UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
Commission file number 0-7931
FIRST COMMERCE CORPORATION
(Exact name of registrant as specified in its charter)
Louisiana 72-0701203
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
201 St. Charles Avenue, 29th Floor 70170
New Orleans, Louisiana (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (504) 623-1371
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
------- ------
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock as of the last practicable date.
Class Outstanding as of October 31, 1997
----- ----------------------------------
Common Stock, $5.00 par value 39,035,538
FIRST COMMERCE CORPORATION
TABLE OF CONTENTS
Page No.
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Part I: Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Report of Independent Public Accountants 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Part II: Other Information 28
FIRST COMMERCE CORPORATION
CONSOLIDATED BALANCE SHEETS
==============================================================================================================================
September 30 December 31
(dollars in thousands) 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 350,635 $ 440,347
Interest-bearing deposits in banks 66 134
Federal funds sold and securities purchased under resale agreements 37,000 59,250
Trading account securities 22,687 13,122
Securities available for sale, at fair value 2,283,087 2,177,529
Loans, net of unearned income of $777 and $2,589, respectively 6,322,851 6,217,483
Allowance for loan losses (84,374) (81,606)
- ------------------------------------------------------------------------------------------------------------------------------
Net loans 6,238,477 6,135,877
==============================================================================================================================
Premises and equipment 162,153 170,431
Accrued interest receivable 99,971 105,888
Other assets 117,170 87,532
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $9,311,246 $9,190,110
==============================================================================================================================
LIABILITIES
Noninterest-bearing deposits $1,343,610 $1,436,038
Interest-bearing deposits 6,103,877 5,868,808
- ------------------------------------------------------------------------------------------------------------------------------
Total deposits 7,447,487 7,304,846
==============================================================================================================================
Short-term borrowings 542,866 944,823
Accrued interest payable 53,080 44,160
Accounts payable and other accrued liabilities 90,256 91,883
Long-term debt 390,774 80,723
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities 8,524,463 8,466,435
==============================================================================================================================
STOCKHOLDERS' EQUITY
Preferred stock; 5,000,000 shares authorized, none issued - -
Common stock, $5 par value
Authorized -- 100,000,000 shares
Issued -- 39,014,144 and 39,402,926 shares, respectively 195,071 197,015
Capital surplus 163,785 146,390
Retained earnings 407,405 373,521
Treasury stock -- 19,862 and 482,998 common shares, respectively, at cost (1,078) (13,150)
Unearned restricted stock compensation (6,444) (2,956)
Net unrealized gain on securities available for sale 28,044 22,855
- ------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 786,783 723,675
==============================================================================================================================
Total liabilities and stockholders' equity $9,311,246 $9,190,110
==============================================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Balance Sheets.
FIRST COMMERCE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
====================================================================================================================
Three Months Ended Nine Months Ended
September 30 September 30
- --------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $141,867 $125,134 $417,747 $356,079
Interest and dividends on taxable securities 32,477 35,127 98,484 107,915
Interest on tax-exempt securities 1,441 1,555 4,420 4,741
Interest on money market investments 944 522 2,356 2,727
- --------------------------------------------------------------------------------------------------------------------
Total interest income 176,729 162,338 523,007 471,462
====================================================================================================================
INTEREST EXPENSE
Interest on deposits 67,720 55,097 196,184 165,139
Interest on short-term borrowings 6,445 10,937 19,512 24,799
Interest on long-term debt 7,426 2,687 19,904 8,014
- --------------------------------------------------------------------------------------------------------------------
Total interest expense 81,591 68,721 235,600 197,952
====================================================================================================================
NET INTEREST INCOME 95,138 93,617 287,407 273,510
PROVISION FOR LOAN LOSSES 15,806 12,525 43,806 23,815
- --------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 79,332 81,092 243,601 249,695
====================================================================================================================
OTHER INCOME
Deposit fees and service charges 14,159 14,695 42,387 43,904
Credit card fee income 12,420 12,310 39,392 33,413
Securitization revenue 3,783 - 3,783 -
Trust fee income 5,807 5,266 17,037 15,183
Broker/dealer revenue 3,406 2,682 8,880 7,827
ATM fee income 2,680 2,349 7,984 7,247
Other operating revenue 6,140 6,276 18,292 19,305
Venture capital securities transactions 3,480 (1,200) 6,489 (1,200)
Investment securities transactions 182 (170) 985 953
- --------------------------------------------------------------------------------------------------------------------
Total other income 52,057 42,208 145,229 126,632
====================================================================================================================
OPERATING EXPENSE
Salary expense 39,458 37,268 115,911 110,661
Employee benefits 7,497 6,471 21,926 21,925
- --------------------------------------------------------------------------------------------------------------------
Total personnel expense 46,955 43,739 137,837 132,586
Equipment expense 7,729 6,958 22,339 19,754
Net occupancy expense 5,476 5,141 16,027 15,950
Communications and delivery expense 5,083 4,640 15,184 14,283
Advertising expense 3,607 3,521 11,520 10,157
Professional fees 2,958 2,916 8,848 9,566
FDIC insurance expense 344 5,842 1,009 7,057
Other operating expense 12,181 10,857 36,580 32,191
- --------------------------------------------------------------------------------------------------------------------
Total operating expense 84,333 83,614 249,344 241,544
====================================================================================================================
INCOME BEFORE INCOME TAX EXPENSE 47,056 39,686 139,486 134,783
INCOME TAX EXPENSE 15,358 13,155 45,909 45,052
====================================================================================================================
NET INCOME 31,698 26,531 93,577 89,731
PREFERRED DIVIDEND REQUIREMENTS - 698 - 2,116
====================================================================================================================
INCOME APPLICABLE TO COMMON SHARES $ 31,698 $ 25,833 $ 93,577 $ 87,615
====================================================================================================================
EARNINGS PER COMMON SHARE
Primary $ .79 $ .68 $ 2.36 $ 2.26
Fully diluted $ .77 $ .66 $ 2.31 $ 2.17
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Primary 39,884,260 38,074,386 39,588,741 38,693,526
Fully diluted 42,987,457 42,895,284 42,745,637 43,637,553
====================================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
FIRST COMMERCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
======================================================================================================================
Nine Months Ended
September 30
- ----------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 93,577 $ 89,731
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 43,806 23,815
Depreciation and amortization of premises and equipment 18,812 17,049
Amortization of intangibles 1,739 2,179
Deferred income tax (benefit) (6,017) (2,142)
Net deferred loan (fees) (3,167) (5,906)
Net (gain) loss from venture capital securities transactions (6,489) 1,200
Net (gain) from investment securities transactions (985) (953)
Net (gain) on branch divestiture - (1,137)
(Increase) in trading account securities (9,565) (16,660)
Decrease in accrued interest receivable 3,953 187
(Increase) in other assets (17,862) (13,621)
Increase in accrued interest payable 8,920 1,265
Increase in accounts payable and other accrued liabilities 9,014 16,081
Other, net 5,560 552
- ----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 141,296 111,640
======================================================================================================================
INVESTING ACTIVITIES
Net decrease in interest-bearing deposits in banks 68 657
Proceeds from sales of securities available for sale 523,747 5
Proceeds from maturities/calls of securities available for sale 770,374 562,055
Purchases of securities available for sale (1,383,901) (197,483)
Net decrease in federal funds sold and securities purchased under resale agreements 22,250 26,430
Net (increase) in loans (457,492) (734,920)
Branch divestiture - (14,410)
Purchases of premises and equipment (13,150) (20,059)
Proceeds from sales of foreclosed assets 11,662 9,394
Other, net 2,435 1,733
- ----------------------------------------------------------------------------------------------------------------------
NET CASH (USED) BY INVESTING ACTIVITIES (524,007) (366,598)
======================================================================================================================
FINANCING ACTIVITIES
Net proceeds from sale of securitized credit card receivables 296,525 -
Net (decrease) in transaction and savings accounts (122,483) (201,850)
Net increase in time deposits 263,143 115,933
Net increase (decrease) in short-term borrowings (401,957) 360,153
Issuance of bank notes 309,153 -
Payments on long-term debt (20) (156)
Cash dividends paid (46,764) (42,900)
Proceeds from issuance of common and treasury stock 2,838 407
Purchase of treasury stock (7,436) (60,508)
- ----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 292,999 171,079
======================================================================================================================
(DECREASE) IN CASH AND CASH EQUIVALENTS (89,712) (83,879)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 440,347 497,268
======================================================================================================================
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 350,635 $ 413,389
======================================================================================================================
Cash paid during the period for
Interest expense $ 226,680 $ 196,783
Income taxes $ 51,650 $ 46,790
======================================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
FIRST COMMERCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accounting and reporting policies of First Commerce
Corporation and its subsidiaries (FCC) conform with
generally accepted accounting principles and with general
practices within the financial services industry. In
preparing the consolidated financial statements, FCC is
required to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements
and accompanying notes. Actual results could differ from
those estimates.
