EXHIBIT 13
FINANCIAL HIGHLIGHTS
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(dollars in thousands except per share data) 1994 1993 % Change
- ---------------------------------------------------------------------------------------------
INCOME DATA
Net income $ 63,684 $ 95,214 (33)%
Operating income 91,990 95,489 (4)%
Net interest income (FTE) 261,913 256,049 2 %
- ---------------------------------------------------------------------------------------------
PER COMMON SHARE DATA
Net income - primary $ 2.25 $ 3.48 (35)%
Net income - fully diluted 2.19 3.18 (31)%
Operating income - primary 3.33 3.50 (5)%
Operating income - fully diluted 3.07 3.20 (4)%
Book value (end of period) 15.71 17.28 (9)%
Tangible book value (end of period) 15.13 16.66 (9)%
Cash dividends 1.10 0.85 29 %
- ---------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEET DATA
Securities $ 3,038,747 $ 3,110,544 (2)%
Loans and leases <FN1> 2,823,061 2,407,231 17 %
Earning assets 5,924,892 5,812,761 2 %
Total assets 6,453,841 6,335,669 2 %
Deposits 5,220,425 5,176,873 1 %
Stockholders' equity 500,240 469,694 7 %
- ---------------------------------------------------------------------------------------------
KEY RATIOS
Return on average assets
Net income 0.99 % 1.50 %
Operating income 1.43 % 1.51 %
Return on average total equity
Net income 12.73 % 20.27 %
Operating income 18.39 % 20.33 %
Return on average common equity
Net income 13.48 % 22.18 %
Operating income 19.91 % 22.25 %
Net interest margin 4.42 % 4.40 %
Efficiency ratio <FN2> 64.82 % 61.60 %
Overhead ratio <FN2> 2.21 % 2.03 %
Allowance for loan losses to loans and leases <FN1> 1.66 % 2.55 %
Equity to assets 7.18 % 7.65 %
Leverage ratio 8.04 % 7.63 %
=============================================================================================
<FN1> Net of unearned income.
<FN2> Exclusive of securities transactions.
Earnings Per Share
operating income - fully diluted
The graph inserted shows operating income divided by the
weighted average number of common shares and all contigently
issuable shares from 1990 - 1994.
The plot points are:
Graph Denom-
Type nations 1990 1991 1992 1993 1994
- --------------------------------------------------------
BAR $ 0.94 1.55 2.69 3.2 3.07
Operating Return on Total Equity
The graph inserted shows operating income divided by
average total equity from 1990 to 1994. The plot points
are:
Graph Denom-
Type nations 1990 1991 1992 1993 1994
- --------------------------------------------------------
BAR % 9.21 14.38 20.33 20.33 18.39
Operating Return on Assets
The graph inserted shows operating income divided by average
total assets from 1990 to 1994. The plot points are:
Graph Denom-
Type nations 1990 1991 1992 1993 1994
- --------------------------------------------------------
BAR % 0.49 0.72 1.26 1.51 1.43
Operating Return on Common Equity
The graph inserted shows operating income divided by
average common equity from 1990 to 1994. The plot points
are:
Graph Denom-
Type nations 1990 1991 1992 1993 1994
- --------------------------------------------------------
BAR % 9.09 14.38 22.79 22.25 19.91
FINANCIAL REVIEW
1994 IN REVIEW
First Commerce Corporation's (FCC's) net income for
1994 was $63.7 million, compared to $95.2 million in
1993. The most significant factor contributing to the
decrease from 1993 was a $28.3 million loss, after tax,
on securities transactions in 1994. Excluding securities
transactions, operating income was $92.0 million in 1994,
a 4% decrease from 1993's $95.5 million.
Primary earnings per common share were $2.25 in 1994
and $3.48 in 1993. Fully diluted earnings per share were
$2.19 and $3.18 in 1994 and 1993, respectively.
Excluding the effect of securities transactions, primary
and fully diluted earnings per share were $3.33 and
$3.07, respectively, for 1994, and $3.50 and $3.20,
respectively, for 1993.
Return on average assets and return on average
equity were .99% and 12.73% for 1994. For 1993, return
on average assets was 1.50% and return on average equity
was 20.27%. Operating income as a percent of average
assets was 1.43% in 1994 compared to 1.51% in 1993. For
1994, operating income as a percent of average equity was
18.39% versus 20.33% in 1993.
The Federal Reserve Board's actions to push up
interest rates in 1994 caused depreciation of the market
value of FCC's securities portfolio. In order to improve
its securities portfolio income stream during a period of
rising interest rates, FCC acted to replace a portion of
the securities portfolio during 1994. Sales of $1.8
billion of securities resulted in a $28.3 million after
tax realized loss in 1994. The proceeds were primarily
used to reinvest in higher-yielding securities. FCC's
ongoing earnings level was improved by these
transactions; the losses on the sales of securities in
1994 will be more than recovered in future years through
higher interest income from both the higher-yielding
securities purchased and from the investment of the tax
savings resulting from the losses on securities sales.
Operating Income (millions)
The graph inserted shows operating income from 1990 to 1994.
The plot points are:
Graph Denom-
Type nations 1990 1991 1992 1993 1994
- --------------------------------------------------------
BAR MILLIONS 22.002 33.858 72.304 95.489 91.99
Several factors impacted operating income in 1994,
which declined $3.5 million from 1993. Revenue grew in
1994 with increases in both net interest income and other
income, excluding securities transactions. The negative
provision for loan losses was $11.6 million in 1994,
compared to a negative $4.5 million in 1993. These
positive factors were offset by expense growth of 9% and
a $3.0 million increase from the prior year's income tax
expense due to one-time adjustments in 1993. The
increase in operating expense was primarily related to
strategic and customer service initiatives.
Revenue growth in 1994 came from several sources.
Loan growth of 17% over 1993 was the primary contributor
to a 2% increase in net interest income and a two basis
point improvement in the net interest margin.
Additionally, yields on securities increased in the
latter part of 1994 as a result of the securities
transactions previously discussed. Higher volumes of
transactions and accounts were the principal causes of
1994's 7% increase in fee income.
During 1994, FCC announced three pending
acquisitions in its Lafayette, Lake Charles and New
Orleans markets, which would increase assets by
approximately $500 million. Mergers with First
Bancshares, Inc., Slidell, Louisiana, and City Bancorp,
Inc., New Iberia, Louisiana, were completed on February
17, 1995. FCC's proposed merger with Lakeside
Bancshares, Inc. , Lake Charles, Louisiana, is expected
to be completed in the first half of 1995.
FCC's financial results for 1993 include the
earnings of First Acadiana National Bancshares, Inc.
(FANB), a $208 million bank acquisition accounted for as
a pooling-of-interests. Financial information prior to
1993 does not include FANB, since FANB's results were not
material to FCC's.
A more detailed review of FCC's financial condition
and earnings for 1994 follows, with comparisons to 1993
and 1992. This review should be read in conjunction with
the Consolidated Financial Statements and Notes which
follow this Financial Review.
EARNINGS ANALYSIS
Net Interest Income
Net interest income, fully taxable equivalent (FTE),
for 1994 was $261.9 million, 2% higher than 1993's $256.1
million. The net interest margin was 4.42% for 1994, two
basis points higher than 1993. These improvements
primarily reflected broad-based growth in loans and
higher levels of interest-free funds, partially offset by
the negative effects of a rising interest rate
environment on FCC's liability-sensitive balance sheet.
Average earning assets of $5.9 billion were 2%
higher in 1994 than in 1993. The growth in earning
assets was primarily funded by an increase in interest-
free funds. Average interest-free funds grew 9% in 1994
and funded 21% of average earning assets, compared to 19%
in the prior year. Average interest-bearing liabilities
of $4.7 billion in 1994 were virtually unchanged from the
1993 level. A 1% decline in interest-bearing deposits
was offset by increased short-term borrowings.
Average loans increased $415.8 million, or 17%,
during 1994. As a percent of earning assets, average
loans increased from 41% in 1993 to 48% in 1994.
Increasing loan demand, which contributes to a more
favorable earning asset mix, is a trend that is expected
to continue in 1995. Securities were 51% of average
earning assets, compared to 54% in the prior year. Money
market investments decreased from 5% of average earning
assets to 1% in 1994.
The negative effects of the changes in the interest
rate environment are shown by the decline in the net
interest spread from 3.81% in 1993 to 3.74% in 1994. The
seven basis point decline reflected an 11 basis point
increase in the earning asset yield, while the cost of
interest-bearing liabilities rose 18 basis points. The
increase in the yield on earning assets was due to an
improved earning asset mix.
The yields on both loans and securities declined in
1994. Although loan yields dropped 36 basis points, with
new loans having lower yields than maturing and prepaying
loans, they began to rise in the third quarter of 1994
reflecting the rising interest rate environment. The
securities yield decreased six basis points in 1994;
however, FCC's active management of the portfolio has
resulted in three consecutive quarters of improvement.
FCC sold $1.8 billion in securities of 1994, primarily
reinvesting the proceeds and tax savings in higher-
yielding securities. For the fourth quarter of 1994, the
yield on the total securities portfolio was 6.11%, a 91
basis point increase from 1993's fourth quarter. For
further information concerning FCC's securities portfolio
management, see the Securities section of this Financial
Review.
The cost of both short-term borrowings and interest-
bearing deposits rose in 1994. The rate on short-term
borrowings increased 119 basis points due to the rising
interest rate environment. However, FCC's efforts to
manage deposit costs in that environment held the
increase in the cost of interest-bearing deposits to only
five basis points.
From 1992 to 1993, net interest income increased 6%
due to a higher volume of earning assets and interest-
free funds, partially offset by lower earning asset
yields. Of the $14.2 million increase in net interest
income (FTE) for the year, FANB contributed $9.9 million.
Average earning assets were $5.8 billion in 1993, 10%
higher than in 1992, with increases in both securities
and loans. The growth in earning assets was funded by
increases in short-term borrowings and interest-free
funding sources. Interest-bearing liabilities averaged
$4.7 billion in 1993, 7% higher than in 1992. Interest-
free funds increased 26% and short-term borrowings
increased $258.5 million, or 96%, from 1992.
TABLE 1. SUMMARY OF AVERAGE BALANCE SHEETS, NET INTEREST INCOME(FTE) <FN1>
AND INTEREST RATES
====================================================================================================
1994 1993
- ----------------------------------------------------------------------------------------------------
Average Average
(dollars in thousands) Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------------------------
ASSETS
EARNING ASSETS
Loans and leases <FN2> $ 2,823,061 $ 244,035 8.64 % $ 2,407,231 $ 216,711 9.00 %
Securities
Taxable 2,942,148 156,512 5.32 3,002,802 159,635 5.32
Tax-exempt 96,599 10,467 10.83 107,742 12,952 12.02
- ----------------------------------------------------------------------------------------------------
Total securities 3,038,747 166,979 5.49 3,110,544 172,587 5.55
- ----------------------------------------------------------------------------------------------------
Interest-bearing deposits in
Domestic banks 8,007 279 3.48 86,519 2,906 3.36
Foreign banks <FN3> 28,262 972 3.44 194,580 6,645 3.42
Federal funds sold and
securities purchased
under resale agreements 24,312 1,218 5.02 11,001 377 3.42
Trading account securities 2,503 173 6.92 2,886 147 5.09
- ----------------------------------------------------------------------------------------------------
Total money market investments 63,084 2,642 4.17 294,986 10,075 3.42
- ----------------------------------------------------------------------------------------------------
Total earning assets 5,924,892 $ 413,656 6.98 % 5,812,761 $ 399,373 6.87 %
- ----------------------------------------------------------------------------------------------------
NONEARNING ASSETS
Other assets <FN4> 589,288 598,382
Allowance for loan losses (60,339) (75,474)
- ----------------------------------------------------------------------------------------------------
Total assets $ 6,453,841 $ 6,335,669
====================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
Interest-bearing deposits
NOW account deposits $ 841,644 $ 12,335 1.47 % $ 856,370 $ 11,771 1.37 %
Money market investment
deposits 718,621 14,237 1.98 787,003 16,996 2.16
Savings and other consumer
time deposits 2,059,011 75,000 3.64 2,069,367 75,501 3.65
Time deposits $100,000
and over 402,909 15,700 3.90 345,746 12,281 3.55
- ----------------------------------------------------------------------------------------------------
Total interest-bearing
deposits 4,022,185 117,272 2.92 4,058,486 116,549 2.87
- ----------------------------------------------------------------------------------------------------
Short-term borrowings 576,829 23,283 4.04 527,838 15,047 2.85
Long-term debt 89,266 11,188 12.53 95,238 11,728 12.31
- ----------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 4,688,280 $ 151,743 3.24 % 4,681,562 $ 143,324 3.06 %
- ----------------------------------------------------------------------------------------------------
NONINTEREST-BEARING LIABILITIES
AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits 1,198,240 1,118,387
Other liabilities 67,081 66,026
Stockholders' equity 500,240 469,694
- ----------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $ 6,453,841 $ 6,335,669
====================================================================================================
Net interest income
(FTE) <FN1> and margin $ 261,913 4.42 % $ 256,049 4.40 %
====================================================================================================
Net earning assets and
spread $ 1,236,612 3.74 % $ 1,131,199 3.81 %
====================================================================================================
Total cost of funds 2.56 % 2.47 %
====================================================================================================
<FN1>Based on a 35% tax rate for 1994 and 1993, and a 34% tax rate for 1992.
<FN2>Net of unearned income, prior to deduction of allowance for loan losses and including nonaccrual loans.
<FN3>Principally foreign branches of foreign and domestic banks; other foreign assets and revenues are insignificant
and have therefore not been separately disclosed in this schedule.
<FN4>1994 presentation includes mark-to-market adjustment on securities available for sale.
TABLE 1. SUMMARY OF AVERAGE BALANCE SHEETS, NET INTEREST INCOME(FTE)<FN1>
AND INTEREST RATES
======================================================================================
1992
- --------------------------------------------------------------------------------------
Average
(dollars in thousands) Balance Interest Rate
- --------------------------------------------------------------------------------------
ASSETS
EARNING ASSETS
Loans and leases <FN2> $2,184,584 $ 214,405 9.81 %
Securities
Taxable 2,619,640 159,811 6.10
Tax-exempt 115,285 14,434 12.53
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Total securities 2,734,925 174,245 6.37
- --------------------------------------------------------------------------------------
Interest-bearing deposits in
Domestic banks 86,807 3,661 4.22
Foreign banks <FN3> 183,005 9,589 5.24
Federal funds sold and securities
purchased under resale agreements 86,182 3,090 3.59
Trading account securities 4,844 231 4.77
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Total money market investments 360,838 16,571 4.59
- --------------------------------------------------------------------------------------
Total earning assets 5,280,347 $ 405,221 7.68 %
- --------------------------------------------------------------------------------------
NONEARNING ASSETS
Other assets <FN4> 538,397
Allowance for loan losses (77,345)
- --------------------------------------------------------------------------------------
Total assets $5,741,399
======================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
Interest-bearing deposits
NOW account deposits $ 734,667 $ 13,737 1.87 %
Money market investment deposits 831,610 22,922 2.76
Savings and other consumer time
deposits 2,099,727 91,929 4.38
Time deposits $100,000 and over 351,202 15,010 4.27
- --------------------------------------------------------------------------------------
Total interest-bearing deposits 4,017,206 143,598 3.57
- --------------------------------------------------------------------------------------
Short-term borrowings 269,313 7,897 2.93
Long-term debt 97,154 11,853 12.20
- --------------------------------------------------------------------------------------
Total interest-bearing
liabilities 4,383,673 $ 163,348 3.73 %
- --------------------------------------------------------------------------------------
NONINTEREST-BEARING LIABILITIES
AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits 936,366
Other liabilities 65,644
Stockholders' equity 355,716
- --------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $5,741,399
======================================================================================
Net interest income
(FTE) <FN1> and margin $ 241,873 4.58 %
======================================================================================
Net earning assets and
spread $ 896,674 3.95 %
======================================================================================
Total cost of funds 3.10 %
======================================================================================
<FN1> Based on a 35% tax rate for 1994 and 1993, and a 34% tax rate for 1992.
<FN2>Net of unearned income, prior to deduction of allowance for loan losses and including nonaccrual loans.
<FN3>Principally foreign branches of foreign and domestic banks; other foreign assets and revenues are insignificant
and have therefore not been separately disclosed in this schedule.
<FN4>1994 presentation includes mark-to-market adjustment on securities available for sale.
TABLE 2. SUMMARY OF CHANGES IN NET INTEREST INCOME (FTE) <FN1>
===============================================================================================
1994 Compared to 1993 1993 Compared to 1992
- ---------------------------------------------------------------------------------------------------
Total Due to Due to Total Due to Due to
Increase Change in Change in Increase Change in Change in
(in thousands) (Decrease) Volume Rate (Decrease) Volume Rate
- ---------------------------------------------------------------------------------------------------
EARNING ASSETS
Loans and leases $27,324 $ 36,225 (8,901) $ 2,306 $20,854 $(18,548)
Securities
Taxable (3,123) (3,227) 104 (176) 21,775 (21,951)
Tax-exempt (2,485) (1,272) (1,213) (1,482) (921) (561)
- ---------------------------------------------------------------------------------------------------
Total securities (5,608) (4,499) (1,109) (1,658) 20,854 (22,512)
- ---------------------------------------------------------------------------------------------------
Interest-bearing deposits in
Domestic banks (2,627) (2,732) 105 (755) (12) (743)
Foreign banks (5,673) (5,720) 47 (2,944) 574 (3,518)
Federal funds sold and securities
purchased under resale
agreements 841 609 232 (2,713) (2,582) (131)
Trading account securities 26 (21) 47 (84) (99) 15
- ---------------------------------------------------------------------------------------------------
Total money market investments (7,433) (7,864) 431 (6,496) (2,119) (4,377)
- ---------------------------------------------------------------------------------------------------
Total interest income $14,283 $23,862 $(9,579) $ (5,848) $39,589 $(45,437)
===================================================================================================
INTEREST-BEARING LIABILITIES
Interest-bearing deposits
NOW account deposits $ 564 (205) 769 $ (1,966) $ 2,044 $ (4,010)
Money market investment deposits (2,759) (1,414) (1,345) (5,926) (1,177) (4,749)
Savings and other consumer time
deposits (501) (377) (124) (16,428) (1,312) (15,116)
Time deposits $100,000 and over 3,419 2,155 1,264 (2,729) (249) (2,480)
- ---------------------------------------------------------------------------------------------------
Total interest-bearing deposits 723 159 564 (27,049) (694) (26,355)
- ---------------------------------------------------------------------------------------------------
Short-term borrowings 8,236 1,503 6,733 7,150 7,376 (226)
Long-term debt (540) (746) 206 (125) (235) 110
- ---------------------------------------------------------------------------------------------------
Total interest expense $ 8,419 916 7,503 $(20,024) $ 6,447 $(26,471)
- ---------------------------------------------------------------------------------------------------
Change in net interest income
(FTE) $ 5,864 $22,946 (17,082) $ 14,176 $33,142 $(18,966)
===================================================================================================
<FN1>Based on a 35% tax rate for 1994 and 1993, and a 34% tax rate for 1992.
The net interest spread narrowed 14 basis points
from 1992 to 3.81% in 1993. The net interest margin was
4.40% in 1993, a decline of 18 basis points from 1992.
The margin and spread declined because yields on earning
assets fell 81 basis points, while the cost of interest-
bearing liabilities decreased only 67 basis points. The
reinvestment of maturing and prepaying securities at
lower yields was the primary cause of the decline in the
earning asset yield during 1993. Additionally, although
loan volume increased 10% during 1993, new loans had
lower yields than maturing and prepaying loans.
