-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GT3V/SeDoA6jQUcOL9BCg/Qz3k2cIeBdZ43coP9v92lvRQkdtyObuSEe6QDAC0nM W6hgVQ+fRJtSWz/wz8YSfQ== 0000908834-96-000070.txt : 19960515 0000908834-96-000070.hdr.sgml : 19960515 ACCESSION NUMBER: 0000908834-96-000070 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST BANCORP /IN/ CENTRAL INDEX KEY: 0000840458 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 351775411 STATE OF INCORPORATION: IN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17915 FILM NUMBER: 96562560 BUSINESS ADDRESS: STREET 1: THIRD & BUSSERON STREETS CITY: VINCENNES STATE: IN ZIP: 47591 BUSINESS PHONE: 8128824528 MAIL ADDRESS: STREET 1: THIRD & BUSSERON STREET STREET 2: P O BOX 1417 CITY: VINCENNES STATE: IN ZIP: 47591 10-Q 1 FORM 10-Q FOR 1ST BANCORP FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20552 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly period Ended March 31, 1996 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________to ________________ Commission File Number 0-17915 1ST BANCORP -------------------------------------------------------------- (Exact name of registrant as specified in its charter) Indiana 35-1775411 - -------------------------------------- ------------------------------------ (State of other jurisdiction of (I.R.S. Employer Identification Incorporation or organization) Number) 101 N. Third Street Vincennes, Indiana 47591 - -------------------------------------- ------------------------------------ (Address of principal executive office) (Zip Code) Registrant's telephone number, including are code: (812) 882-4528 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --------- ----------- As of April 29, 1996, there were 666,042 Shares of the Registrant's Common Stock issued and outstanding. -1- 1ST BANCORP AND SUBSIDIARIES INDEX Page PART I. FINANCIAL INFORMATION: Number Item 1. Financial Statements Consolidated Condensed Statements of Financial Condition, March 31, 1996 and June 30, 1995 (Unaudited) 3 Consolidated Condensed Statements of Earnings, Three Months and Nine Months Ended March 31, 1996 and 1995 (Unaudited) 4 Consolidated Condensed Statements of Cash Flows, Nine Months Ended March 31, 1996 and 1995 (Unaudited) 5 Notes to Consolidated Condensed Financial Statements (Unaudited) 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-16 PART II. OTHER INFORMATION 17 SIGNATURES 19 -2- 1ST BANCORP AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION (Unaudited and in Thousands) March 31, June 30, 1996 1995 --------- --------- ASSETS Cash and cash equivalents: Interest bearing deposits $ 9,774 $ 15,978 Non-interest bearing deposits 579 1,354 --------- --------- Cash and cash equivalents 10,353 17,332 --------- --------- Investment securities held to maturity (market value of $43,946 at March 31, 1996 and $70,281 at June 30, 1995) 44,653 72,005 Investment securities available for sale 10,761 -- Loans receivable, net 144,602 201,819 Loans held for sale 48,037 5,104 Accrued interest receivable: Investment securities 646 1,394 Mortgage-backed securities and loans 1,196 1,174 Stock in FHLB of Indianapolis, at cost 4,864 3,876 Office premises and equipment 2,986 3,989 Real estate owned 130 145 Prepaid expenses and other assets 4,894 5,921 --------- --------- TOTAL ASSETS $ 273,122 $ 312,759 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits $ 139,237 $ 209,805 Advances from FHLB and other borrowings 107,841 79,387 Advance payments by borrowers for taxes and insurance 823 2,321 Accrued interest payable on deposits 1,027 504 Accrued expenses and other liabilities 2,551 4,039 Deferred income taxes 108 370 --------- --------- Total Liabilities $ 251,587 $ 296,426 --------- --------- Stockholders' Equity: Preferred stock, no par value; shares authorized of 2,000,000, none outstanding -- -- Common stock, $1 par value; shares authorized of 5,000,000; shares issued and outstanding of 666,042 at March 31, 1996 and 665,989 at June 30, 1995 (Note 2) $ 666 $ 634 Paid-in capital 2,734 2,825 Retained earnings, substantially restricted 18,279 13,064 Unrealized depreciation on securities (144) (190) --------- --------- Total Stockholders' Equity $ 21,535 $ 16,333 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 273,122 $ 312,759 ========= ========= See Notes to Consolidated Condensed Financial Statements. -3- 1ST BANCORP AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (Unaudited and in Thousands, Except Per Share Data)
