Filed pursuant to Rule
424(b)(2) in connection
with Registration Statement
No. 333-23305
[Southwest Bancshares, Inc. Letterhead]
April 7, 1997
To: Southwest Bancshares, Inc. Stockholders
From: Wallace W. Fowler
Re: Annual Stockholders' Meeting
The Annual Meeting of the Stockholders of Southwest
Bancshares, Inc. ("Southwest Bancshares") will be held on
Monday, May 5, 1997, at 7:00 p.m., local time, at
the Arkansas State University Convocation Center (enter on the
east side of the building at ground level next to the red
entrance) Jonesboro, Arkansas. You are cordially invited to
attend. We will gather for fellowship and a buffet dinner at
6:00 p.m. with the business meeting beginning at 7:00 p.m.
This is an important meeting for Southwest Bancshares and its
shareholders as the principal purpose of the meeting is to
ask you to approve the merger of Southwest Bancshares into
First Commercial Corporation, Little Rock, Arkansas ("First
Commercial") (the "Merger"). The Merger has been unanimously
approved by the Board of Directors of Southwest Bancshares and
is subject, among other things, to the approval of the holders
of a majority of the outstanding shares of common stock of
Southwest Bancshares ("Southwest Bancshares Stock"). If the
Merger is consummated, each holder of Southwest Bancshares
Stock will receive 13.91278 shares of First Commercial common
stock (with cash payments in lieu of fractional shares) for
each outstanding share of Southwest Bancshares Stock held
at the effective date of the Merger.
SOUTHWEST BANCSHARES'S BOARD OF DIRECTORS AND MANAGEMENT
RECOMMEND APPROVAL OF THE MERGER.
Enclosed with this letter are a Notice of Annual Meeting, a
Proxy Form and return envelope, an R.S.V.P. form for your
attendance at the meeting, and a Joint Proxy Statement/
Prospectus, which contains a detailed description
of the entire transaction. Please read the enclosed material
carefully. Because your vote is important, we urge you to
complete, date, sign and return the Proxy Form and the
R.S.V.P. form in the enclosed postage paid, addressed envelope.
No additional postage is required if mailed in the United States.
If you are present, you may vote in person and your Proxy will not
be used.
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To The Stockholders of Southwest Bancshares, Inc.:
Notice is hereby given that the Annual Meeting of the
Stockholders of Southwest Bancshares, Inc. ("Southwest
Bancshares") will be held on Monday, May 5, 1997, at 7:00 p.m.,
local time, at the Arkansas State University Convocation
Center, Jonesboro, Arkansas. We will have a buffet dinner at
6:00 p.m. with the business meeting beginning at 7:00 p.m. The
meeting is for the following purposes:
1. To consider and vote upon a proposal to approve
a plan of merger providing for the merger of
Southwest Bancshares into First Commercial
Corporation, Little Rock, Arkansas ("First
Commercial") (the "Merger"), with First Commer-
cial being the surviving corporation, as a result
of which each outstanding share of common stock
of Southwest Bancshares ("Southwest Bancshares
Stock") will be converted into 13.91278 shares
of First Commercial common stock (with cash
payments in lieu of fractional shares). Such
approval, if voted, shall be deemed to
constitute the ratification, confirmation and
approval of the execution and delivery by
Southwest Bancshares of the Plan and Agreement
of Merger ("Agreement") dated December 20,
1996, between First Commercial and Southwest
Bancshares.
2. To elect directors for the ensuing year.
Management has unanimously recommended the number
of directors be set at seven (7) and that the
existing directors, Wallace W. Fowler, Jama M.
Fowler, Phil Jones, Mark Fowler, Lloyd McCracken,
Jr., Roy Reaves and Charles Green, be re-elected.
3. To transact such other business as may
properly be brought before the Annual Meeting
or at any adjournment thereof.
The Board of Directors is not aware of any other business to come
before the meeting.
Information regarding the matters to be acted upon at the
meeting is contained in the accompanying Joint Proxy
Statement/Prospectus.
<PAGE>
Consummation of the Merger is conditioned upon approval by
the holders of a majority of the outstanding shares of
Southwest Bancshares Stock. Only those holders of Southwest
Bancshares Stock of record at the close of business on
April 3, 1997, are entitled to notice of, and to vote
at, the Annual Meeting and any adjournment thereof.
Dissenting shareholders who comply with the procedural
requirements of Sections 4-27-1301 to -31 of the Arkansas
Business Corporation Act will be entitled to receive payment
of the cash value of their shares if the Merger is approved.
A copy of those sections is attached as Attachment II to the
accompanying Joint Proxy Statement/Prospectus.
Your vote is important regardless of the number of shares you
own, so we hope you will attend since, if the Merger is approved,
this will be the last gathering of our stockholders prior to the
merger with First Commercial. Whether or not you plan to attend
the Annual Meeting, please mark, date and sign the enclosed
Proxy and return it promptly in the stamped return envelope in
order to ensure that your shares will be represented at the
meeting. If you are present, you may vote in Person and your
Proxy will not be used.
By Order of the Board of Directors
/s/ Lloyd McCracken, Jr.
Secretary
Jonesboro, Arkansas
April 7, 1997
<PAGE>
JOINT PROXY STATEMENT/PROSPECTUS
PROSPECTUS FOR
FIRST COMMERCIAL CORPORATION
3,412,457 Shares
Common Stock
($3.00 par value per share)
PROXY STATEMENT FOR
SOUTHWEST BANCSHARES, INC.
First Commercial Corporation ("First Commercial") has filed a
registration statement pursuant to the Securities Act of
1933, as amended, covering 3,412,457 shares of First Commer-
cial Common Stock, $3.00 par value per share, to be offered
in connection with a proposed transaction in which Southwest
Bancshares, Inc. ("Southwest Bancshares") will be merged
into First Commercial, with the result that First Bank of
Arkansas, Jonesboro; First Bank of Arkansas, Russellville;
First Bank of Arkansas, Searcy; and First Bank of Arkansas,
Wynne will be wholly-owned subsidiaries of First Commercial.
An application is pending with the applicable bank
regulatory authorities to merge First Bank of Arkansas,
Wynne with and into First Bank of Arkansas, Jonesboro. This
merger may be effected on or before the consummation of the
merger of Southwest Bancshares into First Commercial if
regulatory approval is received before then. This document
constitutes a proxy statement of Southwest Bancshares in con-
nection with the proposed transaction described herein and a
prospectus of First Commercial with respect to the offering of
its shares of common stock.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT
ACCOUNTS AND ARE NOT INSURED BY THE SAVINGS ASSOCIATION
INSURANCE FUND OR THE FEDERAL DEPOSIT INSURANCE CORPORATION.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is
April 7, 1997.
<PAGE>
No person is authorized to give any information or to make
any representation not contained in this Prospectus and, if
given or made, such information or representation should not
be relied upon as having been authorized. This Prospectus
does not constitute an offer to sell, or a solicitation of an
offer to purchase, the securities offered hereby, or the
solicitation of a proxy, in any jurisdiction in which, or to
any person to whom, it is unlawful to make such offer or
solicitation of an offer or proxy solicitation. Neither the
delivery of this Prospectus nor any distribution of the
securities offered hereby shall, under any circumstances,
create an implication that there has been no change in the
affairs of First Commercial or Southwest Bancshares since the
date hereof.
AVAILABLE INFORMATION
First Commercial is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and in accordance therewith files reports
and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and
other information concerning First Commercial may be
inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following Regional
Offices of the Commission: Chicago Regional Office, Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511, and New York Regional Office, Seven
World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates.
Additionally, such material may be accessed at the
Commission's Web site (http://www.sec.gov).
First Commercial has filed with the Commission a registration
statement on Form S-4 (herein, together with all amendments
and exhibits, referred to as the "Registration Statement")
under the Securities Act of 1933, as amended. This Joint
Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information,
reference is hereby made to the Registration Statement.
__________
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
AS IS MORE FULLY SET FORTH UNDER "INFORMATION CONCERNING
FIRST COMMERCIAL" ELSEWHERE HEREIN, THIS JOINT PROXY
STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. FIRST
COMMERCIAL HEREBY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO
EACH PERSON TO WHOM A COPY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS HAS BEEN DELIVERED, UPON THE WRITTEN OR
<PAGE>
ORAL REQUEST OF SUCH PERSON, A COPY OF ANY OR ALL OF THE
DOCUMENTS RELATING TO FIRST COMMERCIAL THAT HAVE BEEN
INCORPORATED BY REFERENCE HEREIN, OTHER THAN EXHIBITS TO SUCH
DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE THEREIN. REQUESTS FOR DOCUMENTS RELATING TO
FIRST COMMERCIAL SHOULD BE DIRECTED TO J. LYNN WRIGHT, CHIEF
FINANCIAL OFFICER, FIRST COMMERCIAL CORPORATION, POST OFFICE
BOX 1471, LITTLE ROCK, ARKANSAS 72203, TELEPHONE (501) 371-
7000. IN ORDER TO INSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY REQUEST SHOULD BE MADE BY APRIL 28, 1997.
<PAGE>
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION i
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE i
SUMMARY v
The Companies v
The Annual Meeting v
Purpose of the Annual Meeting v
Vote Required vi
Reasons for the Merger vi
Regulatory Approval vi
Dissenting Stockholders vi
Federal Income Tax Consequences vii
Selected Financial Data - First Commercial viii
Pro Forma Selected Financial Data - First Commercial ix
Comparative Per Share Data x
INTRODUCTORY STATEMENT 1
General 1
Purpose of the Annual Meeting 1
Shares Entitled to Vote; Vote Required 2
Solicitation, Voting and Revocation of Proxies 2
THE MERGER 2
General 2
Background and Reasons of Southwest
Bancshares for the Merger 3
Opinion of Southwest Bancshares's Financial Advisor 4
Federal Income Tax Consequences 4
Rights of Dissenting Southwest Bancshares Stockholders 5
Conditions of the Merger 6
Regulatory Approval 7
Termination of the Merger 8
Effective Date 8
Distribution of First Commercial Stock Certificates 8
Fractional Shares 9
Dilution 9
Accounting Treatment 9
Registration of First Commercial Stock
Under the Securities Act 10
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION 12
INFORMATION CONCERNING SOUTHWEST BANCSHARES
Selected Financial Data
Management's Discussion and Analysis of
Financial Conditions and Results
of Operations
<PAGE>
INFORMATION CONCERNING FIRST COMMERCIAL
Information Incorporated by Reference
Management and Additional Information
COMPARATIVE RIGHTS OF SHAREHOLDERS
General
Voting Rights
Voting Requirements for Extraordinary Corporate Matters
Voting for Election of Directors
Amendment of Articles of Incorporation
Amendment of Bylaws
Removal of Directors
Limitation of Director Liability
Filling Vacancies on the Board of Directors
Nomination of Director Candidates and Advance
Notice of Matters to be Brought Before an
Annual Meeting by Stockholders
Fair Price Provision
Shareholder Rights Plan
LEGAL OPINIONS
EXPERTS
CONSOLIDATED FINANCIAL STATEMENTS OF SOUTHWEST BANCSHARES F-1
Attachment I - Opinion of Southwest Bancshares's Financial
Advisor
Attachment II - Sections 4-27-1301 to -31 of the Arkansas
Business Corporation Act
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the
more detailed information appearing elsewhere herein and in
the appendices hereto.
The Companies
First Commercial Corporation ("First Commercial") is a multi-
bank holding company headquartered in Little Rock, Arkansas.
The Company offers a broad range of bank and bank-related
services through 15 commercial banking institutions in
Arkansas, seven in Texas, one in each of Louisiana and
Tennessee, and a 50% interest in each of two commercial
banking institutions in Oklahoma. In addition, subsidiaries
of the Company provide trust and fiduciary services, discount
brokerage services, offer first mortgage loans and perform
mortgage loan servicing operations. First Commercial is
incorporated under the laws of the State of Arkansas. The
executive offices of the Company are located at 400 West
Capitol Avenue, Little Rock, Arkansas 72201, telephone
number: (501) 371-7000. See "Information Concerning First
Commercial."
Southwest Bancshares, Inc. ("Southwest Bancshares"), is a
multi-bank holding company headquartered in Jonesboro,
Arkansas. Southwest Bancshares's subsidiaries are First Bank
of Arkansas, Jonesboro; First Bank of Arkansas, Russellville;
First Bank of Arkansas, Searcy; and First Bank of Arkansas,
Wynne (collectively, the "Subsidiary Banks"). An application
is pending with the applicable regulatory authorities to merge
First Bank of Arkansas, Wynne with and into First Bank of
Arkansas, Jonesboro. Southwest Bancshares is incorporated
under the laws of the State of Arkansas. Executive offices of
Southwest Bancshares are located at 2400 East Highland Drive,
Jonesboro, Arkansas 72401, telephone number: (501) 972-9093.
See "Information Concerning Southwest Bancshares."
The Annual Meeting
An annual meeting of the stockholders of Southwest Bancshares
(the "Annual Meeting") will be held on Monday, May 5, 1997, at
the time and place set forth in the accompanying Notice of
Annual Meeting of Stockholders. Only record holders of the
common stock, $1.00 par value per share, of Southwest
Bancshares (the "Southwest Bancshares Stock"), on
April 3, 1997 are entitled to notice of and to vote at
the Annual Meeting. On that date there were 245,275 shares
of Southwest Bancshares Stock outstanding, each of which is
entitled to one vote at the Annual Meeting.
Purposes of the Annual Meeting
The primary purpose of the Annual Meeting is to consider and vote
upon a proposal to approve the merger of Southwest Bancshares
with and into First Commercial (the "Merger") pursuant to the
terms of a Plan and Agreement of Merger between First
<PAGE>
Commercial and Southwest Bancshares dated December 20, 1996
(the "Merger Agreement"). As a result of the Merger, the
Subsidiary Banks will become wholly-owned subsidiaries of
First Commercial. Under the terms of the Merger Agreement,
each outstanding share of Southwest Bancshares Stock will be
converted into a right to receive 13.91278 shares of common
stock, $3.00 par value per share, of First Commercial (the
"First Commercial Stock"). Cash will be paid by First
Commercial in lieu of issuing fractional shares. The First
Commercial Stock and cash to be delivered to the Southwest
Bancshares stockholders are hereinafter referred to as the
"Merger Consideration." Southwest Bancshares will have the
right to terminate the Merger Agreement in the event the
price of a share of First Commercial Stock drops below $29.50
for a period of time and if First Commercial does not agree
to amend the Merger Agreement so that the Merger
Consideration will include a number of shares of First
Commercial Stock having a value equal to $100,667,482. The
other purpose of the Annual Meeting is to elect directors for
the ensuing year. Management has recommended the number of
directors be set at seven and that the existing
directors, Wallace W. Fowler, Jama M. Fowler, Phil Jones,
Mark Fowler, Lloyd McCracken, Jr., Roy Reaves and
Charles Green be re-elected as directors. If the Merger is
approved by the stockholders, the directors will only serve
until the Merger becomes effective. See "Introductory
Statement - Purposes of the Annual Meeting."
Vote Required
The affirmative vote of the holders of a majority of the
outstanding shares of Southwest Bancshares Stock is required
to approve the Merger. Directors, executive officers and
their affiliates who own or control approximately 37% of the
outstanding shares of Southwest Bancshares Stock entitled to
vote at the Annual Meeting have indicated that they will
vote in favor of the Merger. See "Introductory Statement -
Shares Entitled to Vote; Vote Required."
Stockholders of First Commercial are not required to vote on
the Merger.
Reasons for the Merger
The Boards of Directors of First Commercial and Southwest
Bancshares have unanimously determined that the Merger,
pursuant to the terms of the Merger Agreement, is desirable
and in the best interest of each organization and its
respective stockholders.
The Board of Directors of Southwest Bancshares has
recommended that Southwest Bancshares stockholders vote for
the approval, ratification and confirmation of the Merger.
See "The Merger - Background and Reasons of Southwest Bancshares
for the Merger."
<PAGE>
Regulatory Approval
Consummation of the Merger requires the prior approval of the
Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") and the Arkansas State Bank
Department. Applications for such regulatory approval were
filed on January 30, 1997 and March 27, 1997, respectively.
The Department of Justice will have the opportunity, within
30 days after approval of the Merger by the Federal Reserve
Board, to commence litigation against First Commercial and
Southwest Bancshares under the antitrust laws of the United
States to enjoin the Merger, in the event it shall elect to
do so. See "The Merger - Regulatory Approval."
Dissenting Stockholders
Stockholders of Southwest Bancshares who comply with the
specific procedures required by Sections 4-27-1301 to -31 of
the Arkansas Business Corporation Act, which are described
elsewhere herein, will have the right to dissent from the
Merger, in which event, if the Merger is consummated, they
may be entitled to receive in cash the fair value of their
shares of Southwest Bancshares Stock. See "The Merger -
Rights of Dissenting Southwest Bancshares Stockholders."
Federal Income Tax Consequences
The Merger will qualify as a tax-free corporate
reorganization for federal income tax purposes if it
satisfies the specific requirements of the Internal Revenue
Code of 1986, as amended, the Treasury regulations
promulgated thereunder and pertinent judicial decisions. The
most important of these requirements are that: (i) the
transaction must qualify as a merger under applicable state
or federal law and (ii) the stockholders of Southwest
Bancshares must maintain a "continuity of interest" in First
Commercial after the Merger. The Internal Revenue Service
takes the position that this "continuity of interest" test
will be satisfied if the former Southwest Bancshares
stockholders receive, in the Merger, a number of shares of
common stock of First Commercial having a value, as of the
effective date, equal to at least fifty percent (50%) of the
value of all the outstanding stock of Southwest Bancshares as
of such date. In general this requires the stockholders of
Southwest Bancshares to collectively surrender at least 50%
of their Southwest Bancshares Stock in exchange for First
Commercial Stock in the Merger. Based upon the
representation that these requirements will be satisfied in
connection with the Merger, and subject to certain other
assumptions and representations set forth in its opinion,
Friday, Eldredge & Clark, special tax counsel to First
<PAGE>
Commercial, will render its opinion to the effect that, among
other things, no taxable gain or loss will be recognized for
federal income tax purposes by the stockholders of Southwest
Bancshares solely upon receipt of First Commercial Stock in
exchange for their shares of Southwest Bancshares Stock in
connection with the Merger. However, no ruling will be
sought from the Internal Revenue Service regarding the federal
income tax consequences of the Merger, and the tax opinion of
counsel referenced above is not binding on the Internal
Revenue Service or any court. See "The Merger - Certain
Federal Income Tax Consequences."
<PAGE>
Selected Financial Data - First Commercial
The following selected financial data should be read in conjunction
with the more detailed information and financial statements, including
the notes thereto, set forth in this document and incorporated herein
by reference. See "Information Concerning First Commercial."
FIRST COMMERCIAL CONSOLIDATED SELECTED FINANCIAL DATA
(In thousands, except per share data)
Year Ended December 31,
------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Period Ended:
Net Interest Income $217,208 $184,550 $159,445 $144,574 $133,408
Provision for
Possible
Loan and Lease
Losses 7,452 3,059 (3,092) 4,416 8,941
Net Income 68,562 56,910 50,308 45,965 39,967
Per Common Share
Data(1):
Net Income 2.37 2.07 1.87 1.66 1.44
Cash Dividends .84 .74 .64 .51 .40
Book Value 16.49 15.06 12.85 12.06 10.65
Average Assets 5,283,525 4,652,368 4,235,586 3,812,409 3,313,162
Average Common Equity 454,299 378,807 337,557 310,252 271,598
Average Total Equity 454,299 378,807 339,244 320,872 282,218
Ratios(%)
Return on:
Average Assets 1.30 1.22 1.19 1.21 1.21
Average Common Equity 15.09 15.02 14.87 14.43 14.27
Average Total Equity
to Average Assets 8.60 8.14 8.01 8.42 8.52
(1) All per share data has been restated to reflect the 3 for 2 stock split
declared November 1993, the 5% stock dividend declared November 1994,
the 7% stock dividend declared November 1995, and the 5% stock dividend
declared October 1996.
<PAGE>
Pro Forma Selected Financial Data - First Commercial
The following table summarizes on a pro forma basis the effect
of the Merger, accounted for as a pooling of interests, as if it
had been consummated during the period ended December 31, 1996.
Due to market concentration issues, partial divestiture of
Southwest Bancshares, Inc. will be required by banking
regulators. Specific information regarding the divestiture has
not been determined. The divestiture will be reflected during
the year ended December 31, 1997.
Years Ended December 31,
---------------------------
(In thousands, except per share data)
1996 1995 1994
---- ---- ----
Period Ended:
Net Interest Income $242,567 $201,866 $172,928
Provision for Possible
Loan and Lease Losses 13,033 4,223 (2,098)
Net Income 74,292 61,522 53,331
Per Common Share Data(1):
Net Income 2.30 1.99 1.76
Cash Dividends .75 .66 .56
Book Value 16.41 14.95 12.57
(1) All per share data has been restated to reflect the 7% stock dividend
declared November 1995 and the 5% stock dividend declared October 1996.
<PAGE>
Comparative Per Share Data
Information presented below may not be indicative of the results
that actually would have occurred if the combination had been in effect
on the dates indicated or indicative of future results. Due to
market concentration issues, partial divestiture of Southwest Bancshares,
Inc. will be required by banking regulators. Specific information
regarding the divestiture has not been determined. The divestiture will
be reflected during the year ended December 31, 1997.
Years Ended December 31,
---------------------------
1996 1995 1994
---- ---- ----
Earnings Per Common Share
Historical:
First Commercial(1) $ 2.37 $ 2.07 $ 1.87
Southwest Bancshares 23.36 21.22 16.08
Pro Forma - First Commercial 2.30 1.99 1.76
Pro Forma Equivalent Share Basis -
Southwest Bancshares (2) 32.00 27.69 24.49
Cash Dividends Per Common Share:
Historical:
First Commercial (1) .84 .74 .64
Southwest Bancshares 0 0 0
Pro Forma - First Commercial .75 .66 .56
Pro Forma Equivalent Share Basis -
Southwest Bancshares (2) 10.43 9.18 7.79
Book Value Per Common Share (period
end):
Historical:
First Commercial (1) 16.49 - -
Southwest Bancshares 218.23
Pro Forma - First Commercial 16.41
Pro Forma Equivalent Share Basis -
Southwest Bancshares (2) 228.31
(1) All First Commercial Corporation historical and pro forma per share
data has been restated to reflect the 7% stock dividend declared
November 1995 and the 5% stock dividend declared October 1996.
(2) The pro forma equivalent share amounts are computed by multiplying
First Commercial's pro forma share information by 13.91278.
