FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20552
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period Ended March 31, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________to ________________
Commission File Number
0-17915
1ST BANCORP
--------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Indiana 35-1775411
- -------------------------------------- ------------------------------------
(State of other jurisdiction of (I.R.S. Employer Identification
Incorporation or organization) Number)
101 N. Third Street
Vincennes, Indiana 47591
- -------------------------------------- ------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including are code: (812) 882-4528
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 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 April 29, 1996, there were 666,042 Shares of the Registrant's Common Stock
issued and outstanding.
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<PAGE>
1ST BANCORP AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION: Number
Item 1. Financial Statements
Consolidated Condensed Statements
of Financial Condition,
March 31, 1996 and June 30,
1995 (Unaudited) 3
Consolidated Condensed Statements
of Earnings, Three Months and
Nine Months Ended March 31, 1996
and 1995 (Unaudited) 4
Consolidated Condensed Statements of
Cash Flows, Nine Months Ended
March 31, 1996 and 1995
(Unaudited) 5
Notes to Consolidated Condensed
Financial Statements (Unaudited) 6-7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8-16
PART II. OTHER INFORMATION 17
SIGNATURES 19
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<PAGE>
1ST BANCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(Unaudited and in Thousands)
March 31, June 30,
1996 1995
--------- ---------
ASSETS Cash and cash equivalents:
Interest bearing deposits $ 9,774 $ 15,978
Non-interest bearing deposits 579 1,354
--------- ---------
Cash and cash equivalents 10,353 17,332
--------- ---------
Investment securities held to maturity (market value
of $43,946 at March 31, 1996 and
$70,281 at June 30, 1995) 44,653 72,005
Investment securities available for sale 10,761 --
Loans receivable, net 144,602 201,819
Loans held for sale 48,037 5,104
Accrued interest receivable:
Investment securities 646 1,394
Mortgage-backed securities and loans 1,196 1,174
Stock in FHLB of Indianapolis, at cost 4,864 3,876
Office premises and equipment 2,986 3,989
Real estate owned 130 145
Prepaid expenses and other assets 4,894 5,921
--------- ---------
TOTAL ASSETS $ 273,122 $ 312,759
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 139,237 $ 209,805
Advances from FHLB and other borrowings 107,841 79,387
Advance payments by borrowers for
taxes and insurance 823 2,321
Accrued interest payable on deposits 1,027 504
Accrued expenses and other liabilities 2,551 4,039
Deferred income taxes 108 370
--------- ---------
Total Liabilities $ 251,587 $ 296,426
--------- ---------
Stockholders' Equity:
Preferred stock, no par value; shares authorized
of 2,000,000, none outstanding -- --
Common stock, $1 par value; shares authorized
of 5,000,000; shares issued and outstanding
of 666,042 at March 31, 1996 and
665,989 at June 30, 1995 (Note 2) $ 666 $ 634
Paid-in capital 2,734 2,825
Retained earnings, substantially restricted 18,279 13,064
Unrealized depreciation on securities (144) (190)
--------- ---------
Total Stockholders' Equity $ 21,535 $ 16,333
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 273,122 $ 312,759
========= =========
See Notes to Consolidated Condensed Financial Statements.
