1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended March 31, 1998.
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ______________ to _____________
Commission file number 0-19028
CCFNB BANCORP, INC.
(Name of small business Issuer in its charter)
PENNSYLVANIA 23-2254643
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
232 East Street, Bloomsburg, PA 17815
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (717) 784-4400
Check whether the issuer (1) 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 issuer was required to file such
reports), and (2) has been subject to such filing requirings for the past 90
days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. 1,382,433 shares of
$1.25 (par) common stock were outstanding as of April 29, 1998.
2
CCFNB BANCORP, INC. AND SUBSIDIARY
MARCH 31, 1998
INDEX 10-Q
EXHIBIT 27 - FINANCIAL DATA SCHEDULE NO PAGE
#
PART I - FINANCIAL INFORMATION:
- Consolidated Balance Sheets 1
- Consolidated Statements of Income 2
- Consolidated Statements of Cash Flows 3
- Notes to Consolidated Financial Statements 4 - 6
- Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations 7 - 15
PART II - OTHER INFORMATION 16
SIGNATURES 17
3
CCFNB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
UNAUDITED
MARCH DECEMBER
31, 1998 31, 1997
-------- --------
ASSETS
Cash and due from banks......................................... $ 3,989 $ 4,735
Interest-bearing deposits with other banks...................... 5,076 582
Investment securities:
Securities to be held to maturity, estimated fair value of
$726 and $726............................................... 720 720
Securities available for sale carried at estimated fair value. 43,255 43,142
Loans, net of unearned income................................... 116,054 119,045
Allowance for loan losses....................................... 918 901
Net loans..................................................... $115,136 $118,144
-------- --------
Premises and equipment.......................................... 5,610 5,146
Other real estate owned......................................... 24 0
Accrued interest receivable..................................... 924 938
Other assets.................................................... 655 459
-------- --------
TOTAL ASSETS............................................... $175,389 $173,866
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing.......................................... $ 11,118 $ 12,138
Interest bearing.............................................. 117,924 115,581
-------- --------
Total Deposits............................................. $129,042 $127,719
Short-term borrowings........................................... 20,496 22,362
Long-term borrowings............................................ 2,223 440
Accrued interest and other expenses............................. 1,089 1,141
Other liabilities............................................... 74 99
-------- --------
TOTAL LIABILITIES.......................................... $152,924 $151,761
-------- --------
STOCKHOLDERS' EQUITY
Common stock, par value $1.25 per share; Authorized 5,000,000
shares; issued 1,382,433 shares............................... $ 1,728 $ 1,728
Surplus......................................................... 5,857 5,854
Retained earnings............................................... 14,672 14,407
Unrealized gain on investment securities available for sale,
net of tax.................................................... 213 142
Less treasury stock, at cost, 190 shares in 1998 and
1183 shares in 1997........................................... (5) (26)
-------- --------
TOTAL STOCKHOLDERS' EQUITY................................. $ 22,465 $ 22,105
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................. $175,389 $173,866
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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4
CCFNB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
UNAUDITED
FOR THE THREE
MONTHS ENDING
MARCH 31,
---------
1998 1997
---- ----
INTEREST INCOME
Interest and fees on loans:
Taxable........................................................... $ 2,396 $ 2,372
Tax exempt........................................................ 29 35
Interest and dividends on investment securities:
Taxable interest.................................................. 468 389
Tax exempt interest............................................... 140 128
Dividends......................................................... 5 15
Interest on federal funds sold...................................... 0 37
Interest on deposits in other banks................................. 65 55
------- -------
TOTAL INTEREST INCOME.......................................... $ 3,103 $ 3,031
------- -------
INTEREST EXPENSE
Interest on deposits................................................ $ 1,204 $ 1,214
Interest on short-term borrowings................................... 287 218
Interest on long-term borrowings.................................... 8 4
------- -------
TOTAL INTEREST EXPENSE......................................... $ 1,499 $ 1,436
------- -------
Net interest income................................................. $ 1,604 $ 1,595
Provision for loan losses........................................... 20 15
------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES............... $ 1,584 $ 1,580
------- -------
NON-INTEREST INCOME
Service charges and fees............................................ $ 140 $ 133
Trust department income............................................. 25 21
Other income........................................................ 29 14
------- -------
TOTAL NON-INTEREST INCOME...................................... $ 194 $ 168
------- -------
NON-INTEREST EXPENSES
Salaries and wages.................................................. $ 455 $ 423
Pensions and other employee benefits................................ 162 152
Occupancy expense, net.............................................. 89 94
Furniture and equipment expense..................................... 130 103
Other operating expenses............................................ 377 314
------- -------
TOTAL NON-INTEREST EXPENSES.................................... $ 1,213 $ 1,086
------- -------
Income before income taxes.......................................... $ 565 $ 662
Income tax expense.................................................. 140 173
------- -------
NET INCOME...................................................... $ 425 $ 489
======= =======
NET INCOME PER SHARE................................................ $ .31 $ .35
The accompanying notes are an integral part of these consolidated financial
statements.
