First Commerce Corporation
First Commerce Corporation
Sales: $.50 billion (total interest income plus fee income)
Stock Exchanges: NASDAQ
SICs: 3100 Capital and Debt Management; 8100 Financial
Services Industry; 8120 Retail Banking Services
With $6.7 billion in assets in 1993, First Commerce Corporation was the largest multibank holding company in Louisiana. First Commerce offers complete banking and related financial services to commercial clients and individuals in Louisiana and southern Mississippi. It operates through five banks and several service subsidiaries, although its primary holding is First National Bank of Commerce in New Orleans.
Although it was not incorporated until 1971, First Commerce Corp. traces its roots to 1831. The Louisiana Purchase had been consummated only 28 years earlier, and the renowned Battle of New Orleans (1815) had recently been fought. On March 5, 1831, the New Orleans Canal and Banking Company was founded as a means of securing capital for the construction of a canal—banks during that era could only receive a charter from the Louisiana State Legislature if they agreed to fund specific improvements. Maunsel White and Beverly Chew, the founders of the new bank, agreed to build a canal that would allow waterborne commerce from the Gulf of Mexico to reach New Orleans’ port facilities.
The six-year construction and financing of the New Basin Canal became a monumental task. Because slave labor from the plantations was too costly, Irishmen escaping from the potato famine were hired to do most of the digging. Each receiving just $20 per month plus an allotment of liquor, they built the canal using shovels and wheelbarrows. Over 8,000 died from disease and sunstroke before it was completed in 1838. Although the total cost of the canal was a whopping $1.2 million, the bank earned $405,563 during its first year of operation from tolls paid by the shippers that used the waterway. Ownership of the canal was eventually transferred to the state of Louisiana.
After establishing itself in the New Orleans financial community, the Canal Bank (as it was named in 1895) flourished during the middle and late 1800s. It opened branches in four neighboring communities in 1839 and became a leading financial institution in burgeoning southern Louisiana. The bank’s progress was especially impressive considering the hardships it endured during that century. In 1845, for example, its headquarters building burned to the ground. Many of its debtors were killed off by repeated yellow fever epidemics that plagued the region, particularly during the early 1850s. Finally, the Civil War and Reconstruction threatened to extinguish the bank in the late 1800s.
Also rising to prominence in the Louisiana banking industry during the 1800s was Citizens Bank, which was chartered in 1833 and dominated the Louisiana banking scene during most the century. Although Citizens was larger than Canal Bank throughout most of the 19th century—Citizens and Canal had assets worth $6.8 million and $4 million, respectively, in 1861—Citizen’s capital base had shrunk to only $ 1.4 million by the end of the 1920 recession. Canal, on the other hand, had grown to become the 31 st largest bank in the world by 1920. To house its thriving operation, in fact, Canal added an eleventh floor to its “sky scraper” in the early 1920s. Canal also continued to acquire other banks in the 1920s, as it had throughout much of the late 1800s.
In a landmark merger of the time, Canal Bank and Citizens Bank converged in 1924, substantially boosting the resultant Canal Bank and Trust’s assets. Canal merged again in 1928, with Marine Bank and Trust Co. By the end of the 1920s, following nearly a century of acquisitions, mergers, and customer growth, it appeared as though Canal was poised for continued expansion and dominance of the regional banking industry. The stock market crash of 1929, however, changed that expectation. As many weaker banks quickly failed, Canal scrambled during the early 1930s to survive a steady decline in deposits and a glut of unpaid loans. Unable to stay afloat, Canal closed its doors and forfeited control of its operations to a government-appointed liquidator in 1933.
Three months after Canal Bank and Trust’s directors and officers lost control of the bank, they opened the National Bank of Commerce. Through an agreement with the U.S. government the new bank was able to assume a portion of the deposits and liabilities of Canal Bank and Trust Co. In addition, former Canal bank managers literally knocked on the doors of their former depositors, asking them to deposit any funds distributed to them by Canal Bank liquidators into the National Bank of Commerce. Many of their depositors were understandably miffed at the former Canal Bank operators, as they had lost most of their deposits—canvassing solicitors for the new bank were often greeted by profanity or gunfire.