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1ST BANCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited and in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------- -----------------------
1996 1995 1996 1995
-------- -------- -------- --------
INTEREST INCOME:
<S> <C> <C> <C> <C>
Loans and mortgage-backed securities $ 3,857 $ 3,855 $ 12,304 $ 11,082
Investment securities 716 1,068 2,902 2,969
Trading account securities 3 5 3 5
Other short-term investments and
interest bearing deposits 187 185 625 477
-------- -------- -------- --------
Total Interest Income 4,763 5,113 15,834 14,533
-------- -------- -------- --------
INTEREST EXPENSE:
Deposits 1,817 2,313 7,086 6,448
Short-term borrowings 22 111 78 310
FHLB advances and other borrowings 1,409 1,159 3,886 2,814
-------- -------- -------- --------
Total Interest Expense 3,248 3,583 11,050 9,572
-------- -------- -------- --------
NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES 1,515 1,530 4,784 4,961
Provision for loan losses 15 10 60 60
-------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,500 1,520 4,724 4,901
-------- -------- -------- --------
NON-INTEREST INCOME:
Fees and service charges 66 278 213 762
Net gain (loss) on sales of
investment securities available
for sale and trading account investments (42) 13 (164) 14
Net gain on sales of loans and
mortgage-backed securities 498 143 1,494 293
Net gain on sale of branch offices -- -- 7,274 --
Other 184 250 774 1,621
-------- -------- -------- --------
Total Non-Interest Income 706 684 9,591 2,690
-------- -------- -------- --------
NON-INTEREST EXPENSE:
Compensation and employee benefits 906 1,055 3,146 3,166
Net occupancy 168 199 571 617
Federal insurance premiums 101 128 369 366
Other 468 532 1,566 1,405
-------- -------- -------- --------
Total Non-Interest Expense 1,643 1,914 5,652 5,554
-------- -------- -------- --------
Earnings Before Income Taxes 563 290 8,663 2,037
Income Taxes 218 95 3,248 727
-------- -------- -------- --------
NET EARNINGS $ 345 $ 195 $ 5,415 $ 1,310
======== ======== ======== ========
EARNINGS PER SHARE:
Primary $ 0.52 $ 0.30 $ 8.10 $ 2.03
Fully-diluted $ 0.52 $ 0.30 $ 8.10 $ 2.00
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
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<PAGE>
1ST BANCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited and in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
----------------------------------------
1996 1995
---------------- --------------
Net Cash Flow From Operating Activities:
<S> <C> <C>
Net earnings $5,415 $1,310
Adjustments to reconcile net cash provided by operating activities:
Depreciation and amortization 256 112
Amortization of mortgage servicing rights 90 358
Net change in trading account securities - (1,000)
Gain on sale of loans and mortgage-backed securities (1,494) (293)
Loss on sale of investment securities available for sale 164 -
Gain on sale of loans - branch sales (553) -
Gain on sale of office premises and equipment - branch sales (453) -
Gain on sale of deposits - branch sales (6,715) -
Net change in loans held for sale (5,352) 4
Provision for loan losses 60 60
Decrease (increase) in accrued interest receivable 726 (62)
Decrease (increase) in prepaid expenses and other assets 1,081 (1,920)
Increase (decrease) in accrued expenses and other liabilities (1,257) 159
Undistributed loss of investment in limited partnership 227 94
-------------- -------------
NET CASH USED BY OPERATING ACTIVITIES ($7,805) ($1,178)
-------------- -------------
Cash Flows From Investing Activities:
Purchases of investment securities ($33,266) (14,216)
Purchases of investment securities - available for sale (29,491) -
Proceeds from sales of investment securities available for sale 62,022 -
Proceeds from maturities and calls of investment securities 19,670 -
Purchases of MBS - available for sale (4,533) -
Proceeds from sales MBS 2,034 -
Principal collected on loans and mortgage-backed securities,
net of originations (7,049) (25,313)
Purchases of stock of FHLB of Indianapolis (988) (1,378)
Purchases of office premises and equipment (118) (166)
Purchases of limited partnership investment - (2,500)
Proceeds from sale of office premises and equipment - branch sales 1,316 -
Proceeds from sale of loans - branch sales 28,369 -
Sale of deposits - branch sales (78,473) -
Other (1,483) 1,798
-------------- -------------
NET CASH USED BY INVESTING ACTIVITIES ($41,990) ($41,775)
-------------- -------------
Cash Flows From Financing Activities:
Net increase in deposits $14,620 $25,821
Proceeds from FHLB advances and other borrowings 139,344 138,699
Repayment of FHLB advances and other borrowings (110,890) (113,211)
Proceeds from issuance of common stock 123 102
Payment of dividends on common stock (200) (87)
Purchase and retirement of common stock (181) -
-------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES $42,816 $51,324
-------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ($6,979) $8,371
Cash and Cash Equivalents at Beginning of Period 17,332 7,651
-------------- -------------
Cash and Cash Equivalents at End of Period $10,353 $16,022
============== =============
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
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1ST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1. In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments necessary for a fair
presentation. The results of operations for the interim periods are not
necessarily indicative of the results which may be expected for an entire year.
These financial statements are condensed and do not contain all disclosures
required by generally accepted accounting principles which would be included in
a complete set of financial statements.
Note 2. Stock Dividend
On December 21, 1995, the Board of Directors approved a 5% common stock dividend
with a record date of January 26, 1996 and payment date of February 9, 1996. All
share and per share data have been adjusted to reflect the 5% stock dividend.
