UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
===============================================================================
FORM 10-K
Annual Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended December 31, 1997
---------------------
Transition Report Pursuant To Section 13 or 15(d) of the Securities Exchange
Act of 1934
---------------------
Commission file number: 0-7931
FIRST COMMERCE CORPORATION
(exact name of registrant as specified in its charter)
Louisiana 72-0701203
(State of incorporation) (I.R.S. Employer Identification No.)
201 St. Charles Avenue, 29th Floor, New Orleans, Louisiana 70170
(address of principal executive offices and zip code)
Registrant's telephone number, including area code: (504) 623-1371
---------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
Title of each class:
--------------------
Common Stock, $5.00 par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
---------------------
State the aggregate market value of the voting stock held by nonaffiliates
of the Registrant as of February 6, 1998.
Approximately $2,602,867,530*
---------------------
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date.
Common Stock: $5.00 par value; 39,512,362 shares outstanding as
of February 28, 1998.
===============================================================================
* For the purposes of this computation, shares beneficially owned by directors
and executive officers have been excluded.
TABLE OF CONTENTS
Page No.
Part I: --------
Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of
Security Holders 6
Part II:
Item 5. Market for Registrant's Common Equity
and Related Stockholder's Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations 9
Item 8. Financial Statements and Supplementary Data
Consolidated Balance Sheets 26
Consolidated Statements of Income 27
Consolidated Statements of Changes
in Stockholders' Equity 28
Consolidated Statements of Cash Flows 29
Notes to Consolidated Financial Statements 30
Report of Independent Public Accountants 59
Selected Quarterly Data 60
Item 9. Changes in and disagreements with Accountants on
Accounting and Financial Disclosure 61
Part III:
Item 10. Directors and Executive Officers of the Registrant 62
Item 11. Executive Compensation 66
Item 12. Security Ownership of Certain Beneficial Owners
and Management 72
Item 13. Certain Relationships and Related Transactions 74
Part IV:
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 75
PART I
Item 1
Description of Business
General
First Commerce Corporation (FCC) is a multi-bank
holding company with six wholly owned bank subsidiaries
("the Banks") in Louisiana: First National Bank of Commerce
in New Orleans (First NBC), City National Bank of Baton
Rouge (CNB), The First National Bank of Lafayette (FNBL),
Central Bank in Monroe (CB), The First National Bank of Lake
Charles (FNBLC) and Rapides Bank & Trust Company in
Alexandria (RBT).
The six banks accounted for substantially all of the
assets of FCC at December 31, 1997, and substantially all of
its net income for 1997. The Banks offer customary services
of banks of similar size and similar markets, including
numerous types of interest-bearing and noninterest-bearing
deposit accounts, commercial and consumer loans, trust
services, correspondent banking services and safe deposit
facilities. For further discussion of FCC's operations, see
Management's Discussion and Analysis of Financial Condition
and Results of Operations.
FCC has a number of non-bank subsidiaries, none of
which, individually or in the aggregate with other non-bank
subsidiaries, account for a significant amount of assets,
revenues or earnings.
On October 20, 1997, FCC entered into an agreement and
plan of merger with BANC ONE CORPORATION. The Merger is
expected to be consummated during the second quarter of
1998. See Note 2 of Notes to Consolidated Financial
Statements for a discussion of the Merger Agreement.
Regulation
Like other bank holding companies in Louisiana, FCC is
subject to regulation by the Louisiana Commissioner of
Financial Institutions and the Federal Reserve Board. Under
the terms of the Bank Holding Company Act of 1956 (Act), as
amended, FCC is restricted to only banking or bank-related
activities specifically allowed by the Act or the Federal
Reserve Board. The Act requires FCC to file required
reports with the Federal Reserve Board. Each of FCC's Banks
is a member of the Federal Reserve System and is subject to
regulation by the Federal Reserve Board and the FDIC
(Federal Deposit Insurance Corporation). The four national
bank subsidiaries are also subject to regulation and
supervision by the United States Comptroller of the
Currency, while the two state-chartered bank subsidiaries
are subject to regulation and supervision by the Louisiana
Commissioner of Financial Institutions.
Payment of Dividends
The primary source of funds for debt service
obligations and the dividends paid by FCC to its
stockholders is the dividends it receives from the Banks.
The payment of dividends by FCC's national banks is
regulated by the United States Comptroller of the Currency.
The payment of dividends by FCC's state banks is regulated
by the Louisiana Commissioner of Financial Institutions and
the Federal Reserve Board. Banks are required to maintain
minimum capital levels to ensure capital adequacy. Prior
approval must be obtained from the appropriate regulatory
authorities if the payment of dividends would result in
required capital falling below regulatory limits or if the
payment of the proposed dividend would result in an
"undercapitalized" position. Additionally, the national
bank subsidiaries may not pay dividends in excess of their
retained net profits (net income less dividends for the
current and prior two years) without prior regulatory
approval. The state bank subsidiaries may not pay dividends
in excess of their retained net profits (the lesser of net
income less dividends for the current year and one prior
year or net income less dividends for the current year and
two prior years) without prior regulatory approval. Under
certain circumstances, regulatory authorities may prohibit
the payment of dividends by a bank or its parent holding
company. See Note 17 of Notes to Consolidated Financial
Statements for a discussion of dividends.
Transactions with Affiliates
Federal law prohibits FCC or its non-bank subsidiaries
from borrowing from its Banks, unless the borrowings are
secured by assets with market values of 100% to 130% of loan
amounts, depending upon the nature of the collateral. Loans
to or investments in a single covered affiliate by a
subsidiary bank may not exceed 10% and loans to or
investments in all covered affiliates may not exceed 20% of
an individual bank's capital, as defined in applicable
Federal Reserve Board regulations. Further, a bank holding
company and its subsidiaries are prohibited from engaging in
certain tie-in arrangements in connection with any extension
of credit, lease or sale of property or furnishing of
services.
Company Support of Bank Subsidiaries
The Financial Institutions Reform, Recovery and
Enforcement Act of 1989 (FIRREA) contains a "cross-
guarantee" provision which could result in any insured
depository institution owned by FCC (i.e., any bank
subsidiary) being assessed for losses incurred by the FDIC
in connection with assistance provided to, or the failure
of, any other depository institution owned by FCC. In
addition, under Federal Reserve Board policy, FCC is
expected to act as a source of financial strength to each of
its Banks and to commit resources to support each such bank
in circumstances in which the bank might need outside
support.
The FDIC Improvement Act of 1991 (1991 Act) provides,
among other things, that undercapitalized institutions, as
defined by regulatory authorities, must submit
recapitalization plans, and a parent company of such an
institution must either (i) guarantee the institution's
compliance with the capital plan, up to an amount equal to
the lesser of five percent of the institution's assets at
the time it becomes undercapitalized or the amount of the
capital deficiency when the institution fails to comply with
the plan, or (ii) suffer certain adverse consequences such
as a prohibition of dividends by the parent company to its
shareholders.
Prompt Corrective Action
The 1991 Act and implementing regulations classify
banks into five categories generally relating to their
regulatory capital ratios and institutes a system of
supervisory actions indexed to a particular classification.
Generally, banks that are classified as "well capitalized"
or "adequately capitalized" are not subject to the
supervisory actions specified in the 1991 Act for prompt
corrective action, but may be restricted from taking certain
actions that would lower their classification. Banks
classified as "undercapitalized", "significantly
undercapitalized" or "critically undercapitalized" are
subject to restrictions and supervisory actions of
increasing stringency based on the level of classification.
Under the present regulation, all of the Banks are
"well-capitalized". While such a classification would
exclude the Banks from the restrictions and actions
envisioned by the prompt corrective action provisions of the
1991 Act, the regulatory agencies have broad powers under
other provisions of federal law that would permit them to
place restrictions or take other supervisory action
regardless of such classification.
Other Provisions of the 1991 Act
In general, the 1991 Act subjected banks and bank
holding companies to significantly increased regulation and
supervision. Other significant provisions of the 1991 Act
require the federal regulators to draft non-capital
regulatory measures to assure bank safety, including
underwriting standards and minimum earnings levels. The
legislation further requires regulators to perform annual on-
site bank examinations, places limits on real estate lending
and tightens audit requirements. The 1991 Act and
implementing regulations also impose disclosure requirements
relating to fees charged and interest paid on checking and
deposit accounts.
Interstate Banking and Branching Efficiency Act
The Interstate Banking and Branching Efficiency Act of
1994 (Interstate Act) (i) allows bank holding companies to
acquire a bank located in any state, subject to certain
limitations that may be imposed by the state, (ii) allows
banks to merge across state lines, a law opting out of
interstate bank mergers, and (iii) permits banks to
establish branches outside their state of domicile if
expressly permitted by the law of the state in which the
branch is to be located. In 1995, the Louisiana Legislature
enacted legislation permitting an out-of-state bank holding
company to convert its Louisiana banks, as defined, into
branches of the holding company's out-of-state banks,
effective June 1, 1997. Prior thereto an out-of-state
holding company was permitted only with certain limitations
to acquire Louisiana banks as separate entities.
Annual Insurance Assessment
FCC's Banks are subject to deposit insurance
assessments by the FDIC. For 1997, the rates paid by the
Banks for deposit insurance to the Bank Insurance Fund (BIF)
and the Savings Insurance Fund (SAIF) were zero. Beginning
in 1997, all insured institutions were assessed the interest
cost of the Financing Corporation bonds which were issued to
provide funds for the resolution of failed thrift
institutions. The assessment rate for BIF deposits is 1.3
cents per $100 of deposits, while the rate for SAIF deposits
is 6.3 cents per $100 of deposits. At December 31, 1997,
approximately 87% of FCC's deposits were insured by the BIF,
while approximately 12% were insured by the SAIF.
Miscellaneous
Federal and Louisiana laws provide for the enforcement
of any pro rata assessment of stockholders of a bank to
cover impairment of capital stock by sale, to the extent
necessary, of the stock of any assessed stockholder failing
to pay the assessment. FCC, as the stockholder of its
Banks, is subject to these provisions.
Item 2
Properties
FCC's executive offices are located in leased
facilities in the Central Business District of New Orleans.
Through its subsidiaries, FCC also owns or leases its
principal banking facilities and offices in New Orleans,
Baton Rouge, Lafayette, Monroe, Lake Charles and Alexandria.
Of the 144 banking offices open at the end of 1997, 82 are
owned and 62 are leased.
Data processing services for FCC and each of its
subsidiaries are performed in a facility in the Metropolitan
New Orleans area, which is owned by a subsidiary of FCC.
Management considers all properties owned or leased to
be suitable and adequate for their intended purposes and
considers the leases to be fair and reasonable. For
additional information concerning premises and information
concerning FCC's obligations under long-term leases, see
Note 9 of Notes to Consolidated Financial Statements.
Item 3
Legal Proceedings
FCC and its subsidiaries have been named as defendants
in various legal actions arising from normal business
activities in which damages of various amounts are claimed.
The amount, if any, of ultimate liability with respect to
such matters cannot be determined. However, after
consulting with legal counsel, management believes any such
liability will not have a material effect on FCC's
consolidated financial condition or results of operations.
Item 4
Submission of Matters to a Vote of Security Holders
Not Applicable
PART II
<TABLE>
<CAPTION>
Item 5
Market for the Registrant's Common Stock and Related Stockholder Matters
1997 Quarters
===================================================================================================
4th 3rd 2nd 1st
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per common share data
Net income - basic $ 0.83 $ 0.81 $ 0.85 $ 0.75
Net income - diluted $ 0.79 $ 0.77 $ 0.81 $ 0.73
Cash dividends $ 0.40 $ 0.40 $ 0.40 $ 0.40
Common stock data (a)
High stock price $71.88 $57.38 $48.25 $46.38
Low stock price $55.38 $43.38 $39.00 $38.25
Closing stock price $67.25 $56.13 $44.00 $40.50
Trading volume (in thousands) 23,355 9,953 8,225 8,049
Number of stockholders (end of period) 8,876 9,008 9,193 9,223
===================================================================================================
1996 Quarters
===================================================================================================
4th 3rd 2nd 1st
- ---------------------------------------------------------------------------------------------------
Per common share data
Net income - basic $ 0.77 $ 0.68 $ 0.80 $ 0.80
Net income - diluted $ 0.72 $ 0.66 $ 0.76 $ 0.75
Cash dividends $ 0.40 $ 0.35 $ 0.35 $ 0.35
Common stock data (a)
High stock price $39.88 $36.63 $36.00 $34.25
Low stock price $34.88 $33.25 $32.25 $30.25
Closing stock price $38.88 $34.88 $35.38 $33.00
Trading volume (in thousands) 7,095 9,118 5,498 5,051
Number of stockholders (end of period) 9,319 9,267 9,257 9,286
===================================================================================================
(a) Common stock is traded in the over-the-counter market and is listed on the NASDAQ Stock Market.
All closing prices represent closing sales prices as reported on the NASDAQ Stock Market.
</TABLE>
<TABLE>
<CAPTION>
Item 6
Selected Financial Data
(dollars in thousands, except per share data) Years Ended December 31
===================================================================================================================
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AVERAGE BALANCE SHEET DATA
Total assets $9,183,476 $8,525,109 $8,141,194 $7,827,303 $7,677,220
Earning assets 8,497,804 7,831,517 7,464,065 7,189,322 7,044,969
Loans - reported 6,318,995 5,512,428 4,542,678 3,678,298 3,213,885
Loans - managed(a) 6,439,817 5,512,428 4,542,678 3,678,298 3,213,885
Securities 2,119,454 2,253,065 2,831,943 3,356,825 3,460,928
Deposits 7,449,963 6,887,675 6,703,077 6,447,897 6,384,923
Long-term debt 341,117 85,338 89,739 90,315 99,961
Stockholders' equity 758,136 724,674 687,533 623,169 573,174
- -------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
Total interest income $699,084 $641,225 $598,494 $507,293 $491,386
Net interest income 381,980 369,742 343,344 323,505 315,923
Net interest income (FTE) 389,234 375,500 349,317 330,056 322,850
Provision for loan losses 52,371 37,983 30,600 (10,418) (2,424)
Other income (exclusive of investment
securities transactions) 194,511 171,177 151,279 134,648 126,278
Investment securities transactions 1,002 1,360 (11,413) (43,461) (344)
Operating expense 338,129 326,848 337,204 306,311 281,748
Operating income 124,962 117,554 83,369 108,477 113,291
Net income 125,613 118,438 75,951 80,227 113,025
- -------------------------------------------------------------------------------------------------------------------
KEY RATIOS
Return on average assets 1.37% 1.39% 0.93% 1.02% 1.47%
Return on average total equity 16.57% 16.34% 11.05% 12.87% 19.72%
Return on average common equity 16.57% 16.95% 11.41% 13.47% 21.18%
Net interest margin 4.58% 4.79% 4.68% 4.59% 4.58%
Efficiency ratio 57.92% 59.79% 67.36% 65.92% 62.73%
Other income (excluding investment securities
transactions) to total revenue (FTE) 33.32% 31.31% 30.22% 28.98% 28.12%
Average loans to average deposits 84.82% 80.03% 67.77% 57.05% 50.34%
Allowance for loan losses to loans 1.29% 1.31% 1.48% 1.72% 2.41%
Nonperforming assets to loans plus foreclosed assets 0.61% 0.51% 1.17% 0.58% 1.34%
Allowance for loan losses to nonperforming loans 231.11% 299.42% 142.14% 449.04% 250.52%
Equity ratio 8.64% 7.87% 8.59% 7.45% 7.74%
Leverage ratio 8.35% 7.76% 8.16% 8.20% 7.70%
- -------------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA
Earnings Per Common Share
Net income - basic $3.24 $3.05 $1.90 $2.02 $2.91
Net income - diluted $3.10 $2.89 $1.87 $1.98 $2.75
Operating income - basic $3.22 $3.03 $2.10 $2.77 $2.92
Operating income - diluted $3.08 $2.87 $2.05 $2.64 $2.76
Common Dividends
Cash dividends $1.60 $1.45 $1.25 $1.10 $0.85
Dividend payout ratio 49.38% 47.54% 65.79% 54.46% 29.21%
Book Value (end of period)
Book value $21.03 $18.66 $17.86 $14.19 $15.00
Tangible book value $20.63 $18.20 $17.32 $13.75 $14.54
Common Stock Data
High stock price $71.88 $39.88 $34.50 $30.00 $32.20
Low stock price $38.25 $30.25 $22.00 $21.75 $23.90
Closing stock price $67.25 $38.88 $32.00 $22.00 $25.13
Trading volume (in thousands) 49,582 26,762 22,400 30,235 19,562
Number of stockholders (end of period) 8,876 9,319 9,951 9,359 9,360
Average Shares Outstanding (in thousands)
Basic 38,122 37,644 37,543 37,282 34,736
Diluted 43,267 40,671 40,547 43,580 40,965
NUMBER OF EMPLOYEES (end of period) 3,822 4,036 4,211 4,376 4,373
===================================================================================================================
(a)Managed portfolio represents the owned loan portfolio plus the securitized credit card receivables.
</TABLE>
TABLE 1. CREDIT CARD SECURITIZATION
<TABLE>
<CAPTION>
=====================================================================================
Year Ended December 31, 1997
- -------------------------------------------------------------------------------------
Excluding
(dollars in thousands, Reported Impact of Impact of
except per share data) Basis Securitization Securitization
=====================================================================================
<S> <C> <C> <C>
INCOME STATEMENT DATA
Net interest income $381,980 $5,206 $387,186
Net interest income (FTE) 389,234 5,206 394,440
Provision for loan losses 52,371 6,829 59,200
Other income 195,513 (2,194) 193,319
Net income 125,613 (2,481) 123,132
===================================================================================
PER COMMON SHARE DATA
Net income - diluted $3.10 ($0.06) $3.04
===================================================================================
KEY RATIOS
Net interest margin 4.58% 0.06% 4.64%
Efficiency ratio 57.92% (0.29)% 57.63%
Net charge-off ratio 0.66% 0.09% 0.75%
===================================================================================
</TABLE>
<TABLE>
<CAPTION>
TABLE 2. SUMMARY OF AVERAGE BALANCE SHEETS, NET INTEREST INCOME (FTE) (a) AND INTEREST RATES
===================================================================================================================================
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Average Average Average
(dollars in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
EARNING ASSETS
Loans(b) $6,318,995 $561,702 8.89% $5,512,428 $492,248 8.93% $4,542,678 $412,839 9.09%
Securities
Taxable 2,038,096 133,341 6.54 2,165,167 142,532 6.58 2,733,630 176,391 6.45
Tax-exempt 81,358 8,260 10.15 87,898 8,894 10.12 98,313 10,062 10.23
- -----------------------------------------------------------------------------------------------------------------------------------
Total securities 2,119,454 141,601 6.68 2,253,065 151,426 6.72 2,831,943 186,453 6.58
- -----------------------------------------------------------------------------------------------------------------------------------
Money market investments 59,355 3,035 5.11 66,024 3,309 5.01 89,444 5,175 5.79
- -----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 8,497,804 $706,338 8.31% 7,831,517 $646,983 8.26% 7,464,065 $604,467 8.10%
- -----------------------------------------------------------------------------------------------------------------------------------
NONEARNING ASSETS
Other assets (c) 769,766 771,367 752,546
Allowance for loan losses (84,094) (77,775) (75,417)
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $9,183,476 $8,525,109 $8,141,194
===================================================================================================================================
LIABILITIES AND STOCKHOLDERS'
EQUITY
INTEREST-BEARING LIABILITIES
Interest-bearing deposits
NOW account deposits $1,185,668 $26,299 2.22% $1,095,729 $21,541 1.97% $1,023,939 $19,379 1.89%
Money market investment
deposits 993,790 34,657 3.49 856,366 25,682 3.00 723,768 19,662 2.72
Savings and other consumer
time deposits 2,724,075 133,084 4.89 2,788,282 132,612 4.76 2,802,907 131,528 4.69
Time deposits $100,000
and over 1,234,840 69,657 5.64 800,539 43,306 5.41 732,788 40,373 5.51
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
deposits 6,138,373 263,697 4.30 5,540,916 223,141 4.03 5,283,402 210,942 3.99
- -----------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 494,801 25,812 5.22 697,536 37,718 5.41 558,136 33,015 5.92
Long-term debt 341,117 27,595 8.09 85,338 10,624 12.45 89,739 11,193 12.47
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 6,974,291 $317,104 4.54% 6,323,790 $271,483 4.29% 5,931,277 $255,150 4.30%
- -----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING LIABILITIES
AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits 1,311,590 1,346,759 1,419,675
Other liabilities 139,459 129,886 102,709
Stockholders' equity 758,136 724,674 687,533
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $9,183,476 $8,525,109 $8,141,194
===================================================================================================================================
Net interest income
(FTE)(a) and margin $389,234 4.58% $375,500 4.79% $349,317 4.68%
===================================================================================================================================
Net earning assets
and spread $1,523,513 3.77% $1,507,727 3.97% $1,532,788 3.80%
===================================================================================================================================
Total cost of funds 3.73% 3.47% 3.42%
===================================================================================================================================
(a) Fully taxable equivalent based on a 35% tax rate.
(b) Net of unearned income, prior to deduction of allowance for loan losses and including nonaccrual loans.
(c) Includes mark-to-market adjustment on securities available for sale.
</TABLE>
<TABLE>
<CAPTION>
TABLE 3. SUMMARY OF CHANGES IN NET INTEREST INCOME (FTE) (a)
=================================================================================================
1997 Compared to 1996 1996 Compared to 1995
- -------------------------------------------------------------------------------------------------
Total Due to Due to Total Due to Due to
Increase Change in Change in Increase Change in Change in
(dollars in thousands) (Decrease) Volume(b) Rate(b) (Decrease) Volume(b) Rate(b)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME (FTE)
Loans $69,454 $70,271 $(817) $79,409 $89,367 $(9,958)
Securities
Taxable (9,191) (8,558) (633) (33,859) (36,983) 3,124
Tax-exempt (634) (664) 30 (1,168) (1,055) (113)
- -------------------------------------------------------------------------------------------------
Total securities (9,825) (9,222) (603) (35,027) (38,038) 3,011
- -------------------------------------------------------------------------------------------------
Money market investments (274) (398) 124 (1,866) (1,425) (441)
- -------------------------------------------------------------------------------------------------
Total interest income
(FTE) $59,355 $60,651 $(1,296) $42,516 $49,904 $(7,388)
=================================================================================================
INTEREST EXPENSE
Interest-bearing deposits
NOW account deposits $4,758 $1,857 $2,901 $2,162 $1,393 $ 769
Money market investment
deposits 8,975 4,454 4,521 6,020 3,841 2,179
Savings and other
consumer time deposits 472 (3,092) 3,564 1,084 (689) 1,773
Time deposits $100,000
and over 26,351 24,434 1,917 2,933 3,676 (743)
- -------------------------------------------------------------------------------------------------
Total interest-bearing
deposits 40,556 27,653 12,903 12,199 8,221 3,978
- -------------------------------------------------------------------------------------------------
Short-term borrowings (11,906) (10,618) (1,288) 4,703 7,719 (3,016)
Long-term debt 16,971 21,858 (4,887) (569) (548) (21)
- -------------------------------------------------------------------------------------------------
Total interest expense $45,621 $38,893 $6,728 $16,333 $15,392 $ 941
- -------------------------------------------------------------------------------------------------
Change in net interest
income (FTE) $13,734 $21,758 $(8,024) $26,183 $34,512 $(8,329)
=================================================================================================
(a) Fully taxable equivalent based on a 35% tax rate.
