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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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 April 30, 1998
----- --------------------------------
Common Stock, $5.00 par value 39,870,296
TABLE OF CONTENTS
Page No.
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Part I: Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 1
Consolidated Statements of Income 2
Consolidated Statement of Changes in
Stockholders' Equity 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5
Report of Independent Public Accountants 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9
Part II: Other Information
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of
Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Part 1: Financial Information
- -----------------------------
Item 1 - Financial Statements
FIRST COMMERCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(dollars in thousands) March 31 December 31
===========================================================================================================
1998 1997
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ASSETS
Cash and due from banks $ 355,314 $ 433,558
Interest-bearing deposits in banks 68 68
Federal funds sold and securities purchased under resale agreements 305,000 29,000
Trading account securities 30,506 72,249
Securities available for sale, at fair value 2,092,038 2,242,401
Loans, net of unearned income 6,435,229 6,440,070
Allowance for loan losses (81,001) (83,192)
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Net loans 6,354,228 6,356,878
===========================================================================================================
Premises and equipment 151,583 156,401
Accrued interest receivable 97,740 105,819
Other assets 108,509 110,923
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Total assets $9,494,986 $9,507,297
===========================================================================================================
LIABILITIES
Noninterest-bearing deposits $1,395,574 $1,428,089
Interest-bearing deposits 6,342,910 6,379,344
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Total deposits 7,738,484 7,807,433
===========================================================================================================
Short-term borrowings 378,475 366,915
Accrued interest payable 52,080 55,026
Accounts payable and other accrued liabilities 80,484 66,125
Long-term debt 381,691 390,818
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Total liabilities 8,631,214 8,686,317
===========================================================================================================
STOCKHOLDERS' EQUITY
Preferred stock; 5,000,000 shares authorized, none issued - -
Common stock, $5 par value
Authorized -- 100,000,000 shares
Issued -- 39,821,643 and 39,240,854 shares, respectively 199,108 196,204
Capital surplus 198,792 175,582
Retained earnings 436,723 421,884
Unearned restricted stock compensation (6,862) (6,331)
Net unrealized gain on securities available for sale 36,011 33,641
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Total stockholders' equity 863,772 820,980
===========================================================================================================
Total liabilities and stockholders' equity $9,494,986 $9,507,297
===========================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated
Balance Sheets.
FIRST COMMERCE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data) Three Months Ended March 31
==============================================================================================
1998 1997
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INTEREST INCOME
Interest and fees on loans $139,983 $135,466
Interest and dividends on taxable securities 32,652 33,502
Interest on tax-exempt securities 1,453 1,510
Interest on money market investments 2,425 679
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Total interest income 176,513 171,157
==============================================================================================
INTEREST EXPENSE
Interest on deposits 68,608 62,503
Interest on short-term borrowings 4,882 7,294
Interest on long-term debt 7,597 5,527
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Total interest expense 81,087 75,324
==============================================================================================
NET INTEREST INCOME 95,426 95,833
PROVISION FOR LOAN LOSSES 9,510 13,225
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 85,916 82,608
==============================================================================================
OTHER INCOME
Deposit fees and service charges 12,905 14,038
Credit card fee income 11,680 12,561
Securitization revenue 5,226 -
Trust fee income 5,999 5,421
Broker/dealer revenue 3,247 2,778
ATM fee income 2,744 2,603
Other operating revenue 6,013 6,144
Venture capital securities transactions (103) -
Investment securities transactions 23 23
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Total other income 47,734 43,568
==============================================================================================
OPERATING EXPENSE
Salary expense 41,590 39,135
Employee benefits 8,255 7,471
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Total personnel expense 49,845 46,606
Equipment expense 7,395 7,134
Net occupancy expense 5,296 5,141
Communications and delivery expense 5,105 5,044
Advertising expense 3,676 3,835
Professional fees 2,809 2,522
FDIC insurance expense 341 323
Other operating expense 13,638 12,237
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Total operating expense 88,105 82,842
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INCOME BEFORE INCOME TAX EXPENSE 45,545 43,334
INCOME TAX EXPENSE 14,785 14,314
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NET INCOME $30,760 $29,020
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EARNINGS PER COMMON SHARE
Basic $0.78 $0.75
Diluted $0.75 $0.73
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 39,312,775 38,781,538
Diluted 43,381,523 42,281,369
==============================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these
Consolidated Financial Statements.
