<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 1998
--------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ____________ to ____________
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
Indicate by check mark 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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Title of Class Outstanding at March 31, 1998
-------------- -----------------------------
Common Stock 1,995,426
<PAGE>
FIRST COMMUNITY FINANCIAL GROUP, INC.
Table of Contents
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
<S> <C>
Item 1 Financial Statements
Condensed Consolidated Balance Sheets. . . . . . . . . . . . . . . . .3
Condensed Consolidated Statements of Income and Comprehensive Income .4
Condensed Consolidates Statement of Stockholders' Equity . . . . . . .5
Condensed Consolidated Statements of Cash Flows. . . . . . . . . . . .6
Notes to Condensed Consolidated Financial Statements . . . . . . . . .7
Item 2 Management's Discussion of Financial Condition and
Analysis of Plan of Operations . . . . . . . . . . . . . . . . . . . .8
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . 11
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
2
<PAGE>
FIRST COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------
March 31 December 31
1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 12,994 $ 11,620
Interest bearing deposits in banks 962 5,648
Federal funds sold 42,000 11,000
Securities available for sale 47,142 41,658
Securities held to maturity 908 959
Loans held for sale 6,071 4,304
Loans 187,785 194,861
Less allowance for possible credit losses 2,201 2,122
NET LOANS 185,584 192,739
Premises and equipment 10,469 10,683
Goodwill 7,782 7,884
Other assets 8,195 7,979
TOTAL ASSETS $ 322,107 $ 294,474
LIABILITIES
Deposits:
Non-interest bearing $ 42,289 $ 43,245
Interest bearing 247,243 219,876
TOTAL DEPOSITS 289,532 263,121
Long term debt 3,765 3,818
Other liabilities 1,912 1,370
TOTAL LIABILITIES 295,209 268,309
STOCKHOLDERS' EQUITY
Common stock, par value $2.50 per share; 4,988 4,988
10,000,000 shares authorized, 1,995,426 shares issued
in 1998, and 1,995,426 shares issued in 1997
Surplus 20,459 20,459
Retained earnings 2,312 1,596
Accumulated other comprehensive income 55 68
Guaranteed KSOP obligation (916) (946)
TOTAL STOCKHOLDERS' EQUITY 26,898 26,165
TOTAL LIABILITIES AND STOCKHOLDERS'EQUITY $ 322,107 $ 294,474
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
FIRST COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited)
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- ---------------------------------------------------------------------------------------------------------
Three months ended
March 31
- ---------------------------------------------------------------------------------------------------------
1998 1997
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $4,897 $4,121
Federal funds sold and deposits in banks 203 46
Investments 787 305
TOTAL INTEREST INCOME 5,887 4,472
INTEREST EXPENSE
Deposits 2,308 1,601
Other 56 26
TOTAL INTEREST EXPENSE 2,364 1,627
NET INTEREST INCOME 3,523 2,845
Provision for possible credit losses 130 60
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE CREDIT LOSSES 3,393 2,785
NON-INTEREST INCOME
Service charges on deposit accounts 479 319
Origination fees on mortgage loans sold 301 118
Other income 310 93
TOTAL NON-INTEREST INCOME 1,090 530
NON-INTEREST EXPENSE
Salaries and employee benefits 1,965 1,455
Occupancy and equipment 571 427
Other expense 911 856
TOTAL NON-INTEREST EXPENSE 3,447 2,738
OPERATING INCOME BEFORE INCOME TAXES 1,036 577
Income Taxes 320 164
NET INCOME $ 716 $ 413
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized holding gains (losses) on securities arising during the period (13) (35)
COMPREHENSIVE INCOME $ 703 $ 378
EARNINGS PER SHARE DATA
BASIC EARNINGS PER SHARE $ .37 $ .24
DILUTED EARNINGS PER SHARE $ .34 $ .23
Weighted average number of common shares outstanding 1,947,958 1,700,557
Weighted average number of common shares outstanding,
Including dilutive stock options 2,100,009 1,819,977
Return on average assets 0.93% 0.75%
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
FIRST COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997 and Three Months Ended March 31, 1998
Accumulated
Other Guaranteed
Common Retained Comprehensive Ksop
Stock Surplus Earnings Income Obligation Total
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $4,246 $13,745 $3,186 ($13) $ (245) $20,919
Net income -- -- 719 -- -- 719
Stock options exercised 44 159 -- -- -- 203
5% stock dividend 234 2,062 (2,309) -- -- (13)
Stock repurchased (306) (2,206) -- -- -- (2,512)
