First Commerce
Corporation
96
Annual
Report
About the company
First Commerce Corporation is a $9.2 billion-asset regional multi-bank holding
company. Through its six banks located in Louisiana, First Commerce offers
complete banking and related financial services to commercial and consumer
customers in the Gulf South, primarily Louisiana and southern Mississippi.
First Commerce Corporation's common stock (FCOM) is traded over-the-counter
on The NASDAQ Stock Market. It is listed in The Wall Street Journal as FstCmmrc
and in The Times-Picayune as FComC. The transfer agent is First Chicago Trust
Company of New York.
CONTENTS
President's Letter . . . . . . . . . . . . . . . . . . . . . . . 3
Management Focus . . . . . . . . . . . . . . . . . . . . . . . . 6
Financial Review . . . . . . . . . . . . . . . . . . . . . . . . 15
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . 34
Selected Quarterly Data . . . . . . . . . . . . . . . . . . . . . 36
Consolidated Financial Statements . . . . . . . . . . . . . . . 37
Notes to Consolidated Financial Statements . . . . . . . . . . . 41
Financial Highlights
- ---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands except per share data) 1996 1995 % Change
- ---------------------------------------------------------------------------------------------------------------------------
Income Data
Net income $ 118,438 $ 75,951 56 %
Operating income 118,334 83,369 42 %
Net interest income (FTE) 375,500 349,317 7 %
- ---------------------------------------------------------------------------------------------------------------------------
Per Common Share Data
Net income - primary $ 3.02 $ 1.89 60 %
Net income - fully diluted 2.89 1.87 55 %
Operating income - primary 3.02 2.09 44 %
Operating income - fully diluted 2.88 2.05 40 %
Book value (end of period) 18.66 17.86 4 %
Tangible book value (end of period) 18.20 17.32 5 %
Cash dividends 1.45 1.25 16 %
- ---------------------------------------------------------------------------------------------------------------------------
Average Balance Sheet Data
Loans $5,512,428 $ 4,542,678 21 %
Securities 2,253,065 2,831,943 (20)%
Earning assets 7,831,517 7,464,065 5 %
Total assets 8,525,109 8,141,194 5 %
Deposits 6,887,675 6,703,077 3 %
Stockholders' equity 724,674 687,533 5 %
- ---------------------------------------------------------------------------------------------------------------------------
Key Ratios
Return on average assets
Net income 1.39% .93%
Operating income 1.39% 1.02%
Return on average total equity
Net income 16.34% 11.05%
Operating income 16.33% 12.13%
Return on average common equity
Net income 16.95% 11.41%
Operating income 16.93% 12.59%
Net interest margin 4.79% 4.68%
Efficiency ratio 59.66% 67.36%
Overhead ratio 1.97% 2.49%
Average loans to deposits 80.03% 67.77%
Allowance for loan losses to loans 1.31% 1.48%
Equity ratio 7.87% 8.59%
Leverage ratio 7.76% 8.16%
- ---------------------------------------------------------------------------------------------------------------------------
The graph inserted shows Earnings per share -- fully diluted from 1992 to 1996.
The plot points are:
Graph
Type Denominations 1992 1993 1994 1995 1996
----- ------------- ---- ---- ---- ---- ----
Bar Dollars $2.27 $2.75 $1.98 $1.87 $2.89
The graph inserted shows dividends per share from 1992 to 1996. The
plot points are:
Graph
Type Denominations 1992 1993 1994 1995 1996
----- ------------- ---- ---- ---- ---- ----
Bar Dollars $.70 $.85 $1.10 $1.25 $1.45
The graph inserted shows FCC closing stock price from 1992 to 1996. The
plot points are:
Graph
Type Denominations 1992 1993 1994 1995 1996
----- ------------- ---- ---- ---- ---- ----
Bar Dollars $25.60 $25.13 $22.00 $32.00 $38.88
1
STATEMENT
OF DIRECTION
A COMMITMENT TO QUALITY Quality must underlie all of our actions and plans -
quality in service to customers, quality in financial performance, quality in
assets, and quality in selection and development of personnel who demonstrate
high standards of integrity and ethical values.
A MARKET-DRIVEN, CUSTOMER-ORIENTED PHILOSOPHY Our success is most dependent upon
our ability to satisfy fully our customers. Our products must be designed and
delivered with careful attention to real customer needs, and in a manner which
adds value that will insure continued profitability.
A HIGH-PERFORMANCE STRATEGY High performance means an efficient, aggressive
organization that performs consistently well over a long period of time. To
achieve that, we have set the following objectives:
INVESTOR ORIENTATION - Our goal is to provide our shareholders with performance
comparable to other superior financial institutions.
SUPERIOR REGIONAL FRANCHISE - We will continue to emerge as a first choice
supplier of customers' financial needs in the Gulf South Region.
BALANCED APPROACH - We believe that maintaining a balanced base of individual,
business, and governmental customers best assures consistent performance over
time.
VALUE-SENSITIVE COST CONTROL - To support our performance objectives, we
must carefully assess the value received for each dollar spent.
A POSITIVE CORPORATE CITIZEN We want to be a significant contributor to the
communities in which we do business. This can be accomplished by providing
leadership and support in fulfilling our role as involved citizens.
Note: This Statement of Direction was adopted in 1985
and has appeared in each annual report since then.
2
President's Letter
To Our Shareholders,
Last year, we stated that 1996 would be the year when shareholders could
start to anticipate strong revenue growth and improved operating efficiencies.
Throughout the year, your company has been successful in delivering
across-the-board gains in revenues while enhancing expense control as a result
of our recent initiatives.
In those initiatives, First Commerce has sharpened its focus on matching
the needs of our diverse clients with products that best serve their needs.
Loans, our credit card business and fee income all have shown dramatic growth,
and a variety of efforts have contributed to the company's ability to manage and
contain the costs of doing business.
The Louisiana economy, which through the years has been the single most
important factor affecting the fortunes of First Commerce, continued its upward
course. This economic expansion of jobs, personal income and regional vitality
is demonstrating growing momentum and should create a promising environment for
First Commerce's future financial performance.
FINANCIAL REVIEW
First Commerce Corporation reported net income of $118.4 million in 1996, versus
$76.0 million in 1995. Growth of 56% from 1995 to 1996 was caused primarily by
the 9% growth of revenues, and the absence of one-time merger expenses of $19.1
million and $11.4 million of securities losses incurred in 1995. Fully diluted
earnings per share were $2.89 in 1996 and $1.87 in 1995, a 55% improvement.
Return on equity was 16.34% and return on assets was 1.39%.
Net interest income (FTE) was $375.5 million in 1996, a 7% increase over
1995. Loan growth was the most significant factor in this improvement. The net
interest margin increased eleven basis points over 1995 to 4.79%.
3
Activity resulting from Louisiana's improved ecomony contributed to First
Commerce's third year of double digit loan growth.
Other income increased 14% over 1995, excluding securities transactions,
as a result of growth in most fee income categories. Credit cards were the
largest contributor with 38% growth, a result of increased volumes and First
Commerce's business with the clubs on U.S. Air Force bases worldwide. Also
creating the improvement in fee income was growth in broker/dealer revenue,
trust fee income, and ATM fee income. Only deposit fees remained flat, the
result of First Commerce's proactive strategies of putting our best clients in
the best product to meet their needs. This often means suggesting a client move
to a lower fee or higher yielding account; however, improved client retention is
expected to lead to higher overall profitability.
The provision for loan losses was $38.0 million in 1996, up from $30.6
million in 1995, which included $10 million related to the closure of Harrah's
New Orleans temporary casino. The increase in 1996's provision resulted from
higher net charge-offs of loans in our credit card business and in the consumer
finance operation.
Operating expense was $326.8 million during 1996. Excluding nonrecurring
items, operating expense increased only 3%. Most operating expenses decreased
with the only significant increase in personnel expense. Virtually all of the
personnel expense increase was caused by incentive pay tied to the improvement
in the company's financial returns and in the price of its common stock.
Activity resulting from Louisiana's improved economy contributed to
First Commerce's third year of double-digit loan growth. Driven by pent-up
demand created during the state's decade-long recession, loans increased 21% in
1996 following a 24% rise in 1995. Total loans rose to $6.2 billion as of
December 31, 1996. All categories of loans, including commercial, consumer,
residential mortgage, commercial real estate and credit card, experienced strong
growth in 1996.
Nonperforming assets were $31.9 million at December 31, 1996, or .51% of
loans, improved from $59.8 million at the end of 1995. Net charge-offs were .58%
of loans for 1996, compared to .59% in 1995, which included the $10 million
charge-off for the casino closure discussed earlier. Commercial loans had a net
recovery in 1996. Credit card net charge-offs were $22.0 million, or 3.24% of
loans, in 1996, up from $12.2 million in 1995 primarily due to bankruptcies.
While this increase in credit
4
First Commerce continues to maintain its focus on the creation if superior
shareholder returns.
card net charge-offs tracks a national trend, it remains at a level better than
the national average. Consumer net charge-offs increased to $13.3 million in
1996 from $5.2 million in 1995.
Total deposits were $7.3 billion at year end, 5% higher than one year
earlier. Interest-bearing deposits increased 7% to $5.9 billion in 1996.
Noninterest-bearing deposits were flat at $1.4 billion due to the strategy of
migrating our best clients into higher-yielding products more suitable for their
needs.
DIRECTOR RETIRES
J.B. Storey retired from First Commerce's board of directors at the end of
1996. He joined the board when we merged with the Bank of New Orleans in
1983, and he served on BNO's board from 1954 to 1983. We thank J.B. for his
many years of service, and we shall miss his counsel.
To help you understand First Commerce and its competitive position
today, we will review the five major areas of management focus which are driving
the allocation of our critical resources. These five are Strategy, Investment,
Capital Management, Priorities and Fundamentals. Each activity is examined in
the section following.
First Commerce continues to maintain its focus on the creation of
superior shareholder returns. We receive particular pleasure participating in
the growing fortunes of our statewide economy, for it is only through
Louisiana's success that First Commerce's shareholders and employees succeed.
On behalf of all of us here at First Commerce, I would like to express
our gratitude for the support, confidence and trust you have placed in us. We
pledge to continue in our efforts to live up to your highest expectations, both
as clients and shareholders.
/s/ Ian Arnof
- ----------------------------------------
Ian Arnof
President and Chief Executive Officer
[caption]
5
{Strategy}
First Commerce Corporation has developed three key strategies to
enhance client relationships and to improve shareholder value.
A primary goal of First Commerce Corporation is to enhance shareholder value in
a manner that is sustainable and predictable. Three key strategies were
developed to achieve this goal: RETAIN the most profitable clients, MIGRATE high
potential clients to products and services that best meet their needs, and
REDUCE DELIVERY COSTS to serve clients who are more price-sensitive.
These strategies have evolved from our developing information on
products, clients and delivery channels. First Commerce associates are better
prepared to add value for our clients with financial services they want and
need. For example, in our personal banking business, our Smart segment includes
the 20% of those customers that provide 80% of our retail profits in any given
year. Today, First Commerce has a 96% RETENTION RATE WITHIN THIS CLIENT SEGMENT.
And through these client-focused strategies, the company is effectively
MIGRATING ADDITIONAL CLIENTS INTO THIS MOST PROFITABLE CLIENT SEGMENT, adding
more than 8,000 during 1996.
The third strategy of reducing delivery costs while serving the needs of
clients who desire low-cost options has shown promising results. Throughout our
entire client base, the TRANSACTION MIX SHIFTED TOWARD LOWER COST DELIVERY
CHANNELS, such as Call First service, ATMs and telebanking. From 1995 to 1996,
teller transactions, our most expensive delivery channel, declined in client
usage from 52% to 47%, while lower cost delivery options increased in usage from
48% to 53%.
6
Through predictive modeling, First Commerce has made progress in retail
client retention and cost reduction by OFFERING THE RIGHT PRODUCT TO THE RIGHT
CLIENT AT THE RIGHT TIME. During a loan direct mail campaign, for example, our
predictive modeling efforts resulted in an increase in the success rate of loans
booked from 1% to 10% of letters mailed and a decrease in the cost per loan
booked from $102 to $13.
First Commerce has increased its focus on the most profitable corporate
clients too, resulting in strong retention and increased profitability. We refer
to these customers as our Marquis clients. The number of Marquis clients
achieving above the minimum-required profit level increased over the year from
322 to 376. The return on equity of our Marquis client base rose from 25% to 27%
during 1996.
HOW DO WE RETAIN MARQUIS CLIENTS IN A MORE COMPETITIVE BANKING
ENVIRONMENT? More than 80% are privately-owned companies, 78% have sales of less
than $50 million, 65% are first generation companies, and 65% have been in
business for less than 25 years. Consequently, they are difficult for large
national competitors to target and thus remain highly profitable and loyal to
First Commerce affiliates.
In addition, the company's acquisition strategy has proven both unique
and effective, reflecting our attempt to lower delivery costs to
difficult-to-serve sectors of the market. We have DIRECT REPRESENTATION IN SIX
OF LOUISIANA'S MAJOR REGIONAL TRADE CENTERS, and target smaller communities
through a network of 157 correspondent banks. Our Louisiana correspondent banks
comprise 95% of the state's independent banks. While other regional banks have
pulled back from this business, we cover these markets by providing credit cards
and purchasing loan participations. This strategy provides us with low-cost
access to clients in towns where leveraging a branch system is difficult.
First Commerce has 16% of the state's total deposits, and 22% of the
deposits in the Louisiana markets we serve. Our six markets contain 73% of the
state's total deposits, of which First Commerce has a 36% market share in both
Monroe and Alexandria, a 26% share in New Orleans, a 25% share in Lake Charles,
and a 13% share in both Baton Rouge and Lafayette. THIS DEPOSIT MARKET SHARE IS
NUMBER ONE IN FOUR OF THESE SIX MARKETS, and number two and three in the other
two markets. In these two markets our total deposits are within 15% of the
leader.
The map inserted shows the State of Louisiana and presents Deposit
Market Share in each of the following markets. It also presents FCC's
ranking with other financial institutions in these markets.
Market Deposit Market Share Ranking
------ --------------------- -------
Monroe 36% First
Alexandria 36% First
Baton Rouge 13% Third
Lafayette 13% First
New Orleans 26% First
Lake Charles 25% Second
7
INVE$TMENT
Through the company's investments in sales and service technology,
First Commerce is better prepared to offer the right
product to the right client at the right time.
First Commerce has made a number of strategic investments designed to
enhance operational efficiency and profitability. These investments began to
translate into increased revenues in 1996.
Our implementation of the first phase of branch platform and teller
automation provides our people with the sales and service technology to improve
client needs identification. With much of the paperwork eliminated and easy
access to client information, FIRST COMMERCE ASSOCIATES IN ALL OF OUR FINANCIAL
CENTERS NOW HAVE THE TIME AND SUPPORT TO DISCUSS NEEDS, REVIEW PRODUCT
INFORMATION, AND OPEN NEW ACCOUNTS IN A SALES-FOCUSED PROCESS.
It is noteworthy that only deposit products were included in this
initial phase of platform automation. Loan products will be added during 1997.
One of our client segments includes financially strong customers who
already consider First Commerce affiliates to be their primary bank. By
INVESTING IN INFORMATION, we learned that within this group we have only 40% of
their noninterest-bearing deposits, 50% of interest-bearing deposits, 40% of
loans, 2% of mortgages, 10% of IRAs and 5% of investments. This is an IMPORTANT
SOURCE OF FUTURE GROWTH. The use of platform automation and predictive modeling
is contributing to effective cross-selling of additional products and services
to this important client segment, referred to as our Smart segment.
CROSS-SELLING TO OUR SMART CLIENT SEGMENT IMPROVED 5% during 1996.
To streamline the cost of service and add convenience, First Commerce
has also made major investments in telebanking and ATMs. The company now has
more than 400 ATMs, WHICH IS MORE THAN THE TOTAL OF OUR TWO NEAREST COMPETITORS
COMBINED. The ANYWHERE, ANYTIME CONVENIENCE that telebanking and ATMs provide
for First Commerce clients also TRANSLATES INTO REDUCED SERVICE COSTS for the
company and the clients who use these convenient options.
8
As the implementation of technology has provided us with the tools to
contain costs and enhance productivity, technology will play an important role
in our future. During 1996, First Commerce was recognized in Dean Witter's
Second Annual Technology Survey as ONE OF THE TOP FIVE BANKS IN THE NATION TO
MAKE EFFECTIVE USE OF TECHNOLOGY. The company received particular mention for
our ability to utilize customer database information gathered at the point of
sale, with our system being described as one of the most competitive. With these
capabilities, we will continue to pinpoint advancements in alternative modes of
delivery, branch automation, predictive modeling and profitability systems.
In addition, the company has expanded its product offerings in the
investment arena. The proprietary family of Marquis mutual funds, established
during 1993, experienced a year of strong growth in 1996. Through the Marquis
funds, clients are offered the opportunity to choose mutual fund investments
managed by First Commerce's Trust division. Investments in money market funds
have increased 333% from $288 million at inception in 1993 to $1.2 billion in
1996. Equity and bond funds also experienced a 113% increase between inception
in 1993 and 1996, from $198 million to $423 million. In the past year alone, the
money market funds have grown 39% while the equity and bond funds rose 32%.
Capital
Management
Profitable growth allowed for a 14% cash dividend increase, indicating
long-term financial strength and capital flexibility.
o ROE in 15-18% target range
o Cash dividend yield currently 3.6%, payout 40%-50%
o Repurchased 1.8 million shares in 1996 for preferred conversions
o $80 million of 12 3\4% convertible debentures mature in 2000,
providing flexibility
Recently, many companies have chosen to buy back a significant
percentage of their stock to achieve adequate short-term return on equity
performance. This pressure has not been felt by First Commerce as strong revenue
growth generated a COMPETITIVE RETURN ON EQUITY of 16.34% in 1996.
9
The company has repurchased common stock on occasion rather than issue
new shares onto the market. During 1996, First Commerce repurchased 1.8 million
shares of common stock to use for preferred stock conversions rather than issue
new shares. In addition, the CASH DIVIDEND WAS INCREASED 14% in November to
$1.60 annually, providing a yield of 3.6%, about twice the S&P 500 yield. The
higher yield that First Commerce provides allows us to return capital to our
shareholders, while giving downside support for the price of our stock.
It is important to note that directors of First Commerce and its
subsidiaries, management and their families own 24% of the company's stock.
Beyond the confidence in the company that this displays, it also assures that
associates THINK AND ACT IN THE SHAREHOLDERS' BEST INTEREST.
A significant factor giving FINANCIAL FLEXIBILITY to First Commerce is
the $80 million of 12 3/4% convertible debentures that mature in 2000. These
debentures are expected to convert into three million shares of common stock-
the conversion price is $26.67 versus a year-end price of $38.875 - at which
time we will have the ability either to issue new stock if we need additional
capital or to buy back more of our outstanding common stock to effect the
conversions.
By MAINTAINING FINANCIAL STRENGTH, First Commerce is PREPARED FOR
INEVITABLE BUSINESS CYCLES AND FINANCIAL MARKET VOLATILITY. This philosophy is
in the best interest of the company's shareholders, and it places First Commerce
in a position to weather adversities and act on opportunities as they occur.
Priorities
First Commerce will work towards achieving financial performance equal
to the best in our industry by maintaining asset quality and
growing revenues faster than expenses.
One of the company's priorities is to STAY AHEAD OF ANY DETERIORATION in asset
quality. Changes made in the provision to recognize asset quality concerns may
cause fluctuations in reported earnings. These fluctuations are a result of the
company's conservative accounting methods and sometimes mask the faster growth
10
rate of revenues than expenses. If, in staying ahead of asset quality
deterioration, the company provides more than is eventually lost, then the
shareholder will benefit in the future when those reserves are returned to
earnings.
