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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
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.
(Name of Small Business Issuer 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)
Issuer's telephone number, including area code: (941) 299-6072
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class)
Check whether the issuer has (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the issuer was required to file such
reports), and (2) been subject to such filing requirements for the past 90
days. YES X NO
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Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
----
The issuer's revenues for 1996 were $8,957,000
The aggregate market value of the Common Stock held by non-affiliates of
the issuer is $11,100,159, based on the price at which shares of common stock
were sold on December 31, 1996.
As of March 26, 1997, there were issued and outstanding 1,585,737 shares of
the issuer's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
1. PORTIONS OF THE 1996 ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED
DECEMBER 31, 1996 ARE INCORPORATED INTO PART II, ITEMS 5 THROUGH 8 OF THIS
ANNUAL REPORT ON FORM 10-KSB.
2. PORTIONS OF THE PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 21, 1997 TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO REGULATION 14A WITHIN 120 DAYS OF THE ISSUER'S FISCAL
YEAR END ARE INCORPORATED INTO PART III, ITEMS 10 THROUGH 13 OF THIS ANNUAL
REPORT ON FORM 10-KSB.
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TABLE OF CONTENTS
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Part I
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Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
FSB/Osceola Sale and FSB/CBC Merger . . . . . . . . . . . . . . . . . . . . . . 2
Deposit Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Lending Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
FSB/Osceola Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Supervision and Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Industry Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Statistical Profile and Other Financial Data . . . . . . . . . . . . . . . . . . 13
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Part II
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Item 5. Market for the Registrant's Common
Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . 15
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 15
Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 8. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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Part III
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Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act . . . . . . . . . . . . . . . 17
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 11. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 12. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
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PART I
ITEM 1. BUSINESS
GENERAL
First Commerce Banks of Florida, Inc. ("FCB") was incorporated under the
laws of the State of Florida on March 28, 1984 under the name First Sterling
Bancshares, Inc. ("FSB"). On August 31, 1995, FSB closed the merger of
Commerce Bank Corporation ("CBC") with and into FSB (the "FSB/CBC Merger").
Upon effectiveness of the FSB/CBC Merger, the corporate name of FSB was changed
to First Commerce Banks of Florida, Inc. ("FCB"). FCB is a registered bank
holding company under the Bank Holding Company Act of 1956, as amended (the
"BHC Act"), and owns 99.7% of the voting shares of First Commerce Bank of Polk
County ("First Commerce/Polk County").
First Commerce/Polk County commenced operations in 1982 under the name
First Sterling Bank. Upon the effectiveness of the FSB/CBC Merger, Commerce
Bank of Central Florida (a subsidiary of CBC) was merged with and into First
Sterling Bank and the name of First Sterling Bank was changed to First Commerce
Bank of Polk County. First Commerce/Polk County is a state banking corporation
subject to regulation by the Federal Deposit Insurance Corporation ("FDIC") and
the Florida Department of Banking and Finance (the "Florida Department").
First Commerce/Polk County's operations are conducted from its main office
located in Winter Haven, Florida, a branch office located in Auburndale,
Florida, two branch offices located in Lakeland, Florida, and a branch office
located in Polk City, Florida.
On March 24, 1997, FCB entered into an Agreement and Plan of Merger with
Colonial BancGroup, Inc. ("Colonial") providing for the acquisition by Colonial
of FCB through the merger (the "Merger") of FCB with and into Colonial and,
following the Merger, the merger of First Commerce/Polk County with Colonial
Bank, a subsidiary of Colonial. In the Merger, the outstanding shares of FCB
Common Stock would be converted into shares of Colonial common stock calculated
in accordance with, and subject to the terms and conditions of, the Agreement
and Plan of Merger. The actual number of shares of Colonial common stock to be
issued in the transaction will depend upon the market value of such common
stock prior to the closing of the Merger, subject to maximum and minimum
amounts to be issued. The closing of the Merger is subject to a number of
conditions, including approval of the Merger by the bank regulatory agencies
and the First Commerce shareholders at a special meeting to be held either in
the second or third quarter of 1997.
First Commerce/Polk County provides a range of consumer and commercial
banking services to individuals, businesses and industries. The basic services
offered by First Commerce/Polk County include: demand interest bearing and
noninterest bearing accounts, money market deposit accounts, NOW accounts, time
deposits, safe deposit services, credit cards, cash management, direct
deposits, notary services, money orders, night depository, travelers' checks,
cashier's
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checks, domestic collections, savings bonds, bank drafts, drive-in tellers, and
banking by mail. In addition, First Commerce/Polk County makes secured and
unsecured commercial and real estate loans and issues stand-by letters of
credit. First Commerce/Polk County provides automated teller machine ("ATM")
cards, as a part of the HONOR ATM network, thereby permitting customers to
utilize the convenience of larger ATM networks. First Commerce/Polk County does
not have trust powers and, accordingly, no trust services are provided.
The revenues of First Commerce/Polk County are primarily derived from
interest on, and fees received in connection with, real estate and other loans,
and from interest and dividends from investment and mortgage-backed securities,
and short-term investments. The principal sources of funds for First
Commerce/Polk County's lending activities are its deposits, repayment of loans,
and the sale and maturity of investment securities. The principal expenses of
First Commerce/Polk County are the interest paid on deposits, and operating and
general administrative expenses.
As is the case with banking institutions generally, First Commerce/Polk
County's operations are materially and significantly influenced by general
economic conditions and by related monetary and fiscal policies of financial
institution regulatory agencies, including the Board of Governors of the
Federal Reserve System (the "Federal Reserve"), the FDIC, and the Florida
Department. Deposit flows and costs of funds are influenced by interest rates
on competing investments and general market rates of interest. Lending
activities are affected by the demand for financing of real estate and other
types of loans, which in turn is affected by the interest rates at which such
financing may be offered and other factors affecting local demand and
availability of funds. First Commerce/Polk County faces strong competition in
the attraction of deposits (its primary source of lendable funds) and in the
origination of loans. See "Competition."
As of December 31, 1996, FCB's primary assets were (i) its ownership of
First Commerce/Polk County's stock; (ii) $887,000 of cash on deposit with First
Commerce/Polk County; and (iii) certain loans purchased from First Sterling Bank
of Osceola County (see "FSB/Osceola Sale and FSB/CBC Merger"). At December 31,
1996, FCB had total consolidated assets of $106 million, total consolidated
deposits of $94.7 million, and total consolidated stockholders' equity of $10.6
million. The principal executive offices of FCB and First Commerce/Polk County
are located at 141 Central Avenue East, Winter Haven, Florida 33880. The
telephone number at such office is (941) 299-6072.
FSB/OSCEOLA SALE AND FSB/CBC MERGER
FSB/Osceola Sale. On May 1, 1995, FCB sold the 240,000 shares of common
stock of First Sterling Bank of Osceola County ("AFSB/Osceola") (which
constituted 80% of the outstanding shares of FSB/Osceola stock) owned by FCB to
certain unaffiliated individuals. For additional information regarding the
sale by FCB of the FSB/Osceola shares see "FSB/Osceola Sale."
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FSB/CBC Merger. On August 31, 1995, the FSB/CBC Merger closed, resulting
in CBC merging with and into FSB and FSB changing its name to First Commerce
Banks of Florida, Inc. 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. In the FSB/CBC Merger, the outstanding shares of CBC common stock
were converted into an aggregate of 746,704 shares of FCB common stock, par
value $.01 per share (the "FCB Common Stock"). The FCB/CBC Merger has been
accounted for as a pooling of interests and, accordingly, all amounts in this
Form 10-KSB for FCB prior to the FSB/CBC Merger have been restated to include
the combined results of operations, financial positions and cash flows of FSB
and CBC.
DEPOSIT ACTIVITIES
Deposits are the major source of First Commerce/Polk County's funds for
lending and other investment activities. First Commerce/Polk County considers
the majority of its regular savings, demand, NOW and money market deposit
accounts to be core deposits. These accounts comprised 48.6% of First
Commerce/Polk County's total deposits at December 31, 1996. At December 31,
1996, 51.4% of First Commerce/Polk County's deposits were certificates of
deposit. Generally, First Commerce/Polk County attempts to maintain the rates
paid on its deposits at a competitive level. Time deposits of $100,000 and
over made up 6.3% of First Commerce/Polk County's total deposits at December
31, 1996. The majority of the deposits of First Commerce/Polk County are
generated from Polk County. First Commerce/Polk County does not accept
brokered deposits. For additional information on First Commerce/Polk County's
deposit activities, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Financial Condition -- Deposit
Activities".
LENDING ACTIVITIES
First Commerce/Polk County offers a range of lending services, including
real estate, consumer and commercial loans, to individuals and small businesses
and other organizations that are located in or conduct a substantial portion of
their business in First Commerce/Polk County's market area. First
Commerce/Polk County's loans receivable, net at December 31, 1996 were $66.4
million, or 62.6% of total assets. The interest rates charged on loans vary
with the degree of risk, maturity, and amount of the loan, and are further
subject to competitive pressures, money market rates, availability of funds,
and government regulations. First Commerce/Polk County has no foreign loans or
loans for highly leveraged transactions.
First Commerce/Polk County's loans are concentrated in three major areas:
real estate loans, commercial loans, and consumer loans. As of December 31,
1996, 69.6% of First Commerce/Polk County's loan portfolio consisted of loans
secured by mortgages on real estate
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and 20.1% of the loan portfolio consisted of commercial loans. At the same
date, 6.8% of First Commerce/Polk County's loan portfolio consisted of unsecured
loans.
First Commerce/Polk County's real estate loans are secured by mortgages
and consist primarily of loans to individuals and businesses for the purchase,
improvement of or investment in real estate and for the construction of
single-family residential units or the development of single-family residential
building lots. These real estate loans may be made at fixed- or variable-
interest rates. First Commerce/Polk County generally does not make
fixed-interest rate commercial real estate loans for terms exceeding five
years. Loans in excess of three years generally have adjustable-interest
rates. First Commerce/Polk County's residential real estate loans generally
are repayable in monthly installments based on up to a 30-year amortization
schedule with variable-interest rates.
First Commerce/Polk County's commercial loans include loans to individuals
and small-to-medium sized businesses located primarily in Polk County for
working capital, equipment purchases, and various other business purposes. A
majority of First Commerce/Polk County's commercial loans are secured by
equipment or similar assets, but these loans may also be made on an unsecured
basis. Commercial loans may be made at variable- or fixed-interest rates.
Commercial lines of credit are typically granted on a one-year basis, with loan
covenants and monetary thresholds. Other commercial loans with terms or
amortization schedules of longer than one year will normally carry interest
rates which vary with the prime lending rate and will become payable in full and
are generally refinanced in three to five years.
First Commerce/Polk County's consumer loan portfolio consists primarily of
loans to individuals for various consumer purposes, but includes some business
purpose loans which are payable on an installment basis. The majority of these
loans are for terms of less than five years and are secured by liens on various
personal assets of the borrowers, but consumer loans may also be made on an
unsecured basis. Consumer loans are made at fixed- and variable-interest
rates, and are often based on up to a five-year amortization schedule.
Loan originations are derived from a number of sources, including direct
solicitation by First Commerce/Polk County's loan officers, existing customers
and borrowers, advertising, walk-in customers and, in some instances, referrals
from brokers.
For additional information on First Commerce/Polk County's lending
activities, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Financial Condition -- Lending Activities," and
"-- Asset Quality."
INVESTMENTS
First Commerce/Polk County invests a portion of its assets in U.S.
Treasury and U.S. Government agency obligations, FHLMC and FNMA
mortgage-backed securities, state, county
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and municipal obligations, certificates of deposit, collateralized mortgage
obligations ("CMO's"), and federal funds sold. First Commerce/Polk County's
investments are managed in relation to loan demand and deposit growth, and are
generally used to provide for the investment of excess funds at reduced yields
and risks relative to yields and risks of the loan portfolio, while providing
liquidity to fund increases in loan demand or to offset fluctuations in
deposits. For additional information relating to FCB's investments, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Condition -- Investment Securities" and Note 5 to the
Notes to FCB's Consolidated Financial Statements.
FSB/OSCEOLA SALE
On May 1, 1995, FCB sold all of the 240,000 shares of common stock of
FSB/Osceola (which constituted 80% of the outstanding shares of FSB/Osceola
stock) owned by FCB to certain unaffiliated individuals. FCB decided to sell
FSB/Osceola because (i) FSB/Osceola was located in a different county and
market area than FCB's principal operations in Polk County, Florida; (ii)
FSB/Osceola was too small to compete effectively in Osceola County, Florida,
which comprises the lower portion of the Orlando Metropolitan Statistical Area;
(iii) although FSB/Osceola had an adequate capital-to-assets ratio (because of
its small asset size), the low total capital left FSB/Osceola unduly exposed to
credit and economic risks, limiting its lending capabilities, and made
branching and expansion very difficult from a regulatory standpoint; and (iv)
FCB's Board of Directors was not inclined to increase the capital of
FSB/Osceola, preferring to allocate any capital that might be available to
support First Commerce/Polk County's operations in Polk County.
The purchasers of FSB/Osceola paid FCB a cash purchase price of $1.8
million, or $7.69 per share, which was approximately equal to 1.45 times the
adjusted shareholders' equity per share of FSB/Osceola. The terms of the
transaction were the result of arms-length negotiations between FCB and the
purchasers. The purchase price allowed FCB to achieve a profit on the sale,
due to the premium over the book value being paid by the purchasers. At the
closing of the sale, FSB/Osceola also issued to FCB warrants to purchase 24,000
shares of FSB/Osceola common stock exercisable over a five-year period at an
exercise price of $5.30 per share. No value for the warrants issued by
FSB/Osceola to FCB is carried on FCB's balance sheet.
The terms of the agreement for the sale by FCB of the FSB/Osceola shares
to the purchasers provided that FCB would repurchase FSB/Osceola's other real
estate owned and classified loans (which the purchasers did not want
FSB/Osceola to retain as a result of the sale) and that First Commerce/Polk
County would purchase substantially all of the FSB/Osceola loans in several
installments over a one-year period. During 1995, $4.6 million of FSB/Osceola
loans were purchased ($4.4 million by First Commerce/Polk County and $269,000
by FCB), and during 1996, $1.9 million of FSB/Osceola loans were purchased
($1.4 million by First Commerce/Polk County and $450,000 by FCB). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Sale of FSB/Osceola."
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SUPERVISION AND REGULATION
Bank Holding Company Regulation. FCB is a one-bank holding company,
registered with the Federal Reserve under the BHC Act. As such, FCB is subject
to the supervision, examination, and reporting requirements of the BHC Act and
the regulations of the Federal Reserve. FCB is required to furnish to the
Federal Reserve an annual report of its operations at the end of each fiscal
year, and such additional information as the Federal Reserve may require
pursuant to the BHC Act.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before (i) it may acquire direct or indirect
ownership or control of any voting shares of any bank if, after such
acquisition, the bank holding company will directly or indirectly own or
control more than 5% of the total voting shares of the bank, (ii) it or any of
its subsidiaries, other than a bank, may acquire all or substantially all of
the assets of the bank, or (iii) it may merge or consolidate with any other
bank holding company.
The BHC Act further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business
of banking in any section of the United States, or the effect of which may be
substantially to lessen competition or to tend to create a monopoly in any
section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to
consider the financial and managerial resources and future prospects of the
bank holding companies and banks concerned and the convenience and needs of the
community to be served. Consideration of financial resources generally focuses
on capital adequacy and consideration of convenience and needs issues includes
the parties' performance under the Community Reinvestment Act of 1977 (the
"CRA"), both of which are discussed below.
The BHC Act generally prohibits FCB from engaging in activities other than
banking or managing or controlling banks or other permissible subsidiaries and
from acquiring or retaining direct or indirect control of any company engaged
in any activities other than those activities determined by the Federal Reserve
to be so closely related to banking or managing or controlling banks as to be a
proper incident thereto. In determining whether a particular activity is
permissible, the Federal Reserve must consider whether the performance of such
an activity reasonably can be expected to produce benefits to the public, such
as greater convenience, increased competition, or gains in efficiency, that
outweigh possible adverse effects, such as undue concentration of resources,
decreased or unfair competition, conflicts of interests, or unsound banking
practices. For example, factoring accounts receivable, acquiring or servicing
loans, leasing personal property, conducting discount securities brokerage
activities, performing certain data processing services, acting as agent or
broker in selling credit life insurance and certain other types of insurance in
connection with credit transactions, and performing certain insurance
underwriting activities all have been determined by the Federal Reserve to be
permissible activities
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of bank holding companies. Despite prior approval, the Federal Reserve has the
power to order a bank holding company or its subsidiaries to terminate any
activity or to terminate its ownership or control of any subsidiary when it has
reasonable cause to believe that continuation of such activity or such ownership
or control constitutes a serious risk to the financial safety, soundness, or
stability of any bank subsidiary of that bank holding company.
