<PAGE>
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, 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.
(Name of Small Business Issuer in its Charter)
MICHIGAN 38-2659066
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
109 EAST DIVISION
SPARTA, MICHIGAN 49345
(Address of Principal Executive Offices) (Zip Code)
(616) 887-7366
(Issuer's Telephone Number, Including Area Code)
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 there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B 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, 1996, were $11,974,000.
<PAGE>
As of February 29, 1997, the aggregate market value of the voting stock
held by non-affiliates of the issuer was approximately $20,636,000. This
amount is based on the average of the bid and asked price of $42.75 per
share for the registrant's stock as of such date.
As of February 29, 1997, the issuer had outstanding 482,710 shares of
Common Stock, par value $10 per share.
Transitional Small Business Disclosure Format (check one) Yes _____
No X
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, 1996.
Part III, Items 9, 10, 11 and 12, incorporate by reference portions of the
Registrant's Definitive Proxy Statement for the Registrant's Annual Meeting
of Shareholders to be held April 29, 1997.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
1st Community Bancorp, Inc. (the "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 to create a bank holding company for the purpose of
acquiring all of the capital stock of Sparta State Bank, which became a
wholly owned subsidiary of the Registrant on April 6, 1987. The
Registrant's only subsidiary and significant asset as of December 31, 1996,
was the Bank. Effective January 1, 1996, the Bank acquired all of the
outstanding common stock of Bradford Insurance Centre, Ltd., an independent
insurance agency headquartered in Sparta, Michigan. Effective May 1996,
the name of Sparta State Bank was changed to ChoiceOne Bank (the "Bank")
and the name of Bradford Insurance Centre, Ltd. was changed to ChoiceOne
Insurance Agencies, Inc. (the "Agency").
The Registrant's business is primarily 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
transaction 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 four 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 76% of total revenues in 1996, 75% in 1995, and 70%
in 1994. Interest on investment securities accounted for 11% of total
revenues in 1996, 18% in 1995 and 23% in 1994.
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<PAGE>
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, Michigan 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 in March 1996. The
branches, located in Cedar Springs, Michigan, and Grand Rapids, Michigan,
were subject to final approval by the Federal Reserve Board. Approval of
the branches occurred in April 1996.
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<PAGE>
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.
The Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Riegle-Neal Act") substantially changed the geographic
constraints applicable to the banking industry. Effective September 29,
1995, the Riegle-Neal Act allows bank holding companies to acquire banks
located in any state in the United States without regard to geographic
restrictions or reciprocity requirements imposed by state law. Effective
June 1, 1997 (or earlier if expressly authorized by applicable state law),
the Riegle-Neal Act also allows banks to establish interstate branch
networks through acquisitions of other banks. The establishment of DE NOVO
interstate branches or the acquisition of individual branches of a bank in
another state (rather than the acquisition of an out-of-state bank in its
entirety) is allowed by the Riegle-Neal Act only if specifically authorized
by state law. The legislation allows individual states to "opt-out" of
certain provisions of the Riegle-Neal Act by enacting appropriate
legislation prior to June 1, 1997.
Michigan exercised its right to opt-in early to the Riegle-Neal
Act, and now permits both U.S. and non-U.S. banks to establish branch
offices in Michigan. Effective November 29, 1995, the Michigan Banking
Code permits, in appropriate circumstances and with the approval of the
Commissioner of the Financial Institutions Bureau, (1) acquisition of
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Michigan banks by FDIC-insured banks, savings banks or savings and loan
associations located in other states, (2) sale by a Michigan bank of
branches to an FDIC-insured bank, savings bank or savings and loan
association located in a state in which a Michigan bank could purchase
branches of the purchasing entity, (3) consolidation of Michigan banks and
FDIC-insured banks, savings banks or savings and loan associations located
in other states having laws permitting such consolidation,
(4) establishment of branches in Michigan by FDIC-insured banks located in
other states, the District of Columbia or U.S. territories or protectorates
having laws permitting a Michigan bank to establish a branch in such
jurisdiction, and (5) establishment by foreign banks of branches located in
Michigan.
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 may be 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, 1997, the Bank employed forty-eight persons on
a full-time basis and nine persons on a part-time basis. The Agency
employed thirteen persons on a full-time basis and four 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 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 of
this report and in the Consolidated Financial Statements and the notes
thereto incorporated by reference in Item 7 of this report.
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<PAGE>
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 incorporated by
reference in this report.
INVESTMENT PORTFOLIO
Presented below is the amortized cost of investment securities as
of December 31, 1996, and 1995, a schedule of maturities of investment
securities as of December 31, 1996, and the weighted average yield of
investment securities as of December 31, 1996.
<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, 1996 1995
(Dollars in thousands)
------------------------------------------------------------ ---------
<S> <C> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
U.S. Treasuries and U.S.
Government agencies <F2> $ 1,650 $ 7,425 $ 625 $ -- $ 9,700 $ 10,435
Obligations of states and
political subdivisions 765 4,316 2,740 2,455 10,276 11,481
Other securities <F3> -- 267 -- -- 304 305
------- -------- ------- -------- -------- --------
Totals $ 2,415 $ 12,008 $ 3,365 $ 2,455 $ 20,280 $ 22,221
======= ======== ======= ======== ======== ========
OTHER SECURITIES
Federal Reserve Bank and Federal
Home Loan Bank stock <F3> $ -- $ -- $ -- $ -- $ 2,555 $ 585
======= ======== ======= ======== ======== ========
</TABLE>
<TABLE>
WEIGHTED AVERAGE INTEREST RATES AS OF DECEMBER 31, 1996
-------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
U.S. Treasuries and U.S.
Government agencies 6.85% 6.32% 7.04% --% 6.46%
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<PAGE>
Obligations of states and
political subdivisions <F4> 8.92 7.97 7.64 8.11 7.99
Other securities -- 6.10 -- -- 5.38
OTHER SECURITIES
Federal Reserve Bank and
Federal Home Loan Bank stock -- -- -- -- 7.68%
<FN>
<F1> This column represents the total of the maturity distribution and the
amortized cost at December 31, 1996.
<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>
The Bank had in its portfolio securities issued by the local
municipality in which its main office is located. The amortized cost and
approximate market value of these securities were $1,701,000 and
$1,729,000, respectively, as of December 31, 1996. The Bank had no other
holdings of investment securities from any one issuer at December 31, 1996,
which were greater than 10% of the Registrant's shareholders' equity,
exclusive of U.S. Treasury securities and U.S. Government agency
securities.
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.
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<PAGE>
<TABLE>
<CAPTION>
1 YEAR 1 YEAR- AFTER
OR LESS 5 YEARS 5 YEARS TOTAL
------- ------- ------- -----
(Dollars in thousands)
LOAN MATURITIES AS OF DECEMBER 31, 1996<F1>
<S> <C> <C> <C> <C>
Commercial $ 13,611 $ 18,022 $ 2,950 $ 34,583
Agricultural 4,564 4,436 1,113 10,113
Real estate - construction 2,215 -- -- 2,215
---------- -------- ------- --------
Totals $ 20,390 $ 22,458 $ 4,063 $ 46,911
========== ======== ======= ========
LOAN SENSITIVITY TO CHANGES IN INTEREST RATES
AS OF DECEMBER 31, 1996
Loans which have predetermined interest
rates $ 13,242 $ 2,337 $ 15,579
Loans which have floating or adjustable
interest rates 9,216 1,726 10,942
-------- ------- --------
Totals $ 22,458 $ 4,063 $ 26,521
======== ======= ========
<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:
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<PAGE>
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Loans accounted for on a nonaccrual basis $ 288,000 $ 624,000
Accruing loans which are contractually past due 90
days or more as to principal or interest payments 686,000 26,000
Loans not included above which are "troubled debt
restructurings" 26,000 106,000
----------- ----------
Totals $ 1,000,000 $ 756,000
=========== ==========
</TABLE>
Interest on the above loans which would have been earned had the
loans been in an accrual or performing status was approximately $128,000
and $85,000 for 1996 and 1995, respectively. The interest that was
actually recorded when received was approximately $107,000 and $68,000 for
1996 and 1995, 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, 1996, there were $1,083,000 of loans not
disclosed above where some concern existed as to the borrowers' ability to
comply with original loan terms. Of this amount, $14,000 was 90%
guaranteed and $159,000 was 80% guaranteed by the Farmers Home
Administration.
LOAN CONCENTRATIONS
As of December 31, 1996, 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, 1996, there were no other interest-bearing
assets that would be required to be disclosed in the loan portfolio listing
if such assets were loans.
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<PAGE>
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
---------------------------
1996 1995
(Dollars in thousands)
---------- ---------
<S> <C> <C>
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
Balance at beginning of period $ 1,121 $ 1,039
-------- --------
Charge-offs:
Commercial 37 2
Agricultural -- --
Real estate - construction -- --
Real estate - mortgage -- 3
Consumer 184 120
-------- -------
221 125
-------- -------
Recoveries:
Commercial 10 6
Agricultural 10 --
Real estate - construction -- --
Real estate - mortgage -- --
Consumer 44 37
-------- -------
64 43
-------- -------
Net charge-offs 157 82
Additions charged to operations <F1> 523 164
-------- -------
Balance at end of period $ 1,487 $ 1,121
======== ========
Daily average gross loans outstanding $ 94,461 $ 74,223
======== ========
Percentage of net charge-offs during the period to average
loans outstanding during the period .17% .11%
======== ========
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<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,
-------------------------------------------------
1996 1995
--------------------- ---------------------
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 $ 329 31.42% $ 226 29.30%
Agricultural 68 9.19 73 12.03
Real estate - construction 6 2.01 2 1.02
Real estate - mortgage 110 33.76 80 36.47
Consumer 594 23.62 357 21.18
Unallocated 380 N/A 383 N/A
------- ------- ------- ------
Totals $ 1,487 100.00% $ 1,121 100.00%
======= ====== ======= ======
</TABLE>
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<PAGE>
The level of charge-offs in consumer loans has risen from
$120,000 in 1995 to $184,000 in 1996. Management believes that the
increased level of charge-offs is due to growth in the total consumer loan
portfolio and particularly in the indirect vehicle loan portfolio. The
level of charge-offs or recoveries did not change significantly in any
other loan category in 1996 or 1995.
The increase in the allowance for loan losses allocated to
commercial loans resulted from growth in total commercial loans. The
higher allowance allocated to consumer loans as of December 31, 1996, was
due to growth in indirect vehicle 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 1996 or 1995.
DEPOSITS
The following schedule presents daily average balances and the
average interest rate paid by the deposit category for 1996 and 1995. It
also presents the maturities of time certificates of deposit issued in
denominations of $100,000 or more as of December 31, 1996.
<TABLE>
<CAPTION>
DAILY AVERAGE
AVERAGE BALANCES RATE PAID
------------------------ ---------------------
1996 1995 1996 1995
-------- -------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
AVERAGE BALANCES AND RATES
Demand deposits $ 11,010 $ 10,149 --% --%
Interest-bearing
transaction accounts 24,711 25,522 3.23 3.57
Savings deposits 9,363 9,845 1.86 2.33
Time deposits 50,126 45,930 5.88 5.70
-------- --------
Total deposits $ 95,210 $ 91,446
======== ========
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<PAGE>
MATURITIES OF TIME CERTIFICATES OF
DEPOSIT ISSUED IN DENOMINATIONS
OF $100,000 OR MORE
Maturities of 3 months or less $ 1,932
Maturities over 3 months
through 6 months 2,712
Maturities over 6 months
through 12 months 1,900
Maturities over 12 months 3,149
--------
Total $ 9,693
========
</TABLE>
RETURN ON EQUITY AND ASSETS
The following schedule presents the ratios indicated for 1996,
1995, and 1994.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Return on assets (net income divided by average
total assets) 1.38% 1.36% 1.18%
Return on equity (net income divided by average
equity) 12.00 11.09 9.62
Dividend payout ratio (dividends declared per
share divided by net income per share) 39.12 37.64 37.73
Equity to assets ratio (average equity divided
by average total assets) 11.47 12.27 12.25
</TABLE>
ITEM 2. DESCRIPTION OF PROPERTY
The offices of the Bank and the Agency as of February 29, 1997, were
as follows:
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Bank's main office
109 East Division, Sparta, MI
Office is owned by the Bank and comprises 24,000 square feet.
Bank's branch office and Agency's main office
416 and 440 West Division, Sparta, MI
Office is owned by the Bank. Office comprises 7,000 square feet,
of which 3,000 is occupied by the Bank and 4,000 by the Agency.
Bank's branch office
4170 Seventeen Mile Road, Cedar Springs, MI
Office is a temporary facility leased by the Bank and comprises
approximately 600 square feet. A permanent office comprising
approximately 2,500 square feet is being constructed at the same
site with completion expected in March 1997.
Agency's branch office
17 North Main, Cedar Springs, MI
Office is leased by the Agency and comprises 600 square feet.
Agency's office will be relocated to the Bank's permanent office
in Cedar Springs when it is completed.
Bank's branch office and Agency's branch office
4949 Plainfield NE, Grand Rapids, MI
Office is leased by the Bank and Agency and comprises 2,000
square feet.
The Registrant operates its business at the main office of the
Bank. No properties were owned by the Registrant as of February 29, 1997.
The Registrant, Bank, and 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.
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<PAGE>
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, 1996.
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<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information under the captions "Market Price Range of
Common Stock" and "Cash Dividends Per Share of Common Stock" on page 32 of
the Registrant's Annual Report to Shareholders for the year ended December
31, 1996, 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 24 through 31 of the Registrant's Annual Report to
Shareholders for the year ended December 31, 1996, is incorporated herein
by reference.
ITEM 7. FINANCIAL STATEMENTS
The Consolidated Financial Statements, Notes to Consolidated
Financial Statements, and Independent Auditors' Report on pages 6 through
23, inclusive, of the Registrant's Annual Report to Shareholders for the
year ended December 31, 1996, are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
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<PAGE>
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" and "Section 16(a) Beneficial Ownership Reporting Compliance" in
the Registrant's Definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on April 29, 1997, is incorporated herein by
reference.
ITEM 10. EXECUTIVE COMPENSATION
The information under the caption "Compensation of Executive
Officers and Directors" in the Registrant's Definitive Proxy Statement for
the Annual Meeting of Shareholders to be held on April 29, 1997, is
incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the caption "Voting Securities" in the
Registrant's Definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on April 29, 1997, is incorporated herein by
reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Certain Relationships and
Related Transactions" in the Registrant's Definitive Proxy Statement for
the Annual Meeting of Shareholders to be held on April 29, 1997, is
incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
1. EXHIBITS
The following exhibits are filed as part of this report:
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EXHIBIT
# DOCUMENTS
- -------- ---------
3.1 Articles of Incorporation and amendments - previously filed as an
exhibit to the Registrant's Form 10-QSB Quarterly Report for the
quarter ended June 30, 1996. Incorporated herein by reference.
3.2 Bylaws and amendments - 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.
4. Instruments defining the rights of holders of long-term debt.
10.1 Employment Agreement With Jae M. Maxfield<F*> - previously filed as an
exhibit to the Registrant's Form 10-KSB Annual Report for its fiscal
year ended December 31, 1995. Incorporated herein by reference.
10.2 Employment Agreement With Lawrence D. Bradford<F*> - previously filed
as an exhibit to the Registrant's Form 10-KSB Annual Report for its
fiscal year ended December 31, 1995. Incorporated herein by
reference.
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 Annual Report to Shareholders for the year ended December 31, 1996.
21 Subsidiaries of the small business issuer.
27 Financial Data Schedule.
_______________________
<F*> These agreements are management contracts or compensation plans or
arrangements required to be filed as exhibits to this Form 10-KSB.
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, 1996.
-18-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Exchange Act, the Registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
1st Community Bancorp, Inc.
/S/ JAE M. MAXFIELD March 12, 1997
President and Chief
Executive Officer
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
/S/ JAE M. MAXFIELD President and Chief March 12, 1997
Executive Officer and Director
(Principal Executive Officer)
/S/ FRANK G. BERRIS Director March 12, 1997
/S/ LAWRENCE D. BRADFORD Director March 12, 1997
/S/ WILLIAM F. CUTLER, JR. Director March 12, 1997
/S/ L. EDMOND EARY, M.D. Chairman of the Board March 12, 1997
and Director
/S/ LEWIS G. EMMONS Director March 12, 1997
/S/ STUART GOODFELLOW Director March 12, 1997
/S/ JON E. PIKE Director March 12, 1997
/S/ LINDA R. PITSCH Secretary and Director March 12, 1997
/S/ ANDREW W. ZAMIARA Director March 12, 1997
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<PAGE>
/S/ THOMAS L. LAMPEN Treasurer March 12, 1997
(Principal Financial
and Accounting Officer)
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<PAGE>
INDEX TO EXHIBITS
EXHIBIT
# DOCUMENT
- ------- --------
3.1 Articles of Incorporation and amendments - previously filed as an
exhibit to the Registrant's Form 10-QSB Quarterly Report for the
quarter ended June 30, 1996. Incorporated herein by reference.
3.2 Bylaws and amendments - 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.
4. Instruments defining the rights of holders of long-term debt.
10.1 Employment Agreement With Jae M. Maxfield<F*> - previously filed as an
exhibit to the Registrant's Form 10-KSB Annual Report for its fiscal
year ended December 31, 1995. Incorporated herein by reference.
10.2 Employment Agreement With Lawrence D. Bradford<F*> - previously filed
as an exhibit to the Registrant's Form 10-KSB Annual Report for its
fiscal year ended December 31, 1995. Incorporated herein by
reference.
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 Annual Report to Shareholders for the year ended December 31, 1996.
21 Subsidiaries of the small business issuer.
27 Financial Data Schedule.
_______________________
<F*> These agreements are management contracts or compensation plans or
arrangements required to be filed as exhibits to this Form 10-KSB.
<PAGE>
EXHIBIT 4
ADVANCES, PLEDGE, AND SECURITY AGREEMENT
This Advances, Pledge and Security Agreement (the "Advances
Agreement"), dated as of this 12th Day of May, 1993, is between Sparta
State Bank, with its principal place of business at 109 E. Division,
Sparta, Michigan 49345, (the "Member") and the Federal Home Loan Bank of
Indianapolis, with its principal place of business at 8250 Woodfield
Crossing Boulevard, Indianapolis, Indiana 46240, and mailing address at
P.O. Box 60, Indianapolis, Indiana 46206 (the "Bank").
WHEREAS, the Bank, subject to the provisions of the Federal Home Loan
Bank Act ("Bank Act"), the Rules and Regulations of the Federal Housing
Finance Board or its legal successor ("FHFB Regulations"), the policies of
the FHFB and the Bank's Credit Policies (as hereinafter defined) is
authorized to make available Advances and Other Credit Products to its
members; and
WHEREAS, Member desires from time to time to apply for such Advances
and Other Credit Products that may be available to it; and
WHEREAS, the Bank requires that such Advances and Other Credit
Products provided by the Bank be secured pursuant to this Advances
Agreement, and Member agrees to provide such security as requested by the
Bank by the means set forth in this Advances Agreement.
NOW THEREFORE, intending to be legally bound, the Member and the Bank
agree as follows:
1. GENERAL.
SECTION 1.01. DEFINITIONS.
As used herein, the following terms shall have the following meanings:
"Advances" means any and all loans or other extensions of credit now
or hereafter granted by the Bank to the Member, including all loans or
extensions of credit by the Bank to the Member prior to the date hereof.
"Advice of Credit" means one or more written confirmations to be
executed by the Member and the Bank specifying the type or category of
advance made, the terms of repayment, the interest rate (which may be fixed
or variable), and any other pertinent terms and conditions, which shall
evidence an advance.
"Application for Advance" means one or more written or telephonic
requests for an advance, in such form or forms as shall be specified by the
Bank from time to time.
<PAGE>
"Bank Deposits" shall mean all deposit accounts maintained by the
Member with the Bank (excluding safekeeping accounts expressly held for the
benefit of a third party), all money, cash and checks, drafts, notices,
bills, bills of exchange and bonds deposited therein or credited thereto,
including any increases, renewals, extensions, substitutions and
replacements, whether or not such instruments have been posted to any such
deposit account, and all statements, certificates, passbooks and
instruments representing any such deposit account.
