U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
__X__ ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
_____ TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________________ to
_____________________
Commission File Number: 33-9110
1ST COMMUNITY BANCORP, INC.
(Name of Small Business Issuer in its Charter)
MICHIGAN 38-2659066
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
109 EAST DIVISION
SPARTA, MICHIGAN 49345
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, including Area Code: (616) 887-7366
Securities Registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $10.00 PAR VALUE PER SHARE
(Title of class)
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 _____
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. (X)
State issuer's revenues for its most recent fiscal year. The issuer's
revenues for the year ended December 31, 1995, were $9,455,000.
As of February 29, 1996, the aggregate market value of the voting stock
held by non-affiliates of the issuer was approximately $18,616,000. This
amount is based on an average bid price of $38.35 per share for the
registrant's stock as of such date.
As of February 29, 1996, the issuer had outstanding 485,413 shares of
Common Stock, par value $10 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Part I, Item 1, and Part II, Items 5, 6, and 7, incorporate by reference
portions of the Registrant's Annual Report to Shareholders for the year
ended December 31, 1995.
Part III, Items 9, 10, 11, and 12, incorporate by reference portions of the
Registrant's Definitive Proxy Statement for the Annual Meeting of
Shareholders to be held April 30, 1996.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
1st Community Bancorp, Inc. ("Registrant") is a one-bank holding
company registered under the Bank Holding Company Act of 1956, as amended.
The Registrant was incorporated on February 24, 1986. The Registrant was
formed for the purpose of acquiring all of the capital stock of Sparta
State Bank ("Bank") to form a bank holding company. The Bank became a
wholly owned subsidiary of the Registrant on April 6, 1987. The
Registrant's only subsidiary and significant asset as of December 31, 1995,
was the Bank. Effective January 1, 1996, the Bank acquired all of the
outstanding common stock of Bradford Insurance Centre, Ltd. ("Insurance
Agency"). The Insurance Agency is an independent insurance agency
headquartered in Sparta, Michigan.
The Registrant's business is concentrated in a single industry
segment - commercial banking. The Bank is a full-service banking
institution that offers a variety of deposit, payment, credit, and other
financial services to all types of customers. These services include time,
savings, and demand deposits, safe deposit services, and automated teller
machine services. Loans, both commercial and consumer, are extended
primarily on a secured basis to corporations, partnerships, and
individuals. Commercial lending covers such categories as business,
industry, agricultural, construction, inventory, and real estate. The
Bank's consumer loan and residential mortgage loan departments make direct
loans to consumers and purchasers of residential property. No material
part of the business of the Registrant or the Bank is dependent upon a
single customer or very few customers, the loss of which would have a
materially adverse effect on the Registrant.
The Bank's primary market area consists of portions of Kent,
Muskegon, Newaygo, and Ottawa counties in Michigan in the communities where
the Bank's offices are located and the areas immediately surrounding these
communities. Currently, the Bank serves these markets through two full-
service offices and one off-premises automated transaction machine. The
Registrant and the Bank have no foreign assets or income.
The principal source of revenue for the Registrant and the Bank
is interest and fees on loans. On a consolidated basis, interest and fees
on loans accounted for 75% of total revenues in 1995, 70% in 1994, and 67%
in 1993. Interest on investment securities accounted for 18% of total
revenues in 1995, 23% in 1994, and 24% in 1993.
I-2
COMPETITION
The business of banking is highly competitive. The Bank's
competition primarily comes from other financial institutions located
within Sparta, Michigan, and the Kent County area. There are a number of
larger commercial banks in the Bank's primary market area.
The Bank also competes with a large number of other financial
institutions, such as savings and loan associations, insurance companies,
consumer finance companies, credit unions, and commercial finance and
leasing companies for deposits, loans, and service business. Money market
mutual funds, brokerage houses, and nonfinancial institutions provide many
of the financial services offered by the Bank. Many of these competitors
have substantially greater resources than the Bank. The principal methods
of competition for financial services are price (the rates of interest
charged for loans, the rates of interest paid for deposits, and the fees
charged for services) and the convenience and quality of services rendered
to customers.
SUPERVISION AND REGULATION
Banks and bank holding companies are extensively regulated. The
Registrant is subject to supervision and regulation by the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"). The
Registrant's activities are generally limited to owning or controlling
banks and engaging in such other activities as the Federal Reserve Board
may determine to be closely related to banking. Prior approval of the
Federal Reserve Board, and in some cases various other government agencies,
is required for the Registrant to acquire control of any additional banks
or other operating subsidiaries.
The Bank is chartered under state law and is subject to
regulation by the Financial Institutions Bureau of the State of Michigan.
State banking laws place restrictions on various aspects of banking,
including permitted activities, loan interest rates, branching, payment of
dividends, and capital and surplus requirements. The Bank is a member of
the Federal Reserve System and is also subject to regulation by the Federal
Reserve Board. The Bank's deposits are insured by the Federal Deposit
Insurance Corporation ("FDIC") to the extent provided by law. The Bank
became a member of the Federal Home Loan Bank system in March 1993. This
provides certain advantages to the Bank, including favorable borrowing
rates for certain funds.
The Bank filed two branch applications on March 4, 1996. The
proposed branches, which will be located in Cedar Springs, Michigan, and
Grand Rapids, Michigan, are subject to final approval by the Federal
Reserve Board. Approval of the branches is expected to occur in the second
quarter of 1996.
I-3
The Registrant is a legal entity separate and distinct from the
Bank. There are legal limitations on the extent to which the Bank can lend
or otherwise supply funds to the Registrant. In addition, payment of
dividends to the Registrant by the Bank is subject to various state and
federal regulatory limitations.
Under Federal Reserve Board policy, the Registrant is expected to
act as a source of financial strength to the Bank and to commit resources
to support it. Under federal law, the FDIC also has authority to impose
special assessments on insured depository institutions to repay FDIC
borrowings from the United States Treasury or other sources and to
establish semiannual assessment rates on Bank Insurance Fund ("BIF") member
banks to maintain the BIF at the designated reserve ratio required by law.
Banks are subject to a number of federal and state laws and
regulations which have a material impact on their business. These include,
among others, state usury laws, state laws relating to fiduciaries, the
Truth in Lending Act, the Truth in Savings Act, the Equal Credit
Opportunity Act, the Fair Credit Reporting Act, the Expedited Funds
Availability Act, the Community Reinvestment Act, electronic funds transfer
laws, redlining laws, antitrust laws, environmental laws, and privacy laws.
The instruments of monetary policy of authorities such as the Federal
Reserve Board may influence the growth and distribution of bank loans,
investments, and deposits, and may also affect interest rates on loans and
deposits. These policies may have a significant effect on the operating
results of banks.
Under the Riegel-Neal Interstate Banking and Branching Efficiency
Act of 1994 ("IBBEA"), a bank holding company now may make certain
interstate acquisitions even if state law would otherwise prohibit it.
Starting June 1, 1997, a bank may make certain interstate acquisitions
unless one of the states has enacted legislation prohibiting interstate
bank acquisitions. An interstate acquisition may occur earlier if the
states of the buying and selling banks both have enacted laws permitting
interstate acquisitions by all out-of-state banks. IBBEA also permits a
bank to establish a DE NOVO branch in another state if the state has a law
expressly permitting all out-of-state banks to establish DE NOVO branches
in that state. In November 1995, Michigan enacted legislation permitting a
Michigan bank to sell one or more of its branches to an out-of-state bank
if that bank's state law permits a Michigan bank to purchase branches of
banks located in that state. The Michigan legislation also permits a
Michigan bank to purchase one or more branches of an out-of-state bank, but
the Michigan bank must receive the approval of the Financial Institutions
Bureau of the State of Michigan before operating the purchased branch or
branches.
I-4
EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
The nature of the business of the Bank is such that it holds
title, on a temporary or permanent basis, to a number of parcels of real
property. These include properties owned for branch offices and other
business purposes as well as properties taken in or in lieu of foreclosure
to satisfy loans in default. Under current state and federal laws, present
and past owners of real property are exposed to liability for the cost of
clean up of contamination on or originating from those properties, even if
they are wholly innocent of the actions that caused the contamination.
These liabilities can be material and can exceed the value of the
contaminated property. Management is not presently aware of any instances
where compliance with these provisions will have a material effect on the
capital expenditures, earnings, or competitive position of the Registrant
or the Bank, or where compliance with these provisions will adversely
affect a borrower's ability to comply with the terms of loan contracts.
EMPLOYEES
As of February 29, 1996, the Bank employed forty-one persons on a
full-time basis and thirteen persons on a part-time basis. The Insurance
Agency employed thirteen persons on a full-time basis and three persons on
a part-time basis. The Registrant's only employees as of the same date
were its four executive officers. The Registrant, Bank, and Insurance
Agency believe their relations with their employees to be good.
STATISTICAL INFORMATION
Additional statistical information describing the business of the
Registrant appears on the following pages and in Management's Discussion
and Analysis or Plan of Operation incorporated by reference in Item 6 and
in the consolidated financial statements and the notes thereto incorporated
by reference in Item 7.
The following statistical information should be read in
conjunction with Management's Discussion and Analysis or Plan of Operation,
and the consolidated financial statements and notes thereto included
elsewhere or incorporated by reference herein.
INVESTMENT PORTFOLIO
Presented below is the amortized cost of investment securities as
of December 31, 1995, and 1994, a schedule of maturities of investment
securities as of December 31, 1995, and the weighted average yield of
investment securities as of December 31, 1995.
I-5
<TABLE>
<CAPTION>
AMORTIZED
1 YEAR 1 YEAR- 5 YEARS- AFTER TOTAL COST AT
OR LESS 5 YEARS 10 YEARS 10 YEARS <F1> DEC. 31,
MATURITY DISTRIBUTION AS OF DECEMBER 31, 1995 1994
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
U.S. Treasuries and U.S.
Government agencies <F2> $ 2,494 $ 7,069 $ 872 $ -- $10,435 $ 14,588
Obligations of states and
political subdivisions 1,585 5,546 3,844 506 11,481 7,613
Other securities <F3> -- 273 -- -- 305 303
Totals $ 4,079 $ 12,888 $ 4,716 $ 506 $22,221 $ 22,504
SECURITIES HELD TO MATURITY
Obligations of states and
political subdivisions $ -- $ -- $ -- $ -- $ -- $ 8,168
OTHER SECURITIES
Federal Reserve Bank and Federal
Home Loan Bank stock <F3> $ -- $ -- $ -- $ -- $ 585 $ 585
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE INTEREST RATES AS OF DECEMBER 31, 1995
<S> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
U.S. Treasuries and U.S.
Government agencies 6.60% 6.49% 7.17% --% 6.57%
Obligations of states and
political subdivisions <F4> 6.01 7.79 7.34 9.06 7.45
Other securities -- 6.10 -- -- 5.46
OTHER SECURITIES
Federal Reserve Bank and
Federal Home Loan Bank stock -- -- -- -- 7.28%
<FN>
The Bank had no holdings of investment securities from any one
issuer at December 31, 1995, which were greater than 10% of the
Registrant's shareholders' equity, exclusive of U.S. Treasury securities
and U.S. Government agency securities.
I-6
<F1> This column represents the total of the maturity distribution and the
amortized cost at December 1, 1995.
<F2> Maturities of mortgage-backed securities are classified according to
their estimated average maturity. The majority of mortgage-backed
securities are classified in the 1 year to 5 years category.
<F3> The total column includes securities which have no stated maturity.
<F4> The interest rate is computed on a fully tax-equivalent basis at an
incremental tax rate of 34%.
</FN>
</TABLE>
LOAN PORTFOLIO
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
The following schedule presents the maturities of loans
(excluding real estate mortgage loans and installment loans). Also
presented are loans over one year in maturity, classified according to the
sensitivity to changes in interest rates.
<TABLE>
<CAPTION>
1 YEAR 1 YEAR- AFTER
OR LESS 5 YEARS 5 YEARS TOTAL
(Dollars in thousands)
<S> <C> <C> <C> <C>
LOAN MATURITIES AS OF DECEMBER 31, 1995 <F1>
Commercial $ 9,989 $ 11,233 $ 1,952 $ 23,174
Agricultural 4,935 3,519 1,059 9,513
Real estate - construction 805 -- -- 805
Totals $ 15,729 $ 14,752 $ 3,011 $ 33,492
LOAN SENSITIVITY TO CHANGES IN INTEREST RATES
AS OF DECEMBER 31, 1995
Loans which have predetermined interest
rates $ 7,518 $ 1,678 $ 9,196
Loans which have floating or adjustable
interest rates 7,234 1,333 8,567
Totals $ 14,752 $ 3,011 $ 17,763
I-7
<FN>
<F1> Loan maturities are classified according to the contractual maturity date or the anticipated
amortization period, whichever is appropriate. The anticipated amortization period is used in
the case of loans where a balloon payment is due before the end of the loan's normal
amortization period. At the time the balloon payment is due, the loan can either be rewritten
or payment in full can be requested. The decision as to whether the loan will be rewritten or
a payment in full will be requested will be based upon the loan's payment history, the
borrower's current financial condition, and other relevant factors.
</FN>
</TABLE>
RISK ELEMENTS
The following loans were classified as nonperforming as of
December 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Loans accounted for on a nonaccrual basis $ 624,000 $ 640,000
Accruing loans which are contractually past due 90
days or more as to principal or interest payments 26,000 100,000
Loans not included above which are "troubled debt
restructurings" 106,000 87,000
Totals $ 756,000 $ 827,000
</TABLE>
Interest on the above loans which would have been earned had the
loans been in an accrual or performing status was approximately $85,000,
$83,000, and $52,000 for 1995, 1994, and 1993, respectively. The interest
that was actually recorded when received was approximately $68,000,
$49,000, and $37,000 for 1995, 1994, and 1993, respectively.
A loan is placed on nonaccrual status at the point in time at
which the collectibility of principal or interest is considered doubtful.
POTENTIAL PROBLEM LOANS
At December 31, 1995, there were $1,179,000 of loans not
disclosed above where some concern existed as to the borrowers' ability to
comply with original loan terms. $247,000 was 90% guaranteed and $136,000
was 80% guaranteed by the Farmers Home Administration.
I-8
LOAN CONCENTRATIONS
As of December 31, 1995, there was no concentration of loans
exceeding 10% of total loans that are not otherwise disclosed as a category
of loans in the loan portfolio listing in Note 6 to the consolidated
financial statements incorporated by reference in Item 7 of this report.
OTHER INTEREST-BEARING ASSETS
As of December 31, 1995, there were no other interest-bearing
assets that would be required to be disclosed in the loan portfolio listing
if such assets were loans.
SUMMARY OF LOAN LOSS EXPERIENCE
The following schedule presents a summary of activity in the
allowance for loan losses for the periods shown and the percentage of net
charge-offs during each period to average gross loans outstanding during
the period.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
1995 1994
(Dollars in
thousands)
<S> <C> <C>
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
Balance at beginning of period $ 1,039 $ 1,000
Charge-offs:
Commercial 2 4
Agricultural -- 10
Real estate - construction -- --
Real estate - mortgage 3 11
Consumer 120 94
125 119
Recoveries:
Commercial 6 --
Agricultural -- --
Real estate - construction -- --
Real estate - mortgage -- --
Consumer 37 32
43 32
Net charge-offs 82 87
Additions charged to operations <F1> 164 126
I-9
Balance at end of period $ 1,121 $ 1,039
Daily average gross loans outstanding $ 74,223 $ 68,077
Percentage of net charge-offs during the period to average
loans outstanding during the period .11% .13%
<FN>
<F1> The amount of additions to the allowance for loan losses charged to operations during the
periods shown was based on management's judgment after considering factors such as loan loss
experience, evaluation of the loan portfolio, and prevailing and anticipated economic
conditions. The evaluation of the loan portfolio is based upon various risk factors such as
the financial condition of the borrower, the value of collateral and other considerations
which, in the opinion of management, deserve current recognition in estimating possible loan
losses.
</FN>
</TABLE>
The following schedule presents an allocation of the allowance
for loan losses to the various loan categories as of the dates indicated.
<TABLE>
<CAPTION>
Allocation of the
Allowance for Loan Losses
AS OF DECEMBER 31,
1995 1994
PERCENT PERCENT
OF LOANS OF LOANS
IN EACH IN EACH
ALLOW- CATEGORY ALLOW- CATEGORY
ANCE TO TOTAL ANCE TO TOTAL
AMOUNT LOANS AMOUNT LOANS
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial $ 226 29.30% $ 190 25.84%
Agricultural 73 12.03 78 12.96
Real estate - construction 2 1.02 -- .34
Real estate - mortgage 80 36.47 94 39.60
Consumer 357 21.18 262 21.26
Unallocated 383 N/A 415 N/A
Totals $ 1,121 100.00% $ 1,039 100.00%
</TABLE>
I-10
The level of charge offs or recoveries did not change
significantly in any loan category in 1995 or 1994.
The increase in the allowance for loan losses allocated to
consumer loans resulted from growth in indirect automobile lending.
Management believes this type of loan to be of a higher risk level than
direct consumer loans. No other allocations changed significantly in
either 1995 or 1994.
DEPOSITS
The following schedule presents daily average balances and the
average interest rate paid by the deposit category for 1995 and 1994. It
also presents the maturities of time certificates of deposit issued in
denominations of $100,000 or more as of December 31, 1995.