Note 3. Earnings Per Share
Primary earnings per share and fully-diluted earnings per share have been
computed on the basis of the weighted average number of common shares
outstanding and the dilutive effect of stock options not exercised during the
periods presented using the treasury stock method. The weighted average number
of shares outstanding for use in the primary computation was 665,827 and 649,732
for the three months ended and 668,742 and 646,560 for the nine months ended
March 31, 1996 and 1995, respectively. The weighted average number of shares
outstanding for use in the fully-diluted computation was 665,827 and 653,340 for
the three months ended and 668,742 and 653,580 for the nine months ended March
31, 1996 and 1995, respectively.
Note 4. Stock Option and Purchase Plans
The Corporation has an Incentive Stock Option Plan whereby 49,220 shares of
authorized but unissued common stock were reserved for issuance upon the
exercise of stock options granted to key employees. Stock options have been
granted for 49,220 shares under the plan at an option price of $5.71 per share.
The Corporation also has a stock option plan under which 157,500 shares of
authorized but unissued common stock were reserved. Under this plan, 91,875
non-qualified stock options were granted at $5.71 per share to outside
directors, and 39,375 incentive stock options and 9,844 non-qualified stock
options were granted at $5.71 and $5.86 per share, respectively, to certain key
employees. All options granted have been exercised or canceled as of March 31,
1996.
The Corporation maintains an Employee Stock Purchase Plan whereby full-time
employees of the Bank can purchase its common stock at a discount; 13,125
authorized but unissued shares were reserved for issuance under this plan. The
purchase price of these shares is 85% of the fair market
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<PAGE>
1ST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
value of such stock at the beginning or end of the offering period, whichever is
lesser. A total of 5,213 shares were issued and purchased by employees in the
first quarter of fiscal year 1996 for the fiscal 1995 plan year.
Note 5. Stock Repurchase Plan
In November 1993, the Board authorized the repurchase of up to 10% of the
outstanding shares of common stock (635,839 shares were outstanding at the
time), subject to market conditions, over a two year period which expired in
November 1995. During the quarter ended December 31, 1995, 6,358 shares of
common stock were repurchased. Cumulatively, 63,583 shares of common stock were
repurchased through the plan.
Note 6. Branch Sales
On December 16, 1995, 1ST BANCORP completed the sale of certain assets and
certain liabilities of two retail branch offices of its thrift subsidiary, First
Federal Bank, A Federal Savings Bank, to two of STAR Financial Group, Inc.'s
subsidiary banks. The sale produced a pre-tax gain of $7.3 million. The
transaction consisted of the sale of deposits, mortgage and consumer loans, and
office premises and equipment.
Note 7. Investment Reclassification
A reclassification of investment securities from the held to maturity portfolio
to the available for sale portfolio occurred during the quarter ended December
31, 1995, in accordance with the FASB Special Report, "A Guide to Implementation
of Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities," which was issued November 15, 1995. The investment securities that
were reclassified had a carrying value of $45,838,000 and a market value of
$46,061,000 at the time of transfer.
Note 8. Reclassifications
Certain amounts in the fiscal year 1995 consolidated financial statements have
been reclassified to conform to the fiscal year 1996 presentation.
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<PAGE>
1ST BANCORP AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(a) Financial Condition:
On December 16, 1995, 1ST BANCORP completed the sale of certain assets and
certain liabilities ( the "Branch Sales") of two retail branch offices of its
thrift subsidiary, First Federal Bank, A Federal Savings Bank ("First Federal"
or the "Bank"), to two of STAR Financial Group, Inc.'s subsidiary banks (the
"Purchasers"). STAR Financial Bank, Marion, Indiana ("STAR Marion") purchased
certain assets and assumed certain liabilities of First Federal Bank's retail
branch office located in Kokomo, Indiana. STAR Financial Bank, Indianapolis,
Indiana ("STAR Indianapolis") purchased certain assets and assumed certain
liabilities of First Federal's retail branch office located in Tipton, Indiana.
The sale of the branch offices included approximately $78.5 million in deposits
and $28.4 million in mortgage and consumer loans. The sale also included the
retail branch offices' premises and equipment. The Bank transferred cash
totaling approximately $41.4 million to the Purchasers in connection with the
branch sales. The sale contributed approximately $4.5 million after tax to 1ST
BANCORP's stockholders' equity.
Total assets at March 31, 1996, were $273,122,000, a decrease of $39,637,000, or
12.67%, from total assets of $312,759,000 at June 30, 1995. The reduction in
total assets is attributable to lower levels of cash and cash equivalents,
investment securities, and loans receivable. These reduced levels were due in
large part to the Branch Sales.