FIRST COMMERCE CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Net
Unrealized
Unearned Gain on
Restricted Securities
Common Capital Retained Stock Available for
(dollars in thousands except per share data) Stock Surplus Earnings Compensation Sale (a) Total
==================================================================================================================================
Balance at December 31, 1997 $ 196,204 $ 175,582 $ 421,884 $ (6,331) $ 33,641 $ 820,980
==================================================================================================================================
Comprehensive income:
Net income - - 30,760 - - 30,760
Other comprehensive income:
Unrealized gains on securities
available for sale, net of
reclassification adjustment (b) - - - - 3,646 3,646
Deferred income tax expense on
unrealized gains on securities
available for sale - - - - (1,276) (1,276)
- ----------------------------------------------------------------------------------------------------------------------------------
Total other comprehensive income - - - - 2,370 2,370
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Total comprehensive income - - 30,760 - 2,370 33,130
Cash dividends on common stock ($.40 per share) - - (15,921) - - (15,921)
Exercise of stock options 2,310 17,156 - - - 19,466
Conversion of 12 3/4% convertible debentures 594 2,574 - - - 3,168
Restricted stock activity - 3,480 - (531) - 2,949
==================================================================================================================================
Balance at March 31, 1998 $ 199,108 $ 198,792 $ 436,723 $ (6,862) $ 36,011 $ 863,772
==================================================================================================================================
(a) Unrealized gains on securities available for sale and the related tax effect are the only components of other comprehensive
income FCC is required to report.
(b) Shown net of an $80,000 reclassification adjustment which represents a realized loss from sales of securities avaialble for
sale during the period; the tax benefit related to this adjustment was $28,000.
The accompanying Notes to Consolidated Financial Statements are an integral part of this Consolidated Financial Statement.
FIRST COMMERCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
==========================================================================================================================
Three Months Ended
(dollars in thousands) March 31
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1998 1997
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OPERATING ACTIVITIES
Net income $30,760 $29,020
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 9,510 13,225
Depreciation and amortization of premises and equipment 6,132 5,991
Amortization of intangibles 575 585
Deferred income tax (benefit) expense 116 (12)
Net deferred loan (fees) (908) (1,122)
Net (gain) loss from venture capital securities transactions 103 -
Net (gain) loss from investment securities transactions (23) (23)
(Increase) decrease in trading account securities 41,743 (21,323)
(Increase) decrease in loans held for sale (15,206) 6,495
Decrease in accrued interest receivable 8,079 979
(Increase) decrease in other assets 1,388 (16,536)
Increase (decrease) in accrued interest payable (2,946) 6,237
Increase (decrease) in accrued compensation expense 7,744 (7,667)
Increase in accounts payable and other accrued liabilities 16,903 10,922
Other, net (2,728) (1,550)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 101,242 25,221
==========================================================================================================================
INVESTING ACTIVITIES
Net decrease in interest-bearing deposits in banks - 75
Proceeds from sales of securities available for sale 110 -
Proceeds from maturities/calls of securities available for sale 156,387 251,453
Purchases of securities available for sale (2,839) (223,603)
Net (increase) decrease in federal funds sold and
securities purchased under resale agreements (276,000) 27,125
Net (increase) decrease in loans 9,705 (19,278)
Purchases of premises and equipment (1,323) (7,156)
Proceeds from sales of foreclosed assets 4,408 3,933
Other, net 6 9
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NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (109,546) 32,558
==========================================================================================================================
FINANCING ACTIVITIES
Net (decrease) in transaction and savings accounts (58,121) (143,704)
Net increase (decrease) in time deposits (12,809) 355,586
Net increase (decrease) in short-term borrowings 11,560 (552,493)
Issuance of bank notes - 258,664
Maturities/payments on long-term debt (6,786) (6)
Cash dividends paid (15,683) (15,598)
Proceeds from issuance of common and treasury stock 11,899 577
Purchase of treasury stock - (2,208)
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NET CASH (USED) BY FINANCING ACTIVITIES (69,940) (99,182)
==========================================================================================================================
(DECREASE) IN CASH AND CASH EQUIVALENTS (78,244) (41,403)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 433,558 440,347
==========================================================================================================================
CASH AND CASH EQUIVALENTS AT END OF PERIOD $355,314 $398,944
==========================================================================================================================
Cash paid during the period for
Interest expense $84,033 $69,087
Income taxes $333 $5,500
==========================================================================================================================
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 1997
Annual Report on Form 10-K.
NOTE 2
BANC ONE Merger
On October 20, 1997, BANC ONE CORPORATION (BANC ONE) and
FCC entered into an agreement and plan of merger (the Merger
Agreement), pursuant to which FCC will be merged with a
wholly owned subsidiary of BANC ONE (the Merger).
On February 26, 1998, BANC ONE paid a 10% stock dividend
on its Common Stock. The Merger Agreement provides for
appropriate adjustments to the Exchange Ratio and other
factors used to determine or limit the exchange rate in the
event of a BANC ONE stock dividend or stock split. The
effect of the stock dividend under the Merger Agreement was
to increase the Exchange Ratio from 1.28 shares to 1.408
shares of BANC ONE Common Stock. Accordingly, each share of
FCC Common Stock outstanding immediately prior to the
effective time of the Merger will be converted into the right
to receive 1.408 shares of BANC ONE Common Stock.
