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 December 31, 1997
( ) 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 February 3, 1998, there were 1,089,685 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,
December 31, 1997 (Unaudited) and
June 30, 1997 4
Consolidated Condensed Statements
of Earnings, Three and Six Months Ended
December 31, 1997 and 1996 (Unaudited) 5
Consolidated Condensed Statements of
Cash Flows, Six Months Ended
December 31, 1997 and 1996 (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 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 4. Submissions of Matters to Vote of Securities
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 addtion, 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>
December 31, June 30,
1997 1997
-------------- ---------
ASSETS
<S> <C> <C>
Cash and cash equivalents:
Interest bearing deposits $5,459 $19,771
Non-interest bearing deposits 456 523
------------- ---------
Cash and cash equivalents 5,915 20,294
------------- ---------
Securities available for sale 12,273 11,588
Securities held to maturity (market value
of $33,695 at December 31, 1997 and
$43,556 at June 30, 1997) 33,855 44,065
Loans receivable, net 151,597 146,840
Loans held for sale 36,361 27,769
Accrued interest receivable:
Securities 836 1,081
Loans 1,144 1,099
Stock in FHLB of Indianapolis, at cost 4,941 4,941
Office premises and equipment 3,088 3,225
Real estate owned 762 397
Prepaid expenses and other assets 5,155 9,191
------------- ---------
TOTAL ASSETS $255,927 $270,490
============= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $134,668 $144,316
Advances from FHLB and other borrowings 95,406 100,296
Advance payments by borrowers
for taxes and insuranc 247 304
Accrued interest payable on deposits 615 1,194
Accrued expenses and other liabilities 2,017 2,047
------------- ---------
Total Liabilities $232,953 $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 1,089,685 at December 31, 1997 and
1,099,188 at June 30, 1997 $1,038 $698
Paid-in capital 2,091 2,642
Retained earnings, substantially restricted 19,847 19,102
Unrealized depreciation on securities (2) (109)
------------- ---------
Total Stockholders' Equity $22,974 $22,333
------------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $255,927 $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 Six months ended
December 31, December 31,
-------------------- ---------------------
1997 1996 1997 1996
-------- ------- -------- -------
INTEREST INCOME:
<S> <C> <C> <C> <C>
Loans $ 3,946 $ 3,751 $ 7,729 $ 7,346
Investment securities 804 929 1,705 1,856
Trading account securities -- -- 2 --
Other short-term investments and
interest bearing deposits 83 128 375 315
------- ------- ------- -------
Total Interest Income 4,833 4,808 9,811 9,517
------- ------- ------- -------
INTEREST EXPENSE:
Deposits 1,918 1,877 3,890 3,706
Short-term borrowings -- 4 2 25
FHLB advances and other borrowings 1,328 1,403 2,754 2,820
------- ------- ------- -------
Total Interest Expense 3,246 3,284 6,646 6,551
------- ------- ------- -------
NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES 1,587 1,524 3,165 2,966
Provision for loan losses 90 40 180 86
------- ------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,497 1,484 2,985 2,880
------- ------- ------- -------
NON-INTEREST INCOME:
Fees and service charges 86 88 169 172
Net gain (loss) on sales of investment securities available
for sale and trading account investments 16 2 22 2
Net gain on sales of loans 105 548 166 1,201
Other 190 170 409 306
------- ------- ------- -------
Total Non-Interest Income 397 808 766 1,681
------- ------- ------- -------
NON-INTEREST EXPENSE:
Compensation and employee benefits 703 940 1,366 1,985
Net occupancy 128 179 255 360
Federal insurance premiums 41 80 82 1,509
Other 426 475 832 1,144
------- ------- ------- -------
Total Non-Interest Expense 1,298 1,674 2,535 4,998
------- ------- ------- -------
Earnings Before Income Taxes 596 618 1,216 (437)
Income Taxes 159 242 324 (182)
------- ------- ------- -------
NET EARNINGS $ 437 $ 376 $ 892 ($ 255)
======= ======= ======= =======
BASIC EARNINGS PER SHARE: $ 0.40 $ 0.34 $ 0.81 ($ 0.23)
DILUTED EARNINGS PER SHARE: $ 0.40 $ 0.34 $ 0.81 ($ 0.23)
</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>
Six Months Ended
December 31,
-----------------------
1997 1996
-------- --------
<S> <C> <C>
Net Cash Flows From Operating Activities:
Net earnings $ 892 ($ 255)
Adjustments to reconcile net cash provided by operating activities:
Depreciation and amortization 224 139
Amortization of mortgage servicing rights 98 54
Gain on sale of loans (166) (1,201)
Gain on sale of securities (22) (2)
Net change in loans held for sale (8,592) 1,522
Provision for loan losses 180 86
Change in accrued interest receivable 200 137
Change in prepaid expenses and other assets 3,875 (661)
Change in accrued expenses and other liabilities (680) (649)
Loss on investment in limited partnership 57 67
-------- --------
NET CASH USED BY OPERATING ACTIVITIES (3,934) (763)
-------- --------
Cash Flows From Investing Activities:
Purchase of securities held to maturity -- (2,515)
Proceeds from maturity of securities held to maturity 10,212 56
Purchase of securities available for sale and trading account securities (18,689) (8,968)
Proceeds from maturities of securities available for sale 2,164 96
Proceeds from sales of securities available for sale
and trading account securites 16,025 10,934
