FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1998
( ) 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 or 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 October 19, 1998, there were 1,096,388 Shares of the Registrant's Common
Stock issued and outstanding.
<PAGE>
1ST BANCORP AND SUBSIDIARIES
INDEX
Page
Number
Forward-Looking Statements 3
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Condensed Statements
of Financial Condition,
September 30, 1998 (Unaudited) and
June 30, 1998 4
Consolidated Condensed Statements
of Earnings, Three Months Ended
September 30, 1998 and 1997 (Unaudited) 5
Consolidated Condensed Statements of
Cash Flows, Three Months Ended
September 30, 1998 and 1997 (Unaudited) 6
Notes to Consolidated Condensed
Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8-14
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 4. Submission of Matters to Vote of Security
Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
<PAGE>
Forward-Looking Statements
This Quarterly Report on Form 10-Q ("Form 10-Q") contains statements which
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
places in this Form 10-Q and include statements regarding the intent, belief,
outlook, estimate or expectations of the Corporation (as defined below), its
directors or its officers primarily with respect to future events and the future
financial performance of the Corporation. Readers of this Form 10-Q are
cautioned that any such forward- looking statements are not guarantees of future
events or performance and involve risks and uncertainties, and that actual
results may differ materially from those in the forward-looking statements as a
result of various factors. The accompanying information contained in this Form
10-Q identifies important factors that could cause such differences. These
factors include changes in interest rates; loss of deposits and loan demand to
other savings and financial institutions; substantial changes in financial
markets; changes in real estate values and the real estate market; regulatory
changes; or the deterioration in the financial strength of the Corporation's
loan customers. In addition, from time to time, the Corporation may make other
oral or written forward-looking statements with respect to future events and the
future financial performance of the Corporation. All these other forward-looking
statements are also subject to the factors indicated above, which factors could
cause the statements or projections contained therein to be materially
inaccurate.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
1ST BANCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(Unaudited and in thousands except share data)
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
--------- ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Interest bearing deposits $ 23,741 $ 15,831
Non-interest bearing deposits 505 332
--------- ---------
Cash and cash equivalents 24,246 16,163
--------- ---------
Securities available for sale 15,603 15,504
Securities held to maturity (market value
of $12,761 at September 30, 1998 and
$19,514 at June 30, 1998) 12,738 19,553
Loans receivable, net 193,150 185,290
Loans held for sale 4,954 2,449
Accrued interest receivable:
Securities 391 524
Loans 1,222 1,205
Stock in FHLB of Indianapolis, at cost 6,219 5,769
Office premises and equipment 3,041 3,077
Real estate owned and repossessed assets 794 930
Prepaid expenses and other assets 5,639 9,685
--------- ---------
TOTAL ASSETS $ 267,997 $ 260,149
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 115,868 $ 117,763
Advances from FHLB and other borrowings 124,381 115,381
Advance payments by borrowers for taxes and insurance 704 362
Accrued interest payable on deposits 233 598
Accrued expenses and other liabilities 2,414 2,190
--------- ---------
Total Liabilities $ 243,600 $ 236,294
--------- ---------
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 1,096,388 at September 30, 1998 and
1,091,710 at June 30, 1998 $ 1,096 $ 1,092
Paid-in capital 2,162 2,084
Retained earnings, substantially restricted 21,084 20,715
Unrealized appreciation/(depreciation) on securities 55 (36)
--------- ---------
Total Stockholders' Equity $ 24,397 $ 23,855
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 267,997 $ 260,149
========= =========
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
1ST BANCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited and in thousands except per share data)
Three months ended
September 30,
------------------------------
1998 1997
------------ -------------
INTEREST INCOME:
Loans $4,122 $3,783
Investment securities 609 901
Trading account securities - 2
Other short-term investments and
interest bearing deposits 242 292
------------ -------------
Total Interest Income 4,973 4,978
------------ -------------
INTEREST EXPENSE:
Deposits 1,619 1,972
Short-term borrowings - 2
FHLB advances and other borrowings 1,635 1,426
------------ -------------
Total Interest Expense 3,254 3,400
------------ -------------
NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES 1,719 1,578
