<PAGE> 1
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 September 30, 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 October 31, 1996, the registrant had outstanding 482,710 shares of
common stock having a par value of $10 per share.
Transitional Small Business Disclosure Format (check one): Yes No X
----- -----
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
<TABLE>
1ST COMMUNITY BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 1996, and December 31, 1995
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 4,384,000 $ 4,806,000
Securities available for sale (Note 2) 20,693,000 22,602,000
Other securities (Note 2) 1,588,000 585,000
Loans (Note 3) 103,444,000 79,082,000
Allowance for loan losses (Note 4) (1,244,000) (1,121,000)
------------ ------------
Net loans 102,200,000 77,961,000
Premises and equipment - net 2,912,000 2,589,000
Accrued interest receivable 992,000 773,000
Other assets 1,292,000 842,000
------------ ------------
Total assets $134,061,000 $110,158,000
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
-2-
<PAGE> 3
<TABLE>
1ST COMMUNITY BANCORP, INC.
CONSOLIDATED BALANCE SHEETS - Continued
September 30, 1996, and December 31, 1995
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits
Demand $ 12,138,000 $ 10,425,000
Interest-bearing transaction accounts 24,370,000 25,167,000
Savings 9,388,000 9,369,000
Time 51,129,000 47,883,000
------------ ------------
Total deposits 97,025,000 92,844,000
Federal funds purchased and securities sold under
agreements to repurchase 6,148,000 1,000,000
Accrued interest payable 419,000 339,000
Federal Home Loan Bank advances 15,000,000 1,000,000
Other liabilities 1,312,000 1,217,000
------------ ------------
Total liabilities 119,904,000 96,400,000
COMMITMENTS AND CONTINGENCIES (NOTE 5)
SHAREHOLDERS' EQUITY
Common stock, $10 par value; shares
authorized: 1,000,000; shares outstanding:
482,710 at September 30, 1996, and
464,803 at December 31, 1995 4,827,000 4,648,000
Surplus 3,161,000 3,455,000
Retained earnings 6,149,000 5,404,000
Net unrealized appreciation on securities
available for sale, net of deferred tax effect 20,000 251,000
------------ ------------
Total shareholders' equity 14,157,000 13,758,000
------------ ------------
-3-
<PAGE> 4
Total liabilities and shareholders' equity $134,061,000 $110,158,000
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
-4-
<PAGE> 5
<TABLE>
1ST COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $2,381,000 $1,843,000 $6,523,000 $5,171,000
Securities
Taxable 231,000 293,000 696,000 929,000
Nontaxable 105,000 123,000 317,000 396,000
Other 0 1,000 2,000 4,000
---------- ---------- ---------- ----------
Total interest income 2,717,000 2,260,000 7,538,000 6,500,000
INTEREST EXPENSE
Deposits 1,002,000 986,000 2,936,000 2,778,000
Other 223,000 35,000 365,000 89,000
---------- ---------- ---------- ----------
Total interest expense 1,225,000 1,021,000 3,301,000 2,867,000
---------- ---------- ---------- ----------
NET INTEREST INCOME 1,492,000 1,239,000 4,237,000 3,633,000
PROVISION FOR LOAN LOSSES 75,000 39,000 240,000 99,000
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,417,000 1,200,000 3,997,000 3,534,000
OTHER INCOME
Service charges on deposit
accounts 78,000 85,000 235,000 233,000
Other service charges
and fees 25,000 25,000 84,000 78,000
Net security gains 0 0 0 11,000
Mortgage loan sales
and servicing 21,000 21,000 63,000 69,000
Insurance commissions
income 191,000 0 573,000 0
Other income 39,000 21,000 112,000 96,000
---------- ---------- ---------- ----------
-5-
<PAGE> 6
Total other income 354,000 152,000 1,067,000 487,000
OTHER EXPENSES
Salaries and wages 541,000 365,000 1,556,000 1,078,000
Pension and other employee
benefits 106,000 63,000 310,000 213,000
Occupancy expense 66,000 46,000 193,000 146,000
Furniture and equipment
expense 109,000 63,000 289,000 198,000
Other expenses (Note 6) 372,000 300,000 1,012,000 931,000
---------- ---------- ---------- ----------
