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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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)
PREFERRED SHARE PURCHASE RIGHTS
(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
amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-
affiliates of the registrant: $1,023,220,358 (based upon the average closing
bid and asked prices quoted on the Nasdaq National Market on February 20,
1997.)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock:
Class Outstanding at February 20, 1997
-------------------------------------- --------------------------------
Common Stock $3.00 par value per share 30,177,849
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December
31, 1996, (the "Company's 1996 Annual Report") are incorporated by reference
into Parts I and II of this report.
Portions of the Proxy Statement for the April 15, 1997, Annual Meeting of
Shareholders of the Company (the "Company's 1997 Proxy Statement") are
incorporated by reference into Part III of this report.
TABLE OF CONTENTS
Item Page
---- ----
PART I
1. Business.................................................. 3
2. Properties................................................ 12
3. Legal Proceedings......................................... 12
4. Submission of Matters to a Vote of Security Holders....... 13
PART II
5. Market for Registrant's Common Stock and Related
Stockholder Matters....................................... 13
6. Selected Financial Data................................... 13
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 13
8. Financial Statements and Supplementary Data............... 14
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................... 14
PART III
10. Directors and Executive Officers of the Registrant........ 14
11. Executive Compensation.................................... 14
12. Security Ownership of Certain Beneficial Owners and
Management................................................ 14
13. Certain Relationships and Related Transactions............ 15
PART IV
14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K............................................... 15
Signatures........................................................... 17
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PART I
Item 1. BUSINESS
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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 owns fifteen institutions in the
state of Arkansas, seven institutions in the state of Texas, 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 two institutions in Oklahoma. 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 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.
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Recent Developments
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On November 23, 1996, the Company acquired all of the outstanding common
stock of Security National Bank, Nacogdoches, Texas, in exchange for 253,154
Company common shares. This transaction was accounted for as a pooling-of-
interests. The results of Security National Bank are included in the
consolidated financial statements for 1996; however, prior period financial
data has not been restated due to immateriality. Security National Bank,
which merged into an existing affiliate of the Company, Stone Fort National
Bank, Nacogdoches, Texas, had $35 million in assets, $16 million in loans, and
$31 million in deposits.
On January 31, 1997, through a joint venture with Arvest Bank Group of
Bentonville, Arkansas, the Company purchased a 50% interest in Oklahoma
National Bank of Duncan, Oklahoma, which had $68 million in assets, $43
million in loans, and $61 million in deposits.
On February 13, 1997, the Company acquired all of the outstanding common
stock of W.B.T. Holding Company ("WBT") and its wholly owned subsidiary,
United American Bank, in Memphis, Tennessee. United American Bank, with
assets of $281 million, loans of $176 million and deposits of $249 million,
was merged into the Company's existing affiliate, First Commercial Bank, N.A.,
of Memphis, on February 28, 1997. The Company issued 1,361,952 Company common
shares in exchange for all of the outstanding common stock of WBT. The
transaction was accounted for as a pooling-of-interests.
Three affiliations are currently pending, which reflect the Company's
acquisition strategy of expanding existing markets as well as entering
additional geographical areas.
On May 9, 1996, the Company entered into a definitive agreement for the
purchase of City National Bank, which is located in Whitehouse, Texas, and
serves the Tyler and Whitehouse markets of East Texas through five locations.
As of December 31, 1996, City National Bank had approximately $40 million in
assets, $30 million in loans and $37 million in deposits. The Company will
issue approximately 190 thousand shares of the Company's common stock for all
the outstanding stock of City National Bank. The Company anticipates
completion of this acquisition, which will be accounted for as a pooling-of-
interests, in the second quarter of 1997, at which time City National Bank
will be merged with Tyler Bank and Trust Company, N.A., Tyler, Texas, a
subsidiary of the Company.
On December 20, 1996, the Company entered into a definitive agreement to
acquire Southwest Bancshares, Inc., of Jonesboro, Arkansas, ("Southwest") and
its wholly owned subsidiaries: First Bank of Arkansas, Jonesboro; First Bank
of Arkansas, Russellville; First Bank of Arkansas, Searcy; and First Bank of
Arkansas, Wynne. As of December 31, 1996, Southwest had approximately $820
million in assets, $606 million in loans, and $716 million in deposits. The
Company will issue approximately 3.4 million shares of the Company's common
stock in exchange for all of the outstanding common stock of Southwest. The
transaction, which will be accounted for as a pooling-of-interests, is
expected to close during the second quarter of 1997.
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On February 5, 1997, a definitive agreement was entered into whereby the
Company will acquire First Central Corporation ("First Central") and its
wholly owned subsidiary, First National Bank, Searcy, Arkansas, which as of
December 31, 1996, had approximately $261 million in assets, $140 million in
loans, and $229 million in deposits. The Company will issue approximately
1.65 million shares of the Company's common stock in exchange for all of the
outstanding common stock of First Central. The transaction will be accounted
for as a pooling-of-interests and is expected to close during the second
quarter of 1997.
The affiliations with Southwest and First Central will result in
overlapping markets in Russellville and Searcy. Banking regulations prohibit
a banking organization from exceeding a specified share of a given market
through acquisition. The Company is working with regulatory agencies to
determine the required level of divestiture in these markets.
Foreign Operations
- ------------------
Neither the Company nor any of its subsidiary banks conducts foreign
operations. Balances maintained in foreign countries amounted to $295,000 at
December 31, 1996. 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
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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
the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, which
authorizes interstate banking and is discussed under the Regulation and
Supervision section of this report in greater detail.
According to information obtained from the Arkansas Bankers Association,
during 1996 there were approximately 30 multi-bank holding companies in
Arkansas and approximately 96 single-bank holding companies. As of December
31, 1996, the Company was the largest multi-bank holding company headquartered
in Arkansas with $5.5 billion in total assets and $4.8 billion in total
deposits.
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Employees
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As of December 31, 1996, the Company and its subsidiaries and affiliates
had a total of 2,802 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 examinations 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.
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.
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 in 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,
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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 total risk-based
capital ratio of 8%. The Company's December 31, 1996, risk-based capital
ratio was 12.24%.
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.
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
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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 had reciprocal banking laws, were
permitted. Arkansas banks acquired under the 1988 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 counties contiguous
to the county in which the principal office was located. After December 31,
1998, branches may be located anywhere in the State of Arkansas. A
subparagraph to Arkansas' Thrift Banking Legislation was enacted to apply the
same branching restrictions to Arkansas thrifts.
In 1994, the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Riegle-Neal Act") was enacted as part of the federal banking
laws. The interstate banking provisions of the Riegle-Neal Act repealed the
Douglas Amendment to the Bank Holding Company Act of 1956 and permits after
September 19, 1995, the acquisition of banks in any state by bank holding
companies located in other states. The interstate branching provisions of the
Riegle-Neal Act, which become effective on June 1, 1997, permit a bank to
acquire and operate branches in states other than the bank's home state,
subject to certain continued state regulation.
In response to the Riegle-Neal Act, Arkansas has adopted the Arkansas
Interstate Banking and Branching Act, which becomes effective on May 31, 1997.
The Arkansas Interstate Banking and Branching Act prohibits a bank holding
company from directly or indirectly owning or controlling more than one bank
subsidiary, if any such bank subsidiary having its main office in the State of
Arkansas has a de novo charter. A bank shall be considered to have a de novo
charter if the bank has been in existence for less than five years; provided,
however, a bank resulting from the conversion of a savings and loan
association to a bank, or from the conversion of a state bank to a national
bank, or from the conversion of a national bank to a state bank shall be
deemed to have been in existence, for the purpose of determining whether it
has a de novo charter, from the date the converting institution came into
existence. In addition, the Arkansas Interstate Banking and Branching Act
prohibits a bank holding company from acquiring the stock or the assets of any
bank that has its main office or any branch office in the State of Arkansas,
if after giving effect to the acquisition of such stock or assets, the
acquiring bank holding company would own or control, directly or indirectly,
banks having in the aggregate more than 25% of the total bank deposits within
the State of Arkansas.
The Arkansas Interstate Banking and Branching Act authorizes interstate
branching following an interstate bank merger and authorizes Arkansas banks
and out-of-state banks to establish customer-bank communication terminals
anywhere within the State of Arkansas. However, the Act prohibits an out-of-
state bank from coming into Arkansas by establishing a new branch or by
acquiring an existing branch in Arkansas from another financial institution as
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its first branch in the State of Arkansas. The Act retains the provisions of
the 1988 Act discussed above, which allows banks to establish branch offices
in counties contiguous to the county in which the principal office of the bank
is located and which effectively defers state-wide branching until after
December 31, 1998.
Arkansas Usury Law:
The Arkansas Usury Law, which applies to all of the Company's Arkansas
affiliates, generally limits interest rates on all credit classifications to a
rate equal to the Federal Reserve Bank of St. Louis' discount rate plus 5%.
The interest rate on consumer loans is subject to the additional restriction
that, in any event, it may not exceed 17%. Loans secured by first liens on
residential real property are not subject to any interest rate limitation.
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.
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:
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.
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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 8.07%,
a Tier I capital ratio of 11.44% and a total risk-based capital ratio of
12.24% at December 31, 1996.
Regulation and Supervision of Subsidiary Banks:
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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.
EXECUTIVE OFFICERS OF THE COMPANY
As of December 31, 1996, the principal executive officers of the Company
were as follows:
Jack Fleischauer, Jr., 48, serves as Chairman of the Board, President and
Chief Executive Officer of First Commercial Bank, N.A., Little Rock, Arkansas.
Mr. Fleischauer assumed the President and Chief Executive Officer positions in
May 1994 and the Chairman of the Board position in June 1996. Prior to
joining the Company in 1994, 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, 52, 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 the positions of Chairman of the Board
and Chief Executive Officer of the Company in 1990.
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Edwin P. Henry, 59, 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, 40, 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, 54, 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, 59, serves as Director of Regional Lending for the Company,
which position he assumed in 1996. Mr. Jackson previously served as Senior
Credit Officer of State First Financial Corporation, which was merged into the
Company in July 1996. Mr. Jackson has been associated with the Company and/or
its subsidiaries since 1987.
Howard M. Qualls, 62, serves as Chairman of the Board, President and Chief
Executive Officer of State First National Bank, Texarkana, Arkansas. Mr.
Qualls has been associated with State First National Bank, Texarkana,
Arkansas, which was acquired by the Company in 1994, since 1980, when he
assumed the position of President. Mr. Qualls assumed the Chief Executive
Officer position in 1989 and the Chairman of the Board position in 1994.
Neil S. West, 51, serves as Executive Officer of the Company, a position he
assumed in August 1995, with responsibility for the Company's Credit
Administration Division and oversight responsibility for ten of the Company's
banking institutions. Mr. West also serves as Chairman of the Board and Chief
Executive Officer of Tyler Bank and Trust Company, N.A., Tyler, Texas, a
position he has held since February 1993. Mr. West previously served as
President and Chief Executive Officer of State First Financial Corporation, a
position he assumed in May 1994. State First Financial Corporation was merged
into the Company in July 1996. 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, 34, 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 1996 Annual Report on pages
10 through 26, which information is incorporated herein by reference.
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Item 2. PROPERTIES
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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 235,000 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 133
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 1996 Annual Report, which note is incorporated herein by reference.
Item 3. LEGAL PROCEEDINGS
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AEARTH DEVELOPMENT, INC., v. FIRST COMMERCIAL BANK, N.A.
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First Commercial Bank, N.A., a wholly owned subsidiary of Registrant, is
the defendant in litigation initiated in 1989 seeking approximately $200
million 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 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 $12.5 million compensatory damages and $10.0 million
punitive damages. On April 30, 1996, the trial court approved a $7.3 million
set off to the March 13, 1996, $22.5 million jury verdict. The set off
pertained to monies owed by Aearth Development, Inc., and related interests,
to First Commercial Bank, N.A. On May 20, 1996, the Court entered a judgment
against First Commercial Bank, N.A., in the amount of $15.2 million.
Thereafter, on June 21, 1996, the Court granted a Motion for Remittitur and
reduced the punitive damages awarded in the judgment by $7.0 million.
Therefore, the final award was $8.2 million. On June 27, 1996, First
Commercial Bank, N.A., filed a Notice of Appeal to the Supreme Court of
Arkansas. Management of the Company and First Commercial Bank, N.A., intend
to vigorously pursue the appeal. 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 the
12
<PAGE>
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 and/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 1996 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 1996 Annual Report, which
notes are incorporated herein by reference.
On February 13, 1997, the Company, in an offering exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, issued 1,361,952
Company common shares to U.A.B. Holding Trust in exchange for all of the
outstanding shares of common stock of W.B.T. Holding Company.
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 1996 Annual Report
under the heading "Six-Year Financial Summary," which information is
incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The information required by Item 303 of Regulation S-K is contained in the
Company's 1996 Annual Report on pages 10 through 26, which information is
incorporated herein by reference.
13
<PAGE>
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 1996 Annual Report on pages 27 through 49 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 1997 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 1997 Proxy Statement under the heading "Section
16(a) Beneficial Ownership Reporting Compliance" on page 12, 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 1997 Proxy Statement under the headings "Compensation of Directors
and Executive Officers," "First Commercial Corporation's 1996 Compensation
Committee Report on Executive Compensation," and "Stock Performance Chart" on
pages 6 through 11, which information is incorporated herein by reference.
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 1997 Proxy Statement under the headings "Principal Holders of
Shares" and "Election of Directors" on pages 2 through 5, which information is
incorporated herein by reference.
14
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information required by Item 404 of Regulation S-K is contained in the
Company's 1997 Proxy Statement under the headings "Compensation Committee
Interlocks and Insider Participation" and "Transactions with Management and
Others" on pages 9 and 12, respectively, which information is incorporated
herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
(a) The following documents are filed as part of this report:
(1) Financial Statements:
Page
Number(*)
---------
Reports of Management and Independent Auditors 27
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1995 and 1994 28
Consolidated Balance Sheets as of December 31, 1996
and 1995 29
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1996, 1995 and 1994 30
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996, 1995 and 1994 31
Notes to Consolidated Financial Statements 32 - 49
(*) Page numbers refer to the Company's 1996 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.
15
<PAGE>
(3) Executive Compensation Plans and Arrangements:
1987 Incentive and Non-Qualified Stock Option Plan, as amended
(Exhibit 10(a) hereto).
Non-Qualified Deferred Compensation Plan (Exhibit 10(b) hereto).
Supplemental Executive Retirement Plan for C. Barnett Grace (Exhibit
10(c) hereto).
Supplemental Executive Retirement Plan for John I. Fleischauer, Jr.
(Exhibit 10(d) hereto).
Change-in-Control Agreement between the Company and Barnett Grace
(Exhibit 10(e) hereto).
Change-in-Control Agreement between the Company and Jack
Fleischauer, Jr. (Exhibit 10(f) hereto).
Change-in-Control Agreement between the Company and Edwin P. Henry
(Exhibit 10(g) hereto).
Change-in-Control Agreement between the Company and Neil Stewart
West (Exhibit 10(h) hereto).
Change-in-Control Agreement between the Company and Howard M.
Qualls (Exhibit 10(i) hereto).
(b) Reports on Form 8-K:
Registrant did not file any reports on Form 8-K during the fourth
quarter of 1996.
(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.
16
<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 12, 1997
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 12, 1997
- ---------------------------- Chief Executive Officer and
Barnett Grace Director (Principal Executive
Officer)
/s/ J. Lynn Wright Chief Financial Officer March 12, 1997
- ---------------------------- (Principal Financial and
J. Lynn Wright Accounting Officer)
/s/ John W. Allison Director March 12, 1997
- ----------------------------
John W. Allison
/s/ Truman Arnold Director March 12, 1997
- ----------------------------
Truman Arnold
/s/ William H. Bowen Director March 12, 1997
- ----------------------------
William H. Bowen
/s/ Peggy Clark Director March 12, 1997
- ----------------------------
Peggy Clark
/s/ Robert G. Cress Director March 12, 1997
- ----------------------------
Robert G. Cress
/s/ Cecil W. Cupp, Jr. Director March 12, 1997
- ----------------------------
Cecil W. Cupp. Jr.
17
<PAGE>
/s/ Frank D. Hickingbotham Director March 12, 1997
- ----------------------------
Frank D. Hickingbotham
/s/ Walter E. Hussman, Jr. Director March 12, 1997
- ----------------------------
Walter E. Hussman, Jr.
/s/ Frederick E. Joyce, M.D. Director March 12, 1997
- ----------------------------
Frederick E. Joyce, M.D.
/s/ Jack G. Justus Director March 12, 1997
- ----------------------------
Jack G. Justus
/s/ William M. Lemley Director March 12, 1997
- ----------------------------
William M. Lemley
/s/ Michael W. Murphy Director March 12, 1997
- ----------------------------
Michael W. Murphy
/s/ Sam C. Sowell Director March 12, 1997
- ----------------------------
Sam C. Sowell
/s/ Paul D. Tilley Director March 12, 1997
- ----------------------------
Paul D. Tilley
18
<PAGE>
<TABLE>
<CAPTION>
Index to Exhibits
Exhibit Number Exhibit
-------------- -------------------------------------------------------------------------------------
<S> <C>
3(i) <F*> Company's Second Amended and Restated Articles of Incorporation, as amended
(3(i) in Form 10-Q for the quarter ended June 30, 1996, in 0-9676).
3(ii)<F*> 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) <F*> 1987 Incentive and Non-Qualified Stock Option Plan, as amended (10(a) in Form 10-K
for the fiscal year ended December 31, 1994, in 0-9676).
10(b) <F*> 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) <F*> Supplemental Executive Retirement Plan for C. Barnett Grace (10(c) in Form 10-K for
the fiscal year ended December 31, 1995, in 0-9676).
10(d) Supplemental Executive Retirement Plan for John I. Fleischauer, Jr.
10(e) Change-in-Control Agreement between the Company and C. Barnett Grace.
10(f) Change-in-Control Agreement between the Company and John I. Fleischauer, Jr.
10(g) Change-in-Control Agreement between the Company and Edwin P. Henry.
10(h) Change-in-Control Agreement between the Company and Neil S. West.
10(i) Change-in-Control Agreement between the Company and Howard M. Qualls.
11 Computation of Earnings per Common Share.
13 Portions of the Company's Annual Report to Shareholders for the fiscal year ended
December 31, 1996.
21 Subsidiaries of Registrant.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule
99 Annual Report on Form 11-K for Stock Purchase Plan for employees of First Commercial
Corporation (to be filed by amendment).
- ----------
<FN>
<F*> 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.)
</FN>
</TABLE>
EXHIBIT 10(d)
<PAGE>
FIRST COMMERCIAL BANK, N.A.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
FOR
JOHN I. FLEISCHAUER, JR.
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 Code
1.02 Effective Date
1.03 Employee
1.04 Employer
1.05 ERISA
1.06 Normal Retirement Date
1.07 Plan
1.08 Plan Administrator
1.09 Retirement Committee
1.10 Retirement Plan
1.11 Year of Credited 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 ADMINISTRATION
3.01 Fiduciaries
3.02 Powers and Responsibilities of the Employer
3.03 Plan Administrator
3.04 Powers and Responsibilities of the Plan Administrator
3.05 Decisions of the Plan Administrator
3.06 Records and Statements
3.07 Payment of Expenses
3.08 Claims Procedure
3.09 Claims Review Procedure
3.10 Unclaimed Benefits
3.11 Indemnification
<PAGE>
ARTICLE IV FUNDING AND RELATED MATTERS
4.01 Compliance With Applicable Law
4.02 General Unsecured Contractual Obligation
ARTICLE V AMENDMENT
5.01 Amendment
ARTICLE Vl MISCELLANEOUS
6.01 Limitation of Rights; Employment Relationship
6.02 Limitation on Assignment
6.03 Representations
6.04 Other Retirement Plans
6.05 Reporting Requirements
6.06 Binding
6.07 Severability
6.08 Governing Law
6.09 Arbitration
6.10 Entire Agreement
EXECUTION PAGE
<PAGE>
FIRST COMMERCIAL BANK, N.A.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
FOR
JOHN I. FLEISCHAUER, JR.
THIS PLAN agreement is entered into this 25th day of February, 1997, by
and between FIRST COMMERCIAL BANK, N.A., Little Rock, Arkansas, ("Employer")
and JOHN I. FLEISCHAUER, JR. ("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 Employees 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 "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
1.02 "Effective Date" shall mean June 1, 1994.
1.03 "Employee" shall mean JOHN I. FLEISCHAUER, JR.
1.04 "Employer" shall mean FIRST COMMERCIAL BANK, N.A. and its successors
and assigns.
<PAGE>
1.05 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.06 "Normal Retirement Date" shall mean the date defined in the
Retirement Plan as the Employee's Normal Retirement Date.
1.07 "Plan" shall mean this FIRST COMMERCIAL CORPORATION SUPPLEMENTAL
EXECUTIVE RETIREMENT PLAN FOR JOHN I. FLEISCHAUER, JR. agreement.
1.08 "Plan Administrator" shall mean the Employer.
1.09 "Retirement Committee" shall mean the Retirement Committee to the
Retirement Plan.
1.10 "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.
1.11 "Year of Credited Service" shall mean a Year of Credited Service as
defined in the Retirement Plan.
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 as if the Employee had credited to him
twenty five (25) Years of Credited Service.
(b) the monthly benefit actually provided from the Retirement Plan.
<PAGE>
2.03 Termination Prior to Normal Retirement Date. No benefits shall be
provided under this Plan if the Employee terminates employment with
the Employer prior to Normal Retirement Date for any reason.
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
ADMINISTRATION
3.01 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.
3.02 Powers and Responsibilities of the Employer.
(a) The Employer shall supply such information as may be requested by
the Plan Administrator including information with respect to
compensation, service, age, retirement, death, disability or
termination of employment of the Employee.
<PAGE>
(b) 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.
3.03 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.
3.04 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 agents or employees of the Employer 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;
(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;
<PAGE>
(h) to maintain all records necessary for verification of information
required to be filed with any governmental agency;
(i) 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.
3.05 Decisions of the Plan Administrator. The decisions of the Plan
Administrator shall be conclusive and binding upon the Employee and
any 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.
3.06 Records and Statements. The Plan Administrator shall keep 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.
3.07 Payment of Expenses. All expenses incident to the administration of
the Plan, including but not limited to, legal, accounting and
actuarial fees, shall be paid by the Employer.
3.08 Claims Procedure. The Plan Administrator shall make all
determinations as to the right of any person to any benefit under the
Plan. The Employee and any 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.
3.09 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.
<PAGE>
3.10 Unclaimed Benefits. The Employee and any 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 or any 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 and any
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 any beneficiary of the Employee. If
the Plan Administrator furnishes notice to the Employee or any
beneficiary of the Employee that he or she is entitled to a
distribution and the Employee 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 the Plan is terminated
without the establishment of a successor plan, or (ii) the date the
Employer is liquidated.
3.11 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 IV
FUNDING AND RELATED MATTERS
4.01 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.
<PAGE>
4.02 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.
ARTICLE V
AMENDMENT
5.01 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 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 after his Normal Retirement Date, the Employees
beneficiary, which have accrued up to the effective date of the
amendment.
ARTICLE VI
MISCELLANEOUS
6.01 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.
<PAGE>
6.02 Limitation on Assignment. Benefits under this Plan may not be
assigned or alienated by the Employee or any beneficiary of the
Employee. The interest in benefits provided pursuant to the Plan of
the Employee or any 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.
6.03 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.
6.04 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.
6.05 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.
6.06 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.
6.07 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.
6.08 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.
6.09 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.
<PAGE>
6.10 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 BANK, N.A.
By: /s/ Barnett Grace
-----------------------------------------
Title: Director, First Commercial Bank, N.A.
--------------------------------------
EMPLOYEE:
By: /s/ John I. Fleischauer, Jr.
-----------------------------------------
John I. Fleischauer, Jr.
EXHIBIT 10(e)
<PAGE>
AGREEMENT
THIS AGREEMENT dated as of December 23, 1996, is made by and between First
Commercial Corporation, an Arkansas corporation (the "Company"), and Barnett
Grace (the "Executive").
WHEREAS the Company considers it essential to its best interests and to
the best interests of its shareholders and customers to foster the continuous
employment of its key management personnel; and
WHEREAS the Company recognizes that the possibility of a Change in Control
(as defined in Section 9.6 hereof) exists, as in the case of any publicly-held
corporation, and that such possibility, and the uncertainty and questions
which it may raise among management, may result in the departure or
distraction of management personnel to the detriment of the Company and its
shareholders and customers; and
WHEREAS the Company has determined that appropriate steps should be taken
to reinforce and encourage the continued attention and dedication of members
of the Company's management, including the Executive, to their assigned duties
without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the Company and the Executive hereby agree as follows:
1. Defined Terms. Definitions of certain capitalized terms used in this
Agreement are provided in Section 9 and elsewhere in this Agreement.
2. Term of Agreement. This Agreement shall become effective on the date
hereof and shall remain in effect indefinitely thereafter; provided, however,
that (a) except as provided in clause (b) of this Section 2, either the
Company or the Executive may terminate this Agreement by giving the other
party at least one (1) year advance written notice of such termination, and
(b) if a Potential Change in Control or a Change in Control shall have
occurred during the term of this Agreement, this Agreement may not be
terminated until all obligations of either party hereto have been performed in
full, the Coverage Period has expired without the occurrence of a Triggering
Event, or in the case of a Potential Change in Control, no Change in Control
occurs for at least two years following such Potential Change in Control.
Notwithstanding the foregoing, this Agreement shall terminate upon the
Executive's attaining age sixty-five (65), the Executive's Disability or
death, except as to obligations of the Company hereunder arising from a Change
in Control and/or a termination of the Executive's employment that, in either
case, occurred prior to his having reached such age or the occurrence of his
Disability or death.
3. Agreement of the Company. In order to induce the Executive to remain
in the employ of the Company, the Company agrees, under the terms and
conditions set forth herein, that, upon the occurrence of both a Change in
Control and a Triggering Event during the term of this Agreement, the Company
shall provide to the Executive the benefits described in Sections 3.1 through
3.4 below (the "Severance Benefits"), unless prior to the date of any
Triggering Event, the Executive's employment with the Company has been
terminated for Cause or due to the Executive's Disability or death.
<PAGE>
3.1 Lump-Sum Severance Payment. In lieu of any further salary
payments to the Executive for periods subsequent to the Date of Termination,
the Company shall pay to the Executive a lump sum severance payment, in cash,
without discount, equal to three (3) times the sum of (i) the Executive's
Annual Base Salary and (ii) the Executive's Average Bonus.
3.2 Vesting of Options. The vesting of all options to purchase
securities of the Company granted to the Executive pursuant to the Company's
1987 Incentive and Nonqualified Stock Option Plan, as amended May 15, 1990,
April 19, 1994 and October 18, 1994, or any other Company plan that are then
held by the Executive shall be accelerated to the later of the Date of
Termination or six months after the date such option was granted, and any
provision contained in the agreement(s) under which such options were granted
that is inconsistent with such acceleration is hereby modified to the extent
necessary to provide for such acceleration; such acceleration shall not apply
to any option that by its terms would vest prior to the date provided for in
this Section 3.2.
3.3 Continued Benefits. For a thirty-six (36) month period (or, if
less, the number of months from the Date of Termination until the date the
Executive will reach age sixty-five (65)) after the Date of Termination (the
"Benefits Period"), the Company shall provide the Executive with group term
life insurance, health insurance, accident and long-term disability insurance
benefits (collectively, "Welfare Benefits") substantially similar in all
respects to those that the Executive was receiving immediately prior to the
Date of Termination (without giving effect to any reduction in such benefits
subsequent to a Change in Control). During the Benefits Period, the Executive
shall be entitled to elect to change his level of coverage and/or his choice
of coverage options (such as Executive only or family medical coverage) with
respect to the Welfare Benefits to be provided by the Company to the Executive
to the same extent that actively employed senior executives of the Company are
permitted to make such changes; provided, however, that in the event of any
such changes the Executive shall pay the amount of any cost increase that
would actually be paid by an actively employed senior executive of the Company
by reason of making the same changes in his level of coverage or coverage
options.
