-----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, QIc58z5csUa+hpGDja7mDR1uAGaQ8gr+Jts/CDo59d5g93QSiLHWlEjjM1htHmgT 5ZKgU4rTHU2qyhlpf6SX3w== 0000908834-98-000134.txt : 19980514 0000908834-98-000134.hdr.sgml : 19980514 ACCESSION NUMBER: 0000908834-98-000134 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980513 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: SEC FILE NUMBER: 000-17915 FILM NUMBER: 98618505 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. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 1998 ( ) 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 21, 1998, there were 1,089,840 Shares of the Registrant's Common Stock issued and outstanding. 1ST BANCORP AND SUBSIDIARIES INDEX Page Number Forward-Looking Statements 3 PART I. FINANCIAL INFORMATION: Item 1. Financial Statements Consolidated Condensed Statements of Financial Condition, March 31, 1998 (Unaudited) and June 30, 1997 4 Consolidated Condensed Statements of Earnings, Three and Nine Months Ended March 31, 1998 and 1997 (Unaudited) 5 Consolidated Condensed Statements of Cash Flows, Nine Months Ended March 31, 1998 and 1997 (Unaudited) 6 Notes to Consolidated Condensed Financial Statements (Unaudited) 7-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-14 Item 3. Quantitative and Qualitative Disclosures About Market Risk 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings 16 Item 4. Submission of Matters to Vote of Securities Holders 16 Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 17 Forward-Looking Statements This Quarterly Report on Form 10-Q ("Form 10-Q") contains statements which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this Form 10-Q and include statements regarding the intent, belief, outlook, estimate or expectations of the Corporation (as defined below), its directors or its officers primarily with respect to future events and the future financial performance of the Corporation. Readers of this Form 10-Q are cautioned that any such forward- looking statements are not guarantees of future events or performance and involve risks and uncertainties, and that actual results may differ materially from those in the forward-looking statements as a result of various factors. The accompanying information contained in this Form 10-Q identifies important factors that could cause such differences. These factors include changes in interest rates; loss of deposits and loan demand to other savings and financial institutions; substantial changes in financial markets; changes in real estate values and the real estate market; regulatory changes; or the deterioration in the financial strength of the Corporation's loan customers. In addition, from time to time, the Corporation may make other oral or written forward-looking statements with respect to future events and the future financial performance of the Corporation. All these other forward-looking statements are also subject to the factors indicated above, which such factors could cause the statements or projections contained therein to be materially inaccurate. 1ST BANCORP AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION (Unaudited and in thousands except share data)
March 31, June 30, 1998 1997 --------- --------- ASSETS Cash and cash equivalents: Interest bearing deposits $ 12,246 $ 19,771 Non-interest bearing deposits 322 523 --------- --------- Cash and cash equivalents 12,568 20,294 --------- --------- Securities available for sale 18,973 11,588 Securities held to maturity (market value of $22,457 at March 31, 1998 and $43,556 at June 30, 1997) 22,559 44,065 Loans receivable, net 172,620 146,840 Loans held for sale 16,538 27,769 Accrued interest receivable: Securities 475 1,081 Loans 1,170 1,099 Stock in FHLB of Indianapolis, at cost 5,519 4,941 Office premises and equipment 3,061 3,225 Real estate owned and repossessed assets 870 397 Prepaid expenses and other assets 5,209 9,191 --------- --------- TOTAL ASSETS $ 259,562 $ 270,490 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits $ 122,711 $ 144,316 Advances from FHLB and other borrowings 110,381 100,296 Advance payments by borrowers for taxes and insurance 669 304 Accrued interest payable on deposits 544 1,194 Accrued expenses and other liabilities 1,840 2,047 --------- --------- Total Liabilities $ 236,145 $ 248,157 --------- --------- 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 1,089,840 at March 31,1998 and 1,099,188 at June 30,1997 $ 1,090 $ 698 Paid-in capital 2,047 2,642 Retained earnings, substantially restricted 20,328 19,102 Unrealized depreciation on securities (48) (109) --------- --------- Total Stockholders' Equity $ 23,417 $ 22,333 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 259,562 $ 270,490 ========= =========
