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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001
OR
[ ] 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: 0-19618
FIRST COMMUNITY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1833586
(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
136 East Harriman
Bargersville, Indiana 46106
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (317) 422-5171
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
No Par Value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in part III of this Form 10-K or any amendment to this
Form 10-K [ ].
Aggregate market value of common stock held by non-affiliates
computed by reference to the sale price of such stock as of
March 1, 2002 $10,481,000
Shares of common stock outstanding as of March 1, 2002: 1,042,926
DOCUMENT INCORPORATED BY REFERENCE.
The Registrant's definitive proxy statement for the 2002 annual meeting of
shareholders to be filed within 120 days of the close of the Registrant's fiscal
year is incorporated by reference into Part III of this report.
FORM 10-K TABLE OF CONTENTS
Page
Forward Looking Statement....................................................3
PART I
Item 1. Business...........................................................3
Item 2. Properties........................................................12
Item 3. Legal Proceedings.................................................13
Item 4. Submission of Matters to a Vote of Security Holders...............13
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters...........................................................13
Item 6. Selected Financial Data...........................................14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.........22
Item 8. Financial Statements and Supplementary Data.......................22
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..............................................22
PART III
Item 10. Directors and Executive Officers of the Registrant................22
Item 11. Executive Compensation............................................22
Item 12. Security Ownership of Certain Beneficial Owners and Management....22
Item 13. Certain Relationships and Related Transactions....................22
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...23
Signatures..................................................................25
2
FORWARD LOOKING STATEMENT
This Annual Report on Form 10-K ("Form 10-K") 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-K and include statements regarding the intent, belief,
outlook, estimate or expectations of the Registrant (as defined below), its
directors or its officers primarily with respect to future events and the future
financial performance of the Registrant. Readers of this Form 10-K 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-K
identifies important factors that could cause such differences. These factors
include changes in interest rates; loss of deposits and loan demand to other
financial institutions; substantial changes in financial markets; changes in
real estate values and the real estate market; unemployment rates in areas
serviced by First Community; and changes in monetary policy or regulatory
changes.
PART I
Item 1. Business
General
First Community Bancshares, Inc. (the "Registrant") is primarily a one-bank
holding company and was incorporated in 1991. The Registrant's primary asset is
its wholly-owned banking subsidiary, First Community Bank & Trust ("First
Community"), an Indiana-chartered commercial bank formerly known as Bargersville
Federal Savings Bank. The Registrant is also the sole shareholder of First
Community Real Estate Management, Inc. ("FCREMI"), which owns and leases branch
offices to First Community.
At December 31, 2001, the Registrant had approximately $147.4 million of assets,
net loans of approximately $126.1 million, deposits of approximately $117.7
million and stockholders' equity of approximately $10.2 million. First Community
has offices located in Bargersville, Greenwood, Franklin, Indianapolis,
Trafalgar, Whiteland, Edinburgh, and North Vernon, Indiana. As of December 31,
2001, First Community had 91 full time equivalent employees. Neither the
Registrant nor FCREMI has any employees.
In November 1999, the Registrant signed a definitive agreement to acquire Blue
River Federal Savings Bank ("Blue River"), Edinburgh, Indiana. This agreement
was subsequently terminated in November 2000. The process for obtaining
regulatory approval had become prolonged and the Registrant had other priorities
to which it wanted to give attention.
First Community's deposits are insured to the maximum extent permitted by law by
the Savings Association Insurance Fund ("SAIF") of the Federal Deposit Insurance
Corporation ("FDIC"). First Community is a member of the Federal Home Loan Bank
("FHLB") of Indianapolis. First Community is subject to comprehensive
regulation, examination and supervision by the Indiana Department of Financial
Institutions ("DFI") and the FDIC. The Registrant is subject to regulation by
the Federal Reserve Board. The Federal Reserve Board, as a condition of the
acquisition of First Community, required the Registrant to make a commitment not
to incur debt in excess of a 30% debt-to-equity ratio on an unconsolidated
basis. As of December 31, 2001, the Registrant's debt-to-equity ratio on an
unconsolidated basis was 9.8%.
The business of First Community consists primarily of attracting deposits from
the general public, originating residential real estate, commercial and consumer
loans and purchasing other types of investments. In addition, First Community
originates first mortgage income-producing property real estate loans, second
mortgage one-to-four family home loans, secured home improvement loans, and
savings deposit secured loans. Consumer loans include, among others, new and
used automobile and other secured and unsecured personal loans. First Community
offers commercial loans to area businesses in addition to new home construction
loans and business lines of credit. First Community also invests in various US
Treasury, federal agency, state, municipal and other investment securities
permitted by applicable laws and regulations. The principal sources of funds for
First Community's lending activities include deposits received from the general
public, amortization and repayment of loans, sales of residential mortgages to
the Federal National Mortgage Association ("FNMA"), maturity and sale of
investment securities and FHLB advances.
3
First Community's primary sources of income are interest on loans, investment
securities and interest-bearing deposits in other financial institutions and
service charges on deposit accounts. Its principal expenses are interest paid on
deposit accounts and borrowings, salaries and employee benefits, premises and
equipment expenses and other overhead expenses incurred in the operation of
First Community.
Lending Activities
First Community's loans, before adjusting for direct loan origination costs and
the allowance for loan losses, totaled $127.1 million at December 31, 2001. Of
this amount, approximately $74.5 million or 58.6% represented fixed rate loans
and adjustable rate loans comprised $52.6 million or 41.4%.
The following table sets forth information concerning the composition of First
Community's loan portfolio in dollar amounts and percentages.
At December 31
------------------------------------------------
2001 2000
---------------------- ----------------------
Percent of Percent of
Amount Total Amount Total
--------- ---------- --------- ----------
(Dollars in 000's)
TYPE OF LOAN
Real estate loans
Residential mortgages
(1-4 single family homes) $ 46,585 36.94% $ 46,049 37.27%
Construction and land development 3,630 2.88 3,111 2.52
Commercial loans 41,626 33.00 37,977 30.74
Installment loans 32,094 25.45 34,373 27.82
Tax-exempt loans and leases 2,370 1.88 2,644 2.14
Lease financing 762 .60 224 .18
--------- ------ --------- ------
Loans, gross 127,067 100.75 124,378 100.67
Allowance for loan losses (1,114) (.88) (1,007) (.82)
Deferred loan origination costs 174 .13 180 .15
--------- ------ --------- ------
Loans, net $ 126,127 100.00% $ 123,551 100.00%
========= ====== ========= ======
The following table sets forth certain information at December 31, 2001,
regarding the dollar amount of loans maturing in First Community's loan
portfolio based on contractual maturities. Demand loans having no stated
schedule of repayments and no stated maturity and overdrafts are reported as due
in one year or less. This schedule does not reflect the effects of possible
prepayments or enforcement of due-on-sale clauses. Management expects
prepayments will cause actual maturities to be shorter. Certain mortgage loans
such as construction loans and second mortgage loans are included in the
commercial and installment loan totals below. In addition, commercial real
estate loans are included in mortgage loans below.
4
Remaining Maturities
----------------------------------------------------
Balance
Outstanding at
December 31, One Year Over One Year Over Five
2001 or Less To Five Years Years
----------------------------------------------------
(Dollars in 000's)
Real estate loans $ 58,333 $ 8,491 $11,586 $38,256
Commercial loans 29,239 14,410 8,591 6,238
Installment loans 36,363 9,763 24,569 2,031
Tax-exempt loans and leases 2,370 99 552 1,719
Lease financing 762 10 727 25
----------------------------------------------------
Total $ 127,067 $32,773 $46,025 $48,269
====================================================
The following table sets forth, as of December 31, 2001, the dollar amount of
all loans maturing after December 31, 2002 showing those having a fixed interest
rate and floating or adjustable interest rates.
Floating or Adjustable
Fixed Rate Rate
-------------------------------------------
TYPE OF LOAN (Dollars in 000's)
Real estate loans $30,150 $28,183
Commercial loans 9,381 19,858
Installment loans 31,853 4,510
Tax-exempt loans and leases 2,370 0
Lease financing 762 0
-------------------------------------------
74,516 52,551
Less amount due within one year 17,137 15,636
-------------------------------------------
Loans due after one year $57,379 $36,915
===========================================
The original contractual loan payment period for adjustable interest rate
residential loans originated by First Community normally ranges from 15 to 30
years. Current fixed rate mortgage originations may not exceed a 30-year term.
Because borrowers may refinance or prepay their loans, however, such loans
normally remain outstanding for a substantially shorter period of time.
Origination, Purchase and Sale of Loans. Interest rates charged by First
Community on its loans are affected primarily by loan demand and the supply of
funds available for lending. These factors are in turn affected by general
economic conditions and monetary policies of the federal government, including
the Federal Reserve Board, the general supply of money in the economy,
legislative tax policies and governmental budgetary matters.
Loan originations are derived from a number of sources. Residential loan
originations are attributable primarily to solicitation by First Community's
staff, referrals from real estate brokers, builders and walk-in customers.
