Filed pursuant to Rule
424(b)(5) in connection
with Registration Statement
No. 333-12353
[Security National Bank Letterhead]
Dear Stockholder:
A Special Meeting of the Stockholders of Security National
Bank ("SNB") will be held on November 21, 1996, at 9:00 a.m.,
local time, at Security National Bank, 3000 University Drive,
Nacogdoches, Texas.
The purpose of the meeting is to ask you to approve the merger
(the "Merger") of SNB with and into Stone Fort National Bank,
Nacogdoches, Texas, a wholly-owned subsidiary of First
Commercial Corporation, Little Rock, Arkansas ("First
Commercial"). The Merger is subject, among other things, to
the approval of the holders of at least two-thirds (2/3) of
the shares of common stock of SNB ("SNB Stock"). If the
Merger is consummated, each holder of SNB Stock will receive
1.04857 shares of First Commercial common stock (with cash
payments in lieu of fractional shares) for each outstanding
share of SNB Stock held at the effective date of the Merger.
SECURITY NATIONAL BANK'S BOARD OF DIRECTORS AND MANAGEMENT
RECOMMEND APPROVAL OF THE MERGER.
Enclosed with this letter are a Notice of Special Meeting, a
Proxy Form and return envelope and a Joint Proxy
Statement/Prospectus, which contains a detailed description of
the entire transaction. Please read the enclosed material
carefully. Because your vote is important, we urge you to
complete, date, sign and return the Proxy Form in the enclosed
envelope.
Sincerely,
Nacogdoches, Texas
October 23, 1996
<PAGE>
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
------------------
To The Stockholders of Security National Bank:
Notice is hereby given that a Special Meeting of the
Stockholders of Security National Bank ("SNB") will be held on
November 21, 1996, at 9:00 a.m., local time, at Security
National Bank, 3000 University Drive, Nacogdoches, Texas, for
the following purposes:
1. To consider and act upon a proposal to approve
a plan of merger providing for the merger (the
"Merger") of SNB with and into Stone Fort
National Bank, Nacogdoches, Texas ("Stone
Fort"), a wholly-owned subsidiary of First
Commercial Corporation, Little Rock, Arkansas
("First Commercial"), as a result of which each
outstanding share of common stock of SNB ("SNB
Stock") will be converted into 1.04857 shares
of First Commercial common stock (with cash
payments in lieu of fractional shares). Such
approval, if voted, shall be deemed to
constitute the ratification, confirmation and
approval of the execution and delivery by SNB
of the Plan and Agreement of Merger Among First
Commercial, Stone Fort and SNB dated June 28,
1996 ("Agreement").
2. To transact such other business as may properly
be brought before the Special Meeting or at any
adjournment thereof.
Information regarding the matters to be acted upon at the
meeting is contained in the accompanying Joint Proxy
Statement/Prospectus.
Consummation of the Merger is conditioned upon approval by the
holders of at least two-thirds (2/3) of the outstanding shares
of SNB Stock. Only those holders of SNB Stock of record at
the close of business on October 16, 1996, are entitled to
notice of, and to vote at, the Special Meeting and any
adjournment thereof.
Dissenting shareholders who comply with the procedural
requirements of 12 U.S.C. Section 215a(b), (c) and (d) will be
entitled to receive payment of the cash value of their shares
if the Merger is approved.
<PAGE>
Your vote is important regardless of the number of shares you
own. Whether or not you plan to attend the Special Meeting,
please mark, date and sign the enclosed Proxy and return it
promptly.
By Order of the Board of Directors
-----------------------------------
Secretary
Nacogdoches, Texas
October 23, 1996
<PAGE>
JOINT PROXY STATEMENT/PROSPECTUS
PROSPECTUS FOR
FIRST COMMERCIAL CORPORATION
415,663 Shares
Common Stock
($3.00 par value per share)
JOINT PROXY STATEMENT FOR
CITY NATIONAL BANK, WHITEHOUSE, TEXAS
AND
SECURITY NATIONAL BANK, NACOGDOCHES, TEXAS
First Commercial Corporation ("First Commercial") has filed a
registration statement pursuant to the Securities Act of 1933,
as amended, covering a maximum of 415,663 shares of First
Commercial Common Stock, $3.00 par value per share (the "First
Commercial Stock"). 174,492 shares of the First Commercial
Stock are being offered in connection with a proposed
transaction in which City National Bank, Whitehouse, Texas
("CNB"), will be merged into Tyler Bank and Trust, N.A.,
Tyler, Texas ("TBT"), a wholly-owned subsidiary of First
Commercial. The remaining 241,171 shares of the First
Commercial Stock are being offered in connection with a
proposed transaction in which Security National Bank,
Nacogdoches, Texas ("SNB"), will be merged into Stone Fort
National Bank, Nacogdoches, Texas ("Stone Fort"), a wholly-
owned subsidiary of First Commercial. This document
constitutes a proxy statement for each of CNB and SNB in
connection with the proposed transactions described herein and
a prospectus of First Commercial with respect to the offering
of its shares of common stock.
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
No person is authorized to give any information or to make any
representation not contained in this Prospectus and, if given
or made, such information or representation should not be
relied upon as having been authorized. This Prospectus does
not constitute an offer to sell, or a solicitation of an offer
to purchase, the securities offered hereby, or the
solicitation of a proxy, in any jurisdiction in which, or to
any person to whom, it is unlawful to make such offer or
solicitation of an offer or proxy solicitation. Neither the
delivery of this Prospectus nor any distribution of the
securities offered hereby shall, under any circumstances,
create an implication that there has been no change in the
affairs of First Commercial, CNB or SNB since the date hereof.
The date of this Joint Proxy Statement/Prospectus is
October 23, 1996.
<PAGE>
AVAILABLE INFORMATION
First Commercial is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and in accordance therewith files reports and
other information with the Securities and Exchange Commission
(the "Commission"). Reports, proxy statements and other
information concerning First Commercial may be inspected and
copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following regional offices of the
Commission: Chicago Regional Office, Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and
New York Regional Office, 7 World Trade Center, Suite 1300,
New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. Additionally, such material may be accessed
at the Commission's Web site (http://www.sec.gov).
First Commercial has filed with the Commission a registration
statement on Form S-4 (herein, together with all amendments
and exhibits, referred to as the "Registration Statement")
under the Securities Act of 1933, as amended. This Joint
Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information,
reference is hereby made to the Registration Statement.
-----------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
AS IS MORE FULLY SET FORTH UNDER "INFORMATION CONCERNING FIRST
COMMERCIAL" ELSEWHERE HEREIN, THIS JOINT PROXY
STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. FIRST
COMMERCIAL HEREBY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH
PERSON TO WHOM A COPY OF THIS JOINT PROXY STATEMENT/PROSPECTUS
HAS BEEN DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF SUCH
PERSON, A COPY OF ANY OR ALL OF THE DOCUMENTS RELATING TO
FIRST COMMERCIAL THAT HAVE BEEN INCORPORATED BY REFERENCE
HEREIN, OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH
EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE THEREIN.
REQUESTS FOR DOCUMENTS SHOULD BE DIRECTED TO J. LYNN WRIGHT,
CHIEF FINANCIAL OFFICER, FIRST COMMERCIAL CORPORATION, POST
OFFICE BOX 1471, LITTLE ROCK, ARKANSAS 72203, TELEPHONE (501)
371-7000. IN ORDER TO INSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY NOVEMBER 15, 1996.
<PAGE>
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION i
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE i
INTRODUCTION iv
SUMMARY iv
The Companies iv
The CNB Transaction v
The SNB Transaction vi
Regulatory Approval vii
Dissenting Stockholders viii
Federal Income Tax Consequences viii
Selected Financial Data - First Commercial ix
Comparative Per Share Data x
THE CITY NATIONAL BANK TRANSACTION 1
General 1
The CNB Special Meeting 1
Shares Entitled to Vote; Vote Required 1
Solicitation, Voting and Revocation of Proxies 2
The CNB Merger 2
THE SECURITY NATIONAL BANK TRANSACTION 11
General 11
The SNB Special Meeting 11
Shares Entitled to Vote; Vote Required 12
Solicitation, Voting and Revocation of Proxies 12
The SNB Merger 13
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION 22
INFORMATION CONCERNING CITY NATIONAL BANK 37
Business of CNB 37
CNB Stock 37
Selected Financial Data - City National Bank 40
Management's Discussion and Analysis or Plan
of Operation 41
INFORMATION CONCERNING SECURITY NATIONAL BANK 44
Business of SNB 44
SNB Stock 45
Selected Financial Data - Security National Bank 47
Management's Discussion and Analysis or Plan
of Operation 48
Results of Operations 48
Capital Resources, Liquidity, and Financial Condition 53
INFORMATION CONCERNING FIRST COMMERCIAL 62
Information Incorporated by Reference 62
Recent Developments 62
<PAGE>
COMPARATIVE RIGHTS OF SHAREHOLDERS 63
General 63
Authorized and Issued Shares 63
Dividends 63
Voting Rights 64
Preemptive Rights 67
Indemnification of Directors and Officers and
Limitation of Director Liability 67
Filling Vacancies on the Board of Directors 68
Nomination of Director Candidates and Advance
Notice of Matters to be Brought Before an
Annual Meeting by Stockholders 69
Fair Price Provision 70
LEGAL OPINIONS 72
EXPERTS 72
FINANCIAL STATEMENTS OF CITY NATIONAL BANK F-CNB-1
FINANCIAL STATEMENTS OF SECURITY NATIONAL BANK F-SNB-1
Appendix A - 12 USC 215a(b), (c) and (d)
<PAGE>
INTRODUCTION
This Joint Proxy Statement/Prospectus describes and submits
for the vote of the stockholders of Security National Bank,
Nacogdoches, Texas the proposed merger of Security National
Bank into Stone Fort National Bank, Nacogdoches, Texas.
Additionally, this Joint Proxy Statement/Prospectus describes
the proposed merger of City National Bank, Whitehouse, Texas
into Tyler Bank & Trust, N.A., Tyler, Texas. Such transaction
is subject to continuing negotiations, but the parties believe
that it will be submitted for the vote of the stockholders of
City National Bank prior to March 31, 1997. Exchange ratios used
herein for the description of the proposed City National Bank
transaction reflect the highes price that would be paid in
connection with such transaction. THE TWO PROPOSED MERGERS ARE
SEPARATE TRANSACTIONS, AND EITHER MAY PROCEED WITHOUT THE OTHER.
A summary of the City National Bank merger begins on page v
and a more detailed description beings on page 1. A summary
of the Security National Bank merger beings on page vi and a
more detailed description begins on page 11. Pro forma combined
financial statements depicting the effect of the two mergers
are presented beginning on page 23.
SUMMARY
The following summary of the proposed transactions is
qualified in its entirety by the more detailed information
appearing elsewhere herein and in the appendices hereto.
The Companies
First Commercial Corporation
First Commercial Corporation ("First Commercial") is the
largest multi-bank holding company headquartered in Arkansas,
with its corporate offices located in Little Rock. The
Company offers a broad range of bank and bank-related services
through 15 commercial banking institutions in Arkansas, seven
institutions in the State of Texas, one institution in each of
the States of Louisiana and Tennessee, and a 50% interest in a
commercial banking institution in Oklahoma. In addition,
subsidiaries of the Company provide trust services and
investment services, offer first mortgage loans and perform
mortgage loan servicing operations. First Commercial is
incorporated under the laws of the State of Arkansas. The
executive offices of the Company are located at 400 West
Capitol Avenue, Little Rock, Arkansas 72201, telephone number:
(501) 371-7000. See "Information Concerning First
Commercial."
Tyler Bank and Trust, N.A., Tyler, Texas
Tyler Bank and Trust, N.A. ("TBT") is a wholly-owned national
banking subsidiary of First Commercial headquartered in Tyler,
Texas. TBT is the third largest bank in Tyler, Texas with one
full service branch and three ATM locations. TBT offers a
large number of bank and bank-related services and is the
leading mortgage and residential construction lender in Smith
County. TBT has two wholly owned subsidiaries: Commercial
Capital
<PAGE>
Funding, Inc., located in Dallas, Texas, which provides
operating capital to moderate and small businesses by
factoring accounts receivable, and Aircraft Financing, Inc.,
located in Tyler, Texas, which provides financing for the
purchase of various types of aircraft at the consumer,
commercial, wholesale and retail levels. TBT's principal
office is located at 100 East Ferguson, Tyler, Texas 75702,
telephone number: (903) 595-1941.
Stone Fort National Bank, Nacogdoches, Texas
Stone Fort National Bank ("Stone Fort") is a wholly-owned
national banking subsidiary of First Commercial headquartered
in Nacogdoches, Texas. First Commercial acquired Stone Fort
from Texas Commerce Bancshares in November 1993. Stone Fort's
principal office is located at 300 E. Main, Nacogdoches, Texas
75961, telephone number: (409) 564-4624.
City National Bank, Whitehouse, Texas
City National Bank ("CNB") is a national banking association
headquartered in Whitehouse, Texas. CNB provides consumer and
commercial lending for the Whitehouse and southeast Tyler
communities. CNB has branches located in Gresham, the Lake
Palestine area, the West Loop in Tyler and Gentry Parkway in
Tyler. CNB's principal office is located at 1125 Highway 110
North, Whitehouse, Texas 75791, telephone number: (903)839-
6000. As of June 30, 1996, CNB had total assets of
$40,408,000, total deposits of $37,420,000, and total
stockholders' equity of $2,655,000. See "Information
Concerning City National Bank."
Security National Bank, Nacogdoches, Texas
Security National Bank ("SNB") is a national banking
association organized in 1980 under the laws of the United
States of America and is headquartered in Nacogdoches, Texas,
where it owns its banking facility located at 3000 University
Drive, Nacogdoches, Texas 75963-2018, telephone number:
(409)560-2265. SNB engages in a general, full-service
commercial and consumer banking business. As of June 30,
1996, SNB had total assets of $36,919,000, total deposits of
$32,945,000, and total stockholders' equity of $3,683,000 (or
approximately 9.98% of total assets). See "Information
Concerning Security National Bank."
The CNB Transaction
The CNB Merger
Subject to the outcome of currently ongoing negotiations with
regard to purchase price (the "Ongoing Negotiations"),
stockholders of CNB will be asked to consider and vote upon
a proposal to approve the merger of CNB with and into TBT (the
"CNB Merger") pursuant to the terms of a Plan and Agreement of
Merger Among First Commercial, TBT and CNB dated May 9, 1996,
as amended (the "CNB Agreement"). As stated above, subject to
the outcome of the Ongoing Negotiations, under the terms of the
CNB Agreement,
<PAGE>
each outstanding share of CNB Stock will be converted into a
right to receive 1.01155 shares of common stock, $3.00 par
value per share, of First Commercial (the "First Commercial
Stock"). Given the Ongoing Negotiations, First Commercial
believes that an exchange ratio of 1.01155 reflects the highest
purchase price that it will pay in connection with the CNB
Merger. Cash will be paid by First Commercial in lieu of
issuing fractional shares. The First Commercial Stock and
cash to be delivered to the CNB Stockholders are hereinafter
referred to as the "CNB Merger Consideration." Subject to the
outcome of the Ongoing Negotiations, CNB will have the right to
terminate the CNB Agreement in the event the price of a share
of First Commercial Common Stock drops below $26.669 per share
for a period of time. See "The City National Bank Transaction
- The CNB Special Meeting."
The CNB Special Meeting
Subject to a successful conclusion of the Ongoing Negotiations,
a special meeting of the stockholders of CNB (the "CNB Special
Meeting") will be held on the date and at the time and
place set forth in a Notice of Special Meeting of Stockholders.
Only record holders of the Common Stock, $5.00 par value per
share, of CNB (the "CNB Stock"), will be entitled to notice of
and to vote at the Special Meeting. Currently, there are
172,500 shares of CNB Stock outstanding, each of which would be
entitled to one vote at the CNB Special Meeting.
Vote Required
The affirmative vote of the holders of at least two-thirds of
the outstanding shares of CNB Stock is required to approve the
CNB Agreement.
First Commercial, as the sole stockholder of TBT, will, subject
to a successful conclusion of the Ongoing Negotiations, vote to
approve the CNB Merger.
<PAGE>
The SNB Transaction
The SNB Merger
Stockholders of SNB are being asked to consider and vote upon
a proposal to approve the merger of SNB with and into Stone
Fort (the "SNB Merger") pursuant to the terms of a Plan and
Agreement of Merger Among First Commercial, Stone Fort and SNB
dated June 28, 1996 (the "SNB Agreement"). Under the terms of
the SNB Agreement, each outstanding share of SNB Stock will be
converted into a right to receive 1.04857 shares of common
stock, $3.00 par value per share, of First Commercial (the
"First Commercial Stock"). Cash will be paid by First
Commercial in lieu of issuing fractional shares. The First
Commercial Stock and cash to be delivered to the SNB
Stockholders are hereinafter referred to as the "SNB Merger
Consideration." SNB will have the right to terminate the SNB
Agreement if the price of a share of First Commercial Stock
drops below $26.1375 per share for a period of time and if
First Commercial does not agree to amend the SNB Agreement so
that the SNB Merger Consideration will include a number of
shares of First Commercial Stock having a market value equal
to $6,303,600. See "The Security National Bank Transaction -
The SNB Special Meeting."
The SNB Special Meeting
A special meeting of the stockholders of SNB (the "SNB Special
Meeting") will be held on November 21, 1996, at the time and
place set forth in the accompanying Notice of Special Meeting
of Stockholders. Only record holders of the Common Stock,
$5.00 par value per share, of SNB (the "SNB Stock"), on October
16, 1996 are entitled to notice of and to vote at the SNB
Special Meeting. On that date there were 230,000 shares of
SNB Stock outstanding, each of which is entitled to one vote
at the SNB Special Meeting.
Vote Required
The affirmative vote of the holders of at least two-thirds of
the outstanding shares of SNB Stock is required to approve the
SNB Agreement. Directors, executive officers and their
affiliates who own or control approximately 30.13% of the
outstanding shares of SNB Stock entitled to vote at the SNB
Special Meeting have indicated that they will vote in favor of
the SNB Merger. See "The Security National Bank Transaction -
Shares Entitled to Vote; Vote Required."
<PAGE>
First Commercial, as the sole stockholder of Stone Fort, will
vote to approve the SNB Merger.
Reasons for the SNB Merger
The Boards of Directors of First Commercial, Stone Fort and
SNB have determined that the SNB Merger, pursuant to the terms
of the SNB Agreement, is desirable and in the best interest of
each organization and its respective stockholders.
The Board of Directors of SNB has recommended that SNB
Stockholders vote for the approval, ratification and
confirmation of the Merger. See "The Security National Bank
Transaction - The SNB Merger."
Regulatory Approval
Consummation of each of the CNB Merger and the SNB Merger
requires the prior approval of the Office of the Comptroller
of the Currency of the United States (the "OCC") and the Texas
Department of Banking. Applications for such regulatory
approval for the CNB Merger were filed on July 18, 1996 and
June 14, 1996, respectively, and applications for such
regulatory approval for the SNB Merger were filed on September
11, 1996 and July 17, 1996, respectively. The Texas
Department of Banking has approved the CNB Merger and the SNB
Merger. See "The City National Bank Transaction - The CNB
Merger" and "The Security National Bank Transaction - The SNB
Merger."
Dissenting Stockholders
Stockholders of CNB and SNB who comply with the specific
procedures set forth in 12 U.S.C. Section 215a(b), (c) and (d),
which are described elsewhere herein, will have the right to
dissent from the CNB Merger and SNB Merger, respectively, in
which event, if such merger is consummated, they may be entitled
to receive in cash the fair value of their shares of CNB Stock
and SNB Stock, respectively. See "The City National Bank
Transaction - The CNB Merger" and "The Security National Bank
Transaction - The SNB Merger."
Federal Income Tax Consequences
Each of the CNB Merger and the SNB Merger will qualify as a
tax-free corporate reorganization for federal income tax
purposes if it satisfies the specific requirements of the
Internal Revenue Code of 1986, as amended (the "Code"), the
Treasury regulations promulgated thereunder and pertinent
judicial decisions. The most important of these requirements
is that: (i) no stock of TBT or Stone Fort may be used in the
transactions; (ii) substantially all of the properties of CNB
and SNB, respectively, must be acquired by TBT and Stone Fort,
respectively, in connection with each merger; and (iii) the
stockholders of each of CNB and SNB must maintain a
"continuity
<PAGE>
of interest" in First Commercial after each merger. Based
upon the representation that these requirements will be
satisfied in connection with the transaction, and subject to
certain other assumptions and representations set forth in its
opinion, Friday, Eldredge & Clark, special tax counsel to
First Commercial, will render its opinion to the effect that,
among other things, no taxable gain or loss will be recognized
for federal income tax purposes by the stockholders of either
CNB or SNB solely upon receipt of the First Commercial Stock
in exchange for their shares of CNB Stock or SNB Stock in
connection with each merger. See "The City National Bank
Transaction - The CNB Merger" and "The Security National Bank
Transaction - The SNB Merger."
<PAGE>
Selected Financial Data - First Commercial
The following selected financial data should be read in conjunction with
the more detailed information and financial statements, including the notes
thereto, set forth in this document and incorporated herein by reference.
See "Information Concerning First Commercial."
<TABLE>
FIRST COMMERCIAL CONSOLIDATED SELECTED FINANCIAL DATA
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Six Months Ended June 30 <F1> Year Ended December 31,
1996 1995 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Period Ended:
Net Interest Income $ 105,718 $ 87,423 $ 184,550 $ 159,445 $ 144,574 $ 133,408 $ 119,056
Provision for Possible
Loan and Lease Losses 3,125 1,259 3,059 (3,092) 4,416 8,941 9,992
Net Income 32,583 26,417 56,910 50,308 45,965 39,967 33,961
Per Common Share
Data: <F2>
Net Income 1.19 1.01 2.17 1.96 1.74 1.52 1.35
Cash Dividends .42 .38 .78 .67 .54 .42 .36
Book Value 16.36 14.31 15.81 13.49 12.66 11.18 10.23
Average Assets 5,202,754 4,498,053 4,652,368 4,235,586 3,812,409 3,313,162 2,997,988
Average Common Equity 445,832 367,668 378,807 337,557 310,252 271,598 229,975
Average Total Equity 445,832 367,668 378,807 339,244 320,872 282,218 239,460
Ratios(%)
Return on:
Average Assets 1.26 1.18 1.22 1.19 1.21 1.21 1.13
Average Common Equity 14.74 14.49 15.02 14.87 14.43 14.27 14.30
Average Total Equity
to Average Assets 8.57 8.17 8.14 8.01 8.42 8.52 7.99
<FN>
<F1>
The unaudited operating results for First Commercial for the six months ended June 30, 1996 and 1995,
in the opinion of First Commercial management, included all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation. Interim results for the six months ended June 30, 1996,
are not necessarily indicative of results for the full year 1996.
</FN>
<FN>
<F2>
All per share data has been restated to reflect the 10% stock dividend declared July 1992, the 3 for 2 stock split
in the form of a stock dividend declared November 1993, the 5% stock dividend declared November 1994, and
the 7% stock dividend declared November 1995.
</FN>
</TABLE>
<PAGE>
Comparative Per Share Data
Information presented below may not be indicative of the results that
actually would have occurred if the combination had been in effect
on the dates indicated or indicative of future results. Additionally,
such information is based upon an exchange ratio of 1.0116 for the CNB
Merger. As discussed elsewhere herein, the CNB Merger is subject to
Ongoing Negotiations. Given such negotiations, First Commercial
believes that an exchange ratio of 1.0116 reflects the highest purchase
price that it will pay in connection with the CNB Merger.
<TABLE>
<CAPTION>
Six Months Ended June 30, <F1> Years Ended December 31,
--------------------------- --------------------
1996 1995 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Earnings Per Common Share (before the
cumulative effect of a change in
accounting principle common share):
Historical:
First Commercial <F2> 1.19 1.01 2.17 1.96 1.74
CNB 1.17 0.79 1.54 2.05 2.38
SNB 1.15 0.86 1.89 1.83 2.26
Pro Forma - First Commercial 1.19 1.01 2.16 1.96 1.75
Pro Forma Equivalent Share Basis -
CNB/SNB(3 1.23 1.04 2.23 2.02 1.80
Cash Dividends Per Common Share:
Historical:
First Commercial <F2> 0.42 0.38 0.78 0.67
CNB 0 0 0 0.25 0.54
SNB 0.30 0.30 0.60 0.60 0
Pro Forma - First Commercial 0.42 0.37 0.77 0.66 0.45
Pro Forma Equivalent Share Basis - 0.53
CNB/SNB(3) 0.43 0.38 0.80 0.68 0.55
Book Value Per Common Share (period
end):
Historical: 16.36 --- 15.81 --- ---
First Commercial <F2> 15.39 --- 14.39 --- ---
CNB 16.02 --- 15.46 --- ---
SNB 16.34 --- 15.79 --- ---
Pro Forma - First Commercial
Pro Forma Equivalent Share Basis - 16.87 --- 16.31 --- ---
CNCB/SNB <F3>
<FN>
<F1> The unaudited operating results for First Commercial, CNB and SNB for
the six months ended June 30, 1996 and 1995, in the opinion of First
Commercial, CNB and SNB management, included all adjustments
(consisting solely of normal recurring adjustments) necessary for
a fair presentation. Interim results for the six months ended
June 30, 1996, are not necessarily indicative of results for the
full year 1996.
</FN>
<FN>
<F2> All First Commercial Corporation historical and pro forma per share
data has been restated to reflect the 3 for 2 stock split in the
form of a stock dividend declared November 1993, the 5% stock dividend
declared November 1994, and the 7% stock dividend declared November
1995.
</FN>
<FN>
<F3> The pro forma equivalent share amounts are computed by multiplying
First Commercial's pro forma share information by 1.0327.
</FN>
</TABLE>
<PAGE>
THE CITY NATIONAL BANK TRANSACTION
Information in this section relates to the proposed merger
of City National Bank, Whitehouse, Texas ("CNB") into Tyler
Bank and Trust, N.A., Tyler, Texas ("TBT"), a wholly-owned
national banking association of First Commercial Corporation
("First Commercial") (the "CNB Merger"). For a discussion
of the Security National Bank Merger, see the information
contained under the heading "The Security National Bank
Transaction."
General
Subject to a successful outcome of currently ongoing
negotiations between First Commercial and CNB with regard
to purchase price (the "Ongoing Negotiations"), this Joint
Proxy Statement/Prospectus will be furnished to the stockholders
of CNB in connection with the solicitation of proxies on
behalf of its Board of Directors for use at a special
meeting of stockholders of CNB (the "CNB Special Meeting")
to be held on the date and at the time and place specified
in a Notice of Special Meeting of Stockholders or any
adjournment thereof.
CNB and First Commercial each have supplied all information
included herein with respect to itself.
The CNB Special Meeting
The purpose of the CNB Special Meeting will be to consider and
vote upon a proposal to approve the CNB Merger pursuant to the
terms of a Plan and Agreement of Merger among First
Commercial, TBT and CNB dated May 9, 1996, as amended
(the "CNB Agreement"). Subject to the outcome of the Ongoing
Negotiations, under the terms of the CNB Agreement, each
outstanding share of common stock of CNB, $5.00 par value per
share (the "CNB Stock"), will be canceled and converted into
the right to receive 1.01155 shares of First Commercial common
stock, $3.00 par value per share (the "First Commercial
Stock"), with cash payment due in lieu of any fractional
shares. Given the Ongoing Negotiations, First Commercial
believes that an exchange ratio of 1.01155 reflects the highest
purchase price that it will pay in connection with the CNB Merger.
The First Commercial Stock and cash in lieu of fractional
shares to be delivered to CNB stockholders are hereinafter
referred to as the "CNB Merger Consideration." See "The
City National Bank Transaction - The CNB Merger."
Subject to the outcome of the Ongoing Negotiations, CNB may
terminate the Agreement if the average of the bid and asked
prices of a share of First Commercial Stock as reported on the
Nasdaq National Market for the twenty business days
preceding the Closing Date, based on the average of such
prices as calculated for each such day, shall be less than
$26.669 per share. The average of the bid and asked price of
a share of the First Commercial Stock on October 17, 1996, was
$34.625.
Shares Entitled to Vote; Vote Required
Only holders of record of the CNB Stock will be entitled
<PAGE>
to notice of and to vote at the CNB Special Meeting. Currently,
the number of outstanding shares of the CNB Stock is
172,500, each of which would be entitled to one vote on each matter
to come before the CNB Special Meeting. Under national
banking laws approval of the CNB Merger requires the
affirmative vote of the holders of at least two-thirds (2/3)
of the outstanding shares of CNB Stock. Abstentions will not
be counted as affirmative votes.
Solicitation, Voting and Revocation of Proxies
In addition to soliciting proxies by mail, directors, officers
and employees of CNB, without receiving additional
compensation therefor, may solicit proxies by telephone and in
person. Arrangements will also be made with brokerage firms
and other custodians, nominees and fiduciaries to forward
solicitation materials to the beneficial owners of CNB Stock,
and CNB will reimburse such parties for reasonable out-of-
pocket expenses incurred in connection therewith. The cost of
soliciting proxies is being paid by CNB.
The proxies that accompany this Joint Proxy
Statement/Prospectus permit each holder of CNB Stock on the
CNB Record Date to vote on all matters that come before the
CNB Special Meeting. When a stockholder specifies his choice
on the proxy with respect to a matter being voted upon, the
shares represented by the proxy will be voted in accordance
with such specification. If no such specification is made,
the shares will be voted in favor of approval of the CNB
Merger. A proxy may be revoked by (i) giving written notice
of revocation at any time before its exercise to Nancy Duress,
Secretary, P.O. Box 710, Whitehouse, Texas 75791, (ii)
executing and delivering to Nancy Duress at any time before
its exercise a proxy bearing a subsequent date or (iii)
attending the CNB Special Meeting and voting in person.
The Board of Directors of CNB is not aware of any business to
be acted upon at the CNB Special Meeting other than
consideration of the CNB Merger. If, however, other proper
matters are brought before the CNB Special Meeting, or any
adjournments thereof, the persons appointed as proxies will
have discretion
<PAGE>
to vote or abstain from voting thereon according to their best
judgment.
The CNB Merger
General
On June 18, 1996, and July 24, 1996, the Boards of Directors
of First Commercial and CNB, respectively, each approved the
CNB Agreement. The description of the CNB Agreement herein
does not purport to be complete and is qualified in its
entirety by reference to the CNB Agreement, which is made an
exhibit to the Registration Statement of which this Joint
Proxy Statement/Prospectus is a part and is incorporated
herein by reference.
During September, 1996, First Commercial became aware of certain
issues regarding the CNB Merger which to date have not been
resolved, and which have resulted in commencement of the Ongoing
Negotiations. The parties to the CNB Merger are attempting to
resolve such issues in order to close the CNB Merger prior to
March 31, 1997.
Subject to the outcome of the Ongoing Negotiations, under the CNB
Agreement, CNB will be merged into TBT, and each share of CNB
Stock outstanding on the Effective Date, as defined herein,
will be converted into the right to receive 1.01155 shares of
First Commercial Stock. The exchange ratio was based upon
historical and projected earnings of CNB, the amounts of CNB
assets and liabilities, and the market value of First Commercial
Stock. Projected earnings were based primarily on historical
trends. Given the Ongoing Negotiations, First Commercial believes
that an exchange ratio of 1.01155 reflects the highest purchase
price that it will pay in connection with the CNB Merger.
First Commercial is an Arkansas corporation and a multi-bank
holding company registered under the Bank Holding Company Act
of 1956, as amended ("BHCA"). CNB and TBT are each national
banking associations operating under the laws of the United
States of America.
Stockholders of CNB will exchange their stock certificates for
new certificates evidencing shares of First Commercial Stock.
After the CNB Merger, and until so exchanged, the shares of
CNB Stock will represent the right to receive the number of
shares of First Commercial Stock into which such shares of CNB
Stock will be converted. See "Distribution of First
Commercial Stock Certificates" below.
Reasons for the CNB Merger
Several factors were important in the CNB Board's decision to
pursue this opportunity for a merger with First Commercial's
subsidiary, TBT. First, based on the market price of First
Commercial's Stock at the time the negotiations began, it was
apparent that the value of the proposed transaction was in the
best interest of shareholders. A second important
consideration of the Board of Directors was that First
Commercial's Stock prices are quoted on the Nasdaq National
Market and there is apparently sufficient market volume in the
stock to afford shareholders of CNB an opportunity for
<PAGE>
liquidity. A third important consideration was First
Commercial's sound record of dividend payout. A fourth and
extremely important consideration in the decision was the
financial soundness of First Commercial.
Based on the financial information provided CNB directors
concerning the financial performance of First Commercial over
the preceding two years, it was apparent that First Commercial
met or exceeded all soundness criteria comparable with its
peer group. Additionally, its profitability performance had
been at or above levels of peer financial institutions. A
fifth important consideration was the general environment of
the commercial banking industry in this country and the
substantially enhanced activity of merger and acquisition
opportunities in the industry.
In summary, the Board of Directors of CNB believes that the
proposed CNB Merger is in the best interests of its
shareholders.
Federal Income Tax Consequences
The following is a discussion of certain of the material
federal income tax considerations in connection with the CNB
Merger and the tax opinion of Friday, Eldredge & Clark,
special tax counsel to First Commercial.
