UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number: 0-15123
FIRST NATIONAL BANCORP, INC.
(Exact name of registrant as specified in its charter)
Illinois 31-1182986
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(State of Incorporation) (IRS Employer
Identification No.)
78 North Chicago Street, Joliet, Illinois 60432
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (815) 726-4371
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $10.00 par value None
Securities registered pursuant to Section 12(g) of the Act: Common
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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 report(s), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of Common Stock held by non-affiliates on March 17,
1997 was $111,862,984. Based on the last reported price of an actual
transaction in registrant's Common Stock on March 17, 1997, and reports of
beneficial ownership filed by directors and executive officers of registrant and
by beneficial owners of more than 5% of the outstanding shares of Common Stock
of registrant; however, such determination of shares owned by affiliates does
not constitute an admission of affiliate status or beneficial interest in shares
of Common Stock of registrant. At March 17, 1997 there were 1,215,902 shares of
registrant's sole class of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
There is incorporated by reference in this Annual Report on Form 10-K portions
of the information contained in the registrant's proxy statement for its annual
meeting of stockholders held March 13, 1997, to the extent indicated herein.
There is incorporated by reference in Parts II and IV of this Annual Report on
Form 10-K portions of the information contained in the registrant's annual
report to stockholders to the extent indicated herein.
TABLE OF CONTENTS
PAGE
PART I
ITEM 1. Business................................................. 1
ITEM 2. Properties............................................... 8
ITEM 3. Legal Proceedings........................................ 9
ITEM 4. Submission of Matters to a Vote of Security Holders...... 9
PART II
ITEM 5. Market for the Company's Common Stock and Related
Stockholder Matters...................................... 9
ITEM 6. Selected Financial Data.................................. 9
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 9
ITEM 8. Financial Statements and Supplementary Data.............. 10
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure Matters.............. 10
PART III
ITEM 10. Directors and Executive Officers of the Registrant....... 10
ITEM 11. Executive Compensation................................... 10
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management............................................... 10
ITEM 13. Certain Relationships and Related Transactions........... 10
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.............................................. 11
SIGNATURES......................................................... 14
PART I
ITEM 1. BUSINESS
OVERVIEW
First National Bancorp, Inc. ("First National" or the "Company") was
formed and became the parent holding company of First National Bank of Joliet
("FNB") on September 30, 1986. Upon shareholders' approval, First National
Bancorp, Inc. issued 625,000 shares of its $10 par value common stock for all
of the outstanding common stock of FNB. The merger was accounted for as a
pooling of interests and thus all financial statements and data include the
results of operations of First National Bank of Joliet as a wholly-owned
subsidiary.
On January 9, 1989, the Company acquired 100% of the outstanding shares of
Southwest Suburban Bank ("SWSB") located in Bolingbrook, Illinois at a
total cash purchase price of $4,681,000. The excess of acquisition cost over
the fair value of net assets acquired was $2,198,000. The acquisition has
been accounted for as a purchase.
On December 14, 1990, the Company acquired 100% of the outstanding shares of
Bank of Lockport ("BOL") located in Lockport, Illinois for $12,077,000 paid
through issuing 99,505 common shares of First National Bancorp, Inc. stock
valued at $7,167,000 plus cash of $4,910,000. The excess of acquisition cost
over the fair value of net assets acquired was $6,442,000. The acquisition
has been accounted for as a purchase.
On October 31, 1994, the Company acquired 100% of the outstanding shares of
Plano Bancshares, Inc. ("Bancshares") located in Plano, Illinois.
Bancshares is the parent holding company of Community Bank of Plano
("Plano"). The purchase price of Bancshares was $10,737,000, paid through
issuing debentures of $3,776,000 plus cash of $6,961,000. The excess of
acquisition cost over the fair value of net assets acquired was $2,311,000.
The acquisition has been accounted for as a purchase with results of
operations of Bancshares since October 31, 1994 included in the consolidated
financial statements. FNB, SWSB, BOL and Plano are sometimes referred to as
the "Banks".
The Company has no employees and conducts no active business except through
its banking subsidiaries. The only significant asset of the Company is its
stock ownership of the Banks.
SUBSIDIARY DESCRIPTIONS
FNB is a commercial, national FDIC insured bank with its main office located
at 78 North Chicago Street, Joliet, Illinois 60432. FNB is located
approximately 45 miles southwest of Chicago and has Joliet and the western
portion of Will County as its primary service area. FNB was organized as a
national banking organization on June 6, 1933, and currently has ten branch
locations.
SWSB is a state chartered, FDIC insured bank, located at 224 Lily Cache Lane
in Bolingbrook, Illinois. SWSB is located approximately 25 miles southwest
of Chicago and has Bolingbrook, Romeoville, Woodridge, and Lemont as its
primary service area. Southwest Suburban Bank was organized as a state bank
on July 18, 1979.
BOL is a state chartered, FDIC insured bank, located at 826 East 9th Street
in Lockport, Illinois. The only branch of BOL is located at the intersection
of 159th Street and Cedar Road, approximately 3 miles from the main office.