<PAGE>
INTRODUCTORY STATEMENT
General
This Joint Proxy Statement/Prospectus is furnished to the
stockholders of Southwest Bancshares, Inc. ("Southwest
Bancshares") in connection with the solicitation of proxies
on behalf of its Board of Directors for use at the annual
meeting of stockholders of Southwest Bancshares (the "Annual
Meeting") to be held on the date and at the time and place
specified in the accompanying Notice of Annual Meeting of
Stockholders or any adjournment thereof.
Southwest Bancshares and First Commercial Corporation ("First
Commercial") have each supplied all information included
herein with respect to itself. As used in this Joint Proxy
Statement/Prospectus, the term "Southwest Bancshares" means
Southwest Bancshares, Inc. and its consolidated subsidiaries
and the term "First Commercial" means First Commercial
Corporation and its consolidated subsidiaries.
This Joint Proxy Statement/Prospectus was first mailed to
shareholders of Southwest Bancshares on April 7, 1997.
Purposes of the Annual Meeting
The primary purpose of the Annual Meeting is to consider and
vote upon a proposal to approve the merger of Southwest Banc-
shares with and into First Commercial (the "Merger") pursuant
to the terms of a Plan and Agreement of Merger between First
Commercial and Southwest Bancshares dated December 20, 1996
(the "Merger Agreement"). As a result of the Merger, the
Subsidiary Banks (as defined herein) of Southwest Bancshares
will become wholly-owned subsidiaries of First Commercial.
Under the terms of the Merger Agreement, each outstanding
share of common stock of Southwest Bancshares, $1.00 par
value per share ("Southwest Bancshares Stock"), will be
canceled and converted into the right to receive 13.91278
shares of First Commercial common stock, $3.00 par value per
share ("First Commercial Stock"), with cash payment due in
lieu of any fractional shares. The First Commercial Stock
and cash in lieu of fractional shares to be delivered to
Southwest Bancshares stockholders are hereinafter referred to
as the "Merger Consideration." See "The Merger -
Distribution of First Commercial Stock Certificates."
Southwest Bancshares may terminate the Merger Agreement if
the average of the individual averages of the bid and asked
prices for shares of First Commercial Stock as reported on
the Nasdaq National Market as of the close of business on
each of the twenty (20) trading days immediately preceding
the Closing Date (the "Pre-Closing Period Average Price")
shall be less than $29.50 per share and if First Commercial
does not agree to amend the Merger Agreement so that the
<PAGE>
Merger Consideration will include a number of shares of First
Commercial Stock having a value, based on the Pre-Closing
Period Average Price, equal to $100,667,482. The average of
the bid and asked price of a share of First Commercial Stock
on April 1, 1997, was $38.00.
The other purpose of the Annual Meeting is to elect
directors. Management has recommended that the number of
directors be set at seven for the ensuing year and that the
existing directors, Wallace W. Fowler, Jama M. Fowler, Phil
Jones, Mark Fowler, Lloyd McCracken, Jr., Roy Reaves and
Charles Green be re-elected as directors. All of them other
than Messrs. Mark Fowler, Reaves and Green have been
directors of Southwest Bancshares since it was organized and
Messrs. Mark Fowler, Reaves and Green have been directors
since January 1991, September 1992 and June 1994,
respectively. If the Merger is approved, the directors will
only serve until the Merger becomes effective.
Shares Entitled to Vote; Vote Required
Only holders of record of Southwest Bancshares Stock at the
close of business on April 3, 1997 (the "Record Date") are
entitled to notice of and to vote at the Annual Meeting. On
that date, the number of outstanding shares of Southwest
Bancshares Stock was 245,275, each of which is entitled to
one vote on each matter to come before the Annual Meeting.
Under Southwest Bancshares's Articles of Incorporation and
the Arkansas Business Corporation Act of 1987, approval of
the Merger requires the affirmative vote of the holders of a
majority of the outstanding shares of Southwest Bancshares
Stock. Abstentions will not be counted as affirmative votes.
Directors, executive officers and their affiliates who own or
control approximately 37% of the outstanding shares of
Southwest Bancshares Stock entitled to vote have indicated
that they will vote in favor of the Merger. No cumulative
voting for the election of directors is permitted by Southwest
Bancshares's Articles of Incorporation.
Solicitation, Voting and Revocation of Proxies
In addition to soliciting proxies by mail, directors,
officers and employees of Southwest Bancshares, without
receiving additional compensation therefor, may solicit
proxies by telephone and in person. Arrangements will also
be made with brokerage firms and other custodians, nominees
and fiduciaries to forward solicitation materials to the
beneficial owners of Southwest Bancshares Stock, and
Southwest Bancshares will reimburse such parties for
reasonable out-of-pocket expenses incurred in connection
therewith. The cost of soliciting proxies is being paid by
Southwest Bancshares.
<PAGE>
The proxies that accompany this Joint Proxy
Statement/Prospectus permit each holder of Southwest
Bancshares Stock on the Record Date to vote on all matters
that come before the Annual Meeting. When a stockholder
specifies his choice on the proxy with respect to a matter
being voted upon, the shares represented by the proxy will be
voted in accordance with such specification. If no such
specification is made, the shares will be voted in favor of
approval of the Merger and for the re-election of the existing
directors. A proxy may be revoked by (i) giving written notice
of revocation at any time before its exercise to Lloyd
McCracken, Jr., Secretary, Treasurer and Chief Financial
Officerr, Southwest Bancshares, Inc., 2400 East Highland Drive,
Jonesboro, Arkansas 72401, (ii) executing and delivering to
Lloyd McCracken, Jr. at any time before its exercise a
proxy bearing a subsequent date or (iii) attending the
Annual Meeting and voting in person.
The Board of Directors of Southwest Bancshares is not aware
of any business to be acted upon at the Annual Meeting other
than election of directors and consideration of the Merger.
If, however, other proper matters are brought before the Annual
Meeting, or any adjournments thereof, the persons appointed as
proxies will have discretion to vote or abstain from voting
thereon according to their best judgment.
THE MERGER
General
On December 17, 1996, and December 20, 1996, the Boards of
Directors of First Commercial and Southwest Bancshares,
respectively, approved the Merger Agreement. The description
of the Merger Agreement herein does not purport to be
complete and is qualified in its entirety by reference to the
Merger Agreement, which is made an exhibit to the
Registration Statement of which this Joint Proxy
Statement/Prospectus is a part and is incorporated herein by
reference.
Under the Merger Agreement, Southwest Bancshares will be
merged into First Commercial, and each share of Southwest
Bancshares Stock outstanding on the Effective Date, as
defined in "The Merger - Effective Date," will be converted
into the right to receive 13.91278 shares of First Commercial
Stock. The exchange ratio was based upon historical and
projected earnings of Southwest Bancshares, the amounts of
Southwest Bancshares assets and liabilities, and the market
value of First Commercial Stock. Projected earnings were
based primarily on historical trends. The Merger Agreement
requires that upon the closing of the Merger, the Board of
Directors of First Commercial will elect Wallace W. Fowler as
a member of such Board of Directors and of its Executive
Committee.
<PAGE>
First Commercial is an Arkansas corporation and a multi-bank
holding company registered under the Bank Holding Company Act
of 1956, as amended ("BHCA"). Southwest Bancshares is an
Arkansas corporation and a multi-bank holding company
registered under the BHCA.
Stockholders of Southwest Bancshares will exchange their
stock certificates for new certificates evidencing shares of
First Commercial Stock. After the Merger, and until so
exchanged, the shares of Southwest Bancshares Stock will
represent the right to receive the number of shares of First
Commercial Stock into which such shares of Southwest
Bancshares Stock will be converted. See "The Merger -
Distribution of First Commercial Stock Certificates."
Background and Reasons of Southwest Bancshares for the Merger
During 1996, management and the Board of Southwest
Bancshares had discussions with Stephens Inc. ("Stephens"),
as well as other professional advisors, for the purpose of
considering the possibilities of an initial public offering,
or a sale or merger transaction. At a meeting on November 12,
1996, the Southwest Bancshares Board voted to retain Stephens
to assist the Board in analyzing the potential value which
shareholders should be able to receive in a sale or merger
transaction. Stephens also agreed, if requested by
Southwest Bancshares, to assist in any negotiations, and
give its written opinion as to whether any proposed
transaction would be fair, from a financial point of view,
to Southwest Bancshares shareholders.
Following Stephens engagement, Southwest Bancshares
entered into negotiations with First Commercial which led
to the proposed Merger Agreement. On December 20, 1996, the
Southwest Bancshares Board met for the purpose of
considering and acting on the proposed Merger Agreement. At
this meeting, the Southwest Bancshares Board received the
written opinion of Stephens setting forth its opinion that
the terms of the Merger Agreement were fair to the Southwest
Bancshares shareholders from a financial point of view. See
"Opinion of Southwest Bancshares's Financial Advisor."
In considering whether to approve the Merger Agreement
and the transactions contemplated thereby, the Southwest
Bancshares Board took into account, among others, the
following factors:
<PAGE>
(1) The Southwest Bancshares Board considered the
terms of the Merger Agreement. It also considered the
historical trading ranges for the First Commercial Stock,
the number of shares of First Commercial Stock to be issued
for each share of Southwest Bancshares stock (the "Exchange
Ratio"), and the pro forma earnings, dividends, and book
value per share for shareholders of Southwest Bancshares,
as of and for the last nine months ended September 30,
1996. The Southwest Bancshares Board further considered that
under the Merger Agreement, it would have the right to
terminate the Agreement in the event of a specified
significant decline in the price of First Commercial
Stock prior to the consummation of the Merger unless First
Commercial then elected to increase the Exchange Ratio
in the amount necessary to achieve a specified minimum
aggregate market value of the First Commercial Stock issued
in the Merger.
(2) The Southwest Bancshares Board considered the fact
that First Commercial's stock is actively traded on the
Nasdaq National Market, thereby providing a degree of
liquidity to Southwest Bancshares's shareholders.
(3) The Southwest Bancshares Board considered the
advice of its financial advisor, Stephens, and reviewed the
detailed financial analysis and other information presented
by Stephens. The Southwest Bancshares Board took into account
the multiples of earnings and book value presented by the
Exchange Ratio. The Southwest Bancshares Board considered the
opinion of Stephens (including the assumptions and financial
information relied upon by it in arriving at such opinion)
that, as of December 20, 1996 and based upon the matters set
forth in its written opinion as of that date, the con-
sideration to be received in the Merger by holders of
Southwest Bancshares Common Stock was fair to such holders.
(4) The Southwest Bancshares Board considered that the
combination of Southwest Bancshares with First Commercial
would further strengthen First Commercial s significant
position in Arkansas in terms of assets and deposits. The
Southwest Bancshares Board recognized that, as a result, the
combined company would be more likely than Southwest
Bancshares alone to possess the financial resources to
compete more effectively in the rapidly changing marketplace
for banking and financial services and more effective in
fulfilling Southwest Bancshares long-term objective of
increasing its overall size and enhancing its market
presence, while maintaining its asset quality and credit
standards.
(5) The Southwest Bancshares Board took into account
that Mr. Wallace W. Fowler would be elected or appointed to
the First Commercial Board and that Mr. Fowler would become
a member of the Executive Committee of the First Commercial
Board following consummation of the Merger.
<PAGE>
(6) Southwest Bancshares Board considered First
Commercial s commitment to make each of its affiliates an
independent community bank responsive to the local
communities' needs.
(7) The Southwest Bancshares Board considered
information with respect to, among other things, the
historical financial results of First Commercial, including,
among other things, assessments of First Commercial s asset
quality, diversity of income, adequacy of loan loss reserves
and interest rate risk.
(8) The Southwest Bancshares Board considered that the
Merger is expected to be tax-free for federal income tax
purposes to Southwest Bancshares shareholders. See "Summary
Federal Income Tax Consequences."
(9) The Southwest Bancshares Board took into account
the current and prospective economic and competitive
environment facing the financial services industry generally
and of Southwest Bancshares and First Commercial in
particular.
In reaching its determination to approve the Merger
Agreement, and the transactions contemplated thereby, the
Southwest Bancshares Board did not assign any relative or
specific weights to the various factors considered by it,
and individual directors may have given differing weights to
different factors. The foregoing discussion of the
information and factors considered by the Southwest
Bancshares Board is not intended to be exhaustive but
includes all material factors considered by the Southwest
Bancshares Board.
BASED UPON THE OPINION OF STEPHENS, THE RECOMMENDATION
OF MANAGEMENT AND THE OTHER FACTORS HEREIN DESCRIBED, THE
BOARD OF SOUTHWEST BANCSHARES UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND BELIEVES THE MERGER IS FAIR TO, AND IS
IN THE BEST INTEREST OF, ITS SHAREHOLDERS. ACCORDINGLY, THE
SOUTHWEST BANCSHARES BOARD UNANIMOUSLY RECOMMENDS THAT
HOLDERS OF SOUTHWEST BANCSHARES COMMON STOCK VOTE FOR
APPROVAL OF THE AGREEMENT.
Opinion of Southwest Bancshares's Financial Advisor
Stephens has acted as financial advisor to Southwest
Bancshares in connection with the Merger. As part of its
engagement, Stephens agreed, if requested by Southwest
Bancshares, to render an opinion with respect to the
fairness to the disinterested shareholders of Southwest Banc-
shares from a financial point of view of the consideration
proposed to be received by Southwest Bancshares in the Merger.
For purposes of this opinion, the term "disinterested share-
holders" was defined to exclude (1) directors, officers, and
employees, (2) any holder of five percent (5%) or more of the
outstanding stock, and (3) Southwest Bancshares and its affi-
liates. Stephens is a nationally recognized investment
banking firm and, as part of its investment activities, is
<PAGE>
regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, nego-
tiated underwritings, competitive biddings, secondary distri-
butions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes.
Southwest Bancshares selected Stephens as its financial
advisor on the basis of its experience and expertise in
merger transactions, and its reputation in the banking and
investment communities.
In connection with its engagement, a written opinion
dated December 20, 1996 was delivered by Stephens to the
Board of Southwest Bancshares that, based upon and subject
to certain assumptions and matters considered, and
limitations set out therein, the consideration to be
received by Southwest Bancshares in the Merger was fair to
the disinterested shareholders of Southwest Bancshares from a
financial point of view.
THE FULL TEXT OF STEPHENS'S WRITTEN OPINION TO THE SOUTHWEST
BANCSHARES'S BOARD DATED DECEMBER 20, 1996, WHICH SETS FORTH
THE ASSUMPTIONS, MATTERS CONSIDERED AND LIMITATIONS IS
ATTACHED HERETO AS ATTACHMENT 1 AND IS INCORPORATED HEREIN
BY REFERENCE AND SHOULD BE READ CAREFULLY AND IN ITS
ENTIRETY IN CONNECTION WITH THIS JOINT PROXY STATEMENT-
PROSPECTUS. THE FOLLOWING SUMMARY OF STEPHENS'S OPINION IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
THE OPINION. STEPHENS'S OPINION, WHICH IS ADDRESSED TO THE
SOUTHWEST BANCSHARES'S BOARD, IS DIRECTED ONLY TO THE
FAIRNESS FROM A FINANCIAL POINT OF VIEW TO SOUTHWEST
BANCSHARES OF THE CONSIDERATION TO BE RECEIVED BY SOUTHWEST
BANCSHARES IN THE MERGER, DOES NOT ADDRESS ANY OTHER ASPECT
OF THE PROPOSED MERGER OR ANY RELATED TRANSACTIONS AND DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW
SUCH SHAREHOLDER SHOULD VOTE AT THE SOUTHWEST BANCSHARES
ANNUAL MEETING WHERE THE PROPOSED MERGER WILL BE CONSIDERED.
In connection with its review, Stephens did not assume
any obligation independently to verify any of the
information utilized in its analyses and relied on all such
information being complete and accurate in all material
respects. Stephens also assumed, with Southwest Bancshares
consent, that there were no material changes in Southwest
Bancshares or First Commercial's assets, financial
condition, results of operations, business or prospects
since the respective dates of their last financial
statements reviewed by Stephens and that any off-balance-
sheet activities of Southwest Bancshares and First
Commercial, including derivatives and other similar
financial instruments, if any, will not materially and
adversely affect the future financial position or results of
operations of Southwest Bancshares or First Commercial.
Stephens further assumed, with Southwest Bancshares's consent,
that in the course of obtaining the necessary regulatory and
third party consents for the Merger, no restrictions will be
imposed that will have a material adverse effect on the
<PAGE>
contemplated benefits of the Merger or the transactions
contemplated thereby. Stephens further assumed, with
Southwest Bancshares's consent, that the Merger will be
consummated in accordance with the terms and provisions of
the Merger Agreement, without any amendments to, and without
any waiver by Southwest Bancshares of, any of the material
conditions to its obligations thereunder. Stephens noted
that it is not an expert in the evaluation of loan
portfolios for purposes of assessing the adequacy of the
allowances for losses with respect thereto and Stephens
assumed, with Southwest Bancshares's consent, that such
allowances for each of Southwest Bancshares and First
Commercial are in the aggregate adequate to cover such
possible losses. In addition, Stephens did not assume
responsibility for reviewing any individual credit files or
making an independent evaluation, appraisal or physical
inspection of the assets or individual properties of
Southwest Bancshares or First Commercial, nor was Stephens
furnished with any such evaluations or appraisals. Finally,
Stephens opinion was based on economic, monetary and market
and other conditions as in effect on, and the information
made available to Stephens as of the dates thereof. No
other limitations were imposed by Southwest Bancshares on
Stephens with respect to the investigations made or
procedures followed by in rendering its opinion.
Set forth below is a summary of the material analysis
performed be Stephens in connection with its opinion
delivered to the Southwest Bancshares Board on December 20,
1996.
Pro Forma Contribution Analysis. Stephens computed
the contribution of First Commercial and Southwest
Bancshares to the combined entity s pro forma balance sheet
and income statement at and for the nine months ended
September 30, 1996. The computation showed, among other
things, that First Commercial and Southwest Bancshares
contributed to the combined entity approximately 87.2% and
12.8%, respectively, of total assets; 84.6% and 15.4%,
respectively, of total loans; 87.2% and 12.8%,
respectively, of total deposits; 89.2% and 10.8%,
respectively, of net interest income (after provision for
loan losses); 95.1% and 4.9%, respectively, of noninterest
income; 89.0% and 11.0%, respectively, of net income; and
89.4% and 10.6%, respectively, of pro forma ownership of the
combined company based on the Merger Consideration.
<PAGE>
Pro Forma Dilution Analysis. Stephens reviewed the pro
forma impact of the Merger on Southwest Bancshares'
historical earnings per share and recent book value per
share, as of and through September 30, 1996. Based on
discussion with Southwest Bancshares management, Stephens
did not assume any cost savings (or revenue enhancements) by
First Commercial resulting from the proposed merger. This
analysis showed that the Merger was accretive (dilutive) to
Southwest Bancshares historical earnings per share for
1993, 1994, 1995, and the nine months ended September 30,
1996, by 36.6%, 56.0%, 32.0%, and (3.0%), respectively. The
analysis also showed that the Merger was accretive to
Southwest Bancshares' book value per share as of December
31, 1993, 1994, 1995, and as of September 30, 1996, by 8.6%,
4.4%, 6.5% and 1.0%, respectively.
Analysis of Selected Comparable Bank Merger Transactions.
Stephens reviewed the consideration paid in 27 transactions
announced since January 1, 1994 with transaction values between
$50 million and $250 million and involving acquired banks
located in Arkansas or its contiguous states (the
"Comparable Transactions"). For each company merged or to
be merged in such transactions, Stephens compiled figures
illustrating, among other things, transaction price to
latest twelve months earnings per share, transaction price
to book value and transaction price to tangible book value.
The figures for the Comparable Transactions announced
since 1994 are as follows: (i) a mean and median ratio of
transaction price to latest twelve month s adjusted earnings
per share of 17.4x and 16.4x, respectively; (ii) a mean and
median ratio of transaction price to book value of 2.3x and
2.4x, respectively; and (iii) a mean and median ratio of
transaction price to tangible book value of 2.4x and 2.4x,
respectively. In comparison, based upon a price per share
of $37.50 for First Commercial (the last reported price on
December 19, 1996) and an implied offer value of $128.0
million, the consideration to be paid to the holders of
Southwest Bancshares Common Stock represented a ratio of
transaction price to latest twelve months earnings per share
(through September 30, 1996) of 16.5x, a ratio of
transaction price to book value of 2.4x, and ratio of
transaction price to tangible book value of 2.5x.
No other company or transaction used in the above
analysis as a comparison is identical to First Commercial ,
Southwest Bancshares or the proposed Merger. Accordingly,
an analysis of the results of the foregoing is not
mathematical; rather, it involves complex considerations and
judgments concerning differences in financial and operating
characteristics of the companies and other factors that
could affect the acquisition or public trading multiples of
<PAGE>
the companies to which First Commercial, Southwest
Bancshares and the proposed Merger are being compared.
Potential Merger Valuation Range. Stephens prepared an
analysis of the potential value which selected potential merger
partners including First Commercial might be expected to offer
to acquire Southwest Bancshares in a competitive bidding
process. The analysis showed that based on closing stock
market prices on December 18, 1996, the selected potential
merger partners might be expected to offer between $103.1
million and $140.6 million in a merger transaction, based
upon management's assumption of potential cost savings of 0%
to 5% of Southwest Bancshares noninterest expense. The poten-
tial merger partners selected for this analysis included ten
publicly-traded bank holding companies headquartered in
Arkansas, Louisiana, Mississippi, Missouri and Tennessee with
greater than $1 billion in assets. This analysis was predi-
cated on the assumption that each potential merger partner
would be willing to issue that number of shares which would
cause no dilution to analysts consensus estimates of their
expected 1996 earnings per share, and based on Southwest
Bancshares then expected 1996 earnings.
In rendering its opinion, Stephens considered certain
other factors and comparative analysis, including, among
other things, analyses of: (i) the historical financial
results of First Commercial and Southwest Bancshares, (ii)
the historical trading prices and volume of the stock of
First Commercial, (iii) the market share ranking of First
Commercial, (iv) the stock prices and trading multiples of
First Commercial and Southwest Bancshares relative to those
of selected peer groups of publicly traded banking companies
and (v) the pro forma share ownership of the combined com-
pany by current Southwest Bancshares stockholders.
