<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 33-91906
FIRST COMMERCE BANKS OF FLORIDA, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-2405633
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
141 CENTRAL AVENUE EAST, WINTER HAVEN, FLORIDA 33880
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (941) 299-6072
NOT APPLICABLE
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
----- -----
As of April 30, 1997, there were outstanding 1,585,737 shares of the
Registrant's Common Stock.
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FIRST COMMERCE BANKS OF FLORIDA, INC.
FORM 10-Q - FOR THE QUARTER ENDED MARCH 31, 1997
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
a) Consolidated Statements of Financial Condition -
March 31, 1997 (Unaudited)
and December 31, 1996................................................. 3
b) Unaudited Consolidated Income Statements - Three
Months Ended March 31, 1997 and 1996.................................. 4
c) Unaudited Consolidated Statements of
Cash Flows - Three Months Ended
March 31, 1997 and 1996............................................... 5
d) Notes to Unaudited Consolidated
Financial Statements.................................................. 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations......................................................... 10
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K............................................... 29
SIGNATURES.............................................................................. 30
</TABLE>
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PART I. - FINANCIAL INFORMATION ITEM 1. - FINANCIAL STATEMENTS
FIRST COMMERCE BANKS OF FLORIDA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31,
(UNAUDITED) 1996
-------------- -----------
<S> <C> <C>
ASSETS (In thousands except for share amounts)
Cash and due from banks........................................... $ 6,939 $ 5,763
Federal funds sold................................................ 8,289 7,688
Investment securities available-for-sale.......................... 20,014 20,157
Investment securities held-to-maturity (fair value of
$1,536 and $1,588) ........................................... 1,544 1,547
Loans receivable, net of allowance for credit
losses of $1,423 and $1,453................................... 65,377 66,387
Property and equipment, net....................................... 1,309 1,309
Cash surrender value of officers' life insurance.................. 1,135 1,126
Accrued interest receivable....................................... 768 871
Other real estate owned........................................... 79 79
Other assets...................................................... 564 1,042
-------- --------
TOTAL ASSETS...................................................... $106,018 $105,969
======== ========
LIABILITIES
Deposits:
Demand deposits............................................... $ 20,403 $ 18,773
NOW accounts.................................................. 14,928 13,722
Money market accounts......................................... 6,040 5,136
Savings deposits.............................................. 8,114 8,390
Time deposits under $100,000.................................. 40,032 42,771
Time deposits $100,000 and over............................... 4,957 5,957
-------- --------
Total deposits............................................ 94,474 94,749
Other liabilities................................................. 701 577
-------- --------
TOTAL LIABILITIES................................................. 95,175 95,326
-------- --------
Minority interest................................................. 31 30
-------- --------
Commitments and contingencies (Note 5)
STOCKHOLDERS' EQUITY
Preferred stock $.01 par - 3,000,000
shares authorized and none outstanding........................ --- ---
Common stock $.01 par - 10,000,000 shares
authorized and 1,585,737 shares outstanding................... 16 16
Additional paid-in capital........................................ 6,738 6,738
Retained earnings................................................. 4,168 3,892
Unrealized securities losses, net of income tax
benefit of $66 and $20........................................ (110) (33)
-------- --------
TOTAL STOCKHOLDERS' EQUITY........................................ 10,812 10,613
-------- --------
TOTAL LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY $106,018 $105,969
======== ========
</TABLE>
The accompanying Notes to Unaudited Consolidated Financial Statements
are an integral part of these financial statements.
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FIRST COMMERCE BANKS OF FLORIDA, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1997 1996
-------- ------
INTEREST AND FEE INCOME: (In thousands, except per share amounts)
<S> <C> <C>
Loans receivable.................................................... $1,730 $1,858
Investment securities - taxable..................................... 314 346
Investment securities - tax free.................................... 16 17
Federal funds sold.................................................. 116 84
------ ------
Total interest and fee income................................... 2,176 2,305
------ ------
INTEREST EXPENSE ON DEPOSITS:
NOW accounts........................................................ 85 77
Money market accounts............................................... 42 48
Savings deposits.................................................... 45 45
Time deposits under $100,000........................................ 532 659
Time deposits $100,000 and over..................................... 73 117
------ ------
Total interest expense on deposits.............................. 777 946
------ ------
NET INTEREST INCOME................................................. 1,399 1,359
PROVISION FOR CREDIT LOSSES......................................... 73 92
------ ------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES............... 1,326 1,267
------ ------
NON-INTEREST INCOME:
Service charges and fees............................................ 178 208
Other ............................................................ 81 47
------ ------
Total non-interest income....................................... 259 255
------ ------
NON-INTEREST EXPENSES:
Compensation and benefits........................................... 547 586
Occupancy and equipment............................................. 189 197
Professional fees................................................... 94 59
Data processing..................................................... 80 59
Stationary and supplies............................................. 26 39
Advertising and promotion........................................... 22 31
Postage and freight................................................. 22 26
Other real estate owned............................................. 3 13
FDIC insurance premiums............................................. (5) 9
Other ............................................................ 121 163
------ ------
Total non-interest expenses..................................... 1,099 1,182
------ ------
INCOME BEFORE TAXES ON INCOME AND MINORITY INTEREST................. 486 340
Taxes on income..................................................... 209 108
Minority interest................................................... 1 (10)
------ ------
NET INCOME.......................................................... $ 276 $ 242
====== ======
NET INCOME PER SHARE................................................ $ .17 $ .14
====== ======
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK
AND COMMON STOCK EQUIVALENTS OUTSTANDING........................ 1,681 1,678
====== ======
</TABLE>
The accompanying Notes to Unaudited Consolidated Financial Statements
are an integral part of these financial statements.
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FIRST COMMERCE BANKS OF FLORIDA, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: (In thousands)
Net income........................................................ $ 276 $ 242
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses................................... 73 92
Net amortization of premiums on investment
securities and loans...................................... 41 11
Depreciation and amortization................................. 57 45
Provision for deferred income taxes........................... 13 61
Loss on sale of other real estate owned....................... - 8
Changes in assets and liabilities:
Decrease (Increase) in:
Accrued interest receivable........................... 103 27
Cash surrender value of officers' life insurance...... (9) (14)
Other assets.......................................... 537 (3)
Minority interest......................................... 1 (10)
Increase (decrease) in other liabilities.................. 124 (58)
------- -------
Net cash provided by operating activities......................... 1,216 401
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease (increase) in loans receivable....................... 904 855
Purchases of investment securities available-for-sale............. (4,992) -
Maturities of investment securities available-for-sale............ 4,975 3,135
Proceeds from sales of other real estate owned.................... - 56
Purchases of property and equipment............................... (51) (25)
------- -------
Net cash provided by investing activities......................... 836 4,021
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in:
Demand deposits............................................... 1,630 (172)
NOW accounts.................................................. 1,206 (1,084)
Money market accounts......................................... 904 1,662
Savings deposits.............................................. (276) 269
Time deposits................................................. (3,739) (3,354)
------- -------
Net cash used for financing activities............................ (275) (2,679)
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS......................... 1,777 1,743
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................. 13,451 10,369
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $15,228 $12,112
======= =======
SUPPLEMENTAL DISCLOSURES:
Interest paid in cash......................................... $ 796 $ 963
======= =======
Income taxes paid in cash..................................... $ 2 $ -
======= =======
NON-CASH INVESTING ACTIVITIES:
Transfers from loans to other real estate owned................... $ - $ 62
======= =======
Transfers from loans to repossessed assets........................ $ 33 $ -
======= =======
</TABLE>
The accompanying Notes to Unaudited Consolidated Financial Statements
are an integral part of these financial statements.
