<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to .
--------- ---------
Commission File No. 0-9676
FIRST COMMERCIAL CORPORATION
(Exact name of registrant as specified in its charter)
ARKANSAS 71-0540166
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
400 WEST CAPITOL AVENUE, LITTLE ROCK, ARKANSAS 72201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (501)371-7000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $3.00 PAR VALUE PER SHARE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
admendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant: $659,406,845 (based upon the average closing bid and ask
prices quoted on the Nasdaq National Market on February 22, 1996.)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock:
Class Outstanding at February 22, 1996
-------------------------------------- --------------------------------
Common Stock $3.00 par value per share 27,353,428
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December
31, 1995, (the "Company's 1995 Annual Report") are incorporated by reference
into Parts I and II of this report.
Portions of the Proxy Statement for the April 16, 1996, Annual Meeting of
Shareholders of Registrant (the "Company's 1996 Proxy Statement") are
incorporated by reference into Part III of this report.
TABLE OF CONTENTS
Item Page
---- ----
PART I
1. Business.................................................. 3
2. Properties................................................ 11
3. Legal Proceedings......................................... 11
4. Submission of Matters to a Vote of Security Holders....... 12
PART II
5. Market for Registrant's Common Stock and Related
Stockholder Matters....................................... 12
6. Selected Financial Data................................... 12
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 13
8. Financial Statements and Supplementary Data............... 13
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................... 13
PART III
10. Directors and Executive Officers of the Registrant........ 13
11. Executive Compensation.................................... 13
12. Security Ownership of Certain Beneficial Owners and
Management................................................ 14
13. Certain Relationships and Related Transactions............ 14
PART IV
14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K............................................... 14
Signatures........................................................... 16
2
<PAGE>
PART I
Item 1. BUSINESS
--------
GENERAL
First Commercial Corporation ("Registrant" or the "Company") was created
through a merger of Commercial Bankstock, Inc., and First National Bancshares,
Inc., on July 31, 1983. The Company is the largest multi-bank holding company
headquartered in Arkansas with its corporate offices located in the capital
city of Little Rock. The Company offers a broad range of bank and bank-related
services through its bank and nonbank subsidiaries and affiliates.
The Company provides service to its subsidiary banks in such areas as
audit, loan review, credit administration, compliance, data processing,
investment portfolio management, asset and liability management, human
resources and training.
Commercial Banking Subsidiaries
- -------------------------------
The Company's principal source of income is derived from twenty-five
commercial banking institutions. The Company directly owns thirteen
institutions in the state of Arkansas, one institution in the state of
Tennessee, one institution in the state of Louisiana, and in a joint venture
with Arvest Bank Group, Inc., of Bentonville, Arkansas, the Company owns 50% of
an institution in Norman, Oklahoma. The Company also owns a second-tier bank
holding company, State First Financial Corporation, headquartered in Texarkana,
Arkansas. State First Financial Corporation owns two institutions in the state
of Arkansas and seven institutions in the state of Texas. All of the Company's
bank subsidiaries offer a broad range of traditional commercial and consumer
banking services to the markets and communities which they serve. Certain
subsidiary banks additionally offer trust and fiduciary services and brokerage
services.
Nonbank Subsidiaries and Affiliates
- -----------------------------------
First Commercial Mortgage Company offers mortgage financing throughout
Arkansas and in Memphis, Tennessee, East Texas, Oklahoma, California and
Mississippi, and conducts mortgage servicing on a nationwide basis. First
Commercial Capital Management is an investment advisor and money manager for
individuals, employee benefit plans, endowments, foundations and other funds.
First Commercial Trust Company, N.A., provides a full range of personal trust,
employee benefit, and corporate and public securities administrative services.
First Commercial Investments, Inc., is a full service investment company which
buys and sells stocks, bonds, U.S. Government securities, fixed and variable
annuities, and municipal securities on behalf of its clients. Financial Fleet
Services, Inc., is an equipment leasing company located in Little Rock,
Arkansas, which serves customers throughout the United States. Commercial
Capital Funding, Inc., is a factoring company headquartered in Dallas, Texas,
which specializes in accounts receivable financing in all affiliate markets.
The income and other operating results of the nonbank subsidiaries and
affiliates as compared to the consolidated results of the Company are not
substantial enough to require financial and other information concerning
industry segments to be included in this Annual Report on Form 10-K.
3
<PAGE>
Recent Acquisitions
- -------------------
On November 30, 1995, the Company acquired all the outstanding common stock
of FDH Bancshares, Inc., in exchange for 1,349,215 Company common shares,
restated for the 7% stock dividend declared November, 1995. FDH Bancshares,
Inc., which was merged into the Company, was the parent company of Citizens
First Bank, Little Rock, Arkansas; Citizens First Bank, El Dorado, Arkansas;
Citizens First Bank, Fordyce, Arkansas; Citizens First Bank, Arkadelphia,
Arkansas; and Springhill Bancshares, Inc., parent company of Springhill Bank &
Trust Company, Springhill, Louisiana. FDH Bancshares, Inc., had approximately
$375 million in assets, $206 million in loans, and $330 million in deposits.
This transaction was accounted for as a purchase, and accordingly, the results
of operations were consolidated with those of the Company from the date of
acquisition. The assets and liabilities of FDH Bancshares, Inc., were adjusted
to fair value at the purchase date, resulting in an excess cost over fair value
of $14.7 million. Citizens First Bank, Little Rock, Arkansas, was merged into
the Company's Little Rock bank affiliate, First Commercial Bank, N.A.
On November 30, 1995, the Company acquired all of the outstanding common
stock of West-Ark Bancshares, Inc., Clarksville, Arkansas, parent company of
Arkansas State Bank, in exchange for 689,106 Company common shares, restated
for the 7% stock dividend declared November, 1995. This transaction was
accounted for as a pooling-of-interests. The results of West-Ark Bancshares,
Inc., are included in the consolidated financial statements for 1995, however,
prior period financial data has not been restated due to immateriality. West-
Ark Bancshares, Inc., had approximately $159 million in assets, $107 million in
loans, and $146 million in deposits.
Foreign Operations
- ------------------
Neither the Company nor any of its subsidiary banks conducts foreign
operations. Balances maintained in foreign countries amounted to $248,000 at
December 31, 1995. There are no loans to foreign corporations, banks,
financial institutions, governments, consumers or businesses, or involving real
estate in a foreign country, nor does the Company hold any deposits from banks
in foreign countries, or from foreign governments, official institutions,
central banks or international institutions.
Competition
- -----------
The activities engaged in by the Company and its subsidiaries are intensely
competitive, and the Company competes for business with other financial
services organizations, including other commercial banks, savings and loan
associations, credit unions, brokerage firms, mortgage companies, leasing
companies, finance companies, and a variety of financial services and advisory
companies.
The Company's subsidiary banks actively compete with other banks and
financial institutions in their efforts to obtain deposits and make loans. The
principal areas of competition in the commercial banking industry are in the
scope and type of services offered and in interest rates paid on interest-
bearing and time deposits and charged on loans. Competition with other
financial institutions is expected to increase, especially with the passage of
4
<PAGE>
the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, which
authorizes interstate banking and is discussed below in greater detail.
According to information obtained from the Arkansas Bankers Association,
during 1995 there were approximately 29 multi-bank holding companies in
Arkansas and approximately 104 additional single-bank holding companies. As of
December 31, 1995, the Company was the largest multi-bank holding company
headquartered in Arkansas with $5.4 billion in total assets and $4.6 billion in
total deposits.
Employees
- ---------
As of December 31, 1995, the Company and its subsidiaries and affiliates
had a total of 2,724 full-time equivalent employees.
REGULATION AND SUPERVISION
Regulation and Supervision of Bank Holding Companies:
- -----------------------------------------------------
The following summaries of statutes and regulations affecting bank holding
companies do not purport to be complete. The summaries are qualified in their
entirety by reference to the provisions of the statutes and regulations
summarized.
Bank Holding Company Act of 1956, as Amended:
The Company is a bank holding company within the meaning of the Bank
Holding Company Act of 1956, as amended (the "Act"), and is registered as such
with the Board of Governors of the Federal Reserve System (the "Board of
Governors".) As a bank holding company, the Company is required to file with
the Board of Governors an annual report and such additional information as the
Board of Governors may require pursuant to the Act. The Board of Governors may
also make examination of the Company and each of its subsidiaries. The Act
requires each bank holding company to obtain prior approval of the Board of
Governors before it may acquire substantially all of the assets of any bank, or
ownership or control of any voting shares of any bank, if, after such
acquisition, it would own or control directly or indirectly, more than 5% of
the voting shares of such bank. In no case, however, may the Board of
Governors approve the acquisition by the Company of the voting shares of, or
substantially all of the assets of, any bank located outside of Arkansas unless
such acquisition is specifically authorized by the statutes or laws of the
state in which the bank to be acquired is located or unless such acquisition
occurs as a result of foreclosure of a debt previously contracted.
With certain exceptions, the Act further restricts non-banking acquisitions
by registered bank holding companies to shares of companies whose activities
the Board of Governors deems to be so closely related to banking, or managing
or controlling banks, as to be proper incident thereto. In making such
determinations, the Board of Governors is required to consider whether the
performance of such activities by an affiliate can reasonably be expected to
produce benefits to the public, such as increased competition or gains in
efficiencies against the risk of possible adverse effects, such as undue
concentration of resources, decreases in or unfair competition, conflicts of
interest, or unsound banking practices.
5
<PAGE>
The Board of Governors has determined by regulation that certain activities
are permissible activities for bank holding companies and their affiliates,
including making and servicing loans, operating an industrial loan institution,
performing certain fiduciary functions, leasing real estate and personal
property, making real estate and personal property appraisals, providing
certain management consulting, investment and financial advice, acting as a
futures commission merchant, performing certain data processing operations,
acting as an insurance agent for certain types of insurance and underwriting
credit life and disability insurance related to credit transactions within the
particular holding company system, assisting tax preparation and planning,
providing check guaranty services, operating a collection agency, operating a
credit bureau, underwriting and dealing in government obligations and money
market instruments, providing foreign exchange advisory services, arranging
commercial real estate equity financing, promoting community development,
handling money orders, savings bonds and travelers checks, providing securities
brokerage, providing consumer financial counseling, operating savings
associations, and providing courier services.
Under Section 106 of the 1970 amendments to the Act and regulations of the
Board of Governors, a bank holding company and its subsidiaries are prohibited
from engaging in certain tie-in arrangements in connection with any extensions
of credit, or lease or sale of any property or the furnishing of such services.
Risk-Based Capital Guidelines:
In January 1989, the Board of Governors issued final guidelines to
implement what is commonly referred to as risk-based capital adequacy, whereby
banking organizations with less risky asset bases will be allowed to maintain
lower capital amounts to support these assets than those organizations having
high-risk assets. The regulations currently require a risk-based capital ratio
of 8%. The Company's December 31, 1995, risk-based capital ratio was 12.14%.
Federal Reserve Act:
Under the Federal Reserve Act the Board of Governors has cease and desist
powers over parent holding companies and nonbanking subsidiaries when actions
of such holding companies and nonbanking subsidiaries would constitute a
serious threat to the safety, soundness or stability of a subsidiary bank. The
Board of Governors also has the authority to regulate debt obligations, other
than commercial paper, issued by bank holding companies.
The Company is an "affiliate" of its subsidiary banking institutions and
will be an "affiliate" of any other acquired banks within the meaning of the
Federal Reserve Act. The Federal Reserve Act imposes certain restrictions on
(i) loans by a subsidiary bank to its bank holding company or to any other
affiliated companies, (ii) investments by a subsidiary bank in the stock or
other securities of its bank holding company, and (iii) the use of stock or
securities of the bank holding company as collateral for loans by a subsidiary
bank to any borrower.
The Company is also subject to certain restrictions with respect to
engaging in the business of issuing, floatation, underwriting, public sale, and
distribution of securities.
6
<PAGE>
Arkansas Regulation:
In addition to regulation by the Board of Governors, bank holding companies
in Arkansas are subject to regulation by the State Bank Commissioner.
Accordingly, regular examinations are performed and the filing of certain
reports is required.
In 1983, the Arkansas Legislature passed legislation specifically
authorizing the ownership of more than one bank by a bank holding company,
subject to certain restrictions and conditions. Generally, such legislation
permits multi-bank holding companies if: (i) all banks controlled by the bank
holding company were chartered pursuant to an application filed before December
31, 1982, or were in existence for ten years, and (ii) all banks owned or
controlled by the bank holding company have, in the aggregate, 10% or less of
the total deposits held by all state and national banks having their principal
offices within the State of Arkansas. The 10% restriction was modified to 12%
effective June 30, 1984, and to 15% effective December 31, 1984. In 1993, the
Arkansas Legislature increased the deposit limit to 25% of the total deposits
held by all state and national banks having their principal offices within the
State of Arkansas.
In 1988, the Arkansas Legislature enacted legislation making significant
changes to Arkansas' interstate banking and branching laws. As of January 1,
1989, bank acquisitions between banks in Arkansas and banks in states within
the Southern Regional Compact, which have reciprocal banking laws, are
permitted. Arkansas banks acquired under the law must have been in existence
for at least ten years. Under such legislation, branches could be located
anywhere within the county of a bank's principal banking office. After
December 31, 1993, branches could be established in contiguous counties to the
county in which the principal office is located. After December 31, 1998,
branches may be located anywhere in the state. A subparagraph to Arkansas
Thrift Branching Legislation was enacted to apply the same branching
restrictions to Arkansas thrifts.
Arkansas Usury Law:
The Arkansas usury law, which applies to all of the Company's Arkansas
affiliates, currently limits interest rates on all credit classifications,
other than single-family mortgages, to the lesser of 17% or the Federal Reserve
Bank of St. Louis's discount rate plus 5%.
Texas Regulation:
The Texas Banking Act permits an "out-of-state" bank holding company to
acquire control of a bank located in the State of Texas, if such bank received
a charter and was continually operated for at least five years prior to the
acquisition, and subjects the "out-of-state" bank holding company to the
supervision and regulation by the Banking Department of Texas.
Under the Texas Banking Act, a bank holding company cannot control more
than 20% of the total deposits of all state and national banks domiciled in the
State of Texas.
7
<PAGE>
Government Monetary Policy and Economic Controls:
In addition to the effect of general economic conditions, the earnings of
the Company's subsidiary banks are affected by the fiscal and monetary policies
of the Federal Reserve System, which attempts to regulate the national money
supply so as to mitigate recessionary and inflationary pressures. The
techniques used by the Federal Reserve System include setting the reserve
requirements for banks and establishing the discount rate on banks' borrowings.
The Federal Reserve System also conducts open market operations in United
States government securities.
The policies of the Federal Reserve System have a direct effect on the
amount of bank loans and deposits and the interest rates charged and paid
thereon. The impact upon the future business and earnings of the subsidiary
banks of current economic problems and policies of the Federal Reserve System,
and other regulatory authorities designed to deal with these problems cannot be
accurately predicted; however, such economic problems and policies can
materially affect the revenues and net income of commercial banks.
Other Regulatory Developments:
On August 9, 1989, the Financial Institutions Reform Recovery and
Enforcement Act of 1989 ("FIRREA") was enacted. FIRREA provided $125 billion
to liquidate insolvent savings and loan institutions and transferred savings
and loan insurance coverage to the Federal Deposit Insurance Corporation (the
"FDIC"). To facilitate this transfer, two separate funds were created under
the FDIC (the Bank Insurance Fund and the Savings Association Insurance Fund).
The primary effects of FIRREA on the Company are that (i) banking concerns are
now allowed to acquire savings and loans and (ii) FDIC insurance premiums have
increased significantly.
In December, 1991, the FDIC Improvement Act of 1991 ("FDICIA") was enacted.
FDICIA contains numerous provisions increasing regulatory review of depository
institutions' operations. The increased regulations include annual
examinations by the depository institution's primary regulator and mandatory
independent audits for all depository institutions with assets of $500 million
or more. In addition, the institutions must establish independent audit
committees composed solely of outside directors.
Effective December 16, 1992, final rules regarding FDICIA's establishment
of five capital levels, ranging from "well capitalized" to "critically
undercapitalized" were adopted. If an institution's capital level falls below
"well capitalized," it becomes subject to increasing regulatory oversight and
restrictions on banking activities. These regulations and restrictions
increase at each lower capital level. In addition, FDIC insurance premiums are
now, in part, based upon an institution's capital level. A financial
institution is considered "well capitalized" if it is under no regulatory order
or action and its leverage ratio is at least 5% and its Tier I and Total Risk-
Based Capital ratios are at least 6% and 10%, respectively. The Company is
considered "well capitalized," as defined, with a leverage ratio of 7.31%, a
Tier I Capital ratio of 11.31% and a Total Risk-Based Capital ratio of 12.14%
at December 31, 1995.
8
<PAGE>
In 1994, the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Interstate Act") was enacted. The Interstate Act addresses in
distinct provisions four principal areas of interstate banking and branching
activity: (i)interstate bank holding company acquisitions commencing one year
after enactment; (ii) interstate bank mergers commencing June 1, 1997, except
where the state has enacted a law opting-out of interstate bank mergers; (iii)
de novo interstate bank branching commencing upon enactment; and (iv)
interstate bank agency commencing one year after enactment. The Company
believes enactment of the Interstate Act will result in a more common sense
approach for banking consolidation and will benefit the Company's corporate
strategy of expanding services to customers in its region.
Regulation and Supervision of Subsidiary Banks:
- -----------------------------------------------
The national bank subsidiaries of the Company are subject to regulation and
supervision by the Office of the Comptroller of the Currency. The state bank
subsidiaries of the Company that are located in the State of Arkansas are
subject to regulation and supervision, including regular bank examinations, by
the Arkansas State Bank Department. The state bank subsidiary of the Company
that is located in the State of Louisiana is subject to regulation and
supervision, including regular bank examinations, by the Louisiana Office of
Financial Institutions. The Company and its subsidiaries are also subject to
examinations and regulation by the Federal Reserve System under the provision
of the Bank Holding Company Act of 1956, as amended.
All of the Company's subsidiary banks are members of the FDIC, which
currently insures the deposits of each member bank up to a maximum of $100,000
per deposit relationship. For this protection, each bank pays a semi-annual
statutory assessment and is subject to the rules and regulations of the FDIC
and to examinations by the FDIC.
9
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
As of December 31, 1995, the principal executive officers of the Company
were as follows:
James R. Cobb, 54, serves as Chairman of the Board of First Commercial Bank,
N.A., Little Rock, Arkansas, a position he assumed in 1995. Mr. Cobb has been
employed by the Company and/or its subsidiaries in various capacities since
1973.
Bill I. Crutchfield, 52, serves as Chairman, President and Chief Executive
Officer of State First National Bank, Texarkana, Texas, a position he has held
since 1987, and Executive Vice President of State First Financial Corporation,
a position he assumed in 1994. Mr. Crutchfield has been associated with State
First National Bank, Texarkana, Texas, and State First Financial Corporation,
which were acquired by the Company in 1994, since 1979.
Jack Fleischauer, Jr., 47, serves as President and Chief Executive Officer of
First Commercial Bank, N.A., Little Rock, Arkansas, which positions he assumed
in May 1994. Prior to joining the Company, Mr. Fleischauer served as President
and Chief Operating Officer of Worthen National Bank, Little Rock, Arkansas,
lead bank for Worthen Banking Corporation, which position he assumed in 1991.
Mr . Fleischauer joined the Company with over twenty years of banking
experience.
Barnett Grace, 51, serves as Chairman of the Board, President and Chief
Executive Officer of the Company. Mr. Grace has been employed by the Company
and/or its subsidiaries since 1972. Mr. Grace assumed the position of
President of the Company in 1988 and Chairman of the Board and Chief Executive
Officer of the Company in 1990.
Edwin P. Henry, 58, serves as Executive Vice President of the Company. Mr.
Henry also serves as Executive Vice President of First Commercial Bank, N.A.,
Little Rock, Arkansas, and Chairman of the Affiliate Bank Management Group.
Additionally, he serves as a director on several boards of directors of
affiliate banks. Mr. Henry has been associated with the Company and/or its
subsidiaries since 1962.
J. French Hill, 39, serves as Executive Officer of the Company. Mr. Hill's
areas of responsibility include Trust, Investment Banking and Bank Brokerage.
Prior to joining the Company in March 1993, Mr. Hill served as a U.S. Treasury
official and Special Assistant to President George Bush.
Clarence E. Hoover, 53, serves as Executive Officer of Operations and
Management Information Services. Prior to joining the Company in December
1991, Mr. Hoover was employed with banking institutions in Virginia and
Tennessee and possessed over thirty years of banking experience.
Douglas Jackson, 58, serves as Senior Credit Officer of State First Financial
Corporation. Mr. Jackson has been associated with the Company and/or its
subsidiaries since 1987.
Neil S. West, 50, serves as President and Chief Executive Officer of State
First Financial Corporation, a second-tier bank holding company consisting of
nine banks in Arkansas and Texas, a position he assumed in May 1994. Mr. West
also serves as Executive Officer of the Company with responsibility for the
Company's Credit Administration Division, a position he assumed in August 1995.
10
<PAGE>
Mr. West has been associated with the Company and/or its subsidiaries since
1987, when he joined the Company with over fifteen years of banking experience.
J. Lynn Wright, 33, serves as Chief Financial Officer of the Company. Mr.
Wright joined the Company in 1984 and served in various capacities with the
Company's Finance Division before assuming his current position in July 1992.
STATISTICAL DISCLOSURE
The information required by Guide 3, "Statistical Disclosure by Bank
Holding Companies", is contained in the Company's 1995 Annual Report on pages
13 through 29, which information is incorporated herein by reference.
Item 2. PROPERTIES
----------
The principal offices of the Company and the following affiliates, First
Commercial Bank, N.A., First Commercial Mortgage Company, First Commercial
Trust Company, N.A., First Commercial Investments, Inc., and Financial Fleet
Services, Inc., are located in the First Commercial Building at 400 West
Capitol Avenue in downtown Little Rock, Arkansas. The Company and its
affiliates lease approximately 226,000 combined square feet of space. The
office space is held under long-term leases from First Commercial, Inc., a
wholly owned subsidiary of First Commercial Bank, N.A.
The Company and its banking subsidiaries and affiliates maintain 131
banking locations throughout the States of Arkansas, Texas, Tennessee,
Louisiana and Oklahoma. The majority of these offices are owned by the
respective subsidiary and affiliate banks.
For information regarding lease commitments, See Note 15, Commitments and
Contingencies, of the Notes to the Consolidated Financial Statements in the
Company's 1995 Annual Report, which note is incorporated herein by reference.
Item 3. LEGAL PROCEEDINGS
-----------------
AEARTH DEVELOPMENT, INC., v. FIRST COMMERCIAL BANK, N.A.
- --------------------------------------------------------
First Commercial Bank, N.A., a wholly owned subsidiary of Registrant, has
been the defendant in litigation initiated in 1989 seeking approximately
$200,000,000 in compensatory damages plus punitive damages. Plaintiffs in the
litigation alleged fraudulent conspiracy, fraudulent misrepresentation,
tortious interference with a business expectancy, breach of contract, willful
breach of fiduciary duty, interference with performance of contract, securities
law violations, conversion, prima facie tort and violations of the Federal
Racketeer Influenced and Corrupt Organizations Act as a basis for trebled
damages. In June of 1991, the matter was tried before a chancery judge in
Chancery Court in Pulaski County, Arkansas, and on June 5, 1992, the complaint
was dismissed and no damages were assessed against First Commercial Bank, N.A.
Plaintiffs appealed this decision to the Supreme Court of Arkansas in July of
1992 alleging error for failure to try the case before a jury in Circuit Court.
On July 18, 1994, the Supreme Court of Arkansas remanded the case to Circuit
Court in Pulaski County, Arkansas, for jury trial. A jury trial was held,
which concluded March 13, 1996, with the jury awarding plaintiffs a total of
11
<PAGE>
$12.5 million compensatory damages and $10.0 million punitive damages. The
trial court has not yet entered a judgment on the verdict, but management of
the Company and First Commercial Bank, N.A., intend to vigorously pursue an
appeal of any judgment not in favor of First Commercial Bank, N.A. The
ultimate legal and financial liability of the Company in connection with this
matter cannot be estimated with certainty, but management, based on the advice
of legal counsel that any judgment entered on the verdict will be reversed and
dismissed in whole or in part or a new trial ordered in whole or in part,
believes that the impact of this matter will not have a materially adverse
effect on the Company's financial position. However, if any substantial loss
were to occur as a result of this litigation it could have a material adverse
impact upon results of operations in the fiscal quarter or year in which it
were to be incurred, but the Company cannot estimate the range of any
reasonably possible loss.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No information is required in response to this Item as no matters were
submitted to a vote of Registrant's security holders during the fourth quarter
of the fiscal year covered by this report.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
------------------------------------------------------------
MATTERS
-------
The information required by Item 201 of Regulation S-K is contained in the
Management's Discussion & Analysis Section of the Company's 1995 Annual Report
under the heading "Dividend Policy", which information is incorporated herein
by reference.
For information on dividend restrictions see Note 4, Pledged Assets and
Regulatory Restrictions, and Note 10, Long-term Debt, of the Notes to
Consolidated Financial Statements in the Company's 1995 Annual Report, which
notes are incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA
-----------------------
The information required by Item 301 of Regulation S-K is contained in the
Management's Discussion & Analysis Section of the Company's 1995 Annual Report
under the heading "Six-Year Financial Summary", which information is
incorporated herein by reference.
12
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The information required by Item 303 of Regulation S-K is contained in the
Company's 1995 Annual Report on pages 13 through 29, which information is
incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The information required by this Item and by Item 302 of Regulation S-K is
contained in the Company's 1995 Annual Report on pages 30 through 52 and in the
Management's Discussion & Analysis Section under the heading "Selected
Quarterly Operating Results", respectively, which information is incorporated
herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
No information is required in response to this Item.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information required by Item 401 of Regulation S-K is contained in the
Company's 1996 Proxy Statement under the headings "Election of Directors" and
"Other Information" on pages 3 through 6, which information is incorporated
herein by reference. The information required by Item 405 of Regulation S-K is
contained in the Company's 1996 Proxy Statement under the heading "Compliance
with Section 16(a) of the Securities Exchange Act of 1934" on page 13, which
information is incorporated herein by reference.
The information concerning the executive officers of the Registrant is
contained in Part I, Item 1, of this report under the caption "Executive
Officers of the Company."
