan Documents" means this Agreement, the Note and all other documents delivered to the Bank in connection herewith. "Loans Outstanding" means, for any Person, the sum of loans and direct lease financings, net of unearned income, by such Person and its Subsidiaries on a consolidated basis. "Margin Stock" means "margin stock" as such term is defined in Regulation G, T, U or X of the FRB. "Material Adverse Effect" means a material adverse change in, or a material adverse effect upon, the operations, business, properties, condition (financial or otherwise) or prospects of the Company or the Company and its Subsidiaries taken as a whole; for the purposes of this definition, an adverse effect or adverse change will be deemed material if there is a reasonable likelihood that it would reduce the Company's equity as of any date of determination by 10% or more below the Company's equity as of the end of its most recent fiscal year. "Multiemployer Plan" means a "multiemployer plan", within the meaning of Section 4001(a)(3) of ERISA, with respect to which the Company or any ERISA Affiliate may have any liability. "NationsBank Agreement" is defined in Section 2.13. "Non-Performing Assets" means, as applied to Loans Outstanding of a Person, (i) Loans Outstanding that are not accruing interest, have been classified as renegotiated pursuant to guidelines established by the Federal Financial Institutions Council or are 90 days or more past due in the payment of principal or interest plus (ii) Other Real Estate Owned by such Person minus (iii) student loan obligations which are serviced by a third party servicer and which are backed by the full faith and credit of the United States Government or any agency thereof, whether such guaranty is for the benefit of such third party servicer or such Person or any of its Subsidiaries, provided, however, that this exclusion shall not apply to any student loan with respect to which a third party servicer has failed to perform the terms and conditions of its servicing agreement with such Person or any of its Subsidiaries. "Non-Performing Ratio" means, for any Person, the ratio of such Person's (a) Non-Performing Assets outstanding to (b) Loans Outstanding plus Other Real Estate Owned. "Note" means a promissory note executed by the Company in favor of the Bank pursuant to subsection 2.2, in substantially the form of Exhibit E. "Notice of Borrowing" means the Company's irrevocable telephonic notice of borrowing together with (if requested by the Bank) prompt confirmation thereof in writing in substantially the form of Exhibit A. "Notice of Conversion/Continuation" means the Company's irrevocable telephonic notice of conversion or continuation together with (if required by the Bank) prompt confirmation thereof in writing in substantially the form of Exhibit B. "Obligations" means all advances, debts, liabilities, obligations, covenants and duties arising under any Loan Document owing by the Company to the Bank, or any Indemnified Person, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising. "Offshore Rate" means, for any Interest Period, with respect to Offshore Rate Loans comprising part of the same Borrowing, the rate of interest per annum (rounded upward to the next 1/16th of 1%) determined by the Bank as follows: Offshore Rate = LIBOR 1.00 - Eurodollar Reserve Percentage Where, "Eurodollar Reserve Percentage" means for any day for any Interest Period the maximum reserve percentage (expressed as a decimal, rounded upward to the next 1/100th of 1%) in effect on such day (whether or not applicable to the Bank) under regulations issued from time to time by the FRB for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as "Eurocurrency liabilities"); and "LIBOR" means the rate of interest per annum determined by the Bank to be the arithmetic mean (rounded upward to the next 1/16th of 1%) of the rates of interest per annum notified to the Bank as the rate of interest at which dollar deposits in the approximate amount of the amount of the Loan to be made or continued as, or converted into, an Offshore Rate Loan by the Bank and having a maturity comparable to such Interest Period would be offered to major banks in the London interbank market at their request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period. "Offshore Rate Loan" means a Loan that bears interest based on the Offshore Rate. "Organization Documents" means, for any corporation, the certificate or articles of incorporation, the bylaws, any certificate of determination or instrument relating to the rights of preferred shareholders of such corporation, any shareholder rights agreement, and all applicable resolutions of the board of directors (or any committee thereof) of such corporation. "Other Real Estate Owned" of a Person means "other real estate owned" as shown in the financial statements of such Person prepared in accordance with GAAP. "Other Taxes" means any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Documents. "PBGC" means the Pension Benefit Guaranty Corporation, or any Governmental Authority succeeding to any of its principal functions under ERISA. "Pension Plan" means a pension plan (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA, other than a Multiemployer Plan, with respect to which the Company or any ERISA Affiliate may have any liability. "Permitted Liens" has the meaning specified in Section 7.1. "Person" means an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture or Governmental Authority. "Plan" means an employee benefit plan (as defined in Section 3(3) of ERISA) which the Company sponsors or maintains or to which the Company makes, is making, or is obligated to make contributions and includes any Pension Plan. "Quarterly Compliance Certificate" means a certificate substantially in the form of Exhibit G. "Reportable Event" means, any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder, other than any such event for which the 30-day notice requirement under ERISA has been waived in regulations issued by the PBGC. "Requirement of Law" means, as to any Person, any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon the Person or any of its property or to which the Person or any of its property is subject. "Reserve Commitment" means on the date hereof $25,000,000 and thereafter an amount equal to the Commitment minus the Available Commitment. "Responsible Officer" means relative to the Company, those of its officers whose signatures and incumbency shall have been certified to the Bank pursuant to Section 4.1. "Revolving Termination Date" means the earlier to occur of: (a) January 2, 1996, as such date may be extended pursuant to Section 2.8 hereof; and (b) the date on which the Commitment terminates in accordance with the provisions of this Agreement. "Risk Weighted Assets" means, for any Person, the value of the assets of such Person and its Subsidiaries, including adjusted off-balance sheet items, all as calculated pursuant to risk based capital guidelines in effect from time to time with the applicable regulatory agency. "SEC" means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions. "Subsidiary" of a Person means any corporation, association, partnership, joint venture or other business entity of which more than 50% of the voting stock or other equity interests (in the case of Persons other than corporations), is owned or controlled directly or indirectly by the Person, or one or more of the Subsidiaries of the Person, or a combination thereof. Unless the context otherwise clearly requires, references herein to a "Subsidiary" refer to a Subsidiary of the Company. "Taxes" means any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of the Bank, such taxes (including income taxes or franchise taxes) as are imposed on or measured by the Bank's net income by the jurisdiction (or any political subdivision thereof) under the laws of which the Bank is organized or maintains a lending office. "Tier One Capital" shall have the meaning set forth on the date hereof under applicable regulations of any regulatory agency having authority on the date hereof as such regulations are applicable to the Company, or if such regulations are amended hereafter to define Tier One Capital more restrictively, as set forth in such later definition. "Tier Two Capital" shall have the meaning set forth on the date hereof under applicable regulations of any regulatory agency having authority on the date hereof as such regulations are applicable to the Company, or if such regulations are amended hereafter to define Tier Two Capital more restrictively, as set forth in such later definition. "Type" has the meaning specified in the definition of "Loan." "Unfunded Pension Liability" means the excess of a Plan's accumulated benefit obligations (as defined by GAAP), over the current fair value of that Plan's assets. "United States" and "U.S." each means the United States of America. "Well-Capitalized" shall have the meaning promulgated by any regulatory agency having authority on the date hereof, as applicable to the Company, or if not applicable to the Company per se, as applicable to the Bank Subsidiaries applied to the Company as if so applicable; provided, however, that if at any time requirements of the designation "Well-Capitalized" promulgated by such regulatory authority shall be modified so as to define the requirements for such designation more restrictively than the existing requirements, then such requirements set forth herein shall be changed to reflect such later modification; provided, further, if at any time such regulatory authority shall determine that such Person is not "Well Capitalized", (within the meaning of the regulations promulgated by such authority then in effect), such Person shall be deemed not to be Well-Capitalized for purposes of this Agreement, without regard to whether such Person shall meet the requirements of the definition of such term set forth in this Agreement as in effect at such time. 1.2 Other Interpretive Provisions. (a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms. (b) The words "hereof", "herein", "hereunder" and similar words refer to this Agreement as a whole and not to any particular provision of this Agreement; and subsection, Section, Schedule and Exhibit references are to this Agreement unless otherwise specified. (c) (i) The term "documents" includes any and all instruments, documents, agreements, certificates, indentures, notices and other writings, however evidenced. (ii) The term "including" is not limiting and means "including without limitation." (iii) In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including"; the words "to" and "until" each mean "to but excluding", and the word "through" means "to and including." (d) Unless otherwise expressly provided herein, (i) references to agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of any Loan Document, and (ii) references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting the statute or regulation. (e) The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement. (f) This Agreement and other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are cumulative and shall each be performed in accordance with their terms. (g) This Agreement and the other Loan Documents are the result of negotiations among and have been reviewed by counsel to the Bank and the Company and are the products of all parties. Accordingly, they shall not be construed against the Bank merely because of the Bank's involvement in their preparation. 1.3 Accounting Principles. (a) Unless the context otherwise clearly requires, all accounting terms not expressly defined herein shall be construed, and all financial computations required under this Agreement shall be made, in accordance with GAAP, consistently applied. (b) References herein to "fiscal year" and "fiscal quarter" refer to such fiscal periods of the Company. ARTICLE II THE CREDITS ----------- 2.1 Amounts and Terms of Commitment. The Bank agrees, on the terms and conditions set forth herein, to make loans to the Company (each such loan, a "Revolving Loan") from time to time on any Business Day during the period from the Closing Date to the Revolving Termination Date, in an aggregate amount not to exceed at any time outstanding $50,000,000, (such amount, as the same may be reduced under Section 2.5, the Bank's "Commitment"); provided, however, that, after giving effect to any borrowing of a Revolving Loan, the aggregate principal amount of all outstanding Revolving Loans shall not at any time exceed the Commitment. Within the limits of the Commitment, and subject to the other terms and conditions hereof, the Company may borrow under this Section 2.1, prepay under Section 2.6 and reborrow under this Section 2.1. 2.2 Note. The Loans made by the Bank shall be evidenced by a Note. The Bank shall endorse on the schedules annexed to the Note the date, amount and maturity of each Loan made by it and the amount of each payment of principal made by the Company with respect thereto. The Bank is irrevocably authorized by the Company to endorse the Note and the Bank's record shall be conclusive absent manifest error; provided, however, that the failure of the Bank to make, or an error in making, a notation thereon with respect to any Loan shall not limit or otherwise affect the obligations of the Company hereunder or under the Note to the Bank. 2.3 Procedure for Borrowing. Each borrowing shall be made upon receipt of a Notice of Borrowing by the Bank (which notice must be received by the Bank prior to 10:00 a.m. (Chicago time) (i) three Business Days prior to the requested Borrowing Date, in the case of Offshore Rate Loans; and (ii) on the requested Borrowing Date, in the case of Base Rate Loans, specifying: (A) the amount of the Borrowing, which shall be in an aggregate minimum amount of $5,000,000 or any multiple of $1,000,000 in excess thereof; (B) the requested Borrowing Date, which shall be a Business Day; (C) the Type of Loans comprising the Borrowing; and (D) the duration of the Interest Period applicable to such Loans included in such notice. If the Notice of Borrowing fails to specify the duration of the Interest Period for any Borrowing comprised of Offshore Rate Loans, such Interest Period shall be three months. 2.4 Conversion and Continuation Elections. (a) The Company may, by delivering a Notice of Conversion/Continuation to the Bank in accordance with subsection 2.4(b): (i) elect, as of any Business Day, in the case of Base Rate Loans, or as of the last day of the applicable Interest Period, in the case of any other Type of Loans, to convert any such Loans (or any part thereof in an amount not less than $5,000,000, or that is in an integral multiple of $1,000,000 in excess thereof) into Loans of any other Type; or (ii) elect, as of the last day of the applicable Interest Period, to continue any Loans having Interest Periods expiring on such day (or any part thereof in an amount not less than $5,000,000, or that is in an integral multiple of $1,000,000 in excess thereof); provided, that if at any time the aggregate amount of Offshore Rate Loans in respect of any borrowing is reduced, by payment, prepayment, or conversion of part thereof to be less than $1,000,000, such Offshore Rate Loans shall automatically convert into Base Rate Loans. (b) The Company shall deliver a Notice of Conversion/ Continuation to be received by the Bank not later than 10:00 a.m. (Chicago time) at least (i) three Business Days in advance of the Conversion/Continuation Date, if the Loans are to be converted into or continued as Offshore Rate Loans; and (ii) on the Conversion/ Continuation Date, if the Loans are to be converted into Base Rate Loans, specifying: (A) the proposed Conversion/Continuation Date; (B) the aggregate amount of Loans to be converted or renewed; (C) the Type of Loans resulting from the proposed conversion or continuation; and (D) other than in the case of conversions into Base Rate Loans, the duration of the requested Interest Period. (c) If upon the expiration of any Interest Period applicable to Offshore Rate Loans, the Company has failed to select timely a new Interest Period to be applicable to such Offshore Rate Loans, or if any Default or Event of Default then exists, the Company shall be deemed to have elected to convert such Offshore Rate Loans into Base Rate Loans effective as of the expiration date of such Interest Period. (d) Unless the Bank otherwise agrees, during the existence of a Default or Event of Default, the Company may not elect to have a Loan converted into or continued as an Offshore Rate Loan. 2.5 Voluntary Termination or Reduction of Commitment. The Company may, upon not less than five Business Days' prior notice to the Bank, terminate the Commitment, or permanently reduce the Commitment by an aggregate minimum amount of $5,000,000 or any multiple of $5,000,000 in excess thereof; unless, after giving effect thereto and to any prepayments of Loans made on the effective date thereof, the then-outstanding principal amount of the Loans would exceed the amount of the Commitment then in effect. Once reduced in accordance with this Section , the Commitment may not be increased. All accrued facility fees to, but not including the effective date of any reduction or termination of the Commitment, shall be paid on the effective date of such reduction or termination. 2.6 Optional Prepayments. Subject to Section 3.4, the Company may, at any time or from time to time, upon notice to the Bank, ratably prepay Loans in whole or in part, in minimum amounts of $5,000,000 and an integral multiple of $1,000,000. Such notice of prepayment shall specify the date and amount of such prepayment and the Types of Loans to be prepaid. If such notice is given by the Company, the Company shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to each such date on the amount prepaid and any amounts required pursuant to Section 3.4. 2.7 Repayment. The Company shall repay to the Bank on the Revolving Termination Date the aggregate principal amount of Loans outstanding on such date. 2.8 Termination Date. The Commitment shall terminate and the Bank shall be relieved of its obligations to make any Loan on the Revolving Termination Date. The Company may from time to time request an extension of the Revolving Termination Date by executing and delivering to the Bank a Commitment Termination Date Extension Request at least 30 but not more than 40 days prior to the then current Revolving Termination Date. The Revolving Termination Date shall be so extended if the Company shall have received from the Bank on or prior to the 10th day preceding the then current Revolving Termination Date a duly executed counterpart of such Commitment Termination Date Extension Request; provided, that any such extension shall take effect as of the date on which the Bank shall have notified the Company of the approval thereof and the Revolving Termination Date shall be extended to a date 364 days from said effectiveness. The Bank may in its sole and absolute discretion withhold its consent to any such Commitment Termination Date Extension Request. 2.9 Interest. (a) Each Loan shall bear interest on the outstanding principal amount thereof from the applicable Borrowing Date at a rate per annum equal to the Offshore Rate or the Base Rate, as the case may be (and subject to the Company's right to convert to other Types of Loans under Section 2.4), plus the Applicable Margin. (b) Interest on each Loan shall be paid in arrears on each Interest Payment Date. Interest shall also be paid on the date of any prepayment of Loans under Section 2.6 for the portion of the Loans so prepaid and upon payment (including prepayment) in full thereof and, during the existence of any Event of Default, interest shall be paid on demand of the Bank. (c) Notwithstanding subsection (a) of this Section, while any Event of Default exists or after acceleration, the Company shall pay interest (after as well as before entry of judgment thereon to the extent permitted by law) on the principal amount of all outstanding Loans, at a rate per annum which is determined by adding 2% per annum to the Applicable Margin then in effect for such Loans; provided, however, that, on and after the expiration of any Interest Period applicable to any Offshore Rate Loan outstanding on the date of occurrence of such Event of Default or acceleration, the principal amount of such Loan shall, during the continuation of such Event of Default or after acceleration, bear interest at a rate per annum equal to the Base Rate plus 2%. (d) Anything herein to the contrary notwithstanding, the obligations of the Company to the Bank hereunder shall be subject to the limitation that payments of interest shall not be required for any period for which interest is computed hereunder, to the extent (but only to the extent) that contracting for or receiving such payment by the Bank would be contrary to the provisions of any law applicable to the Bank limiting the highest rate of interest that may be lawfully contracted for, charged or received by the Bank, and in such event the Company shall pay the Bank interest at the highest rate permitted by applicable law. 2.10 Facility Fees. The Company shall pay to the Bank a facility fee on the average daily amount of the Commitment, computed on a quarterly basis in arrears on the last Business Day of each calendar quarter equal to 0.125% per annum on the Available Commitment and 0.0625% per annum on the Reserve Commitment. Such facility fee shall accrue from the date hereof to the Revolving Termination Date and shall be due and payable quarterly in arrears on the last Business Day of each March, June, September and December through the Revolving Termination Date, with the final payment to be made on the Revolving Termination Date; provided that, in connection with any reduction or termination of the Commitment under Section 2.5, the accrued facility fee calculated for the period ending on such date shall also be paid on the date of such reduction or termination, with the following quarterly payment being calculated on the basis of the period from such reduction or termination date to such quarterly payment date; and provided, further, that upon the increase of the Available Commitment, an amount equal to 0.0625% per annum from the date hereof through the date of such increase on the amount of such increase shall be paid. The facility fee provided in this section shall accrue at all times after the above-mentioned commencement date, including at any time during which one or more conditions in Article IV are not met. 2.11 Computation of Fees and Interest. (a) All computations of fees and interest shall be made on the basis of a 360-day year and actual days elapsed (which results in more interest being paid than if computed on the basis of a 365-day year). Interest and fees shall accrue during each period during which interest or such fees are computed from the first day thereof to the last day thereof. (b) Each determination of an interest rate by the Bank shall be conclusive and binding on the Company in the absence of manifest error. 2.12 Payments by the Company. (a) All payments to be made by the Company shall be made without set-off, recoupment or counterclaim. Except as otherwise expressly provided herein, all payments by the Company shall be made to the Bank, and shall be made in dollars and in immediately available funds, no later than 11:00 a.m. (Chicago time) on the date specified herein. Any payment received by the Bank later than 11:00 a.m. (Chicago time) shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue. (b) Subject to the provisions set forth in the definition of "Interest Period" herein, whenever any payment is due on a day other than a Business Day, such payment shall be made on the following Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be. 2.13 NationsBank Agreement. The Company is entering into a credit agreement (the "NationsBank Agreement") with NationsBank of Texas, N.A. concurrently with the effectiveness of this Agreement on terms substantially the same as this Agreement. The Company agrees that all borrowings, payments and reductions and terminations of the Commitment shall be made concurrently with equivalent borrowings, payments and reductions and termination of the commitment under the NationsBank Agreement. The Company shall provide a summary statement quarterly to the Bank of all activity on the NationsBank Agreement and of any amendments thereto. ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY -------------------------------------- 3.1 Taxes. (a) Any and all payments by the Company to the Bank under this Agreement and any other Loan Document shall be made free and clear of, and without deduction or withholding for any Taxes. In addition, the Company shall pay all Other Taxes. (b) The Company agrees to indemnify and hold harmless the Bank for the full amount of Taxes or Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section) paid by the Bank and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days after the date the Bank makes written demand therefor. (c) If the Company shall be required by law to deduct or withhold any Taxes or Other Taxes from or in respect of any sum payable hereunder to the Bank, then: (i) the sum payable shall be increased as necessary so that after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums payable under this Section) the Bank receives an amount equal to the sum it would have received had no such deductions or withholdings been made; (ii) the Company shall make such deductions and withholdings; (iii) the Company shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable law; and (iv) the Company shall also pay to the Bank, at the time interest is paid, all additional amounts which the Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes or Other Taxes had not been imposed. (d) Within 30 days after the date of any payment by the Company of Taxes or Other Taxes, the Company shall furnish the Bank the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to the Bank. (e) If the Company is required to pay additional amounts to the Bank pursuant to subsection (c) of this Section, then the Bank shall use reasonable efforts (consistent with legal and regulatory restrictions) to change the jurisdiction of its Lending Office so as to eliminate any such additional payment by the Company which may thereafter accrue, if such change in the judgment of the Bank is not otherwise disadvantageous to the Bank. 3.2 Illegality. (a) If the Bank determines that the introduction of any Requirement of Law, or any change in any Requirement of Law, or in the interpretation or administration of any Requirement of Law, has made it unlawful, or that any central bank or other Governmental Authority has asserted that it is unlawful, for the Bank or its applicable Lending Office to make Offshore Rate Loans, then, on notice thereof by the Bank to the Company, any obligation of the Bank to make Offshore Rate Loans shall be suspended until the Bank notifies the Company that the circumstances giving rise to such determination no longer exist. (b) If the Bank determines that it is unlawful to maintain any Offshore Rate Loan, the Company shall, upon its receipt of notice of such fact and demand from the Bank, prepay in full such Offshore Rate Loans of the Bank then outstanding, together with interest accrued thereon and amounts required under Section 3.4, either on the last day of the Interest Period thereof, if the Bank may lawfully continue to maintain such Offshore Rate Loans to such day, or immediately, if the Bank may not lawfully continue to maintain such Offshore Rate Loan. If the Company is required to so prepay any Offshore Rate Loan, then concurrently with such prepayment, the Company shall borrow from the Bank, in the amount of such repayment, a Base Rate Loan. 3.3 Increased Costs and Reduction of Return. (a) If the Bank determines that, due to either (i) the introduction of or any change (other than any change by way of imposition of or increase in reserve requirements included in the calculation of the Offshore Rate) in or in the interpretation of any law or regulation or (ii) the compliance by the Bank with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to the Bank of agreeing to make or making, funding or maintaining any Offshore Rate Loans then the Company shall be liable for, and shall from time to time, upon demand, pay to the Bank, additional amounts as are sufficient to compensate the Bank for such increased costs. (b) If the Bank shall have determined that (i) the introduction of any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation, (iii) any change in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof, or (iv) compliance by the Bank (or its Lending Office) or any corporation controlling the Bank with any Capital Adequacy Regulation, affects or would affect the amount of capital required or expected to be maintained by the Bank or any corporation controlling the Bank and (taking into consideration the Bank's or such corporation's policies with respect to capital adequacy and the Bank's desired return on capital) determines that the amount of such capital is increased as a consequence of its Commitment, loans, credits or obligations under this Agreement, then, upon demand of the Bank to the Company, the Company shall pay to the Bank, from time to time as specified by the Bank, additional amounts sufficient to compensate the Bank for such increase. 3.4 Funding Losses. The Company shall reimburse the Bank and hold the Bank harmless from any loss or expense which the Bank may sustain or incur as a consequence of: (a) the failure of the Company to make on a timely basis any payment of principal of any Offshore Rate Loan; (b) the failure of the Company to borrow, continue or convert a Loan after the Company has given (or is deemed to have given) a Notice of Borrowing or a Notice of Conversion/ Continuation; (c) the failure of the Company to make any prepayment in accordance with any notice delivered under Section 2.6; (d) the prepayment or other payment (including after acceleration thereof) of an Offshore Rate Loan on a day that is not the last day of the relevant Interest Period; or (e) the automatic conversion under Section 2.4 of any Offshore Rate Loan to a Base Rate Loan on a day that is not the last day of the relevant Interest Period; including any such loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain its Offshore Rate Loans or from fees payable to terminate the deposits from which such funds were obtained. 3.5 Inability to Determine Rates. If the Bank determines that for any reason adequate and reasonable means do not exist for determining the Offshore Rate for any requested Interest Period with respect to a proposed Offshore Rate Loan, or that the Offshore Rate applicable pursuant to subsection 2.9(a) for any requested Interest Period with respect to a proposed Offshore Rate Loan does not adequately and fairly reflect the cost to the Bank of funding such Loan, the Bank will promptly so notify the Company. Thereafter, the obligation of the Bank to make or maintain Offshore Rate Loans hereunder shall be suspended until the Bank revokes such notice in writing. Upon receipt of such notice, the Company may revoke any Notice of Borrowing or Notice of Conversion/Continuation then submitted by it. If the Company does not revoke such Notice, the Bank shall make, convert or continue the Loans, as proposed by the Company, in the amount specified in the applicable notice submitted by the Company, but such Loans shall be made, converted or continued as Base Rate Loans instead of Offshore Rate Loans. 3.6 Survival. The agreements and obligations of the Company in this Article III shall survive the payment of all other Obligations. ARTICLE IV CONDITIONS PRECEDENT -------------------- 4.1 Conditions of Initial Loans. The obligation of the Bank to make its initial Loan hereunder is subject to the condition that the Bank have received on or before the initial borrowing date all of the following, in form and substance satisfactory to the Bank: (a) Credit Agreement and Note. This Agreement and the Note executed by each party thereto; (b) Resolutions; Incumbency. (i) Copies of the resolutions of the board of directors of the Company authorizing the transactions contemplated hereby, certified as of the Closing Date by the Secretary or an Assistant Secretary of the Company; and (ii) A certificate of the Secretary or Assistant Secretary of the Company certifying the names and true signatures of the officers of the Company authorized to execute, deliver and perform, as applicable, this Agreement, and all other Loan Documents to be delivered by it hereunder; (c) Organization Documents; Good Standing. Each of the following documents: (i) the articles or certificate of incorporation and the bylaws of the Company as in effect on the Closing Date, certified by the Secretary or Assistant Secretary of the Company as of the Closing Date; and (ii) a good standing certificate for the Company from the Secretary of State (or similar, applicable Governmental Authority) of its state of incorporation and each state where the Company is qualified to do business as a foreign corporation as of a recent date, together with a bring-down certificate for the Company from such Secretary of State (or similar, applicable Governmental Authority) by facsimile, dated the Closing Date; (d) Legal Opinion. An opinion of John C. Maloney, Senior Associate General Counsel to the Company and addressed to the Bank, substantially in the form of Exhibit D; (e) Payment of Fees. Evidence of payment by the Company of all accrued and unpaid fees, costs and expenses to the extent then due and payable on the Closing Date; (f) Certificate. A certificate signed by a Responsible Officer, dated as of the Closing Date, stating that: (i) the representations and warranties contained in Article V are true and correct on and as of such date, as though made on and as of such date; (ii) no Default or Event of Default exists or would result from the initial Borrowing; and (iii) there has occurred since December 31, 1993, no event or circumstance that has resulted or could reasonably be expected to result in a Material Adverse Effect; and (g) Other Documents. Such other approvals, opinions, documents or materials as the Bank may request. 4.2 Conditions to All Borrowings. The obligation of the Bank to make any Loan to be made by it (including its initial Loan) is subject to the satisfaction of the following conditions precedent on the relevant Borrowing Date: (a) Notice of Borrowing. The Bank shall have received, (i) in the case of the initial Loan, a Notice of Borrowing, and (ii) for all other Loans, a Notice of Borrowing and/or a Notice of Conversion/Continuation, as applicable; (b) Continuation of Representations and Warranties. The representations and warranties in Article V shall be true and correct on and as of such Borrowing Date with the same effect as if made on and as of such Borrowing Date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct as of such earlier date); and (c) No Existing Default. No Default or Event of Default shall exist or shall result from such Borrowing. Each Notice of Borrowing submitted by the Company hereunder shall constitute a representation and warranty by the Company hereunder, as of the date of each such notice and as of each Borrowing Date, that the conditions in Section 4.2 are satisfied. ARTICLE V REPRESENTATIONS AND WARRANTIES ------------------------------ The Company represents and warrants to the Bank that: 5.1 Corporate Existence and Power. The Company and each of its Subsidiaries: (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (b) has the power and authority and all governmental licenses, authorizations, consents and approvals to own its assets, carry on its business and to execute, deliver, and perform its obligations under the Loan Documents; (c) is duly qualified as a foreign corporation and is licensed and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification or license; and (d) is in compliance with all Requirements of Law. 5.2 Corporate Authorization; No Contravention. The execution, delivery and performance by the Company of this Agreement and each other Loan Document to which the Company is party, have been duly authorized by all necessary corporate action, and do not and will not: (a) contravene the terms of any of the Company's Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, any document evidencing any Contractual Obligation to which the Company is a party or any order, injunction, writ or decree of any Governmental Authority to which the Company or its property is subject; or (c) violate any Requirement of Law. 5.3 Governmental Authorization. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery or performance by, or enforcement against, the Company or any of its Subsidiaries of the Agreement or any other Loan Document. 5.4 Binding Effect. This Agreement and each other Loan Document to which the Company is a party constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability. 5.5 Litigation. There are no actions, suits, proceedings, claims or disputes pending, or to the best knowledge of the Company, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, against the Company, or its Subsidiaries or any of their respective properties which: (a) purport to affect or pertain to this Agreement or any other Loan Document, or any of the transactions contemplated hereby or thereby; or (b) would reasonably be expected to have a Material Adverse Effect. No injunction, writ, temporary restraining order or any order of any nature has been issued by any court or other Governmental Authority purporting to enjoin or restrain the execution, delivery or performance of this Agreement or any other Loan Document, or directing that the transactions provided for herein or therein not be consummated as herein or therein provided. 5.6 No Default. No Default or Event of Default exists or would result from the incurring of any Obligations by the Company. As of the Closing Date, neither the Company nor any Subsidiary is in default under or with respect to any Contractual Obligation in any respect which, individually or together with all such defaults, could reasonably be expected to have a Material Adverse Effect, or that would, if such default had occurred after the Closing Date, create an Event of Default under subsection 8.1(e). 5.7 ERISA Compliance. (a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law. Each Plan which is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS and to the best knowledge of the Company, nothing has occurred which would cause the loss of such qualification. The Company and each ERISA Affiliate has made all required contributions to any Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan. (b) There are no pending or, to the best knowledge of Company, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. (c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) except as specifically disclosed on Schedule 5.7 ("ERISA Compliance"), no Pension Plan has any Unfunded Pension Liability; (iii) neither the Company nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither the Company nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither the Company nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or 4212(c) of ERISA. 5.8 Use of Proceeds; Margin Regulations. The proceeds of the Loans are to be used solely for the purposes set forth in and permitted by Section 6.12. The Company is not engaged in the business of purchasing or selling Margin Stock. 5.9 Title to Properties. The Company and each Subsidiary have good record and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of their respective businesses, except for such defects in title as could not, individually or in the aggregate, have a Material Adverse Effect. As of the Closing Date, the property of the Company and its Subsidiaries is subject to no Liens, other than Permitted Liens. 5.10 Taxes. The Company and its Subsidiaries have filed all Federal and other material tax returns and reports required to be filed, and have paid all Federal and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings and for which adequate reserves have been provided in accordance with GAAP. There is no proposed tax assessment against the Company or any Subsidiary that would, if made, have a Material Adverse Effect. 5.11 Financial Condition. (a) The consolidated financial statements of the Company and its Subsidiaries dated December 31, 1993 and September 30, 1994, and the related consolidated statements of income or operations, shareholders' equity and cash flows for the fiscal year or nine month period ended on that date: (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein, subject, in the case of the September 30, 1994 statements, to ordinary, good faith year end audit adjustments; (ii) fairly present the financial condition of the Company and its Subsidiaries as of the date thereof and results of operations for the period covered thereby; and (iii) except as specifically disclosed in Schedule 5.11 ("Permitted Liabilities"), show all material indebtedness and other liabilities, direct or contingent, of the Company and its consolidated Subsidiaries as of the date thereof, including liabilities for taxes, material commitments and Contingent Obligations. (b) Since December 31, 1993, there has been no Material Adverse Effect. 5.12 Environmental Matters. The Company conducts in the ordinary course of business a review of the effect of existing Environmental Laws and existing Environmental Claims on its business, operations and properties, and as a result thereof the Company has reasonably concluded that, except as specifically disclosed in Schedule 5.12 ("Environmental Matters"), such Environmental Laws and Environmental Claims could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 5.13 Regulated Entities. None of the Company, any Person controlling the Company, or any Subsidiary, is an "Investment Company" within the meaning of the Investment Company Act of 1940. The Company is not subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any state public utilities code, or any other Federal or state statute or regulation limiting its ability to incur Indebtedness. 5.14 No Burdensome Restrictions. Neither the Company nor any Subsidiary is a party to or bound by any Contractual Obligation, or subject to any restriction in any Organization Document, or any Requirement of Law, which could reasonably be expected to have a Material Adverse Effect. 5.15 Copyrights, Patents, Trademarks and Licenses, etc. The Company or its Subsidiaries own or are licensed or otherwise have the right to use all of the patents, trademarks, service marks, trade names, copyrights, contractual franchises, authorizations and other rights that are reasonably necessary for the operation of their respective businesses, without conflict with the rights of any other Person. To the best knowledge of the Company, no slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by the Company or any Subsidiary infringes upon any rights held by any other Person. Except as specifically disclosed in Schedule 5.15 ("Copyrights, etc."), no claim or litigation regarding any of the foregoing is pending or threatened, and no patent, invention, device, application, principle or any statute, law, rule, regulation, standard or code is pending or, to the knowledge of the Company, proposed, which, in either case, could reasonably be expected to have a Material Adverse Effect. 5.16 Subsidiaries. As of the Closing Date, the Company has no Subsidiaries other than those specifically disclosed in part (a) of Schedule 5.16 ("Subsidiaries and Minority Interests") hereto and has no equity investments in any other corporation or entity other than those specifically disclosed in part (b) of Schedule 5.16. 5.17 Insurance. Except as specifically disclosed in Schedule 5.17 ("Insurance Matters"), the properties of the Company and its Subsidiaries are insured with financially sound and reputable insurance companies not Affiliates of the Company, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Company or such Subsidiary operates. 5.18 Full Disclosure. None of the representations or warranties made by the Company or any Subsidiary in the Loan Documents as of the date such representations and warranties are made or deemed made, and none of the statements contained in any exhibit, report, statement or certificate furnished by or on behalf of the Company or any Subsidiary in connection with the Loan Documents (including the offering and disclosure materials delivered by or on behalf of the Company to the Bank prior to the Closing Date), contains any untrue statement of a material fact or omits any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading as of the time when made or delivered. ARTICLE VI AFFIRMATIVE COVENANTS --------------------- So long as the Bank shall have any Commitment hereunder, or any Loan or other Obligation shall remain unpaid or unsatisfied, unless the Bank waives compliance in writing: 6.1 Financial Statements. The Company shall deliver to the Bank, in form and detail satisfactory to the Bank: (a) as soon as available, but not later than 120 days after the end of each fiscal year, a copy of the audited consolidated balance sheet of the Company and its Subsidiaries as at the end of such year and the related consolidated statements of income or operations, shareholders' equity and cash flows for such year, setting forth in each case in comparative form the figures for the previous fiscal year, and accompanied by the opinion of Ernst & Young or another nationally-recognized independent public accounting firm ("Independent Auditor") which report shall state that such consolidated financial statements present fairly the financial position for the periods indicated in conformity with GAAP applied on a basis consistent with prior years. Such opinion shall not be qualified or limited because of a restricted or limited examination by the Independent Auditor of any material portion of the Company's or any Subsidiary's records and shall be delivered to the Bank pursuant to a reliance agreement between the Bank and such Independent Auditor in form and substance satisfactory to the Bank; (b) as soon as available, but not later than 60 days after the end of each of the first three fiscal quarters of each fiscal year, a copy of the unaudited consolidated balance sheet of the Company and its Subsidiaries as of the end of such quarter and the related consolidated statements of income, shareholders' equity and cash flows for the period commencing at the end of the previous fiscal year and ending on the last day of such quarter, and certified by the chief financial officer or the controller as fairly presenting, in accordance with GAAP (subject to ordinary, good faith year-end audit adjustments), the financial position and the results of operations of the Company and the Subsidiaries; (c) as soon as available and in any event within 60 days after the end of each Fiscal Quarter, either (i) at any time when the Company is not Well-Capitalized, a Compliance Certificate, or (ii) at any time when the Company is Well- Capitalized, a Quarterly Compliance Certificate, in each case executed by the chief financial officer or the controller of the Company; (d) as soon as possible and in any event within ten Business Days after (i) the occurrence of each Default or (ii) the Company ceases to be Well-Capitalized, a statement of the chief financial officer or the controller of the Company setting forth details of such event and the action which the Company has taken and proposes to take with respect thereto; (e) at any time when the Company is not Well- Capitalized, simultaneously with delivery to the Comptroller of the Currency, any Federal Reserve Bank or the FDIC, as the case may be, and in any event within 60 days after the end of each Fiscal Quarter, call reports for each Subsidiary required to deliver a call report, as at the end of such fiscal quarter, each certified by the respective cashier or other authorized officer of such Subsidiary and reports filed on Form FRY9-C and Form FRY9-LP; (f) promptly after the sending or filing thereof, copies of all reports which the Company sends to any of its securityholders, and all reports and registration statements which the Company or any of its Subsidiaries files with the Securities and Exchange Commission or any national securities exchange; and (g) such other information respecting the condition or operations, financial or otherwise, of the Company or any of its Subsidiaries as the Bank may from time to time reasonably request. 6.2 Certificates; Other Information. The Company shall furnish to the Bank concurrently with the delivery of the financial statements referred to in subsection 6.1(a), a certificate of the Independent Auditor stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate. 6.3 Notices. The Company shall promptly notify the Bank: (a) of the occurrence of any Default or Event of Default, and of the occurrence or existence of any event or circumstance that foreseeably will become a Default or Event of Default; (b) of any matter that has resulted or may result in a Material Adverse Effect, including (i) breach or non-performance of, or any default under, a Contractual Obligation of the Company or any Subsidiary; (ii) any dispute, litigation, investigation, proceeding or suspension between the Company or any Subsidiary and any Governmental Authority; or (iii) the commencement of, or any material development in, any litigation or proceeding affecting the Company or any Subsidiary; including pursuant to any applicable Environmental Laws; (c) of the occurrence of any of the following events affecting the Company or any ERISA Affiliate (but in no event more than 10 days after such event), and deliver to the Bank a copy of any notice with respect to such event that is filed with a Governmental Authority and any notice delivered by a Governmental Authority to the Company or any ERISA Affiliate with respect to such event: (i) an ERISA Event; (ii) a material increase in the Unfunded Pension Liability of any Pension Plan; (iii) the adoption of, or the commencement of contributions to, any Plan subject to Section 412 of the Code by the Company or any ERISA Affiliate; or (iv) the adoption of any amendment to a Plan subject to Section 412 of the Code, if such amendment results in a material increase in contributions or Unfunded Pension Liability. (d) of any material change in accounting policies or financial reporting practices by the Company or any of its consolidated Subsidiaries. Each notice under this Section shall be accompanied by a written statement by a Responsible Officer setting forth details of the occurrence referred to therein, and stating what action the Company or any affected Subsidiary proposes to take with respect thereto and at what time. Each notice under subsection 6.3(a) shall describe with particularity any and all clauses or provisions of this Agreement or other Loan Document that have been (or foreseeably will be) breached or violated. 6.4 Preservation of Corporate Existence, Etc. The Company shall, and shall cause each Subsidiary to: (a) preserve and maintain in full force and effect its corporate existence and good standing under the laws of its state or jurisdiction of incorporation, except as permitted by Section 7.2; (b) preserve and maintain in full force and effect all governmental rights, privileges, qualifications, permits, licenses and franchises necessary or desirable in the normal conduct of its business except in connection with transactions permitted by Section 7.2 and sales of assets permitted by Section 7.3; (c) use reasonable efforts, in the ordinary course of business, to preserve its business organization and goodwill; and (d) preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Effect. 