<TABLE>
<CAPTION>
DAILY AVERAGE
AVERAGE BALANCES RATE PAID
1995 1994 1995 1994
(Dollars in thousands)
<S> <C> <C> <C> <C>
AVERAGE BALANCES AND RATES
Demand deposits $ 10,149 $ 9,488 --% --%
Interest-bearing
transaction accounts 25,522 30,027 3.57 3.12
Savings deposits 9,845 11,700 2.33 2.41
Time deposits 45,930 39,557 5.70 4.89
Total deposits $ 91,446 $ 90,772
MATURITIES OF TIME CERTIFICATES OF
DEPOSIT ISSUED IN DENOMINATIONS
OF $100,000 OR MORE
Maturities of 3 months or less $ 1,463
Maturities over 3 months
through 6 months 1,486
Maturities over 6 months
through 12 months 1,967
Maturities over 12 months 3,024
Total $ 7,940
</TABLE>
I-11
RETURN ON EQUITY AND ASSETS
The following schedule presents the ratios indicated for 1995,
1994, and 1993.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
Return on assets (net income divided by average
total assets) 1.36% 1.18% 1.22%
Return on equity (net income divided by average
equity) 11.09 9.62 10.19
Dividend payout ratio (dividends declared per
share divided by net income per share) 37.64 37.73 34.16
Equity to assets ratio (average equity divided
by average total assets) 12.27 12.25 11.95
</TABLE>
ITEM 2. DESCRIPTION OF PROPERTY
The Bank operated two offices as of February 29, 1996: its main
office located at 109 East Division, Sparta, Michigan, and its branch
office located at 416 West Division, Sparta. Both properties are owned by
the Bank. The Bank's main office comprises 24,000 square feet, all of
which is occupied by the Bank. The current structure has nine teller
windows, one automatic teller machine, and four drive-through windows
available to serve the Bank's customers. Approximately thirty-five parking
spaces are provided.
The Bank's branch office comprises 7,000 square feet, of which
approximately 3,000 is occupied by the Bank and 4,000 is occupied by the
Insurance Agency. The branch has five teller windows, one automatic teller
machine, and three drive-through windows available to serve the Bank's
customers. Approximately twenty-three parking spaces are provided.
The Insurance Agency operated three offices as of February 29,
1996: its main office located at 440 West Division, Sparta, an office at
17 North Main, Cedar Springs, and an office at 4949 Plainfield, N.E., Grand
Rapids. All three offices are leased. The Insurance Agency's main office,
which is leased from the Bank, comprises 4,000 square feet and shares the
twenty-three parking spaces with the Bank's branch office. The Insurance
Agency's Cedar Springs office comprises 600 square feet and provides 12
parking spaces, and its Grand Rapids office comprises 2,000 square feet and
provides 12 parking spaces.
I-12
The Registrant operates its business at the main office of the
Bank. No properties were owned by the Registrant as of February 29, 1996.
The Registrant, Bank, and Insurance Agency believe that their offices are
suitable and adequate for their future needs and are in good condition and
repair. The Registrant's management believes the offices are adequately
covered by insurance.
As part of its business, the Bank generates all types of
mortgages. The Bank generally does not purchase mortgages as part of its
business.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the
Registrant or the Bank is a party or to which any of their property is
subject, except for proceedings which arose in the ordinary course of
business. In the opinion of management, pending legal proceedings will not
have a material effect on the consolidated financial condition 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 December 31, 1995.
I-13
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information under the captions "Market Price of Common Stock"
and "Cash Dividends Per Share of Common Stock" on page 25 of the
Registrant's Annual Report to Shareholders for the year ended December 31,
1995, is incorporated herein by reference.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The information under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations," including all
subheadings, on pages 17 through 24 of the Registrant's Annual Report to
Shareholders for the year ended December 31, 1995, is incorporated herein
by reference.
ITEM 7. FINANCIAL STATEMENTS
The Consolidated Financial Statements, Notes to Consolidated
Financial Statements, and Independent Auditors' Report on pages 4 through
16 of the Registrant's Annual Report to Shareholders for the year ended
December 31, 1995, are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in the Registrant's or the Bank's
external accountants in the 24-month period prior to December 31, 1995.
There have been no disagreements with the Registrant's external accountants
on any matters of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
II-1
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The information under the captions "Directors and Executive
Officers" on pages 4 through 6 and "Section 16(a) Reporting Delinquencies"
on page 7 of the Registrant's Definitive Proxy Statement for the Annual
Meeting of Shareholders to be held April 30, 1996, is incorporated herein
by reference.
ITEM 10. EXECUTIVE COMPENSATION
The information under the caption "Compensation of Executive
Officers and Directors" on pages 7 through 10 of the Registrant's
Definitive Proxy Statement for the Annual Meeting of Shareholders to be
held April 30, 1996, is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the caption "Voting Securities" on pages 3
and 4 of the Registrant's Definitive Proxy Statement for the Annual Meeting
of Shareholders to be held April 30, 1996, is incorporated herein by
reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Certain Relationships and
Related Transactions" on pages 10 and 11 of the Registrant's Definitive
Proxy Statement for the Annual Meeting of Shareholders to be held April 30,
1996, is incorporated herein by reference.
III-1
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
1. Exhibits
The following exhibits are filed as part of this report:
Exhibit
# DOCUMENTS
3.1 Articles of Incorporation of the Registrant as currently in effect
and any amendments thereto - previously filed as an exhibit to the
Registrant's Form 10-K Annual Report for its fiscal year ended
December 31, 1990. Incorporated herein by reference.
3.2 Bylaws of the Registrant as currently in effect and any amendments
thereto - previously filed as an exhibit to the Registrant's Form
10-KSB Annual Report for its fiscal year ended December 31, 1993.
Incorporated herein by reference.
10.1 Employment Agreement With Jae M. Maxfield - filed herewith.
10.2 Employment Agreement With Lawrence D. Bradford - filed herewith.
11 Statement Regarding Computation of Per Share Earnings - The
computation of earnings per common share is described in full in
Note 2 to the consolidated financial statements incorporated by
reference in Item 7 of this report.
13 Filed herewith.
21 Subsidiaries of the Small Business Issuer - filed herewith.
27 Financial Data Schedule - filed herewith.
Copies of any exhibits will be furnished to shareholders upon written
request. Requests should be directed to Tom Lampen, 1st Community Bancorp,
Inc., 109 East Division, Sparta, Michigan 49345.
2. Reports on Form 8-K
No report on Form 8-K was filed during the quarter ended December
31, 1995. A report on Form 8-K was filed on March 18, 1996. The filing
was regarding the purchase of the Insurance Agency by the Bank and
presented unaudited financial statements for the one-month period ended
January 31, 1996.
III-2
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
1st Community Bancorp, Inc.
BY /S/ JAE M. MAXFIELD March 13, 1996
President
/S/ JAE M. MAXFIELD President and Director March 13, 1996
/S/ FRANK G. BERRIS Director March 13, 1996
/S/ LAWRENCE D. BRADFORD Director March 13, 1996
/S/ WILLIAM F. CUTLER, JR. Director March 13, 1996
/S/ LEWIS G. EMMONS Director March 13, 1996
/S/ L. EDMOND EARY, M.D. Chairman of the Board March 13, 1996
and Director
/S/ STUART GOODFELLOW Director March 13, 1996
/S/ WALTER HILL Director March 13, 1996
/S/ JON E. PIKE Director March 13, 1996
/S/ LINDA R. PITSCH Secretary and Director March 13, 1996
/S/ ANDREW W. ZAMIARA Director March 13, 1996
/S/ DENIS L. CROSBY Vice President March 27, 1996
/S/ THOMAS L. LAMPEN Treasurer March 13, 1996
IV-1<PAGE>
INDEX TO EXHIBITS
The following exhibits are filed or incorporated by reference as
part of this report:
Exhibit
# DOCUMENTS
3.1 Articles of Incorporation of the Registrant as currently in effect
and any amendments thereto - previously filed as an exhibit to the
Registrant's Form 10-K Annual Report for its fiscal year ended
December 31, 1990. Incorporated herein by reference.
3.2 Bylaws of the Registrant as currently in effect and any amendments
thereto - previously filed as an exhibit to the Registrant's Form
10-KSB Annual Report for its fiscal year ended December 31, 1993.
Incorporated herein by reference.
10.1 Employment Agreement With Jae M. Maxfield - filed herewith.
10.2 Employment Agreement With Lawrence D. Bradford - filed herewith.
11 Statement Regarding Computation of Per Share Earnings - The
computation of earnings per common share is described in full in
Note 2 to the consolidated financial statements incorporated by
reference in Item 7 of this report.
13 Filed herewith.
21 Subsidiaries of the Small Business Issuer - filed herewith.
27 Financial Data Schedule - filed herewith.
EXHIBIT 10.1
[SPARTA STATE BANK LETTERHEAD]
December 21, 1994
Mr. Jae M. Maxfield
458 North Macomb
Monroe, MI 48161
Dear Mr. Maxfield:
This letter is to summarize the terms and conditions of your
employment at Sparta State Bank ("Bank") as the President and Chief
Executive Officer:
1. TERM. Your employment will be at will and you shall
continue unless terminated by you or dismissed at the pleasure of the Board
of Directors of Bank in accordance with paragraph 4.
2. DUTIES. You will serve as President and Chief Executive
Officer of Bank and as President and Chief Executive Officer of First
Community Bancorp, Inc. ("Holding Company"). You will also serve on the
Boards of Directors of Bank and Holding Company. Your duties will be those
assigned by the Boards of Directors of Bank and Holding Company. Your
employment will be full time, and your entire business time and efforts
will be devoted to the performance of your duties for Bank and Holding
Company during the term of your employment.
3. COMPENSATION. You will be compensated during your
employment as follows:
(a) SALARY. Your base salary will be $90,000.00 per year,
subject to normal payroll deduction and payable bi-weekly. Your base
salary will be reviewed annually by the Board of Directors of Bank.
(b) BOARD OF DIRECTOR FEES. So long as you are a member of
the Boards of Directors of Bank and Holding Company, you will be
entitled to receive the regular fees paid to members of the Boards of
Directors of Bank and Holding Company.
(c) INCENTIVE BONUS PLAN. You will be eligible to
participate in the Incentive Bonus Plan, on the terms and conditions
set forth in such bonus program. Bank's current Incentive Bonus Plan
consists of a two-part plan. A Personal Performance part of the Plan
is to be paid if Bank has reached a net profit for the year. As
President, you will be eligible for a maximum bonus of up to 12% of
your base salary for the year as determined by the Board of Directors
of Bank based on their evaluation of your individual performance for
Mr. Jae M. Maxfield
Page 2
December 21, 1994
_________________________________
such year. The Bank Profit part of the Plan is a guaranteed portion
of the profits of Bank based on the ratio of achieved return on assets
(ROA) to maximum ROA. The Board of Directors of Bank in its
discretion will annually determine minimum and maximum ROA percentages
for each year. As President, you will be eligible for a maximum bonus
of up to 16.5% of your base salary for the year. Determinations of
eligibility, funding, allocation and amounts of awards are subject to
the review and final approval of the Board of Directors of Bank. The
terms of any present or future bonus programs are subject to revisions
from time to time in the sole discretion of the Board of Directors of
Bank.
(d) BENEFITS. You will be eligible during your employment
to participate in fringe benefit programs covering Bank's employees as
a group, subject to the terms and conditions of those programs.
Currently those programs include your eligibility to participate in a
life insurance policy with a face value equal to twice your base
salary, eligibility for a disability insurance policy, and eligibility
for medical and dental coverage. In addition, once you satisfy
eligibility requirements, you will be eligible to participate in the
Bank's pension plan and the Bank's 401(K) retirement savings plan.
The terms of applicable insurance policies and benefit plans in effect from
time to time will govern with regard to specific issues of coverage and
benefit eligibility. The terms of any present or future benefit programs
are subject to revision from time to time in the sole discretion of the
Board of Directors of Bank.
(e) AUTOMOBILE. You will be eligible for an automobile
allowance of up to $500.00 per month.
(f) BUSINESS EXPENSES. You will be reimbursed for
reasonable, ordinary and necessary business expenses incurred in the
performance of your duties on behalf of Bank, which expenses are
properly approved and substantiated.
(g) VACATION. You will be entitled to four (4) weeks of
paid vacation each calendar year.
(h) RELOCATION EXPENSES. You will be reimbursed for 50% of
the real estate commissions resulting from the sale of your home in
Monroe, Michigan. You would also be reimbursed for your actual moving
expenses incurred in connection with your move from Monroe, Michigan
to Sparta, Michigan. You also shall be entitled to a temporary
housing allowance in an amount not to exceed $600.00 per month for not
more than six (6) months.
Mr. Jae M. Maxfield
Page 3
December 21, 1994
_________________________________
4. CONFLICTS OF INTEREST. During your employment, you will not
acquire any financial interest in, accept gifts, payments or other favors
from, or establish any relationship other than on behalf of Bank or Holding
Company with, any customer, supplier or other person who does or seeks to
do business with Bank or Holding Company. This paragraph 4 is in
furtherance of and not in limitation of any other policies Bank or Holding
Company may have regarding conflicts of interest.
5. LOYALTY AND CONFIDENTIALITY. You agree that information
about Bank or Holding Company and its business and customers is furnished
to you as a fiduciary, in reliance upon your pledge of confidentiality in
this paragraph. You will be loyal to Bank and Holding Company during your
employment and will hold confidential and will not use or disclose any
information regarding Bank's or Holding Company's techniques, processes,
developmental or experimental work, trade secrets, customer or prospect
names or information, or proprietary or confidential information relating
to the current or planned products, services, sales, employees or business
of Bank or Holding Company except as such disclosure or use may be required
in connection with your duties for Bank and Holding Company. Upon
termination of your employment, you will deliver to Bank any and all
materials relating to Bank's or Holding Company's business, including
without limitation, all customer lists and information, keys, financial
information, business notes, business plans, company-provided autos or
other equipment, credit cards, memoranda, specifications and documents.
All property of Bank or Holding Company will be returned promptly and in
good condition except for normal wear. You agree not to retain any copies,
reproductions or summaries of any such material. You agree that any breach
or threatened breach of your agreement in this paragraph 5 would cause Bank
irreparable harm and that injunctive relief would be appropriate.
6. COVENANT NOT TO COMPETE. During your employment, and for
one year after termination of your employment, you agree that you will not
compete in any way with the business of Bank or Holding Company. Your
promise not to compete includes, but is not limited to, your promise that
you will not do any of the following activities:
(a) You will not work with, for or have any interests in, a
competitor of Bank or Holding Company in any geographic territory in
which Bank or Holding Company does business. A competitor as used in
this paragraph 8(a) is limited to organizations which are in direct
competition with the products and services of Bank or Holding Company.
(b) You will not attempt to persuade any of the customers,
suppliers, potential customers or potential suppliers of Bank or
Holding Company that they should not do business with Bank or Holding
Company.
Mr. Jae M. Maxfield
Page 4
December 21, 1994
_________________________________
(c) You will not attempt to employ, solicit or endeavor to
persuade any employee of Bank or Holding Company to accept employment
or association with any other person or entity.
You agree that any breach or threatened breach of your agreement in this
paragraph 6 would cause Bank irreparable harm and that injunctive relief
would be appropriate.
7. TERMINATION.
(a) BY YOU IN YOUR DISCRETION. You may terminate your
employment at will at any time in your discretion for any reason or
without reason, with thirty (30) days advanced written notice to Bank.
(b) BY BANK IN ITS DISCRETION. Bank may terminate your
employment at will at any time in its discretion for any reason or
without reason.
8. DISCLAIMER. You acknowledge that nothing in this letter
agreement shall be deemed to create any expectations or promises to job
security or advancement.
9. ENTIRE AGREEMENT. This Agreement states the entire
agreement between the parties relating to these matters. Any modification
of this letter agreement must be made in writing and signed by you and the
Chairman of the Board of Directors of Bank.
SPARTA STATE BANK
By S/ L. EDMOND EARY, JR., M.D.
L. Edmond Eary, Jr. M.D.,
Chairman of the Board of
Directors and Interim
President and Chief Executive
Officer
ACCEPTED:
S/ JAE M. MAXFIELD
Jae M. Maxfield
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "AGREEMENT") dated as of
December 20, 1995, between Lawrence Bradford ("EMPLOYEE") and Bradford
Insurance Centre, Ltd. (the "COMPANY"). It is the intention of the Company
and Employee that Employee remain an agent for the Company.
Accordingly, the parties agree as follows:
1. POSITION. Employee will serve as an agent for the Company and use
his best efforts to promote the Company's business. Employee's duties will
include those which are customary for his position, including duties which
from time to time may be specified by the Company's board of directors (the
"BOARD"). Employee's performance of his duties shall be subject to the
following provisions:
(a) Employee will act only in accordance with the terms of this
agreement, guidelines adopted by the Company, instructions given to
Employee by the Company, and the laws and regulations of the State of
Michigan.
(b) Employee's services will be limited to the lines of
insurance permitted by his license.
(c) Employee shall at all times maintain the qualifications
necessary for his licensing in the State of Michigan.
