Securities and Exchange Commission
Washington, D.C. 20549
Form 10 - QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
0F 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2000
Commission file number: 000-26117
FIRST COMMUNITY FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-2119954
- --------------------------------- -----------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
708 SOUTH CHURCH STREET, BURLINGTON, N.C. 27215
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(Address of principal executive offices)
336-229-2744
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed since last
report)
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
---------- __________
1,786,758 common shares, no par value, were outstanding as of April 21,2000.
FIRST COMMUNITY FINANCIAL CORPORATION
AND SUBSIDIARY
INDEX
Page
PART I FINANCIAL INFORMATION Number
Item 1 Financial Statements
Condensed Consolidated Balance Sheets 1
March 31, 2000 and December 31, 1999
Condensed Consolidated Statements of Income 2
Three months ended March 31, 2000 and 1999
Condensed Consolidated Statements of Comprehensive Income 3
Three months ended March 31, 2000 and 1999
Condensed Consolidated Statements of Cash Flow 4
Three months ended March 31, 2000 and 1999
Notes to Condensed Consolidated Financial Statements 5 - 6
Item 2 Management's Discussion and Analysis of Financial Condition 7 - 13
and Results of Operations
PART II OTHER INFORMATION
Item 1 Legal Proceedings 14
Item 2 Changes in Securities and Use of Proceeds 14
Item 3 Defaults Upon Senior Securities 14
Item 4 Submission to Matters to a vote of Security Holders 14
Item 5 Other Information 14
Item 6 Exhibits and Reports on Form 8-K 14
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
First Community Financial Corporation
Condensed Consolidated Balance Sheets
(dollars in thousands)
March 31, 2000 December 31,1999
-------------- ----------------
Assets
Cash and cash equivalents $ 6,106 $ 6,583
Investment Securities:
Available for sale 21,201 24,623
Mortgaged-backed securities
Available for sale 33,849 39,126
FHLB, at cost which approximates market 1,925 1,600
Loans receivable held for sale 378 213
Loans receivable held for investment, net 160,848 150,530
Premises and equipment 2,445 2,483
Deferred income taxes 2,858 2,792
Other assets 3,608 2,791
-------------- ----------------
Total assets $233,218 $ 230,741
============== ================
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing demand $ 2,370 $ 2,585
Interest-bearing demand 15,030 14,247
Savings 15,115 15,612
Certificates of deposits, $100,000 and over 23,933 21,918
Other time deposits 94,094 93,178
-------------- ----------------
Total deposits 150,542 147,540
-------------- ----------------
Borrowed money 31,500 32,000
Advance payments by borrowers for property
taxes and insurance 399 225
Other liabilities 3,834 3,708
-------------- ----------------
Total liabilities 186,275 183,473
-------------- ----------------
Shareholders' equity:
Preferred stock, no par value,
5,000,000 shares authorized;
no shares issued or outstanding
Common stock, no par value, 20,000,000
shares authorized;
1,840,798 shares issued and
outstanding at March 31, 2000 and 26,692 27,335
1,880,798 shares issued and
outstanding at December 31, 1999
Unearned ESOP shares, 142,702 shares at
March 31, 2000 and 145,207 shares (2,141) (2,178)
at December 31, 1999
Retained earnings, substantially restricted 23,724 23,477
Accumulated other comprehensive
income (loss), net (1,332) (1,366)
-------------- ----------------
Total shareholders' equity 46,943 47,268
-------------- ----------------
Total liabilities and shareholders' equity $233,218 $ 230,741
============== ================
See accompanying notes to condensed consolidated financial statements
1
Item 1. Continued
First Community Financial Corporation
Condensed Consolidated Statements of Income
(dollars in thousands)
Three Months Ended March 31,
----------------------------
2000 1999
------------ -----------
Interest income:
Interest and fees on loans $3,098 $2,618
Interest and dividends on investments 1,115 515
------------ -----------
Total interest income 4,213 3,133
Interest expense:
Interest on deposits 1,681 1,570
Interest on borrowed money 521 68
------------ -----------
Total interest expense 2,202 1,638
------------ -----------
Net interest income before provision for loan losses 2,011 1,495
Provision for loan losses 95 90
------------ -----------
Net interest income 1,916 1,405
------------ -----------
Other income:
Total other operating income 186 257
General and administrative expenses:
