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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(mark one)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended March 31, 1996
OR
/ / TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission File Number 0-24024
First Community Financial Group, Inc.
(Exact name of registrant as specified in its charter)
Washington 91 -1277503
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
721 College Street. SE, P.O. Box 3800, Lacey, WA 98509
(Address of principal executive offices)
Issuer's telephone number: (360) 459-1100
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 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
--- ---
Number of shares of common stock outstanding as of March 31, 1996: 1,694,008
Transitional Small Business Disclosure Format (Check one) Yes No X
--- ---
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FIRST COMMUNITY FINANCIAL GROUP, INC.
Table of Contents
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PART I - FINANCIAL INFORMATION Page
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Item 1 Financial Statements
Condensed Consolidated Balance Sheets.......................................................3
Condensed Consolidated Statements of Income.................................................4
Condensed Consolidated Statements of Cash Flows.............................................5
Notes to Condensed Consolidated Financial Statements........................................6
Item 2 Management's Discussion of Financial Condition and
Analysis or Plan of Operations..............................................................7
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K...........................................................10
SIGNATURES ...........................................................................................11
</TABLE>
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FIRST COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
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<CAPTION>
(Dollars in thousands)
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March 31 Dec. 31
1996 1995
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<S> <C> <C>
ASSETS
Cash and due from banks $ 9,974 $ 15,024
Interest bearing deposits in banks 4,869 11,982
Federal funds sold 2,000 2,750
Securities available for sale 7,181 7,143
Securities held to maturity 5,782 7,262
Loans held for sale 3,396 1,478
Loans 128,294 126,154
Less allowance for possible credit losses 1,407 1,376
NET LOANS 126,887 124,778
Premises and equipment 7,903 7,840
Other assets 5,294 4,640
TOTAL ASSETS $ 173,286 $ 182,897
LIABILITIES
Deposits:
Non-interest bearing $ 29,242 $ 34,440
Interest bearing 122,151 126,796
TOTAL DEPOSITS 151,393 161,236
Long term debt 1,216 1,237
Other liabilities 933 1,184
TOTAL LIABILITIES 153,542 163,657
STOCKHOLDERS' EQUITY
Common stock, par value $2.50 per share; 4,235 4,232
10,000,000 shares authorized, 1,694,008 shares issued
in 1996, and 1,692,698 shares issued in 1995
Surplus 13,719 13,714
Retained earnings 1,848 1,336
Unrealized loss on securities available for sale (58) (42)
TOTAL STOCKHOLDERS' EQUITY 19,744 19,240
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 173,286 $ 182,897
</TABLE>
See notes to condensed consolidated financial statements
3
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FIRST COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Income (Unaudited)
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<CAPTION>
(Dollars in thousands, except per share amounts)
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Three months ended
March 31
1996 1995
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INTEREST INCOME
Interest and fees on loans $ 3,483 $ 3,181
Federal funds sold 22 120
Investments 266 270
TOTAL INTEREST INCOME 3,771 3,571
INTEREST EXPENSE
Deposits 1,351 1,188
Other 26 41
TOTAL INTEREST EXPENSE 1,377 1,229
NET INTEREST INCOME 2,394 2,342
PROVISION FOR POSSIBLE CREDIT LOSSES 61 23
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE CREDIT LOSSES 2,333 2,319
NON-INTEREST INCOME
Service charges on deposit accounts 271 237
Origination fees on mortgage loans sold 146 50
Other income 85 67
TOTAL NON-INTEREST INCOME 502 354
NON-INTEREST EXPENSE
Salaries and employee benefits 1,097 1,196
Occupancy and equipment 351 316
Other expense 660 662
TOTAL NON-INTEREST EXPENSE 2,108 2,174
OPERATING INCOME BEFORE INCOME TAXES 727 499
Income Taxes 205 64
NET INCOME $ 522 $ 435
EARNINGS PER COMMON SHARE AND COMMON
EQUIVALENT SHARE $ .29 $ .24
Average number of common and equivalent shares outstanding 1,818,655 1,789,367
EARNINGS PER COMMON SHARE - ASSUMING FULL DILUTION $ .29 $ .24
Average number of common and equivalent shares outstanding-
assuming full dilution 1,818,655 1,789,367
</TABLE>
See notes to condensed consolidated financial statements
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FIRST COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
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(Dollars in thousands)