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FIRST COMMERCE BANKS OF FLORIDA, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
First Commerce Banks of Florida, Inc. ("FCB") is a commercial bank holding
company which, as of March 31, 1997, owned 99.77% of First Commerce Bank of
Polk County ("First Commerce/Polk County") in Winter Haven, Florida. The
consolidated financial statements include the accounts of FCB and First
Commerce/Polk County. The minority interest represented a .23% ownership
interest in the common stock of First Commerce/Polk County held by third
parties. All material intercompany accounts and transactions were eliminated.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not include
all of the information and footnotes required by generally accepted accounting
principles for complete consolidated financial statements. In the opinion of
FCB, the consolidated financial statements reflect all adjustments which are of
a normal recurring nature and which are necessary to present fairly the
consolidated financial position of FCB as of March 31, 1997 and December 31,
1996, the results of their operations for the three months ended March 31, 1997
and 1996, and their cash flows for the three months ended March 31, 1997 and
1996. The results of operations for the three months ended March 31, 1997 are
not necessarily indicative of the results which may be expected for the entire
fiscal year.
Net income per share of FCB's common stock was computed by dividing net
income for the respective period by the weighted average number of shares of
common stock outstanding, including common stock equivalents using the treasury
stock method. Warrants and stock options issued to officers and directors are
considered common stock equivalents. Because there is no established public
trading of FCB's common stock, the treasury stock method assumes that FCB
purchased common stock at FCB's average book value during the respective
periods. Fully-diluted and primary earnings per share are not materially
different. For the three months ended March 31, 1997 and 1996, weighted average
number of shares of common stock and common stock equivalents outstanding was
computed as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
Weighted average shares of common stock outstanding........... 1,585,737 1,585,737
Common shares assumed outstanding to reflect the dilutive
effect of warrants to purchase common stock............... 55,162 53,651
Common shares assumed outstanding to reflect the dilutive
effect of stock options to purchase common stock ......... 40,353 39,093
--------- ---------
Weighted average number of shares of common stock
and common stock equivalents outstanding.................. 1,681,252 1,678,481
========= =========
</TABLE>
FCB follows Statement of Financial Accounting Standards No. 114 ("FAS
114"), "Accounting by Creditors for Impairment of a Loan," and Statement of
Financial Accounting Standards No. 118 ("FAS 118"), "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures." These two
Statements address the accounting by creditors for impairment of certain loans
and generally require FCB to identify loans for which FCB probably will not
receive full repayment of principal and interest, as impaired loans. These two
Statements require that impaired loans be valued at either (i) the present
value of expected future cash flows, discounted at the loan's effective
interest rate, or (ii) at the observable market price of the loan, or (iii) the
fair value of the underlying collateral if the loan is collateral dependent.
FCB implemented these two statements by modifying its quarterly review of the
adequacy of the allowance for credit losses to also identify and value impaired
loans in accordance with the guidance in these two Statements.
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FCB considers a variety of factors in determining whether a loan is
impaired, including (i) any notice from the borrower that the borrower will be
unable to repay all principal and interest amounts contractually due under the
loan agreement, (ii) any delinquency in the principal and interest payments
(other than minimum delays or shortfalls in payments), and (iii) other
information known by FCB which would indicate that full repayment of the
principal and interest is not probable. In evaluating loans for impairment, FCB
generally considers delinquencies of 60 days or less to be minimum delays, and
accordingly does not consider such delinquent loans to be impaired in the
absence of other indications of impairment.
FCB evaluates smaller balance, homogeneous loans for impairment and
adequacy of allowance for credit losses collectively, and evaluates other loans
for impairment individually, on a loan-by-loan basis. For this purpose, FCB
considers its portfolio of commercial, commercial real estate and residential
real estate loans less than $500,000 and its consumer and other loans to be
smaller balance, homogeneous loans. FCB evaluates each of these loan portfolios
for impairment on an aggregate basis, and utilizes its own historical
charge-off experience, as well as the charge-off experience of its peer group
and industry statistics to evaluate the adequacy of the allowance for credit
losses. For all other loans, FCB evaluates loans for impairment on a
loan-by-loan basis.
FCB evaluates all non-accrual loans as well as any accruing loans
exhibiting collateral or other credit deficiencies for impairment. With respect
to impaired collateral-dependent loans, any portion of the recorded investment
in the loan that exceeds the fair value of the collateral is charged-off.
For impairment recognized in accordance with these two Statements, the
entire change in the present value of expected cash flows, or the entire change
in estimated fair value of collateral for collateral dependent loans, is
reported as a provision for credit losses in the same manner in which
impairment initially was recognized or as a reduction in the amount of the
provision that otherwise would be reported.
On January 1, 1996, FCB adopted Statement of Financial Accounting Standards
No. 122 ("FAS 122"), "Accounting for Mortgage Servicing Rights, an amendment of
FASB Statement No. 65," which requires mortgage banking enterprises that
acquire mortgage servicing (through either the purchase or origination of
mortgage loans) and sell or securitize those loans with servicing retained to
allocate the total cost of the mortgage loans to the mortgage servicing rights
and the loans based on their relative fair values. Mortgage banking enterprises
include commercial banks that conduct operations substantially similar to the
primary operations of a mortgage banking enterprise. The implementation of FAS
122 did not have a material impact on FCB's financial statements.
On January 1, 1996, FCB adopted Statement of Financial Accounting Standards
No. 123 ("FAS 123"), "Accounting for Stock-Based Compensation" which requires
certain disclosures about stock-based employee compensation arrangements,
regardless of the method used to account for them, and defines a fair value
based method of accounting for an employee stock option or similar equity
instrument and encourages all entities to adopt that method of accounting for
all of their employee stock compensation plans. However, FAS 123 also allows an
entity to continue to measure compensation cost for stock-based compensation
plans using the intrinsic value method of accounting prescribed by APB Opinion
No. 25, "Accounting for Stock Issued to Employees." Entities electing to
continue using the accounting method in APB Opinion No. 25 must make pro forma
disclosures of net income and earnings per share as if the fair value method of
accounting defined in FAS 123 had been applied. Under the fair value method,
compensation cost is measured at the grant date based on the value of the award
and is recognized over the service period, which is usually the vesting period.
Under the intrinsic value based method, compensation cost is the excess, if
any, of the quoted market price of the stock at grant date or other measurement
date over the amount an employee must pay to acquire the stock. Because FCB
elected to continue using the accounting method in APB Opinion No. 25, the
implementation of FAS 123 did not have a material impact on FCB's financial
statements. The disclosure requirements of FAS 123 need not be applied in an
interim report unless a complete set of financial statements is presented for
that period.
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NOTE 2 - LOAN COMMITMENTS
FCB's 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. As of March 31, 1997 (unaudited) and
December 31, 1996, commitments and standby letters of credit totaled
$10,473,000 and $10,365,000, respectively.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
First Commerce/Polk County is a party to financial instruments with
off-balance sheet risk in the normal course of its business in order to meet
the financing needs of its customers and to reduce its own exposure to
fluctuations in interest rates. These financial instruments include loan
commitments and standby letters of credit. These instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the financial statements.