Three Months Ended Nine Months Ended March 31, March 31, ----------------------- ----------------------- 1996 1995 1996 1995 -------- -------- -------- -------- INTEREST INCOME: Loans and mortgage-backed securities $ 3,857 $ 3,855 $ 12,304 $ 11,082 Investment securities 716 1,068 2,902 2,969 Trading account securities 3 5 3 5 Other short-term investments and interest bearing deposits 187 185 625 477 -------- -------- -------- -------- Total Interest Income 4,763 5,113 15,834 14,533 -------- -------- -------- -------- INTEREST EXPENSE: Deposits 1,817 2,313 7,086 6,448 Short-term borrowings 22 111 78 310 FHLB advances and other borrowings 1,409 1,159 3,886 2,814 -------- -------- -------- -------- Total Interest Expense 3,248 3,583 11,050 9,572 -------- -------- -------- -------- NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 1,515 1,530 4,784 4,961 Provision for loan losses 15 10 60 60 -------- -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,500 1,520 4,724 4,901 -------- -------- -------- -------- NON-INTEREST INCOME: Fees and service charges 66 278 213 762 Net gain (loss) on sales of investment securities available for sale and trading account investments (42) 13 (164) 14 Net gain on sales of loans and mortgage-backed securities 498 143 1,494 293 Net gain on sale of branch offices -- -- 7,274 -- Other 184 250 774 1,621 -------- -------- -------- -------- Total Non-Interest Income 706 684 9,591 2,690 -------- -------- -------- -------- NON-INTEREST EXPENSE: Compensation and employee benefits 906 1,055 3,146 3,166 Net occupancy 168 199 571 617 Federal insurance premiums 101 128 369 366 Other 468 532 1,566 1,405 -------- -------- -------- -------- Total Non-Interest Expense 1,643 1,914 5,652 5,554 -------- -------- -------- -------- Earnings Before Income Taxes 563 290 8,663 2,037 Income Taxes 218 95 3,248 727 -------- -------- -------- -------- NET EARNINGS $ 345 $ 195 $ 5,415 $ 1,310 ======== ======== ======== ======== EARNINGS PER SHARE: Primary $ 0.52 $ 0.30 $ 8.10 $ 2.03 Fully-diluted $ 0.52 $ 0.30 $ 8.10 $ 2.00
See Notes to Consolidated Condensed Financial Statements. - 4 - 1ST BANCORP AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited and in Thousands)
Nine Months Ended March 31, ---------------------------------------- 1996 1995 ---------------- -------------- Net Cash Flow From Operating Activities: Net earnings $5,415 $1,310 Adjustments to reconcile net cash provided by operating activities: Depreciation and amortization 256 112 Amortization of mortgage servicing rights 90 358 Net change in trading account securities - (1,000) Gain on sale of loans and mortgage-backed securities (1,494) (293) Loss on sale of investment securities available for sale 164 - Gain on sale of loans - branch sales (553) - Gain on sale of office premises and equipment - branch sales (453) - Gain on sale of deposits - branch sales (6,715) - Net change in loans held for sale (5,352) 4 Provision for loan losses 60 60 Decrease (increase) in accrued interest receivable 726 (62) Decrease (increase) in prepaid expenses and other assets 1,081 (1,920) Increase (decrease) in accrued expenses and other liabilities (1,257) 159 Undistributed loss of investment in limited partnership 227 94 -------------- ------------- NET CASH USED BY OPERATING ACTIVITIES ($7,805) ($1,178) -------------- ------------- Cash Flows From Investing Activities: Purchases of investment securities ($33,266) (14,216) Purchases of investment securities - available for sale (29,491) - Proceeds from sales of investment securities available for sale 62,022 - Proceeds from maturities and calls of investment securities 19,670 - Purchases of MBS - available for sale (4,533) - Proceeds from sales MBS 2,034 - Principal collected on loans and mortgage-backed securities, net of originations (7,049) (25,313) Purchases of stock of FHLB of Indianapolis (988) (1,378) Purchases of office premises and equipment (118) (166) Purchases of limited partnership investment - (2,500) Proceeds from sale of office premises and equipment - branch sales 1,316 - Proceeds from sale of loans - branch sales 28,369 - Sale of deposits - branch sales (78,473) - Other (1,483) 1,798 -------------- ------------- NET CASH USED BY INVESTING ACTIVITIES ($41,990) ($41,775) -------------- ------------- Cash Flows From Financing Activities: Net increase in deposits $14,620 $25,821 Proceeds from FHLB advances and other borrowings 139,344 138,699 Repayment of FHLB advances and other borrowings (110,890) (113,211) Proceeds from issuance of common stock 123 102 Payment of dividends on common stock (200) (87) Purchase and retirement of common stock (181) - -------------- ------------- NET CASH PROVIDED BY FINANCING ACTIVITIES $42,816 $51,324 -------------- ------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ($6,979) $8,371 Cash and Cash Equivalents at Beginning of Period 17,332 7,651 -------------- ------------- Cash and Cash Equivalents at End of Period $10,353 $16,022 ============== =============
See Notes to Consolidated Condensed Financial Statements. - 5 - 1ST BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) Note 1. In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments necessary for a fair presentation. The results of operations for the interim periods are not necessarily indicative of the results which may be expected for an entire year. These financial statements are condensed and do not contain all disclosures required by generally accepted accounting principles which would be included in a complete set of financial statements. Note 2. Stock Dividend On December 21, 1995, the Board of Directors approved a 5% common stock dividend with a record date of January 26, 1996 and payment date of February 9, 1996. All share and per share data have been adjusted to reflect the 5% stock dividend. Note 3. Earnings Per Share Primary earnings per share and fully-diluted earnings per share have been computed on the basis of the weighted average