Cash and cash equivalents declined by $6,979,000, or 40.27%, to $10,353,000 at
March 31, 1996, from $17,332,000 at June 30, 1995. The decreased cash accounts
were attributable primarily to increased mortgage loan production and the
funding of normal business operations.
Investment securities consist primarily of U.S. Agency securities. The majority
of securities have either a "call" or "step-up" feature, which provides the Bank
with flexibility under varying interest rate scenarios. In a falling interest
rate environment, the securities with a "call" feature would be called by the
issuer. The rates paid on the "step-up" securities increase after a period of
time. Generally, the rates increase on the securities several times prior to
maturity.
The level of investment securities held to maturity (including mortgage-backed
securities) decreased to $44,653,000, a decline of $27,352,000, or 37.99%, at
March 31, 1996, from $72,005,000 at June 30, 1995. The most significant cause
for the decline was the reclassification of investment securities from the held
to maturity portfolio to the available for sale portfolio. Investment securities
available for sale (including mortgage-backed securities) totaled $10,761,000 at
March 31, 1996, compared with no investment securities available for sale at
June 30, 1995.
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<PAGE>
1ST BANCORP AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The most significant factor in the reclassification and subsequent sale of
securities was to provide cash to fund the deposits sold in conjunction with the
Branch Sales during the quarter ended December 31, 1995. The reclassification of
investment securities from the held to maturity portfolio to the available for
sale portfolio occurred during the quarter ended December 31, 1995 in accordance
with the FASB Special Report, "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities," which was
issued November 15, 1995. The investment securities that were reclassified had a
carrying value of $45,838,000 and a market value of $46,061,000 at the time of
transfer.
Net loans receivable declined by $57,217,000, or 28.35%, to $144,602,000 at
March 31, 1996, from $201,819,000 at June 30, 1995. The causes for the reduced
level of net loans receivable are two-fold. First, loans sold as part of the
Branch Sales totaled $28,369,000 during the quarter ended December 31, 1995.
These loans consisted primarily of loans secured by one-to-four family dwellings
and secured and unsecured consumer loans in the Tipton and Kokomo markets.
Second, the reclassification of approximately $37.6 million of single family
mortgage loans from the held to maturity portfolio to the held for sale
portfolio during the quarter ended March 31, 1996 contributed to the lower level
of net loans receivable. These loans are included in the loans held for sale
category on the Consolidated Condensed Statement of Financial Condition as of
March 31, 1996 and are scheduled to be sold in the fourth quarter of fiscal year
1996.
Loans held for sale increased by $42,933,000 to $48,037,000 at March 31, 1996
from $5,104,000 at June 30, 1995. The increase is attributable to the
aforementioned loan reclassification and increased mortgage loan production.
The reclassification of mortgage loans is primarily driven by the Bank's efforts
to expand its net interest margin. It is anticipated that the funds from the
sale of the reclassified segment of the current mortgage portfolio will be used
to fund the origination of non-conforming mortgage loans. Typically, the
non-conforming mortgage loans produce higher rates than conforming loans.
Therefore, by replacing the reclassified mortgage loans, which are predominantly
conforming loans, with non-conforming loans, asset yields should increase and
thus, the net interest margin should increase.
Loan production during the nine months ended March 31, 1996 increased compared
to the same period of the prior year. During the nine months ended March 31,
1996, the Bank funded $125.7 million of loans compared to $91.1 million of loans
during the nine months ended March 31, 1995. As the economic environment has
changed, the Bank has continued to develop new mortgage loan products to serve
its customers. During fiscal 1995, the Bank developed a wholesale nonconforming
mortgage loan network as a means of augmenting its traditional conforming loan
markets.
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<PAGE>
1ST BANCORP AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
During the first half of fiscal year 1996, a retail non-conforming mortgage loan
program was implemented within the Bank's loan origination network. The Bank has
continued its expansion into new markets for both the wholesale and retail
non-conforming mortgage loan segments. During the nine months ended March 31,
1996, non-conforming mortgage lending constituted $39.6 million, or 31.50%, of
total loans funded during the period. During the nine months ended March 31,
1996, $13.1 million of these loans were sold on a non-recourse basis in the
non-conforming secondary market. The remainder of the loans, typically the
highest quality loans, are retained in portfolio to increase the net interest
margin, and in the case of adjustable rate product, to reduce interest rate
risk.
Asset quality remains strong. At March 31, 1996, non-performing assets totaled
$842,000 or .31% of total assets. This compares to $545,000 of non-performing
assets, or .17% of total assets, at June 30, 1995. The increase in
non-performing assets was the result of single family loans becoming 90 days or
more past due.