See Notes to Consolidated Condensed Financial Statements. 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, --------------------- --------------------- 1998 1997 1998 1997 -------- -------- -------- -------- INTEREST INCOME: Loans $ 3,927 $ 3,897 $ 11,656 $ 11,243 Investment securities 728 970 2,433 2,826 Trading account securities 1 14 3 14 Other short-term investments and interest bearing deposits 153 149 528 464 -------- -------- -------- -------- Total Interest Income 4,809 5,030 14,620 14,547 -------- -------- -------- -------- INTEREST EXPENSE: Deposits 1,772 1,949 5,662 5,655 Short-term borrowings 18 43 1 3 FHLB advances and other borrowings 1,395 1,369 4,149 4,189 -------- -------- -------- -------- Total Interest Expense 3,168 3,336 9,814 9,887 -------- -------- -------- -------- NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 1,641 1,694 4,806 4,660 Provision for loan losses 120 84 300 170 -------- -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,521 1,610 4,506 4,490 -------- -------- -------- -------- NON-INTEREST INCOME: Fees and service charges 82 101 251 273 Net gain (loss) on sales of investment securities available for sale and trading account investments 10 (34) 32 (32) Net gain on sales of loans 289 392 455 1,593 Other 228 172 637 478 -------- -------- -------- -------- Total Non-Interest Income 609 631 1,375 2,312 -------- -------- -------- -------- NON-INTEREST EXPENSE: Compensation and employee benefits 752 1,010 2,118 2,995 Net occupancy 150 185 405 545 Federal insurance premiums 42 40 124 1,549 Other 394 472 1,226 1,616 -------- -------- -------- -------- Total Non-Interest Expense 1,338 1,707 3,873 6,705 -------- -------- -------- -------- Earnings Before Income Taxes 792 534 2,008 97 Income Taxes 233 (6) 557 (188) -------- -------- -------- -------- NET EARNINGS $ 559 $ 540 $ 1,451 $ 285 ======== ======== ======== ======== BASIC EARNINGS PER SHARE: $ 0.51 $ 0.49 $ 1.32 $ 0.26 DILUTED EARNINGS PER SHARE: $ 0.51 $ 0.49 $ 1.32 $ 0.26
See Notes to Consolidated Condensed Financial Statements 1ST BANCORP AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited and in thousands)
Nine Months Ended March 31, ---------------------- 1998 1997 -------- -------- Net Cash Flows From Operating Activities: Net earnings $ 1,451 $ 285 Adjustments to reconcile net cash provided by operating activities: Depreciation and amortization 329 241 Amortization of mortgage servicing rights 158 83 Gain on sales of loans (455) (1,593) Net change in trading account securities -- (1,973) (Gain) loss on sales of securities (32) 32 Net change in loans held for sale 11,231 (2,722) Provision for loan losses 300 170 Change in accrued interest receivable 535 417 Change in prepaid expenses and other assets 3,831 (464) Change in accrued expenses and other liabilities (898) (534) Loss on investment in limited partnership 81 95 -------- -------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 16,531 (5,963) -------- -------- Cash Flows From Investing Activities: Purchase of securities held to maturity -- (3,518) Proceeds from maturity of securities held to maturity 21,515 59 Purchase of securities available for sale and trading account securities (40,747) (20,982) Proceeds from maturities of securities available for sale 4,087 101 Proceeds from sales of securities available for sale and trading account securites 29,367 21,906 Principal collected on loans, net of originations (25,779) (7,207) Purchases of equipment (81) (494) Purchases of stock of FHLB of Indianapolis (578) -- Other (458) (184) -------- -------- NET CASH USED BY INVESTING ACTIVITIES (12,674) (10,319) -------- -------- Cash Flows From Financing Activities: Change in deposits (21,605) 9,493 Proceeds from FHLB advances and other borrowings 53,996 51,818 Repayment of FHLB advances and other borrowings (43,911) (51,378) Proceeds from issuance of common stock 102 116 Purchase and retirement of common stock (305) (207) Payment of dividends on common stock (225) (203) Change in advance payments by borrowers for insurance and taxes 365 152 -------- -------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (11,583) 9,791 -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS (7,726) (6,491) Cash and Cash Equivalents at Beginning of Period 20,294 25,099 -------- -------- Cash and Cash Equivalents at End of Period $ 12,568 $ 18,608 ======== ========