number of common shares outstanding and the dilutive effect of stock options not exercised during the periods presented using the treasury stock method. The weighted average number of shares outstanding for use in the primary computation was 665,827 and 649,732 for the three months ended and 668,742 and 646,560 for the nine months ended March 31, 1996 and 1995, respectively. The weighted average number of shares outstanding for use in the fully-diluted computation was 665,827 and 653,340 for the three months ended and 668,742 and 653,580 for the nine months ended March 31, 1996 and 1995, respectively. Note 4. Stock Option and Purchase Plans The Corporation has an Incentive Stock Option Plan whereby 49,220 shares of authorized but unissued common stock were reserved for issuance upon the exercise of stock options granted to key employees. Stock options have been granted for 49,220 shares under the plan at an option price of $5.71 per share. The Corporation also has a stock option plan under which 157,500 shares of authorized but unissued common stock were reserved. Under this plan, 91,875 non-qualified stock options were granted at $5.71 per share to outside directors, and 39,375 incentive stock options and 9,844 non-qualified stock options were granted at $5.71 and $5.86 per share, respectively, to certain key employees. All options granted have been exercised or canceled as of March 31, 1996. The Corporation maintains an Employee Stock Purchase Plan whereby full-time employees of the Bank can purchase its common stock at a discount; 13,125 authorized but unissued shares were reserved for issuance under this plan. The purchase price of these shares is 85% of the fair market -6- 1ST BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) value of such stock at the beginning or end of the offering period, whichever is lesser. A total of 5,213 shares were issued and purchased by employees in the first quarter of fiscal year 1996 for the fiscal 1995 plan year. Note 5. Stock Repurchase Plan In November 1993, the Board authorized the repurchase of up to 10% of the outstanding shares of common stock (635,839 shares were outstanding at the time), subject to market conditions, over a two year period which expired in November 1995. During the quarter ended December 31, 1995, 6,358 shares of common stock were repurchased. Cumulatively, 63,583 shares of common stock were repurchased through the plan. Note 6. Branch Sales On December 16, 1995, 1ST BANCORP completed the sale of certain assets and certain liabilities of two retail branch offices of its thrift subsidiary, First Federal Bank, A Federal Savings Bank, to two of STAR Financial Group, Inc.'s subsidiary banks. The sale produced a pre-tax gain of $7.3 million. The transaction consisted of the sale of deposits, mortgage and consumer loans, and office premises and equipment. Note 7. Investment Reclassification A reclassification of investment securities from the held to maturity portfolio to the available for sale portfolio occurred during the quarter ended December 31, 1995, in accordance with the FASB Special Report, "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities," which was issued November 15, 1995. The investment securities that were reclassified had a carrying value of $45,838,000 and a market value of $46,061,000 at the time of transfer. Note 8. Reclassifications Certain amounts in the fiscal year 1995 consolidated financial statements have been reclassified to conform to the fiscal year 1996 presentation. -7- 1ST BANCORP AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations (a) Financial Condition: On December 16, 1995, 1ST BANCORP completed the sale of certain assets and certain liabilities ( the "Branch Sales") of two retail branch offices of its thrift subsidiary, First Federal Bank, A Federal Savings Bank ("First Federal" or the "Bank"), to two of STAR Financial Group, Inc.'s subsidiary banks (the "Purchasers"). STAR Financial Bank, Marion, Indiana ("STAR Marion") purchased certain assets and assumed certain liabilities of First Federal Bank's retail branch office located in Kokomo, Indiana. STAR Financial Bank, Indianapolis, Indiana ("STAR Indianapolis") purchased certain assets and assumed certain liabilities of First Federal's retail branch office located in Tipton, Indiana. The sale of the branch offices included approximately $78.5 million in deposits and $28.4 million in mortgage and consumer loans. The sale also included the retail branch offices' premises and equipment. The Bank transferred cash totaling approximately $41.4 million to the Purchasers in connection with the branch sales. The sale contributed approximately $4.5 million after tax to 1ST BANCORP's stockholders' equity. Total assets at March 31, 1996, were $273,122,000, a decrease of $39,637,000, or 12.67%, from total assets of $312,759,000 at June 30, 1995. The reduction in total assets is attributable to lower levels of cash and cash equivalents, investment securities, and loans receivable. These reduced levels were due in large part to the Branch Sales. Cash and cash equivalents declined by $6,979,000, or 40.27%, to $10,353,000 at March 31, 1996, from $17,332,000 at June 30, 1995. The decreased