6.5 Maintenance of Property. The Company shall maintain, and shall cause each Subsidiary to maintain, and preserve all its property which is used or useful in its business in good working order and condition, ordinary wear and tear excepted and make all necessary repairs thereto and renewals and replacements thereof except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. 6.6 Insurance. The Company shall maintain, and shall cause each Subsidiary to maintain, with financially sound and reputable independent insurers, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons. 6.7 Payment of Obligations. The Company shall, and shall cause each Subsidiary to, pay and discharge as the same shall become due and payable, all their respective obligations and liabilities, including: (a) all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings and adequate reserves in accordance with GAAP are being maintained by the Company or such Subsidiary; (b) all lawful claims which, if unpaid, would by law become a Lien upon its property; and (c) all Indebtedness, as and when due and payable, but subject to any subordination provisions contained in any instrument or agreement evidencing such Indebtedness. 6.8 Compliance with Laws. The Company shall comply, and shall cause each Subsidiary to comply, in all material respects with all Requirements of Law of any Governmental Authority having jurisdiction over it or its business (including the Federal Fair Labor Standards Act), except such as may be contested in good faith or as to which a bona fide dispute may exist. 6.9 Compliance with ERISA. The Company shall, and shall cause each of its ERISA Affiliates to: (a) maintain each Plan in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law; (b) cause each Plan which is qualified under Section 401(a) of the Code to maintain such qualification; and (c) make all required contributions to any Plan subject to Section 412 of the Code. 6.10 Inspection of Property and Books and Records. The Company shall maintain and shall cause each Subsidiary to maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of the Company and such Subsidiary. The Company shall permit, and shall cause each Subsidiary to permit, representatives and independent contractors of the Bank to visit and inspect any of their respective properties, to examine their respective corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss their respective affairs, finances and accounts with their respective directors, officers, and independent public accountants, all at the expense of the Company and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Company; provided, however, when an Event of Default exists the Bank may do any of the foregoing at the expense of the Company at any time during normal business hours and without advance notice. 6.11 Environmental Laws. The Company shall, and shall cause each Subsidiary to, conduct its operations and keep and maintain its property in compliance with all Environmental Laws. 6.12 Use of Proceeds. The Company shall use the proceeds of the Loans for working capital and other general corporate purposes not in contravention of any Requirement of Law or of any Loan Document; provided, however, that none of such proceeds shall be applied to acquire a controlling interest in the stock of any Person, unless such Person's Board of Directors (or equivalent board) shall approve such acquisition, unless the Bank shall otherwise consent. ARTICLE VII NEGATIVE COVENANTS ------------------ So long as the Bank shall have any Commitment hereunder, or any Loan or other Obligation shall remain unpaid or unsatisfied, unless the Bank waives compliance in writing: 7.1 Liens. The Company will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any properties, assets or revenues of the Company or any of its Subsidiaries or any capital stock of any Subsidiary of the Company, whether now owned or hereafter acquired, except: (a) Liens created or assumed in the ordinary course of the banking, trust, commercial finance and leasing business of any Subsidiary or the business of the Company; (b) Liens for taxes not yet payable or being contested in good faith by appropriate proceedings and for which reserves in conformity with GAAP with respect thereto have been provided on the books of the Company or its Subsidiaries, as the case may be; (c) deposits or pledges to secure the payment of workmen's compensation, unemployment insurance, old age pensions or other social security benefits or obligations; (d) deposits or pledges to secure statutory obligations or to secure or in lieu of surety, penalty or appeal bonds; (e) mechanics', materialmen's, warehousemen's, carriers or other like Liens arising in the ordinary course of its business which are not overdue for a period longer than 30 days, or which are being contested in good faith by appropriate proceedings; (f) Liens securing indebtedness incurred after the date hereof to finance the cost of acquisition, construction or improvement of any property useful and intended to be used in carrying out the business of the Company or a Subsidiary; provided, that the Lien shall attach solely to the property acquired, constructed or improved or to substantially unimproved real property on which property so acquired, constructed or improved is located; (g) Liens on property useful and intended to be used in carrying out the business of the Company or a Subsidiary which were existing at the time of acquisition of such property, or at the time of acquisition by the Company or a Subsidiary of any business entity then owning such property, so long as such Liens were not incurred, extended or renewed in the contemplation of or in connection with such acquisition by the Company or a Subsidiary; provided, that such Lien shall attach solely to the property acquired; and (h) extensions or renewals of Liens permitted by clauses (f) and (g) above so long as, at the time of such transaction and after giving effect thereto and to the application of the proceeds thereof, (x) the aggregate unpaid principal amount of indebtedness of the Company and its Subsidiaries which is secured pursuant to this clause (h) and clauses (f) and (g) hereof shall be no greater than the aggregate unpaid principal amount of such indebtedness secured pursuant to such clauses immediately preceding such transaction and (y) such Lien shall attach solely to the property which was subject thereto immediately preceding such transaction. Notwithstanding the foregoing provisions of this Section 7.1 the Company will not permit, and will not permit any Subsidiary to cause or permit any Lien on capital stock issued by a Subsidiary and held by the Company or another Subsidiary except for Liens on capital stock of a corporation acquired after the effective date of the Agreement which corporation, after such acquisition, would become a Subsidiary; provided that such Liens were existing at the time of such acquisition and were not incurred, extended or renewed in contemplation of, or in connection with, such acquisition. 7.2 Consolidation, Merger, etc. The Company will not, and will not permit any of its Subsidiaries to, liquidate or dissolve, consolidate with, or merge into or with, any other corporation, or purchase or otherwise acquire all or substantially all of the assets of any Person (or of any division thereof) except (a) any such Subsidiary may liquidate or dissolve voluntarily into, and may merge with and into, the Company or any other Subsidiary, and the assets or stock of any Subsidiary may be purchased or otherwise acquired by the Company or any other Subsidiary; and (b) so long as no Default has occurred and is continuing or would occur after giving effect thereto, the Company or any of its Subsidiaries may purchase all or substantially all of the assets of any Person, or acquire such Person by merger. 7.3 Asset Dispositions, etc. The Company will not, and will not permit any of its Subsidiaries to, sell, transfer, lease, contribute or otherwise convey, or grant options, warrants or other rights with respect to, all or any substantial part of its assets (including accounts receivable and capital stock of Subsidiaries) to any Person, unless such sale, transfer, lease, contribution or conveyance is in the ordinary course of its business or is permitted by Section 7.2. 7.4 Transactions with Affiliates. The Company will not, and will not permit any of its Subsidiaries to, enter into, or cause, suffer or permit to exist any arrangement or contract with any of its other Affiliates unless such arrangement or contract is fair and equitable to the Company or such Subsidiary and is an arrangement or contract of the kind which would be entered into by a prudent Person in the position of the Company or such Subsidiary with a Person which is not one of its Affiliates. 7.5 Negative Pledges, Restrictive Agreements, etc. The Company will not, and will not permit any of its Subsidiaries to, enter into any agreement (excluding this Agreement, any other Loan Document, the NationsBank Agreement or any other loan document executed in connection therewith) prohibiting (a) the creation or assumption of any Lien upon its properties, revenues or assets, whether now owned or hereafter acquired, or the ability of the Company to amend or otherwise modify this Agreement or any other Loan Document; or (b) the ability of any Subsidiary to make any payments, directly or indirectly, to the Company by way of dividends (except as may be required by law), advances, repayments of loans or advances, reimbursements of management and other intercompany charges, expenses and accruals or other returns on investments, or any other agreement or arrangement which restricts the ability of any such Subsidiary to make any payment, directly or indirectly, to the Company. 7.6 ERISA. The Company shall not, and shall not suffer or permit any of its ERISA Affiliates to: (a) engage in a prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably expected to result in liability of the Company in an aggregate amount in excess of $10,000,000; or (b) engage in a transaction that could be subject to Section 4069 or 4212(c) of ERISA. 7.7 Change in Business. The Company shall not, and shall not suffer or permit any Subsidiary to, engage in any material line of business substantially different from those lines of business carried on by the Company and its Subsidiaries on the date hereof. 7.8 Accounting Changes. The Company shall not, and shall not suffer or permit any Subsidiary to, make any significant change in accounting treatment or reporting practices, except as required by GAAP, or change the fiscal year of the Company or of any Subsidiary. 7.9 Financial Covenants. The Company shall not, at any time, that it is not classified as Well-Capitalized, permit: (a) its Leverage Ratio to be less than 4.75%; (b) the ratio of its Tier One Capital to Risk Weighted Assets to be less than 5.50%; (c) the ratio of its Tier One Capital plus Tier Two Capital to Risk Weighted Assets to be less than 9.00%; (d) its consolidated total stockholders' equity to be less than $518,000,000 plus 50% of its net income for every quarter commencing after September 30, 1994 (but without giving effect to any quarterly loss) plus the net proceeds of any new equity issue after the date hereof; (e) its Non-Performing Ratio to exceed 3%; and (f) its Double Leverage Ratio to be more than 1.20 to 1.0. ARTICLE VIII EVENTS OF DEFAULT ----------------- 8.1 Event of Default. Any of the following shall constitute an "Event of Default": (a) Non-Payment. The Company fails to pay, (i) when and as required to be paid herein, any amount of principal of any Loan, or (ii) within 7 days after the same becomes due, any interest, fee or any other amount payable hereunder or under any other Loan Document; or (b) Representation or Warranty. Any representation or warranty by the Company or any Subsidiary made or deemed made herein, in any other Loan Document, or which is contained in any certificate, document or financial or other statement by the Company, any Subsidiary, or any Responsible Officer, furnished at any time under this Agreement, or in or under any other Loan Document, is incorrect in any material respect on or as of the date made or deemed made; or (c) Other Defaults. The Company fails to perform or observe any other term or covenant contained in this Agreement or any other Loan Document, and such default shall continue unremedied for a period of 30 days after the earlier of (i) the date upon which a Responsible Officer knew or reasonably should have known of such failure or (ii) the date upon which written notice thereof is given to the Company by the Bank; or (d) Cross-Default. The Company or any Subsidiary (i) fails to make any payment in respect of any Indebtedness or Contingent Liability having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than $5,000,000 when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) and such failure continues after the applicable grace or notice period, if any, specified in the relevant document on the date of such failure; or (ii) fails to perform or observe any other condition or covenant, or any other event shall occur or condition exist, under any agreement or instrument relating to any such Indebtedness or Contingent Liability, and such failure continues after the applicable grace or notice period, if any, specified in the relevant document on the date of such failure if the effect of such failure, event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause such Indebtedness to be declared to be due and payable prior to its stated maturity, or such Contingent Liability to become payable or cash collateral in respect thereof to be demanded; or (e) Insolvency; Voluntary Proceedings. The Company or any Subsidiary (i) ceases or fails to be solvent, or generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any, whether at stated maturity or otherwise; (ii) voluntarily ceases to conduct its business in the ordinary course; (iii) commences any Insolvency Proceeding with respect to itself; or (iv) takes any action to effectuate or authorize any of the foregoing; or (f) Involuntary Proceedings. (i) Any involuntary Insolvency Proceeding is commenced or filed against the Company or any Subsidiary, or any writ, judgment, warrant of attachment, execution or similar process, is issued or levied against a substantial part of the Company's or any Subsidiary's properties, and any such proceeding or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not be released, vacated or fully bonded within 60 days after commencement, filing or levy; (ii) the Company or any Subsidiary admits the material allegations of a petition against it in any Insolvency Proceeding, or an order for relief (or similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or (iii) the Company or any Subsidiary acquiesces in the appointment of a receiver, trustee, custodian, conservator, liquidator, mortgagee in possession (or agent therefor), or other similar Person for itself or a substantial portion of its property or business; or (g) ERISA. (i) An ERISA Event shall occur with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of the Company under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of $10,000,000; unless the ERISA Event is a contribution failure sufficient to give rise to a Lien under Section 302(f) of ERISA in which case the dollar liability threshold does not apply; (ii) the aggregate amount of Unfunded Pension Liability among all Pension Plans at any time exceeds $10,000,000; or (iii) the Company or any ERISA Affiliate shall fail to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of $10,000,000; or judgments, non-interlocutory orders, decrees or arbitration awards is entered against the Company or any Subsidiary involving in the aggregate a liability (to the extent not covered by independent third-party insurance as to which the insurer does not dispute coverage) as to any single or related series of transactions, incidents or conditions, of $10,000,000 or more, and the same shall remain unsatisfied, unvacated and unstayed pending appeal for a period of 10 days after the entry thereof; or (i) Non-Monetary Judgments. Any non-monetary judgment, order or decree is entered against the Company or any Subsidiary which does or would reasonably be expected to have a Material Adverse Effect, and there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (j) Change of Control. There occurs any Change of Control. 8.2 Remedies. If any Event of Default occurs, the Bank may, (a) declare the commitment of the Bank to make Loans to be terminated, whereupon such commitment shall be terminated; (b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Company; and (c) exercise all rights and remedies available to it under the Loan Documents or applicable law; provided, however, that upon the occurrence of any event specified in subsection (e) or (f) of Section 8.1 (in the case of clause (i) of subsection (f), upon the expiration of the 60-day period mentioned therein), the obligation of the Bank to make Loans shall automatically terminate and the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable without further act of the Bank. 8.3 Rights Not Exclusive. The rights provided for in this Agreement and the other Loan Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement now existing or hereafter arising. ARTICLE IX MISCELLANEOUS ------------- 9.1 Amendments and Waivers. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by the Company therefrom, shall be effective unless the same shall be in writing and signed by the Bank. 9.2 Notices. (a) Except as specifically set forth in this Agreement, all notices, requests and other communications shall be in writing (including, unless the context expressly otherwise provides, by facsimile transmission, provided that any matter transmitted by facsimile (i) shall be immediately confirmed by a telephone call to the recipient at the number specified on Schedule 9.2, and (ii) shall be followed promptly by delivery of a hard copy original thereof) and mailed, faxed or delivered, to the address or facsimile number specified for notices on Schedule 9.2; or, as directed by the Company or the Bank, to such other address as shall be designated by such party in a written notice to the other party. (b) All such notices, requests and communications shall, when transmitted by overnight delivery, or faxed, be effective when delivered for overnight (next-day) delivery, or transmitted in legible form by facsimile machine, respectively, or if mailed, upon the third Business Day after the date deposited into the U.S. mail, or if delivered, upon delivery; except that notices pursuant to Article II or IX shall not be effective until actually received by Bank. (c) Any agreement of the Bank herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Company. The Bank shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Company to give such notice and the Bank shall not have any liability to the Company or other Person on account of any action taken or not taken by the Bank in reliance upon such telephonic or facsimile notice. The obligation of the Company to repay the Loans shall not be affected in any way or to any extent by any failure by the Bank to receive written confirmation of any telephonic or facsimile notice or the receipt by the Bank of a confirmation which is at variance with the terms understood by the Bank to be contained in the telephonic or facsimile notice. 9.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Bank, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. 9.4 Costs and Expenses. The Company shall: (a) whether or not the transactions contemplated hereby are consummated, pay or reimburse the Bank within five Business Days after demand in connection with the development, preparation, delivery, administration and execution of, and any amendment, supplement, waiver or modification to (in each case, whether or not consummated), this Agreement, any Loan Document and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including reasonable Attorney Costs incurred by the Bank with respect thereto; and (b) pay or reimburse the Bank within five Business Days after demand for all costs and expenses (including Attorney Costs) incurred by them in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Agreement or any other Loan Document during the existence of an Event of Default or after acceleration of the Loans (including in connection with any "workout" or restructuring regarding the Loans, and including in any Insolvency Proceeding or appellate proceeding). 9.5 Indemnity. Whether or not the transactions contemplated hereby are consummated, the Company shall indemnify and hold the Bank and each of its officers, directors, employees, counsel, agents and attorneys-in-fact (each, an "Indemnified Person") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses and disbursements (including Attorney Costs) of any kind or nature whatsoever which may at any time (including at any time following repayment of the Loans) be imposed on, incurred by or asserted against any such Person in any way relating to or arising out of this Agreement or any document contemplated by or referred to herein, or the transactions contemplated hereby, or any action taken or omitted by any such Person under or in connection with any of the foregoing, including with respect to any investigation, litigation or proceeding (including any Insolvency Proceeding or appellate proceeding) related to or arising out of this Agreement or the Loans or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the "Indemnified Liabilities"); provided, that the Company shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Liabilities resulting solely from the gross negligence or willful misconduct of such Indemnified Person. The agreements in this Section shall survive payment of all other Obligations. 9.6 Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Bank. 9.7 Set-off. In addition to any rights and remedies of the Bank provided by law, if an Event of Default exists or the Loans have been accelerated, the Bank is authorized at any time and from time to time, without prior notice to the Company, any such notice being waived by the Company to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing by, the Bank to or for the credit or the account of the Company against any and all Obligations owing to the Bank, now or hereafter existing, irrespective of whether or not the Bank shall have made demand under this Agreement or any Loan Document and although such Obligations may be contingent or unmatured. The Bank agrees promptly to notify the Company after any such set-off and application made by the Bank; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. 9.8 Automatic Debits of Fees. With respect to any fee, or any other cost or expense (including Attorney Costs) due and payable to the Bank under the Loan Documents, the Company hereby irrevocably authorizes the Bank to debit any deposit account of the Company with the Bank in an amount such that the aggregate amount debited from all such deposit accounts does not exceed such fee or other cost or expense. If there are insufficient funds in such deposit accounts to cover the amount of the fee or other cost or expense then due, such debits will be reversed (in whole or in part, in the Bank's sole discretion) and such amount not debited shall be deemed to be unpaid. No such debit under this Section shall be deemed a set-off. 9.9 Counterparts. This Agreement may be executed in any number of separate counterparts, each of which, when so executed, shall be deemed an original, and all of said counterparts taken together shall be deemed to constitute but one and the same instrument. 9.10 Severability. The illegality or unenforceability of any provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder. 9.11 No Third Parties Benefited. This Agreement is made and entered into for the sole protection and legal benefit of the Company and the Bank, and their permitted successors and assigns and no other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents. 9.12 Governing Law and Jurisdiction. (a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF ILLINOIS; PROVIDED THAT THE BANK SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF ILLINOIS, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY AND THE BANK CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE COMPANY AND THE BANK IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE COMPANY AND THE BANK EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY ILLINOIS LAW. 9.13 Waiver of Jury Trial. THE COMPANY AND THE BANK EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANY AND THE BANK EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. 9.14 Entire Agreement. This Agreement, together with the other Loan Documents, embodies the entire agreement and understanding between the Company and the Bank, and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in Chicago, Illinois by their proper and duly authorized officers as of the day and year first above written. FOURTH FINANCIAL CORPORATION By: --------------------------- Title: Executive Vice President - Finance and Chief Financial Officer BANK OF AMERICA ILLINOIS By: ---------------------------- Title: ------------------------- EX-10 4 EXHIBIT 10.13 ================================================================= CREDIT AGREEMENT Dated as of January 3, 1995 between FOURTH FINANCIAL CORPORATION and NATIONSBANK OF TEXAS, N.A. ================================================================= TABLE OF CONTENTS Page ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Certain Defined Terms . . . . . . . . . . . . . . . . . 