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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: MARCH 31, 1998
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OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-25972
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FIRST COMMUNITY CORPORATION
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(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
TENNESSEE 62-1562541
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(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
809 WEST MAIN STREET
ROGERSVILLE, TENNESSEE 37857
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(423) 272-5800
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(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NONE
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(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
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627,763
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(OUTSTANDING SHARES OF THE ISSUER'S COMMON STOCK AS OF MARCH 31, 1998)
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES NO X
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FIRST COMMUNITY CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
NUMBER PAGE
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ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 3
MARCH 31, 1998 (UNAUDITED) AND DECEMBER 31, 1997
CONSOLIDATED STATEMENTS OF INCOME 4
THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 7
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 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST COMMUNITY CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
March 31, 1998
($ amounts in thousands)
MARCH 31, December 31,
ASSETS 1998 1997
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Cash and due from banks $ 3,869 3,905
Federal funds sold 3,186 4,878
Securities available-for-sale, at fair value 7,862 10,704
Loans 65,844 64,843
Allowance for loan losses (844) (751)
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LOANS, NET 65,000 64,092
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Premises and equipment 3,386 3,386
Accrued income receivable 950 922
Deferred income taxes, net 157 122
Other assets 769 690
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$85,180 88,699
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LIABILITIES AND SHAREHOLDERS' EQUITY
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LIABILITIES:
DEPOSITS:
Noninterest-bearing $ 9,967 10,913
Interest-bearing 59,498 61,582
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TOTAL DEPOSITS 69,465 72,495
Securities sold under agreements to repurchase 4,430 4,118
Advances from FHLB 2,000 2,000
Note payable 0 250
Other liabilities 891 1,723
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TOTAL LIABILITIES 76,787 80,587
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SHAREHOLDERS' EQUITY:
Common stock, no par value. Authorized 3,000,000
shares; issued and outstanding 627,763 in 1998
and 626,538 in 1997 6,979 7,032
Unrealized gain (loss) on securities available-for-sale 40 39
Retained earnings 1,374 1,041
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TOTAL SHAREHOLDERS' EQUITY 8,393 8,112
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$85,180 88,699
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FIRST COMMUNITY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
March 31, 1998
($ amounts in thousands except earnings per share)
THREE MONTHS ENDED MARCH 31,
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1998 1997
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INTEREST INCOME:
Loans, including fees $ 1,594 1,329
Securities:
Taxable 127 232
Tax exempt 19 17
Federal funds sold 42 33
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TOTAL INTEREST INCOME 1,782 1,611
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INTEREST EXPENSE:
Deposits 713 609
Other borrowings 84 96
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TOTAL INTEREST EXPENSE 797 705
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NET INTEREST INCOME 985 906
PROVISION FOR LOAN LOSSES 120 61
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NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 865 845
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OTHER INCOME:
Service charges on deposit accounts 126 129
Asset gains 169 0
Other service charges, commissions and fees 94 81
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TOTAL OTHER INCOME 390 210
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OTHER EXPENSES:
Salaries and employee benefits 437 346
Occupancy expense 111 72
Other operating expenses 290 275
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TOTAL OTHER EXPENSES 839 693
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INCOME BEFORE INCOME TAXES 417 362
INCOME TAXES 154 134
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NET INCOME $ 263 228
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EARNINGS PER SHARE $ 0.40 0.35
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WEIGHTED AVERAGE SHARES OUTSTANDING 659,744 649,098
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FIRST COMMUNITY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
March 31, 1998
(IN THOUSANDS)
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THREE MONTHS ENDED
MARCH 31,
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INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 263 228
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 56 50
Provision for loan losses 120 61
Increase in accrued income receivable (28) (108)
Other, net (630) (232)
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NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (219) (1)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in federal funds sold 1,692 (439)
Maturities and redemptions of securities
available for sale 830 328
Purchases of securities available-for-sale 0 (2,050)
Proceeds of sales of securities available-for-sale 2,012 0
Net increase in loans (1,001) (3,799)
Purchases of premises and equipment (56) (312)
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NET CASH USED BY INVESTING ACTIVITIES 3,476 (6,272)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (414) (375)
Repayment of note payable (250) 0
Purchase and retirement of common stock 0 (60)
Proceeds from sale of common stock 17 59
Repayments of FHLB advances 0 (2,000)
Increase in borrowings from FHLB 0 0
Increase (decrease) in securities sold under agree-
ments to repurchase & federal funds purchased 313 (389)
Increase (decrease) in deposits (3,010) 9,172
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NET CASH PROVIDED BY FINANCING ACTIVITIES (3,344) 6,407
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NET INCREASE (DECREASE) IN CASH (87) 134
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 3,956 3,956
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CASH AND DUE FROM BANKS AT END OF PERIOD $ 3,869 4,090
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CASH PAYMENTS FOR INTEREST $ 979 735
CASH PAYMENTS FOR INCOME TAXES $ 366 145
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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 three month period ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1998.
