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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 September 30, 2000
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 (State or other jurisdiction of incorporation or organization) |
91 -1277503 (IRS Employer Identification Number) |
|
721 College Street. SE, P.O. Box 3800, Lacey, WA 98509 (Address of principal executive offices) |
Registrant's telephone number: (360) 459-1100
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No / /
Indicate the number of shares outstanding in each of the issuer's classes of common stock, as of the latest practicable date.
Title of Class |
Outstanding at September 30, 2000 |
|
Common Stock, $2.50 par value | 2,165,988 |
First Community Financial Group, Inc.
Table of Contents
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Page |
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PART IFINANCIAL INFORMATION | ||||
Item 1 |
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Financial Statements |
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Condensed Consolidated Balance Sheets |
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3 |
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Condensed Consolidated Statements of Income and Comprehensive Income |
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4 |
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Condensed Consolidated Statement of Stockholders' Equity |
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5 |
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Condensed Consolidated Statements of Cash Flows |
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6 |
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Notes to Condensed Consolidated Financial Statements |
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7 |
Item 2 |
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Management's Discussion of Financial Condition and Analysis or Plan of Operations |
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8 |
PART IIOTHER INFORMATION |
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Item 6 |
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Exhibits and Reports on Form 8-K |
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14 |
SIGNATURES |
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15 |
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2
FIRST COMMUNITY FINANCIAL GROUP, INC. and SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
|
September 30 2000 |
December 31 1999 |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
(Dollars in thousands) |
|||||||||
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|
|
|
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|
|
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Assets | ||||||||||
Cash and due from banks | $ | 10,506 | $ | 10,349 | ||||||
Interest bearing deposits in banks | 175 | 136 | ||||||||
Securities available for sale | 27,232 | 28,439 | ||||||||
Securities held to maturity | 676 | 677 | ||||||||
Loans held for sale | 2,691 | 2,951 | ||||||||
Loans |
|
|
257,569 |
|
|
232,825 |
|
|||
Allowance for credit losses | 6,187 | 5,825 | ||||||||
Net loans | 251,382 | 227,000 | ||||||||
Premises and equipment |
|
|
9,904 |
|
|
9,187 |
|
|||
Foreclosed real estate | 1,133 | 1,890 | ||||||||
Accrued interest receivable | 1,940 | 1,226 | ||||||||
Cash value of life insurance | 2,927 | 3,014 | ||||||||
Goodwill | 6,779 | 7,085 | ||||||||
Other assets | 1,500 | 1,819 | ||||||||
Total assets | $ | 316,845 | $ | 293,773 | ||||||
Liabilities |
|
|||||||||
Deposits: | ||||||||||
Non-interest bearing | $ | 43,424 | $ | 42,481 | ||||||
Savings and interest bearing demand | 96,584 | 105,519 | ||||||||
Interest bearing | 122,554 | 97,527 | ||||||||
Total deposits | 262,562 | 245,527 | ||||||||
