U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
[ ] 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.
(Exact name of small business issuer as specified in its charter)
MICHIGAN 38-2659066
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
109 EAST DIVISION
SPARTA, MICHIGAN 49345
(Address of principal executive offices)
(616) 887-7366
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes __X__ No _____
As of March 31, 1996, the registrant had outstanding 485,413 shares of
common stock having a par value of $10 per share.
Transitional Small Business Disclosure Format (check one): Yes _____
No __X__
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
<TABLE>
1ST COMMUNITY BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
March 31, 1996, and December 31, 1995
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,005,000 $ 4,806,000
Securities available for sale (Note 2) 22,226,000 22,602,000
Other securities (Note 2) 585,000 585,000
Loans (Note 3) 85,391,000 79,082,000
Allowance for loan losses (Note 4) (1,181,000) (1,121,000)
Net loans 84,210,000 77,961,000
Premises and equipment - net 2,541,000 2,589,000
Accrued interest receivable 906,000 773,000
Other assets 1,198,000 842,000
Total assets $113,671,000 $110,158,000
</TABLE>
See accompanying notes to the consolidated financial statements.
<TABLE>
1ST COMMUNITY BANCORP, INC.
CONSOLIDATED BALANCE SHEETS - Continued
March 31, 1996, and December 31, 1995
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits
Demand $ 10,409,000 $ 10,425,000
Interest-bearing transaction accounts 25,202,000 25,167,000
Savings 9,448,000 9,369,000
Time 49,364,000 47,883,000
Total deposits 94,423,000 92,844,000
Federal funds purchased and securities
sold under agreements to repurchase 1,696,000 1,000,000
Accrued interest payable 350,000 339,000
Federal Home Loan Bank advances 2,000,000 1,000,000
Other liabilities 1,324,000 1,217,000
Total liabilities 99,793,000 96,400,000
COMMITMENTS AND CONTINGENCIES (NOTE 5)
SHAREHOLDERS EQUITY
Common stock, $10 par value; shares
authorized: 500,000; shares outstanding:
485,413 at March 31, 1996, and 464,803
at December 31, 1995 (Note 8) 4,854,000 4,648,000
Surplus 3,249,000 3,455,000
Retained earnings 5,643,000 5,404,000
Net unrealized appreciation on securities
available for sale, net of deferred tax
benefit 132,000 251,000
Total shareholders' equity 13,878,000 13,758,000
Total liabilities and shareholders equity $113,671,000 $110,158,000
</TABLE>
See accompanying notes to the consolidated financial statements.
-2-
<TABLE>
1ST COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1995
<S> <C> <C>
INTEREST INCOME
Loans, including fees $1,983,000 $1,582,000
Securities
Taxable 234,000 325,000
Nontaxable 107,000 142,000
Other 1,000 2,000
Total interest income 2,325,000 2,051,000
INTEREST EXPENSE
Deposits 961,000 863,000
Other 40,000 14,000
Total interest expense 1,001,000 877,000
NET INTEREST INCOME 1,324,000 1,174,000
PROVISION FOR LOAN LOSSES 90,000 30,000
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,234,000 1,144,000
OTHER INCOME
Service charges on deposit
accounts 78,000 65,000
Other service charges and fees 34,000 31,000
Mortgage loan sales and servicing 19,000 23,000
Insurance commissions income 202,000 0
Other income 39,000 37,000
Total other income 372,000 156,000
OTHER EXPENSES
Salaries and wages 485,000 352,000
Pension and other employee
benefits 109,000 84,000
Occupancy expense 67,000 50,000
Furniture and equipment expense 90,000 67,000
Other expenses (Note 6) 304,000 296,000
Total other expenses 1,055,000 849,000
-3-
INCOME BEFORE INCOME TAX 551,000 451,000
INCOME TAX EXPENSE (NOTE 7) 157,000 111,000
NET INCOME $ 394,000 $ 340,000
EARNINGS PER SHARE (NOTE 1) $ .81 $ .70
</TABLE>
See accompanying notes to the consolidated financial statements.