(d) Employee shall not act as an agent for the Company unless
his license is in good standing. If Employee's authority to act for
the Company is suspended or revoked, Employee shall not attempt to act
for the Company nor represent to any other person that he is
authorized to do so.
(e) Without limitation of the right of the Company to terminate
Employee's employment at anytime with or without cause, the Company
may immediately terminate Employee's employment should his license be
suspended or revoked by the Michigan Insurance Commissioner.
(f) Employee shall remit to the Company all funds received in
his capacity as an agent, and Employee shall refrain from rewarding or
otherwise compensating any person for procuring or endorsing business,
furnishing leads or prospects, or acting in any other manner as an
agent or solicitor as those terms are defined in the Michigan
Insurance Code.
2. COMPENSATION. Employee shall receive $60,000 per year as his
base salary. Employee shall receive a bonus in accordance with the terms
of Schedule 1 hereto. Fringe benefits provided in Company policies it from
time to time promulgates. Employee's salary may be adjusted on an annual
basis upon terms and conditions mutually agreed upon in writing.
3. TERM.
(a) Unless renewed by the mutual agreement of the Company and
Employee, the employment period shall end on the third anniversary
hereof; provided that (i) the employment period shall terminate prior
to such date upon Employee's death or permanent disability or
incapacity (as determined by the Board) in its good faith judgment)
and (ii) the employment period may be terminated by the Company at any
time prior to such date for Cause (as defined below). Provided that
this Agreement has not been terminated prior to the third anniversary
hereof, Employee shall be deemed to be hired "at will" at the end of
the employment period.
(b) All of Employee's rights to fringe benefits and bonuses
hereunder (if any) accruing after the termination of the employment
period shall cease upon such termination.
(c) For purposes of this Agreement, "Cause" shall mean (i) a
material breach of this Agreement by Employee, (ii) a breach of
Employee's duty of loyalty to the Company or any act of dishonesty or
fraud with respect to the Company, (iii) the commission by Employee of
a felony, a crime involving moral turpitude or other act causing
material harm to the Company's standing and reputation, (iv)
Employee's continued failure to perform Employee's duties to the
Company or (v) Employee's substandard performance. For the purposes
of this Agreement, "substandard performance" shall be determined by a
majority of the Board. The Board shall give Employee written notice
of the Board's concern over Employee's performance, and Employee shall
have 15 days to prepare for a meeting with the Board. In assessing
Employee's performance, the Board shall give due consideration to the
overall industry experience in assessing Employee's performance.
After due consideration of these factors, if a majority of the Board
determines in good faith that the Company would have performed
substantially better with another agent, the Board may terminate
Employee for "substandard performance."
4. NON-COMPETE, ETC. Employee will be bound by the following
restrictions:
(a) NON-COMPETE. Employee will not, during the term of his
employment with the Company and for two years thereafter (the
"Non-Compete Period"), within a twenty-five mile radius of the
Company's offices on the date hereof, serve as an insurance agent or
solicitor as defined in the Michigan Insurance Code (or other
-2-
applicable law for market areas outside the State of Michigan), nor
serve as an employee, consultant, agent, officer, director, or
independent contractor with any firm or corporation in competition
with the Company. Employee and the Company agree that in view of all
the facts and circumstances this provision is reasonable in that it
will legitimately protect the goodwill and business prospects of the
Company, while permitting Employee to continue in the insurance
business at a location apart from the Company's market area. Employee
and the Company agree that the Company's market area is subject to
modification as the Company's business and affairs shall change following
execution of this agreement, except that no expansion of the Company's
market area occurring after Employee's termination of employment shall be
binding upon Employee. Nothing herein shall prohibit Executive from
being a passive owner of not more than 2% of the outstanding stock of
any class of a corporation which is publicly traded, so long as
Executive has no active participation in the business of such
corporation.
(b) CONFIDENTIAL INFORMATION. Employee will not disclose to
anyone any secret or confidential information of the Company,
including customer lists, renewal and expiration data, sales
information, customer files, and other confidential matters relating
to the business of the Company. This restriction will continue
indefinitely.
(c) NON-SOLICITATION; NON-DIVERSION. Employee will not, either
for himself or on behalf of anyone else, directly or indirectly,
divert or attempt to divert from the Company any business
opportunities within the insurance industry, nor interfere with the
contractual rights or expectancies that the Company has with any other
person, nor solicit any customers to which the Company is selling
insurance or providing other services at the time of Employee's
termination of employment. This restriction shall continue for a
period of five (5) years following Employee's termination of
employment. Business opportunities, contractual rights, and
contractual expectancies of the Company shall include those with
insurers, customers, employees, and other business associates.
(d) COMPANY'S MATERIALS. Employee will, upon leaving the
employment of the Company, deliver to the Company, and not keep or
deliver to anyone else, any and all materials relating to the
Company's business, including, but not limited to, customer lists,
renewal and expiration data, notes, memoranda, computer software or
programs, customer file information and documents.
(e) SPECIFIC ENFORCEMENT. The remedies of the Company upon
Employee's violation of the restrictions in this Section are as
follows: the Company may specifically enforce the restrictions in
this Section 4, including (without limitation) Employee's covenant not
to compete against the Company and the Company's remedies are
cumulative and shall include the remedy of damages.
-3-
5. CONTRACTS; BUSINESS EFFORTS. Employee shall use his best
efforts to solicit contracts of insurance for the Company. Employee hereby
assign to the Company all rights to commission income and renewal and
expiration rights associated with any customers which Employee service or
procure during the term of this agreement. Employee will devote his full
business time and work to the business of the Company during the term of
his employment. Involvement in any other business activity (other than
passive investment) must be approved in advance and in writing by the
Board.
6. AUTHORITY. The Company grants Employee full power and authority
to receive and transmit proposals for contracts of insurance covering such
classes of risks as the Company may from time to time authorize to be
insured and which Employee may solicit under his license. Employee are
also authorized to collect, receive, and receipt for premiums on insurance
and other payments which are delivered to Employee as a representative of
the Company and to bind coverages on behalf of the Company's insurers to
the extent permitted by Company policy and by the Company's contracts with
its insurers. Employee have no authority to delegate to any other person
any of the authority granted under this agreement; however, the Company may
delegate to other persons the authority to perform certain duties which are
also within Employee's authority.
7. ARBITRATION. Except for disputes arising under Section 4 and the
exercise of the Company's remedies under Section 4, should any differences
arise between Employee and the Company in his employment, we agree to
submit our controversy to binding arbitration under the rules of the
American Arbitration Association then in effect, and judgment on the award
may be entered in any court of competent jurisdiction by either of the
parties. The parties may also agree, but shall not be compelled, to submit
controversies arising under Section 4, including exercise of the Company's
remedies under Section 4, to binding or nonbinding arbitration. The costs
of any arbitration (excluding attorney fees, fees for expert witnesses
retained by only one of us, and similar costs) will be shared by Employee
and the Company equally.
8. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the parties as to Employee's employment. All prior
discussions, compensation understandings, negotiations and agreements
notwithstanding, this Agreement constitutes the parties' sole source of
rights and duties with respect to Employee's employment. This Agreement
may not be changed orally, but only by agreement in writing expressly
identifying itself as an amendment to this Agreement and signed by Employee
and the Company.
9. AGREEMENT BINDING ON SUCCESSORS. This Agreement shall be binding
upon Employee and the Company and their respective successors and assigns.
The rights and duties of Employee are personal to him and shall not be
subject to transfer, delegation, or assignment.
-4-
10. SEVERABILITY. Any provision or term of this Agreement that shall
be found to be contrary to law or otherwise unenforceable, in whole or in
part, shall not affect the remaining terms of this Agreement, which shall
be continued as if the unenforceable provision were absent from this
Agreement.
11. GOVERNING LAW. This Agreement shall be governed, construed and
enforced in accordance with the laws of the State of Michigan.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.
S/ LAWRENCE BRADFORD
Lawrence Bradford
"Employee"
BRADFORD INSURANCE CENTRE, LTD.
By S/ DONALD BRADFORD
Its President
-5-
Schedule 1.1
to Employment Agreement
BONUS PLAN
Company bonus pool for the non-commissioned officers of the Company will be
maintained which will equal 6.25% of the aggregate salaries of the officers
participating in the program.
A personal performance bonus pool for non-commissioned officers of the
Company will be calculated as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
RETURN ON SPARTA INVESTMENT* COMPANY NET INCOME
<S> <C> <C>
Less than 11.80% 0.00%
11.80%-12.45% 1.50%
12.45%-13.10% 3.00%
13.10%-13.70% 4.50%
13.70%-14.35% 6.00%
14.35% and Greater 9.00%
</TABLE>
The Presidents of the Company and Sparta State Bank ("Sparta") will
determine the amount allocated to each officer in the bonus pool. In the
event of a disagreement between the Presidents, the determination of the
President of Sparta shall prevail.
*Return on Investment percentages will not be calculated with income or
expense which would be considered accounting adjustments, such as changing
the Company's accounting method from a cash basis to an accrual basis.
Definition:
The term "Investment" in the ratio of "Return on Investment" would consist
of those resources supplied by Sparta for acquisition or support operations
for which there is no expense incurred by the Company. For example: If
the Company borrows funds from Sparta or other sources and pays interest
out of its own budgeted funds, it will not be included as investment for
the bonus calculation. However, if Sparta advances funds to the subsidiary
in the form of stock or cash on which the Company does not pay interest, it
will be treated as additional investment. The current investment is
considered to be $780,000.
EXHIBIT 13
1st Community Bancorp, Inc.
1995 Annual Report
Table of Contents
Shareholders Letter 1-2
Financial Highlights 3
Financial Statements 4-7
Notes 8-15
Auditors' Report 16
Management's Discussion
and Analysis 17-24
Corporate and Shareholder
Information 25
Directors and Officers 26
Letter to Shareholders
1st Community Bancorp, Inc.
DEAR SHAREHOLDERS, CLIENTS AND STAFF:
The year of 1995 proved to be a milestone for your company in many
respects. Let's review the numbers together:
- - NET INCOME REACHED AN ALL TIME HIGH OF $1,464,000, AN 18% INCREASE OVER
1994.
- - EARNINGS PER SHARE WAS $3.10 FOR 1995, WHICH WAS $.55 OR 22% GREATER
THAN 1994.
- - RETURN ON AVERAGE SHAREHOLDERS' EQUITY IMPROVED IN 1995 TO 11.09% FROM
9.62% IN 1994.
- - REGULAR CASH DIVIDENDS PLUS A SPECIAL CASH DIVIDEND TOTALING $1.18 PER
SHARE WERE PAID IN 1995 COMPARED TO $.96 PER SHARE IN 1994.
- - A STOCK DIVIDEND OF 20% WAS PAID IN DECEMBER 1995.
-2-
1995 was a great year fueled by a healthy economy providing strong
loan growth and low loan losses. The loan portfolio is the mainstay of the
Bank's revenue stream and like any stream attention is needed to ensure a
continuous flow and good quality. 1995 saw a 14% growth in the loan
portfolio with 1996 showing signs of being just as promising. The Bank's
primary strategy has been to generate more loans than deposits. Our goals
for 1996 call for a continuation of this strategy. As a result, the
challenge for your Bank will be to generate enough funding sources to
satisfy the loan needs of our market area.
The formula for continued improvement in shareholder value appears
to be relatively simple and attainable. Anticipated continued growth of the
Bank by serving more clients and offering existing clients a broader array
of services will create more income for the Bank. As long as we keep our
expense growth in check, our net income and thus the return to our
shareholders will continue to meet your expectations.
During 1995 we concentrated on improving short-term earnings and
positioning ourselves for future expansion. Our mission statement was
simplified to emphasize our objective towards meeting client expectations.
Rather than to define service by looking into a mirror which portrays or
reflects our own bias, it is our mission to define service according to the
client's actual situation. The process is now in place to continuously
challenge the status quo of everything we do, striving to improve quality
servicing of our clients. We will not tolerate mediocrity.
Our goal for 1996 and forward is to be the very best provider of
financial services to our market based on our entire relationship with each
client individually. To accomplish that desire, it is imperative that we be
the solution to as many financial needs as possible for our clients. As
part of that total financial package, insurance products are now offered
thanks to the professional services available through the Bradford
Insurance Centre, which is now a subsidiary of the Bank. We are pleased to
be associated with such a fine organization.
Our organization is changing and evolving to become better
positioned for the future. We provide a comprehensive package of products
that are competitively priced and service that provides solutions to the
many financial needs of our clients. We recognize the need to be driven by
the client, not us. We believe the future of this business will be won by
those organizations that truly understand this concept.
-3-
THANK YOU FOR YOUR CONTINUED SUPPORT AND ALLOWING US TO BE YOUR FIRST
CHOICE IN FINANCIAL SERVICES.
Sincerely,
[MAXFIELD PICTURE]
/s/ Jae M. Maxfield
Jae M. Maxfield
PRESIDENT AND CHIEF EXECUTIVE OFFICER
/s/ L. Edmond Eary, Jr., M.D.
L. Edmond Eary, Jr., M.D. [EARY PICTURE]
CHAIRMAN
-4-
[Front Cover -- PICTURE OF SQUARE PEG AND ROUND HOLE]
RATHER THAN COMPELLING CLIENTS TO FIT OUR REQUIREMENTS . . .
[Inside two pages -- PICTURE OF SQUARE PEG, ROUND HOLE HAS BEEN
CHANGED TO A SQUARE HOLE]
WE DO WHATEVER IT TAKES TO ENSURE WE FIT THEIRS.
AT OUR FINANCIAL COMPANY, WE GO BEYOND THE TRADITIONAL BANKING
NORMS. TO EARN YOUR BUSINESS, WE HAVE RESOLVED OURSELVES TO:
- - BE DRIVEN BY YOUR NEEDS, NOT OURS.
- - DEVELOP FINANCIAL SOLUTIONS THAT ANSWER YOUR SPECIFIC NEEDS.
- - CHALLENGE OUR OWN ESTABLISHED PROCEDURES.
- - CONTINUOUSLY ADD NEW FINANCIAL SERVICES.
OUR JOB IS TO TAKE CARE OF EACH CLIENT'S COMPREHENSIVE FINANCIAL
RELATIONSHIP.
WE MEET YOUR EXPECTATIONS!
[Back cover -- SPARTA STATE BANK LOGO]
MEMBER F.D.I.C.
SPARTA STATE BANK
MAIN OFFICE 616-887-7366
APPLETREE OFFICE 616-887-8807
Financial Highlights
1st Community Bancorp, Inc.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
FOR THE YEAR (IN THOUSANDS)
Net interest income . . . . . . . . . . $ 4,931 $ 4,468 $ 4,264 $ 4,495 $ 4,091
Provision for loan losses . . . . . . . 164 126 121 420 413
Other income. . . . . . . . . . . . . . 656 597 710 708 509
Other expenses. . . . . . . . . . . . . 3,448 3,340 3,225 3,099 2,914
Income before income taxes and
cumulative effect of changes in
accounting principles. . . . . . . . 1,975 1,599 1,628 1,684 1,273
Income tax expense. . . . . . . . . . . 511 356 372 389 243
Income before cumulative effect of
changes in accounting principles . . 1,464 1,243 1,256 1,295 1,030
Cumulative effect of changes in
accounting principles. . . . . . . . -- -- -- 28 --
Net income. . . . . . . . . . . . . . . 1,464 1,243 1,256 1,267 1,030
Cash dividends declared . . . . . . . . 551 469 429 409 357
PER SHARE <F1>
Income before cumulative effect of
changes in accounting principles . . $ 3.10 $ 2.55 $ 2.58 $ 2.66 $ 2.12
Cumulative effect of changes in
accounting principles. . . . . . . . -- -- -- .06 --
Earnings/Net income . . . . . . . . . . 3.10 2.55 2.58 2.60 2.12
Cash dividends. . . . . . . . . . . . . 1.18 .96 .88 .84 .73
Shareholders' equity. . . . . . . . . . 29.66 26.44 26.60 24.30 22.54
AVERAGE FOR THE YEAR (IN THOUSANDS)
Securities. . . . . . . . . . . . . . . $ 27,609 $ 31,122 $ 31,079 $ 32,406 $ 30,125
Gross loans . . . . . . . . . . . . . . 74,223 68,077 64,705 60,396 55,633
Deposits. . . . . . . . . . . . . . . . 91,446 90,772 89,448 86,045 81,117
Shareholders' equity. . . . . . . . . . 13,200 12,922 12,325 11,506 10,681
Assets. . . . . . . . . . . . . . . . . 107,552 105,445 103,155 99,492 93,666
AT YEAR END (IN THOUSANDS)
Securities. . . . . . . . . . . . . . . $ 23,187 $ 30,410 $ 32,315 $ 30,058 $ 32,084
Gross loans . . . . . . . . . . . . . . 79,082 69,410 66,844 64,784 57,557
Deposits. . . . . . . . . . . . . . . . 92,902 91,236 88,630 87,107 83,952
Shareholders' equity. . . . . . . . . . 13,784 12,876 12,954 11,834 10,976
Assets. . . . . . . . . . . . . . . . . 109,916 106,137 104,542 101,372 96,787
-5-
RATIOS
Return on average assets. . . . . . . . 1.36% 1.18% 1.22% 1.27% 1.10%
Return on average shareholders' equity. 11.09 9.62 10.19 11.01 9.64
Dividend payout
Cash (based on net income) . . . . . 37.64 37.73 34.16 32.28 34.66
Stock (based on shares outstanding). 20.00 25.00 None 20.00 None
Shareholders' equity to assets (at
year end). . . . . . . . . . . . . . 12.54 12.13 12.39 11.67 11.34
<FN>
<F1> Per share amounts are retroactively adjusted for the effect of stock
splits, stock dividends and stock repurchases.