Multifamily and other commercial real estate loan originations are obtained from
previous borrowers and direct contact with First Community. All property
securing real estate loans made by First Community is appraised in accordance
with applicable regulations of the FDIC and includes an actual inspection of
such property by designated fee appraisers. First Community has also purchased
participations in tax-exempt leases.
First Community has sold commercial real estate loans, from time to time, to
other participating financial institutions. This type of activity is intended to
reduce credit risk, enable additional credit extensions to large borrowers and
for general liquidity needs of First Community. First Community retains
servicing rights on these participations and receives servicing fees ranging
from .125% to .375%. There were eleven commercial real estate loan
participations with an aggregate outstanding principal balance of $3.2 million
as of December 31, 2001, as compared to three participations with an aggregate
outstanding principal balance of approximately $522,000 as of December 31, 2000.
The largest outstanding loan participation of this type was $500,000 at December
31, 2001.
5
Residential Mortgage Loans. Residential mortgage loans have been predominantly
secured by single-family homes. To reduce its exposure to changes in interest
rates, First Community currently originates both adjustable rate mortgages
("ARMs") and fixed-rate mortgages for the loan portfolio. In addition, First
Community began selling residential fixed-rate mortgages to FNMA with servicing
retained during the year ended December 31, 2001.
First Community offers residential construction mortgage loans with maturities
of six months or less at interest rates which vary with current market rates.
The application process includes the same items which are required for other
residential mortgage loans and includes a submission of accurate plans,
specifications and costs of the property to be constructed. These items are used
as a basis to determine the appraised value of the subject property. Appraisal
reports are completed by designated fee appraisers, and loans are based on the
current appraised value. Loans of up to 80% of the appraised value may be
offered for a maximum period of six months for the construction of the
properties securing the loans. Extensions are permitted, when circumstances
warrant, if construction has continued satisfactorily and the loan is current.
As was previously mentioned, First Community began selling residential
fixed-rate mortgages to FNMA during the year ended December 31, 2001. This
decision was made in order to offer competitive fixed rate mortgages without
exposing First Community to interest rate risk, provide mortgage banking income
and to enhance liquidity at times. First Community retains servicing rights on
these mortgage sales and receives servicing fees ranging from .250% to .375% on
the outstanding principal balances of these loans. As of December 31, 2001,
First Community was servicing 32 residential mortgage loans for FNMA with
outstanding principal balances of approximately $2.6 million.
All mortgage loans in excess of $300,000 are approved by the full Board of
Directors or the loan committee of the Board. Loan limits are reviewed and
changed from time to time to reflect current market conditions. Fire and
casualty insurance is required on all mortgage loans as well as abstracts of
title or title insurance.
Installment and Commercial Lending. First Community makes various types of
installment loans including loans to depositors secured by pledges of their
deposit accounts, new and used automobile loans, both direct and indirect, and
secured and unsecured personal loans. Although installment and commercial loans
are considered by management to involve more risk than residential mortgage
loans, such loans have shorter maturities and typically have higher yields than
mortgage loans.
Commercial loans include loans secured by commercial real estate or deposits,
single-payment loans, construction loans and loans for business purchases,
operations, inventory and lines of credit. All non-residential mortgage loans
are at a greater interest rate than single-family residential loans.
All installment and commercial loans in excess of $300,000 are approved by the
full Board of Directors or the loan committee of the Bank. A loan officer's
approval is required for installment or commercial loans up to certain amounts.
First Community has established policies regarding financial statement
requirements, credit verification procedures and other matters intended to
minimize underwriting risk.
The most recent loan approval limits were adopted by the Board of Directors in
2001 and are reviewed annually. The limits vary from officer to officer with a
range of $1,500 to $70,000 for unsecured, and a range of $7,500 to $200,000 for
secured. Loans in excess of the above-mentioned limits must be approved by a
committee of loan officers or the board of directors loan committee.
Installment Loan Underwriting. First Community has adopted underwriting
guidelines that apply to all loans made by First Community. However, the
underwriting policies and practices are particularly important in the
installment lending area. Installment loans present risks beyond those presented
by other types of loans because the collateral is usually movable and subject to
rapid depreciation. Such factors increase the importance of properly documenting
such loans and assessing the risks associated with each loan based upon such
documentation.
The documentation required by First Community's underwriting guidelines includes
an application, employment income verified by pay stubs, and direct verification
with employers when deemed necessary, and may include tax returns or audited
financial statements and evidence of security. The application must include the
minimum loan amount requested, the term requested, monthly payment, purpose of
loan, job history, income, financial statement, and security offered if
applicable. The application must be signed by all borrowers obligated for the
loan. First
6
Community also requires current credit reports from credit bureaus as part of
the underwriting procedure for all loans including indirect automobile lending.
First Community also reviews the applicant's ability to maintain a stable
monthly income and other required monthly payments. Other monthly payments
generally may not exceed forty percent (40%) of the applicant's stable gross
income.
Single-pay loans are normally not renewed without at least a 10% reduction in
principal.
Income from Lending Activities. First Community realizes interest income from
its lending activities. Interest on loans comprised approximately 95.5% of First
Community's total interest income for the year ended December 31, 2001.
Nonperforming Assets and Allowance for Loan Losses
Nonperforming assets consist of nonaccrual loans, restructured loans, past-due
loans, real estate owned (acquired in foreclosure), and other repossessed
assets. Nonaccrual loans are loans on which interest recognition has been
suspended because they are 90 days past due as to interest or principal or
because there is a question about First Community's ability to collect all
principal and interest. First Community experienced an increase in nonaccrual
loans between December 31, 2000 and December 2001 primarily due to three loans
in bankruptcy status. Reserves have been allocated towards any expected losses
on these loans. Restructured loans of which there were none at either December
31, 2001 or December 31, 2000, are loans where the terms have been modified to
provide a reduction or deferral of interest or principal because of
deterioration in the borrower's financial position. Past-due loans are accruing
loans that are contractually past due 90 days or more as to interest or
principal payments, and the amount of the loan is no greater than 80% of the
fair market value of the collateral securing the loan or First Community has a
reasonable expectation of collecting all past-due interest and principal.
The following table summarizes nonperforming assets as of the dates indicated.
At December 31
-----------------------------
2001 2000
-----------------------------
(Dollars in 000's)
Nonaccrual loans $ 1,630 $ 402
Past-due loans 90 days or more (interest accruing) 48 96
-----------------------------
Total non-performing loans 1,678 498
Real estate owned 305 99
Other repossessed assets 33 94
-----------------------------
Total non-performing assets $ 2,016 $ 691
=============================
Ratio of non-performing assets to total assets 1.37% .46%
Interest on non-performing loans that would have been included in income
$77 $30
=============================
Interest on non-performing loans that was included in income $ 1 $ 3
=============================
At December 31, 2001, loans of $1,358,000 were identified as impaired by
management. Loans are considered to be impaired when it becomes probable that
First Community will be unable to collect all amounts due according to the
contractual terms of the loan agreement. First Community has reserved $137,000
on its impaired loans.
In banking, loan losses are one of the costs of doing business. Although First
Community's management emphasizes the early detection and chargeoff of loan
losses, it is inevitable that at any time certain losses exist in the portfolio
which have not been specifically identified. Accordingly, the provision for loan
losses is charged to earnings on an anticipatory basis, and recognized loan
losses are deducted from the allowance so established. Over time, all net loan
losses must be charged to earnings. During the year, an estimate of the loss
experience for the year serves as a starting point in determining the
appropriate level for the provision. However, the amount actually provided in
any period may be greater or less than net loan chargeoffs, based on
management's judgment as to the appropriate level of the allowance for loan
losses. The determination of the adequacy of the allowance for loan loss is
based on management's continuing review and evaluation of the loan portfolio,
and its judgment as to the impact
7
of current economic conditions on the portfolio. The evaluation by management
includes consideration of past loan loss experience, changes in the composition
of the loan portfolio and the current condition and amount of loans outstanding.
The allowance for loan losses increased during the year ended December 31, 2001
compared to the year ended December 31, 2000 both due to additional loan
balances outstanding in the portfolio and because of specific reserves allotted
towards loans in non-accrual status. During 2001, First Community made a
$289,000 provision for loan losses due primarily to growth in loans and a change
in the mix of the loan portfolio.
