<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
-----
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
-----
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-18527
FIRST COMMUNITY BANCORP, INC.
-----------------------------
(Name of small business issuer in its charter)
Georgia 58-1869700
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
827 Joe Frank Harris Parkway, S.E.,
Cartersville, Georgia 30120
- ---------------------------------------- --------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (770) 382-1495
--------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1.00
-------------------
par value
- ---------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No ___
---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. X
---
State issuer's revenues for its most recent fiscal year. $8,708,728
State the aggregate market value of the voting stock held by non-affiliates
(approximately 293,089 shares) computed by reference to the price at which the
stock was sold, or the average bid and asked prices ($25.25 per share) of such
stock as of March 1, 1998. $7,400,497.20
As of March 1, 1998, issuer has outstanding 427,745 shares of common stock,
$1 par value per share, which is issuer's only class of common stock.
Documents incorporated by reference: None
----
Transitional Small Business Disclosure Format (Check one):
Yes No X
--- ---
-1-
<PAGE>
FIRST COMMUNITY BANCORP, INC. AND SUBSIDIARY
FORM 10-KSB
INDEX
PAGE
Part I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 15
Item 3. Legal Proceedings........................................... 15
Item 4. Submission of Matters to a Vote of Security Holders......... 15
Part II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters........................... 16
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................................ 17
Item 7. Financial Statements and Supplementary Data................. 34
Item 8. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure.................... 66
Part III
Item 9. Directors and Executive Officers
of the Registrant......................................... 66
Item 10. Executive Compensation...................................... 71
Item 11. Security Ownership of Certain
Beneficial Owners and Management.......................... 73
Item 12. Certain Relationships and Related
Transactions.............................................. 76
Part IV
Item 13. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K........................ 76
Signatures................................................................. 77
-2-
<PAGE>
FIRST COMMUNITY BANCORP, INC. AND SUBSIDIARY
PART I
ITEM 1. BUSINESS.
Business of the Company
- -----------------------
First Community Bancorp, Inc. (the "Company"), a Georgia corporation, was
organized on May 31, 1989, for the purpose of acquiring all of the issued and
outstanding common stock of First Community Bank & Trust (the "Bank"). Pursuant
to a Plan of Reorganization, effective December 1, 1989, the Company acquired
all of the issued and outstanding shares of common stock, $5.00 par value of the
Bank. As a result of this transaction, the former stockholders of the Bank
became the stockholders of the Company, and the Bank became a wholly-owned
subsidiary of the Company.
The Bank is a financial institution which was organized under the laws of
the State of Georgia on July 11, 1988 and, on October 23, 1989, began operation
of a full-service commercial banking business based in Bartow County, Georgia,
providing such customary banking services as checking and savings accounts,
various types of time deposits, safe deposit facilities and individual
retirement accounts. It also makes secured and unsecured loans and provides
other financial services to its customers. While the Bank has trust powers,
such powers are currently exercised only to permit the Bank to serve as
custodian of its individual retirement accounts. The Bank engages in a general
commercial banking business in its community, emphasizing the banking needs of
individuals and small- to medium-sized business and professional concerns.
On October 21, 1993, the Bank opened a full-serve branch in Adairsville,
Georgia, and in February, 1998, opened an operations center from which to
conduct bookkeeping, data processing, payroll functions, and investment
management operations.
Competition
- -----------
The banking industry is highly competitive. The Bank's primary market
consists of Bartow County, Georgia, which has a population of approximately
65,000. The Bank competes for all types of loans, deposits and other financial
services with eight other commercial banks located in Bartow County. The Bank
also competes with other financial institutions in Bartow County and with
commercial banks, savings and loan associations and other financial institutions
located outside of Bartow County. To a lesser extent, the Bank competes for
loans with insurance companies, regulated small loan companies, credit unions
and certain governmental agencies.
-3-
<PAGE>
The Company and any non-banking subsidiaries that it may organize will
compete with numerous other companies and financial institutions engaged in
similar lines of business, such as other bank holding companies, leasing
companies and insurance companies. Many of these other financial institutions
and companies will have far greater resources than either the Bank or the
Company.
Employees
- ---------
As of December 31, 1997 the Bank had 45 full-time equivalent employees.
The Company has no employees separate from the Bank. Neither the Company nor
the Bank is a party to any collective bargaining agreement, and, in the opinion
of management, the Bank enjoys satisfactory relations with its employees.
SUPERVISION, REGULATION, AND OTHER FACTORS
------------------------------------------
Bank Holding Company Regulation
- -------------------------------
Offers and sales of the common stock of the Company are subject to the
registration requirements of the Securities Act of 1933 and the regulations
promulgated thereunder which are administered by the Securities and Exchange
Commission. The Company is also subject to the reporting requirements of the
Securities Exchange Act of 1934. Such offers and sales are also subject to the
registration requirements of various state securities acts.
The Company is a registered holding company under the Bank Holding Company
Act of 1956, as amended (the "Federal Bank Holding Company Act"), and the
Georgia Bank Holding Company Act, and is regulated under such acts by the Board
of Governors of the Federal Reserve System (the "Federal Reserve") and by the
Georgia Department of Banking and Finance, respectively. As a bank holding
company, the Company is required to file with the Federal Reserve an annual
report and such additional information as the Federal Reserve may require
pursuant to the Federal Bank Holding Company Act. The Federal Reserve may also
conduct examinations of the Company and the subsidiary of the Company.
The Federal Bank Holding Company Act also requires every bank holding
company to obtain prior approval from the Federal Reserve before acquiring
direct or indirect ownership or control of more than 5% of the voting shares of
any bank which is not already majority owned or controlled by that bank holding
company. The Federal Reserve is prohibited, however, from approving the
acquisition by the Company of the voting shares of, or substantially all the
assets of, any bank located outside Georgia, unless such acquisition is
specifically authorized by the laws of the state in which the bank is located.
-4-
<PAGE>
On March 16, 1994, the Georgia legislature adopted the "Georgia Interstate
Banking Act," effective July 1, 1995. Interstate acquisitions by institutions
located in Georgia will be permitted in states which also allow national
interstate acquisitions, and interstate acquisitions of institutions located in
Georgia will be permitted by institutions located in states which also allow
national interstate acquisitions; provided, however, that if the board of
directors of a Georgia bank or bank holding company adopts a resolution to
except such bank or bank holding company from being acquired pursuant to the
provisions of the Georgia Interstate Banking Act and properly files a certified
copy of such resolution with the Georgia Department, such bank or bank holding
company may not be acquired by an institution located outside of the State of
Georgia.
In addition, the President of the United States signed into law the
"Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994" on
September 29, 1994 (the "Interstate Branching Act"). The Interstate Branching
Act permitted bank holding companies to merge their multi-state bank
subsidiaries into a single bank by June 1, 1997, unless state legislators acted
to "opt-out" of this provision, to acquire banks in any state one year after the
effective date of the Interstate Branching Act, and to establish de novo
branches across state lines so long as the individual state into which a
potential de novo entrant proposes to branch specifically passes legislation to
"opt-in".
Under the Interstate Branching Act, beginning on June 1, 1997, a bank could
merge with a bank in another state so long as the transaction did not involve a
bank in a home state which had enacted a law after the date of enactment of the
Interstate Branching Act and before June 1, 1997 that applies equally to all out
of state banks and expressly prohibits such interstate merger transactions.
Such a law would have no effect on merger transactions approved before the
effective date of such a state law. States could also elect to permit merger
transactions before June 1, 1997.
The Interstate Branching Act authorizes interstate mergers involving the
acquisition of a branch of a bank without the acquisition of the bank only if
state law permits an out of state acquiror to acquire a branch without acquiring
the bank. State minimum age laws for banks to be acquired will be preserved
unless state law provides for a minimum age period of more than five years.
After consummation of any interstate merger transaction, a resulting bank may
establish or operate additional branches at any location where any bank involved
in the transaction could have established or operated a branch under applicable
federal or state law.
The Riegle Community Development and Regulatory Improvement Act of 1994
(the "RCDRIA") was enacted September 23, 1994, to
-5-
<PAGE>
promote economic revitalization and community development to "investment areas."
The RCDRIA establishes a Community Development Financial Institutions Fund to
achieve these objectives. The Fund is authorized to provide financial assistance
through a variety of mechanisms including equity investments, grants, loans,
credit union shares and deposits. The amount of assistance any community
development financial institution and its subsidiaries and affiliates may
receive is generally limited to $5 million. A qualifying institution may receive
$3.75 million for the purpose of serving an investment area in another state.
The RCDRIA also provides certain regulatory relief requiring each agency to
streamline and modify its regulations and policies, remove inconsistencies and
eliminate outputted and duplicative requirements. The RCDRIA also directs the
federal agencies to coordinate examinations among affiliate banks, coordinate
examinations with other federal banking agencies, and work to coordinate with
state banking agencies. The federal banking agencies are also directed to work
jointly in developing a system for banks and savings associations to file
reports and statements electronically and to adopt a single form for filing core
information in reports and statements.
The RCDRIA also provides procedures for expediting bank holding company
applications, eliminating prior approval of the Federal Reserve for the
acquisition of control of a bank in a reorganization in which persons exchange
their shares for shares of a newly-formed bank holding company provided the bank
holding company immediately after the acquisition meets capital and other
financial standards and the bank is "adequately capitalized," the holding
company does not engage in any activities other than those of managing and
controlling banks, the holding company provides 30 days prior notice to the
board of the transaction, and the holding company will not acquire control of
any additional bank. The RCDRIA also provides for reduction of post-approval
waiting periods, decreasing the waiting period from 30 days to 15 days in most
instances. The RCDRIA also exempts from federal securities registration
securities issued in connection with the formation of a one-bank holding
company.
The Georgia General Assembly recently enacted legislation altering the
public policy of the State regarding intrastate branch banking. Essentially,
the legislation allows a bank to establish de novo branch banks on a limited
basis beginning July 1, 1996. Between July 1, 1996 and June 30, 1998, the
number of de novo branch banks is limited to three per bank or group of
affiliated banks under the same bank holding company. Beginning July 1, 1998,
the number of de novo branch banks which may be established is no longer limited
by statute.
The Federal and Georgia Bank Holding Company Acts further provide that the
Federal Reserve and the Department of Banking and
-6-
<PAGE>
Finance will not approve any acquisition, merger or consolidation (a) which
would result in a monopoly, (b) which would be in furtherance of any combination
or conspiracy to monopolize or attempt to monopolize the business of banking in
any part of the United States, (c) the effect of which may be substantially to
lessen competition or to tend to create a monopoly in any section of the country
or (d) which in any other manner would be in restraint of trade, unless the
anticompetitive effects of the proposed transaction are clearly outweighed in
the public interest by the probable effect of the transaction in meeting the
convenience and needs of the community to be served.
In addition to having the right to acquire ownership or control of other
banks, the Company is authorized to acquire ownership or control of nonbanking
companies, provided the activities of such companies are so closely related to
banking or managing or controlling banks that the Federal Reserve considers such
activities to be proper to the operation and control of banks. Regulation Y,
promulgated by the Federal Reserve, sets forth those activities which are
regarded as closely related to banking or managing or controlling banks and,
thus, are permissible activities for bank holding companies, subject to approval
by the Federal Reserve in individual cases.
Pursuant to (S) 4(j) of the Bank Holding Company Act (12 U.S.C. (S)
1843(j)), a bank holding company must submit a written notice to the Federal
Reserve Board at least sixty days before engaging, directly or indirectly, in a
non-banking activity authorized under (S) 4(c)(8), which authorizes holding
companies to engage in activities that are closely related to banking or
managing or controlling banks. The processing period begins to run from the date
the Federal Reserve Board receives a complete notice, and may be extended under
certain circumstances. In acting on a notice to engage in (S) 4(c)(8)
activities, the Federal Reserve Board is required by certain sections of the
Bank Holding Company Act to consider whether the benefits of the proposed
activity (such as greater convenience, increased competition, or gains in
efficiency) outweigh the potential adverse effects (such as undue concentration
of resources, decreased or unfair competition, conflicts of interest, or unsound
banking practices). Section 4(c)(8) also requires that proposals to engage in
permissible activities are subject to public notice and an opportunity for a
hearing only in the case of an acquisition of a savings association.
Section 4(j) of the Bank Holding Company Act was amended by the Economic
Growth and Regulatory Paperwork Reduction Act of 1996, enacted as a part of the
Omnibus Consolidated Appropriations Act for Fiscal Year 1997 to permit a well-
capitalized and well-managed bank holding company, that controls predominantly
well-capitalized and well-managed depository institutions, as defined by
amendments to The Bank Holding Company Act, to engage de novo in any permissible
4(c)(8) activity or acquire any company engaged in
-7-
<PAGE>
permissible 4(c)(8) activities (except for an insured depository institution,
i.e., a savings association) under expedited procedures. To be eligible for the
expedited procedures, the book value of the assets acquired may not exceed 10%
of the holding company's consolidated risk weighted assets and the consideration
paid may not exceed 15% of Tier One capital. The Federal Reserve Board may
adjust these percentages. In addition, no administrative enforcement action may
have been commenced or be pending nor may any cease and desist order pursuant to
(S) 8 of the FDI Act have been issued or be pending against the holding company
or any of its depository institutions subsidiaries.
While all qualifying holding companies engaging in (S) 4(c)(8) activities
under the expedited procedures must provide notice to the Federal Reserve Board,
the notice provisions differ. First, to engage de novo directly or through a
subsidiary in activities that the Fed has already approved by regulation, the
bank holding company must provide notice within ten days after commencing the
activity. Second, to engage in activities that the Fed has permitted by order
or to acquire the shares or assets of an existing company, the bank holding
company must provide notice at least twelve business days prior to commencing
the activity, during which time the Fed may require the full 60-day notice
procedure.
The Company is authorized to borrow money and pledge as security for such
indebtedness the shares of its subsidiary bank for general corporate purposes,
including acquisition of other permitted businesses, capital for its subsidiary
bank and purchase of its own shares. The only source the holding company has to
repay the debt is dividends from the subsidiary bank. Dividends may only be
paid to the extent of fifty percent (50%) of the prior year earnings without the
express consent of the Georgia Department of Banking and Finance, and further,
regulatory agencies have the authority to restrict payment of dividends in the
event the Bank's capital falls below minimum levels and under certain other
conditions.
Bank Regulation
- ---------------
The Bank operates as a bank organized under the laws of the State of
Georgia subject to examination by the Georgia Department of Banking and Finance.
The Georgia Department of Banking and Finance regulates all areas of the Bank's
commercial banking operations, including reserves, loans, mergers, payment of
dividends, interest rates, establishment of branches and other aspects of
operation. The Bank is not a member of the Federal Reserve system, but uses the
Federal Reserve as a clearing agent.
The Bank is insured and also regulated by the Federal Deposit Insurance
Corporation (the "FDIC"). The major functions of the FDIC with respect to
insured banks include paying depositors to the extent provided by law in the
event an insured bank is closed
-8-
<PAGE>
without adequately providing for payment of the claims of depositors, acting as
a receiver of state banks placed in receivership when so appointed by state
authorities, and preventing the continuance or development of unsound and unsafe
banking practices. In addition, the FDIC is authorized to examine insured banks
which are not members of the Federal Reserve to determine the condition of such
banks for insurance purposes. The FDIC also approves conversions, mergers,
consolidations and assumption of deposit liability transactions where the
resulting, continued or assumed bank is an insured nonmember state bank.
Subsidiary banks or a bank holding company are subject to certain
restrictions imposed by the Federal Bank Holding Company Act on any extension of
credit to the bank holding company or any of its subsidiaries, on investment in
the stock or other securities thereof, and on the taking of such stock or
securities as collateral for loans to any borrower. In addition, a bank holding
company and its subsidiaries are prohibited from engaging in certain tying
arrangements in connection with any extension of credit or the provision of any
property or services. The Federal Reserve also possesses cease-and-desist
powers over bank holding companies and their nonbank subsidiaries if their
actions represent an unsafe or unsound practice or violation of laws.