The declaration of the dividend reduced BANC
ONE's average stock prices which could, under certain
circumstances, trigger termination rights. The average
closing prices as stipulated in the Merger Agreement were
reduced from $49.67 and $47.46 to $45.15 and $43.15,
respectively. Additionally, the closing stock price of BANC
ONE Common Stock on October 17, 1997 was adjusted from $55.19
to $50.17.
The Merger is expected to be consummated during the
second quarter of 1998, subject to a number of conditions,
including approval by the stockholders of FCC and receipt of
all requisite regulatory approvals.
On April 10, 1998, BANC ONE and First Chicago NBD
Corporation (First Chicago NBD) entered into an agreement and
plan of organization, pursuant to which BANC ONE and First
Chicago NBD will each merge with and into a new company
organized to efect the merger. The transaction, which is
subject to regulatory and shareholder approval, is expected
to be completed during the fourth quarter of 1998.
NOTE 3 - COMPREHENSIVE INCOME
Effective January 1, 1998, FCC adopted Statement of
Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" which established standards for
reporting comprehensive income and its components.
Comprehensive income is the total of net income and all other
nonowner changes in equity. Unrealized gains on securities
available for sale and the related tax effect are the only
components of other comprehensive income FCC is required to
report.
NOTE 4 - STOCK-BASED INCENTIVE COMPENSATION PLANS
During the three-month period ended March 31, 1998,
474,774 options were exercised with a weighted average
exercise price of $26.46. At March 31, 1998, FCC's
outstanding stock options totaled 1,203,715 with a weighted
average exercise price of $30.20. Exercisable stock options
totaled 580,979, with a weighted average exercise price of
$27.81, at March 31, 1998.
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 5 - 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.
NOTE 6
Earnings Per Share
The basic and diluted earnings per share computations for net income follow:
Three Months Ended
(dollars in thousands, except earnings per share) March 31
=============================
1998 1997
- -----------------------------------------------------------------------------------------
Basic earnings per share
Net income (income applicable to common shareholders) $30,760 $29,020
Weighted average number of common
shares outstanding (a) 39,312,775 38,781,538
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Basic earnings per share $.78 $.75
=========================================================================================
Diluted earnings per share
Income applicable to common shareholders $30,760 $29,020
Interest on convertible debentures, net of tax 1,640 1,667
- -----------------------------------------------------------------------------------------
Diluted income $32,400 $30,687
- -----------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding (a) 39,312,775 38,781,538
Restricted shares expected to be earned 188,082 151,198
Options assumed to be exercised 903,708 331,357
Convertible debentures assumed to be converted 2,976,958 3,017,276
- -----------------------------------------------------------------------------------------
Average shares for diluted computation 43,381,523 42,281,369
- -----------------------------------------------------------------------------------------
Diluted earnings per share $.75 $.73
=========================================================================================
(a) Excludes restricted shares which are issued subject to risk of forfeiture during
a vesting period.
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 March 31, 1998, and the related consolidated
statements of income and cash flows for the three-month periods
ended March 31, 1998 and 1997. 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,
1997 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 13, 1998, 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, 1997 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
April 14, 1998
Item 2
Management's Discussion and Analysis of Financial Condition
and Results of Operations
FIRST QUARTER IN REVIEW
First Commerce Corporation's (FCC's) net income for the
first quarter of 1998 was $30.8 million, up 6% from $29.0
million in 1997's first quarter. Diluted earnings per share
were $.75 in 1998's first quarter, compared to $.73 in the
same quarter of 1997. Return on average equity was 14.88%,
and return on average assets was 1.32% for 1998's first
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 1.408 shares
of BANC ONE common stock (the Exchange Rate) for each share
of FCC common stock. The Exchange Rate has been adjusted to
give effect to the 10% stock dividend on BANC ONE common
stock paid on February 26, 1998. The merger is subject to
various conditions, including shareholder and regulatory
approval, and is expected to be completed in the second
quarter of 1998. For additional information concerning the
merger agreement, see Note 2 to the consolidated financial
statements.
A detailed review of FCC's financial condition and
earnings for the first quarter of 1998 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 1997 Annual Report on Form 10-K.
EARNINGS ANALYSIS
Net Interest Income
Net interest income (FTE) for the first quarter of 1998
was $97.4 million, compared to $97.6 million in 1997's first
quarter. Net interest income was flat versus last year's
first quarter because of the $300 million credit card loan
securitization in the third quarter of 1997; that
securitization shifted net interest income to revenue that
is classified as noninterest income. The impact of the
securitization offset the favorable effect of continued loan
growth. Average loans grew 4% on a reported basis and 9% on
a managed basis (which includes owned loans plus the
securitized credit card receivables). The net interest
margin was 4.51% this quarter. The decrease from 4.70% in
the first quarter of 1997 was principally due to the
securitization in 1997's third quarter. Higher funding
costs also contributed to the decline. The increase in
funding costs was mainly related to FCC's customer retention
strategy of moving FCC's best clients to higher yielding
accounts.
Table 1 presents average balance sheets, net interest
income (FTE) and interest rates for the first quarters of
1998 and 1997. Table 2 analyzes the components of changes
in net interest income between these periods.