CREDIT CARD QUALITY, ALTHOUGH DETERIORATING, REMAINS SIGNIFICANTLY
BETTER THAN NATIONAL AVERAGES which also worsened in 1996. Net charge-offs have
been only 3% on the total card portfolio. First Commerce has been able to
perform at this level by focusing solicitations on clients of First Commerce
banks and of our correspondent banks. This gives the company the ability to
reach smaller towns throughout the state and region, and contribute to overall
asset quality, since these clients appear to be more willing to pay a credit
card issued in their local bank's name than debt owed on other nationally
branded and affinity cards.
First Commerce will continue to focus on ways to GROW REVENUES FASTER
THAN EXPENSES. We have been successful with this effort during the last five
years by developing the strategies which we are implementing and refining. The
1997 priorities for implementation of strategic initiatives will continue with
particular emphasis on evolution of convenience offerings, an area where
retention levels have been below our targets. The company will also complete the
implementation of its small business strategy during the year ahead.
The graph inserted presents a double bar graph presenting total Revenue
and Expenses.
REVENUES GROWING 46% FASTER THAN EXPENSES--$ IN MILLIONS
5 Year CAGR
Total Revenue - 8.9%
Expenses - 6.1%
The plot points are:
Denominations 1992 1993 1994 1995 1996
- ------------- ---- ---- ---- ---- ----
Millions Total Revenue $424 $449 $464 $498 $547
Expenses $260 $280 $301 $311 $322
11
Fundamentals
First Commerce's PERFORMANCE HAS BEEN BOLSTERED BY THE STATE'S ECONOMIC
RESURGENCE. For ten years prior to the start of this expansion, the state's
total bank loans were up less than 1%, and total deposits grew only 3%. Over the
past 3.5 years, however, total bank loans increased 55.2% and total bank
deposits grew 9.3%. Employment in Louisiana reached a level during 1994 not seen
since 1981. Employment growth continued into 1996, which benefits First Commerce
as 68% of the state's jobs are in the markets we serve.
The energy sector of the state's economy has experienced a three-year
upward trend, with the highest active rig count in six years. Over the last
year, the average price per barrel of crude oil was up 45%, and there is
currently an environment of increasing natural gas demand and activity,
particularly deepwater development in the Gulf of Mexico.
The New Orleans market, which encompasses 56% of the First Commerce
deposit base, is also enjoying an upsurge in economic vitality. Convention
bookings were up 35% during 1996, with an 18% increase in hotel business during
the slower summer months. Hotel occupancy within the city's French Quarter was
77%, and the average daily rate of $121 was among the nation's highest. In
addition, construction on Phase III of the Convention Center has begun, with
projected completion in January 1999.
From 1992 through 1996, First Commerce has grown revenues at a rate
46% faster than expenses. With the state's resurgence of economic strength,
this pattern should continue.
A prime indicator of First Commerce's FUNDAMENTAL STRENGTH is the
company's ratio of expenses to revenues. At the end of 1995, First Commerce had
a 62% efficiency ratio, the cost required to generate a dollar of revenue. Our
stated goal for 1996 was to bring the ratio down into the mid-50% range. First
Commerce progressed towards this goal, and the company will continue to improve
during 1997.
The company's improved earning assets mix reflects our stronger economy
with increases in loans. Loan growth has been building momentum, with compound
annual growth of 15% over the last 5 years, 21% over the past 3 years and more
than 21% over the last year alone.
We do not consider this growth to be a foreshadowing of credit problems
but rather the funding of deferred investments that follows a very long
recession. The surge in LOAN GROWTH IS DRIVEN BY THE UPTURN IN ECONOMIC ACTIVITY
throughout Louisiana, with our growth mirrored by our competitors. Since there
was little expansion in the state economy for the better part of a decade, many
projects that would have required funding during those years were placed on
hold. Now that the economy has rebounded, these projects are moving forward.
12
The line graph inserted shows the Efficiency Ratio -- adjusted for nonrecurring
items from 1991 to 1996. The plot points are:
Graph Type Denominations 1991 1992 1993 1994 1995 1996
- ---------- ------------- ----- ----- ----- ----- ----- -----
Line Graph Percent 67.1% 61.4% 62.3% 64.7% 62.7% 58.8%
Certainly, First Commerce's CREDIT CARD BUSINESS IS A MAJOR CONTRIBUTOR
to both our loan growth and fee income. The growth in outstandings, which
currently total $830 million, is driven by a competitive bid First Commerce won
for U.S. Air Force Base clubs worldwide. We have completed the implementation of
the credit card program at all domestic bases, as well as in Europe, the Pacific
Rim and other points around the world. This program has been expanded to other
services and has now been implemented at 111 bases worldwide. Again,
conservative accounting has masked the full profitability of this growth, but
the earnings contribution should become more visible in 1997 and beyond.
While loan growth has been driving growth of net interest revenues, our
deposit strategy has been working against the company's improved performance. To
retain our most valuable clients, we have been proactive in moving these clients
into more value-added accounts. These incentives, which often include a higher
interest rate or lower service charge, increased our cost of funds. PROTECTING
THESE VALUABLE CLIENTS from brokerage and other non-bank competitors should
prove more profitable than the short-term cost. Additionally, we have been
successful in moving these clients into higher-yielding investment products.
While the three-year compound growth rate for deposits has been 6%, the growth
of other customer balances held by us but not on our balance sheet has been 31%.
This growth rate includes trust assets, Marquis funds, and assets held in
brokerage accounts.
In spite of the short-term impact of our retention strategy, net
interest income has grown quite rapidly from approximately $330 million in 1994
to approximately $376 million last year. The NET INTEREST MARGIN HAS BEEN
REMARKABLY STABLE, ranging within 20 basis points of the average for the past 3
years.
The compounded growth rate of fee income has been 11% over the last
decade, with marked increases during 1996 in particular. Credit card fee growth
was approximately 38% during 1996, and trust fees were up 20%. ATM fees grew 15%
last year, partially the result of adding the new ATM machines discussed
earlier. Brokerage fees were up 31% during the year as we were CAPTURING A
GREATER AMOUNT OF TOTAL CLIENT LIQUID ASSETS by assisting our clients with a
wide range of investments.
In total, 1996 has been a year of financial success for both First
Commerce and Louisiana. Through a range of initiatives designed to increase
revenues and improve overall operational efficiency, we have BEGUN TO REALIZE
THE STRONG GAINS IN PERFORMANCE that we projected at the end of last year.
Through the continued REFINEMENT OF OUR KEY STRATEGIES, we have improved
shareholder value. Our INVESTMENTS IN SALES AND SERVICE TECHNOLOGY began to have
a significant effect upon our ability to SERVE THE NEEDS OF OUR CLIENTS while
REDUCING OUR COST of doing business. In turn, this profitable growth has allowed
us to increase our dividend payout, while contributing to the COMPANY'S STRENGTH
AND FLEXIBILITY in meeting the demands of the future. By continuing to FOCUS ON
THE NEEDS OF OUR CLIENTS and MATCHING THOSE NEEDS WITH THE RIGHT PRODUCTS AT THE
RIGHT TIME, we anticipate even greater gains over the year to come.
13
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.
14
1996 IN REVIEW
First Commerce Corporation's (FCC's) net income for 1996 was $118.4 million,
compared to $76.0 million in 1995. Fully diluted earnings per share were $2.89
in 1996 and $1.87 in 1995. Return on average equity was 16.34%, and return on
average assets was 1.39% for 1996.
Contributing to the improvement of earnings during 1996 were higher net
interest income, growth in noninterest revenues and improved operating
efficiencies. Additionally, 1995's results included $23.3 million of net
merger-related and reengineering charges and $11.4 million of securities losses.
An increase in the provision for loan losses in 1996 and a $5.3 million one-time
assessment to recapitalize the Savings Association Insurance Fund (SAIF)
partially offset these improvements.
Net interest income grew 7% in 1996, primarily due to 21% growth in average
loans. The 14% rise in other income, excluding securities transactions, was
mainly due to increased business volumes. Operating expense, excluding
nonrecurring charges, grew only 3% in 1996, while the provision for loan losses
rose $7.4 million. Higher net charge-offs and loan growth were the main causes
of the increase in provision.
Nonperforming assets declined to $32 million at December 31, 1996, compared
to $60 million at year-end 1995. The nonperforming assets and allowance ratios
ended 1996 at .51% and 1.31%, respectively, compared to 1.17% and 1.48%,
respectively, one year ago.
A more detailed review of FCC's financial condition and earnings
for 1996 follows, with comparisons to 1995 and 1994. 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 14 to aid in understanding
terminology used in this Financial Review.
EARNINGS ANALYSIS
Net Interest Income
Net interest income, fully taxable equivalent (FTE), was $375.5 million in
1996, 7% higher than 1995's $349.3 million. The net interest margin was 4.79%
for 1996, 11 basis points higher than in 1995. 1996's improved net interest
income and net interest margin were primarily the result of loan growth.
In 1996, average earning assets grew 5% while average loans rose 21%,
resulting in a more favorable mix of earning assets. As a percent of earning
assets, average loans increased to 70% in 1996 from 61% last year. Growth was
experienced in all categories of loans and was mainly driven by activity
resulting from Louisiana's improved economy. Loan growth was mainly funded by a
reduction in securities, plus higher interest-bearing liabilities. Average
The graph inserted shows net income from 1992 to 1996. The plot points are:
Graph Type: Bar
Denominations: Millions
1992 1993 1994 1995 1996
------ ------ ------ ------ ------
Reported $85.7 $113.0 $80.2 $76.0 $118.4
Excluding nonrecurring items $87.0 $110.9 $112.4 $99.5 $121.0
The graph inserted shows total revenue (PTE) (excluding nonrecurring items) from
1992 to 1996. The plot points are:
Graph Type Denominations 1992 1993 1994 1995 1996
- ---------- ------------- ------ ------ ------ ------ ------
Bar Millions $424 $449 $464 $498 $547
The graph inserted shows the Efficiency Ratio (excluding nonrecurring items)
from 1992 to 1996. The plot points are:
Graph Type Denominations 1992 1993 1994 1995 1996
- ---------- ------------- ------ ------ ------ ------ ------
Bar Percent 61.4% 62.3% 64.7% 62.7% 58.8%
15
FINANCIAL REVIEW
(continued)
securities fell 20% in 1996 and were 29% of average earning assets, compared to
38% in 1995. Loan growth is expected to continue into 1997.
The growth in average earning assets in 1996 was supported by increased
interest-bearing liabilities. Interest-bearing deposits rose 5% with increases
in almost all categories. The most significant growth was in money market
investment and other consumer time deposits. Average short-term borrowings grew
25%, mainly to fund loan growth.
The net interest spread widened 17 basis points to 3.97% in 1996 from 3.80%
in 1995. This increase reflected a 16 basis point rise in the earning asset
yield, while the cost of interest-bearing liabilities fell one basis point. The
higher earning asset yield reflected the shift in the mix to a higher proportion
of loans. A lower level of interest-free funding partially offset these
improvements. Interest-free funds fell 2% during 1996, and were 19% of average
earning assets, compared to 21% in 1995.
From 1994 to 1995, net interest income rose 6%, while the net interest margin
increased nine basis points. These improvements reflected loan growth and higher
yields on both loans and securities. Average loans grew 23% during 1995, and
were 61% of average earning assets, compared to 51% in 1994. All major
categories of loans experienced growth in excess of 20%. 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, reflecting higher-yielding new loans, plus repricing of existing
floating rate loans. The 109 basis point increase in the securities yield
reflected FCC's active management of the portfolio during the period of rising
interest rates.
Table 1 presents the average balance sheets, net interest income (FTE) and
interest rates for 1996, 1995 and 1994. Table 2 presents detail loan information
for 1996 and 1995. Table 3 provides the components of changes in net interest
income (FTE).
Provision for Loan Losses
The provision for loan losses was $38.0 million in 1996, compared to $30.6
million in 1995, which included $10.0 million related to the New Orleans
land-based casino project, and a $10.4 million negative provision in 1994. The
increase from 1995 to 1996 resulted from higher net charge-offs of credit card
loans and loans to individuals. The increase from 1994 to 1995 reflected growth
in loans, plus the $10.0 million included in 1995's provision related to the
land-based casino project. Dependent primarily upon economic conditions,
national trends and changes in the level and mix of the loan portfolio, FCC's
net charge-offs, particularly for credit cards, may continue to grow in future
periods; this growth could result in a rising provision for loan losses. For
discussion of the allowance for loan losses, net charge-offs and nonperforming
assets, see the Credit Risk Management section of this Financial Review.
Other Income
Other income, excluding securities transactions, was $172.4 million in 1996,
compared to $151.3 million in
The graph inserted shows Net Interest Income (FTE) from 1992 to 1996. The plot
points are:
Graph Type Denominations 1992 1993 1994 1995 1996
- ---------- ------------- ------ ------- ------ ------ -------
Bar Millions $305.52 $322.85 $330.06 $349.32 $375.50
The graph inserted shows Provision for Loan Losses from 1992 to 1996. The plot
points are:
Graph Type Denominations 1992 1993 1994 1995 1996
- ---------- ------------- ------ ------ ------- ------ ------
Bar Millions $29.09 $(2.42) $(10.42) $30.60 $37.98
16
TABLE 1. SUMMARY OF AVERAGE BALANCE SHEETS, NET INTEREST INCOME (FTE)(a)
AND INTEREST RATES
- ---------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
Average Average Average
(dollars in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
EARNING ASSETS
Loans (b) $5,512,428 $492,248 8.93% $4,542,678 $412,839 9.09% $3,678,298 $322,934 8.78%
Securities
Taxable 2,165,167 142,532 6.58 2,733,630 176,391 6.45 3,247,721 172,687 5.32
Tax-exempt 87,898 8,894 10.12 98,313 10,062 10.23 109,104 11,628 10.66
- ---------------------------------------------------------------------------------------------------------------------------------
Total securities 2,253,065 151,426 6.72 2,831,943 186,453 6.58 3,356,825 184,315 5.49
- ---------------------------------------------------------------------------------------------------------------------------------
Interest-bearing deposits in banks 335 16 4.78 867 46 5.30 38,104 1,352 3.55
Federal funds sold and securities
purchased under resale agreements 34,249 1,855 5.42 74,109 4,376 5.90 113,593 5,070 4.46
Trading account securities 31,440 1,438 4.57 14,468 753 5.20 2,502 173 6.92
- ---------------------------------------------------------------------------------------------------------------------------------
Total money market investments 66,024 3,309 5.01 89,444 5,175 5.79 154,199 6,595 4.28
- ---------------------------------------------------------------------------------------------------------------------------------
Total earning assets 7,831,517 $646,983 8.26% 7,464,065 $604,467 8.10% 7,189,322 $513,844 7.15%
- ---------------------------------------------------------------------------------------------------------------------------------
NONEARNING ASSETS
Other assets (c) 771,367 752,546 716,441
Allowance for loan losses (77,775) (75,417) (78,460)
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $8,525,109 $8,141,194 $7,827,303
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
Interest-bearing deposits
NOW account deposits $1,095,729 $ 21,541 1.97% $1,023,939 $ 19,379 1.89% $1,017,052 $ 15,392 1.51%
Money market investment deposits 856,366 25,682 3.00 723,768 19,662 2.72 809,918 16,236 2.00
Savings and other consumer time
deposits 2,788,282 132,612 4.76 2,802,907 131,528 4.69 2,683,289 97,146 3.62
Time deposits $100,000 and over 800,539 43,306 5.41 732,788 40,373 5.51 509,696 20,069 3.94
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 5,540,916 223,141 4.03 5,283,402 210,942 3.99 5,019,955 148,843 2.97
- ---------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 697,536 37,718 5.41 558,136 33,015 5.92 586,483 23,633 4.03
Long-term debt 85,338 10,624 12.45 89,739 11,193 12.47 90,315 11,312 12.53
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 6,323,790 $271,483 4.29% 5,931,277 $255,150 4.30% 5,696,753 $183,788 3.23%
- ---------------------------------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING LIABILITIES
AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits 1,346,759 1,419,675 1,427,942
Other liabilities 129,886 102,709 79,439
Stockholders' equity 724,674 687,533 623,169
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $8,525,109 $8,141,194 $7,827,303
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income (FTE) (a)
and margin $375,500 4.79% $349,317 4.68% $330,056 4.59%
- ---------------------------------------------------------------------------------------------------------------------------------
Net earning assets and spread $1,507,727 3.97% $1,532,788 3.80% $1,492,569 3.92%
- ---------------------------------------------------------------------------------------------------------------------------------
Total cost of funds 3.47% 3.42% 2.56%
- ---------------------------------------------------------------------------------------------------------------------------------
(a) Based on a 35% tax rate.
(b) Net of unearned income, prior to deduction of allowance for loan losses
and including nonaccrual loans.
(c) Includes mark-to-market adjustment on securities available for sale.
17
FINANCIAL REVIEW
(continued)
TABLE 2. AVERAGE LOANS BY TYPE, INTEREST INCOME (FTE)(a) AND YIELDS
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
Average Average
(dollars in thousands) Balance Interest Yield Balance Interest Yield
- ---------------------------------------------------------------------------------------------------------------------------
Loans to individuals - residential mortgages $1,020,531 $ 83,125 8.15% $ 835,801 $ 67,939 8.13%
Loans to individuals - other 1,595,075 133,839 8.39 1,289,112 108,222 8.40
Commercial, financial and other 1,137,289 89,684 7.89 1,023,546 86,340 8.44
Real estate - commercial, construction and other 1,078,821 97,613 9.05 876,699 81,054 9.25
Credit card loans 680,712 87,987 12.93 517,520 69,284 13.39
- ---------------------------------------------------------------------------------------------------------------------------
Total $5,512,428 $492,248 8.93% $4,542,678 $412,839 9.09%
- ---------------------------------------------------------------------------------------------------------------------------
(a) Based on a 35% tax rate.
TABLE 3. SUMMARY OF CHANGES IN NET INTEREST INCOME (FTE)(a)
- ---------------------------------------------------------------------------------------------------------------------------
1996 Compared to 1995 1995 Compared to 1994
- ---------------------------------------------------------------------------------------------------------------------------
Total Due to Due to Total Due to Due to
Increase Change in Change in Increase Change in Change in
(in thousands) (Decrease) Volume(b) Rate(b) (Decrease) Volume(b) Rate(b)
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME (FTE)
Loans $ 79,409 $ 89,367 $(9,958) $89,905 $ 78,208 $11,697
Securities
Taxable (33,859) (36,983) 3,124 3,704 (29,820) 33,524
Tax-exempt (1,168) (1,055) (113) (1,566) (1,117) (449)
- ---------------------------------------------------------------------------------------------------------------------------
Total securities (35,027) (38,038) 3,011 2,138 (30,937) 33,075
- ---------------------------------------------------------------------------------------------------------------------------
Interest-bearing deposits in banks (30) (26) (4) (1,306) (913) (393)
Federal funds sold and securities purchased
under resale agreements (2,521) (2,185) (336) (694) (2,057) 1,363
Trading account securities 685 786 (101) 580 633 (53)
- ---------------------------------------------------------------------------------------------------------------------------
Total money market investments (1,866) (1,425) (441) (1,420) (2,337) 917
- ---------------------------------------------------------------------------------------------------------------------------
Total interest income (FTE) $ 42,516 $ 49,904 $(7,388) $90,623 $ 44,934 $45,689
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest-bearing deposits
NOW account deposits $ 2,162 $ 1,393 $ 769 $ 3,987 $ 105 $ 3,882
Money market investment deposits 6,020 3,841 2,179 3,426 (1,868) 5,294
Savings and other consumer time deposits 1,084 (689) 1,773 34,382 4,498 29,884
Time deposits $100,000 and over 2,933 3,676 (743) 20,304 10,618 9,686
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 12,199 8,221 3,978 62,099 13,353 48,746
- ---------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 4,703 7,719 (3,016) 9,382 (1,192) 10,574
Long-term debt (569) (548) (21) (119) (72) (47)
- ---------------------------------------------------------------------------------------------------------------------------
Total interest expense $ 16,333 $ 15,392 $ 941 $71,362 $ 12,089 $ 59,273
- ---------------------------------------------------------------------------------------------------------------------------
Change in net interest income (FTE) $ 26,183 $ 34,512 $(8,329) $19,261 $ 32,845 $(13,584)
- ---------------------------------------------------------------------------------------------------------------------------
(a) Based on a 35% tax rate.
