SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One) FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission File No. 0-9477
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FIRST COMMERCIAL BANCORP, INC.
(Exact Name of registrant as specified in its charter)
Delaware 94-2683725
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
865 Howe Avenue, Sacramento, California, 95825
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (916) 641-3288
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Securities registered pursuant to Section 12(b) of
the Act:
Name of each exchange
Title of each class on which registered
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None N/A
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value of $12.50
(Title of class)
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by nonaffiliates of
the registrant, based on the closing price of the Common Stock on the NASDAQ
Small Cap Market System on March 14, 1997, was $3,176,345. For purposes of this
computation, officers, directors and 5% beneficial owners of the Registrant are
deemed to be affiliates. Such determination should not be deemed an admission
that such directors, officers or 5% beneficial owners are, in fact, affiliates
of the Registrant.
At March 18, 1996 there were 845,779 shares of the registrant's common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the fiscal year ended
December 31, 1996 (Annual Report) are incorporated by reference into Parts I and
II.
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PART I
Item 1. Business
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General. First Commercial Bancorp, Inc. (the Company or FCB) is a
Sacramento, California-based bank holding company incorporated in Delaware. FCB
conducts its business through its sole subsidiary, First Commercial Bank, a
California state chartered bank (the Bank) which commenced operations in 1979.
The Bank operates a commercial banking business through its headquarters office
in Sacramento and five branch offices located, in Roseville (two branches), San
Francisco, Concord and Campbell, California. At December 31, 1996, the Company
had $153.0 million in total assets, $94.5 million in total loans, net of
unearned discount, $136.1 million in total deposits, and $6.3 million in total
stockholders' equity. This compares to $169.5 million in total assets, $74.0
million in total loans, net of unearned discount, $156.2 million in total
deposits, and $3.6 million in total stockholders' equity at December 31, 1995.
In December 1996, FCB implemented a reverse stock split, whereby each 125
shares of outstanding common stock were converted into one share of common
stock. For consistency, the number of shares and per share data referred to
throughout this Report on Form 10-K were restated to give effect to the reverse
split, except with respect to Item 4, where actual vote counts are reported.
The Bank 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. The Bank's lending
services include commercial and industrial, agricultural, real estate
construction and development, residential real estate and consumer loans. Other
financial services include credit-related insurance, automatic teller machines
and safe deposit boxes.
FCB grew substantially during the 1980s, primarily through the acquisition
of 13 branches from California Canadian Bank and the acquisition of Citizens
Bank of Roseville. Between 1988 and 1992, the Company focused its lending
activities on real estate construction loans and loans to small- and
medium-sized businesses. FCB funded a substantial portion of its lending
activities through deposits from title insurance and escrow companies, and from
small- to medium-sized businesses. By December 31, 1993, FCB's total assets had
reached $349.8 million. Included in this were $83.7 million of real estate
construction and real estate secured loans, which represented 42.9% of the loan
portfolio. This asset growth was funded by $323.8 million of deposits, of which
$86.5 million, or 26.7% were title and escrow accounts. This focused lending and
deposit generation strategy involved certain risks which has contributed
significantly to FCB's financial performance.
The downturn in the California economy during the late 1980's and early
1990's, particularly related to the real estate market, led to significant asset
quality problems. As a result, FCB reported losses of $3.5 million, $7.3
million, $18.2 million and $7.4 million for the years ended December 31, 1992,
1993, 1994 and 1995, respectively. These substantial losses, and the related
asset quality problems, caused regulatory authorities to place FCB and the Bank
under a Memorandum of Understanding (MOU) and under certain regulatory orders
(Orders), respectively, which placed significant restrictions on their
operations, including restrictions on the payment of dividends, requirements for
the attainment of specified capital levels and reductions of classified assets.
As a result of the recapitalization discussed below, combined with numerous
other actions which have been taken by the Company, the MOU and Orders have been
terminated, and, accordingly, FCB and the Bank no longer operate under these
restrictions. Although FCB incurred a loss of $570,000 for the year ended
December 31, 1996, this loss was comprised of a loss of $1.16 million during the
first quarter of 1996, followed by net income of $590,000 during the remainder
of 1996.
Recapitalization and Financial Restructuring. As a result of its continuing
losses, by June 30, 1995, FCB's leverage capital ratio had decreased to (.23)%,
reflecting its negative capital position, and the Bank's leverage capital ratio
had decreased to 1.08%. The Bank's capital level caused it to be classified as
"critically undercapitalized" for regulatory purposes, subjecting it to the
Prompt Corrective Action (PCA) provisions of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 and requiring it to seek additional capital
or face the possible imposition of a conservatorship or receivership within 90
days. As a result, as of June 30, 1995, FCB and the Bank entered into a Stock
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Purchase Agreement with First Banks, Inc. (First Banks) and Mr. James F.
Dierberg, President and Chief Executive Officer of First Banks. Pursuant to the
Stock Purchase Agreement, Mr. Dierberg provided interim financing for the Bank
in the form of a purchase of $1.5 million of nonvoting preferred stock. On
August 7, 1995, FCB entered into an Amended and Restated Stock Purchase
Agreement (the Amended Agreement) with First Banks and Mr. Dierberg. The Amended
Agreement, and subsequent agreements entered into with First Banks, resulted in
a series of transactions as follows:
a. On August 22, 1995, First Banks acquired the Bank preferred stock from
Mr. Dierberg for $1.5 million.
b. On August 23, 1995, First Banks purchased 116,666,666 shares of Bank
common stock for an additional $3.5 million.
c. On October 31, 1995, First Banks purchased a convertible debenture of
FCB for $1.5 million, the proceeds of which were used to increase the
capital of the Bank.
d. Following the completion of a Special Stockholders' Meeting on
December 27, 1995, the shares of Bank preferred stock and Bank common
stock held by First Banks were exchanged for 400,000 shares of FCB
common stock. In addition, First Banks purchased a convertible
debenture of FCB for $5.0 million, the proceeds of which, except for
$250,000 retained by FCB, were contributed to the capital of the Bank.
e. On December 28, 1995, First Banks purchased an additional 120,000
shares of FCB common stock for $1.5 million, the proceeds of which
were used to increase the capital of the Bank.
On February 16, 1996, after its Amended Registration Statement was declared
effective by the Securities and Exchange Commission, FCB commenced an offering
of an aggregate of 477,520 shares of newly-issued common stock (Rights
Offering). The Rights Offering was composed of: (a) an offering to its existing
shareholders, other than First Banks, of 400,000 shares at $12.50 per share; (b)
an offering to individuals who were not shareholders of FCB of a maximum of
80,000 of the shares available in the Rights Offering which were not otherwise
subscribed; and (c) an offering of 77,520 shares in exchange for certain
outstanding dividend obligations and accrued interest thereon of FCB. The Rights
Offering was completed during the second quarter of 1996 and approximately
288,720 shares were issued in exchange for $2.97 million in cash and $643,000 in
outstanding dividend obligations. The Rights Offering provided $3.22 million of
capital to FCB, net of underwriting expenditures of $373,000. As a result of the
Rights Offering, First Banks' ownership was reduced to 61.46% prior to the
conversion of the debentures, or 77.24% if the debentures had been converted as
of December 31, 1996.
The proceeds from these transactions, net of amounts retained by the parent
company for corporate expenses and certain offering expenses incurred in the
above transactions, were used to increase the capital of the Bank. The leverage
ratios of FCB and the Bank as of December 31, 1996 have increased to 4.25% and
8.87%, respectively. Although FCB continues to be considered "significantly
undercapitalized" for regulatory purposes, the Bank is currently considered
"well capitalized."
In December 1996, FCB's Board of Directors elected to implement an
accounting change which is referred to as a "quasi-reorganization." This is an
accounting procedure which results in restating the carrying values of the
Company's assets and liabilities to their current fair values, and eliminating
the deficit which had accumulated in previous years. The Company concluded the
quasi-reorganization established a more appropriate basis upon which to evaluate
the financial position and results of operations. The implementation, which was
effective on December 31, 1996, did not have a significant impact on the
financial position or results of operations of FCB.
Economic Trends. The Bank's business and consumer customers are located in
Northern California. During the early 1990's, this area experienced a
significant economic downtown which particularly affected the real estate
sector. This recession was the result of a number of factors, but was
exacerbated and prolonged by the effects of military base closures and
reductions in the U.S. Department of Defense spending budgets. Mather Air Force
Base and the Sacramento Army Depot have been closed in the Sacramento region
while the Oakland-Alameda Naval Yard, Mare Island Naval Shipyard and the
Presidio in the San Francisco Bay Area are all scheduled for closure. McClellan
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Air Force Base in Sacramento also has been placed on a list of the bases which
are to be closed by the Federal government. During 1994, McClellan Air Force
Base employed approximately 11,000 people residing in the greater Sacramento
area.
The unemployment driven by military base closures and defense spending
cut-backs have lowered consumer confidence, deterred business expansion and
lowered real estate values.
Declining California property values had an adverse effect on the Company's
operations since 1991 because a significant amount of the Bank's loans are
secured by real estate. During the last part of 1994 and continuing into 1996,
the Northern California region appears to have experienced a slight economic
recovery. At December 31, 1996, the unemployment rate for the Sacramento and San
Francisco Bay Area regions had improved to 5.0% and 3.4%, respectively, from
7.1% and 6.0% at December 31, 1993, respectively.
Market Area and Customer Base. The Bank focuses on marketing a full range
of financial services to its business and consumer customers in the metropolitan
areas of California where its six offices are located. The Bank's business
customer base is diversified in the areas of manufacturing, service industries,
wholesale and retail trade, transportation and real estate construction.
The commercial banking activities of the Bank are directed toward
developing and supporting small to medium-sized businesses within the Bank's
service area, by providing a full range of financial services. The Bank also
markets its financial services to individuals in order to develop core deposits
and additional sources of noninterest income.
Lending Activities. Lending activities are conducted pursuant to a written
loan policy which has been adopted by the Bank. Each loan officer has a defined
lending authority and loans made by each such officer must be reviewed by a loan
committee of the Bank or Bank's board of directors depending upon the amount of
the loan request.
Generally, loans are limited to borrowers residing or doing business in the
market area of the Bank. The Bank's policy is to meet the quality loan demand
and credit needs of its local community before it considers the purchase of loan
participations, including loan participations with affiliates of First Banks.
The Company offers the following types of loans: commercial, real estate
construction and development, commercial and residential real estate, consumer
and installment loans. The loan portfolio composition for the five years ended
December 31, 1996 is included on page 10 of the Annual Report and is
incorporated herein by reference. For additional loan portfolio and related
credit risk information, see "Management's Discussion and Analysis - Lending and
Credit Management", on page 9 through 13 of the Annual Report.
Investments . The Bank has established a written investment policy which is
reviewed annually. The investment policy identifies investment criteria and
states specific objectives in terms of risk, interest rate sensitivity, and
liquidity. Among the criteria the investment policy directs the management of
the Bank to consider are the quality, term, and marketability of the securities
acquired for their respective investment portfolios. The Bank does not engage in
the practice of trading securities for the purpose of generating portfolio
gains. The investment portfolio composition is included on page 25 of the Annual
Report and is incorporated herein by reference. See also "Management's
Discussion and Analysis - Investment Securities, Interest Rate Risk and
Liquidity" on page 13 through 15 of the Annual Report.
Deposits. The Bank primarily obtains deposits from three sources:
individuals, businesses with whom it has established a banking relationship and
local government agencies. The Bank has a diversified deposit base. A mix of
demand and other deposits associated with the Bank's lending relationship is
supplemented by retail deposits generated by the Bank's northern California
branch network. At December 31, 1996, the Bank had no brokered or telemarketing
deposits, significant volatile liabilities, or escrow or title industry
deposits. A table summarizing the distribution of the Company's deposit accounts
and the weighted average nominal interest rates on each category of deposits for
the three years ending December 31, 1996 is included on page 13 of the Annual
Report and is incorporated herein by reference. See "Management's Discussion and
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Analysis - Liquidity" on page 14 through 15 of the Annual Report, incorporated
herein by reference, for additional information regarding the Bank's deposits.
Competition . In California and in the Bank's primary service area, major
banks dominate the commercial and retail banking industry. Among the advantages
which these banks may have over the Bank are their ability to finance
wide-ranging advertising campaigns and to allocate their investment assets,
including loans, to regions of higher yield and demand. By virtue of their
larger capital bases, such institutions have substantially greater lending
limits than the Bank and perform certain functions, including trust services and
international banking services, which are not presently offered directly by the
Bank but are offered indirectly by the Bank through correspondent institutions.
The Bank also competes for loans and deposits with savings and loan
associations, finance companies, money market funds, brokerage houses, credit
unions and non-regulated financial institutions.
In order to compete with other financial institutions in its primary
service area, the Bank relies principally upon direct personal contact by
directors, officers, employees, stockholders, and specialized promotion-oriented
services representatives.
From time to time, legislation is proposed or enacted which has the effect
of increasing the cost of doing business, limiting permissible activities or
affecting the competitive balance between banks and other financial
institutions. It is impossible to predict the competitive impact these and other
changes in legislation will have on commercial banking in general or on the
business of the Bank in particular.
Supervision and Regulation
General
The Company and the Bank are extensively regulated under federal and state
law. These laws and regulations are intended to protect depositors, not
shareholders. To the extent that the following information describes statutory
or regulatory provisions, it is qualified in its entirety by reference to the
particular statutory and regulatory provisions. Any change in applicable laws or
regulations may have a material effect on the business and prospects of the
Company. The operations of the Company may be affected by legislative changes
and by the policies of various regulatory authorities. The Company is unable to
predict the nature or the extent of the effects on its business and earnings
that fiscal or monetary policies, economic controls or new federal or state
legislation may have in the future.
The Company is a registered bank holding company under the Bank Holding
Company Act (BHC Act), and, as such, is subject to regulation, supervision and
examination by the Board of Governors of the FRB. The Company's majority
stockholder, First Banks, is also a registered bank holding company and is
subject to the regulation and supervision of the FRB. The Company is required to
file annual reports with the FRB and provide the FRB such additional information
as they may require.
The Bank, as a California state-licensed bank, is subject to regulation,
supervision and periodic examination by the SBD and the FDIC. The Bank is not a
member of the Federal Reserve System, but is nevertheless subject to certain
regulations of the FRB. The Bank's deposits are insured by the FDIC to the
maximum amount permitted by law, which is currently $100,000 per depositor in
most cases.
Recent and Pending Legislation
The enactment of the legislation described below has significantly affected
the banking industry generally and will have an ongoing effect on the Company
and the Bank in the future.
Financial Institutions Reform, Recovery, and Enforcement Act of 1989. The
Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA)
reorganized and reformed the regulatory structure applicable to financial
institutions generally. Among other things, FIRREA enhanced the supervisory and
enforcement powers for the federal bank regulatory agencies; required insured
financial institutions to guaranty repayment of losses incurred by the FDIC in
connection with the failure of an affiliated financial institution; required
financial institutions to provide their primary federal regulator with notice,
under certain circumstances, of changes in senior management and broadened
authority for bank holding companies to acquire savings institutions.
Under FIRREA, federal bank regulators were granted expanded enforcement
authority over "institution-affiliated parties" (i.e., officers, directors,
controlling stockholders, as well as attorneys, appraisers or accountants who
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knowingly or recklessly participate in wrongful action likely to have an adverse
effect on an insured institution). Federal banking regulators have greater
flexibility to bring enforcement actions against insured institutions and
institution-affiliated parties, including cease and desist orders, prohibition
orders, civil money penalties, termination of insurance and the imposition of
operating restrictions and capital plan requirements. In general, these
enforcement actions may be initiated for violations of laws and regulations and
unsafe or unsound practices. Since the enactment of FIRREA, the federal bank
regulators have significantly increased the use of written agreements to correct
compliance deficiencies with respect to applicable laws and regulations and to
ensure safe and sound practices. Violations of such written agreements are
grounds for initiation of cease-and-desist proceedings. FIRREA granted the FDIC
back-up enforcement authority to recommend enforcement action to an appropriate
federal banking agency and to bring such enforcement action against a financial
institution or an institution-affiliated party if such federal banking agency
fails to follow the FDIC's recommendation. In addition, FIRREA requires, except
under certain circumstances, public disclosure of final enforcement actions by
the federal banking agencies.
FIRREA also established a cross guarantee provision (Cross Guarantee)
pursuant to which the FDIC may recover from a depository institution losses that
the FDIC incurs in providing assistance to, or paying off the depositors of, any
of such depository institution's affiliated insured banks or thrifts. The Cross
Guarantee thus enables the FDIC to assess a holding company's healthy Bank
Insurance Fund (BIF) members and Savings Association Insurance Fund (SAIF)
members for the losses of any of such holding company's failed BIF and SAIF
members. Cross Guarantee liabilities are generally superior in priority to
obligations of the depository institution to its stockholders due solely to
their status as stockholders and obligations to other affiliates. Cross
Guarantee liabilities are generally subordinated to deposit liabilities, secured
obligations or any other general or senior liabilities, and any obligations
subordinate to depositors or other general creditors.
FIRREA requires a financial institution or holding company thereof to give
30 days' prior written notice to its primary federal regulator of any proposed
director or senior executive officer if the institution has been chartered or
has undergone a change in control within the preceding two years or is not in
compliance with the minimum capital requirements or otherwise is in troubled
condition, giving the regulator the opportunity to disapprove any such
appointment. The federal banking agencies have adopted rules to implement the
foregoing provisions that broadly define "senior executive officer" to include
the president, chief financial officer, chief lending officer, chief investment
officer, general counsel, or their functional equivalents, or any individual who
exercises significant influence over, or participates in, major policy making
decisions without regard to title, salary or compensation. The term "senior
executive officer" also includes any employee of another entity hired to perform
the functions of positions listed above. The term "troubled condition" with
respect to a financial institution means an institution: (i) that has received a
composite rating of 4 or 5 (i.e., one of the two lowest examination ratings) in
its most recent examination; (ii) that is the subject of a capital directive or
formal enforcement action or proceeding or written agreement entered into with
the federal banking agency relating to safety or soundness or financial
viability; or (iii) that is informed in writing by such agency that it has been
deemed to be in troubled condition.
The Federal Deposit Insurance Corporation Improvement Act of 1991. The
Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) was
adopted to recapitalize the BIF and impose certain supervisory and regulatory
reforms on insured depository institutions. In general, FDICIA includes
provisions, that among others: (i) increased the FDIC's line of credit with the
U.S. Treasury in order to provide the FDIC with additional funds to cover the
losses of federally insured banks; (ii) reformed the deposit insurance system,
including the implementation of risk-based deposit insurance premiums; (iii)
established a format for closer monitoring of financial institutions to enable
prompt corrective action by banking regulators when a financial institution
begins to experience financial difficulty; (iv) established five capital levels
for financial institutions ("well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized") that would impose more scrutiny and restrictions on less
capitalized institutions; (v) required the banking regulators to set operational
and managerial standards for all insured depository institutions and their
holding companies, including limits on excessive compensation to executive
officers, directors, employees and principal stockholders, and establish
standards for loans secured by real estate; (vi) adopted certain accounting
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reforms and require annual on-site examinations of federally insured
institutions, including the ability to require independent audits of banks and
thrifts; (vii) revised risk-based capital standards to ensure that they (a) take
adequate account of interest-rate changes, concentration of credit risk and the
risks of nontraditional activities, and (b) reflect the actual performance and
expected risk of loss of multi-family mortgages; and (viii) restricted
state-chartered banks from engaging in activities not permitted for national
banks unless they are adequately capitalized and have FDIC approval. Further,
FDICIA permits the FDIC to make special assessments on insured depository
institutions, in amounts determined by the FDIC to be necessary to give it
adequate assessment income to repay amounts borrowed from the U.S. Treasury and
other sources or for any other purpose the FDIC deems necessary. FDICIA also
grants authority to the FDIC to establish semiannual assessment rates on BIF and
SAIF member banks so as to maintain these funds at the designated reserve
ratios.
As noted above, FDICIA authorizes and, under certain circumstances,
requires the federal banking agencies to take certain actions against
institutions that fail to meet certain capital-based requirements. Under FDICIA,
the federal banking agencies are required to establish five levels of insured
depository institutions based on leverage limit and risk-based capital
requirements established for institutions subject to their jurisdiction, plus,
in their discretion, individual additional capital requirements for such
institutions. Under the final rules that have been adopted by each of the
federal banking agencies, an institution will be designated: (i)
well-capitalized if the institution has a total risk-based capital ratio of 10%
or greater, a core risk-based capital ratio of 6% or greater, and a leverage
ratio of 5% or greater, and the institution is not subject to an order, written
agreement, capital directive, or prompt corrective action directive to meet and
maintain a specific capital level for any capital measure; (ii) adequately
capitalized if the institution has a total risk-based capital ratio of 8% or
greater, a core risk-based capital ratio of 4% or greater, and a leverage ratio
of 4% or greater (or a leverage ratio of 3% or greater if the institution is
rated composite 1 in its most recent report of examination); (iii)
undercapitalized if the institution has a total risk-based capital ratio that is
less than 8%, a core risk-based capital ratio that is less than 4%, or a
leverage ratio that is less than 4% (or a leverage ratio that is less than 3% if
the institution is rated composite 1 in its most recent report of examination);
(iv) significantly undercapitalized if the institution has a total risk-based
capital ratio that is less than 6%, a core risk-based capital ratio that is less
than 3%, or a leverage ratio that is less than 3%; and (v) critically
undercapitalized if the institution has a ratio of tangible equity to total
assets that is equal to or less than 2%.
Undercapitalized institutions are required to submit capital restoration
plans to the appropriate federal banking agency and are subject to certain
operational restrictions. Moreover, companies controlling an undercapitalized
institution are required to guarantee the subsidiary institution's compliance
with the capital restoration plan subject to an aggregate limitation of the
lesser of 5% of the institution's assets or the amount of the capital deficiency
when the institution first failed to meet the plan.
Significantly or critically undercapitalized institutions and
undercapitalized institutions that did not submit or comply with acceptable
capital restoration plans will be subject to regulatory sanctions. A forced sale
of shares or merger, restriction on affiliate transactions and restrictions on
rates paid on deposits are required to be imposed by the banking agency unless
it is determined that they would not further capital improvement. FDICIA
generally requires the appointment of a conservator or receiver within 90 days
after an institution becomes critically undercapitalized. The federal banking
agencies have adopted uniform procedures for the issuance of directives by the
appropriate federal banking agency. Under these procedures, an institution will
generally be provided advance notice when the appropriate federal banking agency
proposes to impose one or more of the sanctions set forth above. These
procedures provide an opportunity for the institution to respond to the proposed
agency action or, where circumstances warrant immediate agency action, an
opportunity for administrative review of the agency's action.
As described in Note 16 of the consolidated financial statements, on page
32 of the Annual Report, and incorporated herein by reference, the Bank was
"well-capitalized" as of December 31, 1996.
In addition to the aforementioned minimum capital requirements, the
California Financial Code requires the State Banking Department (SBD) to order
any bank whose contributed capital is impaired to correct such impairment within
60 days of the date of the order. According to the California Financial Code,
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the contributed capital of a bank, defined as all stockholders equity other than
retained earnings, is deemed to be impaired whenever such bank has deficit
retained earnings in an amount exceeding 40% of such contributed capital. The
Bank's capital was considered impaired under the California Financial Code prior
to the implementation of an accounting change referred to as a
"quasi-reorganization" on December 31, 1996, upon approval from the
Superintendent of the SBD. A quasi-reorganization is an accounting procedure
which results in restating the carrying values of FCB's and the Bank's assets
and liabilities to current fair values, and eliminating the accumulated retained
deficit by offsetting it against contributed capital. As a consequence of the
quasi-reorganization, the Bank's capital was no longer considered impaired and
all capital impairment orders have been rescinded by the SBD.