3.4 Retirement Benefits. In addition to the retirement benefits to
which the Executive is entitled under the Pension Plan and the Supplemental
Plan, the Company shall pay the Executive a lump sum amount, in cash, equal to
the actuarial equivalent of the excess of (x) the total retirement pension
(determined as a straight life annuity commencing at Normal Retirement Age or,
if later, the first day of the first month after the Date of Termination) that
the Executive would have accrued under the terms of the Pension Plan and the
Supplemental Plan (without regard to any amendments to the Pension Plan or the
Supplemental Plan made subsequent to a Change in Control and on or prior to
the Date of Termination, which amendments adversely affect in any manner the
amount of retirement benefits payable thereunder), determined as if the
Executive were fully vested thereunder and had accumulated (after the Date of
Termination) thirty-six (36) additional months (or such lesser number of
months until the Executive will attain age sixty-five (65)) of service credit
thereunder at the Executive's Annual Base Salary, and (y) the retirement
pension (determined as a straight life annuity commencing at Normal Retirement
Age) which the Executive had accrued pursuant to the provisions of the Pension
Plan and the Supplemental Plan as of the Date of Termination. For purposes of
this Section 3.4, "actuarial equivalent" shall be determined using the same
methods and assumptions utilized under the Pension Plan immediately prior to
the Date of Termination.
<PAGE>
4. Gross-Up Payment; Certain Limitations on Payments and Benefits.
4.1 In the event that (i) the Executive becomes entitled to the
Severance Benefits or any other benefits or payments in connection with a
Change in Control or the termination of the Executive's employment, whether
pursuant to the terms of this Agreement or otherwise (collectively, the "Total
Benefits"), and (ii) any of the Total Benefits will be subject to the Excise
Tax, the Company shall pay to the Executive an additional amount (the "Gross-
Up Payment")such that the net amount retained by the Executive, after
deduction of any Excise Tax on the Total Benefits and any federal, state and
local income taxes, Excise Tax, and FICA and Medicare withholding taxes upon
the payment provided for by this Section 4.1, shall be equal to the Total
Benefits. For purposes of determining whether any of the Total Benefits will
be subject to the Excise Tax and the amount of such Excise Tax, the amount of
the Total Benefits that shall be treated as subject to the Excise Tax shall be
equal to the amount of the Total Benefits reduced by the amount of such Total
Benefits that, in the opinion of tax counsel selected by the Company and
reasonably acceptable to the Executive ("Tax Counsel"), are not excess
parachute payments (within the meaning of Section 280G(b)(1) of the Code).
4.2 For purposes of this Section 4, the Executive shall be deemed to
pay federal income taxes at the highest marginal rate of federal income
taxation in the calendar year in which the Excise Tax is (or would be) payable
and state and local income taxes at the highest marginal rate of taxation in
the state and locality of the Executive's residence on the Date of
Termination, net of the reduction in federal income taxes which could be
obtained from deduction of such state and local taxes (calculated by assuming
that any reduction under Section 68 of the Code in the amount of itemized
deductions allowable to the Executive applies first to reduce the amount of
such state and local income taxes that would otherwise be deductible by the
Executive). Except as otherwise provided herein, all determinations required
to be made under this Section 4 shall be made by Tax Counsel.
4.3 In the event that the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder at the time of termination
of the Executive's employment, the Executive shall repay to the Company, at
the time that the amount of such reduction in Excise Tax is finally
determined, the portion of the Gross-Up Payment attributable to such reduction
(plus that portion of the Gross-Up Payment attributable to the Excise Tax,
federal, state and local income taxes and FICA and Medicare withholding taxes
imposed on the Gross-Up Payment being repaid by the Executive to the extent
that such repayment results in a reduction in Excise Tax, FICA and Medicare
withholding taxes and/or a federal, state or local income tax deduction) plus
interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder at the time of the termination
of the Executive's employment (including by reason of any payment the
existence or amount of which cannot be determined at the time of the Gross-Up
Payment), the Company shall make an additional Gross-Up Payment to the
Executive in respect of such excess (plus any interest, penalties or additions
payable by the Executive with respect to such excess) at the time that the
amount of such excess is finally determined.
<PAGE>
5. Timing of Payments. The payments provided for in Sections 3.1, 3.4
and 4 shall be made on the Date of Termination, provided, however, that if the
amounts of such payments cannot be finally determined on or before such day,
the Company shall pay to the Executive on such day an estimate, as determined
in good faith by the Company, of the minimum amount of such payments and shall
pay the remainder of such payments (together with interest at the rate
provided in Section 1274(b)(2)(B)of the Code from the Date of Termination to
the payment of such remainder) as soon as the amount thereof can be determined
but in no event later than the thirtieth (30th) day after the Date of
Termination. In the event that the amount of the estimated payments exceeds
the amount subsequently determined to have been due, such excess shall
constitute a loan by the Company to the Executive, payable on the fifth (5th)
business day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code from the Date of Termination to
the repayment of such excess).
6. Reimbursement of Legal Costs. The Company shall pay to the Executive
all reasonable legal fees and expenses incurred by the Executive as a result
of a termination that entitles the Executive to any payments under this
Agreement including all such fees and expenses, if any, incurred in contesting
or disputing any Notice of Termination under Section 7.2 hereof or in seeking
to obtain or enforce any right or benefit provided by this Agreement or in
connection with any tax audit or proceeding to the extent attributable to the
application of Section 4999 of the Code to any payment or benefit provided
hereunder. Such payments shall be made within five (5) business days after
delivery of the Executive's respective written requests for payment
accompanied with such evidence of fees and expenses incurred as the Company
reasonably may require.
7. Termination Procedures.
7.1 Notice of Termination. After a Potential Change in Control or a
Change in Control, any termination of the Executive's employment (other than
by reason of death) must be preceded by a written Notice of Termination from
the terminating party to the other party hereto in accordance with Section 8.5
hereof. For purposes of this Agreement, a "Notice of Termination" shall mean
a notice which shall (i) specify the date of termination (the "Date of
Termination") which shall not be more than sixty (60) days from the date such
Notice of Termination is given, (ii) indicate the notifying party's opinion
regarding the specific provisions of this Agreement that will apply upon such
termination and(iii) set forth in reasonable detail the facts and
circumstances claimed to provide a basis for the application of the provisions
indicated. Termination of the Executive's employment shall occur on the
specified Date of Termination even if there is a dispute between the parties
pursuant to Section 7.2 hereof relating to the provisions of this Agreement
applicable to such termination.
7.2 Dispute Concerning Applicable Termination Provisions. If within
thirty (30) days of receiving the Notice of Termination the party receiving
such notice notifies the other party that a dispute exists concerning the
provisions of this Agreement that apply to such termination, the dispute shall
be resolved either by mutual written agreement of the parties or by expedited
commercial arbitration under the rules of the American Arbitration
Association, pursuant to the procedures set forth in Section 8.14 herein. The
parties shall pursue the resolution of such dispute with reasonable diligence.
Within five (5) days of such a resolution, any party owing any payments
pursuant to the provisions of this Agreement shall make all such payments
<PAGE>
together with interest accrued thereon at the rate provided in Section
1274(b)(2)(B) of the Code.
8. Miscellaneous.
8.1 No Mitigation. The Company agrees that, if the Executive's
employment by the Company is terminated in a manner that results in the
payment of Severance Benefits hereunder, the Executive shall not be required
to seek other employment or to attempt in any way to reduce any amounts
payable to the Executive by the Company pursuant to this Agreement. Further,
the amount of any payment or benefit provided for under this Agreement shall
not be reduced by any compensation earned by the Executive as the result of
employment by another employer, by retirement benefits, by offset against any
amount claimed to be owed by the Executive to the Company, or otherwise.
8.2 Successors. In addition to any obligations imposed by law upon
any successor to the Company, the Company shall be obligated to require any
successor (whether direct or indirect, by purchase, merger, consolidation,
operation of law, or otherwise)to all or substantially all of the business
and/or assets of the Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place; in the event of
such a succession, references to the "Company" herein shall thereafter be
deemed to include such successor. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession
shall be a breach of this Agreement and shall entitle the Executive to
terminate his employment and thereafter to receive Severance Benefits, except
that, for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination.
8.3 Incompetency. Any benefit payable to or for the benefit of the
Executive, if legally incompetent, or incapable of giving a receipt therefor,
shall be deemed paid when paid to the Executive's guardian or to the party
providing or reasonably appearing to provide for the care of such person, and
such payment shall fully discharge the Company.
8.4 Death. This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
the Executive shall die while any amount would still be payable to the
Executive hereunder (other than amounts which, by their terms, terminate upon
the death of the Executive) if the Executive had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the executors, personal representatives or
administrators of the Executive's estate.
8.5 Notices. For the purpose of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed
to the respective addresses set forth below, or to such other address as
either party may have furnished to the other in writing in accordance
<PAGE>
herewith, except that notice of change of address shall be effective only upon
actual receipt:
To the Company:
First Commercial Corporation
400 West Capitol Avenue
Little Rock, Arkansas 72201
Attention:
To the Executive:
8.6 Modification, Waiver. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing and signed by the Executive and such officer as may be
specifically designated by the Board or its delegee. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
8.7 Entire Agreement. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement.
8.8 Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Arkansas without regard to principles of conflicts of laws thereof.
8.9 Statutory Changes. All references to sections of the Exchange
Act or the Code shall be deemed also to refer to any successor provisions to
such sections.
8.10 Withholding. Any payments provided for hereunder shall be paid
net of any applicable withholding required under federal, state or local law
and any additional withholding to which the Executive has agreed.
8.11 Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
8.12 No Right to Continued Employment. Nothing in this Agreement
shall be deemed to give any Executive the right to be retained in the employ
of the Company, or to interfere with the right of the Company to discharge the
Executive at any time and for any lawful reason, subject in all cases to the
terms of this Agreement.
8.13 No Assignment of Benefits. Except as otherwise provided herein
or by law, no right or interest of any Executive under the Agreement shall be
assignable or transferable, in whole or in part, either directly or by
operation of law or otherwise, including without limitation by execution,
levy, garnishment, attachment, pledge or in any manner; no attempted
assignment or transfer thereof shall be effective; and no right or interest of
<PAGE>
any Executive under this Agreement shall be liable for, or subject to, any
obligation or liability of such Executive.
8.14 Arbitration Procedures. All disputes relating to this
Agreement, including without limitation any disputes under Section 7.2 hereof,
shall be submitted to expedited commercial arbitration under the rules of the
American Arbitration Association in Little Rock, Arkansas, with an arbiter who
is mutually acceptable to both parties being selected to preside over such
arbitration. The Federal Rules of Evidence shall apply, and the arbiter shall
establish the applicable rules of discovery. The prevailing party in any
arbitration shall be entitled to recover from the other party all fees and
expenses (including, without limitation, reasonable attorney's fees and
disbursements) incurred in connection with such arbitration. The arbiter
shall determine the scope of arbitrability. The only judicial relief shall be
(a) interim equitable relief and (b) relief in aid of or to enforce
arbitration.
8.15 Reduction of Benefits By Legally Required Benefits.
Notwithstanding any other provision of this Agreement to the contrary, if the
Company is obligated by law or by contract (other than under this Agreement)
to pay severance pay, a termination indemnity, notice pay, or the like, or if
the Company is obligated by law or by contract to provide advance notice of
separation ("Notice Period"), then any Severance Benefits hereunder shall be
reduced by the amount of any such severance pay, termination indemnity, notice
pay or the like, as applicable, and by the amount of any pay received with
respect to any Notice Period.
8.16 Headings. The headings and captions herein are provided for
reference and convenience only, shall not be considered part of this
Agreement, and shall not be employed in the construction of this Agreement.
9. Definitions.
9.1 "Annual Base Salary" means the greater of (a) the Executive's
highest annual base salary in effect during the one (1) year period preceding
a Change in Control and (b) the Executive's highest annual base salary in
effect during the one (1) year period preceding the Executive's Date of
Termination.
9.2 "Average Bonus" means the greater of (a) the Executive's average
annual bonus for the two fiscal years (or such shorter period (which shall be
annualized) during which the Executive has been employed by the Company)
immediately preceding the fiscal year in which a Change in Control occurs and
(b) the Executive's average Bonus for the two fiscal years (or such shorter
period (which shall be annualized) during which the Executive has been
employed by the Company) immediately preceding the fiscal year which includes
the Executive's Date of Termination.
9.3 "Base Amount" shall have the meaning ascribed to such term in
Section 280G(b)(3) of the Code.
9.4 "Board" means the Board of Directors of the Company.
9.5 "Cause" means:
(a) the willful and continued failure of the Executive to
substantially perform the Executive's duties with the Company (other than any
<PAGE>
such failure resulting from incapacity due to physical or mental illness),
after a written demand for substantial performance is delivered to the
Executive by the Board of the Company which specifically identifies the manner
in which the Board believes that the Executive has not substantially performed
the Executive's duties;
(b) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the
Company;
(c) personal dishonesty or breach of fiduciary duty to the
Company that in either case results or was intended to result in personal
profit to the Executive at the expense of the Company; or
(d) willful violation of any law, rule or regulation (other than
traffic violations, misdemeanors or similar offenses) or cease-and-
desist order, court order, judgment or supervisory agreement, which
violation is materially and demonstrably injurious to the Company.
For purposes of the preceding clauses, no act or failure to act, on the
part of the Executive, shall be considered "willful" unless it is done, or
omitted to be done, by the Executive in bad faith and without reasonable
belief that the Executive's action or omission was in the best interests of
the Company. Any act, or failure to act, based upon prior approval given by
the Board or upon the instructions or with the approval of the Executive's
superior or based upon the advice of counsel for the Company, shall be
conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company. The cessation of
employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive, as part of the Notice
of Termination, a copy of a resolution duly adopted by the affirmative vote of
not less than three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board called and held for the purpose of considering such
termination (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before
the Board) finding that, in the good faith opinion of the Board, the Executive
is guilty of the conduct described in clause (a), (b), (c), or (d) above, and
specifying the particulars there of in detail.
9.6 A "Change in Control" means the occurrence of any of the
following events:
(a) any Person or Persons acting together, excluding employee
benefit plans of the Company, are or become the "beneficial owner" (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act or any successor provisions
thereto), directly or indirectly, of securities of the Company representing
twenty-five percent (25%) or more of the combined voting power of the
Company's then outstanding securities;
(b) the Company's shareholders approve (or, in the event no
approval of the Company's shareholders is required, the Company consummates) a
merger, consolidation, share exchange, division or other reorganization or
transaction of the Company (a "Fundamental Transaction") with any other
corporation, other than a Fundamental Transaction which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least sixty percent (60%)
of the combined voting power immediately after such Fundamental Transaction of
<PAGE>
(i) the Company's outstanding securities, (ii) the surviving entity's
outstanding securities, or (iii) in the case of a division, the outstanding
securities of each entity resulting from the division;
(c) the shareholders of the Company approve a plan of complete
liquidation or winding-up of the Company or an agreement for the sale or
disposition (in one transaction or a series of transactions) of all or
substantially all of the Company's assets; or
(d) during any period of twenty-four consecutive months,
individuals who at the beginning of such period constituted the Board
(including for this purpose any new director whose election or nomination for
election by the Company's shareholders was approved by a vote of at least two-
thirds (2/3) of the directors then still in office who were directors at the
beginning of such period) cease for any reason to constitute at least a
majority of the Board.
9.7 "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
9.8 "Company" means First Commercial Corporation, an Arkansas
corporation. If the Executive becomes employed by a direct or indirect
Subsidiary of First Commercial Corporation, the "Company" shall also be deemed
to refer to the Subsidiary thereof by which the Executive is employed. In
such case, references to payments, benefits, privileges or other rights to be
accorded by the "Company" shall be deemed to include such payments, benefits,
privileges or other rights to be provided by the Subsidiary by which the
Executive is employed or First Commercial Corporation, as the case may be, to
correspond to the corporate entity obligated to make payments or provide
benefits, privileges or other rights pursuant to employee benefit plans
affected by the provisions hereof, and in the absence of any such existing
plans or provisions, such reference shall be deemed to be to First Commercial
Corporation.
9.9 "Coverage Period" means the period commencing on the date on
which a Change in Control occurs and ending on the second anniversary date
thereof.
9.10 "Date of Termination" has the meaning assigned to such term in
Section 7.1 hereof.
9.11 "Disability" means the complete disability of the Executive
under the Company's appropriate plan, as amended from time to time.
9.12 "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
9.13 "Excise Tax" means any excise tax imposed under Section 4999 of
the Code.
9.14 "Good Reason" means:
(a) the determination by the Executive made in good faith within
the first twelve (12) months immediately following a Change in Control that
the Executive cannot effectively carry out his duties to the Company, which
determination shall be made in a writing delivered to the Company; or
<PAGE>
(b) the occurrence during the Coverage Period of any of the
following events:
(i) the assignment to the Executive of any duties
inconsistent in any material respect with the Executive's position, authority,
duties or responsibilities immediately prior to a Change in Control or any
other action by the Company which results in a diminution in any material
respect in such position, authority, duties or responsibilities, excluding for
this purpose an isolated and inadvertent action not taken in bad faith that is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) a reduction by the Company in the Executive's annual
base salary as in effect on the date hereof or as the same may be increased
from time to time;
(iii) the Company's requiring the Executive to be based at
any office or location that is more than fifty (50) miles from the Executive's
office or location immediately prior to either a Potential Change in Control
that precedes a Change in Control or a Change in Control;
(iv) the failure by the Company (a) to continue in effect any
compensation plan in which the Executive participates immediately prior to
either a Potential Change in Control preceding a Change in Control or a Change
in Control that is material to the Executive's total compensation, unless an
equitable arrangement (embodied in an on going substitute or alternative
plan) has been made with respect to such plan, or (b) to continue the
Executive's participation therein (or in such substitute or alternative plan)
on a basis not materially less favorable, both in terms of the amount of
benefits provided and the level of the Executive's participation relative to
other participants, than existed immediately prior to a Potential Change in
Control that precedes a Change in Control or a Change in Control;
(v) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by the
Executive under any of the Company's pension, life insurance, medical, health
and accident, disability or other welfare plans in which the Executive was
participating immediately prior to a Potential Change in Control that precedes
a Change in Control or a Change in Control; or
(vi) the failure by the Company to pay to the Executive any
deferred compensation when due under any deferred compensation plan or
agreement applicable to the Executive; or
(vii) the failure by the Company to honor all the terms and
provisions of this Agreement.
9.15 "Normal Retirement Age" shall mean the earliest age at which the
Executive may commence retirement and become entitled to an unreduced pension
under the Pension Plan.
9.16 "Notice of Termination" shall have the meaning assigned to such
term in Section 6.1 hereof.
9.17 "Pension Plan" shall mean the First Commercial Corporation
Retirement Plan and any successor plans thereto.
<PAGE>
9.18 "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act and shall also include any syndicate or group deemed to be a
"person" under Section 13(d)(3) of the Exchange Act.
9.19 "Potential Change in Control" means the occurrence of any of the
following:
(a) the Board approves a transaction described in Subsection (b)
of the definition of Change in Control contained in Section 9.6 hereof;
(b) the commencement of a proxy contest in which any Person seeks
to replace or remove a majority of the members of the Board; or
(c) any Person files an application with the Board of Governors
of the Federal Reserve System for approval of the acquisition of more than
five percent (5%) of the Company's voting securities, or of any class thereof,
under the Bank Holding Company Act of 1956, as amended, or any successor
statute thereto, or files a notice of intent to acquire ten percent (10%) or
more of the Company's outstanding voting securities, or any class thereof,
pursuant to the Change in Bank Control Act or any successor statute thereto.
9.20 "Severance Benefits" has the meaning assigned to such term in
Section 3 hereof.
9.21 "Subsidiary" means any corporation controlled by the Company,
directly or indirectly.
9.22 "Supplemental Plan" means the First Commercial Corporation
Supplemental Executive Retirement Plan for the Executive.
9.23 "Triggering Event" means (i) the termination of the Executive's
employment by the Company at any time during the Coverage Period, other than a
termination for Cause or a termination due to the Executive's Disability or
death or (ii) a termination of the Executive's employment by the Executive at
any time during the Coverage Period when Good Reason exists.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its officer, thereunto duly authorized, and the Executive has executed this
Agreement, all as of the day and year first above written.
FIRST COMMERCIAL CORPORATION
By /s/ J. Lynn Wright
--------------------------------
Name: J. Lynn Wright
Title: Chief Financial Officer
EXECUTIVE:
/s/ Barnett Grace
--------------------------------
Name: Barnett Grace
EXHIBIT 10(f)
<PAGE>
AGREEMENT
THIS AGREEMENT dated as of December 30, 1996, is made by and between First
Commercial Corporation, an Arkansas corporation (the "Company"), and Jack
Fleischauer, Jr. (the "Executive").
WHEREAS the Company considers it essential to its best interests and to
the best interests of its shareholders and customers to foster the continuous
employment of its key management personnel; and
WHEREAS the Company recognizes that the possibility of a Change in Control
(as defined in Section 9.6 hereof) exists, as in the case of any publicly-held
corporation, and that such possibility, and the uncertainty and questions
which it may raise among management, may result in the departure or
distraction of management personnel to the detriment of the Company and its
shareholders and customers; and
WHEREAS the Company has determined that appropriate steps should be taken
to reinforce and encourage the continued attention and dedication of members
of the Company's management, including the Executive, to their assigned duties
without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the Company and the Executive hereby agree as follows:
1. Defined Terms. Definitions of certain capitalized terms used in this
Agreement are provided in Section 9 and elsewhere in this Agreement.
2. Term of Agreement. This Agreement shall become effective on the date
hereof and shall remain in effect indefinitely thereafter; provided, however,
that (a) except as provided in clause (b) of this Section 2, either the
Company or the Executive may terminate this Agreement by giving the other
party at least one (1) year advance written notice of such termination, and
(b) if a Potential Change in Control or a Change in Control shall have
occurred during the term of this Agreement, this Agreement may not be
terminated until all obligations of either party hereto have been performed in
full, the Coverage Period has expired without the occurrence of a Triggering
Event, or in the case of a Potential Change in Control, no Change in Control
occurs for at least two years following such Potential Change in Control.
Notwithstanding the foregoing, this Agreement shall terminate upon the
Executive's attaining age sixty-five (65), the Executive's Disability or
death, except as to obligations of the Company hereunder arising from a Change
in Control and/or a termination of the Executive's employment that, in either
case, occurred prior to his having reached such age or the occurrence of his
Disability or death.
3. Agreement of the Company. In order to induce the Executive to remain
in the employ of the Company, the Company agrees, under the terms and
conditions set forth herein, that, upon the occurrence of both a Change in
Control and a Triggering Event during the term of this Agreement, the Company
shall provide to the Executive the benefits described in Sections 3.1 through
3.4 below (the "Severance Benefits"), unless prior to the date of any
Triggering Event, the Executive's employment with the Company has been
terminated for Cause or due to the Executive's Disability or death.
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3.1 Lump-Sum Severance Payment. In lieu of any further salary
payments to the Executive for periods subsequent to the Date of Termination,
the Company shall pay to the Executive a lump sum severance payment, in cash,
without discount, equal to three (3) times the sum of (i) the Executive's
Annual Base Salary and (ii) the Executive's Average Bonus.
3.2 Vesting of Options. The vesting of all options to purchase
securities of the Company granted to the Executive pursuant to the Company's
1987 Incentive and Nonqualified Stock Option Plan, as amended May 15, 1990,
April 19, 1994 and October 18, 1994, or any other Company plan that are then
held by the Executive shall be accelerated to the later of the Date of
Termination or six months after the date such option was granted, and any
provision contained in the agreement(s) under which such options were granted
that is inconsistent with such acceleration is hereby modified to the extent
necessary to provide for such acceleration; such acceleration shall not apply
to any option that by its terms would vest prior to the date provided for in
this Section 3.2.
3.3 Continued Benefits. For a twenty-four (24) month period (or, if
less, the number of months from the Date of Termination until the date the
Executive will reach age sixty-five (65)) after the Date of Termination (the
"Benefits Period"), the Company shall provide the Executive with group term
life insurance, health insurance, accident and long-term disability insurance
benefits (collectively, "Welfare Benefits") substantially similar in all
respects to those that the Executive was receiving immediately prior to the
Date of Termination (without giving effect to any reduction in such benefits
subsequent to a Change in Control). During the Benefits Period, the Executive
shall be entitled to elect to change his level of coverage and/or his choice
of coverage options (such as Executive only or family medical coverage) with
respect to the Welfare Benefits to be provided by the Company to the Executive
to the same extent that actively employed senior executives of the Company are
permitted to make such changes; provided, however, that in the event of any
such changes the Executive shall pay the amount of any cost increase that
would actually be paid by an actively employed senior executive of the Company
by reason of making the same changes in his level of coverage or coverage
options.
3.4 Retirement Benefits. In addition to the retirement benefits to
which the Executive is entitled under the Pension Plan and the Supplemental
Plan, the Company shall pay the Executive a lump sum amount, in cash, equal to
the actuarial equivalent of the excess of (x) the total retirement pension
(determined as a straight life annuity commencing at Normal Retirement Age or,
if later, the first day of the first month after the Date of Termination)
that the Executive would have accrued under the terms of the Pension Plan and
the Supplemental Plan (without regard to any amendments to the Pension Plan or
the Supplemental Plan made subsequent to a Change in Control and on or prior
to the Date of Termination, which amendments adversely affect in any manner
the amount of retirement benefits payable thereunder), determined as if the
Executive were fully vested thereunder and had accumulated (after the Date of
Termination) twenty-four (24) additional months (or such lesser number of
months until the Executive will attain age sixty-five (65)) of service credit
thereunder at the Executive's Annual Base Salary, and (y) the retirement
pension (determined as a straight life annuity commencing at Normal Retirement
Age) which the Executive had accrued pursuant to the provisions of the Pension
Plan and the Supplemental Plan as of the Date of Termination. For purposes of
this Section 3.4, "actuarial equivalent" shall be determined using the same
methods and assumptions utilized under the Pension Plan immediately prior to
the Date of Termination.
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4. Gross-Up Payment; Certain Limitations on Payments and Benefits.
4.1 In the event that (i) the Executive becomes entitled to the
Severance Benefits or any other benefits or payments in connection with a
Change in Control or the termination of the Executive's employment, whether
pursuant to the terms of this Agreement or otherwise (collectively, the "Total
Benefits"), and (ii) any of the Total Benefits will be subject to the Excise
Tax, the Company shall pay to the Executive an additional amount (the "Gross-
Up Payment") such that the net amount retained by the Executive, after
deduction of any Excise Tax on the Total Benefits and any federal, state and
local income taxes, Excise Tax, and FICA and Medicare withholding taxes upon
the payment provided for by this Section 4.1, shall be equal to the Total
Benefits. For purposes of determining whether any of the Total Benefits will
be subject to the Excise Tax and the amount of such Excise Tax, the amount of
the Total Benefits that shall be treated as subject to the Excise Tax shall be
equal to the amount of the Total Benefits reduced by the amount of such Total
Benefits that, in the opinion of tax counsel selected by the Company and
reasonably acceptable to the Executive ("Tax Counsel"), are not excess
parachute payments (within the meaning of Section 280G(b)(1) of the Code).
4.2 For purposes of this Section 4, the Executive shall be deemed to
pay federal income taxes at the highest marginal rate of federal income
taxation in the calendar year in which the Excise Tax is (or would be) payable
and state and local income taxes at the highest marginal rate of taxation in
the state and locality of the Executive's residence on the Date of
Termination, net of the reduction in federal income taxes which could be
obtained from deduction of such state and local taxes (calculated by assuming
that any reduction under Section 68 of the Code in the amount of itemized
deductions allowable to the Executive applies first to reduce the amount of
such state and local income taxes that would otherwise be deductible by the
Executive). Except as otherwise provided herein, all determinations required
to be made under this Section 4 shall be made by Tax Counsel.
4.3 In the event that the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder at the time of termination
of the Executive's employment, the Executive shall repay to the Company, at
the time that the amount of such reduction in Excise Tax is finally
determined, the portion of the Gross-Up Payment attributable to such reduction
(plus that portion of the Gross-Up Payment attributable to the Excise Tax,
federal, state and local income taxes and FICA and Medicare withholding taxes
imposed on the Gross-Up Payment being repaid by the Executive to the extent
that such repayment results in a reduction in Excise Tax, FICA and Medicare
withholding taxes and/or a federal, state or local income tax deduction) plus
interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder at the time of the termination
of the Executive's employment (including by reason of any payment the
existence or amount of which cannot be determined at the time of the Gross-Up
Payment), the Company shall make an additional Gross-Up Payment to the
Executive in respect of such excess (plus any interest, penalties or additions
payable by the Executive with respect to such excess) at the time that the
amount of such excess is finally determined.
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5. Timing of Payments. The payments provided for in Sections 3.1, 3.4
and 4 shall be made on the Date of Termination, provided, however, that if the
amounts of such payments cannot be finally determined on or before such day,
the Company shall pay to the Executive on such day an estimate, as determined
in good faith by the Company, of the minimum amount of such payments and shall
pay the remainder of such payments (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code from the Date of Termination to
the payment of such remainder) as soon as the amount thereof can be determined
but in no event later than the thirtieth (30th) day after the Date of
Termination. In the event that the amount of the estimated payments exceeds
the amount subsequently determined to have been due, such excess shall
constitute a loan by the Company to the Executive, payable on the fifth (5th)
business day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code from the Date of Termination to
the repayment of such excess).