Total other expenses 1,194,000 837,000 3,360,000 2,566,000
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAX 577,000 515,000 1,704,000 1,455,000
INCOME TAX EXPENSE (NOTE 7) 153,000 132,000 464,000 364,000
---------- ---------- ---------- ----------
NET INCOME $ 424,000 $ 383,000 $1,240,000 $1,091,000
========== ========== ========== ==========
EARNINGS PER SHARE (NOTE 1) $ .88 $ .82 $ 2.56 $ 2.30
========== ========== ========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
-6-
<PAGE> 7
<TABLE>
1ST COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1996 1995
------------ -----------
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,240,000 $ 1,091,000
Adjustments to reconcile net income to net cash
from operating activities
Net gain on sale of securities 0 (11,000)
Net amortization on securities 63,000 105,000
Net loss on sale of loans (11,000) 0
Loans originated for sale (881,000) (1,444,000)
Proceeds from loan sales 1,442,000 1,472,000
Provision for loan losses 240,000 99,000
Depreciation 218,000 166,000
Deferred income tax benefit (59,000) 0
Changes in:
Interest receivable and other assets (491,000) (141,000)
Interest payable and other liabilities 175,000 146,000
------------ -----------
Net cash provided by operating activities 1,936,000 1,483,000
Cash flows from investing activities
Securities available for sale:
Proceeds from sales of securities 0 1,171,000
Proceeds from maturities of securities 1,999,000 2,586,000
Purchase of securities (1,506,000) (587,000)
Securities held to maturity:
Proceeds from maturities of securities 0 1,294,000
Purchase of securities 0 (350,000)
Net customer loan activity (25,733,000) (8,711,000)
Loans sold 935,000 655,000
Loans purchased (231,000) (110,000)
Net expenditures for premises and equipment (541,000) (179,000)
------------ -----------
Net cash used in investing activities (25,077,000) (4,231,000)
-7-
<PAGE> 8
Cash flows from financing activities
Net increase in deposits 4,181,000 792,000
Increase in federal funds purchased and
securities sold under agreements to repurchase 5,148,000 2,881,000
Increase in Federal Home Loan Bank advances 14,000,000 0
Purchase and retirement of stock (115,000) (811,000)
Cash dividends paid (495,000) (362,000)
------------ -----------
Net cash provided by
financing activities 22,719,000 2,500,000
------------ -----------
Net change in cash and cash equivalents (422,000) (248,000)
Cash and cash equivalents at beginning of period 4,806,000 2,948,000
------------ -----------
Cash and cash equivalents at end of period $ 4,384,000 $ 2,700,000
============ ===========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 3,221,000 $ 2,814,000
Income taxes $ 569,000 $ 340,000
</TABLE>
-8-
<PAGE> 9
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 were transferred from
held to maturity to available for sale.
See accompanying notes to the consolidated financial statements.
-9-
<PAGE> 10
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, ChoiceOne 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, ChoiceOne
Bank and ChoiceOne Insurance Agencies, Inc., after elimination of
significant intercompany transactions and accounts. The name of Sparta
State Bank was changed to ChoiceOne Bank effective in the second quarter of
1996. The name of Bradford Insurance Centre, Ltd. was also changed to
ChoiceOne Insurance Agencies, Inc. in the second quarter.
The accompanying consolidated financial 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 September 30, 1996, and December 31, 1995, the Consolidated
Statements of Income for the three- and nine-month periods ended
September 30, 1996, and September 30, 1995, and the Consolidated
Statements of Cash Flows for the nine-month periods ended September 30,
1996, and September 30, 1995. Operating results for the nine months
ended September 30, 1996, are not necessarily indicative of the results
that may be expected for the year ending 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.
