Item 1 Description of Business
General First Commerce Corporation (FCC) is a multi-bank holding company with six wholly owned bank subsidiaries ("the Banks") in Louisiana: First National Bank of Commerce in New Orleans (First NBC), City National Bank of Baton Rouge (CNB), The First National Bank of Lafayette (FNBL), Central Bank in Monroe (CB), The First National Bank of Lake Charles (FNBLC) and Rapides Bank & Trust Company in Alexandria (RBT). The six banks accounted for substantially all of the assets of FCC at December 31, 1997, and substantially all of its net income for 1997. The Banks offer customary services of banks of similar size and similar markets, including numerous types of interest-bearing and noninterest-bearing deposit accounts, commercial and consumer loans, trust services, correspondent banking services and safe deposit facilities. For further discussion of FCC's operations, see Management's Discussion and Analysis of Financial Condition and Results of Operations. FCC has a number of non-bank subsidiaries, none of which, individually or in the aggregate with other non-bank subsidiaries, account for a significant amount of assets, revenues or earnings. On October 20, 1997, FCC entered into an agreement and plan of merger with BANC ONE CORPORATION. The Merger is expected to be consummated during the second quarter of 1998. See Note 2 of Notes to Consolidated Financial Statements for a discussion of the Merger Agreement.
Regulation Like other bank holding companies in Louisiana, FCC is subject to regulation by the Louisiana Commissioner of Financial Institutions and the Federal Reserve Board. Under the terms of the Bank Holding Company Act of 1956 (Act), as amended, FCC is restricted to only banking or bank-related activities specifically allowed by the Act or the Federal Reserve Board. The Act requires FCC to file required reports with the Federal Reserve Board. Each of FCC's Banks is a member of the Federal Reserve System and is subject to regulation by the Federal Reserve Board and the FDIC (Federal Deposit Insurance Corporation). The four national bank subsidiaries are also subject to regulation and supervision by the United States Comptroller of the Currency, while the two state-chartered bank subsidiaries are subject to regulation and supervision by the Louisiana Commissioner of Financial Institutions.
Payment of Dividends The primary source of funds for debt service obligations and the dividends paid by FCC to its stockholders is the dividends it receives from the Banks. The payment of dividends by FCC's national banks is regulated by the United States Comptroller of the Currency. The payment of dividends by FCC's state banks is regulated by the Louisiana Commissioner of Financial Institutions and the Federal Reserve Board. Banks are required to maintain minimum capital levels to ensure capital adequacy. Prior approval must be obtained from the appropriate regulatory authorities if the payment of dividends would result in required capital falling below regulatory limits or if the payment of the proposed dividend would result in an "undercapitalized" position. Additionally, the national bank subsidiaries may not pay dividends in excess of their retained net profits (net income less dividends for the current and prior two years) without prior regulatory approval. The state bank subsidiaries may not pay dividends in excess of their retained net profits (the lesser of net income less dividends for the current year and one prior year or net income less dividends for the current year and two prior years) without prior regulatory approval. Under certain circumstances, regulatory authorities may prohibit the payment of dividends by a bank or its parent holding company. See Note 17 of Notes to Consolidated Financial Statements for a discussion of dividends.
Transactions with Affiliates Federal law prohibits FCC or its non-bank subsidiaries from borrowing from its Banks, unless the borrowings are secured by assets with market values of 100% to 130% of loan amounts, depending upon the nature of the collateral. Loans to or investments in a single covered affiliate by a subsidiary bank 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. Further, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property or furnishing of services.
Company Support of Bank Subsidiaries The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) contains a "cross- guarantee" provision which could result in any insured depository institution owned by FCC (i.e., any bank subsidiary) being assessed for losses incurred by the FDIC in connection with assistance provided to, or the failure of, any other depository institution owned by FCC. In addition, under Federal Reserve Board policy, FCC is expected to act as a source of financial strength to each of its Banks and to commit resources to support each such bank in circumstances in which the bank might need outside support. The FDIC Improvement Act of 1991 (1991 Act) provides, among other things, that undercapitalized institutions, as defined by regulatory authorities, must submit recapitalization plans, and a parent company of such an institution must either (i) guarantee the institution's compliance with the capital plan, up to an amount equal to the lesser of five percent of the institution's assets at the time it becomes undercapitalized or the amount of the capital deficiency when the institution fails to comply with the plan, or (ii) suffer certain adverse consequences such as a prohibition of dividends by the parent company to its shareholders.
Prompt Corrective Action The 1991 Act and implementing regulations classify banks into five categories generally relating to their regulatory capital ratios and institutes a system of supervisory actions indexed to a particular classification. Generally, banks that are classified as "well capitalized" or "adequately capitalized" are not subject to the supervisory actions specified in the 1991 Act for prompt corrective action, but may be restricted from taking certain actions that would lower their classification. Banks classified as "undercapitalized", "significantly undercapitalized" or "critically undercapitalized" are subject to restrictions and supervisory actions of increasing stringency based on the level of classification. Under the present regulation, all of the Banks are "well-capitalized". While such a classification would exclude the Banks from the restrictions and actions envisioned by the prompt corrective action provisions of the 1991 Act, the regulatory agencies have broad powers under other provisions of federal law that would permit them to place restrictions or take other supervisory action regardless of such classification.
Other Provisions of the 1991 Act In general, the 1991 Act subjected banks and bank holding companies to significantly increased regulation and supervision. Other significant provisions of the 1991 Act require the federal regulators to draft non-capital regulatory measures to assure bank safety, including underwriting standards and minimum earnings levels. The legislation further requires regulators to perform annual on- site bank examinations, places limits on real estate lending and tightens audit requirements. The 1991 Act and implementing regulations also impose disclosure requirements relating to fees charged and interest paid on checking and deposit accounts.
Interstate Banking and Branching Efficiency Act The Interstate Banking and Branching Efficiency Act of 1994 (Interstate Act) (i) allows bank holding companies to acquire a bank located in any state, subject to certain limitations that may be imposed by the state, (ii) allows banks to merge across state lines, a law opting out of interstate bank mergers, and (iii) permits banks to establish branches outside their state of domicile if expressly permitted by the law of the state in which the branch is to be located. In 1995, the Louisiana Legislature enacted legislation permitting an out-of-state bank holding company to convert its Louisiana banks, as defined, into branches of the holding company's out-of-state banks, effective June 1, 1997. Prior thereto an out-of-state holding company was permitted only with certain limitations to acquire Louisiana banks as separate entities.
Annual Insurance Assessment FCC's Banks are subject to deposit insurance assessments by the FDIC. For 1997, the rates paid by the Banks for deposit insurance to the Bank Insurance Fund (BIF) and the Savings Insurance Fund (SAIF) were zero. Beginning in 1997, all insured institutions were assessed the interest cost of the Financing Corporation bonds which were issued to provide funds for the resolution of failed thrift institutions. The assessment rate for BIF deposits is 1.3 cents per $100 of deposits, while the rate for SAIF deposits is 6.3 cents per $100 of deposits. At December 31, 1997, approximately 87% of FCC's deposits were insured by the BIF, while approximately 12% were insured by the SAIF.
Miscellaneous Federal and Louisiana laws provide for the enforcement of any pro rata assessment of stockholders of a bank to cover impairment of capital stock by sale, to the extent necessary, of the stock of any assessed stockholder failing to pay the assessment. FCC, as the stockholder of its Banks, is subject to these provisions.
Item 2
Item 2 Properties
FCC's executive offices are located in leased facilities in the Central Business District of New Orleans. Through its subsidiaries, FCC also owns or leases its principal banking facilities and offices in New Orleans, Baton Rouge, Lafayette, Monroe, Lake Charles and Alexandria. Of the 144 banking offices open at the end of 1997, 82 are owned and 62 are leased. Data processing services for FCC and each of its subsidiaries are performed in a facility in the Metropolitan New Orleans area, which is owned by a subsidiary of FCC. Management considers all properties owned or leased to be suitable and adequate for their intended purposes and considers the leases to be fair and reasonable. For additional information concerning premises and information concerning FCC's obligations under long-term leases, see Note 9 of Notes to Consolidated Financial Statements.
Item 3
Item 3 Legal Proceedings
FCC and its subsidiaries have been named as defendants in various legal actions arising from normal business activities in which damages of 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.
Item 4
Item 4 Submission of Matters to a Vote of Security Holders
Not Applicable
PART II
TABLE 1. CREDIT CARD SECURITIZATION
TABLE 8. MATURITIES OF TIME DEPOSITS $100,000 AND OVER ======================================================= (in thousands) - ------------------------------------------------------- Within three months $339,739 Three to six months 234,032 Six to twelve months 221,220 After twelve months 428,119 - ------------------------------------------------------- Total at December 31, 1997 $1,223,110 =======================================================
TABLE 9. INTEREST RATE RISK ================================================================== Twelve Month Economic Net Interest Value of At December 31, 1997 Income Change Equity Change - ------------------------------------------------------------------ Interest Rate Change In Basis Points: +100 Shock (0.8)% (1.2)% - -100 Shock 0.1% (0.9)% +100 Gradual (0.1)% N/A - -100 Gradual (0.2)% N/A
TABLE 11. CHANGES IN INTEREST RATE CONTRACTS (NOTIONAL AMOUNTS) ============================================================================= Option Based Generic (in thousands) Instruments Swaps Total - ----------------------------------------------------------------------------- Balance, December 31, 1996 $500,000 $130,000 $630,000 Purchases - 181,000 181,000 - ----------------------------------------------------------------------------- Balance, December 31, 1997 $500,000 $311,000 $811,000 =============================================================================
TABLE 12. ANALYSIS OF INTEREST INCOME (EXPENSE) FROM INTEREST RATE CONTRACTS ======================================================================= Option Year Ended December 31, 1997 Based Generic (in thousands) Instruments Swaps Total - ----------------------------------------------------------------------- Interest income $ - $1,960 $1,960 Amortization (568) - (568) - ----------------------------------------------------------------------- Net interest income $(568) $1,960 $1,392 =======================================================================
FIRST COMMERCE CORPORATION CONSOLIDATED STATEMENTS OF INCOME
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 (First NBC), 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 and investments made by FCC's venture capital unit 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 separate components 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 their immaterial effect on the financial statements. Annual credit card fees are recognized on a straight-line basis over the related twelve-month period. Securitized loans that qualify for sale accounting treatment are removed from the balance sheet. Securitization revenue represents the net effect of interest income, provision for loan losses, credit card fee income, gains from sales and funding costs for the securitized loans.
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.
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 includes 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 hedge against interest rate risk by reducing either cash flow or market value risk on specific assets and liabilities and are accounted for using the hedge accounting method. 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. Any interest rate contracts not qualifying for deferral accounting are recorded at fair value. Any changes in the fair value or gains and losses from early termination of interest rate contracts are recognized in other income. The derivative portfolio's performance is evaluated by management on a continuous basis through the use of an effectiveness report. Each derivative's objective is regularly compared to its actual performance so that management can assess the effectiveness of FCC's interest rate risk strategies.
Earnings Per Common Share Earnings per common share is calculated under the Treasury Stock Method. Basic earnings per share (eps) is computed by dividing income applicable to common shares(net income less preferred stock dividends) by the weighted average number of common shares outstanding during the period. Diluted eps is computed using average common shares outstanding plus dilutive potential common shares outstanding during the period. Dilutive potential common shares include shares issuable under stock options, convertible debentures and convertible preferred stock. Income for diluted eps is adjusted for interest expense related to the convertible 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.