1 1.2 Other Interpretive Provisions . . . . . . . . . . . . . 14 1.3 Accounting Principles . . . . . . . . . . . . . . . . . 15 ARTICLE II THE CREDITS. . . . . . . . . . . . . . . . . . . . . . . . . . 15 2.1 Amounts and Terms of Commitment . . . . . . . . . . . . 15 2.2 Note. . . . . . . . . . . . . . . . . . . . . . . . . . 15 2.3 Procedure for Borrowing.. . . . . . . . . . . . . . . . 16 2.4 Conversion and Continuation Elections . . . . . . . . . 16 2.5 Voluntary Termination or Reduction of Commitment. . . . 17 2.6 Optional Prepayments. . . . . . . . . . . . . . . . . . 17 2.7 Repayment . . . . . . . . . . . . . . . . . . . . . . . 18 2.8 Termination Date. . . . . . . . . . . . . . . . . . . . 18 2.9 Interest. . . . . . . . . . . . . . . . . . . . . . . . 18 2.10 Facility Fees. . . . . . . . . . . . . . . . . . . . . 19 2.11 Computation of Fees and Interest . . . . . . . . . . . 19 2.12 Payments by the Company. . . . . . . . . . . . . . . . 20 2.13 Bank of America Agreement. . . . . . . . . . . . . . . 20 2.14 Maximum Interest . . . . . . . . . . . . . . . . . . . 20 ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY . . . . . . . . . . . . 22 3.1 Taxes.. . . . . . . . . . . . . . . . . . . . . . . . . 22 3.2 Illegality. . . . . . . . . . . . . . . . . . . . . . . 23 3.3 Increased Costs and Reduction of Return . . . . . . . . 23 3.4 Funding Losses. . . . . . . . . . . . . . . . . . . . . 24 3.5 Inability to Determine Rates. . . . . . . . . . . . . . 24 3.6 Survival. . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE IV CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . 25 4.1 Conditions of Initial Loans . . . . . . . . . . . . . . 25 (a) Credit Agreement and Note . . . . . . . . . . . . 25 (b) Resolutions; Incumbency . . . . . . . . . . . . . 25 (c) Organization Documents; Good Standing . . . . . . 25 (d) Legal Opinion . . . . . . . . . . . . . . . . . . 26 (e) Payment of Fees . . . . . . . . . . . . . . . . . 26 (f) Certificate . . . . . . . . . . . . . . . . . . . 26 (g) Other Documents . . . . . . . . . . . . . . . . . 26 4.2 Conditions to All Borrowings. . . . . . . . . . . . . . 26 (a) Notice of Borrowing . . . . . . . . . . . . . . . 26 (b) Continuation of Representations and Warranties. . 27 (c) No Existing Default . . . . . . . . . . . . . . . 27 ARTICLE V REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . 27 5.1 Corporate Existence and Power . . . . . . . . . . . . . 27 5.2 Corporate Authorization; No Contravention . . . . . . . 27 5.3 Governmental Authorization. . . . . . . . . . . . . . . 28 5.4 Binding Effect. . . . . . . . . . . . . . . . . . . . . 28 5.5 Litigation. . . . . . . . . . . . . . . . . . . . . . . 28 5.6 No Default. . . . . . . . . . . . . . . . . . . . . . . 28 5.7 ERISA Compliance. . . . . . . . . . . . . . . . . . . . 29 5.8 Use of Proceeds; Margin Regulations . . . . . . . . . . 29 5.9 Title to Properties . . . . . . . . . . . . . . . . . . 29 5.10 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . 30 5.11 Financial Condition. . . . . . . . . . . . . . . . . . 30 5.12 Environmental Matters. . . . . . . . . . . . . . . . . 30 5.13 Regulated Entities . . . . . . . . . . . . . . . . . . 31 5.14 No Burdensome Restrictions . . . . . . . . . . . . . . 31 5.15 Copyrights, Patents, Trademarks and Licenses, etc. . . 31 5.16 Subsidiaries . . . . . . . . . . . . . . . . . . . . . 31 5.17 Insurance. . . . . . . . . . . . . . . . . . . . . . . 31 5.18 Full Disclosure. . . . . . . . . . . . . . . . . . . . 32 ARTICLE VI AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . 32 6.1 Financial Statements. . . . . . . . . . . . . . . . . . 32 6.2 Certificates; Other Information . . . . . . . . . . . . 33 6.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . 33 6.4 Preservation of Corporate Existence, Etc. . . . . . . . 35 6.5 Maintenance of Property . . . . . . . . . . . . . . . . 35 6.6 Insurance . . . . . . . . . . . . . . . . . . . . . . . 35 6.7 Payment of Obligations. . . . . . . . . . . . . . . . . 35 6.8 Compliance with Laws. . . . . . . . . . . . . . . . . . 36 6.9 Compliance with ERISA . . . . . . . . . . . . . . . . . 36 6.10 Inspection of Property and Books and Records . . . . . 36 6.11 Environmental Laws . . . . . . . . . . . . . . . . . . 36 6.12 Use of Proceeds. . . . . . . . . . . . . . . . . . . . 36 ARTICLE VII NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . 37 7.1 Liens. . . . . . . . . . . . . . . . . . . . . . . . . 37 7.2 Consolidation, Merger, etc . . . . . . . . . . . . . . 38 7.3 Asset Dispositions, etc. . . . . . . . . . . . . . . . 38 7.4 Transactions with Affiliates . . . . . . . . . . . . . 39 7.5 Negative Pledges, Restrictive Agreements, etc. . . . . 39 7.6 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . 39 7.7 Change in Business . . . . . . . . . . . . . . . . . . 39 7.8 Accounting Changes . . . . . . . . . . . . . . . . . . 39 7.9 Financial Covenants. . . . . . . . . . . . . . . . . . 40 ARTICLE VIII EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . 40 8.1 Event of Default. . . . . . . . . . . . . . . . . . . . 40 (a) Non-Payment . . . . . . . . . . . . . . . . . . . 40 (b) Representation or Warranty. . . . . . . . . . . . 40 (c) Other Defaults. . . . . . . . . . . . . . . . . . 40 (d) Cross-Default . . . . . . . . . . . . . . . . . . 41 (e) Insolvency; Voluntary Proceedings . . . . . . . . 41 (f) Involuntary Proceedings . . . . . . . . . . . . . 41 (g) ERISA . . . . . . . . . . . . . . . . . . . . . . 42 (h) Monetary Judgments. . . . . . . . . . . . . . . . 42 (i) Non-Monetary Judgments. . . . . . . . . . . . . . 42 (j) Change of Control . . . . . . . . . . . . . . . . 42 8.2 Remedies. . . . . . . . . . . . . . . . . . . . . . . . 42 8.3 Rights Not Exclusive. . . . . . . . . . . . . . . . . . 43 ARTICLE IX MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . 43 9.1 Amendments and Waivers. . . . . . . . . . . . . . . . . 43 9.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . 43 9.3 No Waiver; Cumulative Remedies. . . . . . . . . . . . . 44 9.4 Costs and Expenses. . . . . . . . . . . . . . . . . . . 44 9.5 Indemnity . . . . . . . . . . . . . . . . . . . . . . . 44 9.6 Successors and Assigns. . . . . . . . . . . . . . . . . 45 9.7 Set-off . . . . . . . . . . . . . . . . . . . . . . . . 45 9.8 Automatic Debits of Fees. . . . . . . . . . . . . . . . 45 9.9 Counterparts. . . . . . . . . . . . . . . . . . . . . . 46 9.10 Severability . . . . . . . . . . . . . . . . . . . . . 46 9.11 No Third Parties Benefited . . . . . . . . . . . . . . 46 9.12 Governing Law and Jurisdiction . . . . . . . . . . . . 46 9.13 Waiver of Jury Trial . . . . . . . . . . . . . . . . . 46 9.14 Entire Agreement . . . . . . . . . . . . . . . . . . . 47 SCHEDULES [OMITTED] Schedule 5.7 ERISA Compliance Schedule 5.11 Permitted Liabilities Schedule 5.12 Environmental Matters Schedule 5.15 Copyrights, etc. Schedule 5.16 Subsidiaries and Minority Interests Schedule 5.17 Insurance Matters Schedule 9.2 Lending Office; Addresses for Notices EXHIBITS [OMITTED] Exhibit A Form of Notice of Borrowing Exhibit B Form of Notice of Conversion/Continuation Exhibit C Form of Compliance Certificate Exhibit D Form of Legal Opinion of Borrower's Counsel Exhibit E Form of Promissory Note Exhibit F Form of Commitment Termination Extension Date Request Exhibit G Form of Quarterly Compliance Certificate CREDIT AGREEMENT ---------------- This CREDIT AGREEMENT is entered into as of January 3, 1995, between FOURTH FINANCIAL CORPORATION, a Kansas corporation (the "Company"), and NATIONSBANK OF TEXAS, N.A., a _________________ corporation (the "Bank"). WHEREAS, the Bank has agreed to make available to the Company a revolving credit facility upon the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties agree as follows: ARTICLE I DEFINITIONS ----------- 1.1 Certain Defined Terms. The following terms have the following meanings: "Adjusted Total Assets" shall have the meaning set forth on the date hereof under applicable regulations of any regulatory agency having authority on the date hereof as such regulations are applicable to the Company, or if such regulations are amended hereafter to define Adjusted Total Assets more restrictively, as set forth in such later amended regulations. "Affiliate" means, as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the other Person, whether through the ownership of voting securities, by contract, or otherwise. "Agreement" means this Credit Agreement. "Applicable Margin" means (i) with respect to Base Rate Loans, 0%; (ii) with respect to Offshore Rate Loans at such time as the Company is Well Capitalized, 0.375%; and (iii) with respect to Offshore Rate Loans at such time as the Company is not Well Capitalized, 0.50% at any time that the principal amount of the Loans outstanding is less than 50% of the Commitment or 0.625% at any other time. "Attorney Costs" means and includes all fees and disbursements of any law firm or other external counsel, the allocated cost of internal legal services and all disbursements of internal counsel. "Available Commitment" means $25,000,000 on the date hereof and thereafter until such date as the outstanding principal amount of the Loans exceeds $25,000,000; and from the date the outstanding principal amount of the Loans exceeds $25,000,000 and thereafter, the Available Commitment shall equal the Commitment. "Bank" has the meaning specified in the introductory clause hereto. "Bank of America Agreement" is defined in Section 2.13. "Bank's Payment Office" means the address for payments set forth on the signature page hereto in relation to the Bank, or such other address as the Bank may from time to time specify. "Bank Subsidiaries" mean Bank IV Kansas N.A., Bank IV Oklahoma N.A. and any other banking institution which may be a Subsidiary of the Company from time to time. "Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. Section 101, et seq.). "Base Rate" means, for any day, the higher of: (a) 0.50% per annum above the latest Federal Funds Rate; and (b) the rate of interest in effect for such day as publicly announced from time to time by BofA in San Francisco, California, as its "reference rate." (The "reference rate" is a rate set by BofA based upon various factors including BofA's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate.) Any change in the reference rate announced by BofA shall take effect at the opening of business on the day specified in the public announcement of such change. "Base Rate Loan" means a Loan that bears interest based on the Base Rate. "BofA" means Bank of America National Trust and Savings Association, a national banking association. "Borrowing Date" means any date on which a Borrowing occurs under Section 2.3. "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in Chicago or San Francisco are authorized or required by law to close and, if the applicable Business Day relates to any Offshore Rate Loan, means such a day on which dealings are carried on in the applicable offshore dollar interbank market. "Capital Adequacy Regulation" means any guideline, request or directive of any central bank or other Governmental Authority, or any other law, rule or regulation, of general application, whether or not having the force of law, in each case, regarding capital adequacy of any bank or of any corporation controlling a bank. "Change of Control" means the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 20% or more of the outstanding shares of voting stock of the Company. "Closing Date" means the date on which all conditions precedent set forth in Section 4.1 are satisfied or waived by the Bank (or, in the case of subsection 4.1(e), waived by the Person entitled to receive such payment). "Code" means the Internal Revenue Code of 1986, and regulations promulgated thereunder. "Commitment" has the meaning specified in Section 2.1. "Commitment Termination Date Extension Request" means a request substantially in the form of Exhibit F attached hereto, duly executed by a Responsible Officer of the Company. "Compliance Certificate" means a certificate substantially in the form of Exhibit C. "Contingent Liability" - means any agreement, undertaking or arrangement by which any Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the indebtedness, obligation or any other liability of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the shares of any other Person. The amount of any Person's obligation under any Contingent Liability shall (subject to any limitation set forth therein) be deemed to be the outstanding principal amount (or maximum principal amount, if larger) of the debt, obligation or other liability guaranteed thereby. "Contractual Obligation" means, as to any Person, any provision of any security issued by such Person or of any agreement, undertaking, contract, indenture, mortgage, deed of trust or other instrument, document or agreement to which such Person is a party or by which it or any of its property is bound. "Conversion/Continuation Date" means any date on which, under Section 2.4, the Company (a) converts Loans of one Type to another Type, or (b) continues as Loans of the same Type, but with a new Interest Period, Loans having Interest Periods expiring on such date. "Default" means any event or circumstance which, with the giving of notice, the lapse of time, or both, would (if not cured or otherwise remedied during such time) constitute an Event of Default. "Dollars", "dollars" and "$" each mean lawful money of the United States. "Double Leverage Ratio" means the ratio of (a) equity investments of the Company in its Subsidiaries to (b) total equity capital of the Company; in each case as reported in the Company's FRY-9LP financial statements. "Environmental Claims" means all claims, however asserted, by any Governmental Authority or other Person alleging potential liability or responsibility for violation of any Environmental Law, or for release or injury to the environment. "Environmental Laws" means all federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authorities, in each case relating to environmental, health, safety and land use matters. "ERISA" means the Employee Retirement Income Security Act of 1974, and regulations promulgated thereunder. "ERISA Affiliate" means any trade or business (whether or not incorporated) under common control with the Company within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code). "ERISA Event" means (a) a Reportable Event with respect to a Pension Plan; (b) the failure to make a required contribution to a Pension Plan if such failure is sufficient to give rise to a Lien under Section 302(f) of ERISA; (c) a withdrawal by the Company or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations which is treated as such a withdrawal under Section 4062(e) of ERISA; (d) a complete or partial withdrawal by the Company or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (e) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (f) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (g) the imposition of any liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Company or any ERISA Affiliate. "Eurodollar Reserve Percentage" has the meaning specified in the definition of "Offshore Rate". "Event of Default" means any of the events or circumstances specified in Section 8.1. "Exchange Act" means the Securities and Exchange Act of 1934, and regulations promulgated thereunder. "FDIC" means the Federal Deposit Insurance Corporation, and any Governmental Authority succeeding to any of its principal functions. "Federal Funds Rate" means, for any day, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Bank of New York (including any such successor, "H.15(519)") on the preceding Business Day opposite the caption "Federal Funds (Effective)"; or, if for any relevant day such rate is not so published on any such preceding Business Day, the rate for such day will be the arithmetic mean as determined by the Bank of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by the Bank. "FRB" means the Board of Governors of the Federal Reserve System, and any Governmental Authority succeeding to any of its principal functions. "GAAP" means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the Closing Date. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "Indebtedness" of any Person means, without duplication: (a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (b) all obligations, contingent or otherwise, relative to the face amount of all letters of credit, whether or not drawn, and banker's acceptances issued for the account of such Person; (c) all obligations of such Person as lessee under leases which have been or should be, in accordance with GAAP, recorded as capitalized lease liabilities; (d) all other items which, in accordance with GAAP, would be included as liabilities on the liability side of the balance sheet of such Person as of the date at which Indebtedness is to be determined; (e) whether or not so included as liabilities in accordance with GAAP, all obligations of such Person to pay the deferred purchase price of property or services, and indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse; and (f) all Contingent Liabilities of such Person in respect of any of the foregoing. For all purposes of this Agreement, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer. "Indemnified Liabilities" has the meaning specified in Section 9.5. "Indemnified Person" has the meaning specified in Section 9.5. "Independent Auditor" has the meaning specified in subsection 6.1(a). "Insolvency Proceeding" means (a) any case, action or proceeding before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors, or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors; undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code. "Interest Payment Date" means, as to any Offshore Loan, the last day of each Interest Period applicable to such Loan and, as to any Base Rate Loan, the last Business Day of each month, provided, however, that if any Interest Period for an Offshore Rate Loan exceeds three months, the date that falls three months after the beginning of such Interest Period and after each Interest Payment Date thereafter is also an Interest Payment Date. "Interest Period" means as to any Offshore Rate Loan, the period commencing on the Borrowing Date of such Loan or on the Conversion/Continuation Date on which the Loan is converted into or continued as an Offshore Rate Loan, and ending on the date one, two, three or six months thereafter as selected by the Company in its Notice of Borrowing or Notice of Conversion/Continuation; provided that: (i) if any Interest Period would otherwise end on a day that is not a Business Day, that Interest Period shall be extended to the following Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day; (ii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and (iii) no Interest Period for any Loan shall extend beyond the Revolving Termination Date. "IRS" means the Internal Revenue Service, and any Governmental Authority succeeding to any of its principal functions under the Code. "Lending Office" means the office or offices of the Bank specified as its "Lending Office" or "Domestic Lending Office" or "Offshore Lending Office", as the case may be, on Schedule 9.2 ("Lending Offices, etc."), or such other office or offices as the Bank may from time to time notify the Company. "Leverage Ratio" means with respect to the Company and its Subsidiaries on a consolidated basis, at any time, the ratio of its Tier One Capital to its Adjusted Total Assets. "Lien" means any security interest, mortgage, deed of trust, pledge, hypothecation, assignment, charge or deposit arrangement, encumbrance, lien (statutory or other) or preferential arrangement of any kind or nature whatsoever in respect of any property (including those created by, arising under or evidenced by any conditional sale or other title retention agreement, the interest of a lessor under a capital lease, any financing lease having substantially the same economic effect as any of the foregoing, or the filing of any financing statement naming the owner of the asset to which such lien relates as debtor, under the Uniform Commercial Code or any comparable law) and any contingent or other agreement to provide any of the foregoing, but not including the interest of a lessor under an operating lease. "Loan" means an extension of credit by the Bank to the Company under Article II, and may be a Base Rate Loan or an Offshore Rate Loan (each, a "Type" of Loan). "Loan Documents" means this Agreement, the Note and all other documents delivered to the Bank in connection herewith. "Loans Outstanding" means, for any Person, the sum of loans and direct lease financings, net of unearned income, by such Person and its Subsidiaries on a consolidated basis. "Margin Stock" means "margin stock" as such term is defined in Regulation G, T, U or X of the FRB. "Material Adverse Effect" means a material adverse change in, or a material adverse effect upon, the operations, business, properties, condition (financial or otherwise) or prospects of the Company or the Company and its Subsidiaries taken as a whole; for the purposes of this definition, an adverse effect or adverse change will be deemed material if there is a reasonable likelihood that it would reduce the Company's equity as of any date of determination by 10% or more below the Company's equity as of the end of its most recent fiscal year. "Multiemployer Plan" means a "multiemployer plan", within the meaning of Section 4001(a)(3) of ERISA, with respect to which the Company or any ERISA Affiliate may have any liability. "Non-Performing Assets" means, as applied to Loans Outstanding of a Person, (i) Loans Outstanding that are not accruing interest, have been classified as renegotiated pursuant to guidelines established by the Federal Financial Institutions Council or are 90 days or more past due in the payment of principal or interest plus (ii) Other Real Estate Owned by such Person minus (iii) student loan obligations which are serviced by a third party servicer and which are backed by the full faith and credit of the United States Government or any agency thereof, whether such guaranty is for the benefit of such third party servicer or such Person or any of its Subsidiaries, provided, however, that this exclusion shall not apply to any student loan with respect to which a third party servicer has failed to perform the terms and conditions of its servicing agreement with such Person or any of its Subsidiaries. "Non-Performing Ratio" means, for any Person, the ratio of such Person's (a) Non-Performing Assets outstanding to (b) Loans Outstanding plus Other Real Estate Owned. "Note" means a promissory note executed by the Company in favor of the Bank pursuant to subsection 2.2, in substantially the form of Exhibit E. "Notice of Borrowing" means the Company's irrevocable telephonic notice of borrowing together with (if requested by the Bank) prompt confirmation thereof in writing in substantially the form of Exhibit A. "Notice of Conversion/Continuation" means the Company's irrevocable telephonic notice of conversion or continuation together with (if required by the Bank) prompt confirmation thereof in writing in substantially the form of Exhibit B. "Obligations" means all advances, debts, liabilities, obligations, covenants and duties arising under any Loan Document owing by the Company to the Bank, or any Indemnified Person, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising. "Offshore Rate" means, for any Interest Period, with respect to Offshore Rate Loans comprising part of the same Borrowing, the rate of interest per annum (rounded upward to the next 1/16th of 1%) determined by the Bank as follows: Offshore Rate = LIBOR 1.00 - Eurodollar Reserve Percentage Where, "Eurodollar Reserve Percentage" means for any day for any Interest Period the maximum reserve percentage (expressed as a decimal, rounded upward to the next 1/100th of 1%) in effect on such day (whether or not applicable to the Bank) under regulations issued from time to time by the FRB for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as "Eurocurrency liabilities"); and "LIBOR" means the rate of interest per annum determined by the Bank to be the arithmetic mean (rounded upward to the next 1/16th of 1%) of the rates of interest per annum notified to the Bank as the rate of interest at which dollar deposits in the approximate amount of the amount of the Loan to be made or continued as, or converted into, an Offshore Rate Loan by the Bank and having a maturity comparable to such Interest Period would be offered to major banks in the London interbank market at their request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period. "Offshore Rate Loan" means a Loan that bears interest based on the Offshore Rate. "Organization Documents" means, for any corporation, the certificate or articles of incorporation, the bylaws, any certificate of determination or instrument relating to the rights of preferred shareholders of such corporation, any shareholder rights agreement, and all applicable resolutions of the board of directors (or any committee thereof) of such corporation. "Other Real Estate Owned" of a Person means "other real estate owned" as shown in the financial statements of such Person prepared in accordance with GAAP. "Other Taxes" means any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Documents. "PBGC" means the Pension Benefit Guaranty Corporation, or any Governmental Authority succeeding to any of its principal functions under ERISA. "Pension Plan" means a pension plan (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA, other than a