SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-9477
FIRST COMMERCIAL BANCORP, INC.
------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 94-2693725
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
865 Howe Avenue, Sacramento, California 95825
---------------------------------------------
(address of principal executive offices) (Zip Code)
(916) 641-3288
(Registrant's telephone number, including area code)
-----------------------------------------------------
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes __X_ No ____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at
Class July 31, 1997
----- -------------
Common Stock, $.01 par value 846,127
<PAGE>
FIRST COMMERCIAL BANCORP, INC.
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996 -1-
Consolidated Statements of Income for the three
and six month periods ended June 30, 1997 and 1996 -2-
Consolidated Statements of Cash Flows for the six
months ended June 30, 1997 and 1996 -3-
Notes to Consolidated Financial Statements -4-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations -7-
PART II OTHER INFORMATION
Item 5. Other -12-
Item 6. Exhibits and Reports on Form 8-K -12-
Signatures -13-
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST COMMERCIAL BANCORP, INC.
Consolidated Balance Sheets (unaudited)
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
ASSETS
------
Cash and cash equivalents:
<S> <C> <C>
Cash and due from banks................................................. $ 8,676 9,410
Federal funds sold...................................................... 11,000 11,500
-------- --------
Total cash and cash equivalents..................................... 19,676 20,910
-------- --------
Investment securities - available for sale, at fair value.................. 41,266 38,229
Loans:
Commercial and financial................................................ 35,230 32,756
Real estate construction and development................................ 21,376 13,807
Real estate mortgage.................................................... 36,155 39,103
Consumer and installment................................................ 7,052 9,244
-------- --------
Total loans......................................................... 99,813 94,910
Unearned discount........................................................ (428) (413)
Allowance for possible loan losses....................................... (4,860) (4,597)
-------- --------
Net loans........................................................... 94,525 89,900
-------- --------
Bank premises and equipment, net of accumulated depreciation............... 1,791 1,894
Accrued interest receivable................................................ 1,195 1,197
Other real estate owned.................................................... 145 192
Other assets............................................................... 617 711
-------- --------
Total assets........................................................ $159,215 153,033
======== ========
LIABILITIES
-----------
Deposits:
Demand:
Non-interest bearing.................................................. $ 27,055 24,026
Interest bearing...................................................... 15,652 16,956
Savings................................................................ 31,678 30,042
Time:
Time deposits of $100 or more......................................... 10,593 9,284
Other time deposits................................................... 56,647 55,828
-------- --------
Total deposits...................................................... 141,625 136,136
Accrued interest payable................................................... 1,509 1,098
Accrued and other liabilities.............................................. 2,627 2,969
12% convertible debentures................................................. 6,500 6,500
-------- --------
Total liabilities................................................... 152,261 146,703
-------- --------
STOCKHOLDERS' EQUITY
--------------------
Preferred stock, $.01 par value, 5,000,000 shares authorized;
no shares issued and outstanding....................................... -- --
Common stock, $.01 par value, 10,000,000 shares authorized;
846,127 shares issued and outstanding at June 30, 1997
and December 31, 1996.................................................. 1,058 1,058
Capital surplus............................................................ 5,275 5,272
Retained earnings since elimination of accumulated deficit of $30,881,
effective December 31, 1996............................................ 570 --
Net fair value adjustment for securities available for sale................ 51 --
-------- --------
Total stockholders' equity.......................................... 6,954 6,330
-------- --------
Total liabilities and stockholders' equity.......................... $159,215 153,033
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
FIRST COMMERCIAL BANCORP, INC.
Consolidated Statements of Income (unaudited)
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
Interest income:
<S> <C> <C> <C> <C>
Interest and fees on loans................................... $ 2,440 2,283 4,700 3,933
Investment securities........................................ 673 707 1,206 1,668
Federal funds sold and other................................. 147 139 328 264
-------- ------- ------- ------
Total interest income.................................... 3,260 3,129 6,234 5,865
-------- ------- ------- ------
Interest expense:
Deposits:
Interest-bearing demand.................................... 56 64 112 154
Savings.................................................... 237 246 458 491
Time deposits of $100 or more.............................. 126 142 234 353
Other time deposits........................................ 803 658 1,604 1,431
Other borrowings............................................. 229 214 454 452
-------- ------- ------- ------
Total interest expense................................... 1,451 1,324 2,862 2,881
-------- ------- ------- ------
Net interest income...................................... 1,809 1,805 3,372 2,984
Provision for possible loan losses.............................. -- 450 -- 1,050
-------- ------- ------- ------
Net interest income after provision
for possible loan losses................................ 1,809 1,355 3,372 1,934
-------- ------- ------- ------
Noninterest income:
Service charges on deposit accounts
and customer service fees............................... 178 187 338 404
Other income............................................... 21 65 77 85
-------- ------- ------- ------
Total noninterest income................................. 199 252 415 489
-------- ------- ------- ------
Noninterest expense:
Salaries and employee benefits............................. 508 551 1,024 1,234
Occupancy, net of rental income............................ 156 306 329 485
Furniture and equipment.................................... 94 116 175 232
Federal Deposit Insurance Corporation premiums............. 4 107 8 221
Postage, printing and supplies............................. 36 132 85 260
Data processing fees....................................... 90 86 181 207
Legal, examination and professional fees................... 103 27 170 305
Communications............................................. 35 4 70 105
Losses and expenses on foreclosed
real estate, net of gains................................ 15 (35) 37 242
Other expenses............................................. 373 548 768 857
-------- ------- ------- ------
Total noninterest expense................................ 1,414 1,842 2,847 4,148
-------- ------- ------- ------
Income (loss) before income taxes........................ 594 (235) 940 (1,725)
Provision (benefit) for income taxes............................ 246 (250) 370 (580)
-------- ------- ------- ------
Net income (loss)........................................ $ 348 15 570 (1,145)
======== ======= ======= ======
Earnings (loss) per common share:
Primary...................................................... $ 0.41 0.02 0.67 (1.82)
Fully-diluted................................................ 0.34 0.02 0.59 (1.82)
======== ======= ======= ======
Weighted average shares of common stock and
common stock equivalents outstanding......................... 846,127 703,376 846,127 630,392
======== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
FIRST COMMERCIAL BANCORP, INC.