Compensation and fringe benefits 811 726
Occupancy 56 62
Furniture and fixtures 92 85
Advertising 43 27
Data processing 44 39
Other 285 281
------------ -----------
Total general and administrative expenses 1,331 1,220
------------ -----------
Income before income taxes 771 443
Income taxes 242 108
------------ -----------
Net income $ 529 $ 335
============ ===========
PER SHARE DATA, calculated from June 21, 1999, the
date of the Company's initial public offering
Earnings per share, basic $0.30
Earnings per shared, diluted $0.30
Weighted average shares outstanding, basic 1,736,454
Weighted average shares outstanding, diluted 1,736,454
See accompanying notes to condensed consolidated financial statements
2
Item 1. Continued
First Community Financial Corporation
Condensed Consolidated Statements of Comprehensive Income
(dollars in thousands)
Three Months Ended March 31,
---------------------------
2000 1999
--------- ----------
Net income $ 529 $ 335
--------- ----------
Unrealized gain (loss) on available for
sale securities 29 (308)
Reclassification of net (gains) losses
recognized in net income 23 (10)
Income taxes relating to unrealized gain
on available for sale securities (18) 108
--------- ----------
Other comprehensive income (loss) 34 (210)
--------- ----------
Comprehensive income $ 563 $ 125
========= ==========
See accompanying notes to condensed consolidated financial statements
3
Item 1. Continued
First Community Financial Corporation
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
Three months ended
March 31,
2000 1999
-------- ----------
Cash flows from operating activities:
Net income $ 529 $ 335
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses 95 90
Depreciation 25 85
ESOP Contribution 37
Loss (gain) on sale of securities 23 (112)
Gain on sale of assets (53)
Accretion of discounts on securities, net (10) (25)
Provision for deferred income taxes (84) (45)
Originations of loans held for sale (467)
Proceeds from sale of loans held for sale 302 (8)
Net loss (gains) on sale of loans (8)
Other operating activities (517) (48)
-------- ----------
Net cash provided by operating activities (120) 264
-------- ----------
Investing activities:
Purchases of investment securities available for sale (1,526)
Proceeds from sales of securities and mortgage-backed
securities available for sale 8,094 2,236
Proceeds from maturities of securities available for
sale 1,474
Proceeds from principal repayment of mortgage-backed
securities available for sale 371
Net increase in loans held for investment (10,413) (4,194)
Proceeds from sale of premises and equipment 66
Purchases of premises and equipment (73)
-------- ----------
Net cash used in investing activities (1,934) (2,031)
-------- ----------
Financing activities:
Net increase (decrease) in deposit accounts 3,002 1,835
Repurchase of common stock (643)
Payment of dividends on common stock (282)
Repayments of FHLB borrowings, net of proceeds (500)
-------- ----------
Net cash provided by financing activities 1,577 1,835
-------- ----------
Increase (decrease) in cash and cash equivalents (477) 68
Cash and cash equivalents, beginning of year 6,583 6,907
-------- ----------
Cash and cash equivalents, end of period $ 6,106 $ 6,975
======== ==========
See accompanying notes to condensed consolidated financial statements
4
Item 1. Continued
First Community Financial Corporation
Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim information and with the instructions to FORM 10-Q SB.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting only
of normal recurring accruals) considered necessary for a fair presentation
have been Included. Operating results for the periods presented are not
necessarily indicative of the results that may be expected for the year
ended December 31, 2000.
2. Conversion from Mutual to Stock form of Ownership
On June 14, 1999, members of Community Savings Bank, SSB eligible to vote
at a special meeting, voted to approve the conversion of Community Savings
Bank, SSB. The conversion involved the transformation of Community Savings
Bank, SSB from mutual to stock form, First Community's acquisition of all
of the outstanding capital stock of Community Savings Bank, SSB and First
Community's sale of its common stock to the depositors and borrowers of
Community Savings Bank, SSB and other persons who had the right to purchase
shares. The sale was completed June 21,1999, and First Community Financial
Corporation began trading on June 21,1999 on the NASDAQ national markets
exchange under the symbol "FCFN". 1,880,798 shares of no par common stock
were issued raising $25.2 million of net proceeds.