First Commerce/Polk County's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for loan
commitments and standby letters of credit is represented by the contractual
amount of those instruments. First Commerce/Polk County uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance sheet instruments.
Standby letters of credit are conditional commitments issued by First
Commerce/Polk County to guarantee the performance of a customer to a third
party. The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to customers. The collateral
varies for those commitments, but may include a certificate of deposit held by
First Commerce/Polk County if collateral is deemed necessary.
As of March 1, 1997 (unaudited) and December 31, 1996, loan commitments
totaled $10,473,000 and $10,365,000 respectively. Since many of these
commitments may expire without being drawn upon, the total commitment amount
does not necessarily represent future cash requirements.
FCB is party to litigation and claims arising in the normal course of
business. Management does not believe that there are any pending or threatened
proceedings against FCB which, if determined adversely, would have a materially
adverse effect on FCB's financial position, liquidity or results of operations.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
For the three months ended March 31, 1997 and 1996, the activity in the
allowance for credit losses was as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
(Unaudited)
(In thousands)
<S> <C> <C>
Balance at beginning of period.......................... $1,453 $1,195
Allowance related to loans purchased
from FSB/Osceola.................................... - 25
Provision for credit losses............................. 73 92
Net loans charged-off (recovered)....................... 103 (24)
------ ------
Balance at end of period................................ $1,423 $1,336
====== ======
</TABLE>
The allowance related to loans purchased from FSB/Osceola relates to loans
purchased from a former subsidiary, sold to an unaffiliated financial
institution in 1995.
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<PAGE> 9
As of March 31, 1997 (unaudited) and December 31, 1996, non-accrual loans
totaled $2,972,000 and $2,646,000, respectively. For the three months ended
March 31, 1997 and 1996, interest income that would have been recorded under
the original terms of non-accrual loans and the interest income actually
recognized were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
(Unaudited)
(In thousands)
<S> <C> <C>
Interest income under the original terms............... $65 $83
Interest income actually recognized.................... (3) (8)
--- ---
Interest income foregone............................... $62 $75
=== ===
</TABLE>
As a result of FCB's review, impaired loans totaled $1,865,000 and
$1,911,000 and the allowance for credit losses related to these loans totaled
$541,000 and $548,000 as of March 31, 1997 (unaudited) and December 31, 1996,
respectively. The average balance of impaired loans amounted to $1,888,000 and
$1,659,000 during the three months ended March 31, 1997 (unaudited) and 1996
(unaudited), respectively.
NOTE 5 - PENDING BUSINESS COMBINATION
On March 24, 1997, FCB entered into an agreement and plan of merger with
The Colonial BancGroup, Inc. (Colonial), a multi-bank holding company
headquartered in Montgomery, Alabama. The agreement relates to the acquisition
of FCB by Colonial and the conversion of FCB's common stock into Colonial's
common stock in accordance with the terms of the agreement. The transaction is
subject to a number of conditions, including prior approval by regulatory
agencies and FCB's shareholders.
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<PAGE> 10
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
Pending Business Combination with The Colonial BancGroup, Inc.
On March 24, 1997, FCB entered into an agreement and plan of merger with
The Colonial BancGroup, Inc. (Colonial), a multi-bank holding company
headquartered in Montgomery, Alabama. The agreement relates to the acquisition
of FCB by Colonial and the conversion of FCB's common stock into Colonial's
common stock in accordance with the terms of the agreement. The transaction is
subject to a number of conditions, including prior approval by regulatory
agencies and FCB's shareholders.
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 March 31, 1997 and December 31, 1996, and the results of
operations of FCB for the three months ended March 31, 1997 and 1996. This
discussion should be read in conjunction with the unaudited consolidated
financial statements and related unaudited 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 1997 and 1996
was interest income on its portfolio of loans purchased from FSB/Osceola and
cash on deposit ($947,000 and $887,000 as of March 31, 1997 and December 31,
1996, respectively) with First Commerce/Polk County, which totaled $19,000
during the three months ended March 31, 1997. Possible future sources of cash
flow for FCB include dividends or management fees from First Commerce/Polk
County. However, there are various statutory limitations on the ability of
First Commerce/Polk County to pay dividends, extend credit, or otherwise supply
funds to FCB. The FDIC and the Florida Department of Banking and Finance
("Florida Department") also have the general authority to limit the dividends
paid by insured banks and bank holding companies. FCB has not paid any cash
dividends to its shareholders.
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<PAGE> 11
During the three months ended March 31, 1997, FCB's cash and cash
equivalents increased $1.7 million, to $15.2 million as of March 31, 1997 from
$13.5 million as of December 31, 1996. During the three months ended March 31,
1997, investing activities provided $836,000 of cash, and financing activities
used $275,000 of cash. FCB's total assets increased $49,000 from December 31,
1996 to March 31, 1997. This increase was primarily attributable to the $1.7
million increase in cash and cash equivalents, the $146,000 decrease in
investment securities, the $1.0 million decrease in loans receivable and the
$478,000 decrease in other assets.
First Commerce/Polk County
Liquidity management involves the ability to meet the cash flow
requirements of customers who may be either depositors wanting to withdraw
their funds or borrowers needing assurance that sufficient funds will be
available to meet their credit needs. In the ordinary course of business, First
Commerce/Polk County's cash flows are generated from interest and fee income,
as well as from loan repayments and the maturity of investment securities
held-to-maturity. In addition to cash and due from banks, First Commerce/Polk
County considers all investment securities available-for-sale and federal funds
sold as primary sources of asset liquidity. Many factors affect the ability to
accomplish these liquidity objectives successfully, including the economic
environment and the asset/liability mix within the balance sheet. As of March
31, 1997 and December 31, 1996, First Commerce/Polk County had commitments to
originate loans totaling $10.5 million and $10.4 million, respectively. In
addition, scheduled maturities of certificates of deposit during the year
following March 31, 1997 and December 31, 1996 totaled $29.1 million and $31.3
million, respectively. Management believes that First Commerce/Polk County has
adequate resources to fund all its commitments, and, if so desired, that First
Commerce/Polk County can adjust the interest rates and terms on certificates of
deposit and other deposit accounts to retain deposits in a changing interest
rate environment.
A state-chartered commercial bank is required to maintain a liquidity
reserve of at least 15% of its transaction deposit accounts and 8% of its
non-transaction deposit accounts. The liquidity reserve may consist of cash on
hand, cash on demand deposit with other correspondent banks, and other
investments and short-term marketable investment securities as determined by
the rules of the Florida Department, such as federal funds sold and United
States securities or obligations guaranteed by the United States. As of March
31, 1997 and December 31, 1996, First Commerce/Polk County had a liquidity
ratio of 37.52% and 36.01%, respectively.
CAPITAL RESOURCES
FCB's total stockholders' equity was $10.8 million and $10.6 million as of
March 31, 1997 and December 31, 1996, respectively, or an increase of $200,000.
