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 June 30, 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. 1,376,794 shares of $1.25
(par) common stock were outstanding as of July 24, 1998.
2
CCFNB BANCORP, INC. AND SUBSIDIARY
JUNE 30, 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
JUNE DECEMBER
30, 1998 31, 1997
-------- --------
ASSETS
Cash and due from banks......................................... $ 4,332 $ 4,735
Interest-bearing deposits with other banks...................... 3,718 582
Federal funds sold.............................................. 1,000 0
Investment securities:
Securities to be held to maturity, estimated fair value of
$570 and $726............................................... 565 720
Securities available for sale carried at estimated fair value. 44,859 43,142
Loans, net of unearned income................................... 115,476 119,045
Allowance for loan losses....................................... 920 901
-------- --------
Net loans..................................................... $114,556 $118,144
Premises and equipment.......................................... 5,785 5,146
Other real estate owned......................................... 24 0
Accrued interest receivable..................................... 964 938
Other assets.................................................... 610 459
-------- --------
TOTAL ASSETS............................................... $176,413 $173,866
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing.......................................... $ 11,356 $ 12,138
Interest bearing.............................................. 119,224 115,581
-------- --------
Total Deposits............................................. $130,580 $127,719
Short-term borrowings........................................... 19,730 22,362
Long-term borrowings............................................ 2,294 440
Accrued interest and other expenses............................. 1,086 1,141
Other liabilities............................................... 125 99
-------- --------
TOTAL LIABILITIES.......................................... $153,815 $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......................................................... 5,860 5,854
Retained earnings............................................... 14,968 14,407
Unrealized gain on investment securities available for sale,
net of tax.................................................... 222 142
Less treasury stock, at cost, 5,639 shares in 1998 and
1,183 shares in 1997.......................................... (180) (26)
-------- --------
TOTAL STOCKHOLDERS' EQUITY................................. $ 22,598 $ 22,105
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................. $176,413 $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 SIX FOR THE THREE
MONTHS ENDING MONTHS ENDING
JUNE 30, JUNE 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
INTEREST INCOME
Interest and fees on loans:
Taxable....................................... $ 4,768 $ 4,774 $ 2,372 $ 2,402
Tax exempt.................................... 57 72 28 37
Interest and dividends on investment securities:
Taxable interest.............................. 954 844 486 455
Tax exempt interest........................... 311 250 171 122
Dividends..................................... 10 30 5 15
Interest on federal funds sold.................. 4 74 4 37
Interest on deposits in other banks............. 105 90 40 35
------- ------- ------- -------
TOTAL INTEREST INCOME...................... $ 6,209 $ 6,134 $ 3,106 $ 3,103
------- ------- ------- -------
INTEREST EXPENSE
Interest on deposits............................ $ 2,421 $ 2,444 $ 1,217 $ 1,230
Interest on short-term borrowings............... 541 463 254 245
Interest on long-term borrowings................ 40 9 32 5
------- ------- ------- -------
TOTAL INTEREST EXPENSE..................... $ 3,002 $ 2,916 $ 1,503 $ 1,480
------- ------- ------- -------
Net interest income............................. $ 3,207 $ 3,218 $ 1,603 $ 1,623
Provision for loan losses....................... 39 30 19 15
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES................................. $ 3,168 $ 3,188 $ 1,584 $ 1,608
------- ------- ------- -------
NON-INTEREST INCOME
Service charges and fees........................ $ 282 $ 270 $ 142 $ 137
Trust department income......................... 63 44 38 23
Other income.................................... 120 33 91 19
------- ------- ------- -------
TOTAL NON-INTEREST INCOME.................. $ 465 $ 347 $ 271 $ 179
------- ------- ------- -------
NON-INTEREST EXPENSES
Salaries and wages.............................. $ 953 $ 851 $ 498 $ 428
Pensions and other employee benefits............ 315 301 153 149
Occupancy expense, net.......................... 175 184 86 90
Furniture and equipment expense................. 270 209 140 106
Other operating expenses........................ 750 671 373 357