Provision For Loan Losses
The provision for loan losses was $9.5 million in the
first quarter of 1998, compared to $13.2 million in the
first quarter of 1997. The lower provision level was mainly
due to the $300 million credit card securitization.
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 was $47.7 million in 1998's first quarter,
compared to $43.6 million in the first quarter of 1997. The
credit card securitization in the third quarter of 1997
affects a comparison of the quarters due to the addition of
a noninterest income line item, securitization revenue.
Excluding the impact of securitization, noninterest income
was up 6% from last year's first quarter. Almost all
categories experienced growth, with the most significant
increase in credit card fee income. Credit card fee income
(excluding the impact of securitization) rose 23%,
reflecting increases in sales volumes and late charge fee
income. Additional increases were experienced in
broker/dealer revenue (17%) and trust income (11%) and were
mainly related to higher business volumes. Service charges
on deposits fell 8%, reflecting FCC's customer retention
strategy.
Operating Expense
Operating expense was $88.1 million in the first
quarter of 1998, compared to $82.8 million in the same
quarter of last year. The increase in operating expense was
mainly due to higher personnel expense. Personnel expense
rose $3.2 million, or 7%, reflecting annual merit raises and
higher incentive pay expense. Also contributing to the rise
in operating expense were higher nonperforming assets
($554,000) and data processing ($460,000) expenses.
Nonperforming assets expense was higher because of gains
recognized on property sales in last year's first quarter.
Higher data processing expense was due to increased software
amortization. The efficiency ratio was 60.70% for the
current quarter, compared to 58.70% in 1997's first quarter.
As with most other companies, many of the computer
programs that FCC uses were originally designed to recognize
calendar years by their last two digits. Transactions
processed using these truncated fields may not work properly
with dates from the year 2000 and beyond. FCC established a
task force in 1996 to prepare its data processing and other
systems to be Year 2000 compliant. This process involves
modifying or replacing certain hardware and software
maintained by FCC as well as ensuring that external service
providers are taking the appropriate actions. The team's
plan is to substantially complete this project by the end of
1998. The total internal and external costs for system
conversions and testing are not expected to be material.
FINANCIAL CONDITION ANALYSIS
Loans
Total loans of $6.4 billion at March 31, 1998 are net
of $300 million of securitized credit card receivables.
Managed loans, which include owned loans plus the
securitized credit card receivables, were $6.7 billion, 8%
higher than one year ago and flat versus year-end 1997.
Loan growth from last year's first quarter was broad-based,
with the most significant increases in commercial real
estate and commercial loans.
Securities
At March 31, 1998, securities were $2.1 billion,
compared to $2.2 billion at December 31, 1997. For both
periods, all securities were classified as available for
sale. Unrealized gains, net of tax, increased stockholders'
equity $36 million at the end of the current quarter,
compared to $34 million at year-end 1997.
Deposits
At March 31, 1998, total deposits were $7.7 billion,
compared to $7.8 billion at December 31, 1997. Average
deposits for the first quarter were $7.7 billion, 5% over
1997's same quarter. The most significant deposit growth
was in money market investment deposits.
Interest Rate Contracts
The total notional amount of FCC's interest rate
contracts at March 31, 1998 was $805 million, compared to
$811 million at year-end 1997. Table 3 summarizes FCC's
interest rate contracts at quarter-end. During the first
quarter, a $6 million swap matured. This swap converted a
portion of long-term bank notes from fixed to floating rate.
For the first quarter of 1998, interest rate contracts
increased net interest income $517,000. At March 31, 1998,
the estimated fair value of FCC's interest rate contracts
was $6.4 million.
Capital and Dividends
Stockholders' equity was 9.10% of total assets at March
31, 1998, compared to 8.64% at December 31, 1997. The
increase was due to net earnings retained during the first
quarter plus stock option exercises. Table 5 presents FCC's
risk-based and other capital ratios as of March 31, 1998 and
year-end 1997. All ratios remain well above regulatory
minimums.
FCC declared a dividend of 40 cents per share for the
first quarter. On April 15, 1998, FCC declared an
additional dividend of 13.5 cents per share to align FCC's
dividend rate for the first quarter with the dividend rate
of BANC ONE. At the end of the first quarter, the Parent
Company had $104 million of net working capital.
Additionally, the Parent Company could receive dividends
from the Banks without prior regulatory approval of $66
million, plus an amount equal to the Banks' adjusted net
profits for the remainder of the year.
Credit Risk Management
Nonperforming Assets and Past Due Loans
Nonperforming assets were $37 million at the end of the
first quarter, compared to $40 million at year-end 1997.
The decline reflected nonaccrual loans paid off, plus a $1.2
million charge-off. Nonperforming assets were .57% of loans
at the end of the first quarter, compared to .61% at
December 31, 1997. 58% of nonperforming loans were
contractually current or no more than 30 days past due at
the end of the current quarter, compared to 67% at December
31, 1997.