Other comprehensive income -- -- -- 81 -- 81
Stock issued for purchase of
Prairie Security Bank 770 6,699 -- -- -- 7,469
Net Increase in guaranteed
KSOP obligation -- -- -- -- (701) (701)
BALANCE, DECEMBER 31, 1997 4,988 20,459 1,596 68 (946) 26,165
Net income -- -- 716 -- -- 716
Other comprehensive income -- -- -- (13) -- (13)
Net decrease in guaranteed
KSOP obligation -- -- -- -- 30 30
BALANCE, MARCH 31, 1998 $4,988 $20,459 $2,312 $55 ($916) $26,898
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
FIRST COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- -----------------------------------------------------------------------------------------------
Three months ended
March 31
1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 716 $ 413
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for possible credit losses 130 60
Depreciation and amortization 294 245
Amortization of goodwill 102 17
Other - net 802 974
Originations of loans held for sale (8,878) (3,954)
Proceeds from sales of loans held for sale 7,111 2,654
NET CASH PROVIDED BY OPERATING ACTIVITIES 277 409
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in interest bearing deposits in banks 4,686 (817)
Net (increase) decrease in Federal funds sold (31,000) 2.000
Proceeds from sales of available-for-sale securities 8,984 0
Purchase of available-for-sale securities (14,926) (4,665)
Proceeds from maturities of held-to-maturity securities 50 1,000
Net (increase) decrease in loans 7,025 (41,367)
Additions to premises and equipment (80) (2,084)
Increase in goodwill 0 (5,074)
NET CASH (USED) BY INVESTING ACTIVITIES (25,261) (51,007)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 26,411 47,670
Sale of common stock 0 7,257
Repurchase of common stock 0 (2,511)
Repayment of long-term borrowings (53) (23)
NET CASH PROVIDED BY FINANCING ACTIVITIES 26,358 52,393
NET CHANGE IN CASH AND DUE FROM BANKS 1,374 1,795
CASH AND DUE FROM BANKS:
Beginning of period 11,620 8,467
END OF PERIOD $12,994 $10,262
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAYMENTS FOR:
Interest $ 5,660 $ 1,538
Taxes 30 170
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING ACTIVITIES:
Other real estate acquired in settlement of loans 943 192
Increase (decrease) in guarantee of KSOP obligation (30) 980
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
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 (consisting of normally recurring accruals)
have been included. Operating results for the three months ended March 31, 1998
are not necessarily indicative of the results anticipated for the year ended
December 31, 1998.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. BASIC AND DILUTED EARNINGS PER SHARE
Basic and diluted earnings per share are calculated by dividing net income by
the weighted average number of common shares outstanding during the periods
presented. Diluted earnings per share assumes that all dilutive stock options
outstanding are issued such that their dilutive effect is maximized.
3. ACCOUNTING CHANGES
In the quarter ended March 31, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME (SFAS No. 130),
which was effective for years beginning after December 15, 1997. SFAS No. 130
requires that an entity report and display comprehensive income with the same
prominence as other financial statements. Comprehensive income is defined as
the change in equity of a business enterprise during a period from transactions
and other events and circumstances from nonowner sources. It includes all
changes in equity during a period except those resulting from investments by
owners and distributions to owners. With regard to the Company, currently the
only items of comprehensive income are changes in the fair value of the
available for sale securities portfolio. Accordingly, changes in the value of
that portfolio during the period, net of tax, are reported as "Other
Comprehensive Income" in the accompanying Consolidated Statement of Income and
Comprehensive Income. Changes in the fair value of the available for sale
securities portfolio for the year ended December 31, 1997, which were previously
reported in the Consolidated Statement of Shareholders' Equity, have been
reclassified and retroactively reported as Other Comprehensive Income. The
cumulative adjustment, net of tax, to record the available for sale securities
portfolio at fair value at period end was previously reported as "Net unrealized
gain (loss) on securities available for sale, net of tax" in the Company's
consolidated balance sheets. That cumulative adjustment is now termed
"Accumulated other comprehensive income". There was no effect on previously
reported net income as a result of this reporting change.
