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FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D. C. 20549
Form 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- -
ACT OF 1934
For the quarterly period ended March 31, 2000 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________ FDIC Certificate No. 03440
First Northern Bank of Dixon
(Exact name of Bank as specified in its charter)
California 94-0475380
[State of Incorporation] [I.R.S. Employer Identification No.]
195 North First Street
Dixon, California 95620
[Address of principal executive offices] [Zip Code]
Bank's telephone number, including area code: (707) 678-3041
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
3,244,733 shares of the Bank's common stock, no par value, were outstanding
at March 31, 2000.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED BALANCE SHEETS
ASSETS
March 31, 2000 December 31,
1999
Cash and due from banks $ 19,094,306 $ 19,806,022
Federal funds sold 32,500,000 37,300,000
Investment securities - available for sale 133,881,543 135,451,683
Loans, net of allowance for loan losses of
$7,518,015 at March 31, 2000 and
$7,825,255 at December 31, 1999 166,657,107 162,930,575
Premises and equipment, net 6,229,731 6,031,711
Accrued interest receivable and other assets 9,384,884 9,470,615
---------------- ----------------
TOTAL ASSETS $ 367,747,571 $ 370,990,606
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand $ 85,347,492 $ 86,123,941
Interest-bearing transaction deposits 36,579,999 36,284,409
Savings & MMDA's 100,126,179 102,517,387
Time 110,554,144 110,704,197
---------------- ----------------
Total deposits 332,607,814 335,629,934
Accrued interest payable and other liabilities 2,647,780 3,287,969
---------------- ----------------
TOTAL LIABILITIES 335,255,594 338,917,903
Stockholders' equity
Common stock, no par value; 4,000,000 shares authorized;
3,244,733 shares issued and outstanding in 2000
and 3,092,273 shares issued and outstanding in 1999 25,387,922 23,322,001
Capital surplus 976,850 976,850
Retained earnings 8,115,531 9,513,151
Accumulated other comprehensive loss (1,988,326) (1,739,299)
---------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 32,491,977 32,072,703
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 367,747,571 $ 370,990,606
================ ================
See notes to unaudited condensed financial statements.
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UNAUDITED CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Three months Three months
Ended ended
March 31, 2000 March 31, 1999
Interest Income
Loans $ 3,980,532 $ 3,694,337
Federal funds sold 521,091 277,584
Investment securities
Taxable 1,849,941 1,484,988
Non-taxable 287,882 370,998
------------------ ------------------
Total interest income 6,639,446 5,827,907
Interest Expense
Deposits 2,086,673 1,893,263
Other borrowings 14,488 9,048
------------------ ------------------
Total interest expense 2,101,161 1,902,311
------------------ ------------------
Net interest income 4,538,285 3,925,596
------------------ ------------------
Provision for loan losses - 75,000
Net interest income after
provision for loan losses 4,538,285 3,850,596
------------------ ------------------
Other operating income
Service charges on deposit accounts 293,705 261,761
Gains on securities transactions 10,300 20,496
Other income 352,855 410,296
------------------ ------------------
Total other operating income 656,860 692,553
------------------ ------------------
Other operating expenses
Salaries and employee benefits 2,138,646 2,067,218
Occupancy and equipment 500,040 498,520
Data processing 100,806 97,252
Stationery and supplies 145,063 99,113
Advertising 69,853 44,695
Other Real Estate Expense - 39,705
Other 694,485 647,618
------------------ ------------------
Total other operating expense 3,648,893 3,494,121
------------------ ------------------
Income before income tax expense 1,546,252 1,049,028
Provision for income tax expense 423,812 320,600
------------------ ------------------
Net income $ 1,122,440 $ 728,428
Other Comprehensive Income:
Unrealized loss on available for sale
securities, net of tax effect (249,027) (624,411)
Total Comprehensive Income $ 873,413 $ 104,017
================== ==================
Basic Income per share $ 0.34 $ 0.22
================== ==================
Diluted Income per share $ 0.34 $ 0.22
================== ==================
See notes to unaudited condensed financial statements.