Despite a rocky start, the National Bank of Commerce was able to rally $3 million in start-up capital. Although National took over all 20 of Canal’s branches in 1933, it immediately closed 15 of them. By the end of its first year of operation, the bank had attracted $21 million in deposits and had made loans totaling $6 million. By 1936, moreover, it had accrued $48 million in deposits, which grew to $91 million by 1943. Growth was disrupted by World War II, during which 34 of the bank’s staff were called to active duty. National also contributed to the war effort by setting up military banking facilities and managing gas and food rationing programs. Despite a brief slowdown, by 1949 National Bank had $134 million in deposits and was generating annual income of $582,000.
National bank enjoyed a relatively peaceful period of solid growth during the 1950s under the direction of President Dale Graham. Before Graham’s death in 1958, National completed a pivotal merger with Louisiana Bank & Trust (founded 1933), opened several new branches, and boosted its total deposits more than $100 million. By 1958, in fact, National Bank of Commerce boasted deposits of more than $230 million and annual net income of nearly $1.4 million.
Graham’s successor, John A. Oulliber, was a well-known local sports star and had been with the bank since 1935. During his ten years of leadership the bank increased its deposits to more than $350 million and bolstered income to over $2.5 million. Importantly, however, Oulliber and his management team led National through a metamorphosis of the banking industry during the 1960s. Certificates of deposit, a key financial instrument that helped to buoy lagging bank deposits, emerged during that period. In addition, the industry experienced a transition from manual data and bookkeeping techniques to computerized information and data processing systems.
In 1968 Oulliber, sensing sour markets in the near future and wishing to divert the problems he had witnessed during the 1930s, set a goal for the bank of 41 percent liquidity by the early 1970s. Seeking a more aggressive approach to growth, the board elected 39-year-old James H. Jones as president and moved Oulliber to chairman of the board. Jones’ aggressive growth strategy included reorganizing the National Bank of Commerce as a one-bank holding company in 1970. The holding company arrangement became popular during the 1970s as a way for banks to increase their income from various fee services—a holding company simply operated a bank as a subsidiary, thereby overcoming certain federal restrictions on banking activities.
First Commerce Corp. was established on November 17, 1970, as a holding company for National Bank of Commerce and several smaller subsidiaries. Ownership shares in National were simply converted into stock in First Commerce Corp. To reflect the change in organizational structure, National Bank of Commerce’s title was changed to First National Bank of Commerce (First NBC) in 1971. In addition to First NBC, other subsidiaries of First Commerce included First Commerce Financial Corp., which provided various real estate services; First Investment Advisors, which managed fee income from real estate investment trusts; First Bancard, Inc., a credit card business; and First Investors Management Corp., an investment advisory service.
Under Jones’ aggressive expansion tactics, National ballooned in size during the early 1970s. Total deposits grew from $338 million in 1969 to a stunning $840 million by 1974. Assets, moreover, leaped from $328 million to over $1 billion during the same period. Phenomenal growth in assets and deposits, however, belied serious structural problems in the First Commerce organization. As Oulliber had predicted in the late 1960s, shifting financial markets, combined with U.S. economic problems, had placed much of the banking industry in a precarious position by the middle 1970s.
In an effort to buoy lagging profit margins, which were aggravated by the rising cost of money for banks, First Commerce had engaged in a relatively risky lending strategy during the late 1960s and early 1970s. It had invested its deposits in loans for illiquid assets, such as real estate, and had emphasized growth of high-cost deposits. As inflation and recession stumped deposit growth and margins during the mid-1970s, many beleaguered banks suffered immense losses. First Commerce was battered by the industry shakeout, and its financial health was placed into question by bank regulators. Earnings plummeted from $5.6 million in 1973 to a miserable $151,000 in 1975.