The consolidated financial statements reflect all
adjustments which are, in the opinion of management,
necessary for a fair presentation of the consolidated
financial condition, results of operations and cash flows
for the interim periods presented. Adjustments included
herein are of a normal recurring nature and include
appropriate estimated provisions. The consolidated
financial statements for the interim periods have not been
independently audited. However, the interim consolidated
financial statements have been reviewed by FCC's independent
public accountants in accordance with standards for such
reviews established by the American Institute of Certified
Public Accountants, and their review report is included
herein.
The Notes to Consolidated Financial Statements included
herein should be read in conjunction with the Notes to
Consolidated Financial Statements included in FCC's 1996
Annual Report to Shareholders.
NOTE 2 - SUBSEQUENT EVENT
On October 20, 1997, Banc One Corporation (Banc One)
and FCC entered into an agreement and plan of merger (the
Merger Agreement), pursuant to which FCC will be merged with
a wholly owned subsidiary of Banc One (the Merger).
In accordance with the terms of the Merger Agreement,
each share of FCC common stock (FCC Common Stock)
outstanding immediately prior to the effective time of the
Merger (the Effective Time) will be converted into the right
to receive 1.28 shares (the Exchange Ratio) of Banc One
common stock (Banc One Common Stock). Each holder of FCC
Common Stock who would otherwise be entitled to receive a
fractional share of Banc One Common Stock (after taking into
account all of a shareholder's certificates) will receive
cash, in lieu thereof, without interest.
The Merger Agreement may be terminated by FCC by giving
notice to Banc One if (x) both (i) the average closing price
of Banc One Common Stock for the five full trading days
ending two business days before the closing date set for the
merger (the Average Closing Price) is less than $49.67 and
(ii) the number obtained by dividing the Average Closing
Price by $55.19 (the closing price of Banc One Common Stock
on October 17, 1997) is less than the number obtained by (a)
dividing the average of the closing prices of a specified
index of bank stocks during the above-mentioned five-day
period by the closing price of such index on October 17,
1997 and (b) subtracting 0.10; or (y) the Average Closing
Price is less than $47.46. If FCC seeks to terminate the
Merger Agreement pursuant to the conditions set forth in the
preceding sentence, Banc One may determine, in its sole
discretion, to increase the Exchange Ratio to eliminate
FCC's right to terminate the Merger Agreement.
The Merger is intended to constitute a reorganization
under Section 368(a) of the Internal Revenue Code of 1986,
as amended, and to be accounted for as a pooling-of-
interests.
In addition, the Merger Agreement contemplates that
each stock option or other right to purchase a share of FCC
Common Stock under the stock option and other stock-based
compensation plans of FCC (each an FCC Plan), will be
converted into and become a right to purchase 1.28 shares of
Banc One Common Stock in accordance with the terms of the
FCC Plan and the FCC option or right agreement by which it
is evidenced.
Consummation of the Merger is subject to various
conditions, including: (i) receipt of the requisite approval
by the shareholders of FCC; (ii) receipt of requisite
regulatory approvals from the Board of Governors of the
Federal Reserve System and other federal and state
regulatory authorities; (iii) receipt of opinions as to the
tax and accounting treatment of certain aspects of the
Merger; (iv) listing, subject to notice of issuance, of the
Banc One Common Stock to be issued in the Merger; and (v)
satisfaction of certain other conditions.
The Merger Agreement and the Merger will be submitted
for approval at a meeting of the shareholders of FCC. Prior
to such meeting, Banc One will file a registration statement
with the Securities and Exchange Commission registering
under the Securities Act of 1933, as amended, the Banc One
Common Stock to be issued to the FCC shareholders in the
Merger, including a prospectus that will also serve as a
proxy statement for the FCC shareholders' meeting.
In connection with the Merger Agreement, Banc One and
FCC entered into a stock option agreement dated October 20,
1997 (the Stock Option Agreement), pursuant to which FCC
granted to Banc One an option to purchase, under certain
circumstances, up to 9,689,000 shares of FCC Common Stock at
a price, subject to certain adjustments, of $64.00 per share
(the Option). The Option is exercisable upon the occurrence
of certain events, and, if exercised, would give the holder
thereof the right to acquire, after giving effect to the
exercise of the Option, 19.9% of the total number of shares
of FCC Common Stock outstanding. The Option Agreement was
granted by FCC as a condition and inducement to Banc One's
willingness to enter into the Merger Agreement.
In connection with the execution of the Merger
Agreement and the Option Agreement, FCC amended its Rights
Agreement, dated as of February 27, 1996 (as amended, the
Rights Agreement), between FCC and First Chicago Trust
Company of New York, as rights agent, to provide that the
agreements entered into in connection with the Merger with
Banc One would not trigger the rights issued under the
Rights Agreement.
The merger is expected to be consummated during the
first quarter of 1998.
NOTE 3 - ACCOUNTING FOR INTEREST RATE CONTRACTS
FCC uses various interest rate contracts including
interest rate swaps and option based instruments such as
floors, caps and collars to manage its interest rate
exposure. Currently, FCC has interest rate swaps and
floors. These interest rate contracts hedge against
interest rate risk by reducing either cash flow or market
value risk on specific assets or liabilities and are
accounted for using the hedge accounting method. Revenues
or expenses on these contracts are recognized over the lives
of the agreements as adjustments to interest income or
expense of the asset or liability hedged. Related fees and
any premiums paid or received are deferred and amortized
over the lives of the agreements. Any realized gains and
losses resulting from early termination of interest rate
contracts are deferred and amortized to the earlier of the
maturity date of the hedged asset or liability, or the
original expiration date of the contract. If the asset or
liability being hedged is disposed of, any unrealized or
deferred gain or loss on the related interest rate contract
is included in determining the gain or loss from the
disposition. Any interest rate contracts not qualifying for
deferral accounting are recorded at market value. Any
changes in market value are recognized in other income.
The derivative portfolio's performance is evaluated by
management on a continuous basis through the use of an
effectiveness report. Each derivative's objective is
compared to its actual performance so that management can
assess the effectiveness of FCC's interest rate risk
strategies.
NOTE 4 - CREDIT CARD SECURITIZATION
On August 7, 1997, FCC's subsidiary bank, First
National Bank of Commerce (First NBC), issued $300 million
of credit card securities which were backed by the cash
flows from credit card receivables. The offering was
through a trust called First NBC Credit Card Master Trust
and was part of a $750 million shelf registration for credit
card securities. First NBC retained the servicing and
customer relationships of the underlying credit card
accounts.