-10-
<PAGE> 11
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. The
Registrant repurchased 2,703 shares of its stock in August 1996. The
purchase of the stock coincided with the Registrant s plans to adopt an
employee stock ownership plan.
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 repurchase of stock in August 1996, the issuance of
stock in January 1996, the 20% stock split paid in December 1995 and the
repurchase of stock in April 1995. The weighted average number of shares
outstanding was 484,414 for the third quarter and 485,078 for the first
nine months of 1996, 464,923 for the third quarter of 1995 and 474,347 for
the first nine months 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, the 20% stock
split paid in December 1995 and the repurchase of stock in April 1995. The
number of shares outstanding was 482,710 for the cash dividends paid in the
first three quarters of 1996, 464,923 for the cash dividend paid in the
second and third quarters of 1995 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 September 30, 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
SEPTEMBER 30, 1996
U.S. Treasury and
U.S. Government agencies $ 4,073,000 $ 30,000 $ (19,000) $ 4,084,000
Obligations of states and
political subdivisions 10,969,000 154,000 (71,000) 11,052,000
U.S. Government agencies
backed by mortgages 5,315,000 23,000 (81,000) 5,257,000
-11-
<PAGE> 12
Other 306,000 0 (6,000) 300,000
----------- -------- --------- -----------
Total $20,663,000 $207,000 $(177,000) $20,693,000
=========== ======== ========= ===========
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>
<TABLE>
<CAPTION>
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
OTHER SECURITIES
SEPTEMBER 30, 1996
Federal Reserve Bank stock $ 210,000 $ 0 $ 0 $ 210,000
Federal Home Loan Bank stock 1,378,000 0 0 1,378,000
----------- -------- --------- -----------
Total $ 1,588,000 $ 0 $ 0 $ 1,588,000
=========== ======== ========== ===========
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>
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<PAGE> 13
The following sets forth information regarding sales of securities
available for sale for the nine months ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------ ----------
<S> <C> <C>
Proceeds from sales of securities $ 0 $1,171,000
Gross realized gains 0 11,000
Gross realized losses 0 0
</TABLE>
For the nine months ended September 30, 1996, the change in net unrealized
holding gain or loss on securities available for sale decreased by $351,000
resulting in an unrealized gain on securities available for sale of
$30,000. There were no sales or transfers of securities classified as held
to maturity.
Securities with a book value of approximately $252,000 and $260,000 were
pledged as collateral for public deposits at September 30, 1996, and
December 31, 1995, respectively. Securities with a book value of
approximately $1,258,000 were pledged as collateral for securities sold
under agreements to repurchase at September 30, 1996. There were no
securities sold under agreements to repurchase at December 31, 1995.
NOTE 3 - LOANS
Loans at September 30, 1996, and December 31, 1995, were classified as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Commercial $ 31,306,000 $23,174,000
Agricultural 9,186,000 9,513,000
Real estate mortgage - construction 2,773,000 805,000
Real estate mortgage - residential 35,662,000 28,843,000
Consumer 24,517,000 16,747,000
------------ -----------
Total $103,444,000 $79,082,000
============ ===========
</TABLE>
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<PAGE> 14
Loans held for sale included $53,000 of residential real estate mortgages
and $2,000 of consumer loans at September 30, 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 September 30, 1996, and
December 31, 1995, follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Loans classified as impaired $261,000 $409,000
Less impaired loans for which no allowance for
credit losses had been established 171,000 57,000
-------- --------
Impaired loans for which an allowance for credit
losses had been determined $ 90,000 $352,000
======== ========
Allowance determined for above impaired loans $ 3,000 $ 5,000
======== ========
</TABLE>
Information regarding impaired loans for the nine months ended September
30, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Average balance of impaired loans $328,000 $453,000
Interest income recognized on impaired loans 23,000 36,000
Interest income recognized on a cash-basis on
impaired loans 17,000 36,000
</TABLE>
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
An analysis of changes in the allowance for loan losses for the nine months
ended September 30, 1996 and 1995 follows:
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<PAGE> 15
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Balance at beginning of period $1,121,000 $1,039,000
Provision charged to operating expense 240,000 99,000
Recoveries credited to the allowance 55,000 38,000
Loans charged-off (172,000) (71,000)
---------- ----------
Balance at end of period $1,244,000 $1,105,000
========== ==========
</TABLE>
NOTE 5 - COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS OF CREDIT RISK
Noninterest-bearing deposits totaling approximately $3,306,000 were held at
NBD Bank at September 30, 1996.