Table 1 presents the average balance sheets, net
interest income (FTE) and interest rates for 1994, 1993
and 1992. The effect of marking to market securities
available for sale has been eliminated from all average
securities and earning asset totals and the calculation
of the following ratios: securities yield, earning asset
yield, net interest margin and net interest spread.
Table 2 provides the components of changes in net
interest income.
Net Interest Income (FTE) (millions)
The graph inserted shows net interest income (FTE) from
1990 to 1994. Net interest income (FTE) is net income
which has been adjusted by increasing tax - exempt income
to a level that would yield the same after tax income
had that income been subject to taxation. The plot points
are:
Graph Denom-
Type nations 1990 1991 1992 1993 1994
- --------------------------------------------------------
BAR MILLIONS 176.4 199.6 241.9 256.0 261.9
Provision for Loan Losses
Loan quality improvements continued in 1994 and led
to another negative provision for loan losses and a
corresponding reduction in the allowance for loan losses.
Fewer nonperforming assets and watch list loans and lower
net charge-offs, primarily due to net recoveries on
commercial loans, resulted in a negative $11.6 million
provision for loan losses in 1994. The provision was a
negative $4.5 million in 1993 and a positive $22.0
million in 1992. The $26.5 million decrease from 1992 to
1993 was also due to lower levels of nonperforming
assets, watch list loans and net charge-offs.
A return to positive provisions in 1995 is likely,
since, among other things, loan growth is expected to
continue. However, the provision in 1995 is expected to
be low in comparison to historical 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.
Provision for Loan Losses (millions)
The graph inserted shows provision from 1990 to 1994. The
plot points are:
Graph Denom-
Type nations 1990 1991 1992 1993 1994
- --------------------------------------------------------
BAR MILLIONS 47.425 43.734 22.040 -4.504 -11.568
Other Income
Other income, excluding securities transactions, was
$110.4 million in 1994, compared to $102.8 million in
1993, an increase of 7%. This improvement can be
attributed largely to increases in automated teller
machines (ATM) fee income, credit card income and trust
fees.
ATM fee income rose $3.3 million to $5.4 million in
1994, primarily due to a new ATM usage charge for non-
customers implemented in the fourth quarter of 1993, plus
income from higher volumes associated with the addition
of 58 ATMs during 1994. Credit card income increased 11%
from $22.4 million in 1993 to $24.8 million in 1994,
reflecting higher merchant volumes and late charge fee
income combined with income related to new products.
Trust fees of $13.7 million were 21% higher in 1994 than
in 1993 due to new trust business. Broker/dealer revenue
declined $1.4 million, or 16%, from 1993, reflecting
decreased sales volume of mutual funds.
Other income, excluding securities transactions,
increased $6.5 million from 1992 to 1993. FANB's other
income was $2.1 million in 1993, of which deposit fees
and service charges were $1.5 million, or 71%.
The 7% rise in deposit fees and service charges,
including FANB, was primarily due to higher volumes of
overdraft charges and commercial account fees. Trust
fees rose 20% because of higher fee income from bond
trusteeships and employee benefit plans. Broker/dealer
revenues increased 21% from the prior year due to
increased trading activity as customers looked for
higher-yielding investments. Other operating revenue
decreased 10% from 1992, primarily due to a one-time
payment in 1992 from the Resolution Trust Corporation
related to the Pelican acquisition plus lower loan
origination fees in 1993.
Securities transactions resulted in pretax net
losses of $43.5 million and $423,000 in 1994 and 1993,
respectively, and pretax net gains of $258,000 in 1992.
These transactions are more fully described in the
Securities section of this Financial Review.
Other Income (millions)
Excluding securities transactions
The graph inserted shows other income excluding
securities transactions from 1990 to 1994. The plot
points are:
Graph Denom-
Type nations 1990 1991 1992 1993 1994
- --------------------------------------------------------
BAR MILLIONS 73.213 83.419 96.369 102.844 110.434
Operating Expense
Operating expense was $241.4 million in 1994, 9%
higher than the prior year. The primary factors in the
increase were personnel expense, equipment expense and
professional fees.
Personnel expense increased 11%, to $132.0 million,
from 1993, primarily due to annual raises and a 5%
increase in employees was to improve service levels and
to staff future revenue-producing initiatives.
Additionally, 1994's personnel expense was impacted by a
$2.3 million charge for severance expense related to
delivery system redesign and other strategic initiatives.
Equipment expense was $16.1 million, an increase of
25% from the prior year. Professional fees were 20%
higher than 1993, at $13.8 million for 1994. The
increases in both categories were primarily related to
strategic and customer service initiatives, including
branch automation.
From 1992 to 1993, operating expense rose 8%,
primarily due to increased personnel expense and
professional fees, partially offset by an 82% decrease in
nonperforming assets expense and by deferrals of loan
origination costs. FANB had operating expense for 1993
of $9.2 million, of which $3.9 million, or 42%, was
personnel expense. Personnel expense, including FANB,
increased 17% primarily reflecting increased staff and
incentive compensation for above-plan performance. The
increase in staff was related to the FANB acquisition and
the hiring of new employees in response to increased
volumes. The 34% increase in professional fees was
principally due to strategic initiatives. Nonperforming
assets expense decreased due to lower provisions for
losses on foreclosed property. The initiation of the
deferral of loan origination costs in 1993 reduced
operating expense $8.0 million.
1995's operating expense is expected to be
impacted by charges related to the ongoing delivery
system redesign and other strategic initiatives.
Additionally, one-time charges of $1.0 to $3.0 million
are anticipated in connection with acquisitions completed
in February 1995. Excluding these two items, the growth
in ongoing operating expense should moderate in 1995,
versus the growth in 1994, reflecting the implementation
of strategic initiatives undertaken by FCC and an
increased emphasis on expense control.
Refer to Note 21 of the Notes to Consolidated
Financial Statements for additional details.
Personnel Expense (millions)
The graph inserted shows personnel expense from 1990 to
1994. The plot points are:
Graph Denom-
Type nations 1990 1991 1992 1993 1994
- --------------------------------------------------------
BAR MILLIONS 78.095 87.557 102.111 119.387 132.016
Operating Expense (millions)
Other than personnel expense
The graph inserted shows operating expense excluding
personnel expense from 1990 to 1994. The plot points are:
Graph Denom-
Type nations 1990 1991 1992 1993 1994
- --------------------------------------------------------
BAR MILLIONS 87.230 98.406 101.670 101.693 109.346
Income Taxes
Income tax expense was $29.7 million in 1994, $40.6
million in 1993 and $32.8 million for 1992. The $10.9
million decrease from 1993 to 1994 was primarily due to
a decrease in pretax income of $42.5 million, partially
offset by one-time adjustments in 1993. Income tax
expense in 1993 was reduced $3.5 million due to a
favorable tax settlement with the Internal Revenue
Service related to the deductibility of the amortization
of intangible assets called "depositor relationships" or
"borrower relationships" recorded in connection with
certain acquisitions. The reduction due to the IRS
settlement was partially offset by an increase in income
tax expense in 1993 of $590,000 from the effect of
adopting a new standard requiring the asset and liability
method of accounting for income taxes (SFAS No. 109).
The increase from 1992 to 1993 was primarily due to an
increase in pretax income, an increase in the marginal
federal income tax rate to 35% from 34% and the increase
from adopting the new standard of accounting for income
taxes, partially offset by the one-time adjustment for
the IRS settlement.
FCC's income tax expense as a percent of pretax
income (32% for 1994, 30% in 1993 and 31% in 1992) is
lower than the respective federal statutory tax rates
(35% in 1994 and 1993 and 34% in 1992) primarily because
a portion of FCC's net income is from the financing of
state and local governments. Interest income from
government financing is generally exempt from federal
income tax. Louisiana does not assess income tax on
commercial banks; rather, banks pay property tax based on
the value of their capital stock.
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
Securities
The securities portfolio totaled $2.5 billion at
December 31, 1994, compared to $3.3 billion at December
31, 1993. Average securities were $3.0 billion for 1994
and $3.1 billion for 1993. The lower level of securities
as of December 31, 1994, compared to one year ago was
related to significant loan growth in 1994 and the
reduction of short-term borrowings.
Accounting Change
FCC adopted SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", effective
January 1, 1994. This standard requires that all
securities be classified as available for sale, held to
maturity or trading. Upon adoption, FCC classified 85%
of its securities portfolio as available for sale, which
are marked to market each month with an after-tax
adjustment to equity for net unrealized gains or losses.
The majority of the securities initially classified as
held to maturity, which are carried at amortized cost,
had remaining maturities of less than one year.
As of December 31, 1994, 99.6% of FCC's $2.5 billion
securities portfolio was classified as available for
sale. Management's decision to classify virtually all of
the securities portfolio as available for sale provides
the most flexibility to actively manage the portfolio,
which represented 43% of earning assets as of December
31, 1994 and 54% as of December 31, 1993. Classifying
securities as held to maturity restricts management's
ability to sell those securities in response to changing
conditions. Notes 5 and 6 contain additional information
on securities held to maturity and available for sale.
FCC's approach to the adoption of SFAS No. 115 was
significantly different from most of its peers in that
very few other financial institutions classified
substantially all of their securities as available for
sale. A significant factor in FCC's approach to the new
accounting standard was the desire to maintain the
flexibility to actively manage the portfolio,
particularly in periods of rising interest rates. The
size of the portfolio doubled when FCC's deposits grew by
$1.5 billion between June 30, 1991 and February 1, 1992
due to transfers from other institutions by depositors
concerned about the safety of their deposits and the
acquisition of deposits of the failed Pelican Homestead.
With little loan demand at that time and interest rates
hitting cyclical lows, these new deposits were invested
in the securities portfolio, primarily two to three year
Treasury notes, causing securities as a percent of
earning assets to rise as high as 54% in 1992.
Portfolio Management
During 1994, the interest rate environment changed
significantly from the prior year as the Federal Reserve
Board pushed up interest rates 250 basis points. This
resulted in a decline in the market value of all fixed
income securities. The adoption SFAS No. 115 resulted in
a reduction in stockholders' equity to reflect the
depreciation of FCC's available for sale securities
portfolio, net of the tax effect.
FCC actively managed the portfolio, rather than
holding the securities to maturity and maintaining an
earnings stream significantly below the current market
yield. FCC was able to improve the income stream on its
securities, moving the yield closer to the market yield
and mitigating the impact on the spread between the
securities yield and the cost of funds.
Securities classified as available for sale were
sold in all four quarters of 1994. The loss realized for
the year was $28.3 million after tax on the sale of $1.8
billion of securities. The proceeds from $1.3 billion of
these sales were reinvested in higher-yielding
securities. The remaining $500 million of proceeds were
used to reduce the level of short-term borrowings in both
the first and fourth quarters.
The loss on the sales of securities in 1994 will be
more than offset in future years by additional interest
income from the higher-yielding securities purchased and
from the investment of the tax savings resulting from the
loss on the sale. For banks, losses on securities
transactions are treated as ordinary losses not capital
losses.
Several events in 1994, including the securities
transactions, lengthened the average maturity of the
total securities portfolio from 3.03 years as of December
31, 1993 to 3.83 years at December 31, 1994. The average
duration increased from 2.23 years to 2.86 years. Tables
3 and 4 provide information on the maturities and yields
of securities held on December 31, 1994. Other events
causing the portfolio maturity to lengthen were the
decrease in the size of the portfolio, particularly in
shorter-term Treasury securities, and rising interest
rates, which lengthened the average expected maturities
of mortgage-backed securities.
In 1995, FCC is likely to continue selling
securities, incurring losses, in order to improve the
portfolio's income stream, fund loan growth, or reduce
short-term borrowings. The maturities and types of new
securities purchased are likely to change in subsequent
purchases depending upon further changes in the interest
rate environment. Additionally, some of the new
purchases may be classified as held to maturity. The
timing and amount of future sales is uncertain, with many
factors to consider, including market conditions, tax and
accounting issues, and available investment
opportunities.
TABLE 3. SECURITIES AVAILABLE FOR SALE--MATURITIES AND YIELDS <FN1>
==================================================================================================================================
December 31, 1994
- ----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) Maturity
- ----------------------------------------------------------------------------------------------------------------------------------
Total Carrying
Within 1 Year 1-5 Years 5-10 Years After 10 Years Value
- ----------------------------------------------------------------------------------------------------------------------------------
FTE FTE FTE FTE FTE
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. treasury securities $26,688 7.30 % $1,199,816 6.33 % $ - - % $ - - % $1,226,504 6.36 %
U.S. agency securities
U.S. agency notes - fixed 977 4.72 113,784 8.05 - - 1,089 7.15 115,850 8.01
U.S. agency notes - floating - - 43 6.44 - - 1,787 6.36 1,830 6.36
Mortgage-backed agencies - fixed - - 155,684 5.21 20,923 6.32 337,375 5.90 513,982 5.72
Mortgage-backed agencies - floating - - - - - - 483,748 5.52 483,748 5.52
Obligations of states and
political subdivisions 3,777 7.79 15,234 10.08 16,922 10.26 66,253 10.88 102,186 10.54
Other debt securities - - 308 8.78 - - 2,207 6.14 2,515 6.46
Equity securities - - - - - - 11,828 3.16 11,828 3.16
- ----------------------------------------------------------------------------------------------------------------------------------
Total securities avaiable
for sale $31,442 7.28 % $1,484,869 6.38 % $ 37,845 8.00 % $904,287 5.98 % $2,458,443 6.26 %
==================================================================================================================================
<FN1> Fully taxable equivalent based on a 35% tax rate. Maturities are based on the contractual maturities of the securities.
TABLE 4. SECURITIES HELD TO MATURITY--MATURITIES AND YIELDS <FN1>
================================================================================================================================
December 31, 1994
- --------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) Maturity
- --------------------------------------------------------------------------------------------------------------------------------
Total Carrying
Within 1 Year 1-5 Years 5-10 Years After 10 Years Value
- --------------------------------------------------------------------------------------------------------------------------------
FTE FTE FTE FTE FTE
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
- --------------------------------------------------------------------------------------------------------------------------------
Obligations of states and
political subdivisions $ 61 12.38 % $ 91 12.69 % $ - - % $ - - % $ 152 12.56 %
Other debt securities - - 250 6.75 250 6.75 - - 500 6.75
Equity securities - - - - - - 8,148 5.54 8,148 5.54
- --------------------------------------------------------------------------------------------------------------------------------
Total securities held
to maturity $ 61 12.38 % $ 341 8.33 % $ 250 6.75 % $ 8,148 5.54 % $ 8,800 5.73 %
================================================================================================================================
<FN1> Fully taxable equivalent based on a 35% tax rate. Maturities are based on the contractual maturities of the securities.
Securities Available for Sale
As of December 31, 1994, securities available for
sale were $2.5 billion. The unrealized loss, net of tax,
reflected as a reduction of stockholders' equity was
$71.8 million at year-end. This unrealized loss resulted
almost wholly from interest rate fluctuations and does
not represent a permanent impairment of value. Gross
unrealized losses were $117.5 million and gross realized
gains were $7.1 million. Almost all of FCC's mortgage-
backed securities are U. S. agency securities. At
December 31, 1994, the weighted average stated
maturity of these securities was 22 years,
compared to an average expected maturity of five years.
During 1994, $202.0 million of mortgage-backed securities
were paid out prior to maturity. Changes in interest
rates affect the rate of prepayment on mortgage-backed
securities. If market interest rates fall below coupon
rates, the likelihood of prepayment is increased. Market
interest rates above coupon rates decrease the likelihood
of prepayments, increasing the expected maturity of these
securities.
Securities Held to Maturity
As of December 31, 1994, securities held to maturity
totaled $8.8 million. Gross unrealized gains were
$1,000; there were no gross unrealized losses.
Money Market Investments
Money market investments include interest-bearing
deposits in other banks, federal funds sold, securities
purchased under resale agreements and trading account
securities. Money market investments are used to meet
liquidity needs and as a temporary investment until
longer-term investments can be made.
As of December 31, 1994, money market investments
totaled $47.3 million, and averaged $63.1 million for
1994. This was a decrease from the $84.5 million at
December 31, 1993 and the $295.0 million average for
1993. The decrease in money market investments was the
result of the reduction of short-term borrowings early in
1994. As a percent of average earning assets, money
market investments declined from 5% in 1993 to 1% in
1994.
TABLE 5. LOANS AND LEASES OUTSTANDING BY TYPE
============================================================================================================================
December 31
- ----------------------------------------------------------------------------------------------------------------------------
(in thousands) 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------
Loans to individuals - residential mortgages $ 597,060 $ 521,362 $ 323,641 $ 313,810 $ 338,056
Loans to individuals - other 860,490 663,364 493,468 470,250 465,086
Commercial, financial and agricultural 709,529 482,677 473,411 590,780 631,890
Real estate-commercial mortgages 489,527 466,228 417,113 359,690 364,502
Real estate-other 72,448 55,055 62,258 72,795 101,223
Credit card loans 426,224 383,932 385,604 403,557 392,717
Other 86,432 113,901 100,375 88,910 101,423
- ----------------------------------------------------------------------------------------------------------------------------
Total loans and leases 3,241,710 2,686,519 2,255,870 2,299,792 2,394,897
============================================================================================================================
Loans
Loans and leases, net of unearned income, were $3.2
billion as of December 31, 1994, a 21% increase from
1993's year-end amount of $2.7 billion. Loans averaged
$2.8 billion in 1994, a 17% increase from 1993. Loan
growth was across all sectors of the portfolio and is
expected to continue in 1995.
As shown in Table 5, the largest segment of the loan
portfolio continues to be loans to individuals. All
types of loans, except other loans, increased from year-
end 1993 to year-end 1994. The strongest loan growth was
in loans to individuals and commercial loans. Note 7
contains additional information on loan concentrations.
The pie chart on this page presents data on the loan
portfolio by borrowers' industry, excluding consumer
loans. Table 6 provides information on maturities and
rate sensitivities by loan type.
Consumer loans include loans to individuals and
credit card loans. Loans to individuals were $1.5
billion at the end of 1994 and were 23% higher than the
prior year-end. There were increases in most categories
of loans to individuals with the most significant
increases in automobile, primarily indirect, and first
lien residential mortgage loans. The increase in
automobile loans was primarily due to increased consumer
demand while the rise in residential mortgage loans
reflected consumers' anticipation of higher interest
rates. Loans to individuals were 45% of total loans, a
slight increase from 44% at the end of 1993. As of
December 31, 1994, credit card loans were $426.2 million,
or 13% of total loans, and were 11% higher than at 1993's
year-end. Credit card loans were relatively flat during
most of 1994, but increased significantly during the
fourth quarter, consistent with seasonal consumer
spending patterns.
In December 1994, FCC announced a nationwide
expansion of its credit card services to the military.
FCC was awarded, on a competitive bid basis, an exclusive
contract to administer the U.S. Air Force's Commercial
and Proprietary Club Card Program throughout the United
States. The expanded contract has the potential to
generate approximately $230.0 million in additional
average credit card outstandings within 15 to 18 months.