Foreclosed assets, which include unused bank premises,
fell $1 million from year-end 1997. The decline was the
result of property sales.
Accruing loans past due 90 days or more were $25
million, or .39% of loans, at March 31, 1998, compared to
$23 million, or .35% of loans, at year-end 1997. The
increase was in government-guaranteed student loans. Watch
list loans and foreclosed assets were $190 million at
quarter-end, compared to $201 million at December 31, 1997.
Table 6 presents information on nonperforming assets,
detailed by type, as of March 31, 1998 and December 31,
1997.
Allowance for Loan Losses
The allowance for loan losses was $81 million, or 1.26%
of loans, at March 31, 1998, compared to $83 million, or
1.29% of loans, at year-end 1997. The allowance for loan
losses was 234% of nonperforming loans at the end of 1998's
first quarter, compared to 231% at December 31, 1997.
Management believes that the allowance is adequate to cover
losses inherent in the loan portfolio.
Total net charge-offs of $11.7 million in the first
quarter represent a decrease of 11% from last year's first
quarter and an increase of 20% from last year's fourth
quarter. The increase in net charge-offs from fourth
quarter 1997 was primarily due to net charge-offs of $1.5
million in commercial and commercial real estate loans, of
which $1.2 million was attributable to one fully reserved
credit, versus net recoveries in 1997's fourth quarter. The
drop from 1997's first quarter reflected lower credit card
net charge-offs due to the $300 million credit card
securitization in the third quarter of 1997. Net charge-
offs of managed credit card loans were $10.6 million, or
4.58% of average loans, in the first quarter, compared to
$10.7 million, or 4.77% of average loans, in the fourth
quarter and $9.0 million, or 4.40%, in last year's first
quarter.
Economic conditions, national and regional trends, net
charge-off levels, and changes in the level and mix of the
loan portfolio, could cause FCC's provision for loan losses
to fluctuate from 1997 levels.
Table 7 presents the activity in the allowance for loan
losses for the first quarters of 1998 and 1997.
FORWARD LOOKING STATEMENTS
FCC may from time to time make written or oral forward-
looking statements, including statements contained in this
report and other filings with the Securities and Exchange
Commission, in its reports to stockholders and in other
communications by FCC, which are made in good faith by FCC
pursuant to the "Safe Harbor" provisions of the Private
Securities Litigation Reform Act of 1995.
These forward-looking statements are based on a number
of assumptions about future events and are subject to
various risks and uncertainties which may cause actual
results to differ materially from those in such statements.
These risks and uncertainties include, but are not limited
to, (i) the strength of the U. S. economy in general and the
strength of the local economies in which FCC conducts
operations, (ii) changes in trade, monetary and fiscal
policies, laws and regulations of government agencies and
similar organizations, including interest rate policies of
the Board of Governors of the Federal Reserve System, (iii)
inflation, interest rate, market and monetary fluctuations,
(iv) FCC's ability to improve sales and service quality and
to develop profitable new products, (v) the willingness of
users to substitute competitors' products and services for
FCC's products and services, (vi) the success of FCC in
gaining regulatory approval of its products and services,
when required, (vii) changes in consumer spending, borrowing
and saving habits, (viii) the effect of changes in
accounting policies and practices, as may be adopted by the
regulatory agencies as well as the Financial Accounting
Standards Board, (ix) the amount and rate of growth in FCC's
expenses and its ability to achieve targeted or projected
cost controls, (x) the costs and effects of litigation and
of unexpected or adverse outcomes in such litigation, (xi)
technological changes, including the possibility that FCC's
Year 2000 compatibility project may not be completed as
projected resulting in losses related to data processing and
other systems that may not operate as expected, (xii) the
possibility that FCC's merger with a wholly owned subsidiary
of BANC ONE CORPORATION may not be completed if one or more
of the conditions of the closing are not met, (xiii)
acquisitions and the integration of acquired businesses,
(xiv) the impact on FCC's financial statements of
nonrecurring accounting charges that may result from its
ongoing evaluation of its business strategies, asset
valuations and organizational structures, (xv) charge-off
and delinquency trends, (xvi) the effects of easing of
restrictions on the financial services industry, and the
effects of competition from institutions that can take
better advantage of eased restrictions and from new entries
into the markets served by FCC, and (xvii) the success of
FCC at managing the risks involved in the foregoing.
Readers are cautioned not to place undue reliance on
forward-looking statements made by or on behalf of FCC. Any
such statement speaks only as of the date it was made. FCC
undertakes no obligation to update or revise any forward-
looking statements.