Provision for loan losses 150 90
------------ -------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,569 1,488
------------ -------------
NON-INTEREST INCOME:
Fees and service charges 70 83
Net gain (loss) on sales of investment
securities available
for sale and trading account investments (5) 6
Net gain on sales of loans 143 61
Other 285 219
------------ -------------
Total Non-Interest Income 493 369
------------ -------------
NON-INTEREST EXPENSE:
Compensation and employee benefits 805 663
Net occupancy 141 127
Federal insurance premiums 37 41
Other 453 406
------------ -------------
Total Non-Interest Expense 1,436 1,237
------------ -------------
Earnings Before Income Taxes 626 620
Income Taxes 185 165
------------ -------------
NET EARNINGS $441 $455
============ =============
BASIC EARNINGS PER SHARE: $0.40 $0.41
DILUTED EARNINGS PER SHARE: $0.40 $0.41
See Notes to Consolidated Condensed Financial Statements
<PAGE>
1ST BANCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-----------------------
1998 1997
-------- --------
Net Cash Flows From Operating Activities:
<S> <C> <C>
Net earnings $ 441 $ 455
Adjustments to reconcile net cash
provided by operating activities:
Depreciation and amortization 134 105
Amortization of mortgage servicing rights 75 46
Gain on sales of loans (143) (61)
(Gain) loss on sales of securities 5 (6)
Net change in loans held for sale (2,505) 420
Provision for loan losses 150 90
Change in accrued interest receivable 116 494
Change in prepaid expenses and other assets 4,020 4,015
Change in accrued expenses and other liabilities (201) (608)
Loss on investment in limited partnership 25 32
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,117 4,982
-------- --------
Cash Flows From Investing Activities:
Purchase of securities held to maturity -- --
Proceeds from maturity of securities held to maturity 6,815 4,207
Purchase of securities available for sale
and trading account securities (4,778) (2,998)
Proceeds from maturities of securities available for sale 1,804 2,007
Proceeds from sales of securities available
for sale and trading account securities 2,983 6,017
Change in loans, net (7,821) (4,510)
Purchases of equipment (43) (14)
Purchases of stock of FHLB of Indianapolis (450) --
-------- --------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (1,490) 4,709
-------- --------
Cash Flows From Financing Activities:
Change in deposits (1,895) (9,452)
Proceeds from FHLB advances and other borrowings 9,000 10,996
Repayment of FHLB advances and other borrowings -- (11,045)
Proceeds from issuance of common stock 82 85
Purchase and retirement of common stock -- (305)
Payment of dividends on common stock (73) (69)
Change in advance payments by borrowers
for insurance and taxes 342 263
-------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 7,456 (9,527)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 8,083 164
Cash and Cash Equivalents at Beginning of Period 16,163 20,294
-------- --------
Cash and Cash Equivalents at End of Period $ 24,246 $ 20,458
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
1ST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
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. Earnings Per Share
Earnings per share (EPS) 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 basic EPS
computations was 1,096,173 and 1,098,690 for the three months ended September
30, 1998 and 1997, respectively. The weighted average number of shares for use
in the dilutive EPS computations was 1,110,055 and 1,103,132 for the three
months ended September 30, 1998 and 1997, respectively.
Note 3. Stock Purchase Plans
1ST BANCORP (the "Corporation") maintains an Employee Stock Purchase Plan (the
"Plan") whereby full-time employees of First Federal Bank, A Federal Savings
Bank (the "Bank"), First Financial Insurance Agency, Inc. ("First Financial"),
and First Title Insurance Company ("First Title") can purchase the Corporation's
common stock at a discount. The purchase price of the shares under the Plan is
85% of the fair market value of such stock at the beginning or end of the
offering period, whichever is lesser. A total of 24,523 authorized but unissued
shares were reserved for issuance under the Plan. A total of 4,479 shares were
issued and purchased by employees in the first quarter of fiscal year 1999 for
the fiscal 1998 plan year. The Plan was suspended effective June 30, 1998,
pursuant to the terms of the definitive agreement signed on August 5, 1998, by
1ST BANCORP and German American Bancorp which outlined terms for the Corporation
to be merged with and into German American Bancorp.
Note 4. Stock Option Plan
The Corporation has a stock option plan under which 260,466 authorized but
unissued shares of common stock were reserved. As of September 30, 1998, 25,200
incentive stock options were outstanding with certain key officers. An
additional 2,961 shares remain reserved for future grant. All other options have
been exercised or have expired. No additional options can be granted pursuant to
the definitive agreement between 1ST BANCORP and German American Bancorp.