------- ------- ------- -------
TOTAL NON-INTEREST EXPENSES................ $ 2,463 $ 2,216 $ 1,250 $ 1,130
------- ------- ------- -------
Income before income taxes...................... $ 1,170 $ 1,319 $ 605 $ 657
Income tax expense.............................. 289 350 149 177
------- ------- ------- -------
NET INCOME.................................. $ 881 $ 969 $ 456 $ 480
======= ======= ======= =======
NET INCOME PER SHARE............................ $ .64 $ .70 $ .33 $ .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 SIX MONTHS
ENDING JUNE 30,
1998 1997
---- ----
OPERATING ACTIVITIES
Net income............................................................. $ 881 $ 969
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses........................................... 39 30
Provision for depreciation and amortization......................... 254 183
Premium amortization on investment securities....................... 43 4
Discount accretion on investment securities......................... (16) (12)
Deferred income taxes (benefit)..................................... (4) 4
(Gain) loss on sale of premises and equipment....................... 0 3
Loss on impairment of bank premises................................. 0 9
(Increase) decrease in accrued interest receivable and other assets. (177) (102)
Increase (decrease) in accrued interest and other expenses
and other liabilities............................................. (65) (33)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES......................... $ 955 $ 1,055
-------- --------
INVESTING ACTIVITIES
Proceeds from sales, maturities and redemptions of investment
securities available for sale........................................ $ 14,699 $ 7,195
Proceeds from maturities and redemptions of held to maturity
investment securities................................................ 155 250
Purchase of investment securities available for sale................... (16,322) (10,839)
Net (increase) decrease in loans....................................... 3,525 (939)
Purchases of premises and equipment.................................... (894) (94)
Proceeds from sale of premises and equipment........................... 0 12
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES............... $ 1,163 $ (4,415)
-------- --------
FINANCING ACTIVITIES
Net increase (decrease) in deposits.................................... $ 2,861 $ (2,580)
Net increase (decrease) in short-term borrowings....................... (2,632) 3,235
Net increase (decrease) in long-term borrowings........................ 1,854 (47)
Proceeds from issuance of common stock................................. 72 74
Acquisition of treasury stock.......................................... (230) (61)
Proceeds from sale of treasury stock................................... 10 0
Cash dividends paid.................................................... (320) (321)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES............... $ 1,615 $ 300
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. $ 3,733 $ (3,060)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD....................... 5,317 11,359
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD....................... $ 9,050 $ 8,299
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest............................................................. $ 3,014 $ 2,939
Income taxes......................................................... $ 296 $ 414
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
JUNE 30, 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 six month period ended June 30, 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 - 1,381,062
shares and 1997 - 1,382,094 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...................... 39
Loans charged off..................................... 48
Recoveries............................................ 28
--------
Balance at June 30, 1998.............................. $ 920
========
At July 24, 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 SIX MONTHS
-------------------------
ENDED JUNE 30, ---------AT AND FOR THE YEARS ENDED DECEMBER 31,----------
-------------- ---------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
Income and Expense:
Interest income....................... $ 6,209 $ 6,134 $ 12,498 $ 11,844 $ 11,466 $ 10,459 $ 9,914
Interest expense...................... 3,002 2,916 5,976 5,588 5,557 4,785 4,634
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income................... 3,207 3,218 6,522 6,256 5,909 5,674 5,280
Loan loss provision................... 39 30 60 80 42 160 105
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after loan loss
provision........................... 3,168 3,188 6,462 6,176 5,867 5,514 5,175
Non-interest income................... 465 347 804 762 693 569 568
Non-interest expense.................. 2,463 2,216 4,492 4,450 4,374 3,958 3,763
