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 March 31, 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 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 21, 1998, there were 1,089,840 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,
March 31, 1998 (Unaudited) and
June 30, 1997 4
Consolidated Condensed Statements
of Earnings, Three and Nine Months Ended
March 31, 1998 and 1997 (Unaudited) 5
Consolidated Condensed Statements of
Cash Flows, Nine Months Ended
March 31, 1998 and 1997 (Unaudited) 6
Notes to Consolidated Condensed
Financial Statements (Unaudited) 7-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9-14
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to Vote
of Securities Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
<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 such factors
could cause the statements or projections contained therein to be materially
inaccurate.
<PAGE>
1ST BANCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(Unaudited and in thousands except share data)
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
--------- ---------
ASSETS
Cash and cash
equivalents:
<S> <C> <C>
Interest bearing deposits $ 12,246 $ 19,771
Non-interest bearing deposits 322 523
--------- ---------
Cash and cash equivalents 12,568 20,294
--------- ---------
Securities available for sale 18,973 11,588
Securities held to maturity (market value
of $22,457 at March 31, 1998 and
$43,556 at June 30, 1997) 22,559 44,065
Loans receivable, net 172,620 146,840
Loans held for sale 16,538 27,769
Accrued interest receivable:
Securities 475 1,081
Loans 1,170 1,099
Stock in FHLB of Indianapolis, at cost 5,519 4,941
Office premises and equipment 3,061 3,225
Real estate owned and repossessed assets 870 397
Prepaid expenses and other assets 5,209 9,191
--------- ---------
TOTAL ASSETS $ 259,562 $ 270,490
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 122,711 $ 144,316
Advances from FHLB and other borrowings 110,381 100,296
Advance payments by borrowers for taxes and insurance 669 304
Accrued interest payable on deposits 544 1,194
Accrued expenses and other liabilities 1,840 2,047
--------- ---------
Total Liabilities $ 236,145 $ 248,157
--------- ---------
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 1,089,840 at March 31,1998 and 1,099,188
at June 30,1997 $ 1,090 $ 698
Paid-in capital 2,047 2,642
Retained earnings, substantially restricted 20,328 19,102
Unrealized depreciation on securities (48) (109)
--------- ---------
Total Stockholders' Equity $ 23,417 $ 22,333
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 259,562 $ 270,490
========= =========
</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)
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
--------------------- ---------------------
1998 1997 1998 1997
-------- -------- -------- --------
INTEREST INCOME:
<S> <C> <C> <C> <C>
Loans $ 3,927 $ 3,897 $ 11,656 $ 11,243
Investment securities
728 970 2,433 2,826
Trading account securities
1 14 3 14
Other short-term investments and
interest bearing deposits
153 149 528 464
-------- -------- -------- --------
Total Interest Income 4,809 5,030 14,620 14,547
-------- -------- -------- --------
INTEREST EXPENSE:
Deposits 1,772 1,949 5,662 5,655
Short-term borrowings 18 43
1 3
FHLB advances and other borrowings 1,395 1,369 4,149 4,189
-------- -------- -------- --------
Total Interest Expense 3,168 3,336 9,814 9,887
-------- -------- -------- --------
NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES 1,641 1,694 4,806 4,660
Provision for loan losses 120 84 300 170
-------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,521 1,610 4,506 4,490
-------- -------- -------- --------
NON-INTEREST INCOME:
Fees and service charges
82 101 251 273
Net gain (loss) on sales of investment securities
available for sale and trading account investments 10 (34) 32 (32)
Net gain on sales of loans
289 392 455 1,593
Other 228 172 637 478
-------- -------- -------- --------
Total Non-Interest Income 609 631 1,375 2,312
-------- -------- -------- --------
NON-INTEREST EXPENSE:
Compensation and employee benefits 752 1,010 2,118 2,995
Net occupancy 150 185 405 545
Federal insurance premiums 42 40 124 1,549
Other 394 472 1,226 1,616
-------- -------- -------- --------
Total Non-Interest Expense 1,338 1,707 3,873 6,705
-------- -------- -------- --------
Earnings Before Income Taxes 792 534 2,008 97
Income Taxes 233 (6) 557 (188)
-------- -------- -------- --------
NET EARNINGS $ 559 $ 540 $ 1,451 $ 285
