Financial Highlights
(dollars in thousands except per share data) 1995 1994 % Change
INCOME DATA
Net income $ 75,951 $ 80,227 (5)%
Operating income 83,369 108,477 (23)%
Net interest income (FTE) 349,317 330,056 6%
PER COMMON SHARE DATA
Net income - primary $ 1.89 $ 2.01 (6)%
Net income - fully diluted 1.87 1.98 (6)%
Operating income - primary 2.09 2.76 (24)%
Operating income - fully diluted 2.05 2.64 (22)%
Book value (end of period) 17.86 14.19 26 %
Tangible book value (end of period) 17.32 13.75 26 %
Cash dividends 1.25 1.10 14 %
AVERAGE BALANCE SHEET DATA
Securities $2,831,943 $3,356,825 (16)%
Loans and leases (a) 4,542,678 3,678,298 23 %
Earning assets 7,464,065 7,189,322 4 %
Total assets 8,141,194 7,827,303 4 %
Deposits 6,703,077 6,447,897 4 %
Stockholders' equity 687,533 623,169 10 %
KEY RATIOS
Return on average assets
-Net income .93% 1.02%
-Operating income 1.02% 1.39%
Return on average total equity
Net income 11.05% 12.87%
Operating income 12.13% 17.41%
Return on average common equity
Net income 11.41% 13.47%
Operating income 12.59% 18.49%
Net interest margin 4.68% 4.59%
Efficiency ratio 67.36% 65.92%
Overhead ratio 2.49% 2.39%
Allowance for loan losses to loans and leases (a) 1.48% 1.72%
Equity ratio 8.59% 7.45%
Leverage ratio 8.16% 8.20%
(a) Net of unearned income.
Prior period financial information presented in this Annual Report has been
restated for 1995 acquisitions accounted for as poolings-of-interests.
GRAPHS
(1) Net Interest Income (FTE) (millions)
The graph inserted shows net interest income (FTE) from 1991 to 1995. Net
interest income (FTE) is net interest income which has been adjusted by
increasing tax-exempt income to a level that would yield the same after tax
income had that income been subject to taxation. The plot points are:
Graph
Type Denominations 1991 1992 1993 1994 1995
-----------------------------------------------------------------
Bar Millions 254.3 305.5 322.9 330.1 349.3
(2) Noninterest Income (millions)
Excluding Nonrecurring Items
The graph inserted shows noninterest income excluding nonrecurring
items from 1991 to 1995. The plot points are:
Graph
Type Denominations 1991 1992 1993 1994 1995
-----------------------------------------------------------------
Bar Millions 103 118 126 135 148
(3) Operating Expense (millions)
Excluding Nonrecurring Items
The graph inserted shows operating expense excluding nonrecurring
items from 1991 to 1995. The plot points are:
Graph
Type Denominations 1991 1992 1993 1994 1995
-----------------------------------------------------------------
Bar Millions 239 260 280 301 312
(4) Loans as a Percent of Deposits (At End of Period)
The graph inserted shows loans as a percent of deposits (at end of period)
from 1991 to 1995. The plot points are:
Graph
Type Denominations 1991 1992 1993 1994 1995
-----------------------------------------------------------------
Bar % 60.35 48.02 50.34 57.05 67.77
FINANCIAL REVIEW
GLOSSARY
TERMS
BASIS POINT--The equivalent of one one-hundredth of one percent (.01%). This
unit is generally used to measure movements in interest yields and rates.
CORE DEPOSITS--All domestic deposits, excluding time deposits of $100,000 and
over. The most important and traditionally stable source of funds for the
company.
EARNING ASSETS--Assets that generate interest and related fee income, such as
loans and investments.
EARNINGS PER SHARE-PRIMARY--Net income, less preferred dividends, divided by the
weighted average number of common shares and equivalent shares outstanding.
FULLY DILUTED--Earnings per share reflecting the dilutive effect of all
contingently issuable shares.
INTEREST-FREE FUNDS--Noninterest-bearing liabilities plus stockholders' equity,
net of nonearning assets. This represents the portion of earning assets being
funded by noninterest-bearing funds.
INTEREST RATE SENSITIVITY--The sensitivity of net interest income to changes
in the level of market interest rates. The sensitivity results from differences
between the times at which assets and liabilities can be repriced when market
rates change.
LIQUIDITY--The ability of an entity to meet its cash flow requirements,
including withdrawals of deposits and funding of loan commitments. It is
measured by the ability to quickly convert assets into cash with minimal
exposure to interest rate risk, by the size and stability of the core deposit
base and by additional borrowing capacity within the money markets.
NET CHARGE-OFFS--The amount of loans written off as uncollectible, net of any
recoveries on loans previously written off.
NET INTEREST INCOME--The excess of interest income and fees on earning assets
over interest expense on interest-bearing liabilities.
NET INTEREST INCOME (FTE)--Net interest income which has been adjusted by
increasing tax-exempt income to a level that would yield the same after tax
income had that income been subject to taxation.
RISK-WEIGHTED ASSETS--The total of assets and off-balance sheet items which
have been weighted to reflect the credit risk of the asset.
TIER 1 CAPITAL--The sum of stockholders' equity and minority interest, less
goodwill and other intangibles, excluding net unrealized gains or losses on
available for sale securities.
TOTAL CAPITAL--Tier 1 capital plus the allowance for loan losses and
subordinated debt, subject to limitations.
RATIOS
COST OF FUNDS--Interest expense as a percent of average interest-bearing
liabilities plus interest-free funds.
DIVIDEND PAYOUT RATIO--Cash dividends per common share paid as a percent of
net income per share.
EFFICIENCY RATIO--Operating expense as a percent of net interest income
(FTE) plus other income, exclusive of securities transactions.
EQUITY RATIO--Stockholders' equity as a percent of total assets.
LEVERAGE RATIO--Tier 1 capital as a percent of average adjusted assets.
NET INTEREST MARGIN--Net interest income (FTE) as a percent of average
earning assets.
NET INTEREST SPREAD--The yield on earning assets less the cost of interest-
bearing liabilities.
OVERHEAD RATIO--Operating expense less other income, exclusive of securities
transactions, as a percent of average earning assets.
RETURN ON ASSETS--Net income as a percent of average total assets.
RETURN ON EQUITY--Net income as a percent of average total equity.
RISK-BASED CAPITAL RATIOS--Equity measurements used by regulatory agencies
to gauge capital adequacy. The ratios are tier 1 capital as a percent of risk-
weighted assets (minimum 4.0%) and total capital as a percent of risk-
weighted assets (minimum 8.0%).
YIELD ON EARNING ASSETS--Interest income (FTE) as a percent of average
earning assets.
1995 IN REVIEW
First Commerce Corporation's (FCC's) net income for 1995 was $76.0
million, versus $80.2 million in 1994. Excluding after tax losses on securities
transactions, operating income was $83.4 million in 1995 and $108.5 million in
1994. The primary reasons for the decline in operating income were $23.3
million in net merger-related and process innovation charges and a $41.0
million increase in the provision for loan losses. Fully diluted earnings per
share were $1.87 in 1995 and $1.98 in 1994.
(5) Operating Income (millions)
The graph inserted shows operating income from 1991 to 1995. The plot
points are:
Graph
Type Denominations 1991 1992 1993 1994 1995
--------------------------------------------------------------------------
Bar Millions 42.694 84.8 113.291 108.477 83.369
During 1995, FCC acquired five Louisiana financial institutions, adding
$1.5 billion of assets and 34 banking offices. The acquisitions of First
Bancshares, Inc. (First), Lakeside Bancshares, Inc. (Lakeside), Peoples
Bancshares, Inc. (Peoples) and Central Corporation (Central) were accounted for
as poolings-of-interests. Accordingly, all prior period financial information
has been restated to reflect the effect of these mergers. The acquisition of
City Bancorp, Inc. (City) was accounted for as a purchase. The acquisition of
Central marked FCC's entry into the north Louisiana market; the remaining
acquisitions expanded FCC's presence in its current markets.
Charges related to these mergers, net of a gain on required
divestitures, totaled $19.1 million in 1995. The majority of these charges
related to elimination of excess facilities and equipment, severance for
employees whose jobs were eliminated, expenses incurred to complete the
mergers, and conversion of customer accounts.
Process innovation charges totaled $4.2 million in 1995. These
costs primarily reflected write-downs related to branch closures plus
severance expense for employees whose jobs were eliminated through
re-engineering.
The provision for loan losses was $30.6 million for 1995, compared to
a negative $10.4 million in 1994. The increase primarily resulted from
continued growth in loans. Additionally, $10.0 million of the 1995
provision was in response to a $10.0 million charge-off related to the New
Orleans land-based casino project.
Earnings in 1995 were positively impacted by continued revenue
improvements and moderate expense growth, excluding merger-related and process
innovation charges. Net interest income grew 6% in 1995, primarily due to 23%
growth in average loans. Increased business volumes were the principal cause of
the 10% increase in other income, excluding securities transactions and the
gain on divestitures. Operating expense, excluding the above-mentioned charges,
grew a moderate 3% from 1994 to 1995.
As interest rates rose in 1994 and early 1995, FCC took the opportunity
to restructure a portion of its securities portfolio. Securities sold totaled
$1.8 billion in 1994 and $740 million in 1995; the proceeds from these sales
were primarily reinvested in higher-yielding securities. After tax losses of
$28.2 million and $7.4 million for 1994 and 1995, respectively, were
recognized on these sales.
The nonperforming assets and allowance ratios ended 1995 at 1.17% and
1.48%, respectively, compared to .58% and 1.72%, respectively, one year ago.
Net charge-offs were .59% of average loans for 1995, versus .11% in 1994. The
deterioration in asset quality measures from 1994 reflected, among other things,
1994's extremely low ratios when compared to historical levels for FCC and the
banking industry as a whole, plus weakness in the gaming industry.
A more detailed review of FCC's financial condition and earnings for
1995 follows, with comparisons to 1994 and 1993. This review should be read in
conjunction with the Consolidated Financial Statements and Notes which follow
this Financial Review. A glossary is included on page 15 to aid in
understanding terminology used in this Financial Review.
EARNINGS ANALYSIS
Net Interest Income
Net interest income, fully taxable equivalent (FTE), was $349.3
million in 1995, an increase of $19.3 million, or 6%, compared to 1994. The
net interest margin was 4.68% for 1995, nine basis points higher than in 1994.
Improvements in net interest income and the net interest margin reflected
loan growth and higher yields on both loans and securities.
Economic activity in Louisiana continued to drive loan growth in 1995.
Average loans increased 23% during 1995, resulting in a more favorable mix of
earning assets. Loans increased as a percent of average earning assets to 61% in
1995 from 51% last year. Loan growth was primarily funded by a reduction in
securities. Average securities fell 16% in 1995 and were 38% of average
earning assets, compared to 47% in 1994. Loan growth is expected to continue
into 1996.
Higher yields on loans and securities were related to the rise in
interest rates which began in 1994's second quarter and continued into early
1995. The yield on average loans rose 31 basis points in 1995, reflecting
higher-yielding new loans, plus repricing of existing floating rate loans. The
109 basis point increase in the securities yield from 1994 to 1995 reflected
FCC's active management of the portfolio during the period of rising interest
rates.
Average earning assets rose 4% in 1995. This growth was supported by a
5% increase in average interest-bearing deposits. The most significant growth
was in time deposits of $100,000 and over, mainly due to a rise in public funds
deposits.
These positive factors were partially offset by a twelve basis point
decline in the net interest spread during 1995. This drop primarily reflected
higher deposit costs as customers shifted into higher-yielding deposit products.
An offsetting factor to the narrower net interest spread was the value of
interest-free funds in the higher rate environment. Interest-free funds were
21% of average earning assets in both 1995 and 1994.
From 1993 to 1994, net interest income rose 2%, while the net interest
margin was one basis point higher. The primary causes of these improvements were
growth in average loans and average interest-free funds, partially offset by a
narrower net interest spread. Average loans grew 14% in 1994, and were 51% of
average earning assets, compared to 46% in 1993. During 1994, average
interest-free funds rose 10% and funded 21% of average earning assets, compared
to 19% in the prior year. The seven basis point decline in the net interest
spread was due to the impact of changes in the interest rate environment.
Table 1 presents the average balance sheets, net interest income (FTE)
and interest rates for 1995, 1994 and 1993. Table 2 provides the components of
changes in net interest income.
(6) Net Interest Income (FTE) (millions)
The graph inserted shows net interest income (FTE) from 1991 to 1995. Net
interest income (FTE) is net interest income which has been adjusted by
increasing tax-exempt income to a level that would yield the same after tax
income had that income been subject to taxation. The plot points are:
Graph
Type Denominations 1991 1992 1993 1994 1995
------------------------------------------------------------------------
Bar Millions 254.3 305.5 322.9 330.1 349.3
TABLE 1. SUMMARY OF AVERAGE BALANCE SHEETS, NET INTEREST INCOME (FTE)(F1)
AND INTEREST RATES
- -----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
Average Average Average
(dollars in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS
EARNING ASSETS
Loans and leases (F2) $4,542,678 $412,839 9.09% $3,678,298 $322,934 8.78% $3,213,885 $294,240 9.16%
Securities
Taxable 2,733,630 176,391 6.45 3,247,721 172,687 5.32 3,338,894 177,634 5.32
Tax-exempt 98,313 10,062 10.23 109,104 11,628 10.66 122,034 14,286 11.71
- -----------------------------------------------------------------------------------------------------------------------------------
Total securities 2,831,943 186,453 6.58 3,356,825 184,315 5.49 3,460,928 191,920 5.55
- -----------------------------------------------------------------------------------------------------------------------------------
Interest-bearing deposits in
Domestic banks 867 46 5.30 9,468 380 4.01 90,571 3,009 3.32
Foreign banks (F3) - - - 28,636 972 3.39 194,580 6,645 3.42
Federal funds sold and securities
purchased under resale agreements 74,109 4,376 5.90 113,593 5,070 4.46 82,119 2,352 2.86
Trading account securities 14,468 753 5.20 2,502 173 6.92 2,886 147 5.09
- -----------------------------------------------------------------------------------------------------------------------------------
Total money market investments 89,444 5,175 5.79 154,199 6,595 4.28 370,156 12,153 3.28
- -----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 7,464,065 $604,467 8.10% 7,189,322 $513,844 7.15% 7,044,969 $498,313 7.07%
- -----------------------------------------------------------------------------------------------------------------------------------
NONEARNING ASSETS
Other assets (F4) 752,546 716,441 722,530
Allowance for loan losses (75,417) (78,460) (90,279)
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $8,141,194 $7,827,303 $7,677,220
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
Interest-bearing deposits
NOW account deposits $1,023,939 $ 19,379 1.89% $1,017,052 $ 15,392 1.51% $1,053,281 $ 15,923 1.51%
Money market investment deposits 723,768 19,662 2.72 809,918 16,236 2.00 862,284 18,620 2.16
Savings and other consumer time
deposits 2,802,907 131,528 4.69 2,683,289 97,146 3.62 2,686,323 96,965 3.61
Time deposits $100,000 and over 732,788 40,373 5.51 509,696 20,069 3.94 450,396 16,359 3.63
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 5,283,402 210,942 3.99 5,019,955 148,843 2.97 5,052,284 147,867 2.93
- -----------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 558,136 33,015 5.92 586,483 23,633 4.03 540,615 15,384 2.85
Long-term debt 89,739 11,193 12.47 90,315 11,312 12.53 99,961 12,212 12.22
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 5,931,277 $255,150 4.30% 5,696,753 $183,788 3.23% 5,692,860 $175,463 3.08%
- -----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING LIABILITIES
AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits 1,419,675 1,427,942 1,332,639
Other liabilities 102,709 79,439 78,547
Stockholders' equity 687,533 623,169 573,174
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $8,141,194 $7,827,303 $7,677,220
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income (FTE) (F1)
and margin $349,317 4.68% $330,056 4.59% $322,850 4.58%
Net earning assets and spread $1,532,788 3.80% $1,492,569 3.92% $1,352,109 3.99%
- -----------------------------------------------------------------------------------------------------------------------------------
Total cost of funds 3.42% 2.56% 2.49%
- -----------------------------------------------------------------------------------------------------------------------------------
(F1) Based on a 35% tax rate.
(F2) Net of unearned income, prior to deduction of allowance for loan losses
and including nonaccrual loans.
(F3) Principally foreign branches of foreign and domestic banks; other foreign
assets and revenues are insignificant and have therefore not been
separately disclosed in this schedule.
(F4) Includes mark-to-market adjustment on securities available for sale for
years subsequent to 1993.