Item 11. EXECUTIVE COMPENSATION
----------------------
The information required by Item 402 of Regulation S-K is contained in the
Company's 1996 Proxy Statement under the headings "Compensation of Directors
and Executive Officers," "First Commercial Corporation's 1995 Compensation
Committee Report on Executive Compensation," and "Stock Performance Chart" on
pages 7 through 12, which information is incorporated herein by reference.
13
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information required by Item 403 of Regulation S-K is contained in the
Company's 1996 Proxy Statement under the headings "Principal Holders of Shares"
and "Election of Directors" on pages 2 through 6, which information is
incorporated herein by reference.
PART IV
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information required by Item 404 of Regulation S-K is contained in the
Company's 1996 Proxy Statement under the headings "Compensation Committee
Interlocks and Insider Participation" and "Transactions with Management and
Others" on pages 9 and 13, respectively, which information is incorporated
herein by reference.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
(a) The following documents are filed as part of this report:
(1) Financial Statements:
Page
Number(*)
---------
Reports of Management and Independent Auditors 30
Consolidated Statements of Income for the Years Ended
December 31, 1995, 1994 and 1993 31
Consolidated Balance Sheets as of December 31, 1995
and 1994 32
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1995, 1994 and 1993 33
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1995, 1994 and 1993 34
Notes to Consolidated Financial Statements 35 - 52
(*) Page numbers refer to the Company's 1995 Annual Report, which pages
are incorporated herein by reference.
(2) Financial Statement Schedules:
All schedules are omitted for the reasons that they are not
required or are not applicable, or the required information is
shown in the consolidated financial statements or the notes
thereto.
14
<PAGE>
(3) Executive Compensation Plans and Arrangements:
1987 Incentive and Non-Qualified Stock Option Plan, as amended (filed
as Exhibit 10(a) hereto.)
Non-Qualified Deferred Compensation Plan (filed as Exhibit 10(b)
hereto.)
Supplemental Executive Retirement Plan for C. Barnett Grace (filed as
Exhibit 10(c) hereto.)
(b) Reports on Form 8-K:
During the period covered by this report, Registrant filed two reports
on Form 8-K. A report dated November 30, 1995, as amended by a report
on Form 8-K/A filed January 30, 1996, disclosed under Item 5 that the
Company had completed the acquisition of FDH Bancshares, Inc., and
West-Ark Bancshares, Inc. In addition, the Company prepared pro forma
financial statements reflecting the acquisitions and filed such
information as Exhibit 99 to such report on Form 8-K. Another report on
Form 8-K, dated March 13, 1996, was filed by the Company to disclose
under Item 5 that a jury found against First Commercial Bank, N.A., a
subsidiary of the Company, in a trial held in Circuit Court in Pulaski
County, Arkansas.
(c) Exhibits:
The exhibits required to be filed by Item 601 of Regulation S-K
are submitted as a separate section of this report under the caption
"Index to Exhibits."
(d) Financial Statement Schedules:
Not applicable.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
FIRST COMMERCIAL CORPORATION
By: /s/ Barnett Grace
-------------------------
Barnett Grace
Chairman of the Board
Date: March 28, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Barnett Grace Chairman of the Board, President, March 28, 1996
- ---------------------------- Chief Executive Officer and
Barnett Grace Director (Principal Executive
Officer)
/s/ J. Lynn Wright Chief Financial Officer March 28, 1996
- ---------------------------- (Principal Financial and
J. Lynn Wright Accounting Officer)
Director March 28, 1996
- ----------------------------
John W. Allison
Director March 28, 1996
- ----------------------------
Truman Arnold
/s/ William H. Bowen Director March 28, 1996
- ----------------------------
William H. Bowen
Director March 28, 1996
- ----------------------------
Peggy Clark
/s/ Robert G. Cress Director March 28, 1996
- ----------------------------
Robert G. Cress
/s/ Cecil W. Cupp, Jr. Director March 28, 1996
- ----------------------------
Cecil W. Cupp. Jr.
16
<PAGE>
Director March 28, 1996
- ----------------------------
Frank D. Hickingbotham
Director March 28, 1996
- ----------------------------
Walter E. Hussman, Jr.
/s/ Frederick E. Joyce, M.D. Director March 28, 1996
- ----------------------------
Frederick E. Joyce, M.D.
Director March 28, 1996
- ----------------------------
Jack G. Justus
/s/ William M. Lemley Director March 28, 1996
- ----------------------------
William M. Lemley
/s/ Charles H. Murphy, Jr. Director March 28, 1996
- ----------------------------
Charles H. Murphy, Jr.
Director March 28, 1996
- ----------------------------
Michael W. Murphy
/s/ William C. Nolan, Jr. Director March 28, 1996
- ----------------------------
William C. Nolan, Jr.
/s/ Sam C. Sowell Director March 28, 1996
- ----------------------------
Sam C. Sowell
/s/ Paul D. Tilley Director March 28, 1996
- ----------------------------
Paul D. Tilley
17
<PAGE>
Index to Exhibits
Exhibit Number Exhibit
- -------------- ----------------------------------------------------------
3(a)* Company's Second Amended and Restated Articles of
Incorporation, as amended (3.1 in 33-33529).
3(b)* Articles of Amendment to the Company's Second Amended and
Restated Articles of Incorporation, as amended (3 in
Form 8-K dated September 18, 1990, in 0-9676).
3(c)* Articles of Amendment to the Company's Second Amended and
Restated Articles of Incorporation, as amended (4.3 in
33-39084).
3(d)* Articles of Amendment to the Company's Second Amended and
Restated Articles of Incorporation, as amended (3(I) in
Form 10-Q for the quarter ended September 30, 1993,
in 0-9676).
3(e)* Company's Bylaws as currently in effect (3(d) in Form 10-K
for the fiscal year ended December 31, 1991, in 0-9676).
10(a)* 1987 Incentive and Non-Qualified Stock Option Plan, as
amended (10(c) in Form 10-K for the fiscal year ended
December 31, 1992, in 0-9676).
10(b)* Non-Qualified Deferred Compensation Plan, as amended (10(b)
in Form 10-K for the fiscal year ended December 31, 1994,
in 0-9676).
10(c) Supplemental Executive Retirement Plan for C. Barnett Grace
11 Computation of Earnings per Common Share.
13 Company's Annual Report to Shareholders for the
fiscal year ended December 31, 1995.
21 Subsidiaries of Registrant.
23(a) Consent of Ernst & Young LLP.
23(b) Consent of KPMG Peat Marwick LLP.
23(c) Consent of Baird, Kurtz & Dobson LLP (to be filed by
amendment.)
27 Financial Data Schedule
99(a) Report of KPMG Peat Marwick LLP.
99(b) Annual Report on Form 11-K for Stock Purchase Plan for employees
of First Commercial Corporation (to be filed by amendment.)
- ----------
* Document has been previously filed with the Securities and Exchange
Commission and is incorporated herein by reference. (Exhibit numbers and
file numbers appear in parenthesis.)
<PAGE>
EXHIBIT 10(c)
FIRST COMMERCIAL CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
FOR
C. BARNETT GRACE
This Instrument Prepared By:
Joseph B. Hurst, Jr.
Friday, Eldredge & Clark
2000 First Commercial Building
400 West Capitol Avenue
Little Rock, Arkansas 72201-3493
(501) 370-1590
<PAGE>
TABLE OF CONTENTS
-----------------
PREAMBLE
ARTICLE I - DEFINITIONS
1.01 Change in Control
1.02 Code
1.03 Effective Date
1.04 Employee
1.05 Employer
1.06 ERISA
1.07 Normal Retirement Date
1.08 Plan
1.09 Plan Administrator
1.10 Retirement Committee
1.11 Retirement Plan
1.12 Trust
1.13 Trustee
1.14 Year of Service
ARTICLE II - RETIREMENT BENEFIT
2.01 Retirement Date
2.02 Retirement Benefit
2.03 Termination Prior to Normal Retirement Date
2.04 Commencement of the Retirement Benefit
2.05 Form of the Retirement Benefit
2.06 Actuarial Adjustment of the Retirement Benefit
ARTICLE III - DEATH BENEFIT
3.01 Death Benefit
3.02 Death Prior to Normal Retirement Date
3.03 Commencement of the Death Benefit
3.04 Actuarial Adjustment of the Death Benefit
ARTICLE IV - ADMINISTRATION
i
<PAGE>
4.01 Fiduciaries
4.02 Powers and Responsibilities of the Employer
4.03 Plan Administrator
4.04 Powers and Responsibilities of the Plan Administrator
4.05 Voting of Securities
4.06 Decisions of the Plan Administrator
4.07 Records and Statements
4.08 Payment of Expenses
4.09 Benefit Claims Procedure
4.10 Claims Review Procedure
4.11 Unclaimed Benefits
4.12 Indemnification
ARTICLE V - FUNDING AND RELATED MATTERS
5.01 Compliance With Applicable Law
5.02 General Unsecured Contractual Obligation
5.03 Rabbi Trust
5.04 Protective Clause
ARTICLE VI - AMENDMENT
6.01 Amendment
ARTICLE VII - MISCELLANEOUS
7.01 Limitation of Rights; Employment Relationship
7.02 Limitation on Assignment
7.03 Representations
7.04 Other Retirement Plans
7.05 Reporting Requirements
7.06 Binding
7.07 Severability
7.08 Governing Law
7.09 Arbitration
7.10 Entire Agreement
EXECUTION PAGE
ii
<PAGE>
EXHIBIT "A" - SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN TRUST
iii
<PAGE>
FIRST COMMERCIAL CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
FOR
C. BARNETT GRACE
THIS PLAN agreement is entered into this 29th day of December, 1995, by and
between FIRST COMMERCIAL CORPORATION, Little Rock, Arkansas, ("Employer") and
C. BARNETT GRACE ("Employee").
W I T N E S S E T H:
WHEREAS, Employee is employed by the Employer as Chief Executive Officer;
and
WHEREAS, the Employer values the Employee's services highly and desires to
retain his services until his retirement date; and
WHEREAS, the Employee wishes to remain in the employ of the Employer and
further wishes to enter into an agreement providing for supplemental non-
qualified retirement and death benefits to be received in accordance with the
provisions and conditions of this plan as set forth hereinafter;
NOW, THEREFORE, in consideration of the premises and of the covenants
herein set forth, and for good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
The following terms when used herein shall have the following meaning,
unless a different meaning is clearly required by the context.
1.01 "Change in Control" shall mean the occurrence of at least one of the
following events after the Effective Date:
(a) the acquisition in a single transaction or a series of transactions
of any voting securities of the Employer if, after the single
transaction or series of transactions, the acquiring person (or
persons acting in concert) owns, controls, or holds with power to
vote more than fifty percent (50%) of any class of voting
securities of the Employer;
<PAGE>
(b) any reclassification (including any reverse stock split) or
redemption of voting securities of the Employer, recapitalization
of the Employer, merger or consolidation of the Employer or any
other transaction which has the effect, directly or indirectly, of
increasing the proportionate share of the power to vote, ownership
of, or control of voting securities of the Employer by any person
(or persons acting in concert) to more than fifty percent (50%); or
(c) the sale, exchange, mortgage, transfer or other disposition in one
transaction or a series of transactions of substantially all of the
assets of the Employer.
1.02 "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
1.03 "Effective Date" shall mean January 1, 1995.
1.04 "Employee" shall mean C. BARNETT GRACE.
1.05 "Employer" shall mean FIRST COMMERCIAL CORPORATION and its successors
and assigns.
1.06 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.07 "Normal Retirement Date" shall mean the date defined in the
Retirement Plan as the Employee's Normal Retirement Date.
1.08 "Plan" shall mean this FIRST COMMERCIAL CORPORATION SUPPLEMENTAL
EXECUTIVE RETIREMENT PLAN FOR C. BARNETT GRACE agreement.
1.09 "Plan Administrator" shall mean the Employer.
1.10 "Retirement Committee" shall mean the Retirement Committee to the
Retirement Plan.
1.11 "Retirement Plan" shall mean the First Commercial Corporation
Retirement Plan or any successor thereto which is a defined benefit pension
plan adopted by the Employer and qualified within the meaning of Code Section
401 or its successor.
2
<PAGE>
1.12 "Trust" means the FIRST COMMERCIAL CORPORATION SUPPLEMENTAL EXECUTIVE
RETIREMENT PLAN TRUST FOR C. BARNETT GRACE which is intended to constitute a
"Rabbi Trust." The Trust document is attached hereto as Exhibit "A."
1.13 "Trustee" means the trustee designated pursuant to the Trust
agreement.
1.14 "Year of Service" shall mean a twelve (12) month period of continuous
employment.
ARTICLE II
RETIREMENT BENEFIT
------------------
2.01 Retirement Date. The Employee may retire, or may be retired, on or
---------------
after the Normal Retirement Date.
2.02 Retirement Benefit. The Retirement Benefit payable pursuant to this
------------------
Plan on or after the Normal Retirement Date shall be an amount determined as
follows by subtracting the amount determined in (b) below from the amount
determined in (a) below:
(a) the monthly benefit due the Employee on or after Normal Retirement
Date pursuant to the terms of the Retirement Plan, except such amount
shall be computed without regard to the compensation limitation
imposed by Code Section 401(a)(17), the benefit limits of Code Section
415 or any other provision of the Code which effectively limits the
compensation of the Employee which may be used for determining the
benefit due pursuant to the Retirement Plan.
(b) the monthly benefit actually provided from the Retirement Plan.
2.03 Termination Prior to Normal Retirement Date. Notwithstanding
-------------------------------------------
Paragraph 2.02 to the contrary, if the Employee terminates employment with the
Employer prior to Normal Retirement Date for any reason other than death, the
Retirement Benefit payable pursuant to Paragraph 2.02 shall be reduced by
multiplying the amount determined in Paragraph 2.02 by a fraction (not to
exceed one (1)), the numerator of which shall be the number of continuous Years
of Service from the Effective Date of this Plan to the date of termination and
the denominator of which shall be the number of continuous Years of Service the
Employee would have accumulated from the Effective Date to the Employee's
Normal Retirement Date had he continued in employment until his Normal
Retirement Date. Notwithstanding the foregoing to the contrary, the fraction
determined in the preceding sentence shall equal one (1) in the event the
Employee terminates employment with the Employer for any reason other than
death within the period beginning forty-five (45) days prior to the date of a
Change in Control and ending twenty-four (24) calendar months after the date of
a Change in Control.
3
<PAGE>
2.04 Commencement of the Retirement Benefit. The Retirement Benefit shall
--------------------------------------
commence at the same time as the benefit paid pursuant to the Retirement Plan.
2.05 Form of the Retirement Benefit. The Retirement Committee shall
------------------------------
choose the form of payment of the Retirement Benefit from the forms of payment
available to the Employee pursuant to the Retirement Plan or in the form of a
single lump sum payment.
2.06 Actuarial Adjustment of the Retirement Benefit. The actuarial
----------------------------------------------
adjustments which apply pursuant to the Retirement Plan for early commencement
and for optional forms of benefits shall apply to determine the amount of the
Retirement Benefit.
ARTICLE III
DEATH BENEFIT
-------------
3.01 Death Benefit. If the Employee should die prior to commencement of
-------------
the Retirement Benefit a Death Benefit shall be paid pursuant to this Plan to
the surviving spouse of the Employee equal to an amount determined as follows
by subtracting the amount determined in (b) below from the amount determined in
(a) below:
(a) the monthly death benefit due the Employee's surviving spouse pursuant
to the terms of the Retirement Plan, except such amount shall be
computed without regard to the compensation limitation imposed by Code
Section 401(a)(17), the benefit limits of Code Section 415 or any
other provision of the Code which effectively limits the compensation
of the Employee which may be used for determining the death benefit
due pursuant to the Retirement Plan.
(b) the monthly death benefit actually provided from the Retirement Plan.
3.02 Death Prior to Normal Retirement Date. Notwithstanding Paragraph
-------------------------------------
3.01 to the contrary, if the Employee dies prior to Normal Retirement Date then
the Death Benefit payable pursuant to Paragraph 3.01 shall be reduced by
multiplying the amount determined in Paragraph 3.01 by a fraction (not to
exceed one (1)), the numerator of which shall be the number of continuous Years
of Service from the Effective Date of this Plan to the date of death and the
denominator of which shall be the number of continuous Years of Service the
Employee would have accumulated from the Effective Date to the Employee's
Normal Retirement Date had he continued in employment until his Normal
Retirement Date. Notwithstanding the foregoing to the contrary, the fraction
determined in the preceding sentence shall equal one (1) in the event the
Employee dies within the period beginning forty-five (45) days prior to the
date of a Change in Control and ending twenty-four (24) calendar months after
the date of a Change in Control.
4
<PAGE>
3.03 Commencement of the Death Benefit. The Death Benefit shall commence
---------------------------------
at the same time and shall be paid pursuant to the same form as the death
benefit paid pursuant to the Retirement Plan.
3.04 Actuarial Adjustment of the Death Benefit. The actuarial adjustments
-----------------------------------------
which apply pursuant to the Retirement Plan for early commencement shall apply
to determine the amount of the Death Benefit.
ARTICLE IV
ADMINISTRATION
--------------
4.01 Fiduciaries.
-----------
(a) Any fiduciary shall have only those powers, duties, responsibilities,
and obligations which are specifically allocated to them under the
Plan. Notwithstanding the foregoing, any person may serve in more
than one fiduciary capacity.
(b) Each fiduciary warrants that any directions given, information
furnished, or action taken by it shall be in accordance with the
provisions of the Plan authorizing or providing for such direction,
information or action. Furthermore, each fiduciary may rely upon any
such direction, information or action of any other named fiduciary as
being proper under the Plan, and is not required to inquire into the
propriety of any such direction, information or action. No fiduciary
shall be deemed to have guaranteed the Trust in any manner against
investment loss or depreciation in asset value.
4.02 Powers and Responsibilities of the Employer.
-------------------------------------------
(a) The Employer shall supply such information as may be requested by the
Plan Administrator or the Trustee including information with respect
to compensation, service, age, retirement, death, disability or
termination of employment of the Employee.
5
<PAGE>
(b) The Employer shall receive and review reports of the receipts and
disbursements of the Trust from the Trustee;
(c) The Employer shall file or cause to be filed with the appropriate
government agency (or agencies) any required reports, summary plan
description, and any other pertinent documents.
4.03 Plan Administrator. The "named fiduciary" (as defined in Section 402
------------------
of ERISA) of the Plan is the Employer which is also designated under Section
1.09 as the Plan Administrator.
4.04 Powers and Responsibilities of the Plan Administrator. The Plan
-----------------------------------------------------
Administrator shall carry out the daily management of the Plan in accordance
with its terms and shall have the power to determine all questions arising in
connection with the administration, interpretation, and application of the
Plan. Any such determination by the Plan Administrator shall be conclusive and
binding upon all persons. The Plan Administrator may correct any defect,
supply any information, or reconcile any inconsistency in such manner and to
such extent as shall be deemed necessary or advisable to carry out the purpose
of this Plan. The Plan Administrator shall have such powers and duties, unless
otherwise provided herein, as may be necessary to discharge its duties
hereunder, including, but not limited to, the power and duty:
(a) to construe and interpret the Plan, decide all questions of
eligibility for payment of any benefits hereunder;
(b) to adopt such rules, such procedures and forms as it deems
appropriate;
(c) to make a determination as to the right of any person to a benefit and
to afford any person dissatisfied with such determination the right to
a hearing thereon;
(d) to receive from the Employer and from the Employee such information as
shall be necessary for the proper administration of the Plan;
(e) to delegate to one or more of the members of the Compensation
Committee the right to act in its behalf in all matters connected with
the administration of the Plan and to delegate ministerial matters to
its agents or employees of the Employer, who need not be members of
the Compensation Committee;
6
<PAGE>
(f) to furnish the Employee a summary explaining the Plan unless exempted
under ERISA;
(g) to furnish the Employee a statement indicating the Employee's accrued
benefit under the Plan;
(h) to maintain all records necessary for verification of information
required to be filed with any governmental agency;
(i) to report to the Trustee all available information regarding the
amount of benefits payable to the Employee and, if applicable, the
Employee's surviving spouse or any other beneficiary of the Employee,
the computations with respect to the allocation of assets, and any
other information which the Trustee may require;
(j) to retain such agents, and employees, including legal counsel (which
may be counsel for the Employer), as it deems appropriate for the
discharge of its duties hereunder.
4.05 Voting of Securities. The Plan Administrator may direct the Trustee
--------------------
as to the manner in which voting, dissenter's or other stockholder's rights of
securities held by the Trust are to be exercised.
4.06 Decisions of the Plan Administrator. The decisions of the Plan
-----------------------------------
Administrator shall be conclusive and binding upon the Employer, the Trustee,
the Employee, the Employee's surviving spouse and any other beneficiary of the
Employee. All decisions of the Plan Administrator which involve the exercise
of discretion shall be made upon the basis of uniform principles established in
this Plan and by the Plan Administrator.
4.07 Records and Statements. The Plan Administrator shall maintain such
----------------------
records as may be required by law, the Plan or as it otherwise deems
appropriate for the administration of the Plan. Such records shall be subject
to the inspection by the Employer, the Employee, the Employee's surviving
spouse and any other beneficiary of the Employee, but only to the extent that
they apply to him or her.
4.08 Payment of Expenses. All expenses incident to the administration,
-------------------
termination or protection of the Plan and Trust, including but not limited to,
legal, accounting, actuarial and Trustee's fees shall be paid by the Employer.
7
<PAGE>
4.09 Claims Procedure. The Plan Administrator shall make all
----------------
determinations as to the right of any person to any benefit under the Plan.
The Employee, the Employee's surviving spouse and any other beneficiary of the
Employee or their authorized representative may file a request for benefits
under the Plan or interpretation of the Plan. Such request shall be deemed
filed when made in writing addressed or hand-delivered to the Plan
Administrator in care of the Employer. Such request shall be on such form and
pursuant to such rules as are adopted by the Plan Administrator and shall set
forth the basis of such claim. Upon receipt of such claim, the Plan
Administrator shall conduct such examinations as may be necessary to determine
the validity of the claims and, if appropriate, shall take such steps as may be
necessary to facilitate the payment to which the claimant is entitled.
4.10 Claims Review Procedure. If any claim is denied, the Plan
-----------------------
Administrator shall notify the claimant in writing. The notice of the denial
of the claim shall state the specific reason for such denial and cite any
applicable provisions of the Plan upon which the denial is based. If the claim
can be corrected, a request for such information shall be made and the reason
for requesting such additional information shall be stated in the notice to the
claimant. The claimant shall be entitled to appeal the decision to the Plan
Administrator for a period of sixty (60) days after receipt of the notification
of denial. The claimant shall be advised that the failure to perfect and
appeal within such sixty (60) day period shall make the Plan Administrator's
decision conclusive. The Plan Administrator shall furnish the claimant or his
personal representative any Plan information needed to perfect his appeal.
4.11 Unclaimed Benefits. The Employee, the Employee's surviving spouse
------------------
and any other beneficiary of the Employee shall file with the Plan
Administrator from time to time in writing, their home address and each change
of home address. Any communication addressed to the Employee, the Employee's
surviving spouse or any other beneficiary of the Employee at their last home
address filed with the Plan Administrator, or if no such address was filed,
then at his last home address as shown on the Employer's records, shall be
binding on the Employee, the Employee's surviving spouse and any other
beneficiary of the Employee for all purposes of the Plan. The Plan
Administrator shall not be obligated to search for or ascertain the whereabouts
of the Employee or his surviving spouse. If the Plan Administrator furnishes
notice to the Employee, the Employee's surviving spouse or any other
beneficiary of the Employee that he or she is entitled to a distribution and
the Employee, the Employee's surviving spouse or any other beneficiary of the
Employee fails to claim such distribution or make their whereabouts known to
the Plan Administrator, such benefit shall be retained by the Plan until the
earliest of (i) the date of the Plan is terminated without the establishment of
a successor plan, or (ii) the date the Employer is liquidated.
8
<PAGE>
4.12 Indemnification. The Employer shall indemnify each member of the
---------------
Retirement Committee, each fiduciary with respect to the Plan and any person
acting on behalf of the Retirement Committee or any fiduciary with respect to
the Plan, from and against any and all liabilities, costs, damages or expenses
occasioned by any act or omission, to the extent required by the Employer's
Bylaws, court decision or individual agreement with such person, but not in any
event when the same is judicially determined to be due to the willful
misconduct or fraud of such person. The Employer may purchase insurance to the
extent deemed appropriate in connection with such indemnification.
ARTICLE V
FUNDING AND RELATED MATTERS
---------------------------
5.01 Compliance With Applicable Law. It is the intent of the Employer to
------------------------------
comply with Title I of ERISA. With respect to such Title, this Plan is
intended to be an unfunded plan maintained primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees and it is not intended that any separate trust or other
pool of assets shall exist solely for the payment of benefits, except for the
Trust.
5.02 General Unsecured Contractual Obligation. The Employer may purchase
----------------------------------------
certain investment assets, including life insurance policies, to help defray
the cost of providing benefits hereunder. However, such assets shall in no
event be considered a trust fund and such assets shall be available at all
times for any purpose of the Employer. Neither the Employee nor any other
person shall have any interest in any funds or in any specific asset or assets
of the Employer by reason of the benefits provided hereunder, nor any right to
receive any distribution pursuant to this Plan except to the extent expressly
provided in this Plan. No consent of the Employee shall be required in
connection with any purchase, sale, suspension or termination of any assets of
the Employer to be used to defray the cost of providing assets hereunder and
such assets shall remain subject at all times to the unrestricted control of
the Employer. Such assets shall remain assets of the Employer subject to the
rights of all of its creditors. Should the Employer have insufficient assets
to satisfy any obligations under this Plan, the Employee, the Employee's
surviving spouse or any other beneficiary of the Employee will only have the
right of any unsecured general creditor of the Employer under state law.
9
<PAGE>
5.03 Rabbi Trust. Notwithstanding Paragraph 5.02 to the contrary, in the
-----------
event of a Change in Control, a single lump sum amount actuarially equivalent
to the Retirement Benefit which has accrued up to the date of the Change in
Control shall be contributed by the Employer to the Trustee of the Trust.
Actuarial equivalence shall be determined using the factors set forth in the
Retirement Plan. If the Employee shall continue to be employed by the Employer
after a Change in Control, an additional amount shall be contributed by the
Employer to the Trustee of the Trust each calendar year, if necessary, in order
to maintain a lump sum amount in the Trust which is actuarially equivalent to
the Retirement Benefit which has accrued as of the end of each applicable
calendar year. Notwithstanding the foregoing sentence and paragraph 5.02 to
the contrary, the Employer may fund the Trust prior to a Change in Control in
such amounts as it shall determine in its complete discretion.