TABLE 6. LOAN MATURITIES AND RATE SENSITIVITIES BY TYPE
==================================================================================================
December 31, 1994
Maturing
Within One to After
(in thousands) One Year Five Years Five Years Total
- --------------------------------------------------------------------------------------------------
Fixed
Loans to individuals - residential mortgages $ 28,109 $ 241,386 $ 278,759 $ 548,254
Loans to individuals - other 67,053 568,938 11,580 647,571
Commercial, financial and agricultural 78,231 115,140 11,676 205,047
Real estate-commercial mortgage 38,454 189,633 67,202 295,289
Real estate-other 24,425 23,957 3,848 52,230
Credit card loans 303,422 0 0 303,422
Other 16,712 18,838 12,477 48,027
- --------------------------------------------------------------------------------------------------
Total fixed loans and leases 556,406 1,157,892 385,542 2,099,840
- --------------------------------------------------------------------------------------------------
Floating
Loans to individuals - residential mortgages 37,281 8,854 2,671 48,806
Loans to individuals - other 87,435 46,216 79,268 212,919
Commercial, financial and agricultural 360,547 110,055 33,880 504,482
Real estate-commercial mortgage 79,465 83,590 31,183 194,238
Real estate-other 13,016 5,211 1,991 20,218
Credit card loans 122,802 0 0 122,802
Other 29,914 8,241 250 38,405
- --------------------------------------------------------------------------------------------------
Total floating loans and leases 730,460 262,167 149,243 1,141,870
- --------------------------------------------------------------------------------------------------
Total loans and leases $1,286,866 $1,420,059 $ 534,785 $3,241,710
==================================================================================================
Commercial loans were $709.5 million as of December
31, 1994, or 22% of total loans, compared to $482.7
million at the end of 1993, or 18% of total loans. The
three largest industries were services with $197.5
million, mining with $89.7 million and transportation
with $70.1 million. The remainder of commercial loans
were diversified among a wide array of industries. The
growth in commercial loans was in virtually all industry
segments. The most significant increases were in the
services and mining industries. At year-end 1994, loans
related to the gaming industry were $64.9 million, or 2%
of total loans.
Real estate loans are comprised of loans secured by
commercial properties, construction and land development
loans, loans secured by multi-family properties and
farmland loans. Commercial real estate loans are the
most significant component of real estate loans and were
$489.5 million at year-end 1994, or 15% of total loans.
This compares to $466.2 million, or 17% of total loans,
at year-end 1993. Approximately 28% of the properties
are owner-occupied, with the remainder held as investment
properties. Construction and land development loans were
$47.6 million at year-end, 1% of total loans.
Loans and Leases (billions)
Average loans and leases, net of unearned income
The graph inserted shows average loans and leases, net of
unearned income, from 1990 to 1994. The plot points are:
Graph Denom-
Type nations 1990 1991 1992 1993 1994
- --------------------------------------------------------
BAR BILLIONS 2.403 2.323 2.185 2.407 2.823
Loan portifolio by Industry
(excluding consumer loans)
The pie chart inserted presents data on the loan portifolio
by borrowers' industry, excluding consumer loans as of
December 31, 1994. The plot points are (in percentages):
BORROWERS INDUSTRY AMOUNT
- ------------------ ------
Health 9.6%
Other Services 15.1%
Finance 8.7%
Real Estate 9.9%
Construction 5.2%
Mining 7.3%
Manufacturing 7.3%
Retail 7.0%
Wholesale 6.6%
Transportation 15.5%
Other 2.7%
Professional 5.1%
TABLE 7. AVERAGE DEPOSITS
===========================================================================================================
(dollars in thousands) 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------
Noninterest-bearing demand deposits $1,187,538 22.75 % $1,099,471 21.24 % $ 922,519 18.62 %
NOW account deposits 841,644 16.12 856,370 16.54 734,667 14.83
Money market investment deposits 718,621 13.77 787,003 15.20 831,610 16.79
Savings deposits 605,854 11.61 598,964 11.57 523,927 10.58
Other consumer time deposits 1,463,606 28.03 1,488,508 28.75 1,588,597 32.07
- -----------------------------------------------------------------------------------------------------------
Total core deposits 4,817,263 92.28 4,830,316 93.30 4,601,320 92.89
Time deposits $100,000 and over <FN1> 403,162 7.72 346,557 6.70 352,252 7.11
- -----------------------------------------------------------------------------------------------------------
Total average deposits $5,220,425 100.00 % $5,176,873 100.00 % $4,953,572 100.00 %
===========================================================================================================
<FN1> Foreign branch time deposits included are immaterial in all periods presented.
TABLE 8. MATURITIES OF TIME DEPOSITS
$100,000 AND OVER
================================================
(in thousands) December 31, 1994
- ------------------------------------------------
Within three months $ 286,988
Three to six months 95,171
Six to twelve months 94,081
After twelve months 90,681
- ------------------------------------------------
Total $ 566,921
================================================
Deposits
Deposits were $5.5 billion as of December 31, 1994.
As shown in Table 7, average deposits were $5.2 billion
in 1994, a 1% increase over 1993. Noninterest-bearing
deposits rose 8% over 1993, positively impacting FCC's
cost of funds. Money market investment deposits declined
9%; customers had more incentive to move into longer
maturity instruments, such as certificates of deposit and
Treasury notes, in order to improve returns. This trend
is expected to continue in 1995, as FCC continues to be
very selective in raising deposit rates and aggressive in
managing liability costs. Core deposits were 92% of
average deposits for 1994, compared to 93% in 1993.
Noninterest-bearing deposits were 20% of average earning
assets in 1994 and 19% in 1993.
Table 8 includes the maturities of time deposits of
$100,000 and over.
Short-Term Borrowings
Average short-term borrowings were $576.8 million
for 1994, a 9% increase over 1993. As a percent of
average interest-bearing liabilities, short-term
borrowings were 12% in 1994 and 11% in 1993. As of
December 31, 1994, short-term borrowings had declined to
$470.4 million, 31% lower than at December 31, 1993.
Late in 1994's fourth quarter, the proceeds from the sale
of approximately $240 million of securities were used to
reduce the level of short-term borrowings. This lessened
the reliance upon relatively high cost short-term
borrowings for funding. Table 9 presents the detail of
average short-term borrowings for 1994, 1993, and 1992.
TABLE 9. AVERAGE SHORT-TERM BORROWINGS
=============================================================================================================
1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
(dollars in thousands) Balance Rate Balance Rate Balance Rate
- -------------------------------------------------------------------------------------------------------------
Federal funds purchased and securities sold
under agreements to repurchase $571,325 4.03 % $516,058 2.84 % $ 265,873 2.93 %
Commercial paper - - 225 2.67 26 3.85
Other short-term borrowings 5,504 4.85 11,555 3.13 3,414 2.72
- -------------------------------------------------------------------------------------------------------------
Total $576,829 4.04 % $527,838 2.85 % $ 269,313 2.93 %
=============================================================================================================
Asset/Liability Management
The objective of FCC's asset/liability management is
to provide an optimum level of net interest income in a
reasonably expected interest rate environment with an
acceptable level of risk, while balancing liquidity and
capital needs. FCC uses ongoing technical analysis of
opportunities and risks so that appropriate actions can
be taken by management to meet this objective. Actions
considered usually 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.
TABLE 10. INTEREST RATE SENSITIVITY
==========================================================================================================================
By Repricing Dates at December 31, 1994
- --------------------------------------------------------------------------------------------------------------------------
0-30 31-90 91-180 181-365 After Noninterest-
(dollars in millions) Days Days Days Days 1 Year Bearing Total
- --------------------------------------------------------------------------------------------------------------------------
ASSETS
Securities $ 111 $ 25 $ 247 $ 286 $1,798 $ - $2,467
Loans and leases, net of unearned income 1,082 117 135 205 1,698 - 3,237
Money market investments 47 - - - - - 47
Other assets - - - - - 808 808
- --------------------------------------------------------------------------------------------------------------------------
Total assets $1,240 $ 142 $ 382 $ 491 $3,496 $ 808 $6,559
- --------------------------------------------------------------------------------------------------------------------------
SOURCES OF FUNDS
Money market deposits $ 979 $ - $ - $ 540 $ 42 $ - $1,561
Consumer time deposits 385 175 242 253 1,048 - 2,103
Time deposits $100,000 and over 192 95 95 94 91 - 567
Short-term borrowings 471 - - - - - 471
Long-term debt - - - - 89 - 89
Noninterest-bearing deposits - - - - - 1,227 1,227
Other liabilities - - - - - 70 70
Stockholders' equity - - - - - 471 471
- --------------------------------------------------------------------------------------------------------------------------
Total sources of funds $2,027 $ 270 $ 337 $ 887 $1,270 $ 1,768 $6,559
- --------------------------------------------------------------------------------------------------------------------------
INTEREST RATE SWAPS $ 10 $ 300 $ 50 $ (10) $ (350) $ -
INTEREST RATE SENSITIVITY GAP $ (777) $ 172 $ 95 $ (406) $1,876 $ (960)
CUMULATIVE INTEREST RATE SENSITIVITY GAP $ (777) $ (605) $(510) $ (916) $ 960 $ -
CUMULATIVE INTEREST RATE SENSITIVITY GAP
AS A PERCENT OF TOTAL ASSETS (11.8)% (9.2)% (7.8)% (14.0)% 14.6 %
==========================================================================================================================
Interest Rate Risk
Interest rate risk is created by changes in the
interest rate environment and the impact those changes
have on the maturities and repricing of assets and
liabilities. FCC relies on three methods to measure
interest rate risk. The most important method is the
simulation model, which determines the impact on net
interest income of assumed changes in interest rates and
the mix and volume of earning assets and interest-bearing
liabilities. The simulation model is also used to
measure the effect of rate shocks, which are sudden
movements of interest rates. If the result of these
simulations identify potentially adverse performance
situations, FCC's management may alter the balance sheet
or enter into off-balance sheet financial instruments to
minimize the impact. The second method measures the fair
value of assets and liabilities. The third method
measures the interest rate sensitivity gap using a static
balance sheet. This method has several limitations since
conditions change on a daily basis and assumptions on
repricing of deposits without stated maturities may not
reflect future behavior of customers. Table 10
demonstrates FCC's static gap position as of December 31,
1994.
FCC took several steps to manage interest rate risk
during the rising rate environment of 1994. Securities
were sold and the proceeds were reinvested in higher-
yielding securities in order to improve the income
stream. Additionally, deposit rates were increased
selectively in order to lengthen maturities, thereby
reducing liability sensitivity. At year-end, short-term
borrowings were reduced, which also reduced liability
sensitivity.
Off-Balance Sheet Instruments
FCC uses off-balance sheet instruments to manage
various risks and generate fee income. Loan commitments,
letters of credit, foreign exchange contracts and
interest rate contracts are not carried on the balance
sheet. However, income and expenses related to these
instruments are reflected in the financial statements.
Note 18 provides additional information for off-balance
sheet instruments.
TABLE 11. INTEREST RATE SWAPS
======================================================================================================================
Weighted Average Rate
Weighted ______________________
Average Receive Pay Floating
Notional Maturity Fixed Floating Rate Reset Liability
(dollars in thousands) Amount (years) Rate Rate Index Frequency Hedged
- ----------------------------------------------------------------------------------------------------------------------
Generic Swaps $110,000 1.6 6.13 % 5.70 % LIBOR Quarterly Certificates of Deposit
Callable Swaps 50,000 1.9 4.84 6.31 LIBOR Semi-annually Certificates of Deposit
Amortizing interest
rate swaps 200,000 1.9 4.35 5.73 LIBOR Quarterly Certificates of Deposit
- ----------------------------------------------------------------------------------------------------------------------
Total Swaps at
December 31, 1994 $360,000 1.8 4.96 % 5.80 %
======================================================================================================================
FCC enters into interest rate contracts with the
objective of partially insulating net interest income
from changes in interest rates. FCC does not use
interest rate contracts for speculative purposes.
FCC's interest rate swaps' total notional amount was
$360 million as of December 31, 1994, as shown in Table
11. The swap contracts were purchased to hedge the cost
of certificates of deposit when interest rates were
declining. The contracts converted deposits which were
fixed rate into floating rate. However, as rates began
to rise in 1994, these swaps began to increase FCC's
deposit costs and are expected to continue to do so until
these contracts mature. If rates had declined, the
amortizing interest rate swaps notional amount would have
begun to amortize, shortening the maturity of the
contract.
At December 31, 1994, FCC had $350 million of caps
which mature between August and November of 1996. These
caps hedge against future increases in the cost of short-
term borrowings. The weighted average strike price is
currently 6.27%, which graduates over the life of the
contract; the index is LIBOR, which resets quarterly. An
additional $100 million contract is a cap corridor, with
a maturity of July 1995. The contract's index is LIBOR
with a quarterly reset, and the cost of money market
deposits is hedged. These contracts are expected to
reduce the effects of rising rates on the cost of
interest-bearing liabilities. Deferred gains related to
terminated interest rate contracts were $16,000 and
$10,000 at December 31, 1994 and 1993, respectively.
Liquidity
Liquidity is provided by a stable base of funding
sources, especially core deposits, and an adequate level
of assets readily convertible into cash. These sources
of liquidity are needed to meet cash requirements for
deposit withdrawals and the funding of loans.
FCC's core deposits, money market investments, short
term borrowings and securities available for sale
provided a more than adequate level of liquidity in 1994.
Other potential sources of liquidity are commercial paper
issued by the Parent Company and lines of credit
maintained with major banks. No commercial paper was
issued in 1994, and the lines of credit totaled $30.0
million as of December 31, 1994.
TABLE 12. ANALYSIS OF DERIVATIVE PRODUCT INTEREST INCOME (EXPENSE)
=======================================================================================
Option Interest Amortizing
Year Ended December 31,1994 Based Rate Interest/
(in thousands) Instruments Swaps Callable Swaps Total
- ---------------------------------------------------------------------------------------
Interest income $ 639 $ 285 $ 102 $ 1,026
Premium amortization (306) - - (306)
- ---------------------------------------------------------------------------------------
Interest income $ 333 $ 285 $ 102 $ 720
=======================================================================================
Capital and Dividends
As of December 31, 1994, total stockholders' equity
was 7.18% of total assets, compared to 7.65% one year
ago. FCC adopted SFAS No. 115 effective January 1, 1994,
which requires a reduction of stockholders' equity for
the unrealized loss on securities available for sale, net
of the tax effect. The unrealized loss was $71.8 million
as of December 31, 1994. Excluding the SFAS No. 115
adjustment, stockholders' equity was 8.19% of total
assets as of December 31, 1994.
Stockholders' Equity
as a percentage of year - end assets
The graph inserted shows stockholders' equity as a percentage
of year - end assets from 1990 to 1994. The plot points
are:
Graph Denom-
Type nations 1990 1991 1992 1993 1994
- --------------------------------------------------------
BAR % 5.03 5.01 6.79 7.65 7.18
Leverage Ratio
as a % of year-end assets
The graph inserted shows stockholders' equity plus minority
interest plus qualifying long-term debt less intangible
assets divided by the latest quarter's average total assets
less intangible assets from 1990 to 1994. The plot points
are:
Graph Denom-
Type nations 1990 1991 1992 1993 1994
- --------------------------------------------------------
BAR % 4.66 4.87 6.76 7.63 8.04
Regulatory ratios, including leverage, tier 1 and
tier 2, are calculated excluding the effect of the SFAS
No. 115 adjustment. The regulatory leverage ratio was
8.04% as of December 31, 1994, and 7.63% at December 31,
1993. Table 13 presents FCC's risk-based and other
capital ratios for the past five years. All ratios
remain well above regulatory minimums. Under present
regulations, all five of FCC's banks are classified as
"well-capitalized".
FCC increased its common stock cash dividend 20%
during 1994 and paid $1.10 per share for the full year.
The Parent Company's sources of funds to pay cash
dividends on its common and preferred stock are its net
working capital and the dividends it receives from the
banks. As of December 31, 1994, the Parent Company had
$104.9 million of net working capital. Additionally, the
Parent Company could receive dividends from the banks
without prior regulatory approval of $57.3 million after
December 31, 1994, plus the banks' adjusted net profits
for 1995.
On December 19, 1994 FCC announced its intention to
repurchase up to two million shares of its common stock
for the purpose of funding up to two of three pending
acquisitions. As of December 31, 1994, no shares had
been repurchased.
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 the 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.
TABLE 13. RISK-BASED CAPITAL AND CAPITAL RATIOS
===========================================================================================================================
December 31
- ---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993 1992 1991 1990
- ---------------------------------------------------------------------------------------------------------------------------
Tier 1 capital $ 527,686 $ 493,529 $ 397,700 $ 236,898 $ 208,188
Tier 2 capital 127,893 121,921 122,823 125,218 127,527
- ---------------------------------------------------------------------------------------------------------------------------
Total capital $ 655,579 $ 615,450 $ 520,523 $ 362,116 $ 335,715
===========================================================================================================================
Risk-weighted assets $3,551,665 $ 3,005,545 $ 2,588,546 $ 2,605,998 $ 2,745,070
===========================================================================================================================
Ratios at end of year
Tier 1 capital 14.86 % 16.42 % 15.36 % 9.09 % 7.58 %
Total capital 18.46 % 20.48 % 20.11 % 13.90 % 12.23 %
Equity ratio 7.18 % 7.65 % 6.79 % 5.01 % 5.03 %
Tangible equity ratio 6.97 % 7.43 % 6.51 % 4.67 % 4.60 %
Leverage ratio 8.04 % 7.63 % 6.76 % 4.87 % 4.66 %
===========================================================================================================================
Nonperforming Assets
Nonaccrual loans, restructured loans and foreclosed
assets are included in nonperforming assets.
Nonperforming assets declined $15.0 million, or 46%,
during the year, to $17.7 million at December 31, 1994.
As a percent of loans and foreclosed assets,
nonperforming assets were .55% at year-end, compared to
1.22% one year ago. As shown in Table 14, positive
trends in nonperforming assets began in 1992 and
continued through 1994. Table 15 reconciles the changes
in nonperforming assets during 1994. All categories of
nonperforming loans decreased in 1994. 62% of
nonperforming loans were contractually current or no more
than 30 days past due at the end of 1994. During the
year, FCC recovered interest on nonaccrual loans of $2.7
million, which was recorded as interest income.
Foreclosed assets, net of the allowance, were $4.3
million as of December 31, 1994, a decline of $3.0
million from a year ago. The allowance for foreclosed
assets was $3.6 million at year-end, a decline of $1.9
million from 1993. Sales of property caused the
decreases in both foreclosed assets and the allowance for
foreclosed assets during the year.
Loans and leases past due 90 days or more and not on
nonaccrual status were $10.3 million at December 31,
1994, or .32% of total loans. Included in this category
were $5.6 million in government-guaranteed student loans
and $4.4 million of credit card loans, which are charged-
off within 180 days of becoming past due.
Nonperforming Assets (millions)
This graph inserted shows nonperforming assets from 1990
to 1994. The plot points are:
Graph Denom-
Type nations 1990 1991 1992 1993 1994
- --------------------------------------------------------
BAR MILLIONS 102.509 90.432 63.848 32.709 17.684
TABLE 14. NONPERFORMING ASSETS
=================================================================================================================================
December 31
- ---------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1994 1993 1992 1991 1990
- ---------------------------------------------------------------------------------------------------------------------------------
Nonaccrual loans by type
Loans to individuals-residential mortgages $ 4,207 $ 4,998 $ 8,826 $ 9,574 $ 8,972
Loans to individuals-other 602 866 1,027 1,604 1,671
Commercial, financial and agricultural 879 3,761 8,305 14,634 16,198
Real estate-commercial mortgages 7,555 15,613 23,757 26,587 32,259
Real estate-other 156 223 585 2,992 8,314
Other - - 608 1,163 427
Restructured loans - - - 637 893
- ---------------------------------------------------------------------------------------------------------------------------------
13,399 25,461 43,108 57,191 68,734
- ---------------------------------------------------------------------------------------------------------------------------------
Foreclosed assets
Other real estate 7,847 12,667 29,258 37,129 36,464
Other foreclosed assets 86 96 93 367 122
Allowance for losses on foreclosed assets (3,648) (5,515) (8,611) (4,255) (2,811)
- ---------------------------------------------------------------------------------------------------------------------------------
4,285 7,248 20,740 33,241 33,775
- ---------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $17,684 $ 32,709 $63,848 $ 90,432 $102,509
=================================================================================================================================
Loans past due 90 days or more and not on nonaccrual status $10,304 $ 12,523 $13,499 $ 10,182 $ 8,716
=================================================================================================================================
End of year ratios
Nonperforming assets as a percent of loans and leases <FN1>
plus foreclosed assets 0.55 % 1.22 % 2.82 % 3.91 % 4.26 %
Allowance for loan losses as a percent of nonperforming loans 400.45 % 268.26 % 178.56 % 123.83 % 84.10 %
Loans and leases past due 90 days or more and not on nonaccrual
status as a percent of loans and leases <FN1> 0.32 % 0.47 % 0.60 % 0.45 % 0.37 %
=================================================================================================================================
<FN1> Net of unearned income.