TABLE 2. SUMMARY OF CHANGES IN NET INTEREST INCOME (FTE)(F1)
- ---------------------------------------------------------------------------------------------------------------------------
1995 Compared to 1994 1994 Compared to 1993
- ---------------------------------------------------------------------------------------------------------------------------
Total Due to Due to Total Due to Due to
Increase Change in Change in Increase Change in Change in
(in thousands) (Decrease) Volume Rate (Decrease) Volume Rate
- ---------------------------------------------------------------------------------------------------------------------------
EARNING ASSETS
Loans and leases $89,905 $78,208 $11,697 $28,694 $41,159 $(12,465)
Securities
Taxable 3,704 (29,820) 33,524 (4,947) (4,848) (99)
Tax-exempt (1,566) (1,117) (449) (2,658) (1,440) (1,218)
- ---------------------------------------------------------------------------------------------------------------------------
Total securities 2,138 (30,937) 33,075 (7,605) (6,288) (1,317)
- ---------------------------------------------------------------------------------------------------------------------------
Interest-bearing deposits in
Domestic banks (334) (427) 93 (2,629) (3,149) 520
Foreign banks (972) (486) (486) (5,673) (5,633) (40)
Federal funds sold and securities purchased
under resale agreements (694) (2,057) 1,363 2,718 1,106 1,612
Trading account securities 580 633 (53) 26 (21) 47
- ---------------------------------------------------------------------------------------------------------------------------
Total money market investments (1,420) (2,337) 917 (5,558) (7,697) 2,139
- ---------------------------------------------------------------------------------------------------------------------------
Total interest income $90,623 $44,934 $45,689 $15,531 $27,174 $(11,643)
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
Interest-bearing deposits
NOW account deposits $ 3,987 $ 105 $ 3,882 $ (531) $ (548) $ 17
Money market investment deposits 3,426 (1,868) 5,294 (2,384) (1,094) (1,290)
Savings and other consumer time deposits 34,382 4,498 29,884 181 (110) 291
Time deposits $100,000 and over 20,304 10,618 9,686 3,710 2,264 1,446
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 62,099 13,353 48,746 976 512 464
- ---------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 9,382 (1,192) 10,574 8,249 1,397 6,852
Long-term debt (119) (72) (47) (900) (1,202) 302
- ---------------------------------------------------------------------------------------------------------------------------
Total interest expense $71,362 $12,089 $ 59,273 $ 8,325 $ 707 $ 7,618
- ---------------------------------------------------------------------------------------------------------------------------
Change in net interest income (FTE) $19,261 $32,845 $(13,584) $ 7,206 $26,467 $(19,261)
- ---------------------------------------------------------------------------------------------------------------------------
(F1) Based on a 35% tax rate.
Provision for Loan Losses
The provision for loan losses was $30.6 million in 1995, compared to
negative provisions in 1994 and 1993 of $10.4 million and $2.4 million,
respectively. Continued loan growth was the principal driver of the return to a
positive provision. Additionally, 1995's provision included $10.0 million in
response to a $10.0 million charge-off related to the closure of the
temporary New Orleans land-based casino and suspension of construction on the
permanent casino during 1995's fourth quarter.
For discussion of the allowance for loan losses, net charge-offs and
nonperforming assets, see the Credit Risk Management section of this Financial
Review.
(7) Provision for Loan Losses (millions)
The graph inserted shows the provision for loan losses from 1991 to 1995.
The plot points are:
Graph
Type Denominations 1991 1992 1993 1994 1995
-------------------------------------------------------------------------
Bar Millions 51.238 29.086 (2.424) (10.418) 30.60
Other Income
Other income, excluding securities transactions, was $151.3 million in
1995, compared to $134.6 million in 1994. Other income in 1995 included a $3.1
million gain on the required divestiture of two Lakeside branches. Excluding
this gain, other income rose 10% from 1994 to 1995. There were improvements in
all categories, with credit card fee income, service charges on deposits and
automated teller machine (ATM) fee income experiencing the largest growth.
Credit card fee income rose $4.1 million, or 13%, in 1995 from $30.5
million in 1994. Service charges on deposits increased $3.7 million, or 7%, to
$59.5 million in 1995. The increase in both categories was primarily the
result of higher volumes of transactions and accounts. Additional ATMs in
service and FCC's success in promoting this alternate delivery channel were the
main causes of the $2.6 million rise in ATM fee income to $8.4 million in 1995.
At year-end 1995, FCC had 359 ATMs.
TABLE 3. OPERATING EXPENSE
- -----------------------------------------------------------------------------
(in thousands) 1995 1994 1993
- -----------------------------------------------------------------------------
Salary expense $135,156 $132,836 $121,351
Employee benefits 30,052 29,104 28,254
- -----------------------------------------------------------------------------
Total personnel expense 165,208 161,940 149,605
Net occupancy expense 21,720 20,902 20,147
Equipment expense 24,717 20,901 17,507
Professional fees 16,298 16,321 14,362
FDIC insurance expense 8,665 14,413 14,510
Other operating expense 74,217 66,427 63,832
- -----------------------------------------------------------------------------
Total before merger-related
and process innovation charges 310,825 300,904 279,963
Merger-related charges 22,205 2,794 1,785
Process innovation charges 4,174 2,613 -
- -----------------------------------------------------------------------------
Total operating expense $337,204 $306,311 $281,748
- -----------------------------------------------------------------------------
Other income, excluding securities transactions, increased 7% from
1993 to 1994 largely due to increases in ATM, credit card and trust fee
income. ATM fee income rose $3.5 million, mainly due to a new usage
charge for non-customers, plus additional ATMs in service. Credit card and
trust fee income grew $2.7 million and $2.5 million, respectively, primarily
reflecting higher business volumes. Broker/dealer revenue declined $1.4 million
from 1993, reflecting decreased sales volumes of mutual funds in unfavorable
market conditions.
Securities transactions resulted in pretax net losses of $11.4 million
in 1995, $43.5 million in 1994 and $344,000 in 1993. These transactions are more
fully described in the Securities section of this Financial Review.
Operating Expense
Operating expense was $337.2 million in 1995, compared to $306.3 million
in 1994. The largest components of 1995's $22.2 million in merger-related
charges were $8.1 million for excess facilities and equipment, $6.4 million for
severance, $3.5 million for expenses incurred to complete the mergers, and $2.2
million for conversion of customer accounts. 1995's operating expense also
included $4.2 million in process innovation charges, mainly write-downs
associated with branch closures plus severance expense related to jobs
eliminated through re-engineering. Merger-related and process innovation
charges incurred in 1994 totaled $2.8 million and $2.6 million, respectively.
Table 3 shows the components of operating expense for the past three years,
after adjusting for these charges.
Excluding the above-mentioned charges in both years, operating expense
increased a moderate 3%, or $9.9 million, in 1995. The most significant
increases were in equipment, personnel and other operating expenses. The
acquisition of City, which was accounted for as a purchase transaction,
contributed approximately $2.0 million to the increase.
Equipment expense increased $3.8 million, or 18%, primarily due to
higher depreciation related to FCC's investment in new sales and service
technology. Personnel expense rose only 2%, or $3.3 million, reflecting annual
merit raises, partially offset by a 3% decrease in the average number of
employees. The rise in other operating expense was mainly due to increases in
advertising, communications and credit card expenses of $3.0 million, $1.5
million and $1.2 million, respectively. FDIC insurance premium expense fell
$5.7 million in 1995 as strengthened FDIC reserves resulted in a reduction
in the FDIC insurance premium rate.
From 1993 to 1994, operating expense, excluding one-time charges, rose
7%, primarily due to higher personnel, equipment and professional fees expenses.
An 8% increase in personnel expense was mainly due to annual raises and higher
staffing levels. Higher equipment and professional fees expenses of
19% and 14%, respectively, were mainly related to costs associated with FCC's
strategic and customer service initiatives.
Effective January 1, 1996, the rate paid by the banks for deposit
insurance to the Bank Insurance Fund (BIF) has been reduced to zero.
Approximately 85% of FCC's deposits are insured by the BIF. Legislation is
pending regarding a special one-time assessment of approximately $.87 per $100
of deposits insured by the Savings Association Insurance Fund (SAIF). FCC has
approximately $1.0 billion in SAIF-insured deposits.
FCC monitors the efficiency ratio as one measure of its success at
increasing revenues, while controlling expense growth. Excluding one-time
charges, the efficiency ratio was 63% in 1995, compared to 65% in 1994. The
process innovation and other strategic initiatives undertaken by FCC over the
last three years, post-merger efficiencies and reduced FDIC insurance costs are
expected to drive continued improvements in this ratio.
Income Taxes
Income tax expense was $39.5 million in 1995, $38.6 million in 1994 and
$49.5 million in 1993. The changes in income tax expense resulted primarily from
changes in pretax income and nondeductible merger-related expenses. FCC's
effective tax rate was 34% for 1995, 32% for 1994 and 30% for 1993. These
effective rates are lower than the 35% federal statutory tax rate, primarily
because of tax-exempt interest income received from the financing of state and
local governments. The lower rate in 1993 reflects one-time credit adjustments
to income tax expense in that year. Louisiana does not assess an income tax
on commercial banks; rather, banks pay property tax based on the value of
their capital stock in lieu of income and franchise taxes.
For additional information on FCC's effective tax rates and the
composition of changes in income tax expense for all periods, see Note 19.
TABLE 4. LOANS AND LEASES OUTSTANDING BY TYPE
- ---------------------------------------------------------------------------------------------------------------------------
December 31
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands) 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------
Loans to individuals - residential mortgages $ 975,331 $ 753,127 $ 649,571 $ 486,788 $ 486,705
Loans to individuals - other 1,435,165 1,161,246 947,024 731,092 681,632
Commercial, financial and agricultural 1,020,477 822,833 589,856 584,873 719,926
Real estate - commercial mortgages 769,019 656,294 659,422 568,909 493,862
Real estate - construction and other 198,672 119,235 123,510 120,407 131,499
Credit card loans 617,824 509,076 465,425 464,146 481,723
Other 113,308 124,900 144,395 132,004 96,494
Unearned income (7,070) (17,472) (27,497) (33,491) (38,564)
- ---------------------------------------------------------------------------------------------------------------------------
Total loans and leases, net of unearned income $5,122,726 $4,129,239 $3,551,706 $3,054,728 $3,053,277
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL CONDITION ANALYSIS
LOANS
Total loans increased $993 million, or 24%, to $5.1 billion at December
31, 1995. Average loans grew 23% in 1995 following growth of 14% during 1994. As
shown in Table 4, loan growth reflected continued strong demand across all
sectors of the portfolio. Loan growth is expected to continue into 1996.
The pie chart on page 23 presents data on the loan portfolio by
borrower's industry, excluding consumer loans. Note 6 contains additional
information on loan concentrations. Table 5 provides information on the
maturities and rate sensitivities by loan type.
CONSUMER LOANS include loans to individuals and credit card loans. Loans
to individuals continue to be the largest segment of the loan portfolio at 47%
of total loans. Loans to individuals were $2.4 billion at the end of 1995 and
were 26% higher than at the prior year-end. Residential mortgage loans, indirect
automobile loans and education loans contributed significantly to the
increase in 1995. As of December 31, 1995, credit card loans were $618
million, or 12% of total loans, and were 21% higher than at 1994's year-end.
This increase reflects selective promotional campaigns, plus the impact of FCC's
expansion of its credit card services to the military. In 1996 FCC will continue
implementing its contract with the military, which is expected to generate
additional growth in credit card outstandings.
TABLE 5. LOAN MATURITIES AND RATE SENSITIVITIES BY TYPE
- ---------------------------------------------------------------------------------------------------------------------------
December 31, 1995
Maturing
- ------------------------------------------------------------------------------------------------------------------
Within One to After
(in thousands) One Year Five Years Five Years Total
- ------------------------------------------------------------------------------------------------------------------
Fixed
Loans to individuals - residential mortgages $ 58,369 $ 303,339 $537,441 $ 899,149
Loans to individuals - other 101,196 921,404 40,837 1,063,437
Commercial, financial and agricultural 263,062 205,358 39,160 507,580
Real estate - commercial mortgages 89,015 314,571 124,860 528,446
Real estate - construction and other 40,795 57,435 14,495 112,725
Credit card loans 389,444 - - 389,444
Other 46,570 28,214 14,779 89,563
- ------------------------------------------------------------------------------------------------------------------
Total fixed loans and leases 988,451 1,830,321 771,572 3,590,344
- ------------------------------------------------------------------------------------------------------------------
Floating
Loans to individuals - residential mortgages 54,760 14,570 6,852 76,182
Loans to individuals - other 49,896 320,105 1,727 371,728
Commercial, financial and agricultural 352,201 130,747 29,949 512,897
Real estate - commercial mortgages 83,770 93,002 63,801 240,573
Real estate - construction and other 51,613 22,576 11,758 85,947
Credit card loans 228,380 - - 228,380
Other 14,962 8,686 97 23,745
- ------------------------------------------------------------------------------------------------------------------
Total floating loans and leases 835,582 589,686 114,184 1,539,452
- ------------------------------------------------------------------------------------------------------------------
Total loans and leases $1,824,033 $2,420,007 $885,756 $5,129,796
- ------------------------------------------------------------------------------------------------------------------
COMMERCIAL LOANS were $1.0 billion, or 20% of total loans, at the end of
1995 and were up 24% from December 31, 1994. The growth in commercial loans was
in virtually all industry segments and reflected increased economic activity in
Louisiana. The commercial loan portfolio is diversified among a wide array of
industries. The three largest industries were services with $264 million,
manufacturing with $131 million and wholesale trade with $119 million. At
year-end 1995, loans to the gaming industry were $69 million, or 1% of total
loans. Additionally, unfunded commitments to extend credit to gaming industry
borrowers totaled $41 million at December 31, 1995. The future of the gaming
industry in Louisiana is unclear; the voters of Louisiana may be given the
opportunity to eliminate certain or all types of gaming in the state. The
probability or outcome of any such vote and its impact on FCC's gaming-related
credits cannot be predicted.
REAL ESTATE LOANS are comprised of loans secured by commercial
properties, construction and land development loans and loans secured by
multi-family properties and farmland. Real estate loans rose 25% during 1995 and
were $968 million, or 19% of total loans, at December 31, 1995. Commercial
real estate loans are the largest component of real estate loans and were
$769 million at year-end 1995, or 15% of total loans. This compares to $656
million, or 16% of total loans, at year-end 1994. Approximately 34% of these
properties are owner-occupied. Construction and land development loans were
$147 million, or 3% of total loans, at year-end 1995, compared to $71 million
at year-end 1994.
(8) Loans and Leases average, net of unearned income (billions)
The graph inserted shows average loans and leases, net of unearned income,
from 1991 to 1995. The plot points are:
Graph
Type Denominations 1991 1992 1993 1994 1995
--------------------------------------------------------------------
Bar Billions 3.063 2.966 3.214 3.678 4.543
(9) Loan portfolio by Industry
(excluding consumer loans)
The pie chart inserted presents data on the loan portfolio by borrowers'
industry, excluding consumer loans as of December 31, 1995. The plot
points are (in percentages):
Borrowers Industry Amount
-------------------------------------------------------
Health 9.9%
Other Services 16.6%
Insurance 0.6%
Agriculture, Forestry & Fishing 2.2%
Finance 7.7%
Real Estate 12.9%
Construction 6.3%
Mining 7.3%
Manufacturing 8.8%
Retail 7.5%
Wholesale 7.2%
Transportation 7.7%
Other 1.6%
Professional 3.7%
SECURITIES
The securities portfolio totaled $2.6 billion at December 31, 1995,
compared to $2.7 billion at December 31, 1994. Average securities were
$2.8 billion in 1995 and $3.4 billion in 1994. Funds from the maturities of
some securities were not reinvested but were used to fund the significant
loan growth experienced over the last two years. It is expected that this
trend will continue through 1996.
Notes 4 and 5 contain additional information on securities held to
maturity and available for sale.
Portfolio Management
As part of its securities portfolio management strategy, all of FCC's
securities have been classified as available for sale. A significant factor in
this decision is the desire to maintain flexibility to actively manage the
portfolio in response to market conditions and funding requirements.
In response to rising interest rates in 1994 and early 1995, FCC
restructured a portion of its securities portfolio. Securities sold totaled $1.8
billion in 1994 and $740 million in 1995; the proceeds from these sales were
primarily reinvested in higher-yielding securities. The average yield on the
portfolio rose 109 basis points from 1994 to 1995. After tax losses of $28.2
million and $7.4 million for 1994 and 1995, respectively, were recognized on
these sales.
Securities Available for Sale
As of December 31, 1995, 100% of FCC's securities portfolio was
classified as available for sale, compared to 95% at year-end 1994. Improving
bond prices and FCC's active portfolio management caused a significant change in
the market values of these securities during 1995. An unrealized gain, net of
tax, increased stockholders' equity $33.6 million at December 31, 1995. At
December 31, 1994, stockholders' equity was reduced $73.9 million by an
unrealized loss, net of tax.
At December 31, 1995, 94% of total available for sale securities were
obligations of the U.S. government or its agencies. The average expected life,
which considers projected paydowns, of the portfolio was 2.9 years and the
average duration was 2.3 years. Table 6 presents detailed information on the
maturities and yields of securities available for sale.
FCC's mortgage-backed securities are either direct issues or
collateralized by direct issues of U.S. agencies. Approximately 44% of
mortgage-backed securities are floating rate. At December 31, 1995, the weighted
average contractual maturity of mortgage-backed securities was 22 years,
compared to an average expected life of 4.5 years. The average duration of FCC's
mortgage-backed securities was 3.4 years. Prepayment rates on mortgage-backed
securities may differ from expected, due to changes in interest rates and other
economic conditions.