Pursuant to FDICIA, the FRB and the other federal banking agencies adopted
real estate lending guidelines pursuant to which each insured depository
institution is required to adopt and maintain written real estate lending
policies in conformity with the prescribed guidelines. Under these guidelines,
each institution is expected to set loan to value ratios not exceeding the
supervisory limits set forth in the guidelines. A loan to value ratio is
generally defined as the total loan amount divided by the appraised value of the
property at the time the loan is originated. The guidelines require that the
institution's real estate policy also require proper loan documentation, and
that it establish prudent underwriting standards.
FDICIA also contained the Truth in Savings Act, which requires clear and
uniform disclosure of the rates of interest payable on deposit accounts by
depository institutions and the fees assessable against deposit accounts, so
that consumers can make a meaningful comparison between the competing claims of
financial institutions with regard to deposit accounts and products.
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. In
September 1994, Congress enacted the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (Interstate Act). Beginning in September 1995,
bank holding companies have the right to expand, by acquiring existing banks,
into all states, even those which had theretofore restricted entry. The
legislation also provides that, subject to future action by individual states, a
holding company will have the right, commencing in 1997, to convert the banks
which its owns in different states to branches of a single bank. A state is
permitted to "opt out" of the law which will permit conversion of separate banks
to branches, but is not permitted to "opt out" of the law allowing bank holding
companies from other states to enter the state. The federal legislation also
establishes limits on acquisitions by large banking organizations, providing
that no acquisition may be undertaken if it would result in the organization
having deposits exceeding either 10% of all bank deposits in the United States
or 30% of the bank deposits in the state in which the acquisition would occur.
Economic Growth and Regulatory Paperwork Reduction Act of 1996. The
Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA) was
signed into law on September 30, 1996. EGRPRA streamlined the non-banking
activities application process for well-capitalized and well-managed bank
holding companies. Under EGRPRA, qualified bank holding companies may commence a
regulatory approved non-banking acquisition or share purchase, assuming the size
of the acquisition does not exceed 10% of risk-weighted assets of the acquiring
bank holding company and the consideration does not exceed 15% of Tier I
capital. The foregoing prior notice requirement also applies to commencing
non-banking activity de novo which has been previously approved by order of the
FRB, but has not yet been implemented by regulations. EGRPRA also provides for
the recapitalization of the SAIF in order to bring it into parity with BIF.
Pending Legislation. Because of concerns relating to competitiveness and
the safety and soundness of the banking industry, Congress is considering a
number of wide-ranging proposals for altering the structure, regulation and
competitive relationships of the nation's financial institutions. Among such
bills are proposals to merge the BIF and the SAIF insurance funds, to eliminate
the federal thrift charter, to alter the statutory separation of commercial and
investment banking and to further expand the powers of banks, bank holding
companies and competitors of banks. It cannot be predicted whether or in what
form any of these proposals will be adopted or the extent to which the business
of the Company may be affected thereby.
Bank Holding Company and Bank Regulation
BHC Act. Under the BHC Act, the activities of a bank holding company are
limited to business so closely related to banking, managing or controlling banks
<PAGE>
as to be a proper incident thereto. The Company is also subject to capital
requirements applied on a consolidated basis in a form substantially similar to
those required of the Bank. The BHC Act also requires a bank holding company to
obtain approval from the FRB before: (i) acquiring, directly or indirectly,
ownership or control of any voting shares of another bank or bank holding
company if, after such acquisition, it would own or control more than 5% of such
shares (unless it already owns or controls the majority of such shares); (ii)
acquiring all or substantially all of the assets of another bank or bank holding
company; or (iii) merging or consolidating with another bank holding company.
The FRB will not approve any acquisition, merger or consolidation that would
have a substantially anticompetitive result, unless the anticompetitive effects
of the proposed transaction are clearly outweighed by a greater public interest
in meeting the convenience and needs of the community to be served. The FRB also
considers capital adequacy and other financial and managerial factors in
reviewing acquisitions or mergers.
The BHC Act also prohibits a bank holding company, with certain limited
exceptions: (i) from acquiring or retaining direct or indirect ownership or
control of more than 5% of the voting shares of any company which is not a bank
or bank holding company; or (ii) from engaging directly or indirectly in
activities other than those of banking, managing or controlling banks, or
providing services for its subsidiaries. The principal exceptions to these
prohibitions involve certain non-bank activities which, by statute or by FRB
regulation or order, have been identified as activities closely related to the
business of banking or of managing or controlling banks. In making this
determination, the FRB considers whether the performance of such activities by a
bank holding company can be expected to produce benefits to the public such as
greater convenience, increased competition or gains in efficiency in resources,
which can be expected to outweigh the risks of possible adverse effects such as
decreased or unfair competition, conflicts of interest or unsound banking
practices. FIRREA, which is described in more detail above, made a significant
addition to this list of permitted non-bank activities for bank holding
companies by providing that bank holding companies may acquire thrift
institutions upon approval by the FRB and the applicable regulatory authority
for the thrift institutions.
Insurance of Accounts. The FDIC provides insurance, through the BIF and the
SAIF, to depository institutions to a maximum of $100,000 for each insured
depositor. The Bank's deposits consist solely of BIF deposits. Through December
31, 1992, all FDIC-insured institutions, whether members of the BIF, the SAIF or
both, paid the same premium (23 cents per $100 of domestic deposits) under a
flat-rate system mandated by law. FDICIA required the FDIC to raise the reserves
of the BIF and the SAIF, implement a risk-related premium system and adopt a
long-term schedule for recapitalizing the BIF. Effective January 1, 1993, the
FDIC amended its regulations regarding insurance premiums to provide that a bank
or thrift would pay an insurance assessment within a range of 23 cents to 31
cents per $100 of domestic deposits, depending on its risk classification.
The FDIC adopted an amendment to the BIF risk-based assessment schedule
which effectively eliminated deposit insurance assessments for most commercial
banks and other depository institutions with deposits insured by the BIF, while
maintaining the assessment rate for SAIF-insured institutions in even the lowest
risk-based premium category at 23 cents for each $100.00 of assessable deposits.
Following the enactment of EGRPRA and as part of the recapitalization of the
SAIF, the overall assessment rate for 1997 was revised to equal 1.29 cents and
6.44 cents for each $100.00 of assessable deposits of BIF and SAIF,
respectively.
Regulations Governing Capital Adequacy. The federal bank regulatory
agencies use capital adequacy guidelines in their examination and regulation of
bank holding companies and banks. If the capital falls below the minimum levels
established by these guidelines, the bank holding company or bank may be denied
approval to acquire or establish additional banks or nonbank businesses or to
open facilities.
The FRB and the FDIC adopted risk-based capital guidelines for banks and
bank holding companies. The risk-based capital guidelines are designed to make
regulatory capital requirements more sensitive to differences in risk profile
among banks and bank holding companies, to account for off-balance sheet
exposure and to minimize disincentives for holding liquid assets. Assets and
off-balance sheet items are assigned to broad risk categories, each with
appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance sheet items. The FRB
has noted that bank holding companies contemplating significant expansion
programs should not allow expansion to diminish their capital ratios and should
<PAGE>
maintain ratios well in excess of the minimums. Under these guidelines, all bank
holding companies and federally regulated banks must maintain a minimum
risk-based total capital ratio equal to 8% of which at least 4% must be Tier 1
capital. Pursuant to FDICIA, banking regulators are to revise the risk-based
capital standards to take into account interest rate risk, concentration of
credit risk and the risks of nontraditional activities and multi-family
mortgages.
The FRB also has implemented a leverage ratio, which is Tier 1 capital to
total assets, to be used as a supplement to the risk-based guidelines. The
principal objective of the leverage ratio is to place a constraint on the
maximum degree to which a bank holding company may leverage its equity capital
base. The FRB requires a minimum leverage ratio of 3%. For all but the most
highly-rated bank holding companies and for bank holding companies seeking to
expand, however, the FRB expects that additional capital sufficient to increase
the ratio by at least 100 to 200 basis points will be maintained.
As previously discussed, the Bank was "well capitalized" at December 31,
1996. Management of the Company believes that the risk-weighting of assets and
the risk-based capital guidelines do not have a material adverse impact on the
Company's operations or on the Bank.
Community Reinvestment Act. The Community Reinvestment Act of 1977 (CRA)
requires that, in connection with examinations of financial institutions within
their jurisdiction, the federal banking regulators must evaluate the record of
the financial institutions in meeting the credit needs of their local
communities, including low and moderate income neighborhoods, consistent with
the safe and sound operation of those banks. These factors are also considered
in evaluating mergers, acquisitions and applications to open a branch or
facility. The CRA is likely to be the subject of regulatory reform in the next
few years, and proposed rules have been published for comment by the four
regulatory agencies noted above. Although it is not possible to predict the
extent to which the CRA will be modified, these changes may change the process
by which a financial institution, such as the Company and the Subsidiary Bank,
is able to grow through acquisitions or establish new branches.
Regulations Governing Extensions of Credit. The Bank is subject to certain
restrictions imposed by the Federal Reserve Act on extensions of credit to the
bank holding company or its subsidiaries, or investments in their securities and
on the use of their securities as collateral for loans to any borrowers. These
regulations and restrictions may limit the Company's ability to obtain funds
from the Bank for its cash needs, including funds for acquisitions and for
payment of dividends, interest and operating expenses. Further, under the BHC
Act and certain regulations of the FRB, a bank holding company and its
subsidiaries or its affiliates 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. For example, Banks may not generally require
a customer to obtain other services from an affiliated Bank, and may not require
the customer to promise not to obtain other services from a competitor, as a
condition to an extension of credit to the customer.
Banks are also subject to certain restrictions imposed by the Federal
Reserve Act on extensions of credit to executive officers, directors, principal
stockholders or any related interest of such persons. Extensions of credit: (i)
must be made on substantially the same terms, including interest-rates and
collateral as, and following credit underwriting procedures that are not less
stringent than, those prevailing at the time for comparable transactions with
persons not covered above and who are not employees; and (ii) must not involve
more than the normal risk of repayment or present other unfavorable features.
Banks are also subject to certain lending limits and restrictions on overdrafts
to such persons. A violation of these restrictions may result in the assessment
of substantial civil monetary penalties on the Bank or any officer, director,
employee, agent or other person participating in the conduct of the affairs of
the Bank or the imposition of a cease and desist order.
Reserve Requirements. The FRB requires all depository institutions to
maintain reserves against their transaction accounts and non-personal time
deposits. Reserves of 3% must be maintained against total transaction accounts
of $51.9 million or less (subject to adjustment by the FRB) and an initial
reserve of $1,557,000 plus 10% (subject to adjustment by the FRB to a level
between 8% and 14%) must be maintained against that portion of total transaction
accounts in excess of such amount. The balances maintained to meet the reserve
requirements imposed by the FRB may be used to satisfy liquidity requirements.
<PAGE>
Institutions are authorized to borrow from the Federal Reserve Bank
"discount window," but FRB regulations require institutions to exhaust other
reasonable alternative sources of funds before using this borrowing authority.
Dividends. The stockholders of the Company are entitled to receive
dividends when and as declared by its Board of Directors, out of funds legally
available, subject to the dividends preference, if any, on preferred shares that
may be outstanding and also subject to the restrictions of the Delaware General
Corporation Law. At December 31, 1996, there were no outstanding shares of
preferred stock. As discussed in Note 11 of the consolidated financial
statement, at page 30 of the Annual Report, FCB suspended the payment of
declared but unpaid dividends on July 9, 1992. The accrued dividends and accrued
but unpaid interest was approximately $326,000 at December 31, 1996. See Part 1
- - Item 1. "Business- Recapitalization."
The principal sources of cash revenue to the Company are dividends received
from the Bank. Dividends payable by the Bank to the Company are further
restricted under California law to the lesser of the Bank's retained earnings,
or the Bank's net income for the latest three fiscal years, less dividends
previously declared during that period, or, with the approval of the SBD, to the
greater of the retained earnings of the Bank, the net income of the Bank for its
last fiscal year or the net income of the Bank for its current fiscal year. In
addition, the FRB and the FDIC have indicated that it would generally be
considered to be an unsafe and unsound banking practice for banks to pay
dividends except out of current earnings. As a result of the capital contributed
to the Bank following the recapitalization and the quasi-reorganization
described in Part 1 - Item 1. "Business - Recapitalization," the Bank may be
allowed to pay dividends in the future from any earnings accumulated after
January 1, 1997, subject to applicable regulatory limitations. During 1996, 1995
and 1994, the Bank paid no dividends to FCB.
Usury Laws. The maximum legal rate of interest which the Bank charges on a
particular loan depends on a variety of factors such as the type of borrower,
the purpose of the loan, the amount of the loan and the date the loan is made.
There are several state and federal statutes which set maximum legal rates of
interest for various kinds of loans. If a loan qualifies under more than one
statute, a bank may often charge the highest rate for which the loan is
eligible.
Monetary Policy and Economic Control. The commercial banking business in
which the Company engages is affected not only by general economic conditions,
but also by the monetary policies of the FRB. Changes in the discount rate on
member bank borrowing, availability of borrowing at the "discount window," open
market operations, the imposition of changes in reserve requirements against
member banks deposits and assets of foreign branches, and the imposition of and
changes in reserve requirements against certain borrowings by banks and their
affiliates are some of the instruments of monetary policy available to the FRB.
These monetary policies are used in varying combinations to influence overall
growth and distributions of bank loans, investments and deposits, and this use
may affect interest rates charged on loans or paid on deposits. The monetary
policies of the FRB have had a significant effect on the operating results of
commercial banks and are expected to do so in the future. The monetary policies
of the FRB are influenced by various factors, including inflation, unemployment,
short-term and long-term changes in the international trade balance and in the
fiscal policies of the U.S. Government. Future monetary policies and the effect
of such policies on the future business and earnings of the Bank cannot be
predicted.
Employees
At December 31, 1996, the Company employed 49 employees. None of the
employees are subject to a collective bargaining agreement.
Executive Officers of the Registrant
Information regarding executive officers is contained in Item 10 of Part
III hereof (General Instruction G) and is incorporated herein by this reference.
<PAGE>
Item 2. Properties
- ----------------------
The Company's branch network is concentrated in the greater Sacramento and San
Francisco Bay areas and is summarized as follows:
Facility Square
Name Address Owned/Leased Footage
---- ------- ------------ -------
CAMPBELL 94 San Tomas Aquino Rd.
Campbell, CA 95008 Leased 6,000
CONCORD 2395 Willow Pass Rd.
Concord, CA 94520 Leased 5,856
ROSEVILLE 201 Vernon Street
Roseville, CA 95678 Leased 8,590
ROSEVILLE 1625 Douglas Blvd.
Roseville, CA 95661 Owned 10,760
SACRAMENTO 865 Howe Avenue
Sacramento, CA 95825 Leased 5,498
SAN 1000 Taraval Street
FRANCISCO San Francisco, CA 94116 Leased 5,000
Item 3. Legal Proceedings
- ---------------------------
The Company and the Bank are, from time to time, parties to various legal
actions arising in the normal course of business. Management believes that there
is no proceeding threatened or pending against the Company or Bank which, if
determined adversely, would have a material adverse effect on the business or
financial position of the Company or the Bank.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
The annual meeting of the Shareholders of the Company was held on December
5, 1996. At such meeting, the stockholders approved the election of Directors in
Class C, with Fred L. Harris receiving 99,773,526 votes and 490,565 votes were
withheld, in the election of Directors in Class A, Michael P. Morris received
99,817,399 votes and 416,196 votes were withheld, and Donald W. Williams
received 99,781,708 votes and 449,726 votes were withheld. There were no
broker non-votes.
With respect to the motion to amend the Corporation's Certificate of
Incorporation to effect a one-for-one hundred twenty-five reverse stock split,
the resolution was adopted, with 97,926,697 voted in favor of the resolution,
1,213,704 voted against the resolution and 81,009 shares abstained. There were
1,029,903 broker non-votes.
With respect to the motion to approve an amendment to the Corporation's
Certificate of Incorporation to delete Article EIGHTH from the Certificate, the
resolution was adopted, with 74,672,557 shares voted in favor of the adoption of
the resolution, 1,411,455 shares voted against the adoption of the resolution,
and 263,476 shares abstained. There were 25,607,152 broker non-votes.
With respect to the motion to approve an amendment of the Corporation's
Certificate of Incorporation to eliminate the several classes of the Board of
Directors, the resolution was adopted, with 75,668,546 voted in favor of the
adoption, 490,961 voted against adoption and 187,981 shares abstained. There
were 25,670,152 broker non-votes.
With respect to the motion to approve an amendment to the Corporation's
Certificate of Incorporation to provide that the beneficial owners of 10 percent
or more of the Company's Common Stock may call meetings of the Shareholders,
74,195,827 shares voted in favor of the adoption, 1,208,322 shares voted against
the adoption and 217,868 shares abstained. There were 25,594,252 broker
non-votes.
With respect to the motion to approve an amendment to the Corporation's
Certificate of Incorporation to provide that members of the Board of Directors
may be removed with or without cause by a majority vote of the Company's
shareholders, the resolution was adopted, with 75,986,888 shares voted in favor
of adoption, 509,489 shares voted against and 169,391 shares abstained. There
were 25,971,728 broker non-votes.
With respect to the ratification of the appointment of KPMG Peat Marwick
LLP as independent auditors for the Corporation for the fiscal year ending
December 31, 1996, 99,965,070 shares voted for the adoption of the resolution,
<PAGE>
224,939 shares voted against adoption and 90,675 shares abstained. There were no
broker non-votes.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- ------------------------------------------------------------------------------
Market Information. The Company's common stock was traded on the NASDAQ
National Market System under the symbol of "FCOB" until July 1, 1995. The
Company's common stock is currently listed on the NASDAQ Small Cap Market.
On July 9, 1992, the Company made the decision to suspend payment of the
third and fourth quarter dividend declared as of December 31, 1991, which
totaled $20.00 per share. The Company has and will continue to accrue interest
on these suspended dividends at the current legal rate until such time as the
dividends are paid to stockholders of record as of June 15, 1992 and September
14, 1992, respectively. The payment of the accrued dividends and declaration of
subsequent dividends is subject to approval of the FRB. See Part I - Item 1
Business - "Supervision and Regulation - Dividends."
Information regarding the number of stockholders and the market prices for
the Company's common stock since January 1, 1995 is set forth on page 35 of the
Annual Report and is incorporated herein by reference.
Item 6. Selected Financial Data
- -------------------------------
Selected Consolidated Financial Data, included on page 2 in the Annual
Report, is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations, included on pages 3 through 15 in the Annual Report, is incorporated
herein by reference.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The following consolidated financial statements, included in the Annual
Report, are incorporated herein by this reference.
Annual Report
Statement Reference
Independent Auditors' Report 17
Consolidated Balance Sheets -December 31, 1996 and 1995 18
Consolidated Statements of Income -Years Ended December 31,
1996, 1995 and 1994 19
Consolidated Statements of Changes in Stockholders'
Equity - Years Ended December 31, 1996, 1995 and 1994 20
Consolidated Statements of Cash Flows - Years Ended
December 31, 1965, 1995 and 1994 21
Notes to Consolidated Financial Statements 22
The Independent Auditors' Report of Arthur Andersen LLP on the consolidated
financial statements of the Company and the Bank for 1994 is included herein.
<PAGE>
Report of Independent Public Accountants
To the Stockholders and Board of Directors of
First commercial Bancorp, Inc.:
We have audited the consolidated statements of operations, changes in
stockholders' equity and cash flows of FIRST COMMERCIAL BANCORP, INC. (a
Delaware Corporation) and subsidiary as of December 31, 1994, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the two years in the period ended December 31, 1994 as
restated (see Note 16). These financial statements are the responsibility of the
Corporation'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 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 results of operations and cash flows of First
Commercial Bancorp, Inc. and subsidiary for the year ended December 31, 1994, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that both
First Commercial Bancorp, Inc. (the "Company") and First Commercial Bank (the
"Bank") will continue as going concerns. As discussed in Notes 2 and 14 to the
financial statements, both the Company and the Bank have entered into various
regulatory agreements (the "Agreements") with the Federal Deposit Insurance
Corporation (the "FDIC"), the California State Banking Department and the
Federal Reserve Bank of San Francisco. These Agreements require the Company and
the Bank, among other compliance terms, to maintain certain minimum capital
levels. The Company and the Bank are not in compliance with these minimum
capital requirements and have suffered recurring losses from operations. An
amended capital plan has been submitted to the bank regulators, which plan was
approved by the FDIC on January 30, 1995. The plan consists of both an intent to
decrease the Bank's asset size and the raising of capital through the sale of
stock. There is no assurance that the Company will be able to raise sufficient
capital to meet the minimum capital requirements. Failure to meet regulatory
capital requirements or comply with the terms of the Agreements could subject
the Company and the Bank to additional actions by the bank regulatory
authorities, including restrictions on operations, mandatory asset dispositions
or seizure. These matters raise substantial doubt about the ability of the
Company and the Bank to continue as going concerns. Their ability to continue as
going concerns is dependent on many factors, one of which is regulatory action
and the ability to raise sufficient capital. Management's plans in regard to
these matters are described in Notes 2 and 14. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/Arthur Andersen LLP
----------------------
San Francisco, California
March 26, 1997
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
- --------------------------------------------------------------------------------
Financial Disclosure
- --------------------
On November 13, 1995, the Audit Committee of the Board of Directors of the
Company approved the recommendation of the Board of Directors of the Company
to replace Arthur Andersen LLP, San Francisco, California, as the independent
accountant chosen to audit the Company's financial statements and approved the
appointment of KPMG Peat Marwick LLP, St. Louis, Missouri, as the Company's
independent accountant. The appointment of KPMG Peat Marwick LLP was effective
immediately.
Arthur Andersen LLP's report on the consolidated financial statements of
the Company for each of the last two fiscal years did not contain an adverse
opinion or a disclaimer of opinion, and was not qualified as to audit scope or
accounting principles. Their report on the Company's December 31, 1994 financial
statements dated March 29, 1995 did contain an explanatory paragraph due to
certain matters which raised substantial doubt about the Company's ability to
continue as a going concern and the Company's various regulatory agreements with
the FDIC, the FRB and the SBD.
During the Company's two most recent fiscal years and during the subsequent
period from December 31, 1996, through the date hereof, there has been no
disagreement with Arthur Andersen LLP on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure.
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
The Company's Board of Directors consisted of five (5) members at December
31, 1996. Pursuant to provisions of the Certificate of Incorporation of the
Company (as amended in December 1996) , directors of the Company are elected for
a one year term at the Annual Meeting of Stockholders. Each officer of the
Company is elected by the Board of Directors annually. The following table lists
the directors of the Company, their ages, their positions held with the Company
and the Bank, and their ownership of Common Stock as of December 31, 1996.
Director Position with the Company
Name Age Since or with the Bank
---- --- ----- ----------------
Michael P. Morris (1) 49 1995 Director of the Company and the
Bank
James E. Culleton 55 1996 Director of the Company and the
Bank, Secretary of the Company
and President of the Bank
Fred L. Harris 47 1996 Director of the Company and the
Bank
Allen H. Blake 54 1995 Director of the Company and the
Bank
Donald W. Williams 49 1995 Chairman of the Board, Chief
Executive Officer and Director
of the Company and the Bank.