See Notes to Consolidated Financial Statements 1ST BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) Note 1. Basis of Presentation 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. Earnings Per Share 1ST BANCORP has implemented Statement of Financial Accounting Standards 128, "Earnings per Share" (EPS) which is effective for fiscal periods ending after December 15, 1997. Accordingly, these amounts appear on the financial statements in this Quarterly Report on Form 10-Q. EPS 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 basic EPS computations was 1,089,395 and 1,090,962 for the three and nine months ended March 31, 1998, respectively. The weighted average number of shares for use in the dilutive EPS computations was 1,096,912 and 1,098,479 for the three and nine months ended March 31, 1998, respectively. The weighted average number of shares for use in the basic and dilutive EPS computations was 1,098,026 and 1,103,135 for the three and nine months ended March 31, 1997, respectively. Note 3. Stock Purchase Plans The Corporation maintains an Employee Stock Purchase Plan (the "Plan") whereby full-time employees of First Federal Bank, A Federal Savings Bank (the "Bank"), First Financial Insurance Agency, Inc. ("First Financial"), and First Title Insurance Company ("First Title") can purchase the Corporation's common stock at a discount. The purchase price of the shares under the Plan is 85% of the fair market value of such stock at the beginning or end of the offering period, whichever is lesser. A total of 24,523 authorized but unissued shares were reserved for issuance under the Plan. A total of 5,613 shares were issued and purchased by employees in the first quarter of fiscal year 1998 for the fiscal 1997 plan year. Note 4. Stock Option Plan The Corporation has a stock option plan under which 260,466 authorized but unissued shares of common stock were reserved. As of March 31, 1998, 26,775 incentive stock options were outstanding with certain key officers. An additional 2,961 shares remain reserved for future grant. All other options have been exercised or have expired. Note 5. Stock Repurchase Plan In August 1996, the Board authorized the repurchase of up to 5% of the outstanding shares of common stock subject to market conditions, over a two year period which expires in August 1998. During the nine months ended March 31, 1998, 15,750 shares of common stock were repurchased. Note 6. Stock Split and Stock Dividend On October 23, 1997, the Corporation declared a three-for-two stock split. The additional shares were issued on November 30, 1997, to shareholders of record as of November 15, 1997. All share and per share data have been adjusted to reflect the three-for-two stock split. On December 18, 1997, the Board of Directors approved a 5% common stock dividend. The dividend was paid January 23, 1998 to shareholders of record as of January 9, 1998. All share and per share data have been adjusted to reflect the 5% stock dividend. Note 7. Savings Association Insurance Fund ("SAIF") Recapitalization On September 30, 1996, the federal government mandated an industry wide assessment to recapitalize the SAIF, which is a part of the Federal Deposit Insurance Corporation ("FDIC"). The special assessment was charged to savings associations with insured deposits by the SAIF. The assessment was calculated at 0.657% of insured deposits as of March 31, 1995. The Bank's portion of the assessment was $1,330,000 and is included in non-interest expense for the nine months ended March 31, 1997. Note 8. Reclassifications Certain amounts in the fiscal year 1997 consolidated condensed financial statements have been reclassified to conform to the fiscal year 1998 presentation. 1ST BANCORP AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations (a) Financial Condition: The Corporation's goal is to increase net interest income and become less reliant on non-interest items to provide profitability. To achieve this goal, the Corporation has targeted lower levels of cash and cash equivalents, smaller securities portfolios, and increased levels of loans as part of its asset/liability strategy to enhance the net interest margin. As a result, total assets have declined modestly during this time of restructuring the balance sheet. Total assets aggregated $259,562,000 at March 31, 1998, compared to total assets of $270,490,000 at June 30, 1997, a decrease of 4.04%. Cash and cash equivalents aggregated $12,568,000 at March 31, 1998, compared to $20,294,000 at June 30, 1997. While this level is somewhat above targeted levels, it still however, represents a 38.07% reduction and is consistent with the Bank's asset/liability strategies. Securities held to maturity, which primarily consist of U.S. Agency securities, totaled $22,559,000, at March 31, 1998, compared to $44,065,000 at June 30, 1997, a 48.81% decline. The decline in the level of held to maturity securities resulted from the exercise of the call feature by the issuer of the securities. The cash generated from the call of the securities was used to primarily fund expansion of the loan portfolios and to allow brokered deposits to mature without renewal. Investment securities available for sale increased to $18,973,000 at March 31, 1998, from $11,588,000 at June 30, 1997. The increase in the securities available for sale portfolio resulted from purchases of GNMA mortgage backed securities. The Bank's primary focus