cash accounts were attributable primarily to increased mortgage loan production and the funding of normal business operations. Investment securities consist primarily of U.S. Agency securities. The majority of securities have either a "call" or "step-up" feature, which provides the Bank with flexibility under varying interest rate scenarios. In a falling interest rate environment, the securities with a "call" feature would be called by the issuer. The rates paid on the "step-up" securities increase after a period of time. Generally, the rates increase on the securities several times prior to maturity. The level of investment securities held to maturity (including mortgage-backed securities) decreased to $44,653,000, a decline of $27,352,000, or 37.99%, at March 31, 1996, from $72,005,000 at June 30, 1995. The most significant cause for the decline was the reclassification of investment securities from the held to maturity portfolio to the available for sale portfolio. Investment securities available for sale (including mortgage-backed securities) totaled $10,761,000 at March 31, 1996, compared with no investment securities available for sale at June 30, 1995. -8- 1ST BANCORP AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations The most significant factor in the reclassification and subsequent sale of securities was to provide cash to fund the deposits sold in conjunction with the Branch Sales during the quarter ended December 31, 1995. The reclassification of investment securities from the held to maturity portfolio to the available for sale portfolio occurred during the quarter ended December 31, 1995 in accordance with the FASB Special Report, "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities," which was issued November 15, 1995. The investment securities that were reclassified had a carrying value of $45,838,000 and a market value of $46,061,000 at the time of transfer. Net loans receivable declined by $57,217,000, or 28.35%, to $144,602,000 at March 31, 1996, from $201,819,000 at June 30, 1995. The causes for the reduced level of net loans receivable are two-fold. First, loans sold as part of the Branch Sales totaled $28,369,000 during the quarter ended December 31, 1995. These loans consisted primarily of loans secured by one-to-four family dwellings and secured and unsecured consumer loans in the Tipton and Kokomo markets. Second, the reclassification of approximately $37.6 million of single family mortgage loans from the held to maturity portfolio to the held for sale portfolio during the quarter ended March 31, 1996 contributed to the lower level of net loans receivable. These loans are included in the loans held for sale category on the Consolidated Condensed Statement of Financial Condition as of March 31, 1996 and are scheduled to be sold in the fourth quarter of fiscal year 1996. Loans held for sale increased by $42,933,000 to $48,037,000 at March 31, 1996 from $5,104,000 at June 30, 1995. The increase is attributable to the aforementioned loan reclassification and increased mortgage loan production. The reclassification of mortgage loans is primarily driven by the Bank's efforts to expand its net interest margin. It is anticipated that the funds from the sale of the reclassified segment of the current mortgage portfolio will be used to fund the origination of non-conforming mortgage loans. Typically, the non-conforming mortgage loans produce higher rates than conforming loans. Therefore, by replacing the reclassified mortgage loans, which are predominantly conforming loans, with non-conforming loans, asset yields should increase and thus, the net interest margin should increase. Loan production during the nine months ended March 31, 1996 increased compared to the same period of the prior year. During the nine months ended March 31, 1996, the Bank funded $125.7 million of loans compared to $91.1 million of loans during the nine months ended March 31, 1995. As the economic environment has changed, the Bank has continued to develop new mortgage loan products to serve its customers. During fiscal 1995, the Bank developed a wholesale nonconforming mortgage loan network as a means of augmenting its traditional conforming loan markets. -9- 1ST BANCORP AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations During the first half of fiscal year 1996, a retail non-conforming mortgage loan program was implemented within the Bank's loan origination network. The Bank has continued its expansion into new markets for both the wholesale and retail non-conforming mortgage loan segments. During the nine months ended March 31, 1996, non-conforming mortgage lending constituted $39.6 million, or 31.50%, of total loans funded during the period. During the nine months ended March 31, 1996, $13.1 million of these loans were sold on a non-recourse basis in the non-conforming secondary market. The remainder of the loans, typically the highest quality loans, are retained in portfolio to increase the net interest margin, and in the case of adjustable rate product, to reduce interest rate risk. Asset quality remains strong. At March 31, 1996, non-performing assets totaled $842,000 or .31% of total assets. This compares to $545,000 of non-performing assets, or .17% of total assets, at June 30, 1995. The increase in non-performing assets was the result of single family loans becoming 90 days or more past due. The table below sets forth the amounts and categories of 1ST BANCORP's non-performing assets (non-accrual loans and other non-performing assets) for the balance sheet dates presented. Loans are reviewed regularly and are placed on non-accrual status when they become contractually past due 90 days or more. March 31, June 30, 1996 1995 ----------- ----------- (In thousands) Non-performing assets: Non-accrual loans $ 712 $ 400 Other non-performing assets (1) 130 145 Restructured loans -- -- ---------- --------- Total non-performing assets $ 842 $ 545 Non-performing assets to total assets .31% .17% (1) Certain assets acquired through foreclosures or deeds in lieu of foreclosure, which are included in the Statement of Financial Condition as real estate owned. During the nine months ended March 31, 1996, the Bank established, through operations, provisions for loan losses totaling $60,000. In addition, the Bank realized net charge-offs through its allowance for loan loss accounts of $39,000. The Bank's allowance for loan loss was $899,000 at March 31, 1996 and $878,000 at June 30, 1995. -10- 1ST BANCORP AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations Prepaid expenses and other assets decreased by $1,027,000, or 17.35%, to $4,894,000 at March 31, 1996, from $5,921,000 at June 30, 1995. The largest decrease in this category, purchased mortgage servicing rights ("PMSR"), decreased by $1,274,000 to $158,000 at March 31, 1996, from $1,432,000 at June 30, 1995. Offsetting the decrease in PMSR were increases in various other prepaid expenses and other asset accounts the most significant of which was the capitalization of mortgage servicing rights for loans that were originated and sold by the Bank with servicing retained by the Bank. The majority of the decrease of PMSR was due to a $161.1 million sale of mortgage servicing rights during the first quarter of fiscal year 1996. PMSR had been previously recognized on a significant portion of the servicing rights sold. The sale of servicing rights was executed primarily to mitigate prepayment risk. Mortgage loans serviced for other owners decreased by $117,440,000, to $74,849,000 at March 31, 1996, from $192,289,000 at June 30, 1995. As of July 1, 1995, the Bank adopted the Statement of Financial Accounting Standards No. 122 ("SFAS 122"), "Accounting for Mortgage Servicing Rights." This statement amended FASB Statement No. 65, "Accounting for Certain Mortgage Banking Activities," to require that a mortgage banking enterprise recognize, as separate assets, rights to service mortgage loans for others however those servicing rights are acquired. For the nine months ended March 31, 1996, and in conjunction with the adoption of SFAS 122, the Bank recognized $503,000 of servicing rights on loans that were originated through its loan origination network and retail banking offices. The Bank had definitive plans to sell these mortgage loans and retain the servicing rights. These servicing rights are included in the "Prepaid Expenses and Other Assets" category on the Statement of Financial Condition. Total deposits decreased by $70,568,000, or 33.64%, to $139,237,000 at March 31, 1996 from $209,805,000 at June 30, 1995. The primary cause for the reduced level of deposits was the Branch Sales. Deposits sold as part of the Branch Sales totaled $78,473,000. Advances from the Federal Home Loan Bank ("FHLB") and other borrowings increased by $28,454,000, or 35.84%, to $107,841,000 at March 31, 1996 from $79,387,000 at June 30, 1995. The increase in borrowed money was used primarily to fund a portion of the deposits sold as part of the Branch Sales and to fund increased loan production from the loan origination office network. Advance payments by borrowers for taxes and insurance decreased by $1,498,000, or 64.54%, to $823,000 at March 31, 1996 from $2,321,000 at June 30, 1995. The sale of servicing rights during the first half of fiscal 1996 was primarily responsible for the lower level of escrow held by the Bank. The sale of mortgage loans as part of the Branch Sales also contributed to the decline. -11- 1ST BANCORP AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations Accrued expenses and other liabilities decreased by $1,488,000, or 36.84%, to $2,551,000 at March 31, 1996, from $4,039,000 at June 30, 1995. Primarily responsible for the decreased level of accrued expenses was a lower level of accrued income taxes payable due to the timing of estimated federal and state income tax payments made throughout the fiscal year. (b) Results of Operations: During the three months ended March 31, 1996, 1ST BANCORP had net earnings of $345,000, or $0.52 per share on a fully-diluted basis, compared to net earnings of $195,000, or $0.30 per share on a fully-diluted basis, for the three months ended March 31, 1995. During the nine months ended March 31, 1996, 1ST BANCORP had net earnings of $5,415,000, or $8.10 per share on a fully-diluted basis, compared to net earnings of $1,310,000, or $2.00 per share on a fully-diluted