FIRREA
- ------
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA) was introduced into Congress on February 22, 1989 and enacted on August
9, 1989. Under the 1989 Act, the Federal Savings and Loan Insurance Corporation
was abolished. Two separate funds have been established, one for commercial
banks (the Bank Insurance Fund) and the other for savings institutions (the
Savings Associations Insurance Fund). Both funds are under the management of
the FDIC which sets insurance premium rates for all insured institutions.
Effective January 1, 1994, the FDIC adopted a new system of risk-based insurance
assessment. Under the FDIC's rule, each depository institution is assigned to
one of the three groups, well-capitalized, adequately capitalized or under-
capitalized, based on its capital ratios and will be further assigned to one of
three subgroups within its capital ratios and will be further assigned to one of
three subgroups within its capital category based on an evaluation of the risk
posed by the institution to its insurance fund. The capital standard being
used to set insurance premium rates are the same as those adopted by the
agencies with the prompt corrective action framework. The rule provides that
well-capitalized institutions pay assessment rates ranging from 23 to 29 basis
points, depending upon the subgroup to which they are assigned. Adequately
capitalized institutions pay from 26 to 30 basis points, and undercapitalized
institutions pay from 29 to 31 basis point. In February 1995, the FDIC proposed
a new rule which would significantly reduce the assessment rate payable by well-
capitalized institutions. Such
-9-
<PAGE>
institutions would pay assessment rates from 4 to 21 basis points. Adequately
capitalized institutions would pay from 7 to 28 basis points, and
undercapitalized institutions would pay from 14 to 31 basis points.
FDICIA
- ------
FDICIA was signed into law on December 19, 1991. Regulations implementing
the prompt corrective action provisions of FDICIA became effective on December
19, 1992. In addition to the prompt corrective action requirements, FDICIA
includes significant changes to the legal and regulatory environment for insured
depository institutions, including reductions in insurance coverage for certain
kinds of deposits, increased supervision by the federal regulatory agencies,
increased reporting requirements for insured institutions, and new regulations
concerning internal controls, accounting, and operations.
The prompt corrective action regulations define specific capital categories
based on an institution's capital ratios. The capital categories, in declining
order, are "well-capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized."
Institutions categorized as "undercapitalized" or worse are subject to certain
restrictions, including the requirement to file a capital plan with its primary
federal regulator, prohibitions on the payment of dividends and management fees,
restrictions on executive compensation, and increased supervisory monitoring,
among other things. Other restrictions may be imposed on the institutions
either by its primary federal regulator or by the Federal Deposit Insurance
Corporation ("FDIC"), including requirements to raise additional capital, sell
assets, or sell the entire institution. Once an institution becomes "critically
undercapitalized" it must generally be placed in receivership or conservatorship
within 90 days. As of December 31, 1996 and 1995, notification from the FDIC
categorized the Bank as "well capitalized" under the regulatory framework for
prompt corrective action.
Recent Regulatory Developments
- ------------------------------
On September 3, 1996, President Clinton signed the Omnibus Consolidated
Appropriations Act for FY 1997. Subtitle G of Title Two of that Act is titled
the "Deposit Insurance Funds Act of 1996" (Deposit Insurance Funds Act), which
among other things provides for the recapitalization of the Savings Association
Insurance Fund ("SAIF") as of October 1, 1996. To accomplish this
recapitalization, the FDIC imposed a special assessment on each insured
depository institution with deposits assessable under the SAIF so that SAIF
would achieve its designated reserve ratio (DRR) on the first business day of
the first month after the date of the enactment of the Deposit Insurance Funds
Act. Because the legislation was enacted as of September 30, 1996, under the
Deposit
-10-
<PAGE>
Insurance Funds Act, SAIF achieved its DRR and became fully capitalized on
October 1, 1996. For purposes of the SAIF special assessment, the amount of
SAIF-assessable deposits is determined as of March 31, 1995. However, the term
"SAIF-assessable deposits" includes deposits assumed after March 31, 1995 if the
deposits were assumed from an institution that is no longer insured when the
special assessment to recapitalize SAIF is imposed under this section.
Therefore, some institutions will be required to pay the special assessment on
SAIF insured deposits that were assumed after March 31, 1995.
A major part of the plan to recapitalize SAIF involves imposing a one-time
special assessment on SAIF-assessable deposits that may be paid in two
installments under certain conditions. Subject to certain statutory
adjustments, the FDIC has discretion to determine the rates of the assessments
after considering certain factors, including the most recent SAIF balance, data
on insured deposits, and any other factors that the FDIC deems appropriate.
This one-time special assessment is subject to certain exceptions, and the FDIC
has discretion to issue orders exempting weak institutions from paying this
special assessment if the exemption will reduce the risk to SAIF. The FDIC
prescribed guidelines for issuing such an exemption within 30 days of enactment
of the Deposit Insurance Funds Act. The Act required FDIC to exempt from the
special assessment (1) institutions that existed on October 1, 1995 and held no
SAIF assessable deposits before January 1, 1993, (2) federal savings banks newly
established in April, 1994 to acquire the deposits of savings institutions in
default that received assistance from the RTC in connection with the
transactions, and (3) an SAIF insured savings association that, before January
1, 1987, was a federal savings bank insured by the FSLIC for the purpose of
acquiring the assets or assuming the liabilities of a national bank in a
transaction consummated after July 1, 1986 and had assets less than $150
million. Exempt institutions generally are required to pay semi-annual
assessments at former rates under the schedule applicable to SAIF fund members
on June 30, 1995, with certain exceptions.
There are three statutory adjustments that the FDIC must consider in
setting the SAIF recapitalization rates. The first of these relates to Oakar
transactions, which are generally defined to include bank purchases of SAIF-
assessable deposits. Generally, Bank Insurance Fund (BIF) members acquiring
SAIF-assessable deposits in Oakar transactions prior to March 31, 1995 (or after
March 31, 1995 if the institution from which the deposits were acquired is no
longer insured at the time the special assessment is imposed), are subject to
the SAIF special assessment but the amount of assessable deposits would, as a
general proposition, be reduced by 20% for purposes of the assessment if certain
conditions are satisfied. The 20% haircut for these BIF members applies for
purposes of the special assessment and for purposes of future semi-annual
assessments on SAIF-assessable deposits that were acquired
-11-
<PAGE>
prior to March 31, 1995. To be eligible for the 20% haircut, a BIF member must
satisfy certain requirements that are based on a suggested attributable deposit
amount as of June 30, 1995.
The second statutory adjustment the FDIC must consider for purposes of
computing this special assessment relates to "converted associations," a term
defined by the Act. An institution meeting one of the Act's definitions of
"converted association" may also reduce by 20% the amount of deposits that are
SAIF insured as of March 31, 1995 (or after March 31, 1995 is subject to the
special assessment because the institution from which the deposits were acquired
is no longer insured at the time the special assessment is imposed). In
addition to "converted associations," Sasser banks - a savings association that
converted to a bank charter prior to SAIF reaching its DRR and as a result the
resulting bank was required to remain an SAIF member - may qualify under this
second adjustment under very limited criteria.
Third, if payment of the special assessment would pose a significant risk
that an insured depository institution or its holding company may default on
payments under debt obligations or preferred stock, the institution may elect to
pay the special assessment under extended terms that would include a
supplemental special assessment.
The SAIF was initially capitalized through the issuance of bond obligations
by the Financing Corporation (FICO), commonly referred to as FICO bonds. The
Deposit Insurance Funds Act also addresses repayment of the interest on those
bonds. Beginning with the semi-annual periods after December 31, 1996,
assessments to pay approximately $8 million in interest on FICO bonds will be
shared among all insured depository institutions, including insured national
banks, instead of only SAIF members. For purposes of the assessments to pay the
interest on the FICO bonds, BIF-assessable deposits will be assessed at a rate
of 20% of the assessment rate applicable to SAIF-assessable deposits until
December 31, 1999. After the earlier of December 31, 1999 or the date the last
savings association ceases to exist, full pro rata sharing of FICO assessments
will begin.
For purposes of paying the interest on the FICO bonds, "BIF-assessable
deposits" means deposits that are subject to assessments under BIF. The term
"SAIF-assessable deposits" means deposits that are assessable under SAIF and
includes any deposits that were assumed after March 31, 1995 if the insured
institution from which the deposits were acquired is not insured when the SAIF
special assessment is imposed.
The Deposit Insurance Funds Act also provides that, as of the date of
enactment and ending on the earlier of December 31, 1999 or the date that the
last savings association ceases to exist, the federal banking agencies must take
appropriate action to prohibit
-12-
<PAGE>
deposit shifting from SAIF to BIF, including enforcement actions, denial of
applications, or imposing exit and interest fees as if the transaction qualified
as a conversion. The legislation requires the Office of the Comptroller of the
Currency, the FDIC, the Federal Reserve Board, and the Office of Thrift
Supervision to take necessary actions to prevent insured depository institutions
and depository institution holding companies from facilitating or encouraging
the shifting of deposits from SAIF assessable to BIF-assessable for the purpose
of evading the assessments imposed on SAIF-assessable deposits. The FDIC may
issue regulations to prevent deposit shifting. It is a rule of construction,
however, that this portion of the Deposit Insurance Funds Act does not prohibit
an institution from engaging in conduct or activity that is part of the ordinary
course of business and is not directed at depositors of an insured affiliated
institution.
The Deposit Insurance Funds Act also provides for the merger of BIF and
SAIF into the Deposit Insurance Fund (DIF) on January 1, 1999, if no insured
depository institution is a "savings association" on that date. If an insured
savings association still exists on January 1, 1999, the Deposit Insurance Funds
Act does not make provision for the merger of the funds to occur on a subsequent
date. For purposes of the BIF/SAIF merger, the term "savings association" is
defined as having the same meaning as it does in (S) 3(b) of the FDI Act (12
U.S.C. (S) 1813(b)), and thus includes both federal and state savings
associations.
If immediately before the merger, the SAIF reserve ratio exceeds the DRR,
the excess will be placed in DIF's special reserve. While the DIF special
reserve will not be included for purposes of calculating the DIF DRR and the
FDIC can not refund any amount in the special reserve, it can be drawn upon for
emergency purposes if the reserve ratio of the DIF should drop below 50% of its
DRR for a sustained period of time. This portion of the Deposit Insurance Funds
Act also makes conforming changes to the FDI Act and other provisions of law
effective on January 1, 1999 if the funds are so merged. If the funds are not
merged, the Deposit Insurance Fund Act establishes an SAIF special reserve as of
January 1, 1999 that will consist of the excess in the SAIF over the DRR as of
that date. While the amount in the SAIF special reserve can not be used to
calculate any future DRR and can not be used for refunds from the SAIF, it would
be available for emergency purposes if the reserve ratio of the SAIF is less
than 50% of its DRR for a sustained period of time.
The Deposit Insurance Funds Act also required the FDIC on such basis as it
deems appropriate to refund any amounts in excess of the DRR to BIF members and,
after it is established, to DIF members. There are no similar provisions for
refunds to SIF members. A member can not, however, receive any refund for any
semi-annual assessment period that exceeds the assessment paid during that
period. Institutions that are not "well-capitalized"
-13-
<PAGE>
or that have other weaknesses are not eligible for refunds. The refund provision
becomes effective as of the end of any semi-annual assessment period beginning
after the date of enactment of the Deposit Insurance Funds Act.
Capital Requirements
- --------------------
The Department of Banking and Finance of the State of Georgia requires that
de novo banks in Georgia maintain a minimum ratio of primary capital, as
defined, to total assets of not less than eight percent (8%) during the first
three years of operation, and thereafter at six percent (6%). Additionally,
banks and their holding companies are subject to certain risk-based capital
requirements based on their respective asset composition. Management believes
as of December 31, 1997, the Company and the Bank meet all capital adequacy
requirements to which they are subject.
Monetary Policy
- ---------------
The earnings of the Bank are affected by domestic and foreign economic
conditions, particularly by the monetary and fiscal policies of the United
States Government and its agencies.
The Federal Reserve has had, and will continue to have, an important impact
on the operating results of commercial banks through its power to implement
national monetary policy in order, among other things, to mitigate recessionary
and inflationary pressures by regulating the national money supply.
The techniques used by the Federal Reserve include setting the reserve
requirements of member banks and establishing the discount rate on member banks'
borrowings. The Federal Reserve also conducts open market transactions in
United States Government securities.
Periodically, bills are pending before the United States Congress which
contain wide-ranging proposals for altering the structures, regulations and
competitive relationships of the nation's financial institutions. Among such
bills are proposals to prohibit banks and bank holding companies from conducting
certain types of activities, to subject banks to increased disclosure and
reporting requirements, to eliminate on a regional or other basis the present
restriction on interstate expansion by banks or bank holding companies, to alter
the statutory separation of commercial and investment banking and to alter the
powers of thrift institutions and other competitors of banks. It cannot be
predicted whether or in what form any of these proposals will be adopted or the
extent to which the business of the Company may be affected thereby.
-14-
<PAGE>
ITEM 2. PROPERTIES.
The Company's corporate office and the Bank's main office are located at
827 Joe Frank Harris Parkway, S.E., Cartersville, Georgia 30120. The Bank's
office is a modern two-story building constructed in 1989 containing
approximately 10,005 square feet located on approximately one and one-half (1.5)
acres owned by the Bank. The Bank utilizes both floors of the building. On the
first floor, there are five inside teller and four drive-up teller windows along
with the new account and customer service representatives and three loan
offices. The second floor is devoted to administration. The Bank owns its
office properties without encumbrance.
The Bank's branch is located at 5827 Joe Frank Harris Parkway, Adairsville,
Georgia 30103. The land and building comprising the branch are wholly owned
assets of the Bank and are free of any encumbrances. The branch office is a
modern one-story building constructed in 1980 containing approximately 2,400
square feet located on approximately three-fourth (.75) acre. There are four
inside teller and two drive-up teller windows along with the new account and
customer service representatives and one loan officer.
In February, 1998, the Bank opened an operations center from which to
conduct bookkeeping, data processing, payroll, accounts payable, and investment
management functions. The Bank has leased the space in which the operations
center is located for a five-year term, with an option to renew thereafter for
five consecutive 12-month periods. The terms of the lease agreement require the
Bank to perform normal maintenance on the premises and to pay for insurance
thereon and provide its own utilities. The total obligation to the Bank through
the end of the initial five-year lease term is $114,400.00.
In management's opinion, each of the above-described properties is
adequately covered by insurance.
ITEM 3. LEGAL PROCEEDINGS.
The Company and the Bank are not parties to, nor is any of their property
the subject of, any material pending legal proceedings, other than ordinary
routine litigation incidental to their business, and no such proceedings are
known to be contemplated by governmental authorities. There are no material
legal proceedings to which any director, officer, affiliate or more than 5%
shareholder is a party adverse to or that has a material interest adverse to the
Company or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of shareholders of the Company during the
fourth quarter ended December 31, 1997.
-15-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The stock of the Company is not traded publicly and no specific market
sales prices can be quoted. The Company has maintained partial records of share
prices based upon actual transactions disclosed. However, these records are
incomplete since they do not reflect prices for all transactions in the common
stock of the Company. To the extent such information has been disclosed to the
Company, the share prices of the common stock of the Company are as follows:
================================================================================
YEAR/QUARTER HIGH SELLING PRICE LOW SELLING PRICE
- --------------------------------------------------------------------------------
1996
- --------------------------------------------------------------------------------
First Quarter $15.30 $15.30
- --------------------------------------------------------------------------------
Second Quarter $15.51 $15.51
- --------------------------------------------------------------------------------
Third Quarter $16.17 $16.17
- --------------------------------------------------------------------------------
Fourth Quarter $20.00 $17.11
- --------------------------------------------------------------------------------
1997
- --------------------------------------------------------------------------------
First Quarter $20.00 $20.00
- --------------------------------------------------------------------------------
Second Quarter $25.25 $20.00
- --------------------------------------------------------------------------------
Third Quarter $----* $----*
- --------------------------------------------------------------------------------
Fourth Quarter $25.25 $25.25
================================================================================
During the period covered by this report and to date, sales not reported to
management may have occurred at share prices not reflected in this table.