(b) Changes not solely due to either volume or rate are allocated on a proportional basis.
</TABLE>
<TABLE>
<CAPTION>
TABLE 4. LOANS OUTSTANDING BY TYPE
===========================================================================================================
December 31
- -----------------------------------------------------------------------------------------------------------
(dollars in thousands) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans to individuals - residential mortgages $1,202,263 $1,086,370 $ 975,331 $ 753,127 $649,571
Loans to individuals - other 1,730,678 1,762,257 1,435,165 1,161,246 947,024
Commercial, financial and other 1,485,846 1,315,191 1,133,785 947,733 734,251
Real estate - commercial mortgages 1,087,923 953,144 769,019 656,294 659,422
Real estate - construction and other 287,395 273,498 198,672 119,235 123,510
Credit card loans - managed 946,458 829,612 617,824 509,076 465,425
Unearned income (493) (2,589) (7,070) (17,472) (27,497)
- -----------------------------------------------------------------------------------------------------------
Total managed loans 6,740,070 6,217,483 5,122,726 4,129,239 3,551,706
- -----------------------------------------------------------------------------------------------------------
Securitized credit card loans (300,000) - - - -
- -----------------------------------------------------------------------------------------------------------
Total reported loans $6,440,070 $6,217,483 $5,122,726 $4,129,239 $3,551,706
===========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
TABLE 5. LOAN MATURITIES AND RATE SENSITIVITIES BY TYPE
================================================================================================
December 31, 1997
Maturing
- ------------------------------------------------------------------------------------------------
Within One to After
(dollars in thousands) One Year Five Years Five Years Total
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial and other
Fixed $201,998 $289,873 $122,914 $614,785
Floating 694,231 143,726 33,104 871,061
- ------------------------------------------------------------------------------------------------
Total commercial, financial and other $896,229 $433,599 $156,018 $1,485,846
- ------------------------------------------------------------------------------------------------
Real estate - construction and other
Fixed $73,200 $103,282 $27,811 $204,293
Floating 56,425 23,845 2,832 83,102
- ------------------------------------------------------------------------------------------------
Total real estate - construction
and other $129,625 $127,127 $30,643 $287,395
================================================================================================
</TABLE>
<TABLE>
<CAPTION>
TABLE 6. SECURITIES AVAILABLE FOR SALE - MATURITIES AND YIELDS (a)
=============================================================================================================================
December 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) Maturity
- -----------------------------------------------------------------------------------------------------------------------------
Within 1 Year 1-5 Years 5-10 Years After 10 Years Total Fair Value
- -----------------------------------------------------------------------------------------------------------------------------
FTE FTE FTE FTE FTE
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $118,036 7.15% $823,768 6.55% $103,719 6.96% $ - -% $1,045,523 6.66%
U.S. agency mortgage-backed securities
Fixed 2,905 7.38 150,106 6.73 307,497 6.40 229,918 6.11 690,426 6.38
Floating - - 667 6.13 - - 274,419 6.64 275,086 6.64
States and political subdivisions 7,472 10.56 14,674 10.03 27,526 9.72 38,833 10.96 88,505 10.39
Other debt securities 45,011 5.83 51,097 6.03 - - - - 96,108 5.94
Equity securities 4,823 4.86 - - - - 41,930 4.04 46,753 4.12
- -----------------------------------------------------------------------------------------------------------------------------
Total securities available
for sale $178,247 6.90% $1,040,312 6.60% $438,742 6.74% $585,100 6.53% $2,242,401 6.63%
=============================================================================================================================
(a) Fully taxable equivalent based on a 35% tax rate. Maturities are based on the contractual maturities of the securities.
</TABLE>
<TABLE>
<CAPTION>
TABLE 7. AVERAGE DEPOSITS
=============================================================================================================
(dollars in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand deposit $1,303,244 17.49% $1,336,815 19.41% $1,410,211 21.04%
NOW account deposits 1,185,668 15.92 1,095,729 15.91 1,023,939 15.28
Money market investment deposits 993,790 13.34 856,366 12.43 723,768 10.80
Savings deposits 483,112 6.48 632,088 9.18 770,384 11.49
Other consumer time deposits 2,241,063 30.08 2,156,327 31.30 2,041,762 30.45
- -------------------------------------------------------------------------------------------------------------
Total core deposits 6,206,877 83.31 6,077,325 88.23 5,970,064 89.06
- -------------------------------------------------------------------------------------------------------------
Time deposits $100,000 and over 1,243,086 16.69 810,350 11.77 733,013 10.94
- -------------------------------------------------------------------------------------------------------------
Total average deposits $7,449,963 100.00% $6,887,675 100.00% $6,703,077 100.00%
=============================================================================================================
</TABLE>
TABLE 8. MATURITIES OF TIME DEPOSITS
$100,000 AND OVER
=======================================================
(in thousands)
- -------------------------------------------------------
Within three months $339,739
Three to six months 234,032
Six to twelve months 221,220
After twelve months 428,119
- -------------------------------------------------------
Total at December 31, 1997 $1,223,110
=======================================================
TABLE 9. INTEREST RATE RISK
==================================================================
Twelve Month Economic
Net Interest Value of
At December 31, 1997 Income Change Equity Change
- ------------------------------------------------------------------
Interest Rate Change
In Basis Points:
+100 Shock (0.8)% (1.2)%
- -100 Shock 0.1% (0.9)%
+100 Gradual (0.1)% N/A
- -100 Gradual (0.2)% N/A
<TABLE>
<CAPTION>
TABLE 10. INTEREST RATE CONTRACTS
=============================================================================================================================
Weighted Average Rate
---------------------------
Pay
Receive Floating
Notional Market Maturity Fixed Rate Strike Underlying
(dollars in thousands) Amount Value Date Rate (LIBOR) Rate Asset/Liability
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Floors $500,000 $16 Dec 1998 -% -% 4.65% Transaction deposits
Swaps 10,000 41 Feb 1998 - Feb 2000 6.19 5.89 - Long-term bank notes
Swaps 201,000 2,158 Jan 1999 - Feb 2002 6.39 5.83 - Retail brokered CDs
Swap 100,000 5,827 Mar 2002 7.18 5.91 - Prime-based loans
- -----------------------------------------------------------------------------------------------------------------------------
Total at December 31, 1997 $811,000 $8,042 6.63% 5.86% 4.65%
=============================================================================================================================
</TABLE>
TABLE 11. CHANGES IN INTEREST RATE CONTRACTS
(NOTIONAL AMOUNTS)
=============================================================================
Option
Based Generic
(in thousands) Instruments Swaps Total
- -----------------------------------------------------------------------------
Balance, December 31, 1996 $500,000 $130,000 $630,000
Purchases - 181,000 181,000
- -----------------------------------------------------------------------------
Balance, December 31, 1997 $500,000 $311,000 $811,000
=============================================================================
TABLE 12. ANALYSIS OF INTEREST INCOME (EXPENSE) FROM
INTEREST RATE CONTRACTS
=======================================================================
Option
Year Ended December 31, 1997 Based Generic
(in thousands) Instruments Swaps Total
- -----------------------------------------------------------------------
Interest income $ - $1,960 $1,960
Amortization (568) - (568)
- -----------------------------------------------------------------------
Net interest income $(568) $1,960 $1,392
=======================================================================
<TABLE>
<CAPTION>
TABLE 13. RISK-BASED CAPITAL AND CAPITAL RATIOS
=========================================================================================
December 31
- -----------------------------------------------------------------------------------------
(dollars in thousands) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tier 1 capital $771,947 $683,190 $679,003 $651,080 $603,563
Tier 2 capital 115,380 126,993 149,769 138,995 132,371
- -----------------------------------------------------------------------------------------
Total capital $887,327 $810,183 $828,772 $790,075 $735,934
=========================================================================================
Risk-weighted assets $6,688,542 $6,294,032 $5,343,946 $4,452,537 $3,872,240
=========================================================================================
Ratios
Leverage ratio 8.35% 7.76% 8.16% 8.20% 7.70%
Tier 1 capital 11.54% 10.85% 12.71% 14.62% 15.59%
Total capital 13.27% 12.87% 15.51% 17.74% 19.01%
Equity ratio 8.64% 7.87% 8.59% 7.45% 7.74%
Tangible equity ratio 8.48% 7.69% 8.37% 7.26% 7.54%
=========================================================================================
</TABLE>
<TABLE>
<CAPTION>
TABLE 14. NONPERFORMING ASSETS
=============================================================================================================================
December 31
- -----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans by type
Loans to individuals - residential mortgages $8,302 $7,908 $6,897 $5,164 $6,366
Loans to individuals - other 1,355 1,007 335 815 1,148
Commercial, financial and other 9,169 11,037 27,610 1,222 5,383
Real estate - commercial mortgages 16,634 6,687 15,455 8,282 20,844
Real estate - construction and other 537 616 3,064 340 430
- -----------------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 35,997 27,255 53,361 15,823 34,171
- -----------------------------------------------------------------------------------------------------------------------------
Foreclosed assets 3,554 4,600 6,470 8,315 13,559
- -----------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $39,551 $31,855 $59,831 $24,138 $47,730
=============================================================================================================================
Loans past due 90 days or more and not on nonaccrual status $22,820 $29,451 $20,668 $12,215 $15,742
=============================================================================================================================
Ratios
Nonperforming assets as a percent of loans plus foreclosed assets 0.61% 0.51% 1.17% 0.58% 1.34%
Allowance for loan losses as a percent of nonperforming loans 231.11% 299.42% 142.14% 449.04% 250.52%
Loans past due 90 days or more and not on nonaccrual status as
a percent of loans 0.35% 0.47% 0.40% 0.30% 0.44%
=============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
TABLE 15. SUMMARY OF LOAN LOSS EXPERIENCE
=============================================================================================================================
(dollars in thousands) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for loan losses at beginning of year $81,606 $75,845 $71,052 $85,604 $96,658
Allowance related to receivables sold (8,790) - - - -
Allowance acquired in bank purchase - - 1,142 - -
Provision for loan losses 52,371 37,983 30,600 (10,418) (2,424)
Loans charged to the allowance
Loans to individuals - residential mortgages 61 337 401 332 889
Loans to individuals - other 21,422 18,155 8,055 3,635 3,537
Commercial, financial and other 1,727 1,090 13,518 947 3,166
Real estate - commercial mortgages 250 206 416 198 1,389
Real estate - construction and other 1 - 9 7 131
Credit card loans 34,726 25,661 15,561 11,120 11,433
- -----------------------------------------------------------------------------------------------------------------------------
Total charge-offs 58,187 45,449 37,960 16,239 20,545
- -----------------------------------------------------------------------------------------------------------------------------
Recoveries on loans previously charged to the allowance
Loans to individuals - residential mortgages 331 575 731 1,218 1,127
Loans to individuals - other 5,631 4,759 2,831 2,431 2,405
Commercial, financial and other 2,448 3,195 3,002 3,903 3,613
Real estate - commercial mortgages 3,807 822 656 1,005 1,719
Real estate - construction and other 65 244 465 561 432
Credit card loans 3,910 3,632 3,326 2,987 2,619
- -----------------------------------------------------------------------------------------------------------------------------
Total recoveries 16,192 13,227 11,011 12,105 11,915
- -----------------------------------------------------------------------------------------------------------------------------
Net charge-offs 41,995 32,222 26,949 4,134 8,630
- -----------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses at end of year $83,192 $81,606 $75,845 $71,052 $85,604
=============================================================================================================================
Gross charge-offs as a percent of average loans 0.92% 0.82% 0.84% 0.44% 0.64%
Recoveries as a percent of gross charge-offs 27.83% 29.10% 29.01% 74.54% 57.99%
Net charge-offs as a percent of average loans 0.66% 0.58% 0.59% 0.11% 0.27%
Allowance for loan losses as a percent of loans at end of year 1.29% 1.31% 1.48% 1.72% 2.41%
=============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
TABLE 16. ALLOWANCE FOR LOAN LOSSES
==================================================================================================================================
December 31
- ----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans to individuals 31.89% 45.54% 22.12% 45.80% 19.20% 46.99% 29.32% 46.17% 22.92% 44.62%
Commercial, financial
and other 20.60 23.07 14.81 21.14 21.69 22.10 19.93 22.85 20.91 20.51
Real estate 22.70 21.35 14.64 19.72 20.51 18.86 13.12 18.70 24.46 21.87
Credit card 24.81 10.04 29.70 13.34 19.84 12.05 19.10 12.28 18.57 13.00
Unallocated - (a) - 18.73 - 18.76 - 18.53 - 13.14 -
- ----------------------------------------------------------------------------------------------------------------------------------
Total 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
==================================================================================================================================
(a) At December 31, 1997, the allowance for potential loan losses not specifically identified has been allocated on a pro rata
basis to all loan categories.
</TABLE>
<TABLE>
<CAPTION>
Item 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations
1997 IN REVIEW
First Commerce Corporation's (FCC's) net income for
1997 was $125.6 million, up 6% from $118.4 million in 1996.
Diluted earnings per share were $3.10 in 1997 and $2.89 in
1996. The 1997 results reflect continued revenue growth,
partially offset by increases in operating expenses and the
provision for loan losses.
Excluding the effect of the $300 million credit card
securitization in August 1997, net interest income grew 5%
in 1997, primarily due to loan growth. Higher credit card
fee income, venture capital securities transactions and
trust fee income were the main causes of a 13% rise in other
income. Operating expense, excluding nonrecurring charges,
grew 5% in 1997, while the provision for loan losses rose
$14.4 million. Higher net charge-offs and loan growth were
the main causes of the increase in provision.
On October 20, 1997, FCC entered into an agreement
providing for the merger of FCC with a wholly owned
subsidiary of BANC ONE CORPORATION (BANC ONE). Terms of the
agreement call for FCC shareholders to receive 1.408 shares
of BANC ONE common stock (the Exchange Rate) for each share
of FCC common stock. The Exchange Rate has been adjusted to
give effect to the 10% stock dividend on BANC ONE common
stock paid on February 26, 1998. The merger is subject to
various conditions, including shareholder and regulatory
approval, and is expected to be completed in the second
quarter of 1998. For additional information concerning the
merger agreement, see Note 2 to the consolidated financial
statements.
A more detailed review of FCC's financial condition and
earnings for 1997 follows, with comparisons to 1996 and
1995. This review should be read in conjunction with the
Consolidated Financial Statements and Notes which follow
this Financial Review.
EARNINGS ANALYSIS
Credit Card Securitization
On August 7, 1997, FCC's subsidiary bank, First
National Bank of Commerce (First NBC), securitized $300
million of credit card receivables for additional funding.
First NBC retained the servicing and customer relationships
of the underlying credit card accounts.
The ongoing accounting effect of this securitization is
to reduce net interest income and the provision for loan
losses while increasing noninterest income. Noninterest
income for 1997 included $9.2 million of securitization
revenue, which represents the securitized credit card
receivables' interest income, provision for loan losses,
credit card fee income, and gains on sales, net of funding
and other costs. Table 1 presents the impact of the credit
card securitization on certain income statement line items
and ratios.
Net Interest Income
Net interest income, fully taxable equivalent (FTE) in
1997 was $389.2 million, compared to $375.5 million in 1996.
The net interest margin was 4.58% in 1997, compared to 4.79%
in the prior year. As shown in Table 1, securitization
reduced 1997's net interest income and net interest margin
by $5.2 million and six basis points, respectively.
Adjusted for the impact of securitization, net interest
income rose 5% from 1996. Loan growth was the most
significant cause of the improvement. Average managed loans
(which include the owned loan portfolio and the securitized
credit card receivables) grew 17% from 1996, while average
earning assets rose 9%, resulting in a more favorable mix of
earning assets. As a percent of earning assets, average
managed loans increased to 76% in 1997, compared to 70% in
1996. The most significant increases in average managed
loans were in commercial real estate, commercial and credit
card loans. Loan growth was funded by a reduction in
securities, plus increased levels of retail brokered
certificates of deposit (CDs) and bank notes. Retail
brokered CD and bank note programs were established in the
fourth quarter of 1996 and the first quarter of 1997,
respectively, to diversify FCC's wholesale funding sources.
Excluding the effect of securitization, the net
interest margin was 4.64% in 1997, compared to 4.79% in
1996. Higher funding costs caused the drop in the net
interest margin. FCC's cost of funds was 3.73% in 1997, up
26 basis points from 1996. The higher funding costs
reflected rates paid on FCC's increased level of longer-term
funding sources, the customer retention strategy of moving
FCC's best clients to higher yielding accounts, and the
attrition of noninterest-bearing accounts. Higher funding
costs were partially offset by an 11 basis point increase in
the yield on earning assets (excluding the effect of
securitization) due to the shift in the earning asset mix to
a higher proportion of loans.
For 1996, net interest income was $375.5 million, 7%
higher than in 1995. The net interest margin was 4.79% for
1996, 11 basis points higher than the prior year. These
improvements were primarily the result of loan growth. In
1996, average loans grew 21% and were 70% of earning assets,
compared to 61% in 1995. Growth was experienced in all
categories of loans and was funded by a reduction in
securities and growth in interest-bearing deposits.
Table 2 presents the average balance sheets, net
interest income (FTE) and interest rates for 1997, 1996 and
1995. Table 3 provides the components of changes in net
interest income (FTE).
Provision for Loan Losses
The provision for loan losses was $52.4 million in
1997, compared to $38.0 million and $30.6 million in 1996
and 1995, respectively. The increasing provision resulted
from both loan growth and higher net charge-offs. As shown
in Table 1, the credit card securitization reduced 1997's
provision by $6.8 million. Economic conditions, national
and regional trends, net charge-off levels, and changes in
the level and mix of the loan portfolio, could cause FCC's
provision for loan losses to fluctuate from 1997 levels.
For discussion of the allowance for loan losses, net charge-
offs and nonperforming assets, see the Credit Risk
Management section of this Financial Review.
Other Income
Other income was $195.5 million in 1997, compared to
$172.5 million in 1996, an increase of 13%. Other income
for 1997 included $9.2 million of securitization revenue,
$7.0 million of which would have been recorded as credit
card fee income had the securitization not taken place. The
principal contributors to the growth in other income from
1996 were credit card fees, venture capital securities
transactions and trust fee income.
Adjusted for the effect of securitization, credit card
fee income rose $11.3 million, or 24%, in 1997. This growth
reflected higher purchase volumes and late charge fee
income. Higher late charge fee income was driven by both
volume and pricing increases. The venture capital business
realized gains from the sales of securities of companies in
which it invested of $6.5 million in 1997, compared to a
$1.2 million loss in 1996. FCC began its venture capital
business in 1994 to provide companies with capital for
growth through expansion or acquisition, satisfying the
corporate finance needs that traditional bank lending could
not meet. Trust fee income was $2.8 million, or 13%, higher
than in 1996 due to new trust business. Additional
increases were experienced in broker/dealer revenue (up $1.4
million, or 13%) and ATM fee income (up $836,000, or 9%) and
were mainly related to higher business volumes. Service
charges on deposits fell 4% from 1996, reflecting FCC's
customer retention strategy and the attrition of noninterest-
bearing accounts.
Other income rose $32.7 million from 1995 to 1996. The
most significant contributors to the improvement were credit
card fee income and investment securities transactions.
Credit card fee income rose $13.3 million, or 38%,
reflecting increased purchase volumes and late charge fee
income. Investment securities transactions resulted in
pretax net gains of $1.4 million in 1996, compared to pretax
net losses of $11.4 million in 1995. The losses recorded in
1995 were related to FCC's securities portfolio
restructuring in response to rising interest rates. Growth
in trust fee income ($3.5 million), broker/dealer revenue
($2.6 million) and ATM fee income ($1.3 million) mainly
reflected higher volumes of transactions and accounts.
Operating Expense
Operating expense was $338.1 million in 1997, compared
to $326.8 million in 1996 and $337.2 million in 1995.
1996's operating expense included a one-time $5.3 million
expense related to the assessment by the FDIC for the
recapitalization of the Savings Association Insurance Fund
(SAIF). Operating expense in 1995 included $26.4 million of
nonrecurring merger-related and reengineering charges.
From 1996 to 1997, operating expense, excluding the
SAIF one-time special assessment, rose $16.6 million, or 5%.
Personnel expense rose $4.1 million, or 2%, reflecting
annual merit raises, partially offset by lower incentive pay
expense. On April 25, 1997, all outstanding stock
appreciation rights (SARs) were canceled and replaced with
stock options with equivalent terms. Compensation expense
is increased or decreased in connection with SARs based on
the market value of FCC's common stock. This exchange
capped the total expense at the stock price on the exchange
date. Increased depreciation caused equipment expense to
rise $3.9 million, or 15%. Also contributing to the rise in
operating expense were advertising expense, deferred
consumer loan origination costs and bank stock tax expense.
Advertising expense grew $2.1 million, mainly due to
increased donations expense. Lower deferred consumer loan
origination costs (down $1.8 million) reflected FCC's
pullback from intensely price-competitive indirect
automobile lending. Bank stock taxes (Louisiana does not
assess income tax on commercial banks; rather, banks pay
property tax based on the value of their capital stock) were
$1.9 million higher than in 1996.
Excluding one-time charges, operating expense rose
$10.8 million, or 3%, in 1996. Higher personnel costs
caused the increase. Personnel expense rose $15.9 million,
or 10%, from 1995. This increase was due to incentive pay
expense tied to the improvement in FCC's financial returns
and the appreciation of its common stock during 1996.
Communications and delivery expense grew $1.8 million, or
11%, while equipment expense rose $1.6 million, or 7%. FDIC
insurance expense, excluding the SAIF recapitalization
expense, fell $6.9 million in 1996 reflecting lower premium
rates due to strengthened FDIC reserves.
FCC monitors its efficiency ratio as one measure of its
success at increasing revenues while controlling expense
growth. Excluding one-time charges, the efficiency ratio
was 58% in 1997, compared to 59% in 1996 and 63% in 1995.
As with most other companies, many of the computer
programs that FCC uses were originally designed to recognize
calendar years by their last two digits. Transactions
processed using these truncated fields will not work
properly with dates from the year 2000 and beyond. FCC
established a task force in 1996 to prepare its data
processing and other systems to be Year 2000 compliant.
This process involves modifying or replacing certain
hardware and software maintained by FCC as well as ensuring
that external service providers are taking the appropriate
actions. The team's plan is to substantially complete this
project by the end of 1998. The total internal and external
costs for system conversions and testing are not expected to
be material.