-4-
<TABLE>
1ST COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities
Net income $ 394,000 $ 340,000
Adjustments to reconcile net income to
net cash from operating activities
Net amortization on securities 21,000 42,000
Net gain (loss) on sale of loans (3,000) 1,000
Loans originated for sale (2,017,000) (208,000)
Proceeds from loan sales 407,000 415,000
Provision for loan losses 90,000 30,000
Depreciation 70,000 56,000
Deferred income tax (benefit) expense (19,000) 2,000
Changes in:
Interest receivable and other assets (408,000) (160,000)
Interest payable and other liabilities 118,000 61,000
Net cash provided by (used in)
operating activities (1,347,000) 579,000
Cash flows from investing activities
Securities available for sale:
Proceeds from maturities of securities 174,000 1,260,000
Purchase of securities 0 (288,000)
Securities held to maturity:
Proceeds from maturities of securities 0 334,000
Purchase of securities 0 (350,000)
Net customer loan activity (4,517,000) (1,882,000)
Loans sold 22,000 301,000
Loans purchased (231,000) (34,000)
Net expenditures for premises and equipment (22,000) (76,000)
Net cash used in investing activities (4,574,000) (735,000)
Cash flows from financing activities
Net increase in deposits 1,579,000 11,000
Increase (decrease) in federal funds
purchased and securities sold under
agreements to repurchase 696,000 (200,000)
Increase in Federal Home Loan Bank advances 1,000,000 0
Cash dividends paid (155,000) (114,000)
-5-
Net cash provided by (used in)
financing activities 3,120,000 (303,000)
Net change in cash and cash equivalents (2,801,000) (459,000)
Cash and cash equivalents at beginning
of period 4,806,000 2,948,000
Cash and cash equivalents at end of period $2,005,000 $2,489,000
Supplemental disclosure of cash flow
information
Cash paid during the period for:
Interest $ 990,000 $ 843,000
Income taxes $ 29,000 $ 0
</TABLE>
Securities with an amortized cost of $1,840,000 and a fair value of
$1,795,000 were reclassified from available for sale to held to maturity
on February 1, 1995.
See accompanying notes to the consolidated financial statements.
-6-
1ST COMMUNITY BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
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.
To account for the effect of the transaction, prior periods consolidated
balance sheets have been retroactively restated for the assets, liabilities
and shareholders equity of Bradford Insurance.
The consolidated financial statements include the accounts of the
Registrant and its direct and indirect wholly owned subsidiaries, Sparta
State Bank and Bradford Insurance Centre, Ltd., after elimination of
significant intercompany transactions and accounts. The statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information, prevailing practices within the banking
industry and the instructions to Form 10-QSB and Item 310 of Regulation S-B.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements.
The accompanying consolidated financial statements reflect all adjustments
ordinary in nature which are, in the opinion of management, necessary for a
fair presentation of the Consolidated Balance Sheets as of March 31, 1996,
and December 31, 1995, the Consolidated Statements of Income for the three-
month periods ended March 31, 1996, and March 31, 1995, and the
Consolidated Statements of Cash Flows for the three month periods ended
March 31, 1996, and March 31, 1995. Operating results for the three-months
ended March 31, 1996, are not necessarily indicative of the results that
may be expected for the year ended December 31, 1996.
The accompanying consolidated financial statements should be read in
conjunction with the consolidated financial statements and footnotes
thereto included in the Registrant's Annual Report on Form 10-KSB for the
year ended December 31, 1995.
STOCK TRANSACTIONS, EARNINGS AND CASH DIVIDENDS PER SHARE
Effective January 1, 1996, the Registrant issued 20,610 shares of 1st
Community Bancorp, Inc. common stock to acquire Bradford Insurance Centre,
Ltd.
-7-
Earnings per share are based on the weighted average number of shares
outstanding during the year. The weighted average number of shares has
been adjusted for the issuance of 20,610 shares in January 1996 and the 20%
stock split paid in December 1995. The weighted average number of shares
outstanding was 485,413 for the first quarter of 1996 and 486,912 for the
first quarter of 1995.
Cash dividends per share are based on the number of shares outstanding at
the time the dividend was paid. The number of shares outstanding has been
adjusted for the issuance of 20,610 shares in January 1996 and the 20%
stock split paid in December 1995. The number of shares outstanding was
485,413 for the cash dividend paid in the first quarter of 1996 and 486,912
for the cash dividend paid in the first quarter of 1995.