continues to be on expansion of the loan portfolio; however, the interest rate environment over the past few months of the fiscal year has precipitated increased loan prepayments and a significant level of the Bank's securities portfolio to be called by the issuer. Therefore, the levels of cash and cash equivalents during the quarter ended March 31, 1998 were increasing more quickly than the funds could be invested through loan originations. The GNMA mortgage backed securities typically provide a higher yield alternative than overnight deposits, can be used to meet regulatory liquidity requirements, have no credit risk, and are perceived to have slower prepayment rates than other Agency mortgage backed securities. There were no trading account securities at March 31, 1998 or June 30, 1997. Net loans receivable (including loans held for sale) increased by $14,549,000, or 8.33%, to $189,158,000 at March 31, 1998, from $174,609,000 at June 30, 1997. The increase in net loans receivable is attributable to residential mortgage loan production, an emphasis on the Bank's indirect auto lending program, and a lower level of mortgage loan sales. Growth occurred in the nonconforming and conforming residential mortgage loan portfolios and in the auto loan portfolio. During the nine months ended March 31, 1998, the Bank funded $74.8 million of loans compared to $93.2 million of loans during the nine months ended March 31, 1997. The decrease in overall loan production was the result of the restructuring of the Bank's nonconforming loan origination network in the latter part of fiscal year 1997. All loan origination offices were closed except the Evansville, Indiana loan origination office and all administrative functions were transferred to the Bank's operations in Vincennes, Indiana. The restructuring was undertaken primarily as a cost reduction measure. The "Results of Operations" section of this Quarterly Report on Form 10-Q discusses the effectiveness of the cost reduction plan in additional detail. During the nine months ended March 31, 1998, nonconforming residential mortgage lending constituted $23.2 million, or 31.0%, of total loans funded during the period compared with $57.6 million, or 61.8%, of total loans funded during the nine months ended March 31, 1997. Nonconforming residential loans, including those held for sale, increased to $80.4 million at March 31, 1998, compared to $66.5 million at June 30, 1997. During the fourth quarter of fiscal year 1997, the Bank implemented an indirect auto lending program in its Vincennes, Indiana market area. Indirect auto loan fundings during the nine months ended March 31, 1998 totaled $7.4 million. The indirect auto loan portfolio totaled $6.7 million at March 31, 1998. At March 31, 1998, nonaccrual loans, real estate owned ("REO"), and repossessed assets totaled $3,837,000, or 1.48% of total assets. This compares to $2,727,000 of nonaccrual loans, REO, and repossessed assets or 1.01% of total assets, at June 30, 1997. The upward trend in loan delinquencies is related to residential one-to-four family mortgage loans. Delinquencies have trended upward in both conforming and nonconforming mortgage loans. Loan quality continues to be of major importance to the Bank and strong efforts are being made to ensure loan quality. In an effort to mitigate potential losses and reduce non-performing assets, additional loan collection personnel have been hired, more stringent collection practices have been implemented, and certain higher risk lending programs have been discontinued. In addition, loan loss allowances have been increased to prepare for potential future losses in the portfolio. The table below sets forth the amounts and categories of 1ST BANCORP's nonaccrual loans, REO, and repossessed assets for the balance sheet dates presented. Loans are reviewed regularly and are generally placed on nonaccrual status when they become contractually past due more than 90 days. March 31, June 30, 1998 1997 -------------------------- Nonaccrual loans, REO, and repossessed assets: Nonaccrual loans $2,967,000 $2,330,000 REO and repossessed assets (1) 870,000 397,000 Restructured loans -- -- -------------------------- Total nonaccrual loans, REO, and repossessed assets $3,837,000 $2,727,000 Nonaccrual loans, REO and repossessed assets to total assets 1.48% 1.01% - ------------- (1) Certain assets acquired through repossession, foreclosures, or deeds in lieu of foreclosure, which are included in the Consolidated Condensed Statements of Financial Condition as real estate owned and repossessed assets. During the nine months ended March 31, 1998, the Bank established, through operations, provisions for loan losses totaling $300,000 compared to $170,000 during the same nine months of the prior year. The Bank's allowance for loan loss increased to $1,181,000 at March 31, 1998 