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UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
Three months Three months
Ended ended
March 31, 2000 March 31, 1999
-------------- --------------
Operating Activities
Net Income $ 1,122,440 $ 728,428
Adjustments to reconcile net income to net Cash provided by operating
activities:
Depreciation 199,208 221,610
Provision for loan losses - 75,000
Decrease in accrued interest receivable and other assets 85,731 523,337
(Decrease) increase in accrued interest payable and other liabilities (640,189) 158,289
Net cash provided by operating activities 767,190 1,706,664
Investing Activities
Net decrease in investment securities 1,321,113 2,685,174
Net increase in loans (3,726,532) (487,343)
Purchases of premises and equipment, net (397,228) (107,002)
Net cash (used in) provided by investing activities (2,802,647) 2,090,829
Financing Activities
Net decrease in deposits (3,022,120) (12,366,962)
Cash dividends paid in lieu of fractional shares (5,811) (5,232)
Repurchase of stock (448,328) -
Net cash used in financing activities (3,476,259) (12,372,194)
Net change in cash and cash equivalents (5,511,716) (8,574,701)
Cash and cash equivalents at beginning of period 57,106,022 49,184,700
Cash and cash equivalents at end of period $ 51,594,306 $ 40,609,999
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Supplemental disclosures of cash flow information:
- ------------------------------------------------------------------------------------------------------------------------------------
Cash paid during the period for:
Interest $ 2,101,161 $ 1,902,311
Income Taxes $ - $ -
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Supplemental disclosures of noncash investing and financing activities:
Loans transferred to other real estate $ - $ -
Stock dividend distributed $ 2,514,249 $ 2,055,480
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See notes to unaudited condensed financial statements.
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NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
March 31, 2000 and December 31, 1999
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and notes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. The results of operations for any interim period are
not necessarily indicative of results expected for the full year.
These condensed financial statements should be read in conjunction
with the financial statements and notes thereto contained in the
Bank's Annual Report to shareholders and Form 10-K for the year ended
December 31, 1999.
2. RECLASSIFICATIONS
Certain reclassifications have been made to the 1999 financial
statements to conform with the 2000 presentation.
3. OUTSTANDING SHARES AND EARNINGS PER SHARE
On January 20, 2000, the Board of Directors of the Bank declared a 6%
stock dividend payable as of March 31, 2000. All income per share
amounts have been adjusted to give retroactive effect to the stock
dividend.
Earnings Per Share (EPS)
Basic and diluted earnings per share for the three month periods
ending March 31, 2000 and March 31, 1999 were computed as follows:
Three months
ended March 31
2000 1999
-----------------------------------------------------------------------------
Basic earnings per share:
Net income $ 1,122,440 $ 728,428
-----------------------------------------------------------------------------
Weighted average common shares
outstanding 3,265,549 3,275,226
-----------------------------------------------------------------------------
Basic EPS $ 0.34 $ 0.22
=============================================================================
Diluted earnings per share:
Net income $ 1,122,440 $ 728,428
-----------------------------------------------------------------------------
Denominator:
Weighted average common shares
outstanding 3,265,549 3,275,226
Incremental shares due to dilutive
stock options 22,056 5,007
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3,287,605 3,280,233
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Diluted EPS $ 0.34 $ 0.22
=============================================================================
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4. ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at levels considered
adequate by management to provide for possible loan losses. The
allowance is based on management's assessment of various factors
affecting the loan portfolio, including problem loans, business
conditions and loss experience, and an overall evaluation of the
quality of the underlying collateral. Changes in the allowance
for loan losses during the three months ended March 31, 2000 and 1999
and for the year ended December 31, 1999 were as follows:
Three months ended Year ended
March 31, December 31,
2000 1999 1999
------------- ------------ -----------------
Balance, beginning of period $ 7,825,255 $ 8,144,450 $ 8,144,450
Provision for (recovery of) loan losses - 75,000 (800,000)
Loan charge-offs (323,157) (82) (156,945)
Loan recoveries 15,917 38,111 637,750
------------- ------------ -----------------
Balance, end of period $ 7,518,015 $ 8,257,479 $ 7,825,255
============= ============ =================
5. SUBSEQUENT EVENT
On April 27, 2000, at the Annual Meeting of Shareholders, the
shareholders of the Bank approved the creation of a bank holding
company to be called "First Northern Community Bancorp" to be
effected through a corporate reorganization in which the Bank will
become a wholly-owned subsidiary of First Northern Community
Bancorp.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of the significant changes in
the Unaudited Condensed Balance Sheets and of the significant changes in income
and expenses reported in the Unaudited Condensed Statements of Income and
Comprehensive Income for the three month periods ended March 31, 2000 and 1999.
SUMMARY
The Bank recorded net income of $1,122,000 for the three month period ended
March 31, 2000, representing an increase of $394,000 or 54.1% over $728,000 for
the same period in 1999.