Income Taxes
Income tax expense was $61.4 million in 1997, $59.0
million in 1996 and $39.5 million in 1995. The changes in
income tax expense resulted primarily from changes in pretax
income and the effect of 1995's nondeductible merger-related
expenses. FCC's effective tax rate was 33% in both 1997 and
1996 and 34% in 1995. These effective rates are lower than
the 35% federal statutory tax rate, primarily because of tax-
exempt interest income received from the financing of state
and local governments. Louisiana does not assess an income
tax on commercial banks; rather, banks pay property tax
based on the value of their capital stock in lieu of income
and franchise taxes.
For additional information on FCC's effective tax rates
and the composition of changes in income tax expense for all
periods, see Note 22.
FINANCIAL CONDITION ANALYSIS
Loans
Total loans of $6.4 billion at December 31, 1997 were
net of $300 million of securitized credit card receivables.
Managed loans of $6.7 billion at year-end 1997 were 8%
higher than one year ago. As shown in Table 4, loan growth
was broad-based and was driven by economic expansion in
Louisiana. The 2% decline in loans to individuals-other
reflected FCC's pullback from intensely price-competitive
indirect automobile lending. Table 5 and Note 6 provide
additional information on loans.
Consumer loans include loans to individuals and credit
card loans. Consumer loans continue to be the largest
segment of the loan portfolio at 58% of total managed loans.
Managed consumer loans were $3.9 billion at December 31,
1997, up 5% from year-end 1996. Growth in managed credit
card loans (up 14%) and residential mortgages (up 11%) were
partially offset by the decline in indirect automobile
lending.
Commercial loans were 22% of total managed loans, at
December 31, 1997, and were 13% higher than at the prior
year-end. Growth was distributed among virtually all
industry segments and reflected increased economic activity
in Louisiana. The commercial loan portfolio is diversified
among a wide array of industries. The three largest
industry categories were services with $369 million,
retail/wholesale trade with $224 million and transportation
with $170 million.
Real estate loans consist of loans secured by
commercial properties, construction and land development
loans, and loans secured by multi-family properties and
farmland. Real estate loans rose 12% during 1997 and were
20% of total managed loans at year-end.
Securities
As part of its securities portfolio management
strategy, all of FCC's securities have been classified as
available for sale. A significant factor in this decision
is the desire to maintain flexibility to actively manage the
portfolio in response to market conditions and funding
requirements.
At December 31, 1997, the securities portfolio totaled
$2.2 billion, unchanged from year-end 1996. Unrealized
gains, net of tax, increased stockholders' equity $33.6
million at December 31, 1997, compared to $22.9 million at
year-end 1996. The fluctuation in market values was mainly
driven by changes in market interest rates.
At December 31, 1997, 90% of total securities were
obligations of the U.S. government or its agencies. The
average expected life, which considers projected paydowns,
was 3.5 years. Table 6 presents detailed information on the
maturities and yields of securities.
FCC's mortgage-backed securities are either direct
issues or collateralized by direct issues of U.S. agencies.
At year-end 1997, the average expected life of FCC's
mortgage-backed securities was 4.2 years. Prepayment rates
on mortgage-backed securities may differ from those
expected, due to changes in interest rates and other
economic conditions.
Note 5 contains additional information on securities.
Deposits
Deposits were $7.8 billion as of year-end 1997, up 7%
from December 31, 1996. Growth was experienced in most
interest-bearing deposit categories with the most
significant increases in money market investment deposits
and time deposits $100,000 and over. Higher time deposits
$100,000 and over mainly were in retail brokered CDs, a
program instituted in the fourth quarter of 1996. Lower
savings and noninterest-bearing deposits reflected FCC's
customer retention strategy of moving FCC's best clients to
higher yielding accounts, and the attrition of noninterest-
bearing accounts. As shown in Table 7, average core
deposits rose 2% in 1997, and were 83% of total average
deposits.
Short-Term Borrowings
Short-term borrowings were $367 million at December 31,
1997, and averaged $495 million for the year. This was a
decrease from the $945 million at year-end 1996 and the $698
million average for 1996. The decline was due to FCC's
increased use of longer-term wholesale funding sources as
discussed under the Liquidity section of this Financial
Review. Note 10 contains additional information on short-
term borrowings.
Asset/Liability Management
The objective of FCC's asset/liability management is to
maximize net interest income while maintaining acceptable
levels of risk from changes in interest rates and, also,
balancing liquidity and capital needs. FCC monitors
opportunities and risks so that appropriate actions can be
taken by management to meet this objective. Actions
considered include purchases and sales of securities to
alter maturities and yields of the portfolio, changes in the
mix and level of earning assets and funding sources, and the
use of off-balance sheet interest rate risk products such as
swaps, caps and floors.
Interest Rate Risk
Interest rate risk is the potential impact on net
interest income of changes in interest rates. FCC measures
this risk by analyzing the sensitivity of net interest
income and the economic value of equity to interest rate
fluctuations.
Simulation of net interest income under various
interest rate scenarios is FCC's primary tool for measuring
interest rate risk. Management regularly reviews simulation
results to better understand FCC's interest rate risk and to
develop strategies for managing this risk. FCC's
simulations incorporate assumptions regarding such factors
as loan and deposit growth, pricing and mix, prepayment
rates, and spreads between various interest rates. These
assumptions are derived from a combination of historical
analysis and management's expectations and are regularly
reviewed and refined.
FCC captures longer-term interest rate risk by
analyzing the sensitivity of economic value of equity to
interest rate changes. Economic value of equity is defined
as the present value of assets and off-balance sheet
positions less the present value of liabilities.
Assumptions about the timing and variability of cash flows
are based on historical analysis and management's
expectations.
Table 9 shows the sensitivity of FCC's net interest
income over a twelve-month period to both a gradual and
immediate +/- 100 basis point rate shift. Also shown is the
economic value of equity change to an immediate +/- 100
basis point rate shift. The assumptions used in this
analysis are inherently uncertain. Actual results could
differ from simulated results due to timing, magnitude and
frequency of interest-rate changes and changes in market
conditions and management strategies, among other factors.
Off-Balance Sheet Instruments
In the normal course of business, FCC is a party to
various financial instruments which are not carried on the
balance sheet. However, income and expenses related to
these instruments are reflected in the financial statements.
FCC uses these instruments to meet the financing needs of
its customers and to help manage its exposure to interest
rate fluctuations. These off-balance sheet instruments
include commitments to extend credit, letters of credit,
securities lent, foreign exchange contracts and interest
rate contracts. Note 18 provides additional information
about off-balance sheet instruments.
FCC uses interest rate contracts to manage interest
rate risk. Table 10 summarizes FCC's interest rate
contracts at December 31, 1997. Table 11 summarizes the
activity, by notional amount, for all interest rate
contracts during 1997, while Table 12 presents their impact
on net interest income.
At December 31, 1997, FCC had $311 million of interest
rate swaps, with $211 million converting retail brokered CDs
and bank notes from fixed to floating rates. The remaining
$100 million convert prime-based floating rate loans to
fixed rates. FCC's $500 million of interest rate floors
hedge transaction deposits. As of year-end 1997, the
unamortized premium on these floors was $544,000.
As shown in Table 10, the estimated fair value of FCC's
total interest rate contracts at year-end 1997 was $8.0
million. The fair value of interest rate contracts at any
given date represents the estimated amount FCC would receive
or pay to terminate the contracts. Changes in the fair
value of FCC's interest rate contracts are largely offset by
changes in the fair values of the balance sheet assets and
liabilities matched against these contracts. The fair
values of interest rate contracts fluctuate depending upon
the remaining maturities of the contracts and the financial
markets' expectations regarding future interest rate levels.
Liquidity
The objective of liquidity management is to ensure that
funds are available to meet the cash flow requirements of
depositors and borrowers while at the same time meeting the
cash flow needs of the corporation. Liquidity is provided
by a stable base of funding sources, especially core
deposits, and an adequate level of assets readily
convertible into cash.
Beginning in the fourth quarter of 1996, FCC
significantly diversified its access to external funding
sources by establishing programs for issuing retail brokered
CDs, bank notes and credit card asset-backed securities.
Outstandings under these programs totaled $920 million as of
December 31, 1997. Other funding alternatives available
include commercial paper issued by the Parent Company and
lines of credit maintained with major banks totaling $45
million. No commercial paper was issued in 1997, and the
lines of credit were unused.
Capital and Dividends
At December 31, 1997, total stockholders' equity was
8.64% of total assets, compared to 7.87% one year ago. The
regulatory leverage ratio, which excludes the net unrealized
gain on securities available for sale, was 8.35% at year-end
1997 and 7.76% at December 31, 1996. The increase in both
ratios from the prior year was mainly due to net earnings
retained during 1997. Table 13 presents FCC's risk-based and
other capital ratios for the past five years. All ratios
remain well above regulatory minimums. Note 16 provides
additional information regarding the regulatory ratios of
FCC and its Banks.
FCC paid dividends of $1.60 per share for 1997, a 10%
increase over 1996's per share amount of $1.45. The Parent
Company's sources of funds to pay cash dividends on its
common stock are its net working capital and the dividends
it receives from the banks. At December 31, 1997, the
Parent Company had net working capital of $90 million.
Also, the Parent Company could receive dividends from the
banks without prior regulatory approval of $51 million after
December 31, 1997, plus the banks' adjusted net profits for
1998.
Credit Risk Management
FCC manages its credit risk by diversifying its loan
portfolio, maintaining credit underwriting standards which
emphasize cash flows and repayment ability, providing an
adequate allowance for loan losses and continually reviewing
loans through an internal independent loan review process.
Portfolio diversification reduces credit risk by minimizing
the impact on the portfolio if weaknesses develop in certain
segments of the economy. Credit underwriting standards
ensure that loans are properly structured and
collateralized. An adequate allowance for loan losses
provides for losses inherent in the loan portfolio. The
loan review process identifies and monitors potentially weak
or deteriorating credits.
Nonperforming Assets and Past Due Loans
Nonperforming assets consist of nonaccrual loans,
restructured loans and foreclosed assets. As shown in Table
14, nonperforming assets totaled $40 million at year-end
1997, compared to $32 million at December 31, 1996. The
year-end 1997 total consists of $36 million of nonperforming
loans and $4 million of foreclosed assets. As a percent of
loans and foreclosed assets, nonperforming assets were .61%
at the end of 1997, compared to .51% one year ago. Changes
in the level of total loans, the mix of the loan portfolio
and economic conditions will primarily determine the future
levels of nonperforming assets.
Nonperforming loans rose $9 million in 1997. The
increase was due to commercial real estate loans placed on
nonaccrual status. 67% of nonperforming loans were
contractually current or no more than 30 days past due at
December 31, 1997, compared to 42% at the end of 1996.
Foreclosed assets, which include unused bank premises,
fell $1 million from year-end 1996. The decline was the
result of property sales.
Loans past due 90 days or more and not on nonaccrual
status were $23 million, or .35% of total loans, at year-end
1997, compared to $29 million, or .47% of total loans, at
December 31, 1996. The decrease was mainly related to
government-guaranteed student loans. At the end of 1997,
accruing loans past due 90 days or more included $6 million
in government-guaranteed student loans and $12 million of
credit card loans (which are charged-off within 180 days of
becoming past due).
At December 31, 1997, loans considered to be impaired
totaled $29 million, of which $10 million required a total
impairment allowance of $3 million. Impaired loans are
included in nonaccrual loans.
Watch List
FCC's watch list includes loans which, for management
purposes, have been identified as requiring a higher level
of monitoring due to risk. FCC's watch list includes both
performing and nonperforming loans, as well as foreclosed
assets. The majority of watch list loans are classified as
performing, because they do not have characteristics
resulting in uncertainty about the borrower's ability to pay
principal and interest in accordance with the original terms
of the loans.
The watch list consists of classifications, identified
as Type 1 through Type 4. Types 1, 2 and 3 generally
parallel the regulatory classifications of loss, doubtful
and substandard, respectively. Type 4 generally parallels
the regulatory classification of Other Assets Especially
Mentioned. These loans require monitoring due to conditions
which, if not corrected, could increase credit risk. Total
watch list loans at December 31, 1997 were $201 million, or
3.12% of total loans and foreclosed assets, compared to $157
million, or 2.52%, at the end of last year. Approximately
half of the rise was related to one borrower; the remaining
increase was due to several commercial loans in a variety of
industries.
Allowance for Loan Losses
At December 31, 1997, the allowance for loan losses was
$83 million, or 210% of nonperforming assets, compared to
$82 million , or 256% of nonperforming assets, at year-end
1996. The allowance was 1.29% of loans at the end of 1997,
compared to 1.31% at December 31, 1996. During 1997, the
allowance was reduced $9 million related to the credit card
receivables securitized. For 1997, the provision exceeded
net charge-offs by $10.4 million, reflecting both strong
loan growth and the effect of increasing charge-offs, which
impacted the experience factor used in the allowance
calculation. Management believes that the allowance is
adequate to cover losses inherent in the loan portfolio.
Table 15 presents the activity in the allowance for loan
losses for the past five years. The allocation of the
allowance for loan losses is included in Table 16.
Net charge-offs were $42.0 million, or .66% of average
loans, in 1997, compared to $32.2 million, or .58% of
average loans, in 1996. Managed net charge-offs were $48.2
million, or .75% of average loans, in 1997. The increase
from 1996 reflected higher net charge-offs of credit card
loans. Net charge-offs on credit card loans were $30.8
million, or 4.19% of credit card loans, in 1997, up from
$22.0 million, or 3.24%, in 1996. Managed credit card net
charge-offs were $37.0 million, or 4.32% of credit card
loans. The rise in credit card charge-offs at FCC
throughout 1997 and 1996 tracked national trends and was
principally due to higher bankruptcies and the number of
accounts which have reached the age at which charge-offs
peak (generally an account that has been open for 18 to 36
months). The level of credit card charge-offs may continue
to rise during 1998.
Economic conditions, national and regional trends, net
charge-off levels and changes in the level and mix of the
loan portfolio, could cause FCC's provision for loan losses
to fluctuate from 1997 levels.
Fair Value of Financial Instruments
Note 19 provides information regarding the fair values
of financial instruments as of December 31, 1997 and 1996.
The differences between fair values and book values
were primarily caused by differences between contractual and
market interest rates at the respective year-ends.
Fluctuation in fair values will occur as interest rates
change.
Fourth Quarter Results
FCC's net income for the fourth quarter of 1997 was
$32.0 million, compared to $28.7 million in 1996's fourth
quarter. Diluted earnings per share were $.79 in the fourth
quarter of 1997 and $.72 for the fourth quarter of 1996.
The following are key items from the fourth quarter.
Net interest income (FTE) was $96.4 million, compared
to $97.8 million in 1996's fourth quarter. The decrease was
caused by the shift of net interest income to noninterest
income related to the securitization of credit card
receivables in 1997's third quarter. Excluding the effect
of this shift, net interest income rose 2% from 1996's
fourth quarter. Loan growth was the most significant cause
of the improvement. Higher funding costs partially offset
the benefit of this loan growth.
The provision for loan losses was $8.6 million in the
fourth quarter, down from $14.2 million in the prior year.
Excluding the impact of securitization, the provision would
have been $12.6 million in 1997's fourth quarter. Net
charge-offs were $9.7 million in this year's fourth quarter,
compared to $11.9 million in 1996's fourth quarter. Managed
net charge-offs were $13.9 million, or .84% of average
loans. The increase from 1996 reflected higher net charge-
offs of credit card loans. Net charge-offs of managed
credit card loans were $10.7 million in 1997's fourth
quarter, $8.6 million in 1997's third quarter and $7.3
million in the fourth quarter of 1996. Higher credit card
charge-offs were mainly related to the number of accounts
that are reaching the age at which charge-offs peak. Credit
card charge-offs may continue to grow over the next few
quarters.
Other income was $50.3 million in the fourth quarter.
Excluding investment securities transactions and the effects
of securitization, other income was $49.3 million, up 8%
from 1996's fourth quarter. Credit card fees were the
principal factor in this growth.
Operating expense was $88.8 million in 1997's fourth
quarter, 4% higher than in 1996. Higher equipment costs
were the most significant contributor to the increase. The
efficiency ratio was 60.5% for the fourth quarter of 1997.
Selected Quarterly Data compares certain quarterly
financial information for 1997 and 1996.
FORWARD LOOKING STATEMENTS
FCC may from time to time make written or oral forward-
looking statements, including statements contained in this
report and other filings with the Securities and Exchange
Commission, in its reports to stockholders and in other
communications by FCC, which are made in good faith by FCC
pursuant to the "Safe Harbor" provisions of the Private
Securities Litigation Reform Act of 1995.
These forward-looking statements are based on a number
of assumptions about future events and are subject to
various risks and uncertainties which may cause actual
results to differ materially from those in such statements.
These risks and uncertainties include, but are not limited
to, (i) the strength of the U. S. economy in general and the
strength of the local economies in which FCC conducts
operations, (ii) changes in trade, monetary and fiscal
policies, laws and regulations of government agencies and
similar organizations, including interest rate policies of
the Board of Governors of the Federal Reserve System, (iii)
inflation, interest rate, market and monetary fluctuations,
(iv) FCC's ability to improve sales and service quality and
to develop profitable new products, (v) the willingness of
users to substitute competitors' products and services for
FCC's products and services, (vi) the success of FCC in
gaining regulatory approval of its products and services,
when required, (vii) changes in consumer spending, borrowing
and saving habits, (viii) the effect of changes in
accounting policies and practices, as may be adopted by the
regulatory agencies as well as the Financial Accounting
Standards Board, (ix) the amount and rate of growth in FCC's
expenses and its ability to achieve targeted or projected
cost controls, (x) the costs and effects of litigation and
of unexpected or adverse outcomes in such litigation, (xi)
technological changes, including the possibility that FCC's
Year 2000 compatibility project may not be completed as
projected resulting in losses related to data processing and
other systems that may not operate as expected, (xii) the
possibility that FCC's merger with a wholly owned subsidiary
of BANC ONE CORPORATION may not be completed if one or more
of the conditions of the closing are not met, (xiii)
acquisitions and the integration of acquired businesses,
(xiv) the impact on FCC's financial statements of
nonrecurring accounting charges that may result from its
ongoing evaluation of its business strategies, asset
valuations and organizational structures, (xv) charge-off
and delinquency trends, (xvi) the effects of easing of
restrictions on the financial services industry, and the
effects of competition from institutions that can take
better advantage of eased restrictions and from new entries
into the markets served by FCC, and (xvii) the success of
FCC at managing the risks involved in the foregoing.
Readers are cautioned not to place undue reliance on
forward-looking statements made by or on behalf of FCC. Any
such statement speaks only as of the date it was made. FCC
undertakes no obligation to update or revise any forward-
looking statements.
Item 8
Financial Statements and Supplementary Data
FIRST COMMERCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(dollars in thousands) December 31
=========================================================================================================
1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 433,558 $ 440,347
Interest-bearing deposits in banks 68 134
Federal funds sold and securities purchased under resale agreements 29,000 59,250
Trading account securities 72,249 13,122
Securities available for sale, at fair value 2,242,401 2,177,529
Loans, net of unearned income 6,440,070 6,217,483
Allowance for loan losses (83,192) (81,606)
- ---------------------------------------------------------------------------------------------------------
Net loans 6,356,878 6,135,877
=========================================================================================================
Premises and equipment 156,401 170,431
Accrued interest receivable 105,819 105,888
Other assets 110,923 87,532
- ---------------------------------------------------------------------------------------------------------
Total assets $9,507,297 $9,190,110
=========================================================================================================
LIABILITIES
Noninterest-bearing deposits $1,428,089 $1,436,038
Interest-bearing deposits 6,379,344 5,868,808
- ---------------------------------------------------------------------------------------------------------
Total deposits 7,807,433 7,304,846
=========================================================================================================
Short-term borrowings 366,915 944,823
Accrued interest payable 55,026 44,160
Accounts payable and other accrued liabilities 66,125 91,883
Long-term debt 390,818 80,723
- ---------------------------------------------------------------------------------------------------------
Total liabilities 8,686,317 8,466,435
=========================================================================================================
STOCKHOLDERS' EQUITY
Preferred stock; 5,000,000 shares authorized, none issued - -
Common stock, $5 par value
Authorized -- 100,000,000 shares
Issued -- 39,240,854 and 39,402,926 shares, respectively 196,204 197,015
Capital surplus 175,582 146,390
Retained earnings 421,884 373,521
Treasury stock -- 482,998 common shares, at cost - (13,150)
Unearned restricted stock compensation (6,331) (2,956)
Net unrealized gain on securities available for sale 33,641 22,855
- ---------------------------------------------------------------------------------------------------------
Total stockholders' equity 820,980 723,675
=========================================================================================================
Total liabilities and stockholders' equity $9,507,297 $9,190,110
=========================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Balance Sheets.