The table below sets forth the amounts and categories of 1ST BANCORP's
non-performing assets (non-accrual loans and other non-performing assets) for
the balance sheet dates presented. Loans are reviewed regularly and are placed
on non-accrual status when they become contractually past due 90 days or more.
March 31, June 30,
1996 1995
----------- -----------
(In thousands)
Non-performing assets:
Non-accrual loans $ 712 $ 400
Other non-performing assets (1) 130 145
Restructured loans -- --
---------- ---------
Total non-performing assets $ 842 $ 545
Non-performing assets to total assets .31% .17%
(1) Certain assets acquired through foreclosures or deeds in lieu of
foreclosure, which are included in the Statement of Financial Condition as real
estate owned.
During the nine months ended March 31, 1996, the Bank established, through
operations, provisions for loan losses totaling $60,000. In addition, the Bank
realized net charge-offs through its allowance for loan loss accounts of
$39,000. The Bank's allowance for loan loss was $899,000 at March 31, 1996 and
$878,000 at June 30, 1995.
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<PAGE>
1ST BANCORP AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Prepaid expenses and other assets decreased by $1,027,000, or 17.35%, to
$4,894,000 at March 31, 1996, from $5,921,000 at June 30, 1995. The largest
decrease in this category, purchased mortgage servicing rights ("PMSR"),
decreased by $1,274,000 to $158,000 at March 31, 1996, from $1,432,000 at June
30, 1995. Offsetting the decrease in PMSR were increases in various other
prepaid expenses and other asset accounts the most significant of which was the
capitalization of mortgage servicing rights for loans that were originated and
sold by the Bank with servicing retained by the Bank.
The majority of the decrease of PMSR was due to a $161.1 million sale of
mortgage servicing rights during the first quarter of fiscal year 1996. PMSR had
been previously recognized on a significant portion of the servicing rights
sold. The sale of servicing rights was executed primarily to mitigate prepayment
risk. Mortgage loans serviced for other owners decreased by $117,440,000, to
$74,849,000 at March 31, 1996, from $192,289,000 at June 30, 1995.
As of July 1, 1995, the Bank adopted the Statement of Financial Accounting
Standards No. 122 ("SFAS 122"), "Accounting for Mortgage Servicing Rights." This
statement amended FASB Statement No. 65, "Accounting for Certain Mortgage
Banking Activities," to require that a mortgage banking enterprise recognize, as
separate assets, rights to service mortgage loans for others however those
servicing rights are acquired. For the nine months ended March 31, 1996, and in
conjunction with the adoption of SFAS 122, the Bank recognized $503,000 of
servicing rights on loans that were originated through its loan origination
network and retail banking offices. The Bank had definitive plans to sell these
mortgage loans and retain the servicing rights. These servicing rights are
included in the "Prepaid Expenses and Other Assets" category on the Statement of
Financial Condition.
Total deposits decreased by $70,568,000, or 33.64%, to $139,237,000 at March 31,
1996 from $209,805,000 at June 30, 1995. The primary cause for the reduced level
of deposits was the Branch Sales. Deposits sold as part of the Branch Sales
totaled $78,473,000.
Advances from the Federal Home Loan Bank ("FHLB") and other borrowings increased
by $28,454,000, or 35.84%, to $107,841,000 at March 31, 1996 from $79,387,000 at
June 30, 1995. The increase in borrowed money was used primarily to fund a
portion of the deposits sold as part of the Branch Sales and to fund increased
loan production from the loan origination office network.
Advance payments by borrowers for taxes and insurance decreased by $1,498,000,
or 64.54%, to $823,000 at March 31, 1996 from $2,321,000 at June 30, 1995. The
sale of servicing rights during the first half of fiscal 1996 was primarily
responsible for the lower level of escrow held by the Bank. The sale of mortgage
loans as part of the Branch Sales also contributed to the decline.
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<PAGE>
1ST BANCORP AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Accrued expenses and other liabilities decreased by $1,488,000, or 36.84%, to
$2,551,000 at March 31, 1996, from $4,039,000 at June 30, 1995. Primarily
responsible for the decreased level of accrued expenses was a lower level of
accrued income taxes payable due to the timing of estimated federal and state
income tax payments made throughout the fiscal year.
