<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number: 1-9202
1ST COMMUNITY BANCORP, INC.
(Exact name of small business issuer as specified in its charter)
MICHIGAN 38-2659066
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
109 EAST DIVISION
SPARTA, MICHIGAN 49345
(Address of principal executive offices)
(616) 887-7366
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes __X__ No _____
As of March 31, 1997, the registrant had outstanding 482,710 shares of
common stock having a par value of $10 per share (not including shares to
be issued in the 6% stock dividend payable on May 16, 1997).
Transitional Small Business Disclosure Format (check one): Yes _____
No __X__
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
<TABLE>
1ST COMMUNITY BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
March 31, 1997 and December 31, 1996
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,055,000 $ 4,952,000
Securities available for sale (Note 2) 22,722,000 23,006,000
Loans (Note 3) 112,122,000 110,079,000
Allowance for loan losses (Note 4) (1,546,000) (1,487,000)
------------ ------------
Net loans 110,576,000 108,592,000
Premises and equipment - net 3,544,000 2,987,000
Accrued interest receivable 1,071,000 859,000
Other assets 1,516,000 1,335,000
------------ ------------
Total assets $142,484,000 $141,731,000
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
-2-
<PAGE>
<TABLE>
1ST COMMUNITY BANCORP, INC.
CONSOLIDATED BALANCE SHEETS - Continued
March 31, 1997 and December 31, 1996
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits
Demand $ 10,743,000 $ 13,188,000
Interest-bearing transaction accounts 22,336,000 22,732,000
Savings 9,061,000 9,158,000
Time 51,076,000 50,528,000
------------ ------------
Total deposits 93,216,000 95,606,000
Federal funds purchased and securities sold under
agreements to repurchase 7,992,000 4,731,000
Accrued interest payable 441,000 435,000
Federal Home Loan Bank advances 25,200,000 25,200,000
Other liabilities 988,000 1,222,000
------------ ------------
Total liabilities 127,837,000 127,194,000
COMMITMENTS AND CONTINGENCIES (NOTE 5)
SHAREHOLDERS' EQUITY
Common stock, $10 par value; shares
authorized: 1,000,000; shares outstanding:
511,443 at March 31, 1997 and 482,710 at
December 31, 1996 5,114,000 4,827,000
Surplus 6,183,000 5,292,000
Retained earnings 3,350,000 4,305,000
Net unrealized appreciation on securities
available for sale, net of deferred tax effect 0 113,000
------------ ------------
-3-
<PAGE>
Total shareholders' equity 14,647,000 14,537,000
------------ ------------
Total liabilities and shareholders' equity $142,484,000 $141,731,000
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
-4-
<PAGE>
<TABLE>
1ST COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1997 1996
---------- ----------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $2,562,000 $1,983,000
Securities
Taxable 217,000 234,000
Nontaxable 128,000 107,000
Other 0 1,000
---------- ----------
Total interest income 2,907,000 2,325,000
INTEREST EXPENSE
Deposits 947,000 961,000
Federal Home Loan Bank
advances 396,000 20,000
Other 80,000 20,000
---------- ----------
Total interest expense 1,423,000 1,001,000
---------- ----------
NET INTEREST INCOME 1,484,000 1,324,000
PROVISION FOR LOAN LOSSES 158,000 90,000
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,326,000 1,234,000
NONINTEREST INCOME
Service charges on deposit
accounts 72,000 78,000
Other service charges
and fees 32,000 34,000
Mortgage loan sales
and servicing 19,000 19,000
Insurance commissions 225,000 202,000
Other income 42,000 39,000
---------- ----------
-5-
<PAGE>
Total noninterest income 390,000 372,000
NONINTEREST EXPENSE
Salaries and wages 510,000 485,000
Pension and other employee
benefits 113,000 109,000
Occupancy expense 83,000 67,000
Furniture and equipment
expense 103,000 90,000
Other expenses (Note 6) 362,000 304,000
---------- ----------
Total noninterest expense 1,171,000 1,055,000
---------- ----------
INCOME BEFORE INCOME TAX 545,000 551,000
INCOME TAX EXPENSE (NOTE 7) 143,000 157,000
---------- ----------
NET INCOME $ 402,000 $ 394,000
========== ==========
EARNINGS PER SHARE (NOTE 1) $ .79 $ .77
========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
-6-
<PAGE>
<TABLE>
1ST COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities
Net income $ 402,000 $ 394,000
Adjustments to reconcile net income to net cash
from operating activities
Net amortization on securities 18,000 21,000