The foregoing is a summary of the material analysis
performed by Stephens in connection with its opinion
delivered to the Board of Southwest Bancshares on
December 20, 1996. The summary set forth above does not
purport to be a complete description of the analysis
performed by Stephens. The preparation of a fairness
opinion is not necessarily susceptible to partial analysis
or summary description. Stephens believes that its analyses
and the summary set forth above must be considered as a
whole and that selecting portions of its analyses and of the
factors considered, without considering all analyses and
factors, would create an incomplete view of the process
underlying the analyses. In addition, Stephens may have
<PAGE>
given various analyses more or less weight than other
analyses, and may have deemed various assumptions more or
less probable than other assumptions, so that the ranges of
valuations resulting from any particular analysis described
above should not be taken to be Stephens view of the actual
values of Southwest Bancshares, First Commercial, or the
combined company. The fact that any specific analysis has
been referred to in the summary above is not meant to
indicate that such analysis was given greater weight than
any other analysis.
In performing its analyses, Stephens made numerous
assumptions with respect to industry performance,
regulatory, general business and economic conditions and
other matters, many of which are beyond the control of
Southwest Bancshares and First Commercial. The analyses
performed by Stephens are not necessarily indicative of
actual values or actual future results, which may be
significantly more or less favorable than those suggested by
such analyses. Such analyses were prepared solely as part
of Stephens analysis of the fairness of the consideration
to be received from a financial point of view in connection
with the delivery of Stephens opinion. The analyses do not
purport to be appraisals or to reflect the prices at which a
company might actually be sold or the prices at which any
securities may trade at the present time or at any time in
the future.
Pursuant to the terms of Stephens engagement as
financial advisor (including rendering its opinion as to the
fairness of the proposed transaction), Southwest Bancshares
has agreed to pay Stephens a fee equal to 0.70% of the
transaction value (defined to be all consideration payable
to Southwest Bancshares shareholders), of which $100,000 was
payable upon signing of the Merger Agreement, the balance of
which is contingent and payable on completion of the Merger.
Southwest Bancshares also has agreed to reimburse Stephens
for its reasonable out-of-pocket expenses, including fees
and expenses of Stephens legal counsel, subject to a
certain limit. Southwest Bancshares has also agreed to
indemnify Stephens, its affiliates, and their respective
partners, directors, officers, agents, consultants,
employees and controlling persons against certain
liabilities, including liabilities under federal securities
law.
<PAGE>
Federal Income Tax Consequences
The following is a discussion of certain material federal
income tax considerations in connection with the Merger and
of the tax opinion of Friday, Eldredge & Clark, special tax
counsel to First Commercial. This discussion does not address
all aspects of federal income taxation that may be relevant to
particular shareholders of Southwest Bancshares and may not be
applicable to shareholders who are not citizens or residents
of the United States, or who may acquire First Commercial
common stock pursuant to the exercise or termination of
employee stock options or otherwise as compensation, nor does
the discussion address the effect of any applicable foreign,
state, local or other tax laws. This discussion assumes that
the Southwest Bancshares shareholders hold their Southwest
Bancshares common stock as capital assets within the meaning
of Section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code"). EACH SOUTHWEST BANCSHARES SHAREHOLDER
SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR
TAX CONSEQUENCES TO HIM OR HER OF THE MERGER, INCLUDING THE
APPLICABILITY AND EFFECT OF FOREIGN, STATE, LOCAL AND OTHER
TAX LAWS.
The Merger will qualify as a tax-free corporate
reorganization for federal income tax purposes under Section
368(a)(1)(A) of the Code, if it satisfies the specific re-
quirements of the Code, the regulations promulgated thereunder,
and pertinent judicial decisions. The most important of these
requirements are (i) the transaction must qualify as a merger
under applicable state or federal law and (ii) the
stockholders of Southwest Bancshares must maintain a
"continuity of interest" in the surviving corporation after
the Merger. The Internal Revenue Service takes the position
that this "continuity of interest" test will be satisfied if
the former Southwest Bancshares stockholders receive, in the
Merger, a number of shares of common stock of First
Commercial having a value, as of the Effective Date (as
defined herein), equal to at least fifty percent (50%) of the
value of all the outstanding stock of Southwest Bancshares as
of such date, and acquire such stock without a present in-
tent to sell, transfer or otherwise dispose of such stock in
a manner that would cause the fifty percent (50%) continuity
of interest threshold to be violated. In general, this
requires the stockholders of Southwest Bancshares to collec-
tively surrender at least 50% of their Southwest Bancshares
Stock in exchange for First Commercial Stock in the Merger,
without a present intent to sell, transfer, or otherwise dis-
pose of such stock in violation of the 50% continuity of
interest requirement.
<PAGE>
The Merger has been structured in a manner to qualify as a
statutory merger under the law of the State of Arkansas. In
addition, it is expected that the stockholders of Southwest
Bancshares will collectively exchange a sufficient number of
shares of Southwest Bancshares Stock for First Commercial
Stock so that the 50% "continuity of interest" test initially
should be satisfied in connection with the Merger.
Accordingly, assuming these tests are satisfied, and provided
other specific requirements contained in the Code, the
regulations promulgated thereunder, and pertinent judicial
decisions are met, the transaction should qualify as a tax-
free corporate reorganization for federal income tax purposes
pursuant to the provisions of Section 368(a)(1)(A) of the
Code.
If the Merger qualifies as a tax-free corporate
reorganization, the material federal income tax consequences
of the Merger will be as follows: (i) no material gain or
loss will be recognized by Southwest Bancshares or First
Commercial as a result of the Merger; (ii) no gain or loss
will be recognized by the stockholders of Southwest
Bancshares upon the receipt of First Commercial Stock
received solely in exchange for their shares of Southwest
Bancshares Stock in connection with the Merger; (iii) the tax
basis of the shares of First Commercial stock received by the
stockholders of Southwest Bancshares in the Merger will, in
each instance, be the same as the basis of the shares of
Southwest Bancshares Stock surrendered in exchange therefor;
(iv) the holding period of the shares of First Commercial
Stock received by the stockholders of Southwest Bancshares in
the Merger will, in each instance, include the holding period
of the shares of Southwest Bancshares Stock exchanged
therefor, provided that the shares of Southwest Bancshares
Stock were held as capital assets on the date of the Merger;
and (v) the payment of cash to stockholders of Southwest
Bancshares in lieu of fractional shares of First Commercial
Stock will be a taxable transaction and will be treated as
if the fractional shares were distributed as part of the
exchange and then redeemed by First Commercial for cash, and
any such cash payments will be treated as having been received
by the stockholder as a distribution in redemption of the
fractional share interest, subject to the provisions of
Section 302 of the Code.
Stockholders of Southwest Bancshares who exercise dissenters'
rights and receive cash for their shares of Southwest
Bancshares Stock will have engaged in a taxable transaction and
will be treated as having received such cash as a distribution
in redemption of such stockholders' Southwest Bancshares Stock,
subject to the conditions and limitations of Section 302 of the
Code.
<PAGE>
If the Merger does not qualify as a tax-free corporate
reorganization for federal income tax purposes, it will
constitute a taxable transaction to the stockholders of
Southwest Bancshares. In such circumstances, gain or loss
will be recognized by the stockholders of Southwest
Bancshares to the extent of the difference between the fair
market value, on the Effective Date, of the shares of First
Commercial Stock received in connection with the Merger, and
the adjusted basis of the shares of Southwest Bancshares
Stock surrendered in the transaction. The fair market value
of the First Commercial Stock on the Effective Date may be
determined on the basis of the average high and low selling
prices of such stock on the day of the transaction. If the
transaction is taxable, the holding period for the shares of
First Commercial Stock to be received by the stockholders of
Southwest Bancshares will commence on the day following the
date of the transaction.
Because the tax consequences to any particular stockholder
may be affected by matters not pertaining to the Merger, it
is recommended that each stockholder of Southwest Bancshares
consult his or her own personal tax advisor concerning the
specific income tax consequences of the Merger, including the
applicability and effect of foreign, state, local and other
tax laws.
Rights of Dissenting Southwest Bancshares Stockholders
Pursuant to Sections 5-27-1301 to -31 of the Arkansas
Business Corporation Act of 1987, any stockholder of
Southwest Bancshares may dissent from the Merger only by
delivering to Southwest Bancshares before the vote is taken
on the proposed Merger by the Southwest Bancshares
stockholders written notice of his intent to demand payment
for his shares if the proposed Merger is effectuated and he
must not vote his shares in favor of the proposed Merger .
A stockholder of Southwest Bancshares who does not satisfy
these requirements as well as the other requirements of
Sections 4-27-1301 to -31 of the Arkansas Business
Corporation Act of 1987 is not entitled to payment for his
shares under the Arkansas Business Corporation Act of 1987.
Southwest Bancshares shall, within ten days after the Merger
is effective as provided, deliver to such dissenting stock-
holder a form for demanding payment and a written notice
setting forth where the payment demand must be sent and where
and when certificates representing such dissenting stockholder
shares must be deposited. The written notice shall also set
forth a date by which Southwest Bancshares must receive the
payment demand, which date may not be fewer than thirty (30)
nor more than sixty (60) days after the date the payment
<PAGE>
demand notice is required to be delivered by Southwest
Bancshares. A stockholder who has received a payment demand
notice must then demand payment and deposit his share certifi-
cates pursuant to the terms of and within the deadlines set
forth in the payment demand notice. A stockholder who does not
comply with such requirements will not be entitled to payment
for his shares under the dissenters' rights statutes.
As soon as the Merger is effective, or upon receipt of a
payment demand, Southwest Bancshares shall pay each dissenter
who complied with the payment demand notice requirements the
amount Southwest Bancshares estimates to be the fair value of
the shares, plus accrued interest. Such payment must be
accompanied by current Southwest Bancshares financial
statements, a statement of Southwest Bancshares's estimate of
the fair value of the shares, an explanation of how the
interest was calculated, a statement of a dissenter's right
to demand payment under Section 4-27-1328 of the Arkansas
Business Corporation Act, and a copy of Section 4-27-1325 of
the Arkansas Business Corporation Act.
If a dissenter believes that the amount paid by Southwest
Bancshares is less than the fair value of his shares or that
the interest has been incorrectly calculated, or Southwest
Bancshares fails to make payment within sixty (60) days after
the date set for demanding payment, the dissenter may notify
Southwest Bancshares in writing of his own estimate of the
fair value of the shares and amount of interest due, and
demand payment of his estimate (less any payment previously
made). A dissenter waives his right to make such demand
unless he notifies Southwest Bancshares of such demand in
writing within thirty (30) days after Southwest Bancshares
has made payment for his shares.
If a demand for payment as set forth in the preceding
paragraph remains unsettled, Southwest Bancshares shall
commence a proceeding in Circuit Court of Craighead County,
Arkansas, within sixty (60) days after receiving the payment
demand and petition such court to determine the fair value of
the shares and accrued interest. If Southwest Bancshares
fails to commence the proceeding within the sixty (60) day
period, it shall pay each dissenter whose demand remains
unsettled the amount demanded.
The foregoing summary of the rights of dissenting
stockholders is qualified in its entirety by reference to
Attachment I which sets forth in full the provisions of
Sections 4-27-1301 to -31 of the Arkansas Business
Corporation Act of 1987.
<PAGE>
Conditions of the Merger
Consummation of the Merger is conditioned upon the occurrence
of certain events on or prior to the Effective Date
including, among other things, the following: (i) approval of
the Merger by the stockholders of Southwest Bancshares; (ii)
confirmation by First Commercial and Southwest Bancshares of
the truth of their respective representations and warranties
and compliance with their respective covenants as set forth
in the Merger Agreement; (iii) the absence of any court or
governmental proceeding undertaken or threatened to restrain,
enjoin, prohibit, or obtain damages for the transaction
contemplated by the Merger Agreement which, in the opinion of
either First Commercial or Southwest Bancshares, would make
the consummation of the Merger inadvisable; (iv) the absence
of any suit, action or proceedings pending or threatened
against First Commercial or Southwest Bancshares or any of
each other's officers or directors which, if successful,
would, in the reasonable judgment of Southwest Bancshares or
First Commercial, have a material adverse effect on the
financial condition of First Commercial or Southwest
Bancshares, respectively; (v) receipt by First Commercial of
an opinion from Ernst & Young LLP that the pooling of interests
method of accounting applies to the Merger; (vi) receipt by
First Commercial and Southwest Bancshares of certain opinions
from Southwest Bancshares's and First Commercial's counsel,
respectively; (vii) receipt by First Commercial from affiliates
of Southwest Bancshares of an agreement restricting disposi-
tion of First Commercial Stock for a certain period of time;
(viii) receipt by First Commercial, Southwest Bancshares and
Southwest Bancshares's stockholders of an opinion from tax
counsel addressing the tax consequences of the contemplated
Merger; and (ix) the absence of any material adverse
change in the financial condition, business or operations
of either First Commercial or Southwest Bancshares.
Presently, all of these conditions are expected to be met.
Any of the conditions set forth above may be waived at the
discretion of the respective institutions except as otherwise
provided by law. However, neither First Commercial nor
Southwest Bancshares will waive any condition if such waiver,
in the judgment of its Board of Directors, would result in
materially adverse consequences to it or its stockholders.
Regulatory Approval
Consummation of the Merger requires the prior written
approval of the Federal Reserve Board and the Arkansas State
Bank Department. Applications for such approval were filed
on January 30, 1997 and March 27, 1997 respectively. Under
<PAGE>
the BHCA, subsequent to approval of the Merger by the Federal
Reserve Board, the United States Department of Justice will
have the opportunity, within 30 days after such approval, to
commence litigation against First Commercial and Southwest
Bancshares under the antitrust laws of the United States to
enjoin the Merger, in the event it shall elect to do so.
Although no assurance can be provided, First Commercial and
Southwest Bancshares currently expect the Merger to be
consummated on or before June 1, 1997. See "The Merger -
Termination of the Merger."
Termination of the Merger
The Merger Agreement provides that it may be terminated by
mutual consent of the Boards of Directors of First Commercial
and Southwest Bancshares at any time before the Closing (as
defined in the Merger Agreement). Either First Commercial or
Southwest Bancshares, at its option, may terminate the Merger
Agreement (unless such terminating party has breached a
covenant under the Merger Agreement) if the Closing Date
shall not have occurred on or before September 30, 1997, or
such later date agreed to in writing by the parties. Either
First Commercial or Southwest Bancshares may terminate the
Merger Agreement if any of the conditions precedent to their
obligation to consummate the Merger have not been met at or
prior to the Closing. See "The Merger - Conditions of the
Merger." Under certain circumstances, Southwest Bancshares
may terminate the Merger Agreement following a drop in the
price of a share of First Commercial Stock. See
"Introductory Statement - Purpose of the Special Meeting."
Southwest Bancshares may terminate the Merger Agreement in
the event that prior to the Effective Date First Commercial
enters into a letter of intent or comparable document or a
definitive agreement in which it either will be acquired
or will be merged out of existence or another person publicly
announces the intent to acquire 25% or more of the
outstanding equity securities of First Commercial.
Effective Date
The Merger Agreement provides that the Merger shall become
effective at 5:00 p.m. on the date of filing appropriate
Articles of Merger with the Secretary of State of the State
of Arkansas (the "Effective Date"). Although no assurance
can be given, the Effective Date is expected to be on or
before May 31, 1997.
<PAGE>
Distribution of First Commercial Stock Certificates
After the Effective Date, each holder of certificates
previously evidencing shares of Southwest Bancshares Stock
will be required to surrender such certificates for transfer
and cancellation. Upon surrender each holder will receive
certificate(s) representing the number of shares of First
Commercial Stock which the holder of such shares of Southwest
Bancshares Stock will have the right to receive (except for
any fractional share interests as described in "The Merger -
Fractional Shares"), together with any dividends which have
been declared on such shares of First Commercial Stock and to
which such holder is entitled.
Holders of Southwest Bancshares Stock on the Effective Date
shall be entitled to receive dividends declared by First
Commercial subsequent to the Effective Date, but payment of
such dividends will not be required of First Commercial until
such persons have delivered their certificates representing
shares of Southwest Bancshares Stock in exchange for
certificates representing shares of First Commercial Stock.
Upon delivery of certificates representing shares of
Southwest Bancshares Stock to First Commercial's transfer
agent, including shares delivered at Closing, provided the
transfer agent has been given at least ten (10) days' notice
of the intent to make such delivery, First Commercial shall
cause the transfer agent to issue certificates representing
the requisite number of shares of First Commercial stock for
each share of Southwest Bancshares Stock represented by the
certificates therefor properly delivered, and First
Commercial shall pay by certified or cashier's check the
amount entitled to be received in lieu of fractional shares.
As soon as practicable after consummation of the Merger,
transmittal forms will be sent to all stockholders of Southwest
Bancshares, other than those who previously have properly
delivered their Certificates, for use in forwarding to First
Commercial's transfer agent certificates previously evidencing
Southwest Bancshares Stock for surrender and exchange for
certificates evidencing First Commercial Stock. Until so sur-
rendered, certificates formerly evidencing Southwest Banc-
shares Stock will be deemed for all corporate purposes (except
for payment of dividends to Southwest Bancshares stockholders
which may be withheld pending exchange of certificates) to
evidence the right to receive the number of whole shares of
First Commercial Stock and the right to receive cash in lieu of
fractional shares which the holder thereof would be entitled
to receive upon surrender. Stockholders of Southwest
Bancshares are requested not to submit stock certificates for
exchange until they have received written instructions to do
so.
<PAGE>
If outstanding certificates for shares of Southwest
Bancshares Stock are not surrendered, or if payment for them
is not claimed prior to such date on which such payment would
otherwise escheat to or become the property of any
governmental unit or agency, the unclaimed item shall, to the
extent permitted by the abandoned property and/or any other
applicable law, become the property of First Commercial (and
to the extent not in its possession shall be paid over to
it), free and clear of all claims or interests of any person
previously entitled to such items. Notwithstanding the
foregoing, neither First Commercial's transfer agent nor any
party to the Merger shall be liable to any holder of
Southwest Bancshares Stock for any amount paid to any
governmental unit or agency having jurisdiction of such
unclaimed items pursuant to the abandoned property or other
applicable law of such jurisdiction.
Fractional Shares
No fractional shares of First Commercial Stock will be issued
for shares of Southwest Bancshares Stock. In lieu of
fractional interests, First Commercial shall pay to such
persons who would otherwise receive fractional shares cash in
an amount equal to the market value of such fractional shares
based on the average of the bid and asked prices for a share
of First Commercial Stock on the Closing Date. See "The
Merger - Federal Income Tax Consequences."
Dilution
Each common stockholder of Southwest Bancshares who exchanges
his stock will receive a voting interest exactly in
proportion to his relative voting common stock interest in
relation to other Southwest Bancshares stockholders before
the combination is effected. Each share of Southwest
Bancshares Stock presently held by Southwest Bancshares
stockholders will represent less of a percentage voting
interest in the total number of outstanding shares of First
Commercial (subsequent to the Merger) than it now represents
as a percentage of the total outstanding shares of Southwest
Bancshares.
Accounting Treatment
The Merger will be accounted for as a pooling of interests
under generally accepted accounting principles. Upon effec-
tiveness of the Merger, the assets and liabilities of Southwest
Bancshares will be reflected in the consolidated financial
statements of First Commercial at their book value as
reflected in Southwest Bancshares's financial statements and
expenses incurred in connection with the Merger will be
considered as an expense of First Commercial.
A condition of consummating the Merger is that First
Commercial receive an opinion from Ernst & Young LLP that the
pooling of interests method of accounting applies to the
Merger. Management of First Commercial expects this
condition to be met.
<PAGE>
Registration of First Commercial Stock Under the Securities
Act
The shares of First Commercial Stock to be issued to
Southwest Bancshares stockholders in the Merger have been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), thereby allowing such shares to be freely
traded without restriction by persons who were not affiliates
of Southwest Bancshares, as that term is defined in the
Securities Act.
Directors and certain officers and stockholders of Southwest
Bancshares may be deemed to be "affiliates" of Southwest
Bancshares within the meaning of the Securities Act.
Accordingly, resales by such persons of any shares of First
Commercial Stock received by them in the Merger are
restricted and may be made only if such stock is registered
under the Securities Act or an exemption from the
registration requirements of the Securities Act is available.
All such persons should carefully consider the limitations
imposed by Rules 144 and 145 promulgated under the Securities
Act ("Rule 144" and "Rule 145") prior to effecting any
resales of such First Commercial Stock.
Pursuant to Rule 145, the sale of First Commercial Stock held
by those persons who are affiliates of Southwest Bancshares
will be subject to certain restrictions. For one year
following the Effective Date, such persons may sell the First
Commercial Stock only if (i) First Commercial has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), during the preceding twelve months, (ii) such First
Commercial Stock is sold in "brokers' transactions" as that
term is defined in Section 4(4) of the Securities Act, (iii)
the person selling such First Commercial Stock does not
solicit or arrange for the solicitation of orders to buy such
First Commercial Stock in anticipation of or in connection
with such transaction nor make any payment in connection with
the offer or sale of such First Commercial Stock to any
person other than the broker who executes the order to sell,
and (iv) sales made by such person within the preceding three
months do not exceed 1% of the outstanding shares of that
class. Such shares of First Commercial Stock held for more
than one year but less than two years after the Effective
Date may be sold freely if First Commercial is in compliance
with the above discussed Exchange Act reporting requirements.
Once the shares of such First Commercial Stock have been held
for two years after the Effective Date, they may be sold
free from the restrictions of Rules 144 and 145.
It is a condition to First Commercial's obligation to
consummate the Merger that First Commercial shall have
received an agreement in form and substance satisfactory to
it, executed and delivered by each holder of Southwest
<PAGE>
Bancshares Stock who is determined to be an affiliate of
Southwest Bancshares, providing, among other things, that
such holder will not sell, transfer or in any way reduce his
risk with respect to his shares of First Commercial Stock
until such time as First Commercial shall have published
financial results covering at least 30 days of post-Merger
combined operations. In addition to the above, each
Southwest Bancshares stockholder who owns more than five
percent (5%) of the Southwest Bancshares Stock shall deliver
an agreement to First Commercial representing that he has no
present intent to sell any of the First Commercial Stock to
be received by him, nor will he sell more than fifty percent
(50%) of such stock for a period of at least one (1) year
following the Closing.
