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 September 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. 1,375,794 shares
of $1.25 (par) common stock were outstanding as of October 29, 1998.
2
CCFNB BANCORP, INC. AND SUBSIDIARY
SEPTEMBER 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
SEPTEMBER DECEMBER
30, 1998 31, 1997
-------- --------
ASSETS
Cash and due from banks......................................... $ 3,736 $ 4,735
Interest-bearing deposits with other banks...................... 1,439 582
Federal funds sold.............................................. 1,000 0
Investment securities:
Securities to be held to maturity, estimated fair value of
$569 and $726............................................... 565 720
Securities available for sale carried at estimated fair value. 48,209 43,142
Loans, net of unearned income................................... 116,779 119,045
Allowance for loan losses....................................... 939 901
-------- --------
Net loans..................................................... $115,840 $118,144
Premises and equipment.......................................... 5,758 5,146
Other real estate owned......................................... 24 0
Accrued interest receivable..................................... 925 938
Other assets.................................................... 596 459
-------- --------
TOTAL ASSETS............................................... $178,092 $173,866
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing.......................................... $ 11,983 $ 12,138
Interest bearing.............................................. 120,523 115,581
-------- --------
Total Deposits............................................. $132,506 $127,719
Short-term borrowings........................................... 18,948 22,362
Long-term borrowings............................................ 2,292 440
Accrued interest and other expenses............................. 1,140 1,141
Other liabilities............................................... 213 99
-------- --------
TOTAL LIABILITIES.......................................... $155,099 $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............................................... 15,298 14,407
Accumulated other comprehensive income.......................... 328 142
Less treasury stock, at cost, 6,793 shares in 1998 and
1,183 shares in 1997.......................................... (218) (26)
-------- --------
TOTAL STOCKHOLDERS' EQUITY................................. $ 22,993 $ 22,105
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................. $178,092 $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 NINE FOR THE THREE
MONTHS ENDING MONTHS ENDING
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
INTEREST INCOME
Interest and fees on loans:
Taxable....................................... $ 7,130 $ 7,231 $ 2,362 $ 2,457
Tax exempt.................................... 86 112 29 40
Interest and dividends on investment securities:
Taxable interest.............................. 1,445 1,327 491 483
Tax exempt interest........................... 443 377 158 127
Dividends..................................... 55 45 19 15
Interest on federal funds sold.................. 20 102 16 28
Interest on deposits in other banks............. 154 124 49 34
------- ------- ------- -------
TOTAL INTEREST INCOME...................... $ 9,333 $ 9,318 $ 3,124 $ 3,184
------- ------- ------- -------
INTEREST EXPENSE
Interest on deposits............................ $ 3,654 $ 3,675 $ 1,233 $ 1,231
Interest on short-term borrowings............... 804 747 263 284
Interest on long-term borrowings................ 72 12 32 3
------- ------- ------- -------
TOTAL INTEREST EXPENSE..................... $ 4,530 $ 4,434 $ 1,528 $ 1,518
------- ------- ------- -------
Net interest income............................. $ 4,803 $ 4,884 $ 1,596 $ 1,666
Provision for loan losses....................... 59 45 20 15
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES................................. $ 4,744 $ 4,839 $ 1,576 $ 1,651
------- ------- ------- -------
NON-INTEREST INCOME
Service charges and fees........................ $ 447 $ 418 $ 165 $ 148
Trust department income......................... 90 67 27 23
Securities gain (losses) - net.................. 21 0 21 0
Other income.................................... 182 57 62 24
------- ------- ------- -------
TOTAL NON-INTEREST INCOME.................. $ 740 $ 542 $ 275 $ 195
------- ------- ------- -------
NON-INTEREST EXPENSES
Salaries and wages.............................. $ 1,421 $ 1,289 $ 468 $ 438
Pensions and other employee benefits............ 464 448 149 147
Occupancy expense, net.......................... 251 286 76 102
Furniture and equipment expense................. 417 312 147 103