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information". SFAS
131 requires public companies to report financial and descriptive information
about their operating segments. Operating segments are components of a business
about which separate financial information is available that is evaluated
regularly by the chief operating decision-maker in deciding how to allocate
resources and in addressing performance. The adoption of SFAS 131 is required
for fiscal years beginning after December 15, 1997. Thus it will be effective
for the year ending December 31, 1998, although interim presentations in the
year of adopting are not required.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This discussion contains certain forward-looking statements within the meaning
of the federal securities laws. Actual results and the timing of certain events
could differ materially from those projected in the forward-looking statements
due to a number of factors.
FINANCIAL CONDITION
OVERVIEW
The Company's consolidated total assets at March 31, 1998 of $322,107,000
represents a 9.4% increase over December 31, 1997 assets of $294,474,000. The
increased assets are directly related to the corresponding 10.0% increase in
total deposits. Deposits in the first quarter have been subjected to short term
fluctuations in balances of as much as $40,000,000. The deposits at March 31,
1998 represented such a fluctuation. On March 31, 1998 a very large
transactional depositor received wires totaling nearly $84,000,000. Nearly
$44,000,000 was immediately wired out, leaving a net increase of $40,000,000 for
the day. The balance of these funds were subsequently disbursed as well. As a
consequence, the balance in federal funds sold increased by 282% from
$11,000,000 at December 31, 1997 to $42,000,000 at March 31, 1998.
Loan balances in aggregate, net of loan loss reserve, decreased by $5,388,000,
or 2.7%, to $191,655,000. The loan to deposit ratio decreased to 67.0% from
75.7% at December 31, 1997. This decrease is a result of the deposit
transactions previously discussed. The average loan to deposit ratio through
March 31, 1998 was 73.2%. The bank is operating in a competitive market and an
environment of historically low rates. Loan balances are being subjected to
increased prepayments or refinancing of existing loans. The Company is actively
managing the balance between protecting the credit quality of the portfolio and
the addition to the portfolio of loans that satisfy desired rates and terms.
Based on the number and amount of loans in process, as well as the bank's
experience of softer first quarter loan demand, it is expected that loan volume
will increase throughout the remainder of the year.
Nonperforming assets were as follows (dollars in thousands):
<TABLE>
<CAPTION>
March 31 December 31
1998 1997
<S> <C> <C>
Non-accrual loans $4,036 $4,381
Accruing loans past due 90 days or more 108 319
Foreclosed real estate 2,871 2,105
Other assets 133 132
$7,148 $6,937
</TABLE>
Total nonperforming assets increased three percent, or $211,000. This includes
the effects of a $345,000 decrease in non-accrual loans, and a $766,000 increase
in foreclosed real estate.
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 $79,000 in the first quarter
of 1998. The ratio of allowance for possible credit losses to total loans was
increased to 1.17% from 1.09% at December 31, 1997. The dollar value change in
the allowance consisted of $130,000 of provisions, offset by $51,000 in net
charge offs.
Investment securities have increased by $5,433,000, or 12.7% during the first
quarter to total $48,050,000. Portfolio management emphasis has been placed on
acquiring primarily shorter term securities in this environment of historically
low rates. The securities are highly marketable and are a primary source of
liquidity for the Company.
8
<PAGE>
CAPITAL
Consolidated capital of FCFG increased $733,000 during the first quarter of
1998. The components increasing this amount included increased retained
earnings and a reduction in the guaranteed KSOP obligation, offset by a
reduction in the balance of accumulated other comprehensive income.
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, 1998, the Company's leverage ratio was 5.92%, compared to
6.58% at year-end 1997. For regulatory purposes, the associated goodwill is
treated as a reduction of capital. In addition, banks and 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 credit 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%. At
March 31, 1998, the Tier I capital ratio was 8.05%, and total capital was
8.98%.The similar ratios at December 31, 1997 were a Tier I capital ratio of
8.30% and a total capital ratio of 9.22%.
RESULTS OF OPERATIONS
GENERAL
Net income for the three months ended March 31, 1998 was $716,000, compared to
$413,000 for the three months ended March 31, 1997. This 73.4% increase is due
to the growth experienced during 1997. The first quarter of 1998 includes the
full effect of the assets acquired in connection with the Prairie Security Bank
acquisition which occurred during the first quarter of 1997, as well as the
acquisition of four Wells Fargo branches during the third quarter of last year.
As a result of this growth, increases are experienced in every category on the
Statement of Income. Greater deposit balances created more earning assets upon
which interest income is generated. Higher loan, federal funds sold, and
investment balances correspondingly generated greater interest income. Those
same deposit increases generated greater interest expenses. The expansion of
depositors increased fees generated on such accounts. The expansion of the
mortgage department is exhibited in the increased mortgage loan origination
fees. The increased size of the Company brought a corresponding increase in
infrastructure and the non-interest expenses incurred in operating the
organization.