<PAGE>
INFORMATION CONCERNING SOUTHWEST BANCSHARES
Business of Southwest Bancshares
Southwest Bancshares, an Arkansas corporation, is a
bank holding company which was organized in 1990 to acquire
(the Acquisition ) all of the issued and outstanding and
capital stock of First National Bank of Poinsett County,
Trumann, Arkansas (the Trumann Bank ). The Trumann Bank
first began operations in 1952 and was renamed First Bank of
Arkansas following the Acquisition. Since 1990, Southwest
Bancshares has acquired four other banks, whose main offices
are located in Russellville, Jonesboro, Wynne, and Searcy,
Arkansas, respectively, and all of whom s names are First
Bank of Arkansas. On July 31, 1995, the Trumann Bank was
merged with and into First Bank of Arkansas, Jonesboro. An
application is pending with the applicable regulatory
authorities to merge First Bank of Arkansas, Wynne with and
into First Bank of Arkansas, Jonesboro. This merger may be
effected on or before the consummation of the merger of
Southwest Bancshares into First Commercial if regulatory
approval is received before then. Through its four
subsidiary banks, Southwest Bancshares conducts a general
commercial banking business in Craighead, Pope, Johnson,
Poinsett, White and Cross Counties in Arkansas. As of
December 31, 1996, Southwest Bancshares had total assets of
approximately $819,808,000, total deposits of approximately
$716,247,000 and total shareholders equity of approximately
$53,527,000. Southwest Bancshares principal office is
located at 2400 East Highland Drive, Jonesboro, Arkansas
72401, telephone number (501) 972-9093.
Southwest Bancshares Stock
General
As of March 31, 1997, there were 245,275 outstanding
shares of Southwest Bancshares Stock. The approximate number
of holders of Southwest Bancshares Stock on that date was 422.
There is no established public trading market for shares of
Southwest Bancshares Stock. On December 19, 1996, the date
preceding the announcement of the Merger, there was no
independent basis for establishing a per-share cash market
price for Southwest Bancshares Stock. Book value of Southwest
Bancshares Stock equaled $226 per share on November 30, 1996,
the month end preceding that date.
<PAGE>
Dividends paid on the Southwest Bancshares Stock for
the first six months of 1997 and the last two fiscal years
ended December 31, 1996, are as follows:
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Dividend
Dividend Dividend Dividend Dividend Declared
1997:
Per share $ 5.00 $ 3.34 $ - $ - $ 8.34
Total Declared 1,226,375.00 - - - 2,045,593.50
1996 & 1995:
Per share $ 0 $ 0 $ 0 $ 0 $ 0
Total Declared 0 0 0 0 0
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth as of March 31, 1997, the identity
and total number of shares of Southwest Bancshares common stock owned
by persons known by management of Southwest Bancshares to own more
than five percent (5%) of the total outstanding shares.
First Commercial
Southwest Bancshares Common Stock to
Common Stock be Owned Upon
Name and Address of Beneficially Owned Consumation of
Beneficial Owner on March 31, 1997 the Merger
------------------- ------------------ -------------
Shares % of Class Shares % of Class
------ ---------- ------- ----------
Wallace W. Fowler 49,769 (1) 20.29 692,425 2.29
2729 South Culberhouse
Jonesboro, AR 72401
Jama M. Fowler 45,194 (2) 18.43 628,774 2.08
2729 South Culberhouse
Jonesboro, AR 72401
H. T. Loberg 21,900 8.93 304,690 1.01
2309 Hazeltine
Jonesboro, AR 72404
Phyllis Lamberth 20,435 (3) 8.33 284,308 .94
1013 Fairway Circle
Jonesboro, AR 72401
___________________________
(1) Includes 12,372 shares held by Fowler Family Investments Partnership,
of which Mr. Fowler is a general partner; 4,500 shares held by Fowler
Foods, Inc., of which Mr. Fowler is Chairman and a director; and 3,000
shares held by Town & Country Insurance Agency, Inc., of which Mr.
Fowler is a director.
(2) Includes 12,372 shares which are held by Fowler Family Investments
Partnership, of which Mrs. Fowler is a general partner; and 4,500 shares
held by Fowler Foods, Inc., of which Mrs. Fowler is Secretary and a
director.
(3) Includes 20,144 shares of stock owned by Lamco Limited Partnership II,
of which Mrs. Lamberth is a general partner.
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of shares of
Southwest Bancshares Common Stock by each director of Southwest
Bancshares and by all directors and executive officers of Southwest
Bancshares as a group as of March 31, 1997. The number of shares
shown as being beneficially owned by each director are those over
which he or she has either sole or shared voting and/or investment
powers.
First Commercial
Southwest Bancshares Common Stock to
Common Stock be Owned Upon
Name and Address of Beneficially Owned Consumation of
Beneficial Owner on March 31, 1997 the Merger
------------------ -------------------- --------------
Shares % of Class Shares % of Class
------ ---------- ------ --------
Wallace W. Fowler 49,769 (1) 20.29 692,425 2.29
Jama M. Fowler 45,194 (2) 18.43 628,774 2.08
Phil Jones 5,421 (3) 2.21 75,421 .25
Mark Fowler 3,563 1.45 49,571 .16
Roy Reaves 3,395 1.38 47,233 .16
Lloyd McCracken, Jr. 1,305 (4) .53 18,156 .06
Charles Green 15 .01 208 (5)
All Directors and Executive
Officers as a Group (a total
of seven individuals) 91,790 37.42 1,277,054 4.23
_________________________
(1) Includes 12,372 shares held by Fowler Family Investments Partnership,
of which Mr. Fowler is a general partner; 4,500 shares held by Fowler
Foods, Inc., of which Mr. Fowler is Chairman and a director; and 3,000
shares held by Town & Country Insurance Agency, Inc., of which Mr.
Fowler is a director.
(2) Includes 12,372 shares which are held by Fowler Family Investments
Partnership, of which Mrs. Fowler is a general partner; and 4,500 shares
held by Fowler Foods, Inc., of which Mrs. Fowler is Secretary and a
director.
(3) Includes 3,036 shares which are held in trusts of which Mr. Jones is
the trustee.
(4) Includes 700 shares held by Haven Partnership, of which Mr. McCracken
is a general partner.
(5) Less than .01%.
<PAGE>
SELECTED FINANCIAL DATA OF SOUTHWEST BANCSHARES
The following selected financial data should be read in conjunction
with the financial statements, including the notes thereto set forth
in this document. (See Consolidated Financial Statements of Southwest
Bancshares.)
SOUTHWEST BANCSHARES
(in thousands, except per share data)
Year Ended December 31,
----------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- -----
Summary of Operating
Results:
Year Ended December 31,
Net Interest Income $ 25,359 $ 17,317 $ 13,484 $ 8,692 $ 4,614
Provision for Loan
Losses 5,581 1,164 994 542 224
Net Income 5,730 4,612 3,023 2,127 1,109
Period End Balance
Sheet Data:
Total Assets 819,808 686,218 538,651 358,909 193,887
Total Deposits 716,247 599,325 470,862 321,360 171,307
Long-Term Debt 23,644 18,567 14,123 8,369 5,254
Stockholders Equity 53,527 47,904 35,448 25,245 15,621
Per Common Share
Data:
Net Income 23.36 21.22 16.08 17.04 16.85
Cash Dividends 0.00 0.00 0.00 0.00 0.00
Book Value 218.23 195.31 170.28 153.40 133.72
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial
Condition and Results of Operations of Southwest Bancshares
analyzes the major elements of Southwest Bancshares's
consolidated balance sheets and statements of income. This
section should be read in conjunction with Southwest
Bancshares's consolidated financial statements and
accompanying notes and other detailed information appearing
elsewhere.
Summary of Operations
Southwest Bancshares is a multi-bank holding company
which owns four commercial banking subsidiaries which
function primarily as a financial intermediary, investing
funds obtained through deposits, borrowings, and other
sources in a variety of loans and investments.
Southwest Bancshares's operations commenced upon its
acquisition of First National Bank of Poinsett County,
Trumann, Arkansas (the Trumann Bank ) in November 1990.
Southwest Bancshares subsequently acquired banks in
Russellville in January 1992, in Jonesboro in November 1992,
in Wynne in August 1993, and in Searcy in April 1994. All
banks are now named First Bank of Arkansas. On August 1,
1995, the Trumann Bank was merged with and into First Bank of
Arkansas, Jonesboro.
Southwest Bancshares has total assets of $819.8 million
as of December 31, 1996. This was an increase of $133.6
million or 19.5% as compared to December 31, 1995.
Southwest Bancshares reported earnings of $5.7 million
for 1996, an increase of $1.1 million or 24.2% over 1995's
net income of $4.6 million. Return on average assets was
.76% in 1996, compared to .75% in 1995 and .67% in 1994.
Return on average equity was 11.10% in 1996, compared to
11.63% in 1995 and 9.80% in 1994. On a per share basis, net
income for 1996 was $23.36, compared to $21.22 in 1995 and
$16.08 in 1994. From inception through December 31, 1996,
Southwest Bancshares paid no dividends to stockholders. In
January 1997, Southwest Bancshares paid dividend to
stockholders of $1.2 million ($5.00 per common share).
The following table shows Southwest Bancshares's return
on average assets and equity for the past five years.
<PAGE>
RETURN ON AVERAGE EQUITY AND ASSETS
FOR THE YEAR ENDED DECEMBER 31
-------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Return on Average Assets 0.76% 0.75% 0.67% 0.77% 0.79%
Return on Average Equity 11.10% 11.63% 9.80% 11.48% 13.645
Dividend Payout Ratio 0.00% 0.00% 0.00% 0.00% 0.00%
Equity to Assets Ratio 6.88% 6.48% 6.81% 7.94% 5.76%
Stockholders' equity at December 31, 1996, was 53.5 million, an increase
of $5.6 million or 11.7% over December 31, 1995.
Southwest Bancshares has pursued an aggressive growth strategy through a
combination of internal growth and aquisitions. Southwest Bancshares has
attempted to obtain internal growth of its bank subsidiaries by continuing
to offer customer-oriented, high quality financial services through a staff
of bankers dedicated to providing personal attention and professional
service. Management of Southwest Bancshares believes that this philosophy
has attracted individuals and and small and medium sized businesses to
become customers of its subsidary banks.
Balance Sheet Review for the Years 1996 and 1995
Loans
As of December 31, 1996, total loans were $605.8 million as compared to
$512.2 million at December 31, 1995. Average loans outstanding for 1996
were $566.9 million as compared to $452.9 million during 1995.
Loan funding represents the primary use of funds for the subsidiaries of
Southwest Bancshares. The increase in the dollar amount of net loans
is due pricipally to management's intention to expand the loan base.
Southwest Bancshares's loan portfolio is comprised primarily of real
estate loans. Real estate loans total $367.7 million as of December 31,
1996, which is 62.2% of total outstanding loans.
The following tables provide additional information concerning the amount
of loans outstanding by type of loan, and the remaining maturity of loans
outstanding.
<PAGE>
COMPOSITION OF LOAN PORTFOLIO
(DOLLARS IN THOUSANDS)
December 31
-----------------------
1996 1995 1994
---------- ----------- -----------
AMOUNT % AMOUNT % AMOUNT %
------ -- ------ -- ------ --
Commercial, Financial
and Agricultural $186,687 30.82% $159,651 31.17% $120,768 31.57%
Real Estate - Construction 59,856 9.88% 50,224 9.81% 29,661 7.75%
Real Estate - Mortgage 316,867 52.31% 265,289 51.79% 200,438 52.40%
Consumer Loans 42,377 6.99% 37,027 7.23% 31,665 8.28%
-------- ------ -------- ------ -------- -----
TOTAL $605,787 100.00% $512,191 100.00% $382,532 100.00%
======== ====== ======== ======= ======= ======
<PAGE>
COMPOSITION OF LOAN PORTFOLIO
(DOLLARS IN THOUSANDS)
December 31
-------------------------------
1993 1992
------ ------
AMOUNT % AMOUNT %
------ -- ------ --
Commercial, Financial and
Agricultural $80,200 32.76% $20,466 19.12%
Real Estate - Construction 16,621 6.79% 9,703 9.07%
Real Estate - Mortgage 130,751 53.40% 60,942 56.95%
Consumer Loans 17,259 7.05% 15,902 14.86%
------- ----- ------ ------
TOTAL $244,831 100.0% $107,013 100.0%
======== ===== ======== ======
<PAGE>
MATURITIES OF LOANS
(EXCLUDING RESIDENTIAL MORTGAGE LOANS OF 1-4 FAMILY RESIDENCES,
INSTALLMENT LOANS, AND LEASE FINANCING)
(DOLLARS IN THOUSANDS)
LOANS AT DECEMBER 31, 1996, MATURING
---------------------------------------
WITHIN AFTER ONE BUT AFTER
ONE YEAR WITHIN FIVE YEARS FIVE YEARS TOTAL
---------- --------------- -------- -----
Commercial, Financial
and Agricultural $142,951 $41,135 $2,601 $186,687
Real Estate - Construction 48,094 11,762 0 59,856
------- ------ ------ -------
$191,045 $52,897 $2,601 $246,543
======== ======= ====== ========
Loans Maturing After One Year With:
Fixed Interest Rates $44,934 $1,407
Variable Interest Rates 7,963 1,194
------- ------
$52,897 $2,601
======= ======
Asset Quality
Nonperforming loans includes nonaccrual loans and loans whose
terms have been restructured to provide a reduction or deferral
of interest or principal because of a deterioration in the financial
condition of the borrower. Loans are placed on non-accrual status
when (1) payment in full of principal or interest is not expected
(2) when payment of interest or principal is 90 days or more past
due and is either it is not both well secured and in the process of
collection. If a loan is determined by management to be uncollectible,
the portion of the loan deemed uncollectible is charged to the
allowance for loan losses.
As of December 31, 1996 and 1995, Southwest Bancshares had non-
accrual loans of $2,660,000 and $286,000, respectively. The increase
during 1996 was principally attributable to loans to a single borrower
which aggregated $1,672,000. Southwest Bancshares did not have any
restructured loans at December 31, 1996 and 1995.
<PAGE>
Shown in the table below is a recap of non-performing loans.
NON-PERFORMING LOANS
(DOLLARS IN THOUSANDS)
DECEMBER 31
-----------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Nonaccrual Loans $2,660 $286 $598 $19 $126
Restructured Loans 0 0 0 0 0
Non-Performing Loans $2,660 $286 $598 $19 $126
Accruing Loans Past Due 90
Days or More $134 $178 $64 $10 $253
Allowance for Loan Losses
The amount of provision for loan losses for each year is based upon
subsidiary bank management's judgment after giving consideration to
the composition of the loan portfolio, reviews of individual loans,
recent loan loss experience, past due loans, current economic
conditions, as well as any other factors deemed relevant to the
consideration. On a quarterly basis, each bank's Board of Directors
conducts an evaluation of the adequacy of the allowance for loan
losses. Based upon these procedures, Company management believes
that the allowance for loan losses at December 31, 1996, is adequate.
See "Income Statement Review for the years 1996, 1995 and 1994 -
Provision for Loan Losses" for discussion of the significant increase
in the allowance for loan losses during 1996.
<PAGE>
A summary of the changes in the allowance for loan losses including
loan loss experience by major category is shown in the table below.
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
DECEMBER 31
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Beginning Balance of
Allowance for Loan Losses $4,077 $3,215 $2,221 $1,460 $308
Loans Charged Off:
Real Estate - Mortgage 87 68 0 0 97
Commercial, Financial and
Agricultural 384 154 120 421 26
Consumer 285 135 44 24 2
---- ---- ---- ---- ----
Total Charge-Offs 756 357 164 66 225
---- ---- ---- ---- ----
Recoveries on Loans Previously
Charged Off:
Real Estate - Mortgage 0 5 15 52 17
Commercial, Financial and
Agricultural 126 21 13 27 17
Consumer 23 29 24 27 2
---- ---- ---- ---- ----
Total Recoveries 149 55 52 75 26
---- ---- ---- ---- ----
Net Charge-Offs 607 302 112 (9) 199
Additions to Allowance
Charged to Expense 5,581 1,164 994 542 224
Allowance of Acquired
Subsidiaries 0 0 112 210 1,127
----- ----- ----- ----- -----
Ending Balance of Allowance
for Loan Losses $9,051 $4,077 $3,215 $2,221 $1,460
====== ===== ===== ===== =====
Percentage of Net Charge-Offs
to Average Loans 0.11% 0.07% 0.04% -0.01% 0.26%
==== ==== ==== ===== =====
<PAGE>
The allocation of the allowance for loan losses as of December 31, 1996
is shown in the table below.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
December 31
-------------------------------
1996 1995 1994
------ ------ ------
AMOUNT % AMOUNT % AMOUNT %
------ --- ------ --- ------ ---
Commercial, Financial
and Agricultural $2,515 27.8% $1,664 40.8% $1,218 37.9%
Real Estate - Construction 748 8.3% 377 9.2% 222 6.9%
Real Estate - Mortgage 3,873 42.8% 1,410 34.6% 1,191 37.1%
Consumer 688 7.6% 387 9.5% 355 11.0%
General Risk 1,227 13.5% 239 5.9% 229 7.1%
------ ----- ----- ----- ----- ------
TOTAL $9,051 100.0% $4,077 100.0% $3,215 100.0%
<PAGE>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
December 31
----------------------------
1993 1992
------ ------
AMOUNT % AMOUNT %
-------- --- ------ ---
Commercial, Financial and
and Agricultural $850 38.3% $346 23.7%
Real Estate - Construction 125 5.6% 73 5.0%
Real Estate - Mortgage 668 30.1% 514 35.2%
Consumer Loans 182 8.2% 259 17.7%
General Risk 396 17.8% 268 18.4%
----- ------ ------ ------
TOTAL $2,221 100.0% $1,460 100.0%
===== ====== ===== ======
<PAGE>
Investment Securities
Investment securities comprise the second largest use of funds by
Southwest Bancshares. Investment securities total $144.0 million at
December 31, 1996, as compared to $1 17.2 million at December 31,
1995. Average securities outstanding for 1996 were $126.7 million as
compared to $114.5 million in 1995. Southwest Bancshares's subsidiaries
utilize securities as a source of interest earning assets, as well as
to collateralize certain deposit accounts and to provide a level of
reserves in the event of unanticipated loan demand or deposit
withdrawals.
U.S. Treasury and Agency securities are the major component of the
investment securities portfolio. As of December 31, 1996, U.S. Treasury
and Agency obligations total $124.0 million which was approximately
86.1% of total securities. The remaining amount of investments securities
is comprised principally of obligations of state and political
subdivisions. A significant portion of Southwest Bancshares's securities
portfolio is utilized to secure public fund deposits, for issuance of
repurchase agreements, and for other purposes. At December 31, 1996,
investment securities with a carrying value of approximately $122.1
million were pledged to collateralize public deposits and for other
purposes.
The tables below contain additional information concerning the
composition, carrying value, and maturity distribution of investment
securities.
INVESTMENT SECURITIES
(DOLLARS IN THOUSANDS)
DECEMBER 31
-------------------------
1996 1995 1994
------ ------ ------
Held to Maturity:
U.S. Treasuries and Government
Agencies $ 99,228 $ 76,075 $ 74,456
State and Political Subdivisions 11,261 11,524 15,980
Other Securities 488 1,754 1,721
Total Debt Securities 110,977 89,353 92,157
Equity Securities 0 0 0
------- ------ ------
Total Held to Maturity Investment
Securities 110,977 89,353 92,157
======= ====== ======
<PAGE>
Available for Sale:
U.S. Treasuries and Government
Agencies 24,297 18,279 14,311
State and Political Subdivisions 3,121 3,997 0
Other Securities 1,001 1,783 5,711
------ ------ ------
Total Debt Securities 28,419 24,059 20,022
Equity Securities 4,577 3,760 2,556
Total Available for Sale Investment
Securities 32,996 27,819 22,578
------- ------- -------
Total Investment Securities $143,973 $117,172 $114,735
======== ======== ========
<PAGE>
INVESTMENT SECURITIES PORTFOLIO ANALYSIS
(DOLLARS IN THOUSANDS)
INVESTMENT SECURITIES AT DECEMBER 31, 1996, MATURING
--------------------------------------------------------
AFTER ONE AFTER FIVE
WITHIN BUT WITHIN BUT WITHIN AFTER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS
-------- ---------- --------- --------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
U.S. Treasury
and Other U.S.
Government
Agencies $13,449 6.12% $80,660 6.15% $3,992 6.40% $1,127 7.13%
State and
Political
Subdivisions 315 7.03 1,693 6.25 5,394 5.31 4,347 5.70
Other 0 0.00 0 0.00 0 0.00 0 0.00
------- ---- ----- ---- ----- ---- ---- ----
Total 13,764 6.14 82,353 6.15 9,386 5.77 5,474 6.00
Available for Sale:
U.S. Treasury
and Other U.S.
Government
Agencies $ 1,005 7.45% $22,806 6.41% $ 0 0.00% $ 486 7.48%
State and
Political
Subdivisions 0 0.00 0 0.00 291 5.58 2,830 5.39
Other 5,578 5.73 0 0.00 0 0.00 0 0.00
------ ---- ------- ---- ---- ---- ------ ----
Total 6,583 5.99 22,806 6.41 291 5.58 3,316 5.70
Total Investment
Securities $20,347 $105,159 $9,677 $8,790
======= ======== ====== ======
<PAGE>
Deposits
As of December 31, 1996, total deposits were $716.2 million as compared
to $599.3 million at December 31, 1995. Average deposits outstanding for
1996 were $654.1 million as compared to $539.6 million during 1995.
Certificates of deposit of $100,000 or more comprise $189.6 million, or
26.5% of Southwest Bancshares's total deposits.
The table below presents information concerning the maturities of
certificates of deposit of $100,000 or more as of December 31, 1996.
MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
-----------------------------
CERTIFICATES OTHER TIME
OF DEPOSIT DEPOSITS TOTAL
---------- -------- -------
3 Months or Less $ 58,076 $ 6,644 $ 64,720
Over 3 Through 6 Months 49,540 433 49,973
Over 6 through 12 Months 53,849 1,917 55,766
Over 12 Months 28,116 4,308 32,424
------- ------ -------
Total $189,581 $13,302 $202,883
Revolving Credit Loan
Southwest Bancshares's outstanding indebtedness under its Credit Loan
was $9.25 million at December 31, 1996, as compared to $7.0 million at
December 31, 1995. Interest on the Credit Loan is payable quarterly
with annual principal reductions through January 2003. The note bears
interest at the lender's prime rate, which was 8.25% at December 31,
1996, and 8.5% at December 31, 1995.
Capital
Southwest Bancshares's total stockholders' equity as of December 31,
1996, was $53.5 million as compared to $47.9 million at December 31,
1995. The increase in stockholders' equity during 1996 was the result
of net income of approximately $5.7 million, which was partially
offset by the net unrealized losses on available-for-sale securities.
<PAGE>
Federal banking regulators have adopted a set of three capital ratio
guidelines which are applicable to Southwest Bancshares's consolidated
capital position. As of December 31, 1996, Southwest Bancshares's
consolidated leverage ratio was 6.78%, as compared to a regulatory
minimum guideline of 3.00%. Southwest Bancshares's consolidated
risk-based capital tier one ratio was 8.51% as compared to a regulatory
minimum guideline of 4.0%. Southwest Bancshares's consolidated
risk-based total capital ratio was 9.66% as compared to a regulatory
minimum guideline of 8.0%.