Net gain on sales of loans (3,000) (3,000)
Loans originated for sale (441,000) (2,017,000)
Proceeds from loan sales 287,000 407,000
Provision for loan losses 158,000 90,000
Depreciation 79,000 70,000
Deferred income tax benefit (20,000) (19,000)
Changes in:
Interest receivable and other assets (316,000) (408,000)
Interest payable and other liabilities (238,000) 118,000
---------- ----------
Net cash used in operating activities (74,000) (1,347,000)
Cash flows from investing activities
Securities available for sale:
Proceeds from maturities of securities 614,000 174,000
Purchase of securities (518,000) 0
Net customer loan activity (3,375,000) (4,517,000)
Loans sold 1,390,000 22,000
Loans purchased 0 (231,000)
Net expenditures for premises and equipment (636,000) (22,000)
---------- ----------
Net cash used in investing activities (2,525,000) (4,574,000)
Cash flows from financing activities
Net increase (decrease) in deposits (2,390,000) 1,579,000
Increase in federal funds purchased and
securities sold under agreements to repurchase 3,261,000 696,000
Increase in Federal Home Loan Bank advances 0 1,000,000
Cash dividends paid (169,000) (155,000)
---------- ----------
-7-
<PAGE>
Net cash provided by financing activities 702,000 3,120,000
---------- ----------
Net change in cash and cash equivalents (1,897,000) (2,801,000)
Cash and cash equivalents at beginning of period 4,952,000 4,806,000
---------- ----------
Cash and cash equivalents at end of period $3,055,000 $2,005,000
========== ==========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $1,416,000 $ 990,000
Income taxes $ 170,000 $ 29,000
</TABLE>
See accompanying notes to the consolidated financial statements.
-8-
<PAGE>
1ST COMMUNITY BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Registrant and its direct and indirect wholly owned subsidiaries, ChoiceOne
Bank and ChoiceOne Insurance Agencies, Inc. after elimination of
significant intercompany transactions and accounts. The statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information, prevailing practices within the banking
industry and the instructions to Form 10-QSB and Item 310 of Regulation S-B.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements.
The accompanying consolidated financial statements reflect all adjustments
ordinary in nature which are, in the opinion of management, necessary for a
fair presentation of the Consolidated Balance Sheets as of March 31, 1997,
and December 31, 1996, the Consolidated Statements of Income for the three-
month periods ended March 31, 1997, and March 31, 1996, and the
Consolidated Statements of Cash Flows for the three-month periods ended
March 31, 1997, and March 31, 1996. Operating results for the three months
ended March 31, 1997, are not necessarily indicative of the results that
may be expected for the year ending December 31, 1997.
The accompanying consolidated financial statements should be read in
conjunction with the consolidated financial statements and footnotes
thereto included in the Registrant's Annual Report on Form 10-KSB for the
year ended December 31, 1996.
STOCK TRANSACTIONS, EARNINGS AND CASH DIVIDENDS PER SHARE
Effective January 1, 1996, the Registrant issued 20,610 shares of 1st
Community Bancorp, Inc. common stock to effect a business combination with
Bradford Insurance Centre, Ltd. (the name was then changed to ChoiceOne
Insurance Agencies, Inc. in May 1996). The Registrant repurchased 2,703
shares of its stock in August 1996. The purchase of the stock coincided
with the Registrant's plans to adopt an employee stock ownership plan. A
6% stock dividend was declared by the Registrant on April 16, 1997. The
stock dividend will be payable on May 16, 1997, to shareholders of record
on April 29, 1997.
-9-
<PAGE>
Earnings per share are based on the weighted average number of shares
outstanding during the year. The weighted average number of shares has
been adjusted for the 6% stock dividend declared in April 1997, the
repurchase of stock in August 1996 and the issuance of stock in January
1996. The weighted average number of shares outstanding was 511,673 for
the first quarter of 1997 and 514,538 for the first quarter of 1996.
Cash dividends per share are based on the number of shares outstanding at
the time the dividend was paid. The number of shares outstanding was
511,673 for the cash dividend paid in the first quarter of 1997 and 514,538
for the cash dividend paid in the first quarter of 1996.