Allocation of the Allowance for Loan Losses:
At December 31
2001 2000
-------------------------------------------------------
Percentage of Percentage of
Loans to Total Loans to Total
Amount Loans Amount Loans
-------------------------------------------------------
(Dollars in 000's)
Real estate mortgage loans $ 125 36.7% $ 147 37.0%
Construction and land development 36 2.8 25 2.5
Commercial loans 524 33.3 385 30.7
Installment loans 427 25.3 448 27.6
Tax-exempt loans and leases 2 1.9 2 2.2
-------------------------------------------------------
$1,114 100.0% $1,007 100.0%
=======================================================
Summary of Loan Loss Experience:
Year Ended December 31
------------------------
2001 2000
------------------------
(Dollars in 000's)
Balance at January 1 $ 1,007 $ 873
Chargeoffs:
Real estate mortgage loans (6)
Commercial loans (51)
Installment loans (159) (104)
------------------------
Total Chargeoffs (216) (104)
------------------------
Recoveries:
Real estate mortgage loans 8 1
Commercial loans 18
Installment loans 26
------------------------
Total Recoveries 34 19
------------------------
Net Chargeoffs (182) (85)
------------------------
Provision for loan losses 289 219
------------------------
Balance at December 31 $ 1,114 $ 1,007
========================
Average loans during the year $ 127,422 $ 118,025
Ratio of net chargeoffs to total average
loans outstanding during the year .14% .07%
8
Investment Activities
The following table sets forth the carrying value of First Community's
investment portfolio and FHLB stock as of the dates indicated:
December 31
------------------------
2001 2000
------------------------
(Dollars in 000's)
Available for sale at fair value:
State and municipal obligations $3,969 $8,699
Corporate obligations 0 500
------------------------
3,969 9,199
------------------------
Held to maturity at amortized cost:
State and municipal obligations 0 1,349
------------------------
0 1,349
FHLB stock 1,025 778
------------------------
Total $4,994 $11,326
========================
At December 31, 2001, the amortized cost of securities available for sale was
$3,966,000 and the related gross unrealized gains and losses were $24,000 and
$21,000, respectively. There were no securities classified as held to maturity
at December 31, 2001.
As of December 31, 2001, there were no individual investments representing more
than 10% of stockholders' equity included in securities.
The following table sets forth the maturities of investment securities at
December 31, 2001 and the weighted-average yield (on a tax equivalent basis) on
such securities.
State and Municipal
Obligations
--------------------------
Amount Yield
--------------------------
(Dollars in 000's)
Available for Sale(1):
Maturities:
One year or less $ 411 5.22%
Over 1 year to 5 years 1,919 5.25
Over 5 years to 10 years 1,296 6.86
Over 10 years 340 6.10
------------
Total available for sale $ 3,966 5.85%
============
(1) Available for sale amounts shown in the maturity distribution table are at
amortized cost for computation of yields.
Sources of Funds
Savings deposits are the primary source of First Community's funds for use in
lending and for other general business purposes. In addition to savings
deposits, certificates of deposit obtained on a bid basis and FHLB advances
represent a significant source of funds to First Community, as well as funds
derived from loan repayments. Loan repayments are a relatively stable source of
funds, while savings inflows and outflows are significantly influenced by
general interest rates and money market conditions. As was discussed earlier,
First Community began underwriting and selling fixed rate mortgages to FNMA
during the year ended December 2001, which represents yet another source of
funds. Borrowings are the primary source of funds for the Registrant and FCREMI.
9
Deposit Activities. First Community offers several types of deposit programs
designed to attract both short-term and long-term savings by providing a wide
assortment of accounts and rates. See the average balance sheet included in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a breakdown of the average amount and average rate paid on First
Community's deposit categories. First Community does not rely on brokered
deposits as funding sources.
The following table indicates the amount of certificates of deposit of $100,000
or more by time remaining until maturity at December 31, 2001 (in 000's).
Maturity Period
Three months or less $ 1,253
Greater than three months through six months 7,434
Greater than six months through twelve months 2,459
Over twelve months 2,718
-------------
Total $ 13,864
=============
Interest earned on statement savings accounts is paid from the date of deposit
to the date of withdrawal, compounded and credited monthly. Interest earned on
money market demand deposit accounts is compounded and credited monthly. The
interest rate on these accounts is established by First Community.
In recent years, many deposits in long-term fixed-rate accounts have been
withdrawn prior to maturity or such certificates have not been renewed at
maturity due to the more attractive rates offered on various money market
accounts. Early withdrawal penalties are 30 days' interest on accounts maturing
in one year or less and 90 days interest on accounts maturing in greater than
one year.
Borrowings. The FHLB of Indianapolis functions as a central credit facility
providing credit for member financial institutions. As a member, First Community
is required to own capital stock in the FHLB and is authorized to apply for
advances on the security of such stock and certain of its home mortgages and
other assets (principally, securities which are obligations of, or guaranteed
by, the United States) provided certain standards related to creditworthiness
have been met. Advances are made pursuant to several different credit programs.
Each credit program has its own interest rate and range of maturities. The FHLB
prescribes the acceptable uses to which the advances pursuant to each program
may be made as well as limitations on the amounts of advances. Acceptable uses
prescribed by the FHLB have included expansion of residential mortgage lending
and meeting short-term liquidity needs. Depending on the program, limitations on
the amounts of advances are based either on a fixed percentage of a member's net
worth or on the FHLB's assessment of the member's creditworthiness. The FHLB is
required to review its credit limitations and standards at least once every six
months. First Community had outstanding borrowings of $15.5 million from the
FHLB as of December 31, 2001.
As discussed in detail in Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations", FCREMI has borrowings with
financial institutions other than First Community. The total outstanding balance
of these borrowings as of December 31, 2001 was $1.6 million. As also further
discussed in Item 7, the Registrant has borrowings as of December 31, 2001 of
$1.0 million from the sale of unsecured convertible notes.
Service Area
First Community's primary service areas are Johnson County and Jennings County,
Indiana. These areas are believed to be among the most affluent and rapidly
growing areas of Indiana. The major portion of First Community's customers
reside in Johnson County, particularly in the Bargersville, Franklin and
Greenwood areas, which collectively account for about one-half of the county's
population, according to the 2000 U.S. Census. First Community has branches in
Bargersville, Trafalgar, Franklin, Whiteland and Greenwood, Johnson County
Indiana, two branches in North Vernon, Jennings County Indiana, a branch at a
retirement center in Indianapolis, Indiana, and a branch in Edinburgh,
Bartholomew County Indiana.
10
Competition
The banking business is highly competitive especially in Johnson County, where
First Community competes with 11 commercial banks, 4 savings banks, and 2 credit
unions. In Jennings County, First Community competes with 4 commercial banks,
one savings bank and 2 credit unions. In Bartholomew County, First Community
competes with 6 commercial banks, 1 savings bank, and 3 credit unions. First
Community also competes with mortgage banking companies, consumer finance
companies, and certain governmental agencies.
Regulation and Supervision of the Registrant
The Registrant is a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended ("BHCA"), and is registered as such with the
Board of Governors of the Federal Reserve System ("Federal Reserve"). The
Registrant is examined, regulated and supervised by the Federal Reserve and is
required to file annual reports and other information regarding its business and
operations and the business and operations of its subsidiaries with the Federal
Reserve. The BHCA prohibits any person from acquiring control, directly or
indirectly, of the Registrant without the approval of the Federal Reserve. The
Federal Reserve has the authority to issue cease and desist orders against a
bank holding company if it determines that its activities represent an unsafe
and unsound practice or a violation of law.
Under the BHCA, a bank holding company is, with limited exceptions, prohibited
from acquiring direct or indirect ownership or control of voting stock of any
company which is not a bank and from engaging in any activity other than
managing or controlling banks. A bank holding company may, however, own shares
of a company engaged in activities which the Federal Reserve has determined to
be so closely related to banking or managing or controlling banks as to be a
proper incident thereto.
Acquisitions by the Registrant of banks and savings associations are also
subject to regulation. Any acquisition by the Registrant of direct or indirect
control of more than five percent of the voting stock of any bank or bank
holding company requires prior approval of the Federal Reserve. Acquisitions of
savings associations are also subject to the approval of the Office of Thrift
Supervision ("OTS").
A bank holding company and its subsidiaries are prohibited from engaging in
certain tying arrangements in connection with the extension of credit, the lease
or sale of property or the provision of any service. With certain exceptions, a
bank holding company, a bank, and a subsidiary or affiliate thereof, may not
extend credit, lease or sell property or furnish any services or fix or vary the
consideration for the foregoing on the condition that (i) the customer must
obtain or provide some additional credit, property or services from, or to, any
of them, or (ii) the customer may not obtain some other credit, property or
service from a competitor, except to the extent reasonable conditions are
imposed to assure the soundness of credit extended.
Under the BHCA, bank holding companies may acquire savings associations without
geographic restrictions. However, under the Home Owners' Loan Act ("HOLA"), the
OTS is prohibited from approving any acquisition that would result in the
formation of a multiple savings and loan holding company controlling savings
institutions in more than one state, except under specified conditions. Although
the conditions imposed upon acquisitions in those states which have enacted such
legislation vary, most such statutes are of the "regional reciprocity" type
which require that the acquiring holding company be located (as defined by the
location of its subsidiary savings institutions) in a state within a defined
geographic region and that the state in which the acquiring holding company is
located has enacted reciprocal legislation allowing savings institutions in the
target state to purchase savings institutions in the acquirer's home state on
terms no more restrictive than those imposed by the target state on the
acquirer. Indiana law permits reciprocal interstate savings institution
acquisitions within a region consisting of Indiana and contiguous states.