As of March 1, 1998, the Company had 816 shareholders of record. As of
January, 1995 the Company has appointed Mellon Trust Securities Corporation as
official transfer and paying agent for all stock transactions and dividend
payments.
Under the Georgia Business Corporation Code, the Company may from time to
time make distributions, including the payment of dividends, to its shareholders
in money, indebtedness, or other property (except its own shares) unless, after
giving effect to such distribution, the Company would not be able to pay its
debts as they become due in the usual course of business or the Company's total
assets would be less than the sum of its total liabilities, plus the amount that
would be needed, if the Company were to be dissolved at the time of the
distribution, to satisfy any preferential rights of shareholders upon
dissolution. The Company may also distribute its shares pro rata and without
consideration to its shareholders or to the shareholders of one or more classes
or series, which constitutes a share dividend.
In the absence of other activities conducted by the Company, its ability to
pay dividends will depend on the earnings of the Bank. At December 31, 1994,
the Board of Directors of the Company had declared the first dividend since
organization to shareholders in the amount of $.25 per share for a total of
$103,776.00 payable in January, 1995. In 1996, the Board declared a cash
dividend of $.30 per share for a total of $124,531.00 payable. The Company
declared no dividend in 1995. During 1997, the Board declared a 2% share
dividend to shareholders of record on March 1, 1997, and payable on May 1, 1997.
Based on the number of shares of the Company's $1.00 par value common stock
issued and outstanding as of the record date, 8,258 shares were issued in
payment of this dividend. General legal requirements applicable to the payments
of dividends, actual financial results and capital needs, in the opinion of
management, will determine the payment of dividends in the future. At December
31, 1997, total stockholders' equity of the Bank aggregated $8,089,564.00.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
[Management's Discussion and Analysis begins on next page]
- ---------------------
* No trades of which the Company is aware occurred during the third quarter
of 1997.
-16-
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The following is a discussion of the financial condition of First Community
Bancorp, Inc. (the Company) and subsidiary at December 31, 1997 and 1996 and the
results of operations for the years ended December 31, 1997 and 1996. The
purpose of this discussion is to focus on information about the Company's
financial condition and results of operations which are not otherwise apparent
from the audited consolidated financial statements. Reference should be made to
those statements and the selected financial data presented elsewhere in this
report for an understanding of the following discussion and analysis.
Overview
The subsidiary bank, First Community Bank & Trust (the Bank), was incorporated
on July 11, 1988 and commenced business on October 23, 1989. During 1989, First
Community Bancorp, Inc. (the Company) was formed and all 415,103 shares of
common stock of the Bank were acquired by the Company. The Company has had
continued steady growth in earning assets, deposits and net income since 1989,
the year operations began. The table below summarizes the growth in earning
assets, deposits and net income for the previous five years:
(Dollars in Thousands)
1997 1996 1995 1994 1993
-----------------------------------------------------
Earning assets $85,764 $72,704 $59,337 $53,412 $44,860
Deposits 77,676 65,374 55,854 50,735 42,006
Net income 1,449 1,238 993 587 787
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE>
Financial Condition at December 31, 1997 and 1996
Following is a summary of the Company's balance sheets for the periods
indicated:
December 31,
1997 1996 Increase (Decrease)
(Dollars in Thousands) Amount Percent
Cash and due from banks $ 1,569 $3,685 $ (2,116) (57.42)%
Interest-bearing deposits in banks 712 3,739 (3,027) (80.96)
Securities 17,546 14,529 3,017 20.77
Loans, net 66,371 53,522 12,849 24.01
Premises and equipment 1,890 1,778 112 6.30
Other assets 2,864 1,968 896 45.53
------ ------ ------
$ 90,952 $79,221 $ 11,731 14.81%
====== ====== ======
Deposits $ 77,676 $65,374 $ 12,302 18.82
Other borrowings 3,292 5,348 (2,056) (38.44)
Other liabilities 1,894 1,610 284 17.64
Stockholders' equity 8,090 6,889 1,201 17.43
------ ------ ------
$ 90,952 $79,221 $ 11,731 14.81%
====== ====== ======
Financial Condition at December 31, 1997 and 1996
As indicated in the above table, the Company's assets increased 14.81% during
1997. The growth was due primarily to the growth of Bartow County, the Company's
primary market area, as the county is increasingly becoming a part of the
expanding metropolitan Atlanta area. The most significant increase was in loans,
which is a direct result of the growth of the market area. Securities increased
as a result of increases in deposits. The increase was comprised of $7,580,471
in purchases of investment securities net of $2,486,909 of maturities and net of
$2,386,999 of sales of available for sale securities. The loan to deposit ratio
of the Company increased from 83.27% in 1996 to 86.91% in 1997. Deposit growth
of $12,302,000 during 1997 was used to fund the additional loan demand and
replaced other borrowings from the Federal Home Loan Bank of Atlanta.
The Board of Directors opted to declare a 2% stock dividend during 1997,
therefore net earnings of $1,448,524 (net of $842 cash dividend for partial
shares) were retained by the Company. Also, the unrealized gain on
available-for- sale securities, net of taxes, increased by $79,448 during 1997.
Stock options were exercised for $38,373 during 1997. This cash and an
additional $15,536 was used to repurchase 2,135 shares of treasury stock for
$53,909. Since the Company is not publicly traded, generally accepted
accounting principles required a book entry reducing retained earnings by
$311,610. This represents the maximum cash outlay expected should participants
of the KSOP employee benefit plan exercise put options on redeemable common
stock held by the KSOP. This amount was determined by the approximate market
value of the stock as determined by an independent appraisal firm.
<PAGE>
The Company has a significant concentration of its loan portfolio secured by
real estate located in the Company's primary market area of Bartow County. The
Company's real estate mortgage and construction portfolio consists of loans
collateralized by one to four family residential properties, multi-family
residential properties and nonresidential properties, which consists primarily
of small business commercial properties. The Company generally requires that the
loan values not exceed 75% to 85% of the collateral values for these types of
real estate lending.
The primary risk associated with the Company's real estate portfolio is that a
downturn in the economy could negatively impact the values of the real estate
which is held as collateral for these loans. Also, an economic downturn could
also increase unemployment rates in the Company's market area. These risks could
affect the borrower's ability to repay the loans as well as the Company's
ability to recover its investment if repayment is dependent upon the liquidation
of the collateral. The Company reduces these risks not only by adherence to loan
to value guidelines, but also by investigating the creditworthiness of the
borrower and monitoring the borrower's financial position. Currently, real
estate values and employment trends in the Company's market area are stable with
no indications of a significant downturn in the general economy.
Liquidity and Capital Resources
The purpose of liquidity management is to ensure that there are sufficient cash
flows to satisfy demands for credit, deposit withdrawals and other needs of the
Company. Traditional sources of liquidity include asset maturities and growth in
core deposits. A company may achieve its desired liquidity objectives from the
management of assets and liabilities, and through funds provided by operations.
Funds invested in short-term marketable instruments and the continuous maturing
of other earning assets are sources of liquidity from the asset perspective. The
liability base provides sources of liquidity through deposit growth, the
maturity structure of liabilities and accessibility to market sources of funds.
Scheduled loan payments are a relatively stable source of funds, but loan
payoffs and deposit flows fluctuate significantly, being influenced by interest
rates and general economic conditions and competition. The Company attempts to
price its deposits to meet its asset/liability objectives consistent with local
market conditions.
The liquidity and capital resources of the Company are monitored on a periodic
basis by State and Federal regulatory authorities. As determined under
guidelines established by those regulatory authorities and internal policy, the
Company's liquidity is considered adequate.
<PAGE>
At December 31, 1997, the Company had loan commitments and letters of credit
outstanding of $10,461,000 and $293,000, respectively. Because these commitments
generally have fixed expiration dates and many will expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements. If needed, the Company has the ability on a short-term basis, to
borrow and purchase Federal funds from other financial institutions. At December
31, 1997, the Bank has arrangements with commercial banks for additional
short-term unsecured advances of approximately $2,750,000 and a line secured by
unpledged investment securities, which had available credit of $11,649,930.
Additionally, the Company had short and long term lines of credit totalling
approximately $6,804,100 available from the Federal Home Loan Bank of Atlanta at
December 31, 1997. This line of credit is secured by a blanket lien on the
Company's real estate loan portfolio.
At December 31, 1997, the subsidiary Bank's capital ratios were considered
adequate based on regulatory minimum capital requirements. The Bank's common
stockholders' equity increased due to the retention of net earnings of
$1,029,111. The Bank's stockholders' equity also increased due to the effect of
unrealized gains in the available for sale investment portfolio of $79,448. For
regulatory purposes, the net unrealized losses on securities available for sale,
net of taxes, are not considered in the computation of the capital ratios.
The primary source of funds available to the Company is the payment of dividends
by its subsidiary Bank. Banking regulations limit the amount of the dividends
that may be paid without prior approval of the Bank's regulatory agency.
Approximately $730,000 are available to be paid as dividends by the Bank at
December 31, 1997.
The minimum capital requirements to be considered well-capitalized under prompt
corrective action regulatory guidelines and the actual capital ratios for the
subsidiary bank as of December 31, 1997 are as follows:
Regulatory
Actual Requirement
------ -----------
Leverage capital ratio 8.77% 5.00%
Risk-based capital ratios:
Core capital 12.89 6.00
Total capital 14.15 10.00
The Company is not aware of any known trends, events or uncertainties that will
have or that are reasonably likely to have a material effect on its liquidity,
capital resources or operations. The Company is also not aware of any current
recommendations by the regulatory authorities which, if they were implemented,
would have such an effect.
<PAGE>
Effects of Inflation
- --------------------
The impact of inflation on banks differs from its impact on non-financial
institutions. Banks, as financial intermediaries, have assets which are
primarily monetary in nature and which tend to fluctuate in concert with
inflation. A bank can reduce the impact of inflation if it can manage its rate
sensitivity gap. This gap represents the difference between rate sensitive
assets and rate sensitive liabilities. The Company, through its asset-liability
committee, attempts to structure the assets and liabilities and manage the rate
sensitivity gap, thereby seeking to minimize the potential effects of inflation.
For information on the management of the Company's interest rate sensitive
assets and liabilities, see the "Asset/Liability Management" section.
Capability of the Company's Data Processing Software to Accommodate the Year
- ----------------------------------------------------------------------------
2000
- ----
Like many financial institutions, the Company and its subsidiary rely upon
computers for the daily conduct of their business and for data processing
generally. There is concern among industry experts that commencing on January
1, 2000, computers will be unable to "read" the new year and that there may be
widespread computer malfunctions. Management of the Company has assessed the
electronic systems, programs, applications, and other electronic components used
in the operations of the Company and believes that the Company hardware and
software has been programmed to be able to accurately recognize the year 2000
issue, although there can be no assurances in this regard.
Results of Operations For The Years Ended December 31, 1997 and 1996
Following is a summary of the Company's operations for the periods indicated.
Year Ended December 31,
1997 1996 Increase (Decrease)
(Dollars in Thousands) Amount Percent
Interest income $ 7,985 $ 6,828 $ 1,157 16.94%
Interest expense 3,175 2,683 492 18.38
Net interest income 4,810 4,145 665 16.04
Provision for loan losses 300 216 84 38.89
Other income 723 639 84 13.14
Other expense 3,039 2,666 373 13.99
Pretax income 2,194 1,902 292 15.35
Income taxes 745 664 81 12.20
----- ----- ----
Net income $ 1,449 $ 1,238 $ 211 17.04%
===== ===== ====
Net Interest Income
- -------------------
The Company's results of operations are determined by its ability to effectively
manage interest income and expense, to minimize loan and investment losses, to
generate non-interest income and to control operating expenses. Since interest
rates are determined by market forces and economic conditions beyond the control
of management, The Company's ability to generate net interest income is
dependent upon its ability to obtain an adequate net interest spread between the
rate paid on interest-bearing liabilities and the rate earned on
interest-earning assets.
<PAGE>
The net yield on average interest-earning assets decreased in 1997 to 6.13% from
6.16% in 1996. This insignificant decrease was due primarily to an increase in
net average interest-earning assets being offset by slight decreases in rates.
The yield on interest earning assets was 10.18% in 1997 compared to 10.15% in
1996. Yields on loans decreased to 11.53% in 1997 compared to 11.89% in 1996.
This decrease was largely due the increased competition forcing lower rates on
the maturing portfolio. Average interest-earning assets increased overall by
$11,182,000 or 16.62%. Average interest-bearing liabilities increased by
$9,260,000 or 17.12%, while the overall cost of funds increased from 4.96% in
1996 to 5.01% in 1997.
Provision for Loan Losses
- -------------------------
The provision for loan losses increased by $84,000 during 1997 or 38.89%. The
allowance for loan loss amounted to $1,135,477 or 1.68% of total loans
outstanding at December 31, 1997 as compared to $914,266 or 1.68% of total loans
outstanding at December 31, 1996. The increase in the amount of the reserve was
due to increased loan growth during the year. There were no nonaccrual loans at
December 31, 1997. However, there was other real estate owned totalling
$112,000. Based upon management's evaluation of the loan portfolio, management
believes the reserve for loan losses is adequate to absorb possible losses on
existing loans that may become uncollectible. This evaluation considers past
loan loss experience, past due and classified loans, underlying collateral
values and current economic conditions which may affect the borrower's ability
to pay.
Other Income
- ------------
Other operating income consists principally of service charges on deposit
accounts which increased in 1997 ($536,537 in 1997 and $473,412 in 1996).
Non-interest bearing demand, interest-bearing demand and savings accounts
increased 9.25% during 1997 as compared to an increase of 13.33% in the above
service charges. Other income increased $30,576 during 1997 primarily due to
$38,822 gain on the sale of loans. Management sold available-for-sale securities
generating funds of $2,191,423 which was used for the purchase of tax-free
school, county and municipal obligations. The higher tax equivalent yields on
these new investments were more than sufficient to offset the $9,229 net
realized losses on securities available-for-sale before the end of 1997.
Non-interest Expenses
- ---------------------
The increase in non-interest expenses were due primarily to the growth in the
Company which resulted in increased non-interest expenses of $372,258 in 1997 or
13.96%. Salaries and employee benefits and other operating expenses are the
primary components of non-interest expense. Salaries and employee benefits
increased to $1,760,140 in 1997 from $1,452,141 in 1996. This increase is
attributable to the increases in the average wages paid to employees, and the
related payroll tax costs. Other operating expenses increased to $808,398 in
1997 from $802,660 in 1996.
<PAGE>
Income Tax
- ----------
Income taxes, as a percentage of pre-tax income, decreased in 1997 to 34% from
35% in 1996. This was primarily due to the increased investment in tax exempt
investment securities during 1997.
Asset/Liability Management
- --------------------------
It is the Company's objective to manage assets and liabilities to provide a
satisfactory, consistent level of profitability within the framework of
established cash, loan, investment, borrowing and capital policies. Certain
officers are charged with the responsibility for monitoring policies and
procedures that are designed to ensure an acceptable composition of the
asset/liability mix. It is the overall philosophy of management to support asset
growth primarily through growth of core deposits of all categories made by
individuals, partnerships and corporations.