</FN>
</TABLE>
[BOOK VALUE PER SHARE AT YEAR END CHART]
[RETURN ON AVERAGE SHAREHOLDERS' EQUITY CHART]
[RETURN ON AVERAGE ASSETS CHART]
[NET INCOME CHART]
-6-
Consolidated Balance Sheets
1st Community Bancorp, Inc.
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
ASSETS
Cash and due from banks (Note 4). . . . . . . . . . . . . . . . . . . . . . $ 4,806,000 $ 2,948,000
Securities available for sale (Note 5). . . . . . . . . . . . . . . . . . . 22,602,000 21,657,000
Securities held to maturity (fair value of $7,949,000 in 1994)(Note 5). . . -- 8,168,000
Other securities (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . 585,000 585,000
Loans (Note 6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,082,000 69,410,000
Allowance for loan losses (Note 7). . . . . . . . . . . . . . . . . . . . . (1,121,000) (1,039,000)
Net loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,961,000 68,371,000
Premises and equipment - net (Note 8) . . . . . . . . . . . . . . . . . . . 2,513,000 2,510,000
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . 773,000 851,000
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 676,000 1,047,000
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $109,916,000 $106,137,000
LIABILITIES
Deposits
Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,483,000 $ 10,966,000
Interest-bearing transaction accounts. . . . . . . . . . . . . . . . . . 25,167,000 28,287,000
Savings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,369,000 10,838,000
Time (Note 9). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,883,000 41,145,000
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,902,000 91,236,000
Federal funds purchased (Note 10) . . . . . . . . . . . . . . . . . . . . . 1,000,000 1,000,000
Accrued interest payable. . . . . . . . . . . . . . . . . . . . . . . . . . 339,000 291,000
Federal Home Loan Bank advance (Note 11). . . . . . . . . . . . . . . . . . 1,000,000 --
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 891,000 734,000
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 96,132,000 93,261,000
COMMITMENTS AND CONTINGENCIES (NOTE 13)
SHAREHOLDERS' EQUITY
Common stock, $10 par value; shares authorized: 500,000;
shares outstanding: 464,803 in 1995
and 405,760 in 1994. . . . . . . . . . . . . . . . . . . . . . . . . . . 4,648,000 4,058,000
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,481,000 4,111,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,404,000 5,266,000
-7-
Net unrealized appreciation/(depreciation) on securities available for sale,
net of $130,000 of deferred tax liability in 1995 and $288,000 of
deferred tax benefit in 1994. . . . . . . . . . . . . . . . . . . . . 251,000 (559,000)
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . 13,784,000 12,876,000
Total liabilities and shareholders' equity . . . . . . . . . . . . . . $109,916,000 $106,137,000
</TABLE>
See accompanying notes to the consolidated financial statements.
-8-
Consolidated Statements of Income
1st Community Bancorp, Inc.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees . . . . . . . . . $ 7,099,000 $ 5,759,000 $ 5,641,000
Securities
Taxable. . . . . . . . . . . . . . . 1,181,000 1,300,000 1,466,000
Nontaxable . . . . . . . . . . . . . 511,000 567,000 555,000
Other . . . . . . . . . . . . . . . . . 8,000 29,000 50,000
Total interest income. . . . . . . 8,799,000 7,655,000 7,712,000
INTEREST EXPENSE
Deposits. . . . . . . . . . . . . . . . 3,760,000 3,154,000 3,430,000
Other . . . . . . . . . . . . . . . . . 108,000 33,000 18,000
Total interest expense . . . . . . 3,868,000 3,187,000 3,448,000
NET INTEREST INCOME. . . . . . . . . . . . . . 4,931,000 4,468,000 4,264,000
PROVISION FOR LOAN LOSSES (NOTE 7) . . . . . . 164,000 126,000 121,000
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES . . . . . . . . . . . . 4,767,000 4,342,000 4,143,000
OTHER INCOME
Service charges on deposit accounts . . 314,000 266,000 263,000
Other service charges and fees. . . . . 106,000 106,000 78,000
Net security gains. . . . . . . . . . . -- 3,000 56,000
Mortgage loan sales and servicing . . . 93,000 100,000 204,000
Other income. . . . . . . . . . . . . . 143,000 122,000 109,000
Total other income . . . . . . . . 656,000 597,000 710,000
OTHER EXPENSES
Salaries and wages (Note 12). . . . . . 1,462,000 1,327,000 1,310,000
Pension and other employee
benefits (Note 12) . . . . . . . . 278,000 265,000 249,000
Occupancy expense . . . . . . . . . . . 200,000 193,000 215,000
Furniture and equipment expense . . . . 275,000 267,000 256,000
Other expenses (Note 14). . . . . . . . 1,233,000 1,288,000 1,195,000
Total other expenses . . . . . . . 3,448,000 3,340,000 3,225,000
INCOME BEFORE INCOME TAX . . . . . . . . . . . 1,975,000 1,599,000 1,628,000
INCOME TAX EXPENSE (NOTE 15) . . . . . . . . . 511,000 356,000 372,000
NET INCOME . . . . . . . . . . . . . . . . . . $ 1,464,000 $ 1,243,000 $ 1,256,000
EARNINGS PER SHARE (NOTE 2). . . . . . . . . . $ 3.10 $ 2.55 $ 2.58
</TABLE>
See accompanying notes to the consolidated financial statements.
-9-
Consolidated Statement of Shareholders' Equity
1st Community Bancorp, Inc.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NET UNREALIZED
APPRECIATION/
(DEPRECIATION) ON
COMMON RETAINED SECURITIES AVAILABLE
STOCK SURPLUS EARNINGS FOR SALE TOTAL
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1993 . . . . . . . . . $ 3,246,000 $ 4,111,000 $ 4,477,000 $ -- $ 11,834,000
Net income for the year . . . . . . . . . -- -- 1,256,000 -- 1,256,000
Net unrealized appreciation on securities
available for sale, net of tax of
$150,000 . . . . . . . . . . . . . . . -- -- -- 293,000 293,000
Cash dividends ($.88 per share) . . . . . -- -- (429,000) -- (429,000)
Balances at December 31, 1993 . . . . . . . . 3,246,000 4,111,000 5,304,000 293,000 12,954,000
Net income for the year . . . . . . . . . -- -- 1,243,000 -- 1,243,000
Change in net unrealized appreciation/
(depreciation) on securities available
for sale, net of tax of $438,000. . . . -- -- -- (852,000) (852,000)
5 for 4 stock split . . . . . . . . . . . 812,000 -- (812,000) -- --
Cash dividends ($.96 per share) . . . . . -- -- (469,000) -- (469,000)
Balances at December 31, 1994 . . . . . . . . 4,058,000 4,111,000 5,266,000 (559,000) 12,876,000
Net income for the year . . . . . . . . . -- -- 1,464,000 -- 1,464,000
Repurchase of 18,324 shares of stock . . (183,000) (627,000) -- -- (810,000)
Change in net unrealized appreciation/
(depreciation) on securities available
for sale, net of tax of $418,000. . . . -- -- -- 810,000 810,000
6 for 5 stock split . . . . . . . . . . . 773,000 (3,000) (775,000) -- (5,000)
Cash dividends ($1.18 per share). . . . . -- -- (551,000) -- (551,000)
BALANCES AT DECEMBER 31, 1995 . . . . . . . . $ 4,648,000 $ 3,481,000 $ 5,404,000 $ 251,000 $ 13,784,000
</TABLE>
See accompanying notes to the consolidated financial statements.
-10-
Consolidated Statements of Cash Flows
1st Community Bancorp, Inc.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities
Net income. . . . . . . . . . . . . . . . . $ 1,464,000 $ 1,243,000 $ 1,256,000
Adjustments to reconcile net income
to net cash from operating
activities
Net gain on sale of securities . . . . . -- (3,000) (56,000)
Net amortization on securities . . . . . 144,000 175,000 171,000
Net gain on sale of loans. . . . . . . . (31,000) (25,000) (126,000)
Loans originated for sale. . . . . . . . (2,416,000) (1,878,000) (11,329,000)
Proceeds from loan sales . . . . . . . . 2,195,000 2,265,000 10,724,000
Provision for loan losses. . . . . . . . 164,000 126,000 121,000
Depreciation . . . . . . . . . . . . . . 233,000 230,000 228,000
Loss on abandonment of premises
and equipment . . . . . . . . . . . . -- 13,000 --
Deferred income tax benefit. . . . . . . (42,000) (20,000) (49,000)
Changes in:
Interest receivable. . . . . . . . . . 78,000 8,000 207,000
Other assets . . . . . . . . . . . . . (5,000) 148,000 (141,000)
Interest payable . . . . . . . . . . . 48,000 6,000 (35,000)
Other liabilities. . . . . . . . . . . 157,000 61,000 (138,000)
Net cash from operating activities . . 1,989,000 2,349,000 833,000
Cash flows from investing activities
Securities available for sale:
Proceeds from sales of securities. . . . 2,179,000 2,745,000 2,251,000
Proceeds from maturities of securities . 4,894,000 6,182,000 --
Purchase of securities . . . . . . . . . (595,000) (7,674,000) --
Securities held to maturity:
Proceeds from maturities of securities . 2,179,000 1,380,000 11,046,000
Purchase of securities . . . . . . . . . (350,000) (2,191,000) (15,226,000)
Net customer loan activity. . . . . . . . . (10,892,000) (3,811,000) (1,380,000)
Loans sold. . . . . . . . . . . . . . . . . 1,500,000 858,000 --
Loans purchased . . . . . . . . . . . . . . (110,000) (62,000) --
Net expenditures for premises and equipment (236,000) (36,000) (222,000)
Net cash from investing activities . . (1,431,000) (2,609,000) (3,531,000)
Cash flows from financing activities
Net increase in deposits. . . . . . . . . . 1,666,000 2,606,000 1,523,000
(Decrease)/increase in federal
funds purchased. . . . . . . . . . . . -- (1,000,000) 700,000
Increase in Federal Home Loan Bank advances 1,000,000 -- --
Repurchase of 1st Community Bancorp, Inc.
common stock . . . . . . . . . . . . . . (815,000) -- --
-11-
Cash dividends paid . . . . . . . . . . . . (551,000) (469,000) (429,000)
Net cash from financing activities . . 1,300,000 1,137,000 1,794,000
Net change in cash and cash equivalents. . . . . . 1,858,000 877,000 (904,000)
Cash and cash equivalents at beginning of year . . 2,948,000 2,071,000 2,975,000
Cash and cash equivalents at end of year . . . . . $ 4,806,000 $ 2,948,000 $ 2,071,000
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . $ 3,820,000 $ 3,181,000 $ 3,483,000
Income taxes . . . . . . . . . . . . . . $ 515,000 $ 380,000 $ 580,000
</TABLE>
Reclassification of securities from held to maturity to available for
sale upon implementation of SFAS No. 115 amounted to $24,921,000 as of
December 31, 1993. During 1995, $1,795,000 of securities were transferred
from available for sale to held to maturity and, subsequently, securities
with a carrying value of $8,124,000 and a fair value of $8,354,000 (Note
5) were transferred from held to maturity to available for sale.
See accompanying notes to the consolidated financial statements.
-12-
Notes to Consolidated Financial Statements
1st Community Bancorp, Inc.
NOTE 1 - NATURE OF OPERATIONS
1st Community Bancorp, Inc. is a one bank holding company located in
Sparta, Michigan. Sparta State Bank (the "Bank") is its wholly-owned
subsidiary. The Bank is a full service community bank that offers
commercial and consumer loans as well as both traditional deposit and
alternative investment products to both commercial and consumer
clients in portions of Kent, Muskegon, Newaygo and Ottawa Counties of
Michigan. Effective January 1, 1996, Bradford Insurance Centre, Ltd.
("Bradford Insurance") became a wholly-owned subsidiary of the Bank.
This affiliation will enable the Bank to offer insurance products in
addition to its loan and deposit offerings.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of 1st
Community Bancorp, Inc. and its wholly-owned subsidiary, Sparta State
Bank (together referred to as "1st Community"). The Bank operates
primarily in the banking industry, which accounts for substantially
all of 1st Community's assets, revenues and operating income.
The accounting and reporting policies of 1st Community Bancorp, Inc.
and Sparta State Bank conform with generally accepted accounting
principles and prevailing practices within the banking industry. All
significant intercompany transactions and balances have been
eliminated in consolidation.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires 1st Community's management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported
amount of revenues and expenses during the reporting period. Actual
results may differ from these estimates. Areas involving the use of
management's estimates and assumptions include the allowance for loan
losses, fair values of financial instruments, the accumulated
postretirement benefit obligation, the projected benefit obligation
associated with the defined benefit plan, the carrying value of
impaired loans, deferred tax assets, and securities, and the carrying
value of other real estate. Estimates associated with the allowance
for loan losses, fair values of certain financial instruments, the
postretirement health care plan and the projected benefit obligation
associated with the pension plan are particularly susceptible to
change in the near term.
-13-
SECURITIES
At December 31, 1993, 1st Community implemented Statement of Financial
Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain
Investments in Debt and Equity Securities." SFAS 115 requires
classification of securities into three categories: trading, available
for sale and held to maturity. 1st Community does not operate a
trading portfolio and therefore does not use this classification.
Securities available for sale are those securities which 1st Community
may decide to sell prior to their maturity if needed for liquidity,
asset-liability management, or other reasons. Securities available for
sale are reported at fair value. The net unrealized gain or loss on
securities available for sale, after the related tax effect, is
reported as a separate component of shareholders' equity until
realized. Securities held to maturity are those securities which 1st
Community has the positive intent and ability to hold to maturity.
Held to maturity securities are reported at amortized cost. 1st
Community's investments in Federal Reserve Bank stock and Federal Home
Loan Bank stock are not considered to be either available for sale or
held to maturity, and therefore are classified as other securities.
Realized gains or losses on securities sales are determined based on
the amortized cost of the specific security sold. Interest and
dividend income, adjusted by amortization of purchase premium or
discount determined on the level yield method, is included in
earnings. Securities with declines in fair value below amortized cost
that are considered to be other than temporary are written down to
fair value by a charge to earnings.
INTEREST AND FEES ON LOANS
Interest on loans is accrued based upon the principal balance
outstanding. The accrual of interest is discontinued at the point in
time at which the collectibility of principal or interest is
considered doubtful. Each loan is evaluated on its own merits;
therefore, loans are not automatically classified as non-accrual based
upon standardized criteria. Loan fees, net of direct loan origination
costs, are deferred and recognized into interest income over the term
of the loan using the level yield method.
LOANS HELD FOR SALE
Mortgage loans originated and intended for sale in the secondary
market are carried at the lower of cost or estimated market value in
the aggregate. Net unrealized losses are recognized through a
valuation allowance by charges to income.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established in recognition of the
fact that some loans may not be repaid in full. Increases to the
allowance are recorded by a provision for loan losses charged to
expense. Estimating the risk of loss and the amount of loss on any
loan is necessarily
-14-
Notes to Consolidated Financial Statements
1st Community Bancorp, Inc.
subjective. Accordingly, the allowance is maintained at a level considered
by management to be adequate to absorb possible loan charge-offs. In
determining the appropriate level of the allowance, management takes into
consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans and
current economic conditions that may affect the borrowers' ability to pay.
While management may periodically allocate portions of the allowance
to specific problem loan situations, the whole allowance is available
for any loan charge-offs that occur. A loan is charged-off by
management as a loss when deemed uncollectible, although collection
efforts may continue and future recoveries may occur.
Effective January 1, 1995, 1st Community implemented Statement of
Financial Accounting Standards No. 114 ("SFAS 114"), "Accounting by
Creditors for Impairment of a Loan." SFAS 114, as later amended by
Statement of Financial Accounting Standards No. 118, 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 1st
Community's judgment of certain information regarding the loan, it is
probable that 1st Community 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. The implementation of SFAS 114 did not
have a material effect on 1st Community's consolidated financial
position or results of operations.
Smaller balance homogenous loans are collectively evaluated for
impairment. Construction real estate mortgages, residential real
estate mortgages and consumer loans have been classified in this
category. Commercial and agricultural loans are evaluated individually
for impairment. Commercial and agricultural loans are risk-rated on a
seven point scale. Loans rated doubtful or loss are considered
impaired. Loans rated as a loss will have the entire loan balance
charged-off or the portion deemed uncollectible. Some, but not all,
loans rated as substandard will be considered impaired. Certain loans
rated as acceptable will also be considered impaired if circumstances
warrant.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated
depreciation. Depreciation is provided for on the straight-line method
-15-
over the estimated useful lives of the related assets. Expenditures
for normal repairs and maintenance are charged to operations as
incurred.