TABLE 1. SUMMARY OF AVERAGE BALANCE SHEETS, NET INTEREST INCOME (FTE)(a) AND INTEREST RATES
=================================================================================================================================
Three Months Ended Three Months Ended
March 31, 1998 March 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------------
Average Average
(dollars in thousands) Balance Interest Rate Balance Interest Rate
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
EARNING ASSETS
Loans(b) $6,444,805 $141,368 8.88% $6,206,007 $136,552 8.91%
Securities
Taxable 2,028,865 32,692 6.49 2,053,070 33,554 6.60
Tax-exempt 77,385 2,027 10.48 84,398 2,128 10.08
- ---------------------------------------------------------------------------------------------------------------------------------
Total securities 2,106,250 34,719 6.64 2,137,468 35,682 6.74
- ---------------------------------------------------------------------------------------------------------------------------------
Money market investments 181,156 2,430 5.44 56,762 682 4.87
- ---------------------------------------------------------------------------------------------------------------------------------
Total earning assets 8,732,211 $178,517 8.27% 8,400,237 $172,916 8.33%
- ---------------------------------------------------------------------------------------------------------------------------------
NONEARNING ASSETS
Other assets(c) 796,365 765,290
Allowance for loan losses (83,644) (82,877)
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $9,444,932 $9,082,650
=================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
Interest-bearing deposits
NOW account deposits $1,301,165 $7,500 2.34% $1,271,108 $7,427 2.37%
Money market investment deposits 1,151,934 10,663 3.75 883,044 6,840 3.14
Savings and other consumer time deposits 2,730,548 33,819 5.02 2,748,014 32,486 4.79
Time deposits $100,000 and over 1,189,228 16,626 5.67 1,157,736 15,750 5.52
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 6,372,875 68,608 4.37 6,059,902 62,503 4.18
- ---------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 383,270 4,882 5.17 578,574 7,294 5.11
Long-term debt 387,564 7,597 7.84 257,275 5,527 8.59
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 7,143,709 $81,087 4.60% 6,895,751 $75,324 4.43%
- ---------------------------------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING LIABILITIES
AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits 1,344,180 1,312,968
Other liabilities 118,957 149,994
Stockholders' equity 838,086 723,937
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $9,444,932 $9,082,650
=================================================================================================================================
Net interest income (FTE) and margin $97,430 4.51% $97,592 4.70%
=================================================================================================================================
Net earning assets and interest spread $1,588,502 3.67% $1,504,486 3.90%
=================================================================================================================================
Cost of funds 3.76% 3.63%
=================================================================================================================================
(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 CHANGES IN NET INTEREST INCOME (FTE) (a)
==============================================================================================
Three Months Ended March 31, 1998
Compared to Three Months Ended
March 31, 1997
- ----------------------------------------------------------------------------------------------
Total Due to Due to
Increase Change in Change in
(in thousands) (Decrease) Volume Rate
- ----------------------------------------------------------------------------------------------
INTEREST INCOME (FTE)
Loans $ 4,816 $ 2,310 $ 2,506
Securities
Taxable (862) (618) (244)
Tax-exempt (101) (182) 81
- ----------------------------------------------------------------------------------------------
Total securities (963) (800) (163)
- ----------------------------------------------------------------------------------------------
Money market investments 1,748 1,703 45
- ----------------------------------------------------------------------------------------------
Total interest income (FTE) $ 5,601 $ 3,213 $ 2,388
INTEREST EXPENSE
Interest-bearing deposits
NOW account deposits $ 73 $ 174 $ (101)
Money market investment deposits 3,823 2,330 1,493
Savings and other consumer time deposits 1,333 (208) 1,541
Time deposits $100,000 and over 876 475 401
- ----------------------------------------------------------------------------------------------
Total interest-bearing deposits 6,105 2,771 3,334
- ----------------------------------------------------------------------------------------------
Short-term borrowings (2,412) (2,487) 75
Long-term debt 2,070 2,590 (520)
- ----------------------------------------------------------------------------------------------
Total interest expense $ 5,763 $ 2,874 $ 2,889
- ----------------------------------------------------------------------------------------------
Change in net interest income (FTE) $ (162) $ 339 $ (501)
==============================================================================================
(a) Changes not solely due to either volume or rate are allocated on a proportional basis.