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Three months ended
March 31
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 522 $ 435
Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Provision for possible credit losses 61 23
Depreciation and amortization 182 162
Gain on sale of loans 40 50
Other - net (949) 86
Originations of loans held for sale (7,411) (1,902)
Proceeds from sales of loans held for sale 5,493 1,678
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES ($ 2,062) $ 532
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in interest bearing deposits in banks 7,113 1,295
Net (increase) decrease in Federal funds sold 750 (1,816)
Proceeds from sales of securities available for sale 500 769
Purchase of securities available for sale (500) (156)
Proceeds from maturities of held to maturity securities 1,470 100
Net increase in loans (2,210) (1,136)
Additions to premises and equipment (245) (1,030)
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES $ 6,878 ($1,974)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (9,843) 1,737
Sale of common stock 8 59
Repayment of long-term borrowings (21) (30)
Payment for fractional shares (10) (5)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES ($ 9,866) $ 1,761
NET CHANGE IN CASH AND DUE FROM BANKS ($ 5,050) $ 319
CASH AND DUE FROM BANKS:
Beginning of period 15,024 7,059
END OF PERIOD $ 9,974 $ 7,378
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAYMENTS FOR:
Interest 1,402 1,226
Taxes 0 92
</TABLE>
See notes to condensed consolidated financial statements
5
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FIRST COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principals for interim
financial information and with instructions to Form 10- KSB and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, adjustments considered
necessary for a fair presentation have been included. Operating results for the
three months ended March 31, 1996 are not necessarily indicative of the results
anticipated for the year ended December 31, 1996.
2. EARNINGS PER COMMON AND EQUIVALENT SHARE
Earnings per common and equivalent share is calculated by dividing net income by
the weighted average number of common shares and common share equivalents
outstanding during the periods presented. Fully diluted earnings per share
assumes that all dilutive stock options outstanding are issued such their
dilutive effect is maximized.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
FINANCIAL CONDITION
Overview
The Company's consolidated total assets at March 31, 1996 of $173,286,000
represent a 5.25% decrease over December 31, 1995 assets of $182,897,000. This
is the result of a 6.10% decline in deposits totaling $9,843,000 during the
first quarter. Due to the nature of the deposits of the Bank, it is typical to
experience an increase in deposits at year-end, followed by a like decline
during the first quarter. Additionally, management elected to not renew certain
maturing large public time deposits that were acquired by the Bank through its
acquisition of Northwest Community Bank.
Loan demand in the Company's market area was moderate during the period. Total
loans, including loans held for sale, increased 3.18%, or $4,058,000 during the
period, over the December 31, 1995 balance of $127,632,000. The ratio of loans
to deposits increased from 79.16% at December 31, 1995 to 86.99% by the end of
the first quarter as the Bank experienced a growth in loans and a decline in
deposits. The balances of cash and due from banks, interest bearing deposits in
banks, Federal funds sold and investment securities decreased $14,355,000 from
$44,161,000 to fund the loan growth and deposit decline.
The allowance for possible credit losses reflects management's current estimate
of the amount required to absorb losses on existing loans and commitments to
extend credit. Determination of the appropriate level of the allowance is based
on an analysis of various factors including historical loss experience based on
volumes and types of loans; volumes and trends in delinquencies and non-accrual
loans; trends in portfolio volume; results of internal and independent external
credit reviews; and anticipated economic conditions. An analysis of the adequacy
of the allowance is subject to quarterly review by the Board of Directors. Based
on this analysis, management considers the allowance for possible credit losses
to be adequate.
The allowance for possible credit losses increased $31,000 during the first
quarter to $1,407,000 at March 31, 1996 over the December 31, 1995 balance of
$1,376,000. This increase consisted of provisions totaling $61,000 which were
net of charge offs of $30,000. The allowance for possible credit losses
represents a ratio of 1.10% and 1.09% of total loans at March 31, 1996 and
December 31, 1995, respectively. Non-accrual loans decreased from $1,427,000 at
December 31, 1995 to $1,267,000 at March 31, 1996. These loans represent loans
that are well secured, and on which material losses are not presently expected.