Other operating expenses........................ 1,111 1,004 361 333
------- ------- ------- -------
TOTAL NON-INTEREST EXPENSES................ $ 3,664 $ 3,339 $ 1,201 $ 1,123
------- ------- ------- -------
Income before income taxes...................... $ 1,820 $ 2,042 $ 650 $ 723
Income tax expense.............................. 449 548 160 198
------- ------- ------- -------
NET INCOME.................................. $ 1,371 $ 1,494 $ 490 $ 525
======= ======= ======= =======
NET INCOME PER SHARE............................ $ .99 $ 1.08 $ .36 $ .38
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 NINE MONTHS
ENDING SEPTEMBER 30,
--------------------
1998 1997
---- ----
OPERATING ACTIVITIES
Net income............................................................. $ 1,371 $ 1,494
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses........................................... 59 45
Provision for depreciation and amortization......................... 389 275
Premium amortization on investment securities....................... 64 11
Discount accretion on investment securities......................... (25) (18)
(Gain) loss on sale of investment securities........................ (21) 0
Deferred income taxes (benefit)..................................... (4) 4
(Gain) loss on sale of premises and equipment....................... 0 3
Loss on impairment of bank premises................................. 0 15
(Increase) decrease in accrued interest receivable and other assets. (124) (187)
Increase (decrease) in accrued interest and other expenses
and other liabilities............................................. 25 (1)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES......................... $ 1,734 $ 1,641
-------- --------
INVESTING ACTIVITIES
Proceeds from sales, maturities and redemptions of investment
securities available for sale........................................ $ 21,304 $ 9,984
Proceeds from maturities and redemptions of held to maturity
investment securities................................................ 155 250
Purchase of investment securities available for sale................... (26,111) (17,459)
Net (increase) decrease in loans....................................... 2,221 (1,252)
Purchases of premises and equipment.................................... (1,001) (120)
Proceeds from sale of premises and equipment........................... 0 12
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES............... $ (3,432) $ (8,585)
-------- --------
FINANCING ACTIVITIES
Net increase (decrease) in deposits.................................... $ 4,787 $ (3,493)
Net increase (decrease) in short-term borrowings....................... (3,414) 7,287
Net increase (decrease) in long-term borrowings........................ 1,852 (64)
Proceeds from issuance of common stock................................. 101 106
Acquisition of treasury stock.......................................... (300) (92)
Proceeds from sale of treasury stock................................... 10 (3)
Cash dividends paid.................................................... (480) (481)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES............... $ 2,556 $ 3,260
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. $ 858 $ (3,684)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD....................... 5,317 11,359
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD....................... $ 6,175 $ 7,675
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest............................................................. $ 4,517 $ 4,440
Income taxes......................................................... $ 441 $ 588
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
SEPTEMBER 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 nine month period ended September
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 -
1,379,506 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.
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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...................... 59
Loans charged off..................................... (64)
Recoveries............................................ 43
--------
Balance at September 30, 1998......................... $ 939
========
At September 30, 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 - As of January 1, 1998 the Corporation adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for reporting and display
of total nonowner changes in stockholders' equity. For the
Corporation, total nonowner changes in stockholders' equity includes
net income and unrealized gains and losses on the Corporation's
available-for-sale securities. SFAS No. 130 did not have any effect
on the Corporation's consolidated financial condition or operations.
