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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarterly Period Ended: September 30,1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-25972
FIRST COMMUNITY CORPORATION
(Exact Name of Small Business Issuer as Specified in its Charter)
Tennessee 62-1562541
(State of Incorporation) (I.R.S. Employer
Identification No.)
809 West Main Street
Rogersville, Tennessee 37857
(Address of Principal Executive (Zip Code)
Offices)
(615) 272-5800
(Issuer's Telephone Number, Including Area Code)
None
(Former Name, Address and Fiscal Year, if Changed Since Last Report.)
Indicate by check mark whether the Issuer: (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
--- ---
623,386
(Outstanding shares of the issuer's common stock as of September 30, 1996)
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
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FIRST COMMUNITY CORPORATION
INDEX
PART I. FINANCIAL INFORMATION:
Number Page
- ------ ----
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 1996 (Unaudited) and December 31, 1995 3
Consolidated Statements of Income
Three months and nine months ended September 30, 1996
and 1995 (Unaudited) 4
Consolidated Statements of Cash Flows
Nine months ended September 30, 1996
and 1995 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Default Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
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PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FIRST COMMUNITY CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
---------------------------
SEPT. 30, DECEMBER 31,
ASSETS 1996 1995
=========================================================================================================
Cash and due from banks $ 3,066 2,976
Federal funds sold 1,137 1,558
Investment securities available-for-sale, at fair value 14,878 11,145
Loans 49,259 41,932
Allowance for loan losses (615) (528)
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LOANS, NET 48,644 41,404
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Premises and equipment 2,347 2,088
Accrued income receivable 836 646
Deferred income taxes 154 152
Other assets 227 152
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$71,289 60,121
========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
========================================================================================================
LIABILITIES:
DEPOSITS:
Noninterest-bearing $10,987 8,713
Interest-bearing 47,002 40,904
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TOTAL DEPOSITS 57,989 49,617
Federal funds purchased and securities sold
under agreements to repurchase 2,892 1,837
Borrowings from Federal Home Loan Bank 2,000 --
Other liabilities 825 694
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TOTAL LIABILITIES 63,706 52,148
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SHAREHOLDERS' EQUITY:
Common stock, no par value. Authorized 3,000,000
shares; 623,386 shares outstanding September
30, 1996; 661,407 September 30, 1995 6,965 7,384
Unrealized loss on AFS securities, net of tax (20) (17)
Retained earnings 638 606
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TOTAL SHAREHOLDERS' EQUITY 7,583 7,973
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$71,289 60,121
========================================================================================================
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FIRST COMMUNITY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS EXCEPT FOR PER SHARE INFORMATION)
-------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ --------------------------
INTEREST INCOME: 1996 1995 1996 1995
-------- -------- -------- --------
Loans, including fees $ 1,223 1,041 3,471 2,769
Investment securities, taxable 223 169 577 497
Investment securities, tax exempt 5 -- 6 --
Federal funds sold 11 9 153 89
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TOTAL INTEREST INCOME 1,462 1,219 4,207 3,355
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INTEREST EXPENSE:
Deposits 552 441 1,632 1,178
Other borrowings 44 21 97 52
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TOTAL INTEREST EXPENSE 596 462 1,729 1,230
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NET INTEREST INCOME 866 757 2,478 2,125
PROVISION FOR LOAN LOSSES 46 60 121 174
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NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 820 697 2,357 1,951
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OTHER INCOME:
Service charges on deposit accounts 117 81 318 219
Securities gains 3 -- 3 --
Other service charges, commissions and fees 53 26 139 85
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TOTAL OTHER INCOME 173 107 460 304
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OTHER EXPENSES:
Salaries and employee benefits 299 235 873 738
Occupancy and equipment 77 67 220 186
Other operating 235 209 732 708
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TOTAL OTHER EXPENSES 611 511 1,825 1,632
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INCOME BEFORE INCOME TAXES 382 293 992 623
INCOME TAXES 143 108 374 238
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NET INCOME $ 239 185 618 385
=====================================================================================================================
EARNINGS PER SHARE $ 0.37 0.28 0.92 0.58
=====================================================================================================================
AVERAGE SHARES OUTSTANDING 652,400 668,195 672,000 668,195
=====================================================================================================================
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FIRST COMMUNITY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1996 1995
===============================================================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 618 385
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 126 66
Provision for loan losses 121 174
Increase in accrued income receivable (190) (248)
Other, net 53 186
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NET CASH PROVIDED BY OPERATING ACTIVITIES 728 563
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CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in federal funds sold 421 4,157
Maturities of securities available-for-sale 3,900 945
Purchases of securities available-for-sale (8,637) --
Proceeds of sales of securities available-for-sale 1,004 --
Net increase in loans (7,361) (11,394)
Purchases of premises and equipment (385) (175)
- -------------------------------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (11,058) (6,467)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock 65 --
Purchase and retirement of treasury shares (1,072) --
Increase in federal funds purchased and securities
sold under agreements to repurchase 1,055 1,164
Increase in borrowings from FHLB 2,000 --
Increase in deposits 8,372 4,174
- -------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 10,420 5,338
- -------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 90 (566)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,976 2,874
- -------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,066 2,308
===============================================================================================================================
CASH PAYMENTS FOR INTEREST $ 1,578 931
CASH PAYMENTS FOR INCOME TAXES $ 390 320
================================================================================================================================
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FIRST COMMUNITY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. 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 of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the nine month period ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1996.