======== ======== ======== ========
BASIC EARNINGS PER SHARE: $ 0.51 $ 0.49 $ 1.32 $ 0.26
DILUTED EARNINGS PER SHARE: $ 0.51 $ 0.49 $ 1.32 $ 0.26
</TABLE>
See Notes to Consolidated Condensed Financial Statements
<PAGE>
1ST BANCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
----------------------
1998 1997
-------- --------
Net Cash Flows From Operating Activities:
<S> <C> <C>
Net earnings $ 1,451 $ 285
Adjustments to reconcile net cash
provided by operating activities:
Depreciation and amortization 329 241
Amortization of mortgage servicing rights 158 83
Gain on sales of loans (455) (1,593)
Net change in trading account securities -- (1,973)
(Gain) loss on sales of securities (32) 32
Net change in loans held for sale 11,231 (2,722)
Provision for loan losses 300 170
Change in accrued interest receivable 535 417
Change in prepaid expenses and other assets 3,831 (464)
Change in accrued expenses and other liabilities (898) (534)
Loss on investment in limited partnership 81 95
-------- --------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 16,531 (5,963)
-------- --------
Cash Flows From Investing Activities:
Purchase of securities held to maturity -- (3,518)
Proceeds from maturity of securities held to maturity 21,515 59
Purchase of securities available for sale
and trading account securities (40,747) (20,982)
Proceeds from maturities of securities
available for sale 4,087 101
Proceeds from sales of securities available for sale
and trading account securites 29,367 21,906
Principal collected on loans, net of originations (25,779) (7,207)
Purchases of equipment (81) (494)
Purchases of stock of FHLB of Indianapolis (578) --
Other (458) (184)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (12,674) (10,319)
-------- --------
Cash Flows From Financing Activities:
Change in deposits (21,605) 9,493
Proceeds from FHLB advances and other borrowings 53,996 51,818
Repayment of FHLB advances and other borrowings (43,911) (51,378)
Proceeds from issuance of common stock 102 116
Purchase and retirement of common stock (305) (207)
Payment of dividends on common stock (225) (203)
Change in advance payments by borrowers
for insurance and taxes 365 152
-------- --------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES (11,583) 9,791
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (7,726) (6,491)
Cash and Cash Equivalents at Beginning of Period 20,294 25,099
-------- --------
Cash and Cash Equivalents at End of Period $ 12,568 $ 18,608
======== ========
</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
1ST BANCORP has implemented Statement of Financial Accounting Standards 128,
"Earnings per Share" (EPS) which is effective for fiscal periods ending after
December 15, 1997. Accordingly, these amounts appear on the financial statements
in this Quarterly Report on Form 10-Q. 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 1,089,395 and 1,090,962 for the three and nine months
ended March 31, 1998, respectively. The weighted average number of shares for
use in the dilutive EPS computations was 1,096,912 and 1,098,479 for the three
and nine months ended March 31, 1998, respectively. The weighted average number
of shares for use in the basic and dilutive EPS computations was 1,098,026 and
1,103,135 for the three and nine months ended March 31, 1997, respectively.
Note 3. Stock Purchase Plans
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 5,613 shares were issued and
purchased by employees in the first quarter of fiscal year 1998 for the fiscal
1997 plan year.
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 March 31, 1998, 26,775
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.
Note 5. Stock Repurchase Plan
In August 1996, the Board authorized the repurchase of up to 5% of the
outstanding shares of common stock subject to market conditions, over a two year
period which expires in August 1998. During the nine months ended March 31,
1998, 15,750 shares of common stock were repurchased.
<PAGE>
Note 6. Stock Split and Stock Dividend
On October 23, 1997, the Corporation declared a three-for-two stock split. The
additional shares were issued on November 30, 1997, to shareholders of record as
of November 15, 1997. All share and per share data have been adjusted to reflect
the three-for-two stock split.
On December 18, 1997, the Board of Directors approved a 5% common stock
dividend. The dividend was paid January 23, 1998 to shareholders of record as of
January 9, 1998. All share and per share data have been adjusted to reflect the
5% stock dividend.