(b) Results of Operations:
During the three months ended March 31, 1996, 1ST BANCORP had net earnings of
$345,000, or $0.52 per share on a fully-diluted basis, compared to net earnings
of $195,000, or $0.30 per share on a fully-diluted basis, for the three months
ended March 31, 1995. During the nine months ended March 31, 1996, 1ST BANCORP
had net earnings of $5,415,000, or $8.10 per share on a fully-diluted basis,
compared to net earnings of $1,310,000, or $2.00 per share on a fully-diluted
basis, for the nine months ended March 31, 1995. The increased three month
earnings were primarily the result of lower non-interest expenses. The increased
nine months earnings were primarily the result of increased non-interest income,
more specifically the Branch Sales, and to a lesser degree lower non-interest
expenses.
Net interest income before provision for loan losses was $1,515,000 for the
three months ended March 31, 1996, compared to $1,530,000 for the three months
ended March 31, 1995. Net interest income before provision for loan losses was
$4,784,000 for the nine months ended March 31, 1996, compared to $4,961,000 for
the nine months ended March 31, 1995. The interest rate margin was 2.42% for the
three months ended March 31, 1996 compared to 2.13% for the three months ended
March 31, 1995. The excess of interest-earning assets over interest-bearing
liabilities was greater during the three months ended March 31, 1996 as compared
to the three months ended March 31, 1995 which allowed net interest income to
remain stable and the net interest margin as a percent of total assets to expand
despite the Bank's reduced size.
The interest rate margin was 2.33% for the nine months ended March 31, 1996
compared to 2.45% for the nine months ended March 31, 1995. The narrowed
interest rate margin is primarily responsible for the lower net interest income.
The accumulation of cash to fund the deposits sold as part of the Branch Sales
throughout the three months ended December 31, 1995 contributed to the Bank's
lower net interest margin for the nine month period. The funds were invested at
overnight funds rates and therefore decreased the yield which could have been
realized through alternative investments.
Non-interest income for the three months ended March 31, 1996 totaled $706,000
compared to $684,000 for the three months ended March 31, 1995. Non-interest
income for the nine months ended March 31, 1996 totaled $9,591,000 compared to
$2,690,000 for the nine months ended
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<PAGE>
1ST BANCORP AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
March 31, 1995. The higher level of non interest income for the nine month
period ended March 31, 1996, as compared to the same period of the prior year,
was directly attributable to the Branch Sales.
Fee and service charge income for the three months ended March 31, 1996 totaled
$66,000 compared to $278,000 for the three months ended March 31, 1995. Fee and
service charge income for the nine months ended March 31, 1996 totaled $213,000
compared to $762,000 for the nine months ended March 31, 1995. A significant
decline in the Bank's mortgage loan servicing portfolio, which resulted in
reduced loan servicing fee income, was the primary factor that contributed to
the lower fee and service charge income. The reduced servicing portfolio
resulted from sales of servicing during the fourth quarter of fiscal year 1995
and the first quarter of fiscal year 1996.
The net loss on the sale of investment securities available for sale and trading
account investments for the three months ended March 31, 1996 totaled $42,000
compared to a net gain of $13,000 for the three months ended March 31, 1995. The
net loss on the sale of investment securities available for sale and trading
account investments for the nine months ended March 31, 1996 totaled $164,000
compared to a net gain of $14,000 for the nine months ended March 31, 1995. The
net loss for the three and nine months ended March 31, 1996 resulted primarily
from the sale of investment securities available for sale that were sold in
order to fund the sale of deposits that was a part of the Branch Sales. In
addition, sales of investment securities available for sale occurred during the
three months ended March 31, 1996 to fund increased loan production. There was
only minimal activity in the investment trading account during the nine months
ended March 31, 1995.
The net gain on the sale of loans for the three months ended March 31, 1996
totaled $498,000 compared to $143,000 for the three months ended March 31, 1995.
The net gain on the sale of loans (excluding loans sold as part of the Branch
Sales) for the nine months ended March 31, 1996 totaled $1,494,000 compared to
$293,000 for the nine months ended March 31, 1995. The increased gain on sale of
loans was attributable to a higher volume of loan originations and subsequent
loan sales. Also contributing to the increased gain on sale of loans was
adoption of SFAS 122 by the Bank as of July 1, 1995. The Bank capitalized
$159,000 and $503,000 of mortgage servicing rights on originated loans during
the three and nine month periods ended March 31, 1996, respectively, in
accordance with SFAS 122, thus resulting in an increased gain on sale of loans.