3. Analysis of Allowance for Loan Loss
Three months ended March 31,
----------------------------
2000 1999
----------- -----------
(in thousands)
Beginning balance $1,839 $1,331
Provision for loan loss $95 $90
Net charge-offs 13 -15
Balance, end of period $1,947 $1,406
Ratio of net charge-offs to average
loans outstanding -0.01% 0.01%
Ratio of allowance to total loans 1.19% 1.07%
outstanding at end of period
Ratio of allowance to total nonperforming
assets at end of period 127.01% 297.25%
5
Item 1. Continued
First Community Financial Corporation
Notes to Condensed Consolidated Financial Statements
4. Net Income (Loss) Per Share of Common Stock
Basic income (loss) per share of common stock is computed by
dividing net income (loss) by the weighted average number of common
shares outstanding (less unearned ESOP shares) during the period.
Diluted net income (loss) per share of common stock is computed by
dividing net income (loss) by the weighted average number of common
shares and common stock equivalents outstanding during the period.
For loss periods, diluted net loss per share is the same as basic
net loss per share. The inclusion of common stock equivalents in
loss periods would be anti dilutive. For the three month period
ended March 31, 2000, the weighted average number of shares
outstanding was 1,736,454.
6
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
Information set forth below contains certain forward-looking statements, which
are based on assumptions, and describes future plans, strategies and
expectations of First Community Financial Corporation ("First Community" or "the
company"). These forward-looking statements are generally identified by use of
the words "believe", "expect", "intend", "anticipate", "estimate", "project", or
similar expressions. First Community's ability to predict results or the actual
effect of future plans and strategies is inherently uncertain. Factors which
could have a materially adverse effect on the operations of First Community and
its wholly owned subsidiary, Community Savings Bank, SSB ("Community Savings")
include, but are not limited to, changes in: interest rates, general economic
conditions, legislation and regulation, monetary and fiscal policies of the U.S.
Government including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
its market area and accounting principles and guidelines. These risks and
uncertainties should be considered in evaluating forward-looking statements and
undue reliance should not be placed on such statements.
Financial Condition At March 31, 2000
Compared to December 31, 1999
Total assets increased 1.1% to $233.2 million at March 31, 2000, compared to
$230.7 million at December 31, 1999. The increase in assets was principally a
result of a $10.5 million increase in loans, net of reserves offset by a $8.7
million decrease in debt securities.
Loans, net of reserves, increased 6.9% at March 31, 2000 to $161.2 million from
the December 31, 1999 balance of $150.7 million. At March 31, 2000,
approximately 62.3% of the Community Savings' gross loan portfolio consisted of
loans secured by one- to- four family residential properties. At December 31,
1999, 64.7% of gross loans were secured by 1-4 family residential properties.
Loan production continued to emphasize commercial and consumer credits in an
effort to diversify the loan portfolio and reduce the reliance on single family
1-4 residential loans. Commercial loans have increased 18.7% or $2.9 million
since December 31, 1999 and the construction loan portfolio has increased 2.3%
or $2.1 million since December 31, 1999.
Securities decreased 13.7% at March 31, 2000 to $55 million compared to the
December 31, 1999 balance of $63.7 million. The decrease in securities was
primarily incurred to help meet loan growth not funded through deposit
increases. The three-month average
7
balance of securities increased 102.8 % for the period ended March 31, 2000 to
$62.4 million compared to the $30.8 million average balance on securities for
the three month period ended March 31, 1999, reflecting the investment of
proceeds received from the initial public offering completed June 21, 1999.
Deposits increased to $150.5 million at March 31, 2000 from $147.5 million at
December 31, 1999, an increase of 2%. Local deposit competition is very strong
causing upward pressure on deposit interest rates.
Borrowed funds, collateralized through an agreement with the Federal Home Loan
Bank ("FHLB"), decreased to $31.5 million at March 31, 2000 from $32 million at
December 31, 1999, a decrease of 1.6%. $25 million of the FHLB borrowings float
with one-month LIBOR index and mature bi-annually on September 30, 2001. The
borrowings are matched with Collateralized Mortgage Obligations (CMO's) in a
structured, leveraged, match funded arbitrage. The CMO's reprice monthly at 80
basis points over the one-month LIBOR index. The remaining $6.5 million of FHLB
borrowings are short-term proceeds used to facilitate normal loan growth and
deposit fluctuations.
Asset Quality
First Community's non-performing assets (loans 90 days or more delinquent and
fore- closed real estate and repossessed assets) were $1.5 million, or 0.66% of
total assets, at March 31, 2000, compared to $1.3 million, or 0.58% of total
assets, at December 31, 1999. Recoveries on loans previously charged-off against
the allowance for loan losses for the three-month period ended March 31, 2000
totaled $13 thousand or .01% of average loans outstanding.