As of September 30, 1996, the Bank had outstanding commitments to make
loans totaling $14,461,000, the majority of which have variable interest
rates. The Bank had issued and outstanding approximately $2,235,000 of
unused lines of credit and $155,000 in letters of credit at September 30,
1996.
NOTE 6 - OTHER EXPENSES
Other expenses for the nine months ended September 30, 1996 and 1995 were
as follows:
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
Supplies and postage $ 176,000 $114,000
Computer processing 121,000 116,000
Legal and professional 104,000 146,000
State single business tax expense 84,000 64,000
Advertising and marketing 47,000 42,000
FDIC insurance 2,000 97,000
Other 478,000 352,000
---------- --------
Total $1,012,000 $931,000
========== ========
</TABLE>
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<PAGE> 16
NOTE 7 - INCOME TAX EXPENSE
The components of income tax expense for the nine months ended September
30, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Current income tax expense $523,000 $372,000
Deferred income tax benefit (59,000) (8,000)
-------- --------
Income tax expense $464,000 $364,000
======== ========
</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 September 30,
1996, and December 31, 1995, were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $318,000 $276,000
Postretirement benefits obligation 96,000 95,000
Deferred compensation 63,000 60,000
Deferred loan fees 57,000 68,000
Other 64,000 59,000
-------- --------
Total deferred tax assets 598,000 558,000
Deferred tax liabilities:
Depreciation 162,000 177,000
Pension fund asset 87,000 93,000
Unrealized appreciation on securities available
for sale 10,000 130,000
Other 14,000 11,000
-------- --------
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<PAGE> 17
Total deferred tax liabilities 273,000 411,000
-------- --------
Net deferred tax asset $325,000 $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 September 30, 1996, or December 31, 1995.
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<PAGE> 18
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,
ChoiceOne Bank (the "Bank") and ChoiceOne Insurance Agencies, Inc. 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 $41,000 or 11% in the third quarter
of 1996 compared to 1995 and has risen $149,000 or 14% in the first nine
months of 1996 compared to the first nine months of the prior year. The
improvement in both the third quarter and first nine months of 1996
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.
Approximately 85% of the increase in net interest income in 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. The higher
provision for loan losses was due to both loan growth and higher loan
chargeoffs in 1996 than 1995. The majority of the change in other income
and other expenses resulted from the inclusion of income and expense
from ChoiceOne Insurance Agencies, Inc. effective January 1, 1996.
The return on average assets was 1.38% for the first nine months of 1996,
compared to 1.37% for the same period in 1995. The return on average
shareholders' equity was 11.78% for the first three quarters of 1996,
compared to 11.14% for the comparable period of the prior year.
CASH DIVIDENDS
Cash dividends declared in the third quarter of 1996 were $169,000 or $.35
per common share, which represents a $.08 per share or 30% increase
compared to the dividend paid in the same period of the prior year. The
cash dividends paid in the first nine months of 1996 were $495,000 or $1.02
per share, which was $.25 per share or 32% more than the dividends paid in
the same period of 1995. 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 for the first three quarters of 1996 was 39.85%,
compared to 33.15% for the same period of 1995.
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<PAGE> 19
INTEREST INCOME AND EXPENSE
Tables 1 and 2 on the following two pages provide information regarding
interest income and expense for the nine-month periods ended September 30,
1996, and September 30, 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.