The offering included a publicly offered $259.5 million
series 1997-1, Class A certificates with a coupon of 6.15%
and an expected maturity of August, 2002 and $21 million of
Series 1997-1, Class B certificates with a coupon of 6.35%
and an expected maturity of September, 2002. Series 1997-1
also included a privately funded $19.5 million collateral
interest, which was subordinated to the Class A and Class B
certificates.
This offering was accounted for as a sale under the
criteria established by SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". The ongoing accounting
effect of securitization is to reduce net interest income
and the provision for loan losses while increasing
noninterest income. Included in the third quarter's
noninterest income was $3.8 million of securitization
revenue. Securitization revenue represents the net effect
of the securitized credit card receivables' net interest
income, provision for loan losses, credit card fee income,
and gains on sales. For the third quarter of 1997, the
securitization increased net income $1.5 million, or $.03
per fully diluted share.
NOTE 5 - LONG-TERM DEBT
In January 1997, First NBC established an ongoing bank
note program. At September 30, 1997, bank notes outstanding
totaled $310.1 million, with an average remaining maturity
of two years and an effective yield of 6.35%.
NOTE 6 - STOCK-BASED INCENTIVE COMPENSATION PLANS
On April 21, 1997, FCC's shareholders approved the FCC
1997 Stock Option Plan (the "Option Plan"). Under the
Option Plan, all outstanding stock appreciation rights
(SARs) were canceled and replaced with stock options with
equivalent terms. On April 25, 1997, each SAR was exchanged
for one newly-issued option to purchase one share of FCC's
common stock. The options issued in exchange for SARs
totaled 988,168. FCC's closing stock price on April 25,
1997 was $39.63.
During the first quarter of 1997, 254,633 stock options
were granted at a weighted average exercise price of $40.13.
Additionally, 97,947 shares of restricted stock plus
performance shares equal to 50% of restricted shares were
granted on this date.
At September 30, 1997, FCC's outstanding stock options
totaled 1,949,530 with a weighted average exercise price of
$28.65. Exercisable stock options totaled 846,951 at
September 30, 1997.
Stock options are granted at fair value at the date of
the grant. Options have a four-year vesting schedule with
25% of the options becoming exercisable each year. The
options expire eight years from the date of grant.
In the event of a change in control of FCC, all
outstanding options become exercisable immediately, and the
restrictions on all shares of restricted stock lapse
immediately. The consummation of the merger agreement
described in Note 2 will constitute such a change in
control.
NOTE 7 - EARNINGS PER SHARE
In February 1997, the FASB issued SFAS No. 128,
"Earnings Per Share" which establishes standards for
computing and presenting earnings per share (eps). Under
SFAS No. 128, primary eps is replaced with basic eps. Basic
eps is computed by dividing income applicable to common
shares by the weighted average shares outstanding; no
dilution for any potentially convertible shares is included
in the calculation. Fully diluted eps, now called diluted
eps, is still required; however, when applying the treasury
stock method, the average stock price is used rather than
the greater of the average or closing stock price for the
period. Under SFAS No. 128, basic eps was $.81 and $.68 for
the third quarters of 1997 and 1996, respectively. Diluted
eps was $.77 for the third quarter of 1997 and $.66 for the
third quarter of 1996. Basic eps was $2.41 and $2.28 for
the nine-month periods ending September 30, 1997 and 1996,
respectively. For the nine-month periods ending September
30, 1997 and 1996, diluted eps was $2.31 and $2.17,
respectively. SFAS No. 128 is effective for financial
statements issued for periods ending after December 15,
1997.
NOTE 8 - 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 claims cannot be determined. However, after consulting
with legal counsel, management believes any such liability
will not have a material adverse effect on FCC's
consolidated financial condition or results of operations.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders
and Board of Directors of
First Commerce Corporation:
We have reviewed the accompanying consolidated balance
sheet of FIRST COMMERCE CORPORATION (a Louisiana
corporation) and subsidiaries as of September 30, 1997, and
the related consolidated statements of income and cash flows
for the three-month and nine-month periods ended September
30, 1997 and 1996. These financial statements are the
responsibility of the company's management.
We conducted our review in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information
consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially
less in scope than an audit in accordance with generally
accepted auditing standards, the objective of which is the
expression of an opinion regarding the consolidated
financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the consolidated
financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with
generally accepted auditing standards, the consolidated
balance sheet of First Commerce Corporation and subsidiaries
as of December 31, 1996 and the related statements of
income, changes in stockholders' equity and cash flows for
the year then ended (not presented herein) and, in our
report dated January 10, 1997, we expressed an unqualified
opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying
consolidated condensed balance sheet as of December 31, 1996
is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been
derived.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
October 20, 1997
FIRST COMMERCE CORPORATION
SELECTED FINANCIAL DATA
(dollars in thousands, except per share data) 1997 1996
===================================================================================================================
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEET DATA
Total assets $9,244,475 $9,108,807 $9,082,650 $8,843,783 $8,526,062
Earning assets 8,540,522 8,444,555 8,400,237 8,188,195 7,857,391
Loans - reported 6,396,330 6,328,964 6,206,007 5,982,771 5,612,251
Loans - managed(a) 6,575,678 6,328,964 6,206,007 5,982,771 5,612,251
Securities 2,073,360 2,058,183 2,137,468 2,157,419 2,201,775
Deposits 7,470,495 7,462,260 7,372,870 6,950,851 6,792,549
Long-term debt 374,356 340,208 257,275 82,460 85,912
Stockholders' equity 772,416 736,360 723,937 710,131 709,896
- -------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
Total interest income $ 176,729 $ 175,121 $ 171,157 $ 169,763 $ 162,338
Net interest income 95,138 96,436 95,833 96,232 93,617
Net interest income (FTE) 96,910 98,292 97,592 97,776 95,051
Provision for loan losses 15,806 14,775 13,225 14,168 12,525
Other income (exclusive of investment securities
transactions) 51,875 48,824 43,545 45,498 42,378
Investment securities transactions 182 780 23 407 (170)
Operating expense 84,333 82,169 82,842 85,304 83,614
Net income 31,698 32,859 29,020 28,707 26,531
- -------------------------------------------------------------------------------------------------------------------
KEY RATIOS
Return on average assets 1.36% 1.45% 1.30% 1.29% 1.24%
Return on average total equity 16.28% 17.90% 16.26% 16.08% 14.87%
Return on average common equity 16.28% 17.90% 16.26% 16.81% 15.31%
Net interest margin 4.51% 4.67% 4.70% 4.76% 4.82%
Efficiency ratio 56.68% 55.85% 58.70% 59.54% 60.84%
Other income (excluding investment securities transactions)
as a percent of total revenue (FTE) 34.87% 33.19% 30.85% 31.76% 30.84%
Average loans to average deposits 85.62% 84.81% 84.17% 86.07% 82.62%
Allowance for loan losses to loans 1.33% 1.34% 1.31% 1.31% 1.36%
Nonperforming assets to loans plus foreclosed assets .64% .56% .59% .51% .57%
Allowance for loan losses to nonperforming loans 227.04% 258.92% 255.47% 299.42% 279.00%
Equity ratio 8.45% 8.17% 7.79% 7.87% 8.03%
Leverage ratio 8.07% 7.98% 7.70% 7.76% 7.90%
- -------------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA
Earnings Per Common Share
Primary $ .79 $ .83 $ .74 $ .76 $ .68
Fully diluted $ .77 $ .81 $ .73 $ .72 $ .66
Common Dividends
Cash dividends $ .40 $ .40 $ .40 $ .40 $ .35
Dividend payout ratio 50.63% 48.19% 54.05% 52.63% 51.47%
Book Value (end of period)
Book value $ 20.29 $ 19.67 $ 18.58 $ 18.66 $ 17.96
Tangible book value $ 19.87 $ 19.24 $ 18.13 $ 18.20 $ 17.46
Common Stock Data
High stock price $ 57.38 $ 48.25 $ 46.38 $ 39.88 $ 36.63
Low stock price $ 43.38 $ 39.00 $ 38.25 $ 34.88 $ 33.25
Closing stock price $ 56.13 $ 44.00 $ 40.50 $ 38.88 $ 34.88
Trading volume (in thousands) 9,953 8,225 8,049 7,095 9,118
Number of stockholders (end of period) 9,008 9,193 9,223 9,319 9,267
Average Shares Outstanding (in thousands)
Primary 39,884 39,606 39,269 37,771 38,074
Fully diluted 42,987 42,649 42,286 42,256 42,895
NUMBER OF EMPLOYEES (end of period) 3,939 4,002 4,058 4,036 3,997
===================================================================================================================
(a) Managed portfolio represents the owned loan portfolio plus the securitized credit card receivables.