TABLE 15. CHANGES IN NONPERFORMING ASSETS
=======================================================================================
(in thousands) 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------
Balance at beginning of year $ 32,709 $ 66,574 $ 90,432 $ 102,509
Additions 11,485 18,175 32,916 75,121
Payments and sales (23,276) (40,314) (38,988) (52,942)
Writedowns, charge-offs and
foreclosed assets provisions (1,376) (4,628) (13,345) (27,977)
Loans returned to accrual status (1,858) (7,098) (7,167) (6,279)
- ---------------------------------------------------------------------------------------
Net change (15,025) (33,865) (26,584) (12,077)
- ---------------------------------------------------------------------------------------
Balance at end of year $ 17,684 $ 32,709 $ 63,848 $ 90,432
=======================================================================================
Accounting Change
The Financial Accounting Standards Board (FASB)
issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan" in May, 1993. In October, 1994,
the FASB issued SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan-Income Recognition and
Disclosures" which amends SFAS No. 114. These standards
require the measurement of certain impaired loans based
on the present value of expected future cash flows
discounted at the loan's effective interest rates.
Adoption of SFAS Nos. 114 and 118 is required for fiscal
years beginning after December 15, 1994. FCC will adopt
these statements beginning January 1, 1995; adoption
will not have a material impact on FCC's consolidated
financial statements.
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 repay 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 (OAEM). These loans
require monitoring due to conditions which, if not
corrected, could increase credit risk. Total watch list
loans and foreclosed assets declined 32% during the year
to $107.5 million at December 31, 1994.
TABLE 16. SUMMARY OF LOAN AND LEASE LOSS EXPERIENCE
=================================================================================================================================
(dollars in thousands) 1994 1993 1992 1991 1990
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of year $ 68,302 $ 79,919 $ 70,817 $ 57,807 $ 44,412
Allowance of purchased loans - - - - (63)
Provision charged to expense (11,568) (4,504) 22,040 43,734 47,425
Loans and leases charged to the allowance
Loans to individuals-residential mortgages 227 743 1,816 4,344 3,304
Loans to individuals-other 2,519 2,267 3,371 5,381 4,921
Commercial, financial and agricultural 765 3,027 4,829 11,310 12,865
Real estate-commercial mortgages 165 510 2,412 4,826 8,010
Real estate-other 7 115 137 400 231
Credit card loans 9,388 9,545 11,514 12,322 10,444
Other - 26 21 444 168
- ---------------------------------------------------------------------------------------------------------------------------------
Total charge-offs 13,071 16,233 24,100 39,027 39,943
- ---------------------------------------------------------------------------------------------------------------------------------
Recoveries on loans and leases previously charged to the allowance
Loans to individuals-residential mortgages 1,052 1,024 1,011 662 119
Loans to individuals-other 1,347 1,528 1,543 1,620 1,221
Commercial, financial and agricultural 3,703 2,860 2,635 3,903 1,865
Real estate-commercial mortgages 745 881 1,005 553 1,552
Real estate-other 553 288 99 227 96
Credit card loans 2,571 2,144 1,748 1,305 1,105
Other 22 395 175 33 18
- ---------------------------------------------------------------------------------------------------------------------------------
Total recoveries 9,993 9,120 8,216 8,303 5,976
- ---------------------------------------------------------------------------------------------------------------------------------
Net charge-offs 3,078 7,113 15,884 30,724 33,967
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 53,656 $ 68,302 $ 76,973 $ 70,817 $ 57,807
=================================================================================================================================
Gross charge-offs as a percent of average loans and leases <FN1> 0.46 % .67 % 1.10 % 1.68 % 1.66 %
Recoveries as a percent of gross charge-offs 76.45 % 56.18 % 34.09 % 21.28 % 14.96 %
Net charge-offs as a percent of average loans and leases <FN1> 0.11 % .30 % 0.73 % 1.32 % 1.41 %
Allowance for loan losses as a percent of loans and leases <FN1>
at end of year 1.66 % 2.55 % 3.44 % 3.11 % 2.44 %
=================================================================================================================================
<FN1> Net of unearned income.
Allowance for Loan Losses
The allowance for loan losses was $53.7 million as
of December 31, 1994, a $14.6 million decline since
December 31, 1993. This decline reflects 1994's negative
provision for loan losses. As a percent of loans and
leases, the allowance was 1.66% at the end of 1994,
compared to 2.55% at December 31, 1993. Management
believes that the allowance is adequate to cover possible
losses in the loan portfolio. Table 16 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 17.
Net charge-offs as a percent of average loans were
.11% in 1994, compared to .30% in the prior year. The
decrease in net charge-offs from 1993 primarily reflects
net recoveries on commercial loans. Net charge-offs on
credit card loans remained stable at slightly less than
2% of average credit card loans.
Allowance for Loan Losses
as a % of year - end net loans and leases
The graph inserted shows the allowance for loan losses
as a percentage of year end net loans and leases from 1990
to 1994. The plot points are:
Graph Denom-
Type nations 1990 1991 1992 1993 1994
- --------------------------------------------------------
BAR % 2.44 3.11 3.44 2.55 1.66
Net Charge - offs (millions)
This graph inserted shows net charge - offs from 1990 to
1994. The plot points are:
Graph Denom-
Type nations 1990 1991 1992 1993 1994
- --------------------------------------------------------
BAR MILLIONS 33.967 30.724 15.884 7.113 3.078
TABLE 17. ALLOWANCE FOR LOAN LOSSES
==================================================================================================================================
December 31
- ----------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------------
Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans
- ----------------------------------------------------------------------------------------------------------------------------------
Loans to individuals 29.32 % 44.96 % 22.92 % 44.10 % 18.03 % 36.22 % 27.36 % 34.09 % 17.15 % 33.53 %
Commercial, financial
and agricultural 19.32 21.89 18.50 17.97 24.71 20.99 15.34 24.63 24.20 26.38
Real estate 13.12 17.35 24.46 19.40 25.10 21.25 25.45 18.81 37.74 19.45
Credit card 19.10 13.15 18.57 14.29 16.27 17.09 14.35 17.55 12.21 16.40
Other 0.61 2.65 2.41 4.24 5.57 4.45 4.28 4.92 1.70 4.24
Unallocated 18.53 0.00 13.14 0.00 10.32 0.00 13.22 0.00 7.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------------
Total 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 %
==================================================================================================================================
Fair Value of Financial Instruments
SFAS No. 107, "Disclosures About Fair Value of
Financial Instruments", as amended by SFAS No. 119,
"Disclosure About Derivative Financial Instruments and
Fair Value of Financial Instruments," requires disclosure
of fair value information about certain financial
instruments, whether or not recognized in the balance
sheet, when it is practicable to estimate that value.
These disclosures as of December 31, 1994 and December
31, 1993 are contained in Note 19.
Fair values were determined based on market quotes
where available or were calculated using discounted cash
flows. The differences between fair values and book
values were primarily caused by differences between
contractual and market interest rates at the respective
year-ends. Fluctuations in fair values will occur as
interest rates change. Rising interest rates will
generally result in declines in the fair value of fixed
rate loans and securities; alternatively, rising
interest rates increase the value of fixed rate deposits
with stated maturities. FCC's management of changes in
interest rates and fair values is discussed in the
Asset/Liability Management and Portfolio Management
sections of this Financial Review.
Fourth Quarter Results
FCC's net income for the fourth quarter of 1994 was
$9.1 million, compared to $22.8 million in 1993's fourth
quarter. 1994's lower level of earnings primarily
reflected $11.3 million in after tax losses on securities
transactions. Operating income was $20.4 million in the
fourth quarter, compared to $23.4 million in 1993's
fourth quarter.
Net interest income was $67.0 million for the fourth
quarter of 1994, 8% higher than the fourth quarter of
1993. FCC's net interest margin was 4.52%, a 28 basis
point increase from last year. The net interest spread
was 3.76% in the current quarter, an increase of 12 basis
points from 1993's fourth quarter. These improvements
were primarily the result of a 20% increase in average
loans and higher yields on loans and securities,
partially offset by the repricing of interest-bearing
liabilities in a rising rate environment. Loans were 51%
of earning assets in the fourth quarter of 1994, compared
to 43% in the same period of last year. Improving
loan quality resulted in a negative provision for loan
losses. The provision for loan losses was a negative
$354,000, compared to a negative $600,000 in 1993's
fourth quarter.
Other income, excluding securities transactions,
was $28.8 million for the fourth quarter, 10% higher than
1993's fourth quarter. Increases in credit card fees and
ATM fee income were the primary causes of this increase.
Operating expense was $65.9 million for the fourth
quarter of 1994, 11% higher than the same period of last
year. Higher personnel and equipment expenses were the
most significant factors in the increase. Increased
personnel expense reflected a $2.3 million charge for
severance expense, plus 1994 merit increases and a 2%
increase in the average number of employees. The rise in
equipment expense was due to increased depreciation
primarily related to customer service initiatives.
Additionally, income tax expense rose in 1994 due to
a $3.5 million one-time favorable adjustment to income
tax expense in 1993's fourth quarter related to the
settlement of a tax issue with the IRS.
Selected Quarterly Data compares certain quarterly
financial information for 1994 and 1993.
SELECTED FINANCIAL DATA (dollars in thousands except per share data)
Years Ended December 31
============================================================================================================================
1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEET DATA
Total assets $6,453,841 $ 6,335,669 $ 5,741,399 $ 4,671,478 $ 4,482,019
Earning assets 5,924,892 5,812,761 5,280,347 4,257,388 4,035,104
Loans and leases <FN1> 2,823,061 2,407,231 2,184,584 2,323,018 2,402,541
Securities 3,038,747 3,110,544 2,734,925 1,515,299 1,290,487
Deposits 5,220,425 5,176,873 4,953,572 3,931,612 3,552,578
Long-term debt 89,266 95,238 97,154 101,246 103,033
Stockholders' equity 500,240 469,694 355,716 235,385 239,011
- ----------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
Total interest income $ 408,004 $ 393,334 $ 398,701 $ 393,922 $ 408,996
Net interest income 256,261 250,010 235,353 191,862 168,021
Net interest income (FTE) 261,913 256,049 241,873 199,574 176,447
Provision for loan losses (11,568) (4,504) 22,040 43,734 47,425
Other income (exclusive of securities transactions) 110,434 102,844 96,369 83,419 73,213
Securities transactions (43,549) (423) 258 259 55
Operating expense 241,362 221,080 203,781 185,963 165,325
Operating income 91,990 95,489 72,304 33,858 22,002
Net income 63,684 95,214 72,475 34,029 22,038
- ----------------------------------------------------------------------------------------------------------------------------
KEY RATIOS
Return on average assets 0.99 % 1.50 % 1.26 % 0.73 % 0.49 %
Return on average total equity 12.73 % 20.27 % 20.37 % 14.46 % 9.22 %
Return on average common equity 13.48 % 22.18 % 22.85 % 14.46 % 9.11 %
Net interest margin 4.42 % 4.40 % 4.58 % 4.69 % 4.37 %
Efficiency ratio 64.82 % 61.60 % 60.25 % 65.71 % 66.22 %
Overhead ratio 2.21 % 2.03 % 2.03 % 2.41 % 2.28 %
Allowance for loan losses to loans and leases <FN1> 1.66 % 2.55 % 3.44 % 3.11 % 2.44 %
Nonperforming assets to loans and leases <FN1>
plus foreclosed assets 0.55 % 1.22 % 2.82 % 3.91 % 4.26 %
Allowance for loan losses to nonperforming loans 400.45 % 268.26 % 178.56 % 123.83 % 84.10 %
Equity ratio 7.18 % 7.65 % 6.79 % 5.01 % 5.03 %
Leverage ratio 8.04 % 7.63 % 6.76 % 4.87 % 4.66 %
- ----------------------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA
EARNINGS PER SHARE
Net income-primary $ 2.25 $ 3.48 $ 2.88 $ 1.56 $ 0.94
Operating income-primary $ 3.33 $ 3.50 $ 2.87 $ 1.55 $ 0.94
Net income-fully diluted $ 2.19 $ 3.18 $ 2.70 $ 1.56 $ 0.94
Operating income-fully diluted $ 3.07 $ 3.20 $ 2.69 $ 1.55 $ 0.94
COMMON DIVIDENDS
Cash dividends $ 1.10 $ 0.85 $ 0.70 $ 0.64 $ 0.64
Dividend payout ratio 48.89 % 24.27 % 25.78 % 41.03 % 68.09 %
BOOK VALUES (end of period)
Book value $ 15.71 $ 17.28 $ 14.57 $ 11.38 $ 10.45
Tangible book value $ 15.13 $ 16.66 $ 13.83 $ 10.57 $ 9.50
COMMON STOCK DATA
High stock price $ 30.00 $ 32.20 $ 27.86 $ 18.14 $ 12.54
Low stock price $ 21.75 $ 23.90 $ 16.94 $ 7.20 $ 6.66
Closing stock price $ 22.00 $ 25.13 $ 25.60 $ 17.20 $ 7.46
Trading volume 30,234,732 19,562,420 26,741,915 10,667,309 5,968,360
Number of stockholders (end of period) 7,603 7,604 6,714 6,970 7,216
AVERAGE COMMON SHARES OUTSTANDING (in thousands)
Primary 26,317 26,132 23,729 21,809 21,539
Fully diluted 29,112 32,125 29,568 21,809 21,539
NUMBER OF EMPLOYEES (end of period) 3,407 3,400 3,026 2,695 2,551
============================================================================================================================
<FN1>Net of unearned income.
SELECTED FINANCIAL DATA (dollars in thousands except per share data)
Years Ended December 31
==================================================================================================================
1989 1988 1987 1986
- ------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEET DATA
Total assets $ 4,202,912 $ 3,857,968 $ 3,511,491 $ 3,583,941
Earning assets 3,719,972 3,418,204 3,098,456 3,149,532
Loans and leases <FN1> 2,232,213 2,005,940 1,802,858 1,829,660
Securities 1,061,206 1,008,022 849,335 834,454
Deposits 3,343,223 3,052,002 2,722,593 2,752,672
Long-term debt 104,863 105,498 102,402 106,567
Stockholders' equity 231,097 220,254 215,459 222,656
- ------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
Total interest income $ 392,769 $ 331,866 $ 286,020 $ 304,037
Net interest income 156,005 142,550 130,188 126,277
Net interest income (FTE) 164,495 151,294 142,090 144,100
Provision for loan losses 26,220 24,651 22,674 38,365
Other income (exclusive of securities transactions) 64,215 59,765 52,839 49,654
Securities transactions -866 -857 1,386 609
Operating expense 155,397 145,506 137,388 145,347
Operating income 28,768 24,622 18,900 3,760
Net income 28,197 24,056 19,732 4,089
- ------------------------------------------------------------------------------------------------------------------
KEY RATIOS
Return on average assets 0.67 % 0.62 % 0.56 % 0.11%
Return on average total equity 12.20 % 10.92 % 9.16 % 1.84%
Return on average common equity 12.37 % 10.94 % 8.94 % 0.57%
Net interest margin 4.42 % 4.43 % 4.59 % 4.58%
Efficiency ratio 67.94 % 68.94 % 70.48 % 75.02%
Overhead ratio 2.45 % 2.51 % 2.73 % 3.04%
Allowance for loan losses to loans and leases <FN1> 1.91 % 2.07 % 2.12 % 2.10%
Nonperforming assets to loans and leases <FN1>
plus foreclosed assets 2.76 % 3.50 % 4.06 % 4.83%
Allowance for loan losses to nonperforming loans 142.45 % 80.98 % 63.23 % 48.27%
Equity ratio 5.15 % 5.35 % 5.73 % 5.84%
Leverage ratio 5.06 % 5.11 % 5.37 % 5.25%
- ------------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA
EARNINGS PER SHARE
Net income-primary $ 1.20 $ 1.02 $ 0.81 $ 0.06
Operating income-primary $ 1.23 $ 1.05 $ 0.77 $ 0.03
Net income-fully diluted $ 1.20 $ 1.02 $ 0.81 $ 0.06
Operating income-fully diluted $ 1.23 $ 1.05 $ 0.77 $ 0.03
COMMON DIVIDENDS
Cash dividends $ 0.64 $ 0.64 $ 0.64 $ 0.64
Dividend payout ratio 53.33 % 62.75 % 79.01 % 1,280.00%
BOOK VALUES (end of period)
Book value $ 10.14 $ 9.54 $ 9.16 $ 9.02
Tangible book value $ 9.01 $ 8.41 $ 7.76 $ 7.34
COMMON STOCK DATA
High stock price $ 12.74 $ 10.54 $ 10.80 $ 13.60
Low stock price $ 9.27 $ 7.86 $ 7.40 $ 7.40
Closing stock price $ 12.40 $ 9.74 $ 8.00 $ 7.86
Trading volume 3,651,604 4,173,330 4,674,623 8,045,740
Number of stockholders (end of period) 7,267 7,281 7,508 7,214
AVERAGE COMMON SHARES OUTSTANDING (in thousands)
Primary 21,314 21,101 21,056 21,014
Fully diluted 21,314 21,101 21,056 21,014
NUMBER OF EMPLOYEES (end of period) 2,553 2,341 2,314 2,358
==================================================================================================================
<FN1> Net of unearned income.