This increase was the result primarily of net income during the three months
ended March 31, 1997 of $276,000 less the $77,000 increase in the unrealized
securities losses from December 31, 1996 to March 31, 1997. FCB's total
stockholders' equity was 10.20% and 10.02% of total assets as of March 31, 1997
and December 31, 1996, respectively. First Commerce/Polk County's total
stockholders' equity was $9.6 million and $9.4 million as of March 31, 1997 and
December 31, 1996, respectively, or an increase of $200,000. This increase was
the result primarily of First Commerce/Polk County's net income during the
three months ended March 31, 1997 of $300,000 less the $77,000 increase in the
unrealized securities losses from December 31, 1996 to March 31, 1997.
The federal banking regulatory authorities have adopted certain "prompt
corrective action" rules with respect to depository institutions. The rules
establish five capital tiers: "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." The various federal banking regulatory agencies have adopted
regulations to implement the capital rules by, among other things, defining the
relevant capital measures for the five capital categories. An institution is
deemed to be "well capitalized" if it has a total risk-based capital ratio of
10% or greater, a Tier 1 risk-based capital ratio of 6% or greater, and a Tier
1 leverage ratio of 5% or greater and is not subject to a regulatory order,
agreement, or directive to meet and maintain a specific capital level. As of
March 31, 1997 and 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 13.57% and 13.43%, a Tier 1 risk-based capital
ratio of 11.86% and 11.66%, and a Tier 1 leverage ratio of 9.79% and 9.37%,
respectively.
-11-
<PAGE> 12
Depository institutions which fall below the "adequately capitalized" category
generally are prohibited from making any capital distribution, are subject to
growth limitations, and are required to submit a capital restoration plan. There
are a number of requirements and restrictions that may be imposed on
institutions treated as "significantly undercapitalized" and, if the institution
is "critically undercapitalized," the banking regulatory agencies have the right
to appoint a receiver or conservator.
The current Federal bank regulatory guidelines require all bank holding
companies and federally-regulated banks to maintain a risk-based total capital
ratio equal to 8.00%, of which at least 4.00% must be Tier 1 capital. As of
March 31, 1997 and December 31, 1996, FCB's Tier 1 capital ratio was 13.29% and
13.14%, respectively, and total capital ratio was 15.04% and 14.94%,
respectively.
In accordance with risk capital guidelines issued by the FDIC, First
Commerce/Polk County is required to maintain a minimum standard of total
capital to risk-weighted assets of 8%. Additionally, the FDIC requires banks to
maintain a minimum leverage-capital ratio of Tier 1 capital (as defined) to
total assets. The leverage-capital ratio ranges from 3% to 5% based on the
bank's rating under the regulatory rating system. The required leverage-capital
ratio for First Commerce/Polk County at March 31, 1997 and 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 MARCH 31, 1997:
Total capital to risk-weighted assets.................... 13.57% 8.00%
Tier I capital to risk-weighted assets................... 11.86% 4.00%
Tier I capital to total assets - leverage ratio.......... 9.79% 4.00%
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>
RESULTS OF OPERATIONS
General
FCB's net income was $276,000, or $.17 per share, for the three months
ended March 31, 1997, as compared to $242,000, or $.14 per share, for the three
months ended March 31, 1996, or an increase of $34,000 or 14.05%. FCB's income
before taxes on income and minority interest was $486,000 for the three months
ended March 31, 1997, as compared to $340,000 for the three months ended March
31, 1996, or an increase of $146,000 or 42.94%.
FCB's earnings have been favorably affected by the decrease of non-interest
expense to $1.1 million for the three months ended March 31, 1997, from $1.2
million for the three months ended March 31, 1996, or a decrease $83,000 or
7.02%.
During the three months ended March 31, 1997, FCB expensed $10,300 of
costs related to its pending acquisition by Colonial. See "--Recent
Developments."
For the three months ended March 31, 1997 and 1996, selected ratios were as
follows:
<TABLE>
<CAPTION>
1997 1996
----- ----
<S> <C> <C>
Average equity as a percentage
of average assets................................... 10.11% 9.4%
Return on average assets................................ 1.05% .87%
Return on average equity................................ 10.34% 9.17%
Non-interest expense to average assets ................. 4.14% 4.23%
</TABLE>
-12-
<PAGE> 13
For the three months ended March 31, 1997 and 1996, FCB's (i) interest
income from interest-earning assets and the resultant average yield; (ii)
interest expense on interest-bearing liabilities and the resultant average
cost; (iii) net interest income; (iv) net interest spread; and (v) net interest
margin were as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------------- --------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ---- ------- -------- ----
ASSETS: (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable:(1)
Commercial.......................... $ 16,152 $ 354 8.77% $ 20,428 $ 609 11.98%
Real estate-construction............ 1,564 38 9.72 2,532 61 9.67
Real estate-mortgage(2)............. 44,347 1,178 10.63 43,375 1,075 9.97
Consumer and other.................. 5,841 160 10.96 4,472 113 10.20
-------- ------ ----- -------- ------ -----
Total loans, net of unearned income..... 67,904 1,730 10.19 70,807 1,858 10.55
Investments - taxable................... 22,024 314 5.70 25,932 346 5.34
Investments - tax free(3)............... 1,045 26 9.95 1,057 26 10.06
Federal funds sold...................... 9,032 116 5.14 6,574 84 5.15
-------- ------ ----- -------- ------ -----
Total interest-earning assets....... 100,005 2,186 8.74 104,370 2,314 8.92
------ -----
Cash and due from banks..................... 4,776 4,553
Allowance for credit losses................. (1,491) (1,230)
Other non-earning assets.................... 3,620 4,044
-------- --------
Total assets................................ $106,910 $111,737
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
NOW accounts............................ $ 14,400 85 2.36% $ 14,165 77 2.17
Money market............................ 5,900 42 2.85 6,311 48 3.05
Savings................................. 8,211 45 2.24 8,002 45 2.25
Time deposits under $100,000 ........... 40,620 532 5.24 47,592 659 5.57
Time deposits $100,000 and over......... 6,375 73 4.52 7,954 117 5.90
-------- ------ ----- -------- ------ -----
Total interest-bearing liabilities...... 75,506 777 4.12 84,024 946 4.52
------ ----- ------ -----
Demand deposits............................. 20,052 16,678
Other liabilities and minority interest..... 565 499
Stockholders' equity........................ 10,787 10,536
-------- --------
Total liabilities and stockholders' equity $106,910 $111,737
======== ========
SPREAD AND INTEREST DIFFERENTIAL:
Net interest income........................ $1,409 $1,368
====== ======
Interest-rate spread(4)..................... 4.62% 4.40%
===== =====
Net interest margin(5)...................... 5.64% 5.28%
===== =====
Excess of total interest-earning assets
over total interest-bearing liabilities. $ 24,499 $ 20,346
======== ========
</TABLE>
- ---------------------------
(1) Includes loans on non-accrual status.
(2) Interest income on mortgage loans included loan fees recognized as income
of $47,000 and $62,000 during the three months ended March 31, 1997 and
1996, 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.
-13-
<PAGE> 14
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 three months ended March
31, 1997 as compared to the three months ended March 31, 1996. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (1) changes in interest rate
(change in rate multiplied by prior volume), (2) changes in volume (change in
volume multiplied by prior rate) and (3) changes in rate-volume (change in rate
multiplied by change in volume).
