<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1995 Commission file number 33-9110
-------------- -------
1st Community Bancorp, Inc.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Michigan 38-2659066
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
109 East Division, Sparta, Michigan 49345 (616) 887-7366
- ----------------------------------------- ---------------------------
(Address of principal executive offices) (Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 March 31, 1995, the registrant had outstanding 405,760 shares of common
stock having a par value of $10 per share.
<PAGE> 2
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
Page #
------
<S> <C>
PART I, Item 1, Financial Statements
Consolidated Balance Sheets (Unaudited) 1- 2
Consolidated Statements of Income (Unaudited) 3- 4
Consolidated Statement of Shareholders' Equity (Unaudited) 5- 6
Consolidated Statements of Cash Flows (Unaudited) 7
Notes to the Consolidated Financial Statements (Unaudited) 8-12
PART I, Item 2, Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-20
PART II, Item 1, Legal Proceedings II- 1
PART II, Item 2, Changes in Securities II- 1
PART II, Item 3, Defaults Upon Senior Securities II- 1
PART II, Item 4, Submission of Matters to a Vote of
Security Holders II- 1
PART II, Item 5, Other Information II- 1
PART II, Item 6, Exhibits and Reports on Form 8-K II- 1
Signatures II- 2
Index to Exhibits II- 3
</TABLE>
<PAGE> 3
1ST COMMUNITY BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
March 31, 1995 and December 31, 1994
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,489,000 $ 2,948,000
Securities available for sale (Note 2) 19,841,000 22,242,000
Securities held to maturity (fair value
of $9,941,000 at March 31, 1995, and
$7,949,000 at December 31, 1994) (Note 2) 9,961,000 8,168,000
Loans (Note 3) 70,804,000 69,410,000
Allowance for loan losses (Note 4) (1,056,000) (1,039,000)
------------ ------------
Net loans 69,748,000 68,371,000
Premises and equipment - net 2,530,000 2,510,000
Accrued interest receivable 955,000 851,000
Other assets 968,000 1,047,000
------------ ------------
TOTAL ASSETS $106,492,000 $106,137,000
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
1
<PAGE> 4
1ST COMMUNITY BANCORP, INC.
CONSOLIDATED BALANCE SHEETS - Continued
March 31, 1995 and December 31, 1994
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------- ------------
(Unaudited)
<S> <C> <C>
LIABILITIES
Deposits
Demand $ 10,420,000 $ 10,966,000
Interest-bearing transaction accounts 26,761,000 28,287,000
Savings 9,998,000 10,838,000
Time 44,068,000 41,145,000
------------ ------------
Total deposits 91,247,000 91,236,000
Federal funds purchased 800,000 1,000,000
Accrued interest payable 325,000 291,000
Other liabilities 761,000 734,000
------------ ------------
Total liabilities 93,133,000 93,261,000
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDERS' EQUITY
Common stock, $10 par value; shares
authorized: 500,000; shares outstanding:
405,760 (Note 8) 4,058,000 4,058,000
Surplus 4,111,000 4,111,000
Retained earnings 5,492,000 5,266,000
Net unrealized depreciation on securities
available for sale, net of related tax benefit (272,000) (559,000)
Net unrealized depreciation on securities
held to maturity, net of related tax benefit (30,000) 0
------------ ------------
Total shareholders' equity 13,359,000 12,876,000
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $106,492,000 $106,137,000
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
2
<PAGE> 5
1ST COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the three months ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Interest income
Loans, including fees $1,582,000 $1,352,000
Securities
Taxable 325,000 338,000
Nontaxable 142,000 142,000
Other 2,000 2,000
---------- ----------
Total interest income 2,051,000 1,834,000
Interest expense
Deposits 863,000 757,000
Other 14,000 11,000
---------- ----------
Total interest expense 877,000 768,000
---------- ----------
Net interest income 1,174,000 1,066,000
Provision for loan losses 30,000 21,000
---------- ----------
Net interest income after provision for
loan losses 1,144,000 1,045,000
Other income
Service charges on deposit accounts 65,000 64,000
Other service charges and fees 31,000 28,000
Net security gains 0 1,000
Mortgage loan sales and servicing 23,000 38,000
Other income 37,000 26,000
---------- ----------
Total other income 156,000 157,000
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE> 6
1ST COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME - Continued
For the three months ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Other expenses
Salaries and wages $ 352,000 $ 335,000
Pension and other employee benefits 84,000 77,000
Occupancy expense 50,000 43,000
Furniture and equipment expense 67,000 63,000
Other expenses (Note 6) 296,000 290,000
---------- ----------
Total other expenses 849,000 808,000
---------- ----------
Income before income tax 451,000 394,000
Income tax expense (Note 7) 111,000 87,000
---------- ----------
NET INCOME $ 340,000 $ 307,000
========== ==========
Earnings per share (Note 1) $ 0.84 $ 0.76
========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE> 7
1ST COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY - Continued
For the three months ended March 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
Net Unrealized Net Unrealized
Appreciation/ Appreciation
(Depreciation) (Depreciation)
on Securities on Securities
Common Retained Available Held to
Stock Surplus Earnings . . for Sale Maturity Total
---------- ---------- ---------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1995 $4,058,000 $4,111,000 $5,266,000 $(559,000) $ 0 $12,876,000