basis, for the nine months ended March 31, 1995. The increased three month earnings were primarily the result of lower non-interest expenses. The increased nine months earnings were primarily the result of increased non-interest income, more specifically the Branch Sales, and to a lesser degree lower non-interest expenses. Net interest income before provision for loan losses was $1,515,000 for the three months ended March 31, 1996, compared to $1,530,000 for the three months ended March 31, 1995. Net interest income before provision for loan losses was $4,784,000 for the nine months ended March 31, 1996, compared to $4,961,000 for the nine months ended March 31, 1995. The interest rate margin was 2.42% for the three months ended March 31, 1996 compared to 2.13% for the three months ended March 31, 1995. The excess of interest-earning assets over interest-bearing liabilities was greater during the three months ended March 31, 1996 as compared to the three months ended March 31, 1995 which allowed net interest income to remain stable and the net interest margin as a percent of total assets to expand despite the Bank's reduced size. The interest rate margin was 2.33% for the nine months ended March 31, 1996 compared to 2.45% for the nine months ended March 31, 1995. The narrowed interest rate margin is primarily responsible for the lower net interest income. The accumulation of cash to fund the deposits sold as part of the Branch Sales throughout the three months ended December 31, 1995 contributed to the Bank's lower net interest margin for the nine month period. The funds were invested at overnight funds rates and therefore decreased the yield which could have been realized through alternative investments. Non-interest income for the three months ended March 31, 1996 totaled $706,000 compared to $684,000 for the three months ended March 31, 1995. Non-interest income for the nine months ended March 31, 1996 totaled $9,591,000 compared to $2,690,000 for the nine months ended -12- 1ST BANCORP AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations March 31, 1995. The higher level of non interest income for the nine month period ended March 31, 1996, as compared to the same period of the prior year, was directly attributable to the Branch Sales. Fee and service charge income for the three months ended March 31, 1996 totaled $66,000 compared to $278,000 for the three months ended March 31, 1995. Fee and service charge income for the nine months ended March 31, 1996 totaled $213,000 compared to $762,000 for the nine months ended March 31, 1995. A significant decline in the Bank's mortgage loan servicing portfolio, which resulted in reduced loan servicing fee income, was the primary factor that contributed to the lower fee and service charge income. The reduced servicing portfolio resulted from sales of servicing during the fourth quarter of fiscal year 1995 and the first quarter of fiscal year 1996. The net loss on the sale of investment securities available for sale and trading account investments for the three months ended March 31, 1996 totaled $42,000 compared to a net gain of $13,000 for the three months ended March 31, 1995. The net loss on the sale of investment securities available for sale and trading account investments for the nine months ended March 31, 1996 totaled $164,000 compared to a net gain of $14,000 for the nine months ended March 31, 1995. The net loss for the three and nine months ended March 31, 1996 resulted primarily from the sale of investment securities available for sale that were sold in order to fund the sale of deposits that was a part of the Branch Sales. In addition, sales of investment securities available for sale occurred during the three months ended March 31, 1996 to fund increased loan production. There was only minimal activity in the investment trading account during the nine months ended March 31, 1995. The net gain on the sale of loans for the three months ended March 31, 1996 totaled $498,000 compared to $143,000 for the three months ended March 31, 1995. The net gain on the sale of loans (excluding loans sold as part of the Branch Sales) for the nine months ended March 31, 1996 totaled $1,494,000 compared to $293,000 for the nine months ended March 31, 1995. The increased gain on sale of loans was attributable to a higher volume of loan originations and subsequent loan sales. Also contributing to the increased gain on sale of loans was adoption of SFAS 122 by the Bank as of July 1, 1995. The Bank capitalized $159,000 and $503,000 of mortgage servicing rights on originated loans during the three and nine month periods ended March 31, 1996, respectively, in accordance with SFAS 122, thus resulting in an increased gain on sale of loans. -13- 1ST BANCORP AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations The largest increase in total non-interest income was the net gain on the sale of branch offices. The Branch Sales produced a pre-tax net gain of $7,274,000 for the nine month period ending March 31, 1996. The gain was derived from the deposit premium, gain on sale of mortgage and consumer loans, and gain on the sale of the branch offices' real estate. "Other" non-interest income for the