</TABLE>
FIRST COMMERCE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(dollars in thousands, except per share data) Years Ended December 31
=========================================================================================================
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $557,101 $489,326 $410,039
Interest and dividends on taxable securities 133,137 142,324 176,222
Interest on tax-exempt securities 5,835 6,274 7,066
Interest on money market investments 3,011 3,301 5,167
- ---------------------------------------------------------------------------------------------------------
Total interest income 699,084 641,225 598,494
=========================================================================================================
INTEREST EXPENSE
Interest on deposits 263,697 223,141 210,942
Interest on short-term borrowings 25,812 37,718 33,015
Interest on long-term debt 27,595 10,624 11,193
- ---------------------------------------------------------------------------------------------------------
Total interest expense 317,104 271,483 255,150
=========================================================================================================
NET INTEREST INCOME 381,980 369,742 343,344
PROVISION FOR LOAN LOSSES 52,371 37,983 30,600
- ---------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 329,609 331,759 312,744
=========================================================================================================
OTHER INCOME
Deposit fees and service charges 56,563 58,871 59,515
Credit card fee income 52,053 47,786 34,516
Securitization revenue 9,207 - -
Trust fee income 23,421 20,655 17,163
Broker/dealer revenue 12,150 10,765 8,198
ATM fee income 10,529 9,693 8,393
Other operating revenue 24,088 24,607 23,494
Venture capital securities transactions 6,500 (1,200) -
Investment securities transactions 1,002 1,360 (11,413)
- ---------------------------------------------------------------------------------------------------------
Total other income 195,513 172,537 139,866
=========================================================================================================
OPERATING EXPENSE
Salary expense 156,474 151,781 139,285
Employee benefits 28,673 29,298 33,855
- ---------------------------------------------------------------------------------------------------------
Total personnel expense 185,147 181,079 173,140
Equipment expense 30,203 26,337 26,652
Net occupancy expense 21,080 20,980 22,027
Communications and delivery expense 20,066 19,154 17,429
Advertising expense 15,671 13,551 15,108
Professional fees 13,582 14,180 19,336
FDIC insurance expense 1,369 7,057 8,665
Other operating expense 51,011 44,510 54,847
- ---------------------------------------------------------------------------------------------------------
Total operating expense 338,129 326,848 337,204
=========================================================================================================
INCOME BEFORE INCOME TAX EXPENSE 186,993 177,448 115,406
INCOME TAX EXPENSE 61,380 59,010 39,455
=========================================================================================================
NET INCOME 125,613 118,438 75,951
PREFERRED DIVIDEND REQUIREMENTS - 2,116 4,325
=========================================================================================================
INCOME APPLICABLE TO COMMON SHARES $125,613 $116,322 $71,626
=========================================================================================================
EARNINGS PER COMMON SHARE
Basic $ 3.24 $ 3.05 $ 1.90
Diluted $ 3.10 $ 2.89 $ 1.87
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 38,805,481 38,121,896 37,644,406
Diluted 42,739,394 43,267,089 40,670,518
=========================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FIRST COMMERCE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Net
Unrealized
Unearned Gain (Loss)
Restricted on Securities
Preferred Common Capital Retained Treasury Stock Available
(dollars in thousands except per share data) Stock Stock Surplus Earnings Stock Compensation for Sale Total
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $59,954 $188,146 $112,238 $307,701 $ - $ (592) $(73,888) $593,559
===================================================================================================================================
Net income - - - 75,951 - - - 75,951
Cash dividends
Preferred stock ($1.8125 per share) - - - (4,325) - - - (4,325)
Common stock ($1.25 per share) - - - (39,611) - - - (39,611)
Pooled acquisitions - - - (1,846) - - - (1,846)
Preferred stock conversions (1,234) 287 947 - - - - -
Exercise of stock options - 223 583 - - - - 806
Sales to plans - - 324 (88) 1,033 - - 1,269
Restricted stock activity - 172 400 - - (531) - 41
Issuance and purchase of 516,100
shares in acquisition - 2,580 10,913 - (13,760) - - (267)
Change in net unrealized gain (loss)
on securities available for sale - - - - - - 107,472 107,472
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 58,720 191,408 125,405 337,782 (12,727) (1,123) 33,584 733,049
===================================================================================================================================
Net income - - - 118,438 - - - 118,438
Cash dividends
Preferred stock ($1.3594 per share) - - - (2,116) - - - (2,116)
Common stock ($1.45 per share) - - - (55,932) - - - (55,932)
Preferred stock redemptions and
conversions (58,720) 4,615 14,862 (24,463) 63,456 - - (250)
Purchase of 1,814,000 shares of common
stock for preferred conversions - - - - (63,926) - - (63,926)
Conversion of 12 3/4% convertible debentures - 434 1,881 - - - - 2,315
Exercise of stock options - 235 819 - - - - 1,054
Sales to plans - - 11 (188) 47 - - (130)
Restricted stock activity - 323 3,412 - - (1,833) - 1,902
Change in net unrealized gain (loss)
on securities available for sale - - - - - - (10,729) (10,729)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 - 197,015 146,390 373,521 (13,150) (2,956) 22,855 723,675
===================================================================================================================================
Net income - - - 125,613 - - - 125,613
Cash dividends on common stock
($1.60 per share) - - - (62,484) - - - (62,484)
Retirement of treasury stock - (2,348) - (10,331) 12,679 - - -
Conversion of stock appreciation rights
to stock options - - 10,401 - - - - 10,401
Exercise of stock options - 1,200 8,626 (4,302) 471 - - 5,995
Sales to plans - - - (133) - - - (133)
Restricted stock activity - 337 10,165 - - (3,375) - 7,127
Change in net unrealized gain (loss)
on securities available for sale - - - - - - 10,786 10,786
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $ - $196,204 $175,582 $421,884 $ - $(6,331) $ 33,641 $820,980
===================================================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FIRST COMMERCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands) Years Ended December 31
======================================================================================================================
1997 1996 1995
--------------------------------------------
<S>
OPERATING ACTIVITIES <C> <C> <C>
Net income $125,613 $118,438 $75,951
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 52,371 37,983 30,600
Depreciation and amortization of premises and equipment 25,161 22,689 23,427
Amortization of intangibles 2,314 2,856 2,870
Deferred income tax (benefit) (7,166) (4,485) (9,124)
Net deferred loan (fees) (3,846) (7,113) (7,247)
Net (gain) loss from venture capital securities transactions (6,500) 1,200 -
Net (gain) loss from investment securities transactions (1,002) (1,360) 11,413
Net (gain) on branch divestiture - (1,137) (3,054)
(Increase) decrease in trading account securities (59,127) 6,508 (10,660)
(Increase) in accrued interest receivable (1,895) (10,105) (24,362)
(Increase) decrease in other assets (16,039) (13,045) 9,612
Increase in accrued interest payable 10,866 2,304 16,105
Increase (decrease) in accounts payable and other accrued liabilities (9,422) 15,731 18,219
Other, net 674 7,715 (8,195)
- ----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 112,002 178,179 125,555
======================================================================================================================
INVESTING ACTIVITIES
Net decrease in interest-bearing deposits in banks 66 654 3,542
Proceeds from maturities/calls of securities held to maturity - - 80,036
Purchases of securities held to maturity - - (32,879)
Proceeds from sales of securities available for sale 533,857 110,385 765,867
Proceeds from maturities/calls of securities available for sale 821,905 605,735 306,118
Purchases of securities available for sale (1,396,528) (308,966) (625,446)
Net (increase) decrease in federal funds sold and
securities purchased under resale agreements 30,250 (25,350) 126,680
Net (increase) in loans (578,294) (1,141,442) (989,160)
Branch divestiture - (14,410) (4,897)
Purchases of premises and equipment (14,127) (29,643) (46,966)
Proceeds from sales of foreclosed assets 15,246 13,742 12,161
Other, net 2,396 1,758 4,343
- ----------------------------------------------------------------------------------------------------------------------
NET CASH (USED) BY INVESTING ACTIVITIES (585,229) (787,537) (400,601)
======================================================================================================================
FINANCING ACTIVITIES
Net proceeds from sale of securitized credit card receivables 296,525 - -
Net increase (decrease) in transaction and savings accounts 155,222 24,826 (30,543)
Net increase in time deposits 345,254 344,213 250,928
Net increase (decrease) in short-term borrowings (577,908) 309,095 135,235
Issuance of bank notes 308,480 - -
Payments on long-term debt (27) (5,308) (1,874)
Cash dividends paid (62,368) (56,754) (41,672)
Proceeds from issuance of common and treasury stock 8,696 541 3,206
Purchase of treasury stock (7,436) (63,926) (15,108)
Other, net - (250) -
- ----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 466,438 552,437 300,172
======================================================================================================================
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (6,789) (56,921) 25,126
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 440,347 497,268 472,142
======================================================================================================================
CASH AND CASH EQUIVALENTS AT END OF PERIOD $433,558 $440,347 $497,268
======================================================================================================================
Cash paid during the period for
Interest expense $306,238 $269,275 $238,882
Income taxes $ 69,150 $ 60,040 $ 37,080
======================================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
</TABLE>
NOTE 1
Business, Summary of Significant Accounting Policies and
Recent Pronouncements
Business
First Commerce Corporation (FCC) is a multi-bank
holding company headquartered in New Orleans, Louisiana.
Through its six banks (collectively "the Banks") located in
Louisiana, FCC offers complete banking and related financial
services to commercial and consumer customers in the Gulf
South, primarily Louisiana and southern Mississippi. The
Banks account for substantially all of the assets and net
income of FCC. FCC and the Banks are subject to the
regulation and supervision of certain federal and state
agencies and undergo periodic examinations by those
regulatory authorities. The Banks include First National
Bank of Commerce (First NBC), City National Bank of Baton
Rouge (CNB), The First National Bank of Lafayette (FNBL),
Central Bank (CB), The First National Bank of Lake Charles
(FNBLC) and Rapides Bank & Trust Company in Alexandria
(RBT).
Summary of Significant Accounting Policies
Use of Estimates
The accounting and reporting policies of FCC and its
subsidiaries conform with generally accepted accounting
principles and with general practices within the financial
services industry. In preparing the consolidated financial
statements, FCC is required to make estimates and
assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes.
Actual results could differ from those estimates.
Basis of Presentation
The consolidated financial statements include the
accounts of FCC and its subsidiaries. All significant
intercompany balances and transactions have been eliminated.
Prior year financial statements have been restated to
include the accounts of business combinations accounted for
as poolings-of-interests, unless immaterial. Business
combinations accounted for as purchases are included from
the respective dates of acquisition. Certain prior years'
amounts have been reclassified to conform with current year
financial statement presentation.
Securities
Securities are classified as either trading, held to
maturity or available for sale. Management determines the
classification of securities when they are purchased and
reevaluates this classification periodically.
Trading account securities are bought and held
principally for resale in the near term. They are carried
at fair value with realized and unrealized gains or losses
reflected in other operating revenue. Interest and dividend
income on trading account securities is included in interest
income on money market investments.
Securities which FCC has the ability and positive
intent to hold to maturity are classified as securities held
to maturity. They are stated at amortized cost.
Securities which may be sold in response to changes in
interest rates, liquidity needs or asset/liability
management strategies and investments made by FCC's venture
capital unit are classified as securities available for
sale. These securities are carried at fair value, with net
unrealized gains or losses excluded from earnings and shown
as a separate component of stockholders' equity, net of the
related tax effect.
Realized gains and losses on securities either held to
maturity or available for sale are computed based on the
specific identification method and are reported as separate
components of other income. Amortization of premium and
accretion of discount are computed using the interest
method.
Loans
Loans are stated at the principal amounts outstanding
net of unearned income. Interest on loans and accretion of
unearned income are computed by methods which approximate a
level rate of return on recorded principal. Loan
origination fees and costs are deferred and amortized as an
adjustment to the related loan yield. For commercial and
consumer loans, the amortization period is the actual life
of the loans; for residential mortgage loans, it is the
expected average life of the loan. Loan origination costs
on credit card loans are not deferred due to their
immaterial effect on the financial statements. Annual
credit card fees are recognized on a straight-line basis
over the related twelve-month period.
Securitized loans that qualify for sale accounting
treatment are removed from the balance sheet.
Securitization revenue represents the net effect of interest
income, provision for loan losses, credit card fee income,
gains from sales and funding costs for the securitized
loans.
Nonperforming Loans
Nonperforming loans consist of nonaccrual loans and
restructured loans. Loans past due 90 days or more are
considered to be performing until placed on nonaccrual
status. Loans are placed on nonaccrual status when, in the
opinion of management, there is sufficient uncertainty as to
timely collection of interest or principal. Any accrued
interest is usually reversed when a loan is placed on
nonaccrual status. Generally, any payments received on
nonaccrual loans are first applied to reduce outstanding
principal amounts. Loans are not reclassified as accruing
until interest and principal payments are brought current
and future payments are reasonably assured. Delinquent
credit card loans are charged off within 180 days of
becoming past due.
A loan is considered to be impaired when, based on
current information and events, it is probable that FCC will
be unable to collect all amounts due according to the
contractual terms of the loan agreement. Impaired loans are
carried on nonaccrual status.
Allowance for Loan Losses
The allowance for loan losses represents management's
best estimate of potential losses in the loan portfolio.
This estimate is based on an ongoing evaluation of the
portfolio. Factors considered include significant changes
in the character of the portfolio, loan concentrations,
current year charge-offs, historic charge-off ratios, trends
in portfolio volumes, delinquencies, nonaccruals and
economic conditions. Ultimate losses may vary from the
current estimates. These estimates are reviewed
periodically and, as adjustments become necessary, they are
reflected in current operations.
Premises and Equipment
Premises and equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation and
amortization are computed primarily using the straight-line
method over the estimated useful lives of the assets, and
over the shorter of the lease terms or the estimated lives
of leasehold improvements. Additions to premises and
equipment and major replacements or improvements are
capitalized. Gains and losses on dispositions, maintenance,
repairs and minor replacements are reflected in current
operations.
Foreclosed Assets
Foreclosed assets, which includes unused bank premises,
are reported in other assets and are recorded at estimated
fair value, less estimated selling costs. At foreclosure,
the reduction of the carrying amount to fair value is
charged to the allowance for loan losses. Any subsequent
writedowns and revenues and expenses associated with
foreclosed assets prior to sale are included in
nonperforming assets expense.
Intangible Assets
The unamortized cost of intangible assets is included
in other assets. Goodwill, the excess of cost over net
assets of acquired subsidiaries, is amortized on a straight-
line basis over periods ranging from 5 to 20 years. Other
intangible assets, such as premiums on purchased loans and
deposits, are amortized using the straight-line method over
the periods benefited. FCC periodically reviews its
intangible assets for possible impairment in value or life.
Income Taxes
FCC and its subsidiaries file a consolidated federal
income tax return. FCC accounts for income taxes using the
asset and liability method. Under this method, deferred tax
assets and liabilities are based on the temporary
differences between the financial reporting basis and tax
basis of FCC's assets and liabilities at enacted tax rates
expected to be in effect when such amounts are realized or
settled.
Interest Rate Contracts
FCC uses interest rate swaps and option-based
instruments such as caps, collars and floors to manage its
interest rate exposure. These interest rate contracts hedge
against interest rate risk by reducing either cash flow or
market value risk on specific assets and liabilities and are
accounted for using the hedge accounting method. Revenues
or expenses on interest rate contracts are recognized over
the lives of the agreements as adjustments to interest
income or expense of the asset or liability hedged. Related
fees and any premiums paid or received are deferred and
amortized over the lives of the agreements. Any realized
gains and losses resulting from early termination of
interest rate contracts are deferred and amortized to the
earlier of the maturity date of the hedged asset or
liability, or the original expiration date of the contract.
If the asset or liability being hedged is disposed of, any
unrealized or deferred gain or loss on the related interest
rate contract is included in determining the gain or loss
from the disposition. Any interest rate contracts not
qualifying for deferral accounting are recorded at fair
value. Any changes in the fair value or gains and losses
from early termination of interest rate contracts are
recognized in other income.
The derivative portfolio's performance is evaluated by
management on a continuous basis through the use of an
effectiveness report. Each derivative's objective is
regularly compared to its actual performance so that
management can assess the effectiveness of FCC's interest
rate risk strategies.
Earnings Per Common Share
Earnings per common share is calculated under the
Treasury Stock Method. Basic earnings per share (eps) is
computed by dividing income applicable to common shares(net
income less preferred stock dividends) by the weighted
average number of common shares outstanding during the
period. Diluted eps is computed using average common
shares outstanding plus dilutive potential common shares
outstanding during the period. Dilutive potential common
shares include shares issuable under stock options,
convertible debentures and convertible preferred stock.
Income for diluted eps is adjusted for interest expense
related to the convertible debentures, net of the related
income tax effect, and preferred stock dividends.
Statements of Cash Flows
FCC considers only cash on hand and noninterest-bearing
amounts due from banks to be cash equivalents.
Other
Assets held by the Banks in fiduciary capacities are
not assets of the Banks and are not included in the
consolidated balance sheets. Generally, certain minor
sources of income are recorded on a cash basis, which does
not differ materially from the accrual basis.
NOTE 2
BANC ONE Merger
On October 20, 1997, BANC ONE CORPORATION (BANC ONE)
and FCC entered into an agreement and plan of merger (the
Merger Agreement), pursuant to which FCC will be merged with
a wholly owned subsidiary BANC ONE (the Merger).
In accordance with the terms of the Merger Agreement,
each share of FCC common stock (FCC Common Stock)
outstanding immediately prior to the effective time of the
Merger (the Effective Time) will be converted into the right
to receive 1.28 shares (the Exchange Ratio) of BANC ONE
common stock (BANC ONE Common Stock). The Merger Agreement
provides for appropriate adjustments to the Exchange Ratio
and other factors used to determine or limit the exchange
rate in the event of a BANC ONE stock dividend or stock
split. Each holder of FCC Common Stock who would otherwise
be entitled to receive a fractional share of BANC ONE Common
Stock (after taking into account all of a shareholder's
certificates) will receive cash, in lieu thereof, without
interest.
The Merger Agreement may be terminated by FCC by giving
notice to BANC ONE if (x) both (i) the average closing price
of BANC ONE Common Stock for the five full trading days
ending two business days before the closing date set for the
merger (the Average Closing Price) is less than $49.67 and
(ii) the number obtained by dividing the Average Closing
Price by $55.19 (the closing price of BANC ONE Common Stock
on October 17, 1997) is less than the number obtained by (a)
dividing the average of the closing prices of a specified
index of bank stocks during the above-mentioned five-day
period by the closing price of such index on October 17,
1997 and (b) subtracting 0.10; or (y) the Average Closing
Price is less than $47.46. If FCC seeks to terminate the
Merger Agreement pursuant to the conditions set forth in the
preceding sentence, BANC ONE may determine, in its sole
discretion, to increase the Exchange Ratio to eliminate
FCC's right to terminate the Merger Agreement.
The Merger is intended to constitute a reorganization
under Section 368(a) of the Internal Revenue Code of 1986
(tax-free exchange), as amended, and to be accounted for as
a pooling-of-interests.
In addition, the Merger Agreement contemplates that
each stock option or other right to purchase a share of FCC
Common Stock under the stock option and other stock-based
compensation plans of FCC (each an FCC Plan), will be
converted into and become a right to purchase 1.28 shares of
BANC ONE Common Stock in accordance with the terms of the
FCC Plan and the FCC option or right agreement by which it
is evidenced.
Consummation of the Merger is subject to various
conditions, including: (i) receipt of the requisite approval
by the shareholders of FCC; (ii) receipt of requisite
regulatory approvals from the Board of Governors of the
Federal Reserve System and other federal and state
regulatory authorities; (iii) receipt of opinions as to the
tax and accounting treatment of certain aspects of the
Merger; (iv) listing, subject to notice of issuance, of the
BANC ONE Common Stock to be issued in the Merger; and (v)
satisfaction of certain other conditions.
In connection with the Merger Agreement, BANC ONE and
FCC entered into a stock option agreement dated October 20,
1997 (the Stock Option Agreement), pursuant to which FCC
granted to BANC ONE an option to purchase, under certain
circumstances, up to 9,689,000 shares of FCC Common Stock at
a price, subject to certain adjustments, of $64.00 per share
(the Option). The Option is exercisable upon the occurrence
of certain events, and, if exercised, would give the holder
thereof the right to acquire, after giving effect to the
exercise of the Option, 19.9% of the total number of shares
of FCC Common Stock outstanding. The Option Agreement was
granted by FCC as a condition and inducement to BANC ONE's
willingness to enter into the Merger Agreement.
The Merger with BANC ONE is expected to be consummated
during the second quarter of 1998.
NOTE 3
Acquisitions
During 1995, FCC acquired five Louisiana financial
institutions. FCC's acquisitions of First Bancshares, Inc.
(First), Lakeside Bancshares, Inc. (Lakeside), Peoples
Bancshares, Inc. (Peoples) and Central Corporation (Central)
were accounted for as poolings-of-interests. FCC's financial
statements for all periods presented reflect these pooled
companies. The acquisition of City Bancorp, Inc. (City) was
accounted for as a purchase transaction. The following table
shows the merger date, assets acquired and number of FCC
common shares issued for each of the pooled companies:
Assets
Acquired
Date (millions) Shares
- --------------------------------------------------------------
First February 17, 1995 $ 246 2,705,537
Lakeside August 3, 1995 $ 130 984,021
Peoples October 2, 1995 $ 172 956,184
Central October 20, 1995 $ 830 6,790,939
- --------------------------------------------------------------
FCC acquired City on February 17, 1995 in exchange for
516,100 shares of FCC common stock. FCC repurchased an
equal number of shares of its common stock. City's assets
were $79 million at December 31, 1994. The results of
operations of City are included in the financial statements
from the acquisition date.
NOTE 4
Restrictions on Cash and Due from Banks
The Banks are required to maintain average reserve
balances with the Federal Reserve Bank based on a percentage
of deposits. Average balances maintained for such purposes
were $27.4 million and $42.0 million during 1997 and 1996,
respectively.
NOTE 5
Securities Available for Sale
An analysis of securities available for sale follows (in thousands):
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
==============================================================================
December 31, 1997
- ------------------------------------------------------------------------------
U. S. Treasury securities $1,025,071 $20,452 $ - $1,045,523
U. S. agency mortgage-backed
securities 964,260 4,599 (3,347) 965,512
States and political
subdivisions 78,368 10,146 (9) 88,505
Other debt securities 96,139 28 (59) 96,108
Equity securities 26,807 19,946 - 46,753
- ------------------------------------------------------------------------------
Total securities
available for sale $2,190,645 $55,171 $(3,415) $2,242,401
==============================================================================
December 31, 1996
- ------------------------------------------------------------------------------
U. S. Treasury securities $1,314,665 $19,672 $ (613) $1,333,724
U. S. agency mortgage-backed
securities 711,633 3,438 (7,214) 707,857
States and political
subdivisions 85,469 10,214 (17) 95,666
Other debt securities 3,359 17 - 3,376
Equity securities 27,241 9,671 (6) 36,906
- ------------------------------------------------------------------------------
Total securities
available for sale $2,142,367 $43,012 $(7,850) $2,177,529
==============================================================================
The amortized cost and fair value of securities available for sale by
maturity are shown below (in thousands):
Amortized Fair
Cost Value
=======================================================
December 31, 1997
- -------------------------------------------------------
Within one year $ 177,859 $ 178,247
One to five years 1,025,491 1,040,312
Five to ten years 428,955 438,742
After ten years 558,340 585,100
- -------------------------------------------------------
Total securities
available for sale $2,190,645 $2,242,401
=======================================================
Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
penalties.
Gross gains of $8.2 million and $1.7 million and gross losses of
$675,000 and $1.5 million were realized on sales and calls of securities
available for sale in 1997 and 1996, respectively.
Securities with carrying values of $1.4 billion and $1.6 billion at
December 31, 1997 and 1996, respectively, were pledged to secure public and
trust deposits, and for other purposes.