OTHER REAL ESTATE
Other real estate represents properties acquired through foreclosure
or by acceptance of a deed in lieu of foreclosure. When other real
estate property is acquired, it is carried at the lower of cost or
fair value less estimated costs to sell. Any writedowns necessary at
acquisition are charged to the allowance for loan losses. Subsequent
reductions in fair value are recorded as a charge to other expense.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Bank provides certain health and life insurance benefits to
retired employees. Postretirement benefits are accounted for under
Statement of Financial Accounting Standards No. 106, "Employer's
Accounting for Postretirement Benefits Other Than Pensions." Statement
No. 106 requires accrual of the expected cost of providing
postretirement benefits during the years in which the employee
provides services.
INCOME TAXES
1st Community records income tax expense based on the amount of taxes
due on its tax return plus deferred taxes computed based on the
expected future tax consequences of temporary differences between the
carrying amounts and tax bases of assets and liabilities, using
enacted tax rates.
EARNINGS PER SHARE
Earnings per share are based on the weighted average number of shares
outstanding during the year. The weighted average number of shares
outstanding in 1995 has been adjusted for the repurchase of 18,324
shares of stock. The weighted average number of shares has also been
retroactively adjusted for a 20% stock split in 1995 and a 25% stock
split in 1994. The weighted average number of shares was 471,970 for
1995 and 486,912 for 1994 and 1993. The stock splits in 1995 and 1994
were recorded at the par value of the shares issued.
STATEMENT OF CASH FLOWS
For purposes of the Consolidated Statements of Cash Flows, cash and
cash equivalents is defined to include cash on hand, amounts due from
banks and federal funds sold. Generally, federal funds sold are sold
for one day periods. 1st Community reports customer loan transactions,
deposit transactions and deposits made with other financial
institutions on a net cash flow basis.
RECLASSIFICATIONS
Certain amounts presented in prior year consolidated financial
statements have been reclassified to conform with the 1995
presentation.
-16-
Notes to Consolidated Financial Statements
1st Community Bancorp, Inc.
ACCOUNTING STATEMENTS ISSUED, BUT NOT YET IMPLEMENTED
The Financial Accounting Standards Board has recently issued the
following statements which are applicable to 1st Community but have
not been implemented as of December 31, 1995.
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of," will require 1st Community to periodically consider
whether an impairment loss should be recognized on long-lived assets
and other certain intangible assets based on an estimate of future
cash flows.
Statement of Financial Accounting Standards No. 122, "Accounting for
Mortgage Servicing Rights," will require 1st Community to recognize
mortgage servicing rights on loans it purchases or originates with the
intent to sell as an asset. It will also require that these
capitalized mortgage servicing rights be evaluated for impairment
based on the fair value of the rights.
The Statements discussed above are required to be implemented for
years beginning after December 15, 1995. Although management has not
fully analyzed these Statements, it is believed that the impact of
their implementation will not be material to 1st Community's
consolidated financial position or results of operations.
NOTE 3 - ACQUISITION OF INSURANCE SUBSIDIARY
On January 1, 1996, Sparta State Bank acquired Bradford Insurance
Centre, Ltd.("Bradford Insurance") in a tax-free exchange of stock.
Under the terms of the merger agreement, 20,610 shares of 1st
Community Bancorp, Inc. common stock were exchanged for all of the
outstanding shares of Bradford Insurance. The transaction was
accounted for as a pooling of interests. The effect of Bradford
Insurance's operations will not be material to 1st Community's
consolidated financial position or results of operations.
NOTE 4 - CASH AND DUE FROM BANKS
The Bank is required to maintain average cash or non interest-bearing
balances with the Federal Reserve to satisfy its legal reserve
requirements. During 1995, these balances averaged $683,000.
NOTE 5 - SECURITIES
Securities have been classified in the Consolidated Balance Sheets
according to management's intent. The amortized cost and approximate
fair value of securities were as follows:
-17-
<TABLE>
<CAPTION>
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
DECEMBER 31, 1995
U.S. Treasuries and U.S. Government
agencies . . . . . . . . . . . $ 4,523,000 $ 97,000 $ (2,000) $ 4,618,000
Obligations of states and
political subdivisions . . . . 11,481,000 278,000 (29,000) 11,730,000
U.S. Government agencies securities
backed by mortgages. . . . . . 5,912,000 70,000 (35,000) 5,947,000
Other. . . . . . . . . . . . . . . . 305,000 2,000 -- 307,000
Total. . . . . . . . . . . . . $ 22,221,000 $ 447,000 $ (66,000) $ 22,602,000
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
securities backed by mortgages 7,757,000 8,000 (397,000) 7,368,000
Other. . . . . . . . . . . . . . . . 303,000 -- (23,000) 280,000
Total. . . . . . . . . . . . . $ 22,504,000 $ 30,000 $ (877,000) $ 21,657,000
SECURITIES HELD TO MATURITY
December 31, 1994
Obligations of states and political
subdivisions . . . . . . . . . $ 8,168,000 $ 87,000 $ (306,000) $ 7,949,000
There were no securities classified
as held to maturity as of
December 31, 1995.
OTHER SECURITIES
DECEMBER 31, 1995
Federal Reserve Bank stock . . . . . $ 210,000 $ -- $ -- $ 210,000
Federal Home Loan Bank stock . . . . 375,000 -- -- 375,000
Total. . . . . . . . . . . . . $ 585,000 $ -- $ -- $ 585,000
December 31, 1994
Federal Reserve Bank stock . . . . . $ 210,000 $ -- $ -- $ 210,000
Federal Home Loan Bank stock . . . . 375,000 -- -- 375,000
Total. . . . . . . . . . . . . $ 585,000 $ -- $ -- $ 585,000
</TABLE>
-18-
Notes to Consolidated Financial Statements
1st Community Bancorp, Inc.
Maturities of securities available for sale at December 31, 1995, were as
follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
<S> <C> <C>
Due in one year or less. . . . . . . . . . . . . $ 2,749,000 $ 2,757,000
Due after one year through five years. . . . . . 8,678,000 8,902,000
Due after five years through ten years . . . . . 4,344,000 4,433,000
Due after ten years. . . . . . . . . . . . . . . 506,000 531,000
Total. . . . . . . . . . . . . . . . . . . 16,277,000 16,623,000
U.S. Government agencies backed by mortgages . . 5,912,000 5,947,000
Other. . . . . . . . . . . . . . . . . . . . . . 32,000 32,000
Total . . . . . . . . . . . . . . . . . . $ 22,221,000 $ 22,602,000
</TABLE>
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties. Because of their variable payments, securities backed by
mortgages are not reported in a specific maturity grouping.
Information regarding sales of securities available for sale for the years ended
December 31 follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Proceeds from sales of securities. . . . . . $ 2,179,000 $ 2,745,000 $ 2,251,000
Gross realized gains . . . . . . . . . . . . 11,000 11,000 57,000
Gross realized losses. . . . . . . . . . . . 11,000 8,000 1,000
</TABLE>
There were no sales of securities held to maturity in 1995, 1994 or 1993.
$1,170,000 of U.S. Government agencies securities backed by mortgages were sold
in 1995 for a gain of $11,000.
Securities with a book value of approximately $260,000 and $258,000
were pledged as collateral for public deposits at December 31, 1995
and 1994, respectively.
In February 1995, 1st Community transferred $1,795,000 of securities
from available for sale to held to maturity. In late 1995, the
Financial Accounting Standards Board issued a special report, "A Guide
to Implementation of Statement No. 115 on Accounting for Certain
-19-
Investments in Debt and Equity Securities." Pursuant to this report,
the entire portfolio of securities which was classified as held to
maturity, with a carrying value of $8,124,000, fair value of
$8,354,000 and unrealized gain of $230,000, was transferred to the
available for sale classification in December 1995. Management
believes the reclassification of these securities will provide 1st
Community with greater flexibility in managing its assets and
liabilities.
NOTE 6 - LOANS
Loans at December 31 were classified as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Commercial . . . . . . . . . . . . . . . . . . . $ 23,174,000 $ 17,936,000
Agricultural . . . . . . . . . . . . . . . . . . 9,513,000 8,994,000
Real estate mortgage - construction. . . . . . . 805,000 237,000
Real estate mortgage - residential . . . . . . . 28,843,000 27,489,000
Consumer . . . . . . . . . . . . . . . . . . . . 16,747,000 14,754,000
Total. . . . . . . . . . . . . . . . . . . $ 79,082,000 $ 69,410,000
</TABLE>
Residential real estate mortgages originated by the Bank and sold on
the secondary market in which the Bank retained servicing rights
amounted to $19,589,000 and $19,377,000 as of December 31, 1995, and
1994, respectively. Loans held for sale, which are included in the
above amounts, were comprised of $455,000 of residential real estate
mortgages and $122,000 of consumer loans as of December 31, 1995 and
$307,000 of residential real estate mortgages as of December 31, 1994.
NOTE 7 - ALLOWANCE FOR LOAN LOSSES
An analysis of changes in the allowance for loan losses follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Beginning of year balance. . . . . . . . . . $ 1,039,000 $ 1,000,000 $ 930,000
Provision charged to expense . . . . . . . . 164,000 126,000 121,000
Recoveries credited to the allowance . . . . 43,000 32,000 58,000
Loans charged-off. . . . . . . . . . . . . . (125,000) (119,000) (109,000)
End of year balance. . . . . . . . . . . . . $ 1,121,000 $ 1,039,000 $ 1,000,000
</TABLE>
Information regarding impaired loans as of December 31, 1995 was as
follows:
-20-
<TABLE>
<CAPTION>
<S> <C>
Loans classified as impaired . . . . . . . . . . . . . . . . . $ 409,000
Less impaired loans for which no allowance for
credit losses has been established . . . . . . . . . . . 57,000
Impaired loans for which an allowance for
credit losses has been established . . . . . . . . . . . $ 352,000
Allowance determined for above impaired loans. . . . . . . . . $ 5,000
</TABLE>
Information regarding impaired loans for the year ended
December 31, 1995, was as follows:
<TABLE>
<CAPTION>
<S> <C>
Average balance of impaired loans. . . . . . . . . . . . . . . $ 432,000
Interest income recognized on impaired loans . . . . . . . . . 41,000
Interest income recognized on a cash-basis on impaired loans . 40,000
</TABLE>
-21-
Notes to Consolidated Financial Statements
1st Community Bancorp, Inc.
NOTE 8 - PREMISES AND EQUIPMENT
Premises and equipment at December 31 consisted of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Land and land improvements . . . . . . . . . . . $ 277,000 $ 277,000
Buildings and improvements . . . . . . . . . . . 2,573,000 2,510,000
Equipment. . . . . . . . . . . . . . . . . . . . 1,538,000 1,384,000
Total . . . . . . . . . . . . . . . . . . 4,388,000 4,171,000
Accumulated depreciation . . . . . . . . . . . . (1,875,000) (1,661,000)
Premises and equipment, net. . . . . . . . $ 2,513,000 $ 2,510,000
</TABLE>
NOTE 9 - DEPOSITS
Time deposits include approximately $7,940,000 and $6,164,000 of
certificates of deposit issued in denominations of $100,000 or more at
December 31, 1995, and 1994, respectively. Interest expense on
certificates of deposit issued in denominations of $100,000 or more
was approximately $333,000, $229,000 and $165,000 in 1995, 1994 and
1993, respectively.
The schedule of maturities of 1st Community's time deposits as of
December 31, 1995, follows:
<TABLE>
<CAPTION>
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,200,000
1997 . . . . . . . . . . . . . . . . . . . . . . . . . 10,411,000
1998 . . . . . . . . . . . . . . . . . . . . . . . . . 3,819,000
1999 . . . . . . . . . . . . . . . . . . . . . . . . . 5,159,000
2000 . . . . . . . . . . . . . . . . . . . . . . . . . 3,022,000
2001 and after . . . . . . . . . . . . . . . . . . . . 272,000
Total. . . . . . . . . . . . . . . . . . . . . . $ 47,883,000
</TABLE>
NOTE 10 - SHORT-TERM BORROWINGS
Following is information regarding short-term borrowings for the years
ended December 31. Short-term borrowings consisted of federal funds
purchased and securities sold under agreements to repurchase in 1995
and only federal funds purchased in 1994 and 1993.
-22-
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Amount outstanding at end of year. . . . . . . $ 1,000,000 $ 1,000,000 $ 2,000,000
Weighted average interest rate at end of year. 6.88% 6.00% 3.75%
Maximum outstanding at any month end . . . . . $ 4,850,000 $ 2,550,000 $ 2,900,000
Daily average amount outstanding . . . . . . . $ 1,723,000 $ 807,000 $ 474,000
Weighted average interest rate for the year. . 6.01% 4.05% 3.34%
</TABLE>
NOTE 11 - LONG-TERM DEBT
At December 31, 1995, long-term debt consisted of a $1,000,000 advance
from the Federal Home Loan Bank of Indianapolis. The interest rate on
the advance is fixed at 5.62%. Monthly interest payments are due on
the advance with the entire principal balance due in November 1998.
1st Community had no long-term debt as of December 31, 1994.
Unencumbered qualifying residential real estate mortgage loans and
government and agency securities have been pledged to collateralize
the advance.
NOTE 12 - EMPLOYEE BENEFIT PLANS
PENSION PLAN
The Bank has a defined benefit, noncontributory pension plan which
provides retirement benefits for substantially all employees. The plan
assets are invested primarily in common stocks, intermediate term
bonds, and money market funds and short term bonds. The Bank's policy
is to fund the plan based on annual actuarial computations and within
Internal Revenue Service guidelines.
The following sets forth the plan's funded status and amounts
recognized in the balance sheets at December 31:
-23-
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation
Vested benefits. . . . . . . . . . . . . $ (1,447,000) $ (1,446,000)
Nonvested benefits . . . . . . . . . . . (10,000) (12,000)
Total. . . . . . . . . . . . . . . . . . $ (1,457,000) $ (1,458,000)
Projected benefit obligation for service
rendered to date. . . . . . . . . . . . . . . $ (1,761,000) $ (1,784,000)
Plan assets at fair value. . . . . . . . . . . . 2,306,000 2,022,000
Excess of plan assets over projected
benefit obligation. . . . . . . . . . . . . . 545,000 238,000
Unrecognized net (gain)/loss . . . . . . . . . . (88,000) 246,000
Unrecognized transition asset. . . . . . . . . . (215,000) (240,000)
Unrecognized prior service cost. . . . . . . . . 35,000 39,000
Net pension asset. . . . . . . . . . . . . . . . $ 277,000 $ 283,000
</TABLE>
Net pension cost included the following for the years ended December
31:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Service cost/benefits earned during the year . $ 70,000 $ 75,000 $ 73,000
Interest cost on projected benefit obligation. 122,000 115,000 109,000
Actual return on plan assets . . . . . . . . . (368,000) (4,000) (182,000)
Net amortization and deferral . . . . . . . . 199,000 (170,000) (4,000)
Net pension cost/(credit) . . . . . . . . . . $ 23,000 $ 16,000 $ (4,000)
</TABLE>
A weighted average discount rate of 7.50% in 1995, 7.00% in 1994 and
1993 and a rate of increase in future compensation of 4.50% in 1995
and 5.00% in 1994 and 1993 were used in determining the actuarial
present value of the projected benefit obligation. The expected long-term rate
of return on assets was 7.50% for 1995 and 1994 and was
8.50% for 1993.
-24-
Notes to Consolidated Financial Statements
1st Community Bancorp, Inc.
POSTRETIREMENT BENEFITS PLAN
The Bank has a postretirement benefits plan for health and life
insurance which covers all retired employees who have met the plan's
service requirements. The plan has not been funded by the Bank. The
health insurance benefit is contributory with retiree contributions
adjusted based on increases in the health insurance cost. The life
insurance benefit is noncontributory.
The following sets forth the plan's distribution of the accumulated
postretirement benefit obligation for the persons earning and
receiving benefits as of December 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Employees eligible to receive benefits . . . . . . $ 105,000 $ 97,000
Retirees . . . . . . . . . . . . . . . . . . . . . 70,000 74,000
Employees not yet eligible to receive benefits . . 58,000 48,000
Total accumulated benefit obligation . . . . 233,000 219,000
Unrecognized net gain. . . . . . . . . . . . . . . 45,000 50,000
Accrued postretirement benefit cost. . . . . $ 278,000 $ 269,000
</TABLE>
Net postretirement benefit cost included the following for the years
ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Service cost/benefits attributed to service
during the year. . . . . . . . . . . . . $ 7,000 $ 7,000 $ 8,000
Interest cost on accumulated post-retirement
benefit obligation . . . . . . . . . . . 18,000 18,000 16,000
Recognized gain. . . . . . . . . . . . . . . . (5,000) -- --
Postretirement benefit cost . . . . . . $ 20,000 $ 25,000 $ 24,000
</TABLE>
The assumed trend for annual increases in health care costs was
assumed to be 13% for 6 years beginning January 1, 1995, dropping down
to 7% after 6 years and remaining at that level thereafter. The effect
of a 1% increase in the assumed health care cost trend rate would
increase the combined service and interest cost components of net
periodic postretirement health care benefits cost by $1,000 or 4% and
-25-
would increase the accumulated postretirement benefit obligation for
health care benefits by $5,000 or 2%. A weighted average discount rate
of 7% was used in determining the actuarial present value of the
accumulated postretirement benefit obligation for 1995, 1994 and 1993.