Banks are subject to the provisions of the CRA. Under the terms of the
CRA, the appropriate federal bank regulatory agency is required, in connection
with its examination of a bank, to assess such bank's record in meeting the
credit needs of the community served by that bank, including low- and
moderate-income neighborhoods. The regulatory agency's assessment of the
bank's record is made available to the public. Further, such assessment is
required of any bank which has applied to (i) charter a national bank, (ii)
obtain deposit insurance coverage for a newly chartered institution, (iii)
establish a new branch office that will accept deposits, (iv) relocate an
office, or (v) merge or consolidate with, or acquire the assets or assume the
liabilities of, a federally regulated financial institution. In the case of a
bank holding company applying for approval to acquire a bank or other bank
holding company, the Federal Reserve will assess the record of each subsidiary
bank of the applicant bank holding company, and such records may be the basis
for denying the application.
Bank Regulation. First Commerce/Polk County is chartered under the laws
of the State of Florida and its deposits are insured by the FDIC to the extent
provided by law. First Commerce/Polk County is subject to comprehensive
regulation, examination and supervision by the Florida Department and the FDIC
and to other laws and regulations applicable to banks. Such regulations
include limitations on loans to a single borrower and to its directors,
officers and employees; restrictions on the opening and closing of branch
offices; the maintenance of required capital and liquidity ratios; the granting
of credit under equal and fair conditions; and the disclosure of the costs and
terms of such credit. First Commerce/Polk County is examined periodically by
both the Florida Department and the FDIC, to each of whom it submits periodic
reports regarding its financial condition and other matters. Both the Florida
Department and the FDIC have a broad range of powers to enforce regulations
under their respective jurisdiction, and to take discretionary actions
determined to be for the protection of the safety and soundness of First
Commerce/Polk County, including the institution of cease and desist orders and
the removal of directors and officers. These regulatory agencies also have the
authority to approve or disapprove mergers, consolidations, and similar
corporate actions.
Under federal law, federally insured banks are subject, with certain
exceptions, to certain restrictions on any extension of credit to their parent
holding companies or other affiliates, on investment in the stock or other
securities of affiliates, and on the taking of such stock or securities as
collateral from any borrower. In addition, such banks are prohibited from
engaging in certain tie-in arrangements in connection with any extension of
credit or the providing of any property or service.
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In 1989, the Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ("FIRREA") was enacted. FIRREA contains major regulatory reforms,
stronger capital standards for savings and loan associations and stronger civil
and criminal enforcement provisions. FIRREA also provides that a depository
institution insured by the FDIC can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC after August 9, 1989 in
connection with (i) the default of a commonly controlled FDIC insured
depository institution, or (ii) any assistance provided by the FDIC to a
commonly controlled FDIC insured institution in danger of default.
In 1991, the FDIC Improvement Act of 1991 ("FDICIA") was enacted. FDICIA
made a number of reforms addressing the safety and soundness of deposit
insurance funds, supervision, accounting, and prompt regulatory action, and
also implements other regulatory improvements. Annual full-scope, on-site
examinations are required of all insured depository institutions. The cost for
conducting an examination of an institution may be assessed to that
institution, with special consideration given to affiliates and any penalties
imposed for failure to provide information requested. Insured state banks also
are precluded from engaging as principal in any type of activity that is
impermissible for a national bank, including activities relating to insurance
and equity investments. FDICIA also recodified current law restricting
extensions of credit to insiders under the Federal Reserve Act.
Dividends. Dividends from First Commerce/Polk County constitute the
primary source of funds for dividends to be paid by FCB. There are various
statutory and contractual 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 also have the general authority to limit the
dividends paid by insured banks and bank holding companies if such payment may
be deemed to constitute an unsafe and unsound practice. Under Florida law
applicable to banks and subject to certain limitations, after charging off bad
debts, depreciation and other worthless assets, if any, and making provisions
for reasonably anticipated future losses on loans and other assets, the board
of directors of a bank may declare a dividend of so much of the bank's
aggregate net profits for the current year combined with its retained earnings
(if any) for the preceding two years as the board shall deem to be appropriate
and, with the approval of the Florida Department, may declare a dividend from
retained earnings for prior years. Before declaring a dividend, a bank must
carry 20% of its net profits for any preceding period as is covered by the
dividend to its surplus fund, until the surplus fund is at least equal to the
amount of its common stock then issued and outstanding. No dividends may be
paid at any time when a bank's net income from the preceding two years is a
loss or which would cause the capital accounts of the bank to fall below the
minimum amount required by law, regulation, order or any written agreement with
the Florida Department or a federal regulatory agency. Florida law applicable
to companies (including FCB) provides that dividends may be declared and paid
only if, after giving it effect, (i) the company is able to pay its debts as
they become due in the usual course of business, and (ii) the company's total
assets would be greater than the sum of its total liabilities plus the amount
that would be needed if the company were to be dissolved at the time of the
dividend to satisfy the preferential
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rights upon dissolution of shareholders whose preferential rights are superior
to those receiving the dividend.
Effect of Governmental Policies. The earnings and business of FCB and
First Commerce/Polk County are effected by the policies of various regulatory
authorities of the United States, especially the Federal Reserve. The Federal
Reserve, among other things, regulates the supply of credit and deals with
general economic conditions within the United States. The instruments of
monetary policy employed by the Federal Reserve for those purposes influence in
various ways the overall level of investments, loans, other extensions of
credits, and deposits, and the interest rates paid on liabilities and received
on assets.
Enforcement Powers. Congress has provided the federal bank regulatory
agencies with an array of powers to enforce laws, rules, regulations and
orders. Among other things, the agencies may require that institutions cease
and desist from certain activities, may preclude persons from participating in
the affairs of insured depository institutions, may suspend or remove deposit
insurance, and may impose civil money penalties against institution-affiliated
parties for certain violations.
Maximum Legal Interest Rates. Like the laws of many states, Florida law
contains provisions on interest rates that may be charged by banks and other
lenders on certain types of loans. Numerous exceptions exist to the general
interest limitations imposed by Florida law. The relative importance of these
interest limitation laws to the financial operations of First Commerce/Polk
County will vary from time to time, depending on a number of factors, including
conditions in the money markets, the costs and availability of funds, and
prevailing interest rates.
Bank Branching. Banks in Florida are permitted to branch state wide.
Such branch banking by Florida banks, however, is subject to prior approval by
the Florida Department and the FDIC. Any such approval would take into
consideration several factors, including the bank's level of capital, the
prospects and economics of the proposed branch office, and other conditions
deemed relevant by the Florida Department and the FDIC for purposes of
determining whether approval should be granted to open a branch office.
Change of Control. Federal law restricts the amount of voting stock of a
bank holding company and a bank that a person may acquire without the prior
approval of banking regulators. The overall effect of such laws is to make it
more difficult to acquire a bank holding company and a bank by tender offer or
similar means than it might be to acquire control of another type of
corporation. Consequently, shareholders of FCB may be less likely to benefit
from the rapid increases in stock prices that may result from tender offers or
similar efforts to acquire control of other companies. Federal law also
imposes restrictions on acquisitions of stock in a bank holding company and a
state bank. Under the federal Change in Bank Control Act and the regulations
thereunder, a person or group must give advance notice to the Federal Reserve
before acquiring control of any bank holding company and the FDIC and the
Florida Department before acquiring control of any state nonmember bank (such
as First Commerce/Polk County). Upon receipt of such
9
<PAGE> 13
notice, the Federal Reserve and the FDIC, as the case may be, may approve or
disapprove the acquisition. The Change in Bank Control Act creates a rebuttable
presumption of control if a member or group acquires a certain percentage or
more of a bank holding company's or state bank's voting stock, or if one or more
other control factors set forth in the Act are present.
Insurance of Deposits. First Commerce/Polk County's deposit accounts are
insured by the FDIC up to a maximum of $100,000 per insured depositor. The
FDIC issues regulations, conducts periodic examinations, requires the filing of
reports and generally supervises the operations of its insured banks. Any
insured bank which is not operated in accordance with or does not conform to
FDIC regulations, policies and directives may be sanctioned for non-compliance.
Proceedings may be instituted against any insured bank or any director,
officer, or employee of such bank engaging in unsafe and unsound practices,
including the violation of applicable laws and regulations. The FDIC has the
authority to terminate insurance of accounts pursuant to procedures established
for that purpose.
Capital Requirements. The federal bank regulatory authorities have
adopted risk-based capital guidelines for banks and bank holding companies that
are designed to make regulatory capital requirements more sensitive to
differences in risk profile among banks and bank holding companies. The
resulting capital ratios represent qualifying capital as a percentage of total
risk-weighted assets and off-balance sheet items. The guidelines are minimums,
and the federal regulators have noted that banks and bank holding companies
contemplating significant expansion programs should not allow expansion to
diminish their capital ratios and should maintain all ratios well in excess of
the minimums. The current guidelines require all bank holding companies and
federally-regulated banks to maintain a minimum risk-based total capital ratio
equal to 8%, of which at least 4% must be Tier 1 capital. Tier 1 capital
includes common stockholders' equity, qualifying perpetual preferred stock, and
minority interests in equity accounts of consolidated subsidiaries, but
excludes goodwill and most other intangibles and excludes the allowance for
loan and lease losses. Tier 2 capital includes the excess of any preferred
stock not included in Tier 1 capital, mandatory convertible securities, hybrid
capital instruments, subordinated debt and intermediate term-preferred stock,
and general reserves for loan and lease losses up to 1.25% of risk-weighted
assets. At December 31, 1996, (i) FCB's Tier 1 and total risk-based capital
ratios were 13.14% and 14.94%, respectively, and (ii) First Commerce/Polk
County's Tier 1 and total risk-based capital ratios were 11.66% and 13.43%,
respectively.
FDICIA contains "prompt corrective action" provisions pursuant to which
banks are to be classified into one of five categories based upon capital
adequacy, ranging from "well capitalized" to "critically undercapitalized" and
which require (subject to certain exceptions) the appropriate federal banking
agency to take prompt corrective action with respect to an institution which
becomes "significantly undercapitalized" or "critically undercapitalized".
The FDIC has issued regulations to implement the "prompt corrective
action" provisions of FDICIA. In general, the regulations define the five
capital categories as follows: (i) an institution is "well capitalized" if it
has a total risk-based capital ratio of 10% or greater, has a Tier 1 risk-
10
<PAGE> 14
based capital ratio of 6% or greater, has a leverage ratio of 5% or greater and
is not subject to any written capital order or directive to meet and maintain a
specific capital level for any capital measures; (ii) an institution is
"adequately capitalized" if it has a total risk-based capital ratio of 8% or
greater, has a Tier 1 risk-based capital ratio of 4% or greater, and has a
leverage ratio of 4% or greater; (iii) an institution is "undercapitalized" if
it has a total risk-based capital ratio of less than 8%, has a Tier 1 risk-based
capital ratio that is less than 4% or has a leverage ratio that is less than 4%;
(iv) an institution is "significantly undercapitalized" if it has a total
risk-based capital ratio that is less than 6%, a Tier 1 risk-based capital ratio
that is less than 3% or a leverage ratio that is less than 3%; and (v) an
institution is "critically undercapitalized" if its "tangible equity" is equal
to or less than 2% of its total assets. The FDIC also, after an opportunity for
a hearing, has authority to downgrade an institution from "well capitalized" to
"adequately capitalized" or to subject an "adequately capitalized" or
"under-capitalized" institution to the supervisory actions applicable to the
next lower category, for supervisory concerns. As of December 31, 1996, First
Commerce/Polk County had a total risk-based capital ratio of 13.43%, a Tier 1
risk-based capital ratio of 11.66%, and a leverage ratio of 9.37%.
Additionally, FDICIA requires, among other things, that (i) only a "well
capitalized" depository institution may accept brokered deposits without prior
regulatory approval and (ii) the appropriate federal banking agency annually
examine all insured depository institutions, with some exceptions for small,
"well capitalized" institutions and state-chartered institutions examined by
state regulators. FDICIA also contains a number of consumer banking
provisions, including disclosure requirements and substantive contractual
limitations with respect to deposit accounts.
Interstate Banking. The Reigle-Neal Interstate Banking and Branching
Efficiency Act of 1994 provides for nationwide interstate banking and
branching. Under the law, interstate acquisitions of banks or bank holding
companies in any state by bank holding companies in any other state is
permissible subject to certain limitations. Interstate branching and
consolidation of existing bank subsidiaries in different states will be
permissible beginning June 1, 1997. The Florida legislature also has enacted a
law that allows out-of-state bank holding companies (located in states that
allow Florida bank holding companies to acquire banks and bank holding
companies in that state) to acquire Florida banks and Florida bank holding
companies. The law essentially provides for out-of-state entry by acquisition
only (and not by interstate branching) and requires the acquired Florida bank
to have been in existence for at least two years.
INDUSTRY RESTRUCTURING
For well over a decade, the banking industry has been undergoing a
restructuring process which is anticipated to continue. The restructuring has
been caused by product and technological innovations in the financial services
industry, deregulation of interest rates, and increased competition from
foreign and nontraditional banking competitors, and has been characterized
principally by the gradual erosion of geographic barriers to intrastate and
interstate banking and the gradual expansion of investment and lending
authorities for bank institutions.
11
<PAGE> 15
Members of Congress and the administration have indicated their intention
to consider additional legislation designed to institute reforms to promote the
viability of the industry. Certain of the proposals would revise the federal
regulatory structure for insured depository institutions; others would affect
the nature of products, services, and activities that bank holding companies
and their subsidiaries may offer or engage in, and the types of entities that
may control depository institutions. There can be no assurance as to whether
or in what form any such proposed legislation might be enacted, or what impact
such legislation might have upon FCB.
COMPETITION
FCB encounters strong competition both in making loans and in attracting
deposits. The deregulation of the banking industry and the widespread
enactment of state laws which permit multi-bank holding companies as well as an
increasing level of interstate banking have created a highly competitive
environment for commercial banking. In one or more aspects of its business,
First Commerce/Polk County competes with other commercial banks, savings and
loan associations, credit unions, finance companies, mutual funds, insurance
companies, brokerage and investment banking companies, and other financial
intermediaries. Most of these competitors, some of which are affiliated with
bank holding companies, have substantially greater resources and lending limits,
and may offer certain services that First Commerce/Polk County does not
currently provide. In addition, many of First Commerce/Polk County's non-bank
competitors are not subject to the same extensive federal regulations that
govern bank holding companies and federally insured banks. Recent federal and
state legislation has heightened the competitive environment in which financial
institutions must conduct their business, and the potential for competition
among financial institutions of all types has increased significantly.
To compete, First Commerce/Polk County relies upon specialized services,
responsive handling of customer needs, and personal contacts by its officers,
directors, and staff. Large multi-branch banking competitors tend to compete
primarily by rate and the number and location of branches while smaller,
independent financial institutions tend to compete primarily by rate and
personal service.
EMPLOYEES
As of December 31, 1996, FCB employed 61 full-time employees and one
part-time employee. The employees are not represented by a collective
bargaining unit. FCB and First Commerce/Polk County consider relations with
employees to be good.
12
<PAGE> 16
STATISTICAL PROFILE AND OTHER FINANCIAL DATA
For additional statistical, financial and other information regarding FCB
and First Commerce/Polk County, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
ITEM 2. PROPERTIES
The main office of FCB and First Commerce/Polk County is located at 141
Central Avenue East, Winter Haven, Florida 33880, in a four story building of
approximately 28,065 square feet, approximately 17,372 of which is used by First
Commerce/Polk County and leased by First Commerce/Polk County from TBG
Properties, Inc., a corporation in which eight of the First Commerce/Polk County
directors (two of whom also serve as FCB directors) are shareholders. The lease
agreement, with renewal options, expires in 2004. Under the lease agreement,
First Commerce/Polk County has the option to purchase the building during the
term of the lease for a purchase price equal to the fair market value as
determined by a mutually agreed upon M.A.I. appraiser and, if the parties cannot
mutually agree upon an appraiser, then by two M.A.I. appraisers (one selected by
TBG Properties, Inc. and one selected by First Commerce/Polk County, with
one-half of the costs of the appraisals to be paid by First Commerce/Polk
County). The purchase price will equal the average of the two appraisals if
they do not vary by more than 10% and, if they do, the two appraisers will
select a third M.A.I. appraiser, and the purchase price will equal the average
of the three appraisals. Either party has the right not to proceed with the
purchase and sale if it so notifies the other within 10 days after the amount of
the purchase price has been determined pursuant to the appraisal process.