SELECTED FINANCIAL DATA (dollars in thousands except per share data)
Compound
Growth Rates
===================================================================================== ------------------------
1985 1984 Five-Year Ten-Year
- -------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEET DATA
Total assets $ 2,887,281 $ 2,440,978 8.96 % 10.21 %
Earning assets 2,509,433 2,087,143 9.76 % 11.00 %
Loans and leases <FN1> 1,449,411 1,058,611 4.81 % 10.31 %
Securities 674,358 606,137 23.42 % 17.49 %
Deposits 2,178,832 1,783,166 9.32 % 11.34 %
Long-term debt 58,741 22,199 (3.17)% 14.93 %
Stockholders' equity 204,919 180,603 16.70 % 10.72 %
- --------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
Total interest income $ 273,863 $ 251,344 0.76 % 4.96 %
Net interest income 112,647 97,792 10.44 % 10.11 %
Net interest income (FTE) 131,080 115,694 9.75 % 8.51 %
Provision for loan losses 16,699 9,244 N/A N/A
Other income (exclusive of securities transactions) 40,917 33,619 11.45 % 12.63 %
Securities transactions 1,287 -4,032 N/A N/A
Operating expense 115,383 90,000 9.21 % 10.37 %
Operating income 22,177 28,391 26.17 % 12.47 %
Net income 22,872 26,214 17.70 % 9.28 %
- --------------------------------------------------------------------------------------------------------------------
KEY RATIOS
Return on average assets 0.78 % 1.06 %
Return on average total equity 11.16 % 14.27 %
Return on average common equity 11.07 % 14.27 %
Net interest margin 5.22 % 5.54 %
Efficiency ratio 67.08 % 60.28 %
Overhead ratio 2.97 % 2.70 %
Allowance for loan losses to loans and leases <FN1> 1.99 % 1.66 %
Nonperforming assets to loans and leases <FN1>
plus foreclosed assets 3.87 % 1.36 %
Allowance for loan losses to nonperforming loans 127.85 % 55.66 %
Equity ratio 5.94 % 7.47 %
Leverage ratio 6.22 % 7.95 %
- ---------------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA
EARNINGS PER SHARE
Net income-primary $ 1.03 $ 1.26 13.40 % 5.97 %
Operating income-primary $ 0.99 $ 1.37 22.04 % 9.29 %
Net income-fully diluted $ 1.03 $ 1.24 12.79 % 5.85 %
Operating income-fully diluted $ 0.99 $ 1.34 20.07 % 8.64 %
COMMON DIVIDENDS
Cash dividends $ 0.64 $ 0.58 11.44 % 6.61 %
Dividend payout ratio 62.14 % 46.45 %
BOOK VALUES (end of period)
Book value $ 9.63 $ 9.26
Tangible book value $ 8.99 $ 9.26
COMMON STOCK DATA
High stock price $ 15.60 $ 14.26
Low stock price $ 11.06 $ 10.87
Closing stock price $ 11.74 $ 12.26
Trading volume 4,676,329 2,413,604
Number of stockholders (end of period) 7,443 7,626
AVERAGE COMMON SHARES OUTSTANDING (in thousands)
Primary 20,991 20,704
Fully diluted 20,991 21,075
NUMBER OF EMPLOYEES (end of period) 2,692 1,867
====================================================================================================================
<FN1> Net of unearned income.
SELECTED QUARTERLY DATA (dollars in thousands except per share data)
1994 Quarters
==============================================================================================
4th 3rd 2nd 1st
- ----------------------------------------------------------------------------------------------
Net interest income $ 67,009 $ 64,516 $ 61,990 $ 62,746
Provision for loan losses (354) (2,550) (4,832) (3,832)
Other income 11,433 6,403 20,548 28,501
Operating expense 65,865 60,014 59,011 56,472
Income tax expense 3,881 4,032 9,280 12,475
- ----------------------------------------------------------------------------------------------
Net income 9,050 9,423 19,079 26,132
Perferred dividend requirements 1,087 1,086 1,087 1,087
- ----------------------------------------------------------------------------------------------
Income applicable to common
shares $ 7,963 $ 8,337 $ 17,992 $ 25,045
==============================================================================================
Per common share data
Primary $ 0.30 $ 0.32 $ 0.68 $ 0.95
Fully diluted $ 0.30 $ 0.32 $ 0.65 $ 0.86
Dividends $ 0.30 $ 0.30 $ 0.25 $ 0.25
Common stock data <FN1>
High stock price $ 26.76 $ 28.75 $ 30.00 $ 28.50
Low stock price $ 21.75 $ 25.75 $ 23.50 $ 24.00
Closing stock price $ 22.00 $ 26.75 $ 28.25 $ 24.00
Trading volume 5,723,897 4,857,105 7,313,633 12,340,097
==============================================================================================
1993 Quarters
==============================================================================================
4th 3rd 2nd 1st
- ----------------------------------------------------------------------------------------------
Net interest income $ 61,882 $ 62,102 $ 62,934 $ 63,092
Provision for loan losses (600) (2,233) (2,259) 588
Other income 25,245 25,316 27,070 24,790
Operating expense 59,370 54,589 54,585 52,536
Income tax expense 5,528 11,192 12,290 11,631
- ----------------------------------------------------------------------------------------------
Net income 22,829 23,870 25,388 23,127
Preferred dividend requirements 1,087 1,087 1,087 1,087
- ----------------------------------------------------------------------------------------------
Income applicable to common
shares $ 21,742 $ 22,783 $ 24,301 $ 22,040
==============================================================================================
Per common share data
Primary $ 0.83 $ 0.87 $ 0.93 $ 0.85
Fully diluted $ 0.76 $ 0.80 $ 0.84 $ 0.78
Dividends $ 0.25 $ 0.20 $ 0.20 $ 0.20
Common stock data <FN1>
High stock price $ 31.80 $ 31.80 $ 32.20 $ 31.00
Low stock price $ 23.90 $ 28.40 $ 25.40 $ 25.33
Closing stock price $ 25.13 $ 30.00 $ 29.60 $ 30.00
Trading volume 8,516,265 2,935,716 4,424,135 3,686,304
==============================================================================================
<FN1> Common and preferred stocks are traded in the over-the-counter market and are listed on the NASDAQ Stock
Market. All closing stock prices represent closing sales prices as reported on the NASDAQ Stock Market.
CONSOLIDATED BALANCE SHEETS (dollars in thousands)
December 31
====================================================================================================================
1994 1993
- --------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 397,376 $ 387,548
Interest-bearing deposits in other banks 138 55,422
Securities:
Held to maturity (market value $8,801 and $1,547,086, respectively) 8,800 1,523,638
Available for sale, at market 2,458,443 -
Held for sale, at lower of aggregate amortized cost or market - 1,779,927
Trading account securities 8,970 482
Federal funds sold and securities purchased under resale agreements 38,200 28,600
Loans and leases, net of unearned income of $5,057 and $11,822, respectively 3,236,653 2,674,697
Allowance for loan losses (53,656) (68,302)
- --------------------------------------------------------------------------------------------------------------------
Net loans and leases 3,182,997 2,606,395
====================================================================================================================
Premises and equipment 117,441 102,230
Accrued interest receivable 61,415 55,197
Other real estate 4,224 7,177
Goodwill and other intangibles 15,118 16,143
Other assets 265,568 97,526
- --------------------------------------------------------------------------------------------------------------------
Total assets $6,558,690 $ 6,660,285
====================================================================================================================
LIABILITIES
Noninterest-bearing deposits $1,226,752 $ 1,196,259
Interest-bearing deposits 4,231,318 4,113,600
- --------------------------------------------------------------------------------------------------------------------
Total deposits 5,458,070 5,309,859
====================================================================================================================
Short-term borrowings 470,483 678,316
Accrued interest payable 22,527 16,844
Accounts payable and other accrued liabilities 47,608 55,890
Long-term debt 88,956 89,704
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 6,087,644 6,150,613
====================================================================================================================
STOCKHOLDERS' EQUITY
Preferred stock, 5,000,000 shares authorized
Series 1992, 7.25% cumulative convertible, $25 stated value
Issued--2,398,170 and 2,399,170 shares, respectively 59,954 59,979
Common stock, $5 par value
Authorized--100,000,000 shares
Issued--26,192,514 and 26,062,067 shares, respectively 130,963 130,311
Capital surplus 137,671 135,911
Retained earnings 214,808 184,288
Unearned restricted stock compensation (592) (817)
Net unrealized (loss) on securities available for sale (71,758) -
- --------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 471,046 509,672
====================================================================================================================
Total liabilities and stockholders' equity $6,558,690 $ 6,660,285
====================================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Balance Sheets.
CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands except per share data)
Years Ended December 31
==================================================================================================
1994 1993 1992
- --------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans and leases $ 241,899 $ 214,670 $ 212,294
Interest on tax-exempt securities 7,298 9,067 10,066
Interest and dividends on taxable securities 156,175 159,533 159,776
Interest on money market investments 2,632 10,064 16,565
- --------------------------------------------------------------------------------------------------
Total interest income 408,004 393,334 398,701
==================================================================================================
INTEREST EXPENSE
Interest on deposits 117,272 116,549 143,598
Interest on short-term borrowings 23,283 15,047 7,897
Interest on long-term debt 11,188 11,728 11,853
- --------------------------------------------------------------------------------------------------
Total interest expense 151,743 143,324 163,348
==================================================================================================
NET INTEREST INCOME 256,261 250,010 235,353
PROVISION FOR LOAN LOSSES (11,568) (4,504) 22,040
- --------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 267,829 254,514 213,313
==================================================================================================
OTHER INCOME
Deposit fees and service charges 44,175 43,492 40,528
Credit card fee income 24,816 22,380 21,529
Trust fee income 13,738 11,371 9,439
Broker/dealer revenue 7,377 8,775 7,225
ATM fee income 5,374 2,046 1,295
Other operating revenue 14,954 14,780 16,353
Securities transactions (43,549) (423) 258
- --------------------------------------------------------------------------------------------------
Total other income 66,885 102,421 96,627
==================================================================================================
334,714 356,935 309,940
OPERATING EXPENSE
Salary expense 109,444 97,651 85,065
Employee benefits 22,572 21,736 17,046
- --------------------------------------------------------------------------------------------------
Total personnel expense 132,016 119,387 102,111
Net occupancy expense 16,717 15,673 14,775
Equipment expense 16,055 12,867 12,406
Professional fees 13,810 11,532 8,574
FDIC insurance expense 11,599 11,706 10,384
Other operating expense 51,165 49,915 55,531
- --------------------------------------------------------------------------------------------------
Total operating expense 241,362 221,080 203,781
==================================================================================================
INCOME BEFORE INCOME TAX EXPENSE AND MINORITY INTEREST 93,352 135,855 106,159
INCOME TAX EXPENSE 29,668 40,641 32,766
==================================================================================================
INCOME BEFORE MINORITY INTEREST 63,684 95,214 73,393
EARNINGS OF MINORITY INTEREST - - 918
==================================================================================================
NET INCOME 63,684 95,214 72,475
PREFERRED DIVIDEND REQUIREMENTS 4,347 4,348 4,076
==================================================================================================
INCOME APPLICABLE TO COMMON SHARES $ 59,337 $ 90,866 $ 68,399
==================================================================================================
EARNINGS PER COMMON SHARE
Primary $ 2.25 $ 3.48 $ 2.88
Fully diluted $ 2.19 $ 3.18 $ 2.70
WEIGHTED AVERAGE SHARES OUTSTANDING
Primary 26,317,242 26,132,211 23,728,540
Fully diluted 29,111,621 32,125,003 29,568,365
==================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (dollars in thousands except per share data)
Net
Unrealized
Unearned (Loss) on
Preferred Restricted Securities
Stock Common Capital Retained Stock Available
Series 1992 Stock Surplus Earnings Compensation for Sale Total
=====================================================================================================================
Balance at January 1, 1992 $ - $ 58,873 $ 79,995 $112,685 $ (1,146) - $ 250,407
Net income - - - 72,475 - - 72,475
Cash dividends
Series 1992 preferred stock
($1.6986 per share) - - - (4,076) - - (4,076)
Common stock ($.70 per share) - - - (16,251) - - (16,251)
Stock split effected in the form
of a 50% dividend - 32,568 - (32,610) - - (42)
Series 1992 preferred stock
issued in public offering
- 2,400,000 shares 60,000 - (2,403) - - - 57,597
Conversion of 360 shares of
preferred stock into 223
shares of common stock (9) 1 8 - - - -
Public offering of common
stock - 1,000 shares - 5,000 40,852 - - - 45,852
Common stock issuances to plans
- 62,429 shares - 312 2,261 - - - 2,573
Stock options exercised, net
of shares surrendered in payment
and tax benefit - 233,679 shares - 1,168 4,869 - - - 6,037
Restricted stock activity - (164) 776 - 540 - 1,152
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 59,991 97,758 126,358 132,223 (606) - 415,724
=====================================================================================================================
Pooling of interests with FANB - 6,124 3,400 8,092 - - 17,616
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1992
(Restated) 59,991 103,882 129,758 140,315 (606) - 433,340
Net income - - - 95,214 - - 95,214
Cash dividends
Series 1992 preferred stock
($1.8125 per share) - - - (4,348) - - (4,348)
Common stock ($.85 per share) - - - (20,985) - - (20,985)
FANB common stock - - - (1,064) - - (1,064)
Stock split effected in the form
of a 25% dividend - 24,780 - (24,844) - - (64)
Conversion of 470 shares of
preferred stock into 437
shares of common stock (12) 2 10 - - - -
Common stock issued in exchange
for FANB convertible debt
- 65,877 shares - 329 301 - - - 630
Common stock issuances to plans
- 145,485 shares - 727 4,312 - - - 5,039
Stock options exercised, net of
shares surrendered in payment
and tax benefit - 98,565 shares - 493 942 - - - 1,435
Restricted stock activity - 98 588 - (211) - 475
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 59,979 130,311 135,911 184,288 (817) - 509,672
=====================================================================================================================
Net income - - - 63,684 - - 63,684
Cash dividends:
Series 1992 preferred stock
($1.8125 per share) - - - (4,347) - - (4,347)
Common stock ($1.10 per share) - - - (28,782) - - (28,782)
Conversion of 1,000 shares of
preferred stock into 1,164
shares of common stock (25) 6 19 - - - -
Common stock issuances to plans
- 58,718 shares - 292 1,124 (35) - - 1,381
Stock options exercised, net of
shares surrendered in payment
and tax benefit - 64,537 shares - 323 558 - - - 881
Restricted stock activity - 31 59 - 225 - 315
Net unrealized (loss) on
securities available for sale - - - - - (71,758) (71,758)
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 $ 59,954 $ 130,963 $137,671 $214,808 $ (592) $(71,758) $ 471,046
=====================================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)
Years Ended December 31
=========================================================================================================================
1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 63,684 $ 95,214 $ 72,475
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses (11,568) (4,504) 22,040
Depreciation and amortization 14,508 11,145 9,963
Amortization of intangibles 2,195 2,829 2,445
Deferred income tax (benefit) expense 6,834 (8,626) (2,416)
Net (gain) loss from securities transactions 43,549 423 (258)
Net (gain) on loan sales (546)
(Increase) decrease in trading account securities (8,488) 1,894 (1,736)
(Increase) decrease in accrued interest receivable (6,218) 1,898 (9,672)
(Increase) in other assets (1,171) (22,914) (16,536)
Increase (decrease) in accrued interest payable 5,683 1,002 (6,611)
Increase (decrease) in accounts payable and other accrued liabilities (9,959) 15,775 3,435
Other, net 759 875 11,350
- -------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 99,262 95,011 84,479
=========================================================================================================================
INVESTING ACTIVITIES
Net (increase) decrease in interest-bearing deposits in other banks 55,284 328,264 (84,449)
Proceeds from sales and calls of securities held to maturity and held for sale 65 469,616 229,872
Proceeds from maturities of securities held to maturity and held for sale 759,664 1,029,403 1,048,500
Purchases of securities held to maturity and held for sale (22) (1,743,533) (2,410,087)
Proceeds from sales and calls of securities available for sale 1,652,634 - -
Proceeds from maturities of securities available for sale 237,612 - -
Purchases of securities available for sale (2,102,912) - -
Net (increase) decrease in federal funds sold and securities purchased
under resale agreements (9,600) (7,774) 74,674
Proceeds from sales of loans 97,315
Net (increase) decrease in loans (663,404) (352,158) 21,809
Purchase of minority interest - - (8,288)
Purchase of Wolcott Mortgage Group, Inc., net of cash acquired (1,194)
Proceeds provided (used) by acquisition of Pelican deposits
and selected marketable assets:
Purchases of assets, net of cash acquired - - (213,780)
Proceeds from sale of selected acquired assets - - 204,222
Assumption of deposits and other liabilities - - 1,416,415
Repayment of deposits in branches not reopened - - (275,434)
Purchases of premises and equipment (30,305) (19,278) (14,808)
Proceeds from sales of foreclosed assets 5,836 15,920 18,265
Other, net 530 1,818 564
- -------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 1,503 (277,722) 7,475
=========================================================================================================================
FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW accounts,
money market accounts and savings accounts (108,557) 108,767 225,661
Net increase (decrease) in time deposits 256,760 (75,784) (636,219)
Net increase (decrease) in short-term borrowings (208,761) 198,679 248,029
Payments on long-term debt (748) (5,970) (4,399)
Proceeds from common stock issued in public offering - - 45,852
Proceeds from sales of common stock 1,840 5,385 6,167
Proceeds from Series 1992 preferred stock sold in public offering - - 57,597
Cash dividends (31,471) (24,995) (17,872)
- -------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (90,937) 206,082 (75,184)
=========================================================================================================================
INCREASE IN CASH AND CASH EQUIVALENTS 9,828 23,371 16,770
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 387,548 364,177 338,721
=========================================================================================================================
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 397,376 $ 387,548 $ 355,491
=========================================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
Summary of Significant Accounting Policies
The accounting and reporting policies of First Commerce
Corporation (FCC) and its subsidiaries conform with generally accepted
accounting principles and with general practices within the financial
services industry. The principles and policies followed by FCC and its
subsidiaries and the methods of applying those principles and policies
which materially affect the determination of the consolidated financial
position, results of operations or cash flows are summarized below and in
the following notes.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of FCC
and all of its subsidiaries, of which the banking subsidiaries are
collectively "the Banks". All significant intercompany accounts and
transactions have been eliminated.
BASIS OF PRESENTATION
Certain prior years' amounts have been reclassified to conform
with current year financial statement presentation.
SECURITIES
Effective January 1, 1994, FCC adopted Statement of Financial
Accounting Standards No. 115 (SFAS No. 115) "Accounting for Certain
Investments in Debt and Equity Securities" which requires the
classification of securities as trading, available for sale or held to
maturity. Management determines the classification of its securities when
they are purchased. FCC's trading account securities are classified in the
money market investment portfolio, and are carried at market value.
Securities which FCC has the intent and ability to hold until
maturity are classified as held to maturity. These securities are stated at
cost, adjusted for amortization of premiums and accretion of discounts
using either the interest method or the straight-line method, which
produces approximately the same results.
Securities which may be sold in response to changes in interest
rates, liquidity needs or asset/liability management strategies are classified
as available for sale. These securities are reflected at market value, and
net unrealized gains or losses are shown as a separate component of
stockholders' equity, net of the tax effect. Realized gains or losses are
recognized, using the specific identification method, at the time of sale or
call of a security, and are shown as a separate component of other income
in the consolidated statements of income.
Prior to adoption of SFAS No. 115, certain securities were
classified as held for sale, and were stated at the lower of aggregate
amortized cost or market and adjustment to market and realized gains or
losses were shown as a separate component of other income in the
consolidated statements of income.
MONEY MARKET INVESTMENTS
Money market investments include interest-bearing deposits in
other banks, federal funds sold, securities purchased under resale
agreements and trading account securities. They are stated at cost, which
approximates market value, with the exception of trading account
securities, which are carried at market value. Adjustments to market
value and trading account gains and losses are included in other operating
revenue in the consolidated statements of income. Interest and dividend
income on trading account securities is included in interest income on
money market investments.
LOANS AND LEASES
Interest income on most loans is accrued based on the principal
amounts outstanding. Unearned income on loans made on a discounted
basis is recognized as interest income using either the rule of 78s (sum-of-
the-month's digits) or the interest method, which result in approximately
level rates of return over the terms of the loans.
Most loans and leases are held to maturity and are stated at cost.
Loans which are held for sale, principally residential mortgage loans, are
reflected at the lower of cost or market value in the consolidated balance
sheets.
Loan origination fees and costs are deferred and amortized as an
adjustment of the yield using the interest method for commercial loans and
the straight-line method for consumer and residential mortgage loans. The
amortization period for commercial and consumer loans is the actual life
of the loans; for residential mortgage loans, the amortization period is the
average life of the loan. Loan origination costs on credit card loans are
not deferred due to the immaterial effect on FCC's financial statements.