Federal funds purchased |
|
|
14,990 |
|
|
3,200 |
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|||
Short term borrowings | 2,547 | 10,335 | ||||||||
Long term debt | 1,347 | 2,030 | ||||||||
Accrued interest payable | 384 | 299 | ||||||||
Other liabilities | 2,264 | 1,764 | ||||||||
Total liabilities | 284,094 | 263,155 | ||||||||
Stockholders' Equity |
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|
|
|
|
|
|
|||
Common stock, par value $2.50 per share; 10,000,000 shares authorized, 2,165,988 shares issued in 2000, and 2,177,167 shares issued in 1999 |
5,415 | 5,443 | ||||||||
Surplus | 22,845 | 23,428 | ||||||||
Retained earnings | 5,333 | 2,855 | ||||||||
Accumulated other comprehensive loss | (595 | ) | (728 | ) | ||||||
Debt related to KSOP | (247 | ) | (380 | ) | ||||||
Total stockholders' equity | 32,751 | 30,618 | ||||||||
Total liabilities and stockholders' equity |
|
$ |
316,845 |
|
$ |
293,773 |
|
See notes to condensed consolidated financial statements
3
FIRST COMMUNITY FINANCIAL GROUP, INC. and SUBSIDIARIES
Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited)
|
Three months ended September 30 |
Nine months ended September 30 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2000 |
1999 |
2000 |
1999 |
||||||||||
|
(Dollars in thousands, except per share amounts) |
|||||||||||||
Interest income | ||||||||||||||
Loans | $ | 6,466 | $ | 5,312 | $ | 18,855 | $ | 15,097 | ||||||
Federal funds sold and deposits in banks | 1 | 14 | 83 | 88 | ||||||||||
Investments | 437 | 478 | 1,336 | 1,488 | ||||||||||
Total interest income | 6,904 | 5,804 | 20,274 | 16,673 | ||||||||||
Interest Expense |
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Deposits | 2,502 | 1,718 | 6,871 | 5,166 | ||||||||||
Other | 238 | 188 | 771 | 297 | ||||||||||
Total interest expense | 2,740 | 1,906 | 7,642 | 5,463 | ||||||||||
Net interest income |
|
|
4,164 |
|
|
3,898 |
|
|
12,632 |
|
|
11,210 |
|
|
Provision for credit losses |
|
|
120 |
|
|
120 |
|
|
410 |
|
|
360 |
|
|
Net interest income after provision for credit losses |
|
|
4,044 |
|
|
3,778 |
|
|
12,222 |
|
|
10,850 |
|
|
Non-interest income | ||||||||||||||
Service charges on deposit accounts | 483 | 491 | 1,445 | 1,443 | ||||||||||
Origination fees on mortgage loans sold | 277 | 284 | 718 | 873 | ||||||||||
Other income | 638 | 412 | 1,679 | 1,106 | ||||||||||
Total non-interest income | 1,398 | 1,187 | 3,842 | 3,422 | ||||||||||
Non-interest expense | ||||||||||||||
Salaries and employee benefits | 2,113 | 1,963 | 6,294 | 5,976 | ||||||||||
Occupancy and equipment | 548 | 573 | 1,642 | 1,667 | ||||||||||
Other expense | 1,138 | 1,039 | 3,399 | 3,107 | ||||||||||
Total non-interest expense | 3,799 | 3,575 | 11,335 | 10,750 | ||||||||||
Operating income before income taxes |
|
|
1,643 |
|
|
1,390 |
|
|
4,729 |
|
|
3,522 |
|
|
Income Taxes |
|
|
551 |
|
|
434 |
|
|
1,599 |
|
|
1,123 |
|
|
Net income |
|
$ |
1,092 |
|
$ |
956 |
|
$ |
3,130 |
|
$ |
2,399 |
|
|
Other comprehensive income, net of tax | ||||||||||||||
Unrealized holding losses on securities arising during the period | 193 | (270 | ) | 133 | (407 | ) | ||||||||
Comprehensive income | $ | 1,285 | $ | 686 | $ | 3,263 | $ | 1,992 | ||||||
Earnings per share data | ||||||||||||||
Basic earnings per share | $ | 0.51 | $ | 0.44 | $ | 1.45 | $ | 1.13 | ||||||
Diluted earnings per share | $ | 0.49 | $ | 0.41 | $ | 1.41 | $ | 1.06 | ||||||
Weighted average number of common shares |
|
|
2,150,816 |
|
|
2,175,667 |
|
|
2,152,480 |
|
|
2,130,239 |
|
|
Weighted average number of common sharesincluding dilutive stock options | 2,216,549 | 2,317,196 | 2,218,212 | 2,271,767 | ||||||||||
Return on average assets |
|
|
1.39 |
% |
|
1.33 |
% |
|
1.34 |
% |
|
1.15 |
% |
|
Dividends per share | $ | 0.10 | $ | 0.09 | $ | 0.30 | $ | 0.49 |