First Commerce/Polk County also has branch offices located at 3660
Havendale Boulevard, Auburndale, Florida 33823, in a two-story building of
approximately 7,500 square feet which is owned by First Commerce/Polk County;
at 2215 South Combee Road, Lakeland, Florida 33801 in a one story building of
approximately 2,500 square feet which is owned by First Commerce/Polk County;
at 3900 South Florida Avenue, Lakeland, Florida 33813 in a one story building
of approximately 1,100 square feet which is leased by First Commerce/Polk
County (under a month to month lease); and at 212 North Commonwealth Avenue,
Polk City, Florida 33868 in a one story building of approximately 1,300 square
feet which is owned by First Commerce/Polk County.
ITEM 3. LEGAL PROCEEDINGS
FCB and First Commerce/Polk County are periodically parties to or
otherwise involved in legal proceedings arising in the normal course of
business, such as claims to enforce liens, claims involving the making and
servicing of real property loans, and other issues incident to their respective
businesses. Management does not believe that there is any pending or
threatened
13
<PAGE> 17
proceeding against FCB or First Commerce/Polk County which, if determined
adversely, would have a material adverse effect on FCB's consolidated financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of FCB shareholders during the fourth
quarter of the year ended December 31, 1996.
14
<PAGE> 18
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
STOCK TRADING INFORMATION
The shares of FCB Common Stock are not actively traded, and such trading
activity, as it occurs, takes place in privately negotiated transactions.
There is no established public trading market for the shares of FCB Common
Stock. Management of FCB is aware of certain transactions in its shares that
have occurred since January 1, 1995, although the actual trading prices of all
stock transactions are not known.
The following sets forth the high and low trading prices for certain
trades of FCB Common Stock that occurred in transactions known to FCB
management in the respective periods during 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------------------------- -------------------------
HIGH LOW SHARES HIGH LOW SHARES
---- --- ------ ---- --- ------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $ -- $ -- -- $ -- $ -- --
2nd Quarter $8.00 $7.00 7,044 $7.00 $7.00 5,100
3rd Quarter $7.00 $5.50 810 $8.03 $7.00 33,060
4th Quarter $7.00 $7.00 4,520 $9.00 $9.00 1,600
</TABLE>
FCB had approximately 590 shareholders of record as of February 28, 1997.
DIVIDENDS
FCB has not paid any cash dividends in the past. FCB does not anticipate
that it will pay cash dividends to its shareholders in the foreseeable future.
Further, the Agreement and Plan of Merger between FCB and Colonial BancGroup,
Inc. precludes FCB from paying cash dividends to its shareholders pending the
closing of such transaction. See "Business - General."
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information contained under this section "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Annual Report
is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements included in the 1996 Annual Report to
Shareholders are incorporated herein by reference:
15
<PAGE> 19
1. The consolidated financial statements, together with the report
thereon of Carter, Belcourt & Atkinson, P.A. dated February 14, 1997.
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations and related statistical information.
With the exception of the aforementioned information and the information
incorporated in Items 5, 6, 7, and 8, the 1996 Annual Report to Shareholders is
not to be deemed filed as part of this Form 10-KSB Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
16
<PAGE> 20
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The information contained under the sections "Directors" and "Executive
Officers" under "Election of Directors" and the section "Section 16(a)
Reporting Requirements" in the registrant's definitive Proxy Statement for the
Annual Meeting of Shareholders to be held on April 21, 1997, to be filed with
the SEC pursuant to Regulation 14A within 120 days of the Registrant's fiscal
year ended (the "Proxy Statement"), is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The information contained in the sections captioned "Information About the
Board of Directors and Its Committees" and "Executive Compensation and
Benefits" under "Election of Directors" in the Proxy Statement, is incorporated
herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information contained in the sections captioned "Directors" and
"Management Stock Ownership" under "Election of Directors," in the Proxy
Statement, is incorporated herein by reference.
ITEM 12. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
1. FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Statements of Condition at December 31, 1996 and 1995
Consolidated Statements of Income for the years ended December 31,
1996 and 1995
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1996 and 1995
17
<PAGE> 21
Consolidated Statements of Cash Flows for the years ended December
31, 1996 and 1995
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted as the required information is
either inapplicable or included in the Notes to Consolidated
Financial Statements.
3. EXHIBITS
<TABLE>
<S> <C> <C>
3.1 - Restated Articles of Incorporation of First Commerce Banks of Florida, Inc. (Incorporated by
reference to Exhibit 3.2 to FCB's Registration Statement No. 33-91906 (the "Registration
Statement")).
3.2 - Amended and Restated Bylaws of First Commerce Banks of Florida, Inc. (Incorporated by
reference to Exhibit 3.2 to FCB's Annual Report on Form 10-KSB for the year ended December 31,
1995).
4.1 - Specimen Stock Certificate of First Commerce Banks of Florida, Inc. (Incorporated by reference
to Exhibit 4.2 to the Registration Statement).
10.1 - First Commerce Bank's, Inc. Director Stock Option Plan (Incorporated by reference to Exhibit
10.1 to the Registration Statement).*
10.2 - First Commerce Bank's, Inc. Officer Stock Option Plan (Incorporated by reference to
Exhibit 10.2 to the Registration Statement).*
10.3 - Executive Salary Continuation Agreement dated December 31, 1992 between First Commerce Bank of
Polk County and Robert W. Stickler, Jr. (Incorporated by reference to Exhibit 10.3 to the
Registration Statement).*
10.4 - Executive Salary Continuation Agreement dated December 31, 1992 between First Commerce Bank of
Polk County and J. Jeffrey Seale (Incorporated by reference to Exhibit 10.3 to the Registration
Statement).*
10.5 - Lease Agreement dated January 1, 1995 between TBG Properties, Inc. and Commerce Bank of Central
Florida (Incorporated by reference to Exhibit 10.9 to FCB's Form 10-Q for the quarterly period
ended June 30, 1995).
</TABLE>
18
<PAGE> 22
<TABLE>
<S> <C> <C>
10.6 - Form of Employment Agreement between First Commerce Banks of Florida, Inc. and Robert W.
Stickler, Jr. (Incorporated by reference to Exhibit 10.8 to the Registration Statement).*
10.7 - First Commerce Banks of Florida, Inc. 1995 Stock Option Plan (Incorporated by reference to
Exhibit 10.10 to FCB's Form 10-Q for the quarterly period ended September 30, 1995).*
13.1 - First Commerce Banks of Florida, Inc. 1996 Annual Report
21.1 - List of subsidiaries of First Commerce Banks of Florida, Inc.
27 - Financial Data Schedule (for SEC use only)
</TABLE>
(b) REPORTS ON FORM 8-K
No Current Reports on Form 8-K were filed by FCB during the last
fiscal quarter covered by this report.
_______________________
* Represents a management contract or compensatory plan or arrangement
required to be filed as an exhibit.
19
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Winter Haven, State of Florida, on the 31st day of March, 1997.
FIRST COMMERCE BANKS OF FLORIDA, INC.
By: /s/ Robert W. Stickler, Jr.
-----------------------------------
Robert W. Stickler, Jr.
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 31st, 1997.
Signature Title
/s/ Donald K. Stephens Chairman and Director
- ---------------------------------
Donald K. Stephens
/s/ Robert W. Stickler, Jr. President, Chief Executive Officer
- --------------------------------- and Director
Robert W. Stickler, Jr.
/s/ J. Jeffrey Seale Vice President and Controller
- --------------------------------- (Principal Financial Officer and
J. Jeffrey Seale principal accounting officer)
/s/ Jack P. Brandon Director
- ---------------------------------
Jack P. Brandon
/s/ Herbert O. Gingrich Director
- ---------------------------------
Herbert O. Gingrich
/s/ Jerry D. Miller Director
- ---------------------------------
Jerry D. Miller
/s/ Brian K. Swain Director
- ---------------------------------
Brian K. Swain
/s/ Robert C. Turner Director
- ---------------------------------
Robert C. Turner
20
<PAGE> 24
First Commerce Banks of Florida, Inc.
Form 10-KSB
For Fiscal Year Ending December 31, 1996
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
No. Exhibit No.
- ------- ------- ----
<S> <C> <C>
13.1 First Commerce Banks of Florida, Inc. 1996
Annual Report
21.1 List of subsidiaries of First Commerce Banks of
Florida, Inc.
27 Financial Data Schedule (for SEC use only)
</TABLE>
<PAGE> 1
EXHIBIT 13.1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
First Commerce Banks of Florida, Inc.
We have audited the accompanying consolidated statements of condition
of First Commerce Banks of Florida, Inc. and subsidiary as of December 31,
1996 and 1995, and the related consolidated statements of income, stockholders'
equity, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Holding Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated finan\cial
statements referred to above present fairly, in all material respects, the
financial position of First Commerce Banks of Florida, Inc. and subsidiary as
of December 31, 1996 and 1995, and the results of their operations and their
cash flows for the years then ended in conformity with generally accepted
accounting principles.
Winter Haven, Florida
February 14, 1997
34
<PAGE> 2
FIRST COMMERCE BANKS OF FLORIDA, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
December 31,
ASSETS 1996 1995
------ ------------ ------------
<S> <C> <C>
Cash and due from banks (Note 4) $ 5,763 $ 4,807
Federal funds sold 7,688 5,562
------------ ------------
Total cash and cash equivalents 13,451 10,369
Investment securities (Note 5):
Available for sale 20,157 24,584
Held to maturity 1,547 3,559
Loans receivable, net of allowance
for credit losses (Notes 6 and 7) 66,387 70,265
Accrued interest receivable 871 1,013
Property and equipment, less
accumulated depreciation (Note 8) 1,309 1,304
Other real estate owned 79 301
Cash surrender value of officers' life
insurance ($1,695,000 face amount) 1,126 1,079
Deferred tax asset (Note 11) 271 165
Refundable income taxes 213 100
Other assets 558 344
------------ ------------
TOTAL ASSETS $ 105,969 $ 113,083
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (Note 9) $ 94,749 $ 101,941
Other liabilities 577 592
------------ ------------
Total liabilities 95,326 102,533
Minority interest 30 29
Commitments and contingencies
(Notes 14 and 19)
Stockholders' equity (Note 13):
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 outstanding in
1996 and 1995 16 16
Additional paid-in capital 6,738 6,738
Retained earnings 3,892 3,754
Unrealized gain (loss) on securities
available for sale, net of income
taxes (benefit) of $(20) and $8 (33) 13
------------ ------------
Total stockholders' equity 10,613 10,521
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 105,969 $ 113,083
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE> 3
FIRST COMMERCE BANKS OF FLORIDA, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995
------------ ------------
<S> <C> <C>
INTEREST INCOME:
Loans receivable $ 7,311 $ 7,466
Investment securities:
Taxable 1,297 1,682
Exempt from federal income tax 66 67
Federal funds sold 283 600
------------ ------------
Total interest income 8,957 9,815
INTEREST EXPENSE ON DEPOSITS 3,541 4,168
------------ ------------
Net interest income 5,416 5,647
PROVISION FOR CREDIT LOSSES (Note 7) 974 1,191
------------ ------------
Net interest income after
provision for credit losses 4,442 4,456
OTHER INCOME:
Service charges and fees 855 917
Gain (loss) from sales of investment
securities, net 1 (129)
Gain on sale of subsidiary 564
Recognition of deferred gain on
sale of building - 171
Other 67 92
------------ ------------
Total other income 923 1,615
OTHER EXPENSES:
Compensation and benefits (Note 10) 2,465 2,148
Occupancy and equipment 776 765
Professional fees 446 428
Data processing 339 300
Other real estate owned 77 175
Advertising and promotion 90 163
FDIC insurance premiums 123 140
Stationary and supplies 163 121
Postage and freight 115 108
Other 617 673
------------ ------------
Total other expenses 5,211 5,021
------------ ------------
Income before taxes on income
and minority interest 154 1,050
TAXES ON INCOME (Note 11) 15 497
MINORITY INTEREST 1 (6)
------------ ------------
NET INCOME $ 138 $ 559
============ ============
NET INCOME PER SHARE OF COMMON STOCK $ .08 $ .34
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES 1,679,145 1,663,729
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE> 4
FIRST COMMERCE BANKS OF FLORIDA, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
Unrealized
gain (loss)
on
Common stock Additional securities Total
---------------------- paid-in Retained available stockholders'
Shares Cost capital earnings for sale equity
----------- --------- ---------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 1,585,853 $ 16 $ 6,739 $ 3,195 $ (634) $ 9,316
Payment for fractional shares (116) - (1) - - (1)
Change in unrealized gain on
securities available for sale,
net of income taxes of $361 - - - - 647 647
Net income for 1995 - - - 559 - 559
---------- --------- ---------- -------- ---------- -------------
BALANCE, December 31, 1995 1,585,737 16 6,738 3,754 13 10,521
Change in unrealized loss on
securities available for sale,
net of income tax benefit of $28 - - - - (46) (46)
Net income for 1996 - - - 138 - 138
---------- --------- ---------- -------- ---------- -------------
BALANCE, December 31, 1996 1,585,737 $ 16 $ 6,738 $ 3,892 $ (33) $ 10,613
========== ========= ========== ======== ========== =============
</TABLE>
See accompanying notes to consolidated financial statements.
37
<PAGE> 5
FIRST COMMERCE BANKS OF FLORIDA, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 138 $ 559
Adjustments to reconcile net income
to net cash provided by (used for)
operating activities:
Minority interest in net income (loss)
of consolidated subsidiaries 1 (6)
Provision for credit losses 974 1,191
Accretions (amortization) of unearned
premiums (discounts) and loan fees 174 (181)
Depreciation and amortization 237 171
Deferred income taxes (78) (174)
Deferred gain recognized on
sale of building - (171)
Loss on disposal of equipment - 7
Gain on sale of subsidiary - (564)
(Gain) loss on sales of investment
securities (1) 129
Loss on sale of other real estate owned 43 13
Changes in assets and liabilities
net of effects of sale of subsidiary:
(Increase) decrease in:
Accrued interest receivable 142 (211)
Cash surrender value of officers'
life insurance (47) (38)
Other assets (184) (172)
Decrease in:
Other liabilities (15) (1,363)
------------ -------------
Net cash provided by (used for)
operating activities 1,384 (810)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in loans receivable,
net of effects of sale of subsidiary 2,698 (7,423)
Purchases of investment securities
held to maturity - (95)
Proceeds from maturities of investment
securities held to maturity 2,000 1,110
Purchases of investment securities
available for sale (5,509) (31,077)
Proceeds from sales and maturities of
investment securities available for sale 9,568 30,628
</TABLE>
38
<PAGE> 6
FIRST COMMERCE BANKS OF FLORIDA, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995
------------ ------------
<S> <C> <C>
Cash sold in sale of subsidiary,
net of proceeds - (4,755)
Proceeds from sale of other
real estate owned 351 273
Purchases of property and equipment (218) (321)
------------ ------------
Net cash provided by (used
for) investing activities 8,890 (11,660)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits, net
of effects of sale of subsidiary (7,192) 8,890
Cash paid for fractional shares - (1)
------------ ------------
Net cash provided by (used
for) financing activities (7,192) 8,889
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 3,082 (3,581)
CASH AND CASH EQUIVALENTS, beginning of year 10,369 13,950
------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 13,451 $ 10,369
============ ============
SUPPLEMENTAL DISCLOSURES:
Interest paid in cash $ 3,614 $ 4,112
============ ============
Income taxes paid in cash $ 328 $ 877
============ ============
NONCASH INVESTING ACTIVITIES:
Transfers from loans to
other real estate owned $ 223 $ 147
============ ============
Loans originated on sales
of other real estate owned $ 51 $ -
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
39
<PAGE> 7
FIRST COMMERCE BANKS OF FLORIDA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==========================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITIES - First Commerce Banks of Florida, Inc.
(Holding Company) is a bank holding company for its majority owned subsidiary,
First Commerce Bank of Polk County (Bank). The Bank provides financial
services to individuals and corporate customers.
CONSOLIDATION - The consolidated financial statements include
the accounts of the Holding Company and its majority owned subsidiary, Bank.
The operations of First Sterling Bank of Osceola County (FSBO) are included in
the consolidated financial statements for the period prior to May 1, 1995. The
minority interest repre-sents a .30 percent ownership interest in the common
stock of the Bank held by third parties. All material intercompany accounts
and transactions are eliminated.
CASH AND CASH EQUIVALENTS - For purposes of the statements of
cash flows, the Holding Company defines cash and cash equivalents as cash and
due from banks, which includes currency on hand, demand deposits with other
financial institutions and federal funds sold.
USE OF ESTIMATES - The preparation of financial state-ments in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to
significant change relate to the determination of the allowance for credit
losses. While management uses available information to recognize losses on
loans, future additions to the allowances may be necessary based on changes in
local economic conditions. In addition, regulatory agencies, as an integral
part of their examination process, periodically review the Bank's allowances
for credit losses. Such agencies may require the Bank to recognize changes to
<PAGE> 8
the allowances based on their judgments about information available to them at
the time of their examination. Because of these factors, it is possible that
the allowances for credit losses and foreclosed real estate may materially
change in the future.