President of the Company
- -----------------------
(1) Mr. Morris resigned as a Director effective February 25, 1997.
<PAGE>
The following table sets forth certain information with respect to the
executive officers of the Company:
<TABLE>
<CAPTION>
Positions Held with the Executive
Name Age Company or the Bank Officer (1) Since
- ---- --- ------------------- -----------------
<S> <C> <C>
Donald W. Williams 49 Chairman of the Board, President and 1995
Chief Executive Officer of the Company and
Chairman of the Board and Chief Executive
Officer of the Bank
James E. Culleton 55 Director and Secretary of the Company and 1996
Director and President of the Bank
Terrance M. McCarthy 42 Senior Vice President and Chief Credit Officer 1996
of the Company and the Bank
Kathryn L. Perrine 38 Vice President and Chief Financial Officer 1996
of the Company and the Bank
</TABLE>
- -----------------------
(1) The term "executive officer" means the president, any vice president in
charge of a principal business unit, division or function, any other officer or
person who performs a policy-making function for the Company, and any executive
officer of the Company's subsidiary who performs policy-making functions for the
Company.
Business Experience; Other Directorships
ALLEN H. BLAKE was appointed on November 28, 1995 to serve as the Interim
Chief Financial Officer of the Company and the Bank until a permanent Chief
Financial Officer could be employed. As of December 17, 1996, Ms. Perrine
assumed the post of Vice President and Chief Financial Officer. Mr. Blake is
also Executive Vice President and Chief Financial Officer of First Banks. Mr.
Blake joined First Banks as Vice President and Chief Financial Officer in 1984,
and in 1988 he was appointed to the office of Secretary and to the Board of
Directors of First Banks. In addition, Mr. Blake is Vice President, Chief
Financial Officer, Secretary and director of First Banks America, Inc., Houston,
Texas, a director of First Bank, headquartered in O'Fallon, Illinois and a
director and Secretary of First Bank, headquartered in Creve Coeur, Missouri.
First Banks America, Inc. and First Banks, Inc. each have a class of securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended.
JAMES E. CULLETON was appointed to the Board of Directors of the Company
and Bank on December 17, 1996. Mr. Culleton currently serves as President of
First Commercial Bank and Corporate Secretary of First Commercial Bancorp, Inc.
Mr. Culleton joined First Commercial bank in August, 1985 as Executive Vice
President and Chief Operating Officer. He was appointed Interim President of the
Bank and Bancorp in June, 1994 and to his current position in October, 1995. Mr.
Culleton was employed by Wells Fargo Bank as a Regional Vice President from
1965-1985.
FRED L. HARRIS served as a director of the Company from 1984 until December
27, 1995, at which time he resigned as a director. On March 26, 1996, Mr. Harris
was reappointed as a director and serves in such capacity as of this date. Mr.
Harris is an attorney and has practiced law since 1977. Mr. Harris is President
of Fred L. Harris, a Professional Law Corporation. Mr. Harris was a director and
secretary of Southwest Food Products, Inc. from May 1990 until August, 1990. On
August 23, 1991, Southwest Food Products, Inc. filed a voluntary petetion for
bankruptcy under Chapter XI of the United States Bankruptcy Code. Mr. Harris was
a director of El Pollo Asada, Inc. from September 1989 to May 1990.
MICHAEL P. MORRIS currently is, and for the past four years has been, the
Chief Financial Officer of Stille Holding Company, a $200 million private
company with two retail subsidiaries and one real estate subsidiary. Prior to
that time, Mr. Morris was a partner for six years in the Sacramento office of
KPMG Peat Marwick LLP, a worldwide CPA firm. While with KPMG Peat Marwick LLP,
Mr. Morris specialized as a banking audit partner with extensive experience
auditing community banks in Northern California. Mr. Morris joined KPMG Peat
Marwick LLP in 1978. Mr. Morris resigned as a director, effective February 25,
1997.
DONALD W. WILLIAMS is Executive Vice President and Chief Credit Officer of
First Banks. Mr. Williams is Chairman of the Board, Chief Executive Officer of
the Bank. In addition, he is Chairman of the Board and Chief Executive Officer
<PAGE>
of CCB Bancorp, First Bank & Trust and Sunrise Bank of California, Roseville,
California and director of First Bank, headquartered in St. Louis County,
Missouri, First Banks America, Inc. and BankTEXAS N. A., both of which are
headquartered in Houston, Texas. From 1989 to the time he assumed his positions
with First Banks, he was Senior Vice President at Mercantile Bank of St. Louis,
N.A., where he was responsible for credit approval. First Banks America, Inc.
and First Banks, Inc. each have a class of securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended. KATHRYN L.
PERRINE is Vice President and Chief Financial Officer of the Company and the
Bank. Ms. Perrine is also serving as Vice President and Chief Financial Officer
and Director of First Bank & Trust, an affiliate of First Banks. Ms. Perrine
joined First Banks in 1996. From 1991 to the time she assumed her position with
First Banks, she was Vice President and Controller of Queen City Bank, a
commercial bank acquired by First Bank & Trust in 1996.
TERRANCE M. MCCARTHY is Senior Vice President and Chief Credit Officer of
the Company and the Bank. In addition, he is Senior Vice President and Chief
Credit Officer and Director of First Bank & Trust, Irvine California. He is also
Senior Vice President, Chief Credit Officer and Director of Sunrise Bank of
California, Roseville. Mr. McCarthy was formerly Executive Vice President and
Chief Credit Officer of Queen City Bank, Long Beach, California, which was
acquired by First Bank & Trust in 1996. From 1983 to 1994, prior to joining
Queen City Bank, he was Executive Vice President of Nation Bank of Long Beach
where he was responsible for administration of the Bank's lending and deposit
activities.
No director or executive officer of the Company has any family relationship
with any other director or executive officer of the Company, or director or
officer of the Bank.
Except as set forth above, no director of the Company is a director of any
other company with a class of securities registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended, or subject to the requirements
of Section 15(d) of such Act or of any company registered as an investment
company under the Investment Company Act of 1940, as amended.
Messrs. Blake and Williams were elected to the Board of Directors of the
Company in accordance with the terms of the Amended Agreement with First Banks.
Committees of the Board of Directors
The Board of Directors of the Company has established an Audit Committee
which consists of Mr. Harris, Chairman, and Mr. Morris. The functions of the
Audit Committee are, among other things: (1) to recommend the appointment of and
to oversee a firm of independent certified public accountants whose duty is to
audit the books and records of the Company and the Bank for the fiscal year for
which they are appointed; (2) to monitor the Company's system of internal
controls and oversee compliance with policies; (3) to review the adequacy of the
Company's controls of regulatory and financial accounting and reporting; (4) to
oversee the internal audit functions; and (5) to monitor and analyze the results
of internal and regulatory examinations.
<PAGE>
<TABLE>
<CAPTION>
Item 11. Executive Compensation
The following table sets forth the compensation for the named executive
officer for the last three years, or for the shorter period during which they
have been involved in such a capacity by the Company.
- ----------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term
Compensation Awards
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Name and principal position Year Salary Bonus ($) Other Annual Securities All Other
($)(1) Compensation Underlying Options Compensation ($)
($)(1) (#)
- ----------------------------------------------------------------------------------------------------------------
James E. Culleton 1996 $ 90,000 -0- -0- -0- $ 1,575
Secretary of the Company 90,000
and President of the Bank
- ----------------------------------------------------------------------------------------------------------------
1995 156,405 -0- -0- -0- 1,407
- ----------------------------------------------------------------------------------------------------------------
1994 162,937 -0- -0- -0- 5,437
- ----------------------------------------------------------------------------------------------------------------
Donald W. Williams 1996 N/A(4) N/A N/A N/A N/A
Chairman of the Board,
President and Chief
Executive Officer of the
Company (2)
- ----------------------------------------------------------------------------------------------------------------
1995 N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------
1994 N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------
Kathryn L.Perrine 1996 N/A N/A N/A N/A N/A
Vice President and Chief
Financial Officer of the
Bank (3)
- ----------------------------------------------------------------------------------------------------------------
1995 N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------
1994 N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------
Terrance M. McCarthy 1996 N/A N/A N/A N/A N/A
Executive Vice President
and Chief Credit Officer
of the Bank (4)
- ----------------------------------------------------------------------------------------------------------------
1995 N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------
1994 N/A N/A N/A N/A N/A
================================================================================================================
</TABLE>
(1) Threshold of $50,000 or 10% of total salary and bonus compensation not met.
(2) Mr. Williams began serving as President and Chief Executive Officer of the
Company effective December 27, 1995. Mr. Williams assumed the position of
Chairman of the Board of the Company effective March 18, 1996. Mr. Williams is
compensated for such services pursuant to the terms of the Management Services
Agreement entered into between the Company and First Banks. See "Employment
Arrangements and Agreements" herein..
(3) Ms. Perrine began serving as Vice President and Chief Financial Officer of
the Company and the Bank effectiveDecember 17, 1996. Ms. Perrine is compensated
for such service pursuant to the terms of the Cost Sharing Agreement entered
into between the Company and First Bank & Trust. See "Compensation Committee
Interlocks and Insider Participation" herein.
(4) Mr. McCarthy began serving as Executive Vice President and Chief Credit
Officer of the Company and the Bank in 1996. Mr. McCarthy is compensated for
such service pursuant to the terms of the Cost Sharing Agreement entered into
between the Company and First Bank & Trust. See "Compensation Committee
Interlocks and Insider Participation" herein.
<PAGE>
Stock Option Grants and Exercises
The Company maintains the 1980 Amended and Restated Employee Stock Option
Plan (the Employee Plan). The Employee Plan is administered by the Board of
Directors or a committee appointed by the Board (in either case, the Committee).
The Company has 6,264 shares of its Common Stock reserved for issuance as stock
options under the Option Plan.
The Employee Plan provides for both the grant of "incentive stock options,"
as defined in Section 422A of the Code, and non-statutory options (options which
do not meet the requirements of Section 422A) to employees and officers of the
Company (including any director who is also an employee). The exercise price of
any option granted under the Employee Plan may not be less than 100% of the fair
market value of the Common Stock of the Company on the date of grant. No
incentive option may be first exercisable in any year for shares having an
aggregate fair market value at the time of grant in excess of $100,000. Shares
subject to options under the Employee Plan may be purchased for cash or in
exchange for shares of the Common Stock or other valid consideration.
Unless otherwise provided by the Board, an option granted under the
Employee Plan and not exercised within ten years expires, and the shares subject
to the option become available for future grants. The Committee determines to
whom options will be granted and the terms of each option granted, including the
exercise price, number of shares subject to the option, the vesting provisions
thereof, and whether the option will be an incentive or non-statutory option.
The Employee Plan may be amended, suspended or terminated by the Board, but no
such action may impair rights under a previously granted option. Each option is
generally exercisable during the lifetime of the optionee only so long as the
optionee remains employed by the Company. No option is transferable by the
optionee other than by will or the laws of descent and distribution. The
Employee Plan will expire in March 1997 unless terminated earlier by the Board
of Directors.
There were no options granted under the Employee Plan during the 1996
fiscal year to any of the executive officers of the Company or the Bank.
The following table sets forth the aggregated option exercises for the year
ended December 31, 1996 and option values at December 31, 1996, for the named
executive officer, or for the shorter period during which they have been
involved in such a capacity by the Company.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
------------------------------- --------------------------- ----------------------------- ----------------------
Number of securities Value of unexercised
underlying unexercised in-the-money options
options at fiscal year-end at fiscal year-end
------------------------------- --------------------------- ----------------------------- ----------------------
------------------------------- --------------- ----------- ----------------------------- ----------------------
Shares Value Exercisable/ Exercisable/
Name acquired on Realized unexercisable unexercisable
exercise (#) ($)
------------------------------- --------------- ----------- ----------------------------- ----------------------
------------------------------- --------------- ----------- ----------------------------- ----------------------
<S> <C> <C> <C> <C>
James E. Culleton None N/A 264/96(1) -0-/-0-(2)
President of the Bank
------------------------------- --------------- ----------- ----------------------------- ----------------------
------------------------------- --------------- ----------- ----------------------------- ----------------------
Donald W. Williams, None N/A -0-/-0- -0-/-0-
Chairman of the Board, Chief
Executive Officer and
President of the Company
------------------------------- --------------- ----------- ----------------------------- ----------------------
------------------------------- --------------- ----------- ----------------------------- ----------------------
Kathryn L. Perrine None N/A -0-/-0- -0-/-0-
Vice President and Chief
Financial Officer of the Bank
------------------------------- --------------- ----------- ----------------------------- ---------------------
------------------------------- --------------- ----------- ----------------------------- ---------------------
Terrance M. McCarthy None N/A -0-/-0- -0-/-0-
Executive Vice President and
Chief Credit Officer of the
Bank
------------------------------- --------------- ----------- ---------------------------- ---------------------
</TABLE>
(1) Includes 120 shares granted on September 26, 1989 at $1,390.00 per share;
and 240 shares granted on March 25, 1992 at $922.50 per share.
(2) As of December 31, 1996, the exercise price of the options granted to Mr.
Culleton exceeded the closing price of $10.50 per share of Common Stock.
<PAGE>
Employment Arrangements and Agreements
Arrangement with Donald W. Williams. Donald W. Williams is serving as the
Chairman of the Board, President and Chief Executive Officer of the Company, as
well as Chairman of the Board and Chief Executive Officer of the Bank. Mr.
Williams also is an Executive Vice President and the Chief Credit Officer of
First Banks and serves in other positions for affiliates of First Banks. Mr.
Williams is compensated by First Banks independent of his services to the
Company. First Banks is reimbursed for Mr. Williams' services to the Company and
the Bank through the Management Services Agreement entered into between the Bank
and First Banks. Under the Management Services Agreement, Mr. Williams' services
are billed to the Bank on an hourly basis at rates ranging from $40 to $65 per
hour, depending on the type of service rendered. See "Certain Transactions and
Indebtedness of Management" below.
Arrangement with Allen H. Blake. Allen H. Blake is serving as a Director of
the Company and the Bank. Mr. Blake also is serving as Executive Vice President
and Chief Financial Officer of First Banks, as well as serving in other
positions for affiliates of First Banks. Mr. Blake is compensated by First Banks
independent of his services to the Company. First Banks is reimbursed for Mr.
Blake's services to the Company and the Bank through the Management Services
Agreement entered into between the Bank and First Banks. Under the Management
Services Agreement, Mr. Blake's services are billed to the Bank on an hourly
basis at rates ranging from $40 to $65 per hour, depending on the type of
service rendered. See "Certain Transactions and Indebtedness of Management"
below.
Employment Contract with James E. Culleton. Mr. Culleton entered into an
employment agreement with the Company and the Bank on November 19, 1991, which
is amended and restated effective January 1, 1996, and pursuant to which Mr.
Culleton serves as President and Chief Operating Officer of the Bank. The
amended employment contract has a three (3) year term commencing January 1,
1996. Until January 1, 1996, Mr. Culleton's prior employment contract provided
for an annual base salary of $131,316 with annual consumer price index
adjustments of not less than 6% nor more than 10%, and an annual net income
performance bonus equal to 1% of after-tax net income above a 5% return on the
tangible equity capital of the Bank. During 1995, Mr. Culleton's base salary
under the agreement was $156,405.12. Effective January 1, 1996, Mr. Culleton's
annual base salary was $90,000, subject to periodic review by the Board of
Directors. Mr. Culleton is also entitled to receive any bonus granted to him at
the discretion of the Board of Directors. Mr. Culleton is entitled to
participate in all of the benefit plans which are generally available to members
of the Company's and the Bank's senior management. In the event that Mr.
Culleton's employment with the Bank is terminated for any reason other than
cause or by Mr. Culleton himself, he will be entitled to receive a severance
payment of $235,000, less any amount of annual salary paid to him from January
1, 1996 through the date of termination. At execution of the amended agreement,
Mr. Culleton was paid for accrued but unused vacation time at his then-current
salary rate.
<PAGE>
Arrangement with Kathryn L. Perrine. Kathryn L. Perrine is serving as a
Vice President and Chief Financial Officer of the Company and the Bank. Ms.
Perrine also is serving as Vice President and Chief Financial Officer of First
Bank & Trust, as well as serving in other positions for affiliates of First
Banks. Ms. Perrine is compensated by First Bank & Trust independent of her
services to the Company and the Bank. First Bank & Trust is reimbursed for Ms.
Perrine's services to the Company and the Bank through the Cost Sharing
Agreement entered into between the Bank and First Bank & Trust. Under the Cost
Sharing Agreement, Ms. Perrine's services are billed to the Bank on an hourly
basis at rates ranging from $40 to $65 per hour, depending on the type of
service rendered. See "Compensation Committee Interlocks and Insider
Participation" below.
Arrangement with Terrance M. McCarthy. Terrance M. McCarthy is serving as a
Senior Vice President and Chief Credit Officer of the Company. Mr. McCarthy also
is serving as Senior Vice President and Chief Credit Officer of First Bank &
Trust, as well as serving in other positions for affiliates of First Banks. Mr.
McCarthy is compensated by First Bank & Trust independent of his services to the
Company and the Bank. First Bank & Trust is reimbursed for Ms. Perrine's
services to the Company and the Bank through the Cost Sharing Agreement entered
into between the Bank and First Bank & Trust. Under the Cost Sharing Agreement,
Mr. McCarthy's services are billed to the Bank on an hourly basis at rates
ranging from $40 to $65 per hour, depending on the type of service rendered. See
"Compensation Committee Interlocks and Insider Participation" below.
Compensation Committee Interlocks and Insider Participation
The Board of Directors does not have a Compensation Committee, and the
entire Board performs responsibilities which would otherwise be assigned to that
committee. Messrs. Blake and Williams are the only individuals of the Company or
the Bank who participate as members of the Board of Directors in deliberations
regarding executive officer compensation. As noted above, they do not receive
any compensation from the Company for their services. First Banks, of which
Messrs. Blake and Williams are executive officers, provides various services to
the Company and the Bank for which it is compensated.
The Company and the Bank have entered into a Cost Sharing Agreement dated
December 21, 1995 with First Bank & Trust, a wholly-owned subsidiary of First
Banks. The Cost Sharing Agreement is designed to allow the Company and the Bank
to share the benefits, services and costs of certain personnel employed by First
Bank & Trust, including services in the areas of lending, human resources and
branch administration. Similarly, the Bank has entered into a Management
<PAGE>
Services Agreement dated December 21, 1995 with First Banks, pursuant to which
First Banks or certain subsidiaries of First Banks may provide the Bank with
services in the areas of lending, human resources, corporate audit, general
accounting, asset/liability management, investments, planning and budgets,
branch administration and purchasing and accounts payable. Both the Cost Sharing
Agreement and the Management Services Agreement contain provisions requiring
services rendered to the Bank to be provided on the same terms and conditions,
including audit standards, that are substantially the same, or at least as
favorable to the Bank, as then prevailing at the time for comparable
transactions with, or not involving, other nonaffiliated companies. In the
absence of comparable transactions, the agreements require the services to be
rendered on terms and under conditions, including audit standards, that in good
faith would be offered to, or would apply to, nonaffiliated companies. For the
year ended December 31, 1996, the Bank paid $610,000 million and $410,000 in
fees pursuant to the Management Services Agreement and the Cost Sharing
Agreement, respectively.
The Bank entered into a Service Agreement dated December 8, 1995 with
FirstServ, Inc., a wholly-owned subsidiary of First Banks, pursuant to which
FirstServ, Inc. provides data processing and item processing to the Bank.
FirstServ, Inc. provides such services through a facilities management agreement
with First Services, L.P., a limited partnership indirectly owned by Mr.
Dierberg and his children. During 1996, the Bank paid to FirstServ, Inc. fees of
$380,000.
401(k) and Profit Sharing Plan
The Bank's Profit Sharing Plan, established in January 1980, is intended to
provide deferred compensation benefits to all employees of the Company and the
Bank via contributions to the plan by the Company. In March 1989, the Bank and
the Company adopted an amendment to the Profit Sharing Plan to include a 401(k)
provision (401(k) Plan). Hourly and salaried employees of the Company and the
Bank who have completed 250 hours of service with the Company or the Bank are
eligible to participate in the 401(k) Plan (Participants). Participants may
elect to defer 1% to 15% of their annual salary up to the maximum dollar
limitation as established by the IRS (Participant Contributions). A
Participant's interest in his or her Participant Contribution is fully vested
immediately.
The Company may elect to contribute on a quarterly basis fifty percent
(50%) on every dollar contributed by the employee up to six percent (6%) of
annual salaries. The Company has the discretion to make additional contributions
which will be allocated to the accounts of eligible Participants based on the
ratio of each Participant's salary to the total salary. Participant's interests
in such Company contributions vest on a five (5) year schedule according to
years of service rendered. During 1996, the Bank made matching contributions of
$17,000 to the 401(k) Plan. Matching contributions by the Company were suspended
for 1995.
Employee Stock Ownership Plan
In September 1990, the Company and the Bank adopted an Employee Stock
Ownership Plan (ESOP), effective January 1, 1990, for all eligible employees.
The ESOP was adopted in order to provide the employees of the Company and its
subsidiaries with an opportunity to acquire an ownership interest in the
Company. The Trustee of the ESOP Trust appointed by the Board of Directors is
presently First Bank, a wholly owned subsidiary of First Banks, and a committee
appointed by the Board of Directors administers the ESOP for the exclusive
benefit of participants and their beneficiaries. Under the terms of the ESOP,
the amount of contributions made is within the sole discretion of the Board of
Directors. Contributions to the ESOP are allocated among eligible employees'
accounts in relation to their compensation as shares of Company Common Stock are
acquired and vest over a period specified in the ESOP. Any shares held by the
ESOP are distributed to employees following death, disability, retirement or
other separation from employment in accordance with the terms of the ESOP. For
the year 1996, no shares were contributed by the Company to the ESOP.
Director Compensation
All directors' fees were discontinued as of June 28, 1994, pending the
recapitalization of the Company which was completed in June 1996. In July 1996,
the Company and the Bank reinstated compensation for outside directors. Such
non-employee directors receive a fee of $500.00 for each Board meeting attended.
No director is compensated for Audit Committee meetings, which is the only
committee of the Board of Directors.
<PAGE>
Directors' Stock Option Plan
On September 26, 1989, the Board of Directors of the Company adopted the
First Commercial Bancorp, Inc. Directors' Stock Option Plan (Directors' Plan),
which was approved by the stockholders at the Annual Meeting of Stockholders on
May 23, 1990. There are presently reserved for issuance under the Directors'
Plan 2,000 shares of the Common Stock. Only non-employee directors of the
Company, of which there were two, are eligible to receive options in accordance
with a specific formula under the Directors' Plan. No options were granted in
1996 and 1995 pursuant to the Directors' Plan.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
As of December 31, 1996, no person or group known to the Company owned
beneficially more than five percent (5%) of the outstanding shares of its Common
Stock, except as set forth below. The following table also sets forth the
beneficial ownership of executive officers and director of the Company.
