<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 33-91906
FIRST COMMERCE BANKS OF FLORIDA, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-2405633
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
141 CENTRAL AVENUE EAST, WINTER HAVEN, FLORIDA 33880
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (941) 299-6072
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
----- -----
As of October 31, 1996, there were outstanding 1,585,737 shares of the
Registrant's Common Stock.
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FIRST COMMERCE BANKS OF FLORIDA, INC.
FORM 10-QSB - FOR THE QUARTER ENDED SEPTEMBER 30, 1996
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
a) Consolidated Statements of Financial Condition -
September 30, 1996 (Unaudited) and December 31, 1995 ..................................... 3
b) Unaudited Consolidated Income Statements - Nine
Months Ended September 30, 1996 and 1995 ................................................. 4
c) Unaudited Consolidated Income Statements - Three
Months Ended September 30, 1996 and 1995 ................................................. 5
d) Unaudited Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1996 and 1995 ............................................. 6
e) Notes to Unaudited Consolidated
Financial Statements ..................................................................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............................................. 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ................................................................... 37
SIGNATURES ......................................................................................................... 38
</TABLE>
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PART I. - FINANCIAL INFORMATION ITEM 1. - FINANCIAL STATEMENTS
FIRST COMMERCE BANKS OF FLORIDA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31,
(UNAUDITED) 1995
------------------ ------------
ASSETS (In thousands)
<S> <C> <C>
Cash and due from banks ............................................................. $ 3,765 $ 4,807
Federal funds sold .................................................................. 3,050 5,562
Investment securities available-for-sale ............................................ 23,057 24,584
Investment securities held-to-maturity (fair value of
$1,539,000 and $3,560,000) ...................................................... 1,550 3,559
Loans receivable, net of allowance for credit
losses of $1,699,000 and $1,195,000 ............................................. 68,999 70,265
Property and equipment, net ......................................................... 1,324 1,304
Cash surrender value of officers' life insurance .................................... 1,118 1,079
Accrued interest receivable ......................................................... 932 1,013
Other real estate owned ............................................................. 149 301
Other assets ........................................................................ 684 609
-------- --------
TOTAL ASSETS ........................................................................ $104,628 $113,083
======== ========
LIABILITIES
Deposits:
Demand deposits ................................................................. $ 15,442 $ 17,056
NOW accounts .................................................................... 13,500 15,045
Money market accounts ........................................................... 4,351 4,698
Savings deposits ................................................................ 8,543 7,735
Time deposits under $100,000 .................................................... 44,962 48,864
Time deposits $100,000 and over ................................................. 6,327 8,543
-------- --------
Total deposits ............................................................. 93,125 101,941
Other liabilities ................................................................... 892 592
-------- --------
TOTAL LIABILITIES ................................................................... 94,017 102,533
-------- --------
Minority interest ................................................................... 29 29
Commitments and contingencies (Note 4)
STOCKHOLDERS' EQUITY
Preferred stock $.01 par - 3,000,000
shares authorized and none outstanding .......................................... - -
Common stock $.01 par - 10,000,000 shares
authorized and 1,585,737 shares outstanding ..................................... 16 16
Additional paid-in capital .......................................................... 6,738 6,738
Retained earnings ................................................................... 3,906 3,754
Unrealized securities gains (losses), net of income
taxes (benefit) of $(48,000) and $8,000 ......................................... (78) 13
-------- --------
TOTAL STOCKHOLDERS' EQUITY .......................................................... 10,582 10,521
-------- --------
TOTAL LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY ....................... $104,628 $113,083
======== ========
</TABLE>
The accompanying Notes to Unaudited Consolidated Financial Statements
are an integral part of these financial statements.
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<PAGE> 4
FIRST COMMERCE BANKS OF FLORIDA, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------
1996 1995
------- ------
INTEREST AND FEE INCOME: (In thousands, except per share amounts)
<S> <C> <C>
Loans receivable .................................................................... $5,519 $5,636
Investment securities - taxable ..................................................... 987 1,257
Investment securities - tax free .................................................... 50 48
Federal funds sold .................................................................. 209 489
------- ------
Total interest and fee income ................................................... 6,765 7,430
------- ------
INTEREST EXPENSE ON DEPOSITS:
NOW accounts ........................................................................ 248 252
Money market accounts ............................................................... 136 155
Savings deposits .................................................................... 137 157
Time deposits under $100,000 ........................................................ 1,904 2,080
Time deposits $100,000 and over ..................................................... 294 475
------- ------
Total interest expense on deposits .............................................. 2,719 3,119
------- ------
NET INTEREST INCOME ................................................................. 4,046 4,311
PROVISION FOR CREDIT LOSSES ......................................................... 580 925
------- ------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES ............................... 3,466 3,386
------- ------
NON-INTEREST INCOME:
Service charges and fees ............................................................ 615 718
Loss on investment securities sales ................................................. - (95)
Gain on sale of subsidiary .......................................................... - 564
Recognition of deferred gain on sale of building .................................... - 171
Other ............................................................................... 77 50
------- ------
Total non-interest income ....................................................... 692 1,408
------- ------
NON-INTEREST EXPENSES:
Compensation and benefits ........................................................... 1,875 1,618
Occupancy and equipment ............................................................. 570 569
Professional fees ................................................................... 373 354
Data processing ..................................................................... 258 221
Stationery and supplies ............................................................. 129 134
Advertising and promotion ........................................................... 69 108
Postage and freight ................................................................. 87 75
Other real estate owned ............................................................. 57 111
FDIC insurance premiums ............................................................. 112 122
Other ............................................................................... 411 372
------- ------
Total non-interest expenses ..................................................... 3,941 3,684
------- ------
INCOME BEFORE TAXES ON INCOME AND MINORITY INTEREST ................................. 217 1,110
Taxes on income ..................................................................... 65 448
Minority interest ................................................................... - 3
------- ------
NET INCOME .......................................................................... $ 152 $ 659
======= ======
NET INCOME PER SHARE ................................................................ $ .09 $ .40
======= ======
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK
AND COMMON STOCK EQUIVALENTS OUTSTANDING ........................................ 1,679 1,665
======= ======
</TABLE>
The accompanying Notes to Unaudited Consolidated Financial Statements
are an integral part of these financial statements.
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FIRST COMMERCE BANKS OF FLORIDA, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------------
1996 1995
------ ------
INTEREST AND FEE INCOME: (In thousands, except per share amounts)
<S> <C> <C>
Loans receivable ............................................................. $1,803 $1,808
Investment securities - taxable .............................................. 321 460
Investment securities - tax free ............................................. 17 14
Federal funds sold ........................................................... 59 116
------ ------
Total interest and fee income ............................................ 2,200 2,398
------ ------
INTEREST EXPENSE ON DEPOSITS:
NOW accounts ................................................................. 86 80
Money market accounts ........................................................ 40 49
Savings deposits ............................................................. 47 46
Time deposits under $100,000 ................................................. 615 742
Time deposits $100,000 and over .............................................. 85 146
------ ------
Total interest expense on deposits ...................................... 873 1,063
------ ------
NET INTEREST INCOME .......................................................... 1,327 1,335
PROVISION FOR CREDIT LOSSES .................................................. 124 775
------ ------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES ........................ 1,203 560
------ ------
NON-INTEREST INCOME:
Service charges and fees ..................................................... 208 243
Gain on investment securities sales .......................................... - 15
Recognition of deferred gain on sale of building ............................. - 171
Other ........................................................................ 18 33
------ ------
Total non-interest income ................................................ 226 462
------ ------
NON-INTEREST EXPENSES:
Compensation and benefits .................................................... 610 526
Occupancy and equipment ...................................................... 191 201
Professional fees ............................................................ 125 163
Data processing .............................................................. 93 78
Stationery and supplies ...................................................... 43 37
Advertising and promotion .................................................... (10) 24
Postage and freight .......................................................... 31 20
Other real estate owned ...................................................... 12 71
FDIC insurance premiums ...................................................... 94 5
Other ........................................................................ 131 73
------ ------
Total non-interest expenses .............................................. 1,320 1,198
------ ------
INCOME (LOSS) BEFORE TAXES ON INCOME
(INCOME TAX BENEFIT) AND MINORITY INTEREST ................................. 109 (176)
Taxes on income (Income tax benefit) ......................................... 35 (65)
Minority interest ............................................................ 9 -
------ ------
NET INCOME (LOSS) ............................................................ $ 65 $ (111)
====== ======
NET INCOME (LOSS) PER SHARE .................................................. $ .04 $ (.07)
====== ======
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK
AND COMMON STOCK EQUIVALENTS OUTSTANDING ................................. 1,678 1,680
====== ======
</TABLE>
The accompanying Notes to Unaudited Consolidated Financial Statements
are an integral part of these financial statements.
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<PAGE> 6
FIRST COMMERCE BANKS OF FLORIDA, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1996 1995
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES: (In thousands)
<S> <C> <C>
Net income .......................................................................... $ 152 $ 659
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses ..................................................... 580 925
Amortization of unearned discounts and loan fees ................................ - (120)
Net amortization of premiums
on investment securities and loans ......................................... 175 -
Loss on sale of investment securities ........................................... - 95
Depreciation and amortization ................................................... 156 114
Gain on sale of subsidiary ...................................................... - (564)
Loss on sale of other real estate owned ......................................... 20 -
Asset and liability changes net of effects of subsidiary sale:
Decrease (Increase) in:
Accrued interest receivable ............................................ 81 (410)
Cash surrender value of officers' life insurance ....................... (39) (18)
Other assets ........................................................... (75) (138)
Minority interest .......................................................... - (31)
Increase in other liabilities .............................................. 111 101
------- -------
Net cash provided by operating activities ........................................... 1,161 613
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease (increase) in loans receivable,
net of effects of subsidiary sale ............................................... 623 (6,624)
Purchases of investment securities available-for-sale ............................... (5,500) (13,619)
Proceeds from sales and maturities of investment
securities available-for-sale ................................................... 4,269 2,434
Proceeds from sales and maturities of investment
securities held-to-maturity ..................................................... 4,501 6,902
Proceeds from sales of other real estate owned ...................................... 195 309
Cash sold in sale of subsidiary, net of proceeds .................................... - (4,755)
Purchases of property and equipment ................................................. (176) (385)
------- -------
Net cash provided by (used for) investing activities ................................ 3,912 (15,738)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease), net of effects of subsidiary sale, in:
Demand deposits ................................................................. (1,614) 206
NOW accounts .................................................................... (1,545) (1,014)
Money market accounts ........................................................... (347) (428)
Savings deposits ................................................................ 808 196
Time deposits ................................................................... (6,118) 10,609
Proceeds from overnight repurchase agreements ....................................... 189 -
------- -------
Net cash provided by (used for) financing activities ................................ (8,627) 9,569
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS ........................................... (3,554) (5,556)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .................................... 10,369 $13,951
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .......................................... $ 6,815 $ 8,395
======= =======
SUPPLEMENTAL DISCLOSURES:
Interest paid in cash ........................................................... $ 2,691 $ 3,028
======= =======
Income taxes paid in cash ....................................................... $ 328 $ 517
======= =======
NON-CASH INVESTING ACTIVITIES:
Transfers from loans to other real estate owned ................................. $ 63 $ 272
======= =======
Loans originated on sales of other real estate owned ............................ $ - $ 35
======= =======
</TABLE>
The accompanying Notes to Unaudited Consolidated Financial Statements
are an integral part of these financial statements.
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<PAGE> 7
FIRST COMMERCE BANKS OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
First Commerce Banks of Florida, Inc. ("FCB") is a commercial bank
holding company which, as of September 30, 1996, owned 99.77% of First Commerce
Bank of Polk County ("First Commerce/Polk County") in Winter Haven, Florida,
and, prior to May 1, 1995, 80.00% of First Sterling Bank of Osceola County
("FSB/Osceola") in Kissimmee, Florida (collectively, the "Company"). The
consolidated financial statements include the accounts of FCB, First
Commerce/Polk County and, prior to May 1, 1995, FSB/Osceola. The minority
interest represented a .23% ownership interest in the common stock of First
Commerce/Polk County and a 20.00% ownership interest in FSB/Osceola common
stock held by third parties. All material intercompany accounts and
transactions were eliminated.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and do not include
all of the information and footnotes required by generally accepted accounting
principles for complete consolidated financial statements. In the opinion of
the Company, the consolidated financial statements reflect all adjustments
which are of a normal recurring nature and which are necessary to present
fairly the consolidated financial position of the Company as of September 30,
1996 and December 31, 1995, the results of its operations for the nine and
three months ended September 30, 1996 and 1995, and its cash flows for the nine
months ended September 30, 1996 and 1995. The results of operations for the
nine and three months ended September 30, 1996 are not necessarily indicative
of the results which may be expected for the entire fiscal year.
Net income per share of FCB's common stock was computed by dividing
net income for the respective period by the weighted average number of shares
of common stock outstanding, including common stock equivalents using the
treasury stock method. Warrants and stock options issued to officers and
directors are considered common stock equivalents. Because there is no
established public trading of FCB's common stock, the treasury stock method
assumes that FCB purchased common stock at FCB's average book value during the
respective periods. Fully-diluted and primary earnings per share are not
materially different. For the nine and three months ended September 30, 1996
and 1995, weighted average number of shares of common stock and common stock
equivalents outstanding was computed as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------- -----------------------
NINE THREE NINE THREE
--------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Weighted average shares of common
stock outstanding .................................. 1,585,737 1,585,737 1,585,737 1,585,737
Common shares assumed outstanding
to reflect the dilutive effect of warrants
to purchase common stock ........................... 53,753 53,622 48,334 54,144
Common shares assumed outstanding to
reflect the dilutive effect of stock options
to purchase common stock ........................... 39,247 39,055 31,288 39,821
--------- --------- --------- ---------
Weighted average number of shares of
common stock and common stock
equivalents outstanding ............................ 1,678,737 1,678,414 1,665,359 1,679,702
========= ========= ========= =========
</TABLE>
On January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114 ("FAS 114"), "Accounting by Creditors for
Impairment of a Loan," and Statement of Financial Accounting Standards No. 118
("FAS 118"), "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures." These
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<PAGE> 8
two Statements address the accounting by creditors for impairment of certain
loans and generally require the Company to identify loans for which the Company
probably will not receive full repayment of principal and interest, as impaired
loans. These two Statements require that impaired loans be valued at either
(i) the present value of expected future cash flows, discounted at the loan's
effective interest rate, or (ii) at the observable market price of the loan, or
(iii) the fair value of the underlying collateral if the loan is collateral
dependent. The Company implemented these two statements by modifying its
quarterly review of the adequacy of the allowance for credit losses to also
identify and value impaired loans in accordance with the guidance in these two
Statements. The adoption of these two Statements did not have any material
effect on the results of operations for the nine and three months ended
September 30, 1996 and 1995.
The Company considers a variety of factors in determining whether a
loan is impaired, including (i) any notice from the borrower that the borrower
will be unable to repay all principal and interest amounts contractually due
under the loan agreement, (ii) any delinquency in the principal and interest
payments (other than minimum delays or shortfalls in payments), and (iii) other
information known by the Company which would indicate that full repayment of
the principal and interest is not probable. In evaluating loans for
impairment, the Company generally considers delinquencies of 60 days or less to
be minimum delays, and accordingly does not consider such delinquent loans to
be impaired in the absence of other indications of impairment.
The Company evaluates smaller balance, homogeneous loans for
impairment and adequacy of allowance for credit losses collectively, and
evaluates other loans for impairment individually, on a loan-by-loan basis.
For this purpose, the Company considers its portfolio of commercial, commercial
real estate and residential real estate loans less than $500,000 and its
consumer and other loans to be smaller balance, homogeneous loans. The Bank
evaluates each of these loan portfolios for impairment on an aggregate basis,
and utilizes its own historical charge-off experience, as well as the
charge-off experience of its peer group and industry statistics to evaluate the
adequacy of the allowance for credit losses. For all other loans, the Company
evaluates loans for impairment on a loan-by-loan basis.
The Company evaluates all non-accrual loans as well as any accruing
loans exhibiting collateral or other credit deficiencies for impairment. With
respect to impaired collateral-dependent loans, any portion of the recorded
investment in the loan that exceeds the fair value of the collateral is
charged-off.
For impairment recognized in accordance with these two Statements, the
entire change in the present value of expected cash flows, or the entire change
in estimated fair value of collateral for collateral dependent loans, is
reported as a provision for credit losses in the same manner in which
impairment initially was recognized or as a reduction in the amount of the
provision that otherwise would be reported.
On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 122 ("FAS 122"), "Accounting for Mortgage Servicing
Rights, an amendment of FASB Statement No. 65," which requires mortgage banking
enterprises that acquire mortgage servicing (through either the purchase or
origination of mortgage loans) and sell or securitize those loans with
servicing retained to allocate the total cost of the mortgage loans to the
mortgage servicing rights and the loans based on their relative fair values.
Mortgage banking enterprises include commercial banks that conduct operations
substantially similar to the primary operations of a mortgage banking
enterprise. The implementation of FAS 122 did not have a material impact on
the Company's financial statements.
On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123 ("FAS 123"), "Accounting for Stock-Based
Compensation" which requires certain disclosures about stock-based employee
compensation arrangements, regardless of the method used to account for them,
and defines a fair value based method of accounting for an employee stock
option or similar equity instrument and encourages all entities to adopt that
method of accounting for all of their employee stock compensation plans.
However, FAS 123 also allows an entity to continue to measure compensation cost
for stock-based compensation plans using the intrinsic value method of
accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Entities electing to continue using the accounting method in APB
Opinion No. 25 must make pro forma disclosures of net income and earnings per
share as if the fair value method of accounting defined in FAS 123 had been
applied. Under the fair value method, compensation cost is measured at the
grant date based on the value of the award and is recognized over
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<PAGE> 9
the service period, which is usually the vesting period. Under the intrinsic
value based method, compensation cost is the excess, if any, of the quoted
market price of the stock at grant date or other measurement date over the
amount an employee must pay to acquire the stock. Because the Company elected
to continue using the accounting method in APB Opinion No. 25, the
implementation of FAS 123 did not have a material impact on the Company's
financial statements. The disclosure requirements of FAS 123 need not be
applied in an interim report unless a complete set of financial statements is
presented for that period.