40
<PAGE> 9
FIRST COMMERCE BANKS OF FLORIDA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
INVESTMENT SECURITIES - The Bank follows Statement of
Financial Accounting Standards No. 115 which requires investment securities
that the Bank has the positive intent and ability to hold to maturity to be
classified as held to maturity securities and reported at amortized cost.
Investment securities that are held principally to sell in the near term are
classified as trading securities and reported at fair value, with unrealized
gains and losses included in income. Investment securities not classified as
either held to maturity securities or trading securities are classified as
available for sale securities and reported at fair value, with unrealized gains
and losses excluded from earnings and reported in a separate component of
stockholders' equity.
Gains and losses on the sale of investment securities are
computed on the basis of specific identification.
LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES - Loans are
stated at the amount of unpaid principal, less an allowance for credit losses
and net of deferred loan fees and unearned discounts. Interest on loans is
recognized over the term of the loan and is calculated using the simple
interest method on principal amounts outstanding. Unearned discounts on
installment loans are recog-nized as income over the terms of the loans using
the interest method. Loan origination and commitment fees and certain direct
origination costs are deferred and amortized as a yield adjustment over the
lives of the related loans using a method that approxi-mates the interest
method.
The allowance for credit losses is established through a
provision for credit losses charged to expense. The allowance is an amount
which management believes may become uncollectible based on an evaluation of
the loans in the portfolio and prior loss experience. This evaluation of the
potential loss in the loan portfolio includes a review of all loans for which
full collection may not be reasonably assured and considers the estimated value
of the underlying collateral, loan portfolio composition, historical
experience, general economic conditions and other appropriate matters. Loans
are charged against the allowance for credit losses when management believes
that collection of the principal is unlikely.
41
<PAGE> 10
FIRST COMMERCE BANKS OF FLORIDA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
LOAN IMPAIRMENT AND LOSSES - On January 1, 1995, the Holding
Company and Bank adopted Statements of Financial Accounting Standards No. 114
and 118. These Statements address the accounting by creditors for impairment
of certain loans. The Statements generally require the Holding Company and
Bank to identify loans, for which the Holding Company and Bank probably will
not receive full repayment of principal and interest, as impaired loans. The
Statements require that impaired loans be valued at the present value of
expected future cash flows, discounted at the loan's effective interest rate,
or at the observable market price of the loan, or the fair value of the
underlying collateral if the loan is collateral dependent. The Holding Company
and Bank have implemented the Statements by modifying their quarterly review of
the adequacy of the allowance for credit losses to also identify and value
impaired loans in accordance with guidance in the Statements. As a result of
the Holding Company and Banks' review, impaired loans totaled $1,911,000 and
$1,182,000 and the allowance for credit losses related to these loans totaled
$548,000 and $156,000 as of December 31, 1996 and 1995, respectively. The
average balance of impaired loans amounted to approximately $1,547,000 during
1996 and $794,000 during 1995. Cash receipts recorded as interest income on
impaired loans was $51,000 in 1996. There were no cash receipts on impaired
loans in 1995. The adoption of the Statements did not have a material effect
on the results of operations for the year ended December 31, 1995.
Impairments in accordance with the Statement are recognized by
establishing an allowance for credit losses and a corresponding charge to
expenses. Subsequent changes in impairment are recognized in the same manner
in the period of change.
The Holding Company and Banks' policy is to discontinue
accruing interest on a loan after it has become 90 days delinquent as to
payment of principal or interest unless, in the determination of management,
the loan is well secured and in process of collec-tion. If the ultimate
collectibility of principal, either in whole or in part, is in doubt, any
payment received on a loan for which the accrual of interest has been
discontinued is applied to reduce principal to the extent necessary to
eliminate such doubt. If the ultimate collectibility of principal is not in
doubt, interest is credited to income in the period of recovery. Nonaccrual
loans are considered impaired loans, except for those nonaccrual loans the
Holding Company and Bank have sufficient collateral to collect all principal
and interest as specified in the original loan agreement.
42
<PAGE> 11
FIRST COMMERCE BANKS OF FLORIDA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
OTHER REAL ESTATE OWNED - Other real estate acquired in
settlement of loans is carried at the lower of the fair value of the property
less the estimated costs to sell or the Bank's basis in the loan. At the date
of acquisition, losses are charged to the allowance for credit losses. Costs
incurred to bring the property up to the condition for which it is intended are
capitalized up to the property's fair value, while holding costs, legal fees
and other direct costs are expensed. Real property, held by the Bank and not
used for banking purposes, is recorded with other real estate at cost.
PROPERTY, EQUIPMENT AND DEPRECIATION - Property and equipment
are stated at cost, less accumulated depreciation. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
NET INCOME PER SHARE OF COMMON STOCK - Net income per share of
the Holding Company's common stock is computed by dividing net income for the
year 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 common stock
equivalents. Fully-diluted and primary earnings per share are not materially
different. Information necessary to calculate net income per share of common
stock follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Average common shares
outstanding 1,585,737 1,585,853
Common shares assumed out-
standing to reflect the
dilutive effect of war-
rants to purchase common
stock at book value 53,884 48,186
Common shares assumed out-
standing to reflect the
dilutive effect of stock
options to purchase com-
mon stock at book value 39,524 29,690
------------ ------------
Weighted average shares 1,679,145 1,663,729
============ ============
</TABLE>
43
<PAGE> 12
FIRST COMMERCE BANKS OF FLORIDA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
STOCK OPTION AND WARRANT PLANS - Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation",
encourages the Holding Company and Bank to account for employee stock option
plans entered into after December 15, 1995 under a fair value based method of
accounting, which requires compensation costs to be measured at the grant date
of options and recorded over the grantee's service period. Also, the standard
provides for these plans to be accounted for under an intrinsic value method,
which compensation costs are the excess, if any, of the quoted market price of
stock at grant date or other measurement date over the amount the employee must
pay to acquire the stock. The standard also requires the Holding Company and
Bank to disclose the difference in compensation costs between the two methods
if the intrinsic value method is used. The Holding Company and Bank have
accounted for previous plans under the intrinsic value method and will continue
to do so on future plans; however, no new plans were entered into in 1996.
There were no options granted in 1996 and options granted in 1995 approximated
fair value; therefore, there were no significant differences in compensation
costs between the two methods to disclose.
TAXES ON INCOME - Accounting policies with respect to taxes on
income are described in Note 11.
NOTE 2 - BUSINESS COMBINATIONS
On August 31, 1995, First Sterling Bancshares, Inc. (FSB)
merged (the Merger) with Commerce Bank Corporation (Commerce). In the Merger,
all the outstanding shares of Commerce were exchanged for 746,704 shares of FSB
common stock and $1,000 of cash in lieu of fractional shares. In addition, the
name of FSB was changed to First Commerce Banks of Florida, Inc. At the same
time, their subsidiaries, First Sterling Bank and Commerce Bank of Central
Florida, merged together to become First Commerce Bank of Polk County.
The Merger with Commerce has been accounted for as a pooling
of interests and all amounts prior to the Merger have been restated to include
the results of operations, financial position and cash flows of FSB and
Commerce. Interest and other income and net earnings for the individual
entities during the periods preceding the Merger were as follows (in
thousands):
44
<PAGE> 13
FIRST COMMERCE BANKS OF FLORIDA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
<TABLE>
<CAPTION>
Six
months ended
June 30,
1995
-------------
(unaudited)
<S> <C>
Interest and other income:
FSB $ 3,501
Commerce 2,536
-------------
Combined $ 6,037
=============
Net earnings:
FSB $ 596
Commerce 174
-------------
Combined $ 770
==============
</TABLE>
NOTE 3 - SALE OF SUBSIDIARY
On May 1, 1995, the Holding Company sold its stock in FSBO to
an unaffiliated third party for approximately $1,845,000. The agreement
provided that the Holding Company purchase any other real estate owned at book
value from FSBO at the date of the sale and the Bank purchase the existing loan
portfolio (including any allowance for credit losses) from FSBO over the
one-year period following the sale at book value. At December 31, 1996, the
Bank has no remaining commitment to purchase loans from FSBO.
NOTE 4 - CASH AND DUE FROM BANKS
The Bank is required to maintain certain average reserve
balances pursuant to regulations of the Federal Reserve Board. These balances
must be maintained in the form of vault cash or non-interest-bearing deposits
at a Federal Reserve Bank. The Bank exceeded this requirement, which was
$678,000 and $552,000, at December 31, 1996 and 1995, respectively.
The Holding Company's cash and due from banks includes
$4,699,000 and $3,696,000 maintained at other banks as of December 31, 1996 and
1995, respectively. Funds at each bank are federally insured up to $100,000.
The balance of cash not remaining at other banks consists of cash on hand and
on deposit with the Federal Reserve.
45
<PAGE> 14
FIRST COMMERCE BANKS OF FLORIDA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
NOTE 5 - INVESTMENT SECURITIES
The amortized cost and fair market values of investment
securities are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale:
December 31, 1996:
U.S. Treasury securities $ 2,004 $ 4 $ - $ 2,008
U.S. Government agency
obligations 4,489 1 15 4,475
Mortgage-backed securities:
FHLMC obligations 12,116 67 17 12,166
FNMA obligations 600 9 - 609
Collateralized mortgage
obligations:
FNMA obligations 1,000 - 101 899
------------- ------------ ------------ ------------
$ 20,209 $ 81 $ 133 $ 20,157
============= ============ ============ ============
December 31, 1995:
U.S. Treasury securities $ 2,000 $ - $ - $ 2,000
U.S. Government agency
obligations 997 4 - 1,001
Mortgage-backed securities:
FHLMC obligations 19,370 60 - 19,430
FNMA obligations 1,172 5 - 1,177
Collateralized mortgage
obligations:
FHLMC obligations 24 - - 24
FNMA obligations 1,000 - 48 952
------------- ------------ ------------ ------------
$ 24,563 $ 69 $ 48 $ 24,584
============= ============ ============ ============
Securities held to maturity:
December 31, 1996:
U.S. Government agency
obligations $ 500 $ - $ 3 $ 497
State, county and municipal
securities 1,047 47 3 1,091
------------- ------------ ------------ ------------
$ 1,547 $ 47 $ 6 $ 1,588
============= ============ ============ ============
December 31, 1995:
U.S. Treasury securities $ 2,000 $ - $ 7 $ 1,993
U.S. Government agency
obligations 500 - 1 499
State, county and municipal
securities 1,059 9 - 1,068
------------- ------------ ------------ ------------
$ 3,559 $ 9 $ 8 $ 3,560
============= ============ ============ ============
</TABLE>
46
<PAGE> 15
FIRST COMMERCE BANKS OF FLORIDA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
Mortgage-backed securities and collateralized mortgage
obligations included in investment securities are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Principal Unamortized Unearned Carrying Fair
balance premiums discounts value value
--------- ----------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Securities available for sale:
December 31, 1996:
Mortgage-backed
securities:
FHLMC obligations $ 11,845 $ 275 $ 4 $ 12,116 $ 12,166
FNMA obligations 589 11 - 600 609
Collateralized mortgage
obligations:
FNMA obligations 1,000 - - 1,000 899
--------- ----------- --------- -------- ---------
$ 13,434 $ 286 $ 4 $ 13,716 $ 13,674
========= =========== ========= ======== =========
December 31, 1995:
Mortgage-backed
securities:
FHLMC obligations $ 18,838 $ 538 $ 6 $ 19,370 $ 19,430
FNMA obligations 1,139 33 - 1,172 1,177
Collateralized mortgage
obligations:
FHLMC obligations 24 - - 24 24
FNMA obligations 1,000 - - 1,000 952
--------- ----------- --------- -------- ---------
$ 21,001 $ 571 $ 6 $ 21,566 $ 21,583
========= =========== ========= ======== =========
</TABLE>
Investment securities with amortized costs of $2,500,000 and
$2,998,000, and market values of $2,400,000 and $2,992,000 at December 31, 1996
and 1995, respectively, were pledged to secure public deposits.
As allowed by "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities" issued by the
Financial Accounting Standards Board, the Bank reevaluated the classification
of its investment securities and on December 12, 1995, reclassified securities
with an amortized cost of $2,140,000 and a fair value of $2,137,000 from
securities held to maturity to securities available for sale.
Proceeds from sales of investment securities available for
sale totaled $9,568,000 in 1996, resulting in $1,000 in gross realized gains,
and $28,481,000 in 1995, resulting in $16,000 in gross realized gains and
$141,000 in gross realized losses.
47
<PAGE> 16
FIRST COMMERCE BANKS OF FLORIDA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
The amortized cost and fair value of investment secur-ities at
December 31, 1996, by contractual maturity, are shown below (in thousands).
Expected maturities may differ from contractual maturities because borrowers
may have the right to call or prepay obligations.
<TABLE>
<CAPTION>
Securities held to
Securities available for sale maturity
------------------------------ -------------------------------
Amortized Fair Amortized Fair
cost value cost value
--------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Within one year $ 4,004 $ 4,009 $
One to five years - $ -
Five to ten years 2,489 2,474 500 497
Over ten years - - 300 299
- - 747 792
------------- -------------- -------------- ---------------
6,493 6,483 1,547 1,588
Mortgage-backed
securities
13,716 13,674 - -
------------- -------------- --------------- ---------------
$ 20,209 $ 20,157 $ 1,547 $ 1,588
============= ============== ============== ===============
</TABLE>
NOTE 6 - LOANS TO OFFICERS AND DIRECTORS
Certain of the Holding Company's directors and officers are
customers and have loans with the Bank. The loans were made in the ordinary
course of business on substantially the same terms and conditions, including
interest rates and collateral, as those prevailing at the same time for
comparable transactions with other customers. Activity in loans to directors
and officers is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Balance, at beginning
of year $ 4,043 $ 3,698
Loans originated 276 1,401
Principal repayments (987) (1,056 )
------------ ------------
Balance, at end of year $ 3,332 $ 4,043
============ ============
</TABLE>
48
<PAGE> 17
FIRST COMMERCE BANKS OF FLORIDA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
NOTE 7 - LOANS RECEIVABLE
Loans receivable are at fixed and variable interest rates and
consist of (in thousands):
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Commercial $ 13,712 $ 19,888
Commercial Real Estate 31,891 28,796
Residential Mortgage 15,471 14,788
Consumer and other 6,977 8,212
------------ ------------
Total loans receivable 68,051 71,684
Less:
Unearned interest and fees (211) (224)
Allowance for credit losses (1,453) (1,195)
------------ ------------
$ 66,387 $ 70,265
============ ============
</TABLE>
Loans, commitments and standby letters of credit have been
granted to customers primarily in the Central Florida area. Commitments to
extend credit relate primarily to real estate loans. Standby letters of credit
were granted primarily to commercial borrowers.
Subsequent to the sale of FSBO by the Holding Company in 1995,
the Bank purchased $4,520,000 and $1,383,000 in loans from FSBO in 1995 and
1996, respectively. The loans were purchased for the unpaid principal balance
reduced by the related allowance for credit losses and discounts attributed to
these loans, which were transferred to the Bank. Additionally, the Holding
Company purchased $189,000 and $493,000 in loans from FSBO in 1995 and 1996,
respectively. Due to regulatory rules, the Bank could not acquire any
nonaccrual loans so the Holding Company purchased them.
A summary of changes in the allowance for credit losses is as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Balance at beginning of year
Allowance related to loans $ 1,195 $ 830
purchased from FSBO
Provision charged to expense 25 35
Loans charged off, net of 974 1,191
recoveries
FSBO's allowance sold in 1995 (741) (742)
- (119)
------------ ------------
Balance at end of year
$ 1,453 $ 1,195
============ ============
</TABLE>
49
<PAGE> 18
FIRST COMMERCE BANKS OF FLORIDA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
Nonaccrual loans totaled approximately $2,646,000 and
$1,607,000 at December 31, 1996 and 1995, respectively. Interest income that
would have been recorded under the original terms of such loans and the
interest income actually recognized are summarized below (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995
------------ ------------
<S> <C> <C>
Interest income that would
have been recorded $ 309 $ 144
Interest income recognized (126) (28)
------------ ------------
Interest income foregone $ 183 $ 116
============ ============
</TABLE>
NOTE 8 - PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of (in
thousands):
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Land $ 223 $ 223
Buildings and improvements 672 664
Furniture and equipment 1,730 1,527
Leasehold improvements 64 59
Construction in progress 15 14
------------ ------------
Totals 2,704 2,487
Less accumulated depreciation 1,395 1,183
------------ ------------
Net property and equipment $ 1,309 $ 1,304
============ ============
</TABLE>
NOTE 9 - DEPOSITS
Deposits consist of (in thousands):
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Non-interest bearing:
Demand deposits $ 18,773 $ 17,056
Interest bearing:
Certificates of deposit:
Less than $100,000 42,771 48,864
$100,000 or more 5,957 8,543
NOW 13,722 1 5,045
Savings 8,390 7,735
Money market 5,136 4,698
------------ ------------
$ 94,749 $ 101,941
============ ============
</TABLE>
50
<PAGE> 19
FIRST COMMERCE BANKS OF FLORIDA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
The maturities of certificates of deposit are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1997 $ 31,261
1998 8,836
1999 3,245
2000 3,172
2001 2,214
------------
Total $ 48,728
============
</TABLE>
Interest expense on deposits is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Certificates of deposit $ 2,863 $ 3,448
NOW 325 329
Savings 185 200
Money market 168 191
------------ ------------
$ 3,541 $ 4,168
============ ============
</TABLE>
The Bank held deposits of approximately $1,060,000 and
$1,221,000 for officers and directors at December 31, 1996 and 1995,
respectively.