The Company's asset/liability mix is monitored on a regular basis with a report
reflecting the interest rate sensitive assets and interest rate sensitive
liabilities being prepared and presented to the Board of Directors of the Bank
on a monthly basis. The objective of this policy is to monitor interest rate
sensitive assets and liabilities so as to minimize the impact of substantial
movements in interest rates on earnings. An asset or liability is considered to
be interest rate-sensitive if it will reprice or mature within the time period
analyzed, usually one year or less. The interest rate-sensitivity gap is the
difference between the interest-earning assets and interest-bearing liabilities
scheduled to mature or reprice within such time period. A gap is considered
positive when the amount of interest rate-sensitive assets exceeds the amount of
interest rate-sensitive liabilities. A gap is considered negative when the
amount of interest rate-sensitive liabilities exceeds the interest
rate-sensitive assets. During a period of rising interest rates, a negative gap
would tend to adversely affect net interest income, while a positive gap would
tend to result in an increase in net interest income. Conversely, during a
period of falling interest rates, a negative gap would tend to result in an
increase in net interest income, while a positive gap would tend to adversely
affect net interest income. If the Company's assets and liabilities were equally
flexible and move concurrently, the impact of any increase or decrease in
interest rates on net interest income would be minimal.
A simple interest rate "gap" analysis by itself may not be an accurate indicator
of how net interest income will be affected by changes in interest rates.
Accordingly, the Company also evaluates how the repayment of particular assets
and liabilities is impacted by changes in interest rates. Income associated with
interest-earning assets and costs associated with interest-bearing liabilities
may not be affected uniformly by changes in interest rates. In addition, the
magnitude and duration of changes in interest rates may have a significant
impact on net interest income. For example, although certain assets and
liabilities may have similar maturities or periods of repricing, they may react
in different degrees to changes in market interest rates. Interest rates on
certain types of assets and liabilities fluctuate in advance of changes in
general market rates, while interest rates on other types may lag behind changes
in general market rates. In addition, certain assets, such as adjustable rate
mortgage loans, have features (generally referred to as "interest rate caps and
floors") which limit changes in interest rates. Prepayment and early withdrawal
levels also could deviate significantly from those assumed in calculating the
interest rate gap. The ability of many borrowers to service their debts also may
decrease during periods of rising interest rates.
<PAGE>
Changes in interest rates also affect the Company's liquidity position. The
Company currently prices deposits in response to market rates and it is
management's intention to continue this policy. If deposits are not priced in
response to market rates, a loss of deposits could occur which would negatively
affect the Company's liquidity position.
At December 31, 1997, the Company's cumulative one year interest rate
sensitivity gap ratio was 93.12%. The Company's targeted ratio is 90% to 120% in
this time horizon. This indicates that the Company's interest-bearing
liabilities will reprice during this period at a rate slightly faster than the
Company's interest-earning assets. The Company is within its targeted parameters
and net interest income should not be significantly affected by changes in
interest rates. It is also noted that over 72% of the Company's certificates of
deposit greater than $100,000 mature within the one year time horizon. The
majority of these deposits are from established customers. It is management's
belief that as long as the Company pays the prevailing market rate on these type
deposits, the Company's liquidity, while not assured, will not be negatively
affected.
The following table sets forth the distribution of the repricing of the
Company's interest-earning assets and interest-bearing liabilities as of
December 31, 1997, the interest rate sensitivity gap, the cumulative interest
rate sensitivity gap, the interest rate sensitivity gap ratio and the cumulative
interest rate sensitivity gap ratio. The table also sets forth the time periods
in which earning assets and liabilities will mature or may reprice in accordance
with their contractual terms. However, the table does not necessarily indicate
the impact of general interest rate movements on the net interest margin since
the repricing of various categories of assets and liabilities is subject to
competitive pressures and the needs of the Company's customers. In addition,
various assets and liabilities indicated as repricing within the same period
may, in fact, reprice at different times within such period and at different
rates.
<PAGE>
Asset/Liability Management
<TABLE>
<CAPTION>
After After
Three One Year
Months But
Within But Within After
Three Within Five Five
Months One Year Years Years Total
------ -------- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits $ 712 $ -- $ -- $ -- $ 712
Securities (2) 2,338 5,190 6,506 2,675 16,709
Loans 31,889 7,047 27,465 1,104 67,505
------ ------ ------ ----- ------
Total interest earning assets $ 34,939 $ 12,237 $ 33,971 $ 3,779 $ 84,926
====== ====== ======= ===== =======
Interest-bearing liabilities:
Interest-bearing demand deposits $ 18,342 $ -- $ -- $ -- $ 18,342
Savings 4,913 -- -- -- 4,913
Time deposits, less than $100,000 2,203 15,209 14,906 -- 32,318
Time deposits, $100,000 and over 4,875 3,825 2,232 -- 10,932
Other borrowings (1) 326 850 2,000 -- 3,169
------ ------ ------ ----- ------
Total interest-bearing liabilities $ 30,655 $ 19,884 $ 19,138 $ -- $ 69,674
------ ------ ------ ----- ------
Interest rate sensitivity gap $ 4,284 $ (7,647) $ 14,833 $ 3,779 $ 15,125
====== ====== ======= ===== =======
Cumulative interest rate
sensitivity gap $ 4,284 $ (3,487) $ 11,346 $ 15,125
====== ====== ======= =====
Interest rate sensitivity gap ratio 1.14 0.62 1.78 -----
====== ====== ======= =====
Cumulative interest rate
sensitivity gap ratio 1.14 .93 1.16 1.22
====== ====== ======= =====
</TABLE>
(1) The above amounts do not include approximately $123,000 of non-interest
bearing advances from the Federal Home Loan Bank as described in the
consolidated financial statements.
<PAGE>
SELECTED FINANCIAL INFORMATION AND STATISTICAL DATA
The tables and schedules on the following pages set forth certain significant
financial information and statistical data with respect to: the distribution of
assets, liabilities and stockholders' equity of the Company, the interest rates
and interest differentials experienced by the Company; the investment portfolio
of the Company; the loan portfolio of the Company, including types of loans,
maturities and sensitivities of loans to changes in interest rates and
information on nonperforming loans; summary of the loan loss experience and
reserves for loan losses of the Company; types of deposits of the Company and
the return on equity and assets for the Company.
Interest Income and Interest Expense
The following tables set forth the amount of the Company's interest income and
interest expense for each category of interest-earning assets and
interest-bearing liabilities and the average interest rate for total
interest-earning assets and total interest-bearing liabilities, net interest
spread and net yield on average interest-earning assets. (1)
Distribution of Assets, Liabilities and Stockholders' Equity
Interest Rates and Interest Differentials
<TABLE>
<CAPTION>
1997 1996
---- ----
Average Income or Yields/ Average Income or Yields/
Balances Expense Rates Balances Expense Rates
-------- --------- ------- -------- --------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest bearing deposits in banks 2,228 136 6.10% 3,026 162 5.35%
Taxable securities 11,904 684 5.75 12,971 696 5.37
Nontaxable securities(4) 3,630 167 4.60 1,659 74 4.46
Unrealized losses on AFS 14 -- -- (58) -- --
Loans (2) (3) 60,674 6,998 11.53 49,598 5,896 11.89
Allowance for loan losses (1,035) (826)
Cash and due from banks 2,832 2,531
Other assets 4,271 3,546
------ ----- ------ -----
Total 84,518 7,985 72,447 6,828
====== ===== ====== =====
Total average interest-earning assets 78,436 10.18% 67,254 10.15%
====== ======
Noninterest-bearing demand 11,960 10,594
Interest-bearing demand & savings 20,528 579 2.82 19,333 588 3.04
Time 38,852 2,389 6.15 31,607 1,950 6.17
------ ----- ---- ------ ----- ----
Total deposits 71,340 2,968 61,534 2,538
Borrowings 3,964 208 5.25 3,144 145 4.61
Other liabilities 1,876 1,553
Stockholders' equity 7,338 6,216
------ ----- ------ -----
Total 84,518 3,176 72,447 2,683
====== ===== ====== =====
Total interest-bearing liabilities 63,344 5.01% 54,084 4.96%
======= ====== ====
Net interest income 4,809 4,145
===== =====
Net interest spread 5.17% 5.19%
==== ====
Net yield on average interest-earning assets 6.13% 6.16%
==== ====
</TABLE>
(1) Average balances were determined using the daily average balances
during the year for each category.
(2) Average loans include nonaccrual loans and are stated net of unearned
income.
(3) Interest and fees on loans includes $692,649 and $669,192 of loan fee
income for the years ended December 31, 1997 and 1996, respectively. There
was no significant amount of interest income recognized during 1997 or
1996 on nonaccrual loans.
(4) Yields on nontaxable securities have not been computed on a tax equivalent
basis.
<PAGE>
Rate and Volume Analysis
The following table describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected the Company's interest income and expense during the year
indicated. For each category of interest-earning asset and interest-bearing
liability, information is provided on changes attributable to (1) change in
volume (change in volume multiplied by old rate); (2) change in rate (change in
rate multiplied by old volume); and (3) a combination of change in rate and
change in volume. The changes in interest income and interest expense
attributable to both volume and rate have been allocated proportionately on a
consistent basis to the change due to volume and the change due to rate.
1996 to 1997
Increase (decrease)
due to change in
Rate Volume Total
---- ------ -----
(Dollars in Thousands)
Income from interest-earning assets:
Interest and fees on loans $ (180) $ 1,282 $ 1,102
Interest on taxable securities 50 (62) (12)
Interest on nontaxable securities 3 90 93
Interest on interest bearing deposits 20 (46) (26)
---- ----- -----
Total interest income $ (107) $ 1,264 $ 1,157
---- ----- -----
Expense from interest-bearing liabilities:
Interest on interest-bearing
demand and savings deposits $ 15 $ (24) $ (9)
Interest on time deposits (6) 445 441
Interest on other borrowings 21 42 58
---- ----- -----
Total interest expense $ 30 $ 463 $ 492
---- ----- -----
Net interest income $ (137) $ 801 $ 709
==== ===== =====
<PAGE>
INVESTMENT PORTFOLIO
Types of Investments
The carrying amounts of investment securities at the dates indicated are
summarized as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
(Dollars in Thousands)
<S> <C> <C>
U.S. Treasury and other U.S. Government agencies and corporations $ 9,480 $ 9,248
Municipal securities 4,950 2,581
Mortgage-backed securities 2,278 1,708
Equity securities (3) 837 992
------ ------
$ 17,545 $ 14,529
====== ======
</TABLE>
Maturities
The amounts of investment securities in each category as of December 31, 1997
are shown in the following table according to contractual maturity
classifications (1) one year or less, (2) after one year through five years, (3)
after five years through ten years and (4) after ten years.
<TABLE>
<CAPTION>
After one year After five years
One year or less through five years One year or less After ten years Total
Amount Yield(1) Amount Yield(1) Amount Yield(1) Amount Yield(1) Amount Yield(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
other U.S. Government
agencies and corporations $ 3,300 4.99% $ 6,180 6.22% $ --- --- $ -- -- $ 9,480 5.79%
Municipal securities (2) 1,019 4.87 2,400 4.58 1,041 5.02 490 5.19 4,950 4.78
Mortgage-backed securities 500 5.06 545 6.99 482 6.21 751 6.38 2,278 6.20
---------------------------------------------------------------------------------------------------
$ 4,819 4.98% $ 9,125 5.83% $ 1,523 5.40% $ 1,241 5.91% $16,708 5.55%
====== ====== ====== ====== ======
</TABLE>
(1) Yields were computed using coupon interest, adding discount accretion or
subtracting premium amortization, as appropriate, on a ratable basis over
the life of each security. The weighted average yield for each maturity
range was computed using the carrying value of each security in that range.
(2) Yields on municipal securities have not been computed on a tax equivalent
basis.
(3) Equity securities have not been included in the above maturity analysis
because they have no contractual maturity.
<PAGE>
LOAN PORTFOLIO
Types of Loans
The amount of loans outstanding at the indicated dates are shown in the
following table according to the type of loan.
December 31,
1997 1996
(Dollars in Thousands)
Commercial, financial and agricultural $ 10,230 $ 9,404
Real estate-construction 17,020 12,576
Real estate-mortgage 32,453 25,240
Consumer instalment and other 8,627 7,216
------ ------
67,507 54,436
Allowance for loan losses (1,135) (914)
------ ------
Net loans $ 66,372 $ 53,522
====== ======
Maturities and Sensitivities of Loans to Changes in Interest Rates
Total loans as of December 31, 1997 are shown in the following table according
to contractual maturity classifications (1) one year or less, (2) after one year
through five years and (3) after five years. The disclosure of loans by the
required categories, commercial, financial, agricultural and real estate
construction, is not available and would involve undue burden and expense to the
Company. In making this determination, the Company has considered the estimated
cost to compile the required information and its current and future electronic
data processing capability.
(Dollars in Thousands)
Maturity:
One year or less $ 27,892
After one year through five years 27,094
After five years 12,521
------
$ 67,507
======
The following table summarizes loans at December 31, 1997 with the due dates
after one year which have predetermined and floating or adjustable interest
rates.
(Dollars in Thousands)
Predetermined interest rates $ 24,946
Floating or adjustable interest rates 14,669
------
$ 39,615
======
<PAGE>
Risk Elements
Information with respect to nonaccrual, past due and restructured loans at
December 31, 1997 and 1996 is as follows:
December 31,
1997 1996
(Dollars in Thousands)
Nonaccrual loans $ -- $ --
Loans contractually past due ninety days or more
as to interest or principal payments and still accruing 96 80
Restructured loans -- --
Loans, now current about which there are serious
doubts as to the ability of the borrower to comply
with loan repayment terms -- --
Interest income that would have been recorded on
nonaccrual and restructured loans under original terms -- --
Interest income that was recorded on nonaccrual and
restructured loans -- --
It is the policy of the Bank to discontinue the accrual of interest income when,
in the opinion of management, collection of such interest becomes doubtful. This
status is accorded such interest when (1) the asset is maintained on a cash
basis because of deterioration in the financial condition of the borrower, (2)
the full repayment of principal and interest is not expected and (3) the
principal or interest is more than ninety days past due, unless the loan is both
well-secured and in the process of collection.
Loans classified for regulatory purposes as loss, doubtful, substandard, or
special mention that have not been included in the table above do not represent
or result from trends or uncertainties which management reasonably expects will
materially impact future operating results, liquidity or capital resources.
These classified loans do not represent material credits about which management
is aware of any information which causes management to have serious doubts as to
the ability of such borrowers to comply with the loan repayment terms.
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes average loan balances for each year determined
using the daily average balances during the year; changes in the reserve for
possible loan losses arising from loans charged off and recoveries on loans
previously charged off; additions to the reserve which have been charged to
operating expense; and the ratio of net charge-offs during the period to average
loans.
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996
(Dollars in Thousands)
<S> <C> <C>
Average amount of loans outstanding $ 60,674 $ 49,598
====== ======
Balance of allowance for loan losses
at beginning of period $ 914 $ 705
------ ------
Loans charged off
Commercial, financial and agricultural $ (1) $ (6)
Real estate loans (6) ---
Instalment (129) (81)
------ ------
$ (136) $ (87)
------ ------
Loans recovered
Commercial, financial and agricultural $ 1 $ 23
Real estate loans 1 6
Instalment 55 51
------ ------
$ 57 $ 80
------ ------
Net charge-offs $ (79) $ (7)
------ ------
Additions to allowance charged to operating
expense during period $ 300 $ 216
------ ------
Balance of allowance for loan losses
at end of period $ 1,135 $ 914
------ ------
Ratio of net loans charged off during the
period to average loans outstanding 0.13% 0.01%
====== ======
</TABLE>
Allowance for Loan Losses
The allowance for loan losses is maintained at a level that is deemed
appropriate by management to adequately cover all known and inherent risks in
the loan portfolio. Management's evaluation of the loan portfolio includes a
continuing review of loan loss experience, current economic conditions which may
affect the borrower's ability to pay and the underlying collateral value of the
loans.