Financial Services Modernization Act
On November, 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley
Act of 1999 (the "Financial Services Modernization Act"). The general effect of
the Financial Services Modernization Act is to establish a comprehensive
framework to permit affiliations among commercial banks, insurance companies,
securities firms, and other financial service providers by revising and
expanding the existing BHCA. Under this legislation, bank holding companies are
permitted to conduct any activities determined by the Federal Reserve Board to
be financial in nature or related to financial services. As a result, the
Registrant is able to provide securities and insurance
11
services. Furthermore, under this legislation, the Registrant is able to
acquire, or be acquired by, brokerage and securities firms and insurance
companies. In addition, the Financial Services Modernization Act broadens the
activities that may be conducted by national banks through the formation of
financial subsidiaries. The Financial Services Modernization Act also modifies
the laws governing the implementation of the Community Reinvestment Act and
addresses a variety of other legal and regulatory issues affecting both
day-to-day operations and long-term activities of financial institutions.
Finally, the law contains significant limitations on a bank's ability to share
its customers' personal financial information, including requirements that each
bank clearly disclose its privacy policies to consumers and, if the bank intends
to disclose personal information to non-affiliated third parties other than in
connection with servicing or processing a financial product or service that a
consumer requests or authorizes, the bank must permit consumers to opt-out of
any information sharing by the bank with unaffiliated third parties.
The Registrant does not believe that the legislation has had a material adverse
effect on its operations and does not anticipate significant changes in its
products or services as a result of this legislation. However, to the extent
that this legislation permits banks, securities firms and insurance companies to
affiliate, the financial services industry may experience further consolidation
and may increase the amount of competition that the Registrant faces from larger
institutions and other types of companies offering financial products.
Regulation and Supervision of First Community
First Community is supervised, regulated and examined by the DFI and, as a state
nonmember bank, by the FDIC. A cease and desist order may be issued by the DFI
and FDIC against First Community if the respective agency finds that the
activities of First Community represent an unsafe and unsound banking practice
or violation of law. The deposits of First Community are insured by the SAIF of
the FDIC. The FDIC also has authority to appoint a conservator or receiver for
undercapitalized institutions, adopt safety and soundness standards on matters
such as loan underwriting and documentation, interest rate risk exposure,
compensation and other employee benefits, and establish risk-based deposit
insurance premiums.
Branching by banks in Indiana is subject to the jurisdiction, and requires the
prior approval of, the bank's primary federal regulatory authority and the DFI.
Under Indiana law, First Community may branch anywhere in the state.
The Registrant is a legal entity separate and distinct from First Community.
There are various legal limitations on the extent to which First Community can
supply funds to the Registrant. The principal source of the Registrant's funds
consists of dividends from First Community. State and federal laws restrict the
amount of dividends which may be paid by banks. In addition, the Registrant is
subject to certain restrictions imposed by the Federal Reserve on obtaining
extensions of credit to the Registrant or any of its subsidiaries from First
Community, or using the stock or other securities of First Community as
collateral for loans.
The commercial banking business is affected not only by general economic
conditions but also by the monetary policies of the Federal Reserve. The
instruments of monetary policy employed by the Federal Reserve include the
discount rate on member bank borrowing and changes in reserve requirements
against member bank deposits. Federal Reserve monetary policies have had a
significant effect on the operating results of commercial banks in the past and
are expected to continue to do so in the future. In view of changing conditions
in the national economy and in the money markets, as well as the effect of
actions by monetary fiscal authorities, including the Federal Reserve, no
prediction can be made as to possible future changes in interest rates, deposit
levels, loan demand or the business and earnings of the Registrant and First
Community.
Capital Requirements
First Community must meet certain minimum capital requirements mandated by the
FDIC and the DFI. These regulatory agencies require financial institutions to
maintain certain ratios of primary capital to total assets. Specifically, First
Community must maintain a tier one leverage ratio of at least 4%, and a total
capital to risk-based assets ratio of at least 8%. As of December 31, 2001,
First Community had a tier one leverage ratio of 7.2%, based on tier one capital
of approximately $10,726,000. As of the same date, First Community had a total
capital to risk-based assets ratio of 10.3%, based on eligible capital of
approximately $11,840,000 for the determination of this ratio.
At this time, the Registrant is not required to comply with the Federal Reserve
capital adequacy guidelines applicable to large bank holding companies because
it has consolidated assets of less than $150,000,000. The
12
Registrant is, however, currently subject to the Federal Reserve's Small Bank
Holding Company Policy Statement, which sets guidelines for the operation of
small bank holding companies related to the reduction of holding company debt,
capital adequacy and dividend restrictions. In the event that the Registrant's
consolidated assets exceed $150,000,000, the Registrant will be required to
maintain a minimum ratio of Tier 1 capital to total assets of between 3-4%, and
to maintain a minimum ratio of qualifying capital to risk weighted assets of 8%.
Item 2. Properties
First Community leases its home office at 136 East Harriman, Bargersville,
Indiana, and its branch offices in Greenwood, Indiana, North Vernon, Indiana,
and one of its branches in Franklin, Indiana from FCREMI. First Community also
leases branches in Indianapolis, Franklin, and its operations center in Franklin
from third parties. First Community owns its branch offices in Whiteland,
Indiana, Trafalgar, Indiana and Edinburgh, Indiana. The leases on branch offices
with third parties expire between 2002 and 2015 and the lease on its operations
center expires in 2015. The lease that expires in 2002 is automatically
renewable from year to year and no party has given notice of an intent to
terminate the lease. The Registrant plans for FCREMI to eventually own
substantially all of the branch properties and lease them to First Community. At
December 31, 2001, the net carrying values of First Community's and FCREMI's
properties, including land, building, improvements, furniture, fixtures and
equipment were $2.7 million and $1.8 million, respectively.
Item 3. Legal Proceedings
The Registrant and First Community are from time to time, a party to certain
lawsuits arising in the ordinary course of their business. The Registrant and
First Community believe that none of their current lawsuits would, if adversely
determined, have a material adverse effect on the Registrant and First
Community.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders through the solicitation
of proxies or otherwise, during the quarter ended December 31, 2001.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The following table sets forth the high and low prices for the Registrant's
common stock for the quarters during the years indicated, based upon information
obtained by management of the Registrant from the Nasdaq web site and on other
information made available to management of the Registrant. Management of the
Registrant has not verified the accuracy of the following information. There is
no established public trading market for the Registrant's common stock. The
common stock is traded on a limited basis, quoted on the OTC Bulletin Board and
many trades have involved privately negotiated transactions. As a result, the
Registrant is not always aware of the price at which trades occur. The
referenced prices may not reflect an actual trading range and may reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
Price Per Share
-------------------------------
2001 2000
-------------------------------
High Low High Low
-------------------------------
Quarter
First Quarter $8.00 $6.50 $8.75 $6.38
Second Quarter 7.25 5.85 8.25 5.25
Third Quarter 8.00 6.52 8.75 6.00
Fourth Quarter 8.15 7.10 8.50 6.00
The Registrant declared dividends of $.04 per share for each quarter in 2000
each paid during the following quarter. In addition, the Registrant declared
dividends of $.04 per share for the first three quarters of 2001 each paid
during the following quarter. The Registrant did not declare a dividend during
the fourth quarter of 2001, but subsequently declared an increased dividend of
$.05 per share in January 2002 payable in January 2002. Any future dividend
13
payments by the Registrant will be dependent upon dividends paid by First
Community and subject to regulatory limitations.
The dividends which the Registrant may pay are restricted by Federal Reserve
Bank capital requirements. The ability of the Registrant to pay dividends to
shareholders is dependent on dividends received from First Community. First
Community is restricted by regulations of the Indiana Department of Financial
Institutions and the Federal Deposit Insurance Corporation as to the maximum
amount of dividends it may pay to the net profits for the current year plus
those for the previous two years and by the Office of Thrift Supervision for the
amount of the liquidation account established at the time of its stock
conversion. As a practical matter, dividends are ordinarily restricted to a
lesser amount because of the need to maintain an adequate regulatory capital
structure. At December 31, 2001, the stockholder's equity of First Community was
$10.9 million, of which a minimum of $1,110,000 was available for dividends.
The number of record holders of the Registrant's common stock as of March 1,
2002 was 265.
Item 6. Selected Financial Data (dollars in thousands, except per share data)
At December 31
--------------------------------------------------------
2001 2000 1999 1998 1997
--------------------------------------------------------
Summary of Financial Condition Data:
Total assets $147,377 $149,195 $145,237 $121,272 $ 98,740
Loans, net 126,127 123,551 110,843 93,364 79,152
Cash and interest-bearing deposits 6,687 4,886 4,603 14,292 11,231
Securities including FHLB stock 4,994 11,325 21,810 8,857 5,258
Deposits 117,724 123,008 128,315 106,193 87,695
FHLB advances 15,500 13,000 4,597 4,753 2,930
Other borrowings 2,556 2,586 2,614 1,382 0
Stockholders' equity 10,191 9,316 8,805 8,486 7,550
Year Ended December 31
---------------------------------------------------
2001 2000 1999 1998 1997
---------------------------------------------------
Summary of Selected Operating Data:
Total interest income $11,484 $11,442 $10,134 $ 8,420 $ 7,361
Total interest expense 5,960 6,559 5,639 4,509 3,807
---------------------------------------------------
Net interest income 5,524 4,883 4,495 3,911 3,554
Provision for loan losses 289 219 201 239 255
---------------------------------------------------
Net interest income after provision for
loan losses 5,235 4,664 4,294 3,672 3,299
Total non-interest income 1,101 749 461 418 305
Total non-interest expense 5,065 4,958 3,949 2,937 2,490
---------------------------------------------------
Income before income taxes 1,271 455 806 1,153 1,114
Income taxes 353 34 164 350 376
---------------------------------------------------
Net income $ 918 $ 421 $ 642 $ 803 $ 738
===================================================
Basic earnings per share* $ 0.88 $ 0.41 $ 0.63 $ 0.81 $ 0.75
Diluted earnings per share* $ 0.85 $ 0.41 $ 0.62 $ 0.80 $ 0.74
Year Ended December 31
------------------------------------------------
2001 2000 1999 1998 1997
------------------------------------------------
Other Selected Data:
Return on average assets .61% .28% .48% .77% .85%
Return on average equity 9.31 4.61 7.26 9.93 10.02
Average equity to average assets 6.50 6.18 6.53 7.75 8.45
Dividend payout ratio 13.62 39.02 22.22 13.33
* Net income per share has been restated to reflect the stock dividend
declared in 1997.