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CCFNB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
UNAUDITED
FOR THE THREE MONTHS
ENDING MARCH 31,
----------------
1998 1997
---- ----
OPERATING ACTIVITIES
Net income............................................................. $ 425 $ 489
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses........................................... 20 15
Provision for depreciation and amortization......................... 119 92
Premium amortization on investment securities....................... 18 1
Discount accretion on investment securities......................... (9) (7)
Deferred income taxes (benefit)..................................... (9) 0
(Gain) loss on sale of premises and equipment....................... 0 (2)
Loss on impairment of bank premises................................. 0 3
(Increase) decrease in accrued interest receivable and other assets. (182) (162)
Increase (decrease) in accrued interest and other expenses
and other liabilities............................................. (5) 29
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES......................... $ 377 $ 458
-------- --------
INVESTING ACTIVITIES
Proceeds from sales, maturities and redemptions of investment
securities available for sale........................................ $ 8,162 $ 5,319
Proceeds from maturities and redemptions of held to maturity
investmet securities................................................. 0 250
Purchase of investment securities available for sale................... (8,177) (5,279)
Net (increase) decrease in loans....................................... 2,964 (885)
Purchases of premises and equipment.................................... (583) (31)
Proceeds from sale of premises and equipment........................... 0 12
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES............... $ 2,366 $ (614)
-------- --------
FINANCING ACTIVITIES
Net increase (decrease) in deposits.................................... $ 1,323 $ (2,418)
Net increase (decrease) in short-term borrowings....................... (1,866) 1,396
Net increase (decrease) in long-term borrowings........................ 1,783 (30)
Proceeds from issuance of common stock................................. 36 41
Acquisition of treasury stock.......................................... (21) (28)
Proceeds from sale of treasury stock................................... 10 0
Cash dividends paid.................................................... (160) (160)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES............... $ 1,105 $ (1,199)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. $ 3,848 $ (1,355)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR......................... 5,217 11,359
-------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR......................... $ 9,065 $ 10,004
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest............................................................. $ 1,505 $ 1,449
Income taxes......................................................... $ 1 $ 69
The accompanying notes are an integral part of these consolidated financial
statements.
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CCFNB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
UNAUDITED
BASIS OF PRESENTATION
NOTE 1 - The accounting and reporting policies of CCFNB Bancorp and its
subsidiary conform to generally accepted accounting principles and to
general practices within the banking industry. These consolidated
interim financial statements include the accounts of CCFNB Bancorp,
Inc. and its wholly owned subsidiary, Columbia County Farmers National
Bank. All significant inter-company balances have been eliminated.
NOTE 2 - The accompanying consolidated interim financial statements are
unaudited. In management's opinion, the consolidated interim financial
statements reflect a fair presentation of the consolidated financial
position of CCFNB Bancorp, Inc. and Subsidiary, the results of their
operations and their cash flows for the interim periods presented.
Further, the consolidated interim financial statements reflect all
adjustments, which are in the opinion of management, necessary to
present fairly the consolidated financial condition and consolidated
results of operations and cash flows for the interim period presented
and that all such adjustments to the consolidated financial statements
are of a normal recurring nature.
NOTE 3 - The results of operations for the three month period ended March 31,
1998 are not necessarily indicative of the results to be expected for
the full year.
NOTE 4 - Net income per share of common stock for the interim periods is based
on the weighted average number of shares for each period; 1998 -
1,381,447 shares and 1997 - 1,381,751 shares.
NOTE 5 - LOANS
Loans are stated at their outstanding principal balances, net of any
deferred fees or costs, unearned income, and the allowance for loan
losses. Interest on loans is accrued on the principal amount
outstanding, primarily on an actual day basis. Non-refundable loan fees
and certain direct costs are deferred and amortized over the life of
the loans using the interest method. The amortization is reflected as
an interest yield adjustment, and the deferred portion of the net fees
and costs is reflected as a part of the loan balance.