NOTE 2 - SECURITIES
Securities have been classified in the Consolidated Balance Sheets
according to management's intent. The amortized cost and approximate fair
value of securities at March 31, 1996, and December 31, 1995, were as
follows:
<TABLE>
<CAPTION>
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
MARCH 31, 1996
U.S. Treasury and
U.S. Government agencies $ 4,503,000 $ 60,000 $ (13,000) $ 4,550,000
Obligations of states and
political subdivisions 11,467,000 227,000 (47,000) 11,647,000
U.S. Government agencies
backed by mortgages 5,752,000 43,000 (68,000) 5,727,000
Other 304,000 0 (2,000) 302,000
Total $22,026,000 $330,000 $(130,000) $22,226,000
DECEMBER 31, 1995
U.S. Treasury 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
backed by mortgages 5,912,000 70,000 (35,000) 5,947,000
Other 305,000 2,000 0 307,000
Total $22,221,000 $447,000 $ (66,000) $22,602,000
</TABLE>
-8-
<TABLE>
<CAPTION>
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
OTHER SECURITIES
MARCH 31, 1996
Federal Reserve Bank stock $ 210,000 $ 0 $ 0 $ 210,000
Federal Home Loan Bank stock 375,000 0 0 375,000
Total $ 585,000 $ 0 $ 0 $ 585,000
DECEMBER 31, 1995
Federal Reserve Bank stock $ 210,000 $ 0 $ 0 $ 210,000
Federal Home Loan Bank stock 375,000 0 0 375,000
Total $ 585,000 $ 0 $ 0 $ 585,000
</TABLE>
The following sets forth information regarding sales of securities
available for sale for the three months ended March 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Proceeds from sales of securities $ 0 $984,000
Gross realized gains 0 1,000
Gross realized losses 0 0
</TABLE>
For the three months ended March 31, 1996, the change in net unrealized
holding gain on securities available for sale was a decrease of $181,000.
There were no sales or transfers of securities classified as held to
maturity.
Securities with a book value of approximately $254,000 and $260,000 were
pledged as collateral for public deposits at March 31, 1996, and December
31, 1995, respectively. Securities with a book value of approximately
$196,000 were pledged as collateral for securities sold under agreements to
repurchase at March 31, 1996. There were no securities sold under
agreements to repurchase at December 31, 1995.
-9-
NOTE 3 - LOANS
Loans at March 31, 1996, and December 31, 1995, were classified as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
<S> <C> <C>
Commercial $26,073,000 $23,174,000
Agricultural 8,833,000 9,513,000
Real estate mortgage - construction 1,289,000 805,000
Real estate mortgage - residential 31,011,000 28,843,000
Consumer 18,185,000 16,747,000
Total $85,391,000 $79,082,000
</TABLE>
Loans held for sale included $54,000 of residential real estate mortgages
and $46,000 of consumer loans at March 31, 1996. Loans held for sale were
accounted for at the lower of aggregate cost or market.
The Registrant implemented Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairment of a Loan," on January 1,
1995. Information regarding impaired loans as of March 31, 1996, and
December 31, 1995, is as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
<S> <C> <C>
Loans classified as impaired $376,000 $409,000
Less impaired loans for which no allowance
for credit losses had been established 376,000 57,000
Impaired loans for which an allowance for
credit losses had been determined $ 0 $352,000
Allowance determined for above impaired
loans $ 0 $ 5,000
</TABLE>
Information regarding impaired loans for the three months ended March 31,
1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Average balance of impaired loans $407,000 $383,000
Interest income recognized on impaired loans 24,000 22,000
Interest income recognized on a cash-basis on
impaired loans 24,000 22,000
</TABLE>
-10-
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
An analysis of changes in the allowance for loan losses for the three
months ended March 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Balance at beginning of period $1,121,000 $1,039,000
Provision charged to operating expense 90,000 30,000
Recoveries credited to the allowance 24,000 8,000
Loans charged-off (54,000) (21,000)
Balance at end of period $1,181,000 $1,056,000
</TABLE>
NOTE 5 - COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS OF CREDIT RISK
Noninterest-bearing deposits totaling approximately $1,291,000 were held at
NBD Bank at March 31, 1996.
As of March 31, 1996, the Registrant had outstanding commitments to make
loans totaling $8,920,000, the majority of which have variable interest
rates. The Registrant had approximately $1,878,000 of unused lines of
credit and $155,000 in letters of credit at March 31, 1996.
NOTE 6 - OTHER EXPENSES
Other expenses for the three months ended March 31, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Supplies and postage $ 49,000 $ 39,000
Computer processing 37,000 39,000
Legal and professional 35,000 31,000
Advertising and marketing 23,000 5,000
FDIC insurance 1,000 52,000
Other 159,000 130,000
Total $304,000 $296,000
</TABLE>
-11-
NOTE 7 - INCOME TAX EXPENSE
The components of income tax expense for the three months ended March 31,
1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Current income tax expense $176,000 $109,000
Deferred income tax (benefit) expense (19,000) 2,000
Income tax expense $157,000 $111,000
</TABLE>
The difference between the financial statement tax provision and amounts
computed by applying the federal income tax rate to pre-tax income is
principally attributable to tax-exempt interest income.