Note 7. Savings Association Insurance Fund ("SAIF") Recapitalization
On September 30, 1996, the federal government mandated an industry wide
assessment to recapitalize the SAIF, which is a part of the Federal Deposit
Insurance Corporation ("FDIC"). The special assessment was charged to savings
associations with insured deposits by the SAIF. The assessment was calculated at
0.657% of insured deposits as of March 31, 1995. The Bank's portion of the
assessment was $1,330,000 and is included in non-interest expense for the nine
months ended March 31, 1997.
Note 8. Reclassifications
Certain amounts in the fiscal year 1997 consolidated condensed financial
statements have been reclassified to conform to the fiscal year 1998
presentation.
<PAGE>
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 increase net interest income and become less
reliant on non-interest items to provide profitability. To achieve this goal,
the Corporation has targeted lower levels of cash and cash equivalents, smaller
securities portfolios, and increased levels of loans as part of its
asset/liability strategy to enhance the net interest margin. As a result, total
assets have declined modestly during this time of restructuring the balance
sheet. Total assets aggregated $259,562,000 at March 31, 1998, compared to total
assets of $270,490,000 at June 30, 1997, a decrease of 4.04%.
Cash and cash equivalents aggregated $12,568,000 at March 31, 1998, compared to
$20,294,000 at June 30, 1997. While this level is somewhat above targeted
levels, it still however, represents a 38.07% reduction and is consistent with
the Bank's asset/liability strategies. Securities held to maturity, which
primarily consist of U.S. Agency securities, totaled $22,559,000, at March 31,
1998, compared to $44,065,000 at June 30, 1997, a 48.81% decline. The decline in
the level of held to maturity securities resulted from the exercise of the call
feature by the issuer of the securities. The cash generated from the call of the
securities was used to primarily fund expansion of the loan portfolios and to
allow brokered deposits to mature without renewal.
Investment securities available for sale increased to $18,973,000 at March 31,
1998, from $11,588,000 at June 30, 1997. The increase in the securities
available for sale portfolio resulted from purchases of GNMA mortgage backed
securities. The Bank's primary focus continues to be on expansion of the loan
portfolio; however, the interest rate environment over the past few months of
the fiscal year has precipitated increased loan prepayments and a significant
level of the Bank's securities portfolio to be called by the issuer. Therefore,
the levels of cash and cash equivalents during the quarter ended March 31, 1998
were increasing more quickly than the funds could be invested through loan
originations. The GNMA mortgage backed securities typically provide a higher
yield alternative than overnight deposits, can be used to meet regulatory
liquidity requirements, have no credit risk, and are perceived to have slower
prepayment rates than other Agency mortgage backed securities. There were no
trading account securities at March 31, 1998 or June 30, 1997.
Net loans receivable (including loans held for sale) increased by $14,549,000,
or 8.33%, to $189,158,000 at March 31, 1998, from $174,609,000 at June 30, 1997.
The increase in net loans receivable is attributable to residential mortgage
loan production, an emphasis on the Bank's indirect auto lending program, and a
lower level of mortgage loan sales. Growth occurred in the nonconforming and
conforming residential mortgage loan portfolios and in the auto loan portfolio.
<PAGE>
During the nine months ended March 31, 1998, the Bank funded $74.8 million of
loans compared to $93.2 million of loans during the nine months ended March 31,
1997. The decrease in overall loan production was the result of the
restructuring of the Bank's nonconforming loan origination network in the latter
part of fiscal year 1997. All loan origination offices were closed except the
Evansville, Indiana loan origination office and all administrative functions
were transferred to the Bank's operations in Vincennes, Indiana. The
restructuring was undertaken primarily as a cost reduction measure. The "Results
of Operations" section of this Quarterly Report on Form 10-Q discusses the
effectiveness of the cost reduction plan in additional detail.
During the nine months ended March 31, 1998, nonconforming residential mortgage
lending constituted $23.2 million, or 31.0%, of total loans funded during the
period compared with $57.6 million, or 61.8%, of total loans funded during the
nine months ended March 31, 1997. Nonconforming residential loans, including
those held for sale, increased to $80.4 million at March 31, 1998, compared to
$66.5 million at June 30, 1997.
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 nine months ended March 31, 1998 totaled $7.4 million. The
indirect auto loan portfolio totaled $6.7 million at March 31, 1998.