Each of the three capital ratios for Southwest Bancshares show
reductions during 1996, primarily due to significant increases in
the total assets of Southwest Bancshares.
For additional information concerning Southwest Bancshares's
risk-based capital ratios at December 31, 1996 and 1995, and the
capital ratios of each of Southwest Bancshares's subsidiary banks,
see "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Capital Resources."
Income Statement Review for the Years 1996, 1995 and 1994
Net Income
In 1996, Southwest Bancshares reported net income of $5.7 million,
as compared to $4.6 million in 1995 and $3.0 million in 1994. Earnings
per share were $23.36 for 1996, $21.22 for 1995 and $ 16.08 for 1994.
Net Interest Income
Net interest income, which is Southwest Bancshares's principal source
of earnings, is the difference between income generated by earning assets
and interest costs on deposits and borrowings obtained to fund those
assets. Factors that impact the level of net income include the volume
of earning assets and interest-bearing liabilities, yields earned and
rates paid, the level of non-performing loans, and the amount of
non-interest bearing liabilities supporting earning assets. The
increase of $ 130.9 million in the amount of average earning assets
and of $ 116.2 million in average interest-bearing liabilities in 1996,
as compared to 1995, was due principally to the substantial growth in
asset size of both the Jonesboro and Russellville Banks, and growth of
the Searcy Bank. The increase of $155.3 million in the amount of
earning assets and of $141.2 million in average interest-bearing
liabilities in 1995, as compared to 1994, was due principally
to the substantial growth in the asset size of the Jonesboro, Searcy
and Russellville Banks during 1995.
For the year ended December 31, 1996, net interest income was $25.4
million, an increase of $8.0 million or 46.4% from 1995. Net interest
income for 1995 increased by $3.8 million or 28.4% over 1994. The
increase in net interest income is principally attributable to a
significant increase in the volume of earning assets and interest-
bearing liabilities. The average amount of loans for 1996 was $566.9
million, as compared to $452.9 million in 1995, and $306.9 million
in 1994. Total interest-bearing liabilities averaged $648.1 million
in 1996, $531.9 million in 1995, and $390.8 million in 1994.
<PAGE>
The following tables present information on average balances and
average interest rates and an analysis of changes in net interest
income.
<TABLE>
<CAPTION>
AVERAGE BALANCES AND INTEREST RATES
(DOLLARS IN THOUSANDS)
1996 1995 1994
-------------------------- ------------------------- --------------------------
AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/
BALANCE EXPENSE COST BALANCE EXPENSE COST BALANCE EXPENSE COST
-------------------------- ------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning
Assets:
Federal Funds $ 12,503 $ 678 5.42% $ 7,823 $ 434 5.55% $ 6,644 $ 252 3.79%
Investment
Securities 126,723 7,626 6.02% 114,533 6,662 5.82% 106,272 5,656 5.32%
Loans 566,862 52,924 9.34% 452,874 40,161 8.87% 306,947 24,002 7.82%
Other 156 12 7.69% 154 15 9.74% 256 7 2.73%
Earning Assets 706,244 61,240 8.67% 575,384 47,272 8.22% 420,119 29,917 7.12%
Non-Earning
Assets 44,261 38,032 32,570
------- ------- -------
Total Assets $750,505 $613,416 $452,689
======== ======== ========
Interest-Bearing
Liabilities:
Demand and
Savings 114,440 3,045 2.66% 95,732 2,598 2.71% 85,429 2,285 2.67%
Time Deposits 495,557 30,368 6.13% 409,460 25,323 6.18% 286,700 13,034 4.55%
Short-Term
Borrowings 16,528 967 5.85% 9,413 593 6.30% 6,452 294 4.56%
Long-Term
Borrowings 21,589 1,501 6.95% 17,327 1,441 8.32% 12,179 820 6.73%
------- ----- ----- ------ ----- ----- ------ ----- ----
<PAGE>
Total Interest-
Bearing
Liabilities 648,114 35,881 5.54% 531,932 29,955 5.63% 390,760 16,433 4.21%
Non-Interest-
Bearing Demand
Deposits 44,100 34,424 30,142
Other
Liabilities 6,686 7,386 938
Shareholder's
Equity 51,605 39,674 30,849
Total Non-
Interest 102,391 81,484 61,929
Total
Liabilities
and Equity $750,505 $613,416 $452,689
======== ======== ========
Net Interest
Earnings $25,359 $17,317 13,484
======= ======= ======
Net Yield on
Interest-
Earning
Assets 3.59% 3.01% 3.21%
==== ==== ====
</TABLE>
<PAGE>
ANALYSIS OF CHANGES IN NET INTEREST INCOME FROM EARNING ASSETS
CHANGE FROM 1995 TO 1996 CHANGE FROM 1994 TO 1995
YIELD/ YIELD/
VOLUME RATE NET VOLUME RATE NET
Interest Earned On:
Federal Funds Sold $ 254 $ (10) $ 244 $ 51 $ 131 $ 182
Investment Securities 729 235 964 455 551 1,006
Loans 10,541 2,222 12,763 12,599 3,560 16,159
Other 0 (3) (3) (1) 9 8
Change in Interest
Income 11,524 2,444 13,968 13,104 4,251 17,355
Interest Paid On:
Demand and Savings
Deposits 494 (47) 447 278 35 313
Time Deposits 5,248 (203) 5,045 6,689 5,600 12,289
Short-Term Borrowings 413 (39) 374 163 136 299
Long-Term Borrowings 178 (118) 60 398 223 621
----- ----- ------ ----- ----- ------
Change in Interest
Expense 6,333 (407) 5,926 7,528 5,994 13.522
----- ----- ----- ----- ----- ------
Changes in Net
Interest Income
From Earning Assets $5,191 $2,851 $8,042 $5,576 ($1,743) $3,833
====== ====== ====== ====== ====== ======
<PAGE>
Provision for Loan Losses
The provision for loan losses represents management's
determination of the amount necessary to be charged
against the current earnings in order to maintain the
allowance for loan losses at a level that is considered
adequate in relation to the estimated risk inherent in
the loan portfolio. The provision for 1996 was $5.6
million, 1995 was $1.2 million, and 1994 was $1.0 million.
The increase during 1996 was attributable to a decision by
management to increase the allowance for loan losses to a
level commensurate with peer group reserve levels.
Nonperforming and other problem loans have remained at
low levels during the periods of loan growth. Nonperforming
loans at December 31, 1996, amounted to $2,660,000.
In May 1993, the FASB issued SFAS No. 114, "Accounting
by Creditors for Impairment of a Loan," which was adopted
in 1995. SFAS No. 114 requires that certain impaired loans
be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate
or the fair value of the collateral if the loan is
collateral dependent. The adoption of this statement did
not have a material effect on Southwest Bancshares's
financial statements.
Other Income
Total other income was $5.1 million for 1996, compared to
$3.7 million for 1995, and $2.1 million in 1994. Other
income is comprised primarily of service charges on deposit
accounts. The increases in total income during the years of
comparison were due primarily to growth of the Russellville
Bank and the Jonesboro Bank.
Other Expenses
Other expenses consist of salaries and employee benefits,
occupancy costs, amortization, and miscellaneous expenses
necessary for the operations of Southwest Bancshares.
Other expenses for 1996 total $16.2 million, an increase of
$3.2 million or 25.0% as compared to 1995. The 1995 other
expenses represented an increase of $2.8 million or 26.9% over
1994 other expenses of $10.2 million. The increases for 1995
and 1996 are principally attributable to costs associated
with incurred in conjunction with the growth in asset levels.
The 1996 and 1995 results also reflect an increase in other
expenses for Southwest Bancshares and each of the other
subsidiaries.
<PAGE>
Pursuant to a professional services agreement with a
third party, an accrual of $812,000 has been included in
the consolidated financial statement for the year ended
December 31, 1996.
Income Taxes
The provision for income taxes for 1996 was $2.9 million,
as compared to $2.2 million in 1995, and $1.3 million in 1994.
Interest Rate Sensitivity and Liquidity
Southwest Bancshares
On a parent only basis, Southwest Bancshares is dependent
upon its revolving line of credit, dividends from subsidiaries,
or future stock offerings in order to fund its future debt and
operating expense requirements.
In December 1996 Southwest Bancshares received dividend
payments from the Jonesboro Bank of $1.8 million and the
Russellville Bank of $1.4 million. Since inception of Southwest
Bancshares, other than the December 1996 dividends, none of
its subsidiaries has paid any dividends to Southwest Bancshares.
All subsidiary earnings have been retained in the respective
subsidiaries in order to increase their respective capital
levels.
In accordance with Arkansas State Banking Laws,
certain restrictions exist regarding the ability of the
banking subsidiaries to transfer funds to Southwest
Bancshares in the form of cash dividends, loans, or
advances. Under such restrictions, the bank subsidiaries
may not, without prior approval of bank regulatory
agencies, declare or pay dividends of more than 50% of the
respective net income. At December 31, 1996, approximately
$400,000 of undistributed earnings of the banking
subsidiaries, included in the consolidated retained
earnings, was available for distribution to Southwest
Bancshares without the prior approval of the regulatory
agencies. Additionally, Southwest Bancshares's Credit Loan
Agreement places additional restrictions on the payment of
dividends by the bank subsidiaries.
<PAGE>
Banking Subsidiaries
The overall management of the sources and use of funds
of Southwest Bancshares's subsidiaries is the responsibility
of each bank's Asset and Liability Management Committee.
Each committee is charged with the responsibility of
maintaining the liquidity in accordance with established
objectives which are consistent with safe and sound banking
practices. In addition, the committee is responsible for
preserving an appropriate and profitable balance between
interest sensitive assets and liabilities to minimize
adverse effects on interest rate margins resulting from
volatility in interest rate levels.
A measure of liquidity is the ability to obtain
additional funds to meet cash requirements. Liquidity
management involves providing funds to meet the requirements
of both depositors withdrawing funds and borrowers
requesting additional funds to satisfy their credit needs.
The liquidity to meet these demands is provided by maturing
assets, short-term liquid assets (including the sale of
Federal Funds), the sale of participations to other banks,
and the ability to obtain funds from external sources.
On the asset side, liquidity is achieved through the
regular maturing of earning assets. Loans, investment
securities, and Federal Funds scheduled to mature or be
repriced during the twelve-month period following December 31,
1996, total $437.8 million.
On the liability side, liquidity is achieved principally
from additional deposits, other borrowings, the maturities
structure of time deposits, and the purchase of Federal Funds.
Deposits and other interest-bearing liabilities scheduled to
mature or be repriced during the twelve-month period following
December 31, 1996, are $447.1 million.
An interest rate sensitive asset or liability is one that,
within a defined time period, either matures or experiences an
interest rate change in line with general market interest
rates. The management of interest rate risk is performed by
analyzing the maturity and repricing relationships between
interest-earning assets and interest-bearing liabilities at
specific points in time ("GAP"). Interest rate sensitivity
reflects the potential effect on net interest income of a
movement in interest rates. A company is considered to be
asset sensitive, or having a positive GAP, when the amount of
its interest-earning assets maturing or repricing within a
given period exceeds the amount of its interest-bearing
liabilities also maturing or repricing within that time period.
<PAGE>
Conversely, a company is considered to be liability sensitive,
or having a negative GAP, when the amount of its interest-
bearing liabilities maturing or repricing within a given period
exceeds the amount of its interest-earning assets also maturing
or repricing within that time period. During a period of
rising interest rates, a negative GAP would tend to affect
adversely net interest income, while a positive GAP would tend
to result in an increase in net interest income. During a
period of falling interest rates, a negative GAP would tend to
result in an increase in net interest income, while a positive
GAP would tend to affect net interest adversely.
Shortcomings are inherent in any GAP analysis since
certain assets and liabilities may not move proportionally as
interest rates change. However, Southwest Bancshares's assets
scheduled to mature or reprice during the twelve-month period
following December 31, 1996, total $437.8 million while the
liabilities scheduled to mature or be repriced total $447.1
million. Therefore, Southwest Bancshares is considered to be
liability sensitive. Therefore, should interest rates rise,
Southwest Bancshares's net interest income would generally be
adversely affected.
Capital Resources
Bank regulatory authorities in the United States have
issued risk-based capital standards by which all bank holding
companies and banks will be evaluated in terms of capital
adequacy. These guidelines relate a bank holding company's
capital to the risk profile of its assets. The risk-based
capital standards require all banks to have Tier 1 capital of
at least 4%, and total capital (Tier 1 and Tier 2) of at least
8%, of risk-adjusted assets. Tier 1 capital includes common
stockholders' equity and qualifying perpetual preferred stock
together with related surpluses and retained earnings. Tier 2
capital may be comprised of limited life preferred stock,
qualifying debt instruments, and the reserves for loan losses.
Banking regulators have also issued leverage ratio
requirements. The leverage ratio requirement is measured as
the ratio of Tier 1 capital to adjusted average assets. The
risk-based capital and leverage ratio requirements replaced the
primary capital and total capital guidelines used previously.
Since the acquisition of its subsidiary banks, and through
December 31, 1996, Southwest Bancshares has contributed $4.0
million in additional capital to First Bank of Arkansas,
Russellville, $18 million in additional capital to First Bank
of Arkansas, Jonesboro, $1.75 million in additional capital to
First Bank of Arkansas, Wynne, and $3.75 million in additional
capital to First Bank of Arkansas, Searcy. In December 1996
Southwest Bancshares received dividend payments from First Bank
of Arkansas, Jonesboro of $1,800,000 and First Bank of Arkansas,
Russellville of $1,400,000. In January 1997 Southwest
Bancshares paid dividends to common stockholders of $1,226,375
($5 per common share).
<PAGE>
INFORMATION CONCERNING FIRST COMMERCIAL
Information Incorporated by Reference
The following documents, or the indicated portions thereof,
have been filed by First Commercial with the Commission under
the Exchange Act and are incorporated by reference in this
Joint Proxy Statement/Prospectus:
1. Annual Report on Form 10-K for the year ended
December 31, 1996;
2. The description of First Commercial's common stock
contained in the Registration Statement on Form 10
filed April 30, 1981 and any amendment or report
filed for the purpose of updating such description;
and
3. Registration Statement on Form 8-A for the
preferred share purchase rights as filed on January
9, 1991.
In addition, all other reports filed by First Commercial
under the Exchange Act between the date of this Joint Proxy
Statement/Prospectus and the date of the Special Meeting are
incorporated herein by reference from date of filing. Any
statement contained in any document incorporated or deemed to
be incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Joint Proxy
Statement/Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which is
also incorporated or deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of
this Joint Proxy Statement/Prospectus. See "Incorporation of
Certain Documents by Reference" for information with respect
to securing copies of documents incorporated by reference in
this Joint Proxy Statement/Prospectus.
Management and Additional Information
Certain information relating to the executive compensation,
various benefit plans, voting securities and the principal
holders thereof, certain relationships and related
transactions and other related matters as to First Commercial
is incorporated by reference or set forth in the First
Commercial Annual Report on Form 10-K for the year ended
December 31, 1996, incorporated herein by reference. See
"Incorporation of Certain Documents by Reference" for
information with respect to securing copies of documents
incorporated by reference in this Joint Proxy
Statement/Prospectus.
<PAGE>
COMPARATIVE RIGHTS OF SHAREHOLDERS
General
If the stockholders of Southwest Bancshares approve the
Merger, and if the Merger is subsequently consummated, all
stockholders of Southwest Bancshares, other than those
exercising dissenters' rights, will become stockholders of
First Commercial. The rights of stockholders of First
Commercial are governed by and subject to the Arkansas
Business Corporation Act of 1987 and First Commercial's
Second Amended and Restated Articles of Incorporation, as
amended ("First Commercial's Articles"), and Bylaws.
Although the rights of stockholders of Southwest Bancshares
also are governed by and subject to the Arkansas Business
Corporation Act of 1987, the Articles of Incorporation and
Bylaws that govern Southwest Bancshares stockholders differ
in some respects from First Commercial's Articles and Bylaws.
The following is a brief summary asserting some of the
principal differences between the rights of First Commercial
stockholders and the rights of Southwest Bancshares
stockholders not described elsewhere herein.
Voting Rights
Holders of First Commercial Stock are entitled to one vote
for each share held on all matters brought to a vote before
the stockholders of First Commercial. Stockholders of
Southwest Bancshares Stock also are entitled to one vote for
each share held on all matters brought to a vote before the
stockholders of Southwest Bancshares.
Under First Commercial's Articles, the Board of Directors of
First Commercial is authorized to issue preferred stock. In
the event a series of preferred stock is issued, the holders
of such preferred stock shall be entitled to vote on the
election of two directors in the event of a default in
preference dividends on the preferred stock and shall have
such other voting rights as may be prescribed by First
Commercial's Board of Directors in the articles of amendment
creating such series of preferred stock, which articles of
amendment may be adopted by the Board of Directors without
further stockholder action.
Voting Requirements for Extraordinary Corporate Matters
The corporate law governing First Commercial and Southwest
Bancshares generally requires with respect to mergers,
consolidations, sales of all or substantially all of a
corporation's assets outside the normal course of business,
or voluntary dissolution of a corporation ("extraordinary
corporate matters"), that such extraordinary corporate
matters be approved by the affirmative vote of the holders of
a majority of the votes entitled to be cast. First
Commercial's Articles provide, however, that if a transaction
<PAGE>
is contemplated with an Interested Stockholder (as defined
herein) of First Commercial, then pursuant to the Fair Price
Provision, which is defined and described in greater detail
below, the transaction must be approved by the holders of at
least 80% of the votes entitled to be cast by the holders of
First Commercial Stock. If, on the other hand, the
transaction is approved by a majority of disinterested
directors or if the price paid to all stockholders in
connection with the transaction meet certain standards of
fairness set forth in the Fair Price Provision, the 80% vote
requirement does not apply.
Voting for Election of Directors
The directors of Southwest Bancshares are elected for a term
of one year. Pursuant to First Commercial's Articles, its
board of directors is divided into three classes of
approximately equal size. Such a board is referred to as a
classified or staggered board of directors. Each director of
First Commercial is elected for a term of three years, and
the terms are staggered in such a way that approximately one-
third of the terms expire at each annual meeting. The
staggering of terms of directors has the potential effect of
increasing the difficulty of changing the composition of
First Commercial's board of directors to the extent that at
least two annual meetings, rather than one, will be required
in order for First Commercial stockholders to effect a change
in the majority control of its board of directors.
Neither First Commercial's Articles nor Southwest Bancshares'
Articles provide for cumulative voting with respect to the
election of directors.
Amendment of Articles of Incorporation
An amendment to First Commercial's Articles or Southwest
Bancshares's Articles is deemed approved if the number of
votes cast in favor of the amendment exceeds the number of
votes cast against the amendment, provided that a quorum of
those entitled to vote is represented at the meeting;
provided, however, if the amendment creates dissenters'
rights for a voting group, the amendment must be approved by
a majority of the votes entitled to be cast by such voting
group. However, First Commercial's Articles require the
approval of at least 80% of the shares entitled to vote with
regard to the amendment, modification or repeal of provisions
dealing with a classified board of directors, advance notice
from stockholders of nominations for election of First
Commercial directors, the filling of vacancies on the First
Commercial board of directors, removal of First Commercial
directors, action of stockholders without a meeting, and an
amendment of parallel provisions in First Commercial's
Bylaws.
<PAGE>
Amendment of Bylaws
Stockholders of Southwest Bancshares have the power to amend
the Bylaws of Southwest Bancshares. Stockholders of First
Commercial have the power to amend the Bylaws of First
Commercial with the exception that Bylaw provisions relating
to the nomination of directors by stockholders, notice from
stockholders of matters to be brought by stockholders before
an annual meeting, special meetings, the taking of action by
stockholders without a meeting, the number, election and
terms of directors, the removal of directors, and the filling
of vacancies may be amended or repealed only with the consent
of the holders of at least 80% of the First Commercial Stock
entitled to vote.
Removal of Directors
Stockholders of Southwest Bancshares may remove a director,
either with or without cause, at a meeting called for that
purpose if a quorum is present and if the number of votes
cast to remove him exceeds the number of votes cast not to
remove him. The stockholders of First Commercial may
similarly remove a director, but only for cause.
Limitation of Director Liability
As permitted by the Arkansas Business Corporation Act of
1987, First Commercial's Articles and Southwest Bancshares's
Articles each provide that no director of First Commercial or
Southwest Bancshares shall be personally liable to First
Commercial or Southwest Bancshares, respectively, or their
respective stockholders for monetary damages for or with
respect to any acts or omissions in the performance of his
duties as director.
Filling Vacancies on the Board of Directors
Under the corporate law governing Southwest Bancshares,
vacancies on its Board of Directors may be filled by the vote
of its stockholders or the Board of Directors. Under First
Commercial's Articles, vacancies on its board of directors
shall be filled solely by the affirmative vote of a majority
of the remaining directors then in office. This provision
precludes the holder of a majority of First Commercial Stock
from removing incumbent directors and simultaneously gaining
control of the Board of Directors by filling the vacancies
created by removal with his own nominees.
Nomination of Director Candidates and Advance Notice of
Matters to be Brought Before an Annual Meeting by
Stockholders
First Commercial's Articles provide that nominations for the
election of directors and placement of matters before the
stockholders at an annual meeting must be made as provided by
<PAGE>
the First Commercial Bylaws. The pertinent bylaw provisions
provide that stockholders intending to nominate director
candidates for election must deliver written notice thereof
to the Secretary of First Commercial not later than (i) with
respect to an election to be held at an annual meeting of
stockholders, ninety (90) days prior to the anniversary date
of the immediately preceding annual meeting of stockholders,
and (ii) with respect to an election to be held at a special
meeting of stockholders, the close of business on the tenth
day following the date on which notice of such meeting is
first given to stockholders. The Bylaws further provide that
the notice shall set forth certain information concerning
such stockholder and his nominee(s), including their names
and addresses, a representation that the stockholder is
entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to nominate the person or
persons specified in the notice, a description of all
arrangements or understandings between the stockholder and
each nominee, such other information as would be required to
be included in a proxy statement soliciting proxies for the
election of the nominees of such stockholder and the consent
of each nominee to serve as a director of First Commercial if
so elected.