Consolidated Statements of Cash Flows (unaudited)
(dollars expressed in thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
--------
1997 1996
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income (loss)........................................................ $ 570 (1,145)
Adjustments to reconcile net income (loss) to net cash:
Depreciation and amortization of bank premises and equipment........... 120 171
Amortization, net of accretion......................................... 24 (161)
Provision for possible loan losses..................................... -- 1,050
Decrease in accrued interest receivable................................ 2 17
Interest accrued on liabilities........................................ 2,862 2,881
Payments of interest on liabilities.................................... (2,450) (2,763)
Provision for income taxes............................................. 370 580
Other, net............................................................. (647) (1,830)
--------- --------
Net cash provided by (used in) operating activities.................. 851 (1,200)
--------- --------
Cash flows from investing activities:
Maturities of investment securities...................................... 26,100 59,870
Purchases of investment securities....................................... (29,082) (28,805)
Net increase in loans.................................................... (5,164) (15,838)
Recoveries of loans previously charged off............................... 363 101
Purchases of bank premises and equipment................................. (17) (28)
Proceeds from sale of other real estate owned............................ 254 1,410
Other, net............................................................... (28) 414
--------- --------
Net cash provided by (used in) investing activities.................. (7,574) 17,124
--------- --------
Cash flows from financing activities:
Increase (decrease) in deposits.......................................... 5,489 (18,821)
Proceeds from issuance of common stock................................... -- 2,593
--------- --------
Net cash provided by (used in) financing activities.................. 5,489 (16,228)
--------- -------
Net decrease in cash and cash equivalents............................ (1,234) (304)
Cash and cash equivalents, beginning of period.............................. 20,910 18,768
--------- --------
Cash and cash equivalents, end of period.................................... $ 19,676 18,464
========= ========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
FIRST COMMERCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying consolidated financial statements of First Commercial Bancorp,
Inc. (FCB) and its sole subsidiary, First Commercial Bank (Bank), are unaudited
and should be read in conjunction with the consolidated financial statements
contained in the 1996 annual report on Form 10-K. In the opinion of management,
all adjustments, consisting of normal recurring accruals considered necessary
for a fair presentation of the results of operations for the interim period
presented herein, have been included. Operating results for the three and six
month periods ended June 30, 1997 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1997. Certain
reclassifications of 1996 amounts have been made to conform with the 1997
presentation.
FCB and the Bank were recapitalized during 1995 and 1996 through a
series of transactions with First Banks, Inc. (First Banks) and an offering of
FCB's common stock to existing common shareholders, other than First Banks. As a
result of these transactions, First Banks' ownership of FCB was 61.46% at June
30, 1997. If the 12% convertible debentures acquired by First Banks as part of
the recapitalization and the related accrued interest had been converted as of
June 30, 1997, First Banks' ownership of FCB would have increased to 77.72%. As
a result of these transactions, First Banks owns the majority of the voting
securities of FCB and, accordingly, controls the management and policies of FCB
and the election of its directors.
The net income (loss) per share has been computed using the weighted
average number of shares of common stock and common stock equivalents
outstanding during the period. In December 1996, FCB implemented a reverse stock
split, whereby each 125 shares of outstanding common stock was converted into
one share of common stock. For consistency, the number of shares referred to
throughout this report on Form 10Q were restated to give effect to the reverse
split.
The Board of Directors of FCB elected to implement an accounting
adjustment referred to as a "quasi-reorganization," effective December 31, 1996.
In accordance with accounting provisions applicable to a quasi-reorganization,
the assets and liabilities of FCB were adjusted to fair values and the retained
deficit of $30.9 million was eliminated as of December 31, 1996. FCB caused the
Bank to accomplish a similar quasi-reorganization, also effective December 31,
1996.