The CNB Merger will qualify as a tax-free corporate
reorganization for federal income tax purposes under Sections
368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code, as
amended (the "Code"), if it satisfies the specific
requirements of the Code, the regulations promulgated
thereunder, and pertinent judicial decisions. The most
important of these requirements is that (i) no stock of TBT
may be used in the transaction, (ii) substantially all of the
properties of CNB must be acquired by TBT in connection with
the CNB Merger (the "Substantially All Test"), and (iii) the
stockholders of CNB must, collectively as a group, maintain a
"continuity of interest" in First Commercial after the CNB
Merger (the "Continuity of Interest Test").
The merger transaction does not contemplate the use of any
stock of TBT in the transaction, and, accordingly, this
requirement should be satisfied. For private letter ruling
purposes, the Internal Revenue Service ("IRS") generally
regards the Substantially All Test to be satisfied if at least
90% of the fair market value of CNB's net assets and at least
70% of the fair market value of CNB's gross assets held by CNB
immediately prior to the transaction are acquired in
connection with the CNB Merger. Management of CNB and TBT
believe that this test will be satisfied in connection with
the transaction contemplated by the CNB Merger. The IRS
takes the position that the Continuity of Interest Test will
be satisfied if the former CNB stockholders receive, in the
CNB Merger, a number of shares of First Commercial Stock
having a value, as of the Effective Date (as defined herein),
equal to at least fifty percent (50%) of the value of all the
outstanding stock of CNB as of such date. In general, this
requires the stockholders of CNB to
<PAGE>
collectively surrender at least 50% of their CNB Stock in
exchange for First Commercial Stock in the CNB Merger. In
addition, in order for the Continuity of Interest Test to be
satisfied, this 50% continuity of stock ownership generally
must be maintained for a meaningful period of time following
the CNB Merger. Moreover, at the time of the CNB Merger,
there can be no plan or intention on the part of the
shareholders of CNB to collectively dispose of an amount of
the First Commercial Stock that would cause the 50% continuity
of stock ownership requirement to not be satisfied.
Accordingly, assuming the Substantially All Test and
Continuity of Interest Test are satisfied, and provided other
specific requirements contained in the Code, the regulations
promulgated thereunder, and pertinent judicial decisions are
met, the transaction should qualify as a tax-free corporate
reorganization for federal income tax purposes pursuant to the
provisions of Sections 368(a)(1)(A) and 368(a)(2)(D) of the
Code.
If the CNB Merger qualifies as a tax-free corporate
reorganization, the material federal income tax consequences
of the CNB Merger will be as follows: (i) no material gain
or loss will be recognized by CNB, First Commercial or TBT as
a result of the CNB Merger; (ii) no gain or loss will be
recognized by the shareholders of CNB upon the receipt of
First Commercial Stock solely in exchange for their shares of
CNB Stock in connection with the CNB Merger; (iii) the tax
basis of the shares of First Commercial stock received by the
shareholders of CNB in the CNB Merger will, in each instance,
be the same as the basis of the shares of CNB Stock
surrendered in exchange therefor; (iv) the holding period of
the shares of First Commercial Stock received by the
shareholders of CNB in the CNB Merger will, in each instance,
include the holding period of the shares of CNB Stock
exchanged therefor, provided that the shares of CNB Stock were
held as capital assets on the date of the CNB Merger; and (v)
the payment of cash to shareholders of CNB in lieu of issuing
fractional shares of First Commercial Stock will be treated as
if the fractional shares were distributed as part of the
exchange and then redeemed by First Commercial for cash, and
any such payments will be treated as having been received by
the shareholder as a distribution in redemption of the
fractional share interest, subject to provisions of Section
302 of the Code.
Shareholders of CNB who exercise dissenters rights and receive
cash for their shares of CNB Stock will be treated as having
received such cash as a distribution in redemption of such
shareholder's CNB Stock, subject to the conditions and
limitations of Section 302 of the Code.
If the CNB Merger does not qualify as a tax-free corporate
reorganization, the transaction will be treated for federal
income tax purposes as a taxable purchase by First Commercial
of
<PAGE>
the CNB Stock. In such event, the CNB Merger will constitute
a taxable transaction to the shareholders of CNB and possibly
also a taxable transaction to TBT. In such event, gain or
loss will be recognized by the shareholders of CNB to the
extent of the difference between (i) the fair market value, on
the Effective Date, of the shares of First Commercial Stock
received in connection with the CNB Merger, and (ii) the
adjusted basis of the shares of CNB Stock surrendered in the
transaction. The fair market value of the First Commercial
Stock on the Effective Date may be determined on the basis of
the average high and low selling prices of such stock on the
day of the transaction. If the transaction does not qualify
for tax-free reorganization treatment, (i) the holding period
for the shares of First Commercial Stock to be received by the
shareholders of CNB will commence on the day following the
date of the transaction; (ii) gain or loss would likely be
recognized by CNB on the transfer of its assets to TBT to the
extent of the difference between the fair market value of the
assets and the adjusted basis of the assets in the hands of
CNB on the Effective Date and (iii) the holding period for the
assets of CNB to be received by TBT would likely commence on
the date following the transaction.
The foregoing discussion is limited to matters pertaining to
federal income tax law. Moreover, because of the complexity
of federal, state and local tax laws, the tax consequences to
any particular shareholder may be affected by matters not
pertaining to the CNB Merger. Accordingly, it is recommended
that each shareholder of CNB consult his own personal tax
advisor concerning the specific federal, state and local
income tax consequences of the CNB Merger.
Rights of Dissenting CNB Stockholders
Pursuant to 12 U.S.C. Section 215a, any holder of record of CNB
Stock who objects to the proposed CNB Merger and who fully complies
with all of the provisions of Section 215 (but not otherwise)
shall be entitled to demand and receive payment for all (but
not less than all) of his shares of CNB Stock if the CNB
Merger is consummated.
Any shareholder of CNB who objects to the CNB Merger and
desires to receive payment for his CNB Stock:
1. Must file a written objection to the CNB Merger with
CNB either prior to the CNB Special Meeting or at the CNB
Special Meeting, but before the vote is taken, or he must vote
against approval of the CNB Merger at the CNB Special Meeting;
AND
2. Must file with TBT a written notice of his election
to dissent within thirty (30) days after the date of
consummation of the CNB Merger, and the notice of dissent must
contain the shareholder's full name and address, the number of
shares of CNB Stock held by him, and a demand for payment of
the value of his shares; AND
<PAGE>
3. Must concurrently with the giving of the notice
referred to in subparagraph 2 above submit his certificates
for CNB Stock to Dana Gregory, Secretary of TBT, for notation
thereon of the shareholder's election to dissent.
Any notices required to be given to CNB should be forwarded to
City National Bank, 1125 Highway 110 North, Whitehouse, Texas
75791, to the attention of Nancy Duress, Secretary.
Any notices required to be given to TBT should be forwarded to
Tyler Bank and Trust, 100 East Ferguson, Tyler, Texas 75702,
to the attention of Dana Gregory, Secretary.
If the CNB Merger is approved, TBT will promptly mail by
certified mail to each shareholder who has complied with the
conditions above written notice of such approval, addressed to
the shareholder at such address as he has furnished CNB in
writing, or if none, at the shareholder's address as it
appears on the records of CNB. Within thirty (30) days after
the date of consummation of the CNB Merger, the shareholder
must make the written election to dissent and demand for
payment described in subparagraph 2 above.
The value of the shares of CNB Stock held by dissenting
shareholders shall be ascertained, as of the Effective Date of
the CNB Merger, by an appraisal made by a committee of three
persons, composed of (a) one selected by the vote of the
holders of the majority of the CNB Stock, the owners of which
are entitled to payment in cash, (b) one selected by the
directors of TBT, and (c) one selected by the two so selected.
The valuation agreed upon by any two of the three appraisers
shall govern. If the value so fixed shall not be satisfactory
to any dissenting shareholder who has requested payment, such
shareholder may, within five (5) days after being notified of
the appraised value of the shares, appeal to the Comptroller
of the Currency of the United States of America (the "OCC"),
which shall cause a reappraisal to be made, which shall be
final and binding as to the value of the shares.
If within ninety (90) days from the date of consummation of
the CNB Merger for any reason one or more of the appraisers is
not selected or the appraisers fail to determine the value of
the shares of CNB Stock, the OCC shall upon written request of
any interested party cause an appraisal to be made, which
shall be final and binding on all parties. The expenses of
the OCC in making the reappraisal or the appraisal, as the
case may be, shall be paid by TBT. The value of the shares
ascertained shall be promptly paid to the dissenting
shareholders by TBT. The shares of First Commercial Stock
that would have been delivered to such dissenting shareholders
had they not requested payment shall be sold by First
Commercial at an advertised public auction,
<PAGE>
and First Commercial shall have the right to purchase any of
such shares at such public auction, if it is the highest
bidder therefor, for the purpose of reselling such shares
within thirty (30) days thereafter to such person or persons
and at such price, not less than par, as First Commercial's
Board of Directors by resolution may determine. If the shares
are sold at public auction at a price greater than the amount
paid to the dissenting shareholders, the excess in such sale
price shall be paid to such shareholders.
If holders of more than 17,250 shares of CNB Stock perfect
their dissenters' rights, CNB, First Commercial and TBT may
elect not to consummate the CNB Merger, in which event the
dissenters' rights described in this section would terminate.
However, it is the intent of management of First Commercial to
accommodate those CNB shareholders electing to dissent to the
extent that funds may be obtained or financing may be arranged
to purchase their shares and to the extent that such
accommodation does not create tax, accounting or regulatory
obstacles.
The foregoing does not purport to be a complete statement of
the provisions of Section 215a of Title 12 of the United
States Code, and it is qualified in its entirety by reference
to such provisions, which are reproduced in full as Appendix A
to this Joint Proxy Statement/Prospectus.
Upon compliance with the statutory procedures, dissenting
shareholders will not have any rights as shareholders of CNB
or of First Commercial, including, among other things, the
right to receive dividends or the right to vote on matters
submitted for shareholder consideration.
Conditions of the CNB Merger
In addition to being subject to a successful outcome of the
Ongoing Negotiations, consummation of the CNB Merger is
conditioned upon the occurrence of certain events on or prior
to the Effective Date including, among other things, the
following: (i) approval of the CNB Merger by the stockholders
of CNB; (ii) confirmation by First Commercial and CNB of the
truth of their respective representations and warranties and
compliance with their respective covenants as set forth in the
CNB Agreement; (iii) the absence of any court or governmental
proceeding undertaken or threatened to restrain, enjoin, prohibit,
or obtain damages for the transaction contemplated by the CNB
Agreement which, in the opinion of either First Commercial or CNB,
would make the consummation of the CNB Merger inadvisable; (iv)
the absence of any suit, action or proceedings pending or
threatened against First Commercial or CNB or any of each
other's officers or directors which, if successful, would, in
the reasonable judgment of CNB or First Commercial,
respectively, have a material adverse effect on the financial
condition of First Commercial or CNB, respectively; (v)
receipt by First Commercial and CNB of letters, as considered
necessary, from each other's independent certified public
accountants relating to certain financial statements and
information of the other and an opinion <PAGE>
from Ernst & Young that the pooling of interests method of
accounting applies to the CNB Merger; (vi) receipt by First
Commercial and CNB of certain opinions from CNB's and First
Commercial's counsel, respectively; (vii) receipt by First
Commercial from affiliates of CNB of an agreement restricting
disposition of First Commercial Stock for a certain period of
time; (viii) receipt by First Commercial and CNB of an opinion
from tax counsel addressing the tax consequences of the
contemplated CNB Merger; and (ix) the absence of any material
adverse change in the financial condition, business or
operations of either First Commercial or CNB.
All of these conditions are expected to be met.
Any of the conditions set forth above may be waived at the
discretion of the respective institutions except as otherwise
provided by law. However, neither First Commercial nor CNB
will waive any condition if such waiver, in the judgment of
its respective Board of Directors, would result in materially
adverse consequences to it or its stockholders.
Regulatory Approval
Consummation of the CNB Merger requires the prior written
approval of the OCC and the Texas Department of Banking.
Applications for such approval were filed on July 18, 1996 and
June 14, 1996, respectively. The Texas Department of Banking
has approved the CNB Merger.
Although no assurance can be provided, First Commercial and
CNB currently expect the CNB Merger to be consummated on or
before March 31, 1997. See "Termination of the CNB Merger"
below.
Termination of the CNB Merger
The CNB Agreement provides that it may be terminated, whether
before or after shareholder approval, by mutual consent of the
Boards of Directors of First Commercial and CNB at any time
before the Closing (as defined in the CNB Agreement). Either
First Commercial or CNB, at its option, may terminate the CNB
Agreement (unless such terminating party has breached a
covenant under the CNB Agreement) if the Closing Date shall
not have occurred on or before March 31, 1997.
Either First Commercial or CNB may terminate the Agreement if
any of the conditions precedent to its obligation to
consummate the CNB Merger have not been met at or prior to the
Closing, or if it shall have discovered a material breach by
the other party of any representation, warranty or agreement
contained in the CNB Agreement that has not been cured within
twenty (20) days of the time that written notice of such
breach is received by such other party. See "Conditions of
the CNB Merger" above.
Effective Date
<PAGE>
The CNB Agreement provides that the CNB Merger shall become
effective at the time and on the date specified in the
approval of merger issued by the OCC (the "CNB Effective
Date"). Although no assurance can be given, the CNB Effective
Date is expected to be on or before March 31, 1997.
Distribution of First Commercial Stock Certificates
After the CNB Effective Date, each holder of certificates
previously evidencing shares of CNB Stock will be required to
surrender such certificates for transfer and cancellation.
Upon surrender each holder will receive certificate(s)
representing the number of shares of First Commercial Common
Stock which the holders of such shares of CNB Stock will have
the right to receive (except for any fractional share
interests as described below in "Fractional Shares"), together
with any dividends which have been declared on such shares of
First Commercial Common Stock and to which such holders are
entitled.
Holders of CNB Stock on the CNB Effective Date shall be
entitled to receive dividends declared by First Commercial
subsequent to the CNB Effective Date, but payment of such
dividends will not be required of First Commercial until such
persons have delivered their certificates representing shares
of CNB Stock in exchange for certificates representing shares
of First Commercial Stock.
As soon as practicable after consummation of the CNB Merger,
transmittal forms will be sent to stockholders of CNB for use
in forwarding to First Commercial's transfer agent
certificates previously evidencing CNB Stock for surrender and
exchange for certificates evidencing First Commercial Stock.
Until so surrendered, certificates formerly evidencing CNB
Stock will be deemed for all corporate purposes (except for
payment of dividends to CNB stockholders which may be withheld
pending exchange of certificates) to evidence the right to
receive the number of whole shares of First Commercial Stock
and the right to receive cash in lieu of fractional shares
which the holder thereof would be entitled to receive upon
surrender. Stockholders of CNB are requested not to submit
stock certificates for exchange until they have received
written instructions to do so.
If outstanding certificates for shares of CNB Stock are not
surrendered, or if payment for them is not claimed prior to
such date on which such payment would otherwise escheat to or
become the property of any governmental unit or agency, the
unclaimed item shall, to the extent permitted by the abandoned
property and/or any other applicable law, become the property
of First Commercial (and to the extent not in its possession
shall be paid over to it), free and clear of all claims or
interests of any person previously entitled to such items.
Notwithstanding the foregoing, neither First Commercial's
transfer agent nor any party to the CNB Merger shall be liable
to any holder of CNB
<PAGE>
Stock for any amount paid to any governmental unit or agency
having jurisdiction of such unclaimed items pursuant to the
abandoned property or other applicable law of such
jurisdiction.
Fractional Shares
No fractional shares of First Commercial Stock will be issued
for shares of CNB Stock. In lieu of fractional interests,
First Commercial shall pay to such persons who would otherwise
receive fractional shares cash in an amount equal to the
market value of such fractional shares determined on the basis
that one share of First Commercial Common Stock shall have a
value equal to the average of the bid and asked prices of
First Commercial Common Stock on the Closing Date. See
"Federal Income Tax Consequences" above.
Dilution
Each common stockholder of CNB who exchanges his stock will
receive a voting interest exactly in proportion to his
relative voting common stock interest in relation to other CNB
stockholders before the combination is effected. Each share
of CNB Stock presently held by CNB stockholders will represent
less of a percentage voting interest in the total number of
outstanding shares of First Commercial (subsequent to the CNB
Merger) than it now represents as a percentage of the total
outstanding shares of CNB.
Accounting Treatment
The CNB Merger will be accounted for as a pooling of interests
under generally accepted accounting principles. The assets
and liabilities of CNB will be reflected in the consolidated
financial statements of First Commercial at their book value
as reflected in CNB's financial statements. Expenses incurred
in connection with the CNB Merger will be considered as an
expense of First Commercial.
A condition of consummating the CNB Merger is that First
Commercial receive an opinion from Ernst & Young LLP that the
pooling of interests method of accounting applies to the CNB
Merger. Management of First Commercial expects this condition
to be met.
Registration of First Commercial Common Stock Under the
Securities Act
The shares of First Commercial Stock to be issued to CNB
stockholders in the CNB Merger have been registered under the
Securities Act of 1933, as amended (the "Securities Act"),
thereby allowing such shares to be freely traded without
restriction by persons who will not be "affiliates" of First
Commercial and who were not affiliates of CNB, as that term is
defined in the Securities Act.
<PAGE>
Directors and certain officers and stockholders of CNB may be
deemed to be "affiliates" of CNB within the meaning of the
Securities Act. Accordingly, resales by such persons of any
shares of First Commercial Stock received by them in the CNB
Merger are restricted and may be made only if such stock is
registered under the Securities Act or an exemption from the
registration requirements of the Securities Act is available.
All such persons should carefully consider the limitations
imposed by Rules 144 and 145 promulgated under the Securities
Act ("Rule 144" and "Rule 145") prior to effecting any resales
of such First Commercial Stock.
Pursuant to Rule 145, the sale of First Commercial Stock held
by those persons who are affiliates of CNB will be subject to
certain restrictions. For two years following the Effective
Date, such persons may sell the First Commercial Stock only if
(i) First Commercial has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), during the preceding
twelve months, (ii) such First Commercial Stock is sold in
"brokers' transactions" as that term is defined in Section
4(4) of the Securities Act, (iii) the person selling such
First Commercial Stock does not solicit or arrange for the
solicitation of orders to buy such First Commercial Stock in
anticipation of or in connection with such transaction nor
make any payment in connection with the offer or sale of such
First Commercial Stock to any person other than the broker who
executes the order to sell, and (iv) sales made by such person
within the preceding three months do not exceed 1% of the
outstanding shares of that class. Shares of the First
Commercial Stock held for more than two years but less than
three years after the CNB Effective Date may be sold freely if
First Commercial is in compliance with the above discussed
Exchange Act reporting requirements. Once the shares of First
Commercial Stock have been held for three years from the CNB
Effective Date, they may be sold free from the restrictions of
Rules 144 and 145.
It is a condition of First Commercial's obligation to
consummate the CNB Merger that First Commercial shall have
received an agreement in form and substance satisfactory to
it, executed and delivered by each holder of CNB Stock who is
determined to be an affiliate of CNB, providing, among other
things, that such holder (i) will not sell, transfer or in any
way reduce his risk with respect to his shares of First
Commercial Stock until such time as First Commercial shall
have published financial results covering at least 30 days of
post-Merger combined operations, (ii) has no present intent to
sell, transfer or otherwise dispose of any of his shares of
First Commercial Stock and (iii) will not sell, transfer or
otherwise dispose of more than fifty percent (50%) of his
shares of First Commercial Stock for a period of at least one
(1) year following the Closing.
THE SECURITY NATIONAL BANK TRANSACTION
<PAGE>
Information in this section relates to the merger of Security
National Bank, Nacogdoches, Texas ("SNB") into Stone Fort
National Bank, Nacogdoches, Texas ("Stone Fort"), a wholly-
owned subsidiary of First Commercial Corporation ("First
Commercial") (the "SNB Merger"). For a discussion of the City
National Bank Merger, see the information above contained
under the heading "The City National Bank Transaction."
General
This Joint Proxy Statement/Prospectus is furnished to the
stockholders of SNB in connection with the solicitation of
proxies on behalf of its Board of Directors for use at a
special meeting of stockholders of SNB (the "SNB Special
Meeting") to be held on the date and at the time and place
specified in the accompanying Notice of Special Meeting of
Stockholders or any adjournment thereof.
SNB and First Commercial each have supplied all information
included herein with respect to itself.
This Joint Proxy Statement/Prospectus was first mailed to
shareholders of SNB on October 23, 1996.
The SNB Special Meeting
The purpose of the SNB Special Meeting is to consider and vote
upon a proposal to approve the SNB Merger pursuant to the
terms of a Plan and Agreement of Merger among First
Commercial, Stone Fort and SNB dated June 28, 1996 (the "SNB
Agreement"). Under the terms of the SNB Agreement, each
outstanding share of common stock of SNB, $5.00 par value per
share (the "SNB Stock"), will be canceled and converted into
the right to receive 1.04857 shares of First Commercial common
stock, $3.00 par value per share (the "First Commercial
Stock"), with cash payment due in lieu of any fractional
shares. The First Commercial Stock and cash in lieu of
fractional shares to be delivered to SNB stockholders are
hereinafter referred to as the "SNB Merger Consideration."
See "The Security National Bank Transaction - The SNB Merger."
SNB may terminate the SNB Agreement if the average of the bid
and asked prices of the First Commercial Stock as reported on
the Nasdaq National Market for the twenty business days
preceding the Closing Date, based on the average of such
prices as calculated for each such day, shall be less than
$26.1375 per share. SNB may not, however, terminate the SNB
Agreement if First Commercial agrees to amend and restate the
SNB Agreement to provide that the First Commercial Stock
portion of the SNB Merger Consideration shall be that number
of shares having an aggregate market value closest to, but not
exceeding, $6,303,600, based on the average of the bid and
asked prices for a share of First Commercial Stock reported on
the Nasdaq National Market as of the close of business on each
of the
<PAGE>
twenty (20) days immediately preceding the date SNB would
otherwise have elected to terminate the SNB Agreement. The
average of the bid and asked price of a share of the First
Commercial Stock on October 17, 1996, was $34.625.
Shares Entitled to Vote; Vote Required
Only holders of record of the SNB Stock at the close of
business on October 16, 1996 (the "SNB Record Date") are
entitled to notice of and to vote at the SNB Special Meeting.
On that date, the number of outstanding shares of the SNB
Stock was 230,000, each of which is entitled to one vote on
each matter to come before the SNB Special Meeting. Under
national banking laws approval of the SNB Merger requires the
affirmative vote of the holders of at least two-thirds (2/3)
of the outstanding shares of SNB Stock. Abstentions will not
be counted as affirmative votes. Directors, executive
officers and their affiliates who own or control approximately
30.13% of the outstanding shares of SNB Stock entitled to vote
have indicated that they will vote in favor of the SNB Merger.
Solicitation, Voting and Revocation of Proxies
In addition to soliciting proxies by mail, directors, officers
and employees of SNB, without receiving additional
compensation therefor, may solicit proxies by telephone and in
person. The cost of soliciting proxies is being paid by SNB.
The proxies that accompany this Joint Proxy
Statement/Prospectus permit each holder of SNB Stock on the
SNB Record Date to vote on all matters that come before the
SNB Special Meeting. When a stockholder specifies his choice
on the proxy with respect to a matter being voted upon, the
shares represented by the proxy will be voted in accordance
with such specification. If no such specification is made,
the shares will be voted in favor of approval of the SNB
Merger. A proxy may be revoked by (i) giving written notice
of revocation at any time before its exercise to Michael C.
Haas at 3000 University Drive, Nacogdoches, Texas 75963-2018,
(ii) executing and delivering to Michael C. Haas at any time
before its exercise a proxy bearing a subsequent date or (iii)
attending the Special Meeting and voting in person.
The Board of Directors of SNB is not aware of any business to
be acted upon at the SNB Special Meeting other than
consideration of the SNB Merger. If, however, other proper
matters are brought before the SNB Special Meeting, or any
adjournments thereof, the persons appointed as proxies will
have discretion to vote or abstain from voting thereon
according to their best judgment.
The SNB Merger
General
<PAGE>
On June 18, 1996, and June 12, 1996, the Boards of Directors
of First Commercial and SNB, respectively, each approved the
SNB Agreement. The description of the SNB Agreement herein
does not purport to be complete and is qualified in its
entirety by reference to the SNB Agreement, which is made an
exhibit to the Registration Statement of which this Joint
Proxy Statement/Prospectus is a part and is incorporated
herein by reference.
Under the SNB Agreement, SNB will be merged into Stone Fort,
and each share of SNB Stock outstanding on the Effective Date,
as defined herein, will be converted into the right to receive
1.04857 shares of First Commercial Stock. The exchange ratio
was based upon historical and projected earnings of SNB, the
amounts of SNB assets and liabilities, and the market value of
First Commercial Stock. Projected earnings were based
primarily on historical trends.
The SNB Agreement was the result of arm's-length negotiations
between representatives of First Commercial and SNB. SNB's
Board of Directors believes the terms of the SNB Merger are
fair.
First Commercial is an Arkansas corporation and a multi-bank
holding company registered under the BHCA. SNB and Stone Fort
are each national banking associations operating under the laws
of the United States of America.
Stockholders of SNB will exchange their stock certificates for
new certificates evidencing shares of First Commercial Stock.
After the SNB Merger, and until so exchanged, the shares of
SNB Stock will represent the right to receive the number of
shares of First Commercial Stock into which such shares of SNB
Stock will be converted. See "The Security National Bank
Transaction - The SNB Merger."
Reasons for the SNB Merger
Several factors were important in the SNB Board's decision to
pursue this opportunity for a merger with First Commercial's
subsidiary, Stone Fort. First, based on the market price of
First Commercial's Stock at the time the negotiations began,
it was apparent that the value of the proposed transaction was
in the best interest of shareholders. A second important
consideration of the Board of Directors was that First
Commercial's Stock prices are quoted on the Nasdaq National
Market and there is apparently sufficient market volume in the
stock to afford shareholders of SNB an opportunity for
liquidity. A third important consideration was First
Commercial's sound record of dividend payout. A fourth and
extremely important consideration in the decision was the
financial soundness of First Commercial. Based on the
financial information provided SNB directors concerning the
financial
<PAGE>
performance of First Commercial over the preceding two years,
it was apparent that First Commercial met or exceeded all
soundness criteria comparable with its peer group.
Additionally, its profitability performance had been at or
above levels of peer financial institutions. A fifth
important consideration was the general environment of the
commercial banking industry in this country and the
substantially enhanced activity of merger and acquisition
opportunities in the industry. Finally, the combined
resources of the two companies will allow them to offer an
even greater array of products and services to meet those
needs.
In summary, the Board of Directors of SNB believes that the
proposed SNB Merger is in the best interests of its
shareholders.
Federal Income Tax Consequences
The following is a discussion of certain of the material
federal income tax considerations in connection with the SNB
Merger and the tax opinion of Friday, Eldredge & Clark,
special tax counsel to First Commercial.
The SNB Merger will qualify as a tax-free corporate
reorganization for federal income tax purposes under Sections
368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code, as
amended (the "Code"), if it satisfies the specific
requirements of the Code, the regulations promulgated
thereunder, and pertinent judicial decisions. The most
important of these requirements is that (i) no stock of Stone
Fort may be used in the transaction, (ii) substantially all of
the properties of SNB must be acquired by Stone Fort in
connection with the SNB Merger (the "Substantially All Test"),
and (iii) the stockholders of SNB must, collectively as a
group, maintain a "continuity of interest" in First Commercial
after the SNB Merger (the "Continuity of Interest Test").
The merger transaction does not contemplate the use of any
stock of Stone Fort in the transaction, and, accordingly, this
requirement should be satisfied. For private letter ruling
purposes, the Internal Revenue Service ("IRS") generally
regards the Substantially All Test to be satisfied if at least
90% of the fair market value of SNB's net assets and at least
70% of the fair market value of SNB's gross assets held by SNB
immediately prior to the transaction are acquired in
connection with the SNB Merger. Management of SNB and Stone
Fort believe that this test will be satisfied in connection
with the transaction contemplated by the SNB Merger. The IRS
takes the position that the Continuity of Interest Test will
be satisfied if the former SNB stockholders receive, in the
SNB Merger, a number of shares of First Commercial Stock
having a value, as of the Effective Date (as defined herein),
equal to at least fifty percent (50%) of the value of all the
outstanding stock of SNB
<PAGE>
as of such date. In general, this requires the stockholders
of SNB to collectively surrender at least 50% of their SNB
Stock in exchange for First Commercial Stock in the SNB
Merger. In addition, in order for the Continuity of Interest
Test to be satisfied, this 50% continuity of stock ownership
generally must be maintained for a meaningful period of time
following the SNB Merger. Moreover, at the time of the SNB
Merger, there can be no plan or intention on the part of the
shareholders of SNB to collectively dispose of an amount of
the First Commercial Stock that would cause the 50% continuity
of stock ownership requirement to not be satisfied.
Accordingly, assuming the Substantially All Test and
Continuity of Interest Test are satisfied, and provided other
specific requirements contained in the Code, the regulations
promulgated thereunder, and pertinent judicial decisions are
met, the transaction should qualify as a tax-free corporate
reorganization for federal income tax purposes pursuant to the
provisions of Sections 368(a)(1)(A) and 368(a)(2)(D) of the
Code.
If the SNB Merger qualifies as a tax-free corporate
reorganization, the material federal income tax consequences
of the SNB Merger will be as follows: (i) no material gain
or loss will be recognized by SNB, First Commercial or Stone
Fort as a result of the SNB Merger; (ii) no gain or loss will
be recognized by the shareholders of SNB upon the receipt of
First Commercial Stock solely in exchange for their shares of
SNB Stock in connection with the SNB Merger; (iii) the tax
basis of the shares of First Commercial stock received by the
shareholders of SNB in the SNB Merger will, in each instance,
be the same as the basis of the shares of SNB Stock
surrendered in exchange therefor; (iv) the holding period of
the shares of First Commercial Stock received by the
shareholders of SNB in the SNB Merger will, in each instance,
include the holding period of the shares of SNB Stock
exchanged therefor, provided that the shares of SNB Stock were
held as capital assets on the date of the SNB Merger; and (v)
the payment of cash to shareholders of SNB in lieu of issuing
fractional shares of First Commercial Stock will be treated as
if the fractional shares were distributed as part of the
exchange and then redeemed by First Commercial for cash, and
any such payments will be treated as having been received by
the shareholder as a distribution in redemption of the
fractional share interest, subject to provisions of Section
302 of the Code.
Shareholders of SNB who exercise dissenters rights and receive
cash for their shares of SNB Stock will be treated as having
received such cash as a distribution in redemption of such
shareholder's SNB Stock, subject to the conditions and
limitations of Section 302 of the Code.
<PAGE>
If the SNB Merger does not qualify as a tax-free corporate
reorganization, the transaction will be treated for federal
income tax purposes as a taxable purchase by First Commercial
of the SNB Stock. In such event, the SNB Merger will
constitute a taxable transaction to the shareholders of SNB
and possibly also a taxable transaction to Stone Fort. In
such event, gain or loss will be recognized by the
shareholders of SNB to the extent of the difference between
(i) the fair market value, on the Effective Date, of the
shares of First Commercial Stock received in connection with
the SNB Merger, and (ii) the adjusted basis of the shares of
SNB Stock surrendered in the transaction. The fair market
value of the First Commercial Stock on the Effective Date may
be determined on the basis of the average high and low selling
prices of such stock on the day of the transaction. If the
transaction does not qualify for tax-free reorganization
treatment, (i) the holding period for the shares of First
Commercial Stock to be received by the shareholders of SNB
will commence on the day following the date of the
transaction; (ii) gain or loss would likely be recognized by
SNB on the transfer of its assets to Stone Fort to the extent
of the difference between the fair market value of the assets
and the adjusted basis of the assets in the hands of SNB on
the Effective Date and (iii) the holding period for the assets
of SNB to be received by Stone Fort would likely commence on
the date following the transaction.
The foregoing discussion is limited to matters pertaining to
federal income tax law. Moreover, because of the complexity
of federal, state and local tax laws, the tax consequences to
any particular shareholder may be affected by matters not
pertaining to the SNB Merger. Accordingly, it is recommended
that each shareholder of SNB consult his own personal tax
advisor concerning the specific federal, state and local
income tax consequences of the SNB Merger.
Rights of Dissenting SNB Stockholders
Pursuant to 12 U.S.C. Section 215a, any holder of record of SNB
Stock who objects to the proposed SNB Merger and who fully complies
with all of the provisions of Section 215 (but not otherwise)
shall be entitled to demand and receive payment for all (but
not less than all) of his shares of SNB Stock if the SNB
Merger is consummated.
Any shareholder of SNB who objects to the SNB Merger and
desires to receive payment for his SNB Stock:
1. Must file a written objection to the SNB Merger with
SNB either prior to the SNB Special Meeting or at the SNB
Special Meeting, but before the vote is taken, or he must vote
against approval of the SNB Merger at the SNB Special Meeting;
AND
<PAGE>
2. Must file with Stone Fort a written notice of his
election to dissent within thirty (30) days after the date of
consummation of the SNB Merger, and the notice of dissent must
contain the shareholder's full name and address, the number of
shares of SNB Stock held by him, and a demand for payment of
the value of his shares; AND
3. Must concurrently with the giving of the notice
referred to in subparagraph 2 above submit his certificates
for SNB Stock to Lynn Mills, Secretary of Stone Fort, for
notation thereon of the shareholder's election to dissent.