At March 31, 1998, nonaccrual loans, real estate owned ("REO"), and repossessed
assets totaled $3,837,000, or 1.48% of total assets. This compares to $2,727,000
of nonaccrual loans, REO, and repossessed assets or 1.01% of total assets, at
June 30, 1997. The upward trend in loan delinquencies is related to residential
one-to-four family mortgage loans. Delinquencies have trended upward in both
conforming and nonconforming mortgage loans. 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 loan collection personnel have been hired, more stringent
collection practices have been implemented, and certain higher risk lending
programs have been discontinued. In addition, loan loss allowances have been
increased to prepare for potential future losses in the 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.
March 31, June 30,
1998 1997
--------------------------
Nonaccrual loans, REO, and repossessed assets:
Nonaccrual loans $2,967,000 $2,330,000
REO and repossessed assets (1) 870,000 397,000
Restructured loans -- --
--------------------------
Total nonaccrual loans, REO,
and repossessed assets $3,837,000 $2,727,000
Nonaccrual loans, REO and repossessed
assets to total assets 1.48% 1.01%
- -------------
(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.
<PAGE>
During the nine months ended March 31, 1998, the Bank established, through
operations, provisions for loan losses totaling $300,000 compared to $170,000
during the same nine months of the prior year. The Bank's allowance for loan
loss increased to $1,181,000 at March 31, 1998 from $1,158,000 at June 30, 1997.
Prepaid expenses and other assets decreased by $3,982,000 to $5,209,000 at March
31, 1998 from $9,191,000 at June 30, 1997. The decrease was primarily the result
of the completion of a $4.1 million loan sale.
Deposits aggregated $122,711,000 at March 31, 1998 compared to $144,316,000 at
June 30, 1997. The level of retail deposits has remained stable throughout
fiscal year 1998. The $21,605,000, or 14.97% decline, resulted from the
decreased use of brokered funds during the nine months ended March 31, 1998. The
lower level of brokered deposits were partially offset by an increased level of
Federal Home Loan Bank ("FHLB") advances. Advances have been a lower cost source
of funds than brokered deposits during the fiscal year. FHLB advances and other
borrowings increased by $10,085,000, or 10.06%, to $110,381,000 at March 31,
1998 compared to $100,296,000 at June 30, 1997. The overall reduction of
borrowed funds and brokered deposits during the period correlated to the lower
levels of cash and securities, and was a part of the Corporation's strategy of
expanding the net interest margin and improving profitability.
Accrued expenses and other liabilities declined modestly to $1,840,000 at March
31, 1998, compared to $2,047,000 at June 30, 1997. Advance payments by borrowers
for taxes and insurance increased to $669,000 at March 31, 1998 compared to
$304,000 at June 30, 1997. The fluctuation in this category was due to timing
differences that occurred in the normal course of business. Accrued interest
payable on deposits decreased to $544,000 at March 31, 1998, from $1,194,000 at
June 30, 1997. The fluctuation in this category resulted from the reduced level
of brokered deposits.
The Corporation acquired the assets of an existing independent title and
abstract company during the quarter ended March 31, 1998. The assets of the
acquired company were merged into the previously inactive subsidiary, First
Title Insurance Company. First Title underwrites for Chicago Title Insurance
Company, Ticor Title Insurance Company, and Stewart Title Guaranty Company. The
limited operations by First Title during the quarter ended March 31, 1998 did
not have a material impact of the financial statements of the Corporation for
the three or nine months ended March 31, 1998, however, First Title was
profitable in its initial month of active operation.
(b) Results of Operations:
During the three months ended March 31, 1998, 1ST BANCORP's net earnings
increased to $559,000, or $0.51 per share, compared to net income of $540,000,
or $0.49 per share, for the three months ended March 31, 1997. During the nine
months ended March 31, 1998, 1ST BANCORP net earnings totaled $1,451,000, or
$1.32 per share, compared to $285,000, or $0.26 per share, for the nine months
ended March 31, 1997. Net earnings for the nine months ended March 31, 1997 were
negatively affected by the special one-time assessment for the recapitalization
of the SAIF.