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NON-ACCRUAL LOANS - Generally, a loan (including a loan impaired under
Statement of Financial Accounting Standards No. 114) is classified as
non-accrual, and the accrual of interest on such a loan is discontinued
when the contractual payment of principal or interest has become 90
days past due or management has serious doubts about further
collectibility of principal or interest, even though the loan currently
is performing. A loan may remain on accrual status if it is in the
process of collection and is either guaranteed or well secured. When a
loan is placed on non-accrual status, unpaid interest credited to
income in the current year is reversed, and unpaid interest accrued in
prior years is charged against the allowance for credit losses.
Potential problem loans are identified by management as a part of its
loan review process.
Income recognition is in accordance with Statement of Financial
Accounting Standards No. 118. Certain non-accrual loans may continue to
perform, that is, payments are still being received. Generally, the
payments are applied to principal. These loans remain under constant
scrutiny and if performance continues, interest income may be recorded
on a cash basis based on management's judgement as to collectibility of
principal.
ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is
established through provisions for loan losses charged against income.
Loans deemed to be uncollectible are charged against the allowance for
loan losses, and subsequent recoveries, if any, are credited to the
allowance.
The Corporation adheres to principles provided by Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan", as amended by Statement of Financial Accounting
Standards No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosure." Under these standards, the
allowance for loan losses related to loans that are identified for
evaluation in accordance with Statement No. 114 is based on discounted
cash flows using the loan's initial effective interest rate or the fair
value of the collateral for certain collateral dependent loans.
Statement No. 118 allows the continued use of existing methods for
income recognition on impaired loans and amends disclosure requirements
to require information about the recorded investment in certain
impaired loans and related income recognition on those loans. The
allowance for loan losses is maintained at a level by management to be
adequate to absorb estimated potential loan losses. Management's
periodic evaluation of the adequacy of the allowance for loan losses is
based on the Corporation's past loan loss experience, known and
inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay (including the timing of future payments),
the estimated value of any underlying collateral, composition of the
loan portfolio, current economic conditions, and other relevant
factors. This evaluation is inherently subjective as it requires
material estimates, including the amounts and timing of future cash
flows expected to be received on impaired loans that may be susceptible
to significant change.
-5-
8
The following table presents the changes in the allowance for credit
losses:
IN THOUSANDS
------------
Balance at January 1, 1998.......................... $901
Provisions charged to operations.................... 20
Loans charged off................................... (25)
Recoveries.......................................... 22
----
Balance at March 31, 1998........................... $918
====
At March 31, 1998 no loans were considered impaired as defined by
Statement No. 114. Accordingly, no additional charge to operations was
required since the total allowance for loan losses was estimated by
management to be adequate to provide for the loan loss allowance under
Statement No. 114 as well as any other potential loan losses.
NOTE 6 - The consolidated interim financial statements have been prepared in
accordance with requirements of Form 10-Q and therefore do not include
all the disclosures normally required by generally accepted accounting
principles, or those normally made in the Corporation's annual 10-K
filing. The reader of these consolidated interim financial statements
may wish to refer to the Corporation's annual report on Form 10-K for
the period ended December 31, 1997, filed with the Securities and
Exchange Commission.
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CCFNB BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Consolidated Summary of Operations
(Dollars in Thousands, except for per share data)
AT AND FOR THE
THREE MONTHS
ENDED MARCH 31, ----------AT AND FOR THE YEARS ENDED DECEMBER 31,----------
--------------- ---------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
Income and Expense:
Interest income....................... $ 3,103 $ 3,031 $ 12,498 $ 11,844 $ 11,466 $ 10,459 $ 9,914
Interest expense...................... 1,499 1,436 5,976 5,588 5,557 4,785 4,634
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income................... 1,604 1,595 6,522 6,256 5,909 5,674 5,280
Loan loss provision................... 20 15 60 80 42 160 105
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after loan loss
provision........................... 1,584 1,580 6,462 6,176 5,867 5,514 5,175
Non-interest income................... 194 168 804 762 693 569 568
Non-interest expense.................. 1,213 1,086 4,492 4,450 4,374 3,958 3,763
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes............ 565 662 2,774 2,488 2,186 2,125 1,980
Income taxes.......................... 140 173 749 664 561 560 497