Any notices required to be given to SNB should be forwarded to
Security National Bank, 3000 University Drive, Nacogdoches,
Texas 75963-2018, to the attention of Michael C. Haas,
President.
Any notices required to be given to Stone Fort should be
forwarded to Stone Fort National Bank, 300 E. Main,
Nacogdoches, Texas 75961, to the attention of Lynn Mills,
Secretary.
If the SNB Merger is approved, Stone Fort will promptly mail
by certified mail to each shareholder who has complied with
the conditions above written notice of such approval,
addressed to the shareholder at such address as he has
furnished SNB in writing, or if none, at the shareholder's
address as it appears on the records of SNB. Within thirty
(30) days after the date of consummation of the SNB Merger,
the shareholder must make the written election to dissent and
demand for payment described in subparagraph 2 above.
The value of the shares of SNB Stock held by dissenting
shareholders shall be ascertained, as of the Effective Date of
the SNB Merger, by an appraisal made by a committee of three
persons, composed of (a) one selected by the vote of the
holders of the majority of the SNB Stock, the owners of which
are entitled to payment in cash, (b) one selected by the
directors of Stone Fort, and (c) one selected by the two so
selected. The valuation agreed upon by any two of the three
appraisers shall govern. If the value so fixed shall not be
satisfactory to any dissenting shareholder who has requested
payment, such shareholder may, within five (5) days after
being notified of the appraised value of the shares, appeal to
the OCC, which shall cause a reappraisal to be made, which
shall be final and binding as to the value of the shares.
If within ninety (90) days from the date of consummation of
the SNB Merger for any reason one or more of the appraisers is
not selected or the appraisers fail to determine the value of
the shares of SNB Stock, the OCC shall upon written request of
any interested party cause an appraisal to be made, which
shall be final and binding on all parties. The expenses of
the OCC in making the reappraisal or the appraisal, as the
case may be, shall be paid by Stone Fort. The value of the
shares ascertained shall be promptly paid to the dissenting
shareholders by Stone Fort. The shares of First Commercial
Stock that would have been delivered to such dissenting
shareholders had they not requested
<PAGE>
payment shall be sold by First Commercial at an advertised
public auction, and First Commercial shall have the right to
purchase any of such shares at such public auction, if it is
the highest bidder therefor, for the purpose of reselling such
shares within thirty (30) days thereafter to such person or
persons and at such price, not less than par, as First
Commercial's Board of Directors by resolution may determine.
If the shares are sold at public auction at a price greater
than the amount paid to the dissenting shareholders, the
excess in such sale price shall be paid to such shareholders.
If holders of more than 23,000 shares of SNB Stock perfect
their dissenters' rights, SNB, First Commercial and Stone Fort
may elect not to consummate the SNB Merger, in which event the
dissenters' rights described in this section would terminate.
However, it is the intent of management of First Commercial to
accommodate those SNB shareholders electing to dissent to the
extent that funds may be obtained or financing may be arranged
to purchase their shares and to the extent that such
accommodation does not create tax, accounting or regulatory
obstacles.
The foregoing does not purport to be a complete statement of
the provisions of Section 215a of Title 12 of the United
States Code, and it is qualified in its entirety by reference
to such provisions, which are reproduced in full as Appendix A
to this Joint Proxy Statement/Prospectus.
Upon compliance with the statutory procedures, dissenting
shareholders will not have any rights as shareholders of SNB
or of First Commercial, including, among other things, the
right to receive dividends or the right to vote on matters
submitted for shareholder consideration.
Conditions of the SNB Merger
Consummation of the SNB Merger is conditioned upon the
occurrence of certain events on or prior to the Effective Date
including, among other things, the following: (i) approval of
the SNB Merger by the stockholders of SNB; (ii) confirmation
by First Commercial and SNB of the truth of their respective
representations and warranties and compliance with their
respective covenants as set forth in the SNB Agreement; (iii)
the absence of any court or governmental proceeding undertaken
or threatened to restrain, enjoin, prohibit, or obtain damages
for the transaction contemplated by the SNB Agreement which,
in the opinion of either First Commercial or SNB, would make
the consummation of the SNB Merger inadvisable; (iv) the
absence of any suit, action or proceedings pending or
threatened against First Commercial or SNB or any of each
other's officers or directors which, if successful, would, in
the reasonable judgment of SNB or First Commercial,
respectively, have a
<PAGE>
material adverse effect on the financial condition of First
Commercial or SNB, respectively; (v) receipt by First
Commercial and SNB of letters, as considered necessary, from
each other's independent certified public accountants relating
to certain financial statements and information of the other
and an opinion from Ernst & Young LLP that the pooling of
interests method of accounting applies to the SNB Merger; (vi)
receipt by First Commercial and SNB of certain opinions from
SNB's and First Commercial's counsel, respectively; (vii)
receipt by First Commercial from affiliates of SNB of an
agreement restricting disposition of First Commercial Stock
for a certain period of time; (viii) receipt by First
Commercial and SNB of an opinion from tax counsel addressing
the tax consequences of the contemplated SNB Merger; and (ix)
the absence of any material adverse change in the financial
condition, business or operations of either First Commercial
or SNB.
All of these conditions are expected to be met.
Any of the conditions set forth above may be waived at the
discretion of the respective institutions except as otherwise
provided by law. However, neither First Commercial nor SNB
will waive any condition if such waiver, in the judgment of
its respective Board of Directors, would result in materially
adverse consequences to it or its stockholders.
Regulatory Approval
Consummation of the SNB Merger requires the prior written
approval of the OCC and the Texas Department of Banking.
Applications for such approval were filed on September 11,
1996 and July 17, 1996, respectively. The Texas Department of
Banking has approved the SNB Merger.
Although no assurance can be provided, First Commercial and
SNB currently expect the SNB Merger to be consummated on or
before December 31, 1996. See "Termination of the SNB Merger"
below.
Termination of the SNB Merger
The SNB Agreement provides that it may be terminated, whether
before or after shareholder approval, by mutual consent of the
Boards of Directors of First Commercial and SNB at any time
before the Closing (as defined in the SNB Agreement). Either
First Commercial or SNB, at its option, may terminate the SNB
Agreement (unless such terminating party has breached a
covenant under the SNB Agreement) if the Closing Date shall
not have occurred on or before December 31, 1996.
<PAGE>
Either First Commercial or SNB may terminate the Agreement if
any of the conditions precedent to its obligation to
consummate the SNB Merger have not been met at or prior to the
Closing, or if it shall have discovered a material breach by
the other party of any representation, warranty or agreement
contained in the SNB Agreement that has not been cured within
twenty (20) days of the time that written notice of such
breach was received by such other party. See "Conditions of
the SNB Merger" above.
Effective Date
The SNB Agreement provides that the SNB Merger shall become
effective at the time and on the date specified in the
approval of merger issued by the OCC (the "SNB Effective
Date"). Although no assurance can be given, the SNB Effective
Date is expected to be on or before December 31, 1996.
Distribution of First Commercial Stock Certificates
After the SNB Effective Date, each holder of certificates
previously evidencing shares of SNB Stock will be required to
surrender such certificates for transfer and cancellation.
Upon surrender each holder will receive certificate(s)
representing the number of shares of First Commercial Stock
which the holders of such shares of SNB Stock will have the
right to receive (except for any fractional share interests as
described below in "Fractional Shares"), together with any
dividends which have been declared on such shares of First
Commercial Stock and to which such holders are entitled.
Holders of SNB Stock on the SNB Effective Date shall be
entitled to receive dividends declared by First Commercial
subsequent to the SNB Effective Date, but payment of such
dividends will not be required of First Commercial until such
persons have delivered their certificates representing shares
of SNB Stock in exchange for certificates representing shares
of First Commercial Stock.
As soon as practicable after consummation of the SNB Merger,
transmittal forms will be sent to stockholders of SNB for use
in forwarding to First Commercial's transfer agent
certificates previously evidencing SNB Stock for surrender and
exchange for certificates evidencing First Commercial Stock.
Until so surrendered, certificates formerly evidencing SNB
Stock will be deemed for all corporate purposes (except for
payment of dividends to SNB stockholders which may be withheld
pending exchange of certificates) to evidence the right to
receive the number of whole shares of First Commercial Stock
and the right to receive cash in lieu of fractional shares
which the holder thereof would be entitled to receive upon
surrender. Stockholders of SNB are requested not to submit
stock certificates for exchange until they have received
written instructions to do so.
<PAGE>
If outstanding certificates for shares of SNB Stock are not
surrendered, or if payment for them is not claimed prior to
such date on which such payment would otherwise escheat to or
become the property of any governmental unit or agency, the
unclaimed item shall, to the extent permitted by the abandoned
property and/or any other applicable law, become the property
of First Commercial (and to the extent not in its possession
shall be paid over to it), free and clear of all claims or
interests of any person previously entitled to such items.
Notwithstanding the foregoing, neither First Commercial's
transfer agent nor any party to the SNB Merger shall be liable
to any holder of SNB Stock for any amount paid to any
governmental unit or agency having jurisdiction of such
unclaimed items pursuant to the abandoned property or other
applicable law of such jurisdiction.
Fractional Shares
No fractional shares of First Commercial Stock will be issued
for shares of SNB Stock. In lieu of fractional interests,
First Commercial shall pay to such persons who would otherwise
receive fractional shares cash in an amount equal to the
market value of such fractional shares determined on the basis
that one share of First Commercial Stock shall have a value
equal to the average of the bid and asked prices of First
Commercial Stock on the Closing Date. See "Federal Income Tax
Consequences" above.
Dilution
Each common stockholder of SNB who exchanges his stock will
receive a voting interest exactly in proportion to his
relative voting common stock interest in relation to other SNB
stockholders before the combination is effected. Each share
of SNB Stock presently held by SNB stockholders will represent
less of a percentage voting interest in the total number of
outstanding shares of First Commercial (subsequent to the SNB
Merger) than it now represents as a percentage of the total
outstanding shares of SNB.
Accounting Treatment
The SNB Merger will be accounted for as a pooling of interests
under generally accepted accounting principles. The assets
and liabilities of SNB will be reflected in the consolidated
financial statements of First Commercial at their book value
as reflected in SNB's financial statements. Expenses incurred
in connection with the SNB Merger will be considered as an
expense of First Commercial.
A condition of consummating the SNB Merger is that First
Commercial receive an opinion from Ernst & Young LLP that the
pooling of interests method of accounting applies to the SNB
Merger. Management of First Commercial expects this condition
to be met.
<PAGE>
Registration of First Commercial Stock Under the Securities
Act
The shares of First Commercial Stock to be issued to SNB
stockholders in the SNB Merger have been registered under the
Securities Act of 1933, as amended (the "Securities Act"),
thereby allowing such shares to be freely traded without
restriction by persons who will not be "affiliates" of First
Commercial and who were not affiliates of SNB, as that term is
defined in the Securities Act.
Directors and certain officers and stockholders of SNB may be
deemed to be "affiliates" of SNB within the meaning of the
Securities Act. Accordingly, resales by such persons of any
shares of First Commercial Stock received by them in the SNB
Merger are restricted and may be made only if such stock is
registered under the Securities Act or an exemption from the
registration requirements of the Securities Act is available.
All such persons should carefully consider the limitations
imposed by Rules 144 and 145 promulgated under the Securities
Act ("Rule 144" and "Rule 145") prior to effecting any resales
of such First Commercial Stock.
Pursuant to Rule 145, the sale of First Commercial Stock held
by those persons who are affiliates of SNB will be subject to
certain restrictions. For two years following the Effective
Date, such persons may sell the First Commercial Stock only if
(i) First Commercial has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), during the preceding
twelve months, (ii) such First Commercial Stock is sold in
"brokers' transactions" as that term is defined in Section
4(4) of the Securities Act, (iii) the person selling such
First Commercial Stock does not solicit or arrange for the
solicitation of orders to buy such First Commercial Stock in
anticipation of or in connection with such transaction nor
make any payment in connection with the offer or sale of such
First Commercial Stock to any person other than the broker who
executes the order to sell, and (iv) sales made by such person
within the preceding three months do not exceed 1% of the
outstanding shares of that class. Shares of the First
Commercial Stock held for more than two years but less than
three years after the SNB Effective Date may be sold freely if
First Commercial is in compliance with the above discussed
Exchange Act reporting requirements. Once the shares of First
Commercial Stock have been held for three years from the SNB
Effective Date, they may be sold free from the restrictions of
Rules 144 and 145.
<PAGE>
It is a condition of First Commercial's obligation to
consummate the SNB Merger that First Commercial shall have
received an agreement in form and substance satisfactory to
it, executed and delivered by each holder of SNB Stock who is
determined to be an affiliate of SNB, providing, among other
things, that such holder (i) will not sell, transfer or in any
way reduce his risk with respect to his shares of First
Commercial Stock until such time as First Commercial shall
have published financial results covering at least 30 days of
post-Merger combined operations, (ii) has no present intent to
sell, transfer or otherwise dispose of any of his shares of
First Commercial Stock and (iii) will not sell, transfer or
otherwise dispose of more than fifty percent (50%) of his
shares of First Commercial Common Stock for a period of at
least one (1) year following the Closing.
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined balance sheets as
of December 31, 1995 and June 30, 1996 and unaudited pro forma
combined statements of income for the three years ended
December 31, 1995 and for the six month periods ended June 30,
1996 and 1995 give effect to the following transactions:
As described herein, on May 9, 1996, First Commercial entered
into a definitive agreement with TBT and CNB, whereby CNB will be
merged with and into TBT, a subsidiary of First Commercial. As
also described herein, such transaction is currently the subject
of Ongoing Negotiations between the parties with regard to the
purchase price. For purposes of the following pro forma combined
financial information, it is assumed that the transaction
will be effected through an exchange of 174,492 shares of
First Commercial common stock for all of the outstanding shares
of CNB. Given the Ongoing Negotiations, First Commercial
believes that 174,492 shares reflects the highest number of shares
that it will exchange in connection with the CNB Merger. The
consummation of the merger requires the prior approval of
the OCC and the Texas Department of Banking. The merger
will be accounted for as a pooling of interests.
As further described herein, on June 28, 1996, First
Commercial entered into a definitive agreement with Stone Fort
and SNB, whereby SNB will be merged with and into Stone Fort,
a subsidiary of First Commercial. This transaction will be
effected through an exchange of 241,171 shares of First
Commercial common stock for all of the outstanding shares of
SNB. The consummation of the merger requires the prior
approval of the OCC and the Texas Department of Banking. This
merger will also be accounted for as a pooling of interests.
The following unaudited pro forma financial information is not
necessarily indicative of the results of operation of First
Commercial as if the acquisition had occurred on January 1,
1993.
<PAGE>
<TABLE>
PRO FORMA COMBINED BALANCE SHEET
June 30, 1996
(Unaudited)
<CAPTION>
Pending
--------------
(Dollars in Thousands) First Commercial CNB SNB Pro forma
Corporation (Pooling) (Pooling) Adjustment Pro forma
<F1> <F2> <F3> <F4>
------------ -------- ------ -------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $291,109 $3,187 $1,934 $296,230
Investment securities held-to-maturity 336,529 9,987 346,516
Investment securities available-for-sale 1,015,985 2,111 6,079 1,024,175
Trading account securities 556 556
Short-term investments 78,124 1,771 35 79,930
Loans, net 3,168,239 30,238 16,478 3,214,955
Premises and equipment, net 103,957 2,396 1,939 108,292
Other assets 226,892 705 467 228,065
---------- ------- ------- ----------
$5,221,391 $40,408 $36,920 $5,298,719
========== ======= ======= ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $867,225 $7,372 $4,982 $879,579
Interest bearing 3,671,072 30,048 27,963 3,729,083
---------- ------- ------ ----------
Total deposits 4,538,297 37,420 32,945 4,608,662
Short-term borrowings 169,851 169,851
Other liabilities 59,769 333 291 60,393
Long-term debt 6,098 6,098
---------- ------- ------- ----------
Total liabilities 4,774,015 37,753 33,236 4,845,004
---------- ------- ------- ----------
<PAGE>
Stockholders' equity:
Common stock 82,168 863 1,150 (766) <F5> 83,415
Surplus 195,381 862 1,150 766 <F5> 198,159
Retained earnings 175,445 976 1,463 177,884
Unrealized net gains (losses) on available-
for-sale securities, net of income (4,221) (46) (80) (4,347)
Treasury stock (1,397) (1,397)
---------- ------- ------- ----------
Total stockholders' equity 447,376 2,655 3,683 453,714
---------- ------- ------- ----------
$5,221,391 $40,408 $36,920 $5,298,718
========== ======= ======= ==========
<FN>
<F1> Represents historical balance sheet of First Commercial Corporation.
</FN>
<FN>
<F2> Represents historical balance sheet of City National Bank.
</FN>
<FN>
<F3> Represents historical balance sheet of Security National Bank.
</FN>
<FN>
<F4> Represents pro forma combined balances, as if these pooling transactions had occurred
on or prior to June 30, 1996.
</FN>
<FN>
<F5> This entry reflects the actual amount of First Commercial Corporation common stock to
be outstanding after the acquisition of City National Bank and Security National Bank.
</FN>
</TABLE>
<PAGE>
<TABLE>
PRO FORMA COMBINED BALANCE SHEET
December 31, 1995
(Unaudited)
<CAPTION>
Pending
(Dollars in Thousands) First Commercial CNB SNB Pro forma
Corporation (Pooling) (Pooling) Adjustment Pro forma
<F1> <F2> <F3> <F4>
---------- ------ ------ -------- ------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $432,117 $2,233 $4,929 $439,279
Investment securities held-to-maturity 351,415 8,305 359,720
Investment securities available-for-sale 973,129 2,357 6,824 982,310
Trading account securities 449 449
Short-term investments 108,181 2,491 225 110,897
Loans, net 3,164,221 29,376 16,685 3,210,282
Premises and equipment, net 106,665 2,293 1,975 110,933
Other assets 224,763 785 472 226,020
---------- ------- ------- ----------
$5,360,940 $39,535 $39,415 $5,439,890
========== ======= ======= ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $1,018,181 $6,709 $6,712 $1,031,602
Interest bearing 3,612,360 30,072 28,810 3,671,242
---------- ------ ------ ----------
Total deposits 4,630,541 36,781 35,522 4,702,844
Short-term borrowings 235,378 235,378
Other liabilities 55,592 272 338 56,202
Long-term debt 7,170 7,170
---------- ------ ------ ----------
Total liabilities 4,928,681 37,053 35,860 5,001,594
---------- ------ ------ ----------
<PAGE>
Stockholders' equity:
Common stock 82,030 863 1,150 (766) <F5> 83,277
Surplus 195,019 862 1,150 766 <F5> 197,797
Retained earnings 154,356 774 1,267 156,397
Unrealized net gains (losses) on
available-for-sale securities, net
of income tax 854 (17) (12) 825
Total stockholders' equity 432,259 2,482 3,555 438,296
---------- ------- ------- ----------
$5,360,940 $39,535 $39,415 $5,439,890
========== ======= ======= ==========
<FN>
<F1> Represents historical balance sheet of First Commercial Corporation.
</FN>
<FN>
<F2> Represents historical balance sheet of City National Bank.
</FN>
<FN>
<F3> Represents historical balance sheet of Security National Bank.
</FN>
<FN>
<F4> Represents pro forma combined balances, as if these pooling
transactions had occurred on or prior to December 31, 1995.
</FN>
<FN>
<F5> This entry reflects the actual amount of First Commercial Corporation
common stock to be outstanding after the acquisition of City National
Bank and Security National Bank.
</FN>
</TABLE>
<PAGE>
PRO FORMA COMBINED STATEMENT OF INCOME
For the Six Months Ended June 30, 1996
(Unaudited)
(In thousands except for per share data.)
Pending
First
Commercial CNB SNB Pro
Corporation (Pooling) (Pooling) forma
<F1> <F2> <F3> <F4>
-------- ------ ------ ------
Interest income $184,227 $1,629 $1,366 $187,222
Interest expense 78,509 646 619 79,774
------- ----- ----- -------
Net interest income 105,718 983 747 107,448
Provision for possible loan
and lease losses 3,125 92 (56) 3,161
Net interest income after
provision for possible loan
and lease losses 102,593 891 803 104,287
Other operating income 51,418 346 275 52,039
Other operating expenses 103,761 955 694 105,410
-------- ----- ----- --------
Income before income taxes 50,250 282 384 50,916
Income tax expense (benefit) 17,667 80 119 17,866
-------- ----- ----- --------
Net income $32,583 $202 $265 $33,050
======== ===== ===== =======
Average common shares
outstanding during period 27,343,316 172,500 230,000 27,758,979
Net income per common share $1.19 $1.17 $1.15 $1.19
<F1> Represents historical income statement of First Commercial Corporation.
<F2> Represents historical income statement of City National Bank.
<F3> Represents historical income statement of Security National Bank.
<F4> Represents pro forma results as if these pooling transactions had
occurred on or prior to June 30, 1996.
<PAGE>
PRO FORMA COMBINED STATEMENT OF INCOME
For the Six Months Ended June 30, 1995
(Unaudited)
(In thousands except for per share data.)
Pending
First
Commercial CNB SNB Pro
Corporation Pooling Pooling Forma
<F1> <F2> <F3> <F4>
--------- ------ ----- ------
Interest income $152,180 $1,377 $1,203 $154,760
Interest expense 64,757 588 522 65,867
------- ------ ------ --------
Net interest income 87,423 789 681 88,893
Provision for possible loan
and lease losses 1,259 40 (6) 1,293
Net interest income after
provision for possible loan
and lease losses 86,164 749 687 87,600
Other operating income 31,469 313 254 32,036
Other operating expenses 78,016 881 658 79,555
------- ----- ----- -------
Income before income taxes 39,617 181 283 40,081
Income tax expense (benefit) 13,200 44 86 13,330
------- ----- ----- -------
Net income $26,417 $137 $197 $26,751
======= ===== ===== =======
Average common shares
outstanding during period <F5> 26,141,512 172,500 230,000 26,557,175
Net income per common share $1.01 $0.79 $0.86 $1.01
<F1> Represents historical income statement of First Commercial Corporation.
<F2> Represents historical income statement of City National Bank.
<F3> Represents historical income statement of Security National Bank.
<F4> Represents pro forma results as if these pooling transactions had
occurred on or prior to June 30, 1995.
<F5> Average shares outstanding for First Commercial Corporation and pro
forma combined have been restated to reflect the 7% stock dividend
declared November 1995.
<PAGE>
PRO FORMA COMBINED STATEMENT OF INCOME
For the Year Ended December 31, 1995
(Unaudited)
(In thousands except for per share data.)
Pending
First
Commercial CNB SNB Pro
Corporation (Pooling) (Pooling) forma
<F1> <F2> <F3> <F4>
-------- ------ ------ -----
Interest income $322,182 $2,924 $2,541 $327,647
Interest expense 137,632 1,270 1,121 140,023
-------- ------ ------ --------
Net interest income 184,550 1,654 1,420 187,624
Provision for possible loan
and lease losses 3,059 100 (21) 3,138
Net interest income after
provision for possible loan
and lease losses 181,491 1,554 1,441 184,486
Other operating income 73,988 656 519 75,163
Other operating expenses 170,306 1,822 1,335 173,463
------- ----- ----- -------
Income before income taxes 85,173 388 625 86,186
Income tax expense (benefit) 28,263 123 190 28,576
------- ----- ----- -------
Net income $56,910 $265 $435 $57,610
======= ===== ===== =======
Average common shares
outstanding during period 26,221,023 172,500 230,000 26,636,686
Net income per common share $2.17 $1.54 $1.89 $2.16
<F1> Represents historical income statement of First Commercial Corporation.
<F2> Represents historical income statement of City National Bank.
<F3> Represents historical income statement of Security National Bank.
<F4> Represents pro forma results as if these pooling transactions had
occurred on or prior to December 31, 1995.
<PAGE>
PRO FORMA COMBINED STATEMENT OF INCOME
For the Year Ended December 31, 1994
(Unaudited)
(In thousands except for per share data.)
Pending
First
Commercial CNB SNB Pro
Corporation (Pooling) (Pooling) forma
<F1> <F2> <F3> <F4>
--------- ----- ------ -----
Interest income $257,751 $2,380 $2,265 $262,396
Interest expense 98,306 724 898 99,928
-------- ------ ------ --------
Net interest income 159,445 1,656 1,367 162,468
Provision for possible loan
and lease lossess (3,092) 120 (44) (3,016)
Net interest income after
provision for possible loan
and lease losses 162,537 1,536 1,411 165,484
Other operating income 68,652 477 550 69,679
Other operating expenses 156,875 1,492 1,355 159,722
------- ------ ------ --------
Income before income taxes 74,314 521 606 75,441
Income tax expense (benefit) 24,006 167 185 24,358
------- ------ ------ --------
Net income $50,308 $354 $421 $51,083
======= ====== ====== ========
Preferred stock dividend 129 129
Income applicable to common
shares $50,179 $354 $421 $50,954
Average common shares
outstanding during period <F5> 25,607,960 172,500 230,000 26,023,623
Net income per common share $1.96 $2.05 $1.83 $1.96
<F1> Represents historical income statement of First Commercial Corporation.
<F2> Represents historical income statement of City National Bank.
<F3> Represents historical income statement of Security National Bank.
<F4> Represents pro forma results as if these pooling transactions had
occurred on or prior to December 31, 1994.
<F5> Average shares outstanding for First Commercial Corporation and pro
forma combined have been restated to reflect the 7% stock dividend
declared November 1995.
<PAGE>
PRO FORMA COMBINED STATEMENT OF INCOME
For the Year Ended December 31, 1993
(Unaudited)
(In thousands except for per share data.)
Pending
First
Commercial CNB SNB Pro
Corporation (Pooling) (Pooling) forma
<F1> <F2> <F3> <F4>
--------- ------ ------- -----
Interest income $234,995 $2,148 $2,242 $239,385
Interest expense 90,421 646 892 91,959
-------- ------ ------ --------
Net interest income 144,574 1,502 1,350 147,426
Provision for possible loan
and lease losses 4,416 54 5 4,475
Net interest income after
provision for possible loan
and lease losses 140,158 1,448 1,345 142,951
Other operating income 58,957 448 591 59,996
Other operating expenses 135,191 1,438 1,245 137,874
-------- ------ ------ --------
Income before income taxes 63,924 458 691 65,073
Income tax expense (benefit) 17,959 48 219 18,226
-------- ------ ------ --------
Net income before cumulative
effect of a change in
accounting principle 45,965 410 472 46,847
Cumulative effect on prior
years of adopting FAS 109 47 47
------- ----- ----- -------
Net income $45,965 $410 $519 $46,894
======= ===== ===== =======
Preferred stock dividend 1,210 1,210
Income applicable to common
shares $44,755 $410 $519 $45,684
======= ===== ===== =======
Average common shares
outstanding during period <F5> 25,714,354 172,500 230,000 26,130,017
Net income per common share $1.74 $2.38 $2.26 $1.75
<PAGE>
<F1> Represents historical income statement of First Commercial Corporation.
<F2> Represents historical income statement of City National Bank.
<F3> Represents historical income statement of Security National Bank.
<F4> Represents pro forma results as if these pooling transactions had
occurred on or prior to December 31, 1993.
<F5> Average shares outstanding for First Commercial Corporation and pro
forma combined have been restated to reflect the 5% stock dividend
declared November 1994 and the 7% stock dividend declared November 1995.
<PAGE>
INFORMATION CONCERNING CITY NATIONAL BANK
Business of CNB
CNB was organized as a national banking association on June
24, 1985, and provides consumer and commercial lending for the
Whitehouse and southeast Tyler communities. The Bank has
branches located in Gresham, the Lake Palestine area, the West
Loop in Tyler and Gentry Parkway in Tyler. CNB's principal
office is located at 1125 Highway 110 North, Whitehouse, Texas
75791, telephone number: (903)839-6000.
CNB Stock
General
As of July 31, 1996, there were 172,500 outstanding shares of
CNB Stock. The approximate number of holders of CNB Stock on
that date was 75. There is no established public trading
market for shares of CNB Stock.
On May 8, 1996, the date preceding the announcement of the CNB
Merger, there was no independent basis for establishing a per
share cash market price for CNB Stock. Book value of CNB
Stock equaled $15.33 per share on that date.
CNB's dividends for the six month period ended June 30, 1996
and the last two fiscal years are as follows:
First Second Third Fourth Total
Quarter Quarter Quarter Quarter
Dividend
Dividend Dividend Dividend Dividend
Declared
1996:
Per share $ 0 $ 0 $ - $ - $ -
Total Declared 0 0 - - -
1995:
Per share $ 0 $ 0 $ 0 $ 0 $ 0
Total Declared 0 0 0 0 0
1994
Per share $ .25 $ 0 $ 0 $ 0 $ .25
Total Declared 43,125 0 0 0 43,125
Security Ownership of Certain Beneficial Owners
The following table sets forth, as of July 31, 1996, the
identity and total number of shares of CNB Common Stock owned
by persons known by management of CNB to own more than five
percent (5%) of the total outstanding shares.
<PAGE>
First Commercial
Common Stock to
CNB Common Stock be Owned Upon
Name and Address of Beneficially Owned Consummation of
Beneficial Owner on July 31, 1996 the Merger (1)
% of % of
Shares Class Shares Class
Nancy Duress 12,522(2) 7.26 12,666 *
P.O. Box 1046
Whitehouse, TX 75791
D.W. Hamilton 16,173 9.38 16,359 *
P.O. Box 516
Whitehouse, TX 75791
Ray Howard 30,874(3) 17.90 31,230 *
P.O. Box 176
Whitehouse, TX 75791
John B. McDonald 33,633 19.50 34,021 *
P.O. Box 39
Troup, TX 75789
Jess Odom 25,466(4) 14.76 25,760 *
16027 County Line Road
Troup, TX 75789
Clyde Weaver 19,220 11.14 19,442 *
208 Ackertap
Whitehouse, TX 75791
*Denotes less than 1%
(1) Assumes an exchange ratio of 1.01155 First Commercial shares
for each outstanding CNB share.
(2) 200 shares are held by Mrs. Duress's husband.
(3) 4,000 shares are owned jointly by Mr. Howard and his
wife, and 26,874 are owned by the Ray Howard Company, of
which Mr. Howard serves as President.
(4) These shares are held jointly with his wife.
Security Ownership of Management
The following table sets forth the beneficial ownership of
shares of CNB Common Stock by each director of CNB and by all
directors and executive officers of CNB as a group as of July
31, 1996. The number of shares shown as being beneficially
owned by each director are those over which he or she has
either sole or shared voting and/or investment powers.
<PAGE>
First Commercial
Common Stock to
CNB Common Stock be Owned Upon
Beneficially Owned Consummation of
Name of Directors on July 31, 1996 the Merger (1)
% of % of
Shares Class Shares Class
Nancy Duress 12,522(2) 7.26 12,666 *
D.W. Hamilton 16,173 9.38 16,359 *
Ray Howard 30,874(3) 17.90 31,230 *
John B. McDonald 33,633 19.50 34,021 *
Jess Odom 25,466(4) 14.76 25,760 *
Tom Tatum 8,401(5) 4.87 8,498 *
Ray Terry 8,026(6) 4.65 8,118 *
Clyde Weaver 19,220 11.14 19,442 *
All Directors and Exe-
cutive Officers as a
Group (a total of 14
individuals) 156,474 90.71 158,281 *
*Denotes less than 1%
(1) Assumes an exchange ratio of 1.01155 First Commercial shares
for each outstanding CNB share.
(2) 200 shares are held by Mrs. Duress's husband.
(3) 4,000 shares are owned jointly by Mr. Howard and his
wife, and 26,874 shares are owned by the Ray Howard
Company, of which Mr. Howard serves as President.
(4) These shares are held jointly with his wife.
(5) 459 shares are held by Mr. Tatum's wife.
(6) 275 shares are held by Terry's Plant Farm, a company of
which Mr. Terry serves as President.
<PAGE>
<TABLE>
Selected Financial Data - City National Bank
The following selected financial data should be read in conjunction with
the financial statements, including the notes thereto, set forth in this
document. See "Consolidated Financial Statements of CNB."
CITY NATIONAL BANK
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Six Months Ended June 30, <F1> Year Ended December 31,
1996 1995 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Operating Results:
Net Interest Income $ 983 $ 789 $ 1,654 $ 1,656 $ 1,502 $1,216 $871
Provision for Possible
Loan and Lease Losses 92 40 100 120 54 20 0
Net Income 202 137 265 354 410 476 303
Period End Balance Sheet Data:
Total Assets 40,408 37,265 39,535 32,879 30,047 24,042 21,750
Total Deposits 37,420 34,570 36,781 28,548 27,983 22,408 20,583
Shareholders' Equity 2,655 2,371 2,482 2,234 1,923 1,513 1,037
Per Common Share Data:
Net Income 1.17 .79 1.54 2.05 2.38 2.76 1.76
Cash Dividends 0 0 0 .25 0 0 0
Book Value 15.39 13.74 14.39 12.95 11.15 8.77 6.01
<FN>
<F1>
The unaudited operating results for CNB for the six months ended June 30, 1996 and 1995, in the
opinion of CNB management, included all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation. Interim results for the six months ended June 30, 1996,
are not necessarily indicative of results for the full year 1996.