The increase in net income over the three month period ended March 31, 2000
as compared to the same period a year ago, resulted primarily from an increase
in net interest income combined with decreases in the provision for loan losses
and other real estate expense which were partially offset by increases in
salaries and benefits, stationery and supplies, advertising, and other
miscellaneous expense and a decrease in other income.
On January 20, 2000, the Board of Directors of the Bank declared a 6% stock
dividend payable as of March 31, 2000. All income per share amounts have been
adjusted to give retroactive effect to the stock dividend.
CHANGES IN FINANCIAL CONDITION
The asset side of the Unaudited Condensed Balance Sheet showed a $712,000
decrease in cash and due from banks, a $4,800,000 decrease in fed funds sold, a
$1,570,000 decrease in investment securities, a $3,727,000 increase in loans and
a $86,000 decrease in accrued interest receivable and other assets from December
31, 1999 to March 31, 2000. The reason for the decrease in cash and due from
banks was due, for the most part, to decreases in cash and the Federal Reserve
Bank due from account combined with an increase in items in the process of
collection. The decrease in fed funds sold was due, for the most part, to a
decrease in deposits and funding of new loans. The decrease in investment
securities was due to maturities and calls, the proceeds of which were used to
fund new loans. The increase in loans was, for the most part, in real estate
loans.
The liabilities side of the Unaudited Condensed Balance Sheet showed a
decrease in total deposits of $3,022,000 compared to year-end 1999 deposit
totals. The decrease in deposits was due, for the most part, to lower demand,
savings and money market deposit totals. The decrease in deposits is consistent
with historical trends which reflect a seasonal decline in deposits during the
first quarter that is typically associated with the local agricultural industry.
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\
Other liabilities decreased $640,000 from December 31, 1999 to March 31, 2000.
The decrease in other liabilities was due, for the most part, to decreases in
accrued expenses.
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CHANGES IN RESULTS OF OPERATIONS
Interest Income
Interest income on loans for the three month period ended March 31, 2000 is
up 7.8% over the same period for 1999, from $3,694,000 to $3,981,000. The
increase over the three month period ended March 31, 2000 as compared to the
same period a year ago, was due to an increase in average loans combined with a
.62% increase in loan yields.
Interest income on securities for the three month period ended March 31,
2000 is up 15.19% over the same period for 1999, from $1,856,000 to $2,138,000.
The increases are due to an increase in average securities over the three month
period ended March 31, 2000, as compared to the same period a year ago, combined
with a .53% increase in securities yields.
Interest income on fed funds sold for the three month period ended March
31, 2000 is up 87.7% over the same period for 1999 from $278,000 to $521,000.
The increase in fed funds income over the three month period ended March 31,
2000 was due, for the most part, to increases in average fed funds sold combined
with increases in fed funds rates.
Interest Expense
Interest expense on deposits was up 10.2% for the three month period ending
March 31, 2000 over the same period in 1999 from $1,893,000 to $2,087,000. The
increased interest expense over the three month period ended March 31, 2000 was
due to higher deposit rates combined with increased average deposits.
Provision for Loan Losses
The provision for loan losses was down for the three month period ending
March 31, 2000 over the same period in 1999 from $75,000 to $-0-. The decrease
over the three month period ended March 31, 2000 was due to a zero provision for
that period due to improved market conditions and loan quality in the Bank's
loan portfolio. The March 31, 2000 allowance for loan losses of approximately
$7,500,000 is 4.3% of total loans compared to $7,800,000 or 4.6% of total loans
at December 31, 1999.
Other Operating Income
Other operating income was down 5.2% for the three month period ended March
31, 2000 over the same period in 1999. This decrease was primarily due to a
decrease in gains on sales of loans and gains on securities transactions, which
was partially offset by increased service charges on deposit accounts, gains on
sales of OREO properties and debit card fees.
Other Operating Expense
Total other operating expense was up 4.4% for the three month period ending
March 31, 2000 over the same period in 1999 from $3,494,000 to $3,649,000. The
main reason for this increase was a combination of: increases in salaries &
benefits; advertising; and other miscellaneous expenses. The increase in
salaries & benefits was due to increases in the number of employees and
increases in profit sharing and incentive compensation provisions due to
increased income which was partially offset by decreases in commissions for real
estate loans. The increase in advertising was due, for the most part, to timing
differences. The increases in other miscellaneous expenses were due to increased
dues, legal fees, accounting and audit fees and consulting fees.