6. Reimbursement of Legal Costs. The Company shall pay to the Executive
all reasonable legal fees and expenses incurred by the Executive as a result
of a termination that entitles the Executive to any payments under this
Agreement including all such fees and expenses, if any, incurred in contesting
or disputing any Notice of Termination under Section 7.2 hereof or in seeking
to obtain or enforce any right or benefit provided by this Agreement or in
connection with any tax audit or proceeding to the extent attributable to the
application of Section 4999 of the Code to any payment or benefit provided
hereunder. Such payments shall be made within five (5) business days after
delivery of the Executive's respective written requests for payment
accompanied with such evidence of fees and expenses incurred as the Company
reasonably may require.
7. Termination Procedures.
7.1 Notice of Termination. After a Potential Change in Control or a
Change in Control, any termination of the Executive's employment (other than
by reason of death) must be preceded by a written Notice of Termination from
the terminating party to the other party hereto in accordance with Section 8.5
hereof. For purposes of this Agreement, a "Notice of Termination" shall mean
a notice which shall (i) specify the date of termination (the "Date of
Termination") which shall not be more than sixty (60) days from the date such
Notice of Termination is given, (ii) indicate the notifying party's opinion
regarding the specific provisions of this Agreement that will apply upon such
termination and (iii) set forth in reasonable detail the facts and
circumstances claimed to provide a basis for the application of the provisions
indicated. Termination of the Executive's employment shall occur on the
specified Date of Termination even if there is a dispute between the parties
pursuant to Section 7.2 hereof relating to the provisions of this Agreement
applicable to such termination.
7.2 Dispute Concerning Applicable Termination Provisions. If within
thirty (30) days of receiving the Notice of Termination the party receiving
such notice notifies the other party that a dispute exists concerning the
provisions of this Agreement that apply to such termination, the dispute shall
be resolved either by mutual written agreement of the parties or by expedited
commercial arbitration under the rules of the American Arbitration
Association, pursuant to the procedures set forth in Section 8.14 herein. The
parties shall pursue the resolution of such dispute with reasonable diligence.
Within five (5) days of such a resolution, any party owing any payments
pursuant to the provisions of this Agreement shall make all such payments
<PAGE>
together with interest accrued thereon at the rate provided in Section
1274(b)(2)(B) of the Code.
8. Miscellaneous.
8.1 No Mitigation. The Company agrees that, if the Executive's
employment by the Company is terminated in a manner that results in the
payment of Severance Benefits hereunder, the Executive shall not be required
to seek other employment or to attempt in any way to reduce any amounts
payable to the Executive by the Company pursuant to this Agreement. Further,
the amount of any payment or benefit provided for under this Agreement shall
not be reduced by any compensation earned by the Executive as the result of
employment by another employer, by retirement benefits, by offset against any
amount claimed to be owed by the Executive to the Company, or otherwise.
8.2 Successors. In addition to any obligations imposed by law upon
any successor to the Company, the Company shall be obligated to require any
successor (whether direct or indirect, by purchase, merger, consolidation,
operation of law, or otherwise) to all or substantially all of the business
and/or assets of the Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place; in the event of
such a succession, references to the "Company" herein shall thereafter be
deemed to include such successor. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession
shall be a breach of this Agreement and shall entitle the Executive to
terminate his employment and thereafter to receive Severance Benefits, except
that, for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination.
8.3 Incompetency. Any benefit payable to or for the benefit of the
Executive, if legally incompetent, or incapable of giving a receipt therefor,
shall be deemed paid when paid to the Executive's guardian or to the party
providing or reasonably appearing to provide for the care of such person, and
such payment shall fully discharge the Company.
8.4 Death. This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
the Executive shall die while any amount would still be payable to the
Executive hereunder (other than amounts which, by their terms, terminate upon
the death of the Executive) if the Executive had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the executors, personal representatives or
administrators of the Executive's estate.
8.5 Notices. For the purpose of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed
to the respective addresses set forth below, or to such other address as
either party may have furnished to the other in writing in accordance
<PAGE>
herewith, except that notice of change of address shall be effective only upon
actual receipt:
To the Company:
First Commercial Corporation
400 West Capitol Avenue
Little Rock, Arkansas 72201
Attention:
To the Executive:
8.6 Modification, Waiver. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing and signed by the Executive and such officer as may be
specifically designated by the Board or its delegee. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
8.7 Entire Agreement. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
8.8 Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Arkansas without regard to principles of conflicts of laws thereof.
8.9 Statutory Changes. All references to sections of the Exchange
Act or the Code shall be deemed also to refer to any successor provisions to
such sections.
8.10 Withholding. Any payments provided for hereunder shall be paid
net of any applicable withholding required under federal, state or local law
and any additional withholding to which the Executive has agreed.
8.11 Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
8.12 No Right to Continued Employment. Nothing in this Agreement
shall be deemed to give any Executive the right to be retained in the employ
of the Company, or to interfere with the right of the Company to discharge the
Executive at any time and for any lawful reason, subject in all cases to the
terms of this Agreement.
8.13 No Assignment of Benefits. Except as otherwise provided herein
or by law, no right or interest of any Executive under the Agreement shall be
assignable or transferable, in whole or in part, either directly or by
operation of law or otherwise, including without limitation by execution,
levy, garnishment, attachment, pledge or in any manner; no attempted
assignment or transfer thereof shall be effective; and no right or interest of
any Executive under this Agreement shall be liable for, or subject to, any
obligation or liability of such Executive.
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8.14 Arbitration Procedures. All disputes relating to this
Agreement, including without limitation any disputes under Section 7.2 hereof,
shall be submitted to expedited commercial arbitration under the rules of the
American Arbitration Association in Little Rock, Arkansas, with an arbiter who
is mutually acceptable to both parties being selected to preside over such
arbitration. The Federal Rules of Evidence shall apply, and the arbiter shall
establish the applicable rules of discovery. The prevailing party in any
arbitration shall be entitled to recover from the other party all fees and
expenses (including, without limitation, reasonable attorney's fees and
disbursements) incurred in connection with such arbitration. The arbiter
shall determine the scope of arbitrability. The only judicial relief shall be
(a) interim equitable relief and (b) relief in aid of or to enforce
arbitration.
8.15 Reduction of Benefits By Legally Required Benefits.
Notwithstanding any other provision of this Agreement to the contrary, if the
Company is obligated by law or by contract (other than under this Agreement)
to pay severance pay, a termination indemnity, notice pay, or the like, or if
the Company is obligated by law or by contract to provide advance notice of
separation ("Notice Period"), then any Severance Benefits hereunder shall be
reduced by the amount of any such severance pay, termination indemnity, notice
pay or the like, as applicable, and by the amount of any pay received with
respect to any Notice Period.
8.16 Headings. The headings and captions herein are provided for
reference and convenience only, shall not be considered part of this
Agreement, and shall not be employed in the construction of this Agreement.
9. Definitions.
9.1 "Annual Base Salary" means the greater of (a) the Executive's
highest annual base salary in effect during the one (1) year period preceding
a Change in Control and (b) the Executive's highest annual base salary in
effect during the one (1) year period preceding the Executive's Date of
Termination.
9.2 "Average Bonus" means the greater of (a) the Executive's average
annual bonus for the two fiscal years (or such shorter period (which shall be
annualized) during which the Executive has been employed by the Company)
immediately preceding the fiscal year in which a Change in Control occurs and
(b) the Executive's average Bonus for the two fiscal years (or such shorter
period (which shall be annualized) during which the Executive has been
employed by the Company) immediately preceding the fiscal year which includes
the Executive's Date of Termination.
9.3 "Base Amount" shall have the meaning ascribed to such term in
Section 280G(b)(3) of the Code.
9.4 "Board" means the Board of Directors of the Company.
9.5 "Cause" means:
(a) the willful and continued failure of the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from incapacity due to physical or mental illness),
after a written demand for substantial performance is delivered to the
Executive by the Board of the Company which specifically identifies the manner
<PAGE>
in which the Board believes that the Executive has not substantially performed
the Executive's duties;
(b) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the
Company;
(c) personal dishonesty or breach of fiduciary duty to the
Company that in either case results or was intended to result in personal
profit to the Executive at the expense of the Company; or
(d) willful violation of any law, rule or regulation (other than
traffic violations, misdemeanors or similar offenses) or cease-and-desist
order, court order, judgment or supervisory agreement, which violation is
materially and demonstrably injurious to the Company.
For purposes of the preceding clauses, no act or failure to act, on the part
of the Executive, shall be considered "willful" unless it is done, or omitted
to be done, by the Executive in bad faith and without reasonable belief that
the Executive's action or omission was in the best interests of the Company.
Any act, or failure to act, based upon prior approval given by the Board or
upon the instructions or with the approval of the Executive's superior or
based upon the advice of counsel for the Company, shall be conclusively
presumed to be done, or omitted to be done, by the Executive in good faith and
in the best interests of the Company. The cessation of employment of the
Executive shall not be deemed to be for Cause unless and until there shall
have been delivered to the Executive, as part of the Notice of Termination, a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters (3/4) of the entire membership of the Board at a meeting of the
Board called and held for the purpose of considering such termination (after
reasonable notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, the Executive is guilty of the
conduct described in clause (a), (b), (c), or (d) above, and specifying the
particulars thereof in detail.
9.6 A "Change in Control" means the occurrence of any of the
following events:
(a) any Person or Persons acting together, excluding employee
benefit plans of the Company, are or become the "beneficial owner" (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act or any successor provisions
thereto), directly or indirectly, of securities of the Company representing
twenty-five percent (25%) or more of the combined voting power of the
Company's then outstanding securities;
(b) the Company's shareholders approve (or, in the event no
approval of the Company's shareholders is required, the Company consummates) a
merger, consolidation, share exchange, division or other reorganization or
transaction of the Company (a "Fundamental Transaction") with any other
corporation, other than a Fundamental Transaction which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least sixty percent (60%)
of the combined voting power immediately after such Fundamental Transaction of
(i) the Company's outstanding securities, (ii) the surviving entity's
outstanding securities, or (iii) in the case of a division, the outstanding
securities of each entity resulting from the division;
<PAGE>
(c) the shareholders of the Company approve a plan of complete
liquidation or winding-up of the Company or an agreement for the sale or
disposition (in one transaction or a series of transactions) of all or
substantially all of the Company's assets;
(d) during any period of twenty-four consecutive months,
individuals who at the beginning of such period constituted the Board
(including for this purpose any new director whose election or nomination for
election by the Company's shareholders was approved by a vote of at least two-
thirds (2/3) of the directors then still in office who were directors at the
beginning of such period) cease for any reason to constitute at least a
majority of the Board; or
9.7 "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
9.8 "Company" means First Commercial Corporation, an Arkansas
corporation. If the Executive becomes employed by a direct or indirect
Subsidiary of First Commercial Corporation, the "Company" shall also be deemed
to refer to the Subsidiary thereof by which the Executive is employed. In
such case, references to payments, benefits, privileges or other rights to be
accorded by the "Company" shall be deemed to include such payments, benefits,
privileges or other rights to be provided by the Subsidiary by which the
Executive is employed or First Commercial Corporation, as the case may be, to
correspond to the corporate entity obligated to make payments or provide
benefits, privileges or other rights pursuant to employee benefit plans
affected by the provisions hereof, and in the absence of any such existing
plans or provisions, such reference shall be deemed to be to First Commercial
Corporation.
9.9 "Coverage Period" means the period commencing on the date on
which a Change in Control occurs and ending on the second anniversary date
thereof.
9.10 "Date of Termination" has the meaning assigned to such term in
Section 7.1 hereof.
9.11 "Disability" means the complete disability of the Executive
under the Company's appropriate plan, as amended from time to time.
9.12 "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
9.13 "Excise Tax" means any excise tax imposed under Section 4999 of
the Code.
9.14 "Good Reason" means:
(a) the determination by the Executive made in good faith within
the first twelve (12) months immediately following a Change in Control that
the Executive cannot effectively carry out his duties to the Company, which
determination shall be made in a writing delivered to the Company; or
(b) the occurrence during the Coverage Period of any of the
following events:
<PAGE>
(i) the assignment to the Executive of any duties
inconsistent in any material respect with the Executive's position, authority,
duties or responsibilities immediately prior to a Change in Control or any
other action by the Company which results in a diminution in any material
respect in such position, authority, duties or responsibilities, excluding for
this purpose an isolated and inadvertent action not taken in bad faith that is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) a reduction by the Company in the Executive's annual
base salary as in effect on the date hereof or as the same may be increased
from time to time;
(iii) the Company's requiring the Executive to be based at
any office or location that is more than fifty (50) miles from the Executive's
office or location immediately prior to either a Potential Change in Control
that precedes a Change in Control or a Change in Control;
(iv) the failure by the Company (a) to continue in effect any
compensation plan in which the Executive participates immediately prior to
either a Potential Change in Control preceding a Change in Control or a Change
in Control that is material to the Executive's total compensation, unless an
equitable arrangement (embodied in an ongoing substitute or alternative plan)
has been made with respect to such plan, or (b) to continue the Executive's
participation therein (or in such substitute or alternative plan) on a basis
not materially less favorable, both in terms of the amount of benefits
provided and the level of the Executive's participation relative to other
participants, than existed immediately prior to a Potential Change in Control
that precedes a Change in Control or a Change in Control;
(v) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by the
Executive under any of the Company's pension, life insurance, medical, health
and accident, disability or other welfare plans in which the Executive was
participating immediately prior to a Potential Change in Control that precedes
a Change in Control or a Change in Control; or
(vi) the failure by the Company to pay to the Executive any
deferred compensation when due under any deferred compensation plan or
agreement applicable to the Executive; or
(vii) the failure by the Company to honor all the terms and
provisions of this Agreement.
9.15 "Normal Retirement Age" shall mean the earliest age at which the
Executive may commence retirement and become entitled to an unreduced pension
under the Pension Plan.
9.16 "Notice of Termination" shall have the meaning assigned to such
term in Section 6.1 hereof.
9.17 "Pension Plan" shall mean the First Commercial Corporation
Retirement Plan and any successor plans thereto.
9.18 "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act and shall also include any syndicate or group deemed to be a
"person" under Section 13(d)(3) of the Exchange Act.
<PAGE>
9.19 "Potential Change in Control" means the occurrence of any of the
following:
(a) the Board approves a transaction described in Subsection (b)
of the definition of Change in Control contained in Section 9.6 hereof;
(b) the commencement of a proxy contest in which any Person seeks
to replace or remove a majority of the members of the Board; or
(c) any Person files an application with the Board of Governors
of the Federal Reserve System for approval of the acquisition of more than
five percent (5%) of the Company's voting securities, or of any class thereof,
under the Bank Holding Company Act of 1956, as amended, or any successor
statute thereto, or files a notice of intent to acquire ten percent (10%) or
more of the Company's outstanding voting securities, or any class thereof,
pursuant to the Change in Bank Control Act or any successor statute thereto.
9.20 "Severance Benefits" has the meaning assigned to such term in
Section 3 hereof.
9.21 "Subsidiary" means any corporation controlled by the Company,
directly or indirectly.
9.22 "Supplemental Plan" means the First Commercial Corporation
Supplemental Executive Retirement Plan for the Executive, if any.
9.23 "Triggering Event" means (i) the termination of the Executive's
employment by the Company at any time during the Coverage Period, other than a
termination for Cause or a termination due to the Executive's Disability or
death or (ii) a termination of the Executive's employment by the Executive at
any time during the Coverage Period when Good Reason exists.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its officer, thereunto duly authorized, and the Executive has executed this
Agreement, all as of the day and year first above written.
FIRST COMMERCIAL CORPORATION
By /s/ Barnett Grace
--------------------------------
Name: Barnett Grace
Title: Chief Executive Officer
EXECUTIVE:
/s/ Jack Fleischauer, Jr.
--------------------------------
Name: Jack Fleischauer, Jr.
EXHIBIT 10(g)
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AGREEMENT
THIS AGREEMENT dated as of December 23, 1996, is made by and between First
Commercial Corporation, an Arkansas corporation (the "Company"), and Edwin P.
Henry (the "Executive").
WHEREAS the Company considers it essential to its best interests and to
the best interests of its shareholders and customers to foster the continuous
employment of its key management personnel; and
WHEREAS the Company recognizes that the possibility of a Change in Control
(as defined in Section 9.6 hereof) exists, as in the case of any publicly-held
corporation, and that such possibility, and the uncertainty and questions
which it may raise among management, may result in the departure or
distraction of management personnel to the detriment of the Company and its
shareholders and customers; and
WHEREAS the Company has determined that appropriate steps should be taken
to reinforce and encourage the continued attention and dedication of members
of the Company's management, including the Executive, to their assigned duties
without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the Company and the Executive hereby agree as follows:
1. Defined Terms. Definitions of certain capitalized terms used in this
Agreement are provided in Section 9 and elsewhere in this Agreement.
2. Term of Agreement. This Agreement shall become effective on the date
hereof and shall remain in effect indefinitely thereafter; provided, however,
that (a) except as provided in clause (b) of this Section 2, either the
Company or the Executive may terminate this Agreement by giving the other
party at least one (1) year advance written notice of such termination, and
(b) if a Potential Change in Control or a Change in Control shall have
occurred during the term of this Agreement, this Agreement may not be
terminated until all obligations of either party hereto have been performed in
full, the Coverage Period has expired without the occurrence of a Triggering
Event, or in the case of a Potential Change in Control, no Change in Control
occurs for at least two years following such Potential Change in Control.
Notwithstanding the foregoing, this Agreement shall terminate upon the
Executive's attaining age sixty-five (65), the Executive's Disability or
death, except as to obligations of the Company hereunder arising from a Change
in Control and/or a termination of the Executive's employment that, in either
case, occurred prior to his having reached such age or the occurrence of his
Disability or death.
3. Agreement of the Company. In order to induce the Executive to remain
in the employ of the Company, the Company agrees, under the terms and
conditions set forth herein, that, upon the occurrence of both a Change in
Control and a Triggering Event during the term of this Agreement, the Company
shall provide to the Executive the benefits described in Sections 3.1 through
3.4 below (the "Severance Benefits"), unless prior to the date of any
Triggering Event, the Executive's employment with the Company has been
terminated for Cause or due to the Executive's Disability or death.
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3.1 Lump-Sum Severance Payment. In lieu of any further salary
payments to the Executive for periods subsequent to the Date of Termination,
the Company shall pay to the Executive a lump sum severance payment, in cash,
without discount, equal to three (3) times the sum of (i) the Executive's
Annual Base Salary and (ii) the Executive's Average Bonus.
3.2 Vesting of Options. The vesting of all options to purchase
securities of the Company granted to the Executive pursuant to the Company's
1987 Incentive and Nonqualified Stock Option Plan, as amended May 15, 1990,
April 19, 1994 and October 18, 1994, or any other Company plan that are then
held by the Executive shall be accelerated to the later of the Date of
Termination or six months after the date such option was granted, and any
provision contained in the agreement(s) under which such options were granted
that is inconsistent with such acceleration is hereby modified to the extent
necessary to provide for such acceleration; such acceleration shall not apply
to any option that by its terms would vest prior to the date provided for in
this Section 3.2.
3.3 Continued Benefits. For a twenty-four (24) month period (or, if
less, the number of months from the Date of Termination until the date the
Executive will reach age sixty-five (65)) after the Date of Termination (the
"Benefits Period"), the Company shall provide the Executive with group term
life insurance, health insurance, accident and long-term disability insurance
benefits (collectively, "Welfare Benefits") substantially similar in all
respects to those that the Executive was receiving immediately prior to the
Date of Termination (without giving effect to any reduction in such benefits
subsequent to a Change in Control). During the Benefits Period, the Executive
shall be entitled to elect to change his level of coverage and/or his choice
of coverage options (such as Executive only or family medical coverage) with
respect to the Welfare Benefits to be provided by the Company to the Executive
to the same extent that actively employed senior executives of the Company are
permitted to make such changes; provided, however, that in the event of any
such changes the Executive shall pay the amount of any cost increase that
would actually be paid by an actively employed senior executive of the Company
by reason of making the same changes in his level of coverage or coverage
options.
3.4 Retirement Benefits. In addition to the retirement benefits to
which the Executive is entitled under the Pension Plan and the Supplemental
Plan, the Company shall pay the Executive a lump sum amount, in cash, equal to
the actuarial equivalent of the excess of (x) the total retirement pension
(determined as a straight life annuity commencing at Normal Retirement Age or,
if later, the first day of the first month after the Date of Termination)
that the Executive would have accrued under the terms of the Pension Plan and
the Supplemental Plan (without regard to any amendments to the Pension Plan or
the Supplemental Plan made subsequent to a Change in Control and on or prior
to the Date of Termination, which amendments adversely affect in any manner
the amount of retirement benefits payable thereunder), determined as if the
Executive were fully vested thereunder and had accumulated (after the Date of
Termination) twenty-four (24) additional months (or such lesser number of
months until the Executive will attain age sixty-five (65)) of service credit
thereunder at the Executive's Annual Base Salary, and (y) the retirement
pension (determined as a straight life annuity commencing at Normal Retirement
Age) which the Executive had accrued pursuant to the provisions of the Pension
Plan and the Supplemental Plan as of the Date of Termination. For purposes of
this Section 3.4, "actuarial equivalent" shall be determined using the same
methods and assumptions utilized under the Pension Plan immediately prior to
the Date of Termination.
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4. Gross-Up Payment; Certain Limitations on Payments and Benefits.
4.1 In the event that (i) the Executive becomes entitled to the
Severance Benefits or any other benefits or payments in connection with a
Change in Control or the termination of the Executive's employment, whether
pursuant to the terms of this Agreement or otherwise (collectively, the "Total
Benefits"), and (ii) any of the Total Benefits will be subject to the Excise
Tax, the Company shall pay to the Executive an additional amount (the "Gross-
Up Payment") such that the net amount retained by the Executive, after
deduction of any Excise Tax on the Total Benefits and any federal, state and
local income taxes, Excise Tax, and FICA and Medicare withholding taxes upon
the payment provided for by this Section 4.1, shall be equal to the Total
Benefits. For purposes of determining whether any of the Total Benefits will
be subject to the Excise Tax and the amount of such Excise Tax, the amount of
the Total Benefits that shall be treated as subject to the Excise Tax shall be
equal to the amount of the Total Benefits reduced by the amount of such Total
Benefits that, in the opinion of tax counsel selected by the Company and
reasonably acceptable to the Executive ("Tax Counsel"), are not excess
parachute payments (within the meaning of Section 280G(b)(1) of the Code).
4.2 For purposes of this Section 4, the Executive shall be deemed to
pay federal income taxes at the highest marginal rate of federal income
taxation in the calendar year in which the Excise Tax is (or would be) payable
and state and local income taxes at the highest marginal rate of taxation in
the state and locality of the Executive's residence on the Date of
Termination, net of the reduction in federal income taxes which could be
obtained from deduction of such state and local taxes (calculated by assuming
that any reduction under Section 68 of the Code in the amount of itemized
deductions allowable to the Executive applies first to reduce the amount of
such state and local income taxes that would otherwise be deductible by the
Executive). Except as otherwise provided herein, all determinations required
to be made under this Section 4 shall be made by Tax Counsel.
4.3 In the event that the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder at the time of termination
of the Executive's employment, the Executive shall repay to the Company, at
the time that the amount of such reduction in Excise Tax is finally
determined, the portion of the Gross-Up Payment attributable to such reduction
(plus that portion of the Gross-Up Payment attributable to the Excise Tax,
federal, state and local income taxes and FICA and Medicare withholding taxes
imposed on the Gross-Up Payment being repaid by the Executive to the extent
that such repayment results in a reduction in Excise Tax, FICA and Medicare
withholding taxes and/or a federal, state or local income tax deduction) plus
interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder at the time of the termination
of the Executive's employment (including by reason of any payment the
existence or amount of which cannot be determined at the time of the Gross-Up
Payment), the Company shall make an additional Gross-Up Payment to the
Executive in respect of such excess (plus any interest, penalties or additions
payable by the Executive with respect to such excess) at the time that the
amount of such excess is finally determined.
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5. Timing of Payments. The payments provided for in Sections 3.1, 3.4
and 4 shall be made on the Date of Termination, provided, however, that if the
amounts of such payments cannot be finally determined on or before such day,
the Company shall pay to the Executive on such day an estimate, as determined
in good faith by the Company, of the minimum amount of such payments and shall
pay the remainder of such payments (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code from the Date of Termination to
the payment of such remainder) as soon as the amount thereof can be determined
but in no event later than the thirtieth (30th) day after the Date of
Termination. In the event that the amount of the estimated payments exceeds
the amount subsequently determined to have been due, such excess shall
constitute a loan by the Company to the Executive, payable on the fifth (5th)
business day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code from the Date of Termination to
the repayment of such excess).
6. Reimbursement of Legal Costs. The Company shall pay to the Executive
all reasonable legal fees and expenses incurred by the Executive as a result
of a termination that entitles the Executive to any payments under this
Agreement including all such fees and expenses, if any, incurred in contesting
or disputing any Notice of Termination under Section 7.2 hereof or in seeking
to obtain or enforce any right or benefit provided by this Agreement or in
connection with any tax audit or proceeding to the extent attributable to the
application of Section 4999 of the Code to any payment or benefit provided
hereunder. Such payments shall be made within five (5) business days after
delivery of the Executive's respective written requests for payment
accompanied with such evidence of fees and expenses incurred as the Company
reasonably may require.
7. Termination Procedures.
7.1 Notice of Termination. After a Potential Change in Control or a
Change in Control, any termination of the Executive's employment (other than
by reason of death) must be preceded by a written Notice of Termination from
the terminating party to the other party hereto in accordance with Section 8.5
hereof. For purposes of this Agreement, a "Notice of Termination" shall mean
a notice which shall (i) specify the date of termination (the "Date of
Termination") which shall not be more than sixty (60) days from the date such
Notice of Termination is given, (ii) indicate the notifying party's opinion
regarding the specific provisions of this Agreement that will apply upon such
termination and (iii) set forth in reasonable detail the facts and
circumstances claimed to provide a basis for the application of the provisions
indicated. Termination of the Executive's employment shall occur on the
specified Date of Termination even if there is a dispute between the parties
pursuant to Section 7.2 hereof relating to the provisions of this Agreement
applicable to such termination.
7.2 Dispute Concerning Applicable Termination Provisions. If within
thirty (30) days of receiving the Notice of Termination the party receiving
such notice notifies the other party that a dispute exists concerning the
provisions of this Agreement that apply to such termination, the dispute shall
be resolved either by mutual written agreement of the parties or by expedited
commercial arbitration under the rules of the American Arbitration
Association, pursuant to the procedures set forth in Section 8.14 herein. The
parties shall pursue the resolution of such dispute with reasonable diligence.
Within five (5) days of such a resolution, any party owing any payments
pursuant to the provisions of this Agreement shall make all such payments
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together with interest accrued thereon at the rate provided in Section
1274(b)(2)(B) of the Code.
8. Miscellaneous.
8.1 No Mitigation. The Company agrees that, if the Executive's
employment by the Company is terminated in a manner that results in the
payment of Severance Benefits hereunder, the Executive shall not be required
to seek other employment or to attempt in any way to reduce any amounts
payable to the Executive by the Company pursuant to this Agreement. Further,
the amount of any payment or benefit provided for under this Agreement shall
not be reduced by any compensation earned by the Executive as the result of
employment by another employer, by retirement benefits, by offset against any
amount claimed to be owed by the Executive to the Company, or otherwise.
8.2 Successors. In addition to any obligations imposed by law upon
any successor to the Company, the Company shall be obligated to require any
successor (whether direct or indirect, by purchase, merger, consolidation,
operation of law, or otherwise) to all or substantially all of the business
and/or assets of the Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place; in the event of
such a succession, references to the "Company" herein shall thereafter be
deemed to include such successor. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession
shall be a breach of this Agreement and shall entitle the Executive to
terminate his employment and thereafter to receive Severance Benefits, except
that, for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination.
8.3 Incompetency. Any benefit payable to or for the benefit of the
Executive, if legally incompetent, or incapable of giving a receipt therefor,
shall be deemed paid when paid to the Executive's guardian or to the party
providing or reasonably appearing to provide for the care of such person, and
such payment shall fully discharge the Company.
8.4 Death. This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
the Executive shall die while any amount would still be payable to the
Executive hereunder (other than amounts which, by their terms, terminate upon
the death of the Executive) if the Executive had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the executors, personal representatives or
administrators of the Executive's estate.