Principal collected on loans, net of originations (4,822) (12,423)
Purchases of equipment (17) (57)
Other (365) (349)
-------- --------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 4,508 (13,226)
-------- --------
Cash Flows From Financing Activities:
Change in deposits (9,648) (2,269)
Proceeds from FHLB advances and other borrowings 26,991 42,844
Repayment of FHLB advances and other borrowings (31,881) (41,287)
Proceeds from issuance of common stock 94 108
Purchase and retirement of common stock (305) (207)
Payment of dividends on common stock (147) (134)
Change in advance payments by borrowers for insurance and taxes (57) (153)
-------- --------
NET CASH USED BY FINANCING ACTIVITIES (14,953) (1,098)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (14,379) (15,087)
Cash and Cash Equivalents at Beginning of Period 20,294 25,099
-------- --------
Cash and Cash Equivalents at End of Period $ 5,915 $ 10,012
======== ========
</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 1,098,186 for the three and six months
ended December 31, 1997 and 1996, respectively. The weighted average number of
shares for use in the dilutive EPS computations was 1,096,320 and 1,104,670 for
the three and six months ended December 31, 1997 and 1996, respectively.
Note 3. Stock Purchase Plans
The Corporation maintains an Employee Stock Purchase Plan whereby full-time
employees of First Federal Bank, A Federal Savings Bank (the "Bank") and First
Financial Insurance Agency, Inc. ("First Financial") can purchase the
Corporation's common stock at a discount. The purchase price of the shares under
this 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 this 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 December 31, 1997, 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 six months ended December 31,
1997, 15,750 shares of common stock were repurchased.
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 will be 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.
<PAGE>
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 six
months ended December 31, 1996.
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 $255,927,000 at December 31, 1997, compared to
total assets of $270,490,000 at June 30, 1997, a decrease of 5.38%.
Cash and cash equivalents aggregated $5,915,000, which approximates targeted
levels, at December 31, 1997, compared to $20,294,000 at June 30, 1997, a 70.85%
reduction. Securities held to maturity (including mortgage-backed securities),
which primarily consist of U.S. Agency securities, totaled $33,855,000, at
December 31, 1997, compared to $44,065,000 at June 30, 1997. The decline in the
level of held to maturity securities resulted from the exercise of the call
feature by the issuer of the securities. These declines were used to fund
expansion of the loan portfolios and to pay down brokered deposits and borrowed
funds at their maturity.
Investment securities available for sale (including mortgage-backed securities)
increased modestly to $12,273,000 at December 31, 1997, from $11,588,000 at June
30, 1997. There were no trading account securities at December 31, 1997 or June
30, 1997.
Net loans receivable (including loans held for sale) increased by $13,349,000,
or 7.65%, to $187,958,000 at December 31, 1997, 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.
During the six months ended December 31, 1997, the Bank funded $44.2 million of
loans compared to $68.2 million of loans during the six months ended December
31, 1996. 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 main office 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 six months ended December 31, 1997, nonconforming mortgage lending
constituted $14.7 million, or 33.3% of total loans funded during the period
compared with $42.3 million, or 62.0% of total loans funded during the six
months ended December 31, 1996. Nonconforming loans, including those held for
sale, increased to $76.4 million at December 31, 1997, compared to $66.5 million
at June 30, 1997. Conforming mortgage loan production remained relatively stable
with originations totaling $18.3 million, or 41.4% of total loans funded, for
the six months ended December 31, 1997 compared with $18.8 million, or 27.6% of
total loans funded, for the same period of the prior year.
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 six months ended December 31, 1997 totaled $3.8 million. The
indirect auto loan portfolio totaled $3.8 million at December 31, 1997.
<PAGE>
At December 31, 1997, nonaccrual loans and real estate owned totaled $3,143,000,
or 1.23% of total assets. This compares to $2,727,000 of nonaccrual loans and
real estate owned, 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 mortgage 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 and real estate owned 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>
December 31, June 30,
1997 1997
==============================
<S> <C> <C>
Nonaccrual loans and real estate owned:
Nonaccrual loans $2,381,000 $2,330,000
Real estate owned (1) 762,000 397,000
Restructured loans - -
-----------------------------
Total nonaccrual loans and real estate owned $3,143,000 $2,727,000
Nonaccrual loans and real estate owned to total assets 1.23% 1.01%
</TABLE>
- ----------------
(1) Certain assets acquired through foreclosures or deeds in lieu of
foreclosure, which are included in the Consolidated Condensed Statements of
Financial Condition as real estate owned.