THIRD QUARTER IN REVIEW
First Commerce Corporation's (FCC's) net income for the third
quarter of 1997 was $31.7 million, compared to $26.5 million in last
year's third quarter. Fully diluted earnings per share were $.77 in
1997's third quarter, compared to $.66 in the same quarter of 1996.
Return on average equity was 16.28%, and return on average assets was
1.36% for 1997's third quarter.
On October 20, 1997, FCC entered into an agreement providing for
the merger of FCC with a wholly owned subsidiary of Banc One
Corporation (Banc One). Terms of the agreement call for FCC
shareholders to receive 1.28 shares of Banc One common stock for each
share of FCC common stock. The merger is subject to various
conditions, including shareholder and regulatory approval, and is
expected to be completed in the first quarter of 1998. In connection
with the merger agreement, FCC also granted to Banc One an option to
purchase, under certain circumstances, up to 9,689,000 shares of FCC
common stock. For additional information concerning the merger
agreement and option, see Note 2 to the consolidated financial
statements.
A detailed review of FCC's financial condition and earnings for
the third quarter of 1997 follows. This review should be read in
conjunction with the consolidated financial statements of First
Commerce Corporation and Subsidiaries included in this report, and the
Financial Review in the 1996 Annual Report.
EARNINGS ANALYSIS
Credit Card Securitization
In the past three years, loan growth has outpaced deposit growth,
causing FCC to diversify its funding sources. On August 7, 1997,
FCC's subsidiary bank, First National Bank of Commerce (First NBC),
securitized $300 million of credit card receivables for additional
funding. First NBC retained the servicing and customer relationships
of the underlying credit card accounts.
The ongoing accounting effect of securitization is to reduce net
interest income and the provision for loan losses while increasing
noninterest income. Included in the third quarter's noninterest
income was $3.8 million of securitization revenue. Securitization
revenue represents the net effect of the securitized credit card
receivables' net interest income, provision for loan losses, credit
card fee income, and gains on sales. Table 1 presents the impact of
the credit card securitization on certain income statement line items
and ratios.
Net Interest Income
Net interest income (FTE) for the third quarter was $96.9
million, compared to $95.1 million in 1996's third quarter. The net
interest margin was 4.51% this quarter, compared to 4.82% in the third
quarter of 1996. As shown in Table 1, securitization reduced the
current quarter's net interest income and net interest margin $1.8
million and eight basis points, respectively. Adjusted for the impact
of securitization, net interest income rose 4% from 1996's third
quarter. The improvement was due to continued loan growth. Average
managed loans (which include the owned loan portfolio and the
securitized credit card receivables) grew 17% from last year's third
quarter, while average earning assets rose 9%, resulting in a more
favorable mix of earning assets. As a percent of earning assets,
average managed loans increased to 77% in the current quarter,
compared to 71% in 1996's third quarter. Higher funding costs
continue to offset the effect of loan growth on the net interest
margin. FCC's cost of funds was 3.79% in the third quarter, compared
to 3.48% in 1996's same quarter. Funding costs have been increasing
for several quarters due to the wholesale funding begun in 1996's
fourth quarter, the customer retention strategy of moving FCC's best
clients into higher yielding accounts, and the attrition of
noninterest-bearing accounts.
For the first nine months of 1997, net interest income (FTE) was
$292.8 million, up 5% from 1996's same period. This improvement
reflects 18% growth in average loans. The net interest margin was
4.62% for the first nine months of 1997, compared to 4.81% last year.
The decline reflected higher funding costs.
Table 2 presents average balance sheets, net interest income
(FTE) and interest rates for the third quarters of 1997 and 1996, and
for the first nine months of 1997 and 1996. Table 3 analyzes the
components of changes in net interest income between these periods.
Provision For Loan Losses
The provision for loan losses was $15.8 million in the third
quarter of 1997, compared to $12.5 million in last year's same
quarter. The provision exceeded net charge-offs by $5.5 million in
1997's third quarter, a reflection of both loan growth and the effect
of increasing charge-offs during the last twelve months on the
experience factor used in the allowance calculation, both of which are
expected to be factors in the provision calculation over the next few
quarters. As shown in Table 1, the credit card securitization reduced
1997's third quarter provision $2.8 million. For the nine-month
periods, the provision was $43.8 million in 1997, compared to $23.8
million in 1996. Higher net charge-offs and loan growth caused the
increase. Economic conditions, national and regional trends, net
charge-off levels, and changes in the level and mix of the loan
portfolio, may cause FCC's provision for loan losses to grow in future
periods.
For a discussion of the allowance for loan losses, net charge-
offs and nonperforming assets, see the Credit Risk Management section
of this Financial Review.
Other Income
Other income, excluding investment securities transactions, was
$51.9 million in the third quarter. The third quarter's noninterest
income included $3.8 million of securitization revenue, $2.5 million
of which would have been recorded as credit card fee income prior to
the securitization. Excluding the impact of securitization,
noninterest income was $50.6 million in 1997's third quarter, compared
to $42.4 million in the third quarter of 1996. Improvements were
experienced in virtually all categories, with the most significant in
venture capital securities transactions and credit card fee income.
The venture capital business realized a gain of $3.5 million from
the sale of securities of companies in which it invested, compared to
a $1.2 million loss in 1996's third quarter. FCC began its venture
capital business in 1994 to provide companies with capital for growth
through expansion or acquisition, satisfying the corporate finance
needs that traditional bank lending could not meet. Credit card fee
income (excluding the impact of securitization) rose $2.6 million, or
21%, reflecting higher purchase volumes and late charge fee income.
Higher late charge fee income was driven by both volume and pricing
increases. Additional increases were experienced in broker/dealer
revenue ($724,000, or 27%) and trust income ($541,000, or 10%) and
were mainly related to higher business volumes. Service charges on
deposits fell 4% from 1996's third quarter, reflecting FCC's customer
retention strategy and the attrition of noninterest-bearing accounts.
For the nine-month period, other income, excluding investment
securities transactions, was $144.2 million, 15% higher than in 1996.
Venture capital securities transactions and credit card fee income
were the most significant contributors to the increase. Venture
capital securities transactions resulted in gains of $6.5 million for
the first nine months of 1997, compared to a $1.2 million loss in
1996. Credit card fee income (excluding the impact of securitization)
increased $8.5 million, or 25%, due to higher purchase volumes and
late charge fee income. Improvements in trust ($1.9 million, or 12%)
and broker/dealer ($1.1 million, or 13%) income mainly reflected a
continuing rise in business volumes. Securitization revenue of $3.8
million for the nine-month period included $2.5 million which would
have been recorded as credit card fee income prior to the
securitization.