5.04 Protective Clause. Neither the Employer, the Trustee nor the Plan
-----------------
Administrator shall be responsible for the validity of any contract of
insurance issued in connection with the Plan or Trust or for the failure on the
part of the insurer to make payments provided by such contract, or for the
action of any person which may delay payment or render a contract null and void
or unenforceable in whole or in part.
ARTICLE VI
AMENDMENT
---------
6.01 Amendment. The Board of Directors of the Employer shall have the
---------
right to amend this Plan, at any time and from time to time, in whole or in
part without the consent of the Employee, the Employee's surviving spouse, or
any other beneficiary of the Employee. No such amendment shall reduce or
eliminate the benefits of the Employee or, in the event of the Employee's
death, the Employee's surviving spouse or any other beneficiary of the Employee
which have accrued up to the effective date of the amendment. No such
amendment shall eliminate the increase to one (1) of the fraction referred to
in the last sentence in both Paragraphs 2.03 and 3.02 in the event of a Change
in Control with respect to the determination of the benefits which have accrued
up to the effective date of the amendment.
ARTICLE VII
MISCELLANEOUS
-------------
7.01 Limitation of Rights; Employment Relationship. Neither the
---------------------------------------------
establishment of this Plan nor any modification thereof, nor the creation of
any fund or account, nor the payment of any benefits, shall be construed as
giving the Employee or other person any legal or equitable right against the
Employer except as provided in the Plan. In no event shall the terms of
employment of the Employee be modified or in any way be affected by the Plan.
10
<PAGE>
7.02 Limitation on Assignment. Benefits under this Plan may not be
------------------------
assigned or alienated by the Employee, the Employee's surviving spouse or any
other beneficiary of the Employee. The interest in benefits provided pursuant
to the Plan of the Employee, the Employee's surviving spouse or any other
beneficiary of the Employee shall not be subject to their debts or liabilities
and shall not be subject to attachment, garnishment or other legal process as a
result of any of their debts or liabilities.
7.03 Representations. The Employer does not represent or guarantee that
---------------
any particular federal or state income, payroll, personal property or other tax
consequence will result to the Employee from participation in this Plan. The
Employee should consult with professional tax advisors to determine the tax
consequences of his participation.
7.04 Other Retirement Plans. Nothing contained herein shall in any way
----------------------
limit the Employee's right to participate in or benefit from any pension or
profit sharing or other retirement plan for which he is currently eligible by
reason of his employment.
7.05 Reporting Requirements. In order to comply with the reporting and
----------------------
disclosure requirements of ERISA, the Employer shall file with the Department
of Labor a single statement concerning this Plan which shall include the
Employer's name, address, identification number, declaration that the Employer
maintains the Plan primarily for the purpose of providing deferred compensation
for a select group of management or highly compensated employees and the number
of such agreements maintained by the Employer.
7.06 Binding. This Plan shall be binding upon the parties hereto, their
-------
heirs, assigns, successors, executors and administrators. In the event the
Employer becomes a party to any merger, consolidation or reorganization, this
agreement shall remain in full force and effect as an obligation of the
Employer or its successors in interest.
7.07 Severability. In the event that any provision of this Plan shall be
------------
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining provisions of this Plan, but shall be fully severable and
the Plan shall be construed and enforced as if the illegal or invalid provision
had never been inserted herein.
7.08 Governing Law. The validity, construction, and effect of this Plan
-------------
and its enforcement shall be determined by ERISA, by the common law of trusts
as developed under ERISA and the laws of Arkansas to the extent not preempted
by ERISA.
7.09 Arbitration. Any controversy or claim arising out of, or relating
-----------
to, this Plan, or the breach thereof, may be settled by arbitration in the City
of Little Rock, Arkansas in accordance with the rules then existing of the
American Arbitration Association, and judgment upon the award rendered may be
entered in any court having jurisdiction thereof.
11
<PAGE>
7.10 Entire Agreement. This Plan agreement as written expresses the
----------------
entire agreement between the parties with respect to the matters to which it
pertains.
IN WITNESS WHEREOF, the parties hereto have executed this Plan agreement on
the date referred to hereinabove.
EMPLOYER:
FIRST COMMERCIAL CORPORATION
By: /s/ Sam C. Sowell
------------------------------------
Sam C. Sowell
Title: Director
Chairman, Compensation Committee
---------------------------------
EMPLOYEE:
By: /s/ C. Barnett Grace
------------------------------------
C. Barnett Grace
12
<PAGE>
EXHIBIT "A"
FIRST COMMERCIAL CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN TRUST
FOR
C. BARNETT GRACE
THIS TRUST agreement entered into this 29th day of December, 1995, by and
between FIRST COMMERCIAL CORPORATION ("Employer") and FIRST COMMERCIAL TRUST
COMPANY, N.A. ("Trustee");
WHEREAS, the Employer has adopted the FIRST COMMERCIAL CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN FOR C. BARNETT GRACE ("Plan") effective
January 1, 1995.
WHEREAS, the Employer expects to incur liability under the terms of such
Plan;
WHEREAS, the Employer wishes to establish a trust (hereinafter called
"Trust") and to contribute to the Trust assets that shall be held therein,
subject to the claims of the Employer's creditors in the event of the
Employer's Insolvency, as herein defined, until paid to the employee of the
Employer covered under the Plan ("Participant") or his beneficiary upon his
death ("Beneficiary") in such manner and at such times as specified in the
Plan;
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plan
as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of 1974;
NOW, THEREFORE, the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment Of Trust
(a) The Employer hereby creates this Trust with the Trustee with the
assets to be held, administered and disposed of by Trustee as provided
in this Trust agreement.
1
<PAGE>
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which the Employer is
the grantor, within the meaning of subpart E, part I, subchapter J,
chapter 1, subtitle A of the Internal Revenue Code of 1986, as
amended, and shall be construed accordingly.
(d) The principal of the Trust, and any earnings thereon shall be held
separate and apart from other funds of the Employer and shall be used
exclusively for the uses and purposes of the Plan Participant, his
Beneficiary and the general creditors of the Employer as herein set
forth.
(e) The Plan Participant and his Beneficiary shall have no preferred claim
on, or any beneficial ownership interest in, any assets of the Trust.
Any rights created under the Plan and this Trust Agreement shall be
mere unsecured contractual rights of the Plan Participant and his
Beneficiary against the Employer. The Plan Participant and his
Beneficiary are enjoined and restrained from anticipating, assigning,
(either at law or in equity), alienating, pledging, transferring,
selling, or otherwise disposing of his or her unsecured contractual
rights and is without power to do so, and no such anticipation,
assignment, transfer, sale or other disposition shall be recognized by
the Trustee, nor shall the same pass any right, title or interest, if
any, of the Plan Participant and his Beneficiary, and none of the
unsecured contractual rights of the Plan Participant and his
Beneficiary shall be subject to the claims of creditors or other
persons, bankruptcy proceedings, or the liabilities or obligations
incurred by the Plan Participant and his Beneficiary.
(f) Any assets held by the Trust will be subject to the claims of the
Employer's general creditors under federal and state law in the event
of Insolvency, as defined in Section 3(a) herein.
(g) Neither the Trustee nor the Plan Participant or his Beneficiary shall
have any right to compel additional deposits to the Trust from the
Employer beyond the amounts set forth in the Plan.
Section 2. Payments to the Plan Participant and his Beneficiaries
(a) The Employer shall deliver to the Trustee a schedule (the "Payment
Schedule") that indicates the amount payable in respect of the Plan
Participant (and his Beneficiary), that provides a formula or other
instructions acceptable to Trustee for determining the amount so
payable, the form in which such amount is to be paid (as provided for
or available under the Plan), and the time of commencement for payment
of such amounts. Except as otherwise provided herein, the Trustee
shall make payments to the Plan Participant and his Beneficiary in
accordance with such Payment Schedule. The Trustee shall make
provision for the reporting and withholding of any federal, state or
local taxes that may be required to be withheld with respect to the
payment of benefits pursuant to the terms of the Plan and shall pay
amounts withheld to the appropriate taxing authorities or determine
that such amounts have been reported, withheld and paid by the
Employer.
2
<PAGE>
(b) The entitlement of the Plan Participant or his Beneficiary to benefits
under the Plan shall be determined pursuant to the terms of the Plan,
and any claim for such benefits shall be considered and reviewed under
the procedures set out in the Plan.
Section 3. Trustee Responsibility Regarding Payments From the Trust
When the Employer Is Insolvent
(a) The Trustee shall cease payment of benefits to the Plan Participant or
his Beneficiary if the Employer becomes Insolvent. The Employer shall
be considered "Insolvent" for purposes of this Trust Agreement if (i)
the Employer is unable to pay its debts, as they become due, or (ii)
the Employer is subject to a pending proceeding as a debtor under the
United States Bankruptcy Code.
(b) At all times during the continuance of this Trust the principal and
income of the Trust shall be subject to claims of general creditors of
the Employer under federal and state law as set forth below:
(i) The Compensation Committee of the Board of Directors of the
Employer shall have the duty to inform the Trustee in writing of
the Employer's Insolvency. If a person claiming to be a creditor
of the Employer alleges in writing to the Trustee that the
Employer has become Insolvent, the Trustee shall determine
whether the Employer is Insolvent and, pending such
determination, shall discontinue payment of benefits to Plan
Participants or their beneficiaries.
(ii) Unless the Trustee has actual knowledge of the Employer's
Insolvency, or has received notice from the Employer or a person
claiming to be a creditor alleging that the Employer is
Insolvent, the Trustee shall have no duty to inquire whether the
Employer is Insolvent. The Trustee may in all events rely on
such evidence concerning the Employer's solvency as may be
furnished to the Trustee and that provides the Trustee with a
reasonable basis for making a determination concerning the
Employer's solvency.
3
<PAGE>
(iii) If at any time the Trustee has determined that the Employer is
Insolvent, the Trustee shall discontinue payments to the Plan
Participant or his Beneficiary and shall hold the assets of the
Trust for the benefit of the Employer's general creditors.
Nothing in this Trust Agreement shall in any way diminish any
rights of the Plan Participant or his Beneficiary to pursue their
rights as general creditors of the Employer with respect to
benefits due under the Plan or otherwise.
(iv) The Trustee shall resume the payment of benefits to the Plan
Participant or his Beneficiary in accordance with Section 2 of
this Trust Agreement only after the Trustee has determined that
the Employer is not Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets, if the Trustee discontinues
the payment of benefits from the Trust pursuant to Section 3(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due the Plan
Participant or his Beneficiary under the terms of the Plan for the period of
such discontinuance, less the aggregate amount of any payments made to the Plan
Participant or his Beneficiary by the Employer in lieu of the payments provided
for hereunder during any such period of discontinuance.
Section 4. Payments to the Employer
Except as provided in Section 3 hereof, the Employer shall have no right or
power to direct Trustee to return to the Employer or to divert to others any of
the trust assets before all payments have been made to the Plan Participant
and his Beneficiary pursuant to the terms of the Plan.
Section 5. Investment Authority
In no event may the Trustee invest in securities (including stock or rights
to acquire stock) or obligations issued by the Employer, other than a de
minimis amount held in common investment vehicles in which the Trustee invests.
All rights associated with assets of the Trust shall be exercised by the
Trustee or by a person designated by the Trustee, and shall in no event be
exercisable by or rest with the Plan Participant.
Section 6. Disposition of Income
During the term of this Trust all income received by the Trust shall be
accumulated and reinvested.
4
<PAGE>
Section 7. Accounting by the Trustee
The Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made,
including such specific records as shall be agreed upon in writing between the
Employer, the Trustee and the Plan Participant (or, in the event of his death
his Beneficiary). Within 180 days following the close of each calendar year
and within 30 days after the removal or resignation of Trustee, Trustee shall
deliver to the Employer and the Plan Participant (or, in the event of his death
his Beneficiary) a written account of its administration of the Trust during
such year or during the period from the close of the last preceding year to the
date of such removal or resignation, setting forth all investments, receipts,
disbursements and other transactions effected by it, including a description of
all securities and investments purchased and sold with the cost or net proceeds
of such purchases or sales (accrued interest paid or receivable being shown
separately), and showing all cash, securities and other property held in the
Trust at the end of such year or as of the date of such removal or resignation,
as the case may be.
Section 8. Responsibility of the Trustee
(a) The Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting
in like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with like aims,
provided, however, that the Trustee shall incur no liability to any
person for any action taken pursuant to a direction, request or
approval given by the Employer which is contemplated by, and in
conformity with, the terms of the Plan or this Trust and is given in
writing by the Employer. In the event of a dispute between the
Employer and a party, the Trustee may apply to a court of competent
jurisdiction to resolve the dispute.
(b) If the Trustee undertakes or defends any litigation arising in
connection with this Trust, the Employer agrees to indemnify the
Trustee against the Trustee's costs, expenses and liabilities
(including, without limitation, attorneys' fees and expenses) relating
thereto and to be primarily liable for such payments. If the Employer
does not pay such costs, expenses and liabilities in a reasonably
timely manner, the Trustee may obtain payment from the Trust.
(c) The Trustee may consult with legal counsel (who may also be counsel
for the Employer generally) with respect to any of its duties or
obligations hereunder.
5
<PAGE>
(d) The Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder.
(e) The Trustee shall have, without exclusion, all powers conferred on
trustees by applicable law, including, without limitation, all powers
conferred by Ark. Code Ann. Section 28-69-116, unless expressly
-------------
provided otherwise herein, provided, however, that if an insurance
policy is held as an asset of the Trust, the Trustee shall have no
power to name a Beneficiary of the policy other than the Trust, to
assign the policy (as distinct from conversion of the policy to a
different form) other than to a successor Trustee, or to loan to any
person the proceeds of any borrowing against such policy.
(f) Notwithstanding any powers granted to Trustee pursuant to this Trust
Agreement or to applicable law, the Trustee shall not have any power
that could give this Trust the objective of carrying on a business and
dividing the gains therefrom, within the meaning of Section 301.7701-2
of the Procedure and Administrative Regulations promulgated pursuant
to the Internal Revenue Code.
Section 9. Compensation and Expenses of Trustee
The Employer shall pay all administrative and Trustee's fees and expenses.
Section 10. Resignation and Removal of the Trustee
(a) The Trustee may resign at any time by written notice to the Employer,
which shall be effective 90 days after receipt of such notice unless
the Employer and Trustee agree otherwise.
(b) The Trustee may be removed by the Employer on 90 days notice or upon
shorter notice accepted by Trustee.
(c) Upon resignation or removal of Trustee and appointment of a successor
Trustee, all assets shall subsequently be transferred to the successor
Trustee. The transfer shall be completed within 90 days after receipt
of notice of resignation, removal or transfer, unless the Employer
extends the time limit.
(d) If the Trustee resigns or is removed, a successor shall be appointed,
in accordance with Section 11 hereof, by the effective date of
resignation or removal under paragraphs (a) or (b) of this section.
If no such appointment has been made, the Trustee may apply to a court
of competent jurisdiction for appointment of a successor or for
instructions. All expenses of Trustee in connection with the
proceeding shall be allowed as administrative expenses of the Trust.
6
<PAGE>
Section 11. Appointment of Successor
(a) If the Trustee resigns or is removed in accordance with Section 10(a)
or (b) hereof, the Employer, with the consent of the Participant, or,
the Beneficiary in the event of the Participant's death, may appoint a
bank trust department or other party that may be granted corporate
trustee powers under state law, as a successor to replace the Trustee
upon resignation or removal. The appointment shall be effective when
accepted in writing by the new Trustee, who shall have all of the
rights and powers of the former Trustee, including ownership rights in
the Trust assets. The former Trustee shall execute any instrument
necessary or reasonably requested by the Employer or the successor
Trustee to evidence the transfer.
(b) The successor Trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing Trust assets,
subject to Sections 7 and 8 hereof. The successor Trustee shall not
be responsible for and the Employer shall indemnify and defend the
successor Trustee from any claim or liability resulting from any
action or inaction of any prior Trustee or from any other past event,
or any condition existing at the time it becomes successor
Trustee.
Section 12. Amendment or Termination
(a) This Trust Agreement may be amended by a written instrument executed
by the Trustee and the Employer, with the consent of the Plan
Participant (or, in the event of his death, his Beneficiary).
Notwithstanding the foregoing, no such amendment shall conflict with
the terms of the Plan or shall make the Trust revocable.
(b) The Trust shall not terminate until the date on which the Plan
Participant and his Beneficiary are no longer entitled to benefits
pursuant to the terms of the Plan.
(c) Upon written approval of the Participant or his Beneficiary entitled
to payment of benefits pursuant to the terms of the Plan, the Employer
may terminate this Trust prior to the time all benefit payments under
the Plan have been made. All assets in the Trust at termination shall
be returned to the Employer.
7
<PAGE>
Section 13. Miscellaneous
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without
invalidating the remaining provisions hereof.
(b) Benefits payable to the Plan Participant and his Beneficiary under
this Trust Agreement may not be anticipated, assigned (either at law
or in equity), alienated, pledged, encumbered or subjected to
attachment, garnishment, levy, execution or other legal or equitable
process.
(c) This Trust Agreement shall be governed by and construed in accordance
with the laws of Arkansas.
IN WITNESS WHEREOF, the parties hereto have executed this Trust Agreement
on the date referred to hereinabove.
EMPLOYER:
FIRST COMMERCIAL CORPORATION
By: /s/ Sam C. Sowell
------------------------------------
Sam C. Sowell
Title: Director
Chairman, Compensation Committee
---------------------------------
TRUSTEE:
FIRST COMMERCIAL TRUST COMPANY, N.A.
By: /s/ Mike O'Brien
------------------------------------
Mike O'Brien
Title: President and Chief Executive
Officer
---------------------------------
8
<PAGE>
EXHIBIT 11
FIRST COMMERCIAL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(Dollars in thousands, except per share data)
For the Years Ended December 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
Net income $ 56,910 $ 50,308 $ 45,965
Less: Preferred stock dividend - 129 1,210
---------- ---------- ----------
Income applicable to common shares $ 56,910 $ 50,179 $ 44,755
========== ========== ==========
Weighted average number of common shares
outstanding during the period 26,221,023 25,607,960 25,714,354
Earnings per common share $2.17 $1.96 $1.74
<PAGE>13-29
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
Financial Performance Summary
The Company reported record earnings for 1995 of $2.17 per share, compared
to $1.96 and $1.74 for the years ended 1994 and 1993, respectively. Net income
for 1995 of $56.9 million represented a 13% increase over 1994 net income of
$50.3 million. Net income for 1993 was $46.0 million. Return on average
assets in 1995 was 1.22%, up from 1.19% in 1994 and 1.21% in 1993. Return on
average equity was 15.02%, representing steady growth from 1994 and 1993 levels
of 14.87% and 14.43%, respectively.
The following discussion provides a comparison of profitability, balance
sheet and asset quality for the past three years. The consolidated financial
statements and accompanying notes should be reviewed carefully to provide a
complete analysis of the Company's financial condition and results of
operations. All share and per share data in this report have been
retroactively adjusted for a 3 for 2 stock split in the form of a stock
dividend declared November 1993, a five percent stock dividend declared
November 1994, and a seven percent stock dividend declared November 1995. On
November 30, 1995, the Company acquired FDH Bancshares, Inc., ("FDH") and West-
Ark Bancshares, Inc., ("West-Ark"). The FDH acquisition was accounted for as a
purchase and accordingly, the results of operations were consolidated with
those of the Company from the date of acquisition. The West-Ark acquisition
was accounted for as a pooling-of-interests. The results of West-Ark are
included in the consolidated financial statements for 1995, however prior
period financial data has not been restated due to immateriality. These
factors should be considered when making comparisons to 1994 and 1993.
Profitability
When evaluating the earnings performance of a banking organization, two
profitability ratios are important standards of measurement: return on average
assets and return on average stockholders' equity. Return on average assets
measures net income in relation to total average assets and portrays the
organization's ability to profitably employ its resources. Return on average
assets for 1995 was 1.22% compared to 1.19% in 1994 and 1.21% in 1993. The
lower return in 1994 resulted primarily from the performance of the Company's
original four East Texas banks purchased in 1993. The improvement in 1995
reflects the positive effect of their conversion to community banks, thereby
increasing their return on assets ratios.
The second profitability ratio is return on average common stockholders'
equity. This ratio reflects how effectively a company has been able to
generate earnings on the capital invested by its stockholders. The Company's
return on average common stockholders' equity was 15.02% in 1995, 14.87% in
1994, and 14.43% in 1993. The originally reported ratio in 1993, before
restatements for pooling acquisitions, for return on average stockholders'
equity was above 15%. The ratio fell due to the high capital level of State
First Financial Corporation, a pooling-of-interests acquisition, which was
consummated in March 1994. The improvement is indicative of the Company's
successful deployment of this capital, combined with strong earnings growth.
<PAGE>13-29
The internal generation of capital is one of the prime contributors to the
strong capital position that the Company has benefited from during the past
three years. The primary factors contributing to increased earnings during the
past three years have been a strong interest margin, lower provision for loan
loss expense due to an improvement in asset quality and consistent increases in
non-interest income accompanied by careful monitoring of non-interest expenses,
so as to control and minimize these costs.
===============================================================================
<TABLE>
<CAPTION>
Contribution to Earnings Per Common Share
(Net of Marginal Federal Tax Rate of 35%)
For the Years EPS Increase
Ended December 31, (Decrease)
-------------------------- -----------------
1994 to 1993 to
1995 1994 1993 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net interest income............................. $ 4.57 $ 4.05 $ 3.65 $ .52 $ .40
Provision for possible loan and
lease losses.................................. (.08) .08 (.11) (.16) .19
Trust department income......................... .28 .28 .26 - .02
Mortgage servicing fee income................... .55 .41 .33 .14 .08
Broker-dealer operations income................. .07 .04 .05 .03 (.01)
Service charges on deposits..................... .55 .51 .45 .04 .06
Other service charges and fees.................. .23 .20 .17 .03 .03
Investment securities gains
(losses), net................................. (.01) - .01 (.01) (.01)
Other real estate gains
(losses), net................................. (.01) .11 - (.12) .11
Other income.................................... .17 .18 .22 (.01) (.04)
Salaries, wages and employee
benefits...................................... (1.98) (1.90) (1.69) (.08) (.21)
Net occupancy................................... (.27) (.25) (.27) (.02) .02
Equipment....................................... (.26) (.23) (.20) (.03) (.03)
FDIC insurance.................................. (.18) (.22) (.19) .04 (.03)
Amortization of purchased
mortgage servicing rights..................... (.19) (.14) (.11) (.05) (.03)
First Commercial Trust Company
lawsuit settlement............................ - (.16) - .16 (.16)
Other expense................................... (1.33) (1.07) (.95) (.26) (.12)
Tax-exempt income and credits................... .06 .08 .17 (.02) (.09)
Preferred stock dividends....................... - (.01) (.05) .01 .04
-------- -------- -------- -------- --------
Net income...................................... $ 2.17 $ 1.96 $ 1.74 $ .21 $ .22
======== ======== ======== ======== ========
</TABLE>
===============================================================================
Acquisitions
The Company's continued record earnings, asset and market share growth
during 1995 resulted from both internal growth and acquisition activity. The
Company has experienced numerous acquisitions during the past three years,
which are highlighted below.
<PAGE>13-29
On February 13, 1993, the Company acquired certain assets and assumed
certain liabilities, through the Federal Deposit Insurance Corporation, of New
First City, Texas - Tyler, N.A., and New First City, Texas - Lufkin, N.A., two
banks remaining from the failed First City Bancorporation of Texas, Inc. New
First City, Texas - Tyler had approximately $226 million in assets, $71 million
in loans, and $204 million in deposits. New First City, Texas - Lufkin had
approximately $140 million in assets, $40 million in loans, and $128 million in
deposits. These two banks have been subsequently renamed Tyler Bank and Trust,
N.A., and Lufkin National Bank. These acquisitions were accounted for as
purchases and resulted in related intangibles of approximately $2.2 million and
$1.9 million, respectively, for these two banks. All financial information of
the Company includes these two banks since the acquisition date.
On June 1, 1993, the Company acquired First City, Inc., parent company of
First City National Bank in Memphis, Tennessee. The transaction involved the
issuance of 358,058 Company common shares for all outstanding shares of First
City, Inc., and was accounted for as a pooling-of-interests transaction.
Accordingly, all prior period financial data has been restated. First City,
Inc., had total assets of approximately $40 million, total loans of
approximately $20 million, and total deposits of approximately $34 million.
First City National Bank was merged with First Commercial Bank, N.A., of
Memphis, Tennessee, an affiliate of the Company, on December 31, 1993.
On November 1, 1993, the Company acquired the Texas Commerce Banks in
Longview and Nacogdoches, Texas, with a purchase premium of $7.8 million.
Texas Commerce Bank - Longview had approximately $178 million in assets, $155
million in deposits, and $31 million in loans. Stone Fort National Bank of
Nacogdoches had approximately $115 million in assets, $106 million in deposits,
and $53 million in loans. Texas Commerce Bank - Longview has been subsequently
renamed Longview National Bank. All financial information of the Company
includes these two banks since the acquisition date.
On January 14, 1994, the Company acquired all of the outstanding stock of
Clinton Bancshares, Inc., Clinton, Arkansas, parent company of Clinton State
Bank, in exchange for 305,675 Company common shares. This transaction was
accounted for as a pooling-of-interests, and accordingly, all prior period
financial data has been restated to include this acquisition. Clinton
Bancshares, Inc., had approximately $63 million in assets, $27 million in
loans, and $58 million in deposits.
On March 10, 1994, the Company completed affiliation with State First
Financial Corporation through an exchange of 5,674,415 Company common shares
for all outstanding shares of State First Financial Corporation. State First
Financial Corporation is the parent company of The State First National Bank of
Texarkana, Arkansas, American National Bank of Texarkana, Texas, First National
Bank of Ashdown, Arkansas, The Atlanta National Bank, Atlanta, Texas, and First
National Bank of Nashville, Arkansas. State First Financial Corporation had
assets of approximately $725 million, loans of approximately $350 million, and
deposits of approximately $650 million. This transaction was accounted for as
a pooling-of-interests, and accordingly, all prior period financial data has
been restated.
<PAGE>13-29
On August 5, 1994, the Company acquired United American Bancshares, Inc.,
parent company of First National Bank of Palestine, Texas, for $11.1 million.