NOTE 2 - SECURITIES
Securities have been classified in the Consolidated Balance Sheets
according to management's intent. The amortized cost and approximate fair
value of securities at March 31, 1997, and December 31, 1996, were as
follows:
<TABLE>
<CAPTION>
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
MARCH 31, 1997
U.S. Treasury and
U.S. Government agencies $ 5,095,000 $ 24,000 $ (31,000) $ 5,088,000
Obligations of states and
political subdivisions 10,015,000 122,000 (77,000) 10,060,000
U.S. Government agencies
backed by mortgages 4,754,000 20,000 (55,000) 4,719,000
Other 2,858,000 0 (3,000) 2,855,000
----------- -------- --------- -----------
Total $22,722,000 $166,000 $(166,000) $22,722,000
=========== ======== ========= ===========
-10-
<PAGE>
DECEMBER 31, 1996
U.S. Treasury and
U.S. Government agencies $ 4,831,000 $ 36,000 $ (14,000) $ 4,853,000
Obligations of states and
political subdivisions 10,276,000 191,000 (39,000) 10,428,000
U.S. Government agencies
backed by mortgages 4,869,000 32,000 (35,000) 4,866,000
Other 2,859,000 0 0 2,859,000
----------- -------- --------- -----------
Total $22,835,000 $259,000 $ (88,000) $23,006,000
=========== ======== ========= ===========
</TABLE>
There were no sales of securities for the three months ended March 31, 1997
and 1996.
For the three months ended March 31, 1997, the change in net unrealized
holding gain or loss on securities available for sale decreased by $171,000
resulting in no unrealized gain or loss on securities available for sale.
The book values of securities pledged as collateral at March 31, 1997, and
December 31, 1996, were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
---------- ------------
<S> <C> <C>
Securities sold under agreements to repurchase $1,506,000 $2,007,000
Public deposits 250,000 251,000
Federal Home Loan Bank advances 0 5,306,000
---------- ----------
Total $1,756,000 $7,564,000
========== ==========
</TABLE>
NOTE 3 - LOANS
Loans at March 31, 1997, and December 31, 1996, were classified as follows:
-11-
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Commercial $ 36,035,000 $ 34,583,000
Agricultural 9,624,000 10,113,000
Real estate mortgage - construction 2,245,000 2,215,000
Real estate mortgage - residential 38,154,000 37,168,000
Consumer 26,064,000 26,000,000
------------ ------------
Total $112,122,000 $110,079,000
============ ============
</TABLE>
Loans held for sale included $1,838,000 of commercial loans and $207,000 of
residential real estate mortgage loans at March 31, 1997. Loans held for
sale were accounted for at the lower of aggregate cost or market.
Information regarding impaired loans as of March 31, 1997, and December 31,
1996, is as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
<S> <C> <C>
Loans classified as impaired $830,000 $599,000
Less impaired loans for which no allowance for
credit losses had been established 623,000 450,000
-------- --------
Impaired loans for which an allowance for credit
losses had been determined $207,000 $149,000
======== ========
Allowance determined for above impaired loans $ 74,000 $ 6,000
======== ========
</TABLE>
Information regarding impaired loans for the three months ended March 31,
1997 and 1996 is as follows:
-12-
<PAGE>
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Average balance of impaired loans $715,000 $407,000
Interest income recognized on impaired loans 10,000 24,000
Interest income recognized on a cash-basis on
impaired loans 5,000 24,000
</TABLE>
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
An analysis of changes in the allowance for loan losses for the three
months ended March 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Balance at beginning of period $1,487,000 $1,121,000
Provision charged to operating expense 158,000 90,000
Recoveries credited to the allowance 15,000 24,000
Loans charged-off (114,000) (54,000)
---------- ----------
Balance at end of period $1,546,000 $1,181,000
========== ==========
</TABLE>
NOTE 5 - COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS OF CREDIT RISK
Noninterest-bearing deposits totaling approximately $2,194,000 were held at
NBD Bank at March 31, 1997.
As of March 31, 1997, the Registrant had outstanding commitments to make
loans totaling $15,142,000, the majority of which have variable interest
rates. The Registrant had issued approximately $2,619,000 in unused lines
of credit and $48,000 in letters of credit at March 31, 1997.
NOTE 6 - NONINTEREST EXPENSE
Noninterest expense for the three months ended March 31, 1997 and 1996 was
as follows:
-13-
<PAGE>
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Supplies and postage $ 56,000 $ 49,000
Legal and professional 42,000 35,000
Computer processing 38,000 37,000
Training and seminars 28,000 15,000
Advertising and marketing 18,000 23,000
State single business tax expense 11,000 29,000
Other 169,000 116,000
-------- --------
Total $362,000 $304,000
======== ========
</TABLE>
NOTE 7 - INCOME TAX EXPENSE
The components of income tax expense for the three months ended March 31,
1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Current income tax expense $163,000 $176,000
Deferred income tax benefit (20,000) (19,000)
-------- --------
Income tax expense $143,000 $157,000
======== ========
</TABLE>
The difference between the financial statement tax provision and amounts
computed by applying the federal income tax rate to pre-tax income is
principally attributable to tax-exempt interest income.