Annual credit card fees are recognized on a straight-line basis over the
twelve-month period that cardholders may use the card.
NONPERFORMING LOANS
Nonperforming loans and leases consist of nonaccrual loans and
restructured loans. Loans and leases past due 90 days or more are
considered to be performing loans and leases until placed on nonaccrual
status. Loans and leases are placed on nonaccrual status when, in the
opinion of management, there is sufficient uncertainty as to timely
collection of interest or principal so as to preclude the recognition in
reported earnings of some or all of the contractual interest. When a loan
is placed on nonaccrual status, interest accrued but not collected is usually
reversed against interest income. Generally, any payments received on
nonaccrual loans and leases 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. Student loans, which are 100% government guaranteed, are not
placed on nonaccrual status.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents management's best
estimate of potential losses in the loan and lease portfolios. This estimate
is based on an ongoing assessment of the portfolios. Factors which are
considered include significant changes in the character of the portfolios,
loan concentrations, current year charge-offs, historic ratios of charge-offs
to average loans and leases, 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 reported in earnings in the periods
in which they become known.
FORECLOSED ASSETS
Property transferred to foreclosed assets is recorded at fair value
at the time of transfer. Fair value is the anticipated sales price of the
assets, less estimated costs to sell, based upon independent appraisals and
other relevant factors. When a loan is reclassified as a foreclosed asset,
the reduction of the carrying value to the fair value is charged to the
allowance for loan losses. Subsequent to foreclosure, foreclosed assets are
reflected at the lower of current fair value or the fair value at the date of
transfer to foreclosed assets. Any subsequent reductions are charged to
nonperforming assets expense. Revenues and expenses associated with
operating or disposing of foreclosed assets are recorded during the period
in which they are incurred.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed using various
methods, principally straight-line, over the estimated useful lives of each
type of asset. Leasehold improvements are amortized using the straight-
line method over the periods of the leases or the estimated useful lives,
whichever is shorter. 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.
INCOME TAXES
FCC and its subsidiaries file a consolidated federal income tax
return. Income tax expense or benefit is based on income reported for
financial accounting purposes. FCC accounts for income taxes under the
asset and liability method. Deferred assets and liabilities are established
for the temporary differences between the financial reporting basis and the
tax basis of FCC's assets and liabilities at enacted tax rates expected to be
in effect when such amounts are realized or settled.
FOREIGN EXCHANGE CONTRACTS
Generally, sales or purchases of foreign exchange contracts are
covered with offsetting transactions. FCC uses foreign exchange contracts
as commercial service products and does not intend to speculate with open
positions in the foreign exchange market. Unrealized gains or losses in
the foreign exchange portfolio are recognized upon the maturity of the
contracts.
INTEREST RATE CONTRACTS
FCC enters into a variety of interest rate contracts such as caps,
collars and floors in the management of its interest rate exposure. These
instruments are typically entered into as hedges against interest rate risk
on specific assets and liabilities. The premium paid or received for any
of these instruments is amortized over the expected remaining term of the
agreement. Cash flows relative to these instruments are recorded as
adjustments to interest income or expense. Gains and losses on any
contracts sold are deferred and amortized over the expected remaining
term of the hedged asset or liability. If the asset or liability is disposed
of, any unamortized gain or loss on the hedging instrument is included in
the determination of the gain or loss from the disposition.
INTEREST RATE SWAP AGREEMENTS
FCC enters into interest rate swap agreements primarily as a means
to manage its interest rate exposure. Adjusted revenues or expenses
related to interest rate swaps are recognized over the lives of the
agreements. Fees related to swap agreements are amortized using the
interest method over the life of the swap. If an interest rate swap which
qualifies for deferral accounting is terminated, the gain or loss is deferred
and amortized over the remaining life of the specific asset or liability it
was hedging. If the instrument being hedged by a swap is disposed of,
the swap agreement is marked to market with any resulting gain or loss
included in the determination of the gain or loss from the disposition.
Interest rate swap agreements not qualifying for deferral accounting are
recorded at market value. Any changes in the market value are
recognized in other income.
RETIREMENT PLAN
FCC and its subsidiaries have established a retirement plan
covering substantially all employees. Pension expense is charged to
current operations and consists of service costs and interest costs reduced
by the expected return on plan assets and amortization of initial
unrecognized net assets. Current policy is to pay into the trust fund only
that portion of the accrued liability which is currently tax deductible.
POSTRETIREMENT BENEFITS
FCC accrues the expected costs of postretirement benefits during
the years that an eligible employee renders service to the employer.
INTANGIBLE ASSETS
Unamortized costs of purchased subsidiaries in excess of the fair
value of the acquired net tangible assets are included in goodwill and other
intangibles in the consolidated balance sheets. Also included in goodwill
and other intangibles are premiums paid on the purchase of loan portfolios
and deposit assumptions. Identifiable intangible assets, principally related
to "depositor and borrower relationships," are being amortized using the
straight-line method over the estimated periods benefited. The remaining
costs (goodwill) are being amortized using the straight-line method over
periods ranging from 5 to 20 years.
EARNINGS PER COMMON SHARE
Income for primary earnings per share is adjusted for preferred
stock dividends. Primary earnings per share are computed based on the
weighted average number of common shares outstanding and common
stock equivalents arising from the assumed exercise of outstanding stock
options, unless their effect would be antidilutive. Fully diluted earnings
per share are computed using average common shares and equivalents.
Common stock equivalents are increased by the assumed conversion of
convertible debentures and preferred stock into common stock as if
converted at the beginning of the period, unless their effect would be
antidilutive. Income for fully diluted earnings per share is adjusted for
interest expense related to the debentures, net of the related income tax
effect, and preferred stock dividends.
STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand and noninterest-bearing amounts due from banks.
OTHER
Assets held by the Banks in fiduciary capacities (assets under trust
agreements) are not assets of the Banks and are not included in the
consolidated balance sheets. Generally, certain minor sources of income
are recorded when payment is received. Results of these activities on the
cash basis do not differ materially from those that would be reported using
the accrual basis of accounting.
===========================================================================
NOTE 2
SUBSEQUENT EVENTS
Effective February 17, 1995, First Bancshares, Inc. (First), the
parent company of First Bank, Slidell, Louisiana, merged with FCC
in exchange for approximately 2,705,220 shares of FCC common stock.
First Bank was merged with First National Bank of Commerce (FNBC), a
wholly owned subsidiary of FCC. The acquisition was accounted for as a
pooling-of-interests; accordingly, prior period financial
information will be restated to include this acquisition. On
December 31, 1994, First Bancshares, Inc. had $246 million in
assets. Selected separate and combined financial information of
FCC and First for the year ended December 31, 1994 are presented
below (in thousands, except per share amounts).
FCC First Combined
________________________________________________________________________
Year Ended December 31, 1994
Net interest income $ 256,261 $ 14,231 $ 270,492
Other income, excluding
securities transactions $ 110,434 $ 3,513 $ 113,947
Net income $ 63,684 $ 3,267 $ 66,951
Earnings per common share
Primary $ 2.25 $ 3.85 $ 2.16
Fully diluted $ 2.19 $ 3.85 $ 2.10
________________________________________________________________________
On February 17, 1995, FCC acquired City Bancorp, Inc. (City), the parent
company of City Bank & Trust Company (City Bank), New Iberia, Louisiana, for
approximately 516,252 shares of FCC common stock. City Bank was merged with
The First National Bank of Lafayette, a wholly owned subsidiary of FCC. The
acquisition was accounted for as a purchase. FCC intends to repurchase in the
open market the number of shares of common stock issued for the City Bank
acquisition. Related intangibles will be amortized over periods not to exceed
fifteen years. On December 31, 1994, City had $79 million in assets. Proforma
results of City have been excluded due to the immaterial impact on FCC's
consolidated results of operations.
===========================================================================
NOTE 3
ACQUISITIONS
Pending at December 31, 1994, was FCC's proposed acquisition of
Lakeside Bancshares, Inc. (Lakeside), the parent company of
Lakeside National Bank of Lake Charles (LNB). It is the intent of FCC
to acquire Lakeside and merge LNB into The First National Bank of
Lake Charles, a wholly owned subsidiary of FCC. At December 31,
1994, Lakeside had $177 million in assets. The acquisition is subject to
various approvals and conditions, including regulatory approval. The
acquisition of Lakeside is expected to be completed in the first half of
1995 and to be accounted for as a purchase.
On October 5, 1994, FNBC acquired Wolcott Mortgage Group, Inc.
(Wolcott), a mortgage company which originates and sells residential
mortgages. Wolcott's shareholders received $1.39 million in cash. A
contingent payment may be made in October 1995, based on certain
conditions. The acquisition was accounted for as a purchase.
Goodwill related to this transaction is amortized using the
straight-line method over 15 years. The results of operations of
Wolcott since the date of acquisition have been included in FCC's
consolidated statements. Proforma results of operations
have been excluded due to the immaterial impact on FCC's
consolidated results of operations.
Effective January 1, 1994, First Acadiana National Bancshares,
Inc. (FANB), the parent company of First Acadiana National Bank,
Opelousas, Louisiana, merged with FCC in exchange for 1,290,145
shares of common stock. First Acadiana National Bank was merged
with The First National Bank of Lafayette, a wholly owned
subsidiary of FCC. The acquisition was accounted for as a pooling-
of-interests. All 1993 financial information reported reflects the
pooling-of-interests with FANB. Financial information prior to
1993 was not restated, since the effect would be immaterial.
On January 13, 1992, FCC's banks in New Orleans, Baton Rouge
and Alexandria acquired from the Resolution Trust Corporation
approximately $1.5 billion of insured deposits and other marketable
securities of Pelican Homestead and Savings Association
(Pelican). $275 million of these deposits were immediately paid
out.
===========================================================================
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 $63,609,000 and
$93,470,000 during 1994 and 1993, respectively.
===========================================================================
NOTE 5
SECURITIES HELD TO MATURITY
An analysis of securities held to maturity follows (in thousands):
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
==============================================================================
December 31, 1994
- ------------------------------------------------------------------------------
Obligations of states
and political
subdivisions $ 152 $ 1 $ - $ 153
Other debt securities 500 - - 500
Equity securities 8,148 - - 8,148
- ------------------------------------------------------------------------------
Total securities held
to maturity $ 8,800 $ 1 $ - $ 8,801
==============================================================================
December 31, 1993
- ------------------------------------------------------------------------------
U.S. Treasury securities $770,915 $ 5,688 $ (2) $ 776,601
Obligations of U.S.
agencies and
corporations 674,108 6,300 (1,204) 679,204
Obligations of states
and political
subdivisions 63,731 12,645 - 76,376
Other bonds, notes,
debentures and stock 14,884 33 (12) 14,905
- ------------------------------------------------------------------------------
Total securities held
to maturity $1,523,638 $ 24,666 $ (1,218) $1,547,086
==============================================================================
December 31, 1992
- ------------------------------------------------------------------------------
U.S. Treasury securities $1,334,406 $ 18,683 $ (223) $1,352,866
Obligations of U.S.
agencies and
corporations 1,053,050 2,781 (8,926) 1,046,905
Obligations of states
and political
subdivisions 68,119 11,778 (39) 79,858
Other bonds, notes,
debentures and stock 36,820 3 (586) 36,237
- ------------------------------------------------------------------------------
Total securities held
to maturity $2,492,395 $ 33,245 $ (9,774) $2,515,866
==============================================================================
Upon adoption of SFAS No. 115 on January 1, 1994, $757 million of
securities previously classified as held to maturity were reclassified as
available for sale.
An analysis of the amortized cost and fair values of securities held
to maturity by maturity periods follows (in thousands):
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
===========================================================================
December 31, 1994
- ---------------------------------------------------------------------------
Within one year $ 26 $ - $ - $ 26
One to five years 626 1 - 627
Five to ten years - - - -
After ten years 8,148 - - 8,148
- ---------------------------------------------------------------------------
Total securities held
to maturity $ 8,800 $ 1 $ - $ 8,801
- ---------------------------------------------------------------------------
Securities with carrying values of approximately $961,706,000,
$823,574,000, and $584,573,000 at December 31, 1994, 1993 and 1992,
respectively, were required to be pledged to secure public and trust deposits,
and for other purposes.
Excluding securities issued by the U. S. government or by U. S. government
agencies and corporations, no securities of any issuer exceeded 10 percent of
consolidated stockholders' equity as of December 31, 1994 and 1993, when
securities held to maturity and available for sale were combined for 1994, and
held to maturity and held for sale were combined for 1993.
===========================================================================
NOTE 6
SECURITIES AVAILABLE FOR SALE
An analysis of securities available for sale follows (in thousands):
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
======================================================================================
December 31, 1994
- --------------------------------------------------------------------------------------
U. S. Treasury securities $ 1,257,160 $ 160 $ (30,816) $1,226,504
Obligations of U. S. agencies
and corporations
Mortgage-backed securities 1,081,605 51 (83,926) 997,730
Notes 118,063 4 (387) 117,680
Obligations of states
and political
subdivisions 97,082 6,896 (1,792) 102,186
Other debt securities 2,520 - (5) 2,515
Equity securities 12,410 - (582) 11,828
- --------------------------------------------------------------------------------------
Total securities
available for sale $ 2,568,840 $ 7,111 $ (117,508) $2,458,443
======================================================================================
During 1994, proceeds from the sales and calls of securities available for
sale were $1,652,634,000, resulting in gross realized gains of $2,662,000 and
gross realized losses of $46,183,000.
An analysis of the amortized cost and fair values of the securities
available for sale by maturity periods follows (in thousands):
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
======================================================================================
December 31, 1994
- --------------------------------------------------------------------------------------
Within one year $ 31,739 $ 141 $ (26) $ 31,854
One to five years 1,530,605 754 (41,940) 1,489,419
Five to ten years 42,586 947 (2,918) 40,615
After ten years 963,910 5,269 (72,624) 896,555
- --------------------------------------------------------------------------------------
Total securities
available for sale $ 2,568,840 $ 7,111 $ (117,508) $2,458,443
======================================================================================
Maturities of mortgage-backed securities are classified by contractual
maturity dates. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without penalties. At December 31, 1994, the weighted average contractual
maturity of the U.S. agency mortgage-backed securities was 22 years,
compared to an average expected maturity of approximately 5 years. During
1994, $202 million of mortgage-backed securities were paid out prior to
maturity.
Prior to the adoption of SFAS No. 115, FCC had classified certain
securities as held for sale. An analysis of securities held for sale as
of December 31, 1993 and 1992 follows (in thousands):
Carrying Unrealized Unrealized Market
Value Gains (Losses) Value
======================================================================================
December 31, 1993
- --------------------------------------------------------------------------------------
U.S. Treasury securities $ 713,558 $ 5,019 $ (17)$ 718,560
Obligations of U.S.
agencies and
corporations 1,005,358 1,852 (6,449) 1,000,761
Obligations of states
and political
subdivisions 41,011 3,024 (50) 43,985
Other bonds, notes,
debentures and stock 20,000 - - 20,000
- --------------------------------------------------------------------------------------
Total securities held
for sale $ 1,779,927 $ 9,895 $ (6,516)$1,783,306
======================================================================================
December 31, 1992
- --------------------------------------------------------------------------------------
U.S. Treasury securities $ 131,458 $ 4,415 $ (785)$ 135,088
Obligations of U.S.
agencies and
corporations 274,611 3,813 (534) 277,890
Obligations of states
and political
subdivisions 38,688 2,123 (20) 40,791
Other bonds, notes,
debentures and stock 18,600 - - 18,600
- --------------------------------------------------------------------------------------
Total securities held
for sale $ 463,357 $ 10,351 $ (1,339)$ 472,369
======================================================================================
===========================================================================
NOTE 7
LOANS AND LEASES
The composition of loans and leases follows (in thousands):
December 31
===========================================================================
1994 1993
- ---------------------------------------------------------------------------
Loans to individuals $1,457,550 $ 1,184,726
Commercial, financial and
agricultural 709,529 482,677
Real estate 561,975 521,283
Credit card loans 426,224 383,932
Other loans 86,432 113,901
- ---------------------------------------------------------------------------
Total loans and leases 3,241,710 2,686,519
Unearned income (5,057) (11,822)
- ---------------------------------------------------------------------------
Loans and leases, net
of unearned income $3,236,653 $ 2,674,697
===========================================================================
The following tables provide a further classification of certain
categories of loans and leases (dollars in thousands):
December 31
============================================================================================================
Loans to Individuals by Type as a
Percent of Total Loans and Leases 1994 1993
- ------------------------------------------------------------------------------------------------------------
Residential (1-4 family) - first lien $ 524,223 16.17 % $ 448,054 16.68 %
Residential (1-4 family) - junior lien 72,837 2.25 73,308 2.73
Automobile 477,720 14.74 352,744 13.13
Education 186,039 5.74 146,516 5.45
Personal expenditures 151,798 4.68 110,474 4.11
Other 44,933 1.38 53,630 2.00
- -------------------------------------------------------------------------------------------------------------
$1,457,550 44.96 % $1,184,726 44.10 %
============================================================================================================
December 31
============================================================================================================
Commercial, Financial and Agricultural Loans by Industry
as a Percent of Total Loans and Leases 1994 1993
- ------------------------------------------------------------------------------------------------------------
Services $ 197,546 6.09 % $ 128,026 4.77 %
Mining 89,714 2.77 28,486 1.06
Transportation 70,126 2.16 61,993 2.31
Wholesale trade 69,035 2.13 51,979 1.93
Manufacturing 65,550 2.02 43,925 1.64
Financial 55,033 1.70 45,679 1.70
Retail trade 43,206 1.33 40,030 1.49
Construction 40,241 1.24 27,317 1.02
Communications 25,603 0.79 18,859 0.70
Other 53,475 1.66 36,383 1.35
- ------------------------------------------------------------------------------------------------------------
$ 709,529 21.89 % $ 482,677 17.97 %
============================================================================================================
December 31
============================================================================================================
Real Estate Loans by Type as a Percent
of Total Loans and Leases 1994 1993
- ------------------------------------------------------------------------------------------------------------
Commercial $ 489,527 15.11 % $ 466,228 17.35 %
Construction and land development 47,563 1.47 33,000 1.23
Multi-family 21,005 0.65 19,099 0.71
Farmland 3,880 0.12 2,956 0.11
- ------------------------------------------------------------------------------------------------------------
$ 561,975 17.35 % $ 521,283 19.40 %
============================================================================================================
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. The amount of
such related party loans was $105,853,000 and $47,736,000 at
December 31, 1994 and 1993, respectively. An analysis of 1994
activity with respect to these loans follows (in thousands):
1994
===========================================================================
Beginning balance $ 47,736
Additions 196,732
Repayments (141,193)
Increase due to change in related parties 2,578
- ---------------------------------------------------------------------------
Ending balance $ 105,853
===========================================================================
===========================================================================
NOTE 8
ALLOWANCE FOR LOAN LOSSES
A summary analysis of the transactions in the allowance for loan losses
follows (dollars in thousands):
Years Ended December 31
====================================================================================
1994 1993 1992
- ------------------------------------------------------------------------------------
Balance at beginning of year $ 68,302 $ 79,919 $ 70,817
Provision charged to expense (11,568) (4,504) 22,040
Loans and leases charged to the allowance (13,071) (16,233) (24,100)
Recoveries on loans and leases previously
charged to the allowance 9,993 9,120 8,216
- ------------------------------------------------------------------------------------
Net charge-offs (3,078) (7,113) (15,884)
- ------------------------------------------------------------------------------------
Balance at end of year $ 53,656 $ 68,302 $ 76,973
====================================================================================
Net charge-offs as a percent of
average loans and leases <FN1> 0.11 % .30 % .73 %
Allowance for loan losses as a percent of
loans and leases <FN1> at end of year 1.66 % 2.55 % 3.44 %
====================================================================================
<FN1> Net of unearned income.