The components of deferred tax assets and liabilities at March 31, 1996,
and December 31, 1995, were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $297,000 $276,000
Postretirement benefits obligation 95,000 95,000
Deferred loan fees 65,000 68,000
Deferred compensation 61,000 60,000
Other 58,000 59,000
Total deferred tax assets 576,000 558,000
Deferred tax liabilities:
Depreciation $173,000 $177,000
Pension fund asset 92,000 93,000
Unrealized appreciation on
securities available for sale 68,000 130,000
Other 15,000 11,000
Total deferred tax liabilities 348,000 411,000
Net deferred tax asset $228,000 $147,000
</TABLE>
A valuation allowance related to a deferred tax asset is recognized when it
is considered more likely than not that part or all of the deferred tax
benefits will not be realized. Management has determined that no such
allowance was required at March 31, 1996, or December 31, 1995.
-12-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion is designed to provide a review of the financial
condition and results of operations of 1st Community Bancorp, Inc. (the
"Registrant") and its direct and indirect wholly owned subsidiaries, Sparta
State Bank (the "Bank") and Bradford Insurance. This discussion should be
read in conjunction with the consolidated financial statements and related
footnotes.
NET INCOME AND RETURN ON AVERAGE ASSETS AND SHAREHOLDERS' EQUITY
The Registrant's net income increased $54,000 or 16% in the first quarter
of 1996 compared to the first quarter of 1995. The improvement resulted
from higher net interest income and other income, the effect of which was
partially offset by growth in the provision for loan losses and other
expenses.
Two-thirds of the increase in net interest income in the first quarter of
1996 was caused by growth in average interest-earning assets. The
remainder was attributable to a slightly wider spread between interest
rates earned on interest-earning assets and interest rates paid on
interest-bearing liabilities than in the comparable period of the prior
year. Most of the increase in the provision for loan losses was due to
loan growth. The majority of the change in other income and other expenses
resulted from the inclusion of income and expense from Bradford Insurance
Centre, Ltd. effective January 1, 1996.
The return on average assets was 1.43% for the first quarter of 1996,
compared to 1.31% for the same period in 1995. The return on average
shareholders' equity was 11.39% for the first three months of 1996,
compared to 10.49% in the comparable period of the prior year.
CASH DIVIDENDS
Cash dividends declared in the first quarter of 1996 were $155,000 or $.32
per common share, which represents a $.09 per share or 39% increase
compared to the dividend paid in the same period of the prior year. Cash
dividends per share in 1995 have been adjusted for the 6-for-5 stock split
paid in December 1995. The cash dividend payout percentage in the first
three months of 1996 was 39.40%, compared to 33.46% in the first three
months of 1995.
-13-
INTEREST INCOME AND EXPENSE
Tables 1 and 2 on the following two pages provide information regarding
interest income and expense for the three-month periods ended March 31,
1996, and March 31, 1995. Table 1 documents average balances and interest
income and expense, as well as the average rates earned or paid on assets
and liabilities. Table 2 documents the effect on interest income and
expense of changes in volume (average balance) and interest rates. These
tables are referred to in the discussion of interest income, interest
expense and net interest income below.
-14-
<TABLE>
Table 1 - Average Balances and Tax Equivalent Interest Rates
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
1996 1995
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Loans <F1> $ 81,176 $1,993 9.82% $ 68,738 $1,590 9.25%
Taxable securities <F2> 14,760 234 6.42 19,829 325 6.56
Nontaxable securities <F1><F2> 8,386 162 7.98 9,975 214 8.62
Other 78 1 5.13 100 2 8.00
Interest-earning assets 104,400 2,390 9.16 98,642 2,131 8.64
Noninterest-earning assets 6,124 6,216
Total assets $110,524 $104,858
Liabilities and Shareholders' Equity
Interest-bearing transaction
accounts $ 24,735 202 3.27 $ 27,384 246 3.59
Savings deposits 9,307 45 1.93 10,436 62 2.38
Time deposits 48,542 714 5.88 42,133 555 5.27
Other 2,803 40 5.71 855 14 6.56
Interest-bearing liabilities 85,387 1,001 4.69 80,808 877 4.34
Noninterest-bearing liabilities 11,212 10,920
Shareholders' equity 13,925 13,130
Total liabilities and
shareholders' equity $110,524 $104,858
Net interest income (tax-equivalent
basis) - interest spread 1,389 4.47% 1,254 4.30%
Tax equivalent adjustment <F1> (65) (80)
Net interest income $1,324 $1,174
Net interest income as a percentage
of earning assets (tax-equivalent
basis) 5.32% 5.09%
<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.