NOTE 2 - BUSINESS COMBINATION
On August 31, 1995, Commerce Bank Corporation ("CBC") merged with and
into First Sterling Bancshares, Inc. ("FSB")(the "FSB/CBC Merger") and FSB
changed its name to First Commerce Banks of Florida, Inc. In the FSB/CBC
Merger, the outstanding shares of CBC common stock were converted into an
aggregate of 746,704 shares of FSB common stock and $1,000 of cash in lieu of
fractional shares. Upon consummation of the FSB/CBC Merger, Commerce Bank of
Central Florida (a subsidiary of CBC), merged with and into First Sterling Bank
(a subsidiary of FSB), which changed its name to First Commerce Bank of Polk
County. The FSB/CBC Merger was accounted for as a pooling of interests and,
accordingly, amounts presented herein have been combined to include financial
information for both FSB and CBC.
NOTE 3 - SALE OF SUBSIDIARY
On May 1, 1995, FCB sold its stock in FSB/Osceola to an unaffiliated
third party for $1,845,000. The agreement provided that FCB purchase any other
real estate owned at book value from FSB/Osceola on May 1, 1995 and that First
Commerce/Polk County purchase the existing loan portfolio (including any
allowance for credit losses) from FSB/Osceola by May 1, 1996 at the then
current book value. The Company fulfilled this commitment by March 31, 1996
with the purchase of $6,495,000 of assets from FSB/Osceola. Due to applicable
banking laws, First Commerce/Polk County could not acquire any of the $719,000
of classified loans and assets of FSB/Osceola included in the $6,495,000 of
assets purchased by the Company; accordingly, FCB purchased these loans and
assets.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
First Commerce/Polk County is a party to financial instruments with
off-balance sheet risk in the normal course of its business in order to meet
the financing needs of its customers and to reduce its own exposure to
fluctuations in interest rates. These financial instruments include loan
commitments and standby letters of credit. These instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the financial statements.
First Commerce/Polk County's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for loan
commitments and standby letters of credit is represented by the contractual
amount of those instruments. First Commerce/Polk County uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance sheet instruments.
Standby letters of credit are conditional commitments issued by First
Commerce/Polk County to guarantee the performance of a customer to a third
party. The credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loan facilities to customers. The
collateral varies for those commitments, but may include a certificate of
deposit held by First Commerce/Polk County if collateral is deemed necessary.
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<PAGE> 10
As of September 30, 1996 (unaudited) and December 31, 1995, loan
commitments totaled $7,626,000 and $6,284,000, respectively, and standby
letters of credit totaled $1,326,000 and $1,259,000, respectively. Since many
of these commitments may expire without being drawn upon, the total commitment
amount does not necessarily represent future cash requirements.
The Company is party to litigation and claims arising in the normal
course of business. Management does not believe that there are any pending or
threatened proceedings against the Company which, if determined adversely,
would have a material adverse effect on the Company's financial position,
liquidity or results of operations.
NOTE 5 - ALLOWANCE FOR CREDIT LOSSES
The activity in the allowance for credit losses was as follows (in
thousands):
<TABLE>
<CAPTION>
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- --------------------
1996 1995 1996 1995
------ ------ ------ ------
(Unaudited)
<S> <C> <C> <C> <C>
Balance at beginning of period .......................... $1,733 $ 874 $1,195 $ 830
Allowance related to loans purchased
from FSB/Osceola ................................... - - 25 37
Allowance related to the FSB/Osceola sale ............... - - - (119)
Provision for credit losses ............................. 124 775 580 925
Net loans charged-off (recovered) ....................... (158) (351) (101) (375)
------ ------ ------ ------
Balance at end of period ................................ $1,699 $1,298 $1,699 $1,298
====== ====== ====== ======
</TABLE>
As of September 30, 1996 (unaudited) and December 31, 1995,
non-accrual loans totaled $3,353,000 and $1,607,000, respectively. For the
nine and three months ended September 30, 1996 and 1995, interest income that
would have been recorded under the original terms of non-accrual loans and the
interest income actually recognized were as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------- -------------------
NINE THREE NINE THREE
----- ----- ----- -----
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
Interest income under the original terms ................ $ 304 $ 92 $ 103 $ 34
Interest income actually recognized ..................... 202 108 77 12
----- ----- ----- -----
Interest income foregone ................................ $ 102 $ (16) $ 26 $ 22
===== ===== ===== =====
</TABLE>
As a result of the Company's review, impaired loans totaled
approximately $2,041,000 and $1,182,000 and the allowance for credit losses
related to these loans totaled $724,000 and $156,000 as of September 30, 1996
(unaudited) and December 31, 1995, respectively. For the nine months ended
September 30, 1996 and 1995 (unaudited), the amount of interest income
recognized on impaired loans was $194,000 and $85,000, while the amount of
interest income received on impaired loans was $112,000 and $67,000,
respectively. For the three months ended September 30, 1996 and 1995
(unaudited), the amount of interest income recognized on impaired loans was
$56,000 and $28,000, respectively, while the amount of interest income received
on impaired loans was $18,000 and $12,000, respectively. The average balance of
impaired loans amounted to $1,611,000 and $668,000 during the nine months ended
September 30, 1996 and 1995 (unaudited), respectively. The average balance of
impaired loans amounted to $2,884,000 and
-10-
<PAGE> 11
$767,000 during the three months ended September 30, 1996 and 1995 (unaudited),
respectively. Impaired loans increased primarily due to the increase in
non-performing loans. For a discussion of this increase, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Financial Condition -- Classification of Assets."
NOTE 6 - TERMINATION OF PROPOSED BUSINESS COMBINATIONS
Proposed Business Combination with First Mercantile National Bank
On January 3, 1996, FCB entered into a Plan of Merger and Merger
Agreement with First Mercantile National Bank ("First Mercantile"), a national
banking association located in Longwood, Florida, and First Mercantile
Successor Bank ("FMSB"), an interim state banking corporation to be organized
as a wholly-owned subsidiary of FCB. The agreement provided for a combination
of the FCB and First Mercantile organizations through the merger of First
Mercantile with and into FMSB (the "First Mercantile Merger"). As a result of
the First Mercantile Merger, First Mercantile would have become a wholly-owned
subsidiary of FCB and shareholders of First Mercantile at the time of the
closing of the First Mercantile Merger would have become shareholders of FCB.
The First Mercantile Merger received the requisite approvals from all
applicable regulatory authorities. However, in July 1996, before the First
Mercantile Merger was voted upon by First Mercantile's shareholders, FCB and
First Mercantile mutually determined that it was not in the best interests of
their respective shareholders to continue to pursue the First Mercantile
Merger. Accordingly, the parties negotiated a Termination Agreement which was
executed on August 1, 1996. The decision to terminate the First Mercantile
Merger primarily resulted from an increase in the Company's non-performing
assets and a decrease in the Company's earnings during the six and three months
ended June 30, 1996.
Proposed Business Combination with Prime Bank of Central Florida
On January 3, 1996, FCB entered into a Plan of Merger and Merger
Agreement with Prime Bank of Central Florida ("Prime Bank"), a state banking
corporation located in Titusville, Florida, and Prime Successor Bank ("PSB"),
an interim state banking corporation to be organized as a wholly-owned
subsidiary of FCB. The agreement provided for a combination of the FCB and
Prime Bank organizations through the merger of Prime Bank with and into PSB
(the "Prime Bank Merger"). As a result of the Prime Bank Merger, Prime Bank
would have become a wholly-owned subsidiary of FCB and shareholders of Prime
Bank at the time of the closing of the Prime Bank Merger would have become
shareholders of FCB. The Prime Bank Merger received the requisite approvals
from all applicable regulatory authorities. However, in July 1996, before the
Prime Bank Merger was voted upon by Prime Bank's shareholders, FCB and Prime
Bank mutually determined that it was not in the best interests of their
respective shareholders to continue to pursue the Prime Bank Merger.
Accordingly, the parties negotiated a Termination Agreement which was executed
on August 1, 1996. The decision to terminate the Prime Bank Merger primarily
resulted from an increase in the Company's non-performing assets and a decrease
in the Company's earnings during the six and three months ended June 30, 1996.
-11-
<PAGE> 12
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
Sale of FSB/Osceola
On May 1, 1995, First Commerce Banks of Florida, Inc. ("FCB") sold the
240,000 shares of common stock of First Sterling Bank of Osceola County
("FSB/Osceola") (which constituted 80% of the outstanding shares of FSB/Osceola
stock) owned by FCB to certain unaffiliated individuals for $1.8 million in
cash. See "--Sale of FSB/Osceola." Accordingly, FSB/Osceola's results of
operations for the four months ended April 30, 1995 are included in FCB's 1995
consolidated financial statements and amounts presented in Management's
Discussion and Analysis of Financial Condition and Results of Operations.
FSB/CBC Merger
On August 31, 1995, Commerce Bank Corporation (CBC") merged with and
into First Sterling Bancshares, Inc. ("FSB") (the"FSB/CBC Merger") and FSB
changed its name to First Commerce Banks of Florida, Inc. In the FSB/CBC
Merger, the outstanding shares of CBC common stock were converted into an
aggregate of 746,704 shares of FSB common stock and $1,000 of cash in lieu of
fractional shares. Upon consummation of the FSB/CBC Merger, Commerce Bank of
Central Florida (a subsidiary of CBC) merged with and into First Sterling Bank
(a subsidiary of FSB), which changed its name to First Commerce Bank of Polk
County ("First Commerce/Polk County"). FCB's principal asset is its ownership
of 99.77% of the voting shares of First Commerce/Polk County. The FSB/CBC
Merger has been accounted for as a pooling of interests and, accordingly,
amounts presented in Management's Discussion and Analysis of Financial
Condition and Results of Operations have been combined to include financial
information for both FSB and CBC. The consolidated financial statements
include the accounts of FCB, First Commerce/Polk County and, prior to May 1,
1995, FSB/Osceola (collectively, the "Company").
Termination of Proposed Business Combination with First Mercantile National Bank
On January 3, 1996, FCB entered into a Plan of Merger and Merger
Agreement with First Mercantile National Bank ("First Mercantile"), a national
banking association located in Longwood, Florida, and First Mercantile
Successor Bank ("FMSB"), an interim state banking corporation to be organized
as a wholly-owned subsidiary of FCB. The agreement provided for a combination
of the FCB and First Mercantile organizations through the merger of First
Mercantile with and into FMSB (the "First Mercantile Merger"). As described in
Note 6 of Notes to Unaudited Consolidated Financial Statements, in July 1996
FCB and First Mercantile mutually determined to terminate the First Mercantile
Merger.
Termination of Proposed Business Combination with Prime Bank of Central Florida
On January 3, 1996, FCB entered into a Plan of Merger and Merger
Agreement with Prime Bank of Central Florida ("Prime Bank"), a state banking
corporation located in Titusville, Florida, and Prime Successor Bank ("PSB"),
an interim state banking corporation to be organized as a wholly-owned
subsidiary of FCB. The agreement provided for a combination of the FCB and
Prime Bank organizations through the merger of Prime Bank with and into PSB
(the "Prime Bank Merger"). As described in Note 6 of Notes to Unaudited
Consolidated Financial Statements, in July 1996 FCB and Prime Bank mutually
determined to terminate the Prime Bank Merger.
Increases in Non-Performing Assets; Additional Provisions for Credit Losses
During the nine and three months ended September 30, 1996, the Company
experienced a significant increase in non-performing assets and additional
provisions for credit losses. As of September 30, 1996, total non-performing
loans were $3.4 million (or 4.73% of total loans), compared to $1.8 million (or
2.52% of total loans) as of December 31, 1995, and $1,100,000 (or 1.55% of
total loans) as of September 30, 1995. Total non-performing assets as of
-12-
<PAGE> 13
September 30, 1996 were $3.5 million (or 3.35% of total assets), compared to
$2.1 million (or 1.86% of total assets) as of December 31, 1995, and $1.3
million (or 1.16% of total assets) as of September 30, 1995. During the nine
and three months ended September 30, 1996, the provision for credit losses was
$580,000 and $124,000, respectively, compared to $925,000 and $775,000 during
the nine and three months ended September 30, 1995, or respective decreases of
37.30% and 84.00%. As of September 30, 1996 and December 31, 1995, the
allowance for credit losses was 2.40% and 1.67%, respectively, of total loans
receivable, and was 50.69% and 66.17%, respectively, of non-performing loans.
See "-- Financial Condition -- Classification of Assets."
Increases in Non-Interest Expenses
During the nine and three months ended September 30, 1996, the Company
also experienced increases in non-interest expenses. See "-- Results of
Operations -- Non-Interest Expenses."
Change in Business Strategy
The Company previously announced that it intends to assess
opportunities for possible growth through additional business combinations with
other community banks or thrifts located in Florida, particularly in the
Central Florida area. As a result of the increase in the Company's
non-performing assets and provisions for credit losses and the decrease in
earnings during the recent periods, and the termination of the First Mercantile
Merger and the Prime Bank Merger, the Company does not expect to pursue growth
through additional business combinations at the present time.
Changes in Executive Officers
Charles E. Harris resigned as a director and Chairman of the Board and
Chief Executive Officer of FCB effective July 15, 1996. David Carleton Hall
left his position as Senior Vice President and Chief Financial Officer of FCB
on August 31, 1996. Messrs. Harris and Hall both joined FCB to assist in
implementing its business strategy of combining with other community banks in
Florida, and their departure is primarily related to the termination of the
First Mercantile Merger and the Prime Bank Merger and the change in the
Company's business strategy described above. J.E. Stephens resigned on
September 1, 1996 as the Vice Chairman and President. On July 15, 1996, Robert
W. Stickler, who also serves as Vice Chairman of FCB, was elected Chief
Executive Officer of FCB. On August 19, 1996, the Board of Directors of FCB
elected Donald K. Stephens as Chairman of the Board.
GENERAL
The Company's results of operations are primarily dependent upon the
results of operations of First Commerce/Polk County. First Commerce/Polk
County conducts a commercial banking business consisting of attracting deposits
from the general public and applying those funds to the origination of
commercial, consumer and real estate loans (including commercial loans
collateralized by real estate). First Commerce/Polk County's profitability
depends primarily on net interest income, which is the excess of interest
income generated from interest-earning assets (i.e., loans, investments and
federal funds sold) over interest expense incurred on interest-bearing
liabilities (i.e., customer deposits and borrowed funds). Net interest income
is affected by the relative amounts of interest-earning assets and
interest-bearing liabilities, and the interest rate earned and paid on these
balances. Net interest income is dependent upon First Commerce/Polk County's
interest-rate spread which is the excess of average yield earned on its
interest-earning assets over the average rate paid on its interest-bearing
liabilities. When interest-earning assets approximate or exceed
interest-bearing liabilities, any positive interest rate spread will generate
net interest income. The interest-rate spread is impacted by interest rates
and the amounts of deposits and loans. Additionally, First Commerce/Polk
County's profitability is affected by such factors as the level of non-interest
income and expenses, the provision for credit losses, and the effective tax
rate. Non-interest income consists primarily of service fees on deposit
accounts and income from the sale of loans and investment securities.
Non-interest expense consists primarily of compensation and employee benefits,
occupancy and equipment expenses, professional fees, data processing costs,
deposit insurance premiums paid to the FDIC, and other operating expenses.
-13-
<PAGE> 14
Management's discussion and analysis of earnings and related financial
data are presented herein to assist investors in understanding the financial
condition of the Company at September 30, 1996 and December 31, 1995, and the
results of operations of the Company for the nine and three months ended
September 30, 1996 and 1995. This discussion should be read in conjunction
with the unaudited consolidated financial statements and related unaudited
footnotes of the Company presented elsewhere herein.
LIQUIDITY
FCB
FCB is a legal business entity separate and distinct from First
Commerce/Polk County. FCB's principal source of cash flow during 1996 and 1995
was the sale of the FSB/Osceola stock on May 1, 1995 for $1.8 million in cash
and interest income on its portfolio of loans purchased from FSB/Osceola and
cash on deposit ($0.9 million and $2.0 million as of September 30, 1996 and
December 31, 1995, respectively) with First Commerce/Polk County, which totaled
$81,000 during the nine months ended September 30, 1996. Possible future
sources of cash flow for FCB include dividends or management fees from First
Commerce/Polk County. However, there are various statutory limitations on the
ability of First Commerce/Polk County to pay dividends, extend credit, or
otherwise supply funds to FCB. The FDIC and the Florida Department of Banking
and Finance ("Florida Department") also have the general authority to limit the
dividends paid by insured banks and bank holding companies. FCB has not paid
any cash dividends to its shareholders.
During the nine months ended September 30, 1996, the Company's cash
and cash equivalents decreased $3,554,000, to $6.8 million as of September 30,
1996 from $10.4 million as of December 31, 1995. During the nine months ended
September 30, 1996, investing activities provided $3.9 million of cash, and
financing activities used $8.6 million of cash. The Company's total assets
decreased $8.5 million from December 31, 1995 to September 30, 1996. This
decrease was primarily attributable to the $3.5 million decrease in the
investment portfolio, the $1.3 million decrease in loans and the $6.1 million
decrease in First Commerce/Polk County's time deposits. Since the FSB/CBC
Merger, First Commerce/Polk County has reduced the interest rates it offers on
time deposits resulting in a decrease in time deposits. First Commerce/Polk
County has primarily used the proceeds from maturing investment securities to
fund these deposit outflows.
First Commerce/Polk County
Liquidity management involves the ability to meet the cash flow
requirements of customers who may be either depositors wanting to withdraw
their funds or borrowers needing assurance that sufficient funds will be
available to meet their credit needs. In the ordinary course of business,
First Commerce/Polk County's cash flows are generated from interest and fee
income, as well as from loan repayments and the maturity of investment
securities held-to-maturity. In addition to cash and due from banks, First
Commerce/Polk County considers all investment securities available-for-sale and
federal funds sold as primary sources of asset liquidity. Many factors affect
the ability to accomplish these liquidity objectives successfully, including
the economic environment and the asset/liability mix within the balance sheet.
As of September 30, 1996 and December 31, 1995, First Commerce/Polk County had
commitments to originate loans totaling $.9 million and $7.5 million,
respectively. In addition, scheduled maturities of certificates of deposit
during the year following September 30, 1996 and December 31, 1995 totaled
$34.2 million and $35.1 million, respectively. Management believes that First
Commerce/Polk County has adequate resources to fund all its commitments, and,
if so desired, that First Commerce/Polk County can adjust the interest rates
and terms on certificates of deposit and other deposit accounts to retain
deposits in a changing interest rate environment.