The following represents changes in stockholders' equity for the
current year:
ACCUMULATED
OTHER
COMMON COMMON COMPREHENSIVE RETAINED COMPREHENSIVE TREASURY
SHARES STOCK SURPLUS INCOME EARNINGS INCOME STOCK TOTAL
------ ----- ------- ------ -------- ------ ----- -----
Balance at January 1, 1998......... 1,382,433 $ 1,728 $ 5,854 $ 0 $14,407 $ 142 $ (26) $22,105
Comprehensive Income:
Net income........................ 0 0 0 1,371 1,371 0 0 1,371
Other comprehensive income, net
of tax:
Change in unrealized gain (loss)
on investment securities
available for sale............. 0 0 0 186 0 186 0 186
-------
TOTAL COMPREHENSIVE INCOME $ 1,557
Issuance of 3,496 shares of common =======
stock under dividend reinvestment
and stock purchase plans......... 3,496 4 98 0 0 0 102
Purchase of 9,539 shares of
treasury stock................... 0 0 0 0 0 (300) (300)
Sale of 453 shares of treasury
stock............................ 0 0 0 0 0 9 9
Retirement of 3,046 shares of
treasury stock................... (3,496) (4) (95) 0 0 99 0
Cash dividends $.348 per share..... 0 0 0 (480) 0 0 (480)
- --------- ------- ------- ------- ------- ------ -------
Balance at September 30, 1998...... 1,382,433 $ 1,728 $ 5,857 $15,298 $ 328 $ (218) $22,993
========= ======= ======= ======= ======= ====== =======
NOTE 7 - 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 NINE MONTHS
--------------------------
ENDED SEPTEMBER 30,
------------------- ---------AT AND FOR THE YEARS ENDED DECEMBER 31,----------
--------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
Income and Expense:
Interest income....................... $ 9,333 $ 9,318 $ 12,498 $ 11,844 $ 11,466 $ 10,459 $ 9,914
Interest expense...................... 4,530 4,434 5,976 5,588 5,557 4,785 4,634
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income................... 4,803 4,884 6,522 6,256 5,909 5,674 5,280
Loan loss provision................... 59 45 60 80 42 160 105
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after loan loss
provision........................... 4,744 4,839 6,462 6,176 5,867 5,514 5,175
Non-interest income................... 740 542 804 762 693 569 568
Non-interest expense.................. 3,664 3,339 4,492 4,450 4,374 3,958 3,763
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes............ 1,820 2,042 2,774 2,488 2,186 2,125 1,980
Income taxes.......................... 449 548 749 664 561 560 497
Change in accounting principle........ 0 0 0 0 0 0 196
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income............................ 1,371 1,494 2,025 1,824 1,625 1,565 1,679
========== ========== ========== ========== ========== ========== ==========
Per Share: (1)
Net income after change in accounting
principle (2)....................... $ .99 $ 1.08 $ 1.47 $ 1.33 $ 1.19 $ 1.35 $ 1.51
Cash dividends paid................... .348 .348 .46 .45 .45 .42 .40
Average shares outstanding............ 1,379,506 1,382,201 1,381,800 1,375,875 1,367,595 1,163,199 1,109,837
Average Balance Sheet:
Loans................................. $ 116,402 $ 116,458 $ 116,771 $ 112,341 $ 111,980 $ 100,628 $ 88,347
Investments........................... 45,676 39,211 40,307 39,248 37,063 41,410 42,083
Other earning assets.................. 3,736 5,585 5,053 3,739 1,727 2,696 3,659
Total assets.......................... 176,609 170,109 171,159 164,512 157,957 151,752 143,096
Deposits.............................. 130,143 129,172 117,086 117,414 116,495 115,071 117,105
Other interest-bearing liabilities.... 22,890 19,280 20,198 14,860 11,766 11,014 12,332
Shareholders' equity.................. 22,272 20,478 20,690 19,512 18,067 13,736 12,739
Balance Sheet Data:
Loans................................. 116,779 116,810 119,045 115,590 111,831 109,800 96,423
Investments........................... 48,774 44,738 43,862 37,407 40,384 39,323 44,542
Other earning assets.................. 2,439 3,207 582 6,856 385 4,174 3,491
Total assets.......................... 178,092 174,924 173,866 170,086 162,066 157,124 152,386
Deposits.............................. 132,506 127,907 127,719 131,400 128,985 126,864 124,023
Other interest-bearing liabilities.... 21,240 24,174 22,802 16,951 12,430 11,910 14,317
Shareholders' equity.................. 22,993 21,746 22,105 20,657 19,512 17,650 13,452
Ratios: (3)
Return on average assets.............. 1.03% 1.17% 1.18% 1.11% 1.03% 1.03% 1.17%
Return on average equity.............. 8.21% 9.73% 9.79% 9.35% 8.99% 11.39% 13.18%
Dividend payout ratio................. 35.01% 32.06% 31.65% 33.95% 34.35% 36.54% 26.44%
Average equity to average assets ratio 12.61% 12.04% 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 nine month period ending September 30 are annualized.