Management performs a four-step procedure in determining the appropriate level
for the allowance for loan losses. First, at the end of each quarter, loan
department personnel perform a review of the bank's loan portfolio. Individual
loans are assigned an internal classification designation of unclassified,
substandard, doubtful, or loss based on historical performance and specific
circumstances known to the bank regarding the financial situation of the
customer. Next, impaired loans are identified and a determination is made as to
the necessity of creating a specific allowance. Any impairment allowance is
based on the expected cash flows or the fair market value of available
collateral for collateral dependent loans. There was one impaired loan totaling
$855 thousand at March 31, 2000. A specific impairment allowance was established
in the amount of $250 thousand. Next, the substandard and doubtful
classifications are analyzed and a risk percentage is determined considering
each type of loan and the severity of any probable loss. All loans categorized
as "loss" are fully reserved. The final procedure is to assign risk percentages
to unclassified loans based on historical and industry information regarding
probable, yet unidentifiable, losses inherent in the portfolio. Industry factors
are adjusted to reflect individual bank circumstances. Since First Community is
entering new lines of business with little past experience to draw on in the
areas of commercial, construction and consumer lending, an entry period of
higher than industry norm loss is reflected in the risk percentages assigned
these loan categories.
8
In the opinion of management, the specific reserve of $250 thousand in addition
to the general allowance for loan losses of $1.7 million at March 31, 2000 were
adequate to cover probable losses.
Results of Operation for the three month periods ended March 31, 2000 and 1999
Net income is influenced significantly by the performance of net interest
income. Net interest income is the difference between interest income (derived
from revenues generated from loans, investments and other earning-assets), and
interest expense (consisting principally of interest paid on deposits and
borrowings). Operations may be materially affected by national and
international economic conditions, monetary and fiscal policies of the Federal
government, and policies of regulatory authorities.
NET INCOME
Net income of $529 thousand was recorded for the three month period ended March
31, 2000, compared to net income of $335 thousand for the three month period
ended March 31, 1999, a $194 thousand or 58% improvement. The increase in net
income is primarily due to a 36.4% increase in net interest income or $511
thousand, offset by a 27.7% or $71 thousand decrease in other operating income
reflecting a net loss from securities sales of $23 thousand in 2000 compared to
a gain on sale of securities in 1999 of $112 thousand, and a 11.7% or $85
thousand increase in compensation and fringe benefits.
INTEREST INCOME
Interest income increased 34.5% or $1.1 million for the three months ended March
31, 2000 to $4.2 million compared to $3.1million for the three months ended
March 31, 1999. The increase in interest income is two fold. Interest and fees
on loans increased 18.4% or $480 thousand reflecting managements continued
emphasis on developing commercial, construction and consumer lending. Interest
on securities increased 104% resulting from the investment of proceeds received
during the initial public offering dated June 21, 1999 and an arbitrage in the
amount of $25 million initiated July 15, 1999 and still active.
The average balance on total interest-earning assets increased 35.5% or $58.4
million for the three months ended March 31, 2000 compared to average balances
at March 31, 1999, resulting primarily from a $31.6 million increase in
investment average balances and a $28 million increase in net loan average
balances. The average annualized yield on total average interest-earning assets
decreased 8 basis points from the 1999 three month period, reflecting an
increase in the annualized yield on investments of 104 basis points and a
decrease in annualized loan yields of 20 basis points.
9
INTEREST EXPENSE
Interest expense increased 34.4% or $564 thousand to $2.2 million for the three
months ended March 31, 2000 compared to $1.6 million for the three months ended
March 31,1999. The increase in interest expense was a result of a 7% increase in
interest expense on deposits reflecting the competitiveness of the local deposit
market. A $453 thousand increase in interest expense on FHLB borrowing reflects
a $26.5 million balance increase in outstanding borrowings from $5 million at
March 31,1999 to $31.5 million at March 31,2000.
The average balance on total interest-bearing liabilities increased 25.1% or
$36.3 million for the three months ended March 31, 2000 compared to average
balances at March 31, 1999, resulting primarily from Federal Home Loan Bank
(FHLB) borrowings to facilitate an arbitrage. The average annualized cost on
total average interest-bearing liabilities increased 36 basis points from the
1999 three month period, resulting from an increase in the annualized rate on
FHLB borrowings of 64 basis points and a decrease in annualized deposit costs of
44 basis points.