A state-chartered commercial bank is required to maintain a liquidity
reserve of at least 15% of its transaction deposit accounts and 8% of its
non-transaction deposit accounts. The liquidity reserve may consist of cash on
hand, cash on demand deposit with other correspondent banks, and other
investments and short-term marketable investment securities as determined by
the rules of the Florida Department, such as federal funds sold and United
States securities or obligations guaranteed by the United States. As of
September 30, 1996 and December 31, 1995, First Commerce/Polk County had a
liquidity ratio of 32.37% and 31.35%, respectively.
-14-
<PAGE> 15
CAPITAL RESOURCES
FCB's total stockholders' equity was $10.58 million and $10.52 million
as of September 30, 1996 and December 31, 1995, respectively, or an increase of
approximately $60,000. This increase was primarily the result of earnings of
$152,000 by FCB from December 31, 1995 to September 30, 1996 offset by the
change of $91,000 in the unrealized securities gains (losses). FCB's total
stockholders' equity was 10.07% and 9.30% of total assets as of September 30,
1996 and December 31, 1995, respectively. First Commerce/Polk County's total
stockholders' equity was $9.4 million and $8.45 million as of September 30,
1996 and December 31, 1995, respectively, or an increase of $904,000. This
increase was the result primarily of First Commerce/Polk County's net income
during the nine months ended September 30, 1996 of $244,000 less the $91,000
change in the unrealized securities gains (losses) from December 31, 1995 to
September 30, 1996 and capital contribution from FCB of $750,000 during July
1996.
The federal banking regulatory authorities have adopted certain
"prompt corrective action" rules with respect to depository institutions. The
rules establish five capital tiers: "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." The various federal banking regulatory agencies
have adopted regulations to implement the capital rules by, among other things,
defining the relevant capital measures for the five capital categories. An
institution is deemed to be "well capitalized" if it has a total risk-based
capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or
greater, and a Tier 1 leverage ratio of 5% or greater and is not subject to a
regulatory order, agreement, or directive to meet and maintain a specific
capital level. As of September 30, 1996 and December 31, 1995, First
Commerce/Polk County met the capital ratios of a "well capitalized" financial
institution with a total risk-based capital ratio of 14.05% and 11.39%, a Tier
1 risk-based capital ratio of 11.89% and 10.17%, and a Tier 1 leverage ratio of
8.71% and 7.44%, respectively. Depository institutions which fall below the
"adequately capitalized" category generally are prohibited from making any
capital distribution, are subject to growth limitations, and are required to
submit a capital restoration plan. There are a number of requirements and
restrictions that may be imposed on institutions treated as "significantly
undercapitalized" and, if the institution is "critically undercapitalized," the
banking regulatory agencies have the right to appoint a receiver or conservator.
The current Federal bank regulatory guidelines require all bank
holding companies and federally-regulated banks to maintain a risk-based total
capital ratio equal to 8.00%, of which at least 4.00% must be Tier 1 capital.
As of September 30, 1996 and December 31, 1995, FCB's Tier 1 capital ratio was
13.56% and 12.72%, respectively, and total capital ratio was 15.78% and 13.94%,
respectively.
In accordance with risk capital guidelines issued by the FDIC, First
Commerce/Polk County is required to maintain a minimum standard of total
capital to risk-weighted assets of 8%. Additionally, the FDIC requires banks
to maintain a minimum leverage-capital ratio of Tier 1 capital (as defined) to
total assets. The leverage-capital ratio ranges from 3% to 5% based on the
bank's rating under the regulatory rating system. The required
leverage-capital ratio for First Commerce/Polk County at September 30, 1996 and
December 31, 1995 was 4%. The following table summarizes the regulatory
capital levels and ratios for First Commerce/Polk County:
<TABLE>
<CAPTION>
ACTUAL REGULATORY
RATIOS REQUIREMENT
------ -----------
<S> <C> <C>
AT SEPTEMBER 30, 1996:
Total capital to risk-weighted assets ................................... 14.05% 8.00%
Tier I capital to risk-weighted assets ................................. 11.89% 4.00%
Tier I capital to total assets - leverage ratio ......................... 8.71% 4.00%
AT DECEMBER 31, 1995:
Total capital to risk-weighted assets ................................... 11.39% 8.00%
Tier I capital to risk-weighted assets .................................. 10.17% 4.00%
Tier I capital to total assets - leverage ratio ......................... 7.44% 4.00%
</TABLE>
-15-
<PAGE> 16
RESULTS OF OPERATIONS
General
The Company's net income was $152,000, or $.09 per share, for the nine
months ended September 30, 1996, as compared to $659,000, or $.44 per share,
for the nine months ended September 30, 1995, or a decrease of $507,000 or
76.93%. The Company's income before taxes on income and minority interest was
$217,000 for the nine months ended September 30, 1996, as compared to
$1,110,000 for the nine months ended September 30, 1995, or a decrease of
$893,000 or 80.45%. For the nine months ended September 30, 1996 and 1995,
certain of the significant transactions affecting income before taxes on income
and minority interest were as follows:
<TABLE>
<CAPTION>
INCREASE
(DECREASE)
TO 1996
FROM
1996 1995 1995
---- ---- ----------
(In thousands)
<S> <C> <C> <C>
Provision for credit losses excluding
FSB/Osceola's provision for credit losses ......................... $ 580 $ 898 $(318)
===== ===== =====
Gain on sale of stock in FSB/Osceola .................................. $ - $ 564 $(564)
===== ===== =====
Recognition of deferred gain on sale of building ...................... $ - $ 171 $(171)
===== ===== =====
</TABLE>
The Company's net income was $65,000, or $.04 per share, for the three
months ended September 30, 1996, as compared to a net loss of $(111,000), or
$(.07) per share, for the three months ended September 30, 1995, or an increase
of $176,000 or 158.56%. The Company's income before taxes on income and
minority interest was $109,000 for the three months ended September 30, 1996,
as compared to a loss before income tax benefit and minority interest of
$(176,000) for the three months ended September 30, 1995, or an increase of
$285,000 or 156.82%. For the three months ended September 30, 1996 and 1995,
certain of the significant transactions affecting income (loss) before taxes on
income (income tax benefit) and minority interest were as follows:
<TABLE>
<CAPTION>
INCREASE
(DECREASE)
TO 1996
FROM
1996 1995 1995
---- ---- ----------
(In thousands)
<S> <C> <C> <C>
Provision for credit losses excluding
FSB/Osceola's provision for credit losses ......................... $ 124 $ 775 $(651)
===== ===== =====
Recognition of deferred gain on sale of building ...................... $ - $ 171 $(171)
===== ===== =====
</TABLE>
The Company's earnings have been adversely affected by the increase of
non-performing assets to $3.5 million as of September 30, 1996 from $2.1
million as of December 31, 1995, resulting in an increase in the provision for
credit losses, legal expenses, other real estate owned expenses and an increase
in interest income foregone. For a discussion of the increase in the provision
for credit losses, see "--Provision for Credit Losses," "--Financial
Condition--Classification of Assets," and "--Financial Condition--Allowance
for Credit Losses." As of September 30, 1996 and December 31, 1995,
non-accrual loans totaled $3.3 million and $1.6 million, respectively. For the
nine and three months ended September 30, 1996 and 1995, interest income that
would have been recorded under the original terms of non-accrual loans and the
interest income actually recognized were as follows:
-16-
<PAGE> 17
<TABLE>
<CAPTION>
1996 1995
--------------------- ---------------------
NINE THREE NINE THREE
------ ------ ----- ------
(In thousands)
<S> <C> <C> <C> <C>
Interest income under the original terms ................ $ 304 $ 92 $ 103 $ 34
Interest income actually recognized ..................... 202 108 77 12
------ ------ ----- ------
Interest income foregone ................................ $ 102 $ (16) $ 26 $ 22
====== ====== ===== ======
</TABLE>
For a discussion of the sale of FSB/Osceola, see "--Recent
Developments" and "--Sale of FSB/Osceola." During the four months ended April
30, 1995, FSB/Osceola had a net loss of $56,000 including a realized $110,000
loss on the sale of investment securities sold in conjunction with the sale of
FSB/Osceola. During the nine and three months ended September 30, 1996, FCB
had the use of the $1.8 million proceeds from the sale of FSB/Osceola stock of
which $750,000 was contributed as capital to First Commerce /Polk County and
$850,000 invested in federal funds sold.
During the nine and three months ended September 30, 1996, the Company
charged to expense $86,000 and $2,000, respectively, of costs related to the
FSB/CBC Merger, First Mercantile Merger and Prime Bank Merger, as compared to
$129,000 and $4,000 during the nine and three months ended September 30, 1995.
See "--Other Expenses."
For the nine and three months ended September 30, 1996 and 1995,
selected ratios were as follows:
<TABLE>
<CAPTION>
1996 1995
----------------- ---------------------
NINE THREE NINE THREE
---- ----- ---- -----
<S> <C> <C> <C> <C>
Average equity as a percentage
of average assets ................................... 9.69% 9.87% 8.45% 8.62 %
Return (Loss) on average assets ......................... .14% .06% .56% (.08)%
Return (Loss) on average equity ......................... 1.44% .62% 6.64% (.96)%
Non-interest expense to average assets .................. 3.62% 1.24% 3.14% .89 %
</TABLE>
-17-
<PAGE> 18
For the nine months ended September 30, 1996 and 1995, the Company's
(i) interest income from interest-earning assets and the resultant average
yield; (ii) interest expense on interest-bearing liabilities and the resultant
average cost; (iii) net interest income; (iv) net interest spread; and (v) net
interest margin were as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------------------- -----------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ------- ------- -------- -------
ASSETS: (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable:(1)
Commercial .......................... $ 17,816 $1.521 11.38% $ 23,427 $2,210 12.58%
Real estate-construction ............ 3,327 192 7.70 3,354 265 10.53
Real estate-mortgage(2) ............. 43,012 3,434 10.65 37,630 2,795 9.90
Consumer and other .................. 7,144 372 6.92 6,063 366 8.05
-------- ------ ----- -------- ------ -----
Total loans, net of unearned income ...... 71,299 5,519 10.32 70,474 5,636 10.66
Investments - taxable .................... 25,320 987 5.20 27,460 1,257 6.10
Investments - tax free(3) ................ 1,055 50 10.08 1,144 48 9.00
Federal funds sold ....................... 4,306 209 6.47 11,164 489 5.84
-------- ------ ----- -------- ------ -----
Total interest-earning assets ....... 101,980 6,765 8.83 115,651 7,430 8.99
------ ----- ------ -----
Cash and due from banks ...................... 4,286 5,638
Allowance for credit losses .................. (1,447) (1,064)
Other non-earning assets ..................... 4,037 5,082
-------- --------
Total assets ................................. $108,856 $119,898
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
NOW accounts ............................. $ 14,273 $ 248 2.32% $ 15,118 $ 252 2.22%
Money market ............................. 4,525 136 4.01 6,458 155 3.20
Savings .................................. 8,139 137 2.24 9,217 157 2.27
Time deposits under $100,000 ............. 46,913 1,904 5.41 50,264 2,080 5.52
Time deposits $100,000 and over .......... 7,435 294 5.28 12,605 475 5.02
-------- ------ ----- -------- ------ -----
Total interest-bearing liabilities ....... 81,285 2,719 4.46 93,662 3,119 4.44
------ ----- ------ -----
Demand deposits .............................. 16,249 13,705
Other liabilities and minority interest ...... 770 2,016
Stockholders' equity ......................... 10,552 10,515
-------- --------
Total liabilities and stockholders' equity ... $108,856 $119,898
======== ========
SPREAD AND INTEREST DIFFERENTIAL:
Net interest income ........................ $4,046 $4,311
====== ======
Interest-rate spread(4) ...................... 4.37% 4.55%
===== ====
Net interest margin(5) ...................... 5.28% 5.21%
===== ====
Excess of total interest-earning assets
over total interest-bearing liabilities .. $ 20,695 $ 16,580
======== ========
</TABLE>
- ---------------------------
(1) Includes loans on non-accrual status.
(2) Interest income on mortgage loans included loan fees recognized as
income of $73,000 and $105,000 during the nine months ended September
30, 1996 and 1995, respectively.
(3) Yields on tax-free investments are computed on a tax equivalent basis
using a 37.3% effective income tax rate.
(4) Interest-rate spread represents the excess of the average yield on
interest-earning assets over the average cost of interest-bearing
liabilities.
(5) Net interest margin represents net interest income divided by average
interest-earning assets.
-18-
<PAGE> 19
For the three months ended September 30, 1996 and 1995, the Company's
(i) interest income from interest-earning assets and the resultant average
yield; (ii) interest expense on interest-bearing liabilities and the resultant
average cost; (iii) net interest income; (iv) net interest spread; and (v) net
interest margin were as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------------------- ------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ------- ------- -------- -------
ASSETS: (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable:(1)
Commercial ..................... $ 15,099 $ 458 12.13% $ 25,404 $ 899 14.16%
Real estate-construction ....... 2,335 59 10.11 3,264 89 10.91
Real estate-mortgage(2) ........ 47,125 1,162 9.86 35,226 791 8.98
Consumer and other ............. 6,303 124 7.81 4,695 29 2.47
-------- ------ ----- -------- ------ -----
Total loans, net of unearned income.. 70,862 1,803 10.17 68,589 1,808 10.54
Investments - taxable ............... 24,157 321 5.17 30,108 460 6.11
Investments - tax free(3) ........... 1,052 17 10.31 1,091 14 8.23
Federal funds sold .................. 4,213 59 5.60 7,957 116 5.83
-------- ------ ----- -------- ------ -----
Total interest-earning assets... 100,284 2,200 8.74 107,745 2.398 8.90
------ ----- ------ -----
Cash and due from banks ................. 4,124 4,482
Allowance for credit losses ............. (1,716) (1,106)
Other non-earning assets ................ 3,938 6,124
-------- --------
Total assets ............................ $106,630 $117,245
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
NOW accounts ........................ $ 13,518 $ 86 2.54% $ 14,803 $ 80 2.16%
Money market ........................ 5,347 40 2.99 6,354 49 3.08
Savings ............................. 8,336 47 2.26 8,356 46 2.20
Time deposits under $100,000 ........ 45,529 615 5.40 51,510 742 5.76
Time deposits $100,000 and over ..... 6,277 85 5.42 12,994 146 4.49
-------- ------ ----- -------- ------ -----
Total interest-bearing liabilities... 79,007 873 4.42 94,017 1,063 4.52
------ ----- ------ -----
Demand deposits ......................... 16,305 10,881
Other liabilities and minority interest.. 792 752
Stockholders' equity ................... 10,526 11,595
-------- --------
Total liabilities and stockholders'
equity ............................. $106,630 $117,245
======== ========
SPREAD AND INTEREST DIFFERENTIAL:
Net interest income .................... $1,327 $1,335
====== ======
Interest-rate spread(4) ................. 4.32% 4.38%
===== =====
Net interest margin(5) .................. 5.25% 4.96%
===== =====
Excess of total interest-earning assets
over total interest-bearing
liabilities ......................... $ 21,277 $ 13,728
======== ========
</TABLE>
- -----------------------
(1) Includes loans on non-accrual status.
(2) Interest income on mortgage loans included loan fees recognized as
income of $25,000 and $21,000 during the three months ended September
30, 1996 and 1995, respectively.
(3) Yields on tax-free investments are computed on a tax equivalent basis
using a 37.3% effective income tax rate.
(4) Interest-rate spread represents the excess of the average yield on
interest-earning assets over the average cost of interest-bearing
liabilities.
(5) Net interest margin represents net interest income divided by average
interest-earning assets.
-19-
<PAGE> 20
Net interest income
Net interest income, which constitutes the principal source of income
for the Company, represents the excess of interest income on interest-earning
assets over interest expense on interest-bearing liabilities. The principal
interest-earning assets are federal funds sold, investment securities and loans
receivable. Interest-bearing liabilities primarily consist of time deposits,
interest-bearing checking accounts ("NOW accounts"), savings deposits and money
market accounts. Funds attracted by these interest-bearing liabilities are
invested in interest-earning assets. Accordingly, net interest income depends
upon the volume of average interest-earning assets and average interest-bearing
liabilities and the interest rates earned or paid on them.
The following table sets forth certain information regarding changes
in the Company's interest income and interest expense during the nine months
ended September 30, 1996 as compared to the nine months ended September 30,
1995. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (1) changes in
interest rate (change in rate multiplied by prior volume), (2) changes in
volume (change in volume multiplied by prior rate) and (3) changes in
rate-volume (change in rate multiplied by change in volume).
<TABLE>
<CAPTION>
INCREASE (DECREASE) DUE TO
---------------------------------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
----- ------- ------ -------
INTEREST-EARNING ASSETS: (Dollars in thousands)
<S> <C> <C> <C> <C>
Loans receivable:
Commercial .............................. $ 649 $(1,036) $ (302) $ (689)
Real estate construction ................ (73) (2) 2 (73)
Real estate mortgage .................... 210 395 34 639
Consumer and other ...................... (53) 67 (8) 6
----- ------- ------ ------
Total loans receivable .................. 733 (576) (274) (117)
Investments - taxable ....................... (190) (97) 17 (270)
Investments - tax free(1) ................... 6 (4) - 2
Federal funds sold .......................... (172) (167) 59 (280)
----- ------- ------ ------
Total interest-earning assets ............... 377 (844) (198) (665)
----- ------- ------ ------
INTEREST-BEARING LIABILITIES:
Deposits:
NOW accounts ............................ 4 (8) - (4)
Money market ............................ 34 (44) (9) (19)
Savings ................................. (6) (15) 1 (20)
Time deposits under $100,000 ............ (94) (88) 6 (176)
Time deposits $100,000 and over ......... 10 (188) (3) (181)
----- ------- ------ ------
Total interest-bearing liabilities .......... (52) (343) (5) (400)
----- ------- ------ ------
NET CHANGE IN NET INTEREST INCOME ........... $ 429 $ (501) $ (193) $ (265)
===== ======= ====== ======
</TABLE>
- -----------------------------------
(1) Yields on tax-free investments are computed on a tax equivalent basis
using a 37.3% effective income tax rate.