United American Bancshares, Inc., had total assets of approximately $93
million, total loans of approximately $33 million, and total deposits of
approximately $84 million. This transaction was accounted for as a purchase,
and accordingly, the results of operations were consolidated with those of the
Company from the date of acquisition. The assets and liabilities of United
American Bancshares, Inc., were adjusted to fair value at the purchase date,
resulting in an excess cost over fair value of $3.3 million.
On September 15, 1994, the Company acquired Kilgore First Bancorp, Inc.,
parent company of Kilgore First National Bank, Kilgore, Texas, for $14.8
million. Kilgore First Bancorp, Inc., had approximately $133 million in
assets, $61 million in loans, and $122 million in deposits. This transaction
was accounted for as a purchase, and accordingly, the results of operations
were consolidated with those of the Company from the date of acquisition. The
assets and liabilities of Kilgore First Bancorp, Inc., were adjusted to fair
value at the purchase date, resulting in an excess cost over fair value of $4.1
million.
On November 30, 1995, the Company acquired all the outstanding common stock
of FDH Bancshares, Inc., in exchange for 1,349,215 Company common shares. FDH
Bancshares, Inc., which was merged into the Company, was the parent company of
Citizens First Bank, Little Rock, Arkansas; Citizens First Bank, El Dorado,
Arkansas; Citizens First Bank, Fordyce, Arkansas; Citizens First Bank,
Arkadelphia, Arkansas; and Springhill Bancshares, Inc., parent company of
Springhill Bank & Trust Company, Springhill, Louisiana. FDH Bancshares, Inc.,
had approximately $375 million in assets, $206 million in loans, and $330
million in deposits. This transaction was accounted for as a purchase, and
accordingly, the results of operations were consolidated with those of the
Company from the date of acquisition. The assets and liabilities of FDH
Bancshares, Inc., were adjusted to fair value at the purchase date, resulting
in an excess cost over fair value of $14.7 million. Citizens First Bank,
Little Rock, Arkansas, was merged into the Company's Little Rock bank
affiliate, First Commercial Bank, N.A.
On November 30, 1995, the Company acquired all of the outstanding common
stock of West-Ark Bancshares, Inc., Clarksville, Arkansas, parent company of
Arkansas State Bank, in exchange for 689,106 Company common shares. This
transaction was accounted for as a pooling-of-interests. The results of West-
Ark Bancshares, Inc., are included in the consolidated financial statements for
1995, however, prior period financial data has not been restated due to
immateriality. West-Ark Bancshares, Inc., had approximately $159 million in
assets, $107 million in loans, and $146 million in deposits.
During 1996 the Company will continue its acquisition strategy of exploring
the expansion of existing markets as well as analyzing opportunities to enter
additional geographic areas. Potential affiliates are evaluated on the basis
of the quality of their markets and the Company's ability to negotiate
transactions without permanent earnings per share or book value dilution.
<PAGE>13-29
The Riegle-Neal Interstate Banking and Branching Efficiency Act, which was
enacted in 1994, was the basis for an agency agreement between the Company's
affiliates in Texarkana, Arkansas, and Texarkana, Texas. On October 1, 1995,
First National Bank, Ashdown, Arkansas, merged into State First National Bank,
Texarkana, Arkansas, and The Atlanta National Bank, Atlanta, Texas, merged into
American National Bank, Texarkana, Texas, which then adopted the name State
First National Bank. The agency agreement has enabled all State First customers
to transact business at any of either bank's locations. Due to its common
sense approach to banking consolidation, the Riegle-Neal Act is expected to be
of further benefit to the Company's strategy of expanding services to its
customers.
===============================================================================
<TABLE>
<CAPTION>
Six-Year Financial Summary
(In Thousands Except for Per Share Data) Five-Year
Compound
Annual
Growth
Year Ended December 31, Rate
---------------------------------------------------------------------- ----------
1995 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income............. $ 322,182 $ 257,751 $ 234,995 $ 232,098 $ 247,858 $ 232,410 7%
Interest expense............ 137,632 98,306 90,421 98,690 128,802 129,236 1%
---------- ---------- ---------- ---------- ---------- ----------
Net interest income......... 184,550 159,445 144,574 133,408 119,056 103,174 12%
Provision for possible
loan and lease losses..... 3,059 (3,092) 4,416 8,941 9,992 10,112 (21%)
---------- ---------- ---------- ---------- ---------- ----------
Net interest income after
after provision for
possible possible loan
and lease losses.......... 181,491 162,537 140,158 124,467 109,064 93,062 14%
Other income................ 73,988 68,652 58,957 51,182 46,056 37,212 15%
Other expenses.............. 170,306 156,875 135,191 118,882 108,530 95,067 12%
---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes.. 85,173 74,314 63,924 56,767 46,590 35,207 19%
Income tax provision........ 28,263 24,006 17,959 16,800 12,629 9,264 25%
---------- ---------- ---------- ---------- ---------- ----------
Net income.................. $ 56,910 $ 50,308 $ 45,965 $ 39,967 $ 33,961 $ 25,943 17%
========== ========== ========== ========== ========== ==========
Earnings per common share... $ 2.17 $ 1.96 $ 1.74 $ 1.52 $ 1.35 $ 1.09 16%
Earnings per common share,
as originally reported.... 2.17 1.96 1.84 1.67 1.49 1.27 12%
Cash dividends per share.... 0.78 0.67 0.54 0.42 0.36 0.30 24%
Year End Financial Position
Total loans and leases...... $3,215,562 $2,534,793 $2,191,190 $1,798,898 $1,725,957 $1,573,349 15%
Total assets................ 5,360,940 4,374,199 4,199,430 3,368,086 3,322,040 2,767,012 14%
Total deposits.............. 4,630,541 3,825,360 3,756,680 2,997,783 2,972,337 2,466,919 13%
Long-term debt.............. 7,170 8,243 20,389 23,287 28,625 32,518 (26%)
Stockholders' equity........ 432,259 343,191 336,845 297,508 267,259 210,550 15%
</TABLE>
===============================================================================
<PAGE>13-29
===============================================================================
<TABLE>
<CAPTION>
Analysis of Selected Financial Statistics
For the Years Ended December 31,
--------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Profitability
Net interest margin........................................ 4.53% 4.26% 4.28%
Efficiency ratio*.......................................... 62.01% 62.37% 61.32%
Return on average common stockholders' equity.............. 15.02% 14.87% 14.43%
Return on average assets................................... 1.22% 1.19% 1.21%
Earnings per common share.................................. $ 2.17 $ 1.96 $ 1.74
Cash dividends paid........................................ $ .78 $ .67 $ .54
Dividend payout ratio...................................... 35.77% 33.97% 29.98%
Capital Adequacy
Total stockholders' equity to assets....................... 8.06% 7.85% 8.02%
Tier I capital to assets................................... 7.31% 7.50% 7.65%
Tier I capital to risk-adjusted assets..................... 11.31% 12.56% 13.92%
Total capital to risk-adjusted assets...................... 12.14% 13.33% 15.36%
Asset Quality
Net charge-offs to average loans and leases................ .08% .04% .16%
Allowance for possible loan and lease
losses to total loans and leases......................... 1.60% 1.79% 2.19%
Non-performing loans to total loans and leases............. .54% .52% .72%
Non-performing assets to total loans and
leases and other real estate............................. .42% .51% 1.20%
Allowance for possible loan and lease
losses to non-performing loans........................... 294.42% 340.82% 306.26%
Allowance for possible loan and lease losses and other real
estate losses to non-performing assets................... 376.30% 347.35% 183.62%
</TABLE>
*Excludes effect of First Commercial Mortgage Company and, for 1994 and 1993,
the 1993 Texas bank acquisitions.
===============================================================================
Net Interest Income
In this discussion, net interest income is presented on a fully tax-
equivalent basis. This permits comparability of data through recognition of
the tax savings realized on tax-exempt earnings. Net interest income on a tax-
equivalent basis was $188.0 million in 1995, versus $163.1 million in 1994 and
$148.3 million in 1993. The $25.0 million increase in 1995 is due to the 1994
third quarter acquisitions in Palestine and Kilgore, Texas, and the 1995
acquisitions of FDH Bancshares, Inc., and West-Ark Bancshares, Inc. In
addition, there was a general repricing of the loan portfolio resulting in an
increase in the average loan yield from 7.98% in 1994 to 8.82% in 1995. The
primary reason for the 1994 increase of $14.7 million is the addition in fourth
quarter 1993 of the two Texas Commerce banks and in third quarter 1994 of the
banks in Palestine and Kilgore, Texas, all of which were accounted for as
purchases. The Company's net interest spread increased from 3.64% for 1994 to
3.78% for 1995, while net interest margin increased from 4.26% for 1994 to
4.53% for 1995. Net interest spread represents the difference between the
rates earned on assets and the rates paid on liabilities. Net interest margin
measures the net interest income earned as a percentage of earning assets.
<PAGE>13-29
Net interest spread and net interest margin increased over 1994 and 1993
due to several reasons. The increase in 1995 resulted from the loan portfolio
repricing combined with a 20.6% growth in average loans and leases from 1994 to
1995. The loan growth was due to internal growth, 15.8%, and acquisitions,
4.8%. During 1994, the Company reversed the declining interest margin trend it
experienced in 1993 as the original four East Texas affiliates experienced
significant loan growth, strengthening their low loan to deposit ratios and
improving their margin. Also, the third quarter 1994 acquisitions of the banks
in Palestine and Kilgore, Texas, brought additional loan volumes and higher net
interest margins to the Company.
===============================================================================
<TABLE>
<CAPTION>
Analysis of Net Interest Income (FTE = Fully Tax-Equivalent)
(Dollars in Thousands)
For the Years Ended December 31,
--------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Interest income.............................................. $ 322,182 $ 257,751 $ 234,995
Fully tax-equivalent adjustment.............................. 3,472 3,618 3,775
---------- ---------- ----------
Interest income - FTE........................................ 325,654 261,369 238,770
Interest expense............................................. 137,632 98,306 90,421
---------- ---------- ----------
Net interest income - FTE.................................... $ 188,022 $ 163,063 $ 148,349
========== ========== ==========
Yield on earning assets - FTE................................ 7.85% 6.82% 6.89%
Cost of interest bearing liabilities......................... 4.07% 3.18% 3.23%
Net interest spread - FTE.................................... 3.78% 3.64% 3.66%
Net interest margin - FTE.................................... 4.53% 4.26% 4.28%
</TABLE>
===============================================================================
<PAGE>13-29
<TABLE>=======================================================================================================
<CAPTION>
Average Balances and Interest Rates
(Dollars in Thousands) 1995 1994 1993
--------------------------- --------------------------- ---------------------------
Tax Equiv. Int. Tax Equiv. Int. Tax Equiv. Int.
---------------- ---------------- ----------------
Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/ Yield/
Balance Expense Cost Balance Expense Cost Balance Expense Cost
ASSETS ---------- -------- ------- ---------- -------- ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets
Short-term investments.... $ 75,174 $ 4,666 6.21% $ 101,037 $ 4,192 4.15% $ 117,123 $ 3,512 3.00%
Trading account securities 245 4 1.63 431 22 5.10 299 19 6.35
Investment securities
- taxable................ 1,125,656 62,907 5.59 1,264,305 60,582 4.79 1,187,448 58,660 4.94
- non-taxable............ 146,613 10,934 7.46 139,579 11,097 7.95 134,929 11,273 8.35
Loans and leases, net of
unearned income.......... 2,802,874 247,143 8.82 2,324,668 185,476 7.98 2,024,062 165,306 8.17
---------- -------- ---------- -------- ---------- --------
Total earning assets.... 4,150,562 325,654 7.85 3,830,020 261,369 6.82 3,463,861 238,770 6.89
---------- -------- ---------- -------- ---------- --------
Allowance for possible
loan and lease losses.... (47,263) (49,020) (43,543)
Non-earning assets
Cash and due from banks.. 307,431 249,804 219,956
Bank premises and equip.. 93,663 81,814 53,540
Other real estate owned.. 2,542 6,634 16,406
Other assets............. 145,433 116,334 102,189
---------- ---------- ----------
Total assets.............. $4,652,368 $4,235,586 $3,812,409
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUTIY
Interest bearing liabilities
Interest bearing transaction
and savings accounts..... $1,476,193 36,638 2.48 $1,485,680 34,736 2.34 $1,302,791 31,715 2.43
Certificates of deposit
$100,000 and over........ 398,962 17,354 4.35 336,528 11,704 3.48 253,817 10,472 4.13
Other time deposits....... 1,321,091 72,300 5.47 1,169,626 47,069 4.02 1,194,074 45,147 3.78
Short-term borrowings..... 177,067 10,544 5.95 89,381 4,094 4.58 28,450 882 3.10
Long-term debt............ 9,197 796 8.65 9,332 703 7.53 22,340 2,205 9.87
---------- -------- ---------- -------- ---------- --------
Total int bearing liab... 3,382,510 137,632 4.07 3,090,547 98,306 3.18 2,801,472 90,421 3.23
---------- -------- ---------- -------- ---------- --------
Non-interest bearing liabilities
Non-interest bearing
transaction accounts..... 848,662 772,060 656,075
Other liabilities......... 42,389 33,735 33,990
---------- ---------- ----------
Total liabilities........ 4,273,561 3,896,342 3,491,537
Preferred stock - 1,687 10,620
Common stockholders' equity 378,807 337,557 310,252
---------- ---------- ----------
Total liabilities and
stockholders' equity...... $4,652,368 $4,235,586 $3,812,409
Net revenue from ========== ========== ==========
earning assets........... $188,022 $163,063 $148,349
Net yield on earning assets 4.53% 4.26% 4.28%
</TABLE>
<PAGE>13-29
NOTE: Interest income on tax-exempt securities, loans and leases is calculated
on a tax-equivalent basis, using a federal marginal income tax rate of 35%, and
is reduced for non-deductible carrying interest. Loan balances include non-
accrual loans. See Note 1 of Notes to Consolidated Financial Statements for a
description of the income recognition policy.
===============================================================================
===============================================================================
<TABLE>
<CAPTION>
Analysis of Changes in Net Revenue from Earning Assets
(Dollars in Thousands)
Change from 1994 to 1995 Change from 1993 to 1994
-------------------------- --------------------------
Increase (Decrease) Increase (Decrease)
-------------------------- --------------------------
Due to Due to
Due to Yield/ Due to Yield/
Volume Cost Total Volume Cost Total
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue from earning assets
Short-term investments................ $ (1,605)$ 2,079 $ 474 $ (667)$ 1,347 $ 680
Trading account securities............ (3) (15) (18) 7 (4) 3
Investment securities................. (7,639) 9,801 2,162 4,162 (2,416) 1,746
Loans and leases, net of
unearned income..................... 42,166 19,501 61,667 23,984 (3,814) 20,170
-------- -------- -------- -------- -------- --------
Change in revenue from
earning assets........................ 32,919 31,366 64,285 27,486 (4,887) 22,599
-------- -------- -------- -------- -------- --------
Expense for interest bearing liabilities
Interest bearing transaction
and savings accounts................ (235) 2,137 1,902 4,276 (1,255) 3,021
Certificates of deposit
$100,000 and over..................... 2,716 2,934 5,650 2,877 (1,645) 1,232
Other time deposits................... 8,289 16,942 25,231 (984) 2,906 1,922
Short-term borrowings................. 5,222 1,228 6,450 2,791 421 3,212
Long-term debt........................ (12) 105 93 (980) (522) (1,502)
-------- -------- -------- -------- -------- --------
Change in interest expense.............. 15,980 23,346 39,326 7,980 (95) 7,885
-------- -------- -------- -------- -------- --------
Change in net revenue from
earning assets........................ $ 16,939 $ 8,020 $ 24,959 $ 19,506 $ (4,792)$ 14,714
======== ======== ======== ======== ======== ========
</TABLE>
NOTE: Interest income on tax-exempt securities, loans and leases is calculated
on a tax-equivalent basis, using a federal marginal income tax rate of 35%, and
is reduced for non-deductible carrying interest. Loan balances include non-
performing loans. See Note 1 of Notes to Consolidated Financial Statements for
a description of the income recognition policy for such loans. Changes not
solely due to volume or rate changes are allocated to rate.
===============================================================================
The Arkansas usury law, which applies to all of the Company's Arkansas
affiliates, currently limits interest rates on all credit classifications,
except single-family mortgages, to the St. Louis Federal Reserve Bank's
discount rate plus 5%. There is a rate cap of the lesser of 17% or the
discount rate plus 5% on consumer credit under the current law.
<PAGE>13-29
Management has and will continue to monitor the interest sensitivity
position of the Company, so as to strategically balance assets and liabilities
to minimize the effects associated with changes in the interest rate
environment on the net interest margin and interest spread of the Company.
One process for achieving this balance is to manage the adjusted interest
sensitivity gap of the Company. Due to the large amount of loans subject to
Arkansas usury statutes and the effect those statutes have on loan terms and
structures, the Company has traditionally focused on its six month adjusted gap
ratio with the target range being .90 to 1.10. The Company may move within
this range to optimize the tradeoff between the competitive market level of
loan rates and the statutory cap rates which would be applicable to both fixed
and variable rate loans. The Company has traditionally used net interest
revenue simulation modeling with a variety of interest rate scenarios for
certain of its large affiliate banks. During 1995, a new modeling system was
introduced, providing additional capacity for the entire Company in regard to
net interest revenue and duration simulation. During 1996, the Company will
also use the new system to monitor economic valuation risk by measuring the
sensitivity of the economic value of the Company's equity. The data used in
the interest rate sensitivity analysis table on page 20 is based on repricing
terms, rather than actual contractual maturities. As the table indicates, the
Company is liability sensitive on a cumulative basis at both the six month and
one year time periods. However, this static gap analysis considers only the
dollar volumes of assets and liabilities to be repriced, while changes in net
interest income are determined not only by the volumes being repriced, but also
by the rates at which the assets and liabilities are repriced. For example,
while savings, NOW, and money market accounts are shown as being immediately
repriceable, the rates paid on these accounts tend to have a relatively low
sensitivity to market interest rates. Adjusting these and other balance sheet
categories for their estimated sensitivity results in the Company having a
ratio of cumulative rate sensitive assets to cumulative rate sensitive
liabilities of .99 at the six month period and 1.12 at the one year time
period. The Company also reviews the gap position for periods in excess of one
year, comparing certain longer term fixed rate assets to certain liabilities
and equity.
<PAGE>13-29
===============================================================================
<TABLE>
<CAPTION>
Interest Rate Sensitivity Period
(Dollars in thousands) ----------------------------------------------------------------------------
0 - 30 31 - 90 91 - 180 181 - 365 1 to 5 Over 5
Days Days Days Days Years Years Total
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Earning assets:
Short-term investments......... $ 108,181 $ -- $ -- $ -- $ -- $ -- $ 108,181
Trading account securities..... 449 -- -- -- -- -- 449
Taxable investment securities.. 171,329 137,434 159,061 233,504 333,123 149,579 1,184,030
Tax-exempt investment securities 1,297 6,760 4,586 9,275 79,358 39,238 140,514
Loans and leases............... 800,936 227,042 292,447 477,811 935,529 481,797 3,215,562
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total earning assets........... 1,082,192 371,236 456,094 720,590 1,348,010 670,614 4,648,736
Interest bearing liabilities:
Savings and NOW accounts....... 1,040,457 -- -- -- -- -- 1,040,457
Money market accounts.......... 571,837 -- -- -- -- -- 571,837
Other time deposits............ 324,463 329,813 376,975 367,934 348,724 252,157 2,000,066
Short-term borrowings.......... 235,378 -- -- -- -- -- 235,378
Long-term debt................. -- -- 1,071 2 1,079 5,018 7,170
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total interest bearing
liabilities.................. 2,172,135 329,813 378,046 367,936 349,803 257,175 3,854,908
Interest rate
sensitivity gap.............. (1,089,943) 41,423 78,048 352,654 998,207 413,439
Cumulative interest rate
sensitivity gap.............. (1,089,943)(1,048,520) (970,472) (617,818) 380,389 793,828
Cumulative rate sensitive assets
to rate sensitive liabilities 49.8% 58.1% 66.3% 81.0% 110.6% 120.6%
Cumulative gap as a percentage
of earning assets............ (23.4%) (22.6%) (20.9%) (13.3%) 8.2% 17.1%
</TABLE>
===============================================================================
Non-Interest Income
In addition to the net interest income increases, the Company has continued
to expand and develop its sources of non-interest income. The primary sources
of sustainable non-interest income are trust services, service charges on
deposit accounts, mortgage services and bond trading activities. During 1995,
non-interest income increased 7.8% from $68.7 million for 1994 to $74.0
million. Excluding the other real estate and investment securities gains and
losses in 1995 and 1994, non-interest income increased $10.7 million, or 16.6%.
The primary contributors to this increase were the acquisitions in late 1994
and late 1995, an increased mortgage servicing portfolio, and service charges
from the 1995 purchase of consumer credit card loan participations. The
Company's mortgage banking subsidiary continued its strong performance during
1995, with an increase in servicing fees of $6.0 million due to several
<PAGE>13-29
acquisitions of loan servicing rights during 1995. In September 1995, First
Commercial Mortgage Company purchased from the former National Home Mortgage
Company in San Diego, California, loan servicing rights on approximately 60,000
mortgages exceeding $5 billion. In addition, purchases of servicing rights from
the former Brumbaugh and Fulton Mortgage Company of Tulsa, Oklahoma, and J.I.
Kislak Mortgage Corporation, Miami, Florida, were consummated in April and
October, respectively. The total servicing portfolio at December 31, 1995, was
$7.6 billion with an unamortized cost of purchased mortgage servicing rights of
$55.9 million, compared to December 31, 1994, levels of $2.7 billion and $9.0
million, respectively.
First Commercial Mortgage Company's operations are affected by interest
rate fluctuations and market factors. Lower long-term interest rates normally
increase new mortgage loan production volume, which in turn increases fee
income and net interest income as a result of the higher average volume of
mortgages held for sale. Lower long-term rates also increase prepayment speeds
of mortgages on which purchased mortgage servicing rights (PMSRs) are currently
held, which lower yields realized on the Company's investment in PMSRs.
Increased prepayment speeds also accelerate paid in full (PIF) interest expense
owed to certain investors. PIF interest is the partial monthly interest in the
month of payoff that is not payable by the mortgagor, but is receivable by the
mortgage security holder.
Higher long-term interest rates normally decrease the general volume of new
mortgage originations, decreasing the volume of mortgages held for sale. These
conditions result in reduced fee income and reduced net interest income.
However, the Company's average net yield as a percentage of the balance held
may increase if short-term rates do not change by a corresponding degree.
Higher long-term rates also decrease the prepayment speed of mortgages on which
PMSRs are currently held, which in turn would increase the yield on the
Company's investment in PMSRs. Decreased prepayment speeds will also decrease
PIF interest expense due to loans which pay off.
The value of the Company's loan servicing portfolio may be adversely
affected if mortgage interest rates decline and loan prepayments increase.
Periods of accelerated prepayments may result in future declines of income
generated from the Company's loan servicing portfolio. Conversely, if mortgage
interest rates increase, the value of the Company's loan servicing portfolio
may be positively affected.
During 1994, non-interest income increased from $59.0 million for 1993 to
$68.7 million. The increase in 1994 was due to net gains on sales of other
real estate owned and the 1993 fourth quarter addition of the two Texas
Commerce banks and the 1994 purchases of the banks in Palestine and Kilgore,
Texas. The mortgage banking subsidiary also contributed to increased non-
interest income through servicing fees from a large acquisition of servicing
rights late in 1993.
<PAGE>13-29
===============================================================================
<TABLE>
<CAPTION>
Net Interest Income For the Years
(Dollars in Thousands) Ended December 31, 1995 1994
------------------------------ Change from Change from
1995 1994 1993 1994 1993
-------- -------- -------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Trust department income.......... $ 11,424 $ 10,904 $ 10,340 $ 520 4.77% $ 564 5.45%
Mortgage servicing fee income.... 22,312 16,340 12,905 5,972 36.55 3,435 26.62
Broker-dealer operations income.. 2,982 1,727 2,069 1,255 72.67 (342) (16.53)
Service charges on deposits...... 22,192 20,131 17,965 2,061 10.24 2,166 12.06
Other service charges and fees... 9,149 7,964 6,952 1,185 14.88 1,012 14.56
Investment securities gains
(losses), net.................. (440) 139 221 (579) (416.55) (82) (37.10)
Other real estate gains
(losses), net.................. (303) 4,413 (89) (4,743) (107.48) 4,502 5058.43
Other income..................... 6,699 7,034 8,594 (335) (4.76) (1,560) (18.15)
-------- -------- -------- -------- --------
Total non-interest income........ $ 73,988 $ 68,652 $ 58,957 $ 5,336 7.77% $ 9,695 16.44%
======== ======== ======== ======== ========
</TABLE>
===============================================================================
Non-Interest Expense
Non-interest expenses consist of salaries and benefits, occupancy,
equipment and other expenses such as legal, postage, etc., necessary for the
operation of the Company. Management is committed to controlling and even
reducing the level of non-interest expenses through improved efficiency and
consolidation of certain activities to achieve economies of scale without
sacrificing quality service for our customers.
Non-interest expense increased $13.4 million in 1995. Excluding the 1994
expenses associated with the settlement of the 1994 class action lawsuit by
First Commercial Trust Company, non-interest expense increased $19.7 million.
The primary contributors to this increase were costs associated with the
purchase of consumer credit card loan participations and First Commercial
Mortgage Company's expansion of mortgage loan servicing activities, the
acquisitions in late 1994 and late 1995, and expense accruals relating to data
processing conversions, legal expenses and charitable contributions. Excluding
the effect of the 1994 and 1995 bank purchases and mortgage acquisitions and
the non-recurring expense accruals, non-interest expense increased by $2.7
million, which represents an increase from 1994 of 2%.
Non-interest expense increased $21.7 million in 1994, of which $9.1 million
is a result of the Texas bank acquisitions in 1994 and the fourth quarter of
1993. Of the remaining $12.6 million, $6.3 million represents the settlement,
net of insurance proceeds, of a 1994 class action lawsuit involving First
Commercial Trust Company, N.A.'s, investment of customers' moneys in certain
mutual funds containing derivative securities. The total cost of the
settlement was $7.5 million in payments to the customers and approximately
$1.75 million in attorneys' fees and other costs, less $3 million in insurance
coverage. Also in 1994, the Company paid off its subordinated capital notes,
resulting in an expense of $969 thousand, and experienced increased
amortization expense in connection with a large acquisition of mortgage
servicing rights at the end of 1993. Excluding the effect of the four Texas
<PAGE>13-29
bank purchases, the non-recurring expenses and the amortization of mortgage
servicing rights, non-interest expense increased by $3.8 million, which
represents an increase from 1993 of 3%.