See notes to condensed consolidated financial statements
4
FIRST COMMUNITY FINANCIAL GROUP, INC. and SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
Nine Months Ended September 30, 1999 and 2000
|
Common Stock |
Surplus |
Retained Earnings |
Accumulated Other Comprehensive Income (Loss) |
Debt Related to KSOP |
Total |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(Dollars in thousands) |
|||||||||||||||||||
Balance, December 31, 1998 |
|
$ |
5,315 |
|
$ |
22,849 |
|
$ |
2,757 |
|
$ |
28 |
|
$ |
(608 |
) |
$ |
30,341 |
|
|
Net income |
|
|
|
|
|
|
|
|
2,399 |
|
|
|
|
|
|
|
|
2,399 |
|
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Stock options exercised |
|
|
124 |
|
|
391 |
|
|
|
|
|
|
|
|
|
|
|
515 |
|
|
Cash dividend ($0.49 per share) |
|
|
|
|
|
|
|
|
(1,065 |
) |
|
|
|
|
|
|
|
(1,065 |
) |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
(407 |
) |
|
|
|
|
(407 |
) |
|
Net decrease in debt related to KSOP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
183 |
|
|
183 |
|
|
Balance, September 30, 1999 |
|
$ |
5,439 |
|
$ |
23,240 |
|
$ |
4,091 |
|
$ |
(379 |
) |
$ |
(425 |
) |
$ |
31,966 |
|
|
Balance, December 31, 1999 |
|
$ |
5,443 |
|
$ |
23,428 |
|
$ |
2,855 |
|
$ |
(728 |
) |
$ |
(380 |
) |
$ |
30,618 |
|
|
Net income |
|
|
|
|
|
|
|
|
3,130 |
|
|
|
|
|
|
|
|
3,130 |
|
|
Stock options exercised |
|
|
72 |
|
|
251 |
|
|
|
|
|
|
|
|
|
|
|
323 |
|
|
Cash dividend ($0.30 per share) |
|
|
|
|
|
|
|
|
(652 |
) |
|
|
|
|
|
|
|
(652 |
) |
|
Stock repurchased |
|
|
(100 |
) |
|
(834 |
) |
|
|
|
|
|
|
|
|
|
|
(934 |
) |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
133 |
|
|
|
|
|
133 |
|
|
Net decrease in debt related to KSOP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133 |
|
|
133 |
|
|
Balance, September 30, 2000 |
|
$ |
5,415 |
|
$ |
22,845 |
|
$ |
5,333 |
|
$ |
(595 |
) |
$ |
(247 |
) |
$ |
32,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements
5
FIRST COMMUNITY FINANCIAL GROUP, INC. and SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
|
Nine months ended September 30 |
||||||||
---|---|---|---|---|---|---|---|---|---|
|
2000 |
1999 |
|||||||
|
(Dollars in thousands) |
||||||||
Cash Flows from Operating Activities | |||||||||
Net Income | $ | 3,130 | $ | 2,399 | |||||
Adjustments to reconcile net income to net cash provided by (used in) Operating activities: | |||||||||
Provision for credit losses | 410 | 360 | |||||||
Depreciation and amortization | 824 | 808 | |||||||
Amortization of intangible assets | 306 | 306 | |||||||
Othernet | (327 | ) | 176 | ||||||
Originations of loans held for sale | (48,834 | ) | (37,081 | ) | |||||
Proceeds from sales of loans held for sale | 49,094 | 37,791 | |||||||
Net cash provided by operating activities | 4,603 | 4,759 | |||||||
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
||
Net increase in interest bearing deposits in banks | (39 | ) | (12 | ) | |||||
Net increase in Federal funds sold | 0 | 215 | |||||||
Proceeds from maturities of available-for-sale securities | 1,504 | 18,344 | |||||||
Purchase of available-for-sale securities | 0 | (13,783 | ) | ||||||
Net increase in loans | (24,182 | ) | (24,867 | ) | |||||
Proceeds from sale of other real estate | 910 | 0 | |||||||
Additions to premises and equipment | (1,730 | ) | (621 | ) | |||||
Net cash used by investing activities | (23,537 | ) | (20,724 | ) | |||||
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
||
Net increase in deposits | 17,035 | 9,151 | |||||||
Net increase in federal funds purchased and short-term borrowings | 4,002 | 6,176 | |||||||
Sale of common stock | 323 | 515 | |||||||
Repurchase of common stock | (934 | ) | 0 | ||||||
Repayment of long-term borrowings | (683 | ) | (733 | ) | |||||
Payment of dividends | (652 | ) | (1,065 | ) | |||||
Net cash provided by financing activities | 19,091 | 14,044 | |||||||