Change in accounting principle........ 0 0 0 0 0 0 196
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income............................ 425 489 2,025 1,824 1,625 1,565 1,679
========== ========== ========== ========== ========== ========== ==========
Per Share: (1)
Net income after change in accounting
principle (2)....................... $ .31 $ .35 $ 1.47 $ 1.33 $ 1.19 $ 1.35 $ 1.51
Cash dividends paid................... .116 .116 .46 .45 .45 .42 .40
Average shares outstanding............ 1,381,447 1,381,751 1,381,800 1,375,875 1,367,595 1,163,199 1,109,837
Average Balance Sheet:
Loans................................. $ 117,407 $ 116,078 $ 116,771 $ 112,341 $ 111,980 $ 100,628 $ 88,347
Investments........................... 42,752 35,932 40,307 39,248 37,063 41,410 42,083
Other earning assets.................. 4,734 4,297 5,053 3,739 1,727 2,696 3,659
Total assets.......................... 174,516 167,632 171,159 164,512 157,957 151,752 143,096
Deposits.............................. 116,841 117,525 117,086 117,414 116,495 115,071 117,105
Other interest-bearing liabilities.... 23,389 17,434 20,198 14,860 11,766 11,014 12,332
Shareholders' equity.................. 22,070 20,255 20,690 19,512 18,067 13,736 12,739
Balance Sheet Data:
Loans................................. 116,054 116,462 119,045 115,590 111,831 109,800 96,423
Investments........................... 43,975 36,820 43,862 37,407 40,384 39,323 44,542
Other earning assets.................. 5,076 6,289 582 6,856 385 4,174 3,491
Total assets.......................... 175,389 169,205 173,866 170,086 162,066 157,124 152,386
Deposits.............................. 129,042 128,982 127,719 131,400 128,985 126,864 124,023
Other interest-bearing liabilities.... 22,719 18,317 22,802 16,951 12,430 11,910 14,317
Shareholders' equity.................. 22,465 20,799 22,105 20,657 19,512 17,650 13,452
Ratios: (3)
Return on average assets.............. .97% 1.17% 1.18% 1.11% 1.03% 1.03% 1.17%
Return on average equity.............. 7.70% 9.66% 9.79% 9.35% 8.99% 11.39% 13.18%
Dividend payout ratio................. 37.65% 32.78% 31.65% 33.95% 34.35% 36.54% 26.44%
Average equity to average assets ratio 12.65% 12.08% 12.71% 11.86% 11.44% 9.05% 8.90%
(1) Per share data has been calculated on the weighted average number of shares
outstanding.
(2) Before cumulative effect of change in accounting principle.
(3) The ratios for the three month period ending March 31 are annualized.
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10
The following discussion and analysis of the financial condition and results of
operations of the Corporation should be read in conjunction with the
consolidated financial statements of the Corporation. The consolidated financial
condition and results of operations of the Corporation are essentially those of
the Bank. Therefore, the discussion and analysis that follows is directed
primarily at the performance of the Bank.
Overview
Total assets increased .9% to $175.4 million at March 31, from $173.9 million at
December 31, 1997. Net income decreased 13.1% through March 31, 1998 to
$425,000, or $.31 per share, compared to $489,000, or $.35 per share for the
same three month period ended March 31, 1997. Loans decreased in 1998 by 2.4% to
$116.1 million at March 31, from $119.0 million at December 31, 1997.
Results of Operations - For the Three Months Ended March 31, 1998 and March 31,
1997.
Net income is affected by five major components: net interest income or the
difference between interest income earned on loans and investments and interest
expense paid on deposits and borrowed funds; the provision for loan losses,
which is the amount charged against net interest income and added to the
allowance for loan losses to provide a reserve for potential future loan losses;
other non-interest income, which is made up of certain fees, gains and losses
from the sale of investment securities, trust department income and other items;
and other non-interest expenses, which consist primarily of salaries and
benefits, general overhead expenses, other operational expenses and income
taxes. Each of these major components is reviewed in more detail in the
following discussion.
Net income for the three months ended March 31, 1998 was $425,000, or $.31 per
share, as compared to $489,000, or $.35 per share, for the comparable period in
1997. The principal factor for the decrease was due to a 7.3% increase in
salaries and benefit expense; a 26.2% increase in furniture and equipment
expense and a 20.1% increase in other expenses.
Return on average assets and return on average equity were .97% and 7.70%,
respectively, for the three months ended March 31, 1998, as compared to 1.18%
and 9.79%, respectively, for the comparable period in 1997.
Net Interest Income
For the three months ended March 31, net interest income was $1.6 million for
1998 and 1997. The net interest margin reflected a decrease to 4.10% for the
three months ended March 31, 1998 from 4.22% for the comparable period in 1997.
Average interest earning assets at March 31, 1998 increased by 3.51% over March
31, 1997.
Average loans outstanding increased from $116.1 million to $117.4 million or
1.12%, for the three months ended March 31, 1998, as compared to the three
months ended March 31, 1997. The outstanding balance of loans at March 31, 1998,
decreased from $119.0 million at December 31, 1997 to $116.1 million at March
31, 1998. A .75% increase in income on loans from $2,407 million at March 31,
1997 to $2,425 million at March 31, 1998 occurred even though the loans
decreased during that period.