The components of deferred tax assets and liabilities at March 31, 1997,
and December 31, 1996, were as follows:
-14-
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $421,000 $401,000
Deferred compensation 61,000 62,000
Deferred loan fees 51,000 53,000
Postretirement benefits obligation 50,000 50,000
Other 66,000 68,000
-------- --------
Total deferred tax assets 649,000 634,000
Deferred tax liabilities:
Depreciation 186,000 188,000
Pension fund asset 96,000 96,000
Unrealized appreciation on securities available
for sale 0 58,000
Other 10,000 12,000
-------- --------
Total deferred tax liabilities 292,000 354,000
-------- --------
Net deferred tax asset $357,000 $280,000
======== ========
</TABLE>
A valuation allowance related to a deferred tax asset is recognized when it
is considered more likely than not that part or all of the deferred tax
benefits will not be realized. Management has determined that no such
allowance was required at March 31, 1997, or December 31, 1996.
-15-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion is designed to provide a review of the financial
condition and results of operations of 1st Community Bancorp, Inc. (the
"Registrant") and its direct and indirect wholly owned subsidiaries,
ChoiceOne Bank (the "Bank") and ChoiceOne Insurance Agencies, Inc. (the
"Agency"). This discussion should be read in conjunction with the
consolidated financial statements and related footnotes.
NET INCOME AND RETURN ON AVERAGE ASSETS AND SHAREHOLDERS' EQUITY
The Registrant's net income increased $8,000 or 2% in the first quarter of
1997 compared to the same period of 1996. The slight improvement in net
income in the first quarter resulted from higher net interest income, the
effect of which was virtually offset by growth in the provision for loan
losses and noninterest expense.
The increase in net interest income in the first quarter of 1997 was caused
by growth in average interest-earning assets. Part of the effect of such
growth was offset by a reduction in the spread between interest rates earned
on interest-earning assets and interest rates paid on interest-bearing
liabilities. The higher provision for loan losses was due to higher loan
chargeoffs in 1997 than in 1996. The change in noninterest expense resulted
from expenses related to the Registrant's two new branches which were not yet
open in the first quarter of 1996 and from increases in various other expenses.
The return on average assets was 1.15% for the first quarter of 1997,
compared to 1.43% for the same period in 1996. The return on average
shareholders' equity was 11.17% for the first three months of 1997,
compared to 11.39% for the comparable period of the prior year.
CASH AND STOCK DIVIDENDS
Cash dividends declared in the first quarter of 1997 were $169,000 or $.33
per common share, which represents a $.03 per share or 10% increase
compared to the dividend paid in the same period of the prior year. The
cash dividend payout percentage in the first quarter of 1997 was 42.05%,
compared to 39.40% in the same period of 1996. The Registrant declared a 6%
stock dividend on April 16, 1997. The dividend is payable on May 16, 1997,
to shareholders of record on April 29, 1997. The cash dividend per share
amounts for both 1997 and 1996 have been adjusted for the effect of the
stock dividend.
-16-
<PAGE>
INTEREST INCOME AND EXPENSE
Tables 1 and 2 on the following two pages provide information regarding
interest income and expense for the three-month periods ended March 31,
1997, and March 31, 1996. Table 1 documents average balances and interest
income and expense, as well as the average rates earned or paid on assets
and liabilities. Table 2 documents the effect on interest income and
expense of changes in volume (average balance) and interest rates. These
tables are referred to in the discussion of interest income, interest
expense and net interest income below.