Net change in cash and due from banks |
|
|
157 |
|
|
(1,921 |
) |
||
Cash and Due from Banks: |
|
|
|
|
|
|
|
||
Beginning of period | 10,349 | 12,315 | |||||||
End of period |
|
$ |
10,506 |
|
$ |
10,394 |
|
||
Supplemental Disclosures of Cash Flow Information: | |||||||||
Cash payments for: | |||||||||
Interest | $ | 7,557 | $ | 5,545 | |||||
Taxes | 1,568 | 1,005 | |||||||
Supplemental Disclosures of Non-Cash Investing Activities: | |||||||||
Other real estate acquired in settlement of loans | 647 | 334 | |||||||
Decrease in guarantee of KSOP obligation | (133 | ) | (183 | ) | |||||
Loans on sale of foreclosed real estate | (610 | ) | 0 |
See notes to condensed consolidated financial statements
6
FIRST COMMUNITY FINANCIAL GROUP, INC. and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with instructions to Form 10-Q 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 nine months ended September 30, 2000 are not necessarily indicative of the results anticipated for the year ending December 31, 2000.
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 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.
7
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 September 30, 2000 of $316,845,000 represents an 7.9% increase over December 31, 1999 assets of $293,773,000. The growth in assets was primarily made up of growth in loan demand. Loan balances, net of allowance for credit losses, increased $24,122,000, or 10.4%, in the first three quarters to $254,073,000 from $229,951,000 at December 31, 1999. Loan quality, as shown in the schedule of nonperforming assets detailed below, diminished from the prior year end.
Nonperforming assets were as follows (dollars in thousands):
|
September 30 2000 |
December 31 1999 |
||||
---|---|---|---|---|---|---|
Non-accrual loans | $ | 3,932 | $ | 1,476 | ||
Accruing loans past due 90 days or more | 1,033 | 28 | ||||
Foreclosed real estate | 1,133 | 1,890 | ||||
Other assets | 7 | 24 | ||||
$ | 6,105 | $ | 3,418 |
Non-accrual loans increased by $3,412,000 during the third quarter and are $2,456,000 higher than at the end of 1999. The primary reason for the increase in non-accrual loans was due to the classification as non-accrual of a loan which has been reserved for in the fourth quarter of 1999. During the third quarter, the loan became delinquent to the extent that management has removed it from accruing status. Accruing loans past due 90 days or more decreased $93,000 from June 30, 2000 but are $1,005,000 over prior year end. Loans in this category must be well secured and in the process of collection for the accrual of interest to continue. These loans are monitored and may be reclassified as non-accrual as conditions warrant. Foreclosed real estate has been reduced by $757,000 from prior year end and declined by $189,000 during the third quarter of 2000.
The allowance for 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 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 credit losses to be adequate.
The allowance for credit losses increased $362,000 in the first three quarters of 2000. The ratio of allowance for credit losses to total loans decreased to 2.40% from 2.50% at December 31, 1999. The dollar value change in the allowance consisted of $410,000 of provision less $48,000 in net charge offs of loans. The current allowance for credit losses and its associated ratio remains historically high due to a specific allowance made on an impaired loan in the fourth quarter of 1999 which continues to be impaired at September 30, 2000. That loan is being monitored closely and was placed on non-accrual status during the third quarter. Management believes, based on available data, that any losses which may be realized on this loan will not exceed the specific allowance provided.