14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
First Community is a subsidiary of the Registrant and operates as an Indiana
commercial bank. In May 1998, the Registrant formed a new subsidiary, First
Community Real Estate Management, Inc. whose sole purpose is to own and lease
branch facilities to First Community. In July 1998, FCREMI borrowed $800,000 at
a rate of 1.125% under prime, adjustable every 5 years for a term of 30 years,
from another financial institution in order to purchase the land and building of
First Community's Bargersville branch office at 136 E. Harriman Ave. in
Bargersville, Indiana and the land and building of its Banta Street office at
597 Banta Street in Franklin, Indiana. In December 1998, FCREMI borrowed
$416,000 at a rate of 7.25% with payments due in monthly installments through
November 2003 with a final balloon payment due in December 2003, from another
financial institution in order to purchase the land and building of First
Community's Greenwood branch office at 298 State Road 135 North in Greenwood,
Indiana. In August 1999, FCREMI borrowed $422,800 from another financial
institution at a rate of 7.50% with payments of principal and interest due
monthly for 5 years based on a 20 year amortization schedule. The balance is due
at the end of 5 years or may be renewed at a variable interest rate. These loan
proceeds were used to purchase the land and buildings of First Community's North
Vernon branch offices at 21 Madison Avenue and 521 N. State Street, North
Vernon, Indiana. First Community is making monthly lease payments to FCREMI as
lessee of these locations. These lease payments are sufficient to service the
debt. As a bank holding company, the Registrant depends upon the operations of
its subsidiaries for all revenue and reports its results of operations on a
consolidated basis with its subsidiaries.
First Community's profitability depends primarily upon the difference between
the income on its loans and investments and the cost of its deposits and
borrowings. This difference is referred to as the spread or net interest margin.
The difference between the amount of interest earned on loans and investments
and the interest incurred on deposits and borrowings is referred to as net
interest income. Interest income from loans and investments is a function of the
amount of loans and investments outstanding during the period and the interest
rates earned. Interest expense related to deposits and borrowings is a function
of the amount of deposits and borrowings outstanding during the period and the
interest rates paid.
Results of Operations
The following discussion of Results of Operations is for the years ended
December 31, 2001, 2000 and 1999.
Net income for the year ended December 31, 2001 was $918,000, compared to
$421,000 and $642,000 for the years ended December 31, 2000 and 1999,
respectively. Basic earnings per share was $.88 for the year ended December 31,
2001 compared to $.41 and $.63 for the years ended December 31, 2000 and 1999,
respectively. Diluted earnings per share was $0.85 for the year ended December
31, 2001 compared to $0.41 and $.62 for the years ended December 31, 2000 and
1999, respectively. Net income increased from 2000 to 2001 both as a result of
the Registrant's improved net interest income of $5.5 million compared to $4.9
million and the increase in other income from $749,000 to $1.1 million between
the same periods. Earnings decreased from 1999 to 2000 primarily due to expenses
incurred in relation to new key man life insurance of $143,000 and after tax
expenses in relation to the now-terminated definitive agreement to acquire Blue
River Federal Savings Bank of approximately $57,000.
The increase in net interest income of $641,000 in 2001, as compared to 2000,
resulted primarily from a decrease in interest expense due to a reduction in
interest rates from 5.1% during 2000 to 4.6% in 2001. This decrease in interest
expense can be attributed to both management's successful efforts at changing
the funding mix and the lower rate environment during 2001 as compared to 2000.
The provision for loan losses of $289,000 was recorded in 2001 as a result of an
increase in net loan dollars outstanding and the risk profile of the loan
portfolio. The increase in other income of $352,000 in 2001 resulted from
management continuing to focus on non-interest income. The results included
$144,000 of additional NSF fees being collected due to an increase in per item
charges and an increase in the number of demand accounts being serviced and
$59,000 of additional interchange and surcharge income collected from
noncustomers on ATM operations. Due to the interest rate environment and
liquidity needs at different times during 2001, securities were sold with gains
recognized in the amount of $50,000 as compared to losses on the sale of
securities of $25,000 during the year ended December 31, 2000. The Registrant
had an increase of $107,000 in other expenses during the year ended December 31,
2001 as compared to the year
15
ended December 31, 2000. The primary increases were both to salaries and
employee benefits with an increase of $174,000 and data processing fees with an
increase of $144,000 between these time frames. These increases were partially
offset by decreases to printing and office supplies of $89,000 and decreases in
life insurance expenses of $145,000. The Registrant's consolidated effective tax
rate was 27.8% in 2001 as compared to 7.4% in 2000. This stark increase reflects
both the Registrant's improved pre-tax earnings of $1.3 million during the year
ended December 31, 2001 as compared to $454,000 of pre-tax earnings during the
comparable period in 2000 and a decrease in tax-exempt income between the two
periods.
The increase in net interest income of $388,000 in 2000, as compared to 1999,
resulted primarily from an increase in lending and the associated income from
this activity. Net loans outstanding increased $12.7 million in 2000 with
commercial and commercial real estate seeing the primary growth, but all other
lending areas seeing increases as well. The provision for loan losses of
$219,000 was recorded in 2000 as a result of an increase in the loan portfolio.
The increase in non-interest income of $288,000 in 2000 resulted from management
focusing heavily on service fee income. The results included $92,000 of
additional interchange and surcharge income collected from noncustomers on ATM
operations and $86,000 of additional NSF fees being collected due to an increase
in per item charges and an increase in number of demand accounts being serviced.
The Registrant also had $66,000 in increases to cash surrender values on key man
life insurance policies owned, and an increase of $22,000 in fees from an
off-line debit card program. The increases in non-interest income were partially
offset by losses on sales of available for sale securities. The Registrant sold
several available for sale securities prior to maturity at an aggregate loss of
$25,000 during the year ended December 31, 2000. The Registrant's growth has
been facilitated by and resulted in the increase of additional personnel,
facilities as well as other general expenses. Data processing expense increased
$160,000 in 2000 both as a result of First Community switching its statement
rendering process from manual rendering in-house to laser printed imaged
statements being outsourced through its primary service bureau and the number of
accounts being serviced increasing dramatically over the past several years.
Income taxes decreased $130,000 because of a decrease in overall taxable income.
The Registrant's consolidated effective tax rate was 7.4% in 2000 as compared to
20.4% in 1999. For both 2000 and 1999, the primary difference between the
effective tax rate and the statutory tax rate relates to tax-exempt interest.
Quarterly Results of Operations
The following table sets forth certain quarterly results for the years
ended December 31, 2001 and 2000.
(Dollars in thousands except for per share data)
- --------------------------------------------------------------------------------------------------
Net Provision Basic Diluted
Quarter Interest Interest Interest For Loan Net Earnings Earnings Dividends
Ended Income Expense Income Losses Income Per Share Per Share Per Share
- --------------------------------------------------------------------------------------------------
2001:
March $2,920 $1,713 $1,207 $ 34 $178 $.17 $.17 $ .04
June 2,949 1,623 1,326 69 213 .20 .20 .04
September 2,882 1,403 1,479 119 273 .26 .25 .04
December 2,733 1,221 1,512 67 254 .24 .23 .00
2000:
March 2,785 1,582 1,203 64 103 .10 .10 .04
June 2,792 1,576 1,216 55 226 .22 .21 .04
September 2,852 1,613 1,239 40 157 .15 .15 .04
December 3,013 1,789 1,224 60 (66) (.06) (.06) .04
16
The Registrant made significant progress in reducing its cost of funds on
interest-bearing liabilities without losing proportionate yields on its
interest-earning assets during the last three quarters of 2001. The results
included the Registrant's net interest income increasing to $1.3 million during
the quarter ended June 30, 2001, and $1.5 million during the quarters ended
September 30, 2001 and December 31, 2001. This compares to the Registrant's net
interest income of approximately $1.2 million during the quarter ended March 31,
2001 and all four quarters ended 2000. These improvements coupled with continued
increases in non-interest income from service charges on accounts, mortgage
banking activity, and other income propelled the Registrant to a record net
income level of $918,000 for the year ended December 31, 2001.