Net income for the period 0 0 340,000 0 0 340,000
Change in net unrealized
(depreciation)/
appreciation on
securities available
for sale, net of tax 0 0 0 257,000 0 257,000
Reclassification of securities
from available for sale to
held to maturity 0 0 0 30,000 (30,000) 0
Cash dividends ($.28 per
common share) 0 0 (114,000) 0 0 (114,000)
---------- ---------- ---------- --------- -------- -----------
Balances at March 31, 1995 $4,058,000 $4,111,000 $5,492,000 $(272,000) $(30,000) $13,359,000
========== ========== ========== ========== ======== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE> 8
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the three months ended March 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
Net Unrealized
Appreciation/
(Depreciation)
on Securities
Common Retained Available
Stock Surplus Earnings . . for Sale Total
---------- ---------- ---------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1994 $3,246,000 $4,111,000 $5,304,000 $ 293,000 $12,954,000
Net income for the period 0 0 307,000 0 307,000
Change in net unrealized
(depreciation)/
appreciation on
securities available
for sale, net of tax 0 0 0 (274,000) (274,000)
Cash dividends ($.26 per
common share) 0 0 (104,000) 0 (104,000)
---------- ---------- ---------- -------- -----------
Balances at March 31, 1994 $3,246,000 $4,111,000 $5,507,000 $ 19,000 $12,883,000
========== ========== ========== ========= ===========
</TABLE>
6
<PAGE> 9
1ST COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 340,000 $ 307,000
Adjustments to reconcile net income to net cash
from operating activities
Net gain on sale of securities 0 ( 1,000)
Net amortization on securities 42,000 45,000
Loans originated for sale (208,000) (1,024,000)
Proceeds from loan sales 416,000 (1,583,000)
Provision for loan losses 30,000 21,000
Depreciation 56,000 58,000
Changes in:
Interest receivable and other assets (158,000) (24,000)
Interest payable and other liabilities 61,000 (23,000)
------------ ------------
Net cash from operating activities 579,000 942,000
Cash flows from investing activities
Securities available for sale:
Proceeds from sales of securities 0 984,000
Proceeds from maturities of securities 1,260,000 796,000
Purchase of securities (288,000) (2,749,000)
Securities held to maturity:
Proceeds from maturities of securities 334,000 200,000
Purchase of securities (350,000) (570,000)
Net customer loan activity (1,882,000) (275,000)
Loans sold 301,000 0
Loans purchased (34,000) 0
Net expenditures for premises and equipment (76,000) 0
------------ ------------
Net cash from investing activities (735,000) (1,614,000)
Cash flows from financing activities
Net increase in deposits 11,000 1,670,000
Decrease in federal funds purchased (200,000) (600,000)
Cash dividends paid (114,000) (104,000)
------------ ------------
Net cash from financing activities (303,000) 966,000
------------ ------------
Net change in cash and cash equivalents (459,000) 294,000
Cash and cash equivalents at beginning of period 2,948,000 2,071,000
------------ ------------
Cash and cash equivalents at end of period $ 2,489,000 $ 2,365,000
============ ============
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest $ 843,000 $ 781,000
Income taxes $ 0 $ 0
</TABLE>
Securities with an amortized cost of $1,840,000 and a fair value of
$1,795,000 were reclassified from available for sale to held to
maturity on February 16, 1995.
See accompanying notes to the consolidated financial statements.
7
<PAGE> 10
1ST COMMUNITY BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Registrant
and its wholly-owned subsidiary, Sparta State Bank, after elimination of
significant inter-company transactions and accounts. The statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information, prevailing practices within the banking industry
and the instructions to Form 10-QSB and Article 10 of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The accompanying consolidated financial statements reflect all adjustments
ordinary in nature which are, in the opinion of management, necessary for a
fair presentation of the Consolidated Balance Sheets as of March 31, 1995 and
December 31, 1994, the Consolidated Statements of Income for the three month
periods ended March 31, 1995, and March 31, 1994, and the Consolidated
Statements of Shareholders' Equity and Cash Flows for the three month periods
ended March 31, 1995, and March 31, 1994. Operating results for the three
months ended March 31, 1995, are not necessarily indicative of the results that
may be expected for the year ended December 31, 1995. The balance sheet at
December 31, 1994, has been derived from the audited financial statements at
that date.
The accompanying consolidated financial statements should be read in
conjunction with the consolidated financial statements and footnotes thereto
included in the Registrant's annual report on Form 10-KSB for the year ended
December 31, 1994.
Stock Dividend and Earnings and Cash Dividends Per Share
On April 13, 1994, the Registrant's Board of Directors declared a 5 for 4 stock
split which was effective for shareholders of record as of April 28, 1994. The
stock split was paid on May 16, 1994. In accordance with Accounting Research
Bulletin No. 43, the stock split was recorded at the par value of the shares
issued.
Earnings and dividends per share are based on the weighted average number of
shares outstanding during the year. The weighted average number of shares were
405,760 for the periods ended March 31, 1995, and March 31, 1994. The weighted
average number of shares for the two years has been adjusted for the stock
split.