NOTE 10 - PROFIT SHARING PLAN
Prior to the FSB/Commerce Merger, FSB and Commerce maintained
separate employee benefit plans. Under the 401(k) component of the FSB plan,
participants were able to contribute up to 15 percent, but not less than 1
percent, of their annual compensation. FSB was required to match the
participant's contribution up to the lower of 50% of the participant's
contributions or 6% of participant's compensation. Commerce had a
noncontributory profit sharing plan which covered all eligible employees.
Employer contributions to the Commerce plan were voluntary and at the
discretion of the Board of Directors. The Holding Company merged the Commerce
Plan into the FSB Plan of Florida, Inc., Employee 401(k) Plan and Trust.
Employer contributions under all plans charged to operations were $30,394 in
1996 and $39,685 in 1995.
51
<PAGE> 20
FIRST COMMERCE BANKS OF FLORIDA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
NOTE 11 - TAXES ON INCOME
Taxes on income in the accompanying consolidated statements of
income are made up of the following components (in thousands):
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C> <C>
Currently payable:
Federal $ 90 $ 611
State 3 60
------------ ------------
93 671
Deferred:
Federal (67) (148)
State (11) (26)
------------ ------------
(78) (174)
------------ ------------
Total taxes on income $ 15 $ 497
============ ============
</TABLE>
Income taxes are calculated using the liability method
specified by Statement of Financial Accounting Standards No. 109. Deferred
income taxes are recognized for the tax consequences of temporary differences
between the financial reporting bases and the tax bases of the Holding
Company's assets and liabilities.
The components of the net deferred tax asset recognized in the
accompanying consolidated statements of condition are (in thousands):
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Deferred tax asset:
Allowance for credit losses $ 394 $ 330
Unrealized loss on securities
available for sale 20 -
Other 80 51
------------ ------------
494 381
Deferred tax liability:
Property and equipment (175) (178)
Cash surrender value of
officers' life insurance (48) (30)
Unrealized gain on securities
available for sale - (8)
------------ ------------
(223) (216)
------------ ------------
Net deferred tax asset $ 271 $ 165
============ ============
</TABLE>
52
<PAGE> 21
FIRST COMMERCE BANKS OF FLORIDA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
The reconciliation of income tax attributable to opera-tions
computed at the federal statutory rates to taxes on income is as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Tax at federal statutory rate $ 41 $ 357
State income taxes, net of
federal tax benefit 4 38
Nondeductible merger expenses 38 72
Other (68) 30
------------ ------------
$ 15 $ 497
============ ============
</TABLE>
NOTE 12 - SHORT TERM BORROWINGS
The Bank has lines of credit agreements with several financial
institutions for a total of $6,000,000 to purchase short term federal funds. No
amounts were outstanding at December 31, 1996 and 1995.
NOTE 13 - STOCK WARRANTS AND STOCK OPTION PLANS
The Holding Company has outstanding stock warrants to purchase
140,731 shares of common stock. The warrants are exercisable at $4.11 per
share and expire in May 1999.
In May 1992, the Board of Directors approved a stock option
plan for officers which provides for the granting of 150,000 stock options to
officers of the Holding Company or the Bank. The stock options are exercisable
over a period of ten years from the date the plan was adopted at a price of
$5.06 per share for 76,000 shares and $6.63 per share for 18,891 shares.
Information with respect to stock options under the plan follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Options outstanding,
beginning of year 94,891 76,000
Options granted at
$6.63 per share - 18,891
------------ ------------
Options outstanding,
end of year 94,891 94,891
============ ============
</TABLE>
53
<PAGE> 22
FIRST COMMERCE BANKS OF FLORIDA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Options available for
granting, beginning
of year - 74,000
Options granted at
$6.63 per share - (18,891)
Options terminated - (55,109)
------------ ------------
Options available for
granting, end of year - -
============ ============
</TABLE>
In August 1992, the Board of Directors approved a stock option
plan for directors which provides for the granting of 95,000 stock options to
directors of the Holding Company or the Bank. The stock options are
exercisable over a period of ten years from the date the plan was adopted at a
price of $5.11 per share. Information with respect to stock options under the
plan follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Options outstanding 91,008 91,008
------------ ------------
Options available 3,992 3,992
============ ============
</TABLE>
In October 1995, the Board of Directors approved a stock
option plan for employees which provides for the granting of 55,109 stock
options to employees of the Holding Company or the Bank. The stock options are
exercisable over a period of ten years from the date the options were granted
at a price equal to the fair market value of the common stock at the date of
grant. Information with respect to stock options under the plan follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Options outstanding,
beginning of year 20,000 -
Options granted at
$7.00 per share 9,000 20,000
Options terminated (29,000) -
------------ ------------
Options outstanding,
end of year - 20,000
------------ ------------
Options available for
granting, end of year 55,109 35,109
============ ============
</TABLE>
No amounts were charged to expense under any plan in 1996 or
1995.
54
<PAGE> 23
FIRST COMMERCE BANKS OF FLORIDA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
NOTE 14 - COMMITMENTS AND CONTINGENCIES
The Bank leases premises in Winter Haven, Florida from an
entity controlled by certain directors of the Holding Company under a
noncancelable lease that expires December 1999. The agreement contains an
option renewal for one additional five-year period. The agreement requires
monthly rental payments as well as a pro-rata share of the maintenance,
property taxes, and insurance on the premises. The following is a schedule by
years of future minimum rental payments required by the lease:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1997 $ 226,161
1998 237,469
1999 249,343
------------
Total $ 712,973
============
</TABLE>
The lease agreement contains a purchase option for the Bank to
purchase the premises. The purchase price for the premises will be the fair
value on the date of the exercise of the option as determined by an MAI
appraisal.
Rental expense under all operating leases charged to
operations was $259,000 and $230,000 for the years ending December 31, 1996 and
1995, respectively.
The consolidated financial statements do not reflect various
commitments and contingent liabilities which arise in the normal course of
business and which involve elements of credit risk, interest rate risk and
liquidity risk. These commitments and contingent liabilities are commitments
to extend credit and standby letters of credit and total $10,365,000 at
December 31, 1996.
Commitments to extend credit and standby letters of credit
include exposure to some credit loss in the event of nonperformance by the
customer. The Bank's credit policies and procedures for credit commitments and
financial guarantees are the same as those for extension of credit that are
recognized on the consolidated statements of condition. Because these
instruments have fixed maturity dates, and because many of them expire without
55
<PAGE> 24
FIRST COMMERCE BANKS OF FLORIDA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
being drawn upon, they do not generally present any significant liquidity risk
to the Bank. The Bank has not been required to perform on any financial
guarantees during the past two years and did not incur any losses on its
commitments in either 1996 or 1995.
The Bank is party to litigation and claims arising in the
normal course of business. Management, after consultation with legal counsel,
believes that the liabilities, if any, arising from such litigation and claims
will not be material to the Holding Company's financial position.
The Bank has salary continuation agreements with two officers
which provide for payments to the officers or their beneficiaries of $27,900
and $97,600 annually for fifteen years. The Bank is accruing the estimated
amount of future payments to be made under these agreements over the period of
the officers' active employment. The payments begin at the earlier of an
officer's retirement or death.
The Bank has entered into an agreement dated September 1, 1996
with a former officer. The agreement provides for the Bank to pay the former
officer $108,000, at his discretion, in either a lump sum on September 1, 1997
or in seven equal annual install-ments. As of December 31, 1996, the Bank has
accrued an amount equal to the future payments.
The Bank has entered into an employment agreement with an
officer which expires August 1997. The agreement provides for annual salaries,
benefits and covenants not to compete. The agreement is renewable for a one-
year term after the original term of two years.
NOTE 15 - HOLDING COMPANY FINANCIAL INFORMATION
Summary financial information for the Holding Company only as
of December 31, 1996 and 1995 and for the years then ended is as follows (in
thousands):
56
<PAGE> 25
FIRST COMMERCE BANKS OF FLORIDA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
ASSETS 1996 1995
------ ------------ ------------
<S> <C> <C>
Cash $ 887 $ 1,983
Investment in subsidiary 9,365 8,423
Land - -
Other assets 361 115
------------ -----------
TOTAL ASSETS $ 10,613 $ 10,521
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities $ - $ -
Stockholders' equity 10,613 10,521
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,613 $ 10,521
============ ===========
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995
------------ ------------
<S> <C> <C> <C>
Revenues $ 108 $ 811
Expenses 208 732
------------ ------------
Income (loss) before equity
in earnings of subsidiaries (100) 79
Equity in earnings of subsidiaries 238 480
------------ ------------
Net income $ 138 $ 559
============ ============
</TABLE>
STATEMENTS OF CASH
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 138 $ 559
Adjustments to reconcile net income to
net cash used for operating activities:
Equity in earnings of subsidiaries (238) (480)
Depreciation 2 -
Gain on sale of subsidiary - (564)
Gain on sale of other real estate owned - (2)
Gain on sale of building - (171)
Provision for credit losses (117) 221
(Increase) decrease in other assets 175 (140)
------------ ------------
Net cash used for
operating activities (40) (577)
</TABLE>
57
<PAGE> 26
FIRST COMMERCE BANKS OF FLORIDA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of stock in subsidiary (750) -
Proceeds from sale of subsidiary - 1,844
Purchase of loans (493) (188)
Net decrease in loans receivable 196 -
Proceeds from sale of
other real estate owned - 179
Purchases of property and equipment (9) -
Dividend from subsidiary - 80
------------ ------------
Net cash provided by (used
for) investing activities (1,056) 1,915
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash paid for fractional shares - (1)
------------ ------------
Net cash used for
financing activities - (1)
------------ ------------
NET INCREASE (DECREASE) IN CASH (1,096) 1,337
CASH, beginning of year 1,983 646
------------ ------------
CASH, end of year $ 887 $ 1,983
============ ============
</TABLE>
NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate
the fair value of financial instruments:
CASH AND DUE FROM BANKS - The carrying amount is a reasonable
estimate of fair value.
FEDERAL FUNDS AND INVESTMENT SECURITIES - For federal funds
sold and other short-term investments, the carrying amount is a reasonable
estimate of fair value. U.S. government and agency obligations, state, county
and municipal securities and other investments are valued using quoted market
prices.
LOANS RECEIVABLE - For demand loans, the carrying value is a
reasonable estimate of fair value. Fair value of other loans is estimated by
discounting estimated future cash flows using the current rates at which
similar loans are being offered by the Bank.
58
<PAGE> 27
FIRST COMMERCE BANKS OF FLORIDA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
DEPOSIT ACCOUNTS - The fair value of demand deposits is the
amount payable on demand at the reporting date. The fair value of certificates
of deposit is estimated by discounting future cash flows using the rates
currently offered for deposits with similar remaining maturities.
The fair value estimates were made at a discrete point in time
based on relevant market information and information about the financial
instruments. Because no market exists for a significant portion of the
financial instruments, fair value estimates were based on judgments regarding
future expected loss experience, cur-rent economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates were subjective in nature and involved uncertainties and matters of
significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
The fair value estimates were based on existing on-balance
sheet and off-balance sheet financial instruments without attempting to
estimate the value of anticipated future business and the value of assets and
liabilities that were not considered financial instruments. Other significant
assets that were not considered financial instruments included deferred tax
assets, other assets, and property and equipment. The tax effects related to
the realization of the unrealized gains and losses on investment securities can
have a significant impact on fair value estimates and were not considered in
the estimates.
The estimated fair values of the Holding Company's financial
instruments are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------------------------- --------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
-------- ---------- -------- ------------
<S> <C> <C> <C> <C>
Assets:
Cash and due
from banks $ 5,763 $ 5,763 $ 4,807 $ 4,807
Federal funds
sold 7,688 7,688 5,562 5,562
Investment
securities 21,704 21,745 28,143 28,144
Loans receivable,
net of
allowance 66,387 66,742 70,265 70,793
Liabilities:
Deposits 94,749 94,989 101,941 102,416
</TABLE>
59
<PAGE> 28
FIRST COMMERCE BANKS OF FLORIDA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
NOTE 17 - REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain manda-tory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of
the Bank's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Bank's capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in the
regulations) to average assets (as defined). Management believes, as of
December 31, 1996, that the Bank meets all capital adequacy requirements to
which it is subject.
As of March 31, 1996, the most recent notification from the
Federal Deposit Insurance Corporation categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized, the Bank must maintain minimum total risk-based, Tier I
risk-based, Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the institution's category.
The Bank's actual capital amounts and ratios are also
presented in the table. No amounts were deducted from capital for
interest-rate risk.
60
<PAGE> 29
FIRST COMMERCE BANKS OF FLORIDA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONCLUDED)
==========================================
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------------- --------------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
---------- --------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
TOTAL CAPITAL (TO RISK
WEIGHTED ASSETS):
Consolidated $12,037 14.94% $6,445 8.00% $ N/A
First Commerce Bank
of Polk County 10,784 13.43 6,425 8.00 8,031 10.00%
TIER I CAPITAL (TO RISK
WEIGHTED ASSETS):
Consolidated 10,584 13.14 3,223 4.00 N/A
First Commerce Bank
of Polk County 9,365 11.66 3,212 4.00 4,818 6.00
TIER I CAPITAL (TO AVERAGE
ASSETS):
Consolidated 10,584 10.51 4,028 4.00 N/A
First Commerce Bank
of Polk County 9,365 9.37 3,999 4.00 4,999 5.00
</TABLE>
NOTE 18 - FOURTH QUARTER ADJUSTMENT
In the fourth quarter of 1996, the Holding Company recorded
adjustments which decreased its net income by approximately $305,000, net of
income tax benefit of $101,000, as the result of amounts charged to the
provision for credit losses.
NOTE 19 - PENDING BUSINESS COMBINATION
On February 18, 1997, the Holding Company entered into a
letter of intent with The Colonial BancGroup, Inc. (Colonial), a multi-bank
holding company headquartered in Montgomery, Alabama. The letter of intent
relates to the proposed acquisiton of First Commerce Banks of Florida, Inc. by
Colonial and the conversion of First Commerce Banks of Florida, Inc.'s common
stock into Colonial's common stock. The transaction is subject to a number of
conditions, including prior approval by regulatory agencies and First Commerce
Banks of Florida, Inc.'s shareholders.
61
<PAGE> 30
FIRST COMMERCE BANKS OF FLORIDA, INC.
SHAREHOLDER INFORMATION
CORPORATE OFFICES
The Corporate Offices of First Commerce Banks of Florida, Inc. are at:
141 East Central Avenue
Winter Haven, Florida 33880
(941) 299-6072
(941) 293-0733 FAX
SHAREHOLDER ASSISTANCE
Shareholder questions and assistance should be directed to J. Jeffrey Seale,
Vice President, Secretary and Controller at the Corporate Offices.
A copy of the Corporation's Form 10-KSB (Annual Report) filed with the
Securities and Exchange Commission may be obtained without charge upon written
request.
TRANSFER AGENT
Shareholders requiring a change of name or address on the stock ledgers, a
transfer of shares, records or information about lost certificates should
contact the transfer agent as follows:
Chemical Mellon Shareholder Services
4 Station Square - Third Floor
Pittsburgh, PA 15219
(412) 236-8172
ANNUAL MEETING OF SHAREHOLDERS
First Commerce Banks of Florida, Inc.'s Annual Meeting will be on Monday, April
21, 1997 at 4:00 p.m. at the Corporate Offices.
62
<PAGE> 31
FIRST COMMERCE BANK OF POLK COUNTY
FIVE CONVENIENT LOCATIONS TO SERVE YOU!
MAIN OFFICE - 141 E. Central Avenue
Winter Haven, Florida 33880
(941) 299-6072
(941) 293-0733 (Fax)
AUBURNDALE OFFICE - 3660 Havendale Blvd.