</FN>
</TABLE>
<PAGE>
Management's Discussion and Analysis or Plan of Operation
The following discussion provides certain information
concerning CNB's financial condition and results of
operations. For a more complete understanding of the
following discussion, reference should be made to the
financial statements of CNB and related notes thereto
presented elsewhere in this Joint Proxy Statement/Prospectus.
Financial Condition - June 30, 1996 Compared with June 30,
1995
Throughout the preceding twelve months CNB management
concentrated its efforts toward increasing the size of CNB.
Deposits increased by $2,879,679 or 8.24%. This deposit
growth was used to fund an additional $2,589,908 in loans
(9.26% increase). During this time period, dividends were not
paid, thereby creating a $329,970 or a 13.92% increase in
stockholders' equity. Risk weighted assets totaled
$31,414,000 at June 30, 1996 with a capital to risk weighted
asset ratio of 9.61%. CNB concluded the first six months of
1996 with a return on assets of 1.00% and a return on equity
of 15.54%.
Statement of Income - Six Months Ended June 30, 1996 Compared
with June 30, 1995
Net income for the first six months of 1996 was $202,039
compared to $136,586 for the same period in 1995. Net
interest margin was strengthened by increased loan volume with
minimal negative impact from increased deposits. An eighty
basis point increase in loan yield was the primary stimulus
for a $252,457 increase in total interest income contrasting
with a ten basis point increase in deposit rates for a $58,452
increase in interest expense. Net interest margin improved by
$194,005.
CNB increased its loan loss provision from $40,000 for the
first six months of 1995 to $92,000 for the same period in
1996. As a result of the expansion of CNB's facilities in
1995 and 1994, occupancy expense increased by $61,880.
Finally, the loss on sale of assets created a $13,069 negative
impact on other income in 1996.
1995 Compared to 1994
1995 was a period of excellent growth for CNB. Loans
increased by $4,383,638 or 17.34%, deposits increased by
$8,233,224 or 28.84% and total assets increased by $6,697,345
or 20.37%. The increase in loans and deposits was prompted by
CNB expanding its facilities - building, furniture and
fixtures increased by $675,570 or 41.78%. Dividends were not
paid in 1995, which created a $264,517 or 11.84% increase in
stockholders' equity. In addition to the increase in loans,
the deposit growth was used to eliminate $1,855,000 in
borrowings and increase short term investments by $1,716,749.
CNB concluded the year with a return on assets of .72% and a
return on equity of 11.17%, both of which decreased from 1994.
<PAGE>
Net income for 1995 was $264,517 compared to $354,363 in 1994.
The $543,356 increase in interest income was offset by a
$545,803 increase in interest expense creating a flat net
interest margin. The $1,421,912 increase in demand deposits
yielded a $126,852 increase in deposit fee income. The
increase in other income resulted mainly from losses on sale
of assets sustained in 1994.
The primary negative impact on earnings was the $186,953
(73.64%) increase in occupancy and equipment costs. Interim
earnings suffered from CNB's expansion.
1994 compared to 1993
1994 was a period of above average growth for CNB. Assets
increased by $2,831,343 or 9.42%. Deposits remained
relatively flat with a $565,112 or 2.02% increase; however,
loan growth had a substantial $4,739,403 or 23.07% increase.
Minimal deposit growth required the use of short-term
investments and borrowings to fund loans. Short term
investments decreased by $2,953,000 or 79.23% and borrowings
increased by $1,855,000. CNB used a portion of its resources
for expansion by adding approximately $400,000 to building and
equipment. Return on assets and return on equity were of
1.14% and 16.99%, respectively.
Net income fell by $55,776 or 13.60% from 1993 to $354,363.
The increase in loan volume strengthened the net interest
margin by $153,370 or 10.21%. Although total deposit growth
was minimal, demand deposits increased by $1,031,633 or 24.24%
resulting in a $51,808 or 14.22% increase in deposit fee
income. Other income fell sharply by $22,799 or 27.22% due to
the loss on sale of assets of $27,398.
Non interest expense increased by $119,655 or 8.02% which was
evenly distributed among the major expense categories.
Salaries increased by $45,694 or 8.08%, occupancy expense
increased by $35,066 or 16.03% and all other expenses
increased by $38,895 or 5.50%. The provision for federal
income taxes increased by $118,500 or 244.33%.
Allowance for Loan Losses
A summary of the changes in the allowance for loan losses for
each of the past two years, including loan loss experience by
major category, is presented below.
<PAGE>
Six Months Ended
June 30
1996 1995
Balance at beginning of period $292,000 $278,000
Amounts charged-off:
Commercial 16,000 31,000
Real estate mortgage 0 0
Consumer 68,000 22,000
Total loans charged-off 84,000 53,000
Recoveries on amounts previously
charged-off:
Commercial 9,000 3,000
Real estate mortgage 0 0
Consumer 8,000 12,000
Total recoveries 17,000 15,000
Net charge-offs 67,000 38,000
Provision for loan losses 92,000 40,000
Balance at end of period $317,000 $280,000
======== ========
Ratio of net charge-offs
during the period to average
loans outstanding during the
period .37% .39%
The allowance for loan losses is established through a
provision for loan losses charged to expenses. The allowance
represents an amount which, in management s judgment, will be
adequate to absorb probable losses on existing loans that may
become uncollectible. The adequacy of the allowance for loan
losses is determined on an ongoing basis by means of an
analysis of the overall quality of the loan portfolio, the
historical loan loss experience of the bank, loan delinquency
trends and the economic conditions within the trade area.
Also, additional allocations are made to the allowance based
on specially identified potential loss situations. These
potential loss situations are identified by an internal loan
review function reporting directly to CNB s Board of
Directors, as well as by the account officers evaluation of
their portfolios.
The tables below set forth an allocation of the allowance for
loan losses according to the categories of loans indicated and
a percentage distribution of the allowance allocation. In
making the allocation, consideration was given to such factors
as management s evaluation of risk in each category, current
economic conditions and charge-off experience. The following
allocation does not indicate the unavailability of any portion
of the allowance for loan losses to absorb losses in any loan
category.
<PAGE>
Allocation of Allowance for loan losses
June 30
1996 1995
Commercial $134,000 $129,000
Real Estate 53,000 50,000
Consumer 130,000 101,000
Total $317,000 $280,000
======== ========
Percentage Distribution of Allowance for Loan Losses and
Categories of Loans as Percent of Gross Loans at June 30
1996 1995
Allowance Loans Allowance
Loans
Commercial 42.42% 22.14% 45.96%
28.62%
Real Estate 16.71 45.75 18.02
41.75
Consumer 40.87 32.11 36.02
29.63
100.00% 100.00% 100.00%
100.00%
====== ====== ======
======
<PAGE>
Nonaccrual and Past Due Loans
It is the policy of CNB to place loans greater than ninety
days past due on nonaccrual status, unless the lending officer
can provide sufficient evidence supporting probable collection
within the near future. All loans greater than one hundred
and twenty days past due are placed on nonaccrual. At the
discretion of the lending officer, some loans past due less
than ninety days may be placed on nonaccrual.
As of June 30, 1996 and 1995, there was approximately $165 and
$135 thousand, respectively, in nonaccrual loans and $224 and
$26 thousand, respectively, in accruing loans contractually
past due 90 days or more as to principal or interest payments.
INFORMATION CONCERNING SECURITY NATIONAL BANK
Business of SNB
SNB was organized as a national banking association on
December 15, 1980 under the laws of the United States of
America and is headquartered in Nacogdoches, Texas, where it
owns its banking facility located at 3000 University Drive,
Nacogdoches, Texas 75963-2018, telephone number: (409)560-
2265. SNB engages in a general, full-service commercial and
consumer banking business. As of June 30, 1996, SNB had total
assets of approximately $36,919,000, total deposits of
approximately $32,945,000, and total stockholders' equity of
approximately $3,683,000 (or approximately 9.98% of total
assets).
SNB Stock
General
As of June 30, 1996, there were 230,000 outstanding shares of
SNB Stock. The approximate number of holders of SNB Stock on
that date was 300. There is no established public trading
market for shares of SNB Stock.
On June 27, 1996, the date preceding the announcement of the
SNB Merger, there was no independent basis for establishing a
per share cash market price for SNB Stock. Book value of SNB
Stock equaled $16.01 per share on that date.
SNB's dividends for the six month period ended June 30, 1996
and the last two fiscal years are as follows:
<PAGE>
First Second Third Fourth Total
Quarter Quarter Quarter Quarter
Dividend
Dividend Dividend Dividend Dividend
Declared
1996:
Per share $ .15 $ .15 $ - $ - $ .30
Total Declared 34,500 34,500 - - 69,000
1995:
Per share $ .15 $ .15 $ .15 $ .15 $ .60
Total Declared 34,500 34,500 34,500 34,500 138,000
1994:
Per share $ .15 $ .15 $ .15 $ .15 $ .60
Total Declared 34,500 34,500 34,500 34,500 138,000
Security Ownership of Certain Beneficial Owners
The following table sets forth, as of June 30, 1996, the
identity and total number of shares of SNB Common Stock owned
by persons known by management of SNB to own more than five
percent (5%) of the total outstanding shares.
First Commercial
Common Stock to
SNB Common Stock be Owned Upon
Name and Address of Beneficially Owned Consummation of
Beneficial Owner on June 30, 1996(1) the Merger
------------------- ------------------- -----------------
% of % of
Shares Class Shares Class
------ ----- ------ -----
Joan Cason Smith 14,620 6.36 15,330 *
Route 13, Box 8100
Nacogdoches, TX 75961
Paul H. Smith 20,914 9.09 21,929 *
P.O. Box 630808
Nacogdoches, TX 75963-0808
Commercial National Bank 14,557 6.33 15,264 *
P.O. Box 630847
Nacogdoches, TX 75963-0847
Maxine Jones Children's 14,880 6.47 15,602 *
Trust
Route 1, Box 41-A
Cushing, TX 75760
*Denotes less than 1%
(1) As of June 30, 1996, there were 230,000 shares of SNB
Stock outstanding.
<PAGE>
Security Ownership of Management
The following table sets forth the beneficial ownership of
shares of SNB Common Stock by each director and executive
officer of SNB and by all directors and executive officers of
SNB as a group as of June 30, 1996. The number of shares
shown as being beneficially owned by each director are those
over which he or she has either sole or shared voting and/or
investment powers.
First Commercial
Common Stock to
Name of Directors SNB Common Stock be Owned Upon
and Executive Beneficially Owned Consummation of
Officers on June 30, 1996(1) the Merger
----------------- -------------------- ----------------
% of % of
Shares Class Shares Class
------ ----- ------ -----
Donald Alexander 2,436 1.06 2,554 *
Bob DeWitt 7,754 3.37 8,130 *
Michael C. Haas 4,473 1.94 4,690 *
R. Gerald Jones(2) 3,800 1.65 3,984 *
Bob McKnight 6,504 2.83 6,819 *
Bill Pederson, Jr. 4,899 2.13 5,136 *
Frank Sisco 1,336 .58 1,400 *
Joan Cason Smith 14,620 6.36 15,330 *
Paul H. Smith 20,914 9.09 21,929 *
Thomas J. Stanly 7,127 3.10 7,473 *
All Directors and Exe- 70,691 30.74 74,124 *
cutive Officers (14)
as a Group
*Denotes less than 1%
(1) As of June 30, 1996, there were 230,000 shares of SNB
Stock outstanding.
(2) Includes 3,500 shares held by Pineywoods Investment
Company, a corporation controlled by Mr. Jones.
<PAGE>
<TABLE>
Selected Financial Data - Security National Bank
The following selected financial data should be read in
conjunction with the financial statements, including the notes
thereto, set forth in this document. See "Consolidated Financial
Statements of SNB."
SECURITY NATIONAL BANK
(In thousands, except per share data)
(Unaudited)
<CAPTION> Six Months Ended June 30,
<F1> Year Ended December 31,
---------------------- -------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Operating Results:
Net Interest Income 747 681 1,420 1,367 1,350 1,210 1,011
Provision for Possible
Loan and Lease Losses (56) (6) (21) (44) 5 28 176
Net Income 265 197 435 421 519 510 162
Period End Balance Sheet
Data:
Total Assets 36,920 36,079 39,415 35,679 38,289 34,785 31,506
Total Deposits 32,945 32,476 35,522 32,295 34,921 31,977 29,178
Long-Term Debt -0- -0- -0- -0- -0- -0- -0-
Shareholders' Equity 3,683 3,369 3,555 3,101 2,987 2,571 2,118
Per Common Share Data:
Net Income 1.15 .86 1.89 1.83 2.26 2.22 .70
Cash Dividends .30 .30 .60 .60 .45 .45 -0-
Book Value 16.02 14.65 15.46 13.48 12.99 11.18 9.21
<FN>
<F1>
The unaudited operating results for SNB for the six months ended June 30, 1996 and 1995,
in the opinion of SNB management, included all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation. Interim results for the six months ended June 30,
1996, are not necessarily indicative of results for the full year 1996.
</FN>
</TABLE>
<PAGE>
Management's Discussion and Analysis or Plan of Operation
The following discussion provides certain information
regarding the financial condition and results of operations of
SNB. This discussion should be read in conjunction with the
SNB's Financial Statements and Notes to Financial Statements
presented elsewhere in this Joint Proxy Statement/Prospectus.
See "Index to SNB Financial Statements."
Results of Operations
General
The earnings of SNB depend primarily on SNB's net interest
income (i.e., the difference between the income earned on
SNB's loans and investments and the interest paid on its
deposits and other borrowed funds). Among the factors
affecting net interest income are the type, volume, and
quality of SNB's assets, the type and volume of its deposits
and other borrowed funds, and the relative sensitivity of its
interest-bearing liabilities to changes in market interest
rates.
SNB's income is also affected by fees it receives from other
banking services, by its provision for loan losses and by the
level of its operating expenses. All aspects of SNB's
operations are affected by general market, economic, and
competitive conditions.
SNB reported net income of $264,882 for the six months ended
June 30, 1996, an increase from net income of $197,298 for the
six months ended June 30, 1995. Pretax income was $384,294
for the six months ended June 30, 1996, a $101,497 increase
from the $282,797 earned during the six months ended June 30,
1995. SNB had net income of $434,640 for the year ended
December 31, 1995, $421,138 for the year ended December 31,
1994, and $519,433 for the year ended December 31, 1993.
Changes occurring in the major components of SNB's income
statement for such periods are discussed below.
Net Interest Income
Net interest income is the primary source of income for SNB
and represents the amount by which interest and fees generated
by earning assets exceed the cost of funds, primarily interest
paid to SNB's depositors on interest-bearing accounts. Net
interest income was $747,697 for the six months ended June 30,
1996, a 9.76% increase from the net interest income of
$681,214 for the six months ended June 30, 1995. Average
rates earned on interest-bearing assets increased from 7.77%
as of June 30, 1995 to 8.19% as of June 30, 1996.
Average loans, net of unearned discount of $16,836,431 for the
six months ended June 30, 1996 increased 3.66% over average
loans of $16,241,907 for the same period in 1995. Average
deposits for the six months ended June 30, 1996 were
$33,854,219, an increase of 4.84% of average deposits of
$32,290,888 for the same period in 1995.
<PAGE>
For the year ended December 31, 1995, net interest income
increased $52,519, or 3.84%, over the year ended December 31,
1994. Net interest income increased $17,653 in 1994, or
1.31%, over 1993 net interest income of $1,349,606. The
increase of $52,519 from 1994 to 1995 was primarily due to
increased interest rates on loans and the implementation of a
new loan product called the "Cash Flow Manager System." Under
the Cash Flow Manager System, SNB provides a loan based on a
customer's accounts receivable, maintaining billing and
collection controls over the receivables, and applying a
certain percentage of collections to the balance of the loan.
The portion of the increase of net interest income from 1994
to 1995 attributed to the new Cash Flow Manager System product
was $25,779. The increase of $17,653 from 1993 to 1994 was
primarily due to increased interest rates on loans.
The following table sets forth for the periods indicated an
analysis of net interest income by each major category of
interest-earning assets and interest-bearing liabilities. The
rates earned and paid on each major type of asset and
liability account are set forth beside the average level in
the account for the period, and the average yields on all
interest-bearing liabilities are also summarized, for the six
months ended June 30, 1996 and 1995.
<TABLE>
Analysis of Net Interest Income
<CAPTION>
Six Months Ended June 30,
------------------------------
1996 1995
------ ------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
----- ----- ----- ----- ----- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Loans $16,985 $897 10.56% $16,395 $767 9.36%
Securities - Held to Maturity 7,753 215 5.55% 5,895 167 5.67%
Securities - Available for Sale 6,295 191 6.07% 7,007 224 6.39%
Federal Funds Sold 175 5 5.71% 502 14 5.58%
Interest-bearing deposits
in banks 2,194 59 5.38% 1,178 31 5.26%
------- ----- ----- ------ ---- -----
Total interest-bearing assets/ 33,402 1,367 8.19% 30,977 1,203 7.77%
interest income/average yield
Non-interest earning assets:
Cash and due from banks 2,278 2,509
Other assets 2,385 2,384
Allowance for loan losses (149) (153)
-------- -------
TOTAL $37,916 $35,717
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
NOW, money market, and savings $11,154 $158 2.83% 11,058 $159 2.88%
Certificates of deposit 17,249 457 5.30% 15,844 362 4.57%
Other borrowings 179 4 4.47% 12 1 16.67%
------- ---- ---- ------ --- -----
Total interest-bearing liabilites/ 28,582 619 4.33% 26,914 522 3.88%
interest expense/ rate
<PAGE>
Noninterest-bearing demand deposits 5,451 5,388
Other liabilities 226 182
------ ------
Total liabilities 34,259 32,484
Stockholders' equity 3,657 3,233
------- ------
TOTAL $37,916 $35,717
======= =======
Net interest income $748 $681
==== ====
Net yield on interest-earning 3.85% 3.89%
assets (annualized) ===== =====
</TABLE>
<PAGE>
The rates earned and paid on each major type of asset and
liability account are set forth beside the average level in the
account for the period, and the average yields on all interest-
bearing liabilities are also summarized, for the previous three
calendar years.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1995 1994 1993
------ ------ ------
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
------- ------ ---- ------- ------- ---- ----- ----- ---
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Loans $16,437 $1,629 9.91% $16,300 $1,385 8.50% $16,456 $1,331 8.09%
Investment securities 13,248 801 6.05% 13,920 790 5.68% 12,937 833 6.44%
Federal funds sold 423 24 5.67% 946 44 4.65% 1,183 37 3.13%
Interest-bearing deposits 1,519 87 5.73% 1,039 46 4.43% 1,229 41 3.34%
in banks
------ ----- ----- ------ ----- ----- ----- ----- -----
Total interest-bearing 31,627 2,541 8.03% 32,205 2,265 7.03% 31,805 2,242 7.05%
assets/interest
income/average
yield
Non-interest earning
assets:
Cash and due from banks 2,543 2,420 2,095
Other assets 2,361 2,202 1,965
Allowance for loan losses (150) (175) (273)
------- -------- --------
TOTAL $36,381 $36,652 $35,592
======= ======= =======
<PAGE>
LIABILITIES & STOCKHOLDERS'
EQUITY
Interest-bearing
liabilities:
NOW, money market, $10,924 $ 314 2.87% $11,349 $ 315 2.78% $11,183 $296 2.65%
and savings
Certificates of deposit 16,347 806 4.93% 15,695 582 3.71% 15,899 596 3.75%
Other borrowings 6 1 16.67% 24 1 4.17% 0 0 0.00%
------ ----- ----- ------ --- ----- ------
Total interest- 27,277 1,121 4.11% 27,068 898 3.32% 27,082 892 3.29%
bearing liabilities/
interest expense/rate
Noninterest-bearing demand 5,549 6,227 5,524
deposits
Other liabilities 198 217 191
------ ------- -------
Total liabilities 33,024 33,512 32,797
Stockholders' equity 3,357 3,140 2,795
------- ------- -------
TOTAL $36,381 $36,652 $35,592
======= ======= =======
Net interest income $1,420 $1,367 $1,350
====== ====== ======
Net yield on interest- 3.92% 3.72% 3.76%
earning assets ===== ===== =====
(annualized)
</TABLE>
<PAGE>
The following table sets forth for the periods indicated a
summary of the changes in interest earned and interest paid
resulting from changes in volume and rate.
<TABLE>
<CAPTION>
Change From Six Months Ended Change From Year Ended Change From Year Ended
June 30, 1995 To Six Months December 31, 1994 To Year December 31, 1993 To Year
Ended June 30, 1996 Ended December 31, 1995 Ended December 31, 1994
----------------------------- --------------------------- ----------------------------
Total Attributed To Total Attributed To Total Attributed To
Change Volume Rate Mix Change Volume Rate Mix Change Volume Rate Mix
------- ------ ---- --- ------ ------ ---- ---
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans $130 $58 $111 $(39) $244 $14 $232 $(2) $54 $(14) $66 $2
Securities 14 46 (38) 6 11 (41) 49 3 (43) 55 (106) 8
Federal funds sold (9) (14) 0 5 (20) (30) 4 6 7 (11) 14 4
Interest-bearing 28 36 (8) 0 41 27 20 (6) 5 (8) 11 2
deposits in banks
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net increase (decrease) $163 $126 $65 $(28) $276 $(30) $305 $1 $23 $22 $(15) $16
in interest income
==== ==== ==== ===== ==== ===== ==== ==== ==== ===== ===== ====
Interest Expense:
Savings and $(1) $7 $(4) $(4) $(1) $(12) $10 $1 $19 $4 $14 $1
transaction
Certificates 94 48 64 (18) 224 32 200 (8) (14) (8) (7) 1
of deposit
Other borrowings 4 8 (22) 18 0 (3) 1 2 1 1 1 (1)
---- ---- ---- ---- ---- ---- ---- ---- ---- ----- ----- ----
Net increase (decrease) $97 $63 $38 $(4) $223 $17 $211 $(5) $6 $(3) $8 $1
in interest expense
==== ==== ==== ===== ==== ==== ==== ==== ==== ===== ===== ====
</TABLE>
<PAGE>
Provision for Loan Losses
SNB allowance for loan losses is established through charges
to operating income in the form of the provision for loan
losses. Actual loan losses or recoveries of loan losses are
charged or credited directly to the allowance for loan losses.
No additions were made to the allowance for loan losses for
the six months ended June 30, 1996 or 1995, due to significant
recoveries on loans that had been written off in earlier
years. The recoveries resulted in credits of $55,716 and
$5,823 being recorded for the six months ended June 30, 1996
and 1995, respectively.
Similarly, no additions were made to the allowance for loan
losses for the year ended December 31, 1995 or 1994, due to
significant recoveries on loans that had been written off in
earlier years. The recoveries resulted in credits of $21,163
and $43,752 being recorded for the years ended December 31,
1995 and 1994, respectively.
The allowance for loan losses expressed as a percentage of
outstanding loans, net of unearned interest, was 0.89% and
0.97% as of June 30, 1996 and 1995, respectively. This
decrease in percentage from 1995 to 1996 is the result of an
improved local economy.
For the years ended December 31, 1993, 1994, and 1995, total
nonaccrual, past due greater than 90 days, and restructured
loans decreased from $523,000 to $151,000 to $141,000,
respectively. The allowance for loan losses expressed as a
percentage of outstanding loans, net of unearned interest was
0.81%, 0.86%, and 1.10% as of December 31, 1995, 1994, and
1993, respectively.
Non-interest Income
Non-interest income, which includes, among other things,
service charges and fees, increased 8.43% from $253,673 for
the six months ended June 30, 1995 to $275,068 for the six
months ended June 30, 1996. The increase was attributable
primarily to an increase in transaction account service
charges.
Non-interest income increased 2.20% from $507,383 to $518,563
for the years ended December 31, 1994 and 1995, respectively.
This increase of $11,180 was attributable primarily to an
increase in transaction account service charges. Non-interest
income increased 1.76%, from $498,599 for the year ended
December 31, 1993, to $507,383 for the year ended December 31,
1994. This small increase was primarily the result of lower
transaction account service charges and an increase in the
gain on sale of assets.
Operating Expenses
<PAGE>
Non-interest expenses include expenses which SNB incurs in the
normal course of operations such as employee compensation and
benefits, occupancy expense, data processing charges, FDIC
insurance premiums, communication expense, professional fees,
advertising, supplies, and depreciation of the building and
equipment. These expenses increased $36,274, or 5.51%, from
$657,913 for the six months ended June 30, 1995 to $694,187
for the six months ended June 30, 1996. The net increase in
non-interest expense was primarily the result of an increase
of $19,421 in salaries and benefits, an increase of $23,017 in
professional fees, an increase of $19,655 in fees relating to
the implementation of the "Cash Flow Manager System," and a
decrease of $35,112 in FDIC insurance premiums.
Operating expenses decreased $20,404, or 1.51%, from
$1,355,149 for the year ended December 31, 1994 to $1,334,745
for the year ended December 31, 1995. This decrease was
primarily the result of the sum of an increase of $47,032 in
salaries and benefits, a decrease of $37,863 in FDIC insurance
premiums, and a decrease of $41,586 in expenses attributed to
the maintenance of foreclosed real estate.
Operating expenses increased $110,390, or 8.87%, from
$1,244,759 for the year ended December 31, 1993 to $1,355,149
for the year ended December 31, 1994. This increase was
primarily the result of the sum of an increase of $50,823 in
salaries and benefits, an increase of $15,970 in occupancy
expense, and an increase of $25,740 in equipment and
depreciation expenses.
Federal Income Taxes
In 1993, SNB adopted Statement of Financial Accounting
Standard No. 109, "Accounting for Income Taxes" (FAS 109). As
permitted under the new rules, prior years' financial
statements have not been restated. The cumulative effect of
adopting FAS 109 as of January 1, 1993 was an increase in
income of $47,174.
The provision for income taxes for the six month period ended
June 30, 1996 was $119,412, compared to a provision of $85,499
for the same period in 1995. SNB's provision for federal
income taxes was $190,119 and $184,588 for the years ended
December 31, 1995 and 1994, respectively. As of December 31,
1995, SNB had no net operating loss carryforwards nor
investment and minimum tax credit carryovers for federal
income tax purposes.
Deferred federal income taxes result primarily from the use of
the cash basis of accounting, accelerated depreciation, and
the "direct write-off" method in accounting for bad debts for
income tax purposes. The net deferred federal income tax
liability was $63,773 and $43,998 at June 30, 1996 and 1995,
respectively. At December 31, 1995, SNB carried a net
deferred federal income tax liability of $75,759; at December
31, 1994, SNB carried a net deferred federal income tax asset
of $30,236; and at December 31, 1993, SNB carried a net
deferred federal income tax liability of $61,339.
<PAGE>
SNB's provision for federal income taxes was $219,152 for
1993. For 1992, federal income taxes of $166,458 were totally
offset by a net operating loss carryforward, leaving $7,660 in
losses which were carried forward to 1993. The net operating
loss carryforward was eliminated in 1993 by offsetting taxable
income.
Capital Resources, Liquidity, and Financial Condition
Capital Resources
The OCC has adopted risk-based and leverage capital measures
to assist in the assessment of the capital adequacy of the
banks it regulates. The principal objectives of the risk-
based measures are to (i) make regulatory capital requirements
more sensitive to differences in risk profiles among financial
institutions; (ii) factor off-balance sheet exposures into the
assessment of capital adequacy; (iii) minimize disincentives
to holding liquid, low-risk assets; and (iv) achieve greater
consistency in the evaluation of the capital adequacy of
financial institutions.
The risk-based capital guidelines include both a definition of
capital and a framework for calculating risk weighted assets
by assigning assets and off-balance sheet items to broad risk
categories. A financial institutions's risk-based capital
ratio is calculated by dividing its qualifying capital (the
numerator of the ratio) by its risk weighted assets (the
denominator).
The risk-based capital ratio focuses principally on broad
categories of credit risk. The risk-based ratio does not,
however, incorporate other factors that can affect a bank's
financial condition. These factors include overall interest
rate exposure, liquidity, funding and market risks, the
quality and level of earnings, investment or loan portfolio
concentrations, the quality of loans and investments, the
effectiveness of loan and investment policies, and
management's ability to monitor and control financial and
operating risks.
SNB is a national bank, and as such, its qualifying total
capital consists of two types of capital components: "core
capital elements" (comprising Tier 1 capital) and
"supplementary capital elements" (comprising Tier 2 capital).
Certain assets are deducted from a financial institution's
capital for the purpose of calculating the risk-based capital
ratio.
Assets and credit equivalent amounts of off-balance sheet
items are assigned to one of four risk categories, according
to certain criteria. The aggregate dollar value of the amount
in each category is then multiplied by the risk weight
associated with that category. The resulting weighted values
from each of the risk categories are added together, and this
sum is the financial institution's total risk weighted assets
that comprise the denominator of the risk-based capital ratio.
Assets deducted from a bank's capital in determining the
numerator of
<PAGE>
the risk-based capital ratio are not included as part of the
financial institution's risk weighted assets.
Risk-weights for off-balance sheet items are determined by a
two-step process. First, the "credit equivalent amount" of
off-balance sheet items is determined, in most cases by
multiplying the off-balance sheet items by a credit conversion
factor. Second, in most cases, the credit equivalent amount
is assigned to the appropriate risk category according to
designated criteria.
National banks are required to maintain a minimum risk-based
capital ratio of total capital (after deductions) to risk
weighted assets of 8%. In general, 50% of this ratio must
consist of Tier 1 capital. Certain restrictions and
limitations also apply regarding the calculation of Tier 1
capital. Tier 2 capital elements that are not used as part of
Tier 1 capital generally will qualify for inclusion in a
financial institution's capital base up to a maximum of 100%
of the financial institution's Tier 1 capital. As of June 30,
1996, SNB's Tier 1 risk-based capital ratio was 18.65%.
In addition, the OCC has promulgated capital leverage
guidelines designed to supplement the risk-based capital
guidelines. The principal objective of the leverage ratio is
to address the extent to which a financial institution could
leverage its equity capital base. The OCC requires national
banks to meet a minimum leverage capital requirement of Tier 1
capital to total assets of not less than 3% for a bank that is
not anticipating or experiencing significant growth and is
highly rated (i.e., a composite rating of 1 on a scale of 1 to
5). Banks that the OCC determines are anticipating or
experiencing significant growth or that are not highly rated
must meet a minimum leverage ratio of 3% plus an additional
cushion of at least 100 to 200 basis points. SNB's leverage
ratio was 9.85% as of June 30, 1996, 9.45% as of March 31,
1996, and 9.37% as of December 31, 1995.
Liquidity
SNB's asset and liability management policy is intended to
maintain adequate liquidity and thereby enhance its ability to
raise funds to support asset growth, meet deposit withdrawals
and lending needs, maintain reserve requirements, and
otherwise sustain operations. SNB accomplishes this through
management of the maturities of its interest earning assets
and interest-bearing liabilities. Liquidity is monitored
daily and overall interest rate risk is assessed through
reports showing both sensitivity ratios and existing dollar
"gap" data. SNB believes its present position to be adequate
to meet its current and foreseeable liquidity needs.
The liquidity of SNB is maintained in the form of readily
marketable securities, demand deposits with commercial banks,
vault cash, and federal funds sold. While the minimum
liquidity requirement for banks is determined by federal bank
regulatory agencies as a percentage of deposit liabilities,
SNB's management monitors liquidity requirements as warranted
by interest rate trends, changes in the economy, and the
scheduled
<PAGE>
maturity and interest rate sensitivity of the investment and
loan portfolios, deposits, and anticipated loan fundings. In
addition to the liquidity provided by the foregoing, SNB has
correspondent relationships with other institutions with
available unsecured lines of credit to purchase overnight
funds totalling $1,000,000 should additional liquidity be
needed. These lines are subject to restrictions such as the
financial strength of SNB and the lender's ability to
facilitate the credit.
On December 31, 1993, SNB adopted the provisions of FAS 115.
The opening balance of shareholders' equity was increased by
$188,457 to reflect the net unrealized holding gains, net of
tax, on securities classified as available for sale which were
previously carried at amortized cost. As of June 30, 1996,
SNB's available-for-sale portfolio account totalled $6,079,389
out of a total security portfolio of $14,162,676.
Average non-interest bearing demand deposits were $5,451,000
for the period ended June 30, 1996, compared to $5,388,000 as
of June 30, 1995, an increase of $63,000. Average non-
interest bearing demand deposits were $5,549,000 as of
December 31, 1995, a decrease of $678,000 over the average
balance as of December 31, 1994 of $6,227,000. Average
interest bearing deposits were $27,271,000 as of December 31,
1995 compared to $27,044,000 as of December 31, 1994 and
$27,082,000 as of December 31, 1993.
Net cash generated by operating activities was $472,348,
$475,677, and $652,295 as of the end of 1995, 1994 and 1993,
respectively. Proceeds from principal paydowns and maturities
of investment securities were $3,183,055, $2,273,431 and
$3,197,199, for the same periods. Sales of loans were
immaterial for 1995 through 1993. SNB utilized these funds to
originate loans and purchase investment securities. Loans
originated, net of principal collected, were $(110,098) and
$22,959 in 1995 and 1994, respectively.
Funds utilized for the purchase of bank premises and equipment
were $110,679, $530,759, and $83,125 during 1995, 1994, and
1993, respectively.