"Capital Stock" means all of the capital stock of the Bank owned by
the Member, and all payments which have been or hereafter are made on
account of subscriptions to, and all unpaid dividends on, such Capital
Stock.
"Collateral" means all assets of the Member of any kind or nature
whatsoever, whether tangible or intangible, including without limitation,
all Capital Stock, Bank Deposits, Mortgage Collateral, Securities
Collateral, and Other Collateral, all cash and Cash equivalents, all
insurance proceeds, all tax refunds, all proceeds of any of the foregoing,
and all collections on any and all of the foregoing, which are now or
hereafter pledged to the Bank pursuant to Section 3.01 hereof. It also
means, including without limitation, any of the foregoing which have
previously been assigned, transferred or pledged to the Bank by the Member
as collateral for loans or other extensions of credit prior to the date
hereof, all of such assets in which a security interest is granted pursuant
to the terms hereof or in which a security interest is hereafter assigned,
transferred, granted, or pledged pursuant to the terms hereof, but
excluding solely machinery and office equipment of the Member.
"Collateral Policy" shall mean the Bank's Collateral Policy as stated
in the Credit Policy Manual, policy statement or operating circulars of the
Bank, as in effect from time to time.
"Collateral Requirement" means such aggregate Market Value (or unpaid
principal balance) of Eligible Collateral as is specified in the Bank's
Collateral Policy or as may be otherwise specified in writing by the Bank
from time to time as being the collateral maintenance level the Member must
maintain hereunder. The Bank may increase or decrease the Collateral
Requirement at any time for, including without limitation, specific
collateral listings, physical possession requirements, and where
applicable, blanket collateral requirements.
"Credit Policies" shall mean the Bank's Credit Policy Manual, policy
statements, or operating circulars relating to Advances and Other Credit
Products offered by the Bank, all as in effect from time to time.
"Eligible Collateral" means Collateral other than Capital Stock which:
(i) meets the definition of Eligible Collateral under the Bank's Collateral
Policy, including without limitation one-to-four family whole mortgage
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<PAGE>
loans, government and agency securities, private mortgage-backed
securities, and Bank Deposits; (ii) is owned by the Member free and clear
of any liens, encumbrances or other interests other than the assignment to
the Bank hereunder; (iii) has not been in default within the most recent
12-month period provided that in the case of Mortgage Collateral, mortgage
payments that are overdue by more than sixty (60) days shall not be
included within Eligible Collateral; (iv) in the case of Mortgage
Collateral, relates to residential real property which is covered by fire,
hazard, and where applicable, flood insurance in an amount at least
sufficient to discharge the mortgage loan in full in case of loss and as to
which all real estate taxes are current; and (v) in the case of Mortgage
Collateral, does not secure an indebtedness on which any director, officer,
employee, attorney or agent of the Member or of any Federal Home Loan Bank
is personally liable. The Bank may change the definition of Eligible
Collateral from time to time, and the Bank's determination of Eligible
Collateral shall be conclusive.
"Indebtedness" means all obligations, liabilities or indebtedness of
the Member to the Bank, due or to become due, direct or indirect, absolute
or contingent, joint or several, now existing or hereafter at any time
created, arising or incurred under this Advances Agreement, or any Advice
of Credit, Application for Advance, Other Credit Product Agreements,
Advances, Other Credit Products, Bank Deposits, including any overdrafts or
other charges in connection therewith. Indebtedness also means any
obligations for any other services (including without limitation,
safekeeping, operating and other correspondence services) provided by the
Bank, including any applications, commitments, other agreements or
documents relating to the foregoing, any amendments to any of the foregoing
agreements or documents and any obligations under indemnification
provisions in any such agreements or documents, and any renewal, extension
or substitution of any such obligations, liabilities and indebtedness,
including attorneys' fees of the Bank in the collection thereof and the
enforcement of any remedies with respect to any Collateral.
"Market Value" means the market value of Collateral determined in a
manner as specified by the Bank from time to time. The Bank may change the
method of determining Market Value at any time which shall be consistently
applied to substantially all borrowers. The Bank's determination of Market
Value shall be conclusive.
"Mortgage Collateral" means whole mortgage loans, Mortgage Documents
and all security agreements, guaranties, insurance policies, certificates,
binders, commitments or reports relating thereto, including title
insurance, private mortgage insurance and hazard and liability insurance,
surveys, bonds, participations, purchase commitments, hedge contracts or
other agreements to purchase guaranty or insure any mortgage loans or
securities to be issued by the Member. Mortgage Collateral also means any
other agreement, instrument or document pertaining to, affecting or
obtained by the Member in connection with the loans covered by the Mortgage
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<PAGE>
Documents, financing statements perfecting the Member's security interest
in any of the foregoing, certificates, evidences of recordation,
applications, underwriting materials, appraisals, notices, opinions of
counsel, loan servicing data, files, correspondence, computer programs,
tapes, discs, cards, account records and all other electronically stored or
written records or materials relating to the loans covered by the Mortgage
Documents, including any and all rights, claims, and choses in action
against or with respect to any person or entity which as provided services
to the member in connection with any other Mortgage Collateral, including
without limitation, surveyors, appraisers, environmental engineers,
environmental assessment firms, contractors, and architects. Unless
otherwise authorized by the Bank, Mortgage Collateral shall not include
mortgage securities or loan participations.
"Mortgage Documents" means mortgages, deeds of trust or other security
deeds in land and interests in real property and the improvements and
fixtures located thereon (herein "mortgages") and all notes, bonds or other
instruments evidencing loans secured thereby (herein "mortgage notes") and
any endorsement and assignments thereof to the Member.
"Other Collateral" means such items of tangible and intangible
property, other than Capital Stock, Bank Deposits, Mortgage Collateral, and
Securities Collateral, which are offered as collateral by the Member to the
Bank and which the Bank in its discretion expressly accepts by written
notice delivered to the Member as collateral for Advances and Other Credit
Products.
"Other Credit Product Agreement" means a writing or electronic
transmission in such form as shall be specified by the Bank, executed by
the Bank and the Member and setting forth the obligations of the Bank and
Member, including without limitation, any service confirmation, service
contract, reimbursement agreement, interest rate swap agreement,
transaction, confirmation, applications, notices, advice or other
instruments between the Bank and the Member.
"Other Credit Products" means any and all commitments or obligations
under which the Bank agrees to made Advances to the Member or payments on
behalf of or for the account of the Member, including without limitation,
letters of credit, guarantees, demand or CMS account transactions, NOW
account processing, deposit overdrafts, item processing services, coin and
currency services, safekeeping services (including security lending
programs), correspondent banking service debits or services charges, or
other arrangements intended to facilitate transactions between or among the
Bank, the Member and third parties, or under which the Bank enters into a
credit or financial accommodation agreement or other arrangement with the
Member, including without limitation, repurchase agreements and interest
rate exchange transactions (such as interest rate swap agreements, cap,
collar and floor agreements) and such other products or services as may be
offered by the Bank from time to time pursuant to its Credit Policies and
irrespective of whether the Bank's obligation is contingent or conditional.
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<PAGE>
"Outstanding Commitments" means, at any point in time, the maximum
aggregate principal amount of Advances or payments which the Bank may be
obligated to make to the Member (or other parties) under Advance
Applications or Other Credit Product Agreements then in effect.
"Securities Collateral" means all securities or certificates
evidencing a direct or indirect interest in a loan or a group of loans
secured by mortgages, including without limitation, mortgage-backed
securities, collateralized mortgage obligations and real estate mortgage
investment conduits, including Federal Home Loan Mortgage Corporation
mortgage participation certificates, Federal National Mortgage Association
mortgage pass-through mortgaged-backed certificates and Government National
Mortgage Association modified pass-through mortgage-backed certificates,
and all Mortgage Documents and items of Mortgage Collateral owned or
otherwise acquired by the Member relating to the loans underlying such
securities or certificates; consolidated obligations of the Federal Home
Loan Bank System; obligations of or guaranteed by the United States; and
obligations of or guaranteed by agencies or instrumentalities of the United
States.
2. ADVANCES DOCUMENTATION.
SECTION 2.01. APPLICATION FOR ADVANCES.
The Member may apply for Advances or commitment by completing and
submitting an Application for Advance or requesting Other Credit Product
services. The preceding sentence notwithstanding, the Bank may in its
discretion make an Advance, make a commitment, or deliver Other Credit
Products to the Member pursuant to the Bank Act, FHFB Regulations, Credit
Policies, and other Bank procedures in effect from time to time, and by
either (i) the receipt of an oral or written application which is executed
by the Bank without change, or (ii) in the case of an application received,
completed or modified by the Bank pursuant to a telephonic or other
unsigned communication by the Member, by an Advise of Credit writing
generated by the Bank. The Member shall be estopped from asserting any
claim or defense with respect to the terms applicable to an Advance,
commitment, or Other Credit Product entered into pursuant to a telephone
application or other unsigned communication unless, within two (2) business
days of receipt of the Bank's advice, the Member delivers to the Bank a
written notice specifying the disputed term(s) or condition(s). The Bank
shall have the absolute right to rely upon the procedures established
hereby or pursuant to the terms hereof and shall have no liability to the
Member for any actions taken or omitted to be taken in connection with such
procedures. The member agrees that it will hold the Bank and each of its
employees, officers, directors, agents, and representatives harmless from
any loss, liability or damage which the Member may suffer, including
without limitation, lost profits and attorneys' fees and disbursements,
arising out of or in connection with such procedures, absent fraud, willful
misconduct, or recklessness on the part of the Bank.
-5-
<PAGE>
SECTION 2.02. BANK'S RECEIPT OF WRITTEN CONFIRMATIONS AND FINDINGS.
Within five (5) business days of receipt, Member agrees to executed
and return any Advice of Credit, confirmation, or Other Credit Product
Agreement to the Bank. Upon request of the Bank, the Member shall sign and
deliver to the Bank a promissory note or notes in such form as the Bank may
reasonably require evidencing any Advance. Unless otherwise requested by
the Member and approved by the Bank, each Advance shall be funded by
crediting the Member's CMS account(s) with the Bank.
SECTION 2.03. INTEREST COMPUTATIONS AND REPAYMENT OF ADVANCES AND OTHER
CREDIT PRODUCTS.
The Member agrees to repay each Advance or Other Credit Product in
accordance with this Advances Agreement and the terms and conditions of the
Advice of Credit or Other Credit Product Agreement. Each Advance, Advice
of Credit, Application for Advance, Other Credit Product and Other Credit
Product Agreement shall be subject to the terms of the Credit Policies and
applicable laws, regulations, and limitations, all as in effect from time
to time, including the Bank Act, the FHFB Regulations and the statements of
policy and guidelines of the FHFB, which shall be deemed to be incorporated
by reference into this Advances Agreement. Unless otherwise specified in
the Bank's Credit Policies or as may be otherwise specified in writing by
the Bank from time to time, interest shall be paid at the time of each
payment of all of the principal of each Advance on the amount of principal
so repaid, and shall be paid on the fifteenth (15th) day of each month (or
the Bank's next business day if the Bank is not open for business on the
fifteenth (15th)) on the daily outstanding principal amount of each Advance
since the previous interest payment date (other than principal amounts
which have been repaid in full since such interest payment date), in each
case at the rate applicable to such Advance as stated in the related Advice
of Credit. The Member shall pay to the Bank, immediately and without
demand, interest on any past due amount owing on any Advance or Other
Credit Product at the rate in effect and being charged by the Bank from
time to time on defaults. The default rate on past due payments of
principal and interest may, at the option of the Bank, be at a rate of five
percent (5%) per annum in addition to the then highest current rate being
charged by the Bank for advances, not to exceed the highest legal interest
rate allowed under Indiana law. The Member shall maintain in the Member's
CMS account with the Bank an amount at least equal to the amounts then
currently due and payable to the Bank on outstanding Advances and Other
Credit Products. The Member hereby authorizes the Bank to debit the
Member's CMS account with the Bank for all amounts due and payable on any
Advance or Other Credit Product and for all other amounts due and payable
hereunder. In the event that the amount in the Member's CMS account is, at
any time, insufficient to pay such due and payable amounts, the Banks may
without notice to the Member apply any Bank Deposits then in the possession
of the Banks to the payment of such due and payable amounts.
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<PAGE>
SECTION 2.04. PAYMENT OF PREPAYMENT CHARGES.
Any prepayment fees or charges for which provision is made, whether
under the Advice of Credit, Other Credit Product Agreement, or otherwise,
shall be payable at the time of any voluntary or involuntary payment of the
principal of such Advance or Other Credit Product prior to the originally
scheduled maturity thereof, including without limitation, payments that are
made as a part of a liquidation of the Member or that become due as a
result of an acceleration pursuant to Section 4.01 hereof, and whether such
payment is made by the Member, by a conservator, receiver, liquidator or
trustee of or for the Member, or by any successor to or any assignee of the
Member. The method of computation for the prepayment fee, unless expressly
provided for in the applicable credit documentation, is set forth in the
Credit Policies of the Bank and may be subject to change from time to time
with advance notice to the Member.
SECTION 2.05. RIGHT OF BANK TO MAKE PAYMENTS WITH RESPECT TO OUTSTANDING
COMMITMENTS.
In the event that there are one or more Outstanding Commitments at the
time of an Event of Default under Section 4.01 hereof, the Bank may, at its
option, make any payments due thereunder from time to time by crediting a
special account with the Bank over which the Bank has sole dominion and
control. Amounts credited to such special accounts shall be deemed to have
satisfied the Bank's obligations under the Outstanding Commitments. When
all such obligations have been satisfied, the Bank shall disburse the
balance, if any, in such account first to the satisfaction of any amounts
then due and owing by the Member to the Bank and then to the Member or its
successors in interest. Payments made pursuant to this section shall be
payable on demand and shall bear interest at the rate specified for each
applicable Advance (or if such rate is not specified, at the rate in effect
and being charged by the Bank from time to time on variable rate advances),
and shall include applicable prepayment fees.
3. SECURITY AGREEMENT.
SECTION 3.01. CREATION OF SECURITY INTEREST.
As security for all indebtedness, including without limitation, all
Advances and Other Credit Products, the Member hereby assigns, transfers,
and pledges to the Bank and grants to the Bank a security interest in all
Collateral, now or hereafter owned by the Member, and all proceeds thereof,
provided, however, that Collateral that is encumbered or disposed of by the
Member in conformity with the requirements of Section 3.03(a) hereof shall
not be subject to the security interest created hereunder. Without
limitation of the foregoing, all tangible and intangible property
heretofore assigned, transferred or pledged by the Member to the Bank as
Collateral for Advances and Other Credit Products prior to the date hereof
is hereby assigned, transferred and pledged to Bank as Collateral
hereunder.
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<PAGE>
SECTION 3.02. MEMBER'S REPRESENTATIONS AND WARRANTIES CONCERNING
COLLATERAL.
The Member represents and warrants to the Bank, as of the date hereof
and as of the date of all future Advances or Other Credit Products secured
hereunder, the following:
(a) The Member owns and has marketable title to the Collateral and
has the right and authority to grant a security interest in the Collateral
and to subject all of the Collateral to this Advances Agreement;
(b) The information contained in any certification, status report,
schedule, or other information given from time to time by the Member as to
each item of Collateral is true, accurate and complete in all material
respects;
(c) The Member maintains Eligible Collateral which has a Market Value
(or unpaid principal balance) that is at least equal to the then current
Collateral Requirement and which meets the standards and requirements from
time to time established by the Bank's Collateral Policy, the Bank Act and
the FHFB Regulations, and all other applicable laws and regulations;
(d) The Member has not conveyed or otherwise created, and there does
not otherwise exist, any participation interest or other direct, indirect,
legal, or beneficial interest in any Collateral pledged under Sections
3.01, 3.03(a), and 3.04 on the part of any person or entity other than the
Bank and the Member;
(e) Except as may be approved in writing by the Bank, no account
debtor or other obligor owing any obligation to the Member with respect to
any item of Mortgage Collateral or Other Collateral has or will have any
defenses, offsetting claims, or other rights affecting the right of the
Member or the Bank to enforce such mortgage, mortgage note or promissory
obligation, and no defaults (or conditions that, with the passage of time
or the giving of notice or both, would constitute a default) exist under
any such writings; and
(f) No part of any real property or interest in real property that is
the subject of Collateral contains or is subject to the effects of toxins
or hazardous materials or other hazardous substances (including those
defined in any applicable state or local law; or applicable federal law,
including the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 USC 9601 et seq.; the Hazardous
Materials Transportation Act, 49 USC 1801 et seq.; the Resource
Conservation and Recovery Act, 42 USC 6901 et seq.; and in the regulations
adopted and publications promulgated pursuant to said laws), the presence
of which could subject the Bank to any liability under applicable state or
Federal law or local ordinance either at any time that such property is
pledged to the Bank or upon the enforcement by the Bank of its security
interest therein.
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<PAGE>
SECTION 3.03. COLLATERAL MAINTENANCE REQUIREMENT FOR BLANKET LIENS AND
SPECIFIC LISTINGS.
(a) The Member shall at all times maintain an amount of Eligible
Collateral which has a Market Value (or unpaid principal balance, if so
required by the Bank) that is at least equal to the then current Collateral
Requirement. The Member shall not assign, pledge, transfer, create any
security interest in, sell, or otherwise dispose of any Collateral if (i)
such Collateral is held by or on behalf of the Bank pursuant to Section
3.04 hereof, (ii) such Collateral has been provided in a specific listing
of Eligible Collateral pursuant to Section 3.03(e), (iii) the Bank has
otherwise perfected its security interest in such Collateral, or (iv) at
the time of or immediately after such action, Member is not or would not be
in compliance with the collateral maintenance requirements of the first
sentence of this Section 3.03(a) or is or would be otherwise in default
under this Advances Agreement. So long as Member is not in default under
this Agreement, Member shall be at liberty to sell, use, commingle, and
dispose of the Collateral or the proceeds of such Collateral without being
required to account for the proceeds or replace the Collateral, subject
only to its obligation to maintain the Collateral as herein provided.
(b) Collateral shall be held by the Member in trust for the benefit
of the Bank and subject to the Bank's direction and control, will not be
commingled with assets of the Member which are not Collateral, and will be
physically safeguarded by the Member in accordance with usual, customary
and prudent commercial practices but in any event with not less than the
same degree of care which the Member uses in physically safeguarding its
other property and assets of like kind and nature. Without limitation of
the foregoing, Member shall take all action necessary or desirable to
protect and preserve the Collateral and the Bank's interest therein,
including without limitation, the maintaining of insurance on property
securing mortgages constituting Collateral (such policies and certificates
or guaranty relating to such mortgages are herein called "insurance"), the
collection of payments under all mortgages and under all insurance, and
otherwise assuring that the loans comprising the Mortgage Collateral are
serviced in accordance with the standards of a reasonable and prudent
mortgages. The Member (or its agent), acting on behalf of the Bank, shall
collect all payments when due on all Collateral. If the Bank requires
under Section 3.12, the Member shall hold such collections separate from
its other monies and apply them to the reduction of Indebtedness as it
becomes due; otherwise, the Member shall be entitled to use and dispose of
all such collections in the ordinary course of its business and in
compliance with all laws, rules, and regulations.
(c) If any Collateral that was Eligible Collateral ceases to be
Eligible Collateral, the Member shall promptly notify the Bank in writing
of that fact and, if so requested by the Bank of the reason that the
Collateral has ceased to be Eligible Collateral. The Member shall promptly
specify, or deliver, as the case may be, other Eligible Collateral having
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<PAGE>
at least the same Market Value as the Collateral so requested to be
withdrawn.
(d) The Bank may review the form and sufficiency of all documents
pertaining to the Collateral. Such documents must be satisfactory to the
Bank and, if not, such Collateral may not be acceptable as Eligible
Collateral or may have a Market Value applied thereto that is less than the
Market Value otherwise applicable under the Bank's Collateral Policy, or as
the Bank may specify. The Bank may require that the Member make any or all
documents pertaining to the Collateral available to the Bank for its
inspection and approval.