(b) Changes not solely due to either volume or rate are allocated on a
proportional basis.
18
1995, an increase of 14%. Virtually all categories experienced growth, with the
most significant growth in credit card fee income.
Credit card fee income rose $13.3 million, or 38%, to $47.8 million in 1996.
This growth mainly reflected increases in sales volumes and late charge fee
income. Higher late charge fee income was driven by increases in both volume and
pricing. Trust fee income of $20.7 million was $3.5 million, or 20%, higher than
in 1995 due to new trust business. Increased sales of mutual funds caused the
$2.6 million, or 31%, rise in broker/dealer income to $10.8 million in 1996.
Additional ATMs in service and higher usage charges for non-customers resulted
in the $1.3 million, or 15%, rise in ATM fee income to $9.7 million. At year-end
1996, FCC had 424 ATMs in service, up 18% from December 31, 1995. Service
charges on deposits decreased slightly from 1995, reflecting FCC's strategies of
client migration and retention, which may result in moving a client to a lower
fee account to improve retention and long-term profitability.
The graph inserted shows Other Income (excluding nonrecurring items) from
1992 to 1996. The plot points are:
Graph Type Denominations 1992 1993 1994 1995 1996
- ---------- ------------- ------ ------ ------ ------ ------
Bar Millions $118 $126 $135 $148 $171
TABLE 4. OPERATING EXPENSE
- ---------------------------------------------------------------------------
(in thousands) 1996 1995 1994
- ---------------------------------------------------------------------------
Salary expense $151,781 $135,156 $132,836
Employee benefits 29,298 30,052 29,104
- ---------------------------------------------------------------------------
Total personnel expense 181,079 165,208 161,940
Equipment expense 26,337 24,717 20,901
Net occupancy expense 20,980 21,720 20,902
Communications and delivery expense 19,154 17,307 14,337
Professional fees 14,180 16,298 16,321
FDIC insurance expense 1,784 8,665 14,413
Other operating expense 58,061 56,910 52,090
- ---------------------------------------------------------------------------
Total recurring expense 321,575 310,825 300,904
SAIF special assessment 5,273 - -
Merger-related charges - 22,205 2,794
Reengineering charges - 4,174 2,613
- ---------------------------------------------------------------------------
Total operating expense $326,848 $337,204 $306,311
- ---------------------------------------------------------------------------
Other income, excluding securities transactions, increased 12% from 1994 to
1995. Improvements were experienced in all categories and mainly reflected
higher volumes of transactions and accounts. The strongest growth was in credit
card ($4.1 million), deposit ($3.7 million) and ATM ($2.6 million) fee income.
Additionally, 1995's other income included a $3.1 million gain on the
divestiture of two branches.
Securities transactions resulted in pretax net gains of $160,000
in 1996, compared to pretax net losses of $11.4 million in 1995 and $43.5
million in 1994. The losses recorded in 1995 and 1994 were related to FCC's
securities portfolio restructuring. 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.
Operating Expense
Operating expense was $326.8 million in 1996, compared to $337.2 million in
1995 and $306.3 million in 1994. 1996's operating expense included a one-time
$5.3 million expense related to the assessment by the FDIC for the
recapitalization of the SAIF. Operating expense in 1995 and 1994 included
nonrecurring merger-related and reengineering charges of $26.4 million and $5.4
million, respectively. Table 4 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 rose
only $10.8 million, or 3%, in 1996. Higher personnel costs caused the increase.
Personnel expense rose $15.9 million, or 10%,
19
FINANCIAL REVIEW
(continued)
from 1995. This increase was due to incentive pay tied to the improvement in
FCC's financial returns and the 21% appreciation of its common stock during
1996. The effect of annual merit raises was offset by a 4% decline in the
average number of employees. Communications and delivery expense grew $1.8
million, or 11%, reflecting higher telephone and armored car expenses. Increased
depreciation related to FCC's investments in new
sales and service technology caused equipment expense to increase $1.6 million,
or 7%. FDIC insurance expense, excluding the SAIF recapitalization expense, fell
$6.9 million in 1996 due to lower premium rates.
From 1994 to 1995, operating expense, excluding one-time charges, rose 3%, or
$9.9 million. The most significant increases were in equipment, personnel and
other operating expenses. Additionally, the acquisition in 1995 of City Bancorp,
Inc., a purchase transaction, contributed approximately $2.0 million to the
increase. Equipment expense rose 18%, mainly due to depreciation related to
FCC's investments in new technology. Higher personnel expense of 2% reflected
annual merit raises, partially offset by a 3% decrease in average staffing. The
rise in other operating expense was mainly due to increases in advertising and
credit card expenses of $3.0 million and $1.2 million, respectively. FDIC
insurance premium expense fell $5.7 million in 1995, reflecting lower premium
rates due to strengthened FDIC reserves.
The following graph presents Operating Expense (excluding nonrecurring items)
from 1992 to 1996. The plot points are:
Graph Type Denominations 1992 1993 1994 1995 1996
- ---------- ------------- ------ ------ ------ ------ ------
Bar Millions 260 280 301 311 322
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 59% in 1996, compared to 63% in 1995 and 65% in 1994.
Income Taxes
Income tax expense was $59.0 million in 1996, $39.5 million in 1995 and $38.6
million in 1994. The changes in income tax expense resulted primarily from
changes in pretax income and nondeductible merger-related expenses. FCC's
effective tax rate was 33% for 1996, 34% for 1995 and 32% for 1994. These
effective rates are lower than the 35% federal statutory tax rate, primarily
because of tax-exempt interest income received from the financing of state and
local governments. Louisiana does not assess an income tax on commercial banks;
rather, banks pay property tax based on the value of their capital stock in lieu
of income and franchise taxes.
For additional information on FCC's effective tax rates and the composition
of changes in income tax expense for all periods, see Note 20.
FINANCIAL CONDITION ANALYSIS
Loans
Average loans grew 21% in 1996 following growth of 23% during 1995. Total
loans were $6.2 billion at December 31, 1996, a 21% increase from year-end 1995.
As shown in Table 5, loan growth was across all sectors of the portfolio.
Economic expansion in Louisiana was the primary driver of loan growth in 1996.
Loan growth is expected to continue into 1997. Table 6 and Note 5 provide
additional information on loans.
Consumer loans include loans to individuals and credit card loans. Consumer
loans continue to be the largest segment of the loan portfolio at 59% of total
loans. Loans to individuals were $2.8 billion at the end of 1996, up 18% from
the prior year-end. There were increases in most categories of loans to
individuals with the most significant
20
TABLE 5. LOANS OUTSTANDING BY TYPE
- ---------------------------------------------------------------------------------------------------------------------------
December 31
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
Loans to individuals - residential mortgages $1,086,370 $ 975,331 $ 753,127 $ 649,571 $ 486,788
Loans to individuals - other 1,762,257 1,435,165 1,161,246 947,024 731,092
Commercial, financial and agricultural 1,179,285 1,020,477 822,833 589,856 584,873
Real estate - commercial mortgages 953,144 769,019 656,294 659,422 568,909
Real estate - construction and other 273,498 198,672 119,235 123,510 120,407
Credit card loans 829,612 617,824 509,076 465,425 464,146
Other 135,906 113,308 124,900 144,395 132,004
Unearned income (2,589) (7,070) (17,472) (27,497) (33,491)
- ---------------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned income $6,217,483 $5,122,726 $4,129,239 $3,551,706 $3,054,728
- ---------------------------------------------------------------------------------------------------------------------------
increases in indirect automobile loans and residential mortgage loans. At
December 31, 1996, credit card loans were $830 million, or 13% of total loans.
During 1996, FCC's credit card loans grew 34%, primarily reflecting the
continued implementation of FCC's role as credit provider for the clubs on U. S.
Air Force bases worldwide.
Real estate loans consist of loans secured by commercial properties,
construction and land development loans, and loans secured by multi-family
properties and farmland. Real estate loans rose 27% during 1996 and were $1.2
billion, or 20% of total loans, at year-end 1996.
TABLE 6. LOAN MATURITIES AND RATE SENSITIVITIES BY TYPE
- ---------------------------------------------------------------------------------------------------------------------------
December 31, 1996
Maturing
- ---------------------------------------------------------------------------------------------------------------------------
Within One to After
(in thousands) One Year Five Years Five Years Total
- ---------------------------------------------------------------------------------------------------------------------------
Fixed
Loans to individuals - residential mortgages $ 55,257 $ 223,391 $ 737,623 $1,016,271
Loans to individuals - other 108,397 1,112,920 104,320 1,325,637
Commercial, financial and agricultural 341,690 240,057 43,310 625,057
Real estate - commercial mortgages 95,958 351,386 203,823 651,167
Real estate - construction and other 74,529 73,188 24,017 171,734
Credit card loans 376,893 - - 376,893
Other 26,733 39,330 53,779 119,842
- ---------------------------------------------------------------------------------------------------------------------------
Total fixed loans 1,079,457 2,040,272 1,166,872 4,286,601
- ---------------------------------------------------------------------------------------------------------------------------
Floating
Loans to individuals - residential mortgages 54,631 11,269 4,199 70,099
Loans to individuals - other 62,838 371,568 2,214 436,620
Commercial, financial and agricultural 354,391 151,224 48,613 554,228
Real estate - commercial mortgages 115,170 117,182 69,625 301,977
Real estate - construction and other 68,461 30,103 3,200 101,764
Credit card loans 452,719 - - 452,719
Other 15,653 320 91 16,064
- ---------------------------------------------------------------------------------------------------------------------------
Total floating loans 1,123,863 681,666 127,942 1,933,471
- ---------------------------------------------------------------------------------------------------------------------------
Total loans $2,203,320 $2,721,938 $1,294,814 $6,220,072
- ---------------------------------------------------------------------------------------------------------------------------
21
FINANCIAL REVIEW
(continued)
The graph inserted presents Loans As A Percent of Deposits (average) from
1992 to 1996. The plot points are:
Graph Type Denominations 1992 1993 1994 1995 1996
- ---------- ------------- ------ ------ ------ ------ ------
Bar Percent 48.02% 50.34% 57.05% 67.77% 80.03%
Commercial mortgages, the largest component of real estate loans, were $953
million, or 15% of total loans, at the end of 1996. This compares to $769
million, or 15% of total loans, at year-end 1995. Approximately 25% of these
properties are owner-occupied. Construction and land development loans were $204
million, or 3% of total loans, at December 31, 1996, compared to $147 million at
the end of 1995.
Commercial loans were $1.2 billion, or 19% of total loans, at December 31,
1996, and were 16% higher than at the prior year-end. Growth was distributed
among virtually all industry segments and reflected increased economic activity
in Louisiana. The commercial loan portfolio is diversified among a wide array of
industries. The three largest industries were services with $335 million,
retail/wholesale trade with $215 million and manufacturing with $153 million. At
year-end 1996, loans related to the gaming industry were $63 million, or 1% of
total loans. Additionally, unfunded commitments to extend credit to gaming
industry borrowers totaled $45 million at December 31, 1996.
Securities
As part of its securities portfolio management strategy, all of FCC's
securities have been classified as available for sale. A significant factor in
this decision is the desire to maintain flexibility to actively manage the
portfolio in response to market conditions and funding requirements.
The securities portfolio totaled $2.2 billion at December 31, 1996, compared
to $2.6 billion at year-end 1995. Average securities were $2.3 billion in 1996
and $2.8 billion in 1995. The majority of security paydowns over the past two
years have funded loan growth. It is likely that security paydowns will be
reinvested during 1997. Unrealized
TABLE 7. SECURITIES AVAILABLE FOR SALE -- MATURITIES AND YIELDS(a)
- -----------------------------------------------------------------------------------------------------------------------------
December 31, 1996
- -----------------------------------------------------------------------------------------------------------------------------
(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 $660,568 6.63% $572,608 6.79% $100,548 6.96% $ - -% $1,333,724 6.72%
U.S. agency mortgage-backed securities
Fixed - - 69,736 7.22 15,952 6.28 292,997 6.26 378,685 6.44
Floating - - - - 678 6.06 328,494 6.52 329,172 6.52
States and political subdivisions 6,300 8.32 23,390 10.26 27,375 9.87 38,601 10.98 95,666 10.31
Other debt securities 2,866 6.97 510 7.71 - - - - 3,376 7.08
Equity securities 2,765 4.98 - - - - 34,141 3.70 36,906 3.80
- -----------------------------------------------------------------------------------------------------------------------------
Total securities available
for sale $672,499 6.64% $666,244 6.96% $144,553 7.43% $694,233 6.52% $2,177,529 6.75%
- -----------------------------------------------------------------------------------------------------------------------------
(a) Fully taxable equivalent based on a 35% tax rate. Maturities are based on
the contractual maturities of the securities.
22
TABLE 8. AVERAGE DEPOSITS
- -----------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
Noninterest-bearing demand deposits $1,336,815 19.41% $1,410,211 21.04% $1,417,239 21.98%
NOW account deposits 1,095,729 15.91 1,023,939 15.28 1,017,052 15.77
Money market investment deposits 856,366 12.43 723,768 10.80 809,918 12.56
Savings deposits 632,088 9.18 770,384 11.49 851,071 13.20
Other consumer time deposits 2,156,327 31.30 2,041,762 30.45 1,842,668 28.58
- -----------------------------------------------------------------------------------------------------------------
Total core deposits 6,077,325 88.23 5,970,064 89.06 5,937,948 92.09
Time deposits $100,000 and over 810,350 11.77 733,013 10.94 509,949 7.91
- -----------------------------------------------------------------------------------------------------------------
Total average deposits $6,887,675 100.00% $6,703,077 100.00% $6,447,897 100.00%
- -----------------------------------------------------------------------------------------------------------------
gains, net of tax, increased stockholders' equity $22.9 million at December 31,
1996, compared to $33.6 million at year-end 1995. The fluctuation in market
values was mainly driven by changes in market interest rates.
At December 31, 1996, 95% of total securities were obligations of the U.S.
government or its agencies. The average expected life, which considers projected
paydowns, was 3.4 years and the average duration was 2.2 years. Table 7 presents
detailed information on the maturities and yields of securities.
FCC's mortgage-backed securities are either direct issues or collateralized
by direct issues of U.S. agencies. Approximately 47% of FCC's mortgage-backed
securities are floating rate. At December 31, 1996, the average expected life of
FCC's mortgage-backed securities was 4.9 years and the average duration was 2.5
years. Prepayment rates on mortgage-backed securities may differ from expected,
due to changes in interest rates and other economic conditions.
Note 4 contains additional information on securities.
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 short-term investment
alternatives and are available to meet liquidity needs.
TABLE 9. MATURITIES OF TIME DEPOSITS $100,000 AND OVER
- -----------------------------------------------------------------------------
(in thousands)
- -----------------------------------------------------------------------------
Within three months $414,095
Three to six months 155,506
Six to twelve months 133,443
After twelve months 289,851
- -----------------------------------------------------------------------------
Total at December 31, 1996 $992,895
- -----------------------------------------------------------------------------
Money market investments totaled $73 million at the end of 1996. Average
money market investments were $66 million for 1996, compared to $89 million in
1995. As a percent of average earning assets, money market assets were 1% for
both years.
Deposits
Deposits were $7.3 billion as of December 31, 1996. Average deposits were
$6.9 billion in 1996, a 3% increase over 1995. The most significant growth was
in money market investment deposits and other consumer time deposits. This
growth was partially offset by lower savings and noninterest-bearing deposits,
which reflected FCC's
23
FINANCIAL REVIEW
(continued)
client migration and retention strategies. As shown in Table 8, core deposits
rose 2% in 1996, and were 88% of total deposits.
Short-Term Borrowings
As of year-end 1996, short-term borrowings were $945 million, and averaged
$698 million for 1996. This was an increase from the $636 million at December
31, 1995 and the $558 million average for 1995. As a percent of average earning
assets, short-term borrowings were 9% in 1996 and 7% in 1995. The increase in
short-term borrowings was mainly to fund loan growth. The level of short-term
borrowings is expected to decline in 1997 as FCC expands its use of several
longer-term funding sources as discussed under the Liquidity section of this
Financial Review. Note 9 contains additional information on short-term
borrowings.
Asset/Liability Management
The objective of FCC's asset/liability management is to maximize net
interest income while maintaining acceptable levels of risk from changes in
interest rates and, also, balancing liquidity and capital needs. FCC monitors
opportunities and risks so that appropriate actions can be taken by management
to meet this objective. Actions considered include purchases and sales of
securities to alter maturities and yields of the portfolio, changes in the mix
and level of earning assets and funding sources, and the use of off-balance
sheet interest rate risk products such as swaps, caps and floors.
Interest Rate Risk
Interest rate risk is the potential impact on net interest income of changes
in interest rates. FCC uses a number of methods to measure interest rate risk,
including gap analysis, net interest income simulation and monitoring the
economic value of equity.
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 10 demonstrates
FCC's static gap position as of December 31, 1996.
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 regularly reviews simulation results to better
understand FCC's interest rate risk and to develop strategies for managing this
risk. FCC's 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 1996, 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.
A third measure captures longer term interest rate risk by analyzing the
economic value of equity. At year-end 1996, FCC's sensitivity was well within
its established limits that the economic value of equity may not decline by more
than 7.5% in response to an immediate 100 basis point rate shift, or by more
than 15% in response to an immediate 250 basis point rate shift.
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
24
TABLE 10. INTEREST RATE SENSITIVITY
- ---------------------------------------------------------------------------------------------------------------------------
By Repricing Dates at December 31, 1996
- ---------------------------------------------------------------------------------------------------------------------------
0-30 31-90 91-180 181-365 After Noninterest-
(dollars in millions) Days Days Days Days 1 Year Bearing Total
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
Loans $ 1,996 $ 464 $ 414 $ 708 $ 2,635 $ - $ 6,217
Securities 101 243 385 366 1,083 - 2,178
Money market investments 73 - - - - - 73
Other assets - - - - - 722 722
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $ 2,170 $ 707 $ 799 $1,074 $ 3,718 $ 722 $ 9,190
- ---------------------------------------------------------------------------------------------------------------------------
SOURCES OF FUNDS
Money market deposits $ 212 $ - $ - $ - $ 1,912 $ - $ 2,124
Consumer time deposits 743 299 403 405 910 - 2,760
Time deposits $100,000 and over 220 163 156 163 282 - 984
Short-term borrowings 840 105 - - - - 945
Long-term debt - - - - 81 - 81
Noninterest-bearing deposits - - - - - 1,436 1,436
Other liabilities - - - - - 136 136
Stockholders' equity - - - - - 724 724
- ---------------------------------------------------------------------------------------------------------------------------
Total sources of funds $ 2,015 $ 567 $ 559 $ 568 $ 3,185 $ 2,296 $ 9,190
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST RATE CONTRACTS $ - $ (30) $ (100) $ - $ 130 $ -
INTEREST RATE SENSITIVITY GAP $ 155 $ 110 $ 140 $ 506 $ 663 $ (1,574)
CUMULATIVE INTEREST RATE SENSITIVITY GAP $ 155 $ 265 $ 405 $ 911 $ 1,574 $ -
CUMULATIVE INTEREST RATE SENSITIVITY GAP
AS A PERCENT OF TOTAL ASSETS 1.69% 2.88% 4.41% 9.91% 17.13%
- ---------------------------------------------------------------------------------------------------------------------------
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 16 provides
additional information for off-balance sheet instruments.