(2) Transactions with First Banks
Following the recapitalization, FCB began purchasing certain services
and supplies from First Banks. FCB's financial position and operating results
could significantly differ from those that would be obtained if FCB's
relationship with First Banks did not exist.
The Bank receives services under a management services agreement with
First Banks and a cost sharing agreement with First Bank & Trust, Irvine,
California, a wholly owned subsidiary of First Banks. The management fee
agreement provides that the Bank will compensate First Banks on an hourly basis
for its use of personnel for various functions including internal auditing, loan
review, income tax preparation and assistance, accounting and other management
and administrative services. Hourly rates for such services compare favorably
with those of similar services from unrelated sources, as well as the internal
costs of the Bank personnel which were used previously. Fees paid under this
agreement were $151,000 and $265,000 for the three and six months ended June 30,
1997, compared to $144,000 and $327,000 for the three and six months ended June
30, 1996, respectively.
Because of this affiliation through First Banks and the geographic
proximity of certain of these banking offices, the Bank and First Bank & Trust
share the cost of certain personnel and services used by both banks. This
includes the salaries and benefits of certain loan and administrative personnel.
The banks have entered into a cost sharing agreement for the purpose of
allocating these expenses between them. Expenses associated with loan
origination personnel are allocated based on the relative loan volume between
the banks. Costs of most other personnel are allocated on an hourly basis.
<PAGE>
Because this involves distributing essentially fixed costs over a larger asset
base, it allows each bank to receive the benefit of personnel and services at a
reduced cost. Fees paid under this agreement were $84,000 and $175,000 for the
three and six month periods ended June 30, 1997, compared to $144,000 for the
three and six months ended June 30, 1996, respectively.
Under a data processing agreement, a subsidiary of First Banks provided
data processing and various related services to FCB through March 31, 1997. Fees
paid under this agreement were $87,000 for the six months ended June 30, 1997,
compared to $82,000 and $201,000 for the three and six month periods ended June
30, 1996, respectively. Effective April 1, 1997, First Services L.P., a limited
partnership indirectly owned by First Banks' Chairman and his children through
its General Partners and Limited Partners, began providing data processing and
various related services to FCB. Fees paid under this agreement were $88,000 for
the three and six month periods ended June 30, 1997.
The management services agreement, cost sharing agreement and data
processing agreements are subject to the review and approval of the Bank's
regulatory authorities. The aggregate cost for such services is more economical
than that previously incurred separately by the Bank.
In connection with the recapitalization of FCB, First Banks purchased
convertible debentures of FCB of $1.5 million and $5.0 million on October 31,
1995 and December 28, 1995, respectively. The related interest expense for these
debentures was $216,000 and $215,000 for the three month periods ended June 30,
1997 and 1996, respectively, and $429,000 and $432,000 for the six month periods
ended June 30, 1997 and 1996, respectively.
The Bank has $16.5 million and $17.9 million in whole loans and loan
participations outstanding at June 30, 1997 and December 31, 1996, respectively,
that were purchased from banks affiliated with First Banks. In addition, the
Bank has sold $7.3 million and $2.0 million in loan participations to affiliates
at June 30, 1997 and December 31, 1996, respectively. These loans and loan
participations were acquired and sold at interest rates and terms prevailing at
the dates of their purchase or sale and under standards and policies followed by
the Bank.
(3) Regulatory Capital
FCB and the Bank are subject to various regulatory capital
requirements administered by federal and state banking agencies. Failure to meet
minimum capital requirements can cause the initiation of certain mandatory--and
possibly additional discretionary--actions by regulators which, if undertaken,
could have a direct material effect on FCB's and the Bank's financial condition.
Under capital adequacy guidelines and the regulatory framework for Prompt
Corrective Action applicable to all banks, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory accounting
practices. In addition, the Bank's capital amounts and regulatory classification
are also subject to qualitative judgments by the regulators about components,
risk weighting, and other factors which may effect regulatory actions.
Quantitative measures established by regulations to ensure capital
adequacy require the Bank to maintain certain minimum ratios. The Bank is
required to maintain a minimum risk-based capital to risk-weighted assets ratio
of 8.0%, with at least 4.0% being "Tier 1" capital (as defined in the
regulations). In addition, a minimum leverage ratio (Tier 1 capital to total
assets) of 3.0% plus an additional cushion of 100 to 200 basis points is
expected. In order to be well capitalized under Prompt Corrective Action
provisions, the Bank is required to maintain a total capital to risk weighted
assets ratio of at least 10%, a Tier 1 to risk weighted assets ratio of at least
6%, and a leverage ratio of at least 5%. As of November 12, 1996, the date of
the most recent notification from the Bank's primary regulator, the Bank was
categorized as adequately capitalized due to the existence of certain regulatory
agreements. As the regulatory agreements were terminated subsequent to November
12, 1996, management believes, as of June 30, 1997 and December 31, 1996, the
Bank is well-capitalized as defined by the FDIC Act.