The First Commercial Bylaws further provide that for business
properly to be brought before an annual meeting by a
stockholder, the stockholder must deliver written notice of
such matter to the Secretary of First Commercial not less
than ninety (90) days prior to the anniversary date of the
immediately preceding annual meeting of stockholders and the
notice must set forth as to each matter the stockholder
proposes to bring before the annual meeting (i) a brief
description of the business, (ii) the name and address of the
stockholder proposing such business, (iii) the class and
number of shares of First Commercial beneficially owned by
the stockholder, and (iv) any material interest of the
stockholder in such business.
The advance notice requirements, by regulating stockholder
nominations and matters to be brought before an annual
meeting by stockholders, afford the board of directors of
First Commercial the opportunity to consider the
qualifications of proposed nominees and the importance of
matters proposed to be brought before an annual meeting and,
to the extent deemed necessary or desirable by the Board, to
inform stockholders about the qualifications of nominees and
issues important to the consideration of matters brought
before an annual meeting. There is the chance that these
provisions may discourage or deter a third party from
conducting a solicitation of proxies to elect its own slate
of directors or to adopt a matter which serves its own
interest, without regard to whether such might be harmful or
beneficial to First Commercial and its stockholders.
<PAGE>
Fair Price Provision
The following summary of the Fair Price Provision in First
Commercial's Articles (the "Fair Price Provision") is
qualified in its entirety by reference to the Fair Price
Provision found in Article EIGHTH of First Commercial's
Articles, which appear as an exhibit to the Registration
Statement of which this Joint Proxy Statement/Prospectus is a
part.
First Commercial's Articles require approval by holders of
eighty percent (80%) of the votes entitled to be cast as a
condition for mergers and certain other Business Combinations
(as hereinafter more fully defined, "Business Combination")
involving First Commercial and any person or group holding
five percent (5%) or more of the First Commercial Stock (an
"Interested Shareholder"), unless the transaction is approved
by a majority of the members of the First Commercial Board
who are unaffiliated with the Interested Shareholder and who
were directors before the Interested Shareholder became an
Interested Shareholder, or certain minimum price and
procedural requirements are met.
A Business Combination includes (a) a merger or consolidation
of First Commercial with an Interested Shareholder, (b) the
sale or other disposition by First Commercial or a subsidiary
of assets of $10,000,000 or more if an Interested Shareholder
is a party to the transaction, (c) the issuance of stock or
other securities of First Commercial or of a subsidiary to a
person that, immediately prior to such issuance, is an
Interested Shareholder in exchange for cash or property of
$10,000,000 or more, (d) the adoption of any plan or proposal
for the liquidation or dissolution of First Commercial
proposed by or on behalf of an Interested Shareholder, or (e)
any reclassification of securities, recapitalization, merger
with a subsidiary or other transaction which has the effect,
directly or indirectly, of increasing the proportionate
shares of the outstanding stock of any class of First
Commercial or a subsidiary owned by an Interested
Shareholder.
The 80% affirmative stockholder vote contemplated by the Fair
Price Provision is not required if (1) the transaction is
approved by a majority of the disinterested directors or (2)
all of the various minimum price criteria and procedural
requirements are satisfied.
The minimum price criteria referred to above require that
when cash or other consideration is being paid to First
Commercial stockholders in connection with a Business
Combination, the consideration to be paid would be required
to be either cash or the same type of consideration used by
the Interested Shareholder in acquiring the largest portion
of its common stock prior to the first public announcement of
<PAGE>
the terms of the proposed Business Combination. In the case
of payments of First Commercial Stock to stockholders, the
per share fair market value of such payments would have to be
at least equal in value to the higher of (i) the highest per
share price paid by an Interested Shareholder in acquiring
any shares during the two years prior to announcement of the
Business Combination or in the transaction in which it became
an Interested Shareholder (whichever is higher) or (ii) the
fair market value per share of common stock on the date of
the announcement of the Business Combination or on the date
on which the Interested Shareholder became an Interested
Shareholder (whichever is higher), in either case
appropriately adjusted for any stock dividend, stock split or
combination of shares.
The Fair Price Provision provides that a vote of the holders
of eighty percent (80%) or more of the votes entitled to be
cast by the holders of First Commercial Stock is required in
order to amend, alter or repeal, or adopt any provisions
inconsistent with, the Fair Price Provision.
Because of the higher percentage requirement for stockholder
approval of any Business Combination not meeting the price
and procedural requirements described above, and the
possibility of having to pay a higher price than would
otherwise be the case to other stockholders in such a
Business Combination, it may become more costly for a
purchaser to acquire control of First Commercial. The Fair
Price Provision may therefore decrease the likelihood that a
tender offer will be made for less than 80% of the voting
power of First Commercial Stock and, as a result, may
adversely affect those stockholders who would desire to
participate in such a tender offer. The Fair Price Provision
also has the effect of giving veto power to the holders of a
minority of the voting power of First Commercial Stock with
respect to a Business Combination that is opposed by the
Board of Directors but which a majority of the stockholders
may believe to be desirable and beneficial. In addition,
since only the disinterested directors will have the
authority to eliminate the 80% stockholder vote required for
a Business Combination, the Fair Price Provision may have the
effect of insulating current management against the
possibility of removal in the event of a takeover bid.
Shareholder Rights Plan
Preferred share purchase rights ("Rights") are attached to
shares of First Commercial Stock, including the shares
offered hereby, pursuant to a Shareholder Rights Plan of
First Commercial (the "Rights Plan"). The following
description of the Rights is qualified in is entirety by
reference to the Rights Plan, which is incorporated herein by
reference. See "Information Concerning First Commercial -
Information Incorporated by Reference."
<PAGE>
The Rights trade automatically with shares of First
Commercial Stock, and become exercisable and will trade
separately from the First Commercial Stock on the tenth day
after public announcement that a person or group has
acquired, or has the right to acquire, beneficial ownership
of 20% or more of the outstanding shares of First Commercial
Stock, or on the tenth day following commencement or
announcement of intent to make a tender offer for 20% or more
of the outstanding shares of First Commercial Stock, in
either case without prior written consent of the First
Commercial Board. When exercisable, one Right entitles the
holder to buy 1/100 of a share of Junior Participating
Preferred Stock of First Commercial at an exercise price of
$75 per Right. The exercise price payable, and the number of
shares of Junior Participating Preferred Stock issuable, upon
exercise of the Rights are subject to adjustment from time to
time upon the occurrence of certain events in order to
prevent dilution. In addition, the number of outstanding
Rights are also subject to adjustment in the event of a stock
dividend on First Commercial Stock payable in shares of First
Commercial Stock, subdivisions of the First Commercial Stock,
or combinations of shares of First Commercial Stock into a
smaller number of shares.
In the event a person acquires a beneficial ownership of 20%
or more of First Commercial Stock, holders of Rights (other
than the acquiring person or group) may purchase First
Commercial Stock having a market value of twice the then
current exercise price of each Right or, under certain
circumstances, holders of Rights may purchase stock of the
acquiring company having a market value of twice the current
exercise price of each Right.
The Rights are designed to protect the interests of First
Commercial and its shareholders against coercive takeover
tactics. The purpose of the Rights is to encourage potential
acquirors to negotiate with First Commercial's Board of
Directors prior to attempting a takeover and to give the
Board leverage in negotiating on behalf of all shareholders
the terms of any proposed takeover. The Rights may deter
certain takeover proposals. The Rights, which can be
redeemed by First Commercial's Board of Directors in certain
circumstances, expire by their terms on September 28, 2000.
LEGAL OPINIONS
The validity of the shares of First Commercial Stock offered
hereby will be passed upon for First Commercial by Friday,
Eldredge & Clark, Little Rock, Arkansas. Legal opinions
relating to tax matters will be furnished by Friday, Eldredge
& Clark, special tax counsel to First Commercial. Paul B.
Benham III, a partner of Friday, Eldredge & Clark,
beneficially owns, individually and through various
retirement plans, 1,945 shares of First Commercial Stock.
<PAGE>
Certain legal matters will be passed upon for Southwest
Bancshares by Mitchell, Williams, Selig, Gates & Woodyard,
P.L.L.C., Little Rock, Arkansas. John S. Selig, a member of
Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C.,
beneficially owns, individually and through various retirement
plans, 250 shares of Southwest Bancshares Stock and 224 shares
of First Commercial Stock.
EXPERTS
Southwest Bancshares
The consolidated financial statements of Southwest Bancshares
and subsidiaries as of December 31, 1996 and 1995, and for
each of the three years in the period ended December 31, 1996,
appearing in this Prospectus and Registration Statement have
been audited by Kemp & Company, independent auditors, as set
forth in their report thereon appearing elsewhere herein and
in the Registration Statement, and are included in reliance
upon such report given upon the authority of such firm as
experts in accounting and auditing.
First Commercial
The consolidated financial statements of First Commercial
incorporated by reference in First Commercial's Annual Report
(Form 10-K) for the year ended December 31, 1996, have been
audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial
statements are incorporated herein by reference in reliance
upon such reports given upon the authority of such firm as
experts in accounting and auditing.
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF SOUTHWEST BANCSHARES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF SOUTHWEST
BANCSHARES
Report of Independent Auditors F-1
Consolidated Balance Sheets - December 31, 1996 and 1995 F-2
Consolidated Statements of Income - Years ended
December 31, 1996, 1995 and 1994 F-3
Consolidated Statements of Stockholder's Equity -
Years ended December 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Cash Flows -
Years ended December 31, 1996, 1995 and 1994 F-5
Notes to Consolidated Financial Statements -
December 31, 1996 F-6
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Southwest Bancshares, Inc.
We have audited the accompanying consolidated balance sheets of Southwest
Bancshares, Inc. and subsidiaries 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 Southwest
Bancshares, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, the Company
changed its method of accounting for investment securities during 1994.
/s/ Kemp & Company
Little Rock, Arkansas
January 31, 1997
<PAGE>
SOUTHWEST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
1996 1995
------- -------
ASSETS
Cash and due from banks (Note 2) $ 22,188,099 $ 17,738,653
Interest bearing deposits in other
financial institutions 149,797 129,564
Federal funds sold 23,480,000 13,295,000
Investment securities (Note 3):
Held-to-maturity securities (approximate
fair values of $110,221,425 in 1996 and
$89,232,381 in 1995) 110,977,790 89,353,147
Available-for-sale securities 32,995,543 27,818,747
----------- -----------
143,973,333 117,171,894
Loans, net (Notes 4, 8, 10 and 12) 596,735,989 508,114,511
Premises and equipment, net (Note 5) 19,068,763 17,242,826
Accrued interest receivable 7,619,981 7,340,153
Goodwill, net of accumulated amortization
of $1,110,951 in 1995 and $855,425 in 1995 2,688,179 2,959,543
Other assets 3,904,106 2,225,538
------------ -------------
$819,808,247 $686,217,682
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note 6):
Noninterest bearing $ 55,129,411 $ 43,550,880
Interest bearing 661,117,399 555,774,498
----------- -----------
716,246,810 599,325,378
Federal funds purchased and securities
sold under agreements to repurchase 17,332,321 13,401,616
Revolving credit loan (Note 7) 9,250,000 7,000,000
Other borrowed funds (Note 8) 14,393,965 11,567,436
Accrued interest payable 7,310,224 5,872,492
Other liabilities 1,747,736 1,146,362
---------- ------------
Total liabilities 766,281,056 638,313,284
=========== ===========
Commitments (Notes 10, 12, 16 and 17)
<PAGE>
Stockholders' equity (Notes 7, 9, 14, 16
and 17): Common stock, $1 par value:
Authorized 10,000,000 shares
Issued and outstanding: 245,275 shares 245,275 245,275
Surplus 36,636,962 36,636,962
Retained earnings 16,723,701 10,993,207
Net unrealized gains (losses) on
available-for-sale securities less
deferred income taxes (benefit) of
($48,861) in 1996 and $17,965 in 1995 (78,747) 28,954
---------- -----------
Total stockholders' equity 53,527,191 47,904,398
------------ ------------
$819,808,247 $686,217,682
============ ============
See notes to consolidated financial statements.
<PAGE>
SOUTHWEST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
------ ----- -----
Interest income:
Loans, including fees $52,924,159 $40,161,174 $24,002,157
Investment securities:
Taxable 6,878,065 5,824,038 4,850,016
Tax-exempt 748,077 837,614 806,188
Other 689,720 449,270 258,797
---------- ---------- ----------
61,240,021 47,272,096 29,917,158
Interest expense:
Deposits 33,413,163 27,921,004 15,319,616
Short-term borrowings 966,620 593,014 294,132
Long-term borrowings 1,501,450 1,441,505 819,873
---------- ---------- ----------
35,881,233 29,955,523 16,433,621
---------- ---------- ----------
Net interest income 25,358,788 17,316,573 13,483,537
Provision for loan losses
(Note 4) 5,581,265 1,163,874 994,077
---------- ---------- ----------
Net interest income after
provision for loan losses 19,777,523 16,152,699 12,489,460
Other income:
Service charges on deposit
accounts 2,990,749 2,292,846 1,468,097
Net gains (losses) on sales
of available-for-sale
securities (5,769) 4,318 -0-
Other (Note 15) 2,113,799 1,401,671 656,531
--------- --------- ---------
5,098,779 3,698,835 2,124,628
Other expenses:
Salaries and benefits 7,973,273 6,580,499 5,027,234
Net occupancy 2,466,036 2,012,853 1,466,631
Amortization 255,526 256,341 281,382
Other (Note 15) 5,552,760 4,143,705 3,466,512
---------- ---------- ----------
16,247,595 12,993,398 10,241,759
---------- ---------- ----------
Income before income taxes 8,628,707 6,858,136 4,372,329
Applicable income taxes
(Note 11) 2,898,213 2,245,867 1,349,635
---------- ---------- ----------
Net income $ 5,730,494 $ 4,612,269 $ 3,022,694
========== ========= =========
Net income per common share $ 23.36 $ 21.22 $ 16.08
===== ===== =====
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
SOUTHWEST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1996, 1995 and 1994
Unrealized
gains (losses)
on available-
Common Retained for-sale
stock Surplus earnings securities Total
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $ 1,654,750 $20,241,287 $ 3,358,244 $ $25,245,281
Adjustment for change in
accounting principle, net
of deferred income taxes
of $64,329 (Note 3) 104,957 104,957
Issuance of common stock
(43,600 shares) 436,000 7,063,200 7,499,200
Net income 3,022,694 3,022,694
Net change in unrealized
gains (losses) on
available-for-sale
securities, net of
deferred income tax
benefit of $258,358 (423,925) (423,925)
Reduction in par value
of common stock
(Note 9) (1,873,575) 1,873,575
--------- --------- ---------- --------- ----------
Balance at December 31, 1994 208,175 29,178,062 6,380,938 (318,968) 35,448,207
Issuance of common stock
(37,100 shares) 37,100 7,458,900 7,496,000
Net income 4,612,269 4,612,269
Net change in unrealized
gains (losses) on
available-for-sale
securities, net of
deferred income taxes
of $215,880 347,922 347,922
--------- ---------- ---------- -------- ----------
Balance at December 31, 1995 245,275 36,636,962 10,993,207 28,954 47,904,398
Net income 5,730,494 5,730,494
Net change in unrealized
gains (losses) on
available-for-sale
securities, net of
deferred income tax
benefit of $66,827 (107,701) (107,701)
--------- ---------- --------- -------- ----------
Balance at December 31, 1996 $ 245,275 $36,636,962 $16,723,701 $ (78,747) $53,527,191
========= ========== ========== ======== ==========
<FN>
See notes to consolidated financial statements.
</FN>
<PAGE>
SOUTHWEST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
------ ------ ------
Operating activities:
Net income $ 5,730,494 $ 4,612,269 $ 3,022,694
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and amortization 1,418,274 1,214,949 968,232
Amortization of investment
securities premiums and
accretions of discounts, net (214) 66,332 157,486
Provision for loan losses 5,581,265 1,163,874 994,077
Deferred income taxes (1,800,000) (215,000) (299,000)
Net gains (losses) on sales
of available-for-sale
securities 5,769 (4,318) -0-
Changes in assets and
liabilities net of effects
of acquisitions:
Accrued interest receivable
and other assets (91,570) (2,620,547) (2,075,371)
Accrued interest payable and
other liabilities 2,039,106 3,517,049 1,063,270
--------- --------- ---------
Net cash provided by operating
activities 12,883,124 7,734,608 3,831,388
Investing activities:
Net assets of acquired
subsidiaries, net of cash
acquired -0- -0- (1,905,194)
Net decrease (increase) in
federal funds sold (10,185,000) (13,295,000) 14,850,000
Proceeds from sales of
investment securities 965,575 1,021,875 -0-
Proceeds from maturities of
held-to-maturity securities 34,977,623 9,802,763 5,668,625
Purchases of held-to-maturity
securities (52,583,330) (10,352,306) (38,136,954)
Proceeds from maturities of
available-for-sale securities 5,800,000 12,920,000 8,945,000
Purchases of available-for-sale
securities (16,141,389) (15,326,858) (7,741,965)
Net increase in loans (94,202,743) (129,961,439) (130,884,409)
Purchases of premises and
equipment (2,972,847) (2,500,078) (4,802,218)
Other 5,558 (38,854) 488,675
----------- ----------- -----------
Net cash used in
investing activities (134,336,553) (147,729,897) (153,518,440)
<PAGE>
Financing activities:
Net increase in deposits 116,921,432 128,463,031 131,114,317
Net increase (decrease) in
federal funds purchased and
securities sold under
agreements to repurchase 3,930,705 (1,241,982) 12,908,598
Proceeds from long-term
borrowings 6,340,400 10,550,000 9,922,000
Payments on long-term
borrowings (1,263,871) (6,177,205) (4,096,188)
Proceeds from issuance of
common stock -0- 7,496,000 7,499,200
----------- ----------- -----------
Net cash provided by
financing activities 125,928,666 139,089,844 157,347,927
=========== =========== ===========
Net increase (decrease) in cash 4,475,237 (905,445) 7,660,875
Balance - January 1 17,712,862 18,618,307 10,957,432
---------- ---------- ----------
Balance - December 31 $22,188,099 $17,712,862 $18,618,307
=========== =========== ===========
See notes to consolidated financial statements.
<PAGE>
Note 1: Organization and summary of significant accounting policies
Organization
Southwest Bancshares, Inc. (the Company) was formed on July 3, 1990, as a
bank holding company. The Company has the following wholly - owned
subsidiaries as of December 31, 1996: First Bank of Arkansas, Russellville,
Arkansas (the Russellville Bank); First Bank of Arkansas, Jonesboro, Arkansas
(the Jonesboro Bank); First Bank of Arkansas, Wynne, Arkansas (the Wynne
Bank); and First Bank of Arkansas, Searcy, Arkansas (the Searcy Bank). During
1995, the First Bank of Arkansas, Trumann Arkansas (the Trumann Bank) was
merged into the Jonesboro Bank. This transaction had no effect on the
consolidated financial statements.
Acquisitions
The Company acquired all of the stock of the Searcy Bank on April 13, 1994
for $2,600,000. The purchase price was approximately $1,204,000 in excess of
the fair value of the net assets acquired which was recognized in the
financial statements as goodwill. This transaction was accounted for by the
purchase method and, accordingly, results of operations of the Searcy Bank
have been included in the consolidated financial statements since the date of
acquisition.
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly-owned. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Investment securities
The Company's investment securities are classified as held-to-maturity
securities and available-for-sale securities. Debt securities for which
the Company has the positive intent and ability to hold until
<PAGE>
Note 1: Summary of significant accounting policies (continued)
Investment securities (continued)
maturity are classified as held-to-maturity securities that are reported at
cost, adjusted for amortization of premiums and accretion of discounts.
Available-for-sale securities consist of securities not classified
as held-to-maturity and are reported at fair value. Unrealized holding gains
and losses, net of tax, on available-for-sale securities are reported as a
net amount in a separate component of stockholders' equity until realized.
Gains or losses on the sale of securities are computed using the carrying
amount of the specific securities sold.
Revenue recognition
Interest on loans is recognized in operations based upon the principal amount
outstanding. Loans are placed on nonaccrual status when management believes
that, after giving consideration to economic and business conditions and
collection efforts, the collection of interest is doubtful or when the payment
of principal and interest has become contractually 90 days past due unless the
obligation is both well secured and in process of collection.
Allowance for loan losses
The allowance for loan losses is maintained at a level adequate to absorb
probable losses. Management determines the adequacy of the allowance based
on reviews of individual loans, recent loan loss experience, current economic
conditions, the risk characteristics of the various categories of loans and
other pertinent factors. Loans are charged against the allowance for loan
losses at such time as management believes the collectibility of the principal
is unlikely. Provisions for loan losses and recoveries on loans previously
charged off are added to the allowance.
Premises and equipment
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation expense is computed on the straight-line method over the
estimated useful lives of the assets.
Goodwill
Goodwill is amortized using the straight-line method over 15 years.
<PAGE>
Note 1: Summary of significant accounting policies (continued)
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.
The Company and its bank subsidiaries file consolidated income tax returns.
Each subsidiary provides for income taxes on a separate-return basis and
remits to or receives from the Company amounts currently payable or
receivable in accordance with the Company's tax allocation agreement.
Earnings per share
Earnings per share is based on the average shares outstanding during each
year which were 245,275 shares, 217,396 shares, and 187,964 shares for the
years ended December 31, 1996, 1995 and 1994, respectively.
Cash equivalents
For purposes of the statements of cash flows, the Company considers cash
and due from banks as cash and cash equivalents.
Reclassifications
Certain reclassifications of 1995 and 1994 amounts were made to conform
with the 1996 presentation.
Future application of accounting standards
During 1996, the Financial Accounting Standards Board issued Statement No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". The adoption of Statement No. 125 (required
in 1997), which supercedes previous accounting standards for the sale of
mortgage loans subject to repurchase agreements (see Note 10), is not
expected to have a significant impact on the Company's consolidated financial
statements.
<PAGE>
Note 1: Summary of significant accounting policies (continued)
Fair values of financial instruments
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments (see Note 10 for
summary table):
Cash, due from banks, interest bearing deposits in other financial
institutions and federal funds sold: The carrying amounts for these assets
reported in the balance sheet approximate their fair values.
Investment securities: Fair values for investment securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values.
The fair values for fixed-rate loans are estimated using discounted cash
flow analyses, using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality or using quoted market
prices for securities backed by similar loans, adjusted for differences in
loan characteristics.
Deposits: The fair values of noninterest bearing deposits, interest bearing
transaction accounts and savings accounts are, by definition, equal to the
amount payable on demand at the reporting date (i.e., their carrying amounts).
The carrying amounts for variable-rate, fixed-term money market accounts and
certificates of deposits approximate their fair values at the reporting date.
Fair values for fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly
maturities of such deposits.
Short-term borrowings: The carrying amounts of federal funds purchased and
securities sold under agreements to repurchase approximate their fair values.
