TO OUR SHAREHOLDERS
At this time last year, the financial forecast for 2008 was uncertain. Mortgage foreclosures were at an all time high and other credit defaults were rising, causing concern for policymakers and presenting challenges for bankers. As we now know, the remainder of 2008 brought about a financial crisis in our country unlike any before, resulting in the worst post-war economic climate on record. During 2008, and again in the first quarter of this year, we have continued to record outstanding results in the face of much adversity. We have continued to provide credit to our customers, and we have successfully generated the liquidity required to satisfy our customers’ needs. We are proud to report the following results.
Total assets remained flat during the first quarter of 2009 as new deposits were utilized to reduce overnight borrowings. Net loans increased $21 million, or 9% annually, during the quarter as both commercial and retail lending continued at a rapid pace. Total deposits increased $14 million, or 6% annually, during the first three months as many customers returned to the safety of FDIC insured deposits in the wake of a slumping stock market. Regulatory capital increased $4 million during the period to $124 million, leaving us well-capitalized and safely positioned to face the strain of future economic uncertainty.
Net income for the first three months of 2009 totaled $4.6 million, which was $452,000, or 11%, higher than the same period of last year. Declining interest rates led to a $2.6 million decrease in interest income, but effective asset/liability strategies contributed to a $3.4 million reduction in total interest expense, resulting in an 8% improvement in net interest income before providing for credit losses. Gains from the sale of assets totaled $1.1 million during the quarter comprised of profits from the sale of securities and many residential mortgage loans originated during this period of extremely low interest rates. Overhead expenses remain well controlled relative to our size, evidenced by our overhead ratio of 2.04% which ranks well ahead of industry averages. Our Return on Assets was 1.42% during the first quarter and our Return on Equity was 17.76%.
During the first quarter, your Board of Directors approved a cash dividend of $.11 per share which resulted in a payout ratio of 38% of the company’s first quarter earnings. As we have stated before, we are in this together and we will continue to share our success with our loyal investors.
As we enter the second quarter of 2009, there are hints in the economic releases that some of the stimulus is beginning to be felt and that a recovery from the current crisis may begin later this year. While an improved financial landscape will be a welcomed event, we remain concerned about the damage that has been done to date and the continued ability of our loan customers to fulfill their payment obligations. We are also concerned about the residential mortgage market nationally and the rising list of bank failures, as continued deterioration in these areas will lead to problems in assets that are collateral dependent. We have many challenges to face during the remainder of 2009, but we stand committed to face these challenges head on in order to preserve the long-term safety of your investment. We appreciate your continued trust in us.
CONSOLIDATED BALANCE SHEETS | ||||||
(in thousands, except per share data) | ||||||
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| March 31, 2009 |
| December 31, 2008 |
| March 31, 2008 |
ASSETS |
| (Unaudited) |
| (Audited) |
| (Unaudited) |
Cash and cash equivalents: |
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Cash and due from banks | $ | 17,536 | $ | 18,171 | $ | 29,210 |
Federal funds sold |
| 0 |
| 0 |
| 0 |
Total cash and cash equivalents |
| 17,536 |
| 18,171 |
| 29,210 |
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Securities: |
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Available-for-sale, at fair value |
| 220,566 |
| 245,900 |
| 256,477 |
Held-to-maturity, at cost (fair value $1,856, $1,774 and $1,862) |
| 1,830 |
| 1,808 |
| 1,743 |
Federal Reserve Bank and FHLB stock, at cost |
| 11,515 |
| 11,087 |
| 10,436 |
Net loans |
| 977,454 |
| 956,674 |
| 921,539 |
Bank premises and equipment |
| 17,683 |
| 17,785 |
| 17,250 |
Intangible assets |
| 9,836 |
| 9,781 |
| 9,861 |