<PAGE>
At June 30, 1997 and December 31, 1996, FCB's and the Bank's capital
ratios were as follows:
Risk-Based Capital Ratios
Total Tier 1 Leverage Ratio
---------------- ------------- ----------------
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
FCB 7.38% 6.95% 6.09% 5.66% 4.43% 4.25%
Bank 13.72 13.13 12.43 11.84 9.03 8.87
===== ===== ===== ===== ==== ====
(4) Proposed Business Combinations
On July 25, 1997, FCB and First Banks America, Inc. (FBA) jointly
announced an agreement in principle providing for the merger of the two
companies. Under the terms of the agreement, FCB will be merged into FBA, and
FCB's wholly owned subsidiary, First Commercial Bank, will be merged with FBA's
wholly owned subsidiary, Sunrise Bank of California (Sunrise Bank). In the
transaction, which is subject to the execution of a definitive agreement between
the companies, the approval of regulatory authorities and the approval of the
shareholders of both FCB and FBA, the FCB shareholders will receive .8888 shares
of FBA common stock for each share of FCB common stock which they hold. In
total, FCB's shareholders will receive approximately 752,000 shares of FBA
common stock in the transaction. The agreement in principal was negotiated and
approved by special committees of the boards of directors of FCB and FBA. These
special committees were comprised of independent directors of the two respective
boards of directors.
FBA operates two wholly owned subsidiary banks, BankTEXAS N.A., which
has six offices in Houston, Dallas and McKinney, Texas, and Sunrise Bank of
California, which has offices in Roseville and Citrus Heights, California.
Additionally, Sunrise Bank will be opening a third office in Rancho Cordova,
California in August 1997. As of June 30, 1997, FBA had total assets of $374
million, and reported net income of $1.17 million for the six month period then
ended. Approximately 30 percent of the outstanding stock of FBA is publicly held
and traded on the New York Stock Exchange. The remaining 70 percent is owned by
First Banks.
Finally, in a related transaction, to be completed only if the FCB/FBA
merger is completed, FCB will be exchanging its Campbell, California office,
with approximately $15.4 million in deposits, for an office in Walnut Creek,
California, with approximately $15.2 million in deposits, operated by First Bank
& Trust, a wholly owned subsidiary of First Banks.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
FCB is a registered Sacramento, California-based bank holding company
which reincorporated in Delaware in 1990 and conducts business through the Bank,
a California state-chartered bank. The Bank commenced operations in 1979, and
operates a commercial banking business through its headquarters office and five
branch offices located in Sacramento, Roseville (two branches), San Francisco,
Concord and Campbell, California. At June 30, 1997, FCB had approximately $159.2
million in total assets, $99.4 million in total loans, net of unearned discount,
$141.6 million in total deposits, and $7.0 million in total stockholders'
equity.
Through the Bank, FCB offers a broad range of commercial and personal
banking services including certificate of deposit accounts, individual
retirement and other time deposit accounts, checking and other demand deposit
accounts, interest checking accounts, savings accounts and money market
accounts. Loans include commercial, financial, agricultural, real estate
construction and development, residential real estate and consumer and
installment loans. Other financial services include automatic teller machines
and safe deposit boxes.
Financial Condition
FCB reported losses from operations for each of the three years ended
December 31, 1995 and the three months ended March 31, 1996. As a result of
these losses, FCB and the Bank had been placed under the terms of certain
regulatory agreements which placed significant restrictions on their operations,
including the payment of dividends. Through the recapitalization of FCB and the
Bank, the attainment of profitable operations subsequent to March 31, 1996 and
numerous other actions which have been taken by FCB and the Bank, all of the
regulatory agreements have been terminated, and, accordingly, FCB and the Bank
no longer operate under these restrictions.
FCB's total assets increased by $6.2 million to $159.2 million at June
30, 1997 from $153.0 million at December 31, 1996. The increase is primarily
attributable to total loans, net of unearned discount, which increased by $4.9
million to $99.4 million from $94.5 million at June 30, 1997 and December 31,
1996, respectively. The growth in the loan portfolio was funded by deposits,
which increased by $5.5 million to $141.6 million from $136.1 million at June
30, 1997 and December 31, 1996, respectively.
Results of Operations
Net Income
Net income for the three months ended June 30, 1997 was $348,000, in
comparison to net income of $15,000 for the same period in 1996. Net income for
the six months ended June 30, 1997 was $570,000, compared to a net loss of $1.15
million for the same period in 1996. The improved earnings are attributable to
the recapitalization of FCB and the Bank, the increase in net interest income,
the improvement in asset quality and the significant reduction in noninterest
expense. The growth in the loan portfolio coupled with improved asset quality
has contributed to earnings by eliminating the need for additional provisions
for possible loan losses for the six months ended June 30, 1997.