(e) If so requested by the Bank, Member agrees to (i) provide a
specific listing of the Eligible Collateral to Bank, (ii) physically
segregate Mortgage Documents and Other Collateral which are a part of such
specified Collateral from all other property of the Member in a manner
satisfactory to the Bank, and/or (iii) hold each Mortgage Document which is
a part of Mortgage Collateral in a separate file folder with each file
folder clearly labeled with the loan identification number and the name of
the borrower(s). Immediately upon the written request of the Bank, the
Member further agrees to clearly and legibly mark or stamp each Mortgage
Document and each file folder containing Mortgage Documents with the
following statement (or a substantially similar statement which has been
approved in writing by the Bank): "The Mortgage/Deed Of Trust And Note
Relating To This Loan Have Been Assigned To And Represent Collateral Of The
Federal Home Loan Bank Of Indianapolis And Its Successors And Assigns" and
such other statement as may be required by the Bank from time to time.
SECTION 3.04. DELIVERY OF COLLATERAL; PHYSICAL POSSESSION REQUIREMENTS.
(a) At any time upon the Bank's oral or written request, or at any
time that the Member becomes subject to any mandatory collateral delivery
requirements pursuant to the Collateral Policy or that may be otherwise
established in writing by the Bank, the Member shall promptly on a schedule
acceptable to the Bank deliver to the Bank, or to a custodian designated by
the Bank, all Collateral including such Eligible Collateral as may be
necessary so that the Market Value of Eligible Collateral held by the Bank,
or such custodian, meets or exceeds the Collateral Requirement at all
times, and take any and all other action as may be specified by the Bank to
further evidence the perfection of the Bank's security interest in the
Collateral and to otherwise effectuate the transactions contemplated
hereby, including the signature and filing of financing statements.
Collateral delivered to the Bank shall be endorsed or assigned in
recordable form by the Member to the Bank as directed by the Bank. With
respect to Mortgage Collateral that is to be delivered hereunder, the
Member shall deliver the Mortgage Documents with necessary endorsements and
assignments relating thereto unless otherwise directed by the Bank.
Concurrently with the initial delivery of Collateral and at such other
times as provided in the Collateral Policy or as the Bank may otherwise
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request, the Member will deliver to the Bank a status report and
accompanying schedules, all in form and substance satisfactory to the Bank
and dated as of the then most recent valuation date, describing the
Collateral held by the Bank or its custodian.
(b) The Member authorizes the Bank to execute and file one or more
financing statements, this Agreement, and any other documents, instruments,
or statements of any kind on its behalf and without the signature of the
Member in those public offices deemed necessary by the Bank in its sole
discretion to perfect and continue the perfection of its security interest
in the Collateral and to protect, defend and further assure the grant,
validity and perfection thereof. In addition, the Member will, at its
expense, deliver or cause to be delivered such other documents as the Bank
may request to secure the indebtedness referred to herein or to further
perfect, protect, and defend the security interest granted herein.
(c) With respect to uncertificated securities pledged to the Bank as
Securities Collateral or Other Collateral hereunder, the delivery
requirements contained in this Advances Agreement shall be satisfied by the
transfer of such securities to the Bank, such transfer to be effected in
such manner and to be evidenced by such documents as shall be specified by
the Bank.
(d) The Member agrees to pay to the Bank such reasonable fees and
charges as may be assessed by the Bank to cover the Bank's overhead and
other costs relating to the receipt, holding, redelivery and reassignment
of Collateral and to reimburse the Bank upon request for all recording fees
and advances incurred or made by the Bank in connection therewith
(including the reasonable compensation and the expenses and disbursements
of any custodian that may be appointed by the Bank hereunder, and the
agents and legal counsel of the Bank and of such custodian).
(e) The Member shall, upon request of the Bank, immediately take such
other actions as the Bank shall deem necessary or appropriate to perfect
the Bank's security interest in the Collateral or otherwise to obtain,
preserve, protect, enforce or collect the Collateral.
SECTION 3.05. WITHDRAWAL OR REASSIGNMENT OF COLLATERAL.
Upon receipt by the Bank of writings in form and substance
satisfactory to the Bank constituting (i) a request from the Member for the
withdrawal or reassignment of Collateral which has been delivered pursuant
to Section 3.04 hereof, or as to which the Bank has otherwise perfected its
security interest, and (ii) a detailed listing of the Collateral to be
withdrawn or reassigned, provided that the Bank's valuation of such
delivered Collateral confirms that the Member's Collateral Requirement will
be satisfied after such withdrawal or reassignment, then the Bank shall
redeliver or reassign to the Member the Collateral specified in Member's
request. Notwithstanding anything to the contrary herein contained, while
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an Event of Default hereunder shall have occurred and be continuing, or at
any time that the Bank in good faith deems itself insecure, the Member may
not obtain any such withdrawal or reassignment. Further, Member agrees for
specific listings provided under Section 3.03(e) to follow the withdrawal
procedures provided for under this Section 3.05 or as otherwise specified
by the Bank.
SECTION 3.06. ADDITIONAL COLLATERAL.
The Bank may at any time require the Member to maintain and deliver to
the Bank additional Collateral over that amount of Eligible Collateral
required to meet the Member's Collateral Requirement or substitutions of
Collateral. The Member expressly agrees to maintain and deliver such
additional Collateral or substitutions of Collateral as the Bank shall
require.
SECTION 3.07. REPORTS; COLLATERAL AUDIT; ACCESS.
(a) In accordance with the Collateral Policy and at such other times
as the Bank may request, the Member shall furnish to the Bank, in a format
satisfactory to the Bank, a report so that the Bank may verify that the
member maintains Eligible Collateral with a Market Value (or unpaid
principal balance, if so required by the Bank) sufficient to meet the
Collateral Requirement. If the Market Value or unpaid principal balance of
Eligible Collateral owned by the Member, free and clear of any liens or
encumbrances, shall at any time fall below the Collateral Requirement, the
Member shall immediately notify the Bank.
(b) The Member shall provide annually an audit report prepared by the
Member's external independent auditor in accordance with generally accepted
auditing standards (and in a format acceptable to the Bank) certifying that
the Member owns, free and clear of any liens or encumbrances (except for
Bank's), Eligible Collateral with a Market Value (or unpaid principal
balance, if so required by the Bank) at least equal to the Collateral
Requirement, and deliver such report to the Bank within ninety (90) days of
each fiscal year-end of the Member, including an explanation for any
exceptions or qualifications in the report or any failure to obtain such
report. The Bank reserves the right to waive the audit report requirement
if member's Collateral is in the physical possession of the Bank or in the
Bank's sole discretion based on particular circumstances.
(c) The Member agrees that the Bank shall have access at all
reasonable times to the Collateral in the Member's possession or control
and to the Member's books and records of account relating to such
Collateral. The Member shall permit the Bank to examine, inspect, audit,
and take copies or make extracts from its books and records and to discuss
its affairs with its independent auditor (or other representatives) as
often as the Bank may reasonably request.
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(d) The Member agrees that examination reports prepared by local,
state or federal authorities may be furnished by such authorities to the
Bank upon its request, and by this Agreement, the Member authorizes and
directs such authorities to deliver such reports to the Bank and waives any
objections or restrictions thereto which it may lawfully waive. Member
agrees that upon request of the Bank, it will take any and all steps
necessary to assist the Bank in obtaining such reports from such
authorities. The Bank agrees that to the extent such reports or the
information contained therein are confidential, the Bank will use its same
degree of care in keeping such reports confidential as it applies to the
Bank's own confidential information and will not knowingly disclose any
confidential information contained therein unless required to do so by law,
rules, regulations, or judicial or regulatory process applicable to the
Bank.
(e) If requested by the Bank, the Member shall furnish to the Bank a
written report covering such matters regarding the Collateral as the Bank
may require, including listing of mortgages, securities, and unpaid
principal balances thereof, and certifications concerning the status of
payments on mortgages and of taxes and insurance on property securing
mortgages.
(f) The Member agrees to promptly report to the Bank any event which
reduces the principal balance of any mortgage or security by ten percent
(10%) or more, whether by prepayment, foreclosure sale, property-casualty
insurance or guaranty payment or otherwise.
(g) All Collateral and the satisfaction by the Member of the
Collateral Requirement shall be subject to audit and verification by or on
behalf of the Bank. Such audits and verifications may occur without notice
during the Member's normal business hours or upon reasonable notice at such
other times as the Bank may reasonably request. The Member shall provide
to the representatives or agents of the Bank for purposes of such audits
and verifications, access to all books and records related to transactions
whether made or contemplated under this Agreement. Further, Member shall
provide adequate working facilities, at Member's expense for a Bank to
conduct such audits or verifications. The Member agrees to pay to the Bank
such reasonable fees and charges as may be assessed by the Bank to cover
overhead and other costs relating to such audit and verification. The
Member further agrees that it will prepare and deliver promptly upon
request of the Bank inquiries to Member's outside auditors, outside
counsel, customers (including depositors or borrowers), and any other
person that the bank may reasonably request, to provide such information to
the Bank as it may reasonably request in connection with such audit and
verification.
SECTION 3.08. ADDITIONAL DOCUMENTATION AND STATUS REPORTS.
The Member shall at its expense make, execute, record and deliver to
the Bank such financing statements, assignments, listings, powers, notices
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and other documents with respect to the Collateral and the Bank's security
interest therein as directed by the Bank and in form and substance
satisfactory to the Bank. Upon request, Member agrees to give Bank verbal
or written reports concerning the financial condition or status of any
regulatory action maintained against the Member, its holding company, or
any affiliated entity or affiliated person.
SECTION 3.09. BANK'S RESPONSIBILITIES AS TO COLLATERAL.
The Bank's duty as to the Collateral shall be solely to use reasonable
care in the custody and preservation of the Collateral in its possession,
which shall not include any steps necessary to preserve rights against
prior parties nor the duty to send notices, perform services, or take any
action in connection with the management of the Collateral. The Bank shall
not have any responsibility or liability for the form, sufficiency,
correctness, genuineness or legal effect of any instrument or document
constituting a part of the Collateral, or any signature thereon or the
description or misdescription, or value of property represented, or
purported to be represented, by any such document or instrument. The
Member agrees that any and all Collateral may be removed by the Bank from
the state or location where situated, and may there be dealt with by the
Bank as provided in this Advances Agreement.
SECTION 3.10. BANK'S RIGHTS AS TO COLLATERAL; POWER OF ATTORNEY.
At any time or times, at the expense of the Member, the Bank may, at
its discretion, before or after the occurrence of an Event of Default as
defined in Section 4.01 hereof, in its own name or in the name of its
nominee or of the Member, do any or all things and take any and all actions
that are pertinent to the protection of the Bank's interests hereunder and
which are lawful under the laws of the State of Indiana, or the laws of any
jurisdiction under which the Bank may be exercising its rights hereunder,
including the following:
(a) Terminate any consent given hereunder;
(b) With advance notice to Member (or its legal successor), notify
obligors on any Collateral to make payments thereon directly to the Bank;
(c) Endorse any Collateral in the Member's name;
(d) Enter into any extension, compromise, settlement, or other
agreement relating to or affecting any Collateral;
(e) Take any action the Member is required to take or which is
otherwise necessary to: (i) sign and record a financing statement or
otherwise perfect a security interest in any or all of the collateral; or
(ii) obtain, preserve, protect, enforce or collect the Collateral;
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(f) Take control of any funds or other proceeds generated by the
Collateral and use the same to reduce indebtedness as it becomes due; and
(g) Cause the Collateral to be transferred to its name or the name of
its nominee.
The Member hereby appoints the Bank as its true and lawful attorney,
with full power of substitution, for and on behalf of the Member and in its
name, place and stead, to prepare, execute and record endorsements and
assignments to the Bank of all or any item of Collateral, giving or
granting to the Bank, as such attorney, full power and authority to do or
perform every lawful act necessary or proper in connection therewith as
fully as the Member might or could do. The Member hereby ratifies and
confirms all that the Bank shall lawfully do or cause to be done by virtue
of this special power of attorney. This special power of attorney is
granted for a period commencing on the date hereof and continuing until the
discharge of all indebtedness and all obligations of the Member hereunder
regardless of any default by the Member, is coupled with an interest and is
irrevocable for the period granted.
SECTION 3.11. SUBORDINATION OF OTHER LOANS TO MORTGAGE COLLATERAL.
The Member hereby agrees that all mortgage notes which are part of the
Mortgage Collateral and any notes secured by personal property ("personalty
notes") which may become part of the Other Collateral shall have priority
in right and remedy over any claims, however evidenced, for other loans,
whether made before or after the date of such mortgage or personalty notes
which are secured by the mortgages or security agreements securing such
mortgage or personalty notes but are not part of the Collateral, and shall
be satisfied out of the property covered by such mortgages or security
agreements before recourse to such property may be obtained for the
repayment of such other loans. To this end, the Member hereby subordinates
the lien of such mortgages and security agreements with respect to such
other loans to the lien of such mortgages and security agreements with
respect to such mortgage and personalty notes. The Member further agrees to
retain possession of any promissory notes evidencing such other loans and
not to pledge, assign or transfer the same, except that the same may be
pledged to the Bank as part of the Collateral. The Member, for itself and
for any other person or entity claiming by or through the Member, waives
any and all rights which it or such other person or entity may have to
require the Bank to marshal the assets of the Member or to otherwise
prioritize or sequence any class or category of Collateral with respect to
which the Bank may pursue its rights and remedies.
SECTION 3.12. PROCEEDS OF COLLATERAL.
The Member shall collect all payments when due on all Collateral. If
the Bank so requires, the Member, as the Bank's agent, shall hold such
collections separate from its other monies in one or more designated cash
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collateral accounts maintained at the Bank and apply them to the reduction
of indebtedness as it becomes due; otherwise, the Member shall be entitled
to use and dispose of all such collections in the ordinary course of
business and in compliance with all laws, rules, and regulations.
4. DEFAULT; REMEDIES.
SECTION 4.01. EVENTS OF DEFAULT; ACCELERATION.
In the event of the occurrence of any of the following events or
conditions of default ("Event of Default"), the Bank may at its option, by
a notice to the Member, declare all indebtedness and accrued interest
thereon, including any prepayment fees (including without limitation, those
fees charged pursuant to Section 2.03 and 2.04), or charges which are
payable in connection with the payment prior to the originally scheduled
maturity of any indebtedness, to be immediately due and payable without
presentment, demand, protest or any further notice:
(a) Failure of the Member to pay when due any interest on, or
principal of, any Advance or any amount payable in connection with any
Other Credit Product; or
(b) Failure of the Member to timely perform any promise or obligation
or to satisfy any condition or liability contained herein, in an
Application for Advance, Advice of Credit, or in any Other Credit Product
Agreement to which the Member and the Bank are parties; or
(c) Any representation, statement, or warranty made or furnished in
any manner to the Bank by or on behalf of the Member in connection with any
Advance or Other Credit Product or any certification of the Market Value
(or unpaid principal balance, if so required by the Bank) of Eligible
Collateral shall have been false or misleading in any material respect when
made or furnished; or
(d) Failure of the Member to maintain Eligible Collateral which has a
Market Value (or unpaid principal balance, if so required by the Bank) that
is at least equal to the then current Collateral Requirement under the
applicable blanket lien/specific listing requirements of Section 3.03 or
physical possession requirements of Section 3.04, free of any encumbrances
or claims as required herein; or
(e) The issuance of any tax levy, seizure, attachment, garnishment,
levy of execution, or other process with respect to the Collateral; or
(f) Any failure to pay or suspension of payment by the Member to any
creditor of sums due or the occurrence of any event which results in
another creditor having the right to accelerate the maturity of any
indebtedness of the Member under any security agreement, indenture, loan
agreement, or comparable undertaking; or
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(g) Application for or appointment of a conservator, receiver, or
trustee for the Member or of any affiliate or subsidiary of the Member or
the Member's property, entry of a judgment or decree adjudicating the
Member or any affiliate or subsidiary of Member insolvent or bankrupt, or
an assignment by the Member or any affiliate or subsidiary of the Member
for the benefit of creditors; or
(h) Sale by the Member of all or a material part of the Member's
assets or the taking of any other action by the Member to liquidate or
dissolve; or
(i) Termination of the Member's membership in the Bank, or the
Member's ceasing to be a type of financial institution that is eligible
under the Bank Act to borrow or apply for membership in the Bank; or
(j) Merger, consolidation or other combination of the Member with an
entity which is not a member of the Bank if the nonmember entity is the
surviving entity; or
(k) With respect to Advances made pursuant to Section 11(g)(4) of the
Bank Act (12 USC 1431(g)), if the creditor liabilities of the Member,
excepting liabilities to the Bank, are increased in any manner to an amount
exceeding five percent (5%) of the Member's net assets; or
(l) Member threatens or initiates legal action to challenge an
otherwise legally enforceable provision under this Advances Agreement in an
attempt to make the Bank insecure under this Advances Agreement; or
(m) The Bank in good faith determines that a material adverse change
has occurred in the financial condition of the Member (including its
holding company or other affiliates), or the Member fails to comply with
the Bank's Credit Policies or other applicable policies including the
requirement of creditworthiness as determined by the Bank at its
discretion.
SECTION 4.02. REMEDIES; SET OFF; SPECIFIC PERFORMANCE.
(a) Upon the occurrence of any Event of Default, the Bank shall have
all of the rights and remedies provided by applicable law, which shall
include, but not be limited to, all of the remedies of a secured party
under the Uniform Commercial Code as in effect in the State of Indiana,
Section 10 of the Bank Act (12 USC 1430), and other applicable federal law.
In addition, the Bank may take immediate possession of any of the
Collateral or any part thereof wherever the same may be found without
judicial process. The Bank may require the Member to assemble the
Collateral and make it available to the Bank at a place designated by the
Bank which is reasonably convenient to both parties. The Bank may sell,
assign and deliver the Collateral or any part thereof at public or private
sale for such price as the Bank deems appropriate without any liability for
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any loss due to decrease in the market value of the Collateral during the
period held. The Bank shall have the right to purchase all or part of the
Collateral at such sale. If the Collateral includes insurance or
securities which will be redeemed by the issuer upon surrender, or any
accounts or deposits in the possession of the Bank, the Bank may realize
upon such Collateral without notice to the Member. If any notification of
intended disposition of any of the Collateral is required by applicable
law, such notification shall be deemed reasonable and properly given if
mailed, postage prepaid, at least five (5) days before any such disposition
to the address of the Member appearing on the records of the Bank. The
proceeds of any sale shall be applied in the order that the Bank, in its
sole discretion, may choose. The Member agrees to pay all the costs and
expenses of the Bank in the collection of the indebtedness and enforcement
of the Bank's rights and remedies in case of default, including, without
limitation, reasonable attorneys' fees. The Bank shall, to the extent
required by law, apply any surplus after (i) payment of the indebtedness,
(ii) provision for repayment to the Bank of any amounts to be paid or
advanced under Outstanding Commitments, and (iii) all costs of collection
and enforcement, to third parties claiming a secondary or other security
interest in the Collateral, with any remaining surplus paid to the Member.
The Member shall be liable to the Bank for any deficiency remaining.
(b) If the indebtedness, accrued interest thereon and other amounts
or charges owing by the Member shall have become due and payable (by
acceleration or otherwise), the Bank shall have the right, at any time or
from time to time to the fullest extent permitted by law, in addition to
all other rights and remedies available to it, without prior notice to the
Member, to set off against and to appropriate and apply to such due and
payable amounts any debt owing to, and any other funds held in any manner
for the account of, the Member by the Bank, including without limitation,
all Bank Deposits now or hereafter maintained by the Member with the Bank.
Such right shall exist whether or not such debt owing to, or funds held for
the account of, the Member is matured or unmatured, and regardless of the
existence or adequacy of any collateral, guaranty or any other security,
right or remedy available to the Bank. The Member hereby consents to and
confirms the foregoing arrangements and confirms the Bank's rights of
banker's lien and set off. Nothing in this Advances Agreement shall be
deemed a waiver or prohibition of or restriction on the Bank's rights of
banker's lien or set off.