NOTE 2 BANC ONE Merger
On October 20, 1997, BANC ONE CORPORATION (BANC ONE) and FCC entered into an agreement and plan of merger (the Merger Agreement), pursuant to which FCC will be merged with a wholly owned subsidiary BANC ONE (the Merger). In accordance with the terms of the Merger Agreement, each share of FCC common stock (FCC Common Stock) outstanding immediately prior to the effective time of the Merger (the Effective Time) will be converted into the right to receive 1.28 shares (the Exchange Ratio) of BANC ONE common stock (BANC ONE Common Stock). The Merger Agreement provides for appropriate adjustments to the Exchange Ratio and other factors used to determine or limit the exchange rate in the event of a BANC ONE stock dividend or stock split. Each holder of FCC Common Stock who would otherwise be entitled to receive a fractional share of BANC ONE Common Stock (after taking into account all of a shareholder's certificates) will receive cash, in lieu thereof, without interest. The Merger Agreement may be terminated by FCC by giving notice to BANC ONE if (x) both (i) the average closing price of BANC ONE Common Stock for the five full trading days ending two business days before the closing date set for the merger (the Average Closing Price) is less than $49.67 and (ii) the number obtained by dividing the Average Closing Price by $55.19 (the closing price of BANC ONE Common Stock on October 17, 1997) is less than the number obtained by (a) dividing the average of the closing prices of a specified index of bank stocks during the above-mentioned five-day period by the closing price of such index on October 17, 1997 and (b) subtracting 0.10; or (y) the Average Closing Price is less than $47.46. If FCC seeks to terminate the Merger Agreement pursuant to the conditions set forth in the preceding sentence, BANC ONE may determine, in its sole discretion, to increase the Exchange Ratio to eliminate FCC's right to terminate the Merger Agreement. The Merger is intended to constitute a reorganization under Section 368(a) of the Internal Revenue Code of 1986 (tax-free exchange), as amended, and to be accounted for as a pooling-of-interests. In addition, the Merger Agreement contemplates that each stock option or other right to purchase a share of FCC Common Stock under the stock option and other stock-based compensation plans of FCC (each an FCC Plan), will be converted into and become a right to purchase 1.28 shares of BANC ONE Common Stock in accordance with the terms of the FCC Plan and the FCC option or right agreement by which it is evidenced. Consummation of the Merger is subject to various conditions, including: (i) receipt of the requisite approval by the shareholders of FCC; (ii) receipt of requisite regulatory approvals from the Board of Governors of the Federal Reserve System and other federal and state regulatory authorities; (iii) receipt of opinions as to the tax and accounting treatment of certain aspects of the Merger; (iv) listing, subject to notice of issuance, of the BANC ONE Common Stock to be issued in the Merger; and (v) satisfaction of certain other conditions. In connection with the Merger Agreement, BANC ONE and FCC entered into a stock option agreement dated October 20, 1997 (the Stock Option Agreement), pursuant to which FCC granted to BANC ONE an option to purchase, under certain circumstances, up to 9,689,000 shares of FCC Common Stock at a price, subject to certain adjustments, of $64.00 per share (the Option). The Option is exercisable upon the occurrence of certain events, and, if exercised, would give the holder thereof the right to acquire, after giving effect to the exercise of the Option, 19.9% of the total number of shares of FCC Common Stock outstanding. The Option Agreement was granted by FCC as a condition and inducement to BANC ONE's willingness to enter into the Merger Agreement. The Merger with BANC ONE is expected to be consummated during the second quarter of 1998.
NOTE 3 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.
NOTE 4 Restrictions on Cash and Due from Banks
The Banks are required to maintain average reserve balances with the Federal Reserve Bank based on a percentage of deposits. Average balances maintained for such purposes were $27.4 million and $42.0 million during 1997 and 1996, respectively.
NOTE 5 Securities Available for Sale
An analysis of securities available for sale follows (in thousands):
Amortized Unrealized Unrealized Fair Cost Gains (Losses) Value ============================================================================== December 31, 1997 - ------------------------------------------------------------------------------ U. S. Treasury securities $1,025,071 $20,452 $ - $1,045,523 U. S. agency mortgage-backed securities 964,260 4,599 (3,347) 965,512 States and political subdivisions 78,368 10,146 (9) 88,505 Other debt securities 96,139 28 (59) 96,108 Equity securities 26,807 19,946 - 46,753 - ------------------------------------------------------------------------------ Total securities available for sale $2,190,645 $55,171 $(3,415) $2,242,401 ============================================================================== 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 ==============================================================================
The amortized cost and fair value of securities available for sale by maturity are shown below (in thousands):
Amortized Fair Cost Value ======================================================= December 31, 1997 - ------------------------------------------------------- Within one year $ 177,859 $ 178,247 One to five years 1,025,491 1,040,312 Five to ten years 428,955 438,742 After ten years 558,340 585,100 - ------------------------------------------------------- Total securities available for sale $2,190,645 $2,242,401 ======================================================= 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 $8.2 million and $1.7 million and gross losses of $675,000 and $1.5 million were realized on sales and calls of securities available for sale in 1997 and 1996, respectively. Securities with carrying values of $1.4 billion and $1.6 billion at December 31, 1997 and 1996, respectively, were pledged to secure public and trust deposits, and for other purposes.
NOTE 6 Loans
The composition of loans follows (in thousands):
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 1997 follows (in thousands):
==================================================================== ==================================================================== Beginning balance $164,169 Additions 561,376 Repayments (512,314) Net decrease due to change in related parties (72,833) - -------------------------------------------------------------------- Ending balance $140,398 ====================================================================
On August 7, 1997, FCC's subsidiary bank, First National Bank of Commerce (First NBC), issued $300 million of credit card securities which were backed by the cash flows from credit card receivables. The offering was through a trust called First NBC Credit Card Master Trust and was part of a $750 million shelf registration for credit card securities. First NBC retained the servicing and customer relationships of the underlying credit card accounts. The offering included a publicly offered $259.5 million series 1997-1, Class A certificates with a coupon of 6.15% and an expected maturity of August, 2002 and $21 million of Series 1997-1, Class B certificates with a coupon of 6.35% and an expected maturity of September, 2002. Series 1997-1 also included a privately funded $19.5 million collateral interest, which was subordinated to the Class A and Class B certificates. This offering was accounted for as a sale under the criteria established by SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". The ongoing accounting effect of securitization is to reduce net interest income and the provision for loan losses while increasing noninterest income. Included in 1997's noninterest income was $9.2 million of securitization revenue. Securitization revenue represents the net effect of the securitized credit card receivables' interest income, provision for loan losses, credit card fee income, gains on sales and funding costs. For 1997, the securitization increased net income $2.5 million, or $.06 per diluted share.
NOTE 7 Allowance for Loan Losses
A summary analysis of changes in the allowance for loan losses follows (in thousands):
NOTE 8 Nonperforming Loans and Foreclosed Assets
The following is a summary of nonperforming loans and foreclosed assets (in thousands):
December 31 ============================================================================== 1997 1996 - ------------------------------------------------------------------------------ Nonaccrual loans $35,997 $27,255 Foreclosed assets Other real estate $ 3,045 $ 4,494 Other foreclosed assets 826 868 Allowance for losses on foreclosed assets (317) (762) - ------------------------------------------------------------------------------ Total foreclosed assets $ 3,554 $ 4,600 ==============================================================================
The amount of interest income that would have been recorded on nonperforming loans if they had been classified as performing was $3.9 million in 1997, $3.2 million in 1996 and $6.5 million in 1995. Interest income recognized on nonperforming loans was $982,000, $883,000 and $3.1 million for 1997, 1996 and 1995, respectively. Additionally, interest of $2.4 million was recovered on loans previously on nonaccrual, but not on nonaccrual status in 1997. The activity in the allowance for losses on foreclosed assets was as follows (in thousands):
============================================================================== 1997 1996 1995 - ------------------------------------------------------------------------------ Allowance for foreclosed assets at beginning of year $762 $733 $3,898 Provision for losses on foreclosed assets 70 425 538 Sales and dispositions (515) (396) (3,703) - ------------------------------------------------------------------------------ Net change (445) 29 (3,165) - ------------------------------------------------------------------------------ Allowance for foreclosed assets at end of year $317 $762 $ 733 ==============================================================================
Loans considered to be impaired totaled $29.3 million and $23.5 million as of December 31, 1997 and 1996, respectively. Of these totals, $9.6 million and $9.7 million required a total impairment allowance of $3.2 million and $2.8 million, respectively. Impaired loans averaged $26.2 million during 1997 and $31.4 million during 1996. Interest income recognized on impaired loans was $712,000 for 1997, $722,000 for 1996 and $3.0 million for 1995.
NOTE 9 Premises and Equipment
An analysis of premises and equipment by asset classification follows (in thousands):
December 31 =========================================================================== 1997 1996 - --------------------------------------------------------------------------- Land $ 25,682 $ 27,191 Buildings 105,888 105,423 Leasehold improvements 31,589 32,117 Furniture, fixtures and equipment 191,079 175,246 Capitalized leased equipment 404 404 Construction in progress 964 6,622 - --------------------------------------------------------------------------- 355,606 347,003 Accumulated depreciation and amortization (199,205) (176,572) - --------------------------------------------------------------------------- $156,401 $170,431 ===========================================================================
At December 31, 1997, 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 sub-lease rentals, was $7.5 million, $6.1 million and $7.5 million for 1997, 1996 and 1995 respectively. As of December 31, 1997, the future minimum rentals under noncancelable operating leases having an initial lease term in excess of one year were as follows (in thousands): ================================================================== 1998 $ 8,788 1999 8,292 2000 7,674 2001 7,513 2002 5,635 Later years 40,351 - ------------------------------------------------------------------ $78,253 ==================================================================
NOTE 10 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 16 days at December 31, 1997. 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 had maturities of up to 14 days at December 31, 1997. An analysis of short-term borrowings follows (in thousands):
December 31 ========================================================================== 1997 1996 - -------------------------------------------------------------------------- Federal funds purchased $142,429 $168,821 Securities sold under agreements to repurchase 184,360 429,411 Other short-term borrowings 40,126 346,591 - -------------------------------------------------------------------------- Total $366,915 $944,823 ==========================================================================
Information regarding federal funds purchased follows (dollars in thousands): ========================================================================== 1997 1996 - -------------------------------------------------------------------------- Average interest rate on December 31 5.50% 6.25% - -------------------------------------------------------------------------- Average for the year Interest rate 5.48% 5.84% Balance $218,137 $247,597 - -------------------------------------------------------------------------- Maximum month-end outstanding $297,069 $402,917 ==========================================================================
Information regarding repos follows (dollars in thousands):
========================================================================== 1997 1996 - -------------------------------------------------------------------------- Average interest rate on December 31 5.11% 5.51% - -------------------------------------------------------------------------- Average for the year Interest rate 4.91% 4.95% Balance $237,513 $296,969 - -------------------------------------------------------------------------- Maximum month-end outstanding $343,742 $429,411 ==========================================================================
FCC maintains lines of credit with several large banks, totaling $45 million at December 31, 1997, to support the issuance of commercial paper and pays fees to maintain these lines. No lines of credit were in use at December 31, 1997, 1996 or 1995.
NOTE 11 Long-Term Debt
Total long-term debt consisted of (in thousands):
December 31 =========================================================================== 1997 1996 - --------------------------------------------------------------------------- Parent 12 3/4% convertible debentures, due in December 2000; unsecured (a) Series A $ 26,824 $ 26,824 Series B 53,647 53,647 - --------------------------------------------------------------------------- 80,471 80,471 - --------------------------------------------------------------------------- Subsidiaries Bank notes (b) 310,122 - Obligations under capitalized leases, due in installments through August 2003 225 252 - --------------------------------------------------------------------------- Total long-term debt $390,818 $ 80,723 =========================================================================== (a) At December 31, 1997, approximately $13.1 million was held by directors and executive officers of FCC. (b) These bank notes have stated rates ranging from 5.65% to 6.60%, have effective rates ranging from 5.45% to 6.58%, and mature between February 1998 and July 2002.
Annual principal repayment requirements for the years 1998 through 2002 are as follows (in thousands):
Parent Subsidiaries Total =========================================================================== 1998 $ - $ 56,030 $ 56,030 - --------------------------------------------------------------------------- 1999 - 34 34 - --------------------------------------------------------------------------- 2000 80,471 253,659 334,130 - --------------------------------------------------------------------------- 2001 - 42 42 - --------------------------------------------------------------------------- 2002 - 547 547 =========================================================================== 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.