===========================================================================
NOTE 9
NONPERFORMING ASSETS
Nonperforming assets include loans and leases on nonaccrual
status, loans and leases that have been restructured with borrowers as
to interest rates or repayment terms for credit reasons, real estate
acquired through foreclosures, loans classified as in-substance
foreclosures, unused bank premises and other foreclosed assets.
Loans past due 90 days or more are considered to be performing
assets until placed on nonaccrual status. Nonperforming assets
included in the consolidated balance sheets were as follows
(dollars in thousands):
December 31
======================================================
1994 1993
- ------------------------------------------------------
Nonaccrual loans $13,399 $25,461
Foreclosed assets
Other real estate 7,847 12,667
Other foreclosed assets 86 96
Allowance for losses
on foreclosed assets (3,648) (5,515)
- ------------------------------------------------------
4,285 7,248
- ------------------------------------------------------
Total nonperforming assets $17,684 $32,709
======================================================
Loans past due 90 days
or more and not
on nonaccrual status $10,304 $12,523
======================================================
Ratios at end of year
Nonperforming assets
as a percent of loans
and leases <FN1> plus
foreclosed assets 0.55 % 1.22 %
Allowance for loan losses
as a percent of non-
performing loans 400.45 % 268.26 %
Loans and leases past
due 90 days or more
and not on nonaccrual
status as a percent of
loans and leases <FN1> 0.32 % 0.47 %
======================================================
<FN1> Net of unearned income.
The loss of income associated with nonperforming loans and leases, and
the cost of carrying foreclosed assets were (in thousands except per share
amounts):
Years Ended December 31
===============================================================================
1994 1993 1992
- -------------------------------------------------------------------------------
Effect on pretax income
Nonperforming loans
Contractual interest income $ 1,754 $ 4,372 $ 5,936
Income actually received and recorded
on loans on nonaccrual status
during the year (306) (242) (62)
- --------------------------------------------------------------------------------
Loss of interest income on loans 1,448 4,130 5,874
- --------------------------------------------------------------------------------
Foreclosed assets
Cost of operations 1,400 1,429 1,616
Interest cost (average funds
sold rate) 268 477 783
Net (gains) on foreclosed assets (1,133) (1,933) (1,736)
Provision for losses on foreclosed assets 496 1,656 6,449
===============================================================================
Cost to carry foreclosed assets 1,031 1,629 7,112
===============================================================================
Total effect on pretax income $ 2,479 $ 5,759 $ 12,986
===============================================================================
Cost per common share after tax $ 0.06 $ 0.12 $ 0.36
===============================================================================
Additionally, interest of $2,367,000 was recovered on loans previously on
nonaccrual, but not on nonaccrual status in 1994.
The activity in the allowance for foreclosed assets was as follows
(in thousands):
Years Ended December 31
===============================================================================
1994 1993 1992
- --------------------------------------------------------------------------------
Balance at beginning
of year $ 5,515 $ 8,611 $ 4,255
Allowance provisions 496 1,656 6,449
Sales and dispositions (2,363) (4,752) (2,093)
- --------------------------------------------------------------------------------
Net change (1,867) (3,096) 4,356
- --------------------------------------------------------------------------------
Balance at end of year $ 3,648 $ 5,515 $ 8,611
===============================================================================
In May 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 114 (SFAS No. 114),
"Accounting by Creditors for Impairment of a Loan". In October 1994,
FASB issued Statement of Financial Accounting Standards No. 118 (SFAS
No. 118), "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures," which amends SFAS No. 114. These
standards require the measurement of impairment on certain loans based
on the present value of expected future cash flows discounted at the loan's
effective interest rate. Adoption of SFAS Nos. 114 and 118 is required for
fiscal years beginning after December 15, 1994. FCC will adopt these
statements beginning January 1, 1995. Adoption will not have a material
impact on FCC's consolidated financial statements.
===========================================================================
NOTE 10
PREMISES AND EQUIPMENT
An analysis of premises and equipment by asset classification follows
(in thousands):
December 31
=================================================================
1994 1993
- -----------------------------------------------------------------
Land $ 20,836 $ 20,687
Buildings 69,307 64,636
Leasehold improvements 19,573 18,765
Furniture, fixtures and equipment 95,637 76,045
Capitalized leased equipment 390 390
Construction in progress 6,824 7,746
- -----------------------------------------------------------------
212,567 188,269
Accumulated depreciation
and amortization (95,126) (86,039)
- -----------------------------------------------------------------
$ 117,441 $ 102,230
=================================================================
Provisions for depreciation and amortization charged to operating
expense were $14,508,000, $11,145,000 and $9,963,000 for 1994, 1993 and
1992, respectively.
At December 31, 1994, the Banks and a service subsidiary were obligated
under a number of noncancelable leases for land and buildings used for
continuing operations and for automobiles and equipment on a short-term
basis. Future minimum rental payments under operating leases having an
initial or remaining noncancelable lease term in excess of one year were as
follows (in thousands):
Premises Equipment Total
=================================================================
1995 $ 7,140 $ 183 $ 7,323
1996 6,419 173 6,592
1997 5,505 38 5,543
1998 5,175 - 5,175
1999 5,021 - 5,021
Later years 52,626 - 52,626
- -----------------------------------------------------------------
$ 81,886 $ 394 $ 82,280
=================================================================
Generally, operating leases contain various renewal options and some
contain a provision for increased rentals under cost of living escalation
clauses. Total rental expense, net of immaterial sublease rentals, was
$6,608,000, $6,080,000 and $5,858,000 for 1994, 1993 and 1992, respectively.
===========================================================================
NOTE 11
GOODWILL AND OTHER INTANGIBLES
Tangible and identifiable intangible assets and liabilities of
acquisitions accounted for as purchases were recorded at their fair values
at the dates of acquisition. The excess of purchase price over the fair
value of net tangible and identifiable intangible assets acquired was
recorded as goodwill. Also included in goodwill and other intangibles are
premiums which were paid on the purchase of loan portfolios and deposits
purchased from the Federal Deposit Insurance Corporation and the
Resolution Trust Corporation. Selected information concerning intangibles
follows (in thousands):
December 31
- ------------------------------------------------------------------------
1994 1993
- ------------------------------------------------------------------------
Favorable leasehold interests $ 704 $ 737
Borrower relationships 238 415
Depositor relationships 2,776 3,724
Goodwill 11,400 11,267
- ------------------------------------------------------------------------
Total $ 15,118 $ 16,143
========================================================================
Pretax Amortization
Years Ended December 31
========================================================================
1994 1993 1992
- ------------------------------------------------------------------------
Favorable leasehold interests $ 34 $ 34 $ 40
Borrower relationships 179 389 581
Depositor relationships 945 1,386 961
Goodwill 1,037 1,020 863
- ------------------------------------------------------------------------
Total $ 2,195 $ 2,829 $ 2,445
========================================================================
===========================================================================
NOTE 12
DEPOSITS
The composition of deposits was as follows (in thousands):
December 31
========================================================================
1994 1993
- ------------------------------------------------------------------------
Demand deposits $ 1,218,765 $ 1,182,557
NOW account deposits 911,699 911,268
Money market investment deposits 649,186 760,998
Savings deposits 581,863 615,239
Other consumer time deposits 1,529,636 1,440,049
- ------------------------------------------------------------------------
Total core deposits 4,891,149 4,910,111
Time deposits $100,000 and over <FN1> 566,921 399,748
- ------------------------------------------------------------------------
Total $ 5,458,070 $ 5,309,859
========================================================================
<FN1> Foreign branch time deposits included are immaterial in each period presented.
===========================================================================
NOTE 13
SHORT-TERM BORROWINGS
An analysis of short-term borrowings follows (in thousands):
December 31
=========================================================================
1994 1993 1992
- -------------------------------------------------------------------------
Federal funds purchased
and securities sold under
agreements to repurchase $ 461,255 $ 636,145 $ 467,433
Commercial paper - - 500
Other short-term borrowings 9,228 42,171 11,704
- -------------------------------------------------------------------------
Total $ 470,483 $ 678,316 $ 479,637
=========================================================================
Information regarding federal funds purchased and securities sold
under agreements to repurchase follows (dollars in thousands):
=========================================================================
1994 1993 1992
- -------------------------------------------------------------------------
Average interest rate
on December 31 5.32 % 2.66 % 2.51 %
- -------------------------------------------------------------------------
Year-to-date averages
Interest rate 4.03 % 2.85 % 2.93 %
Balance $ 571,325 $ 516,058 $ 265,873
- -------------------------------------------------------------------------
Maximum amount
outstanding at any
month-end during
the year $ 650,015 $ 775,178 $ 467,433
=========================================================================
Federal funds purchased arise principally from transactions
with other banks. At December 31, 1994, federal funds
purchased had maturities ranging from three to four days.
Securities sold under agreements to repurchase had
maturities up to twenty-two days as of December 31, 1994,
and were investment transactions with other national banks,
public entities, corporate customers and securities dealers.
To the extent that the proceeds of these transactions exceed
funding requirements of the Banks, the excess funds are sold
in the money markets.
FCC maintains lines of credit with several large banks,
totaling $30 million at December 31, 1994 to support the
issuance of commercial paper and pays fees to maintain these
lines. No lines of credit were in use at December 31, 1994,
1993 or 1992.
=================================================================
NOTE 14
LONG-TERM DEBT
Long-term debt consisted of (in thousands):
December 31
=================================================================
1994 1993
- -----------------------------------------------------------------
First Commerce Corporation
12 3/4% convertible debentures,
due in December 2000; unsecured <FN1>
Series A $ 26,846 $ 26,846
Series B 56,492 57,122
- -----------------------------------------------------------------
83,338 83,968
- -----------------------------------------------------------------
Subsidiaries
9% mortgage note payable,
due in installments, balance
due in November 1996 5,295 5,370
10% mortgage note payable,
due in installments through
July 2003 25 49
Obligations under capitalized
leases, due in installments
through August 2003 298 317
- -----------------------------------------------------------------
Total long-term debt $ 88,956 $ 89,704
=================================================================
<FN1> At December 31, 1994, approximately $15,434,000 was held by
directors and executive officers of FCC.
Annual principal repayment requirements for the
years 1995 through 1999 are as follows (in thousands):
Subsidiaries
==========================================================
1995 $ 109
- ----------------------------------------------------------
1996 5,240
- ----------------------------------------------------------
1997 31
- ----------------------------------------------------------
1998 35
- ----------------------------------------------------------
1999 38
- ----------------------------------------------------------
The 12 3/4% Convertible Debentures due 2000, Series A and B, were
issued in exchange for all of the capital stock held by stockholders of
The First National Bank of Lake Charles and Rapides Bank & Trust
Company in Alexandria, respectively. 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 their
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 $26.66 principal amount
for one share of stock.
Total cash payments for interest expense on long-term debt,
short-term borrowings and deposits were $146,060,000, $142,322,000
and $164,244,000 in 1994, 1993 and 1992, respectively.
===========================================================================
NOTE 15
EMPLOYEE BENEFIT PLANS
Retirement Plans--The Retirement Plan for Employees of First
Commerce Corporation (Retirement Plan) is a defined benefit plan
covering substantially all employees who have attained age 21 and
completed one year of employment. Benefits are based on years of
service and the employees' highest average monthly compensation for
any 60-month period during the last 120-month period of service.
FCC's funding policy is to contribute annually the maximum that can be
deducted for federal income tax purposes.
The following table sets forth the plan's funded status at December 31,
1994 and 1993 (in thousands):
December 31
======================================================================
1994 1993
- ----------------------------------------------------------------------
Projected benefit obligation
Vested benefits $ (52,261) $ (52,031)
Nonvested benefits (1,001) (1,021)
- ----------------------------------------------------------------------
Accumulated benefit obligation (53,262) (53,052)
Effect of projected future
compensation levels (15,627) (16,005)
- ----------------------------------------------------------------------
Projected benefit obligation (68,889) (69,057)
Plan assets at fair value 63,810 68,233
- ----------------------------------------------------------------------
Projected benefit obligation in excess of
plan assets (5,079) (824)
Unrecognized net loss due to past experience
different from assumptions made 2,839 841
Unrecognized prior service cost (962) (1,082)
Unrecognized net assets being recognized
over 15 years (3,866) (4,511)
- ----------------------------------------------------------------------
Unfunded accrued pension cost included
in other accrued liabilities $ (7,068) $ (5,576)
======================================================================
The plan's assets at December 31, 1994 consisted primarily of U. S.
government securities, corporate bonds, and common stocks. At
December 31, 1994 and 1993 the plan's assets included $176,132 and
$201,157 of FCC common stock, at market value. As of December 31,
1994, the plan's assets included 8,006 shares of FCC common stock
with a market value of $22.00 per share. During 1994, dividends of
$8,400 were paid on FCC common shares held by the plan.
Net periodic pension cost for 1994, 1993 and 1992 included the
following (in thousands):
Years Ended December 31
==============================================================================
1994 1993 1992
- ------------------------------------------------------------------------------
Service cost-benefits earned during
the period $ 3,198 $ 2,524 $ 2,289
Interest cost on projected benefit
obligation 4,738 4,380 4,093
Loss (return) on plan assets 1,368 (5,657) (2,937)
Other components, net (7,812) (556) (3,296)
- ------------------------------------------------------------------------------
Net periodic pension cost $ 1,492 $ 691 $ 149
==============================================================================
In determining the plan's funded status, the weighted average discount
rate assumed was 7 1/2% at December 31, 1994 and 1992, and 7% at December 31,
1993. The rate of increase in future salary levels was 5 1/2% in each of the
three years. The expected long-term rate of return on assets was 8 1/2% in
1994, 1993 and 1992.
Tax-Deferred Savings Plan--FCC has a Tax-Deferred Savings Plan covering
substantially all full-time employees. Employees may voluntarily contribute
up to a maximum of 15%, with the limit depending on the salary level.
Employees receive matching contributions of 50% of voluntary contributions up
to a maximum of 2 1/2% of gross pay. Vesting in matching employer
contributions occurs at 25% per year after one year's participation with full
vesting after four years. Employer contributions were $1,682,000, $1,637,000
and $1,198,000, in 1994, 1993 and 1992 respectively.
Postretirement Benefits--Certain of FCC's subsidiaries provide
postretirement medical and life insurance coverage for specified groups of
employees who retired in prior years. The expected costs of postretirement
benefits are accrued during the years that an eligible employee renders
service to the employer, including a portion of the accumulated
postretirement benefit at January 1, 1993, amortized over a 20-year period.
The estimated current accumulated postretirement benefit obligation (APBO)
was $1,242,000 and $1,972,000 at December 31, 1994 and 1993, respectively.
The APBO calculation assumes a discount rate of 7 1/2% at December 31, 1994
and 1993. The health care cost trend rate assumed in the current calculation
begins at 9% and declines in future periods, with an underlying inflation rate
of 4%. An increase in the health care cost trend rate of 1% would result in an
increase in the postretirement medical obligation portion of the APBO of
approximately 9.1% from $940,000 to $1,026,000. FCC's accumulated
postretirement benefit expense was $151,000 in 1994 and $371,000 in 1993,
including the 20-year amortization of the transition obligation. Retiree
medical insurance and life insurance expense was $30,000, $47,000 and $13,000
in 1994, 1993 and 1992, respectively.
Postemployment Benefits - In November 1992, Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" was issued. FCC adopted this standard on January 1, 1994. The
Statement requires the accrual of the expected costs of postemployment
benefits during the years in which an eligible employee renders service to
an employer. FCC's postemployment benefit obligation is immaterial.
===========================================================================
NOTE 16
STOCKHOLDERS' EQUITY
In December 1994, FCC announced its intention to repurchase up to
two million shares of FCC's common stock for use in connection with one
or more pending acquisitions. The timing and number of shares purchased
will depend on the number of shares needed for the acquisitions, the
completion dates of the acquisitions, as well as the prices at which the
shares can be purchased.
FCC issued 1,290,145 shares of common stock in connection with the
acquisition of First Acadiana National Bancshares, Inc. on January 1, 1994.
On December 30, 1993, FCC paid a five-for-four stock split effected
in the form of a 25% stock dividend to stockholders of record on December
17, 1993. On January 11, 1993, FCC paid a three-for-two stock split
effected in the form of a 50% stock dividend to stockholders of record on
December 11, 1992. Fractional shares were paid in cash based on the
closing price on the payment date adjusted for the stock split. All
average number of shares outstanding and per share amounts were restated
to reflect both splits.
On June 23, 1992, FCC issued an additional one million common shares,
which were sold in a public offering.
On January 23, 1992, FCC issued 2,400,000 shares of 7.25% preferred
stock, $25 stated value in a public offering. The preferred stock is
non-voting and cumulative as to dividends. Each share of preferred stock
is convertible into 1.1646 shares of common stock.
FCC's 1985 Stock Option Plan (the 1985 Plan) and Tandem Stock
Appreciation Rights Plan (the SAR Plan) were replaced with a new plan
in 1992. The FCC 1992 Stock Incentive Plan (the 1992 Plan) covers up to
10% of the outstanding shares of common stock. During 1994, 79,978
options were granted at a price of $27.50 per share under the 1992 Plan.
The exercise price of the shares subject to each option granted under
the 1985 Plan is the higher of the fair market value of the stock on the
date of grant or the book value. Under the 1992 Plan the exercise
price may not be less than the fair market value of the common stock on
the date of grant.
Options are exercisable in 25% increments beginning one year after
the date of grant and each year thereafter on a cumulative basis under
the 1985 Plan. Under the 1992 Plan, no option may be exercised during
the six-month period immediately following the date of grant.
The Compensation Committee has the discretion to determine the term of
each option, and the time or times during its term when such option
becomes exercisable. The income tax effect of any difference between
the market price at the exercise date and the option price is credited to
additional paid-in capital as the options are exercised. Both plans
allow the issuance of restricted stock; restriction terms are determined
at the time of grant. Under the SAR plan, rights may be granted in
conjunction with options granted under the option plan. In 1994, 239,935
rights were granted at a price of $27.50 per share under the 1992 plan.
Compensation expense is recognized in connection with stock appreciation
rights based on the current market value of the common stock. No
compensation expense was recognized in 1994 related to these rights.
A summary of changes in stock options follows (dollars in thousands except
per share data):
=====================================================================
Option Price
- ---------------------------------------------------------------------
Number of
Shares Per Share Aggregate
- ---------------------------------------------------------------------
[S] [C] [C] [C]
Outstanding
January 1, 1992 940,614 $9.13-$11.74 $ 9,392
Granted 122,607 $21.07 2,583
Exercised (475,231) $9.13-$11.74 (4,553)
Canceled (11,876) $10.40-$21.07 (174)
- ---------------------------------------------------------------------
Outstanding
December 31, 1992 576,114 $9.13-$21.07 $ 7,248
Granted 76,736 $28.20-$30.80 2,184
Exercised (168,555) $9.13-21.07 (1,684)
Canceled (4,245) $10.44-28.20 (64)
- ---------------------------------------------------------------------
Outstanding
December 31, 1993 480,050 $9.27-$30.80 $ 7,684
Granted
Options 79,978 $27.50 2,199
Rights 239,935 $27.50 6,598
Exercised
Options (81,067) $ 9.27-$28.20 (893)
Canceled
Options (19,390) $ 9.27-$28.20 (335)
Rights (7,569) $27.50 (208)
- ---------------------------------------------------------------------
Outstanding
December 31, 1994 691,937 $ 9.27-$30.80 $ 15,045
=====================================================================
Options for 245,602 shares were exercisable at December 31, 1994.