Multiemployer Plan, with respect to which the Company or any ERISA Affiliate may have any liability. "Permitted Liens" has the meaning specified in Section 7.1. "Person" means an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture or Governmental Authority. "Plan" means an employee benefit plan (as defined in Section 3(3) of ERISA) which the Company sponsors or maintains or to which the Company makes, is making, or is obligated to make contributions and includes any Pension Plan. "Quarterly Compliance Certificate" means a certificate substantially in the form of Exhibit G. "Reportable Event" means, any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder, other than any such event for which the 30-day notice requirement under ERISA has been waived in regulations issued by the PBGC. "Requirement of Law" means, as to any Person, any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon the Person or any of its property or to which the Person or any of its property is subject. "Reserve Commitment" means on the date hereof $25,000,000 and thereafter an amount equal to the Commitment minus the Available Commitment. "Responsible Officer" means relative to the Company, those of its officers whose signatures and incumbency shall have been certified to the Bank pursuant to Section 4.1. "Revolving Termination Date" means the earlier to occur of: (a) January 2, 1996, as such date may be extended pursuant to Section 2.8 hereof; and (b) the date on which the Commitment terminates in accordance with the provisions of this Agreement. "Risk Weighted Assets" means, for any Person, the value of the assets of such Person and its Subsidiaries, including adjusted off-balance sheet items, all as calculated pursuant to risk based capital guidelines in effect from time to time with the applicable regulatory agency. "SEC" means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions. "Subsidiary" of a Person means any corporation, association, partnership, joint venture or other business entity of which more than 50% of the voting stock or other equity interests (in the case of Persons other than corporations), is owned or controlled directly or indirectly by the Person, or one or more of the Subsidiaries of the Person, or a combination thereof. Unless the context otherwise clearly requires, references herein to a "Subsidiary" refer to a Subsidiary of the Company. "Taxes" means any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of the Bank, such taxes (including income taxes or franchise taxes) as are imposed on or measured by the Bank's net income by the jurisdiction (or any political subdivision thereof) under the laws of which the Bank is organized or maintains a lending office. "Tier One Capital" shall have the meaning set forth on the date hereof under applicable regulations of any regulatory agency having authority on the date hereof as such regulations are applicable to the Company, or if such regulations are amended hereafter to define Tier One Capital more restrictively, as set forth in such later definition. "Tier Two Capital" shall have the meaning set forth on the date hereof under applicable regulations of any regulatory agency having authority on the date hereof as such regulations are applicable to the Company, or if such regulations are amended hereafter to define Tier Two Capital more restrictively, as set forth in such later definition. "Type" has the meaning specified in the definition of "Loan." "Unfunded Pension Liability" means the excess of a Plan's accumulated benefit obligations (as defined by GAAP), over the current fair value of that Plan's assets. "United States" and "U.S." each means the United States of America. "Well-Capitalized" shall have the meaning promulgated by any regulatory agency having authority on the date hereof, as applicable to the Company, or if not applicable to the Company per se, as applicable to the Bank Subsidiaries applied to the Company as if so applicable; provided, however, that if at any time requirements of the designation "Well-Capitalized" promulgated by such regulatory authority shall be modified so as to define the requirements for such designation more restrictively than the existing requirements, then such requirements set forth herein shall be changed to reflect such later modification; provided, further, if at any time such regulatory authority shall determine that such Person is not "Well Capitalized", (within the meaning of the regulations promulgated by such authority then in effect), such Person shall be deemed not to be Well-Capitalized for purposes of this Agreement, without regard to whether such Person shall meet the requirements of the definition of such term set forth in this Agreement as in effect at such time. 1.2 Other Interpretive Provisions. (a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms. (b) The words "hereof", "herein", "hereunder" and similar words refer to this Agreement as a whole and not to any particular provision of this Agreement; and subsection, Section, Schedule and Exhibit references are to this Agreement unless otherwise specified. (c) (i) The term "documents" includes any and all instruments, documents, agreements, certificates, indentures, notices and other writings, however evidenced. (ii) The term "including" is not limiting and means "including without limitation." (iii) In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including"; the words "to" and "until" each mean "to but excluding", and the word "through" means "to and including." (d) Unless otherwise expressly provided herein, (i) references to agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of any Loan Document, and (ii) references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting the statute or regulation. (e) The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement. (f) This Agreement and other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are cumulative and shall each be performed in accordance with their terms. (g) This Agreement and the other Loan Documents are the result of negotiations among and have been reviewed by counsel to the Bank and the Company and are the products of all parties. Accordingly, they shall not be construed against the Bank merely because of the Bank's involvement in their preparation. 1.3 Accounting Principles. (a) Unless the context otherwise clearly requires, all accounting terms not expressly defined herein shall be construed, and all financial computations required under this Agreement shall be made, in accordance with GAAP, consistently applied. (b) References herein to "fiscal year" and "fiscal quarter" refer to such fiscal periods of the Company. ARTICLE II THE CREDITS ----------- 2.1 Amounts and Terms of Commitment. The Bank agrees, on the terms and conditions set forth herein, to make loans to the Company (each such loan, a "Revolving Loan") from time to time on any Business Day during the period from the Closing Date to the Revolving Termination Date, in an aggregate amount not to exceed at any time outstanding $50,000,000, (such amount, as the same may be reduced under Section 2.5, the Bank's "Commitment"); provided, however, that, after giving effect to any borrowing of a Revolving Loan, the aggregate principal amount of all outstanding Revolving Loans shall not at any time exceed the Commitment. Within the limits of the Commitment, and subject to the other terms and conditions hereof, the Company may borrow under this Section 2.1, prepay under Section 2.6 and reborrow under this Section 2.1. 2.2 Note. The Loans made by the Bank shall be evidenced by a Note. The Bank shall endorse on the schedules annexed to the Note the date, amount and maturity of each Loan made by it and the amount of each payment of principal made by the Company with respect thereto. The Bank is irrevocably authorized by the Company to endorse the Note and the Bank's record shall be conclusive absent manifest error; provided, however, that the failure of the Bank to make, or an error in making, a notation thereon with respect to any Loan shall not limit or otherwise affect the obligations of the Company hereunder or under the Note to the Bank. 2.3 Procedure for Borrowing. Each borrowing shall be made upon receipt of a Notice of Borrowing by the Bank (which notice must be received by the Bank prior to 10:00 a.m. (Chicago time) (i) three Business Days prior to the requested Borrowing Date, in the case of Offshore Rate Loans; and (ii) on the requested Borrowing Date, in the case of Base Rate Loans, specifying: (A) the amount of the Borrowing, which shall be in an aggregate minimum amount of $5,000,000 or any multiple of $1,000,000 in excess thereof; (B) the requested Borrowing Date, which shall be a Business Day; (C) the Type of Loans comprising the Borrowing; and (D) the duration of the Interest Period applicable to such Loans included in such notice. If the Notice of Borrowing fails to specify the duration of the Interest Period for any Borrowing comprised of Offshore Rate Loans, such Interest Period shall be three months. 2.4 Conversion and Continuation Elections. (a) The Company may, by delivering a Notice of Conversion/Continuation to the Bank in accordance with subsection 2.4(b): (i) elect, as of any Business Day, in the case of Base Rate Loans, or as of the last day of the applicable Interest Period, in the case of any other Type of Loans, to convert any such Loans (or any part thereof in an amount not less than $5,000,000, or that is in an integral multiple of $1,000,000 in excess thereof) into Loans of any other Type; or (ii) elect, as of the last day of the applicable Interest Period, to continue any Loans having Interest Periods expiring on such day (or any part thereof in an amount not less than $5,000,000, or that is in an integral multiple of $1,000,000 in excess thereof); provided, that if at any time the aggregate amount of Offshore Rate Loans in respect of any borrowing is reduced, by payment, prepayment, or conversion of part thereof to be less than $1,000,000, such Offshore Rate Loans shall automatically convert into Base Rate Loans. (b) The Company shall deliver a Notice of Conversion/ Continuation to be received by the Bank not later than 10:00 a.m. (Chicago time) at least (i) three Business Days in advance of the Conversion/Continuation Date, if the Loans are to be converted into or continued as Offshore Rate Loans; and (ii) on the Conversion/ Continuation Date, if the Loans are to be converted into Base Rate Loans, specifying: (A) the proposed Conversion/Continuation Date; (B) the aggregate amount of Loans to be converted or renewed; (C) the Type of Loans resulting from the proposed conversion or continuation; and (D) other than in the case of conversions into Base Rate Loans, the duration of the requested Interest Period. (c) If upon the expiration of any Interest Period applicable to Offshore Rate Loans, the Company has failed to select timely a new Interest Period to be applicable to such Offshore Rate Loans, or if any Default or Event of Default then exists, the Company shall be deemed to have elected to convert such Offshore Rate Loans into Base Rate Loans effective as of the expiration date of such Interest Period. (d) Unless the Bank otherwise agrees, during the existence of a Default or Event of Default, the Company may not elect to have a Loan converted into or continued as an Offshore Rate Loan. 2.5 Voluntary Termination or Reduction of Commitment. The Company may, upon not less than five Business Days' prior notice to the Bank, terminate the Commitment, or permanently reduce the Commitment by an aggregate minimum amount of $5,000,000 or any multiple of $5,000,000 in excess thereof; unless, after giving effect thereto and to any prepayments of Loans made on the effective date thereof, the then-outstanding principal amount of the Loans would exceed the amount of the Commitment then in effect. Once reduced in accordance with this Section , the Commitment may not be increased. All accrued facility fees to, but not including the effective date of any reduction or termination of the Commitment, shall be paid on the effective date of such reduction or termination. 2.6 Optional Prepayments. Subject to Section 3.4, the Company may, at any time or from time to time, upon notice to the Bank, ratably prepay Loans in whole or in part, in minimum amounts of $5,000,000 and an integral multiple of $1,000,000. Such notice of prepayment shall specify the date and amount of such prepayment and the Types of Loans to be prepaid. If such notice is given by the Company, the Company shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to each such date on the amount prepaid and any amounts required pursuant to Section 3.4. 2.7 Repayment. The Company shall repay to the Bank on the Revolving Termination Date the aggregate principal amount of Loans outstanding on such date. 2.8 Termination Date. The Commitment shall terminate and the Bank shall be relieved of its obligations to make any Loan on the Revolving Termination Date. The Company may from time to time request an extension of the Revolving Termination Date by executing and delivering to the Bank a Commitment Termination Date Extension Request at least 30 but not more than 40 days prior to the then current Revolving Termination Date. The Revolving Termination Date shall be so extended if the Company shall have received from the Bank on or prior to the 10th day preceding the then current Revolving Termination Date a duly executed counterpart of such Commitment Termination Date Extension Request; provided, that any such extension shall take effect as of the date on which the Bank shall have notified the Company of the approval thereof and the Revolving Termination Date shall be extended to a date 364 days from said effectiveness. The Bank may in its sole and absolute discretion withhold its consent to any such Commitment Termination Date Extension Request. 2.9 Interest. (a) Each Loan shall bear interest on the outstanding principal amount thereof from the applicable Borrowing Date at a rate per annum equal to the Offshore Rate or the Base Rate, as the case may be (and subject to the Company's right to convert to other Types of Loans under Section 2.4), plus the Applicable Margin. (b) Interest on each Loan shall be paid in arrears on each Interest Payment Date. Interest shall also be paid on the date of any prepayment of Loans under Section 2.6 for the portion of the Loans so prepaid and upon payment (including prepayment) in full thereof and, during the existence of any Event of Default, interest shall be paid on demand of the Bank. (c) Notwithstanding subsection (a) of this Section, while any Event of Default exists or after acceleration, the Company shall pay interest (after as well as before entry of judgment thereon to the extent permitted by law) on the principal amount of all outstanding Loans, at a rate per annum which is determined by adding 2% per annum to the Applicable Margin then in effect for such Loans; provided, however, that, on and after the expiration of any Interest Period applicable to any Offshore Rate Loan outstanding on the date of occurrence of such Event of Default or acceleration, the principal amount of such Loan shall, during the continuation of such Event of Default or after acceleration, bear interest at a rate per annum equal to the Base Rate plus 2%. (d) Anything herein to the contrary notwithstanding, the obligations of the Company to the Bank hereunder shall be subject to the limitation that payments of interest shall not be required for any period for which interest is computed hereunder, to the extent (but only to the extent) that contracting for or receiving such payment by the Bank would be contrary to the provisions of any law applicable to the Bank limiting the highest rate of interest that may be lawfully contracted for, charged or received by the Bank, and in such event the Company shall pay the Bank interest at the highest rate permitted by applicable law. 2.10 Facility Fees. The Company shall pay to the Bank a facility fee on the average daily amount of the Commitment, computed on a quarterly basis in arrears on the last Business Day of each calendar quarter equal to 0.125% per annum on the Available Commitment and 0.0625% per annum on the Reserve Commitment. Such facility fee shall accrue from the date hereof to the Revolving Termination Date and shall be due and payable quarterly in arrears on the last Business Day of each March, June, September and December through the Revolving Termination Date, with the final payment to be made on the Revolving Termination Date; provided that, in connection with any reduction or termination of the Commitment under Section 2.5, the accrued facility fee calculated for the period ending on such date shall also be paid on the date of such reduction or termination, with the following quarterly payment being calculated on the basis of the period from such reduction or termination date to such quarterly payment date; and provided, further, that upon the increase of the Available Commitment, an amount equal to 0.0625% per annum from the date hereof through the date of such increase on the amount of such increase shall be paid. The facility fee provided in this section shall accrue at all times after the above-mentioned commencement date, including at any time during which one or more conditions in Article IV are not met. 2.11 Computation of Fees and Interest. (a) All computations of fees and interest shall be made on the basis of a 360-day year and actual days elapsed (which results in more interest being paid than if computed on the basis of a 365-day year). Interest and fees shall accrue during each period during which interest or such fees are computed from the first day thereof to the last day thereof. (b) Each determination of an interest rate by the Bank shall be conclusive and binding on the Company in the absence of manifest error. 2.12 Payments by the Company. (a) All payments to be made by the Company shall be made without set-off, recoupment or counterclaim. Except as otherwise expressly provided herein, all payments by the Company shall be made to the Bank, and shall be made in dollars and in immediately available funds, no later than 11:00 a.m. (Chicago time) on the date specified herein. Any payment received by the Bank later than 11:00 a.m. (Chicago time) shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue. (b) Subject to the provisions set forth in the definition of "Interest Period" herein, whenever any payment is due on a day other than a Business Day, such payment shall be made on the following Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be. 2.13 Bank of America Agreement. The Company is entering into a credit agreement (the "Bank of America Agreement") with Bank of America Illinois concurrently with the effectiveness of this Agreement on terms substantially the same as this Agreement. The Company agrees that all borrowings, payments and reductions and terminations of the Commitment shall be made concurrently with equivalent borrowings, payments and reductions and termination of the commitment under the Bank of America Agreement. The Company shall provide a summary statement quarterly to the Bank of all activity on the Bank of America Agreement and of any amendments thereto. 2.14 Maximum Interest. It is the intention of the parties hereto to conform strictly to applicable usury laws and, anything herein to the contrary notwithstanding, the obligations of the Company to the Bank under this Agreement shall be subject to the limitation that payments of interest shall not be required to the extent that receipt thereof would be contrary to provisions of law applicable to the Bank limiting rates of interest which may be charged or collected by the Bank. Accordingly, if the transactions contemplated hereby would be usurious under applicable law (including the Federal and state laws of the United States of America, or of any other jurisdiction whose laws may be mandatorily applicable) with respect to the Bank then, in that event, notwithstanding anything to the contrary in this Agreement, it is agreed as follows: (i) the provisions of this Section 2.14 shall govern and control; (ii) the aggregate of all consideration which constitutes interest under applicable law that is contracted for, charged or received under this Agreement, or under any of the other aforesaid agreements or otherwise in connection with this Agreement by the Bank shall under no circumstances exceed the maximum amount of interest allowed by applicable law (such maximum lawful interest rate, if any, with respect to the Bank herein called the "Highest Lawful Rate"), and any excess shall be credited to the Company by the Bank (or, if such consideration shall have been paid in full, such excess re- funded to the Company); (iii) all sums paid, or agreed to be paid, to the Bank for the use, forbearance and detention of the indebtedness of the Company to the Bank here- under shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of such indebtedness until payment in full so that the actual rate of interest is uniform throughout the full term thereof; (iv) if at any time the interest provided pursuant to Section 2.9 together with any other fees payable pursuant to this Agreement and deemed interest under applicable law, exceeds that amount which would have accrued at the Highest Lawful Rate, the amount of interest and any such fees to accrue to the Bank pursuant to this Agreement shall be limited, notwithstanding anything to the contrary in this Agreement to that amount which would have accrued at the Highest Lawful Rate, but any subsequent reductions, as applicable, shall not reduce the interest to ac- crue to the Bank pursuant to this Agreement below the Highest Lawful Rate until the total amount of interest accrued pursuant to this Agreement and such fees deemed to be interest equals the amount of interest which would have accrued to the Bank if a varying rate per annum equal to the interest provided pursuant to Section 2.9 had at all times been in effect, plus the amount of fees which would have been received but for the effect of this Sec- tion 2.14. For purposes of Article 5069-1.04, Vernon's Texas Civil Statutes, as amended, to the extent, if any, applicable to the Bank, the Company agrees that the Highest Lawful Rate shall be the "indicated (weekly) rate ceiling" as defined in said Article, provided that the Bank may also rely, to the extent permitted by applicable laws, on alternative maximum rates of interest under other laws applicable to such Lender if greater. Tex. Rev. Civ. Stat. Ann. Art. 5069, Ch. 15 (which regulates certain revolving credit loan accounts and revolving tri-party accounts) shall not apply to this Agreement or the Note. ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY -------------------------------------- 3.1 Taxes. (a) Any and all payments by the Company to the Bank under this Agreement and any other Loan Document shall be made free and clear of, and without deduction or withholding for any Taxes. In addition, the Company shall pay all Other Taxes. (b) The Company agrees to indemnify and hold harmless the Bank for the full amount of Taxes or Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section) paid by the Bank and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days after the date the Bank makes written demand therefor. (c) If the Company shall be required by law to deduct or withhold any Taxes or Other Taxes from or in respect of any sum payable hereunder to the Bank, then: (i) the sum payable shall be increased as necessary so that after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums payable under this Section) the Bank receives an amount equal to the sum it would have received had no such deductions or withholdings been made; (ii) the Company shall make such deductions and withholdings; (iii) the Company shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable law; and (iv) the Company shall also pay to the Bank, at the time interest is paid, all additional amounts which the Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes or Other Taxes had not been imposed. (d) Within 30 days after the date of any payment by the Company of Taxes or Other Taxes, the Company shall furnish the Bank the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to the Bank. (e) If the Company is required to pay additional amounts to the Bank pursuant to subsection (c) of this Section, then the Bank shall use reasonable efforts (consistent with legal and regulatory restrictions) to change the jurisdiction of its Lending Office so as to eliminate any such additional payment by the Company which may thereafter accrue, if such change in the judgment of the Bank is not otherwise disadvantageous to the Bank. 3.2 Illegality. (a) If the Bank determines that the introduction of any Requirement of Law, or any change in any Requirement of Law, or in the interpretation or administration of any Requirement of Law, has made it unlawful, or that any central bank or other Governmental Authority has asserted that it is unlawful, for the Bank or its applicable Lending Office to make Offshore Rate Loans, then, on notice thereof by the Bank to the Company, any obligation of the Bank to make Offshore Rate Loans shall be suspended until the Bank notifies the Company that the circumstances giving rise to such determination no longer exist. (b) If the Bank determines that it is unlawful to maintain any Offshore Rate Loan, the Company shall, upon its receipt of notice of such fact and demand from the Bank, prepay in full such Offshore Rate Loans of the Bank then outstanding, together with interest accrued thereon and amounts required under Section 3.4, either on the last day of the Interest Period thereof, if the Bank may lawfully continue to maintain such Offshore Rate Loans to such day, or immediately, if the Bank may not lawfully continue to maintain such Offshore Rate Loan. If the Company is required to so prepay any Offshore Rate Loan, then concurrently with such prepayment, the Company shall borrow from the Bank, in the amount of such repayment, a Base Rate Loan. 3.3 Increased Costs and Reduction of Return. (a) If the Bank determines that, due to either (i) the introduction of or any change (other than any change by way of imposition of or increase in reserve requirements included in the calculation of the Offshore Rate) in or in the interpretation of any law or regulation or (ii) the compliance by the Bank with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to the Bank of agreeing to make or making, funding or maintaining any Offshore Rate Loans then the Company shall be liable for, and shall from time to time, upon demand, pay to the Bank, additional amounts as are sufficient to compensate the Bank for such increased costs. (b) If the Bank shall have determined that (i) the introduction of any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation, (iii) any change in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof, or (iv) compliance by the Bank (or its Lending Office) or any corporation controlling the Bank with any Capital Adequacy Regulation, affects or would affect the amount of capital required or expected to be maintained by the Bank or any corporation controlling the Bank and (taking into consideration the Bank's or such corporation's policies with respect to capital adequacy and the Bank's desired return on capital) determines that the amount of such capital is increased as a consequence of its Commitment, loans, credits or obligations under this Agreement, then, upon demand of the Bank to the Company, the Company shall pay to the Bank, from time to time as specified by the Bank, additional amounts sufficient to compensate the Bank for such increase. 