-19-
<PAGE> 20
<TABLE>
Table 1 - Average Balances and Tax Equivalent Interest Rates
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------------------------------
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> $ 89,948 $6,552 9.71% $ 72,322 $5,196 9.58%
Taxable securities <F2> 14,421 696 6.45 19,303 929 6.33
Nontaxable securities <F1><F2> 8,187 480 7.97 9,500 600 8.38
Other 63 2 6.35 110 4 4.85
-------- ------ -------- ------
Interest-earning assets 112,619 7,730 9.15 101,235 6,729 8.86
------ ------
Noninterest-earning assets 6,382 6,102
-------- --------
Total assets $119,001 $107,337
======== ========
Liabilities and Shareholders' Equity
Interest-bearing transaction
accounts $ 25,200 612 3.24 $ 25,897 699 3.60
Savings deposits 9,376 131 1.86 10,011 178 2.37
Time deposits 49,813 2,193 5.87 45,138 1,901 5.62
Federal Home Loan Bank advances 5,796 267 6.14 0 0 N/A
Other 2,403 98 5.44 1,939 89 6.12
-------- ------ -------- ------
Interest-bearing liabilities 92,588 3,301 4.75 82,985 2,867 4.61
------ ---- ------ ----
Noninterest-bearing liabilities 12,394 11,262
Shareholders' equity 14,019 13,090
-------- --------
Total liabilities and
shareholders' equity $119,001 $107,337
======== ========
Net interest income (tax-equivalent
basis) - interest spread 4,429 4.40% 3,862 4.25%
==== ====
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<PAGE> 21
Tax equivalent adjustment <F1> (192) (229)
------ ------
Net interest income $4,237 $3,633
====== ======
Net interest income as a percentage
of earning assets (tax-equivalent
basis) 5.24% 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 periods presented.
<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>
-21-
<PAGE> 22
<TABLE>
Table 2 - Changes in Tax Equivalent Net Interest Income
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------
1996 COMPARED TO 1995
---------------------
TOTAL VOLUME RATE
----- ------ ----
(Dollars in Thousands)
<S> <C> <C> <C>
Increase (decrease) in interest income <F1>
Loans <F2> $1,356 $1,283 $ 73
Taxable securities (233) (250) 17
Nontaxable securities <F2> (120) (92) (28)
Other (2) (2) 0
------ ------ ----
Net change in tax-equivalent income 1,001 939 62
Increase (decrease) in interest expense <F1>
Interest-bearing transaction accounts (87) (18) (69)
Savings deposits (47) (11) (36)
Time deposits 292 204 88
Federal Home Loan Bank advances 267 267 0
Other 9 20 (11)
------ ------ ----
Net change in interest expense 434 462 (28)
------ ------ ----
Net change in tax-equivalent
net interest income $ 567 $ 477 $ 90
====== ====== ====
<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>
-22-
<PAGE> 23
NET INTEREST INCOME
As shown in Tables 1 and 2, tax equivalent net interest income increased
$567,000 in the first nine months of 1996 compared to the same period of
1995. The increase primarily resulted from growth in the Registrant's
loan portfolio from 1995 to 1996. Average loans for the first three
quarters of 1996 increased $17,626,000 over the average for the first
three quarters of 1995. This growth caused interest income from loans
to be $1,283,000 higher for the first nine months of 1996. Loan interest
income was also affected by a $102,000 increase in loan fees during the
first nine months of 1996 compared to the same period of 1995.
Approximately 70% of the fee increase resulted from the Bank's new
accounts receivable financing program. The increase in loan income was
offset by 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 both in 1995 and 1996.
The mix of interest-bearing liabilities has changed significantly from 1995
to 1996. Average time deposits increased $4,675,000 and Federal Home Loan
Bank advances increased $5,796,000. Federal Home Loan Bank advances were
shown as a separate item for the first time this quarter in Tables 1 and 2
because they have become a significant source of loan growth funding.
Little change occurred in the other interest-bearing liability categories.