<TABLE>
<CAPTION>
INCREASE (DECREASE) DUE TO
-------------------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
---- ------ ------ -----
INTEREST-EARNING ASSETS: (Dollars in thousands)
<S> <C> <C> <C> <C>
Loans receivable:
Commercial ...................................... $(157) $(126) $28 $(255)
Real estate construction............................ 1 (23) (1) (23)
Real estate mortgage................................ 86 20 (3) 103
Consumer and other.................................. 12 30 5 47
----- ----- --- -----
Total loans receivable.............................. (58) (99) 29 (128)
Investments - taxable................................... 24 (53) (3) (32)
Investments - tax free(1)............................... - - - -
Federal funds sold...................................... 1 31 - 32
----- ----- --- -----
Total interest-earning assets........................... (33) (121) 26 (128)
----- ----- --- -----
INTEREST-BEARING LIABILITIES:
Deposits:
NOW accounts ...................................... 7 2 (1) 8
Money market ...................................... (3) (3) - (6)
Savings ...................................... - - - -
Time deposits under $100,000........................ (43) (84) - (127)
Time deposits $100,000 and over..................... (22) (23) 1 (44)
----- ----- --- -----
Total interest-bearing liabilities...................... (61) (108) - (169)
----- ----- --- -----
NET CHANGE IN NET INTEREST INCOME ...................... $ 28 $ (13) $26 $ 41
===== ===== === =====
</TABLE>
- --------------------------------
(1) Yields on tax-free investments are computed on a tax equivalent basis using
a 37.3% effective income tax rate.
FCB's net interest income was $1.40 million for the three months ended
March 31, 1997 compared with $1.36 million for the three months ended March 31,
1996, or an increase of $40,000 or 2.94%. This increase in net interest income
resulted primarily from an increase in the net interest margin, which decreased
interest expense from $946,000 for the three months ended March 31, 1996, to
$777,000 for the three months ended March 31, 1997, or a decrease of $169,000
or 17.86% During the latter part of 1996 and early 1997, management adjusted
rates downward on deposits to allow high priced deposit accounts to leave
First Commerce/Polk County and this shrinkage in deposits was funded with cash
flows from loan payoffs and repayment of mortgage backed securities. The 18%
-14-
<PAGE> 15
volume decrease in 1996 from 1995 in interest expense was primarily
attributable to the 11% decrease in average interest-bearing liabilities. The
decrease in volume of investments from 1996 to 1997 was offset by the increase
in volume of Federal funds sold from 1996 to 1997. The overall result was an
increase in net interest margin to 5.64% during 1997 from 5.28% during 1996.
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 three months ended March
31, 1997, the provision for credit losses was $73,000, as compared to $92,000
during the three months ended March 31, 1996, or a decrease of $19,000 or
20.65%. The allowance for credit losses decreased to $1.42 million at March 31,
1997 from $1.45 million at December 31, 1996, or a decrease of $30,000. The
decrease in the provision for credit losses and allowance for credit losses is
due to an additional charge-off of $247,000 and recoveries of $144,000, for a
net charge-off of $103,000 during the three months ended March 31, 1997. While
non-performing loans increased from $2.6 million at December 31, 1996 to $3
million at March 31, 1997, or an increase of $332,000 or 12.5%, management
believes the allowance for credit losses is adequate to cover any potential
charge-offs in its loan portfolio. See"-- General," "Financial
Condition--Classification of Assets", and "--Financial Condition -- Allowance
for Credit Losses." As of March 31, 1997 and December 31, 1996, the allowance
for credit losses was 2.12% and 2.14%, respectively, of total loans receivable,
and was 47.88% and 54.91%, respectively, of non-performing loans.
Non-Interest Income
Non-interest income is primarily composed of service charges and fees.
During the three months ended March 31, 1997, non-interest income was $259,000
as compared to $255,000 during the three months ended March 31, 1996, or an
increase of $4,000 or 1.57%. This increase was primarily attributable to
raising NSF fees.
Non-Interest Expenses
During the three months ended March 31, 1997, non-interest expenses were
$1.1 million as compared to $1.2 million during the three months ended March
31, 1996, or a decrease of $83,000 or 7.11%. The following sets forth
additional information on certain other expense categories which had
significant changes.
Compensation and benefits decreased $39,000 or 6.66% to $547,000 during the
three months ended March 31, 1997 from $586,000 during the three months ended
March 31, 1996. This decrease was primarily due to a decrease in the number of
employees at First Commerce/Polk County. There were no significant increases in
annual compensation and benefits for existing employees.
Professional fees increased $35,000 or 59.32% to $94,000 during the three
months ended March 31, 1997, from $59,000 during the three months ended March
31, 1996. This increase resulted primarily from legal expenses related to the
continued pursuit to cure and collect problem loans.
Data processing expense increased $21,000 or 35.59% to $80,000 during the
three months ended March 31, 1997, from $59,000 during the three months ended
March 31, 1996. This increase resulted primarily from additional costs
associated with year end processing requests and costs associated with the
anticipated merger with Colonial.
Stationery expense decreased $13,000 or 33.33% to $26,000 during the three
months ended March 31, 1997, from $39,000 during the three months ended March
31, 1996, (which included expenses associated with the merger of Commerce Bank
of Central Florida into First Sterling Bank in September of 1995).
-15-
<PAGE> 16
Advertising expense decreased $9,000 or 29.03% to $22,000 during the three
months ended March 31, 1997, from $31,000 during the three months ended March
31, 1996. This decrease resulted from FCB reducing advertising during 1997.
Other real estate owned expenses were $3,000 during the three months ended
March 31, 1997, as compared to $13,000 during the three months ended March 31,
1996, or a decrease of $10,000 or 76.92% This decrease primarily resulted from
a 73.58% reduction in other real estate owned at March 31, 1997 from March 31,
1996.
FDIC insurance expense was $(5,000) during the three months ended March 31,
1997, as compared to $9,000 during the three months ended March 31, 1996, or a
decrease of $14,000 or 155.56%. This decrease resulted primarily from the
FDIC's reduction in insurance premiums.
Other expenses were $121,000 during the three months ended March 31, 1997,
as compared to $163,000 during the three months ended March 31, 1996, or a
decrease of $49,000 or 25.77%. This decrease was primarily attributable to
a reduction in business entertainment, seminar training, operating losses
(forgeries and bad checks) and employee work force.
Taxes on Income
During the three months ended March 31, 1997 and 1996, FCB recorded taxes
on income of $209,000 and $108,000, respectively, reflecting effective income
tax rates of 43.00% in 1997 and 31.76% in 1996. This increase in the effective
income tax rate during 1997 was primarily due to income tax refunds received in
1997 for the 1996 tax year which were less than the amount recorded at December
31, 1996.
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 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 March 31, 1997,
the remaining unamortized premiums on mortgage-backed securities totaled
$241,000. See "--Financial Condition--Investment Securities."
-16-
<PAGE> 17
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 March 31, 1997, 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 52.37% and 48.57% of total deposits at March 31, 1997 and
December 31, 1996, respectively. These accounts bore a weighted average
interest rate of 1.42% and 1.48% during the three months ended March 31, 1997
and year ended December 31, 1996, 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
March 31, 1997 and December 31, 1996, First Commerce/Polk County's liquidity
ratios were 37.52% and 36.01%, 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.
FINANCIAL CONDITION
Lending Activities
A significant source of FCB's income is the interest earned on its loan
portfolio. At March 31, 1997, FCB's total assets were $106 million and its
loans receivable, net were $65.4 million or 61.67% of total assets. At December
31, 1996, FCB's total assets were $106 million and its loans receivable, net
were $66.4 million or 62.65% of total assets. The decrease in total loans
receivable to March 31, 1997 from December 31, 1996 was $1,010,000 or 1.52%.