<PAGE>
<PAGE>
The following table shows interest sensitivity gaps for these
different intervals as of June 30, 1996.
<TABLE>
<CAPTION>
Estimated Period of Repricing
(dollars in thousands)
-------------------------------------------------------------------
Floating One Day to Over Three Over Six Over One Total
Three to Six Months to Year
Months Months One Year
------ --------- -------- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C>
Interest Sensitive Assets ("ISA")
Loans
Loans at Fixed Rates $1,926 $630 $464 $3,530 $6,550
Loans at Floating Rates 586 5 14 13 9,601 10,219
Securities
Securities at Fixed 631 1,005 562 8,887 11,085
Rates
Securities at Floating 2,998 2,998
Rates
Federal Funds Sold 35 35
Interest Bearing Deposits 1,706 99 99 1,904
in Banks ------ ------ ------ ------ ------- -------
TOTAL Interest Sensitive Assets $2,327 $5,659 $1,649 $1,039 $22,117 $32,791
====== ====== ====== ====== ======= =======
Interest Sensitive Liabilities ("ISL")
Interest Bearing Deposits
NOW Accounts $5,638 $5,638
Savings Accounts 1,567 1,567
Money Market 3,603 3,603
Accounts
Certificates 5,481 3,675 4,876 3,124 17,156
of Deposit
------ ------ ------ ------ ------ ------
Total Deposits 0 16,289 3,675 4,876 3,124 27,964
Other Interest Sensitive 0 0 0 0 0 0
Liabilities ------ ------ ------ ------ ------ -------
TOTAL Interest Sensitive Liabilites $0 $16,289 $3,675 $4,876 $3,124 $27,964
====== ======= ====== ====== ====== =======
PERIODIC GAP $2,327 $(10,630) $(2,026) $(3,837) $18,993 $4,827
====== ========= ======= ======== ======= =======
CUMULATIVE GAP $2,327 $(8,303) $(10,329) $(14,166) 4,827
====== ========= ========= ========= =======
PERIODIC GAP TO TOTAL INTEREST 7.10% -32.42% -6.18% -11.70% 57.92%
SENSITIVE ASSETS ======= ========= ========= ========= ========
</TABLE>
<PAGE>
Investment Securities
Set forth is a distribution of SNB's investment securities by
contractual maturity dates at June 30, 1996 (mortgage-backed
securities are classified in the period of final maturity):
<TABLE>
<CAPTION>
(dollars in thousands)
Within One After One But Maturing After Ten
Year Within Five After Five But Years
Years Within Ten Years
Amount Average Amount Average Amount Average Amount Average Total
Yield Yield Yield Yield Amount
------ ------- ------ ------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities being held to
maturity:
U.S. Treasury -- -- $3,500 5.77% -- -- -- -- $3,500
U.S. Agency -- -- 1,500 5.26% -- -- -- -- 1,500
State and municipal -- -- -- -- $263 5.40% $1,090 5.22% 1,353
Mortgage-backed $190 8.24% 1,540 5.11% -- -- -- -- 1,730
----- ------ ------ ------ ----- ------ ------ ----- ------
Total securities being held $190 8.24% $6,540 5.50% $263 5.40% $1,090 5.22% $8,083
to maturity ===== ====== ====== ====== ===== ====== ====== ===== ======
Securities available for
sale:
U.S. Treasury $2,000 6.96% $1,000 6.02% -- -- -- -- $3,000
U.S. Agency -- -- 898 4.63% -- -- -- -- 898
State and municipal -- -- -- -- -- -- -- -- 0
Mortgage-backed -- -- -- -- -- -- $2,223 5.83% 2,223
------ ----- ------ ----- ------ ------ ------ ----- ------
Total securities available $2,000 6.96% $1,898 5.36% $0 $2,223 5.83% $6,121
for sale ====== ===== ====== ===== ====== ====== ====== ===== ======
</TABLE>
<PAGE>
Deposits
The daily average balances and average rates paid by category of
deposit at the dates shown are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands)
As of As of As of
June 30, 1996 December 31, 1995 December 31, 1994
Amount Average Amount Average Amount Average
Rate Rate Rate
------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Demand $5,451 -- $5,549 -- $6,228 --
NOW accounts 5,689 2.71% 5,123 2.75% 5,822 2.66%
Money market 3,874 2.99% 4,291 3.01% 4,045 2.99%
Savings 1,591 2.89% 1,510 2.91% 1,482 2.70%
Certificates of 17,249 5.29% 16,347 4.94% 15,695 3.70%
Deposit ------- ----- ------- ----- ------- -----
$33,854 3.63% $32,820 3.42% $33,272 2.70%
======= ===== ======= ===== ======= =====
</TABLE>
<PAGE>
The scheduled maturities of certificates of deposit in
denominations of $100,000 or more at June 30, 1996 and December
31, 1995, including public funds, are shown below:
(Dollars in Thousands)
June 30, December 31,
1996 1995
------- -----------
Due in three months or less $1,341 $1,224
Due in over three months to 1,504 1,917
six months
Due in over six months to 1,412 1,007
twelve months
Due in over twelve months 871 770
------ ------
Total $5,128 $4,918
====== ======
<PAGE>
Loans
The following table classifies SNB's loans according to type as
of the dates shown:
(Dollars in Thousands)
June 30, December 31, December 31,
1996 1995 1994
-------- ----------- -----------
Real estate development $385 $479 $422
Real estate one-to-four family 5,884 6,368 6,799
residential mortgages
Real estate commercial 2,133 2,242 2,468
Real estate other 2,232 1,689 1,295
------ ----- ------
Total real estate 10,634 10,778 10,984
Installment 1,383 1,290 1,264
Commercial 4,311 4,681 4,572
Other loans 441 201 0
------ ------ ------
16,769 16,950 16,820
Less unearned discounts (143) (128) (123)
Less allowance for loan losses (148) (137) (144)
------- ------- -------
Total $16,478 $16,685 $16,553
======= ======= =======
<PAGE>
Total loans, net of unearned income and allowance for possible
loan losses, increased 0.80% in 1995 from 1994 levels. At
June 30, 1996, total loans, net of unearned income and
allowance for possible loan losses, decreased from year-end
1995 levels by 1.24%.
As of June 30, 1996, fixed rate loans aggregated $6,550,261,
which consisted in part of loans totaling $3,020,398 which
mature within one year, and loans totaling $2,276,256 which
mature within one to five years. Commercial and real estate
loans with a fixed rate and maturing within one year at June
30, 1996, totaled $2,442,052 while those with a fixed rate and
maturing within one to five years totaled $969,157. Real
estate construction loans with a fixed rate and maturing
within one year at December 31, 1995, totaled $433,314, and
there were no real estate construction loans with a fixed rate
and maturing after one year.
Allowance for Loan Losses and Risk Elements
The provision for loan losses represents a determination by
SNB's management of the amount necessary to be charged to
operating income and transferred to the allowance for loan
losses to maintain a level which it considers adequate in
relation to the risk of future losses inherent in the loan
portfolio. It is SNB's policy to provide for exposure to
losses of specifically identified credits and a general
allowance for the remainder of the loan portfolio, and, while
it is also SNB's policy to charge off in the current period
those loans in which a loss is deemed to exist, risks of
future losses also exist which cannot be quantified precisely
or attributed to particular loans or classes of loans.
<PAGE>
In assessing the adequacy of its allowance for loan losses,
management relies predominantly on its ongoing review of the
loan portfolio, which is undertaken both to ascertain whether
there are probable losses which must be charged off and to
assess the risk characteristics of significant individual
loans and of the portfolio in the aggregate This review takes
into consideration the judgments of the responsible lending
officer, the senior credit officer, the CEO, the loan review
officer and the Board of Directors, and also those of bank
regulatory agencies that review the loan portfolio as part of
their regular examinations of SNB.
In evaluating the allowance for loan losses, management also
considers SNB's loan loss experience, the amount of past due
and non-performing loans, current and anticipated economic
conditions, and other appropriate information. The allowance
for loan losses also reflects an analysis of the risks
associated with each class of loans.
The allowance for loan losses at June 30, 1996 was $148,172,
compared to $136,905 at December 31, 1995, and $143,922 at
December 31, 1994. Management believes the allowance for loan
losses to be adequate as of the date presented.
<PAGE>
(Dollars in Thousands)
As of and for the As of and for the
six months ended year ended
June 30, December 31,
1996 1995 1994
------ ------ ------
Balance at beginning of period $137 $144 $184
Charge-Offs
Commercial 10 29
Real estate-
mortgage
Real estate-
construction
Installment 3 9 8
Other
----- ----- -----
Total 3 19 37
Charge-Offs ----- ----- -----
Recoveries:
Commercial 65 28 19
Real estate- 1 11
mortgage
Real estate-
construction
Installment 5 4 11
Other
----- ----- -----
Total 70 33 41
Recoveries
----- ----- -----
Net Charge-Offs (67) (14) (4)
Provision charged to expense (56) (21) (44)
----- ----- -----
Balance at end of period $148 $137 $144
===== ===== =====
Net charge-offs (recoveries) -0.40% -0.09% -0.02%
as a percentage of average
loans (annualized to 1996) ===== ===== =====
Non-Accrual, Past Due, and Restructured Loans
The following is an analysis of non-performing assets as of the
dates shown:
(Dollars in Thousands)
As of and for the As of and for the
six months ended years ended
June 30, December 31,
1996 1995 1994
-------- ------ ------
Loans accounted for on a non- $114 $129 $142
accrual basis
Accruing loans which are 96 12 11
contractually past due
90 days or more as to
principal or interest
payments
Troubled debt restructuring
----- ----- -----
Total $210 $141 $153
===== ===== =====
Interest income included in $6 $1 $0
net income for the period
Foregone interest on non- $10 $16 $30
accrual loans ===== ===== =====
The accrual of interest on a loan is discontinued when, in the
opinion of management (based upon such criteria as default in
payment, decline of cash flow, bankruptcy and other financial
conditions which could result in default), the borrower's
financial condition is such that the collection of interest is
doubtful. Management believes the risks in these loans to be
significant as there may be some portion of the principal
which will become uncollectible. As of June 30, 1996, loans
totalling $114,134 or 0.68% of total net loans outstanding,
were on a non-accrual basis, therefore, no income was being
recognized.
Placing a loan on non-accrual status has a two-fold impact on
net interest income. First, it generally causes an immediate
charge against earnings with respect to that particular loan.
Second, it eliminates future interest earnings with respect to
that particular loan. Interest on such loans is not
recognized until all of the principal is collected or until
the loan is returned to a performing status.
<PAGE>
Non-accrual loans decreased by $14,667 from $128,801 at
December 31, 1995 to $114,134 at June 30, 1996. This decrease
is attributed to continuing collection efforts on the impaired
loans. Non-accrual loans decreased by $13,803 from $142,604
at December 31, 1994 to $128,801 at December 31, 1995. This
decrease is attributed to continuing collection efforts on the
impaired loans. The anticipated amounts of charge-offs by
category during the next full year of operations are as
follows:
Dollars in Thousands
-------------
Commercial $10
Real estate - mortgage 0
Real estate - construction 0
Installment 9
Other loans 0
Overdrafts 24
-----
Total $43
=====
<PAGE>
Return on Equity and Assets
The return on equity and return on assets for the periods shown
below are as follows:
As of and for the As of and for the
six months ended years ended
June 30, December 31,
1996 1995 1994
-------- ------ ------
Return on Average Assets 1.40% 1.20% 1.15%
====== ====== ======
Return on Average Equity 14.49% 12.96% 13.41%
====== ====== ======
Equity to Assets Ratio 9.65% 9.23% 8.57%
====== ====== ======
Dividend Payout Ratio (1) 26.04% 31.72% 32.78%
====== ====== ======
(1) Computed as dividends declared divided by net income.
<PAGE>
INFORMATION CONCERNING FIRST COMMERCIAL
Information Incorporated by Reference
The following documents, or the indicated portions thereof,
have been filed by First Commercial with the Commission under
the Exchange Act and are incorporated by reference in this
Joint Proxy Statement/Prospectus:
1. Annual Report on Form 10-K for the year ended
December 31, 1995, as amended by Form 10-K/A filed
June 28, 1996;
2. Proxy Statement for annual meeting of stockholders
held April 16, 1996;
3. Quarterly Reports on Form 10-Q for the quarterly
periods ended March 31, 1996 and June 30, 1996;
4. Current Reports on Form 8-K dated March 13, 1996 and
June 21, 1996;
5. Form 10-C filed January 9, 1996;
6. The description of the Company's common Stock
contained in the Registration Statement on Form 10
filed April 30, 1981 and any amendment or report
filed for the purpose of updating such description;
and
7. Registration Statement on Form 8-A for the preferred
share purchase rights as filed on January 9, 1991.
In addition, all other reports filed by First Commercial under
the Exchange Act between the date of this Joint Proxy
Statement/Prospectus and the date of the CNB Special Meeting
and the SNB Special Meeting, respectively, are incorporated
herein by reference from date of filing. Any statement
contained in any document incorporated or deemed to be
incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Joint Proxy
Statement/Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which is
also incorporated or deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of
this Joint Proxy Statement/Prospectus. See "Incorporation of
Certain Documents by Reference" for information with respect
to securing copies of documents incorporated by reference in
this Joint Proxy Statement/Prospectus.
<PAGE>
Recent Developments
On October 4, 1996, First Commercial announced that it had
entered into a definitive agreement to purchase W.B.T. Holding
Company ("WBT") and its wholly-owned subsidiary, United American
Bank, in Memphis, Tennessee. United American Bank has assets of
$267 million, loans of $177 million and deposits of $244 million.
First Commercial will issue approximately 1.3 million shares of
its common stock in exchange for all of the outstanding shares of
WBT common stock, subject to adjustments for non-bank assets and
liabilities of WBT. First Commercial expects to close the
transaction, which is subject to regulatory approval, in the first
quarter of 1997.
COMPARATIVE RIGHTS OF SHAREHOLDERS
General
If the stockholders of CNB and SNB approve the CNB Merger and
the SNB Merger, respectively, and if each Merger is
subsequently consummated, stockholders of CNB and SNB, other
than those exercising dissenters' rights, will become
stockholders of First Commercial. The rights of stockholders
of First Commercial will be governed by and be subject to the
Arkansas Business Corporation Act of 1987 and First
Commercial's Second Amended and Restated Articles of
Incorporation, as amended ("First Commercial's Articles").
The following is a brief summary of certain of the principal
differences between the rights of the stockholders of First
Commercial and the rights of the stockholders of each of CNB
and SNB.
Authorized and Issued Shares
First Commercial's Articles authorize the Corporation to issue
a maximum of 50,000,000 shares of common stock, $3.00 par
value per share, of which 27,188,547 shares are outstanding,
and 400,000 shares of preferred stock, $1.00 par value per
share, of which no shares are outstanding.
CNB's Articles of Association authorize it to issue a maximum
of 187,500 shares of common stock, $5.00 par value per share,
of which 172,500 shares are issued and outstanding.
SNB is authorized by its Articles of Association to issue a
maximum of 250,000 shares of common stock, $5.00 par value per
share, of which 230,000 shares are issued and outstanding.
Federal banking laws provide, with certain exceptions, that
the capital stock of either CNB or SNB may be sold only for
cash consideration and that any issuance of capital stock must
be approved by the OCC and by the vote of the holders of two-
thirds of the outstanding bank stock. On the other hand, the
issuance of stock by First Commercial will not be subject to
regulatory or shareholder approval, and such stock may be
issued for cash, property or services rendered.
<PAGE>
First Commercial has the ability to issue and sell its common
stock through public offerings or private placements. Private
placements may be used to dilute the stock ownership of
persons seeking to acquire control of First Commercial.
Dilution would occur because the person's percentage ownership
of First Commercial would be reduced. It should be recognized
that private placements would dilute the stock ownership of
all shareholders, not just those seeking to acquire control.
At this time, however, First Commercial has no plans to issue
additional shares or privately place any such shares, except
for shares of common stock to be issued in connection with the
acquisition of WBT. See "Information Concerning First
Commercial - Recent Developments."
<PAGE>
Dividends
The payment of dividends by each of CNB and SNB is subject to
various conditions and restrictions which are set forth in
applicable federal banking laws. Among other things, the
approval of the OCC is required if the total of all dividends
declared by a bank in any calendar year will exceed the total
of its net profits of that year combined with its retained net
profits of the preceding two years. In addition, a bank may
increase its capital stock through the payment of a stock
dividend only after obtaining the approval of the OCC and the
holders of at least two-thirds of the outstanding bank stock.
If the CNB Merger and SNB Merger are approved, the foregoing
restrictions will continue to apply to dividends paid by
either Bank to First Commercial. However, the payment of
dividends by First Commercial to its shareholders (including
the former shareholders of CNB and SNB) will be subject to the
Arkansas Business Corporation Act of 1987. The Arkansas
Business Corporation Act of 1987 provides, among other things,
that dividends may be paid in cash, property or shares of
company stock, unless the dividend payment would render the
company insolvent.
Voting Rights
General
Holders of First Commercial Common Stock are entitled to one
vote for each share held on all matters on which holders of
Common Stock are entitled to vote. Stockholders of CNB Stock
and SNB Stock also are entitled to one vote for each share
held on all matters brought to a vote.
Generally, under federal banking laws, action on a matter
presented to the shareholders of a bank is approved if a
majority of the shares represented at a meeting are voted in
favor of the action, provided that a quorum of shares is
represented at the meeting. The Arkansas Business Corporation
Act of 1987 provides that if a quorum exists, action on a
matter presented to shareholders will be approved if the votes
cast favoring the action exceed the votes cast opposing the
action. Accordingly, under the Arkansas Business Corporation
Act of 1987, matters can be approved by shareholders of First
Commercial by less than a majority of the shares represented
at a meeting, if any shares represented at the meeting are not
voted.
Under First Commercial's Articles, the Board of Directors of
First Commercial is authorized to issue preferred stock. In
the event a series of preferred stock is issued, the holders
of such preferred stock shall be entitled to vote on the
election of two directors in the event of a default in
preference dividends on the preferred stock and shall have
such other voting rights as may be prescribed by First
Commercial's Board of Directors in the articles of amendment
creating such series of preferred
<PAGE>
stock, which articles of amendment may be adopted by the Board
of Directors without further stockholder action.
Voting Requirements for Extraordinary Corporate Matters
For CNB and SNB, the affirmative vote of two-thirds of the
outstanding shares of bank stock is required by the federal
Bank Merger Act to approve a merger or consolidation.
The corporate law governing First Commercial generally
requires the affirmative vote of the holders of a majority of
the votes entitled to be cast to approve mergers,
consolidations, sales of all or substantially all of the
corporation's assets, or voluntary dissolution. First
Commercial's Articles provide that if a transaction is
contemplated with an "Interested Stockholder" of First
Commercial, as defined in the fair price provision discussed
below, the transaction must be approved by the holders of at
least 80% of the votes entitled to be cast. If, on the other
hand, the transaction is approved by a majority of
disinterested directors or if the price paid to all
stockholders in connection with the transaction meets certain
standards of fairness set forth in the fair price provision,
the 80% vote requirement does not apply.
Voting for Election of Directors
Stockholders of CNB and stockholders of SNB are entitled to
cumulate votes when electing directors for their respective
banks. A stockholder entitled to vote for the election of
directors may vote the number of shares owned for as many
candidates as a stockholder is entitled to elect, or the
stockholder may cumulate his votes and distribute them among
any candidate or candidates as he sees fit. Such cumulative
voting rights afford minority stockholders some assurance of
representation on a bank's board of directors. Under the law
governing First Commercial, however, cumulative voting is
authorized only if affirmatively stated in a corporation's
articles of incorporation. First Commercial's Articles do not
grant cumulative voting rights. Accordingly, any stockholder
who obtains a majority of the outstanding shares of First
Commercial Common Stock will have the power to elect all
directors.
The directors of each of CNB and SNB are elected for a term of
one year. Pursuant to First Commercial's Articles, its board
of directors is divided into three classes of approximately
equal size. Such a board is referred to as a classified or
staggered board of directors. Each director of First
Commercial is elected for a term of three years, and the terms
are staggered in such a way that approximately one-third of
the terms expire at each annual meeting. The staggering of
terms of directors has the potential effect of increasing the
difficulty of changing the composition of First Commercial's
Board of Directors to the extent that at least two annual
meetings, rather than one, will be required in order for First
Commercial stockholders to effect a change in the majority
control of its Board of Directors.
<PAGE>
Amendment of Articles of Incorporation
Amendments to the Articles of Association of either CNB or SNB
must be approved by a majority of the outstanding shares
entitled to vote thereon. Amendments to First Commercial's
Articles are deemed approved if the number of votes cast in
favor of the amendment exceed the votes cast against the
amendment, provided that a quorum of those entitled to vote is
represented at the meeting; provided, however, if the
amendment creates dissenters' rights for a voting group, the
amendment must be approved by a majority of the votes entitled
to be cast by such voting group. The reduced voting
requirement for stockholder approval may make stockholder
approval for amendments to First Commercial's Articles easier
to obtain and thus more difficult for minority stockholders to
defeat. However, First Commercial's Articles do require the
approval of at least 80% of the shares entitled to vote with
regard to the amendment, modification or repeal of provisions
dealing with a classified Board of Directors, advance notice
from stockholders of nominations for election of First
Commercial Directors, the filling of vacancies on the First
Commercial Board of Directors, removal of First Commercial
Directors, action of stockholders without a meeting, and an
amendment of parallel provisions in First Commercial's Bylaws.
First Commercial's Board of Directors has the power to amend
First Commercial's Articles with respect to matters of a
routine nature without shareholder approval. Such types of
amendment include those: (i) to change each issued and
unissued authorized share of an outstanding class into a
greater number of whole shares if only shares of that class
are outstanding; (ii) to change the corporate name in limited
fashion; or (iii) to adopt any other amendment allowed to be
adopted without shareholder approval under the corporate law
governing First Commercial.
First Commercial stockholders, to the extent they comply with
the appropriate dissenting stockholder provisions, obtain
certain rights when amendments are approved that (i) alter or
abolish a preferential right of the shares; (ii) create, alter
or abolish a right in respect of redemption; (iii) alter or
abolish preemptive rights; (iv) exclude or limit the rights of
shares to vote on any matter or cumulative voting rights; or
(v) reduce the number of shares of any holder to a fractional
share if such fractional share is to be acquired for cash.
Amendment of Bylaws
Stockholders of CNB and SNB have the power to amend the Bylaws
of their respective banks. Stockholders of First Commercial
have the power to amend the Bylaws of First Commercial with
the exception that Bylaw provisions relating to the nomination
of directors by stockholders, notice from stockholders of
matters to be brought before an annual meeting by
stockholders, special meetings, the taking of action by
stockholders without a meeting, the number, election and terms
of directors, the
<PAGE>
removal of directors, and the filling of vacancies may be
amended or appealed only with the consent of the holders of at
least 80% of the First Commercial Common Stock entitled to
vote.
Removal of Directors
Stockholders of CNB and SNB may remove a director, either with
or without cause, by a vote of the majority of the shares
entitled to vote at an election of directors. The
stockholders of First Commercial may remove a director for
cause only.
Preemptive Rights
Shareholders of CNB have preemptive rights, meaning that upon
a proposed sale by CNB of additional shares of bank stock,
shareholders of that bank have the right to acquire such
shares in proportion to their present holdings of bank stock
upon terms no less favorable than those of the proposed sale.
Stockholders of First Commercial Common Stock and SNB Common
Stock do not have preemptive rights.
Indemnification of Directors and Officers and Limitation of
Director Liability
The Arkansas Business Corporation Act of 1987 contains
detailed provisions for indemnification of directors and
officers of Arkansas corporations against expenses, judgments,
fines and settlements incurred by them in connection with
litigation. Article Twelfth of First Commercial's Articles
provides for mandatory indemnification of the directors and
executive officers of First Commercial to the fullest extent
legally permissible under the provisions of the Arkansas
Business Corporation Act of 1987. The Articles of Association
of each of CNB and SNB merely provide that each bank may
indemnify a director, officer, or employee in such situations.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
or persons controlling First Commercial pursuant to the
foregoing provisions, First Commercial has been informed that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act of 1933 and is therefore unenforceable.
Article Eleventh of First Commercial's Articles provides that
to the fullest extent permitted by the Arkansas Business
Corporation Act of 1987 no director of First Commercial shall
be personally liable to First Commercial or its stockholders
for monetary damages for or with respect to any acts or
omissions in the performance of his duties. These provisions
do not extend protection to directors for claims by third
parties, but only eliminate personal liability of a director
to First Commercial or its stockholders for monetary damages
for a breach of his fiduciary duty as a director. A director
is personally liable
<PAGE>
for monetary damages to First Commercial or its stockholders
(i) for breach of a duty of loyalty to First Commercial or its
stockholders, (ii) for an act of omission not in good faith or
involving intentional misconduct or a knowing violation of
law, (iii) for the payment of unlawful dividends or unlawful
stock repurchases or redemptions in violation of Arkansas law,
or (iv) for a transaction in which the director received an
improper personal benefit. The provisions do not eliminate or
limit the liability of a director arising in connection with
causes of action brought under federal or state securities
laws or under federal or state banking laws. Furthermore,
since these director liability provisions only eliminate money
damage awards, they do not affect the availability of
equitable relief, such as an injunction or rescission
(although in a given situation such relief may not be
available or as effective as personal liability for monetary
damages). The provisions do not eliminate or limit liability
for acts or omissions by an officer or employee of First
Commercial, even though such person may also be a director, if
the act or omission in question was performed by such person
while acting in a capacity other than that of a director.
Under certain circumstances, the director liability provisions
of First Commercial's Articles could have an anti-takeover
effect with respect to First Commercial. Because of the
decreased likelihood of being held accountable for monetary
damages for a breach of fiduciary duty as directors, the
directors of First Commercial may have a greater tendency to
reject takeover proposals benefiting stockholders of First
Commercial which the directors might have accepted absent such
statutory protection provided by First Commercial's Articles.
SNB's Articles of Association do not provide for any
limitations on the liability of an SNB director to the Bank or
to its stockholders. Article TWELFTH of CNB's Articles
provides that to the fullest extent not prohibited by law, no
director of CNB shall be personally liable to the Bank or any
of its shareholders for monetary damages for an act or
omission in the director's capacity as a director. Such
provision does not
<PAGE>
eliminate or limit the liability of a director for:
1. A breach of his duty of loyalty to the Bank or its
shareholders;
2. An act or omission not in good faith or that
involved intentional misconduct or a knowing violation of the
law;
3. A transaction from which he received an improper
benefit;
4. An act or omission for which the liability of a
director is expressly provided for by statute; or
5. An act related to an unlawful stock repurchase or
payment of a dividend.
Filling Vacancies on the Board of Directors
Under the Articles of Association of each of CNB and SNB,
vacancies on the banks' respective Boards of Directors may be
filled by the remaining members of the Board. Under the
corporate law governing First Commercial, and as provided in
First Commercial's Articles, vacancies on its board of
directors shall be filled solely by the affirmative vote of a
majority of the remaining directors then in office. This
provision precludes the holder of a majority of First
Commercial Stock from removing incumbent directors and
simultaneously gaining control of the Board of Directors by
filling the vacancies created by removal with his own
nominees.
Nomination of Director Candidates and Advance Notice of
Matters to be Brought Before an Annual Meeting by Stockholders
First Commercial's Articles provide that nominations for the
election of directors and placement of matters before the
stockholders at an annual meeting must be made as provided by
the First Commercial Bylaws. The pertinent bylaw provisions
provide that stockholders intending to nominate director
candidates for election must deliver written notice thereof to
the Secretary of First Commercial not later than (i) with
respect to an election to be held at an annual meeting of
stockholders, ninety (90) days prior to the anniversary date
of the immediately preceding annual meeting of stockholders,
and (ii) with respect to an election to be held at a special
meeting of stockholders, the close of business on the tenth
day following the date on which notice of such meeting is
first given to stockholders. The Bylaws further provide that
the notice shall set forth certain information concerning such
stockholder and his nominee(s), including their names and
addresses, a representation that the stockholder is entitled
to vote at such meeting and intends to appear in person or by
proxy at the meeting to nominate the person or persons
specified in the notice, a description of all arrangements or
understandings
<PAGE>
between the stockholder and each nominee, such other
information as would be required to be included in a proxy
statement soliciting proxies for the election of the nominees
of such stockholder and the consent of each nominee to serve
as a director of First Commercial if so elected.
The First Commercial Bylaws further provide that for business
properly to be brought before an annual meeting by a
stockholder, the stockholder must deliver written notice of
such matter to the Secretary of First Commercial not less than
ninety (90) days prior to the anniversary date of the
immediately preceding annual meeting of stockholders and the
notice must set forth as to each matter the stockholder
proposes to bring before the annual meeting (i) a brief
description of the business, (ii) the name and address of the
stockholder proposing such business, (iii) the class and
number of shares of First Commercial beneficially owned by the
stockholder, and (iv) any material interest of the stockholder
in such business.
The advance notice requirements, by regulating stockholder
nominations and matters to be brought before an annual meeting
by stockholders, afford the board of directors of First
Commercial the opportunity to consider the qualifications of
proposed nominees and the importance of matters proposed to be
brought before an annual meeting and to the extent deemed
necessary or desirable by the Board, inform stockholders about
the qualifications of nominees and issues important to the
consideration of matters brought before an annual meeting.
There is the chance that these provisions may discourage or
deter a third party from conducting a solicitation of proxies
to elect its own slate of directors or to adopt a matter which
serves its own interest, without regard to whether such might
be harmful or beneficial to First Commercial and its
stockholders.
The Articles of Association of each of CNB and SNB provide
that in order for shareholders to nominate individuals for
election to the Board of Directors such nomination must be in
writing and must be delivered or mailed to the President of
the respective bank and to the OCC not less than fourteen (14)
nor more than fifty (50) days prior to any meeting of
stockholders called for the election of directors; provided,
however, that if less than twenty-one (21) days notice of the
meeting is given to stockholders, such nomination shall be
mailed or delivered not later than the close of business on
the seventh (7th) day following the day on which notice of the
meeting was mailed. Such notice must contain the following
information: (i) the name and address of the proposed nominee;
(ii) the principal occupation of the nominee; (iii) the total
number of shares of capital stock of the bank that will be
voted for the nominee; (iv) the name and residence address of
the notifying shareholder; and (v) the number of shares of
capital stock of the bank owned by the notifying shareholder.
Fair Price Provision
The following summary of the fair price provision in First
Commercial's Articles (the "Fair Price Provision") is
qualified in its entirety by reference to the Fair Price
Provision found in Article Eighth of First Commercial's
Articles, which appear as an exhibit to the Registration
Statement of which this Joint
Proxy Statement/Prospectus is a part.
<PAGE>
First Commercial's Articles require approval by holders of
eighty percent (80%) of the votes entitled to be cast as a
condition for mergers and certain other business combinations
(as hereinafter more fully defined, "Business Combination")
involving First Commercial and any person or group holding
five percent (5%) or more of the First Commercial Stock (an
"Interested Shareholder"), unless the transaction is approved
by a majority of the members of the First Commercial Board who
are unaffiliated with the Interested Shareholder and who were
directors before the Interested Shareholder became an
Interested Shareholder ("Disinterested Directors"), or certain
minimum price and procedural requirements are met.
A Business Combination includes (a) a merger or consolidation
of First Commercial with an Interested Shareholder, (b) the
sale or other disposition by First Commercial or a subsidiary
of assets of $10,000,000 or more if an Interested Shareholder
is a party to the transaction, (c) the issuance of stock or
other securities of First Commercial or of a subsidiary to a
person that, immediately prior to such issuance, is an
Interested Shareholder in exchange for cash or property of
$10,000,000 or more, (d) the adoption of any plan or proposal
for the liquidation or dissolution of First Commercial
proposed by or on behalf of an Interested Shareholder, or (e)
any reclassification of securities, recapitalization, merger
with a subsidiary or other transaction which has the effect,
directly or indirectly, of increasing the proportionate shares
of the outstanding stock of any class of First Commercial or a
subsidiary owned by an Interested Shareholder.
The 80% affirmative stockholder vote contemplated by the Fair
Price Provision is not required if (1) the transaction is
approved by a majority of the Disinterested Directors or (2)
all of the various minimum price criteria and procedural
requirements are satisfied.
The minimum price criteria referred to above require that when
cash or other consideration is being paid to First Commercial
stockholders in connection with a Business Combination, the
consideration to be paid would be required to be either cash
or the same type of consideration used by the Interested
Shareholder in acquiring the largest portion of its common
stock prior to the first public announcement of the terms of
the proposed Business Combination. In the case of payments to
First
<PAGE>
Commercial stockholders, the per share fair market value of
such payments would have to be at least equal in value to the
higher of (i) the highest per share price paid by an
Interested Shareholder in acquiring any shares during the two
years prior to announcement of the Business Combination or in
the transaction in which it became an Interested Shareholder
(whichever is higher) or (ii) the fair market value per share
of common stock on the date of the announcement of the
Business Combination or on the date on which the Interested
Shareholder became an Interested Shareholder (whichever is
higher), in either case appropriately adjusted for any stock
dividend, stock split or combination of shares.
The Fair Price Provision provides that a vote of the holders
of eighty percent (80%) or more of the votes entitled to be
cast by the holders of First Commercial Common Stock is
required in order to amend, alter or repeal, or adopt any
provisions inconsistent with, the Fair Price Provision.