INCENTIVE BONUS AND 401(K) PLANS
The Bank also maintains an incentive bonus plan and a 401(k) savings
and retirement plan for substantially all employees. The incentive
bonus plan provides for the payment of bonuses to employees based on
return on average equity goals set annually by 1st Community's Board
of Directors. Incentive bonus plan expense, which is included in
salaries and wages, was $194,000, $133,000 and $145,000 for 1995, 1994
and 1993, respectively. Under the Bank's 401(k) plan, employees may
make contributions up to 15% of individual compensation. Contributions
to the plan by the bank are discretionary. The Bank's contribution,
which is included in pension and other employee benefits, was $13,000,
$13,000 and $12,000 for 1995, 1994 and 1993, respectively.
NOTE 13 - COMMITMENTS, CONTINGENCIES AND
CONCENTRATIONS OF CREDIT RISK
The Bank grants commercial, agricultural, consumer and real estate
loans to customers primarily in the northern Kent County area of
Michigan. Approximately 97% of these loans are secured by real estate,
automobiles, trucks and various other items of collateral while the
remaining 3% are unsecured.
Noninterest-bearing and interest-bearing deposits totaling $3,803,000
at December 31, 1995, and $1,933,000 at December 31, 1994, were held
at NBD Bank.
The Bank is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet financing needs of its
customers. These financial instruments include commitments to make
loans, commitments to purchase investment securities, letters of
credit and unused lines of credit. The Bank's exposure to credit loss
in the event of nonperformance by the other party to the financial
instrument is represented by the contractual amount of those
instruments. The Bank follows the same credit policy to make such
commitments as is followed for those loans and investment securities
recorded in the consolidated financial statements.
The Bank had outstanding commitments to make loans totaling $9,961,000
and $5,072,000 at December 31, 1995 and 1994, respectively.
Approximately 90% of these commitments were at variable interest
rates. The Bank had approximately $1,946,000 and $1,994,000 of unused
lines of credit and $165,000 and $40,000 in letters of credit at
December 31, 1995 and 1994, respectively.
-26-
NOTE 14 - OTHER EXPENSES
Other expenses for the years ended December 31 follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Legal and professional . . . . . . . . . . . $ 205,000 $ 186,000 $ 150,000
Computer processing. . . . . . . . . . . . . 156,000 160,000 149,000
Supplies and postage . . . . . . . . . . . . 153,000 128,000 135,000
FDIC insurance . . . . . . . . . . . . . . . 106,000 202,000 198,000
Other . . . . . . . . . . . . . . . . . . . 613,000 612,000 563,000
Total . . . . . . . . . . . . . . . . $ 1,233,000 $ 1,288,000 $ 1,195,000
</TABLE>
-27-
Notes to Consolidated Financial Statements
1st Community Bancorp, Inc.
NOTE 15 - INCOME TAX EXPENSE
The components of income tax expense for the years ended December 31
were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Current income tax expense . . . . . . . . . $ 553,000 $ 376,000 $ 421,000
Deferred income tax benefit. . . . . . . . . (42,000) (20,000) (49,000)
Income tax expense . . . . . . . . . . $ 511,000 $ 356,000 $ 372,000
</TABLE>
The difference between the financial statement tax provision and
amounts computed by applying the federal income tax rate to pre-tax
income is reconciled as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Income tax computed at statutory
federal rate of 34%. . . . . . . . . . $ 672,000 $ 544,000 $ 553,000
Tax exempt interest income . . . . . . . . . (197,000) (206,000) (199,000)
Non-deductible interest expense. . . . . . . 25,000 20,000 19,000
Other items. . . . . . . . . . . . . . . . . 11,000 (2,000) (1,000)
Income tax expense . . . . . . . . . . $ 511,000 $ 356,000 $ 372,000
</TABLE>
The components of deferred tax assets and liabilities at December 31
were as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses. . . . . . . . . . $ 276,000 $ 249,000
Postretirement benefits obligation . . . . . 95,000 91,000
Deferred loan fees . . . . . . . . . . . . . 68,000 83,000
Deferred compensation. . . . . . . . . . . . 60,000 47,000
Unrealized depreciation on securities
available for sale . . . . . . . . . . . . -- 288,000
Other. . . . . . . . . . . . . . . . . . . . 59,000 45,000
Total deferred tax assets. . . . . . . . . 558,000 803,000
-28-
Deferred tax liabilities:
Depreciation . . . . . . . . . . . . . . . . 177,000 175,000
Unrealized appreciation on securities
available for sale . . . . . . . . . . . . 130,000 --
Pension fund asset . . . . . . . . . . . . . 93,000 96,000
Other . . . . . . . . . . . . . . . . . . . 11,000 9,000
Total deferred tax liabilities . . . . . . 411,000 280,000
Net deferred tax asset . . . . . . . . . . $ 147,000 $ 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 December 31, 1995 and 1994.
NOTE 16 - TRANSACTIONS WITH RELATED PARTIES
Included in the loan portfolio were loans made to officers, directors,
principal shareholders and their associates. Activity related to these
loans during 1995 was as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance at January 1, 1995 . . . . . . . . . . . . . . . . . . $ 2,349,000
New loans. . . . . . . . . . . . . . . . . . . . . . . . 252,000
Payments . . . . . . . . . . . . . . . . . . . . . . . . (639,000)
BALANCE AT DECEMBER 31, 1995 . . . . . . . . . . . . . . . . . $ 1,962,000
</TABLE>
Included in the deposit balances were deposits of officers, directors,
principal shareholders and their associates. At December 31, 1995, the
total balance in these deposit accounts was $2,154,000.
NOTE 17 - UNDISTRIBUTED INCOME AND DIVIDEND
LIMITATIONS OF SUBSIDIARY
Guidelines with respect to maintenance of capital adopted by Federal
and State regulatory authorities and restrictions imposed by law limit
the amount of cash dividends the Bank can pay to 1st Community.
However, at December 31, 1995, using the most restrictive of these
conditions for the Bank, the cash dividends that the Bank could pay
1st Community, without prior approval of the regulatory authorities,
was approximately $3,112,000.
NOTE 18 - FAIR VALUES OF FINANCIAL INSTRUMENTS
Effective December 31, 1995, 1st Community implemented Statement of
Financial Accounting Standards No. 107, "Disclosures About Fair Value
of Financial Instruments." Statement No. 107 requires disclosure of
-29-
the estimated fair value of financial instruments. Many of 1st
Community's financial instruments lack an available trading market.
Therefore, significant estimates and assumptions were necessary to
determine estimated fair values.
Estimated fair values have been determined using available data and an
estimation methodology that 1st Community considered appropriate for
each financial instrument category. For financial instruments with
variable interest rates, it was presumed that the recorded book values
were reasonable estimates of fair value.
The following methods and assumptions were used to estimate fair
values for 1st Community's financial instruments:
CASH AND CASH EQUIVALENTS
The recorded value of cash and due from banks is a reasonable estimate
of fair value.
SECURITIES
Quoted market prices for the specific securities or for similar
securities were used to determine estimated fair value.
LOANS
The fair value of loans was determined by using the present value of
estimated future cash flows. The discount rates used to compute the
present value were the current rates at which loans with similar terms
would be made to borrowers with similar credit ratings.
-30-
Notes to Consolidated Financial Statements
1st Community Bancorp, Inc.
DEPOSITS WITHOUT STATED MATURITIES
The recorded book value of demand deposits, interest-bearing
transaction accounts and savings deposits, which represented the
amount payable on demand at the reporting date, was a reasonable
estimate of fair value.
DEPOSITS WITH STATED MATURITIES
The present value of future cash flows was used to determine the
estimated fair value of time deposits with fixed maturities. The
discount rates used to compute the present value were the current
rates offered for time deposits with similar maturities.
SHORT-TERM BORROWINGS
The recorded book value of federal funds purchased was used as a
reasonable estimate of fair value due to the relatively short time
period between origination and expected repayments.
LONG-TERM DEBT
The present value of future cash flows was used to determine the
estimated fair value of the Federal Home Loan Bank advance.
OFF-BALANCE-SHEET ASSETS AND LIABILITIES
The estimated fair value of 1st Community's off-balance-sheet assets
and liabilities was immaterial as of December 31, 1995.
The estimated fair values of 1st Community's financial instruments at
December 31, 1995, were as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
<S> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents. . . . . . . . . $ 4,806,000 $ 4,806,000
Securities . . . . . . . . . . . . . . . . 23,187,000 23,187,000
Loans, net of allowance. . . . . . . . . . 77,961,000 80,369,000
Total financial assets . . . . . . . . . . $105,954,000 $108,362,000
FINANCIAL LIABILITIES
Deposits without stated maturities . . . . $ 45,019,000 $ 45,019,000
Deposits with stated maturities. . . . . . 47,883,000 48,713,000
Short-term borrowings. . . . . . . . . . . 1,000,000 1,000,000
Long-term debt . . . . . . . . . . . . . . 1,000,000 1,000,000
Total financial liabilities. . . . . . . . $ 94,902,000 $ 95,732,000
</TABLE>
-31-
NOTE 19 - 1ST COMMUNITY BANCORP, INC.
(PARENT COMPANY ONLY) FINANCIAL
INFORMATION
Presented as follows are condensed financial statements for the parent
company.
<TABLE>
CONDENSED BALANCE SHEETS
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Assets
Cash on hand with subsidiary bank. . . . . . $ 10,000 $ 17,000
Investment in subsidiary . . . . . . . . . . 13,767,000 12,858,000
Other assets . . . . . . . . . . . . . . . . 9,000 4,000
Total assets . . . . . . . . . . . . . . . $ 13,786,000 $ 12,879,000
Liabilities
Other liabilities. . . . . . . . . . . . . . $ 2,000 $ 3,000
Shareholders' Equity . . . . . . . . . . . . . . . 13,784,000 12,876,000
Total liabilities and shareholders' equity $ 13,786,000 $ 12,879,000
</TABLE>
<TABLE>
CONDENSED STATEMENTS OF INCOME
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
Dividend income from subsidiary. . . . . . . . . . $ 1,409,000 $ 514,000 $ 465,000
Other expenses . . . . . . . . . . . . . . . . . . 66,000 67,000 60,000
Income before income tax and equity in
undistributed net income of subsidiary . . . 1,343,000 447,000 405,000
Income tax benefit . . . . . . . . . . . . . . . . 22,000 23,000 21,000
Income before equity in undistributed
net income of subsidiary . . . . . . . . . . 1,365,000 470,000 426,000
Equity in undistributed net income of subsidiary . 99,000 773,000 830,000
Net income . . . . . . . . . . . . . . . . . . . . $ 1,464,000 $ 1,243,000 $ 1,256,000
</TABLE>
-32-
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities
Net income . . . . . . . . . . . . . . . . . $ 1,464,000 $ 1,243,000 $ 1,256,000
Adjustments to reconcile net income
to net cash from operating activities
Income from subsidiary . . . . . . . . . . (1,508,000) (1,287,000) (1,295,000)
Changes in:
Other assets . . . . . . . . . . . . . . (5,000) (2,000) (1,000)
Other liabilities. . . . . . . . . . . . (1,000) 2,000 1,000
Net cash from operating activities . . . . . (50,000) (44,000) (39,000)
Cash flows from investing activities
Dividends received from subsidiary . . . . . 1,409,000 514,000 465,000
Cash flows from financing activities
Repurchase of stock. . . . . . . . . . . . . (815,000) -- --
Dividends paid . . . . . . . . . . . . . . . (551,000) (469,000) (429,000)
Net cash from financing activities . . . . . (1,366,000) (469,000) (429,000)
Net change in cash and cash equivalents. . . . . . (7,000) 1,000 (3,000)
Cash and cash equivalents at beginning of year . . 17,000 16,000 19,000
Cash and cash equivalents at end of year . . . . . $ 10,000 $ 17,000 $ 16,000
</TABLE>
-33-
Independent Auditors' Report
1st Community Bancorp, Inc.
[Crowe Chizek logo]
To the Shareholders and Board of Directors
of 1st Community Bancorp, Inc., Sparta, Michigan
We have audited the accompanying consolidated balance sheets of 1st
Community Bancorp, Inc. as of December 31, 1995 and 1994 and the related
statements of income, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of 1st
Community Bancorp, Inc. as of December 31, 1995 and 1994, and the results
of its operations and its cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the consolidated financial statements, the
Corporation changed its methods of accounting for impaired loans and
securities in 1995 and 1993, respectively.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Grand Rapids, Michigan
February 2, 1996
-34-
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1st Community Bancorp, Inc.
The following discussion is designed to provide a review of the
consolidated financial condition and results of operations of 1st Community
Bancorp, Inc., ("1st Community") 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.
SUMMARY OF OPERATING RESULTS
Net income for 1995 was $1,464,000, which represented a $221,000 or 18%
increase over 1994. The increase in 1st Community's net income in 1995 was
attributable to higher net interest income and other income. These were
partially offset by increases in the provision for loan losses and other
expenses. The growth in net interest income was primarily due to a higher
net interest margin. The increase in other income was caused primarily by
growth in service charges on deposit accounts. The rise in the provision
for loan losses occurred because of higher loan growth in 1995 than in
1994. Increased salaries and wages were the main cause of higher other
expense; an increase in the Bank's incentive bonus comprised the largest
part of the salaries and wages change.
A combination of lower other income and higher other expenses caused the
slight decrease in earnings in 1994. Net income for 1994 was $1,243,000,
which represented a $13,000 or 1% decline from the prior year's earnings.
The other income and expense effect was largely offset by increased net
interest income. The drop in other income was caused by lower gains on
sales of securities and mortgages in 1994. The growth in other expenses
resulted primarily from nonrecurring expenses. The increase in net interest
income was due to growth in 1st Community's interest earning assets.
Interest income and expense will be discussed later in this Management's
Discussion.
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Net interest income. . . . . . . . . . . . . $ 4,931,000 $ 4,468,000 $ 4,264,000
Provision for loan losses. . . . . . . . . . (164,000) (126,000) (121,000)
Other income . . . . . . . . . . . . . . . . 656,000 597,000 710,000
Other expenses . . . . . . . . . . . . . . . (3,448,000) (3,340,000) (3,225,000)
Income tax expense . . . . . . . . . . . . . (511,000) (356,000) (372,000)
Net income . . . . . . . . . . . . . . . . . $ 1,464,000 $ 1,243,000 $ 1,256,000
</TABLE>
-35-
RETURN ON AVERAGE ASSETS AND AVERAGE SHAREHOLDERS' EQUITY
The return on average assets and return on average shareholders' equity are
key performance indexes that measure how effectively 1st Community is using
its assets and its shareholders' invested capital. 1st Community's return
on average assets for 1995 was 1.36%, compared to 1.18% for 1994 and 1.22%
for 1993. The return on average shareholders' equity was 11.09%, 9.62% and
10.19% for 1995, 1994 and 1993, respectively.
DIVIDENDS
Cash dividends declared by 1st Community in 1995 of $551,000 or $1.18 per
share represent the fourteenth consecutive year that 1st Community or the
Bank has increased cash dividends paid to their shareholders. The total
cash dividends paid in 1995 represented an $82,000 or 17% increase over
1994. The cash dividend payout percentage (total cash dividends divided by
net income) of 37.64% in 1995 was virtually equal to the 1994 payout of
37.73%. In addition to the cash dividends declared, 1st Community declared
a 20% stock split in 1995 and a 25% stock split in 1994.
Cash dividends paid in 1993 through 1995 were consistent with management's
objectives regarding the capital structure of 1st Community. The first
objective is to continue the per share and total dollar increase in cash
dividend payments to shareholders, which 1st Community achieved in all
three years. However, management will not raise dividends above a level
which it considers to be reasonable and prudent. The second objective is to
retain sufficient earnings in order to maintain the strong capital position
currently held by 1st Community.
1st Community's principal source of funds to pay cash dividends is the
earnings of the Bank. The availability of these earnings is dependent upon
the capital needs, regulatory constraints and other factors involving the
Bank. Regulatory constraints include the maintenance of minimum capital
ratios and limits based on net income and retained earnings of the Bank for
the past three years. Based on projected earnings for the Bank, management
expects 1st Community to pay regular quarterly cash dividends to its
shareholders in 1996.
-36-
Management's Discussion and Analysis of Financial
Condition and Results of Operations
1st Community Bancorp, Inc.
RESULTS OF OPERATIONS
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. Management will refer to these tables
in its discussion of interest income, interest expense and net interest
income.