Auburndale, Florida 33823
POLK CITY OFFICE - 212 N. Commonwealth Avenue
Polk City, Florida 33868
LAKELAND OFFICES
2215 S. Combee Road
Lakeland, Florida 33801
3900 South Florida Avenue
<PAGE> 32
[FIRST COMMERCE BANKS OF FLORIDA, INC. LETTERHEAD]
Robert W. Stickler, Jr.
Vice Chairman
February 28, 1997
Dear Shareholders:
For the last several years the strategic plan for our Company was to maximize
shareholder value, while at the same time provide the best banking services
in a friendly manner to our customers. Your Board of Directors along with
Management has worked diligently toward that goal.
During 1996 your Company placed $974,000 in its loan loss reserve to insure
stability of earnings in future years. This conservative yet prudent action did
not come without an adverse effect on earnings. The financial results for 1996
reported net earnings of $138,000 after tax or $.08 per share. The strategic
steps taken by Management in 1996, allowed the net interest margin, the
foremost future earnings indicator, to expand to 5.24%. Our Company continues
to have a strong capital position with total equity of $10.6 million. The
Company's total assets at December 31, 1996 were $106 million divided between
the branch locations of Winter Haven, Auburndale, Polk City and Lakeland.
With the goal of maximizing shareholder value, I am pleased to report that your
Board of Directors on February 18, 1997, entered into a Letter of Intent with
Colonial BancGroup. Colonial is a rapidly growing multi-bank holding company
headquartered in Montgomery, Alabama with assets of $6 billion, including
pending acquisitions, and 163 full service offices in Alabama, Florida, Georgia
and Tennessee. It is traded on the New York Stock Exchange under the symbol
CNB. In most newspapers the stock is listed as ColBgp. Colonial's philosophy of
creating a Super-Community Bank is exciting. Customers will continue to enjoy
the same local decision making, friendly atmosphere, but with expanded products
and services. Stockholders will have liquidity in their stock ownership and
employees will continue to be residents of our local communities. This
transaction was structured to be in the best interests of our stockholders.
<PAGE> 33
Our association with the Colonial group will allow for expansion of our
locations throughout Polk County. As we look forward to 1997, our Company is
better positioned than ever before to pursue growth, expanded earnings and a
maximized return to you, the shareholder.
I want to take the opportunity to thank you for your continued support and
encouragement as we embark on this profitable and exciting journey.
Sincerely,
/s/ Robert W. Stickler, Jr.
- ------------------------------------
Robert W. Stickler, Jr.
Vice Chairman, President & CEO
2
<PAGE> 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FIRST COMMERCE BANKS OF FLORIDA, INC.
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest income $ 8,957 $ 9,815 $ 8,730 $ 7,412 $ 7,193
Interest expense 3,541 4,168 3,294 2,759 3,077
---------- ---------- ---------- ---------- ----------
Net interest income 5,416 5,647 5,436 4,653 4,116
Provision for credit losses 974 1,191 282 318 375
---------- ---------- ---------- ---------- ----------
Net interest income after provision
for credit losses 4,442 4,456 5,154 4,335 3,741
Non-interest income 923 1,615 1,075 1,135 1,003
Non-interest expenses 5,211 5,021 4,731 4,187 3,664
---------- ---------- ---------- ---------- ----------
Income before taxes on income and
minority interest 154 1,050 1,498 1,283 1,080
Taxes on income 15 497 554 446 401
Minority interest 1 (6) 31 20 --
---------- ---------- ---------- ---------- ----------
Net income before cumulative effect of
change in accounting principle 138 559 913 817 679
Cumulative effect of change in
accounting principle -- -- -- 74 --
---------- ---------- ---------- ---------- ----------
Net income $ 138 $ 559 $ 913 $ 891 $ 679
========== ========== ========== ========== ==========
Per share data:
Net income per share $ .08 $ .34 $ .57 $ .59 $ .47
Cash dividends declared -- -- -- -- --
Book value at end of period $ 6.69(a) $ 6.63 5.87 5.67 5.06
Common shares outstanding at
end of period 1,585,737 1,585,737 1,585,853 1,459,061 1,459,061
Weighted average common shares
outstanding during period 1,679,145 1,663,729 1,590,820 1,490,444 1,459,061
Total assets at end of period $105,969 $113,083 $119,521 $110,783 $92,239
Cash and cash equivalents 13,451 10,369 13,950 16,005 12,694
Investment securities 21,704 28,143 27,960 27,025 20,481
Loans receivable, net 66,387 70,265 72,675 63,416 55,486
Deposits 94,749 101,941 107,846 100,472
83,563
Stockholders' equity 10,613 10,521 9,316 8,273 7,382
Allowance for credit losses as a percentage
of period-end total loans 2.14% 1.67% 1.12% 1.29% 1.19%
Allowance for credit losses as a percentage
of non-performing loans 54.91% 66.17% 98.46% 83.60% 148.89%
Total non-performing loans as a percentage
of total loans 3.89% 2.52% 1.14% 1.55% .80%
Total non-performing loans as a percentage
of total assets 2.50% 1.60% .71% .90% .49%
Total non-performing loans and real estate
owned as a percentage of total assets 2.57% 1.86% 1.14% 1.37% 1.22%
- ----------------------
</TABLE>
(a) Assuming conversion of all stock options and warrants, book value per
share as of December 31, 1996 would have been $6.32.
3
<PAGE> 35
FIRST COMMERCE BANKS OF FLORIDA, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PENDING BUSINESS COMBINATION
On February 18, 1997, First Commerce Banks of Florida, Inc. ("FCB")
entered into a letter of intent with The Colonial BancGroup, Inc. ("Colonial"),
a multi-bank holding company headquartered in Montgomery, Alabama. The letter
of intent relates to the proposed acquisition of FCB by Colonial and the
conversion of FCB's common stock into Colonial's common stock. The transaction
is subject to a number of conditions, including prior approval by regulatory
agencies and FCB's shareholders.
FSB/OSCEOLA SALE AND FSB/CBC MERGER
Sale of FSB/Osceola
On May 1, 1995, 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, par value $.01 per share, 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 99.70% of the voting shares of First Commerce/Polk
County. The FCB/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.
4
<PAGE> 36
GENERAL
FCB's results of operations are primarily dependent upon the results
of operations of First Commerce/Polk County. First Commerce/Polk County
conducts 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.
Management's discussion and analysis of earnings and related financial
data are presented herein to assist investors in understanding the financial
condition of FCB at, and the results of operations of FCB for the years ended,
December 31, 1996 and 1995. This discussion should be read in conjunction with
the consolidated financial statements and related footnotes of FCB 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 was
interest income on its portfolio of loans purchased from FSB/Osceola and cash
on deposit ($887,000 as of December 31, 1996) with First Commerce/Polk County,
which totaled $108,000 during the year ended December 31, 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
5
<PAGE> 37
FDIC and the 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 year ended December 31, 1996, FCB's cash and cash
equivalents increased $3.1 million, to $13.5 million as of December 31, 1996
from $10.4 million as of December 31, 1995. During 1996, investing activities
provided $8.9 million of cash, and financing activities used $7.2 million of
cash. FCB's total assets decreased $7.1 million to $106 million at December
31, 1996 from $113.1 million at December 31, 1995.
First Commerce/Polk County
Liquidity management involves the ability to meet the cash flow
requirements of customers who may be 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
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 well as First Commerce/Polk
County's reputation in the community. At December 31, 1996, First
Commerce/Polk County had commitments to originate loans totaling $2.8 million.
In addition, scheduled maturities of certificates of deposit during 1997
totaled $31.3 million. Management believes that First Commerce/Polk County has
adequate resources to fund all of its commitments, that substantially all of
its existing commitments will be funded within 12 months and, if so desired,
that First Commerce/Polk County can adjust the 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 securities as determined by the rules of
the Florida Department, such as federal funds sold and United States securities
or securities guaranteed by the United States. As of December 31, 1996, First
Commerce/Polk County had a liquidity ratio of 36.01%.
CAPITAL RESOURCES
FCB's total stockholders' equity was $10.6 million and $10.5 million
as of December 31, 1996 and 1995, respectively, which represents an increase of
$100,000. This increase was the result of 1996's net income of $138,000
offset by the $46,000 change in the unrealized
6
<PAGE> 38
securities losses at December 31, 1996 from December 31, 1995. FCB's total
stockholders' equity was 10.0% and 9.30% of total assets as of December 31,
1996 and 1995, respectively. First Commerce/Polk County's total stockholders'
equity was $9.4 million and $8.5 million as of December 31, 1996 and 1995,
respectively, or an increase of $900,000. This increase was the result of the
purchase of $750,000 of First Commerce/Polk County's common stock by FCB plus
First Commerce/Polk County's 1996 net income of $239,000 less the $46,000
change in the unrealized securities losses at December 31, 1996 from December
31, 1995.
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. At December 31, 1996, First Commerce/Polk County met the
capital ratios of a "well capitalized" financial institution with a total
risk-based capital ratio of 13.43%, a Tier 1 risk-based capital ratio of
11.66%, and a Tier 1 leverage ratio of 9.37%. 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.
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 December 31, 1996 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 December 31, 1996:
Total capital to risk-weighted assets 13.43% 8.00%
Tier I capital to risk-weighted assets 11.66% 4.00%
Tier I capital to total assets-leverage ratio 9.37% 4.00%
</TABLE>
7
<PAGE> 39
<TABLE>
<CAPTION>
At December 31, 1995:
<S> <C> <C>
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>
RESULTS OF OPERATIONS
General
FCB's net income was $138,000, or $.08 per share, for the year ended
December 31, 1996, as compared to $559,000, or $.34 per share, for the year
ended December 31, 1995, or a decrease of $421,000 or 75.3%. FCB's income
before taxes on income and minority interest was $154,000 for the year ended
December 31, 1996, as compared to $1.1 million for the year ended December 31,
1995, or a decrease of $896,000 or 85.30%.
For the years ended December 31, 1996 and 1995, selected ratios were
as follows:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Average equity as a percentage
of average assets 9.74% 8.76%
Return on average assets .13% .47%
Return on average equity 1.30% 5.38%
Non-interest expense to
average assets 4.79% 4.23%
</TABLE>
For the years ended December 31, 1996 and 1995, the following table
presents information regarding (i) the total dollar amount of FCB's interest
income from interest-earning assets and the resultant average yield; (ii) the
total dollar amount of interest expense on interest-bearing liabilities and the
resultant average cost; (iii) net interest income; (iv) net interest spread;
and, (v) net interest margin.
8
<PAGE> 40
<TABLE>
<CAPTION>
1996 1995
------------------------------------ --------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- --------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans receivable:(1)
Commercial $ 19,343 $1,875 9.69% $ 24,060 $2,451 10.19%
Real estate:(2)
Construction 2,403 235 9.78 2,977 321 10.78
Mortgage 43,961 4,678 10.64 38,821 4,108 10.58
Consumer and other 4,995 523 10.47 5,556 586 10.55
------- ------ ------ -------- ------ -----
Total loans, net of
unearned income 70,702 7,311 10.34 71,414 7,466 10.45
Investments - taxable 24,676 1,297 5.26 27,642 1,682 6.08
Investments - tax free(3) 1,053 66 10.00 1,117 67 9.64
Federal funds sold 5,410 283 5.23 10,027 600 5.98
-------- ------ ------ -------- ------ -----
Total interest-earning
assets 101,841 8,957 8.79 110,200 9,815 8.91
------ ------ ------ -----
Cash and due from banks 4,401 4,778
Allowance for credit losses (1,501) (955
Other non-earning assets 4,110 4,538
-------- --------
Total assets $108,851 $118,561
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
NOW accounts $ 14,082 325 2.31 $ 14,882 329 2.21
Money market 5,654 168 2.97 6,357 191 3.00
Savings 8,200 185 2.26 8,570 200 2.33
Time deposits:
Under $100,000 44,808 2,426 5.41 49,190 2,761 5.61
$100,000 and over 7,814 437 5.59 11,916 687 5.77
-------- ------ ------ -------- ------ -----
Total interest-bearing
liabilities 80,558 3,541 4.40 90,915 4,168 4.58
------ -----
Demand deposits 17,053 16,443
Other liabilities and
minority interest 638 820
Stockholders' equity 10,602 10,383
-------- --------
Total liabilities and
stockholders' equity $108,851 $118,561
======== ========
SPREAD AND INTEREST DIFFERENTIAL:
Net interest income $5,416 $5,647
====== ======
Interest-rate spread(4) 4.39% 4.33%
====== =====
Net interest margin(5)
5.32% 5.12%
====== =====
Excess of total interest-earning
assets over total interest
-bearing liabilities $ 21,283 $ 19,285
======== ========
- ----------------------------
</TABLE>
(1) Includes loans on non-accrual status.
(2) Interest income on mortgage loans included loan fees recognized as
income of $297,000 and $124,000 during the years ended December 31,
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.
9
<PAGE> 41
Net interest income
Net interest income, which constitutes the principal source of income
for FCB, 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 FCB's interest income and interest expense during the year ended December
31, 1996 as compared to the year ended December 31, 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 the 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
---- ------ ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable:
Commercial $(118) $(481) $ 23 $ (576)
Real estate:
Construction (30) (62) 6 (86)
Mortgage 23 544 3 570
Consumer and other (4) (59) - (63)
----- ----- ------ -----
Total loans receivable (129) (58) 32 (155)
Investments - taxable (230) (180) 25 (385)
Investments - tax free(1) 5 (6) - (1)
Federal funds sold (76) (276) 35 (317)
----- ----- ------ -----
Total interest-earning assets (430) (520) 92 (858)
----- ----- ------ -----
Interest-bearing liabilities:
NOW accounts 15 (18) (1) (4)
Money market (3) (20) - (23)
Savings (6) (9) - (15)
Time deposits under $100,000 (97) (246) 8 (335)
Time deposits $100,000 and over (20) (237) 7 (250)
----- ----- ------ -----
Total interest-bearing liabilities (111) (530) 14 (627)
----- ----- ------ -----
Net change in net interest income $(319) $ 10 $ 78 $(231)
===== ===== ====== =====
- --------------------------------
</TABLE>
(1) Yields on tax-free investments are computed on a tax equivalent basis using
a 37.3% effective income tax rate.
10
<PAGE> 42
FCB's net interest income was $5.4 million for the year ended December
31, 1996 compared with $5.6 million for the year ended December 31, 1995, or a
decrease of $200,000 or 3.6%. This decrease in net interest income resulted
from a shrinkage in earning assets of $8.4 million. Throughout 1996,
management allowed high priced deposit accounts to leave First Commerce/Polk
County and this shrinkage in deposits was funded with cash flow from loan
payoffs and repayments of mortgage backed securities. For a discussion of the
purchase of loans from FSB/Osceola, see "--General." The 15% volume decrease in
1996 from 1995 in interest expense was primarily attributable to the 11%
decrease in average interest-bearing liabilities. The yield on total
investments and Federal Funds sold decreased 122 basis points reflecting a
general decrease in the rate paid on Federal Funds sold and the above normal
repayment amounts on mortgage backed securities in the months of February,
April, May and June of 1996. The interest rate paid on interest bearing
liabilities decreased 12 basis points primarily due to a reduced amount of
deposits as a result of management's policy to reprice First Commerce/Polk
County deposits at lower rates. The overall result was an increase in the net
interest margin to 5.32% during 1996 from 5.16% during 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
FCB, the amounts of non-performing loans, general economic conditions,
particularly as they relate to FCB's market area, and other factors related to
the collectibility of FCB's loan portfolio. During the year ended December 31,
1996, the pro-vision for credit losses was $974,000, as compared to $1.2
million during the year ended December 31, 1995, or a decrease of $226,000.
While the provision for credit losses decreased, the allowance for credit
losses increased to $1.5 million at December 31, 1996 from $1.2 million at
December 31, 1995, or an increase of $300,000. The increased allowance for
credit losses was primarily in recognition of an increase in non-performing
loans to $2.6 million as of December 31, 1996 from $1.6 million as of December
31, 1995. See "--General," "--Financial Condition--Classification of Assets,"
and "--Financial Condition -- Allowance for Credit Losses." As of December 31,
1996 and 1995, the allowance for credit losses was 2.14% and 1.67%,
respectively, of total loans receivable, and was 55.88% and 74.69%,
respectively, of non-performing loans.
Other Income
Other income is primarily composed of deposit service charges and fees
and gains on sales of certain assets. During the year ended December 31, 1996,
other income decreased to $923,000 from $1.6 million during the year ended
December 31, 1995, or a decrease of $677,000 or 43%. This decrease was
primarily due to FCB recognizing two, non- recurring events in 1995. On May 1,
1995, FCB sold its stock ownership in FSB/Osceola, recognizing a gain on the
sale of $564,000 and FCB recognized a previously deferred gain of $171,000
which had resulted from the sale of bank property by FSB to FSB/Osceola prior
to 1995.