8
Investment securities decreased by $1,208,000, or 4.1% during the first three quarters to total $27,908,000. Securities have continued to decease due to maturities or prepayments made on asset-backed securities. No additional securities purchases have been made during the year due to loan growth. Portfolio balances are managed in conjunction with the remainder of the balance sheet and support the lending and depository functions of the Bank. Balances will increase and decrease to meet liquidity demands.
Total deposits increased $17,035,000, or 6.9% in the nine months ended September 30, 2000 to $262,562,000. An increase in time deposits of $25,027,0000, or 25.7%, was offset by declines totaling $8,935,000, or 8.5%, in savings and interest bearing demands balances. The primary reason for the shift in composition of deposits was a promotional campaign directed at time deposit consumers. This promotion, as intended, provided funding for the loan growth and improved liquidity. Short term borrowings have also been used as a funding source alternative to time deposit promotion. Fed funds purchased and short term borrowings increased by $4,002,000 from the balances at December 31, 1999.
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/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 interest bearing deposits in banks and federal funds sold and investment securities, particularly those of shorter maturity, and are the principal source of asset liquidity. At September 30, 2000, cash, deposits in banks, federal funds sold and securities available for sale totaled $37,913,000. External sources refer to the ability to attract new liabilities and capital. They include increasing savings and demand deposits, federal funds purchased, borrowings and the issuance of capital and debt securities. At September 30, 2000, borrowing lines of credit totaled $37,785,000. These credit facilities are being used regularly as a source of funds as a result of loan growth. $14,990,000 was being borrowed against these lines of credit in the form of federal funds purchased as of September 30, 2000.
Management believes the Bank's liquidity position at September 30, 2000, 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
9
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.
Interest Rate Gap Analysis
September 30, 2000
|
Within One Year |
After One But Within Five Years |
After Five Years |
Total |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(dollars in thousands) |
||||||||||||
Loans | $ | 85,513 | $ | 133,361 | $ | 41,386 | $ | 260,260 | |||||
Securities: | |||||||||||||
Available for sale | 2,073 | 12,609 | 11,298 | 25,980 | |||||||||
Held to maturity | | 270 | 406 | 676 | |||||||||
Interest bearing deposits with banks | 175 | | | 175 | |||||||||
Total Earning Assets | $ | 87,761 | $ | 146,240 | $ | 53,090 | $ | 287,091 | |||||
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, NOW and money market | $ | 96,584 | | | $ | 96,584 | |||||||
Time deposits | 119,263 | $ | 3,291 | | 122,554 | ||||||||
Short-term borrowings | 17,537 | | | 17,537 | |||||||||
Long-term debt | | 1,347 | | 1,347 | |||||||||
Total Interest Bearing Liabilities | $ | 233,384 | $ | 4,638 | | $ | 238,022 | ||||||
Net Interest Rate Sensitivity Gap | $ | (145,623 | ) | $ | 141,602 | $ | 53,090 | $ | 49,069 |
The Company's market risk is impacted by changes in interest rates. Other types of market risk, such as foreign currency exchange rate risk and commodity price risk, do not arise in the normal course of the Company's business.
The Company has market risk in the form of interest rate risk on its financial assets. In an effort to understand the relative impact of this risk on the Company's current financial situation, a process known as a rate shock is applied to the current financial assets.
Rate shock is a process wherein the characteristics of the financial assets of the Company are reviewed in the event they are subjected to an instantaneous and complete adjustment in the market rate of interest. These results are modeled to determine the effects on interest rate margin for the succeeding twelve months from the repricing of variable rate assets and liabilities where applicable. The level of impact on the various assets and liabilities are also estimated for their sensitivity to pricing changes of such a market interest rate change. According to this model and its assumptions, in the event market interest rates were to immediately rise by 100 basis points the net interest margin would be negatively impacted by $424,000. Conversely, if rates were to fall by 100 basis points, the net interest margin would increase by $424,000.
Capital
Consolidated capital of FCFG increased $2,133,000 during the first three quarters of 2000. Increases come primarily from net income of $3,130,000, exercising of stock options of $323,000 and payments made on the debt related to the Company's KSOP plan amounting to $133,000. Reductions to capital were the result of a repurchase and retirement of stock for $934,000 and cash dividends paid of $652,000. Market value adjustments of securities available for sale also increased the amount of capital reported by $133,000.