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ITEM NO. 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
First Community Bank of East Tennessee (the "Bank") represents virtually all of
the assets of First Community Corporation (the "Company"). The Bank, which was
opened in April of 1993, has continued to experience growth during 1996. Total
assets have grown $11.2 million or 19% since December 31, 1995. The growth in
total assets has been funded by increases in deposits of $8.4 million, federal
funds purchased and securities sold under agreements to repurchase of $2.1
million, and Federal Home Loan Bank borrowings of $2.0 million since December
31, 1995.
Loans have increased $7.3 million or 17% during the first six months of 1996.
Investment securities have increased $3.7 million or 33% since December 31,
1995.
Due to a regulatory change eliminating unrealized gain or loss on
available-for-sale securities from regulatory capital, the Financial Accounting
Standards Board (FASB) issued a Special Report allowing a one-time opportunity
for security transfers between held-to-maturity and available-for- sale without
affecting the carrying value of other securities in the investment portfolio. In
December, 1995, management reassessed its classification of investment
securities and transferred, at fair value, $8,942, 000 of investment securities
from held-to-maturity to available-for-sale. The reclassification provides
management greater flexibility in managing liquidity and in changing the Bank's
earning asset mix.
NONPERFORMING ASSETS AND RISK ELEMENTS. Nonperforming assets at September 30,
1996 amounted to $246,000, up from $4,000 at December 31, 1995. The majority of
this increase is reflected in a very small number of loans for which management
does not expect any significant losses. Management does not believe this
increase reflects a general deterioration in the loan portfolio. Diversification
within the loan portfolio is an important means of reducing inherent lending
risks. At September 30, 1996, the Bank had no concentrations of ten percent or
more of total loans in any single industry nor any geographical area outside the
immediate market area of the Bank.
The Bank discontinues the accrual of interest on loans which become ninety days
past due (principal and/or interest), unless the loans are adequately secured
and in the process of collection. Other real estate owned is carried at fair
value, determined by an appraisal. A loan is classified as a restructured loan
when the interest rate is materially reduced or the term is extended beyond the
original maturity date because of the inability of the borrower to service the
debt under the original terms. The Bank had no restructured loans or other real
estate at September 30, 1996.
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LIQUIDITY AND CAPITAL RESOURCES
Liquidity is adequate with cash and due from banks of $3.1 million and federal
funds sold of $1.1 million as of September 30, 1996. In addition, loans and
investment securities repricing or maturing in one year or less exceed $19
million at September 30, 1996. The Bank has approximately $128,000 in loan
commitments that are expected to be funded within the next six months and other
commitments, primarily standby letters of credit, of approximately $117,000 at
September 30, 1996. With the exception of unfunded loan commitments, there are
no known trends or any known commitments or uncertainties that will result in
the Bank's liquidity increasing or decreasing in a material way. In addition,
the Company is not aware of any recommendations by any regulatory authorities
which would have a material effect on the Company's liquidity, capital resources
or results of operations.
Total equity capital at September 30, 1996, is $7.6 million or approximately
10.7% of total assets. The Company's capital position is adequate to meet the
minimum capital requirements as of September 30, 1996 for all regulatory
agencies. The company's capital ratios as of September 30, 1996, are as follows:
Tier 1 leverage 10.7%
Tier 1 risk-based 16.5%
Total risk-based 17.8%
During the third quarter of 1996 the Company purchased and retired 38,000 shares
of its common stock for $25.00 per share. The subsidiary bank paid a dividend of
$942,500 to the parent company to fund this purchase. In addition, in order to
facilitate additional purchases of Company stock, the Company has obtained a
line of credit of $1,500,000.
RESULTS OF OPERATIONS
The Company had net income of $239,000 in the third quarter of 1996 compared to
$185,000 in the third quarter of 1995. The Company's net income was $618,000 for
the first three quarters of 1996 compared to $385,000 for the first three
quarters of 1995. Both of these increases are primarily attributable to the
increase in net interest income of $109,000, or 14%, for the third quarter of
1996 and $353,000, or 17%, through the first nine months of 1996, as well as a
slightly lower provision for loan losses in the third quarter and year-to-date
1996.
Interest income and interest expense both increased dramatically from 1995 to
1996 because of the increase in earning assets and deposits from September 30,
1995 to September 30, 1996. The growth in non-interest income for the first nine
months of 1996 reflects the increase in deposits during 1995 and 1996. Data
processing expense increased by $48,000 or 40% for the first nine months of 1996
over the same period a year earlier primarily because of additional expenses
related to a change in January, 1996 of the data processing servicer. However,
this increase was more than offset by a decrease in FDIC insurance resulting
from the Bank's decreased assessment rate.
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The provision for loan losses was $46,000 in the third quarter of 1996 compared
to $60,000 in 1995 and $121,000 in the first nine months of 1996 compared to
$174,000 in the first nine months of 1995. The higher provisions for loan losses
in 1995 reflect a higher growth in loans both on a percentage and absolute
dollar basis in 1995. The allowance for loan losses of $615,000 at September 30,
1996 (approximately 1.25% of loans) is considered by management to be adequate
to cover losses inherent in the loan portfolio. Management evaluates the
adequacy of the allowance for loan losses monthly and makes provisions for loan
losses based on this evaluation.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) 27 Financial Data Schedule (for SEC use only)
b) The Company did not file any reports on Form 8-K during the
quarter ended September 30, 1996
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST COMMUNITY CORPORATION
(Registrant)
November 13, 1996 /s/ John L. Campbell
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(Date) John L. Campbell, President
November 13, 1996 /s/ George E. Burnett
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(Date) George E. Burnett, Senior
Vice President and Cashier
(Principal Accounting Officer)