NOTE 12 Employee Benefit Plans
Retirement Plan - FCC maintains a defined benefit pension plan covering substantially all employees who have attained age 21 and completed one year of employment. Benefits are based on years of service and 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 ======================================================================= 1997 1996 - ----------------------------------------------------------------------- Projected benefit obligation Vested benefits $ (83,396) $ (74,198) Nonvested benefits (2,132) (1,340) - ----------------------------------------------------------------------- Accumulated benefit obligation (85,528) (75,538) Effect of projected future compensation levels (27,189) (25,661) - ----------------------------------------------------------------------- Projected benefit obligation (112,717) (101,199) Plan assets at fair value 101,419 88,612 - ----------------------------------------------------------------------- Projected benefit obligation in excess of plan assets (11,298) (12,587) Unrecognized net (gain) loss due to past experience different from assumptions made (5,516) 2,304 Unrecognized prior service cost 931 425 Unrecognized net transition assets being recognized over 15 years (2,438) (3,192) - ----------------------------------------------------------------------- Unfunded accrued pension cost included in other accrued liabilities $ (18,321) $ (13,050) =======================================================================
The plans' assets at December 31, 1997 consisted primarily of U. S. government securities, corporate bonds and common stocks. Net periodic pension cost included the following components (in thousands):
Years Ended December 31 ============================================================================== 1997 1996 1995 - ------------------------------------------------------------------------------ Service cost-benefits earned during the period $5,255 $4,453 $3,591 Interest cost on projected benefit obligation 7,158 6,626 5,946 Return on plan assets (16,685) (7,444) (14,383) Other components, net 9,226 309 8,056 - ------------------------------------------------------------------------------ Net periodic pension cost $4,954 $3,944 $3,210 ==============================================================================
In determining the plans' funded status, the weighted average discount rate assumed was 7% at December 31, 1997 and December 31, 1996, and 6.5% at December 31, 1995. The rate of increase in future salary levels was 5% in 1997 and 1996, and 5.5% in 1995. The expected long-term rate of return on assets was 8% in 1997, 1996 and 1995. Tax-Deferred Savings Plan - Substantially all of FCC's full-time employees are covered under a tax-deferred savings plan. Employees may voluntary 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 $2.4 million, $2.2 million and $2.4 million in 1997, 1996 and 1995, 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 and $800,000 in 1996 and 1995, respectively. Postretirement and Postemployment Benefits - FCC provides medical and life insurance coverage for specified groups of employees who retired in prior years. Postemployment benefits have also been provided to specified groups of former or inactive employees subsequent to their employment but before retirement. Given the current structure of FCC's postretirement and postemployment benefit programs, these programs do not have a material impact on the financial condition or results of operations of FCC.
NOTE 13 Stock-Based Incentive Compensation Plans
FCC has stock-based incentive plans which are accounted for under Accounting Practice Bulletin No. 25 (APB 25) and related Interpretations. In 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation" which is effective for fiscal years beginning after December 15, 1995. Under SFAS No. 123, FCC may elect to recognize stock-based compensation expense based on the fair value of the awards or continue to account for stock-based compensation under APB 25. FCC has elected to continue to apply the provisions of APB 25; however, pro forma disclosures are required as if SFAS No. 123 had been adopted. FCC's stock incentive plans permit the granting of stock options, stock appreciation rights (SARs), stock awards, restricted stock, phantom 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 terms of each grant and when it becomes exercisable. The stock options expire eight years from the date of grant. Stock options have a four-year vesting schedule with 25% of the stock options becoming exercisable each year. Stock options and SARs may not be exercised during the six-month period immediately following the date of the grant. 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. On April 21, 1997, FCC's shareholders approved the FCC 1997 Stock Option Plan (the "Option Plan"). Under the Option Plan, all outstanding SARs were canceled and replaced with stock options with equivalent terms. On April 25, 1997, each SAR was exchanged for one newly-issued stock option to purchase one share of FCC's common stock. The options issued in exchange for SARs totaled 988,168. FCC's closing stock price on April 25, 1997 was $39.63. Fixed option expense of $825,000 related to the newly-issued options was recorded in 1997. Compensation expense was recognized in connection with SARs based on the fair value of the stock and was $1.7 million, $7.3 million and $3.0 million in 1997, 1996 and 1995, respectively. The following table summarizes the activity related to stock options and SARs: =============================================================================== Weighted Weighted Number of Average Average Stock Exercise Number of Exercise Options Price SARs Price =============================================================================== 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 Granted 254,633 $40.13 - $ - Converted 988,168 $27.00 (988,168) $27.00 Exercised (414,874) $23.62 (73,747) $26.85 Forfeited (51,785) $31.16 (23,947) $27.02 - ------------------------------------------------------------------------------- Outstanding at December 31, 1997 1,678,490 $29.15 - $ - ===============================================================================
Stock options exercisable at December 31, 1997, 1996 and 1995, respectively, were 637,195, 387,568 and 296,699 with weighted average exercise prices of $25.76, $20.00 and $16.28, respectively. The following table summarizes information about the stock options outstanding and exercisable at December 31, 1997: ============================================================================ 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 58,375 0.80 $10.86 58,375 $10.86 $20.00 - $24.99 51,701 2.13 $21.07 51,701 $21.07 $25.00 - $29.99 969,897 4.87 $26.58 429,416 $26.78 $30.00 - $34.99 348,890 6.03 $32.74 95,609 $32.52 $35.00 - $39.99 3,200 6.53 $35.00 800 $35.00 $40.00 - $44.99 246,427 7.06 $40.13 1,294 $40.13 ============================================================================
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 $6.0 million, $1.9 million and ($111,000) in compensation expense related to restricted shares in 1997, 1996 and 1995, respectively. The weighted average grant-date fair value of restricted stock granted during 1997, 1996 and 1995 was $40.13, $33.78 and $26.28, respectively. A summary of changes in restricted stock follows: ===================================================== Number of Shares - ----------------------------------------------------- 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 Granted 97,947 Forfeited (10,284) Earned and issued unrestricted (20,541) - ----------------------------------------------------- Outstanding at December 31, 1997 207,795 =====================================================
Performance shares were granted in conjunction with the 1997, 1996 and 1995 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. Compensation expense recognized in 1997 related to the 1995 grant of performance shares was $663,000. No compensation expense was recorded in 1996 or 1995 related to performance shares. In the event of a change in control of FCC, all outstanding options become exercisable immediately, the restrictions on all shares of restricted stock lapse immediately, and all performance shares are earned immediately. The consummation of the Merger Agreement described in Note 2 will constitute such a change in control. Under SFAS No. 123, the fair value of each stock option granted is estimated on the date of grant using an option-pricing model. Excluding the options issued in 1997 in exchange for SARs, the following weighted average assumptions were used for stock option grants in 1997, 1996 and 1995, respectively: dividend yields of 4.48%, 4.36% and 5.09%; expected volatility of 20.57%, 24.28% and 27.42%; risk-free interest rates of 6.51%, 6.32% and 6.68%; and expected lives of eight years. Based on the above assumptions, the weighted average grant-date fair value of options granted during 1997, 1996 and 1995, respectively, was $8.20, $7.87 and $6.46. For the options issued in exchange for SARs, the following weighted average assumptions were used: dividend yield of 4.48%, expected volatility of 19.60%, risk-free interest rate of 6.84% and remaining life of six years. The weighted average exercise price was $27.42 and based on the above assumptions, the weighted average grant-date fair value of the converted SARs was $12.39. Had the compensation cost for FCC's stock-based incentive plans been determined in accordance with the fair value based accounting method provided by SFAS No. 123, net income and earnings per share (eps) for the years ended December 31, 1997, 1996 and 1995 would have been as follows:
============================================================================== 1997 1996 1995 - ------------------------------------------------------------------------------ Net income (thousands) As reported $125,613 $118,438 $75,951 Pro forma $127,284 $118,035 $75,613 - ------------------------------------------------------------------------------ Basic eps As reported $3.24 $3.02 $1.89 Pro forma $3.28 $3.01 $1.88 - ------------------------------------------------------------------------------ Diluted eps As reported $3.10 $2.89 $1.87 Pro forma $3.13 $2.88 $1.86 ==============================================================================
Due to the inclusion of only 1995, 1996 and 1997 option grants, the effect of applying SFAS No. 123 to the years presented may not be representative of the pro forma impact in future years.
NOTE 14 Earnings Per Share
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share" which became effective for financial statements issued for periods ending after December 15, 1997. SFAS No. 128 establishes standards for computing and presenting earnings per share (eps). Under SFAS No. 128, primary eps is replaced with basic eps. Basic eps is computed by dividing income applicable to common shares by weighted average shares outstanding; no dilution for any potentially convertible shares is included in the calculation. Fully diluted eps, now called diluted eps, is still required; however, when applying the treasury stock method, the average stock price is used rather than the greater of the average or closing stock price for the period. Prior period earnings per share information has been restated in accordance with SFAS No. 128. The basic and diluted earnings per share computations for net income follow (dollars in thousands except eps):
NOTE 15 Stockholders' Equity In connection with the execution of the Merger Agreement and the Option Agreement with BANC ONE CORPORATION, FCC amended its Rights Agreement, dated as of February 27, 1996 (as amended, the Rights Agreement), between FCC and First Chicago Trust Company of New York, as rights agent, to provide that the agreements entered into in connection with the Merger with BANC ONE would not trigger the rights issued under the Rights Agreement. The Rights Agreement established 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 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.
NOTE 16 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 4%, 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, 1997 and 1996, each of FCC's Banks was categorized as well-capitalized, and there have been no events since year- end 1997 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):
NOTE 17 Dividend and Loan Restrictions
The primary source of funds for the dividends paid by FCC to its stockholders is dividends from the Banks. The payment of dividends by national banks is regulated by the Comptroller of the Currency. The payment of dividends by state banks in Louisiana that are members of the Federal Reserve system is regulated by the Louisiana Commissioner of Financial Institutions and the Federal Reserve Board. The amount of retained earnings that could be paid to FCC after December 31, 1997 without prior regulatory approval was $51.0 million plus an amount equal to the Banks' net income for 1998. 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 18 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. FCC utilized these instruments to meet the financing needs of its customers, to reduce funding requirements, 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, foreign exchange contracts and securitized credit card receivables. 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, First NBC has the right to change or terminate any terms or conditions of the credit card accounts at any time. Such 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.
FCC enters into interest rate contracts with the objective of partially insulating net interest income from changes in interest rates. Primary among the financial instruments used are swaps and floors. The notional amounts in 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. Interest rate 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. Securitized credit card receivables represent the principal balance of credit card loans securitized and sold. FCC's exposure to losses under the recourse provisions of its credit card securitization is contractually limited to future excess spread revenue. At December 31, 1997, FCC reported $6.9 million of future excess spread revenue in other assets. A summary of off-balance sheet financial instruments follows (in thousands):
December 31 ============================================================================= 1997 1996 - ----------------------------------------------------------------------------- Commitments to extend credit for loans and leases (excluding credit card plans) $1,772,015 $1,636,245 Commitments to extend credit for credit card plans $3,587,465 $3,098,103 Commercial letters of credit $ 980 $ 1,127 Financial letters of credit $ 104,355 $ 99,192 Performance letters of credit $ 4,874 $ 15,513 Foreign exchange contracts Commitments to purchase $ 3,196 $ 5,734 Commitments to sell $ 3,204 $ 5,743 Securities lent $ 293,631 $ - Forward commitments to sell mortgages $ 259 $ 1,098 When-issued securities Commitments to purchase $ 1,400 $ 200 Commitments to sell $ 1,220 $ 200 Interest rate contracts (a) Interest rate floors $ 500,000 $ 500,000 Generic and callable swaps $ 311,000 $ 130,000 Securitized credit card receivables $ 300,000 $ - ============================================================================= (a) Notional principal amounts.
NOTE 19 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 value 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, 1997 and 1996 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 bank notes was estimated using a present value of contractual cash flows with a discount rate approximating current market rates for notes with similar remaining maturities. The value of convertible debentures was estimated from dealer quotes. Off-balance sheet financial instruments - The fair values of interest rate contracts were obtained from dealer quotes. These values represent the estimated amount that FCC would receive or pay to terminate the contracts, taking into account current interest rates and, when appropriate, the current creditworthiness of the counterparties. The fair values of other off-balance sheet financial instruments are not material. The estimated fair values of FCC's financial instruments follows (in thousands):
NOTE 20 Contingencies
FCC and its subsidiaries have been named as defendants in various legal actions arising from normal business activities in which damages in various amounts are claimed. The amount, if any, of ultimate liability with respect to such matters cannot be determined. However, after consulting with legal counsel, management believes any such liability will not have a material effect on FCC's consolidated financial condition or results of operations.