3.4 Funding Losses. The Company shall reimburse the Bank and hold the Bank harmless from any loss or expense which the Bank may sustain or incur as a consequence of: (a) the failure of the Company to make on a timely basis any payment of principal of any Offshore Rate Loan; (b) the failure of the Company to borrow, continue or convert a Loan after the Company has given (or is deemed to have given) a Notice of Borrowing or a Notice of Conversion/ Continuation; (c) the failure of the Company to make any prepayment in accordance with any notice delivered under Section 2.6; (d) the prepayment or other payment (including after acceleration thereof) of an Offshore Rate Loan on a day that is not the last day of the relevant Interest Period; or (e) the automatic conversion under Section 2.4 of any Offshore Rate Loan to a Base Rate Loan on a day that is not the last day of the relevant Interest Period; including any such loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain its Offshore Rate Loans or from fees payable to terminate the deposits from which such funds were obtained. 3.5 Inability to Determine Rates. If the Bank determines that for any reason adequate and reasonable means do not exist for determining the Offshore Rate for any requested Interest Period with respect to a proposed Offshore Rate Loan, or that the Offshore Rate applicable pursuant to subsection 2.9(a) for any requested Interest Period with respect to a proposed Offshore Rate Loan does not adequately and fairly reflect the cost to the Bank of funding such Loan, the Bank will promptly so notify the Company. Thereafter, the obligation of the Bank to make or maintain Offshore Rate Loans hereunder shall be suspended until the Bank revokes such notice in writing. Upon receipt of such notice, the Company may revoke any Notice of Borrowing or Notice of Conversion/Continuation then submitted by it. If the Company does not revoke such Notice, the Bank shall make, convert or continue the Loans, as proposed by the Company, in the amount specified in the applicable notice submitted by the Company, but such Loans shall be made, converted or continued as Base Rate Loans instead of Offshore Rate Loans. 3.6 Survival. The agreements and obligations of the Company in this Article III shall survive the payment of all other Obligations. ARTICLE IV CONDITIONS PRECEDENT -------------------- 4.1 Conditions of Initial Loans. The obligation of the Bank to make its initial Loan hereunder is subject to the condition that the Bank have received on or before the initial borrowing date all of the following, in form and substance satisfactory to the Bank: (a) Credit Agreement and Note. This Agreement and the Note executed by each party thereto; (b) Resolutions; Incumbency. (i) Copies of the resolutions of the board of directors of the Company authorizing the transactions contemplated hereby, certified as of the Closing Date by the Secretary or an Assistant Secretary of the Company; and (ii) A certificate of the Secretary or Assistant Secretary of the Company certifying the names and true signatures of the officers of the Company authorized to execute, deliver and perform, as applicable, this Agreement, and all other Loan Documents to be delivered by it hereunder; (c) Organization Documents; Good Standing. Each of the following documents: (i) the articles or certificate of incorporation and the bylaws of the Company as in effect on the Closing Date, certified by the Secretary or Assistant Secretary of the Company as of the Closing Date; and (ii) a good standing certificate for the Company from the Secretary of State (or similar, applicable Governmental Authority) of its state of incorporation and each state where the Company is qualified to do business as a foreign corporation as of a recent date, together with a bring-down certificate for the Company from such Secretary of State (or similar, applicable Governmental Authority) by facsimile, dated the Closing Date; (d) Legal Opinion. An opinion of John C. Maloney, Senior Associate General Counsel to the Company and addressed to the Bank, substantially in the form of Exhibit D; (e) Payment of Fees. Evidence of payment by the Company of all accrued and unpaid fees, costs and expenses to the extent then due and payable on the Closing Date; (f) Certificate. A certificate signed by a Responsible Officer, dated as of the Closing Date, stating that: (i) the representations and warranties contained in Article V are true and correct on and as of such date, as though made on and as of such date; (ii) no Default or Event of Default exists or would result from the initial Borrowing; and (iii) there has occurred since December 31, 1993, no event or circumstance that has resulted or could reasonably be expected to result in a Material Adverse Effect; and (g) Other Documents. Such other approvals, opinions, documents or materials as the Bank may request. 4.2 Conditions to All Borrowings. The obligation of the Bank to make any Loan to be made by it (including its initial Loan) is subject to the satisfaction of the following conditions precedent on the relevant Borrowing Date: (a) Notice of Borrowing. The Bank shall have received (i) in the case of the initial Loan, a Notice of Borrowing, and (ii) for all other Loans, a Notice of Borrowing and/or a Notice of Conversion/Continuation, as applicable; (b) Continuation of Representations and Warranties. The representations and warranties in Article V shall be true and correct on and as of such Borrowing Date with the same effect as if made on and as of such Borrowing Date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct as of such earlier date); and (c) No Existing Default. No Default or Event of Default shall exist or shall result from such Borrowing. Each Notice of Borrowing submitted by the Company hereunder shall constitute a representation and warranty by the Company hereunder, as of the date of each such notice and as of each Borrowing Date, that the conditions in Section 4.2 are satisfied. ARTICLE V REPRESENTATIONS AND WARRANTIES ------------------------------ The Company represents and warrants to the Bank that: 5.1 Corporate Existence and Power. The Company and each of its Subsidiaries: (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (b) has the power and authority and all governmental licenses, authorizations, consents and approvals to own its assets, carry on its business and to execute, deliver, and perform its obligations under the Loan Documents; (c) is duly qualified as a foreign corporation and is licensed and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification or license; and (d) is in compliance with all Requirements of Law. 5.2 Corporate Authorization; No Contravention. The execution, delivery and performance by the Company of this Agreement and each other Loan Document to which the Company is party, have been duly authorized by all necessary corporate action, and do not and will not: EM contravene the terms of any of the Company's Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, any document evidencing any Contractual Obligation to which the Company is a party or any order, injunction, writ or decree of any Governmental Authority to which the Company or its property is subject; or (c) violate any Requirement of Law. 5.3 Governmental Authorization. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery or performance by, or enforcement against, the Company or any of its Subsidiaries of the Agreement or any other Loan Document. 5.4 Binding Effect. This Agreement and each other Loan Document to which the Company is a party constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability. 5.5 Litigation. There are no actions, suits, proceedings, claims or disputes pending, or to the best knowledge of the Company, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, against the Company, or its Subsidiaries or any of their respective properties which: (a) purport to affect or pertain to this Agreement or any other Loan Document, or any of the transactions contemplated hereby or thereby; or (b) would reasonably be expected to have a Material Adverse Effect. No injunction, writ, temporary restraining order or any order of any nature has been issued by any court or other Governmental Authority purporting to enjoin or restrain the execution, delivery or performance of this Agreement or any other Loan Document, or directing that the transactions provided for herein or therein not be consummated as herein or therein provided. 5.6 No Default. No Default or Event of Default exists or would result from the incurring of any Obligations by the Company. As of the Closing Date, neither the Company nor any Subsidiary is in default under or with respect to any Contractual Obligation in any respect which, individually or together with all such defaults, could reasonably be expected to have a Material Adverse Effect, or that would, if such default had occurred after the Closing Date, create an Event of Default under subsection 8.1(e). 5.7 ERISA Compliance. (a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law. Each Plan which is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS and to the best knowledge of the Company, nothing has occurred which would cause the loss of such qualification. The Company and each ERISA Affiliate has made all required contributions to any Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan. (b) There are no pending or, to the best knowledge of Company, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. (c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) except as specifically disclosed on Schedule 5.7 ("ERISA Compliance"), no Pension Plan has any Unfunded Pension Liability; (iii) neither the Company nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither the Company nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither the Company nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or 4212(c) of ERISA. 5.8 Use of Proceeds; Margin Regulations. The proceeds of the Loans are to be used solely for the purposes set forth in and permitted by Section 6.12. The Company is not engaged in the business of purchasing or selling Margin Stock. 5.9 Title to Properties. The Company and each Subsidiary have good record and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of their respective businesses, except for such defects in title as could not, individually or in the aggregate, have a Material Adverse Effect. As of the Closing Date, the property of the Company and its Subsidiaries is subject to no Liens, other than Permitted Liens. 5.10 Taxes. The Company and its Subsidiaries have filed all Federal and other material tax returns and reports required to be filed, and have paid all Federal and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings and for which adequate reserves have been provided in accordance with GAAP. There is no proposed tax assessment against the Company or any Subsidiary that would, if made, have a Material Adverse Effect. 5.11 Financial Condition. (a) The consolidated financial statements of the Company and its Subsidiaries dated December 31, 1993 and September 30, 1994, and the related consolidated statements of income or operations, shareholders' equity and cash flows for the fiscal year or nine month period ended on that date: (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein, subject, in the case of the September 30, 1994 statements, to ordinary, good faith year end audit adjustments; (ii) fairly present the financial condition of the Company and its Subsidiaries as of the date thereof and results of operations for the period covered thereby; and (iii) except as specifically disclosed in Schedule 5.11 ("Permitted Liabilities"), show all material indebtedness and other liabilities, direct or contingent, of the Company and its consolidated Subsidiaries as of the date thereof, including liabilities for taxes, material commitments and Contingent Obligations. (b) Since December 31, 1993, there has been no Material Adverse Effect. 5.12 Environmental Matters. The Company conducts in the ordinary course of business a review of the effect of existing Environmental Laws and existing Environmental Claims on its business, operations and properties, and as a result thereof the Company has reasonably concluded that, except as specifically disclosed in Schedule 5.12 ("Environmental Matters"), such Environmental Laws and Environmental Claims could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 5.13 Regulated Entities. None of the Company, any Person controlling the Company, or any Subsidiary, is an "Investment Company" within the meaning of the Investment Company Act of 1940. The Company is not subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any state public utilities code, or any other Federal or state statute or regulation limiting its ability to incur Indebtedness. 5.14 No Burdensome Restrictions. Neither the Company nor any Subsidiary is a party to or bound by any Contractual Obligation, or subject to any restriction in any Organization Document, or any Requirement of Law, which could reasonably be expected to have a Material Adverse Effect. 5.15 Copyrights, Patents, Trademarks and Licenses, etc. The Company or its Subsidiaries own or are licensed or otherwise have the right to use all of the patents, trademarks, service marks, trade names, copyrights, contractual franchises, authorizations and other rights that are reasonably necessary for the operation of their respective businesses, without conflict with the rights of any other Person. To the best knowledge of the Company, no slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by the Company or any Subsidiary infringes upon any rights held by any other Person. Except as specifically disclosed in Schedule 5.15 ("Copyrights, etc."), no claim or litigation regarding any of the foregoing is pending or threatened, and no patent, invention, device, application, principle or any statute, law, rule, regulation, standard or code is pending or, to the knowledge of the Company, proposed, which, in either case, could reasonably be expected to have a Material Adverse Effect. 5.16 Subsidiaries. As of the Closing Date, the Company has no Subsidiaries other than those specifically disclosed in part (a) of Schedule 5.16 ("Subsidiaries and Minority Interests") hereto and has no equity investments in any other corporation or entity other than those specifically disclosed in part (b) of Schedule 5.16. 5.17 Insurance. Except as specifically disclosed in Schedule 5.17 ("Insurance Matters"), the properties of the Company and its Subsidiaries are insured with financially sound and reputable insurance companies not Affiliates of the Company, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Company or such Subsidiary operates. 5.18 Full Disclosure. None of the representations or warranties made by the Company or any Subsidiary in the Loan Documents as of the date such representations and warranties are made or deemed made, and none of the statements contained in any exhibit, report, statement or certificate furnished by or on behalf of the Company or any Subsidiary in connection with the Loan Documents (including the offering and disclosure materials delivered by or on behalf of the Company to the Bank prior to the Closing Date), contains any untrue statement of a material fact or omits any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading as of the time when made or delivered. ARTICLE VI AFFIRMATIVE COVENANTS --------------------- So long as the Bank shall have any Commitment hereunder, or any Loan or other Obligation shall remain unpaid or unsatisfied, unless the Bank waives compliance in writing: 6.1 Financial Statements. The Company shall deliver to the Bank, in form and detail satisfactory to the Bank: (a) as soon as available, but not later than 120 days after the end of each fiscal year, a copy of the audited consolidated balance sheet of the Company and its Subsidiaries as at the end of such year and the related consolidated statements of income or operations, shareholders' equity and cash flows for such year, setting forth in each case in comparative form the figures for the previous fiscal year, and accompanied by the opinion of Ernst & Young or another nationally-recognized independent public accounting firm ("Independent Auditor") which report shall state that such consolidated financial statements present fairly the financial position for the periods indicated in conformity with GAAP applied on a basis consistent with prior years. Such opinion shall not be qualified or limited because of a restricted or limited examination by the Independent Auditor of any material portion of the Company's or any Subsidiary's records and shall be delivered to the Bank pursuant to a reliance agreement between the Bank and such Independent Auditor in form and substance satisfactory to the Bank; (b) as soon as available, but not later than 60 days after the end of each of the first three fiscal quarters of each fiscal year, a copy of the unaudited consolidated balance sheet of the Company and its Subsidiaries as of the end of such quarter and the related consolidated statements of income, shareholders' equity and cash flows for the period commencing at the end of the previous fiscal year and ending on the last day of such quarter, and certified by the chief financial officer or the controller as fairly presenting, in accordance with GAAP (subject to ordinary, good faith year-end audit adjustments), the financial position and the results of operations of the Company and the Subsidiaries; (c) as soon as available and in any event within 60 days after the end of each Fiscal Quarter, either (i) at any time when the Company is not Well-Capitalized, a Compliance Certificate, or (ii) at any time when the Company is Well- Capitalized, a Quarterly Compliance Certificate, in each case executed by the chief financial officer or the controller of the Company; (d) as soon as possible and in any event within ten Business Days after (i) the occurrence of each Default or (ii) the Company ceases to be Well-Capitalized, a statement of the chief financial officer or the controller of the Company setting forth details of such event and the action which the Company has taken and proposes to take with respect thereto; (e) at any time when the Company is not Well- Capitalized, simultaneously with delivery to the Comptroller of the Currency, any Federal Reserve Bank or the FDIC, as the case may be, and in any event within 60 days after the end of each Fiscal Quarter, call reports for each Subsidiary required to deliver a call report, as at the end of such fiscal quarter, each certified by the respective cashier or other authorized officer of such Subsidiary and reports filed on Form FRY9-C and Form FRY9-LP; (f) promptly after the sending or filing thereof, copies of all reports which the Company sends to any of its securityholders, and all reports and registration statements which the Company or any of its Subsidiaries files with the Securities and Exchange Commission or any national securities exchange; and (g) such other information respecting the condition or operations, financial or otherwise, of the Company or any of its Subsidiaries as the Bank may from time to time reasonably request. 6.2 Certificates; Other Information. The Company shall furnish to the Bank concurrently with the delivery of the financial statements referred to in subsection 6.1(a), a certificate of the Independent Auditor stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate. 6.3 Notices. The Company shall promptly notify the Bank: (a) of the occurrence of any Default or Event of Default, and of the occurrence or existence of any event or circumstance that foreseeably will become a Default or Event of Default; (b) of any matter that has resulted or may result in a Material Adverse Effect, including (i) breach or non-performance of, or any default under, a Contractual Obligation of the Company or any Subsidiary; (ii) any dispute, litigation, investigation, proceeding or suspension between the Company or any Subsidiary and any Governmental Authority; or (iii) the commencement of, or any material development in, any litigation or proceeding affecting the Company or any Subsidiary; including pursuant to any applicable Environmental Laws; (c) of the occurrence of any of the following events affecting the Company or any ERISA Affiliate (but in no event more than 10 days after such event), and deliver to the Bank a copy of any notice with respect to such event that is filed with a Governmental Authority and any notice delivered by a Governmental Authority to the Company or any ERISA Affiliate with respect to such event: (i) an ERISA Event; (ii) a material increase in the Unfunded Pension Liability of any Pension Plan; (iii) the adoption of, or the commencement of contributions to, any Plan subject to Section 412 of the Code by the Company or any ERISA Affiliate; or (iv) the adoption of any amendment to a Plan subject to Section 412 of the Code, if such amendment results in a material increase in contributions or Unfunded Pension Liability. (d) of any material change in accounting policies or financial reporting practices by the Company or any of its consolidated Subsidiaries. Each notice under this Section shall be accompanied by a written statement by a Responsible Officer setting forth details of the occurrence referred to therein, and stating what action the Company or any affected Subsidiary proposes to take with respect thereto and at what time. Each notice under subsection 6.3(a) shall describe with particularity any and all clauses or provisions of this Agreement or other Loan Document that have been (or foreseeably will be) breached or violated. 6.4 Preservation of Corporate Existence, Etc. The Company shall, and shall cause each Subsidiary to: (a) preserve and maintain in full force and effect its corporate existence and good standing under the laws of its state or jurisdiction of incorporation, except as permitted by Section 7.2; (b) preserve and maintain in full force and effect all governmental rights, privileges, qualifications, permits, licenses and franchises necessary or desirable in the normal conduct of its business except in connection with transactions permitted by Section 7.2 and sales of assets permitted by Section 7.3; (c) use reasonable efforts, in the ordinary course of business, to preserve its business organization and goodwill; and (d) preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Effect. 6.5 Maintenance of Property. The Company shall maintain, and shall cause each Subsidiary to maintain, and preserve all its property which is used or useful in its business in good working order and condition, ordinary wear and tear excepted and make all necessary repairs thereto and renewals and replacements thereof except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. 6.6 Insurance. The Company shall maintain, and shall cause each Subsidiary to maintain, with financially sound and reputable independent insurers, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons. 6.7 Payment of Obligations. The Company shall, and shall cause each Subsidiary to, pay and discharge as the same shall become due and payable, all their respective obligations and liabilities, including: (a) all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings and adequate reserves in accordance with GAAP are being maintained by the Company or such Subsidiary; (b) all lawful claims which, if unpaid, would by law become a Lien upon its property; and (c) all Indebtedness, as and when due and payable, but subject to any subordination provisions contained in any instrument or agreement evidencing such Indebtedness. 6.8 Compliance with Laws. The Company shall comply, and shall cause each Subsidiary to comply, in all material respects with all Requirements of Law of any Governmental Authority having jurisdiction over it or its business (including the Federal Fair Labor Standards Act), except such as may be contested in good faith or as to which a bona fide dispute may exist. 