Other borrowed funds: Fair values are estimated using rates currently
offered for borrowings of similar maturities.
Revolving credit loan: Fair value on the revolving credit loan is the amount
payable at the reporting date since the interest rate is equal to the prime
rate on corporate loans.
<PAGE>
Note 1: Summary of significant accounting policies (continued)
Fair values of financial instruments (continued)
Accrued interest: The carrying amounts of accrued interest approximate their
fair values.
Commitments to extend credit and standby letters of credit: The fair values
of commitments are estimated using the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements
and the present credit worthiness of the counterparties. The fair values of
standby letters of credit are based on fees currently charged for similar
agreements or on the estimated cost to terminate them or otherwise settle the
obligations with the counterparties at the reporting date. Due to the
insignificance of the fees that would be currently charged for such agreements
and the short-term nature of the current agreements, no fair value estimates
have been made for commitments to extend credit and standby letters of credit.
Note 2: Restrictions on cash and due from bank accounts
The bank subsidiaries are required to maintain average reserve balances with
the Federal Reserve Bank. The average amounts of the reserve balances for the
years ended December 31, 1996 and 1995 were approximately $3,129,000 and
$2,400,000, respectively.
Note 3: Investment securities
On January 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities". In accordance with the Statement, prior
period financial statements were not restated to reflect the change in
accounting principle. The adoption of the Statement resulted in an increase
in stockholders' equity of $104,957, net of $64,329 in deferred income taxes,
as of January 1, 1994 to reflect the net unrealized gains on securities
classified as available-for-sale.
<PAGE>
Note 3: Investment securities (continued)
The amortized cost and approximate fair values of investment securities are
as follows as of December 31:
1996
------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
-------- --------- --------- -----
Held-to-maturity:
U. S. Treasury securities
and obligations of U.S.
government agencies $ 98,495,282 $105,579 $ 676,208 $ 97,924,653
Obligations of states and
political subdivisions 11,262,161 150,105 351,243 11,061,023
Mortgage-backed securities 1,220,347 18,311 2,909 1,235,749
Total debt securities 110,977,790 273,995 1,030,360 110,221,425
Equity securities -0- -0- -0- -0-
----------- ------- --------- ----------
$110,977,790 $273,995 $1,030,360 $110,221,425
=========== ======= ========= ===========
Available-for-sale:
U.S. Treasury securities
and obligations of U.S.
government agencies $ 24,406,106 $100,160 $ 209,845 $ 24,296,421
Obligations of states and
political subdivisions 3,138,834 26,055 43,877 3,121,012
Corporate debt securities 1,000,488 422 -0- 1,000,910
Total debt securities 28,545,428 126,637 253,722 28,418,343
Equity securities 4,577,200 -0- -0- 4,577,200
---------- ------- ------- -----------
$ 33,122,628 $126,637 $ 253,722 $ 32,995,543
========== ======= ======= ==========
<PAGE>
Note 3: Investment securities (continued)
1995
------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
--------- -------- -------- -----
Held-to-maturity:
U. S. Treasury securities
and obligations of U.S.
government agencies $76,074,700 $350,388 $382,175 $76,042,913
Obligations of states and
political subdivisions 11,524,141 226,053 348,157 11,402,037
Mortgage-backed securities 1,754,306 34,671 1,546 1,787,431
Total debt securities 89,353,147 611,112 731,878 89,232,381
Equity securities -0- -0- -0- -0-
---------- ------- -------- ----------
$89,353,147 $611,112 $731,878 $89,232,381
========== ======= ======= ==========
Available-for-sale:
U.S. Treasury securities
and obligations of U.S.
government agencies $18,119,284 $201,586 $ 42,093 $18,278,777
Obligations of states and
political subdivisions 4,105,374 60,372 168,601 3,997,145
Corporate debt securities 1,787,375 -0- 4,700 1,782,675
---------- ------- ------- ----------
Total debt securities 24,012,033 261,958 215,394 24,058,597
Equity securities 3,760,150 -0- -0- 3,760,150
---------- ------- ------- ----------
$27,772,183 $261,958 $215,394 $27,818,747
========== ======= ======= ==========
<PAGE>
Note 3: Investment securities (continued)
The scheduled maturities of held-to-maturity and available-for-sale debt
securities at December 31, 1996 are as follows:
Held-to-maturity Available-for-sale
---------------- -------------------
Amortized Fair Amortized Fair
cost value cost value
-------- ----- ------- -----
Due in one year or
less $ 13,303,522 $ 13,339,044 $ 1,999,106 $ 2,005,590
Due after one year
through five years 77,214,493 76,826,138 21,659,479 21,552,996
Due after five years
through ten years 13,378,241 13,184,820 1,250,000 1,252,965
Due after ten years 5,861,187 5,635,674 3,636,843 3,606,792
----------- ----------- ---------- ----------
109,757,443 108,985,676 28,545,428 28,418,343
Mortgage-backed
securities 1,220,347 1,235,749 -0- -0-
----------- ----------- ---------- ---------
$110,977,790 $110,221,425 $28,545,428 $28,418,343
=========== =========== ========== ==========
Proceeds from sales of available-for-sale securities during 1996 amounted to
$965,575. Gross gains of $25,460 and gross losses of $31,229 were realized on
the sales. Proceeds from sales of available-for-sale securities during 1995
amounted to $1,021,875 and gross gains of $4,318 were realized on the sales.
There were no sales of investment securities during 1994.
In connection with the implementation of the Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities issued by the Financial Accounting Standards Board in November
1995, management transferred held-to-maturity investment securities with an
amortized cost balance of $4,105,374 to the available-for-sale securities
category. The unrealized loss on the securities transferred amounted to
$103,299.
At December 31, 1996 and 1995, investment securities with an aggregate
carrying amount of approximately $122,109,000 and $81,832,000, respectively,
were pledged to collateralize public deposits and for other purposes.
<PAGE>
Note 4: Loans and allowance for loans losses
The major categories of loans as of December 31, 1996 and 1995 are as follows:
1996 1995
---- ----
Real Estate:
Residential $149,408,304 $133,742,318
Construction 59,856,122 50,224,119
Other 167,458,341 131,546,312
Commercial 158,131,322 126,891,301
Agricultural loans 28,556,058 32,760,078
Installment 42,377,087 37,027,088
----------- -----------
605,787,234 512,191,216
Less allowance for loan losses (9,051,245) (4,076,705)
----------- -----------
Loans, net $596,735,989 $508,114,511
=========== ===========
Changes in the allowance for loan losses are as follows:
1996 1995 1994
---- ---- ----
Beginning balance $4,076,705 $3,214,584 $2,220,504
Provision for loan losses 5,581,265 1,163,874 994,077
Allowances of acquired
institutions -0- -0- 111,896
Net charges-offs:
Charge-offs (756,108) (357,007) (164,219)
Recoveries 149,383 55,254 52,326
--------- --------- ---------
Ending balance $9,051,245 $4,076,705 $3,214,584
========= ========= =========
During 1995, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan", as
amended by SFAS No. 118. The Statement requires that impaired loans, which
management considers to be nonaccrual loans, be measured based on the present
value of expected future cash flows discounted at the loan's effective
interest rate, or as a practical expedient, at the loan's observable market
price or the fair value of the collateral if the loan is collateral dependent.
The effect of the adoption of this Statement on the Company's 1995 financial
statements was not significant.
<PAGE>
Note 4: Loans and allowance for loans losses (continued)
Nonaccrual loans amounted to approximately $2,660,000 and $286,000 at December
31, 1996 and 1995, respectively. There were no significant allowance
for loan loss allocations for nonaccrual loans at December 31, 1996 and 1995.
Average nonaccrual loans were not significant for the years ended December
31, 1996 and 1995.
<PAGE>
Note 5: Premises and equipment
Premises and equipment consists of the following at December 31:
1996 1995
---- ----
Land $ 2,009,910 $ 1,987,505
Building and improvements 14,017,538 11,837,157
Furniture and equipment 6,134,171 4,720,086
Construction in progress -0- 689,873
---------- ----------
22,161,619 19,234,621
Less accumulated depreciation (3,092,856) (1,991,795)
---------- ---------
$19,068,763 $17,242,826
========== ==========
Depreciation expense amounted to $1,146,910, $943,028 and $686,850,
in 1996, 1995 and 1994, respectively.
<PAGE>
Note 6: Deposits
The following summarizes information on deposits as of December 31:
1996 1995
Noninterest bearing accounts $ 55,129,411 $ 43,550,880
NOW and money market accounts 108,602,395 93,056,225
Savings accounts 18,692,489 16,490,874
Time deposits, $100,000 and over 202,882,816 155,546,139
Other time deposits 330,939,699 290,681,260
----------- -----------
$716,246,810 $599,325,378
=========== ===========
Note 6: Deposits
Interest paid on deposits and long-term borrowings amounted to $34,443,501,
$26,646,232 and $15,217,319 for the years ended December 31, 1996, 1995 and
1994, respectively.
Note 7: Revolving credit loan
The Company's revolving credit loan with a financial institution bears
interest, which is payable quarterly, at the lender's prime rate (8.25% at
December 31, 1996 and 8.5% at December 31, 1995). Principal payments
sufficient to reduce the outstanding principal balance to the maximum
aggregate principal amount as set forth below are payable in annual
installments on the 15th day of each January until 2002. On January 15,
2003, the remaining outstanding principal balance plus all accrued and unpaid
interest is due and payable. The note is collateralized by all of the
outstanding stock of the Company's subsidiaries. The maximum available
aggregate principal amount is as follows:
Maximum Aggregate
Principal Amount
----------------
Through January 15, 1996 $12,000,000
January 16, 1996 through January 15, 1997 10,872,000
January 16, 1997 through January 15, 1998 9,654,366
January 16, 1998 through January 15, 1999 8,128,951
January 16, 1999 through January 15, 2000 6,747,029
January 16, 2000 through January 15, 2001 5,242,442
January 16, 2001 through January 15, 2002 3,633,012
January 16, 2002 through January 15, 2003 1,855,533
The revolving credit loan agreement provides that the Company may declare and
pay dividends to its stockholders without the written consent of the lender
if the payments of principal and interest on the loan are current and the
amount of the dividends do not exceed 25% of net income (see Note 17). The
agreement allows the bank subsidiaries to pay dividends to the Company in
amounts necessary to pay amounts currently due to the lender and operating
expenses (see Note 14 for regulatory restrictions on the payments of dividends
by the bank subsidiaries). The revolving credit agreement requires the
Company and the bank subsidiaries to maintain specified financial ratios.
Certain of the financial ratio requirements have been waived by the lender.
<PAGE>
Note 8: Other borrowed funds
1996 1995
---- ----
Advances from Federal Home Loan Bank (FHLB) $14,357,965 $11,513,436
Unsecured installment note 36,000 54,000
---------- ----------
$14,393,965 $11,567,436
========== ==========
Advances from the FHLB under the Blanket Floating Lien Program are used to
fund residential real estate loans. First mortgage loans (1-4 family) must
be available to secure borrowings in an aggregate amount of up to the lesser
of 65% of the book value of such loans or 35% of total assets. The advances
are payable monthly with interest rates ranging from 5.62% to 8.41% and have
final maturities ranging from 1997 through 2015.
The unsecured installment note is payable in annual installments of $18,000
with interest at 6%.
Schedule principal payments on other borrowed funds for the next five years
are as follows: 1997 - $2,384,268; 1998 - $2,351,553; 1999 - $1,268,625;
2000 - $1,249,442; and 2001 - $1,151,494.
Note 9: Change in par value of common stock
In November 1995, the stockholders of the Company approved an amendment to
the Articles of Incorporation increasing the authorized shares of the Company
from 250,000 shares to 10,000,000 shares. In November 1994, the stockholders
of the Company approved an amendment to the Articles of Incorporation reducing
the par value of the Company's common stock to $1 from $10. The reduction
in the par value of common stock resulted in a transfer of $1,873,575 from
common stock to surplus in the consolidated financial statements.
Note 10: Commitments, financial instruments and concentrations of credit
risk
The bank subsidiaries are parties to financial instruments with off-balance-
sheet risk in the normal course of business to meet the financing needs of
their customers. These financial instruments include commitments to extend
credit, standby letters of credit and loans sold subject to repurchase
agreements. Those instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amounts recognized in the consolidated
balance sheets.
<PAGE>
Note 10: Commitments, financial instruments and concentrations of credit
risk (continued)
The exposure to credit loss in the event of nonperformance by the other party
to the financial instrument for commitments to extend credit, standby letters
of credit and loans sold subject to repurchase agreements is represented by
the contractual terms of those instruments. The bank subsidiaries use the
same credit policies in making commitments and conditional obligations as
they do for on-balance-sheet instruments. The total amounts of financial
instruments with off-balance-sheet risk are as follows at December 31:
1996 1995
---- -----
Commitments to extend credit $87,870,000 $79,041,000
Standby letters of credit 2,598,000 610,000
Mortgage loans sold subject to
repurchase agreements 39,475,000 16,509,000
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 credit risk involved in issuing letters of credit is essentially the same
as that involved in extending loan facilities to customers. Standby letters
of credit are conditional commitments issued by the bank subsidiaries to
guarantee the performance of customers to third parties. Those guarantees
are primarily issued to support private borrowing arrangements. Bank
subsidiaries were committed as of December 31, 1996 and 1995 under certain
mortgage loan sale agreements to repurchase loans that did not meet the
standards of the related sale agreements or that became delinquent within a
stated period of timeafter being sold to permanent investors.
The bank subsidiaries evaluate each customer's creditworthiness on a case-by-
case basis. The amount of collateral obtained, if deemed necessary upon
extension of credit, is based on management's credit evaluation of the
counterparty. Collateral held varies but may include securities, accounts
receivable, agricultural equipment and crops, inventory, property, plant, and
equipment, income-producing commercial properties and residential and
agricultural real estate.
Most of the Company's lending activities are with customers located in the
market areas of the bank subsidiaries. The concentrations of credit by major
category of loan type are set forth in Note 4. Each bank subsidiary, as a
matter of policy, does not extend credit to any single borrower or group of
related borrowers in excess of amounts allowable under regulatory limits of
loans to such borrowers. The loan policies of the bank subsidiaries provide
for loan to value ratios by type of loan.
<PAGE>
Note 10: Commitments, financial instruments and concentrations of credit
risk (continued)
The estimated fair values of the Company's financial instruments (see Note 1
for methods and assumptions used by the Company in estimating fair values)
were as follows at December 31:
1996 1995
------------------- --------------------
Carrying Fair Carrying Fair
amount value amount value
------ ----- ------ -----
Financial assets:
Cash and due from
banks, interest
bearing deposits
and federal funds
sold $ 45,817,896 $ 45,817,896 $ 31,163,217 $ 31,163,217
Held-to-maturity
securities 110,977,790 110,221,425 89,353,147 89,232,381
Available-for-sale
securities 32,995,543 32,995,543 27,818,747 27,818,747
Loans - total 605,787,234 600,146,899 512,191,216 503,430,000
Accrued interest
receivable 7,619,981 7,619,981 7,340,153 7,340,153
Financial liabilities:
Deposits $716,246,810 $718,930,000 $599,325,378 $602,045,000
Short-term borrowings 17,332,321 17,332,321 13,401,616 13,401,616
Revolving credit loan 9,250,000 9,250,000 7,000,000 7,000,000
Other borrowed funds 14,393,965 14,389,000 11,567,436 12,175,000
Accrued interest
payable 7,310,224 7,310,224 5,872,492 5,872,492
Note 11: Income taxes
The provision for income taxes for the years ended December 31, 1996, 1995 and 1994 consisted of
the following:
1996 1995 1994
---- ---- ----
Current:
Federal $4,354,783 $2,336,445 $1,648,635
State 343,430 124,422 -0-
--------- --------- ---------
4,698,213 2,460,867 1,648,635
========= ========= =========
Deferred:
Federal (1,600,000) (191,000) (299,000)
State (200,000) (24,000) -0-
(1,800,000) (215,000) (299,000)
---------- --------- ---------
Applicable income taxes $2,898,213 $2,245,867 $1,349,635
========= ========= =========
<PAGE>
Note 11: Income taxes (continued)
The reason for the differences between income tax expense and the amount
computed by applying the statutory federal income tax rate to income before
taxes are as follows:
1996 1995 1994
---- ---- ----
Federal income taxes at
statutory rate $2,933,760 $2,331,766 $1,486,592
Add (deduct):
State income taxes, net
of federal tax benefit 94,664 66,203 -0-
Tax-exempt interest income (254,346) (284,789) (274,104)
Amortization of goodwill 86,879 87,156 95,670
Other 37,256 45,531 41,477
--------- --------- ---------
Applicable income taxes $2,898,213 $2,245,867 $1,349,635
========= ========= =========
Significant components of the Company's deferred tax liabilities and assets
as of December 31, 1996 and 1995 are as follows:
1996 1995
---- ----
Deferred tax liabilities:
Tax over book depreciation $ 495,000 $ 328,000
Discount accretion 119,000 78,000
FHLB stock dividends 154,000 86,000
Other 49,000 16,000
------- -------
Total deferred tax liabilities 817,000 508,000
Deferred tax assets:
Provision for loan losses not deducted
for tax 3,272,000 883,000
Deferred compensation 143,000 162,000
Net operating loss carryforwards 108,000 128,000
Other -0- 115,000
--------- ---------
Total deferred tax assets 3,523,000 1,288,000
Valuation allowance for deferred tax
assets (108,000) (128,000)
--------- ---------
3,415,000 1,160,000
--------- ---------
Net deferred tax assets $2,598,000 $ 652,000
========= =========
<PAGE>
Note 11: Income taxes (continued)
At December 31, 1996, the Company has net operating loss carryforwards of
approximately $317,000 for income tax purposes that expire beginning in 2004
through 2008. There are limitations for income tax purposes on the amount of
the net operating loss carryforwards that can be utilized in any one year
during the carryforward period. For financial reporting purposes, a valuation
allowance has been recognized to offset the deferred tax assets related to the
carryforwards. The benefits of the net operating loss carryforwards will be
recognized subsequent to December 31, 1996 as a reduction of income tax expense
and the valuation allowance, subject to management's evaluation of the
realizability of the related deferred tax assets.
The Company paid $4,902,316, $2,232,000 and $1,944,000 in income taxes during
the years ended December 31, 1996, 1995 and 1994, respectively.
Note 12: Related party transactions
Certain significant stockholders, directors and officers of the Company and
the bank subsidiaries, their family members and entities in which they are
principal owners, are loan customers of the bank subsidiaries. Related party
loans are made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
unrelated persons and do not involve more than normal risk of collectibility.
Loans to such parties at December 31, 1996 and 1995 were approximately
$24,664,000 and $17,875,000, respectively. During 1996, approximately
$14,161,000 of new loans were made, and repayments totaled approximately
$7,372,000.
Note 13: Employee benefit plans
The Company has a 401(k) plan which covers all employees of the Company and
the bank subsidiaries. The Company's contributions to the plan amounted to
$139,651, $112,257 and $92,340 for the years ended December 31, 1996, 1995
and 1994, respectively.
Effective as of November 29, 1996, certain officers and employees entered
into severance agreements with the Company. The agreements, which provide
for automatic one-year extensions beginning December 31, 1997, specify the
number of months of base salary (six, twelve or twenty-four months)
to be received as severance pay due to termination of employment following a
change of control of the Company, as defined in the agreements. See Note 16.
<PAGE>
Note 14: Regulatory matters
In accordance with Arkansas state banking laws, certain restrictions exist
regarding the ability of the banking subsidiaries to transfer funds to the
Company in the form of cash dividends, loans or advances. Under such
restrictions, the bank subsidiaries may not, without prior approval of the
bank regulatory agencies, declare and pay dividends of more than 50% of net
income (see Note 7 for other restrictions on the payment of dividends by the
bank subsidiaries).
The Company and the bank subsidiaries are also required to maintain sufficient
capital to meet minimum capital ratios, as defined by the regulatory agencies.
At December 31, 1996, the capital ratios of the Company and its subsidiaries
exceeded the minimum required amounts.
Note 15: Supplemental income statement information
The following categories of other income and other expenses exceeded one
percent of the aggregate of total interest income and other income for the
years indicated: Other income - none in any year; Other expenses - (1)
Advertising: $362,359 in 1994; (2) Regulatory insurance assessments: $706,244
and $919,333 in 1995 and 1994, respectively; (3) Printing and supplies:
$393,323 in 1994; (4) Data processing: $343,908 in 1994; and (5) Professional
services: $1,066,368 in 1996 (see Note 16).
Note 16: Plan and Agreement of Merger
In December 1996, the Company entered into a Plan and Agreement of Merger with
First Commercial Corporation (FCC), an Arkansas corporation with its principal
office in Little Rock, Arkansas. The agreement provides for the acquisition
of all the Company's common stock in exchange for shares of FCC. The merger
is subject to approval by the Company's stockholders and regulatory
authorities.
Pursuant to an agreement with a third party dated October 16, 1996, an accrual
for professional services of $812,000 has been included in the consolidated
financial statements for the year ended December 31, 1996.
Note 17: Subsequent event
During January 1997, the Company declared and paid a dividend of $1,226,375
($5 per share).