The Company's net interest income was $4.0 million for the nine months
ended September 30, 1996 compared with $4.3 million for the nine months ended
September 30, 1995, or a decrease of $275,000 or 6.38%. This decline in net
interest income resulted primarily from a decrease in interest-earning assets
and interest-bearing liabilities, which reduced net interest income by
$501,000. The 2.08% volume decrease during the nine months ended September 30,
1996 from the nine months ended September 30, 1995 in loan interest income was
primarily attributable to the 30 basis point decrease in average yield, and
the 30.55% volume decrease in the total of interest income for investment
securities and federal funds sold was primarily attributable to the 22.85%
decrease in average investment securities and federal funds sold. For a
discussion of the purchase of loans from FSB/Osceola, see "--
-20-
<PAGE> 21
Recent Developments" and "Sale of FSB/Osceola." The yield on the total of
investments and federal funds sold decreased 45 basis points, primarily
reflecting the 90 basis point decrease in the yield on the taxable investment
securities partially offset by the 63 basis point increase in federal funds
interest rates during the nine months ended September 30, 1996 from the nine
months ended September 30, 1995. The rate of prepayment on mortgage-backed
securities tend to increase as interest rates decrease and tend to decrease as
interest rates increase. In addition, the changes in the rate of prepayment
tends to lag behind the changes in interest rates. An increase in the rate of
prepayment accelerates the amortization of premiums on mortgage-backed
securities which reduces the effective yield on these investments. During the
first three months of 1996, interest rates generally decreased and during the
second quarter of 1996, interest rates generally increased. This resulted in
an increase in the rate of prepayment during the first quarter of 1996 which
extended into the second quarter; however, near the end of the second quarter,
the rate of prepayment slowed down and remained steady during the third
quarter. During the nine months ended September 30, 1996, net premium
amortization on investment securities was $175,000. The 12.82% volume decrease
in interest expense during the nine months ended September 30, 1996 from the
nine months ended September 30, 1995 was primarily attributable to the 13.22%
decrease in average interest-bearing liabilities. The interest rates paid on
interest-bearing liabilities increased 2 basis points as First Commerce/Polk
County paid higher interest rates primarily on time deposits during the nine
months ended September 30, 1996 as compared to the nine months ended September
30, 1995. The overall result was an increase in the net interest margin to
5.28% during the nine months ended September 30, 1996 from 5.21% during the
nine months ended September 30, 1995.
The following table sets forth certain information regarding changes
in the Company's interest income and interest expense during the three months
ended September 30, 1996 as compared to the three months ended September 30,
1995. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (1) changes in
interest rate (change in rate multiplied by prior volume), (2) changes in
volume (change in volume multiplied by prior rate) and (3) changes in
rate-volume (change in rate multiplied by change in volume).
<TABLE>
<CAPTION>
INCREASE (DECREASE) DUE TO
-------------------------------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
----- ------ ------ -----
INTEREST-EARNING ASSETS: (Dollars in thousands)
<S> <C> <C> <C> <C>
Loans receivable:
Commercial ................................ $(111) $(374) $ 44 $(441)
Real estate construction .................. (5) (26) 1 (30)
Real estate mortgage ...................... 97 246 28 371
Consumer and other ........................ 65 9 21 95
----- ----- ---- -----
Total loans receivable .................... 46 (145) 94 (5)
Investments - taxable ......................... (100) (55) 16 (139)
Investments - tax free(1) ..................... 3 - - 3
Federal funds sold ............................ 5 (59) (3) (57)
----- ----- ---- -----
Total interest-earning assets ................. (46) (259) 107 (198)
----- ----- ---- -----
INTEREST-BEARING LIABILITIES:
Deposits:
NOW accounts .............................. 12 (5) (1) 6
Money market .............................. (2) (7) - (9)
Savings ................................... - 1 - 1
Time deposits under $100,000 .............. (62) (69) 4 (127)
Time deposits $100,000 and over ........... 26 (73) (14) (61)
----- ----- ---- -----
Total interest-bearing liabilities ............ (26) (153) (11) (190)
----- ----- ---- -----
NET CHANGE IN NET INTEREST INCOME ............. $ (20) $(106) $118 $ (8)
===== ===== ==== =====
</TABLE>
- --------------------------------
(1) Yields on tax-free investments are computed on a tax equivalent basis
using a 37.3% effective income tax rate.
-21-
<PAGE> 22
The Company's net interest income was $1.3 million for the three
months ended September 30, 1996 compared with $1.3 million for the three months
ended September 30, 1995, or a decrease of $8,000 or .60%. This decline in
net interest income resulted primarily from interest rate changes, which
reduced net interest income by $20,000 and a decrease in interest-earning
assets and interest-bearing liabilities, which reduced net interest income by
$106,000. The .28% volume decrease during the three months ended September 30,
1996 from the three months ended September 30, 1995 in loan interest income was
primarily attributable to a 30 basis point decrease in the average yield. For
a discussion of the purchase of loans from FSB/Osceola, see "--Recent
Developments" and "Sale of FSB/Osceola." The yield on the total of investments
and federal funds sold decreased 63 basis points, primarily reflecting the 94
basis point decrease in the yield on the taxable investment securities and the
23 basis point decrease in federal funds interest rates during the three months
ended September 30, 1996 from the three months ended September 30, 1995. As
noted in the above discussion on the rate of prepayment of mortgage-backed
securities, during the three months ended September 30, 1996, net premium
amortization on investment securities was $37,000. The 17.87% volume decrease
during the three months ended September 30, 1996 from the three months ended
September 30, 1995 in interest expense was primarily attributable to the 15.97%
decrease in average interest-bearing liabilities. The interest rates paid on
interest bearing liabilities decreased 10 basis points as First Commerce/Polk
County reduced the interest rates it offers on time deposits during 1996. The
overall result was an increase in the net interest margin to 5.25% during the
three months ended September 30, 1996 from 4.96% during the three months ended
September 30, 1995.
Provision for Credit Losses
The provision for credit losses is charged to earnings to bring the
allowance for credit losses to a level deemed appropriate by management and is
based upon historical experience, the volume and type of lending conducted by
the Company, the amounts of non-performing loans, collateral, general economic
conditions, particularly as they relate to the Company's market area, and other
factors related to the collectibility of the Company's loan portfolio. During
the nine and three months ended September 30, 1996, the provision for credit
losses was $580,000 and $124,000, respectively, as compared to $925,000 and
$775,000 during the nine and three months ended September 30, 1995, or
respective decreases of $345,000 or 37.30% and $651,000 or 84.00%. The
decrease in the provision for credit losses is due to $193,000 received in
recoveries as of September 30, 1996, $1,817,000 of troubled loans being paid or
paid-off in 1996 and management's assessment of the collateral values
underlying the related debt. As of September 30, 1996 and December 31, 1995,
the allowance for credit losses was 2.4% and 1.67%, respectively, of total
loans receivable, and was 50.69% and 66.17%, respectively, of non-performing
loans. The decrease in the ratio of the allowance for credit losses to
non-performing loans from December 31, 1995 to September 30, 1996 resulted from
the $1.5 million increase in non- performing loans while the allowance for
credit losses increased $504,000. For a discussion of the non-performing loans
as of September 30, 1996, see "--Financial Condition -- Classification of
Assets." For a discussion of the allocation of the allowance for credit losses
and net loan recoveries, see "--Financial Condition -- Allowance for Credit
Losses."
Non-Interest Income
Non-interest income is primarily composed of service charges and fees
and gains on sales of assets. During the nine and three months ended September
30, 1996, non-interest income was $692,000 and $226,000, respectively, as
compared to $1,408,000 and $462,000 during the nine and three months ended
September 30, 1995, or respective decreases of $716,000 or 50.85% and $236,000
or 51.08%.
The following two items were included in the 1995 non-interest income
amounts presented in the prior paragraph. On May 1, 1995, FCB sold its stock
ownership in FSB/Osceola and recognized a gain on sale of $564,000. The
Company recognized a deferred gain on sale of building of $171,000 during the
three months ended September 30, 1995 which resulted from the sale of
FSB/Osceola's building.
During the nine and three months ended September 30, 1996, service
charges and fees were $615,000 and $208,000, respectively, as compared to
$718,000 and $243,000 during the nine and three months ended September 30,
1995, or respective decreases of $103,000 or 14.35% and $35,000 or 14.40%.
These decreases were primarily
-22-
<PAGE> 23
attributable to the May 1, 1995 sale of FSB/Osceola (which contributed $60,000
of service charges and fees to consolidated non-interest income during the nine
ended September 30, 1995) and a decrease in deposits of $8.8 million from
December 31, 1995 to September 30, 1996 which reduced deposits subject to
service charges and fees.
Non-Interest Expenses
During the nine and three months ended September 30, 1996,
non-interest expenses were $3.9 million and $1.3 million, respectively, as
compared to $3.7 million and $1.2 million during the nine and three months
ended September 30, 1995, or respective increases of $257,000 or 6.98% and
$122,000 or 10.18%. The following sets forth additional information on certain
other expense categories which had significant changes.
Compensation and benefits increased $257,000 or 15.88% to $1.9 million
during the nine months ended September 30, 1996, from $1.6 million during the
nine months ended September 30, 1995, and increased $84,000 or 15.97% to
$610,000 during the three months ended September 30, 1996 from $526,000 during
the three months ended September 30, 1995. This increase was primarily due to
an increase in the number of employees at First Commerce/Polk County and
annual compensation and benefit increases for existing employees, offset by the
decrease due to the May 1, 1995 sale of FSB/Osceola (which had compensation and
benefits expense of $126,000 during the nine months ended September 30, 1995).
Excluding FSB/Osceola, the Company's compensation and benefits increased
$383,000 or 25.67% to $1.9 million during the nine months ended September 30,
1996, from $1.5 million during the nine months ended September 30, 1995. These
increases were due to approximately $57,000 and $23,000 of additional
compensation and benefits for existing employees during the nine and three
months ended September 30, 1996, respectively, and $103,000 and $37,000 for new
employees during the nine and three months ended September 30, 1996,
respectively.
Professional fees increased $19,000 or 5.37% to $373,000 during the
nine months ended September 30, 1996, from $354,000 during the nine months
ended September 30, 1995, and decreased $38,000 or 23.31% to $125,000 during
the three months ended September 30, 1996, from $163,000 during the three
months ended September 30, 1995. The $19,000 increase during the nine months
ended September 30, 1996 resulted primarily from an increase in accounting and
legal expenses related to the First Mercantile Merger and Prime Bank Merger.
The $38,000 decrease during the three months ended September 30, 1996 resulted
primarily from FCB incurring merger costs in 1995 related to the FSB/CBC Merger.
Data processing expense increased $37,000 or 16.74% to $258,000 during
the nine months ended September 30, 1996, from $221,000 during the nine months
ended September 30, 1995, and increased $15,000 or 19.23% to $93,000 during
the three months ended September 30, 1996, from $78,000 during the three months
ended September 30, 1995. These increases were primarily attributable to the
increased charges from the data processing service bureau.
Stationery and supplies expense decreased $5,000 or 3.73% to $129,000
during the nine months ended September 30, 1996, from $134,000 during the nine
months ended September 30, 1995, and increased $6,000 or 16.22% to $43,000
during the three months ended September 30, 1996, from $37,000 during the
three months ended September 30, 1995. The decrease resulted primarily from
the decrease in stationery purchases. Anticipating the FSB/CBC Merger, during
the three months ended September 30, 1995, FSB and CBC reduced stationery
purchases in an endeavor to use up existing supplies before the FSB/CBC Merger.
FDIC insurance expense was $112,000 and $94,000 during the nine and
three months ended September 30, 1996, respectively, as compared to $122,000
and $5,000 during the nine and three months ended September 30, 1995, or a
decrease of $10,000 or 8.20% and an increase of $89,000 or 1,780.00%,
respectively. The decrease during the nine months ended September 30, 1996
resulted primarily from the FDIC's reduction in insurance premiums and the
inclusion in the nine months ended September 30, 1995 of $12,000 of
FSB/Osceola's FDIC insurance premiums while none was included in the same
periods during 1996. The FDIC insurance premiums during 1996 resulted
primarily from FDIC insurance on First Commerce/Polk County's Oakar deposits.
The increase during the three months ended September 30, 1996 resulted from a
one time special assessment on Oakar deposits being charged during the third
quarter of $82,000.
-23-
<PAGE> 24
Other expenses were $411,000 and $131,000 during the nine and three
months ended September 30, 1996, respectively, as compared to $372,000 and
$73,000 during the nine and three months ended September 30, 1995, or
respective increases of $39,000 or 10.48% and $58,000 or 79.45%. Those
increases resulted primarily from increased telephone expense, ATM fees, check
printing charges, education and training expenses.
Taxes on Income
During the nine and three months ended September 30, 1996, the Company
recorded taxes on income (income tax benefit) of $65,000 and $35,000,
respectively, reflecting effective income tax rates of 29.95% and 32.11%, as
compared to $448,000 and $ (65,000) during the nine and three months ended
September 30, 1995, respectively, reflecting effective income tax rates of
40.36% and 36.93%. These decreases in the effective income tax rates were
primarily due to: (i) the decrease in merger costs which are not tax
deductible; (ii) the increase in the credit against Florida income taxes for
prior year's Florida intangible taxes; and (iii) the increase in income on the
cash surrender value of officers' life insurance which is tax free. In
addition, the effective income tax rate was reduced by the benefit of tax-free
interest income on certain investment securities. During the nine and three
months ended September 30, 1996, the effective income tax rate was below
statutory tax rates primarily due to the credit against Florida income taxes
for prior year's Florida intangible taxes, the tax-free income on the cash
surrender value of officers' life insurance and the tax-free interest income on
certain investment securities. During the nine and three months ended
September 30, 1995, the effective income tax rate was above statutory tax rates
primarily due to the FSB/CBC Merger costs.
SALE OF FSB/OSCEOLA
On May 1, 1995, FCB sold its 80% ownership interest in FSB/Osceola to
certain unaffiliated individuals for $1.8 million in cash As of April 30,
1995, FSB/Osceola had total assets of $16.4 million, total liabilities of $14.8
million, and stockholders' equity of $1.6 million and were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
ASSETS
Cash and federal funds sold ............................. $ 6,600
Investment security ..................................... 94
Loans receivable, net of allowance
for credit losses of $119 ........................... 8,712
Accrued interest receivable ............................. 49
Other real estate owned ................................. 86
Property and equipment, net ............................. 806
Other assets ............................................ 99
-------
Total assets ............................................ $16,446
=======
LIABILITIES
Deposits:
Demand deposits ...................................... $ 2,716
NOW accounts ......................................... 1,115
Money market accounts ................................ 1,268
Savings deposits ..................................... 2,462
Time deposits ........................................ 6,847
-------
Total deposits ....................................... 14,408
Other liabilities ....................................... 437
STOCKHOLDERS' EQUITY (including minority interest) ...... 1,601
-------
Total liabilities and stockholders' equity .............. $16,446
=======
</TABLE>
FCB and First Commerce/Polk County agreed to purchase the FSB/Osceola
loan portfolio for the remaining unpaid principal balance of the loans less any
related allowance for credit losses, during the 12-month period following the
sale of FSB/Osceola. Of the $8.7 million loan portfolio owned by FSB/Osceola
at April 30, 1995, $4.6 million was
-24-
<PAGE> 25
purchased during 1995 ($4.4 million by First Commerce/Polk County and $269,000
by FCB) and $1.9 million was purchased during January 1996 ($1.4 million by
First Commerce/Polk County and $450,000 by FCB). Due to applicable banking
laws, First Commerce/Polk County could not acquire any of the $719,000 of
classified loans and assets of FSB/Osceola; accordingly, FCB purchased these
loans and assets. As of September 30, 1996 and December 31, 1995, the
Company's loans receivable included the following loans purchased from
FSB/Osceola:
<TABLE>
<CAPTION>
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Commercial ............................. $ 174 $ 171
Real estate construction ............... 88 42
Commercial real estate ................. 756 1,092
Residential mortgage ................... 2,394 2,393
Consumer and other ..................... 638 319
------ ------
Total loans receivable ................. 4,050 4,017
Less: Allowance for credit losses ...... (47) (119)
------ ------
Loans receivable, net .................. $4,003 $3,898
====== ======
</TABLE>
ASSET/LIABILITY MANAGEMENT
A principal objective of the Company's asset/liability management
strategy is to minimize its exposure to changes in interest rates by matching
the maturity and repricing horizons of interest-earning assets and interest-
bearing liabilities. This strategy is overseen in part through the direction
of First Commerce/Polk County's Asset and Liability Committee (the "ALCO
Committee") which establishes policies and monitors results to control interest
rate sensitivity.
Management evaluates interest rate risk and then formulates guidelines
regarding asset generation and repricing, funding sources and pricing, and
off-balance sheet commitments in order to maintain interest rate risk within
target levels for the appropriate level of risk which are determined by the
ALCO Committee. The ALCO Committee uses computer models prepared by a third
party to measure the First Commerce/Polk County's interest-rate sensitivity.
The data used in these computer models is obtained from the First Commerce/Polk
County's loan and deposit trial balances and detail of the investment
portfolio. This data includes totals of major loan, investment and deposit
categories segregated by fixed- and variable-interest rate products, by
weighted-average interest rate and by maturity. These computer models prepare
reports detailing expected future net interest income and the expected impact
on future net interest income given various interest-rate scenarios assuming
certain correlations between the weighted-average interest rates of each major
loan and deposit categories and assumed market interest rates, as well as
yields on the reinvestment of maturing loans and investments and the cost of
rolled over deposits. From these reports, the ALCO Committee reviews the
estimated net interest income effect of various interest-rate scenarios. As of
September 30, 1996, the computer model used three base interest-rate scenarios.
The first scenario assumed that interest rates remained constant, the second
scenario assumed that interest rates would increase based on a 200 basis point
increase in the prime interest rate for loans, and the third scenario assumed
that interest rates would decrease based on a 200 basis point decrease in the
prime interest rate for loans. The amount of increases and decreases in
interest rate changes in the second and third scenarios were assumed to be the
same. The yield on one year U.S. Treasury securities was assumed to change
214 basis points, the yield on federal funds sold was assumed to change 221
basis points, the cost of new time deposits was assumed to change 125 basis
points, and the cost of NOW, money market and savings accounts was assumed to
change 125 basis points. With these assumptions, First Commerce/Polk County's
net interest income under the second interest rate scenario as compared to the
first interest rate scenario was projected to increase by 10.78% for the year
ended September 30, 1997, and under the third interest rate scenario as
compared to the first interest rate scenario was projected to decrease 11.83%
for the year ended September 30, 1997.