Jones left for California in 1975, ceding his position as president to Rodger J. Mitchell. With a mountain of problem loans and weak performance of its fee income subsidiaries, the company began retrenching in 1977. It slashed staff, jettisoned many of its fee-for-services operations, and sold its ownership share in its headquarters building. Dissatisfied with Mitchell’s rate of progress, however, the board replaced him in 1978 with an interim president, Francis C. Doyle. Doyle was an American success story. He started as a messenger with Canal Bank in 1920 at the age of 14. Through a combination of hard work and a friendly demeanor, he had elevated himself to president at the age of 72. He smoothed the transition into a new era for First Commerce, led by Thomas G. Rapier.
Rapier, an attorney, became president of First Commerce Corp. in 1978. He spent his first two years shoring up the holding company’s problem loans, reorganizing staff and operations, and liquidating the nonbank subsidiaries. Taking advantage of federal deregulation initiatives that were implemented in the early 1980s, Rapier launched an aggressive marketing campaign to bring in new funds through money market deposits. Between 1978 and 1982, First Commerce’s deposits recovered from $694 million to $935 million. Net income, moreover, jumped from $3 million to a record $13.4 million. One of Rapier’s greatest achievements was the successful merger of First Commerce with the Bank of New Orleans (BNO), which added $500 million in deposits and a network of new branch offices to First Commerce Corp.’s holdings.
To the dismay of First Commerce’s directors and employees, Rapier died one week after the BNO merger. He was replaced by Chief Financial Officer Ian Arnof. Arnof, a Harvard MBA, continued Rapier’s efforts at restoring First Commerce’s grandeur. Importantly, in 1984 Arnof reorganized First Commerce from a one-bank holding company into a multibank holding company. This move, which was allowed under a new Louisiana law, permitted First Commerce to operate banks on a statewide basis, thereby increasing its ability to compete with nonbank financial institutions.
In a bold move to expand its reach and strength in Louisiana, First Commerce conducted a buying spree during 1984 and 1985. By 1985, the holding company had announced the acquisition of four major subsidiaries: City National Bank of Baton Rouge; Rapides Bank & Trust Company in Alexandria; The First National Bank of Lafayette; and The First National Bank of Lake Charles. First Commerce continued to acquire new banks and service subsidiaries during the mid-1980s, usually merging the banks into its five principal subsidiaries.
As a result of its massive expansion, deposits in First Commerce Corp.’s banks swelled to $1.8 billion in 1984, to $3 billion by 1988, and to a stunning $3.9 billion by 1991. Furthermore, despite huge losses incurred from write-offs of loans that were made in the 1970s, the company managed to keep its annual net income relatively steady at about $20 million throughout the 1980s. In addition, despite the successful implementation of labor-saving automation during the decade, First Commerce’s work force surged from 1,860 in 1983 to 3,400 by the early 1990s.
First Commerce’s growth during the 1980s may have appeared torrid and even excessive to the casual observer, particularly given the company’s boom-and-bust history. In actuality, however, its expansion reflected a dominant trend toward consolidation in the U.S. banking industry during the decade. Indeed, as smaller banks found themselves under increasing pressure to compete against nonbank financial institutions that were encroaching on their traditional turf, the number of banking entities in the United States plunged from about 13,000 in 1983 to less than 10,000 by 1990. Meanwhile, the number of multi-bank holding companies grew from about 300 to around 1,000. Furthermore, Arnof strived for safe and conservative growth during the decade, foregoing opportunities to harvest large returns in anticipation of even greater payoffs during the 1990s.
Despite a nasty U.S. and global recession that began in the late 1980s and lingered into the early 1990s, First Commerce continued to expand its operations and increase its revenue and earnings. In 1992, the company beat out 34 other bidders to acquire Pelican Homestead and Savings, of Metairie, Louisiana. This acquisition was announced shortly after First Commerce assumed the leading position in the Louisiana banking industry (based on earnings growth and capital strength) in January of 1992. The Pelican purchase, which added approximately $1.5 billion in deposits, was lauded by analysts as a shrewd buy.