Securities Held to Maturity
FCC had no securities held to maturity at year-end 1995, compared to
$151 million at December 31, 1994. The decline reflects maturities of
securities, plus a reclassification of $58 million of securities from held to
maturity to available for sale. In 1995's fourth quarter, the FASB permitted a
one-time opportunity to reassess the classification of all securities and, if
appropriate, move securities out of the held to maturity category.
TABLE 6. SECURITIES AVAILABLE FOR SALE -- MATURITIES AND YIELDS(F1)
- -----------------------------------------------------------------------------------------------------------------------------------
December 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) Maturity
Total Carrying
Within 1 Year 1-5 Years 5-10 Years After 10 Years Value
- -----------------------------------------------------------------------------------------------------------------------------------
FTE FTE FTE FTE FTE
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
- -----------------------------------------------------------------------------------------------------------------------------------
U. S. Treasury securities $365,635 5.81% $1,148,377 6.80% $ - -% $ - -% $1,514,012 6.57%
U. S. agency securities
Mortgage-backed agencies - fixed - - 94,264 6.94 21,607 6.39 389,529 6.42 505,400 6.52
Mortgage-backed agencies - floating - - - - 702 6.39 396,498 6.45 397,200 6.45
U. S. agency notes - fixed - - 35,207 8.03 - - - - 35,207 8.03
Obligations of states and
political subdivisions 6,112 7.85 18,460 9.52 25,674 9.92 53,099 10.97 103,345 10.26
Other debt securities 8,747 6.17 3,413 7.12 - - - - 12,160 6.43
Equity securities 996 5.00 - - - - 31,447 3.35 32,443 3.40
- -----------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $381,490 5.85% $1,299,721 6.88% $47,983 8.28% $870,573 6.60% $2,599,767 6.67%
- -----------------------------------------------------------------------------------------------------------------------------------
(F1) Fully taxable equivalent based on a 35% tax rate. Maturities are based on
the contractual maturities of the securities.
TABLE 7. AVERAGE DEPOSITS
- --------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
Noninterest-bearing demand deposits $1,410,211 21.04% $1,417,239 21.98% $1,313,723 20.58%
NOW account deposits 1,023,939 15.28 1,017,052 15.77 1,053,281 16.50
Money market investment deposits 723,768 10.80 809,918 12.56 862,284 13.50
Savings deposits 770,384 11.49 851,071 13.20 859,745 13.47
Other consumer time deposits 2,041,762 30.45 1,842,668 28.58 1,848,117 28.94
- --------------------------------------------------------------------------------------------------------------
Total core deposits 5,970,064 89.06 5,937,948 92.09 5,937,150 92.99
Time deposits $100,000 and over 733,013 10.94 509,949 7.91 447,773 7.01
- --------------------------------------------------------------------------------------------------------------
Total average deposits $6,703,077 100.00% $6,447,897 100.00% $6,384,923 100.00%
- --------------------------------------------------------------------------------------------------------------
Money Market Investments
Money market investments include interest-bearing deposits in other
banks, federal funds sold, securities purchased under agreements to resell and
trading account securities. Money market investments serve as a short-term
investment alternative and are available to meet liquidity needs.
Money market investments averaged $89 million for 1995, compared to $154
million in 1994. As a percent of average earning assets, money market assets
were 1% in 1995 and 2% in the prior year.
Deposits
Deposits were $7.0 billion as of December 31, 1995. Average deposits
were $6.7 billion in 1995, a 4% increase over 1994. This increase was primarily
attributable to higher public funds deposits of $100,000 and over, reflecting
FCC's renewed interest in that market during 1995. As shown in Table 7, core
deposits increased 1% in 1995, and were 89% of total deposits. There was a shift
in the components of core deposits as customers moved into higher-yielding
deposit products. Table 8 shows the maturities of time deposits of $100,000 and
over.
Short-Term Borrowings
Short-term borrowings averaged $558 million in 1995, down 5% from 1994.
As a percent of average earning assets, short-term borrowings were 7% in 1995
and 8% in 1994. Note 10 contains additional information on short-term
borrowings.
Asset/Liability Management
The objective of FCC's asset/liability management is to maximize net
interest income while maintaining acceptable levels of risk from changes in
interest rates and, also, balancing liquidity and capital needs. FCC monitors
opportunities and risks so that appropriate actions can be taken by management
to meet this objective. Actions considered include purchases and sales of
securities to alter maturities and yields of the portfolio, changes in the
mix and level of earning assets and funding sources, and the use of
off-balance sheet interest rate risk products such as swaps, swaptions, caps
and floors.
Interest Rate Risk
Interest rate risk is the potential impact on net interest income of
changes in interest rates. FCC uses a number of methods to measure interest rate
risk, including gap analysis, net interest income simulation and monitoring the
fair values of assets and liabilities.
TABLE 8. MATURITIES OF TIME DEPOSITS $100,000 AND OVER
- -------------------------------------------------------
(in thousands) December 31, 1995
- -------------------------------------------------------
Within three months $364,970
Three to six months 137,716
Six to twelve months 143,682
After twelve months 101,244
- -------------------------------------------------------
Total $747,612
- -------------------------------------------------------
TABLE 9. INTEREST RATE SENSITIVITY
- ---------------------------------------------------------------------------------------------------------------------------
By Repricing Dates at December 31, 1995
- ---------------------------------------------------------------------------------------------------------------------------
0-30 31-90 91-180 181-365 After Noninterest-
(dollars in millions) Days Days Days Days 1 Year Bearing Total
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
Securities $ 185 $ 207 $401 $164 $1,643 $ - $2,600
Loans and leases, net of unearned income 1,565 364 356 638 2,200 - 5,123
Money market investments 54 - - - - - 54
Other assets - - - - - 754 754
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $1,804 $ 571 $757 $802 $3,843 $ 754 $8,531
- ---------------------------------------------------------------------------------------------------------------------------
SOURCES OF FUNDS
Money market deposits $ 191 $ - $ - $ - $1,730 $ - $1,921
Consumer time deposits 859 442 415 497 591 - 2,804
Time deposits $100,000 and over 185 181 138 143 101 - 748
Short-term borrowings 501 60 25 50 - - 636
Long-term debt - - - - 88 - 88
Noninterest-bearing deposits - - - - - 1,482 1,482
Other liabilities - - - - - 119 119
Stockholders' equity - - - - - 733 733
- ---------------------------------------------------------------------------------------------------------------------------
Total sources of funds $1,736 $ 683 $578 $690 $2,510 $ 2,334 $8,531
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST RATE CONTRACTS $ - $(110) $(46) $156 $ - $ -
INTEREST RATE SENSITIVITY GAP $ 68 $(222) $133 $268 $1,333 $(1,580)
CUMULATIVE INTEREST RATE SENSITIVITY GAP $ 68 $(154) $(21) $247 $1,580 $ -
CUMULATIVE INTEREST RATE SENSITIVITY GAP
AS A PERCENT OF TOTAL ASSETS .80% (1.81)% (.25)% 2.90% 18.52%
- ---------------------------------------------------------------------------------------------------------------------------
The simplest measure of FCC's interest rate risk is gap analysis, which
details the maturity or repricing mismatches for assets and liabilities
within certain time periods. Gap analysis has several limitations, including the
fact that it is a point in time measurement. Also, it does not consider the
impact of potential changes in interest rate levels or spreads. Table 9
demonstrates FCC's static gap position as of December 31, 1995.
Given the limitations of gap analysis, simulation of net interest income
under various interest rate scenarios is FCC's primary tool for measuring
interest rate risk. Management reviews simulation results to better understand
FCC's interest rate risk and to develop strategies for managing this risk.
Simulation incorporates management's expectations regarding such factors as
loan and deposit growth, pricing and mix, prepayment rates and spreads between
various interest rates. At year-end 1995, FCC's actual sensitivity was
well within its established guideline limits that net interest income should
decline by no more than 10% over a 12-month period in response to a gradual 250
basis point change in interest rates.
The third measure captures interest rate risk by analyzing the effect of
sudden 100 and 250 basis point movements of interest rates on the fair values of
FCC's assets and liabilities. Fair values are estimated based on the calculated
present value of expected future cash flows.
TABLE 10. INTEREST RATE CONTRACTS
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted Average Rate
- -----------------------------------------------------------------------------------------------------------------------------------
Receive Pay Floating
Notional Maturity Fixed Floating Strike Rate Reset Liability
(dollars in thousands) Amount Date Rate Rate Rate Index Frequency Hedged
- -----------------------------------------------------------------------------------------------------------------------------------
Amortizing interest rate
swaps $193,605 February 1996 4.35% 5.91% -% LIBOR Quarterly Certificates of Deposit
Interest rate caps 300,000 August - November 1996 - - 7.55 LIBOR Quarterly Short-term borrowings
Interest rate caps 50,000 November 1996 - - 7.73 LIBOR Semi-Annually Short-term borrowings
- -----------------------------------------------------------------------------------------------------------------------------------
Total at December 31, 1995 $543,605 4.35% 5.91% 7.58%
- -----------------------------------------------------------------------------------------------------------------------------------
TABLE 11. CHANGES IN INTEREST RATE CONTRACTS (NOTIONAL AMOUNTS)
- --------------------------------------------------------------------------------------------------------------
Option Amortizing
Based Generic Interest Callable
(in thousands) Instruments Swaps Rate Swaps Swaps Total
- --------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 $450,000 $ 110,000 $200,000 $ 50,000 $ 810,000
Purchases - 400,000 - - 400,000
Amortization - - (6,395) - (6,395)
Maturities (100,000) (10,000) - - (110,000)
Terminations - (500,000) - (50,000) (550,000)
- --------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 $350,000 $ - $193,605 $ - $ 543,605
- --------------------------------------------------------------------------------------------------------------
Off-Balance Sheet Instruments
In the normal course of business, FCC is a party to various financial
instruments which are not carried on the balance sheet. However, income and
expenses related to these instruments are reflected in the financial statements.
FCC uses these instruments to meet the financing needs of its customers and to
help manage its exposure to interest rate fluctuations. These off-balance sheet
instruments include commitments to extend credit, letters of credit, securities
lent, foreign exchange contracts and interest rate contracts. Note 15 provides
additional information for off-balance sheet instruments.
FCC uses interest rate contracts to manage interest rate risk. Table
10 summarizes FCC's interest rate contracts at December 31, 1995. Table 11
summarizes the activity, by notional amount, for all interest rate contracts
during 1995, while Table 12 presents their impact on net interest income.
FCC had amortizing interest rate swaps with a notional amount of $194
million as of December 31, 1995. These contracts were purchased to convert
certificates of deposit from fixed rate into floating rate at a time when
interest rates were declining. However, as rates began to rise during 1994,
these swaps began to increase FCC's deposit costs. At year-end 1995, the
estimated fair value of these contracts was a loss of $1.3 million. The notional
amount of these contracts amortizes in relation to movements in interest rates.
Declining rates caused these contracts to fully amortize in February 1996; these
swaps will reduce net interest income only $293,000 in 1996.
TABLE 12. ANALYSIS OF INTEREST INCOME (EXPENSE)
FROM INTEREST RATE CONTRACTS
- ----------------------------------------------------------------------------------------
Option Amortizing
Year Ended December 31, 1995 Based Generic Interest Callable
(in thousands) Instruments Swaps Rate Swaps Swaps Total
- ----------------------------------------------------------------------------------------
Interest income $ 611 $256 $(3,382) $(561) $(3,076)
Amortization (1,390) - - - (1,390)
- ----------------------------------------------------------------------------------------
Net interest income $ (779) $256 $(3,382) $(561) $(4,466)
- ----------------------------------------------------------------------------------------
At December 31, 1995, FCC had $350 million of graduated interest rate
caps which mature between August and November of 1996. A purchased cap requires
the payment of a premium for the right to receive payments when a floating rate
index rises above a strike rate during the life of the contract. FCC's
caps were purchased to hedge against increases in the cost of short-term
borrowings. However, since interest rates have fallen since the caps were
purchased, it is unlikely that LIBOR, the index, will rise above the
strike rate for the remainder of the caps' lives. As of December 31,1995, the
unamortized premium on these caps was $1.2 million and their estimated fair
value was negligible.
During 1995, FCC terminated its generic and callable swap portfolios and
is amortizing the associated deferred loss, which was $440,000 at year-end.
The fair value of interest rate contracts at any given date represents
the estimated amount FCC would receive or pay to terminate the contracts. The
negative estimated fair value of FCC's interest rate contracts at year-end 1995
was mitigated by the fair values of the offsetting balance sheet liabilities
matched against these contracts. The fair values of interest rate contracts
fluctuate depending upon the remaining maturities of the contracts and the
financial markets' expectations regarding future interest rate levels.
Liquidity
Liquidity is provided by a stable base of funding sources, especially
core deposits, and an adequate level of assets readily convertible into cash.
These sources of liquidity are needed to meet cash requirements for deposit
withdrawals and the funding of loans.
FCC's core deposits, money market investments and securities available
for sale provided a more than adequate level of liquidity in 1995. Other
potential sources of liquidity are assets available for securitization,
commercial paper issued by the Parent Company and lines of credit
maintained with major banks totaling $55 million. No commercial paper was issued
in 1995, and the lines of credit were unused.
TABLE 13. RISK-BASED CAPITAL AND CAPITAL RATIOS
- -----------------------------------------------------------------------------------------------------------
December 31
- -----------------------------------------------------------------------------------------------------------
(dollars in thousands) 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------
Tier 1 capital $ 679,003 $ 651,080 $ 603,563 $ 490,920 $ 313,028
Tier 2 capital 149,769 138,995 132,371 133,029 143,958
- -----------------------------------------------------------------------------------------------------------
Total capital $ 828,772 $ 790,075 $ 735,934 $ 623,949 $ 456,986
- -----------------------------------------------------------------------------------------------------------
Risk-weighted assets $5,343,946 $4,452,537 $3,872,240 $3,457,555 $3,456,018
- -----------------------------------------------------------------------------------------------------------
Ratios at end of year
Tier 1 capital 12.71% 14.62% 15.59% 14.20% 9.06%
Total capital 15.51% 17.74% 19.01% 18.05% 13.22%
Equity ratio 8.59% 7.45% 7.74% 6.79% 5.25%
Tangible equity ratio 8.37% 7.26% 7.54% 6.55% 4.95%
Leverage ratio 8.16% 8.20% 7.70% 6.78% 5.11%
- -----------------------------------------------------------------------------------------------------------
Capital and Dividends
At December 31, 1995, total stockholders' equity was 8.59% of total
assets, compared to 7.45% one year ago. The increase was primarily related to
the $33.6 million net unrealized gain on securities available for sale at
year-end 1995, compared to a $73.9 million net unrealized loss at December 31,
1994. The regulatory leverage ratio, which excludes the net unrealized gain
or loss on securities available for sale, was 8.16% at year-end 1995 and 8.20%
at December 31, 1994. Table 13 presents FCC's risk-based and other capital
ratios for the past five years. All ratios remain well above regulatory
minimums.
(10) Stockholders' Equity
as a percentage of year-end assets
The graph inserted shows stockholders' equity as a percentage of year-end
assets from 1991 to 1995. The plot points are:
Graph
Type Denominations 1991 1992 1993 1994 1995
--------------------------------------------------------------------
Bar % 5.25 6.79 7.74 7.45 8.59
Regulators have established a capital-based supervisory system for all
insured financial institutions. This system categorizes a financial
institution's capital position into one of five classifications ranging from
well-capitalized to critically under-capitalized. For an institution to qualify
as well-capitalized, Tier 1, Total and leverage capital ratios must be at least
6%, 10% and 5%, respectively. At December 31, 1995, each of FCC's banking
subsidiaries was well-capitalized as defined by regulators.
(11) Leverage Ratio
The graph inserted shows stockholders' equity plus minority interest plus
qualifying long-term debt less intangible assets divided by the latest
quarter's average total assets less intangible assets from 1991 to 1995.
The plot points are:
Graph
Type Denominations 1991 1992 1993 1994 1995
----------------------------------------------------------------------
Bar % 5.11 6.78 7.70 8.20 8.16
FCC increased its common stock cash dividend 17% in the fourth
quarter of 1995 and paid $1.25 per share for the full year. The Parent Company's
sources of funds to pay cash dividends on its common and preferred stock are its
net working capital and the dividends it receives from the banks. At December
31, 1995, the Parent Company had net working capital of $77 million. Also, the
Parent Company could receive dividends from the banks without prior regulatory
approval of $43 million after December 31, 1995, plus the banks' adjusted net
profits for 1996.
Credit Risk Management
FCC manages its credit risk by diversifying its loan portfolio,
maintaining credit underwriting standards which emphasize cash flows and
repayment ability, providing an adequate allowance for loan losses and
continually reviewing loans through the independent loan review process.
Portfolio diversification reduces credit risk by minimizing the impact on the
portfolio if weaknesses develop in certain segments of the economy. Credit
underwriting standards ensure that loans are properly structured and
collateralized. An adequate allowance for loan losses provides for losses
inherent in the loan portfolio. The loan review process identifies and monitors
potentially weak or deteriorating credits.