Impaired Loans
Effective January 1, 1995, the Registrant implemented Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan." Statement No. 114 addresses the accounting by creditors for impairment
of a loan by specifying how allowances for credit losses related to certain
loans should be determined. A loan is classified as impaired when, based on
the Registrant's judgment of certain information regarding the loan, it is
probable that the Registrant will be unable to collect all amounts due
according to the contractual terms of the loan agreement. An allowance is
allocated to an impaired loan when the present value of future expected cash
flows discounted at the loan's effective interest rate is less than the
recorded loan value. Interest income on impaired loans is recognized to the
extent of cash receipts. The increase in the present value of the future
expected cash flows that is attributable to the passage of time is recognized
as a charge or credit to bad debt expense.
8
<PAGE> 11
1ST COMMUNITY BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
NOTE 2 - SECURITIES
Securities have been classified in the Consolidated Balance Sheets according to
management's intent. The amortized cost and approximate fair value of
securities at March 31, 1995, and December 31, 1994 were as follows:
<TABLE>
<CAPTION>
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Securities Available for Sale
- -----------------------------
March 31, 1995
- --------------
U.S. Treasuries and
U.S. Government agencies $ 9,546,000 $ 27,000 $(264,000) $ 9,309,000
Obligations of states and
political subdivisions 5,211,000 10,000 (106,000) 5,115,000
U.S. Government agencies
backed by mortgages 4,611,000 22,000 (79,000) 4,554,000
Other securities 886,000 0 (23,000) 863,000
----------- -------- --------- -----------
Total $20,254,000 $ 59,000 $(472,000) $19,841,000
=========== ======== ========= ===========
December 31, 1994
- -----------------
U.S. Treasuries and
U.S. Government agencies $ 6,831,000 $ 4,000 $(213,000) $ 6,622,000
Obligations of states and
political subdivisions 7,613,000 18,000 (244,000) 7,387,000
U.S. Government agencies
backed by mortgages 7,757,000 8,000 (397,000) 7,368,000
Other securities 888,000 0 (23,000) 865,000
----------- -------- --------- -----------
Total $23,089,000 $ 30,000 $(877,000) $22,242,000
=========== ======== ========= ===========
Securities Held to Maturity
- ---------------------------
March 31, 1995
- --------------
Nontaxable obligations of
states and political
subdivisions $ 9,961,000 $110,000 $(130,000) $ 9,941,000
=========== ======== ========= ===========
December 31, 1994
- -----------------
Nontaxable obligations of
states and political
subdivisions $ 8,168,000 $ 87,000 $(306,000) $ 7,949,000
=========== ======== ========= ===========
</TABLE>
9
<PAGE> 12
1ST COMMUNITY BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
NOTE 2 - SECURITIES - Continued
Information regarding sales of securities for the three months ended March 31,
1994, follows. There were no sales of securities in the first quarter of 1995.
<TABLE>
<S> <C>
Proceeds from sales of securities $984,000
Gross realized gains 1,000
Gross realized losses 0
</TABLE>
For the three months ended March 31, 1995, the change in net unrealized holding
gain or loss on securities available for sale was a increase of $434,000.
There were no sales or transfers of securities classified as held to maturity.
Securities with a book value of approximately $259,000 and $258,000 were
pledged as collateral for public deposits at March 31, 1995, and December 31,
1994, respectively.
NOTE 3 - LOANS
Loans at March 31, 1995, and December 31, 1994, were classified as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------- ------------
<S> <C> <C>
Commercial $18,870,000 $17,936,000
Agricultural 9,445,000 8,994,000
Real estate mortgage - construction 327,000 237,000
Real estate mortgage - residential 27,063,000 27,489,000
Consumer 15,099,000 14,754,000
----------- -----------
Total $70,804,000 $69,410,000
=========== ===========
</TABLE>
There were no mortgages classified as held for sale in the residential real
estate mortgage balance as of March 31, 1995.
The Registrant implemented Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan," on January 1, 1995.
Information regarding impaired loans as of March 31, 1995, and December 31,
1994, was as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------- ------------
<S> <C> <C>
Loans classified as impaired $358,000 $408,000
Impaired loans for which an allowance for credit
losses has been determined 153,000 0
Allowance determined for above impaired loans 4,000 0
Impaired loans for which no allowance for credit
losses has been established 205,000 408,000
</TABLE>
10
<PAGE> 13
1ST COMMUNITY BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
NOTE 3 - LOANS - Continued
Information regarding impaired loans for the three months ended March 31, 1995,
was as follows:
<TABLE>
<S> <C>
Average balance of impaired loans $383,000
Interest income recognized on impaired loans 22,000
Interest income recognized on a cash-basis on impaired loans 22,000
</TABLE>
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
An analysis of changes in the allowance for loan losses for the three months
ended March 31, follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Balance at beginning of period $1,039,000 $1,000,000
Provision charged to operating expense 30,000 21,000
Recoveries credited to the allowance 8,000 5,000
Loans charged-off (21,000) (26,000)
---------- ----------
Balance at end of period $1,056,000 $1,000,000
========== ==========
</TABLE>
NOTE 5 - COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS OF CREDIT RISK
Noninterest-bearing deposits totaling approximately $1,714,000 were held at NBD
Bank at March 31, 1995.