The growth in time deposits reflected depositors' preference for the
higher interest rates offered by this type of account. The increase in
Federal Home Loan Bank advances reflects the extent to which the Bank was
unable to fund loan growth through deposit growth or securities maturities.
Table 1 documents that the net interest income spread was 4.40% for the
first nine months of 1996, compared to 4.25% for the same period in the
prior year. The gain was caused by a 29-basis-point increase in the
average rate earned on interest-earning assets, while the average rate
paid on interest-bearing liabilities went up only 14 basis points. The
13 basis point increase in the average interest rate on loans was the
only interest-earning asset category that has contributed significantly
to interest income in 1996. The increase in the average loan rate resulted
from higher rates earned on consumer and residential real estate mortgage
loans, which was offset by lower rates on commercial and agricultural loans.
The average interest rate on time deposits was the only interest-bearing
liability interest rate that increased from 1995 to 1996. This increase was
due primarily to competitive pressures within the Bank's market area. The
rates on all other interest-bearing liabilities decreased from 1995 to 1996.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses increased $123,000 from December 31, 1995,
to September 30, 1996. The allowance was 1.20% of total loans at
-23-
<PAGE> 24
September 30, 1996, compared to 1.42% at December 31, 1995. The provision
for loan losses was higher in both the third quarter and first nine months
of 1996 than 1995. Approximately $84,000 of the increase in the provision
for loan losses in the first three quarters of 1996 was attributable to
higher net chargeoffs than the prior year. The remainder of the increase
was due to a greater amount of loan growth in 1996 than 1995.
Chargeoffs and recoveries for those loan categories with activity in the
periods ended September 30, 1996 and 1995 were as set forth below. There
were no chargeoffs or recoveries in the construction real estate mortgage
loan category in the first nine months of 1996 or 1995.
<TABLE>
<CAPTION>
1996 1995
------------------------ -----------------------
CHARGEOFFS RECOVERIES CHARGEOFFS RECOVERIES
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Commercial $ 35,000 $10,000 $ 2,000 $ 6,000
Agricultural 0 10,000 0 0
Real estate mortgage -
residential 0 0 3,000 0
Consumer 137,000 35,000 66,000 32,000
-------- ------- ------- -------
$172,000 $55,000 $71,000 $38,000
======== ======= ======= =======
</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 and on many other economic
factors. 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 Registrant s management and adjusted as
believed necessary.
OTHER INCOME
Total other income increased $202,000 in the third quarter of 1996 and
$580,000 in the first nine months of 1996 compared to 1995. This was
primarily attributable to insurance commissions income from the Registrant's
new insurance subsidiary.
OTHER EXPENSES
Total other expenses increased $357,000 in the third quarter of 1996 and
$794,000 in the first nine months of 1996 compared to 1995. Of the growth
-24-
<PAGE> 25
in the first three quarters of 1996, $613,000 was related to expenses of
the Registrant's new insurance subsidiary. These additional subsidiary
expenses will continue for the rest of 1996. The remaining $181,000
increase was due to expenses related to the name changes of the
Registrant's subsidiaries, expenses related to the Bank's two new branches
and general expense growth.
SECURITIES
There were only $1,506,000 of securities purchased in the first nine months
of 1996. The level of securities purchases has been limited because
amounts received from maturing securities have been used to fund the
Registrant's loan growth. In the third quarter of 1996, the Registrant
began to purchase securities to replace maturing securities. Purchases
will continue to occur in future quarters to the extent believed prudent to
provide eligible collateral for securities sold under agreements to
repurchase. The Registrant s securities portfolio will also serve as a
secondary source of liquidity for loan and deposit needs.
LOANS
Total loans grew $9,854,000 in the third quarter of 1996 which continued
the strong growth experienced in the first two quarters. Commercial,
construction real estate mortgage, residential real estate mortgage and
consumer loans experienced increases of $3,755,000, $1,650,000, $994,000
and $3,281,000, respectively, in the third quarter of 1996. The growth
in commercial loans resulted from a continued strong local economy which
has increased loan demand and the Bank's customer calling program which
has concentrated on business customers. The increase in construction and
residential real estate mortgages was due to increased marketing and a
calling program focused on area realtors and builders. The higher consumer
loan balance was caused by strong demand in indirect automobile lending.