Net Interest Income
Net interest income was $1.81 million and $3.37 million, or 4.81% and
4.56% of average interest-earning assets, for the three and six month periods
ended June 30, 1997, respectively, in comparison $1.81 million and $2.98 million
or 4.97% and 4.02% of average interest earning assets for the same period in
1996. The improved net interest income for 1997 is attributable to the
rebuilding of the loan portfolio and the reduction in the level of nonperforming
assets during 1996.
<PAGE>
The following table sets forth certain information relating to FCB's
average balance sheet, and reflects the average yield earned on interest-earning
assets, the average cost of interest-bearing liabilities and the resulting net
interest income for the three and six month periods ended June 30:
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
---------------------------------------------- ---------------------------------------------
1997 1996 1997 1996
---------------------- --------------------- ----------------------- -------------------
Interest Interest Interest Interest
Average income/Yield Average income/ Yield/ Average Income/ Yield Average Income/ Yield
balance expense rate balance expense rate balance expense rate balance expense rate
(dollars expressed in thousands)
Assets
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans $ 97,313 2,440 10.05% $ 88,223 2,283 10.41% $ 95,073 4,700 9.96% $ 81,323 3,933 9.73%
Investment securities 42,803 673 6.31 47,357 707 6.00 41,548 1,206 5.85 58,062 1,668 5.78
Federal funds sold and other 10,743 147 5.49 10,402 139 5.37 12,519 328 5.28 9,916 264 5.35
-------- ------ ------- ----- -------- ----- -------- -----
Total interest-earning assets 150,859 3,260 8.66 145,982 3,129 8.62 149,140 6,234 8.43 149,301 5,865 7.90
------ ----- ----- -----
Nonearning assets 5,077 8,001 5,337 8,843
-------- -------- -------- --------
Total assets $155,936 $153,983 $ 154,477 $158,144
======== ======== ========= ========
Liabilities and Stockholders'Equity
Interest-bearing liabilities:
Interest-bearing demand deposits $ 15,963 56 1.41% $ 18,146 64 1.42% 16,137 112 1.40% $ 18,783 154 1.65%
Savings deposits 30,970 237 3.08 34,339 246 2.88 30,587 458 3.02 35,858 491 2.75
Time deposits of $100 or more 9,373 126 5.41 10,991 142 5.20 8,885 234 5.31 12,962 353 5.48
Other time deposits 57,901 803 5.58 51,450 658 5.14 58,498 1,604 5.53 53,088 1,431 5.42
-------- ------ ------- ----- -------- ----- -------- -----
Total interest-bearing deposits 114,207 1,222 4.30 114,926 1,110 3.88 114,107 2,408 4.26 120,691 2,429 4.05
Notes payable and other 7,239 229 12.69 7,319 214 11.76 7,177 454 12.76 7,153 452 12.71
-------- ------ ------- ----- -------- ----- ----- -----
Total interest-bearing
liabilities 121,446 1,451 4.79 122,245 1,324 4.36 121,284 2,862 4.76 127,844 2,881 4.53
------ ----- ----- -----
Noninterest-bearing liabilities:
Demand deposits 24,333 24,082 23,144 24,563
other liabilities 3,502 3,631 3,491 2,272
-------- ------- -------- --------
Total liabilities 149,281 149,958 147,919 154,679
Stockholders' equity 6,655 4,025 6,558 3,465
------- -------- --------
Total liabilities and
stockholders' equity $155,936 $153,983 $154,477 $158,144
======== ======== ======== =======
Net interest income 1,809 1,805 3,372 2,984
====== ===== ===== =====
Net interest margin 4.81% 4.97% 4.56% 4.02%
===== ===== ===== =====
</TABLE>
Provision for Possible Loan Losses
Improved asset quality has resulted in eliminating the need for a
provision for possible loan losses for the three and six month periods ended
June 30, 1997, compared to $450,000 and $1.05 million for the same periods in
1996. Tables summarizing nonperforming assets, past due loans and loan loss
experience are presented under "--Lending and Credit Management" of this Form
10-Q.
FCB realized net loan recoveries of $134,000 and $263,000 for the
three and six month periods ended June 30, 1997, compared to net loan
charge-offs of $951,000 and $1.14 million for the same periods in 1996. The
allowance for possible loan losses was $4.86 million, or 4.89% of loans, net of
unearned discount, as of June 30, 1997, compared to $4.60 million, or 4.86% of
loans, net of unearned discount, as of December 31, 1996.
<PAGE>
Noninterest Income
Noninterest income was $199,000 and $415,000 for the three and six
month periods ended June 30, 1997, compared to $252,000 and $489,000 for the
same periods in 1996. Noninterest income consists primarily of service charges
on deposit accounts and other related fees.
Service charges on deposit accounts and other related fees were
$178,000 and $338,000 for the three and six month periods ended June 30, 1997,
compared to $187,000 and $404,000 for the same periods in 1996. The decrease is
primarily attributable to the reduction in the number of demand deposit accounts
along with the reduction in the minimum balance requirement.