Nonperforming Assets
Nonperforming assets consist of nonaccrual loans, restructured loans
and foreclosed assets. As shown in Table 14, nonperforming assets totaled
$59.8 million at year-end 1995, compared to $24.1 million at December 31,
1994. The year-end 1995 total is comprised of $53.4 million of nonperforming
loans and $6.5 million of foreclosed assets. As a percent of loans and
foreclosed assets, nonperforming assets were 1.17% at year-end, compared to
.58% one year ago. Asset quality measures remain at acceptable levels, although
they did deteriorate from 1994's historically low levels. Changes in the level
of total loans, the mix of the loan portfolio and economic conditions are the
primary factors influencing the future levels of nonperforming assets.
Nonperforming loans rose $37.5 million in 1995. Approximately $14
million of the increase was in gaming-industry loans placed on non-accrual
status, while an additional $11 million was related to one borrower in a service
industry. Nonperforming real estate loans and continued loan growth also
contributed to the increase. 58% of nonperforming loans were contractually
current or no more than 30 days past due at the end of 1995.
Foreclosed assets, which include unused bank premises, fell $1.8 million
from year-end 1994. Property sales were the principal cause of the decline.
During 1995, $3.7 million in unused bank premises related to branch closures
were added to foreclosed assets.
Loans and leases past due 90 days or more and not on non-accrual status
were $20.7 million at December 31, 1995, or .40% of total loans. Included were
$10.5 million in government-guaranteed student loans plus $7.0 million of
credit card loans, which are charged-off within 180 days of becoming past due.
Effective January 1, 1995, FCC adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan", as amended by SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan-Income Recognition and Disclosures." Adoption
did not have a material impact on the consolidated financial statements. At
December 31, 1995, loans considered to be impaired totaled $49.0 million, of
which $18.1 million required a total impairment allowance of $4.7 million.
Impaired loans are included in nonaccrual loans.
TABLE 14. NONPERFORMING ASSETS
- ---------------------------------------------------------------------------------------------------------------------------
December 31
- ---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------
Nonaccrual loans by type
Loans to individuals - residential mortgages $ 6,897 $ 5,164 $ 6,366 $ 9,921 $ 10,422
Loans to individuals - other 335 815 1,148 1,396 2,162
Commercial, financial and agricultural 27,610 1,222 5,383 8,964 16,948
Real estate - commercial mortgages 15,455 8,282 20,844 26,666 28,869
Real estate - construction and other 3,064 340 430 615 3,125
Other - - - 608 1,185
Restructured loans - - - - 637
- ---------------------------------------------------------------------------------------------------------------------------
53,361 15,823 34,171 48,170 63,348
- ---------------------------------------------------------------------------------------------------------------------------
Foreclosed assets
Other real estate 6,671 12,062 19,333 44,368 57,161
Other foreclosed assets 532 151 144 184 440
Allowance for losses on foreclosed assets (733) (3,898) (5,918) (9,120) (4,255)
- ---------------------------------------------------------------------------------------------------------------------------
6,470 8,315 13,559 35,432 53,346
- ---------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $59,831 $24,138 $47,730 $83,602 $116,694
- ---------------------------------------------------------------------------------------------------------------------------
Loans past due 90 days or more and not on nonaccrual status $20,668 $12,215 $15,742 $15,057 $ 15,638
- ---------------------------------------------------------------------------------------------------------------------------
End of year ratios
Nonperforming assets as a percent of loans and leases
plus foreclosed assets (F1) 1.17% .58% 1.34% 2.71% 3.76%
Allowance for loan losses as a percent of nonperforming loans 142.14% 449.04% 250.52% 194.54% 134.55%
Loans and leases past due 90 days or more and not on
nonaccrual status as a percent of loans and leases (F1) .40% .30% .44% .49% .51%
- ---------------------------------------------------------------------------------------------------------------------------
(F1) Net of unearned income.
Watch List
FCC's watch list includes loans which, for management purposes, have
been identified as requiring a higher level of monitoring due to risk. FCC's
watch list includes both performing and nonperforming loans, as well as
foreclosed assets. The majority of watch list loans are classified as
performing, because they do not have characteristics resulting in uncertainty
about the borrower's ability to pay principal and interest in accordance with
the original terms of the loans.
The watch list consists of classifications, identified as Type 1
through Type 4. Types 1, 2 and 3 generally parallel the regulatory
classifications of loss, doubtful and substandard, respectively. Type 4
generally parallels the regulatory classification of Other Assets Especially
Mentioned. These loans require monitoring due to conditions which, if not
corrected, could increase credit risk.
(12) Nonperforming Assets (millions)
The graph inserted shows nonperforming assets from 1991 to 1995.
The plot points are:
Graph
Type Denominations 1991 1992 1993 1994 1995
--------------------------------------------------------------------------
Bar Millions 116.694 83.602 47.73 24.138 59.831
Table 15 presents watch list loans and foreclosed assets for the past
five years. Information for prior years has not been restated for acquisitions
due to inconsistencies in methodology. As of December 31, 1995, watch list loans
and foreclosed assets were $190 million, or 3.71% of total loans and foreclosed
assets, compared to 3.32% last year. The increase was mostly in the Type 3, or
substandard, classification and primarily reflected the impact of acquisitions,
continued loan growth and the addition of $14 million in gaming-industry loans.
TABLE 15. WATCH LIST (F1)
- ------------------------------------------------------------------------------------------------------------------
(dollars in thousands) Type 1 Type 2 Type 3 Type 4 Total
- ------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1995 $ - $ 4,521 $119,639 $66,296 $190,456
December 31, 1994 $ - $ 834 $ 51,269 $55,420 $107,523
December 31, 1993 $ - $ 2,275 $106,009 $62,582 $170,866
December 31, 1992 $ - $ 6,489 $150,093 $62,096 $218,678
December 31, 1991 $ - $10,197 $212,286 $94,708 $317,191
As A Percent Of Total Loans And Foreclosed Assets Type 1 Type 2 Type 3 Type 4 Total
- ------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1995 -% .09% 2.33% 1.29% 3.71%
December 31, 1994 -% .03% 1.58% 1.71% 3.32%
December 31, 1993 -% .08% 3.95% 2.33% 6.37%
December 31, 1992 -% .29% 6.59% 2.73% 9.61%
December 31, 1991 -% .44% 9.10% 4.06% 13.60%
- ------------------------------------------------------------------------------------------------------------------
(F1) Information for prior periods has not been restated for the 1995
poolings-of-interests acquisitions due to inconsistencies in methodology.
TABLE 16. SUMMARY OF LOAN AND LEASE LOSS EXPERIENCE
- ---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------
Balance at beginning of year $71,052 $ 85,604 $96,658 $85,232 $71,998
Allowance acquired in bank purchases 1,142 - - - -
Provision charged to expense 30,600 (10,418) (2,424) 29,086 51,238
Loans and leases charged to the allowance
Loans to individuals - residential mortgages 401 332 889 2,187 5,434
Loans to individuals - other 8,055 3,635 3,537 5,163 7,338
Commercial, financial and agricultural 13,509 947 3,125 5,812 13,410
Real estate - commercial mortgages 416 198 1,389 3,782 5,825
Real estate - construction and other 9 7 131 395 944
Credit card loans 15,561 11,120 11,433 13,770 14,633
Other 9 - 41 83 474
- ---------------------------------------------------------------------------------------------------------------------------
Total charge-offs 37,960 16,239 20,545 31,192 48,058
- ---------------------------------------------------------------------------------------------------------------------------
Recoveries on loans and leases previously charged
to the allowance
Loans to individuals - residential mortgages 731 1,218 1,127 1,204 869
Loans to individuals - other 2,831 2,431 2,405 2,260 2,277
Commercial, financial and agricultural 2,946 3,848 3,209 3,191 4,287
Real estate - commercial mortgages 656 1,005 1,719 1,459 679
Real estate - construction and other 465 561 432 113 256
Credit card loans 3,326 2,987 2,619 2,181 1,653
Other 56 55 404 178 33
- ---------------------------------------------------------------------------------------------------------------------------
Total recoveries 11,011 12,105 11,915 10,586 10,054
- ---------------------------------------------------------------------------------------------------------------------------
Net charge-offs 26,949 4,134 8,630 20,606 38,004
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year $75,845 $ 71,052 $85,604 $93,712 $85,232
- ---------------------------------------------------------------------------------------------------------------------------
Gross charge-offs as a percent of average loans and
leases (F1) .84% .44% .64% 1.05% 1.57%
Recoveries as a percent of gross charge-offs 29.01% 74.54% 57.99% 33.94% 20.92%
Net charge-offs as a percent of average loans and
leases (F1) .59% .11% .27% .69% 1.24%
Allowance for loan losses as a percent of loans and
leases (F1) at end of year 1.48% 1.72% 2.41% 3.07% 2.79%
- ---------------------------------------------------------------------------------------------------------------------------
(F1) Net of unearned income.
TABLE 17. ALLOWANCE FOR LOAN LOSSES (F1)
- ------------------------------------------------------------------------------------------------------------------------------
December 31
- ------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans
- ------------------------------------------------------------------------------------------------------------------------------
Loans to individuals 19.20% 46.99% 29.32% 46.17% 22.92% 44.62% 18.03% 39.44% 27.36% 37.79%
Commercial, financial
and agricultural 21.42 19.89 19.32 19.84 18.50 16.48 24.71 18.94 15.34 23.28
Real estate 20.51 18.86 13.12 18.70 24.46 21.87 25.10 22.32 25.45 20.23
Credit card 19.84 12.05 19.10 12.28 18.57 13.00 16.27 15.03 14.35 15.58
Other .27 2.21 .61 3.01 2.41 4.03 5.57 4.27 4.28 3.12
Unallocated 18.76 - 18.53 - 13.14 - 10.32 - 13.22 -
- ------------------------------------------------------------------------------------------------------------------------------
Total 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
- ------------------------------------------------------------------------------------------------------------------------------
(F1) Information for prior periods has not been restated for the 1995
poolings-of-interests acquisitions due to inconsistencies in methodology.
(13) Allowance for loan losses
as a % of year-end net loans and leases
Graph
Type Denominations 1991 1992 1993 1994 1995
----------------------------------------------------------------------
Bar % 2.80 3.07 2.41 1.72 1.48
Allowance for Loan Losses
The allowance for loan losses was $75.8 million, or 126% of nonperform
ing assets, as of December 31, 1995, a $4.8 million increase since December 31,
1994. As a percent of loans and leases, the allowance was 1.48% at the
end of 1995, compared to 1.72% at year-end 1994. Management believes that the
allowance is adequate to cover losses inherent in the loan portfolio. Table 16
presents the activity in the allowance for loan losses for the past five years.
The allocation of the allowance for loan losses is included in Table 17.
Net charge-offs were $26.9 million in 1995, compared to $4.1 million in
1994. Net charge-offs were .59% of average loans in 1995, compared to .11% in
the prior year. The increase reflects the impact of continued loan growth and
$11.8 million in gaming-industry loans charged-off. Additionally, the level of
net charge-offs in 1994 was significantly lower than typical historical levels
for FCC and the banking industry as FCC experienced significant recoveries
related to prior years' charge-offs.
Fair Value of Financial
Instruments
Note 16 provides information regarding the fair values of financial
instruments as of December 31, 1995 and 1994.
The differences between fair values and book values were primarily
caused by differences between contractual and market interest rates at the
respective year-ends. Fluctuations in fair values will occur as interest rates
change.
Fourth Quarter Results
FCC's net income for the fourth quarter of 1995 was $6.9 million,
compared to $11.1 million for the same period in 1994. Results for both periods
reflected several significant items. The fourth quarter of 1995 was impacted by
merger-related and process innovation charges of $18.7 million, plus a higher
provision for loan losses. 1994's fourth quarter included an $18.3 million
pretax loss on securities transactions related to FCC's portfolio restructuring,
plus $5.3 million in merger-related and process innovation charges.
Net interest income (FTE) was $87.6 million for the fourth quarter of
1995, up 2% from last year. The main cause of the increase was a 26% rise in
average loans. The net interest margin was 4.54%, compared to 4.67% in 1994's
same period. The decline was primarily related to higher deposit costs.
The provision for loan losses was $19.8 million in 1995's fourth
quarter, compared to a negative $.8 million in the fourth quarter of 1994.
Continued loan growth was the primary cause of the return to a positive
provision. Additionally, 1995's fourth quarter provision included $10.0
million in response to a $10.0 million charge-off related to the New Orleans
land-based casino closure.
Other income, excluding securities transactions, was 11% higher than
1994's fourth quarter with increases in all categories. Excluding merger-relat
ed and process innovation charges, operating expense was $77.3 million in 1995's
fourth quarter, down 2% from the fourth quarter of 1994. Lower FDIC insurance
expense and personnel costs were the main causes of the decline. The efficiency
ratio, excluding one-time charges, was 62% for the fourth quarter.
Selected Quarterly Data compares certain quarterly financial information
for 1995 and 1994.
SELECTED FINANCIAL DATA
(dollars in thousands except per share data) Years Ended December 31
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
Average Balance Sheet Data
Total assets $ 8,141,194 $ 7,827,303 $ 7,677,220 $ 7,092,876 $ 5,935,485
Earning assets 7,464,065 7,189,322 7,044,969 6,517,378 5,405,684
Loans and leases (F1) 4,542,678 3,678,298 3,213,885 2,965,851 3,062,718
Securities 2,831,943 3,356,825 3,460,928 3,130,061 1,871,052
Deposits 6,703,077 6,447,897 6,384,923 6,176,537 5,074,724
Long-term debt 89,739 90,315 99,961 106,893 110,605
Stockholders' equity 687,533 623,169 573,174 444,886 314,072
- ------------------------------------------------------------------------------------------------------------------------------------
Income Statement Data
Total interest income $ 598,494 $ 507,293 $ 491,386 $ 503,731 $ 507,319
Net interest income 343,344 323,505 315,923 297,727 245,341
Net interest income (FTE) 349,317 330,056 322,850 305,516 254,346
Provision for loan losses 30,600 (10,418) (2,424) 29,086 51,238
Other income (exclusive of securities transactions) 151,279 134,648 126,278 118,057 102,768
Securities transactions (11,413) (43,461) (344) 1,309 1,231
Operating expense 337,204 306,311 281,748 262,061 239,476
Operating income 83,369 108,477 113,291 84,790 42,682
Net income 75,951 80,227 113,025 85,654 43,494
- ------------------------------------------------------------------------------------------------------------------------------------
Key Ratios
Return on average assets .93% 1.02% 1.47% 1.21% .73%
Return on average total equity 11.05% 12.87% 19.72% 19.25% 13.85%
Return on average common equity 11.41% 13.47% 21.18% 21.19% 13.85%
Operating return on average assets 1.02% 1.39% 1.48% 1.20% .72%
Operating return on average total equity 12.13% 17.41% 19.77% 19.06% 13.59%
Operating return on average common equity 12.59% 18.49% 21.23% 20.97% 13.59%
Net interest margin 4.68% 4.59% 4.58% 4.69% 4.71%
Efficiency ratio 67.36% 65.92% 62.73% 61.87% 67.06%
Overhead ratio 2.49% 2.39% 2.21% 2.21% 2.53%
Average loans to average deposits 67.77% 57.05% 50.34% 48.02% 60.35%
Allowance for loan losses to loans and leases (F1) 1.48% 1.72% 2.41% 3.07% 2.79%
Nonperforming assets to loans and leases (F1) plus
foreclosed assets 1.17% .58% 1.34% 2.71% 3.76%
Allowance for loan losses to nonperforming loans 142.14% 449.04% 250.52% 194.54% 134.55%
Equity ratio 8.59% 7.45% 7.74% 6.79% 5.25%
Leverage ratio 8.16% 8.20% 7.70% 6.78% 5.11%
- ------------------------------------------------------------------------------------------------------------------------------------
Selected Per Share Data
Earnings Per Common Share
Net income-primary $ 1.89 $ 2.01 $ 2.89 $ 2.32 $ 1.31
Operating income-primary $ 2.09 $ 2.76 $ 2.90 $ 2.30 $ 1.28
Net income-fully diluted $ 1.87 $ 1.98 $ 2.75 $ 2.27 $ 1.31
Operating income-fully diluted $ 2.05 $ 2.64 $ 2.76 $ 2.24 $ 1.28
Common Dividends
Cash dividends $ 1.25 $ 1.10 $ .85 $ .70 $ .64
Dividend payout ratio 66.14% 54.73% 29.51% 30.17% 48.85%
Book Values (end of period)
Book value $ 17.86 $ 14.19 $ 15.00 $ 12.59 $ 10.49
Tangible book value $ 17.32 $ 13.75 $ 14.54 $ 12.04 $ 9.84
Common Stock Data
High stock price $ 34.50 $ 30.00 $ 32.20 $ 27.86 $ 18.14
Low stock price $ 22.00 $ 21.75 $ 23.90 $ 16.94 $ 7.20
Closing stock price $ 32.00 $ 22.00 $ 25.13 $ 25.60 $ 17.20
Trading volume 22,399,572 30,234,732 19,562,420 26,741,915 10,667,309
Number of stockholders (end of period) 9,951 9,359 9,360 8,470 8,726
Average Shares Outstanding (in thousands)
Primary 37,898 37,754 37,569 35,166 33,246
Fully diluted 40,715 40,548 43,562 41,005 33,246
Number of Employees (end of period) 4,211 4,376 4,373 3,960 3,624
- -----------------------------------------------------------------------------------------------------------------------------------
(F1) Net of unearned income.