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Shown below is a summary of past due and non-accrual loans:
IN THOUSANDS OF DOLLARS
-----------------------
MARCH DECEMBER
31, 1998 31, 1997
-------- --------
Past due and non-accrual:
Days 30 - 89......................................... $ 1,375 $ 1,331
Days 90 plus......................................... 866 628
Non-accrual.......................................... 69 69
-------- --------
$ 2,310 $ 2,028
======== ========
Past due and non-accrual loans increased 15.0% from $2.0 million at December 31,
1997 to $2.3 million at March 31, 1998. These real estate delinquencies mainly
fall into the 60 day and below category. Generally the increase was attributable
to past due loans in both the 30 - 89 day and plus 90 day categories. The
increase specifically was attributable entirely to real estate loans which
became past due during the quarter which are fully secured by adequate real
estate collateral.
Any loans classified for regulatory purposes as loss, doubtful, substandard, or
special mention that have not been disclosed under Industry Guide 3 do not (i)
represent or result from trends or uncertainties which management reasonably
expects will materially impact future operating results, liquidity, or capital
resources, or (ii) represent material credits about which management is aware of
any information which causes management to have serious doubts as to the ability
of such borrowers to comply with the loan repayment terms.
The Corporation adheres to principles provided by Financial Accounting Standards
Board Statement No. 114, "Accounting by Creditors for Impairment of a Loan" -
Refer to Note 5 above for other details.
The following analysis provides a schedule of loan maturities/interest rate
sensitivities. This schedule presents a repricing and maturity analysis as
required by the FFIEC:
IN THOUSANDS
OF DOLLARS
----------
MATURITY AND REPRICING DATA FOR LOANS AND LEASES MARCH 31, 1998
------------------------------------------------ --------------
Closed-end loans secured by first liens on 1-4 family residential
properties with a remaining maturity or repricing frequency of:
(1) Three months or less........................................... $ 1,928
(2) Over three months through 12 months............................ 10,172
(3) Over one year through three years.............................. 30,772
(4) Over three years through five years............................ 1,905
(5) Over five years through 15 years............................... 11,986
(6) Over 15 years.................................................. 2,635
All loans and leases other than closed-end loans secured by first
liens on 1-4 family residential properties with a remaining maturity
or repricing frequency of:
(1) Three months or less........................................... 16,563
(2) Over three months through 12 months............................ 11,917
(3) Over one year through three years.............................. 13,743
(4) Over three years through five years............................ 5,081
(5) Over five years through 15 years............................... 8,346
(6) Over 15 years.................................................. 1,378
--------
Sub-total....................................................... $116,426
Add: non-accrual loans not included above............................. 69
Less: unearned income................................................. 441
--------
Total Loans and Leases.......................................... $116,054
========
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12
Interest income from investment securities reflects a 15.2% increase comparing
$613,000 for the three months ended March 31, 1998, and the $532,000 for the
comparable period of 1997. The average balance of investment securities for the
three months ended March 31, 1998 increased 19.2% to $42.8 million, compared to
the $35.9 million for the same period of 1997.
Total interest expense increased $63,000 or 4.4% for the first three months of
1998, as compared to the first three months of 1997. This increase in interest
expense reflects an increase in interest cost for repurchase agreements
resulting from the 30.3% increase in the average balance of repurchase
agreements when comparing March 31, 1997 to March 31, 1998.
The following table sets forth, for the periods indicated, information
regarding: (1) the total dollar amount of interest income from interest-earning
assets and the resultant average yields; (2) the total dollar amount of interest
expense on interest-bearing liabilities and the resultant average cost; (3) net
interest income; (4) net interest margin; (5) tax equivalent net interest
income; and (6) tax equivalent net interest margin. Information is based on
average daily balances during the indicated periods.