-25-
<PAGE> 26
As a part of the Company's interest-rate risk management policy, the
ALCO Committee examines the extent to which its assets and liabilities are
"interest-rate sensitive" and monitors the First Commerce/Polk County's
interest-rate sensitivity "gap." An asset or liability is considered to be
interest-rate sensitive if it will reprice or mature within the time period
analyzed, usually one year or less. The interest-rate sensitivity gap is the
difference between interest-earning assets and interest-bearing liabilities
scheduled to mature or reprice within such time period. A gap is considered
positive when the amount of interest-rate sensitive assets exceeds the amount
of interest-rate sensitive liabilities. A gap is considered negative when the
amount of interest-rate sensitive liabilities exceeds interest-rate sensitive
assets. During a period of rising interest rates, a negative gap would tend to
adversely affect net interest income, while a positive gap would tend to result
in an increase in net interest income. During a period of falling interest
rates, a negative gap would tend to result in an increase in net interest
income, while a positive gap would tend to adversely affect net interest
income. In addition, any premiums on mortgage-backed securities are amortized
to interest income based on the estimated remaining life of the related
securities. Management periodically reviews the remaining estimated life of
mortgage-backed securities, and adjusts the amortization of the premiums
accordingly, in light of changes in market interest rates and other factors
affecting prepayment rates on the underlying mortgages. Acceleration of the
amortization of premiums on mortgage-backed securities reduces the effective
yield on these investments and, accordingly, adversely affects net interest
income. As of September 30, 1996 and December 31, 1995, the remaining
unamortized premiums on mortgage-backed securities totaled $397,000 and
$571,000, respectively. See "--Financial Condition--Investment Securities."
The ALCO Committee's policy is to maintain a cumulative one-year gap
which falls in the range of (20%) to 20% of total assets. As of September 30,
1996 and December 31, 1995, the Company's cumulative one-year gap was a
positive 9.76% and 10.47%, respectively, of total assets, Management attempts
to conform to this policy by managing the maturity distribution of its
investment portfolio and emphasizing originations and purchase of
adjustable-interest rate loans, and by managing the product mix and maturity of
its deposit accounts.
A simple interest rate "gap" analysis by itself may not be an accurate
indicator of how net interest income will be affected by changes in interest
rates. Accordingly, the ALCO Committee also evaluates how the repayment of
particular assets and liabilities is impacted by changes in interest rates.
Income associated with interest-earning assets and costs associated with
interest-bearing liabilities may not be affected uniformly by changes in
interest rates. In addition, the magnitude and duration of changes in interest
rates may have a significant impact on net interest income. For example,
although certain assets and liabilities may have similar maturities or period
of repricing, they may react in different degrees to changes in market interest
rates. Interest rates on certain types of assets and liabilities fluctuate in
advance of changes in general market interest rates, while interest rates on
other types may lag behind changes in general market rates. In addition,
certain assets, such as adjustable-interest rate mortgage loans, have features
(generally referred to as "interest rate caps") which limit changes in interest
rates on a short-term basis and over the life of the asset. In the event of a
change in interest rates, prepayments (on loans and mortgage-backed securities)
and early withdrawal (of deposit accounts) levels also could deviate
significantly from those assumed in calculating the interest rate gap. The
ability of many borrowers to service their debts also may decrease in the event
of an interest rate increase.
Management's strategy is to maintain a relatively balanced
interest-rate risk position to protect its net interest margin from market
fluctuations. To this end, the ALCO Committee reviews, on a quarterly basis,
the maturity and repricing of assets and liabilities.
Management believes that the type and amount of First Commerce/Polk
County's interest rate sensitive liabilities may reduce the potential impact
that a rise in interest rates might have on First Commerce/Polk County's net
interest income. First Commerce/Polk County seeks to maintain a core deposit
base by providing quality services to its customers without significantly
increasing its cost of funds or operating expenses. First Commerce/Polk
County's non-interest bearing demand deposits, NOW accounts, money market, and
savings accounts were 44.92% and 43.69% of total deposits at September 30, 1996
and December 31, 1995, respectively. Management anticipates that these
accounts will continue to comprise a significant portion of First Commerce/Polk
County's total deposit base. First Commerce/Polk County also maintains a
relatively large portfolio of liquid assets in order to reduce its overall
exposure to changes in market interest rates. At September 30, 1996 and
December 31, 1995, First Commerce/Polk County's liquidity ratios were 32.37%
and 31.35%, respectively. The Company also maintains a "floor," or
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<PAGE> 27
minimum rate, on certain of its floating or prime based loans. These floors
allow the Company to continue to earn a higher rate when the floating rate
falls below the established floor rate.
FINANCIAL CONDITION
Lending Activities
A significant source of the Company's income is the interest earned on
its loan portfolio. At September 30, 1996, the Company's total assets were
$104.6 million and its loans receivable, net, were $69 million or 65.95% of
total assets. At December 31, 1995, FCB's total assets were $113.1 million and
its loans receivable, net, were $70.3 million or 62.16% of total assets. The
decrease in total loans receivable to September 30, 1996 from December 31, 1995
was $762,000 or 1.07%. For the nine months ended September 30, 1996 and 1995,
the net change in total loans receivable was approximately as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(In thousands)
<S> <C> <C>
Balance at beginning of period .................. $ 71,652 $ 73,841
Loan originations ............................... 30,687 28,392
Loan repayments ................................. (32,925) (26,003)
Sale of FSB/Osceola loans ....................... - (8,850)
Purchase of FSB/Osceola loans ................... 1,861 4,793
Loans charged-off ............................... (299) (132)
Transfers to other real estate owned ............ (63) (357)
-------- --------
Balance at end of period ........................ $ 70,913 $ 71,684
======== ========
</TABLE>
Loan originations increased to $30.6 million during the nine months
ended September 30, 1996 from $28.4 million during the nine months ended
September 30, 1995. Loan repayments increased to $32.9 million during the nine
months ended September 30, 1996 from $26.0 million during the nine months ended
September 30, 1995. This increase in loan repayments for the nine months ended
September 30, 1996 from the nine months ended September 30, 1995 was primarily
due to an increase in customers paying-off their loans or paying down their
lines of credit and an increased rate of repayment of the loans purchased from
FSB/Osceola which are out of market loans. For additional information on the
FSB/Osceola loans, see "-- Sale of FSB/Osceola."
As of September 30, 1996 and December 31, 1995, the composition of the
Company's loan portfolio was as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------ -------------------------
AMOUNT TOTAL AMOUNT TOTAL
-------- ------ -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial ............................................ $ 15,744 22.20% $ 19,888 27.74%
Real estate construction .............................. 2,490 3.51 4,163 5.81
Commercial real estate ................................ 30,149 42.52 24,633 34.36
Residential mortgage .................................. 16,454 23.20 14,788 20.63
Consumer and other .................................... 6,076 8.57 8,212 11.46
-------- ------ -------- ------
Total loans receivable ................................ 70,913 100.00% 71,684 100.00%
====== ======
Less:
Unearned income and fees .............................. (215) (224)
Allowance for credit losses ........................... (1,699) 2.40% (1,195) 1.67%
-------- ====== -------- ======
Loans receivable, net ................................. $ 68,999 $ 70,265
======== ========
</TABLE>
Asset Quality
Management seeks to maintain quality assets through sound underwriting
and sound lending practices. The largest category of loans in the Company's
loan portfolio is collateralized by commercial real estate mortgages. As of
-27-
<PAGE> 28
September 30, 1996 and December 31, 1995, 42.52%, and 34.36%, respectively, of
the total loan portfolio were collateralized by this type of property. The
level of delinquent loans and other real estate owned also is relevant to the
credit quality of a loan portfolio. As of September 30, 1996, total
non-performing assets were $3.5 million or 3.35% of total assets, compared to
$2.1 million or 1.86% as of December 31, 1995.
Commercial loans typically are underwritten on the basis of the
borrower's ability to make repayment from the cash flow of his business and
generally are collateralized by business assets, such as accounts receivable,
equipment and inventory. Commercial loans generally are made in amounts up to
75% of the lower of cost or value of the assets collateralizing the loan and
are made where the cash flow from the business exceeds 150% of the business'
debt service. As a result, the availability of funds for the repayment of
commercial loans may be substantially dependent on the success of the business
itself, which is subject to adverse conditions in the economy. Commercial
loans also entail certain additional risks since they usually involve large
loan balances to single borrowers or a related group of borrowers, resulting in
a more concentrated loan portfolio. Further, the collateral underlying the
loans may depreciate over time, cannot be appraised with as much precision as
residential real estate, and may fluctuate in value based on the success of the
business.
First Commerce/Polk County originates residential construction loans
primarily to borrower-owned or selected local builders with whom management is
familiar with to build single-family dwellings in First Commerce/Polk County's
primary market areas on both a pre-sold and speculative basis. Advances are
generally made in amounts up to 80% of the lower of the contract amount or the
appraised value. Loans for the construction of borrower-owned, single-family
dwellings are usually originated in connection with the permanent loan on the
property and have construction terms of up to nine months
("construction-permanent loans"). The permanent loan could either be a
take-out commitment from another financial institution or permanent financing
with First Commerce/Polk County. Speculative loans to builders are primarily
originated with no committed end-buyer for the single-family residential
property being constructed. The term of this type of loan is generally one
year with interest-only payments due during such time, after which the loan
should be converted to an amortizing loan. First Commerce/Polk County does not
have a policy with respect to the number of speculative loans it will extend to
one builder. Instead, First Commerce/Polk County reviews the historical
relationship with such builder and present market conditions. Advances to
individuals and builders are made on a percentage of completion basis
consisting of as many as five draws. Prior to making a commitment to fund a
construction loan, an appraisal of the property by a state certified appraiser
must be obtained along with a feasibility study of the proposed project. A
loan officer specifically designated for such purpose or an outside
professional inspector also reviews and inspects each project at the
commencement of construction and prior to every disbursement of funds during
the term of the construction loan. Construction financing is generally
considered to involve a higher degree of risk of loss than long-term financing
on improved, occupied real estate. Risk of loss on a construction loan is
dependent largely upon the accuracy of the initial estimate of the property's
value at completion of construction or development and the estimated cost
(including interest) of construction. During the construction phase, a number
of factors could result in delays and cost overruns. If the estimate of
construction costs proves to be inaccurate, First Commerce/Polk County may be
required to advance funds beyond the amount originally committed to permit
completion of the project. If the estimate of value proves to be inaccurate,
First Commerce/Polk County may be confronted, at or prior to the maturity of
the loan, with a project having a value which is insufficient to assure full
repayment.
The commercial real estate mortgage loans in the Company's portfolio
consist of fixed- and adjustable-interest rate loans which were originated at
prevailing market interest rates. First Commerce/Polk County's policy has been
to originate commercial real estate mortgage loans predominantly in its primary
market area, except for those loans purchased from FSB/Osceola. Commercial
real estate mortgage loans are generally made in amounts up to 75% of the
appraised value of the property collateralizing the loan and entail significant
additional risks compared to residential mortgage loans. In making commercial
real estate loans, First Commerce/Polk County primarily considers the net
operating income generated by the real estate to support the debt service, the
financial resources and income level and managerial expertise of the borrower,
the marketability of the collateral and First Commerce/Polk County's lending
experience with the borrower.
-28-
<PAGE> 29
Residential mortgage loans generally are made on the basis of the
borrower's ability to make repayment from his employment and other income and
are collateralized by real property whose value tends to be more readily
ascertainable. Residential mortgage loans are generally made in amounts up to
80% of the appraised value of the property collateralizing the loan.
Consumer loans generally are made on the basis of the borrower's
ability to make repayments from his employment and other income and are
collateralized by automobiles, trucks and recreational equipment/vehicles whose
value tends to depreciate over time. Consumer loans are generally made in
amounts up to 80% of the lower of the purchase price or the value of the asset
collateralizing the loan and for terms up to 60 months.
From time to time, First Commerce/Polk County will originate loans on
an unsecured basis. As of September 30, 1996 and December 31, 1995, unsecured
loans totaled $4.2 million and $5.3 million, respectively.
Loan concentrations are defined as amounts loaned to a number of
borrowers engaged in similar activities which would cause them to be similarly
impacted by economic or other conditions. First Commerce/Polk County, on a
routine basis, monitors these concentrations in order to consider adjustments
in its lending practices to reflect economic conditions, loan to deposit
ratios, and industry trends. As of September 30, 1996 and December 31, 1995,
no concentration of loans within any portfolio category to any group of
borrowers engaged in similar activities or in a similar business exceeded 10%
of total loans, except that as of such dates loans collateralized with
mortgages on real estate represented 69.23% and 60.80%, respectively, of the
loan portfolio and were to borrowers in varying activities and businesses.
Classification of Assets
Generally, interest on loans accrues and is credited to income based
upon the principal balance outstanding. It is management's policy to
discontinue the accrual of interest income and classify a loan on non-accrual
status when principal or interest is past due 90 days or more unless, in the
determination of management, the principal and interest on the loan are well
collateralized and in the process of collection, or when in the opinion of
management, principal or interest is not likely to be paid in accordance with
the terms of the obligation. Consumer installment loans are generally
charged-off after 90 days of delinquency unless adequately collateralized and
in the process of collection. Loans are not returned to accrual status until
principal and interest payments are brought current and future payments appear
reasonably certain. Interest accrued and unpaid at the time a loan is placed
on non-accrual status is charged against interest income.
Real estate acquired by the Company as a result of foreclosure or by
deed in lieu of foreclosure is classified as other real estate owned ("OREO").
OREO properties are recorded at the lower of cost or fair value less estimated
selling costs, and the estimated loss, if any, is charged to the allowance for
credit losses at the time it is transferred to OREO. Further write-downs in
OREO are recorded at the time management believes additional deterioration in
value has occurred and are charged to non-interest expense.
-29-
<PAGE> 30
As of September 30, 1996 and December 31, 1995, loans on non-accrual
status and other real estate owned, the ratio of such loans and real estate
owned to total assets, and certain other related information was as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------------- ---------------------------
TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS
------------- ---------- ------------ ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
LOANS ON NON-ACCRUAL STATUS:
Commercial .......................................... $ 1,377 1.94% $ 416 .58%
Real estate construction ............................ - - - -
Commercial real estate .............................. 1,640 2.31 832 1.16
Residential mortgage ................................ 248 .35 302 .42
Consumer and other .................................. 87 .12 57 .08
-------- ---- ------- ----
Total loans on non-accrual status .................... 3,352 4.72 1,607 2.24
ACCRUING LOANS OVER 90 DAYS DELINQUENT:
Residential mortgage ................................ - - 199 .28
TROUBLED DEBT RESTRUCTURINGS ........................ - - - -
-------- ---- ------- ----
Total non-performing loans .......................... $ 3,352 4.72% $1,806 2.52%
======== ==== ======= ====
REPOSSESSED ASSETS:
Other real estate owned .............................. $ 149 $ 301
Other repossessions .................................. - -
--------- -------
Total repossessed assets ............................ $ 149 $ 301
========= =======
Total non-performing assets .......................... $ 3,501 $ 2,107
========= =======
LOANS PAST-DUE:
30 to 59 days delinquent ............................ $ 410 .58% $ 1,352 1.89%
60 to 89 days delinquent ............................ 272 .38 286 .40
--------- ---- ------- ----
Total loans past-due 30 to 89 days .................. $ 682 .96% $ 1,638 2.29%
========= ==== ======= ====
TOTAL NON-PERFORMING LOANS AND LOANS
PAST-DUE 30 TO 89 DAYS.............................. $ 4,304 5.68% $ 3,444 4.81%
========= ==== ======= ====
AS A PERCENTAGE OF TOTAL ASSETS:
Total non-performing loans .......................... 3.20% 1.60%
========= =======
Total non-performing assets .......................... 3.35% 1.86%
========= =======
ALLOWANCE FOR CREDIT LOSSES AS A PERCENTAGE OF:
Total loans .......................................... 2.40% 1.67%
========= =======
Non-performing loans ................................ 50.69% 66.17%
========= =======
</TABLE>
As of September 30, 1996, loans on non-accrual status totaled $3.3
million and consisted primarily of four customer relationships totaling $2.5
million or 75.75% of total non-accruing loans. The first customer relationship
consisted of three loans totaling $794,000. The first loan was a $729,000
commercial real estate mortgage collateralized with a first mortgage on a 35
acre recreational vehicle park and fish camp. In September 1993, the land only
was appraised at $775,000 and the project "as if" developed was appraised at
$2.0 million. As of September 30, 1996, this loan was $729,000; however, the
Company maintained it on non-accrual status because of the project's
-30-
<PAGE> 31
cash flow history. The other two loans totaled $64,000 and were to the
principal owner of the project. These two loans were comprised of first and
second mortgage loans collateralized with approximately 20 acres of land with
citrus groves valued at approximately $100,000. The real estate
collateralizing these loans was appraised at $72,000 in August 1996. On May 3,
1996, the principal owner filed for bankruptcy protection. As of September 30,
1996, these two loans were 30 to 59 days delinquent. The Company has begun
legal proceedings against the principal owner.
The second customer relationship consisted of four loans which totaled
$791,000 and which were to four siblings. Each loan was in the amount of
$198,000. The siblings used the loans' proceeds for a capital contribution to
a company in which they collectively own 66.67% and pledged their stock in the
company as collateral for the loans. On June 24, 1996, the company filed for
bankruptcy protection. Although each loan was current as of September 30,
1996, First Commerce/Polk County placed the loans on non-accrual status.
The third customer relationship consisted of four loans totaling
$555,000. Two of the four loans totaled $334,000 and were collateralized with
first mortgage loans on property comprised of a convenience store. The real
estate collateralizing these loans was appraised at $450,000 in October 1996.
During September 1996, an office, warehouse and petroleum bulk plant were sold
and satisfied a portion of the debt to the Company. The other two loans
totaled $119,000 and were collateralized with first and second mortgage loans
on residential land appraised at $505,000 in January 1992. As of September 30,
1996, these loans were over 90 days delinquent. The borrower has represented
to First Commerce/Polk County that he is marketing the collateral for sale.