-15-
<F2> 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.
</FN>
</TABLE>
-16-
<TABLE>
Table 2 - Changes in Tax Equivalent Net Interest Income
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
1996 OVER 1995
TOTAL VOLUME RATE
(Dollars in Thousands)
<S> <C> <C> <C>
Increase (decrease) in interest income <F1>
Loans <F2> $403 $301 $102
Taxable securities (91) (84) (7)
Nontaxable securities <F2> (52) (37) (15)
Other (1) 0 (1)
Net change in tax-equivalent income 259 180 79
Increase (decrease) in interest expense <F1>
Interest-bearing transaction accounts (44) (23) (21)
Savings deposits (17) (6) (11)
Time deposits 159 90 69
Other 26 28 (2)
Net change in interest expense 124 89 35
Net change in tax-equivalent
net interest income $135 $ 91 $ 44
<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 investment securities and loans has been
adjusted to a fully tax-equivalent basis using an incremental tax
rate of 34% for the periods presented.
</FN>
</TABLE>
NET INTEREST INCOME
As shown in Tables 1 and 2, tax equivalent net interest income increased
$135,000 in the first quarter of 1996 compared to 1995. The increase
resulted from growth in the Registrant s loan portfolio from 1995 to 1996.
Average loans increased $12,438,000 from the first quarter of 1995 to the
same period in 1996. This growth caused interest income from loans to be
$301,000 higher in the first quarter of 1996. This increase was offset by
-17-
declines in interest income from both taxable and nontaxable securities.
The average balance decreased in both of these categories as amounts
received from maturing securities were used to fund loan growth during
1995.
The deposit mix changed significantly from 1995 to 1996 as the average
balance of time deposits grew over $6,400,000, while interest-bearing
transaction accounts and savings deposits declined just over $3,750,000.
The transfer of balances into the time deposits category reflected
depositors preference for the higher interest rates offered by this type
of account. Part of the transfer was also due to depositor response to
special interest rate promotions offered on time certificates of deposit
during 1995.
Table 1 documents that the net interest income spread was 4.47% for the
first quarter of 1996, compared to 4.30% for the prior year. The gain was
caused by a 52-basis-point increase in the average rate earned on
interest-earning assets, while the average rate paid on interest-bearing
liabilities went up only 35 basis points. The average interest rate on
loans was the only average rate that increased from 1995 to 1996. The
increase in the average loan rate resulted from higher rates earned on
consumer and residential real estate mortgage loans. The increase in
consumer loan rates was caused by growth in the Registrant s indirect
automobile portfolio, which earned a higher rate of interest than its
direct loans. Higher mortgage loan rates were attributable to rising
mortgage rates in 1995, which particularly affected adjustable rate
mortgages. The increases in the average rate earned on consumer and
mortgage loans was partly offset by a 17-basis-point drop in the average
rate earned on commercial and agricultural loans. This was due to
decreases in the Bank s prime lending rate in December 1995 and February
1996. The decreases in the average rates earned on both securities
categories was due to maturities of higher-yielding securities.
The average interest rate on time deposits was the only interest-bearing
liability interest rate that increased from 1995 to 1996. The higher rate
for time deposits was attributable to rising rates in 1994 and the first
quarter of 1995. As time deposits with origination dates prior to 1995
matured in the last three quarters of 1995, they matured at higher interest
rates than they had carried in the first quarter of 1995. Steady time
deposit rates through the end of 1995 continued this trend. The trend
began to reverse in February 1996 as the Bank decreased interest rates paid
on new and renewing time deposits. The lower average rate paid in 1996 on
interest-bearing transaction accounts and savings deposits was caused by
decreases in the rates the Bank paid on these accounts in the second half
of 1995 and the first quarter of 1996.