FCC uses interest rate contracts to manage interest rate risk. Table 11
summarizes FCC's interest rate contracts at December 31, 1996. Table 12
summarizes the activity, by notional amount, for all interest rate contracts
during 1996, while Table 13 presents their impact on net interest income.
At December 31, 1996, FCC had $130 million of interest rate swaps. $30
million of these swaps convert certificates of deposit from fixed to floating
rate and mature in December 2001. The remaining $100 million of interest rate
swaps, with a March 1997 start date and a five year maturity, hedge reinvestment
risk associated with U.S. Treasury securities. FCC's $500 million of interest
rate floors were purchased for a premium of $1.1 million to hedge transaction
deposits.
Declining interest rates caused FCC's amortizing interest rate swaps to fully
amortize in February 1996. During August and November of 1996, $350 million of
graduated interest rate caps matured.
At year-end 1996, the estimated fair value of FCC's total interest rate
contracts was $3.0 million. The fair value of interest rate contracts at any
given date represents the estimated amount FCC would receive or pay to terminate
the contracts. Changes in the fair value of FCC's interest rate contracts are
25
FINANCIAL REVIEW
(continued)
TABLE 11. INTEREST RATE CONTRACTS
- --------------------------------------------------------------------------------------------------------------------------------
Weighted Average Rate
___________________________
Receive Pay Floating
Notional Maturity Fixed Floating Strike Rate Reset Underlying
(dollars in thousands) Amount Date Rate Rate Rate Index Frequency Asset/Liability
- --------------------------------------------------------------------------------------------------------------------------------
Interest rate floors $500,000 December 1998 -% -% 4.65% LIBOR Quarterly Transaction deposits
Interest rate swap 30,000 December 2001 6.31 5.54 - LIBOR Quarterly Certificates of deposit
Interest rate swap (a) 100,000 March 2002 7.18 - - LIBOR Quarterly U. S. Treasuries
- --------------------------------------------------------------------------------------------------------------------------------
Total at December 31, 1996 $630,000 6.98% 5.54% 4.65%
- --------------------------------------------------------------------------------------------------------------------------------
(a) This contract will become effective in March 1997.
TABLE 12. CHANGES IN INTEREST RATE CONTRACTS (NOTIONAL AMOUNTS)
- -------------------------------------------------------------------------------------------------
Option Amortizing
Based Generic Interest
(in thousands) Instruments Swaps Rate Swaps Total
- -------------------------------------------------------------------------------------------------
Balance, December 31, 1995 $ 350,000 $ - $ 193,605 $ 543,605
Purchases 500,000 130,000 - 630,000
Amortization - - (193,605) (193,605)
Maturities (350,000) - - (350,000)
- -------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $ 500,000 $ 130,000 $ - $ 630,000
- -------------------------------------------------------------------------------------------------
largely offset by changes in the fair values of the balance sheet assets and
liabilities matched against these contracts. The fair values of interest rate
contracts fluctuate depending upon the remaining maturities of the contracts and
the financial markets' expectations regarding future interest rate levels.
Liquidity
The objective of liquidity management is to ensure that funds are available
to meet the cash flow requirements of depositors and borrowers while at the same
time meeting the cash flow needs of the corporation. Liquidity is provided by a
stable base of funding sources, especially core deposits, and an adequate level
of assets readily convertible into cash.
In order to enhance liquidity, FCC has begun to diversify its access to
external funding sources. A retail brokered CD program was established in the
fourth quarter of 1996. At December 31, 1996, $140 million of these CDs were
outstanding. In January 1997, First National Bank of Commerce established a bank
note program and entered the market through an initial $250 million issue. Notes
issued under the program may mature between seven days and 30 years and bear
fixed or floating interest rates. FCC expects to continue issuing brokered CDs
and bank notes during 1997. In addition, FCC is considering establishing an
TABLE 13. ANALYSIS OF INTEREST INCOME (EXPENSE)
FROM INTEREST RATE CONTRACTS
- ---------------------------------------------------------------------------------------
Option Amortizing
Year Ended December 31, 1996 Based Generic Interest Callable
(in thousands) Instruments Swaps Rate Swaps Swaps Total
- ---------------------------------------------------------------------------------------
Interest income (expense) $ - $111 $(293) $(489) $ (671)
Amortization (1,220) - - - (1,220)
- ---------------------------------------------------------------------------------------
Net interest income $(1,220) $111 $(293) $(489) $(1,891)
- ---------------------------------------------------------------------------------------
26
asset securitization program during 1997. Other funding alternatives available
include commercial paper issued by the Parent Company and lines of credit
maintained with major banks totaling $55 million. No commercial paper was issued
in 1996, and the lines of credit were unused.
CAPITAL AND DIVIDENDS
At December 31, 1996, total stockholders' equity was 7.87% of total assets,
compared to 8.59% one year ago. The decline mainly reflects FCC's redemption of
its preferred stock. On October 21, 1996, FCC called its preferred stock for
redemption on January 2, 1997. As expected, substantially all of the preferred
stock was converted into common stock during the fourth quarter of 1996, and
only a nominal amount was redeemed. The 1.8 million shares of common stock
delivered to satisfy the conversions had been repurchased by FCC in anticipation
of such conversions. The regulatory leverage ratio, which excludes the net
unrealized gain on securities available for sale, was 7.76% at year-end 1996 and
8.16% at December 31, 1995. Table 14 presents FCC's risk-based and other capital
ratios for the past five years. All ratios remain well above regulatory
minimums.
FCC increased its common stock cash dividend 14% during the fourth quarter of
1996 and paid $1.45 per share for the full year. The Parent Company's sources of
funds to pay cash dividends on its common stock are its net working capital and
the dividends it receives from the banks. At December 31, 1996, the Parent
Company had net working capital of $67 million. Also, the Parent Company could
receive dividends from the banks without prior regulatory approval of $41
million after December 31, 1996, plus the banks' adjusted net profits for 1997.
CREDIT RISK MANAGEMENT
FCC manages its credit risk by diversifying its loan portfolio, maintaining
credit underwriting standards which emphasize cash flows and repayment ability,
providing an adequate allowance for loan losses and continually reviewing loans
through an internal independent loan review process. Portfolio diversification
reduces credit risk
TABLE 14. RISK-BASED CAPITAL AND CAPITAL RATIOS
- ---------------------------------------------------------------------------------------------------------------------------
December 31
- ---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
Tier 1 capital $ 683,190 $ 679,003 $ 651,080 $ 603,563 $ 490,920
Tier 2 capital 126,993 149,769 138,995 132,371 133,029
- ---------------------------------------------------------------------------------------------------------------------------
Total capital $ 810,183 $ 828,772 $ 790,075 $ 735,934 $ 623,949
- ---------------------------------------------------------------------------------------------------------------------------
Risk-weighted assets $ 6,294,032 $ 5,343,946 $ 4,452,537 $ 3,872,240 $ 3,457,555
- ---------------------------------------------------------------------------------------------------------------------------
Ratios
Leverage ratio 7.76% 8.16% 8.20% 7.70% 6.78%
Tier 1 capital 10.85% 12.71% 14.62% 15.59% 14.20%
Total capital 12.87% 15.51% 17.74% 19.01% 18.05%
Equity ratio 7.87% 8.59% 7.45% 7.74% 6.79%
Tangible equity ratio 7.69% 8.37% 7.26% 7.54% 6.55%
- ---------------------------------------------------------------------------------------------------------------------------
27
FINANCIAL REVIEW
(continued)
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 15, nonperforming assets totaled $32
million at December 31, 1996, compared to $60 million at year-end 1995. The
year-end 1996 total consists of $27 million of nonperforming loans and $5
million of foreclosed assets. As a percent of loans and foreclosed assets,
nonperforming assets were .51% at the end of 1996, compared to 1.17% one year
ago. Changes in the level of total loans, the mix of the loan portfolio and
economic conditions will primarily determine the future levels of nonperforming
assets.
Nonperforming loans fell $26 million in 1996. Approximately $16 million of
the decline was the result of the sale of a riverboat casino securing a
nonaccrual loan, while an additional $7 million reflected payoffs on two large
nonaccrual loans. 42% of nonperforming loans were contractually current or no
more than 30 days past due at the end of 1996, compared to 58% at December 31,
1995.
Foreclosed assets, which include unused bank premises, fell $2 million from
year-end 1995. Property sales were the principal cause of the decline.
Loans past due 90 days or more and not on nonaccrual status were $29 million,
or .47% of total loans, at year-end 1996, compared to $21 million, or .40% of
total loans, at December 31, 1995. The increase was mainly related to credit
card loans, which are charged-off within 180 days of becoming past due. At the
end of 1996, accruing loans past due 90 days or more included $11 million in
government-guaranteed student loans and $13 million of credit card loans.
At December 31, 1996, loans considered to be impaired totaled $24 million,
of which $10 million required a total impairment allowance of $3 million.
Impaired loans are included in nonaccrual loans.
Watch List
FCC's watch list includes loans which, for management purposes, have been
identified as requiring a higher level of monitoring due to risk. FCC's watch
list includes both performing and nonperforming loans, as well as foreclosed
assets. The majority of watch list loans are classified as performing, because
they do not have characteristics resulting in uncertainty about the borrower's
ability to pay principal and interest in accordance with the original terms of
the loans.
28
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.
Table 16 presents watch list loans and foreclosed assets for the past
five years. Total watch list loans declined $34 million during the year to $157
million, or 2.52% of total loans and foreclosed assets. The decrease reflected
the decline in nonperforming assets discussed above.
The graph inserted shows the Allowance for Loan Losses from 1992 to 1996. The
plot points are:
Graph Type Denominations 1992 1993 1994 1995 1996
- ---------- ------------- ------ ------ ------ ------ ------
Bar Millions $93.71 $85.60 $71.05 $75.85 $81.61
Allowance for Loan Losses
At December 31, 1996, the allowance for loan losses was $82 million, or 253%
of nonperforming assets, compared to $76 million, or 126% of nonperforming
assets, at year-end 1995. The allowance was 1.31% of loans at the end of 1996,
compared to 1.48% at year-end 1995. Management believes that the allowance is
adequate to cover losses inherent in the loan portfolio. Table 17 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 18.
Net charge-offs were $32 million, or .58% of average loans, in 1996, compared
to $27 million, or .59% of average loans, in 1995. Increasing net charge-offs of
credit card loans and loans to individuals were the main cause of FCC's higher
level of net charge-offs. Net charge-offs on credit card loans were $22 million,
TABLE 15. NONPERFORMING ASSETS
- ---------------------------------------------------------------------------------------------------------------------------
December 31
- ---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
Nonaccrual loans by type
Loans to individuals - residential mortgages $ 7,908 $ 6,897 $ 5,164 $ 6,366 $ 9,921
Loans to individuals - other 1,007 335 815 1,148 1,396
Commercial, financial and agricultural 11,023 27,610 1,222 5,383 8,964
Real estate - commercial mortgages 6,687 15,455 8,282 20,844 26,666
Real estate - construction and other 616 3,064 340 430 615
Other 14 - - - 608
- ---------------------------------------------------------------------------------------------------------------------------
27,255 53,361 15,823 34,171 48,170
- ---------------------------------------------------------------------------------------------------------------------------
Foreclosed assets 4,600 6,470 8,315 13,559 35,432
- ---------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 31,855 $ 59,831 $ 24,138 $ 47,730 $ 83,602
- ---------------------------------------------------------------------------------------------------------------------------
Loans past due 90 days or more and not on nonaccrual status $ 29,451 $ 20,668 $ 12,215 $ 15,742 $ 15,057
- ---------------------------------------------------------------------------------------------------------------------------
Ratios
Nonperforming assets as a percent of loans
plus foreclosed assets .51% 1.17% .58% 1.34% 2.71%
Allowance for loan losses as a percent of nonperforming loans 299.42% 142.14% 449.04% 250.52% 194.54%
Loans past due 90 days or more and not on nonaccrual
status as a percent of loans .47% .40% .30% .44% .49%
- ---------------------------------------------------------------------------------------------------------------------------
29
FINANCIAL REVIEW
(continued)
or 3.24% of credit card loans, in 1996, up from $12 million, or 2.36%, in 1995.
The rise in credit card charge-offs at FCC throughout 1996 tracked national
trends and was principally due to higher bankruptcies; however, FCC's charge-off
rate remains below national averages. Net charge-offs of loans to individuals
were $13 million in 1996, $8 million higher than in 1995. Approximately $4
million of this increase relates to FCC's consumer finance operation. Commercial
loans had a $2 million net recovery in 1996, compared to net charge-offs of $11
million in the prior year. The change reflects 1995's $10 million charge-off
related to the closure of the temporary New Orleans land-based casino. Dependent
primarily upon economic conditions, national trends and changes in the level and
mix of the loan portfolio, FCC's net charge-offs may continue to grow in future
periods; this growth could result in a rising provision for loan losses.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Note 17 provides information regarding the fair values of financial
instruments as of December 31, 1996 and 1995.
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.
BUSINESS LINE ANALYSIS
FCC has five major business lines - Retail Banking, Commercial Banking,
Credit Card, Trust/Marquis Investments and Treasury. Retail Banking provides
individual clients and small businesses with a variety of loan, investment and
deposit products, generally marketed through the branch network. Commercial
Banking provides lending, cash management and other financial services to large
and small businesses. Credit Card provides card and merchant services to
individuals and businesses which are primarily located in the southeast United
TABLE 16. WATCH LIST (a)
- ---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) Type 1 Type 2 Type 3 Type 4 Total
- ---------------------------------------------------------------------------------------------------------------------------
December 31, 1996 $ - $ 399 $ 99,869 $56,458 $156,726
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
As A Percent Of Total Loans And Foreclosed Assets Type 1 Type 2 Type 3 Type 4 Total
- ---------------------------------------------------------------------------------------------------------------------------
December 31, 1996 -% .01% 1.60% .91% 2.52%
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%
- ---------------------------------------------------------------------------------------------------------------------------
(a) Information for prior periods has not been restated for the 1995
poolings-of-interests acquisitions due to inconsistencies in methodology.
30
TABLE 17. SUMMARY OF LOAN LOSS EXPERIENCE
- ---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
Balance at beginning of year $75,845 $71,052 $ 85,604 $96,658 $85,232
Allowance acquired in bank purchase - 1,142 - - -
Provision charged to expense 37,983 30,600 (10,418) (2,424) 29,086
Loans charged to the allowance
Loans to individuals - residential mortgages 337 401 332 889 2,187
Loans to individuals - other 18,155 8,055 3,635 3,537 5,163
Commercial, financial and agricultural 1,089 13,509 947 3,125 5,812
Real estate - commercial mortgages 206 416 198 1,389 3,782
Real estate - construction and other - 9 7 131 395
Credit card loans 25,661 15,561 11,120 11,433 13,770
Other 1 9 - 41 83
- ---------------------------------------------------------------------------------------------------------------------------
Total charge-offs 45,449 37,960 16,239 20,545 31,192
- ---------------------------------------------------------------------------------------------------------------------------
Recoveries on loans previously charged to the allowance
Loans to individuals - residential mortgages 575 731 1,218 1,127 1,204
Loans to individuals - other 4,759 2,831 2,431 2,405 2,260
Commercial, financial and agricultural 3,097 2,946 3,848 3,209 3,191
Real estate - commercial mortgages 822 656 1,005 1,719 1,459
Real estate - construction and other 244 465 561 432 113
Credit card loans 3,632 3,326 2,987 2,619 2,181
Other 98 56 55 404 178
- ---------------------------------------------------------------------------------------------------------------------------
Total recoveries 13,227 11,011 12,105 11,915 10,586
- ---------------------------------------------------------------------------------------------------------------------------
Net charge-offs 32,222 26,949 4,134 8,630 20,606
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year $81,606 $75,845 $ 71,052 $85,604 $93,712
- ---------------------------------------------------------------------------------------------------------------------------
Gross charge-offs as a percent of average loans .82% .84% .44% .64% 1.05%
Recoveries as a percent of gross charge-offs 29.10% 29.01% 74.54% 57.99% 33.94%
Net charge-offs as a percent of average loans .58% .59% .11% .27% .69%
Allowance for loan losses as a percent of loans at end of year 1.31% 1.48% 1.72% 2.41% 3.07%
- ---------------------------------------------------------------------------------------------------------------------------
TABLE 18. ALLOWANCE FOR LOAN LOSSES (a)
- ---------------------------------------------------------------------------------------------------------------------------
December 31
- -----------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans
- -----------------------------------------------------------------------------------------------------------------------------
Loans to individuals 22.12% 45.80% 19.20% 46.99% 29.32% 46.17% 22.92% 44.62% 18.03% 39.44%
Commercial, financial
and agricultural 14.17 18.96 21.42 19.89 19.32 19.84 18.50 16.48 24.71 18.94
Real estate 14.64 19.72 20.51 18.86 13.12 18.70 24.46 21.87 25.10 22.32
Credit card 29.70 13.34 19.84 12.05 19.10 12.28 18.57 13.00 16.27 15.03
Other .64 2.18 .27 2.21 .61 3.01 2.41 4.03 5.57 4.27
Unallocated 18.73 - 18.76 - 18.53 - 13.14 - 10.32 -
- -----------------------------------------------------------------------------------------------------------------------------
Total 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
- -----------------------------------------------------------------------------------------------------------------------------
(a) Information for prior periods has not been restated for the 1995
poolings-of-interests acquisitions due to inconsistencies in methodology.
31
FINANCIAL REVIEW
(continued)
States. Additionally, this business line provides a full range of services to a
growing niche of U. S. military clients throughout the United States and
overseas. Trust/Marquis Investments provides a complete range of trust and
investment products and services, including investment advisory services, to
individuals and businesses. Treasury reflects the results of FCC's securities
portfolio and interest rate risk management, plus parent company debt service.
Table 19 details the 1996 results of these business lines. This information
was derived from FCC's internal profitability reporting system. This system
incorporates match-funded transfer pricing to determine net interest income,
with credits to business lines for funds provided and charges for funds used.
The loan loss provision reflects actual net charge-offs. Operating expense
includes costs that directly support business line operations but does not
include corporate overhead expenses, such as Human Resources and Finance.
Support expenses are generally charged to the business lines based on unit costs
and actual volume measurements. Income taxes are calculated using FCC's
effective tax rate. Equity has been assigned to each business line based on
management's assessment of its inherent risk; a portion of equity remains
unallocated.
Retail Banking contributed $62.3 million in 1996 and had a 19.3% return on
equity. This line of business generated 51% of average loans and 76% of average
deposits. Commercial Banking's 1996 contribution and return on equity of $55.2
million and 25.8%, respectively, were impacted by the negative loan loss
provision recorded in this area, which reflected commercial net recoveries.