Because of the higher percentage requirement for stockholder
approval of any Business Combination not meeting the price and
procedural requirements described above, and the possibility
of having to pay a higher price than would otherwise be the
case to other stockholders in such a Business Combination, it
may become more costly for a purchaser to acquire control of
First Commercial. The Fair Price Provision may therefore
decrease the likelihood that a tender offer will be made for
less than 80% of the voting power of First Commercial Common
Stock and, as a result, may adversely affect those
stockholders who would desire to participate in such a tender
offer. The Fair Price Provision also has the effect of giving
veto power to the holders of a minority of the voting power of
First Commercial Common Stock with respect to a Business
Combination that is opposed by the Board of Directors but
which a majority of the stockholders may believe to be
desirable and beneficial. In addition, since only the
disinterested directors will have the authority to eliminate
the 80% stockholder vote required for a Business Combination,
the Fair Price Provision may have the effect of insulating
current management against the possibility of removal in the
event of a takeover bid.
LEGAL OPINIONS
The validity of the shares of First Commercial Common Stock
offered hereby will be passed upon for First Commercial by
Friday, Eldredge & Clark, Little Rock, Arkansas. Legal
opinions relating to tax matters will be furnished by Friday,
Eldredge & Clark, special tax counsel to First Commercial.
Certain legal matters will be passed upon for CNB by Thomas T.
Tatum, and for SNB by Zelesky, Cornelius, Hallmark, Roper &
Hicks L.L.P.
<PAGE>
EXPERTS
Security National Bank
The financial statements of SNB for the years ended December
31, 1995, 1994 and 1993 are included and incorporated herein
by reference in reliance upon the reports of Ken Rogers &
Associates, Ltd., independent certified public accountants,
which is included and incorporated herein by reference, and
upon the authority of said firm as experts in accounting and
auditing.
First Commercial
The consolidated financial statements of First Commercial at
December 31, 1995 and 1994, and for each of the three years in
the period ended December 31, 1995 incorporated by reference
in First Commercial's Annual Report (Form 10-K) for the year
ended December 31, 1995, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their reports
thereon and incorporated by reference herein which, as to the
year 1993, are based in part on the report of KPMG Peat
Marwick LLP, independent auditors. The financial statements
referred to above are included in reliance upon such reports
given upon the authority of such firms as experts in
accounting and auditing.
<PAGE>
FINANCIAL STATEMENTS OF CITY NATIONAL BANK
INDEX TO FINANCIAL STATEMENTS OF CNB
Page
Balance Sheets for June 30, 1996 and 1995 (unaudited) F-CNB-2
Statements of Income for the Six Months Ended June 30, 1996
and 1995 (unaudited) F-CNB-3
Balance Sheets for December 31, 1995 and 1994 (unaudited) F-CNB-4
Statements of Income for the Years Ended December 31, 1995
and 1994 (unaudited) F-CNB-5
Balance Sheets for December 31, 1994 and 1993 (unaudited) F-CNB-6
Statements of Income for the Years Ended December 31,
1994 and 1993 (unaudited) F-CNB-7
Statements of Cash Flows for the Six Months Ended June 30,
1996 and 1995 and for the Years Ended December 31, 1995,
1994 and 1993 (unaudited) F-CNB-8
<PAGE>
City National Bank
Balance Sheets
Unaudited
June 30,
----------
1996 1995
------- -------
Assets
---------
Cash and Due from Banks 3,187,066 2,950,651
Short Term Investments 1,771,000 1,121,251
Investment Securities 2,110,576 2,556,358
Real Estate Loans 13,979,723 11,674,479
Commercial Loans 6,764,128 8,003,382
Consumer Loans and Other 10,432,899 8,942,145
Unearned Discount (620,736) (654,900)
---------- ----------
Total Loans 30,555,014 27,965,106
Reserve for Loan Losses (316,810) (279,922)
Building 1,922,321 1,879,518
Furniture and Fixtures 473,679 459,570
Bank Auto 0 13,556
--------- ---------
Total Fixed Assets 2,396,000 2,352,644
Other Assets 705,410 598,984
Total Assets 40,408,256 37,265,072
========== ==========
Liabilities
-------------
Non Interest Bearing Demand 7,371,639 6,557,251
Interest Bearing Demand 11,268,276 11,746,553
Savings 3,137,723 3,227,156
Certificates of Deposit 15,642,133 13,039,132
---------- ----------
Total Deposits 37,419,771 34,570,092
Borrowed Funds 0 0
Other Liabilities 333,649 324,114
---------- ----------
Total Liabilities 37,753,420 34,894,206
---------- ----------
<PAGE>
Common Stock 862,500 862,500
Surplus 862,500 862,500
Undivided Profits 975,836 645,866
Unrealized losses (46,000) 0
---------- ----------
Total Equity 2,654,836 2,370,866
---------- ----------
Total Liabilities and Equity 40,408,256 37,265,072
========== ==========
<PAGE>
City National Bank
Statements of Income
Unaudited
Six Months Ended June 30,
1996 1995
------ ------
Net Income
------------
Interest Income on Securities 116,098 132,750
Interest Income on Loans 1,460,418 1,195,030
Loan Fee Income 52,459 48,738
--------- ---------
Total Interest Income 1,628,975 1,376,518
Interest Expense 646,167 587,715
--------- ---------
Net Interest Income 982,808 788,803
Deposit Fee Income 309,417 245,959
Other Income 36,963 67,151
--------- ---------
Total Income 1,329,188 1,101,913
Salaries and Benefits 397,901 355,682
Occupancy Expense 241,988 180,108
All Other Expenses 407,260 385,537
--------- ---------
Total Expenses 1,047,149 921,327
--------- ---------
Net Income Before FIT 282,039 180,586
Federal Income Tax Provision 80,000 44,000
--------- ---------
Net Income After Taxes 202,039 136,586
========= =========
<PAGE>
City National Bank
Balance Sheets
Unaudited
December 31,
------------
1995 1994
------ --------
Assets
-------------
Cash and Due from Banks 2,232,512 2,263,118
Short Term Investments 2,491,000 774,251
Investment Securities 2,357,173 2,655,303
Real Estate Loans 12,935,132 9,928,944
Commercial Loans 8,080,734 7,596,676
Consumer Loans and Other 9,291,714 8,386,478
Unearned Discount (639,642) (627,798)
---------- ----------
Total Loans 29,667,938 25,284,300
Reserve for Loan Losses (291,748) (278,214)
Building 1,877,794 1,378,444
Furniture and Fixtures 414,744 238,524
Bank Auto 0 15,847
---------- ---------
Total Fixed Assets 2,292,538 1,632,815
Other Assets 785,445 546,940
---------- ----------
Total Assets 39,534,858 32,878,513
========== ==========
Liabilities
-------------
Non Interest Bearing Demand 6,709,097 5,287,185
Interest Bearing Demand 12,340,583 11,224,325
Savings 3,205,331 2,956,734
Certificates of Deposit 14,526,108 9,079,651
---------- ----------
Total Deposits 36,781,119 28,547,895
<PAGE>
Borrowed Funds 0 1,855,000
Other Liabilities 271,942 241,338
---------- ----------
Total Liabilities 37,053,061 30,644,233
Common Stock 862,500 862,500
Surplus 862,500 862,500
Undivided Profits 773,797 509,280
Unrealized Gain (Losses) (17,000) 0
Total Equity 2,481,797 2,234,280
---------- ---------
Total Liabilities and Equity 39,535,858 32,878,513
========== ==========
<PAGE>
City National Bank
Statements of Income
Unaudited
Year ended December 31,
1995 1994
------ ------
Net Income
------------
Interest Income on Securities 259,054 209,572
Interest Income on Loans 2,566,025 2,071,099
Loan Fee Income 98,470 99,522
--------- ---------
Total Interest Income 2,923,549 2,380,193
Interest Expense 1,270,238 724,435
--------- ---------
Net Interest Income 1,653,311 1,655,758
Deposit Fee Income 543,092 416,240
Other Income 112,737 60,960
--------- ---------
Total Income 2,309,140 2,132,958
Salaries and Benefits 737,607 611,095
Occupancy Expense 440,819 253,866
All Other Expenses 743,497 746,634
--------- ---------
Total Expenses 1,921,923 1,611,595
--------- ---------
Net Income Before FIT 387,217 521,363
Federal Income Tax Provision 122,700 167,000
Net Income After Taxes 264,517 354,363
========= =========
<PAGE>
City National Bank
Balance Sheets
Unaudited
December 31,
--------------
1994 1993
Assets -------- --------
--------------
Cash and Due from Banks 2,263,118 1,904,690
Short Term Investments 774,251 3,727,251
Investment Securities 2,655,303 2,170,813
Real Estate Loans 9,928,944 8,835,786
Commercial Loans 7,596,676 6,624,651
Consumer Loans and Other 8,386,478 5,680,620
Unearned Discount (627,798) (596,160)
---------- ----------
Total Loans 25,284,300 20,544,897
Reserve for Loan Losses (278,214) (291,529)
Building 1,378,444 1,098,327
Furniture and Fixtures 238,524 124,006
Bank Auto 15,847 20,430
---------- ----------
Total Fixed Assets 1,632,815 1,242,763
Other Assets 546,940 748,285
---------- ----------
Total Assets 32,878,513 30,047,170
========== ==========
Liabilities
-----------------
Non Interest Bearing Demand 5,287,185 4,255,552
Interest Bearing Demand 11,224,325 14,336,001
Savings 2,956,734 2,076,355
Certificates of Deposit 9,079,651 7,314,875
---------- ----------
Total Deposits 28,547,895 27,982,783
Borrowed Funds 1,855,000 0
Other Liabilities 241,338 141,344
---------- ----------
Total Liabilities 30,644,233 28,124,127
---------- ----------
<PAGE>
Common Stock 862,500 862,500
Surplus 862,500 862,500
Undivided Profits 509,280 198,043
Unrealized Gains (Losses) 0 0
Total Equity 2,234,280 1,923,043
Total Liabilities and Equity 32,878,513 30,047,170
========== ==========
<PAGE>
City National Bank
Statements of Income
Unaudited
Year Ended December 31,
------------------------
1994 1995
------ ------
Net Income
----------------
Interest Income on Securities 209,572 237,589
Interest Income on Loans 2,071,099 1,826,646
Loan Fee Income 99,522 83,865
--------- --------
Total Interest Income 2,380,193 2,148,100
Interest Expense 724,435 645,712
Net Interest Income 1,655,758 1,502,388
Deposit Fee Income 416,240 364,432
Other Income 60,960 83,759
--------- ---------
Total Income 2,132,958 1,950,579
Salaries and Benefits 611,095 565,401
Occupancy Expense 253,866 218,800
All Other Expenses 746,634 707,739
Total Expenses 1,611,595 1,491,940
--------- ---------
Net Income Before FIT 521,363 458,639
Federal Income Tax Provision 167,000 48,500
--------- ---------
Net Income After Taxes 354,363 410,139
========= =========
<PAGE>
<TABLE>
City National Bank
Statements of Cash Flows
(000's)
<CAPTION>
Unaudited
-----------
Six Months Ended
June 30, Year Ended December 31,
1996 1995 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Operating Activities
Net Income 202 137 265 354 410
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 69 37 132 70 64
Increase (decrease) in loan loss reserve 25 2 14 (13) 18
Increase (decrease) in taxes payable (59) 23 133 49 58
Decrease (increase) in interest receivable (71) (19) (57) (41) 10
Increase (decrease) in interest payable (1) 35 33 20 (9)
Decrease (increase) in prepaid and other assets 62 (72) (170) 5 (1)
Increase (decrease) in accrued expenses 91 20 (111) 31 (8)
----- ----- ----- ----- -----
Net cash provided by operating activities 318 163 239 475 542
Investing Activities
Proceeds from maturing investment securities 200 0 400 165 400
Paydowns on investment securitites 45 104 260 4 44
Purchases of investment securities 0 0 (400) (654) (660)
Decrease (increase) in Fed Funds sold 720 (347) (1,717) 2,953 (1,163)
Decrease (increase) in loans (887) (2,681) (4,384) (4,739) (4,202)
Fixed asset purchases (172) (757) (792) (460) (150)
Proceeds from sale of fixed assets 0 0 0 0 0
Purchase of other real estate owned 0 0 (14) 237 0
Proceeds from sale of other real estate owned 91 39 0 0 246
----- ----- ----- ----- -----
Net cash used in investing activities (3) (3,642) (6,647) (2,494) (5,485)
Financing Activities
Dividends paid 0 0 0 (43) 0
Increase (decrease) in deposits 639 6,022 8,233 565 5,574
Increase (decrease) in short-term borrowings 0 (1,855) (1,855) 1,855 0
----- ----- ----- ----- -----
Net cash provided by financing activities 63 4,167 6,378 2,377 5,574
Net increase (decrease) in cash and cash equivalents 954 688 (30) 358 631
Cash and cash equivalents at beginning of period 2,233 2,263 2,263 1,905 1,274
Cash and cash equivalents at end of period 3,187 2,951 2,233 2,263 1,905
===== ===== ===== ===== =====
</TABLE>
<PAGE>
FINANCIAL STATEMENTS OF SECURITY NATIONAL BANK
INDEX TO FINANCIAL STATEMENTS OF SNB
Page
1. Compiled Financial Statements for the Six Months
Ended June 30, 1996 and 1995 F-SNB-2
2. Audit Report - December 31, 1995 and 1994 F-SNB-21
3. Audtied Financial Statements - December 31, 1994 F-SNB-40
<PAGE>
SECURITY NATIONAL BANK
Compiled Financial Statements
For The Six Months Ended
June 30, 1996 and 1995
<PAGE>
SECURITY NATIONAL BANK
Compiled Financial Statements
For The Six Months Ended
June 30, 1996 and 1995
Page
Accountant's Compilation Report . . . . . . . . . 1
Statements of Condition . . . . . . . . . . . . . 2
Statements of Income . . . . . . . . . . . . . . 3
Statements of Changes in Stockholders' Equity . . . 4
Statements of Cash Flows . . . . . . . . . . . . . 5
Notes to Compiled Financial Statements . . . . . 6-17
<PAGE>
KEN ROGERS & ASSOCIATES, LTD.
CERTIFIED PUBLIC ACCOUNTANTS
A LIMITED LIABILITY COMPANY
1329 N. University Drive, Nacogdoches, Texas 75961
409-564-8186
Ken Rogers, CPA (Retired)
Gary Johnson, CPA
Michael Halls, CPA
Terre McLemore, CPA
Kenneth Rodrigues, CPA
August 13, 1996
To the Directors
Security National Bank
Nacogdoches, Texas
We have compiled the accompanying statements of condition of
Security National Bank (a Texas corporation) as of June 30, 1996
and 1995, and the related statements of income, changes in
stockholders' equity, and cash flows for the six months then
ended, in accordance with Statements on Standards for Accounting
and Review Services issued by the American Institute of Certified
Public Accountants.
A compilation is limited to presenting in the form of financial
statements information that is the representation of management.
We have not audited or reviewed the accompanying financial
statements and, accordingly, do not express an opinion or any
other form of assurance on them.
KEN ROGERS & ASSOCIATES, LTD.
<PAGE>
SECURITY NATIONAL BANK
STATEMENTS OF CONDITION
June 30,
1996 1995
------ ------
ASSETS
Cash and due from banks $1,934,531 $2,817,310
Interest-bearing deposits with banks 1,903,657 1,017,576
Federal funds sold 35,000 1,230,000
Securities available for sale 6,079,389 6,981,742
Securities being held to maturity 8,083,287 5,830,960
Loans, net of allowance for credit
losses of $148,172 and $156,092,
respectively 16,477,521 15,861,055
Property and equipment 1,938,738 1,936,254
Accrued interest receivable 341,682 282,401
Foreclosed real estate, net of allowance
of $14,640 and $14,640, respectively 73,941 81,141
Other assets 51,963 40,608
----------- -----------
Total Assets $36,919,709 $36,079,047
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand and savings $15,789,320 $16,458,624
Other time 17,156,091 16,017,858
---------- ----------
Total deposits 32,945,411 32,476,482
Accrued interest payable 100,274 107,953
Other liabilities 190,705 125,416
---------- ----------
Total Liabilities 33,236,390 32,709,851
========== =========
<PAGE>
Stockholders' Equity:
Common stock, 250,000 shares at $5 par
value authorized; 230,000 shares
issued; and 230,000 shares outstanding 1,150,000 1,150,000
Capital surplus 1,150,000 1,150,000
Retained earnings 1,462,993 1,098,769
Net unrealized appreciation (depreciation)
on securities available for sale, net of
tax benefit of $41,044 and $15,235,
respectively (79,674) (29,573)
Total stockholders' equity 3,683,319 3,369,196
----------- -----------
Total Liabilities and Stockholders' Equity $36,919,709 $36,079,047
=========== ===========
See accountant's compilation report and accompanying notes.
<PAGE>
SECURITY NATIONAL BANK
STATEMENTS OF INCOME
For the Six Months Ended June 30, 1996 and 1995
June 30, June 30,
1996 1995
------ ------
Interest and dividend income:
Interest and fees on loans $897,249 $766,729
Interest on U.S. Treasury obligations 189,064 125,961
Interest on U.S. government agency 178,682 232,105
obligations
Interest on state and political 35,668 31,074
subdivision obligations
Dividends on restricted equity 2,286 2,123
securities
Interest on federal funds sold 4,771 14,303
Interest on deposits with banks 58,668 31,064
--------- ---------
Total interest and dividend income 1,366,388 1,203,359
========= =========
Interest expense:
Interest on deposits 614,382 521,700
Interest on federal funds purchased 0 445
Interest on securities sold under 4,309 0
repurchase agreements
-------- -------
Total interest expense 618,691 522,145
-------- -------
Net interest income 747,697 681,214
Benefit (provision) for credit losses 55,716 5,823
------- -------
Net interest income after provision for 803,413 687,037
credit losses ======= =======
Other income:
Service charges 262,950 240,738
Net realized gains on sales of
securities available for sale 0 0
Other income 12,118 12,935
------- -------
Total other income 275,068 253,673
======= =======
<PAGE>
Other expenses:
Salaries and employee benefits 323,656 304,234
Occupancy expense 31,920 38,791
Equipment expense 75,360 70,560
Federal deposit insurance premiums 1,000 36,112
Other operating expenses 262,251 208,216
-------- -------
Total other expenses 694,187 657,913
-------- --------
Income before income taxes 384,294 282,797
Income tax expense 119,412 85,499
-------- --------
Net income $264,882 $197,298
======== ========
Net income per share of common stock $1.15 $0.86
======== =======
Average number of shares outstanding 230,000 230,000
======== ========
See accountant's compilation report and accompanying notes.
<PAGE>
<TABLE>
SECURITY NATIONAL BANK
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 1996 and 1995
<F1>
<CAPTION>
Unrealized
Appreciation Total
Common Capital Retained (Depreciation) Stockholders's
Stock Surplus Earnings in Value Equity
------- ------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $1,150,000 $1,150,000 $970,471 $(169,198) $3,101,273
Net income for six months
ended June 30, 1995 197,298 197,298
Cash dividends declared - $0.30
per share (69,000) (69,000)
Net change in unrealized
appreciation (depreciation)
on securities available for
sale, net of taxes of $71,927 139,625 139,625
---------- ---------- ---------- ---------- ----------
Balance at June 30, 1995 $1,150,000 $1,150,000 $1,098,769 $(29,573) $3,369,196
========== ========== ========== ========== ==========
Balance at December 31, 1995 $1,150,000 $1,150,000 $1,267,111 $(11,825) $3,555,286
Net income for six months
ended June 30, 1996 264,882 264,882
Cash dividends declared - $0.30
per share (69,000) (69,000)
Net change in unrealized
appreciation (depreciation)
on securities available for
sale, net of tax benefit (67,849) (67,849)
of $34,952
---------- ---------- ---------- ----------- ----------
Balance at June 30, 1996 $1,150,000 $1,150,000 $1,462,993 $(79,674) $3,683,319
========== ========== ========== =========== ==========
<FN>
<F1>
See accountant's compilation report and accompanying notes.
</FN>
</TABLE>
<PAGE>
SECURITY NATIONAL BANK
STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1996 and 1995
June 30, June 30,
1996 1995
------ ------
Cash flows from operating activities:
Net income $264,882 $197,298
--------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 53,487 47,051
Provision for credit losses (55,716) (5,823)
Net realized gains on securities
available for sale 0 0
Net loss (gain) on sale of other real
estate 0 (5,300)
Amortization of bond premiums 13,196 14,759
Accretion of bond discounts (3,292) (3,012)
(Increase) decrease in interest
receivable (3,156) 10,369
(Increase) decrease in other assets 8,045 30,607
Increase (decrease) in interest
payable (8,962) 25,330
Increase (decrease) in other (3,235) (146,782)
-------- --------
Total adjustments 367 (32,801)
-------- --------
Net cash provided (used) by operating
activities 265,249 164,497
======= =======
Cash flows from investing activities:
Net decrease (increase) in interest
bearing deposits with banks 146,093 (309,785)
Net decrease (increase) in federal
funds sold 190,000 (790,000)
Purchases of securities available for
sale 0 (1,012,500)
Principal paydowns of securities
available for sale 139,803 141,705
Proceeds from maturities of securities
available for sale 500,000 1,500,000
Purchase of securities being held to
maturity (1,990,938) 0
Principal paydowns of securities being
held to maturity 154,777 116,328
<PAGE>
Proceeds from maturities of securities
being held to maturity 0 0
Net decrease (increase) in loans 262,901 698,213
Purchases of properties and equipment (16,594) (19,998)
Proceeds from disposal of other real
estate 0 28,910
--------- ---------
Net cash provided (used) by investing
activities (613,958) 352,873
--------- ---------
Cash flows from financing activities:
Net increase (decrease) in customer (2,576,621) 181,237
deposits
Payments of dividends (69,000) (69,000)
--------- ---------
Net cash provided (used) by investing
activities (2,645,621) 112,237
--------- ---------
Net increase (decrease) in cash and due from
from banks (2,994,330) 629,607
Cash and due from banks at January 1 4,928,861 2,187,703
---------- ----------
Cash and due from banks at June 30 $1,934,531 $2,817,310
========== ==========
Interest paid $627,653 $496,815
========== =========
Income taxes paid $58,720 $171,194
========== =========
See accountant's compilation report and accompanying notes.
<PAGE>
SECURITY NATIONAL BANK
NOTES TO COMPILED FINANCIAL STATEMENTS
June 30, 1996 and 1995
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Security National Bank
(the Bank) conform to generally accepted accounting principles
and the general practices within the banking industry.
Cash Equivalents - For the purpose of presentation in the
Statements of Cash Flows, cash and cash equivalents are defined
as those amounts included in the statement of condition caption
"Cash and due from banks."
Investments in Securities - The Bank's investments in
securities are classified into three categories and accounted
for as follows:
Trading Securities - Government bonds held principally for
resale in the near term are classified as trading
securities and recorded at their fair values. Unrealized
gains and losses on trading securities are included in
other income. The Bank did not have any trading
securities at any time during the six months ended June
30, 1996 or 1995.
Securities Being Held to Maturity - Bonds, notes, and
debentures for which the Bank has the positive intent and
ability to hold to maturity are reported at cost, adjusted
for premiums and discounts that are recognized in interest
income using the interest method over the period to
maturity.
Securities Available for Sale - Bonds, notes, debentures, and
certain equity securities not classified as trading
securities nor as securities to be held to maturity are
classified as securities available for sale. These
securities are presented in the statement of condition at
their fair value.
Declines in the fair value of individual securities being held
to maturity and securities available for sale below their cost
that are other than temporary are accounted for as a write-down
of the individual securities to their fair value. Any related
write-downs are included in earnings as realized losses.
Unrealized holding gains and losses, net of tax, on securities
available for sale are reported as a net amount in a separate
component of stockholders' equity, until realized. Gains and
losses on the sale of securities available for sale are
determined using the specific-identification method.
See accountant's compilation report.
<PAGE>
Loans Receivable - Loans receivable for which management has
the intent and ability to hold for the foreseeable future or
until maturity or payoff are reported at their outstanding
unpaid principal balances reduced by any charge-offs or
specific valuation accounts and net of any deferred fees or
costs on originated loans, or unamortized premiums or discounts
on purchased loans.
Loan origination fees and certain direct origination costs are
not capitalized and recognized as an adjustment of the yield on
the related loan. Instead, they are recognized as revenue when
collected or when the loan is originated. The difference
between this immediate recognition method and the
capitalization method required by generally accepted accounting
principles is not material to these financial statements.
The allowance for loan losses is increased by charges to income
and decreased by charge-offs (net of recoveries). Management's
periodic evaluation of the adequacy of the allowance is based
on the Bank's past loan loss experience, known and inherent
risks in the loan portfolio, adverse situations that may affect
the borrower's ability to repay, the estimated value of any
underlying collateral, and current economic conditions.
For impairment recognized in accordance with FASB Statement No.
114, the entire change in present value of expected cash flows
is reported as bad debt expense in the same manner in which
impairment initially was recognized or as a reduction in the
amount of bad debt expense that otherwise would be reported.
Property and Equipment - Land is carried at cost. Bank
premises, furniture, and equipment are carried at cost, less
accumulated depreciation. Depreciation is computed using the
straight-line method and is charged to operations over the
estimated useful lives of the assets. Buildings are
depreciated over 40 years, equipment over 3 to 10 years, and
vehicles over 5 years. Maintenance and repairs of property and
equipment are charged to operations; however, major
improvements are capitalized. Upon retirement, sale, or other
disposition of property and equipment, the cost and accumulated
depreciation are eliminated from the accounts, and gain or loss
is included in operations.
Foreclosed Real Estate - Real estate properties acquired
through, or in lieu of, loan foreclosure are initially recorded
at fair value at the date of foreclosure establishing a new
cost basis. After foreclosure, valuations are periodically
performed by management and the real estate is carried at the
lower of (1) cost or (2) fair value minus estimated costs to
sell. Revenue and expenses from operations and additions to
the valuation allowance are included in loss on foreclosed real
estate. Foreclosed assets are not depreciated.
See accountant's compilation report.
<PAGE>
Financial Instruments - In the ordinary course of business, the
Bank has entered into off balance sheet financial instruments
consisting of commitments to extend credit and standby letters
of credit. Such financial instruments are recorded in the
financial statements when they are funded or related fees are
incurred or received.
Fair Values of Financial Instruments - The following methods
and assumptions were used by the Bank in estimating fair values
of financial instruments as disclosed herein:
Cash and due from banks - The carrying amounts of cash and
short-term instruments approximate their fair value.
Securities being held to maturity and securities available
for sale - Fair values for investment securities,
excluding restricted equity securities, are based on
quoted market prices. The carrying values of restricted
equity securities approximate fair values.
Loans receivable - For variable-rate loans that reprice
frequently and have no significant change in credit risk,
fair values are based on carrying values. Fair values for
other loans are estimated based on discounted cash flow
analyses, using interest rates currently being offered for
loans with similar terms to borrowers of similar credit
quality. Fair values for impaired loans are estimated
using discounted cash flow analyses or underlying
collateral values, where applicable.
Deposit liabilities - The fair values disclosed for demand
deposits are, by definition, equal to the amount payable
on demand at the reporting date (that is, their carrying
amounts). The carrying amounts of variable-rate, fixed-
term money market accounts and certificates of deposit
(CDs) approximate their fair values at the reporting date.
Fair values for fixed-rate CDs are estimated using a
discounted cash flow calculation that applies interest
rates currently being offered on CDs to a schedule of
aggregated expected monthly maturities.
Accrued interest receivable and payable - The carrying
amounts of accrued interest approximate their fair values.
Off balance sheet instruments - Fair values for off balance
sheet lending commitments are based on fees currently
charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the
counterparties' credit standing.
<PAGE>
Interest Income on Loans - Interest on loans is accrued and
credited to income based on the principal amount outstanding.
The accrual of interest on loans is discontinued when, in the
opinion of management, there is an indication that the borrower
may be unable to meet payments as they become due. Upon such
discontinuance, all unpaid accrued interest is reversed. The
Bank recognizes interest income on these loans as customer
payments are made, and only after all of the outstanding
principal has been collected.
Income Taxes - Deferred tax assets and liabilities are
reflected at currently enacted income tax rates applicable to
the period in which the deferred tax assets or liabilities are
expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes. Provisions
for income taxes are based on amounts reported in the
statements of income (after exclusion of non-taxable income
such as interest on state and municipal securities) and include
deferred taxes on temporary differences in the recognition of
income and expense for tax and financial statement purposes.
Items of deferral include differences related to the allowance
for loan losses, allowance for losses on foreclosed real
estate, accumulated depreciation, loans not accruing interest,
and the use of the cash basis of accounting for tax purposes.
The deferred tax assets and liabilities represent the future
tax return consequences of those differences, which will either
be taxable or deductible when the assets and liabilities are
recovered or settled.
Net Income Per Share of Common Stock - Net income per share of
common stock is computed by dividing net income by the weighted
average number of shares of common stock outstanding during the
period, after giving retroactive effect to stock dividends, if
any.
Restrictions on Cash and Due From Banks - The Bank is required
to maintain reserve balances in cash with Federal Reserve
Banks. The total of those reserve balances was approximately
$142,000 at June 30, 1996.
Use of Estimates - Management uses estimates and assumptions in
preparing these financial statements. Those estimates and
assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses.
See accountant's compilation report.
<PAGE>
SECURITY NATIONAL BANK
NOTES TO COMPILED FINANCIAL STATEMENTS
June 30, 1996 and 1995
INVESTMENT AND MORTGAGE-BACKED SECURITIES
The following tables reflect the amortized cost and estimated
fair values of debt, equity, and mortgage-backed securities
held at June 30, 1996 and 1995. In addition, gross unrealized
gains and gross unrealized losses are disclosed as of June 30,
1996 and 1995.
Securities Available for Sale
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------ ------- -------- -------
June 30, 1996
U.S. Treasury
obligations $2,999,528 $8,317 $5,970 $3,001,875
U.S. Agency
obligations 898,789 0 51,102 847,687
State and municipal
obligations 0 0 0 0
Mortgage-backed
securities 2,222,791 0 71,964 2,150,827
Restricted equity
securities 79,000 0 0 79,000
---------- -------- -------- ----------
Totals $6,200,108 $8,317 $129,036 $6,079,389
========== ======== ======== ==========
June 30, 1995
U.S. Treasury
obligations $3,003,586 $40,398 $0 $3,043,984
U.S. Agency
obligations 1,398,731 2,858 58,651 1,342,938
State and municipal
obligations 0 0 0 0
Mortgage-backed
securities 2,545,233 0 29,413 2,515,820
Restricted equity
securities 79,000 0 0 79,000
---------- -------- -------- ----------
Totals $7,026,550 $43,256 $88,064 $6,981,742
========== ======== ======== ==========
<PAGE>
Securities Being Held to Maturity
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------- -------- -------- -----
June 30, 1996
U.S. Treasury
obligations $3,500,475 $0 $115,084 $3,385,391
U.S. Agency
obligations 1,500,000 0 66,250 1,433,750
State and municipal
obligations 1,352,429 553 23,169 1,329,813
Mortgage-backed
securities 1,730,383 499 43,242 1,687,640
---------- ------ -------- ----------
Totals $8,083,287 $1,052 $247,745 $7,836,594
========== ====== ======== ==========
June 30, 1995
U.S. Treasury
obligations $506,029 $1,705 $0 $507,734
U.S. Agency
obligations 1,995,744 5,506 50,000 1,951,250
State and municipal
obligations 1,175,191 0 23,846 1,151,345
Mortgage-backed
securities 2,153,996 3,899 57,769 2,100,126
---------- ------- -------- ----------
Totals $5,830,960 $11,110 $131,615 $5,710,455
========== ======= ======== ==========
<PAGE>
Proceeds from the sale of securities available for sale were $-0-
and $-0- for the six months ended June 30, 1996 and 1995,
respectively. Gross realized gains from the sale of securities
available for sale were $-0- and $-0- for the six months ended
June 30, 1996 and 1995, respectively, and gross realized losses
from the sale of securities available for sale were $-0- and $-0-
for the six months ended June 30, 1996 and 1995, respectively.
The amortized cost and estimated fair value of debt securities
at June 30, 1996 by contractual maturity are shown below.
Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay
obligations.
Available for Sale Being Held to Maturity
Amortized Fair Amortized Fair
Cost Value Cost Value
------ ----- ------ -----
Due in one year or less $1,999,964 $2,008,281 $0 $0
Due after one through five years 1,898,353 1,841,281 5,000,475 4,819,141
Due after five through ten years 0 0 262,861 261,647
Due after ten years 0 0 1,089,568 1,068,166
Mortgage-backed securities 2,222,791 2,150,827 1,730,383 1,687,640
---------- ---------- ---------- ----------
Total $6,121,108 $6,000,389 $8,083,287 $7,836,594
========== ========== ========== ==========
Securities carried at approximately $2,354,250 and $1,880,223
at June 30, 1996 and 1995, respectively, were pledged to secure
deposits and for other purposes required or permitted by law.
See accountant's compilation report.