An important tool in determining a bank's effectiveness in managing non-
interest expenses is the efficiency ratio, which is calculated by dividing non-
interest expense by the sum of net interest margin on a tax-equivalent basis
and non-interest income, excluding securities gains and losses. The Company's
ratio decreased from 62.37% in 1994 to 62.01% in 1995. The Company, in
calculating its efficiency ratio has excluded the effect of the non-recurring
income and expenses noted above as well as the effect of the Company's mortgage
banking subsidiary, due to the high volumes and labor intensive activities
associated with the mortgage servicing line of business. Additionally, the
expenses related to the four Texas bank acquisitions in 1993 have been excluded
from the 1994 calculation, as the financial results of these institutions were
not necessarily representative of the Company's operations. The decrease in
the efficiency ratio shows the Company's commitment to controlling non-interest
expense and its progress toward the challenging long-term goal set by
management of a 57% efficiency ratio. For a detailed analysis of the dollar
and percent changes in non-interest expenses, see the accompanying table.
===============================================================================
<TABLE>
<CAPTION>
Non-Interest Expenses For the Years
(Dollars in Thousands) Ended December 31, 1995 1994
------------------------------ Change from Change from
1995 1994 1993 1994 1993
-------- -------- -------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries, wages and employee
benefits........................ $ 79,878 $ 74,981 $ 67,031 $ 4,897 6.53% $ 7,950 11.86%
Net occupancy.................... 11,016 9,947 10,486 1,069 10.75 (539) (5.14)
Equipment........................ 10,700 9,149 8,013 1,551 16.95 1,136 14.18
FDIC insurance................... 7,371 8,639 7,396 (1,268) (14.68) 1,243 16.81
Amortization of purchased
mortgage servicing rights....... 7,634 5,541 4,498 2,093 37.77 1,043 23.19
First Commercial Trust Company
lawsuit settlement.............. - 6,257 - (6,257) - 6,257 -
Other expenses................... 53,707 42,361 37,767 11,346 26.78 4,594 12.16
-------- -------- -------- -------- --------
Total non-interest expenses...... $170,306 $156,875 $135,191 $ 13,431 8.56% $ 21,684 16.04%
======== ======== ======== ======== ========
</TABLE>
===============================================================================
Income Taxes
The effective income tax rate differs from the statutory rate primarily
because of tax-exempt income from loans, leases and municipal securities. The
effective tax rate was 33.2% for 1995, 32.3% for 1994, and 28.1% for 1993. The
increase in 1995 and 1994 is due primarily to a decrease in tax-exempt
investment income. For more information, see Note 11 of Notes to Consolidated
Financial Statements.
<PAGE>13-29
Loan and Lease Portfolio
At December 31, 1995, the Company's loan and lease portfolio, net of
unearned income, reached $3.2 billion, an increase of 27% from year-end 1994's
balance of $2.5 billion. Excluding the 1995 acquisitions, which loan balances
are not reflected in 1994, loans increased 15%. Approximately $105 million of
the 1995 increase relates to increased mortgage production volume experienced
by the Company's mortgage subsidiary. In addition, in July of 1995, the
Company bought approximately $25 million in credit card loan participations
from its 50% owned affiliate bank in Norman, Oklahoma. The remaining $261
million increase in the loan and lease portfolio reflects increased loan
demand. This 10% internal growth in the loan and lease portfolio was spread
through all categories, with strong growth occurring in the retail consumer and
residential sectors. Commercial loans also experienced solid growth due to
increased demand in most of the markets served by the Company's affiliates.
The Company has continued its policy of conservative lending thereby avoiding
significant risk areas, such as out of territory lending and highly leveraged
transactions ("leveraged buy-outs"). This has been and will remain the
philosophy of Company management.
In keeping with this philosophy, the Company has no foreign loans, no loans
outstanding to borrowers engaged in highly leveraged transactions, and no
concentrations of credit to borrowers in any one industry. A concentration
generally exists when more than 10% of total loans are outstanding to borrowers
in the same industry.
===============================================================================
<TABLE>
<CAPTION>
Loans and Leases by Type and Non-Performing Status
(Dollars in Thousands) December 31,
------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Types of loans and leases
Commercial, financial and agricultural...... $ 602,348 $ 488,399 $ 448,282 $ 363,462 $ 381,925
Real estate - construction.................. 140,285 104,259 78,552 64,140 66,748
- 1-4 family.................... 977,024 725,646 655,224 586,226 539,551
- other......................... 687,849 518,918 453,870 341,810 333,669
Loans for purchasing or carrying securities. 11,568 9,304 11,277 9,930 12,021
Consumer.................................... 806,945 686,650 542,560 445,092 416,380
Direct lease financing...................... 32,196 30,689 21,981 15,516 7,817
Other....................................... 9,414 16,793 16,367 8,961 7,052
---------- ---------- ---------- ---------- ----------
Total loans and leases.................... $3,267,629 $2,580,658 $2,228,113 $1,835,137 $1,765,163
========== ========== ========== ========== ==========
Non-performing loans
Impaired loans.............................. $ 739 $ - $ - $ - $ -
Other non-accrual loans..................... 9,610 9,522 11,635 11,635 17,464
Loans past due 90 days or
more and still accruing.................... 6,919 3,391 3,544 3,216 7,005
Restructured loans.......................... 170 386 520 709 3,273
---------- ---------- ---------- ---------- ----------
Total non-performing loans................ $ 17,438 $ 13,299 $ 15,699 $ 15,560 $ 27,742
========== ========== ========== ========== ==========
</TABLE>
<PAGE>13-29
NOTES:
1. The total interest income that would have been recorded on non-accrual
loans if the loans had been current in accordance with their terms is
$884,386, $872,413 and $1,026,899 for 1995, 1994 and 1993, respectively.
Interest income actually received on these loans is immaterial.
2. Loans are placed on non-accrual status when doubt as to collectibility of
interest exists. See Note 1 of Notes to Consolidated Financial Statements
for a description of the income recognition policy for such loans.
3. Presently there are no significant amounts of loans where serious doubts
exist as to the ability of the borrowers to comply with the current loan
payment terms which are not included in the non-performing categories as
reflected above. Additionally, no concentrations of loans exceeding 10% of
total loans currently exist which are required to be disclosed as a
separate category of loans above.
===============================================================================
===============================================================================
<TABLE>
<CAPTION>
Maturity and Interest Rate Sensitivity of Loans
(Dollars in Thousands) Loans at December 31, 1995, maturing in:
-------------------------------------------
Over One
One Year Through Over
or Less Five Years Five Years Total
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural.................. $ 173,866 $ 400,746 $ 27,736 $ 602,348
Real estate - construction.............................. 77,148 48,150 14,987 140,285
---------- ---------- ---------- ----------
Total................................................... $ 251,014 $ 448,896 $ 42,723 $ 742,633
========== ========== ========== ==========
Predetermined rates..................................... $ 110,074 $ 340,509 $ 28,713 $ 479,296
Variable rates.......................................... 140,940 108,383 14,014 263,337
</TABLE>
===============================================================================
Business loans (totaling $602.3 million and approximately 18% of total
loans at year end) consist of commercial, financial and agricultural loans and
is comprised primarily of loans to customers in the regional trade area of the
bank subsidiaries in the state of Arkansas, East Texas, Northwest Louisiana and
Memphis, Tennessee. The bank subsidiaries generally do not participate in
credits of large, publicly traded companies unless operations are maintained in
the local communities. The portfolio is diversified from an industry
standpoint and includes businesses engaged in manufacturing, wholesale, retail,
agri-business, insurance, financial services and other service businesses.
Emphasis is upon middle-market and small businesses with known local management
and financial stability. Continued growth in business loans will be based upon
strong solicitation efforts in a highly competitive market environment for
quality loans. Asset quality is, in part, a function of management's
consistent application and conservative underwriting standards. Risks
associated with business loans such as financial performance,
stability/longevity, loan structure (term/type), collateral and economic
vulnerability, although not all inclusive, are considered in the underwriting
process and loan monitoring.
The portfolio of real estate-construction loans amounted to $140.3 million
and approximately 4% of total loans at December 31, 1995. Management continues
to maintain relatively low exposure in this category, being very conscious of
<PAGE>13-29
the potential deterioration in market values of collateral for these types of
loans. The portfolio consists of residential construction, commercial
construction, and land development loans, predominantly in the local markets of
the Company's banking subsidiaries. Commercial construction loans are for
small and medium-sized office buildings, manufacturing and warehousing
facilities, strip shopping centers, apartment complexes and other commercial
properties. Exposure to larger speculative office and rental space is minimal.
Residential construction and land development loans are primarily located in
the state of Arkansas and East Texas. Management considers the risk associated
with real estate loans such as cash flows, interest rate changes, project
completion and lease up, collateral, term and type of loan, regulatory and tax
issues, financial structure of the borrower and financial stability and
longevity of the borrower in the underwriting process.
The mortgage loans in the real estate-mortgage category are extended,
predominately, for owner-occupied residential properties. At December 31,
1995, there were $1.7 billion in loans outstanding, or 51% of total loans. The
primary reasons for the increase in real estate-mortgage loans were the
acquisitions of FDH Bancshares, Inc., and National Home Mortgage Company during
1995. Historically, the underwriting terms for real estate-mortgage loans have
generally limited the borrowing availability such that an outstanding loan to a
borrower would not exceed a percentage of the appraised value of the real
estate. These percentages vary according to the type of real estate securing
the mortgage loan and range from a low of 65% on mortgage loans secured by
undeveloped land, to 80% for home equity loans, up to a high of 85% on 1-4
family residential mortgage loans. The five year history of net charge-offs on
real estate-mortgage loans reflects an improving trend with only small losses
over the past two years. Credit quality at December 31, 1995, is considered to
be above average.
The consumer loan portfolio consists of both secured and unsecured loans to
individuals for various personal reasons such as automobile financing, home
improvements, recreational and educational purposes. Net charge-offs have
consistently been below .30% of consumer loans for each of the past three
years. Current delinquency ratios are in line with past charge-off results and
significant changes in loss trends are not anticipated by management.
Loan and Lease Risk Management
The Company, in keeping with its focus on goals of strength, profitability
and growth, in that order of priority, manages and controls the risk in the
loan and lease portfolio through various strategies. The Asset Quality
Committee, an independent committee of the Company's Board of Directors,
actively reviews and approves overall corporate loan policies and procedures
and monitors asset quality trends and concentrations of credit by loan size and
industry. A corporate "in-house lending limit" has been set to reduce the risk
in the event that a borrower fails to perform with any exception requiring
approval at the corporate level. The in-house lending limit represents only
26% of the combined corporate legal lending limit. The Company has only 1
credit facility that exceeds the in-house limit at December 31, 1995, which
represents 29% of the combined corporate legal lending limit. Loans and leases
are also monitored for loan quality through risk ratings as defined in the
Company's credit policy.
During 1995, Federal and State regulatory agencies completed asset quality
examinations at all of the Company's subsidiary banks. The Company's level and
classification of potential problem loans identified as part of management's
routine internal risk rating system was not altered significantly as a result
<PAGE>13-29
of this regulatory examination process. The Asset Quality Committee has
established various lending standards such as in-house lending limits,
concentrations of credit, collateral requirements, loan to value guidelines,
exceptions to policies, etc., and monitors each affiliate bank as to their
performance to these standards. An asset quality index is also used. This
index has seven key ratios of even weight that are monitored for each affiliate
bank to determine their composite grade. The composite grade is also used by
the Company's Loan Review Division to assist in establishing the scope and
frequency of reviews. The Loan Review Division is an independent function of
the Asset Quality Committee. Loan Review's function complements and reinforces
the risk identification and assessment of our lenders, provides the Company
with an early warning identification system of deteriorating assets, reviews
for adherence to credit policies and procedures, and provides the Committee and
management with reports regarding the overall quality of the loan portfolio and
other bank assets with credit risk.
Asset Quality
Management's on-going review of the loan portfolio results in the transfer
of loans to non-accrual status when doubt as to collectibility of principal or
interest exists under the original terms. In addition, the accrual of income
is discontinued if, in the opinion of management, the borrower will be unable
to meet future contractual obligations. Loans may be placed on non-accrual
status even though the presence of collateral may be sufficient to provide for
ultimate repayment. During the first quarter of 1995, the Company adopted
Statement of Financial Accounting Standard No. 114 ("Statement 114"),
"Accounting by Creditors for Impairment of a Loan" as amended by Statement of
Financial Accounting Standard No. 118 ("Statement 118"), "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosure." Due
to the Company's existing stringent loan classification policies, adoption of
Statement 114 and Statement 118 has had no material impact on the Company's
results of operations.
As can be seen in the table entitled Asset Quality, net charge-offs were
.08% of average loans and leases in 1995 compared to .04% in 1994. Net charge-
offs for 1993 were .16% of average loans and leases. The relatively low levels
of net charge-offs in 1995, 1994 and 1993 reflects the continuing improvement
in asset quality that the Company has experienced from the conservative
approach applied to its lending policies and the generally positive economic
environment in the Company's markets.
===============================================================================
<TABLE>
<CAPTION>
Asset Quality December 31,
------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net charge-offs to average loans and leases. .08% .04% .16% .52% .42%
Allowance for possible loan and lease
losses to total loans and leases............ 1.60% 1.79% 2.19% 2.15% 2.25%
Non-performing loans to total loans
and leases.................................. .54% .52% .72% .86% 1.61%
</TABLE>
===============================================================================
<PAGE>13-29
Provision and Allowance for Possible Loan and Lease Losses
The allowance for loan and lease losses is the amount deemed by management
to be adequate to provide for possible losses on loans and leases that may
become uncollectible. Reviews of general loss experience and the performance
of specific credits are conducted in determining reserve adequacy and required
provision expense.
The principal areas of risk are in the general real estate loan portion of
the portfolio, and accordingly, this area has the largest balance of the
reserve allocated to it. Management attempts to control these risks by
maintaining a diverse portfolio with no significant concentrations and through
a very aggressive real estate writedown policy. Also, the Company has
committed less than 26 loan relationships over $5 million, which further
mitigates these risks. A key indicator of the adequacy of the allowance for
possible loan and lease losses is the ratio of the allowance to non-performing
loans. The Company's ratio has been at or above 100% for the past six years.
At December 31, 1995, the Company's ratio was 294.42%. This means that for
every dollar of non-performing loans (impaired loans, other non-accrual loans,
loans 90 days or more past due, and renegotiated loans), $2.94 is set aside in
the Company's reserve to cover possible losses. The ratio at December 31,
1995, represents a decrease from the December 31, 1994, ratio of 340.82%.
Another indication of reserve adequacy is the allowance for possible loan
and lease losses and other real estate losses to non-performing assets (defined
as impaired loans, other non-accrual loans, renegotiated debt, and other real
estate owned). At December 31, 1995, this ratio was 376.30%, up from 347.35%
at December 31, 1994, indicating that the Company has $3.76 set aside in
reserves for every dollar of non-performing assets. The improvement seen in
this ratio from 1994 to 1995 is primarily due to other real estate sales. Both
of the reserve adequacy ratios indicate the conservative approach the Company
has taken in regard to building reserves for possible future losses.
As of December 31, 1995, the allowance for loan and lease losses equaled
$51.3 million or 1.60% of total loans and leases. Comparatively, the allowance
for loan and lease losses amounted to $45.3 million or 1.79% of total loans and
leases at December 31, 1994. The provision for possible loan and lease losses
was $3.1 million in 1995, as compared to a negative $3.1 million in 1994, and
$4.4 million in 1993.
The 1994 provision included a negative $4.1 million recorded in fourth
quarter which resulted from the following: 1) continuing improvement of asset
quality during 1994 as reflected in the non-performing loan ratios; 2)
regulatory guidance to review each affiliate bank's methodology for general and
historical allocations for consistency within the Company; and 3) internal
analyses of reserves that were completed in the fourth quarter.
<PAGE>13-29
===============================================================================
<TABLE>
<CAPTION>
Allocation of Allowance for Possible Loan and Lease Losses
(Dollars in Thousands) December 31,
------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural....... $ 10,682 $ 10,418 $ 12,109 $ 9,668 $ 11,344
Real estate.................................. 18,465 15,869 17,588 11,032 5,626
Consumer..................................... 7,766 5,715 6,215 5,276 4,575
Other........................................ 543 801 698 1,825 738
General risk................................. 13,885 12,522 11,470 10,911 16,539
---------- ---------- ---------- ---------- ----------
Total allowance for possible
loan and lease losses........................ $ 51,341 $ 45,325 $ 48,080 $ 38,712 $ 38,822
========== ========== ========== ========== ==========
</TABLE>
===============================================================================
===============================================================================
<TABLE>
<CAPTION>
Percentage Distribution of Allowance Allocation
and Categories of Loans as a Percent of Loans
December 31,
------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---------------- ---------------- ---------------- ---------------- ----------------
Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans
--------- ------ --------- ------ --------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural... 20.8% 18.4% 23.0% 18.9% 25.2% 20.1% 25.0% 19.8% 29.2% 21.6%
Real estate......... 36.0 55.2 35.0 52.3 36.6 53.3 28.5 54.1 14.5 53.3
Consumer............ 15.1 24.7 12.6 26.6 12.9 24.4 13.6 24.2 11.8 23.6
Other............... 1.1 1.7 1.8 2.2 1.5 2.2 4.7 1.9 1.9 1.5
General risk........ 27.0 - 27.6 - 23.8 - 28.2 - 42.6 -
--------- ------ --------- ------ --------- ------ --------- ------ --------- -----
Total............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
========= ====== ========= ====== ========= ====== ========= ====== ========= ======
</TABLE>
===============================================================================
<PAGE>13-29
===============================================================================
<TABLE>
<CAPTION>
Summary of Loan and Lease Loss Experience
(Dollars in Thousands) December 31,
------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Beginning balance of allowance for possible
loan and lease losses....................... $ 45,325 $ 48,080 $ 38,712 $ 38,822 $ 33,011
Loans and leases charged off:
Commercial, financial and agricultural.... 905 710 2,042 2,761 4,540
Real estate - construction................ 1,068 11 39 43 -
Real estate - mortgage.................... 663 820 2,287 5,978 2,229
Consumer.................................. 3,322 2,604 2,411 2,874 2,231
Other..................................... 64 11 129 81 319
---------- ---------- ---------- ---------- ----------
Total charged off............................ 6,022 4,156 6,908 11,737 9,319
---------- ---------- ---------- ---------- ----------
Recoveries of loans and leases
previously charged off:
Commercial, financial and agricultural.... 2,060 1,501 2,106 1,640 1,479
Real estate - construction................ 403 73 52 23 14
Real estate - mortgage.................... 385 658 886 490 356
Consumer.................................. 1,034 861 677 519 482
Other..................................... 31 80 26 14 34
---------- ---------- ---------- ---------- ----------
Total recoveries............................. 3,913 3,173 3,747 2,686 2,365
---------- ---------- ---------- ---------- ----------
Net loans and leases charged off............. 2,109 983 3,161 9,051 6,954
Provision for possible loan and lease losses. 3,059 (3,092) 4,416 8,941 9,992
Balance of allowance of purchased banks...... 5,066 1,320 8,113 - 2,773
---------- ---------- ---------- ---------- ----------
Ending balance of allowance for possible
loan and lease losses........................ $ 51,341 $ 45,325 $ 48,080 $ 38,712 $ 38,822
========== ========== ========== ========== ==========
Average loans and leases outstanding......... $2,802,874 $2,324,668 $2,024,062 $1,753,501 $1,655,173
</TABLE>
NOTE: The amount charged to operations and the related balance in the allowance
for possible loan and lease losses is based upon periodic evaluations of the
loan portfolio by management. These evaluations consider several factors
including, but not limited to, general economic conditions, loan portfolio
composition, prior loan loss experience, and management's estimation of future
potential losses.
===============================================================================
Investment Portfolio
The book value of investment securities at December 31, for each of the
last three years and the maturity and yield distribution of investment
securities at December 31, 1995, are presented in the accompanying tables.
During the first quarter of 1994, the Company adopted Statement of Financial
Accounting Standard No. 115 ("Statement 115"), "Accounting for Certain
Investments in Debt and Equity Securities." In accordance with Statement 115,
prior period financial statements have not been restated to reflect the change
in accounting principle. Pursuant to Statement 115 the securities classified
as available-for-sale are carried at fair value.
<PAGE>13-29
===============================================================================
<TABLE>
<CAPTION>
Investment Securities
(Dollars in Thousands)
For the Years Ended December 31,
--------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Held-to-maturity
U.S. Treasuries and government agencies..................... $ 195,201 $ 567,804 $1,036,457
States and political subdivisions........................... 60,732 115,093 150,118
Other....................................................... 95,482 217,167 282,091
---------- ---------- ----------
Total........................................................ 351,415 900,064 1,468,666
---------- ---------- ----------
Available-for-sale
U.S. Treasuries and government agencies..................... 636,564 283,847 -
States and political subdivisions........................... 109,819 28,318 -
Other....................................................... 226,746 96,964 -
---------- ---------- ----------
Total........................................................ 973,129 409,129 -
---------- ---------- ----------
Total investment securities.................................. $1,324,544 $1,309,193 $1,468,666
========== ========== ==========
</TABLE>
NOTE: The investment portfolio of the Company is used to generate stable
earnings, provide liquidity and serve as one of the primary means of interest
rate risk management. Active, aggressive management of the portfolio is
required to accomplish these goals. The purchase of held-to-maturity
investment securities is made with the positive intent and ability to hold
these assets to maturity. Held-to-maturity investment securities are therefore
carried at amortized cost in the financial statements. Available-for-sale
investment securities are carried at fair value. Changes in the economy, the
yield curve, interest rate risk and liquidity are all part of the business
cycle. Changes in these areas may necessitate altering the investment
portfolio. Sales of securities, when necessary to react to the aforementioned
changes, are not materially influenced by unrealized losses or gains existing
in the portfolio.
===============================================================================
<PAGE>13-29
===============================================================================
<TABLE>
<CAPTION>
Investment Securities Portfolio Analysis
(Dollars in Thousands) Investments at December 31, 1995, maturing in:
----------------------------------------------------------------------------------------
Less Than One to Five Five to Ten More Than Ten
One Year Years Years Years Total
----------------- ----------------- ----------------- ----------------- -----------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Held-to-maturity
U.S. Treasuries
and government
agencies........... $ 128,484 5.53% $ 65,759 5.87% $ 958 6.83% $ - -% $ 195,201 5.65%
States and political
subdivisions....... 15,834 4.56 26,045 5.07 11,056 5.23 7,797 5.44 60,732 5.01
Other............... 32,074 5.78 53,952 5.70 8,205 6.41 1,251 7.97 95,482 5.82
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Total............... 176,392 5.49 145,756 5.67 20,219 5.79 9,048 5.80 351,415 5.59
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Available-for-sale
U.S. Treasuries
and government
agencies........... 383,147 5.31 247,612 5.73 4,321 6.91 1,484 7.50 636,564 5.49
States and political
subdivisions....... 9,783 4.60 64,156 4.92 24,476 5.40 11,404 5.37 109,819 5.04
Other............... 60,225 5.62 109,584 5.97 29,806 6.34 27,131 6.09 226,746 5.94
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Total............... 453,155 5.33 421,352 5.67 58,603 6.00 40,019 5.94 973,129 5.54
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Total investment
securities......... $ 629,547 5.38 $ 567,108 5.67 $ 78,822 5.95 $ 49,067 5.91 $1,324,544 5.55
========== ===== ========== ===== ========== ===== ========== ===== ========== =====
</TABLE>
NOTE: Interest income on tax-exempt securities is calculated on a tax-
equivalent basis, using a federal marginal income tax rate of 35%.
===============================================================================
Liquidity
Long-term liquidity is a function of a large core deposit base and a strong
capital position. Core deposits, which consist of total deposits less
certificates of deposit of $100,000 and over, represent the Company's largest
and most important funding source. The capital position of the Company is a
result of internal generation of capital and earnings retention. The Company
manages dividends to retain sufficient capital for long-term liquidity and
growth. Average total core deposits, excluding 1995 bank acquisitions,
increased $91 million or 3% from December 31, 1994, to December 31, 1995. The
increase in average core deposits was a result of the Company's attempt to
provide its customers a wide range of new and competitive deposit products.
Presented in the accompanying table are certificates of deposit and other time
deposits of $100,000 and over, by time remaining to maturity. Two key measures
of the Company's long-term liquidity are the ratios of loans and leases to
total deposits and loans and leases to core deposits. Lower ratios in these
two measures correlate to higher liquidity. As can be seen from the table
below, the Company's liquidity ratios have increased from 1994 to 1995 and 1993
to 1994, indicating lower liquidity. The Company's liquidity ratios have
<PAGE>13-29
decreased because the funding of loans has outpaced the growth in the Company's
core deposit base. However, the Company's relatively sound deposit base, along
with its low debt level and common and preferred stock availability, provide
several alternatives for future financing and long-term liquidity needs.
Short-term liquidity is the ability of the Company to meet the borrowing
needs and deposit withdrawal requirements of its customers due to growth in the
customer base and, to a lesser extent, seasonal and cyclical customer demands.
Short-term liquidity needs can be met by short-term borrowings in state and
national money markets. Short-term borrowings include federal funds purchased,
securities sold under agreement to repurchase, treasury tax and loan accounts,
and other borrowings. Amounts and interest rates related to federal funds
purchased and securities sold under agreement to repurchase for the last three
years are presented in the accompanying table. Average short-term borrowings
exceeded average short-term investments by $101.9 million in 1995. Average
short-term investments exceeded average short-term borrowings by $11.7 million
in 1994 and $88.7 million in 1993. The 1995 and 1994 decrease in excess short-
term investments occurred due to the use of short-term borrowings by the
Company to fund overall loan growth in the Company and the two Texas bank
purchases in the third quarter of 1994. Future short-term liquidity needs for
daily operations are not expected to vary significantly and management believes
that the Company's level of liquidity is sufficient to meet current funding
requirements.