BOL is located approximately 35 miles southwest of Chicago and has Lockport,
Joliet, Homer Township, New Lenox, Romeoville and Lemont as its primary
service area. BOL was organized as a state bank on June 11, 1971. Bancshares
is a bank holding company organized in Delaware in 1984 which owns 100% of
the capital stock of Plano.
Bancshares has no other subsidiaries and conducts no other operations. Plano
is a state chartered, FDIC insured bank located at 2005 West Route 34 in
Plano, Illinois. Plano is located approximately 45 miles west of Chicago and
has Plano, Sandwich and Yorkville as its primary service area. Plano was
organized as a state bank on October 1, 1943.
1
COMPETITION
Active competition exists in all services offered by the Banks, not only with
other national and state banks, but also with savings and loan associations,
finance companies, personal loan companies, credit unions, money market mutual
funds, mortgage bankers and other financial institutions serving this market
area. The principal methods of competition in the financial services industry
are price, service and convenience.
BANK LOANS
The Banks' loan portfolios consist of commercial loans, commercial real estate
loans, residential real estate loans and consumer loans. The general terms and
rates, credit criteria employed, and risks associated with each loan category
are established and reviewed by the Executive Lending Committee. This committee
meets biweekly and has representation from each of the subsidiary banks.
BANK DEPOSITS AND LOANS
No material portion of any the Banks' deposits have been obtained from a person
or group that withdrawal of such deposits would have an adverse effect on the
business of the Company.
The loan portfolio is diversified so that slowdowns or problems in one specific
area would not cause a significant problem.
SEASONAL
Business is not affected in a material manner by change of seasons.
FOREIGN SOURCES
Neither the First National Bancorp, Inc. nor its subsidiaries, the First
National Bank of Joliet, Southwest Suburban Bank, Bank of Lockport, and
Community Bank of Plano are involved with foreign investments.
COMPLIANCE
Compliance with federal, state, and local provisions relating to the protection
of the environment should not have a material effect upon the capital
expenditures, earnings and competitive position of the Company.
EMPLOYMENT
As of December 31, 1996, the Banks had 299 full-time and 102 part-time
employees.
SERVICES
The Banks offer varied savings and certificate of deposit options, commercial
lending, consumer lending, along with credit card and regular checking services.
SUPERVISION AND REGULATION
GENERAL
Financial institutions and their holding companies are extensively regulated
under federal and state law. As a result, the growth and earnings performance
of the Company can be affected not only by management decisions and general
economic conditions, but also by the requirements of applicable state and
federal statutes and regulations and the policies of various governmental
regulatory authorities including, but not limited to, the Board of Governors of
the Federal Reserve System (the "FRB"), the Federal Deposit Insurance
Corporation (the "FDIC"), the Office of the Comptroller of the Currency (the
"OCC"), the Illinois Commissioner of Banks and Real Estate (the
"Commissioner"), the Internal Revenue Service and state taxing authorities and
the Securities and Exchange Commission (the "SEC"). The effect of such statutes,
regulations and policies can be significant, and cannot be predicted with a high
degree of certainty.
2
Federal and state laws and regulations generally applicable to financial
institutions, such as the Company and its subsidiaries, regulate, among other
things, the scope of business, investments, reserves against deposits,
capital levels relative to operations, the nature and amount of collateral
for loans, the establishment of branches, mergers, consolidations and
dividends. The system of supervision and regulation applicable to the Company
and its subsidiaries establishes a comprehensive framework for their
respective operations and is intended primarily for the protection of the
FDIC's deposit insurance funds and the depositors, rather than the
shareholders, of financial institutions.The following references to material
statutes and regulations affecting the Company and its subsidiaries are brief
summaries thereof and do not purport to be complete, and are qualified in
their entirety by reference to such statutes and regulations. Any change in
applicable law or regulations may have a material effect on the business of
the Company and its subsidiaries.
RECENT REGULATORY DEVELOPMENTS
On September 30, 1996, President Clinton signed into law the "Economic Growth
and Regulatory Paperwork Reduction Act of 1996" (the "Regulatory Reduction
Act"). Subtitle G of the Regulatory Reduction Act consists of the "Deposit
Insurance Funds Act of 1996" (the "DIFA"). The DIFA provides for a one-time
special assessment on each depository institution holding deposits subject to
assessment by the FDIC for the Savings Association Insurance Fund (the
"SAIF") in an amount which, in the aggregate, will increase the designated
reserve ratio of the SAIF (I.E., the ratio of the insurance reserves of the
SAIF to total SAIF-insured deposits) to 1.25% on October 1, 1996. Subject to
certain exceptions, the special assessment was payable in full on November
27, 1996. None of FNB, BOL, SWSB or Plano (collectively, the "Banks") holds
any SAIF-assessable deposits and, therefore, none of the Banks was subject to
the special assessment.