Negative provisions in this business line cannot be expected to continue over
the long-term. Generally, Credit Card is FCC's most consistently profitable
business line. For 1996, this line contributed $23.6 million with a 28.3% return
on equity. Trust/Marquis Investments recorded a $6.6 million contribution during
1996. This area's 75.7% return on equity reflects the relatively small level of
capital required for this fee-for-service business line. At December 31, 1996,
Trust/Marquis serviced
TABLE 19. BUSINESS LINE RESULTS
- ------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1996
- ------------------------------------------------------------------------------------------------------------------------
Commercial Trust/Marquis
(dollars in thousands) Retail Banking Banking Credit Card Investments Treasury
- ------------------------------------------------------------------------------------------------------------------------
Total revenue $ 293,182 $ 121,648 $ 101,242 $31,647 $ (13,437)
Loan loss provision 13,158 (2,965) 22,029 - -
Operating expense 186,752 41,906 43,794 21,824 1,601
- ------------------------------------------------------------------------------------------------------------------------
Pretax contribution 93,272 82,707 35,419 9,823 (15,038)
Income taxes 31,013 27,500 11,777 3,266 (5,000)
- ------------------------------------------------------------------------------------------------------------------------
Contribution $ 62,259 $ 55,207 $ 23,642 $ 6,557 $ (10,038)
- ------------------------------------------------------------------------------------------------------------------------
Average balances (millions)
Loans $ 2,795 $ 1,997 $ 681 $ - $ -
Deposits $ 5,266 $ 1,488 $ 1 $ 35 $ -
Return on average equity 19.3% 25.8% 28.3% 75.7% -%
Return on average assets 1.3% 3.2% 3.9% 8.2% -%
- ------------------------------------------------------------------------------------------------------------------------
32
assets of approximately $17 billion. Treasury's $10.0 million negative
contribution reflected the parent company's interest expense on debentures and
the effects of interest rate risk management. All other activities of FCC had a
$19.2 million negative contribution in 1996. This amount is primarily comprised
of corporate overhead expenses and the one-time SAIF assessment, plus the amount
by which the provision for loan losses exceeded net charge-offs for 1996.
FOURTH QUARTER RESULTS
FCC's net income for the fourth quarter of 1996 was $28.7 million, compared
to $6.9 million in 1995's fourth quarter. The improvement from 1995 to 1996 was
primarily caused by the 13% growth of revenues, and the absence in 1996 of $18.7
million of one-time merger and reengineering charges incurred in 1995.
Net interest income (FTE) was $97.8 million for the fourth quarter of 1996,
12% higher than the fourth quarter of 1995. FCC's net interest margin was 4.76%,
a 22 basis point increase from last year. These improvements reflected a 21%
increase in average loans.
The provision for loan losses was $14.2 million in the fourth quarter of
1996, $5.6 million lower than 1995's fourth quarter. The decline reflected the
inclusion in 1995 of $10.0 million related to the closure of the land-based
casino in New Orleans, partially offset by higher net charge-offs of credit card
loans and loans to individuals in 1996. As a percent of loans, net charge-offs
were .79% in 1996's fourth quarter, including credit card net charge-offs of
3.85%.
Other income, excluding securities transactions, was $45.5 million for the
fourth quarter, 18% higher than last year. Most categories increased, with the
most significant growth in credit card fees, which rose 50%. Operating expense
was $85.3 million in 1996's fourth quarter, 10% higher than 1995's recurring
operating expense. Higher personnel costs associated with performance-based and
stock-based incentive compensation plans were the main causes of the increase.
The efficiency ratio was 59.5% for the fourth quarter of 1996.
Selected Quarterly Data compares certain quarterly financial information for
1996 and 1995.
33
SELECTED FINANCIAL DATA
(dollars in thousands except per share data) Years Ended December 31
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
Average Balance Sheet Data
Total assets $ 8,525,109 $ 8,141,194 $ 7,827,303 $7,677,220 $ 7,092,876
Earning assets 7,831,517 7,464,065 7,189,322 7,044,969 6,517,378
Loans 5,512,428 4,542,678 3,678,298 3,213,885 2,965,851
Securities 2,253,065 2,831,943 3,356,825 3,460,928 3,130,061
Deposits 6,887,675 6,703,077 6,447,897 6,384,923 6,176,537
Long-term debt 85,338 89,739 90,315 99,961 106,893
Stockholders' equity 724,674 687,533 623,169 573,174 444,886
- ------------------------------------------------------------------------------------------------------------------------------
Income Statement Data
Total interest income $ 641,225 $ 598,494 $ 507,293 $ 491,386 $ 503,731
Net interest income 369,742 343,344 323,505 315,923 297,727
Net interest income (FTE) 375,500 349,317 330,056 322,850 305,516
Provision for loan losses 37,983 30,600 (10,418) (2,424) 29,086
Other income (exclusive of securities transactions) 172,377 151,279 134,648 126,278 118,057
Securities transactions 160 (11,413) (43,461) (344) 1,309
Operating expense 326,848 337,204 306,311 281,748 262,061
Operating income 118,334 83,369 108,477 113,291 84,790
Net income 118,438 75,951 80,227 113,025 85,654
- ------------------------------------------------------------------------------------------------------------------------------
Key Ratios
Return on average assets 1.39% .93% 1.02% 1.47% 1.21%
Return on average total equity 16.34% 11.05% 12.87% 19.72% 19.25%
Return on average common equity 16.95% 11.41% 13.47% 21.18% 21.19%
Operating return on average assets 1.39% 1.02% 1.39% 1.48% 1.20%
Operating return on average total equity 16.33% 12.13% 17.41% 19.77% 19.06%
Operating return on average common equity 16.93% 12.59% 18.49% 21.23% 20.97%
Net interest margin 4.79% 4.68% 4.59% 4.58% 4.69%
Efficiency ratio 59.66% 67.36% 65.92% 62.73% 61.87%
Overhead ratio 1.97% 2.49% 2.39% 2.21% 2.21%
Average loans to average deposits 80.03% 67.77% 57.05% 50.34% 48.02%
Allowance for loan losses to loans 1.31% 1.48% 1.72% 2.41% 3.07%
Nonperforming assets to loans plus foreclosed assets .51% 1.17% .58% 1.34% 2.71%
Allowance for loan losses to nonperforming loans 299.42% 142.14% 449.04% 250.52% 194.54%
Equity ratio 7.87% 8.59% 7.45% 7.74% 6.79%
Leverage ratio 7.76% 8.16% 8.20% 7.70% 6.78%
- ------------------------------------------------------------------------------------------------------------------------------
Selected Per Share Data
Earnings Per Common Share
Net income-primary $ 3.02 $ 1.89 $ 2.01 $ 2.89 $ 2.32
Net income-fully diluted $ 2.89 $ 1.87 $ 1.98 $ 2.75 $ 2.27
Operating income-primary $ 3.02 $ 2.09 $ 2.76 $ 2.90 $ 2.30
Operating income-fully diluted $ 2.88 $ 2.05 $ 2.64 $ 2.76 $ 2.24
Common Dividends
Cash dividends $ 1.45 $ 1.25 $ 1.10 $ .85 $ .70
Dividend payout ratio 48.01% 66.14% 54.73% 29.51% 30.17%
Book Value (end of period)
Book value $ 18.66 $ 17.86 $ 14.19 $ 15.00 $ 12.59
Tangible book value $ 18.20 $ 17.32 $ 13.75 $ 14.54 $ 12.04
Common Stock Data
High stock price $ 39.88 $ 34.50 $ 30.00 $ 32.20 $ 27.86
Low stock price $ 30.25 $ 22.00 $ 21.75 $ 23.90 $ 16.94
Closing stock price $ 38.88 $ 32.00 $ 22.00 $ 25.13 $ 25.60
Trading volume 26,762,143 22,399,572 30,234,732 19,562,420 26,741,915
Number of stockholders (end of period) 9,319 9,951 9,359 9,360 8,470
Average Shares Outstanding (in thousands)
Primary 38,462 37,898 37,754 37,569 35,166
Fully diluted 43,337 40,715 40,548 43,562 41,005
Number of Employees (end of period) 4,036 4,211 4,376 4,373 3,960
- ------------------------------------------------------------------------------------------------------------------------------
34
Compound
Years Ended December 31(a) Growth Rates
---------------------------------------------------------------------- ------------------
1991 1990 1989 1988 1987 1986 Five-Year Ten-Year
- ------------------------------------------------------------------------------------------------------------------------------------
Average Balance Sheet Data
Total assets $ 5,935,485 $5,282,064 $4,959,469 $4,581,773 $4,230,490 $4,295,191 7.51% 7.10%
Earning assets 5,405,684 4,852,542 4,390,862 4,064,357 3,739,372 3,783,917 7.70% 7.55%
Loans 3,062,718 2,914,691 2,704,734 2,507,015 2,307,142 2,319,686 12.47% 9.04%
Securities 1,871,052 1,471,977 1,208,199 1,118,104 919,976 907,895 3.79% 9.52%
Deposits 5,074,724 4,268,772 4,007,804 3,687,645 3,343,401 3,365,961 6.30% 7.42%
Long-term debt 110,605 111,359 112,365 113,965 111,040 115,336 (5.05)% (2.97)%
Stockholders' equity 314,072 287,657 277,204 266,073 260,205 266,825 18.20% 10.51%
- ------------------------------------------------------------------------------------------------------------------------------------
Income Statement Data
Total interest income $ 507,319 $ 486,453 $ 466,396 $ 368,945 $ 351,353 $ 373,356 4.80% 5.56%
Net interest income 245,341 199,192 184,126 173,510 160,359 156,724 8.55% 8.96%
Net interest income (FTE) 254,346 208,722 194,037 184,246 175,246 179,281 8.10% 7.67%
Provision for loan losses 51,238 53,100 33,648 33,126 28,992 48,606 N/A N/A
Other income (exclusive of
securities transactions) 102,768 86,985 76,850 71,049 63,839 58,622 10.90% 11.39%
Securities transactions 1,231 55 (875) (941) 1,367 496 N/A N/A
Operating expense 239,476 198,874 186,557 176,677 168,536 175,462 6.42% 6.42%
Operating income 42,682 26,725 30,917 26,434 22,868 5,919 22.62% 34.92%
Net income 43,494 26,761 30,339 25,813 23,688 6,187 22.18% 34.34%
- ------------------------------------------------------------------------------------------------------------------------------------
Key Ratios
Return on average assets .73% .51% .61% .56% .56% .14%
Return on average total equity 13.85% 9.30% 10.94% 9.70% 9.10% 2.32%
Return on average common equity 13.85% 9.22% 10.96% 9.60% 8.92% 1.34%
Operating return on average assets .72% .51% .62% .58% .54% .14%
Operating return on average
total equity 13.59% 9.29% 11.15% 9.93% 8.79% 2.22%
Operating return on average
common equity 13.59% 9.20% 11.19% 9.85% 8.57% 1.23%
Net interest margin 4.71% 4.30% 4.42% 4.53% 4.69% 4.74%
Efficiency ratio 67.06% 67.25% 68.87% 69.21% 70.49% 73.75%
Overhead ratio 2.53% 2.31% 2.50% 2.60% 2.80% 3.09%
Average loans to average deposits 60.35% 68.28% 67.49% 67.98% 69.01% 68.92%
Allowance for loan losses to loans 2.79% 2.31% 1.84% 1.98% 2.02% 2.02%
Nonperforming assets to loans plus
foreclosed assets 3.76% 4.18% 3.39% 4.19% 4.26% 4.70%
Allowance for loan losses to
nonperforming loans 134.55% 82.73% 121.23% 66.08% 58.65% 49.20%
Equity ratio 5.25% 5.17% 5.26% 5.46% 5.82% 5.79%
Leverage ratio 5.11% 4.84% 5.19% 5.27% 5.53% 5.33%
- ------------------------------------------------------------------------------------------------------------------------------------
Selected Per Share Data
Earnings Per Common Share
Net income-primary $ 1.31 $ .81 $ .90 $ .76 $ .69 $ .11 18.18% 39.27%
Net income-fully diluted $ 1.31 $ .81 $ .90 $ .76 $ .69 $ .11 17.15% 38.66%
Operating income-primary $ 1.28 $ .81 $ .92 $ .78 $ .66 $ .10 18.73% 40.60%
Operating income-fully diluted $ 1.28 $ .81 $ .92 $ .78 $ .66 $ .10 17.61% 39.94%
Common Dividends
Cash dividends $ .64 $ .64 $ .64 $ .64 $ .64 $ .64 17.77% 8.52%
Dividend payout ratio 48.85% 79.01% 71.11% 84.21% 92.75% 581.82%
Book Value (end of period)
Book value $ 10.49 $ 9.34 $ 9.75 $ 9.28 $ 8.98 $ 8.90
Tangible book value $ 9.84 $ 8.58 $ 8.94 $ 8.46 $ 7.97 $ 7.69
Common Stock Data
High stock price $ 18.14 $ 12.54 $ 12.74 $ 10.54 $ 10.80 $ 13.60
Low stock price $ 7.20 $ 6.66 $ 9.27 $ 7.86 $ 7.40 $ 7.40
Closing stock price $ 17.20 $ 7.46 $ 12.40 $ 9.74 $ 8.00 $ 7.86
Trading volume 10,667,309 5,968,360 3,651,604 4,173,330 4,674,623 8,045,740
Number of stockholders
(end of period) 8,726 8,972 8,491 8,505 8,732 8,438
Average Shares Outstanding
(in thousands)
Primary 33,246 31,035 30,810 30,597 30,552 30,510
Fully diluted 33,246 31,035 30,810 30,597 30,552 30,510
Number of Employees (end of period) 3,624 3,114 3,100 2,888 2,861 2,905
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Periods prior to 1991 have not been restated for the 1995
poolings-of-interests with Peoples and Lakeside, since the effect would be
immaterial.
35
SELECTED QUARTERLY DATA
(dollars in thousands except per share data) 1996 Quarters
- ---------------------------------------------------------------------------------------------------------------------------
4th 3rd 2nd 1st
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income $ 96,232 $ 93,617 $ 90,968 $ 88,925
Provision for loan losses 14,168 12,525 7,465 3,825
Other income (exclusive of securities transactions) 45,498 43,578 42,501 40,800
Securities transactions 407 (1,370) (84) 1,207
Operating expense 85,304 83,614 78,144 79,786
Income tax expense 13,958 13,155 16,109 15,788
- ---------------------------------------------------------------------------------------------------------------------------
Net income 28,707 26,531 31,667 31,533
Preferred dividend requirements - 698 705 713
- ---------------------------------------------------------------------------------------------------------------------------
Income applicable to common shares $ 28,707 $ 25,833 $ 30,962 $ 30,820
- ---------------------------------------------------------------------------------------------------------------------------
Per common share data
Primary $ .76 $ .68 $ .79 $ .79
Fully diluted $ .72 $ .66 $ .76 $ .75
Dividends $ .40 $ .35 $ .35 $ .35
Common stock data(a)
High stock price $ 39.88 $ 36.63 $ 36.00 $ 34.25
Low stock price $ 34.88 $ 33.25 $ 32.25 $ 30.25
Closing stock price $ 38.88 $ 34.88 $ 35.38 $ 33.00
Trading volume 7,094,796 9,117,644 5,498,461 5,051,242
- ---------------------------------------------------------------------------------------------------------------------------
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(a)
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
- ---------------------------------------------------------------------------------------------------------------------------
(a) Common stock is traded in the over-the-counter market and is listed on the
NASDAQ Stock Market. All closing prices represent closing sales prices as
reported on the NASDAQ Stock Market.
36
CONSOLIDATED BALANCE SHEETS
(dollars in thousands) December 31
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 440,347 $ 497,268
Interest-bearing deposits in other banks 134 788
Securities available for sale, at fair value 2,177,529 2,599,767
Trading account securities 13,122 19,630
Federal funds sold and securities purchased under resale agreements 59,250 33,900
Loans, net of unearned income of $2,589 and $7,070, respectively 6,217,483 5,122,726
Allowance for loan losses (81,606) (75,845)
- ---------------------------------------------------------------------------------------------------------------------------
Net loans 6,135,877 5,046,881
- ---------------------------------------------------------------------------------------------------------------------------
Premises and equipment 170,431 165,813
Accrued interest receivable 105,888 95,787
Other assets 87,532 70,973
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $9,190,110 $8,530,807
- ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Noninterest-bearing deposits $1,436,038 $1,481,795
Interest-bearing deposits 5,868,808 5,472,606
- ---------------------------------------------------------------------------------------------------------------------------
Total deposits 7,304,846 6,954,401
- ---------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 944,823 635,728
Accrued interest payable 44,160 41,952
Accounts payable and other accrued liabilities 91,883 77,331
Long-term debt 80,723 88,346
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 8,466,435 7,797,758
- ---------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, 5,000,000 shares authorized
Series 1992, 7.25% cumulative
convertible, $25 stated value
Issued -- 2,348,806 shares - 58,720
Common stock, $5 par value
Authorized -- 100,000,000 shares
Issued-- 39,402,926 and 38,281,519 shares, respectively 197,015 191,408
Capital surplus 146,390 125,405
Retained earnings 373,521 337,782
Treasury stock-- 482,998 and 471,403 common shares, respectively, at cost (13,150) (12,727)
Unearned restricted stock compensation (2,956) (1,123)
Net unrealized gain on securities available for sale 22,855 33,584
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 723,675 733,049
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $9,190,110 $8,530,807
- ---------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these Consolidated Balance Sheets.
37
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands except per share data) Years Ended December 31
- -----------------------------------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $ 489,326 $ 410,039 $ 320,319
Interest and dividends on taxable securities 142,324 176,222 172,348
Interest on tax-exempt securities 6,274 7,066 8,040
Interest on money market investments 3,301 5,167 6,586
- -----------------------------------------------------------------------------------------------------
Total interest income 641,225 598,494 507,293
- -----------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 223,141 210,942 148,843
Interest on short-term borrowings 37,718 33,015 23,633
Interest on long-term debt 10,624 11,193 11,312
- -----------------------------------------------------------------------------------------------------
Total interest expense 271,483 255,150 183,788
- -----------------------------------------------------------------------------------------------------
NET INTEREST INCOME 369,742 343,344 323,505
PROVISION FOR LOAN LOSSES 37,983 30,600 (10,418)
- -----------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 331,759 312,744 333,923
- -----------------------------------------------------------------------------------------------------
OTHER INCOME
Deposit fees and service charges 58,871 59,515 55,845
Credit card fee income 47,786 34,516 30,457
Trust fee income 20,655 17,163 15,853
Broker/dealer revenue 10,765 8,198 7,386
ATM fee income 9,693 8,393 5,829
Other operating revenue 24,607 23,494 19,278
Securities transactions 160 (11,413) (43,461)
- -----------------------------------------------------------------------------------------------------
Total other income 172,537 139,866 91,187
- -----------------------------------------------------------------------------------------------------
OPERATING EXPENSE
Salary expense 151,781 139,285 136,177
Employee benefits 29,298 33,855 29,343
- -----------------------------------------------------------------------------------------------------
Total personnel expense 181,079 173,140 165,520
Equipment expense 26,337 26,652 20,901
Net occupancy expense 20,980 22,027 20,902
Communications and delivery expense 19,154 17,429 14,337
Professional fees 14,180 19,336 16,538
FDIC insurance expense 7,057 8,665 14,413
Other operating expense 58,061 69,955 53,700
- -----------------------------------------------------------------------------------------------------
Total operating expense 326,848 337,204 306,311
- -----------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 177,448 115,406 118,799
INCOME TAX EXPENSE 59,010 39,455 38,572
- -----------------------------------------------------------------------------------------------------
NET INCOME 118,438 75,951 80,227
PREFERRED DIVIDEND REQUIREMENTS 2,116 4,325 4,347
- -----------------------------------------------------------------------------------------------------
INCOME APPLICABLE TO COMMON SHARES $ 116,322 $ 71,626 $ 75,880
- -----------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE
Primary $ 3.02 $ 1.89 $ 2.01
Fully diluted $ 2.89 $ 1.87 $ 1.98
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Primary 38,461,580 37,898,267 37,753,923
Fully diluted 43,337,184 40,715,037 40,548,302
- -----------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these Consolidated Financial Statements.