from $1,158,000 at June 30, 1997. Prepaid expenses and other assets decreased by $3,982,000 to $5,209,000 at March 31, 1998 from $9,191,000 at June 30, 1997. The decrease was primarily the result of the completion of a $4.1 million loan sale. Deposits aggregated $122,711,000 at March 31, 1998 compared to $144,316,000 at June 30, 1997. The level of retail deposits has remained stable throughout fiscal year 1998. The $21,605,000, or 14.97% decline, resulted from the decreased use of brokered funds during the nine months ended March 31, 1998. The lower level of brokered deposits were partially offset by an increased level of Federal Home Loan Bank ("FHLB") advances. Advances have been a lower cost source of funds than brokered deposits during the fiscal year. FHLB advances and other borrowings increased by $10,085,000, or 10.06%, to $110,381,000 at March 31, 1998 compared to $100,296,000 at June 30, 1997. The overall reduction of borrowed funds and brokered deposits during the period correlated to the lower levels of cash and securities, and was a part of the Corporation's strategy of expanding the net interest margin and improving profitability. Accrued expenses and other liabilities declined modestly to $1,840,000 at March 31, 1998, compared to $2,047,000 at June 30, 1997. Advance payments by borrowers for taxes and insurance increased to $669,000 at March 31, 1998 compared to $304,000 at June 30, 1997. The fluctuation in this category was due to timing differences that occurred in the normal course of business. Accrued interest payable on deposits decreased to $544,000 at March 31, 1998, from $1,194,000 at June 30, 1997. The fluctuation in this category resulted from the reduced level of brokered deposits. The Corporation acquired the assets of an existing independent title and abstract company during the quarter ended March 31, 1998. The assets of the acquired company were merged into the previously inactive subsidiary, First Title Insurance Company. First Title underwrites for Chicago Title Insurance Company, Ticor Title Insurance Company, and Stewart Title Guaranty Company. The limited operations by First Title during the quarter ended March 31, 1998 did not have a material impact of the financial statements of the Corporation for the three or nine months ended March 31, 1998, however, First Title was profitable in its initial month of active operation. (b) Results of Operations: During the three months ended March 31, 1998, 1ST BANCORP's net earnings increased to $559,000, or $0.51 per share, compared to net income of $540,000, or $0.49 per share, for the three months ended March 31, 1997. During the nine months ended March 31, 1998, 1ST BANCORP net earnings totaled $1,451,000, or $1.32 per share, compared to $285,000, or $0.26 per share, for the nine months ended March 31, 1997. Net earnings for the nine months ended March 31, 1997 were negatively affected by the special one-time assessment for the recapitalization of the SAIF. The increased earnings for the three and nine months ended March 31, 1998 as compared to the three and nine months ended March 31, 1997, were a reflection of the Corporation's shift to more emphasis on the net interest margin and less reliance on non-interest income. Also significantly contributing to the improved earnings was a substantial decline in non-interest expenses. This decline is largely attributable to the restructuring of the Bank's nonconforming loan operations during the latter part of fiscal year 1997. Net interest income before provision for loan losses remained relatively constant at $1,641,000 during the three months ended March 31, 1998, as compared to $1,694,000 during the three months ended March 31, 1997. However, the net interest margin increased to 2.76% for the three months ended March 31, 1998 as compared to 2.64% for the three months ended March 31, 1997. The net interest margin increased primarily as a result of an increased yield on earning assets and a stable cost of funds compared with the same period of the prior fiscal year. The modest decline in the net interest income was a result of a lower level of interest earning assets. The Bank's asset/liability strategy during fiscal year 1998 of retaining more mortgage loan production in portfolio and targeting lower levels of cash and securities has resulted in a lower average level of interest earning assets and interest bearing liabilities. Net interest income before provision for loan losses increased to $4,806,000 for the nine months ended March 31, 1998, compared to $4,660,000 during the nine months ended March 31, 1997. The net interest margin increased to 2.63% for the nine months ended March 31, 1998 as compared to 2.45% for the nine months ended March 31, 1997. The increased level of net interest income was the result of the expanded net interest margin. To achieve the