Prior to the enactment of the DIFA, a substantial amount of the SAIF
assessment revenue was used to pay the interest due on bonds issued by the
Financing Corporation ("FICO"), the entity created in 1987 to finance the
recapitalization of the Federal Savings and Loan Insurance Corporation (the
"FSLIC"), the SAIF's predecessor insurance fund. Pursuant to the DIFA, the
interest due on outstanding FICO bonds will be covered by assessments against
both SAIF and Bank Insurance Fund ("BIF") member institutions beginning
January 1, 1997. Between January 1, 1997 and December 31, 1999, FICO
assessments against BIF-member institutions cannot exceed 20% of the FICO
assessments charged SAIF-member institutions. From January 1, 2000 until the
FICO bonds mature in 2019, FICO assessments will be shared by all
FDIC-insured institutions on a PRO RATA basis. It has been estimated that the
FICO assessments for the period January 1, 1997 through December 31, 1999
will be approximately 0.013% of deposits for BIF members versus approximately
0.064% of deposits for SAIF members, and will be less than 0.025% of deposits
thereafter.
The DIFA also provides for a merger of the BIF and the SAIF on January 1,
1999, provided there are no state or federally chartered, FDIC-insured
savings associations existing on that date. To facilitate the merger of the
BIF and the SAIF, the DIFA directs the Treasury Department to conduct a study
on the development of a common charter and to submit a report, along with
appropriate legislative recommendations, to the Congress by March 31, 1997.
In addition to the DIFA, the Regulatory Reduction Act includes a number of
statutory changes designed to eliminate duplicative, redundant or unnecessary
regulatory requirements. Among other things, the Regulatory Reduction Act
establishes streamlined notice procedures for the commencement of new
nonbanking activities by bank holding companies, eliminates the need for
national banks to obtain OCC approval to establish off-site ATMs, excludes
ATM closures and certain branch office relocations from the prior notice
requirements applicable to branch closings, significantly expands the
authority of well-capitalized and well-managed national banks to invest in
office premises without prior regulatory approval and establishes time frames
within which the FDIC must act on applications by state banks to engage in
activities which, although permitted for state banks under applicable state
law, are not permissible activities for national banks. The Regulatory
Reduction Act also clarifies the liability of a financial institution, when
acting as a lender or in a fiduciary capacity, under the federal
environmental laws. Although the full impact of the Regulatory Reduction Act
on the operations of the Company and the Banks cannot be determined at this
time, management believes that the legislation may reduce compliance costs to
some extent and allow the Company and the Banks somewhat greater operating
flexibility.
3
THE COMPANY
GENERAL. The Company, as the sole shareholder of the Banks, is a bank
holding company. As a bank holding company, the Company is registered with,
and is subject to regulation by, the FRB under the Bank Holding Company Act,
as amended (the "BHCA"). In accordance with FRB policy, the Company is
expected to act as a source of financial strength to the Banks and to commit
resources to support the Banks in circumstances where the Company might not
do so absent such policy. Under the BHCA, the Company is subject to periodic
examination by the FRB and is required to file with the FRB periodic reports
of its operations and such additional information as the FRB may require.
The Company is also subject to the requirements of the Illinois Bank Holding
Company Act, as amended.
INVESTMENTS AND ACTIVITIES. Under the BHCA, a bank holding company must
obtain FRB approval before: (i) acquiring, directly or indirectly, ownership
or control of any voting shares of another bank or bank holding company if,
after such acquisition, it would own or control more than 5% of such shares
(unless it already owns or controls the majority of such shares); (ii)
acquiring all or substantially all of the assets of another bank; or (iii)
merging or consolidating with another bank holding company. Subject to
certain conditions (including certain deposit concentration limits
established by the BHCA), the FRB may allow a bank holding company to acquire
banks located in any state of the United States without regard to whether the
acquisition is prohibited by the law of the state in which the target bank is
located. In approving interstate acquisitions, however, the FRB is required
to give effect to applicable state law limitations on the aggregate amount of
deposits that may be held by the acquiring bank holding company and its
insured depository institution affiliates in the state in which the target
bank is located or which require that the target bank have been in existence
for a minimum period of time (not to exceed five years) before being acquired
by an out-of-state bank holding company.
The BHCA also prohibits, with certain exceptions, the Company from acquiring
direct or indirect ownership or control of more than 5% of the voting shares
of any company which is not a bank and from engaging in any business other
than that of banking, managing and controlling banks or furnishing services
to banks and their subsidiaries. The principal exception to this prohibition
allows bank holding companies to engage in, and to own shares of companies
engaged in, certain businesses found by the FRB to be "so closely related to
banking ... as to be a proper incident thereto." Under current regulations
of the FRB, the Company and its non-bank subsidiaries are permitted to engage
in, among other activities, such banking-related businesses as the operation
of a thrift, sales and consumer finance, equipment leasing, the operation of
a computer service bureau, including software development, and mortgage
banking and brokerage. The BHCA generally does not place territorial
restrictions on the activities of non-bank subsidiaries of bank holding
companies.
Federal legislation also prohibits acquisition of "control" of a bank or bank
holding company, such as the Company, without prior notice to certain federal
bank regulators. "Control" is defined in certain cases as acquisition of 10%
of the outstanding shares of a bank or bank holding company.
CAPITAL REQUIREMENTS. Bank holding companies are required to maintain
minimum levels of capital in accordance with FRB capital adequacy guidelines.