Investment securities transactions resulted in pretax net gains
of $182,000 in the third quarter of 1997, compared to pretax net
losses of $170,000 in last year's same period. Pretax net gains of
$985,000 and $953,000 were recorded in the nine months ended September
30, 1997 and 1996, respectively.
Operating Expense
Operating expense was $84.3 million in the third quarter of 1997,
compared to $83.6 million in last year's same quarter. Operating
expense in 1996's third quarter included a one-time Savings
Association Insurance Fund (SAIF) recapitalization assessment of $5.3
million. Excluding this nonrecurring charge, operating expense rose
8% from 1996's third quarter, mainly due to higher personnel expense.
Personnel expense rose $3.2 million, or 7%, reflecting expense for
incentive pay tied to stock performance, annual merit raises and
higher pension expense. Also contributing to the rise in operating
expense were higher equipment ($771,000) expense and lower deferred
consumer loan origination costs ($736,000). The rise in equipment
expense reflected increased depreciation. Lower deferred consumer
loan origination costs were mainly related to fewer indirect loan
originations. Higher bank stock taxes (Louisiana does not assess
income tax on commercial banks; rather, banks pay property tax based
on the value of their capital stock) and credit card expenses also
contributed to the rise in operating expense. The efficiency ratio
was 56.68% for the current quarter, compared to 57.00% in 1996's third
quarter (excluding the one-time SAIF assessment).
For the nine-months ended September 30, 1997, operating expense
was $249.3 million, compared to $241.5 million in 1996's same period.
Operating expense for 1996 included the above-mentioned $5.3 million
one-time SAIF assessment. Excluding this nonrecurring charge,
operating expense was up 6% from last year. Personnel expense rose
$5.3 million, or 4%, due to higher stock-based incentive expense and
annual merit raises. Higher equipment ($2.6 million), bank stock tax
($1.8 million) and advertising ($1.4 million) expenses also contributed
to the rise in operating expense. For the first nine months of 1997,
the efficiency ratio was 57.05%, compared to 58.57% for the same period
in 1996 (excluding the one-time SAIF assessment).
FCC has established a task force to prepare its data processing
and other systems to be Year 2000 compliant and expects to
substantially complete that project by the end of 1998. The total
internal and external costs for system conversions and testing are not
expected to be material.
FINANCIAL CONDITION ANALYSIS
Loans
Total loans of $6.3 billion at September 30, 1997 are net of $300
million of securitized credit card receivables. Managed loans, which
include owned loans plus the securitized credit card receivables, were
$6.6 billion, 14% higher than one year ago and 7% greater than year-
end 1996. Average managed loans for the third quarter of 1997 were
$6.6 billion, 17% higher than last year's third quarter. Loan growth
continues to be broad-based, with the most significant increases in
commercial and commercial real estate.
Securities
At September 30, 1997, securities were $2.3 billion, compared to
$2.2 billion at December 31, 1996. For both periods, all securities
were classified as available for sale. Unrealized gains, net of tax,
increased stockholders' equity $28 million at the end of the third
quarter, compared to $23 million at December 31, 1996. Market value
fluctuations are related to changes in the mix and level of securities
and market interest rates.
Money Market Investments
Money market investments were $60 million at September 30, 1997.
Average money market investments for the third quarter of 1997 were
$71 million, compared to $43 million for the third quarter of 1996.
As a percent of average earning assets, money market investments were
1% for both periods.
Deposits
At September 30, 1997, deposits were $7.4 billion, compared to
$7.3 billion at year-end 1996. Average deposits for the third quarter
were $7.5 billion, 10% over 1996's same quarter. Deposit growth was
primarily related to FCC's retail brokered certificate of deposit (CD)
program and public funds deposits. FCC's retail brokered CD program
was established in the fourth quarter of 1996. CDs issued under this
program are included in time deposits of $100,000 and over and
averaged $287 million for 1997's third quarter. Average core
deposits, which exclude time deposits of $100,000 and over, rose 3%
from the third quarter of 1996.
Short-Term Borrowings
Short-term borrowings were $543 million as of September 30, 1997,
a 43% decline from year-end 1996. The decline was due to FCC's
increased use of longer-term wholesale funding sources. During the
third quarter, short-term borrowings averaged $487 million, or 6% of
average earning assets, compared to $805 million, or 10% of average
earning assets, for 1996's third quarter.
Long-Term Debt
At September 30, 1997, long-term debt was $391 million, compared
to $81 million at December 31, 1996. In January 1997, First NBC
established an ongoing bank note program to diversify its wholesale
funding sources. The increase in long-term debt from year-end 1996
reflects the issuance of $310 million of bank notes under this
program.
Interest Rate Contracts
The total notional amount of FCC's interest rate contracts at
September 30, 1997 was $801 million, compared to $776 million at June
30, 1997. Table 4 summarizes FCC's interest rate contracts at
September 30, 1997. During the third quarter, FCC entered into
interest rate swaps with a total notional amount of $25 million.
These interest rate swaps convert a portion of retail brokered CDs
from fixed to floating rate.
For the third quarter and first nine months of 1997, interest
rate contracts increased net interest income $410,000 and $990,000,
respectively. At quarter-end, the estimated fair value of FCC's
interest rate contracts was $4.4 million.
Liquidity
In order to enhance liquidity, FCC has diversified its wholesale
funding sources. Retail brokered CD and bank note programs were
established in the fourth quarter of 1996 and the first quarter of
1997, respectively. In addition, FCC has established a credit card
securitization program. On August 7, 1997, First NBC issued $300
million of credit card securities under this program. This issuance
is discussed more completely in the Credit Card Securitization section
of this Financial Review.
Capital and Dividends
At September 30, 1997, stockholders' equity was 8.45% of total
assets, compared to 7.87% at December 31, 1996. The increase reflects
net earnings for the nine-month period, plus the effect of the
conversion of SARs to stock options during 1997's second quarter.
Table 6 presents FCC's risk-based and other capital ratios as of
September 30, 1997 and year-end 1996. All ratios remain well above
regulatory minimums. Under present regulations, all six of FCC's
banks are classified as "well-capitalized."
At the end of the third quarter, the Parent Company had $75
million of net working capital. Additionally, the Parent Company
could receive dividends from the Banks without prior regulatory
approval of $77 million, plus an amount equal to the Banks' adjusted
net profits for the remainder of the year.
Credit Risk Management
Nonperforming Assets
Nonperforming assets were $40 million at the end of the third
quarter, compared to $32 million at year-end 1996. The increase was
mainly due to commercial real estate loans placed on nonaccrual status.
Nonperforming assets were .64% of loans at the end of the third
quarter, compared to .51% at December 31, 1996. 65% of nonperforming
loans were contractually current or no more than 30 days past due at
the end of the current quarter, compared to 42% at December 31, 1996.
Accruing loans past due 90 days or more were $26 million, or .41%
of loans, at September 30, 1997, compared to $29 million, or .47% of
loans, at year-end 1996. Watch list loans and foreclosed assets were
$199 million at quarter-end, compared to $157 million at December 31,
1996.
Table 7 presents information on nonperforming assets, detailed by
type, as of September 30, 1997 and December 31, 1996.
Allowance for Loan Losses
The allowance for loan losses was $84 million, or 1.33% of loans,
at September 30, 1997, compared to $82 million, or 1.31% of loans, at
year-end 1996. During the third quarter, the allowance was reduced $9
million related to the credit card receivables securitized. For the
nine months ended September 30, 1997, the provision exceeded net
charge-offs by $11.6 million, reflecting both the strong loan growth
and the effect of increasing charge-offs during the last twelve
months, which impacted the experience factor used in the allowance
calculation, both of which are expected to be factors in the provision
calculation over the next few quarters. Management believes that the
allowance is adequate to cover losses inherent in the loan portfolio.