NOTE 21 Other Operating Expense
The composition of other operating expense follows (in thousands):
Years Ended December 31 ==================================================================== 1997 1996 1995 - -------------------------------------------------------------------- Data processing services $10,988 $9,689 $12,745 Taxes, licenses and other fees 10,411 8,717 8,339 Stationery and supplies 9,729 10,487 10,540 Credit card expense 7,677 7,036 5,036 Travel and entertainment 3,972 3,881 3,901 Miscellaneous net losses 3,320 1,675 7,504 Nonperforming assets expense 1,252 1,652 1,053 Other 3,662 1,373 5,729 - -------------------------------------------------------------------- Total $51,011 $44,510 $54,847 ====================================================================
NOTE 22 Income Taxes
The components of income tax expense in the consolidated statements of income for the years ended December 31, 1997, 1996 and 1995 were as follows (in thousands): ============================================================================ 1997 1996 1995 - ---------------------------------------------------------------------------- Current $64,816 $63,495 $48,579 Deferred (3,436) (4,485) (9,124) - ---------------------------------------------------------------------------- Total $61,380 $59,010 $39,455 ============================================================================
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 $2,626,000 in 1997, $56,000 in 1996 and $(3,995,000) in 1995. 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 ============================================================================== 1997 1996 1995 - ------------------------------------------------------------------------------ Federal income tax expense 35.00% 35.00% 35.00% Increase (decrease) resulting from Benefits attributable to tax-exempt interest (2.45) (2.03) (3.26) Nondeductible expenses .73 .77 2.40 Other items, net (.46) (.49) .05 - ------------------------------------------------------------------------------ Actual income tax expense 32.82% 33.25% 34.19% ==============================================================================
FCC had a current income tax receivable of $3.5 million on December 31, 1997 and a current income tax payable of $5.9 million on December 31, 1996. Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. There were net deferred tax assets of $14.2 million and $16.4 million on December 31, 1997 and 1996, respectively. The major temporary differences which created deferred tax assets and liabilities are as follows (in thousands):
NOTE 23 Condensed Parent Company Only--Financial Information
Condensed Balance Sheets (in thousands) December 31 ====================================================================== 1997 1996 - ---------------------------------------------------------------------- ASSETS Interest-bearing deposits in subsidiary banks (a) Cash and due from banks $106,483 $ 95,749 Time deposits 2 2 Investments in subsidiaries at equity (a) Banks 762,358 702,640 Nonbanks 17,998 9,223 - ---------------------------------------------------------------------- 780,356 711,863 Other assets 34,550 26,926 - ---------------------------------------------------------------------- Total assets $921,391 $834,540 ====================================================================== LIABILITIES Payables to subsidiaries (a) $ 1,104 $ - Long-term debt 80,471 80,471 Other liabilities 18,836 30,394 - ---------------------------------------------------------------------- Total liabilities 100,411 110,865 STOCKHOLDERS' EQUITY 820,980 723,675 - ---------------------------------------------------------------------- Total liabilities and stockholders' equity $921,391 $834,540 ====================================================================== (a) Eliminated in consolidation, except for goodwill and other intangibles.
Condensed Statements of Income (in thousands) Years Ended December 31 =============================================================================== 1997 1996 1995 - ------------------------------------------------------------------------------- INCOME Interest and dividends on securities $ 456 $ 393 $ 354 Interest on receivables from subsidiaries (a) 4,839 3,527 5,513 Other income 234 29 23 Dividends from subsidiaries (a) Banks 68,388 136,639 46,861 Nonbanks - 2,000 - - ------------------------------------------------------------------------------- 73,917 142,588 52,751 - ------------------------------------------------------------------------------- EXPENSES Interest on debt to nonbank subsidiaries 98 31 79 Interest on debt to nonaffiliates 10,260 10,207 10,625 Other 3,947 11,992 7,621 - ------------------------------------------------------------------------------- 14,305 22,230 18,325 - ------------------------------------------------------------------------------- Income before income taxes and equity in undistributed earnings of subsidiaries 59,612 120,358 34,426 Income tax benefit (2,818) (6,465) (3,954) - ------------------------------------------------------------------------------- 62,430 126,823 38,380 Equity in undistributed earnings of subsidiaries (a) Banks 55,765 (5,728) 43,130 Nonbanks 7,418 (2,657) (5,559) - ------------------------------------------------------------------------------- NET INCOME 125,613 118,438 75,951 PREFERRED DIVIDEND REQUIREMENTS - 2,116 4,325 - ------------------------------------------------------------------------------- INCOME APPLICABLE TO COMMON SHARES $125,613 $116,322 $71,626 =============================================================================== (a) Eliminated in consolidation.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The management of First Commerce Corporation is responsible for the preparation of the financial statements, related financial data and other information in this annual report. The financial statements are prepared in accordance with generally accepted accounting principles and include some amounts that are necessarily based on management's informed estimates and judgments, 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 audited by Arthur Andersen LLP, independent public accountants, who render an independent professional opinion on the financial statements prepared by management. Their appointment was recommended by the Audit Committee and approved by the Board of Directors.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of First Commerce Corporation:
We have audited the consolidated balance sheets of FIRST COMMERCE CORPORATION (a Louisiana corporation) and subsidiaries as of December 31, 1997 and 1996 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, 1997. 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, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP
New Orleans, Louisiana January 13, 1998
SELECTED QUARTERLY DATA
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not Applicable
PART III
Item 10 Directors and Executive Officers of the Registrant
The names, ages and positions of FCC's directors and executive officers are listed below along with their business experience during the past five years.
Ian Arnof, 58 President and Chief Executive Officer of FCC Director of FCC since 1983
James J. Bailey III, 56 Managing Partner, Bailey Family Investments (real estate development and management); director, United Companies Financial Corporation Director of FCC since 1985
John W. Barton, 81 Private investments Director of FCC since 1985
Sydney J. Besthoff III, 70 Property management and family interests(1) Director of FCC since 1992
Robert H. Bolton, 89(2) Senior Chairman of the Board, RBT Director of FCC since 1986
R. Jeffrey Brooks, 49 Executive Vice President of FCC since 1993; Director of Consumer Products since 1997; Director of Card Services of FCC from 1994 to 1996; Director of Strategic Support of FCC from 1993 to 1994
Thomas L. Callicutt, Jr., 51 Executive Vice President of FCC since 1996, Senior Vice President, Controller and Principal Accounting Officer of FCC since 1987
Robert C. Cudd III, 61 Private investments Director of FCC since 1995
Frances B. Davis, 69(2) Private investments Director of FCC since 1986
Laurance Eustis, Jr., 84 Advisory Chairman and Consultant, Eustis Insurance, Inc.; director, International Shipholding Corporation and Pan American Life Insurance Company Director of FCC since 1983
Michael A. Flick, 49 Executive Vice President of FCC since 1985; Chief Administrative Officer of FCC since 1994; Chief Credit Policy Officer of FCC from 1985 to 1994; Secretary of FCC since 1987
William P. Fuller, 71 President, Fuller Farms, Inc. Director of FCC since 1978
Howard C. Gaines, 58 Executive Vice President of FCC since 1995; Chairman of the Board of Directors of First NBC since 1988; Chief Executive Officer of First NBC from 1988 to 1994
Arthur Hollins III, 67 Chairman of the Board, President and Chief Executive Officer, FNBLC; director, Calcasieu Real Estate & Oil Co., Inc. Director of FCC since 1985
F. Ben James, Jr., 62 President, James Investments, Inc. (real estate development and private investments); director, Central Louisiana Electric Co., Inc. Director of FCC since 1973
Erik F. Johnsen, 72 President and director of International Shipholding Corporation (ocean shipping) Director of FCC since 1983
J. Merrick Jones, Jr., 63 Chairman of the Board, Canal Barge Company, Inc. (river transportation)(3) Director of FCC since 1983
Kimberly Y. Lee, 37 Executive Vice President and Chief Internal Auditor of FCC since 1994; Senior Vice President and Manager of Audit and Credit Review from 1992 to 1994
Edwin Lupberger, 61 Chairman of the Board, President and Chief Executive Officer, Entergy Corporation (electric utility holding company); director, International Shipholding Corporation Director of FCC since 1992
Mary Chavanne Martin, 47 Private investments Director of FCC since 1995
Hugh G. McDonald, Jr., 59 President, Hugh G. McDonald, Jr. Corporation (petroleum engineering consultants) Director of FCC since 1995
Saul A. Mintz, 66 Chairman of the Board, Sunbelt Plastics, and various real estate, distribution and investment corporations known collectively as Strauss Interests Director of FCC since 1995
Hermann Moyse, Jr., 76 Chairman of the Board, FCC; Chairman Emeritus, CNB; director, Pan American Life Insurance Company(4) Director of FCC since 1985
O. Miles Pollard, Jr., 60 Private investments; director, United Companies Financial Corporation Director of FCC since 1988
G. Frank Purvis, Jr., 83 Chairman of the Board, Pan-American Life Insurance Company Director of FCC since 1975
William W. Rucks III, 67 Chairman of the Board, FNBL; Independent Petroleum Landman Director of FCC since 1997
Ashton J. Ryan, Jr., 50 Senior Executive Vice President of FCC since 1993; President of First NBC since 1991; Chief Executive Officer of First NBC since 1994; Chief Operating Officer of First NBC from 1991 to 1994
Tom H. Scott, 87 Chairman and Chief Executive Officer, Scott Truck and Tractor Company of Louisiana, Inc. Director of FCC since 1995
Edward M. Simmons, 69 Chairman and Chief Executive Officer, The McIlhenny Co. (producer of Tabasco brand food products)(5); director, Pan American Life Insurance Company, Piccadilly Cafeterias, Inc. and Central Louisiana Electric Co., Inc. Director of FCC since 1981
H. Leighton Steward, 63 Vice Chairman of the Board, Burlington Resources (Burlington Resources acquired The Louisiana Land and Exploration Company in 1997)(6) Director of FCC since 1992
E. Graham Thompson, 61 Executive Vice President and Chief Credit Policy Officer of FCC since 1994; President and Chief Executive Officer of FNBL from 1992 to
Robert A. Weigle, 51 President, David C. Blintiff & Co., Inc. (investments) Director of FCC since 1988
Joseph V. Wilson III, 48 Senior Executive Vice President of FCC since 1993
(1) Mr. Besthoff was Chairman of the Board of K & B, Incorporated (retail drug stores) for more than five years prior to 1997. (2) Mr. Bolton is Mrs. Davis' uncle. (3) Mr. Jones was President of Canal Barge Company, Inc. for more than five years prior to January 1995. (4) Mr. Moyse was Chairman of the Board of City National Bank of Baton Rouge for more than five years prior to December 1994. (5) Mr. Simmons was President and Chief Executive Officer of McIlhenny Co. for more than five years prior to June 1996. (6) Mr. Rucks was Chairman of the Board, Chief Executive Officer and President of The Louisiana Land and Exploration Company (oil and gas exploration and production) for more than five years prior to October 1997.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange act of 1934 requires FCC's directors, executive officers and 10% shareholders to file with the Securities Exchange Commission reports of ownership and changes in ownership of equity securities of FCC. During 1997, all such reports were timely filed, except for one report which was filed late by Mr. Simmons.
Item 11 Executive Compensation
Summary of Executive Compensation
The following table summarizes, for each of the three years in the three-year period ended December 31,1997, the compensation of FCC's Chief Executive Officer and each of the four most highly compensated executive officers in all the capacities in which they served:
1997 Stock Option Grants
The following table contains information concerning the grant of stock options to the Named Executive Officers during 1997:
(1) The exercise price represents the fair market value of FCC Common Stock on the date of the grant. The options are not exercisable for one year from the date of grant and become exercisable thereafter in 25% increments each year, unless the Compensation Committee, in its discretion, elects to accelerate the exercisability. In addition, all outstanding options will become immediately exercisable upon the occurrence of a Significant Transaction. The consummation of the Merger Agreement described in Note 2 will constitute a Significant Transaction.
1997 Long Term Incentive Plan Awards
The following table contains information concerning the grant of restricted stock and performance shares under FCC's 1992 Stock Incentive Plan to the Named Executive Officers during 1997:
(1) No shares of restricted stock will vest and no performance shares will be earned, except in the case of death, unless (i) the individual remains employed by FCC through December 31, 1999 on which the Compensation Committee has determined whether the performance goals have been met, and (ii) FCC's average percentile ranking of reported annual return on equity against the Keefe, Bruyette and Woods, Inc. Survey of other banks and bank holding companies (the KBW 50) for the three- year period ending December 31, 1999 (the Measurement Period) would rank higher than the 25th percentile. FCC's reported annual return on equity (which may be adjusted by the committee for Statement of Financial Accounting Standards (SFAS) No. 115 and/or other Board approved one-time transactions) will be ranked against the KBW 50 for each year of the Measurement Period. FCC's percentile ranking for each year will then be averaged for the three years of 1997, 1998 and 1999 to determine the payout percentage. Holders of restricted stock are entitled to all rights of a stockholder of FCC, including the right to vote the restricted shares and receive dividends and/or other distributions declared on the restricted stock. These rights are not applicable to the performance shares. Restrictions on the shares of restricted stock would lapse and the performance shares would be earned within the three- year period upon the occurrence of a Significant Transaction or on a pro rata basis in the event of death. The consummation of the Merger Agreement described in Note 2 will constitute a Significant Transaction.