NOTE 6
Loans
The composition of loans follows (in thousands):
<TABLE>
<CAPTION>
December 31
========================================================================================
1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Residential mortgages $1,202,263 18.67% $1,086,370 17.47%
Automobile 949,260 14.74 1,000,218 16.08
Education 455,051 7.06 384,591 6.18
Other 326,367 5.07 377,448 6.07
- ----------------------------------------------------------------------------------------
Loans to individuals 2,932,941 45.54 2,848,627 45.80
- ----------------------------------------------------------------------------------------
Services 368,778 5.73 334,708 5.38
Retail/wholesale trade 223,889 3.48 215,137 3.46
Transportation 170,173 2.64 106,636 1.71
Mining 149,556 2.32 121,156 1.95
Other 573,450 8.90 537,554 8.64
- ----------------------------------------------------------------------------------------
Commercial, financial
and other 1,485,846 23.07 1,315,191 21.14
- ----------------------------------------------------------------------------------------
Commercial mortgages 1,087,923 16.89 953,144 15.32
Construction and land development 190,302 2.95 203,667 3.28
Other 97,093 1.51 69,831 1.12
- ----------------------------------------------------------------------------------------
Real estate loans 1,375,318 21.35 1,226,642 19.72
- ----------------------------------------------------------------------------------------
Credit card loans 646,458 10.04 829,612 13.34
Unearned income (493) - (2,589) -
- ----------------------------------------------------------------------------------------
Loans, net of unearned income $6,440,070 100.00% $6,217,483 100.00%
========================================================================================
</TABLE>
In the ordinary course of business, the Banks make loans to directors and
executive officers of FCC and its subsidiaries and to their associates. In the
opinion of management, 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 parties and do not involve more than
normal risks of collectibility. An analysis of changes in such loans during
1997 follows (in thousands):
====================================================================
1997
====================================================================
Beginning balance $164,169
Additions 561,376
Repayments (512,314)
Net decrease due to change in related parties (72,833)
- --------------------------------------------------------------------
Ending balance $140,398
====================================================================
On August 7, 1997, FCC's subsidiary bank, First National Bank of Commerce
(First NBC), issued $300 million of credit card securities which were backed
by the cash flows from credit card receivables. The offering was through a
trust called First NBC Credit Card Master Trust and was part of a $750 million
shelf registration for credit card securities. First NBC retained the
servicing and customer relationships of the underlying credit card accounts.
The offering included a publicly offered $259.5 million series 1997-1,
Class A certificates with a coupon of 6.15% and an expected maturity of August,
2002 and $21 million of Series 1997-1, Class B certificates with a coupon of
6.35% and an expected maturity of September, 2002. Series 1997-1 also included
a privately funded $19.5 million collateral interest, which was subordinated
to the Class A and Class B certificates.
This offering was accounted for as a sale under the criteria established
by SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities". The ongoing accounting effect of
securitization is to reduce net interest income and the provision for loan
losses while increasing noninterest income. Included in 1997's noninterest
income was $9.2 million of securitization revenue. Securitization revenue
represents the net effect of the securitized credit card receivables' interest
income, provision for loan losses, credit card fee income, gains on sales and
funding costs. For 1997, the securitization increased net income $2.5 million,
or $.06 per diluted share.
NOTE 7
Allowance for Loan Losses
A summary analysis of changes in the allowance for loan losses follows
(in thousands):
<TABLE>
<CAPTION>
Years Ended December 31
===============================================================================================
1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Allowance for loan losses at beginning of year $81,606 $75,845 $71,052
Allowance related to receivables sold (8,790) - -
Allowance acquired in bank purchase - - 1,142
Provision for loan losses 52,371 37,983 30,600
Loans charged to the allowance (58,187) (45,449) (37,960)
Recoveries on loans previously charged to the allowance 16,192 13,227 11,011
- -----------------------------------------------------------------------------------------------
Net charge-offs (41,995) (32,222) (26,949)
- -----------------------------------------------------------------------------------------------
Allowance for loan losses at end of year $83,192 $81,606 $75,845
===============================================================================================
</TABLE>
NOTE 8
Nonperforming Loans and Foreclosed Assets
The following is a summary of nonperforming loans and foreclosed assets
(in thousands):
December 31
==============================================================================
1997 1996
- ------------------------------------------------------------------------------
Nonaccrual loans $35,997 $27,255
Foreclosed assets
Other real estate $ 3,045 $ 4,494
Other foreclosed assets 826 868
Allowance for losses on foreclosed assets (317) (762)
- ------------------------------------------------------------------------------
Total foreclosed assets $ 3,554 $ 4,600
==============================================================================
The amount of interest income that would have been recorded on nonperforming
loans if they had been classified as performing was $3.9 million in 1997, $3.2
million in 1996 and $6.5 million in 1995. Interest income recognized on
nonperforming loans was $982,000, $883,000 and $3.1 million for 1997, 1996 and
1995, respectively. Additionally, interest of $2.4 million was recovered on
loans previously on nonaccrual, but not on nonaccrual status in 1997.
The activity in the allowance for losses on foreclosed assets was as follows
(in thousands):
==============================================================================
1997 1996 1995
- ------------------------------------------------------------------------------
Allowance for foreclosed assets at beginning
of year $762 $733 $3,898
Provision for losses on foreclosed assets 70 425 538
Sales and dispositions (515) (396) (3,703)
- ------------------------------------------------------------------------------
Net change (445) 29 (3,165)
- ------------------------------------------------------------------------------
Allowance for foreclosed assets at end of year $317 $762 $ 733
==============================================================================
Loans considered to be impaired totaled $29.3 million and $23.5 million as
of December 31, 1997 and 1996, respectively. Of these totals, $9.6 million and
$9.7 million required a total impairment allowance of $3.2 million and $2.8
million, respectively. Impaired loans averaged $26.2 million during 1997 and
$31.4 million during 1996. Interest income recognized on impaired loans was
$712,000 for 1997, $722,000 for 1996 and $3.0 million for 1995.
NOTE 9
Premises and Equipment
An analysis of premises and equipment by asset classification follows
(in thousands):
December 31
===========================================================================
1997 1996
- ---------------------------------------------------------------------------
Land $ 25,682 $ 27,191
Buildings 105,888 105,423
Leasehold improvements 31,589 32,117
Furniture, fixtures and equipment 191,079 175,246
Capitalized leased equipment 404 404
Construction in progress 964 6,622
- ---------------------------------------------------------------------------
355,606 347,003
Accumulated depreciation
and amortization (199,205) (176,572)
- ---------------------------------------------------------------------------
$156,401 $170,431
===========================================================================
At December 31, 1997, the Banks and a service subsidiary were obligated
under a number of noncancelable operating leases. Certain of the leases have
escalation clauses and renewal options. Total rental expense, net of immaterial
sub-lease rentals, was $7.5 million, $6.1 million and $7.5 million for 1997,
1996 and 1995 respectively.
As of December 31, 1997, the future minimum rentals under noncancelable
operating leases having an initial lease term in excess of one year were as
follows (in thousands):
==================================================================
1998 $ 8,788
1999 8,292
2000 7,674
2001 7,513
2002 5,635
Later years 40,351
- ------------------------------------------------------------------
$78,253
==================================================================
NOTE 10
Short-Term Borrowings
Short-term borrowings include federal funds purchased and securities sold
under agreements to repurchase (repos). Federal funds purchased arise from
transactions with other banks and have overnight maturities. Repos are secured
by U.S. government and agency securities, and had maturities of up to 16 days
at December 31, 1997. FCC has the ability to exercise legal authority over the
securities which serve as collateral for the repos. Other short-term borrowings
primarily include term federal funds purchased, which had maturities of up to
14 days at December 31, 1997.
An analysis of short-term borrowings follows (in thousands):
December 31
==========================================================================
1997 1996
- --------------------------------------------------------------------------
Federal funds purchased $142,429 $168,821
Securities sold under
agreements to repurchase 184,360 429,411
Other short-term borrowings 40,126 346,591
- --------------------------------------------------------------------------
Total $366,915 $944,823
==========================================================================
Information regarding federal funds purchased follows (dollars in thousands):
==========================================================================
1997 1996
- --------------------------------------------------------------------------
Average interest rate on December 31 5.50% 6.25%
- --------------------------------------------------------------------------
Average for the year
Interest rate 5.48% 5.84%
Balance $218,137 $247,597
- --------------------------------------------------------------------------
Maximum month-end outstanding $297,069 $402,917
==========================================================================
Information regarding repos follows (dollars in thousands):
==========================================================================
1997 1996
- --------------------------------------------------------------------------
Average interest rate on December 31 5.11% 5.51%
- --------------------------------------------------------------------------
Average for the year
Interest rate 4.91% 4.95%
Balance $237,513 $296,969
- --------------------------------------------------------------------------
Maximum month-end outstanding $343,742 $429,411
==========================================================================
FCC maintains lines of credit with several large banks, totaling $45
million at December 31, 1997, to support the issuance of commercial paper
and pays fees to maintain these lines. No lines of credit were in use at
December 31, 1997, 1996 or 1995.
NOTE 11
Long-Term Debt
Total long-term debt consisted of (in thousands):
December 31
===========================================================================
1997 1996
- ---------------------------------------------------------------------------
Parent
12 3/4% convertible debentures,
due in December 2000; unsecured (a)
Series A $ 26,824 $ 26,824
Series B 53,647 53,647
- ---------------------------------------------------------------------------
80,471 80,471
- ---------------------------------------------------------------------------
Subsidiaries
Bank notes (b) 310,122 -
Obligations under capitalized leases, due
in installments through August 2003 225 252
- ---------------------------------------------------------------------------
Total long-term debt $390,818 $ 80,723
===========================================================================
(a) At December 31, 1997, approximately $13.1 million was held by directors
and executive officers of FCC.
(b) These bank notes have stated rates ranging from 5.65% to 6.60%, have
effective rates ranging from 5.45% to 6.58%, and mature between February
1998 and July 2002.
Annual principal repayment requirements for the years 1998 through 2002
are as follows (in thousands):
Parent Subsidiaries Total
===========================================================================
1998 $ - $ 56,030 $ 56,030
- ---------------------------------------------------------------------------
1999 - 34 34
- ---------------------------------------------------------------------------
2000 80,471 253,659 334,130
- ---------------------------------------------------------------------------
2001 - 42 42
- ---------------------------------------------------------------------------
2002 - 547 547
===========================================================================
FCC is required to redeem Series B Debentures at the principal amount
upon the death of the original holder; Series A Debentures allow redemption
upon the death of the original holder at the option of the holder's estate.
At the option of the holder, each of the Series A or B Debentures may be
converted into FCC common stock at the conversion price of $26.67 principal
amount for one share of stock.
NOTE 12
Employee Benefit Plans
Retirement Plan - FCC maintains a defined benefit pension plan covering
substantially all employees who have attained age 21 and completed one year
of employment. Benefits are based on years of service and an average of the
employee's highest consecutive ten years of defined compensation. FCC's
funding policy is to contribute annually the maximum that can be deducted for
federal income tax purposes.
FCC also maintains a nonqualified restoration plan for certain officers
whose defined benefits under the qualified pension plan exceed limits imposed
by federal tax law.
The following table sets forth the plans' funded status (in thousands):
December 31
=======================================================================
1997 1996
- -----------------------------------------------------------------------
Projected benefit obligation
Vested benefits $ (83,396) $ (74,198)
Nonvested benefits (2,132) (1,340)
- -----------------------------------------------------------------------
Accumulated benefit obligation (85,528) (75,538)
Effect of projected future
compensation levels (27,189) (25,661)
- -----------------------------------------------------------------------
Projected benefit obligation (112,717) (101,199)
Plan assets at fair value 101,419 88,612
- -----------------------------------------------------------------------
Projected benefit obligation in excess of
plan assets (11,298) (12,587)
Unrecognized net (gain) loss due to past
experience different from
assumptions made (5,516) 2,304
Unrecognized prior service cost 931 425
Unrecognized net transition assets being
recognized over 15 years (2,438) (3,192)
- -----------------------------------------------------------------------
Unfunded accrued pension cost included
in other accrued liabilities $ (18,321) $ (13,050)
=======================================================================
The plans' assets at December 31, 1997 consisted primarily of U. S.
government securities, corporate bonds and common stocks.
Net periodic pension cost included the following components
(in thousands):
Years Ended December 31
==============================================================================
1997 1996 1995
- ------------------------------------------------------------------------------
Service cost-benefits earned during
the period $5,255 $4,453 $3,591
Interest cost on projected benefit
obligation 7,158 6,626 5,946
Return on plan assets (16,685) (7,444) (14,383)
Other components, net 9,226 309 8,056
- ------------------------------------------------------------------------------
Net periodic pension cost $4,954 $3,944 $3,210
==============================================================================
In determining the plans' funded status, the weighted average discount
rate assumed was 7% at December 31, 1997 and December 31, 1996, and 6.5% at
December 31, 1995. The rate of increase in future salary levels was 5% in 1997
and 1996, and 5.5% in 1995. The expected long-term rate of return on assets
was 8% in 1997, 1996 and 1995.
Tax-Deferred Savings Plan - Substantially all of FCC's full-time employees
are covered under a tax-deferred savings plan. Employees may voluntary
contribute up to a maximum of 15% of eligible compensation, with the limit
depending upon salary level. FCC matches 50% of each employee's contribution
up to a maximum employer contribution of 2 1/2% of eligible compensation.
Matching contributions are in the form of FCC common stock and are vested at
25% per year with full vesting after four years. Employer contributions were
$2.4 million, $2.2 million and $2.4 million in 1997, 1996 and 1995,
respectively.
Prior to acquisition, Central and Lakeside maintained employee stock
ownership plans (ESOPs). The assets of the Central ESOP were distributed to
the participants in 1996. The Lakeside ESOP was combined with FCC's tax-
deferred savings plan in 1996. Company contributions relating to the ESOPs
were $8,000 and $800,000 in 1996 and 1995, respectively.
Postretirement and Postemployment Benefits - FCC provides medical and
life insurance coverage for specified groups of employees who retired in prior
years. Postemployment benefits have also been provided to specified groups of
former or inactive employees subsequent to their employment but before
retirement. Given the current structure of FCC's postretirement and
postemployment benefit programs, these programs do not have a material impact
on the financial condition or results of operations of FCC.
NOTE 13
Stock-Based Incentive Compensation Plans
FCC has stock-based incentive plans which are accounted for under Accounting
Practice Bulletin No. 25 (APB 25) and related Interpretations. In 1995, the
FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation" which is
effective for fiscal years beginning after December 15, 1995. Under SFAS No.
123, FCC may elect to recognize stock-based compensation expense based on the
fair value of the awards or continue to account for stock-based compensation
under APB 25. FCC has elected to continue to apply the provisions of APB 25;
however, pro forma disclosures are required as if SFAS No. 123 had been
adopted. FCC's stock incentive plans permit the granting of stock options,
stock appreciation rights (SARs), stock awards, restricted stock, phantom stock
and performance shares. The plans cover up to 10% of the outstanding shares of
FCC common stock.
Stock options and SARs are granted at fair value at the date of grant. The
Compensation Committee (Committee) determines the terms of each grant and when
it becomes exercisable. The stock options expire eight years from the date of
grant. Stock options have a four-year vesting schedule with 25% of the stock
options becoming exercisable each year. Stock options and SARs may not be
exercised during the six-month period immediately following the date of the
grant. SARs entitle the holder to receive, in the form of cash, the increase
in the fair value of the stock from the date of grant to the date of exercise.
On April 21, 1997, FCC's shareholders approved the FCC 1997 Stock Option
Plan (the "Option Plan"). Under the Option Plan, all outstanding SARs were
canceled and replaced with stock options with equivalent terms. On April 25,
1997, each SAR was exchanged for one newly-issued stock option to purchase one
share of FCC's common stock. The options issued in exchange for SARs totaled
988,168. FCC's closing stock price on April 25, 1997 was $39.63. Fixed option
expense of $825,000 related to the newly-issued options was recorded in 1997.
Compensation expense was recognized in connection with SARs based on the fair
value of the stock and was $1.7 million, $7.3 million and $3.0 million in 1997,
1996 and 1995, respectively.
The following table summarizes the activity related to stock options and
SARs:
===============================================================================
Weighted Weighted
Number of Average Average
Stock Exercise Number of Exercise
Options Price SARs Price
===============================================================================
Outstanding at December 31, 1994 459,571 $18.67 232,366 $27.50
Granted 331,174 $28.03 992,579 $26.84
Exercised (44,561) $13.21 (1,891) $27.50
Forfeited (19,454) $26.32 (36,114) $26.80
- -------------------------------------------------------------------------------
Outstanding at December 31, 1995 726,730 $22.97 1,186,940 $26.96
Granted 248,989 $33.27 - $ -
Exercised (47,922) $16.39 (53,341) $26.63
Forfeited (25,449) $29.97 (47,737) $26.75
- -------------------------------------------------------------------------------
Outstanding at December 31, 1996 902,348 $25.97 1,085,862 $26.99
Granted 254,633 $40.13 - $ -
Converted 988,168 $27.00 (988,168) $27.00
Exercised (414,874) $23.62 (73,747) $26.85
Forfeited (51,785) $31.16 (23,947) $27.02
- -------------------------------------------------------------------------------
Outstanding at December 31, 1997 1,678,490 $29.15 - $ -
===============================================================================
Stock options exercisable at December 31, 1997, 1996 and 1995,
respectively, were 637,195, 387,568 and 296,699 with weighted average exercise
prices of $25.76, $20.00 and $16.28, respectively.
The following table summarizes information about the stock options
outstanding and exercisable at December 31, 1997:
============================================================================
Options Outstanding Options Exercisable
============================================================================
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (years) Price Exercisable Price
- ----------------------------------------------------------------------------
$10.00 - $19.99 58,375 0.80 $10.86 58,375 $10.86
$20.00 - $24.99 51,701 2.13 $21.07 51,701 $21.07
$25.00 - $29.99 969,897 4.87 $26.58 429,416 $26.78
$30.00 - $34.99 348,890 6.03 $32.74 95,609 $32.52
$35.00 - $39.99 3,200 6.53 $35.00 800 $35.00
$40.00 - $44.99 246,427 7.06 $40.13 1,294 $40.13
============================================================================
Shares of restricted stock are issued subject to risk of forfeiture
during a vesting period. Restrictions related to these shares and the
restriction term are determined by the Committee. Restrictions are
generally related to the attainment of specified performance criteria
over the restriction period. Holders of restricted stock receive
dividends and have the right to vote the shares. FCC recorded $6.0
million, $1.9 million and ($111,000) in compensation expense related to
restricted shares in 1997, 1996 and 1995, respectively. The weighted
average grant-date fair value of restricted stock granted during 1997,
1996 and 1995 was $40.13, $33.78 and $26.28, respectively. A summary of
changes in restricted stock follows:
=====================================================
Number of
Shares
- -----------------------------------------------------
Outstanding at December 31, 1994 54,052
Granted 34,175
- -----------------------------------------------------
Outstanding at December 31, 1995 88,227
Granted 104,019
Forfeited (33,766)
Earned and issued unrestricted (17,807)
- -----------------------------------------------------
Outstanding at December 31, 1996 140,673
Granted 97,947
Forfeited (10,284)
Earned and issued unrestricted (20,541)
- -----------------------------------------------------
Outstanding at December 31, 1997 207,795
=====================================================
Performance shares were granted in conjunction with the 1997, 1996 and
1995 restricted stock grants, equal to 50% of restricted shares. These shares
may be earned based on certain criteria. Recipients of performance share awards
do not receive dividends or have voting rights on these performance shares.
Compensation expense recognized in 1997 related to the 1995 grant of
performance shares was $663,000. No compensation expense was recorded in 1996
or 1995 related to performance shares.
In the event of a change in control of FCC, all outstanding options become
exercisable immediately, the restrictions on all shares of restricted stock
lapse immediately, and all performance shares are earned immediately. The
consummation of the Merger Agreement described in Note 2 will constitute such
a change in control.
Under SFAS No. 123, the fair value of each stock option granted is
estimated on the date of grant using an option-pricing model. Excluding the
options issued in 1997 in exchange for SARs, the following weighted average
assumptions were used for stock option grants in 1997, 1996 and 1995,
respectively: dividend yields of 4.48%, 4.36% and 5.09%; expected volatility
of 20.57%, 24.28% and 27.42%; risk-free interest rates of 6.51%, 6.32% and
6.68%; and expected lives of eight years. Based on the above assumptions, the
weighted average grant-date fair value of options granted during 1997, 1996
and 1995, respectively, was $8.20, $7.87 and $6.46. For the options issued
in exchange for SARs, the following weighted average assumptions were used:
dividend yield of 4.48%, expected volatility of 19.60%, risk-free interest rate
of 6.84% and remaining life of six years. The weighted average exercise price
was $27.42 and based on the above assumptions, the weighted average grant-date
fair value of the converted SARs was $12.39.
Had the compensation cost for FCC's stock-based incentive plans been
determined in accordance with the fair value based accounting method provided
by SFAS No. 123, net income and earnings per share (eps) for the years ended
December 31, 1997, 1996 and 1995 would have been as follows:
==============================================================================
1997 1996 1995
- ------------------------------------------------------------------------------
Net income (thousands) As reported $125,613 $118,438 $75,951
Pro forma $127,284 $118,035 $75,613
- ------------------------------------------------------------------------------
Basic eps As reported $3.24 $3.02 $1.89
Pro forma $3.28 $3.01 $1.88
- ------------------------------------------------------------------------------
Diluted eps As reported $3.10 $2.89 $1.87
Pro forma $3.13 $2.88 $1.86
==============================================================================
Due to the inclusion of only 1995, 1996 and 1997 option grants, the effect
of applying SFAS No. 123 to the years presented may not be representative of
the pro forma impact in future years.
NOTE 14
Earnings Per Share
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share"
which became effective for financial statements issued for periods ending
after December 15, 1997. SFAS No. 128 establishes standards for computing
and presenting earnings per share (eps). Under SFAS No. 128, primary eps
is replaced with basic eps. Basic eps is computed by dividing income
applicable to common shares by weighted average shares outstanding; no dilution
for any potentially convertible shares is included in the calculation. Fully
diluted eps, now called diluted eps, is still required; however, when applying
the treasury stock method, the average stock price is used rather than the
greater of the average or closing stock price for the period. Prior period
earnings per share information has been restated in accordance with SFAS
No. 128. The basic and diluted earnings per share computations for net
income follow (dollars in thousands except eps):
<TABLE>
<CAPTION>
Years Ended December 31
=================================================================================================
1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic earnings per share
Net income $125,613 $118,438 $75,951
Preferred dividend requirements - (2,116) (4,325)
- -------------------------------------------------------------------------------------------------
Income applicable to common shareholders $125,613 $116,322 $71,626
- -------------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding (a) 38,805,481 38,121,896 37,644,406
- -------------------------------------------------------------------------------------------------
Basic earnings per share $ 3.24 $ 3.05 $ 1.90
=================================================================================================
Diluted earnings per share
Income applicable to common shareholders $125,613 $116,322 $71,626
Preferred dividend requirements - 2,116 4,325
Interest on convertible debentures, net of tax (b) 6,668 6,635 -
- -------------------------------------------------------------------------------------------------
Diluted income $132,281 $125,073 $75,951
- -------------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding (a) 38,805,481 38,121,896 37,644,406
Restricted shares 200,156 97,437 88,227
Options assumed to be exercised 716,481 237,308 165,634
Preferred stock assumed to be converted - 1,782,354 2,772,251
Convertible debentures assumed to be converted (b) 3,017,276 3,028,094 -
- -------------------------------------------------------------------------------------------------
Average shares for diluted computation 42,739,394 43,267,089 40,670,518
- -------------------------------------------------------------------------------------------------
Diluted earnings per share $ 3.10 $ 2.89 $ 1.87
=================================================================================================
(a) Excludes restricted shares which are issued subject to risk of forfeiture during a vesting
period.