Percentage of
Name and Address of Amount and Nature Outstanding Shares
Beneficial Owner of Beneficial Ownership Beneficially Owned
---------------- ----------------------- ------------------
First Banks, Inc. (1)
135 North Meramec
Clayton, MO 63105 1,116,200 (1) 77.41%
Michael P. Morris -0- -0-
James E. Culleton -0- -0-
Fred L. Harris 135 less than 1%
Allen H. Blake (1) -0- -0-
Donald W. Williams (1) -0- -0-
Terrance M. McCarthy -0- -0-
Kathryn L. Perrine -0- -0-
All executive officers and
directors as a group (7) and
beneficial owners of 5% or
more 1,116,335 77.42%
- ------------------
(1) Pursuant to the Amended Agreement between the Company and First Banks, Mr.
Allen H. Blake and Mr. Donald W. Williams were appointed as directors of the
Company. Messrs. Blake and Williams also serve as Executive Vice President and
Chief Financial Officer and Executive Vice President and Chief Credit Officer,
respectively, of First Banks. The voting stock of First Banks is owned by
various trusts which were created by and are administered by and for the benefit
of Mr. James F. Dierberg and members of his immediate family. Accordingly, Mr.
Dierberg controls the management and policies of First Banks and the election of
its directors and is deemed to have beneficial ownership of 1,116,200 shares of
the Company's common stock, or 77.41%, including 596,200 shares issuable to
First Banks at its option upon the conversion of the entire principal amount of
the Debentures and accrued but unpaid interest through February 28, 1997. All of
the outstanding shares of Common Stock are pledged to secure a loan to First
Banks from a group of unaffiliated lenders. The related credit agreement
contains customary provisions which could ultimately result in transfer of the
Common Stock if First Banks were to default in the repayment of the loan and
such default were not cured, or other arrangements satisfactory to the lenders
were not made, by First Banks.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
There have been no transactions since January 1, 1995, nor are there any
currently proposed transactions, to which the Company or the Bank was or is to
be a party, in which the amount involved exceeds $60,000 and in which any
director, executive officer, nominee as a director, five percent (5%)
stockholder or member of the immediate family of any of the foregoing persons
had, or will have, a direct or indirect material interest, except as described
below.
The Company and the Bank entered into the Standby Stock Purchase Agreement
with First Banks and Mr. Dierberg, which was later amended and restated as the
Stock Purchase Agreement, as well as the related Additional Investment and
Standby Agreements. The voting stock of First Banks is owned by various trusts
which were created by and are administered by and for the benefit of Mr.
Dierberg and members of his immediate family. Accordingly, Mr. Dierberg controls
the management and policies of the Company and the election of its directors. As
of December 31, 1996, First Banks owns beneficially approximately 77.41% of the
Common Stock. Pursuant to the Stock Purchase Agreement, Mr. Allen H. Blake and
Mr. Donald W. Williams have been appointed as directors of the Company. Messrs.
<PAGE>
Blake and Williams also render services as executive officers to the Company and
the Bank as well as to First Banks and its affiliates. As described previously,
Messrs. Blake and Williams are compensated independently for their services to
First Banks and its affiliates, and First Banks will be reimbursed for their
services to the Company and the Bank pursuant to the Management Services
Agreement. The Management Services Agreement is described under "-- Compensation
Committee Interlocks and Insider Participation" in Item 11 hereto. See also the
discussion of the Cost Sharing Agreement and the Services Agreement set forth in
Item 11 hereto.
Indebtedness of Directors and Executive Management
Some of the directors and executive officers of the Company and members of
their immediate families and the companies with which they have been associated
have been customers of, and have had banking transactions with, the Bank in the
ordinary course of the Bank's business since January 1, 1995, and the Bank
expects to have such banking transactions in the future. All loans and
commitments to lend included in such transactions were made in the ordinary
course of business, on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other persons and, in the opinion of the Bank, did not involve more than the
normal risk of collectibility or present other unfavorable features.
At December 31, 1996, the Bank had no outstanding loans to directors or
executive officers.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a) The following documents are filed as part of this Report:
1. Financial Statements: The Financial Statements listed
under Item 8 to this Report are set forth at pages 18
through 21, and the Notes to Consolidated Financial
Statements are set forth at pages 22 through 34 of
the Annual Report (See Exhibit 13 under Paragraph
(a)3 of this Item 14).
2. Financial Statement Schedules: None
3. Exhibits: The following exhibits listed in the
Exhibit Index are filed with this Report:
Exhibit 3(b) Amendment to Certificate of
incorporation
Exhibit 13 Annual Report to Shareholders for
1996. The Annual Report to
Shareholders for 1996 is being filed
as an Exhibit solely for the purpose
of incorporating certain provisions
thereof by reference. Portions of
the Annual Report to Shareholders
for 1996 not specifically
incorporated by reference are not
deemed "filed" for the purposes of
the Securities Exchange Act of 1934,
as amended.
Exhibit 23.1 Consent of Arthur Andersen LLP
Exhibit 27 Financial Data Schedule (EDGAR only)
(b) Reports on Form 8-K during the quarter ended December 31, 1995:
None
(c) See the Exhibit Index attached hereto at pages 24 through 25.
<PAGE>
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 COMMERCIAL BANCORP, INC.
By: /s/ Donald W. Williams
Donald W. Williams
Chairman of the Board
of Directors, President and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Kathryn L. Perrine
Kathryn L. Perrine
Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: March 26, 1997
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 Company
and in the capacities and on the date indicated.
Signature and Title Date
------------------- ----
/s/ James E. Culleton March 26, 1997
- --------------------------------------------------------
James E. Culleton, Secretary and Director
/s/ Allen H. Blake March 26, 1997
- --------------------------------------------------------
Allen H. Blake, Director
/s/ Donald W. Williams March 26, 1997
- --------------------------------------------------------
Donald W. Williams, Chairman of the
Board, President and Chief Executive Officer
/s/ Fred L. Harris March 26, 1997
- --------------------------------------------------------
Fred L. Harris, Director
<PAGE>
EXHIBIT INDEX
These Exhibits are numbered in accordance with the Exhibit Table of Item 601 of
Regulation S-K.
Exhibit
Number Description
- ------ -----------
3(a) Certificate of Incorporation (1)
3(b) Amendment to Certificate of Incorporation
3(c) Amended and Restated Bylaws (7)
10.1 Amended and Restated Stock Purchase Agreement dated
August 7, 1995 by and between First Commercial Bancorp,
Inc., First Commercial Bank, First Banks, Inc. and James. F.
Dierberg (2)
10.2 Additional Investment Agreement dated October 31, 1995 (3)
10.3 Investment Debenture dated October 31, 1995 (3)
10.4 Stock Pledge Agreement dated October 31, 1995 (3)
10.5 Standby Agreement dated December 28, 1995 (4)
10.6 Management Services Agreement dated December 21, 1995
by and between First Commercial Bank and First Banks, Inc. (3)
10.7 Cost Sharing Agreement dated December 21, 1995 by and
between First Commercial Bancorp, Inc., First Commercial Bank
and First Bank & Trust (3)
10.8 Lease between Northrup-Howe Tower Group and First
Commercial Bank dated June 14, 1995 (3)
10.9 Amendment and Restatement of Employment Agreement by and
between James E. Culleton and First Commercial Bancorp, Inc.
and First Commercial Bank (6)
10.10 Amendment No. 1 to Employment Agreement by and between
Anne H. Long, First Commercial Bancorp, Inc. and First
Commercial Bank (3)
10.14 Service Agreement between First Commercial Bank and FirstServ,
Inc. dated December 8, 1995 (6)
21. Subsidiaries (5)
23(a) Consent of Arthur Andersen LLP
<PAGE>
27. Financial Data Schedule (EDGAR only)
- -----------------
(1) Filed as Exhibits 3.1 and 3.2 to the Registrant's 1990 Annual Report
on Form 10-K and incorporated herein by reference.
(2) Filed as Exhibit 2 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995 and incorporated herein by
reference.
(3) Filed as Exhibits 10(a), 10(b), 10(c), 10(g), 10(h), 10(d) and 10(f) to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995 and incorporated herein by reference.
(4) Filed as Exhibit 10(c) to the Registrant's Current Report on Form 8-K
dated December 28, 1995.
(5) Filed as Exhibit 21 to the Registrant's Registration Statement on Form
S-1 (No. 33-92928) as filed on May 31, 1995.
(6) Filed as Exhibits 10.9, and 10.14 to the Registrant's Pre-Effective
Amendment No. 2 to Registration Statement on Form S-1, filed February
16, 1996
(7) Filed as Exhibit 3(ii) to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996 and incorporated herein
by reference.
<PAGE>
EXHIBIT (3b)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
FIRST COMMERCIAL BANCORP, INC.
First Commercial Bancorp, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of First Commercial Bancorp, Inc.
has duly adopted resolutions setting forth certain proposed amendments to the
Certificate of Incorporation of said corporation, declaring said amendments
to be advisable and calling a meeting of the shareholders of said
corporation for consideration thereof. The resolutions setting forth the
proposed amendments are as follows:
BE IT RESOLVED that Article FOURTH Section A of the
Corporation's Certificate of Incorporation be amended by deleting the
same in its entirety and substituting therefor the following:
FOURTH:
A. The total number of shares of all classes of
stock that the Corporation shall have authority
to issue is fifteen million (15,000,000),
consisting of:
(1)five million (5,000,000) shares of
Preferred Stock, par value one cent ($0.01)
per share (the Preferred Stock ); and
(2)ten million (10,000,000) shares of Common
Stock, par value $1.25 per share (the Common
Stock ).
Each share of Common Stock issued and outstanding is hereby
reclassified and changed into one-one hundred twenty-fifth (1/125) of a
fully paid and nonassessable share of Common Stock of the Corporation,
par value $1.25 per share, and each stock certificate for one or more
shares of Common Stock as of the close of business on the date this
amendment becomes effective (the Effective Date ) shall represent the
whole number of shares of Common Stock obtained by dividing by one
hundred twenty-five (125) the number of shares of Common Stock
represented by such certificate immediately prior to the Effective Date
and a right to receive cash for the fractional shares of Common Stock,
if any, which such shareholder would otherwise be entitled to receive
in an amount equal to the fractional share which such shareholder would
otherwise be entitled to receive multiplied by the average closing bid
and ask quotes for one share of the Common Stock on the Effective Date
as reported on The Nasdaq SmallCap Market or, if no sales of the Common
<PAGE>
Stock occur on the Effective Date as reported on The Nasdaq SmallCap
Market, the first day immediately preceding the Effective Date on which
a sale of the Common Stock occurs as reported on The Nasdaq SmallCap
Market.
BE IT RESOLVED that paragraph C of Article SIXTH of the
Corporation's Certificate of Incorporation be amended by adding the
following words to the end of the second sentence thereof: "or by the
holders of 10 percent or more of the voting power of all of the then
outstanding shares of capital stock entitled to vote generally in the
election of directors, in such manner and in accordance with such
conditions as may be set forth in the By-laws of the Corporation."
BE IT RESOLVED that Section A and Section B of Article SEVENTH
of the Corporation's Certificate of Incorporation be amended by
deleting the same in their entirety and substituting therefor the
following:
A. The number of directors shall, subject to the rights
of the holders of any series of Preferred Stock then
outstanding, be fixed from time to time exclusively
by the Board of Directors pursuant to a resolution
adopted by a majority of a quorum acting at any
meeting (or a majority of the whole board acting
by written consent, not taking into account any
vacant directorships). All directors shall serve
terms of one year, expiring at the next annual
meeting of the shareholders, with each director to
hold office until his or her successor shall have
been duly elected and qualified. For those directors
who, at the time this provision of the Certificate
of Incorporation becomes effective, are serving a
term that expires more than one year after the
annual meeting of directors most recently held
prior to the effectiveness of this provision, the
terms of such directors shall automatically and
without further action by the shareholders be
converted to terms that expire at the next annual
meeting of shareholders following effectiveness of
this provision.
B. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, newly created
directorships resulting from any increase in the
authorized number of directors or any vacancies in
the Board of Directors resulting from the death,
resignation, retirement, disqualification, removal
from office, or other cause may be filled by the
majority vote of the directors then in office, though
less than a quorum.
BE IT RESOLVED that paragraph C of Article SEVENTH of the
Corporation's Certificate of Incorporation be amended by deleting the
words "but only for cause and only," and substituting therefor the
words "with or without cause."
BE IT RESOLVED that Article EIGHTH of the Corporation's
Certificate of Incorporation be amended by deleting the text of Article
EIGHTH in its entirety, and substituting therefore the word RESERVED.
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, a meeting of the shareholders of said corporation was duly called and
held, upon notice in accordance with Section 222 of the General Corporation Law
of the State of Delaware at which meeting the necessary number of shares as
required by statute were voted in favor of the amendments.
THIRD: That said amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That said amendments shall be effective as of 5:00 P.M. Eastern
Standard Time on the 6th day of December, 1996.
IN WITNESS WHEREOF, said First Commercial Bancorp, Inc. has caused this
certificate to be signed by Donald W. Williams, its Chairman, President and
Chief Executive Officer, this 5th day of December, 1996.
FIRST COMMERCIAL BANCORP, INC.
By /s/ Donald W. Williams
Donald W. Williams, Chairman,
President and Chief Executive Officer
<PAGE>
Exhibit 13
FIRST COMMERCIAL BANCORP, INC.
1996 ANNUAL REPORT
<PAGE>
FIRST COMMERCIAL BANCORP, INC.
TABLE OF CONTENTS
Page
LETTER TO SHAREHOLDERS......................................... 1
SELECTED CONSOLIDATED AND OTHER FINANCIAL DATA................. 2
MANAGEMENT'S DISCUSSION AND ANALYSIS........................... 3
QUARTERLY CONDENSED FINANCIAL DATA - UNAUDITED................. 16
INDEPENDENT AUDITORS' REPORT................................... 17
FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEET..................................... 18
CONSOLIDATED STATEMENTS OF OPERATIONS.......................... 19
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY..... 20
CONSOLIDATED STATEMENTS OF CASH FLOWS.......................... 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..................... 22
INVESTOR INFORMATION .......................................... 35
CORPORATE DIRECTORY............................................ 36
<PAGE>
To Our Shareholders, Customers, and Friends:
We are pleased to report the accomplishments of the First Commercial Bancorp,
Inc. (Company) and First Commercial Bank (Bank) realized throughout 1996. Most
notable was the improved financial performance of the Bank. After reporting a
net loss of $987,000 for the first quarter of 1996, the Bank produced earnings
of $166,000, $491,000 and $445,000 for the second, third and fourth quarters of
1996. Overall the Bank earned $115,000 for the year ended December 31, 1996,
representing the first full year of reported profits for the Bank since 1991.
This compares to a net loss for the Bank of $6.71 million for 1995.
First Commercial Bancorp's financial performance improved to a net loss of
$570,000, or $0.77 per share, for 1996 in comparison to a net loss of $7.43
million, or $40.69 per share, for 1995. The Company's operating results also
improved during 1996 from a net loss of $1.16 million for the first quarter to
net earnings of $15,000, $271,000 and $304,000 for the subsequent three quarters
of 1996. The per share data gives effect to the additional shares issued in
connection with the recapitalization of FCB in December 1995 and the rights
offering to shareholders completed in June 1996. In addition, the per share data
has been adjusted to reflect the 125 to one reverse stock split completed in
December 1996.
The return to profitability for the Company and the Bank marks a new era for a
Company which has endured financial difficulties for many years. The return to
profitability is attributable to the recapitalization of the Company and the
Bank, the reduced level of nonperforming assets and the restructuring of
operations commensurate with the Company's strategic direction.
During 1996, the Company maintained its focus to further reduce its level of
nonperforming assets. To this end, the Company is pleased to report that
nonperforming assets were reduced to $1.06 million from $5.91 million at
December 31, 1996 and 1995, respectively. The success of the Company in
improving the level of its nonperforming assets enabled it to reduce its
provision for possible loan losses from $3.89 million in 1995 to $1.16 million
in 1996. In addition, losses and expenses on other real estate owned for 1996
were reduced to $1.00 million from $2.63 million for 1995. The improved
operating performance is also attributable to the reduction in total noninterest
expense by $4.51 million to $8.08 million for 1996 in comparison to $12.59
million for 1995.
With the recapitalization process complete, nonperforming assets at an
acceptable level and core operations producing positive results, the Company's
primary focus has shifted toward increasing its business development efforts
among consumers and small and middle market businesses. These efforts are
conducted through the Bank's expanding corporate banking and retail groups. We
remain confident that our current activities will provide the Company further
opportunity to improve its return to shareholders.
I would like to take this opportunity to extend our sincerest appreciation for
the dedication and hard work of our employees, the loyalty of our customers and
the support of our shareholders. It is our pledge to each of you that First
Commercial Bancorp and First Commercial Bank will maintain the momentum we have
established toward meeting our long-term objective of providing progressive
banking services and achieving profitable growth.
Sincerely,
Donald W. Williams
Chairman of the Board,
President and Chief Executive Officer
<PAGE>
The following table presents selected consolidated financial information
for First Commercial Bancorp, Inc. and subsidiary (FCB or the Company) for each
of the years in the five-year period ended December 31, 1996. In December 1996,
FCB implemented a reverse stock split, whereby each 125 shares of outstanding
common stock were converted into one share of common stock. For consistency, the
number of shares referred to throughout this Annual Report were restated to give
effect to the reverse split.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(dollars expressed in thousands, except per share data)
Income statement data:
<S> <C> <C> <C> <C> <C>
Interest income $ 11,936 13,750 18,356 20,100 24,605
Interest expense 5,540 6,136 5,910 6,370 8,973
-------- ------- ------- ------- -------
Net interest income 6,396 7,614 12,446 13,730 15,632
Provision for possible loan losses 1,155 3,885 9,809 8,100 7,260
-------- ------- ------- ------- -------
Net interest income after provision
for possible loan losses 5,241 3,729 2,637 5,630 8,372
Noninterest income 1,737 1,328 1,973 2,995 2,502
Noninterest expense 8,080 12,589 20,393 19,703 16,264
-------- ------ ------- ------- ------
Loss before income taxes (1,102) (7,532) (15,783) (11,078) (5,390)
Provision for (benefit of) income taxes (532) (101) 2,407 (3,767) (1,872)
-------- ------ ------- ------- ------
Net loss $ (570) (7,431) (18,190) (7,311) (3,518)
======== ====== ======= ======= ======
Per share data:
Net loss $ (.77) (40.69) (486.36) (195.48) (94.31)
Average shares outstanding 738,260 182,608 37,400 37,400 37,304
Balance sheet data:
Investment securities and federal
funds sold $ 49,729 83,249 85,189 113,701 46,224
Total loans, net of unearned discount 94,497 74,015 130,172 194,377 234,923
Total assets 153,033 169,535 239,306 349,777 332,426
Non-interest-bearing deposits 24,026 27,517 56,483 134,961 114,109
Interest-bearing deposits 112,110 128,647 177,053 188,835 185,637
Retained deficit --- (30,311) (22,880) (4,690) 2,621
Total stockholders' equity 6,330 3,579 4,355 23,144 30,444
Financial ratios:
Return on average assets (.37)% (4.09)% (6.42)% (2.30)% (.98)%
Return on average stockholders' equity (12.29) (205.11) (112.01) (26.57) (10.29)
Asset quality ratios:
Net charge-offs on loans to average loans 2.21 6.04 5.62 2.86 2.58
Allowance for possible loan losses to
total loans outstanding 4.86 7.28 5.71 3.77 2.33
Allowance for possible loan losses to
total nonperforming loans 532.06 119.05 61.25 33.20 19.87
Capital ratios:
Average stockholders' equity to
average assets 3.02 1.99 5.73 8.65 9.48
Leverage ratio 4.25 2.14 1.87 6.61 8.48
Total risk-based capital ratio 6.95 4.99 4.27 10.16 11.89
</TABLE>
<PAGE>
General. FCB is a Sacramento, California-based bank holding company
incorporated in Delaware. FCB conducts its business through its sole subsidiary,
First Commercial Bank, a California state chartered bank (the Bank) which
commenced operations in 1979. The Bank operates a commercial banking business
through its headquarters office in Sacramento and five branch offices located,
in Roseville (two branches), San Francisco, Concord and Campbell, California. At
December 31, 1996, the Company had $153.0 million in total assets, $94.5 million
in total loans, net of unearned discount, $136.1 million in total deposits, and
$6.3 million in total stockholders' equity. This compares to $169.5 million in
total assets, $74.0 million in total loans, net of unearned discount, $156.2
million in total deposits, and $3.6 million in total stockholders' equity at
December 31, 1995.
In December 1996, FCB implemented a reverse stock split, whereby each 125
shares of outstanding common stock were converted into one share of common
stock. For consistency, the numbers of shares referred to throughout this Annual
Report were restated to give effect to the reverse split.
The Bank 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. The Bank's lending
services include commercial and industrial, agricultural, real estate
construction and development, residential real estate and consumer loans. Other
financial services include credit-related insurance, automatic teller machines
and safe deposit boxes.
FCB grew substantially during the 1980s, primarily through the acquisition
of 13 branches from California Canadian Bank and the acquisition of Citizens
Bank of Roseville. Between 1988 and 1992, the Company focused its lending
activities on real estate construction loans and loans to small- and
medium-sized businesses. FCB funded a substantial portion of its lending
activities through deposits from title insurance and escrow companies, and from
small- to medium-sized businesses. By December 31, 1993, FCB's total assets had
reached $349.8 million. Included in this were $83.7 million of real estate
construction and real estate secured loans, which represented 42.9% of the loan
portfolio. This asset growth was funded by $323.8 million of deposits, of which
$86.5 million, or 26.7% were title and escrow accounts. This focused lending and
deposit generation strategy involved certain risks which has contributed
significantly to FCB's financial performance.
The downturn in the California economy during the late 1980's and early
1990's, particularly related to the real estate market, led to significant asset
quality problems during this period. As a result, FCB reported losses of $3.5
million, $7.3 million, $18.2 million and $7.4 million for the years ended
December 31, 1992, 1993, 1994 and 1995, respectively. These substantial losses,
and the related asset quality problems, caused regulatory authorities to place
FCB and the Bank under a Memorandum of Understanding (MOU) and under certain
regulatory orders (Orders), respectively, which placed significant restrictions
on their operations, including restrictions on the payment of dividends,
requirements for the attainment of specified capital levels and reductions of
classified assets. As a result of the recapitalization discussed below, combined
with numerous other actions which have been taken by the Company, the MOU and
Orders have been terminated, and, accordingly, FCB and the Bank no longer
operate under these restrictions. Although FCB incurred a loss of $570,000 for
the year ended December 31, 1996, this loss was comprised of a loss of $1.16
million during the first quarter of 1996, followed by net income of $590,000
during the remainder of 1996.
Recapitalization and Financial Restructuring. As a result of its continuing
losses, by June 30, 1995, FCB's leverage capital ratio had decreased to (.23)%,
reflecting its negative capital position, and the Bank's leverage capital ratio
had decreased to 1.08%. The Bank's capital level caused it to be classified as
"critically undercapitalized" for regulatory purposes, subjecting it to the
Prompt Corrective Action (PCA) provisions of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 and requiring it to seek additional capital
or face the possible imposition of a conservatorship or receivership within 90
days. As a result, as of June 30, 1995, FCB and the Bank entered into a Stock
Purchase Agreement with First Banks, Inc. (First Banks) and Mr. James F.