(c) The Member acknowledges that the breach by the Member of the
provisions of this Agreement and in particular Section 3.04 hereof would
cause irreparable injury to the Bank and that remedies at law for any such
breach will be inadequate, and consents and agrees that the Bank shall be
entitled, without the necessity of proof of actual damage, to specific
performance of the terms of this Agreement and to injunctive relief in any
proceedings which may be brought to enforce the provisions of this
Agreement. The Member waives the right to assert the defense that such
breach or violation can be compensated adequately in damages in an action
of law.
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5. MISCELLANEOUS.
SECTION 5.01. GENERAL REPRESENTATIONS, WARRANTIES AND INDEMNIFICATIONS BY
THE MEMBER.
The Member hereby represents and warrants that, as of the date hereof
and the date of each Advance or Other Credit Product hereunder:
(a) The Member will truly and accurately represent and warrant its
status as a Qualified Thrift Lender ("QTL") as defined in the Bank Act on
any Application for Advance or Other Credit Product Agreement between
Member and the Bank, if a non-QTL member, the Member warrants that Advances
made under Section 10(a) of the Bank Act (12 USC 1430 (a)), shall be for
the purposes of housing finance.
(b) The Member will truly and accurately represent and warrant the
purpose of any Advance or Other Credit Product on any Application for
Advance or Other Credit Product Agreement between Member and the Bank.
(c) The Member will promptly furnish any financial, collateral or
other information requested by the Bank in connection with any Advance or
Other Credit Product.
(d) The Member is not, and neither the execution of nor the
performance of any transactions or obligations of the Member under any
Advice of Credit, Application for Advance, Other Credit Product Agreement
or this Advances Agreement shall, with the passage of time, the giving of
notice or otherwise, cause the Member to be: (i) in violation of its
charter or articles of incorporation, bylaws, the Bank Act, the FHFB
Regulations, any other law or administrative regulation, agreement, or any
court decree; or (ii) in default or in breach of any indenture, contract,
or other instrument or agreement to which the Member is a party or by which
it or any of its property is bound or any default under, breach of, or
failure to comply with any judgment, order, decree, regulatory directive,
or other process of any court or agency having jurisdiction of or which is
binding upon the Member.
(e) The Member is not in default under any Advice of Credit or Other
Credit Product Agreement with the Bank.
(f) The Member has full power and authority and has received all
corporate and governmental authorizations and approvals (including without
limitation, those required under the Bank Act and the FHFB Regulations) as
may be required to enter into and perform its obligations under any Advice
of Credit, Application for Advance, Other Credit Product Agreement or this
Advances Agreement, and to obtain Advances and Other Credit Products.
(g) The information given by the Member in any writing provided,
electronic transmission or in any oral statement made, in connection with
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any Application for Advance or Other Credit Product Agreement, is at all
relevant times true, accurate and complete in all material respects.
(h) The Member will at all times maintain and accurately reflect the
terms of this Advances Agreement (including the Bank's security interest in
the Collateral) and all Advances and Other Credit Products hereunder on its
books and records.
(i) The Member and its successors and assigns (collectively referred
to in this Section 5.01(i) as "Member") shall indemnify and hold the Bank
harmless from and against any and all costs, claims, expenses, damages and
liabilities with respect to any action which may be instituted by any
person or entity against the Bank as a result of any transaction, including
without limitation, Bank credit extensions, services, and Other Credit
Products contemplated by this Advances Agreement or action or nonaction
arising from this Advances Agreement, except where the same results solely
from the recklessness or willful misconduct of the Bank. In addition, the
Member shall indemnify and hold the Bank harmless from and against any and
all costs, claims, expenses, damages, and liabilities resulting in any way
from the presence or effects of any toxic or hazardous substances or
materials in, on, or under any real property or interest in real property
that is subject to or including the Collateral. The Member also agrees to
reimburse the Bank for such reasonable fees and charges as may be assessed
by the Bank to cover overhead and other cost, including reasonable
attorneys' fees, incurred either under this indemnification provision or in
the administration of this Advances Agreement, any Advice of Credit or
Other Credit Product Agreement.
SECTION 5.02. ASSIGNMENT.
The Bank may assign or negotiate to any other Federal Home Loan Bank
or to any other person or entity, with or without recourse, any
indebtedness of the Member or participations therein, and the Bank may
assign or transfer all or any part of the Bank's right, title, and interest
in and to this Advances Agreement and may assign and deliver the whole or
any part of the Collateral to the transferee, which shall succeed to all
the powers and rights and duties of the Bank in respect thereof, and the
Bank shall thereafter be forever relieved and fully discharged from any
liability or responsibility with respect to the transferred Collateral.
The Member may not assign or transfer any of its rights or obligations
hereunder (by operation of law, the appointment of a receivership, or
otherwise) without the express prior written consent of the Bank.
SECTION 5.03. DISCRETION OF THE BANK TO GRANT OR DENY ADVANCES AND OTHER
CREDIT PRODUCTS.
Nothing contained herein or in any documents or oral representations
describing or setting forth the Bank's credit programs or Credit Policies
shall be construed as an agreement or commitment on the part of the Bank to
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grant Advances or extend Other Credit Products hereunder, the right and
power of the Bank in its discretion to either grant or deny any Advance or
Other Credit Product requested hereunder being expressly reserved.
SECTION 5.04. AMENDMENT; WAIVERS.
No modification, amendment or waiver of any provision of this Advances
Agreement or consent to any departure therefrom shall be effective unless
executed by the party against whom such change is asserted and shall be
effective only in the specific instances and for the purpose for which
given. No notice to or demand on the Member in any case shall entitle the
Member to any other or further notice or demand in the same, or similar or
other circumstances. Any forbearance, failure or delay by the Bank in
exercising any right, power or remedy hereunder shall not be deemed to be a
waiver thereof, and any single or partial exercise by the Bank of any
right, power or remedy hereunder shall not preclude the further exercise
thereof. Every right, power and remedy of the Bank shall continue in full
force and effect until specifically waived by the Bank in writing.
SECTION 5.05. JURISDICTION; LEGAL FEES.
In any action or proceeding brought by the Bank or the Member in order
to enforce any right or remedy under this Advances Agreement, the parties
hereby consent to, and agree that they will submit to, the jurisdiction of
the United States District Court for the Southern District of Indiana or,
if such action or proceeding may not be brought in federal court, the
jurisdiction of the courts of the State of Indiana located in Marion
County. The Member agrees that, if any action or proceeding is brought by
the Member seeking to obtain any legal or equitable relief against the Bank
under or arising out of this Advances Agreement or any transaction
contemplated hereby, and such relief is not granted by the final decision,
after any and all appeals, of a court of competent jurisdiction, the Member
shall promptly pay upon demand all attorneys' fees and other costs incurred
by the Bank in connection therewith. Further, the Member agrees that is
any action or proceeding is brought by the Bank in connection with the
successful enforcement of any of the Bank's rights or remedies hereunder or
otherwise or if the services of legal counsel are required in connection
with the administration of the credit facilities contemplated hereby, the
Member shall pay promptly upon demand all attorneys' fees and other costs
incurred by the Bank in connection therewith.
SECTION 5.06. WAIVER OF JURY TRIAL.
To the extent allowed by law, the Member hereby waives the right to a
jury trial in any action or proceeding brought by or against the Member
regarding this Agreement, the Collateral, Other Credit Products, or the
credit facilities contemplated hereby.
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SECTION 5.07. NOTICES.
Except as provided in the last sentence of this Section 5.07, any
written notice, advice, request, consent or direction given, made or
withdrawn pursuant to this Agreement shall be either in writing or
transmitted electronically and reproduced mechanically by the addresses and
shall be given by first class mail, postage prepaid, or by telecopy or
other facsimile transmission, or by private courier or delivery service.
Except for notices made under Section 4.02, all non-oral notices shall be
deemed given when actually received at the principal office of the Bank or
the Member, as appropriate. All notices shall be designated to the
attention of an office or section of the Bank or of the Member if the Bank
or the Member has made a request for the notice to be so addressed. Any
notice by the Bank to the Member pursuant to Sections 2.01, 3.03, 3.04 or
3.05 hereof may be oral and shall be deemed to have been duly given to and
received by the Member at the time of the oral communication.
SECTION 5.08. SIGNATURES OF MEMBER; ACCEPTANCE BY BANK.
(a) For purposes of this Advances Agreement, documents shall be
deemed signed by the Member when a signature of an authorized signatory or
an authorized facsimile thereof appears on the document. The Bank may rely
on any signature or facsimile thereof which reasonably appears to the Bank
to be the signature of an authorized person, including signatures appearing
on documents transmitted electronically to and reproduced mechanically at
the Bank. The Secretary, the Cashier, the Assistant Secretaries, or the
Assistant Cashiers of the Member shall from time to time certify to the
Bank on forms provided by the Bank the names and titles of the persons
authorized to apply on behalf of the Member to the Bank for Advances and
Other Credit Products. Such certifications are incorporated herein and
made a part of this Advances Agreement and shall continue in effect until
expressly revoked by the Member notwithstanding that subsequent
certifications may authorize additional persons to act for an on behalf of
Member.
(b) This Agreement shall only be binding upon the Bank when accepted
and executed by the Bank by two duly authorized officers and shall be
deemed accepted by and delivered to the Bank at its home office in
Indianapolis, Indiana.
SECTION 5.09. APPLICABLE LAW; SEVERABILITY.
In addition to the terms and conditions specifically set forth herein
and in any Advice of Credit or Other Credit Product Agreement between the
Bank and the Member, this Advances Agreement and all Advances and Other
Credit Products extended hereunder shall be governed by the statutory and
common law of the United States and, to the extent federal law incorporates
or defers to state law, the laws (exclusive of the choice of law
provisions) of the State of Indiana, including the Uniform Commercial Code
-22-
<PAGE>
as in effect in the State of Indiana. In the event that any portion of
this Advances Agreement conflicts with applicable law or the Credit
Policies, such conflict shall not affect other provisions of this Advances
Agreement which can be given effect without the conflicting provisions, and
to this end and the provisions of this Advances Agreement are declared to
be severable.
SECTION 5.10. INTEREST RATE LIMITATIONS.
Notwithstanding anything contained herein to the contrary, the
obligations of the Member to make payments of interest shall be subject to
the limitation that payments of interest shall not be required to be made
to the Bank to the extent that its receipt thereof would not be permissible
under the law or laws applicable to the Bank limiting rates of interest
which may be charged or collected by the Bank. Any such payments of
interest which are not made as a result of the limitation referred to in
the preceding sentence shall be made by the Member to the Bank on the
earliest interest payment date or dates on which the receipt thereof would
be permissible under the laws applicable to the Bank limiting rates of
interest which may be charged or collected by the Bank.
SECTION 5.11. SUCCESSORS AND ASSIGNS.
This Advances Agreement shall be binding upon and inure to the benefit
of the successors and assigns of the Member and the Bank, providing that
the Member may not assign any of its rights or obligations hereunder (by
operation of law, the appointment of a receivership, or other) without the
prior written consent of the Bank. The Bank may sell, transfer or assign
or grant participation in Advances or Other Credit Products.
SECTION 5.12. REMEDIES CUMULATIVE.
All rights and remedies provided herein or otherwise at law or in
equity shall be cumulative, and are in addition to, and not exclusive of,
any rights or remedies provided by law, including without limitation, the
rights and remedies of a secured party under federal law and the Uniform
Commercial Code as it is in effect from time to time in Indiana, including
the right of the Bank to retain the Collateral in satisfaction of the
Indebtedness. The exercise of one or more thereof shall not preclude, or
be deemed an election of remedies against, any other remedy, right or
privilege contained herein or provided to the Bank by law, rule, or
regulation or at equity.
SECTION 5.13. RECORDS OF BANK PRESUMED ACCURATE.
The books and records of the Bank with respect to the Indebtedness,
the Member's accounts or any other obligations of the Member hereunder or
otherwise owning to the Bank shall be presumed to be accurate, complete,
and binding upon the Member, absent fraud or willful misconduct on the part
of the Bank with respect to such account or obligation.
-23-
<PAGE>
SECTION 5.14. ENTIRE AGREEMENT.
This Advances Agreement and the other documents referenced herein
relating to Advances and Other Credit Products embody the entire Agreement
and Understanding between the parties hereto relating to the subject matter
hereof. This Advances Agreement amends, restates and supersedes all prior
agreements between such parties which relate to such subject matter, and
all Advances and Other Credit Products made by the Bank to the Member prior
to the execution of this Advances Agreement shall be governed by the terms
of this Advances Agreement and not by the terms of the prior agreement.
The Agreement and the other documents contemplated hereby or delivered in
connection herewith shall be construed consistently with each other in
order to best effectuate the intent of the Member and the Bank in entering
into the relationships contemplated by all these agreements. The
agreements referenced herein constitute the sole and entire agreement of
the parties and no statement or promise has been made with respect to the
subject matter of these agreements other than as expressed herein. In the
event of a conflict between the terms of this Agreement and any of the
other such documents, the provisions of this Agreement shall control,
except with respect to any note, whose respective terms shall control.
IN WITNESS WHEREOF, the Member and the Bank have caused this Advances
Agreement to be signed in their names by their duly authorized officers as
of the date first above mentioned.
SPARTA STATE BANK FEDERAL HOME LOAN BANK OF
(Full Name of Member) INDIANAPOLIS
By: /S/ MARVIN J. BESTEMAN By: /S/ MILTON J. MILLER
Its: PRESIDENT & CEO Its: SENIOR VICE PRESIDENT
By: /S/ KELLY POTES By: /S/ TIM [ILLEGIBLE]
Its: ASSISTANT VICE PRESIDENT Its: VICE PRESIDENT
-24-
<PAGE>
FEDERAL HOME LOAN BANK OF INDIANAPOLIS
MEMBER ACKNOWLEDGMENT
AND NOTARIZATION
State of MICHIGAN )
) ss.
County of KENT )
On this 12TH day of MAY, 1993, before me personally
came MARVIN J. BESTEMAN and KELLY POTES, to me known, who,
being by me duly sworn, did depose and state that they are the
PRESIDENT & CEO and ASSISTANT VICE PRESIDENT of said Member; and that
they signed their names thereto by order of the Board of Directors of
other governing body of said Member and that said MARVIN J. BESTEMAN
and KELLY POTES are duly authorized and acknowledged the execution of
said instrument to be the voluntary act and deed of said Member.
/S/ PATRICIA A. BRADFORD (SEAL)
Notary Public Signature
PATRICIA A. BRADFORD
Printed Name
My Commission Expires: 9-3-95
My County of Residence: KENT COUNTY, MI
-25-
<PAGE>
EXHIBIT 13
1ST COMMUNITY BANCORP, INC.
1996 ANNUAL REPORT
[PICTURE OF CALENDAR CLOCK]
<PAGE>
TABLE OF CONTENTS
1st Community Bancorp, Inc.
================================================================================
LETTER TO SHAREHOLDERS 2
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 3
- --------------------------------------------------------------------------------
1996 TIMELINE 4-5
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS 6-9
- --------------------------------------------------------------------------------
NOTES 10-22
- --------------------------------------------------------------------------------
AUDITORS' REPORT 23
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS 24-31
- --------------------------------------------------------------------------------
CORPORATE AND SHAREHOLDER INFORMATION 32
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS 33
================================================================================
1
<PAGE>
LETTER TO SHAREHOLDERS
1st Community Bancorp, Inc.
[PHOTOGRAPH OF JAE M. MAXFIELD AND L. EDMOND EARY, JR., M.D.]
DEAR SHAREHOLDERS:
The year of 1996 proved to be another milestone for your company in many
respects. Net income reached an all time high of $1,695,000 which was a 16%
increase over 1995. Earnings per share of $3.50 for 1996 was $.40 or 13%
greater than 1995. Return on shareholders' equity improved in 1996 to
12.00% from 11.09% in 1995. Cash dividends totaling $1.37 per share were
paid in 1996 versus $1.18 per share in 1995.
Asset growth during 1996 of 29% was a direct result of loan expansion in
all areas of the portfolio. Deposit growth was less than loan growth. The
Bank was able to meet client credit needs last year by using funds made
available through the Federal Home Loan Bank. The Bank's continued ability
to fund client credit requests will be dependent upon developing
alternative sources of funds and buyers for loans generated.
The economy and financial services industry in general was strong last
year. The expanding economy translated into higher loan demand and low
losses from loan charge-offs. The markets we serve have been especially
exciting in terms of new home building and business growth. We believe all
indicators currently point to another good year in 1997. We are, however,
concerned about the rising debt levels and delinquencies being seen
nationally in the consumer sector.
During 1996, we concentrated on expanding delivery of our services to
existing and potential clients. To better define our company as being able
to offer additional financial services such as insurance and investments,
we changed the names of our Bank and Insurance Agency. We opened a branch
in Cedar Springs to better serve our clients in that community. We acquired
an insurance agency and opened a branch on Plainfield Avenue in Grand
Rapids. We expanded the alternative investments services of our Bank to
better serve clients wanting to invest in mutual funds and annuities. An
accounts receivable financing department was formed to better serve rapidly
expanding small businesses. Also, several new mortgage products were
introduced in response to client requests.
A common saying is that "you can't be all things to all people." While that
may be a true generalization, we believe we must be as many things to as
many people as we can to be true to our franchise as a community bank and
our mission statement of meeting customer expectations. We have been
diligently working to eliminate from our vocabulary the words "can't, won't
and no." The results of prudently doing so during 1996 speak for
themselves.
We are continuing to change and adapt to the evolving financial services
industry. We are committed to changing from an operationally driven company
to one focused on marketing to and serving our clients individually. During
1997 we intend to commit significant resources for personnel training and
technology to better understand and serve our markets. We see great
opportunity for an organization such as ours. As the financial services
industry continues to migrate toward a land of huge, product-driven
companies and smaller, client-oriented organizations such as ours, we
believe we should do very well if we continue to adapt.
We want to thank Walt Hill for his faithful service as one of your
company's directors. Walt retired from the Board in August 1996.
Thank you for your continued support and please give us an opportunity to
serve any financial needs you may have.
Sincerely,
/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.
Chairman
2
<PAGE>
FINANCIAL HIGHLIGHTS
1st Community Bancorp, Inc.
<TABLE>
<CAPTION>
FOR THE YEAR (IN THOUSANDS) 1996 1995 1994 1993 1992
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income . . . . . . . $ 5,754 $ 4,931 $ 4,468 $ 4,264 $ 4,495
Provision for loan losses . . . . 523 164 126 121 420
Noninterest income. . . . . . . . 1,555 656 597 710 708
Noninterest expense . . . . . . . 4,436 3,448 3,340 3,225 3,099
Income before income taxes and
cumulative effect of changes in
accounting principles . . . . . 2,350 1,975 1,599 1,628 1,684
Income tax expense. . . . . . . . 655 511 356 372 389
Income before cumulative effect of
changes in accounting principles 1,695 1,464 1,243 1,256 1,295
Cumulative effect of changes in
accounting principles . . . . . -- -- -- -- 28
Net income. . . . . . . . . . . . 1,695 1,464 1,243 1,256 1,267
Cash dividends declared . . . . . 663 551 469 429 409
PER SHARE<F*>
Income before cumulative effect of
changes in accounting principles $ 3.50 $ 3.10 $ 2.55 $ 2.58 $ 2.66
Cumulative effect of changes in
accounting principles . . . . . -- -- -- -- .06
Net income. . . . . . . . . . . 3.50 3.10 2.55 2.58 2.60
Cash dividends. . . . . . . . . . 1.37 1.18 .96 .88 .84
Shareholders' equity. . . . . . . 30.12 29.66 26.44 26.60 24.30
AVERAGE FOR THE YEAR (IN THOUSANDS)
Securities. . . . . . . . . . . . $ 22,547 $ 27,609 $ 31,122 $ 31,079 $ 32,406
Gross loans . . . . . . . . . . . 94,461 74,223 68,077 64,705 60,396
Deposits. . . . . . . . . . . . . 95,210 91,446 90,772 89,448 86,045
Shareholders' equity. . . . . . . 14,129 13,200 12,922 12,325 11,506
Assets. . . . . . . . . . . . . . 123,134 107,552 105,445 103,155 99,492
AT YEAR END (IN THOUSANDS)
Securities. . . . . . . . . . . . $ 23,006 $ 23,187 $ 30,410 $ 32,315 $ 30,058
Gross loans . . . . . . . . . . . 110,099 79,082 69,410 66,844 64,784
Deposits. . . . . . . . . . . . . 95,606 92,902 91,236 88,630 87,107
Shareholders' equity. . . . . . . 14,537 13,784 12,876 12,954 11,834
Assets . . . . . . . . . . . . . 141,731 109,916 106,137 104,542 101,372
RATIOS
Return on average assets. . . . . 1.38% 1.36% 1.18% 1.22% 1.27%
Return on average shareholders'
equity . . . . . . . . . . . . 12.00 11.09 9.62 10.19 11.01
Dividend payout
Cash (based on net income). . . 39.12 37.64 37.73 34.16 32.28
Stock (based on shares
outstanding) . . . . . . . . None 20.00 25.00 None 20.00
Shareholders' equity to assets (at
year end) . . . . . . . . . . . 10.26 12.54 12.13 12.39 11.67
<FN>
<F*> Per share amounts are retroactively adjusted for the effect of stock
splits and stock dividends.