Average Balance Sheet and Rate Analysis
(Dollars in Thousands)
-----------MARCH 1998--------- -----------MARCH 1997---------
---------- ----------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE(1) EXPENSE(2) RATE BALANCE(1) EXPENSE(2) RATE
---------- ---------- ---- ---------- ---------- ----
ASSETS:
Interest bearing deposits with other financial
institutions.................................... $ 4,734 $ 65 5.49% $ 4,297 $ 55 5.12%
Investment securities:
U.S. government securities...................... 29,917 450 6.00% 24,031 366 6.09%
State and municipal obligations (3)............. 11,085 140 7.65% 9,473 128 8.19%
Other securities................................ 1,750 23 5.26% 2,428 38 6.26%
-------- -------- ----- -------- -------- -----
Total Investment Securities....................... $ 42,752 $ 613 5.73% $ 35,932 $ 532 5.92%
Federal funds sold................................ 0 0 0% 3,000 37 4.93%
Consumer.......................................... 8,643 196 9.07% 8,787 204 9.29%
Dealer floor plan................................. 2,139 46 8.60% 1,648 35 8.50%
Mortgage.......................................... 98,973 1,971 7.97% 96,846 1,943 8.03%
Commercial........................................ 5,672 183 12.91% 6,498 190 11.70%
Tax free (3)...................................... 1,980 29 8.88% 2,299 35 9.23%
-------- -------- ----- -------- -------- -----
Total loans....................................... $117,407 $ 2,425 8.27% $116,078 $ 2,407 8.29%
Total interest earning assets..................... 164,893 3,103 7.53% 159,307 3,031 7.61%
-------- -------- ----- -------- -------- -----
Reserve for loan losses........................... $ (913) $ (914)
Cash and due from banks........................... 1,832 1,108
Other assets...................................... 8,704 8,131
-------- --------
Total assets...................................... $174,516 $167,632
======== ========
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13
-----------MARCH 1998--------- -----------MARCH 1997----------
---------- ----------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE(1) EXPENSE(2) RATE BALANCE(1) EXPENSE(2) RATE
---------- ---------- ---- ---------- ---------- ----
LIABILITIES AND CAPITAL:
SUPER NOW deposits................................ $ 19,958 $ 92 1.84% $ 19,216 $ 100 2.08%
IRA............................................... 8,014 101 5.04% 8,080 100 4.95%
Money market deposits............................. 11,622 83 2.86% 12,901 94 2.91%
Savings deposits.................................. 20,474 135 2.64% 21,875 144 2.63%
Time deposits over $100,000....................... 11,009 162 5.89% 12,083 175 5.79%
Other time deposits............................... 45,764 631 5.52% 43,370 601 5.54%
-------- -------- ----- -------- -------- -----
Total interest bearing deposits................... $116,841 $ 1,204 4.12% $117,525 $ 1,214 4.13%
-------- -------- ----- -------- -------- -----
Other borrowed funds.............................. 501 8 6.39% 535 7 5.23%
Long-term borrowings.............................. 1,244 8 2.57% 290 4 5.52%
Repurchase agreements............................. 21,644 279 5.16% 16,609 211 5.08%
-------- -------- ----- -------- -------- -----
Total interest bearing liabilities................ $140,230 $ 1,499 4.28% $134,959 $ 1,436 4.26%
-------- -------- ----- -------- -------- -----
Demand deposits................................... $ 10,986 $ 11,197
Other liabilities................................. 1,230 1,221
Stockholders' equity.............................. 22,070 20,255
-------- --------
Total liabilities and capital..................... $174,516 $167,632
======== ========
NET INTEREST INCOME/NET INTEREST MARGIN (4)...... $ 1,604 3.89% $ 1,595 4.00%
======== ===== ======== =====
TAX EQUIVALENT NET INTEREST INCOME/
NET INTEREST MARGIN (5).......................... $ 1,691 4.11% $ 1,679 4.22%
======== ===== ======== =====
(1) Average volume information was computed using daily averages.
(2) Interest on loans includes fee income.
(3) Yield on tax-exempt obligations has been computed on a tax-equivalent
basis.
(4) Net interest margin is computed by dividing net interest income by total
interest earning assets.
(5) Interest and yield are presented on a tax equivalent basis using 34% for
1998 and 1997.
Provision for Loan Losses
The provision for loan losses is based on management's evaluation of the
allowance for loan losses in relation to the credit risk inherent in the loan
portfolio. In establishing the amount of the provision required, management
considers a variety of factors, including but not limited to, general economic
conditions, volumes of various types of loans, collateral adequacy and potential
losses from significant borrowers. On a monthly basis, the Board of Directors
and the Credit Administration Committee review information regarding specific
loans and the total loan portfolio in general in order to determine the amount
to be charged to the provision for loan losses.
For the three month period ending March 31, 1998 and 1997, the provision for
loan losses was $20,000, compared to the $15,000 for the corresponding period in
1997.