Dierberg, President and Chief Executive Officer of First Banks. Pursuant to the
Stock Purchase Agreement, Mr. Dierberg provided interim financing for the Bank
in the form of a purchase of $1.5 million of nonvoting preferred stock. On
August 7, 1995, FCB entered into an Amended and Restated Stock Purchase
Agreement (the Amended Agreement) with First Banks and Mr. Dierberg. The Amended
<PAGE>
Agreement, and subsequent agreements entered into with First Banks, resulted in
a series of transactions as follows:
a. On August 22, 1995, First Banks acquired the Bank preferred stock from
Mr. Dierberg for $1.5 million.
b. On August 23, 1995, First Banks purchased 116,666,666 shares of Bank
common stock for an additional $3.5 million.
c. On October 31, 1995, First Banks purchased a convertible debenture of
FCB for $1.5 million, the proceeds of which were used to increase the
capital of the Bank.
d. Following the completion of a Special Stockholders' Meeting on
December 27, 1995, the shares of Bank preferred stock and Bank common
stock held by First Banks were exchanged for 400,000 shares of FCB
common stock. In addition, First Banks purchased a convertible
debenture of FCB for $5.0 million, the proceeds of which, except for
$250,000 retained by FCB, were contributed to the capital of the Bank.
e. On December 28, 1995, First Banks purchased an additional 120,000
shares of FCB common stock for $1.5 million, the proceeds of which
were used to increase the capital of the Bank.
On February 16, 1996, after its Amended Registration Statement was declared
effective by the Securities and Exchange Commission, FCB commenced an offering
of an aggregate of 477,520 shares of newly-issued common stock (Rights
Offering). The Rights Offering was composed of: (a) an offering to its existing
shareholders, other than First Banks, of 400,000 shares at $12.50 per share; (b)
an offering to individuals who were not shareholders of FCB of a maximum of
80,000 of the shares available in the Rights Offering which were not otherwise
subscribed; and (c) an offering of 77,520 shares in exchange for certain
outstanding dividend obligations and accrued interest thereon of FCB. The Rights
Offering was completed during the second quarter of 1996 and approximately
288,720 shares were issued in exchange for $2.97 million in cash and $643,000 in
outstanding dividend obligations. The Rights Offering provided $3.22 million of
capital to FCB, net of underwriting expenditures of $373,000. As a result of the
Rights Offering, First Banks' ownership was reduced to 61.46% prior to the
conversion of the debentures, or 77.24% if the debentures had been converted as
of December 31, 1996.
The proceeds from these transactions, net of amounts retained by the parent
company for corporate expenses and certain offering expenses incurred in the
above transactions, were used to increase the capital of the Bank. As more fully
discussed under "-- Capital," as a result of these transactions, the leverage
ratios of FCB and the Bank as of December 31, 1996 have increased to 4.25% and
8.87%, respectively. Although FCB continues to be considered "significantly
undercapitalized" for regulatory purposes, the Bank is currently considered
"well capitalized."
In December 1996, FCB's Board of Directors elected to implement an
accounting change which is referred to as a "quasi-reorganization." This is an
accounting procedure which results in restating the carrying values of the
Company's assets and liabilities to their current fair values, and eliminating
the deficit which had accumulated in previous years. The Company concluded the
quasi-reorganization established a more appropriate basis upon which to evaluate
the financial position and results of operations. The implementation, which was
effective on December 31, 1996, did not have a significant impact on the
financial position or results of operations of FCB.
Financial Condition and Average Balances. FCB's average total assets were
$153.7 million for the year ended December 31, 1996, compared with $181.7
million for 1995. The decrease in average total assets of $28.0 million is
primarily attributable to federal funds sold and repurchase agreements which
decreased on average to $10.3 million for the year ended December 31, 1996, from
$34.9 million for 1995. The funds provided from this decrease were used to
support decreases in more volatile sources of funds including time deposits of
$100,000.
For 1995, FCB's average total assets were $181.7 million, compared with
$283.6 million for the year ended December 31, 1994. This reduction in average
total assets reflected FCB's strategy to reduce assets to compensate for its
eroded capital base over this time period, and to reduce title and escrow
deposits to better control FCB's dependence on volatile liabilities. Included in
the reduction in 1995 was the sale of the San Diego branch in January 1995,
which had $16.6 million of total deposits at the date of the sale, and the
<PAGE>
closing of the Santa Rosa branch in April 1995, which had total deposits of
approximately $9.0 million at the date of closing.
The reduction in deposits was funded by corresponding reductions in federal
funds sold and loans, net of unearned discount. Loans, net of unearned discount,
were $74.0 million at December 31, 1995, compared with $130.2 million and $194.4
million at December 31, 1994 and 1993, respectively. This reduction reflected
FCB's efforts to reduce its level of problem assets, and in particular, the
efforts to reduce its concentration in real estate construction and development
and in commercial real estate loans. Construction and development loans
decreased to $4.1 million at December 31, 1995, from $16.4 million and $39.9
million at December 31, 1994 and 1993, respectively. Other loans secured by real
estate have been reduced to $32.9 million at December 31, 1995, compared with
$38.4 million and $43.8 million at December 31, 1994 and 1993, respectively.
As previously discussed under "-- Recapitalization," stockholders' equity
improved to $6.33 million at December 31, 1996, from $3.58 million at December
31, 1995.
The following table sets forth certain information relating to FCB's
average balance sheets, 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 periods indicated.
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
---------------------------- ------------------------ ----------------
Interest Interest Interest
Average income/ Yield/ Average income/ Yield/ Average income/ Yield
Assets balance expense rate balance expense rate balance expense rate
- ------ ------- ------- ---- ------- ------- ---- ------- ------- ----
(dollars expressed in thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans (1) (2) (3) $ 87, 909 8,643 9.83% $ 97,875 9,734 9.95% $166,866 15,126 9.07%
Investment securities (3) 47,294 2,738 5.79 32,994 1,981 6.00 20,696 1,109 5.36
Federal funds sold and
repurchase agreements 10,324 555 5.38 34,946 2,035 5.82 46,249 2,026 4.38
Other - - - 10 - - 2,560 95 3.71
------- ----- ---- ------- ------ ---- ------- ----- ----
Total interest-earning
assets 145,527 11,936 8.20 165,825 13,750 8.29 236,371 18,356 7.77
------ ==== ------ ==== ------ ====
Nonearning assets 8,147 15,859 47,202
-------- ------- -------
Total assets $153,674 $ 181,684 $283,573
======= ======= =======
Liabilities and Stockholders' Equity
- ------------------------------------
Interest-bearing liabilities:
Interest-bearing
demand deposits $ 36,778 885 2.41% $ 48,036 1,082 2.25% $82,088 1,989 2.42%
Savings deposits 15,456 349 2.26 18,188 481 2.65 24,032 589 2.45
Time deposits of $100
or more 11,292 599 5.30 19,863 1,054 5.31 29,281 1,123 3.84
Other time deposits 52,009 2,803 5.39 55,492 3,366 6.07 49,919 2,157 4.32
------ ----- ------ ----- ------ -----
Total interest-bearing
deposits 115,535 4,635 4.01 141,579 5,983 4.23 185,320 5,858 3.16
Other borrowings 6,574 905 13.77 1,566 15 9.77 747 52 6.96
------- ----- ------- ----- ------- ------
Total interest-bearing
liabilities 122,109 5,540 4.54 143,145 6,136 4.29 186,067 5,910 3.18
----- ==== ----- ==== ----- ====
Noninterest-bearing liabilities:
Demand deposits 24,055 34,096 79,340
Other liabilities 2,873 820 1,618
------- ------ -------
Total liabilities 149,037 178,061 267,025
Stockholders' equity 4,637 3,623 16,548
------- ------- -------
Total liabilities and
stockholders' equity $153,674 $181,684 $283,573
======= ======= =======
Net interest income $ 6,396 $7,614 $12,446
===== ===== ======
Net interest margin 4.40% 4.59% 5.27%
====== ==== ====
</TABLE>
- ---------------
(1) For purposes of these computations, nonaccrual loans are included in the
average loan amounts.
(2) Interest income on loans includes loan fees.
(3) FCB has no tax-exempt income.
<PAGE>
<TABLE>
<CAPTION>
The following table indicates the changes in interest income and interest
expense which are attributable to changes in average volume and changes in
average rates, in comparison with the same period in the preceding year. The
change in interest due to the combined rate/volume variance has been allocated
to rate and volume changes in proportion to the dollar amounts of the change in
each.
Increase (decrease) attributable to change in
December 31, 1996 compared December 31, 1995 compared
to December 31, 1995 to December 31, 1994
------------------------------- ------------------------
Net Net
Volume Rate Change Volume Rate Change
(dollars expressed in thousands)
Interest earned on:
<S> <C> <C> <C> <C> <C> <C>
Loans (1) (2) $ (975) (116) (1,091) (7,045) 1,653 (5,392)
Investment securities (3) 824 (67) 757 726 146 872
Federal funds sold and
repurchase agreements (1,336) (144) (1,480) (1,480) 1,489 9
Other -- -- -- (127) 32 (95)
------ ------ ------- ------ ------ -----
Total interest income (1,487) (327) (1,814) (7,926) 3,320 (4,606)
------ ------ ------- ----- ----- ------
Interest paid on:
Interest-bearing demand deposits (277) 79 (198) (776) (131) (907)
Savings deposits (67) (65) (132) (163) 55 (108)
Time deposits of $100 or more (454) (1) (455) (425) 356 (69)
Other time deposits (202) (361) (563) 241 968 1,209
Other borrowings 667 85 752 74 27 101
------ ------ ------ ----- ----- -----
Total interest expense (333) (263) (596) (1,049) 1,275 226
------ ------ ------ ----- ----- ------
Net interest income $ (1,154) (64) (1,218) (6,877) 2,045 (4,832)
======= ====== ====== ===== ===== =====
</TABLE>
- ------------------------
(1) For purposes of these computations, nonaccrual loans are included in the
average loan amounts.
(2) Interest income on loans includes loan fees.
(3) FCB has no tax-exempt income.
Net Interest Income. The primary source of FCB's income is net interest
income, which is the difference between the interest earned on assets and the
interest paid on liabilities. Net interest income was $6.40 million, or 4.40% of
average earning assets, for the year ended December 31, 1996, compared with
$7.61 million, or 4.59% of average earning assets, and $12.45 million, or 5.27%
of average earning assets, for the years ended December 31, 1995 and 1994,
respectively.
The decrease in net interest income for the three-year period ended
December 31, 1996 is primarily attributable to the decrease in average
interest-earning assets during this period. The decrease in the net interest
margin is attributable to the declining capital position during 1994 and 1995
and reductions in noninterest bearing deposits. In addition, it reflects the
reduction of title and escrow deposits, which typically carry relatively high
non-interest bearing deposits and a correspondingly high cost of services, as
well as the sale of a branch office and closing of a second in 1995. These
decreases are consistent with FCB's recapitalization strategy.
Comparison of Results of Operations for 1996 and 1995
Net Loss. Net loss for the year ended December 31, 1996 was $570,000 in
comparison to a net loss of $7.43 million for 1995. The improvement in the
operating results for 1996, in comparison to 1995, is primarily attributable to
reductions in the provision for possible loan losses and noninterest expenses.
As previously discussed, net interest income was $6.40 million, or 4.40% of
average earning assets, for 1996, compared to $7.61 million, or 4.59% of average
earning assets, for 1995.
Provision for Possible Loan Losses. The provisions for possible loan losses
were $1.16 million and $3.89 million for the years ended December 31, 1996 and
1995, respectively. Net loan charge-offs were $1.95 million and $5.91 million
for the years ended December 31, 1996 and 1995, respectively. The allowance for
possible loan losses was $4.60 million, or 4.86% of loans, net of unearned
discount, at December 31, 1996, compared to $5.39 million, or 7.28% of loans,
<PAGE>
net of unearned discount, at December 31, 1995. The reduction in the allowance
for possible loan losses reflects the decreases in the levels of net loan
charge-offs and nonperforming and criticized loans during 1996.
Noninterest Income and Expense. Noninterest income increased by $410,000 to
$1.74 million from $1.33 million for the years ended December 31, 1996 and 1995,
respectively. The components of the change are summarized below.
Service charges on deposit accounts and customer service fees decreased by
$50,000 to $751,000 from $801,000 for the years ended December 31, 1996 and
1995, respectively. The decrease is primarily attributable to the sale of the
San Diego branch in January 1995 and the closure of the Santa Rosa branch in
April 1995, which resulted in a reduction in accounts on which service charges
could be assessed.
Other income increased to $986,000 for the year ended December 31, 1996,
compared to $527,000 for 1995. The Company held certain leveraged leases on
railroad cars which were assigned to an unrelated party during the third quarter
of 1996. Simultaneously, with the assignment of these leases, the Company sold
its interest in the railroad cars, realizing a net gain on the transaction of
$795,000.
<TABLE>
<CAPTION>
The following table summarizes noninterest expense for the years ended
December 31, 1996 and 1995, respectively.
Increase (Decrease)
-------------------
1996 1995 Amount Percent
---- ---- ------ -------
(dollars expressed in thousands)
<S> <C> <C> <C> <C>
Salaries and employee benefits $ 2,177 4,117 (1,940) (47.12)
Occupancy, net of rental income 881 1,603 (722) (45.04)
Furniture and equipment 390 581 (191) (32.87)
Federal Deposit Insurance Corporation
premiums 337 629 (292) 46.42
Postage, printing and supplies 477 297 180 60.61
Legal, examination and professional fees 1,501 1,164 337 28.95
Data processing 401 145 256 176.55
Communications 202 210 (8) (3.81)
Losses and expenses on foreclosed
property, net 1,002 2,631 (1,629) (61.92)
Other 712 1,212 (500) (41.25)
------- ------ -------
Total noninterest expense $ 8,080 12,589 (4,509) (35.82)
======= ====== ======= ======
</TABLE>
Noninterest expense decreased by $4.51 million to $8.08 million from $12.59
million for the years ended December 31, 1996 and 1995, respectively. The
decrease in noninterest expense is primarily attributable to reductions in
salaries and employee benefits, occupancy costs and losses and expenses on
foreclosed real estate.
The decrease in salaries and employee benefits of $1.94 million to $2.18
million from $4.12 million for the years ended December 31, 1996 and 1995,
respectively, relates primarily to reductions in staff achieved through the data
processing conversion and centralization of certain operating functions, as well
as an overall reevaluation of FCB's personnel requirements considering the
strategic plan and other services and personnel available through First Banks.
Occupancy expenses decreased by $722,000 to $881,000 from $1.60 million for
the years ended December 31, 1996 and 1995, respectively. The decrease is
primarily attributable to a 1995 nonrecurring adjustment to write-off the
remaining leasehold improvements of the Santa Rosa branch, which was closed
during 1995, the closure of the San Diego branch in 1995 and one Sacramento
branch in 1996 and the relocation of the former administrative offices in
September 1995 to more economical offices available at FCB's Howe Avenue branch.
As a result of the closure of these facilities, furniture and equipment
also decreased by $191,000 to $390,000 from $581,000 for the years ended
December 31, 1996 and 1995, respectively.
Contributing further to the decrease in noninterest expense was a decrease
of $1.63 million in losses and expenses on foreclosed property to $1.00 million
from $2.63 million for the years ended December 31, 1996 and 1995, respectively.
The decrease reflects the decreasing volume of foreclosed real estate and the
stabilizing market values of properties that were previously foreclosed upon.
Income Taxes. The accompanying consolidated statements of operations
reflect a current income tax benefit of $532,000 and $101,000 for the years
ended December 31, 1996 and 1995, respectively. As more fully discussed in Note
8 to the consolidated financial statements, the tax benefit is attributable to
the inclusion of FCB's taxable losses in First Banks' consolidated tax return
during the period from December 28, 1995 through May 18, 1996. Upon completion
of FCB's Rights Offering, First Banks' ownership decreased below 80% and,
accordingly, any subsequent tax benefits realized by FCB are dependent on the
ability of FCB to generate taxable income.
Comparison of Results of Operations for 1995 and 1994
Net Loss. Net loss for the year ended December 31, 1995 was $7.43 million
in comparison to a net loss of $18.19 million for the same period in 1994. The
improvement in the operating results for 1995, in comparison to 1994, is
attributable to reductions in the provision for possible loan losses and
noninterest expenses, partially offset by a reduction in net interest income. As
previously discussed, net interest income was $7.61 million, or 4.59% of average
earning assets, for 1995, compared to $12.45 million, or 5.27% of average
earning assets, for 1994.
Provision for Possible Loan Losses. The provision for possible loan losses
was $3.89 million and $9.81 million for the years ended December 31, 1995 and
1994, respectively. Net loan charge-offs were $5.91 million and $9.71 million
for the years ended December 31, 1995 and 1994, respectively. The allowance for
possible loan losses was $5.39 million, or 7.28% of loans, net of unearned
discount, at December 31, 1995, compared to $7.44 million, or 5.71% of loans,
net of unearned discount, at December 31, 1994. The reduction in the allowance
for possible loan losses reflects the decrease in the amount of nonperforming
and criticized loans during the year as well as the overall decline in the total
loans outstanding. However, the allowance for possible loan losses as a
percentage of loans increased in recognition of the disproportionate effect of
nonperforming and criticized loans on a decreasing portfolio. As more fully
discussed in "-- Financial Condition and Average Balances" and "-- Lending and
Credit Management," the decrease in the provision for possible loan losses
during 1995 is primarily attributable to the overall reduction in the loan
portfolio, a lower level of nonperforming loans, and more stable market values
of real estate within FCB's market area.
Noninterest Income and Expense. Noninterest income decreased by
$640,000 to $1.33 million from $1.97 million for the years ended December 31,
1995 and 1994, respectively.
Service charges on deposit accounts and customer service fees decreased by
$479,000 to $801,000 from $1.28 million for the years ended December 31, 1995
and 1994, respectively. The decrease is primarily attributable to the sale of
the San Diego branch in January 1995 and the closure of the Santa Rosa branch in
April 1995, which resulted in a reduction in accounts on which service charges
could be assessed.
Mortgage brokerage activities of FCB were discontinued in April 1994.
Mortgage brokerage fee income for the year ended December 31, 1994 was $68,000.
In addition, FCB discontinued its in-house credit card program during the second
quarter of 1995, resulting in a decrease in related fee income of $49,000 to
$19,000 from $68,000 for the years ended December 31, 1995 and 1994,
respectively.
<TABLE>
<CAPTION>
The following table summarizes noninterest expense for the years ended
December 31, 1995 and 1994, respectively.
Increase (Decrease)
-------------------
1995 1994 Amount Percent
---- ---- ------ -------
(dollars expressed in thousands)
<S> <C> <C> <C> <C>
Salaries and employee benefits $ 4,117 6,568 (2,451) (37.32)%
Occupancy, net of rental income 1,603 1,443 160 11.09
Furniture and equipment 581 930 (349) (37.53)
Federal Deposit Insurance Corporation
premiums 629 820 (191) (23.29)
Postage, printing and supplies 297 372 (75) (20.16)
Legal, examination and professional fees 1,164 725 439 60.55
Data processing 145 80 65 81.25
Communications 210 82 128 156.10
Losses and expenses on foreclosed
property, net 2,631 6,035 (3,404) (56.40)
Amortization and write-off of acquisition
intangibles -- 1,047 (1,047) (100.00)
Other 1,212 2,291 (1,079) (47.10)
------ ------ ------
Total noninterest expense $ 12,589 20,393 (7,804) (38.27)
====== ====== ====== ======
</TABLE>
<PAGE>
Noninterest expense decreased by $7.80 million to $12.59 million from
$20.39 million for the years ended December 31, 1995 and 1994, respectively.
While virtually each functional area of FCB experienced reductions in
noninterest expense, the decrease is primarily attributable to reductions in
salaries and employee benefits, losses and expenses on foreclosed real estate
and amortization and write-off of acquisition intangibles.
The decrease in salaries and employee benefits of $2.45 million to $4.12
million from $6.57 million for the years ended December 31, 1995 and 1994,
respectively, relates primarily to reductions in staff. FCB's staff was reduced
to 63 full-time equivalent employees at December 31, 1995, from 150 full-time
equivalent employees at December 31, 1994. The decrease is attributable to the
sale and closure of the San Diego and Santa Rosa branches, respectively, and in
December 1995, FCB's conversion to First Banks' data processing and centralized
operations. Offsetting the decrease in salaries and employee benefits for 1995
was $299,000 of severance costs. Those severance costs are associated with the
realignment of staff in connection with the aforementioned conversion and
centralization of certain operating functions, as well as an overall
reevaluation of FCB's personnel requirements considering other services and
personnel available through First Banks.
Contributing further to the decrease in noninterest expense was a decrease
of $3.41 million in losses and expenses on foreclosed property to $2.63 million
from $6.04 million for the years ended December 31, 1995 and 1994, respectively.
The decrease is attributable to write-downs which declined to $1.4 million from
$5.0 million for the years ended December 31, 1995 and 1994, respectively. This
reflects the decreasing volume of foreclosed real estate and the stabilizing
market values of properties that were previously foreclosed upon.
In addition, furniture and equipment decreased $349,000 to $581,000 from
$930,000 for the years ended December 31, 1995 and 1994, respectively. The
decrease is primarily due to the reduction in depreciation expense related to
data processing equipment which was fully depreciated during 1994.
Amortization and write-off of acquisition intangibles was $1.05 million for
the year ended December 31, 1994, which included the write-off of the remaining
intangible of $992,000 initially recorded in 1988 upon FCB's acquisition of
three branches of Citizens Bank of Roseville.
Offsetting the decrease in noninterest expense was an increase in occupancy
expenses of $160,000 to $1.60 million from $1.44 million for the year ended
December 31, 1995 and 1994, respectively. The increase is primarily attributable
to a nonrecurring adjustment to write-off the remaining leasehold improvements
of the Santa Rosa branch, which was closed during 1995, and the former
administrative offices relocated in September 1995 to more economical offices
available at FCB's Howe Avenue branch.
Income Taxes. The accompanying consolidated statement of operations
reflects a current income tax benefit of $101,000 for the year ended December
31, 1995. This compares to a $2.41 million provision for income taxes for the
same period in 1994. For 1995, FCB realized a tax benefit of $101,000 resulting
from its inclusion in the consolidated tax return of First Banks.
The provision for income taxes for the year ended December 31, 1994
reflects the write-off of previously recorded deferred income tax assets. In
recognition of the substantial loss reported for the year ended December 31,
1994, FCB concluded that it no longer met the realization standards for its
income tax assets as embodied in Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes (SFAS 109). See Note 8 to the accompanying
consolidated financial statements for additional information regarding income
taxes.
Lending and Credit Management. The primary source of income for FCB is the
interest and fees earned on its loan portfolio. This income decreased to 72.41%
and 70.79% of total interest income for the years ended December 31, 1996 and
1995, respectively, from 82.40% for 1994. The reduction in interest income
reflects the overall decrease in the amount of loans, net of unearned discount,
from $130.2 million at December 31, 1994 to $94.5 million and $74.0 million at
December 31, 1996 and 1995, respectively.
This reduction in loan income is critical to the profitability of the Bank.
While loans carry with them inherent credit risks, this can be controlled by
effective loan underwriting and loan approval procedures, a strong credit
administration and risk management system and periodic independent loan reviews.
At the same time, loans typically have interest rates and fees which are
substantially higher than alternative earning assets, such as investment
securities and federal funds sold. For the years ended December 31, 1996 and
1995, the average yield on the Bank's loan portfolio was 9.83% and 9.95%,
compared to 5.79% and 6.00% on its investment securities portfolio,
respectively.