11
<PAGE> 43
During the year ended December 31, 1996, deposit service charges and
fees decreased to $855,000 from $917,000 during the year ended December 31,
1995, or a decrease of $62,000 or 6.8%. This decrease was primarily
attributable to the decrease in service chargeable accounts resulting from the
sale of the subsidiary bank, FCB/Osceola in May of 1995 and the reduction of
higher priced deposit accounts in 1996.
Other Expenses
During the year ended December 31, 1996, other expenses increased to
$5.2 million from $5.0 million during the year ended December 31, 1995, or an
increase of $200,000 or 3.85%. The following narrative sets forth additional
information on certain other expense categories which had significant changes.
During the year ended December 31, 1996, compensation and benefits
increased to $2.47 million from $2.15 million during the year ended December
31, 1995, or an increase of $320,000 or 14.9%. 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.
Professional fees increased to $446,000 during 1996, from $428,000
during 1995, or an increase of $18,000 or 4.2%. This increase resulted
primarily from the increased professional fees associated with the planned
mergers with two unaffiliated banks during 1996 (which mergers were terminated
in August 1996) and fees in 1996 associated with collection costs of
non-performing loans.
Other real estate owned expenses decreased to $77,000 during 1996,
from $175,000 during 1995, or a decrease of $98,000 or 56%. This decrease
primarily resulted from a decrease in the amount of acquired real estate held
for sale, going to $79,000 in 1996 from $301,000 in 1995. Certain OREO
properties, carried forward into 1996, have been written down to carrying
values in 1996.
Advertising and promotion expense decreased to $90,000 during 1996,
from $163,000 during 1995, a decrease of $73,000 or 44.8%. This decrease
resulted primarily from one-time expenses in 1995 related to the FCB/CBC
merger.
FDIC insurance expense decreased to $123,000 during 1996, from
$140,000 during 1995, a decrease of $17,000 or 12%. This decrease resulted
primarily from two factors: (i) the FDIC's reduction in insurance premiums;
and (ii) a refund of the 4th Quarter Assessment of $10,000 due to the
recapitalization of the SAIF Insurance fund.
Stationery expense increased to $163,000 during 1996, from $121,000
during 1995, or an increase of $42,000 or 34.7%. This increase resulted
primarily from printing expenses associated with the FSB/CBC merger.
Other expenses decreased to $617,000 during 1996, from $673,000 during
1995, or a decrease of $56,000 or 8.3%. This decrease resulted
primarily from decreased business
12
<PAGE> 44
development expenses, HONOR expense, telephone expense, consultant fees,
courier service, property and casualty insurance and check printing charges.
Taxes on Income
During the years ended December 31, 1996 and 1995, FCB recorded taxes
on income of $15,000 and $497,000, respectively, reflecting effective income
tax rates of 9.74% in 1996 and 47.33% in 1995. The decrease in the effective
income tax rate during 1996 was primarily due to income tax refunds received in
1996 for the 1995 tax year which were more than the amount recorded at December
31, 1995.
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. See "Business of
FCB -- FSB/Osceola Sale and FSB/CBC Merger" At 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 as summarized below (in thousands):
<TABLE>
<S> <C>
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
Office premises and equipment, net 806
Other assets 99
-------
Total $16,446
=======
Deposits:
Demand deposits $ 2,716
NOW accounts 1,115
Money market accounts 1,268
Savings accounts 2,462
Certificates of deposit 6,847
-------
Total deposits 14,408
Other liabilities 437
Stockholders' equity, including minority interest 1,601
-------
Total $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 total $8.7 million loan portfolio owned by
FSB/Osceola at April 30, 1995, $4.7 million was purchased during 1995 ($4.4
million by First Commerce/Polk County and $269,000 by FCB) and the remaining
balance of $1.9 million was purchased during 1996 ($1.4 million by First
Commerce/Polk County and $493,000 by FCB). As of December 31, 1996, FCB's
loans receivable included the following loans purchased from FSB/Osceola (in
thousands):
13
<PAGE> 45
<TABLE>
<S> <C>
Commercial $ 191
Real estate construction 84
Commercial real estate 538
Residential mortgage 2,237
Consumer and other 540
------
Total loans receivable 3,590
Less: Allowance for credit losses (31)
------
Loans receivable, net $3,559
======
</TABLE>
ASSET/LIABILITY MANAGEMENT
A principal objective of FCB'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 Bank's interest-rate sensitivity. From these reports, the
ALCO Committee can estimate the net interest income effect of various
interest-rate scenarios.
As a part of FCB'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
14
<PAGE> 46
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 December 31, 1996, the remaining
unamortized premiums on mortgage-backed securities totaled $286,000. 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 December 31,
1996, FCB's cumulative one-year gap was a positive 17% of total assets.
Management attempts to conform to this policy by managing the maturity
distribution of its investment portfolio, emphasizing originations and
purchases 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 FCB's interest rate
sensitive liabilities may reduce the potential impact that a rise in interest
rates might have on FCB's net interest income. FCB seeks to maintain a core
deposit base by providing quality services to its customers without
significantly increasing its cost of funds or operating expenses. FCB's
non-interest bearing demand deposits, NOW accounts, money market, and savings
accounts were 48.19% and 43.69% of total deposits at December 31, 1996 and
1995, respectively. These accounts bore a weighted average interest rate of
1.48% and 1.56% during the years ended December 31, 1996 and 1995,
15
<PAGE> 47
respectively. Management anticipates that these accounts will continue to
comprise a significant portion of FCB's total deposit base. FCB also maintains
a relatively large portfolio of liquid assets in order to reduce its overall
exposure to changes in market interest rates. At December 31, 1996 and
December 31, 1995, First Commerce/Polk County's liquidity ratios were 36.01%
and 31.35%, respectively. FCB also maintains a "floor," or minimum rate, on
certain of its floating or prime based loans. These floors allow FCB to
continue to earn a higher rate when the floating rate falls below the
established floor rate.
16
<PAGE> 48
The following table sets forth certain information relating to FCB's
interest-earning assets and interest- bearing liabilities at December 31, 1996
that are estimated to mature or are scheduled to reprice within the period
shown.
<TABLE>
<CAPTION>
31 91 181 OVER
0 TO 30 TO 90 TO 180 TO 365 ONE
DAYS DAYS DAYS DAYS YEAR TOTALS
-------- ---- ---- ---- ---- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans receivable: (1)
Commercial $1,720 $1,518 $1,790 $4,213 $4,471 $13,712
Real estate construction 48 187 256 76 875 1,442
Commercial real estate 1,255 2,044 2,734 3,274 21,142 30,449
Residential mortgage 1,482 819 1,538 2,348 9,284 15,471
Consumer and other 547 537 772 1,369 3,752 6,977
-------- -------- -------- ------- ------- -------
Total loans 5,052 5,105 7,090 11,280 39,524 68,051
Federal funds sold 7,688 - - - - 7,688
Investment Securities: (2)
Available-for-sale 236 7,000 5,908 1,383 5,630 20,157
Held-to-maturity - - - - 1,547 1,547
-------- -------- -------- ------- ------- -------
Total rate-sensitive assets 12,976 12,105 12,998 12,663 46,701 97,443
-------- -------- -------- ------- ------- -------
Deposits:
NOW accounts 13,722 - - - - 13,722
Money market 5,136 - - - - 5,136
Savings accounts 8,390 - - - - 8,390
Time deposits: (3)
Under $100,000 3,152 6,908 7,900 8,864 15,947 42,771
$100,000 and over 200 1,558 1,287 1,389 1,523 5,957
-------- -------- -------- ------- ------- -------
Total rate-sensitive liabilities 30,600 8,466 9,187 10,253 17,470 75,976
-------- -------- -------- ------- ------- -------
Gap (repricing differences) $(17,624) $ 3,639 $ 3,811 $ 2,410 $29,231 $21,467
======== ======== ======== ======= ======= =======
Cumulative Gap $(17,624) $(13,985) $(10,174) $(7,764) $21,467
======== ======== ======== ======= =======
Cumulative GAP/total assets (16.63)% (13.20)% (9.60)% (7.33)% 20.26%
======== ======== ======== ======= =======
- ----------------------
</TABLE>
(1) In preparing the table above, adjustable-interest rate loans were
included in the period in which the interest rates are next scheduled
to adjust rather than in the period in which the loans mature.
Fixed-interest rate loans were scheduled according to their contractual
maturities.
(2) In preparing the table above, adjustable-interest rate investment
securities were included in the period in which the interest rates are
next scheduled to adjust rather than in the period in which the
investment securities mature. Fixed-interest rate investment
securities were scheduled according to their contractual maturities.
(3) Time deposits were scheduled according to their contractual maturities.
17
<PAGE> 49
FINANCIAL CONDITION
Lending Activities
A significant source of FCB's income is the interest earned on its loan
portfolio. At December 31, 1996, FCB's total assets were $106.0 million and
its loans receivable, net were $66.4 million or 62.65% 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 62.14% of total assets. The decrease in
total loans receivable to December 31, 1996 from December 31, 1995 was $3.9
million or 5.52%. For the years ended December 31, 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 year $ 71,684 $ 73,841
Loan originations 39,613 38,459
Loan repayments (43,920) (35,594)
Sale of FSB/Osceola's loans - (8,850)
Purchase of FSB/Osceola loan 1,864 4,763
Loans charged-off (967) (788)
Transfers to other real estate owned (223) (147)
-------- --------
Balance at end of year $ 68,051 $ 71,684
======== ========
</TABLE>
For additional information on the FSB/Osceola loans, see "-- Sale of
FSB/Osceola."
The increase in loan repayments during 1996 from 1995 was primarily
due to the emphasis placed by First Commerce/Polk County's management during
1996 on managing the increase in non-performing assets rather than soliciting
new loans and getting non-performing and marginal loans repaid.
First Commerce/Polk County's primary market area consists of Polk
County, Florida. This area is located approximately 25 miles southwest of
Walt Disney World and its related parks and resorts, 45 miles southwest of
Orlando, and 55 miles east of Tampa. The principal economic activities of the
area include citrus, services, miscellaneous manufacturing (including wholesale
and retail trade), distribution, mining, finance, insurance, real estate,
utilities, tourism and trucking. There is no assurance that this area will
continue to experience economic growth. Adverse conditions in any one or more
of the industries operating in such markets or a slow-down in general economic
conditions could have an adverse effect on First Commerce/Polk County.
Lending activities are conducted pursuant to a written policy which
has been adopted by
18
<PAGE> 50
First Commerce/Polk County. Each loan officer has defined lending authority
beyond which loans, depending upon their type and size, must be reviewed and
approved by a loan committee comprised of certain officers and directors of
First Commerce/Polk County.
As of December 31, 1996 and 1995, the composition of FCB's loan
portfolio was as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------ ---------------------
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL
--------- ------ -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial $ 13,712 20.15% $ 19,888 27.74%
Real estate construction 1,442 2.12 4,163 5.81
Commercial real estate 30,449 44.75 24,633 34.36
Residential mortgage 15,471 22.73 14,788 20.63
Consumer and other 6,977 10.25 8,212 11.46
-------- -------- ------- -------
Total loans receivable 68,051 100.00 71,684 100.00
======== =======
Less:
Unearned income and fees (211) (224)
Allowance for credit losses (1,453) (2.14)% (1,195) (1.67)%
-------- ======== ------- =======
Loans, net $ 66,387 $70,265
======== =======
</TABLE>
As of December 31, 1996, the maturities and interest rate
sensitivities of FCB's loan portfolio, based on remaining scheduled principal
repayments, were as follows:
<TABLE>
<CAPTION>
DUE IN DUE AFTER ONE
ONE YEAR YEAR THROUGH DUE AFTER
OR LESS 5 YEARS 5 YEARS TOTAL
---------- -------------- --------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Commercial $ 9,241 $ 3,255 $1,216 $13,712
Real estate construction 567 828 47 1,442
Commercial real estate 9,307 18,819 2,323 30,449
Residential mortgage 6,187 8,324 960 15,471
Consumer and other 3,225 3,230 522 6,977
------- ------- ------ -------
Total loans receivable $28,527 $34,456 $5,068 $68,051
======= ======= ====== =======
Loans with maturities over one year:
Fixed-interest rate $17,719 $4,115 $21,834
Variable-interest rate 16,737 953 17,690
------- ------ -------
Total maturities greater than one year $34,456 $5,068 $39,524
======= ====== =======
</TABLE>
19
<PAGE> 51
Asset Quality
Management seeks to maintain quality assets through sound underwriting
and sound lending practices. The largest category of loans in FCB's loan
portfolio are collateralized by commercial real estate mortgages. As of
December 31, 1996 and 1995, 44.74%, 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 December 31, 1996, total non-performing
assets were $2.8 million or 2.60% of total assets, compared to $2.1 million or
1.86% of total assets as of December 31, 1995.
The commercial real estate mortgage loans in FCB'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 securing 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.
Unlike residential mortgage loans, which, generally, are made on the
basis of the borrower's ability to make repayment from his employment and other
income, and which are collateralized by real property whose value tends to be
more readily ascertainable, 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. 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.
From time to time, First Commerce/Polk County will originate loans on
an unsecured basis. As of December 31, 1996 and 1995, unsecured loans totaled
$4.6 million and $5.3 milion, 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. FCB, 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
20
<PAGE> 52
industry trends. As of December 31, 1996 and 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
68.62% and 60.80%, respectively, of the loan portfolio and were to borrowers in
varying activities and businesses.
The Loan Committee of the Board of Directors of First Commerce/Polk
County concentrates its efforts and resources, and that of its senior
management and lending officers, on loan review and underwriting procedures.
Internal controls include ongoing reviews of loans made to monitor
documentation and the existence and valuations of collateral. In addition,
management of First Commerce/Polk County has established a review process with
the objective of identifying, evaluating, and initiating necessary corrective
action for marginal loans. The goal of the loan review process is to address
classified and non-performing loans as early as possible.
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 in the opinion of management, principal or interest is not likely
to be paid in accordance with the terms of the obligation or 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. 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 FCB 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.
Interest income that would have been recorded under the original terms
of loans on non-accrual status and interest income actually recognized was
$309,000 and $126,000, respectively, for the year ended December 31, 1996, and
$144,000 and $28,000, respectively, for the year ended December 31, 1995.
On January 1, 1995, FCB adopted Statements of Financial Accounting
Standards No. 114 and 118. These Statements address the accounting by
creditors for impairment of certain loans and generally require FCB to identify
loans, for which full repayment of principal and interest will probably not be
received, as impaired loans. The Statements require that impaired loans be
valued
21
<PAGE> 53
at the present value of expected future cash flows, discounted at the loan's
effective interest rate, or at the observable market price of the loan, or the
fair value of the underlying collateral if the loan is collateral dependent.
FCB has implemented the 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 guidance in the Statements. As a result of FCB's
review, impaired loans totaled $1.9 million and $1.2 million and the allowance
for credit losses related to these loans totaled $548,000 and $156,000 as of
December 31, 1996 and 1995, respectively. The average balance of impaired
loans amounted to approximately $1.5 million and $795,000 during the years
ended December 31, 1996 and 1995, respectively. The adoption of the Statements
did not have a material effect on the results of operations for the year ended
December 31, 1995.
22
<PAGE> 54
As of December 31, 1996 and 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
------------------------ ----------------------
% OF % OF
TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS
------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Loans on non-accrual status:
Commercial $ 1,173 1.72% $ 416 .58%
Real estate construction --- .-- --- . --
Commercial real estate 1,221 1.79 832 1.16
Residential mortgage 180 0.26 302 .42
Consumer and other 72 0.11 57 .08
------- ----- ------ -----
Total loans on non-accrual status 2,646 3.89 1,607 2.24
Accruing loans over 90 days delinquent:
Residential mortgage --- .-- 199 .28
Troubled debt restructurings --- .-- --- . --
------- ----- ------ -----
Total non-performing loans $ 2,646 3.89% $1,806 2.52%
======= ===== ====== =====
Other real estate owned $ 79 $ 301
====== ======
Total non-performing assets $ 2,725 $2,107
======= ======
Loans past-due:
30-59 days delinquent $ 905 1.33% $1,352 1.89%
60 to 89 days delinquent 115 0.17 286 .40
------- ----- ------ -----
Total loans past-due 30 to 89 days 1,020 1.50 1,638 2.29
------- ----- ----- -----
Total loans past-due over 30 days $ 3,666 5.39 $3,444 4.81%
======= ===== ====== =====
As a percentage of total assets:
Total non-performing loans 2.50% 1.60%
===== ======
Total non-performing assets 2.57% 1.86%
===== ======
Allowance for credit losses as a
percentage of:
Total loans 2.14% 1.67%
===== ======
Non-performing loans 54.91% 66.17%
===== ======
</TABLE>
23
<PAGE> 55
As of December 31, 1996, loans on non-accrual status totaled $2.6
million and consisted primarily of five customer relationships totaling $2.2
million or 85% of total non-accruing loans.