6.9 Compliance with ERISA. The Company shall, and shall cause each of its ERISA Affiliates to: (a) maintain each Plan in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law; (b) cause each Plan which is qualified under Section 401(a) of the Code to maintain such qualification; and (c) make all required contributions to any Plan subject to Section 412 of the Code. 6.10 Inspection of Property and Books and Records. The Company shall maintain and shall cause each Subsidiary to maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of the Company and such Subsidiary. The Company shall permit, and shall cause each Subsidiary to permit, representatives and independent contractors of the Bank to visit and inspect any of their respective properties, to examine their respective corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss their respective affairs, finances and accounts with their respective directors, officers, and independent public accountants, all at the expense of the Company and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Company; provided, however, when an Event of Default exists the Bank may do any of the foregoing at the expense of the Company at any time during normal business hours and without advance notice. 6.11 Environmental Laws. The Company shall, and shall cause each Subsidiary to, conduct its operations and keep and maintain its property in compliance with all Environmental Laws. 6.12 Use of Proceeds. The Company shall use the proceeds of the Loans for working capital and other general corporate purposes not in contravention of any Requirement of Law or of any Loan Document; provided, however, that none of such proceeds shall be applied to acquire a controlling interest in the stock of any Person, unless such Person's Board of Directors (or equivalent board) shall approve such acquisition, unless the Bank shall otherwise consent. ARTICLE VII NEGATIVE COVENANTS ------------------ So long as the Bank shall have any Commitment hereunder, or any Loan or other Obligation shall remain unpaid or unsatisfied, unless the Bank waives compliance in writing: 7.1 Liens. The Company will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any properties, assets or revenues of the Company or any of its Subsidiaries or any capital stock of any Subsidiary of the Company, whether now owned or hereafter acquired, except: (a) Liens created or assumed in the ordinary course of the banking, trust, commercial finance and leasing business of any Subsidiary or the business of the Company; (b) Liens for taxes not yet payable or being contested in good faith by appropriate proceedings and for which reserves in conformity with GAAP with respect thereto have been provided on the books of the Company or its Subsidiaries, as the case may be; (c) deposits or pledges to secure the payment of workmen's compensation, unemployment insurance, old age pensions or other social security benefits or obligations; (d) deposits or pledges to secure statutory obligations or to secure or in lieu of surety, penalty or appeal bonds; (e) mechanics', materialmen's, warehousemen's, carriers or other like Liens arising in the ordinary course of its business which are not overdue for a period longer than 30 days, or which are being contested in good faith by appropriate proceedings; (f) Liens securing indebtedness incurred after the date hereof to finance the cost of acquisition, construction or improvement of any property useful and intended to be used in carrying out the business of the Company or a Subsidiary; provided, that the Lien shall attach solely to the property acquired, constructed or improved or to substantially unimproved real property on which property so acquired, constructed or improved is located; (g) Liens on property useful and intended to be used in carrying out the business of the Company or a Subsidiary which were existing at the time of acquisition of such property, or at the time of acquisition by the Company or a Subsidiary of any business entity then owning such property, so long as such Liens were not incurred, extended or renewed in the contemplation of or in connection with such acquisition by the Company or a Subsidiary; provided, that such Lien shall attach solely to the property acquired; and (h) extensions or renewals of Liens permitted by clauses (f) and (g) above so long as, at the time of such transaction and after giving effect thereto and to the application of the proceeds thereof, (x) the aggregate unpaid principal amount of indebtedness of the Company and its Subsidiaries which is secured pursuant to this clause (h) and clauses (f) and (g) hereof shall be no greater than the aggregate unpaid principal amount of such indebtedness secured pursuant to such clauses immediately preceding such transaction and (y) such Lien shall attach solely to the property which was subject thereto immediately preceding such transaction. Notwithstanding the foregoing provisions of this Section 7.1 the Company will not permit, and will not permit any Subsidiary to cause or permit any Lien on capital stock issued by a Subsidiary and held by the Company or another Subsidiary except for Liens on capital stock of a corporation acquired after the effective date of the Agreement which corporation, after such acquisition, would become a Subsidiary; provided that such Liens were existing at the time of such acquisition and were not incurred, extended or renewed in contemplation of, or in connection with, such acquisition. 7.2 Consolidation, Merger, etc. The Company will not, and will not permit any of its Subsidiaries to, liquidate or dissolve, consolidate with, or merge into or with, any other corporation, or purchase or otherwise acquire all or substantially all of the assets of any Person (or of any division thereof) except (a) any such Subsidiary may liquidate or dissolve voluntarily into, and may merge with and into, the Company or any other Subsidiary, and the assets or stock of any Subsidiary may be purchased or otherwise acquired by the Company or any other Subsidiary; and (b) so long as no Default has occurred and is continuing or would occur after giving effect thereto, the Company or any of its Subsidiaries may purchase all or substantially all of the assets of any Person, or acquire such Person by merger. 7.3 Asset Dispositions, etc. The Company will not, and will not permit any of its Subsidiaries to, sell, transfer, lease, contribute or otherwise convey, or grant options, warrants or other rights with respect to, all or any substantial part of its assets (including accounts receivable and capital stock of Subsidiaries) to any Person, unless such sale, transfer, lease, contribution or conveyance is in the ordinary course of its business or is permitted by Section 7.2. 7.4 Transactions with Affiliates. The Company will not, and will not permit any of its Subsidiaries to, enter into, or cause, suffer or permit to exist any arrangement or contract with any of its other Affiliates unless such arrangement or contract is fair and equitable to the Company or such Subsidiary and is an arrangement or contract of the kind which would be entered into by a prudent Person in the position of the Company or such Subsidiary with a Person which is not one of its Affiliates. 7.5 Negative Pledges, Restrictive Agreements, etc. The Company will not, and will not permit any of its Subsidiaries to, enter into any agreement (excluding this Agreement, any other Loan Document, the Bank of America Agreement or any other loan document executed in connection therewith) prohibiting (a) the creation or assumption of any Lien upon its properties, revenues or assets, whether now owned or hereafter acquired, or the ability of the Company to amend or otherwise modify this Agreement or any other Loan Document; or (b) the ability of any Subsidiary to make any payments, directly or indirectly, to the Company by way of dividends (except as may be required by law), advances, repayments of loans or advances, reimbursements of management and other intercompany charges, expenses and accruals or other returns on investments, or any other agreement or arrangement which restricts the ability of any such Subsidiary to make any payment, directly or indirectly, to the Company. 7.6 ERISA. The Company shall not, and shall not suffer or permit any of its ERISA Affiliates to: (a) engage in a prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably expected to result in liability of the Company in an aggregate amount in excess of $10,000,000; or (b) engage in a transaction that could be subject to Section 4069 or 4212(c) of ERISA. 7.7 Change in Business. The Company shall not, and shall not suffer or permit any Subsidiary to, engage in any material line of business substantially different from those lines of business carried on by the Company and its Subsidiaries on the date hereof. 7.8 Accounting Changes. The Company shall not, and shall not suffer or permit any Subsidiary to, make any significant change in accounting treatment or reporting practices, except as required by GAAP, or change the fiscal year of the Company or of any Subsidiary. 7.9 Financial Covenants. The Company shall not, at any time, that it is not classified as Well-Capitalized, permit: (a) its Leverage Ratio to be less than 4.75%; (b) the ratio of its Tier One Capital to Risk Weighted Assets to be less than 5.50%; (c) the ratio of its Tier One Capital plus Tier Two Capital to Risk Weighted Assets to be less than 9.00%; (d) its consolidated total stockholders' equity to be less than $518,000,000 plus 50% of its net income for every quarter commencing after September 30, 1994 (but without giving effect to any quarterly loss) plus the net proceeds of any new equity issue after the date hereof; (e) its Non-Performing Ratio to exceed 3%; and (f) its Double Leverage Ratio to be more than 1.20 to 1.0. ARTICLE VIII EVENTS OF DEFAULT ----------------- 8.1 Event of Default. Any of the following shall constitute an "Event of Default": (a) Non-Payment. The Company fails to pay, (i) when and as required to be paid herein, any amount of principal of any Loan, or (ii) within 7 days after the same becomes due, any interest, fee or any other amount payable hereunder or under any other Loan Document; or (b) Representation or Warranty. Any representation or warranty by the Company or any Subsidiary made or deemed made herein, in any other Loan Document, or which is contained in any certificate, document or financial or other statement by the Company, any Subsidiary, or any Responsible Officer, furnished at any time under this Agreement, or in or under any other Loan Document, is incorrect in any material respect on or as of the date made or deemed made; or (c) Other Defaults. The Company fails to perform or observe any other term or covenant contained in this Agreement or any other Loan Document, and such default shall continue unremedied for a period of 30 days after the earlier of (i) the date upon which a Responsible Officer knew or reasonably should have known of such failure or (ii) the date upon which written notice thereof is given to the Company by the Bank; or (d) Cross-Default. The Company or any Subsidiary (i) fails to make any payment in respect of any Indebtedness or Contingent Liability having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than $5,000,000 when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) and such failure continues after the applicable grace or notice period, if any, specified in the relevant document on the date of such failure; or (ii) fails to perform or observe any other condition or covenant, or any other event shall occur or condition exist, under any agreement or instrument relating to any such Indebtedness or Contingent Liability, and such failure continues after the applicable grace or notice period, if any, specified in the relevant document on the date of such failure if the effect of such failure, event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause such Indebtedness to be declared to be due and payable prior to its stated maturity, or such Contingent Liability to become payable or cash collateral in respect thereof to be demanded; or (e) Insolvency; Voluntary Proceedings. The Company or any Subsidiary (i) ceases or fails to be solvent, or generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any, whether at stated maturity or otherwise; (ii) voluntarily ceases to conduct its business in the ordinary course; (iii) commences any Insolvency Proceeding with respect to itself; or (iv) takes any action to effectuate or authorize any of the foregoing; or (f) Involuntary Proceedings. (i) Any involuntary Insolvency Proceeding is commenced or filed against the Company or any Subsidiary, or any writ, judgment, warrant of attachment, execution or similar process, is issued or levied against a substantial part of the Company's or any Subsidiary's properties, and any such proceeding or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not be released, vacated or fully bonded within 60 days after commencement, filing or levy; (ii) the Company or any Subsidiary admits the material allegations of a petition against it in any Insolvency Proceeding, or an order for relief (or similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or (iii) the Company or any Subsidiary acquiesces in the appointment of a receiver, trustee, custodian, conservator, liquidator, mortgagee in possession (or agent therefor), or other similar Person for itself or a substantial portion of its property or business; or (g) ERISA. (i) An ERISA Event shall occur with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of the Company under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of $10,000,000; unless the ERISA Event is a contribution failure sufficient to give rise to a Lien under Section 302(f) of ERISA in which case the dollar liability threshold does not apply; (ii) the aggregate amount of Unfunded Pension Liability among all Pension Plans at any time exceeds $10,000,000; or (iii) the Company or any ERISA Affiliate shall fail to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of $10,000,000; or (h) Monetary Judgments. One or more non-interlocutory judgments, non-interlocutory orders, decrees or arbitration awards is entered against the Company or any Subsidiary involving in the aggregate a liability (to the extent not covered by independent third-party insurance as to which the insurer does not dispute coverage) as to any single or related series of transactions, incidents or conditions, of $10,000,000 or more, and the same shall remain unsatisfied, unvacated and unstayed pending appeal for a period of 10 days after the entry thereof; or (i) Non-Monetary Judgments. Any non-monetary judgment, order or decree is entered against the Company or any Subsidiary which does or would reasonably be expected to have a Material Adverse Effect, and there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (j) Change of Control. There occurs any Change of Control. 8.2 Remedies. If any Event of Default occurs, the Bank may, (a) declare the commitment of the Bank to make Loans to be terminated, whereupon such commitment shall be terminated; (b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Company; and (c) exercise all rights and remedies available to it under the Loan Documents or applicable law; provided, however, that upon the occurrence of any event specified in subsection (e) or (f) of Section 8.1 (in the case of clause (i) of subsection (f), upon the expiration of the 60-day period mentioned therein), the obligation of the Bank to make Loans shall automatically terminate and the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable without further act of the Bank. 8.3 Rights Not Exclusive. The rights provided for in this Agreement and the other Loan Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement now existing or hereafter arising. ARTICLE IX MISCELLANEOUS ------------- 9.1 Amendments and Waivers. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by the Company therefrom, shall be effective unless the same shall be in writing and signed by the Bank. 9.2 Notices. (a) Except as specifically set forth in this Agreement, all notices, requests and other communications shall be in writing (including, unless the context expressly otherwise provides, by facsimile transmission, provided that any matter transmitted by facsimile (i) shall be immediately confirmed by a telephone call to the recipient at the number specified on Schedule 9.2, and (ii) shall be followed promptly by delivery of a hard copy original thereof) and mailed, faxed or delivered, to the address or facsimile number specified for notices on Schedule 9.2; or, as directed by the Company or the Bank, to such other address as shall be designated by such party in a written notice to the other party. (b) All such notices, requests and communications shall, when transmitted by overnight delivery, or faxed, be effective when delivered for overnight (next-day) delivery, or transmitted in legible form by facsimile machine, respectively, or if mailed, upon the third Business Day after the date deposited into the U.S. mail, or if delivered, upon delivery; except that notices pursuant to Article II or IX shall not be effective until actually received by Bank. (c) Any agreement of the Bank herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Company. The Bank shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Company to give such notice and the Bank shall not have any liability to the Company or other Person on account of any action taken or not taken by the Bank in reliance upon such telephonic or facsimile notice. The obligation of the Company to repay the Loans shall not be affected in any way or to any extent by any failure by the Bank to receive written confirmation of any telephonic or facsimile notice or the receipt by the Bank of a confirmation which is at variance with the terms understood by the Bank to be contained in the telephonic or facsimile notice. 9.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Bank, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. 9.4 Costs and Expenses. The Company shall: (a) whether or not the transactions contemplated hereby are consummated, pay or reimburse the Bank within five Business Days after demand in connection with the development, preparation, delivery, administration and execution of, and any amendment, supplement, waiver or modification to (in each case, whether or not consummated), this Agreement, any Loan Document and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including reasonable Attorney Costs incurred by the Bank with respect thereto; and (b) pay or reimburse the Bank within five Business Days after demand for all costs and expenses (including Attorney Costs) incurred by them in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Agreement or any other Loan Document during the existence of an Event of Default or after acceleration of the Loans (including in connection with any "workout" or restructuring regarding the Loans, and including in any Insolvency Proceeding or appellate proceeding). 9.5 Indemnity. Whether or not the transactions contemplated hereby are consummated, the Company shall indemnify and hold the Bank and each of its officers, directors, employees, counsel, agents and attorneys-in-fact (each, an "Indemnified Person") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses and disbursements (including Attorney Costs) of any kind or nature whatsoever which may at any time (including at any time following repayment of the Loans) be imposed on, incurred by or asserted against any such Person in any way relating to or arising out of this Agreement or any document contemplated by or referred to herein, or the transactions contemplated hereby, or any action taken or omitted by any such Person under or in connection with any of the foregoing, including with respect to any investigation, litigation or proceeding (including any Insolvency Proceeding or appellate proceeding) related to or arising out of this Agreement or the Loans or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the "Indemnified Liabilities"); provided, that the Company shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Liabilities resulting solely from the gross negligence or willful misconduct of such Indemnified Person. The agreements in this Section shall survive payment of all other Obligations. 9.6 Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Bank. 9.7 Set-off. In addition to any rights and remedies of the Bank provided by law, if an Event of Default exists or the Loans have been accelerated, the Bank is authorized at any time and from time to time, without prior notice to the Company, any such notice being waived by the Company to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing by, the Bank to or for the credit or the account of the Company against any and all Obligations owing to the Bank, now or hereafter existing, irrespective of whether or not the Bank shall have made demand under this Agreement or any Loan Document and although such Obligations may be contingent or unmatured. The Bank agrees promptly to notify the Company after any such set-off and application made by the Bank; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. 9.8 Automatic Debits of Fees. With respect to any fee, or any other cost or expense (including Attorney Costs) due and payable to the Bank under the Loan Documents, the Company hereby irrevocably authorizes the Bank to debit any deposit account of the Company with the Bank in an amount such that the aggregate amount debited from all such deposit accounts does not exceed such fee or other cost or expense. If there are insufficient funds in such deposit accounts to cover the amount of the fee or other cost or expense then due, such debits will be reversed (in whole or in part, in the Bank's sole discretion) and such amount not debited shall be deemed to be unpaid. No such debit under this Section shall be deemed a set-off. 9.9 Counterparts. This Agreement may be executed in any number of separate counterparts, each of which, when so executed, shall be deemed an original, and all of said counterparts taken together shall be deemed to constitute but one and the same instrument. 9.10 Severability. The illegality or unenforceability of any provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder. 9.11 No Third Parties Benefited. This Agreement is made and entered into for the sole protection and legal benefit of the Company and the Bank, and their permitted successors and assigns and no other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents. 9.12 Governing Law and Jurisdiction. (a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF TEXAS; PROVIDED THAT THE BANK SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF TEXAS, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY AND THE BANK CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE COMPANY AND THE BANK IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE COMPANY AND THE BANK EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY TEXAS LAW. 9.13 Waiver of Jury Trial. THE COMPANY AND THE BANK EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANY AND THE BANK EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. 9.14 Entire Agreement. This Agreement, together with the other Loan Documents, embodies the entire agreement and understanding between the Company and the Bank, and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof. NOTICE OF FINAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in Dallas, Texas by their proper and duly authorized officers as of the day and year first above written. FOURTH FINANCIAL CORPORATION By: --------------------------- Title: Executive Vice President - Finance and Chief Financial Officer NATIONSBANK OF TEXAS, N.A. By: ---------------------------- Title: ------------------------- EX-10 5 EXHIBIT 10.14 SEVERANCE AGREEMENT THIS AGREEMENT is made and entered into as of this ____day of _______________, 1994 by and between Fourth Financial Corporation, a Kansas corporation (the "Company") and ________________ (the "Executive"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Board of Directors of the Company has approved the Company entering into severance agreements with certain key executives of the Company; and WHEREAS, the Executive is a key executive of the Company; and WHEREAS, the Company desires assurance that it will have the continued dedication of the Executive and the availability of his advice and counsel notwithstanding any possibility or occurrence of a change in control of the Company; and WHEREAS, the Executive desires to continue working for the Company upon the terms and conditions set forth herein; NOW THEREFORE, in consideration of the mutual covenants contained herein, and other good and valuable consideration, the receipt of which is acknowledged, the parties hereto agree as follows: 1. Agreement to Provide Services; Right to Terminate. (i) Except as otherwise provided in paragraph (ii) below, the Company or the Executive may terminate Executive's employment at any time, subject to the Company's providing the benefits hereinafter specified in accordance with the terms hereof. (ii) In the event a tender offer or exchange offer is made by a Person (as hereinafter defined) for more than 25% of the combined voting power of the Company's out- standing securities ordinarily having the right to vote at elections of directors ("Voting Securities"), including shares of Fourth Financial Common Stock of the Company (the "Company Shares"), or in the event of the execution by the Company of a merger agreement, Executive agrees that he will not leave the employ of the Company (other than as a result of Disability or upon Retirement, as such terms are hereinafter defined) and will render the services contemplated in the recitals to this Agreement until such tender offer, exchange offer or merger agreement has been abandoned or terminated or a change in control of the Company, as defined in Section 3 hereof, has occurred. For purposes of this Agreement, the term "Person" shall mean and include any individual, corporation, partnership, group, association or other "person", as such term is used in Sec- tion 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), other than the Company, a wholly owned subsidiary of the Company or any employee benefit plan(s) sponsored by the Company or a subsidiary of the Company. 