As of March 31, 1995, the Registrant had outstanding commitments to make loans
totaling $6,046,000, the majority of which have variable interest rates. The
Registrant had approximately $2,002,000 of unused lines of credit and $40,000
in letters of credit at March 31, 1995.
NOTE 6 - OTHER EXPENSES
Other expenses for the three months ended March 31, follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
FDIC insurance $ 52,000 $ 50,000
Computer processing 39,000 40,000
Supplies and postage 39,000 33,000
Legal and professional 31,000 34,000
Other 135,000 133,000
-------- --------
Total $296,000 $290,000
======== ========
</TABLE>
11
<PAGE> 14
1ST COMMUNITY BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
NOTE 7 - INCOME TAX EXPENSE
The components of income tax expense for the three months ended March 31, were
as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Current income tax expense $109,000 $ 89,000
Deferred income tax expense/(benefit) 2,000 (2,000)
-------- --------
Income tax expense $111,000 $ 87,000
======== ========
</TABLE>
The difference between the financial statement tax provision and amounts
computed by applying the federal income tax rate to pre-tax income is
principally attributable to tax exempt interest income.
The components of deferred tax assets and liabilities at March 31, 1995, and
December 31, 1994, were as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $254,000 $249,000
Unrealized depreciation on securities available
for sale 141,000 288,000
Postretirement benefits obligation 92,000 91,000
Deferred loan fees 78,000 83,000
Other 105,000 92,000
-------- --------
Total deferred tax assets 670,000 803,000
Deferred tax liabilities:
Depreciation 177,000 175,000
Pension fund asset 94,000 96,000
Other 11,000 9,000
-------- --------
Total deferred tax liabilities 282,000 280,000
-------- --------
Net deferred tax asset $388,000 $523,000
======== ========
</TABLE>
A valuation allowance related to a deferred tax asset is recognized when it is
considered more likely than not that part or all of the deferred tax benefits
will not be realized. Management has determined that no such allowance was
required at March 31, 1995.
NOTE 8 - STOCK REPURCHASE
The Registrant repurchased 18,324 shares of its stock at $44.25 per share on
April 28, 1995, which left 387,436 shares outstanding after the repurchase.
The total amount paid for the stock was $811,000. The shares repurchased
represented 4.5% of the shares outstanding prior to the repurchase.
12
<PAGE> 15
PART I
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion is designed to provide a review of the financial
condition and results of operations of 1st Community Bancorp, Inc. (the
"Registrant") and its wholly-owned subsidiary, Sparta State Bank (the "Bank").
This discussion should be read in conjunction with the consolidated financial
statements and related footnotes.
Net Income and Return on Average Assets and Shareholders' Equity
The Registrant's net income increased $33,000 or 11% in the first quarter of
1995 compared to 1994. The improvement resulted from higher net interest
income in 1995, the effect of which was partially offset by growth in other
expenses.
The growth in net interest income in the first quarter 1995 was caused by a
wider spread between interest rates earned on interest earning assets and
interest rates paid on interest-bearing liabilities than in the prior year.
The growth in total other expenses in 1995 was due to general increases in
other expenses.
The return on average assets was 1.31% for the first three months of 1995,
compared to 1.19% for 1994. The return on average shareholders' equity was
10.49% for the first quarter of 1995, compared to 9.56% in the prior year.
Cash and Stock Dividends
Cash dividends declared in the first quarter of 1995 were $114,000 or $.28 per
common share, which represents a $.02 per share or 8% increase compared to the
dividend paid in the same period in the prior year. The cash dividend payout
percentage through the first quarter of 1995 was 33.46%, compared to 33.86% in
1994.
As was noted in Footnote 1 to the Consolidated Financial Statements, the
Registrant's Board of Directors declared a 5 for 4 stock split at its April 13,
1994, meeting. The split, payable to shareholders of record as of April 28,
1994, was paid on May 16, 1994.
Interest Income and Expense
Tables 1 and 2 on the following two pages provide pertinent information
regarding interest income and expense for the three month periods ended March
31, 1995, and March 31, 1994. Table 1 documents average balances and interest
income and expense, as well as the average rates earned or paid on assets and
liabilities. Table 2 documents the effect on interest income and expense of
changes in volume (average balance) and interest rates. These tables will be
referred to in the discussion of interest income, interest expense and net
interest income.
