Arkansas' First Commercial Corp. took an 8-cent-per-share hit to its 1994 earnings because its insurance carrier hasn't yet agreed to cover part of a $9.25 million lawsuit settlement.

The company reported 1994 net income of $48.5 million, or $2.02 per share, up 5% from 1993. Even with the $3 million charge, First Commercial reported its 11th year of record earnings. The company also added about $1 billion of assets to its balance sheet with four acquisitions.

Without the cost of the settlement, per share net income would have been $2.10, matching so-called street estimates by analysts of the company's 1994 income, said Lynn Wright, chief financial officer.

"It's certainly important to us, but it's not material to the company as a whole," Mr. Wright said. "That doesn't mean it's any less important."

The problem is that First Commercial's insurance carrier hasn't had enough time to decide whether the settlement warrants liability coverage, Mr. Wright said.

First Commercial's liability insurance covers the company for up to $3 million, but without a guarantee from the carrier, the bank chose to absorb the loss.

The remaining $6.25 million was also absorbed by First Commercial.

The $4.4 billion-asset company still expects to be reimbursed by its insurer, but officials weren't sure that would happen in time to be included in the audited annual report at the end of January.

The class-action lawsuit stemmed from First Commercial's investment of client trust money in mutual funds containing derivatives. The funds plummeted in value last year after interest rates rose.

The company chose to settle in the fourth quarter for $7.5 million, plus $1.75 million in attorney fees and other costs.

"It probably is surprising to some people to see them having to make good on a loss due to investing in derivative securities," said Peter Tuz, first vice president of Morgan Keegan Co., Memphis.

First Commercial has also hired an outside consulting firm to review the operations of its trust subsidiary and suggest improvements.

"We're always looking at our procedures and ways we can improve them," Mr. Wright said. "But we've been most concerned at this point in getting the matter behind us and getting our trust customers treated fairly."

Fourth-quarter net income was $11.1 million, down from $11.4 million during the same period of 1993, mostly because of the lawsuit.

The company also reported gains on foreclosed real estate of $1.6 million and cut its loan-loss reserve by $4.1 million in the fourth quarter.

Nonperforming loans were down to 0.52% of all loans.

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