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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 2.4% to $178.1 million at September 30, 1998, from
$173.9 million at December 31, 1997. Net income decreased 6.7% through
September 30, 1998 to $1.4 million, or $.99 per share, compared to $1.5
million, or $1.08 per share for the same nine month period ended September 30,
1997. Loans decreased in 1998 by 1.8% to $116.8 million at September 30, 1998
from $119 million at December 31, 1997.
Results of Operations - For the Nine Months Ended September 30, 1998 and
September 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 nine months ended September 30, 1998 was $1.4 million, or
$.99 per share, as compared to $1.5 million, or $1.08 per share, for the
comparable period in 1997. Total interest income remained substantially
unchanged at $9,333,000 through September 30, 1998 compared to $9,318,000
through September 30, 1997. However, interest expense increased from
$4,434,000 at September 30, 1997 to $4,530,000 at September 30, 1998. The
increase in interest expense was attributable to a 7.6% increase on interest
paid on short-term borrowings and the addition in 1998 of long-term borrowings
reflecting an increase in this category of $60,000.
Non-interest income increased by 36.5% during the first nine months of 1998
compared to the first nine months of 1997. This increase was offset by a 12.1%
increase in non-interest expense from $3.3 million at September 30, 1997 to
$3.7 million at September 30, 1998. Specifics regarding the overall decrease
in income will be explained in the following discussion.
Return on average assets and return on average equity were 1.03% and 8.21%,
respectively, for the nine months ended September 30, 1998, as compared to
1.17% and 9.73%, respectively, for the comparable period in 1997.
Net Interest Income
For the nine months ended September 30, net interest income was $4.8 million
for 1998 and $4.9 million for 1997. The net interest margin reflected a
decrease to 4.09% for the nine months ended September 30, 1998 from 4.23% for
the comparable period in 1997. Average interest earning assets at September
30, 1998 increased by 3.1% over 1997.
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11
Average loans outstanding decreased slightly from $116.46 million to $116.40
million or .05%, for the nine months ended September 30, 1998, as compared to
the nine months ended September 30, 1997. The outstanding balance of loans at
September 30, 1998, decreased from $119 million at December 31, 1997 to $116.8
million at September 30, 1998. A 1.7% decrease in income on loans from $7,343
million at September 30, 1997 to $7,216 million at September 30, 1998 occurred.
Shown below is a summary of past due and non-accrual loans:
IN THOUSANDS OF DOLLARS
-----------------------
SEPTEMBER DECEMBER
Past due and non-accrual: 30, 1998 31, 1997
-------- --------
Days 30 - 89......................................... $ 1,360 $ 1,331
Days 90 plus......................................... 534 628
Non-accrual.......................................... 429 69
-------- --------
$ 2,323 $ 2,028
======== ========
Past due and non-accrual loans increased 15% from $2.0 million at December 31,
1997 to $2.3 million at September 30, 1998. The increase in non-accrual loans
is represented principally by 2 commercial properties which are expected to be
sold with 12 months with no significant principal loss expected to the Bank.
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
----------
SEPTEMBER
MATURITY AND REPRICING DATA FOR LOANS AND LEASES 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........................................... $ 2,372
(2) Over three months through 12 months............................ 16,146
(3) Over one year through three years.............................. 24,456
(4) Over three years through five years............................ 2,642
(5) Over five years through 15 years............................... 9,896
(6) Over 15 years.................................................. 2,674
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........................................... 16,747
(2) Over three months through 12 months............................ 12,815
(3) Over one year through three years.............................. 12,277
(4) Over three years through five years............................ 6,426
(5) Over five years through 15 years............................... 8,245
(6) Over 15 years.................................................. 2,115
--------
Sub-total....................................................... $116,811
Add: non-accrual loans not included above............................. 429
Less: unearned income................................................. 461
--------
Total Loans and Leases.......................................... $116,779
========
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12
Interest income from investment securities reflects a 11.8% increase comparing
$1.9 million for the nine months ended September 30, 1998, and the $1.7 million
for the comparable period of 1997. The average balance of investment
securities for the nine months ended September 30, 1998 increased 16.6% to
$45.7 million, compared to the $39.2 million for the same period of 1997.