(F2) Periods prior to 1991 have not been restated for the 1995
poolings-of-interests with Peoples and Lakeside since the effect would be
immaterial.
Years Ended December 31 (F2) Growth Rates
1990 1989 1988 1987 1986 1985 Five-Year Ten-Year
$5,282,064 $4,959,469 $4,581,773 $4,230,490 $4,295,191 $3,505,317 9.04 % 8.79%
4,852,542 4,390,862 4,064,357 3,739,372 3,783,917 3,054,421 8.99 % 9.35%
2,914,691 2,704,734 2,507,015 2,307,142 2,319,686 1,876,350 9.28 % 9.24%
1,471,977 1,208,199 1,118,104 919,976 907,895 731,191 13.98 % 14.50%
4,268,772 4,007,804 3,687,645 3,343,401 3,365,961 2,705,720 9.44 % 9.50%
111,359 112,365 113,965 111,040 115,336 67,641 (4.23)% 2.87%
287,657 277,204 266,073 260,205 266,825 245,641 19.04 % 10.84%
$ 486,453 $ 466,396 $ 368,945 $ 351,353 $ 373,356 $ 338,810 4.23 % 5.85%
199,192 184,126 173,510 160,359 156,724 140,146 11.90 % 9.37%
208,722 194,037 184,246 175,246 179,281 162,333 10.85 % 7.96%
53,100 33,648 33,126 28,992 48,606 19,856 N/A N/A
86,985 76,850 71,049 63,839 58,622 48,403 11.70 % 12.07%
55 (875) (941) 1,367 496 1,165 N/A N/A
198,874 186,557 176,677 168,536 175,462 141,091 11.14 % 9.10%
26,725 30,917 26,434 22,868 5,919 27,850 25.55 % 11.59%
26,761 30,339 25,813 23,688 6,187 28,479 23.20 % 10.31%
.51% .61% .56% .56% .14% .81%
9.30% 10.94% 9.70% 9.10% 2.32% 11.59%
9.22% 10.96% 9.60% 8.92% 1.34% 11.54%
.51% .62% .58% .54% .14% .79%
9.29% 11.15% 9.93% 8.79% 2.22% 11.34%
9.20% 11.19% 9.85% 8.57% 1.23% 11.27%
4.30% 4.42% 4.53% 4.69% 4.74% 5.31%
67.25% 68.87% 69.21% 70.49% 73.75% 66.95%
2.31% 2.50% 2.60% 2.80% 3.09% 3.03%
68.28% 67.49% 67.98% 69.01% 68.92% 69.35%
2.31% 1.84% 1.98% 2.02% 2.02% 1.86%
4.18% 3.39% 4.19% 4.26% 4.70% 3.52%
82.73% 121.23% 66.08% 58.65% 49.20% 58.01%
5.17% 5.26% 5.46% 5.82% 5.79% 5.92%
4.84% 5.19% 5.27% 5.53% 5.33% 6.17%
$ .81 $ .90 $ .76 $ .69 $ .11 $ .90 18.47 % 7.70%
$ .81 $ .92 $ .78 $ .66 $ .10 $ .88 18.21 % 7.59%
$ .81 $ .90 $ .76 $ .69 $ .11 $ .90 20.87 % 9.16%
$ .81 $ .92 $ .78 $ .66 $ .10 $ .88 20.41 % 8.95%
$ .64 $ .64 $ .64 $ .64 $ .64 $ .64 14.33 % 6.92%
79.01% 71.11% 84.21% 92.75% 581.82% 71.11%
$ 9.34 $ 9.75 $ 9.28 $ 8.98 $ 8.90 $ 9.33
$ 8.58 $ 8.94 $ 8.46 $ 7.97 $ 7.69 $ 7.93
$ 12.54 $ 12.74 $ 10.54 $ 10.80 $ 13.60 $ 15.60
$ 6.66 $ 9.27 $ 7.86 $ 7.40 $ 7.40 $ 11.06
$ 7.46 $ 12.40 $ 9.74 $ 8.00 $ 7.86 $ 11.74
5,968,360 3,651,604 4,173,330 4,674,623 8,045,740 4,676,329
8,972 8,491 8,505 8,732 8,438 8,667
31,035 30,810 30,597 30,552 30,510 30,487
31,035 30,810 30,597 30,552 30,510 30,487
3,114 3,100 2,888 2,861 2,905 3,239
SELECTED QUARTERLY DATA
(dollars in thousands except per share data) 1995 Quarters
- ---------------------------------------------------------------------------------------------------------------------------
4th 3rd 2nd 1st
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income $ 86,086 $ 87,039 $ 85,959 $ 84,260
Provision for loan losses 19,808 4,659 2,971 3,162
Other income (exclusive of securities transactions) 38,674 40,522 37,088 34,995
Securities transactions 1,868 5 36 (13,322)
Operating expense 95,635 81,043 79,624 80,902
Income tax expense 4,268 14,493 13,317 7,377
- ---------------------------------------------------------------------------------------------------------------------------
Net income 6,917 27,371 27,171 14,492
Preferred dividend requirements 1,066 1,086 1,086 1,087
- ---------------------------------------------------------------------------------------------------------------------------
Income applicable to common shares $ 5,851 $ 26,285 $ 26,085 $ 13,405
- ---------------------------------------------------------------------------------------------------------------------------
Per common share data
Primary $ .15 $ .69 $ .69 $ .36
Fully diluted $ .15 $ .66 $ .66 $ .36
Dividends $ .35 $ .30 $ .30 $ .30
Common stock data(F1)
High stock price $ 33.75 $ 34.50 $ 29.75 $ 27.25
Low stock price $ 30.63 $ 29.25 $ 24.00 $ 22.00
Closing stock price $ 32.00 $ 31.50 $ 29.50 $ 25.00
Trading volume 5,046,101 6,815,541 4,711,340 5,826,590
- ---------------------------------------------------------------------------------------------------------------------------
1994 Quarters
- ---------------------------------------------------------------------------------------------------------------------------
4th 3rd 2nd 1st
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income $ 83,905 $ 81,879 $ 78,455 $ 79,266
Provision for loan losses (829) (2,175) (4,407) (3,007)
Other income (exclusive of securities transactions) 34,686 33,051 33,409 33,502
Securities transactions (18,326) (19,603) (6,797) 1,265
Operating expense 84,582 75,893 74,320 71,516
Income tax expense 5,376 6,840 11,524 14,832
- ---------------------------------------------------------------------------------------------------------------------------
Net income 11,136 14,769 23,630 30,692
Preferred dividend requirements 1,086 1,087 1,087 1,087
- ---------------------------------------------------------------------------------------------------------------------------
Income applicable to common shares $ 10,050 $ 13,682 $ 22,543 $ 29,605
- ---------------------------------------------------------------------------------------------------------------------------
Per common share data
Primary $ .27 $ .36 $ .60 $ .78
Fully diluted $ .27 $ .36 $ .58 $ .74
Dividends $ .30 $ .30 $ .25 $ .25
Common stock data(a)
High stock price $ 26.76 $ 28.75 $ 30.00 $ 28.50
Low stock price $ 21.75 $ 25.75 $ 23.50 $ 24.00
Closing stock price $ 22.00 $ 26.75 $ 28.25 $ 24.00
Trading volume 5,723,897 4,857,105 7,313,633 12,340,097
- ---------------------------------------------------------------------------------------------------------------------------
(F1) Common and preferred stocks are traded in the over-the-counter market and
are listed on the NASDAQ Stock Market. All closing prices represent
closing sales prices as reported on the NASDAQ Stock Market.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands) December 31
- ---------------------------------------------------------------------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 497,268 $ 472,142
Interest-bearing deposits in other banks 788 4,330
Securities:
Held to maturity (fair value $144,776) - 150,713
Available for sale, at fair value 2,599,767 2,582,348
Trading account securities 19,630 8,970
Federal funds sold and securities purchased under resale agreements 33,900 156,030
Loans and leases, net of unearned income of $7,070 and $17,472, respectively 5,122,726 4,129,239
Allowance for loan losses (75,845) (71,052)
- ---------------------------------------------------------------------------------------------------------------------------
Net loans and leases 5,046,881 4,058,187
- ---------------------------------------------------------------------------------------------------------------------------
Premises and equipment 165,813 153,339
Accrued interest receivable 95,787 71,219
Other assets 70,973 309,262
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $8,530,807 $7,966,540
- ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Noninterest-bearing deposits $1,481,795 $1,471,925
Interest-bearing deposits 5,472,606 5,225,475
- ---------------------------------------------------------------------------------------------------------------------------
Total deposits 6,954,401 6,697,400
- ---------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 635,728 500,568
Accrued interest payable 41,952 25,684
Accounts payable and other accrued liabilities 77,331 59,184
Long-term debt 88,346 90,145
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 7,797,758 7,372,981
- ---------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, 5,000,000 shares authorized Series 1992, 7.25% cumulative
convertible, $25 stated value
Issued-- 2,348,806 and 2,398,170 shares, respectively 58,720 59,954
Common stock, $5 par value
Authorized -- 100,000,000 shares
Issued-- 38,281,519 and 37,629,195 shares, respectively 191,408 188,146
Capital surplus 125,405 112,238
Retained earnings 337,782 307,701
Treasury stock-- 471,403 common shares, at cost (12,727) -
Unearned restricted stock compensation (1,123) (592)
Net unrealized gain (loss) on securities available for sale 33,584 (73,888)
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 733,049 593,559
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $8,530,807 $7,966,540
- ---------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these Consolidated Balance Sheets.
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands except per share data) Years Ended December 31
- ---------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans and leases $ 410,039 $ 320,319 $ 291,751
Interest on tax-exempt securities 7,066 8,040 9,953
Interest and dividends on taxable securities 176,222 172,348 177,540
Interest on money market investments 5,167 6,586 12,142
- ----------------------------------------------------------------------------------------------------------------------------
Total interest income 598,494 507,293 491,386
- ----------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 210,942 148,843 147,867
Interest on short-term borrowings 33,015 23,633 15,384
Interest on long-term debt 11,193 11,312 12,212
- ----------------------------------------------------------------------------------------------------------------------------
Total interest expense 255,150 183,788 175,463
- ----------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 343,344 323,505 315,923
PROVISION FOR LOAN LOSSES 30,600 (10,418) (2,424)
- ----------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 312,744 333,923 318,347
- ----------------------------------------------------------------------------------------------------------------------------
OTHER INCOME
Deposit fees and service charges 59,515 55,845 55,624
Credit card fee income 34,516 30,457 27,723
Trust fee income 17,163 15,853 13,326
ATM fee income 8,393 5,829 2,328
Broker/dealer revenue 8,198 7,386 8,800
Other operating revenue 23,494 19,278 18,477
Securities transactions (11,413) (43,461) (344)
- ----------------------------------------------------------------------------------------------------------------------------
Total other income 139,866 91,187 125,934
- ----------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSE
Salary expense 139,285 136,177 121,351
Employee benefits 33,855 29,343 28,254
- ----------------------------------------------------------------------------------------------------------------------------
Total personnel expense 173,140 165,520 149,605
Net occupancy expense 22,027 20,902 20,287
Equipment expense 26,652 20,901 17,507
Professional fees 19,336 16,538 14,375
FDIC insurance expense 8,665 14,413 14,510
Other operating expense 87,384 68,037 65,464
- ----------------------------------------------------------------------------------------------------------------------------
Total operating expense 337,204 306,311 281,748
- ----------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 115,406 118,799 162,533
INCOME TAX EXPENSE 39,455 38,572 49,508
- ----------------------------------------------------------------------------------------------------------------------------
NET INCOME 75,951 80,227 113,025
PREFERRED DIVIDEND REQUIREMENTS 4,325 4,347 4,348
- ----------------------------------------------------------------------------------------------------------------------------
INCOME APPLICABLE TO COMMON SHARES $ 71,626 $ 75,880 $ 108,677
- ----------------------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE
Primary $ 1.89 $ 2.01 $ 2.89
Fully diluted $ 1.87 $ 1.98 $ 2.75
WEIGHTED AVERAGE SHARES OUTSTANDING
Primary 37,898,267 37,753,923 37,568,892
Fully diluted 40,715,037 40,548,302 43,561,684
- ----------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Net
Unrealized
Unearned Gain (Loss) on
Restricted Securities
Preferred Common Capital Retained Treasury Stock Available
(dollars in thousands, except per share data) Stock Stock Surplus Earnings Stock Compensation for Sale Total
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 $59,991 $ 97,758 $126,358 $132,223 $ - $ (606) $ - $415,724
- ------------------------------------------------------------------------------------------------------------------------------------
Poolings of interests - 63,307 (22,033) 71,916 - - - 113,190
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 (Restated) 59,991 161,065 104,325 204,139 - (606) - 528,914
Net income - - - 113,025 - - - 113,025
Cash dividends:
Preferred stock ($1.8125 per share) - - - (4,348) - - - (4,348)
Common stock ($.85 per share) - - - (20,985) - - - (20,985)
Pooled acquisitions - - - (3,095) - - - (3,095)
Stock split effected in the form of
a 25% dividend - 24,780 - (24,844) - - - (64)
Conversion of preferred stock (12) 2 10 - - - - -
FANB debt conversion - 329 301 - - - - 630
Exercise of stock options, net of
shares surrendered - 493 942 - - - - 1,435
Issuances to plans - 727 4,312 - - - - 5,039
Restricted stock activity - 98 588 - - (211) - 475
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 59,979 187,494 110,478 263,892 - (817) - 621,026
- ------------------------------------------------------------------------------------------------------------------------------------
Net income - - - 80,227 - - - 80,227
Cash dividends:
Preferred stock ($1.8125 per share) - - - (4,347) - - - (4,347)
Common stock ($1.10 per share) - - - (28,782) - - - (28,782)
Pooled acquisitions - - - (3,254) - - - (3,254)
Conversion of preferred stock (25) 6 19 - - - - -
Exercise of stock options, net of
shares surrendered - 323 558 - - - - 881
Issuances to plans - 292 1,124 (35) - - - 1,381
Restricted stock activity - 31 59 - - 225 - 315
Net unrealized (loss) on
securities available for sale - - - - - - (73,888) (73,888)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 59,954 188,146 112,238 307,701 - (592) (73,888) 593,559
- ------------------------------------------------------------------------------------------------------------------------------------
Net income - - - 75,951 - - - 75,951
Cash dividends:
Preferred stock ($1.8125 per share) - - - (4,325) - - - (4,325)
Common stock ($1.25 per share) - - - (39,611) - - - (39,611)
Pooled acquisitions - - - (1,846) - - - (1,846)
Conversion of preferred stock (1,234) 287 947 - - - - -
Exercise of stock options, net of
shares surrendered - 223 583 - - - - 806
Sales to plans - - 324 (88) 1,033 - - 1,269
Restricted stock activity - 172 400 - - (531) - 41
Issuance and repurchase of 516,100
shares in acquisition - 2,580 10,913 - (13,760) - - (267)
Change in net unrealized gain (loss) on
securities available for sale - - - - - - 107,472 107,472
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $58,720 $191,408 $125,405 $337,782 $(12,727) $(1,123) $ 33,584 $733,049
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral
part of these Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands) Years Ended December 31
- ---------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 75,951 $ 80,227 $ 113,025
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 30,600 (10,418) (2,424)
Depreciation and amortization 23,427 18,313 15,146
Amortization of intangibles 2,870 2,296 3,140
Deferred income tax (benefit) expense (9,124) 7,580 (8,569)
Net loss from securities transactions 11,413 43,461 344
Net (gain) on loan sales (1,121) (546) (122)
Gain on branch divestitures (3,054) - -
(Increase) decrease in trading account securities (10,660) (8,488) 1,894
(Increase) decrease in accrued interest receivable (24,362) (5,595) 520
(Increase) decrease in other assets 9,612 (2,029) (23,295)
Increase in accrued interest payable 16,105 6,161 394
Increase (decrease) in accounts payable and other accrued liabilities 18,219 (6,211) 14,898
Other, net 1,334 (135) 1,950
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 141,210 124,616 116,901
- ---------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net decrease in interest-bearing deposits in other banks 3,542 51,092 328,264
Proceeds from sales of securities held to maturity and held for sale - 3,625 506,024
Proceeds from maturities/calls of securities held to maturity and held for sale 80,036 798,801 1,228,485
Purchases of securities held to maturity and held for sale (32,879) (19,359) (1,948,800)
Proceeds from sales of securities available for sale 765,867 1,683,863 -
Proceeds from maturities/calls of securities available for sale 306,118 329,779 -
Purchases of securities available for sale (625,446) (2,202,954) -
Net (increase) decrease in federal funds sold and
securities purchased under resale agreements 126,680 (64,871) 23,070
Proceeds from sales of loans 137,888 162,891 16,230
Net (increase) in loans (1,142,703) (747,582) (432,592)
Net cash acquired (paid) in acquisitions 3,858 (1,194) -
Divestiture of branches (4,897) - -
Purchases of premises and equipment (46,966) (34,602) (23,452)
Proceeds from sales of foreclosed assets 12,161 10,080 21,405
Other, net 485 1,839 1,578
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH (USED) BY INVESTING ACTIVITIES (416,256) (28,592) (279,788)
- ---------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW accounts,
money market accounts and savings accounts (30,543) (125,827) 116,283
Net increase (decrease) in time deposits 250,928 282,987 (105,798)
Net increase (decrease) in short-term borrowings 135,235 (200,396) 198,630
Payments on long-term debt (1,874) (2,462) (13,193)
Proceeds from sales of common stock 825 1,840 5,385
Cash dividends (41,672) (33,835) (26,972)
Treasury stock acquired, net of sales (12,727) - -
Other, net - 131 -
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 300,172 (77,562) 174,335
- ---------------------------------------------------------------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 25,126 18,462 11,448
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 472,142 453,680 442,232
- ---------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 497,268 $ 472,142 $ 453,680
- ---------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
Business, Summary of Significant Accounting
Policies and Recent Pronouncements
Business
First Commerce Corporation (FCC) is a multi-bank holding company
headquartered in New Orleans, Louisiana. Through its six banks (collectively
"the Banks") located in Louisiana, FCC offers complete banking and related
financial services to commercial and consumer customers in the Gulf South,
primarily Louisiana and southern Mississippi. The Banks account for
substantially all of the assets and net income of FCC. FCC and the Banks are
subject to the regulation and supervision of certain federal and state agencies
and undergo periodic examinations by those regulatory authorities.