===============================================================================
<TABLE>
<CAPTION>
Maturity Distribution of Time Deposits $100,000 and Over
(Dollars in Thousands) December 31, 1995
--------------------------
Certificates
of Deposit Other Time
------------ ------------
<S> <C> <C>
Three months or less..................................................... $ 229,992 $ 5,202
Over three months to six months.......................................... 120,020 10,496
Over six months to twelve months......................................... 89,659 8,145
Over twelve months....................................................... 65,632 21,548
------------ ------------
Total.................................................................... $ 505,303 $ 45,391
============ ============
</TABLE>
===============================================================================
<PAGE>13-29
===============================================================================
<TABLE>
<CAPTION>
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase
(Dollars in Thousands) December 31,
----------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Balance at December 31..................................... $ 178,563 $ 107,461 $ 46,700
Average daily amount outstanding........................... 128,281 45,722 26,420
Maximum month-end balance.................................. 200,310 107,461 46,700
Average daily interest rate................................ 5.9% 4.2% 3.2%
Weighted average interest rate on balance at December 31... 5.0% 6.0% 2.7%
</TABLE>
===============================================================================
===============================================================================
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Average loans and leases to average deposits............... 69.29% 61.76% 59.41%
Average loans and leases to average core deposits.......... 76.88% 67.83% 64.20%
</TABLE>
===============================================================================
Capitalization
The Company maintains its goal of providing a strong capital position while
earning an acceptable return for its shareholders. Management will use the
additional financial leverage provided by internal generation of capital and
recent acquisitions in pursuit of above average return opportunities. A
position of strength is important to the Company's customers, investors and
regulators.
At year-end 1995, the Company's equity to asset ratio was 8.06% compared to
7.85% at year-end 1994 and 8.02% at year-end 1993. At December 31, 1995, the
Company's leverage, tier 1 capital and risk-based capital ratios substantially
exceeded the required 3%, 4% and 8% levels established by the Board of
Governors of the Federal Reserve System, as can be seen from the accompanying
table. It is this strong capital base that enabled the Company to purchase the
six banks in Texas during 1993 and 1994. With these bank purchases and the
related asset increase, the ratio of equity to assets experienced a slight
decline in 1994 but returned to the 1993 level in 1995. While management plans
to maintain the Company's strong capital base, it recognizes the need to
effectively manage capital levels as they relate to asset growth. In order to
avoid declining return on equity ratios caused by a more rapid rate of growth
in capital than in assets, management will continue to evaluate options to
utilize excess capital thereby improving return on equity.
<PAGE>13-29
===============================================================================
<TABLE>
<CAPTION>
Regulatory ----------------------------------------
Minimum 1995 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Tier 1 capital to assets..................... 3.00% 7.31% 7.50% 7.65%
Tier 1 capital to risk-adjusted assets....... 4.00% 11.31% 12.56% 13.92%
Total capital to risk-adjusted assets........ 8.00% 12.14% 13.33% 15.36%
</TABLE>
===============================================================================
Dividend Policy
The Company's long-term dividend policy is to pay between 30% and 35% of
earnings in cash dividends to its stockholders while maintaining adequate
capital to support growth. Annual dividends per share have been increased in
each of the past three years from $.54 in 1993, to $.67 in 1994, and $.78 in
1995. In 1995, the Company increased its dividend rate for the ninth
consecutive year, bringing the annual rate at the end of the year to $.84 per
share. In 1995, the Company declared a seven percent stock dividend to
stockholders of record on December 14, 1995; and in 1994, the Company declared
a five percent stock dividend to stockholders of record on December 15, 1994.
In addition, in 1993, the Company declared a three-for-two stock split in the
form of a stock dividend to stockholders of record on December 15, 1993.
Accordingly, all per share data has been restated to reflect these increases in
shares outstanding.
The dividend payout ratios for the past three years were 35.77% in 1995,
33.97% in 1994, and 29.98% in 1993. The level of dividends was below the long-
term goal in 1993 due to the decision by the Board of Directors to retain
earnings for investment in above average return opportunities providing
enhanced shareholder value. The Company's Board of Directors reviews the cash
dividend policy and payout levels annually in the fourth quarter.
The Company is not aware of any current recommendations by any regulatory
authorities which, if they were implemented, are reasonably likely to have a
material effect on the Company's liquidity, capital resources or operations.
The Company's common stock is traded in the over-the-counter market under
the NASDAQ symbol "FCLR" and is quoted on NASDAQ's National Market System. The
high and low bid prices of the common stock, as reported by NASDAQ, and the
dividends declared per share can be seen in the quarterly operating results
table on the following page. On December 31, 1995, there were 3,180
shareholders of record. Additionally, 1,245 persons were holders of record of
Company common stock on December 31, 1995, through various stock ownership
plans of the Company.
<PAGE>13-29
===============================================================================
<TABLE>
<CAPTION>
Selected Quarterly Operating Results
(In Thousands Except for Per Share Data) Years Ended December 31,
------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Interest Income:
First Quarter........................................ $ 73,508 $ 60,422 $ 56,365
Second Quarter....................................... 78,672 62,456 59,035
Third Quarter........................................ 81,844 64,923 58,813
Fourth Quarter....................................... 88,158 69,950 60,782
- -------------------------------------------------------------------------------------------------
$ 322,182 $ 257,751 $ 234,995
Net Interest Income:
First Quarter........................................ $ 42,633 $ 37,774 $ 34,542
Second Quarter....................................... 44,790 39,024 36,196
Third Quarter........................................ 46,735 39,930 36,431
Fourth Quarter....................................... 50,392 42,717 37,405
- -------------------------------------------------------------------------------------------------
$ 184,550 $ 159,445 $ 144,574
Provision for Possible Loan and Lease Losses:
First Quarter........................................ $ 825 $ 518 $ 901
Second Quarter....................................... 434 523 1,453
Third Quarter........................................ 481 8 1,027
Fourth Quarter....................................... 1,319 (4,141) 1,035
- -------------------------------------------------------------------------------------------------
$ 3,059 $ (3,092) $ 4,416
Net Income:
First Quarter........................................ $ 12,692 $ 11,965 $ 11,524
Second Quarter....................................... 13,725 12,705 11,327
Third Quarter........................................ 14,827 12,721 11,744
Fourth Quarter....................................... 15,666 12,917 11,370
- -------------------------------------------------------------------------------------------------
$ 56,910 $ 50,308 $ 45,965
Earnings Per Common Share:
First Quarter........................................ $ .49 $ .46 $ .44
Second Quarter....................................... .52 .49 .43
Third Quarter........................................ .57 .50 .44
Fourth Quarter....................................... .59 .51 .43
- -------------------------------------------------------------------------------------------------
$ 2.17 $ 1.96 $ 1.74
Dividends Per Common Share:
First Quarter........................................ $ .19 $ .16 $ .12
Second Quarter....................................... .19 .16 .12
Third Quarter........................................ .19 .16 .14
Fourth Quarter....................................... .21 .19 .16
- -------------------------------------------------------------------------------------------------
$ .78 $ .67 $ .54
</TABLE>
<PAGE>13-29
<TABLE>
<CAPTION>
Selected Quarterly Operating Results (continued)
(In Thousands Except for Per Share Data) Years Ended December 31,
------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Bid Price Per Common Share:
High for the period
First Quarter........................................ $ 22.78 $ 19.58 $ 20.32
Second Quarter....................................... 23.95 20.81 19.43
Third Quarter........................................ 26.40 22.59 19.58
Fourth Quarter....................................... 32.50 21.26 19.43
Low for the period
First Quarter........................................ $ 20.33 $ 17.80 $ 17.65
Second Quarter....................................... 22.66 17.36 17.36
Third Quarter........................................ 23.60 20.81 18.39
Fourth Quarter....................................... 25.93 18.93 18.84
</TABLE>
===============================================================================
<PAGE>30
Report of Management
The financial statements and related financial information presented herein
were prepared by management in accordance with generally accepted accounting
principles and include amounts that are based on management's best estimates
and judgments. The Company maintains an accounting system and related controls
that are sufficient to provide reasonable assurance that assets are
safeguarded, and that transactions are properly authorized and recorded. The
concept of reasonable assurance is based on the recognition that the cost of an
accounting and control system must be related to the benefits derived. The
accounting system and related controls are monitored by an extensive internal
audit program and tested by the Company's independent auditors in accordance
with generally accepted auditing standards. The Company's internal auditor and
independent auditors meet regularly with the Audit Committee of the Board of
Directors to ensure that respective responsibilities are being properly
discharged and to discuss the results of audits.
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders
First Commercial Corporation
We have audited the accompanying consolidated balance sheets of First
Commercial Corporation as of December 31, 1995, and 1994, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the 1993 financial statements of State First
Financial Corporation, a wholly owned subsidiary, which statements reflect
total revenues constituting 18% of the related consolidated totals. Those
statements were audited by other auditors whose report has been furnished to
us, and our opinion, insofar as it relates to data included for State First
Financial Corporation, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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, based on our audits and, for 1993, the report of other
auditors, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of First Commercial
Corporation at December 31, 1995, and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Little Rock, Arkansas
January 30, 1996
<PAGE>31
<TABLE>
<CAPTION>
Consolidated Statements of Income
(In Thousands Except for Per Share Data) Years Ended December 31,
------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Interest income
Loans and leases, including fees.................... $ 247,038 $ 185,337 $ 165,000
Short-term investments.............................. 4,666 4,192 3,512
Investment securities - taxable..................... 62,907 60,582 58,659
- non-taxable................. 7,567 7,618 7,805
Trading account securities.......................... 4 22 19
------------ ------------ ------------
Total interest income............................. 322,182 257,751 234,995
Interest expense
Interest on deposits................................ 126,292 93,509 87,334
Short-term borrowings............................... 10,544 4,094 882
Long-term debt...................................... 796 703 2,205
------------ ------------ ------------
Total interest expense............................ 137,632 98,306 90,421
Net interest income................................... 184,550 159,445 144,574
Provision for possible loan and lease losses (Note 7). 3,059 (3,092) 4,416
------------ ------------ ------------
Net interest income after provision for
possible loan and lease losses.................... 181,491 162,537 140,158
Other income
Trust department income............................. 11,424 10,904 10,340
Mortgage servicing fee income....................... 22,312 16,340 12,905
Broker-dealer operations income..................... 2,982 1,727 2,069
Service charges on deposits......................... 22,192 20,131 17,965
Other service charges and fees...................... 9,149 7,964 6,952
Investment securities gains (losses), net........... (440) 139 221
Other real estate gains (losses), net............... (330) 4,413 (89)
Other income........................................ 6,699 7,034 8,594
------------ ------------ ------------
Total other income................................ 73,988 68,652 58,957
Other expenses
Salaries, wages and employee benefits (Note 13)..... 79,878 74,981 67,031
Net occupancy....................................... 11,016 9,947 10,486
Equipment........................................... 10,700 9,149 8,013
FDIC insurance...................................... 7,371 8,639 7,396
Amortization of purchased mortgage servicing rights. 7,634 5,541 4,498
First Commercial Trust Company lawsuit settlement... - 6,257 -
Other expenses...................................... 53,707 42,361 37,767
------------ ------------ ------------
Total other expenses.............................. 170,306 156,875 135,191
Income before income taxes............................ 85,173 74,314 63,924
Income tax provision (Note 11)........................ 28,263 24,006 17,959
------------ ------------ ------------
Net income............................................ $ 56,910 $ 50,308 $ 45,965
============ ============ ============
Weighted average number of common shares
outstanding during the period....................... 26,221,023 25,607,960 25,714,354
Earnings per common share (Note 1).................... $ 2.17 $ 1.96 $ 1.74
See accompanying notes.
</TABLE>
<PAGE>32
<TABLE>
<CAPTION>
Consolidated Balance Sheets
(Dollars in Thousands) December 31,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
Assets
Cash and due from banks (Note 4).............................................. $ 432,117 $ 287,376
Federal funds sold............................................................ 108,181 71,979
------------ ------------
Total cash and cash equivalents.............................................. 540,298 359,355
Investment securities held-to-maturity, estimated market value
$352,492 ($865,366 in 1994) (Notes 4 & 5).................................... 351,415 900,064
Investment securities available-for-sale (Notes 4 & 5)........................ 973,129 409,129
Trading account securities.................................................... 449 13
Loans and leases, net of unearned income (Note 6)............................. 3,215,562 2,534,793
Allowance for possible loan and lease losses (Note 7)......................... (51,341) (45,325)
------------ ------------
Net loans and leases......................................................... 3,164,221 2,489,468
Bank premises and equipment, net (Note 8)..................................... 106,665 87,046
Other real estate owned, net of allow. for poss. losses of $50 ($67 in 1994).. 2,266 3,093
Other assets (Notes 3 & 13)................................................... 222,497 126,031
------------ ------------
Total assets................................................................... $ 5,360,940 $ 4,374,199
============ ============
Liabilities and Stockholders' Equity
Deposits
Non-interest bearing transaction accounts.................................... $ 1,018,181 $ 767,525
Interest bearing transaction and savings accounts............................ 1,612,294 1,538,601
Certificates of deposit $100,000 and over.................................... 505,303 326,298
Other time deposits.......................................................... 1,494,763 1,192,936
------------ ------------
Total deposits.............................................................. 4,630,541 3,825,360
Short-term borrowings (Note 9)................................................ 235,378 167,417
Other liabilities............................................................. 55,592 29,988
Long-term debt (Note 10)...................................................... 7,170 8,243
------------ ------------
Total liabilities........................................................... 4,928,681 4,031,008
Commitments and Contingencies (Note 14)
Stockholders' equity (Notes 1, 4, 10, & 12)
Preferred stock, 400,000 shares authorized
Series 1991 Permanent, $1 par value, 0 shares issued......................... - -
Common stockholders' equity, 34,000,000 shares authorized
Common stock, $3 par value, 27,343,279 shares issued
(25,437,999 shares issued in 1994).......................................... 82,030 71,325
Capital surplus.............................................................. 195,019 109,167
Retained earnings............................................................ 154,356 170,132
Adjustment to record net unrealized gains (losses) on
available-for-sale securities, net of income tax............................ 854 (7,433)
Less treasury stock at cost, 0 shares........................................ - -
------------ ------------
Total common stockholders' equity........................................... 432,259 343,191
------------ ------------
Total liabilities and stockholders' equity..................................... $ 5,360,940 $ 4,374,199
============ ============
See accompanying notes.
</TABLE>
<PAGE>33
<TABLE>
<CAPTION>
Consolidated Statements of Stockholders' Equity
(In Thousands Except for Per Share Data)
Unrealized
Preferred Common Retained Gains and Treasury
Stock Stock Surplus Earnings (Losses) Stock Total
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1993.............. $ 10,620 $ 50,998 $ 93,023 $ 142,918 $ - $ (51)$ 297,508
Net income............................ 45,965 45,965
Cash dividends - $.54 per common share (13,780) (13,780)
Preferred stock dividends............. (1,210) (1,210)
Three-for-two stock split in the form
of a stock dividend.................. 17,623 (17,643) (20)
100% stock dividend of State First
Financial Corporation................ 13,023 (13,023) -
Stock options exercised (Note 12)..... 55 499 554
Common stock issued, 628,718 shares... 165 7,714 7,879
Purchase of treasury stock, 2,904 shares (59) (59)
Sale of treasury stock, 401 shares.... 3 5 8
--------- --------- --------- --------- --------- --------- ---------
Balance - December 31, 1993............ 10,620 68,841 96,619 160,870 - (105) 336,845
Adjustment to beginning balance for
change in accounting method, net of
income taxes of $986 (Note 1)........ 1,832 1,832
Change in unrealized gains (losses),
net of income taxes of $4,975........ (9,265) (9,265)
Net income............................ 50,308 50,308
Cash dividends - $.67 per common share (17,092) (17,092)
Preferred stock dividends............. (129) (129)
Preferred stock redemption............ (10,620) (710) (11,330)
Stock dividend, 5%.................... 2,362 13,415 (23,825) 8,023 (25)
Stock options exercised (Note 12)..... 122 (183) 951 890
Purchase of treasury stock, 444,799 shares (9,566) (9,566)
Sale of treasury stock, 3,680 shares.. 63 63
Purchase of remaining interest
in subsidiary, 28,889 shares......... 26 634 660
--------- --------- --------- --------- --------- --------- ---------
Balance - December 31, 1994............ - 71,325 109,167 170,132 (7,433) - 343,191
Change in unrealized gains (losses),
net of income taxes of $4,592........ 8,547 8,547
Net income............................ 56,910 56,910
Cash dividends - $.78 per common share (20,356) (20,356)
Stock dividend, 7%.................... 5,362 52,345 (57,751) (44)
Stock options exercised (Note 12)..... 177 958 1,135
Purchase of treasury stock, 198,648 shares (5,245) (5,245)
Common stock issued, 2,732 shares..... 8 53 61
Acquisition of FDH Bancshares,
Inc., 1,349,215 shares (Note 2)...... 3,226 32,116 5,245 40,587
Acquisition of equity interest of
West-Ark Bancshares, Inc.,
689,106 shares (Note 2).............. 1,932 380 5,421 (260) 7,473
--------- --------- --------- --------- --------- --------- ---------
Balance - December 31, 1995............ $ - $ 82,030 $ 195,019 $ 154,356 $ 854 $ - $ 432,259
========= ========= ========= ========= ========= ========= =========
See accompanying notes.
</TABLE>
<PAGE>34
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
(Dollars in Thousands) Years Ended December 31,
------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income........................................................ $ 56,910 $ 50,308 $ 45,965
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization.................................... 19,029 15,295 11,454
Provision for possible loan and lease losses..................... 3,059 (3,092) 4,416
Deferred income taxes............................................ (1,197) 3,838 884
Cumulative effect of adoption of FASB #109....................... - - (1,150)
Loss (gain) on sale of investment securities available-for-sale.. 440 (139) -
Gain on sale of investment securities held-to-maturity........... - - (221)
Gain on sale of equipment........................................ (146) (135) (545)
Gain on sale of other real estate................................ (950) (4,791) (505)
Writedowns of other real estate.................................. 75 706 997
Share of partnership income...................................... - - (44)
Equity in undistributed earnings of unconsolidated subsidiary.... (1,777) (1,461) (1,365)
Decrease (increase) in trading securities........................ (435) 689 983
Adjustment to record net unrealized losses (gains) on trading
securities...................................................... (1) 1 -
Decrease (increase) in mortgage loans held for resale............ (105,385) 17,084 (20,943)
Increase (decrease) in income taxes payable...................... 7,204 (8,598) (505)
Increase in interest and other receivables....................... (5,198) (1,861) (1,812)
Increase (decrease) in interest payable.......................... 3,115 1,240 (984)
Increase (decrease) in accrued expenses.......................... 9,034 (2,212) 7,414
Increase in prepaid expenses..................................... (2,484) (1,590) (923)
------------ ------------ ------------
Net cash provided by (used in) operating activities............... (18,707) 65,282 43,116
INVESTING ACTIVITIES
Proceeds from sales of investment securities held-to-maturity.... - - 18,029
Proceeds from sales of investment securities available-for-sale.. 83,175 9,226 -
Proceeds from maturing investment securities held-to-maturity.... 544,505 675,466 1,373,370
Proceeds from maturing investment securities available-for-sale.. 308,671 115,915 -
Purchases of investment securities held-to-maturity.............. (234,079) (422,965) (1,599,437)
Purchases of investment securities available-for-sale............ (547,598) (125,694) -
Purchases of institutions, net of funds acquired (Notes 1 and 2). 38,380) (5,872) 279,713
Net increase in loans and leases................................. (293,804) (270,834) (150,146)
Capital expenditures............................................. (15,164) (21,560) (37,763)
Proceeds from sale of bank premises and equipment................ 2,731 10,861 4,936
Additions to purchased mortgage servicing rights and other assets (71,705) (4,801) (7,502)
Proceeds from sales of other real estate......................... 4,277 17,209) 10,788
------------ ------------ ------------
Net cash used in investing activities............................. (180,611) (23,049) (108,012)
</TABLE>
<PAGE>34
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows (continued)
(Dollars in Thousands) Years Ended December 31,
------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW accounts,
and savings accounts............................................ 145,913 (75,038) 198,282
Net increase (decrease) in time deposits......................... 208,506 (59,612) (96,383)
Net increase in short-term borrowings............................ 51,439 116,284 24,657
Repayment of long-term debt...................................... (1,148) (17,176) (2,898)
Proceeds from long-term borrowings............................... - 5,030 -
Payment to redeem preferred stock................................ - (11,330) -
Proceeds from issuance of common stock........................... 61 - 7,879
Purchases of treasury stock...................................... (5,245) (9,566) (59)
Sales of treasury stock.......................................... - 63 8
Purchase of partial shares resulting from stock splits/stock
dividends....................................................... (44) (25) (20)
Stock options exercised.......................................... 1,135 890 554
Preferred stock dividends........................................ - (129) (1,210)
Cash dividends paid on common stock.............................. (20,356) (17,092) (13,780)
------------ ------------ ------------
Net cash provided by (used in) financing activities............... 380,261 (67,701) 117,030
Net increase (decrease) in cash and cash equivalents.............. 180,943 (25,468) 52,134
Cash and cash equivalents at beginning of year.................... 359,355 384,823 332,689
------------ ------------ ------------
Cash and cash equivalents at end of year.......................... $ 540,298 $ 359,355 $ 384,823
============ ============ ============
See accompanying notes.
</TABLE>
<PAGE>35-52
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
First Commercial Corporation ("Company") is a multi-bank holding company
headquartered in Little Rock, Arkansas, which owns twenty-four affiliate banks
and 50% of a twenty-fifth affiliate bank. The Company's affiliate banks
provide traditional commercial, retail and corespondent banking services and
offer a broad range of specialized services. The Company's principal markets
include the state of Arkansas, East Texas, Northwest Louisiana and Memphis,
Tennessee. The Company's non-bank subsidiaries include a mortgage company,
trust company, investment banking company, factoring company and leasing
company that serve principally the same markets as the banking affiliates.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
the accompanying notes. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Investment and Trading Account Securities
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115 ("Statement 115"), "Accounting for
Certain Investments in Debt and Equity Securities." The Company adopted the
provisions of the new standard for investments held as of January 1, 1994. In
accordance with Statement 115, prior period financial statements have not been
restated to reflect the change in accounting principle. The cumulative effect
as of January 1, 1994, of adopting Statement 115 was an adjustment to
stockholders' equity of $1,832,000 net of $986,000 in deferred income taxes.
Under this statement, securities that the Company has both the positive intent
and ability to hold to maturity are carried at amortized cost. Securities that
the Company does not have the positive intent and ability to hold to maturity
and all marketable equity securities are classified as available-for-sale or
trading and carried at fair value. Unrealized holding gains and losses on
securities classified as available-for-sale are carried as a separate component
of stockholders' equity. Accordingly, the ending balance of stockholders'
equity at December 31, 1995, has been increased by $8,547,000 (net of
$4,592,000 in deferred income taxes) to reflect the net unrealized holding gain
on securities classified as available-for-sale. Also, the ending balance of
stockholders' equity at December 31, 1994, has been decreased by $9,265,000
(net of $4,975,000 in deferred income taxes) to reflect the net unrealized
holding loss on securities classified as available-for-sale. Unrealized
holding gains and losses on securities classified as trading are reported in
earnings. Prior to January 1, 1994, the Company classified all non-trading
securities as held-to-maturity. Investment securities were stated at cost
adjusted for amortization of premiums and accretion of discounts.
<PAGE>35-52
Gains and losses on the sale of investment securities are computed using
the specific identification method. The income tax provision (benefit) related
to such gains and losses was ($154,000), $48,700 and $77,400 for the years
ended December 31, 1995, 1994, and 1993, respectively.
Broker-Dealer Company
One of the Company's banking subsidiaries operates First Commercial
Investments, Inc. ("FCII"), a broker-dealer company which has a customer base
principally located within the states of Arkansas and Texas.
FCII is a party to financial instruments with off-balance-sheet risk in its
normal course of business. FCII is required, in the event of the non-delivery
of customers' securities owed FCII by other broker-dealers, or by its
customers, to purchase identical securities in the open market. Such purchases
might result in losses not reflected in the accompanying consolidated financial
statements. The market values of securities owed FCII approximate the amounts
payable.
Receivables and payables to customers arise from cash transactions executed
by FCII on their behalf. Receivables are collateralized by securities with
market values in excess of the amounts due. The Company's policy is to monitor
the market value of collateral and request additional collateral when required.
Such collateral is not reflected in the accompanying consolidated financial
statements. At December 31, 1995, and 1994, receivables from and payables to
securities customers amounted to ($24,446) and $128,568, respectively.
In accordance with industry practice, FCII records securities transactions
executed on behalf of its customers on the settlement date, which is generally
three business days or the next business day after the trade date. The risk of
loss on unsettled transactions is the same as settled transactions and relates
to the customer's or broker's inability to meet the terms of their contracts.
Loans
Loans generally are stated at their outstanding unpaid principal balances
net of any deferred fees or costs on originated loans, or unamortized premiums
or discounts on purchased loans. Interest income is accrued on the unpaid
principal balance. Discounts and premiums are amortized to income using the
interest method. Loan origination fees net of certain direct origination costs
are deferred and recognized as an adjustment of the yield (interest income) of
the related loans.
NONACCRUAL LOANS. Generally, a loan (including a loan impaired under
Statement of Financial Accounting Standards No. 114 ("Statement 114"),
"Accounting by Creditors for Impairment of a Loan") is classified as nonaccrual
and the accrual of interest on such loan is discontinued when the contractual
payment of principal or interest has become 90 days past due or management has
serious doubts about further collectibility of principal or interest, even
though the loan currently is performing. A loan may remain on accrual status
if it is in the process of collection and is either guaranteed or well secured.
When a loan is placed on nonaccrual status, unpaid interest credited to income
in the current year is reversed and unpaid interest accrued in prior years is
charged against the allowance for credit losses. Interest received on
nonaccrual loans generally is either applied against principal or reported as
interest income, according to management's judgment as to the collectibility of
principal. Generally, loans are restored to accrual status when the obligation
is brought current, has performed in accordance with the contractual terms for
<PAGE>35-52
a reasonable period of time and the ultimate collectibility of the total
contractual principal and interest is no longer in doubt.
ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES. The allowance for possible
loan and lease losses is established through provisions for credit losses
charged against income. Loans deemed to be uncollectible are charged against
the allowance for possible loan and lease losses, and subsequent recoveries, if
any, are credited to the allowance.