During the six months ended December 31, 1997, the Bank established, through
operations, provisions for loan losses totaling $180,000 compared to $86,000
during the same six months of the prior year. The Bank's allowance for loan loss
increased to $1,183,000 at December 31, 1997 from $1,158,000 at June 30, 1997.
Prepaid expenses and other assets decreased by $4,036,000 to $5,155,000 at
December 31, 1997 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 $134,668,000 at December 31, 1997 compared to $144,316,000
at June 30, 1997. This $9,648,000, or 6.69%, decline resulted primarily from the
decreased use of brokered funds during the six months ended December 31, 1997.
Advances from the Federal Home Loan Bank ("FHLB") and other borrowings declined
by $4,890,000, or 4.88%, to $95,406,000 at December 31, 1997 compared to
$100,296,000 at June 30, 1997. The decline in borrowed funds included the
repayment of $1.4 million of debt at the holding company level which had been
used in prior years as a capital infusion to the Bank. 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 remained stable at $2,017,000 at December
31, 1997 compared to $2,047,000 at June 30, 1997. Advance payments by borrowers
for taxes and insurance also remained stable at $247,000 at December 31, 1997
compared to $304,000 at June 30, 1997. Accrued interest payable on deposits
decreased to $615,000 at December 31, 1997, from $1,194,000 at June 30, 1997.
The fluctuation in this category was due to timing differences that occur in the
normal course of business.
<PAGE>
(b) Results of Operations:
During the three months ended December 31, 1997, 1ST BANCORP's net earnings
increased to $437,000, or $0.40 per share, compared to net income of $376,000,
or $0.34 per share, for the three months ended December 31, 1996. During the six
months ended December 31, 1997, 1ST BANCORP had net income of $892,000, or $0.81
per share, compared to a net loss of $255,000, or $0.23 per share, for the six
months ended December 31, 1996. The net loss for the six months ended December
31, 1996, was directly attributable to the special one-time assessment for the
recapitalization of the SAIF.
The increased earnings for the three and six months ended December 31, 1997 as
compared to the three and six months ended December 31, 1996, are in large part
a reflection of the Corporation's shift to more emphasis on the net interest
margin and less reliance on non-interest income. As a result, the Corporation's
net interest margin has improved markedly and net earnings have increased
despite a significant reduction in non-interest income. Also significantly
contributing to the improved earnings was a substantial decline in non-interest
expenses. This decline is attributable to the closure of several of the Bank's
loan origination offices during the latter part of fiscal year 1997.
Net interest income before provision for loan losses increased to $1,587,000
during the three months ended December 31, 1997, as compared to $1,524,000
during the three months ended December 31, 1996. The net interest margin
increased to 2.62% for the three months ended December 31, 1997 as compared to
2.45% for the three months ended December 31, 1996. Net interest income before
provision for loan losses increased to $3,165,000 for the six months ended
December 31, 1997, compared to $2,966,000 during the six months ended December
31, 1996. The net interest margin increased to 2.57% for the six months ended
December 31, 1997 as compared to 2.37% for the six months ended December 31,
1996.
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. The Bank's
strategy of retaining more loan production in portfolio and targeting lower
levels of cash and securities resulted in a modestly lower average level of
interest earning assets and interest bearing liabilities during the three and
six months ended December 31, 1997 as compared with the same period of the prior
year. Despite the lower average and a modestly higher cost of funds, the net
interest margin has continued a steady expansion and net interest income has
increased.
Non-interest income for the three months ended December 31, 1997 totaled
$397,000 compared to $808,000 for the three months ended December 31, 1996.
Non-interest income for the six months ended December 31, 1997 totaled $766,000
compared to $1,681,000 for the six months ended December 31, 1996. The lower
level of non-interest income for the three and six months ended December 31,
1997 resulted primarily from a lower level of loan sales and a corresponding
decreased gain on sale 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 sale of mortgage loans
totaled $105,000 and $166,000 during the three and six months ended December 31,
1997, compared to $548,000 and $1,201,000 during the same periods of the prior
year. The decline in the gain on sale of loans for the three and six months
ended December 31, 1997 resulted from a lower volume of loan sales. Loan sales
totaled $8.0 million and $13.1 million during the three and six month periods
ended December 31, 1997, compared to $17.2 million and $41.0 million for the
same periods of the prior fiscal year.
Other non-interest income increased to $190,000 for the three months ended
December 31, 1997 compared with $170,000 during the three months ended December
31, 1996. Other non-interest income increased to $409,000 for the six months
ended December 31, 1997 compared with $306,000 during the six months ended
December 31, 1996. The increase is attributable to additional income from the
insurance operations of First Financial Insurance Agency, Inc. The additional
insurance income was due in large 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.