10
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) to 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 September 30, 2000, the Company's leverage ratio was 8.78%, compared to 8.47% at year-end 1999. 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 total capital includes the allowance for possible credit losses, subject to 1.25% limitation of risk-adjusted assets. The rules require Tier I capital of 4% of risk-adjusted assets and total capital of 8%. At September 30, 2000, the Tier I capital ratio was 8.86%, and total capital was 10.12%. At December 31, 1999 the Tier I capital ratio was 8.94% and the total capital ratio was 10.21%.
Results of Operations
General
Net income for the nine months ended September 30, 2000 was $3,130,000, compared to $2,399,000 for the same period in 1999. This represents a 30.5% increase over the prior year. Net income for the three months ended September 30, 2000 was $1,092,000, compared to $956,000 for the three months ended September 30, 1999. This represents a 14.2% increase in net income for the period.
Net interest income increased $1,422,000, an increase of 12.7% for the nine months ended September 30, 2000 over the same period for 1999. Net interest income increased $266,000 for the three months ended September 30, 2000. This represents an increase of 6.8% over the prior year period. Increased balances and rates have contributed to the increases in both interest income and interest expense. These items are discussed in more detail in the following discussion.
Interest income for the nine months ended September 30, 2000 increased $3,601,000, or 21.6%, over the nine months ended September 30, 1999. Of this increase, approximately $2,944,000 is attributed to an increase in the average volume of earning assets. Average earning assets for the first nine months of 2000 are $37,243,000, or 15.2%, higher than 1999. The average rate earned on assets, which went to 9.61% from 9.12% for the nine month period, increased interest income by $657,000. The percentage of average loans to total average earning assets continued to increase over the prior year. The percentage of average loans to total average earning assets in the first three quarters of 2000 has increased to 89.4% from 85.5% in 1999. The average rate of return on assets increased 49 basis points as rate increases were realized in each earning asset class. Interest income for the three months ended September 30, 2000 was $1,100,000 higher than the same period in the previous year.
Total interest expense for the nine months ended September 30, 2000 increased $2,179,000, or 39.9%, from the comparable period of the prior year. Of the total increase in interest expense, $1,644,000 was related to the increased volumes of average interest bearing liabilities (primarily time deposits), which increased $31,238,000 to $231,263,000. The average cost of funds increased on time deposits and other borrowings, and decreased on savings, NOW and money market funds. The average rate of expense for deposits and borrowings in the first three quarter of 2000 increased from 3.65% in 1999 to 4.41%, an increase of 76 basis points. Total interest expense for the three months ended September 30, 2000 was $834,000 higher than the third quarter of 1999.
Net interest margin, defined as net interest income as a percentage of average earning assets, decreased by 16 basis points to 5.97% in the nine months ended September 30,2000 from 6.13% in the first three quarters of 1999.