<PAGE>
As of December 31, 1997 and 1996, management had made no allocations of its
allowance for loan losses to specific categories of loans. Based on management's
best estimate, the allocation of the allowance for loan losses to types of loans
as of the indicated dates is as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
Percent of loans in Percent of loans in
each category each category
Amount to total loans Amount to total loans
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural $ 875 10.43% $ 366 17.28%
Real estate - construction 102 25.21 137 23.10
Real estate - mortgage 118 51.58 311 46.36
Consumer instalment and other 40 12.78 100 13.26
-- ----- --- -----
$ 1,135 100.00% $ 914 100.00%
===== ====== === ======
</TABLE>
<PAGE>
DEPOSITS
Average amount of deposits and average rates paid thereon, classified as to
noninterest-bearing demand deposits, interest-bearing demand and savings
deposits and time deposits, for the years indicated are presented below. (1)
Year Ended December 31,
1997 1996
Amount Percent Amount Percent
(Dollars in Thousands)
Noninterest-bearing demand deposits $ 11,960 --% $ 10,594 --%
Interest-bearing demand deposits & savings 20,528 2.82 19,333 3.04
Time deposits 38,852 6.15 31,607 6.17
------ ------
Total deposits $ 71,340 $ 61,534
====== ======
(1) Average balances were determined using the daily average balances during the
year for each category.
The amounts of time deposits issued in amounts of $100,000 or more as of
December 31, 1997 are shown below by category, which is based on time remaining
until maturity of (1) three months or less, (2) over three through six months,
(3) over six through twelve months and (4) over twelve months.
(Dollars in Thousands)
Three months or less $ 4,875
Over three through six months 1,623
Over six months through twelve months 2,202
Over twelve months 2,232
-------
Total $ 10,932
========
RETURN ON ASSETS AND STOCKHOLDERS' EQUITY
The following rate of return information for the years indicated is presented
below.
Year Ended December 31,
1997 1996
Return on assets (1) 1.74% 1.71%
Return on equity (2) 19.35 19.91
Dividend payout ratio (3) --- 10.07
Equity to assets ratio (4) 8.68 8.58
(1) Net income divided by average total assets.
(2) Net income divided by average equity.
(3) Dividends declared per share of common stock divided by diluted net income
per share.
(4) Average equity divided by average total assets.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
[Financial Statements being on next page]
-34-
<PAGE>
---------------------------------------
FIRST COMMUNITY BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1997
---------------------------------------
-35-
<PAGE>
FIRST COMMUNITY BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
-----------------
Page
INDEPENDENT AUDITOR'S REPORT..................................................1
FINANCIAL STATEMENTS
Consolidated balance sheets..............................................2
Consolidated statements of income........................................3
Consolidated statements of stockholders' equity..........................4
Consolidated statements of cash flows..............................5 and 6
Notes to consolidated financial statements............................7-33
-36-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
- --------------------------------------------------------------------------------
To the Board of Directors
First Community Bancorp, Inc.
and Subsidiary
Cartersville, Georgia
We have audited the accompanying consolidated balance sheets of First
Community Bancorp, Inc. and subsidiary as of December 31, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Community Bancorp, Inc. and subsidiary as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ Mauldin & Jenkins, LLC
Atlanta, Georgia
January 30, 1998
-37-
<PAGE>
FIRST COMMUNITY BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
==============================================================================================================================
Assets 1997 1996
----------------- ----------------
<S> <C> <C>
Cash and due from banks $ 1,568,785 $ 3,685,230
Interest-bearing deposits in banks 711,998 3,739,163
Securities available-for-sale 12,493,723 10,326,359
Securities held-to-maturity, at cost (fair value of $ 5,039,031
and $4,154,118) 5,051,607 4,202,450
Loans 67,506,857 54,436,430
Less allowance for loan losses 1,135,477 914,266
----------------- ----------------
Loans, net 66,371,380 53,522,164
Premises and equipment 1,890,272 1,778,201
Other assets 2,864,010 1,967,631
----------------- ----------------
Total assets $ 90,951,775 $ 79,221,198
================= ================
Liabilities, Redeemable Common Stock, and Stockholders' Equity
Deposits
Noninterest-bearing demand $ 11,170,681 $ 12,609,298
Interest-bearing demand 18,341,892 14,545,120
Savings 4,912,634 4,355,535
Time, $100,000 and over 10,932,354 8,952,875
Other time 32,318,480 24,910,718
----------------- ----------------
Total deposits 77,676,041 65,373,546
Other borrowings 3,291,650 5,348,450
Other liabilities 1,894,520 1,610,464
----------------- ----------------
Total liabilities 82,862,211 72,332,460
----------------- ----------------
Commitments and contingent liabilities
Redeemable common stock held by KSOP, 12,341 shares outstanding at December 31,
1997, at fair value,
net of Company loan to KSOP - -
Stockholders' equity
Common stock, par value $1; 10,000,000 shares
authorized; 427,745 and 415,103 issued, respectively 427,745 415,103
Capital surplus 3,861,349 3,627,104
Retained earnings 3,777,356 2,848,956
Treasury stock, 2,135 shares at December 31, 1997 (53,909) -
Unrealized gains (losses) on securities available-for-sale,
net of tax 77,023 (2,425)
----------------- ----------------
Total stockholders' equity 8,089,564 6,888,738
----------------- ----------------
Total liabilities, redeemable common stock,
and stockholders' equity $ 90,951,775 $ 79,221,198
================= ================
</TABLE>
See Notes to Consolidated Financial Statements.
-38-
<PAGE>
FIRST COMMUNITY BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1996
================================================================================
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
<S> <C> <C>
Interest income
Loans $ 6,998,384 $ 5,895,861
Taxable securities 684,335 696,228
Nontaxable securities 166,959 73,304
Deposits in banks 135,595 162,350
------------------- -------------------
Total interest income 7,985,273 6,827,743
------------------- -------------------
Interest expense
Deposits 2,967,625 2,537,622
Federal funds purchased - 889
Other borrowings 207,720 144,044
------------------- -------------------
Total interest expense 3,175,345 2,682,555
------------------- -------------------
Net interest income 4,809,928 4,145,188
Provision for loan losses 299,893 216,000
------------------- -------------------
Net interest income after provision for loan losses 4,510,035 3,929,188
------------------- -------------------
Other income
Service charges on deposit accounts 536,537 473,412
Other operating income 196,147 165,571
Net realized (losses) on securities available-for-sale (9,229) -
------------------- -------------------
Total other income 723,455 638,983
------------------- -------------------
Other expenses
Salaries and employee benefits 1,760,140 1,452,141
Equipment and occupancy expenses 470,251 411,730
Other operating expenses 808,398 802,660
------------------- -------------------
Total other expenses 3,038,789 2,666,531
------------------- -------------------
Income before income taxes 2,194,701 1,901,640
Income tax expense 745,335 664,102
------------------- -------------------
Net income $ 1,449,366 $ 1,237,538
=================== ===================
Basic earnings per common share $ 3.43 $ 2.98
=================== ===================
Diluted earnings per common share $ 3.38 $ 2.94
=================== ===================
</TABLE>
See Notes to Consolidated Financial Statements.
-39-
<PAGE>
FIRST COMMUNITY BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
================================================================================
<TABLE>
<CAPTION>
Unrealized
Gains (Losses)
on Securities
Common Stock Treasury Stock Available Total
---------------------- Capital Retained --------------------- for-Sale Stockholders'
Shares Par Value Surplus Earnings Shares Cost Net of Tax Equity
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 415,103 $ 415,103 $ 3,627,104 $ 1,735,949 - $ - $ (3,669) $ 5,774,487
Net income - - - 1,237,538 - - - 1,237,538
Cash dividends declared,
$.30 per share - - - (124,531) - - - (124,531)
Net change in unrealized
gains (losses) on
securities available-for-
sale, net of tax - - - - - - 1,244 1,244
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 415,103 415,103 3,627,104 2,848,956 - - (2,425) 6,888,738
Net income - - - 1,449,366 - - - 1,449,366
2% stock dividend 8,258 8,258 200,256 (209,356) - - - (842)
Exercise of stock options 4,384 4,384 33,989 - - - - 38,373
Purchase of treasury stock - - - - 2,135 (53,909) - (53,909)
Adjustment for shares
owned by KSOP - - - (311,610) - - - (311,610)
Net change in unrealized
gains (losses) on
securities available-for-
sale, net of tax - - - - - - 79,448 79,448
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 427,745 $ 427,745 $ 3,861,349 $ 3,777,356 2,135 $ (53,909) $ 77,023 $ 8,089,564
=========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
-40-
<PAGE>
FIRST COMMUNITY BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
==============================================================================================================================
1997 1996
----------------------- -----------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,449,366 $ 1,237,538
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 222,143 216,494
Provision for loan losses 299,893 216,000
Deferred income taxes (97,295) (86,472)
Loss on sale of securities available-for-sale 9,229 -
Increase in interest receivable (203,700) (38,741)
Increase in interest payable 44,729 198,233
Decrease in income taxes payable (59,142) (295,087)
Other operating activities 112,912 7,911
----------------------- -----------------------
Net cash provided by operating activities 1,778,135 1,455,876
----------------------- -----------------------
INVESTING ACTIVITIES
Purchases of securities available-for-sale (6,631,404) (7,024,930)
Proceeds from maturities of securities available-for-sale 2,386,999 2,508,434
Proceeds from sales of securities available-for-sale 2,191,423 -
Purchases of securities held-to-maturity (949,067) (203,546)
Proceeds from maturities of securities held-to-maturity 99,910 2,699,553
Net decrease in interest-bearing deposits in banks 3,027,165 967,430
Net increase in loans (13,331,309) (12,319,998)
Purchase of premises and equipment (334,214) (249,663)
Purchase of life insurance policies (271,790) -
----------------------- -----------------------
Net cash used in investing activities (13,812,287) (13,622,720)
----------------------- -----------------------
FINANCING ACTIVITIES
Net increase in deposits 12,302,495 9,519,410
Proceeds from other borrowings 2,000,000 4,000,000
Repayment of other borrowings (4,056,800) (56,800)
Dividends paid (842) (124,531)
Proceeds from exercise of stock options 38,373 -
Purchase of treasury stock (53,909) -
Increase in loan to KSOP (311,610) -
----------------------- -----------------------
Net cash provided by financing activities 9,917,707 13,338,079
----------------------- -----------------------
</TABLE>
-41-
<PAGE>
FIRST COMMUNITY BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
================================================================================
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
<S> <C> <C>
Net increase (decrease) in cash and due from banks $ (2,116,445) $ 1,171,235
Cash and due from banks at beginning of year 3,685,230 2,513,995
------------------- ------------------
Cash and due from banks at end of year $ 1,568,785 $ 3,685,230
=================== ==================
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest $ 3,130,616 $ 2,484,322
Income taxes $ 901,772 $ 1,045,661
NONCASH TRANSACTIONS
Unrealized gains on securities available-for-sale $ (123,611) $ (1,974)
Principal balances of loans transferred to other real estate $ 182,200 $ -
</TABLE>
See Notes to Consolidated Financial Statements.
-42-
<PAGE>
FIRST COMMUNITY BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
First Community Bancorp, Inc. (the Company) is a bank holding
company whose business is conducted by its wholly-owned subsidiary,
First Community Bank & Trust, (the Bank). The Bank is a commercial
bank located in Cartersville, Bartow County, Georgia with one branch
located in Adairsville, Georgia. The Bank provides a full range of
banking services in its primary market area of Bartow County and
surrounding counties.
Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its subsidiary. Significant intercompany transactions
and accounts are eliminated in consolidation.
The accounting and reporting policies of the Company conform to
generally accepted accounting principles and general practices
within the financial services industry. In preparing the financial
statements, management is required to make estimates and assumptions
that affect the reported amounts and disclosures of assets and
liabilities as of the date of the balance sheet and revenues and
expenses for the period. Actual results could differ from those
estimates.
Cash and Due from Banks
Cash on hand, cash items in process of collection, and amounts due
from banks are included in cash and due from banks.
The Company maintains amounts due from banks which, at times, may
exceed Federally insured limits. The Company has not experienced any
losses in such accounts.
-43-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Securities
Securities are classified based on management's intention on the
date of purchase. Securities which management has the intent and
ability to hold to maturity are classified as held-to-maturity and
reported at amortized cost. All other debt securities are classified
as available-for-sale and carried at fair value with net unrealized
gains and losses included in stockholders' equity, net of tax.
Equity securities without a readily determinable fair value are
carried at cost.
Interest and dividends on securities, including amortization of
premiums and accretion of discounts, are included in interest
income. Realized gains and losses from the sales of securities are
determined using the specific identification method.
Loans
Loans are carried at their principal amounts outstanding less
unearned income and the allowance for loan losses. Interest income
on loans is credited to income based on the principal amount
outstanding.
Net loan origination fees and costs incurred for loans are deferred
and recognized as income over the life of the loan.
The allowance for loan losses is maintained at a level that
management believes to be adequate to absorb potential losses in the
loan portfolio. Management's determination of the adequacy of the
allowance is based on an evaluation of the portfolio, past loan loss
experience, current economic conditions, volume, growth, composition
of the loan portfolio, and other risks inherent in the portfolio. In
addition, regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for
loan losses, and may require the Company to record additions to the
allowance based on their judgment about information available to
them at the time of their examinations.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as
they become due. Interest income is subsequently recognized only to
the extent cash payments are received.
-44-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans (Continued)
A loan is impaired when it is probable the Company will be unable to
collect all principal and interest payments due in accordance with
the terms of the loan agreement. Individually identified impaired
loans are measured based on the present value of payments expected
to be received, using the contractual loan rate as the discount
rate. Alternatively, measurement may be based on observable market
prices or, for loans that are solely dependent on the collateral for
repayment, measurement may be based on the fair value of the
collateral. If the recorded investment in the impaired loan exceeds
the measure of fair value, a valuation allowance is established as a
component of the allowance for loan losses. Changes to the valuation
allowance are recorded as a component of the provision for loan
losses.
Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed principally by the
straight-line method over the estimated useful lives of the assets.
Income Taxes
Income tax expense consists of current and deferred taxes. Current
income tax provisions approximate taxes to be paid or refunded for
the applicable year. Deferred tax assets and liabilities are
recognized for the temporary differences between the bases of assets
and liabilities as measured by tax laws and their bases as reported
in the financial statements. Deferred tax expense or benefit is then
recognized for the change in deferred tax assets or liabilities
between periods.
Recognition of deferred tax balance sheet amounts is based on
management's belief that it is more likely than not that the tax
benefit associated with certain temporary differences, tax operating
loss carryforwards and tax credits will be realized. A valuation
allowance would be recorded for those deferred tax items for which
it is more likely than not that realization would not occur.
The Company and the Bank file a consolidated income tax return. Each
entity provides for income taxes based on its contribution to income
taxes (benefits) of the consolidated group.
-45-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings Per Common Share
Basic earnings per common share are computed by dividing net income
by the weighted-average number of shares of common stock
outstanding. Diluted earnings per share are computed by dividing net
income by the sum of the weighted-average number of shares of common
stock outstanding and potential common shares. Potential common
shares consist of stock options.
Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) has issued, and the
Company has adopted, Statement of Financial Accounting Standards
(SFAS) No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities". SFAS No. 125 was amended
by SFAS No. 127, which defers the effective date of certain
provisions of SFAS No. 125 until January 1, 1998. This statement
provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities
based on consistent application of a financial-components approach
that focuses on control. It distinguishes transfers of financial
assets that are sales from transfers that are secured borrowings.
The adoption of this statement did not have a material effect on the
Company's financial statements.
The FASB has issued, and the Company has adopted, SFAS No. 128,
"Earnings Per Share". SFAS No. 128 supersedes Accounting Principles
Board Opinion No. 15 "Earnings Per Share" and specifies the
computation, presentation, and disclosure requirements for earnings
per share (EPS) for entities with publicly held common stock or
potential issuable common stock. SFAS No. 128 replaces the
presentation of primary EPS with a presentation of basic EPS and
fully diluted EPS with diluted EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator for the
basic EPS computation to the numerator and denominator of the
diluted EPS computation. SFAS No. 128 is effective for financial
statements for both interim and annual periods ending after December
15, 1997. The adoption of this statement did not have a material
effect on the Company's financial statements.
