1
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, 1999
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 OF 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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2,040,270
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(OUTSTANDING SHARES OF THE ISSUER'S COMMON STOCK AS OF MARCH 31, 1999)
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, 1999 (Unaudited) and December 31, 1998
Consolidated Statements of Income 4
Three months ended March 31, 1999 and 1998 (Unaudited)
Consolidated Statements of Cash Flows 5
Three months ended March 31, 1999 and 1998 (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 I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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FIRST COMMUNITY CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
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MARCH 31, December 31,
ASSETS 1999 1998
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Cash and due from banks $ 3,942 3,570
Federal funds sold 5,204 11,123
Securities available-for-sale, at fair value 4,651 3,321
Loans 83,456 80,898
Allowance for loan losses (869) (869)
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LOANS, NET 82,587 80,029
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Premises and equipment 4,070 4,153
Accrued income receivable 919 1,039
Deferred income taxes, net 157 122
Other assets 848 801
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$ 102,378 104,158
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LIABILITIES AND SHAREHOLDERS' EQUITY
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LIABILITIES:
DEPOSITS:
Noninterest-bearing $ 11,482 10,956
Interest-bearing 70,169 72,505
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TOTAL DEPOSITS 81,651 83,461
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Securities sold under agreements to
repurchase 1,911 1,528
Advances from FHLB 8,000 8,000
Other liabilities 1,232 1,720
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TOTAL LIABILITIES 92,794 94,709
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SHAREHOLDERS' EQUITY:
Common stock, no par value. Authorized 3,000,000
shares; issued and outstanding 2,040,270 in 1999
and 2,037,195 in 1998 7,764 7,746
Retained earnings 1,809 1,689
Accumulated other comprehensive income 11 14
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TOTAL SHAREHOLDERS' EQUITY 9,584 9,449
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$ 102,378 104,158
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FIRST COMMUNITY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS)
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THREE MONTHS ENDED
MARCH 31,
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1999 1998
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INTEREST INCOME:
Loans, including fees $ 1,876 1,594
Securities:
Taxable 36 127
Tax exempt 6 19
Federal funds sold 90 42
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TOTAL INTEREST INCOME 2,008 1,782
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INTEREST EXPENSE:
Deposits 790 713
Other borrowings 117 84
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TOTAL INTEREST EXPENSE 907 797
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NET INTEREST INCOME 1,101 985
PROVISION FOR LOAN LOSSES 40 120
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NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,061 865
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OTHER INCOME:
Service charges on deposit accounts 129 126
Gain on sale of assets -- 169
Other service charges, commissions and fees 83 95
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TOTAL OTHER INCOME 212 390
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OTHER EXPENSES:
Salaries and employee benefits 453 437
Occupancy expense 137 111
Other operating expenses 289 290
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TOTAL OTHER EXPENSES 879 838
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INCOME BEFORE INCOME TAXES 394 417
INCOME TAXES 146 154
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NET INCOME $ 248 263
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EARNINGS PER SHARE:
Basic $ 0.12 0.13
Diluted 0.12 0.13
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WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 2,039,201 1,979,232
Diluted 2,143,201 2,092,615
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FIRST COMMUNITY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
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THREE MONTHS ENDED
MARCH 31,
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INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 248 263
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 95 56
Provision for loan losses 40 120
Decrease (increase) in accrued income receivable 120 (28)
Other, net (192) (630)
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NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 311 (219)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in federal funds sold 5,919 1,692
Maturities and redemptions of securities
available for sale 670 830
Proceeds of sales of securities available-for-sale -- 2,011
Purchases of securities available-for-sale (2,000) --
Net increase in loans (2,598) (1,001)
Purchases of premises and equipment (12) (56)
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NET CASH PROVIDED BY INVESTING ACTIVITIES 1,979 3,476
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CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (509) (414)
Repayments of note payable -- (250)
Proceeds from sale of common stock 18 17
Increase in securities sold under
agreements to repurchase 383 313
Decrease in deposits (1,810) (3,010)
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NET CASH USED BY FINANCING ACTIVITIES (1,918) (3,344)
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NET INCREASE (DECREASE) IN CASH 372 (87)
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 3,570 3,956
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CASH AND DUE FROM BANKS AT END OF PERIOD $ 3,942 3,869
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CASH PAYMENTS FOR INTEREST $ 1,046 979
CASH PAYMENTS FOR INCOME TAXES $ 56 366
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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, 1999 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1999.
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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 $104 million at December 31,
1998. At March 31, 1999, assets were $102 million, reflecting a decline of $2
million since December 31, 1998. The decline in total assets and deposits was
mainly a result of management's efforts in reducing marginally profitable, non
core deposits. During first quarter 1999, deposits declined $2 million while
federal funds sold declined $6 million, securities available for sale increased
$1.3 million, and loans increased $2.6 million.
NONPERFORMING ASSETS AND RISK ELEMENTS. Nonperforming assets consist of (1)
nonaccrual loans where the recognition of interest 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, 1999
amounted to $111,000 or .13% of total loans, up slightly from $104,000 or .12%
at December 31, 1998. Diversification within the loan portfolio is an important
means of reducing inherent lending risks. At March 31, 1999, 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 as of March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is adequate with cash and due from banks of $3.9 million and federal
funds sold of $5.2 million as of March 31, 1999. In addition, loans and
investment securities repricing or maturing within one year or less exceed $35
million at March 31, 1999. The Bank has approximately $3.8 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 $75,000 at
March 31, 1999. 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.
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Total equity capital at March 31, 1999, is $9.6 million or approximately 9.3% 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, 1999, are as follows:
Tier 1 leverage 9.24%
Tier 1 risk-based 12.08%
Total risk-based 13.19%
RESULTS OF OPERATIONS
The Company had net income of $248,000 for the three months ending March 31,
1999, compared with $263,000 for the same period last year reflecting a decrease
in net income of 5.7%.
Interest income and interest expense both increased from 1998 to 1999 resulting
from the increase in earning assets and interest bearing liabilities.
Consequently, net interest income increased to $1.1 million from $985,000 for
the first three months ending March 31, 1998, or an increase of 11.8%. Earning
assets through March 31, 1999 increased $16.3 million and interest-bearing
liabilities increased $10.7 million compared to March 31, 1998, reflecting
increases of 21.6% and 17.9%, respectively.
Noninterest income for the three months ending March 31, 1999 was $212,000
compared to $390,000 for the same period in 1998 reflecting a decrease of 45%.
The decline in noninterest income resulted primarily from a gain on the sale of
property adjoining the Church Hill Office in the first quarter of 1998.
Noninterest income consists mainly of credit life insurance commissions,
secondary mortgage processing fees, brokerage services, and service charges on
deposit accounts.
The provision for loan losses was $40,000 in the first three months of 1999
compared with $120,000 for the same period in 1998. The allowance for loan
losses of $868,000 at March 31, 1999 (approximately 1.04% 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 converted its core processing
system to Bankline software which is nationally known and currently certified as
Year 2000 compliant. Year 2000 related costs 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, 1999
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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
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(Registrant)
May 14, 1999 /s/ John L. Campbell
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(Date) John L. Campbell, President
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Senior Vice President and Cashier
(Principal Accounting Officer)