8.5 Notices. For the purpose of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed
to the respective addresses set forth below, or to such other address as
either party may have furnished to the other in writing in accordance
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herewith, except that notice of change of address shall be effective only upon
actual receipt:
To the Company:
First Commercial Corporation
400 West Capitol Avenue
Little Rock, Arkansas 72201
Attention:
To the Executive:
8.6 Modification, Waiver. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing and signed by the Executive and such officer as may be
specifically designated by the Board or its delegee. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
8.7 Entire Agreement. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
8.8 Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Arkansas without regard to principles of conflicts of laws thereof.
8.9 Statutory Changes. All references to sections of the Exchange
Act or the Code shall be deemed also to refer to any successor provisions to
such sections.
8.10 Withholding. Any payments provided for hereunder shall be paid
net of any applicable withholding required under federal, state or local law
and any additional withholding to which the Executive has agreed.
8.11 Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
8.12 No Right to Continued Employment. Nothing in this Agreement
shall be deemed to give any Executive the right to be retained in the employ
of the Company, or to interfere with the right of the Company to discharge the
Executive at any time and for any lawful reason, subject in all cases to the
terms of this Agreement.
8.13 No Assignment of Benefits. Except as otherwise provided herein
or by law, no right or interest of any Executive under the Agreement shall be
assignable or transferable, in whole or in part, either directly or by
operation of law or otherwise, including without limitation by execution,
levy, garnishment, attachment, pledge or in any manner; no attempted
assignment or transfer thereof shall be effective; and no right or interest of
any Executive under this Agreement shall be liable for, or subject to, any
obligation or liability of such Executive.
<PAGE>
8.14 Arbitration Procedures. All disputes relating to this
Agreement, including without limitation any disputes under Section 7.2 hereof,
shall be submitted to expedited commercial arbitration under the rules of the
American Arbitration Association in Little Rock, Arkansas, with an arbiter who
is mutually acceptable to both parties being selected to preside over such
arbitration. The Federal Rules of Evidence shall apply, and the arbiter shall
establish the applicable rules of discovery. The prevailing party in any
arbitration shall be entitled to recover from the other party all fees and
expenses (including, without limitation, reasonable attorney's fees and
disbursements) incurred in connection with such arbitration. The arbiter
shall determine the scope of arbitrability. The only judicial relief shall be
(a) interim equitable relief and (b) relief in aid of or to enforce
arbitration.
8.15 Reduction of Benefits By Legally Required Benefits.
Notwithstanding any other provision of this Agreement to the contrary, if the
Company is obligated by law or by contract (other than under this Agreement)
to pay severance pay, a termination indemnity, notice pay, or the like, or if
the Company is obligated by law or by contract to provide advance notice of
separation ("Notice Period"), then any Severance Benefits hereunder shall be
reduced by the amount of any such severance pay, termination indemnity, notice
pay or the like, as applicable, and by the amount of any pay received with
respect to any Notice Period.
8.16 Headings. The headings and captions herein are provided for
reference and convenience only, shall not be considered part of this
Agreement, and shall not be employed in the construction of this Agreement.
9. Definitions.
9.1 "Annual Base Salary" means the greater of (a) the Executive's
highest annual base salary in effect during the one (1) year period preceding
a Change in Control and (b) the Executive's highest annual base salary in
effect during the one (1) year period preceding the Executive's Date of
Termination.
9.2 "Average Bonus" means the greater of (a) the Executive's average
annual bonus for the two fiscal years (or such shorter period (which shall be
annualized) during which the Executive has been employed by the Company)
immediately preceding the fiscal year in which a Change in Control occurs and
(b) the Executive's average Bonus for the two fiscal years (or such shorter
period (which shall be annualized) during which the Executive has been
employed by the Company) immediately preceding the fiscal year which includes
the Executive's Date of Termination.
9.3 "Base Amount" shall have the meaning ascribed to such term in
Section 280G(b)(3) of the Code.
9.4 "Board" means the Board of Directors of the Company.
9.5 "Cause" means:
(a) the willful and continued failure of the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from incapacity due to physical or mental illness),
after a written demand for substantial performance is delivered to the
Executive by the Board of the Company which specifically identifies the manner
<PAGE>
in which the Board believes that the Executive has not substantially performed
the Executive's duties;
(b) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the
Company;
(c) personal dishonesty or breach of fiduciary duty to the
Company that in either case results or was intended to result in personal
profit to the Executive at the expense of the Company; or
(d) willful violation of any law, rule or regulation (other than
traffic violations, misdemeanors or similar offenses) or cease-and-desist
order, court order, judgment or supervisory agreement, which violation is
materially and demonstrably injurious to the Company.
For purposes of the preceding clauses, no act or failure to act, on the part
of the Executive, shall be considered "willful" unless it is done, or omitted
to be done, by the Executive in bad faith and without reasonable belief that
the Executive's action or omission was in the best interests of the Company.
Any act, or failure to act, based upon prior approval given by the Board or
upon the instructions or with the approval of the Executive's superior or
based upon the advice of counsel for the Company, shall be conclusively
presumed to be done, or omitted to be done, by the Executive in good faith and
in the best interests of the Company. The cessation of employment of the
Executive shall not be deemed to be for Cause unless and until there shall
have been delivered to the Executive, as part of the Notice of Termination, a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters (3/4) of the entire membership of the Board at a meeting of the
Board called and held for the purpose of considering such termination (after
reasonable notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, the Executive is guilty of the
conduct described in clause (a), (b), (c), or (d) above, and specifying the
particulars thereof in detail.
9.6 A "Change in Control" means the occurrence of any of the
following events:
(a) any Person or Persons acting together, excluding employee
benefit plans of the Company, are or become the "beneficial owner" (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act or any successor provisions
thereto), directly or indirectly, of securities of the Company representing
twenty-five percent (25%) or more of the combined voting power of the
Company's then outstanding securities;
(b) the Company's shareholders approve (or, in the event no
approval of the Company's shareholders is required, the Company consummates) a
merger, consolidation, share exchange, division or other reorganization or
transaction of the Company (a "Fundamental Transaction") with any other
corporation, other than a Fundamental Transaction which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least sixty percent (60%)
of the combined voting power immediately after such Fundamental Transaction of
(i) the Company's outstanding securities, (ii) the surviving entity's
outstanding securities, or (iii) in the case of a division, the outstanding
securities of each entity resulting from the division;
<PAGE>
(c) the shareholders of the Company approve a plan of complete
liquidation or winding-up of the Company or an agreement for the sale or
disposition (in one transaction or a series of transactions) of all or
substantially all of the Company's assets;
(d) during any period of twenty-four consecutive months,
individuals who at the beginning of such period constituted the Board
(including for this purpose any new director whose election or nomination for
election by the Company's shareholders was approved by a vote of at least two-
thirds (2/3) of the directors then still in office who were directors at the
beginning of such period) cease for any reason to constitute at least a
majority of the Board; or
9.7 "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
9.8 "Company" means First Commercial Corporation, an Arkansas
corporation. If the Executive becomes employed by a direct or indirect
Subsidiary of First Commercial Corporation, the "Company" shall also be deemed
to refer to the Subsidiary thereof by which the Executive is employed. In
such case, references to payments, benefits, privileges or other rights to be
accorded by the "Company" shall be deemed to include such payments, benefits,
privileges or other rights to be provided by the Subsidiary by which the
Executive is employed or First Commercial Corporation, as the case may be, to
correspond to the corporate entity obligated to make payments or provide
benefits, privileges or other rights pursuant to employee benefit plans
affected by the provisions hereof, and in the absence of any such existing
plans or provisions, such reference shall be deemed to be to First Commercial
Corporation.
9.9 "Coverage Period" means the period commencing on the date on
which a Change in Control occurs and ending on the second anniversary date
thereof.
9.10 "Date of Termination" has the meaning assigned to such term in
Section 7.1 hereof.
9.11 "Disability" means the complete disability of the Executive
under the Company's appropriate plan, as amended from time to time.
9.12 "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
9.13 "Excise Tax" means any excise tax imposed under Section 4999 of
the Code.
9.14 "Good Reason" means:
(a) the determination by the Executive made in good faith within
the first twelve (12) months immediately following a Change in Control that
the Executive cannot effectively carry out his duties to the Company, which
determination shall be made in a writing delivered to the Company; or
(b) the occurrence during the Coverage Period of any of the
following events:
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(i) the assignment to the Executive of any duties
inconsistent in any material respect with the Executive's position, authority,
duties or responsibilities immediately prior to a Change in Control or any
other action by the Company which results in a diminution in any material
respect in such position, authority, duties or responsibilities, excluding for
this purpose an isolated and inadvertent action not taken in bad faith that is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) a reduction by the Company in the Executive's annual
base salary as in effect on the date hereof or as the same may be increased
from time to time;
(iii) the Company's requiring the Executive to be based at
any office or location that is more than fifty (50) miles from the Executive's
office or location immediately prior to either a Potential Change in Control
that precedes a Change in Control or a Change in Control;
(iv) the failure by the Company (a) to continue in effect any
compensation plan in which the Executive participates immediately prior to
either a Potential Change in Control preceding a Change in Control or a Change
in Control that is material to the Executive's total compensation, unless an
equitable arrangement (embodied in an ongoing substitute or alternative plan)
has been made with respect to such plan, or (b) to continue the Executive's
participation therein (or in such substitute or alternative plan) on a basis
not materially less favorable, both in terms of the amount of benefits
provided and the level of the Executive's participation relative to other
participants, than existed immediately prior to a Potential Change in Control
that precedes a Change in Control or a Change in Control;
(v) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by the
Executive under any of the Company's pension, life insurance, medical, health
and accident, disability or other welfare plans in which the Executive was
participating immediately prior to a Potential Change in Control that precedes
a Change in Control or a Change in Control; or
(vi) the failure by the Company to pay to the Executive any
deferred compensation when due under any deferred compensation plan or
agreement applicable to the Executive; or
(vii) the failure by the Company to honor all the terms and
provisions of this Agreement.
9.15 "Normal Retirement Age" shall mean the earliest age at which the
Executive may commence retirement and become entitled to an unreduced pension
under the Pension Plan.
9.16 "Notice of Termination" shall have the meaning assigned to such
term in Section 6.1 hereof.
9.17 "Pension Plan" shall mean the First Commercial Corporation
Retirement Plan and any successor plans thereto.
9.18 "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act and shall also include any syndicate or group deemed to be a
"person" under Section 13(d)(3) of the Exchange Act.
<PAGE>
9.19 "Potential Change in Control" means the occurrence of any of the
following:
(a) the Board approves a transaction described in Subsection (b)
of the definition of Change in Control contained in Section 9.6 hereof;
(b) the commencement of a proxy contest in which any Person seeks
to replace or remove a majority of the members of the Board; or
(c) any Person files an application with the Board of Governors
of the Federal Reserve System for approval of the acquisition of more than
five percent (5%) of the Company's voting securities, or of any class thereof,
under the Bank Holding Company Act of 1956, as amended, or any successor
statute thereto, or files a notice of intent to acquire ten percent (10%) or
more of the Company's outstanding voting securities, or any class thereof,
pursuant to the Change in Bank Control Act or any successor statute thereto.
9.20 "Severance Benefits" has the meaning assigned to such term in
Section 3 hereof.
9.21 "Subsidiary" means any corporation controlled by the Company,
directly or indirectly.
9.22 "Supplemental Plan" means the First Commercial Corporation
Supplemental Executive Retirement Plan for the Executive, if any.
9.23 "Triggering Event" means (i) the termination of the Executive's
employment by the Company at any time during the Coverage Period, other than a
termination for Cause or a termination due to the Executive's Disability or
death or (ii) a termination of the Executive's employment by the Executive at
any time during the Coverage Period when Good Reason exists.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its officer, thereunto duly authorized, and the Executive has executed this
Agreement, all as of the day and year first above written.
FIRST COMMERCIAL CORPORATION
By /s/ Barnett Grace
--------------------------------
Name: Barnett Grace
Title: Chief Executive Officer
EXECUTIVE:
/s/ Edwin P. Henry
--------------------------------
Name: Edwin P. Henry
EXHIBIT 10(h)
<PAGE>
AGREEMENT
THIS AGREEMENT dated as of December 24, 1996, is made by and between First
Commercial Corporation, an Arkansas corporation (the "Company"), and Neil
Stewart West (the "Executive").
WHEREAS the Company considers it essential to its best interests and to
the best interests of its shareholders and customers to foster the continuous
employment of its key management personnel; and
WHEREAS the Company recognizes that the possibility of a Change in Control
(as defined in Section 9.6 hereof) exists, as in the case of any publicly-held
corporation, and that such possibility, and the uncertainty and questions
which it may raise among management, may result in the departure or
distraction of management personnel to the detriment of the Company and its
shareholders and customers; and
WHEREAS the Company has determined that appropriate steps should be taken
to reinforce and encourage the continued attention and dedication of members
of the Company's management, including the Executive, to their assigned duties
without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the Company and the Executive hereby agree as follows:
1. Defined Terms. Definitions of certain capitalized terms used in this
Agreement are provided in Section 9 and elsewhere in this Agreement.
2. Term of Agreement. This Agreement shall become effective on the date
hereof and shall remain in effect indefinitely thereafter; provided, however,
that (a) except as provided in clause (b) of this Section 2, either the
Company or the Executive may terminate this Agreement by giving the other
party at least one (1) year advance written notice of such termination, and
(b) if a Potential Change in Control or a Change in Control shall have
occurred during the term of this Agreement, this Agreement may not be
terminated until all obligations of either party hereto have been performed in
full, the Coverage Period has expired without the occurrence of a Triggering
Event, or in the case of a Potential Change in Control, no Change in Control
occurs for at least two years following such Potential Change in Control.
Notwithstanding the foregoing, this Agreement shall terminate upon the
Executive's attaining age sixty-five (65), the Executive's Disability or
death, except as to obligations of the Company hereunder arising from a Change
in Control and/or a termination of the Executive's employment that, in either
case, occurred prior to his having reached such age or the occurrence of his
Disability or death.
3. Agreement of the Company. In order to induce the Executive to remain
in the employ of the Company, the Company agrees, under the terms and
conditions set forth herein, that, upon the occurrence of both a Change in
Control and a Triggering Event during the term of this Agreement, the Company
shall provide to the Executive the benefits described in Sections 3.1 through
3.4 below (the "Severance Benefits"), unless prior to the date of any
Triggering Event, the Executive's employment with the Company has been
terminated for Cause or due to the Executive's Disability or death.
<PAGE>
3.1 Lump-Sum Severance Payment. In lieu of any further salary
payments to the Executive for periods subsequent to the Date of Termination,
the Company shall pay to the Executive a lump sum severance payment, in cash,
without discount, equal to three (3) times the sum of (i) the Executive's
Annual Base Salary and (ii) the Executive's Average Bonus.
3.2 Vesting of Options. The vesting of all options to purchase
securities of the Company granted to the Executive pursuant to the Company's
1987 Incentive and Nonqualified Stock Option Plan, as amended May 15, 1990,
April 19, 1994 and October 18, 1994, or any other Company plan that are then
held by the Executive shall be accelerated to the later of the Date of
Termination or six months after the date such option was granted, and any
provision contained in the agreement(s) under which such options were granted
that is inconsistent with such acceleration is hereby modified to the extent
necessary to provide for such acceleration; such acceleration shall not apply
to any option that by its terms would vest prior to the date provided for in
this Section 3.2.
3.3 Continued Benefits. For a twenty-four (24) month period (or, if
less, the number of months from the Date of Termination until the date the
Executive will reach age sixty-five (65)) after the Date of Termination (the
"Benefits Period"), the Company shall provide the Executive with group term
life insurance, health insurance, accident and long-term disability insurance
benefits (collectively, "Welfare Benefits") substantially similar in all
respects to those that the Executive was receiving immediately prior to the
Date of Termination (without giving effect to any reduction in such benefits
subsequent to a Change in Control). During the Benefits Period, the Executive
shall be entitled to elect to change his level of coverage and/or his choice
of coverage options (such as Executive only or family medical coverage) with
respect to the Welfare Benefits to be provided by the Company to the Executive
to the same extent that actively employed senior executives of the Company are
permitted to make such changes; provided, however, that in the event of any
such changes the Executive shall pay the amount of any cost increase that
would actually be paid by an actively employed senior executive of the Company
by reason of making the same changes in his level of coverage or coverage
options.
3.4 Retirement Benefits. In addition to the retirement benefits to
which the Executive is entitled under the Pension Plan and the Supplemental
Plan, the Company shall pay the Executive a lump sum amount, in cash, equal to
the actuarial equivalent of the excess of (x) the total retirement pension
(determined as a straight life annuity commencing at Normal Retirement Age or,
if later, the first day of the first month after the Date of Termination)
that the Executive would have accrued under the terms of the Pension Plan and
the Supplemental Plan (without regard to any amendments to the Pension Plan or
the Supplemental Plan made subsequent to a Change in Control and on or prior
to the Date of Termination, which amendments adversely affect in any manner
the amount of retirement benefits payable thereunder), determined as if the
Executive were fully vested thereunder and had accumulated (after the Date of
Termination) twenty-four (24) additional months (or such lesser number of
months until the Executive will attain age sixty-five (65)) of service credit
thereunder at the Executive's Annual Base Salary, and (y) the retirement
pension (determined as a straight life annuity commencing at Normal Retirement
Age) which the Executive had accrued pursuant to the provisions of the Pension
Plan and the Supplemental Plan as of the Date of Termination. For purposes of
this Section 3.4, "actuarial equivalent" shall be determined using the same
methods and assumptions utilized under the Pension Plan immediately prior to
the Date of Termination.
<PAGE>
4. Gross-Up Payment; Certain Limitations on Payments and Benefits.
4.1 In the event that (i) the Executive becomes entitled to the
Severance Benefits or any other benefits or payments in connection with a
Change in Control or the termination of the Executive's employment, whether
pursuant to the terms of this Agreement or otherwise (collectively, the "Total
Benefits"), and (ii) any of the Total Benefits will be subject to the Excise
Tax, the Company shall pay to the Executive an additional amount (the "Gross-
Up Payment") such that the net amount retained by the Executive, after
deduction of any Excise Tax on the Total Benefits and any federal, state and
local income taxes, Excise Tax, and FICA and Medicare withholding taxes upon
the payment provided for by this Section 4.1, shall be equal to the Total
Benefits. For purposes of determining whether any of the Total Benefits will
be subject to the Excise Tax and the amount of such Excise Tax, the amount of
the Total Benefits that shall be treated as subject to the Excise Tax shall be
equal to the amount of the Total Benefits reduced by the amount of such Total
Benefits that, in the opinion of tax counsel selected by the Company and
reasonably acceptable to the Executive ("Tax Counsel"), are not excess
parachute payments (within the meaning of Section 280G(b)(1) of the Code).
4.2 For purposes of this Section 4, the Executive shall be deemed to
pay federal income taxes at the highest marginal rate of federal income
taxation in the calendar year in which the Excise Tax is (or would be) payable
and state and local income taxes at the highest marginal rate of taxation in
the state and locality of the Executive's residence on the Date of
Termination, net of the reduction in federal income taxes which could be
obtained from deduction of such state and local taxes (calculated by assuming
that any reduction under Section 68 of the Code in the amount of itemized
deductions allowable to the Executive applies first to reduce the amount of
such state and local income taxes that would otherwise be deductible by the
Executive). Except as otherwise provided herein, all determinations required
to be made under this Section 4 shall be made by Tax Counsel.
4.3 In the event that the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder at the time of termination
of the Executive's employment, the Executive shall repay to the Company, at
the time that the amount of such reduction in Excise Tax is finally
determined, the portion of the Gross-Up Payment attributable to such reduction
(plus that portion of the Gross-Up Payment attributable to the Excise Tax,
federal, state and local income taxes and FICA and Medicare withholding taxes
imposed on the Gross-Up Payment being repaid by the Executive to the extent
that such repayment results in a reduction in Excise Tax, FICA and Medicare
withholding taxes and/or a federal, state or local income tax deduction) plus
interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder at the time of the termination
of the Executive's employment (including by reason of any payment the
existence or amount of which cannot be determined at the time of the Gross-Up
Payment), the Company shall make an additional Gross-Up Payment to the
Executive in respect of such excess (plus any interest, penalties or additions
payable by the Executive with respect to such excess) at the time that the
amount of such excess is finally determined.
<PAGE>
5. Timing of Payments. The payments provided for in Sections 3.1, 3.4
and 4 shall be made on the Date of Termination, provided, however, that if the
amounts of such payments cannot be finally determined on or before such day,
the Company shall pay to the Executive on such day an estimate, as determined
in good faith by the Company, of the minimum amount of such payments and shall
pay the remainder of such payments (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code from the Date of Termination to
the payment of such remainder) as soon as the amount thereof can be determined
but in no event later than the thirtieth (30th) day after the Date of
Termination. In the event that the amount of the estimated payments exceeds
the amount subsequently determined to have been due, such excess shall
constitute a loan by the Company to the Executive, payable on the fifth (5th)
business day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code from the Date of Termination to
the repayment of such excess).
6. Reimbursement of Legal Costs. The Company shall pay to the Executive
all reasonable legal fees and expenses incurred by the Executive as a result
of a termination that entitles the Executive to any payments under this
Agreement including all such fees and expenses, if any, incurred in contesting
or disputing any Notice of Termination under Section 7.2 hereof or in seeking
to obtain or enforce any right or benefit provided by this Agreement or in
connection with any tax audit or proceeding to the extent attributable to the
application of Section 4999 of the Code to any payment or benefit provided
hereunder. Such payments shall be made within five (5) business days after
delivery of the Executive's respective written requests for payment
accompanied with such evidence of fees and expenses incurred as the Company
reasonably may require.
7. Termination Procedures.
7.1 Notice of Termination. After a Potential Change in Control or a
Change in Control, any termination of the Executive's employment (other than
by reason of death) must be preceded by a written Notice of Termination from
the terminating party to the other party hereto in accordance with Section 8.5
hereof. For purposes of this Agreement, a "Notice of Termination" shall mean
a notice which shall (i) specify the date of termination (the "Date of
Termination") which shall not be more than sixty (60) days from the date such
Notice of Termination is given, (ii) indicate the notifying party's opinion
regarding the specific provisions of this Agreement that will apply upon such
termination and (iii) set forth in reasonable detail the facts and
circumstances claimed to provide a basis for the application of the provisions
indicated. Termination of the Executive's employment shall occur on the
specified Date of Termination even if there is a dispute between the parties
pursuant to Section 7.2 hereof relating to the provisions of this Agreement
applicable to such termination.
7.2 Dispute Concerning Applicable Termination Provisions. If within
thirty (30) days of receiving the Notice of Termination the party receiving
such notice notifies the other party that a dispute exists concerning the
provisions of this Agreement that apply to such termination, the dispute shall
be resolved either by mutual written agreement of the parties or by expedited
commercial arbitration under the rules of the American Arbitration
Association, pursuant to the procedures set forth in Section 8.14 herein. The
parties shall pursue the resolution of such dispute with reasonable diligence.
Within five (5) days of such a resolution, any party owing any payments
pursuant to the provisions of this Agreement shall make all such payments
<PAGE>
together with interest accrued thereon at the rate provided in Section
1274(b)(2)(B) of the Code.
8. Miscellaneous.
8.1 No Mitigation. The Company agrees that, if the Executive's
employment by the Company is terminated in a manner that results in the
payment of Severance Benefits hereunder, the Executive shall not be required
to seek other employment or to attempt in any way to reduce any amounts
payable to the Executive by the Company pursuant to this Agreement. Further,
the amount of any payment or benefit provided for under this Agreement shall
not be reduced by any compensation earned by the Executive as the result of
employment by another employer, by retirement benefits, by offset against any
amount claimed to be owed by the Executive to the Company, or otherwise.
8.2 Successors. In addition to any obligations imposed by law upon
any successor to the Company, the Company shall be obligated to require any
successor (whether direct or indirect, by purchase, merger, consolidation,
operation of law, or otherwise) to all or substantially all of the business
and/or assets of the Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place; in the event of
such a succession, references to the "Company" herein shall thereafter be
deemed to include such successor. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession
shall be a breach of this Agreement and shall entitle the Executive to
terminate his employment and thereafter to receive Severance Benefits, except
that, for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination.
8.3 Incompetency. Any benefit payable to or for the benefit of the
Executive, if legally incompetent, or incapable of giving a receipt therefor,
shall be deemed paid when paid to the Executive's guardian or to the party
providing or reasonably appearing to provide for the care of such person, and
such payment shall fully discharge the Company.
8.4 Death. This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
the Executive shall die while any amount would still be payable to the
Executive hereunder (other than amounts which, by their terms, terminate upon
the death of the Executive) if the Executive had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the executors, personal representatives or
administrators of the Executive's estate.
8.5 Notices. For the purpose of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed
to the respective addresses set forth below, or to such other address as
either party may have furnished to the other in writing in accordance
<PAGE>
herewith, except that notice of change of address shall be effective only upon
actual receipt:
To the Company:
First Commercial Corporation
400 West Capitol Avenue
Little Rock, Arkansas 72201
Attention:
To the Executive:
8.6 Modification, Waiver. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing and signed by the Executive and such officer as may be
specifically designated by the Board or its delegee. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
8.7 Entire Agreement. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
8.8 Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Arkansas without regard to principles of conflicts of laws thereof.
8.9 Statutory Changes. All references to sections of the Exchange
Act or the Code shall be deemed also to refer to any successor provisions to
such sections.
8.10 Withholding. Any payments provided for hereunder shall be paid
net of any applicable withholding required under federal, state or local law
and any additional withholding to which the Executive has agreed.
8.11 Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
8.12 No Right to Continued Employment. Nothing in this Agreement
shall be deemed to give any Executive the right to be retained in the employ
of the Company, or to interfere with the right of the Company to discharge the
Executive at any time and for any lawful reason, subject in all cases to the
terms of this Agreement.
8.13 No Assignment of Benefits. Except as otherwise provided herein
or by law, no right or interest of any Executive under the Agreement shall be
assignable or transferable, in whole or in part, either directly or by
operation of law or otherwise, including without limitation by execution,
levy, garnishment, attachment, pledge or in any manner; no attempted
assignment or transfer thereof shall be effective; and no right or interest of
any Executive under this Agreement shall be liable for, or subject to, any
obligation or liability of such Executive.
<PAGE>
8.14 Arbitration Procedures. All disputes relating to this
Agreement, including without limitation any disputes under Section 7.2 hereof,
shall be submitted to expedited commercial arbitration under the rules of the
American Arbitration Association in Little Rock, Arkansas, with an arbiter who
is mutually acceptable to both parties being selected to preside over such
arbitration. The Federal Rules of Evidence shall apply, and the arbiter shall
establish the applicable rules of discovery. The prevailing party in any
arbitration shall be entitled to recover from the other party all fees and
expenses (including, without limitation, reasonable attorney's fees and
disbursements) incurred in connection with such arbitration. The arbiter
shall determine the scope of arbitrability. The only judicial relief shall be
(a) interim equitable relief and (b) relief in aid of or to enforce
arbitration.
8.15 Reduction of Benefits By Legally Required Benefits.
Notwithstanding any other provision of this Agreement to the contrary, if the
Company is obligated by law or by contract (other than under this Agreement)
to pay severance pay, a termination indemnity, notice pay, or the like, or if
the Company is obligated by law or by contract to provide advance notice of
separation ("Notice Period"), then any Severance Benefits hereunder shall be
reduced by the amount of any such severance pay, termination indemnity, notice
pay or the like, as applicable, and by the amount of any pay received with
respect to any Notice Period.
8.16 Headings. The headings and captions herein are provided for
reference and convenience only, shall not be considered part of this
Agreement, and shall not be employed in the construction of this Agreement.
9. Definitions.
9.1 "Annual Base Salary" means the greater of (a) the Executive's
highest annual base salary in effect during the one (1) year period preceding
a Change in Control and (b) the Executive's highest annual base salary in
effect during the one (1) year period preceding the Executive's Date of
Termination.
9.2 "Average Bonus" means the greater of (a) the Executive's average
annual bonus for the two fiscal years (or such shorter period (which shall be
annualized) during which the Executive has been employed by the Company)
immediately preceding the fiscal year in which a Change in Control occurs and
(b) the Executive's average Bonus for the two fiscal years (or such shorter
period (which shall be annualized) during which the Executive has been
employed by the Company) immediately preceding the fiscal year which includes
the Executive's Date of Termination.
9.3 "Base Amount" shall have the meaning ascribed to such term in
Section 280G(b)(3) of the Code.
9.4 "Board" means the Board of Directors of the Company.