TABLE 3. 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 $ 2 Dec 1998 -% -% 4.65% Transaction deposits
Swap 4,000 34 Feb 2000 6.37 5.63 - Long-term bank notes
Swaps 201,000 2,242 Jan 1999 - Feb 2002 6.39 5.64 - Retail brokered CDs
Swap 100,000 4,077 Mar 2002 7.18 5.68 - Prime-based loans
- ------------------------------------------------------------------------------------------------------------------------
Total at March 31, 1998 $805,000 $6,355 6.65% 5.65% 4.65%
========================================================================================================================
TABLE 4. ANALYSIS OF INTEREST INCOME (EXPENSE) FROM
INTEREST RATE CONTRACTS
=========================================================================
Option
Three months ended March 31, 1998 Based Generic
(in thousands) Instruments Swaps Total
- -------------------------------------------------------------------------
Interest income $ - $659 $659
Amortization expense (142) - (142)
- -------------------------------------------------------------------------
Net interest income ($142) $659 $517
=========================================================================
TABLE 5. RISK-BASED CAPITAL AND CAPITAL RATIOS
=================================================================
March 31 December 31
(dollars in thousands) 1998 1997
- -----------------------------------------------------------------
Tier 1 capital $ 812,925 $771,947
Tier 2 capital 111,922 115,380
- -----------------------------------------------------------------
Total capital $ 924,847 $887,327
=================================================================
Risk-weighted assets $6,686,322 $6,688,542
=================================================================
Ratios
Leverage ratio 8.65% 8.35%
Tier 1 capital 12.16% 11.54%
Total capital 13.83% 13.27%
Equity ratio 9.10% 8.64%
Tangible equity ratio 8.95% 8.48%
=================================================================
TABLE 6. NONPERFORMING ASSETS
==============================================================================================
March 31 December 31
(dollars in thousands) 1998 1997
- ----------------------------------------------------------------------------------------------
Nonaccrual loans by type
Loans to individuals-residential mortgages $8,436 $8,302
Loans to individuals-other 2,452 1,355
Commercial, financial and other 7,656 9,169
Real estate-commercial mortgages 15,689 16,634
Real estate-construction and other 422 537
- ----------------------------------------------------------------------------------------------
Total nonaccrual loans 34,655 35,997
- ----------------------------------------------------------------------------------------------
Foreclosed assets 2,158 3,554
- ----------------------------------------------------------------------------------------------
Total nonperforming assets $36,813 $39,551
==============================================================================================
Loans past due 90 days or more and not on nonaccrual status $25,258 $22,820
==============================================================================================
Ratios
Nonperforming assets as a percent of loans plus foreclosed
assets 0.57% 0.61%
Allowance for loan losses as a percent of nonperforming
loans 233.74% 231.11%
Loans past due 90 days or more and not on nonaccrual status
as a percent of loans 0.39% 0.35%
==============================================================================================
TABLE 7. SUMMARY OF LOAN LOSS EXPERIENCE
========================================================================================
Three Months Ended
March 31
(dollars in thousands) 1998 1997
========================================================================================
Allowance for loan losses at beginning of period $83,192 $81,606
Provision for loan losses 9,510 13,225
Loans charged to the allowance
Loans to individuals-residential mortgages 274 7
Loans to individuals-other 5,371 5,643
Commercial, financial and other 1,460 1,106
Real estate-commercial mortgages 24 20
Real estate-construction and other - 2
Credit card loans 7,221 9,988
- ---------------------------------------------------------------------------------------
Total charge-offs 14,350 16,766
- ---------------------------------------------------------------------------------------
Recoveries on loans previously charged to the allowance
Loans to individuals-residential mortgages 63 173
Loans to individuals-other 1,505 1,300
Commercial, financial and other 89 918
Real estate-commercial mortgages 13 281
Real estate-construction and other 3 5
Credit card loans 976 948
- ---------------------------------------------------------------------------------------
Total recoveries 2,649 3,625
- ---------------------------------------------------------------------------------------
Net charge-offs 11,701 13,141
- ---------------------------------------------------------------------------------------
Allowance for loan losses at end of period $81,001 $81,690
========================================================================================
Gross annualized charge-offs as a percent of average loans .89% 1.08%
Recoveries as a percent of gross charge-offs 18.46% 21.62%
Net annualized charge-offs as a percent of average loans .73% .85%
Allowance for loan losses as a percent of loans at end of period 1.26% 1.31%
========================================================================================
FIRST COMMERCE CORPORATION
SELECTED FINANCIAL DATA
(dollars in thousands, except per share data) 1998 1997
=====================================================================================================================
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEET DATA