The Company adopted Statement 114, as amended by Statement of Financial
Accounting Standards No. 118 ("Statement 118"), "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosure," effective January 1,
1995. Statements 114 and 118 prescribe how the allowance for possible loan and
lease losses related to impaired loans should be determined. A loan is
considered impaired when, based on current information and events, it is
probable that a creditor will be unable to collect principal or interest due
according to the contractual terms of the loan. Under the new Statements, the
amount of the allowance for possible loan and lease losses related to
individual loans that are identified for evaluation in accordance with
Statement 114 is determined based on estimates of expected cash flows on each
such loan which are then discounted using that loan's effective interest rate.
Alternatively, the fair value of the collateral is used to determine the
allowance for credit losses related to identified collateral dependent loans.
The determination of the allowance for possible loan and lease losses for the
remainder of the loan portfolio takes into consideration the risk
classification of loans and application of loss estimates to these
classifications. Statement 114 specifically excludes from the definition of
impaired loans large groups of smaller balance homogenous loans. In accordance
with these Statements, the Company considers all non-accrual loans risk-rated
as doubtful (i.e. loans for which collection or liquidation in full on the
basis of currently existing facts, conditions and values is highly questionable
and improbable), excluding credit card loans, residential mortgage loans,
consumer installment loans and loans held for resale by the Company's mortgage
banking subsidiary, as impaired loans. The adoption of these Statements had no
significant impact on the level of the allowance.
The allowance for possible loan and lease losses is maintained at a level
believed adequate by management to absorb estimated probable credit losses.
Management's periodic evaluation of the adequacy of the allowance is based on
the Company's past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to repay
(including the timing of future payments), the estimated value of any
underlying collateral, composition of the loan portfolio, current economic
conditions and other relevant factors. This evaluation is inherently
subjective as it requires material estimates including the amounts and timing
of future cash flows expected to be received on impaired loans that may be
susceptible to significant change.
Mortgage Loan Servicing
Mortgage loans serviced by the Company's mortgage banking subsidiary are
not included in the accompanying consolidated balance sheets, nor are the
servicing rights relating to the loans originated by the subsidiary accorded
any value for financial statement purposes. Loan servicing fees are included in
income as related loan payments from mortgagees are collected.
<PAGE>35-52
The original cost of servicing rights acquired from third parties, which
approximates $80.8 million, is being amortized over the expected servicing
income period, which is one to ten years. The Company has determined that the
book value of these servicing rights does not exceed the estimated future
servicing revenue less estimated future servicing costs. Servicing rights
related to mortgages originated by the Company's mortgage banking subsidiary
are not included in the accompanying consolidated balance sheets. Management
estimates the value of these servicing rights and the servicing rights acquired
from third parties at December 31, 1995, to be approximately $120.9 million
based on average servicing premiums for the past three years.
Derivative Financial Instruments
The Company's investment policies do not allow the purchase of derivative
financial instruments for trading purposes. The only derivative financial
instruments owned by the Company have been issued for purposes other than
trading and include mortgages held for sale, unfunded loan commitments and
unsettled security purchase or sale agreements (see Broker-Dealer Company).
Real estate loans of approximately $144.9 million and $39.5 million at December
31, 1995, and 1994, respectively, held for resale by the Company's mortgage
banking subsidiary, are valued at the lower of cost or market on an aggregate
basis. To manage the interest rate risk exposure related to these real estate
loans, the Company's mortgage banking subsidiary pre-sells these loans to third
parties. At December 31, 1995, all but $57.3 million of these real estate
loans had been pre-sold.
Interest rate risk related to unfunded loan commitments (see Note 15) is
managed by only issuing such instruments with short repricing terms.
Bank Premises and Equipment and Depreciation
Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation is provided for financial statement purposes by the
straight-line method over an estimated useful life of 1 to 50 years for
building and improvements, 3 to 30 years for leasehold improvements, and 1 to
20 years for equipment. Accelerated methods are used for income tax purposes.
Foreclosed Assets
Foreclosed assets are comprised of property acquired through a foreclosure
proceeding or acceptance of a deed-in-lieu of foreclosure and loans classified
as in-substance foreclosure. In accordance with Statement 114, a loan is
classified as in-substance foreclosure when the Company has taken possession of
the collateral regardless of whether formal foreclosure proceedings take place.
Foreclosed assets initially are 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 changes in the valuation allowance are included in
loss on foreclosed real estate.
Income Taxes
The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
<PAGE>35-52
Investments - Security National Bank and Trust Company and Real Estate
The Company's fifty percent investment in Security National Bank and Trust
Company of Norman, Oklahoma, which is wholly owned by TRH Bank Group, Inc., is
accounted for using the equity method. The Company, through one of its
subsidiaries, owns an interest in three real estate partnerships. These
investments are also accounted for using the equity method of accounting since
they represent significant influence but not control for the Company.
Earnings Per Common Share
Earnings per common share is calculated by dividing net income less the
preferred stock dividend by the weighted average number of common shares
outstanding. The dilutive effect of stock options is insignificant. The
preferred stock was issued in 1991, and dividends for 1995, 1994 and 1993 were
$0, $129 thousand and $1.21 million, respectively.
Preferred Stock
On February 8, 1991, the Company issued $11 million of cumulative permanent
non-voting preferred stock with a dividend rate of 11% in years one through
three, 11.75% in year four, and 12% in year five and later. The stock was non-
callable in years one through three, callable at 103% of par in year four, and
callable at par in year five and later. The Company called the preferred stock
at 103% of par on February 8, 1994. The transaction resulted in a decrease of
approximately $11.3 million to total stockholders' equity.
Stock Option Plan
The Company follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," (APB 25) and related Interpretations in
accounting for its employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Stock Dividend/Stock Split
All share and per share amounts for 1995, 1994, and 1993, set forth in the
consolidated financial statements and notes thereto have been retroactively
adjusted for a seven percent stock dividend declared November 1995, and payable
January 2, 1996, a five percent stock dividend declared November 1994, and
payable January 3, 1995, and a three-for-two stock split effected in the form
of a stock dividend declared November 1993, and payable January 3, 1994.
Financial Statement Presentation
Statement of Financial Accounting Standards No. 121 ("Statement 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of," addresses the accounting for the impairment of long-lived
assets, such as bank premises and equipment, identifiable intangibles and
goodwill related to those assets. Under Statement 121, impairment losses are
recognized when information indicates the carrying amount of long-lived assets,
identifiable intangibles and goodwill related to those assets will not be
recovered through future operations or sale. Impairment losses for assets to
be held or used in operations will be based on the excess of the carrying
amount of the asset over the asset's fair value. Assets held for disposal,
except for discontinued operations, will be carried at the lower of carrying
amount or fair value less cost to sell. Statement 121 is effective for fiscal
years beginning after December 15, 1995. The Company plans to adopt Statement
<PAGE>35-52
121 effective January 1, 1996. Statement 121 will be applied prospectively from
the date of adoption and, based on current circumstances, management does not
believe the adoption will be material to the Company's financial position or
results of operations.
Statement of Financial Accounting Standards No. 122 ("Statement 122"),
"Accounting for Mortgage Servicing Rights - an Amendment to FAS 65," eliminates
the accounting inconsistencies that have existed between mortgage servicing
rights that are acquired through loan origination activities and those acquired
through purchase transactions. Statement 122 requires that mortgage banking
enterprises recognize a separate asset for mortgage servicing rights,
regardless of how they are acquired. If the mortgage banking enterprise sells
or securitizes mortgage loans and retains the mortgage servicing rights, the
total cost of mortgage loans is to be allocated to the loan and the servicing
rights based on their relative fair values if it is practicable to estimate
those values. If it is not practicable to estimate either one of those fair
values, the entire cost of purchasing or originating the mortgage loans is
allocated to the mortgage loans, and no separate asset is recognized for the
mortgage servicing rights. Statement 122 also specifies how mortgage servicing
rights and excess servicing rights should be evaluated for impairment.
Statement 122 is to be applied prospectively for fiscal years beginning after
December 15, 1995.
The Company plans to adopt Statement 122 effective January 1, 1996.
Statement 122 will be applied prospectively from the date of adoption and,
based on current circumstances, management believes the adoption will increase
1996 results of operations $2.6 million.
Supplemental Cash Flow Disclosures
For purposes of the statement of cash flows, the Company includes cash and
due from banks, Federal funds sold and securities purchased under agreements to
resell as cash equivalents. Cash payments for interest were approximately
$134.5 million, $97.1 million and $91.4 million for 1995, 1994, and 1993,
respectively. Transfers from loans to other real estate owned were $2.3
million, $1.9 million and $5.8 million during 1995, 1994, and 1993,
respectively. Purchases of institutions consisted of loans of $281 million;
investment securities of $157 million; other assets of $44 million; deposits of
$451 million; short-term borrowings of $16 million; and other liabilities of $5
million for 2,038,321 shares of the Company's common stock.
Reclassification
Certain reclassifications of 1994 and 1993 amounts have been made to
conform with the 1995 presentation.
Note 2:
ACQUISITIONS
Acquisition of FDH Bancshares, Inc.
On November 30, 1995, the Company acquired all of the outstanding common
stock of FDH Bancshares, Inc., in exchange for 1,349,215 Company common shares,
restated for the 7% stock dividend declared November, 1995. FDH Bancshares,
Inc., was the parent company of Citizens First Bank, Little Rock, Arkansas;
Citizens First Bank, El Dorado, Arkansas; Citizens First Bank, Fordyce,
Arkansas; Citizens First Bank, Arkadelphia, Arkansas; and Springhill
Bancshares, Inc., parent company of Springhill Bank &Trust Company, Springhill,
Louisiana. FDH Bancshares, Inc., had approximately $375 million in assets,
<PAGE>35-52
$206 million in loans, and $330 million in deposits. This transaction was
accounted for as a purchase, and accordingly, the results of operations were
consolidated with those of the Company from the date of acquisition. The
assets and liabilities of FDH Bancshares, Inc., were adjusted to fair value at
the purchase date, resulting in an excess cost over fair value of $14.7
million, which is being amortized over fifteen years.
The following table sets forth selected unaudited financial information for
the Company as if the previously described purchase transaction had been
consummated January 1, 1994, with adjustments primarily for imputed interest
charges attributable to the financing of the purchase and amortization of
goodwill. The pro forma data is based on pre-acquisition earnings and is
therefore not necessarily indicative of future performance.
(Dollars in Thousands) 1995 1994
---------- ----------
Total revenue................................... $ 423,519 $348,508
Income before income taxes...................... 85,196 77,104
Net income...................................... 56,777 52,010
Earnings per common share....................... 2.07 1.92
Acquisition of West-Ark Bancshares, Inc.
On November 30, 1995, the Company acquired all of the outstanding common
stock of West-Ark Bancshares, Inc., Clarksville, Arkansas, parent company of
Arkansas State Bank, in exchange for 689,106 Company common shares, restated
for the 7% stock dividend declared November, 1995. This transaction was
accounted for as a pooling-of-interests. The results of West-Ark Bancshares,
Inc., are included in the consolidated financial statements for 1995, however,
prior period financial data has not been restated due to immateriality. West-
Ark Bancshares, Inc., had approximately $159 million in assets, $107 million in
loans, and $146 million in deposits.
Note 3:
INTANGIBLE ASSETS
Intangible assets are included in other assets and consist of goodwill,
issuance costs, core deposit intangibles and purchased mortgage servicing
rights. These assets are being amortized over periods ranging from one to
twenty-five years. Goodwill and identifiable intangibles at December 31, 1995,
and 1994, had an original cost of $51.7 million and $30.1 million and are
amortized using the straight line method. The original cost of purchased
mortgage servicing rights, which are not included in the previous totals as
they have resale value, totaled $80.8 million and $26.2 million at December 31,
1995, and 1994, respectively. Accumulated amortization of intangible assets
totaled $33.7 million and $23.7 million at December 31, 1995, and 1994,
respectively. The Company's equity capital, excluding all intangible assets
except purchased mortgage servicing rights, was $389.4 million and $319.6
million at December 31, 1995, and 1994, respectively.
<PAGE>35-52
Note 4:
PLEDGED ASSETS AND REGULATORY RESTRICTIONS
Investment securities having a carrying value of $691,519,000 and
$587,698,000 at December 31, 1995, and 1994, respectively, were pledged to
secure public and trust deposits and certain borrowed funds.
Subsidiary banks are restricted by banking regulatory agencies from making
dividend payments above prescribed limits and are limited in making loans and
advances to the Company. At December 31, 1995, approximately $24 million was
available for payment of dividends by the Company's subsidiary banks without
the approval of regulatory authorities.
Under Federal Reserve regulation, the subsidiary banks are also limited as
to the amount they may loan to their affiliates, including the Company, unless
such loans are collateralized by specific obligations. At December 31, 1995,
the maximum amount available for transfer from the subsidiary banks to the
Company in the form of loans approximated $42 million.
Subsidiary banks are required by bank regulatory agencies to maintain
certain minimum balances of non-interest bearing deposits primarily with the
Federal Reserve. At December 31, 1995, these required balances aggregated
approximately $60 million.
Note 5:
INVESTMENT SECURITIES
The amortized cost and estimated market values of investment securities at
December 31, 1995, are as follows:
Held-to-maturity
--------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(Dollars in Thousands) Cost Gains Losses Value
--------- ---------- ---------- ---------
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies.... $ 195,201 $ 1,385 $ (687) $ 195,899
Obligations of states and
political subdivisions....... 60,732 1,254 (295) 61,691
Corporate securities.............. 4,503 44 (62) 4,485
Mortgage-backed securities........ 90,975 927 (1,489) 90,413
Other debt securities............. 4 - - 4
--------- ---------- ---------- ---------
Totals................. $ 351,415 $ 3,610 $ (2,533) $ 352,492
========= ========== ========== =========
<PAGE>35-52
Available-for-sale
--------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(Dollars in Thousands) Cost Gains Losses Value
--------- ---------- ---------- ---------
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies.... $ 635,948 $ 3,228 $ (2,612) $ 636,564
Obligations of states and
political subdivisions....... 107,906 2,338 (425) 109,819
Corporate securities.............. 7,238 137 (42) 7,333
Mortgage-backed securities........ 203,784 1,964 (3,042) 202,706
Other debt securities............. 16,713 19 (25) 16,707
--------- ---------- ---------- ---------
Totals................. $ 971,589 $ 7,686 $ (6,146) $ 973,129
========= ========== ========== =========
The amortized cost and estimated market values of investment securities at
December 31, 1994, are as follows:
Held-to-maturity
--------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(Dollars in Thousands) Cost Gains Losses Value
--------- ---------- ---------- ---------
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies.... $ 567,804 $ 140 $ (15,822) $ 552,122
Obligations of states and
political subdivisions....... 115,093 867 (2,587) 113,373
Corporate securities.............. 4,448 2 (69) 4,381
Mortgage-backed securities........ 212,230 67 (17,296) 195,001
Other debt securities............. 489 - - 489
--------- ---------- ---------- ---------
Totals................. $ 900,064 $ 1,076 $ (35,774) $ 865,366
========= ========== ========== =========
<PAGE>35-52
Available-for-sale
--------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(Dollars in Thousands) Cost Gains Losses Value
--------- ---------- ---------- ---------
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies.... $ 289,158 $ 156 $ (5,467) $ 283,847
Obligations of states and
political subdivisions....... 28,893 277 (852) 28,318
Corporate securities.............. 492 2 - 494
Mortgage-backed securities........ 89,805 23 (5,556) 84,272
Other debt securities............. 12,203 - (5) 12,198
--------- ---------- ---------- ---------
Totals................. $ 420,551 $ 458 $ (11,880) $ 409,129
========= ========== ========== =========
On November 15, 1995, the FASB staff issued a Special Report, A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities. In accordance with provisions in that Special Report,
the Company chose to reclassify securities from held-to-maturity to available-
for-sale. At the date of transfer the amortized cost of those securities was
$370.0 million and the unrealized loss on those securities was $3.5 million,
which is included in stockholders' equity.
During the years ended December 31, 1995, and 1994, investment securities
available-for-sale with a fair value at the date of sale of $83.2 million and
$9.2 million, respectively were sold. The gross realized gains on such sales
totaled $149,688 and $149, 957, respectively. The gross realized losses
totaled $530,205 and $10,558, respectively. During the year ended December 31,
1993, investment securities with a fair value at the date of sale $18.0 million
were sold. The gross realized gains on such sales totaled $347,922 and the
gross realized losses totaled $6,513. Additionally, recognized losses of
$59,469 and $120,000 were recorded on other debt securities in the Company's
portfolio at December 31, 1995, and 1993, respectively.
The amortized cost and estimated market value of securities at December 31,
1995, by contractual maturity, are shown in the accompanying table. Expected
maturities may differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<PAGE>35-52
Amortized Estimated
(Dollars in Thousands) Cost Market Value
------------ ------------
Held-to-maturity
Due in one year or less..................... $ 145,963 $ 146,235
Due after one year through five years....... 94,665 95,390
Due after five years through ten years...... 12,015 12,345
Due after ten years......................... 7,797 8,109
------------ ------------
260,440 262,079
Mortgage-backed securities.................. 90,975 90,413
------------ ------------
$ 351,415 $ 352,492
============ ============
Amortized Estimated
(Dollars in Thousands) Cost Market Value
------------ ------------
Available-for-sale
Due in one year or less..................... $ 394,031 $ 393,998
Due after one year through five years....... 315,190 316,530
Due after five years through ten years...... 29,339 30,211
Due after ten years......................... 29,245 29,684
------------ ------------
767,805 770,423
Mortgage-backed securities.................. 203,784 202,706
------------ ------------
$ 971,589 $ 973,129
============ ============
Note 6:
LOANS AND LEASES
Loans and leases consist of the following
(Dollars in Thousands) 1995 1994
------------ ------------
Commercial and financial.................... $ 545,444 $ 441,885
Agricultural................................ 56,904 46,514
Real estate - construction.................. 140,285 104,259
- mortgage...................... 1,664,873 1,244,564
Loans for purchasing or carrying securities. 11,568 9,304
Consumer.................................... 806,945 686,650
Direct lease financing...................... 32,196 30,689
Other....................................... 9,414 16,793
------------ ------------
3,267,629 2,580,658
Unearned income............................. (52,067) (45,865)
------------ ------------
Loans and leases, net of unearned income.... $ 3,215,562 $ 2,534,793
============ ============
<PAGE>35-52
At December 31, 1995, the recorded investment in loans that are considered
to be impaired under Statement 114 was $739 thousand, all of which were on a
nonaccrual basis. These loans had a related allowance for credit losses of
$446 thousand. At December 31, 1995, there were no impaired loans that, as a
result of writedowns, did not have an allowance for credit losses. The average
recorded investment in impaired loans during the year ended December 31, 1995,
was approximately $852 thousand. For the year ended December 31, 1995, the
interest income recognized using the cash basis method of income recognition on
impaired loans was immaterial. At December 31, 1994, the Company had
nonaccrual loans of $9.5 million (including approximately $1.1 million that
would be considered impaired under Statement 114) and restructured loans of
$386 thousand. The interest income recorded by the Company on these loans in
1994 was immaterial. Interest income in the amount of $872 thousand would have
been recorded on these loans according to their original terms.
Most of the Company's business activity is with customers located in the
state of Arkansas, East Texas, Northwest Louisiana and Memphis, Tennessee. The
Company's subsidiary banks grant commercial and financial, agribusiness, real
estate construction and mortgage, and consumer loans. The loan portfolio is
diversified with no industry comprising greater than 10 percent of the total
outstandings.
Certain of the directors and officers of the Company, its subsidiaries, and
companies in which they have a 10% or more interest, are customers of, and have
transactions with, the Company's subsidiary banks in the ordinary course of
business. In the opinion of management, all loans and commitments to loan
included in such transactions were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons. These loans do not include more
than a normal risk of collectibility and do not involve any unfavorable
features. The aggregate balance of such loans at December 31, 1995, and 1994,
was $134,934,049 and $125,675,587, respectively. Transactions during 1995
included new loans amounting to $141,177,819 and repayments amounting to
$131,919,357.
Note 7:
ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES
Transactions in the allowance for possible loan and lease losses are as
follows:
(Dollars in Thousands) 1995 1994 1993
-------- -------- --------
Balance - January 1...................... $ 45,325 $ 48,080 $ 38,712
Recoveries credited to allowance......... 3,913 3,173 3,747
Provision charged to operating expense... 3,059 (3,092) 4,416
Loans and leases charged off............. (6,022) (4,156) (6,908)
Allowance resulting from acquisitions.... 5,066 1,320 8,113
-------- -------- --------
Balance - December 31 $ 51,341 $ 45,325 $ 48,080
======== ======== ========
<PAGE>35-52
Note 8:
BANK PREMISES AND EQUIPMENT
Bank premises and equipment consist of the following:
(Dollars in Thousands) 1995 1994
-------- --------
Land............................................... $ 16,976 $ 13,336
Building and improvements.......................... 104,299 88,608
Leasehold improvements............................. 8,900 8,421
Equipment.......................................... 77,515 66,247
-------- --------
207,690 176,612
Less accumulated depreciation
and amortization................................. 101,025 89,566
-------- --------
$106,665 $ 87,046
======== ========
Note 9:
Short-Term Borrowings
Short-term borrowings consist of the following:
(Dollars in Thousands) 1995 1994
-------- --------
Federal funds purchased............................ $ 88,452 $ 83,980
Securities sold under agreements to repurchase..... 90,111 23,481
Committed lines of credit.......................... 38,596 41,700
Other.............................................. 18,219 18,256
-------- --------
$235,378 $167,417
======== ========
The Company has a $30.0 million, a $25.0 million and a $20.0 million
committed line of credit from three unaffiliated banks. Amounts borrowed under
the $30.0 million and $25.0 million agreements are subject to a variable
interest rate that is based on the London Interbank Offered Rate plus 3/4 of 1%
(6.69% at December 31, 1995). Amounts borrowed under the $20.0 million
agreement are subject to an interest rate which is set monthly by the lender on
a floating basis (6.59% at December 31, 1995). As of December 31, 1995, the
Company had borrowings of $21.6 million, $7.0 million and $10.0 million,
respectively, under these agreements.
Note 10:
LONG-TERM DEBT
Long-term debt consists of the following:
(Dollars in Thousands) 1995 1994
-------- --------
8.85% note - payable $1,071,428 annually to 1997... $ 2,143 $ 3,214
Note payable to Federal Home Loan Bank, interest
at London InterBank Offered Rate plus .10%, due
2001 (6.07% at December 31, 1995)................ 5,000 5,000
Other.............................................. 27 29
-------- --------
$ 7,170 $ 8,243
======== ========
<PAGE>35-52
Maturities of long-term debt for years subsequent to December 31, 1995, are
as follows:
(Dollars in Thousands) Consolidated Parent Company
-------------- --------------
1996........................ $ 1,073 $ 1,071
1997........................ 1,074 1,072
1998........................ 2 -
1999........................ 2 -
2000........................ 3 -
Later years................. 5,016 -
Under certain loan covenants, the Company has restrictions on incurring
additional indebtedness or lease commitments and is prohibited from pre-paying
such debt for a certain amount of time. Also, the Company cannot pay dividends
(other than stock dividends) or retire capital stock if the amount of such
payments would exceed prescribed limits. Retained earnings in excess of
earnings so restricted by these covenants and available for distribution total
$209 million at December 31, 1995.
Note 11:
INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the company's deferred tax assets and liabilities as of December 31, 1995,
and 1994, are as follows:
(Dollars in Thousands) 1995 1994
-------- --------
Deferred tax assets:
Loan loss reserve................................ $ 15,866 $ 14,106
Cost of purchased mortgage servicing............. 2,552 1,556
Unrealized loss on available-for-sale securities. - 3,988
Other - net...................................... 7,201 4,668
-------- --------
Total deferred tax assets...................... 25,619 24,318
-------- --------
Valuation allowance.............................. (815) (983)
-------- --------
Net deferred tax assets.......................... 24,804 23,335
-------- --------
Deferred tax liabilities:
Operating leases................................. 3,630 3,018
Net pension benefit.............................. 5,102 4,449
Basis adjustment - purchase accounting........... 2,481 1,418
Property, plant and equipment.................... 1,912 1,640
Other - net...................................... 5,610 3,978
-------- --------
Total deferred tax liabilities................. 18,735 14,503
-------- --------
Net deferred tax assets........................ $ 6,069 $ 8,832
======== ========
<PAGE>35-52
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. Due to the lack of
historical earnings trends for acquired subsidiaries, the Company has
established a valuation allowance equal to approximately the amount of acquired
tax operating loss carryforwards in excess of the subsidiaries' future taxable
items in the carryforward periods. The valuation allowance relates solely to
the State First National Bank, Texarkana, Texas, and Kilgore First National
Bank, Kilgore, Texas, net operating loss carryforwards.
At December 31, 1995, State First National Bank and Kilgore First National
Bank had net operating loss carryforwards of approximately $1,177,000 and
$1,414,000, respectively, for Federal income tax purposes. The carryforwards
can only be used against taxable income of State First National Bank and
Kilgore First National Bank and expire in 2005, and 2004, respectively.
Additionally, provisions of the Internal Revenue Code limit the annual
utilization of the net operating loss carryforwards. As the valuation
allowance is reduced, the amounts will be applied to reduce goodwill recorded
in connection with the purchase of both State First National Bank and Kilgore
First National Bank.
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
(Dollars in Thousands) 1995 1994 1993
-------- -------- --------
Current:
Federal................................. $ 27,398 $ 19,182 $ 18,049
State................................... 2,062 986 176
-------- -------- --------
Total current........................... 29,460 20,168 18,225
-------- -------- --------
Deferred:
Federal................................. (1,066) 3,296 (495)
State................................... (131) 542 229
-------- -------- --------
Total deferred.......................... (1,197) 3,838 (266)
-------- -------- --------
Provision for income taxes............... $ 28,263 $ 24,006 $ 17,959
======== ======== ========
The components of the provision for deferred income taxes for the years
ended December 31, 1995, 1994, and 1993, are as follows:
(Dollars in Thousands) 1995 1994 1993
-------- -------- --------
Provision for possible loan and lease
losses................................. $ (912) $ 1,165 $ (701)
Net pension benefit...................... 763 828 648
SFAS #109 transition adjustment.......... - - (1,150)
Operating lease.......................... 916 1,270 816
Other.................................... (1,964) 575 121
-------- -------- --------
Provision for deferred income taxes...... $ (1,197) $ 3,838 $ (266)
======== ======== ========
<PAGE>35-52
The reconciliation of income tax attributable to continuing operations
computed at the U.S. Federal statutory tax rates to income tax expense is:
(Dollars in Thousands) 1995 1994 1993
-------- -------- --------
Current:
Tax at U.S. statutory rate............... 35.0% 35.0% 34.8%
Non-taxable interest income.............. (2.8) (3.3) (4.1)
State income tax expense,
net of Federal income tax benefit...... 1.5 1.3 .4
Equity in earnings of unconsolidated
subsidiary............................. (.6) (.5) (.6)
SFAS #109 transition adjustment.......... - - (2.0)
Other, net............................... .1 (.2) (.4)
-------- -------- --------
Effective income tax rate................ 33.2% 32.3% 28.1%
======== ======== ========
Cash income taxes paid during 1995, 1994 and 1993, were $25.2 million,
$25.2 million and $18.3 million, respectively.