<PAGE>
FCB's strategy for addressing the problems created by its asset quality
included the reduction of real estate construction loans outstanding as well as
the overall reduction of loans which were classified. This required the lending
staff to focus its efforts on the collection, strengthening and restructuring of
loans considered problems, rather than on the origination of new loans to
replace them. The effects of this were further compounded during 1995 by the
resignation of a majority of the Bank's loan officers.
With the completion of the recapitalization of the Bank, and the continued
reduction in the level of problem assets, management of the Bank has initiated a
plan for the renewal of business development efforts within its markets and the
rejuvenation of its commercial banking business including the restaffing of the
lending organization, which has now been completed. Augmenting this development
effort, the Bank has $17.9 million in whole loans and loan participations at
December 31, 1996 purchased from affiliates of First Banks. In addition, the
Bank has sold $2.0 million in loan participations to affiliates at December 31,
1996. There were no loans purchased from affiliates outstanding at December 31,
1995.
The following table shows the composition of the loan portfolio by
major category and the percent of each to the total portfolio as of the dates
presented:
<TABLE>
<CAPTION>
December 31,
1996 1995 1994 1993 1992
--------------- --------------- --------------- -------------- --------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and financial $ 32,756 34.7% $ 33,752 45.6% $ 69,597 53.5% $103,949 53.5% $ 119,115 50.7%
Real estate construction
and development 13,807 14.6 4,094 5.5 16,386 12.6 39,879 20.5 59,228 25.2
Real estate mortgage 39,103 41.4 32,857 44.4 38,439 29.5 43,803 22.5 48,060 20.5
Consumer and in-
stallment, net of
unearned discount 8,831 9.3 3,312 4.5 5,750 4.4 6,746 3.5 8,520 3.6
------- --- ------ ----- -------- ---- ------- ----- ------- ----
Total loans $ 94,497 100.0% $ 74,015 100.0% $ 130,172 100.0% $194,377 100.0% $ 234,923 100.0%
======= ====== ====== ===== ======== ===== ======= ===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
Loans at December 31, 1996 mature as follows:
Over one year
through five years Over five years
One year Fixed Floating Fixed Floating
or less rate rate rate rate Total
------- ---- ---- ---- ---- -----
(dollars expressed in thousands)
<S> <C> <C> <C> <C>
Commercial and financial $ 27,937 4,364 - 455 - 32,756
Real estate construction
and development 13,807 - - - 13,807
Real estate mortgage 33,904 3,330 - 1,869 - 39,103
Consumer and installment 2,077 6,754 - - - 8,831
-------- ------ ---- ---- --- -------
$ 77,725 14,448 - 2,324 - 94,497
======== ======= ==== ===== === =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The following table is a summary of loan loss experience for the five years
ended December 31, 1996:
December 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(dollars expressed in thousands)
Allowance for possible loan losses,
<S> <C> <C> <C> <C> <C>
beginning of period $ 5,388 7,437 7,337 5,484 5,003
-------- ------- ------- ------- ------
Loans charged off:
Commercial and financial (2,043) (4,880) (3,712) (2,455) (503)
Real estate construction and
development (164) (430) (5,591) (3,831) (5,991)
Real estate mortgage (680) (670) (661) (164) (354)
Consumer and installment (106) (290) (59) (59) (136)
------- ------- ------ ------- ------
Total loans charged-off (2,993) (6,270) (10,023) (6,509) (6,984)
------- ------ ------ ------- ------
Recoveries of loans previously charged off:
Commercial and financial 926 306 176 219 182
Real estate construction and
development 15 36 125 - -
Real estate mortgage 75 - - 1 -
Consumer and installment 31 21 13 42 23
------- ------- ------- ------ -----
Total recoveries 1,047 363 314 262 205
------- ------- ------- ------ -----
Net loans charged-off (1,946) (5,907) (9,709) (6,247) (6,779)
------- ------- ------- ------ -----
Provision for possible loan losses 1,155 3,885 9,809 8,100 7,260
------- ------- ------- ------ -----
Reduction in allowance for possible
loan losses transferred with
branch sale - (27) - - -
------- ------- ------- ------ -------
Allowance for possible loan losses,
end of period $ 4,597 5,388 7,437 7,337 5,484
======= ======= ======= ======= =======
Loans outstanding:
Average $87,909 97,875 172,758 218,427 262,752
End of period 94,497 74,015 130,172 194,377 234,923
====== ====== ======= ======= =======
Ratio of allowance for possible
loan losses to loans outstanding:
Average 5.23% 5.50% 4.30% 3.36% 2.09%
End of period 4.86 7.28 5.71 3.77 2.33
Ratio of net charge-offs to average
loans outstanding 2.21 6.04 5.62 2.86 2.58
==== ====== ======= ======= ======
Allocation of allowance for possible loan losses at end of period:
Commercial and financial $ 1,964 2,125 5,076 2,971 1,613
Real estate construction and
development 400 1,128 971 3,950 3,624
Real estate mortgage 1,812 1,866 1,315 353 134
Consumer and installment 421 269 75 63 113
------ ------- ------- ------- -------
Total $ 4,597 5,388 7,437 7,337 5,484
====== ======= ======= ======= =======
Percent of categories to loans, net of unearned discount:
Commercial and financial 34.66% 45.60% 53.47% 53.48% 50.70%
Real estate construction and
development 14.61 5.53 12.59 20.52 25.21
Real estate mortgage 41.38 44.39 29.53 22.54 20.46
Consumer and installment 9.35 4.48 4.41 3.46 3.63
------ ------ ------ ------ ------
Total 100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ====== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nonperforming assets include nonaccrual loans and foreclosed property. The
following table presents the categories of nonperforming assets and loans past
due 30 days or more for the past five years:
December 31,
-----------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(dollars expressed in thousands)
Nonperforming loans:
<S> <C> <C> <C> <C> <C>
Commercial and financial - nonaccrual $ 241 2,371 5,968 3,324 2,405
Real estate construction and development -
nonaccrual 58 484 3,921 16,184 24,166
Real estate mortgage:
Nonaccrual 286 1,146 1,355 1,592 9
Restructured - 525 710 1,000 1,000
Consumer and installment -
nonaccrual 279 - 189 - 25
------ ------ ------- -------- ---------
Total nonperforming loans 864 4,526 12,143 22,100 27,605
Foreclosed property, net 192 1,380 5,222 13,171 17,994
------ ------ ------- ------- --------
Total nonperforming assets $ 1,056 5,906 17,365 35,271 45,599
====== ====== ======= ======= ========
Loans, net of unearned discount $ 94.497 74,015 130,172 194,377 234,923
====== ====== ======= ======= =======
Loans past due:
Over 30 days to 90 days $ 831 3,015 4,514 536 4,942
Over 90 days and still accruing 32 2,249 22 50 300
------- ------ ------- ------- --------
Total past due loans $ 863 5,264 4,536 586 5,242
======= ====== ======== ======= ========
Allowance for possible loan losses to loans 4.86% 7.28% 5.71% 3.77% 2.33%
Nonperforming loans to loans .91 6.11 9.33 11.37 11.75
Allowance for possible loan losses
to nonperforming loans 532.06 119.05 61.25 33.20 19.87
Nonperforming assets to total loans
and foreclosed property 1.12 7.83 12.83 16.99 18.03
====== ====== ======== ======== ========
</TABLE>
As of December 31, 1996 and 1995, $3.2 million and $11.94 million,
respectively, of loans not included in the table above were identified by
management as having potential credit problems which raised doubts as to the
ability of the borrowers to comply with the present loan repayment terms.
FCB does not lend funds for foreign loans. Additionally, FCB does not have
any concentrations of loans exceeding 10% of total loans which are not otherwise
disclosed in the loan portfolio composition table. FCB does not have a material
amount of other interest-bearing assets which would have been included in
nonaccrual, past due or restructured loans if such assets were loans.
FCB's credit management policy and procedures focus on identifying and
managing credit exposure. FCB utilizes a lender-initiated system of rating
credits, which is subsequently tested by internal loan review and bank
regulators. Adversely rated credits are included on a watch list, and are
reviewed at least every four months. Loans may be added to the watch list for
reasons which are temporary and correctable, such as the absence of current
financial statements of the borrower, or a deficiency in loan documentation.
Other loans are added as soon as any problem is detected which might affect the
borrower's ability to meet the terms of the loan. This could be initiated by the
delinquency of a scheduled loan payment, a deterioration in the borrower's
financial condition identified in a review of periodic financial statements, a
decrease in the value of the collateral securing the loan, or a change in the
economic environment within which the borrower operates.
In addition to the rating system, the credit administration coordinates the
periodic credit reviews and provides management with information on risk levels,
trends, delinquencies and portfolio concentrations.
The allowance for possible loan losses is based on past loan loss
experience, FCB management's evaluation of the quality of the loans in the
portfolio and 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 the watch list and other data
to determine its adequacy. The provision for possible loan losses is
management's estimate of the amount necessary to maintain the allowance at a
<PAGE>
level consistent with this evaluation. As adjustments to the allowance for
possible loan losses are considered necessary, they are reflected in the
consolidated statements of operations.
Investment Securities. Investment securities decreased to $38.2 million at
December 31, 1996 from $74.3 million at December 31, 1995. The proceeds from the
decrease in investment securities were utilized to fund loan growth and
reductions in time deposits of $100,000 or more. During 1995, investment
securities increased by $56.6 million to $74.3 million from $17.7 million at
December 31, 1995 and 1994, respectively. This increase is attributable to the
reduction in loans throughout 1995 and a shift from federal funds sold and
securities purchased under agreements to resale to short term available-for-sale
securities as they provided a more consistent and attractive return.
Deposits. Deposits are the primary source of funds for FCB. The following
table sets forth the distribution of FCB's deposit accounts at the dates
indicated and the weighted average interest rates by category of deposit:
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
----------------- ------------------ ----------------
Balance Rate Balance Rate Balance Rate
------- ---- ------- ---- ------- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-interest-bearing demand $ 24,026 - % $ 27,517 - % $ 56,483 - %
Interest-bearing demand and
money market accounts 33,617 2.51 39,646 2.43 68,840 2.39
Savings 13,381 2.27 16,707 2.50 21,695 2.44
Time deposits of $100 or more 9,284 5.84 18,764 5.81 25,317 4.52
Other time 55,828 5.80 53,530 5.94 61,201 5.10
------- ==== -------- ==== -------- ====
Total deposits $ 136,136 $ 156,164 $ 233,536
======== ======= =======
</TABLE>
Interest Rate Risk Management. In financial institutions, the maintenance
of a satisfactory level of net interest income is a primary factor in achieving
acceptable income levels. However, the maturity and repricing characteristics of
the institution's loan and investment portfolios, relative to those within its
deposit structure, may differ significantly. Furthermore, the ability of
borrowers to repay loans and depositors to withdraw funds prior to stated
maturity dates introduces divergent option characteristics which operate
primarily as interest rates change. This causes various elements of the
institution's balance sheet to react in different manners and at different times
relative to changes in interest rates, thereby leading to increases or decreases
in net interest income over time. Depending upon the nature and velocity of
interest rate movements and their effect on the specific components of the
institution's balance sheet, the effects on net interest income can be
substantial. Consequently, a fundamental requirement in managing a financial
institution is establishing effective control of the exposure of the institution
to changes in interest rates.
FCB manages its interest rate risk by: (1) maintaining an Asset Liability
Committee (ALCO) responsible to FCB's Board of Directors to review the overall
interest rate risk management activity and approve actions taken to reduce risk;
(2) maintaining an effective monitoring mechanism to determine FCB's exposure to
changes in interest rates; and (3) coordinating the lending, investing and
deposit-generating functions to control the assumption of interest rate risk.
The objective of these procedures is to limit the adverse impact which changes
in interest rates may have on net interest income.
The ALCO has overall responsibility for the effective management of
interest rate risk and the approval of policy guidelines. The ALCO includes
senior executives of investments, credit, retail banking and finance, and
certain other officers. The ALCO is supported by the Asset Liability Management
Group which monitors interest rate risk, prepares analyses for review by the
ALCO and implements actions which are either specifically directed by the ALCO
or established by policy guidelines. To measure the effect of interest rate
changes, FCB recalculates its net income over two one-year horizons on a pro
forma basis assuming instantaneous, permanent parallel and non-parallel shifts
in the yield curve, in varying amounts both upward and downward.
<PAGE>
In addition to the simulation model employed by FCB, a more traditional
interest rate sensitivity position is prepared and reviewed in conjunction with
the results of the simulation model. The following table presents the projected
maturities and periods to repricing of FCB's rate sensitive assets and
liabilities as of December 31, 1996, adjusted to account for anticipated
prepayments:
<TABLE>
<CAPTION>
Over three Over six
Three through through Over one Over
months six twelve through five
or less months months five years years Total
------- ------ ------ ---------- ----- -----
(dollars expressed in thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C>
Loans (1) $ 35,415 19,936 16,895 20,899 1,352 94,497
Investment securities 9,019 8,042 5,509 15,659 - 38,229
Federal funds sold 11,500 - - - - 11,500
------ ----- ------- ------ ------ -------
Total interest-earning assets 55,934 27,978 22,404 36,558 1,352 144,226
------ ------ ------ ------ ------ -------
Interest-bearing liabilities:
Interest-bearing demand accounts 6,274 3,900 2,543 1,865 2,375 16,957
Money market demand accounts 16,660 - - - - 16,660
Savings accounts 2,275 1,873 1,606 2,275 5,352 13,381
Time deposits 15,909 11,936 31,592 5,675 - 65,112
12% convertible debenture - - - 6,500 - 6,500
------ ------ ------ ------- ------ -------
Total interest-bearing liabilities 41,118 17,709 35,741 16,315 7,727
------ ------ ------ ------ ------
118,610
Interest-sensitivity gap:
Periodic $ 14,816 10,269 (13,337) 20,243 (6,375) 25,616
========
Cumulative 14,816 25,085 11,748 31,991 25,616
====== ====== ====== ====== ======
Ratio of interest-sensitive assets to
interest-sensitive liabilities:
Periodic 1.36 1.58 0.63 2.24 0.17 1.22
====
Cumulative 1.36 1.43 1.12 1.29 1.22
==== ==== ==== ==== ====
</TABLE>
- ----------------------
(1) Loans presented net of unearned discount
Management makes certain assumptions in preparing the table above. These
assumptions include: loans will repay at historic repayment speeds;
mortgage-backed securities, included in investment securities, will repay at
projected repayment speeds; interest-bearing demand accounts and savings
accounts are interest-sensitive at a rate of 37% and 17%, respectively, of the
remaining balance for each period presented; and fixed maturity deposits will
not be withdrawn prior to maturity.
At December 31, 1996, FCB was asset-sensitive on a cumulative basis through
the twelve-month time horizon by $11.7 million, or 7.68% of total assets,
compared to a liability-sensitive position of $466,000, or .27% of total assets
at December 31. 1995. The change to the current asset-sensitive position is
attributable to the increase to $72.2 million from $31.4 million in the amount
of loans repricing within one year at December 31, 1996 and 1995, respectively.
The interest-sensitivity position is one of several measurements of the impact
of interest rate changes on net interest income. Its usefulness in assessing the
effect of potential changes in net interest income varies with the constant
change in the composition of FCB's assets and liabilities. For this reason, FCB
places greater emphasis on a simulation model for monitoring its interest rate
risk exposure.
Capital. For each of the three years ended December 31, 1994, FCB and the
Bank incurred substantial operating losses related primarily to asset quality
problems. These problems continued throughout 1995, resulting in the elimination
of FCB's stockholders' equity, and the substantial reduction of the Bank's
stockholders' equity, by June 30, 1995. The Bank's reduced capital level caused
it to be classified as "critically undercapitalized" for regulatory purposes,
subjecting it to the Prompt Corrective Action provisions of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989. These provisions
required it to seek additional capital or face the possible imposition of a
conservatorship or receivership within 90 days. As more fully discussed in " --
Recapitalization" and Note 2 to the accompanying consolidated financial
statements, FCB and the Bank completed its recapitalization during 1996. As a
result, the Tier 1 capital ratios of FCB and the Bank as of December 31, 1996
increased to 5.66% and 11.84%, respectively. Although FCB continues to be
considered "significantly undercapitalized" for regulatory purposes, the Bank is
considered "well-capitalized."
<PAGE>
Liquidity. The liquidity of FCB and the Bank is the ability to maintain a
cash flow which is adequate to fund operations and meet obligations and other
commitments on a timely basis. The Bank receives funds for liquidity from
customer deposits, loan payments, maturities, and sales of investments and
earnings. In addition, the Bank may avail itself of more volatile sources of
funds through issuance of certificates of deposit in denominations of $100,000
or more, federal funds borrowed, securities sold under agreements to repurchase
and other borrowings. The aggregate funds acquired from these sources, which
consisted of certificates of deposits in denominations of $100,000 or more, were
$10.0 million and $18.8 million at December 31, 1996 and 1995, respectively. The
decrease is consistent with FCB's decision to reduce its reliance on such
sources of funds.
The following table presents the maturity structure of these more volatile
funds at December 31, 1996:
(dollars expressed in thousands)
3 months or less $ 5,583
Over 3 months through 6 months 1,225
Over 6 months through 12 months 2,851
Over 12 months 330
------
Total $ 9,989
======
Management believes the available liquidity and operating results should be
adequate to provide funds to meet FCB's operating and debt service requirements
both on a short-term and long-term basis.
Effect of New Accounting Standards. FCB adopted the provisions of SFAS 114,
Accounting by Creditors for Impairment of a Loan, and SFAS 118, Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures, which
amends SFAS 114, on January 1, 1995. SFAS 114 defines the recognition criterion
for loan impairment and the measurement methods for certain impaired loans and
loans whose terms have been modified in troubled-debt restructurings. SFAS 118
amends SFAS 114 to allow a creditor to use existing methods for recognizing
interest income on an impaired loan. FCB has elected to continue to use its
existing method for recognizing interest on impaired loans. The implementation
of these statements did not have a material effect on FCB's financial position
and resulted in no additional provision for possible loan losses.
In June 1996, the FASB issued SFAS 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities (SFAS 125). 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.
SFAS 125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and is to be
applied prospectively. Earlier or retroactive application is not permitted. FCB
does not believe the implementation of SFAS 125 will have a material effect on
its consolidated financial position or results of operations.
Effects of Inflation. Financial institutions are less affected by inflation
than other types of companies. Financial institutions make relatively few
significant asset acquisitions which are directly affected by changing prices.
Instead, the assets and liabilities are primarily monetary in nature.
Consequently, interest rates are more significant to the performance of
financial institutions than the effect of general inflation levels. While a
relationship exists between the inflation rate and interest rates, FCB believes
this is generally manageable through its interest rate risk management program.
<PAGE>
<TABLE>
<CAPTION>
1996 Quarter Ended
------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
(dollars expressed in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income $ 2,736 3,129 2,920 3,151
Interest expense 1,557 1,324 1,328 1,331
------ ------ ------- -------
Net interest income 1,179 1,805 1,592 1,820
Provision for possible loan losses 600 450 100 5
------ ------ ------- -------
Net interest income (loss) after
provision for possible loan losses 579 1,355 1,492 1,815
Noninterest income 237 252 1,032 216
Noninterest expense 2,306 1,842 2,405 1,527
------- ------ ------- -------
Income (loss) before provision
for income taxes (1,490) (235) 119 504
Provision (benefit) for income taxes (330) (250) (152) 200
------ ------ ------ ------
Net income (loss) $ (1,160) 15 271 304
====== ======= ====== ======
Net income (loss) per share $ (2.08) .02 .32 .36
====== ======= ====== ======
1995 Quarter Ended
------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
(dollars expressed in thousands, except per share data)
Interest income $ 3,776 3,627 3,248 3,099
Interest expense 1,452 1,660 1,527 1,497
----- ----- ----- -----
Net interest income 2,324 1,967 1,721 1,602
Provision for possible loan losses - 3,245 100 540
------- ----- ------ ------
Net interest income (loss) after
provision for possible loan losses 2,324 (1,278) 1,621 1,062
Noninterest income 424 430 277 197
Noninterest expense 3,787 3,391 2,919 2,492
----- -------- ----- -----
Loss before provision (benefit)
for income taxes (1,039) (4,239) (1,021) (1,233)
Provision (benefit) for income taxes - 2 - (103)
------- ----------- ------- ------
Net loss $ (1,039) (4,241) (1,021) (1,130)
===== == ===== ===== =====
Net loss per share $ (27.50) (113.75) (5.00) (2.50)
===== ====== ====== ====
</TABLE>
<PAGE>
Independent Auditors' Report
KPMG Peat Marwick LLP
The Board of Directors and Stockholders
First Commercial Bancorp, Inc.:
We have audited the accompanying consolidated balance sheets of First Commercial
Bancorp, Inc. and subsidiary (the Company) as of December 31, 1996 and 1995, and
the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit. The accompanying 1994 consolidated financial
statements of First Commercial Bancorp, Inc. and subsidiary were audited by
other auditors whose report thereon dated March 29, 1995 included an explanatory
paragraph that described the Company's uncertain ability to continue as a going
concern and the Company's various regulatory agreements with the Federal Deposit
Insurance Corporation, the California State Banking Department and the Federal
Reserve Bank of San Francisco.