<PAGE>
LOANS
Loans at June 30, 1996 and 1995 are summarized as follows:
June 30, June 30,
1996 1995
------ ------
Commercial and agricultural $5,482,144 $3,334,643
Real estate construction 384,668 396,660
Commercial real estate 2,535,904 3,172,583
Residential real estate 5,883,712 6,511,119
Consumer 2,453,320 2,714,123
Overdrafts 29,052 19,835
---------- ----------
Subtotal 16,768,800 16,148,963
Less - unearned interest (143,107) (131,816)
Less - allowance to credit loss (148,172) (156,092)
Net loans receivable $16,477,521 $15,861,055
=========== ===========
An analysis of the change in the allowance for credit losses follows:
June 30, June 30,
1996 1995
------ ------
Balance at January 1 $136,905 $143,922
Loans charged off (3,161) (5,691)
Recoveries 70,144 23,684
Provision (benefit) for loan losses (55,716) (5,823)
-------- --------
Balance at December 31 $148,172 $156,092
======== ========
<PAGE>
An analysis of impaired loans is summarized as follows:
June 30, June 30,
1996 1995
------ ------
Impaired loans for which an allowance
has been provided $111,530 $145,375
Impaired loans for which no allowance
has been provided 2,604 107
Total loans determined to be impaired $114,134 $145,482
Allowance provided for impaired
loans, included in the allowance
for loan losses $20,238 $31,794
Loans to employees totaled $393,529 and $381,152 at June 30,
1996 and 1995, respectively. Non-accruing loans (principally
real estate loans) totaled $114,134 and $145,482 at June 30,
1996 and 1995, respectively, which had the effect of reducing
income $10,130 and $20,278, respectively. All non-accruing
loans are considered to be impaired.
See accountant's compilation report.
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1996 and 1995 consisted of:
June 30, June 30,
1996 1995
------ ------
Land $521,563 $521,563
Buildings 1,370,009 1,370,009
Furniture and equipment 1,001,190 918,326
Vehicles 36,778 28,436
--------- ---------
Total cost 2,929,540 2,838,334
Accumulated depreciation (990,802) (902,080)
--------- ---------
Net book value $1,938,738 $1,936,254
========== ==========
Depreciation expense totaled $53,487 and $47,051 for the six
months ended June 30, 1996 and 1995, respectively.
FORECLOSED REAL ESTATE
A comparative summary of activity on foreclosed real estate
(previously called other real estate) is as follows:
June 30, June 30,
1996 1995
------ ------
Balance at January 1 $88,581 $124,691
Acquired in settlement of loans 0 0
Sales and other dispositions 0 (28,910)
------- --------
Balance at June 30 $88,581 $95,781
Activity in the allowance for losses for foreclosed real estate
is as follows:
June 30, June 30,
1996 1995
------ ------
Balance at January 1 $14,640 $19,940
Provision charged to income 0 0
Charge-offs, net of recoveries 0 (5,300)
------- -------
Balance at June 30 $14,640 $14,640
======= =======
See accountant's compilation report.
<PAGE>
DEPOSITS
Components of deposits included in the statement of condition
at June 30, 1996 and 1995 were as follows:
June 30, June 30,
1996 1995
Demand and savings:
Demand deposits $4,982,079 $5,541,231
Passbook savings 1,567,344 1,483,439
NOW accounts 5,637,299 5,138,228
Money market accounts 3,602,598 4,295,726
---------- ----------
15,789,320 16,458,624
========== ==========
Other time:
Certificates of deposit of
$100,000, or more 4,627,304 3,909,235
Open account time deposits of
$100,000 or more 500,000 500,000
Other time deposits 12,028,787 11,608,623
---------- ----------
17,156,091 16,017,858
---------- ----------
Total deposits $32,945,411 $32,476,482
=========== ===========
The maturity distribution of other time deposits at June 30, 1996
was as follows:
Within one year $14,032,848
One to two years 1,453,468
Two to three years 282,854
Three to four years 768,522
Four to five years 618,399
-----------
Total other time deposits $17,156,091
===========
See accountant's compilation report.
<PAGE>
STOCKHOLDERS' EQUITY
The Bank is subject to certain restrictions on the amount of
dividends that it may declare without prior regulatory
approval. At June 30, 1996, approximately $926,710 of retained
earnings were available for dividend declaration without prior
regulatory approval.
The Bank is also subject to various regulatory capital
requirements administered by federal and state banking
agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could
have a direct material effect on the Bank's financial
statements. The regulations require the Bank to maintain a
minimum risk-based capital ratio of 8 percent and a minimum
leverage ratio of 3 percent. The Bank's risk-based capital
ratio was approximately 19.40% and 17.60% at June 30, 1996 and
1995, respectively, and its leverage ratio was approximately
9.85% and 9.33% at June 30, 1996 and 1995, respectively.
See accountant's compilation report.
<PAGE>
FINANCIAL INSTRUMENTS, COMMITMENTS, AND CONTINGENCIES
The Bank is a party to financial instruments with off-balance-
sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments
include commitments to extend credit and standby letters of
credit. These instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized in
the statement of condition. The contract or notional amounts
of those instruments reflect the extent of involvement the Bank
has in those particular financial instruments.
The Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument
for commitments to extend credit and standby letters of credit
is represented by the contractual or notional amount of those
instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for
instruments that are reflected on the statement of condition.
Contract or Notional
Amount
-------------
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit $1,420,779
Standby letters of credit $12,850
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
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 Bank evaluates each customer's creditworthiness on a case-
by-case basis. The amount of collateral obtained, if it is
deemed necessary by the Bank upon extension of credit, is based
on management's credit evaluation. The collateral held varies
but may include accounts receivable, inventory, property,
equipment, and commercial properties.
Standby letters of credit are conditional commitments issued by
the Bank to guarantee the performance of a customer to a third
party. Those guarantees are primarily issued to support public
and private arrangements in which the customer has guaranteed
payment to a third party. The credit risk involved in issuing
letters of credit is essentially the same as that involved in
extending loans to customers.
See accountant's compilation report.
<PAGE>
The Bank has not incurred any losses on its commitments in
either the six months ended June 30, 1996 or 1995. The Bank
primarily serves customers located in the East Texas area. As
such, the Bank's loans, commitments, and standby letters of
credit have been granted to customers in that area.
In the normal course of business, the Bank is involved in
various legal proceedings. Management has concluded, based
upon advice of counsel, that the result of these proceedings
will not have a material effect on the Bank's financial
condition or results of operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Bank's financial instruments
were as follows, at June 30, 1996:
Carrying Fair
Amount Value
------ -------
Financial assets:
Cash and due from banks $1,934,531 $1,934,531
Interest bearing deposits with banks 1,903,657 1.902,657
Federal funds sold 35,000 35,000
Securities available for sale 6,079,389 6,079,389
Securities being held to maturity 8,083,287 7,836,594
Loans receivable 16,477,521 16,501,521
Accrued interest receivable 341,682 341,682
Financial liabilities:
Deposit liabilities 32,945,411 32,980,000
Accrued interest payable 100,274 100,274
Off statement of condition assets
(liabilities):
Commitments to extend credit 1,420,779 0
Standby letters of credit 12,850 200
See accountant's compilation report.
<PAGE>
INCOME TAXES
The provision for income taxes consisted of the following for
the six months ended June 30, 1996 and 1995:
June 30, June 30,
1996 1995
------ ------
Currently payable:
Federal $96,446 $83,193
State 0 0
------- -------
Total current expense 96,446 83,193
------- -------
Deferred:
Federal 22,966 2,306
State 0 0
Total deferred expense 22,966 2,306
------- ------
Total income tax expense $119,412 $85,499
======== =======
The provision for federal income tax is less than that computed
by applying the federal statutory rate of 34% in 1996 and 1995,
as indicated in the following analysis:
June 30, June 30,
1996 1995
------ ------
Income tax, at 34% $130,660 $96,151
Increase (decrease) resulting from:
Effect of tax-exempt income (13,726) (12,869)
Nondeductible expenses 2,478 2,217
-------- -------
Total income tax expense $119,412 $85,499
======== =======
See accountant's compilation report.
<PAGE>
The components of the deferred income tax asset included in
other assets are as follows:
June 30, June 30,
1996 1995
------ ------
Deferred tax asset:
Federal $167,831 $144,579
State 0 0
Less - valuation allowance 0 0
------- -------
167,831 144,579
======= =======
Deferred tax liability:
Federal (231,604) (188,577)
State 0 0
(231,604) (188,577)
-------- --------
Net deferred tax asset (liability) $(63,773) $(43,998)
======== ========
The tax effects of each type of significant item that gave rise
to deferred taxes are:
June 30, June 30,
1996 1995
------ ------
Allowance for credit losses $50,378 $53,071
Depreciation (112,586) (85,936)
Valuation of foreclosed real estate 4,978 6,780
Use of cash basis of accounting (70,450) (51,759)
Loans on non-accrual status 22,863 18,611
Unrealized (gain) or loss on
securities available for sale 41,044 15,235
-------- --------
Balance at December 31 $(63,773) $(43,998)
======== ========
PROFIT SHARING PLAN
The Bank has a profit sharing plan covering substantially all
full-time employees. Employees are eligible to participate
after completion of one year of service. The Bank's
contribution to the plan for the six months ended June 30, 1996
and 1995 was $13,020 and $12,990, respectively.
See accountant's compilation report.
<PAGE>
RELATED PARTY TRANSACTIONS
The Bank has entered into transactions with its executive
officers, directors, significant shareholders, and their
affiliates (related parties). In the opinion of management,
such transactions were made in the ordinary course of business
on substantially the same terms and conditions, including
interest rates and collateral, as those prevailing at the same
time for comparable transactions with other customers, and did
not involve more than normal credit risk or present other
unfavorable features. The aggregate amount of loans to such
related parties was $294,373 and $209,323 at June 30, 1996 and
1995, respectively. Deposits owed to such related parties
consisted of $615,804 and $781,278 at June 30, 1996 and 1995,
respectively.
SECURITIES SOLD UNDER REPURCHASE AGREEMENT
During the six months ended June 30, 1996, the Bank entered
into daily agreements to repurchase securities previously sold.
The agreements specified an interest rate of 4.75%, with total
daily balances ranging from $161,000 to $5,000,000. The Bank
pledged securities as collateral for the days that the
agreements were in effect. Total interest expense for these
agreements was $4,309. There were no outstanding agreements at
either June 30, 1996 or June 30, 1995.
COMMITMENTS AND CONTINGENCIES
Substantially all of the Bank's loans, commitments, and
commercial and standby letters of credit have been granted to
customers in the Bank's market area. Almost all such
customers are depositors of the Bank. The concentrations of
credit by type of loan are set forth above. The distribution
of commitments to extend credit approximates the distribution
of loans outstanding. Standby letters of credit were granted
primarily to commercial borrowers. The Bank, as a matter of
policy, does not extend credit to any single borrower or group
of related borrowers in excess of the legal lending limit.
Certain cash balances deposited with correspondent banks are
usually in excess of insurance coverage provided by the Federal
Deposit Insurance Corporation (FDIC). Management has assessed
the viability of correspondent banks and feels these risks are
minimal.
See accountant's compilation report.
<PAGE>
SECURITY NATIONAL BANK
AUDIT REPORT
December 31, 1995 and 1994
<PAGE>
SECURITY NATIONAL BANK
AUDITED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995 and 1994
TABLE OF CONTENTS
Page
Independent Auditor's Report . . . . . . . . . . 1
Statements of Condition . . . . . . . . . . . . 2
Statements of Income . . . . . . . . . . . . . . 3
Statements of Changes in Stockholders' Equity . . 4
Statements of Cash Flows . . . . . . . . . . . . 5
Notes to the Financial Statements . . . . . . 6-17
<PAGE>
KEN ROGERS & ASSOCIATES, LTD.
CERTIFIED PUBLIC ACCOUNTANTS
A LIMITED LIABILITY COMPANY
1329 N. University Drive, Nacogdoches, Texas 75961
409-564-8186
Ken Rogers, CPA (Retired)
Gary Johnson, CPA
Michael Halls, CPA
Terre McLemore, CPA
Kenneth Rodrigues, CPA
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Security National Bank
Nacogdoches, Texas
We have audited the accompanying statements of condition of
Security National Bank (the Bank) as of December 31, 1995 and
1994, and the related statements of income, changes in
stockholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of
the Bank'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 audits 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 Security National Bank as of December 31, 1995
and 1994, and the results of its operations and its cash
flows for the years then ended in conformity with generally
accepted accounting principles.
KEN ROGERS & ASSOCIATES, LTD.
January 26, 1996
<PAGE>
SECURITY NATIONAL BANK
STATEMENTS OF CONDITION
December 31,
1995 1994
------ ------
ASSETS
Cash and due from banks $4,928,861 $2,187,703
Interest-bearing deposits with banks 2,049,750 707,791
Federal funds sold 225,000 440,000
Securities available for sale 6,824,306 7,404,108
Securities to be held to maturity 6,254,717 5,954,322
Loans, net of allowance for credit losses
of $136,905 and $143,922, respectively 16,684,706 16,553,445
Property and equipment 1,975,631 1,963,307
Accrued interest receivable 338,526 292,770
Foreclosed real estate, net of allowance
of $14,640 and $19,940, respectively 73,941 104,751
Other assets 60,008 71,215
----------- -----------
Total Assets $39,415,446 $35,679,412
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand and savings $18,716,671 $16,393,661
Other time 16,805,361 15,901,584
---------- ----------
Total deposits 35,522,032 32,295,245
Accrued interest payable 109,236 82,623
Other liabilities 228,892 200,271
---------- ----------
Total Liabilities 35,860,160 32,578,139
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
Stockholders' Equity:
Common stock, 250,000 shares at $5 par
value authorized; 230,000 shares
issued; and 230,000 shares outstanding 1,150,000 1,150,000
Capital surplus 1,150,000 1,150,000
Retained earnings 1,267,111 970,471
Net unrealized appreciation (depreciation)
on securities available for sale, net of
tax of $6,092 and $87,162, respectively (11,825) (169,198)
--------- ---------
Total stockholders' equity 3,555,286 3,101,273
---------- ----------
Total Liabilities and Stockholders' Equity $39,415,446 $35,679,412
=========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
SECURITY NATIONAL BANK
STATEMENTS OF INCOME
For the Years Ended December 31, 1995 and 1994
1995 1994
------ ------
Interest income:
Interest and fees on loans $1,628,986 $1,384,886
Interest on U.S. Treasury obligations 285,539 312,708
Interest on U.S. government agency obligations 444,547 416,338
Interest on state and political subdivision
obligations 66,308 57,303
Interest on restricted equity securities 4,362 4,140
Interest on federal funds sold 24,099 44,151
Interest on deposits with banks 87,454 45,780
--------- ---------
Total interest income 2,541,295 2,265,306
--------- ---------
Interest expense:
Interest on deposits 1,121,517 898,047
Total interest expense 1,121,517 898,047
Net interest income 1,419,778 1,367,259
Provision for credit losses 21,163 43,752
--------- ---------
Net interest income after provision for
credit losses 1,440,941 1,411,011
--------- ---------
Other income:
Service charges 481,189 486,766
Net realized gains on sales of securities
available for sale 0 42,481
Other income 37,374 20,617
-------- --------
Total other income 518,563 549,864
-------- -------
Other expenses:
Salaries and employee benefits 643,543 596,511
Occupancy expense 70,201 72,462
Equipment expense 147,923 181,760
Federal deposit insurance premiums 37,110 74,973
Other operating expenses 435,968 429,443
--------- ---------
Total other expenses 1,334,745 1,355,149
--------- ---------
Income before income taxes 624,759 605,726
Income tax expense 190,119 184,588
--------- ---------
Net income $434,640 $421,138
========= =========
Net income per share of common stock $1.89 $1.83
========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
SECURITY NATIONAL BANK
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1995 and 1994
<F1>
<CAPTION>
Unrealized
Appreciation Total
Common Capital Retained (Depreciation) Stockholders'
Stock Surplus Earnings in Value Equity
------- ------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $1,150,000 $1,150,000 $687,333 $0 $2,987,333
Net income for 1994 421,138 421,138
Cash dividends declared -
$0.60 per share (138,000) (138,000)
Change in accounting
principle for unrealized
gain (loss) on securities
available for sale as of
January 1, 1994 188,457 188,457
Net change in unrealized
appreciation (depreciation)
on securities avalaible for
sale, net of taxes of
$184,247 (357,655) (357,655)
---------- --------- --------- --------- ----------
Balance at December 31, 1994 1,150,000 1,150,000 970,471 (169,198) 3,101,273
---------- --------- --------- --------- ----------
Net income for 1995 434,640 434,640
Cash dividends declared -
$0.60 per share (138,000) (138,000)
Net change in unrealized
appreciation (depreciation)
on securities avalaible for
sale, net of taxes of
$81,070 157,373 157,373
---------- ---------- ---------- -------- ----------
Balance at December 31, 1995 $1,150,000 $1,150,000 $1,267,111 $(11,825) $3,555,286
========== ========== ========== ========= ==========
<FN>
<F1>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
SECURITY NATIONAL BANK
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1995 and 1994
1995 1994
------ ------
Cash flows from operating activities:
Net income $434,640 $421,138
--------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 98,355 78,547
Provision for credit losses (21,163) (43,752)
Net realized gains on securities
available for sale 0 (39,976)
Net loss (gain) on sale of other real
estate (5,300) 15,977
Amortization of bond premiums 31,344 52,192
Accretion of bond discounts (5,143) (6,363)
(Increase) decrease in interest receivable (45,756) 41,037
(Increase) decrease in other assets (69,863) 53,718
Increase (decrease) in interest payable 26,614 9,377
Increase (decrease) in other liabilities 28,620 (106,218)
-------- --------
Total adjustments 37,708 54,539
-------- --------
Net cash provided (used) by operating
activities 472,348 475,677
-------- --------
Cash flows from investing activities:
Net decrease (increase) in interest
bearing deposits with banks (1,341,959) (106,665)
Net decrease (increase) in federal
funds sold 215,000 330,000
Purchases of securities available for sale (1,510,469) (1,133,151)
Proceeds from sales of securities available
for sale 0 2,056,677
Proceeds from maturities of securities
available for sale 2,318,511 1,608,206
Purchase of securities to be held to
maturity (1,180,937) (998,281)
Proceeds from maturities of securities
to be held to maturity 864,544 665,225
Net decrease (increase) in loans (110,098) 22,959
Purchases of properties and equipment (110,679) (530,759)
Proceeds from disposal of other real estate 36,110 30,253
--------- ---------
Net cash provided (used) by investing
activities (819,977) 1,944,464
--------- ---------
<PAGE>
Cash flows from financing activities:
Net increase (decrease) in customer deposits 3,226,787 (2,626,222)
Payments of dividends (138,000) (138,000)
--------- ---------
Net cash provided (used) by investing
activities 3,088,787 (2,764,222)
--------- ---------
Net increase (decrease) in cash and due
from banks 2,741,158 (344,081)
Cash and due from banks at January 1 2,187,703 2,531,784
---------- ----------
Cash and due from banks at December 31 $4,928,861 $2,187,703
========== ==========
Interest paid $1,094,903 $888,670
========== ==========
Income taxes paid $265,694 $224,487
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
SECURITY NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1995 and 1994
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Security National
Bank (the Bank) conform to generally accepted accounting
principles and the general practices within the banking
industry.
Cash Equivalents - For the purpose of presentation in the
Statements of Cash Flows, cash and cash equivalents are
defined as those amounts included in the statement of
condition caption "Cash and due from banks."
Investments in Securities - The Bank's investments in
securities are classified into three categories and
accounted for as follows:
Trading Securities - Government bonds held principally
for resale in the near term are classified as trading
securities and recorded at their fair values.
Unrealized gains and losses on trading securities are
included in other income. The Bank did not have any
trading securities at any time in 1995 or 1994.
Securities Being Held to Maturity - Bonds, notes, and
debentures for which the Bank has the positive intent
and ability to hold to maturity are reported at cost,
adjusted for premiums and discounts that are recognized
in interest income using the interest method over the
period to maturity.
Securities Available for Sale - Bonds, notes, debentures,
and certain equity securities not classified as trading
securities nor as securities to be held to maturity are
classified as securities available for sale. These
securities are presented in the statement of condition
at their fair value.
Declines in the fair value of individual securities being
held to maturity and securities available for sale below
their cost that are other than temporary are accounted for
as a write-down of the individual securities to their fair
value. Any related write-downs are included in earnings as
realized losses. Unrealized holding gains and losses, net
of tax, on securities available for sale are reported as a
net amount in a separate component of stockholders' equity,
until realized. Gains and losses on the sale of securities
available for sale are determined using the specific-
identification method.
The accompanying notes are an integral part of these financial statements.
<PAGE>
Loans Receivable - Loans receivable for which management has
the intent and ability to hold for the foreseeable future or
until maturity or payoff are reported at their outstanding
unpaid principal balances reduced by any charge-offs or
specific valuation accounts and net of any deferred fees or
costs on originated loans, or unamortized premiums or
discounts on purchased loans.
Loan origination fees and certain direct origination costs
are not capitalized and recognized as an adjustment of the
yield on the related loan. Instead, they are recognized as
revenue or expense, as the case may be. The difference
between this immediate recognition method and the
capitalization method required by generally accepted
accounting principles is not material to these financial
statements.
The allowance for loan losses is increased by charges to
income and decreased by charge-offs (net of recoveries).
Management's periodic evaluation of the adequacy of the
allowance is based on the Bank's past loan loss experience,
known and inherent risks in the loan portfolio, adverse
situations that may affect the borrower's ability to repay,
the estimated value of any underlying collateral, and
current economic conditions.
For impairment recognized in accordance with FASB Statement
No. 114, the entire change in present value of expected cash
flows is reported as bad debt expense in the same manner in
which impairment initially was recognized or as a reduction
in the amount of bad debt expense that otherwise would be
reported.
Property and Equipment - Land is carried at cost. Bank
premises, furniture, and equipment are carried at cost, less
accumulated depreciation. Depreciation is computed using
the straight-line method and is charged to operations over
the estimated useful lives of the assets. Buildings are
depreciated over 40 years, equipment over 3 to 10 years, and
vehicles over 5 years. Maintenance and repairs of property
and equipment are charged to operations; however, major
improvements are capitalized. Upon retirement, sale, or
other disposition of property and equipment, the cost and
accumulated depreciation are eliminated from the accounts,
and gain or loss is included in operations.
The accompanying notes are an integral part of these financial statements.
<PAGE>
Foreclosed Real Estate - Real estate properties acquired
through, or in lieu of, loan foreclosure are initially
recorded at fair value at the date of foreclosure
establishing a new cost basis. After foreclosure,
valuations are periodically performed by management and the
real estate is carried at the lower of (1) cost or (2) fair
value minus estimated costs to sell. Revenue and expenses
from operations and additions to the valuation allowance are
included in loss on foreclosed real estate. Foreclosed
assets are not depreciated.
Financial Instruments - In the ordinary course of business,
the Bank has entered into off balance sheet financial
instruments consisting of commitments to extend credit,
commitments under credit card arrangements, and standby
letters of credit. Such financial instruments are recorded
in the financial statements when they are funded or related
fees are incurred or received.
Fair Values of Financial Instruments - The following methods
and assumptions were used by the Bank in estimating fair
values of financial instruments as disclosed herein:
Cash and due from banks - The carrying amounts of cash
and short-term instruments approximate their fair
value.
Securities being held to maturity and securities
available for sale - Fair values for investment
securities, excluding restricted equity securities, are
based on quoted market prices. The carrying values of
restricted equity securities approximate fair values.
Loans receivable - For variable-rate loans that reprice
frequently and have no significant change in credit
risk, fair values are based on carrying values. Fair
values for other loans are estimated based on
discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to
borrowers of similar credit quality. Fair values for
impaired loans are estimated using discounted cash flow
analyses or underlying collateral values, where
applicable.
Deposit liabilities - The fair values disclosed for
demand deposits are, by definition, equal to the amount
payable on demand at the reporting date (that is, their
carrying amounts). The carrying amounts of variable-
rate, fixed-term money market accounts and certificates
of deposit (CDs) approximate their fair values at the
reporting date. Fair values for fixed-rate CDs are
estimated using a discounted cash flow calculation that
applies interest rates currently being offered on CDs
to a schedule of aggregated expected monthly
maturities.
The accompanying notes are an integral part of these financial statements.
<PAGE>
Accrued interest receivable and payable - The carrying
amounts of accrued interest approximate their fair
values.
Off balance sheet instruments - Fair values for off
balance sheet lending commitments are based on fees
currently charged to enter into similar agreements,
taking into account the remaining terms of the
agreements and the counterparties' credit standing.
Interest Income on Loans - Interest on loans is accrued and
credited to income based on the principal amount
outstanding. The accrual of interest on loans is
discontinued when, in the opinion of management, there is an
indication that the borrower may be unable to meet payments
as they become due. Upon such discontuance, all unpaid
accrued interest is reversed. The Bank recognizes interest
income on these loans as customer payments are made, and
only after all of the outstanding principal has been
collected.
Income Taxes - Deferred tax assets and liabilities are
reflected at currently enacted income tax rates applicable
to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As
changes in tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through the provision
for income taxes. Provisions for income taxes are based on
amounts reported in the statements of income (after
exclusion of non-taxable income such as interest on state
and municipal securities) and include deferred taxes on
temporary differences in the recognition of income and
expense for tax and financial statement purposes. Items of
deferral include differences related to the allowance for
loan losses, allowance for losses on foreclosed real estate,
accumulated depreciation, loans not accruing interest, and
the use of the cash basis of accounting for tax purposes.
The deferred tax assets and liabilities represent the future
tax return consequences of those differences, which will
either be taxable or deductible when the assets and
liabilities are recovered or settled.
Net Income Per Share of Common Stock - Net income per share
of common stock is computed by dividing net income by the
weighted average number of shares of common stock
outstanding during the period, after giving retroactive
effect to stock dividends, if any.
Restrictions on Cash and Due From Banks - The Bank is
required to maintain reserve balances in cash with Federal
Reserve Reserve Banks. The total of those reserve balances
was approximately $119,000 at December 31, 1995.
The accompanying notes are an integral part of these financial statements.
<PAGE>
INVESTMENT AND MORTGAGE-BACKED SECURITIES
The following tables reflect the amortized cost and
estimated fair values of debt, equity, and mortgage-backed
securities held at December 31, 1995 and 1994. In addition,
gross unrealized gains and gross unrealized losses are
disclosed as of December 31, 1995 and 1994.
Securities Available for Sale
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------- ------ -------- -----
December 31, 1995:
U.S. Treasury
obligations $3,499,394 $39,200 $0 $3,538,594
U.S. Agency
obligations 898,627 0 34,909 863,718
State and municipal
obligations 0 0 0 0
Mortgage-backed
securities 2,365,202 0 22,208 2,342,994
Restricted equity
securities 79,000 0 0 79,000
---------- -------- -------- ----------
Totals $6,842,223 $39,200 $57,117 $6,824,306
December 31, 1994
U.S. Treasury
obligations $3,502,969 $0 $5,158 $3,497,811
U.S. Agency
obligations 1,398,843 0 116,718 1,282,125
State and municipal
obligations 0 0 0 0
Mortgage-backed
securities 2,689,656 0 134,484 2,555,172
Restricted equity
securities 69,000 0 0 69,000
--------- -------- -------- ----------
Totals $7,660,468 $0 $256,360 $7,404,108
========== ======== ======== ==========
<PAGE>
Securities Being Held to Maturity
Amortized Unrealized Unrealize Fair
Cost Gains Losses Value
------ ------ ------ -------
December 31, 1995:
U.S. Treasury
obligations $1,510,642 $13,499 $0 $1,524,141
U.S. Agency
obligations 1,500,000 0 25,938 1,474,062
State and municipal
obligations 1,351,310 19,553 7,905 1,362,958
Mortgage-backed
securities 1,892,765 2,441 24,709 1,870,497
---------- -------- -------- ----------
Totals $6,254,717 $35,493 $58,552 $6,231,658
========== ======== ======== ==========
December 31, 1994
U.S. Treasury
obligations $506,769 $0 $33,800 $472,969
U.S. Agency
obligations 1,995,181 0 164,556 1,830,625
State and municipal
obligations 1,174,072 0 102,072 1,072,000
Mortgage-backed
securities 2,278,300 0 151,188 2,127,112
---------- -------- ------- ----------
Totals $5,954,322 $0 $451,616 $5,502,706
========== ======== ======== ==========
<PAGE>
Proceeds from the sale of securities available for sale were
$-0- and $2,056,677 for 1995 and 1994, respectively. Gross
realized gains from the sale of securities available for
sale were $-0- and $39,977 for 1995 and 1994, respectively,
and gross realized losses from the sale of securities
available for sale were $-0- and $-0- for 1995 and 1994,
respectively.
The amortized cost and estimated fair value of debt
securities at December 31, 1995 by contractual maturity are
shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right
to call or prepay obligations.
Available for Sale Being Held to
Maturity
Amortized Fair Amortized Fair
Cost Value Cost Value
------ ----- ------ -----
Due in one year or less $1,999,276 $2,019,687 $0 $0
Due after one through
five years 2,398,745 2,382,625 3,010,642 2,998,203
Due after five through
ten years 0 0 262,472 267,553
Due after ten years 0 0 1,088,838 1,095,405
Mortgage-backed
securities 2,365,202 2,342,994 1,892,765 1,870,497
---------- ---------- ---------- ----------
Total $6,763,223 $6,745,306 $6,254,717 $6,231,658
========== ========== ========== ==========
Securities carried at approximately $2,253,249 and
$1,855,749 at December 31, 1995 and 1994, respectively, were
pledged to secure deposits and for other purposes required
or permitted by law.
<PAGE>
LOANS
Loans at December 31, 1995 and 1994 are summarized as follows:
1995 1994
------ ------
Commercial and agricultural $4,910,544 $3,761,394
Real estate construction 479,457 421,795
Commercial real estate 2,656,712 2,905,829
Residential real estate 6,368,312 6,798,910
Consumer 2,515,929 2,890,211
Overdrafts 18,853 42,436
---------- ----------
Subtotal 16,949,807 16,820,575
Less - unearned interest 128,196 (123,208)
Less - allowance to credit losses 136,905 (143,922)
----------- -----------
Net loans receivable $16,684,706 $16,553,445
=========== ===========
An analysis of the change in the allowance for credit losses follows:
1995 1994
------ ------
Balance at January 1 $143,922 $184,266
Loans charged off (18,770) (37,157)
Recoveries 32,916 40,565
Provision for loan losses (21,163) (43,752)
-------- -------
Balance at December 31 $136,905 $143,922
======== ========
<PAGE>
Impairment of loans has been recognized in conformity with
FASB Statement No. 114. An analysis of impaired loans is
summarized as follows:
1995 1994
------ ------
Impaired loans for which an allowance
has been provided $119,806 $142,499
Impaired loans for which no allowance
has been provided 8,995 105
-------- --------
Total loans determined to be imparied $128,801 $142,604
======== ========
Allowance provided for impaired loans,
included in the allowance for loan
losses $22,166 $18,081
======== ========
Loans to employees totaled $380,652 and $376,652 at December
31, 1995 and 1994, respectively.
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and 1994 consisted of:
1995 1994
------ ------
Land $521,563 $521,563
Buildings 1,370,009 1,370,009
Furniture and equipment 984,597 900,239
Vehicles 36,778 28,436
--------- ---------
Total cost 2,912,947 2,820,247
Accumulated depreciation (937,316) (856,940)
---------- ----------
Net book value $1,975,631 $1,963,307
========== ==========
Depreciation expense totaled $98,355 and $78,547 for 1995
and 1994, respectively.
FORECLOSED REAL ESTATE
A comparative summary of activity on foreclosed real estate (previously
called other real estate) is as follows:
1995 1994
------ ------
Balance at January 1 $124,691 $118,273
Acquired in settlement of loans 0 33,348
Sales and other dispositions (36,110) (26,930)
-------- --------
Balance at December 31 $88,581 $124,691
======== ========
Activity in the allowance for losses for foreclosed real estate
is as follows:
1995 1994
------ ------
Balance at January 1 $19,940 $0
Provision charged to income 0 26,417
Charge-offs, net of recoveries (5,300) (6,477)
------- -------
Balance at December 31 $14,640 $19,940
======= =======
<PAGE>
DEPOSITS
Components of deposits included in the statement of condition at
December 31, 1995 and 1994 were as follows:
1995 1994
Demand and savings:
Demand deposits $6,711,707 $5,173,725
Passbook savings 1,478,463 1,491,057
NOW accounts 5,729,552 5,281,753
Money market accounts 4,796,949 4,447,126
---------- ----------
18,716,671 16,393,661
========== ==========
Other time:
Certificates of deposit of
$100,000, or more 4,417,730 4,102,910
Open account time deposits of
$100,000 or more 500,000 500,000
Other time deposits 11,887,631 11,298,674
---------- ----------
16,805,361 15,901,584
---------- ----------
Total deposits $35,522,032 $32,295,245
=========== ===========
STOCKHOLDERS' EQUITY
The Bank is subject to certain restrictions on the amount of
dividends that it may declare without prior regulatory
approval. At December 31, 1995, approximately $995,710 of
retained earnings were available for dividend declaration
without prior regulatory approval.
The Bank is also subject to various regulatory capital
requirements administered by federal and state banking
agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial
statements. The regulations require the Bank to maintain a
minimum risk-based capital ratio of 8 percent and a minimum
leverage ratio of 3 percent. The Bank's risk-based capital
ratio was approximately 17.04% and 17.91% at December 31,
1995 and 1994, respectively, and its leverage ratio was
approximately 9.05% and 9.10% at December 31, 1995 and 1994,
respectively.