-17-
<PAGE>
<TABLE>
Table 1 - Average Balances and Tax Equivalent Interest Rates
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------------------------------------------------------
1997 1996
-------------------------------------- --------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Loans <F1> $110,123 $2,570 9.33% $ 81,176 $1,993 9.82%
Taxable securities <F2> 13,134 216 6.57 14,760 234 6.42
Nontaxable securities <F1><F2> 9,817 194 7.90 8,386 162 7.98
Other 90 1 4.44 78 1 5.13
-------- ------ -------- ------
Interest-earning assets 133,164 2,981 8.95 104,400 2,390 9.16
------ ------
Noninterest-earning assets 7,710 6,124
-------- --------
Total assets $140,874 $110,524
======== ========
Liabilities and shareholders' equity
Interest-bearing transaction
accounts $ 22,754 183 3.21 $ 24,735 202 3.27
Savings deposits 9,118 42 1.84 9,307 45 1.93
Time deposits 50,595 722 5.70 48,542 714 5.88
Federal Home Loan Bank advances 25,200 396 6.28 1,409 20 5.67
Other 6,019 80 5.31 1,394 20 5.73
-------- ------ -------- ------
Interest-bearing liabilities 113,686 1,423 5.00 85,387 1,001 4.69
------ ---- ------ ----
Noninterest-bearing liabilities 12,568 11,212
Shareholders' equity 14,620 13,925
-------- --------
Total liabilities and
shareholders' equity $140,874 $110,524
======== ========
Net interest income (tax-equivalent
basis) - interest spread 1,558 3.95% 1,389 4.47%
==== ====
-18-
<PAGE>
Tax equivalent adjustment <F1> (74) (65)
------ ------
Net interest income $1,484 $1,324
====== ======
Net interest income as a percentage
of earning assets (tax-equivalent
basis) 4.67% 5.32%
==== ====
<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> The average balance includes the effect of unrealized
appreciation/depreciation on securities, while the average rate was
computed on the average amortized cost of the securities.
</FN>
</TABLE>
-19-
<PAGE>
<TABLE>
Table 2 - Changes in Tax Equivalent Net Interest Income
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 OVER 1996
--------------
TOTAL VOLUME RATE
----- ------ ----
(Dollars in Thousands)
<S> <C> <C> <C>
Increase (decrease) in interest income <F1>
Loans <F2> $577 $680 $(103)
Taxable securities (18) (24) 6
Nontaxable securities <F2> 32 33 (1)
---- ---- -----
Net change in tax-equivalent income 591 689 (98)
Increase (decrease) in interest expense <F1>
Interest-bearing transaction accounts (19) (16) (3)
Savings deposits (3) (1) (2)
Time deposits 8 29 (21)
Federal Home Loan Bank advances 376 374 2
Other 60 62 (2)
---- ---- -----
Net change in interest expense 422 448 (26)
---- ---- -----
Net change in tax-equivalent
net interest income $169 $241 $ (72)
==== ==== =====
<FN>
<F1> The volume variance is computed as the change in volume (average
balance) multiplied by the previous year's interest rate. The rate
variance is computed as the change in interest rate multiplied by the
previous year's volume (average balance). The change in interest due to
both volume and rate has been allocated to the volume and rate changes in
proportion to the relationship of the absolute dollar amounts of the change
in each.
<F2> Interest on nontaxable investment securities and loans has been
adjusted to a fully tax-equivalent basis using an incremental tax rate of
34% for the periods presented.
</FN>
</TABLE>
-20-
<PAGE>
NET INTEREST INCOME
As shown in Tables 1 and 2, tax equivalent net interest income increased
$169,000 in the first three months of 1997 compared to 1996. The increase
resulted from growth in the Registrant's loan portfolio from 1996 to 1997.
Average loans increased $28,947,000 from the first quarter of 1996 to the
same period in 1997. This growth caused interest income from loans to be
$680,000 higher in 1997. Income received from loan fees was virtually the
same in the first quarters of 1997 and 1996. The other interest-earning
asset categories experienced small differences between 1997 and 1996.
The mix of interest-bearing liabilities has changed significantly from 1996
to 1997. The average balance of Federal Home Loan Bank (the "FHLB") advances
increased $23,791,000 from the first quarter of 1996 to the first quarter of
1997. This reflects the extent to which advances from the FHLB funded the
majority of loan growth in the last three quarters of 1996. The average
balance of other interest-bearing liabilities was more than double in the
first quarter of 1997 than in the same period of 1996. Virtually no change
occurred in the average balance of total deposits from the first quarter of
1996 to the first quarter of 1997. The increases in FHLB advances and other
interest-bearing liabilities reflects the extent to which FHLB and short-term
borrowings were used to fund loan growth in 1996. Deposit growth, available
funds from securities maturities, and retained earnings have not been
sufficient to meet loan demands.
Table 1 documents that the net interest income spread was 3.95% for the first
three months of 1997, compared to 4.47% for the same period of the prior
year. The reduction in net interest income spread was caused by a
21-basis-point decrease in the average rate earned on interest-earning
assets, while the average rate paid on interest-bearing liabilities went up
31 basis points. The decrease in the average rate earned on interest-earning
assets was caused by a decline in the average rate earned on loans. The
decline in the rate earned on loans resulted from loan growth since the
first quarter of 1996 at lower interest rates than had previously existed
in the portfolio. The increase in the average rate paid on interest-bearing
liabilities was attributable to the significant growth in advances from the
FHLB.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses increased $59,000 from December 31, 1996,
to March 31, 1997. The allowance was 1.37% of total loans at March 31,
1997, compared to 1.35% at December 31, 1996. The provision for loan
losses was $68,000 higher in the first quarter of 1997 than in the same
period of 1996. The larger provision was due to higher net chargeoffs than
in the prior year.