Accrued interest receivable and other assets |
| 56,930 |
| 52,553 |
| 40,245 |
TOTAL ASSETS | $ | 1,313,350 | $ | 1,313,759 | $ | 1,286,761 |
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LIABILITIES |
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Deposits: |
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Demand | $ | 77,083 | $ | 79,760 | $ | 75,310 |
Interest-bearing demand |
| 295,221 |
| 302,058 |
| 272,968 |
Savings |
| 78,276 |
| 79,526 |
| 70,988 |
Time ($100,000 and over) |
| 205,421 |
| 191,052 |
| 170,154 |
Other time |
| 311,039 |
| 300,496 |
| 323,353 |
Total deposits |
| 967,040 |
| 952,892 |
| 912,773 |
Borrowed funds |
| 236,147 |
| 245,197 |
| 247,704 |
Accrued interest payable and other liabilities |
| 13,740 |
| 15,328 |
| 15,415 |
Total liabilities |
| 1,216,927 |
| 1,213,417 |
| 1,175,892 |
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STOCKHOLDERS' EQUITY |
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Common Stock (par value $1.25 per share) Authorized: 50,000,000 shares at December 31, 2008 - 16,047,928 shares and at March 31, 2008 - 15,811,881 shares |
| 20,193 |
| 20,060 |
| 19,765 |
Additional paid-in capital |
| 60,506 |
| 59,591 |
| 57,191 |
Retained earnings |
| 43,751 |
| 40,892 |
| 35,617 |
Accumulated other comprehensive income (loss) |
| (28,027) |
| (20,201) |
| (1,704) |
Total stockholders' equity |
| 96,423 |
| 100,342 |
| 110,869 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,313,350 | $ | 1,313,759 | $ | 1,286,761 |
FIRST NATIONAL COMMUNITY BANCORP, INC. AND SUBSIDIARIES | ||||||
CONSOLIDATED STATEMENTS OF INCOME | ||||||
(in thousands, except per share data) | ||||||
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| Quarter Ended | ||||
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| March 31, 2009 |
| December 31, 2008 |
| March 31, 2008 |
INTEREST INCOME |
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Interest and fees on loans | $ | 13,358 | $ | 14,201 | $ | 15,491 |
Interest and dividends on securities |
| 3,492 |
| 3,624 |
| 3,909 |
Interest on federal funds sold |
| 0 |
| 0 |
| 0 |
TOTAL INTEREST INCOME |
| 16,850 |
| 17,825 |
| 19,400 |
INTEREST EXPENSE |
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Interest-bearing demand |
| 725 |
| 833 |
| 1,226 |
Savings |
| 124 |
| 167 |
| 190 |
Time ($100,000 and over) |
| 1,024 |
| 1,472 |
| 1,874 |
Other time |
| 2,272 |
| 2,593 |
| 3,571 |
Interest on borrowed funds |
| 2,038 |
| 2,306 |
| 2,700 |
TOTAL INTEREST EXPENSE |
| 6,183 |
| 7,371 |
| 9,561 |
Net interest income before provision for credit losses | 10,667 |
| 10,454 |
| 9,839 | |
Provision for credit losses |
| 360 |
| 1,550 |
| 300 |
NET INTEREST INCOME AFTER |
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PROVISION FOR CREDIT LOSSES |
| 10,307 |
| 8,904 |
| 9,539 |
OTHER INCOME |
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Service charges |
| 688 |
| 786 |
| 729 |
Net gain on asset sales |
| 1,091 |
| 200 |
| 851 |
Other |
| 663 |
| 687 |
| 627 |
TOTAL OTHER INCOME |
| 2,442 |
| 1,673 |
| 2,207 |
OTHER EXPENSES |
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Salaries and employee benefits |
| 3,332 |
| 3,286 |
| 3,089 |
Occupancy expense |
| 615 |
| 670 |
| 598 |
Equipment expense |
| 455 |
| 477 |
| 413 |
Advertising expense |
| 240 |
| 268 |
| 240 |
Data processing expense |
| 436 |
| 375 |
| 418 |
FDIC Assessment |
| 240 |
| 236 |
| 95 |
Bank Shares Tax |
| 217 |
| 158 |
| 170 |
Other operating expenses |
| 1,142 |
| 1,256 |
| 1,108 |
TOTAL OTHER EXPENSES |
| 6,677 |
| 6,726 |
| 6,131 |
INCOME BEFORE INCOME TAXES |
| 6,072 |
| 3,851 |
| 5,615 |
Provision for income taxes |
| 1,429 |
| 795 |
| 1,424 |
NET INCOME | $ | 4,643 | $ | 3,056 | $ | 4,191 |
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EARNINGS PER SHARE: |
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Basic | $ | 0.29 | $ | 0.19 | $ | 0.27 |
Diluted | $ | 0.28 | $ | 0.18 | $ | 0.26 |
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Weighted Average Number of Shares |
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Basic |
| 16,064,455 |
| 15,972,820 |
| 15,759,321 |
Diluted |
| 16,460,979 |
| 16,300,328 |
| 16,112,913 |
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These financial statements should be read in conjunction with the audited financial statements and related notes for the year ended December 31, 2008. | ||||||