Note 5. Reclassifications
Certain amounts in the fiscal year 1998 consolidated condensed financial
statements have been reclassified to conform to the fiscal year 1999
presentation.
<PAGE>
Item 2. 1ST BANCORP AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(a) Financial Condition:
The Corporation's goal is to continue to increase net interest income while
maintaining its mortgage banking operations to provide non-interest income to
augment overall profitability. To achieve this goal, the Corporation has
targeted a smaller securities portfolio and is concentrating efforts on retail
loan originations and loan purchases through correspondent and broker
agreements.
Total assets aggregated $267,997,000 at September 30, 1998, compared to total
assets of $260,149,000 at June 30, 1998, an increase of 3.01%.
Cash and cash equivalents increased by $8,083,000, or 50.01%, to $24,246,000 at
September 30, 1998, from $16,163,000 at June 30, 1998. Securities held to
maturity, which consist of U.S. Agency securities, decreased by $6,815,000, or
34.85% to $12,738,000 at September 30, 1998, from $19,553,000 at June 30, 1998.
The decline in the level of held to maturity securities resulted from the
exercise of the call feature by the issuer of the securities. At September 30,
1998, securities available for sale remained stable at $15,603,000 compared to
$15,504,000 at June 30, 1998. There were no trading account securities at
September 30, 1998 or June 30, 1998.
The overall decline in the level of securities is a part of the Corporation's
asset/liability management strategy to shift funds from the securities
portfolios into the loan portfolios as the securities are called or mature
rather than replacing the securities. This strategy is being undertaken to
continue the expansion of the Bank's net interest margin. The increased level of
cash and cash equivalents resulted from the timing of the inflow of cash from
loan sales and called securities and the funding of loan production.
Net loans receivable (including loans held for sale) increased by $10,365,000,
or 5.52%, to $198,104,000 at September 30, 1998, from $187,739,000 at June 30,
1998. The increase in net loans receivable is attributable to residential
mortgage loan production. Growth occurred primarily in the nonconforming
mortgage loan portfolio and to a lesser degree in the conforming mortgage loan
portfolio.
During the three months ended September 30, 1998, the Bank funded $37.7 million
of loans compared to $17.7 million of loans during the three months ended
September 30, 1997. The increase in total loan production is attributable to
three primary factors. First, mortgage loan rates are at or near historically
low levels which has resulted in increased loan production.
Second, during the fourth quarter of fiscal year 1997, the Bank's nonconforming
loan operations were restructured. All loan origination offices were closed
except the Evansville, Indiana loan origination office and all administrative
functions were transferred to the main office in Vincennes, Indiana. As a result
of this restructuring, retail and wholesale loan production was negatively
effected in the first quarter of fiscal year 1997.
<PAGE>
1ST BANCORP AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Finally, during the first quarter of fiscal year 1998, the Bank implemented
correspondent loan agreements to purchase loans from third parties. This program
was fully operational in the first quarter of fiscal year 1999 resulting in an
increased level of purchased loans. Loans purchased from third parties totaled
$5.5 million for the quarter ended September 30, 1998 compared to $520,000 for
the same period of the prior year.
During the three months ended September 30, 1998, nonconforming residential
mortgage lending constituted $12.3 million, or 32.6%, of total loans funded
during the period compared with $5.6 million, or 31.6%, of total loans funded
during the three months ended September 30, 1997. Nonconforming residential
loans increased to $88.6 million at September 30, 1998, compared to $81.0
million at June 30, 1998.
During the fourth quarter of fiscal year 1997, the Bank implemented an indirect
auto lending program in its Vincennes, Indiana market area. Indirect auto loan
fundings during the three months ended September 30, 1998 totaled $1.5 million.
The indirect auto loan portfolio totaled $9.2 million at September 30, 1998.
At September 30, 1998, nonaccrual loans, real estate owned ("REO"), and
repossessed assets totaled $4,643,000, or 1.73% of total assets. This compares
to $4,421,000 of nonaccrual loans, REO, and repossessed assets or 1.70% of total
assets, at June 30, 1998. Overall, the upward trend in nonaccrual loans is
attributable to residential one-to-four family mortgage loans. In particular the
Bank's nonconforming loan delinquencies have increased. Over the past four
fiscal years the Bank has expanded its residential one-to-four family
nonconforming loan portfolio to increase its net interest margin. While the
larger nonconforming loan portfolio has been successful in expanding the net
interest margin, the credit risk associated with these loans has contributed to
the increased level of delinquencies, nonaccrual loans, and real estate owned.