</FN>
</TABLE>
[CHART - BOOK VALUE PER SHARE AT YEAR END*]
[CHART - RETURN ON AVERAGE SHAREHOLDERS' EQUITY]
[CHART - RETURN ON AVERAGE ASSETS]
[CHART - NET INCOME]
3
<PAGE>
[LOGO - 1ST COMMUNITY BANCORP, INC.]
1996
TIMELINE
[PICTURE OF CALENDAR CLOCK]
4
<PAGE>
[PICTURE OF CALENDAR CLOCK]
[LOGO - CHOICEONE]
JANUARY:
- - Business combination with Bradford Insurance Centre is finalized.
- - Business Manager, an accounts receivable financing program for
commercial clients, is launched.
FEBRUARY:
- - The Omega Insurance Agency joins our insurance subsidiary team.
- - Sparta State Bank joins the Internet as our home page is introduced.
MARCH:
- - Choice24, a 24 hour telephone banking program, is introduced to the
bank's customer base.
- - Sparta State Bank appears as an exhibitor at the West Michigan Home &
Garden Show at the Grand Center in Grand Rapids.
APRIL:
- - The new names of "ChoiceOne Bank," and "ChoiceOne Insurance Agencies,
Inc.," are introduced to the shareholders at the Annual Shareholders'
Meeting.
MAY:
- - Rachel Vanin Miller joins our staff as the retail and commercial
development manager for the Grand Rapids bank office.
JUNE:
- - The Grand Rapids office opens for business as a private banking center.
This office is the first to offer banking, insurance, and investment
services in one center.
JULY:
- - The Cedar Springs office begins conducting business from a temporary
facility located on the same property where a permanent facility is
being planned.
- - Sparta Sesquicentennial Celebration takes place. Our organization
commits itself financially and by encouraging a number of staff members
to participate in many of the week long festivities. Our popcorn
wagon makes its debut.
AUGUST:
- - The Grand Rapids office holds its Open House and introduces its newly
designed drive up A.T.M. facility.
SEPTEMBER:
- - Development begins on the design of the Cedar Springs office which will
also provide banking, insurance, and investment services in one center.
OCTOBER:
- - Introduction of the bank's new debit card program, "ChoiceCheck," takes
place. The bank's regular automatic teller machine (A.T.M.) cards are
replaced with, "ChoiceCash," A.T.M. cards.
- - Sherry Conklin joins our staff as the retail & commercial development
manager for the Cedar Springs office.
- - We show support to the Cedar Springs Red Flannel Parade by submitting
our own float and a crowd of enthusiastic staff members to walk along the
parade route.
NOVEMBER:
- - A groundbreaking ceremony takes place as construction begins in Cedar
Springs.
- - We show support to the Sparta Chamber of Commerce by supplying
staff members to help with Santa's Arrival party.
DECEMBER:
- - An appreciation luncheon is held for our clients at the Michigan
Horticultural Society Convention in Grand Rapids.
- - We show our appreciation to the communities we serve by holding our 22nd
annual Christmas coffee. Neighbors, friends and clients are welcomed to
shop, chat, and sample some homemade goodies supplied by our staff
members.
- - Support is shown towards our local school system by inviting 1st graders
to decorate our huge Christmas tree. This tradition goes back to the
70's. Close to 400 students are given bank tours every year.
5
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
1st Community Bancorp, Inc.
<CAPTION>
DECEMBER 31,
1996 1995
-------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks (Note 4). . . . . . . . . . . . . . . . $ 4,952,000 $ 4,806,000
Securities available for sale (Note 5). . . . . . . . . . . . . 20,451,000 22,602,000
Other securities (Note 5) . . . . . . . . . . . . . . . . . . . 2,555,000 585,000
Loans (Note 6). . . . . . . . . . . . . . . . . . . . . . . . . 110,079,000 79,082,000
Allowance for loan losses (Note 7). . . . . . . . . . . . . . . (1,487,000) (1,121,000)
------------------------------
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . 108,592,000 77,961,000
Premises and equipment--net (Note 8) . . . . . . . . . . . . . 2,987,000 2,513,000
Accrued interest receivable . . . . . . . . . . . . . . . . . . 859,000 773,000
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . 1,335,000 676,000
------------------------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . $ 141,731,000 $ 109,916,000
==============================
LIABILITIES
Deposits
Demand. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,188,000 $ 10,483,000
Interest-bearing transaction accounts . . . . . . . . . . . . 22,732,000 25,167,000
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,158,000 9,369,000
Time (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . 50,528,000 47,883,000
------------------------------
Total deposits. . . . . . . . . . . . . . . . . . . . . . . 95,606,000 92,902,000
Federal funds purchased and securities sold under
agreements to repurchase (Note 10) . . . . . . . . . . . . . 4,731,000 1,000,000
Accrued interest payable. . . . . . . . . . . . . . . . . . . . 435,000 339,000
Federal Home Loan Bank advances (Note 11) . . . . . . . . . . . 25,200,000 1,000,000
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . 1,222,000 891,000
------------------------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . 127,194,000 96,132,000
COMMITMENTS AND CONTINGENCIES (NOTE 13)
SHAREHOLDERS' EQUITY
Common stock, $10 par value; shares authorized: 1,000,000;
shares outstanding: 482,710 in 1996 and 464,803 in 1995 . . . 4,827,000 4,648,000
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,292,000 5,612,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 4,305,000 3,273,000
Net unrealized appreciation on securities available for sale,
net of $58,000 and $130,000 of deferred tax liability in 1996
and 1995, respectively . . . . . . . . . . . . . . . . . . . 113,000 251,000
------------------------------
Total shareholders' equity. . . . . . . . . . . . . . . . . 14,537,000 13,784,000
------------------------------
Total liabilities and shareholders' equity . . . . . . . . $ 141,731,000 $ 109,916,000
==============================
</TABLE>
See accompanying notes to the consolidated financial statements.
6
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
1st Community Bancorp, Inc.
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994
-----------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees . . . . . . . . . . . . $ 9,050,000 $ 7,099,000 $ 5,759,000
Securities
Taxable . . . . . . . . . . . . . . . . . . 916,000 1,181,000 1,300,000
Nontaxable. . . . . . . . . . . . . . . . . 450,000 511,000 567,000
Other . . . . . . . . . . . . . . . . . . . . 3,000 8,000 29,000
-----------------------------------------------
Total interest income . . . . . . . . . . 10,419,000 8,799,000 7,655,000
INTEREST EXPENSE
Deposits. . . . . . . . . . . . . . . . . . . 3,919,000 3,760,000 3,154,000
Federal Home Loan Bank advances . . . . . . . 592,000 2,000 --
Other . . . . . . . . . . . . . . . . . . . . 154,000 106,000 33,000
-----------------------------------------------
Total interest expense. . . . . . . . . . 4,665,000 3,868,000 3,187,000
-----------------------------------------------
NET INTEREST INCOME. . . . . . . . . . . . . . 5,754,000 4,931,000 4,468,000
PROVISION FOR LOAN LOSSES (NOTE 7) . . . . . . 523,000 164,000 126,000
-----------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,231,000 4,767,000 4,342,000
NONINTEREST INCOME
Service charges on deposit accounts . . . . . 312,000 314,000 266,000
Other service charges and fees. . . . . . . . 116,000 106,000 106,000
Net security gains. . . . . . . . . . . . . . -- -- 3,000
Mortgage loan sales and servicing . . . . . . 105,000 93,000 100,000
Insurance commission income . . . . . . . . . 811,000 -- --
Other income. . . . . . . . . . . . . . . . . 211,000 143,000 122,000
-----------------------------------------------
Total noninterest income. . . . . . . . . 1,555,000 656,000 597,000
NONINTEREST EXPENSE
Salaries and wages (Note 12). . . . . . . . . 2,097,000 1,462,000 1,327,000
Pension and other employee benefits (Note 12) 269,000 278,000 265,000
Occupancy expense . . . . . . . . . . . . . . 272,000 200,000 193,000
Furniture and equipment expense . . . . . . . 385,000 275,000 267,000
Other expense (Note 14) . . . . . . . . . . . 1,413,000 1,233,000 1,288,000
-----------------------------------------------
Total noninterest expense . . . . . . . . 4,436,000 3,448,000 3,340,000
INCOME BEFORE INCOME TAX . . . . . . . . . . . 2,350,000 1,975,000 1,599,000
INCOME TAX EXPENSE (NOTE 15) . . . . . . . . . 655,000 511,000 356,000
-----------------------------------------------
NET INCOME . . . . . . . . . . . . . . . . . . $ 1,695,000 $ 1,464,000 $ 1,243,000
===============================================
EARNINGS PER SHARE (NOTE 2). . . . . . . . . . $ 3.50 $ 3.10 $ 2.55
===============================================
</TABLE>
See accompanying notes to the consolidated financial statements.
7
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
1st Community Bancorp, Inc.
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
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, 1994 . . . . . . . $ 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
20% stock dividend. . . . . . . . . . . . 773,000 2,128,000 (2,906,000) -- (5,000)
Cash dividends ($1.18 per share) . . . . -- -- (551,000) -- (551,000)
--------------------------------------------------------------------------------
Balances at December 31, 1995 . . . . . . 4,648,000 5,612,000 3,273,000 251,000 13,784,000
Issuance of 20,610 shares of stock to
affect a business combination of
insurance subsidiary . . . . . . . . . 206,000 (232,000) -- -- (26,000)
Net income for the year . . . -- -- 1,695,000 -- 1,695,000
Repurchase of 2,703 shares of stock . . . (27,000) (88,000) -- -- (115,000)
Change in net unrealized appreciation
(depreciation) on securities available
for sale, net of tax of $71,000 . . . . -- -- -- (138,000) (138,000)
Cash dividends ($1.37 per share) . . . . -- -- (663,000) -- (663,000)
--------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1996 $ 4,827,000 $ 5,292,000 $ 4,305,000 $ 113,000 $ 14,537,000
================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
8
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
1st Community Bancorp, Inc.
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994
-----------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income. . . . . . . . . . . . . . . . . . . $ 1,695,000 $ 1,464,000 $ 1,243,000
Adjustments to reconcile net income to net cash
from operating activities
Net gain on sale of securities. . . . . . . . -- -- (3,000)
Net amortization on securities. . . . . . . . 65,000 144,000 175,000
Net gain on sale of loans . . . . . . . . . . (70,000) (31,000) (25,000)
Provision for loan losses . . . . . . . . . . 523,000 164,000 126,000
Depreciation. . . . . . . . . . . . . . . . . 288,000 233,000 230,000
Loss on abandonment of premises and equipment -- -- 13,000
Deferred income tax benefit . . . . . . . . . (61,000) (42,000) (20,000)
Changes in:
Interest receivable . . . . . . . . . . . . (86,000) 78,000 8,000
Other assets. . . . . . . . . . . . . . . . (526,000) (5,000) 148,000
Interest payable. . . . . . . . . . . . . . 96,000 48,000 6,000
Other liabilities . . . . . . . . . . . . . 331,000 157,000 61,000
-----------------------------------------------
Net cash from operating activities . . . 2,255,000 2,210,000 1,962,000
-----------------------------------------------
Cash flows from investing activities
Securities available for sale:
Proceeds from sales of securities . . . . . . 1,874,000 2,179,000 2,745,000
Proceeds from maturities of securities . . . 3,504,000 4,894,000 6,182,000
Purchases of securities . . . . . . . . . . . (5,472,000) (595,000) (7,674,000)
Securities held to maturity:
Proceeds from maturities of securities. . . . -- 2,179,000 1,380,000
Purchases of securities . . . . . . . . . . . -- (350,000) (2,191,000)
Net customer loan activity. . . . . . . . . . . (31,084,000) (9,723,000) (2,628,000)
Net expenditures for premises and equipment . . (762,000) (236,000) (36,000)
-----------------------------------------------
Net cash used in investing activities . . . (31,940,000) (1,652,000) (2,222,000)
-----------------------------------------------
Cash flows from financing activities
Net increase in deposits. . . . . . . . . . . . 2,704,000 1,666,000 2,606,000
(Decrease)/increase in federal funds purchased
and securities sold under agreements to
repurchase . . . . . . . . . . . . . . . . . 3,731,000 -- (1,000,000)
Increase in Federal Home Loan Bank advances . . 24,200,000 1,000,000 --
Effect of business combination of insurance
subsidiary . . . . . . . . . . . . . . . . . (26,000) -- --
Repurchase of 1st Community Bancorp, Inc. common
stock . . . . . . . . . . . . . . . . . . . . (115,000) (815,000) --
Cash dividends paid . . . . . . . . . . . . . . (663,000) (551,000) (469,000)
-----------------------------------------------
Net cash from financing activities. . . . . 29,831,000 1,300,000 1,137,000
-----------------------------------------------
Net change in cash and cash equivalents. . . . . 146,000 1,858,000 877,000
Cash and cash equivalents at beginning of year . 4,806,000 2,948,000 2,071,000
-----------------------------------------------
Cash and cash equivalents at end of year . . . . $ 4,952,000 $ 4,806,000 $ 2,948,000
===============================================
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest. . . . . . . . . . . . . . . . . . . $ 4,569,000 $ 3,820,000 $ 3,181,000
Income taxes. . . . . . . . . . . . . . . . . $ 774,000 $ 515,000 $ 380,000
</TABLE>
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.
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1st Community Bancorp, Inc.
NOTE 1--NATURE OF OPERATIONS
1st Community Bancorp, Inc. is a one bank holding company headquartered in
Sparta, Michigan. ChoiceOne Bank (the "Bank") is its wholly-owned
subsidiary. ChoiceOne Bank was previously named Sparta State Bank. The
Bank's name change was effective in May 1996. 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 in Michigan. Effective January 1, 1996, Bradford Insurance Centre,
Ltd. became a wholly-owned subsidiary of the Bank. The name of Bradford
Insurance Centre, Ltd. was changed to ChoiceOne Insurance Agencies, Inc.
(the "Agency") in May 1996. The Bank's affiliation with its new insurance
subsidiary 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., its wholly-owned subsidiary, ChoiceOne Bank, and ChoiceOne
Bank's wholly-owned subsidiary, ChoiceOne Insurance Agencies, Inc.
(together referred to as "1st Community"). The Bank operates primarily in
the banking industry, while the Agency sells insurance products. Together,
the Bank and the Agency account for substantially all of 1st Community's
assets, revenues and operating income.
The accounting and reporting policies of 1st Community Bancorp, Inc.,
ChoiceOne Bank, and ChoiceOne Insurance Agencies, Inc. 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 pension
plan, the carrying value of impaired loans, deferred tax assets, 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.
SECURITIES
1st Community accounts for its securities portfolio under 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.
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1st Community Bancorp, Inc.
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 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' abilities 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 nonaccrual loans is
recognized to the extent of cash receipts, while interest income on the
remaining impaired loans is recognized on the accrual basis. 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 homogeneous 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 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.
LOAN SERVICING RIGHTS
The Bank purchases and originates mortgage loans for sale in the secondary
market, and sells the loans with servicing rights retained. Effective
January 1, 1996, the Bank implemented Statement of Financial Accounting
Standards No. 122 ("SFAS 122"), "Accounting for Mortgage Servicing Rights."
SFAS 122 requires capitalization of the rights to service originated
mortgage loans. Prior to SFAS 122, only purchased mortgage servicing rights
were capitalized. Beginning in 1996, the total cost of mortgage loans
purchased or originated with the intent to sell is allocated between the
loan servicing right and the mortgage loan without servicing, based on
their relative fair values. The capitalized cost of loan servicing rights
is amortized in proportion to, and over the period of, estimated net future
servicing revenue. The implementation of SFAS 122 did not have a material
impact on 1st Community's consolidated financial statements.
Mortgage servicing rights are periodically evaluated for impairment by
stratifying them based on predominant risk characteristics of the
underlying serviced loans, such as loan type, term, and note rate.
Impairment represents the excess of cost of mortgage servicing rights over
its fair value, and is recognized through a valuation allowance.
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1st Community Bancorp, Inc.
Fair values for individual stratum are based on the present value of
estimated future cash flows using a discount rate commensurate with the
risks involved. Estimates of fair value include assumptions about
prepayment, default and interest rates, and other factors which are subject
to change over time. Changes in these underlying assumptions could cause
the fair value of loan servicing rights, and the related valuation
allowance, to change significantly in the future.
GOODWILL
Goodwill represents the amount paid for the purchases of the Afton
Insurance Agency and the Omega Insurance Agency in excess of identified net
assets. Goodwill is expensed using both an accelerated method as well as
the straight-line method over no more than 15 years. Goodwill is assessed
for impairment based on estimated undiscounted cash flows and is written
down if necessary.
EMPLOYEE BENEFITS
The Bank's noncontributory defined benefit pension plan provides retirement
benefits to participants. The incentive bonus plan pays an annual bonus
based on average return on equity goals set by the Board of Directors. The
Bank's 401(k) savings and retirement plan allows participant contributions
of up to 15% of compensation. Contributions to the 401(k) savings and
retirement plan by the Bank are discretionary. The Bank provides certain
health insurance benefits to retired employees. These postretirement
benefits are accrued 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 the change in 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.
FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair values of financial instruments are estimated using relevant market
information and other assumptions, which are more fully documented in Note
18 to the Consolidated Financial Statements. Fair value estimates involve
uncertainties and matters of significant judgment regarding interest rates,
credit risk, prepayments, and other factors, especially in the absence of
broad markets for particular items. Changes in assumptions or in market
conditions could significantly affect the estimates. The fair value
estimates of existing on- and off-balance sheet financial instruments do
not include the value of anticipated future business or the values of
assets and liabilities not considered financial instruments.
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 has been retroactively adjusted for a 20% stock dividend in
1995 and a 25% stock split in 1994. The weighted average number of shares
was 484,482 for 1996, 471,970 for 1995 and 486,912 for 1994. The stock
distribution in 1995 was recorded at the fair value of the shares issued
while the stock distribution in 1994 was 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 1996 presentation.
ACCOUNTING STATEMENT ISSUED, BUT NOT YET IMPLEMENTED
The Financial Accounting Standards Board has recently issued the following
statement which is applicable to 1st Community but has not been implemented
as of December 31, 1996.
Statement of Financial Accounting Standards No. 125 ("SFAS 125"),
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," will require 1st Community to recognize
financial assets and servicing assets when they are controlled, to
derecognize financial assets when control is surrendered, and to
derecognize liabilities when they are extinguished. SFAS 125 is required to
be implemented for years beginning after December 31, 1996. Although
management has not fully analyzed SFAS 125, it is believed that the impact
of its implementation will not be material to 1st Community's consolidated
financial position or results of operations.
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1st Community Bancorp, Inc.
NOTE 3--BUSINESS COMBINATION WITH BRADFORD INSURANCE CENTRE, LTD.
On January 1, 1996, 1st Community Bancorp, Inc., completed a business
combination with Bradford Insurance Centre, Ltd.("Bradford Insurance") in a
tax-free exchange of stock. Under the terms of the 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. Bradford Insurance's operations were not
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 1996, these balances averaged $707,000.