Summary of Significant Accounting Policies
Use of Estimates
The accounting and reporting policies of FCC and its subsidiaries conform
with generally accepted accounting principles and with general practices within
the financial services industry. In preparing the consolidated financial
statements, FCC is required to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and accompanying
notes. Actual results could differ from those estimates.
Basis of Presentation
The consolidated financial statements include the accounts of FCC and its
subsidiaries. All significant intercompany balances and transactions have been
eliminated. Prior year financial statements have been restated to include the
accounts of business combinations accounted for as poolings-of-interests, unless
immaterial. Business combinations accounted for as purchases are included from
the respective dates of acquisition. Certain prior years' amounts have been
reclassified to conform with current year financial statement presentation.
Securities
Securities are classified as either trading, held to maturity or
available for sale. Management determines the classification of securities when
they are purchased and reevaluates this classification periodically.
Trading account securities are bought and held principally for resale in
the near term. They are carried at fair value with realized and unrealized gains
or losses reflected in other operating revenue. Interest and dividend income on
trading account securities is included in interest income on money market
investments.
Securities which FCC has the ability and positive intent to hold to
maturity are classified as securities held to maturity. They are stated at
amortized cost.
Securities which may be sold in response to changes in interest rates,
liquidity needs or asset/liability management strategies are classified as
securities available for sale. These securities are carried at fair value, with
net unrealized gains or losses excluded from earnings and shown as a separate
component of stockholders' equity, net of the related tax effect.
Realized gains and losses on securities either held to maturity or
available for sale are computed based on the specific identification method and
are reported as a separate component of other income. Amortization of premium
and accretion of discount are computed using the interest method.
Loans
Loans are stated at the principal amounts outstanding net of unearned
income. Interest on loans and accretion of unearned income are computed by
methods which approximate a level rate of return on recorded principal. Loan
origination fees and costs are deferred and amortized as an adjustment to the
related loan yield. For commercial and consumer loans, the amortization period
is the actual life of the loans; for residential mortgage loans, it is the
expected average life of the loan. Loan origination costs on credit card loans
are not deferred due to the immaterial effect on the financial statements.
Annual credit card fees are recognized on a straight-line basis over the related
twelve-month period.
Nonperforming Loans
Nonperforming loans consist of nonaccrual loans and restructured loans.
Loans past due 90 days or more are considered to be performing until placed on
nonaccrual status. Loans are placed on nonaccrual status when, in the opinion of
management, there is sufficient uncertainty as to timely collection of interest
or principal. Any accrued interest is usually reversed when a loan is placed on
nonaccrual status. Generally, any payments received on nonaccrual loans are
first applied to reduce outstanding principal amounts. Loans are not
reclassified as accruing until interest and principal payments are brought
current and future payments are reasonably assured. Delinquent credit card loans
are charged-off within 180 days.
Effective January 1, 1995, FCC adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for
Impairment of a Loan", as amended by SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures." These standards
require the measurement of impairment on certain loans based on the present
value of expected future cash flows discounted at the loan's effective interest
rate or the fair value of the loan's collateral, if the loan is collateral
dependent. Adoption of these standards did not have a material impact on the
consolidated financial statements.
Allowance for Loan Losses
The allowance for loan losses represents management's best estimate of
potential losses in the loan portfolio. This estimate is based on an ongoing
evaluation of the portfolio. Factors considered include significant changes in
the character of the portfolio, loan concentrations, current year charge-offs,
historic charge-off ratios, trends in portfolio volumes, delinquencies,
nonaccruals and economic conditions. Ultimate losses may vary from the current
estimates. These estimates are reviewed periodically and, as adjustments become
necessary, they are reflected in current operations.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization are computed primarily using the
straight-line method over the estimated useful lives of the assets, and over the
shorter of the lease terms or the estimated lives of leasehold improvements.
Additions to premises and equipment and major replacements or improvements are
capitalized. Gains and losses on dispositions, maintenance, repairs and minor
replacements are reflected in current operations.
Foreclosed Assets
Foreclosed assets, which include unused bank premises, are reported in
other assets and are recorded at estimated fair value, less estimated selling
costs. At foreclosure, the reduction of the carrying amount to fair value is
charged to the allowance for loan losses. Any subsequent writedowns and revenues
and expenses associated with foreclosed assets prior to sale are included in
nonperforming assets expense.
Intangible Assets
The unamortized cost of intangible assets is included in other assets.
Goodwill, the excess of cost over net assets of acquired subsidiaries, is
amortized on a straight-line basis over periods ranging from 5 to 20 years.
Other intangible assets, such as premiums on purchased loans and deposits, are
amortized using the straight-line method over the periods benefited.
Income Taxes
FCC and its subsidiaries file a consolidated federal income tax return.
FCC accounts for income taxes using the asset and liability method. Under this
method, deferred tax assets and liabilities are based on the temporary
differences between the financial reporting basis and tax basis of FCC's assets
and liabilities at enacted tax rates expected to be in effect when such amounts
are realized or settled.
Interest Rate Contracts
FCC uses interest rate swaps and option based instruments such as caps,
collars and floors to manage its interest rate exposure. These interest rate
contracts are typically entered into as hedges against interest rate risk on
specific assets and liabilities. Revenues or expenses on interest rate contracts
are recognized over the lives of the agreements as adjustments to interest
income or expense of the asset or liability hedged. Related fees and any
premiums paid or received are deferred and amortized over the lives of the
agreements. Any realized gains and losses resulting from early termination of
interest rate contracts are deferred and amortized to the earlier of the
maturity date of the hedged asset or liability, or the original expiration date
of the contract. If the asset or liability being hedged is disposed of, any
unrealized or deferred gain or loss on the related interest rate contract is
included in determining the gain or loss from the disposition. Interest rate
contracts not qualifying for deferral accounting are recorded at fair value. Any
changes in the fair value are recognized in other income.
Earnings Per Common Share
Primary earnings per share is computed by dividing income applicable to
common shares (net income less preferred stock dividends) by the weighted
average number of common shares outstanding plus any dilutive common stock
equivalents. Fully diluted earnings per share is computed using average common
shares outstanding and equivalents. Common stock equivalents are increased by
the assumed conversion of convertible debentures and preferred stock into common
stock as of the beginning of the period, unless antidilutive. Income for fully
diluted earnings per share is adjusted for interest expense related to the
debentures, net of the related income tax effect, and preferred stock dividends.
Statements of Cash Flows
FCC considers only cash on hand and noninterest-bearing amounts due
from banks to be cash equivalents.
Other
Assets held by the Banks in fiduciary capacities are not assets of
the Banks and are not included in the consolidated balance sheets. Generally,
certain minor sources of income are recorded on a cash basis, which does not
differ materially from the accrual basis.
Recent Pronouncements
In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. Additionally, long-lived assets and certain identifiable
intangible assets to be disposed of are required to be reported at the lower of
carrying amount or fair value, less selling costs. SFAS No. 121 is effective for
fiscal years beginning after December 15, 1995. The adoption of this statement
will not have a material impact on the consolidated financial statements.
The FASB issued SFAS No. 122, "Accounting for Mortgage Servicing Rights,
an amendment of FASB Statement No. 65" in May 1995. SFAS No. 122 provides
guidance for recognition of mortgage servicing rights (MSRs) as an asset when
mortgage loans are sold or securitized with servicing rights retained. This
statement also requires that MSRs be assessed for impairment based on their fair
value. SFAS No. 122 is to be applied prospectively in fiscal years beginning
after December 15, 1995. Adoption of this statement will not have a material
impact on the consolidated financial statements.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation." This statement provides accounting and reporting
standards for stock-based employee compensation plans and also applies to equity
instruments issued to acquire goods and services from nonemployees. SFAS No.
123 defines a fair value based method of accounting for employee stock options
or similar equity instruments. Entities may either adopt that accounting method
or may elect to continue the accounting treatment outlined in APB Opinion No.
25, "Accounting for Stock Issued to Employees." Entities electing to continue
following Opinion No. 25 are required to make pro forma disclosures of net
income and earnings per share, as if the fair value based method had been
adopted. SFAS No. 123 is effective for fiscal years beginning after December 15,
1995. FCC expects to continue following Opinion No. 25; adoption of this
statement will not have a material impact on the consolidated financial
statements.
NOTE 2
Acquisitions
During 1995 FCC acquired five Louisiana financial institutions. FCC's
acquisitions of First Bancshares, Inc. (First), Lakeside Bancshares, Inc.
(Lakeside), Peoples Bancshares, Inc. (Peoples) and Central Corporation (Central)
were accounted for as poolings-of-interests. The acquisition of City Bancorp,
Inc. (City) was accounted for as a purchase. The following table shows the
merger date and number of FCC common shares issued for each of the pooled
companies:
Assets
Acquired
Date (millions) Shares
- --------------------------------------------------------------------------------
First February 17, 1995 $246 2,705,537
Lakeside August 3, 1995 $130 984,021
Peoples October 2, 1995 $172 956,184
Central October 20, 1995 $830 6,790,939
- --------------------------------------------------------------------------------
FCC acquired City on February 17, 1995 in exchange for 516,100 shares of
FCC common stock. FCC repurchased an equal number of shares of its common stock.
City's assets were $79 million at December 31, 1994. The results of operations
of City, which are not material, are included in the financial statements from
the acquisition date.
FCC's consolidated financial statements have been restated to give effect
to the four poolings-of-interests occurring in 1995. The following components of
the results of operations have been restated for 1994 and 1993 as follows (in
thousands, except per share amounts):
FCC As
Originally Reported FCC Restated
- --------------------------------------------------------------------------------
1994 1993 1994 1993
- --------------------------------------------------------------------------------
Net interest income $256,261 $250,010 $323,505 $315,923
Other income $ 66,885 $102,421 $ 91,187 $125,934
Net income $ 63,684 $ 95,214 $ 80,227 $113,025
Earnings per common share
Primary $ 2.25 $ 3.48 $ 2.01 $ 2.89
Fully diluted $ 2.19 $ 3.18 $ 1.98 $ 2.75
- --------------------------------------------------------------------------------
FCC's operating expenses for 1995 include $22.2 million in pretax
merger-related expenses. The majority of these expenses related to the
retirement of excess facilities and equipment, severance costs, expenses
incurred to complete the mergers, and conversion of customer accounts.
Additionally, other income reflects a pretax $3.1 million premium on the
divestiture of two Lakeside branches.
On October 5, 1994, FCC acquired Wolcott Mortgage Group, Inc. (Wolcott),
a mortgage company which originates and sells residential mortgages. The
acquisition was accounted for as a purchase.
Effective January 1, 1994, FCC acquired First Acadiana National
Bancshares, Inc. (FANB) in exchange for 1,290,145 shares of FCC common stock.
The acquisition was accounted for as a pooling-of-interests. All 1993 financial
information reported reflects the pooling-of-interests with FANB. Financial
information prior to 1993 was not restated since the effect would be immaterial.
NOTE 3
Restrictions on Cash and Due from Banks
The Banks are required to maintain average reserve balances with the
Federal Reserve Bank based on a percentage of deposits. Average balances
maintained for such purposes were $50,426,000 and $81,566,000 during 1995 and
1994, respectively.
NOTE 4
Securities Held to Maturity
During the fourth quarter of 1995, the FASB permitted a one-time
opportunity for institutions to reassess the classification of all securities
and, if appropriate, move securities out of the held to maturity category
without calling into question the intent to hold other debt securities to
maturity in the future. As a result, FCC reclassified $58.1 million of
securities with a net unrealized gain of $529,000 from held to maturity to
available for sale.
An analysis of securities held to maturity as of December 31, 1994
follows (in thousands):
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
- --------------------------------------------------------------------------------
December 31, 1994
- --------------------------------------------------------------------------------
U. S. Treasury
securities $ 45,834 $ - $(2,521) $43,313
Obligations of
U.S. agencies
and corporations
Mortgage-backed
securities 779 25 - 804
Notes 66,740 - (3,102) 63,638
Obligations of states
and political subdivisions 11,285 115 (136) 11,264
Other debt securities 16,828 1 (319) 16,510
Equity securities 9,247 - - 9,247
- --------------------------------------------------------------------------------
Total securities
held to maturity $150,713 $141 $(6,078) $144,776
- --------------------------------------------------------------------------------
NOTE 5
Securities Available for Sale
An analysis of securities available for sale follows (in thousands):
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
- --------------------------------------------------------------------------------
December 31, 1995
- --------------------------------------------------------------------------------
U. S. Treasury
securities $1,481,963 $32,153 $ (104) $1,514,012
Obligations of U. S.
agencies and
corporations
Mortgage-backed
securities 901,934 5,442 (4,776) 902,600
Notes 33,720 1,487 - 35,207
Obligations of states
and political
subdivisions 91,592 11,778 (25) 103,345
Other debt securities 12,069 99 (8) 12,160
Equity securities 26,822 5,621 - 32,443
- -------------------------------------------------------------------------------
Total securities
available
for sale $2,548,100 $56,580 $ (4,913) $2,599,767
- -------------------------------------------------------------------------------
December 31, 1994
- -------------------------------------------------------------------------------
U. S. Treasury
securities $1,334,282 $ 167 $ (32,761) $1,301,688
Obligations of U. S.
agencies and
corporations
Mortgage-backed
securities 1,125,907 215 (85,381) 1,040,741
Notes 118,063 4 (387) 117,680
Obligations of states
and political
subdivisions 97,083 6,896 (1,792) 102,187
Other debt securities 6,922 - (5) 6,917
Equity securities 13,717 - (582) 13,135
- --------------------------------------------------------------------------------
Total securities
available
for sale $2,695,974 $ 7,282 $ (120,908) $2,582,348
- --------------------------------------------------------------------------------
The amortized cost and fair value of securities available for sale by
maturity are shown below (in thousands):
Amortized Fair
Cost Value
- --------------------------------------------------------------------------------
December 31, 1995
- --------------------------------------------------------------------------------
Within one year $ 380,889 $ 381,490
One to five years 1,264,788 1,299,721
Five to ten years 45,503 47,983
After ten years 856,920 870,573
- --------------------------------------------------------------------------------
Total securities
available for sale $2,548,100 $2,599,767
- --------------------------------------------------------------------------------
Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
penalties. Maturities of mortgage-backed securities are classified by
contractual maturity dates.
Gross gains of $3.1 million and $3.2 million and gross losses of $14.0
million and $46.1 million were realized on sales and calls of securities
available for sale in 1995 and 1994, respectively.
Securities with carrying values of $1.39 billion and $1.09 billion at
December 31, 1995 and 1994, respectively, were pledged to secure public and
trust deposits, and for other purposes.