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 1996 and 1995 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of First
Commercial Bancorp, Inc. and subsidiary as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/KPMG Peat Marwick LLP
------------------------
St. Louis, Missouri
March 7, 1997
<PAGE>
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
ASSETS 1996 1995
------ ---- ----
Cash and cash equivalents:
<S> <C> <C>
Cash and due from banks $ 9,410 9,768
Federal funds sold 11,500 9,000
------- -----
Total cash and cash equivalents 20,910 18,768
------- ------
Investment securities:
Available for sale, at market value 38,229 63,291
Held to maturity, at amortized cost (estimated market
value of $11,005 at December 31, 1995) -- 10,958
------- ------
Total investment securities 38,229 74,249
------- ------
Loans:
Commercial and financial 32,756 33,752
Real estate construction and development 13,807 4,094
Real estate mortgage 39,103 32,857
Consumer and installment 9,244 3,508
------- -------
Total loans 94,910 74,211
Unearned discount (413) (196)
Allowance for possible loan losses 4,597) (5,388)
------- -------
Net loans 89,900 68,627
------- -------
Lease receivable, net -- 991
Bank premises and equipment, net 1,894 2,247
Accrued interest receivable 1,197 1,429
Other real estate 192 1,380
Other assets 711 1,844
------- -------
Total assets
$ 153,033 169,535
======= =======
LIABILITIES
-----------
Deposits:
Demand:
Non-interest-bearing 24,026 27,517
Interest-bearing 33,617
39,646
Savings 13,381 16,707
Time deposits:
Time deposits of $100 or more 9,284 18,764
Other time deposits 55,828 53,530
------- -------
Total deposits 136,136 156,164
Accrued interest payable 1,098 487
Accrued and other liabilities 2,969 2,805
12% convertible debentures 6,500 6,500
------- -------
Total liabilities 146,703 165,956
------- -------
STOCKHOLDERS' EQUITY
--------------------
Preferred stock, $.01 par value, 5,000,000 shares authorized;
no shares issued and outstanding -- --
Common stock, $1.25 par value, 10,000,000 shares authorized; 846,127 and 557,460
shares issued and outstanding at December 31, 1996 and 1995, respectively 1,058 697
Capital surplus 5,272 33,251
Retained earnings (deficit) since elimination of accumulated deficit of $30,881,
effective December 31, 1996 -- (30,311)
Net fair value adjustment for securities available for sale -- (58)
------- -------
Total stockholders' equity 6,330 3,579
------- -------
Total liabilities and stockholders' equity $ 153,033 169,535
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
(dollars expressed in thousands, except per share data)
Years ended December 31,
------------------------
1996 1995 1994
---- ---- ----
Interest income:
<S> <C> <C> <C>
Interest and fees on loans $ 8,643 9,734 15,126
Investment securities 2,738 1,981 1,109
Federal funds sold, securities purchased under
resale agreements and other 555 2,035 2,121
-------- ------- --------
Total interest income 11,936 13,750 18,356
-------- ------- --------
Interest expense:
Deposits:
Interest-bearing demand 885 1,082 1,989
Savings 349 481 589
Time deposits of $100 or more 599 1,054 1,123
Other time deposits 2,803 3,366 2,157
Other borrowings 905 153 52
--------- -------- --------
Total interest expense 5,540 6,136 5,910
--------- -------- --------
Net interest income 6,396 7,614 12,446
Provision for possible loan losses 1,155 3,885 9,809
--------- -------- --------
Net interest income after provision for possible
loan losses 5,241 3,729 2,637
--------- -------- -------
Noninterest income:
Service charges on deposit accounts and customer
service fees 751 801 1,282
Other income 986 527 691
--------- -------- --------
Total noninterest income 1,737 1,328 1,973
--------- -------- --------
Noninterest expense:
Salaries and employee benefits 2,177 4,117 6,568
Occupancy, net of rental income 881 1,603 1,443
Furniture and equipment 390 581 930
Federal Deposit Insurance Corporation premiums 337 629 820
Postage, printing and supplies 477 297 372
Legal, examination and professional fees 1,501 1,164 725
Data processing 401 145 80
Communications 202 210 82
Losses and expenses on other real estate, net of gains 1,002 2,631 6,035
Amortization and write-off of acquisition intangibles -- -- 1,047
Other 712 1,212 2,291
---------- -------- --------
Total noninterest expense 8,080 12,589 20,393
--------- -------- --------
Loss before provision (benefit) for income taxes (1,102) (7,532) (15,783)
Provision (benefit) for income taxes (532) (101) 2,407
---------- -------- --------
Net loss $ (570) (7,431) (18,190)
======== ========== ======== ========
Net loss per common share $ (.77) (40.69) (486.36)
====== ====== ========== ======== ========
Weighted average common stock and common stock
equivalents outstanding 738,260 182,608 37,400
========== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three years ended December 31, 1996
(dollars expressed in thousands, except per share
data)
Net fair
value
adjustment Total
Retained for securities stock-
Common Capital earnings Treasury available holders'
stock surplus (deficit) stock for sale equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $ 48 28,495 (4,690) (709) - 23,144
Adoption of SFAS 115 - - - - 342 342
Net loss - - (18,190) - - (18,190)
Net fair value adjustment for
securities available for sale - - - - (941) (941)
----- --------- --------- ---- ---- -------
Balance, December 31, 1994 48 28,495 (22,880) (709) (599) 4,355
Net loss - - (7,431) - - (7,431)
Retirement of treasury stock (1) (708) - 709 - -
Net fair value adjustment for
securities available for sale - - - - 541 541
Issuance of common stock
pursuant to stock purchase
agreement 650 5,464 - - - 6,114
----- ------- -------- ------ ---- -------
Balance, December 31, 1995 697 33,251 (30,311) - (58) 3,579
Net loss - - (570) - - (570)
Net fair value adjustment for
securities available for sale - - - - 104 104
Proceeds received from sale of
288,720 shares of common
stock 361 2,856 - - - 3,217
Effect of quasi-reorganization,
effective December 31, 1996 - (30,835) 30,881 - (46) -
------ ------- ------- ------- ---- ------
Balance, December 31, 1996 $ 1,058 5,272 - - - 6,330
====== ======= ======= ======= ===== ======
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(dollars expressed in thousands)
Years ended December 31,
------------------------
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $ (570) (7,431) (18,190)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 148 899 958
Provision for possible loan losses 1,155 3,885 9,809
Write-down of other real estate 99 1,141 4,963
Loss (gain) on disposal of other real estate 4 (149) 88
Benefit of deferred taxes (532) (6,081) (6,497)
Write-off of intangibles - - 1,047
Valuation allowance for deferred taxes - 6,081 8,904
Increase in interest receivable
and other assets 232 521 3,156
Increase (decrease) in accrued interest payable 611 275 (19)
Increase (decrease) in accrued expenses and
other liabilities 1,876 1,602 (1,404)
--------- -------- ------
Net cash provided by operating activities 3,023 743 2,815
--------- --------- ------
Cash flows from investing activities:
Net decrease in interest-bearing deposits with
other financial institutions - 299 3,674
Proceeds from maturities of investment securities 86,884 2,168 30,982
Proceeds from the sales of investment securities - 1,062 -
Purchases of investment securities (50,643) (59,451) (5,135)
Recoveries of loans previously charged-off 1,047 363 314
Net (increase) decrease in loans (24,574) 46,060 47,768
Net decrease in deferred loan fees - (47) (301)
Purchases of premises and equipment (49) (156) (222)
Net decrease in lease financing 991 47 47
Proceeds from sales of other real estate 2,297 4,522 10,340
Payments to complete other real estate (113) - (638)
Other investing activities 90 - -
------- ------ ------
Net cash provided by (used in) investing activities 15,930 (5,133) 86,829
------- ------ ------
Cash flows from financing activities:
Net increase (decrease) in demand and savings deposits (12,846) (49,980) (97,634)
Net increase (decrease) in time deposits (7,182) (10,827) 7,375
Payment from sales of deposits, net - (14,541) -
Proceeds from the issuance of common stock 3,217 6,114 -
Proceeds from the issuance of convertible debentures - 6,133 -
------- -------- -------
Net cash provided by (used in) financing activities (16,811) (63,101) (90,259)
------- -------- -------
Net increase (decrease) in cash and cash equivalents 2,142 (67,491) (615)
Cash and cash equivalents at beginning of year 18,768 86,259 86,874
------- ------ -------
Cash and cash equivalents at end of year $ 20,910 18,768 86,259
======= ====== =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 4,929 5,861 5,929
Income taxes - - 17
======= ======= =======
Supplemental schedule of noncash investing and financing activities:
Exchange of common stock for dividends payable 643 - -
Net decrease in other real estate as a result of foreclosure
or financing, and other related transactions $ 1,099 1,672 6,714
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
(1) Summary of Significant Accounting Policies. The accompanying consolidated
financial statements of First Commercial Bancorp, Inc. and subsidiary (FCB or
the Company) have been prepared in accordance with generally accepted accounting
principles and conform to practices prevalent among financial institutions.
As more fully discussed in Note 2, FCB executed an Amended and Restated
Stock Purchase Agreement (Stock Purchase Agreement) with First Banks, Inc., St.
Louis, Missouri (First Banks) and Mr. James F. Dierberg, Chairman, President and
Chief Executive Officer of First Banks, to provide for the recapitalization of
FCB and its wholly owned subsidiary, First Commercial Bank (Bank). As a result,
First Banks owned 61.46% and 93.29% of the outstanding voting stock of FCB at
December 31, 1996 and 1995, respectively.
As provided by the Stock Purchase Agreement, First Banks initially owned
Bank preferred stock and Bank common stock which was subsequently converted into
FCB common stock on December 27, 1995. The consolidated financial statements
have been prepared as if such conversion had occurred on August 22 and 23, 1995,
respectively, and as if FCB had owned all of the outstanding stock of the Bank
throughout 1995. The Bank preferred stock was nonvoting stock and had no
dividend requirement, except to the extent dividends could be paid on Bank
common stock. The Bank common stock, during the period it was held by First
Banks, was subject to an irrevocable proxy giving the FCB Board of Directors the
right to vote such shares. Consequently, although First Banks owned
approximately 99% of the outstanding Bank common stock during this period, it
did not have voting control until its stock was converted to FCB common stock.
The following is a summary of the more significant policies followed by FCB:
Basis of Presentation The consolidated financial statements of FCB have
been prepared in accordance with generally accepted accounting principles and
conform to predominant practices within the banking industry. Management of FCB
has made a number of estimates and assumptions relating to the reporting of
assets and liabilities and the disclosure of contingent assets and liabilities
to prepare the consolidated financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates. Certain 1995 and 1994 amounts have been reclassified to conform with
the 1996 presentation.
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 have been adjusted to fair values and the retained
deficit has been eliminated as of December 31, 1996. FCB caused the Bank to
accomplish a similar quasi-reorganization, also effective December 31, 1996.
In December 1996, FCB implemented a reverse stock split, whereby each 125
shares of outstanding common stock were converted into one share of common
stock. For consistency, the numbers of shares referred to throughout the
consolidated financial statements were restated to give effect to the reverse
split.
Principles of Consolidation. The consolidated financial statements include
the accounts of the parent company and the Bank. All significant intercompany
accounts and transactions have been eliminated.
Cash and Cash Equivalents. Cash, due from banks, federal funds sold,
interest-bearing deposits with original maturities of three months or less and
securities purchased under resale agreements are considered to be cash and cash
equivalents for purposes of the consolidated statements of cash flows.
The Bank is required to maintain certain daily reserve balances in
accordance with regulatory requirements. These reserve balances maintained in
accordance with such requirements were $918,000 and $1.13 million at December
31, 1996 and 1995, respectively.
Investment Securities. The classification of investment securities as
available for sale or held to maturity is determined at the date of purchase.
FCB does not engage in the trading of investment securities.
Investment securities designated as available for sale, which include any
security which FCB has no immediate plan to sell but which may be sold in the
future under different circumstances, are stated at fair value. Realized gains
and losses are included in noninterest income upon commitment to sell, based on
the amortized cost of the individual security sold. Unrealized gains and losses
are recorded, net of related income tax effects, in a separate component of
stockholders' equity. All previous fair value adjustments included in the
separate component of stockholders' equity are reversed upon sale. Investment
securities designated as held to maturity, which include any security for which
FCB has the positive intent and ability to hold to maturity, are stated at cost,
net of amortization of premiums and accretion of discounts computed on the level
yield method, taking into consideration the level of current and anticipated
prepayments.
Loans. Loans are carried at cost, adjusted for amortization of premiums
and accretion of discounts using a method which approximates the level yield
<PAGE>
method. Interest and fees on loans are recognized as income using the interest
method. Loans are stated at cost as FCB has the ability and it is management's
intention to hold them to maturity.
The accrual of interest on loans is discontinued when it appears that
interest or principal may not be paid in a timely manner in the normal course of
business. Generally, payments received on nonaccrual loans are recorded as
principal reductions. Interest income is recognized after all principal has been
repaid or an improvement in the condition of the loan has occurred which would
warrant resumption of interest accruals.
FCB adopted the provisions of Statement of Financial Accounting Standards
(SFAS) No. 114, Accounting by Creditors for Impairment of a Loan, and SFAS No.
118, Accounting by Creditors for Impairment of a Loan Income Recognition and
Disclosures, which amends SFAS 114, on January 1, 1995. FCB has elected to
continue to use its existing method for recognizing interest on impaired loans
as described above. The implementation of these statements did not have a
material effect on FCB's financial position and resulted in no additional
provision for possible loan losses.
Allowance for Possible Loan Losses. The allowance for possible loan losses
is maintained at a level considered adequate to provide for potential losses.
The provision for possible loan losses is based on a periodic analysis of the
loan portfolio by management, considering, among other factors, current economic
conditions, loan portfolio composition, past loan loss experience, independent
appraisals, loan collateral and payment experience. In addition to the allowance
for estimated losses on impaired loans, an overall unallocated allowance is
established to provide for unidentified credit losses which are inherent in the
portfolio. As adjustments become necessary, they are reflected in the results of
operations in the periods in which they become known.
Bank Premises and Equipment. Bank premises and equipment are stated at cost
less accumulated depreciation and amortization. Depreciation is computed on the
straight-line method over the estimated useful lives of the related assets.
Leasehold improvements are capitalized and amortized over the shorter of their
estimated useful lives or the related lease terms. Bank premises are depreciated
on the straight-line method over 20 to 25 years. Furniture, fixtures and
equipment are depreciated on the straight-line method over one to seven years.
Other Real Estate. Other real estate (ORE) which includes real estate
acquired through foreclosure or by deed in lieu of foreclosure, is stated at the
lower of fair value less applicable selling costs or cost at the time the
property is acquired. The excess of cost over fair value of ORE at the date of
acquisition is charged to the allowance for possible loan losses. Subsequent
reductions in carrying value to reflect current fair value or costs incurred in
maintaining the properties are charged to expense as incurred.
Income Taxes. FCB and the Bank file a consolidated federal income tax
return for the periods subsequent to the Rights Offering. For the periods prior
to the Rights Offering and subsequent to First Banks' acquisition, FCB and the
Bank joined in filing a consolidated federal income tax return with First Banks.
Prior to August 24, 1995, FCB and the Bank each paid their respective portion of
federal income taxes or received payments to the extent that tax benefits were
realized. Subsequent to the acquisition of FCB common stock by First Banks and
prior to the Rights Offering, FCB and the Bank each paid their respective
portion of federal income taxes to, or receive payments from, First Banks to the
extent that tax benefits are available within First Banks' consolidated group.
Financial Instruments. A financial instrument is defined as cash, evidence
of an ownership interest in an entity, or a contract that conveys or imposes on
an entity the contractual right or obligation to either receive or deliver cash
or another financial instrument.
Net Loss Per Common Share. Net loss per share is computed using the
weighted average number of shares outstanding during the year.
(2) Recapitalization. For each of the four years ended December 31, 1995, FCB
and the Bank incurred substantial operating losses related primarily to asset
quality problems resulting in the elimination of FCB's stockholders' equity, and
the substantial reduction of the Bank's stockholders' equity. Recognizing that
new capital was imperative for the Company's survival, the Board of Directors
and management began a concerted effort in early 1995 to replenish its capital
base. However, the rapidity with which losses were incurred during the first six
months of 1995 necessitated expediting this process. As a result, as of June 30,
1995, the Company and the Bank entered into a Stock Purchase Agreement with
First Banks and Mr. James F. Dierberg. Pursuant to the Stock Purchase Agreement,
<PAGE>
Mr. Dierberg provided interim financing for the Bank in the form of a purchase
of $1.5 million of nonvoting preferred stock. However, in spite of this
additional capital, the leverage ratios of FCB and the Bank as of June 30, 1995
had declined to (.23%) and 1.08%, respectively.
The Bank's reduced capital level caused it to be classified as "critically
undercapitalized" for regulatory purposes, subjecting it to the Prompt
Corrective Action provisions of the Financial Institutions Reform, Recovery and
Enforcement Act of 1989. These provisions required it to seek additional capital
or face the possible imposition of a conservatorship or receivership within 90
days. In order to achieve the capital levels required, on August 7, 1995, FCB
and the Bank entered into an Amended and Restated Stock Purchase Agreement (the
Amended Agreement) with First Banks and Mr. Dierberg. The Amended Agreement, and
subsequent agreements entered into with First Banks, resulted in a series of
transactions as follows:
a. On August 22, 1995, First Banks acquired the Bank preferred
stock from Mr. Dierberg for $1.5 million.
b. On August 23, 1995, First Banks purchased 116,666,666 shares
of Bank common stock for an additional $3.5 million.
c. On October 31, 1995, First Banks purchased a convertible debenture
of FCB for $1.5 million, the proceeds of which were used to
increase the capital of the Bank.
d. Following the completion of a Special Stockholders' Meeting on
December 27, 1995, the shares of Bank preferred stock and Bank
common stock held by First Banks were exchanged for 400,000 shares
of FCB common stock. In addition, First Banks purchased a
convertible debenture of FCB for $5.0 million, the proceeds of
which, except for $250,000 retained by First Commercial Bancorp,
Inc., were contributed to the capital of the Bank.
e. On December 28, 1995, First Banks purchased an additional 120,000
shares of FCB common stock for $1.5 million, the proceeds of which
were used to increase the capital of the Bank.
In addition, on February 16, 1996, after its Amended Registration Statement
was declared effective by the Securities and Exchange Commission, FCB commenced
an offering of an aggregate of 477,520 shares of newly-issued common stock
(Rights Offering). The Rights Offering was composed of: (a) an offering to its
existing shareholders, other than First Banks, of 400,000 shares at $12.50 per
share; (b) an offering to individuals who were not shareholders of FCB of a
maximum of 80,000 of the shares available in the Rights Offering which were not
otherwise subscribed; and (c) an offering of 77,520 shares in exchange for
certain outstanding dividend obligations and accrued interest thereon of FCB.
The Rights Offering was completed during the second quarter of 1996 and
approximately 288,720 shares were issued in exchange for $2.97 million in cash
and $643,000 of outstanding dividend obligations. The Rights Offering provided
$3.22 million of capital to FCB, net of underwriting expenditures of $373,000.
As a result of the Rights Offering, First Banks' ownership was reduced to 61.46%
prior to the conversion of the debentures, or 77.24% if the debentures had been
converted as of December 31, 1996.
The proceeds from these transactions, net of amounts retained by the parent
company for corporate expenses and certain offering expenses incurred in the
above transactions, were used to increase the capital of the Bank. As more fully
discussed in Note 16 to the accompanying consolidated financial statements, as a
result of these transactions, the leverage ratios of FCB and the Bank as of
December 31, 1996 have increased to 4.25% and 8.87%, respectively. Although FCB
continues to be considered "significantly undercapitalized" for regulatory
purposes, the Bank is currently considered "well capitalized."
<PAGE>
(4) Investment Securities. As part of the quasi-reorganization discussed in
Note 1, effective December 31, 1996, carrying values of the Company's investment
security portfolio were adjusted to their current fair value and the balance of
the net fair value adjustment of securities available for sale, reflected as a
separate component of stockholders' equity, was eliminated. As a result of this
procedure, the carrying value was increased by $70,000.
The amortized cost, unrealized gains and losses and fair value of
investment securities at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value Yield
---- ----- ------ ----- -----
(dollar expressed in thousands)
December 31, 1996:
Available for sale:
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities $ 23,082 - - 23,082 5.66%
U.S. government agencies 15,147 - - 15,147 5.53
------ ----- ----- ------
Total $ 38,229 - - 38,229 5.61
====== ===== ===== ====== ====
December 31, 1995:
Available for sale:
U.S. Treasury securities $ 10,034 25 (9) 10,050 6.02%
U.S. government agencies 53,251 67 (77) 53,241 5.64
------ ---- ---- ------
63,285 92 (86) 63,291 5.70
------ ---- ---- ------
Held to maturity:
U.S. Treasury securities 7,018 63 - 7,081 6.51
U.S. government agencies 3,940 - (16) 3,924 4.83
------- ---- ---- -------
10,958 63 (16) 11,005 5.90
------ ---- ---- ------
Total $ 74,243 155 (102) 74,296 5.73
====== === === ====== ====
</TABLE>
The amortized cost and fair value of investment securities by contractual
maturity at December 31, 1996 are summarized below. Maturities of
mortgage-backed securities are classified in accordance with contractual
repayment schedules. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
Available for sale
------------------
Amortized Fair
cost value Yield
---- ----- -----
(dollar expressed in thousands)
Maturing within one year:
<S> <C> <C> <C>
U.S. Treasury securities $ 15,035 15,035 5.27%
U.S. government agencies 7,371 7,371 5.13
------- ------
Total maturing within one year 22,406 22,406 5.23
------ ------ ====
Maturing from one to five years:
U.S. Treasury securities 8,047 8,047 6.40
U.S. government agencies 7,776 7,776 5.90
------- ------
Total maturing from one to five years 15,823 15,823 6.12
------- ------ ====
Total $ 38,229 38,229
====== ======
</TABLE>
<PAGE>
Proceeds from the sale of a debt security classified as available for sale
during 1995 were $1.06 million, respectively, resulting in a gain of $3,000.
There were no sales of securities for the years ended December 31, 1996 and
1994.
Investment securities with a carrying value of $3.7 million and $18.9
million at December 31, 1996 and 1995, respectively, were pledged to secure U.S.
government and other public deposits and for other purposes required or
permitted by law.
<TABLE>
<CAPTION>
(5) Loans and Allowance for Possible Loan Losses. The changes to the allowance
for possible loan losses or the years ended December 31 were as follows:
1996 1995 1995
---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C>
Balance, January 1 $ 5,388 7,437 7,337
------ ----- -------
Loans charged-off (2,993) (6,270) (10,023)
Recoveries of loans previously charged-off 1,047 363 314
------ ------ -------
Net loans charged-off (1,946) (5,907) (9,709)
------ ----- -------
Provision charged to operations 1,155 3,885 9,809
Reduction in allowance for possible loan
losses from sale of loans -- (27) --
------ ------ -------
Balance, December 31 $ 4,597 5,388 7,437
====== ===== =======
</TABLE>
Nonaccruing loans aggregated $864,000 and $4.00 million at December 31,
1996 and 1995, respectively. At December 31, 1996 and 1995, the recorded
investment in loans considered impaired was $864,000 and $4.53 million,
respectively, representing loans on nonaccrual status and restructured loans.
The impaired loans had no valuation reserves at December 31, 1996 and 1995. The
average recorded investment in impaired loans, was $2.9 million and $8.5 million
for the years ended December 31, 1996 and 1995, respectively. The amount of
interest income recognized using a cash basis method of accounting during the
time these loans were impaired was $315,000 in 1996. The amount of interest for
1995 and 1994 was not practicable to obtain due to the discontinuance of FCB's
former data processing system.
(6) Lease Financing. FCB had an equity participation in a leveraged lease
agreement. Under the terms of the agreement, FCB's equity investment was
approximately 35% of the cost of the leased equipment. The remaining 65% was
provided by a third party through long-term debt secured by first liens on the
leased equipment. FCB's net investment in the leveraged lease at December 31 was
as follows:
1996 1995
---- ----
(dollars expressed in thousands)
Lease rental receivable $ -- 641
Estimated residual value -- 378
Less unearned and deferred income -- (28)
------ ----
Investment in leverage leases $ -- 991
====== ===
During 1996, FCB assigned its interest in the lease to an unrelated party
and simultaneously sold the leased equipment realizing a net gain on the
transaction of $795,000.
<PAGE>
(7) Bank Premises and Equipment. Bank premises and equipment were comprised of
the following at December 31:
1996 1995
---- ----
(dollars expressed
in thousands)
Buildings $ 1,197 616
Land and land improvements 890 894
Leasehold improvements 1,119 1,801
Furniture, fixtures and equipment 1,798 4,520
----- -----
5,004 7,831
Less accumulated depreciation and amortization 3,110 5,584
----- -----
Bank premises and equipment, net $ 1,894 2,247
===== =====
Depreciation and amortization expense was $305,000, $695,000 and $667,000
for the years ended December 31, 1996, 1995 and 1994, respectively.
At December 31, 1996, the approximate future minimum lease rentals payable
under noncancellable operating leases for bank premises were as follows:
(dollars expressed in thousands)
1997 $ 406
1998 262
1999 225
2000 225
2001 91
Thereafter -
-----
Total minimum lease payments $1,209
The net rental expense included in occupancy expense for bank premises was
$462,000, $965,000 and $871,000 for the years ended December 31, 1996, 1995 and
1994, respectively.