If capital falls below minimum guideline levels, a bank holding company,
among other things, may be denied approval to acquire or establish additional
banks or non-bank businesses.
The FRB's capital guidelines establish the following minimum regulatory
capital requirements for bank holding companies: a risk-based requirement
expressed as a percentage of total risk-weighted assets, and a leverage
requirement expressed as a percentage of total assets. The risk-based
requirement consists of a minimum ratio of total capital to total
risk-weighted assets of 8%, of which at least one-half must be Tier 1
capital. The leverage requirement consists of a minimum ratio of Tier 1
capital to total assets of 3% for the most highly rated companies, with
minimum requirements of 4% to 5% for all others. For purposes of these
capital standards, Tier 1 capital consists primarily of permanent
stockholders' equity less intangible assets (other than certain mortgage
servicing rights and purchased credit card relationships) and total capital
means Tier 1 capital plus certain other debt and equity instruments which do
not qualify as Tier 1 capital and a portion of the company's allowance for
loan and lease losses.
4
The risk-based and leverage standards described above are minimum
requirements, and higher capital levels will be required if warranted by the
particular circumstances or risk profiles of individual banking organizations.
Further, any banking organization experiencing or anticipating significant
growth would be expected to maintain capital ratios, including tangible
capital positions (I.E., Tier 1 capital less all intangible assets), well
above the minimum levels. As of December 31, 1996, the Company had
regulatory capital in excess of the FRB's minimum requirements, with a
risk-based capital ratio of 13.0% and a leverage ratio of 7.7%.
DIVIDENDS. The FRB has issued a policy statement with regard to the payment
of cash dividends by bank holding companies. In the policy statement, the
FRB expressed its view that a bank holding company should not pay cash
dividends exceeding its net income or which can only be funded in ways that
weaken the bank holding company's financial health, such as by borrowing.
Additionally, the FRB possesses enforcement powers over bank holding
companies and their non-bank subsidiaries to prevent or remedy actions that
represent unsafe or unsound practices or violations of applicable statutes
and regulations. Among these powers is the ability to proscribe the payment
of dividends by banks and bank holding companies. In addition to the
restrictions on dividends that may be imposed by the FRB, the Illinois
Business Corporation Act, as amended, prohibits the Company from paying a
dividend if, after giving effect to the dividend, the Company would be
insolvent or the net assets of the Company would be less than zero or less
than the maximum amount then payable to shareholders of the Company who would
have preferential distribution rights if the Company were liquidated.
FEDERAL SECURITIES REGULATION. The Company's common stock is registered with
the SEC under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Consequently, the
Company is subject to the information, proxy solicitation, insider trading
and other restrictions and requirements of the SEC under the Exchange Act.
THE BANKS
GENERAL. SWSB, BOL and Plano are Illinois-chartered banks, subject to the
examination, supervision, reporting and enforcement requirements of the
Commissioner, as the chartering authority for Illinois banks. FNB is a
national bank, chartered by the OCC under the National Bank Act, and as such
is subject to the examination, supervision, reporting and enforcement
requirements of the OCC. FNB is also a member of the Federal Reserve System.
The deposit accounts of each of the Banks are insured by the BIF of the
FDIC. As BIF-insured banks, the Banks are also subject to the examination,
supervision, reporting and enforcement requirements of the FDIC, as
administrator of the BIF.
DEPOSIT INSURANCE. As FDIC-insured institutions, the Banks are required to
pay deposit insurance premium assessments to the FDIC. The FDIC has adopted
a risk-based assessment system under which all insured depository
institutions are placed into one of nine categories and assessed insurance
premiums based upon their respective levels of capital and supervisory
evaluations. Institutions classified as well-capitalized (as defined by the
FDIC) and considered healthy pay the lowest premium while institutions that
are less than adequately capitalized (as defined by the FDIC) and considered
of substantial supervisory concern pay the highest premium. Risk
classification of all insured institutions is made by the FDIC for each
semiannual assessment period.
During the year ended December 31, 1996, BIF assessments ranged from 0% of
deposits to 0.27% of deposits. The FDIC has announced that for the
semiannual assessment period beginning January 1, 1997, BIF assessment rates
will continue to range from 0% of deposits to 0.27% of deposits.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, order, or any condition imposed in writing by, or written
agreement with, the FDIC. The FDIC may also suspend deposit insurance
temporarily during the hearing process for a permanent termination of
insurance if the institution has no tangible capital. Management of the
Company is not aware of any activity or condition that could result in
termination of the deposit insurance of any of the Banks.
5
FICO ASSESSMENTS. Since 1987, a portion of the deposit insurance assessments
paid by SAIF members has been used to cover interest payments due on the
outstanding obligations of the FICO, the entity created to finance the
recapitalization of the FSLIC, the SAIF's predecessor insurance fund.
Pursuant to federal legislation enacted September 30, 1996, commencing
January 1, 1997, both SAIF members and BIF members will be subject to
assessments to cover the interest payment on outstanding FICO obligations.