Noninterest Expense
Noninterest expense decreased by $430,000 and $1.30 million to $1.41
million $2.85 million for the three and six month periods ended June 30, 1997,
in comparison to $1.84 million and $4.15 million for the same periods in 1996.
The decrease is consistent with the cost savings anticipated by the data
processing conversion and centralization of various bank operating functions to
First Banks' systems completed during 1996 and the decrease in the level of
nonperforming assets during 1996 and related expenses associated with the
collection of those assets.
Salaries and employee benefits decreased to $508,000 and $1.02 million
for the three and six month periods ended June 30, 1997, in comparison to
$551,000 and $1.23 million for the same periods in 1996. The decrease reflects
the downsizing of the organization through the closure of a branch office in
August 1996 and the conversion and centralization of FCB's data processing and
various operating functions into First Banks' systems which was completed during
1996.
Occupancy expense decreased to $156,000 and $329,000 for the three and
six month periods ended June 30, 1997, in comparison to $306,000 and $485,000
for the same periods in 1996. The decrease is primarily attributable to closure
of a branch office in August 1996 and the downsizing of the corporate and
administrative offices resulting from the conversion and centralization of FCB's
data processing and various operating functions into First Banks' systems.
Legal, examination and professional fees were $103,000 and $170,000
for the three and six month periods ended June 30, 1997, respectively, in
comparison to $27,000 and $305,000 for the same periods in 1996. The overall
decrease for 1997 is attributable to the improved asset quality of the Bank and
the overall coordination of legal and professional fees consistent with the
current structure of FCB. FCB and the Bank utilize outside legal counsel and
other professional services in their management and disposition of nonperforming
assets.
Contributing further to the decrease in noninterest expense was a
reduction in the Federal Deposit Insurance Corporation (FDIC) premiums to $4,000
and $8,000 for the three and six month periods ended June 30, 1997,
respectively, compared to $107,000 and $221,000 for the same periods in 1996.
This decrease is consistent with the premium rate reductions instituted by the
FDIC and the improved financial condition of FCB.
Losses and expenses of holding and disposing of foreclosed real
estate, net of gains, totaled $15,000 and $37,000 for the three and six month
periods ended June 30, 1997. This compares to a gain, net of losses and expenses
of holding and disposing of foreclosed real estate, of $35,000 and losses and
expenses of holding and disposing of foreclosed real estate, net of gains, of
$242,000 for the same periods in 1996. The overall decrease is attributable to
the reduction in the level of foreclosed real estate during 1996.
Lending and Credit Management
Interest earned on the loan portfolio is the primary source of income
of FCB. Total loans, net of unearned discount, represented 62.4% and 61.7% of
total assets as of June 30, 1997 and December 31, 1996, respectively. Total
loans, net of unearned discount, were $99.4 million and $94.5 million at June
30, 1997 and December 31, 1996, respectively.
FCB's nonperforming loans, consisting of loans on a nonaccrual status
and loans on which the original terms have been restructured, were $1.08 million
and $864,000 at June 30, 1997 and December 31, 1996, respectively.
<PAGE>
The following is a summary of nonperforming assets and past due loans
at the dates indicated:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
(dollars expressed in thousands)
Nonperforming assets:
<S> <C> <C>
Nonperforming loans $ 1,081 864
Other real estate 145 192
--------- ---------
Total nonperforming assets $ 1,226 1,056
========= =========
Loans past due:
Over 30 days to 90 days $ 1,627 831
Over 90 days and still accruing 115 32
--------- ---------
Total past due loans $ 1,742 863
========= =========
Loans, net of unearned discount $ 99,385 94,497
========= =========
Allowance for possible loan losses to loans 4.89% 4.86%
Nonperforming loans to loans 1.09 .91
Allowance for possible loan losses to
nonperforming loans 449.58 532.06
Nonperforming assets to loans and other real estate 1.23 1.12
========= ==========
</TABLE>
The allowance for possible loan losses is based on past loan loss
experience, on management's evaluation of the quality of the loans in the
portfolio and on the anticipated effect of national and local economic
conditions relative to the ability of loan customers to repay. Each month, the
allowance for possible loan losses is reviewed relative to FCB's internal watch
list and other data utilized to determine its adequacy. The provision for
possible loan losses is management's estimate of the amount necessary to
maintain the allowance at a level consistent with this evaluation. As
adjustments to the allowance for possible loan losses are considered necessary,
they are reflected in the results of operations.