Net interest income for the three months ended March 31, 1998 increased
$678,000, or 24% over the comparable period in 1997. The net interest margin
decreased 80 basis points from 6.35% to 5.55% over these periods.
Interest income for the three months ended March 31, 1998 increased $1,415,000
over the three months ended March 31, 1997. Of this increase, approximately
$1,709,000 is attributed to an increase in the average volume of earning assets,
offset by approximately $291,000 as a result of a 71 basis point decrease in the
aggregate yield on earning assets from 9.98% to 9.27%. The aggregate rate
reduction was a factor of the relative mix of the earning investments and their
rates. During the first quarter of 1998, a greater percentage of the bank's
earning assets were invested in marketable securities than in previous periods.
The yield earned on these securities is less than that earned on the loan
portfolio, which has reduced the overall average yield on earning assets.
Total interest expense for the three months ended March 31, 1998 increased over
the comparable period of the prior year by $737,000, or 45%. Of this increase,
approximately $783,000 was due to an increase in the average volume of interest
bearing liabilities, offset by $46,000 due to a 13 basis point decrease in the
aggregate cost of funds.
9
<PAGE>
Non-interest income has expanded by 105.7% over prior year. This increase is
led by a 155% increase in mortgage loan origination fees, due to the expansion
of the mortgage department and the current refinancing environment. Service
charges on deposit accounts increased 50%, reflecting the bank's increased
deposit base. Other income grew from $93,000 in the first quarter of 1997, to
$310,000 in the current quarter due to growth in the sales of non-deposit
investment products, income from introduction of debit card product and gain on
asset sales.
Non-interest expenses for the first quarter of 1998 increased by $709,000, or
25.9% over the first quarter of 1997. This reflects the increased size of the
organization and its operating costs. However, the ratio of non-interest
expense to average assets declined 13% from 5.41 for the quarter ended March 31,
1997, to 4.69 in the current quarter, reflecting increased efficiencies. The
ratio of net overhead (non-interest expense minus non-interest income) divided
by average total assets decreased 26% from 4.36 for the quarter ended March 31,
1997 to 3.21 for the quarter ended March 31, 1998.
The Year 2000 presents a myriad of potential challenges for software and
hardware providers. The Company is actively reviewing its systems to insure the
Company is able to efficiently process in the new millennium. The review
includes a study of the Company's hardware and software, a review of the
Company's vendors, and an analysis of the credit and liquidity risks associated
with customers who are not prepared for the conversion. It is estimated that
the Company will be fully compliant to meet all operating and regulatory issues
well in advance of December 31, 1999. Although not completely quantified, Year
2000 costs are not expected to exceed $150,000 and will be largely incurred
during 1998 and 1999.
10
<PAGE>
FIRST COMMUNITY FINANCIAL GROUP, INC.
PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(10)n Amendment to Settlement Agreement
between Michael D. Edwards and
Marieke G. Edwards, and First Community
Financial Group, Inc. and First
Community Bank
(27) Financial Data Schedule
(b) Reports on Form 8-K None
11
<PAGE>
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 14, 1997 By:
------------------------------
Ken F. Parsons
President, Chief Executive Officer
By:
------------------------------
James F. Arneson
Executive Vice President,
Chief Financial Officer
(Principal Accounting Officer)
12
<PAGE>
EXHIBIT (10) n.
AMENDMENT TO SETTLEMENT AGREEMENT
This Agreement is made as of May 6, 1998 between First Community Financial
Group ("FCFG"), First Community Bank ("Bank"), and Michael D. Edwards and
Marieke G. Edwards (collectively, "Edwards").
BACKGROUND
The parties entered into a Settlement Agreement in August, 1997, a copy of
which is attached as Exhibit A. Since entering into the Settlement Agreement,
disputes have arisen between the parties which they desire to resolve by
entering into this Amendment to the Settlement Agreement.
TERMS
The Settlement Agreement is hereby supplemented and amended as follows.
1. Concurrently with execution of this Amendment, Edwards shall execute a
Stock Purchase and Sale Agreement in the form attached as Exhibit B. The
Stock Purchase and Sale Agreement obligates Edwards to exercise the stock
options described in paragraph 5 of the Settlement Agreement and sell the
stock underlying the options to certain officers and directors of FCFG and
the Bank.