<PAGE>
The increased earnings for the three and nine months ended March 31, 1998 as
compared to the three and nine months ended March 31, 1997, were a reflection of
the Corporation's shift to more emphasis on the net interest margin and less
reliance on non-interest income. Also significantly contributing to the improved
earnings was a substantial decline in non-interest expenses. This decline is
largely attributable to the restructuring of the Bank's nonconforming loan
operations during the latter part of fiscal year 1997.
Net interest income before provision for loan losses remained relatively
constant at $1,641,000 during the three months ended March 31, 1998, as compared
to $1,694,000 during the three months ended March 31, 1997. However, the net
interest margin increased to 2.76% for the three months ended March 31, 1998 as
compared to 2.64% for the three months ended March 31, 1997. The net interest
margin increased primarily as a result of an increased yield on earning assets
and a stable cost of funds compared with the same period of the prior fiscal
year. The modest decline in the net interest income was a result of a lower
level of interest earning assets. The Bank's asset/liability strategy during
fiscal year 1998 of retaining more mortgage loan production in portfolio and
targeting lower levels of cash and securities has resulted in a lower average
level of interest earning assets and interest bearing liabilities.
Net interest income before provision for loan losses increased to $4,806,000 for
the nine months ended March 31, 1998, compared to $4,660,000 during the nine
months ended March 31, 1997. The net interest margin increased to 2.63% for the
nine months ended March 31, 1998 as compared to 2.45% for the nine months ended
March 31, 1997. The increased level of net interest income was the result of the
expanded net interest margin.
To achieve the increased net interest margin, high-quality, high-yielding
nonconforming mortgage loans were placed in portfolio and the Bank implemented
an indirect auto loan program in its local market to provide a source of
consumer credit. The Bank's asset/liability strategy during fiscal year 1998 of
retaining more mortgage loan production in portfolio and targeting lower levels
of cash and securities has resulted in a lower average level of interest earning
assets. Despite the lower average interest earning assets, the efforts to
increase the net interest margin have been successful in increasing net interest
income.
As previously stated, the Bank has placed into portfolio "A+", "A" and "B+"
rated nonconforming residential mortgage loans and implemented an indirect auto
loan program. To recognize the risk associated with such loans, provisions for
loan losses have been increased. During the three and nine month periods ended
March 31, 1998, provisions for loan losses have aggregated $120,000 and
$300,000, respectively, as compared to loan loss provisions of $84,000 and
$170,000, respectively, during the same periods of the previous fiscal year.
Non-interest income for the three months ended March 31, 1998 totaled $609,000
compared to $631,000 for the three months ended March 31, 1997. Non-interest
income for the nine months ended March 31, 1998 totaled $1,375,000 compared to
$2,312,000 for the nine months ended March 31, 1997. The lower level of
non-interest income resulted primarily from a lower level of loan sales and a
corresponding decreased gain on sales of loans.
The reduction in loan sales is a part of the Bank's asset/liability management
strategy to enhance the net interest margin by retaining a larger portion of its
mortgage loan production in portfolio. The gain on sales of mortgage loans
totaled $289,000 and $455,000 during the three and nine months ended March 31,
1998, compared to $392,000 and $1,593,000 during the same periods of the prior
year. The decline in the gain on sales of loans for the three and nine months
ended March 31, 1998 resulted from a lower volume of loan sales. Loan sales
totaled $15.0 million and $28.1 million during the three and nine month periods
ended March 31, 1998, compared to $16.5 million and $57.5 million for the same
periods of the prior fiscal year.
Other non-interest income increased to $228,000 and $637,000 for the three and
nine months ended March 31, 1998 compared with $172,000 and $478,000 during the
three and nine months ended March 31, 1997. The increase is attributable to
additional income from the insurance operations of First Financial Insurance
Agency, Inc. The additional insurance income was due in part to the purchase of
the book of business of an existing independent insurance agency in December
1996. The book of business was merged with the existing customer base of First
Financial. As a result of the acquisition, First Financial operates a full
service insurance office in Princeton, Indiana in addition to its office in
Vincennes, Indiana.