Chargeoffs and recoveries for those loan categories with activity in the
periods ended March 31, 1997 and 1996 were as follows:
-21-
<PAGE>
<TABLE>
<CAPTION>
1997 1996
---- ----
CHARGEOFFS RECOVERIES CHARGEOFFS RECOVERIES
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Commercial $ 13,000 $ 0 $ 0 $11,000
Agricultural 7,000 0 0 0
Real estate mortgage -
residential 5,000 0 0 0
Consumer 89,000 15,000 54,000 13,000
-------- ------- ------- -------
$114,000 $15,000 $54,000 $24,000
======== ======= ======= =======
</TABLE>
The amount of chargeoffs which the Bank will experience in the remainder of
1997 will be dependent on the extent to which business and consumer
borrowers are affected by the local economy and on many other economic
factors. As chargeoffs, changes in the level of nonperforming loans, and
loan growth occur in the remainder of 1997, the provision and allowance for
loan losses will be reviewed by the Bank's management and adjusted as
believed necessary.
NONINTEREST EXPENSE
Total noninterest expense increased $116,000 or 10% in the first quarter of
1997 compared to the same period of 1996. Of the growth in the first three
months of 1997, $67,000 was caused by expenses related to the Registrant's
two new branches which opened in the second quarter of 1996. The remaining
$49,000 difference was due to general expense growth.
SECURITIES
There were only $518,000 of securities purchased in the first quarter of
1997. With the level of loan growth in 1996 and 1997, securities purchases
have been limited primarily to the replacement of maturing securities.
Securities will continue to be used as collateral for public funds and
securities sold under agreements to repurchase. Securities which had been
pledged as collateral for Federal Home Loan Bank advances were released in
January 1997 when the Registrant starting using specific residential real
estate mortgage loans for collateral purposes. The Registrant's securities
portfolio will also serve as a source of liquidity for deposit needs.
-22-
<PAGE>
LOANS
Total loans grew $2,043,000 in the first quarter of 1997, compared to
growth of $6,635,000 in the fourth quarter of 1996 and $6,309,000 in the
first quarter of 1996. The balance of commercial loans was affected
by the sales of $1,390,000 in loans in the first quarter of 1997. However,
a slowdown in loan activity has occurred in all major loan categories. The
Registrant's management believes that loan activity has been affected by
increased competition, slightly higher interest rates in some loan areas,
and a certain amount of borrower uncertainty regarding the economy in the
local market.
Loan growth in the remainder of 1997 will be affected primarily by interest
rates and by competition within the Bank's local market area. A 25-basis-
point increase in the Bank's prime lending rate in late March 1997 may
soften demand for commercial loans. The Bank's loan officers plan to
continue using calling programs in all loan areas to attempt to continue
and stimulate demand. New marketing strategies are planned to enhance the
Bank's effectiveness in remaining competitive in residential real estate
mortgage lending. In the consumer loan category, management intends to use
direct mail advertising and telemarketing to stimulate demand for direct
loans while management will continue to emphasize development of its
indirect loan portfolio.
The Registrant implemented Statement of Financial Accounting Standards No.
114 ("SFAS 114"), "Accounting by Creditors for Impairment of a Loan," on
January 1, 1995. Information regarding impaired loans can be found in Note
3 to the consolidated financial statements. SFAS 114 requires that
management review the loan portfolio for possible impaired loans. In
addition to this requirement, management also monitors the portfolio for
nonperforming loans. Nonperforming loans are comprised of (1) loans
accounted for on a nonaccrual basis, (2) loans, not included in nonaccrual
loans, which are contractually past due 90 days or more as to interest or
principal payments, and (3) loans, not included in nonaccrual or loans past
due 90 days or more, which are considered troubled debt restructurings.