three months ended March 31, 1996 totaled $184,000 compared to $250,000 for the three months ended March 31, 1995. "Other" non-interest income for the nine months ended March 31, 1996 totaled $774,000 compared to $1,621,000 for the nine months ended March 31, 1995. "Other" non-interest income was modestly lower for the three month period ended March 31, 1996 due primarily to lower levels of deposit accounts that resulted from the Branch Sales. "Other" non-interest income was lower for the nine months ended March 31, 1996 as compared with the nine months ended March 31, 1995 due primarily to lower gain on the sale of mortgage loan servicing rights. For the nine months ended March 31, 1996, the gain on sale of servicing totaled $237,000 compared with $988,000 for the nine months ended March 31, 1995. Non-interest expense was $1,643,000 for the three months ended March 31, 1996, compared to $1,914,000 for the three months ended March 31, 1995. Non-interest expense was $5,652,000 for the nine months ended March 31, 1996, compared to $5,554,000 for the nine months ended March 31, 1995. The primary reasons for the decrease in non-interest expense for the three months ended March 31, 1996 as compared with the same period for the prior year were lower compensation and employee benefit expenses. Compensation expense was lower primarily due to a lower level of employees that resulted from the Branch Sales. Non-interest expense was modestly higher for the nine months ended March 31, 1996 as compared with the same period of the prior year due to minor increases in various operating expenses. (c) Capital Resources and Liquidity: The Corporation is subject to regulation as a savings and loan holding company by the Office of Thrift Supervision ("OTS"). First Federal Bank, A Federal Savings Bank, as a subsidiary of a savings and loan holding company, is subject to certain restrictions in its dealings with the Corporation. The Bank is subject to the regulatory requirements applicable to a federal savings bank. Current capital regulations require savings institutions to have minimum tangible capital equal to 1.5% of total assets and a minimum 3% core capital ratio. Additionally, savings institutions are required to meet a risk-based capital ratio equal to 8.0% of risk-weighted assets. At March 31, 1996, the Bank met all current capital requirements. -14- 1ST BANCORP AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations The following is a summary of the Bank's regulatory capital and capital requirements at March 31, 1996: Tangible Core Risk-Based Capital Capital Capital Regulatory Capital $22,929,000 $22,929,000 $23,319,000 Minimum Capital Requirement 4,088,000 8,177,000 10,823,000 ----------- ----------- ----------- Excess Capital $18,841,000 $14,752,000 $12,496,000 Regulatory Capital Ratio 8.41% 8.41% 17.24% Required Capital Ratio 1.50% 3.00% 8.00% During the quarter ended March 31, 1996, 1ST BANCORP paid a $0.10 dividend per share to shareholders. This is the fourteenth consecutive quarterly dividend 1ST BANCORP has paid to shareholders. In addition, during the quarter ended March 31, 1996, 1ST BANCORP paid a 5% stock dividend to shareholders. Liquidity measures the Bank's ability to meet savings withdrawals and lending commitments. Management believes that liquidity is adequate to meet current requirements, including the funding of $31,805,000 in loan commitments and $1,434,000 of loans in process outstanding at March 31, 1996. The majority of these commitments are expected to be funded within the three month period ending June 30, 1996. At March 31, 1996, the Bank had $6,376,000 in outstanding commitments to sell mortgage loans and mortgage-backed securities. The Bank maintains liquidity of at least 5% of net withdrawable assets. The liquidity ratio at March 31, 1996 was 11.17%. (d) Proposed Legislation Congress is currently considering a number of alternatives to address the problems arising from the fact that FDIC deposit insurance premiums for banks are currently lower than those for savings associations and for deposits of savings associations that have been acquired by banks. Congress is considering provisions proposed by the House Banking Committee which would (1) impose a one-time assessment on thrift deposits of 70 to 85 basis points to build up SAIF's reserves, (2) merge BIF and SAIF at some time in the future, and (3) require banks to pay the bulk of the interest due on Financing Corp. bonds. -15- 1ST BANCORP AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations These same provisions have been proposed by the Senate Banking Committee, although its proposed legislation would provide for a lower one-time assessment for banks which had acquired SAIF deposits. In addition, the House Banking Committee proposal would eliminate the 8% bad debt reserve deduction now permitted for savings associations, but would not require savings associations to pay taxes on accumulated bad debt reserves. Moreover, all thrift holding companies would be required to become bank holding companies by January 1, 1998. The OTS would be abolished. Powers of unitary savings and loan holding companies would be grandfathered (to the extent they exist under existing