<PAGE>
Non-interest expense totaled $1,298,000 for the three months ended December 31,
1997, compared to $1,674,000 for the three months ended December 31, 1996. 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 December 31, 1997 as compared to the prior year. Non-interest
expense totaled $2,535,000 for the six months ended December 31, 1997, compared
to $4,998,000 for the six months ended December 31, 1996. 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 six months ended December 31, 1997 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 $41,000 and $82,000 for the three and
six months ended December 31, 1997, compared with $80,000 and $1,509,000 for the
three and six months ended December 31, 1996.
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 $703,000 and $1,366,000
for the three and six months ended December 31, 1997 compared to $940,000 and
$1,985,000 for three and six months ended December 31, 1996. Net occupancy
expense totaled $128,000 and $255,000 for the three and six months ended
December 31, 1997 compared to $179,000 and $360,000 for the three and six months
ended December 31, 1996. Finally, other non-interest expense declined to
$426,000 and $832,000 for the three and six months ended December 31, 1997
compared to $475,000 and $1,144,000 for the three and six months ended December
31, 1996. 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 December 31,
1997, the Bank met all current capital requirements.
The following is a summary of the Bank's regulatory capital and capital
requirements at December 31, 1997:
<TABLE>
<CAPTION>
Tangible Core Risk-Based
Capital Capital Capital
--------------------------------------------------
<S> <C> <C> <C>
Regulatory Capital $21,891,000 $21,891,000 $22,577,000
Minimum Capital Requirement 3,836,000 7,671,000 11,658,000
--------------------------------------------------
Excess Capital $18,055,000 $14,220,000 $10,919,000
Regulatory Capital Ratio 8.56% 8.56% 15.49%
Required Capital Ratio 1.50% 3.00% 8.00%
</TABLE>
<PAGE>
During the quarter ended December 31, 1997, 1ST BANCORP paid a $0.07 cash
dividend per share. This is the twenty first 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 $16,570,000 in loan commitments and
$1,139,000 of loans in process outstanding at December 31, 1997. The majority of
these commitments are expected to be funded within the three month period ending
March 31, 1998. At December 31, 1997, the Bank had $235,000 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 quarter ended December 31, 1997 was
5.85%.
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 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.
On October 23, 1997, the Annual Meeting of Shareholders was held and the results
of which follow. The meeting was held prior to declaration of the three-for-two
stock split and the 5% stock dividend, therefore, the voting results do not
reflect any effects of the stock split or stock dividend.
<TABLE>
<CAPTION>
Against or Broker
For Withheld Abstain Non-votes
------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Election of C. James
McCormick as Director for
term expiring in 2000 572,082 2,382 0 0
Election of Mary Lynn
Stenftenagel as Director for
term expiring in 2000 573,663 800 0 0
Election of James W.
Bobe as Director for
term expiring in 2000 572,995 1,468 0 0
</TABLE>
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 December 31, 1997.
<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: February 13, 1998 By: /s/ C. James McCormick
-----------------------------
C. James McCormick, Chairman
and Chief Executive Officer
Date: February 13, 1998 By: /s/ Frank D. Baracani
----------------------------
Frank D. Baracani, President
Date: February 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
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> OCT-1-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 456
<INT-BEARING-DEPOSITS> 5,459
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,273
<INVESTMENTS-CARRYING> 33,855
<INVESTMENTS-MARKET> 33,695
<LOANS> 189,141
<ALLOWANCE> 1,183
<TOTAL-ASSETS> 255,927
<DEPOSITS> 134,668
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,879
<LONG-TERM> 95,406
<COMMON> 1,038
0
0
<OTHER-SE> 21,936
<TOTAL-LIABILITIES-AND-EQUITY> 255,927
<INTEREST-LOAN> 7,729
<INTEREST-INVEST> 1,707
<INTEREST-OTHER> 375
<INTEREST-TOTAL> 9,811
<INTEREST-DEPOSIT> 3,890
<INTEREST-EXPENSE> 6,646
<INTEREST-INCOME-NET> 3,165
<LOAN-LOSSES> 180
<SECURITIES-GAINS> 22
<EXPENSE-OTHER> 2,535
<INCOME-PRETAX> 1,216
<INCOME-PRE-EXTRAORDINARY> 1,216
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 892
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.81
<YIELD-ACTUAL> 7.96
<LOANS-NON> 2,381
<LOANS-PAST> 645
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 278
<ALLOWANCE-OPEN> 1,158
<CHARGE-OFFS> 157
<RECOVERIES> 2
<ALLOWANCE-CLOSE> 1,183
<ALLOWANCE-DOMESTIC> 497
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 686
</TABLE>