For the three months ended March 31, 1997 and 1996, the net change in total
loans receivable was approximately as follows:
-17-
<PAGE> 18
<TABLE>
<CAPTION>
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Balance at beginning of period.......................... $ 67,989 $ 71,684
Loan originations ...................................... 9,844 9,750
Loan repayments ...................................... (10,553) (12,371)
Purchase of FSB/Osceola loans........................... - 1,851
Loans charged-off ...................................... (246) (2)
Transfers to other real estate owned.................... (33) (62)
-------- --------
Balance at end of period................................ $ 67,001 $ 70,850
======== ========
</TABLE>
Loan originations increased to $9.84 million during the three months ended
March 31, 1997 from $9.75 million during the three months ended March 31, 1996,
or an increase of $94,000 or 1%. The decrease in loan originations during the
three months ended March 31, 1996 as compared to the three months ended March
31, 1997 was primarily due to the emphasis placed by First Commerce/Polk
County's management on managing the increase in non-performing assets rather
than soliciting new loans. Loan repayments decreased to $10.6 million during
the three months ended March 31, 1997 from $12.4 million during the three
months ended March 31, 1996 or a decrease of $1.2 million or 14.7%. This
decrease was primarily due to a decrease in customers paying-off their loans or
paying down their lines of credit.
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 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 March 31, 1997 and December 31, 1996, the composition of FCB's loan
portfolio was as follows:
<TABLE>
<CAPTION>
1997 1996
------------------ -------------------
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL
------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial ........................................... $15,848 23.65% $13,712 20.15%
Real estate construction................................... 1,634 2.44 1,442 2.12
Commercial real estate .................................... 29,577 44.14 30,449 44.75
Residential mortgage...................................... 14,402 21.50 15,471 22.73
Consumer and other....................................... 5,540 8.27 6,977 10.25
------- ------ ------- -------
Total loans receivable..................................... 67,001 100.00% 68,051 100.00%
====== =======
Less:
Unearned income and fees................................ (201) (211)
Allowance for credit losses............................... (1,423) (2.12)% (1,453) (2.14)%
------- ====== ------- =======
Loans receivable, net..................................... $65,377 $66,387
======= =======
</TABLE>
-18-
<PAGE> 19
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
is collateralized by commercial real estate mortgages. As of March 31, 1997 and
December 31, 1996, 44.14%, and 44.75%, 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 March 31, 1997, total non-performing assets were $3.1
million or 2.92% of total assets, compared to $2.8 million or 2.60% as of
December 31, 1996.
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 March 31, 1997 and December 31, 1996, unsecured loans
totaled $3.5 million and $4.6 million, respectively.
Loan concentrations are defined as amounts loaned to a number of borrowers
engaged in similar activities which would cause them to be similarly impacted
by economic or other conditions. First Commerce/Polk County, on a routine
basis, monitors these concentrations in order to consider adjustments in its
lending practices to reflect economic conditions, loan to deposit ratios, and
industry trends. As of March 31, 1997 and December 31, 1996, 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 68.08% and 68.62%, 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.
-19-
<PAGE> 20
Classification of Assets
Generally, interest on loans accrues and is credited to income based upon
the principal balance outstanding. It is management's policy to discontinue the
accrual of interest income and classify a loan on non-accrual status when
principal or interest is past due 90 days or more unless, in the determination
of management, the principal and interest on the loan are well collateralized
and in the process of collection, or when in the opinion of management,
principal or interest is not likely to be paid in accordance with the terms of
the obligation. Consumer installment loans are generally charged-off after 90
days of delinquency unless adequately collateralized and in the process of
collection. Loans are not returned to accrual status until principal and
interest payments are brought current and future payments appear reasonably
certain. Interest accrued and unpaid at the time a loan is placed on
non-accrual status is charged against interest income.
Real estate acquired by 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 $65,000
and $3,000, for the three months ended March 31, 1997, and $83,000 and $8,000,
respectively, for the three months ended March 31, 1996.
FCB follows 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 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 $1.9 million and the allowance for
credit losses related to these loans totaled $541,000 and $548,000 as of March
31, 1997 and December 31, 1996, respectively. The average balance of impaired
loans amounted to $1.9 million and $1.7 million during the three months ended
March 31, 1997 and 1996, respectively.
-20-
<PAGE> 21
As of March 31, 1997 and December 31, 1996, 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>
1997 1996
------------------ -------------------
% OF % OF
TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS
------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
LOANS ON NON-ACCRUAL STATUS:
Commercial........................................... $1,077 1.61% $1,173 1.72%
Real estate construction............................. - - - -
Commercial real estate............................... 1,678 2.50 1,221 1.79
Residential mortgage................................. 139 .21 180 0.26
Consumer and other................................... 78 .12 72 0.11
------ ---- ------ ----
Total loans on non-accrual status.................... 2,972 4.44 2,646 3.89
ACCRUING LOANS OVER 90 DAYS DELINQUENT:
Consumer and otherge................................. - - - -
TROUBLED DEBT RESTRUCTURINGS......................... - - - -
------ ---- ------ ----
Total non-performing loans........................... $2,972 4.44% $2,646 3.89%
====== ==== ====== ====
REPOSSESSED ASSETS:
Other real estate owned.............................. $ 79 $ 79
Other repossessions.................................. 37 -
------ ------
Total repossessed assets............................. $ 116 $ 79
====== ======
Total non-performing assets.......................... $3,088 $2,725
====== ======
LOANS PAST-DUE:
30-59 days delinquent................................ $ 781 1.17% $ 905 1.33%
60 to 89 days delinquent............................. 53 .08 115 .17
------ ---- ------ ----
Total loans past-due 30 to 89 days................... $ 834 1.25% $1,020 1.50%
====== ==== ====== ====
TOTAL NON-PERFORMING LOANS AND LOANS
PAST-DUE 30 TO 89 DAYS........................... $3,806 5.69% $3,666 5.39%
====== ==== ====== ====
AS A PERCENTAGE OF TOTAL ASSETS:
Total non-performing loans........................... 2.80% 2.50%
====== ======
Total non-performing assets.......................... 2.91% 2.57%
====== ======
ALLOWANCE FOR CREDIT LOSSES AS A PERCENTAGE OF:
Total loans.......................................... 2.12% 2.14%
====== ======
Non-performing loans................................. 47.88% 54.91%
====== ======
</TABLE>
As of March 31, 1997, loans on non-accrual status totaled 3.0 million and
consisted primarily of seven customer relationships totaling $2.5 million or
86% of total non-accruing loans.
-21-
<PAGE> 22
The first customer relationship consisted of a commercial real estate
mortgage that had a balance of $888,000 as of March 31, 1997. During the first
quarter of 1997, the obligors on this loan agreed to increase the balance of
the loan by $159,000 so that the proceeds could be used to repay First
Commerce/Polk County for a previously charged-off loan by one of the principals
and for attorneys' fees incurred by First Commerce/Polk County. The mortgage
loan is 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. During the first quarter of 1997, the
customer paid interest in advance to September 1, 1997. This loan remains on
non-accrual status.