2. Term of Agreement. This Agreement shall commence on the date hereof (the "Effective Date") and shall continue until the date that is the second anniversary of the Effective Date; provided, however, that the term of this Agreement shall automatically be extended for one additional year unless at least 90 days prior to such anniversary, the Company or Executive shall have given notice that this Agreement shall not be extended; and provided, further, that, notwithstanding the delivery of any such notice, this Agreement shall continue in effect for a period of twenty- four (24) months after a change in control of the Company, as defined in Section 3 hereof, if such change in control shall have occurred during the term of this Agreement, as it may be extended by the first proviso set forth above. Notwithstanding anything in this Section 2 to the contrary, this Agreement shall terminate if Executive or the Company terminates Executive's employment prior to a change in control of the Company. 3. Change in Control. For purposes of this Agreement, a "change in control" of the Company shall be deemed to occur if (A) any "person" (as such term is defined in Section 3(a)(9) and as used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), excluding the Company or any of its subsidiaries, a trustee or any fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, an underwriter temporarily holding securities pursuant to an offering of such securities or a corporation owned, directly or indirectly, by stockholders of the Company in substantially the same proportion as their ownership of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities ("Voting Securities"); or (B) during any period of not more than two years, individuals who constitute the Board as of the beginning of the period and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (A) or (C) of this sentence) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at such time or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (C) the shareholders of the Company approve a merger, consolidation or share exchange of or by the Company with any other corporation, other than a merger, consolidation or share exchange which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 60% of the combined voting power of the Voting Securities of the Company or such surviving entity outstanding immediately after such merger, consolidation or share exchange or the shareholders of the Company approve a plan of complete liquidation of the Company or any agreement for the sale or disposition by the Company or all or substantially all of the Company's assets. 4. Termination Following Change in Control. If any of the events described in Section 3 hereof constituting a change in control of the Company shall have occurred, Executive shall be entitled to the benefits provided in Section 5 hereof upon the termination of Executive's employment with the Company (whether by the Company or by Executive for Good Reason) within twenty-four (24) months after such event, unless such termination is (a) because of the death of Executive or Retirement, (b) by the Company for Cause or Disability or (c) by Executive other than for Good Reason (as all such capitalized terms are hereinafter defined). (i) Disability. Termination by the Company of Executive's employment based on "Disability" shall mean termination because of Executive's absence from his duties with the Company on a full time basis for ninety (90) consecutive days as a result of Executive's incapacity due to physical or mental illness, unless within thirty (30) days after Notice of Termination (as hereinafter defined) is given to Executive following such absence Executive shall have returned to the full time performance of his duties. (ii) Retirement. Termination by Executive of Executive's employment based on "Retirement" shall mean termination on or after Executive's normal retirement date under the terms of the Company's Pension Plan (or any successor or substitute plan or plans of the Company put into effect prior to a change in control) (the "Pension Plan"). (iii) Cause. Termination by the Company of Executive's employment for "Cause" shall mean termination upon (a) the willful and continued failure by Executive to perform substantially his duties with the Company (other than any such failure resulting from Executive's incapacity due to physical or mental illness) after a demand for substantial performance is delivered to Executive by the Chairman of the Board or President of the Company which specifically identifies the manner in which Executive has not substantially performed his duties, or (b) the willful engaging by Executive in illegal conduct which is materially and demonstrably injurious to the Company. For purposes of this paragraph (iii), no act, or failure to act, on the part of Executive shall be considered "willful" unless done, or omitted to be done, in bad faith and without reasonable belief that Executive's action or omission was in, or not opposed to, the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by Executive in good faith and in the best interests of the Company. It is also expressly understood that Executive's attention to matters not directly related to the business of the Company shall not provide a basis for termination for Cause so long as the Board has granted prior written approval of Executive's engagement in such activities. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board at a meeting of the Board called for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board Executive was guilty of the conduct set forth above in (a) or (b) of this paragraph (iii) and specifying the particulars thereof in detail. (iv) Good Reason. Termination by Executive of his employment for "Good Reason" shall mean termination based on: (a) a determination by Executive, in his reasonable judgment, that there has been an adverse change in his status or position(s) as an officer of the Company as in effect immediately prior to the change in control, including, without limitation, any substantial adverse change in Executive's status or position as a result of a diminution in Executive's duties or responsibilities (other than, if applicable, any such change directly attributable to the fact that the Company is no longer publicly owned) or the assignment to Executive of any duties or responsibilities which are inconsistent with such status or position(s), or any removal of Executive from or any failure to reappoint or reelect Executive to such position(s) (except in connection with the termination of Executive's employment for Cause, Disability or Retirement or as a result of Executive's death or by Executive other than for Good Reason); (b) a reduction by the Company in Executive's base salary or annual target bonus as in effect immediately prior to the change in control; (c) the failure by the Company to continue in effect any Plan (as hereinafter defined) in which Executive participates at the time of the change in control of the Company (or Plans providing Executive with at least substantially similar benefits) other than as a result of the normal expiration of any such Plan in accordance with its terms as in effect at the time of the change in control; (d) the failure by the Company to provide and credit Executive with the number of paid vacation days to which Executive is then entitled in accordance with the Company's normal vacation policy as in effect immediately prior to the change in control; (e) the Company's requiring Executive to be based at an office that is greater than 50 miles from where Executive's office is located immediately prior to the change in control except for required travel on the Company's business; (f) the failure by the Company to obtain from any Successor (as hereinafter defined) the assent to this Agreement contemplated by Section 6 hereof; or (g) any purported termination by the Company of Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph (v) below (and, if applicable, paragraph (iii) above); and for purposes of this Agreement, no such purported termination shall be effective. For purposes of this Agreement, "Plan" shall mean any compensation plan such as an incentive, stock option or restricted stock plan or any employee benefit plan such as a thrift, pension, profit sharing, medical, disability, acci- dent, life insurance plan or a relocation plan or policy or any other material plan, program or policy of the Company intended to benefit employees. (v) Notice of Termination. Any purported termi- nation by the Company or by Executive following a change in control shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon. (vi) Date of Termination. "Date of Termination" following a change in control shall mean (a) if Executive's employment is to be terminated for Disability, thirty (30) days after Notice of Termination is given (provided that Executive shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period), (b) if Executive's employment is to be terminated by the Company for Cause or by Executive for Good Reason, the date specified in the Notice of Termination, or (c) if Executive's employment is to be terminated by the Company for any reason other than Cause, the date specified in the Notice of Termination, which in no event shall be a date earlier than ninety (90) days after the date on which a Notice of Termination is given, unless an earlier date has been expressly agreed to by Executive in writing. 5. Compensation Upon Termination; Other Agreements. (i) If Executive's employment shall be terminated for Disability following a change in control of the Company, the Company shall pay Executive's salary through the Date of Termination at the rate in effect just prior to the time a Notice of Termination is given plus any benefits or awards under any Plans which pursuant to the terms of any Plans have been earned or become payable, but which have not been paid to Executive. Thereafter, benefits shall be determined in accordance with the Plans then in effect. (ii) If Executive's employment shall be terminated for Cause following a change in control of the Company, the Company shall pay Executive's salary through the Date of Termination at the rate in effect just prior to the time a Notice of Termination is given plus any benefits or awards (including both the cash and stock components) which pur- suant to the terms of any Plans have been earned or become payable, but which have not yet been paid to Executive. Thereupon the Company shall have no further obligations to Executive under this Agreement. (iii) Subject to Section 8 hereof, if, within twenty-four (24) months after a change in control of the Company, as defined in Section 3 above, shall have occurred, Executive's employment by the Company shall be terminated (a) by the Company other than for Cause, Disability or Retirement or (b) by Executive for Good Reason, then the Company shall pay or provide to Executive, without regard to any contrary provisions of any Plan, the following: (A) _____________________ times (A) the Executive's highest base salary during the 12-month period prior to the change in control of the Company and (B) Executive's three year average bonus percentage multiplied by Executive's target bonus in effect immediately prior to the change in control of the Company. For purposes of this Agreement, the bonus percentage is the ratio of actual bonuses paid to Executive as a percent of Executive's Base Salary to Executive's target bonuses as a percent of Executive's Base salary; (B) for a period of _____________________ years after the Date of Termination continuation of all insured and self-insured medical, life insurance and disability benefit Plans in which Executive participated immediately prior to the Date of Termination, at no cost to Executive. In the event that Executive's participation in any such Plan is barred, the Company, at its sole cost and expense, shall arrange to have issued for the benefit of Executive and his dependents individual policies of insurance providing benefits substantially similar (on an after-tax basis) to those which Executive otherwise would have been entitled to receive under such Plans pursuant to this paragraph (iv) or, if such insurance is not available at a reasonable cost to the Company, the Company shall otherwise provide you and your dependents with equivalent benefits (on an after-tax basis); (C) full and immediate vesting of Executive's outstanding stock options which shall be purchased by the Company for a price equal to the fair market value of such options; provided, however, that at the option of Executive, the Company shall purchase any outstanding stock options which have been granted to Executive within the six-month period immediately prior to the Date of Termination no earlier than six months following the date of grant. For purposes of this Agreement, fair market value shall mean the average of the high and low trading price of the common stock of the Company on the Date of Termination, less the exercise price of the options; (D) the present value, in a lump sum, equal to Executive's enhanced benefit under the Company's Supplemental Executive Retirement Plan, calculated under the terms of the plan but increasing Executive's attained age and credited service by ________________ _____years; (E) a lump sum payment of Executive's accrued vacation pay; and (F) the value of any unvested employer contributions with respect to all defined contribution plans in which Executive participates. (iv) The amount of any payment provided for in this Section 5 shall not be reduced, offset or subject to recovery by the Company by reason of any compensation earned by Executive as the result of employment by another employer after the Date of Termination, or otherwise. 6. Successors; Binding Agreement. (i) The Company will seek, by written request at least five business days prior to the time a Person becomes a Successor (as hereinafter defined), to have such Person assent to the fulfillment of the Company's obligations under this Agreement. Failure of such Person to furnish such assent by the later of (A) three business days prior to the time such Person becomes a Successor or (B) two business days after such Person receives a written request to so assent shall constitute Good Reason for termination by Executive of his employment if a change in control of the Company occurs or has occurred. For purposes of this Agreement, "Successor" shall mean any Person that succeeds to, or has the practical ability to control (either immediately or with the passage of time), the Company's business directly, by merger or consolidation, or indirectly, by purchase of the Company's Voting Securities or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive dies while any amount is still payable to Executive hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee or other designee or, if there be no such designee, to Executive's estate. (iii) For purposes of this Agreement, the "Company" shall include any corporation or other entity which is the surviving or continuing entity in respect of any merger, consolidation or form of business combination in which the Company ceases to exist. 7. Fees and Expenses. The Company shall reimburse Executive, on a current basis, for all reasonable legal fees and related expenses incurred by Executive in connection with the Agreement following a change in control of the Company, including, without limitation, (a) all such fees and expenses, if any, incurred in contesting or disputing any termination of employment or incurred by Executive in seeking advice with respect to the matters set forth in Section 8 hereof or (b) Executive's seeking to obtain or enforce any right or benefit provided by this Agreement, in each case, regardless of whether or not Executive's claim is upheld by a court of competent jurisdiction. 8. Taxes. (i) All payments to be made to Executive under this Agreement will be subject to required withholding of federal, state and local income and employment taxes. (ii) Notwithstanding anything in the foregoing to the contrary, if any of the payments provided for in this Agreement, together with any other payments which Executive has the right to receive from the Company or any corporation which is a member of an "affiliated group" (as defined in Section 1504(a) of the Code without regard to Section 1504(b) of the Code) of which the Company is a member, would constitute a "parachute payment" (as defined in Section 280G(b)(2) of the Code), the payments pursuant to this Agreement shall be reduced to the largest amount as will result in no portion of such payments being subject to the excise tax imposed by Section 4999 of the Code; provided, however, that the determination as to whether any reduction in the payments under this Agreement pursuant to this proviso is necessary shall be made by Executive in good faith, and such determination shall be conclusive and binding on the Company with respect to its treatment of the payment for tax reporting purposes and, provided further that Executive may determine in his discretion what payment or payments provided for herein shall be reduced. 9. Survival. The respective obligations of, and benefits afforded to, the Company and Executive as provided in Sections 5, 6, 7, 8, 13 and 14 of this Agreement shall survive termination of this Agreement. 10. Notice. For purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid and addressed, in the case of the Company, to the address set forth on the first page of this Agreement or, in the case of the Executive, to the address set forth below his signature, provided that all notices to the Company shall be directed to the attention of the Chairman of the Board or President of the Company, with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 11. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such modifi- cation, waiver or discharge is agreed to in a writing signed by Executive and the Chairman of the Board or President of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Kansas. 12. Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 13. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled by arbitration, conducted by a panel of three arbitrators in a location selected by Executive within fifty (50) miles from the location of his job with the Company, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrators' award in any court having jurisdiction; provided, however, that Executive shall be entitled to seek specific performance of his right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 14. Employee's Commitment. Executive agrees that subsequent to his period of employment with the Company, Executive will not at any time communicate or disclose to any unauthorized person, without the written consent of the Company, any proprietary processes of the Company or any subsidiary or other confidential information concerning their business, affairs, products, suppliers or customers which, if disclosed, would have a material adverse effect upon the business or operations of the Company and its subsidiaries, taken as a whole; it being understood, however, that the obligations of this Section 14 shall not apply to the extent that the aforesaid matters (a) are disclosed in circumstances where you are legally required to do so or (b) become generally known to and available for use by the public otherwise than by your wrongful act or omission. 15. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above. FOURTH FINANCIAL CORPORATION By:___________________________ Darrell G. Knudson ______________________________ EX-21 6 EXHIBIT 21 SUBSIDIARIES OF REGISTRANT --------------------------- Listed below are the names and states of incorporation or jurisdiction of organization of each of Registrant's subsidiaries. Each subsidiary does business only under its official name or an abbreviated form of its official name, except BANK IV Kansas, National Association, carries on its credit card and debit card activities under the names "KBC Card Services" and Fourth Financial Card Company" and carries on its residential mortgage origination and servicing activities under the name "BANK IV Mortgage Company". Name State or Jurisdiction ---- --------------------- Subsidiaries of Registrant -------------------------- BANK IV Kansas, National Association United States BANK IV Oklahoma, National Association United States BANK IV Missouri, National Association United States IV Commercial Acquisition, Inc. Kansas Fourth Financial Insurance Company Arizona Southgate Trust Company Kansas Fourth Investment Advisors, Inc. Oklahoma BANK IV Community Development Corporation Kansas Blackwell Security Bancshares, Inc. Oklahoma Subsidiaries of BANK IV Kansas ------------------------------ OA Management, Inc. Kansas CSI Holdings, Inc. Kansas Townsite Plaza Development, Inc. Kansas BANC IV Investments, Inc. Kansas BANK IV Securities, Inc. Kansas Subsidiaries of BANK IV Oklahoma -------------------------------- Quatro I, Inc. Oklahoma Health Concepts Recovery Centers, Inc. Oklahoma Subsidiaries of IV Commercial Acquisition, Inc. ----------------------------------------------- IV CB&T-Tulsa Holdings, Inc. Oklahoma EX-23 7 Exhibit 23.01 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 2-80907, No. 33-34455, No. 33-61456, No. 33-53857, No. 33-55364, and No. 33-37477) pertaining to the Amended and Restated Fourth Financial Corporation 1981 Incentive Stock Option Plan, Amended and Restated Fourth Financial Corporation 1986 Incentive Stock Option Plan, Fourth Financial Corporation 1993 Employee Stock Purchase Plan, Fourth Financial Corporation 1993 Incentive Stock Option Plan, the Fourth Financial Corporation Amended and Restated Executive Employees' Deferred Compensation Plan, and Fourth Financial Corporation Savings and Investment Plan of our report dated January 17, 1995, except for the last paragraph of Note 5, as to which the date is February 23, 1995, with respect to the consolidated financial statements of Fourth Financial Corporation included in this Annual Report on Form 10-K for the year ended December 31, 1994. /s/ Ernst & Young LLP ERNST & YOUNG LLP Wichita, Kansas March 10, 1995 EX-23 8 Exhibit 23.02 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Fourth Financial Corporation Form 10-K, into Fourth Financial Corporation's previously filed Registration Statements on Form S-8 (Reg. No. 2-80907, No. 33-34455, No. 33-61456, No. 33-53857, No. 33-55364, and No. 33-37477). /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Tulsa, Oklahoma March 13, 1995 EX-23 9 Exhibit 23.03 Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statements(Form S-8 No. 2-80907, No. 33-34455, No. 33-61456, No. 33-53857, No. 33-55364, and No. 33-37477) pertaining to the Amended and Restated 1981 Incentive Stock Option Plan, the Amended and Restated 1986 Incentive Stock Option Plan, the 1993 Employee Stock Purchase Plan of Fourth Financial Corporation, the Fourth Financial Corporation 1993 Incentive Stock Option Plan, the Fourth Financial Corporation Amended and Restated Executive Employees' Deferred Compensation Plan, and the Fourth Financial Corporation Savings and Investment Plan of our report dated February 19, 1993, with respect to the consolidated financial statements of Commercial Landmark Corporation included in this Annual Report on Form 10-K for the year ended December 31, 1994. /s/ Sartain Fischbein & Co. SARTAIN FISCHBEIN & CO. March 10, 1995 EX-23 10 Exhibit 23.04 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 2-80907, No. 33-34455, No. 33-61456, No. 33-53857, No. 33-37477, and No. 33-55364) pertaining to the Amended and Restated Fourth Financial Corporation 1981 Incentive Stock Option Plan, the Amended and Restated Fourth Financial Corporation 1986 Incentive Stock Option Plan, the Fourth Financial Corporation 1993 Employee Stock Purchase Plan, the Fourth Financial Corporation 1993 Incentive Stock Option Plan, the Fourth Financial Corporation Savings and Investment Plan, and the Fourth Financial Corporation Amended and Restated Executive Employees' Deferred Compensation Plan of our reports dated September 16, 1993, with respect to the consolidated financial statements of Ponca Bancshares, Inc. and Subsidiary and of Security Bank & Trust Company of Ponca City, Oklahoma and Subsidiaries as of December 31, 1992 and for the periods then ended included in Fourth Financial Corporation's Annual Report on Form 10-K for the year ended December 31, 1994. /s/ GRA, Thompson, White & Co., P.A. GRA, Thompson, White & Co., P.A. Merriam, Kansas March 10, 1994 EX-27 11 ARTICLE 9 FINANCIAL DATA SCHEDULE FOR 1994 FORM 10-K.
9 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 31, 1994 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 12-MOS DEC-31-1994 DEC-31-1994 435879 499 4670 719 939080 1944614 1834900 4005667 71874 7729340 5647148 1268507 57636 153982 136256 0 100000 365811 7729340 304609 177839 921 483474 157524 206554 276920 275 3632 250435 124045 83122 0 0 83122 2.83 2.74 4.30 29097 13194 503 12200 67617 14017 12550 71874 71874 0 0 -----END PRIVACY-ENHANCED MESSAGE-----