Note 12:
STOCK OPTION PLAN
The Company has a stock option plan for certain key officers. Presented
below is the activity in the plan for the three years in the period ended
December 31, 1995, and certain other information concerning the plan.
Number of Shares
Under Option Option Price
------------------------------- -------------------------
Non-
Incentive Qualified Total Per Share Total
--------- --------- --------- ------------ -----------
Outstanding at
January 1, 1993.. 108,145 447,996 556,141 $ 6.21-16.92 $ 5,169,880
Granted............ - 215,127 215,127 $18.40-19.58 4,201,837
Exercised.......... (18,744) (11,906) (30,650) $ 6.21-16.92 (242,562)
Forfeited.......... (1,123) (4,256) (5,379) $ 8.43-16.92 (81,478)
--------- --------- --------- -----------
Outstanding at
December 31, 1993 88,278 646,961 735,239 $ 6.21-19.58 $ 9,047,677
Granted............ - 21,347 21,347 $18.69 398,975
Exercised.......... (24,645) (74,720) (99,365) $ 6.21-16.92 (737,128)
Forfeited.......... - (10,484) (10,484) $16.92-19.58 (180,560)
--------- --------- --------- -----------
Outstanding at
December 31, 1994 63,633 583,104 646,737 $ 6.21-19.58 $ 8,528,964
Granted............ - 248,319 248,319 $22.90-32.13 6,793,450
Exercised.......... (20,737) (42,138) (62,875) $ 6.21-19.58 (663,879)
Forfeited.......... - (13,851) (13,851) $16.92-22.90 (270,266)
--------- --------- --------- -----------
Outstanding at
December 31, 1995 42,896 775,434 818,330 $ 6.21-32.13 $14,388,269
========= ========= ========= ===========
42,896 of the incentive options outstanding and 354,928 of the non-
qualified options outstanding were exercisable at December 31, 1995.
<PAGE>35-52
There was no material dilutive effect on earnings per share from
outstanding stock options for the three years in the period ended December 31,
1995.
Note 13:
EMPLOYEE BENEFIT PLANS
The company has a salary deferral retirement savings plan qualified under
section 401(k) of the internal revenue code for the benefit of all qualifying
employees who have completed one year of service. Participants in the plan may
make deferral contributions to the plan which are 100% vested at all times.
The company matches a minimum of 30% of the employee's contributions up to 6%
of salary. After five years of service, the company matches 40% of the
employee's contributions up to 6% of salary. Company-matching contributions
are fully vested after five years of service. In 1995, 1994, and 1993, the
company made contributions of $999,000, $943,000 and $738,000, respectively, to
the 401(k) thrift plan.
The Company has defined benefit pension plans which provide benefits to
substantially all employees. Benefits under these plans generally are based on
the employee's years of service and compensation during the years immediately
preceding retirement. The Company's general funding policy is to contribute
amounts deductible for Federal income tax purposes. Pension (cost) benefit is
summarized as follows:
(Dollars in Thousands) 1995 1994 1993
-------- -------- --------
Service cost............................. $ (1,649) $ (1,716) $ (1,562)
Interest cost............................ (2,148) (2,139) (2,006)
Actual return on plan assets............. 10,114 (906) 2,933
Net amortization and deferral............ (5,062) 5,896 1,599
-------- -------- --------
Total pension benefit.................... $ 1,255 $ 1,135 $ 964
======== ======== ========
The status of the defined benefit plans at December 31, 1995, 1994, and
1993, is as follows:
(Dollars in Thousands) 1995 1994 1993
-------- -------- --------
Actuarial present value of benefit
obligations:
Approximate accumulated benefit
obligation, including vested benefits
of approximately $25,940, $22,768
and $23,206, at December 31, 1995,
1994, and 1993, respectively......... $ 28,377 $ 23,807 $ 23,761
======== ======== ========
Fair value of plan assets................ $ 51,049 $ 42,436 $ 44,738
Projected benefit obligation............. (32,500) (27,476) (29,579)
-------- -------- --------
Plan assets in excess of
projected benefit obligation........... 18,549 14,960 15,159
Unrecognized net (gain) loss............. (440) 2,284 923
Unrecognized net transition
asset at December 31................... (4,101) (4,821) (5,661)
-------- -------- --------
Prepaid pension costs.................... $ 14,008 $ 12,423 $ 10,421
======== ======== ========
<PAGE>35-52
The expected long-term rate of return on the plans' assets was in the range
of 8.5% to 9.5% for 1995, 1994, and 1993. The discount rate and rate of
increase in future compensation levels used in determining the actuarial
present value of the projected benefit obligation were 8.0% and 4.5%,
respectively, at December 31, 1995, and December 31, 1994, and 7.25% to 8.5%
and 4.6% to 5.0%, respectively, at December 31, 1993. The plans' assets are
invested in diversified portfolios that primarily consist of equity and debt
securities of which 249,856 shares, 170,019 shares and 181,286 shares at
December 31, 1995, 1994, and 1993, respectively, were in the Company's common
stock. Also included in these securities were investments in various common
trust funds administered by First Commercial Trust Company, a subsidiary of the
Company, of 568,308 shares, 457,650 shares and 390,655 shares at December 31,
1995, 1994, and 1993, respectively.
Note 14:
FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 ("Statement 107"),
"Disclosures about Fair Value of Financial Instruments," requires disclosure of
fair value information about financial instruments, whether or not recognized
in the balance sheet, for which it is practicable to estimate that value.
Whenever possible, quoted market prices were used to develop fair values. In
cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instrument.
Statement 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the Company.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments as of December
31, 1995, and as of December 31, 1994.
CASH AND CASH EQUIVALENTS - The carrying amounts reported in the balance sheet
for cash and short-term instruments approximate those assets' fair values.
INVESTMENT SECURITIES AND TRADING ACCOUNT SECURITIES - Fair values for
investment securities are based on quoted market prices. Investment securities
available-for-sale and trading account securities are carried at fair value.
LOANS, NET OF UNEARNED INCOME - Fair values for loans with variable rates are
considered to be carrying value, adjusted for changes in credit risk since
origination of the loans. Fair values for loans with fixed rates are based
upon the discounting of the estimated future cash flows of the instrument. The
future cash flows were estimated using the actual yield for each specific loan
category after adjustment to allocate the expenses of origination and servicing
of the loans. The discount rate to bring the future cash flows to present
value was estimated based upon a risk free rate derived from the Treasury yield
curve, adjusted for the credit risk of the loan portfolio, allocation of
expenses and a prepayment fee premium.
<PAGE>35-52
NON-INTEREST BEARING DEPOSITS AND INTEREST BEARING TRANSACTION ACCOUNTS AND
SAVINGS ACCOUNTS WITH VARIABLE RATES - The carrying amounts of these
liabilities approximate market. Accordingly, carrying value is the disclosed
fair value for these deposit liabilities. Statement 107 defines the fair value
of demand deposits as the amount payable on demand, and prohibits adjusting
fair value for any value derived from retaining those deposits for an expected
future period of time. That component, commonly referred to as a deposit base
intangible, is estimated to be approximately $153.2 million at December 31,
1995, and $164.6 million at December 31, 1994. This component is estimated
using the method described for interest bearing deposits with the addition of
certain retention and profitability projections.
INTEREST BEARING DEPOSITS - The fair value of these liabilities has been
estimated based upon the projected future cash flows for these accounts. The
future cash flows were estimated using the actual interest expense for these
deposit accounts plus adjustments for the estimated expenses incurred in the
carrying of these accounts less estimated service charges. The future cash
flows are discounted at a risk free rate derived from the Treasury yield curve
plus allocated expenses less estimated service charge income. The fair value
of these accounts is included in the total fair value of deposit liabilities
disclosed above.
SHORT-TERM BORROWINGS - The carrying amounts reported in the balance sheet for
short-term borrowings approximate those liabilities' fair values.
LONG-TERM DEBT - The fair value of these liabilities has been estimated based
upon the discounted future cash flows. The discount rate used included a risk
free rate derived from the Treasury yield curve plus a risk weighting
commensurate with the Company's borrowing position.
OFF-BALANCE-SHEET ITEMS - The estimated fair value of loan commitments and
letters of credit is determined based upon the Company's current fee structure
and is considered immaterial at December 31, 1995, and December 31, 1994.
(Dollars in Thousands) December 31, 1995 December 31, 1994
---------------------- ----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
---------- ---------- ---------- ----------
Financial assets:
Cash and cash equivalents.... $ 540,298 $ 540,298 $ 359,355 $ 359,355
Investment securities
held-to-maturity........... 351,415 352,492 900,064 865,366
Investment securities
available-for-sale......... 973,129 973,129 409,129 409,129
Trading account securities ...... 449 449 13 13
Loans, net of allowance
for loan losses............ 3,132,577 3,178,829 2,458,779 2,373,808
Financial liabilities:
Non-interest bearing deposits 1,018,181 1,018,181 767,525 767,525
Interest bearing transaction
and savings accounts....... 1,612,294 1,612,294 1,538,601 1,538,601
Time Deposits................ 2,000,066 2,027,125 1,519,234 1,503,244
Short-term borrowings........ 235,378 235,378 167,417 167,417
Long-term debt............... 7,170 7,348 8,243 6,528
<PAGE>35-52
These fair value estimates are as of December 31, 1995, and December 31,
1994, and may not be relevant in predicting the Company's future earnings or
cash flows. This is due primarily to the Company's intention and ability to
hold its investment securities and loans to maturity. Additionally, it is the
Company's policy to balance rate sensitive assets and rate sensitive
liabilities so as to minimize the effect of rate changes on net interest
margin. Because the Company follows this policy, the unrealized gains and
losses on the asset side of the balance sheet are substantially offset by
unrealized gains and losses on the liability side of the balance sheet.
Note 15:
COMMITMENTS AND CONTINGENCIES
In the normal course of business there are various commitments outstanding
and contingent liabilities, such as guarantees and commitments to extend
credit, including letters of credit to facilitate commercial trade and standby
letters of credit to assure performance or to support debt obligations, which
are not reflected in the accompanying consolidated financial statements. These
arrangements have credit risk essentially the same as that involved in
extending loans to customers. At December 31, 1995, and 1994, the subsidiaries
of the Company had outstanding standby letters of credit of $42,669,000 and
$47,197,000, respectively. The majority of the standby letters of credit
outstanding at December 31, 1995, are related to debts of others, primarily
corporations, including industrial revenue bonds of approximately $5.6 million.
The terms of these standby letters of credit are generally less than five
years. Potential losses on standby letters of credit are considered in the
allowance for possible loan and lease losses. Fee income on standby letters of
credit is recognized in accordance with Statement of Financial Accounting
Standards No. 91.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Company uses the same credit policies in making commitments
and conditional obligations as it does for on-balance sheet instruments.
Financial instruments whose contract amounts represent credit risk at December
31, 1995, are as follows:
Contractual Amount
------------------
Commitments to extend credit....................... $ 526,398,000
Standby letters of credit.......................... $ 42,669,000
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 Company evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained if deemed necessary by the Company upon extension of credit is based
on management's credit evaluation of the counterparty. Collateral held varies
but may include accounts receivable, inventory, property, plant and equipment,
and income-producing commercial properties.
<PAGE>35-52
Two real estate partnerships owned by the Company through one of its
subsidiaries have $1,445,000 and $1,529,000, respectively, at December 31,
1995, of long-term indebtedness in which the creditors' recourse to the Company
is limited to the Company's interest in the specific partnership's collateral
pledged under the related obligation.
Land, buildings, and equipment are leased under contracts through various
dates to 2070, with renewal options generally available. Total rent expense of
the leased premises and equipment was $4,005,000 in 1995, $3,469,000 in 1994,
and $5,398,000 in 1993. Rental income received under sub-leases amounted to
$432,000 in 1995, $284,000 in 1994, and $269,000 in 1993.
Minimum annual rentals under non-cancelable operating leases totaling
$8,006,000, are as follows: 1996 - $2,108,000, 1997 - $1,738,000, 1998 -
$1,360,000, 1999 - $993,000, 2000 - $475,000, and remaining years - $1,332,000.
Minimum annual rental income under non-cancelable operating sub-leases amounts
to $70,000 each year from 1996 through 2001, and $35,000 in 2002. The annual
rent for certain of the leases varies according to changes in the Consumer
Price Index.
Aearth Development, Inc. v. First Commercial Bank, N.A.
- -------------------------------------------------------
First Commercial Bank, N.A., a wholly owned subsidiary of the Company, is
the defendant in litigation initiated in 1989 seeking approximately
$200,000,000 in compensatory damages plus punitive damages. Plaintiffs in the
litigation allege fraudulent conspiracy, fraudulent misrepresentation, tortious
interference with a business expectancy, breach of contract, willful breach of
fiduciary duty, interference with performance of contract, securities law
violations, conversion, prima facie tort and violations of the Federal
Racketeer Influence and Corrupt Organization Act as a basis for treble damages.
In June of 1991, the matter was tried before a chancery judge in Chancery Court
in Pulaski County, Arkansas, and on June 5, 1992, the complaint was dismissed
and no damages were assessed against First Commercial Bank, N.A. Plaintiffs
appealed this decision to the Supreme Court of Arkansas in July of 1992,
alleging error for failure to try the case before a jury in Circuit Court. On
July 18, 1994, the Supreme Court of Arkansas remanded the case to Circuit Court
in Pulaski County, Arkansas, for jury trial. A trial date has been set for
February 5, 1996. First Commercial Bank has been advised that in the opinion
of its counsel, a materially adverse result is unlikely.
The Company is involved in various lawsuits and litigation matters on an
ongoing basis as a result of its day-to-day operations. However, the Company
does not believe that any of these or any threatened lawsuits and litigation
matters will have a materially adverse effect on the Company's financial
position or results of operations.
<PAGE>35-52
Note 16:
PARENT COMPANY FINANCIAL INFORMATION
Presented below are the condensed balance sheets, and statements of income
and cash flows for the parent company, First Commercial Corporation:
Balance Sheets (In Thousands) December 31,
------------------
1995 1994
-------- --------
Assets
Cash................................... $ 8,246 $ 1,014
Short-term investments................. 2,500 4,500
-------- --------
Cash and cash equivalents.............. 10,746 5,514
Loans.................................. 1,233 1,296
Investment in and advances
to subsidiaries...................... 456,475 373,734
Investment securities, estimated market
value $429 ($229 in 1994)............ 429 229
Bank premises and equipment............ 10,294 9,237
Other assets........................... 8,030 10,278
-------- --------
$487,207 $400,288
======== ========
Liabilities and Stockholders' Equity
Long-term debt......................... $ 2,143 $ 3,214
Short-term borrowings.................. 38,596 41,700
Other liabilities...................... 14,209 12,183
Preferred stock........................ - -
Common stockholders' equity............ 432,259 343,191
-------- --------
$487,207 $400,288
======== ========
Statements of Income (In Thousands) Years Ended December 31,
----------------------------
1995 1994 1993
-------- -------- --------
Income
Dividends from subsidiaries............ $ 46,700 $ 33,095 $ 51,301
Interest............................... 213 226 414
Other income........................... 395 1,038 979
-------- -------- --------
Total income............................. 47,308 34,359 52,694
-------- -------- --------
Expenses
Interest............................... 2,273 2,174 1,918
Other expenses......................... 11,062 9,778 7,725
-------- -------- --------
Total expenses........................... 13,335 11,952 9,643
-------- -------- --------
Income from operations................... 33,973 22,407 43,051
Income tax benefit....................... 4,686 4,088 3,514
Equity in undistributed
earnings of subsidiaries............... 18,251 23,813 (600)
-------- -------- --------
Net income............................... $ 56,910 $ 50,308 $ 45,965
======== ======== ========
<PAGE>35-52
Statements of Cash Flows (In Thousands) Years Ended December 31,
----------------------------
1995 1994 1993
-------- -------- --------
OPERATING ACTIVITIES
Net income................................. $ 56,910 $ 50,308 $ 45,965
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........... 2,351 2,318 1,289
Undistributed earnings of subsidiaries.. (18,251) (23,813) 600
Writedown of other real estate.......... - 79 -
Gain on sale of equipment............... (3) - -
Increase (decrease) in taxes payable.... 3,380 782 (798)
Decrease in interest receivable......... - 10 108
Increase (decrease) in interest payable. (669) 694 (22)
Increase in dividends payable........... 993 1,411 334
Decrease (increase) in other receivables 1,896 (2,262) (168)
Decrease (increase) in prepaid assets... 47 (58) (17)
Increase (decrease) in accrued expenses. (1,678) 3,333 (623)
-------- -------- --------
Net cash provided by operating activities.. 44,976 32,802 46,668
INVESTING ACTIVITIES
Proceeds from maturing
investment securities held-to-maturity... - - 58,668
Proceeds from maturing investment
securities available-for-sale............ - 1,061 -
Purchases of investment securities
held-to-maturity......................... - - (38,100)
Purchases of investment securities
available-for-sale....................... (200) (100) -
Net decrease (increase) in loans........... 63 (324) (959)
Purchase of subsidiary..................... (6,122) - (63,170)
Decrease (increase) in investments
in subsidiaries.......................... 130 (15,216) -
Decrease (increase) in advances to
subsidiaries............................. (1,891) (2,048) -
Fixed asset purchases...................... (3,207) (6,308) (7,999)
Proceeds from sale of fixed assets......... 107 2,103 3,495
Proceeds from sale of other real estate.... - 141 88
-------- -------- --------
Net cash used in investing activities...... (11,120) (20,691) (47,977)
<PAGE>35-52
Statements of Cash Flows (continued)
(In Thousands) Years Ended December 31,
----------------------------
1995 1994 1993
-------- -------- --------
FINANCING ACTIVITIES
Net increase (decrease) in short-term
borrowings............................. (3,104) 41,700 -
Repayment of long-term debt.............. (1,071) (15,972) (1,083)
Dividends paid on preferred stock........ - (129) (1,210)
Dividends paid on common stock........... (20,356) (17,092) (13,780)
Payment to redeem preferred stock........ - (11,330) _
Proceeds from issuance of common stock... 61 - 7,879
Purchases of treasury stock.............. (5,245) (9,566) (59)
Sales of treasury stock.................. - 63 8
Purchase of partial shares resulting
from stock splits/stock dividends...... (44) (25) (20)
Stock options exercised.................. 1,135 890 554
-------- -------- --------
Net cash provided by (used in) financing
activities............................. (28,624) (11,461) (7,711)
Net increase (decrease) in cash and
cash equivalents....................... 5,232 650 (9,020)
Cash and cash equivalents at
beginning of year...................... 5,514 4,864 13,884
-------- -------- --------
Cash and cash equivalents at end of year. $ 10,746 $ 5,514 $ 4,864
======== ======== ========
<PAGE>
FIRST COMMERCIAL CORPORATION EXHIBIT 21
Subsidiaries of the Registrant
First Commercial Corporation, Little Rock, Arkansas (2)
First Commercial Bank, N.A., Little Rock, Arkansas (1)
First Commercial Mortgage Company, Little Rock, Arkansas (2)
First Commercial, Inc., Little Rock, Arkansas (2)
First Commercial Futures Corporation, Little Rock, Arkansas (2)
Financial Fleet Services, Inc., Little Rock, Arkansas (2)
First Commercial Investments, Inc., Little Rock, Arkansas (2)
Grant County Service Corporation (2)
Morrilton Security Bank, N.A., Morrilton, Arkansas (1)
First National Bank of Russellville, Russellville, Arkansas (1)
First National Bank of Conway, Conway, Arkansas (1)
The Security Bank, Harrison, Arkansas (3)
Security Properties, Inc. (2)
Benton State Bank, Benton, Arkansas (3)
BSB Properties, Inc., Benton, Arkansas (2)
Arkansas Bank & Trust Company, Hot Springs, Arkansas (3)
Advantage Corporation, Hot Springs, Arkansas (2)
Pinnacle Corporation, Hot Springs, Arkansas (2)
First Commercial Bank of Memphis, N.A., Memphis, Tennessee (1)
Farmers & Merchants Bank, Rogers, Arkansas (3)
Flight, Inc., Rogers, Arkansas (4)
Clinton Bancshares, Inc., Clinton, Arkansas (2)
Clinton State Bank, Clinton, Arkansas (3)
Bank Properties, Inc., Clinton, Arkansas (2)
State First Financial Corporation, Texarkana, Arkansas (2)
Tyler Bank and Trust, N.A., Tyler, Texas (1)
Commercial Capital Funding, Inc., Dallas, Texas (5)
Lufkin National Bank, Lufkin, Texas (1)
Longview National Bank, Longview, Texas (1)
Stone Fort National Bank, Nacogdoches, Texas (1)
Commercial Investment Company, Texarkana, Arkansas (2)
State First National Bank, Texarkana, Arkansas (1)
State First National Bank, Texarkana, Texas (1)
The First National Bank of Nashville, Nashville, Arkansas (1)
United American Bancshares, Inc., Palestine, Texas (5)
First National Bank, Palestine, Texas (1)
Kilgore First Bancorp, Inc., Kilgore, Texas (5)
Kilgore First National Bank, Kilgore, Texas (1)
Citizens Operations Center, Inc. (2)
Citizens First Bank, El Dorado (3)
Citizens First Bank, Fordyce (3)
Harris Abstract & Title Company (2)
Citizens First Bank, Arkadelphia (3)
Springhill Bancshares, Inc. (6)
Springhill Bank & Trust Company (7)
West-Ark Bancshares, Inc. (2)
Arkansas State Bank, Clarksville (3)
ASB Properties, Inc. (2)
First Commercial Trust Company, N.A., Little Rock, Arkansas (1)
Baker & Hill, Inc., Little Rock, Arkansas (2)
TRH Bank Group, Inc., Norman, Oklahoma (2)
Security National Bank & Trust Company, Norman, Oklahoma (1)
- ----------
(1) Chartered under the laws of the United States.
(2) Incorporated under the laws of the State of Arkansas.
(3) Chartered under the laws of the State of Arkansas.
<PAGE>
(4) Incorporated under the laws of the State of Delaware.
(5) Incorporated under the laws of the State of Texas.
(6) Incorporated under the laws of the State of Louisiana.
(7) Chartered under the laws of the State of Louisiana.
<PAGE>
EXHIBIT 23(a)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
on Form S-8 pertaining to the 1987 Incentive and Nonqualified Stock Option
Plans of First Commercial Corporation (No. 33-79462), and the Employee Stock
Ownership Credit and 401(k) Plan of First Commercial Corporation (No. 2-94856)
and in the Registration Statements on Forms S-3 pertaining to a selling
shareholder of First Commercial Corporation (No. 33-77922) and in the related
Prospectus and to the selling shareholders of First Commercial Corporation (No.
33-65017) and in the related Prospectus and pertaining to the First Commercial
Corporation Dividend Reinvestment and Common Stock Purchase Plan (No. 33-38190)
and in the related Prospectus of our report dated January 30, 1996, with
respect to the consolidated financial statements of First Commercial
Corporation incorporated by reference in this Annual Report (Form 10-K) for the
year ended December 31, 1995.
/s/Ernst & Young LLP
Little Rock, Arkansas
March 28, 1996
<PAGE>
EXHIBIT 23(b)
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
First Commercial Corporation:
We consent to the incorporation by reference in the Registration Statements
of First Commercial Corporation on Form S-8 (No. 33-79462 and No. 2-94856) and
on Form S-3 (No. 33-77922 and No. 33-38190) of our report dated January 28,
1994, relating to the consolidated statements of income, stockholders' equity
and cash flows of State First Financial Corporation and subsidiaries for the
year ended December 31, 1993, which report appears as Exhibit 99(a) in the
December 31, 1995, Annual Report on Form `10-K of First Commercial Corporation.
/s/KPMG Peat Marwick LLP
Little Rock, Arkansas
March 28, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE YEAR-END
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<PAGE>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 432,117
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 108,181
<TRADING-ASSETS> 449
<INVESTMENTS-HELD-FOR-SALE> 973,129
<INVESTMENTS-CARRYING> 351,415
<INVESTMENTS-MARKET> 352,492
<LOANS> 3,215,562
<ALLOWANCE> 51,341
<TOTAL-ASSETS> 5,360,940
<DEPOSITS> 4,630,541
<SHORT-TERM> 235,378
<LIABILITIES-OTHER> 55,592
<LONG-TERM> 7,170
0
0
<COMMON> 82,030
<OTHER-SE> 350,229
<TOTAL-LIABILITIES-AND-EQUITY> 5,360,940
<INTEREST-LOAN> 247,038
<INTEREST-INVEST> 75,140
<INTEREST-OTHER> 4
<INTEREST-TOTAL> 322,182
<INTEREST-DEPOSIT> 126,292
<INTEREST-EXPENSE> 137,632
<INTEREST-INCOME-NET> 184,550
<LOAN-LOSSES> 3,059
<SECURITIES-GAINS> (440)
<EXPENSE-OTHER> 170,306
<INCOME-PRETAX> 85,173
<INCOME-PRE-EXTRAORDINARY> 85,173
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,910
<EPS-PRIMARY> 2.17
<EPS-DILUTED> 2.14
<YIELD-ACTUAL> 4.53
<LOANS-NON> 10,349
<LOANS-PAST> 6,919
<LOANS-TROUBLED> 170
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 45,325
<CHARGE-OFFS> 6,022
<RECOVERIES> 3,913
<ALLOWANCE-CLOSE> 51,341
<ALLOWANCE-DOMESTIC> 37,456
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 13,885
</TABLE>
<PAGE>
EXHIBIT 99(a)
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
State First Financial Corporation:
We have audited the consolidated statements of income, stockholders'
equity, and cash flows of State First Financial Corporation and subsidiaries
for the year ended December 31, 1993, (not presented separately herein). These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our 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 consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of State First Financial Corporation and subsidiaries for the year ended
December 31, 1993, in conformity with generally accepted accounting principles.
/s/KPMG Peat Marwick LLP
Little Rock, Arkansas
January 28, 1994