Option Holdings
The following table sets forth information with respect to unexercised options held by the Named Executive Officers as of December 31, 1997:
AGGREGATED OPTION VALUES AS OF DECEMBER 31, 1997
Number of Shares Underlying Unexercised Value of Unexercised in-the- Options at Money Options at December 31,1997 December 31,1997(1) ======================================================== Name Exercisable Unexercisable Exercisable Unexercisable ---- ----------- ------------- ----------- -------------
Ian Arnof 75,828 72,107 $3,322,042 $2,495,493
Joseph V. Wilson III - 31,624 $ - $1,119,714
Ashton J. Ryan, Jr. - 33,024 $ - $1,177,114
Michael A. Flick 8,111 16,485 $ 323,838 $ 572,093
Howard C. Gaines - 16,785 $ - $ 584,018
(1) Reflects the difference between the closing market price of FCC Common Stock on December 31, 1997 and the exercise or base price of the options. The following table shows, for exercisable options, the value attributed to options outstanding for the number of years indicated:
Value Years ------- ----- Ian Arnof $881,329 8 $432,968 6 $828,986 4 $981,253 3 $197,506 2
Michael A. Flick $125,054 4 $175,562 3 $ 23,222 2
The following table sets forth information with respect to options exercised during 1997 by the Named Executive Officers:
Options Exercised In 1997
Number of Net Shares Exercised Value
Ian Arnof - $ - Joseph V. Wilson III 30,467 $1,200,212 Ashton J. Ryan, Jr. 28,713 $1,136,193 Michael A. Flick 18,379 $ 773,122 Howard C. Gaines 18,252 $ 839,423
Pension Plans
FCC has a qualified defined-benefit plan (the Retirement Plan) and a nonqualified Benefits Restoration Plan (the Restoration Plan), pursuant to which each participant, including each Named Executive Officer, who has completed at least five years of service is entitled to receive a monthly payment after retirement no earlier than at age 55. The following table sets forth the aggregate annual retirement benefits that a participant with the indicated years of service and compensation level may expect to receive under the Retirement Plan and the Restoration Plan assuming retirement at age 65. Annual retirement benefits beginning prior to age 65 would be reduced.
Pension Plans Table
- -------------------------------------------------------------------- Compensation 15 yrs. 20 yrs. 25 yrs. 30 yrs. 35 yrs. - -------------------------------------------------------------------- $ 550,000 $133,090 $177,453 $221,817 $266,180 $310,543 $ 600,000 $145,465 $193,953 $242,442 $290,930 $339,418 $ 650,000 $157,840 $210,453 $263,067 $315,680 $368,293 $ 700,000 $170,215 $226,953 $283,692 $340,430 $397,168 $ 750,000 $182,590 $243,453 $304,317 $365,180 $426,043 $ 800,000 $194,965 $259,953 $324,942 $389,930 $454,918 $ 850,000 $207,340 $276,453 $345,567 $414,680 $483,793 $ 900,000 $219,715 $292,953 $366,192 $439,430 $512,668 $ 950,000 $232,090 $309,453 $386,817 $464,180 $541,543 $1,000,000 $244,465 $325,953 $407,442 $488,930 $570,418 $1,050,000 $256,840 $342,453 $428,067 $513,680 $599,293 $1,100,000 $269,215 $358,953 $448,692 $538,430 $628,168 $1,150,000 $281,590 $375,453 $469,317 $563,180 $657,043 $1,200,000 $293,965 $391,953 $489,942 $587,930 $685,918 $1,250,000 $306,340 $408,453 $510,567 $612,680 $714,793 $1,300,000 $318,715 $424,953 $531,192 $637,430 $743,668 $1,350,000 $331,090 $441,453 $551,817 $662,180 $772,543 $1,400,000 $343,465 $457,953 $572,442 $686,930 $801,418
The above table reflects the aggregate benefits payable assuming they will be paid in the form of a monthly annuity for the life of the participant.
The amount of a participant's monthly payment under the Retirement Plan is equal to (i) 1% of the participant's average monthly compensation over his or her highest consecutive 120 months of compensation multiplied by the number of years of service, plus (ii) 0.65% of the participant's average monthly compensation over his or her highest consecutive 120 months of compensation in excess of Social Security covered compensation multiplied by the number of years of service up to a maximum of 35 years. Compensation for purposes of the Restoration Plan includes the total of salary plus bonus, but is limited to a total of 130% of salary. Federal law now prevents certain employees, including the Named Executive Officers, from receiving the full benefit of this formula under the Retirement Plan because both the amount of the annual benefit and the amount of compensation on which the annual benefit is based cannot exceed certain limits. Accordingly, in order to assure full benefits to employees, the benefit under the Restoration Plan is equal to the difference between the benefit actually payable under the Retirement Plan and the hypothetical benefit that would be payable under the Retirement Plan if no legal limitations existed, except that the bonuses in excess of 30% of salary are not taken into account.
Under the Retirement Plan and the Restoration Plan, the number of credited years of service as of December 31, 1997 was 19, 22, 6, 27 and 9 years for Messrs. Arnof, Wilson, Ryan, Flick and Gaines, respectively, and the 1997 compensation on which benefits would be calculated was $1,393,933 for Mr. Arnof, $651,650 for Mr. Wilson, $651,650 for Mr. Ryan, $593,884 for Mr. Flick and $568,167 for Mr. Gaines.
FCC's Supplemental Executive Retirement Plan (the SERP Plan) provides supplemental retirement benefits for three of the Named Executive Officers. At age 65, a vested participant will receive 60% of his average annual compensation over the five calendar years ending prior to the termination of his employment reduced by the benefits that he receives from (i) the Retirement Plan, (ii) the Restoration Plan, (iii) the Corporation's Tax-Deferred Savings Plan (other than benefits consisting of his deferrals and earnings on those deferrals), (iv) the Corporation's Supplemental Tax-Deferred Savings Plan (other than benefits consisting of his deferrals and earnings on those deferrals), (v) his primary unreduced Social Security amount and (vi) unless otherwise provided, the benefit under any subsequently adopted FCC plan. Annual retirement benefits beginning prior to age 65 would be reduced.
The estimated annual retirement benefits payable to Messrs. Arnof, Ryan and Wilson (the SERP Plan's only participants) under the SERP Plan, assuming they continue in their current positions at their current levels of compensation and retire at age 65, are $184,804, $70,807 and $0, respectively.
Pursuant to the SERP Plan, benefits will increase and payment may be accelerated upon a change in control. The Merger as described in Note 2 will constitute a change in control of FCC.
Change of Control Agreements
FCC has agreements with certain of its executive officers, including the Named Executive Officers, which provide for certain payments and benefits to the executive if his or her employment is terminated under certain circumstances within two years of a change in control of FCC, including cash payments of up to three times salary and bonus as well as continued medical and other benefits for three years and vesting under FCC's retirement plans. The Merger as described in Note 2 will constitute a change in control of FCC.
Item 12 Security Ownership of Certain Beneficial Owners and Management
SECURITY HOLDINGS OF DIRECTORS AND EXECUTIVE OFFICERS
The following table shows the beneficial ownership of FCC Common Stock of each director of FCC, each of FCC's most highly, compensated executive officers (Named Executive Officer), and all FCC directors and executive officers as a group as of February 6, 1998, determined in accordance with Rule 13d-3 of the SEC. In addition to its Common Stock, FCC currently has outstanding two other classes of equity securities: two series of 12 3/4% Convertible Debentures due 2000 ("A Debentures" and "B Debentures"). Unless otherwise indicated, the securities are held with sole voting and investment power.
No. of Percent Name of Beneficial Owner Shares of Class(1) ------------------------ ---------- ----------- Directors Ian Arnof 309,180(2) * James J. Bailey III 124,715 * John W. Barton 88,766 * Sydney J. Besthoff III 2,250 * Robert H. Bolton 196,287(3) * Robert C. Cudd III 841,806(4) 2.14% Frances B. Davis 409,454(4)(5) 1.03% Laurance Eustis, Jr. 37,500 * William P. Fuller 57,054(4) * Arthur Hollins III 215,770(2)(4)(6) * F. Ben James, Jr. 3,900 * Erik F. Johnsen 115,152(7) * J. Merrick Jones, Jr. 116,003(4) * Edwin Lupberger 4,052 * Mary Chavanne Martin 100,205 * Hugh G. McDonald, Jr. 68,517(4) * Saul A. Mintz 515,711(4)(8) 1.31% Hermann Moyse, Jr. 310,893(4) * O. Miles Pollard, Jr. 181,632 * G. Frank Purvis, Jr. 60,592(9) * William W. Rucks III 5,048 * Tom H. Scott 657,226(4) 1.67% Edward M. Simmons 137,215(4)(10) * H. Leighton Steward 5,619 * Robert A. Weigle 56,606(4) * Named Executive Officers (11) Joseph V. Wilson III 61,977(2)(4) * Ashton J. Ryan, Jr. 55,012(2) * Michael A. Flick 74,434(2) * Howard C. Gaines 48,903(2) * All directors and executive officers as a group (33 persons) 8,270,754(12) 20.46%
- ---------------- *Less than one percent
(1) Shares that may be acquired within 60 days from March 13, 1998 and shares that may be acquired upon conversion of debentures are deemed to be outstanding for purposes of computing the percentage of Common Stock owned by such person individually and by all directors and executive officers as a group, but are not deemed to be outstanding for the purpose of computing the ownership percentage of any other person. FCC is a party to a Merger Agreement with BANC ONE pursuant to which all outstanding options and restricted shares (including performance shares) will become exercisable or vested. The Merger contemplated by the Merger Agreement is expected to be consummated in the second quarter of 1998. For purposes of this schedule, it is assumed that all outstanding options and restricted shares (including performance shares) will be exercisable or vested within 60 days.
(2) Includes shares subject to options exercisable, restricted shares (including performance shares) and shares allocated to the individual's account in FCC's Tax-Deferred Savings Plan and Supplemental Tax-Deferred Savings Plan (the Plans), as follows:
Option Restricted Plan Shares Shares Shares ------ ---------- ------ Mr. Arnof........... 122,704 34,188 33,542 Mr. Flick........... 15,396 8,150 12,133 Mr. Hollins......... - - 31,199 Mr. Gaines.......... 16,785 8,150 11,977 Mr. Ryan............ 33,024 14,706 7,282 Mr. Wilson.......... 31,624 14,352 6,315
(3) Includes 119,175 shares Mr. Bolton has the right to acquire upon conversion of $3,178,000 principal amount of B Debentures (5.92% of the class), and 8,336 shares allocated to his Plan account. (4) Includes shares as to which the named individual shares voting and investment power as follows: Mr. Cudd, 703,679 shares; Mrs. Davis, 127,239 shares; Mr. Fuller, 3,900 shares; Mr. Hollins, 4,687 shares; Mr. Jones, 11,250 shares; Mr. McDonald, 8,326 shares; Mr. Mintz, 7,255 shares; Mr. Moyse, 130,105 shares; Mr. Scott, 655,226 shares; Mr. Simmons, 19,800 shares; Mr. Weigle, 356 shares; and Mr. Wilson, 1,250 shares. Mr. Cudd disclaims beneficial ownership of 290,667 shares owned by his wife. Mr. Mintz disclaims beneficial ownership of 3,174 shares held in a trust for which he is co-trustee. Mr. Scott disclaims beneficial ownership of 439,338 shares held in a trust. Mr. Simmons disclaims beneficial ownership of the 19,800 owned by his wife. (5) Includes 282,015 shares Mrs. Davis has the right to acquire upon conversion of $7,520,400 principal amount of B Debentures (14.02% of the class), including $1,508,400 principal amount owned by Mrs. Davis' husband, as to which she disclaims beneficial ownership. (6) Includes 157,713 shares Mr. Hollins has the right to acquire upon conversion of $4,205,685 principal amount of A Debentures (15.68% of the class), including $343,860 principal amount as to which Mr. Hollins shares voting and investment power, and 31,199 shares allocated to his Plan account. (7) Includes 1,164 shares owned by Mr. Johnsen's wife, as to which Mr. Johnsen disclaims beneficial ownership. (8) Includes 419,512 shares owned by Mr. Mintz's children and grandchildren that Mr. Mintz has power to vote pursuant to an understanding. Mr. Mintz disclaims beneficial ownership of these shares. (9) Includes 53,666 shares owned by Pan-American Life Insurance company, of which Mr. Purvis is the Chairman of the Board. Mr. Purvis disclaims beneficial ownership of these shares. (10) Includes 800 shares as to which Mr. Simmons has sole voting and investment power, but disclaims beneficial ownership. (11) Information for Mr. Arnof appears above under the heading Directors. (12) Includes 176,448 shares underlying $4,705,285 principal amount of A Debentures (17.54% of the class) and 437,019 shares underlying $11,653,840 principal amount of B Debentures (21.72% of the class). Of these amounts, $499,600 principal amount of A Debentures and $955,440 principal amount of B Debentures are held by FCC subsidiary banks as fiduciaries. Also includes (i) 301,706 shares executive officers are entitled to acquire upon the exercise of options, 108,201 shares of restricted stock (of which 36,064 are performance shares) and 126,467 shares allocated to the Plan accounts of such persons, (ii) 8,006 shares held by FCC's Pension Plan and 528,865 shares held by the trust departments of the subsidiary banks of FCC as fiduciaries, and (iii) 1,279,064 shares of record held by the trustee of the Plans (in addition to those shares held on behalf of directors and executive officers) that are voted by the trustee in accordance with the instructions of the Plans participants.