NOTE 5--SECURITIES
Securities have been classified in the Consolidated Balance Sheets
according to management's intent. The amortized cost and fair value of
securities were as follows:
<TABLE>
SECURITIES AVAILABLE FOR SALE
<CAPTION>
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
-----------------------------------------------------------------------------------------------------
DECEMBER 31, 1996 DECEMBER 31, 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasuries and
U.S. Government
agencies. . . . . . . $ 4,831,000 $ 36,000 $ (14,000) $ 4,853,000 $ 4,523,000 $ 97,000 $ (2,000) $ 4,618,000
Obligations of states
and political
subdivisions. . . . . 10,276,000 191,000 (39,000) 10,428,000 11,481,000 278,000 (29,000) 11,730,000
U.S. Government
agencies securities
backed by
mortgages . . . . . . 4,869,000 32,000 (35,000) 4,866,000 5,912,000 70,000 (35,000) 5,947,000
Other. . . . . . . . . 304,000 -- -- 304,000 305,000 2,000 -- 307,000
-----------------------------------------------------------------------------------------------------
Total . . . . . . . . $ 20,280,000 $ 259,000 $ (88,000) $ 20,451,000 $ 22,221,000 $ 447,000 $ (66,000) $ 22,602,000
=====================================================================================================
</TABLE>
SECURITIES HELD TO MATURITY
There were no securities classified as held to maturity as of December 31,
1996, or December 31, 1995.
<TABLE>
OTHER SECURITIES
<CAPTION>
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
-----------------------------------------------------------------------------------------------------
DECEMBER 31, 1996 DECEMBER 31, 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Federal Reserve
Bank stock. . . . $ 241,000 $ -- $ -- $ 241,000 $ 210,000 $ -- $ -- $ 210,000
Federal Home
Loan Bank stock . 2,314,000 -- -- 2,314,000 375,000 -- -- 375,000
-----------------------------------------------------------------------------------------------------
Total . . . . $ 2,555,000 $ -- $ -- $ 2,555,000 $ 585,000 $ -- $ -- $ 585,000
=====================================================================================================
</TABLE>
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1st Community Bancorp, Inc.
Maturities of securities available for sale at December 31, 1996, were as
follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---------------------------
<S> <C> <C>
Due in one year or less. . . . . . . . . . . . . . . . $ 1,766,000 $ 1,783,000
Due after one year through five years. . . . . . . . . 8,413,000 8,515,000
Due after five years through ten years . . . . . . . . 2,740,000 2,781,000
Due after ten years. . . . . . . . . . . . . . . . . . 2,455,000 2,469,000
---------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . 15,374,000 15,548,000
U.S. Government agencies securities backed by mortgages 4,869,000 4,866,000
Other. . . . . . . . . . . . . . . . . . . . . . . . . 37,000 37,000
---------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . $ 20,280,000 $ 20,451,000
===========================
</TABLE>
Expected maturities may 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>
1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
Proceeds from sales of securities. . . . . . $ 1,874,000 $ 2,179,000 $ 2,745,000
Gross realized gains . . . . . . . . . . . . 7,000 11,000 11,000
Gross realized losses. . . . . . . . . . . . 7,000 11,000 8,000
</TABLE>
There were no sales of securities held to maturity in 1996, 1995 or 1994.
The book value of securities pledged as collateral at December 31 was as
follows:
<TABLE>
<CAPTION>
1996 1995
------------------------
<S> <C> <C>
Federal Home Loan Bank advances. . . . . . . . . . . . $ 5,306,000 $ --
Securities sold under agreements to repurchase . . . . 2,007,000 --
Public deposits. . . . . . . . . . . . . . . . . . . . 251,000 260,000
------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . $ 7,564,000 $ 260,000
========================
</TABLE>
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 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, a fair value of $8,354,000 and an 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>
1996 1995
------------------------------
<S> <C> <C>
Commercial . . . . . . . . . . . . . . . . . . . . . . $ 34,583,000 $ 23,174,000
Agricultural . . . . . . . . . . . . . . . . . . . . . 10,113,000 9,513,000
Real estate mortgage--construction. . . . . . . . . . 2,215,000 805,000
Real estate mortgage--residential . . . . . . . . . . 37,168,000 28,843,000
Consumer . . . . . . . . . . . . . . . . . . . . . . . 26,000,000 16,747,000
-------------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . $ 110,079,000 $ 79,082,000
============== =============
</TABLE>
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1st Community Bancorp, Inc.
The unpaid principal balance of mortgage loans serviced for others, which
are not included in the loan balance on the consolidated balance sheets,
was $18,151,000 and $19,589,000 at December 31, 1996 and 1995,
respectively. With the Bank's implementation of Statement of Financial
Accounting Standards No. 122 effective January 1, 1996, the Bank began to
capitalize servicing rights related to loans sold with servicing rights
retained. Activity in capitalized mortgage servicing rights is detailed
below. No valuation allowance for differences between the unamortized cost
and fair value was believed necessary as of December 31, 1996.
<TABLE>
<CAPTION>
<S> <C>
Additions during the year. . . . . . . . . . . . . . . . . . $ 20,000
Amortized to expense . . . . . . . . . . . . . . . . . . . . (1,000)
---------
End of year balance. . . . . . . . . . . . . . . . . . . . . $ 19,000
=========
</TABLE>
Certain residential real estate mortgage loans included in total loans have
been pledged as collateral for Federal Home Loan Bank advances. The balance
pledged as of December 31, 1996, was $35,241,000.
Loans held for sale, which are included in the balance for loans in the
consolidated balance sheets, were comprised of $1,386,000 of agricultural
loans and $52,000 of residential real estate mortgages as of December 31,
1996 and $455,000 of residential real estate mortgages and $122,000 of
consumer loans as of December 31, 1995.
NOTE 7--ALLOWANCE FOR LOAN LOSSES
An analysis of changes in the allowance for loan losses follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------
<S> <C> <C> <C>
Beginning of year balance. . . . . . . . . . $ 1,121,000 $ 1,039,000 $ 1,000,000
Provision charged to expense . . . . . . . . 523,000 164,000 126,000
Recoveries credited to the allowance . . . . 64,000 43,000 32,000
Loans charged off. . . . . . . . . . . . . . (221,000) (125,000) (119,000)
------------------------------------------
End of year balance. . . . . . . . . . . . . $ 1,487,000 $ 1,121,000 $ 1,039,000
==========================================
</TABLE>
Information regarding impaired loans as of December 31 follows:
<TABLE>
<CAPTION>
1996 1995
------------------------
<S> <C> <C>
Loans classified as impaired . . . . . . . . . . . . . . . . . $ 599,000 $ 409,000
Less impaired loans for which no allowance for credit losses
has been established. . . . . . . . . . . . . . . . . . . . 450,000 57,000
------------------------
Loans classified as impaired for which an allowance for loan
losses has been established . . . . . . . . . . . . . . . . $ 149,000 $ 352,000
========================
Allowance determined for above impaired loans. . . . . . . . . $ 6,000 $ 5,000
========================
</TABLE>
Information regarding impaired loans for the years ended December 31
follows:
<TABLE>
<CAPTION>
1996 1995
------------------------
<S> <C> <C>
Average balance of impaired loans. . . . . . . . . . . . . . . $ 477,000 $ 432,000
Interest income recognized on impaired loans . . . . . . . . . 39,000 41,000
Interest income recognized on a cash basis on impaired loans . 29,000 40,000
</TABLE>
NOTE 8--PREMISES AND EQUIPMENT
Premises and equipment at December 31 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
--------------------------
<S> <C> <C>
Land and land improvements . . . . . . . . . . . . . . . . $ 500,000 $ 277,000
Buildings and improvements . . . . . . . . . . . . . . . . 2,573,000 2,573,000
Construction in progress . . . . . . . . . . . . . . . . . 47,000 --
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . 2,128,000 1,538,000
--------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 5,248,000 4,388,000
Accumulated depreciation . . . . . . . . . . . . . . . . . (2,261,000) (1,875,000)
--------------------------
Premises and equipment, net . . . . . . . . . . . . . . . $ 2,987,000 $ 2,513,000
==========================
</TABLE>
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1st Community Bancorp, Inc.
NOTE 9--DEPOSITS
Time deposits include approximately $9,693,000 and $7,940,000 of
certificates of deposit issued in denominations of $100,000 or more at
December 31, 1996, and 1995, respectively. Interest expense on certificates
of deposit issued in denominations of $100,000 or more was approximately
$588,000, $333,000 and $229,000 in 1996, 1995 and 1994, respectively.
The schedule of maturities of 1st Community's time deposits as of December
31, 1996, follows:
<TABLE>
<CAPTION>
<S> <C>
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,094,000
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,443,000
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,714,000
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,025,000
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,128,000
2002 and after . . . . . . . . . . . . . . . . . . . . . . 124,000
------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,528,000
============
</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 1996 and
1995 and only federal funds purchased in 1994.
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------
<S> <C> <C> <C>
Amount outstanding at end of year. . . . . . . . $ 4,731,000 $ 1,000,000 $ 1,000,000
Weighted average interest rate at end of year . 7.29% 6.88% 6.00%
Maximum outstanding at any month end during the year $ 6,148,000 $ 4,850,000 $ 2,550,000
Daily average amount outstanding . . . . . . . . $ 2,785,000 $ 1,723,000 $ 807,000
Weighted average interest rate for the year 4.61% 6.01% 4.05%
==========================================
</TABLE>
Securities sold under agreements to repurchase were collateralized by U.S.
Treasury or U.S. Government agencies securities. The securities were
maintained at a safekeeping agent.
NOTE 11--LONG-TERM DEBT
At December 31, 1996 and 1995, advances from the Federal Home Loan Bank of
Indianapolis were $25,200,000 and $1,000,000, respectively. Each of the
advances has a fixed rate of interest and the weighted average interest
rate on the amounts owed at December 31, 1996 and 1995 was 6.30% and 5.62%,
respectively. Unencumbered qualifying residential real estate mortgage
loans and government and agency securities have been pledged to
collateralize the advances (Note 5).
Interest on the advances is paid monthly. The contractual maturities of the
principal balances of the advances at December 31, 1996 follows:
<TABLE>
<CAPTION>
<S> <C>
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,086,000
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,399,000
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,851,000
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,261,000
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,208,000
2002 and after . . . . . . . . . . . . . . . . . . . . . . . . 4,395,000
------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,200,000
============
</TABLE>
NOTE 12--EMPLOYEE BENEFIT PLANS
PENSION PLAN
The Bank has a noncontributory defined benefit pension plan which provides
retirement benefits for substantially all employees. The plan assets were
invested in money market funds and short-term bonds at December 31, 1996,
and in common stocks, intermediate-term bonds, and money market funds and
short-term bonds at December 31, 1995. The Bank's policy is to fund the
plan based on annual actuarial computations and within Internal Revenue
Service guidelines.
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1st Community Bancorp, Inc.
The following sets forth the plan's funded status and amounts recognized in
the consolidated balance sheets at December 31:
<TABLE>
<CAPTION>
1996 1995
-------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation
Vested benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,660,000) $ (1,447,000)
Nonvested benefits . . . . . . . . . . . . . . . . . . . . . . . . . . (13,000) (10,000)
-------------------------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,673,000) $ (1,457,000)
===============================
Projected benefit obligation for service rendered to date . . . . . . . . $ (2,003,000) $ (1,761,000)
Plan assets at fair value. . . . . . . . . . . . . . . . . . . . . . . . . 2,314,000 2,306,000
-------------------------------
Excess of plan assets over projected benefit obligation . . . . . . . . . 311,000 545,000
Unrecognized net (gain)/loss . . . . . . . . . . . . . . . . . . . . . . . 99,000 (88,000)
Unrecognized transition asset. . . . . . . . . . . . . . . . . . . . . . . (189,000) (215,000)
Unrecognized prior service cost. . . . . . . . . . . . . . . . . . . . . . 30,000 35,000
-------------------------------
Net pension asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 251,000 $ 277,000
===============================
</TABLE>
Net pension cost included the following for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------
<S> <C> <C> <C>
Service cost/benefits earned during the year . . . . . . . . . . . $ 86,000 $ 70,000 $ 75,000
Interest cost on projected benefit obligation . . . . . . . . . . 130,000 122,000 115,000
Actual return on plan assets . . . . . . . . . . . . . . . . . . . (122,000) (368,000) (4,000)
Net amortization and deferral . . . . . . . . . . . . . . . . . . (69,000) (199,000) (170,000)
-----------------------------------------
Net pension cost . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,000 $ 23,000 $ 16,000
=========================================
</TABLE>
A weighted average discount rate of 7.00% in 1996, 7.50% in 1995 and 7.00%
in 1994 and a rate of increase in future compensation of 4.50% in 1996,
4.50% in 1995 and 5.00% in 1994 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 1996, 1995 and 1994.
1st Community's Board of Directors approved the discontinuance of the
Bank's defined benefit pension plan at its January 1997 meeting. The
settlement of the pension obligation is expected to occur in 1997. The
effect of the plan curtailment and settlement on 1st Community's
consolidated financial statements is expected to be immaterial.
POSTRETIREMENT BENEFITS PLAN
The Bank has a postretirement benefits plan for health 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 Bank had a postretirement benefit plan for life
insurance. The life insurance plan was discontinued in February 1996.
The following sets forth the distribution of the accumulated postretirement
benefit obligation for the persons earning and receiving benefits under the
health insurance plan as of December 31, 1996, and the health insurance and
life insurance plans as of December 31, 1995:
<TABLE>
<CAPTION>
1996 1995
-------------------------------
<S> <C> <C>
Retirees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 36,000 $ 70,000
Employees not yet eligible to receive benefits . . . . . . . . . . . . . . 36,000 58,000
Employees eligible to receive benefits . . . . . . . . . . . . . . . . . . 34,000 105,000
-------------------------------
Total accumulated benefit obligation. . . . . . . . . . . . . . . . . . . 106,000 233,000
Unrecognized net gain. . . . . . . . . . . . . . . . . . . . . . . . . . . 42,000 45,000
-------------------------------
Accrued postretirement benefit cost . . . . . . . . . . . . . . . . . . . $ 148,000 $ 278,000
===============================
</TABLE>
Net postretirement benefit cost included the following for the years ended
December 31:
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------
<S> <C> <C> <C>
Service cost/benefits attributed to service during the year. . . $ 8,000 $ 7,000 $ 7,000
Interest cost on accumulated post-retirement benefit obligation 16,000 18,000 18,000
Recognized gain. . . . . . . . . . . . . . . . . . . . . . . . . (3,000) (5,000) --
Settlement gain from discontinuance of life insurance plan . . . (139,000) -- --
-----------------------------------------
Postretirement benefit cost/(credit) . . . . . . . . . . . . . $ (118,000) $ 20,000 $ 25,000
=========================================
</TABLE>
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1st Community Bancorp, Inc.
The trend for annual increases in health care costs was assumed to be 13%
for 4 years beginning January 1, 1997, dropping to 7% after 4 years and
remaining at that level thereafter. The effect of a 1% increase in the
assumed health care cost trend rate would have an immaterial impact on the
combined service and interest cost components of net periodic
postretirement health care benefits cost and the accumulated postretirement
benefit obligation for health care benefits. A weighted average discount
rate of 7% was used in determining the actuarial present value of the
accumulated postretirement benefit obligation for 1996, 1995 and 1994.
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 $232,000,
$194,000 and $133,000 for 1996, 1995 and 1994, 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 $17,000, $13,000 and $13,000 for 1996, 1995
and 1994, respectively.
NOTE 13--COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS OF CREDIT RISK
The Bank grants commercial, agricultural, installment and real estate loans
to customers primarily in the northern Kent County area of Michigan.
Approximately 98% of these loans are secured by real estate, automobiles,
trucks and various other items of collateral while the remaining 2% are
unsecured.
Noninterest-bearing and interest-bearing deposits totaling $3,862,000 at
December 31, 1996, and $3,803,000 at December 31, 1995, 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 $12,479,000 and
$9,961,000 at December 31, 1996 and 1995, respectively. Approximately 90%
of these commitments were at variable interest rates. The Bank had issued
approximately $2,562,000 and $1,946,000 in unused lines of credit and
$165,000 in letters of credit at December 31, 1996 and 1995, respectively.
The Bank's data processing is performed by a third party processor, of
which the Bank is a part owner. The Bank pays for its data processing based
on the volume of its accounts. The Bank's current contract with its data
processor extends through the end of 1999. Based on the current volume of
accounts, the minimum payments due under the contract are approximately
$126,000 per year for a total of $378,000 over the next three years.
NOTE 14--NONINTEREST EXPENSE
Noninterest expense for the years ended December 31 follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------
<S> <C> <C> <C>
Supplies and postage . . . . . . . . . . $ 237,000 $ 153,000 $ 128,000
Legal and professional . . . . . . . . . 167,000 205,000 186,000
Computer processing. . . . . . . . . . . 162,000 156,000 160,000
State single business tax . . . . . . . 95,000 81,000 79,000
FDIC insurance . . . . . . . . . . . . . 2,000 106,000 202,000
Other . . . . . . . . . . . . . . . . . 750,000 532,000 533,000
------------------------------------
Total . . . . . . . . . . . . . . . . . $1,413,000 $1,233,000 $1,288,000
====================================
</TABLE>
18
<PAGE>
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>
1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
Current income tax expense . . . . . . . . . . . $ 716,000 $ 553,000 $ 376,000
Deferred income tax benefit. . . . . . . . . . . (61,000) (42,000) (20,000)
----------------------------------------
Income tax expense. . . . . . . . . . . . . . . $ 655,000 $ 511,000 $ 356,000
========================================
</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>
1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
Income tax computed at statutory federal rate
of 34% . . . . . . . . . . . . . . . . . . . $ 799,000 $ 672,000 $ 544,000
Tax exempt interest income . . . . . . . . . . . (175,000) (197,000) (206,000)
Non-deductible interest expense. . . . . . . . . 24,000 25,000 20,000
Other items. . . . . . . . . . . . . . . . . . . 7,000 11,000 (2,000)
----------------------------------------
Income tax expense. . . . . . . . . . . . . . . $ 655,000 $ 511,000 $ 356,000
========================================
</TABLE>
The components of deferred tax assets and liabilities at December 31 were
as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses . . . . . . . . . . . . . . . . $ 401,000 $ 276,000
Deferred compensation . . . . . . . . . . . . . . . . . . 62,000 60,000
Deferred loan fees. . . . . . . . . . . . . . . . . . . . 53,000 68,000
Postretirement benefits obligation. . . . . . . . . . . . 50,000 95,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 68,000 59,000
------------------------------
Total deferred tax assets. . . . . . . . . . . . . . . 634,000 558,000
Deferred tax liabilities:
Depreciation. . . . . . . . . . . . . . . . . . . . . . . 188,000 177,000
Pension fund asset . . . . . . . . . . . . . . . . . . . 96,000 93,000
Unrealized appreciation on securities available for sale 58,000 130,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 11,000
------------------------------
Total deferred tax liabilities . . . . . . . . . . . . 354,000 411,000
------------------------------
Net deferred tax asset . . . . . . . . . . . . . . . . $ 280,000 $ 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 December 31, 1996 and 1995.
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 1996 follows:
<TABLE>
<CAPTION>
<S> <C>
Balance at January 1, 1996 . . . . . . . . . . . . . . . . $ 1,962,000
New loans . . . . . . . . . . . . . . . . . . . . . . . . 439,000
Payments. . . . . . . . . . . . . . . . . . . . . . . . . (798,000)
------------
Balance at December 31, 1996 . . . . . . . . . . . . . . . $ 1,603,000
============
</TABLE>
Included in the deposit balances were deposits of officers, directors,
principal shareholders and their associates. Balances in these deposit
accounts were $2,006,000 and $2,154,000 at December 31, 1996 and 1995,
respectively.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1st Community Bancorp, Inc.
NOTE 17--FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate fair values for
financial instruments. The carrying amount was considered to estimate fair
value for cash and cash equivalents, variable rate loans that reprice
frequently and fully, deposits without stated maturities, and short-term
borrowings. Fair values for securities were based on quoted market prices
for specific securities or, if no quotes were available, on the rate and
term of the security and on information about the issuer. For fixed rate
loans or deposits and for variable rate loans or deposits with infrequent
repricing or repricing limits, the fair value was estimated by discounted
cash flow analysis using current market rates for the estimated life and
credit risk. Fair values for impaired loans were estimated using discounted
cash flow analyses or underlying collateral, where applicable. The fair
value of loans held for sale was based on market estimates. The fair value
of long-term debt was based on currently available rates for similar
financing. The fair value of off-balance-sheet was based on fees currently
charged for similar agreements, considering the terms of the agreements and
the credits standing.