2. From and after the date of this Amendment, Edwards promises not to attend
any annual meeting of the Bank, either personally or by proxy, and promises
not to exercise any voting rights as to the shares of FCFG stock he
presently owns or which he will hereafter acquire upon exercise of his
stock options. Edwards also promises not to exercise any other rights he
may have as a shareholder of FCFG.
3. Edwards agrees that except to the extent that he must exercise the stock
options described above to perform the attached Stock Purchase and Sale
Agreement, he will not acquire record or beneficial ownership of any shares
of FCFG.
4. Edwards acknowledges that if he breaches paragraphs 13, 14, or 22 of the
Settlement Agreement, FCFG and Bank are likely to suffer significant injury
and damage which would be very difficult if not impossible to quantify.
FCFG and Bank acknowledge that if either of them breach paragraph 22 of the
Settlement Agreement, Edwards is also likely to suffer significant injury
and damage which would be very difficult if not impossible to quantify.
Consequently, from and after the date of this Amendment, if Edwards takes
any action which breaches paragraphs 13, 14, or 22 of the Settlement
Agreement or FCFG or Bank takes any action which breaches paragraph 22 of
the Settlement Agreement, the breaching party shall pay the non-breaching
party liquidated damages of $25,000 per occurrence within ten (10) days
after the breach is established.
1
<PAGE>
5. If one of the parties believes another has breached paragraphs 13, 14, or
22, such party shall notify the party alleged to have breached in writing
that a breach has occurred and describe the breach with specificity. If
the party alleged to have breached fails to pay the liquidated damages
amount within ten (10) days of receipt of this notice, the parties agree to
submit any such disputes to binding arbitration before a single arbitrator
in accordance with the Commercial Arbitration Rules of the American
Arbitration Association. Either party may commence the arbitration. If
the parties are unable to agree upon an arbitrator, the arbitrator shall be
appointed by the American Arbitration Association. The parties agree that
the substantially prevailing party in arbitration shall be entitled to
recover its/their costs and reasonable attorneys' fees from the other
party(ies).
6. Bank and FCFG release Edwards, and Edwards releases Bank and FCFG from any
claims they have or may have against one another for breach of the
Settlement Agreement on or before the date of this Amendment, whether known
or unknown. By executing this Amendment, neither party admits or
acknowledges that it has breached the Settlement Agreement.
7. Each party shall pay one-half of the cost of the April 21, 1998 mediation
and bear its own attorney's fees and other costs.
8. Except as amended herein, the Settlement Agreement remains in full force
and effect, including but not limited to the confidentiality provisions
which shall apply to this Amendment. If FCFG determines that it must file
this Amended Settlement Agreement with the SEC, Edwards agrees that such
filing will not breach the Settlement Agreement and that FCFG need not
seek Confidential Treatment of this Amended Settlement Agreement from the
SEC.
FIRST COMMUNITY BANK
Date: May 11, 1998 By /s/ Ken F. Parsons
-------------------- ---------------------------------
Its CEO
--------------------------------
FIRST COMMUNITY FINANCIAL GROUP
Date: May 11, 1998 By /s/ Ken F. Parsons
-------------------- ---------------------------------
Its CEO
--------------------------------
Date: May 6, 1998 /s/ Michael D. Edwards
-------------------- -----------------------------------
MICHAEL D. EDWARDS
Date: May 6, 1998 /s/ Marieke G. Edwards
-------------------- -----------------------------------
MARIEKE G. EDWARDS
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 12,994
<INT-BEARING-DEPOSITS> 962
<FED-FUNDS-SOLD> 42,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 47,142
<INVESTMENTS-CARRYING> 908
<INVESTMENTS-MARKET> 967
<LOANS> 193,856
<ALLOWANCE> 2,201
<TOTAL-ASSETS> 322,107
<DEPOSITS> 289,532
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,912
<LONG-TERM> 3,765
0
0
<COMMON> 4,988
<OTHER-SE> 21,910
<TOTAL-LIABILITIES-AND-EQUITY> 322,107
<INTEREST-LOAN> 4,897
<INTEREST-INVEST> 787
<INTEREST-OTHER> 203
<INTEREST-TOTAL> 5,887
<INTEREST-DEPOSIT> 2,308
<INTEREST-EXPENSE> 2,364
<INTEREST-INCOME-NET> 3,523
<LOAN-LOSSES> 130
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,447
<INCOME-PRETAX> 1,036
<INCOME-PRE-EXTRAORDINARY> 1,036
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 716
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</TABLE>