Loan quality continues to be of major importance to the Bank and strong efforts
are being made to ensure loan quality. In an effort to mitigate potential losses
and reduce non-performing assets, additional collection personnel have been
hired, more stringent collection practices have been implemented, and the
portfolio 100% nonconforming second mortgage loan program was discontinued. In
addition, loan loss allowances have been increased to prepare for potential
future losses in the loan portfolio.
The table below sets forth the amounts and categories of 1ST BANCORP's
nonaccrual loans, REO, and repossessed assets for the balance sheet dates
presented. Loans are reviewed regularly and are generally placed on nonaccrual
status when they become contractually past due more than 90 days.
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
<S> <C> <C>
Nonaccrual loans, REO, and repossessed assets:
Nonaccrual loans $3,849,000 $3,491,000
REO and repossessed assets (1) 794,000 930,000
Restructured loans -- --
Total nonaccrual loans, REO, and repossessed assets $4,643,000 $4,421,000
Nonaccrual loans, REO and repossessed assets to total assets 1.73% 1.70%
</TABLE>
(1) Certain assets acquired through repossession, foreclosures, or deeds in lieu
of foreclosure, which are included in the Consolidated Condensed Statements of
Financial Condition as real estate owned and repossessed assets.
During the three months ended September 30, 1998, the Bank established, through
operations, provisions for loan losses totaling $150,000 compared to $90,000
during the same three months of the prior year. The Bank's allowance for loan
loss increased to $1,540,000 at September 30, 1998 from $1,465,000 at June 30,
1998.
Prepaid expenses and other assets decreased by $4,046,000 to $5,639,000 at
September 30, 1998 from $9,685,000 at June 30, 1998. The decrease was primarily
the result of the completion of a $3.9 million loan sale.
Deposits aggregated $115,868,000 at September 30, 1998 compared to $117,763,000
at June 30, 1998. The modest decline in the level of deposits included both
retail and brokered funds. Federal Home Loan Bank ("FHLB") advances increased by
$9,000,000, or 7.80%, to $124,381,000 at September 30, 1998 compared to
$115,381,000 at June 30, 1998. FHLB advances were a lower cost source of funds
than retail or brokered funds during quarter ended September 30, 1998.
Therefore, FHLB advances were used to fund loan portfolio growth.
Accrued expenses and other liabilities increased modestly to $2,414,000 at
September 30, 1998, compared to $2,190,000 at June 30, 1998. Advance payments by
borrowers for taxes and insurance increased to $704,000 at September 30, 1998
compared to $362,000 at June 30, 1998. Accrued interest payable on deposits
decreased to $233,000 at September 30, 1998, from $598,000 at June 30, 1998. The
fluctuation in these categories were due to timing differences that occurred in
the normal course of business.
(b) Results of Operations:
During the three months ended September 30, 1998, 1ST BANCORP's net earnings
remained stable at $441,000, or $0.40 per share, compared to net income of
$455,000, or $0.41 per share, for the three months ended September 30, 1997.
Net interest income before provision for loan losses increased to $1,719,000
during the three months ended September 30, 1998, as compared to $1,578,000
during the three months ended September 30, 1997. The increased level of net
interest income was primarily the result of an increased net interest margin.
The net interest margin increased to 2.75% for the three months ended September
30, 1998 as compared to 2.49% for the three months ended September 30, 1997.
As a part of the Bank's asset/liability strategy during fiscal year 1998 and
fiscal year 1999, the mix of interest earning assets was changed. As securities
matured or were called by the issuer, the funds were reinvested in the Bank's
mortgage loan and consumer loan portfolios. This strategy has allowed the Bank's
yield on earning assets to increase during a period of declining market interest
rates. In addition, the increased earning asset yield enabled gross interest
income to remain stable despite a modestly lower average level of earning assets
during the first quarter of fiscal year 1999 compared with fiscal year 1998.
For the quarter ended September 30, 1998, the Bank's cost of funds and gross
interest expense were both lower as compared to same quarter of the prior year.
As a part of the Bank's asset/liability strategy during fiscal year 1998 and
fiscal year 1999, the Bank used FHLB advances to replace brokered deposits which
matured. FHLB advances represented a lower cost funding source during the
periods than brokered deposits. Also contributing to the lower funding costs was
an overall decline in market interest rates and a modestly lower average level
of costing liabilities.