The balances of the three nonperforming categories as of March 31, 1997,
and December 31, 1996, were as follows:
-23-
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
---------- ------------
<S> <C> <C>
Loans accounted for on a nonaccrual basis $ 841,000 $ 288,000
Loans, not included in nonaccrual loans, which are
contractually past due 90 days or more as to
interest or principal payments 293,000 686,000
Loans, not included in nonaccrual or loans past due
90 days or more, which are considered troubled
debt restructurings 29,000 26,000
---------- ----------
Total $1,163,000 $1,000,000
========== ==========
</TABLE>
DEPOSITS
Total deposits declined $2,390,000 in the first quarter of 1997, compared
to a decrease of $1,419,000 in the fourth quarter of 1996 and an increase
of $1,579,000 in the first quarter of 1996. The decrease in deposits in
the first quarter of 1997 was caused by a $2,445,000 reduction in demand
deposits.
The lack of deposit growth is a concern for management as funds are needed
to support loan demand. The Bank's management believes that the shortage
of growth has been caused by a high degree of competition for deposits in
the Bank's local market areas. The Bank began listing its time deposit
interest rates on a national time deposit rate service in March 1997. The
Bank's management anticipates that this rate service will bring time
deposits from outside of the Bank's normal market areas. The Bank plans a
time deposit promotion in April 1997 in an attempt to secure new deposit
balances. Other promotions and product offerings are currently being
investigated for use in the second half of 1997.
SHAREHOLDERS' EQUITY
Total shareholders' equity increased $110,000 in the first quarter of 1997.
The equity growth in 1997 was caused by retained earnings, which was offset
by a decrease in net unrealized appreciation on securities available for
sale. The decrease in the market value adjustment for securities was
attributable to higher medium- and long-term interest rates, the effect of
which caused a decline in the market value of portfolio securities.
Shareholders' equity as a percentage of assets was 10.28% as of March 31,
1997, compared to 10.26% as of December 31, 1996. The Registrant's
-24-
<PAGE>
management intends to further decrease the equity to assets ratio to more
effectively use shareholders' equity by leveraging it through asset growth.
Based on risk-based capital guidelines established by the Bank's
regulators, the Registrant's risk-based capital was categorized as well
capitalized at March 31, 1997.
CAPITAL RESOURCES
The Registrant issued 20,610 shares of its common stock effective January
1, 1996, to facilitate the business combination with Bradford Insurance
Centre, Ltd. (now ChoiceOne Insurance Agencies, Inc.). The Bank completed
the construction of its new branch office in Cedar Springs in March 1997.
The cost of land, building and equipment approximated $750,000.
Management believes that the current level of capital is adequate to take
advantage of potential opportunities that may arise for the Registrant or
the Bank.
LIQUIDITY AND RATE SENSITIVITY
Cash and cash equivalents decreased $1,897,000 in the first quarter of
1997. The Registrant's management believes that the current level of
liquidity is sufficient to meet the Bank's normal operating needs. This
belief is based upon the availability of deposit growth, maturities of
securities, normal loan repayments, income retention, federal funds which
can be purchased from correspondent banks and advances available from the
Federal Home Loan Bank of Indianapolis.
Table 3 presents the maturity and repricing schedule for the Registrant's
rate-sensitive assets and liabilities for selected time periods. The
Registrant's cumulative rate-sensitive liabilities exceeded its cumulative
rate-sensitive assets by $13,199,000 at the one-year repricing point as of
March 31, 1997. The negative amount at the end of the first quarter
was due primarily to the classification of all interest-bearing transaction
accounts and savings deposits in the 0-to-3-month repricing category. The
rates paid on these deposit types can be immediately repriced. Management
believes that these types of accounts are not as sensitive to changes in
interest rates in the short term as this presentation would indicate and
that the positive funding gap in the 1 to 5 year period is more reflective
of the Registrant's experience. Management will determine the rates
necessary based on competitive rates and the need for deposited funds.
The Registrant's management is aware of the inherent interest rate risk
associated with gap management. As interest rate fluctuations occur, the
relationship between rate-sensitive assets and liabilities will be
monitored by management and changes in assets and liabilities will be made
when deemed necessary. It is the goal of the Registrant's Asset/Liability
Management Committee to maintain a desired interest rate spread through its
pricing of both loans and deposits.