-18-
ALLOWANCE AND PROVISION FOR LOAN LOSSES
The allowance for loan losses increased $60,000 from December 31, 1995, to
March 31, 1996. The allowance was 1.38% of total loans at March 31, 1996,
compared to 1.42% at December 31, 1995. The provision for loan losses was
$60,000 higher in the first quarter of 1996 than 1995. Only $17,000 of the
increase was attributable to higher net chargeoffs in 1996. The remainder
of the increase was due to a greater amount of loan growth in 1996 than in
1995.
Chargeoffs and recoveries for those loan categories with activity in the
periods ended March 31, 1996 and 1995 were as follows. There were no
chargeoffs or recoveries in the agricultural, construction real estate
mortgage, or residential real estate mortgage loan categories in the first
quarter of 1996 or 1995.
<TABLE>
<CAPTION>
1996 1995
CHARGEOFFS RECOVERIES CHARGEOFFS RECOVERIES
<S> <C> <C> <C> <C>
Commercial $ 0 $11,000 $ 2,000 $ 0
Consumer 54,000 13,000 19,000 8,000
$54,000 $24,000 $21,000 $8,000
</TABLE>
The amount of chargeoffs which the Bank will experience in the remainder of
1996 will be dependent on the extent to which business and consumer
borrowers are affected by the local economy. As chargeoffs, changes in the
level of nonperforming loans, and loan growth occur in the remainder of
1996, the provision and allowance for loan losses will be reviewed by the
Bank's management and adjusted as believed necessary.
OTHER INCOME
Total other income increased $216,000 in the first quarter of 1996 compared
to 1995. This resulted from $202,000 in insurance commissions income from
the Registrant s new insurance subsidiary.
OTHER EXPENSES
Total other expenses increased $206,000 or 24% in the first quarter of 1996
compared to 1995. Of the growth, $162,000 of the increase was caused by
expenses of the Registrant s new insurance subsidiary. These additional
subsidiary expenses will continue for the rest of 1996. The remaining
$44,000 difference was the net of $95,000 of general growth in expenses
less $51,000 in lower FDIC insurance costs. A similar amount will be saved
on FDIC insurance costs in the second quarter of 1996.
-19-
The Registrant received approval in March 1996 for two new branch
locations. The Plainfield branch will be located in one of the insurance
subsidiary s existing locations. The Cedar Springs branch will be a
building constructed on a lot that was purchased in Cedar Springs.
Expenses related to the new branches will begin to be recorded in the
second quarter of 1996.
SECURITIES
There were no sales or purchases of securities in the first quarter of
1996. There have been no significant purchases of securities since May
1995 because amounts received from maturing securities have been used to
fund the Registrant s loan growth. Beginning in the second quarter of
1996, the Registrant may begin to purchase U.S. Treasury and U.S.
Government agencies securities. Purchases will occur to the extent
believed prudent to provide sufficient liquidity for loan and deposit needs
and to provide eligible collateral for securities sold under agreements to
repurchase.
LOANS
Total loans grew $6,309,000 in the first quarter of 1996. Commercial,
residential real estate mortgage and consumer loans experienced increases
of $2,899,000, $2,168,000 and $1,438,000, respectively. The growth in
commercial loans resulted from a continued strong local economy which has
increased loan demand and the Bank s program of calling on customers which
has concentrated on business customers. The increase in residential real
estate mortgages was due to aggressive marketing and lower long-term
interest rates in late 1995 and early 1996. The higher consumer loan
balance was caused by strong demand in indirect automobile lending.
Loan growth in the remainder of 1996 will be affected primarily by interest
rates and by competition within the Bank's local market area. The officer
call program will continue to be used for commercial and agricultural loans
to attempt to continue and stimulate demand. New marketing strategies will
continue to be used to enhance the Bank s effectiveness in remaining
competitive in residential real estate mortgage lending. In the consumer
loan category, direct mail advertising and telemarketing will be used to
stimulate demand for direct loans while management will continue to
emphasize development of its indirect loan portfolio.