9.5 "Cause" means:
(a) the willful and continued failure of the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from incapacity due to physical or mental illness),
after a written demand for substantial performance is delivered to the
Executive by the Board of the Company which specifically identifies the manner
<PAGE>
in which the Board believes that the Executive has not substantially performed
the Executive's duties;
(b) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the
Company;
(c) personal dishonesty or breach of fiduciary duty to the
Company that in either case results or was intended to result in personal
profit to the Executive at the expense of the Company; or
(d) willful violation of any law, rule or regulation (other than
traffic violations, misdemeanors or similar offenses) or cease-and-desist
order, court order, judgment or supervisory agreement, which violation is
materially and demonstrably injurious to the Company.
For purposes of the preceding clauses, no act or failure to act, on the part
of the Executive, shall be considered "willful" unless it is done, or omitted
to be done, by the Executive in bad faith and without reasonable belief that
the Executive's action or omission was in the best interests of the Company.
Any act, or failure to act, based upon prior approval given by the Board or
upon the instructions or with the approval of the Executive's superior or
based upon the advice of counsel for the Company, shall be conclusively
presumed to be done, or omitted to be done, by the Executive in good faith and
in the best interests of the Company. The cessation of employment of the
Executive shall not be deemed to be for Cause unless and until there shall
have been delivered to the Executive, as part of the Notice of Termination, a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters (3/4) of the entire membership of the Board at a meeting of the
Board called and held for the purpose of considering such termination (after
reasonable notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, the Executive is guilty of the
conduct described in clause (a), (b), (c), or (d) above, and specifying the
particulars thereof in detail.
9.6 A "Change in Control" means the occurrence of any of the
following events:
(a) any Person or Persons acting together, excluding employee
benefit plans of the Company, are or become the "beneficial owner" (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act or any successor provisions
thereto), directly or indirectly, of securities of the Company representing
twenty-five percent (25%) or more of the combined voting power of the
Company's then outstanding securities;
(b) the Company's shareholders approve (or, in the event no
approval of the Company's shareholders is required, the Company consummates) a
merger, consolidation, share exchange, division or other reorganization or
transaction of the Company (a "Fundamental Transaction") with any other
corporation, other than a Fundamental Transaction which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least sixty percent (60%)
of the combined voting power immediately after such Fundamental Transaction of
(i) the Company's outstanding securities, (ii) the surviving entity's
outstanding securities, or (iii) in the case of a division, the outstanding
securities of each entity resulting from the division;
<PAGE>
(c) the shareholders of the Company approve a plan of complete
liquidation or winding-up of the Company or an agreement for the sale or
disposition (in one transaction or a series of transactions) of all or
substantially all of the Company's assets;
(d) during any period of twenty-four consecutive months,
individuals who at the beginning of such period constituted the Board
(including for this purpose any new director whose election or nomination for
election by the Company's shareholders was approved by a vote of at least two-
thirds (2/3) of the directors then still in office who were directors at the
beginning of such period) cease for any reason to constitute at least a
majority of the Board; or
9.7 "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
9.8 "Company" means First Commercial Corporation, an Arkansas
corporation. If the Executive becomes employed by a direct or indirect
Subsidiary of First Commercial Corporation, the "Company" shall also be deemed
to refer to the Subsidiary thereof by which the Executive is employed. In
such case, references to payments, benefits, privileges or other rights to be
accorded by the "Company" shall be deemed to include such payments, benefits,
privileges or other rights to be provided by the Subsidiary by which the
Executive is employed or First Commercial Corporation, as the case may be, to
correspond to the corporate entity obligated to make payments or provide
benefits, privileges or other rights pursuant to employee benefit plans
affected by the provisions hereof, and in the absence of any such existing
plans or provisions, such reference shall be deemed to be to First Commercial
Corporation.
9.9 "Coverage Period" means the period commencing on the date on
which a Change in Control occurs and ending on the second anniversary date
thereof.
9.10 "Date of Termination" has the meaning assigned to such term in
Section 7.1 hereof.
9.11 "Disability" means the complete disability of the Executive
under the Company's appropriate plan, as amended from time to time.
9.12 "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
9.13 "Excise Tax" means any excise tax imposed under Section 4999 of
the Code.
9.14 "Good Reason" means:
(a) the determination by the Executive made in good faith within
the first twelve (12) months immediately following a Change in Control that
the Executive cannot effectively carry out his duties to the Company, which
determination shall be made in a writing delivered to the Company; or
(b) the occurrence during the Coverage Period of any of the
following events:
<PAGE>
(i) the assignment to the Executive of any duties
inconsistent in any material respect with the Executive's position, authority,
duties or responsibilities immediately prior to a Change in Control or any
other action by the Company which results in a diminution in any material
respect in such position, authority, duties or responsibilities, excluding for
this purpose an isolated and inadvertent action not taken in bad faith that is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) a reduction by the Company in the Executive's annual
base salary as in effect on the date hereof or as the same may be increased
from time to time;
(iii) the Company's requiring the Executive to be based at
any office or location that is more than fifty (50) miles from the Executive's
office or location immediately prior to either a Potential Change in Control
that precedes a Change in Control or a Change in Control;
(iv) the failure by the Company (a) to continue in effect any
compensation plan in which the Executive participates immediately prior to
either a Potential Change in Control preceding a Change in Control or a Change
in Control that is material to the Executive's total compensation, unless an
equitable arrangement (embodied in an ongoing substitute or alternative plan)
has been made with respect to such plan, or (b) to continue the Executive's
participation therein (or in such substitute or alternative plan) on a basis
not materially less favorable, both in terms of the amount of benefits
provided and the level of the Executive's participation relative to other
participants, than existed immediately prior to a Potential Change in Control
that precedes a Change in Control or a Change in Control;
(v) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by the
Executive under any of the Company's pension, life insurance, medical, health
and accident, disability or other welfare plans in which the Executive was
participating immediately prior to a Potential Change in Control that precedes
a Change in Control or a Change in Control; or
(vi) the failure by the Company to pay to the Executive any
deferred compensation when due under any deferred compensation plan or
agreement applicable to the Executive; or
(vii) the failure by the Company to honor all the terms and
provisions of this Agreement.
9.15 "Normal Retirement Age" shall mean the earliest age at which the
Executive may commence retirement and become entitled to an unreduced pension
under the Pension Plan.
9.16 "Notice of Termination" shall have the meaning assigned to such
term in Section 6.1 hereof.
9.17 "Pension Plan" shall mean the First Commercial Corporation
Retirement Plan and any successor plans thereto.
9.18 "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act and shall also include any syndicate or group deemed to be a
"person" under Section 13(d)(3) of the Exchange Act.
<PAGE>
9.19 "Potential Change in Control" means the occurrence of any of the
following:
(a) the Board approves a transaction described in Subsection (b)
of the definition of Change in Control contained in Section 9.6 hereof;
(b) the commencement of a proxy contest in which any Person seeks
to replace or remove a majority of the members of the Board; or
(c) any Person files an application with the Board of Governors
of the Federal Reserve System for approval of the acquisition of more than
five percent (5%) of the Company's voting securities, or of any class thereof,
under the Bank Holding Company Act of 1956, as amended, or any successor
statute thereto, or files a notice of intent to acquire ten percent (10%) or
more of the Company's outstanding voting securities, or any class thereof,
pursuant to the Change in Bank Control Act or any successor statute thereto.
9.20 "Severance Benefits" has the meaning assigned to such term in
Section 3 hereof.
9.21 "Subsidiary" means any corporation controlled by the Company,
directly or indirectly.
9.22 "Supplemental Plan" means the First Commercial Corporation
Supplemental Executive Retirement Plan for the Executive, if any.
9.23 "Triggering Event" means (i) the termination of the Executive's
employment by the Company at any time during the Coverage Period, other than a
termination for Cause or a termination due to the Executive's Disability or
death or (ii) a termination of the Executive's employment by the Executive at
any time during the Coverage Period when Good Reason exists.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its officer, thereunto duly authorized, and the Executive has executed this
Agreement, all as of the day and year first above written.
FIRST COMMERCIAL CORPORATION
By /s/ Barnett Grace
--------------------------------
Name: Barnett Grace
Title: Chief Executive Officer
EXECUTIVE:
/s/ Neil S. West
--------------------------------
Name: Neil S. West
EXHIBIT 10(i)
<PAGE>
AGREEMENT
THIS AGREEMENT dated as of December 30, 1996, is made by and between First
Commercial Corporation, an Arkansas corporation (the "Company"), and Howard M.
Qualls (the "Executive").
WHEREAS the Company considers it essential to its best interests and to
the best interests of its shareholders and customers to foster the continuous
employment of its key management personnel; and
WHEREAS the Company recognizes that the possibility of a Change in Control
(as defined in Section 8.4 hereof) exists, as in the case of any publicly-held
corporation, and that such possibility, and the uncertainty and questions
which it may raise among management, may result in the departure or
distraction of management personnel to the detriment of the Company and its
shareholders and customers; and
WHEREAS the Company has determined that appropriate steps should be taken
to reinforce and encourage the continued attention and dedication of members
of the Company's management, including the Executive, to their assigned duties
without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the Company and the Executive hereby agree as follows:
1. Defined Terms. Definitions of certain capitalized terms used in this
Agreement are provided in Section 8 and elsewhere in this Agreement.
2. Term of Agreement. This Agreement shall become effective on the date
hereof and shall remain in effect indefinitely thereafter; provided, however,
that (a) except as provided in clause (b) of this Section 2, either the
Company or the Executive may terminate this Agreement by giving the other
party at least one (1) year advance written notice of such termination, and
(b) if a Potential Change in Control or a Change in Control shall have
occurred during the term of this Agreement, this Agreement may not be
terminated until all obligations of either party hereto have been performed in
full, the Coverage Period has expired without the occurrence of a Triggering
Event, or in the case of a Potential Change in Control, no Change in Control
occurs for at least two years following such Potential Change in Control.
Notwithstanding the foregoing, this Agreement shall terminate upon the
Executive's attaining age sixty-five (65), the Executive's Disability or
death, except as to obligations of the Company hereunder arising from a Change
in Control and/or a termination of the Executive's employment that, in either
case, occurred prior to his having reached such age or the occurrence of his
Disability or death.
3. Agreement of the Company. In order to induce the Executive to remain
in the employ of the Company, the Company agrees, under the terms and
conditions set forth herein, that, upon the occurrence of both a Change in
Control and a Triggering Event during the term of this Agreement, the Company
shall provide to the Executive the benefits described in Sections 3.1 through
3.2 below (the "Severance Benefits"), unless prior to the date of any
Triggering Event, the Executive's employment with the Company has been
terminated for Cause or due to the Executive's Disability or death.
<PAGE>
3.1 Lump-Sum Severance Payment. In lieu of any further salary
payments to the Executive for periods subsequent to the Date of Termination,
the Company shall pay to the Executive a lump sum severance payment, in cash,
without discount, equal to one times the Executive's Annual Base Salary.
3.2 Vesting of Options. The vesting of all options to purchase
securities of the Company granted to the Executive pursuant to the Company's
1987 Incentive and Nonqualified Stock Option Plan, as amended May 15, 1990,
April 19, 1994 and October 18, 1994, or any other Company plan that are then
held by the Executive shall be accelerated to the later of the Date of
Termination or six months after the date such option was granted, and any
provision contained in the agreement(s) under which such options were granted
that is inconsistent with such acceleration is hereby modified to the extent
necessary to provide for such acceleration; such acceleration shall not apply
to any option that by its terms would vest prior to the date provided for in
this Section 3.2.
4. Timing of Payment. The payment provided for in Section 3.1 shall be
made on the Date of Termination.
5. Reimbursement of Legal Costs. The Company shall pay to the Executive
all reasonable legal fees and expenses incurred by the Executive as a result
of a termination that entitles the Executive to any payments under this
Agreement including all such fees and expenses, if any, incurred in contesting
or disputing any Notice of Termination under Section 6.2 hereof or in seeking
to obtain or enforce any right or benefit provided by this Agreement. Such
payments shall be made within five (5) business days after delivery of the
Executive's respective written requests for payment accompanied with such
evidence of fees and expenses incurred as the Company reasonably may require.
6. Termination Procedures.
6.1 Notice of Termination. After a Potential Change in Control or a
Change in Control, any termination of the Executive's employment (other than
by reason of death) must be preceded by a written Notice of Termination from
the terminating party to the other party hereto in accordance with Section 7.5
hereof. For purposes of this Agreement, a "Notice of Termination" shall mean
a notice which shall (i) specify the date of termination (the "Date of
Termination") which shall not be more than sixty (60) days from the date such
Notice of Termination is given, (ii) indicate the notifying party's opinion
regarding the specific provisions of this Agreement that will apply upon such
termination and (iii) set forth in reasonable detail the facts and
circumstances claimed to provide a basis for the application of the provisions
indicated. Termination of the Executive's employment shall occur on the
specified Date of Termination even if there is a dispute between the parties
pursuant to Section 6.2 hereof relating to the provisions of this Agreement
applicable to such termination.
6.2 Dispute Concerning Applicable Termination Provisions. If within
thirty (30) days of receiving the Notice of Termination the party receiving
such notice notifies the other party that a dispute exists concerning the
provisions of this Agreement that apply to such termination, the dispute shall
be resolved either by mutual written agreement of the parties or by expedited
commercial arbitration under the rules of the American Arbitration
Association, pursuant to the procedures set forth in Section 7.14 herein. The
parties shall pursue the resolution of such dispute with reasonable diligence.
Within five (5) days of such a resolution, any party owing any payments
pursuant to the provisions of this Agreement shall make all such payments
<PAGE>
together with interest accrued thereon at the rate provided in Section
1274(b)(2)(B) of the Internal Revenue Code of 1986, as amended.
7. Miscellaneous.
7.1 No Mitigation. The Company agrees that, if the Executive's
employment by the Company is terminated in a manner that results in the
payment of Severance Benefits hereunder, the Executive shall not be required
to seek other employment or to attempt in any way to reduce any amounts
payable to the Executive by the Company pursuant to this Agreement. Further,
the amount of any payment or benefit provided for under this Agreement shall
not be reduced by any compensation earned by the Executive as the result of
employment by another employer, by retirement benefits, by offset against any
amount claimed to be owed by the Executive to the Company, or otherwise.
7.2 Successors. In addition to any obligations imposed by law upon
any successor to the Company, the Company shall be obligated to require any
successor (whether direct or indirect, by purchase, merger, consolidation,
operation of law, or otherwise) to all or substantially all of the business
and/or assets of the Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place; in the event of
such a succession, references to the "Company" herein shall thereafter be
deemed to include such successor. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession
shall be a breach of this Agreement and shall entitle the Executive to
terminate his employment and thereafter to receive Severance Benefits, except
that, for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination.
7.3 Incompetency. Any benefit payable to or for the benefit of the
Executive, if legally incompetent, or incapable of giving a receipt therefor,
shall be deemed paid when paid to the Executive's guardian or to the party
providing or reasonably appearing to provide for the care of such person, and
such payment shall fully discharge the Company.
7.4 Death. This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
the Executive shall die while any amount would still be payable to the
Executive hereunder (other than amounts which, by their terms, terminate upon
the death of the Executive) if the Executive had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the executors, personal representatives or
administrators of the Executive's estate.
7.5 Notices. For the purpose of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed
to the respective addresses set forth below, or to such other address as
either party may have furnished to the other in writing in accordance
<PAGE>
herewith, except that notice of change of address shall be effective only upon
actual receipt:
To the Company:
First Commercial Corporation
400 West Capitol Avenue
Little Rock, Arkansas 72201
Attention:
To the Executive:
7.6 Modification, Waiver. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing and signed by the Executive and such officer as may be
specifically designated by the Board or its delegee. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
7.7 Entire Agreement. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
7.8 Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Arkansas without regard to principles of conflicts of laws thereof.
7.9 Statutory Changes. All references to sections of the Exchange
Act shall be deemed also to refer to any successor provisions to such
sections.
7.10 Withholding. Any payments provided for hereunder shall be paid
net of any applicable withholding required under federal, state or local law
and any additional withholding to which the Executive has agreed.
7.11 Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
7.12 No Right to Continued Employment. Nothing in this Agreement
shall be deemed to give any Executive the right to be retained in the employ
of the Company, or to interfere with the right of the Company to discharge the
Executive at any time and for any lawful reason, subject in all cases to the
terms of this Agreement.
7.13 No Assignment of Benefits. Except as otherwise provided herein
or by law, no right or interest of any Executive under the Agreement shall be
assignable or transferable, in whole or in part, either directly or by
operation of law or otherwise, including without limitation by execution,
levy, garnishment, attachment, pledge or in any manner; no attempted
assignment or transfer thereof shall be effective; and no right or interest of
<PAGE>
any Executive under this Agreement shall be liable for, or subject to, any
obligation or liability of such Executive.
7.14 Arbitration Procedures. All disputes relating to this
Agreement, including without limitation any disputes under Section 6.2 hereof,
shall be submitted to expedited commercial arbitration under the rules of the
American Arbitration Association in Little Rock, Arkansas, with an arbiter who
is mutually acceptable to both parties being selected to preside over such
arbitration. The Federal Rules of Evidence shall apply, and the arbiter shall
establish the applicable rules of discovery. The prevailing party in any
arbitration shall be entitled to recover from the other party all fees and
expenses (including, without limitation, reasonable attorney's fees and
disbursements) incurred in connection with such arbitration. The arbiter
shall determine the scope of arbitrability. The only judicial relief shall be
(a) interim equitable relief and (b) relief in aid of or to enforce
arbitration.
7.15 Reduction of Benefits By Legally Required Benefits.
Notwithstanding any other provision of this Agreement to the contrary, if the
Company is obligated by law or by contract (other than under this Agreement)
to pay severance pay, a termination indemnity, notice pay, or the like, or if
the Company is obligated by law or by contract to provide advance notice of
separation ("Notice Period"), then any Severance Benefits hereunder shall be
reduced by the amount of any such severance pay, termination indemnity, notice
pay or the like, as applicable, and by the amount of any pay received with
respect to any Notice Period.
7.16 Headings. The headings and captions herein are provided for
reference and convenience only, shall not be considered part of this
Agreement, and shall not be employed in the construction of this Agreement.
8. Definitions.
8.1 "Annual Base Salary" means the greater of (a) the Executive's
highest annual base salary in effect during the one (1) year period preceding
a Change in Control and (b) the Executive's highest annual base salary in
effect during the one (1) year period preceding the Executive's Date of
Termination.
8.2 "Board" means the Board of Directors of the Company.
8.3 "Cause" means:
(a) the willful and continued failure of the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from incapacity due to physical or mental illness),
after a written demand for substantial performance is delivered to the
Executive by the Board of the Company which specifically identifies the manner
in which the Board believes that the Executive has not substantially performed
the Executive's duties;
(b) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the
Company;
(c) personal dishonesty or breach of fiduciary duty to the
Company that in either case results or was intended to result in personal
profit to the Executive at the expense of the Company; or
<PAGE>
(d) willful violation of any law, rule or regulation (other than
traffic violations, misdemeanors or similar offenses) or cease-and-desist
order, court order, judgment or supervisory agreement, which violation is
materially and demonstrably injurious to the Company.
For purposes of the preceding clauses, no act or failure to act, on the part
of the Executive, shall be considered "willful" unless it is done, or omitted
to be done, by the Executive in bad faith and without reasonable belief that
the Executive's action or omission was in the best interests of the Company.
Any act, or failure to act, based upon prior approval given by the Board or
upon the instructions or with the approval of the Executive's superior or
based upon the advice of counsel for the Company, shall be conclusively
presumed to be done, or omitted to be done, by the Executive in good faith and
in the best interests of the Company. The cessation of employment of the
Executive shall not be deemed to be for Cause unless and until there shall
have been delivered to the Executive, as part of the Notice of Termination, a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters (3/4) of the entire membership of the Board at a meeting of the
Board called and held for the purpose of considering such termination (after
reasonable notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, the Executive is guilty of the
conduct described in clause (a), (b), (c), or (d) above, and specifying the
particulars thereof in detail.
8.4 A "Change in Control" means the occurrence of any of the
following events:
(a) any Person or Persons acting together, excluding employee
benefit plans of the Company, are or become the "beneficial owner" (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act or any successor provisions
thereto), directly or indirectly, of securities of the Company representing
twenty-five percent (25%) or more of the combined voting power of the
Company's then outstanding securities;
(b) the Company's shareholders approve (or, in the event no
approval of the Company's shareholders is required, the Company consummates) a
merger, consolidation, share exchange, division or other reorganization or
transaction of the Company (a "Fundamental Transaction") with any other
corporation, other than a Fundamental Transaction which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least sixty percent (60%)
of the combined voting power immediately after such Fundamental Transaction of
(i) the Company's outstanding securities, (ii) the surviving entity's
outstanding securities, or (iii) in the case of a division, the outstanding
securities of each entity resulting from the division;
(c) the shareholders of the Company approve a plan of complete
liquidation or winding-up of the Company or an agreement for the sale or
disposition (in one transaction or a series of transactions) of all or
substantially all of the Company's assets;
(d) during any period of twenty-four consecutive months,
individuals who at the beginning of such period constituted the Board
(including for this purpose any new director whose election or nomination for
election by the Company's shareholders was approved by a vote of at least two-
thirds (2/3) of the directors then still in office who were directors at the
<PAGE>
beginning of such period) cease for any reason to constitute at least a
majority of the Board; or
8.5 "Company" means First Commercial Corporation, an Arkansas
corporation. If the Executive becomes employed by a direct or indirect
Subsidiary of First Commercial Corporation, the "Company" shall also be deemed
to refer to the Subsidiary thereof by which the Executive is employed. In
such case, references to payments, benefits, privileges or other rights to be
accorded by the "Company" shall be deemed to include such payments, benefits,
privileges or other rights to be provided by the Subsidiary by which the
Executive is employed or First Commercial Corporation, as the case may be, to
correspond to the corporate entity obligated to make payments or provide
benefits, privileges or other rights pursuant to employee benefit plans
affected by the provisions hereof, and in the absence of any such existing
plans or provisions, such reference shall be deemed to be to First Commercial
Corporation.
8.6 "Coverage Period" means the period commencing on the date on
which a Change in Control occurs and ending on the second anniversary date
thereof.
8.7 "Date of Termination" has the meaning assigned to such term in
Section 6.1 hereof.
8.8 "Disability" means the complete disability of the Executive under
the Company's appropriate plan, as amended from time to time.
8.9 "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
8.10 "Good Reason" means:
(a) the determination by the Executive made in good faith within
the first twelve (12) months immediately following a Change in Control that
the Executive cannot effectively carry out his duties to the Company, which
determination shall be made in a writing delivered to the Company; or
(b) the occurrence during the Coverage Period of any of the
following events:
(i) the assignment to the Executive of any duties
inconsistent in any material respect with the Executive's position, authority,
duties or responsibilities immediately prior to a Change in Control or any
other action by the Company which results in a diminution in any respect in
such position, authority, duties or responsibilities, excluding for this
purpose an isolated and inadvertent action not taken in bad faith that is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) a reduction by the Company in the Executive's annual
base salary as in effect on the date hereof or as the same may be increased
from time to time;
(iii) the Company's requiring the Executive to be based at
any office or location that is more than fifty (50) miles from the Executive's
office or location immediately prior to either a Potential Change in Control
that precedes a Change in Control or a Change in Control;
<PAGE>
(iv) the failure by the Company (a) to continue in effect any
compensation plan in which the Executive participates immediately prior to
either a Potential Change in Control preceding a Change in Control or a Change
in Control that is material to the Executive's total compensation, unless an
equitable arrangement (embodied in an ongoing substitute or alternative plan)
has been made with respect to such plan, or (b) to continue the Executive's
participation therein (or in such substitute or alternative plan) on a basis
not materially less favorable, both in terms of the amount of benefits
provided and the level of the Executive's participation relative to other
participants, than existed immediately prior to a Potential Change in Control
that precedes a Change in Control or a Change in Control;
(v) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by the
Executive under any of the Company's pension, life insurance, medical, health
and accident, disability or other welfare plans in which the Executive was
participating immediately prior to a Potential Change in Control that precedes
a Change in Control or a Change in Control; or
(vi) the failure by the Company to pay to the Executive any
deferred compensation when due under any deferred compensation plan or
agreement applicable to the Executive; or
(vii) the failure by the Company to honor all the terms and
provisions of this Agreement.
8.11 "Notice of Termination" shall have the meaning assigned to such
term in Section 6.1 hereof.
8.12 "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act and shall also include any syndicate or group deemed to be a
"person" under Section 13(d)(3) of the Exchange Act.
8.13 "Potential Change in Control" means the occurrence of any of the
following:
(a) the Board approves a transaction described in Subsection (b)
of the definition of Change in Control contained in Section 8.4 hereof;
(b) the commencement of a proxy contest in which any Person seeks
to replace or remove a majority of the members of the Board; or
(c) any Person files an application with the Board of Governors
of the Federal Reserve System for approval of the acquisition of more than
five percent (5%) of the Company's voting securities, or of any class thereof,
under the Bank Holding Company Act of 1956, as amended, or any successor
statute thereto, or files a notice of intent to acquire ten percent (10%) or
more of the Company's outstanding voting securities, or any class thereof,
pursuant to the Change in Bank Control Act or any successor statute thereto.
8.14 "Severance Benefits" has the meaning assigned to such term in
Section 3 hereof.
8.15 "Subsidiary" means any corporation controlled by the Company,
directly or indirectly.
<PAGE>
8.16 "Triggering Event" means (i) the termination of the Executive's
employment by the Company at any time during the Coverage Period, other than a
termination for Cause or a termination due to the Executive's Disability or
death or (ii) a termination of the Executive's employment by the Executive at
any time during the Coverage Period when Good Reason exists.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its officer, thereunto duly authorized, and the Executive has executed this
Agreement, all as of the day and year first above written.
FIRST COMMERCIAL CORPORATION
By /s/ Barnett Grace
--------------------------------
Name: Barnett Grace
Title: Chief Executive Officer
EXECUTIVE:
/s/ Howard M. Qualls
--------------------------------
Name: Howard M. Qualls
EXHIBIT 11
<PAGE>
FIRST COMMERCIAL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(Dollars in thousands, except per share data)
For the Years Ended December 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
Net income $ 68,562 $ 56,910 $ 50,308
Less: Preferred stock dividend - - 129
---------- ---------- ----------
Income applicable to common shares $ 68,562 $ 56,910 $ 50,179
========== ========== ==========
Weighted average number of common shares
outstanding during the period 28,890,130 27,530,791 26,886,990
Earnings per common share $2.37 $2.07 $1.87
EXHIBIT 13
<PAGE> 10-26
MANAGEMENT'S DISCUSSION AND ANALYSIS
Financial Performance Summary
The Company reported record earnings for 1996 of $2.37 per share, compared
to $2.07 and $1.87 for the years ended 1995 and 1994, respectively. Net
income for 1996 of $68.6 million represented a 20% increase over 1995 net
income of $56.9 million. Net income for 1994 was $50.3 million.
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 the following stock dividends: five percent
declared November 1994, seven percent declared November 1995, and five percent
declared October 1996. On November 23, 1996, the Company acquired Security
national Bank, Nacogdoches, Texas. The Security National Bank acquisition was
accounted for as a pooling-of-interests. The results of Security National
Bank are included in the consolidated financial statements for 1996; however,
prior period financial data has not been restated due to immateriality. These
factors should be considered when making comparisons to 1995 and 1994.
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 common 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 1996 was 1.30% compared to 1.22% in 1995 and 1.19% in 1994.
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 15.09% in 1996, 15.02% in
1995, and 14.87% in 1994. The improvement is indicative of the Company's
successful deployment of its capital, combined with strong earnings growth.
The primary factors contributing to increased earnings during the past
three years have been a strong interest margin and consistent increases in
non-interest income accompanied by careful monitoring of non-interest
expenses, so as to control and minimize these costs.
<PAGE> 10-26
==============================================================================
<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)
-------------------------- -----------------
1995 to 1994 to
1996 1995 1994 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net interest income............................................. $ 4.88 $ 4.36 $ 3.85 $ .52 $ .51
Provision for possible loan and lease losses.................... (.17) (.07) .07 (.10) (.14)
Trust department income......................................... .27 .27 .26 - .01
Mortgage servicing fee income................................... .93 .53 .40 .40 .13
Broker-dealer operations income................................. .09 .07 .04 .02 .03
Service charges on deposits..................................... .58 .52 .49 .06 .03
Other service charges and fees.................................. .28 .22 .19 .06 .03
Investment securities gains (losses), net....................... - (.01) - .01 (.01)
Other real estate gains (losses), net........................... (.01) (.01) .11 - (.12)
Other income.................................................... .17 .16 .17 .01 (.01)
Salaries, wages and employee benefits........................... (2.15) (1.89) (1.81) (.26) (.08)
Net occupancy................................................... (.28) (.26) (.24) (.02) (.02)
Equipment....................................................... (.29) (.25) (.22) (.04) (.03)
FDIC insurance.................................................. (.04) (.17) (.21) .13 .04
Amortization of mortgage servicing rights....................... (.44) (.18) (.13) (.26) (.05)
First Commercial Trust Company lawsuit settlement............... - - (.15) - .15
Other expense................................................... (1.49) (1.27) (1.02) (.22) (.25)
Tax-exempt income and credits................................... .04 .05 .07 (.01) (.02)
-------- -------- -------- -------- --------
Net income................. .................................... $ 2.37 $ 2.07 $ 1.87 $ .30 $ .20
======== ======== ======== ======== ========
</TABLE>
==============================================================================
Acquisitions
The Company's continued growth in earnings, asset and market share during
1996 resulted from both internal growth and acquisition activity. The Company
has experienced numerous acquisitions during the past three years, which are
highlighted below.