The Registrant had a net loss during the quarter ending December 31, 2000, as
compared to net income in the three other quarters during 2000. The quarter
ending December 31, 2000 had two non-recurring expenses included in non-interest
expense. The first was a $143,000 up-front charge in relation to a new key man
life insurance policy that the Registrant acquired during the fourth quarter.
The Registrant believes that this initial expense will be recovered over the
term of the key man life insurance. There was also an aggregate pre-tax expense
of $94,000 in relation to the termination of the definitive agreement to acquire
Blue River Federal Savings Bank, as was discussed earlier.
Net income was $103,000 during the quarter ending March 31, 2000, as compared to
$226,000 and $157,000 in the quarters ending June 30, 2000 and September 30,
2000, respectively. The quarter ending March 31, 2000 was the first full quarter
that the Registrant had 10 full-service branches and an operations center open.
First Community opened full-service branches in Whiteland, Indiana and
Edinburgh, Indiana in September 1999 and January 2000, respectively. As a result
of these two fixed asset investments in a short period of time, the following
expense categories rose sharply: premises and equipment, salaries, printing and
office supplies, telephone, and other operating expense. These expenses were
offset in the third and fourth quarters of 2000 by the increases in non-interest
income.
The following table sets forth the average balance sheet amounts, the related
interest income or expense and average rates earned or paid for the years ended
December 31, 2001 and 2000.
17
2001 2000
------------------------------------------------------------------------
Interest/ Interest/
Average Income Average Average Income Average
Balance Expense Rate Balance Expense Rate
------------------------------------------------------------------------
(Dollars in Thousands on Fully Taxable Equivalent Basis)
Assets:
Interest-bearing deposits $5,577 $ 108 1.9% $6,325 $ 245 3.9%
Investment securities:(1)
Taxable 1,544 131 8.5 3,380 252 7.5
Tax-exempt 6,862 375 5.5 11,505 619 5.4
------------------------ -------------------------
Total investment securities 8,406 506 6.0 14,885 871 5.9
------------------------ -------------------------
Loans:(2)
Commercial 47,547 4,221 8.9 39,290 3,791 9.6
Real estate mortgage 39,139 3,028 7.7 37,192 2,885 7.8
Installment 38,065 3,571 9.4 38,426 3,645 9.5
Tax-exempt loans and leases 2,671 196 7.3 3,117 198 6.4
------------------------ -------------------------
Total loans 127,422 11,016 8.6 118,025 10,519 8.9
------------------------ -------------------------
Total earning assets 141,405 11,630 8.2 139,235 11,635 8.4
----------- ------------
Allowance for loan losses (1,033) (938)
Cash and due from banks 1,753 1,914
Premises and equipment 4,655 4,517
Other assets 4,872 3,578
------------- -------------
Total assets $151,652 $148,306
============= =============
Liabilities:
Interest-bearing deposits:
NOW accounts 21,545 411 1.9 $ 19,807 564 2.8
Savings 24,058 660 2.7 24,988 1,008 4.0
Certificates of deposit and
other time 66,405 3,804 5.7 74,795 4,449 5.9
------------------------ -------------------------
Total interest-bearing deposits 112,008 4,875 4.4 119,590 6,021 5.0
FHLB advances 15,647 899 5.7 5,900 348 5.9
Other borrowings 2,567 186 7.3 2,597 190 7.3
------------------------ -------------------------
------------
Total interest-bearing liabilities 130,222 5,960 4.6 128,087 6,559 5.1
----------- ------------
Noninterest-bearing demand
deposits 10,279 9,865
Other liabilities 1,291 1,214
------------- -------------
Total liabilities 141,792 139,166
Stockholders' equity 9,860 9,140
------------- -------------
Total liabilities and
stockholders' equity $151,652 $148,306
============= =============
Net interest income 5,670 4.0%(3) 5,076 3.6%(3)
=========== ============
Adjustments to convert tax-exempt
investment securities to fully
taxable equivalent basis, using
marginal rate of 34% after adjustment
for effect of non-deductible interest
expense attributed to such assets.
$ 146 $ 193
=========== ============
- --------
(1) The average balances of investment securities, including available for sale
securities, are computed based on historical cost and do not include any
fair value adjustments.
(2) Nonaccruing loans have been included in the average balances.
(3) Net interest income divided by total earning assets.
18
Changes in Interest Income and Expense Comparing December 31, 2001 and 2000 and
December 31, 2000 and 1999. The following tables analyze the changes in interest
income and interest expense comparing the years ended December 31, 2001 and 2000
and December 31, 2000 and 1999. It distinguishes between the changes due to
differences in volume (outstanding balances), the changes due to changes in
interest rates, and changes attributable to both rate and volume, which cannot
be separately identified and have been allocated proportionately to the change
due to volume and the change due to rate.
Increase (Decrease) in Net Interest Income
-----------------------------------------------------
Year ended December 31, 2001 compared to year ended Due to Due to
December 31, 2000 Change Rate Volume
-----------------------------------------------------
Interest-earning assets: (Dollars in 000's)
Loans $ 497 $ (325) $ 822
Investment securities (365) 20 (385)
Interest-bearing deposits (137) (115) (22)
-----------------------------------------------------
Total (5) (420) 415
-----------------------------------------------------
Interest-bearing liabilities:
Savings (348) (317) (31)
Interest-bearing checking (153) (112) (41)
Certificates of deposit (645) (158) (487)
FHLB advances 551 (14) 565
Other borrowings (4) 0 (4)
-----------------------------------------------------
Total (599) (601) 2
-----------------------------------------------------
Net change in net interest income $ 594 $ 181 $ 413
=====================================================
Increase (Decrease) in Net Interest Income
-----------------------------------------------------
Year ended December 31, 2000 compared to year ended Change Due to Due to
December 31, 1999 Rate Volume
-----------------------------------------------------
Interest-earning assets: (Dollars in 000's)
Loans $ 1,602 $ 211 $ 1,391
Investment securities (31) (32) 1
Interest-bearing deposits (249) (17) (232)
-----------------------------------------------------
Total 1,322 162 1,160
-----------------------------------------------------
Interest-bearing liabilities:
Savings 41 46 (5)
Interest-bearing checking 138 32 106
Certificates of deposit 680 324 356
FHLB advances 30 13 17
-----------------------------------------------------
Other borrowings 31 3 28
-----------------------------------------------------
Total 920 418 502
-----------------------------------------------------
Net change in net interest income $ 402 $ (256) $ 658
=====================================================
Asset/Liability Management
One of the actions undertaken by First Community's management has been to adopt
asset/liability management policies in an attempt to reduce the susceptibility
of First Community's net interest spread to the adverse impact of volatile
interest rates by attempting to match maturities (or time-to-repricing) of
assets with maturities or repricing of liabilities and then actively managing
any mismatch. Accomplishing this objective requires attention to both the asset
and liability sides of the balance sheet. The balance between maturity of assets
and maturity of liabilities is measured by the interest-rate gap.
19
First Community's one-year cumulative interest-rate gap as a percent of total
assets was a negative 18.2% and a negative 11.1% at December 31, 2001 and 2000,
respectively. This interest-rate gap represents substantial risk for First
Community in an environment of rising interest rates. A negative interest-rate
gap means First Community's earnings are vulnerable during periods of rising
interest rates because during such periods the interest expense paid on
liabilities will generally increase more rapidly than the interest income earned
on assets. Conversely, in a falling interest-rate environment, the total expense
paid on liabilities will generally decrease more rapidly than the interest
income earned on assets. A positive interest-rate gap would have the opposite
effect.
Asset management goals have been directed toward obtaining a suitable balance of
asset quality, liquidity and diversification in order to stabilize and improve
earnings. The asset management strategy has concentrated on shortening the
maturity of its loan portfolio by increasing adjustable-rate loans and
short-term installment and commercial loans. To this end, at December 31, 2001,
First Community had $73.7 million or 58.5% of its total loan portfolio invested
in installment and commercial loans as compared to $72.4 million or 58.6% of
total loans invested in installment and commercial loans at December 31, 2000.
Increasing short-term installment and commercial loans increases the overall
risk of the loan portfolio. Such risk relates primarily to collection and to the
loans that often are secured by rapidly depreciating assets. At December 31,
2001, First Community's ratio of non-performing assets to total assets was 1.37%
compared to .46% at December 31, 2000.
The primary goal in the management of liabilities has been to extend the
maturities and improve the stability of deposit accounts. Management has
attempted to combine a policy for controlled growth with a strong, loyal
customer base to control interest expense.
The following tables illustrate the interest-rate sensitivity of
interest-earning assets and interest-bearing liabilities at December 31, 2001
and 2000. Mortgages which have adjustable or renegotiable interest rates are
shown as subject to change every one to three years based upon the
contracted-for adjustment period. This schedule does not reflect the effects of
possible prepayments on enforcement of due-on-sale clauses.