Loan growth in the remainder of 1996 and into 1997 will be affected
primarily by interest rates and by competition within the Bank's local
market area. The calling programs will continue to be used in all loan
areas to attempt to continue and stimulate demand. The Bank intends to
continue using new marketing strategies to enhance the Bank's effectiveness
in remaining competitive in residential real estate mortgage lending. It is
planned that Federal Housing Administration mortgage lending will be added
to the Bank's product line in the fourth quarter. In the consumer loan
category, direct mail advertising and telemarketing are planned to stimulate
demand for direct loans while management intends 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
-25-
<PAGE> 26
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
nonaccrual or loans past due 90 days or more, which are considered troubled
debt restructurings. The balances of the three nonperforming categories as
of September 30, 1996, and December 31, 1995, were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Loans accounted for on a nonaccrual basis $281,000 $624,000
Loans, not included in nonaccrual loans, which are
contractually past due 90 days or more as to
interest or principal payments 362,000 26,000
Loans, not included in nonaccrual or loans past due
90 days or more, which are considered troubled
debt restructurings 32,000 106,000
-------- --------
Total $675,000 $756,000
======== ========
</TABLE>
DEPOSITS
Total deposits declined in the third quarter of 1996 from the levels
attained in the first two quarters of the year, although total deposits for
the nine months ended September 30, 1996 increased from December 31, 1995.
The third quarter decrease was caused by a $2,248,000 reduction in interest-
bearing transaction accounts; demand deposits and time deposits were up
slightly during the quarter. Demand deposits and time deposits are the
only deposit categories which have experienced growth in the first three
quarters of 1996. Part of the increase in demand deposits has resulted
from commercial deposits obtained from new commercial loan clients. The
increase in the time deposits balance has been primarily due to the
attractiveness to depositors of the higher interest rates offered by these
products.
The Bank's management plans to attempt to stimulate deposit growth in the
remainder of 1996. Part of the officer call program will focus on the
generation of new commercial deposits. The Bank's two new branches will
also be used to attempt to obtain deposits.
-26-
<PAGE> 27
SHAREHOLDERS' EQUITY
Total shareholders' equity increased $220,000 in the third quarter of 1996
and has increased $399,000 since December 31, 1995. The equity growth in
1996 has been caused by retained earnings. The effect of retained earnings
has been offset by funds used to purchase the Registrant's stock and a
decrease in net unrealized gain or loss on securities available for sale.
The decrease in the market value adjustment for securities 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 10.56% as of September
30, 1996, compared to 12.49% as of December 31, 1995. The decrease in the
equity to assets ratio is consistent with management's desire to more
effectively use shareholders' equity by leveraging it through asset growth.
The minimum regulatory capital percentages are 3% for the leverage ratio,
4% for the Tier 1 capital ratio and 8% for the total risk-based capital
ratio. The Registrant's regulatory capital levels as of September 30,
1996, were as follows:
<TABLE>
<CAPTION>
CAPITAL CAPITAL AS % OF
AMOUNT RISK ADJUSTED ASSETS
------- --------------------
<S> <C> <C>
Leverage capital $13,778,000 10.28%
Tier 1 capital $13,778,000 14.43%
Total risk-based capital (Tier 1 and Tier 2
combined) $14,971,000 15.68%
</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 (now ChoiceOne
Insurance Agencies, Inc.). The Bank plans to construct a new branch office
in Cedar Springs beginning in the fourth 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 and
the Bank.
-27-
<PAGE> 28
LIQUIDITY AND RATE SENSITIVITY
Cash and cash equivalents increased $1,421,000 in the third quarter of 1996
and has decreased $422,000 in the first nine months 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 $11,648,000 at the one-year repricing point as of
September 30, 1996. The negative amount at the end of the third 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
that the positive funding gap in the 1 to 5 year period is more reflective
of the Registrant's experience. Management will determine appropriate
interest rates 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.