11
The yield and cost of funds for earning assets and interest bearing liabilities were as follows as of and for the nine months ended September 30 (dollars in thousands):
|
2000 |
1999 |
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Average Balance |
Interest Income (Expense) |
Average Rates |
Average Balance |
Interest Income (Expense) |
Average Rates |
||||||||||||
Earning Assets: | ||||||||||||||||||
Loans (Interest and fees) | $ | 251,782 | $ | 18,855 | 10.00% | $ | 209,037 | $ | 15,097 | 9.66% | ||||||||
Federal funds sold and interest bearing deposits | 1,706 | 83 | 6.50% | 2,443 | 88 | 4.82% | ||||||||||||
Investment securities | 28,276 | 1,336 | 6.31% | 33,041 | 1,488 | 6.02% | ||||||||||||
Total earning assets and interest income | $ | 281,764 | $ | 20,274 | 9.61% | $ | 244,521 | $ | 16,673 | 9.12% | ||||||||
Interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Deposits: | ||||||||||||||||||
Savings, NOW, and Money Market Deposits | $ | 100,188 | $ | (1,803 | ) | 2.40% | $ | 111,633 | $ | (2,121 | ) | 2.54% | ||||||
Time deposits | 116,527 | (5,068 | ) | 5.81% | 81,187 | (3,045 | ) | 5.01% | ||||||||||
Total interest bearing deposits | $ | 216,715 | (6,871 | ) | 4.24% | $ | 192,820 | (5,166 | ) | 3.58% | ||||||||
Other borrowings |
|
|
14,548 |
|
|
(771 |
) |
7.08% |
|
|
7,205 |
|
|
(297 |
) |
5.51% |
||
Total interest bearing liabilities and interest expense | $ | 231,263 | $ | (7,642 | ) | 4.41% | $ | 200,025 | $ | (5,463 | ) | 3.65% | ||||||
Net interest income | $ | 12,632 | $ | 11,210 | ||||||||||||||
Net interest income as a percent percentage of average earning assets: | 5.97% | 6.13% |
An analysis of the change in net interest income is as follows for the nine months ended September 30 (dollars in thousands):
2000 compared to 1999
Increase (decrease) due to
|
Volume |
Rate |
Net |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Interest earned on: |
|
|
|
|
|
|
|
|
|
|
||
Loans |
|
$ |
3,197 |
|
$ |
561 |
|
$ |
3,758 |
|
||
Federal funds sold and deposits in banks |
|
|
(31 |
) |
|
26 |
|
|
(5 |
) |
||
Investment securities |
|
|
(222 |
) |
|
70 |
|
|
(152 |
) |
||
Total interest income |
|
|
2,944 |
|
|
657 |
|
|
3,601 |
|
||
Interest paid on: |
|
|
|
|
|
|
|
|
|
|
||
Savings, NOW and MMA |
|
|
(209 |
) |
|
(109 |
) |
|
(318 |
) |
||
Time deposits |
|
|
1,483 |
|
|
540 |
|
|
2,023 |
|
||
Other borrowings |
|
|
370 |
|
|
104 |
|
|
474 |
|
||
Total Interest expense |
|
|
1,644 |
|
|
535 |
|
|
2,179 |
|
||
Net interest income |
|
$ |
1,300 |
|
$ |
122 |
|
$ |
1,422 |
|
||
|
|
|
|
|
|
|
|
|
|
|
12
The change in interest due to both rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
Non-interest income increased by $420,000, or 12.3%, from the first three quarters of 1999. The primary reasons for the increase are $234,000 increase in the reported amount of certain equity investments accounted for at fair value, $198,000 increase realized in gains on the sale of a former branch building and $133,000 in additional revenues generated by the investment products division of the Company. Origination fees on mortgage loans sold decreased by $155,000, or 17.8%, from the prior year. Non-interest income for the three months ended September 30, 2000 increased over the prior year $211,000 due to the increased value of equity investments. Origination fees on mortgage loans sold decreased by $7,000, or 2.5%, from the prior year third quarter.
Non-interest expenses for the first nine months of 2000 increased by $585,000, or 5.4%, over the first three quarters of 1999. The salary and benefits expense increase of $318,000 represents a 5.3% increase from the first three quarters of 1999 due to normal salary adjustments and increased commission expense paid on revenues generated by the investment products division. The increase in other expense of $292,000 included $30,000 related to ATM data processing and operation, $22,000 in regulatory agency insurance and assessments, $44,000 in business & occupation taxes, $39,000 in advertising and public relations, $23,000 in office supplies and $14,000 in general insurance expense. The ratio of non-interest expense to average assets decreased to 4.87% for the nine months ended September 30, 2000 from 5.21% in 1999. The ratio of net overhead (non-interest expense minus non-interest income) divided by average total assets decreased to 3.22% for the nine months ended September 30, 2000 from 3.50% for the same period in 1999.
13
First Community Financial Group, Inc.
PART IIOTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
27 Financial Data Schedule
None
14
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: November 14, 2000 |
|
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) |
15
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