38
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, 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)
Preferred stock conversions (25) 6 19 - - - - -
Exercise of stock options - 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)
Preferred stock conversions (1,234) 287 947 - - - - -
Exercise of stock options - 223 583 - - - - 806
Sales to plans - - 324 (88) 1,033 - - 1,269
Restricted stock activity - 172 400 - - (531) - 41
Issuance and purchase of 516,100
shares in acquisition - 2,580 10,913 - (13,760) - - (267)
Change in net unrealized gain (loss) on
securities available for sale - - - - - - 107,472 107,472
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 58,720 191,408 125,405 337,782 (12,727) (1,123) 33,584 733,049
- ------------------------------------------------------------------------------------------------------------------------------------
Net income - - - 118,438 - - - 118,438
Cash dividends
Preferred stock ($1.3594 per share) - - - (2,116) - - - (2,116)
Common stock ($1.45 per share) - - - (55,932) - - - (55,932)
Preferred stock redemptions
and conversions (58,720) 4,615 14,862 (24,463) 63,456 - - (250)
Purchase of 1,814,000 shares of
common stock for preferred conversions - - - - (63,926) - - (63,926)
Conversion of 12 3/4%
convertible debentures - 434 1,881 - - - - 2,315
Exercise of stock options - 235 819 - - - - 1,054
Sales to plans - - 11 (188) 47 - - (130)
Restricted stock activity - 323 3,412 - - (1,833) - 1,902
Change in net unrealized gain (loss) on
securities available for sale - - - - - - (10,729) (10,729)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $ - $197,015 $146,390 $373,521 $(13,150) $(2,956) $ 22,855 $723,675
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral
part of these Consolidated Financial Statements.
39
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands) Years Ended December 31
- -----------------------------------------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 118,438 $ 75,951 $ 80,227
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 37,983 30,600 (10,418)
Depreciation and amortization 22,689 23,427 18,313
Amortization of intangibles 2,856 2,870 2,296
Deferred income tax (benefit) expense (4,485) (9,124) 7,580
Deferred loan fees (7,113) (7,247) (6,513)
Net (gain) loss from securities transactions (160) 11,413 43,461
Net (gain) on loan sales (2,244) (1,121) (546)
(Gain) on branch divestitures (1,137) (3,054) -
(Increase) decrease in trading account securities 6,508 (10,660) (8,488)
(Increase) decrease in loans held for sale 9,409 (8,408) 54,188
(Increase) in accrued interest receivable (10,105) (24,362) (5,595)
(Increase) decrease in other assets (13,045) 9,612 (2,029)
Increase in accrued interest payable 2,304 16,105 6,161
Increase (decrease) in accounts payable and
other accrued liabilities 15,731 18,219 (6,211)
Other, net 550 1,334 (135)
- -----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 178,179 125,555 172,291
- -----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net decrease in interest-bearing deposits in other banks 654 3,542 51,092
Proceeds from sales of securities held to maturity - - 3,625
Proceeds from maturities/calls of securities held to maturity - 80,036 798,801
Purchases of securities held to maturity - (32,879) (19,359)
Proceeds from sales of securities available for sale 110,385 765,867 1,683,863
Proceeds from maturities/calls of securities available for sale 605,735 306,118 329,779
Purchases of securities available for sale (308,966) (625,446) (2,202,954)
Net (increase) decrease in federal funds sold and
securities purchased under resale agreements (25,350) 126,680 (64,871)
Net (increase) in loans (1,141,442) (989,160) (632,366)
Net cash acquired (paid) in acquisitions - 3,858 (1,194)
Divestiture of branches (14,410) (4,897) -
Purchases of premises and equipment (29,643) (46,966) (34,602)
Proceeds from sales of foreclosed assets 13,742 12,161 10,080
Other, net 1,758 485 1,839
- -----------------------------------------------------------------------------------------------------------
NET CASH (USED) BY INVESTING ACTIVITIES (787,537) (400,601) (76,267)
- -----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW accounts,
money market accounts and savings accounts 24,826 (30,543) (125,827)
Net increase in time deposits 344,213 250,928 282,987
Net increase (decrease) in short-term borrowings 309,095 135,235 (200,396)
Payments on long-term debt (5,308) (1,874) (2,462)
Cash dividends (56,754) (41,672) (33,835)
Proceeds from issuance of common and treasury stock 541 3,206 1,840
Purchase of treasury stock (63,926) (15,108) -
Other, net (250) - 131
- -----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 552,437 300,172 (77,562)
- -----------------------------------------------------------------------------------------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (56,921) 25,126 18,462
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 497,268 472,142 453,680
- -----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 440,347 $ 497,268 $ 472,142
- -----------------------------------------------------------------------------------------------------------
Cash paid during the year for:
Interest expense $ 269,275 $ 238,882 $ 177,803
Income taxes $ 60,040 $ 37,080 $ 41,380
- -----------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these Consolidated Financial Statements.
40
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. The Banks
include First National Bank of Commerce (FNBC), City National Bank of Baton
Rouge (CNB), The First National Bank of Lafayette (FNBL), Central Bank (CB), The
First National Bank of Lake Charles (FNBLC) and Rapides Bank & Trust Company in
Alexandria (RBT).
Summary of Significant Accounting Policies
Use of Estimates
The accounting and reporting policies of FCC and its
subsidiaries conform with generally accepted accounting principles and with
general practices within the financial services industry. In preparing the
consolidated financial statements, FCC is required to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Basis of Presentation
The consolidated financial statements include the accounts of FCC and its
subsidiaries. All significant intercompany balances and transactions have been
eliminated. Prior year financial statements have been restated to include the
accounts of business combinations accounted for as poolings-of-interests, unless
immaterial. Business combinations accounted for as purchases are included from
the respective dates of acquisition. Certain prior years' amounts have been
reclassified to conform with current year financial statement presentation.
Securities
Securities are classified as either trading, held to maturity or available
for sale. Management determines the classification of securities when they are
purchased and reevaluates this classification periodically.
Trading account securities are bought and held principally for resale in the
near term. They are carried at fair value with realized and unrealized gains or
losses reflected in other operating revenue. Interest and dividend income on
trading account securities is included in interest income on money market
investments.
Securities which FCC has the ability and positive intent to hold to maturity
are classified as securities held to maturity. They are stated at amortized
cost.
Securities which may be sold in response to changes in interest rates,
liquidity needs or asset/liability management strategies 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 of becoming past due.
A loan is considered to be impaired when, based on current information and
events, it is probable that FCC will be unable to collect all amounts due
according to the contractual terms of the loan agreement. Impaired loans are
carried on nonaccrual status.
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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.
FCC periodically reviews its intangible assets for possible impairment in
value or life.
Income Taxes
FCC and its subsidiaries file a consolidated federal income tax return. FCC
accounts for income taxes using the asset and liability method. Under this
method, deferred tax assets and liabilities are based on the temporary
differences between the financial reporting basis and tax basis of FCC's assets
and liabilities at enacted tax rates expected to be in effect when such amounts
are realized or settled.
Interest Rate Contracts
FCC uses interest rate swaps and option based instruments such as caps,
collars and floors to manage its interest rate exposure. These interest rate
contracts 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 June 1996, the Financial Accounting Standards Board (FASB) issued SFAS No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities". This statement is to be applied prospectively to
42
transactions occurring after December 31, 1996. SFAS No. 125 provides accounting
and reporting standards for various types of transactions including
securitizations, securities lending, repurchase agreements, collateralized
borrowing arrangements, ongoing servicing of financial assets and extinguishment
of liabilities. In December 1996, the FASB issued SFAS No. 127, which deferred
for one year the effective date of certain provisions of SFAS No. 125. Adoption
of these statements will not have a material impact on FCC's 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. FCC's financial statements for all
periods presented reflect these pooled companies. The acquisition of City
Bancorp, Inc. (City) was accounted for as a purchase transaction. The following
table shows the merger date, assets acquired and number of FCC common shares
issued for each of the pooled companies:
Assets
Acquired
Date (millions) Shares
- --------------------------------------------------------------------------------
First February 17, 1995 $246 2,705,537
Lakeside August 3, 1995 $130 984,021
Peoples October 2, 1995 $172 956,184
Central October 20, 1995 $830 6,790,939
- --------------------------------------------------------------------------------
FCC acquired City on February 17, 1995 in exchange for 516,100 shares of FCC
common stock. FCC repurchased an equal number of shares of its common stock.
City's assets were $79 million at December 31, 1994. The results of operations
of City are included in the financial statements from the acquisition date.
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.
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. The results of operations of
Wolcott are included in the financial statements from the acquisition date.
================================================================================
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 $42 million and $50 million during 1996 and 1995,
respectively.
================================================================================
NOTE 4
Securities Available for Sale
An analysis of securities available for sale follows (in thousands):
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
- --------------------------------------------------------------------------------
December 31, 1996
- --------------------------------------------------------------------------------
U. S. Treasury
securities $1,314,665 $19,672 $ (613) $1,333,724
U. S. agency
mortgage-backed
securities 711,633 3,438 (7,214) 707,857
States and political
subdivisions 85,469 10,214 (17) 95,666
Other debt securities 3,359 17 - 3,376
Equity securities 27,241 9,671 (6) 36,906
- --------------------------------------------------------------------------------
Total securities
available
for sale $2,142,367 $43,012 $(7,850) $2,177,529
- --------------------------------------------------------------------------------
December 31, 1995
- --------------------------------------------------------------------------------
U. S. Treasury
securities $1,481,963 $32,153 $ (104) $1,514,012
U. S. agency
Mortgage-backed
securities 901,934 5,442 (4,776) 902,600
Notes 33,720 1,487 - 35,207
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
- --------------------------------------------------------------------------------
The amortized cost and fair value of securities available for sale by
maturity are shown below (in thousands):
Amortized Fair
Cost Value
- --------------------------------------------------------------------------------
December 31, 1996
- --------------------------------------------------------------------------------
Within one year $ 669,167 $ 672,499
One to five years 652,958 666,244
Five to ten years 137,649 144,553
After ten years 682,593 694,233
- --------------------------------------------------------------------------------
Total securities
available for sale $2,142,367 $2,177,529
- --------------------------------------------------------------------------------
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Expected maturities may differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without penalties.
Gross gains of $1.7 million and $3.1 million and gross losses of $1.5 million
and $14.0 million were realized on sales and calls of securities available for
sale in 1996 and 1995, respectively.
Securities with carrying values of $1.6 billion and $1.4 billion at December
31, 1996 and 1995, respectively, were pledged to secure public and trust
deposits, and for other purposes.
During the fourth quarter of 1995, FCC reclassified $58.1 million of
securities with a net unrealized gain of $529,000 from held to maturity to
available for sale.
================================================================================
NOTE 5
Loans
The composition of loans follows (in thousands):
December 31
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Residential mortgages $1,086,370 17.47% $ 975,331 19.01%
Automobile 1,000,218 16.08 790,318 15.41
Education 384,591 6.18 331,825 6.47
Other loans
to individuals 377,448 6.07 313,022 6.10
- --------------------------------------------------------------------------------
Loans to
individuals 2,848,627 45.80 2,410,496 46.99
- --------------------------------------------------------------------------------
Services 334,708 5.38 263,731 5.14
Retail/wholesale trade 215,137 3.46 176,319 3.44
Manufacturing 153,430 2.47 131,491 2.56
Other commercial,
financial and
agricultural loans 476,010 7.65 448,936 8.75
- --------------------------------------------------------------------------------
Commercial,
financial and
agricultural 1,179,285 18.96 1,020,477 19.89
- --------------------------------------------------------------------------------
Commercial mortgages 953,144 15.32 769,019 14.99
Construction and
land development 203,667 3.28 146,640 2.86
Other real estate loans 69,831 1.12 52,032 1.01
- --------------------------------------------------------------------------------
Real estate loans 1,226,642 19.72 967,691 18.86
- --------------------------------------------------------------------------------
Credit card loans 829,612 13.34 617,824 12.05
Other 135,906 2.18 113,308 2.21
Unearned income (2,589) - (7,070) -
- --------------------------------------------------------------------------------
Loans, net of
unearned income $6,217,483 100.00% $5,122,726 100.00%
- --------------------------------------------------------------------------------
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 1996
follows (in thousands):
- --------------------------------------------------------------------------------
1996
- --------------------------------------------------------------------------------
Beginning balance $ 117,801
Additions 198,368
Repayments (164,495)
Net increase due to change in related parties 12,495
- --------------------------------------------------------------------------------
Ending balance $ 164,169
- --------------------------------------------------------------------------------
================================================================================
NOTE 6
Allowance for Loan Losses
A summary analysis of changes in the allowance for loan losses follows (in
thousands):
Years Ended December 31
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Balance at beginning of year $ 75,845 $ 71,052 $ 85,604
Allowance acquired
in bank purchase - 1,142 -
Provision for loan losses 37,983 30,600 (10,418)
Loans charged
to the allowance (45,449) (37,960) (16,239)
Recoveries on loans
previously charged
to the allowance 13,227 11,011 12,105
- --------------------------------------------------------------------------------
Net charge-offs (32,222) (26,949) (4,134)
- --------------------------------------------------------------------------------
Balance at end of year $ 81,606 $ 75,845 $ 71,052
- --------------------------------------------------------------------------------
================================================================================
NOTE 7
Nonperforming Loans and Foreclosed Assets
The following is a summary of nonperforming loans and foreclosed assets (in
thousands):
December 31
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Nonaccrual loans $27,255 $53,361
- --------------------------------------------------------------------------------
Foreclosed assets
Other real estate $ 4,494 $ 6,671
Other foreclosed assets 868 532
Allowance for losses on foreclosed assets (762) (733)
- --------------------------------------------------------------------------------
Total foreclosed assets $ 4,600 $ 6,470
- --------------------------------------------------------------------------------
The amount of interest income that would have been recorded on nonperforming
loans if they had been classified as performing was $3.2 million in 1996, $6.5
million in 1995 and $2.0 million in 1994. Interest income recognized on
44
nonperforming loans was $883,000, $3.1 million and $306,000 for 1996, 1995 and
1994, respectively. Additionally, interest of $2.0 million was recovered on
loans previously on nonaccrual, but not on nonaccrual status in 1996.
The activity in the allowance for losses on foreclosed assets was as follows
(in thousands):
Years Ended December 31
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Balance at beginning of year $733 $ 3,898 $ 5,918
Allowance provisions 425 538 678
Sales and dispositions (396) (3,703) (2,698)
- --------------------------------------------------------------------------------
Net change 29 (3,165) (2,020)
- --------------------------------------------------------------------------------
Balance at end of year $762 $ 733 $ 3,898
- --------------------------------------------------------------------------------
Loans considered to be impaired totaled $23.5 million and $49.0 million as of
December 31, 1996 and 1995, respectively. Of these totals, $9.7 million and
$18.1 million required a total impairment allowance of $2.8 million and $4.7
million, respectively. Impaired loans averaged $31.4 million during 1996 and
$28.3 million during 1995. Interest income recognized on impaired loans was
$722,000 for 1996 and $3.0 million for 1995.
================================================================================
NOTE 8
Premises and Equipment
An analysis of premises and equipment by asset classification follows (in
thousands):
December 31
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Land $ 27,191 $ 25,734
Buildings 105,423 96,261
Leasehold improvements 32,117 25,124
Furniture, fixtures and equipment 175,246 145,998
Capitalized leased equipment 404 1,994
Construction in progress 6,622 13,798
- --------------------------------------------------------------------------------
347,003 308,909
- --------------------------------------------------------------------------------
Accumulated depreciation
and amortization (176,572) (143,096)
- --------------------------------------------------------------------------------
$ 170,431 $ 165,813
- --------------------------------------------------------------------------------
At December 31, 1996, 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 $6.1 million, $7.5 million and $7.4 million for 1996, 1995
and 1994, respectively.
As of December 31, 1996, the future minimum rentals under noncancelable
operating leases having an initial lease term in excess of one year were as
follows (in thousands):
- --------------------------------------------------------------------------------
1997 $ 8,529
1998 8,015
1999 7,597
2000 7,096
2001 6,991
Later years 45,142
- --------------------------------------------------------------------------------
$83,370
- --------------------------------------------------------------------------------
================================================================================
NOTE 9
Short-Term Borrowings
Short-term borrowings include federal funds purchased and securities sold
under agreements to repurchase (repos). Federal funds purchased arise from
transactions with other banks and have overnight maturities. Repos are secured
by U. S. government and agency securities, and had maturities of up to 30 days
at December 31, 1996. FCC has the ability to exercise legal authority over the
securities which serve as collateral for the repos. Other short-term borrowings
primarily include term federal funds purchased which, at December 31, 1996, had
maturities of up to 59 days.
An analysis of short-term borrowings follows (in thousands):
December 31
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Federal funds purchased $168,821 $139,500
Securities sold under
agreements to repurchase 429,411 310,800
Other short-term borrowings 346,591 185,428
- --------------------------------------------------------------------------------
Total $944,823 $635,728
- --------------------------------------------------------------------------------
Information regarding federal funds purchased follows (dollars in thousands):
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Average interest rate on December 31 6.25% 5.33%
- --------------------------------------------------------------------------------
Average for the year
Interest rate 5.84% 6.56%
Balance $247,597 $201,614
- --------------------------------------------------------------------------------
Maximum month-end outstanding $402,917 $347,851
- --------------------------------------------------------------------------------
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Information regarding repos follows (dollars in thousands):
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Average interest rate on December 31 5.51% 5.07%
- --------------------------------------------------------------------------------
Average for the year
Interest rate 4.95% 5.41%
Balance $296,969 $256,598
- --------------------------------------------------------------------------------
Maximum month-end outstanding $429,411 $379,941
- --------------------------------------------------------------------------------
FCC maintains lines of credit with several large banks, totaling $55.0
million at December 31, 1996, to support the issuance of commercial paper and
pays fees to maintain these lines. No lines of credit were in use at December
31, 1996, 1995 or 1994.
===============================================================================
NOTE 10
Long-Term Debt
Long-term debt consisted of (in thousands):
December 31
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
First Commerce Corporation
12 3/4% convertible debentures,
due in December 2000; unsecured (a)
Series A $26,824 $26,846
Series B 53,647 56,012
- --------------------------------------------------------------------------------
80,471 82,858
- --------------------------------------------------------------------------------
Subsidiaries
9% mortgage note payable,
balance paid in November 1996 - 5,212
Obligations under capitalized leases, due
in installments through August 2003 252 276
- --------------------------------------------------------------------------------
Total long-term debt $80,723 $88,346
- --------------------------------------------------------------------------------
(a) At December 31, 1996, approximately $14,102,000 was held by directors and
executive officers of FCC.
Annual principal repayment requirements for the years 1997 through 2001 are
as follows (in thousands):
Parent Subsidiaries Total
- --------------------------------------------------------------------------------
1997 $ - $27 $ 27
- --------------------------------------------------------------------------------
1998 - 30 30
- --------------------------------------------------------------------------------
1999 - 33 33
- --------------------------------------------------------------------------------
2000 80,471 37 80,508
- --------------------------------------------------------------------------------
2001 - 42 42
- --------------------------------------------------------------------------------
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.
During 1996, $2.3 million of convertible debentures were converted into
86,842 shares of common stock.