First Commerce/Polk County has begun legal proceedings against the borrower,
including possible foreclosure of the collateral.
The fourth customer relationship consisted of a $376,000 commercial
loan collateralized with an assignment of the proceeds of certain fruit sales
from two citrus growers' associations. During 1995, these two citrus growers'
associations acknowledged the assignment and agreed to disburse the proceeds of
the citrus sales jointly to the borrower and First Commerce/Polk County.
However, these two citrus growers' associations disbursed the funds directly to
the borrower. The borrower did not make the payments called for under the
terms of the loan and declared bankruptcy during the third quarter of 1995. As
of September 30, 1996, this loan was over 90 days delinquent and First
Commerce/Polk County had begun legal proceedings against the borrower and the
two citrus growers' associations.
As of September 30, 1996, loans 30 to 89 days delinquent totaled
$682,000 and consisted primarily of two customer relationships totaling
$405,000 or 59.38% of total loans 30 to 89 days delinquent. The remaining
$277,000 of loans 30 to 89 days delinquent consisted of ten loans none of which
were over $100,000.
The first customer relationship consisted of a $300,000 second
mortgage loan collateralized with commercial real estate appraised at $1.5
million in August 1993. The first mortgage loan with another financial
institution was in the amount of $1.16 million. The second customer
relationship consisted of a $156,000 first mortgage loan collateralized with
commercial property.
As a result of the increase in the Company's classified loans,
management during the fourth quarter of 1995 completed a special review of the
Company's loan portfolio and instituted a number of steps intended to improve
the identification, evaluation, and resolution of the Company's problem assets.
As a result of these actions, the senior management and loan staff of First
Commerce/Polk County meet weekly to review all past due and non-performing
loans and to discuss collection activities. The Board of Directors of First
Commerce/Polk County also reviews problem assets on a monthly basis. In
addition, First Commerce/Polk County hired a loan workout officer and has
retained an independent firm to conduct periodic loan reviews and make
recommendations for improvement. Management has also instituted steps to
improve underwriting practices. These actions include establishing a bank
credit department separate from the loan origination function, changing loan
origination authorities, and hiring a senior vice president of commercial
lending during October 1996. Although management believes that the foregoing
steps should contribute to an improvement in the Company's asset quality over
the longer term, no estimate can be made at present as to future levels of
problem assets or as to the impact of those assets and related expenses on the
financial condition and results of operations of the Company.
-31-
<PAGE> 32
Allowance for Credit Losses
In originating loans, the Company recognizes that credit losses will
be experienced and that the risk of loss will vary with, among other things,
the type of loan being made, the credit worthiness of the borrower over the
term of the loan and, in the case of a collateralized loan, the quality of the
collateral for the loan as well as general economic conditions. As a matter of
policy, the Company maintains an allowance for credit losses. The amount
provided for credit losses during any period is based on an evaluation by
management of the amount needed to maintain the allowance at a level sufficient
to cover anticipated losses and the inherent risk of losses in the loan
portfolio. In determining the amount of the allowance, management considers
the dollar amount of loans outstanding, its assessment of known or potential
problem loans, current economic conditions, the risk characteristics of the
various classifications of loans, credit record of its borrowers, the fair
market value of underlying collateral and other factors. Specific allowances
are provided for individual loans when ultimate collection is considered
questionable by management after reviewing the current status of loans which
are contractually past due and considering the fair value of the underlying
collateral for each loan. See "-- Results of Operations -- Provision for
Credit Losses."
Management continues to actively monitor the Company's asset quality
and to charge-off loans against the allowance for credit losses when
appropriate or to provide specific loss allowances when necessary. Although
management believes that it uses the best information available at the time to
make determinations with respect to allowance for credit losses, subsequent
adjustments to the allowance for credit losses may be necessary if future
economic conditions or other facts differ from the assumptions used in making
the initial determinations or if regulatory policies change.
As of September 30, 1996 and December 31, 1995, the allocation of the
allowance for credit losses was as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------ -----------------------
LOANS TO LOANS TO
TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS
------ -------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial ........................................... $ 763 22.20% $ 348 27.74%
Real estate construction ............................. 22 3.51 42 5.81
Commercial real estate ............................... 669 42.52 465 34.36
Residential mortgage ................................. 156 23.20 213 20.63
Consumer and other ................................... 89 8.57 127 11.46
-------- ------ -------- ------
Total allowance for credit losses ..................... $ 1,699 100.00% $ 1,195 100.00%
======== ====== ======== ======
</TABLE>
During the nine and three months ended September 30, 1996, the
provision for credit losses was $580,000 and $124,000, respectively, as
compared to $925,000 and $775,000 during the nine and three months ended
September 30, 1995, or respective decreases of $345,000 or 37.30% and $651,000
or 84.00%. The decrease in the provision for credit losses is due to $193,000
received in recoveries as of September 30, 1996, $1,817,000 of troubled loans
being paid or paid-off in 1996 and management's assessment of the collateral
values underlying the related debt. See "--Financial Condition--
Classification of Assets," and "--Results of Operations--Provision for Credit
Losses."
-32-
<PAGE> 33
During the nine months ended September 30, 1996 and 1995, the activity
in the Company's allowance for credit losses was as follows:
<TABLE>
<CAPTION>
1996 1995
------- ------
(Dollars in thousands)
<S> <C> <C>
Allowance at beginning of period ..................... $ 1,195 $ 830
Loans charged-off:
Commercial ....................................... 240 382
Real estate construction ......................... - 2
Commercial real estate ........................... - -
Residential mortgage ............................. 14 28
Consumer and other ............................... 44 6
-------- --------
Total loans charged-off ........................... 298 418
-------- --------
Recoveries:
Commercial ....................................... 180 39
Real estate construction ......................... - 2
Commercial real estate ........................... - -
Residential mortgage ............................. - -
Consumer and other ............................... 17 2
-------- --------
Total recoveries ................................. 197 43
-------- --------
Net loans charged-off (recovered) ..................... 101 375
-------- --------
FSB/Osceola allowance sold ........................... - (119)
-------- --------
Allowance related to loans
purchased from FSB/Osceola ....................... 25 37
-------- --------
Provision for credit losses ........................... 580 925
-------- --------
Allowance at end of period ........................... $ 1,699 $ 1,298
======== ========
Net charge-offs (recoveries) as a
percentage of average loans outstanding .14% .53%
======== ========
Allowance for credit losses as a percentage
of period-end total loans receivable ............... 2.40% 1.82%
======== ========
Allowance for credit losses as a percentage
of non-performing loans ............................. 50.69% 38.65%
======== ========
Average loans outstanding ............................. $ 71,267 $ 70,646
======== ========
Period-end total loans receivable ..................... $ 70,913 $ 71,255
======== ========
</TABLE>
Investment Securities
The total investment portfolio decreased $9.1 million or 27.00% to
$24.6 million as of September 30, 1996, from $33.7 million as of December 31,
1995. This decrease, along with loan repayments, was primarily used to fund
the
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<PAGE> 34
$8.8 million decrease in deposits. See "--Deposit Activities." During the
nine months ended September 30, 1996 and 1995, the Company did not engage in
derivative activities.
As of September 30, 1996 and December 31, 1995, the carrying balances
of the Company's investment portfolio was as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(In thousands)
<S> <C> <C>
INVESTMENT SECURITIES AVAILABLE-FOR-SALE:
U.S. Treasury securities ........................................... $ 2,012 $ 2,000
U.S. Government agency obligations ................................. 4,447 1,001
FHLMC mortgage-backed securities ................................... 14,777 19,430
FNMA mortgage-backed securities ..................................... 899 1,177
Collateralized mortgage obligations:
FHLMC obligations ............................................... - 24
FNMA obligations ............................................... 922 952
-------- --------
Total investment securities available-for-sale ..................... $ 23,057 $ 24,584
======== ========
INVESTMENT SECURITIES HELD-TO-MATURITY:
U.S. Treasury securities ........................................... $ - $ 2,000
U.S. Government agency obligations ................................. 500 500
State, county and municipal securities ............................. 1,050 1,059
-------- --------
Total investment securities held-to-maturity ....................... $ 1,550 $ 3,559
======== ========
Total investment securities ......................................... $ 24,607 $ 28,143
======== ========
Federal funds sold ................................................. $ 3,050 $ 5,562
======== ========
Total investment portfolio ......................................... $ 27,657 $ 33,705
======== ========
</TABLE>
In accordance with Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" ("FAS
115"), the Company classifies its investment securities, including
mortgage-backed securities, as either held-to-maturity, available-for-sale, or
trading securities. Securities classified as held-to-maturity are carried at
amortized cost. Securities classified as available-for-sale are reported at
fair value, with unrealized gains and losses, net of tax effect, reported as a
separate component of stockholders' equity. Securities classified as trading
securities are recorded at fair value, with unrealized gains and losses
included in earnings. The Company does not have any securities classified as
trading. As of September 30, 1996 and December 31, 1995, all mortgage-backed
securities were classified as available-for-sale. As a result of the adoption
of FAS 115, under which the Company expects to continue to hold certain of its
mortgage-backed securities classified as available-for-sale, changes in the
underlying market values of such securities could have a material adverse
effect on the Company's capital position. Typically, an increase in interest
rates results in a decrease in underlying market value and an increase in the
level of principal repayments on mortgage-backed securities. As a result of a
general increase in interest rates during the nine months ended September 30,
1996, decreases in the market value of investment securities available-for-
sale, including mortgage-backed securities, resulted in a decrease in
stockholders' equity of $(78,000) (net of tax) to September 30, 1996 from
December 31, 1995. Such decrease represented the impact of changes in interest
rates on the value and maturity of these investments.
-34-
<PAGE> 35
As of September 30, 1996 and December 31, 1995, the maturity
distribution and certain other information pertaining to investment securities
were as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------------------- ---------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE YIELD COST VALUE YIELD
--------- ----- ----- --------- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT SECURITIES AVAILABLE-FOR-SALE:
U.S. Treasury securities:
Due within one year ................. $ 2,010 $ 2,012 5.66% $ 2,000 $ 2,000 4.56%
U.S. Government agency obligations:
Due within one year ................. 1,999 1,998 5.61 - - -
Due one to five years ............... 2,489 2,449 6.00 997 1,001 5.38
Total U.S. Government agency ------- ------- ---- ------- ------- ----
obligations ................... 4,488 4,447 5.82 997 1,001 5.38
FHLMC mortgage-backed securities:(1) ------- ------- ---- ------- ------- ----
Due within one year ................. - - - 525 530 7.82
Due one to five years ............... 1,704 1,659 6.26 881 883 6.16
Due five to ten years ............... - - - 994 992 6.34
Due over ten years(3) ......... 13,097 13,118 5.63 16,970 17,025 6.30
Total FHLMC mortgage- ------- ------- ---- ------- ------- ----
backed securities ............... 14,801 14,777 5.71 19,370 19,430 6.34
FNMA mortgage-backed securities:(1) ------- ------- ---- ------- ------- ----
Due within one year ................. - - - 97 100 8.47
Due one to five years ............... 125 127 8.50 61 63 8.50
Due over ten years ................. 761 772 2.68 1,014 1,014 6.15
Total FNMA mortgage- ------- ------- ---- ------- ------- ----
backed securities ............... 886 899 3.50 1,172 1,177 6.46
Collateralized mortgage obligations: ------- ------- ---- ------- ------- ----
FHLMC mortgage-backed securities:
Due within one years(1) ......... - - - 24 24 8.00
FNMA mortgage-backed securities: ------- ------- ---- ------- ------- ----
Due over ten years(1) ........... 1,000 922 5.95 1,000 952 6.37
------- ------- ---- ------- ------- ----
Total investment securities
available-for-sale ................. $23,185 $23,057 5.65% $24,563 $24,584 6.16%
======= ======= ==== ======= ======= ====
INVESTMENT SECURITIES HELD-TO-MATURITY:
U.S. Treasury securities:
Due within one year ................. $ - $ - -% $ 2,000 $ 1,993 4.30%
U.S. Government agency obligations: ------- ------- ---- ------- ------- ----
Due one to five years ............... 500 493 5.52 500 499 5.52
State, county and municipal obligations:(2) ------- ------- ---- ------- ------- ----
Due five to ten years ............... 300 295 4.62 300 300 4.62
Due over ten years ................. 750 751 8.82 759 768 8.83
------- ------- ---- ------- ------- ----
Total ............................... 1,050 1,046 7.62 1,059 1,068 7.64
------- ------- ---- ------- ------- ----
Total investment securities
held-to-maturity ................... $ 1,550 $ 1,539 6,94% $ 3,559 $3,560 5.46%
- ---------------------------- ======= ======= ==== ======= ======= ====
</TABLE>
(1) The mortgage-backed securities and collateralized mortgage obligations
were purchased with an expected average
life of approximately three years.
(2) Yields on state, county and municipal obligations are not computed on
a tax equivalent basis.
(3) These mortgage-backed securities are
collateralized with adjustable-rate mortgages ("ARMs").
-35-
<PAGE> 36
In conjunction with the sale of FSB/Osceola in 1995, FSB/Osceola sold
an investment security that was previously classified as held to maturity. The
investment security had an amortized cost of $151,000 and generated a loss of
$4,000.
Premiums on mortgage-backed securities are amortized to interest
income based on the estimated remaining life of the related securities.
Management periodically reviews the remaining estimated life of mortgage-backed
securities, and adjusts the amortization of the premiums accordingly, in light
of changes in market interest rates and other factors affecting prepayment
rates on the underlying mortgages. Acceleration of the amortization of
premiums on mortgage-backed securities reduces the effective yield on these
investments and, accordingly, adversely affects net interest income. As of
September 30, 1996 and December 31, 1995, the remaining unamortized premiums on
mortgage-backed securities totaled $397,000 and $571,000, respectively.
The Company invests in mortgage-backed securities that are guaranteed
as to principal and interest by the Government National Mortgage Association
("GNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC"), or the Federal
National Mortgage Association ("FNMA"). Although mortgage-backed securities
generally have a lower yield than loans, mortgage-backed securities increase
the quality of the Company's assets by virtue of the guarantees that back them,
are more liquid than individual mortgage loans and may be used to collateralize
borrowings or other obligations of the Company. Due to repayment and
prepayments of the underlying loans, the actual maturities of mortgage-backed
securities are substantially less than the scheduled maturities. The Company's
portfolio of mortgage-backed securities was purchased with an anticipated
average life of approximately three years. Changes in interest and prepayment
rates may also affect the average life, yield to maturity, and related market
value of the Company's mortgage-backed securities. Changes in the market
values of the Company's mortgage-backed securities may result in volatility in
capital based on how the Company classifies the securities.
Deposit Activities
Deposits are the major source of First Commerce/Polk County's funds
for lending and other investment purposes. Deposits are attracted principally
from within First Commerce/Polk County's primary market area through the
offering of a broad variety of deposit instruments including checking accounts,
money market accounts, regular savings accounts, term certificate accounts
(including "jumbo" certificates in denominations of $100,000 or more) and
retirement savings plans. As of September 30, 1996 and December 31, 1995, the
distribution by type of the Company's deposit accounts was as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------- -----------------------
AMOUNT DEPOSIT AMOUNT DEPOSITS
------- ------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Demand deposits ......................................... $ 15,442 16.58% $ 17,056 16.73%
NOW deposits ........................................... 13,500 14.50 15,045 14.76
Money market ........................................... 4,351 4.67 4,698 4.61
Savings accounts ....................................... 8,543 9.17 7,735 7.59
Time deposits under $100,000 ........................... 44,962 48.28 48,864 47.93
Time deposits $100,000 and over ......................... 6,327 6.80 8,543 8.38
--------- ------ -------- ------
Total deposits ......................................... $ 93,125 100.00% $101,941 100.00%
========= ====== ======== ======
</TABLE>
Time deposits included individual retirement accounts ("IRAs")
totaling $6.2 million and $6.0 million as of September 30, 1996 and December
31, 1995, respectively, all of which are in the form of certificates of
deposit.
The Company's deposits decreased $8.8 million or 8.65% to $93.1
million as of September 30, 1996, from $101.9 million as of December 31, 1995.
This decrease was primarily attributable to First Commerce/Polk County reducing
the interest rates it offers on time deposits, resulting in a decrease in time
deposits. First Commerce/Polk County has primarily used the proceeds from
maturing investment securities and loan repayments to fund these deposit
outflows.
-36-
<PAGE> 37
As of September 30, 1996 and December 31, 1995, time deposits of
$100,000 and over mature as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Due in three months or less ............................. $ 1,120 $ 2,130
Due from three months to nine months ................... 3,142 1,564
Due from nine months to one year ....................... 805 1,568
Due over one year ....................................... 1,260 3,281
-------- --------
Total time deposits $100,000 and over ................... $ 6,327 $ 8,543
======== ========
</TABLE>
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
During the three months ended September 30, 1996, no reports on Form 8-K were
filed with the Securities and Exchange Commission.
Exhibits:
10.1 Employment Resignation and Consultant Agreement By and Between
First Commerce Banks of Florida, Inc., First Commerce Bank of
Polk County and J.E. Stephens, Jr.
27 Financial Data Schedule (for SEC use only)
-37-
<PAGE> 38
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST COMMERCE BANKS OF FLORIDA, INC.
Date: November 8, 1996 By: /s/ Robert W. Stickler, Jr.
-----------------------------
Robert W. Stickler, Jr.,
Vice Chairman, President and
Chief Executive Officer
Date: November 8, 1996 By: /s/ J. Jeffrey Seale
-----------------------------
J. Jeffrey Seale, Vice President,
Secretary and Treasurer (Principal
Financial Officer)
-38-
<PAGE> 39
First Commerce Banks of Florida, Inc.
Form 10-QSB
For the Quarterly Period Ended September 30, 1996
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
- ----------- ------- --------
10.1 Employment Resignation and Consultant Agreement By and
Between First Commerce Banks of Florida, Inc., First Commerce
Bank of Polk County and J.E. Stephens, Jr.
27 Financial Data Schedule (for SEC use only)
-39-
<PAGE> 1
First Commerce Banks of Florida, Inc.