13
<PAGE> 16
PART I - Continued
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Continued
Table 1 - Average Balances and Tax Equivalent Interest Rates
<TABLE>
<CAPTION>
For the three months ended March 31,
-----------------------------------------------------------------------------------
1995 1994
--------------------------------- --------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
-------- -------- ------- -------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Loans (1) $ 68,738 $1,590 9.25% $ 66,162 $1,357 8.20%
Taxable securities 19,829 325 6.56 23,249 338 5.82
Nontaxable securities (1) 9,975 214 8.62 9,272 215 9.28
Other 100 2 8.00 296 2 2.70
-------- ------ -------- ------
Interest earning assets 98,642 2,131 8.64 98,979 1,912 7.73
------ ------
Non interest earning assets 6,216 5,484
-------- --------
Total assets $104,858 $104,463
======== ========
Liabilities and Shareholders' Equity
Interest-bearing transaction
accounts $ 27,384 246 3.59 $ 30,505 215 2.82
Savings deposits 10,436 62 2.38 11,607 69 2.38
Time deposits 42,133 555 5.27 38,566 473 4.91
Federal funds purchased 855 14 6.56 1,287 11 3.42
-------- ------ -------- ------
Interest-bearing liabilities 80,808 877 4.34 81,965 768 3.75
------ ----- ------ -----
Non interest-bearing liabilities 10,920 9,486
Shareholders' equity 13,130 13,012
-------- --------
Total liabilities and
shareholders' equity $104,858 $104,463
======== ========
Net interest income (tax-equivalent
basis) - interest spread 1,254 4.30% 1,144 3.98%
===== =====
Tax equivalent adjustment (1) (80) (78)
------ ------
Net interest income $1,174 $1,066
====== ======
Net interest income as a percentage of
earning assets (tax-equivalent basis) 5.09% 4.62%
===== =====
</TABLE>
14
<PAGE> 17
PART I - Continued
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Continued
Table 2 - Changes in Tax Equivalent Net Interest Income
<TABLE>
<CAPTION>
For the three months ended March 31,
-----------------------------------
1995 Over 1994
--------------
Total Volume Rate
----- ------ ------
(Dollars in thousands)
<S> <C> <C> <C>
Increase (decrease) in interest income (2)
Loans (3) $ 233 $ 54 $ 179
Taxable securities (13) (68) 55
Nontaxable securities (3) (1) 0 (1)
Other 0 (3) 3
----- ----- -----
Net change in tax-equivalent income 219 (17) 236
Increase (decrease) in interest expense (2)
Interest-bearing transaction accounts 31 (34) 65
Savings deposits (7) (7) 0
Time deposits 82 46 36
Federal funds purchased 3 (6) 9
----- ----- -----
Net change in interest expense 109 (1) 110
----- ----- -----
Net change in tax-equivalent
net interest income $ 110 $ (16) $ 126
===== ===== =====
</TABLE>
Explanation of Footnotes Used in Tables 1 and 2
(1) Interest on nontaxable investment securities and loans has been adjusted to
a fully tax-equivalent basis to facilitate comparison to the taxable interest
earning assets. The adjustment uses an incremental tax rate of 34% for the
years presented.
(2) The volume variance is computed as the change in volume (average balance)
multiplied by the previous year's interest rate. The rate variance is computed
as the change in interest rate multiplied by the previous year's volume
(average balance). The change in interest due to both volume and rate has been
allocated to the volume and rate changes in proportion to the relationship of
the absolute dollar amounts of the change in each.
(3) Interest on nontaxable investment securities and loans has been adjusted to
a fully tax-equivalent basis using an incremental tax rate of 34% for the
periods presented.
15
<PAGE> 18
PART I - Continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Continued
Net Interest Income
As shown in Tables 1 and 2, tax equivalent net interest income increased
$110,000 in the first three months of 1995 compared to 1994. The expansion
resulted from growth in net interest earning assets.
The increase in general market interest rates which began in the first quarter
of 1994 caused almost all of the Registrant's average rates to be higher in
1995 than in the prior year. The average prime lending rate in the first
quarter of 1995 was 9.00%, compared to 6.02% in 1994. This has affected those
loans whose rates float with the prime rate, which includes most of the
commercial and agricultural loan portfolios and part of the consumer loan
portfolio. Rates earned on adjustable rate mortgages have been rising 200
basis points over the prior year, which is the maximum amount the rate on this
mortgage type can increase. The rate earned on taxable securities rose as a
result of the general market increase. The decrease in the nontaxable
securities rate was caused by maturities of higher yielding securities and a
reinvestment rate of 8.58% for nontaxable securities in 1994.
The rise in general market interest rates caused increases in all
interest-bearing liability categories in 1995 except for savings deposits.
Rates paid on interest-bearing transaction accounts and time deposits rose as a
result of competitive pressures in the Bank's market area. In spite of the
rising trend in general market rates, the Bank did not raise its savings
deposit rate in the first quarter of 1995 since the Bank's competition was also
reluctant to raise savings rates.
Table 1 documents that the net interest income spread was 4.30% for the first
three months of 1995, which represented a 32 basis point increase over the
prior year. As rates earned on loans and securities increased in 1994,
management strengthened the net interest income spread by raising rates paid on
deposit accounts no faster than was necessitated by competition within its
market area. As the increase in general market rates has slowed in the first
quarter of 1995, management has maintained the net interest spread by holding
steady the rates paid on deposit accounts and emphasizing loan growth.
Management has attempted to stimulate loan demand through an officer calling
program in the commercial and agricultural loans categories, direct consumer
loan promotions and a new dealer reserve program for indirect loans.
Management anticipates that general market interest rates will be steady to
slightly increasing for the remainder of 1995. The Bank's competition will
continue to place upward pressure on deposit rates and the Bank may have to
raise deposit rates to maintain a funds flow for its loan growth. Little
upward movement is anticipated in loan or securities rates. In order to
maintain its desired interest rate spread, the Bank will emphasize loan growth
to obtain the highest yield on its investable funds.