Such FICO assessments will be in addition to amounts assessed by the FDIC for
deposit insurance. Until January 1, 2000, the FICO assessments made against
BIF members may not exceed 20% of the amount of the FICO assessments made
against SAIF members. It is estimated that SAIF members will pay FICO
assessments equal to 0.064% of deposits while BIF members will pay FICO
assessments equal to 0.013% of deposits. Between January 1, 2000 and the
maturity of the outstanding FICO obligations in 2019, BIF members and SAIF
members will share the cost of the interest on the FICO bonds on a PRO RATA
basis. It is estimated that FICO assessments during this period will be less
than 0.025% of deposits.
SUPERVISORY ASSESSMENTS. Illinois banks and national banks are required to
pay supervisory fees to the Commissioner and the OCC, respectively, to fund
the operations of each agency. The amount of such supervisory fees is based
upon each institution's total assets, including consolidated subsidiaries, as
reported to the agency. During the year ended December 31, 1996, SWSB, BOL
and Plano paid supervisory fees to the Commissioner totaling $27,000, and FNB
paid supervisory assessments to the OCC totaling $128,000.
CAPITAL REQUIREMENTS. Federal regulations require the Banks to meet the
following minimum capital standards: a leverage requirement consisting of a
minimum ratio of Tier 1 capital to total assets of 3% for the most
highly-rated banks with minimum requirements of 4% to 5% for all others, and
a risk-based capital requirement consisting of a minimum ratio of total
capital to total risk-weighted assets of 8%, at least one-half of which must
be Tier 1 capital. For purposes of these capital standards, Tier 1 capital
and total capital consist of substantially the same components as Tier 1
capital and total capital under the FRB's capital guidelines for bank holding
companies (SEE "--The Company--Capital Requirements").
The capital requirements described above are minimum requirements. Higher
capital levels will be required if warranted by the particular circumstances
or risk profiles of individual institutions. For example, federal
regulations provide that additional capital may be required to take adequate
account of interest rate risk or the risks posed by concentrations of credit,
nontraditional activities or securities trading activities.
During the year ended December 31, 1996, none of the Banks was required by
its primary federal regulator to increase its capital to an amount in excess
of the minimum regulatory requirements. As of December 31, 1996, each of the
Banks exceeded its minimum regulatory capital requirements, as follows:
TOTAL
RISK-BASED LEVERAGE
CAPITAL RATIO RATIO
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FNB 14.0% 8.5%
SWSB 13.7% 8.2%
BOL 16.8% 8.8%
Plano 15.8% 8.8%
Federal law provides the federal banking regulators with broad power to take
prompt corrective action to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Depending upon the capital category to which an
institution is assigned, the regulators' corrective powers include:
requiring the submission of a capital restoration plan; placing limits on
asset growth and restrictions on activities; requiring the institution to
issue additional capital stock (including additional voting stock) or to be
acquired; restricting transactions with affiliates; restricting the interest
rate the institution may pay on deposits; ordering a new election of
directors of the institution; requiring that senior executive officers or
directors be dismissed; prohibiting the institution from accepting deposits
from correspondent banks; requiring the institution to divest certain
subsidiaries; prohibiting the payment of principal or interest on
subordinated debt; and ultimately, appointing a receiver for the institution.
6
Additionally, institutions insured by the FDIC may be liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC in connection
with the default of commonly controlled FDIC insured depository institutions
or any assistance provided by the FDIC to commonly controlled FDIC insured
depository institutions in danger of default.
DIVIDENDS. Under the Illinois Banking Act, Illinois-chartered banks, such as
SWSB, BOL and Plano, may not pay, without prior regulatory approval,
dividends in excess of their net profits. Similarly the National Bank Act
imposes limitations on the amount of dividends that may be paid by a national
bank, such as FNB. Generally, a national bank may pay dividends out of its
undivided profits in such amounts and at such times as the bank's board of
directors deems prudent. Without prior OCC approval, however, a national
bank may not pay dividends in any calendar year that exceed the bank's
year-to-date net income plus the bank's adjusted retained net income for the
two preceding years.
The payment of dividends by any financial institution is affected by the
requirement to maintain adequate capital pursuant to applicable capital
adequacy guidelines and regulations, and a financial institution generally is
prohibited from paying any dividends if, following payment thereof, the
institution would be undercapitalized. As described above, each of the Banks
exceeded its minimum capital requirements under applicable guidelines as of
December 31, 1996. As of December 31, 1996, approximately $10 million was
available to be paid as dividends to the Company by the Banks. Notwithstanding
the availability of funds for dividends, however, the federal banking
regulators may prohibit the payment of any dividends by the Banks if
they determine such payment would constitute an unsafe or unsound practice.
INSIDER TRANSACTIONS. The Banks are subject to certain restrictions imposed
by the Federal Reserve Act on extensions of credit to the Company and its
subsidiaries, on investments in the stock or other securities of the Company
and its subsidiaries and the acceptance of the stock or other securities of
the Company or its subsidiaries as collateral for loans. Certain limitations
and reporting requirements are also placed on extensions of credit by the
Banks to their respective directors and officers, to directors and officers
of the Company and its subsidiaries, to principal stockholders of the
Company, and to "related interests" of such directors, officers and principal
stockholders. In addition, such legislation and regulations may affect the
terms upon which any person becoming a director or officer of the Company or
one of its subsidiaries or a principal stockholder of the Company may obtain
credit from banks with which one of the Banks maintains a correspondent
relationship.