================================================================================
NOTE 11
Employee Benefit Plans
Retirement Plan - FCC maintains a defined benefit pension plan covering
substantially all employees who have attained age 21 and completed one year of
employment. Benefits are based on years of service and an average of the
employee's highest consecutive ten years of defined compensation. FCC's funding
policy is to contribute annually the maximum that can be deducted for federal
income tax purposes.
FCC also maintains a nonqualified restoration plan for certain officers whose
defined benefits under the qualified pension plan exceed limits imposed by
federal tax law.
The following table sets forth the plans' funded status (in thousands):
December 31
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Projected benefit obligation
Vested benefits $ (74,198) $ (75,582)
Nonvested benefits (1,340) (2,369)
- --------------------------------------------------------------------------------
Accumulated benefit obligation (75,538) (77,951)
Effect of projected future
compensation levels (25,661) (28,996)
- --------------------------------------------------------------------------------
Projected benefit obligation (101,199) (106,947)
Plan assets at fair value 88,612 84,843
- --------------------------------------------------------------------------------
Projected benefit obligation in excess
of plan assets (12,587) (22,104)
Unrecognized net loss due to
past experience different from
assumptions made 2,304 16,591
Unrecognized prior service cost 425 457
Unrecognized net assets being recognized
over 15 years (3,192) (3,945)
- --------------------------------------------------------------------------------
Unfunded accrued pension cost included
in other accrued liabilities $ (13,050) $ (9,001)
- --------------------------------------------------------------------------------
The plans' assets at December 31, 1996, consisted
primarily of U. S. government securities, corporate bonds and common stocks.
46
Net periodic pension cost included the following
components (in thousands):
Years Ended December 31
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Service cost-benefits earned
during the period $ 4,453 $ 3,591 $ 3,852
Interest cost on projected
benefit obligation 6,626 5,946 5,527
Loss (return) on plan assets (7,444) (14,383) 1,255
Other components, net 309 8,056 (8,185)
- --------------------------------------------------------------------------------
Net periodic pension cost $ 3,944 $ 3,210 $ 2,449
- --------------------------------------------------------------------------------
In determining the plans' funded status, the weighted average discount rate
assumed was 7% at December 31, 1996, 6.5% at December 31, 1995 and 7.5% at
December 31, 1994. The rate of increase in future salary levels was 5% in 1996,
and 5.5% for 1995 and 1994. The expected long-term rate of return on assets was
8% in 1996 and 1995, and 8.5% in 1994.
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 employee's contribution up
to a maximum employer contribution of 2 1/2% of eligible compensation. Matching
contributions are in the form of FCC common stock and are vested at 25% per year
with full vesting after four years. Employer contributions were $2.2 million,
$2.4 million and $2.0 million in 1996, 1995 and 1994, respectively.
Prior to acquisition, Central and Lakeside maintained employee stock
ownership plans (ESOPs). The assets of the Central ESOP were distributed to the
participants in 1996. The Lakeside ESOP was combined with FCC's tax-deferred
savings plan in 1996. Company contributions relating to the ESOPs were $8,000,
$800,000 and $970,000 in 1996, 1995 and 1994, 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 12
Stock-based Incentive Compensation Plans
FCC has stock incentive plans which are accounted for under Accounting
Practice Bulletin 25 and related Interpretations. FCC's stock incentive plans
permit the granting of stock options, stock appreciation rights (SARs), stock
awards, restricted stock and performance shares. The plans cover up to 10% of
the outstanding shares of FCC common stock.
Stock options and SARs are granted at fair value at the date of grant. The
Compensation Committee (Committee) determines the term of each grant and when it
becomes exercisable. Options and SARs may not be exercised during the six-month
period immediately following the date of grant.
No compensation expense has been recorded in connection with stock options.
The options expire eight years from the date of grant. Options have a four-year
vesting schedule with 25% of the options becoming exercisable each year.
SARs entitle the holder to receive, in the form of cash, the increase in the
fair value of the stock from the date of grant to the date of exercise.
Compensation expense is recognized in connection with SARs based on the fair
value of the stock and was $7.3 million and $3.0 million in 1996 and 1995,
respectively. No compensation expense was recognized in 1994 related
to SARs.
The following table summarizes the activity related to stock options and
SARs:
- --------------------------------------------------------------------------------
Weighted Weighted
Average Average
Number Exercise Number Grant-Date
of Options Price of SARs Fair Value
- --------------------------------------------------------------------------------
Outstanding at
December 31, 1993 480,050 $16.03 - -
Granted 79,978 $27.50 239,935 $27.50
Exercised (81,067) $11.01 - -
Forfeited (19,390) $22.59 (7,569) $27.50
- --------------------------------------------------------------------------------
Outstanding at
December 31, 1994 459,571 $18.67 232,366 $27.50
Granted 331,174 $28.03 992,579 $26.84
Exercised (44,561) $13.21 (1,891) $27.50
Forfeited (19,454) $26.32 (36,114) $26.80
- --------------------------------------------------------------------------------
Outstanding at
December 31, 1995 726,730 $22.97 1,186,940 $26.96
Granted 248,989 $33.27 - -
Exercised (47,922) $16.39 (53,341) $26.63
Forfeited (25,449) $29.97 (47,737) $26.75
- --------------------------------------------------------------------------------
Outstanding at
December 31, 1996 902,348 $25.97 1,085,862 $26.99
- --------------------------------------------------------------------------------
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The options exercisable at December 31, 1996, 1995 and 1994, respectively,
were 387,568, 296,699 and 245,602 with weighted-average exercise prices of
$20.00, $16.28 and $14.28, respectively.
SARs exercisable at December 31, 1996 and 1995 were 294,535 and 53,625,
respectively. The weighted-average strike prices of SARs exercisable at December
31, 1996 and 1995 were $27.11 and $27.50, respectively.
The following table summarizes information about the options outstanding and
exercisable at December 31, 1996:
- --------------------------------------------------------------------------------
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (years) Price Exercisable Price
- --------------------------------------------------------------------------------
$10.00 - $19.99 146,502 1.48 $11.03 146,502 $11.03
$20.00 - $24.99 92,285 3.14 $21.07 92,285 $21.07
$25.00 - $29.99 322,716 5.59 $26.85 120,053 $27.25
$30.00 - $34.99 340,845 7.02 $32.87 28,728 $31.80
- --------------------------------------------------------------------------------
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 $1.9 million, ($111,000) and $315,000 in compensation
expense related to restricted shares in 1996, 1995 and 1994, respectively. The
weighted-average grant-date fair value of restricted stock granted during 1996
and 1995 was $33.78 and $26.28, respectively. A summary of changes in restricted
stock follows:
- --------------------------------------------------------------------------------
Number of Shares
- --------------------------------------------------------------------------------
Outstanding at December 31, 1993 47,814
Granted 9,792
Forfeited (3,554)
- --------------------------------------------------------------------------------
Outstanding at December 31, 1994 54,052
Granted 34,175
- --------------------------------------------------------------------------------
Outstanding at December 31, 1995 88,227
Granted 104,019
Forfeited (33,766)
Earned and issued unrestricted (17,807)
- --------------------------------------------------------------------------------
Outstanding at December 31, 1996 140,673
- --------------------------------------------------------------------------------
Performance shares were granted in conjunction with the 1996, 1995 and 1994
restricted stock grants, equal to 50% of restricted shares. These shares may be
earned based on certain criteria. Recipients of performance share awards do not
receive dividends or have voting rights on these performance shares. No
compensation expense was recorded in 1996, 1995 or 1994 related to performance
shares.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 requires disclosure of the compensation cost for
stock-based incentives granted after December 31, 1994 based on the fair value
at grant date for awards. Applying SFAS No. 123 would result in pro forma net
income and earnings per share (eps) amounts as follows:
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Net income (thousands) As reported $118,438 $75,951
Pro forma $118,035 $75,613
- --------------------------------------------------------------------------------
Primary eps As reported $3.02 $1.89
Pro forma $3.01 $1.88
- --------------------------------------------------------------------------------
Fully diluted eps As reported $2.89 $1.87
Pro forma $2.88 $1.86
- --------------------------------------------------------------------------------
The fair value of each option grant is estimated on the date of grant using
an option-pricing model with the following weighted-average assumptions used for
grants in 1996 and 1995, respectively: dividend yields of 4.36% and 5.09%;
expected volatility of 24.28% and 27.42%; risk-free interest rates of 6.32% and
6.68%; and expected lives of 8 years for all options. Based on the above
assumptions, the weighted-average grant-date fair value of options granted
during 1996 and 1995, respectively, were $7.87 and $6.46.
Because the SFAS No. 123 method of accounting has been applied only to grants
awarded after December 31, 1994, the resulting pro forma compensation cost may
not be representative of that to be expected in future periods.
================================================================================
NOTE 13
Stockholders' Equity
On February 26, 1996, FCC's Board of Directors (the Board) adopted a
shareholder rights plan and declared a dividend of one preferred share purchase
right (Right) for each outstanding share of FCC common stock. Each Right
entitles the holder to purchase from FCC one one-hundredth of a share of Series
A Preferred Stock at a price of $105, subject to adjustment. The Rights become
exercisable only if a
48
person or group acquires 10% or more of FCC's outstanding common stock or
commences a tender offer that would result in such person or group owning 10% or
more of the shares.
If any person or group acquires 10% or more of FCC's common stock, a Rights
holder (other than the acquiring person or group) will be entitled to buy a
number of shares of FCC's common stock with a market value equal to twice the
exercise price. Additionally, if FCC is involved in a merger after a person or
group has acquired 10% or more of its common stock, each Right entitles its
holder to buy, for the exercise price, a number of shares of common stock of the
acquiring company with a market value equal to twice the exercise price.
Following the acquisition by any person or group of 10% or more of FCC's common
stock, but prior to the acquisition of 50%, the Board may exchange some or all
of the Rights (other than Rights held by such person or group) for one share of
common stock or one one-hundredth of a share of the new preferred stock for each
Right.
Prior to the time the Rights become exercisable, they are redeemable for one
cent per Right at the option of the Board. The Rights expire on March 11, 2006.
On October 21, 1996, FCC called its 7.25% Cumulative Convertible Preferred
Stock, Series 1992 for redemption on January 2, 1997. The preferred stock was
redeemable for $25 per share, plus accrued dividends, and was convertible into
1.1646 shares of common stock. Holders of the preferred stock were allowed to
convert their preferred shares through December 23, 1996. During 1996, FCC
repurchased 1.8 million shares of its common stock in anticipation of such
conversions. As of December 31, 1996, all preferred shares had been converted,
except for a nominal amount of redemptions.
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.
================================================================================
NOTE 14
Regulatory Capital
FCC and the Banks are subject to regulations which establish minimum leverage
and risk-based capital levels. For FCC and the Banks, the minimum leverage, tier
1 and total capital ratios are 3%, 4% and 8%, respectively. Regulatory
authorities may, however, set higher capital requirements for an individual
institution when particular circumstances warrant. As a general matter, banks
are expected to maintain capital ratios well above the regulatory minimums.
Failure to meet applicable guidelines could subject a financial institution to a
variety of enforcement remedies which could have a direct material effect on
their financial statements. Under the regulatory framework for prompt corrective
action, the capital levels of financial institutions are categorized into one of
five classifications ranging from well-capitalized to critically
under-capitalized. For an institution to qualify as well-capitalized, its
leverage, tier 1 and total capital ratios must be at least 5%, 6% and 10%,
respectively. Maintaining capital ratios at the well-capitalized levels avoids
certain restrictions which, for example, could impact the FDIC insurance premium
rate. As of December 31, 1996 and 1995, each of FCC's banks was categorized as
well-capitalized and there have been no events since year-end 1996 that
management believes would cause this status to change for any of the Banks.
The actual capital amounts and ratios and the minimum and
well-capitalized required capital amounts for FCC and each of the Banks are
presented in the following tables (dollars in millions):
- --------------------------------------------------------------------------------
Actual Well-
December 31, 1996 Amount Ratio Minimum(a) Capitalized(b)
- --------------------------------------------------------------------------------
Total Capital (to Risk
Weighted Assets):
FCC $810 12.87% $504 $629
FNBC 408 10.23% 319 399
CNB 86 12.04% 57 72
FNBL 78 16.01% 39 49
CB 76 12.79% 48 60
FNBLC 54 17.98% 24 30
RBT 45 15.32% 24 29
- --------------------------------------------------------------------------------
Tier 1 Capital (to Risk
Weighted Assets):
FCC $683 10.85% $252 $378
FNBC 358 8.97% 160 239
CNB 80 11.18% 29 43
FNBL 73 15.05% 19 29
CB 70 11.74% 24 36
FNBLC 51 17.05% 12 18
RBT 42 14.46% 12 18
- --------------------------------------------------------------------------------
Leverage (to Average
Assets):
FCC $683 7.76% $264 $440
FNBC 358 6.44% 167 278
CNB 80 7.52% 32 53
FNBL 73 9.57% 23 38
CB 70 9.18% 23 38
FNBLC 51 9.50% 16 27
RBT 42 8.41% 15 25
- --------------------------------------------------------------------------------
(a) Minimum capital required for capital adequacy purposes.
(b) Capital required for well-capitalized status.
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
- --------------------------------------------------------------------------------
Actual Well-
December 31, 1995 Amount Ratio Minimum(a) Capitalized(b)
- --------------------------------------------------------------------------------
Total Capital (to Risk
Weighted Assets):
FCC $829 15.51% $428 $534
FNBC 406 12.68% 256 320
CNB 82 13.22% 50 62
FNBL 69 15.33% 36 45
CB 86 13.58% 51 64
FNBLC 56 21.88% 20 26
RBT 45 17.53% 21 26
- --------------------------------------------------------------------------------
Tier 1 Capital (to Risk
Weighted Assets):
FCC $679 12.71% $214 $321
FNBC 365 11.43% 128 192
CNB 76 12.18% 25 37
FNBL 64 14.08% 18 27
CB 80 12.57% 25 38
FNBLC 53 20.62% 10 15
RBT 42 16.28% 10 15
- --------------------------------------------------------------------------------
Leverage (to Average
Assets):
FCC $679 8.16% $250 $416
FNBC 365 7.32% 150 250
CNB 76 7.65% 30 50
FNBL 64 8.75% 22 36
CB 80 9.90% 24 40
FNBLC 53 10.51% 15 25
RBT 42 8.54% 15 24
- --------------------------------------------------------------------------------
(a) Minimum capital required for capital adequacy purposes.
(b) Capital required for well-capitalized status.
================================================================================
NOTE 15
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, 1996 without prior regulatory approval was $41.0 million, plus an amount
equal to the Banks' net income for 1997.
Under Section 23A of the Federal Reserve Act, the Banks are limited in the
amounts they may loan to or invest in certain of their affiliates, including
FCC. Loans to or investments in a single covered affiliate may not exceed 10%
and loans to or investments in all covered affiliates may not exceed 20% of an
individual bank's capital, as defined in applicable Federal Reserve Board
regulations. Generally, such loans must be collateralized by assets with market
values of 100% to 130% of loan amounts, depending upon the nature of the
collateral.
================================================================================
NOTE 16
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 its credit
card customers, FNBC had 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
50
are swaps, caps and floors. 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 amortizing interest rate 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 summary of off-balance sheet financial instruments follows (in thousands):
December 31
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Commitments to extend credit for loans
(excluding credit card plans) $1,636,245 $1,224,478
Commitments to extend credit for credit
card plans $3,098,103 $2,236,656
Commercial letters of credit $ 1,127 $ 3,966
Financial letters of credit $ 99,192 $ 77,005
Performance letters of credit $ 15,513 $ 20,954
Foreign exchange contracts
Commitments to purchase $ 5,734 $ 1,020
Commitments to sell $ 5,743 $ 1,057
Securities lent $ - $ 105,605
Securities borrowed $ - $ 28
Forward commitments to sell mortgages $ 1,098 $ 4,896
When-issued securities
Commitments to purchase $ 200 $ 150
Commitments to sell $ 200 $ 110
Interest rate contracts (a)
Interest rate floors $ 500,000 $ -
Generic swaps $ 130,000 $ -
Amortizing interest rate swaps $ - $ 193,605
Caps $ - $ 350,000
- --------------------------------------------------------------------------------
(a) Notional principal amounts.
================================================================================
NOTE 17
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 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, 1996 and 1995 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.
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The estimated fair values of FCC's financial instruments follows (in
thousands):
December 31, 1996 December 31, 1995
- --------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------
On-balance sheet financial assets
Cash and
short-term
investments $ 512,853 $ 512,853 $ 551,586 $ 551,586
Securities
available for
sale $2,177,529 $2,177,529 $2,599,767 $2,599,767
Loans, net of
unearned
income and
the allowance
for loan losses $6,135,877 $6,173,769 $5,046,881 $5,033,231
On-balance sheet financial liabilities
Noninterest-bearing
deposits $1,436,038 $1,436,038 $1,481,795 $1,481,795
Interest-bearing
deposits $5,868,808 $5,865,692 $5,472,606 $5,508,463
Short-term
borrowings $ 944,823 $ 944,823 $ 635,728 $ 635,728
Long-term debt $ 80,723 $ 131,420 $ 88,346 $ 128,739
Off-balance sheet financial instruments
Interest rate floors $ 1,113 $ 408 $ - $ -
Generic swaps $ - $ 2,548 $ - $ -
Amortizing interest
rate swaps $ - $ - $ - $ (1,270)
Caps $ - $ - $ 1,196 $ -
- --------------------------------------------------------------------------------
================================================================================
NOTE 18
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 19
Other Operating Expense
The composition of other operating expense follows (in thousands):
Years Ended December 31
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Advertising and marketing $13,551 $15,108 $11,122
Stationery and supplies 10,487 10,540 9,037
Data processing services 9,689 12,745 9,207
Taxes, licenses and other fees 8,717 8,339 8,285
Credit card expense 7,036 5,036 3,875
Travel and entertainment 3,881 3,901 3,266
Miscellaneous losses 1,675 7,504 2,161
Nonperforming assets expense 1,652 1,053 1,083
Other 1,373 5,729 5,664
- --------------------------------------------------------------------------------
Total $58,061 $69,955 $53,700
- --------------------------------------------------------------------------------
================================================================================
NOTE 20
Income Taxes
The components of income tax expense in the consolidated statements of income
for the years ended December 31, 1996, 1995 and 1994 were as follows (in
thousands):
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Current $63,495 $48,579 $30,992
Deferred (4,485) (9,124) 7,580
- --------------------------------------------------------------------------------
Total $59,010 $39,455 $38,572
- --------------------------------------------------------------------------------
Income tax expense related to state and foreign income taxes are included
above and were insignificant in all years presented. Income tax expense
(benefit) related to securities transactions was $56,000 in 1996, $(3,995,000)
in 1995 and $(15,211,000) in 1994.
Total income tax expense was different from the amounts computed by applying
the statutory federal income tax rates to pretax income as follows (in
percentages):
Years Ended December 31
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Federal income tax expense 35.00% 35.00% 35.00%
Increase (decrease) resulting from
Benefits attributable to
tax-exempt interest (2.03) (3.26) (3.32)
Nondeductible expenses .77 2.40 .84
Other items, net (.49) .05 (.05)
- --------------------------------------------------------------------------------
Actual income tax expense 33.25% 34.19% 32.47%
- --------------------------------------------------------------------------------
52
FCC had a current income tax payable of $5.89 million and $6.88 million on
December 31, 1996 and 1995, respectively.