(b) In 1995 the convertible debentures were antidilutive.
</TABLE>
NOTE 15
Stockholders' Equity
In connection with the execution of the Merger Agreement
and the Option Agreement with BANC ONE CORPORATION, FCC
amended its Rights Agreement, dated as of February 27, 1996
(as amended, the Rights Agreement), between FCC and First
Chicago Trust Company of New York, as rights agent, to
provide that the agreements entered into in connection with
the Merger with BANC ONE would not trigger the rights issued
under the Rights Agreement. The Rights Agreement established
one preferred share purchase right (Right) for each
outstanding share of FCC common stock. Each Right entitles
the holder to purchase from FCC one one-hundredth of a share
of Series A Preferred Stock at a price of $105, subject to
adjustment. The Rights become exercisable only if a person
or group acquires 10% or more of FCC's outstanding common
stock or commences a tender offer that would result in such
person or group owning 10% or more of the shares.
If any person or group acquires 10% or more of FCC's
common stock, a Rights holder (other than the acquiring
person or group) will be entitled to buy a number of shares
of FCC's common stock with a market value equal to twice the
exercise price. Additionally, if FCC is involved in a merger
after a person or group has acquired 10% or more of its
common stock, each Right entitles its holder to buy, for the
exercise price, a number of shares of common stock of the
acquiring company with a market value equal to twice the
exercise price. Following the acquisition by any person or
group of 10% or more of FCC's common stock, but prior to the
acquisition of 50%, the Board may exchange some or all of the
Rights (other than Rights held by such person or group) for
one share of common stock or one one-hundredth of a share of
the new preferred stock for each Right.
Prior to the time the Rights become exercisable, they
are redeemable for one cent per Right at the option of the
Board. The Rights expire on March 11, 2006.
On October 21, 1996, FCC called its 7.25% Cumulative
Convertible Preferred Stock, Series 1992 for redemption on
January 2, 1997. The preferred stock was redeemable for $25
per share, plus accrued dividends, and was convertible into
1.1646 shares of common stock.
NOTE 16
Regulatory Capital
FCC and the Banks are subject to regulations which establish minimum
leverage and risk-based capital levels. For FCC and the Banks, the minimum
leverage, tier 1 and total capital ratios are 4%, 4% and 8%, respectively.
Regulatory authorities may, however, set higher capital requirements for an
individual institution when particular circumstances warrant. As a general
matter, banks are expected to maintain capital ratios well above the regulatory
minimums. Failure to meet applicable guidelines could subject a financial
institution to a variety of enforcement remedies which could have a direct
material effect on their financial statements. Under the regulatory framework
for prompt corrective action, the capital levels of financial institutions are
categorized into one of five classifications ranging from well-capitalized to
critically under-capitalized. For an institution to qualify as well-
capitalized, its leverage, tier 1 and total capital ratios must be at least 5%,
6% and 10%, respectively. Maintaining capital ratios at the well-capitalized
levels avoids certain restrictions which, for example, could impact the FDIC
insurance premium rate. As of December 31, 1997 and 1996, each of FCC's Banks
was categorized as well-capitalized, and there have been no events since year-
end 1997 that management believes would cause this status to change for any of
the Banks.
The actual capital amounts and ratios and the minimum and well-capitalized
required capital amounts for FCC and each of the Banks are presented in the
following tables (dollars in millions):
<TABLE>
<CAPTION>
===========================================================================================================================
December 31, 1997 December 31, 1996
--------------------------------------------- ---------------------------------------------
Actual Well- Actual Well-
Amount Ratio Minimum(a) Capitalized(b) Amount Ratio Minimum(a) Capitalized(b)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk-Weighted Assets):
FCC $887 13.27% $535 $669 $810 12.87% $504 $629
First NBC 455 10.84% 336 419 408 10.23% 319 399
CNB 91 12.10% 60 75 86 12.04% 57 72
FNBL 78 14.12% 44 55 78 16.01% 39 49
CB 83 13.81% 48 60 76 12.79% 48 60
FNBLC 54 16.64% 26 32 54 17.98% 24 30
RBT 47 14.07% 27 33 45 15.32% 24 29
- ---------------------------------------------------------------------------------------------------------------------------
Tier 1 Capital
(to Risk-Weighted Assets):
FCC $772 11.54% $268 $401 $683 10.85% $252 $378
First NBC 402 9.59% 168 252 358 8.97% 160 239
CNB 84 11.20% 30 45 80 11.18% 29 43
FNBL 73 13.23% 22 33 73 15.05% 19 29
CB 77 12.65% 24 36 70 11.74% 24 36
FNBLC 51 15.80% 13 19 51 17.05% 12 18
RBT 44 13.17% 13 20 42 14.46% 12 18
- ---------------------------------------------------------------------------------------------------------------------------
Leverage
(to Average Assets):
FCC $772 8.35% $370 $462 $683 7.76% $352 $440
First NBC 402 6.99% 230 288 358 6.44% 222 278
CNB 84 7.38% 46 57 80 7.52% 43 53
FNBL 73 9.06% 32 40 73 9.57% 31 38
CB 77 9.46% 32 40 70 9.18% 31 38
FNBLC 51 9.39% 22 27 51 9.50% 21 27
RBT 44 8.48% 21 26 42 8.41% 20 25
===========================================================================================================================
(a) Minimum capital required for capital adequacy purposes.
(b) Capital required for well-capitalized status.
</TABLE>
NOTE 17
Dividend and Loan Restrictions
The primary source of funds for the dividends paid by
FCC to its stockholders is dividends from the Banks. The
payment of dividends by national banks is regulated by the
Comptroller of the Currency. The payment of dividends by
state banks in Louisiana that are members of the Federal
Reserve system is regulated by the Louisiana Commissioner of
Financial Institutions and the Federal Reserve Board. The
amount of retained earnings that could be paid to FCC after
December 31, 1997 without prior regulatory approval was
$51.0 million plus an amount equal to the Banks' net income
for 1998.
Under Section 23A of the Federal Reserve Act, the Banks
are limited in the amounts they may loan to or invest in
certain of their affiliates, including FCC. Loans to or
investments in a single covered affiliate may not exceed 10%
and loans to or investments in all covered affiliates may
not exceed 20% of an individual bank's capital, as defined
in applicable Federal Reserve Board regulations. Generally,
such loans must be collateralized by assets with market
values of 100% to 130% of loan amounts, depending upon the
nature of the collateral.
NOTE 18
Off-Balance Sheet Instruments
In the normal course of business, FCC is a party to
various financial instruments which are not carried on the
balance sheet. FCC utilized these instruments to meet the
financing needs of its customers, to reduce funding
requirements, and to help manage its exposure to interest
rate fluctuations. These financial instruments include
commitments to extend credit, letters of credit, securities
lent, interest rate contracts, foreign exchange contracts
and securitized credit card receivables.
Commitments to extend credit and lines of credit are
agreements to lend funds to a customer at a future date,
generally having fixed expiration or other termination
clauses and specified interest rates and purposes. For its
credit card customers, First NBC has the right to change or
terminate any terms or conditions of the credit card
accounts at any time. Such commitments and unused lines of
credit may expire without being drawn upon, the unfunded
amounts do not necessarily represent future funding
requirements.
Standby letters of credit obligate the Banks to pay
third parties if the Banks' customers fail to perform under
agreements with those third parties. Commercial letters of
credit are used to finance contracts for the shipment of
goods from seller to buyer.
The credit risk associated with commitments to extend
credit and letters of credit is essentially the same as that
involved in extending loans to customers and is subject to
FCC's credit policies. Collateral requirements are based on
the creditworthiness of the customer.
Foreign exchange contracts are commitments to purchase
or deliver foreign currency at a specified exchange rate.
These contracts are used as commercial service products.
Market risk associated with these contracts is generally
minimized by offsetting transactions.
FCC enters into interest rate contracts with the
objective of partially insulating net interest income from
changes in interest rates. Primary among the financial
instruments used are swaps and floors. The notional amounts
in these contracts do not represent an amount at risk but
are used only as the basis for determining the cash flows
related to these contracts. Credit risk associated with
these contracts is minimized by requiring the same credit
approval process as is required for lending, by monitoring
credit exposure and counterparty creditworthiness, and by
dealing in the national market with highly rated
counterparties. Interest rate swaps are agreements to
exchange interest payments computed on notional amounts.
Interest rate floors are contracts in which a counterparty
pays or receives a cash payment from another counterparty as
an index rises above or falls below a predetermined level.
Securitized credit card receivables represent the
principal balance of credit card loans securitized and sold.
FCC's exposure to losses under the recourse provisions of
its credit card securitization is contractually limited to
future excess spread revenue. At December 31, 1997, FCC
reported $6.9 million of future excess spread revenue in
other assets.
A summary of off-balance sheet financial instruments
follows (in thousands):
December 31
=============================================================================
1997 1996
- -----------------------------------------------------------------------------
Commitments to extend credit for loans and
leases (excluding credit card plans) $1,772,015 $1,636,245
Commitments to extend credit for credit card plans $3,587,465 $3,098,103
Commercial letters of credit $ 980 $ 1,127
Financial letters of credit $ 104,355 $ 99,192
Performance letters of credit $ 4,874 $ 15,513
Foreign exchange contracts
Commitments to purchase $ 3,196 $ 5,734
Commitments to sell $ 3,204 $ 5,743
Securities lent $ 293,631 $ -
Forward commitments to sell mortgages $ 259 $ 1,098
When-issued securities
Commitments to purchase $ 1,400 $ 200
Commitments to sell $ 1,220 $ 200
Interest rate contracts (a)
Interest rate floors $ 500,000 $ 500,000
Generic and callable swaps $ 311,000 $ 130,000
Securitized credit card receivables $ 300,000 $ -
=============================================================================
(a) Notional principal amounts.
NOTE 19
Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires the disclosure of fair value information about certain on and off-
balance sheet financial instruments where it is practicable to estimate that
value. Because many of FCC's financial instruments lack a readily available
trading market, fair values for such instruments are based on significant
estimations and present value calculations. The use of different assumptions
and estimation methods could significantly affect fair value amounts disclosed.
In addition, reasonable comparability between financial institutions may not
be possible due to the wide range of permitted valuation techniques and
numerous estimates involved.
Fair value estimates do not consider the value of future business or the
value of assets and liabilities that are not considered financial instruments.
In addition, the tax ramifications related to the unrealized gains and losses
have not been considered in the estimates. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of FCC.
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
Cash and short-term investments - For cash and due from banks and money
market investments, the carrying amount is a reasonable estimate of fair value.
Securities - Fair value of securities are based on quoted market prices,
where available. If quoted market prices are not available, fair values are
based on quoted prices of comparable securities.
Loans - The fair value of loans, except for credit card loans, was
calculated by discounting scheduled principal and interest payments to maturity
using estimates of December 31, 1997 and 1996 rates. For credit card loans,
cash flows and maturities were estimated based on historical experience using
an average yield adjusted for servicing costs and credit losses.
Deposits - SFAS No. 107 requires that deposits without stated maturities,
such as noninterest-bearing demand deposits, money market accounts and savings
accounts, have a fair value equal to the amount payable on demand (carrying
amount). Deposits with stated maturities were valued using a present value
of contractual cash flows with a discount rate approximating current market
rates for deposits of similar remaining maturities.
Short-term borrowings - The fair value of short-term borrowings is their
carrying amount.
Long-term debt - The fair value of bank notes was estimated using a present
value of contractual cash flows with a discount rate approximating current
market rates for notes with similar remaining maturities. The value of
convertible debentures was estimated from dealer quotes.
Off-balance sheet financial instruments - The fair values of interest rate
contracts were obtained from dealer quotes. These values represent the
estimated amount that FCC would receive or pay to terminate the contracts,
taking into account current interest rates and, when appropriate, the current
creditworthiness of the counterparties. The fair values of other off-balance
sheet financial instruments are not material.
The estimated fair values of FCC's financial instruments follows (in
thousands):
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
- ------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
On-balance sheet financial assets:
Cash and short-term
investments $ 534,875 $ 534,875 $ 512,853 $ 512,853
Securities available for sale $2,242,401 $2,242,401 $2,177,529 $2,177,529
Loans, net of unearned income and
the allowance for loan losses $6,356,878 $6,417,365 $6,135,877 $6,173,769
On-balance sheet financial liabilities:
Noninterest-bearing deposits $1,428,089 $1,428,089 $1,436,038 $1,436,038
Interest-bearing deposits $6,379,344 $6,450,862 $5,868,808 $5,865,692
Short-term borrowings $ 366,915 $ 366,915 $ 944,823 $ 944,823
Long-term debt $ 390,818 $ 447,668 $ 80,723 $ 131,420
Off-balance sheet financial instruments:
Interest rate floors $ 544 $ 16 $ 1,113 $ 408
Generic and callable swaps $ - $ 8,026 $ - $ 2,548
======================================================================================================
</TABLE>
NOTE 20
Contingencies
FCC and its subsidiaries have been named as defendants in various legal
actions arising from normal business activities in which damages in various
amounts are claimed. The amount, if any, of ultimate liability with respect
to such matters cannot be determined. However, after consulting with legal
counsel, management believes any such liability will not have a material
effect on FCC's consolidated financial condition or results of operations.
NOTE 21
Other Operating Expense
The composition of other operating expense follows (in thousands):
Years Ended December 31
====================================================================
1997 1996 1995
- --------------------------------------------------------------------
Data processing services $10,988 $9,689 $12,745
Taxes, licenses and other fees 10,411 8,717 8,339
Stationery and supplies 9,729 10,487 10,540
Credit card expense 7,677 7,036 5,036
Travel and entertainment 3,972 3,881 3,901
Miscellaneous net losses 3,320 1,675 7,504
Nonperforming assets expense 1,252 1,652 1,053
Other 3,662 1,373 5,729
- --------------------------------------------------------------------
Total $51,011 $44,510 $54,847
====================================================================
NOTE 22
Income Taxes
The components of income tax expense in the consolidated statements of
income for the years ended December 31, 1997, 1996 and 1995 were as follows
(in thousands):
============================================================================
1997 1996 1995
- ----------------------------------------------------------------------------
Current $64,816 $63,495 $48,579
Deferred (3,436) (4,485) (9,124)
- ----------------------------------------------------------------------------
Total $61,380 $59,010 $39,455
============================================================================
Income tax expense related to state and foreign income taxes are included
above and were insignificant in all years presented. Income tax expense
(benefit) related to securities transactions was $2,626,000 in 1997, $56,000
in 1996 and $(3,995,000) in 1995.
Total income tax expense was different from the amounts computed by
applying the statutory federal income tax rates to pretax income as follows
(in percentages):
Years Ended December 31
==============================================================================
1997 1996 1995
- ------------------------------------------------------------------------------
Federal income tax expense 35.00% 35.00% 35.00%
Increase (decrease) resulting from
Benefits attributable to tax-exempt interest (2.45) (2.03) (3.26)
Nondeductible expenses .73 .77 2.40
Other items, net (.46) (.49) .05
- ------------------------------------------------------------------------------
Actual income tax expense 32.82% 33.25% 34.19%
==============================================================================
FCC had a current income tax receivable of $3.5 million on December 31,
1997 and a current income tax payable of $5.9 million on December 31, 1996.
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. There were net deferred
tax assets of $14.2 million and $16.4 million on December 31, 1997 and 1996,
respectively. The major temporary differences which created deferred tax
assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
=======================================================================================
December 31, 1997 December 31, 1996
-------------------------------------------
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for loan losses $31,556 $ - $28,336 $ -
Employee benefits 6,444 - 4,410 -
Stock options / stock appreciation rights 2,857 - 3,531 -
Nonaccrual loan interest 2,599 - 1,609 -
Amortization of intangibles 1,495 - 2,068 -
Allowance for losses on foreclosed assets 747 - 2,469 -
Unrealized gain on securities available for
sale - 18,115 - 12,307
Accumulated depreciation - 6,198 - 6,053
Accrued liabilities - 5,765 - 5,733
Bond accretion - 3,789 - 3,559
Other 6,862 4,542 4,356 2,706
- ---------------------------------------------------------------------------------------
Total deferred taxes $52,560 $38,409 $46,779 $30,358
=======================================================================================
</TABLE>
NOTE 23
Condensed Parent Company Only--Financial Information
Condensed Balance Sheets (in thousands)
December 31
======================================================================
1997 1996
- ----------------------------------------------------------------------
ASSETS
Interest-bearing deposits in
subsidiary banks (a)
Cash and due from banks $106,483 $ 95,749
Time deposits 2 2
Investments in subsidiaries at equity (a)
Banks 762,358 702,640
Nonbanks 17,998 9,223
- ----------------------------------------------------------------------
780,356 711,863
Other assets 34,550 26,926
- ----------------------------------------------------------------------
Total assets $921,391 $834,540
======================================================================
LIABILITIES
Payables to subsidiaries (a) $ 1,104 $ -
Long-term debt 80,471 80,471
Other liabilities 18,836 30,394
- ----------------------------------------------------------------------
Total liabilities 100,411 110,865
STOCKHOLDERS' EQUITY 820,980 723,675
- ----------------------------------------------------------------------
Total liabilities and stockholders' equity $921,391 $834,540
======================================================================
(a) Eliminated in consolidation, except for goodwill and other intangibles.
Condensed Statements of Income (in thousands)
Years Ended December 31
===============================================================================
1997 1996 1995
- -------------------------------------------------------------------------------
INCOME
Interest and dividends on securities $ 456 $ 393 $ 354
Interest on receivables from subsidiaries (a) 4,839 3,527 5,513
Other income 234 29 23
Dividends from subsidiaries (a)
Banks 68,388 136,639 46,861
Nonbanks - 2,000 -
- -------------------------------------------------------------------------------
73,917 142,588 52,751
- -------------------------------------------------------------------------------
EXPENSES
Interest on debt to nonbank subsidiaries 98 31 79
Interest on debt to nonaffiliates 10,260 10,207 10,625
Other 3,947 11,992 7,621
- -------------------------------------------------------------------------------
14,305 22,230 18,325
- -------------------------------------------------------------------------------
Income before income taxes and equity in
undistributed earnings of subsidiaries 59,612 120,358 34,426
Income tax benefit (2,818) (6,465) (3,954)
- -------------------------------------------------------------------------------
62,430 126,823 38,380
Equity in undistributed earnings of subsidiaries (a)
Banks 55,765 (5,728) 43,130
Nonbanks 7,418 (2,657) (5,559)
- -------------------------------------------------------------------------------
NET INCOME 125,613 118,438 75,951
PREFERRED DIVIDEND REQUIREMENTS - 2,116 4,325
- -------------------------------------------------------------------------------
INCOME APPLICABLE TO COMMON SHARES $125,613 $116,322 $71,626
===============================================================================
(a) Eliminated in consolidation.
<TABLE>
<CAPTION>
Statements of Cash Flows (in thousands)
Years Ended December 31
======================================================================================================
1997 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $125,613 $118,438 $75,951
Adjustments to reconcile net income to
net cash provided by operating activities
Equity in undistributed earnings of subsidiaries (a) (63,183) 8,385 (37,571)
Deferred income tax expense (benefit) 634 (3,099) (1,332)
(Gain) on sales of assets (234) - -
Decrease in interest payable - (56) (4)
Decrease in other assets 6,701 847 1,443
Increase (decrease) in other liabilities (125) 14,373 3,351
Other, net 788 2,110 41
- ------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 70,194 140,998 41,879
- ------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Investment in subsidiaries (a) - (500) (5,100)
Proceeds from maturity of interest-bearing time deposits (a) - 136 2,010
(Increase) decrease in loans - (2,000) 975
Purchase of securities (2,260) (1,141) (1,611)
Proceeds from sales of securities 1,915 1,000 375
Principal collected on advances (a) 195,966 165,691 134,536
Advances originated or acquired (a) (193,973) (168,344) (136,524)
- ------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 1,648 (5,158) (5,339)
- ------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payments on long-term debt - (72) (968)
(Decrease) in other short term borrowings - - (20)
Proceeds from issuance of common and treasury stock 8,696 541 3,206
Cash dividends (62,368) (56,754) (41,672)
Purchase of treasury stock (7,436) (63,926) (15,108)
Other - (250) -
- ------------------------------------------------------------------------------------------------------
NET CASH (USED) BY FINANCING ACTIVITIES (61,108) (120,461) (54,562)
- ------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 10,734 15,379 (18,022)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 95,749 80,370 98,392
- ------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $106,483 $95,749 $80,370
======================================================================================================
(a) Eliminated in consolidation.
</TABLE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The management of First Commerce Corporation is responsible
for the preparation of the financial statements, related
financial data and other information in this annual report. The
financial statements are prepared in accordance with generally
accepted accounting principles and include some amounts that are
necessarily based on management's informed estimates and
judgments, with consideration given to materiality. All
financial information contained in this annual report is
consistent with that in the financial statements.
Management fulfills its responsibility for the integrity,
objectivity, consistency and fair presentation of the financial
statements and financial information through an accounting system
and related internal accounting controls that are designed to
provide reasonable assurance that assets are safeguarded and that
transactions are authorized and recorded in accordance with
established policies and procedures. The concept of reasonable
assurance is based on the recognition that the cost of a system
of internal accounting controls should not exceed the related
benefits. As an integral part of the system of internal
accounting controls, First Commerce Corporation has a
professional staff of internal auditors who monitor compliance
with and assess the effectiveness of the system of internal
accounting controls and coordinate audit coverage with the
independent public accountants.
The Audit Committee of the Board of Directors, composed
solely of outside directors, meets periodically with management,
the internal auditors and the independent public accountants to
review matters relating to financial reporting, internal
accounting control and the nature, extent and results of the
audit effort. The independent public accountants and internal
auditors have direct access to the Audit Committee with or
without management present.