Principal Stockholders
BANC ONE CORPORATION, P.O. Box 710158, Columbus, Ohio 43271- 0158, has filed a Schedule 13D with the SEC reporting beneficial ownership of 9,689,000 shares (approximately 19.9%) of FCC's Common Stock by virtue of an option granted by FCC to BANC ONE on October 20, 1997, in connection with the Merger Agreement entered into between FCC and BANC ONE on that date. The option is not currently exercisable, and BANC ONE disclaims beneficial ownership of the shares. No other person is known by FCC to beneficially own more than 5% of its Common Stock.
Item 13 Certain Relationships and Related Transactions
Certain Other Transactions
Directors, nominees and executive officers of FCC and their associates have been customers of, and have had loan transactions with subsidiary banks of FCC in the ordinary course of business, and such transactions are expected to continue in the future. In the opinion of FCC's management, such transactions, which at December 31, 1997, amounted to an aggregate of 17% of FCC's stockholder's equity, have been on substantially the same terms, including interest rates and collateral on loans, as those prevailing at the time for comparable transactions with other persons and did not involve more than the normal risk of collectability or present other unfavorable features.
During 1997, FCC and its subsidiaries paid $378,716 in premiums on disability and life insurance policies issued by Pan-American Life Insurance Company covering FCC's employees. In addition, First NBC leases branch space in a building owned by Pan-American Life Insurance Company. Total rent paid under this lease in 1997 was $121,858. Mr. G. Frank Purvis, Jr., a director of FCC, is Chairman of the Board of Pan-American Life Insurance Company.
Part IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements - See Item 8. 2. Financial Statement Schedules - All schedules are omitted, since they are either not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto.
3. Exhibits:
2.1 - Agreement and Plan of Merger between FCC, Delta Acquisition Corporation and BANC ONE CORPORATION included as Exhibit 99.2 to BANC ONE CORPORATION's Current Report on Form 8-K filed October 29, 1997 (File No. 1-8552), and incor- porated herein by reference.
3.1 - Amended and Restated Articles of Incorporation of FCC included as Exhibit 3.1 to FCC's Annual Report on Form 10-K for the year ended December 31, 1996, and incorporated herein by reference.
3.2 - Amended and Restated By-laws of FCC included as Exhibit 3.2 to FCC's Annual Report on Form 10-K for the year ended December 31, 1995, and incorporated herein by reference.
4.1 - Indenture between FCC and Republic Bank, Dallas, N.A., Trustee, (trusteeship since transferred to The Bank of New York) including the form of 12 3/4% Convertible Debentures due 2000, Series A included as Exhibit 4.1 to FCC's Annual Report on Form 10-K for the year ended December 31, 1985, and incorporated herein by reference.
4.2 - Indenture between FCC and Republic Bank, Dallas, N.A., Trustee, (trusteeship since transferred to The Bank of New York) including the form of 12 3/4% Convertible Debentures due 2000, Series B included as Exhibit 4.2 to FCC's Annual Report on Form 10-K for the year ended December 31, 1985, and incorporated herein by reference.
4.3 - Rights Agreement between FCC and First Chicago Trust Company of New York as Rights Agent included as Exhibit 4.3 to FCC's Annual Report on Form 10-K for the year ended December 31, 1995, and incorporated herein by reference.
4.4 - Amendment to Rights Agreement between FCC and First Chicago Trust Company of New York as Rights Agent included as Exhibit 4.3 to FCC's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, and incorporated herein by reference.
4.5 - Option Agreement between FCC and BANC ONE CORPORATION included as Exhibit 99.3 to BANC ONE CORPORATION's Current Report on Form 8-K filed October 29, 1997 (File No. 1-8552), and incorporated herein by reference.
10.1 - Form of Employment Agreement between FCC and Messrs. Arnof, Brooks, Flick, Gaines, Ryan, Thompson, Wilson and Ms. Lee included as Exhibit 10.1 to FCC's Annual Report on Form 10-K for the year ended December 31, 1995, and incorporated herein by reference.
10.2 - Amended and Restated FCC Supple- mental Tax-Deferred Savings Plan included as Exhibit 10.2 to FCC's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, and incorporated herein by reference.
10.3 - FCC Amended and Restated Retire- ment Benefit Restoration Plan included as Exhibit 10.3 to FCC's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, and incorporated herein by reference.
10.4 - Form of Nonqualified Stock Option Agreement under the FCC 1992 Stock Incen- tive Plan and Form of Restricted Stock Agreement under the FCC 1992 Stock Incen- tive Plan included as Exhibit 10.2 to FCC's Annual Report on Form 10-K for the year ended December 31, 1992, and incorp- orated herein by reference.
10.5 - FCC Amended and Restated 1992 Stock Incentive Plan included as Exhibit 10.4 to FCC's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, and incorporated herein by reference.
10.6 - FCC Supplemental Executive Retirement Plan included as Exhibit 10.6 to FCC's Annual Report on Form 10-K for the year ended December 31, 1996, and incorporated herein by reference.
10.7 - FCC Directors' Phantom Stock Plan included as Exhibit 10.7 to FCC's Annual Report on Form 10-K for the year ended December 31, 1996, and incorporated herein by reference.
10.8 - FCC Change in Control Severance Plan included as Exhibit 10.8 to FCC's Annual Report on Form 10-K for the year ended December 31, 1996, and incorporated herein by reference.
10.9 - FCC 1997 Stock Option Plan in- cluded as Exhibit 10.9 to FCC's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, and incorporated herein by reference.
11 - Statement Re: Computation of Earnings Per Share
21 - Subsidiaries of First Commerce Corporation
23 - Consent of Arthur Andersen LLP
24 - Power of Attorney
27 - Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K dated October 16, 1997 was filed by the Registrant under Item 5, Other Events. The document was filed to disclose FCC's issuance of a press release dated October 14, 1997, announcing FCC's earnings for the Third Quarter of 1997.
A report on Form 8-K dated October 23, 1997 was filed by the Registrant under Item 5, Other Events. The document was filed to disclose FCC's issuance of a press release dated October 20, 1997, announcing FCC's agreement to merge with a subsidiary of BANC ONE CORPORATION.
A report on Form 8-K/A dated November 6, 1997 was filed by the Registrant under Item 5, Other Events. The document was filed to amend FCC's report on Form 8-K dated October 23, 1997, disclosing FCC's agreement to merge with a subsidiary of BANC ONE CORPORATION.
A report on Form 8-K dated November 26, 1997 was filed by the Registrant under Item 5, Other Events. The document was filed to disclose a change to FCC and BANC ONE CORPORATION's expected effective date for the planned merger.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
First Commerce Corporation (Registrant)
By /s/ Thomas L. Callicutt, Jr. ----------------------------------- Thomas L. Callicutt, Jr. Executive Vice President, Controller and Principal Accounting Officer
Date: March 26, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities on the dates indicated.
Signatures Title - ---------- ------ Ian Arnof President, Chief Executive Officer and Director
Hermann Moyse, Jr. Chairman of the Board Michael A. Flick Executive Vice President, Chief Administrative Officer and Principal Financial Officer James J. Bailey III Director John W. Barton Director Robert H. Bolton Director Robert C. Cudd III Director Frances B. Davis Director Laurance Eustis, Jr. Director William P. Fuller Director Arthur Hollins III Director Erik F. Johnsen Director By /s/ Thomas L. Callicutt, Jr. J. Merrick Jones, Jr. Director ------------------------------ Edwin Lupberger Director Thomas L. Callicutt, Jr. Mary Ellen Chavanne Martin Director Attorney-in-Fact Hugh G. McDonald, Jr. Director Executive Vice President, Saul A. Mintz Director Controller and Principal O. Miles Pollard, Jr. Director Accounting Officer G. Frank Purvis, Jr. Director Thomas H. Scott Director Date: March 26, 1998 Edward M. Simmons Director H. Leighton Steward Director Robert A. Weigle Director William W. Rucks III Director
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not Applicable
PART III
Item 10
Item 10 Directors and Executive Officers of the Registrant
The names, ages and positions of FCC's directors and executive officers are listed below along with their business experience during the past five years.
Ian Arnof, 58 President and Chief Executive Officer of FCC Director of FCC since 1983
James J. Bailey III, 56 Managing Partner, Bailey Family Investments (real estate development and management); director, United Companies Financial Corporation Director of FCC since 1985
John W. Barton, 81 Private investments Director of FCC since 1985
Sydney J. Besthoff III, 70 Property management and family interests(1) Director of FCC since 1992
Robert H. Bolton, 89(2) Senior Chairman of the Board, RBT Director of FCC since 1986
R. Jeffrey Brooks, 49 Executive Vice President of FCC since 1993; Director of Consumer Products since 1997; Director of Card Services of FCC from 1994 to 1996; Director of Strategic Support of FCC from 1993 to 1994
Thomas L. Callicutt, Jr., 51 Executive Vice President of FCC since 1996, Senior Vice President, Controller and Principal Accounting Officer of FCC since 1987
Robert C. Cudd III, 61 Private investments Director of FCC since 1995
Frances B. Davis, 69(2) Private investments Director of FCC since 1986
Laurance Eustis, Jr., 84 Advisory Chairman and Consultant, Eustis Insurance, Inc.; director, International Shipholding Corporation and Pan American Life Insurance Company Director of FCC since 1983
Michael A. Flick, 49 Executive Vice President of FCC since 1985; Chief Administrative Officer of FCC since 1994; Chief Credit Policy Officer of FCC from 1985 to 1994; Secretary of FCC since 1987
William P. Fuller, 71 President, Fuller Farms, Inc. Director of FCC since 1978
Howard C. Gaines, 58 Executive Vice President of FCC since 1995; Chairman of the Board of Directors of First NBC since 1988; Chief Executive Officer of First NBC from 1988 to 1994
Arthur Hollins III, 67 Chairman of the Board, President and Chief Executive Officer, FNBLC; director, Calcasieu Real Estate & Oil Co., Inc. Director of FCC since 1985
F. Ben James, Jr., 62 President, James Investments, Inc. (real estate development and private investments); director, Central Louisiana Electric Co., Inc. Director of FCC since 1973
Erik F. Johnsen, 72 President and director of International Shipholding Corporation (ocean shipping) Director of FCC since 1983
J. Merrick Jones, Jr., 63 Chairman of the Board, Canal Barge Company, Inc. (river transportation)(3) Director of FCC since 1983
Kimberly Y. Lee, 37 Executive Vice President and Chief Internal Auditor of FCC since 1994; Senior Vice President and Manager of Audit and Credit Review from 1992 to 1994
Edwin Lupberger, 61 Chairman of the Board, President and Chief Executive Officer, Entergy Corporation (electric utility holding company); director, International Shipholding Corporation Director of FCC since 1992
Mary Chavanne Martin, 47 Private investments Director of FCC since 1995
Hugh G. McDonald, Jr., 59 President, Hugh G. McDonald, Jr. Corporation (petroleum engineering consultants) Director of FCC since 1995
Saul A. Mintz, 66 Chairman of the Board, Sunbelt Plastics, and various real estate, distribution and investment corporations known collectively as Strauss Interests Director of FCC since 1995
Hermann Moyse, Jr., 76 Chairman of the Board, FCC; Chairman Emeritus, CNB; director, Pan American Life Insurance Company(4) Director of FCC since 1985
O. Miles Pollard, Jr., 60 Private investments; director, United Companies Financial Corporation Director of FCC since 1988
G. Frank Purvis, Jr., 83 Chairman of the Board, Pan-American Life Insurance Company Director of FCC since 1975
William W. Rucks III, 67 Chairman of the Board, FNBL; Independent Petroleum Landman Director of FCC since 1997
Ashton J. Ryan, Jr., 50 Senior Executive Vice President of FCC since 1993; President of First NBC since 1991; Chief Executive Officer of First NBC since 1994; Chief Operating Officer of First NBC from 1991 to 1994
Tom H. Scott, 87 Chairman and Chief Executive Officer, Scott Truck and Tractor Company of Louisiana, Inc. Director of FCC since 1995
Edward M. Simmons, 69 Chairman and Chief Executive Officer, The McIlhenny Co. (producer of Tabasco brand food products)(5); director, Pan American Life Insurance Company, Piccadilly Cafeterias, Inc. and Central Louisiana Electric Co., Inc. Director of FCC since 1981
H. Leighton Steward, 63 Vice Chairman of the Board, Burlington Resources (Burlington Resources acquired The Louisiana Land and Exploration Company in 1997)(6) Director of FCC since 1992
E. Graham Thompson, 61 Executive Vice President and Chief Credit Policy Officer of FCC since 1994; President and Chief Executive Officer of FNBL from 1992 to
Robert A. Weigle, 51 President, David C. Blintiff & Co., Inc. (investments) Director of FCC since 1988
Joseph V. Wilson III, 48 Senior Executive Vice President of FCC since 1993
(1) Mr. Besthoff was Chairman of the Board of K & B, Incorporated (retail drug stores) for more than five years prior to 1997. (2) Mr. Bolton is Mrs. Davis' uncle. (3) Mr. Jones was President of Canal Barge Company, Inc. for more than five years prior to January 1995. (4) Mr. Moyse was Chairman of the Board of City National Bank of Baton Rouge for more than five years prior to December 1994. (5) Mr. Simmons was President and Chief Executive Officer of McIlhenny Co. for more than five years prior to June 1996. (6) Mr. Rucks was Chairman of the Board, Chief Executive Officer and President of The Louisiana Land and Exploration Company (oil and gas exploration and production) for more than five years prior to October 1997.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange act of 1934 requires FCC's directors, executive officers and 10% shareholders to file with the Securities Exchange Commission reports of ownership and changes in ownership of equity securities of FCC. During 1997, all such reports were timely filed, except for one report which was filed late by Mr. Simmons.