SAFETY AND SOUNDNESS STANDARDS. The FDIC and the OCC have adopted guidelines
which establish operational and managerial standards to promote the safety
and soundness of state nonmember banks and national banks, respectively. The
guidelines set forth standards for internal controls, information systems,
internal audit systems, loan documentation, credit underwriting, interest
rate exposure, asset growth, compensation, fees and benefits, asset quality
and earnings. In general, the guidelines prescribe the goals to be achieved
in each area, and each institution is responsible for establishing its own
procedures to achieve those goals. If an institution fails to comply with
any of the standards set forth in the guidelines, the agency may require the
institution to submit a plan for achieving and maintaining compliance. The
preamble to the guidelines states that the agencies expect to require a
compliance plan from an institution whose failure to meet one or more of the
guidelines is of such severity that it could threaten the safety and
soundness of the institution. Failure to submit an acceptable plan, or
failure to comply with a plan that has been accepted by the agency, would
constitute grounds for further enforcement action.
BRANCHING AUTHORITY. Illinois banks, such as SWSB, BOL and Plano, have the
authority under Illinois law to establish branches anywhere in the State of
Illinois, subject to receipt of all required regulatory approvals. National
banks head quartered in Illinois, such as FNB, have the same branching rights
in Illinois as banks chartered under Illinois law.
Effective June 1, 1997 (or earlier if expressly authorized by applicable
state law), the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Riegle-Neal Act") allows banks to establish interstate branch
networks through acquisitions of other banks, subject to certain conditions,
including certain limitations on the aggregate amount of deposits that may be
held by the surviving bank and all of its insured depository institution
affiliates. The establishment of DE NOVO interstate branches or the
acquisition of individual branches of a bank in another state (rather than
the acquisition of an out-of-state bank in its entirety) is allowed by the
Riegle-Neal Act only if specifically authorized by state law. The
legislation allows individual states to "opt-out" of certain
7
provisions of the Riegle-Neal Act by enacting appropriate legislation prior
to June 1, 1997. Illinois has enacted legislation permitting interstate
mergers beginning on June 1, 1997.
STATE BANK ACTIVITIES. Under federal law and FDIC regulations, FDIC insured
state banks, such as SWSB, BOL and Plano, are prohibited, subject to certain
exceptions, from making or retaining equity investments of a type, or in an
amount, that are not permissible for a national bank. Federal law and FDIC
regulations also prohibit FDIC insured state banks and their subsidiaries,
subject to certain exceptions, from engaging as principal in any activity
that is not permitted for a national bank or its subsidiary, respectively,
unless the bank meets, and continues to meet, its minimum regulatory capital
requirements and the FDIC determines the activity would not pose a
significant risk to the deposit insurance fund of which the bank is a member.
Impermissible investments and activities must be divested or discontinued
within certain time frames set by the FDIC. These restrictions have not had,
and are not currently expected to have, a material impact on the operations
of SWSB, BOL or Plano.
FEDERAL RESERVE SYSTEM. FRB regulations, as presently in effect, require
depository institutions to maintain noninterest earning reserves against
their transaction accounts (primarily NOW and regular checking accounts), as
follows: for transaction accounts aggregating $49.3 million or less, the
reserve requirement is 3% of total transaction accounts; and for transaction
accounts aggregating in excess of $49.3 million, the reserve requirement is
$1.479 million plus 10% of the aggregate amount of total transaction accounts
in excess of $49.3 million. The first $4.4 million of otherwise reservable
balances are exempted from the reserve requirements. These reserve
requirements are subject to annual adjustment by the FRB. The Banks are in
compliance with the foregoing requirements.
ITEM 2. PROPERTIES
The two-story main building of the Company is located at 78 North Chicago
Street, Joliet, Illinois 60432. FNB owns this building. The land on which
it is located is owned by First National. Also owned by FNB are five
additional facilities in Joliet, which are located at Scott and Jefferson,
Midland and Campbell, Black and Essington Roads, 1590 North Larkin and 191
South Larkin, one facility in Minooka at 207 Mondamin Street, two additional
facilities in Channahon at 23841 West Eames and 24745 West Eames, one
facility in Shorewood at Route 52 and Brookshore, and one facility in
Romeoville at 626 Townhall Drive. SWSB owns their building located at 225
Lily Cache Lane in Bolingbrook. BOL owns their main office at 826 East 9th
Street and a branch office at Cedar Road and 159th Street in Homer Township.
Plano owns their building at 2005 West Route 34 in Plano.