On January 14, 1994, the Company acquired all of the outstanding stock of
Clinton Bancshares, Inc., Clinton, Arkansas, in exchange for 320,959 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 5,958,136 Company common shares
for all outstanding shares of State First Financial Corporation, which 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> 10-26
On August 5, 1994, the Company acquired United American Bancshares, Inc.,
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.,
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 1,416,675 Company common
shares. 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.
On November 30, 1995, the Company acquired all of the outstanding common
stock of West-Ark Bancshares, Inc., Clarksville, Arkansas, in exchange for
723,561 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.
On November 23, 1996, the Company acquired all of the outstanding common
stock of Security National Bank, Nacogdoches, Texas, in exchange for 253,154
Company common shares. This transaction was accounted for as a pooling-of-
interests. The results of Security National Bank are included in the
consolidated financial statements for 1996; however, prior period financial
data has not been restated due to immateriality. Security National Bank,
which merged into an existing affiliate of the Company, Stone Fort National
Bank, Nacogdoches, Texas, had approximately $35 million in assets, $16 million
in loans, and $31 million in deposits.
On January 31, 1997, through a joint venture with Arvest Bank Croup of
Bentonville, Arkansas, the Company purchased a 50% interest in Oklahoma
National Bank of Duncan, Oklahoma, which has assets of $60 million, loans of
$43 million, and deposits of $55 million.
Three affiliations are currently pending, which reflect the Company's
acquisition strategy of expanding existing markets as well as entering
additional geographical areas.
<PAGE> 10-26
On October 4, 1996, the Company announced that it had entered into an
agreement to acquire W.B.T. Holding Company ("WBT") and its wholly owned
subsidiary, United American Bank, in Memphis, Tennessee. United American
Bank, with assets of $273 million, loans of $180 million and deposits of $251
million, will be merged into the Company's existing affiliate, First
Commercial Bank, N.A., of Memphis. The Company will issue approximately 1.3
million shares of its common stock in exchange for all of the outstanding
shares of WBT common stock, subject to adjustments for non-bank assets and
liabilities of WBT. The transaction is to be accounted for as a pooling-of-
interests and is expected to close in February 1997.
On December 20, 1996, the Company entered into a definitive agreement to
acquire Southwest Bancshares, Inc., of Jonesboro, Arkansas, ("Southwest") and
its wholly owned subsidiaries: First Bank of Arkansas, Jonesboro; First Bank
of Arkansas, Russellville; First Bank of Arkansas, Searcy; and First Bank of
Arkansas, Wynne. Total assets for Southwest are $820 million; loans are $606
million; and deposits are $716 million. The Company will issue approximately
3.4 million shares of its common stock in exchange for all of the outstanding
shares of Southwest common stock. The transaction, which will be accounted
for as a pooling-of-interests, is expected to close during the second quarter
of 1997.
On February 5, 1997, a definitive agreement was entered into whereby the
Company will acquire First Central Corporation ("First Central") and its
wholly owned subsidiary, First National Bank, Searcy, Arkansas, which has
assets of $261 million, loans of $140 million and deposits of $229 million.
the Company will issue 1.65 million shares of its stock in exchange for all of
the shares of First Central common stock. The transaction will be accounted
for as a pooling-of-interests and is expected to close during the second
quarter of 1997.
The affiliations with Southwest and First Central will result in
overlapping markets in Russellville and Searcy. Banking regulations prohibit
a banking organization from exceeding a specified share of a given market
through acquisition. The Company is working with regulatory agencies to
determine the required level of divestiture in these markets.
During 1997 the Company will continue to evaluate potential affiliates on
the basis of the quality of their markets and the ability to negotiate
transactions without permanent earnings per share or book value dilution.
<PAGE> 10-26
==============================================================================
<TABLE>
<CAPTION>
Six-Year Financial Summary
(In Thousands Except for Per Share Data) Five-Year
Compound
Annual
Growth
Year Ended December 31, Rate
---------------------------------------------------------------------- ----------
1996 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income............. $ 376,356 $ 322,182 $ 257,751 $ 234,995 $ 232,098 $ 247,858 9%
Interest expense............ 159,148 137,632 98,306 90,421 98,690 128,802 4%
---------- ---------- ---------- ---------- ---------- ----------
Net interest income......... 217,208 184,550 159,445 144,574 133,408 119,056 13%
Provision for possible loan
and lease losses........... 7,452 3,059 (3,092) 4,416 8,941 9,992 (6%)
---------- ---------- ---------- ---------- ---------- ----------
Net interest income after
provision for possible loan
and lease losses........... 209,756 181,491 162,537 140,158 124,467 109,064 14%
Other income................ 103,529 73,988 68,652 58,957 51,182 46,056 18%
Other expenses.............. 207,940 170,306 156,875 135,191 118,882 108,530 14%
---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes.. 105,345 85,173 74,314 63,924 56,767 46,590 18%
Income tax provision........ 36,783 28,263 24,006 17,959 16,800 12,629 24%
---------- ---------- ---------- ---------- ---------- ----------
Net income.................. $ 68,562 $ 56,910 $ 50,308 $ 45,965 $ 39,967 $ 33,961 15%
========== ========== ========== ========== ========== ==========
Earnings per common share... $ 2.37 $ 2.07 $ 1.87 $ 1.66 $ 1.44 $ 1.29 14%
Earnings per common share,
as originally reported..... 2.37 2.07 1.87 1.75 1.59 1.43 11%
Cash dividends per share.... 0.84 0.74 0.64 0.51 0.40 0.35 22%
Year End Financial Position
Total loans and leases..... $3,278,688 $3,215,562 $2,534,793 $2,191,190 $1,798,898 $1,725,957 14%
Total assets............... 5,530,783 5,360,940 4,374,199 4,199,430 3,368,086 3,322,040 11%
Total deposits............. 4,815,141 4,630,541 3,825,360 3,756,680 2,997,783 2,972,337 10%
Long-term debt............. 6,097 7,170 8,243 20,389 23,287 28,625 (27%)
Stockholders' equity....... 475,132 432,259 343,191 336,845 297,508 267,259 12%
</TABLE>
==============================================================================
<PAGE> 10-26
==============================================================================
<TABLE>
<CAPTION>
Analysis of Selected Financial Statistics
For the Years Ended December 31,
--------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Profitability
Net interest margin......................................................... 4.66% 4.53% 4.26%
Efficiency ratio <F1>....................................................... 55.65% 60.42% 62.38%
Return on average common stockholders' equity............................... 15.09% 15.02% 14.87%
Return on average assets.................................................... 1.30% 1.22% 1.19%
Earnings per common share................................................... $ 2.37 $ 2.07 $ 1.87
Cash dividends paid......................................................... $ .84 $ .74 $ .64
Dividend payout ratio....................................................... 35.34% 35.77% 33.97%
Capital Adequacy
Total stockholders' equity to assets........................................ 8.59% 8.06% 7.85%
Leverage ratio.............................................................. 8.07% 7.31% 7.50%
Tier I risk-based capital ratio............................................. 11.44% 11.31% 12.56%
Total risk-based capital ratio.............................................. 12.24% 12.14% 13.33%
Asset Quality
Net charge-offs to average loans and leases................................. .20% .08% .04%
Allowance for possible loan and lease losses to total loans and leases...... 1.60% 1.60% 1.79%
Non-performing loans to total loans and leases.............................. .74% .54% .52%
Non-performing assets to total loans and leases and other real estate....... .62% .42% .51%
Allowance for possible loan and lease losses to non-performing loans........ 215.64% 294.42% 340.82%
Allowance for possible loan and lease losses and other real estate losses
to non-performing assets................................................... 259.57% 376.30% 347.35%
<FN>
<F1> Excludes effect of non-recurring income and expenses and intangible amortization.
</FN>
</TABLE>
==============================================================================
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 $220.9 million in 1996, versus $188.0 million in 1995
and $163.1 million in 1994. The $32.9 million increase in 1996 is due
principally to the 1995 fourth quarter acquisition of FDH Bancshares, Inc.,
which was accounted for as a purchase, but also reflects increased volumes at
other affiliate banks. In addition, there were general repricings of the
securities and loan portfolios: the average yield on the securities portfolio
increased to 6.00% in 1996 from 5.80% in 1995; and the average yield on the
loan portfolio increased to 8.98% from 8.82%. The $25.0 million increase in
1995 is due principally to the 1994 third quarter acquisitions of banks in
Palestine and Kilgore, Texas, and to the 1995 fourth quarter acquisitions of
FDH Bancshares, Inc., and West-Ark Bancshares, Inc. In addition, there were
general repricings of the securities and loan portfolios in excess of
<PAGE> 10-26
increases in liability costs: the average yield on the securities portfolio
increased to 5.80% in 1995 from 5.11% in 1994; and the average yield on the
loan portfolio increased to 8.82% from 7.98% in 1994.
The Company's net interest spread increased from 3.78% for 1995 to 3.90%
for 1996, while net interest margin increased from 4.53% for 1995 to 4.66% for
1996. 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.
Net interest spread and net interest margin increased in 1996 over 1995 as
a result of the securities and loan portfolios repricing combined with a 15.5%
growth in average loans and leases. The loan growth was due to internal
growth, 6.9%, and acquisitions, 8.6%. Net interest spread and net interest
margin increased in 1995 over 1994 for similar reasons.
==============================================================================
<TABLE>
<CAPTION>
Analysis of Net Interest Income (FTE = Fully Tax-Equivalent)
(Dollars in Thousands)
For the Years Ended December 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Interest income......................................................... $ 376,356 $ 322,182 $ 257,751
Fully tax-equivalent adjustment......................................... 3,677 3,472 3,618
---------- ---------- ----------
Interest income - FTE................................................... 380,033 325,654 261,369
Interest expense........................................................ 159,148 137,632 98,306
---------- ---------- ----------
Net interest income - FTE............................................... $ 220,885 $ 188,022 $ 163,063
========== ========== ==========
Yield on earning assets - FTE............................................ 8.01% 7.85% 6.82%
Cost of interest bearing liabilities..................................... 4.11% 4.07% 3.18%
Net interest spread - FTE................................................ 3.90% 3.78% 3.64%
Net interest margin - FTE................................................ 4.66% 4.53% 4.26%
</TABLE>
==============================================================================
<PAGE> 10-26
==============================================================================
<TABLE>
<CAPTION>
Analysis of Changes in Net Revenue from Earning Assets
(Dollars in Thousands)
Change from 1995 to 1996 Change from 1994 to 1995
-------------------------- --------------------------
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.............................. $ 3,024 $ (667)$ 2,357 $ (1.605)$ 2.079 $ 474
Trading account securities.......................... 19 12 31 (3) (15) (18)
Investment securities............................... 6,031 2,443 8,474 (7,639) 9,801 2,162
Loans and leases, net of unearned income............ 38,985 4,532 43,517 42,166 19,501 61,667
-------- -------- -------- -------- -------- --------
Change in revenue from earning assets................ 48,059 6,320 54,379 32,919 31,366 64,285
-------- -------- -------- -------- -------- --------
Expense for interest bearing liabilities
Interest bearing transaction and savings accounts... 3,601 781 4,382 (235) 2,137 1,902
Certificates of deposit $100,000 and over........... 5,619 3,598 9,217 2,716 2,934 5,650
Other time deposits................................. 13,269 (3,165) 10,104 8,289 16,942 25,231
Short-term borrowings............................... (546) (1,255) (1,801) 5,222 1,228 6,450
Long-term debt...................................... (177) (209) (386) (12) 105 93
-------- -------- -------- -------- -------- --------
Change in interest expense........................... 21,766 (250) 21,516 15,980 23,346 39,326
-------- -------- -------- -------- -------- --------
Change in net revenue from earning assets............ $ 26,293 $ 6,570 $ 32,863 $ 16,939 $ 8,020 $ 24,959
======== ======== ======== ======== ======== ========
<FN>
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.
</FN>
</TABLE>
==============================================================================
<PAGE> 10-26
==============================================================================
<TABLE>
<CAPTION>
Average Balances and Interest Rates
(Dollars in Thousands) 1996 1995 1994
--------------------------- --------------------------- ---------------------------
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.... $ 132,035 $ 7,023 5.32% $ 75,174 $ 4,666 6.21% $ 101,037 $ 4,192 4.15%
Trading account securities 540 35 6.48 245 4 1.63 431 22 5.10
Investment securities
- taxable................. 1,202,621 70,244 5.84 1,125,656 62,907 5.59 1,264,305 60,582 4.79
- non-taxable............. 170,235 12,071 7.09 146,613 10,934 7.46 139,579 11,097 7.95
Loans and leases, net of
unearned income.......... 3,237,040 290,660 8.98 2,802,874 247,143 8.82 2,234,668 185,476 7.98
---------- -------- ---------- -------- ---------- --------
Total earning assets..... 4,742,471 380,033 8.01 4,150,562 325,654 7.85 3.830,020 261,369 6.82
---------- -------- ---------- -------- ---------- --------
Allowance for possible
loan and lease losses.... (52,057) (47,263) (49,020)
NON-EARNING ASSETS
Cash and due from banks.. 265,349 307,431 249,804
Bank premises and equip.. 105,953 93,663 81,814
Other real estate owned.. 2,239 2,542 6,634
Other assets............. 219,570 145,433 116,334
---------- ---------- ----------
Total assets.............. $5,283,525 $4,652,368 $4,235,586
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST BEARING LIABILITIES
Interest bearing transaction
and savings accounts..... $1,618,249 41,020 2.53 $1.476,193 36,638 2.48 $1.485,680 34,736 2.34
Certificates of deposit
$100,000 and over........ 505,953 26,571 5.25 398,962 17,354 4.35 336,528 11,704 3.48
Other time deposits....... 1,574,657 82,404 5.23 1,321,091 72,300 5.47 1,169,626 47,069 4.02
Short-term borrowings..... 166,659 8,743 5.25 177,067 10,544 5.95 89,381 4,094 4.58
Long-term debt............ 6,429 410 6.38 9,197 796 8.65 9,332 703 7.53
---------- -------- ---------- -------- ---------- --------
Total int bearing liab ... 3,871,947 159,148 4.11 3,382,510 137,632 4.07 3,090,547 98,306 3.18
---------- -------- ---------- -------- ---------- --------
NON-INTEREST BEARING LIABILITIES
Non-interest bearing
transaction accounts..... 900,355 848,662 772,060
Other liabilities......... 56,924 42,389 33,735
---------- ---------- ----------
Total liabilities........ 4,829,226 4,273,561 3,896,342
Preferred stock........... - - 1,687
Common stockholders' equity 454,299 378,807 337,557
---------- ---------- ----------
Total liabilities and
stockholders' equity...... $5,283,525 $4,652,368 $4,235,586
Net revenue from ========== ========== ==========
earning assets........... $220,885 $188,022 $163,063
Net yield on earning assets 4.66% 4.53% 4.26%
<PAGE> 10-26
<FN>
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.
</FN>
</TABLE>
==============================================================================
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.
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 as well as the entire Company. During 1996, the Company also
began 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 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 .96 at the six month period and 1.04
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> 10-26
==============================================================================
<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........... $ 258,351 $ -- $ -- $ -- $ -- $ -- $ 258,351
Trading account securities....... 196 -- -- -- -- -- 196
Taxable investment securities.... 163,277 108,503 137,836 122,143 627,576 26,271 1,185,606
Tax-exempt investment securities. 2,836 10,887 5,043 11,317 92,376 67,344 189,803
Loans and leases................. 733,491 240,438 345,823 520,573 1,145,569 292,794 3,278,688
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total earning assets............. 1,158,151 359,828 488,702 654,033 1,865,521 386,409 4,912,644
Interest bearing liabilities:
Savings and NOW accounts......... 1,150,532 -- -- -- -- -- 1,150,532
Money market accounts............ 644,910 -- -- -- -- -- 644,910
Other time deposits.............. 292,043 462,492 474,285 442,866 389,597 7,026 2,068,309
Short-term borrowings............ 177,453 -- -- -- -- -- 177,453
Long-term debt................... -- -- 1,071 2 7 5,017 6,097
... ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total interest bearing
liabilities.................... 2,264,938 462,492 475,356 442,868 389,604 12,043 4,047,301
Interest rate
sensitivity gap................ (1,106,787) (102,664) 13,346 211,165 1,475,917 374,366
Cumulative interest rate
sensitivity gap................ (1,106,787)(1,209,451) (1,196,105 (984,940) 490,977 865,343
Cumulative rate sensitive assets
to rate sensitive liabilities.. 51.1% 55.7% 62.7% 73.0% 112.2% 121.4%
Cumulative gap as a percentage
of earning assets.............. (22.5%) (24.6%) (24.3%) (20.0%) 10.0% 17.6%
</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 1996, non-interest income increased 39.9% from $74.0 million for 1995
to $103.5 million. Excluding the other real estate and investment securities
gains and losses in 1996 and 1995, non-interest income increased $29.1
million, or 38.9%. the primary contributors to this increase were the bank
acquisitions in 1995 and 1996, an increased mortgage servicing portfolio,
service charges from the 1995 purchase of consumer credit card loan
participations and increased activity from the Company's trust and broker-
<PAGE> 10-26
- -dealer operations. The Company's mortgage banking subsidiary continued its
strong performance during 1996, with an increase in servicing fees of $19.0
million due to several acquisitions of loan servicing rights during 1995 and
1996 and the adoption of Statement of Financial Accounting Standards No. 122
"Accounting for Mortgage Servicing Rights - an Amendment to FAS65" on January
1, 1996. 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, Kislak Mortgage of Miami, Florida, and
Bailey Mortgage Company of Jackson, Mississippi, were consummated in April
1995, October 1995, and January 1996, respectively. The total servicing
portfolio at December 31, 1996, was $7.3 billion with an unamortized cost of
mortgage servicing rights of $45.8 million, compared to December 31, 1995,
levels of $7.6 billion and $55.9 million, respectively.
During 1995, non-interest income increased 7.8% to $74.0 million from
$68.7 million for 1994. 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
bank acquisitions in late 1994 and late 1995, an increased mortgage servicing
portfolio due to loan servicing rights acquisitions mentioned previously, and
service charges from the 1995 purchase of consumer credit card loan
participations. For a detailed analysis of the dollar and percent changes in
non-interest income, see the accompanying table.
==============================================================================
<TABLE>
<CAPTION>
Net Interest Income For the Years
(Dollars in Thousands) Ended December 31, 1996 1995
------------------------------ Change from Change from
1996 1995 1994 1995 1994
-------- -------- -------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Trust department income......... $ 12,286 $ 11,424 $ 10,904 $ 862 7.55% $ 520 4.77%
Mortgage servicing fee income... 41,331 22,312 16,340 19,019 85.24 5,972 36.55
Broker-dealer operations income. 4,120 2,982 1,727 1,138 38.16 1,255 72.67
Service charges on deposits..... 25,922 22,192 20,131 3,730 16.81 2,061 10.24
Other service charges and fees.. 12,505 9,149 7,964 3,356 36.68 1,185 14.88
Investment securities gains
(losses), net................. (37) (440) 139 403 91.59 (579) (416.55)
Other real estate gains
(losses), net................. (243) (330) 4,413 87 26.36 (4,743) (107.48)
Other income.................... 7,645 6,699 7,034 946 14.12 (335) (4.76)
-------- -------- -------- -------- --------
Total non-interest income....... $103,529 $ 73,988 $ 68,652 $ 29,541 39.93% $ 5,336 7.77%
======== ======== ======== ======== ========
</TABLE>
==============================================================================
<PAGE> 10-26
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 mortgage servicing rights (MSRs) are currently
held, which lower yields realized on the Company's investment in MSRs.
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 MSRs are currently held, which in turn would increase the yield on the
Company's investment in MSRs. 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.
Non-Interest Expense
Non-interest expenses consist of salaries and benefits, occupancy,
equipment and other expenses such as legal fees, 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 $37.6 million in 1996, of which $7.8
million is a result of the bank acquisitions in late 1995 and in 1996. The
primary contributors to the remaining increase were the amortization of
mortgage servicing rights from First Commercial Mortgage Company's expansion
of mortgage loan servicing activities, the costs associated with the consumer
credit card loan participations purchased in late 1995, the expenses
associated with the Company's investment in new technology , and non-recurring
expense accruals relating to data processing conversions and legal expenses.
These increases were offset by a substantial reduction in FDIC premiums due to
the insurance fund reaching its target level.
<PAGE> 10-26
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
consumer credit card loan participations purchased in late 1995, and an
increase in amortization expense in connection with large acquisitions of
mortgage servicing rights in 1995. In addition, the bank acquisitions in late
1994 and late 1995 and non-recurring expense accruals relating to data
processing conversions, legal expenses and charitable contributions caused
non-interest expenses to increase.
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 investment securities and other real
estate gains and losses. The Company's ratio improved from 60.42% in 1995 to
55.65% in 1996, below its goal of 57%. The Company, in calculating its
efficiency ratio has excluded the effect of the non-recurring income and
expenses noted previously, as well as the effect of the Company's amortization
of intangible assets. The decrease in the efficiency ratio shows the
Company's commitment to controlling non-interest expense and its progress
toward the new long-term goal set by management of a 54% 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, 1996 1995
------------------------------ Change from Change from
1996 1995 1994 1995 1994
-------- -------- -------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries, wages and employee
benefits....................... $ 95,531 $ 79,878 $ 74,981 $ 15,653 19.60% $ 4,897 6.53%
Net occupancy................... 12,441 11,016 9,947 1,425 12.94 1,069 10.75
Equipment....................... 12,947 10,700 9,149 2,247 21.00 1,551 16.95
FDIC insurance.................. 1,585 7,371 8,639 (5,786) (78.50) (1,268) (14.68)
Amortization of mortgage
servicing rights............... 19,515 7,634 5,541 11,881 155.63 2,093 37.77
First Commercial Trust Company
lawsuit settlement............. - - - - - (6,257) -
Other expenses.................. 65,921 53,707 42,361 12,214 22.74 11,346 26.78
-------- -------- -------- -------- --------
Total non-interest expenses..... $207,940 $170,306 $156,875 $ 37,634 22.10% $ 13,431 8.56%
======== ======== ======== ======== ========
</TABLE>
==============================================================================
<PAGE> 10-26
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 34.9% for 1996, 33.2% for 1995, and 32.3% for 1994.
The increase in 1996 and 1995 is due primarily to a decrease in tax-exempt
investment income as a percent of total net income. For more information, see
Note 11 of Notes to Consolidated Financial Statements.
Loan and Lease Portfolio
At December 31, 1996, the Company's loan and lease portfolio, net of
unearned income, reached $3.3 billion, an increase of 2% from year-end 1995's
balance of $3.2 billion. Excluding the 1996 bank acquisition, which loan
balances are not reflected in 1995, and the decrease of First Commercial
Mortgage Company's loans held for resale, the loan and lease portfolio
increased $150 million. This 5% internal growth in the loan and lease
portfolio occurred primarily in the commercial and commercial real estate
sectors. The Company has continued its policy of conservative lending,
thereby avoiding significant risk areas, such as out of territory lending and
highly leveraged transactions. 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.
<PAGE> 10-26
==============================================================================
<TABLE>
<CAPTION>
Loans and Leases by Type and Non-Performing Status
(Dollars in Thousands) December 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Types of loans and leases
Commercial, financial and agricultural........ $ 614,051 $ 602,348 $ 488,399 $ 448,282 $ 363,462
Real estate - construction.................... 178,369 140,285 104,259 78,552 64,140
- 1-4 family...................... 927,957 977,024 725,646 655,224 586,226
- other........................... 736,688 687,849 518,918 453,870 341,810
Loans for purchasing or carrying securities... 9,497 11,568 9,304 11,277 9,930
Consumer...................................... 801,357 806,945 686,650 542,560 445,092
Direct lease financing........................ 38,914 32,196 30,689 21,981 15,516
Other......................................... 15,066 9,414 16,793 16,367 8,961
---------- ---------- ---------- ---------- ----------
Total loans and leases...................... $3,321,899 $3,267,629 $2,580,658 $2,228,113 $1,835,137
========== ========== ========== ========== ==========
Non-performing loans
Impaired loans................................ $ 1,280 $ 739 $ - $ - $ _
Other non-accrual loans....................... 14,350 9,610 9,522 11,635 11,635
Loans past due 90 days or more and
still accruing............................... 7,906 6,919 3,391 3,544 3,216
Restructured loans............................ 845 170 386 520 709
---------- ---------- ---------- ---------- ----------
Total non-performing loans.................. $ 24,381 $ 17,438 $ 13,299 $ 15,699 $ 15,560
========== ========== ========== ========== ==========
<FN>
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.
</FN>
</TABLE>
==============================================================================
<PAGE> 10-26
==============================================================================
<TABLE>
<CAPTION>
Maturity and Interest Rate Sensitivity of Loans
(Dollars in Thousands) Loans at December 31, 1996, maturing in:
-------------------------------------------------
Over One
One Year Through Over
or Less Five Years Five Years Total
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural...................... $ 361,720 $ 214,207 $ 38,124 $ 614,051
Real estate - construction.................................. 92,668 68,863 16,838 178,369
---------- ---------- ---------- ----------
Total....................................................... $ 454,388 $ 283,070 $ 54,962 $ 792,420
========== ========== ========== ==========
Predetermined rates......................................... $ 291,074 $ 192,188 $ 27,549 $ 510,811
Variable rates.............................................. 163,314 90,882 27,413 281,609
</TABLE>
==============================================================================
The business loan portfolio, totaling $614.1 million and approximately 18%
of total loans at year end, consists of commercial, financial and agricultural
loans and is comprised primarily of loans to customers in the regional trade
area of the bank subsidiaries in 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, 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 $178.4 million
and approximately 5% of total loans at December 31, 1996. Management
continues to maintain relatively low exposure in this category, being very
conscious of 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, loan structure,
regulatory and tax issues, financial structure of the borrower and financial
stability and longevity of the borrower in the underwriting process.
<PAGE> 10-26
The mortgage loans in the real estate-mortgage category are extended,
predominately, for owner-occupied residential properties. At December 31,
1996, there were $1.7 billion in loans outstanding, or 50% of total loans.
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 credit quality or real estate-mortgage
loans at December 31, 1996, is considered to be above average.
The consumer loan portfolio, totaling $801.4 million or 24% of total
loans, consists of both secured and unsecured loans to individuals for various
personal reasons such as automobile financing, home improvements, recreational
and educational purposes. Current delinquency ratios have increased over
unsustainably low levels experienced in previous years. However, management
does not anticipate current ratios to result in significant changes in loss
trends.
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 29% of the combined corporate legal lending limit. The
Company has only one credit facility that exceeds the in-house limit at
December 31, 1996, which represents 33% 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 1996, 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 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
<PAGE> 10-26
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 accompanying table entitled Asset Quality, net
charge-offs were .20% of average loans and leases in 1996 compared to .08% in
1995 and .04% in 1994. The relatively low levels of net charge-offs in 1996,
1995 and 1994 reflects the favorable 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 For the Years Ended December 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net charge-offs to average loans and leases........ .20% .08% .04% .16% .52%
Allowance for possible loan and lease
losses to total loans and leases.................. 1.60% 1.60% 1.79% 2.19% 2.15%
Non-performing loans to total loans
and leases........................................ .74% .54% .52% .72% .86%
</TABLE>
==============================================================================
<PAGE> 10-26
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
an aggressive real estate writedown policy. Also, the Company has only 32
loan relationships with aggregate outstanding balances of $5 million or
greater, which further mitigates the loan loss risk.
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 seven years. At
December 31, 1996, the Company's ratio was 215.64%. 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), $2.16 is set aside in the
Company's reserve to cover possible losses. The ratio at December 31, 1996,
represents a decrease from the December 31, 1995, ratio of 294.42%.