-46-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements (Continued)
The FASB has issued SFAS No. 130, "Reporting Comprehensive Income".
This statement establishes standards for reporting and display of
comprehensive income and its components in the financial statements.
SFAS No. 130 requires all items that are required to be recognized
under accounting standards as components of comprehensive income to
be reported in a financial statement that is displayed in equal
prominence with the other financial statements. The term
"comprehensive income" is used in the SFAS to describe the total of
all components of comprehensive income including net income. "Other
comprehensive income" refers to revenues, expenses, gains and losses
that are included in comprehensive income but excluded from earnings
under current accounting standards. Currently, "other comprehensive
income" for the Company consists of items previously recorded
directly in equity under SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". SFAS No. 130 is
effective for periods beginning after December 15, 1997.
NOTE 2. SECURITIES
The amortized cost and fair value of securities are summarized
as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C>
Securities Available-for-Sale
December 31, 1997:
U. S. Government and agency
securities $ 5,149,123 $ 31,589 $ (389) $ 5,180,323
State and municipal 4,110,359 86,919 - 4,197,278
securities
Mortgage-backed securities 2,277,312 8,144 (6,502) 2,278,954
Equity securities 837,168 - - 837,168
----------------- --------------- -------------- ----------------
$ 12,373,962 $ 126,652 $ (6,891) $ 12,493,723
================= =============== ============== ================
December 31, 1996:
U. S. Government and agency
securities $ 5,445,927 $ 18,416 $ (15,276) $ 5,449,067
State and municipal 2,167,026 10,319 (308) 2,177,037
securities
Mortgage-backed securities 1,725,188 556 (17,557) 1,708,187
Equity securities 992,068 - - 992,068
----------------- --------------- -------------- ----------------
$ 10,330,209 $ 29,291 $ (33,141) $ 10,326,359
================= =============== ============== ================
Securities Held-to-Maturity
December 31, 1997:
U. S. Government and agency
securities $ 4,299,179 $ 918 $ (17,390) $ 4,282,707
State and municipal securities 752,428 3,969 (73) 756,324
---------------- -------------- -------------- ----------------
$ 5,051,607 $ 4,887 $ (17,463) $ 5,039,031
================ ============== ============== ================
December 31, 1996:
U. S. Government and agency
securities $ 3,798,988 $ - $ (45,787) $ 3,753,201
State and municipal securities 403,462 - (2,545) 400,917
---------------- -------------- -------------- ----------------
$ 4,202,450 $ - $ (48,332) $ 4,154,118
================ ============== ============== ================
</TABLE>
-47-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. SECURITIES (Continued)
The amortized cost and fair value of securities as of December 31, 1997
by contractual maturity are shown below. Maturities may differ from
contractual maturities in mortgage-backed securities because the
mortgages underlying the securities may be called or prepaid with or
without penalty. Therefore, these securities and equity securities are
not included in the maturity categories in the following summary.
<TABLE>
<CAPTION>
Securities Available-for-Sale Securities Held-to-Maturity
---------------------------------- ---------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Due in one year or less $ 570,000 $ 571,063 $ 3,749,452 $ 3,734,899
Due from one year to five years 7,448,374 7,519,968 1,099,179 1,097,654
Due from five to ten years 1,041,108 1,082,233 - -
Due after ten years 200,000 204,337 202,976 206,478
Mortgage-backed securities 2,277,312 2,278,954 - -
Equity securities 837,168 837,168 - -
---------------- ---------------- --------------- ---------------
$ 12,373,962 $ 12,493,723 $ 5,051,607 $ 5,039,031
================ ================ =============== ===============
</TABLE>
Securities with a carrying value of $3,887,000 and $4,408,000 at
December 31, 1997 and 1996, respectively, were pledged to secure public
deposits and for other purposes.
Gains and losses on sales of securities available-for-sale consist of
the following:
December 31,
--------------------------
1997 1996
------------ ------------
Gross gains $ 652 $ -
Gross losses (9,881) -
------------ ------------
Net realized losses $ (9,229) $ -
============ ============
-48-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
The composition of loans is summarized as follows:
December 31,
-------------------------------------
1997 1996
----------------- ----------------
<S> <C> <C>
Commercial, financial, and agricultural $ 7,038,000 $ 9,404,000
Real estate - construction 17,020,000 12,576,000
Real estate - mortgage 34,985,000 25,374,000
Consumer instalment and other 8,626,997 7,215,989
----------------- ----------------
67,669,997 54,569,989
Unearned income (163,140) (133,559)
Allowance for loan losses (1,135,477) (914,266)
----------------- ----------------
Loans, net $ 66,371,380 $ 53,522,164
================= ================
<CAPTION>
Changes in the allowance for loan losses are as follows:
December 31,
-------------------------------------
1997 1996
----------------- ----------------
<S> <C> <C>
Balance, beginning of year $ 914,266 $ 705,473
Provision for loan losses 299,893 216,000
Loans charged off (138,307) (87,385)
Recoveries of loans previously charged off 59,625 80,178
----------------- ----------------
Balance, end of year $ 1,135,477 $ 914,266
================= ================
</TABLE>
Management has identified no material amounts of loans
considered to be impaired as defined by Statement of Financial
Accounting Standard No. 114, "Accounting by Creditors for
Impairment of a Loan" as of December 31, 1997 and 1996.
-49-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
The Company has granted loans to certain directors, executive officers,
and related entities of the Company and the Bank. The interest rates on
these loans were substantially the same as rates prevailing at the time
of the transaction and repayment terms are customary for the type of
loan involved. Changes in related party loans for the year ended
December 31, 1997 are as follows:
<TABLE>
<S> <C>
Balance, beginning of year $ 1,406,518
Advances 744,657
Repayments (1,091,242)
-----------------
Balance, end of year $ 1,059,933
=================
</TABLE>
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
Land $ 393,035 $ 393,035
Buildings 1,231,077 1,124,885
Equipment 1,558,675 1,254,941
Construction and equipment installation in progress - 86,571
----------------- -----------------
3,182,787 2,859,432
Accumulated depreciation 1,292,515 1,081,231
----------------- -----------------
$ 1,890,272 $ 1,778,201
================= =================
</TABLE>
-50-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5. OTHER BORROWINGS
Other borrowings consisted of the following Federal Home Loan Bank
advances:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
5.53% interest only, payable monthly, principal due in 1998. $ 850,000 $ 850,000
Noninterest-bearing, payable quarterly in instalments of 123,250 140,250
$4,250. This advance bears no interest due to the Bank
qualifying under the FHLB Affordable Housing Program.
6.28% interest and principal payable semiannually.
Principal due in instalments of $19,900.
Variable rate interest only, payable monthly, principal 318,400 358,200
due September 1997. Interest is adjusted daily based
upon the overnight deposit rate of the FHLB plus .25%
(6.28% at December 31, 1997).
5.66% interest only, payable quarterly, principal due in 2002. 2,000,000 4,000,000
----------------- -----------------
$ 3,291,650 $ 5,348,450
================= =================
</TABLE>
The Company's advances from the Federal Home Loan Bank are
collateralized by a blanket floating lien on qualifying first mortgage
loans and pledging of the Company's stock in the Federal Home Loan Bank
of Atlanta.
Advances at December 31, 1997 have maturities in future years as
follows:
Year Ending December 31, Amount
----------------------- -----------------
1998 $ 886,900
1999 36,900
2000 36,900
2001 36,900
2002 2,036,900
Later years 257,150
-----------------
$ 3,291,650
=================
-51-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6. EMPLOYEE BENEFIT PLANS
Employee Stock Ownership Plan with 401(k) Provisions (KSOP):
During 1997, the Company's 401(k) retirement plan was converted into
an Employee Stock Ownership Plan with 401(k) retirement plan
provisions (KSOP). The KSOP covers all employees subject to certain
minimum age and service requirements. Contributions charged to
expense for the year ended December 31, 1997 and 1996 were $71,337
and $35,575, respectively.
In accordance with the KSOP, the Company is expected to honor the
rights of certain participants to diversify their account balances
or to liquidate their ownership of the common stock in the event of
distribution. The purchase price of the common stock would be based
on the fair market value of the Company's common stock as of the
annual valuation date which precedes the date the put option is
exercised. No participant has exercised these rights since the
inception of the KSOP, and no significant cash outlay is expected
during 1998. However, since the redemption of common stock is
outside the control of the Company, the Company's maximum cash
obligation in the amount of $311,610 which is based on the
approximate market price of common stock as of the reporting date
has been presented outside of stockholders' equity. The amount
presented as redeemable common stock held by the KSOP in the
consolidated balance sheet has been reduced by a loan from the
Company to the KSOP in an amount equal to the maximum cash
obligation. The Company's maximum cash obligation has been reflected
as a reduction of retained earnings.
At December, the KSOP held 12,341 allocated shares. Shares held by
the KSOP are considered outstanding for purposes of calculating the
Company's earnings per common share.
Deferred Compensation Agreements:
The Company has deferred compensation agreements with its directors
and certain key employees providing for future monthly periodic
payments which commence at retirement. At December 31, 1997 and
1996, $28,883 and $12,114, respectively, had been accrued under
these agreements.
-52-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6. EMPLOYEE BENEFIT PLANS (Continued)
Deferred Compensation Agreements: (Continued)
The Company is also the owner and beneficiary of life insurance
policies on the lives of its directors and certain key employees.
The Company intends to use these policies to fund the directors' and
employees' deferred compensation described above. The carrying value
of the policies was $1,231,647 and $955,671 at December 31, 1997 and
1996, respectively.
Common Stock Options:
The Company has reserved 20,400 shares of common stock for issuance
to key employees under a qualified stock option plan. Options are
granted at prices equal to or greater than the fair market value of
the shares at the date of grant, and are exercisable at a rate of
20% per year beginning with the initial grant date. The options
expire seven years from the date of grant. At December 31, 1997,
3,213 options, net of terminations, have been granted under this
plan.
The Company has also granted stock options to the president of the
Company under an employment agreement. The agreement provides for
the purchase of 4,234 shares of common stock. The exercise price is
based on the book value of the shares at the date of grant. The
options expire in 1998.
-53-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6. EMPLOYEE BENEFIT PLANS (Continued)
Common Stock Options: (Continued)
The Company has also reserved 70,000 shares of common stock for
issuance to key employees and directors under an incentive stock
option plan. Options are granted at prices equal to the fair market
value of the shares at the date of grant, and are exercisable seven
years from the initial grant date. The options expire ten years from
the date of the grant. At December 31, 1997, 56,874 options, net of
terminations, have been granted under this plan.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------
1997 1996
--------------------------- ----------------------------
Weighted- Weighted-
average average
Exercise Exercise
Number Price Number Price
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Under option, beginning of year 12,803 $ 10.12 13,109 $ 10.21
Granted 66,054 25.25 - -
Exercised (4,384) 8.75 - -
Terminated (10,302) 23.99 (306) 14.04
------------ ------------
Under option, end of year 64,171 23.56 12,803 10.12
============ ============
Exercisable, end of year 6,369 9.79 10,692 9.32
============ ============
Weighted-average fair value of
options granted during the year $5.82 $ -
============ ============
<CAPTION>
Weighted-
average
Weighted- Remaining
average Contractual
Range of Exercise Life in
Number Prices Price Years
----------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Under Option, End of Year 4,234 $ 7.88 $ 7.88 1
3,063 12.25-15.81 13.84 4
56,874 25.25 25.25 10
-----------
64,171 23.56 9
===========
Options Exercisable, End of Year 4,234 $ 7.88 $ 7.88 1
2,135 12.25-15.81 13.58 4
===========
6,369 9.79 2
===========
</TABLE>
As permitted by SFAS No. 123 ("Accounting for Stock-Based
Compensation"), the Company recognizes compensation cost for
stock-based employee compensation awards in accordance with APB
Opinion No. 25, ("Accounting for Stock Issued to Employees"). The
Company recognized no compensation cost for stock-based employee
compensation awards for the years ended December 31, 1997 and 1996.
If the Company had recognized compensation cost in accordance with
SFAS No. 123, net income and earnings per share would have been
reduced as follows:
-54-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6. EMPLOYEE BENEFIT PLANS (Continued)
Common Stock Options: (Continued)
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------
Basic Diluted
Earnings Earnings
Net Income Per Share Per Share
--------------- --------------- ----------------
<S> <C> <C> <C>
As reported $ 1,449,366 $ 3.43 $ 3.38
Stock-based compensation,
net of related tax effect (29,772) (0.07) (0.07)
--------------- --------------- ----------------
As adjusted $ 1,419,594 $ 3.36 $ 3.31
=============== =============== ================
<CAPTION>
December 31, 1996
-----------------------------------------------------
Basic Diluted
Earnings Earnings
Net Income Per Share Per Share
--------------- --------------- ----------------
<S> <C> <C> <C>
As reported $ 1,237,538 $ 2.98 $ 2.94
Stock-based compensation,
net of related tax effect - - -
--------------- --------------- ----------------
As adjusted $ 1,237,538 $ 2.98 $ 2.94
=============== =============== ================
</TABLE>
The fair value of the options granted during the year was based upon
the discounted value of future cash flows of the options using the
following assumptions:
<TABLE>
<CAPTION>
1997
----------------
<S> <C>
Risk-free rate 6.13%
Expected life of the options 7 Years
Expected dividends (as a percent of the fair value of the stock) 1.98%
</TABLE>
-55-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7. INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
Current $ 842,630 $ 750,574
Deferred (97,295) (86,472)
----------------- -----------------
Income tax expense $ 745,335 $ 664,102
================= =================
</TABLE>
The Company's income tax expense differs from the amounts
computed by applying the Federal income tax statutory rates to
income before income taxes. A reconciliation of the
differences is as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------
1997 1996
---------------------------- ----------------------------
Amount Percent Amount Percent
--------------- ----------- --------------- ----------
<S> <C> <C> <C> <C>
Income taxes at statutory rate $ 746,199 34 % $ 646,557 34 %
Tax-exempt interest (49,109) (2) (24,923) (1)
State income taxes 46,585 2 40,218 2
Other items, net 1,660 - 2,250 -
--------------- ----------- --------------- ----------
Income tax expense $ 745,335 34 % $ 664,102 35 %
=============== =========== =============== ==========
</TABLE>
-56-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7. INCOME TAXES (Continued)
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
Deferred tax assets:
Loan loss reserves $ 389,046 $ 311,892
Deferred loan fees 61,562 45,923
Directors fees 22,182 8,666
Securities available-for-sale - 1,424
----------------- -----------------
472,790 367,905
----------------- -----------------
Deferred tax liabilities:
Depreciation 47,911 38,895
Securities available-for-sale 42,739 38,895
Other 2,792 2,794
----------------- -----------------
93,442 80,584
----------------- -----------------
Net deferred tax assets $ 379,348 $ 287,321
================= =================
</TABLE>
NOTE 8. EARNINGS PER COMMON SHARE
The following is a reconciliation of net income (the numerator) and
weighted-average shares outstanding (the denominator) used in
determining basic and diluted earnings per common share (EPS):
<TABLE>
<CAPTION>
Year Ended December 31, 1997
--------------------------------------------------------------
Net Weighted-
Income Average Shares Per share
(Numerator) (Denominator) Amount
----------------- ------------------ --------------
<S> <C> <C> <C>
Basic EPS $ 1,449,366 422,891 $ 3.43
=============
Effect of Dilutive Securities
Stock options - 5,977
--------------- -------------
Diluted EPS $ 1,449,366 428,868 $ 3.38
=============== ============= =============
Basic EPS $ 1,237,538 415,103 $ 2.98
=============
Effect of Dilutive Securities
Stock options - 6,590
--------------- --------------
Diluted EPS $ 1,237,538 421,693 $ 2.94
=============== ============== =============
</TABLE>
NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Company has entered into off-
balance-sheet financial instruments which are not reflected in the
financial statements. These financial instruments include commitments
to extend credit and standby letters of credit. Such financial
instruments are included in the financial statements when funds are
disbursed or the instruments become payable. These instruments involve,
to varying degrees, elements of credit risk in excess of the amount
recognized in the balance sheet.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual
amount of those instruments. A summary of the Company's commitments is
as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
Commitments to extend credit $ 10,461,000 $ 8,919,403
Standby letters of credit 293,000 393,100
----------------- -----------------
$ 10,754,000 $ 9,312,503
================= =================
</TABLE>
-57-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
Commitments to extend credit generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since many
of the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The credit risk involved in issuing these financial
instruments is essentially the same as that involved in extending loans
to customers. The Company evaluates each customer's creditworthiness on
a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Company upon extension of credit, is based on
management's credit evaluation of the customer. Collateral held varies
but may include real estate and improvements, crops, marketable
securities, accounts receivable, inventory, equipment, and personal
property.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan
facilities to customers. Collateral held varies as specified above and
is required in instances which the Company deems necessary.