At December 31, 2001 Maturing or Repricing
----------------------------------------------------------------
One Year 1 - 3 3 - 5 Over 5
or Less Years Years Years Total
----------------------------------------------------------------
(Dollars in 000's)
Interest-earning assets:
Adjustable rate mortgages $ 14,373 $ 8,027 $ 5,631 $ 152 $ 28,183
Fixed rate mortgages 4,453 2,953 3,399 19,345 30,150
Commercial loans 21,271 4,637 2,507 824 29,239
Consumer loans 14,054 14,394 6,414 1,501 36,363
Tax-exempt loans and leases 99 288 264 1,719 2,370
Lease Financing 10 182 545 25 762
Investments 411 1,170 749 1,636 3,966
FHLB stock 1,025 1,025
Interest-bearing deposits 5,004 5,004
----------------------------------------------------------------
Total interest-earning assets 60,700 31,651 19,509 25,202 137,062
----------------------------------------------------------------
Interest-bearing liabilities:
Fixed maturity deposits 45,914 6,743 5,322 1,372 59,351
Other deposits 28,043 13,103 4,808 1,381 47,335
FHLB advances 13,500 2,000 15,500
----------------------------------------------------------------
Total interest-bearing liabilities 87,457 21,846 10,130 2,753 122,186
----------------------------------------------------------------
Excess (deficiency) of interest-earning (26,757) 9,805 9,379 22,449 14,876
assets over interest-bearing liabilities
Cumulative excess (deficiency) of
interest-earning assets over
interest-bearing liabilities (26,757) (16,952) (7,573) 14,876
Cumulative ratio at December 31, 2001 as a
percent of total assets (18.2)% (11.5)% (5.1)% 10.1%
20
At December 31, 2000 Maturing or Repricing
---------------------------------------------------------------
One Year 1 - 3 3 - 5 Over 5
or Less Years Years Years Total
---------------------------------------------------------------
(Dollars in 000's)
Interest-earning assets:
Adjustable rate mortgages $ 11,733 $ 9,395 $ 3,442 $ 29 $ 24,599
Fixed rate mortgages 4,523 2,831 3,199 19,407 29,960
Commercial loans 22,665 3,425 1,370 898 28,358
Consumer loans 15,209 15,642 6,479 1,487 38,817
Tax-exempt loans and leases 209 1,048 1,387 2,644
Investments 1,130 3,008 3,349 3,160 10,647
FHLB stock 778 778
Interest-bearing deposits 4,886 4,886
---------------------------------------------------------------
Total interest-earning assets 60,924 34,510 18,887 26,368 140,689
---------------------------------------------------------------
Interest-bearing liabilities:
Fixed maturity deposits 48,211 16,380 1,155 3,346 69,092
Other deposits 24,227 10,575 4,488 1,412 40,702
FHLB advances 5,000 8,000 13,000
---------------------------------------------------------------
Total interest-bearing liabilities 77,438 34,955 5,643 4,758 122,794
---------------------------------------------------------------
Excess (deficiency) of interest-earning (16,514) (445) 13,244 21,610 17,895
assets over interest-bearing liabilities
Cumulative excess (deficiency) of
interest-earning assets over
interest-bearing liabilities (16,514) (16,959) (3,715) 17,895
Cumulative ratio at December 31, 2000 as a
percent of total assets (11.1)% (11.4)% (2.5)% 12.0%
Deposit/Asset Base. First Community has experienced significant growth in
deposits in three of the past five years and assets in four out of the past five
years. Management believes this growth can be attributed to several factors,
none of which can be singled out as the predominant reason for the growth, but
each of which is believed to have contributed to the increase in the
Registrant's consolidated assets from $98.7 million at December 31, 1997 to
$147.4 million at December 31, 2001 and deposits from $87.7 million at December
31, 1997 to $117.7 million at December 31, 2001. These factors include: (i)
increased population in the geographic area serviced; (ii) increased
per-household disposable income in the geographic area serviced; (iii) an
increase in the number of branch offices; and (iv) the preference of certain
individuals in the service area for dealing with a locally owned institution.
Due to management's efforts to control asset growth and restructure the deposit
mix in the years ended December 31, 2000 and December 31, 2001, consolidated
assets only grew $2.1 million or 1.5% and deposits decreased $10.6 million or
8.3% between the year ended December 31, 1999 and the year ended December 31,
2001. These efforts were being made to increase net interest margin and to
strengthen First Community's capital ratio's. The results were evident as the
Registrant recorded record net interest income of $5.5 million during the year
ended December 31, 2001 as compared to $4.9 million for the year ended December
31, 2000, an increase of 12.2%. First Community's tier one capital and total
capital to risk-weighted assets ratios reached 7.2% and 10.3%, respectively at
December 31, 2001. These comparable ratios were 6.7% and 9.5% at December 31,
2000.
Liquidity and Capital Resources
Liquidity refers to the ability of a financial institution to generate
sufficient cash to fund current loan demand, meet savings deposit withdrawals
and pay operating expenses. The primary sources of liquidity are cash,
interest-bearing deposits in other financial institutions, marketable
securities, loan repayments and sales, increased deposits and total
institutional borrowing capacity.
21
Cash and interest-bearing deposits, when combined with investments, declined
during 2001. As investments matured or were sold, the dollars were used to both
fund new loans and to fund higher costing time deposit outflows. Management's
goal is to maintain cash, interest-bearing deposits and investments at a level
sufficient to satisfy needs for liquidity and other short-term obligations.
Management believes it has adequate liquidity for long-term needs. Short-term
liquidity needs resulting from normal deposit/withdrawal functions are provided
by retaining a portion of cash generated from operations in a FHLB daily
investment account. This account acts as the short-term liquidity source while
providing interest income.
Liquidity, represented by cash and cash equivalents, is a result of its
operating, investing and financing activities. These activities are discussed
below for the years ended December 31, 2001 and December 31, 2000.
During 2001 and 2000, cash and cash equivalents which are defined as cash and
due from banks and interest-bearing time deposits increased $1.8 million and
increased $283,000, respectively. During 2001 and 2000, investment securities
decreased $6.6 million and decreased $10.5 million, respectively. Cash was used
both to fund net loan increases of $2.6 million and fund net deposit outflows of
$5.3 million in 2001. Cash was used primarily in 2000 to fund net increases in
loans of $12.7 million.
At December 31, 2001 and 2000, commitments to fund loan originations were
approximately $16.3 million and $11.4 million, respectively. In the opinion of
management, First Community has sufficient cash flow and borrowing capacity to
meet funding commitments and to maintain proper liquidity levels based upon
First Community's favorable liquidity ratio, the ability to borrow from the
FHLB, and proceeds from the sale of residential mortgages to FNMA.
First Community is a member of the FHLB of Indianapolis. Through that
affiliation, First Community has the ability to borrow up to $25.0 million as of
December 31, 2001 from the FHLB. The balance of its borrowings at December 31,
2001 was $15.5 million, an increase of $2.5 million from outstanding borrowings
at December 31, 2000. In addition to proceeds from the sale and maturities of
securities, these new advances were primarily used to fund net deposit outflows
of $5.3 million.
New Accounting Standards
Accounting for a Business Combination:
- --------------------------------------
Statement of Financial Accounting Standards ("SFAS") No. 141 requires that all
business combinations should be accounted for using the purchase method of
accounting; use of the pooling method is prohibited.
This Statement requires that goodwill be initially recognized as an asset in the
financial statement and measured as the excess of the cost of an acquired entity
over the net of the amounts assigned to identifiable assets acquired and
liabilities assumed. In addition, SFAS No. 141 requires all other intangibles,
such as core deposit intangibles for a financial institution, to be identified.
The provisions of Statement No. 141 are effective for any business combination
that is initiated after June 30, 2001.
Accounting for Goodwill:
- ------------------------
Under the provisions of SFAS No. 142, goodwill should not be amortized but
should be tested for impairment at the reporting unit level. Impairment test of
goodwill should be done on an annual basis unless events or circumstances
indicate impairment has occurred in the interim period. The annual impairment
test can be performed at any time during the year as long as the measurement
date is used consistently from year to year.
Impairment testing is a two step process, as outlined within the statement. If
the fair value of the goodwill is less than its carrying value, then the
goodwill is deemed impaired and a loss recognized. Any impairment loss
recognized as a result of completing the transitional impairment test should be
treated as a change in accounting principle and recognized in the first interim
period financial statements.
22
The provisions of Statement No. 142 are effective for fiscal years beginning
after December 15, 2001. Early adoption is permitted for companies with a fiscal
year beginning after March 15, 2001 provided that the first quarter financial
statements have not been previously issued. In all cases, the Statement must be
adopted as of the beginning of a fiscal year. Goodwill and intangible assets
acquired in a transaction completed after June 30, 2001 but before this
Statement is initially applied would be accounted for in accordance with the
amortization and nonamortization provisions of the Statement. The useful
economic life of previously recognized intangible assets should be reassessed
upon adoption of the Statement, and remaining amortization periods should be
adjusted accordingly. Intangible assets deemed to have an indefinite life would
no longer be amortized.
Since the Company has no legacy goodwill and is not currently in the process of
acquiring another company, the adoption of SFAS Nos. 141 and 142 will have no
impact on the Company's financial statements.
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles. These principles
require the measurement of financial position and operating results in terms of
historical dollars, without considering changes in the relative purchasing power
of money over time due to inflation.
The primary assets and liabilities of the Registrant are monetary in nature.