NET INTEREST INCOME
Net interest income before the provision for loan losses, for the three-month
period ended March 31, 2000, increased 34.5% or $516 thousand to $2 million
compared to $1.5 million for the three-month period ended March 31,1999. The
positive growth in net interest income was due to the significant increase of
investable assets resulting in the receipt of proceeds related to the initial
public offering completed June 21, 1999.
Comparable spreads and net interest margins were as follows:
Annualized Yield Annualized Yield
on Interest on Interest Annualized Annualized
Earning Assets Bearing Liabilities Spread Margin
----------------- -------------------- ----------- -----------
Three Months
Ended
March 31, 2000 7.56% 4.88% 2.68% 3.60%
Three Months
Ended
March 31, 1999 7.64% 4.52% 3.08% 3.64%
PROVISION FOR LOAN LOSSES
A provision of $95 thousand was added to the allowance for loan losses,
increasing the period end balance to $1.9 million or 1.19% of outstanding loans.
A provision of $90 thousand was added to the allowance for loan losses for the
three-month period ending March 31, 1999. The increase to the allowance reflects
the significant change in the loan portfolio composition.
10
NON-INTEREST INCOME
Non-interest income decreased $71 thousand or 27.6% to $186 thousand for the
three-month period ended March 31, 2000 compared to $257 thousand for the three-
month period ended March 31,1999. The primary factor causing the decline in non-
interest income is a management's decision to incur a $23 thousand loss on the
sale of securities for the quarter ending March 31,2000 compared to $112
thousand gain on securities for the three months ended March 31, 1999. Non-
interest income excluding one- time gains and losses on the sale of securities
and other assets increased 7% or $10 thousand for the period ending March 31,
2000 compared to the three-month period ended March 31, 1999. Although
management is encouraged by the increase in recurring non-interest income,
continued emphasis will be placed on improving non-interest income revenue. A
wholly-owned subsidiary of the Bank, Community Financial Services, Inc., a
retail securities broker and financial advisor, was formed in the fourth quarter
of 1997, for the sole purpose of enhancing non-interest income. This newly
formed subsidiary contributed $47 thousand or 25.3% of non-interest income for
the three-month period ended March 31, 2000.
NON-INTEREST EXPENSE
Non-interest expense increased 9.1% or $111 thousand to $1.3 million for the
three months ended March 31, 2000 compared to $1.2 million for the three-month
period ended March 31,1999. The increase in non-interest expense is due
primarily to a 6.1% or $44 thousand increase in compensation expense, a $40
thousand increase in benefit expense associated with the Employee stock
Ownership Plan (ESOP) and a $38 thousand increase in advertising and marketing
expenses associated with consumer product introductory programs.
INCOME TAXES
The income tax provision for the three month period ended March 31,2000 was $242
thousand compared to $108 thousand for the three months ended March 31, 1999, an
increase of $133 thousand from the prior year period. The increase in the tax
provision is the result of increases in earnings before income taxes. The
effective tax rates for the respective 2000 and 1999 periods were 31.4% and
24.4%.
LIQUIDITY
The Company's policy is to maintain adequate liquidity to meet continuing loan
demand and withdrawal requirements while paying normal operating expenses and
satisfying regulatory liquidity guidelines. Maturing securities, principal
repayments of loans and securities, deposits, income from operations and
borrowings are the main sources of liquidity. Short-term investments (overnight
investments with the Federal Home Loan Bank and Federal Funds Sold) and short-
term borrowings (Federal Home Loan Bank
11
advances, Repurchase Agreements and Federal Funds Purchased) are the primary
cash management liquidity tools. The investment portfolio provides secondary
liquidity.
At March 31, 2000, the estimated market value of liquid assets (cash, cash
equivalents, and marketable securities) was approximately $61.2 million,
representing 33.6% of deposits and borrowed funds. As Community Savings
continues to grow its loan portfolio, liquidity will continue to be leveraged.
The primary uses of liquidity are to fund loans, provide for deposit
fluctuations and invest in other non-loan earning assets when excess liquidity
is available. At March 31, 2000, outstanding off-balance sheet commitments to
extend credit in the form of loan originations totaled $16.3 million. Available
lines of credit totaled $7.9 million. Management considers current liquidity
levels adequate to meet the Company's cash flow requirements.