As previously stated, the Bank has placed into portfolio "A+", "A" and "B+"
rated nonconforming residential mortgage loans. To mitigate the credit risk
associated with nonconforming loans, provisions for loan losses were increased.
During the three month ended September 30, 1998, provisions for loan losses have
aggregated $150,000 compared to loan loss provisions of $90,000 during the same
period of the previous fiscal year.
Non-interest income for the three months ended September 30, 1998 totaled
$493,000 compared to $369,000 for the three months ended September 30, 1997. The
increased non-interest income resulted primarily from a higher level of loan
sales and a corresponding increased gain on sales of loans and from increased
activity by First Title Insurance Company.
The gain on sales of mortgage loans totaled $143,000 during the three months
ended September 30, 1998, compared to $61,000 during the same period of the
prior year. The increased gain on sales of loans is primarily attributable to an
increased volume of loan sales. Loan sales totaled $12.4 million during the
three months ended September 30, 1998, compared to $5.1 million for the three
months ended September 30, 1997. The declining interest rate environment
presented market opportunities for the Bank to complete conforming loan sales to
mitigate prepayment risk which contributed to the increased loan sales. In
addition, the increased volume of loan sales was due in part to a significant
increase in the volume of loan production during the quarter ended September 30,
1998, as compared with the same period of the prior year.
Other non-interest income increased to $285,000 during the three months ended
September 30, 1998, compared with $219,000 during the three months ended
September 30, 1997. The increase is attributable to additional income from the
operations of First Title Insurance Company. During the third quarter of fiscal
year 1998, the Corporation acquired the assets of an existing independent title
and abstract company. The assets of the acquired company were merged into the
previously inactive subsidiary, First Title Insurance Company. First Title sells
title insurance as an agent for Chicago Title Insurance Company, Ticor Title
Insurance Company, and Stewart Title Guaranty Company.
Non-interest expense totaled $1,436,000 for the three months ended September 30,
1998, compared to $1,237,000 for the three months ended September 30, 1997. The
increased non-interest expense is largely attributable to expanded operations by
First Title Insurance Company and expenses relating to administrative costs
associated with the pending merger of 1ST BANCORP into German American Bancorp.
Compensation and employee benefits expense increased to $805,000 for the three
months ended September 30, 1998,compared to $663,000 for the three months ended
September 30, 1997. Increased expenses associated with the employee's retirement
plan, the management incentive plan, and the director's deferred compensation
program for the period ended September 30, 1998, compared with the same period
of the prior year resulted in a portion of the increased expense. Expanded
operations and the corresponding expanding staffing for First Title also
contributed to the increased compensation expense.
Other non-interest expense increased to $453,000 for the three months ended
September 30, 1998, compared to $406,000 for the three months ended September
30, 1997. These increases resulted from various administrative expenses
associated with the pending merger of 1ST BANCORP and German American Bancorp
and expanded operations by First Title Insurance Company.
(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 also
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 core capital ratio
of 3 percent. Additionally, savings institutions are required to meet a
risk-based capital ratio equal to 8.0% of risk-weighted assets. At September 30,
1998, the Bank met all current capital requirements.
The following is a summary of the Bank's regulatory capital and capital
requirements at September 30, 1998:
Tangible Core Risk-Based
Capital Capital Capital
Regulatory Capital $22,906,000 $22,906,000 $23,987,000
Minimum Capital Requirement 4,010,000 8,020,000 12,593,000
Excess Capital $18,896,000 $14,886,000 $11,394,000
Regulatory Capital Ratio 8.57% 8.57% 15.24%
Required Capital Ratio 1.50% 3.00% 8.00%
During the quarter ended September 30, 1998, 1ST BANCORP paid a $0.0667 cash
dividend per share. This is the twenty third consecutive quarterly dividend 1ST
BANCORP has paid 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 $24.5 million in loan commitments and
$2.2 million of loans in process outstanding at September 30, 1998. The majority
of these commitments are expected to be funded within the three month period
ending December 31, 1998. At September 30, 1998, the Bank had $5.6 million in
outstanding commitments to sell mortgage loans. The Bank maintains liquidity of
at least 4% of net withdrawable assets as required by current liquidity
regulations. The average regulatory liquidity ratio for the month ended
September 30, 1998 was 8.36%.