The financial statements have been audited by Arthur
Andersen LLP, independent public accountants, who render an
independent professional opinion on the financial statements
prepared by management. Their appointment was recommended by the
Audit Committee and approved by the Board of Directors.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders
and Board of Directors of
First Commerce Corporation:
We have audited the consolidated balance sheets of FIRST
COMMERCE CORPORATION (a Louisiana corporation) and subsidiaries
as of December 31, 1997 and 1996 and the related consolidated
statements of income, changes in stockholders' equity and cash
flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of First Commerce Corporation and subsidiaries as of December 31,
1997 and 1996, and the consolidated results of their operations
and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
January 13, 1998
SELECTED QUARTERLY DATA
<TABLE>
<CAPTION>
(dollars in thousands, except per share data) 1997 Quarters
==============================================================================================================
4th 3rd 2nd 1st
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income $94,573 $95,138 $96,436 $95,833
Provision for loan losses 8,565 15,806 14,775 13,225
Other income (exclusive of investment
securities transactions) 50,267 51,875 48,824 43,545
Investment securities transactions 17 182 780 23
Operating expense 88,785 84,333 82,169 82,842
Income tax expense 15,471 15,358 16,237 14,314
- --------------------------------------------------------------------------------------------------------------
Net income $32,036 $31,698 $32,859 $29,020
==============================================================================================================
Per common share data
Net income - basic $ 0.83 $ 0.81 $ 0.85 $ 0.75
Net income - diluted $ 0.79 $ 0.77 $ 0.81 $ 0.73
Cash dividends $ 0.40 $ 0.40 $ 0.40 $ 0.40
Common stock data (a)
High stock price $ 71.88 $ 57.38 $ 48.25 $ 46.38
Low stock price $ 55.38 $ 43.38 $ 39.00 $ 38.25
Closing stock price $ 67.25 $ 56.13 $ 44.00 $ 40.50
Number of stockholders (end of period) 8,876 9,008 9,193 9,223
==============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1996 Quarters
==============================================================================================================
4th 3rd 2nd 1st
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income $96,232 $93,617 $90,968 $88,925
Provision for loan losses 14,168 12,525 7,465 3,825
Other income (exclusive of investment
securities transactions) 45,498 42,378 42,501 40,800
Investment securities transactions 407 (170) (84) 1,207
Operating expense 85,304 83,614 78,144 79,786
Income tax expense 13,958 13,155 16,109 15,788
- --------------------------------------------------------------------------------------------------------------
Net income 28,707 26,531 31,667 31,533
Preferred dividend requirements - 698 705 713
- --------------------------------------------------------------------------------------------------------------
Income applicable to common shares $28,707 $25,833 $30,962 $30,820
==============================================================================================================
Per common share data
Net income - basic $ 0.77 $ 0.68 $ 0.80 $ 0.80
Net income - diluted $ 0.72 $ 0.66 $ 0.76 $ 0.75
Cash dividends $ 0.40 $ 0.35 $ 0.35 $ 0.35
Common stock data (a)
High stock price $ 39.88 $ 36.63 $ 36.00 $ 34.25
Low stock price $ 34.88 $ 33.25 $ 32.25 $ 30.25
Closing stock price $ 38.88 $ 4.88 $ 35.38 $ 33.00
Number of stockholders (end of period) 9,319 9,267 9,257 9,286
==============================================================================================================
(a) Common stock is traded in the over-the-counter market and is listed on the NASDAQ Stock Market. All
closing sales prices represent closing sales price as reported on the NASDAQ Stock Market.
</TABLE>
Item 9
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Not Applicable
PART III
Item 10
Directors and Executive Officers of the Registrant
The names, ages and positions of FCC's directors and
executive officers are listed below along with their
business experience during the past five years.
Ian Arnof, 58
President and Chief Executive Officer of FCC
Director of FCC since 1983
James J. Bailey III, 56
Managing Partner, Bailey Family Investments (real estate development
and management); director, United Companies Financial Corporation
Director of FCC since 1985
John W. Barton, 81
Private investments
Director of FCC since 1985
Sydney J. Besthoff III, 70
Property management and family interests(1)
Director of FCC since 1992
Robert H. Bolton, 89(2)
Senior Chairman of the Board, RBT
Director of FCC since 1986
R. Jeffrey Brooks, 49
Executive Vice President of FCC since 1993; Director of Consumer
Products since 1997; Director of Card Services of FCC from 1994 to
1996; Director of Strategic Support of FCC from 1993 to 1994
Thomas L. Callicutt, Jr., 51
Executive Vice President of FCC since 1996, Senior Vice President,
Controller and Principal Accounting Officer of FCC since 1987
Robert C. Cudd III, 61
Private investments
Director of FCC since 1995
Frances B. Davis, 69(2)
Private investments
Director of FCC since 1986
Laurance Eustis, Jr., 84
Advisory Chairman and Consultant, Eustis Insurance, Inc.; director,
International Shipholding Corporation and Pan American Life
Insurance Company
Director of FCC since 1983
Michael A. Flick, 49
Executive Vice President of FCC since 1985; Chief Administrative
Officer of FCC since 1994; Chief Credit Policy Officer of FCC from
1985 to 1994; Secretary of FCC since 1987
William P. Fuller, 71
President, Fuller Farms, Inc.
Director of FCC since 1978
Howard C. Gaines, 58
Executive Vice President of FCC since 1995; Chairman of the Board of
Directors of First NBC since 1988; Chief Executive Officer of First
NBC from 1988 to 1994
Arthur Hollins III, 67
Chairman of the Board, President and Chief Executive Officer, FNBLC;
director, Calcasieu Real Estate & Oil Co., Inc.
Director of FCC since 1985
F. Ben James, Jr., 62
President, James Investments, Inc. (real estate development and private
investments); director, Central Louisiana Electric Co., Inc.
Director of FCC since 1973
Erik F. Johnsen, 72
President and director of International Shipholding Corporation (ocean
shipping)
Director of FCC since 1983
J. Merrick Jones, Jr., 63
Chairman of the Board, Canal Barge Company, Inc. (river transportation)(3)
Director of FCC since 1983
Kimberly Y. Lee, 37
Executive Vice President and Chief Internal Auditor of FCC since 1994;
Senior Vice President and Manager of Audit and Credit Review from
1992 to 1994
Edwin Lupberger, 61
Chairman of the Board, President and Chief Executive
Officer, Entergy Corporation (electric utility holding company);
director, International Shipholding Corporation
Director of FCC since 1992
Mary Chavanne Martin, 47
Private investments
Director of FCC since 1995
Hugh G. McDonald, Jr., 59
President, Hugh G. McDonald, Jr. Corporation (petroleum engineering
consultants)
Director of FCC since 1995
Saul A. Mintz, 66
Chairman of the Board, Sunbelt Plastics, and various real estate,
distribution and investment corporations known collectively
as Strauss Interests
Director of FCC since 1995
Hermann Moyse, Jr., 76
Chairman of the Board, FCC; Chairman Emeritus, CNB; director, Pan
American Life Insurance Company(4)
Director of FCC since 1985
O. Miles Pollard, Jr., 60
Private investments; director, United Companies Financial Corporation
Director of FCC since 1988
G. Frank Purvis, Jr., 83
Chairman of the Board, Pan-American Life Insurance Company
Director of FCC since 1975
William W. Rucks III, 67
Chairman of the Board, FNBL; Independent Petroleum Landman
Director of FCC since 1997
Ashton J. Ryan, Jr., 50
Senior Executive Vice President of FCC since 1993; President of First
NBC since 1991; Chief Executive Officer of First NBC since 1994;
Chief Operating Officer of First NBC from 1991 to 1994
Tom H. Scott, 87
Chairman and Chief Executive Officer, Scott Truck and Tractor Company
of Louisiana, Inc.
Director of FCC since 1995
Edward M. Simmons, 69
Chairman and Chief Executive Officer, The McIlhenny Co. (producer of
Tabasco brand food products)(5); director, Pan American Life
Insurance Company, Piccadilly Cafeterias, Inc. and Central Louisiana
Electric Co., Inc.
Director of FCC since 1981
H. Leighton Steward, 63
Vice Chairman of the Board, Burlington Resources (Burlington Resources
acquired The Louisiana Land and Exploration Company in 1997)(6)
Director of FCC since 1992
E. Graham Thompson, 61
Executive Vice President and Chief Credit Policy Officer of FCC since
1994; President and Chief Executive Officer of FNBL from 1992 to
1994
Robert A. Weigle, 51
President, David C. Blintiff & Co., Inc. (investments)
Director of FCC since 1988
Joseph V. Wilson III, 48
Senior Executive Vice President of FCC since 1993
(1) Mr. Besthoff was Chairman of the Board of K & B,
Incorporated (retail drug stores) for more than five
years prior to 1997.
(2) Mr. Bolton is Mrs. Davis' uncle.
(3) Mr. Jones was President of Canal Barge Company, Inc.
for more than five years prior to January 1995.
(4) Mr. Moyse was Chairman of the Board of City National
Bank of Baton Rouge for more than five years prior to
December 1994.
(5) Mr. Simmons was President and Chief Executive Officer
of McIlhenny Co. for more than five years prior to
June 1996.
(6) Mr. Rucks was Chairman of the Board, Chief Executive
Officer and President of The Louisiana Land and
Exploration Company (oil and gas exploration and
production) for more than five years prior to October
1997.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange act of 1934
requires FCC's directors, executive officers and 10%
shareholders to file with the Securities Exchange Commission
reports of ownership and changes in ownership of equity
securities of FCC. During 1997, all such reports were
timely filed, except for one report which was filed late by
Mr. Simmons.
Item 11
Executive Compensation
Summary of Executive Compensation
The following table summarizes, for each of the three
years in the three-year period ended December 31,1997, the
compensation of FCC's Chief Executive Officer and each of
the four most highly compensated executive officers in all
the capacities in which they served:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term All
Annual Compensation Other
Compensation Compensation
------------------------------------------------------------------------------------
No. of
Shares
Total Cash Under-
(Salary Restricted lying
and Stock Options/ LTIP
Name and Principal Year Salary(1) Bonus Bonus) Awards(2) SARs(3) Payouts(4) Other(5)
Position
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ian Arnof 1997 $620,833 $337,500 $ 958,333 $369,150 23,800 $ 85,124 $15,719
President and Chief 1996 $587,500 $435,600 $1,023,100 $317,870 23,235 $103,325 $15,000
Executive Officer of FCC 1995 $525,000 $175,000 $ 700,000 $105,840 47,864 - $13,594
Joseph V. Wilson III 1997 $324,500 $147,150 $ 471,650 $137,789 8,936 $ 28,694 $ 8,428
Senior Executive Vice 1996 $310,000 $180,000 $ 490,000 $130,074 9,608 $ 52,664 $ 7,975
President of FCC 1995 $295,000 $ 60,000 $ 355,000 $ 58,328 26,372 $ - $ 7,500
Ashton J. Ryan, Jr. 1997 $324,500 $147,150 $ 471,650 $137,789 8,936 $ 28,694 $ 8,453
Senior Executive Vice 1996 $310,000 $180,000 $ 490,000 $130,074 9,508 $ 48,896 $ 8,267
President of FCC and 1995 $292,500 $ 60,000 $ 352,500 $ 64,523 29,170 - $ 7,500
President and Chief
Executive Officer of
First NBC
Michael A. Flick 1997 $308,333 $125,550 $ 433,883 $ 76,037 4,930 $ 17,237 $ 7,875
Executive Vice 1996 $298,333 $160,000 $ 458,333 $ 87,680 6,409 $ 57,872 $ 7,500
President, Chief 1995 $290,000 $ 50,000 $ 340,000 $ 23,678 10,705 $ - $ 7,375
Administrative Officer
and Secretary of FCC
Howard C. Gaines 1997 $296,667 $121,500 $ 418,167 $ 76,037 4,930 $ 20,828 $ 7,438
Chairman of First NBC 1996 $278,667 $150,000 $ 428,667 $ 87,680 6,409 $ 53,986 $ 6,958
1995 $272,000 $ 43,500 $ 315,500 $ 23,678 10,705 $ - $ 6,867
(1) Total salary reported for 1997 reflects two months of
salaries at 1996 levels and ten months at 1997 levels.
(2) Reflects the number of shares of restricted stock
awarded multiplied by the market closing price of FCC
Common Stock on the date of the grant. As of December
31, 1997, the Named Executive Officers held the
following aggregate number of shares of restricted
stock with the following year-end values (calculated by
multiplying the number of shares of restricted stock by
the closing market price of FCC Common Stock on
December 31,1997): Mr. Arnof, 22,792 shares
($1,532,762); Mr. Wilson, 9,568 shares ($643,448); Mr.
Ryan, 9,804 shares ($659,319); Mr. Flick, 5,434 shares
($365,437); and Mr. Gaines, 5,434 shares ($365,437).
As of December 31, 1997, the Named Executive Officers
also had the right to earn the following aggregate
number of performance shares with the following year-
end values (calculated by multiplying the number of
performance shares by the closing market price of FCC
Common Stock on December 31, 1997): Mr. Arnof, 11,396
shares ($766,381); Mr. Wilson, 4,784 shares ($321,724);
Mr. Ryan, 4,902 shares ($329,660), Mr. Flick, 2,716
shares ($182,651); and Mr. Gaines, 2,716 shares
($182,651). Holders of Restricted Stock receive
dividends paid on the stock but no dividends are paid
on the performance shares. The restricted stock will
vest and the performance shares will be earned three
years from the date of grant provided specific
performance goals are achieved and the Named Executive
Officer remains employed by FCC. Restrictions on the
shares of restricted stock would lapse and the
performance shares would be earned within the three-
year period upon a change in control of FCC resulting
from certain specified actions (a Significant
Transaction). The consummation of the Merger Agreement
described in Note 2 will constitute a change in
control. For additional information regarding the
restricted stock and performance shares granted in
1997, see 1997 Long Term Incentive Plan Awards.
(3) On April 21, 1997, all outstanding Stock Appreciation
Rights (SARs) were converted into options at an
exercise price equal to the base price of the SARs for
which the options were exchanged. The options will
vest and become exercisable in the same increments and
at the same time as would the SARs for which they were
exchanged. For additional information regarding
options granted in 1997, see 1997 Stock Option Grants,
and for information regarding current holdings of
options, see Option Holdings.
(4) Amounts reported for 1997 reflect the value on May 23,
1997, the date restrictions lapsed with respect to
shares of restricted stock granted in 1994. These
shares were earned over a three-year performance period
based on cumulative earnings per share targets.
(5) Consists of amounts contributed by FCC on behalf of the
Named Executive Officer pursuant to FCC's Tax-Deferred
Savings Plan and its Supplemental Tax-Deferred Savings
Plan.
</TABLE>
1997 Stock Option Grants
The following table contains information concerning the
grant of stock options to the Named Executive Officers
during 1997:
<TABLE>
<CAPTION>
1997 STOCK OPTION GRANTS
Potential Realizable
Value at Assumed
No. of Annual Rates
Shares % of Total of Stock Price
Under- Options Appreciation for
lying Granted to Option Term
Options Associates Exercise or --------------------
Name Granted(1) in 1997 Base Price Expiration Date 5% 10%
---- ---------- ---------- ----------- --------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Ian Arnof 23,800 9.35% $40.125 January 20, 2005 $455,958 $1,092,099
Joseph V. Wilson III 8,936 3.51% $40.125 January 20, 2005 $171,195 $ 410,042
Ashton J. Ryan, Jr. 8,936 3.51% $40.125 January 20, 2005 $171,195 $ 410,042
Michael A. Flick 4,930 1.94% $40.125 January 20, 2005 $ 94,448 $ 226,220
Howard C. Gaines 4,930 1.94% $40.125 January 20, 2005 $ 94,448 $ 226,220
</TABLE>
(1) The exercise price represents the fair market value of
FCC Common Stock on the date of the grant. The options
are not exercisable for one year from the date of grant
and become exercisable thereafter in 25% increments
each year, unless the Compensation Committee, in its
discretion, elects to accelerate the exercisability.
In addition, all outstanding options will become
immediately exercisable upon the occurrence of a
Significant Transaction. The consummation of the
Merger Agreement described in Note 2 will constitute a
Significant Transaction.
1997 Long Term Incentive Plan Awards
The following table contains information concerning the
grant of restricted stock and performance shares under FCC's
1992 Stock Incentive Plan to the Named Executive Officers
during 1997:
<TABLE>
<CAPTION>
1997 LONG TERM INCENTIVE PLAN AWARDS
Number of Shares, Units
or Other Rights
Granted (1)
------------------------
No. of
Shares of No. of
Restricted Performance Performance Estimated Future Payouts
Name Stock Shares Period Threshold Target Maximum
---- ---------- ----------- ----------- ------------ ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ian Arnof 9,200 4,600 3 years 4,600 shares 9,200 shares 13,800 shares
Joseph V. Wilson III 3,434 1,717 3 years 1,717 shares 3,434 shares 5,151 shares
Ashton J. Ryan, Jr. 3,434 1,717 3 years 1,717 shares 3,434 shares 5,151 shares
Michael A. Flick 1,895 947 3 years 947 shares 1,895 shares 2,842 shares
Howard C. Gaines 1,895 947 3 years 947 shares 1,895 shares 2,842 shares
</TABLE>
(1) No shares of restricted stock will vest and no
performance shares will be earned, except in the case
of death, unless (i) the individual remains employed by
FCC through December 31, 1999 on which the Compensation
Committee has determined whether the performance goals
have been met, and (ii) FCC's average percentile
ranking of reported annual return on equity against the
Keefe, Bruyette and Woods, Inc. Survey of other banks
and bank holding companies (the KBW 50) for the three-
year period ending December 31, 1999 (the Measurement
Period) would rank higher than the 25th percentile.
FCC's reported annual return on equity (which may be
adjusted by the committee for Statement of Financial
Accounting Standards (SFAS) No. 115 and/or other Board
approved one-time transactions) will be ranked against
the KBW 50 for each year of the Measurement Period.
FCC's percentile ranking for each year will then be
averaged for the three years of 1997, 1998 and 1999 to
determine the payout percentage. Holders of restricted
stock are entitled to all rights of a stockholder of
FCC, including the right to vote the restricted shares
and receive dividends and/or other distributions
declared on the restricted stock. These rights are not
applicable to the performance shares. Restrictions on
the shares of restricted stock would lapse and the
performance shares would be earned within the three-
year period upon the occurrence of a Significant
Transaction or on a pro rata basis in the event of
death. The consummation of the Merger Agreement
described in Note 2 will constitute a Significant
Transaction.
Option Holdings
The following table sets forth information with respect
to unexercised options held by the Named Executive Officers
as of December 31, 1997:
AGGREGATED OPTION VALUES AS OF DECEMBER 31, 1997
Number of Shares
Underlying Unexercised Value of Unexercised in-the-
Options at Money Options at
December 31,1997 December 31,1997(1)
========================================================
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Ian Arnof 75,828 72,107 $3,322,042 $2,495,493
Joseph V. Wilson III - 31,624 $ - $1,119,714
Ashton J. Ryan, Jr. - 33,024 $ - $1,177,114
Michael A. Flick 8,111 16,485 $ 323,838 $ 572,093
Howard C. Gaines - 16,785 $ - $ 584,018
(1) Reflects the difference between the closing market
price of FCC Common Stock on December 31, 1997 and the
exercise or base price of the options. The following
table shows, for exercisable options, the value
attributed to options outstanding for the number of
years indicated:
Value Years
------- -----
Ian Arnof $881,329 8
$432,968 6
$828,986 4
$981,253 3
$197,506 2
Michael A. Flick $125,054 4
$175,562 3
$ 23,222 2
The following table sets forth information with respect
to options exercised during 1997 by the Named Executive
Officers:
Options Exercised In 1997
Number of Net
Shares Exercised Value
Ian Arnof - $ -
Joseph V. Wilson III 30,467 $1,200,212
Ashton J. Ryan, Jr. 28,713 $1,136,193
Michael A. Flick 18,379 $ 773,122
Howard C. Gaines 18,252 $ 839,423
Pension Plans
FCC has a qualified defined-benefit plan (the
Retirement Plan) and a nonqualified Benefits Restoration
Plan (the Restoration Plan), pursuant to which each
participant, including each Named Executive Officer, who has
completed at least five years of service is entitled to
receive a monthly payment after retirement no earlier than
at age 55. The following table sets forth the aggregate
annual retirement benefits that a participant with the
indicated years of service and compensation level may expect
to receive under the Retirement Plan and the Restoration
Plan assuming retirement at age 65. Annual retirement
benefits beginning prior to age 65 would be reduced.
Pension Plans Table
- --------------------------------------------------------------------
Compensation 15 yrs. 20 yrs. 25 yrs. 30 yrs. 35 yrs.
- --------------------------------------------------------------------
$ 550,000 $133,090 $177,453 $221,817 $266,180 $310,543
$ 600,000 $145,465 $193,953 $242,442 $290,930 $339,418
$ 650,000 $157,840 $210,453 $263,067 $315,680 $368,293
$ 700,000 $170,215 $226,953 $283,692 $340,430 $397,168
$ 750,000 $182,590 $243,453 $304,317 $365,180 $426,043
$ 800,000 $194,965 $259,953 $324,942 $389,930 $454,918
$ 850,000 $207,340 $276,453 $345,567 $414,680 $483,793
$ 900,000 $219,715 $292,953 $366,192 $439,430 $512,668
$ 950,000 $232,090 $309,453 $386,817 $464,180 $541,543
$1,000,000 $244,465 $325,953 $407,442 $488,930 $570,418
$1,050,000 $256,840 $342,453 $428,067 $513,680 $599,293
$1,100,000 $269,215 $358,953 $448,692 $538,430 $628,168
$1,150,000 $281,590 $375,453 $469,317 $563,180 $657,043
$1,200,000 $293,965 $391,953 $489,942 $587,930 $685,918
$1,250,000 $306,340 $408,453 $510,567 $612,680 $714,793
$1,300,000 $318,715 $424,953 $531,192 $637,430 $743,668
$1,350,000 $331,090 $441,453 $551,817 $662,180 $772,543
$1,400,000 $343,465 $457,953 $572,442 $686,930 $801,418
The above table reflects the aggregate benefits payable
assuming they will be paid in the form of a monthly annuity
for the life of the participant.
The amount of a participant's monthly payment under the
Retirement Plan is equal to (i) 1% of the participant's
average monthly compensation over his or her highest
consecutive 120 months of compensation multiplied by the
number of years of service, plus (ii) 0.65% of the
participant's average monthly compensation over his or her
highest consecutive 120 months of compensation in excess of
Social Security covered compensation multiplied by the
number of years of service up to a maximum of 35 years.
Compensation for purposes of the Restoration Plan includes
the total of salary plus bonus, but is limited to a total of
130% of salary. Federal law now prevents certain employees,
including the Named Executive Officers, from receiving the
full benefit of this formula under the Retirement Plan
because both the amount of the annual benefit and the amount
of compensation on which the annual benefit is based cannot
exceed certain limits. Accordingly, in order to assure full
benefits to employees, the benefit under the Restoration
Plan is equal to the difference between the benefit actually
payable under the Retirement Plan and the hypothetical
benefit that would be payable under the Retirement Plan if
no legal limitations existed, except that the bonuses in
excess of 30% of salary are not taken into account.
Under the Retirement Plan and the Restoration Plan, the
number of credited years of service as of December 31, 1997
was 19, 22, 6, 27 and 9 years for Messrs. Arnof, Wilson,
Ryan, Flick and Gaines, respectively, and the 1997
compensation on which benefits would be calculated was
$1,393,933 for Mr. Arnof, $651,650 for Mr. Wilson, $651,650
for Mr. Ryan, $593,884 for Mr. Flick and $568,167 for Mr.
Gaines.