CAPITAL
Shareholders' equity at March 31, 2000 was $46.9 million, a decrease of $325
thousand or 0.7% from $47.3 million at December 31, 1999 and an increase of
$23.7 million or 101.6% from $23.3 million one year earlier. The decrease from
December31, 1999 is the result of a repurchase 40,000 shares of common stock
during March 2000. The increase over March 1999 is principally due to the
Company's initial public offering issuance of 1,880,798 shares of no par common
stock that was completed June 21, 1999. Included in shareholder's equity at
March 31, 2000 was $1.3 million, net of tax, of accumulated other comprehensive
loss related to unrealized losses on securities available for sale compared to
$63 thousand of accumulated other comprehensive loss related to unrealized
losses on securities available for sale one year earlier. Also included in
shareholder's equity at March 31, 2000 was $2.1 million of unearned common stock
for the Employee Stock Ownership Plan, representing 142,702 shares of common
stock.
FDIC regulations require banks to maintain certain capital adequacy ratios,
leverage ratios and risk-based capital ratios. Banks supervised by the FDIC
must maintain a minimum leverage ratio of core (Tier I) capital to average
adjusted assets ranging from 3% to 5%. At March 31, 2000, Community Savings'
ratio of Tier I capital to average assets was 13.7%. The FDIC's risk-based
capital guidelines require banks to maintain risk-based capital to risk-weighted
assets of at least 8%. Risk-based capital for Community Savings is defined as
Tier I capital and the reserve for loan losses. At March 31, 2000, Community
Savings had a ratio of qualifying total capital to net risk-weighted assets of
24%.
First Community is also subject to capital adequacy guidelines of the Board of
Governors of the Federal Reserve (the "Federal Reserve Board"). Capital
requirements of the Federal Reserve Board are similar to those of the FDIC.
12
First Community significantly exceeds regulatory capital requirements.
Management anticipates that the Company will continue to exceed capital adequacy
requirements without altering current operations or strategies.
Year 2000
The Company incurred no Y2K related interruptions on January 1, 2000 and after,
even though Y2K had become a worldwide concern. The underlying cause of the
concern rested with antiquated computer programs identifying dates of calendar
years with two digits rather than four digits. It was feared that most old
computer programs with date-sensitive software would recognize the year 2000 as
"00" and misinterpret the year as 1900. This date misinterpretation could have
resulted in system failures or miscalculations causing disruptions of
operations, to include temporary interruption of utilities, telephone lines,
inability to process transactions, generate statements, or engage in normal
business activities.
First Community replaced nearly all existing software and 100% of all hardware
with year 2000 certified compliant systems. Several of the Bank's
telecommunications systems were replaced with year 2000 compliant systems. A
Comprehensive Business Resumption Plan had been developed which would have been
implemented in the event power failures or failures in communications equipment
prevented use of computer systems serving Community Savings or otherwise
impaired the operations of Community Savings. System-wide testing of the
Business Resumption Plan was conducted September 21, 1999 for the Accounting and
Operations departments. On October 4, 1999, the plan was tested for the retail
branches and the Loan Department. Although both tests were successful, the
Bank's Y2K team continued to verify off-line and alternate manual procedures
through the end of the 1999 calendar year. Management identified clients who
posed Y2K risks to the institution, and has developed the necessary capabilities
to continuously monitor and adequately respond to the risks identified. To date,
to the best of management's knowledge, there have been no customers of the Bank
significantly impacted by year 2000
The cost to bring all systems up to Y2K specifications totaled approximately
$428,000.
13
Recent Events
The Company successfully completed a 5% repurchase of its outstanding no-par
common stock on April 20, 2000.
Part II - Other Information
Item 1
Legal proceedings.
None.
Item 2
Changes in Securities and Use of Proceeds.
(a) Not applicable
(b) Not applicable
(c) Not applicable
(d) Not applicable
Item 3
Defaults upon Senior Securities
Not applicable.
Item 4
Submission of Matters to a vote of securities holders.
None.
Item 5
Other information.
Not applicable.
Item 6
Exhibits and reports on form 8-K.
(a) Exhibits
27.01.1 Financial Data Schedule
(b) Reports on Form 8-K.
None.
14
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
First Community Financial Corporation
--------------------------------------------------------
Registrant
Date May 5,2000 /S/ Christopher B. Redcay
--------------------- --------------------------------
Christopher B. Redcay
Sr. Vice President, Treasurer
and Chief Financial Officer