For the third quarter, net charge-offs were $10 million, or .65%
of loans. Managed net charge-offs (which include owned loans plus
securitized credit card receivables) were $12 million in the third
quarter, or .75% of average loans. Net charge-offs were $9 million,
or .55% of loans, in the second quarter of 1997 and $9 million, or
.61% of loans, in 1996's third quarter.
Higher net charge-offs of managed credit card loans caused the
increase in net charge-offs from 1996's third quarter. The increase
in managed net charge-offs from 1997's second quarter reflected a
large commercial real estate recovery received during the second
quarter. For the second consecutive quarter, credit card net charge-
offs declined. Net charge-offs of managed credit card loans totaled
$8.6 million, or 3.95% of average credit card loans in the third
quarter, compared to $8.7 million, or 4.16%, in the second quarter and
$9.0 million, or 4.40%, in the first quarter.
Economic conditions, national and regional trends, net charge-off
levels, and changes in the level and mix of the loan portfolio, may
cause FCC's provision for loan losses to grow in future periods.
Table 8 presents the activity in the allowance for loan losses
for the third quarters and first nine months of 1997 and 1996.
FORWARD LOOKING STATEMENTS
FCC may from time to time make written or oral forward-looking
statements, including statements contained in this report and other
filings with the Securities and Exchange Commission, in its reports to
stockholders and in other communications by the corporation, which are
made in good faith by the corporation pursuant to the "Safe Harbor"
provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are based on a number of
assumptions about future events and are subject to various risks and
uncertainties which may cause actual results to differ materially from
those in such statements. These risks and uncertainties include, but
are not limited to, (i) the strength of the U. S. economy in general
and the strength of the local economies in which FCC conducts
operations, (ii) changes in trade, monetary and fiscal policies, laws
and regulations of government agencies and similar organizations,
including interest rate policies of the Board of Governors of the
Federal Reserve System, (iii) inflation, interest rate, market and
monetary fluctuations, (iv) FCC's ability to improve sales and service
quality and to develop profitable new products, (v) the willingness of
users to substitute competitors' products and services for FCC's
products and services, (vi) the success of FCC in gaining regulatory
approval of its products and services, when required, (vii) changes in
consumer spending, borrowing and saving habits, (viii) the effect of
changes in accounting policies and practices, as may be adopted by the
regulatory agencies as well as the Financial Accounting Standards
Board, (ix) the amount and rate of growth in FCC's expenses and its
ability to achieve targeted or projected cost controls, (x) the costs
and effects of litigation and of unexpected or adverse outcomes in
such litigation, (xi) technological changes, including the possibility
that FCC's Year 2000 compatibility project may not be completed as
projected resulting in losses related to data processing and other
systems that may not operate as expected, (xii) the possibility that
FCC's merger with Banc One Corporation may not be completed if one or
more of the conditions of the closing are not met, (xiii) acquisitions
and the integration of acquired businesses, (xiv) the impact on FCC's
financial statements of nonrecurring accounting charges that may
result from its ongoing evaluation of its business strategies, asset
valuations and organizational structures, (xv) charge-off and
delinquency trends, (xvi) the effects of easing of restrictions on the
financial services industry, and the effects of competition from
institutions that can take better advantage of eased restrictions and
from new entries into the markets served by FCC, and (xvii) the
success of FCC at managing the risks involved in the foregoing.
Readers are cautioned not to place undue reliance on forward-
looking statements made by or on behalf of FCC. Any such statement
speaks only as of the date it was made. FCC undertakes no obligation
to update or revise any forward-looking statements.
TABLE 1. CREDIT CARD SECURITIZATION
=====================================================================================
Three Months Ended September 30, 1997
- -------------------------------------------------------------------------------------
Excluding
(dollars in thousands, Reported Impact of Impact of
except per share data) Basis Securitization Securitization
======================================================================================
INCOME STATEMENT DATA
Net interest income $95,138 $ 1,809 $96,947
Net interest income (FTE) 96,910 1,809 98,719
Provision for loan losses 15,806 2,794 18,600
Other income 52,057 (1,265) 50,792
Net income 31,698 (1,462) 30,236
======================================================================================
PER COMMON SHARE DATA
Net income - fully diluted $ .77 $( .03) $ .74
======================================================================================
KEY RATIOS
Net interest margin 4.51% .08% 4.59%
Efficiency ratio 56.68% (.21)% 56.47%
Net charge-off ratio .65% .10% .75%
======================================================================================
TABLE 2. SUMMARY OF AVERAGE BALANCE SHEETS, NET INTEREST INCOME (FTE)(a) AND INTEREST RATES
========================================================================================================
Three Months Ended Three Months Ended
September 30, 1997 September 30, 1996
- --------------------------------------------------------------------------------------------------------
Average Average
(dollars in thousands) Balance Interest Rate Balance Interest Rate
- --------------------------------------------------------------------------------------------------------
ASSETS
EARNING ASSETS
Loans(b) $6,396,330 $142,995 8.88% $5,612,251 $125,849 8.93%
Securities
Taxable 1,992,994 32,519 6.49 2,114,504 35,177 6.63
Tax-exempt 80,366 2,036 10.14 87,271 2,223 10.19
- --------------------------------------------------------------------------------------------------------
Total securities 2,073,360 34,555 6.64 2,201,775 37,400 6.77
- --------------------------------------------------------------------------------------------------------
Money market investments 70,832 951 5.33 43,365 523 4.80
- --------------------------------------------------------------------------------------------------------
Total earning assets 8,540,522 $178,501 8.30% 7,857,391 $163,772 8.30%
- --------------------------------------------------------------------------------------------------------
NONEARNING ASSETS
Other assets(c) 788,842 746,883
Allowance for loan losses (84,889) (78,212)
- --------------------------------------------------------------------------------------------------------
Total assets $9,244,475 $8,526,062
========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
Interest-bearing deposits
NOW account deposits $1,138,176 $6,296 2.19% $1,056,095 $5,003 1.88%
Money market investment deposits 1,032,795 9,412 3.61 864,976 6,560 3.02
Savings and other consumer time
deposits 2,715,637 33,679 4.92 2,778,321 33,148 4.75
Time deposits $100,000 and over 1,279,066 18,333 5.69 765,098 10,386 5.40
- --------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 6,165,674 67,720 4.36 5,464,490 55,097 4.01
- --------------------------------------------------------------------------------------------------------
Short-term borrowings 486,717 6,445 5.25 805,347 10,937 5.40
Long-term debt 374,356 7,426 7.92 85,912 2,687 12.44
- --------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 7,026,747 $ 81,591 4.61% 6,355,749 $ 68,721 4.30%
- --------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING LIABILITIES
AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits 1,304,821 1,328,059
Other liabilities 140,491 132,358
Stockholders' equity 772,416 709,896
- --------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $9,244,475 $8,526,062
========================================================================================================
Net interest income (FTE) and
margin $ 96,910 4.51% $ 95,051 4.82%
========================================================================================================
Net earning assets and interest
spread $1,513,775 3.69% $1,501,642 4.00%
========================================================================================================
Cost of funds 3.79% 3.48%
========================================================================================================
(a) Fully taxable equivalent based on a 35% tax rate.
(b) Net of unearned income, prior to deduction of allowance for loan losses and including nonaccrual loans.
(c) Includes mark-to-market adjustment on securities available for sale.