Consequently, interest rates generally have a more significant impact on
performance than the effects of inflation. Interest rates, however, do not
necessarily move in the same direction or with the same magnitude as the price
of goods and services. In a period of rapidly rising interest rates, the
liquidity and the maturity structure of the Registrant's assets and liabilities
are critical to the maintenance of acceptable performance levels.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Although the Registrant files a Form 10-K in lieu of a Form 10-KSB, the
Registrant qualifies as a small business issuer. Therefore, Item 7A is not
required under Section 229.305 of Regulation S-K.
Item 8. Financial Statements and Supplementary Data.
The Registrant's Financial Statements are included in a separate section of this
Annual Report beginning on page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
PART III
The information required by Part III is hereby incorporated by reference from
the Registrant's definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A within 120 days after December 31, 2001.
23
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements. The following information appears
elsewhere in this Annual Report on Form 10-K on the pages indicated
Page
Independent Accountants' Report on consolidated financial statements. F-1
Consolidated Balance Sheets at December 31, 2001 and 2000 F-2
Consolidated Statements of Income for the years ended December 31, 2001, 2000 and 1999. F-3
Consolidated Statements of Comprehensive Income for the years ended
December 31, 2001, 2000 and 1999. F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2001, 2000 and 1999. F-5
Consolidated Statement of Cash Flows for the years ended December 31, 2001, 2000 and 1999. F-6
Notes to consolidated financial statements. F-7
2. Exhibit Index. The following exhibits are included as part of this
Annual Report:
3.1 Articles of Incorporation of First Community Bancshares, Inc.
(Incorporated herein by reference to the Registration Statement
on Form S-4 of First Community Bancshares, Inc. with Registration
No. 33-47691 declared effective July 30, 1992).
3.2 Amended Bylaws of First Community Bancshares, Inc. (Incorporated
herein by reference to the Form 10-K of First Community
Bancshares, Inc. for the fiscal year ended December 31, 1992 and
filed with the Securities and Exchange Commission on March 31,
1993)(Commission File No. 0-19618).
10.6 First Community Bancshares, Inc. 1992 Stock Option Plan, as
amended and approved by Shareholders on May 19, 1993
(Incorporated herein by reference to the Form 10-K of First
Community Bancshares, Inc. for the fiscal year ended December 31,
1993 and filed with the Securities and Exchange Commission on
March 30, 1994)(Commission File No. 0-19618).
10.8* Deferred Director Fee Agreement by and between First Community
Bank & Trust Company and Merrill M. Wesemann Dated November 23,
1994 (Incorporated herein by reference to the Form 10-K of First
Community Bancshares, Inc. for the fiscal year ended December 31,
1994 and filed with the Securities and Exchange Commission on
March 13, 1995).
10.9 First Community Bancshares, Inc. 1996 Stock Option Plan
(Incorporated herein by reference to the First Community
Bancshares, Inc. proxy statement for the 1996 annual shareholders
meeting filed with the Securities and Exchange Commission on
March 13, 1996).
10.10 Amendment to the First Community Bancshares, Inc. 1992 Stock
Option Plan, as amended and approved by Shareholders on March 13,
1996 (Incorporated herein by reference to the First Community
Bancshares, Inc. proxy statement for the 1996 annual
24
shareholders meeting filed with the Securities and Exchange
Commission on March 13, 1996).
10.11* Deferred Director Fee Agreement by and between First Community
Bank & Trust and Frank D. Neese dated October 29, 1999
(Incorporated herein by reference to the Form 10-Q of First
Community Bancshares, Inc. for the quarter ended September 30,
1999 and filed with the Securities and Exchange Commission on
November 15, 1999).
10.12* Deferred Director Fee Agreement by and between First Community
Bank & Trust and Roy Martin Umbarger dated October 29, 1999
(Incorporated herein by reference to the Form 10-Q of First
Community Bancshares, Inc. for the quarter ended September 30,
1999 and filed with the Securities and Exchange Commission on
November 15, 1999).
10.13* First Amendment to the Deferred Fee Agreement by and between
First Community Bank & Trust and Merrill M. Wesemann, M. D. dated
October 29, 1999 (Incorporated herein by reference to the Form
10-Q of First Community Bancshares, Inc. for the quarter ended
September 30, 1999 and filed with the Securities and Exchange
Commission on November 15, 1999).
10.14 First Amendment to 1996 Stock Option Plan, as approved by the
Board of Directors November 17, 1999 (Incorporated herein by
reference to the Form 10-K of First Community Bancshares, Inc.
for the fiscal year ended December 31, 1999 and filed with the
Securities and Exchange Commission on March 30, 2000).
10.15* First Community Bank & Trust Supplemental Executive Retirement
Plan, as approved by the Board of Directors July 12, 2000.
10.16* Form of Deferred Compensation Agreement.
(a) Agreement between First Community Bank & Trust and Albert R.
Jackson, Jr. dated December 31, 2001, for the deferral of
Director fees (omitted).
(b) Agreement between First Community Bank & Trust and Albert R.
Jackson, III, dated December 31, 2001, for the deferral of
compensation paid to Mr. Jackson as President of First
Community (omitted).
21 Subsidiaries of First Community Bancshares, Inc. (Incorporated
herein by reference to the Registration Statement on Form SB-2 of
First Community Bancshares, Inc., Registration No. 333-63239,
declared effective October 30, 1998).
- ----------------------
* Compensatory plan or arrangement
25
SIGNATURES
Pursuant to the requirements of Section 13 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, this 29h day of March, 2001.
FIRST COMMUNITY BANCSHARES, INC.
By: /s/ Albert R. Jackson , III
---------------------------------------
Albert R. Jackson, III, Chief Executive
Officer, Chief Financial Officer and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
Signatures and Title(s) Date
/s/ Albert R. Jackson , III
- ------------------------------------------------
Albert R. Jackson, III, Chief Executive March 29, 2002
Officer, Chief Financial Officer and Director
/s/ Merrill M. Wesemann March 29, 2002
- ------------------------------------------------
Merrill M. Wesemann, MD, Director and Chairman
/s/ Albert R. Jackson, Jr. March 29, 2002
- ------------------------------------------------
Albert R. Jackson, Jr., Director and President
/s/ Roy Martin Umbarger March 29, 2002
- ------------------------------------------------
Roy Martin Umbarger, Director and Vice President
/s/ Frank D. Neese March 29, 2002
- ------------------------------------------------
Frank D. Neese, Director and Secretary
26
Independent Accountants' Report
To the Stockholders and
Board of Directors
First Community Bancshares, Inc.
Bargersville, Indiana
We have audited the accompanying consolidated balance sheets of First Community
Bancshares, Inc. as of December 31, 2001 and 2000, and the related consolidated
statements of income, comprehensive income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 2001. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements described above present fairly, in all
material respects, the consolidated financial position of First Community
Bancshares, Inc. as of December 31, 2001 and 2000, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States of America.
/s/ BKD, LLP
Indianapolis, Indiana
February 15, 2002
First Community Bancshares, Inc.
Consolidated Balance Sheets
December 31, 2001 and 2000
Assets
2001 2000
------------------------------
Cash and due from banks $ 1,683,913 $ 1,871,880
Short-term interest-bearing deposits 5,003,537 3,014,502
------------- -------------
Cash and cash equivalents 6,687,450 4,886,382
Investment securities
Available for sale 3,968,964 9,198,559
Held to maturity (fair value of $1,344,528) -- 1,348,778
------------- -------------
Total investment securities 3,968,964 10,547,337
Mortgage loans held for sale 554,261 --
Loans, net of allowance for loan losses of $1,114,466 and $1,007,174 126,127,189 123,550,724
Premises and equipment 4,564,691 4,825,460
Federal Home Loan Bank of Indianapolis stock, at cost 1,025,000 777,800
Interest receivable 849,933 1,172,511
Cash value of life insurance 2,432,547 2,353,161
Other assets 1,167,454 1,081,502
------------- -------------
Total assets $ 147,377,489 $ 149,194,877
============= =============
Liabilities
Deposits
Noninterest-bearing $ 11,037,797 $ 13,214,606
Interest-bearing 106,685,724 109,793,721
------------- -------------
Total deposits 117,723,521 123,008,327
Federal Home Loan Bank of Indianapolis advances 15,500,000 13,000,000
Other borrowings 2,555,914 2,586,424
Interest payable 298,583 472,442
Other liabilities 1,108,065 811,666
------------- -------------
Total liabilities 137,186,083 139,878,859
------------- -------------
Commitments and Contingent Liabilities
Stockholders' Equity
Preferred stock, no par value
Authorized and unissued - 1,000,000 shares
Common stock, no par value
Authorized - 4,000,000 shares
Issued and outstanding - 1,042,926 and 1,039,926 shares 7,043,990 7,023,225
Retained earnings and contributed capital 3,145,348 2,352,588
Accumulated other comprehensive income (loss) 2,068 (59,795)
------------- -------------
Total stockholders' equity 10,191,406 9,316,018
------------- -------------
Total liabilities and stockholders' equity $ 147,377,489 $ 149,194,877
============= =============
See Notes to Consolidated Financial Statements F-2