Approximate square footage of each location is as follows:
Approximate
Subsidiary Location Square Feet Status
- - -------------------------------------------------------------------------------
FNB 78 N. Chicago St., Joliet 25,000 Owned
FNB Scott and Jefferson, Joliet 1,600 Owned
FNB Midland and Campbell, Joliet 4,200 Owned
FNB Black and Essington Roads., Joliet 12,000 Owned
FNB 1590 North Larkin, Joliet 1,100 Leased
FNB 191 South Larkin, Joliet 900 Leased
FNB 207 Mondamin St., Minooka 2,000 Owned
FNB 23841 W. Eames, Channahon 100 Leased
FNB Route 52 and Brookshore, Shorewood 1,200 Owned
FNB 24745 West Eames, Channahon, Il. 1,400 Owned
FNB 626 Townhall Drive, Romeoville, Il. 6,500 Owned
SWSB 225 Lily Cache Lane, Bolingbrook 8,800 Owned
BOL 826 E. 9th Street, Lockport 27,000 Owned
BOL Cedar Rd. and 59th St., Lockport 9,000 Owned
Plano 2005 W. Route 34, Plano 10,000 Owned
8
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending to which the Company or its
subsidiaries is a party other than ordinary routine litigation incidental to
their respective businesses.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II.
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
First National Common Stock is traded primarily through the offices of Stofan,
Agazzi & Co., Richard B. Vance & Co., A. G. Edwards & Sons, Inc., Edward D.
Jones & Co. and the Chicago Corporation. Information on dividends paid and
the price range of the Company's Common Stock on a quarterly basis in 1996
and 1995 is presented on page 25 of the Company's Annual Report to
Stockholders and is incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The five year summary of selected financial data is presented as Financial
Highlights on page 23 of the Company's 1996 Annual Report to Stockholders and
is incorporated herein by reference.
ASSET/LIABILITY MANAGEMENT
The target GAP position as defined in the Company's Asset & Liabilility
Policy is to maintain a ratio (as adjusted) of rate sensitive assets to rate
sensitive liabilities of at least .75 and not more than 1.25 on a one year
measurement basis. Deviations from these prescribed parameters for three
consecutive months requires discussion on potential solutions and/or courses
of action at the subsequent month's board of directors meeting.
9
POTENTIAL PROBLEM LOANS
Potential problem loans, exclusive of nonaccrual loans and loans past due by
more than ninety days, at December 31, 1996 were as follows:
Commercial loans $ 423
Commercial real estate loans 1,633
Residential real estate loans 462
Consumer loans 9
--------
$2,527
--------
--------
The Company has no loans or investment concentrations nor are there any foreign
outstandings.
HOLDERS
As of December 31, 1996, the Company had 1,999 shareholders of common capital
stock.
DIVIDENDS
The Subsidiary Banks are limited as to the amount of dividends that can be paid
to the parent company without prior regulatory approval; therefore, the Company
is similarly limited in paying dividends to shareholders. For 1997, the
Subsidiary Banks have approximately $10,000,000, plus their net earnings in
1997, available for paying dividends to First National.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Management's discussion and analysis appearing on pages 4 through 9 of the 1996
Annual Report to Shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements and Notes thereto appearing on pages 11
through 22, and Quarterly Financial Information 1996-1995 appearing on page
25, of the 1996 Annual Report to Stockholders are incorporated herein by
reference. See Item 14 for information concerning financial statements and
schedules filed with the report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE MATTERS.
Notice of change in accountants was filed under Form 8-K on October 10, 1996
to report the change in accountants from McGladrey & Pullen, LLP to Crowe,
Chizek and Company LLP, effective October 1, 1996. Further discussion of the
change in accountants appears on page 10 of the Notice of Annual Meeting of
Stockholders and Proxy Statement is incorporated herein by reference. No
disagreements on accounting and financial disclosure matters have occurred
for the 24 months prior to, or in months subsequent to, December 31, 1996.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information appearing on pages 2 through 4 of the Notice of Annual Meeting
of Stockholders and Proxy Statement is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information appearing on pages 5 through 8 of the Notice of Annual Meeting
of Stockholders and Proxy Statement is incorporated herein by reference.
10
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information appearing on pages 2 through 4 of the Notice of Annual Meeting
of Stockholders and Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information appearing on pages 2 through 4 of the Notice of Annual Meeting
of Stockholders and Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. The following Consolidated Financial Statements of the Company are
incorporated herein by reference from the Annual Report to
Stockholders listed below:
Annual
Report Pages
-------------
Consolidated balance sheets as of
December 31, 1996 and 1995.............................. 11
Consolidated statements of income for the years ended
December 31, 1996, 1995, and 1994....................... 12
Consolidated statements of cash flows for the years ended
December 31, 1996, 1995, and 1994 ...................... 13 and 14
Consolidated statements of changes in stockholders' equity
for the years ended December 31, 1996, 1995, and 1994 .. 15
Notes to consolidated financial statements ............. 16-22
Report of Independent Auditors on the Consolidated
Financial Statements ................................... 10
The following index provides the location of other statistical information
included in the 1996 Annual Report to Stockholders which is incorporated by
reference.