Restricted stock issued in 1988 and 1989 vested at 55% on January 31,
1992, based upon the level of cumulative earnings per share for the years
1989 to 1991. The restrictions on 100% of the 1991 grants lapsed on December
31, 1993, based upon the level of cumulative earnings per share for the years
1991 through 1993. The restrictions on the 1993 grants will lapse in full
or in part in 1996, depending on the level of cumulative earnings per share
for the years 1993 through 1995. The restrictions on the 1994 grants will
lapse in full or in part in 1997, depending on the level of cumulative earnings
per share for the years 1994 through 1996 and FCC's average annual return on
equity for this same three year period. Additionally, a performance share
award, not to exceed 50% of the shares awarded, may be earned based on
certain peer group rankings. Those officers holding restricted stock receive
dividends and have the right to vote the shares based on the assumption that
all restrictions will lapse. A summary of changes in restricted stock
follows:
=========================================================
Number of Shares
=========================================================
Outstanding, January 1, 1992 234,414
Granted 5,625
Earned and issued unrestricted (73,963)
Canceled (67,408)
- ---------------------------------------------------------
Outstanding, December 31, 1992 98,668
Granted 47,814
Earned and issued unrestricted (82,293)
Canceled (16,375)
- ---------------------------------------------------------
Outstanding, December 31, 1993 47,814
Granted 9,792
Canceled (3,554)
- ---------------------------------------------------------
Outstanding, December 31, 1994 54,052
=========================================================
FCC recorded $315,000, $944,000 and $1,152,000 of amortization expense in
1994, 1993, and 1992, respectively related to these resticted shares.
At December 31, 1994, 910,618 shares of common stock were reserved for
issuance under the FCC Tax-Deferred and Supplemental Tax-Deferred Savings
Plans, in which participants can choose to invest in FCC common stock. FCC's
contributions to the plan are made in either cash or FCC common stock, with
cash contributions used to purchase FCC common stock. The plan trustee
purchased 19,839 shares in 1994, 115,001 shares in 1993 and 45,736 shares in
1992 of FCC common stock directly from FCC.
At December 31, 1994, 1,449,023 shares of common stock were reserved for
issuance under the FCC Dividend and Interest Reinvestment and Stock Purchase
Plan, which allows participants to reinvest their dividends (from both common
and preferred stock), interest (on the 12 3/4% Debentures, Series A and B) and
certain optional cash contributions in FCC common stock. The plan allows FCC,
at its discretion, to either issue new shares or purchase shares in the open
market on the reinvestment dates for the plan's participants. FCC issued
38,879 shares of common stock in 1994, 66,845 shares in 1993 and 71,318
shares in 1992, directly to the plan for participants.
===========================================================================
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, 1994 without prior approval was approximately
$57,306,000, plus an amount equal to the Banks' net income for 1995.
The parent company's net working capital is another source for the
payment of dividends. Net working capital was $104,862,000 as of
December 31, 1994.
Under current Federal Reserve regulations, the Banks are limited in
the amounts they may loan to their affiliates, including FCC. Loans to
a single affiliate may not exceed 10% and loans to all affiliates may not
exceed 20% of an individual bank's net assets plus its allowance for
loan losses. 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 financial instruments
which are not recorded in the consolidated financial statements. These
financial instruments include commitments to extend credit, letters of credit,
interest rate contracts and foreign exchange contracts.
Loan commitments and lines of credit represent commitments to lend
funds at specific rates, with fixed expiration or review dates and for specific
purposes. These commitments are agreements to fund loans if the
conditions in the agreements are met. For their credit card customers, the
Banks have the right to change or terminate any terms or conditions of the
credit card accounts at any time. Since many commitments and unused
credit card lines are never actually drawn upon, the unfunded amounts do
not necessarily represent future funding requirements. The Banks evaluate
each customer's creditworthiness on an individual basis. The amount of
collateral obtained, if any, upon extension of credit is based on the credit-
worthiness of the customer.
Standby letters of credit obligate the Banks to pay third parties if the
Banks' customers fail to perform under the agreements with those third
parties. Commercial letters of credit are used to finance contracts for the
shipment of goods from seller to buyer. Letters of credit are subject to
credit review, collateral requirements and debt covenants similar to those in
loan agreements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loans to customers.
Foreign exchange contracts are commitments to purchase or deliver
foreign currency at a specified exchange rate. These contracts are used as
commercial service products and guarantee that at a future date, the
customer will receive the foreign currency at a specified rate. The market
risk from unfavorable movements in currency exchange rates is minimized
by offsetting transactions.
In order to manage interest rate risk on certain assets and liabilities,
the Banks may enter into interest rate contracts, including swaps, cap
corridors, caps, swaptions and floors. These agreements obligate one or both
parties to make interest rate payments based on designated or calculated
interest rates times the notional amounts of the contracts. The notional
amounts do not represent an amount at risk because they are only used as the
basis for determining the actual cash flows related to the interest rate
contracts. Normal credit reviews of the parties to these agreements are
performed to minimize the risk of default. A swaption is an option to either
enter into an interest rate swap at some future date or cancel an existing
swap. A cap corridor is the simultaneous purchase and sale of a cap; the cap
sold is for a higher rate than the one purchased.
A summary of obligations under financial instruments which are not
reflected in the consolidated financial statements follows (in thousands):
December 31
===============================================================================
1994 1993
- -------------------------------------------------------------------------------
Commitments to extend credit for loans and
leases (excluding credit card plans) $ 927,593 $ 627,540
Commitments to extend credit for credit
card plans $ 1,437,709 $ 983,711
Commercial letters of credit $ 1,744 $ 2,140
Financial letters of credit $ 53,615 $ 46,268
Performance letters of credit $ 16,669 $ 16,681
Foreign exchange contracts
Commitments to purchase $ 580 $ 1,228
Commitments to sell $ 660 $ 1,326
When-issued securities
Commitments to purchase $ 50 $ 470
Commitments to sell $ 50 $ 470
Interest rate contracts <FN1>
Swaps, including amortizing interest rate swaps $ 360,000 $ 263,000
Swaptions $ 0 $ 200,000
Caps $ 350,000 $ 5,000
Cap corridors $ 100,000 $ 550,000
===============================================================================
<FN1> Notional principal amounts.
===========================================================================
NOTE 19
FAIR VALUE OF FINANCIAL INSTRUMENTS
In December, 1991, the FASB issued Statement of Financial Accounting
Standards No. 107 (SFAS No. 107), "Disclosures about Fair Value of Financial
Instruments". In October, 1994, FASB issued Statement of Financial Accounting
Standards No. 119 (SFAS No. 119), "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments," which amends SFAS No.
107. These standards require disclosure of fair value information
about financial instruments, whether or not recognized in the balance sheet,
for which it is practicable to estimate that value. Approximately 92% of FCC's
assets and liabilities are considered financial instruments as defined in SFAS
No. 107. Many of FCC's financial instruments, however, lack a readily
available trading market as characterized by a willing buyer and willing
seller engaging in an exhange transaction. Therefore, significant
estimations and present value calculations were used by FCC for the purpose of
this disclosure. Estimated fair values have been determined by FCC using the
best available data and an estimation methodology suitable for each category
of financial instrument.
Fair value estimates are based on existing on and off-balance sheet
financial instruments without considering the value of future business and
the value of assets and liabilities that are not considered financial
instruments. Also, the tax ramifications related to unrealized gains
and losses have not been considered in any of the estimates.
Reasonable comparability between financial institutions may not be
likely due to the wide range of permitted valuation techniques and numerous
estimates which must be made given the absence of active secondary markets
for many of the financial instruments. This lack of uniform valuation
methodologies also introduces a greater degree of subjectivity to these
estimated fair values.
Certain financial instruments and all nonfinancial instruments are
excluded from the disclosure requirements of SFAS No. 107 and 119.
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.
On-balance sheet financial instruments:
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 - The fair value of securities held to maturity, available for
sale and held for sale is the market value. The market value was
determined from quoted prices or quoted prices of similar securities of
comparable risk and maturity where no quoted market price exists.
Loans - The fair value of loans, except for credit card loans, was
calculated by discounting the scheduled principal and interest payments
to maturity using estimates of December 31, 1994 and 1993 rates. For
credit card loans, cash flows and maturities were estimated based on
historical experience and discounted using an average yield adjusted
for servicing costs and credit losses.
Deposits - 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. 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 as of December 31,
1994, which is also their book value. However, these deposits do have an
inherent value due to the nature of the relationships with these long-
term depositors, which are reflected by the premiums that purchasers of
deposits have been willing to pay to sellers historically.
Short-term borrowings - The fair value of short-term borrowings is the
book value.
Long-term debt - The fair value of the long-term debt was estimated from
dealer quotes.
Off-balance sheet financial instruments:
Interest rate contracts - The fair values of interest rate contracts were
obtained from dealer quotes. The fair value of interest rate contracts is
not related to the notional amount. 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.
Foreign exchange contracts - The fair value of foreign exchange contracts
is related to the cash flows arising from these contracts and will
fluctuate based on currency values. The fair value of foreign exchange
contracts was immaterial.
Commitments to extend credit and letters of credit - The fair value of
commitments to extend credit and all types of letters of credit were
established using the fees currently charged to enter into similar
agreements. The aggregate fair value of these committments and letters
of credit was immaterial.
When-issued securities - The fair value of when-issued securities is the
par value. The fair value of when-issued securities was immaterial.
The estimated fair values of FCC's financial instruments follows (in
thousands).
December 31, 1994 December 31, 1993
- -------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- -------------------------------------------------------------------------------
On-balance sheet
financial assets:
Cash and short-term
investments $ 444,684 $ 444,684 $ 472,052 $ 472,052
Securities available
for sale/held for sale $2,458,443 $ 2,458,443 $1,779,927 $1,783,306
Securities held to
maturity $ 8,800 $ 8,801 $1,523,638 $1,547,086
Loans, net of unearned
income and the
allowance for loan
losses $3,182,997 $ 3,143,661 $2,606,395 $2,601,299
On-balance sheet financial
liabilities:
Deposits $5,458,070 $ 5,437,943 $5,309,859 $5,325,742
Short-term borrowings $ 470,483 $ 470,483 $ 678,316 $ 678,316
Long-term debt $ 88,956 $ 107,618 $ 89,704 $ 140,736
Off-balance sheet financial
instruments:
Interest rate contracts $ 2,586 $ (12,977) $ 773 $ (1,109)
===========================================================================
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
====================================================================
1994 1993 1992
- --------------------------------------------------------------------
Advertising and marketing $ 8,985 $ 8,203 $ 7,482
Stationery and supplies 6,643 6,439 5,798
Taxes, licenses and other fees 6,641 5,462 4,048
Computer-related services 6,495 5,886 5,300
Postage 4,937 5,000 5,071
Communications 3,960 3,865 3,370
Travel and entertainment 2,707 2,507 1,938
Credit card expense 2,689 2,714 1,806
Armored car, courier and freight 2,584 2,250 2,223
Nonperforming assets expense 763 1,152 6,329
Other 4,761 6,437 12,166
- --------------------------------------------------------------------
Total $ 51,165 $ 49,915 $ 55,531
====================================================================
===========================================================================
NOTE 22
INCOME TAXES
The components of income tax expense in the consolidated statements of
income for the years ended December 31, 1994, 1993, and 1992 were as follows
(in thousands):
Liability Method Deferred Method
- ------------------------------------------------------------------------------
1994 1993 1992
- ------------------------------------------------------------------------------
Current $ 22,834 $ 49,267 $ 35,182
Deferred 6,834 (8,626) (2,416)
- ------------------------------------------------------------------------------
Total $ 29,668 $ 40,641 $ 32,766
==============================================================================
Income tax expense related to state and foreign income taxes is included
above and was insignificant in all years presented. Income tax benefit
related to securities transactions was $15,243,000 in 1994, $148,000 in 1993
and $87,000 in 1992.
Total income tax expense for 1994, 1993 and 1992 was different from the amount
computed by applying the statutory federal income tax rates to pretax income as
follows (in percentages):
Years Ended December 31
===========================================================================================
Liability Method Deferred Method
- -------------------------------------------------------------------------------------------
1994 1993 1992
- -------------------------------------------------------------------------------------------
Federal income tax expense 35.00 % 35.00 % 34.00 %
Increase (decrease) resulting from:
Benefits attributable to tax-exempt interest (3.70) (2.85) (4.03)
Deferred taxes no longer needed - (2.86) 0.00
Effect of change in tax rate on beginning
deferred items - (0.33) 0.00
Effect of adopting SFAS 109 - 0.43 0.00
Nondeductible expenses 0.98 0.46 0.71
Other items, net (0.50) 0.06 0.18
- -------------------------------------------------------------------------------------------
Actual income tax expense 31.78 % 29.91 % 30.86 %
===========================================================================================
The current income tax (receivable) payable was $(1.89) million and $9.95
million on December 31, 1994 and 1993, respectively.
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 $54.56 million and $24.23 million on Dec. 31, 1994 and 1993,
respectively. The major temporary differences which created deferred tax
assets and liabilities as of December 31, 1994 and 1993 are as follows (in
thousands):
December 31, 1994 December 31, 1993
=====================================================================================================================
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
- ---------------------------------------------------------------------------------------------------------------------
Unrealized loss on securities $ 38,638 $ 0 $ 0 $ 0
Allowance for loan losses 19,309 0 24,508 0
Amortization of intangibles 3,039 0 3,703 0
Employee benefits 2,253 0 1,731 0
Interest on nonaccrual loans 1,310 0 2,431 0
Alowance for losses on foreclosed assets 630 0 2,705 0
Accumulated depreciation 0 4,165 0 4,242
Accrued liabilities 0 4,061 0 3,943
Bond accretion 0 3,190 0 3,968
Other 1,424 630 3,430 2,128
- ---------------------------------------------------------------------------------------------------------------------
Total deferred taxes $ 66,603 $ 12,046 $ 38,508 $ 14,281
=====================================================================================================================
Deferred income tax benefit for the year ended December 31, 1992 included the
following components (in thousands):
================================================
Provision for loan losses $ (1,818)
Provision for other losses (566)
Interest on nonaccrual loan (1,303)
Depreciation (546)
Direct lease financing inco (1)
Bond accretion (45)
Other items, net 1,863
- ------------------------------------------------
Total deferred tax benefit $ (2,416)
================================================
FCC's cash payments for federal income tax liabilities were $32.62 million,
$37.73 million and $31.20 million for 1994, 1993 and 1992, respectively.
===========================================================================
NOTE 23
CONDENSED PARENT COMPANY ONLY
FINANCIAL INFORMATION
Condensed Balance Sheets (in thousands)
December 31
=========================================================================
1994 1993
- -------------------------------------------------------------------------
ASSETS
Interest-bearing deposits in
subsidiary banks <FN1>
Cash and due from banks $ 96,883 $ 43,412
Time deposits 381 618
Loan receivable, net of unearned income 975 -
Investments in subsidiaries at equity <FN1>
Banks 440,245 530,581
Nonbanks 7,181 4,388
- -------------------------------------------------------------------------
447,426 534,969
Other assets 22,889 31,982
- -------------------------------------------------------------------------
Total assets $ 568,554 $ 610,981
=========================================================================
LIABILITIES
Payables to subsidiaries <FN1> $ 3,751 $ 7,583
Long-term debt 83,338 83,968
Other liabilities 10,419 9,758
- -------------------------------------------------------------------------
Total liabilities 97,508 101,309
STOCKHOLDERS' EQUITY 471,046 509,672
- -------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 568,554 $ 610,981
=========================================================================
<FN1> Eliminated in consolidation, except for goodwill and other intangibles.
Condensed Statements of Income (in thousands)
Years Ended December 31
======================================================================================
1994 1993 1992
- --------------------------------------------------------------------------------------
INCOME
Interest and dividends on
securities $ 860 $ 274 $ 104
Interest on receivables from
subsidiaries <FN1> 1,667 1,798 2,546
Dividends from subsidiaries <FN1> 90,030 22,123 3,386
Other income 25 234 5
- --------------------------------------------------------------------------------------
92,582 24,429 6,041
- --------------------------------------------------------------------------------------
EXPENSES
Interest on debt to nonbank subsidiaries 165 183 -
Interest on debt to nonaffiliates 10,670 11,204 11,313
Other 546 1,074 1,624
- --------------------------------------------------------------------------------------
11,381 12,461 12,937
- --------------------------------------------------------------------------------------
Income before income taxes and
equity in undistributed earnings
of subsidiaries 81,201 11,968 (6,896)
Income tax benefit (3,665) (13,514) (3,062)
- --------------------------------------------------------------------------------------
84,866 25,482 (3,834)
Equity in undistributed earnings
of subsidiaries <FN1> (21,182) 69,732 76,309
- --------------------------------------------------------------------------------------
NET INCOME 63,684 95,214 72,475
PREFERRED DIVIDEND
REQUIREMENTS 4,347 4,348 4,076
- --------------------------------------------------------------------------------------
INCOME APPLICABLE TO
COMMON SHARES $ 59,337 $ 90,866 $ 68,399
======================================================================================
<FN1> Eliminated in consolidation.
Parent Company
Statements of Cash Flows (in thousands)
Years Ended December 31
==========================================================================
1994 1993 1992
- --------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 63,684 $ 95,214 $ 72,475
Adjustments to reconcile net income to
net cash provided by operating activities
Equity in undistributed earnings
of subsidiaries (a) 21,182 (69,732) (76,309)
Deferred income tax (benefit) expense (183) (13,394) 304
Increase (decrease) in interest
payable 23 (21) (33)
Decrease in other assets 849 1,682 106
Increase (decrease) in other
liabilities (1,020) 27 (9,688)
Other 296 944 1,277
- --------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 84,831 14,720 (11,868)
- --------------------------------------------------------------------------
INVESTING ACTIVITIES
Investment in subsidiaries <FN1> (5,000) 3,000 (38,288)
Purchase of interest-bearing
time deposits <FN1> - - (2,020)
Proceeds from maturity of interest-
bearing time deposits <FN1> 237 313 2,335
(Increase) in loans (975) - -
Purchase of securities (11,998) (85,000) (22,300)
Proceeds from sales of securities 20,000 83,975 3,700
Principal collected on advances <FN1> 77,392 86,002 73,161
Advances originated or acquired <FN1> (80,755) (81,289) (73,366)
- --------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (1,099) 7,001 (56,778)
- --------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in commercial
paper - (500) 500
Payments on long-term debt (630) (5,842) (4,308)
Proceeds from issuance of stock
Common 1,840 5,385 52,019
Preferred - - 57,597
Cash dividends (31,471) (24,995) (17,872)
- --------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (30,261) (25,952) 87,936
- --------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 53,471 (4,231) 19,290
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 43,412 47,643 27,466
- --------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 96,883 43,412 46,756
==========================================================================
<FN1> Eliminated in consolidation.
MANAGEMENTS 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
judgements, 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 related to financial reporting, internal
accounting control and the nature, extent and results of the
audit effort. The independent public accountants and the
internal auditors have direct access to the Audit Committee with
or without management present.
The financial statements have been examined by Arthur
Andersen LLP, independent public accountants, who render and
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,
1994 and 1993, 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, 1994. 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 misstatements. 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, 1994 and 1993 and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in Note 1, effective January 1, 1994 the Company changed its
method of accounting for investment securities.
/s/ Arthur Anderson LLP
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
January 11, 1995
(except with respect to the
matters discussed in Note 2,
as to which the date is
February 17, 1995)