NOTE 6
Loans and Leases
The composition of loans and leases follows (in thousands):
December 31
- -----------------------------------------------------------------------
1995 1994
- -----------------------------------------------------------------------
Residential mortgages $ 975,331 19.01% $ 753,127 18.16%
Automobile 790,318 15.41 658,684 15.89
Education 331,825 6.47 239,319 5.77
Other loans
to individuals 313,022 6.10 263,243 6.35
- -----------------------------------------------------------------------
Loans to
individuals 2,410,496 46.99 1,914,373 46.17
- -----------------------------------------------------------------------
Services 263,731 5.14 229,091 5.53
Manufacturing 131,491 2.56 76,018 1.83
Wholesale trade 119,450 2.33 80,059 1.93
Mining 106,482 2.08 104,041 2.50
Other commercial,
financial and
agricultural loans 399,323 7.78 333,624 8.05
- ---------------------------------------------------------------------
Commercial,
financial and
agricultural loans 1,020,477 19.89 822,833 19.84
- ---------------------------------------------------------------------
Commercial
real estate 769,019 14.99 656,294 15.82
Construction and
land development 146,640 2.86 71,213 1.72
Other real estate loans 52,032 1.01 48,022 1.16
- ---------------------------------------------------------------------
Real estate loans 967,691 18.86 775,529 18.70
- ---------------------------------------------------------------------
Credit card loans 617,824 12.05 509,076 12.28
Other loans and leases 113,308 2.21 124,900 3.01
Unearned income (7,070) - (17,472) -
- ---------------------------------------------------------------------
Loans and leases,
net of unearned
income $5,122,726 100.00% $4,129,239 100.00%
- ---------------------------------------------------------------------
In the ordinary course of business, the Banks make loans to directors
and executive officers of FCC and its subsidiaries and to their associates. In
the opinion of management, related party loans are made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with unrelated parties and do not involve more
than normal risks of collectibility. An analysis of changes in such loans during
1995 follows (in thousands):
- ---------------------------------------------------------------------
1995
- ---------------------------------------------------------------------
Beginning balance $ 137,972
Additions 176,316
Repayments (206,547)
Increase due to change in related parties 10,060
- ---------------------------------------------------------------------
Ending balance $ 117,801
- ---------------------------------------------------------------------
NOTE 7
Allowance for Loan Losses
A summary analysis of changes in the allowance for loan losses follows
(in thousands):
Years Ended December 31
- ---------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------
Balance at beginning of year $ 71,052 $ 85,604 $ 96,658
Allowance acquired
in bank purchases 1,142 - -
Provision charged to expense 30,600 (10,418) (2,424)
Loans and leases charged
to the allowance (37,960) (16,239) (20,545)
Recoveries on loans and
leases previously charged
to the allowance 11,011 12,105 11,915
- ---------------------------------------------------------------------
Net charge-offs (26,949) (4,134) (8,630)
- ---------------------------------------------------------------------
Balance at end of year $ 75,845 $ 71,052 $85,604
- ---------------------------------------------------------------------
NOTE 8
Nonperforming Loans and Foreclosed Assets
The following is a summary of nonperforming loans and foreclosed assets
(in thousands):
December 31
- ---------------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------------
Nonaccrual loans $53,361 $15,823
- ---------------------------------------------------------------------
Foreclosed assets
Other real estate $ 6,671 $12,062
Other foreclosed assets 532 151
Allowance for losses on foreclosed
assets (733) (3,898)
- ---------------------------------------------------------------------
Total foreclosed assets $ 6,470 $ 8,315
- ---------------------------------------------------------------------
The amount of interest income that would have been recorded on
nonperforming loans if they had been classified as performing was $6,534,000 in
1995, $2,016,000 in 1994 and $5,066,000 in 1993. Interest income recognized on
nonperforming loans was $3,125,000, $306,000 and $248,000 for 1995, 1994 and
1993, respectively. Additionally, interest of $1,404,000 was recovered on loans
previously on nonaccrual, but not on nonaccrual status in 1995.
The activity in the allowance for losses on foreclosed assets was as
follows (in thousands):
Years Ended December 31
- ---------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------
Balance at beginning of year $ 3,898 $ 5,918 $9,120
Allowance provisions 538 678 2,958
Sales and dispositions (3,703) (2,698) (6,160)
- ---------------------------------------------------------------------
Net change (3,165) (2,020) (3,202)
- ---------------------------------------------------------------------
Balance at end of year $ 733 $ 3,898 $ 5,918
- ---------------------------------------------------------------------
A loan is considered to be impaired when, based on current information
and events, it is probable that FCC will be unable to collect all amounts due
according to the contractual terms of the loan agreement. Impaired loans are
carried on nonaccrual status. As of December 31, 1995, loans considered to be
impaired under SFAS No. 114 totaled $49.0 million, of which $18.1 million
required a total impairment allowance of $4.7 million. The remaining $30.9
million of impaired loans do not require an allowance under the provisions of
SFAS No. 114. During 1995, impaired loans averaged $28.3 million. Generally, any
interest payments received on impaired loans are first applied to reduce
outstanding principal amounts. Interest income recognized on impaired loans was
$3,008,000 for 1995.
NOTE 9
Premises and Equipment
An analysis of premises and equipment by asset classification follows
(in thousands):
December 31
- ---------------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------------
Land $ 25,734 $ 27,736
Buildings 96,261 96,872
Leasehold improvements 25,124 23,104
Furniture, fixtures and equipment 145,998 122,020
Capitalized leased equipment 1,994 1,801
Construction in progress 13,798 10,435
- ---------------------------------------------------------------------
308,909 281,968
Accumulated depreciation
and amortization (143,096) (128,629)
- ---------------------------------------------------------------------
$ 165,813 $ 153,339
- ---------------------------------------------------------------------
At December 31, 1995, the Banks and a service subsidiary were obligated
under a number of noncancelable operating leases. Certain of the leases have
escalation clauses and renewal options. Total rental expense, net of immaterial
sublease rentals, was $7,524,000, $7,369,000 and $7,415,000 for 1995, 1994 and
1993, respectively.
As of December 31, 1995, the future minimum rentals under noncancelable
operating leases having an initial lease term in excess of one year were as
follows (in thousands):
- ---------------------------------------------------------------------
1996 $ 8,149
1997 6,665
1998 6,119
1999 5,736
2000 5,242
Later years 49,699
- ---------------------------------------------------------------------
$81,610
- ---------------------------------------------------------------------
NOTE 10
Short-Term Borrowings
An analysis of short-term borrowings follows (in thousands):
December 31
- ---------------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------------
Federal funds purchased
and securities sold under
agreements to repurchase $450,300 $490,830
Other short-term borrowings 185,428 9,738
- ---------------------------------------------------------------------
Total $635,728 $500,568
- ---------------------------------------------------------------------
Information regarding federal funds purchased and securities sold under
agreements to repurchase follows (dollars in thousands):
December 31
- ---------------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------------
Average interest rate
on December 31 5.15% 5.27%
- ---------------------------------------------------------------------
Year-to-date averages
Interest rate 5.92% 4.03%
Balance $458,212 $580,585
- ---------------------------------------------------------------------
Maximum amount outstanding
at any month-end during
the year $628,754 $655,815
- ---------------------------------------------------------------------
FCC maintains lines of credit with several large banks, totaling $55
million at December 31, 1995, to support the issuance of commercial paper and
pays fees to maintain these lines. No lines of credit were in use at December
31, 1995, 1994 or 1993.
NOTE 11
Long-Term Debt
Long-term debt consisted of (in thousands):
December 31
- ---------------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------------
First Commerce Corporation
12 3/4% convertible debentures,
due in December 2000; unsecured (a)
Series A $26,846 $26,846
Series B 56,012 56,492
- ---------------------------------------------------------------------
82,858 83,338
- ---------------------------------------------------------------------
Subsidiaries
9% mortgage note payable, due in
installments, balance due
in November 1996 5,212 5,295
Obligations under capitalized leases, due
in installments through August 2003 276 999
Other - 513
- ---------------------------------------------------------------------
Total long-term debt $88,346 $90,145
- ---------------------------------------------------------------------
(a) At December 31, 1995, approximately $14,102,000 was held by directors and
executive officers of FCC.
Annual principal repayment requirements for the years 1996 through 2000 are
as follows (in thousands):
Parent Subsidiaries Total
- ---------------------------------------------------------------------
1996 $ - $5,236 $ 5,236
1997 - 27 27
1998 - 30 30
1999 - 33 33
2000 $82,858 $ 37 $ 82,895
- ---------------------------------------------------------------------
FCC is required to redeem Series B Debentures at the principal amount
upon the death of the original holder; Series A Debentures allow redemption upon
the death of the original holder at the option of the holder's estate. At the
option of the holder, each of the Series A or B Debentures may be converted into
FCC common stock at the conversion price of $26.67 principal amount for one
share of stock.
Total cash payments for interest expense on long-term debt, short-term
borrowings and deposits were $238,882,000, $177,803,000 and $175,070,000 in
1995, 1994 and 1993, respectively.
NOTE 12
Employee Benefit Plans
Retirement Plan - FCC maintains a defined benefit pension plan covering
substantially all employees who have attained age 21 and completed one year of
employment. Benefits are based on years of service and the employee's highest
five years of defined compensation during the last 10 years of service. FCC's
funding policy is to contribute annually the maximum that can be deducted for
federal income tax purposes.
FCC also maintains a nonqualified restoration plan for certain officers
whose defined benefits under the qualified pension plan exceed limits imposed by
federal tax law.
The following table sets forth the plans' funded status (in thousands):
December 31
- ---------------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------------
Projected benefit obligation
Vested benefits $ (75,582) $(58,340)
Nonvested benefits (2,369) (2,014)
- ---------------------------------------------------------------------
Accumulated benefit obligation (77,951) (60,354)
Effect of projected future
compensation levels (28,996) (19,806)
- ---------------------------------------------------------------------
Projected benefit obligation (106,947) (80,160)
Plan assets at fair value 84,843 72,657
- ---------------------------------------------------------------------
Projected benefit obligation in excess
of plan assets (22,104) (7,503)
Unrecognized net loss due to
past experience different from
assumptions made 16,591 4,797
Unrecognized prior service cost 457 655
Unrecognized net assets being recognized
over 15 years (3,945) (4,698)
- ---------------------------------------------------------------------
Unfunded accrued pension cost included
in other accrued liabilities $ (9,001)$ (6,749)
- ---------------------------------------------------------------------
The plans' assets at December 31, 1995, consisted primarily of U.S.
government securities, corporate bonds and common stocks.
Net periodic pension cost included the following components
(in thousands):
Years Ended December 31
- ---------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------
Service cost-benefits earned
during the period $ 3,591 $ 3,852 $ 2,937
Interest cost on projected
benefit obligation 5,946 5,527 4,986
Loss (return) on plan assets (14,383) 1,255 (6,296)
Other components, net 8,056 (8,185) (534)
- ---------------------------------------------------------------------
Net periodic pension cost $ 3,210 $ 2,449 $ 1,093
- ---------------------------------------------------------------------
In determining the plans' funded status, the weighted average discount
rate assumed was 6.5% at December 31, 1995, 7.5% at December 31, 1994 and 7% at
December 31, 1993. The rate of increase in future salary levels was 5.5% in each
of the three years. The expected long-term rate of return on assets was 8% in
1995, and 8.5% in 1994 and 1993.
Tax-Deferred Savings Plan - Substantially all of FCC's full-time
employees are covered under a tax-deferred savings plan. Employees may
voluntarily contribute up to a maximum of 15% of eligible compensation, with the
limit depending upon salary level. FCC matches 50% of each employees
contribution up to a maximum employer contribution of 2 1\2% of eligible
compensation. Matching contributions are in the form of FCC common stock and are
vested at 25% per year with full vesting after four years. Employer
contributions were $2,357,000, $2,040,000 and $2,075,000 in 1995, 1994 and 1993,
respectively.
Prior to acquisition by FCC, Central and Lakeside maintained employee
stock ownership plans (ESOPs). Company contributions to the ESOPs have been
discontinued and the plans are being terminated. Upon termination, the assets of
the Central ESOP will be distributed to the participants; the Lakeside ESOP will
be combined with FCC's tax-deferred savings plan. Company contributions relating
to the ESOPs were $800,000, $970,000 and $875,000 in 1995, 1994 and 1993,
respectively.
Postretirement and Postemployment Benefits - FCC provides medical and
life insurance coverage for specified groups of employees who retired in prior
years. Postemployment benefits have also been provided to specified groups of
former or inactive employees subsequent to their employment but before
retirement. Given the current structure of FCC's postretirement and
postemployment benefit programs, these programs do not have a material impact on
the financial condition or results of operations of FCC.
NOTE 13
Stockholders' Equity
As disclosed in Note 2, 11,436,681 and 1,290,145 shares of FCC common
stock, net of shares reacquired, were issued for various acquisitions during
1995 and 1994, respectively.
Each share of FCC's preferred stock can be converted into 1.1646 shares
of common stock and provides for cumulative quarterly dividends calculated on
the basis of a $25.00 stated value at 7 1\4% per annum. The preferred stock is
redeemable at FCC's option, at $25.00 per share plus accrued and unpaid
dividends, on or after January 1, 1997.
FCC's stock incentive plan permits the granting of stock options, stock
appreciation rights (SARs), stock awards, restricted stock and performance
shares. The plan covers up to 10% of the outstanding shares of FCC common stock.
Stock options and SARs are granted at market value at the date of grant.
The Compensation Committee (Committee) determines the term of each, and the time
or times during its term when it becomes exercisable. Neither may be
exercised during the six-month period immediately following the date of
grant. SARs entitle the holder to receive, in the form of cash the increase in
the fair market value of the stock from the date of grant to the date of
exercise. Compensation expense is recognized in connection with SARs based
on the current market value of the stock and was $3.0 million in 1995. No
compensation expense was recognized in 1994 or 1993 related to SARs. There is
no compensation expense recorded in connection with stock options.
The following table summarizes the activity related to stock options and
SARs:
- ---------------------------------------------------------------------
Options SARs
- ---------------------------------------------------------------------
Number of Price Number Price
Shares Per Share of Shares Per Share
- -----------------------------------------------------------------------
Outstanding
Dec. 31, 1992 576,114 $ 9.13-$21.07 - -
Granted 76,736 $28.20-$30.80 - -
Exercised (168,555) $ 9.13-$21.07 - -
Canceled (4,245) $10.44-$28.20 - -
- -----------------------------------------------------------------------
Outstanding
Dec. 31, 1993 480,050 $ 9.27-$30.80 - -
Granted 79,978 $27.50 239,935 $27.50
Exercised (81,067) $ 9.27-$28.20 - -
Canceled (19,390) $ 9.27-$28.20 (7,569) $27.50
- -----------------------------------------------------------------------
Outstanding
Dec. 31, 1994 459,571 $ 9.27-$30.80 232,366 $27.50
Granted 331,174 $26.25-$32.00 992,579 $26.25-$32.00
Exercised (44,561) $10.40-$28.20 (1,891) $27.50
Canceled (19,454) $10.44-$32.00 (36,114) $26.25-$32.00
- -----------------------------------------------------------------------
Outstanding
Dec. 31, 1995 726,730 $10.40-$32.00 1,186,940 $26.25-$32.00
- -----------------------------------------------------------------------
Exercisable at
Dec. 31, 1995 296,699 53,625
- -----------------------------------------------------------------------
Shares of restricted stock are issued subject to risk of forfeiture
during a vesting period. Restrictions related to these shares and the
restriction term are determined by the Committee. Restrictions are
generally related to the attainment of specified performance criteria over
the restriction period. Holders of restricted stock receive dividends and
have the right to vote the shares. FCC recorded ($111,000), $315,000 and
$944,000 in compensation expense in 1995, 1994 and 1993, respectively, related
to restricted shares. A summary of changes in restricted stock follows:
- ---------------------------------------------------------------------
Number of Shares
- ---------------------------------------------------------------------
Outstanding, December 31, 1992 98,668
Granted 47,814
Earned and issued unrestricted (82,293)
Canceled (16,375)
- ---------------------------------------------------------------------
Outstanding, December 31, 1993 47,814
Granted 9,792
Canceled (3,554)
- ---------------------------------------------------------------------
Outstanding, December 31, 1994 54,052
Granted 34,175
- ---------------------------------------------------------------------
Outstanding, December 31, 1995 88,227
- ---------------------------------------------------------------------
Performance shares were granted in conjunction with the 1994 and 1995
restricted stock grants, equal to 50% of restricted shares. These shares may be
earned based on certain performance criteria. Recipients of performance share
awards do not receive dividends or have voting rights. No compensation
expense was recorded in 1995 or 1994 related to performance shares.
At December 31, 1995, there were 1,449,023 shares reserved for issuance
under the FCC Dividend and Interest Reinvestment and Stock Purchase Plan and
764,821 shares reserved for issuance under the tax-deferred savings plan.
NOTE 14
Dividend and Loan Restrictions
The primary source of funds for the dividends paid by FCC to its
stockholders is dividends from the Banks. The payment of dividends by national
banks is regulated by the Comptroller of the Currency. The payment of dividends
by state banks in Louisiana that are members of the Federal Reserve system
is regulated by the Louisiana Commissioner of Financial Institutions and the
Federal Reserve Board. The amount of retained earnings that could be paid to
FCC after December 31, 1995 without prior approval was approximately
$43,464,000, plus an amount equal to the Banks' net income for 1996. The parent
company's net working capital is another source for the payment of dividends.
Net working capital was $77,240,000, as of December 31, 1995.
Under Section 23A of the Federal Reserve Act, the Banks are limited in
the amounts they may loan to certain of their affiliates, including FCC. Loans
to a single covered affiliate may not exceed 10% and loans to all covered
affiliates may not exceed 20% of an individual bank's capital, as defined in
applicable Federal Reserve Board regulations. Such loans must be collateralized
by assets with market values of 100% to 130% of loan amounts, depending upon the
nature of the collateral.
NOTE 15
Off-Balance Sheet Financial Instruments
In the normal course of business, FCC is a party to various financial
instruments which are not carried on the balance sheet. FCC utilizes these
instruments to meet the financing needs of its customers and to help manage its
exposure to interest rate fluctuations. These financial instruments include
commitments to extend credit, letters of credit, securities lent, interest rate
contracts and foreign exchange contracts.