Form 10-QSB
Exhibit 10.1
-40-
<PAGE> 2
EMPLOYMENT RESIGNATION AND CONSULTANT AGREEMENT
THIS EMPLOYMENT RESIGNATION AND CONSULTANT AGREEMENT (the "Agreement")
is made as of this _____ day of __________, 1996, by and between FIRST COMMERCE
BANKS OF FLORIDA, INC., A FLORIDA BANK HOLDING CORPORATION (the "Holding
Company"), FIRST COMMERCE BANK OF POLK COUNTY, A FLORIDA BANKING CORPORATION
(the "Bank"), and J. E. STEPHENS, JR., (the "Executive").
WITNESSETH:
WHEREAS, the Holding Company and the Bank (collectively referred to in
this agreement as "FCB") and Executive, entered into a certain Employment
Agreement (the "Employment Agreement") dated on or about September 1, 1995,
regarding Executive's employment with FCB;
WHEREAS, pursuant to paragraph 21 of the Employment Agreement, such
agreement may not be amended or otherwise modified except by a writing signed
by the parties hereto agreeing to such amendments, changes or modifications;
WHEREAS, FCB and Executive have mutually agreed that Executive shall
resign from his current employment with Bank; to cancel the Employment
Agreement; and to retain Executive as a consultant, pursuant to the terms and
provisions contained herein.
NOW, THEREFORE, in consideration of the covenants and agreements set
forth below, and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties agree as follows:
1. RECITALS. The above recitals are true and correct and are
made a part of this agreement.
2. TERMINATION OF EMPLOYMENT AGREEMENT AND CONSULTING
ARRANGEMENT. FCB and Executive hereby terminate, cancel and rescind the
Employment Agreement and all rights, duties, and obligations set forth therein.
Effective September 1, 1996, (the "Resignation Date") Executive has resigned as
an officer and director of FCB. Effective on the Resignation Date and for a
period of one (1) year therefrom (the "Consulting Period"), FCB shall retain
Executive as a consultant to and for FCB. During this
1
<PAGE> 3
time period, Executive shall perform and provide consulting services to FCB
with respect to FCB's business activities and affairs and shall undertake such
duties and responsibilities as may be reasonably assigned to Executive from
time to time by FCB. During the Consulting Period, Executive shall perform his
obligations hereunder faithfully and to the best of his ability. During the
Consulting Period, Executive shall devote his time, energy and skill to the
performance of his duties, responsibilities and obligations hereunder on an "as
needed" basis, which shall be determined in the reasonable discretion of FCB.
Executive shall not be required to perform his obligations hereunder in the
event FCB fails to pay Executive the compensation described in paragraph 3
below.
3. COMPENSATION. From the Resignation Date through August 31,
1997, FCB agrees to pay or provide to Executive his current base annual salary,
as it exists as of the date of this Agreement, payable in such periodic
installments consistent with other employees of FCB.
4. INSURANCE. From the Resignation Date through August 31, 1997,
FCB shall continue to provide to Executive health insurance, life insurance,
and long-term disability insurance coverage consistent with other employees of
FCB during such time period.
5. VEHICLE. Upon the execution of this Agreement, FCB hereby
agrees to transfer, assign and convey to the Executive the Certificate of Title
to that certain 1994 Oldsmobile motor vehicle, having an Identification Number
of 1GHDT13W4R2703546, currently utilized by Executive as a company vehicle.
Any and all transfer costs and sales tax, if any, associated with this transfer
shall be the responsibility and payment obligation of Executive.
6. DEFERRED COMPENSATION BENEFITS. Commencing on or subsequent
to September 1, 1997, FCB agrees to pay or provide to Executive the sum of One
Hundred Eight Thousand and no/100 Dollars ($108,000.00) as deferred
compensation benefits. Executive, at his option and discretion, shall be
entitled to receive these deferred compensation benefits in seven (7) equal
annual installments commencing September 1, 1997 or, if Executive so chooses,
the Executive may receive the undistributed amount of deferred compensation
payments from FCB at any time commencing September 1, 1997 through September 1,
2004, upon written request to FCB
2
<PAGE> 4
pursuant to the terms and provisions of paragraph 14 below. In the event that
Executive shall die before receiving distribution of all benefits set forth
herein, any undistributed or unpaid benefits due Executive shall be payable by
FCB to Executive's estate, beneficiaries, or heirs at law.
7. COUNTRY CLUB MEMBERSHIP. Within thirty (30) days from the
date of the execution of this Agreement, FCB shall transfer, assign and convey
to Executive FCB's interest in the Executive's membership in and to Lake Region
Yacht and Country Club. Any transfer charges imposed by Lake Region Yacht and
Country Club by virtue of this transfer and assignment shall be the
responsibility and payment obligation of Executive.
8. SPLIT DOLLAR INSURANCE. Pursuant to the terms of that certain
Endorsement Split Dollar Flexible Premium Life Insurance Agreement ("Split
Dollar Agreement") of even date herewith, FCB has established an Endorsement
Split Dollar Flexible Premium Life Insurance Policy (the "Policy") whereby
Holding Company is the owner of such Policy and Executive is the insured party.
Subject and contingent upon Executive's compliance with the terms and
provisions of this Agreement and for a period of eight (8) years from the date
of this Agreement, FCB agrees to maintain the Policy in force and effect.
Nothing herein shall be construed or implied to impose any obligation upon FCB
to make any additional premium payments or incur any other financial
obligations incident to maintaining this Policy and FCB's only affirmative
obligation shall be to not cancel the Policy prior to the expiration of the
time period set forth herein, except for such grounds as are set forth herein.
In the event that there is a judicial determination that Executive has violated
or breached any of the terms, provisions, or covenants contained in this
Agreement, FCB shall have no further obligation to maintain the Policy and may
immediately institute action to terminate the Policy and receive such amounts
as are required to reimburse FCB for any and all payments, premiums and
expenses incurred incident to this Policy. Otherwise, and in any event eight
(8) years from the date of this Agreement, or subsequent thereto, FCB shall
have the right to withdraw and receive such amounts as are required to
reimburse FCB for any and all payments incident to the Policy. Upon obtaining
reimbursement of the amounts set forth in this paragraph, Holding Company shall
assign the Policy to Executive or Executive's designated assignee, at which
time Holding Company shall have no further responsibility
3
<PAGE> 5
regarding said Policy and Executive shall be entitled to utilize this Policy in
any manner he deems appropriate. FCB makes no representations or assertions to
Executive regarding any tax consequences which may be applicable to Executive
by virtue of the Split Dollar Agreement or Policy. FCB anticipates that it
will have to file certain reporting, disclosure, or informational returns or
documents with taxing authorities and it shall be the Executive's
responsibility and obligation to pay any and all taxes due taxing authorities
as a result of the Split Dollar Agreement and Policy.
9. STOCK OPTION. Pursuant to the terms of that certain Stock
Option Agreement between Executive and Holding Company, dated September 1,
1996, Executive shall have an option, to be exercised on or before November 30,
1997, to purchase up to 18,891 common shares of Holding Company stock at the
purchase price of $6.63 per share.
10. NON-COMPETITION. For a period of time two (2) years from the
date of the execution of this Agreement, the Executive agrees that he shall
not, directly or indirectly, whether as an officer, director, shareholder,
partner, proprietor, associate, manager, employee, representative, or
consultant, become or be interested in or associated with, or directly or
indirectly permit his name or endorsement to be used by or in association or in
conjunction with any person, corporation, firm, partnership, or other entity
whatsoever which engages in activities similar to the business activities
engaged in by FCB, including any other bank or financial institution or any
entity which either accepts deposits or makes loans within a fifty (50) mile
radius of any office of FCB; provided, however, that the foregoing shall not
preclude any ownership by the Executive of an amount not to exceed five percent
(5%) of the equity securities of any entity which is subject to the periodic
reporting requirements of the Securities Exchange Act of 1934 or the shares of
Holding Company common stock currently owned by the Executive as of the date of
this Agreement or for which the Executive has an option to purchase pursuant to
prior agreements between the parties hereto.
11. NON-SOLICITATION AND NON-INTERFERENCE. The Executive agrees
that for a period of two (2) years from the date of this Agreement, the
Executive will not (a) solicit for employment by Executive or anyone else, or
employ any employee of FCB or any
4
<PAGE> 6
person who was an employee of FCB within twelve (12) months prior to such
solicitation of employment; (b) induce, or attempt to induce, any employee of
FCB to terminate such employee's employment; (c) induce, or attempt to induce,
anyone having a business relationship with FCB to terminate or curtail such
relationship or, on behalf of himself or anyone else, compete with FCB; (d)
knowingly make any untrue statement concerning FCB or it's directors or
officers to anyone; or (e) permit anyone controlled by the Executive or any
person acting on behalf of the Executive or anyone controlled by an employee of
the Executive to do any of the foregoing.
12. NON-DISCLOSURE. Executive further agrees that subsequent to
the execution of this Agreement, he shall not advise or disclose to any person,
corporation, firm, partnership, or other entity whatsoever (except FCB), or any
officer, director, stockholder, partner, associate, employee, agent, or
representative of any such partnership, firm or corporation, any information
related to the business activities of FCB, including without limitation,
information concerning FCB's past or present customers, borrowers, depositors,
or any other non-public information relating to the business and objectives of
FCB unless the same has become public by means other than that prohibited
hereunder and then only to the extent it has become public information. In
addition, Executive agrees that he shall not disclose to any third party any
information incident to the facts, details or circumstances related to the
Executive's termination of employment with FCB or any other matters which
pertain in any way to the Executive's execution of this Agreement and the
matters contained herein.
13. REMEDIES. Executive acknowledges and confirms that a breach
of any of the covenants contained within this Agreement will result in
irreparable, and continuing injury to the Holding Company and the Bank and that
this Agreement and the covenants contained herein are necessary to protect a
legitimate business interest of FCB. Therefore, in the event that it is
determined by a court of competent jurisdiction that there has been a breach of
any of the covenants or provisions contained herein by Executive, FCB shall be
entitled, without limiting any other legal or equitable remedy, whether
conferred by statute, common law or otherwise, to (a) specific performance or
injunctive relief without proof of actual monetary damages; and (b) an amount
equal to the amount of profit, income, remuneration or other consideration
which FCB can establish
5
<PAGE> 7
that Executive has gained or will gain as the result of the failure of
Executive to comply with any of the covenants or provisions contained herein.
The parties hereto acknowledge and confirm that all remedies available by
reason of a breach of any of the covenants or provisions contained herein are
cumulative and that none is exclusive and that all remedies may be exercised
concurrently or consecutively at FCB's option and discretion. Executive
further acknowledges and confirms that the covenants and provisions contained
herein are reasonable limitations necessary to protect FCB and that the
covenants and provisions are reasonably limited with respect to the activities
prohibited, the duration thereof and the scope thereof, and that the covenants
and provisions contained herein do not unduly oppress the business future or
earning ability of Executive.
14. INVALID PROVISION. In the event any provision of this
Agreement should be or become invalid or unenforceable, such fact shall not
affect the validity or enforceability of any other provision of this Agreement.
Similarly, if the scope of any restriction or covenant contained herein should
be or become to broad or extensive to permit enforcement thereof to its full
extent, then any such restriction or covenant shall be enforced to the maximum
extent permitted by law and Executive hereby consents and agrees that the scope
of any such restriction or covenant may be modified accordingly in any judicial
proceeding brought to enforce any such restriction or covenant.
15. NOTICES. All notices permitted or required to be given to any
party under this Agreement shall be in writing and shall be deemed to have been
given (a) in the case of delivery, when addressed to the other party or parties
as set forth below and delivered to said address or addresses; (b) in the case
of mailing, three (3) days after the same has been mailed by certified mail,
return receipt requested, and deposited postage prepaid in the US mails,
addressed to the other party or parties at the address or the addresses as set
forth below; and (c) in any other case, when actually received by the other
party. Any party to this Agreement may change the address at which said notice
is to be given by delivering notice of such to the other parties to this
Agreement in the manner set forth herein.
6
<PAGE> 8
As to Holding Company:
First Commerce Banks of Florida, Inc.
Attn: Don Stephens
141 East Central Avenue
Winter Haven, Fl 33880
As to Bank:
First Commerce Bank of Polk County
Attn: Robert W. Stickler, Jr.
141 East Central Avenue
Winter Haven, Fl 33880
As to Executive:
J.E. Stephens, Jr.
43 Lake Link Circle, SE
Winter Haven, Fl 33884
16. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida. Furthermore,
the parties hereby consent to the jurisdiction of the State of Florida with
respect to any litigation arising out of this Agreement, and such litigation
shall be initiated and maintained in Polk County, Florida. Finally, the
parties further consent and agree that the Circuit Court in and for Polk
County, Florida shall have full legal and equitable jurisdiction over the
parties.
17. ATTORNEY FEES AND COSTS. In the event a dispute arises
between the parties under this Agreement and suit is instituted, the prevailing
party shall be entitled to recover his or it's costs and attorney fees from the
non-prevailing party. As used herein, costs and attorney fees include any
costs and attorney fees in any appellate proceeding.
18. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original, but all together of
which shall constitute but a single document.
19. ENTIRE AGREEMENT. This Agreement contains the entire
agreement of the parties hereto and no representations, warranties, covenants,
or agreements, not embodied herein, oral or otherwise,
7
<PAGE> 9
shall be of any force or effect.
20. HEADINGS. The headings or titles of the sections or
paragraphs of this Agreement are for convenience only and are not a part of
this Agreement and shall not be used as an aid in the construction of any
provision hereof.
21. WAIVER OF BREACH. The waiver of any breach by Executive or
FCB of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach.
22. BENEFIT OF AGREEMENT. The Agreement shall inure to the
benefit of and be binding upon the Holding Company, the Bank, and the
Executive, and their successors, assigns, heirs, executors, administrators, and
legal representatives.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first written above.
Signed, sealed and delivered FIRST COMMERCE BANKS OF FLORIDA,
in our presence as witnesses: INC., a Florida bank holding
corporation
- ----------------------------- ----------------------------------
- ----------------------------- By:-------------------------------
Printed Name of Witness
As its: --------------------------
- -----------------------------
- -----------------------------
Printed Name of Witness
FIRST COMMERCE BANK OF POLK
COUNTY, a Florida banking
corporation
- ----------------------------- ---------------------------------
- ----------------------------- By:------------------------------
Printed Name of Witness
As its:--------------------------
- -----------------------------
- -----------------------------
Printed Name of Witness
- ----------------------------- -----------------------------
J. E. Stephens, Jr.
- -----------------------------
Printed Name of Witness
- -----------------------------
- -----------------------------
Printed Name of Witness
8
<PAGE> 10
ENDORSEMENT SPLIT DOLLAR
FLEXIBLE PREMIUM LIFE INSURANCE
AGREEMENT
Insurer: LIBERTY LIFE INSURANCE COMPANY
hereinafter referred to as "LIC".
Policy #: ---------------------------------
Corporation: FIRST COMMERCE BANKS OF FLORIDA, INC.
Relationship of
Corporation to Insured: Employer
Insured: J. E. STEPHENS, JR.
The respective rights and duties of the Corporation and Insured in the subject
policy shall be as defined in the following numbered paragraphs, namely:
I. DEFINITIONS. (Refer to Policy Contract to Confirm Correct
Definitions)
"DEATH PROCEEDS": Death Proceeds as used in this Agreement shall mean: (Check
appropriate definition)
For Level Death Benefits
----- Specified Amount, described as Option _____ in the policy
contract;
X Face Amount, described as Option "A" in the policy contract;
-----
For Increasing Death Benefits
----- Specified Amount, (Alternatively, Face Amount), plus the caste
value, described as Option _____ in the policy contract.
(Applicable to policies with one caste value.)
----- Specified Amount, (Alternatively, Face Amount), plus the
accumulation value, described as Option in the policy
contract. (Applicable to policies with both
9
<PAGE> 11
caste values and accumulation values.)
"CASH VALUES": Cash Values as used in this Agreement shall mean:
10
<PAGE> 12
For Purposes Of Policy Surrender
The Cash Surrender Value, as that term is defined in the policy
contract, plus the cash value of any Paid-Up Riders.
For Purposes Of Measuring Premium Payments And Obligations
X Cash Value, as that term is described in the policy contract,
----- plus the cash value of any Paid-Up Riders. (Applicable to
policies with one cash value.)
----- Accumulated Value or Policy Account Value, as that term is
described in the policy contract, plus the cash value of any
Paid-Up Riders. (Applicable to policies with both cash values
and accumulation values.)
II. POLICY TITLE AND OWNERSHIP.
Title and ownership shall reside in the Corporation for its use and
for the use of Insured all in accordance with this Agreement. The
Corporation alone may, to the extent of its interest, exercise the
right to borrow or withdraw on the policy cash values. Where the
Corporation and Insured (or his/her assignee, with the consent of the
Insured) mutually agree to exercise the right to increase the coverage
under the subject Split Dollar Policy, then, in such event, the
rights, duties and benefits of the parties to such increased coverage
shall continue to be subject to the terms of this Agreement.
III. BENEFICIARY DESIGNATION RIGHTS.
Insured (or his/her assignee) shall have the right and power to
designate a beneficiary or beneficiaries to receive his/her share of
the proceeds payable on his/her death and to elect and change a
payment option for such beneficiaries, but subject to any right or
interest the Corporation may have in such proceeds as provided in this
Agreement.
IV. PREMIUM PAYMENT METHOD.
Planned Premiums shall be paid in a single lump sum payment by
Corporation as of the date of issuance of the policy.
11
<PAGE> 13
V. DIVISION OF DEATH PROCEEDS OF POLICY.
While this Agreement and the policy are in effect and in force and in
the event of the death of the insured, the division of death proceeds
of the policy shall be as follows:
A. The Corporation shall be entitled to the following
amount as of the date of death:
1. In the event that the insured shall die
within one year from the date of this Agreement, the
Corporation shall be entitled to the lessor of (i)
the sum of $530,756.00, or (ii) the total death
benefit payable under this policy.
2. In the event that the insured shall die
during the period commencing one year and one day
from the date of this Agreement and concluding two
years from the date of this Agreement, the
Corporation shall be entitled to receive the lessor
of (i) the sum of $640,231.00, or (ii) the total
death benefit payable under this policy.