-13-
<PAGE>
1ST BANCORP AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The largest increase in total non-interest income was the net gain on the sale
of branch offices. The Branch Sales produced a pre-tax net gain of $7,274,000
for the nine month period ending March 31, 1996. The gain was derived from the
deposit premium, gain on sale of mortgage and consumer loans, and gain on the
sale of the branch offices' real estate.
"Other" non-interest income for the three months ended March 31, 1996 totaled
$184,000 compared to $250,000 for the three months ended March 31, 1995. "Other"
non-interest income for the nine months ended March 31, 1996 totaled $774,000
compared to $1,621,000 for the nine months ended March 31, 1995. "Other"
non-interest income was modestly lower for the three month period ended March
31, 1996 due primarily to lower levels of deposit accounts that resulted from
the Branch Sales. "Other" non-interest income was lower for the nine months
ended March 31, 1996 as compared with the nine months ended March 31, 1995 due
primarily to lower gain on the sale of mortgage loan servicing rights. For the
nine months ended March 31, 1996, the gain on sale of servicing totaled $237,000
compared with $988,000 for the nine months ended March 31, 1995.
Non-interest expense was $1,643,000 for the three months ended March 31, 1996,
compared to $1,914,000 for the three months ended March 31, 1995. Non-interest
expense was $5,652,000 for the nine months ended March 31, 1996, compared to
$5,554,000 for the nine months ended March 31, 1995. The primary reasons for the
decrease in non-interest expense for the three months ended March 31, 1996 as
compared with the same period for the prior year were lower compensation and
employee benefit expenses. Compensation expense was lower primarily due to a
lower level of employees that resulted from the Branch Sales. Non-interest
expense was modestly higher for the nine months ended March 31, 1996 as compared
with the same period of the prior year due to minor increases in various
operating expenses.
(c) Capital Resources and Liquidity:
The Corporation is subject to regulation as a savings and loan holding company
by the Office of Thrift Supervision ("OTS"). First Federal Bank, A Federal
Savings Bank, as a subsidiary of a savings and loan holding company, is subject
to certain restrictions in its dealings with the Corporation. The Bank is
subject to the regulatory requirements applicable to a federal savings bank.
Current capital regulations require savings institutions to have minimum
tangible capital equal to 1.5% of total assets and a minimum 3% core capital
ratio. Additionally, savings institutions are required to meet a risk-based
capital ratio equal to 8.0% of risk-weighted assets. At March 31, 1996, the Bank
met all current capital requirements.
-14-
<PAGE>
1ST BANCORP AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following is a summary of the Bank's regulatory capital and capital
requirements at March 31, 1996:
Tangible Core Risk-Based
Capital Capital Capital
Regulatory Capital $22,929,000 $22,929,000 $23,319,000
Minimum Capital Requirement 4,088,000 8,177,000 10,823,000
----------- ----------- -----------
Excess Capital $18,841,000 $14,752,000 $12,496,000
Regulatory Capital Ratio 8.41% 8.41% 17.24%
Required Capital Ratio 1.50% 3.00% 8.00%
During the quarter ended March 31, 1996, 1ST BANCORP paid a $0.10 dividend per
share to shareholders. This is the fourteenth consecutive quarterly dividend 1ST
BANCORP has paid to shareholders. In addition, during the quarter ended March
31, 1996, 1ST BANCORP paid a 5% stock dividend to shareholders.
Liquidity measures the Bank's ability to meet savings withdrawals and lending
commitments. Management believes that liquidity is adequate to meet current
requirements, including the funding of $31,805,000 in loan commitments and
$1,434,000 of loans in process outstanding at March 31, 1996. The majority of
these commitments are expected to be funded within the three month period ending
June 30, 1996. At March 31, 1996, the Bank had $6,376,000 in outstanding
commitments to sell mortgage loans and mortgage-backed securities. The Bank
maintains liquidity of at least 5% of net withdrawable assets. The liquidity
ratio at March 31, 1996 was 11.17%.
(d) Proposed Legislation
Congress is currently considering a number of alternatives to address the
problems arising from the fact that FDIC deposit insurance premiums for banks
are currently lower than those for savings associations and for deposits of
savings associations that have been acquired by banks. Congress is considering
provisions proposed by the House Banking Committee which would (1) impose a
one-time assessment on thrift deposits of 70 to 85 basis points to build up
SAIF's reserves, (2) merge BIF and SAIF at some time in the future, and (3)
require banks to pay the bulk of the interest due on Financing Corp. bonds.