(8) Income Taxes. Income tax provision (benefit) for the years ended December
31 consists of:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1996 1995 1994
---- ---- ----
(dollars expressed in thousands)
Current income tax expense (benefit):
<S> <C> <C>
Federal $ (509) (101) -
State 2 - -
------- ------ ------
(507) (101) -
------- ------ ------
Deferred income tax expense (benefit):
Federal (982) 5,386 (4,761)
State 591 695 (1,736)
------- ------ -----
(391) 6,081 (6,497)
------- ----- -----
Valuation allowance 366 (6,081) 8,904
------- ----- ------
Total $ (532) (101) 2,407
======= ====== ======
</TABLE>
<PAGE>
The effective federal income tax rates differ from amounts which would be
calculated using statutory tax rates as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1996 1995 1994
---- ---- ----
% of % of % of
pretax pretax pretax
Amount income Amount income Amount income
(dollars expressed in thousands)
Loss before provision (benefit) for
<S> <C> <C> <C> <C> <C> <C>
income taxes $ (1,103) (7,532) $(15,783)
===== ===== ======
Taxes on loss calculated
at statutory rates (386) (35.0)% (2,636) (35.0)% (5,366) (34.0)%
Effects of differences in tax reporting:
Change in the deferred tax
valuation allowance 366 33.2% (6,081) (80.7) 8,904 56.4
Change in tax attributes available
to be carried forward - - 8,616 114.4 - -
State income taxes (385) (34.9)% - - (1,131) (7.2)
Other (127) (11.6)% - - - -
------ ----- ------ ------ ------- ----
Provision (benefit) for
income taxes $ (532) (48.3)% (101) (1.3)% $ 2,407 15.2%
====== ==== ====== ====== ======= ====
</TABLE>
<TABLE>
<CAPTION>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are shown
below.
December 31,
------------
1996 1995
---- ----
(dollars expressed in thousands)
Deferred tax assets:
<S> <C> <C>
Allowance for possible loan losses $ 1,734 1,648
Other real estate 103 654
AMT tax credit carryforwards 448 448
Depreciation on bank premises and equipment 144 145
Interest on nonaccrual loans 449 -
Other - 23
Net operating loss carryforwards (federal and state) 394 382
------- -------
Total gross deferred tax assets 3,272 3,300
Less valuation allowance (3,189) (2,823)
-------- -----
Gross deferred tax assets, net of valuation allowance 83 477
------- -------
Deferred tax liabilities:
Leveraged leases - 203
Gains on investment securities currently not
allowable for tax purposes 25 -
Accretion 34 10
State taxes - 264
------- -------
Total gross deferred tax liabilities 59 477
------- -------
Net deferred tax assets $ 24 -
======== =======
</TABLE>
<PAGE>
Changes to the deferred tax assets valuation allowance are as follows:
Years ended December 31,
------------------------
1996 1995
---- ----
(dollars expressed
in thousands)
Balance, beginning of year $ 2,823 8,904
Current year deferred provision, change
in deferred tax valuation allowance 366 (6,081)
-------- -----
Balance, end of year $ 3,189 2,823
======= =====
Due to the uncertainty of future operating results it was determined that
the valuation allowance established for FCB should substantially offset any net
deferred tax asset. Subsequently recognized tax benefits relating to the
valuation allowance for deferred tax assets as of December 31, 1996 will be
credited directly to capital surplus under the terms of the quasi-reorganization
described in Note 1 and the provisions of SFAS 109.
With the completion of the 1995 acquisitions of FCB and the Bank by First
Banks, the federal and state net operating loss carryforwards (NOLs) generated
prior to the two transactions are subject to an annual limitation under Internal
Revenue Code and California Revenue and Taxation Code for all subsequent tax
years. The federal and state annual limitation is $87,739. The following
schedules reflect the NOLs that will be available, after consideration of these
limitations, to offset future taxable income. If taxable income for a
post-transaction year does not equal or exceed the annual limitation, the unused
limitation is carried forward to increase the limitation amount for the
succeeding years until the excess limitation is utilized. This does not affect
the original expiration dates of the NOLs. Also acquired in the acquisitions
were alternative minimum tax credits of $448,000 which have no expiration date.
These credits are also subject to an annual limitation and can be utilized
subsequent to the utilization of the NOLs.
<PAGE>
For federal income tax purposes, FCB had NOLs of approximately $1.1
million at December 31, 1996. The NOLs expire as follows:
(dollars expressed in thousands)
Year ending December 31:
2008 $ 363
2009 747
-----
$ 1,110
=====
For California income tax purposes, FCB had NOLs of approximately $194,000
at December 31, 1996. The NOLs expire as follows:
(dollars expressed in thousands)
Year ending December 31:
1997 $ 88
1998 77
1999 29
----
$ 194
====
(9) 12% Convertible Debentures. Pursuant to the Stock Purchase Agreement
discussed in Note 2 to the accompanying consolidated financial statements, FCB
issued to First Banks two 5-year, 12% convertible debentures in exchange for a
total of $6.5 million. The principal and any accrued but unpaid interest thereon
is convertible at any time prior to maturity, at the option of First Banks, into
FCB common stock at $12.50 per share. At maturity, any unpaid principal and
accrued interest will be converted into FCB common stock at $12.50 per share.
The initial debenture of $1.5 million was issued on October 31, 1995 and matures
on October 31, 2000. The second debenture was issued on December 28, 1995 and
matures on December 28, 2000. Cash may be paid with respect to either the
principal or interest on the debentures only when, in the sole and absolute
discretion of the Board of Directors of FCB, it is determined that FCB has
sufficient funds to make such payment in accordance with all applicable
regulatory requirements. The debentures are secured by all of the shares of Bank
common stock held by FCB.
Accrued and unpaid interest on the debentures was $831,000 and $37,667 at
December 31, 1996 and 1995, respectively. At December 31, 1996, the principal
and accrued interest on the debentures could have been converted into an
aggregate of 586,000 shares of FCB common stock.
(10) Commitments and Contingent Liabilities
Off-Balance Sheet Financial Instruments. In the ordinary course of
business, FCB enters into various types of transactions which involve financial
instruments with off-balance-sheet risk. These instruments include commitments
to extend credit and letters of credit and are not reflected in the accompanying
consolidated balance sheets. These financial transactions carry various degrees
of credit risk. Credit risk is defined as the possibility that a loss may occur
from the failure of another party to perform according to the terms of the
contract.
FCB's loans, and related credit risks, are primarily concentrated in
Northern California. The cities and surrounding metropolitan areas where the
majority of FCB's loan customers reside are Sacramento, Roseville, San
Francisco, Concord, and Campbell, California. Economic fluctuations in the
California regions of the Sacramento Valley and San Francisco Bay Area have had,
and will continue to have, a direct impact on the credit risk of the Company.
Commitments to extend credit are legally binding loan commitments, subject
to certain conditions, with set expiration dates. FCB typically receives a fee
for providing a commitment. FCB evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
FCB upon the extension of credit, is based on management's evaluation.
Collateral held varies, but may include cash, marketable securities, accounts
receivable, inventory, equipment and real estate property.
Standby letters of credit are provided to customers to guarantee their
performance, generally in the production of goods and services or under
contractual commitments in the financial markets. Commercial letters of credit
are issued to customers to facilitate trade transactions. They represent a
substitution of FCB's credit for the customer's credit.
<PAGE>
The contractual amounts of commitments to extend credit and standby letters
of credit represent the amount of credit risk. Since many of the commitments and
letters of credit are expected to expire without being fully drawn, the
contractual amounts do not necessarily represent future cash requirements.
The following is a summary of financial instruments with off-balance-sheet
risk at December 31, 1996 and 1995:
1996 1995
---- ----
(dollars expressed in thousands)
Commitments to extend credit $ 42,425 22,578
Standby letters of credit 49 2,078
========== =======
Litigation. FCB is involved in various routine legal actions as both
plaintiff and defendant. In the opinion of management, based upon the present
status of litigation and the advice of legal counsel, the ultimate resolution of
any of these matters will not have a material adverse impact on the financial
position of FCB.
(11) Dividends. The stockholders of FCB will be entitled to receive dividends,
when and as declared by the Board of Directors, out of funds legally available,
subject to the dividends preference, if any, on preferred shares that may be
outstanding and also subject to the restrictions of the Delaware General
Corporation Law. At December 31, 1996 and 1995, there were no outstanding shares
of preferred stock.
On December 31, 1991, the Board of Directors of FCB declared a $40.00 per
share cash dividend on its common stock. This dividend was payable in four
installments during 1992. On July 9, 1992, the Company made the decision to
suspend payment of the third and fourth quarter dividends which totaled $20.00
per share. FCB will continue to accrue interest on these suspended dividends at
the current legal rate until such time as the dividends are paid to stockholders
of record as of June 15, 1992 and September 14, 1992. As of December 31, 1996
and 1995, the aggregate accrued dividends and accrued but unpaid interest
thereon was $351,000 and $969,000, respectively. In connection with its Rights
Offering to shareholders, as described in Note 2, FCB exchanged common stock to
certain of those individuals eligible to receive the accrued and unpaid 1992
dividends. FCB exchanged one share of FCB common stock for each $12.50 of
dividends and accrued interest in satisfaction of $643,000 of that obligation.
The payment of the remaining accrued dividends is subject to regulatory
approval.
Dividends by the Bank to FCB are restricted under California law to the
lesser of the Bank's retained earnings or the Bank's net income for the latest
three fiscal years, less dividends previously declared during that period, or,
with the approval of the California Superintendent of Banks, to the greater of
the retained earnings of the Bank, the net income of the Bank for its last
fiscal year or the net income of the Bank for its current fiscal year. In
addition, the Federal Reserve Board and the Federal Deposit Insurance
Corporation (FDIC) have indicated that it would generally be considered to be an
unsafe and unsound banking practice for banks to pay dividends except out of
current operating earnings. As a result of the capital contributed to the Bank
following the recapitalization described in Note 2 and the quasi-reorganization
described in Note 1, the Bank may be allowed to pay dividends in the future from
any earnings accumulated after January 1, 1997, subject to applicable regulatory
limitations. During 1996, 1995 and 1994, the Bank paid no dividends to FCB.
(12) Employee Benefit Plans. FCB's profit-sharing plan is a self-administered
savings and incentive plan, which qualifies under Section 401(k) of the Internal
Revenue Code, covering substantially all employees. Under the plan, employer
matching contributions are determined annually by FCB's Board of Directors. An
employee's interest in such contributions vest on a 5-year schedule according to
years of service rendered. Employee contributions are limited to 15% of an
employee's compensation, not to exceed $9,500 for 1996, and vest immediately.
The employer matching contributions were suspended for 1995. Total employer
contributions under the plan were $17,000 and $105,000 for the years ended
December 31, 1996 and 1994, respectively. There were no employer contributions
for 1995.
Postretirement benefits other than pensions and postemployment benefits are
generally not provided for FCB's employees.
<PAGE>
(13) Fair Value of Financial Instruments. Fair values for financial instruments
are management's estimate of the values at which the instruments could be
exchanged in a transaction between willing parties. These estimates are
subjective and may vary significantly from amounts that would be realized in
actual transactions. In addition, other significant assets are not considered
financial assets including, deferred tax assets and bank premises and equipment.
Further, the tax ramifications related to the realization of the unrealized
gains and losses can have a significant effect on the fair value estimates and
have not been considered in any of the estimates.
The estimated fair value of FCB's financial instruments at December 31 was
as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
------ ---------- ------ ----------
(dollars expressed in thousands)
Assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 20,910 20,910 18,768 18,768
Investment securities 38,229 38,229 74,249 74,296
Loans, net 89,900 89,900 68,627 68,681
Lease financing, net - - 991 991
Accrued interest receivable 1,197 1,197 1,429 1,429
Liabilities:
Demand and savings deposits 71,024 71,024 83,870 83,870
Time deposits 65,112 65,112 72,294 72,371
12% convertible debentures 6,500 6,500 6,500 6,500
Accrued interest payable 1,098 1,098 487 487
Off balance sheet -
unfunded loan commitments - - - -
</TABLE>
The following methods and assumptions were used in estimating the fair
value of financial instruments:
Financial Assets:
Cash and cash equivalents, lease financing and accrued interest receivable:
The carrying value reported in the consolidated balance sheets approximates fair
value.
Investment securities: Fair value for investment securities is based upon
quoted market prices. If quoted market prices are not available, fair values are
based upon quoted market prices of comparable instruments.
Net loans: The fair value for most loans held for investment is estimated
utilizing discounted cash flow calculations that apply interest rates currently
being offered for similar loans to borrowers with similar risk profiles. The
carrying values for loans are net of the allowance for possible loan losses and
unearned discount. Financial Liabilities:
Deposits: The fair value disclosed for deposits generally payable on demand
(i.e., non-interest-bearing and interest-bearing demand, savings and money
market accounts) is considered equal to their respective carrying amounts as
reported in the consolidated balance sheets. The fair value disclosed for demand
deposits does not include the benefit that results from the low-cost funding
provided by deposit liabilities compared to the cost of borrowing funds in the
market. Fair values for certificates of deposit are estimated using a discounted
cash flow calculation that applies interest rates currently being offered on
similar certificates to a schedule of aggregated monthly maturities of time
deposits.
Convertible debentures and accrued interest payable: The carrying value
reported in the consolidated balance sheets approximates fair value.
Off-Balance Sheet:
Credit commitments: The majority of the commitments to extend credit and
commercial and standby letters of credit contain variable interest rates and
credit deterioration clauses and, therefore, the carrying value of these credit
commitments approximates fair value.
(14) Regulatory Agreements. FCB reported losses of $3.5 million, $7.3 million,
$18.2 million and $7.4 million for the years ended December 31, 1992, 1993, 1994
and 1995, respectively. As a result of these substantial losses, FCB and the
<PAGE>
Bank were previously operating under the terms of a Memorandum of Understanding
(MOU) and under certain regulatory orders (Orders), respectively, which placed
significant restrictions on their operations, including restrictions on the
payment of dividends, requirements for the attainment of specified capital
levels and reductions of classified assets. As a result of the recapitalization
discussed in Note 2, combined with numerous other actions which have been taken
by the Company, the MOU and Orders were terminated and, accordingly, FCB and the
Bank no longer operate under the related restrictions.
(15) Transactions with First Banks. In October 1995, the Board of Directors of
the Bank approved 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. The aggregate cost for such services are
more economical than those previously incurred separately by the Bank.
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.
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.
The Bank also entered into a data processing agreement with FirstServ,
Inc., a wholly owned data processing subsidiary of First Banks. Under this
agreement, FirstServ, Inc. began providing data processing and item processing
to the Bank in December 1995. The fees for such services are substantially less
than the Bank had incurred in connection with its previous data processing
operation.
The management services agreement, cost sharing agreement and data
processing agreement are subject to the review and approval of the Bank's
regulatory authorities. Fees paid by the Bank under these agreements totaled
$1.4 million and $99,000 for the years ended December 31, 1996 and 1995,
respectively.
In connection with the recapitalization of FCB, and as more fully discussed
in Notes 2 and 9 to the accompanying consolidated financial statements, 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 $793,000 and $37,667 for the years ended
December 31, 1996 and 1995, respectively.
The Bank has $17.9 million in whole loans and loan participations
outstanding at December 31, 1996 that were purchased from banks affiliated with
First Banks. In addition, the Bank has sold $2.0 million in loan participations
to affiliates at December 31, 1996. There were no whole loans or loan
participations outstanding at December 31, 1995. These loans and loan
participations were acquired at interest rates and terms prevailing at the dates
of their purchase and under standards and policies followed by the Bank.
(16) Capital. The Bank is subject to various regulatory capital requirements
administered by the federal and state banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory--and possibly additional
discretionary--actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for Prompt Corrective Action, the Bank
must meet specific capital guidelines that involve quantitative measure of the
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weighting, and other factors.
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
<PAGE>
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 discussed in Note 14,
the regulatory agreements were terminated. Accordingly, management believes, as
of December 31, 1996, the Bank is well-capitalized as defined by the FDIC Act.
At December 31, 1996 and 1995, FCB's and the Bank's capital ratios were as
follows:
Risk-Based Capital Ratios
Total Tier 1 Leverage Ratio
---------------- ------------------- -----------------
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
FCB 6.95% 4.99% 5.66% 3.68% 4.25% 2.14%
Bank 13.13 12.66 11.84 11.35 8.87 6.58
====== ===== ===== ===== ==== ====
FCB has common stock options outstanding to acquire 552 and 762 shares of
common stock at December 31, 1996 and 1995, respectively. The options prices
range form $531.25 to $1,390.00 per share. The market price of FCB's common
stock at December 31, 1996 was $10.50 per share.
(17) Parent Company Only Financial Statements
<TABLE>
<CAPTION>
Condensed Balance Sheets
------------------------
1996 1995
---- ----
(dollars expressed in thousands)
Assets:
<S> <C> <C>
Cash $ 363 200
Investment in First Commercial Bank 13,144 10,987
Other assets 524 413
------- -------
Total assets $ 14,031 11,600
======= ======
Liabilities and stockholders' equity:
Dividends payable $ 251 748
12% convertible debentures 6,500 6,500
Accrued expenses and other liabilities 950 773
--------- --------
Total liabilities 7,701 8,021
Stockholders' equity 6,330 3,579
-------- -------
Total liabilities and stockholders' equity $ 14,031 11,600
======= ======
</TABLE>
<TABLE>
<CAPTION>
<PAGE>
Condensed Statements of Operations
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
(dollars expressed in thousands)
Income:
<S> <C> <C> <C>
Interest income $ 8 1 95
Other income - - -
------ ------ ------
Total income 8 1 95
------ ------- -------
Expense:
Management fee - - 56
Other 1,059 716 1,182
------ ------- -------
Total expense 1,059 716 1,238
------ ------- -------
Loss before income tax expense
(benefit) and equity in
undistributed income (loss)
of subsidiary (1,051) (715) (1,143)
Income tax expense (benefit) (366) 4 (9)
------ ------- -------
Loss before equity in undistributed
income (loss) of subsidiary (685) (719) (1,134)
Equity in undistributed income (loss)
of subsidiary 115 (6,712) (17,056)
------ ------ ------
Net loss $ (570) (7,431) (18,190)
====== ====== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
(dollars expressed in thousands)
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $ (570) (7,431) (18,190)
Adjustments to reconcile net loss
to net cash (used in) provided
by operating activities:
Depreciation and amortization - - 1,047
Equity in undistributed (income)
loss of subsidiary (115) 6,712 17,056
(Increase) decrease in other assets (111) (46) 308
Other, net (36) 351 33
------- ------- -------
Net cash (used in) provided
by operating activities (832) (414) 254
------- ------ -------
Cash flows from investing activities -
contributions to subsidiary (1,938) (7,325) (1,404)
------- ------ ------
Cash flows from financing activities:
Proceeds from issuance of common stock 3,217 1,500 -
Proceeds from issuance of debentures - 6,133 -
(Decrease) increase from advances
from subsidiary (284) 284 -
------- ------ ------
Net cash provided by
financing activities 2,933 7,917 -
------- ------ ------
Net increase (decrease) in
cash and cash equivalents 163 178 (1,150)
Cash and cash equivalents at beginning of year 200 22 1,172
------- ------ ------
Cash and cash equivalents at end of year $ 363 200 22
======= ====== ======
Noncash financing activities - exchange
of Company common stock for Bank
common stock (see Note 2) $ - 6,500 -
======= ====== ======
</TABLE>
<PAGE>
Form 10-K
FCB's Annual Report on Form 10-K, as filed with the Securities and Exchange
Commission, is available without charge to any stockholder upon written request.
Requests should be directed to the following address:
First Commercial Bancorp, Inc.
865 Howe Avenue
Sacramento, California 95825
Common Stock
The common stock of FCB was traded on the NASDAQ National Market System
under the symbol of "FCOB" until July 1, 1995. FCB's Common stock is currently
listed on the NASDAQ Small Cap Market.At March 18, 1997, there were
approximately 1,186 holders of record of the common stock.
Common stock price range (1):
<TABLE>
<CAPTION>
1996 1995
---------------------- -------------
High Low High Low
<S> <C> <C> <C> <C>
First quarter $50-25/32 15-5/8 167-3/32 113-9/32
Second quarter 39-1/16 11-23/32 156-1/4 125
Third quarter 27-11/32 15-5/8 171-7/8 31-1/4
Fourth quarter 19-17/32 10-1/2 93-3/4 7-13/16
</TABLE>
----------------
(1) All amounts reflect a one for 125 share reverse stock split, effective
in December 1996.
Common Stock Transfer Agent and Registrar
First National Bank of Boston
435 Tasso, Suite 250
Palo Alto, CA 94301
Telephone: (415) 853-0404
Information
For information concerning First Commercial Bancorp, Inc., contact:
James E. Culleton
Corporate Secretary
865 Howe Avenue
Sacramento, California 95825
Telephone: (916) 641-3288
<PAGE>
Board of Directors
of the Company and the Bank
Donald W. Williams Chairman of the Board, President and Chief Executive
Officer
Allen H. Blake Executive Vice President and Chief Financial Officer
- First Banks, Inc.
James E. Culleton Secretary of the Company and President and Secretary
of the Bank
Fred L. Harris Attorney-At-Law
Executive Management and Senior Officers of the
Company and the Bank
Donald W. Williams Chairman of the Board, President and Chief Executive
Officer of the Company and Chairman of the Board and
Chief Executive Officer of the Bank
James E. Culleton President and Secretary of the Bank and Secretary
of the Company
Terrance M. McCarthy Executive Vice President and Chief Credit Officer
of the Bank
Kathryn L. Perrine Vice President and Chief Financial Officer of the
Company and the Bank
Ralph J. Sabin Senior Vice President and Senior Lending Officer
of the Bank
Gary M. Sanders Senior Vice President and Senior Lending Office
of the Bank
<PAGE>
Exhibit 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the company's previously filed
Registration Statements file No. 33-18459 and No. 33-35131
/s/Arthur Andersen LLP
----------------------
San Francisco, California
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000315547
<NAME> First Commericial Bancorp, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Dec-31-1996
<CASH> 9,410
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 11,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 38,229
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 94,497
<ALLOWANCE> (4,597)
<TOTAL-ASSETS> 153,033
<DEPOSITS> 136,136
<SHORT-TERM> 0
<LIABILITIES-OTHER> 4,067
<LONG-TERM> 6,500
0
0
<COMMON> 1,058
<OTHER-SE> 5,272
<TOTAL-LIABILITIES-AND-EQUITY> 153,033
<INTEREST-LOAN> 8,643
<INTEREST-INVEST> 2,738
<INTEREST-OTHER> 555
<INTEREST-TOTAL> 11,936
<INTEREST-DEPOSIT> 4,635
<INTEREST-EXPENSE> 5,540
<INTEREST-INCOME-NET> 6,396
<LOAN-LOSSES> 1,155
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,080
<INCOME-PRETAX> (1,102)
<INCOME-PRE-EXTRAORDINARY> (1,102)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (507)
<EPS-PRIMARY> (.77)
<EPS-DILUTED> (.77)
<YIELD-ACTUAL> 8.20
<LOANS-NON> 864
<LOANS-PAST> 32
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,178
<ALLOWANCE-OPEN> 5,388
<CHARGE-OFFS> (2,993)
<RECOVERIES> 1,047
<ALLOWANCE-CLOSE> 4,597
<ALLOWANCE-DOMESTIC> 4,597
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