Total assets $9,444,932 $9,294,972 $9,244,475 $9,108,807 $9,082,650
Earning assets 8,732,211 8,603,204 8,540,522 8,444,555 8,400,237
Loans - reported 6,444,805 6,342,332 6,396,330 6,328,964 6,206,007
Loans - managed* 6,744,805 6,642,332 6,575,678 6,328,964 6,206,007
Securities 2,106,250 2,208,532 2,073,360 2,058,183 2,137,468
Deposits 7,717,055 7,492,684 7,470,495 7,462,260 7,372,870
Long-term debt 387,564 390,797 374,356 340,208 257,275
Stockholders' equity 838,086 798,845 772,416 736,360 723,937
- ---------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
Total interest income $176,513 $176,077 $176,729 $175,121 $171,157
Net interest income 95,426 94,573 95,138 96,436 95,833
Net interest income (FTE) 97,430 96,440 96,910 98,292 97,592
Provision for loan losses 9,510 8,565 15,806 14,775 13,225
Other income (exclusive of investment securities
transactions) 47,711 50,267 51,875 48,824 43,545
Investment securities transactions 23 17 182 780 23
Operating expense 88,105 88,785 84,333 82,169 82,842
Net income 30,760 32,036 31,698 32,859 29,020
- ---------------------------------------------------------------------------------------------------------------------
KEY RATIOS
Return on average assets 1.32% 1.37% 1.36% 1.45% 1.30%
Return on average total equity 14.88% 15.91% 16.28% 17.90% 16.26%
Net interest margin 4.51% 4.46% 4.51% 4.67% 4.70%
Efficiency ratio 60.70% 60.52% 56.68% 55.85% 58.70%
Other income (excluding investment securities
transactions) to total revenue (FTE) 32.87% 34.26% 34.87% 33.19% 30.85%
Average loans to average deposits 83.51% 84.65% 85.62% 84.81% 84.17%
Allowance for loan losses to loans 1.26% 1.29% 1.33% 1.34% 1.31%
Nonperforming assets to loans plus foreclosed assets 0.57% .61% 0.64% 0.56% 0.59%
Allowance for loan losses to nonperforming loans 233.74% 231.11% 227.04% 258.92% 255.47%
Equity ratio 9.10% 8.64% 8.45% 8.17% 7.79%
Leverage ratio 8.65% 8.35% 8.07% 7.98% 7.70%
- ---------------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA
Earnings Per Common Share
Net income-basic $ .78 $ .83 $ .81 $ .85 $ .75
Net income-diluted $ .75 .79 $ .77 $ .81 $ .73
Common Dividends
Cash dividends $ .40 $ .40 $ .40 $ .40 $ .40
Dividend payout ratio 51.28% 48.19% 49.38% 47.06% 53.33%
Book Value (end of period)
Book value $21.80 $21.03 $20.29 $19.67 $18.58
Tangible book value $21.42 $20.63 $19.87 $19.24 $18.13
Common Stock Data
High stock price $88.38 $71.88 $57.38 $48.25 $46.38
Low stock price $61.00 $55.38 $43.38 $39.00 $38.25
Closing stock price $85.75 $67.25 $56.13 $44.00 $40.50
Trading volume (in thousands) 12,733 23,355 9,953 8,225 8,049
Number of stockholders (end of period) 8,543 8,876 9,008 9,193 9,223
Average Shares Outstanding (in thousands)
Basic 39,313 38,872 38,793 38,775 38,782
Diluted 43,382 43,136 42,902 42,619 42,281
NUMBER OF EMPLOYEES (end of period) 3,646 3,822 3,939 4,002 4,058
=====================================================================================================================
*Managed portfolio represents the owned loan portfolio plus the securitized credit card receivables.
Part II: Other Information
Item 1. Legal Proceedings
Legal proceedings involving FCC were previously
reported in its 1997 Annual Report on Form 10-K.
There have been no material developments since that
filing.
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 - Rights Agreement between FCC and First
Chicago Trust Company of New York as
Rights Agent included as Exhibit 4.3 to
FCC's Annual Report on Form 10-K for the
year ended December 31, 1995, and
incorporated herein by reference.
4.4 - Amendment to Rights Agreement between
FCC and First Chicago Trust Company of
New York as Rights Agent included as
Exhibit 4.3 to FCC's Quarterly Report on
Form 10-Q for the quarter ended September
30, 1997, and incorporated herein by
reference.
4.5 - Option Agreement between FCC and BANC
ONE CORPORATION included as Exhibit 99.3
to BANC ONE CORPORATION's Current Report
on Form 8-K filed October 29, 1997
(File No. 1-8552), and incorporated
herein by reference.
10.1 - Form of Employment Agreement between FCC
and Messrs. Arnof, Brooks, Flick, Gaines,
Ryan, Thompson, Wilson and Ms. Lee
included as Exhibit 10.1 to FCC's Annual
Report on Form 10-K for the year ended
December 31, 1995, and incorporated herein
by reference.
10.2 - Amended and Restated FCC Supplemental Tax-
Deferred Savings Plan included as Exhibit
10.2 to FCC's Quarterly Report on Form
10-Q for the quarter ended September
30, 1997, and incorporated herein by
reference.
10.3 - FCC Amended and Restated Retirement Benefit
Restoration Plan included as Exhibit 10.3
to FCC's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997,
and incorporated herein by reference.
10.4 - Form of Nonqualified Stock Option Agreement
under the FCC 1992 Stock 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 January 15, 1998
was filed by the Registrant under Item 7,
Financial Statements and Exhibits. The
document was filed to disclose FCC's issuance
of a press release dated January 15, 1998,
announcing FCC's earnings for the Fourth
Quarter of 1997.
A report on Form 8-K dated January 20, 1998
was filed by the Registrant under Item 5,
Other Events. The document was filed to
disclose BANC ONE CORPORATION's declaration on
January 20, 1998 of a 10% stock dividend on its
Common Stock. The report also disclosed that
on January 20, 1998, BANC ONE CORPORATION filed
its application with the Federal Reserve Board
for approval of the proposed merger.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
First Commerce Corporation
(Registrant)
By /s/ Thomas L. Callicutt, Jr.
----------------------------------
Thomas L. Callicutt, Jr.
Executive Vice President, Controller and
Principal Accounting Officer
Date: May 14, 1998