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Non-Interest Income
The following table sets forth, for the periods indicated, the major components
of non-interest income:
THREE MONTHS ENDED
MARCH 31,
---------
1998 1997
---- ----
(Dollars in Thousands)
Service charges and fees.................................. $ 140 $ 133
Trust department income................................... 25 21
Investment securities gain (loss) - net................... 0 0
Other..................................................... 29 14
-------- --------
Total................................................ $ 194 $ 168
======== ========
For the three months ended March 31, 1998, total non-interest income increased
$26,000, to $194,000 compared with $168,000 for the three months ended March 31,
1997. The increase is generally the result of increases in all areas.
Specifically, the more significant increases were attributable to a surcharge
fee on non-Bank customers using the Bank's ATM's which resulted in a $12,400
increase to non-interest income. Additionally, a new fee for customers wishing
to have cancelled checks returned was introduced reflecting an increase of
$3,000.
Non-Interest Expenses
Generally, non-interest expense accounts for the costs of maintaining
facilities, providing salaries and necessary benefits to employees, and general
operating costs such as insurance, supplies, advertising, data processing
services, taxes and other related expenses. Some of the costs and expenses are
variable while others are fixed. To the extent possible, the Company utilizes
budgets and related measures to control variable expenses. The following table
sets forth, for the periods indicated, the major components of non-interest
expenses:
THREE MONTHS ENDED
MARCH 31,
---------
1998 1997
---- ----
(Dollars in Thousands)
Salaries and wages....................................... $ 455 $ 423
Employee benefits........................................ 162 152
Net occupancy expense.................................... 89 94
Furniture and equipment expense.......................... 130 103
FDIC insurance........................................... 4 5
State shares tax......................................... 40 36
Other expense............................................ 333 273
-------- --------
Total............................................... $ 1,213 $ 1,086
======== ========
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Salary and employee benefits expense increased 7.30% due primarily to employee
annual increases and promotions within the Bank as well as increased costs of
employee benefit plans. Similarly, furniture and equipment expense increased
26.21% over 1997 for service on equipment and depreciation on newly acquired
data processing equipment. This equipment acquisition is a result of a
conversion which occurred in the first quarter of 1998.
CCFNB data processing is now being done in-house rather than having a third
party processor. The data processing transition is also satisfying Year 2000
compliance issues that were necessary. Improved flexibility and efficiency are
positive by-products of this conversion.
Other expenses increased 21.98% from $273,000 at March 31, 1997 to $333,000 at
March 31, 1998 mainly due to costs associated with the data processing
conversion. Shown below is a comparison of other expenses for March 31, 1997 to
March 31, 1998:
MARCH 31, MARCH 31, AMOUNT OF
1997 1998 INCREASE
---- ---- --------
Off premise posting......................... $ 41,000 $ 51,000 $ 10,000
Supplies.................................... $ 28,700 $ 36,700 8,000
Third party provider buyout................. $ 0 $ 22,500 22,500
Postage..................................... $ 21,000 $ 25,500 4,500
Legal and professional...................... $ 22,900 $ 26,100 3,200
Debit and ATM card expense.................. $ 17,200 $ 23,800 6,600
--------
$ 54,800
========
The data processing associated expenses include off premise posting which will
no longer be incurred beginning April 1998; supplies, third pary provider buyout
and legal and professional, which consists of back-up professional services in
the event of computer failure. Although the data processing conversion will
effect the profit for 1998 it is anticipated that the savings on not having a
third party provider will offset most of these increased expenses going forward.
Capital
A major strength of a financial institution is a strong capital position. This
capital is very critical as it must provide growth, payment to shareholders, and
absorption of unforeseen losses. The federal regulators provide standards that
must be met. These standards measure "risk-adjusted" assets against different
categories of capital. The "risk-adjusted" assets reflect off balance sheet
items, such as commitments to make loans, and also place balance sheet assets on
a "risk" basis for collectibility. The adjusted assets are measured against Tier
I Capital and Total Qualifying Capital. Tier I Capital is common stockholders'
equity and Tier II Capital includes the allowance for loan losses. Allowance for
loan losses must be lower than or equal to common stockholders' equity to be
eligible for Total Qualifying Capital.
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The Company exceeds all minimum capital requirements as reflected in the
following table:
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
MINIMUM MINIMUM
CALCULATED STANDARD CALCULATED STANDARD
RATIOS RATIOS RATIOS RATIOS
------ ------ ------ ------
Risk Based Ratios:
Tier I Capital to risk-weighted assets.. 20.97% 4.00% 20.98% 4.00%
Total Qualifying Capital to
risk-weighted assets.................. 21.83% 8.00% 21.84% 8.00%
Additionally, certain other ratios also provide capital analysis as follows:
MARCH DECEMBER
31, 1998 31, 1997
-------- --------
Tier I Capital to total assets.............................. 12.69% 13.15%
Tier II Capital to total assets............................. 13.21% 12.63%
Management believes that the Bank's current capital position and liquidity
positions are strong and that its capital position is adequate to support its
operations.