The following is a summary of the loan loss experience for the three
and six month periods ended June 30:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
----------------- --------------
1997 1996 1997 1996
----------------- ------------------
(dollars expressed in thousands)
<S> <C> <C> <C> <C>
Allowance for possible loan losses, beginning of period $ 4,726 5,804 4,597 5,388
------ ------ ----- -----
Loans charged-off (16) (1,007) (100) (1,236)
Recoveries of loans previously charged-off 150 56 363 101
------- ------ ----- -----
Net loan (charge-offs) recoveries 134 (951) 263 (1,135)
------- ------ ----- -----
Provision for possible loan losses -- 450 -- 1,050
------- ------ ----- -----
Allowance for possible loan losses, end of period $ 4,860 5,303 4,860 5,303
======= ====== ===== =====
</TABLE>
<PAGE>
Liquidity
The liquidity of FCB and the Bank is the ability to maintain a cash
flow which is adequate to fund operations, service debt obligations and meet
other commitments on a timely basis. The primary sources of funds for liquidity
are derived from customer deposits, loan payments, maturities, sales of
investments and operations. In addition, FCB and the Bank may avail themselves
of more volatile sources of funds through issuance of certificates of deposit in
denominations of $100,000 or more, federal funds borrowed and securities sold
under agreements to repurchase. The aggregate amount of these more volatile
funds was $11.2 million at June 30, 1997 and $10.0 million at December 31, 1996.
At June 30, 1997, FCB's more volatile sources of funds mature as
follows:
(dollars expressed in thousands)
Three months or less $ 4,527
Over three months through six months 3,881
Over six months through twelve months 1,992
Over twelve months 792
-------
Total $11,192
=======
Effects of New Accounting Standards
FCB adopted the provisions of SFAS 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities (SFAS 125)
prospectively on January 1, 1997. SFAS 125 established accounting and reporting
standards for transfers and servicing of financial assets and extinguishment of
liabilities.
The standards established by SFAS 125 are based on consistent
applications of a financial-components approach that focuses on control. Under
that approach, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. This statement provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings.
The implementation of SFAS 125 did not have a material effect on the
consolidated financial position or results of operation of FCB.
In February 1997, the FASB issued SFAS 128, Earnings Per Share (SFAS
128). SFAS 128 supersedes Accounting Principles Board Opinion No. 15, Earnings
Per Share (APB 15) and specifies the computation, presentation, and disclosure
requirements for earnings per share (EPS) for entities with publicly held common
stock or potential common stock. SFAS 128 was issued to simplify the computation
of EPS and to make the U.S. standard more compatible with the EPS standards of
other countries and that of the International Accounting Standards Committee. It
replaces the presentation of primary EPS with a presentation of basic EPS and
fully diluted EPS with diluted EPS. SFAS 128 also requires dual presentation of
basic and diluted EPS on the face of the income statement for all entities with
complex capital structures, and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation.
<PAGE>
Basic EPS, unlike primary EPS, excludes dilution and is computed by
dividing income available to common stockholders by the weighted average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised and converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. Diluted EPS is
computed similarly to fully diluted EPS under APB 15.
SFAS 128 is effective for financial statements for both interim and
annual periods ending after December 15, 1997. Earlier application is not
permitted. After adoption, all prior-period EPS data presented shall be restated
to conform with SFAS 128.
FCB does not believe the implementation of SFAS 128 will have a
material effect on its computation of earnings per share.
In February 1997, the FASB issued SFAS 129, Disclosure of Information
about Capital Structure (SFAS 129). SFAS 129 establishes standards for
disclosing information about an entity's capital structure. It applies to all
entities. SFAS 129 continues the previous requirements to disclose certain
information about an entity's capital structure found in APB 10, Omnibus
Opinion-1966, APB 15 and SFAS No. 47, Disclosure of Long-Term Obligations, for
entities that were subject to the requirements of those standards. SFAS 129
eliminates the exemption of nonpublic entities from certain disclosure
requirements of APB 15 as provided by SFAS No. 21, Suspension of the Reporting
of Earnings per Share and Segment Information by Nonpublic Enterprises. It
supersedes specific disclosure requirements of APB 10, APB 15 and SFAS 47 and
consolidates them in SFAS 129 for ease of retrieval and for greater visibility
to nonpublic entities.
SFAS 129 is effective for financial statements for periods ending after
December 15, 1997. It contains no change in disclosure requirements for FCB as
it was previously subject to the requirements of APB 10 and 15 and SFAS 47.
PART II - OTHER INFORMATION
Item 5 - Other
On July 25, 1997, FCB and First Banks America, Inc. (FBA) jointly
announced an agreement in principle providing for the merger of the two
companies. Under the terms of the agreement, FCB will be merged into FBA, and
FCB's wholly owned subsidiary, First Commercial Bank, will be merged with FBA's
wholly owned subsidiary, Sunrise Bank of California (Sunrise Bank). In the
transaction, which is subject to the execution of a definitive agreement between
the companies, the approval of regulatory authorities and the approval of the
shareholders of both FCB and FBA, the FCB shareholders will receive .8888 shares
of FBA common stock for each share of FCB common stock which they hold. In
total, FCB's shareholders will receive approximately 752,000 shares of FBA
common stock in the transaction. The agreement in principal was negotiated and
approved by special committees of the boards of directors of FCB and FBA. These
special committees were comprised of independent directors of the two respective
boards of directors.