<PAGE>
Note 18: Southwest Bancshares, Inc. (Parent Company Only) financial
information
Balance Sheets
December 31,
1996 1995
---- ----
Assets:
Cash in bank subsidiaries $ 3,394,123 $ 239,831
Receivables from bank subsidiaries 879,806 275,772
Investment in bank subsidiaries 59,185,310 54,209,751
Other assets 15,097 281,609
---------- ----------
Total assets $63,474,336 $55,006,963
========== ==========
Liabilities:
Revolving credit loan $ 9,250,000 $ 7,000,000
Accrued interest payable 154,094 95,672
Other liabilities 543,051 6,893
--------- ---------
Total liabilities 9,947,145 7,102,565
Stockholders' equity 53,527,191 47,904,398
---------- ----------
Total liabilities and
stockholders' equity $63,474,336 $55,006,963
=========== ==========
Statements of Income
Years Ended December 31
1996 1995 1994
---- ---- ----
Income:
Dividends from bank subsidiaries $ 3,200,000 $ -0- $ -0-
Expenses:
Salaries and benefits 457,218 464,782 331,079
Interest on borrowings 645,763 761,127 506,637
Other 1,240,844 (1) 211,461 179,629
--------- --------- ---------
2,343,825 (1,437,370) (1,017,345)
========= ========= =========
Income (loss) before income taxes
and equity in undistributed net
income of bank subsidiaries 856,175 (1,437,370) (1,017,345)
Income taxes (credit) (891,065) (542,737) (379,211)
1,747,240 (894,663) (638,134)
Equity in undistributed income
of bank subsidiaries 3,983,254 5,506,902 3,660,828
--------- --------- ---------
Net income $5,730,494 $4,612,269 $3,022,694
========= ========= =========
<PAGE>
Note 18: Southwest Bancshares, Inc. (Parent Company Only) financial
information (continued)
Statements of Cash Flows
Years Ended December 31
1996 1995 1994
---- ---- ----
Operating activities:
Net income $ 5,730,494 $ 4,612,269 $ 3,022,694
Adjustments to reconcile net cash
provided by operating activities:
Equity in undistributed income
of bank subsidiaries (3,983,254) (5,506,903) (3,660,828)
Other - net 257,052 16,140 (329,531)
Net cash provided by (used by)
operating activities 2,004,292 (878,494) (967,665)
Investing activities:
Purchases of subsidiaries (2,600,000)
Capital contributed to
subsidiaries (1,100,000) (5,900,000) (8,250,000)
Purchases of premises and
equipment (2) (2,144,829)
Proceeds from sale of premises
and equipment to the Jonesboro
Bank (2) 4,005,713
Net cash used by investing
activities (1,100,000) (5,900,000) (8,989,116)
Financing activities:
Proceeds from revolving credit
loan 2,250,000 4,500,000 3,250,000
Payments on revolving credit loan (5,250,000) (1,000,000)
Proceeds from sales of common stock 7,496,000 7,499,200
Proceeds from notes payable to
stockholders (3) 2,600,000
Payments on notes payable to
stockholders (3) (2,600,000)
Net cash provided by financing
activities 2,250,000 6,746,000 9,749,200
Increase (decrease) in cash 3,154,292 (32,494) (207,581)
Cash at beginning of year 239,831 272,325 479,906
Cash at end of year $ 3,394,123 $ 239,831 $ 272,325
Supplementary Cash Flows Information - The parent company paid $587,341,
$784,182 and $447,205 in interest during 1996, 1995 and 1994, respectively.
(1) See Note 16.
(2) At January 1, 1994, the parent company's portion of the construction
costs for the Jonesboro Bank's five-story bank facility was $1,874,788.
Additional expenditures of $2,144,829 were incurred by Southwest
Bancshares, Inc. in 1994. The Jonesboro Bank purchased the parent
company's interest in the facility during 1994 at the parent company's
net book value.
(3) In connection with the purchase of the Searcy Bank, the parent company
borrowed $2,600,000 from stockholders and repaid the borrowings with
interest at prime (average rate of 6.96%) with proceeds from sales of
common stock.
<PAGE>
ATTACHMENT I
December 20, 1996
Board of Directors
Southwest Bancshares, Inc.
2400 East Highland Drive
Jonesboro, Arkansas 72403
Members of the Board:
We have acted as your financial advisor in connection
with the proposed merger with First Commercial Corporation
("First Commercial") (the "Transaction"). The terms and
conditions of the Transaction are more fully set forth in
the Plan and Agreement of Merger by and between Southwest
Bancshares, Inc.("Southwest," or the "Company") and First
Commercial Corporation (draft dated Dec. 20, 1996) (the
"Draft Merger Agreement").
The Draft Merger Agreement provides for, among other
things, that (1) each outstanding share of common stock,
par value $1.00, of Southwest is to be converted into the
right to receive a number of shares of common stock, $3.00
par value of First Commercial (adjusted for stock splits
and stock dividends), equal to 3,412,457 (the number of
shares of First Commercial Common Stock to be issued in
the Transaction) divided by the number of outstanding
shares of Southwest on the closing date. On December 19,
1996 (the trading day immediately preceding the date here-
of) the last reported sale price per share of common stock
of First Commercial was $37.50.
You have requested our opinion as to the fairness to
the disinterested shareholders of the Company from a fi-
nancial point of view of the consideration to be received
by the Company in the Transaction. For purposes of this
opinion, the term "disinterested shareholders" means
holders of the Company's one class of common stock (the
"Common Stock") other than (1) directors, officers and
employees of the Company, (2) any holder of five percent
or more of the outstanding shares of Common Stock and (3)
Southwest and its affiliates.
In connection with our opinion, we have, among other
things:
(i) analyzed certain financial and other data publicly
available or made available to us with respect to South-
west and First Commercial, including the consolidated
financial statements for recent years and interim periods
<PAGE>
to September 30, 1996 and certain other relevant finan-
cial and operating data relating to Southwest and First
Commercial made available to us from published sources
and from the internal records of Southwest;
(ii) reviewed the Draft Merger Agreement dated December
20, 1996 and discussed the financial terms thereof with
the Company s legal counsel;
(iii) compared the respective contributions of loans,
deposits, equity, and income by Southwest and First
Commercial to the combined entity;
(iv) analyzed, on a pro forma basis, the effect of the
Transaction of the Company s earnings, book value,
balance sheet, and capitalization ratios, both in the
aggregate, and where applicable, on a per share basis;
(v) reviewed the historical market prices and trading
volumes of the common stock of First Commercial;
(vi) compared Southwest and First Commercial from a
financial point of view with certain other companies
which we deemed to be relevant;
(vii) considered the financial terms, to the extent publicly
available, of selected business combinations in the
banking industry;
(viii) reviewed and discussed with representatives of the
management of Southwest certain information of a business
and financial nature regarding Southwest furnished to us
by Southwest;
(ix) assisted in your deliberations regarding the
material terms of the Transaction and your negotiations
with First Commercial; and
(x) performed such other analyses and examinations as we
have deemed appropriate.
<PAGE>
In connection with our review, we have not assumed
any obligation indepedently to verify any of the
foregoing information and have relied on all such
information being complete and accurate in all material
respects. We are not an expert in the evaluation of loan
portfolios for purposes of assessing the adequacy of the
allowances for losses with respect thereto and have
assumed, with your consent, that such allowances for each
of Southwest and First Commercial are in the aggregate
adequate to cover such losses, In addition, we have not
assumed responsibility for reviewing any individual
credit files or making an independent evaluation,
appraisal or inspection of the real, personal, tangible
or intangible assets (including investment securities) or
individual properties of Southwest or First Commercial,
nor have we been furnished with any such evaluations or
appraisals.
We have also assumed, with your consent, that there
have been no material changes in Southwest's or First
Commercial's assets, financial condition, results of
operations, business or prospects since the respective
dates of their last financial statements reviewed by us
and that any off-balance sheet activities of Southwest
and First Commercial, including derivatives and other
similar financial instruments, will not materially and
adversely affect the future financial position or results
of operations of Southwest or First Commercial. We have
further assumed, with your consent, that in the course of
obtaining the necessary regulatory and third party
consents for the Merger, no restriction, limitation or
order will be imposed that would have or would be
expected to have a material adverse effect on the
contemplated benefits of the Merger or the transactions
contemplated thereby, and that the Merger will be
consummated in accordance with the terms of the Draft
Merger Agreement (including provisions relating to the
consideration to be exchanged in the Merger), without any
amendments to, and without any waiver by Southwest of,
any of the material conditions to its obligations
thereunder. Finally, our opinion is based on economic,
monetary, market and other conditions as in effect on,
and the information made available to us as of, the date
hereof.
<PAGE>
As part of our investment banking business, we are
continually engaged in the valuation of businesses and
their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate,
corporate and other purposes. We will receive a fee for
acting as financial advisor to Southwest, a substantial
portion of which is contingent upon the consummation of
the Merger. In the ordinary course of our business, we
may from time to time trade the equity securities of
Southwest or First Commercial for our own account and for
the accounts of customers and, accordingly, may at any
time hold a long or short position in such securities.
Based upon the foregoing and in reliance thereon, it
is our opinion as investment bankers that, as of the date
hereof, the consideration to be received by Southwest in
the Merger is fair to Southwest from a financial point of
view.
This opinion is furnished pursuant to our engagement
letter dated October 16, 1996. It is addressed to the
Board of Directors of Southwest and is not intended to be
and shall not be deemed to constitute a recommendation to
any stockholders to how such stockholder should vote with
respect to the Merger. This opinion and a summary
discussion of our underlying analyses and role as your
financial advisor may be included in communications to
the shareholders of Southwest and First Commercial
provided that we approve of such disclosures prior to
publication. In furnishing this opinion, we do not admit
that we are experts within the meaning of the term
experts as used in the Securities Act and the rules and
regulations promulgated thereunder, nor do we admit this
opinion constitutes a report or valuation within the
meaning of Section 11 of the Securities Act.
Very truly yours,
Stephens, Inc.
<PAGE>
ATTACHMENT II
Arkansas Business Corporation Act of 1987
RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
4-27-1301. Definitions.
In this subchapter:
1. "Corporation" means the issuer of the shares held
by a dissenter before the corporate action, or the surviving
or acquiring corporation by merger or share exchange of that
issuer;
2. "Dissenter" means a shareholder who is entitled to
dissent from corporate action under Section 4-27-1302 and who
exercises that right when and in the manner required by
Sections 4-27-1320 -- 4-27-1328;
3. "Fair value," with respect to a dissenter's shares,
means the value of the shares immediately before the
effectuation of the corporate action to which the dissenter
objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would
be inequitable;
4. "Interest" means interest from the effective date
of the corporate action until the date of payment, at the
average rate currently paid by the corporation on its
principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances;
5. "Record shareholder" means the person in whose name
shares are registered in the records of a corporation or the
beneficial owner of shares to the extent of the rights
granted by a nominee certificate on file with a corporation;
6. "Beneficial shareholder" means the person who is a
beneficial owner of shares held in a voting trust or by a
nominee as the record shareholder;
7. "Shareholder" means the record shareholder or the
beneficial shareholder.
4-27-1302. Right of dissent.
A. A shareholder is entitled to dissent from and
obtain payment of the fair value of his shares in the event
of any of the following corporate actions:
1. Consummation of a plan of merger to which the
corporation is a party:
<PAGE>
(i) If shareholder approval is required for the
merger by Section 4-27-1103 or the articles of
incorporation and the shareholder is entitled to vote on
the merger; or
(ii) If the corporation is a subsidiary that is
merged with its parent under Section 4-27-1104;
2. Consummation of a plan of share exchange to which
the corporation is a party as the corporation whose shares
will be acquired, if the shareholder is entitled to vote on
the plan;
3. Consummation of a sale or exchange of all, or
substantially all, of the property of the corporation other
than in the usual and regular course of business, if the
shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale
pursuant to a court order or a sale for cash pursuant to a
plan by which all or substantially all of the net proceeds of
the sale will be distributed to the shareholders within one
(1) year after the date of sale;
4. An amendment of the articles of incorporation that
materially and adversely affects rights in respect of a
dissenter's shares because it:
(i) Alters or abolishes a preferential right of
the shares;
(ii) Creates, alters, or abolishes a right in
respect of redemption, including a provision respecting
a sinking fund for the redemption or repurchase, of the
shares;
(iii) Alters or abolishes a preemptive right of the
holder of the shares to acquire shares or other
securities;
(iv) Excludes or limits the right of the shares to
vote on any matter, or to cumulate votes, other than a
limitation by dilution through issuance of shares or
other securities with similar voting rights; or
(v) Reduces the number of shares owned by the
shareholder to a fraction of a share if the fractional
share so created is to be acquired for cash under
Section 4-27-604; or
5. Any corporate action taken pursuant to a
shareholder vote to the extent the articles of incorporation,
bylaws, or a resolution of the board of directors provides
that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.
<PAGE>
B. A shareholder entitled to dissent and obtain
payment for his shares under this subchapter may not
challenge the corporate action creating his entitlement
unless the action is unlawful or fraudulent with respect to
the shareholder or the corporation.
4-27-1303. Dissent by nominees and beneficial owners.
A. A record shareholder may assert dissenters' rights
as to fewer than all the shares registered in his name only
if he dissents with respect to all shares beneficially owned
by any one (1) person and notifies the corporation in writing
of the name and address of each person on whose behalf he
asserts dissenters' rights. The rights of a partial
dissenter under this subsection are determined as if the
shares as to which he dissents and his other shares were
registered in the names of different shareholders.
B. A beneficial shareholder may assert dissenters'
rights as to shares held on his behalf only if:
1. He submits to the corporation the record
shareholder's written consent to the dissent not later than
the time the beneficial shareholder asserts dissenters'
rights; and
2. He does so with respect to all shares of which he
is the beneficial shareholder or over which he has power to
direct the vote.
4-27-1304--4-27-1319. [Reserved.]
Procedure for Exercise of Dissenters' Rights
4-27-1320. Notice of dissenters' rights.
A. If proposed corporate action creating dissenters'
rights under Section 4-27-1302 is submitted to a vote at a
shareholders' meeting, the meeting notice must state that
shareholders are or may be entitled to assert dissenters'
rights under this chapter and be accompanied by a copy of
this chapter.
B. If corporate action creating dissenters' rights
under Section 4-27-1302 is taken without a vote of
shareholders, the corporation shall notify in writing all
shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice
described in Section 4-27-1322.
4-27-1321. Notice of intent to demand payment.
A. If proposed corporate action creating dissenters'
rights under Section 4-27-1302 is submitted to a vote at a
<PAGE>
shareholders' meeting, a shareholder who wishes to assert
dissenters' rights:
(1) Must deliver to the corporation before the vote is
taken written notice of his intent to demand payment for his
shares if the proposed action is effectuated; and
(2) Must not vote his shares in favor of the proposed
action.
B. A shareholder who does not satisfy the requirements
of subsection A. of this section is not entitled to payment
for his shares under this subchapter.
4-27-1322. Dissenters' notice.
A. If proposed corporate action creating dissenters'
rights under Section 4-27-1302 is authorized at a
shareholders' meeting, the corporation shall deliver a
written dissenters' notice to all shareholders who satisfied
the requirements of Section 4-27-1321.
B. The dissenters' notice must be sent no later than
ten (10) days after the corporate action was taken, and must:
1. State where the payment demand must be sent and
where and when certificates for certificated shares must be
deposited;
2. Inform holders of uncertificated shares to what
extent transfer of the shares will be restricted after the
payment demand is received;
3. Supply a form for demanding payment that includes
the date of the first announcement to news media or to
shareholders of the terms of the proposed corporate action
and requires that the person asserting dissenters' rights
certify whether or not he acquired beneficial ownership of
the shares before that date;
4. Set a date by which the corporation must receive
the payment demand, which date may not be fewer than thirty
(30) nor more than sixty (60) days after the date the notice
required by subsection A. of this section is delivered; and
5. Be accompanied by a copy of this subchapter.
4-27-1323. Duty to demand payment.
A. A shareholder sent a dissenters' notice described
in Section 4-27-1322 must demand payment, certify whether he
acquired beneficial ownership of the shares before the date
required to be set forth in the dissenters' notice pursuant
to Section 4-27-1322B.3., and deposit his certificates in
accordance with the terms of the notice.
<PAGE>
B. The shareholder who demands payment and deposits
his share certificates under subsection A. of this section
retains all other rights of a shareholder until these rights
are cancelled or modified by the taking of the proposed
corporate action.
C. A shareholder who does not demand payment or
deposit his share certificates where required, each by the
date set in the dissenters' notice, is not entitled to
payment for his shares under this subchapter.
<PAGE>
4-27-1324. Share restrictions.
A. The corporation may restrict the transfer of
uncertificated shares from the date the demand for their
payment is received until the proposed corporate action is
taken or the restrictions released under Section 4-27-1326.
B. The person for whom dissenters' rights are asserted
as to uncertificated shares retains all other rights of a
shareholder until these rights are cancelled or modified by
the taking of the proposed corporate action.
4-27-1325. Payment.
A. Except as provided in Section 4-27-1327, as soon as
the proposed corporate action is taken, or upon receipt of a
payment demand, the corporation shall pay each dissenter who
complied with Section 4-27-1323 the amount the corporation
estimates to be the fair value of his shares, plus accrued
interest.
B. The payment must be accompanied by:
1. The corporation's balance sheet as of the end of a
fiscal year ending not more than sixteen (16) months before
the date of payment, an income statement for that year, a
statement of changes in shareholders' equity for that year,
and the latest available interim financial statements, if
any;
2. A statement of the corporation's estimate of the
fair value of the shares;
3. An explanation of how the interest was calculated;
4. A statement of the dissenter's right to demand
payment under Section 4-27-1328; and
5. A copy of this subchapter.
4-27-1326. Failure to take action.
A. If the corporation does not take the proposed
action within sixty (60) days after the date set for
demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and
release the transfer restrictions imposed on uncertificated
shares.
B. If after returning deposited certificates and
releasing transfer restrictions, the corporation takes the
proposed action, it must send a new dissenters' notice under
Section 4-27-1322 and repeat the payment demand procedure.
<PAGE>
4-27-1327. After-acquired shares.
A. A corporation may elect to withhold payment
required by Section 4-27-1325 from a dissenter unless he was
the beneficial owner of the shares before the date set forth
in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of
the proposed corporate action.
B. To the extent the corporation elects to withhold
payment under subsection A. of this section, after taking the
proposed corporate action, it shall estimate the fair value
of the shares, plus accrued interest, and shall pay this
amount to each dissenter who agrees to accept it in full
satisfaction of his demand. The corporation shall send with
its offer a statement of its estimate of the fair value of
the shares, an explanation of how the interest was
calculated, and a statement of the dissenter's right to
demand payment under Section 4-27-1328.
4-27-1328. Procedure if shareholder dissatisfied with
payment or offer.
A. A dissenter may notify the corporation in writing
of his own estimate of the fair value of his shares and
amount of interest due, and demand payment of his estimate
(less any payment under Section 4-27-1325), or reject the
corporation's offer under Section 4-27-1327 and demand
payment of the fair value of his shares and interest due, if:
1. The dissenter believes that the amount paid under
Section 4-27-1325 or offered under Section 4-27-1327 is less
than the fair value of his shares or that the interest due is
incorrectly calculated;
2. The corporation fails to make payment under Section
4-27-1325 within sixty (60) days after the date set for
demanding payment; or
3. The corporation, having failed to take the proposed
action, does not return the deposited certificates or release
the transfer restrictions imposed on uncertificated shares
within sixty (60) days after the date set for demanding
payment.
B. A dissenter waives his right to demand payment
under this section unless he notifies the corporation of his
demand in writing under subsection A. of this section within
thirty (30) days after the corporation made or offered
payment for his shares.
4-27-1329. [Reserved.]
<PAGE>
Judicial Appraisal of Shares
4-27-1330. Court action.
A. If a demand for payment under Section 4-27-1328
remains unsettled, the corporation shall commence a
proceeding within sixty (60) days after receiving the payment
demand and petition the court to determine the fair value of
the shares and accrued interest. If the corporation does not
commence the proceeding within the sixty-day period, it shall
pay each dissenter whose demand remains unsettled the amount
demanded.
B. The corporation shall commence the proceeding in
the circuit court of the county where the corporation's
principal office (or, if none in this state, its registered
office) is located. If the corporation is a foreign
corporation without a registered office in this state, it
shall commence the proceeding in the county in this state
where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign
corporation was located.
C. The corporation shall make all dissenters (whether
or not residents of this state) whose demands remain
unsettled parties to the proceeding as in an action against
their shares and all parties must be served with a copy of
the petition. Nonresidents may be served by registered or
certified mail or by publication as provided by law.
D. The jurisdiction of the court in which the
proceeding is commenced under subsection B. of this section
is plenary and exclusive. The court may appoint one (1) or
more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have
the powers described in the order appointing them, or in any
amendment to it. The dissenters are entitled to the same
discovery rights as parties in other civil proceedings.
E. Each dissenter made a party to the proceeding is
entitled to judgment:
(1) For the amount, if any, by which the court finds
the fair value of his shares, plus interest, exceeds the
amount paid by the corporation; or
(2) For the fair value, plus accrued interest, of his
after-acquired shares for which the corporation elected to
withhold payment under Section 4-27-1327.
4-27-1331. Court costs and counsel fees.
A. The court in an appraisal proceeding commenced
under Section 4-27-1330 shall determine all costs of the
proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court. The court
shall assess the costs against the corporation, except that
<PAGE>
the court may asses costs against all or some of the
dissenters, in amounts the court finds equitable, to the
extent the court finds the dissenters acted arbitrarily,
vexatiously, or not in good faith in demanding payment under
Section 4-27-1328.
B. The court may also assess the fees and expenses of
counsel and experts for the respective parties, in amounts
the courts finds equitable.
1. Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not
substantially comply with the requirements of Sections 4-27-
1320 - 4-27-1328; or
2. Against either the corporation or a dissenter, in
favor of any other party, if the court finds that the party
against whom the fees and expenses are assessed acted
arbitrarily, vexatiously, or not in god faith with respect to
the rights provided by this chapter.
C. If the court finds that the services of counsel for
any dissenter were of substantial benefit to other dissenters
similarly situated, and that the fees for those services
should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the
amounts awarded the dissenters who were benefited.
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Southwest Bancshares, Inc.
2400 East Highland Drive
Jonesboro, Arkansas 72401
Telephone No. (501) 972-9093
PROXY
The undersigned hereby constitutes and appoints Wallace W.
Fowler and Phil Jones, or either of them, proxies for the
undersigned, with power of substitution, to represent the
undersigned and to vote all of the shares of Common Stock of
Southwest Bancshares, Inc. (the "Company) which the
undersigned is entitled to vote at the annual meeting of
shareholders of the Company to be held on May 5, 1997,
and at any and all adjournments thereof.
1. Proposal to approve the Plan and Agreement of Merger
between First Commercial Corporation and Southwest
Bancshares, Inc. dated December 20, 1996.
----- FOR ----- AGAINST ------ ABSTAIN
2. Establish the number of Directors for the ensuing year at
seven and elect Wallace W. Fowler, James M. Fowler, Phil
Jones, Mark Fowler, Lloyd McCracken, Jr., Roy Reaves and
Charles Green as Directors.
----- FOR ----- AGAINST ------ WITHHOLD
AUTHORITY
3. In their discretion to transact such other business as
may properly come before the meeting and all adjournments
thereof.
THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFIC
DIRECTIONS ARE GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSAL 1
AND THE RE-ELECTION OF DIRECTORS AS SET FORTH HEREIN.
------------------------- --------------------------------
Signature NAME: PLEASE PRINT
------------------------- --------------------------------
Signature (if held jointly) NAME (if joint tenant):
PLEASE PRINT
Date: -----------------
Please sign exactly as name appears on the certificates
representing shares to be voted by this proxy. When signing
as executor, trustee or guardian, please give full title as
such. If a corporation, please sign in full corporate name by
president or other authorized officer. If a partnership,
please sign in partnership name by authorized persons.
</TABLE>