Total interest expense increased $96,000 or 2.2% for the first nine months of
1998, as compared to the first nine months of 1997. This increase in interest
expense reflects an increase in interest cost for repurchase agreements
resulting from the 10.8% increase in the average balance of repurchase
agreements when comparing September 30, 1997 to September 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)
---------SEPTEMBER 1998------- --------SEPTEMBER 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.................................... $ 3,736 $ 154 5.50% $ 3,087 $ 124 5.36%
Investment securities:
U.S. government securities...................... 31,043 1,384 5.94% 27,276 1,256 6.14%
State and municipal obligations (3)............. 12,921 483 7.55% 9,498 377 8.02%
Other securities................................ 1,712 76 5.92% 2,437 116 6.35%
-------- -------- ----- -------- -------- -----
Total Investment Securities....................... $ 45,676 $ 1,943 5.67% $ 39,211 $ 1,749 5.95%
Federal funds sold................................ 495 20 5.39% 2,498 102 5.44%
Consumer.......................................... 9,109 616 9.02% 8,655 596 9.18%
Dealer floor plan................................. 2,014 132 8.74% 1,498 96 8.54%
Mortgage.......................................... 97,548 5,955 8.14% 97,429 6,060 8.29%
Commercial........................................ 5,812 427 9.80% 6,355 477 10.01%
Tax free (3)...................................... 1,919 86 9.05% 2,521 112 8.97%
-------- -------- ----- -------- -------- -----
Total loans....................................... $116,402 $ 7,216 8.27% $116,458 $ 7,341 8.40%
Total interest earning assets..................... 166,309 9,333 7.48% 161,254 9,316 7.70%
-------- -------- ----- -------- -------- -----
Reserve for loan losses........................... $ (925) $ (913)
Cash and due from banks........................... 1,931 1,291
Other assets...................................... 9,294 8,477
-------- --------
Total assets...................................... $176,609 $170,109
======== ========
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---------SEPTEMBER 1998------- ---------SEPTEMBER 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................................ $ 20,067 $ 265 1.76% $ 19,541 $ 309 2.11%
IRA............................................... 7,975 307 5.13% 8,148 304 4.97%
Money market deposits............................. 11,870 258 2.90% 12,244 281 3.06%
Savings deposits.................................. 20,751 404 2.60% 21,716 434 2.66%
Time deposits over $100,000....................... 10,871 486 5.96% 11,485 506 5.87%
Other time deposits............................... 46,825 1,934 5.51% 44,136 1,853 5.60%
-------- -------- ----- -------- -------- -----
Total interest bearing deposits................... $118,359 $ 3,654 4.12% $117,270 $ 3,687 4.19%
-------- -------- ----- -------- -------- -----
FHLB.............................................. 7 0 0.00% 0 0 0.00%
Other borrowed funds.............................. 504 21 5.56% 563 22 5.21%
Long-term borrowings.............................. 1,926 72 4.98% 264 12 6.06%
Repurchase agreements............................. 20,453 783 5.10% 18,453 726 5.25%
-------- -------- ----- -------- -------- -----
Total interest bearing liabilities................ $141,249 $ 4,530 4.28% $136,550 $ 4,447 4.34%
-------- -------- ----- -------- -------- -----
Demand deposits................................... $ 11,784 $ 11,902
Other liabilities................................. 1,304 1,179
Stockholders' equity.............................. 22,272 20,478
-------- --------
Total liabilities and capital..................... $176,609 $170,109
======== ========
NET INTEREST INCOME/NET INTEREST MARGIN (4)...... $ 4,803 3.85% $ 4,869 4.03%
======== ===== ======== =====
TAX EQUIVALENT NET INTEREST INCOME/
NET INTEREST MARGIN (5).......................... $ 5,096 4.09% $ 5,121 4.23%
======== ===== ======== =====
(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 nine month period ending September 30, 1998, the provision for loan
losses was $59,000, compared to the $45,000 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:
NINE MONTHS ENDED
SEPTEMBER 30,
-------------
1998 1997
---- ----
(Dollars in Thousands)
Service charges and fees.................................. $ 447 $ 418
Trust department income................................... 90 67
Investment securities gain (loss) - net................... 21 0
Other..................................................... 182 57
-------- --------
Total................................................ $ 740 $ 542
======== ========
For the nine months ended September 30, 1998, total non-interest income
increased $198,000, to $740,000 compared with $542,000 for the nine months
ended September 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
$37,500 increase to non-interest income. Specific increases are as follows,
new fees for customers wishing to have cancelled checks returned was introduced
reflecting a fee increase of $13,000, introduction of a Visa debit card
reflects additional income of $13,350 at September 30, 1998, and gain on sale
of credit cards during the third quarter of 1998 reflects non-interest income
of $15,000.