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. There were net deferred
assets of $16.42 million and $9.89 million on December 31, 1996 and 1995,
respectively. The major temporary differences which created deferred tax assets
and liabilities are as follows (in thousands):
December 31, 1996
- --------------------------------------------------------------------------------
Deferred Deferred
Tax Tax
Assets Liabilities
- --------------------------------------------------------------------------------
Allowance for loan losses $28,336 $ -
Employee benefits 4,410 -
Allowance for losses on foreclosed assets 2,469 -
Amortization of intangibles 2,068 -
Nonaccrual loan interest 1,609 -
Unrealized gain on securities
available for sale - 12,307
Accumulated depreciation - 6,053
Accrued liabilities - 5,733
Bond accretion - 3,559
Other 7,887 2,706
- --------------------------------------------------------------------------------
Total deferred taxes $46,779 $30,358
- --------------------------------------------------------------------------------
December 31, 1995
- --------------------------------------------------------------------------------
Deferred Deferred
Tax Tax
Assets Liabilities
- --------------------------------------------------------------------------------
Allowance for loan losses $25,267 $ -
Employee benefits 3,051 -
Allowance for losses on foreclosed assets 340 -
Amortization of intangibles 2,605 -
Nonaccrual loan interest 1,462 -
Unrealized gain on securities
available for sale - 18,084
Accumulated depreciation - 3,999
Accrued liabilities - 4,132
Bond accretion - 2,890
Other 8,999 2,730
- --------------------------------------------------------------------------------
Total deferred taxes $41,724 $31,835
- --------------------------------------------------------------------------------
================================================================================
NOTE 21
Condensed Parent Company Only -- Financial Information
Condensed Balance Sheets (in thousands)
December 31
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
ASSETS
Interest-bearing deposits in
subsidiary banks (a)
Cash and due from banks $ 95,749 $ 80,370
Time deposits 2 138
Investments in subsidiaries at equity (a)
Banks 702,640 721,575
Nonbanks 9,223 7,109
- --------------------------------------------------------------------------------
711,863 728,684
Other assets 26,926 28,351
- --------------------------------------------------------------------------------
Total assets $834,540 $837,543
- --------------------------------------------------------------------------------
LIABILITIES
Payables to subsidiaries (a) $ - $ 1,764
Long-term debt 80,471 82,858
Other liabilities 30,394 19,872
- --------------------------------------------------------------------------------
Total liabilities 110,865 104,494
STOCKHOLDERS' EQUITY 723,675 733,049
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $834,540 $837,543
- --------------------------------------------------------------------------------
(a) Eliminated in consolidation, except for goodwill and other intangibles.
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Condensed Statements of Income (in thousands)
Years Ended December 31
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
INCOME
Interest and dividends
on securities $ 393 $ 354 $ 860
Interest on receivables from
subsidiaries (a) 3,527 5,513 1,734
Other income 29 23 25
Dividends from subsidiaries (a)
Banks 136,639 46,861 95,775
Nonbanks 2,000 - -
- --------------------------------------------------------------------------------
142,588 52,751 98,394
- --------------------------------------------------------------------------------
EXPENSES
Interest on debt to nonbank
subsidiaries 31 79 165
Interest on debt to nonaffiliates 10,207 10,625 10,748
Other 11,992 7,621 2,298
- --------------------------------------------------------------------------------
22,230 18,325 13,211
- --------------------------------------------------------------------------------
Income before income taxes and
equity in undistributed earnings
of subsidiaries 120,358 34,426 85,183
Income tax benefit (6,465) (3,954) (3,574)
- --------------------------------------------------------------------------------
126,823 38,380 88,757
Equity in undistributed earnings
of subsidiaries (a)
Banks (5,728) 43,130 (6,475)
Nonbanks (2,657) (5,559) (2,055)
- --------------------------------------------------------------------------------
NET INCOME 118,438 75,951 80,227
PREFERRED DIVIDEND
REQUIREMENTS 2,116 4,325 4,347
- --------------------------------------------------------------------------------
INCOME APPLICABLE TO
COMMON SHARES $116,322 $71,626 $75,880
- --------------------------------------------------------------------------------
(a) Eliminated in consolidation.
Statements of Cash Flows (in thousands)
Years Ended December 31
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 118,438 $ 75,951 $ 80,227
Adjustments to reconcile net
income to net cash provided
by operating activities
Equity in undistributed earnings
of subsidiaries (a) 8,385 (37,571) 8,530
Deferred income tax
(benefit) (3,099) (1,332) (183)
(Decrease) in interest payable (56) (4) (37)
Decrease in other assets 847 1,443 1,133
Increase in other liabilities 14,373 3,351 1,035
Other, net 2,110 41 (313)
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 140,998 41,879 90,392
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES
Investment in subsidiaries (a) (500) (5,100) (5,000)
Proceeds from maturity of
interest-bearing time deposits (a) 136 2,010 237
(Increase) decrease in loans (2,000) 975 (975)
Purchase of securities (1,141) (1,611) (12,817)
Proceeds from sales of securities 1,000 375 20,000
Principal collected on advances (a) 165,691 134,536 77,409
Advances originated or acquired (a) (168,344) (136,524) (80,755)
- --------------------------------------------------------------------------------
NET CASH (USED) BY
INVESTING ACTIVITIES (5,158) (5,339) (1,901)
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payments on long-term debt (72) (968) (2,117)
(Decrease) in other
short-term borrowings - (20) (20)
Proceeds from issuance of
common and treasury stock 541 3,206 1,840
Cash dividends (56,754) (41,672) (33,835)
Purchase of treasury stock (63,926) (15,108) -
Other (250) - -
- --------------------------------------------------------------------------------
NET CASH (USED) BY
FINANCING ACTIVITIES (120,461) (54,562) (34,132)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 15,379 (18,022) 54,359
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 80,370 98,392 44,033
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 95,749 $ 80,370 $ 98,392
- --------------------------------------------------------------------------------
(a) Eliminated in consolidation.
54
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.
55
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, 1996 and 1995 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,
1996. 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, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana,
January 10, 1997
56
FIRST COMMERCE CORPORATION
EXECUTIVE MANAGEMENT
- --------------------------------------------------------------------------------
IAN ARNOF
President and Chief Executive Officer
First Commerce Corporation
R. JEFFREY BROOKS
Executive Vice President
Card Services
First Commerce Corporation
MICHAEL A. FLICK
Executive Vice President
Chief Administrative Officer
Secretary
First Commerce Corporation
HOWARD C. GAINES
Chairman
First National Bank of Commerce
Executive Vice President
First Commerce Corporation
KIMBERLY Y. LEE
Executive Vice President
Chief Internal Auditor
First Commerce Corporation
ASHTON J. RYAN, JR.
President and Chief Executive Officer
First National Bank of Commerce
Senior Executive Vice President
First Commerce Corporation
E. GRAHAM THOMPSON
Executive Vice President
Chief Credit Policy Officer
First Commerce Corporation
JOSEPH V. WILSON III
Senior Executive Vice President
First Commerce Corporation
57
FIRST COMMERCE CORPORATION
BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
IAN ARNOF
President and
Chief Executive Officer
First Commerce Corporation
New Orleans, Louisiana
JAMES J. BAILEY III
Managing Partner
Bailey Family Investments
Baton Rouge, Louisiana
JOHN W. BARTON
Private Investments
Baton Rouge, Louisiana
SYDNEY J. BESTHOFF III
Chairman
K&B, Incorporated
New Orleans, Louisiana
ROBERT H. BOLTON
Senior Chairman
Rapides Bank & Trust Company
in Alexandria
Alexandria, Louisiana
ROBERT C. CUDD III
Private Investments
Monroe, Louisiana
FRANCES B. DAVIS
Private Investments
Alexandria, Louisiana
LAURANCE EUSTIS, JR.
Chairman
Eustis Insurance, Inc.
New Orleans, Louisiana
WILLIAM P. FULLER
President
Fuller Farms, Inc.
Kinder, Louisiana
ARTHUR HOLLINS III
Chairman
The First National Bank
of Lake Charles
Lake Charles, Louisiana
F. BEN JAMES, JR.
President
James Investments, Inc.
Ruston, Louisiana
ERIK F. JOHNSEN
President
International Shipholding
Corporation and
Central Gulf Lines, Inc.
New Orleans, Louisiana
J. MERRICK JONES, JR.
Chairman
Canal Barge Company, Inc.
New Orleans, Louisiana
EDWIN LUPBERGER
Chairman, Chief Executive Officer
and President
Entergy Corporation
New Orleans, Louisiana
MARY CHAVANNE MARTIN
Private Investments
Houston, Texas
HUGH G. MCDONALD, JR.
Registered Professional Engineer
Monroe, Louisiana
SAUL A. MINTZ
Chairman
Strauss Interests
Monroe, Louisiana
HERMANN MOYSE, JR.
Chairman
First Commerce Corporation
Baton Rouge, Louisiana
O. MILES POLLARD, JR.
Private Investments
Baton Rouge, Louisiana
G. FRANK PURVIS, JR.
Chairman
Pan-American Life Insurance
Company
New Orleans, Louisiana
TOM H. SCOTT
Chairman
Scott Truck and Tractor Co., Inc.
Monroe, Louisiana
EDWARD M. SIMMONS
Chairman and
Chief Executive Officer
The McIlhenny Company
Avery Island, Louisiana
H. LEIGHTON STEWARD
Chairman, Chief Executive Officer
and President
The Louisiana Land and
Exploration Company
New Orleans, Louisiana
ROBERT A. WEIGLE
President
David C. Bintliff & Co., Inc.
Houston, Texas
58
FIRST NATIONAL BANK
OF COMMERCE
- --------------------------------------------------------------------------------
210 Baronne Street
New Orleans, Louisiana 70112
(504) 623-1371
Total Assets: $5,889,463,000
Total Deposits: $4,114,191,000
Stockholder's Equity: $373,800,000
- ------------
EXECUTIVE OFFICERS BOARD OF DIRECTORS
Howard C. Gaines Margaret Moss Allums
Chairman Ian Arnof
William G. Barry
Ashton J. Ryan, Jr. Sydney J. Besthoff III
President and John D. Charbonnet
Chief Executive Officer Laurance Eustis, Jr.
Norman C. Francis
J. Michael Brown Howard C. Gaines (a)
Executive Vice President John J. Gelpi, Jr.
Erik F. Johnsen
Glenn W. Hayes J. Merrick Jones, Jr.
Executive Vice President Edwin Lupberger
Robert W. Merrick
Suzanne T. Mestayer G. Frank Purvis, Jr.
Executive Vice President Ashton J. Ryan, Jr.
Edward M. Simmons
Clifton J. Saik H. Leighton Steward
Executive Vice President Charles C. Teamer
---------------
David T. Spell, Jr. (a) Chairman
Executive Vice President
59
CITY NATIONAL BANK
OF BATON ROUGE
- --------------------------------------------------------------------------------
445 North Boulevard
Baton Rouge, Louisiana 70802
(504) 387-2151
Total Assets: $1,121,356,000
Total Deposits: $982,541,000
Stockholder's Equity: $80,791,000
- ------------
EXECUTIVE OFFICERS BOARD OF DIRECTORS
Hermann Moyse III Lawrence D. Adcock
Chairman James J. Bailey III
John W. Barton
W. Shiles McCord James M. Bernhard, Jr.
President and Chief Executive Officer Howard C. Gaines
John C. Hamilton
John C. Hamilton Paul M. Haygood
Executive Vice President D. Benjamin Kleinpeter
W. Shiles McCord
Richard T. Hill Hermann Moyse, Jr.(b)
Executive Vice President Hermann Moyse III (a)
G. Allen Penniman, Jr.
Mark P. Bensabat O. Miles Pollard, Jr.
Senior Vice President H. Norman Saurage III
Betty M. Simmons
Kevin F. Knobloch M. J. Simoneaux
Senior Vice President Mary Ann Sternberg
John R. Tharp
Samuel Williams
Jasper F. Worthy
William H. Wright, Jr.
----------------
(a) Chairman
(b) Chairman Emeritus
60
THE FIRST NATIONAL BANK
OF LAFAYETTE
- --------------------------------------------------------------------------------
600 Jefferson Street
Lafayette, Louisiana 70501
(318) 265-3200
Total Assets: $802,654,000
Total Deposits: $688,836,000
Stockholder's Equity: $88,447,000
- ------------
EXECUTIVE OFFICERS BOARD OF DIRECTORS
Barry F. Berthelot Edward E. Abdalla IV
President and Chief Executive Officer Reed G. Andrus
Charles T. Beaullieu
Stephen E. Durrett Barry F. Berthelot
Executive Vice President Joseph S. Brown III
Richard D. Chappuis, Jr.
Debbie F. Howton Richard E. D'Aquin
Executive Vice President Richard Delhomme
Carolyn T. Doerle
Duayne F. Richard Roland F. Dugas, Jr.
Executive Vice President Coty R. Dupre
Howard C. Gaines
Arthur Hollins III
Charles D. Lein
James H. Prince
William W. Rucks III (a)
William W. Rucks IV
-----------
(a) Chairman
61
CENTRAL BANK
- --------------------------------------------------------------------------------
300 DeSiard Street
Monroe, Louisiana 71211
(318) 362-8500
Total Assets: $792,877,000
Total Deposits: $662,512,000
Stockholder's Equity: $71,212,000
- ------------
EXECUTIVE OFFICERS BOARD OF DIRECTORS
James A. Altick Nelson D. Abell III
Chairman James A. Altick (a)
Joan Blondin, M.D.
Thomas J. Nicholson Robert C. Cudd III
President and Chief Executive Officer Howard C. Gaines
J. Grayson Guthrie (b)
Willis T. McGhinnis William L. Husted, Jr. (b)
Executive Vice President Carrick R. Inabnett
Hugh G. McDonald, Jr.
Michael A. Naquin Saul A. Mintz
Executive Vice President James W. Moore, Jr.
W. B. Nelson, Jr.
Thomas J. Nicholson
Garland D. Puckett
Paul S. Ransom (b)
Thad J. Ryan, Jr. (b)
Tom H. Scott
Edward J. Seymour, Jr.
--------------
(a) Chairman
(b) Advisory Director
62
THE FIRST NATIONAL BANK
OF LAKE CHARLES
- --------------------------------------------------------------------------------
One Lakeside Plaza
Lake Charles, Louisiana 70601
(318) 433-2265
Total Assets: $588,079,000
Total Deposits: $493,911,000
Stockholder's Equity: $51,746,000
- ------------
EXECUTIVE OFFICERS BOARD OF DIRECTORS
Arthur Hollins III William D. Blake
Chairman Robert J. Boudreau
Arthur R. Cooling
Robert G. Ryder Thomas A. Flanagan, Jr. (b)
President and Chief Executive Officer Howard C. Gaines
William L. Henning, Jr.
Wayne B. Gabbert Arthur Hollins III (a)
Executive Vice President Joseph Lowenthal
Mary Chavanne Martin
George A. McElveen, Jr.
Joseph T. Miller, Sr.
Hollis C. O'Neal
Carl G. Patton
Robert G. Ryder
Thomas W. Sanders
Thomas B. Shearman
Harold T. Shelton
Sydalise F. Villaume
George H. Vincent
--------------
(a) Chairman
(b) Advisory Director
63
RAPIDES BANK & TRUST
COMPANY IN ALEXANDRIA
- --------------------------------------------------------------------------------
400 Murray Street
Alexandria, Louisiana 71301
(318) 487-2431
Total Assets: $516,965,000
Total Deposits: $455,867,000
Stockholder's Equity: $43,705,000
- ------------
EXECUTIVE OFFICERS BOARD OF DIRECTORS
Patrick J. Trahan Charles W. Barber(a)
President and Chief Executive Officer Robert H. Bolton(b)
Andy D. Carey
Michael A. Naquin Charles J. Cooper
Executive Vice President Frances B. Davis
Elizabeth E. Foote
Sylvia H. Burns Howard C. Gaines
Senior Vice President Roane E. Hathorn
Joy N. Hodges
Wylie D. Cavin III Harold Katz
Senior Vice President Robert L. Lynn
Roy O. Martin III
R. Blake Chatelain James L. Meyer
Senior Vice President Franklin H. Mikell
Gregory L. Nesbitt
James D. Redman Mark Short, Jr.
Senior Vice President Patrick J. Trahan
----------------------
(a) Chairman
(b) Senior Chairman
64
CORPORATE INFORMATION
ANNUAL MEETING
The annual meeting of stockholders will be held on Monday, April 21,
1997 at 9:00 a.m., at the Hotel Inter-Continental, 444 St. Charles Avenue, New
Orleans, Louisiana.
CORPORATE OFFICES
201 Saint Charles Avenue
P. O. Box 60279
New Orleans, Louisiana 70160-0279
(504) 623-1371
AFFILIATE BANKS
First National Bank of Commerce, New Orleans
City National Bank of Baton Rouge
The First National Bank of Lafayette
Central Bank, Monroe
The First National Bank of Lake Charles
Rapides Bank & Trust Company in Alexandria
COMMON STOCK
The common stock is traded on The NASDAQ Stock Market under the symbol
FCOM. The current NASDAQ market makers are:
J. C. Bradford & Co.
Dean, Witter, Reynolds, Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
The First Boston Corporation
Fox-Pitt, Kelton, Inc.
Herzog, Heine, Geduld, Inc.
Jeffries & Company, Inc.
Keefe, Bruyette & Woods, Inc.
Lehman Brothers, Inc.
Mayer & Schweitzer, Inc.
Merrill Lynch, Pierce, Fenner & Smith, Inc.
Morgan Keegan & Company, Inc.
The Robinson-Humphrey Company, Inc.
Sherwood Securities Corporation
Smith Barney Inc.
Troster Singer Corporation
STOCKHOLDER INFORMATION
Stockholders seeking any information concerning their shares or
dividends should contact the transfer agent, First Chicago Trust Company of New
York, as follows:
P. O. Box 2500
Jersey City, NJ 07303-2500
(800) 446-2617
Any correspondence should include a reference to First Commerce
Corporation.
DIVIDEND AND INTEREST REINVESTMENT
AND STOCK PURCHASE PLAN
The plan allows First Commerce stockholders and debentureholders to
reinvest their dividends or interest in First Commerce Corporation common stock.
No brokerage commissions or service charges are paid by the stockholder or
debentureholder. The plan also permits those participating in the plan to buy
additional shares with optional cash payments. Full details about the plan are
available by calling the administrator, First Chicago Trust Company of New York.
Plan participants should also contact First Chicago with any questions
concerning their reinvestment account. First Chicago may be contacted by writing
to P.O. Box 2500, Jersey City, NJ 07303-2500, or by calling (800) 446-2617.
CASH DIVIDEND AND
INTEREST DIRECT DEPOSIT
Stockholders and debentureholders may elect to have their First
Commerce dividends or interest directly deposited to a checking, savings or
money market account. This service provides a convenient and safe method of
receiving dividends or interest and is offered at no cost to stockholders and
debentureholders. To obtain additional information and an enrollment form,
call (504) 623-2900 or write First Commerce Corporation, Investor Relations,
P. O. Box 60279, New Orleans, Louisiana 70160-0279.
FINANCIAL INFORMATION
Copies of First Commerce Corporation's financial reports, including the
Annual Report to the Securities and Exchange Commission on Form 10-K, are
available without charge upon request to:
First Commerce Corporation
Investor Relations
P. O. Box 60279
New Orleans, Louisiana 70160-0279
Analysts, investors and others seeking financial information are
requested to contact:
Michael A. Flick
Chief Administrative Officer
(504) 623-1492
or
Holly E. Hobson
Investor Relations
(504) 623-2917
[Recycled Logo] This Annual Report was printed on recycled paper.
FIRST COMMERCE
CORPORATION
P.O. Box 60279
New Orleans,
Louisiana 70160-0279