The second customer relationship consisted of three commercial loans
totaling $123,000 at March 31, 1997. During the first quarter of 1997,
management charged off $168,000 of the loans, bringing the outstanding balance
to market value. The credit is collateralized by accounts receivable, high dump
trailers and assignment of leases on high dump trailers. The Bank is receiving
the lease payments pursuant to the assignments of the leases. These loans
remain on a non-accrual status. Subsequent to March 31, 1997, FCB entered into a
sales agreement for cash with a third party to purchase all of the trailers for
a purchase price of $123,000.
The third relationship consisted of two loans totaling $195,000. The credit
is secured by commercial real estate and a residential property. During the
first quarter of 1997, the customer reaffirmed the debt and it was restructured
under a new repayment schedule. Subsequent to March 31, 1997, a contract for
sale of the commercial property securing the loan was signed and closed,
resulting in First Commerce/Polk County receiving $195,000.
The fourth relationship consisted of one loan totaling $114,000 secured by
commercial real estate. The 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 at March 31, 1997. 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 Bankruptcy Code. These loans remain on
a non-accrual status.
The sixth relationship is related to the fifth relationship and consisted
of a funded letter of credit totalling $300,000 secured by commercial real
estate and an assignment of a life insurance policy having a cash surrender
value of approximately $150,000. This loan remains on a non-accrual status.
The seventh relationship consisted of two loans totalling $152,000. The
first loan of $107,000 is secured by commercial real estate and the second loan
of $45,000 is unsecured. These loans remain on a non-accrual status.
As of March 31, 1997, there were no accruing loans over 90 days delinquent.
As of March 31, 1997, loans 30 to 89 days delinquent totaled $834,000 and
consisted primarily of 19 customer relationships. Of the total loans 30 to 89
days delinquent, one loan for $209,000 is secured by residential real estate
and another loan for $162,000 is secured by commercial real estate.
Following the merger of First Sterling Bank (FCB) and Commerce Bank
Corporation in 1995, 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 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
-22-
<PAGE> 23
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.
As of March 31, 1997 and December 31, 1996, the allocation of the allowance
for credit losses was as follows:
<TABLE>
<CAPTION>
1997 1996
------------------ -------------------
% OF % OF
LOANS TO LOANS TO
TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS
------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial............................................ $ 607 42.66% $ 634 43.63%
Real estate construction.............................. 16 1.09 13 .92
Commercial real estate................................ 597 41.95 586 40.33
Residential mortgage.................................. 120 8.47 145 9.97
Consumer and other.................................... 83 5.83 75 5.15
------ ------ ------ ------
Total allowance for credit losses..................... $1,423 100.00% $1,453 100.00%
====== ====== ====== ======
</TABLE>
During the three months ended March 31, 1997, the provision for credit
losses was $73,000, as compared to $92,000 during the three months ended
March 31, 1996, or a decrease of $19,000 or 20.65%.
First Commerce/Polk County continues to provide for loan losses during
1997. During the three months ended March 31, 1997, $247,000 in loans were
charged-off and $144,000 was recovered for a net charge-off of $103,000. For
the three months ended March 31, 1996, FCB realized a net recovery of $24,000.
-23-
<PAGE> 24
During the three months ended March 31, 1997 and 1996, the activity in
FCB's allowance for credit losses was as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
(Dollars in thousands)
<S> <C> <C>
Allowance at beginning of period..................... $ 1,453 $ 1,195
Loans charged-off:
Commercial ................................... 226 2
Real estate construction......................... --- ---
Commercial real estate........................... --- ---
Residential mortgage............................. 14 ---
Consumer and other............................... 7 ---
------- -------
Total loans charged-off.......................... 247 2
------- -------
Recoveries:
Commercial ................................... 140 24
Real estate construction......................... --- ---
Commercial real estate........................... --- ---
Residential mortgage............................. --- ---
Consumer and other............................... 4 2
------- -------
Total recoveries................................. 144 26
------- -------
Net loans charged-off (recovered).................... 103 (24)
------- -------
Allowance related to loans
purchased from FSB/Osceola....................... - 25
------- -------
Provision for credit losses.......................... 73 92
------- -------
Allowance at end of period........................... $ 1,423 $ 1,336
======= =======
Net charge-offs (recoveries) as a
percentage of average loans outstanding.......... .15% .14%
======= =======
Allowance for credit losses as a percentage
of period-end total loans receivable............... 2.12% 1.89%
======= =======
Allowance for credit losses as a percentage
of non-performing loans............................ 47.88% 54.38%
======= =======
Average loans outstanding............................ $67,904 $70,807
======= =======
Period-end total loans receivable.................... $67,001 $70,850
======= =======
</TABLE>
Investment Securities
The total investment portfolio decreased $146,000 or .90% to $21.6
million as of March 31, 1997, from $21.7 million as of December 31, 1996.
-24-
<PAGE> 25
As of March 31, 1997 and December 31, 1996, the carrying balances of FCB's
investment portfolio was as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
(In thousands)
<S> <C> <C>
INVESTMENT SECURITIES AVAILABLE-FOR-SALE:
U.S. Treasury securities............................. $ -- $ 2,008
U.S. Government agency obligations................... 4,133 4,475
FHLMC mortgage-backed securities ................... 9,635 12,166
FNMA mortgage-backed securities ..................... 443 609
GNMA obligations..................................... 4,861 --
FNMA collateralized mortgage obligations............. 942 899
------- -------
Total investment securities available-for-sale....... $20,014 $20,157
======= =======
INVESTMENT SECURITIES HELD-TO-MATURITY:
U.S. Government agency obligations................... $ 500 $ 500
State, county and municipal securities............... 1,044 1,047
------- -------
Total investment securities held-to-maturity......... $ 1,544 $ 1,547
======= =======
Total investment securities.......................... $21,558 $21,704
======= =======
Federal funds sold................................... $ 8,289 $ 7,688
------- -------
Total investment portfolio........................... $29,847 $29,392
======= =======
</TABLE>
FCB has adopted Statement of Financial Accounting Standards No. 115 ("FAS
115"), which requires companies to classify investment securities, including
mortgage-backed securities, as either held-to-maturity, available-for-sale, or
trading securities. Securities classified as held-to-maturity are carried at
amortized cost. Securities classified as available-for-sale are reported at
fair value, with unrealized gains and losses, net of tax effect, reported as a
separate component of stockholders' equity. Securities classified as trading
securities are recorded at fair value, with unrealized gains and losses
included in earnings. As of March 31, 1997 and 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 hold certain
of its mortgage-backed securities classified as available-for-sale, changes in
the underlying market values of such securities could have a material adverse
effect on 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
increase in interest rates during the three months ended March 31, 1997,
decreases in the market value of investment securities available-for-sale,
including mortgage-backed securities, resulted in a decrease in stockholders'
equity of $77,000 (net of tax) to March 31, 1997 from December 31, 1996. Such
decrease represented the impact of changes in interest rates on the value and
maturity of these investments.
Premiums on mortgage-backed securities are amortized to interest income
based on the estimated remaining life of the related securities. Management
periodically reviews the remaining estimated life of mortgage-backed
securities, and adjusts the amortization of the premiums accordingly, in light
of changes in market interest rates and other factors affecting prepayment
rates on the underlying mortgages. Acceleration of the amortization of premiums
on mortgage-backed securities reduces the effective yield on these investments
and, accordingly, adversely affects net interest income. As of March 31, 1997
and December 31, 1996, the remaining unamortized premiums on mortgage-backed
securities totaled $241,000 and $286,000, respectively.