The carrying amounts and estimated fair values of 1st Community's financial
instruments were as follows:
<TABLE>
<CAPTION>
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------------------------------------------------------------------
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents . . . . $ 4,952,000 $ 4,952,000 $ 4,806,000 $ 4,806,000
Securities. . . . . . . . . . . . 23,006,000 23,006,000 23,187,000 23,187,000
Loans, net of allowance . . . . . 108,592,000 112,179,000 77,961,000 80,369,000
--------------------------------------------------------------------
Total financial assets. . . . . . $ 136,550,000 $ 140,137,000 $ 105,954,000 $ 108,362,000
====================================================================
FINANCIAL LIABILITIES
Deposits without stated maturities $ 45,078,000 $ 45,078,000 $ 45,019,000 $ 45,019,000
Deposits with stated maturities . 50,528,000 50,874,000 47,883,000 48,713,000
Short-term borrowings . . . . . . 4,731,000 4,731,000 1,000,000 1,000,000
Long-term debt. . . . . . . . . . 25,200,000 25,328,000 1,000,000 1,000,000
--------------------------------------------------------------------
Total financial liabilities . . . $ 125,537,000 $ 126,011,000 $ 94,902,000 $ 95,732,000
====================================================================
OFF-BALANCE-SHEET ITEMS
Loan commitments. . . . . . . . . $ N/A $ -- $ N/A $ --
====================================================================
</TABLE>
NOTE 18--REGULATORY MATTERS
The Bank is subject to regulatory capital requirements administered by
federal banking agencies. Capital adequacy guidelines and prompt corrective
action regulations involve quantitative measures of assets, liabilities,
and certain off-balance-sheet items calculated under regulatory accounting
practices. Capital amounts and classifications are also subject to
qualitative judgments by regulators about components, risk weightings, and
other factors, and the regulators can lower classifications in certain
cases. Failure to meet various capital requirements can initiate regulatory
action that could have a direct material effect on the financial
statements.
The prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized, although
these terms are not used to represent overall financial condition. If
adequately capitalized, regulatory approval is required to accept brokered
deposits. If undercapitalized, capital distributions are limited, as are
asset growth and expansion, and plans for capital restoration are required.
The minimum capital requirements are as follows:
<TABLE>
<CAPTION>
Capital to Risk-
Weighted Assets
---------------- Tier 1 Capital
Total Tier 1 to Average Assets
-------------------------------------
<S> <C> <C> <C>
Well capitalized 10% 6% 5%
Adequately capitalized 8% 4% 4%
Undercapitalized 6% 3% 3%
</TABLE>
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1st Community Bancorp, Inc.
Consolidated actual capital levels and minimum required levels were as
follows:
<TABLE>
<CAPTION>
MINIMUM REQUIRED
TO BE WELL
MINIMUM REQUIRED CAPITALIZED
FOR CAPITAL UNDER PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION REGULATIONS
------------------------------------------------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1996
Total capital (to risk weighted assets) $ 15,226 14.9% $ 8,185 8.0% $ 10,231 10.0%
Tier 1 capital (to risk weighted assets) $ 13,947 13.6% $ 4,092 4.0% $ 6,139 6.0%
Tier 1 capital (to average assets) $ 13,947 10.3% $ 5,398 4.0% $ 6,747 5.0%
December 31, 1995
Total capital (to risk weighted assets) $ 14,296 19.7% $ 5,821 8.0% $ 7,276 10.0%
Tier 1 capital (to risk weighted assets) $ 13,386 18.4% $ 2,910 4.0% $ 4,365 6.0%
Tier 1 capital (to average assets) $ 13,386 12.4% $ 4,329 4.0% $ 5,411 5.0%
</TABLE>
1st Community and the Bank were categorized as well capitalized at December
31, 1996 and December 31, 1995.
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, 1996, 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 $2,600,000.
NOTE 19--1ST COMMUNITY BANCORP, INC. (PARENT COMPANY ONLY) FINANCIAL
INFORMATION
Presented below are condensed financial statements for the parent company
only.
<TABLE>
CONDENSED BALANCE SHEETS
<CAPTION>
DECEMBER 31,
1996 1995
---------------------------
<S> <C> <C>
Assets
Cash on hand with subsidiary bank . . . . . . . . . . . . $ 20,000 $ 10,000
Investment in subsidiary. . . . . . . . . . . . . . . . . 14,507,000 13,767,000
Other investments . . . . . . . . . . . . . . . . . . . . 8,000 8,000
Other assets. . . . . . . . . . . . . . . . . . . . . . . 2,000 1,000
---------------------------
Total assets . . . . . . . . . . . . . . . . . . . . . $14,537,000 $13,786,000
===========================
Liabilities
Other liabilities . . . . . . . . . . . . . . . . . . . . $ -- $ 2,000
---------------------------
Shareholders' Equity . . . . . . . . . . . . . . . . . . . 14,537,000 13,784,000
---------------------------
Total liabilities and shareholders' equity . . . . . . $14,537,000 $13,786,000
===========================
</TABLE>
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1st Community Bancorp, Inc.
<TABLE>
CONDENSED STATEMENTS OF INCOME
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994
-----------------------------------------
<S> <C> <C> <C>
Dividend income from subsidiary. . . . . . . . . . . $ 824,000 $ 1,409,000 $ 514,000
Other expenses . . . . . . . . . . . . . . . . . . . 50,000 66,000 67,000
-----------------------------------------
Income before income tax and equity in undistributed
net income of subsidiary. . . . . . . . . . . . . 774,000 1,343,000 447,000
Income tax benefit . . . . . . . . . . . . . . . . . 17,000 22,000 23,000
-----------------------------------------
Income before equity in undistributed net income of
subsidiary . . . . . . . . . . . . . . . . . . . 791,000 1,365,000 470,000
Equity in undistributed net income of subsidiary . . 904,000 99,000 773,000
-----------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . $ 1,695,000 $ 1,464,000 $ 1,243,000
=========================================
</TABLE>
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994
-----------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income. . . . . . . . . . . . . . . . . . . . . $ 1,695,000 $ 1,464,000 $ 1,243,000
Adjustments to reconcile net income to net cash from
operating activities
Income from subsidiary . . . . . . . . . . . . . (1,728,000) (1,508,000) (1,287,000)
Changes in:
Other assets. . . . . . . . . . . . . . . . . (1,000) 3,000 (2,000)
Other liabilities . . . . . . . . . . . . . . (2,000) (1,000) 2,000
-----------------------------------------
Net cash used in operating activities . . . . (36,000) (42,000) (44,000)
-----------------------------------------
Cash flows from investing activities
Dividends received from subsidiary. . . . . . . . . 824,000 1,409,000 514,000
Purchase of securities available for sale . . . . . -- (8,000) --
-----------------------------------------
Net cash from investing activities. . . . . 824,000 1,401,000 514,000
-----------------------------------------
Cash flows from financing activities
Repurchase of stock . . . . . . . . . . . . . . . . (115,000) (815,000) --
Dividends paid. . . . . . . . . . . . . . . . . . . (663,000) (551,000) (469,000)
-----------------------------------------
Net cash used in financing activities . . . (778,000) (1,366,000) (469,000)
-----------------------------------------
Net change in cash and cash equivalents. . . . . . . 10,000 (7,000) 1,000
Cash and cash equivalents at beginning of year . . . 10,000 17,000 16,000
-----------------------------------------
Cash and cash equivalents at end of year . . . . . . $ 20,000 $ 10,000 $ 17,000
==========================================
</TABLE>
22
<PAGE>
INDEPENDENT AUDITORS' REPORT
1st Community Bancorp, Inc.
[CROWE CHIZEK LOGO]
CROWE CHIZEK
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, 1996 and 1995 and the related
statements of income, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1996. 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, 1996 and 1995, and the results
of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ Crowe, Chizek And Company LLP
Crowe, Chizek and Company LLP
Grand Rapids, Michigan
February 7, 1997
23
<PAGE>
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 subsidiaries,
ChoiceOne Bank (the "Bank") and ChoiceOne Insurance Agencies, Inc. (the
"Agency"). This discussion should be read in conjunction with the
consolidated financial statements and related footnotes.
SUMMARY OF OPERATING RESULTS
Net income for 1996 was $1,695,000, which represented a $231,000 or 16%
increase over 1995. The increase in 1st Community's net income in 1996 was
attributable to higher net interest income and noninterest income. These
were partially offset by increases in the provision for loan losses and
noninterest expense. The growth in net interest income was primarily due to
growth in 1st Community's loan portfolio. The increase in other income was
caused primarily by commission income from the Agency, which was combined
with 1st Community January 1996. The rise in the provision for loan losses
occurred as a result of both higher loan growth and net charge-offs in 1996
than in 1995. Approximately 80% of the increase in noninterest expense was
due to the inclusion of expenses of the Agency in 1996.
Increased net income in 1995 resulted from the same factors that affected
1996: higher net interest income and noninterest income offset by a higher
provision for loans losses and noninterest expense. The increase in net
interest income was primarily due to a higher net interest margin. The
improvement in noninterest income was caused 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 the prior year. Increased
salaries and wages were the main cause of the increase in noninterest
expense.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income. . . . . . . . . . . . . . . $ 5,754,000 $ 4,931,000 $ 4,468,000
Provision for loan losses. . . . . . . . . . . . (523,000) (164,000) (126,000)
Noninterest income . . . . . . . . . . . . . . . 1,555,000 656,000 597,000
Noninterest expenses . . . . . . . . . . . . . . (4,436,000) (3,448,000) (3,340,000)
Income tax expense . . . . . . . . . . . . . . . (655,000) (511,000) (356,000)
------------------------------------------
Net income . . . . . . . . . . . . . . . . . . . $ 1,695,000 $ 1,464,000 $ 1,243,000
===============================================================================================
</TABLE>
RETURN ON AVERAGE ASSETS AND AVERAGE SHAREHOLDERS' EQUITY
The return on average assets and return on average shareholders' equity are
key performance indices that measure how effectively 1st Community is
using its assets and its shareholders' invested capital. 1st Community's
return on average assets for 1996 was 1.38%, compared to 1.36% for 1995 and
1.18% for 1994. The return on average shareholders' equity was 12.00%,
11.09% and 9.62% for 1996, 1995 and 1994, respectively.
DIVIDENDS
Cash dividends declared by 1st Community in 1996 of $663,000 or $1.37 per
share represent the fifteenth consecutive year that 1st Community or the
Bank has increased cash dividends paid to shareholders. The total cash
dividends paid in 1996 represented an $112,000 or 20% increase over 1995.
The cash dividend payout percentage (total cash dividends divided by net
income) was 39% in 1996, which was a slight increase from the 38% payout
percentage in 1995. In addition to the cash dividends declared, 1st
Community declared a 20% stock dividend in 1995 and a 25% stock split in
1994.
Cash dividends paid in 1994 through 1996 were consistent with management's
objectives regarding the capital structure of 1st Community. A primary
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.
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
currently expects 1st Community to pay regular quarterly cash dividends to
its shareholders in 1997.
24
<PAGE>
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,
1996 1995 1994
----------------------------------------------------------------------------------------
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>. . . . . . . . . . $ 94,077 $ 9,087 9.66% $ 73,742 $ 7,135 9.68% $ 67,773 $ 5,779 8.53%
Taxable securities <F3> . . . . . 14,147 916 6.47 18,403 1,181 6.42 21,614 1,300 5.95
Nontaxable securities <F1> <F3> . 8,365 681 8.14 9,181 774 8.43 9,488 859 9.09
Other. . . . . . . . . . . . . . . 65 3 4.62 160 8 5.00 619 29 4.65
--------- -------- --------- -------- --------- ---------
Interest-earning assets . . . . 116,654 10,687 9.16 101,486 9,098 8.96 99,494 7,967 7.99
Noninterest-earning assets <F4> . 6,480 6,066 5,951
--------- --------- ---------
Total assets . . . . . . . . . . $ 123,134 $ 107,552 $ 105,445
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing
transaction accounts. . . . . . . $ 24,711 798 3.23 $ 25,522 912 3.57 $ 30,027 938 3.12
Savings deposits . . . . . . . . . 9,363 174 1.86 9,845 229 2.33 11,700 282 2.41
Time deposits. . . . . . . . . . . 50,126 2,947 5.88 45,930 2,619 5.70 39,557 1,934 4.89
FHLB advances. . . . . . . . . . . 9,385 592 6.31 77 2 3.04 -- -- --
Other. . . . . . . . . . . . . . . 2,785 154 5.53 1,722 106 6.11 807 33 4.05
--------- -------- --------- -------- --------- ---------
Interest-bearing liabilities . . 96,370 4,665 4.84 83,096 3,868 4.65 82,091 3,187 3.88
-------- ------ -------- ------ --------- ------
Noninterest-bearing liabilities. . 12,635 11,256 10,432
Shareholders' equity . . . . . . . 14,129 13,200 12,922
--------- --------- ---------
Total liabilities and
shareholders' equity . . . . . $ 123,134 $ 107,552 $ 105,445
========= ========= =========
Net interest income (tax-equivalent
basis) - interest spread . . . . . 6,022 4.32% 5,230 4.31% 4,780 4.11%
====== ====== ======
Tax-equivalent adjustment <F1> . . . (268) (299) (312)
-------- -------- ---------
Net interest income . . . . . . . . $ 5,754 $ 4,931 $ 4,468
======== ======== =========
Net interest income as a
percentage of earning assets
(tax-equivalent basis) . . . . . . 5.16% 5.15% 4.80%
====== ====== ======
<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 $363,000, $253,000 and $238,000 in 1996, 1995 and 1994,
respectively.
<F3> The average balance includes the effect of unrealized
depreciation/appreciation 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 $383,000, $482,000 and $277,000 in 1996,
1995 and 1994, respectively.
</FN>
</TABLE>
25
<PAGE>
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,
1996 OVER 1995 1995 OVER 1994
- -----------------------------------------------------------------------------------------------------------------
TOTAL VOLUME RATE TOTAL VOLUME RATE
- -----------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN INTEREST INCOME <F1> (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans <F2>. . . . . . . . . . . . . . $ 1,952 $ 1,967 $ (15) $ 1,356 $ 537 $ 819
Taxable securities . . . . . . . . . (265) (275) 10 (119) (210) 91
Nontaxable securities <F2>. . . . . . (93) (67) (26) (85) (26) (59)
Other . . . . . . . . . . . . . . . . (5) (4) (1) (21) (23) 2
----------------------------------------------------------------
Net change in tax-equivalent income 1,589 1,621 (32) 1,131 278 853
----------------------------------------------------------------
INCREASE (DECREASE) IN INTEREST EXPENSE <F1>
Interest-bearing transaction accounts (114) (28) (86) (26) (152) 126
Savings deposits . . . . . . . . . . (55) (11) (44) (53) (43) (10)
Time deposits. . . . . . . . . . . . 328 244 84 685 337 348
Federal Home Loan Bank advances. . . 590 585 5 2 2 --
Other. . . . . . . . . . . . . . . . 48 59 (11) 73 52 21
----------------------------------------------------------------
Net change in interest expense . . 797 849 (52) 681 196 485
----------------------------------------------------------------
Net change in tax-equivalent net
interest income. . . . . . . . . $ 792 $ 772 $ 20 $ 450 $ 82 $ 368
=================================================================================================================
<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 both 1996 and
1995. The improvement in 1996 was due to growth in average interest-earning
assets. Changes in interest rates had little overall impact on net interest
income in 1996, as is evidenced by the increase of only 1 basis point in
the tax-equivalent net interest spread. This is in contrast to 1995, when
approximately 75% of the growth in net interest income occurred as a result
of a wider spread between rates on interest-earning assets and
interest-bearing liabilities. 1st Community's net interest spread
percentage increased 21 basis points in 1995.
Interest-earning assets grew $15,168,000 in 1996, compared to $1,992,000 in
1995. The difference was caused by a higher level of loan growth in 1996
than in 1995. Almost half of the loan increase in 1996 was funded by
advances from the Federal Home Loan Bank. As was stated in the previous
paragraph, changes in interest rates had little impact on 1st Community's
net interest income in 1996. Decreases in short-term interest rates in late
1995 and early 1996 affected both rates earned on loans and rates paid on
interest-bearing transaction accounts and savings deposits. The effect of
interest rates in 1995 was much more dramatic. General market interest
rates rose from early 1994 to early 1995. This caused an increase in both
interest income and expense in 1995 as compared to 1994. However, the
increase in the average rate earned on interest-earning assets was more
than the rise in the rate paid on interest-bearing liabilities, which
caused the improvement in the net interest margin.
Interest income on loans increased 27% in 1996, which was slightly more
than the 23% improvement in 1995. All of the rise in loan interest income
in 1996 was due to growth in the loan portfolio, in contrast to 1995 when
approximately 60% of the change resulted from a higher average interest
rate earned than the prior year. Management placed a high priority on
quality loan growth in both 1996 and 1995, which is evidenced by the
increase in average total loans as a percentage of average earning assets
to 81% in 1996, compared to 73% in 1995 and 68% in 1994. Significant growth
occurred in commercial, residential real estate mortgage and consumer
loans. Loan activity will be discussed further in the Loans section of
Management's Discussion and Analysis. The average rate earned on loans
declined 2 basis points in 1996. The effect of a 56 basis point decrease in
the average prime rate in 1996 was offset by an increase of $110,000 in
loan fee income. The expansion of loan fee income was a result of the
Bank's new accounts receivable financing program. The substantial increase
in the average rate earned on loans in 1995 was primarily due to an average
prime lending
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1st Community Bancorp, Inc.
rate which was 169 basis points higher in 1995 than in 1994. Changes in the
prime lending rate affect most of the commercial and agricultural loan
portfolios and part of the consumer loan portfolio.
Interest income on taxable securities and nontaxable securities declined in
both 1996 and 1995 as a result of a reduced average securities balance.
This has occurred because proceeds from maturities were used to fund loan
growth. The average rate earned on taxable securities increased 47 basis
points in 1995 due to the rise in general market interest rates that ended
in early 1995. The average rate earned on nontaxable securities declined in
1996 and 1995 as higher yielding securities in the portfolio have matured.
INTEREST EXPENSE
Interest expense on interest-bearing liabilities increased significantly in
both 1996 and 1995. The growth in 1996 was caused by a increase of more
than $13,000,000 in the average balance of interest-bearing liabilities
compared to 1995. In contrast, the average balance of interest-bearing
liabilities grew only $1,005,000 in 1995. The average balance of Federal
Home Loan Bank advances increased significantly in 1996 as this became one
of the primary funding sources for 1st Community's loan growth. Time
deposits was also a funding source as it continued its trend of growth from
1995 through 1996. The average balances of interest-bearing transaction
accounts and savings deposits decreased in 1996, although to a lesser
extent than occurred in 1995.
The average rate paid on interest-bearing liabilities did not have a
significant impact on the change in interest expense between 1996 and 1995.
The effect of decreases in the average rate paid on interest-bearing
transaction accounts and savings deposits was partially offset by an
increase in the average rate paid on time deposits. Changes in interest
rates substantially affected interest expense in 1995. The average interest
rate paid increased 77 basis points in 1995 compared to 1994, which caused
an addition of $485,000 to interest expense. The change in the average
interest rate paid in 1995 was due to rising rates on deposits through the
first quarter of 1995. A contributing factor was also the shifting of
deposit balances from accounts that paid lower interest rates to time
deposits, which paid higher interest rates.
NET INTEREST INCOME
Table 2 documents that tax-equivalent net interest income increased
$792,000 in 1996, compared to a $450,000 increase in 1995. There were
opposite reasons for the growth in the two years. A favorable volume
variance created by 1st Community's asset growth was the catalyst for
1996's increase, while the effect of asset growth had a small impact on
1995's net interest income. A positive rate variance in 1995 reflected the
effect of an increased net interest spread, in contrast to 1996 where the
effect of interest rates earned and paid was virtually unchanged from the
prior year.