The Registrant implemented Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairment of a Loan," on January 1,
1995. The statement requires that management review the loan portfolio for
possible impaired loans. In addition to this requirement, management also
monitors the portfolio for nonperforming loans. Nonperforming loans are
comprised of (1) loans accounted for on a nonaccrual basis, (2) loans, not
included in nonaccrual loans, which are contractually past due 90 days or
more as to interest or principal payments, and (3) loans, not included in
-20-
nonaccrual or loans past due 90 days or more, which are considered troubled
debt restructurings. The balances of the three nonperforming categories as
of March 31, 1996, and December 31, 1995, were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
<S> <C> <C>
Loans accounted for on a nonaccrual basis $503,000 $624,000
Loans, not included in nonaccrual loans, which are
contractually past due 90 days or more as to
interest or principal payments 61,000 26,000
Loans, not included in nonaccrual or loans past due
90 days or more, which are considered troubled
debt restructurings 27,000 106,000
Total $591,000 $756,000
</TABLE>
DEPOSITS
Total deposits grew $1,579,000 in the first quarter of 1996, compared to an
increase of only $11,000 in the same period in 1995. The time deposit
category, with an increase of $1,481,000 since December 31, 1995, was the
only deposit category to experience significant change. This represented a
continuation of the pattern from 1995 where depositors moved funds from
other interest-bearing types of deposit accounts to time deposits.
Management believes that the interest rate differential between time
deposits and the other interest-bearing account types has been sufficient
to cause depositors to select less liquid accounts.
In an effort to help provide funding for loan growth, the Bank's management
will emphasize deposit growth in the remainder of 1996. Part of the
officer call program will focus on the generation of new commercial
deposits. It is anticipated that the two new branch locations will
generate deposits later in the year.
SHAREHOLDERS EQUITY
Total shareholders' equity increased $120,000 in the first quarter of 1996.
The increase was caused by retained earnings, and was offset by a decrease
in net unrealized appreciation on securities available for sale. The
decrease in net unrealized appreciation was attributable to higher medium-
and long-term interest rates, the effect of which caused a decline in the
market value of portfolio securities.
Shareholders' equity as a percentage of assets was 12.21% as of March 31,
1996, which represents a slight decrease from 12.49% as of December 31,
1995. The minimum regulatory capital percentages are 3% for the leverage
-21-
ratio, 4% for the Tier 1 capital ratio and 8% for the total risk-based
capital ratio. The Registrant's regulatory capital levels as of March 31,
1996, were as follows:
<TABLE>
<CAPTION>
CAPITAL CAPITAL AS % OF
AMOUNT RISK ADJUSTED ASSETS
<S> <C> <C>
Leverage capital $13,374,000 11.78%
Tier 1 capital $13,374,000 15.50%
Total risk-based capital (Tier 1 and Tier 2
combined) $14,556,000 16.87%
</TABLE>
CAPITAL RESOURCES
The Registrant issued 20,610 shares of its common stock effective January
1, 1996, for the Bank s acquisition of Bradford Insurance. The Bank plans
to construct a new branch office in Cedar Springs beginning in the third
quarter of 1996. The expected cost of land, building and equipment
approximates $750,000.
Management believes that the current level of capital is adequate to take
advantage of potential opportunities that may arise for the Registrant or
the Bank.
LIQUIDITY AND RATE SENSITIVITY
Cash and cash equivalents decreased $2,801,000 in the first quarter of
1996. The Registrant's management believes that the current level of
liquidity is sufficient to meet the Bank's normal operating needs. This
belief is based upon the availability of deposit growth, maturities of
securities, normal loan repayments, income retention, federal funds which
can be purchased from correspondent banks and advances available from the
Federal Home Loan Bank of Indianapolis.
Table 3 presents the maturity and repricing schedule for the Registrant's
rate-sensitive assets and liabilities for selected time periods. The
Registrant's cumulative rate-sensitive liabilities exceeded its cumulative
rate-sensitive assets by $8,394,000 at the one-year repricing point as of
March 31, 1996. The negative amount at the end of the first quarter was
due primarily to the classification of all interest-bearing transaction
accounts and savings deposits in the 0-to-3-month repricing category. The
rates paid on these deposit types can be immediately repriced. Management
believes that these types of accounts are not as sensitive to changes in
interest rates in the short term as this presentation would indicate and
-22-
that the positive funding gap in the 1 to 5 year period is more reflective
of the Registrant's experience. Management will determine the rates
necessary based on competitive rates and the need for deposited funds.
The Registrant's management is aware of the inherent interest rate risk
associated with gap management. As interest rate fluctuations occur, the
relationship between rate-sensitive assets and liabilities will be
monitored by management and changes in assets and liabilities will be made
when deemed necessary. It is the goal of the Registrant s Asset/Liability
Management Committee to maintain a desired interest rate spread through its
pricing of both loans and deposits.