<PAGE>
FINANCIAL INSTRUMENTS, COMMITMENTS, AND CONTINGENCIES
The Bank is a party to financial instruments with off-
balance-sheet risk in the normal course of business to meet
the financing needs of its customers. These financial
instruments include commitments to extend credit and standby
letters of credit. These instruments involve, to varying
degrees, elements of credit risk in excess of the amount
recognized in the statement of condition. The contract or
notional amounts of those instruments reflect the extent of
involvement the Bank has in those particular financial
instruments.
The Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial
instrument for commitments to extend credit and standby
letters of credit is represented by the contractual or
notional amount of those instruments. The Bank uses the
same credit policies in making commitments and conditional
obligations as it does for instruments that are reflected on
the statement of condition.
Contract or
Notional
Amount
--------
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $2,723,935
Standby letters of credit $13,500
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
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 Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of
collateral obtained, if it is deemed necessary by the Bank
upon extension of credit, is based on management's credit
evaluation. The collateral held varies but may include
accounts receivable, inventory, property, equipment, and
commercial properties.
Standby letters of credit are conditional commitments issued
by the Bank to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to
support public and private arrangements in which the
customer has guaranteed payment to a third party. The
credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loans to
customers.
<PAGE>
The Bank has not incurred any losses on its commitments in
either 1995 or 1994. The Bank primarily serves customers
located in the East Texas area. As such, the Bank's loans,
commitments, and standby letters of credit have been granted
to customers in that area.
In the normal course of business, the Bank is involved in
various legal proceedings. Management has concluded, based
upon advice of counsel, that the result of these proceedings
will not have a material effect on the Bank's financial
condition or results of operations.
<PAGE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Bank's financial instruments were as
follows, at December 31, 1995:
Carrying Fair
Amount Value
------ -------
Financial assets:
Cash and due from banks $4,928,861 $4,928,861
Interest bearing deposits with banks 2,049,750 2,049,750
Federal funds sold 225,000 225,000
Securities available for sale 6,824,306 6,824,306
Securities being held to maturity 6,254,717 6,231,658
Loans receivable 16,684,706 16,721,701
Accrued interest receivable 338,526 338,526
Financial liabilities:
Deposit liabilities 35,522,032 35,547,031
Accrued interest payable 109,237 109,237
Off statement of condition assets
(liabilities):
Commitments to extend credit 0
Standby letters of credit 200
INCOME TAXES
The provision for income taxes consisted of the following
for the years ended December 31, 1995 and 1994:
1995 1994
------ ------
Currently payable:
Federal $165,195 $189,000
State 0 0
-------- --------
Total current expense 165,195 189,000
======== ========
Deferred:
Federal 24,924 (4,412)
State 0 0
-------- -------
Total deferred expense 24,924 (4,412)
-------- --------
Total income tax expense $190,119 $184,588
======== ========
<PAGE>
The provision for federal income tax is less than that computed by
applying the federal statutory rate of 34% in 1995 and 1994, as
indicated in the following analysis:
1995 1994
------ ------
Statutory rate 34.0% 34.0%
Increase (decrease) resulting from:
Effect of tax-exempt income -4.3% -4.1%
Nondeductible expenses 0.7% 0.6%
Other 0.0% 0.0%
----- -----
30.4% 30.5%
===== =====
The components of the deferred income tax asset included in other
assets are as follows:
1995 1994
------ ------
Deferred tax asset:
Federal $149,519 $219,800
State 0 0
Less - valuation allowance 0 0
------- -------
149,519 219,800
Deferred tax liability:
Federal (225,278) (189,565)
State 0 0
------- -------
(225,278) (189,565)
------- -------
Net deferred tax asset (liability) $(75,759) $30,235
======== =======
<PAGE>
The tax effects of each type of significant item that gave rise to
deferred taxes are:
1995 1994
------ ------
Allowance for credit losses $46,548 $59,490
Depreciation (106,904) (85,937)
Valuation of foreclosed real estate 4,978 6,780
Use of cash basis of accounting (49,835) (55,871)
Loans on non-accrual status 23,362 18,611
Unrealized (gain) or loss on
securities available for sale 6,092 87,162
-------- -------
Balance at December 31 $(75,759) $30,235
======== =======
PROFIT SHARING PLAN
The Bank has a profit sharing plan covering substantially
all full-time employees. Employees are eligible to
participate after completion of one year of service. The
Bank's contribution to the plan for the year ended December
31, 1995 and 1994 was $26,040 and $21,700, respectively.
RELATED PARTY TRANSACTIONS
The Bank has entered into transactions with its executive
officers, directors, significant shareholders, and their
affiliates (related parties). In the opinion of management,
such transactions were made in the ordinary course of
business on substantially the same terms and conditions,
including interest rates and collateral, as those prevailing
at the same time for comparable transactions with other
customers, and did not involve more than normal credit risk
or present other unfavorable features. The aggregate amount
of loans to such related parties was $164,287 and $271,055
at December 31, 1995 and 1994, respectively. Deposits owed
to such related parties consisted of $857,873 and $1,108,831
at December 31, 1995 and 1994, respectively.
<PAGE>
COMMITMENTS AND CONTINGENCIES
Substantially all of the Bank's loans, commitments, and
commercial and standby letters of credit have been granted
to customers in the Bank's market area. Almost all such
customers are depositors of the Bank. The concentrations of
credit by type of loan are set forth above. The
distribution of commitments to extend credit approximates
the distribution of loans outstanding. Standby letters of
credit were granted primarily to commercial borrowers. The
Bank, as a matter of policy, does not extend credit to any
single borrower or group of related borrowers in excess of
the legal lending limit.
Certain cash balances deposited with correspondent banks are
usually in excess of insurance coverage provided by the
Federal Deposit Insurance Corporation (FDIC). Management
has assessed the viability of correspondent banks and feels
these risks are minimal.
<PAGE>
SECURITY NATIONAL BANK
AUDITED FINANCIAL STATEMENTS
December 31, 1994
<PAGE>
TABLE OF CONTENTS
PAGE NO.
Independent Auditor's Report . . . . . . . . . . . . . 1
Balance Sheets . . . . . . . . . . . . . . . . . . . . 2
Statements of Income . . . . . . . . . . . . . . . . . 3
Statements of Changes in Stockholders' Equity . . . . . 4
Statements of Cash Flows . . . . . . . . . . . . . . . 5-6
Notes to Financial Statements . . . . . . . . . . . . . 7-13
<PAGE>
KEN ROGERS & ASSOCIATES, LTD.
CERTIFIED PUBLIC ACCOUNTANTS
A LIMITED LIABILITY COMPANY
1329 N. University Drive, Nacogdoches, Texas 75961
409-564-8186
Ken Rogers, CPA (retired)
Gary Johnson, CPA
Michael Halls, CPA
Terre McLemore, CPA
Kenneth Rodrigues, CPA
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Security National Bank
Nacogdoches, Texas
We have audited the accompanying balance sheets of Security
National Bank as of December 31, 1994 and 1993, and
the related statements of income, changes in stockholders'
equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Bank'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 Security National Bank as of December 31, 1994
and 1993, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted
accounting principles.
As discussed in the notes to the financial statements, the
Bank changed its method of accounting for investment
securities in 1994 as required by the provisions of Statement
of Financial Accounting Standards No. 115.
KEN ROGERS & ASSOCIATES, LTD.
Certified Public Accountants
January 13, 1995
<PAGE>
SECURITY NATIONAL
BANK
BALANCE SHEETS
December 31,
1994 1993
------- ------
ASSETS
Cash and due from banks $2,187,703 $2,531,784
Interest-bearing deposits in banks 707,791 601,126
Investment securities (Approximate market
value of $16,053,065, respectively) 15,819,319
Securities held-to-maturity (fair value
of $5,502,706, respectively) 5,954,322
Securities available-for-sale, at fair value 7,404,108
Loans, less allowance for loan losses of
$143,922 and $184,266, respectively 16,553,445 16,566,000
Federal funds sold 440,000 770,000
Bank premises and equipment, net 1,963,307 1,511,095
Accrued interest receivable 292,770 333,807
Other real estate owned 104,751 117,633
Other assets 71,215 37,771
----------- -----------
Total assets $35,679,412 $38,288,535
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand and savings $16,393,661 $18,873,409
Other time 15,901,584 16,048,058
---------- ----------
Total deposits 32,295,245 34,921,467
Accrued interest payable 82,623 73,246
Other liabilities 200,271 306,489
---------- ----------
Total liabilities 32,578,139 35,301,202
----------- ----------
<PAGE>
STOCKHOLDERS' EQUITY
Common stock, par value $5, 250,000 shares
authorized, 230,000 shares issued and 1,150,000 1,150,000
outstanding
Certified surplus 1,150,000 1,150,000
Retained earnings (deficit) 970,471 687,333
Unrealized gain (loss) on securities available
for sale, net of applicable income taxes (169,198)
----------- ----------
Total stockholders' equity 3,101,273 2,987,333
----------- -----------
Total liabilities and stockholders' equity $35,679,412 $38,288,535
=========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
SECURITY NATIONAL
BANK
STATEMENTS OF INCOME
For the Year Ended
December 31,
1994 1993
------ ------
Interest income:
Interest and fees on loans $1,384,886 $1,331,564
Interest on investment securities:
Obligations of U.S. Treasury 312,708 459,771
Obligations of U.S. government agencies 416,338 344,410
Obligations of states and political 57,303 24,350
subdivisions
Other securities 4,140 4,140
Interest on federal funds sold 44,151 36,945
Interest on deposits in banks 45,780 40,557
---------- ----------
Total interest income 2,265,306 2,241,737
---------- ----------
Interest expense on deposits 898,047 892,131
---------- ----------
Net interest income 1,367,259 1,349,606
Provision for loan losses (43,752) 4,542
---------- ----------
Net interest income after provision for loan 1,411,011 1,345,064
losses
Other income:
Service charges and fees 486,766 484,154
Gain (loss) on sale of assets 42,481 92,507
Other 20,617 14,445
--------- ----------
Total other income 549,864 591,106
--------- ----------
<PAGE>
Other expenses:
Salaries 497,056 447,472
Employee benefits 99,455 98,216
Occupancy expenses 72,462 56,492
Equipment expenses 112,735 86,995
Federal insurance premiums 74,973 78,418
Data processing expenses 69,025 102,140
Other operating expenses 429,443 375,026
--------- ---------
Total other expenses 1,355,149 1,244,759
--------- ---------
Income before income tax 605,726 691,411
Income tax expense 184,588 219,152
--------- ---------
Net income before cumulative effect of a
change in accounting principle 421,138 472,259
--------- ---------
Cumulative effect on prior years of changing
to FASB Statement 109, "Accounting for Income 47,174
Taxes" --------- ---------
Net Income $421,138 $519,433
========= =========
Net income per share of common stock $1.83 $2.26
========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
SECURITY NATIONAL BANK
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Year Ended December 31, 1994 and 1993
<F1>
<CAPTION>
Unrealized
Gain
(Loss) on
Securities
Available for
Sale, Net of
Retained Applicable Total
Common Certified Earnings Deferred Stockholders'
Stock Surplus (Deficit) Income Taxes Equity
--------- --------- --------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $1,150,000 $1,150,000 $271,400 $0 $2,571,400
Net Income 519,433 519,433
Dividends (103,500) (103,500)
---------- --------- -------- -------- ---------
Balance, December 31, 1993 1,150,000 1,150,000 687,333 0 2,987,333
---------- --------- -------- -------- ---------
Net income 421,138 421,138
Dividends (138,000) (138,000)
Change in accounting principle:
Unrealized gain (loss) on
securities available for sale
at January 1, 1994 188,457 188,457
Change in unrealized gain (loss)
on securities available for sale,
net of deferred income taxes (357,655) (357,655)
---------- ---------- -------- --------- ----------
Balance, December 31, 1994 $1,150,000 $1,150,000 $970,471 ($169,198) $3,101,273
========== ========== ======== ======== ==========
<FN>
<F1>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
SECURITY NATIONAL BANK
STATEMENTS OF CASH FLOWS
For the Year Ended
December 31,
1994 1993
------ ------
Cash flows from operating activities:
Net income (loss) $421,138 $519,433
-------- --------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 78,547 63,574
Provision for credit losses (43,752) 4,542
Net gain on sale of investment (39,976) (79,645)
securities
Net loss on sale of other real estate 15,977 (12,862)
Amortization of bond premiums 52,192 55,974
Accretion of bond discounts (6,363) (15,437)
(Increase) decrease in interest 41,037 835
receivable
(Increase) decrease in other assets 53,718 (3,379)
Increase (decrease) in interest payable 9,377 8,275
Increase (decrease) in other liabilities (60,218) 133,985
Increase (decrease) in dividends payable (23,000) (23,000)
------- -------
Net cash provided by operating activities 498,677 652,295
------- -------
Cash flows from investing activities:
Net decrease (increase) in interest-bearing
deposits with banks (106,665) 400,309
Net decrease (increase) in federal funds sold 330,000 305,000
Purchase of investment securities (7,545,056)
Purchase of available-for-sale securities (1,133,151)
Proceeds from sales of available-for-sale 2,056,677
securities
Purchase of held-to-maturity securities (998,281)
Proceeds from sales of investment securities 943,991
Proceeds from maturities of investment 3,197,199
securities
Proceeds from maturities of 1,608,206
available-for-sale securities
Proceeds from maturities of held-to-maturity 665,225
securities
Net decrease (increase) in loans to customers 22,959 (601,782)
Purchase of banking premises and equipment (530,759) (83,125)
Proceeds from sales of property and equipment
Proceeds from disposal of other real estate 30,253 127,752
--------- ---------
Net cash provided by investing activities 1,944,464 (3,255,712)
--------- ---------
Cash flows from financing activities:
Net increase (decrease) in customer deposits (2,626,222) 2,944,950
Payment of dividends (161,000) (80,500)
--------- ---------
Net cash provided by financing activities (2,787,222) 2,864,450
--------- ---------
Net increase (decrease) in cash and due from (344,081) 261,033
banks
Cash and due from banks at beginning of year 2,531,784 2,270,751
-------- ---------
Cash and due from banks at end of year $2,187,703 $2,531,784
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
SECURITY NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Security National Bank conform
to generally accepted accounting principles and the general practices
within the banking industry.
Investment Securities - Debt securities that management has the
ability and intent to hold to maturity are classified as held-to-maturity
and carried at cost, adjusted for amortization of premium and accretion
of discounts using methods approximating the interest method. Other
marketable securities are classified as available-for-sale and are carried
at fair value. Unrealized gains and losses on securities available-for-sale
are recognized as direct increases or decreases in stockholders' equity.
Cost of securities sold is recognized using the specific identification
method.
Allowance for Credit Losses - The allowance is maintained at a level
adequate to absorb probable losses.
Management determines the adequacy of the allowance based upon reviews
of individual credits, recent loss experience, current economic conditions,
the risk characteristics of the various categories of loans, and other
pertinent factors. Credits deemed uncollectible are charged to the allowance.
Provisions for credit losses and recoveries on loans previously charged off
are added to the allowance.
Property and Equipment - Property and equipment are stated at cost,
less accumulated depreciation.
Depreciation is computed principally by the straight-line method and
charged to operations over the estimated useful lives of the assets.
Buildings are depreciated over 40 years, equipment over 3 to 10
years, and vehicles over 5 years. A salvage value is computed on fixed
assets which is 25% for buildings, 10% for equipment, and 15% for vehicles.
Maintenance and repairs of property and equipment are charged to operations,
and major improvements are capitalized. Upon retirement, sale, or other
disposition of property and equipment, the cost and accumulated
depreciation are eliminated from the accounts, and gain or loss is included
in operations.
Other Real Estate Owned - Other real estate owned includes property
acquired through foreclosure or forgiveness of debt. These properties are
carried at the lower of cost or current appraisal. Losses from the
acquisition of property in full or partial satisfaction of debt are treated
as credit losses. Routine holding costs, subsequent declines in value,
and gains or losses on disposition are included in other expense.
<PAGE>
Interest Income on Loans - Interest on loans is accrued and credited to
income based on the principal amount outstanding. The accrual of interest
on loans is discontinued when, in the opinion of management, there is an
indication that the borrower may be unable to meet payments as they
become due. Upon such discontinuance, all unpaid accrued interest is
reversed.
Loan Origination Fees and Costs - Loan origination fees and certain
direct origination costs are not capitalized and recognized as an
adjustment of the yield on the related loan. Instead, they are recognized
as revenue or expense, as the case may be, and the difference between
this immediate recognition method and the capitalization method required
by generally accepted accounting principles is not material to these
financial statements.
Profit Sharing Plan - The Bank has a noncontributory profit sharing
plan that covers all eligible employees. The annual contribution to the
plan is determined by the Board of Directors, but cannot exceed amounts
allowable as a deduction for federal income tax purposes.
Off Balance Sheet Financial Instruments - In the ordinary course of
business the Bank has entered into off balance sheet financial instruments
consisting of commitments to extend credit, commercial letters of credit,
and standby letters of credit. Such financial instruments are recorded in
the financial statements when they become payable.
Income Taxes - Provisions for income taxes are based on amounts reported
in the statements of income (after exclusion of non-taxable income such as
interest on state and municipal securities) and include deferred taxes on
temporary differences in the recognition of income and expense for tax and
financial statement purposes. Items of deferral include differences related
to the allowance for loan losses, allowances for losses on foreclosed real
estate, accumulated depreciation, loans not accruing interest, and the use
of the cash basis of accounting for income tax purposes.
The deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
Net Income Per Share of Common Stock - Net income per share of common stock
is computed by dividing net income by the weighted average number of shares
of common stock outstanding during the period, after giving retroactive
effect to stock dividends, if any.
Cash and Cash Equivalents - For the purpose of presentation in the
Statements of Cash Flows, cash and cash equivalents are defined as those
amounts included in the balance sheet caption "Cash and Due from Banks."
For 1994, the Bank paid interest and income taxes of $888,670 and $224,487,
respectively. For 1993, the Bank paid interest and income taxes of $900,406
and $250, respectively.
Restrictions on Cash and Due From Banks - The Bank is required to maintain
reserve balances in cash with Federal Reserve Banks. The total of those
reserve balances was approximately $160,000 at December 31, 1994.
<PAGE>
INVESTMENT SECURITIES
The carrying amounts of investment securities as shown in the balance sheets
of the Bank and their approximate market values at December 31 were as
follows:
December 31, 1993
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- ------- -------- -------
Obligations of U.S. $6,543,350 $288,940 $0 $6,832,29
Treasury
Obligations of U.S. Govt. 2,397,977 0 66,146 2,331,831
agencies
Municipals 533,280 29,130 562,410
Pass-through instruments 6,275,712 26,145 44,323 6,257,534
Other securities 69,000 69,000
----------- --------- --------- -----------
Total $15,819,319 $344,215 $110,469 $16,053,065
=========== ======== ======== ===========
December 31, 1994
Securities held-to-maturity: Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------ -------- -------- -------
Obligations of U.S. $506,769 $0 $33,800 $472,969
Treasury
Obligations of U.S. Govt. 1,995,181 0 164,556 1,830,625
agencies
Municipals 1,174,072 0 102,072 1,072,000
Pass-through instruments 2,278,300 0 151,188 2,127,112
---------- -------- -------- ---------
Total $5,954,322 $0 $451,616 $5,502,706
========== ======== ======== ==========
Securities available-for-sale:
December 31, 1994
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------- -------- -------- -------
Obligations of U.S $3,502,969 $0 $5,158 $3,497,811
Treasury
Obligations of U.S. Govt. 1,398,843 0 116,718 1,282,125
agencies
Municipals 0 0 0 0
Pass-through instruments 2,689,656 0 134,484 2,555,172
Other securities 69,000 0 0 69,000
---------- -------- -------- ---------
Total $7,660,468 $0 $256,360 $7,404,108
========== ======== ======== ==========
<PAGE>
The following is a summary of maturities of securities held-to-maturity and
available-for-sale as of December 31, 1994.
Securities Securities
held-to-maturity available-for-sale
------------------ --------------------
Amortized Fair Amortized Market
Cost Value Cost Value
------- ----- ------- -------
Amounts maturing in:
One year or less $0 $0 $2,000,442 $2,001,874
After one through five 3,824,587 3,568,913 2,003,068 1,995,624
years
After five through ten 955,663 861,793 0 0
years
After ten years 1,174,072 1,072,000 0 0
Variable rate 0 0 3,587,958 3,337,610
Other 0 0 69,000 69,000
---------- ---------- --------- ---------
Total $5,954,322 $5,502,706 $7,660,468 $7,404,108
========== ========== ========== ==========
During 1994, the Bank sold securities available-for-sale for total proceeds
of approximately $2,056,677 resulting in gross realized gain of
approximately $39,977. During 1993, the Bank sold securities for total
proceeds of approximately $943,991 resulting in gross realized gains of
approximately $79,645.
Assets, principally securities, with a carrying amount of approximately
$1,855,749 at December 31, 1994 were pledged to secure public deposits
as required or permitted by law.
<PAGE>
LOANS
The components of loans in the balance sheets were as follows:
1994 1993
------ ------
Real estate - construction $436,794 $522,500
Real estate - other 11,246,104 11,317,394
Commercial 3,831,512 3,746,841
Installment 1,263,729 1,281,098
Overdrafts 42,436 19,105
---------- ----------
16,820,575 16,886,938
Less - unearned interest (123,208) (136,672)
Less - allowance for loan losses (143,922) (184,266)
---------- -----------
$16,553,445 $16,566,000
=========== ===========
Nonaccruing loans (principally real estate loans) totaled $42,499 and
$327,351 at December 31, 1994 and 1993, respectively, which had the effect
of reducing income by $54,738 and $51,822 for 1994 and 1993, respectively.
Loans to employees totaled $376,652 and $385,024 at December 31, 1994
and 1993, respectively.
ALLOWANCE FOR CREDIT LOSSES
An analysis of the change in the allowance for credit losses follows:
1994 1993
------ ------
Balance at January 1 $184,266 $352,590
Provision charged to expenses (43,752) 4,542
Credits charged off (37,157) (187,117)
Recoveries 40,565 14,251
-------- --------
Balance December 31 $143,922 $184,266
======== ========
<PAGE>
PROPERTY AND EQUIPMENT
Components of property and equipment included in the balance sheets at
December 31, 1994 and 1993 were as follows:
1994 1993
------ ------
Cost:
Land $ 521,563 $ 226,000
Bank premises 1,370,009 1,367,622
Furniture and equipment 900,239 667,430
Leasehold improvements 28,436 28,436
--------- ---------
Total cost 2,820,247 2,289,488
Less accumulated depreciation (856,940) (778,393)
--------- ---------
Net book value $1,963,307 $1,511,095
Depreciation expense amounted to $78,547 and $63,574 for 1994 and 1993,
respectively.
EMPLOYEE BENEFITS
The Bank has a profit sharing plan in effect for substantially all
full-time employees, which was effective on January 1, 1984. Employees
are eligible to participate after completion of one year of service.
Employee benefits expense includes $21,700 in 1994, and $18,680 in 1993,
for the plan. Contributions under the plan are made at the discretion
of the Board of Directors.
CHANGES IN ACCOUNTING PRINCIPLE
The Bank implemented FASB 115, Accounting for Certain Investments in
Debt and Equity Securities for years beginning January 1, 1994. FASB 115
requires that investments in certain debt and equity securities be
classified as either available-for-sale, held-to-maturity, or trading
securities. The effects of implementing FASB 115 are reflected in the
statement of changes in stockholders' equity.
<PAGE>
DEPOSITS
Components of deposits included in the balance sheets at December 31,
1994 and 1993 were as follows:
1994 1993
------ ------
Demand and savings
Demand deposits $5,173,725 $6,000,989
Passbook savings 1,491,057 1,429,852
NOW accounts 5,281,753 7,522,897
Money market accounts 4,447,126 3,919,672
---------- ----------
Total demand and savings 16,393,661 18,873,410
Other time
Certificates of deposit of 4,102,910 3,923,491
$100,000 or more
Open account time deposits of 500,000 500,000
$100,000 or more
Other time deposits 11,298,674 11,624,566
---------- ----------
Total other time 15,901,584 16,048,057
---------- ----------
Total deposits $32,295,245 $34,921,467
=========== ===========
INCOME TAXES
The provision for income taxes consisted of the following:
1994 1993
------ ------
Currently payable:
Federal $189,000 $112,306
State 0 0
------- -------
189,000 112,306
------- -------
Deferred federal (4,412) 106,846
------- -------
Net income tax expense $184,588 $219,152
======== ========
<PAGE>
The provision for federal income taxes is less than that computed by
applying the federal statutory rate of 34% in 1994, and 1993, as
indicated in the following analysis:
1994 1993
------ ------
Tax based on statutory rate of 34% $205,947 $235,079
Effect of tax-exempt income (24,902) (12,177)
Contribution carryforwards realized (1,340)
Nondeductible expenses 3,543 1,355
Other Items (3,765)
------- -------
Total income tax expense $184,588 $219,152
======== ========
The components of deferred income taxes were principally related to the
allowance for credit losses, to depreciation, and to the use of the cash
basis of accounting for tax purposes.
The net deferred tax liabilities in the accompanying statements of
financial condition include the following captions:
1994 1993
------ ------
Deferred tax assets $219,800 $115,814
Deferred tax liabilities (189,565) (177,153)
------- -------
Net deferred tax assets (liabilities) $30,235 ($61,339)
======= =======
Effective January 1, 1993, the Bank adopted Statement of Financial
Accounting Standards (SFAS) Statement No. 109, "Accounting for Income
Taxes." The cumulative effect of the change in accounting principle
is included in determining net income for 1993.
State income tax consists of the earnings tax portion of the Texas
franchise tax. It is computed as the excess of 4.5% of state taxable
earnings over the capital tax portion of the franchise tax. State
taxable earnings is federal taxable income, adjusted for interest
earned on U.S. obligations, executive officer salaries, and director
fees. For 1994 and 1993, there was no state income tax because the
interest earned on U.S. obligations reduced the state taxable income
below zero. Consequently, the amount paid for the Texas franchise tax
represented the capital tax and is included with other expenses in the
accompanying statements of income.
<PAGE>
RELATED PARTIES
The Bank has entered into transactions with its executive officers,
directors, significant shareholders, and their affiliates (related
parties). Such transactions were made in the ordinary course of business
on substantially the same terms and conditions, including interest rates
and collateral, as those prevailing at the same time for comparable
transactions with other customers, and did not, in the opinion of
management, involve more than normal credit risk or present other
unfavorable features. The aggregate amount of loans to such related
parties was $271,055 and $442,801 at December 31, 1994 and 1993,
respectively. Deposits owed to related parties consisted of $1,108,831
and $732,115 at December 31, 1994 and 1993, respectively.
CONCENTRATIONS OF CREDIT
Substantially all of the Bank's loans, commitments, and commercial and
standby letters of credit have been granted to customers in the Bank's
market area. Almost all such customers are depositors of the Bank.
The concentrations of credit by type of loan are set forth above.
The distribution of commitments to extend credit approximates the
distribution of loans outstanding.
Commercial and standby letters of credit were granted primarily to
commercial borrowers. The Bank, as a matter of policy, does not extend
credit to any single borrower or group of related borrowers in excess of
the legal lending limit.
CONTINGENT LIABILITIES AND COMMITMENTS
The Bank's financial statements do not reflect various commitments and
contingent liabilities which arise in the normal course of business and
which involve elements of credit risk, interest rate risk, and liquidity
risk. These commitments and contingent liabilities are commitments to
extend credit, commercial letters of credit and standby letters of credit.
The Bank's commitments and contingent liabilities at December 31, 1994,
include $954,683 for commitments to extend credit, and $16,500 for
standby letters of credit.
Commitments to extend credit, commercial letters of credit, and standby
letters of credit all include exposure to some credit loss in the event
of nonperformance of the customer. The Bank's credit policies and
procedures for credit commitments and financial guarantees are the same
as those for extension of credit that are recorded on the statements of
condition. Because these instruments have fixed maturity dates, and
because many of them expire without being drawn upon, they do not
generally present any significant liquidity risk to the Bank. The Bank
has not incurred any losses on its commitments in either 1994 or 1993.
Certain cash balances deposited with correspondent banks are usually in
excess of insurance coverage provided by the Federal Deposit Insurance
Corporation (FDIC). Management has assessed the viability of correspondent
banks and feels these risks are minimal.
<PAGE>
REGULATORY MATTERS
New banking regulations have been issued requiring maintenance of minimum
capital levels based on asset risk. These risk-based capital requirements
were effective December 31, 1993, and require a minimum risk-based capital
ratio of 8 percent and a minimum leverage ratio of 3 percent. The Bank's
risk-based capital ratio at December 31, 1994 and 1993, was approximately
17.91 and 16.02 percent and its leverage ratio was approximately 9.10 and
7.76 percent, respectively.
<PAGE>
APPENDIX A
Ch. 2 Consolidation and Merger 12 Section 215a
Section 215a MERGER OF NATIONAL BANKS OR STATE BANKS INTO NATIONAL
BANKS
(b) Dissenting shareholders
If a merger shall be voted for at the called meetings by
the necessary majorities of the shareholders of each
association or State bank participating in the plan of merger,
and thereafter the merger shall be approved by the
Comptroller, any shareholder of any association or State bank
to be merged into the receiving association who has voted
against such merger at the meeting of the association or bank
of which he is a stockholder, or has given notice in writing
at or prior to such meeting to the presiding officer that he
dissents from the plan of merger, shall be entitled to receive
the value of the shares so held by him when such merger shall
be approved by the Comptroller upon written request made to
the receiving association at any time before thirty days after
the date of consummation of the merger, accompanied by the
surrender of his stock certificates.
(c) Valuation of shares
The value of the shares of any dissenting shareholder
shall be ascertained, as of the effective date of the merger,
by an appraisal made by a committee of three persons, composed
of (1) one selected by the vote of the holders of the majority
of the stock, the owners of which are entitled to payment in
cash; (2) one selected by the directors of the receiving
association; and (3) one selected by the two so selected. The
valuation agreed upon by any two of the three appraisers shall
govern. If the value so fixed shall not be satisfactory to
any dissenting shareholder who has requested payment, that
shareholder may, within five days after being notified of the
appraised value of his shares, appeal to the Comptroller, who
shall cause a reappraisal to be made which shall be final and
binding as to the value of the shares of the appellant.
(d) Application to shareholders of merging associations:
appraisal by Comptroller; expenses of receiving
association; sale and resale of shares; State appraisal
and merger law
If, within ninety days from the date of consummation of
the merger, for any reason one or more of the appraisers is
not selected as herein provided, or the appraisers fail to
determine the value of such shares, the Comptroller shall upon
written request of any interested party cause an appraisal to
be made which shall be final and binding on all parties. The
expenses of the Comptroller in making the reappraisal or the
appraisal, as the case may be, shall be paid by the receiving
association. The value of the shares ascertained shall be
promptly paid to the dissenting shareholders by the receiving
association. The shares of stock of the receiving association
which would have
<PAGE>
been delivered to such dissenting shareholders had they not
requested payment shall be sold by the receiving association
at an advertised public auction, and the receiving association
shall have the right to purchase any of such shares at such
public auction, if it is the highest bidder therefor, for the
purpose of reselling such shares within thirty days thereafter
to such person or persons and at such price not less than par
as its board of directors by resolution may determine. If the
shares are sold at public auction at a price greater than the
amount paid to the dissenting shareholders, the excess in such
sale price shall be paid to such dissenting shareholders. The
appraisal of such shares of stock in any State bank shall be
determined in the manner prescribed by the law of the State in
such cases, rather than as provided in this section, if such
provision is made in the State law; and no such merger shall
be in contravention of the law of the State under which such
bank is incorporated. The provisions of this subsection shall
apply only to shareholders of (and stock owned by them in) a
bank or association being merged into the receiving
association.
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Security National Bank
3000 University Drive
Nacogdoches, Texas 75963-2018
Telephone No. (409) 560-2265
PROXY
The undersigned hereby constitutes and appoints Bob McNight
and Pete Smith, or either of them, proxies for the
undersigned, with power of substitution, to represent the
undersigned and to vote all of the shares of Common Stock of
Security National Bank (the "Company) which the undersigned is
entitled to vote at the special meeting of shareholders of the
Company to be held on November 21, 1996, and at any and all
adjournments thereof.
1. Proposal to approve the Plan and Agreement of Merger
among First Commercial Corporation, Stone Fort National
Bank, Nacogdoches, Texas and Security National Bank,
Nacogdoches, Texas dated June 28, 1996.
----- FOR ----- AGAINST ------ ABSTAIN
2. In their discretion to transact such other business as
may properly come before the meeting and all adjournments
thereof.
THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFIC
DIRECTIONS ARE GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSAL 1
SET FORTH HEREIN.
------------------------- --------------------------------
Signature NAME: PLEASE PRINT
------------------------- --------------------------------
Signature (if held jointly) NAME (if joint tenant):
PLEASE PRINT
Date: -----------------
Please sign exactly as name appears on the certificates
representing shares to be voted by this proxy. When signing
as executor, trustee or guardian, please give full title as
such. If a corporation, please sign in full corporate name by
president or other authorized officer. If a partnership,
please sign in partnership name by authorized persons.