The Year 2000 issue is the result of potential problems with the programming
code in existing computer systems as the Year 2000 approaches. An assessment of
the impact of the Year 2000 issue on the Corporation's computer system has been
completed. Management is closely monitoring the progress of the systems in place
toward Year 2000 compliance.
The Bank's records are primarily maintained by a third-party data center. The
Corporation also relies on third party vendors to provide data processing
capabilities. Formal communications from the data center and other service
providers indicate reprogramming will be completed within a sufficient time
frame to allow adequate testing to ensure continuing operations in the Year
2000. Completion of testing for Year 2000 compliance is expected by June 30,
1999. Management believes the Year 2000 issue will not pose significant
operational problems for the Corporation's computer systems.
Expenses related to upgrading the computer systems and software for Year 2000
compliance are estimated to be $200,000. At September 30, 1998, approximately
$130,000 of this amount had already been expended in connection with Year 2000
compliance. Management does not consider the cost to the Corporation of these
Year 2000 compliance activities to be material to the financial position or
results of operations in any given year.
On August 5, 1998 1ST BANCORP and German American Bancorp ("German American")
jointly announced the signing of a definitive agreement (the "Agreement")
pursuant to which the Corporation will be merged with and into German American
(the "Merger"). The Agreement provides that upon the effective date of the
Merger, the shareholders of the Corporation would receive shares of common stock
of German American with an aggregate value of $57,120,000 based on market prices
during a period of 15 days ending on the second trading date before closing. To
determine the total number of shares German American will issue, the companies
will value the German American common stock by calculating the average closing
bid/asked quotations for German American common stock during the 15 trading days
ending on the second day prior to the closing date and dividing $57,120,000 by
that average value. If, however, the average value exceeds $33 per share, then
the total number of shares will equal 1,730,909 ($57,120,000 divided by $33).
Similarly, if the average value is below $28, then the total number of shares
will equal 2,040,000 ($57,120,000 divided by $28). German American is listed on
the Nasdaq National Market System (symbol: GABC). On November 4, 1998, the
average of the closing bid/asked quotations for German American common stock was
$24.125 per share. Assuming, for purposes of illustration only, that the average
value remains $24.125 during the 15 day valuation period, then German American
will issue an aggregate 2,040,000 shares of German American common stock (or
1.8188 shares of German American common stock with an average value of $43.88
for each share of 1ST BANCORP common stock assuming 1,121,588 outstanding shares
of 1ST BANCORP common stock at the closing).
The Corporation has also signed a Stock Option Agreement with German American,
giving German American an option to purchase up to 19.9% of the Corporation's
outstanding shares, exercisable at $50.94 per share upon occurrence of certain
events that create the potential for another party to acquire control of the
Corporation.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in market risk exposures that affect the
quantitative or qualitative disclosures presented as of the preceding fiscal
year end in the Corporation's Annual Report on Form 10-K.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Neither 1ST BANCORP nor its subsidiaries is involved in any material legal
proceedings, other than routine proceedings occurring in the ordinary course of
its business.
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 September 30, 1998.
Item 6. Exhibits and Reports on Form 8-K
a) The following exhibits are filed herewith:
Exhibit 3a Certificate of Incorporation of Registrant
(incorporated by reference to exhibit 3.1 to
Registrant's Registration Statement on Form S-4,
Registration No. 33-24587, filed September 28,
1988)
Exhibit 3b Restated Code of By-Laws of Registrant
(incorporated by reference to Exhibit 3b to
Registrant's Form 10-K for the year ended June 30,
1994)
Exhibit 27 Financial Data Schedule
b) The Registrant filed a Report on Form 8-K on August 6, 1998, announcing
the signing of a definitive agreement pursuant to which 1ST BANCORP
will be merged with and into German American Bancorp.
The Registrant file a Report on Form 8-K on November 6, 1998,
announcing first quarter fiscal year 1999 earnings.
<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: November 13, 1998 By: /s/ C. James McCormick
-----------------------------
C. James McCormick, Chairman and
Chief Executive Officer
Date: November 13, 1998 By: /s/ Frank D. Baracani
----------------------------
Frank D. Baracani, President
Date: November 13, 1998 By: /s/ Mary Lynn Stenftenagel
---------------------------------
Mary Lynn Stenftenagel,
Secretary-Treasurer and
Chief Accounting Officer
<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>
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