Liquidity and Rate Sensitivity
The Company's assets and liabilities are managed to maximize long-term
shareholder returns by optimizing net interest income within the constraints of
maintaining high credit quality, conservative interest rate risk disciplines and
prudent levels of liquidity. The Asset and Liability Committee meets regularly
to monitor the composition of the balance sheet, to assess current and projected
interest rate trends, and to formulate strategies consistent with established
objectives for liquidity, interest rate risk and capital adequacy.
Liquidity management involves the ability to meet cash flow requirements of
customers who may be either depositors wanting to withdraw funds or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs. Liquidity is generated from both internal and external sources. Internal
sources are those assets that can be converted to cash with little or no risk of
loss. These include overnight investments in federal funds sold and investment
securities, particularly those of shorter maturity, and are the principal source
of asset liquidity. At March 31, 1996, cash, Federal funds sold and
7
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securities available for sale totaled $24,024,000. External sources refer to the
ability to attract new liabilities and capital. They include increasing savings
and demand deposits, federal funds purchased, and the issuance of capital and
debt securities. At March 31, 1996, federal funds borrowing lines of credit
totaled $2,000,000 and were unused during the first quarter of 1996. The Bank
also has preestablished borrowing lines available with the Federal Home Loan
Bank of approximately $8,500,000. This credit facility was unused during the
quarter ended March 31, 1996.
Management believes the Bank's liquidity position at March 31, 1996, was
adequate to meet its short term funding requirements.
Interest rate sensitivity is closely related to liquidity, as each is directly
affected by the maturity of assets and liabilities. The Company's net interest
margin is affected by changes in the level of market interest rates.
Management's objectives are to monitor and control interest rate risk and ensure
predictable and consistent growth in net interest income.
Management considers any asset or liability which matures, or is subject to
repricing within one year to be interest sensitive, although continual
monitoring is performed for other time intervals as well. The difference between
interest sensitive assets and liabilities for a defined period of time is known
as the interest sensitivity "gap", and may be either positive or negative. If
positive, more assets reprice before liabilities. If negative, the reverse is
true. Gap analysis provides a general measure of interest rate risk but does not
address complexities such as prepayment risk, interest rate floors and ceilings
imposed on financial instruments, interest rate dynamics and customers' response
to interest rate changes. Currently the Banks' interest sensitivity gap is
negative within one year. Assuming that general market interest rate changes
affected the repricing of assets and liabilities in equal magnitudes, this
indicates that the effects of rising interest rates on the Company would be a
decrease in the net interest margin, whereas falling interest rates would cause
a corresponding increase in the margin.
Capital
Capital serves two basic purposes. First, it provides a reserve for unforeseen
operating losses, and second, it provides a foundation for future growth.
Consolidated capital of FCFG increased $504,000 during the first quarter,
primarily through retained earnings.
There are regulatory constraints placed upon capital adequacy, and it is
necessary to maintain an appropriate ratio between capital and assets.
Regulations require banks and holding companies to maintain a minimum "leverage"
ratio (primary capital ratio) of total assets. For the most highly rated holding
companies this ratio must be at least 3%, and for others it must be 4 to 5%. At
March 31, 1996, the Company's leverage ratio was 11.43%, compared to 10.98% at
year end 1995. In addition, holding companies are required to meet minimum
risk-based capital guidelines under which risk percentages are assigned to
various categories of assets and off-balance-sheet items to calculate a
risk-adjusted capital ratio. Tier I capital generally consists of common
stockholders' equity, less goodwill, while Tier II capital includes the
allowance for possible loan losses, subject to 1.25% limitation of risk-adjusted
assets. The rules require Tier II capital of 4% of risk-adjusted assets and
total capital (combined Tier I and Tier II) of 8%. The Tier I capital ratio was
13.74 % at March 31, 1996, and total capital was 14.35% at March 31, 1996.