FCC's Supplemental Executive Retirement Plan (the SERP
Plan) provides supplemental retirement benefits for three of
the Named Executive Officers. At age 65, a vested
participant will receive 60% of his average annual
compensation over the five calendar years ending prior to
the termination of his employment reduced by the benefits
that he receives from (i) the Retirement Plan, (ii) the
Restoration Plan, (iii) the Corporation's Tax-Deferred
Savings Plan (other than benefits consisting of his
deferrals and earnings on those deferrals), (iv) the
Corporation's Supplemental Tax-Deferred Savings Plan (other
than benefits consisting of his deferrals and earnings on
those deferrals), (v) his primary unreduced Social Security
amount and (vi) unless otherwise provided, the benefit under
any subsequently adopted FCC plan. Annual retirement
benefits beginning prior to age 65 would be reduced.
The estimated annual retirement benefits payable to
Messrs. Arnof, Ryan and Wilson (the SERP Plan's only
participants) under the SERP Plan, assuming they continue in
their current positions at their current levels of
compensation and retire at age 65, are $184,804, $70,807 and
$0, respectively.
Pursuant to the SERP Plan, benefits will increase and
payment may be accelerated upon a change in control. The
Merger as described in Note 2 will constitute a change in
control of FCC.
Change of Control Agreements
FCC has agreements with certain of its executive
officers, including the Named Executive Officers, which
provide for certain payments and benefits to the executive
if his or her employment is terminated under certain
circumstances within two years of a change in control of
FCC, including cash payments of up to three times salary and
bonus as well as continued medical and other benefits for
three years and vesting under FCC's retirement plans. The
Merger as described in Note 2 will constitute a change in
control of FCC.
Item 12
Security Ownership of Certain Beneficial Owners and
Management
SECURITY HOLDINGS OF DIRECTORS AND EXECUTIVE OFFICERS
The following table shows the beneficial ownership of
FCC Common Stock of each director of FCC, each of FCC's most
highly, compensated executive officers (Named Executive
Officer), and all FCC directors and executive officers as a
group as of February 6, 1998, determined in accordance with
Rule 13d-3 of the SEC. In addition to its Common Stock,
FCC currently has outstanding two other classes of equity
securities: two series of 12 3/4% Convertible Debentures due
2000 ("A Debentures" and "B Debentures"). Unless otherwise
indicated, the securities are held with sole voting and
investment power.
No. of Percent
Name of Beneficial Owner Shares of Class(1)
------------------------ ---------- -----------
Directors
Ian Arnof 309,180(2) *
James J. Bailey III 124,715 *
John W. Barton 88,766 *
Sydney J. Besthoff III 2,250 *
Robert H. Bolton 196,287(3) *
Robert C. Cudd III 841,806(4) 2.14%
Frances B. Davis 409,454(4)(5) 1.03%
Laurance Eustis, Jr. 37,500 *
William P. Fuller 57,054(4) *
Arthur Hollins III 215,770(2)(4)(6) *
F. Ben James, Jr. 3,900 *
Erik F. Johnsen 115,152(7) *
J. Merrick Jones, Jr. 116,003(4) *
Edwin Lupberger 4,052 *
Mary Chavanne Martin 100,205 *
Hugh G. McDonald, Jr. 68,517(4) *
Saul A. Mintz 515,711(4)(8) 1.31%
Hermann Moyse, Jr. 310,893(4) *
O. Miles Pollard, Jr. 181,632 *
G. Frank Purvis, Jr. 60,592(9) *
William W. Rucks III 5,048 *
Tom H. Scott 657,226(4) 1.67%
Edward M. Simmons 137,215(4)(10) *
H. Leighton Steward 5,619 *
Robert A. Weigle 56,606(4) *
Named Executive Officers (11)
Joseph V. Wilson III 61,977(2)(4) *
Ashton J. Ryan, Jr. 55,012(2) *
Michael A. Flick 74,434(2) *
Howard C. Gaines 48,903(2) *
All directors and executive
officers as a group (33 persons) 8,270,754(12) 20.46%
- ----------------
*Less than one percent
(1) Shares that may be acquired within 60 days from March 13, 1998
and shares that may be acquired upon conversion of debentures
are deemed to be outstanding for purposes of computing the
percentage of Common Stock owned by such person individually
and by all directors and executive officers as a group, but
are not deemed to be outstanding for the purpose of computing
the ownership percentage of any other person. FCC is a party
to a Merger Agreement with BANC ONE pursuant to which all
outstanding options and restricted shares (including
performance shares) will become exercisable or vested. The
Merger contemplated by the Merger Agreement is expected to
be consummated in the second quarter of 1998. For purposes of
this schedule, it is assumed that all outstanding options and
restricted shares (including performance shares) will be
exercisable or vested within 60 days.
(2) Includes shares subject to options exercisable, restricted
shares (including performance shares) and shares allocated to
the individual's account in FCC's Tax-Deferred Savings Plan
and Supplemental Tax-Deferred Savings Plan (the Plans), as
follows:
Option Restricted Plan
Shares Shares Shares
------ ---------- ------
Mr. Arnof........... 122,704 34,188 33,542
Mr. Flick........... 15,396 8,150 12,133
Mr. Hollins......... - - 31,199
Mr. Gaines.......... 16,785 8,150 11,977
Mr. Ryan............ 33,024 14,706 7,282
Mr. Wilson.......... 31,624 14,352 6,315
(3) Includes 119,175 shares Mr. Bolton has the right to acquire
upon conversion of $3,178,000 principal amount of B Debentures
(5.92% of the class), and 8,336 shares allocated to his Plan
account.
(4) Includes shares as to which the named individual shares
voting and investment power as follows: Mr. Cudd, 703,679
shares; Mrs. Davis, 127,239 shares; Mr. Fuller, 3,900
shares; Mr. Hollins, 4,687 shares; Mr. Jones, 11,250
shares; Mr. McDonald, 8,326 shares; Mr. Mintz, 7,255
shares; Mr. Moyse, 130,105 shares; Mr. Scott, 655,226
shares; Mr. Simmons, 19,800 shares; Mr. Weigle, 356 shares;
and Mr. Wilson, 1,250 shares. Mr. Cudd disclaims beneficial
ownership of 290,667 shares owned by his wife. Mr. Mintz
disclaims beneficial ownership of 3,174 shares held in a
trust for which he is co-trustee. Mr. Scott disclaims
beneficial ownership of 439,338 shares held in a trust. Mr.
Simmons disclaims beneficial ownership of the 19,800 owned by
his wife.
(5) Includes 282,015 shares Mrs. Davis has the right to acquire
upon conversion of $7,520,400 principal amount of B
Debentures (14.02% of the class), including $1,508,400
principal amount owned by Mrs. Davis' husband, as to which she
disclaims beneficial ownership.
(6) Includes 157,713 shares Mr. Hollins has the right to acquire
upon conversion of $4,205,685 principal amount of A
Debentures (15.68% of the class), including $343,860 principal
amount as to which Mr. Hollins shares voting and investment
power, and 31,199 shares allocated to his Plan account.
(7) Includes 1,164 shares owned by Mr. Johnsen's wife, as to which
Mr. Johnsen disclaims beneficial ownership.
(8) Includes 419,512 shares owned by Mr. Mintz's children and
grandchildren that Mr. Mintz has power to vote pursuant to an
understanding. Mr. Mintz disclaims beneficial ownership of
these shares.
(9) Includes 53,666 shares owned by Pan-American Life Insurance
company, of which Mr. Purvis is the Chairman of the Board.
Mr. Purvis disclaims beneficial ownership of these shares.
(10) Includes 800 shares as to which Mr. Simmons has sole voting
and investment power, but disclaims beneficial ownership.
(11) Information for Mr. Arnof appears above under the heading
Directors.
(12) Includes 176,448 shares underlying $4,705,285 principal
amount of A Debentures (17.54% of the class) and 437,019
shares underlying $11,653,840 principal amount of B
Debentures (21.72% of the class). Of these amounts, $499,600
principal amount of A Debentures and $955,440 principal
amount of B Debentures are held by FCC subsidiary banks as
fiduciaries. Also includes (i) 301,706 shares executive
officers are entitled to acquire upon the exercise of
options, 108,201 shares of restricted stock (of which 36,064
are performance shares) and 126,467 shares allocated to the
Plan accounts of such persons, (ii) 8,006 shares held by
FCC's Pension Plan and 528,865 shares held by the trust
departments of the subsidiary banks of FCC as fiduciaries,
and (iii) 1,279,064 shares of record held by the trustee of
the Plans (in addition to those shares held on behalf of
directors and executive officers) that are voted by the
trustee in accordance with the instructions of the Plans
participants.
Principal Stockholders
BANC ONE CORPORATION, P.O. Box 710158, Columbus, Ohio 43271-
0158, has filed a Schedule 13D with the SEC reporting beneficial
ownership of 9,689,000 shares (approximately 19.9%) of FCC's
Common Stock by virtue of an option granted by FCC to BANC ONE on
October 20, 1997, in connection with the Merger Agreement entered
into between FCC and BANC ONE on that date. The option is not
currently exercisable, and BANC ONE disclaims beneficial ownership
of the shares.
No other person is known by FCC to beneficially own more than
5% of its Common Stock.
Item 13
Certain Relationships and Related Transactions
Certain Other Transactions
Directors, nominees and executive officers of FCC and
their associates have been customers of, and have had loan
transactions with subsidiary banks of FCC in the ordinary
course of business, and such transactions are expected to
continue in the future. In the opinion of FCC's management,
such transactions, which at December 31, 1997, amounted to
an aggregate of 17% of FCC's stockholder's equity, have been
on substantially the same terms, including interest rates
and collateral on loans, as those prevailing at the time for
comparable transactions with other persons and did not
involve more than the normal risk of collectability or
present other unfavorable features.
During 1997, FCC and its subsidiaries paid $378,716 in
premiums on disability and life insurance policies issued by
Pan-American Life Insurance Company covering FCC's
employees. In addition, First NBC leases branch space in a
building owned by Pan-American Life Insurance Company.
Total rent paid under this lease in 1997 was $121,858. Mr.
G. Frank Purvis, Jr., a director of FCC, is Chairman of the
Board of Pan-American Life Insurance Company.
Part IV
Item 14
Exhibits, Financial Statement Schedules and Reports on Form
8-K
(a) 1. Financial Statements - See Item 8.
2. Financial Statement Schedules - All
schedules are omitted, since they are either not
applicable or the required information is shown in
the Consolidated Financial Statements or Notes
thereto.
3. Exhibits:
2.1 - Agreement and Plan of Merger
between FCC, Delta Acquisition Corporation
and BANC ONE CORPORATION included as
Exhibit 99.2 to BANC ONE CORPORATION's
Current Report on Form 8-K filed October
29, 1997 (File No. 1-8552), and incor-
porated herein by reference.
3.1 - Amended and Restated Articles of
Incorporation of FCC included as Exhibit
3.1 to FCC's Annual Report on Form 10-K
for the year ended December 31, 1996, and
incorporated herein by reference.
3.2 - Amended and Restated By-laws of FCC
included as Exhibit 3.2 to FCC's Annual
Report on Form 10-K for the year ended
December 31, 1995, and incorporated
herein by reference.
4.1 - Indenture between FCC and Republic
Bank, Dallas, N.A., Trustee, (trusteeship
since transferred to The Bank of New
York) including the form of 12 3/4%
Convertible Debentures due 2000, Series A
included as Exhibit 4.1 to FCC's Annual
Report on Form 10-K for the year ended
December 31, 1985, and incorporated
herein by reference.
4.2 - Indenture between FCC and Republic
Bank, Dallas, N.A., Trustee, (trusteeship
since transferred to The Bank of New
York) including the form of 12 3/4%
Convertible Debentures due 2000, Series B
included as Exhibit 4.2 to FCC's Annual
Report on Form 10-K for the year ended
December 31, 1985, and incorporated
herein by reference.
4.3 - Rights Agreement between FCC and
First Chicago Trust Company of New York
as Rights Agent included as Exhibit 4.3
to FCC's Annual Report on Form 10-K for
the year ended December 31, 1995, and
incorporated herein by reference.
4.4 - Amendment to Rights Agreement
between FCC and First Chicago Trust
Company of New York as Rights Agent
included as Exhibit 4.3 to FCC's
Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997, and
incorporated herein by reference.
4.5 - Option Agreement between FCC and
BANC ONE CORPORATION included as Exhibit
99.3 to BANC ONE CORPORATION's Current
Report on Form 8-K filed October 29, 1997
(File No. 1-8552), and incorporated
herein by reference.
10.1 - Form of Employment Agreement
between FCC and Messrs. Arnof, Brooks,
Flick, Gaines, Ryan, Thompson, Wilson and
Ms. Lee included as Exhibit 10.1 to FCC's
Annual Report on Form 10-K for the year
ended December 31, 1995, and incorporated
herein by reference.
10.2 - Amended and Restated FCC Supple-
mental Tax-Deferred Savings Plan included
as Exhibit 10.2 to FCC's Quarterly Report
on Form 10-Q for the quarter ended
September 30, 1997, and incorporated
herein by reference.
10.3 - FCC Amended and Restated Retire-
ment Benefit Restoration Plan included
as Exhibit 10.3 to FCC's Quarterly Report
on Form 10-Q for the quarter ended
September 30, 1997, and incorporated
herein by reference.
10.4 - Form of Nonqualified Stock Option
Agreement under the FCC 1992 Stock Incen-
tive Plan and Form of Restricted Stock
Agreement under the FCC 1992 Stock Incen-
tive Plan included as Exhibit 10.2 to
FCC's Annual Report on Form 10-K for the
year ended December 31, 1992, and incorp-
orated herein by reference.
10.5 - FCC Amended and Restated 1992
Stock Incentive Plan included as
Exhibit 10.4 to FCC's Quarterly Report
on Form 10-Q for the quarter ended
September 30, 1996, and incorporated
herein by reference.
10.6 - FCC Supplemental Executive
Retirement Plan included as Exhibit 10.6
to FCC's Annual Report on Form 10-K for
the year ended December 31, 1996, and
incorporated herein by reference.
10.7 - FCC Directors' Phantom Stock
Plan included as Exhibit 10.7 to FCC's
Annual Report on Form 10-K for the year
ended December 31, 1996, and incorporated
herein by reference.
10.8 - FCC Change in Control Severance
Plan included as Exhibit 10.8 to FCC's
Annual Report on Form 10-K for the year
ended December 31, 1996, and incorporated
herein by reference.
10.9 - FCC 1997 Stock Option Plan in-
cluded as Exhibit 10.9 to FCC's Quarterly
Report on Form 10-Q for the quarter
ended March 31, 1997, and incorporated
herein by reference.
11 - Statement Re: Computation of
Earnings Per Share
21 - Subsidiaries of First Commerce
Corporation
23 - Consent of Arthur Andersen LLP
24 - Power of Attorney
27 - Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K dated October 16, 1997
was filed by the Registrant under Item 5,
Other Events. The document was filed to
disclose FCC's issuance of a press release
dated October 14, 1997, announcing FCC's
earnings for the Third Quarter of 1997.
A report on Form 8-K dated October 23, 1997
was filed by the Registrant under Item 5,
Other Events. The document was filed to
disclose FCC's issuance of a press release
dated October 20, 1997, announcing FCC's
agreement to merge with a subsidiary of BANC
ONE CORPORATION.
A report on Form 8-K/A dated November 6, 1997
was filed by the Registrant under Item 5,
Other Events. The document was filed to amend
FCC's report on Form 8-K dated October 23,
1997, disclosing FCC's agreement to merge with
a subsidiary of BANC ONE CORPORATION.
A report on Form 8-K dated November 26, 1997
was filed by the Registrant under Item 5,
Other Events. The document was filed to
disclose a change to FCC and BANC ONE
CORPORATION's expected effective date for the
planned merger.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
First Commerce Corporation
(Registrant)
By /s/ Thomas L. Callicutt, Jr.
-----------------------------------
Thomas L. Callicutt, Jr.
Executive Vice President, Controller and
Principal Accounting Officer
Date: March 26, 1998
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities on the dates
indicated.
Signatures Title
- ---------- ------
Ian Arnof President, Chief Executive
Officer and Director
Hermann Moyse, Jr. Chairman of the Board
Michael A. Flick Executive Vice President, Chief Administrative
Officer and Principal Financial Officer
James J. Bailey III Director
John W. Barton Director
Robert H. Bolton Director
Robert C. Cudd III Director
Frances B. Davis Director
Laurance Eustis, Jr. Director
William P. Fuller Director
Arthur Hollins III Director
Erik F. Johnsen Director By /s/ Thomas L. Callicutt, Jr.
J. Merrick Jones, Jr. Director ------------------------------
Edwin Lupberger Director Thomas L. Callicutt, Jr.
Mary Ellen Chavanne Martin Director Attorney-in-Fact
Hugh G. McDonald, Jr. Director Executive Vice President,
Saul A. Mintz Director Controller and Principal
O. Miles Pollard, Jr. Director Accounting Officer
G. Frank Purvis, Jr. Director
Thomas H. Scott Director Date: March 26, 1998
Edward M. Simmons Director
H. Leighton Steward Director
Robert A. Weigle Director
William W. Rucks III Director
EXHIBIT 11
FIRST COMMERCE CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Years Ended December 31
--------------------------------------------
1997 1996 1995
-------------- ------------- -------------
<S> <C> <C> <C>
Basic earnings per share
- ----------------------------------------------
Net income $125,613,000 $118,438,000 $75,951,000
Preferred dividend requirements - (2,116,000) (4,325,000)
-------------- ------------- -------------
Income applicable to common shareholders $125,613,000 $116,322,000 $71,626,000
============== ============= =============
Weighted average number of common shares
outstanding(a) 38,805,481 38,121,896 37,644,406
============== ============= =============
Basic earnings per share $3.24 $3.05 $1.90
Diluted earnings per share
- ----------------------------------------------
Income applicable to common shareholders $125,613,000 $116,322,000 $71,626,000
Preferred dividend requirements - 2,116,000 4,325,000
Interest expense on convertible
debentures, net of tax(b) 6,668,000 6,635,000 -
-------------- ------------- -------------
Diluted income $132,281,000 $125,073,000 $75,951,000
============== ============= =============
Weighted average number of shares
outstanding(a) 38,805,481 38,121,896 37,644,406
Restricted shares 200,156 97,437 88,227
Options assumed to be exercised 716,481 237,308 165,634
Preferred stock assumed to be converted - 1,782,354 2,772,251
Convertible debentures assumed to be converted (b) 3,017,276 3,028,094 -
-------------- ------------- -------------
Average shares for diluted computation 42,739,394 43,267,089 40,670,518
============== ============= =============
Diluted earnings per share $3.10 $2.89 $1.87
(a) Excludes restricted shares which are issued subject to risk of forfeiture during a vesting period.
(b) In 1995 the convertible debentures were antidilutive.
</TABLE>
EXHIBIT 21
SUBSIDIARIES* OF FIRST COMMERCE CORPORATION
First National Bank of Commerce - New Orleans
First Money, L.L.C.
Marquis Investments, L.L.C.
City National Bank of Baton Rouge
The First National Bank of Lafayette
Central Bank - Monroe
The First National Bank of Lake Charles
Rapides Bank & Trust Company in Alexandria
First Commerce Service Corporation
First Commerce Community Development Corporation
First Commerce Capital, Inc.
Marquis Assurance Corporation
__________________
*All incorporated or organized under Louisiana law,
except Marquis Assurance Corporation which is a
Vermont corporation, and First National Bank of
Commerce, City National Bank of Baton Rouge, The
First National Bank of Lafayette and The First
National Bank of Lake Charles, all of which are
national banking associations organized under federal
law.
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to
the incorporation of our report incorporated by reference in
this Form 10-K into First Commerce Corporation's previously
filed Registration Statement File Nos. 2-97152, 33-28002, 33-
50150, 33-57035 and 333-25711 on Forms S-8 and Registration
File No. 333-27861 on Form S-3.
/s/ARTHUR ANDERSEN LLP
-----------------------
New Orleans, Louisiana ARTHUR ANDERSEN LLP
March 26, 1998
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Michael A. Flick
and Thomas L. Callicutt, Jr., or either of them, his or her true
and lawful attorney-in-fact and agent, with full power of
substitution, for him or her and in his or her name, place and
stead, in any and all capacities, to sign on his or her behalf
First Commerce Corporation's Annual Report on Form 10-K for the
year ended December 31, 1997.
Hereby executed by the following persons in the capacities
indicated on the 17th day of February, 1998.
IAN ARNOF /s/ Ian Arnof
President and Chief Executive Officer ----------------------------
and Director
HERMAN MOYSE, JR /s/ Herman Moyse, Jr.
Chairman of the Board ----------------------------
MICHAEL A. FLICK /s/ Michael A. Flick
Executive Vice President, Chief ----------------------------
Administrative Officer and
Principal Financial Officer
THOMAS L. CALLICUTT, JR. /s/ Thomas L. Callicutt, Jr.
Executive Vice President, Controller and ----------------------------
Principal Accounting Officer
JAMES J. BAILEY III /s/ James J. Bailey III
Board Member ----------------------------
JOHN W. BARTON /s/ John W. Barton
Board Member ----------------------------
SYDNEY J. BESTHOFF III
Board Member ----------------------------
ROBERT H. BOLTON /s/ Robert H. Bolton
Board Member ----------------------------
ROBERT C. CUDD III /s/ Robert C. Cudd III
Board Member ----------------------------
FRANCES B. DAVIS /s/ Frances B. Davis
Board Member ----------------------------
LAURANCE EUSTIS, JR. /s/ Laurance Eustis, Jr.
Board Member ----------------------------
WILLIAM P. FULLER /s/ William P. Fuller
Board Member ----------------------------
ARTHUR HOLLINS III /s/ Arthur Hollins III
Board Member ----------------------------
F. BEN JAMES, JR.
Board Member ----------------------------
ERIK F. JOHNSEN /s/ Erik F. Johnsen
Board Member ----------------------------
J. MERRICK JONES, JR. /s/ J. Merrick Jones, Jr.
Board Member ----------------------------
EDWIN LUPBERGER /s/ Edwin Lupberger
Board Member ----------------------------
MARY ELLEN CHAVANNE MARTIN /s/ Mary Ellen Chavanne Martin
Board Member ----------------------------
HUGH G. MCDONALD, JR. /s/ Hugh G. McDonald, Jr.
Board Member ----------------------------
SAUL A. MINTZ /s/ Saul A. Mintz
Board Member ----------------------------
O. MILES POLLARD, JR. /s/ O. Miles Pollard, Jr.
Board Member ----------------------------
G. FRANK PURVIS, JR. /s/ G. Frank Purvis, Jr.
Board Member ----------------------------
THOMAS H. SCOTT /s/ Tom H. Scott
Board Member ----------------------------
EDWARD M. SIMMONS /s/ Edward M. Simmons
Board Member ----------------------------
H. LEIGHTON STEWARD /s/ H. Leighton Steward
Board Member ----------------------------
ROBERT A. WEIGLE /s/ Robert A. Weigle
Board Member ----------------------------
WILLIAM W. RUCKS III /s/ William W. Rucks III
Board Member ----------------------------