In the normal course of business, the Company is involved in various
legal proceedings. In the opinion of management of the Company, any
liability resulting from such proceedings would not have a material
effect on the Company's financial statements.
On September 9, 1996, the Company entered into a lease agreement for
the lease of an operations facility under a noncancelable agreement
which expires on August 30, 2001, with an option to renew for five
successive periods of twelve months each. The lease requires the
payment of normal maintenance utilities and insurance on the property.
The total minimum rental commitment at December 31, 1997 is due as
follows:
During the year ending December 31:
1998 $ 31,200
1999 31,200
2000 31,200
2001 20,800
-----------------
$ 114,400
=================
The total rental expense for the years ended December 31, 1997 and 1996
was $31,200 and $10,400, respectively.
-58-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. CONCENTRATIONS OF CREDIT
The Company originates primarily commercial, residential, and consumer
loans to customers in Bartow County and surrounding counties. The
ability of the majority of the Company's customers to honor their
contractual loan obligations is dependent on the economy in these
areas.
Seventy-seven percent of the Company's loan portfolio is concentrated
in loans secured by real estate, of which a substantial portion is
secured by real estate in the Company's primary market area.
Accordingly, the ultimate collectibility of the loan portfolio is
susceptible to changes in market conditions in the Company's primary
market area. The other significant concentrations of credit by type of
loan are set forth in Note 3.
The Company, as a matter of policy, does not generally extend credit to
any single borrower or group of related borrowers in excess of 25% of
statutory capital, or approximately $1,400,000.
NOTE 11. REGULATORY MATTERS
The Bank is subject to certain restrictions on the amount of dividends
that may be declared without prior regulatory approval. At December 31,
1997, approximately $730,000 of retained earnings were available for
dividend declaration without regulatory approval.
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory- and
possibly additional discretionary - actions by regulators that, if
undertaken, could have a direct material effect on the financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and Bank must meet
specific capital guidelines that involve quantitative measures of the
assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The Company and Bank capital
amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.
-59-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11. REGULATORY MATTERS (Continued)
Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Bank to maintain minimum amounts
and ratios of total and Tier I capital to risk-weighted assets and of
Tier I capital to average assets. Management believes, as of December
31, 1997, the Company and the Bank meet all capital adequacy
requirements to which they are subject.
As of December 31, 1997, the most recent notification from the FDIC
categorized the Bank as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized,
the Bank must maintain minimum total risk-based, Tier I risk-based, and
Tier I leverage ratios as set forth in the following table. There are
no conditions or events since that notification that management
believes have changed the Bank's category.
The Company and Bank's actual capital amounts and ratios are presented
in the following table:
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
--------------------------- ------------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
--------------- ---------- --------------- -------- --------------- -------
(Dollars in Thousands)
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets):
Consolidated $ 9,161 13.74% $ 5,334 8% $ 6,667 10%
Bank $ 8,742 13.11% $ 5,334 8% $ 6,667 10%
Tier I Capital
(to Risk Weighted Assets):
Consolidated $ 8,324 12.49% $ 2,667 4% $ 4,001 6%
Bank $ 7,905 11.86% $ 2,667 4% $ 4,001 6%
Tier I Capital
(to Average Assets):
Consolidated $ 8,324 9.20% $ 3,618 4% $ 4,523 5%
Bank $ 7,905 8.74% $ 3,618 4% $ 4,523 5%
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets):
Consolidated $ 7,561 14.17% $ 4,269 8% $ 5,336 10%
Bank $ 7,546 14.15% $ 4,266 8% $ 5,333 10%
Tier I Capital
(to Risk Weighted Assets):
Consolidated $ 6,891 12.92% $ 2,133 4% $ 3,200 6%
Bank $ 6,876 12.89% $ 2,134 4% $ 3,201 6%
Tier I Capital
(to Average Assets):
Consolidated $ 6,891 8.79% $ 3,136 4% $ 3,920 5%
Bank $ 6,876 8.77% $ 3,136 4% $ 3,920 5%
</TABLE>
The Company has a "Stock Repurchase Program" whereby the Company may
purchase shares from the stockholders at a price equal to the fair
value of the stock at its most recent valuation date, up to an
aggregate dollar limit of $100,000 during any one calendar year.
Shares are purchased on a "first-come" basis until the $100,000
limit is reached or the end of the calendar year. For the year ended
December 31, 1997, 2,135 shares of treasury stock have been
purchased under this program.
-60-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments. In
cases where quoted market prices are not available, fair values are
based on estimates using discounted cash flow methods. Those methods
are significantly affected by the assumptions used, including the
discount rates and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in
immediate settlement of the instrument. The use of different
methodologies may have a material effect on the estimated fair value
amounts. Also, the fair value estimates presented herein are based on
pertinent information available to management as of December 31, 1997
and 1996. Such amounts have not been revalued for purposes of these
financial statements since those dates and, therefore, current
estimates of fair value may differ significantly from the amounts
presented herein.
Cash, Due From Banks, and Interest-bearing Deposits in Banks:
The carrying amounts of cash, due from banks, and interest-bearing
deposits in banks approximate their fair value.
Available-For-Sale and Held-To-Maturity Securities:
Fair values for securities are based on quoted market prices. The
carrying values of equity securities with no readily determinable
fair value approximate fair values.
Loans:
For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying
values. For other loans, the fair values are estimated using
discounted cash flow methods, using interest rates currently being
offered for loans with similar terms to borrowers of similar credit
quality. Fair values for impaired loans are estimated using
discounted cash flow methods or underlying collateral values.
-61-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Deposits:
The carrying amounts of demand deposits, savings deposits, and
variable-rate certificates of deposit approximate their fair values.
Fair values for fixed-rate certificates of deposit are estimated
using discounted cash flow methods, using interest rates currently
being offered on certificates.
Other Borrowings:
The carrying amounts of the Company's other borrowings approximate
their fair values.
Accrued Interest:
The carrying amounts of accrued interest approximate their fair
values.
Off-Balance Sheet Instruments:
Fair values of the Company's off-balance sheet financial instruments
are based on fees charged to enter into similar agreements. However,
commitments to extend credit and standby letters of credit do not
represent a significant value to the Company until such commitments
are funded. The Company has determined that these instruments do not
have a distinguishable fair value and no fair value has been
assigned.
-62-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Off-Balance Sheet Instruments: (Continued)
The estimated fair values of the Company's financial instruments
were as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
---------------------------------- ----------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Financial assets:
Cash, due from banks
and interest-bearing deposits
in banks $ 2,280,783 $ 2,280,783 $ 7,424,393 $ 7,424,393
Securities available-for-sale 12,493,723 12,493,723 10,326,359 10,326,359
Securities held-to-maturity 5,051,607 5,039,031 4,202,450 4,154,118
Loans 66,371,380 68,785,749 53,522,164 55,190,506
Accrued interest receivable 767,020 767,020 563,320 563,320
Financial liabilities:
Deposits 77,676,041 77,875,598 65,373,546 65,676,561
Other borrowings 3,291,650 3,291,650 5,348,450 5,348,450
Accrued interest payable 1,321,490 1,321,490 1,366,219 1,366,219
</TABLE>
NOTE 13. SUPPLEMENTAL FINANCIAL DATA
Components of other operating expenses in excess of 1% of income are
as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
Stationery and supplies $ 80,791 $ 79,913
Other service fees 76,301 75,227
Directors fees 106,614 63,500
</TABLE>
-63-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14. PARENT COMPANY FINANCIAL INFORMATION
The following information presents the condensed balance sheets,
statements of income, and cash flows of First Community Bancorp, Inc.
as of and for the years ended December 31, 1997 and 1996:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
<S> <C> <C>
Assets
Cash $ 87,179 $ 9,983
Investment in subsidiary 7,982,252 6,873,693
Other assets 20,133 5,062
----------------- -----------------
Total assets $ 8,089,564 $ 6,888,738
================= =================
Stockholders' equity $ 8,089,564 $ 6,888,738
================= =================
<CAPTION>
CONDENSED STATEMENTS OF INCOME
1997 1996
----------------- -----------------
<S> <C> <C>
Income, dividends from subsidiary $ 431,041 $ 139,531
Expense, other 17,392 13,530
----------------- -----------------
Income before income tax benefits and
equity in undistributed income of subsidiary 413,649 126,001
Income tax benefits (6,606) (5,062)
----------------- -----------------
Income before equity in undistributed income
of subsidiary 420,255 131,063
Equity in undistributed income of subsidiary 1,029,111 1,106,475
----------------- -----------------
Net income $ 1,449,366 $ 1,237,538
================= =================
</TABLE>
-64-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14. PARENT COMPANY FINANCIAL INFORMATION (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,449,366 $ 1,237,538
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed income of subsidiary (1,029,111) (1,106,475)
Other operating activities (15,071) (105)
----------------- -----------------
Net cash provided by operating activities 405,184 130,958
----------------- -----------------
FINANCING ACTIVITIES
Dividends paid (842) (124,531)
Proceeds from exercise of stock options 38,373 -
Purchase of treasury stock (53,909) -
Increase in loan to KSOP (311,610) -
----------------- -----------------
Net cash used in financing activities (327,988) (124,531)
----------------- -----------------
Net increase in cash 77,196 6,427
Cash at beginning of year 9,983 3,556
----------------- -----------------
Cash at end of year $ 87,179 $ 9,983
================= =================
</TABLE>
-65-
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
FIRST COMMUNITY BANCORP, INC. AND SUBSIDIARY
--------------------------------------------
The Company did not have any changes in or disagreements with its principal
independent accountant during the Company's two most recent fiscal years.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Pursuant to the Company's Articles of Incorporation, its Board of Directors
is divided into three classes: Class I, Class II, and Class III. The number of
directors is set in the Company's Bylaws, which may be amended from time to time
by the Board of Directors. Currently, the number of directors is 10. The
current terms of the Class I directors expire in 1999; those of the Class II
directors expire in 2000; and those of the Class III directors expire in 1998.
If the number of directors is modified, any increase or decrease in
directorships is apportioned among the classes so as to make all classes as
nearly equal in number as possible.
The Board of Directors consisted of eleven persons up until September 18,
1997, when Mr. Michael McPherson resigned his director's position effective that
date. Thereafter, the Board chose to eliminate the director's position in Class
I theretofore filled by Mr. McPherson, as allowed for by the Company's bylaws.
The table set forth below shows for each director nominee and each
continuing director (a) his proposed or current class and term of office, (b)
his name, (c) his age at December 31, 1997, (d) the year he was first elected as
a director of the Company, (e) any positions held by him with the Company or the
Bank other than as a director, and (f) his business experience for the past five
years. All directors have served continuously from the year each was first
elected.
-66-
<PAGE>
CLASS I - CONTINUING DIRECTORS
Current Term Expires at 1999 Annual Meeting
-------------------------------------------
Year
First Positions with Company
Name Age Elected and Business Experience
- ---- --- ------- -----------------------
C. Gregory Culverhouse 42 1989 Company Loan Committee
Chairman; Attorney and
President Culverhouse &
Associates, P.C.
Jack Fournier 60 1989 President and CEO,
Speedknit Corporation
Fareed Z. Kadum, M.D. 46 1989 Physician and CEO
Cartersville OB/GYN
Associates, P.C.
CLASS II - CONTINUING DIRECTORS
Current Term Expires at 2000 Annual Meeting
-------------------------------------------
Year
First Positions with Company
Name Age Elected and Business Experience
- ---- --- ------- -----------------------
Sammy L. Neal 48 1989 General Manager and Chief
Operating Officer,
Lanell's Motor Coach, Inc.
(charter service)
H. Boyd Pettit, III 45 1989 Chairman of the Board for
the Company; Attorney
D. Arnold Tillman, M.D. 36 1989 Physician
-67-
<PAGE>
CLASS III - DIRECTOR NOMINEES
Current Term Expires at 1998 Annual Meeting
-------------------------------------------
Year
First Positions with Company
Name Age Elected and Business Experience
- ---- --- ------- -----------------------
Terry N. Tumlin, D.M.D. 44 1989 Dentist
J. Steven Walraven 49 1989 President and Chief
Executive Officer of the
Company since 1989;
President and Chief
Executive Officer of the
Bank since 1988
L. Ross Whatley, III, M.D. 45 1989 Physician
Earl Williamson, Jr. 54 1989 Certified Public
Accountant with
Williamson & Company
CPA's, P.C.
None of the directors hold directorships in other reporting companies.
There are no family relationships among directors, executive officers, or
persons nominated or chosen by the Company to become directors or executive
officers. The Company and the Bank do not separately compensate their
directors. The directors are compensated for attending the monthly board
meetings of the Bank and various other committee meetings.
-68-
<PAGE>
OFFICERS
The following table sets forth for each officer of the Company (a) the
person's name, (b) his/her age at December 31, 1997, (c) the year he/she was
first elected as an officer of the Company and (d) his/her position with the
Company and the Bank. Each officer has served continuously in his or her
position from the date he or she was first appointed to such position except for
Mr. Grizzle, who began serving as Senior Vice President in 1997 after having
served as Vice President since 1993.
Year
First Positions with Company
Name Age Elected and Business Experience
- ---- --- ------- -----------------------
J. Steven Walraven 49 1989 President and Chief
Executive Officer of the
Company since June 1989;
President and Chief
Executive Officer of the
Bank since January 1988
Rodney L. Grizzle 32 1993 Senior Vice President and
Senior Lending Officer of
the Company since October
21, 1997; previously
served as Vice President
and Compliance Officer
for the Company beginning
in October 1, 1993
Danny Dukes 38 1997 Vice-President, Chief
Financial and Operations
Officer, and Corporate
Secretary of the Company
since March 17, 1997;
has previously served as
an internal auditor,
controller, and CFO for
financial institutions
During the previous five years, no director or executive officer was the
subject of a legal proceeding (as defined below) that is material to an
evaluation of the ability or integrity of any director or executive officer. A
"legal proceeding" includes: (a) any bankruptcy petition filed by or against any
business of which such person was a general partner or executive prior to that
time; (b) any conviction in a criminal proceeding or subject to a pending
criminal proceeding (excluding traffic violations and other minor offenses); (c)
any order, judgment, or decree of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting
his involvement in any type of business, securities or banking activities; and
(d) any
-69-
<PAGE>
finding by a court of competent jurisdiction (in a civil action), the Securities
and Exchange Commission or the Commodity Futures Trading Commission of a
violation of a federal or state securities or commodities law (such finding
having not been reversed, suspended or vacated).
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company under Rule 16a-3(d) during 1997 and Form 5 and
amendments thereto furnished to the Company during 1997, no person who, at any
time during 1997, was a director, officer or beneficial owner of more than 10%
of any class of equity securities of the Company failed to file on a timely
basis any reports required by Section 16(a) during the 1997 fiscal year or
previously.