Item 11
Item 11 Executive Compensation
Summary of Executive Compensation
The following table summarizes, for each of the three years in the three-year period ended December 31,1997, the compensation of FCC's Chief Executive Officer and each of the four most highly compensated executive officers in all the capacities in which they served:
1997 Stock Option Grants
The following table contains information concerning the grant of stock options to the Named Executive Officers during 1997:
(1) The exercise price represents the fair market value of FCC Common Stock on the date of the grant. The options are not exercisable for one year from the date of grant and become exercisable thereafter in 25% increments each year, unless the Compensation Committee, in its discretion, elects to accelerate the exercisability. In addition, all outstanding options will become immediately exercisable upon the occurrence of a Significant Transaction. The consummation of the Merger Agreement described in Note 2 will constitute a Significant Transaction.
1997 Long Term Incentive Plan Awards
The following table contains information concerning the grant of restricted stock and performance shares under FCC's 1992 Stock Incentive Plan to the Named Executive Officers during 1997:
(1) No shares of restricted stock will vest and no performance shares will be earned, except in the case of death, unless (i) the individual remains employed by FCC through December 31, 1999 on which the Compensation Committee has determined whether the performance goals have been met, and (ii) FCC's average percentile ranking of reported annual return on equity against the Keefe, Bruyette and Woods, Inc. Survey of other banks and bank holding companies (the KBW 50) for the three- year period ending December 31, 1999 (the Measurement Period) would rank higher than the 25th percentile. FCC's reported annual return on equity (which may be adjusted by the committee for Statement of Financial Accounting Standards (SFAS) No. 115 and/or other Board approved one-time transactions) will be ranked against the KBW 50 for each year of the Measurement Period. FCC's percentile ranking for each year will then be averaged for the three years of 1997, 1998 and 1999 to determine the payout percentage. Holders of restricted stock are entitled to all rights of a stockholder of FCC, including the right to vote the restricted shares and receive dividends and/or other distributions declared on the restricted stock. These rights are not applicable to the performance shares. Restrictions on the shares of restricted stock would lapse and the performance shares would be earned within the three- year period upon the occurrence of a Significant Transaction or on a pro rata basis in the event of death. The consummation of the Merger Agreement described in Note 2 will constitute a Significant Transaction.
Option Holdings
The following table sets forth information with respect to unexercised options held by the Named Executive Officers as of December 31, 1997:
AGGREGATED OPTION VALUES AS OF DECEMBER 31, 1997
Number of Shares Underlying Unexercised Value of Unexercised in-the- Options at Money Options at December 31,1997 December 31,1997(1) ======================================================== Name Exercisable Unexercisable Exercisable Unexercisable ---- ----------- ------------- ----------- -------------
Ian Arnof 75,828 72,107 $3,322,042 $2,495,493
Joseph V. Wilson III - 31,624 $ - $1,119,714
Ashton J. Ryan, Jr. - 33,024 $ - $1,177,114
Michael A. Flick 8,111 16,485 $ 323,838 $ 572,093
Howard C. Gaines - 16,785 $ - $ 584,018
(1) Reflects the difference between the closing market price of FCC Common Stock on December 31, 1997 and the exercise or base price of the options. The following table shows, for exercisable options, the value attributed to options outstanding for the number of years indicated:
Value Years ------- ----- Ian Arnof $881,329 8 $432,968 6 $828,986 4 $981,253 3 $197,506 2
Michael A. Flick $125,054 4 $175,562 3 $ 23,222 2
The following table sets forth information with respect to options exercised during 1997 by the Named Executive Officers:
Options Exercised In 1997
Number of Net Shares Exercised Value
Ian Arnof - $ - Joseph V. Wilson III 30,467 $1,200,212 Ashton J. Ryan, Jr. 28,713 $1,136,193 Michael A. Flick 18,379 $ 773,122 Howard C. Gaines 18,252 $ 839,423
Pension Plans
FCC has a qualified defined-benefit plan (the Retirement Plan) and a nonqualified Benefits Restoration Plan (the Restoration Plan), pursuant to which each participant, including each Named Executive Officer, who has completed at least five years of service is entitled to receive a monthly payment after retirement no earlier than at age 55. The following table sets forth the aggregate annual retirement benefits that a participant with the indicated years of service and compensation level may expect to receive under the Retirement Plan and the Restoration Plan assuming retirement at age 65. Annual retirement benefits beginning prior to age 65 would be reduced.
Pension Plans Table
- -------------------------------------------------------------------- Compensation 15 yrs. 20 yrs. 25 yrs. 30 yrs. 35 yrs. - -------------------------------------------------------------------- $ 550,000 $133,090 $177,453 $221,817 $266,180 $310,543 $ 600,000 $145,465 $193,953 $242,442 $290,930 $339,418 $ 650,000 $157,840 $210,453 $263,067 $315,680 $368,293 $ 700,000 $170,215 $226,953 $283,692 $340,430 $397,168 $ 750,000 $182,590 $243,453 $304,317 $365,180 $426,043 $ 800,000 $194,965 $259,953 $324,942 $389,930 $454,918 $ 850,000 $207,340 $276,453 $345,567 $414,680 $483,793 $ 900,000 $219,715 $292,953 $366,192 $439,430 $512,668 $ 950,000 $232,090 $309,453 $386,817 $464,180 $541,543 $1,000,000 $244,465 $325,953 $407,442 $488,930 $570,418 $1,050,000 $256,840 $342,453 $428,067 $513,680 $599,293 $1,100,000 $269,215 $358,953 $448,692 $538,430 $628,168 $1,150,000 $281,590 $375,453 $469,317 $563,180 $657,043 $1,200,000 $293,965 $391,953 $489,942 $587,930 $685,918 $1,250,000 $306,340 $408,453 $510,567 $612,680 $714,793 $1,300,000 $318,715 $424,953 $531,192 $637,430 $743,668 $1,350,000 $331,090 $441,453 $551,817 $662,180 $772,543 $1,400,000 $343,465 $457,953 $572,442 $686,930 $801,418
The above table reflects the aggregate benefits payable assuming they will be paid in the form of a monthly annuity for the life of the participant.
The amount of a participant's monthly payment under the Retirement Plan is equal to (i) 1% of the participant's average monthly compensation over his or her highest consecutive 120 months of compensation multiplied by the number of years of service, plus (ii) 0.65% of the participant's average monthly compensation over his or her highest consecutive 120 months of compensation in excess of Social Security covered compensation multiplied by the number of years of service up to a maximum of 35 years. Compensation for purposes of the Restoration Plan includes the total of salary plus bonus, but is limited to a total of 130% of salary. Federal law now prevents certain employees, including the Named Executive Officers, from receiving the full benefit of this formula under the Retirement Plan because both the amount of the annual benefit and the amount of compensation on which the annual benefit is based cannot exceed certain limits. Accordingly, in order to assure full benefits to employees, the benefit under the Restoration Plan is equal to the difference between the benefit actually payable under the Retirement Plan and the hypothetical benefit that would be payable under the Retirement Plan if no legal limitations existed, except that the bonuses in excess of 30% of salary are not taken into account.
Under the Retirement Plan and the Restoration Plan, the number of credited years of service as of December 31, 1997 was 19, 22, 6, 27 and 9 years for Messrs. Arnof, Wilson, Ryan, Flick and Gaines, respectively, and the 1997 compensation on which benefits would be calculated was $1,393,933 for Mr. Arnof, $651,650 for Mr. Wilson, $651,650 for Mr. Ryan, $593,884 for Mr. Flick and $568,167 for Mr. Gaines.
FCC's Supplemental Executive Retirement Plan (the SERP Plan) provides supplemental retirement benefits for three of the Named Executive Officers. At age 65, a vested participant will receive 60% of his average annual compensation over the five calendar years ending prior to the termination of his employment reduced by the benefits that he receives from (i) the Retirement Plan, (ii) the Restoration Plan, (iii) the Corporation's Tax-Deferred Savings Plan (other than benefits consisting of his deferrals and earnings on those deferrals), (iv) the Corporation's Supplemental Tax-Deferred Savings Plan (other than benefits consisting of his deferrals and earnings on those deferrals), (v) his primary unreduced Social Security amount and (vi) unless otherwise provided, the benefit under any subsequently adopted FCC plan. Annual retirement benefits beginning prior to age 65 would be reduced.
The estimated annual retirement benefits payable to Messrs. Arnof, Ryan and Wilson (the SERP Plan's only participants) under the SERP Plan, assuming they continue in their current positions at their current levels of compensation and retire at age 65, are $184,804, $70,807 and $0, respectively.
Pursuant to the SERP Plan, benefits will increase and payment may be accelerated upon a change in control. The Merger as described in Note 2 will constitute a change in control of FCC.
Change of Control Agreements
FCC has agreements with certain of its executive officers, including the Named Executive Officers, which provide for certain payments and benefits to the executive if his or her employment is terminated under certain circumstances within two years of a change in control of FCC, including cash payments of up to three times salary and bonus as well as continued medical and other benefits for three years and vesting under FCC's retirement plans. The Merger as described in Note 2 will constitute a change in control of FCC.
Item 12
Item 12 Security Ownership of Certain Beneficial Owners and Management
SECURITY HOLDINGS OF DIRECTORS AND EXECUTIVE OFFICERS
The following table shows the beneficial ownership of FCC Common Stock of each director of FCC, each of FCC's most highly, compensated executive officers (Named Executive Officer), and all FCC directors and executive officers as a group as of February 6, 1998, determined in accordance with Rule 13d-3 of the SEC. In addition to its Common Stock, FCC currently has outstanding two other classes of equity securities: two series of 12 3/4% Convertible Debentures due 2000 ("A Debentures" and "B Debentures"). Unless otherwise indicated, the securities are held with sole voting and investment power.
No. of Percent Name of Beneficial Owner Shares of Class(1) ------------------------ ---------- ----------- Directors Ian Arnof 309,180(2) * James J. Bailey III 124,715 * John W. Barton 88,766 * Sydney J. Besthoff III 2,250 * Robert H. Bolton 196,287(3) * Robert C. Cudd III 841,806(4) 2.14% Frances B. Davis 409,454(4)(5) 1.03% Laurance Eustis, Jr. 37,500 * William P. Fuller 57,054(4) * Arthur Hollins III 215,770(2)(4)(6) * F. Ben James, Jr. 3,900 * Erik F. Johnsen 115,152(7) * J. Merrick Jones, Jr. 116,003(4) * Edwin Lupberger 4,052 * Mary Chavanne Martin 100,205 * Hugh G. McDonald, Jr. 68,517(4) * Saul A. Mintz 515,711(4)(8) 1.31% Hermann Moyse, Jr. 310,893(4) * O. Miles Pollard, Jr. 181,632 * G. Frank Purvis, Jr. 60,592(9) * William W. Rucks III 5,048 * Tom H. Scott 657,226(4) 1.67% Edward M. Simmons 137,215(4)(10) * H. Leighton Steward 5,619 * Robert A. Weigle 56,606(4) * Named Executive Officers (11) Joseph V. Wilson III 61,977(2)(4) * Ashton J. Ryan, Jr. 55,012(2) * Michael A. Flick 74,434(2) * Howard C. Gaines 48,903(2) * All directors and executive officers as a group (33 persons) 8,270,754(12) 20.46%
- ---------------- *Less than one percent
(1) Shares that may be acquired within 60 days from March 13, 1998 and shares that may be acquired upon conversion of debentures are deemed to be outstanding for purposes of computing the percentage of Common Stock owned by such person individually and by all directors and executive officers as a group, but are not deemed to be outstanding for the purpose of computing the ownership percentage of any other person. FCC is a party to a Merger Agreement with BANC ONE pursuant to which all outstanding options and restricted shares (including performance shares) will become exercisable or vested. The Merger contemplated by the Merger Agreement is expected to be consummated in the second quarter of 1998. For purposes of this schedule, it is assumed that all outstanding options and restricted shares (including performance shares) will be exercisable or vested within 60 days.