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
shown in Table 3, the provision for loan losses and allowance for loan
losses increased significantly in 1996 and increased to a lesser degree in
1995. The increase in the provision in 1996 was primarily due to a higher
level of loan growth in 1996 than the prior year. It was also affected by
an increased level of net charge-offs in 1996. The small increase in the
provision in 1995 resulted from more loan growth in 1995 than in 1994. As a
result of an increase in nonperforming loans from December 31, 1995, to
December 31, 1996, the ratio of the allowance for loan losses to
nonperforming loans was virtually unchanged from the end of 1995 to the end
of 1996.
The relatively low level of net 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 and a healthy economy
in the Bank's market area. In 1996, $16,000 of net charge-offs were
recorded, compared to $4,000 of net recoveries in 1995 and $14,000 of net
charge-offs in 1994. Approximately $141,000 of net charge-offs were
recorded on consumer loans in 1996, compared to net charge-offs of $83,000
and $62,000 in 1995 and 1994, respectively. There were no charge-offs or
recoveries on residential real estate mortgage loans in 1996. Net
charge-offs of $3,000 and $11,000 were recognized on residential
real estate mortgage loans in 1995 and 1994, respectively.
As 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 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
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1st Community Bancorp, Inc.
<TABLE>
TABLE 3--PROVISION AND ALLOWANCE FOR LOAN LOSSES
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision for loan losses. . . . . . . . . . . . . $ 523,000 $ 164,000 $ 126,000
Net charge-offs. . . . . . . . . . . . . . . . . . 157,000 82,000 87,000
Allowance for loan losses at year end. . . . . . . 1,487,000 1,121,000 1,039,000
Allowance for loan losses as a percentage of:
Total loans as of year end. . . . . . . . . . . . 1.35% 1.42% 1.50%
Nonaccrual loans, accrual loans past due 90 days
or more and troubled debt restructurings . . . 148.65 148.23 125.72
Ratio of net charge-offs to average total loans
outstanding during the year . . . . . . . . . .17 .11 .13
Loan recoveries as a percentage of prior year's
charge-offs . . . . . . . . . . . . . . . . . 51.60 36.13 29.55
</TABLE>
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.
Based on the current state of the economy and management's reviews of the
loan portfolio, management believes that the allowance for loan losses as
of December 31, 1996, is adequate to absorb possible charge-offs.
Management is concerned that relatively high levels of consumer debt and
increasing levels of personal bankruptcies may cause charge-offs to
increase in the future. As loan growth and charge-offs occur in 1997, the
allowance and provision for loan losses will be reviewed and changes will
be made to maintain the allowance at an adequate level.
NONINTEREST INCOME
Noninterest income increased $899,000 in 1996, compared to an increase of
$59,000 in 1995. The majority of the increase in 1996 was due to commission
income from sales of insurance products by the Bank's insurance subsidiary.
The business combination with the Agency was effective. The increase in
noninterest income in 1995 was due to increased service charges on deposit
accounts.
NONINTEREST EXPENSES
Noninterest expense grew $988,000 in 1996, after increasing only $108,000
in 1995. Approximately 80% of the higher expenses in 1996 resulted from the
Bank's insurance subsidiary. The Agency's expenses were included for a full
year in 1996, in contrast to 1995 when the Agency was not a subsidiary of
the Bank. The remainder of the expense growth in 1996 was due to expenses
related to the Bank's two new branches, expenses related to the name
changes of the Bank and the Agency and general growth in expenses. The
expense growth was offset in 1996 by the effect of the termination of the
Bank's postretirement life insurance benefits plan. The gain from the
discontinuance of postretirement life insurance benefits was $139,000 in
1996. FDIC insurance expense was reduced from $106,000 in 1995 to $2,000 in
1996. This resulted from the insurance fund reaching its mandated funding
level in mid-1995. Based on the current assessment level, management
expects that FDIC insurance expense will range from $15,000 to $20,000 in
1997. The increase in noninterest expense in 1995 was caused by a $135,000
increase in salaries and wages. 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 rise.
INSURANCE SUBSIDIARY
The business combination with the Agency was effective January 1, 1996. The
business combination was accounted for as a pooling-of-interests. The
Agency's balance sheets and results of operations were not material to 1st
Community's prior years' consolidated financial statements. Therefore,
prior years' consolidated financial statements were not restated for the
Agency's prior years' financial results.
CASH FLOWS
As can be seen from the Consolidated Statements of Cash Flows, cash and
cash equivalents increased from both December 31, 1995 to December 31,
1996, and from December 31, 1994 to December 31, 1995. The purpose of the
Statements of Cash Flows 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, an
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1st Community Bancorp, Inc.
increase in federal funds purchased and securities sold under agreements to
repurchase, and advances 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 decreased $2,151,000 in 1996. Some of
the amounts received from sales and maturities of securities were used to
fund 1st Community's loan growth. Purchases of securities available for
sale in 1996 was limited to U.S. Treasuries and U.S. Government agencies
securities and nontaxable obligations of states and political subdivisions.
The change in the net unrealized appreciation on securities available for
sale had a negative impact of $209,000 on the securities balance in 1996.
The other securities balance increased $1,970,000 in 1996. Virtually all of
the growth was due to an increased balance in Federal Home Loan Bank stock.
The Federal Home Loan Bank required the additional stock purchases in 1996
as a result of 1st Community's increased level of advances from the Federal
Home Loan Bank.
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 a $8,124,000 transfer of securities in
December 1995 from the held to maturity classification to the available for
sale classification. This transfer was made under guidelines issued by the
Financial Accounting Standards Board in late 1995. 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 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.
LOANS
Note 6 to the Consolidated Financial Statements documents substantial loan
growth of $30,997,000 in 1996, compared to growth of $9,672,000 in 1995.
Bank management's emphasis on quality loan growth coupled with a healthy
economy in 1st Community's market area were contributing factors in both
years. Business development activities helped commercial loans to grow
$11,409,000 in 1996 and $5,238,000 in 1995. The Bank's new accounts
receivable financing program also contributed to the commercial loan growth
in 1996. Agricultural loans increased $600,000 and $519,000 in 1996 and
1995, respectively. Construction real estate mortgage loans and residential
real estate mortgage loans increased $1,410,000 and $8,325,000,
respectively, in 1996. These increases were much higher than the $1,922,000
total growth in these two mortgage categories in 1995. The higher level of
mortgage growth in 1996 was due to a more marketing-driven focus in the
mortgage department along with a full year of effect of the Bank's new
mortgage originator. Consumer loans increased $9,253,000 in 1996 compared
to $1,993,000 of growth in 1995. The Bank's indirect automobile lending
program contributed the majority of the growth in both years.
Management's emphasis in 1997 will be to continue growth in all loan
categories. Management intends to use business development activities to
attempt to generate demand in the commercial and agricultural loan
categories. Management intends to use contacts with real estate agents and
other methods to attempt to capture a larger share of the residential real
estate financing market. Management also intends to 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 1997.
FEDERAL HOME LOAN BANK ADVANCES
Advances from the Federal Home Loan Bank of Indianapolis (the "FHLB") were
a very important source of funds for 1st Community in 1996. Advances rose
from a balance of $1,000,000 at December 31, 1995, to $25,200,000 at
December 31, 1996. 1st Community borrowed from the FHLB in 1996 to this
extent because loan growth significantly exceeded deposit growth during the
year. Certain U.S. Treasury and U.S. Government agencies securities and
residential real estate mortgage loans were pledged as blanket collateral
for the FHLB advances at December 31, 1996. The maximum amount of advances
available from the FHLB at December 31, 996, based on the pledged
collateral was approximately $26,700,000.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1st Community Bancorp, Inc.
SHAREHOLDERS' EQUITY
1st Community's shareholders' equity was $14,537,000 at December 31, 1996,
which represented a $753,000 increase from December 31, 1995. The growth
was caused by the retention of $1,032,000 of earnings by 1st Community in
1996. This was offset by the effects of the business combination with the
Agency, the repurchase of stock and a decrease in net unrealized
appreciation on securities available for sale. The stock repurchased in
1996 is intended to be used in the Bank's 401(k) savings and retirement
plan. Total shareholders' equity increased $908,000 in 1995. The 1995
increase 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 a stock repurchase and
a small impact from the 20% stock dividend paid in December 1995. The stock
repurchased in 1995 was intended for and was later distributed as part of
the 20% stock dividend in December 1995.
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. The
guidelines also are intended to insure that adequate capital is maintained
against risks other than credit risk. Note 18 to the Consolidated Financial
Statements presents 1st Community's risk-based capital information compared
to regulatory requirements. The decrease in 1st Community's capital ratios
from the end of 1995 to the end of 1996 resulted from a growth rate of
almost 30% in 1st Community's assets in 1996, compared to a growth rate of
5% in shareholders' equity. However, 1st Community's risk-based capital was
categorized as well capitalized at both December 31, 1996 and December 31,
1995. The decrease in the capital ratios was consistent with management's
desire to improve the return to shareholders by leveraging 1st Community's
equity.
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
three of the Bank's correspondent banks. The total amount of federal funds
that were available for purchase at the Bank's correspondent banks was
$11,200,000 at December 31, 1996, while the Bank's actual federal funds
purchased balance was $3,350,000 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.
The significant loan growth that 1st Community experienced in 1996 has
caused liquidity to become a very important issue for 1st Community. The
Bank's Asset/Liability Management Committee will continue to monitor and
work with liquidity levels in 1997 in an attempt to insure funding is
available to support loan growth.
Interest sensitivity is related to liquidity because each is affected by
maturing assets and sources of funds. 1st Community's Asset/Liability
Management 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 4 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 1996 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 92%
as of December 31, 1996, compared to 91% as of December 31, 1995. 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, 1996, and
December 31, 1995, were within this range.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1st Community Bancorp, Inc.
<TABLE>
TABLE 4 MATURITIES AND REPRICING SCHEDULE
<CAPTION>
DECEMBER 31, 1996
0-3 3-12 1-5 OVER
MONTHS MONTHS YEARS 5 YEARS TOTAL
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Loans . . . . . . . . . . . . . . . . $ 32,944 $ 22,457 $ 33,432 $ 21,246 $ 110,079
Interest-bearing deposits with banks 64 -- -- -- 64
Taxable securities. . . . . . . . . . 2,703 964 8,393 901 12,961
Nontaxable securities . . . . . . . . -- 771 4,025 5,249 10,045
----------------------------------------------------------------
Rate-sensitive assets . . . . . . . 35,711 24,192 45,850 27,396 133,149
LIABILITIES
Interest-bearing transaction accounts 22,732 -- -- -- 22,732
Savings deposits. . . . . . . . . . . 9,158 -- -- -- 9,158
Time deposits . . . . . . . . . . . . 8,654 18,442 23,308 124 50,528
Federal Home Loan Bank advances -- 1,087 19,718 4,395 25,200
Other . . . . . . . . . . . . . . . . 4,731 -- -- -- 4,731
----------------------------------------------------------------
Rate-sensitive liabilities . . . . . 45,275 19,529 43,026 4,519 112,349
----------------------------------------------------------------
Rate-sensitive assets less
rate-sensitive liabilities
Asset (liability) gap for the period $ (9,564) $ 4,663 $ 2,824 $ 22,877 $ 20,800
================================================================
Cumulative asset (liability) gap . $ (9,564) $ (4,901) $ (2,077) $ 20,800
================================================================
</TABLE>
As short-term and long-term interest rates fluctuate in 1997, the
relationship between rate-sensitive assets and liabilities and the rates
earned and paid on them will be reviewed by the Committee. Changes will be
made in the pricing or mix of assets or liabilities when the changes are
deemed prudent to stabilize or improve 1st Community's net interest margin.
31
<PAGE>
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
(800) 888-6200
D. H. Brush & Associates
Grand Rapids, Michigan
(616) 285-3700
McDonald & Co.
Grand Rapids, Michigan
(616) 732-3383
(800) 548-6011
Paine Webber, Inc.
Grand Rapids, Michigan
(616) 459-4231
(800) 333-4231
Roney & Company
Grand Rapids, Michigan
(616) 456-8691
(800) 553-2249
Stifel Nicolaus & Company, Inc.
Grand Rapids, Michigan
(616) 942-1717
(800) 676-0477
STOCK REGISTRAR AND TRANSFER AGENT
ChaseMellon Shareholder Services
85 Challenger Road
Ridgefield Park, New Jersey
07660
(800) 288-9541
ANNUAL MEETING
The annual meeting of shareholders of 1st Community Bancorp, Inc., will be
held at 7:30pm EST on Tuesday, April 29, 1997, 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 is as follows:
<TABLE>
<CAPTION>
1996 1995
-----------------------
LOW HIGH LOW HIGH
-----------------------
<S> <C> <C> <C> <C>
First Quarter . . . . . . . . . $36 $41 $30 $34
Second Quarter . . . . . . . . 38 43 32 37
Third Quarter . . . . . . . . . 38 43 34 37
Fourth Quarter . . . . . . . . 39 43 34 38
</TABLE>
The above market prices have been adjusted where necessary to reflect the 20%
stock dividend declared in 1995. The prices listed above are over the counter
market quotations reported to 1st Community by its market makers listed in
this annual report. 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, 1997, there were 482,710 shares of 1st Community Bancorp,
Inc., common stock issued and outstanding. These shares were held of record by
572 shareholders.
CASH DIVIDENDS PER SHARE OF COMMON STOCK
The following table summarizes cash dividends paid per share of common stock
during 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------------
<S> <C> <C>
First Quarter . . . . . . . . . $ .32 $ .23
Second Quarter . . . . . . . . .35 .27
Third Quarter . . . . . . . . .35 .27
Fourth Quarter . . . . . . . . .35 .41
------------------
Totals . . . . . . . . . . $1.37 $1.18
==================
</TABLE>
The above dividend per share amounts have been adjusted where necessary to
reflect the 20% stock dividend declared in 1995.
1st Community's principal source of funds to pay cash dividends are the
earnings and dividends paid by ChoiceOne Bank. ChoiceOne 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 1997.
SUBSIDIARY INFORMATION
CHOICEONE BANK
Main Office
109 East Division Street
P.O. Box 186
Sparta, MI 49345
Appletree Office
416 West Division Street
Sparta, MI 49345
Cedar Springs Office
4170 Seventeen Mile Road
Cedar Springs, MI 49319
Plainfield Office
4949 Plainfield NE
Grand Rapids, MI 49505
ChoiceOne Bank is a member of the Federal Deposit Insurance Corporation and is
an Equal Opportunity and Housing Lender.
[EQUAL HOUSING OPPORTUNITY LOGO] [EQUAL HOUSING LENDER LOGO]
CHOICEONE INSURANCE AGENCIES, INC.
Sparta Office
440 West Division Street
Sparta, MI 49345
Cedar Springs Office
17 North Main
Cedar Springs, MI 49319
Plainfield Office
4949 Plainfield NE
Grand Rapids, MI 49505
32
<PAGE>
DIRECTORS AND OFFICERS
1st Community Bancorp, Inc. and Subsidiaries
DIRECTORS
1ST COMMUNITY BANCORP, INC.
FRANK G. BERRIS
Owner, American Gas &
Oil Co., Inc. (Distributor of
Petroleum Products)
LAWRENCE D. BRADFORD
President, ChoiceONE
Insurance Agencies, Inc.
WILLIAM F. CUTLER, JR.
Former Vice President,
H. H. Cutler Co.
(Apparel Manufacturer)
L. EDMOND EARY, JR., M.D.
Chairman
Retired, Private Medical Practice
LEWIS G. EMMONS
Special Projects Manager,
Great Day Foods, Inc.
(Grocery Retailer)
STUART GOODFELLOW
Owner, Goodfellow Vending
Services (Vending Company)
& Goodfellow Blueberry Farms
JAE M. MAX FIELD
President & Chief Executive
Officer, 1st Community Bancorp,
Inc., and ChoiceOne Bank
JON E. PIKE
C.P.A., Managing Partner,
Beene Garter LLP (Certified
Public Accountants)
LINDA R. PITSCH
Secretary, 1st Community
Bancorp, Inc., and Senior Vice
President -
Cashier, ChoiceOne 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
DENIS CROSBY
Vice President
LINDA R. PITSCH
Secretary
TOM LAMPEN
Treasurer
OFFICERS
SUBSIDIARY - CHOICEONE BANK
L. EDMOND EARY, JR., M.D.
Chairman
JAE M. MAXFIELD
President & Chief Executive
Officer
DENIS L. CROSBY
Senior Vice President - Loans
GERALD P. DAVID
Senior Vice President -
Accounts Receivable
Financing
LINDA R. PITSCH
Senior Vice President -
Cashier
DEAN ANDERSON
Vice President - Commercial
Loans
LEE BRAFORD
Vice President - Consumer
Loans
TOM LAMPEN
Vice President - Chief
Financial Officer
KELLY POTES, CFP
Vice President - Financial
Services
ELLY BERGHOEF
Assistant Vice President -
Retail and Commercial
Development
KAREN M. GILBERT
Assistant Vice President -
Mortgage Loans
MARY JOHNSON
Assistant Vice President -
Internal Auditor
PATRICIA J. LOSER
Assistant Vice President -
Commercial Loans
ANNA PARKER
Assistant Vice President -
Marketing
AUDREY STILES
Assistant Vice President -
Personnel
SHERRY CONKLIN
Branch Sales Manager -
Cedar Springs Office
RACHEL VANIN MILLER
Branch Sales Manager -
Plainfield Office
OFFICERS
SUBSIDIARY - CHOICEONE
INSURANCE AGENCIES, INC.
LAWRENCE D. BRADFORD
President
JEFFREY S. BRADFORD, CIC
Vice President
TAB M. BRADFORD, CIC
Vice President
KELLY POTES, CFP
Vice President
TOM LAMPEN
Secretary/Treasurer
CARLO VANIN
Plainfield Office President
LINDA DEVRIES
Assistant Vice President
[RECYCLE LOGO] Printed on Recycled Paper
33
<PAGE>
[PICTURE OF CALENDAR CLOCK]
[1ST COMMUNITY BANCORP, INC. LOGO]
109 East Division Street, P.O. Box 186, Sparta, Michigan 49345
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE SMALL BUSINESS ISSUER
The following lists the subsidiaries of the Registrant and the
state or jurisdiction of incorporation.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF SUBSIDIARY STATE OF INCORPORATION
------------------------------ ----------------------
<S> <C> <C>
1. ChoiceOne Bank Michigan
109 East Division
Sparta, Michigan 49345
2. ChoiceOne Insurance Agencies, Inc. Michigan
440 West Division
Sparta, Michigan 49345
</TABLE>
<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, 1996, 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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,952
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 20,451
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 110,079
<ALLOWANCE> 1,487
<TOTAL-ASSETS> 141,731
<DEPOSITS> 95,606
<SHORT-TERM> 4,731
<LIABILITIES-OTHER> 1,657
<LONG-TERM> 25,200
<COMMON> 4,827
0
0
<OTHER-SE> 9,710
<TOTAL-LIABILITIES-AND-EQUITY> 141,731
<INTEREST-LOAN> 9,050
<INTEREST-INVEST> 1,366
<INTEREST-OTHER> 3
<INTEREST-TOTAL> 10,419
<INTEREST-DEPOSIT> 3,919
<INTEREST-EXPENSE> 4,665
<INTEREST-INCOME-NET> 5,754
<LOAN-LOSSES> 523
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,436
<INCOME-PRETAX> 2,350
<INCOME-PRE-EXTRAORDINARY> 2,350
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,695
<EPS-PRIMARY> 3.50
<EPS-DILUTED> 0
<YIELD-ACTUAL> 5.16
<LOANS-NON> 288
<LOANS-PAST> 686
<LOANS-TROUBLED> 26
<LOANS-PROBLEM> 1,083
<ALLOWANCE-OPEN> 1,121
<CHARGE-OFFS> 221
<RECOVERIES> 64
<ALLOWANCE-CLOSE> 1,487
<ALLOWANCE-DOMESTIC> 1,120
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 367
</TABLE>