TABLE 2. SUMMARY OF AVERAGE BALANCE SHEETS, NET INTEREST INCOME (FTE)(a) AND INTEREST RATES (continued)
========================================================================================================
Nine Months Ended Nine Months Ended
September 30, 1997 September 30, 1996
- --------------------------------------------------------------------------------------------------------
Average Average
(dollars in thousands) Balance Interest Rate Balance Interest Rate
- --------------------------------------------------------------------------------------------------------
ASSETS
EARNING ASSETS
Loans(b) $6,311,130 $421,124 8.92% $5,354,500 $358,159 8.93%
Securities
Taxable 2,007,189 98,645 6.56 2,196,620 108,065 6.57
Tax-exempt 82,246 6,258 10.15 88,558 6,720 10.12
- --------------------------------------------------------------------------------------------------------
Total securities 2,089,435 104,903 6.71 2,285,178 114,785 6.70
- --------------------------------------------------------------------------------------------------------
Money market investments 61,719 2,367 5.13 72,074 2,732 5.06
- --------------------------------------------------------------------------------------------------------
Total earning assets 8,462,284 $528,394 8.34% 7,711,752 $475,676 8.24%
- --------------------------------------------------------------------------------------------------------
NONEARNING ASSETS
Other assets(c) 767,866 782,774
Allowance for loan losses (84,246) (76,417)
- --------------------------------------------------------------------------------------------------------
Total assets $9,145,904 $8,418,109
========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
Interest-bearing deposits
NOW account deposits $1,199,732 $ 20,308 2.26% $1,096,272 $ 15,738 1.92%
Money market investment deposits 949,688 24,077 3.39 848,095 18,938 2.98
Savings and other consumer time
deposits 2,734,535 99,399 4.86 2,795,005 99,194 4.74
Time deposits $100,000 and over 1,247,085 52,400 5.62 776,292 31,269 5.38
- --------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 6,131,040 196,184 4.28 5,515,664 165,139 4.00
- --------------------------------------------------------------------------------------------------------
Short-term borrowings 502,156 19,512 5.20 609,904 24,799 5.43
Long-term debt 324,375 19,904 8.18 86,305 8,014 12.40
- --------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 6,957,571 $235,600 4.52% 6,211,873 $197,952 4.26%
- --------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING LIABILITIES
AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits 1,304,529 1,350,799
Other liabilities 139,388 125,868
Stockholders' equity 744,416 729,569
- --------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $9,145,904 $8,418,109
========================================================================================================
Net interest income (FTE) and
margin $292,794 4.62% $277,724 4.81%
========================================================================================================
Net earning assets and interest
spread $1,504,713 3.82% $1,499,879 3.98%
========================================================================================================
Cost of funds 3.72% 3.43%
========================================================================================================
(a) Fully taxable equivalent based on a 35% tax rate.
(b) Net of unearned income, prior to deduction of allowance for loan losses and including nonaccrual loans.
(c) Includes mark-to-market adjustment on securities available for sale.
TABLE 3. SUMMARY OF CHANGES IN NET INTEREST INCOME (FTE) (a)
==============================================================================================================
Three Months Ended September 30, 1997 Three Months Ended September 30, 1997
Compared to Three Months Ended Compared to Three Months Ended
September 30, 1996 September 30, 1996
- --------------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------
INTEREST INCOME (FTE)
Loans $ 17,146 $ 16,323 $ 823 $ 62,965 $ 64,693 $(1,728)
Securities
Taxable (2,658) (2,045) (612) (9,420) (9,266) (154)
Tax-exempt (187) (175) (12) (462) (480) 18
- --------------------------------------------------------------------------------------------------------------
Total securities (2,845) (2,220) (624) (9,882) (9,746) (136)
- --------------------------------------------------------------------------------------------------------------
Money market investments 428 385 42 (365) (454) 89
- --------------------------------------------------------------------------------------------------------------
Total interest income (FTE) $ 14,729 $ 14,488 $ 241 $ 52,718 $ 54,493 $(1,775)
==============================================================================================================
INTEREST EXPENSE
Interest-bearing deposits
NOW account deposits $ 1,293 $ 409 $ 884 $ 4,570 $ 1,577 $ 2,993
Money market investment
deposits 2,852 1,399 1,453 5,139 2,413 2,726
Savings and other consumer
time deposits 531 (759) 1,290 205 (2,171) 2,376
Time deposits $100,000 and
over 7,947 7,337 610 21,131 19,721 1,410
- --------------------------------------------------------------------------------------------------------------
Total interest-bearing
deposits 12,623 8,386 4,237 31,045 21,540 9,505
- --------------------------------------------------------------------------------------------------------------
Short-term borrowings (4,492) (4,226) (266) (5,287) (4,226) (1,061)
Long-term debt 4,739 6,046 (1,307) 11,890 15,429 (3,539)
- --------------------------------------------------------------------------------------------------------------
Total interest expense $ 12,870 $ 10,206 $ 2,664 $ 37,648 $ 32,743 $ 4,905
- --------------------------------------------------------------------------------------------------------------
Change in net interest
income (FTE) $ 1,859 $ 4,282 $(2,423) $ 15,070 $ 21,750 $(6,680)
==============================================================================================================
(a) Changes not solely due to either volume or rate are allocated on a proportional basis.
TABLE 4. INTEREST RATE CONTRACTS
======================================================================================================================
Weighted Average Rate
---------------------------
Pay
Receive Floating
Notional Market Maturity Fixed Rate Strike Underlying
(dollars in thousands) Amount Value Date Rate (LIBOR) Rate Asset/Liability
- -----------------------------------------------------------------------------------------------------------------------
Floors $500,000 $ 17 December 1998 -% -% 4.65% Transaction deposits
Swaps 10,000 22 February 1998 - February 2000 6.19 5.66 - Long-term bank notes
Swaps 191,000 1,016 January 1999 - February 2002 6.40 5.74 - Retail brokered CDs
Swap 100,000 3,297 March 2002 7.18 5.78 - Loans
- -----------------------------------------------------------------------------------------------------------------------
Total at
September 30, 1997 $801,000 $4,352 6.65% 5.75% 4.65%
=======================================================================================================================
TABLE 5. NET INTEREST INCOME (EXPENSE) FROM INTEREST RATE CONTRACTS
=============================================================================
(in thousands) Floors Swaps Total
- -----------------------------------------------------------------------------
Three months ended September 30, 1997
Interest income $ - $ 552 $ 552
Amortization (142) - (142)
- -----------------------------------------------------------------------------
Net interest income (expense) $ (142) $ 552 $ 410
=============================================================================
Nine months ended September 30, 1997
Interest income $ - $ 1,416 $ 1,416
Amortization (426) - (426)
- -----------------------------------------------------------------------------
Net interest income (expense) $ (426) $ 1,416 $ 990
=============================================================================
TABLE 6. RISK-BASED CAPITAL AND CAPITAL RATIOS
===========================================================================
September 30 December 31
(dollars in thousands) 1997 1996
- ---------------------------------------------------------------------------
Tier 1 capital $ 742,799 $ 683,190
Tier 2 capital 130,728 126,993
- ---------------------------------------------------------------------------
Total capital $ 873,527 $ 810,183
===========================================================================
Risk-weighted assets $6,593,689 $6,294,032
===========================================================================
Ratios
Leverage ratio 8.07% 7.76%
Tier 1 capital 11.27% 10.85%
Total capital 13.25% 12.87%
Equity ratio 8.45% 7.87%
Tangible equity ratio 8.29% 7.69%