law) until the holding company or savings association is sold. Such unitary holding companies would be subject to the qualified thrift lender test and limits on commercial lending. Savings associations would either be required to convert to a state bank or national bank charter by January 1, 1998. Except with respect to unitary savings and loan companies, activities of those new banks not permitted to commercial banks would have to terminate within four years. Under some of the proposals being considered by Congress, the FDIC's authority to build reserves beyond 1.25% would be limited. It is difficult at this time to assess whether or how Congress will address the SAIF/BIF premium differential and, if so, what impact its legislative solution to the problem will have on the Corporation and its subsidiaries. There are no other known trends, events, or uncertainties, including current recommendations by regulatory authorities, that should have, or that are reasonably likely to have, a material effect on the liquidity, capital resources, or operations of 1ST BANCORP. -16- PART II. OTHER INFORMATION Item 1. Legal Proceedings. The Bank and Amcore Mortgage, Inc. were named as defendants in a lawsuit filed on March 2, 1995 in the United States District Court for the Northern District of Illinois. The plaintiffs sued on their own behalf and on behalf of purported classes. In their multiple count complaint, the plaintiffs alleged that the defendants assessed escrow deposits in excess of the amount allowed by mortgage contracts and in violation of the law and failed to disclose to their borrowers material information pertaining to private mortgage insurance ("PMI"). The plaintiffs sued for damages, punitive damages, attorney fees, costs, and declaratory and injunctive relief. With respect to escrow deposits, the plaintiffs alleged that Bank practices breached the terms of mortgage contracts, constituted unfair and deceptive trade practices in violation of state laws, and violated the Racketeer Influenced and Corrupt Organization statute ("RICO"). With respect to private mortgage insurance, the plaintiffs alleged that Bank practices constituted unfair and deceptive trade practices. The plaintiffs seek to represent nationwide classes of borrowers who allegedly were damaged by these practices. The Bank and the plaintiffs have entered into an agreement to settle the mortgage escrow claims with a defined class. The court approved the settlement agreement at a hearing held on May 6, 1996. The settlement agreement provides for the dismissal with prejudices of the mortgage escrow claims asserted by the defined class against the Bank. It also provides that the PMI claims, which were not being settled, will be dismissed without prejudices. The settlement is for an amount less than that which has been reserved by the Bank. First Federal is involved in two other lawsuits that are not in the ordinary course of business. The first involves a discrimination complaint filed with the U.S. Department of Housing and Urban Development pursuant to the Fair Housing Act. The second lawsuit was filed by a title company involved in providing closing services for a mortgage loan that was purchased by First Federal from a third party mortgage company subsequent to closing, and alleges the mortgage company was acting as an agent for First Federal and failed to provide funds for closing the transaction in exchange for the note and deed of trust. It is the opinion of management that, based on current information available, the ultimate resolutions of these matters will not have a material adverse affect on the Corporation's financial position. Other than the above, neither 1ST BANCORP nor First Federal is involved in any legal proceedings, other than routine proceedings occurring in the ordinary course of its business. -17- Item 4. Submission of Matters to a Vote of Security Holders. There were no matters submitted to a vote of security holders during the quarter ended March 31, 1996. Item 6. Exhibits and Reports on Form 8-K a) The following exhibit is filed herewith: Exhibit 27 Financial Data Schedule b) Reports on Form 8-K -- There were no reports on Form 8-K filed during the three months ended March 31, 1996. -18- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 1ST BANCORP Date: May 9, 1996 By: /s/ C. James McCormick ----------------------------- C. James McCormick, Chairman and Chief Executive Officer Date: May 9, 1996 By: /s/ Frank D. Baracani ----------------------------- Frank D. Baracani, President Date: May 9, 1996 By: /s/ Mary Lynn Stenftenagel --------------------------------- Mary Lynn Stenftenagel, Secretary-Treasurer and Chief Accounting Officer -19- EX-27 2 FDS --
9 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1ST BANCORP AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000840458 1st Bancorp 1,000 U.S. Dollars 9-mos Jun-30-1996 Jul-1-1995 Mar-31-1996 1.000 579 9,977 0 0 10,761 44,653 43,946 193,538 899 273,122 139,237 8,838 3,686 99,003 666 0 0 20,869 273,122 12,517 2,905 625 15,834 7,086 11,050 4,784 60 (164) 5,652 8,663 8,663 0 0 5,415 $8.10 $8.10 2.33 712 0 0 0 878 55 16 899 509 0 390
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