-70-
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
The Company has not paid any remuneration to its officers and directors
since its formation. It is not currently anticipated that the Company will pay
any remuneration to its officers and directors. The Bank paid the following
remuneration to its Chief Executive Officer, who was the only employee to earn
in excess of $100,000.00 during the 1997 fiscal year.
SUMMARY COMPENSATION TABLE
The following table sets forth compensation earned from the Bank
in 1997, 1996 and 1995 by J. Steven Walraven.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION AWARDS PAYOUTS
------------------------------- -------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
NAME AND OTHER ANNUAL RESTRICTED OPTIONS LTIP OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION STOCK AWARDS SARs PAYOUTS COMPENSATION
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J. STEVEN WALRAVEN 1997 120,579 _____/1/ 70,587/2/ ----- 3,060/3/ ----- 7,800/4/
CEO/President
1996 113,612 18,985 9,132 ----- ----- ----- -----
1995 89,016 8,902 19,738 ----- 600/5/ ----- -----
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------
/1/ In previous years, Mr. Walraven's bonus has been calculated and paid in
November or December, prior to the completion of audited financial statements.
As Mr. Walraven's bonus is calculated on the basis of corporate performance, as
revealed by such financial statements, the Board decided to withhold decision
(and award) of bonus to Mr. Walraven under the terms of his employment agreement
until financial statements were completed. Although Mr. Walraven's bonus was
earned in 1997, it was not paid until 1998, and will therefore be stated in next
year's annual report on Form 10-KSB.
/2/ Representing amounts earned by reason of exercise of in the money
options by Mr. Walraven. See "Aggregated Option Exercises" table below.
/3/ In 1997, Mr. Walraven was granted a total of 10,200 stock options with
an exercise price of the then fair market value of $25.25 per share. Of these,
only 3,060 are currently exercisable, with the remainder subject to a cliff
vesting of seven years, prior to the expiration of which they are not
exercisable. See table "Option Grants in Last Fiscal Year," below.
/4/ Representing Board attendance fees and the vested portion of Mr.
Walraven's unqualified retirement plan.
/5/ Granted pursuant to The First Community Bancorp, Inc. 1994 Incentive
Stock Option Plan. The exercise price of these options is $16.13 per share and
the fair market value on the date of grant was $13.44 per share. These options
expire on November 21, 2002.
-71-
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
[Individual Grants]
<TABLE>
<CAPTION>
Number of securities Percent of total options
underlying granted employees Exercise or base
NAME options/SARs granted in fiscal year price ($/Sh) Expiration Date
(a) (b) (c) (d) (e)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
J. STEVEN WALRAVEN 10,200/1/ 36.49%/2/ $25.25 4/1/2007
CEO/President
</TABLE>
/1/ Granted pursuant to the 1997 First Community Bancorp, Inc. Stock Option
Plan, approved by shareholders at the 1997 Annual Meeting of Shareholders. Of
this figure, only 3,060 are exercisable within the next sixty days; 6,940 are
subject to a seven-year vesting period, and may not be exercised prior to the
expiration of that period.
/2/ Calculated without reference to any options granted to non-employee
directors.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
Number of securities under-
lying unexercised options at Value of unexercised in-the-
Shares acquired Value realized FY-end (#) Exercisable/ money options at FY-end ($)
NAME on exercise (#) ($) Unexercisable Exercisable/Unexercisable
(a) (b) (c) (d) (e)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
J. Steven Walraven, 4,234 $70,587 8,722/7,140 $88,852.58*/$0
CEO/President
</TABLE>
* Value of unexercised, in-the-money options calculated on the basis of fair
market value of $25.25 per share. Options include 816 exercisable at $12.50 per
share; 612 exercisable at $16.13 per share; 4,151 exercisable at $8.04 per
share; and 83 exercisable at $8.04 per share.
-72-
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
Ownership of Stock by Principal Stockholders
- --------------------------------------------
On March 1, 1998, there were no persons, except as disclosed below, who
beneficially owned five percent (5%) or more of the outstanding shares of stock
to the best information and knowledge of the Company.
The following table sets forth the number of shares of stock beneficially
owned by each director nominee and each continuing director of the Company and
Officers as of March 1, 1998, and by all director nominees, continuing directors
and officers of the Company as a group. Unless otherwise indicated, each person
is the record owner of and has sole voting and investment powers over his
shares.
Name of Nominee or Number of Shares Percent
Director or Officer Beneficially Owned of Class/1/
- ------------------- ------------------ --------
C. Gregory Culverhouse 17,178/2/ 3.98%
Jack Fournier 36,946/3/ 8.55%
Fareed Z. Kadum, M.D. 15,435/4/ 3.57%
Sammy L. Neal 18,925/5/ 4.38%
H. Boyd Pettit, III 13,778/6/ 3.19%
D. Arnold Tillman 9,359/7/ 2.17%
Terry N. Tumlin, D.M.D. 15,954/8/ 3.69%
J. Steven Walraven 18,290/9/ 4.19%
L. Ross Whatley, III, M.D. 21,682/10/ 5.02%
Earl Williamson, Jr., C.P.A. 13,915/11/ 3.22%
Rodney Grizzle 82/12/ .02%
Danny F. Dukes 102 .02%
--------- ----
All Directors and
Principal Officers 189,753/13/ 41.3%
as a Group (12 persons)
-73-
<PAGE>
Footnotes
- ---------
(1) As to each director or executive officer who has the right to acquire,
within the next 60 days, shares of the common stock of the Company upon the
exercise by him or her of stock options, such individual's percent of class
has been calculated on the assumption that such options have in fact been
exercised by him or her and the number of issued and outstanding shares of
the Company has been increased by a corresponding amount. For purpose of
calculating the ownership percentage for the group as a whole, see the
explanation in footnote 13.
(2) Includes 4,234 presently exercisable stock options granted on April 1, 1997,
pursuant to the First Community Bancorp, Inc. Stock Option Plan.
(3) Includes (a) 31,833 shares owned of record jointly by Mr. Fournier and his
wife, (b) 879 shares owned by Mr. Fournier's wife, but as to which he has
voting power, and (c) 4,234 presently exercisable stock options granted on
April 1, 1997, pursuant to the First Community Bancorp, Inc. Stock Option
Plan.
(4) Includes (a) 7,977 shares owned of record by Dr. Kadum, (b) 470 shares owned
of record by Kadum's wife, as to which Dr. Kadum shares voting and
investment powers, (c) 714 shares owned of record by Dr. Kadum as trustee
for his minor children,(d) 2,040 shares owned of record by Cartersville
OB/GYN, and (e) 4,234 presently exercisable stock options granted on April
1, 1997, pursuant to the First Community Bancorp, Inc. Stock Option Plan.
(5) Includes (a) 9,081 shares owned of record by Mr. Neal, (b) 5,100 shares
owned of record by Mr. Neal's wife, as to which Mr. Neal shares voting and
investment powers, (c) 510 shares owned by Mr. Neal's children, and (d)
4,234 presently exercisable stock options granted on April 1, 1997, pursuant
to the First Community Bancorp, Inc. Stock Option Plan.
(6) Includes (a) 9,544 shares owned individually by Mr. Pettit and (b) 4,234
presently exercisable stock options granted on April 1, 1997, pursuant to
the First Community Bancorp, Inc. Stock Option Plan.
(7) Includes (a) 5,100 shares owned of record by Mr. Tillman, individually, (b)
25 shares owned by Mr. Tillman's wife, and (c) 4,234 presently exercisable
stock options granted on April 1, 1997, pursuant to the First Community
Bancorp, Inc. Stock Option Plan.
-74-
<PAGE>
(8) Includes (a) 4,510 shares owned of record by Mr. Tumlin, (b) 4,210 shares
owned of record by Terry N. Tumlin, D.M.D., P.C. Pension Trust Account, as
to which Mr. Tumlin is the beneficial owner, (c) 3,000 shares owned of
record by Terry N. Tumlin, D.M.D., P.C. Profit Sharing Plan Trust Account,
as to which Mr. Tumlin is also the beneficial owner, and (d) 4,234
presently exercisable stock options granted on April 1, 1997, pursuant to
the First Community Bancorp, Inc. Stock Option Plan.
(9) Includes (a) 9,283 shares owned of record by Mr. Walraven, (b) 173 shares
owned of record by Mr. Walraven's wife, as to which Mr. Walraven shares
voting and investment powers but as to which he disclaims beneficial
ownership, (c) 102 shares owned of record by Mr. Walraven as custodian for
his minor children, and in which Mr. Walraven has sold voting and
investment powers but as to which he disclaims beneficial ownership,(d) 10
shares owned of record by Mrs. Walraven as custodian for her minor
children. In addition, Mr. Walraven was granted 4,151 options on June 18,
1991, 800 options on November 15, 1994, and 600 options on November 21,
1995, which amounts have been increased, respectively, to 4,234, 816, and
612 by reason of the 2% share dividend declared by the Company in 1997. The
exercise prices for these options are, respectively, $8.04, $12.50, and
$16.13 per share. These options expire, respectively, on June 18, 1998,
November 15, 2001, and November 21, 2002. The number given for Mr.
Walraven's share ownership also includes 3,060 presently exercisable stock
options granted April 1, 1997, pursuant to the First Community Bancorp,
Inc. Stock Option Plan.
(10) Includes (a) 8,405 shares owned of record by Dr. Whatley, (b) 8,874 shares
owned of record by Cartersville Radiology Group P.C., Money Purchase
Pension Plan, F.B.O. Lewis Ross Whatley, III, as to which Dr. Whatley is
the beneficial owner, (c) 169 shares owned of record jointly by Dr. Whatley
and his minor child, as to which Dr. Whatley shares voting and investment
powers but disclaims beneficial ownership, and (d) 4,234 presently
exercisable stock options granted on April 1, 1997, pursuant to the First
Community Bancorp, Inc. Stock Option Plan.
(11) Includes (a) 7,803 shares owned of record by Mr. Williamson, (b) 1,020
shares owned of record by Mr. Williamson jointly with Ronald G. Smith, as
to which Mr. Williamson shares voting and investment powers, (c) 139 shares
owned of record by Mr. Williamson as custodian for his minor child, as to
which Mr. Williamson shares voting and investment powers, (d) 719 shares
owned of record by Mr. Williamson's wife, as to which he shares voting and
investment powers but disclaims beneficial ownership, and (e) 4,234
presently exercisable stock options
-75-
<PAGE>
granted on April 1, 1997, pursuant to the First Community Bancorp, Inc.
Stock Option Plan.
(12) Includes (a) 22 shares held jointly by Mr. Grizzle with his wife and (b) 60
presently exercisable stock options.
(13) In addition to shares listed as being beneficially owned by each director
and executive officer, this total figure for the Board and executive
officers includes 12,341 shares owned by the First Community Bancorp, Inc.
KSOP, as to which the Board possesses voting control.
Change in Control
- -----------------
Management is not aware of any arrangement which may result in a change
in control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company's directors and officers and certain business organizations
and individuals associated with them have been customers of and have had banking
transactions with the Bank and are expected to continue such relationships in
the future. Pursuant to such transactions, the Company's directors and officers
from time to time have borrowed funds from the Bank for various business and
personal reasons. The extensions of credit made by the Bank to the Company's
directors and officers (a) were made in the ordinary course of business, (b)
were made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons and (c) did not involve more than a normal risk of collectibility
or present other unfavorable features.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.
(a) (1) The Consolidated Financial Statements listed in Item 7 of Part II are
filed as part of this report.
(2) All financial statement schedules are omitted because the data is
either not applicable or the required information is included within
the consolidated financial statements or related notes thereto.
(3) Index to Exhibits.
Exhibit No. Document
---------- --------
3.1 Articles of Incorporation/1/
-76-
<PAGE>
3.2 Bylaws, as amended as of March 3, 1990/1/
10.1 Employment Agreement, dated December 17, 1987, between First
Community Bank & Trust and J. Steven Walraven/2/
10.2 1994 Incentive Stock Option Plan (the "Plan") effective June
1, 1994 as approved by shareholders May 15, 1994/3/
22.0 Subsidiary of First Community Bancorp, Inc./1/
25.0 A Power of Attorney is set forth on the signature pages to
this Form 10-KSB
27 Financial Data Schedule
(b) The Company did not file a Form 8-K during the fourth quarter of the 1997
fiscal year.
- --------------------------------
1. Incorporated by reference to exhibit of same number in the Form 10-K for the
year ended December 31, 1989 as filed with the Commission.
2. Incorporated by reference to exhibit of same number in the Registrant's
Registration Statement No. 33-29979 as filed with the Commission.
3. Incorporated by reference to exhibit of same number in the Form 10-KSB for
the year ended December 31, 1994 as filed with the Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
FIRST COMMUNITY BANCORP, INC.
Date: March 30, 1998 By: /s/ J. Steven Walraven
------------------ ---------------------------------------
President and
Chief Executive Officer
-77-
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints J. Steven Walraven and Michael L. McPherson, and
each of them, his attorney-in-fact, each with full power of substitution, for
him in his name, place and stead, in any and all capacities, to sign any
amendment to this Report on Form 10-KSB, and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission and hereby ratifies and confirms all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ J. Steven Walraven President & CEO, March 30, 1998
- -------------------------- Director (Principal
J. Steven Walraven Executive Officer)
/s/ C. Gregory Culverhouse Director March 30, 1998
- --------------------------
C. Gregory Culverhouse
/s/ Jack Fournier Director March 30, 1998
- --------------------------
Jack Fournier
/s/ Fareed Z. Kadum, M.D. Director March 30, 1998
- --------------------------
Fareed Z. Kadum, M.D.
/s/ Sammy L. Neal Director March 30, 1998
- --------------------------
Sammy L. Neal
/s/ H. Boyd Pettit, III Chairman of the Board March 30, 1998
- --------------------------
H. Boyd Pettit, III
/s/ Arnold Tillman, Jr. Director March 30, 1998
- --------------------------
D. Arnold Tillman, Jr.
/s/ Terry N. Tumlin, D.M.D. Director March 30, 1998
- --------------------------
Terry N. Tumlin, D.M.D.
/s/ L. Ross Whatley, III Director March 30, 1998
- --------------------------
L. Ross Whatley, III
/s/ Earl Williamson, Jr. Director March 30, 1998
- --------------------------
Earl Williamson, Jr.
-78-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,568,785
<INT-BEARING-DEPOSITS> 711,998
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,493,723
<INVESTMENTS-CARRYING> 5,051,607
<INVESTMENTS-MARKET> 0
<LOANS> 67,506,857
<ALLOWANCE> 1,135,477
<TOTAL-ASSETS> 90,951,775
<DEPOSITS> 77,676,041
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,894,520
<LONG-TERM> 3,291,650
0
0
<COMMON> 427,745
<OTHER-SE> 7,661,819
<TOTAL-LIABILITIES-AND-EQUITY> 90,951,775
<INTEREST-LOAN> 6,998,384
<INTEREST-INVEST> 851,294
<INTEREST-OTHER> 135,595
<INTEREST-TOTAL> 7,985,273
<INTEREST-DEPOSIT> 2,967,625
<INTEREST-EXPENSE> 3,175,345
<INTEREST-INCOME-NET> 4,809,928
<LOAN-LOSSES> 299,893
<SECURITIES-GAINS> (9,229)
<EXPENSE-OTHER> 3,038,789
<INCOME-PRETAX> 2,194,701
<INCOME-PRE-EXTRAORDINARY> 1,449,366
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,449,366
<EPS-PRIMARY> 3.43
<EPS-DILUTED> 3.38
<YIELD-ACTUAL> 6.13
<LOANS-NON> 0
<LOANS-PAST> 96,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 914,000
<CHARGE-OFFS> 136,000
<RECOVERIES> 57,000
<ALLOWANCE-CLOSE> 1,135,000
<ALLOWANCE-DOMESTIC> 1,135,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