Asset Quality
The Bank manages asset quality and credit risk by maintaining
diversification in its loan portfolio and through review processes that include
analysis of credit requests and ongoing examination of outstanding loans and
delinquencies, with particular attention to portfolio dynamics and mix. The Bank
strives to identify loans experiencing difficulty early enough to correct the
problems, to record charge-offs promptly based on realistic assessments of
current collateral values, and to maintain an adequate allowance for loan losses
at all times.
It is generally the Bank's policy to discontinue interest accruals once a
loan is past due as to interest or principal payments for a period of ninety
days. When a loan is placed on non-accrual, interest accruals cease and
uncollected accrued interest is reversed and charged against current income.
Payments received on non-accrual loans are applied against principal. A loan may
only be restored to an accruing basis when it again becomes well secured and in
the process of collection or all past due amounts have been collected.
Non-accrual loans amounted to $834,000 at March 31, 2000, and were
comprised of four commercial loans one consumer loan and two agricultural loans.
At December 31, 1999, non-accrual loans amounted to $528,000 and were comprised
of four agricultural loans, and one commercial loan. At March 31, 1999,
non-accrual loans amounted to $1,706,000 and were comprised of one non-farm
non-residential mortgage loans, one commercial loan, one agricultural loan, and
two residential mortgage loans.
At March 31, 2000, the Bank had loans 90 days past due and still accruing
totaling $47,000. Such loans amounted to $2,000 at December 31, 1999 and $-0- at
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March 31, 1999.
At March 31, 2000, the Bank did not have any OREO properties. OREO's
amounted to $-0- at December 31, 1999 and $906,000 at March 31, 1999.
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Liquidity and Capital Resources
To be able to serve our market area, the Bank must maintain proper
liquidity and adequate capital. Liquidity is measured by various ratios, with
the most common being the ratio of loans to deposits. This ratio was 52.4% on
March 31, 2000. In addition, on March 31, 2000 the Bank had the following short
term investments: $32,500,000 in fed funds sold; $14,000,000 in securities due
within one year; and $57,000,000 in securities due in one to five years.
To meet unanticipated funding requirements, the Bank maintains short term
lines of credit with other banks totaling $14,700,000.
Capital adequacy is generally measured by comparing the total of equity
capital and reserve for loan losses to total assets. On December 31, 1999 this
ratio was 10.75% and on March 31, 2000 it was 10.88%. These figures are well
above the levels currently considered adequate by bank regulators.
Year 2000 Compliance
The Bank previously recognized the material nature of the business issues
surrounding computer processing of dates into and beyond the Year 2000 and began
taking corrective action as required pursuant to the interagency statements
issued by the Financial Institutions Examination Council. Management believes
the Bank has completed all of the activities within their control to ensure that
the Bank's systems are Year 2000 compliant.
The Bank's Year 2000 readiness costs were approximately $400,000. The Bank
does not currently expect to apply any further funds to address Year 2000
issues.
The Bank has not experienced any material disruptions of internal computer
systems for software applications due to the start of the Year 2000 nor has it
experienced any problems with the computer systems or software applications of
their third party vendors, suppliers or service providers. The Bank will
continue to monitor these third parties to determine the impact, if any, on the
business of the Bank and the actions either must take, if any, in the event of
non-compliance by any of these third parties. Based on the Bank's assessment of
compliance by third parties there does not appear to be any material business
risk posed by any such non-compliance.
Although the Bank's Year 2000 rollover did not present any material
business disruption, there are some remaining Year 2000 related risks.
Management believes that appropriate actions have been taken to address these
remaining Year 2000 issues and contingency plans are in place to minimize the
financial impact to the Bank. Management, however, cannot be certain that Year
2000 issues affecting customers, suppliers or service providers of the Bank will
not have a material adverse impact on the Bank.
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ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the quantitative and qualitative
disclosures about market risks as of March 31, 2000 from that presented in the
Bank's Annual Report on Form 10-K for the fiscal year ended December 31, 1999.
PART II - OTHER INFORMATION AND SIGNATURES
ITEM 1.
Legal Proceedings
Not Applicable.
ITEM 2.
Changes in Securities
Not Applicable.
ITEM 3.
Defaults upon Senior Securities
Not Applicable.
ITEM 4.
Submission of Matters to a Vote of Security Holders
Not Applicable.
ITEM 5.
Other Information
Not Applicable.
ITEM 6.
Exhibits and Reports on Form 8 - K.
There were no Reports on Form 8-K.
SIGNATURES
FIRST NORTHERN BANK OF DIXON
Date: 5/12/00 By: /s/ Stanley R. Bean
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Stanley R. Bean, Vice President/
Controller
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