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes............ 1,170 1,319 2,774 2,488 2,186 2,125 1,980
Income taxes.......................... 289 350 749 664 561 560 497
Change in accounting principle........ 0 0 0 0 0 0 196
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income............................ 881 969 2,025 1,824 1,625 1,565 1,679
========== ========== ========== ========== ========== ========== ==========
Per Share: (1)
Net income after change in accounting
principle (2)....................... $ .64 $ .70 $ 1.47 $ 1.33 $ 1.19 $ 1.35 $ 1.51
Cash dividends paid................... .289 .232 .46 .45 .45 .42 .40
Average shares outstanding............ 1,376,794 1,374,159 1,381,800 1,375,875 1,367,595 1,163,199 1,109,837
Average Balance Sheet:
Loans................................. $ 116,746 $ 116,428 $ 116,771 $ 112,341 $ 111,980 $ 100,628 $ 88,347
Investments........................... 44,884 37,743 40,307 39,248 37,063 41,410 42,083
Other earning assets.................. 4,072 6,189 5,053 3,739 1,727 2,696 3,659
Total assets.......................... 175,580 169,009 171,159 164,512 157,957 151,752 143,096
Deposits.............................. 129,221 129,371 117,086 117,414 116,495 115,071 117,105
Other interest-bearing liabilities.... 22,838 18,168 20,198 14,860 11,766 11,014 12,332
Shareholders' equity.................. 22,247 20,306 20,690 19,512 18,067 13,736 12,739
Balance Sheet Data:
Loans................................. 115,476 116,495 119,045 115,590 111,831 109,800 96,423
Investments........................... 45,424 40,705 43,862 37,407 40,384 39,323 44,542
Other earning assets.................. 4,718 3,831 582 6,856 385 4,174 3,491
Total assets.......................... 176,413 171,255 173,866 170,086 162,066 157,124 152,386
Deposits.............................. 130,580 128,820 127,719 131,400 128,985 126,864 124,023
Other interest-bearing liabilities.... 22,024 20,139 22,802 16,951 12,430 11,910 14,317
Shareholders' equity.................. 22,598 21,251 22,105 20,657 19,512 17,650 13,452
Ratios: (3)
Return on average assets.............. 1.00% 1.15% 1.18% 1.11% 1.03% 1.03% 1.17%
Return on average equity.............. 7.92% 9.54% 9.79% 9.35% 8.99% 11.39% 13.18%
Dividend payout ratio................. 36.32% 32.90% 31.65% 33.95% 34.35% 36.54% 26.44%
Average equity to average assets ratio 12.67% 12.01% 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 six month period ending June 30 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 1.4% to $176.4 million at June 30, 1998, from $173.9
million at December 31, 1997. Net income decreased 9.1% through June 30, 1998 to
$881,000, or $.64 per share, compared to $969,000, or $.70 per share for the
same six month period ended June 30, 1997. Loans decreased in 1998 by 2.9% to
$115.5 million at June 30, 1998 from $119 million at December 31, 1997.
Results of Operations - For the Six Months Ended June 30, 1998 and June 30,
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 six months ended June 30, 1998 was $881,000, or $.64 per
share, as compared to $969,000, or $.70 per share, for the comparable period in
1997. The principal factor for the decrease was due to a 10.1% increase in
salaries and benefit expense; a 29.2% increase in furniture and equipment
expense and a 11.8% increase in other expenses offset by a net increase in
non-interest income of 34%.
Return on average assets and return on average equity were 1.00% and 7.92%,
respectively, for the six months ended June 30, 1998, as compared to 1.15% and
9.54%, respectively, for the comparable period in 1997.
Net Interest Income
For the six months ended June 30, net interest income was $3.2 million for 1998
and 1997. The net interest margin reflected a decrease to 4.10% for the six
months ended June 30, 1998 from 4.22% for the comparable period in 1997. Average
interest earning assets at June 30, 1998 increased by 3.33% over 1997.
Average loans outstanding increased from $116.4 million to $116.7 million or
.3%, for the six months ended June 30, 1998, as compared to the six months ended
June 30, 1997. The outstanding balance of loans at June 30, 1998, decreased from
$119 million at December 31, 1997 to $115.5 million at June 30, 1998. A .4%
decrease in income on loans from $4,846 million at June 30, 1997 to $4,825
million at June 30, 1998 occurred.
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Shown below is a summary of past due and non-accrual loans:
IN THOUSANDS OF DOLLARS
-----------------------
JUNE DECEMBER
30, 1998 31, 1997
-------- --------
Past due and non-accrual:
Days 30 - 89......................................... $ 725 $ 1,331
Days 90 plus......................................... 638 628
Non-accrual.......................................... 219 69
-------- --------
$ 1,582 $ 2,028
======== ========
Past due and non-accrual loans decreased 20% from $2.0 million at December 31,
1997 to $1.6 million at June 30, 1998.