Although the failed Pelican savings and loan (S&L) was purchased from the U.S. government, the move did not reflect a strategy of buying shaky banks in order to expand First Commerce’s reach in Louisiana. “Very few banks have been able to use an S&L acquisition to enter a market....” Arnof explained in a February 1992 issue of New Orleans City Business. “Our basic approach is to try to acquire customers that we can serve primarily through our existing infrastructure.”
In addition to acquisition efforts, First Commerce was striving to bolster its bottom line in the early 1990s through new services and advanced marketing techniques. For example, it was placing an increasing emphasis on direct marketing, which allowed it to advertise specialized offerings to target markets. It was utilizing direct mail, for instance, to sell automobile loans and to retain depositors in new bank acquisitions. “You’ll be seeing more specific ads about consumer products—loans, credit cards, automatic teller machines, deposit products—in addition to the traditional image advertising we’ve always had,” predicted Barry Mulroy, director of advertising, in a November 1992 issue of New Orleans City Business.
First Commerce’s growth and earnings strategies paid off in the early 1990s, as assets, deposits, and income soared. Net income, in fact, jumped from $22 million in 1990 to $34 million in 1991. In 1992, moreover, net income rocketed to $73 million before reaching a record $95 million in 1993. Deposits tracked income growth, swelling from $3.5 billion in 1990 to a weighty $5.2 billion by 1993. This growth was accompanied, however, by an unfortunate rise in First Commerce’s debt ratio (a measure of a firm’s ability to service its debt).
In an innovative move, First Commerce formed a nonprofit company in 1993 to augment its long list of financial services subsidiaries. The First Commerce Community Development Corporation (FCCDC) was established to increase the number of homes accessible to low- and middle-income residents in regions that it served. The FCCDC combines bank money with government grants to purchase land on which low-cost housing is built or existing homes are renovated. The company hoped to eventually establish a revolving fund that would be replenished each time a FCCDC property was sold. “This is an effort to address a major need in our communities,” said Kathleen Laborde, executive director of the program.
As it entered the mid-1990s, First Commerce planned to continue to expand its services and regional coverage. Evidencing its focus on growth, First Commerce acquired First Acadiana National Bank in January of 1994, merging it with The First National Bank of Lafayette. The company was also striving to increase the quality of its loans and to minimize its exposure to the forces that had nearly destroyed the company earlier in the century. These objectives were highlighted in the company’s statement of direction in 1994, which included four chief tenants: a commitment to quality; a market-driven, customer-oriented philosophy; a high-performance strategy; and positive corporate citizenship.
City National Bank of Baton Rouge; First National Bank of Commerce; The First National Bank of Lafayette; The First National Bank of Lake Charles; Rapides Bank & Trust Company in Alexandria.
Finn, Kathy, “Banking Industry Seeks Stability, Profits and Public Trust,” New Orleans City Business, January 14, 1991, Sec. 1, p. 1; “First Commerce Spends a Little, Gains a Lot in Pelican Deal,” New Orleans City Business, February 10, 1992, Sec. 1, p. 1.
McClain, Randy, “First Commerce, Others Take Steps to Address Affordable Housing Issue,” New Orleans City Business, Sec. 1, p. 26; “Direct Response Advertising Is Hot Topic Among Bank Marketers,” New Orleans City Business, November 16, 1992, Sec. 1, p. 24; “FNBC, Others Try for a Share of Pelican Deposits,” New Orleans City Business, March 9, 1992, Sec. 1, p. 26.
Thompson, E. Graham, “First Acadiana Joins First Commerce Banking Family,” Business Wire, June 30, 1993.
White, Joseph C, Eulogies in Bronze: The Story of First National Bank of Commerce, 1983.