Annual
Report Page
-----------
A. Returns on Equity and Assets......................... 23
B. Average Balance Sheets, Interest Margin, and
Interest Rates....................................... 5
C. Nonaccrual, Past Due and Impaired Loans.............. 6
D. Potential Problem Loans.............................. 6
E. Liquidity............................................ 8 and 9
F. Disclosure of the Effect on Interest Income from
Nonaccrual Loans..................................... 18
G. Financial Highlights................................. 23
H. Interest Differential................................ 23
I. Securities........................................... 17
J. Securities Maturities................................ 24
K. Types of Loans....................................... 24
L. Loan Maturity and Rate Sensitivity................... 24
M. Allocation of Allowance for Loan Losses.............. 24
N. Summary of Loan Loss Activity........................ 25
O. Deposits............................................. 25
P. Short-term Borrowings................................ 19
All schedules have been omitted because they are not applicable, the
data is not significant, or the required information is shown in the
Consolidated Financial Statements or Notes thereto.
3. Exhibits
3.1a Articles of Incorporation of First National Bancorp, Inc.
(incorporated by reference to Appendix III of Registration
Statement Form S-4, File No. 0-15123, dated February 17, 1986.
3.1b Amendment to the Articles of Incorporation dated March 9, 1988
(Incorporated by reference to Part IV of Form 10-K for the year
ended December 31, 1987, File No. 0-15123).
3.2 By-laws of First National Bancorp, Inc. (incorporated by
reference to Part IV of Form 10-K for the year ended December 31,
1986, File No. 0-15123)
4 Instruments defining rights of security holders (incorporated by
reference to pages 31 through 33 of Registration Statement Form
S-4, File No. 0-15123, dated February 17, 1986.
4.1 Rights Agreement for Preferred Share Purchase Rights, dated
November 14, 1996 (incorporated by reference to Form 8-A, File
No. 0-15123)
11
10.1a First National Bank of Joliet Retirement Plan & Trust
(incorporated by reference to Part IV of Form 10-K for the year
ended December 31, 1986, File No. 0-15123)
10.1b First National Bank of Joliet Retirement Plan & Trust as
Amended (incorporated by reference to Part IV of Form 10K for
the year ended December 31, 1989, File No. 0-15123).
10.3a First National Bancorp, Inc. 401(k) plan, (incorporated by
reference to Part IV of Form 10-K for the year ended December 31,
1993, File No. 0-15123).
10.3b Amendment of the First National Bancorp, Inc. 401(K) Plan,
(incorporated by reference to Part IV of Form 10-K for the year
ended December 31, 1994, File No. 0-15123).
10.4 First National Bancorp, Inc. Employees' Cafeteria Plan,
(incorporated by reference to Part IV of Form 10-K for the year
ended December 31, 1995, File No. 0-15123).
10.5 Synopsis of computer service contract dated December 11, 1996
between FISERVE Solutions, Inc. (service provider) and First
National Bancorp, Inc. (customer).
11 Statement re: computation of per share earnings
13 Financial Statements
21 Subsidiaries of the Registrant
23 Notice of Annual Shareholders Meeting of First National Bancorp,
Inc.
(b) Reports on Form 8-K
There were no events or transactions requiring Form 8-K to be filed
during the fourth quarter of 1996 other than the Form 8-K filed on
October 10, 1996 to report the change in accountants from
McGladrey & Pullen, LLP to Crowe, Chizek and Company LLP.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995, and is including this statement for purposes of these
safe harbor provisions. Forward-looking statements, which are based on
certain assumptions and describe future plans, strategies and expectations of
the Company, are generally identifiable by use of such words as "believe",
"expect", "intend", "anticipate", "estimate", "project" or similar
expressions. The Company's ability to predict results or the actual effect
of future plans or strategies is inherently uncertain. Factors which could
have a material adverse affect on the operations and future prospects of the
Company and subsidiaries, include, but are not limited to, changes in:
interest rates, general economic conditions, legislative/regulatory changes,
monetary and fiscal policies of the U.S. Government, including policies of
the U.S. Treasury and the Federal Reserve Board, the quality or composition
of the loan or investment portfolios, demand for loan products, deposit
flows, competition, demand for financial services in the Company's market
area and changes in accounting principles and policies. These risks and
uncertainties should be considered in evaluating forward-looking statements
and undue reliance should not be placed on such statements.
12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Joliet, State
of Illinois, on this 24th day of March, 1997.
FIRST NATIONAL BANCORP, INC.
(Registrant)
By: /s/ Kevin T. Reardon
___________________________________
Kevin T. Reardon
Chairman of the Board
& Chief Executive Officer
By: /s/ Albert G. D'Ottavio
___________________________________
Albert G. D'Ottavio
President & Director
(Chief Financial Officer)
Principal Accounting Officer
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below on the 24th day of March, 1997 by the following persons on
behalf of the registrant in the capacities indicated.
NAME TITLE
/s/ Kevin T. Reardon Chairman of the Board
_________________________________ and
Chief Executive Officer
/s/ Albert G. D'Ottavio President and Director
_________________________________ (Chief Operating Officer)
(Chief Financial Officer)
/s/ Charles R. Peyla Director
_________________________________
/s/ Watson A. Healy Director
_________________________________
/s/ George H. Buck Director
_________________________________
/s/ Walter F. Nolan Director
_________________________________