-23-
<TABLE>
Table 3 - Maturities and Repricing Schedule
<CAPTION>
AS OF MARCH 31, 1996
0 - 3 3 - 12 1 - 5 OVER
MONTHS MONTHS YEARS 5 YEARS TOTAL
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Assets
Loans $ 31,064 $20,440 $24,458 $ 9,429 $ 85,391
Interest-bearing deposits
with banks 45 0 0 0 45
Taxable securities 858 3,853 8,922 892 14,525
Nontaxable securities 179 0 4,142 3,966 8,287
Rate-sensitive assets 32,146 24,293 37,522 14,287 108,248
Liabilities
Interest-bearing transaction
accounts 25,202 0 0 0 25,202
Savings deposits 9,448 0 0 0 9,448
Time deposits 8,171 20,316 20,731 146 49,364
Repurchase agreements 196 0 0 0 196
Federal Home Loan Bank
advance 0 0 2,000 0 2,000
Federal funds purchased 1,500 0 0 0 1,500
Rate-sensitive liabilities 44,517 20,316 22,731 146 87,710
Rate-sensitive assets
less rate-sensitive
liabilities
Asset (liability) gap
for the period $(12,371) $ 3,977 $14,790 $14,142 $ 20,538
Cumulative asset
(liability) gap $(12,371) $(8,394) $ 6,396 $20,538
Cumulative rate-
sensitive assets as
a percentage of
cumulative rate-
sensitive
liabilities 72.21% 87.05% 107.30% 123.42%
</TABLE>
-24-
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
There are no pending legal proceedings to which the Registrant or its
subsidiaries, Sparta State Bank or Bradford Insurance Centre, Ltd., is
a party or which any of their properties are subject, except for
proceedings which have arisen in the ordinary course of business. In
the opinion of management, pending legal proceedings will not have a
material effect on the consolidated financial statements of the
Registrant as of the date of this report.
Item 5. OTHER INFORMATION.
Sparta State Bank and Bradford Insurance Centre, Ltd. have filed
applications to change their names to ChoiceOne Bank and ChoiceOne
Insurance Center, respectively. Management anticipates that both name
changes will become effective in the second quarter of 1996.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
1. Exhibits required by Item 601 of Regulation S-B. The
following exhibits are filed or incorporated by reference as part of
this report:
EXHIBIT
NUMBER 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.
27 Financial Data Schedule.
2. Reports on Form 8-K. A report on Form 8-K was filed by the
Registrant on March 18, 1996. The filing reported an "Other Event"
pursuant to Item 5 regarding the purchase of Bradford Insurance
Centre, Ltd. by Sparta State Bank and presented unaudited financial
statements for the one-month period ended January 31, 1996.
-25-
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
1ST COMMUNITY BANCORP, INC.
Date MAY 14, 1996 /S/ JAE M. MAXFIELD
President and Chief Executive
Officer
Date MAY 14, 1996 /S/ THOMAS L. LAMPEN
Chief Financial Officer and
Treasurer (principal financial and
accounting officer)
-26-
INDEX TO EXHIBITS
The following exhibits are filed or incorporated by reference as part
of this report:
EXHIBIT
NUMBER 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.
27 Financial Data Schedule.
-27-
<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 MARCH 31, 1996, FORM 10-QSB FILING AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,005
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22,226
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 85,391
<ALLOWANCE> 1,181
<TOTAL-ASSETS> 113,671
<DEPOSITS> 94,423
<SHORT-TERM> 1,696
<LIABILITIES-OTHER> 1,674
<LONG-TERM> 2,000
<COMMON> 4,854
0
0
<OTHER-SE> 9,024
<TOTAL-LIABILITIES-AND-EQUITY> 113,671
<INTEREST-LOAN> 1,983
<INTEREST-INVEST> 341
<INTEREST-OTHER> 1
<INTEREST-TOTAL> 2,325
<INTEREST-DEPOSIT> 961
<INTEREST-EXPENSE> 1,001
<INTEREST-INCOME-NET> 1,324
<LOAN-LOSSES> 90
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,055
<INCOME-PRETAX> 551
<INCOME-PRE-EXTRAORDINARY> 551
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 394
<EPS-PRIMARY> .81
<EPS-DILUTED> .00
<YIELD-ACTUAL> 5.32
<LOANS-NON> 503
<LOANS-PAST> 61
<LOANS-TROUBLED> 27
<LOANS-PROBLEM> 1,044
<ALLOWANCE-OPEN> 1,121
<CHARGE-OFFS> 54
<RECOVERIES> 24
<ALLOWANCE-CLOSE> 1,181
<ALLOWANCE-DOMESTIC> 805
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 376
</TABLE>