Commitments to extend credit and lines of credit are agreements to lend
funds to a customer at a future date, generally having fixed expiration or
other termination clauses and specified interest rates and purposes. For
their credit card customers, the Banks have the right to change or
terminate any terms or conditions of the credit card accounts at any time.
Since commitments and unused lines of credit may expire without being drawn
upon, the unfunded amounts do not necessarily represent future funding
requirements.
Standby letters of credit obligate the Banks to pay third parties if the
Banks' customers fail to perform under agreements with those third parties.
Commercial letters of credit are used to finance contracts for the shipment of
goods from seller to buyer.
The credit risk associated with commitments to extend credit and letters
of credit is essentially the same as that involved in extending loans to
customers and is subject to FCC's credit policies. Collateral requirements are
based on the creditworthiness of the customer.
Foreign exchange contracts are commitments to purchase or deliver
foreign currency at a specified exchange rate. These contracts are used as
commercial service products. Market risk associated with these contracts is
generally minimized by offsetting transactions.
Securities lending involves lending securities owned by FCC and its
customers to third parties. Credit risk arises in these transactions through the
possible failure of the borrower to return the securities. To minimize this
risk, the creditworthiness of the borrower is monitored, and collateral with a
market value at least equal to 102% of the market value of the securities lent
is obtained.
FCC enters into interest rate contracts with the objective of partially
insulating net interest income from changes in interest rates. Primary among the
financial instruments used are swaps, caps and cap corridors. The notional
amounts on these contracts do not represent an amount at risk but are used only
as the basis for determining the cash flows related to these contracts. Credit
risk associated with these contracts is minimized by requiring the same credit
approval process as is required for lending, by monitoring credit exposure and
counterparty creditworthiness, and by dealing in the national market with highly
rated counterparties.
Interest rate swaps are agreements to exchange interest payments
computed on notional amounts. Under an index amortizing swap contract, the
notional amount amortizes based upon the level of the specified index. Interest
rate caps and floors are contracts in which a counterparty pays or receives
a cash payment from another counterparty as an index rises above or falls
below a predetermined level. A cap corridor is the simultaneous purchase and
sale of a cap; the cap sold is for a higher rate than the one purchased.
A summary of off-balance sheet financial instruments follows (in
thousands):
December 31
- ---------------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------------
Commitments to extend credit for loans
and leases (excluding credit card plans) $1,224,478 $1,074,254
Commitments to extend credit for credit
card plans $2,236,656 $1,448,546
Commercial letters of credit $ 3,966 $ 3,729
Financial letters of credit $ 77,005 $ 58,561
Performance letters of credit $ 20,954 $ 17,203
Mortgage loans sold with recourse $ - $ 2,402
Foreign exchange contracts
Commitments to purchase $ 1,020 $ 580
Commitments to sell $ 1,057 $ 660
Securities lent $ 105,605 $ -
Securities borrowed $ 28 $ -
Forward commitments to sell mortgages $ 4,896 $ -
When-issued securities
Commitments to purchase $ 150 $ 50
Commitments to sell $ 110 $ 50
Interest rate contracts (F1)
Generic and callable swaps $ - $ 160,000
Amortizing interest rate swaps $ 193,605 $ 200,000
Caps $ 350,000 $ 350,000
Cap corridors $ - $ 100,000
- ---------------------------------------------------------------------
(F1) Notional principal amounts.
NOTE 16
Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires the disclosure of fair value information about certain on and
off-balance sheet financial instruments where it is practicable to estimate
that value. Because many of FCC's financial instruments lack a readily
available trading market, fair values for such instruments are based on
significant estimations and present value calculations. The use of different
assumptions and estimation methods could significantly affect fair value
amounts disclosed. In addition, reasonable comparability between financial
institutions may not be possible due to the wide range of permitted
valuation techniques and numerous estimates involved.
Fair value estimates do not consider the value of future business or the
value of assets and liabilities that are not considered financial instruments.
In addition, the tax ramifications related to the unrealized gains and
losses have not been considered in the estimates. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value
of FCC.
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument.
Cash and short-term investments - For cash and due from banks and money
market investments, the carrying amount is a reasonable estimate of fair value.
Securities - Fair values of securities held to maturity and available
for sale are based on quoted market prices, where available. If quoted market
prices are not available, fair values are based on quoted prices of comparable
securities.
Loans - The fair value of loans, except for credit card loans, was
calculated by discounting scheduled principal and interest payments to maturity
using estimates of December 31, 1995 and 1994 rates. For credit card loans, cash
flows and maturities were estimated based on historical experience using an
average yield adjusted for servicing costs and credit losses.
Deposits - SFAS No. 107 requires that deposits without stated
maturities, such as noninterest-bearing demand deposits, money market accounts
and savings accounts, have a fair value equal to the amount payable on demand
(carrying amount). Deposits with stated maturities were valued using a present
value of contractual cash flows with a discount rate approximating current
market rates for deposits of similar remaining maturities.
Short-term borrowings - The fair value of short-term borrowings is their
carrying amount.
Long-term debt - The fair value of long-term debt was estimated from
dealer quotes.
Off-balance sheet financial instruments - The fair values of interest
rate contracts were obtained from dealer quotes. These values represent the
estimated amount that FCC would receive or pay to terminate the contracts,
taking into account current interest rates and, when appropriate, the current
creditworthiness of the counterparties. The fair values of other off-balance
sheet financial instruments are not material.
The estimated fair values of FCC's financial instruments follows (in
thousands):
December 31, 1995 December 31, 1994
- --------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------
On-balance sheet financial assets
Cash and
short-term
investments $ 551,586 $ 551,586 $ 641,472 $ 641,472
Securities
available for
sale $2,599,767 $2,599,767 $2,582,348 $2,582,348
Securities held
to maturity $ - $ - $ 150,713 $ 144,776
Loans, net of
unearned
income and
the allowance
for loan losses $5,046,881 $5,033,231 $4,058,187 $4,009,847
On-balance sheet financial liabilities
Noninterest-bearing
deposits $1,481,795 $1,481,795 $1,471,925 $1,471,925
Interest-bearing
deposits $5,472,606 $5,508,463 $5,225,475 $5,197,204
Short-term
borrowings $ 635,728 $ 635,728 $ 500,568 $ 500,568
Long-term debt $ 88,346 $ 128,739 $ 90,145 $ 108,452
Off-balance sheet financial instruments
Generic and
callable swaps $ - $ - $ - $ (5,509)
Amortizing interest
rate swaps $ - $ (1,270) $ - $ (12,914)
Caps $ 1,196 $ - $ 2,586 $ 4,958
Cap corridors $ - $ - $ - $ 488
- ---------------------------------------------------------------------
NOTE 17
Contingencies
FCC and its subsidiaries have been named as defendants in various legal
actions arising from normal business activities in which damages in various
amounts are claimed. The amount, if any, of ultimate liability with respect to
such matters cannot be determined. However, after consulting with legal counsel,
management believes any such liability will not have a material effect on FCC's
consolidated financial condition or results of operations.
NOTE 18
Other Operating Expense
The composition of other operating expense follows (in thousands):
Years Ended December 31
- ---------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------
Advertising and marketing $15,108 $11,122 $10,079
Computer-related services 12,745 9,207 8,306
Stationery and supplies 10,540 9,037 8,636
Taxes, licenses and other fees 8,339 8,285 6,457
Miscellaneous losses 7,504 2,161 1,844
Postage 7,389 6,392 6,534
Communications 6,471 5,007 4,741
Credit card expense 5,036 3,875 3,804
Travel and entertainment 3,901 3,266 2,982
Armored car, courier and freight 3,569 2,938 2,544
Nonperforming assets expense 1,053 1,083 2,554
Other 5,729 5,664 6,983
- ---------------------------------------------------------------------
Total $87,384 $68,037 $65,464
- ---------------------------------------------------------------------
NOTE 19
Income Taxes
The components of income tax expense in the consolidated statements of
income for the years ended December 31, 1995, 1994 and 1993 were as follows:
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
Current $48,579 $30,992 $58,077
Deferred (9,124) 7,580 (8,569)
- --------------------------------------------------------------------------------
Total $39,455 $38,572 $49,508
- --------------------------------------------------------------------------------
Income tax expense related to state and foreign income taxes are
included above and were insignificant in all years presented. Income tax
benefits related to securities transactions were $3,995,000 in 1995, $15,211,000
in 1994 and $78,000 in 1993.
Total income tax expense for 1995, 1994 and 1993 was different from
the amount computed by applying the statutory federal income tax rates to pretax
income as follows (in percentages):
Years Ended December 31
- ---------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------
Federal income tax expense 35.00% 35.00% 35.00%
Increase (decrease) resulting from:
Benefits attributable to
tax-exempt interest (3.26) (3.32) (2.69)
Deferred taxes no longer needed - - (2.39)
Effect of change in tax rate
on beginning deferred items - - (.28)
Effect of adopting SFAS 109 - - .44
Nondeductible expenses 2.40 .84 .47
Other items, net .05 (.05) (.10)
- ---------------------------------------------------------------------
Actual income tax expense 34.19% 32.47% 30.45%
- ---------------------------------------------------------------------
Cash payments for federal income tax liabilities were $37.08 million,
$41.38 million and $47.31 million for 1995, 1994 and 1993, respectively. FCC had
a current income tax payable of $6.88 million on December 31, 1995 and a current
income tax receivable of $2.88 million on December 31, 1994.
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. There was a net deferred
asset of $9.89 million and $58.10 million on December 31, 1995 and 1994,
respectively. The major temporary differences which created deferred tax
assets and liabilities as of December 31, 1995 and 1994 are as follows (in
thousands):
December 31, 1995
- ---------------------------------------------------------------------
Deferred Deferred
Tax Tax
Assets Liabilities
- ---------------------------------------------------------------------
Allowance for loan losses $25,267 $ -
Employee benefits 3,051 -
Amortization of intangibles 2,605 -
Nonaccrual loan interest 1,462 -
Allowance for losses on foreclosed assets 340 -
Unrealized gain on securities
available for sale - 18,084
Accrued liabilities - 4,132
Accumulated depreciation - 3,999
Bond accretion - 2,890
Other 8,999 2,730
- ---------------------------------------------------------------------
Total deferred taxes $41,724 $31,835
- ---------------------------------------------------------------------
December 31, 1994
- ---------------------------------------------------------------------
Deferred Deferred
Tax Tax
Assets Liabilities
- ---------------------------------------------------------------------
Allowance for loan losses $23,768 $ -
Employee benefits 2,017 -
Amortization of intangibles 3,039 -
Nonaccrual loan interest 1,350 -
Allowance for losses on
foreclosed assets 1,387 -
Unrealized loss on securities
available for sale 39,736 -
Accrued liabilities - 5,149
Accumulated depreciation - 5,010
Bond accretion - 3,347
Other 2,409 2,097
- ---------------------------------------------------------------------
Total deferred taxes $73,706 $15,603
- ---------------------------------------------------------------------
NOTE 20
Condensed Parent Company Only - Financial Information
Condensed Balance Sheets (in thousands)
December 31
- ---------------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------------
ASSETS
Interest-bearing deposits in
subsidiary banks (F1)
Cash and due from banks $ 80,370 $ 98,392
Time deposits 138 2,148
Loan receivable, net of unearned income - 975
Investments in subsidiaries at equity (F1)
Banks 721,575 561,802
Nonbanks 7,109 7,181
- ---------------------------------------------------------------------
728,684 568,983
Other assets 28,351 23,726
- ---------------------------------------------------------------------
Total assets $837,543 $694,224
- ---------------------------------------------------------------------
LIABILITIES
Payables to subsidiaries (F1) $ 1,764 $ 3,751
Long-term debt 82,858 83,338
Other Liabilities 19,872 13,576
- ---------------------------------------------------------------------
Total liabilities 104,494 100,665
STOCKHOLDERS' EQUITY 733,049 593,559
- ---------------------------------------------------------------------
Total liabilities and stockholders' equity $837,543 $694,224
- ---------------------------------------------------------------------
(F1) Eliminated in consolidation, except for goodwill and other intangibles.
Condensed Statements of Income (in thousands)
Years Ended December 31
- ---------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------
INCOME
Interest and dividends
on securities $ 354 $ 860 $ 322
Interest on receivables from
subsidiaries (a) 5,513 1,734 1,798
Dividends from subsidiaries (a) 46,861 95,775 29,818
Other income 23 25 288
- ---------------------------------------------------------------------
52,751 98,394 32,226
- ---------------------------------------------------------------------
EXPENSES
Interest on debt to nonbank
subsidiaries 79 165 183
Interest on debt to nonaffiliates 10,625 10,748 11,635
Other 7,621 2,298 1,561
- ---------------------------------------------------------------------
18,325 13,211 13,379
- ---------------------------------------------------------------------
Income before income taxes and
equity in undistributed earnings
of subsidiaries 34,426 85,183 18,847
Income tax benefit (3,954) (3,574) (13,529)
- ---------------------------------------------------------------------
38,380 88,757 32,376
Equity in undistributed earnings
of subsidiaries (a) 37,571 (8,530) 80,649
- ---------------------------------------------------------------------
NET INCOME 75,951 80,227 113,025
PREFERRED DIVIDEND
REQUIREMENTS 4,325 4,347 4,348
- ---------------------------------------------------------------------
INCOME APPLICABLE TO
COMMON SHARES $71,626 $75,880 $108,677
- ---------------------------------------------------------------------
(a) Eliminated in consolidation.
Statements of Cash Flows (in thousands)
Years Ended December 31
- ---------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 75,951 $80,227 $113,025
Adjustments to reconcile net
income to net cash provided
by operating activities
Equity in undistributed earnings
of subsidiaries (a) (37,571) 8,530 (80,649)
Deferred income tax
(benefit) (1,332) (183) (13,394)
Decrease in interest payable (4) (37) (87)
Decrease in other assets 1,443 1,133 1,344
Increase (decrease) in
other liabilities 3,351 1,035 (403)
Other 41 (313) 1,309
- ---------------------------------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 41,879 90,392 21,145
- ---------------------------------------------------------------------
INVESTING ACTIVITIES
Investment in subsidiaries (F1) (5,100) (5,000) 3,000
Proceeds from maturity of
interest-bearing time deposits (F1) 2,010 237 313
Decrease (increase) in loans 975 (975) -
Purchase of securities (1,611) (12,817) (85,000)
Proceeds from sales of securities 375 20,000 85,796
Principal collected on advances (F1) 134,536 77,409 86,708
Advances originated or acquired (F1) (136,524) (80,755) (81,289)
- ---------------------------------------------------------------------
NET CASH (USED) PROVIDED
BY INVESTING ACTIVITIES (5,339) (1,901) 9,528
- ---------------------------------------------------------------------
FINANCING ACTIVITIES
Net (decrease) in commercial paper - - (500)
Payments on long-term debt (968) (2,117) (12,870)
(Decrease) in other
short-term borrowings (20) (20) -
Proceeds from sales of
common stock 825 1,840 5,385
Cash Dividends (41,672) (33,835) (26,972)
Treasury stock acquired,
net of issuances (12,727) - -
Other - - 102
- ---------------------------------------------------------------------
NET CASH (USED) BY
FINANCING ACTIVITIES (54,562) (34,132) (34,855)
- ---------------------------------------------------------------------
(DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (18,022) 54,359 (4,182)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 98,392 44,033 48,215
- ---------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 80,370 $98,392 $ 44,033
- ---------------------------------------------------------------------
(F1) Eliminated in consolidation.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The management of First Commerce Corporation is responsible for the
preparation of the financial statements, related financial data and other
information in this annual report. The financial statements are prepared in
accordance with generally accepted accounting principles and include some
amounts that are necessarily based on management's informed estimates and
judgements, with consideration given to materiality. All financial information
contained in this annual report is consistent with that in the financial
statements.
Management fulfills its responsibility for the integrity, objectivity,
consistency and fair presentation of the financial statements and financial
information through an accounting system and related internal accounting
controls that are designed to provide reasonable assurance that assets are
safeguarded and that transactions are authorized and recorded in accordance with
established policies and procedures. The concept of reasonable assurance is
based on the recognition that the cost of a system of internal accounting
controls should not exceed the related benefits. As an integral part of the
system of internal accounting controls, First Commerce Corporation has a
professional staff of internal auditors who monitor compliance with and assess
the effectiveness of the system of internal accounting controls and coordinate
audit coverage with the independent public accountants.
The Audit Committee of the Board of Directors, composed solely of
outside directors, meets periodically with management, the internal auditors and
the independent public accountants to review matters relating to financial
reporting, internal accounting control and the nature, extent and results of the
audit effort. The independent public accountants and internal auditors have
direct access to the Audit Committee with or without management present.
The financial statements have been examined by Arthur Andersen LLP,
independent public accountants, who render an independent professional opinion
on the financial statements prepared by management. Their appointment was
recommended by the Audit Committee and approved by the Board of Directors.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders
and Board of Directors of
First Commerce Corporation:
We have audited the consolidated balance sheets of FIRST COMMERCE
CORPORATION (a Louisiana corporation) and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of First Commerce
Corporation and subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana,
January 15, 1996