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 JUNE 30, 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........................................... $ 2,732
(2) Over three months through 12 months............................ 12,543
(3) Over one year through three years.............................. 26,730
(4) Over three years through five years............................ 2,745
(5) Over five years through 15 years............................... 10,917
(6) Over 15 years.................................................. 2,663
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........................................... 18,077
(2) Over three months through 12 months............................ 11,144
(3) Over one year through three years.............................. 12,210
(4) Over three years through five years............................ 6,326
(5) Over five years through 15 years............................... 8,072
(6) Over 15 years.................................................. 1,557
--------
Sub-total....................................................... $115,716
Add: non-accrual loans not included above............................. 219
Less: unearned income................................................. 459
--------
Total Loans and Leases.......................................... $115,476
========
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12
Interest income from investment securities reflects a 18.2% increase comparing
$1.3 million for the six months ended June 30, 1998, and the $1.1 million for
the comparable period of 1997. The average balance of investment securities for
the six months ended June 30, 1998 increased 19.1% to $44.9 million, compared to
the $37.7 million for the same period of 1997.
Total interest expense increased $86,000 or 3.4% for the first six months of
1998, as compared to the first six months of 1997. This increase in interest
expense reflects an increase in interest cost for repurchase agreements
resulting from the 18.9% increase in the average balance of repurchase
agreements when comparing June 30, 1997 to June 30, 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)
------------JUNE 1998--------- ------------JUNE 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.................................... $ 3,834 $ 105 5.48% $ 3,438 $ 90 5.24%
Investment securities:
U.S. government securities...................... 30,662 913 5.96% 25,913 796 6.14%
State and municipal obligations (3)............. 12,404 311 7.60% 9,396 251 8.09%
Other securities................................ 1,818 51 5.61% 2,434 77 6.33%
-------- -------- ------ -------- -------- ------
Total Investment Securities....................... $ 44,884 $ 1,275 5.68% $ 37,743 $ 1,124 5.96%
Federal funds sold................................ 238 6 5.04% 2,751 74 5.38%
Consumer.......................................... 8,879 402 9.06% 8,727 398 9.12%
Dealer floor plan................................. 2,194 95 8.66% 1,677 71 8.47%
Mortgage.......................................... 98,081 3,995 8.15% 97,106 3,992 8.22%
Commercial........................................ 5,676 276 9.73% 6,479 313 9.66%
Tax free (3)...................................... 1,916 57 9.01% 2,439 72 8.94%
-------- -------- ------ -------- -------- ------
Total loans....................................... $116,746 $ 4,825 8.27% $116,428 $ 4,846 8.32%
Total interest earning assets..................... 165,702 6,211 7.50% 160,360 6,134 7.65%
-------- -------- ------ -------- -------- ------
Reserve for loan losses........................... $ (920) $ (913)
Cash and due from banks........................... 1,672 1,224
Other assets...................................... 9,126 8,338
-------- --------
Total assets...................................... $175,580 $169,009
======== ========
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13
------------JUNE 1998--------- ------------JUNE 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................................ $ 20,068 $ 178 1.77% $ 19,429 $ 203 2.09%
IRA............................................... 8,070 206 5.11% 8,181 203 4.96%
Money market deposits............................. 11,754 171 2.91% 12,591 184 2.92%
Savings deposits.................................. 20,685 270 2.61% 21,812 289 2.65%
Time deposits over $100,000....................... 10,901 323 5.93% 11,737 342 5.83%
Other time deposits............................... 46,313 1,273 5.50% 43,882 1,223 5.57%
-------- -------- ------ -------- -------- ------
Total interest bearing deposits................... $117,791 $ 2,421 4.11% $117,632 $ 2,444 4.16%
-------- -------- ------ -------- -------- ------
FHLB.............................................. 11 0 0.00% 0 0 0.00%
Other borrowed funds.............................. 527 14 5.31% 591 15 5.08%
Long-term borrowings.............................. 1,739 40 4.60% 275 8 5.82%
Repurchase agreements............................. 20,572 527 5.12% 17,302 449 5.19%
-------- -------- ------ -------- -------- ------
Total interest bearing liabilities................ $140,640 $ 3,002 4.27% $135,800 $ 2,916 4.29%
-------- -------- ------ -------- -------- ------
Demand deposits................................... $ 11,430 $ 11,739
Other liabilities................................. 1,263 1,164
Stockholders' equity.............................. 22,247 20,306
-------- --------
Total liabilities and capital..................... $175,580 $169,009
======== ========
NET INTEREST INCOME/NET INTEREST MARGIN (4)...... $ 3,209 3.87% $ 3,218 4.01%
======== ===== ======== =====
TAX EQUIVALENT NET INTEREST INCOME/
NET INTEREST MARGIN (5).......................... $ 3,399 4.10% $ 3,384 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 six month period ending June 30, 1998, the provision for loan losses was
$39,000, compared to the $30,000 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:
SIX MONTHS ENDED
JUNE 30,
--------
1998 1997
---- ----
(Dollars in Thousands)
Service charges and fees.................................. $ 282 $ 270
Trust department income................................... 63 44
Investment securities gain (loss) - net................... 0 0
Other..................................................... 120 33
-------- --------
Total................................................ $ 465 $ 347
======== ========
For the six months ended June 30, 1998, total non-interest income increased
$118,000, to $465,000 compared with $347,000 for the six months ended June 30,
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 $25,300
increase to non-interest income. Additionally, a new fee for customers wishing
to have cancelled checks returned was introduced reflecting an increase of
$8,000.