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,
repossessed assets, and other real estate owned). At December 31, 1996, this
ratio was 259.57%, down from 376.30% at December 31, 1995, indicating that the
Company has $2.60 set aside in reserves for every dollar of non-performing
assets. Although both of the reserve adequacy ratios have decreased from the
high levels experienced in previous years, they continue to reflect the
conservative approach the Company has taken in regard to building reserves for
possible future losses.
As of December 31, 1996, the allowance for loan and lease losses equaled
$52.6 million or 1.60% of total loans and leases. Comparatively, the
allowance for loan and lease losses amounted to $51.3 million or 1.60% of
total loans and leases at December 31, 1995. The provision for possible loan
and lease losses was $7.5 million in 1996, as compared to a $3.1 million in
1995, and a negative $3.1 million in 1994.
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> 10-26
==============================================================================
<TABLE>
<CAPTION>
Allocation of Allowance for Possible Loan and Lease Losses
(Dollars in Thousands) December 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural......... $ 10,607 $ 10,682 $ 10,418 $ 12,109 $ 9,668
Real estate.................................... 17,419 18,465 15,869 17,588 11,032
Consumer....................................... 9,462 7,766 5,715 6,215 5,276
Other.......................................... 616 543 801 698 1,825
General risk................................... 14,471 13,885 12,522 11,470 10,911
---------- ---------- ---------- ---------- ----------
Total allowance for possible
loan and lease losses.......................... $ 52,575 $ 51,341 $ 45,325 $ 48,080 $ 38,712
========== ========== ========== ========== ==========
</TABLE>
==============================================================================
==============================================================================
<TABLE>
<CAPTION>
Percentage Distribution of Allowance Allocation
and Categories of Loans as a Percent of Loans
December 31,
-----------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------------- ----------------- ----------------- ----------------- -----------------
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.... 20.2% 18.5% 20.8% 18.4% 23.0% 18.9% 25.2% 20.1% 25.0% 19.8%
Real estate.......... 33.1 55.5 36.0 55.2 35.0 52.3 36.6 53.3 28.5 54.1
Consumer............. 18.0 24.1 15.1 24.7 12.6 26.6 12.9 24.4 13.6 24.2
Other................ 1.2 1.9 1.1 1.7 1.8 2.2 1.5 2.2 4.7 1.9
General risk......... 27.5 - 27.0 - 27.6 - 23.8 - 28.2 -
--------- ------- --------- ------- --------- ------- --------- ------- --------- ------
Total................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
========= ======= ========= ======= ========= ======= ========= ======= ========= =======
</TABLE>
==============================================================================
<PAGE> 10-26
==============================================================================
<TABLE>
<CAPTION>
Summary of Loan and Lease Loss Experience
(Dollars in Thousands) December 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Beginning balance of allowance for possible
loan and lease losses......................... $ 51,341 $ 45,325 $ 48,080 $ 38,712 $ 38,822
Loans and leases charged off:
Commercial, financial and agricultural...... 1,318 905 710 2,042 2,761
Real estate - construction.................. 30 1,068 11 39 43
Real estate - mortgage...................... 1,340 663 820 2,287 5,978
Consumer.................................... 7,012 3,322 2,604 2,411 2,874
Other....................................... 2 64 11 129 81
---------- ---------- ---------- ---------- ----------
Total charged off.............................. 9,702 6,022 4,156 6,908 11,737
---------- ---------- ---------- ---------- ----------
Recoveries of loans and leases
previously charged off:
Commercial, financial and agricultural...... 1,021 2,060 1,501 2,106 1,640
Real estate - construction.................. 34 403 73 52 23
Real estate - mortgage...................... 635 385 658 886 490
Consumer.................................... 1,552 1,034 861 677 519
Other....................................... 105 31 80 26 14
---------- ---------- ---------- ---------- ----------
Total recoveries............................... 3,347 3,913 3,173 3,747 2,686
---------- ---------- ---------- ---------- ----------
Net loans and leases charged off............... 6,355 2,109 983 3,161 9,051
Provision for possible loan and lease losses... 7,452 3,059 (3,092) 4,416 8,941
Balance of allowance of purchased banks........ 137 5,066 1,320 8,113 -
---------- ---------- ---------- ---------- ----------
Ending balance of allowance for possible
loan and lease losses.......................... $ 52,575 $ 51,341 $ 45,325 $ 48,080 $ 38,712
========== ========== ========== ========== ==========
Average loans and leases outstanding........... $3,237,040 $2,802,874 $2,324,668 $2,024,062 $1,753,501
<FN>
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.
</FN>
</TABLE>
==============================================================================
<PAGE> 10-26
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, 1996, 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,
the securities classified as held-to-maturity are carried at amortized cost
and those classified as available-for-sale and trading are carried at fair
value.
==============================================================================
<TABLE>
<CAPTION>
Investment Securities
(Dollars in Thousands)
For the Years Ended December 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Held-to-maturity
U.S. Treasuries and government agencies.............................. $ 227,268 $ 195,201 $ 567,804
States and political subdivisions.................................... 42,100 60,732 115,093
Other................................................................ 72,763 95,482 217,167
---------- ---------- ----------
Total............................................................ 342,131 351,415 900,064
---------- ---------- ----------
Available-for-sale
U.S. Treasuries and government agencies.............................. 672,020 636,564 283,847
States and political subdivisions.................................... 151,057 109,819 28,318
Other................................................................ 210,201 226,746 96,964
---------- ---------- ----------
Total............................................................ 1,033,278 973,129 409,129
---------- ---------- ----------
Total investment securities...................................... $1,375,409 $1,324,544 $1,309,193
========== ========== ==========
<FN>
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.
</FN>
</TABLE>
==============================================================================
<PAGE> 10-26
==============================================================================
<TABLE>
<CAPTION>
Investment Securities Portfolio Analysis
(Dollars in Thousands) Investments at December 31, 1996, 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.......... $ 121,156 5.54% $ 106,112 6.04% $ - -% - -% $ 227,268 5.77%
States and political
subdivisions...... 6,096 4.59 27,061 4.98 7,534 5.08 1,409 5.64 42,100 4.96
Other.............. 22,769 5.77 48,835 5.72 915 6.75 244 8.89 72,763 5.76
---------- ---------- ---------- ---------- ----------
Total.............. 150,021 5.54 182,008 5.80 8,449 5.26 1,653 6.12 342,131 5.67
---------- ---------- ---------- ---------- ----------
Available-for-sale
U.S. Treasuries
and government
agencies.......... 322,625 5.41 346,705 6.12 1,975 6.67 715 6.92 672,020 5.78
States and political
subdivisions...... 22,906 4.52 88,826 4.86 30,094 5.20 9,231 5.52 151,057 4.91
Other.............. 66,294 5.74 102,413 6.04 12,012 7.01 29,482 6.09 210,201 6.01
---------- ---------- ---------- ---------- ----------
Total.............. 411,825 5.41 537,944 5.90 44,081 5.76 39,428 5.97 1,033,278 5.70
---------- ---------- ---------- ---------- ----------
Total investment
securities........ $ 561,846 5.44% $ 719,952 5.87% $ 52,530 5.68% $ 41,081 5.98% $1,375,409 5.69%
========== ========== ========== ========== ==========
<FN>
NOTE: Interest income on tax-exempt securities is calculated on a tax-equivalent basis, using a federal
marginal income tax rate of 35%.
</FN>
</TABLE>
==============================================================================
<PAGE> 10-26
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 and 1996 bank
acquisitions, increased $158 million or 4% from December 31, 1995, to December
31, 1996. 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 ratios have increased from 1995 to 1996 and 1994 to
1995, indicating lower liquidity. The Company's liquidity has 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.
==============================================================================
<TABLE>
<CAPTION>
Maturity Distribution of Time Deposits $100,000 and Over
(Dollars in Thousands) December 31, 1996
--------------------------
Certificates
of Deposit Other Time
------------ ------------
<S> <C> <C>
Three months or less............................................................... $ 260,725 $ 25,516
Over three months to six months.................................................... 125,266 8,580
Over six months to twelve months................................................... 99,793 3 824
Over twelve months................................................................. 61,069 662
------------ ------------
Total.............................................................................. $ 546,853 $ 38,582
============ ============
</TABLE>
==============================================================================
==============================================================================
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Average loans and leases to average deposits......................... 70.38% 69.29% 61.76%
Average loans and leases to average core deposits.................... 79.08% 76.88% 67.83%
</TABLE>
==============================================================================
<PAGE> 10-26
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 $34.6 million in
1996 and $101.9 million in 1995. Average short-term investments exceeded
average short-term borrowings by $11.7 million in 1994. The 1996 and 1995
decrease in excess short-term investments occurred due to the use of short-
term borrowings by the Company to fund overall loan growth. 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>
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase
(Dollars in Thousands) December 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Balance at December 31............................................... $ 123,858 $ 178,563 $ 107,461
Average daily amount outstanding..................................... 121,416 128,281 45,722
Maximum month-end balance............................................ 162,392 200,310 107,461
Average daily interest rate.......................................... 4.8% 5.9% 4.2%
Weighted average interest rate on balance at December 31............. 4.6% 5.0% 6.0%
</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 1996, the Company's equity to asset ratio was 8.59% compared
to 8.06% at year-end 1995 and 7.85% at year-end 1994. At December 31, 1996,
the Company's leverage, tier I and total 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.
<PAGE> 10-26
==============================================================================
<TABLE>
<CAPTION>
December 31,
Regulatory ----------------------------------------
Minimum 1996 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Leverage ratio ........................................ 3.00% 8.07% 7.31% 7.50%
Tier I risk-based capital ratio ....................... 4.00% 11.44% 11.31% 12.56%
Total risk-based capital ratio ........................ 8.00% 12.24% 12.14% 13.33%
</TABLE>
==============================================================================
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.
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.
Dividend Policy
The Company's long-term dividend policy is to pay between 35% and 40% 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 $.64 in 1994, to $.74 in 1995, and $.84 in
1996. In 1996, the Company increased its dividend rate for the tenth
consecutive year, bringing the annual rate at the end of the year to $.96 per
share. In 1996, the Company declared a five percent stock dividend to
shareholders of record on October 31, 1996; and in 1995, the Company declared
a seven percent stock dividend to stockholders of record on December 14, 1995.
In addition, in 1994, the Company declared a five percent stock dividend to
stockholders of record on December 15, 1994. 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 35.34% in 1996,
35.77% in 1995, and 33.97% in 1994. The Company's Board of Directors reviews
the cash dividend policy and payout levels annually in the fourth quarter.
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, 1996, there were 3,566
shareholders of record. Additionally, 1,179 persons were holders of record of
Company common stock on December 31, 1996, through various stock ownership
plans of the Company.
<PAGE> 10-26
==============================================================================
<TABLE>
<CAPTION>
Selected Quarterly Operating Results
(In Thousands Except for Per Share Data) Years Ended December 31,
------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Interest Income:
First Quarter.................................................... $ 92,249 $ 73,508 $ 60,422
Second Quarter................................................... 93,343 78,672 62,456
Third Quarter.................................................... 94,540 81,844 64,923
Fourth Quarter................................................... 96,224 88,158 69,950
- --------------------------------------------------------------------------------------------------------------
$ 376,356 $ 322,182 $ 257,751
Net Interest Income:
First Quarter.................................................... $ 52,307 $ 42,633 $ 37,774
Second Quarter................................................... 54,150 44,790 39,024
Third Quarter.................................................... 54,979 46,735 39,930
Fourth Quarter................................................... 55,772 50,392 42,717
- --------------------------------------------------------------------------------------------------------------
$ 217,208 $ 184,550 $ 159,445
Provision for Possible Loan and Lease Losses:
First Quarter.................................................... $ 1,529 $ 825 $ 518
Second Quarter................................................... 1,539 434 523
Third Quarter.................................................... 1,740 481 8
Fourth Quarter................................................... 2,644 1,319 (4,141)
- --------------------------------------------------------------------------------------------------------------
$ 7,452 $ 3,059 $ (3,092)
Net Income:
First Quarter.................................................... $ 16,032 $ 12,692 $ 11,965
Second Quarter................................................... 16,816 13,725 12,705
Third Quarter.................................................... 17,334 14,827 12,721
Fourth Quarter................................................... 18,380 15,666 12,917
- --------------------------------------------------------------------------------------------------------------
$ 68,562 $ 56,910 $ 50,308
Earnings Per Common Share:
First Quarter.................................................... $ .55 $ .47 $ .44
Second Quarter................................................... .58 .50 .47
Third Quarter.................................................... .60 .54 .48
Fourth Quarter................................................... .64 .56 .48
- --------------------------------------------------------------------------------------------------------------
$ 2.37 $ 2.07 $ 1.87
Dividends Per Common Share:
First Quarter.................................................... $ .20 $ .18 $ .15
Second Quarter................................................... .20 .18 .15
Third Quarter.................................................... .20 .18 .16
Fourth Quarter................................................... .24 .20 .18
- --------------------------------------------------------------------------------------------------------------
$ .84 $ .74 $ .64
</TABLE>
<PAGE> 10-26
<TABLE>
<CAPTION>
Selected Quarterly Operating Results (continued)
(In Thousands Except for Per Share Data) Years Ended December 31,
------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Bid Price Per Common Share:
High for the period
First Quarter.................................................... $ 31.19 $ 21.70 $ 18.65
Second Quarter................................................... 29.88 22.81 19.82
Third Quarter.................................................... 32.86 25.14 21.51
Fourth Quarter................................................... 37.75 30.95 20.25
Low for the period
First Quarter.................................................... $ 29.76 $ 19.37 $ 16.95
Second Quarter................................................... 28.33 21.58 16.53
Third Quarter.................................................... 27.86 22.48 19.82
Fourth Quarter................................................... 31.55 24.70 18.03
</TABLE>
==============================================================================
<PAGE> 27
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, 1996, and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of First
Commercial Corporation at December 31, 1996, and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Little Rock, Arkansas
January 30, 1997
<PAGE> 28
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31,
------------------------------------------
(In Thousands Except for Per Share Data) 1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Interest income
Loans and leases, including fees................................ $ 290,573 $ 247,038 $ 185,337
Short-term investments.......................................... 7,023 4,666 4,192
Investment securities - taxable................................. 70,244 62,907 60,582
- non-taxable............................. 8,481 7,567 7,618
Trading account securities...................................... 35 4 22
------------ ------------ ------------
Total interest income......................................... 376,356 322,182 257,751
Interest expense
Interest on deposits............................................ 149,995 126,292 93,509
Short-term borrowings........................................... 8,743 10,544 4,094
Long-term debt.................................................. 410 796 703
------------ ------------ ------------
Total interest expense........................................ 159,148 137,632 98,306
Net interest income................................................ 217,208 184,550 159,445
Provision for possible loan and lease losses (Note 7)............. 7,452 3,059 (3,092)
------------ ------------ ------------
Net interest income after provision for
possible loan and lease losses................................ 209,756 181,491 162,537
Other income
Trust department income......................................... 12,286 11,424 10,904
Mortgage servicing fee income................................... 41,331 22,312 16,340
Broker-dealer operations income................................. 4,120 2,982 1,727
Service charges on deposits..................................... 25,922 22,192 20,131
Other service charges and fees.................................. 12,505 9,149 7,964
Investment securities gains (losses), net....................... (37) (440) 139
Other real estate gains (losses), net........................... (243) (330) 4,413
Other income.................................................... 7,645 6,699 7,034
------------ ------------ ------------
Total other income............................................ 103,529 73,988 68,652
Other expenses
Salaries, wages and employee benefits (Note 13)................. 95,531 79,878 74,981
Net occupancy................................................... 12,441 11,016 9,947
Equipment....................................................... 12,947 10,700 9,149
FDIC insurance.................................................. 1,585 7,371 8,639
Amortization of mortgage servicing rights....................... 19,515 7,634 5,541
First Commercial Trust Company lawsuit settlement............... - - 6,257
Other expenses.................................................. 65,921 53,707 42,361
------------ ------------ ------------
Total other expenses.......................................... 207,940 170,306 156,875
Income before income taxes........................................ 105,345 85,173 74,314
Income tax provision (Note 11).................................... 36,783 28,263 24,006
------------ ------------ ------------
Net income........................................................ $ 68,562 $ 56,910 $ 50,308
============ ============ ============
Weighted average number of common shares
outstanding during the period.................................... 28,890,130 27,530,791 26,886,990
Earnings per common share (Note 1)................................. $ 2.37 $ 2.07 $ 1.87
See accompanying notes.
</TABLE>
<PAGE> 29
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS December 31,
---------------------------
(Dollars in Thousands) 1996 1995
------------ ------------
<S> <C> <C>
Assets
Cash and due from banks (Note 4)................................................ $ 338,022 $ 432,117
Federal funds sold.............................................................. 258,351 108,181
------------ ------------
Total cash and cash equivalents................................................ 596,373 540,298
Investment securities held-to-maturity, estimated market value
$342,065 ($352,492 in 1995) (Notes 4 & 5)...................................... 342,131 351,415
Investment securities available-for-sale (Notes 4 & 5).......................... 1,033,278 973,129
Trading account securities...................................................... 196 449
Loans and leases, net of unearned income (Note 6)............................... 3,278,688 3,215,562
Allowance for possible loan and lease losses (Note 7)........................... (52,575) (51,341)
------------ ------------
Net loans and leases........................................................... 3,226,113 3,164,221
Bank premises and equipment, net (Note 8)....................................... 104,500 106,665
Other real estate owned, net of allow. for poss. losses of $87 ($50 in 1995).... 2,305 2,266
Other assets (Notes 3 & 13)..................................................... 225,887 222,497
------------ ------------
Total assets..................................................................... $ 5,530,783 $ 5,360,940
============ ============
Liabilities and Stockholders' Equity
Deposits
Non-interest bearing transaction accounts...................................... $ 951,390 $ 1,018,181
Interest bearing transaction and savings accounts.............................. 1,795,442 1,612,294
Certificates of deposit $100,000 and over...................................... 546,853 505,303
Other time deposits............................................................ 1,521,456 1,494,763
------------ ------------
Total deposits................................................................ 4,815,141 4,630,541
Short-term borrowings (Note 9).................................................. 177,453 235,378
Other liabilities............................................................... 56,960 55,592
Long-term debt (Note 10)........................................................ 6,097 7,170
------------ ------------
Total liabilities............................................................. 5,055,651 4,928,681
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, 50,000,000 shares authorized
Common stock, $3 par value, 28,810,368 shares issued
(28,709,151 shares issued in 1995)............................................ 86,431 82,030
Capital surplus................................................................ 233,957 195,019
Retained earnings.............................................................. 153,603 154,356
Net unrealized gains on available-for-sale securities, net of income tax...... 1,141 854
------------ ------------
Total common stockholders' equity............................................. 475,132 432,259
------------ ------------
Total liabilities and stockholders' equity....................................... $ 5,530,783 $ 5,360,940
============ ============
See accompanying notes.
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' Unrealized
EQUITY Preferred Common Retained Gains and Treasury
(In Thousands Except for Per Share Data) Stock Stock Surplus Earnings (Losses) Stock Total
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1994.............. $ 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 - $.64 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, 467,038 shares (9,566) (9,566)
Sale of treasury stock, 3,864 shares.. 63 63
Purchase of remaining interest
in subsidiary, 30,333 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 - $.74 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, 208,580 shares (5,245) (5,245)
Common stock issued, 2,868 shares..... 8 53 61
Acquisition of FDH Bancshares,
Inc., 1,416,675 shares (Note 2)...... 3,226 32,116 5,245 40,587
Acquisition of equity interest of
West-Ark Bancshares, Inc.,
723,561 shares (Note 2).............. 1,932 380 5,421 (260) 7,473
--------- --------- --------- --------- --------- --------- ---------
Balance - December 31, 1995............ - 82,030 195,019 154,356 854 - 432,259
Change in unrealized gains (losses),
net of income taxes of $81........... 299 299
Net income............................ 68,562 68,562
Cash dividends - $.84 per common share (24,228) (24,228)
Stock dividend, 5%.................... 3,476 36,735 (46,354) 6,099 (44)
Stock options exercised (Note 12)..... 158 548 6 712
Purchase of treasury stock, 219,511 shares (6,368) (6,368)
Sale of treasury stock, 7,350 shares.. 223 223
Common stock issued, 2,878 shares..... 8 99 107
Purchase of minority shares of
subsidiary, 1,793 shares............. 15 40 55
Acquisition of Security National
Bank, 253,154 shares (Note 2)........ 759 1,541 1,267 (12) 3,555
--------- --------- --------- --------- --------- --------- ---------
Balance - December 31, 1996............ $ - $ 86,431 $ 233,957 $ 153,603 $ 1,141 $ - $ 475,132
========= ========= ========= ========= ========= ========= =========
See accompanying notes.
</TABLE>
<PAGE> 31
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31,
------------------------------------------
(Dollars in Thousands) 1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income....................................................... $ 68,562 $ 56,910 $ 50,308
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation.................................................... 10,856 8,995 7,519
Amortization.................................................... 23,180 10,034 7,776
Provision for possible loan and lease losses.................... 7,452 3,059 (3,092)
Deferred income taxes........................................... (4,584) (1,197) 3,838
Loss (gain) on sale of investment securities available-for-sale. 37 440 (139)
Gain on sale of equipment....................................... (9) (146) (135)
Gain on sale of other real estate............................... (940) (950) (4,791)
Writedowns of other real estate................................. 106 75 706
Equity in undistributed earnings of unconsolidated subsidiary... (1,440) (1,777) (1,461)
Decrease (increase) in trading securities....................... 255 (435) 689
Net unrealized losses (gains) on trading securities............. (2) (1) 1
Decrease (increase) in mortgage loans held for resale........... 104,891 (105,385) 17,084
Increase (decrease) in income taxes payable..................... 23 7,204 (8,598)
Increase in interest and other receivables...................... 235 (5,198) (1,861)
Increase (decrease) in interest payable......................... (458) 3,115 1,240
Increase (decrease) in accrued expenses......................... 1,871 9,034 (2,212)
Increase in prepaid expenses.................................... (2,317) (2,484) (1,590)
------------ ------------ ------------
Net cash provided by (used in) operating activities.............. 207,718 (18,707) 65,282
INVESTING ACTIVITIES
Proceeds from sales of investment securities available-for-sale. 55,902 83,175 9,226
Proceeds from maturing investment securities held-to-maturity... 417,805 544,505 675,466
Proceeds from maturing investment securities available-for-sale. 902,577 308,671 115,915
Purchases of investment securities held-to-maturity............. (433,888) (234,079) (422,965)
Purchases of investment securities available-for-sale........... (979,839) (547,598) (125,694)
Purchases of institutions, net of funds acquired (Notes 1 and 2) 7,259 38,380 (5,872)
Net increase in loans and leases................................ (159,922) (293,804) (270,834)
Capital expenditures............................................ (9,749) (15,164) (21,560)
Proceeds from sale of bank premises and equipment............... 3,040 2,731 10,861
Additions to purchased mortgage servicing rights and other assets (18,551) (71,705) (4,801)
Proceeds from sales of other real estate........................ 3,241 4,277 17,209
------------ ------------ ------------
Net cash used in investing activities............................ (212,125) (180,611) (23,049)
</TABLE>
<PAGE>31
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31,
------------------------------------------
(Dollars in Thousands) 1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW accounts,
and savings accounts........................................... 109,645 145,913 (75,038)
Net increase (decrease) in time deposits........................ 39,433 208,506 (59,612)
Net increase (decrease) in short-term borrowings................ (57,925) 51,439 116,284
Repayment of long-term debt..................................... (1,073) (1,148) (17,176)
Proceeds from long-term borrowings.............................. - - 5,030
Payment to redeem preferred stock............................... - - (11,330)
Proceeds from issuance of common stock.......................... 107 61 -
Purchases of treasury stock..................................... (6,368) (5,245) (9,566)
Sales of treasury stock......................................... 223 - 63
Purchase of partial shares resulting from stock splits/stock
dividends...................................................... (44) (44) (25)
Stock options exercised......................................... 712 1,135 890
Preferred stock dividends....................................... - - (129)
Cash dividends paid on common stock............................. (24,228) (20,356) (17,092)
------------ ------------ ------------
Net cash provided by (used in) financing activities.............. 60,482 380,261 (67,701)
Net increase (decrease) in cash and cash equivalents............. 56,075 180,943 (25,468)
Cash and cash equivalents at beginning of year................... 540,298 359,355 384,823
------------ ------------ ------------
Cash and cash equivalents at end of year......................... $ 596,373 $ 540,298 $ 359,355
============ ============ ============
See accompanying notes.
</TABLE>
<PAGE> 32-49
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, stockholders' equity
at December 31, 1996, has been increased by $299,000 (net of $81,000 in
deferred income taxes) to reflect the net unrealized holding gain on
securities classified as available-for-sale. Also, 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. Unrealized holding gains and
losses on securities classified as trading are reported in earnings.
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 ($12,950), ($154,000) and $48,700 for the
years ended December 31, 1996, 1995, and 1994, respectively.
<PAGE> 32-49
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, 1996, and
1995, receivables from and payables to securities customers amounted to
$649,068 and ($24,446), 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 a reasonable period of time and the ultimate
collectibility of the total contractual principal and interest is no longer in
doubt.
<PAGE> 32-49
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. The unpaid
principal balances of these mortgage loans were $7.3 billion and $7.6 billion
at December 31, 1996 and 1995, respectively. Loan servicing fees are included
in income as related loan payments from mortgagees are collected.
The Company has determined that the book value of the mortgage servicing
rights does not exceed the estimated future servicing revenue less estimated
future servicing costs. Management estimates the value of the servicing
rights originated by the Company's mortgage banking subsidiary and the
servicing rights acquired from third parties at December 31, 1996, to be
<PAGE> 32-49
approximately $79.9 million based on an independent impairment analysis. For
purposes of measuring impairment, mortgage servicing rights are stratified on
the basis of interest rates and investor types.
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 $40.0 million and $144.9 million at
December 31, 1996, and 1995, 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, 1996, all but $8.7 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 depreciation 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> 32-49
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, 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 1996 and 1995 were $0,
and for 1994 were $129 thousand.
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 has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed in Note 12 to the Consolidated Financial Statements, the alternative
fair value accounting provided for under Statement of Financial Accounting
Standards No. 123 ("Statement 123"), "Accounting for Stock-Based
Compensation," requires use of option valuation models that were not developed
for use in valuing 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
(see Note 12).
Stock Dividend/Stock Split
All share and per share amounts for 1996, 1995, and 1994, set forth in the
consolidated financial statements and notes thereto have been retroactively
adjusted for a five percent stock dividend declared October 1996, and payable
November 15, 1996, 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.
Financial Statement Presentation
Statement of Financial Accounting Standards No. 125 ("Statement 125"),
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," provides new accounting and disclosure rules
for the sale, securitization. and servicing of receivable and other financial
assets. Statement 125 provides guidance for establishing whether a transfer
of financial assets is a sale or a financing. Under Statement 125, the seller
<PAGE> 32-49
would be required to use the "financial components" approach to measure gain
or loss on the transaction. Under this approach, the seller would record at
fair value whatever new instruments it obtains and would derecognize financial
assets for which control has been surrendered based on the relative fair value
of the components transferred and those retained. Statement 125 is effective
for transactions occurring after December 31, 1996, regardless of the
Company's fiscal year end or when securitization was originally established.
The Company plans to adopt Statement 125 effective January 1, 1997. Statement
125 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.
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
$159.6 million, $134.5 million and $97.1 million for 1996, 1995, and 1994,
respectively. Transfers from loans to other real estate owned were $2.4
million, $2.3 million and $1.9 million during 1996, 1995, and 1994,
respectively. Purchases of institutions consisted of loans of $17 million;
investment securities of $13 million; deposits of $36 million for 253,154
shares of the Company's common stock.
Reclassification
Certain reclassifications of 1995 and 1994 amounts have been made to
conform with the 1996 presentation.
Note 2:
ACQUISITIONS
On November 23, 1996, the Company acquired all of the outstanding common
stock of Security National Bank, Nacogdoches, Texas, in exchange for 253,154
Company common shares. This transaction was accounted for as a pooling-of-
interests. The results of Security National Bank are included in the
consolidated financial statements for 1996, however, prior period financial
data has not been restated due to immateriality. Security National Bank had
approximately $35 million in assets, $16 million in loans, and $31 million in
deposits.
Note 3:
INTANGIBLE ASSETS
Intangible assets are included in other assets and consist of goodwill,
debt issuance costs, core deposit intangibles and mortgage servicing rights.
These assets are being amortized over periods ranging from one to twenty-five
years. Goodwill and identifiable intangibles at December 31, 1996, and 1995,
had an original cost of $51.6 million and are amortized using the straight
line method. The original cost of mortgage servicing rights originated by the
Company's mortgage banking subsidiary and acquired from third parties, which
are not included in the previous totals as they have resale value, totaled
$88.3 million and $80.8 million at December 31, 1996, and 1995, respectively.