-25-
<PAGE> 26
As of March 31, 1997 and December 31, 1996, the maturity distribution and
certain other information pertaining to investment securities were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------ ------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE YIELD COST VALUE YIELD
---- ----- ----- ---- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT SECURITIES AVAILABLE-FOR-SALE:
U.S. Treasury securities:
Due within one year.................... $ - $ - -% $ 2,004 $ 2,008 5.66%
======= ======= ==== ======= ======= ====
U.S. Government agency obligations:
Due within one year .................. 89 91 8.47 2,000 2,002 5.61
Due one to five years.................. 4,109 4,042 6.10 2,489 2,473 6.00
------- ------- ---- ------- ------- ----
Total U.S. Government
Agency Obligations................... 4,198 4,133 6.15 4,489 4,475 5.82
======= ======= ==== ======= ======= ====
GNMA mortgage-backed securities
Due over ten years..................... 4,988 4,861 6.16 - - -
------- ------- ---- ------- ------- ----
Total GNMA obligations................. 4,988 4,861 6.16 - - -
======= ======= ==== ======= ======= ====
FHLMC mortgage-backed securities:(1)
Due within one year.................... - - - 1,665 1,648 6.30
Due over ten years..................... 9,570 9,635 6.00 10,451 10,518 6.25
------- ------- ---- ------- ------- ----
Total FHLMC mortgage-
backed securities.................. 9,570 9,635 6.00 12,116 12,166 6.25
======= ======= ==== ======= ======= ====
FNMA mortgage-backed securities:(1)
Due one to five years.................. - - - 89 91 8.50
Due over ten years..................... 433 443 5.08 511 518 3.84
------- ------- ---- ------- ------- ----
Total FNMA mortgage-
backed securities.................. 433 443 5.08 600 609 4.53
======= ======= ==== ======= ======= ====
Collateralized mortgage obligations:
FNMA mortgage-backed securities:
Due over ten years(1).............. 1,000 942 5.95 1,000 899 5.95
======= ======= ==== ======= ======= ====
Total investment securities
available-for-sale..................... $20,189 $20,014 6.05% $20,209 $20,157 6.03%
======= ======= ==== ======= ======= ====
INVESTMENT SECURITIES HELD-TO-MATURITY:
U.S. Government agency obligations:
Due one to five years.................. $ 500 $ 497 5.52% $ 500 $ 497 5.52%
======= ======= ==== ======= ======= ====
State, county and municipal obligations:(2)
Due five to ten years.................. 300 298 4.62 300 299 4.62
Due over ten years..................... 744 741 8.82 747 792 8.82
------- ------- ---- ------- ------- ----
Total.................................. 1,044 1,039 7.61 1,047 1,091 7.62
======= ======= ==== ======= ======= ====
Total investment securities
held-to-maturity....................... $ 1,544 $ 1,536 6.93% $ 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.
-26-
<PAGE> 27
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") and 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 March
31, 1997 and December 31, 1996, the distribution by type of FCB's deposit
accounts was as follows:
<TABLE>
<CAPTION>
1997 1996
------------------ -------------------
% OF % OF
AMOUNT DEPOSIT AMOUNT DEPOSITS
------ ------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Demand deposits....................................... $20,403 21.60% $18,773 19.81%
NOW deposits.......................................... 14,928 15.80 13,722 14.48
Money market.......................................... 6,040 6.39 5,136 5.42
Savings accounts...................................... 8,114 8.59 8,390 8.86
Time deposits under $100,000.......................... 40,032 42.37 42,771 45.14
Time deposits $100,000 and over....................... 4,957 5.25 5,957 6.29
------- ------ ------- ------
Total deposits........................................ $94,474 100.00% $94,749 100.00%
======= ====== ======= ======
</TABLE>
Time deposits included individual retirement accounts ("IRAs") totaling
$5.1 million and $6.0 million as of March 31, 1997 and December 31, 1996,
respectively, all of which are in the form of certificates of deposit.
FCB's deposits decreased $275,000 or .29% to $94.5 million as of March 31,
1997, from $94.7 million as of December 31, 1996. This decrease was primarily
attributable to First Commerce/Polk County reducing the interest rates it
offers on time deposits, resulting in a decrease in time deposits. First
Commerce/Polk County has primarily used the proceeds from maturing investment
securities to fund these deposit outflows.
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
institution 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 rollover 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 rollover 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. As of March 31, 1997, First Commerce/Polk County
met the definition of a "well capitalized" depository institution.
-27-
<PAGE> 28
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 $100,00 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.
As of March 31, 1997 and December 31, 1996, time deposits of $100,000 and
over mature as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Due in three months or less.......................... $1,386 $1,758
Due from three months to six months.................. 812 1,287
Due from six months to one year...................... 582 1,389
Due over one year ................................... 2,177 1,523
------ ------
Total time deposits $100,000 and over................ $4,957 $5,957
====== ======
</TABLE>
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data concerning FCB have been prepared
in accordance 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.
-28-
<PAGE> 29
PART II. - OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
During the three months ended March 31, 1997, no reports on Form 8-K were
filed with the Securities and Exchange Commission.
<TABLE>
<CAPTION>
EXHIBITS:
- ---------
<S> <C>
27 Financial Data Schedule (for SEC use only)
</TABLE>
-29-
<PAGE> 30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST COMMERCE BANKS OF FLORIDA, INC.
Date: May 14, 1997 By: /s/ Robert W. Stickler, Jr.
------------ ----------------------------------
Robert W. Stickler, Jr.
Vice Chairman, President and
Chief Executive Officer
Date: May 14, 1997 By: /s/ J. Jeffrey Seale
------------ ----------------------------------
J. Jeffrey Seale,
Vice President, Secretary and
Treasurer (Principal Financial
Officer)
-30-
<PAGE> 31
FIRST COMMERCE BANKS OF FLORIDA, INC.
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- ------------------------------------------
<S> <C>
27 Financial Data Schedule (for SEC use only)
</TABLE>
-31-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 6,939
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 8,289
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 20,014
<INVESTMENTS-CARRYING> 1,544
<INVESTMENTS-MARKET> 1,536
<LOANS> 67,001
<ALLOWANCE> 1,423
<TOTAL-ASSETS> 106,018
<DEPOSITS> 94,474
<SHORT-TERM> 214
<LIABILITIES-OTHER> 487
<LONG-TERM> 0
0
0
<COMMON> 16
<OTHER-SE> 10,796
<TOTAL-LIABILITIES-AND-EQUITY> 106,018
<INTEREST-LOAN> 1,730
<INTEREST-INVEST> 330
<INTEREST-OTHER> 116
<INTEREST-TOTAL> 2,176
<INTEREST-DEPOSIT> 777
<INTEREST-EXPENSE> 777
<INTEREST-INCOME-NET> 1,399
<LOAN-LOSSES> 73
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,099
<INCOME-PRETAX> 486
<INCOME-PRE-EXTRAORDINARY> 486
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 276
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
<YIELD-ACTUAL> 5.88
<LOANS-NON> 2,972
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,453
<CHARGE-OFFS> 246
<RECOVERIES> 143
<ALLOWANCE-CLOSE> 1,423
<ALLOWANCE-DOMESTIC> 1,423
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