(2) Includes shares subject to options exercisable, restricted shares (including performance shares) and shares allocated to the individual's account in FCC's Tax-Deferred Savings Plan and Supplemental Tax-Deferred Savings Plan (the Plans), as follows:
Option Restricted Plan Shares Shares Shares ------ ---------- ------ Mr. Arnof........... 122,704 34,188 33,542 Mr. Flick........... 15,396 8,150 12,133 Mr. Hollins......... - - 31,199 Mr. Gaines.......... 16,785 8,150 11,977 Mr. Ryan............ 33,024 14,706 7,282 Mr. Wilson.......... 31,624 14,352 6,315
(3) Includes 119,175 shares Mr. Bolton has the right to acquire upon conversion of $3,178,000 principal amount of B Debentures (5.92% of the class), and 8,336 shares allocated to his Plan account. (4) Includes shares as to which the named individual shares voting and investment power as follows: Mr. Cudd, 703,679 shares; Mrs. Davis, 127,239 shares; Mr. Fuller, 3,900 shares; Mr. Hollins, 4,687 shares; Mr. Jones, 11,250 shares; Mr. McDonald, 8,326 shares; Mr. Mintz, 7,255 shares; Mr. Moyse, 130,105 shares; Mr. Scott, 655,226 shares; Mr. Simmons, 19,800 shares; Mr. Weigle, 356 shares; and Mr. Wilson, 1,250 shares. Mr. Cudd disclaims beneficial ownership of 290,667 shares owned by his wife. Mr. Mintz disclaims beneficial ownership of 3,174 shares held in a trust for which he is co-trustee. Mr. Scott disclaims beneficial ownership of 439,338 shares held in a trust. Mr. Simmons disclaims beneficial ownership of the 19,800 owned by his wife. (5) Includes 282,015 shares Mrs. Davis has the right to acquire upon conversion of $7,520,400 principal amount of B Debentures (14.02% of the class), including $1,508,400 principal amount owned by Mrs. Davis' husband, as to which she disclaims beneficial ownership. (6) Includes 157,713 shares Mr. Hollins has the right to acquire upon conversion of $4,205,685 principal amount of A Debentures (15.68% of the class), including $343,860 principal amount as to which Mr. Hollins shares voting and investment power, and 31,199 shares allocated to his Plan account. (7) Includes 1,164 shares owned by Mr. Johnsen's wife, as to which Mr. Johnsen disclaims beneficial ownership. (8) Includes 419,512 shares owned by Mr. Mintz's children and grandchildren that Mr. Mintz has power to vote pursuant to an understanding. Mr. Mintz disclaims beneficial ownership of these shares. (9) Includes 53,666 shares owned by Pan-American Life Insurance company, of which Mr. Purvis is the Chairman of the Board. Mr. Purvis disclaims beneficial ownership of these shares. (10) Includes 800 shares as to which Mr. Simmons has sole voting and investment power, but disclaims beneficial ownership. (11) Information for Mr. Arnof appears above under the heading Directors. (12) Includes 176,448 shares underlying $4,705,285 principal amount of A Debentures (17.54% of the class) and 437,019 shares underlying $11,653,840 principal amount of B Debentures (21.72% of the class). Of these amounts, $499,600 principal amount of A Debentures and $955,440 principal amount of B Debentures are held by FCC subsidiary banks as fiduciaries. Also includes (i) 301,706 shares executive officers are entitled to acquire upon the exercise of options, 108,201 shares of restricted stock (of which 36,064 are performance shares) and 126,467 shares allocated to the Plan accounts of such persons, (ii) 8,006 shares held by FCC's Pension Plan and 528,865 shares held by the trust departments of the subsidiary banks of FCC as fiduciaries, and (iii) 1,279,064 shares of record held by the trustee of the Plans (in addition to those shares held on behalf of directors and executive officers) that are voted by the trustee in accordance with the instructions of the Plans participants.
Principal Stockholders
BANC ONE CORPORATION, P.O. Box 710158, Columbus, Ohio 43271- 0158, has filed a Schedule 13D with the SEC reporting beneficial ownership of 9,689,000 shares (approximately 19.9%) of FCC's Common Stock by virtue of an option granted by FCC to BANC ONE on October 20, 1997, in connection with the Merger Agreement entered into between FCC and BANC ONE on that date. The option is not currently exercisable, and BANC ONE disclaims beneficial ownership of the shares. No other person is known by FCC to beneficially own more than 5% of its Common Stock.
Item 13
Item 13 Certain Relationships and Related Transactions
Certain Other Transactions
Directors, nominees and executive officers of FCC and their associates have been customers of, and have had loan transactions with subsidiary banks of FCC in the ordinary course of business, and such transactions are expected to continue in the future. In the opinion of FCC's management, such transactions, which at December 31, 1997, amounted to an aggregate of 17% of FCC's stockholder's equity, have been on substantially the same terms, including interest rates and collateral on loans, as those prevailing at the time for comparable transactions with other persons and did not involve more than the normal risk of collectability or present other unfavorable features.
During 1997, FCC and its subsidiaries paid $378,716 in premiums on disability and life insurance policies issued by Pan-American Life Insurance Company covering FCC's employees. In addition, First NBC leases branch space in a building owned by Pan-American Life Insurance Company. Total rent paid under this lease in 1997 was $121,858. Mr. G. Frank Purvis, Jr., a director of FCC, is Chairman of the Board of Pan-American Life Insurance Company.
Part IV Item 14
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements - See Item 8. 2. Financial Statement Schedules - All schedules are omitted, since they are either not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto.
3. Exhibits:
2.1 - Agreement and Plan of Merger between FCC, Delta Acquisition Corporation and BANC ONE CORPORATION included as Exhibit 99.2 to BANC ONE CORPORATION's Current Report on Form 8-K filed October 29, 1997 (File No. 1-8552), and incor- porated herein by reference.
3.1 - Amended and Restated Articles of Incorporation of FCC included as Exhibit 3.1 to FCC's Annual Report on Form 10-K for the year ended December 31, 1996, and incorporated herein by reference.
3.2 - Amended and Restated By-laws of FCC included as Exhibit 3.2 to FCC's Annual Report on Form 10-K for the year ended December 31, 1995, and incorporated herein by reference.
4.1 - Indenture between FCC and Republic Bank, Dallas, N.A., Trustee, (trusteeship since transferred to The Bank of New York) including the form of 12 3/4% Convertible Debentures due 2000, Series A included as Exhibit 4.1 to FCC's Annual Report on Form 10-K for the year ended December 31, 1985, and incorporated herein by reference.
4.2 - Indenture between FCC and Republic Bank, Dallas, N.A., Trustee, (trusteeship since transferred to The Bank of New York) including the form of 12 3/4% Convertible Debentures due 2000, Series B included as Exhibit 4.2 to FCC's Annual Report on Form 10-K for the year ended December 31, 1985, and incorporated herein by reference.
4.3 - Rights Agreement between FCC and First Chicago Trust Company of New York as Rights Agent included as Exhibit 4.3 to FCC's Annual Report on Form 10-K for the year ended December 31, 1995, and incorporated herein by reference.
4.4 - Amendment to Rights Agreement between FCC and First Chicago Trust Company of New York as Rights Agent included as Exhibit 4.3 to FCC's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, and incorporated herein by reference.
4.5 - Option Agreement between FCC and BANC ONE CORPORATION included as Exhibit 99.3 to BANC ONE CORPORATION's Current Report on Form 8-K filed October 29, 1997 (File No. 1-8552), and incorporated herein by reference.
10.1 - Form of Employment Agreement between FCC and Messrs. Arnof, Brooks, Flick, Gaines, Ryan, Thompson, Wilson and Ms. Lee included as Exhibit 10.1 to FCC's Annual Report on Form 10-K for the year ended December 31, 1995, and incorporated herein by reference.
10.2 - Amended and Restated FCC Supple- mental Tax-Deferred Savings Plan included as Exhibit 10.2 to FCC's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, and incorporated herein by reference.
10.3 - FCC Amended and Restated Retire- ment Benefit Restoration Plan included as Exhibit 10.3 to FCC's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, and incorporated herein by reference.
10.4 - Form of Nonqualified Stock Option Agreement under the FCC 1992 Stock Incen- tive Plan and Form of Restricted Stock Agreement under the FCC 1992 Stock Incen- tive Plan included as Exhibit 10.2 to FCC's Annual Report on Form 10-K for the year ended December 31, 1992, and incorp- orated herein by reference.
10.5 - FCC Amended and Restated 1992 Stock Incentive Plan included as Exhibit 10.4 to FCC's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, and incorporated herein by reference.
10.6 - FCC Supplemental Executive Retirement Plan included as Exhibit 10.6 to FCC's Annual Report on Form 10-K for the year ended December 31, 1996, and incorporated herein by reference.
10.7 - FCC Directors' Phantom Stock Plan included as Exhibit 10.7 to FCC's Annual Report on Form 10-K for the year ended December 31, 1996, and incorporated herein by reference.
10.8 - FCC Change in Control Severance Plan included as Exhibit 10.8 to FCC's Annual Report on Form 10-K for the year ended December 31, 1996, and incorporated herein by reference.
10.9 - FCC 1997 Stock Option Plan in- cluded as Exhibit 10.9 to FCC's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, and incorporated herein by reference.
11 - Statement Re: Computation of Earnings Per Share
21 - Subsidiaries of First Commerce Corporation
23 - Consent of Arthur Andersen LLP
24 - Power of Attorney
27 - Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K dated October 16, 1997 was filed by the Registrant under Item 5, Other Events. The document was filed to disclose FCC's issuance of a press release dated October 14, 1997, announcing FCC's earnings for the Third Quarter of 1997.
A report on Form 8-K dated October 23, 1997 was filed by the Registrant under Item 5, Other Events. The document was filed to disclose FCC's issuance of a press release dated October 20, 1997, announcing FCC's agreement to merge with a subsidiary of BANC ONE CORPORATION.
A report on Form 8-K/A dated November 6, 1997 was filed by the Registrant under Item 5, Other Events. The document was filed to amend FCC's report on Form 8-K dated October 23, 1997, disclosing FCC's agreement to merge with a subsidiary of BANC ONE CORPORATION.
A report on Form 8-K dated November 26, 1997 was filed by the Registrant under Item 5, Other Events. The document was filed to disclose a change to FCC and BANC ONE CORPORATION's expected effective date for the planned merger.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
First Commerce Corporation (Registrant)
By /s/ Thomas L. Callicutt, Jr. ----------------------------------- Thomas L. Callicutt, Jr. Executive Vice President, Controller and Principal Accounting Officer
Date: March 26, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities on the dates indicated.
Signatures Title - ---------- ------ Ian Arnof President, Chief Executive Officer and Director
Hermann Moyse, Jr. Chairman of the Board Michael A. Flick Executive Vice President, Chief Administrative Officer and Principal Financial Officer James J. Bailey III Director John W. Barton Director Robert H. Bolton Director Robert C. Cudd III Director Frances B. Davis Director Laurance Eustis, Jr. Director William P. Fuller Director Arthur Hollins III Director Erik F. Johnsen Director By /s/ Thomas L. Callicutt, Jr. J. Merrick Jones, Jr. Director ------------------------------ Edwin Lupberger Director Thomas L. Callicutt, Jr. Mary Ellen Chavanne Martin Director Attorney-in-Fact Hugh G. McDonald, Jr. Director Executive Vice President, Saul A. Mintz Director Controller and Principal O. Miles Pollard, Jr. Director Accounting Officer G. Frank Purvis, Jr. Director Thomas H. Scott Director Date: March 26, 1998 Edward M. Simmons Director H. Leighton Steward Director Robert A. Weigle Director William W. Rucks III Director