Gross commissions earned on a result of brokerage and investment services, which
commenced in 1997, totalled $55,000 at June 30, 1998 and $0 at June 30, 1997.
The net income derived after recognition of payroll and other related expense
for this new operation was $13,000 for the first six months of 1998 and $0 for
the same period in 1997.
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:
SIX MONTHS ENDED
JUNE 30,
--------
1998 1997
---- ----
(Dollars in Thousands)
Salaries and wages....................................... $ 953 $ 851
Employee benefits........................................ 315 301
Net occupancy expense.................................... 175 184
Furniture and equipment expense.......................... 270 209
FDIC insurance........................................... 8 8
State shares tax......................................... 84 74
Other expense............................................ 658 589
-------- --------
Total............................................... $ 2,463 $ 2,216
======== ========
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Salary and employee benefits expense increased 10.1% due primarily to employee
annual increases and promotions within the Bank as well as increased costs of
employee benefit plans. Additionally, a commission relationship with brokerage
and investment service reflected costs of $29,600 for the first six months of
1998 compared to $0 for 1997. Similarly, furniture and equipment expense
increased 29.2% over 1997 for service on equipment and depreciation on newly
acquired data processing equipment. This equipment acquisition is a result of a
conversion which began 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 will also satisfy Year 2000
compliance issues that are necessary. Improved flexibility and efficiency are
positive by-products of this conversion.
Other expenses including F.D.I.C. Insurance and State Shares Tax increased 11.8%
from $671,000 at June 30, 1997 to $750,000 at June 30, 1998 mainly due to costs
associated with the data processing conversion. Shown below is a comparison of
data processing associated other expenses for June 30, 1997 to June 30, 1998:
AMOUNT OF
JUNE 30, JUNE 30, INCREASE/
1998 1997 DECREASE
---- ---- --------
Off premise posting......................... $69 $82 $(13)
Supplies.................................... $79 $56 23
Third party provider buyout/Y2K compliance.. $45 $ 0 45
Postage..................................... $44 $47 (3)
Legal and professional...................... $53 $48 5
Debit and ATM card expense.................. $46 $39 7
----
$ 64
====
The data processing associated expenses includes off premise posting which has
begun to decrease 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. Postage decrease is
attributable to checks no longer being returned to customers beginning in
February 1998.
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:
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
MINIMUM MINIMUM
CALCULATED STANDARD CALCULATED STANDARD
RATIOS RATIOS RATIOS RATIOS
------ ------ ------ ------
Risk Based Ratios:
Tier I Capital to risk-weighted assets.. 21.15% 4.00% 20.98% 4.00%
Total Qualifying Capital to
risk-weighted assets.................. 22.01% 8.00% 21.84% 8.00%
Additionally, certain other ratios also provide capital analysis as follows:
JUNE DECEMBER
30, 1998 31, 1997
-------- --------
Tier I Capital to total assets.............................. 12.81% 12.63%
Tier II Capital to total assets............................. 13.33% 13.15%
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 its 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 approximately $200,000 and anticipates it will spend $244,900 to
complete the Year 2000 project. This estimated expenditure of $244,900 is over a
three year period and includes equipment, Y2K software upgrades, technical
support and staff time. 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 differences 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 have been placed in each Bank lobby alerting the public to this issue.
Also, verbiage has been placed 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 compliance letters were received by June 30, 1998. December 31,
1998 is the deadline for compliance on all levels. Testing will continue 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. The
third party vendors that are most crucial have communicated with us stating they
are Y2K compliant and testing on their systems is continuing.
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: August 11, 1998
By /s/ Virginia D. Kocher
---------------------------------
Virginia D. Kocher
Treasurer
Date: August 11, 1998
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