increased net interest margin, high-quality, high-yielding nonconforming mortgage loans were placed in portfolio and the Bank implemented an indirect auto loan program in its local market to provide a source of consumer credit. The Bank's asset/liability strategy during fiscal year 1998 of retaining more mortgage loan production in portfolio and targeting lower levels of cash and securities has resulted in a lower average level of interest earning assets. Despite the lower average interest earning assets, the efforts to increase the net interest margin have been successful in increasing net interest income. As previously stated, the Bank has placed into portfolio "A+", "A" and "B+" rated nonconforming residential mortgage loans and implemented an indirect auto loan program. To recognize the risk associated with such loans, provisions for loan losses have been increased. During the three and nine month periods ended March 31, 1998, provisions for loan losses have aggregated $120,000 and $300,000, respectively, as compared to loan loss provisions of $84,000 and $170,000, respectively, during the same periods of the previous fiscal year. Non-interest income for the three months ended March 31, 1998 totaled $609,000 compared to $631,000 for the three months ended March 31, 1997. Non-interest income for the nine months ended March 31, 1998 totaled $1,375,000 compared to $2,312,000 for the nine months ended March 31, 1997. The lower level of non-interest income resulted primarily from a lower level of loan sales and a corresponding decreased gain on sales of loans. The reduction in loan sales is a part of the Bank's asset/liability management strategy to enhance the net interest margin by retaining a larger portion of its mortgage loan production in portfolio. The gain on sales of mortgage loans totaled $289,000 and $455,000 during the three and nine months ended March 31, 1998, compared to $392,000 and $1,593,000 during the same periods of the prior year. The decline in the gain on sales of loans for the three and nine months ended March 31, 1998 resulted from a lower volume of loan sales. Loan sales totaled $15.0 million and $28.1 million during the three and nine month periods ended March 31, 1998, compared to $16.5 million and $57.5 million for the same periods of the prior fiscal year. Other non-interest income increased to $228,000 and $637,000 for the three and nine months ended March 31, 1998 compared with $172,000 and $478,000 during the three and nine months ended March 31, 1997. The increase is attributable to additional income from the insurance operations of First Financial Insurance Agency, Inc. The additional insurance income was due in part to the purchase of the book of business of an existing independent insurance agency in December 1996. The book of business was merged with the existing customer base of First Financial. As a result of the acquisition, First Financial operates a full service insurance office in Princeton, Indiana in addition to its office in Vincennes, Indiana. Non-interest expense totaled $1,338,000 for the three months ended March 31, 1998, compared to $1,707,000 for the three months ended March 31, 1997. The restructuring of the Bank's nonconforming loan operations near the end of fiscal year 1997 resulted in the lower level of non-interest expenses for the three months ended March 31, 1998 as compared to the prior year. Non-interest expense totaled $3,873,000 for the nine months ended March 31, 1998, compared to $6,705,000 for the nine months ended March 31, 1997. The nonconforming loan operation restructuring combined with the one-time SAIF assessment in the first quarter of fiscal year 1997 resulted in the lower level of non-interest expenses for the nine months ended March 31, 1998 compared with the same period of the prior year. On September 30, 1996, the federal government mandated an industry wide assessment to recapitalize the SAIF, which is a part of the FDIC. The special assessment was charged to savings associations with insured deposits by the SAIF. The assessment was calculated at 0.657% of insured deposits as of March 31, 1995. The Bank's portion of the assessment was $1,330,000 and was included in non-interest expense for the first quarter of fiscal 1997. Federal insurance premiums and special assessments totaled $42,000 and $124,000 for the three and nine months ended March 31, 1998, compared with $40,000 and $1,549,000 for the three and nine months ended March 31, 1997. During the fourth quarter of fiscal year 1997, the Bank restructured its nonconforming loan operation. The restructuring included closing all loan offices except the Evansville, Indiana loan origination office and moving all administrative functions to the Bank's home office in Vincennes, Indiana. The restructuring was undertaken to reduce non-interest operating expenses and