<TABLE>
TABLE 1 - AVERAGE BALANCES AND TAX-EQUIVALENT INTEREST RATES
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Loans <F1> <F2>. . . . . . . . . . $ 73,742 $7,135 9.68% $ 67,773 $5,779 8.53% $ 64,528 $5,656 8.77%
Taxable securities <F3>. . . . . . 18,403 1,181 6.42 21,614 1,300 5.95 23,136 1,466 6.33
Nontaxable securities <F1> <F3>. . 9,181 774 8.43 9,488 859 9.09 7,929 841 10.61
Other. . . . . . . . . . . . . . . 160 8 5.00 619 29 4.65 1,720 50 2.92
Interest earning assets . . . . 101,486 9,098 8.96 99,494 7,967 7.99 97,313 8,013 8.23
Noninterest-earning assets <F4>. . 6,066 5,951 5,842
Total assets. . . . . . . . . . $ 107,552 $105,445 $103,155
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing
transaction accounts . . . . $ 25,522 912 3.57 $ 30,027 938 3.12 $ 29,546 1,013 3.43
Savings deposits. . . . . . . . 9,845 229 2.33 11,700 282 2.41 11,699 339 2.90
Time deposits . . . . . . . . . 45,930 2,619 5.70 39,557 1,934 4.89 39,461 2,078 5.27
Other . . . . . . . . . . . . . 1,799 108 6.00 807 33 4.05 473 18 3.83
Interest-bearing liabilities 83,096 3,868 4.65 82,091 3,187 3.88 81,179 3,448 4.24
Noninterest-bearing liabilities 11,256 10,432 9,651
Shareholders' equity. . . . . . 13,200 12,922 12,325
Total liabilities and
shareholders' equity . . . . $ 107,552 $105,445 $103,155
Net interest income
(tax-equivalent basis)-
interest spread . . . . . . . . 5,230 4.31% 4,780 4.11% 4,565 3.99%
Tax-equivalent adjustment <F1> . . (299) (312) (301)
Net interest income. . . . . . . . $ 4,931 $ 4,468 $4,264
Net interest income as a
percentage of earning assets
(tax-equivalent basis). . . . . 5.15% 4.80% 4.69%
-37-
<FN>
<F1> Interest on nontaxable 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.
<F2> Interest on loans included net origination fees charged on loans of
approximately $253,000, $238,000 and $374,000 in 1995, 1994 and
1993, respectively.
<F3> The average balance includes the effect of unrealized
appreciation/depreciation on securities, while the average rate was
computed on the average amortized cost of the securities.
<F4> Noninterest-earning assets includes loans on a nonaccrual status
which averaged approximately $482,000, $277,000 and $176,000 in
1995, 1994 and 1993, respectively.
</FN>
</TABLE>
-38-
Management's Discussion and Analysis of Financial
Condition and Results of Operations
1st Community Bancorp, Inc.
<TABLE>
TABLE 2 - CHANGES IN TAX-EQUIVALENT NET INTEREST INCOME
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 OVER 1994 1994 OVER 1993
TOTAL VOLUME RATE TOTAL VOLUME RATE
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN INTEREST INCOME <F1>
Loans <F2>. . . . . . . . . . . . . . $ 1,356 $ 537 $ 819 $ 123 $ 280 $ (157)
Taxable Securities. . . . . . . . . . (119) (210) 91 (166) (80) (86)
Nontaxable securities <F2>. . . . . . (85) (26) (59) 18 149 (131)
Other . . . . . . . . . . . . . . . . (21) (23) 2 (21) (42) 21
Net change in tax-equivalent income 1,131 278 853 (46) 307 (353)
INCREASE (DECREASE) IN INTEREST EXPENSE <F1>
Interest-bearing transaction accounts (26) (152) 126 (75) 17 (92)
Savings deposits. . . . . . . . . . . (53) (43) (10) (57) -- (57)
Time deposits . . . . . . . . . . . . 685 337 348 (144) 5 (149)
Other . . . . . . . . . . . . . . . . 75 54 21 15 14 1
Net change in interest expense . . 681 196 485 (261) 36 (297)
Net change in tax-equivalent
net interest income . . . . . . $ 450 $ 82 $ 368 $ 215 $ 271 $ (56)
<FN>
<F1> 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.
<F2> Interest on nontaxable securities and loans has been
adjusted to a fully tax-equivalent basis using an
incremental tax rate of 34% for the years presented.
</FN>
</TABLE>
INTEREST INCOME
Tax-equivalent interest income increased significantly in 1995, after
experiencing a slight decrease in 1994. Approximately 75% of the
improvement in 1995 was due to a 97 basis point increase in rates
earned on interest earning assets. Part of the rise in earnings rates
-39-
was caused by the increase in general market interest rates which
occurred from the first quarter of 1994 through the first quarter of
1995. Interest rates had previously fallen from the middle of 1989 to
the end of 1993. The rise also resulted from more of 1st Community's
interest earning assets invested in loans in 1995 than the prior year.
Loans were the highest yielding asset in 1995. An increase in the
average balance of interest earning assets contributed approximately
25% of the growth in tax-equivalent interest income in 1995. This was
due to growth in the loan portfolio, which was offset by declines in
the other asset categories. The slight decrease in tax-equivalent
interest income in 1994 was caused by a 24 basis point decrease in the
average rate earned on interest earning assets. The decline in the
average rate in 1994 occurred because the effect of declining general
market interest rates in 1993 and early 1994 more than offset the
effect of rising interest rates in the last three quarters of 1994.
Interest income on loans increased 23% in 1995, compared to 2% in
1994. The significant improvement in 1995 was caused by both growth in
the average loans balance and a higher average rate earned. Management
placed a high priority on quality loan growth in 1995, which caused
average total loans as a percentage of average earning assets to rise
to 73%, compared to 68% in 1994 and 66% in 1993. The increase in the
average rate on loans was primarily due to an increase in the average
prime lending rate from 7.14% in 1994 to 8.83% in 1995. This affected
most of the commercial and agricultural loan portfolios and part of
the consumer portfolio. The small increase in interest income on loans
in 1994 was caused by growth in the average loans balance, which was
partially offset by a decline in the average rate earned on loans.
Moderate growth in commercial, agricultural and residential real
estate mortgage loans was offset by a reduction in the average
consumer loans balance. Loan activity will be discussed further in the
Loans section of Management's Discussion and Analysis. Most of the
decrease in 1994 in the average rate earned on loans resulted from a
decline of
-40-
Management's Discussion and Analysis of Financial
Condition and Results of Operations
1st Community Bancorp, Inc.
$136,000 in fees earned on loans in 1994. The lower fees were due
to less residential mortgage refinancing activity in 1994 than the
than the prior year.
Interest income on taxable securities declined in both 1995 and 1994.
The average balance has dropped both years as proceeds from maturities
have been used for loan growth. The average rate earned on taxable
securities increased in 1995 in contrast to the reduction in 1994. The
rate on taxable securities benefitted from the rise in general market
interest rates in 1994. Interest income on nontaxable securities
decreased in 1995 after increasing slightly in 1994. The average rate
earned has declined in both years as higher yielding securities in the
portfolio have been maturing.
INTEREST EXPENSE
Interest expense on interest-bearing liabilities increased
significantly in 1995, in contrast to a sizable reduction in 1994. As
shown in Table 2, changes in the average interest rate paid was the
primary reason for the fluctuations. Although interest rates on
liabilities have been stable in 1995 and have actually decreased
somewhat in the second half of the year, the increase in general
market interest rates in 1994 caused 1995's overall rates to be higher
than the prior year. Interest rates rose 100 basis points or more on
time deposits and some interest-bearing transaction accounts from the
second quarter of 1994 through early 1995. A contributing factor to
1995's higher rates was also the shifting of deposit balances from
interest-bearing transaction accounts and savings deposits to time
deposits. The average balance of time deposits, which was the highest
rate-bearing deposit category, increased over $6,000,000 in 1995 while
the other two deposit categories declined approximately the same
amount. The drop in the average rate paid on interest-bearing
liabilities in 1994 resulted from the decline in general market
interest rates that occurred in 1993 and early 1994.
NET INTEREST INCOME
Table 2 documents that tax-equivalent net interest income increased
$450,000 in 1995, compared to an increase of $215,000 in 1994. This change
resulted from the favorable rate variance of $368,000 in 1995, in contrast to
the negative rate variance of $56,000 in the prior year. Rates earned on
interest earning assets rose more than the rates paid on interest-bearing
liabilities in 1995, in contrast to 1994 when both the average rate
earned and the average rate paid decreased.
-41-
ALLOWANCE AND PROVISION FOR LOAN LOSSES
The Bank performs a detailed written analysis of the loan portfolio to
determine the adequacy of the allowance for loan losses on a periodic
basis. This analysis allocates specific allowance amounts to loans
considered to be "problem" loans, with an unallocated portion of the
allowance left to absorb possible losses on loans for which no
specific allowance has been established.
Information regarding the allowance and provision for loan losses can
be found in Table 3 and in Note 7 to the Consolidated Financial
Statements. As can be noted from Table 3, the provision for loan
losses increased in 1995 as did the allowance for loan losses from
December 31, 1994 to December 31, 1995. Although net charge-offs were
unchanged from 1994 to 1995, management believed it was prudent to
increase the provision due to the much higher level of loan growth
experienced in 1995 than in 1994. The provision for loan losses in
1994 changed little from the prior year as net charge-offs were up
slightly and the loan growth in 1994 was similar to that in 1993. As a
result of a decrease in nonperforming loans from December 31, 1994 to
December 31, 1995, the allowance for loan losses percentage coverage
of nonperforming loans increased from 126% at the end of 1994 to 148%
at the end of 1995. The relatively low level of charge-offs in all
three years presented in Table 3 resulted from a continued effort in
the Bank's loan departments to quickly recognize and resolve problem
loan situations. $4,000 of net recoveries were received on commercial
and agricultural loans in 1995, compared to $14,000 of net charge-offs
in 1994 and $16,000 of net recoveries in 1993. Net charge-offs of
$83,000 were recorded on consumer loans in 1995, compared to net
charge-offs of $62,000 and $67,000 in 1994 and 1993, respectively. Net
charge-offs of $3,000 and $11,000 were recognized on residential real
estate mortgage loans in 1995 and 1994, respectively.
As was noted in the Allowance for Loan Losses section of Note 2 to the
Consolidated Financial Statements, 1st Community implemented Statement
of Financial Accounting Standards No. 114 ("SFAS 114"), "Accounting by
Creditors for Impairment of a Loan" on January 1, 1995. SFAS 114, as
amended by Statement of Financial Accounting Standards
-42-
Management's Discussion and Analysis of Financial
Condition and Results of Operations
1st Community Bancorp, Inc.
No. 118 ("SFAS 118"), requires that impaired loans be measured on the
present value of expected cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's observable market
price or the fair value of the collateral if the loan is collateral
dependent. The implementation of SFAS 114 and 118 did not have a
material effect on 1st Community's consolidated financial statements.
<TABLE>
TABLE 3 - PROVISION AND ALLOWANCE FOR LOAN LOSSES
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
Provision for loan losses. . . . . . . . . . . . . . . . . . . $ 164,000 $ 126,000 $ 121,000
Net charge-offs. . . . . . . . . . . . . . . . . . . . . . . . 82,000 87,000 51,000
Allowance for loan losses at year end. . . . . . . . . . . . . 1,121,000 1,039,000 1,000,000
Allowance for loan losses as a percentage of:
Total loans as of year end . . . . . . . . . . . . . . . 1.42% 1.50% 1.50%
Nonaccrual loans, accrual loans past due 90 days or
more and troubled debt restructurings. . . . . . . . . 148.23 125.72 260.54
Ratio of net charge-offs to average total loans outstanding
during the year. . . . . . . . . . . . . . . . . . . . . .11 .13 .08
Loan recoveries as a percentage of prior year's
charge-offs. . . . . . . . . . . . . . . . . . . . . . . 36.13 29.55 21.27
</TABLE>
Based on the current state of the economy and management's reviews of
the loan portfolio, management believes that the allowance for loan
losses balance as of December 31, 1995, is adequate to absorb possible
charge-offs. As loan growth and charge-offs occur in 1996, the
allowance and provision for loan losses will be reviewed and changes
will be made to maintain the allowance at an adequate level.
OTHER INCOME
Total other income increased $59,000 in 1995, after decreasing
$113,000 in 1994. Most of the increase in 1995 was due to increased
service charges on deposit accounts. The higher charges resulted from
changes made in per item charges. The reduction in 1994 was caused by
lower gains on sales of securities and gains on sales of residential
real estate mortgages.
-43-
OTHER EXPENSES
Total other expenses grew 3% in 1995 and 4% in 1994. The change in
1995 was caused by a $135,000 increase in salaries and wages expense.
Almost half of the change in salaries and wages resulted from a
$61,000 increase in the incentive bonus in 1995. The incentive bonus
program is partly based on 1st Community's net income. Higher net
income in 1995 caused the incentive bonus expense to also rise. The
increase in salaries and wages expense in 1995 was partially offset by
lower other expenses. Other expenses declined due to a $96,000
reduction in deposit insurance cost from the Federal Deposit Insurance
Corporation (the "FDIC"). The increase in 1994 resulted primarily from
nonrecurring expenses.
1st Community paid $.23 per $100 of deposits for FDIC insurance
coverage from January 1993 through May 1995. As of June 1, 1995, the
FDIC determined that its reserves had reached $1.25 per $100 in
deposits in mid-1995. As of that date, the FDIC lowered its assessment
to $.04 per $100 of deposits. This assessment reduction caused the
drop in deposit insurance cost noted in the prior paragraph. Based on
current levels of reserves, the FDIC has determined that no insurance
assessment will be levied in the first half of 1996. If no assessment
is levied in the second half of 1996 or if the assessment is small,
the decrease in FDIC insurance cost in 1996 will approximate the
reduction experienced in 1995.
INSURANCE SUBSIDIARY
1st Community's wholly-owned subsidiary, Sparta State Bank, acquired
Bradford Insurance Centre, Ltd. ("Bradford Insurance") effective
January 1, 1996. Bradford Insurance's commissions on sales of
insurance will be included in 1st Community's other income in 1996.
Its operating expenses will be included in 1st Community's other
expenses.
-44-
Management's Discussion and Analysis of Financial
Condition and Results of Operations
1st Community Bancorp, Inc.
CASH FLOWS
As can be seen from the Consolidated Statements of Cash Flows, cash
and cash equivalents increased from both December 31, 1994 to December
31, 1995, and from December 31, 1993 to December 31, 1994. The purpose
of the Cash Flows statement is to document how cash and cash
equivalents were generated and used in 1st Community's operations.
Cash was generated by income from operations, sales and maturities of
investment securities, repayments of borrowers' loans, sales of loans,
growth in deposits and an advance from the Federal Home Loan Bank.
This cash was used for the purchase of securities, funding of loan
demand and loan purchases, purchase of property and equipment,
repurchase of 1st Community's stock and cash dividends paid to 1st
Community's shareholders.
SECURITIES
Total securities available for sale increased $945,000 in 1995, while
securities held to maturity decreased from a balance of $8,168,000 at
December 31, 1994, to $0 at December 31, 1995. The decrease in
securities held to maturity was caused by an $8,124,000 transfer of
securities in December 1995 from the held to maturity classification
to the available for sale classification. The Financial Accounting
Standards Board ("FASB") issued guidelines in late 1995 on the
implementation of Statement of Financial Accounting Standards No. 115
("SFAS 115"), "Accounting for Certain Investments in Debt and Equity
Securities." SFAS 115 was the accounting pronouncement which required
classification of securities into the two categories above. As part of
these guidelines, FASB allowed a one-time transfer between investment
categories to properly classify securities. Management believed it was
prudent to make a transfer of the remaining securities in the held to
maturity classification to the available for sale classification.
The total of all securities categories decreased $7,223,000 from
December 31, 1994, to December 31, 1995. This reduction occurred in
spite of a $1,228,000 positive change in net unrealized
appreciation/depreciation on available for sale securities. The large
securities decrease was caused by the significant loan growth in 1995
which utilized the funds from maturing securities. The positive change
in total net unrealized appreciation/depreciation on available for
sale securities was due to lower medium to long-term interest rates at
the end of 1995 than at the end of 1994. Total securities decreased
$1,905,000 in 1994. The majority of this change resulted from a
negative change in total net unrealized gains or losses on available
for sale securities.
-45-
LOANS
Note 6 to the Consolidated Financial Statements documents significant
loan growth of $9,672,000 in 1995, which was much higher than the
growth of $2,566,000 in 1994. A strong emphasis on loan growth coupled
with a healthy economy in 1st Community's market area were major
factors in 1995's success. Business development activities helped
commercial loans to grow 29% in 1995 after 10% growth in 1994. Growth
in the agricultural loan portfolio was down slightly in 1995 compared
to 1994 as a higher average prime rate in 1995 caused much more rate
competition. The growth in residential real estate mortgage loans was
also down slightly in 1995 compared to 1994. 1st Community's consumer
loan portfolio grew 14% in 1995, compared to a 9% decline in 1994. The
increase in 1995 was due to more indirect automobile lending than the
prior year. 1st Community began a new dealer reserve program in early
1995 which resulted in more than $3,600,000 in growth in indirect
automobile loans in 1995. The direct portion of the consumer loan
portfolio declined in excess of $1,400,000 in 1995, $834,000 of which
was related to student loans that were sold in 1995. The lack of
growth in direct consumer loans resulted from a very competitive rate
environment in 1st Community's market area in both 1995 and 1994.
Management's emphasis in 1996 will be to further stimulate growth in
all loan categories. Business development activities as well as a new
accounts receivable financing program will be used to generate demand
in the commercial and agricultural loan categories. Contacts with real
estate agents and other methods will be used to capture a larger share
of the residential real estate financing market. 1st Community added a
mortgage originator and a mortgage closer to its loan staff in late
1995. This will allow 1st Community to be more aggressive in seeking
opportunities in residential mortgage financing. Management will
continue to use special promotions and target marketing to encourage
demand in direct consumer loans. Indirect consumer loans for
automobiles and other items will also be emphasized in 1996 as 1st
Community will be maintaining very competitive interest rates and
dealer reserves.