-15-
<PAGE>
1ST BANCORP AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
These same provisions have been proposed by the Senate Banking Committee,
although its proposed legislation would provide for a lower one-time assessment
for banks which had acquired SAIF deposits.
In addition, the House Banking Committee proposal would eliminate the 8% bad
debt reserve deduction now permitted for savings associations, but would not
require savings associations to pay taxes on accumulated bad debt reserves.
Moreover, all thrift holding companies would be required to become bank holding
companies by January 1, 1998. The OTS would be abolished. Powers of unitary
savings and loan holding companies would be grandfathered (to the extent they
exist under existing law) until the holding company or savings association is
sold. Such unitary holding companies would be subject to the qualified thrift
lender test and limits on commercial lending. Savings associations would either
be required to convert to a state bank or national bank charter by January 1,
1998. Except with respect to unitary savings and loan companies, activities of
those new banks not permitted to commercial banks would have to terminate within
four years.
Under some of the proposals being considered by Congress, the FDIC's authority
to build reserves beyond 1.25% would be limited. It is difficult at this time to
assess whether or how Congress will address the SAIF/BIF premium differential
and, if so, what impact its legislative solution to the problem will have on the
Corporation and its subsidiaries.
There are no other known trends, events, or uncertainties, including current
recommendations by regulatory authorities, that should have, or that are
reasonably likely to have, a material effect on the liquidity, capital
resources, or operations of 1ST BANCORP.
-16-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Bank and Amcore Mortgage, Inc. were named as defendants in a lawsuit filed
on March 2, 1995 in the United States District Court for the Northern District
of Illinois. The plaintiffs sued on their own behalf and on behalf of purported
classes. In their multiple count complaint, the plaintiffs alleged that the
defendants assessed escrow deposits in excess of the amount allowed by mortgage
contracts and in violation of the law and failed to disclose to their borrowers
material information pertaining to private mortgage insurance ("PMI"). The
plaintiffs sued for damages, punitive damages, attorney fees, costs, and
declaratory and injunctive relief. With respect to escrow deposits, the
plaintiffs alleged that Bank practices breached the terms of mortgage contracts,
constituted unfair and deceptive trade practices in violation of state laws, and
violated the Racketeer Influenced and Corrupt Organization statute ("RICO").
With respect to private mortgage insurance, the plaintiffs alleged that Bank
practices constituted unfair and deceptive trade practices. The plaintiffs seek
to represent nationwide classes of borrowers who allegedly were damaged by these
practices. The Bank and the plaintiffs have entered into an agreement to settle
the mortgage escrow claims with a defined class. The court approved the
settlement agreement at a hearing held on May 6, 1996. The settlement agreement
provides for the dismissal with prejudices of the mortgage escrow claims
asserted by the defined class against the Bank. It also provides that the PMI
claims, which were not being settled, will be dismissed without prejudices. The
settlement is for an amount less than that which has been reserved by the Bank.
First Federal is involved in two other lawsuits that are not in the ordinary
course of business. The first involves a discrimination complaint filed with the
U.S. Department of Housing and Urban Development pursuant to the Fair Housing
Act. The second lawsuit was filed by a title company involved in providing
closing services for a mortgage loan that was purchased by First Federal from a
third party mortgage company subsequent to closing, and alleges the mortgage
company was acting as an agent for First Federal and failed to provide funds for
closing the transaction in exchange for the note and deed of trust. It is the
opinion of management that, based on current information available, the ultimate
resolutions of these matters will not have a material adverse affect on the
Corporation's financial position.
Other than the above, neither 1ST BANCORP nor First Federal is involved in any
legal proceedings, other than routine proceedings occurring in the ordinary
course of its business.
-17-
<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 March 31, 1996.
Item 6. Exhibits and Reports on Form 8-K
a) The following exhibit is filed herewith: Exhibit 27 Financial Data
Schedule
b) Reports on Form 8-K -- There were no reports on Form 8-K filed during
the three months ended March 31, 1996.
-18-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
1ST BANCORP
Date: May 9, 1996 By: /s/ C. James McCormick
-----------------------------
C. James McCormick, Chairman and
Chief Executive Officer
Date: May 9, 1996 By: /s/ Frank D. Baracani
-----------------------------
Frank D. Baracani,
President
Date: May 9, 1996 By: /s/ Mary Lynn Stenftenagel
---------------------------------
Mary Lynn Stenftenagel,
Secretary-Treasurer and
Chief Accounting Officer
-19-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1ST BANCORP
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000840458
<NAME> 1st Bancorp
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