Table 1 documents growth in excess of $2,500,000 in the average loans balance
from 1994 to 1995 and a $3,400,000 decline in the average balance of taxable
securities. Maturities of taxable securities have been used to fund loan
growth since the Bank has experienced little deposit growth from the first
quarter of 1994 to 1995. The deposit mix changed significantly from 1994 to
1995 as the average balance of time deposits grew over $3,500,000, while
interest-bearing transaction accounts and savings deposits declined almost
$4,300,000. The transfer of balances into the time deposits category reflected
depositors' preference for the higher interest rates offered by this type of
account.
16
<PAGE> 19
PART I - Continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Continued
Allowance and Provision for Loan Losses
The allowance for loan losses increased by $17,000 from December 31, 1994, to
March 31, 1995. The allowance was 1.49% of gross loans at March 31, 1995, and
1.50% at December 31, 1994. The provision for loan losses was slightly higher
in the first quarter of 1995 than 1994, while net chargeoffs were slightly
lower in 1995. The small increase in the provision was due to the funding of
the allowance for loan losses for the loan growth experienced in 1995.
Chargeoffs and recoveries for commercial and consumer loans for the periods
ended March 31 are listed below. There were no chargeoffs or recoveries in the
other loan categories in the first quarter of 1995 or 1994.
<TABLE>
<CAPTION>
1995 1994
---------------------------- -----------------------------
Chargeoffs Recoveries Chargeoffs Recoveries
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Commercial $ 2,000 $ 0 $ 0 $ 0
Consumer 19,000 8,000 26,000 5,000
-------- ------- -------- -------
$ 21,000 $ 8,000 $ 26,000 $ 5,000
======== ======= ======== =======
</TABLE>
The amount of chargeoffs which the Bank will experience in the remainder of
1995 will be dependent on the extent to which business and consumer borrowers
are affected by the local economy. As chargeoffs, changes in the level of
nonperforming loans, and loan growth occur in the remainder of 1995, the
provision and allowance for loan losses will be reviewed by the Bank's
management and adjusted as believed necessary.
The Registrant implemented Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" on January 1, 1995.
Statement No. 114 addresses the accounting by creditors for impairment of a
loan by specifying how allowances for credit losses related to certain loans
should be determined. A loan is classified as impaired when it is believed
probable that all amounts due will not be able to be collected according to the
contractual terms of the loan agreement. An allowance for credit losses is
allocated to an impaired loan when the present value of future expected cash
flows discounted at the loan's effective interest rate is less than the
recorded cash value. The implementation of Statement No. 114 did not have a
material impact on the Registrant's allowance for loan losses.
Securities
Securities available for sale decreased $2,400,000 in the first quarter of 1995
while securities held to maturity increased almost $1,800,000. The majority of
the balance change in the two categories was due to a reclassification of
$1,795,000 of nontaxable obligations of states and political subdivisions from
the available for sale classification to held to maturity. Management believed
that the reclassification was prudent since management had both the positive
intent and ability to hold the securities to maturity.
Management anticipates the balance in both securities categories will decline
in the remainder of 1995. This is based on the belief that loan growth will
continue to exceed deposit growth and maturing funds from securities will be
used to supplement deposits.
The market value of securities available for sale declined significantly in
1994 as a result of the rise which occurred in general market interest rates.
This trend began to reverse in the first quarter of 1995 as stable interest
rates for securities caused
17
<PAGE> 20
PART I - Continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Continued
Securities - Continued
the market values for securities to increase. The net unrealized loss on
securities available for sale decreased from $843,000 at December 31, 1994, to
$413,000 at March 31, 1995. Management anticipates the unrealized loss will
continue to decrease for the remainder of 1995.
Loans
Total loans grew $1,394,000 in the first quarter of 1995. All loan categories
except for residential real estate mortgages experienced increases. The growth
in both the commercial and agricultural loan categories resulted from a
continued strong local economy which has increased loan demand and the Bank's
officer call program which has concentrated on business customers. The
decrease in residential real estate mortgages was due to relatively high
mortgage rates which have dampened loan demand and a very competitive local
market in mortgage lending. The higher consumer loan balance was primarily
caused by increased indirect automobile lending, which has been stimulated by a
new dealer reserve program.
Loan growth in the remainder of 1995 will be affected primarily by interest
rates and by competition within the Bank's local market area. The officer call
program will continue to be used in the commercial and agricultural areas to
attempt to continue and stimulate demand. New marketing strategies are being
formulated to enable the Bank to be more aggressive in the residential real
estate mortgage area. In the consumer loan area, loan promotions are planned
to stimulate demand for direct loans while management will continue to
emphasize development of its indirect loan portfolio.
Since the Registrant implemented Statement of Financial Accounting Standards
No. 114 on January 1, 1995, management must review the loan portfolio for
possible impaired loans. In addition to this, management also monitors the
portfolio for nonperforming loans. Nonperforming loans are comprised of (1)
loans accounted for on a non-accrual basis, (2) loans, not included in
non-accrual loans, which are contractually past due 90 days or more as to
interest or principal payments, and (3) loans, not included in non-accrual or
loans past due 90 days or more, which are considered troubled debt
restructurings. The balances of the three nonperforming categories as of March
31, 1995, were $624,000, $48,000, and $87,000 for a total of $759,000. The
balances as of December 31, 1994, were $640,000, $100,000 and $87,000 for a
total of $827,000.