FBA operates two wholly owned subsidiary banks, BankTEXAS N.A., which
has six offices in Houston, Dallas and McKinney, Texas, and Sunrise Bank of
California, which has offices in Roseville and Citrus Heights, California.
Additionally, Sunrise Bank will be opening a third office in Rancho Cordova,
California in August 1997. As of June 30, 1997, FBA had total assets of $374
million, and reported net income of $1.17 million for the six month period then
ended. Approximately 30 percent of the outstanding stock of FBA is publicly held
and traded on the New York Stock Exchange. The remaining 70 percent is owned by
First Banks.
<PAGE>
Finally, in a related transaction, to be completed only if the FCB/FBA
merger is completed, FCB will be exchanging its Campbell, California office,
with approximately $15.4 million in deposits, for an office in Walnut Creek,
California, with approximately $15.2 million in deposits, operated by First Bank
& Trust, a wholly owned subsidiary of First Banks.
Item 6 - Exhibits and Reports on Form 8-K
(a) The exhibit is numbered in accordance with the Exhibit Table of
Item 601 of Regulation S-K.
Exhibit
Number Description
11 Earnings per share
27 Article 9 - Financial Data Schedule
(EDGAR only)
(b) FCB filed no Reports on Form 8-K during the three months ended
June 30, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements 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 COMMERCIAL BANCORP, INC.
Registrant
Date: August 12, 1997 By: /s/Donald W. Williams
---------------------
Donald W. Williams
Chairman, President
and Chief Executive Officer
Date: August 12, 1997 By: /s/Kathryn L. Perrine
---------------------
Kathryn L. Perrine
Chief Financial Officer
<PAGE>
Exhibit 11
FIRST COMMERCIAL BANCORP, INC.
Calculation of Earnings per Share
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
---------------------------------- ----------------------------
1997 1996(1) 1997 1996(1)
---- ------- ---- -------
<S> <C> <C> <C> <C>
Average common shares outstanding 846,127 703,376 846,127 630,392
=========== =========== =========== ==========
Primary earnings per share:
Net income (loss) $ 347,529 15,169 569,605 (1,145,223)
Primary earnings (loss) per share $ 0.41 0.02 0.67 (1.82)
=========== =========== =========== =========
Fully diluted earnings (loss) per share:
12% convertible debentures $ 6,500,000 6,500,000 6,500,000 6,500,000
Accrued interest payable at beginning
of year 830,667 37,667 830,667 37,667
Conversion price per share of
common stock $ 12.50 12.50 12.50 12.50
Common stock issuable upon conversion
12% convertible debentures and
related accrued interest payable 586,453 523,013 586,453 523,013
Average shares of common stock
outstanding 846,127 703,376 846,127 630,392
----------- ----------- ------- ----------
1,432,580 1,226,389 1,432,580 1,153,405
=========== =========== ========= ==========
Net income $ 347,529 15,169 569,605 (1,145,223)
Interest expense on 12% convertible
debentures, including amortization
of debt issuance costs 215,541 215,541 428,916 431,083
Provision for related income taxes (75,439) (75,439) (150,471) (150,879)
----------- ----------- -------- -----------------
Fully-diluted net income $ 487,631 155,271 848,050 (865,019)
=========== =========== ======== =========
Fully-diluted earnings per share $ 0.34 .02 0.59 (1.82)
=========== =========== =========== =========
</TABLE>
(1) Conversion of 12% convertible debentures and related accrued interest
payable would be anti-dilutive for the three and six month periods ended June
30, 1996.
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000315547
<NAME> First Commercial Bancorp, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-31-1997
<PERIOD-END> Jun-30-1997
<CASH> 8,676
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 11,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 41,266
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 99,385
<ALLOWANCE> (4,860)
<TOTAL-ASSETS> 159,215
<DEPOSITS> 141,625
<SHORT-TERM> 0
<LIABILITIES-OTHER> 4,136
<LONG-TERM> 6,500
0
0
<COMMON> 1,058
<OTHER-SE> 5,896
<TOTAL-LIABILITIES-AND-EQUITY> 159,215
<INTEREST-LOAN> 4,700
<INTEREST-INVEST> 1,206
<INTEREST-OTHER> 328
<INTEREST-TOTAL> 6,234
<INTEREST-DEPOSIT> 2,408
<INTEREST-EXPENSE> 2,862
<INTEREST-INCOME-NET> 3,372
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,847
<INCOME-PRETAX> 940
<INCOME-PRE-EXTRAORDINARY> 940
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 570
<EPS-PRIMARY> .67
<EPS-DILUTED> .59
<YIELD-ACTUAL> 8.43
<LOANS-NON> 1,081
<LOANS-PAST> 115
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,795
<ALLOWANCE-OPEN> 4,597
<CHARGE-OFFS> 100
<RECOVERIES> 363
<ALLOWANCE-CLOSE> 4,860
<ALLOWANCE-DOMESTIC> 4,860
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