-28-
<PAGE> 29
<TABLE>
Table 3 - Maturities and Repricing Schedule
<CAPTION>
AS OF SEPTEMBER 30, 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 $ 31,568 $ 21,664 $33,334 $16,878 $103,444
Interest-bearing deposits
with banks 24 0 0 0 24
Taxable securities 2,760 1,292 8,842 1,391 14,285
Nontaxable securities 0 525 4,244 3,227 7,996
-------- -------- ------- ------- --------
Rate-sensitive assets 34,352 23,481 46,420 21,496 125,749
Liabilities
Interest-bearing transaction
accounts 24,370 0 0 0 24,370
Savings deposits 9,388 0 0 0 9,388
Time deposits 12,945 16,630 21,435 119 51,129
Repurchase agreements 648 0 0 0 648
Federal Home Loan Bank
advance 0 0 15,000 0 15,000
Federal funds purchased 5,500 0 0 0 5,500
-------- -------- ------- ------- --------
Rate-sensitive liabilities 52,851 16,630 36,435 119 106,035
-------- -------- ------- ------- --------
Rate-sensitive assets less
rate-sensitive liabilities
Asset (liability) gap
for the period $(18,499) $ 6,850 $ 9,985 $21,378 $ 19,714
======== ======== ======= ======= ========
Cumulative asset
(liability) gap $(18,499) $(11,649) $(1,664) $19,714
======== ======== ======= =======
Cumulative rate-
sensitive assets as a
percentage of
cumulative rate-
sensitive liabilities 65.00% 83.24% 98.43% 118.59%
======== ======== ======= =======
</TABLE>
-29-
<PAGE> 30
PART II. OTHER INFORMATION
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-QSB Quarterly Report for
its quarterly period ended June 30, 1996. 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. No reports on Form 8-K were filed during
the three months ended September 30, 1996.
-30-
<PAGE> 31
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 November 12, 1996 /S/ JAE M. MAXFIELD
Jae M. Maxfield
President and Chief Executive Officer
Date November 12, 1996 /S/ THOMAS L. LAMPEN
Thomas L. Lampen
Chief Financial Officer and Treasurer
(principal financial and accounting
officer)
-31-
<PAGE> 32
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-QSB Quarterly Report for
its quarterly period ended June 30, 1996. 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.
-32-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT OF 1ST COMMUINITY
BANCORP, INC., INCLUDED IN THE SEPTEMBER 30, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,384
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 20,693
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 103,444
<ALLOWANCE> 1,244
<TOTAL-ASSETS> 134,061
<DEPOSITS> 97,025
<SHORT-TERM> 6,148
<LIABILITIES-OTHER> 1,731
<LONG-TERM> 15,000
<COMMON> 4,827
0
0
<OTHER-SE> 9,330
<TOTAL-LIABILITIES-AND-EQUITY> 134,061
<INTEREST-LOAN> 6,523
<INTEREST-INVEST> 1,013
<INTEREST-OTHER> 2
<INTEREST-TOTAL> 7,538
<INTEREST-DEPOSIT> 2,936
<INTEREST-EXPENSE> 3,301
<INTEREST-INCOME-NET> 4,237
<LOAN-LOSSES> 240
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,360
<INCOME-PRETAX> 1,704
<INCOME-PRE-EXTRAORDINARY> 1,704
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,240
<EPS-PRIMARY> 2.56
<EPS-DILUTED> 0
<YIELD-ACTUAL> 5.24
<LOANS-NON> 281
<LOANS-PAST> 362
<LOANS-TROUBLED> 32
<LOANS-PROBLEM> 1,443
<ALLOWANCE-OPEN> 1,121
<CHARGE-OFFS> 172
<RECOVERIES> 55
<ALLOWANCE-CLOSE> 1,244
<ALLOWANCE-DOMESTIC> 1,048
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 196
</TABLE>