-25-
<PAGE>
<TABLE>
Table 3 - Maturities and Repricing Schedule
<CAPTION>
AS OF MARCH 31, 1997
-----------------------------------------------------------
0 - 3 3 - 12 1 - 5 OVER
MONTHS MONTHS YEARS 5 YEARS TOTAL
------ ------ ----- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Assets
Loans $ 35,611 $ 21,079 $ 34,188 $21,244 $112,122
Interest-bearing deposits
with banks 16 0 0 0 16
Taxable securities 2,755 620 8,800 867 13,042
Nontaxable securities 270 496 4,176 4,738 9,680
-------- -------- ------- ------- --------
Rate-sensitive assets 38,652 22,195 47,164 26,849 134,860
Liabilities
Interest-bearing transaction
accounts 22,336 0 0 0 22,336
Savings deposits 9,061 0 0 0 9,061
Time deposits 12,281 17,832 20,838 125 51,076
Repurchase agreements 1,092 0 0 0 1,092
Federal Home Loan Bank
advance 0 4,544 19,405 1,251 25,200
Federal funds purchased 6,900 0 0 0 6,900
-------- -------- ------- ------- --------
Rate-sensitive liabilities 51,670 22,376 40,243 1,376 115,665
-------- -------- ------- ------- --------
Rate-sensitive assets less
rate-sensitive liabilities
Asset (liability) gap
for the period $(13,018) $ (181) $ 6,921 $25,473 $ 19,195
======== ======== ======= ======= ========
Cumulative asset
(liability) gap $(13,018) $(13,199) $(6,278) $19,195
======== ======== ======= =======
Cumulative rate-
sensitive assets as a
percentage of
cumulative rate-
sensitive liabilities 74.80% 82.17% 94.51% 116.59%
======== ======== ======= =======
</TABLE>
-26-
<PAGE>
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
1. Exhibits required by Item 601 of Regulation S-B. The following
exhibits are filed or incorporated by reference as part of this report:
EXHIBIT
NUMBER DOCUMENTS
3.1 Articles of Incorporation of the Registrant as currently in
effect and any amendments thereto - previously filed as an
exhibit to the Registrant's Form 10-QSB Quarterly Report for
its quarterly period ended June 30, 1996. Incorporated
herein by reference.
3.2 Bylaws of the Registrant as currently in effect and any
amendments thereto - previously filed as an exhibit to the
Registrant's Form 10-KSB Annual Report for its fiscal year
ended December 31, 1993. Incorporated herein by reference.
27 Financial Data Schedule.
2. Reports on Form 8-K. No reports on Form 8-K were filed during
the three months ended March 31, 1997.
-27-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
1ST COMMUNITY BANCORP, INC.
Date MAY 15, 1997 /S/ JAE M. MAXFIELD
Jae M. Maxfield
President and Chief Executive Officer
Date MAY 15, 1997 /S/ THOMAS L. LAMPEN
Thomas L. Lampen
Chief Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)
-28-
<PAGE>
INDEX TO EXHIBITS
The following exhibits are filed or incorporated by reference as part of
this report:
EXHIBIT
NUMBER DOCUMENTS
3.1 Articles of Incorporation of the Registrant as currently in
effect and any amendments thereto - previously filed as an
exhibit to the Registrant's Form 10-QSB Quarterly Report for
its quarterly period ended June 30, 1996. Incorporated
herein by reference.
3.2 Bylaws of the Registrant as currently in effect and any
amendments thereto - previously filed as an exhibit to the
Registrant's Form 10-KSB Annual Report for its fiscal year
ended December 31, 1993. Incorporated herein by reference.
27 Financial Data Schedule.
-29-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT OF 1ST COMMUNITY
BANCORP, INC., INCLUDED IN THE MARCH 31, 1997, FORM 10-QSB FILING AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,055
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22,722
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 112,122
<ALLOWANCE> 1,546
<TOTAL-ASSETS> 142,484
<DEPOSITS> 93,216
<SHORT-TERM> 7,992
<LIABILITIES-OTHER> 1,429
<LONG-TERM> 25,200
<COMMON> 5,114
0
0
<OTHER-SE> 9,533
<TOTAL-LIABILITIES-AND-EQUITY> 142,484
<INTEREST-LOAN> 2,562
<INTEREST-INVEST> 345
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 2,907
<INTEREST-DEPOSIT> 947
<INTEREST-EXPENSE> 1,423
<INTEREST-INCOME-NET> 1,484
<LOAN-LOSSES> 158
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,171
<INCOME-PRETAX> 545
<INCOME-PRE-EXTRAORDINARY> 402
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 402
<EPS-PRIMARY> .79
<EPS-DILUTED> .00
<YIELD-ACTUAL> 4.67
<LOANS-NON> 841
<LOANS-PAST> 293
<LOANS-TROUBLED> 29
<LOANS-PROBLEM> 783
<ALLOWANCE-OPEN> 1,487
<CHARGE-OFFS> 114
<RECOVERIES> 15
<ALLOWANCE-CLOSE> 1,546
<ALLOWANCE-DOMESTIC> 1,109
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 437
</TABLE>