8
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RESULTS OF OPERATIONS
General
Net income is largely dependent upon the difference between the interest
received on earning assets and the interest paid on interest bearing liabilities
and is defined as net interest income. Net income is also affected by the
provision for loan losses, other non-interest income and other non-interest
expense.
Net income for the three months ended March 31, 1996 was $522,000, compared to
$435,000 for the three months ended March 31, 1995. This 20% increase is due to
a $52,000 increase in net interest income, a $148,000 increase in non-interest
income and a $66,000 decrease in non-interest expense, which is partially offset
by a $141,000 increase in income tax expense and an increased provision for
possible credit losses of $38,000.
Net Interest Income
Net interest income for the three months ended March 31, 1996 increased 2.22%,
or $52,000 over the comparable period in 1995. The net interest margin decreased
14 basis points from 6.51% to 6.37%.
Interest income for the quarter ended March 31, 1996 increased $200,000 over the
first quarter of 1995. Of this increase, approximately $160,000 is attributed to
an increase in the average volume of earning assets, and approximately $40,000
is the result of an 11 basis point increase in the aggregate yield on earning
assets. Total interest expense for the quarter also increased over the
comparable quarter of the prior year by $148,000. Of this increase,
approximately $84,000 was due to an increase in the average volume of interest
bearing liabilities, and $64,000 was due to a 20 basis point increase in the
aggregate cost of funds.
Non-Interest Income
Total non-interest income for the quarter ended March 31, 1996 increased 41.8%
or $148,000 from the first quarter of 1995. Of this increase, $96,000 is due to
a significant upsurge in the volume of mortgage loan originations which began at
the end of 1995. Service charges on deposit accounts also increased by $34,000
over this period as the result of a reconfiguration of the deposit products
offered by the Bank, including adjustments of fees, service charges and minimum
balances.
Non-interest Expense
Total non-interest expense for the quarter ended March 31, 1996 decreased
$66,000, or 3.04% over the first quarter of 1995. Non-interest expense for the
three months ended March 31, 1996 and 1995 divided by total assets at the end of
the same periods was 1.22% and 1.32%, respectively, which indicates that the
Company was able to grow its asset base without increasing additional operating
costs.
9
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FIRST COMMUNITY FINANCIAL GROUP, INC.
PART II - OTHER INFORMATION
ITEM 5 OTHER INFORMATION
On May 9, 1996, John R. Johnson Sr., the President of First Community Bank, the
Company's primary subsidiary, announced his resignation. Ken F. Parsons, the
Company's President and CEO, and also the CEO and Chairman of First Community
Bank, has been named President of the Bank.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits None
(b) Reports on Form 8-K None
10
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FIRST COMMUNITY FINANCIAL GROUP, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST COMMUNITY FINANCIAL GROUP, INC.
(Registrant)
Date: May 10, 1996 By: /s/ Ken F. Parsons
--------------------------
Ken F. Parsons
President, Chief Executive Officer
By: /s/ James F. Arneson
--------------------------
James F. Arneson
Executive Vice President,
Chief Financial Officer
(Principal Accounting Officer)
11
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 9974
<INT-BEARING-DEPOSITS> 4869
<FED-FUNDS-SOLD> 2000
<TRADING-ASSETS> 3396
<INVESTMENTS-HELD-FOR-SALE> 7181
<INVESTMENTS-CARRYING> 5782
<INVESTMENTS-MARKET> 0
<LOANS> 128294
<ALLOWANCE> 1407
<TOTAL-ASSETS> 173286
<DEPOSITS> 151393
<SHORT-TERM> 0
<LIABILITIES-OTHER> 933
<LONG-TERM> 1216
0
0
<COMMON> 4235
<OTHER-SE> 15509
<TOTAL-LIABILITIES-AND-EQUITY> 173286
<INTEREST-LOAN> 3483
<INTEREST-INVEST> 266
<INTEREST-OTHER> 22
<INTEREST-TOTAL> 3771
<INTEREST-DEPOSIT> 1351
<INTEREST-EXPENSE> 1377
<INTEREST-INCOME-NET> 2394
<LOAN-LOSSES> 61
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2108
<INCOME-PRETAX> 727
<INCOME-PRE-EXTRAORDINARY> 522
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 522
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