The first customer relationship consisted of a $729,000 commercial real
estate mortgage. This mortgage loan was collateralized with a first mortgage
on a 35 acre recreational vehicle park and fish camp. During 1996, the customer
made interest payments which brought the loan to a current status. This loan
remains on non-accrual status.
The second customer relationship consisted of three commercial loans
totaling $291,000. The three loans are collateralized by accounts receivable,
inventory, high dump trailers and assignments of leases on high dump trailers.
First Commerce/Polk County is repossessing the collateral from the customer on
a voluntary basis. These loans remain on a non-accrual status.
The third relationship consisted of two loans totaling $195,000. This
relationship is secured by commercial real estate and a residential property.
There is a contract pending on the sale of the commercial real estate, however,
if this sale is not completed, the customer has agreed to deed the property to
First Commerce/Polk County. These loans remains on a non-accrual status.
The fourth relationship consisted of three loans totaling $232,000
secured by commercial real estate. Subsequent to December 31, 1996, two of the
three properties were sold paying off two of the three loans. The remaining
balance is $113,000. The remaining loan is being restructured to include
additional collateral consisting of an assignment of a lease agreement with a
third party on the related commercial real estate. This loan remains on a non-
accrual status.
The fifth relationship consisted of four loans of equal size totaling
$771,000. These loans are to four family members and are secured by stock
issued on a closely held family corporation, which has filed for Chapter 11
reorganization under the Bankrupcty Code. These loans remain on a non-accrual
status.
As of December 31, 1996, there were no accruing loans over 90 days
delinquent.
As of December 31, 1996, loans 30 to 89 days delinquent totaled
$1,020,000 and consisted primarily of 27 customer relationships totaling
$731,000 or 72% of total loans 30 to 89 days delinquent. The remaining $289,000
of loans 30 to 89 days delinquent consisted of a $181,000 loan secured by
residential real estate and a $108,000 loan secured by commercial real estate.
Following the FSB/CBC Merger, FCB experienced a significant increase in
its classified loans. As a result of the increase in FCB's classified loans,
management during the fourth quarter of 1995 completed a special review of
FCB's loan portfolio and instituted a number of steps intended to improve the
identification, evaluation, and resolution of FCB'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, an independent firm has been retained to conduct periodic loan
reviews and
24
<PAGE> 56
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, hiring a senior vice president in charge of commercial
lending and an assistant vice president in charge of handling nonaccruing loans
and other real estate. Although management believes that the foregoing steps
should contribute to an improvement in FCB'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 FCB.
Allowance for Credit Losses
In originating loans, FCB 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, FCB 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 FCB'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.
25
<PAGE> 57
As of December 31, 1996 and 1995, the allocation of the allowance for
credit losses was as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------- ---------------------
% OF % OF
LOANS TO LOANS TO
TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS
------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial $ 634 43.63% $ 348 27.74%
Real estate construction 13 0.92 42 5.81
Commercial real estate 586 40.33 465 34.36
Residential mortgage 145 9.97 213 20.63
Consumer and other 75 5.15 127 11.46
------ ------ ------ ------
Total allowance for credit losses $1,453 100.00% $1,195 100.00%
====== ====== ====== ======
</TABLE>
During the year ended December 31, 1996, the provision for credit
losses was $974,000, compared to $1.2 million during the year ended December
31, 1995, or a decrease of $217,000.
First Commerce/Polk County continued to provide for loan losses
throughout 1996, especially in the fourth quarter. During the fourth quarter,
$406,000 was added to the allowance for credit losses, which was in recognition
of an increase in charged off loans in the month of December 1996 of $595,000.
Total charged off loans, net of recoveries, were $741,000 for 1996 and $742,000
for 1995.
During 1996, $923,000 of loans were charged off, of which $306,000
consisted of unsecured loans. The three largest charged off loans totaled
$617,000, representing 67% of the total loans charged off. The first charged
off loan was a $121,000 commercial real estate loan. The second charged off
loan was the aggregate balance of three separate commercial real estate loans
of $121,000 to one borrower. The third charged off loan was a $375,000
commercial loan, secured by an assignment of proceeds of fruit sales. First
Commerce/Polk County was unsuccessful or decided it was too costly to protect
or seize the related collateral on these three loans.
26
<PAGE> 58
During the years ended December 31, 1996 and 1995, the activity in
FCB'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 (707) (708)
Real estate construction --- ---
Commercial real estate (103) ---
Residential mortgage (37) (50)
Consumer and other (120) (30)
-------- ---------
Total loans charged-off (967) (788)
-------- ---------
Recoveries:
Commercial 202 40
Real estate construction --- ---
Commercial real estate --- 1
Residential mortgage --- 1
Consumer and other 22 4
-------- ---------
Total recoveries 226 46
-------- ---------
Net loans charged-off (741) (742)
-------- ---------
FSB/Osceola allowance sold in 1995 --- (119)
-------- ---------
Allowance related to loans
purchased from FSB/Osceola 25 35
-------- ---------
Provision for credit losses charged to
expense 974 1,191
-------- ---------
Allowance at end of period $ 1,453 $ 1,195
======== =========
Net charge-offs as a percentage of average
loans outstanding 1.05% 1.04%
======== =========
Allowance for credit losses as a percentage
of period-end total loans receivable 2.14% 1.67%
======== =========
Allowance for credit losses as a percentage
of non-performing loans 54.91% 66.17%
======== =========
Average loans outstanding $70,702 $71,414
======== =========
Period-end total loans receivable $68,051 $71,684
======== =========
</TABLE>
27
<PAGE> 59
Investment Securities
The total investment portfolio decreased to $29.4 million as of
December 31, 1996, from $33.7 million as of December 31, 1995, or a decrease of
$4.3 million or 12.80%. This decrease was primarily to fund the higher priced
deposits leaving First Commerce/Polk County during 1996.
The following table sets forth the carrying balances of FCB's
investment portfolio as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
(Dollars in thousands)
<S> <C> <C>
Securities available-for-sale:
U.S. Treasury securities $ 2,008 $ 2,000
U.S. Government agency obligations 4,475 1,001
FHLMC mortgage-backed securities 12,166 19,430
FNMA mortgage-backed securities 609 1,177
Collateralized mortgage obligations:
FHLMC obligations - 24
FNMA 899 952
------- -------
Total securities available-for-sale $20,157 $24,584
======= =======
Securities held-to-maturity:
U.S. Treasury securities $ - $ 2,000
U.S. Government agency obligations 500 500
State, county and municipal securities 1,047 1,059
------- -------
Total held-to-maturity $ 1,547 $ 3,559
======= =======
Total investment securities $21,704 $28,143
======= =======
Federal funds sold $ 7,688 $ 5,562
======= =======
Total Investment portfolio $29,392 $33,705
======= =======
</TABLE>
FCB has adopted Statement of Financial Accounting Standards No. 115
("FAS 115"), which requires companies to classify investments 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
28
<PAGE> 60
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. At December 31, 1996, all mortgage-backed securities were classified
as available-for-sale. As a result of the adoption of FAS 115, under which FCB
expects to continue to classify certain of its mortgage-backed securities as
available-for- sale, changes in the underlying market values of such securities
could have a material adverse effect on FCB'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 decrease in interest rates during the past year,
decreases in the market value of available-for-sale mortgage-backed securities
resulted in a decrease in stockholders' equity of $33,000 at December 31, 1996.
Such decrease represents the impact of changes in interest rates on the value
and maturity of these investments.
As allowed by "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities" issued by the
Financial Accounting Standards Board, FCB reevaluated the classification of its
investment securities and on December 12, 1995, reclassified securities with an
amortized cost of $2.1 million and a fair value of $2.1 million from securities
held-to-maturity to securities available-for-sale.
29
<PAGE> 61
As of December 31, 1996, the maturity distribution and certain other
information pertaining to investment securities were as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE YIELD
--------- ----- -----
(Dollars in thousands)
<S> <C> <C> <C>
Securities available-for-sale:
U.S. Treasury securities:
Due within one year $2,004 $2,008 5.66%
====== ====== =====
U.S. Government agency obligations:
Due within one year 2,000 2,002 5.61
Due one to five years 2,489 2,473 6.00
------ ------ -----
4,489 4,475 5.82
====== ====== =====
FHLMC mortgage-backed securities:
Due within one year 1,665 1,648 6.30
Due over ten years(1) 10,451 10,518 6.25
------ ------ -----
12,116 12,166 6.25
====== ====== =====
FNMA mortgage-backed securities:
Due one to five years 89 91 8.50
Due over ten years(1) 511 518 3.84
------ ------ -----
600 609 4.53
====== ====== =====
Collateralized mortgage obligations:
FNMA mortgage-backed
securities:
Due over ten years(1) 1,000 899 5.95
====== ====== =====
Total securities
available-for-sale $20,209 $20,157 6.03%
====== ====== =====
Securities held-to-maturity:
U.S. Government agency obligations:
Due one to five years 500 497 5.52
====== ====== =====
State, county and municipal
obligations:(2)
Due five to ten years 300 299 4.62
Due over ten years 747 792 8.82
------ ------ -----
Total 1,047 1,091 7.62
====== ====== =====
Total securities
held-to-maturity $1,547 $1,588 6.94%
====== ====== =====
- ----------------------------
</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.
30
<PAGE> 62
FCB 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 FCB'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 FCB. Due to repayment and prepayments of the underlying loans,
the actual maturities of mortgage-backed securities are substantially less than
the scheduled maturities. FCB'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 FCB's mortgage-backed securities.
Changes in the market values of FCB's mortgage-backed securities may result in
volatility in capital based on how FCB classifies the securities. See
"--Asset/Liability Management."
Deposit Activities
Deposits are the major source of FCB's funds for lending and other
investment purposes. Deposits are attracted principally from within FCB'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
December 31, 1996 and 1995, the distribution by type of FCB's deposit accounts
was as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------- ----------------------
% OF % OF
AMOUNT DEPOSIT AMOUNT DEPOSITS
------ ------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Demand deposits $18,773 19.81% $ 17,056 16.73%
NOW deposits 13,722 14.48 15,045 14.76
Money market 5,136 5.42 4,698 4.61
Savings accounts 8,390 8.86 7,735 7.59
Time deposits under $100,000 42,771 45.14 48,864 47.93
Time deposits $100,000 and over 5,957 6.29 8,543 8.38
------- ------ -------- ------
Total deposits $94,749 100.00% $101,941 100.00%
======= ====== ======== ======
</TABLE>
Time deposits included individual retirement accounts ("IRAs")
totalling $6.0 million at December 31, 1996 and 1995, all of which are in the
form of certificates of deposit.
31
<PAGE> 63
FCB's deposits decreased to $94.7 million as of December 31, 1996,
from 101.9 million as of December 31, 1995, or a decrease of $7.2 million or
7.06%. This decrease was primarily attributable to the $7.8 million, or
13.6%, decrease in deposits of First Commerce/Polk County. During 1996, First
Commerce/Polk County repriced deposits at a lower rate resulting in a decrease
in deposits.
Maturity terms, service fees and withdrawal penalties are established
by First Commerce/Polk County on a periodic basis. The determination of rates
and terms is predicated on funds acquisition and liquidity requirements, rates
paid by competitors, growth goals and federal regulations.
FDIC regulations limit the ability of certain insured depository
institutions to accept, renew, or rollover deposits by offering rates of
interest which are significantly higher than the prevailing rates of interest
on deposits offered by other insured depository institutions having the same
type of charter in such depository institutions' normal market area. Under
these regulations, "well capitalized" depository institutions may accept,
renew, or roll over deposits at such rates without restriction, "adequately
capitalized" depository institutions may accept, renew or roll over deposits at
such rates with a waiver from the FDIC (subject to certain restrictions on
payments of rates), and "undercapitalized" depository institutions may not
accept, renew or roll over deposits at such rates. The regulations contemplate
that the definitions of "well capitalized," "adequately capitalized" and
"undercapitalized" will be the same as the definitions adopted by the agencies
to implement the prompt corrective action provisions of applicable law. See
"Supervision, Regulation and Governmental Policy -- Capital Requirements." As
of December 31, 1996, First Commerce/Polk County met the definition of a "well
capitalized" depository institution.
FCB does not have a concentration of deposits from any one source, the
loss of which would have a material adverse effect on FCB. Management believes
that substantially all of FCB's depositors are residents in its primary market
area. FCB currently does not accept brokered deposits.
Time deposits of $100,000 and over, public fund deposits and other
large deposit accounts tend to be short-term in nature and more sensitive to
changes in interest rates than other types of deposits and, therefore, may be a
less stable source of funds. In the event that existing short-term deposits
are not renewed, the resulting loss of the deposited funds could adversely
affect FCB's liquidity. In a rising interest rate market, such short-term
deposits may prove to be a costly source of funds because their short-term
nature facilitates renewal at increasingly higher interest rates, which may
adversely affect FCB's earnings. However, the converse is true in a falling
interest-rate market where such short-term deposits are more favorable to FCB.
32
<PAGE> 64
As of December 31, 1996 and 1995, time deposits of $100,000 and over
mature as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
(Dollars in thousands)
<S> <C> <C>
Due in three months or less $ 1,758 $ 2,130
Due from three months to six months 1,287 1,564
Due from six months to one year 1,389 1,568
Due over one year 1,523 3,281
------- --------
Total time deposits
$100,000 and over $ 5,957 $ 8,543
======= ========
</TABLE>
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data concerning FCB have been
prepared in accor-dance with generally accepted accounting principles which
require the measurement of financial position and operating results in terms of
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation. The principal element of FCB's earnings
is interest income which may be significantly affected by the level of
inflation and by government monetary and fiscal policies adopted in response to
inflationary or deflationary pressures.
Inflation affects the reported financial condition and results of
operations of all companies. However, the majority of assets and liabilities
of financial institutions are monetary in nature and therefore differ greatly
from most commercial and industrial companies that have significant investments
in fixed assets or inventories. Inflation does have an important impact on the
growth of total assets and the resulting need to increase equity capital at
higher than normal rates in order to maintain an appropriate equity to assets
ratio Inflation also is a factor which may influence interest rates, yet the
frequency and magnitude of interest rate fluctuations do not necessarily
coincide with changes in the general inflation rate. In an effort to cope with
the effects of inflation, FCB attempts to monitor its interest-rate sensitivity
gap position, as discussed above. In addition, a periodic review of banking
services and products is conducted to adjust pricing in view of current costs.
FUTURE ACCOUNTING REQUIREMENTS
Statement of Financial Accounting Standards No. 125 ("FAS 125"),
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial components approach that focuses on
control. FAS 125 provides standards for distinguishing transfers of financial
assets from transfers that are secured borrowings. The accounting and
disclosure requirements of FAS 125 will become effective for FCB beginning
January 1, 1997. Management is in the process of evaluating FAS 125, but does
not anticipate that FAS 125 will have a material impact on FCB's financial
statements.
33
<PAGE> 1
Exhibit 21.1
First Commerce Banks of Florida, Inc.
Form 10-KSB
For Fiscal Year Ended December 31, 1996
Subsidiaries of Registrant
First Commerce Bank of Polk County
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 5,763
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 7,688
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 20,157
<INVESTMENTS-CARRYING> 1,547
<INVESTMENTS-MARKET> 1,588
<LOANS> 66,387
<ALLOWANCE> 1,453
<TOTAL-ASSETS> 105,969
<DEPOSITS> 94,749
<SHORT-TERM> 0
<LIABILITIES-OTHER> 577
<LONG-TERM> 0
0
0
<COMMON> 16
<OTHER-SE> 10,597
<TOTAL-LIABILITIES-AND-EQUITY> 105,969
<INTEREST-LOAN> 7,311
<INTEREST-INVEST> 1,363
<INTEREST-OTHER> 283
<INTEREST-TOTAL> 8,957
<INTEREST-DEPOSIT> 3,541
<INTEREST-EXPENSE> 3,541
<INTEREST-INCOME-NET> 5,416
<LOAN-LOSSES> 974
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 5,212
<INCOME-PRETAX> 154
<INCOME-PRE-EXTRAORDINARY> 154
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 138
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
<YIELD-ACTUAL> 5.32
<LOANS-NON> 2,646
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,195
<CHARGE-OFFS> 967
<RECOVERIES> 251
<ALLOWANCE-CLOSE> 1,453
<ALLOWANCE-DOMESTIC> 1,453
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