In addition, gross commissions earned on a result of brokerage and investment
services, which commenced in 1997, totalled $76,450 at September 30, 1998 and
$0 at September 30, 1997. The net income derived after recognition of payroll
and other related expense for this new operation was $16,700 for the first nine
months of 1998 and $0 for the same period in 1997.
Non-Interest Expenses
Generally, non-interest expense accounts for the cost 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:
NINE MONTHS ENDED
-----------------
SEPTEMBER 30,
-------------
1998 1997
---- ----
(Dollars in Thousands)
Salaries and wages....................................... $ 1,421 $ 1,289
Employee benefits........................................ 464 448
Net occupancy expense.................................... 251 286
Furniture and equipment expense.......................... 417 312
FDIC insurance........................................... 12 12
State shares tax......................................... 128 112
Other expense............................................ 971 880
-------- --------
Total............................................... $ 3,664 $ 3,339
======== ========
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Salary and employee benefits expense increased 8.5% 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 $37,300 for the first nine months of
1998 compared to $0 for 1997. Similarly, furniture and equipment expense
increased 33.7% 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
10.7% from $1,004,000 at September 30, 1997 to $1,111,000 at September 30, 1998
mainly due to costs associated with the data processing conversion. Shown
below is a comparison of data processing costs included in other expenses for
September 30, 1997 to September 30, 1998:
AMOUNT OF
SEPTEMBER SEPTEMBER INCREASE/
30, 1998 30, 1997 DECREASE
-------- -------- --------
Off premise posting......................... $ 66 $123 $(57)
Supplies.................................... $111 $ 84 27
Third party provider buyout/Y2K compliance.. $ 68 $ 0 68
Postage..................................... $ 62 $ 69 (7)
Legal and professional...................... $ 84 $ 81 3
Debit and ATM card expense.................. $ 71 $ 56 15
----
$ 49
====
The data processing associated expenses includes off premise posting which has
begun to decrease; supplies; third party 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 of 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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16
The Company exceeds all minimum capital requirements as reflected in the
following table:
SEPTEMBER 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.. 21.07% 4.00% 20.98% 4.00%
Total Qualifying Capital to
risk-weighted assets.................. 21.93% 8.00% 21.84% 8.00%
Additionally, certain other ratios also provide capital analysis as follows:
SEPTEMBER DECEMBER
30, 1998 31, 1997
-------- --------
Tier I Capital to total assets.............................. 12.85% 12.63%
Tier II Capital to total assets............................. 13.38% 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 for the imminent year 2000 readiness are embedded
microchip problems. These microchips could be in such items as water pumps,
sewage pumps, elevators, heat pumps, etc. A survey of all equipment containing
possible microchips has been conducted at all CCFNB locations. Plumbing and
heating vendors have been contacted as well as the telephone service providers.
"White papers" indicating Y2K readiness are being obtained from all providers.
To date one instance has been identified that requires that one telephone
system must be changed during 1999.
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.
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17
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 $205,000 and anticipates it will spend an
additional $45,000 to complete the Year 2000 project. This estimated
expenditure of $250,000 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.
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 quarterly 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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18
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: November 6, 1998
By /s/ VIRGINIA D. KOCHER
-------------------------------
Virginia D. Kocher
Treasurer
Date: November 6, 1998
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