-46-
Management's Discussion and Analysis of Financial
Condition and Results of Operations
1st Community Bancorp, Inc.
SHAREHOLDERS' EQUITY
1st Community's shareholders' equity was $13,784,000 at December 31,
1995, which represented a $908,000 increase from December 31, 1994.
This growth was caused by the retention of $913,000 of earnings by 1st
Community in 1995. The effect of appreciation in the fair value of
securities available for sale in 1995 was offset by the repurchase of
18,324 shares of 1st Community's stock in April 1995. The 20% stock
dividend paid in December 1995 had a small negative impact on equity
as a total of 121 shares resulting from fractional dividend shares
were repurchased from the shareholders. Shareholders' equity decreased
$78,000 in 1994. This was caused by a decline of $852,000 in net
unrealized appreciation/depreciation on securities available for sale,
which was offset by the retention of $774,000 of earnings in 1994.
Bank regulators have adopted risk-based capital guidelines for banks
and bank holding companies. The guidelines base minimum capital levels
on the perceived risk in different categories of assets held by banks
and bank holding companies, and certain off-balance-sheet items, such
as loan commitments and standby letters of credit, require capital
allocations. In addition to the risk-based capital requirements,
regulators have also adopted leverage capital ratio requirements. The
leverage ratio requirements are intended to insure that adequate
capital is maintained against risks other than credit risk. Table 4
presents 1st Community's leverage and risk-based capital information
compared to regulatory requirements. The small decrease in 1st
Community's capital ratios from the end of 1994 to the end of 1995 was
caused by the repurchase of 1st Community's common stock that occurred
in 1995.
-47-
<TABLE>
TABLE 4 - CAPITAL RATIOS
<CAPTION>
TOTAL
RISK-BASED
TANGIBLE TIER 1 CAPITAL (TIER 1
EQUITY CAPITAL AND TIER 2)
<S> <C> <C> <C>
1st Community's regulatory capital balances as of
December 31, 1995. . . . . . . . . . . . . . . . . $ 13,533,000 $ 13,533,000 $ 14,654,000
Less required regulatory capital . . . . . . . . . . . . 3,290,000 3,161,000 6,322,000
Capital in excess of regulatory minimum as of
December 31, 1995. . . . . . . . . . . . . . . . . $ 10,243,000 $ 10,372,000 $ 8,332,000
1st Community's capital ratios as of December 31, 1995 . 12.34% 17.13% 18.54%
1st Community's capital ratios as of December 31, 1994 . 12.59% 18.81% 20.26%
Regulatory capital ratios
"Well capitalized" regulatory level. . . . . . . . 5.00% 6.00% 10.00%
Minimum requirement. . . . . . . . . . . . . . . . 3.00% 4.00% 8.00%
</TABLE>
LIQUIDITY AND RATE SENSITIVITY
Liquidity is the measurement of 1st Community's ability to meet its
cash flow requirements. These requirements include depositors desiring
to withdraw funds and borrowers seeking credit. Relatively short-term
liquid funds exist in the form of lines of credit to purchase federal
funds at two of the Bank's correspondent banks. The total amount of
federal funds that were available for purchase was $6,200,000 at
December 31, 1995, while the Bank's actual federal funds purchased
balance was $1,000,000 as of the same date. Longer term liquidity
needs may be met through deposit growth, maturities of securities,
normal loan repayments, advances from the Federal Home Loan Bank and
income retention. Securities classified as available for sale of
$22,602,000 as of December 31, 1995, can also be used for liquidity
needs.
Interest sensitivity is related to liquidity because each is affected
by maturing assets and sources of funds. 1st Community's
Asset/Liability Committee (the "Committee") attempts to stabilize the
interest rate spread and avoid possible adverse effects when unusual
or rapid changes in interest rates occur. One method it uses of
measuring interest rate sensitivity is the ratio of rate-sensitive
assets to rate-sensitive liabilities. An asset or liability is said to
be rate-sensitive if it matures or otherwise reprices within a given
time frame. Table 5 documents the maturity or repricing schedule for
1st Community's rate-sensitive assets and liabilities for selected
time periods. The time frame that the Committee used in 1995 to
measure its interest rate sensitivity was one year. 1st Community's
ratio of rate-sensitive assets to rate-sensitive liabilities which
matured or repriced within a one year time frame was 91% as of
December 31, 1995, compared to
-48-
Management's Discussion and Analysis of Financial
Condition and Results of Operations
1st Community Bancorp, Inc.
86% as of December 31, 1994. It is the Committee's and management's goal
to have the rate-sensitive assets to rate-sensitive liabilities ratio in a
range of 80% to 120% at the one year maturity or repricing point. The
levels at both December 31, 1995, and December 31, 1994, were within this
range.
As interest rates decreased in 1995, 1st Community's management of
rate-sensitive assets and liabilities was a part of the reason for
1995's increase in net interest income. As interest rates fluctuate in
1996, the relationship between rate-sensitive assets and liabilities
will be reviewed and 1st Community's Asset/Liability Management
Committee and management will make changes in the pricing or mix of
assets or liabilities when the changes are deemed necessary.
<TABLE>
TABLE 5 - MATURITIES AND REPRICING SCHEDULE
<CAPTION>
DECEMBER 31, 1995
0-3 3-12 1-5 OVER
MONTHS MONTHS YEARS 5 YEARS TOTAL
<S> <C> <C> <C> <C> <C>
ASSETS
Loans. . . . . . . . . . . . . . . . . . . . $ 28,260 $ 23,462 $ 20,024 $ 7,336 $ 79,082
Interest-bearing deposits with banks . . . . 54 -- -- -- 54
Taxable securities . . . . . . . . . . . . . 460 2,884 9,905 1,587 14,836
Nontaxable securities. . . . . . . . . . . . -- 433 3,869 4,049 8,351
Rate-sensitive assets. . . . . . . . . . . 28,774 26,779 33,798 12,972 102,323
LIABILITIES
Interest-bearing transaction accounts. . . . 25,167 -- -- -- 25,167
Savings deposits . . . . . . . . . . . . . . 9,369 -- -- -- 9,369
Time deposits. . . . . . . . . . . . . . . . 6,465 18,735 22,411 272 47,883
Other. . . . . . . . . . . . . . . . . . . . 1,000 -- 1,000 -- 2,000
Rate-sensitive liabilities . . . . . . . . 42,001 18,735 23,411 272 84,419
Rate-sensitive assets less rate-sensitive
liabilities -
Asset (liability) gap for the period. . . $ (13,227) $ 8,044 $ 10,387 $ 12,700 $ 17,904
Cumulative asset (liability) gap. . . . . $ (13,227) $ (5,183) $ 5,204 $ 17,904
</TABLE>
-49-
Corporate and Shareholder Information
1st Community Bancorp, Inc.
CORPORATE HEADQUARTERS
1st Community Bancorp, Inc.
109 East Division Street
P.O. Box 186
Sparta, Michigan 49345
Phone: (616) 887-7366
Fax: (616) 887-5566
MARKET MAKERS IN 1ST COMMUNITY BANCORP, INC. STOCK
Robert W. Baird & Company, Inc.
Grand Rapids, Michigan
(616) 459-4491
1-800-888-6200
D. H. Brush & Associates
Grand Rapids, Michigan
(616) 285-3700
McDonald & Co.
Grand Rapids, Michigan
(616) 732-3383
1-800-548-6011
Paine Webber, Inc.
Grand Rapids, Michigan
(616) 459-4231
1-800-333-4231
Roney & Company
Grand Rapids, Michigan
(616) 456-8691
1-800-553-2249
Stifel Nicolaus & Company, Inc.
Grand Rapids, Michigan
(616) 942-1717
1-800-676-0477
STOCK REGISTRAR AND TRANSFER AGENT
Chemical Mellon Shareholder Services
85 Challenger Road
Ridgefield Park, New Jersey 07660
1-800-288-9541
-50-
ANNUAL MEETING
The annual meeting of shareholders of 1st Community Bancorp, Inc.,
will be held at 7:30pm EST on Tuesday, April 30, 1996, at Sparta
Ridgeview Elementary School, Sparta, Michigan.
MARKET PRICE RANGE OF COMMON STOCK
1st Community's shares are traded in the over the counter market by
several brokers. There is no well established public trading market
for the shares, trading activity is infrequent, and price information
is not regularly published.
The range of high and low bid information for shares of common stock
for each quarterly period during the past two years was as follows:
<TABLE>
<CAPTION>
1995 1994
LOW HIGH LOW HIGH
<S> <C> <C> <C> <C>
First Quarter. . . . . . . . $ 32 $ 33 $ 27 $ 28
Second Quarter . . . . . . . 34 35 28 28
Third Quarter. . . . . . . . 36 36 29 30
Fourth Quarter . . . . . . . 36 37 30 31
</TABLE>
The above market prices have been adjusted where necessary to reflect
the 20% and 25% stock splits declared in 1995 and 1994, respectively.
The prices listed above are over the counter market quotations
reported to 1st Community by its market makers. The over the counter
market quotations reflect inter-dealer prices without retail markup,
markdown or commission and may not necessarily represent actual
transactions.
As of February 29, 1996, there were 485,413 shares of 1st Community
Bancorp, Inc., common stock issued and outstanding. These shares were
held of record by 568 shareholders.
CASH DIVIDENDS PER SHARE OF COMMON STOCK
The following table summarizes cash dividends paid per share of common
stock during 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
First Quarter. . . . . . . . . . . . . . . . $ .23 $ .21
Second Quarter . . . . . . . . . . . . . . . .27 .23
Third Quarter. . . . . . . . . . . . . . . . .27 .25
Fourth Quarter . . . . . . . . . . . . . . . .41 .27
Totals. . . . . . . . . . . . . . . . $ 1.18 $ .96
</TABLE>
-51-
The above dividend per share amounts have been adjusted where
necessary to reflect the 20% and 25% stock splits declared in 1995 and
1994, respectively.
1st Community's principal source of funds to pay cash dividends are
the earnings and dividends paid by Sparta State Bank. Sparta State
Bank is restricted in its ability to pay cash dividends under current
regulations (Note 17). Based on information presently available,
management expects 1st Community to declare and pay regular quarterly
cash dividends in 1996.
SUBSIDIARY INFORMATION
SPARTA STATE BANK
Main Office
109 East Division Street
P.O. Box 186
Sparta, Michigan 49345
(616) 887-7366
Appletree Branch Office
416 West Division Street
Sparta, Michigan 49345
(616) 887-8807
Sparta State Bank is a member of the Federal Deposit Insurance
Corporation and is an Equal Opportunity and Housing Lender.
[EQUAL HOUSING LENDER LOGO]
BRADFORD INSURANCE CENTRE, LTD.
Bradford Insurance Centre
440 West Division Street
Sparta, Michigan 49345
(616) 887-8881
Red Flannel Insurance Center
17 North Main
Cedar Springs, Michigan 49319
(616) 696-9330
Afton Insurance Center
440 West Division Street
Sparta, Michigan 49345
(616) 887-8881
Omega Insurance Center
4949 Plainfield NE
Grand Rapids, Michigan 49505
(616) 363-7736
-52-
Directors and Officers
1st Community Bancorp, Inc. and Subsidiaries
DIRECTORS
1ST COMMUNITY BANCORP, INC., AND SPARTA STATE BANK
FRANK G. BERRIS
Owner, American Gas & Oil Co., Inc.
LAWRENCE D. BRADFORD
President, Bradford Insurance Centre, Ltd.
WILLIAM F. CUTLER, JR.
Former Vice President, H. H. Cutler Co.
L. EDMOND EARY, JR., M.D.
Chairman
Retired, Private Practice
LEWIS G. EMMONS
Special Projects Manager, Great Day Foods, Inc.
STUART GOODFELLOW
Owner, Goodfellow Vending Services & Goodfellow Blueberry Farms
WALTER HILL
Semi-retired, Hill Brothers Orchards & Cider Mill
JAE M. MAXFIELD
President & Chief Executive Officer, Sparta State Bank
JON E. PIKE
C.P.A., Managing Partner, Beene Garter & Co.
LINDA R. PITSCH
Senior Vice President - Cashier, Sparta State Bank
ANDREW W. ZAMIARA, R.PH.
President & Manager, Momber Pharmacy & Gift Shop
OFFICERS
1ST COMMUNITY BANCORP, INC.
L. EDMOND EARY, JR., M.D.
Chairman of the Board
JAE M. MAXFIELD
President & Chief Executive Officer
-53-
DENIS CROSBY
Vice President
LINDA R. PITSCH
Secretary
TOM LAMPEN
Treasurer
OFFICERS
SUBSIDIARY - SPARTA STATE BANK
L. EDMOND EARY, JR., M.D.
Chairman
JAE M. MAXFIELD
President & Chief Executive Officer
DENIS CROSBY
Senior Vice President - Loans
GERALD P. DAVID
Senior Vice President - Loans
LINDA R. PITSCH
Senior Vice President - Cashier
DEAN ANDERSON
Vice President - Commercial Loans
BEATRICE BELLAMY
Vice President - Mortgage Loans
LEE BRAFORD
Vice President - Consumer Loans
TOM LAMPEN
Vice President - Chief Financial Officer
KELLY POTES
Vice President - Financial Services Officer
ELLY BERGHOEF
Assistant Vice President - Retail and Commercial Development
KAREN M. GILBERT
Assistant Vice President - Mortgage Loans
MARY JOHNSON
Assistant Vice President - Internal Auditor
-54-
PATRICIA J. L0SER
Assistant Vice President - Commercial Loans
ANNA PARKER
Assistant Vice President - Marketing
AUDREY STILES
Assistant Vice President - Personnel
DIRECTORS
SUBSIDIARY - BRADFORD INSURANCE CENTRE, LTD.
LAWRENCE D. BRADFORD
President, Bradford Insurance Centre, Ltd.
DENIS CROSBY
Senior Vice President, Sparta State Bank
TOM LAMPEN
Vice President, Sparta State Bank
JAE M. MAXFIELD
President & Chief Executive Officer, Sparta State Bank
KELLY POTES
Vice President, Sparta State Bank
OFFICERS
SUBSIDIARY - BRADFORD INSURANCE CENTRE, LTD.
LAWRENCE D. BRADFORD
President
JEFFREY S. BRADFORD
Vice President
TAB M. BRADFORD, CIC
Vice President
KELLY POTES
Vice President
TOM LAMPEN
Secretary/Treasurer
CARLO VANIN
Branch President, Omega Insurance Center
LINDA DEVRIES
Assistant Vice President
-55-
[PICTURE OF DIRECTORS]
DIRECTORS
BACK ROW (FROM LEFT TO RIGHT), WILLIAM F. CUTLER, JR., WALTER HILL,
LEWIS G. EMMONS, JON E. PIKE, LAWRENCE D. BRADFORD, STUART GOODFELLOW,
LINDA R. PITSCH. FRONT ROW (FROM LEFT TO RIGHT), ANDREW W. ZAMIARA,
R.PH., L. EDMOND EARY, JR., M.D., JAE M. MAXFIELD, FRANK G. BERRIS.
-56-
EXHIBIT 21
SUBSIDIARIES OF THE SMALL BUSINESS ISSUER
The following lists the subsidiaries of the Registrant and the
state or jurisdiction of incorporation.
NAME AND ADDRESS OF SUBSIDIARY STATE INCORPORATED
1. Sparta State Bank Michigan
109 East Division
Sparta, Michigan 49345
2. Bradford Insurance Centre, Ltd. Michigan
440 West Division
Sparta, Michigan 49345
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT OF 1ST COMMUNITY
BANCORP, INC., INCLUDED IN THE DECEMBER 31, 1995, FORM 10-KSB AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,806
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22,602
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 79,082
<ALLOWANCE> 1,121
<TOTAL-ASSETS> 109,916
<DEPOSITS> 92,902
<SHORT-TERM> 1,000
<LIABILITIES-OTHER> 1,230
<LONG-TERM> 1,000
<COMMON> 4,648
0
0
<OTHER-SE> 9,136
<TOTAL-LIABILITIES-AND-EQUITY> 109,916
<INTEREST-LOAN> 7,099
<INTEREST-INVEST> 1,692
<INTEREST-OTHER> 8
<INTEREST-TOTAL> 8,799
<INTEREST-DEPOSIT> 3,760
<INTEREST-EXPENSE> 3,868
<INTEREST-INCOME-NET> 4,931
<LOAN-LOSSES> 164
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,448
<INCOME-PRETAX> 1,975
<INCOME-PRE-EXTRAORDINARY> 1,975
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,464
<EPS-PRIMARY> 3.10
<EPS-DILUTED> 0.00
<YIELD-ACTUAL> 5.15
<LOANS-NON> 624
<LOANS-PAST> 26
<LOANS-TROUBLED> 106
<LOANS-PROBLEM> 1,179
<ALLOWANCE-OPEN> 1,039
<CHARGE-OFFS> 125
<RECOVERIES> 43
<ALLOWANCE-CLOSE> 1,121
<ALLOWANCE-DOMESTIC> 738
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 383
</TABLE>