improve profitability of the Bank. Compensation and employee benefits expense declined to $752,000 and $2,118,000 for the three and nine months ended March 31, 1998 compared to $1,010,000 and $2,995,000 for three and nine months ended March 31, 1997. Net occupancy expense declined to $150,000 and $405,000 for the three and nine months ended March 31, 1998 compared to $185,000 and $545,000 for the three and nine months ended March 31, 1997. Finally, other non-interest expense declined to $394,000 and $1,226,000 for the three and nine months ended March 31, 1998 compared to $472,000 and $1,616,000 for the three and nine months ended March 31, 1997. These declines in operating expenses resulted from a reduced number of employees, fewer office facilities, and generally lower administrative expenses which are attributable to the restructuring of the nonconforming loan operations. (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 also 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 core capital ratio of 3 percent. Additionally, savings institutions are required to meet a risk-based capital ratio equal to 8.0% of risk-weighted assets. At March 31, 1998, the Bank met all current capital requirements. The following is a summary of the Bank's regulatory capital and capital requirements at March 31, 1998: Tangible Core Risk-Based Capital Capital Capital ---------------------------------------------- Regulatory Capital $22,041,000 $22,041,000 $22,741,000 Minimum Capital Requirement 3,892,000 7,784,000 11,963,000 ---------------------------------------------- Excess Capital $18,149,000 $14,257,000 $10,778,000 Regulatory Capital Ratio 8.50% 8.50% 15.21% Required Capital Ratio 1.50% 3.00% 8.00% During the quarter ended March 31, 1998, 1ST BANCORP paid a $0.067 cash dividend per share. This is the twenty second consecutive quarterly dividend 1ST BANCORP has paid 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 $20,583,000 in loan commitments and $1,924,000 of loans in process outstanding at March 31, 1998. The majority of these commitments are expected to be funded within the three month period ending June 30, 1998. At March 31, 1998, the Bank had $241,000 in outstanding commitments to sell mortgage loans. The Bank maintains liquidity of at least 4% of net withdrawable assets as required by current liquidity regulations. The average regulatory liquidity ratio for the month ended March 31, 1998 was 5.80%. A Year 2000 Committee (the "Committee") has been established by the Corporation consisting of directors, officers, and employees of the Corporation to address problems which could arise from the forthcoming Year 2000 rollover. The Committee is charged with providing regular reports to the Board of Directors detailing progress in this area. Based on progress by the Committee to date, it is not anticipated that the Year 2000 rollover will present material financial or operational burdens for the Corporation. 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. Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in market risk exposures that affect the quantitative or qualitative disclosures presented as of the preceding fiscal year end in the Corporation's Annual Report on Form 10-K. PART II. OTHER INFORMATION Item 1. Legal Proceedings. Neither 1ST BANCORP nor its subsidiaries is involved in any material legal proceedings, other than routine proceedings occurring in the ordinary course of its business. 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, 1998. Item 6. Exhibits and Reports on Form 8-K a) The following exhibits are filed herewith: Exhibit 3a Certificate of Incorporation of Registrant (incorporated by reference to exhibit 3.1 to Registrant's Registration Statement on Form S-4, Registration No. 33-24587, filed September 28, 1988) Exhibit 3b Restated Code of By-Laws of Registrant (incorporated by reference to Exhibit 3b to Registrant's Form 10-K for the year ended June 30, 1994) 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, 1998. 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 13, 1998 By: /s/ C. James McCormick ----------------------------- C. James McCormick, Chairman and Chief Executive Officer Date: May 13, 1998 By: /s/ Frank D. Baracani ---------------------------- Frank D. Baracani, President Date: May 13, 1998 By: /s/ Mary Lynn Stenftenagel --------------------------------- Mary Lynn Stenftenagel, Secretary-Treasurer and Chief Accounting Officer EX-27 2 FDS FOR 1ST BANCORP
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-30-1998 JUL-1-1997 MAR-31-1998 1.000 322 12,246 0 0 18,973 22,559 22,457 190,339 1,181 259,562 122,711 0 3,053 110,381 1,090 0 0 22,327 259,562 11,656 2,436 528 14,620 5,662 9,814 4,806 300 10 3,873 2,008 2,008 0 0 1,451 1.32 1.32 8.00 2,967 467 0 196 1,158 279 2 1,181 481 0 700
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