Deposits
Total deposits experienced no growth in the first quarter of 1995. Management
believes the lack of growth is primarily due to a very competitive interest
rate environment for deposit products. As part of its asset/liability
management strategy, the interest rates paid by the Bank on its deposit
products are not as high as some of its competitors. The Bank's alternative
investment products have also affected deposit growth as funds for some of the
products sold by the Bank have come from customers' deposit accounts.
The balance of time deposits grew $2,923,000 in the first quarter of 1995, in
contrast to the other deposit categories which all experienced decreases. This
represents a continuation of the trend which began in 1994. Depositors are
shifting their funds to time deposits to gain the higher rates paid on this
type of account. The Bank also had a time deposits promotion in the month of
March, which caused some depositors to move funds from the other deposit
categories.
The Bank's management anticipates that interest rates paid on deposits will
continue to be very competitive in the remainder of 1995. The Bank's decisions
on rates paid on its deposit products will greatly affect its ability to secure
deposit funds. If loan growth continues to the extent experienced in the first
quarter of 1995, management will consider increasing deposit rates to generate
deposit growth to fund loan demand.
Shareholders' Equity
Total shareholders' equity increased $483,000 in the first quarter of 1995.
Slightly more than half of the increase resulted from a reduction in net
unrealized
18
<PAGE> 21
PART I - Continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Continued
Shareholders' Equity - Continued
depreciation on securities available for sale. The reduction was due to steady
interest rates on securities, which allowed securities' market values to
increase. This positive impact on shareholders' equity was in contrast to the
first quarter of 1994, when the fluctuations in market values of securities
available for sale had a negative impact on equity of $274,000.
Shareholders' equity as a percentage of assets was 12.54% as of March 31, 1995,
compared to 12.13% as of December 31, 1994. The minimum regulatory capital
percentages are 3% for the leverage ratio, 4% for the Tier 1 capital ratio and
8% for the total risk-based capital ratio. The Registrant's regulatory capital
levels as of March 31, 1995, follows:
<TABLE>
<CAPTION>
Capital Capital as % of
amount risk adjusted assets
----------- --------------------
<S> <C> <C>
Leverage capital $13,661,000 12.79%
Tier 1 capital $13,661,000 18.62%
Total risk-based capital (Tier 1 and Tier 2
combined) $14,717,000 20.06%
</TABLE>
Capital Resources
The Registrant decreased its capital $811,000 on April 28, 1995, as a result of
the repurchase of 18,324 shares of its stock. Management has no other
immediate plans for substantial use of its capital resources. However,
management believes that the current level of capital is adequate to take
advantage of potential opportunities that may arise for the Registrant or the
Bank.
As of April 1, 1995, banking laws in the State of Michigan were amended to
permit banks to compete directly with insurance agencies and investment
companies. The Bank has formed a subsidiary to assist in any expansion of
insurance or investment products. Management is reviewing its opportunities in
these new service areas.
Liquidity and Rate Sensitivity
Cash and cash equivalents decreased $459,000 in the first quarter of 1995. The
decline was due to a lower balance that was due from the Bank's correspondent
banks. The Registrant's management believes that the current level of
liquidity is sufficient to meet the Bank's normal operating needs. This belief
is based upon the availability of deposit growth, maturities of securities,
normal loan repayments, income retention, federal funds which can be purchased
from correspondent banks and advances available from the Federal Home Loan Bank
of Indianapolis.
Table 3 on page 20 documents the maturity and repricing schedule for the
Registrant's rate-sensitive assets and liabilities for selected time periods.
The Registrant's cumulative rate-sensitive liabilities exceeded its cumulative
rate-sensitive assets by $8,187,000 at the one year repricing point as of March
31, 1995. The large negative amount at the end of the first quarter was due
primarily to the classification of all interest-bearing transaction accounts
and savings deposits in the 0 to 3 month repricing category. These rates paid
on these deposit types can be immediately repriced; management will determine
the rates necessary based on competitive rates and the need for deposited
funds.
19
<PAGE> 22
PART I - Continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Continued
Liquidity and Rate Sensitivity - Continued
Table 3 - Maturities and Repricing Schedule
<TABLE>
<CAPTION>
As of March 31, 1995
--------------------
0 - 3 3 - 12 1 - 5 Over
Months Months Years 5 Years Total
-------- -------- ------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Assets
Loans $ 22,342 $ 24,061 $18,128 $ 6,273 $ 70,804
Interest-bearing deposits
with banks 33 0 0 0 33
Taxable securities 600 1,888 10,124 7,229 19,841
Nontaxable securities (1) 760 1,089 3,109 5,003 9,961
-------- -------- ------- ------- --------
Rate-sensitive assets 23,735 27,038 31,361 18,505 100,639
Liabilities
Interest-bearing transaction
accounts 26,761 0 0 0 26,761
Savings deposits 9,998 0 0 0 9,998
Time deposits 9,848 11,552 22,668 0 44,068
Federal funds purchased 800 0 0 0 800
-------- -------- ------- ------- --------
Rate-sensitive liabilities 47,407 11,552 22,668 0 81,627
-------- -------- ------- ------- --------
Rate-sensitive assets
less rate-sensitive
liabilities
Asset (liability) gap
for the period $(23,672) $ 15,486 $ 8,693 $18,505 $ 19,012
======== ======== ======= ======= ========
Cumulative asset
(liability) gap $(23,672) $ (8,186) $ 507 $19,012
======== ======== ======= =======
Cumulative rate-
sensitive assets as
a percentage of
cumulative rate-
sensitive
liabilities 50.07% 86.12% 100.62% 123.29%
====== ====== ======= =======
</TABLE>
The Registrant's management is aware of the inherent interest rate risk
associated with gap management. With interest rate fluctuations expected in
the next 3 to 12 months, the relationship between rate-sensitive assets and
liabilities will be monitored by management and changes in the assets and
liabilities will be made when deemed necessary. In the remainder of 1995 where
interest rates are expected to be steady to slightly increasing, management
will attempt to raise the rates paid on rate-sensitive liabilities more slowly
than the rates earned on rate-sensitive assets.