During 1996 and 1995, mortgage servicing rights of $9.5 million and $54.5
million, respectively, were capitalized. Accumulated amortization of
intangible assets totaled $54.8 million and $33.7 million at December 31,
1996, and 1995, respectively. The Company's equity capital, excluding all
<PAGE> 32-49
intangible assets except mortgage servicing rights, was $435.8 million and
$389.4 million at December 31, 1996, and 1995, respectively.
Note 4:
PLEDGED ASSETS AND REGULATORY RESTRICTIONS
Investment securities having a carrying value of $755,683,000 and
$691,519,000 at December 31, 1996, and 1995, respectively, were pledged to
secure public and trust deposits and certain borrowed funds.
The Company and its subsidiary banks are subject to various regulatory
capital requirements administered by the Federal Reserve Bank, the Office of
the Comptroller of the Currency, the Federal Deposit Insurance Corporation and
the Arkansas State Bank Department. Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by the regulators that, if undertaken, could have a
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and its subsidiary banks must meet specific capital guidelines that
involve quantitative measures of assets, liabilities and certain off-balance-
sheet items as calculated under regulatory accounting practices. The
Company's and its subsidiary banks' capital amounts and classification are
also subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum ratios as set forth in the
accompanying table. Management believes, as of December 31, 1996 and 1995,
that the Company and its subsidiary banks meet all capital adequacy
requirements to which they are subject.
As of December 31, 1996 and 1995, the most recent notification from the
regulators categorized the Company and its subsidiary banks as well
capitalized under the regulatory framework for prompt corrective action.
There are no conditions or events since that notification that management
believes have changed the Company's or its subsidiary banks category.
The Company's actual capital ratios along with the Company's significant
subsidiary, First Commercial Bank, N.A., of Little Rock, Arkansas, as shown
below.
<TABLE>
<CAPTION>
First Commercial First Commercial
Corporation Bank, N.A.
As of December 31, As of December 31,
Regulatory ------------------ ------------------
Minimum 1996 1995 1996 1995
------------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Leverage ratio ....................................... 3.00% 8.07% 7.31% 7.32% 7.27%
Tier I risk-based capital ratio ...................... 4.00% 11.44% 11.31% 9.63% 8.84%
Total risk-based capital ratio ....................... 8.00% 12.24% 12.14% 10.70% 10.02%
</TABLE>
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, 1996, approximately $38 million was
available for payment of dividends by the Company's subsidiary banks without
the approval of regulatory authorities.
<PAGE> 32-49
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, 1996,
the maximum amount available for transfer from the subsidiary banks to the
Company in the form of loans approximated $45 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, 1996, these required balances aggregated
approximately $24 million.
<PAGE> 32-49
Note 5:
INVESTMENT SECURITIES
The amortized cost and estimated market values of investment securities at
December 31, 1996, are as follows:
<TABLE>
<CAPTION>
Held-to-maturity
------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(Dollars in Thousands) Cost Gains Losses Value
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies............ $ 227,268 $ 644 $ (439) $ 227,473
Obligations of states and
political subdivisions............... 42,100 637 (160) 42,577
Corporate securities...................... 2,010 18 (3) 2,025
Mortgage-backed securities................ 70,742 317 (1,069) 69,990
Other debt securities..................... 11 - (11) -
---------- ----------- ----------- ----------
Totals......................... $ 342,131 $ 1,616 $ (1,682) $ 342,065
========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Available-for-sale
-----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(Dollars in Thousands) Cost Gains Losses Value
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies............ $ 670,919 $ 2,428 $ (1,327) $ 672,020
Obligations of states and
political subdivisions............... 149,540 2,017 (500) 151,057
Corporate securities...................... 7,088 67 (20) 7,135
Mortgage-backed securities................ 182,955 1,781 (2,467) 182,269
Other debt securities..................... 21,021 14 (238) 20,797
---------- ----------- ----------- ----------
Totals......................... $1,031,523 $ 6,307 $ (4,552) $1,033,278
========== =========== =========== ==========
</TABLE>
<PAGE> 32-49
The amortized cost and estimated market values of investment securities at
December 31, 1995, are as follows:
<TABLE>
<CAPTION>
Held-to-maturity
-----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(Dollars in Thousands) Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
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
========= ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
Available-for-sale
-----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(Dollars in Thousands) Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
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
========= ========== ========== =========
</TABLE>
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-
<PAGE> 32-49
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, 1996, 1995 and 1994, investment
securities available-for-sale with a fair value at the date of sale of $55.9
million, $83.2 million and $9.2 million, respectively were sold. The gross
realized gains on such sales totaled $167,383, $149,688 and $149, 957,
respectively. The gross realized losses totaled $204,487, $530,205 and
$10,558, respectively. Additionally, recognized losses of $59,469 were
recorded on other debt securities in the Company's portfolio at December 31,
1995.
The amortized cost and estimated market value of securities at December
31, 1996, 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.
<TABLE>
<CAPTION>
Held-to-maturity
---------------------------
Amortized Estimated
(Dollars in Thousands) Cost Market Value
------------ ------------
<S> <C> <C>
Due in one year or less..................... $ 126,152 $ 126,176
Due after one year through five years....... 136,294 136,746
Due after five years through ten years...... 7,534 7,669
Due after ten years......................... 1,409 1,484
------------ ------------
271,389 272,075
Mortgage-backed securities.................. 70,742 69,990
------------ ------------
$ 342,131 $ 342,065
============ ============
</TABLE>
<TABLE>
<CAPTION>
Available-for-sale
---------------------------
Amortized Estimated
(Dollars in Thousands) Cost Market Value
------------ ------------
<S> <C> <C>
Due in one year or less..................... $ 350,031 $ 349,942
Due after one year through five years....... 415,149 416,613
Due after five years through ten years...... 48,523 49,214
Due after ten years......................... 34,865 35,240
------------ ------------
848,568 851,009
Mortgage-backed securities.................. 182,955 182,269
------------ ------------
$ 1,031,523 $ 1,033,278
============ ============
</TABLE>
<PAGE> 32-49
Note 6:
LOANS AND LEASES
Loans and leases consist of the following
<TABLE>
<CAPTION>
(Dollars in Thousands) 1996 1995
------------ ------------
<S> <C> <C>
Commercial and financial......................... $ 554,293 $ 545,444
Agricultural..................................... 59,758 56,904
Real estate - construction....................... 178,369 140,285
- mortgage........................... 1,664,645 1,664,873
Loans for purchasing or carrying securities...... 9,497 11,568
Consumer......................................... 801,357 806,945
Direct lease financing........................... 38,914 32,196
Other............................................ 15,066 9,414
------------ ------------
3,321,899 3,267,629
Unearned income.................................. (43,211) (52,067)
------------ ------------
Loans and leases, net of unearned income......... $ 3,278,688 $ 3,215,562
============ ============
</TABLE>
At December 31, 1996 and 1995, the recorded investment in loans that are
considered to be impaired under Statement 114 was $1.3 million and $739
thousand, respectively, all of which were on a nonaccrual basis. These loans
had a related allowance for credit losses of $659 thousand and $446 thousand,
respectively. At December 31, 1996 and 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, 1996 and 1995, was approximately $1.2 million and $852 thousand,
respectively. For the years ended December 31, 1996 and 1995, the interest
income recognized using the cash basis method of income recognition on
impaired loans was immaterial.
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, 1996 and 1995,
was $119,885,888 and $134,934,049, respectively. Transactions during 1996
included new loans amounting to $109,758,703 and repayments amounting to
$124,806,864.
<PAGE> 32-49
Note 7:
ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES
Transactions in the allowance for possible loan and lease losses are as
follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Balance - January 1........................... $ 51,341 $ 45,325 $ 48,080
Recoveries credited to allowance.............. 3,347 3,913 3,173
Provision charged to operating expense........ 7,452 3,059 (3,092)
Loans and leases charged off.................. (9,702) (6,022) (4,156)
Allowance resulting from acquisitions......... 137 5,066 1,320
-------- -------- --------
Balance - December 31......................... $ 52,575 $ 51,341 $ 45,325
======== ======== ========
</TABLE>
Note 8:
BANK PREMISES AND EQUIPMENT
Bank premises and equipment consist of the following:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1996 1995
-------- --------
<S> <C> <C>
Land...................................................... $ 17,334 $ 16,976
Building and improvements................................. 106,798 104,299
Leasehold improvements.................................... 9,175 8,900
Equipment................................................. 83,666 77,515
-------- --------
216,973 207,690
Less accumulated depreciation
and amortization........................................ 112,473 101,025
-------- --------
$104,500 $106,665
======== ========
</TABLE>
<PAGE> 32-49
Note 9:
Short-Term Borrowings
Short-term borrowings consist of the following:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1996 1995
-------- --------
<S> <C> <C>
Federal funds purchased................................... $ 7,874 $ 88,452
Securities sold under agreements to repurchase............ 115,984 90,111
Committed lines of credit................................. 31,750 38,596
Other..................................................... 21,845 18,219
-------- --------
$177,453 $235,378
======== ========
</TABLE>
The maximum amount of outstanding repurchase agreements at any month-end
during the year ended December 31, 1996, was $116.2 million. The average
daily amount of outstanding repurchase agreements for the year ended December
31, 1996, was $96.4 million. The investment securities underlying the
repurchase agreements were held under the Company's control.
The Company has a $30.0 million and a $50.0 million committed line of
credit from two unaffiliated banks. Amounts borrowed under the $30.0 million
agreement are subject to a variable interest rate that is based on the London
InterBank Offered Rate plus 3/4 of 1% (6.25% at December 31, 1996). Amounts
borrowed under the $50.0 million agreement are subject to an interest rate
which is set monthly by the lender on a floating basis (6.21% at December 31,
1996). As of December 31, 1996, the Company had borrowings of $6.8 million
and $25.0 million, respectively, under these agreements.
Note 10:
LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1996 1995
-------- --------
<S> <C> <C>
8.85% note - payable $1,071,428 annually to 1997.......... $ 1,071 $ 2,143
Note payable to Federal Home Loan Bank, interest
at London InterBank Offered Rate plus .10%, due
2001 (5.48% at December 31, 1996)....................... 5,000 5,000
Other..................................................... 26 27
-------- --------
$ 6,097 $ 7,170
======== ========
</TABLE>
<PAGE> 32-49
Maturities of long-term debt for years subsequent to December 31, 1995,
are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) Consolidated Parent Company
-------------- --------------
<S> <C> <C>
1997........................ $ 1,073 $ 1,071
1998........................ 2 -
1999........................ 3 -
2000........................ 3 -
2001........................ 5,003 -
Later years................. 13 -
</TABLE>
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 $239 million at December 31, 1996.
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, 1996,
and 1995, are as follows:
<PAGE> 32-49
<TABLE>
<CAPTION>
(Dollars in Thousands) 1996 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Loan loss reserve....................................... $ 17,072 $ 15,866
Cost of purchased mortgage servicing.................... 5,113 2,552
Other - net............................................. 6,268 7,201
-------- --------
Total deferred tax assets............................. 28,453 25,619
-------- --------
Valuation allowance..................................... (696) (815)
-------- --------
Net deferred tax assets................................. 27,757 24,804
-------- --------
Deferred tax liabilities:
Operating leases........................................ 4,660 3,630
Net pension benefit..................................... 5,543 5,102
Basis adjustment - purchase accounting.................. 2,515 2,481
Property, plant and equipment........................... 2,257 1,912
Other - net............................................. 3,005 5,610
-------- --------
Total deferred tax liabilities........................ 17,980 18,735
-------- --------
Net deferred tax assets............................... $ 9,777 $ 6,069
======== ========
</TABLE>
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, 1996, State First National Bank and Kilgore First National
Bank had net operating loss carryforwards of approximately $1,047,000 and
$1,204,000, 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.
<PAGE> 32-49
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal...................................... $ 37,629 $ 27,398 $ 19,182
State........................................ 3,738 2,062 986
-------- -------- --------
Total current................................ 41,367 29,460 20,168
-------- -------- --------
Deferred:
Federal...................................... (3,966) (1,066) 3,296
State........................................ (618) (131) 542
-------- -------- --------
Total deferred............................... (4,584) (1,197) 3,838
-------- -------- --------
Provision for income taxes.................... $ 36,783 $ 28,263 $ 24,006
======== ======== ========
</TABLE>
The components of the provision for deferred income taxes for the years
ended December 31, 1996, 1995, and 1994, are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Provision for possible loan and lease
losses...................................... $ (1,219) $ (912) $ 1,165
Net pension benefit........................... 528 763 828
Operating lease............................... 545 916 1,270
Cost of mortgage servicing rights............. (4,406) - -
Other......................................... (32) (1,964) 575
-------- -------- --------
Provision for deferred income taxes........... $ (4,584) $ (1,197) $ 3,838
======== ======== ========
</TABLE>
<PAGE> 32-49
The reconciliation of income tax attributable to continuing operations
computed at the U.S. Federal statutory tax rates to income tax expense is:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Current:
Tax at U.S. statutory rate.................... 35.0% 35.0% 35.0%
Non-taxable interest income................... (2.6) (2.8) (3.3)
State income tax expense,
net of Federal income tax benefit........... 1.9 1.5 1.3
Equity in earnings of unconsolidated
subsidiary.................................. (.4) (.6) (.5)
Other, net.................................... 1.0 .1 (.2)
-------- -------- --------
Effective income tax rate..................... 34.9% 33.2% 32.3%
======== ======== ========
</TABLE>
Cash income taxes paid during 1996, 1995 and 1994, were $40.4 million,
$25.2 million and $18.3 million, respectively.
Note 12:
STOCK OPTION PLAN
Executives and other key officers have been granted options to purchase
the Company's common shares under the Company's 1987 Incentive and
Nonqualified Stock Option Plan. The Company has authorized 1,622,755 shares
for issuance under the plan. All options granted have ten-year terms and vest
ratably over a five-year period.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model. For the two grants during
1995 the weighted average assumptions were: risk-free interest rates of 7.1%
and 5.6%; dividends yields of 3.4% and 3.1%; volatility factors of the
expected market price of the Company's common stock of .20 and .19; and a
weighted average expected life of the option of 7 years. For the grant during
1996, the weighted average assumptions were: risk-free interest rate of 6.3%;
dividend yield of 2.7%; volatility factor of the expected market price of the
Company's common stock of .18; and a weighted average expected life of the
option of 7 years. The weighted average fair value of options granted during
1995 and 1996 is estimated at $5.97 and $9.13 per share, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different form those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
<PAGE> 32-49
For purposes of pro forma disclosure, the estimated fair vale of the
options is amortized to expense over the option's vesting period. the pro
forma effect on net income for 1996 and 1995 is not indicative of the pro
forma effect on net income in future years because it does not take into
consideration pro forma compensation expense related to grants made prior to
1995. The Company's pro forma information follows:
<TABLE>
<CAPTION>
(In Thousands Except for Per Share Data) 1996 1995
-------- --------
<S> <C> <C>
Pro forma net income...................................... $ 68,377 $ 56,840
Pro forma earnings per share.............................. $ 2.37 $ 2.06
</TABLE>
Presented below is the activity in the plan for the three years in the
period ended December 31, 1996, and certain other information concerning the
plan.
<TABLE>
<CAPTION>
Number of Shares
Under Option Option Price
------------------------------- -------------------------
Non-
Incentive Qualified Total Per Share Total
--------- --------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Outstanding at
January 1, 1994.... 92,693 679,312 772,005 $ 11.72 $ 9,048,031
Granted.............. - 22,414 22,414 $ 17.80 398,969
Exercised............ (25,880) (78,457) (104,337) $ 7.07 (737,142)
Forfeited............ - (11,008) (11,008) $ 16.40 (180,519)
--------- --------- --------- -----------
Outstanding at
December 31, 1994.. 66,813 612,261 679,074 $ 12.56 $ 8,529,339
Granted.............. - 260,744 260,744 $ 26.06 6,793,751
Exercised............ (21,775) (44,245) (66,020) $ 10.06 (663,906)
Forfeited............ - (14,542) (14,542) $ 18.58 (270,248)
--------- --------- --------- -----------
Outstanding at
December 31, 1995.. 45,038 814,218 859,256 $ 16.75 $14,388,937
Granted.............. - 131,612 131,612 $ 37.25 4,902,547
Exercised............ (4,870) (50,371) (55,241) $ 10.53 (581,827)
Forfeited............ - (21,670) (21,670) $ 19.81 (429,372)
--------- --------- --------- -----------
Outstanding at
December 31, 1996.. 40,168 873,789 913,957 $ 20.00 $18,280,284
========= ========= ========= ===========
</TABLE>
<PAGE> 32-49
The information concerning current outstanding and exercisable options at
December 31, 1996, is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------- --------------------------------
Weighted
Average
Remaining Weighted Weighted
Range of Options Contractual Average Options Average
Exercise Prices Outstanding Life (in years) Exercise Price Exercisable Exercise Price
--------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
< $10 240,699 1.7 $ 6.82 240,699 $ 6.82
$10 - $20 291,441 6.7 17.78 184,313 17.62
$20 - $30 125,399 8.2 21.81 24,484 21.81
$30 - $40 256,418 9.5 34.01 24,976 30.60
--------------- ---------------
913,957 474,472
=============== ===============
</TABLE>
There was no material dilutive effect on earnings per share from
outstanding stock options for the three years in the period ended December 31,
1996.
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 1996, 1995,
and 1994, the Company made contributions of $1,333,000, $999,000 and $943,000,
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:
<PAGE> 32-49
<TABLE>
<CAPTION>
(Dollars in Thousands) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Service cost.................................. $ (2,121) $ (1,649) $ (1,716)
Interest cost................................. (2,567) (2,148) (2,139)
Actual return on plan assets.................. 6,293 10,114 (906)
Net amortization and deferral................. (966) (5,062) 5,896
-------- -------- --------
Total pension benefit......................... $ 639 $ 1,255 $ 1,135
======== ======== ========
</TABLE>
The status of the defined benefit plans at December 31, 1996, 1995, and
1994, is as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Actuarial present value of benefit
obligations:
Approximate accumulated benefit
obligation, including vested benefits
of approximately $31,349, $25,940
and $22,768, at December 31, 1996,
1995, and 1994, respectively.............. $ 33,434 $ 28,377 $ 23,807
======== ======== ========
Fair value of plan assets..................... $ 56,511 $ 51,049 $ 42,436
Projected benefit obligation.................. (39,013) (32,500) (27,476)
-------- -------- --------
Plan assets in excess of
projected benefit obligation................ 17,498 18,549 14,960
Unrecognized net (gain) loss.................. 1,017 (440) 2,284
Unrecognized net transition
asset at December 31........................ (3,381) (4,101) (4,821)
-------- -------- --------
Prepaid pension costs......................... $ 15,134 $ 14,008 $ 12,423
======== ======== ========
</TABLE>
The expected long-term rate of return on the plans' assets was in the
range of 9.0% to 9.5% for 1996, 1995, and 1994. 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, 1996, and December 31, 1995, and December 31,
1994. The plans' assets are invested in diversified portfolios that primarily
consist of equity and debt securities of which 218,629 shares, 249,856 shares,
and 170,019 shares at December 31, 1996, 1995, and 1994, respectively, were in
the Company's common stock. The fair value of these shares at December 31,
1996, was $8.1 million and the cash dividends paid on these shares during 1996
were $214 thousand. Also included in these securities were investments in
various common trust funds administered by First Commercial Trust Company, a
subsidiary of the Company, of 799,484 shares, 568,308 shares, and 457,650
shares at December 31, 1996, 1995, and 1994, respectively.
<PAGE> 32-49
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, 1996, and as of December 31, 1995.
CASH AND CASH EQUIVALENTS - The carrying amounts reported in the balance sheet
for cash and short-term investments 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.
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 $155.8 million at
December 31, 1996, and $153.2 million at December 31, 1995. This component is
estimated using the method described for interest bearing deposits with the
addition of certain retention and profitability projections.
<PAGE> 32-49
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, 1996, and December 31, 1995.
<TABLE>
<CAPTION>
(Dollars in Thousands) December 31, 1996 December 31, 1995
------------------------ ------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents......... $ 596,373 $ 596,373 $ 540,298 $ 540,298
Investment securities
held-to-maturity................ 342,131 342,065 351,415 352,492
Investment securities
available-for-sale.............. 1,033,278 1,033,278 973,129 973,129
Trading account securities ....... 196 196 449 449
Loans, net of allowance
for loan losses................. 3,187,844 3,189,997 3,132,577 3,178,829
Financial liabilities:
Non-interest bearing deposits..... 951,390 951,390 1,018,181 1,018,181
Interest bearing transaction
and savings accounts............ 1,795,442 1,795,442 1,612,294 1,612,294
Time Deposits..................... 2,068,309 2,077,148 2,000,066 2,027,125
Short-term borrowings............. 177,453 177,453 235,378 235,378
Long-term debt.................... 6,097 5,335 7,170 7,348
</TABLE>
These fair value estimates are as of December 31, 1996, and December 31,
1995, 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.
<PAGE> 32-49
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, 1996, and 1995, the
subsidiaries of the Company had outstanding standby letters of credit of
$39,170,000 and $42,669,000, respectively. The majority of the standby
letters of credit outstanding at December 31, 1996, are related to debts of
others, primarily corporations, including industrial revenue bonds of
approximately $5.2 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, 1996, are as follows:
Contractual Amount
------------------
Commitments to extend credit....................... $ 662,374,000
Standby letters of credit.......................... $ 39,170,000
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.
Two real estate partnerships owned by the Company through one of its
subsidiaries have $1,445,000 and $1,515,000, respectively, at December 31,
1996, 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 $4,355,000 in 1996, $4,005,000 in
1995, and $3,469,000 in 1994. Rental income received under sub-leases
amounted to $304,000 in 1996, $432,000 in 1995, and $284,000 in 1994.
<PAGE> 32-49
Minimum annual rentals under non-cancelable operating leases totaling
$11,902,000, are as follows: 1997 - $2,216,000, 1998 - $2,034,000, 1999 -
$1,603,000, 2000 - $1,029,000, 2001 - $896,000, and remaining years -
$4,124,000. Minimum annual rental income under non-cancelable operating sub-
leases amounts to $70,000 each year from 1997 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 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 $12.5 million compensatory damages and $10.0 million punitive
damages. On April 30, 1996, the trial court approved a $7.3 million set off
to the March 13, 1996, $22.5 million jury verdict. The set off pertained to
monies owed by Aearth Development, Inc., and related interests, to First
Commercial Bank, N.A. On May 20, 1996, the Court entered a judgment against
First Commercial Bank, N.A., in the amount of $15.2 million. Thereafter, on
June 21, 1996, the Court granted a Motion for Remittitur and reduced the
punitive damages awarded in the judgment by $7.0 million. Therefore, the
final award was $8.2 million. On June 27, 1996, First Commercial Bank, N.A.,
filed a Notice of Appeal to the Supreme Court of Arkansas. Management intends
to vigorously pursue the appeal. 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 the
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.
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> 32-49
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:
<TABLE>
<CAPTION>
Balance Sheets (In Thousands) December 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Assets
Cash........................................ $ 4,884 $ 8,246
Short-term investments...................... - 2,500
-------- --------
Cash and cash equivalents................... 4,884 10,746
Loans....................................... 17,955 1,233
Investment in and advances
to subsidiaries........................... 482,324 456,475
Investment securities, estimated market
value $772 ($429 in 1995)................. 772 429
Bank premises and equipment................. 8,379 10,294
Other assets................................ 9,015 8,030
-------- --------
$523,329 $487,207
======== ========
Liabilities and Stockholders' Equity
Long-term debt.............................. $ 1,071 $ 2,143
Short-term borrowings....................... 31,750 38,596
Other liabilities........................... 15,376 14,209
Preferred stock............................. - -
Common stockholders' equity................. 475,132 432,259
-------- --------
$523,329 $487,207
======== ========
</TABLE>
<PAGE> 32-49
<TABLE>
<CAPTION>
Statements of Income (In Thousands) Years Ended December 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Income
Dividends from subsidiaries................. $ 60,340 $ 46,700 $ 33,095
Interest.................................... 476 213 226
Other income................................ 412 395 1,038
-------- -------- --------
Total income.................................. 61,228 47,308 34,359
-------- -------- --------
Expenses
Interest.................................... 2,083 2,273 2,174
Other expenses.............................. 12,650 11,062 9,778
-------- -------- --------
Total expenses................................ 14,733 13,335 11,952
-------- -------- --------
Income from operations........................ 46,495 33,973 22,407
Income tax benefit............................ 5,234 4,686 4,088
Equity in undistributed
earnings of subsidiaries.................... 16,833 18,251 23,813
-------- -------- --------
Net income.................................... $ 68,562 $ 56,910 $ 50,308
======== ======== ========
</TABLE>
<PAGE> 32-49
<TABLE>
<CAPTION>
Statements of Cash Flows (In Thousands) Years Ended December 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income......................................................... $ 68,562 $ 56,910 $ 50,308
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................................... 2,904 2,351 2,318
Undistributed earnings of subsidiaries.......................... (16,833) (18,251) (23,813)
Writedown of other real estate.................................. - - 79
Gain on sale of equipment....................................... - (3) -
Increase (decrease) in taxes payable............................ (2,033) 3,380 782
Decrease (increase) in interest receivable...................... (61) - 10
Increase (decrease) in interest payable......................... 33 (669) 694
Increase in dividends payable................................... 1,168 993 1,411
Decrease (increase) in other receivables........................ (1,196) 1,896 (2,262)
Decrease (increase) in prepaid assets........................... 23 47 (58)
Increase (decrease) in accrued expenses......................... 2,216 (1,678) 3,333
-------- -------- --------
Net cash provided by operating activities.......................... 54,783 44,976 32,802
INVESTING ACTIVITIES
Proceeds from maturing investment securities available-for-sale.... - - 1,061
Purchases of investment securities available-for-sale.............. (100) (200) (100)
Net decrease (increase) in loans................................... (16,722) 63 (324)
Purchase of subsidiary............................................. 3,610 (6,122) -
Decrease (increase) in investments in subsidiaries................. (12,408) 130 (15,216)
Decrease (increase) in advances to subsidiaries.................... 2,400 (1,891) (2,048)
Fixed asset purchases.............................................. (94) (3,207) (6,308)
Proceeds from sale of fixed assets................................. 185 107 2,103
Proceeds from sale of other real estate............................ - - 141
-------- -------- --------
Net cash used in investing activities.............................. (23,129) (11,120) (20,691)
FINANCING ACTIVITIES
Net increase (decrease) in short-term borrowings................... (6,846) (3,104) 41,700
Repayment of long-term debt........................................ (1,072) (1,071) (15,972)
Dividends paid on preferred stock.................................. - - (129)
Dividends paid on common stock..................................... (24,228) (20,356) (17,092)
Payment to redeem preferred stock.................................. - - (11,330)
Proceeds from issuance of common stock............................. 107 61 -
Purchases of treasury stock........................................ (6,368) (5,245) (9,566)
Sales of treasury stock............................................ 223 - 63
Purchase of partial shares resulting
from stock splits/stock dividends................................ (44) (44) (25)
Stock options exercised............................................ 712 1,135 890
-------- -------- --------
Net cash provided by (used in) financing activities................ (37,516) (28,624) (11,461)
Net increase (decrease) in cash and cash equivalents............... (5,862) 5,232 650
Cash and cash equivalents at beginning of year..................... 10,746 5,514 4,864
-------- -------- --------
Cash and cash equivalents at end of year........................... $ 4,884 $ 10,746 $ 5,514
======== ======== ========
</TABLE>
EXHIBIT 21
<PAGE>
FIRST COMMERCIAL CORPORATION
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, Akansas (2)
First Commercial, Inc., 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)
Tyler Bank and Trust, N.A., Tyler, Texas (1)
Commercial Capital Funding, Inc., Dallas, Texas (5)
Aircraft Financing, Inc. (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)
First National Bank, Palestine, Texas (1)
Kilgore First National Bank, Kilgore, Texas (1)
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)
Security BankCard Center, Inc. (8)
TRH Oklahoma, Inc., Norman, Oklahoma (8)
- ----------
(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.
(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.
(8) Incorporated under the laws of the State of Oklahoma.
EXHIBIT 23
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Forms S-3 Nos. 33-65017 and 333-01599 and Form S-4 No. 333-12353)
of First Commercial Corporation and in the related Prospectuses of our report
dated January 30, 1997, 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, 1996.
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.
333-02565) of our report dated January 30, 1997, with respect to the
consolidated financial statements of First Commercial Corporation incorporated
by reference in the Annual Report (Form 10-K) for the year ended December 31,
1996.
/s/Ernst & Young LLP
Little Rock, Arkansas
March 11, 1997
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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
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