===========================================================================
TABLE 7. NONPERFORMING ASSETS
========================================================================================
September 30 December 31
(dollars in thousands) 1997 1996
- ----------------------------------------------------------------------------------------
Nonaccrual loans by type
Loans to individuals-residential mortgages $ 8,585 $ 7,908
Loans to individuals-other 1,403 1,007
Commercial, financial and other 10,940 11,037
Real estate-commercial mortgages 15,583 6,687
Real estate-construction and other 651 616
- ----------------------------------------------------------------------------------------
Total nonaccrual loans 37,162 27,255
- ----------------------------------------------------------------------------------------
Foreclosed assets 3,154 4,600
- ----------------------------------------------------------------------------------------
Total nonperforming assets $ 40,316 $ 31,855
========================================================================================
Loans past due 90 days or more and not on nonaccrual status $ 25,620 $ 29,451
========================================================================================
Ratios
Nonperforming assets as a percent of loans plus foreclosed
assets .64% .51%
Allowance for loan losses as a percent of nonperforming loans 227.04% 299.42%
Loans past due 90 days or more and not on nonaccrual status
as a percent of loans .41% .47%
========================================================================================
TABLE 8. SUMMARY OF LOAN LOSS EXPERIENCE
================================================================================================
Three Months Ended Nine Months Ended
September 30 September 30
(dollars in thousands) 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------
Allowance for loan losses at beginning of period $ 87,713 $ 75,332 $ 81,606 $ 75,845
Allowance related to receivables sold (8,790) - (8,790) -
Provision for loan losses 15,806 12,525 43,806 23,815
Loans charged to the allowance
Loans to individuals-residential mortgages 4 234 41 286
Loans to individuals-other 5,464 4,798 16,290 11,345
Commercial, financial and other 204 373 1,516 654
Real estate-commercial mortgages 227 37 248 38
Real estate-construction and other - - 2 -
Credit card loans 7,597 6,545 27,416 17,400
- ------------------------------------------------------------------------------------------------
Total charge-offs 13,496 11,987 45,513 29,723
- ------------------------------------------------------------------------------------------------
Recoveries on loans previously charged to the allowance
Loans to individuals-residential mortgages 72 178 303 326
Loans to individuals-other 1,356 1,376 4,007 3,451
Commercial, financial and other 605 689 2,094 2,165
Real estate-commercial mortgages 79 243 3,709 520
Real estate-construction and other 24 29 32 191
Credit card loans 1,005 925 3,120 2,720
- ------------------------------------------------------------------------------------------------
Total recoveries 3,141 3,440 13,265 9,373
- ------------------------------------------------------------------------------------------------
Net charge-offs 10,355 8,547 32,248 20,350
- ------------------------------------------------------------------------------------------------
Allowance for loan losses at end of period $ 84,374 $ 79,310 $ 84,374 $ 79,310
================================================================================================
Gross annualized charge-offs as a percent of
average loans .84% .85% .96% .74%
Recoveries as a percent of gross charge-offs 23.27% 28.70% 29.15% 31.53%
Net annualized charge-offs as a percent of average
loans .65% .61% .68% .51%
Allowance for loan losses as a percent of loans at
end of period 1.33% 1.36% 1.33% 1.36%
================================================================================================
Part II: Other Information
---------------------------
Item 1. Legal Proceedings
In the suit by First Trust National
Association (First Trust) against FCC's wholly
owned subsidiary, First National Bank of Commerce
(First NBC), reported in FCC's Form 10-Q for the
quarter ended June 30, 1997, First NBC filed an answer
to the suit, together with a counterclaim and
third party claims, on August 15, 1997. The
answer contends that First NBC acted properly under the
circumstances, that the suit is time-barred and
that First Trust lacks standing to bring the suit.
The counterclaim seeks attorneys fees and costs
against First Trust, and the third party claims
seek to hold responsible various individuals and
entities which supplied documentation to First NBC on which it
relied. Motions to dismiss First NBC's third party
claims have been filed. The motions assert that
First NBC's claims are barred by the statute of
limitations and cannot be brought as third party
claims. A trial date in the suit is tentatively
set for May, 1999, but First NBC intends to bring motions
earlier to dismiss the suit on the grounds that
First Trust lacks standing and that the suit is
time-barred.
FCC and its subsidiaries have been named as
defendants in various other 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, but is not expected to
be material.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
2.1 - Agreement and Plan of Merger between FCC,
Delta Acquisition Corporation and Banc One
Corporation included as Exhibit 99.2 to
Banc One Corporation's Current Report on Form
8-K filed October 29, 1997 (File No. 1-8552),
and incorporated herein by reference.
4.1 - Indenture between FCC and Republic Bank,
Dallas, N.A., Trustee, (trusteeship since
transferred to The Bank of New York)
including the form of 12 3/4% Convertible
Debentures due 2000, Series A included as
Exhibit 4.1 to FCC's Annual Report on Form
10-K for the year ended December 31, 1985,
and incorporated herein by reference.
4.2 - Indenture between FCC and Republic Bank,
Dallas, N.A., Trustee, (trusteeship since
transferred to The Bank of New York)
including the form of 12 3/4% Convertible
Debentures due 2000, Series B included as
Exhibit 4.2 to FCC's Annual Report on Form
10-K for the year ended December 31, 1985,
and incorporated herein by reference.
4.3 - Amendment to Rights Agreement between FCC and
First Chicago Trust Company of New York as
Rights Agent.
4.4 - Option Agreement between FCC and Banc One
Corporation included as Exhibit 99.3 to Banc
One Corporation's Current Report on Form 8-K
filed October 29, 1997 (File No. 1-8552),
and incorporated herein by reference.
10.1 - Form of Employment Agreement between FCC and
Messrs. Arnof, Brooks, Flick, Gaines, Ryan,
Thompson, Wilson and Ms. Lee included as
Exhibit 10.1 to FCC's Annual Report on Form
10-K for the year ended December 31,1995, and
incorporated herein by reference.
10.2 - FCC Amended and Restated Supplemental Tax-
Deferred Savings Plan.
10.3 - FCC Amended and Restated Retirement Benefit
Restoration Plan.
10.4 - Form of Nonqualified Stock Option Agreement
under the FCC 1992 Stock Incentive Plan and
Form of Restricted Stock Agreement under the
FCC 1992 Stock Incentive Plan included as
Exhibit 10.2 to FCC's Annual Report on Form
10-K for the year ended December 31, 1992,
and incorporated herein by reference.
10.5 - FCC Amended and Restated 1992 Stock Incentive
Plan included as Exhibit 10.4 to FCC's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, and incorporated
herein by reference.
10.6 - FCC Supplemental Executive Retirement Plan
included as Exhibit 10.6 to FCC's Annual
Report on Form 10-K for the year ended
December 31, 1996, and incorporated herein by
reference.
10.7 - FCC Directors' Phantom Stock Plan included as
Exhibit 10.7 to FCC's Annual Report on Form
10-K for the year ended December 31, 1996,
and incorporated herein by reference.
10.8 - FCC Change in Control Severance Plan included
as Exhibit 10.8 to FCC's Annual Report on
Form 10-K for the year ended December 31,
1996, and incorporated herein by reference.
10.9 - FCC 1997 Stock Option Plan included as
Exhibit 10.9 to FCC's Quarterly Report on
Form 10-Q for the quarter ended March 31,
1997, and incorporated herein by reference.
11 - Statement Re: Computation of Earnings Per
Share.
15 - Letter regarding unaudited interim financial
information.
27 - Financial Data Schedule.
(b) Reports on Form 8-K
A report on Form 8-K dated July 21, 1997 was filed
by the Registrant under Item 5, Other Events. The
document was filed to disclose FCC's issuance of a
press release dated July 15, 1997, announcing
FCC's earnings for the Second Quarter of 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
First Commerce Corporation
(Registrant)
Date: November 12, 1997 /s/ Thomas L. Callicutt, Jr.
------------------- ----------------------------
Thomas L. Callicutt, Jr.
Executive Vice President,
Controller and
Principal Accounting Officer