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ITEM NO. 2 MANAGEMENT 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, grew in total assets to $88.7 million at December 31,
1997. At March 31, 1998, assets were $85.2 million, reflecting a decline of $3.5
million since December 31, 1997. The decline in total assets was mainly a result
of managements efforts in reducing marginally profitable, non core deposits.
During first quarter 1998, deposits declined $3 million while federal funds sold
declined $1.7 million, securities available for sale declined $2.8 million, and
loans increased $1 million.
The slower than usual loan growth, or 1.5% during the first three months of
1998, was due primarily to the drop in long term interest rates which resulted
in a high level of refinancing of the bank's variable rate mortgage loans in the
secondary market. Refinancing has currently begun to decline and management
anticipates that loan growth will resume to normal levels during the remainder
of 1998.
NONPERFORMING ASSETS AND RISK ELEMENTS. Nonperforming assets consist of (1)
nonaccrual loans where the recognition of interest income was discontinued, (2)
loans which have been restructured to provide for a reduction or deferral of
interest or principal because the borrower's financial condition deteriorated,
and (3) foreclosed and repossessed assets. Nonperforming assets at March 31,
1997 amounted to $55,000 or .08% of total loans, up slightly from $43,000 or
.07% at December 31, 1997. Diversification within the loan portfolio is an
important means of reducing inherent lending risks. At March 31, 1998, 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 $7,000 in restructured loans and
$7,000 in other real estate as of March 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is adequate with cash and due from banks of $3.9 million and federal
funds sold of $3.2 million as of March 31, 1998. In addition, loans and
investment securities repricing or maturing within one year or less exceed $34
million at March 31, 1998. The Bank has approximately $1.2 million in loan
commitments that are expected to be funded within the next six months and other
commitments, primarily standby letters of credit, of approximately $107,000 at
March 31, 1998. In addition to the Federal Home Loan Bank membership, the Bank
has established federal funds lines of credit with three correspondent banks
totaling $7 million to meet unexpected liquidity demands. With the exception of
unfunded loan commitments, there are no known trends or any known commitments of
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 March 31, 1998, is $8.4 million or approximately 9.8% of
total assets. The Bank's capital position is adequate to meet the minimum
capital requirements for all regulatory agencies. The Bank's capital ratios as
of March 31, 1998, are as follows:
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Tier 1 leverage 9.60%
Tier 1 risk-based 13.67%
Total risk-based 14.92%
RESULTS OF OPERATIONS
The Company had net income of $263,000 for the three months ending March 31,
1998, compared with $228,000 for the same period last year, resulting in an
increase of 15.3%.
Interest income and interest expense both increased from 1997 to 1998 resulting
from the increase in earning assets and interest bearing liabilities.
Consequently, net interest income increased to $1.8 million from $1.6 million
for the first three months ending March 31, 1997, or an increase of 10.6%.
Earning assets through March 31, 1998 increased $4.7 million and
interest-bearing liabilities increased $5.3 million compared to March 31, 1997,
reflecting increases of 6.5% and 8.7%, respectively.
Noninterest income for the three months ending March 31, 1998 was $390,000
compared to $210,000 for the same period in 1997 reflecting an increase of
85.7%. The growth in noninterest income resulted primarily from the sale of
property adjoining the Church Hill Office. Noninterest income consists mainly of
credit life insurance commissions, secondary mortgage processing fees, brokerage
services, and service charges on deposit accounts. In order to more effectively
price services based of cost, the Bank participated in the Federal Reserve
Bank's Functional Cost Analysis Program using 1997 data. Results of the program,
which will be available in May, 1998, in combination with internal cost analysis
will be utilized to improve the Bank's service charge and fee structures, as
well as improving operational efficiency by reducing other operating expense
during the remainder of 1998.
The provision for loan losses was $120,000 in the first three months of 1998
compared with $61,000 for the same period in 1997. The allowance for loan losses
of $844,000 at March 31, 1998 (approximately 1.28% 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.
YEAR 2000 DISCLOSURE
In June 1997, the Bank formed a Year 2000 Committee which meets on a regular
basis. All internal, date sensitive equipment has been inventoried and tested
for Year 2000 readiness. The Bank is currently in process of testing both
internal and external software as well as third parties with which the Bank
exchanges data. During October, 1998, the Bank is scheduled to convert its core
processing system to Bankline software which is nationally known and currently
certified as Year 2000 compliant. Year 2000 related cost for 1998 and 1999 total
an estimated $87,000 which includes all labor and equipment and software
upgrades or replacements. However, management does not anticipate expenses to
increase by the total estimated cost since much of the labor costs will involve
a reallocation of current staff responsibilities.
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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
None
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 March 31, 1998
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registration has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST COMMUNITY CORPORATION
(Registrant)
March 13, 1998 /s/ John L. Campbell
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(Date) John L. Campbell, President
March 13, 1998 /s/ George E. Burnett
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(Date) George E. Burnett, Senior
Vice President and Cashier
(Principal Accounting Officer)
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