3. In the event that the insured shall die
during the period commencing two years and one day
from the date of this Agreement and concluding three
years from the date of this Agreement, the
Corporation shall be entitled to receive the lessor
of (i) the sum of $772,287.00, or (ii) the total
death benefit payable under this policy.
4. In the event that the insured shall die
during the period commencing three years and one day
from the date of this Agreement and concluding four
years from the date of this Agreement, the
Corporation shall be entitled to receive the lessor
of (i) the sum of $951,581.00, or (ii) the total
death benefit payable under this policy.
5. In the event that the insured shall die
during the period commencing four years and one day
from the date of this Agreement and concluding five
years from the date of this Agreement, the
Corporation shall be entitled to receive the lessor
of (i) the sum of $1,123,731.00, or (ii) the total
death benefit payable under this policy.
12
<PAGE> 14
6. In the event that the insured shall die
during the period commencing five years and one day
from the date of this Agreement and concluding six
years from the date of this Agreement, the
Corporation shall be entitled to receive the lessor
of (i) the sum of $1,355,516.00, or (ii) the total
death benefit payable under this policy.
7. In the event that the insured shall die
during the period commencing six years and one day
from the date of this Agreement and concluding seven
years from the date of this Agreement, the
Corporation shall be entitled to receive the lessor
of (i) the sum of $1,635,108.00, or (ii) the total
death benefit payable under this policy.
8. In the event that the insured shall die
during the period commencing seven years and one day
from the date of this Agreement and concluding eight
years from the date of this Agreement, the
Corporation shall be entitled to receive the lessor
of (i) the sum of $1,972,370.00, or (ii) the total
death benefit payable under this policy.
B. The Insured's (or his/her assignee's) beneficiary(s),
designated in accordance with Paragraph III, shall be
entitled to the remainder of such proceeds.
C. Corporation and Insured (or his/her assignee's) shall
share in any interest due on the death proceeds as
their respective share of the proceeds as
above-defined bears to the total proceeds excluding
any such interest.
D. Where there is a refund of unearned premium as
provided in the contract of insurance, any refund
shall be apportioned as follows:
1. Where Insured (or his/her assignee) has
contributed to the policy premium at the last
required premium interval, the refund of
unearned premiums shall be divided between
the Corporation and Insured (or his/her
assignee) as their respective share of the
premium
13
<PAGE> 15
payment obligation bears to the total
required for such interval.
2. Where Insured (or his/her assignee) has not
contributed to the premium at the last
required premium interval, the refund of
unearned premium shall be refunded in total
to the Corporation.
VI. DIVISION OF THE CASH SURRENDER VALUE OF THE POLICY.
Division of the cash surrender value of the policy, between Insured
and Corporation shall be as follows:
The Corporation shall be entitled to receive an amount equal to the
cumulative premium payments paid for the policy as of the date of any
such surrender and any applicable policy surrender charges or
expenses. After payment to the Corporation of the amounts set forth
above, the balance of any cash surrender value of the policy shall be
paid to Insured or Insured's assignee.
VII. TERMINATION OF AGREEMENT.
This Agreement shall be subject to termination by Insured upon
submission of thirty (30) day written notice to Corporation.This
Agreement shall be subject to termination by Corporation upon the
happening of any of the following:
A. In the event that the insured shall breach or violate any
term, provision or covenant of that certain Employment
Resignation and Consultant Agreement of even date herewith, a
true and correct copy of which is attached hereto as Schedule
"A" and by reference made a part hereof.
B. Eight (8) years from the date of this Agreement or thereafter,
Corporation shall have the absolute right to terminate this
Agreement.
Upon such termination, Insured (or his/her assignee) shall have a
90-day option to receive from the Corporation an absolute assignment
of the policy in consideration of a cash payment to the Corporation,
whereupon this Agreement shall terminate. Such cash payment shall be
the amount of the cummulative premiums which have been paid by the
Corporation
14
<PAGE> 16
prior to the date of such assignment, and any applicable policy
surrender charges or expenses.
Should Insured (or his/her assignee) fail to exercise the option
within the prescribed 90-day period, Insured (or his/her assignee)
agrees that the subject policy will be surrendered to the Insurer and
the proceeds distributed between the Corporation and Insured (or
his/her assignee) as prescribed by Paragraph VI herein.
VIII. INSURED OR ASSIGNEE'S ASSIGNMENT RIGHTS.
Insured (or his/her assignee) may, at any time, assign to any
individual, trust, or other organization all right, title and interest
in the subject policy and all rights, options, privileges and duties
created under this Agreement.
IX. AGREEMENT BINDING UPON PARTIES.
This Agreement shall bind the Insured and the Corporation, their
heirs, successors, personal representatives and assigns.
X. NAMED FIDUCIARY AND PLAN ADMINISTRATOR.
The Chief Financial Officer (C.F.O.) of Corporation is hereby
designated the "Named Fiduciary" until resignation or removal by the
Board of Directors. As Named Fiduciary, such person shall be
responsible for the management, control and administration of the
Split Dollar plan as established herein, may allocate to others
certain aspects of the management and operation responsibilities of
the plan including the employment of advisors and the delegation of
any ministerial duties to qualified individuals.
XI. FUNDING.
The funding policy for the Split Dollar arrangement shall be to
maintain the subject policy in force by paying, when due, all premiums
required.
XII. AMENDMENT.
The Split Dollar plan may be amended at any time and from time to time
by a written instrument executed by the Insured (or his/her assignees)
and the Corporation.
15
<PAGE> 17
XIII. BASIS OF PREMIUM PAYMENTS AND BENEFITS.
Payments to and from the Split Dollar Plan adopted herein shall be in
accordance with the provisions of this Agreement.
XIV. CLAIMS PROCEDURE FOR LIFE INSURANCE POLICY AND SPLIT DOLLAR
PLAN.
Claim forms or claim information as to the subject policy can be
obtained by contacting Liberty Life Insurance Company.
In the event a dispute arises over the death proceeds or surrender
values, the Named Fiduciary should contact the office or the person
named above who will either complete a claim form and forward it to an
authorized representative of the Insurer or advise the Named Fiduciary
what further requirements are necessary. The Insurer will evaluate the
claim and make a decision as to payment within 90 days of the date the
claim is received by the Insurer. If the claim is payable, a benefit
check will be issued to the Named Fiduciary and forwarded through the
office or person named above.
In the event that a claim is not eligible under the policy, the
Insurer will notify the Named Fiduciary of the denial. Such
notification will be made in writing within 90 days of the date the
claim is received and will be transmitted through the office or person
named above. The notification will include the specific reasons for
the denial as well as specific reference to the policy provisions upon
which the denial is based. The Named Fiduciary will also be informed
as to the steps which may be taken to have the claim denial reviewed.
16
<PAGE> 18
A decision as to the validity of a claim will ordinarily be made
within 10 working days of the date the claim is received by the
Insurer. Occasionally, however, certain questions may prevent the
Insurer from rendering a decision on the validity of the claim within
the specific 90-day period. If this occurs, the Named Fiduciary will
be notified of the reasons for the delay as well as the anticipated
length of the delay, in writing and through the office or person named
above. If further information or other material is required, the Named
Fiduciary will be so informed.
If the Named Fiduciary is dissatisfied with the denial of the claim or
the amount paid, he or she has 60 days from the date he or she
receives notice of a claim denial to file his or her objections to the
action taken by the Insurer. If the Named Fiduciary wishes to contest
a claim denial, he or she should notify the person or office named
above who will assist in making inquiry to the Insurer. All objections
to the Insurer's actions should be in writing and submitted to the
person or office named above for transmittal to the Insurer.
The Insurer will review the claim denial and render a decision on such
objections. The Named Fiduciary will be informed in writing of the
decision of the Insurer within 60 days of the date the claim request
is received by the Insurer. This decision will be final.
Once a decision has been rendered as to the distribution of proceeds
under the claim procedure described above as to the policy, claims for
any benefits due under the plan or the surrender of the policy may be
made in writing by the Corporation or the Corporation's designated
beneficiary and Insured (or his/her assignees) or their designated
beneficiary, as the case may be, to the Named Fiduciary.
In the event a claim for benefits is wholly or partly denied or
disputed, the Named Fiduciary shall, within a reasonable period of
time after receipt of the claim, notify the Corporation or the
Corporation's designated beneficiary and Insured (or his/her
assignees) or their designated beneficiary, as the case may be, of
such total or partial denial or dispute listing:
A. The specific reason or reasons for the denial or
dispute;
17
<PAGE> 19
B. Specific reference to pertinent plan provisions upon
which the denial or dispute is based;
C. A description of any additional information necessary
for the claimant to perfect the claim and an
explanation of why such material or information is
necessary, and;
D. An explanation of the plan's review procedure.
Within 60 days of denial or notice of claim under the plan, a claimant
may request that the claim be reviewed by the Named Fiduciary in a
full and fair hearing. A final decision shall be rendered by the Named
Fiduciary within 60 days after receipt of request for review.
XV. INSURANCE COMPANY NOT A PARTY TO AGREEMENT.
The Insurer shall not be deemed a party to this Agreement but will
respect the rights of the parties as herein developed upon receiving
an executed copy of this Agreement. Payment or other performance of
its contractual obligations in accordance with the policy provisions
shall fully discharge the Insurer for any and all liability.
XVI. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of
Florida.Furthermore, the parties hereby consent to the jurisdiction of
the State of Florida with respect to any litigation arising out of
this Agreement, and such litigation shall be initiated and maintained
in Polk County, Florida. Finally, the parties further consent and
agree that the Circuit Court in and for Polk County, Florida shall
have full legal and equitable jurisdiction over the parties.
XVII. NOTICES. All notices permitted or required to be given to any
party under this Agreement shall be in writing and shall be deemed to
have been given (a) in the case of delivery, when addressed to the
other party or parties as set forth below and delivered to said
address or addresses; (b) in the case of mailing, three (3) days after
the same has been mailed by certified mail, return receipt requested,
and deposited postage prepaid in the US mails, addressed to the other
party or parties at the address or the addresses as set forth below;
and (c) in any other case, when actually received
18
<PAGE> 20
by the other party. Any party to this Agreement may change the
address at which said notice is to be given by delivering notice of
such to the other parties to this Agreement in the manner set forth
herein.
As to Corporation:
First Commerce Banks of Florida, Inc.
Attn: Don Stephens
141 East Central Avenue
Winter Haven, Fl 33880
19
<PAGE> 21
As to Insured:
J.E. Stephens, Jr.
43 Lake Link Circle, SE
Winter Haven, Fl 33884
XVIII. ATTORNEY FEES AND COSTS. In the event a dispute arises
between the parties under this Agreement and suit is instituted, the
prevailing party shall be entitled to recover his or it's costs and
attorney fees from the non-prevailing party. As used herein, costs
and attorney fees include any costs and attorney fees in any appellate
proceeding.
XVIV. ENTIRE AGREEMENT. This Agreement contains the entire
agreement of the parties hereto and no representations, warranties,
covenants, or agreements, not embodied herein, oral or otherwise,
shall be of any force or effect.
XX. HEADINGS. The headings or titles of the sections or
paragraphs of this Agreement are for convenience only and are not a
part of this Agreement and shall not be used as an aid in the
construction of any provision hereof.
XXI. BENEFIT OF AGREEMENT. The Agreement shall inure to the
benefit of and be binding upon the Holding Company, the Bank, and the
Executive, and their successors, assigns, heirs, executors,
administrators, and legal representatives.
Executed at , this day of
---------------------- -----
, 1996.
------------
FIRST COMMERCE BANKS OF
FLORIDA, INC.
- ------------------------------- -------------------------------
Witness
By:
----------------------------
As its:
------------------------
- ------------------------------- -------------------------------
Witness J. E. Stephens, Jr.
20
<PAGE> 22
INSURER (LIC): LIBERTY LIFE INSURANCE COMPANY
---------------------------------------------------
POLICY #:
---------------------------------------------------
INSURED: J. E. STEPHENS, JR.
---------------------------------------------------
CORPORATION: FIRST COMMERCE BANKS OF FLORIDA, INC.
---------------------------------------------------
OWNER:
---------------------------------------------------
This Split Dollar Endorsement Agreement was recorded by LIC on
, 19 .
- ----------------------------------- ----
BY:
-----------------------
21
<PAGE> 23
FIRST COMMERCE BANKS OF FLORIDA, INC.
STOCK OPTION AGREEMENT
THIS AGREEMENT made this 1st day of September, 1996, by and between
FIRST COMMERCE BANKS OF FLORIDA, INC. (the "Company") and J. E. Stephens. Jr.
(the "Optionee").
1. Stock Option. Pursuant to the terms and provisions of the
Stock Option Plan approved by the Board of Directors of the Company on May 1,
1992 (the "Plan") and approved at the April 15, 1993 Annual meeting of the
Shareholders by the vote of the holders of a majority of the outstanding shares
of common stock of the Company within twelve months thereafter, the Company
hereby grants the Optionee, the Option to purchase an aggregate of 18,891
Shares of the .01 par value Common Stock of the Company at the price of S6.63
per share, subject in all respects to the terms and conditions of the Plan and
to the following terms and conditions:
(a) The Shares subject to the Option may be purchased on or before
November 30, 1997
In the event a "change of control" occurs before November 30,
1997, with respect to the company of which has entered into a
Consultant Agreement with Optionee, dated September 1, 1996,
all of the shares subject to the option may be purchased on or
after the effective date of the "change of control" provided
the Optionee is still participating in the Consultant
Agreement referenced above.
For purposes of this Agreement "Change of Control" means any of the following
events:
(i) The acquisition in a single transaction or in any
series of transactions by any persons acting directly
or indirectly or through or in concert with one or
more persons (other than a person who was an owner of
five percent (5%) or more of the outstanding Common
Stock on December 31, 1995 of Company or any of its
subsidiaries) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the
Securities Exchange Act of 1934) of 25% or more of
the combined voting power of the then outstanding
voting securities of the
22
<PAGE> 24
Company or any of its subsidiaries.
(ii) Merger or consolidation of the Company or any of its
subsidiaries which employs Optionee as a Consultant,
if following the merger or consolidation the
shareholders, the Company or any of its subsidiaries
prior to the merger or consolidation do not own more
than fifty percent of the outstanding voting
securities of the surviving entity immediately
following the merger or consolidation; or
(iii) The liquidation or dissolution of the Company or any
of its subsidiaries; or
(iv) The sale of all or substantially all of the assets of
the Company or any of its subsidiaries to any person
acting directly or indirectly or through or in
concert with one or more persons (other than a person
who was an owner of the five percent (5%) or more of
the outstanding Common Stock on December 31, 1995 or
a person at least fifty percent of the equity
interest (whether voting or non-voting) of which is
owned by the Company or any of its subsidiaries which
employs Optionee or by a person or persons who were
owners of five percent (5%) or more of the
outstanding Common Stock on December 31, 1995).
For purposes of this definition, the term "person" shall mean an individual,
corporation, partnership, trust, association, joint venture, pool, syndicate,
sole proprietorship, unicorporated organization or any other form of entity not
listed, except any regulatory authority having jurisdiction over the Company or
any of its subsidiaries.
(b) This Option is subject to the requirement that, if at any time
the Board of Directors of the Company shall determine in its
discretion, that the listing, registration, or qualification
of the Shares subject to the Option upon any securities
exchange or under any state or federal law, or the consent or
approval of any government regulatory body, is necessary or
desirable as a condition of, or in connection with, the
granting of the Option or the issue or purchase of the Shares
23
<PAGE> 25
thereunder, the Option may not be exercised in whole or in
part unless such rising, registration, qualification, consent
or approval shall have been effected or obtained free of any
conditions not acceptable to the Board of Directors.
(c) The option shall be exercised in whole. Written notice of the
election to exercise the option shall be given to the company
by the person exercising the option. The notice shall be
accompanied by payment to the company for the amount of the
purchase price. The payment shall be in cash and the company
shall direct the transfer agent to deliver to the Optionee a
certificate for the number of shares purchased.
(d) The Plan, a copy of which is attached, is incorporated herein
by reference and is made a part of this Agreement as if fully
set forth herein. The Plan shall control in the event of any
conflict between the Plan and this Agreement, and on such
matters as are not contained herein.
(e) The Optionee authorizes the Company to withhold in accordance
with applicable law from any cash compensation payable to the
Optionee any taxes required to be withheld by the Company
under federal, state or local law as a result of the exercise
of this Option and, if no such compensation is payable from
which such amount may be withheld the Optionee agrees to remit
to the Company at the time of any exercise of this Option any
taxes required to be withheld by the Company under federal,
state, or local law as a result of the exercise of this
Option.
2. Notices. Each notice relating to this Agreement shall be in
writing and delivered in person or by registered or certified mail, and, if
given to the Company, at its office at First Commerce Bank's of Florida, Inc.,
141 East Central Avenue, Winter Haven, FL 33880. Attention of the Secretary,
and, if given to the Optionee or other person or persons then entitled to
exercise the Option, at the Optionee's address stated below. Either party may
change the address to which such notices are to be given by notice in writing
to the other in accordance with the terms hereof.
24
<PAGE> 26
J.E. Stephens, Jr.
43 Lake Link Circle, SE
Winter Haven, F1 33884
3. Governing Law. This Agreement shall be governed by the laws of
the State of Florida.
4. Successors in Interest. This Agreement shall inure to the
benefit of and be binding upon each successor and assign of the Company and
upon all permitted successors and assigns of Optionee.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
FIRST COMMERCE BANK'S OF
FLORIDA, INC.
- -------------------------------- --------------------------------
OPTIONEE By: President
--------------------------------
By: Secretary
25
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,765
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<FED-FUNDS-SOLD> 3,050
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<INVESTMENTS-HELD-FOR-SALE> 23,057
<INVESTMENTS-CARRYING> 1,550
<INVESTMENTS-MARKET> 1,539
<LOANS> 70,698
<ALLOWANCE> 1,699
<TOTAL-ASSETS> 104,628
<DEPOSITS> 93,125
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0
0
<COMMON> 16
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<INTEREST-DEPOSIT> 2,719
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<INTEREST-INCOME-NET> 4,046
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<INCOME-PRETAX> 217
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<NET-INCOME> 152
<EPS-PRIMARY> .09
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<YIELD-ACTUAL> 5.28
<LOANS-NON> 3,352
<LOANS-PAST> 0
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<ALLOWANCE-OPEN> 1,195
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<ALLOWANCE-CLOSE> 1,699
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