Non-interest expense totaled $1,338,000 for the three months ended March 31,
1998, compared to $1,707,000 for the three months ended March 31, 1997. The
restructuring of the Bank's nonconforming loan operations near the end of fiscal
year 1997 resulted in the lower level of non-interest expenses for the three
months ended March 31, 1998 as compared to the prior year. Non-interest expense
totaled $3,873,000 for the nine months ended March 31, 1998, compared to
$6,705,000 for the nine months ended March 31, 1997. The nonconforming loan
operation restructuring combined with the one-time SAIF assessment in the first
quarter of fiscal year 1997 resulted in the lower level of non-interest expenses
for the nine months ended March 31, 1998 compared with the same period of the
prior year.
On September 30, 1996, the federal government mandated an industry wide
assessment to recapitalize the SAIF, which is a part of the FDIC. The special
assessment was charged to savings associations with insured deposits by the
SAIF. The assessment was calculated at 0.657% of insured deposits as of March
31, 1995. The Bank's portion of the assessment was $1,330,000 and was included
in non-interest expense for the first quarter of fiscal 1997. Federal insurance
premiums and special assessments totaled $42,000 and $124,000 for the three and
nine months ended March 31, 1998, compared with $40,000 and $1,549,000 for the
three and nine months ended March 31, 1997.
During the fourth quarter of fiscal year 1997, the Bank restructured its
nonconforming loan operation. The restructuring included closing all loan
offices except the Evansville, Indiana loan origination office and moving all
administrative functions to the Bank's home office in Vincennes, Indiana. The
restructuring was undertaken to reduce non-interest operating expenses and
improve profitability of the Bank.
Compensation and employee benefits expense declined to $752,000 and $2,118,000
for the three and nine months ended March 31, 1998 compared to $1,010,000 and
$2,995,000 for three and nine months ended March 31, 1997. Net occupancy expense
declined to $150,000 and $405,000 for the three and nine months ended March 31,
1998 compared to $185,000 and $545,000 for the three and nine months ended March
31, 1997. Finally, other non-interest expense declined to $394,000 and
$1,226,000 for the three and nine months ended March 31, 1998 compared to
$472,000 and $1,616,000 for the three and nine months ended March 31, 1997.
These declines in operating expenses resulted from a reduced number of
employees, fewer office facilities, and generally lower administrative expenses
which are attributable to the restructuring of the nonconforming loan
operations.
(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 March 31,
1998, the Bank met all current capital requirements.
The following is a summary of the Bank's regulatory capital and capital
requirements at March 31, 1998:
Tangible Core Risk-Based
Capital Capital Capital
----------------------------------------------
Regulatory Capital $22,041,000 $22,041,000 $22,741,000
Minimum Capital Requirement 3,892,000 7,784,000 11,963,000
----------------------------------------------
Excess Capital $18,149,000 $14,257,000 $10,778,000
Regulatory Capital Ratio 8.50% 8.50% 15.21%
Required Capital Ratio 1.50% 3.00% 8.00%
During the quarter ended March 31, 1998, 1ST BANCORP paid a $0.067 cash dividend
per share. This is the twenty second 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 $20,583,000 in loan commitments and
$1,924,000 of loans in process outstanding at March 31, 1998. The majority of
these commitments are expected to be funded within the three month period ending
June 30, 1998. At March 31, 1998, the Bank had $241,000 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 March 31, 1998 was 5.80%.
A Year 2000 Committee (the "Committee") has been established by the Corporation
consisting of directors, officers, and employees of the Corporation to address
problems which could arise from the forthcoming Year 2000 rollover. The
Committee is charged with providing regular reports to the Board of Directors
detailing progress in this area. Based on progress by the Committee to date, it
is not anticipated that the Year 2000 rollover will present material financial
or operational burdens for 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 March 31, 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) Reports on Form 8-K -- There were no reports on Form 8-K filed during the
three months ended March 31, 1998.
<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 13, 1998 By: /s/ C. James McCormick
-----------------------------
C. James McCormick, Chairman
and Chief Executive Officer
Date: May 13, 1998 By: /s/ Frank D. Baracani
----------------------------
Frank D. Baracani, President
Date: May 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>
<CIK> 0000840458
<NAME> 1st Bancorp
<MULTIPLIER> 1,000
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<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-1-1997
<PERIOD-END> MAR-31-1998
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<OTHER-SE> 22,327
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<NET-INCOME> 1,451
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<LOANS-NON> 2,967
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