20
<PAGE> 23
PART II
Item 1. Legal Proceedings
There are no pending legal proceedings to which the Registrant or its
subsidiary, Sparta State Bank, is a party or which any of their property is
subject, except for proceedings which have arisen in the ordinary course of
business. In the opinion of management, pending legal proceedings will not
have a material effect on the consolidated financial statements of the
Registrant or its subsidiary as of and for the three month period ended March
31, 1995.
Item 2. Changes in Securities
During the quarter ended March 31, 1995, there were no changes in the
Registrant's securities which would cause any shareholder's rights to be
materially modified, limited or qualified. Note 8 on page 12 documents the
repurchase of 18,324 shares of the Registrant's stock, which did not cause any
shareholders' rights to be materially modified, limited or qualified.
Item 3. Defaults Upon Senior Securities
There have been no defaults involving senior securities on the part of the
Registrant.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
quarter ended March 31, 1995.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
1. Exhibits required by Item 601 of Regulation S-B
See Index to Exhibits
2. Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended March 31, 1995.
II-1
<PAGE> 24
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
1st Community Bancorp, Inc.
Date May 10, 1995 /s/ Jae M. Maxfield
------------ -------------------
President and Chief Executive Officer
Date May 10, 1995 /s/ Thomas L. Lampen
------------ --------------------
Treasurer
II-2
<PAGE> 25
INDEX TO EXHIBITS
The following exhibits are filed or incorporated by reference as part of this
report:
2 Plan of Purchase, Sale, Reorganization, Arrangement, Liquidation or
Succession - Not applicable
4 Instruments Defining the Rights of Security Holders, Including
Indentures - Not applicable
11 Statement Regarding Computation of Per Share Earnings - See Notes to the
Consolidated Financial Statements, Note #1, Stock Dividend and Earnings
and Cash Dividends Per Share Paragraph
15 Letter on Unaudited Interim Financial Information - Not applicable
18 Letter on Change in Accounting Principles - Not applicable
19 Previously Unfiled Documents - Not applicable
20 Report Furnished to Security Holders - Not applicable
23 Published Report Regarding Matters Submitted to Vote of Security Holders
- Not applicable
24 Consents of Experts and Counsel - Not applicable
25 Power of Attorney - Not applicable
27 Financial Data Schedule - Filed herewith
Copies of any exhibits will be furnished to shareholders upon written request.
Request should be directed to Tom Lampen, 1st Community Bancorp, Inc., 109
East Division, Sparta, Michigan 49345.
II-3
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT OF 1ST COMMUNITY BANCORP, INC.
INCLUDED IN THE MARCH 31, 1995, FORM 10-QSB FILING AND IS QUALIFIED IN ITS
ENTIRETY TO SUCH (B) FORM 10-QSB FILING
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 2,489
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 19,841
<INVESTMENTS-CARRYING> 9,961
<INVESTMENTS-MARKET> 9,941
<LOANS> 70,804
<ALLOWANCE> 1,056
<TOTAL-ASSETS> 106,492
<DEPOSITS> 91,247
<SHORT-TERM> 800
<LIABILITIES-OTHER> 1,086
<LONG-TERM> 0
<COMMON> 4,058
0
0
<OTHER-SE> 9,301
<TOTAL-LIABILITIES-AND-EQUITY> 106,492
<INTEREST-LOAN> 1,582
<INTEREST-INVEST> 467
<INTEREST-OTHER> 2
<INTEREST-TOTAL> 2,051
<INTEREST-DEPOSIT> 863
<INTEREST-EXPENSE> 877
<INTEREST-INCOME-NET> 1,174
<LOAN-LOSSES> 30
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 849
<INCOME-PRETAX> 451
<INCOME-PRE-EXTRAORDINARY> 451
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 340
<EPS-PRIMARY> .84
<EPS-DILUTED> .84
<YIELD-ACTUAL> 5.09
<LOANS-NON> 624
<LOANS-PAST> 48
<LOANS-TROUBLED> 87
<LOANS-PROBLEM> 806
<ALLOWANCE-OPEN> 1,039
<CHARGE-OFFS> 21
<RECOVERIES> 8
<ALLOWANCE-CLOSE> 1,056
<ALLOWANCE-DOMESTIC> 615
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 441
</TABLE>