Year 2000
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Bank's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices,
calculate correct accruals, or engage in similar normal business activities.
An assessment of the Bank's software and hardware has revealed those portions
which will be required to be modified or replaced in order to properly utilize
dates beyond December 31, 1999. The Bank presently believes that with
modifications to existing software and conversions to new software, the Year
2000 Issue can be mitigated. However, if such modifications and conversions are
not made, or are not completed timely, the Year 2000 Issue could have a material
impact on the operations of the Bank.
Another consideration is the fact that there can be no guarantee that the
systems of other companies on which the Bank's systems rely will be timely
converted, or that a failure to convert by another company, or a conversion that
is incompatible with the Bank's systems, would not have a material adverse
effect on the Bank. Bancorp management is engaging in due diligence to assure
that these possibilities will not occur. The Bank has determined it has no
exposure to contingencies related to the Year 2000 Issue for its products
offered to it's customers.
The Bank will utilize both internal and external resources to reprogram, or
replace, and test the software for Year 2000 modifications. The Bank plans to
complete the Year 2000 project no later than December 31, 1998. The Bank has
already spent $193,600 and anticipates it will spend $215,450 to complete the
Year 2000 project. These costs are considered manageable by the Bank and are
being funded through operating cash flows. The costs will not have a material
effect on the results of operations in 1998 or beyond.
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17
The time-lines and costs are based on management's best estimates, which were
derived utilizing numerous assumptions of future events, including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material difference include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes and similar uncertainties.
The Corporation and the Bank are aggressively addressing the Year 2000 Issue.
This issue is far-reaching in that it encompasses computer systems, microchips,
anything with time elements, and forces the Bank to ask each vendor, customer,
and third party provider if they are also ready for the millennium, which is
fast approaching.
A Senior Vice President has been given the responsibility for Y2K compliance. A
committee has been selected consisting of Board Members and Officers who have
been meeting for several months addressing this issue.
Letters have been sent to vendors requesting, in writing, their effort to be in
compliance with Y2K. A select group of commercial customers have been sent
letters explaining the Y2K issues and asking them to be certain to address this
very important issue. The Bank has also offered to help with any questions.
Notices are being placed in each Bank lobby alerting the public to this issue.
Also, verbiage will be on each deposit statement concerning the Y2K issue.
A time-line has been created for this project. All letters were mailed by March
15, 1998 and all compliance letters will be in our files by June 30, 1998.
December 31, 1998 is the deadline for compliance on all levels. Testing will
continues until the Bank is assured all critical systems are confirmed to be Y2K
compliant.
Vendors and systems have been placed in priority order as to importance. Most of
the third party vendors that are most crucial have communicated with us stating
they are Y2K compliant and testing on their systems will continue.
Our insurance carrier has been contacted and we are working closely with it to
prudently assess the Bank's needs and take the appropriate steps to protect the
Bank.
Contingency plans have been discussed and will be written on any systems that do
not comply or are questionable as to their compliance.
The Bank will be diligent in its quest for assurance of compliance and will
change vendors, if necessary, to ensure a smooth change to the millennium and
continuity of banking operations and profit growth.
National bank examiners are reviewing all banks for their compliance with these
issues and the Corporation and the Bank welcome these reviews and any assistance
they will provide.
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PART II - Other Information:
Item 1. Legal Proceedings
Management and the Corporation's legal counsel are not aware of any litigation
that would have a material adverse effect on the consolidated financial position
of the Corporation. There are no proceedings pending other than the ordinary
routine litigation incident to the business of the Corporation and its
subsidiary, Columbia County Farmers National Bank. In addition, no material
proceedings are pending or are known to be threatened or contemplated against
the Corporation and the Bank by government authorities.
Item 2. Changes in Securities - Nothing to report.
Item 3. Defaults Upon Senior Securities - Nothing to report.
Item 4. Submission of Matters to a Vote of Security Holders - Nothing to
report.
Item 5. Other Information - Nothing to report.
Item 6. Exhibits and Reports on Form 8-K - Nothing to report.
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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.
CCFNB BANCORP, INC.
(Registrant)
By /s/ Paul E. Reichart
--------------------
Paul E. Reichart
President & CEO
Date: May 11, 1998
By /s/ Virginia D. Kocher
----------------------
Virginia D. Kocher
Treasurer
Date: May 11, 1998
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