U.S. SECURITIES AND EXCHANGE COMMISSION
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 September 30, 2000
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to _____________
Commission File No.____________
First National Community Bancorp, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Pennsylvania 23-2900790
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
102 E. Drinker St. Dunmore, PA 18512
(Address of Principal Executive Offices)
(717) 346-7667
(Registrant's Telephone Number, Including Area Code)
-------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check whether the registrant: (1) has 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
registrant was required to file such reports), and (2) has been subject to such
filing requirements 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:
Common Stock, $1.25 par value
(Title of Class)
2,506,247 shares
(Outstanding at October 16, 2000)
FIRST NATIONAL COMMUNITY BANCORP, INC.
INDEX
Page No.
Part I - Consolidated Financial Statements
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition
September 30, 2000 and December 31, 1999 1
Consolidated Statements of Income
Three Months Ended September 30, 2000 and 1999
YTD Ended September 30, 2000 and 1999 2
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2000 and 1999 3-4
Consolidated Statements of Changes in Stockholders' Equity
Nine Months Ended September 30, 2000 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-18
Part II - Other Information: 19
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures 20
(ii)
FIRST NATIONAL COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
Sept. 30, Dec. 31,
2000 1999
(UNAUDITED) (AUDITED)
----------- ---------
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 12,022 $ 15,971
Federal funds sold 5,000 0
-------- --------
Total cash and cash equivalents 17,022 15,971
Interest-bearing balances with
financial institutions 3,559 2,874
Securities:
Available-for-sale, at fair value 142,419 136,393
Held-to-maturity, at cost
(fair value $2,004 on Sept. 30, 2000 and
$1,809 on December 31, 1999) 2,302 2,199
Federal Reserve Bank and FHLB stock, at cost 5,033 7,936
Net loans 385,293 359,244
Bank premises and equipment 5,572 4,825
Other assets 10,814 10,921
-------- --------
Total Assets $572,014 $540,363
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand - non-interest bearing $ 41,727 $ 42,535
Interest bearing demand 82,214 64,483
Savings 45,248 43,502
Time ($100,000 and over) 73,873 70,931
Other time 200,826 189,675
-------- --------
Total deposits 443,888 411,126
Borrowed funds 80,604 88,173
Other liabilities 4,988 4,009
-------- --------
Total Liabilities $529,480 $503,308
-------- --------
Shareholders' equity:
Common Stock, $1.25 par value,
Authorized: 20,000,000 shares at
Sept. 30, 2000,
and 5,000,000 shares at
December 31, 1999;
Issued and outstanding:
2,506,247 shares at Sept. 30, 2000
and 2,493,507 shares at December 31, 1999
$ 3,133 $ 3,117
Additional Paid-in Capital 10,215 9,841
Retained Earnings 31,766 28,349
Accumulated Other Comprehensive Income/(Loss) (2,580) (4,252)
-------- --------
Total shareholders' equity $ 42,534 $ 37,055
-------- --------
Total Liabilities and Shareholders' Equity $572,014 $540,363
======== ========
Note: The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to financial statements
(1)
FIRST NATIONAL COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands, except per share amounts)
Three Months Ending Year-to-Date
------------------------ ---------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
--------- --------- --------- ---------
Interest Income:
Loans $ 8,390 $ 7,287 $ 24,153 $ 21,492
Balances with banks 61 36 154 103
Investments 2,498 2,122 7,624 6,223
Federal Funds Sold 170 22 185 98
------- ------- -------- --------
Total interest income 11,119 9,467 32,116 27,916
------- ------- -------- --------
Interest Expense:
Deposits 5,086 3,955 13,978 11,784
Borrowed Funds 1,260 1,028 3,966 3,068
------- ------- -------- --------
Total interest expense 6,346 4,983 17,944 14,852
------- ------- -------- --------
Net Interest Income
before Loan Loss Provision 4,773 4,484 14,172 13,064
Provision for loan losses 180 180 540 540
------- ------- -------- --------
Net interest income 4,593 4,304 13,632 12,524
------- ------- -------- --------
Other Income:
Service charges 273 220 750 618
Other Income 133 100 368 339
Gain (Loss) on sale of:
Securities (23) (16) (11) 197
------- ------- -------- --------
Total other income 383 304 1,107 1,154
------- ------- -------- --------
Other expenses:
Salaries & benefits 1,504 1,418 4,386 4,063
Occupancy & equipment 497 464 1,482 1,331
Other 941 895 2,761 2,563
------- ------- -------- --------
Total other expenses 2,942 2,777 8,629 7,957
------- ------- -------- --------
Income before income taxes 2,034 1,831 6,110 5,721
Income tax expense 474 454 1,368 1,394
------- ------- -------- -------
NET INCOME $ 1,560 $ 1,377 $ 4,742 $ 4,327
======= ======= ======== =======
Basic earnings per share (1)$ 0.62 $ 0.57 $ 1.90 $ 1.80
======= ======= ======== =======
Weighted average number
of shares (1) 2,506,247 2,402,809 2,500,746 2,399,872
========= ========= ========= =========
See notes to financial statements
(2)
FIRST NATIONAL COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
Sept. 30, Sept. 30,
2000 1999
--------- ---------
(Dollars in thousands)
INCREASE (DECREASE) IN CASH EQUIVALENTS:
Cash Flows From Operating Activities:
Interest Received $ 31,397 $ 27,416
Fees & Commissions Received 1,118 957
Interest Paid (17,297) (14,894)
Income Taxes Paid (1,678) (1,498)
Cash Paid to Suppliers & Employees (7,485) (8,406)
-------- ---------
Net Cash Provided (Used) by Operating
Activities $ 6,055 $ 3,575
-------- ---------
Cash Flows from Investing Activities:
Securities available for sale:
Proceeds from Maturities $ 0 $ 1,500
Proceeds from Sales prior to maturity 39,414 20,306
Proceeds from Calls prior to maturity 12,254 15,117
Purchases (52,179) (52,421)
Securities held to maturity:
Proceeds from Calls prior to maturity 0 249
Purchases 0 (1,622)
Net (Increase) Decrease in
Interest-Bearing Bank Balances (685) (296)
Net (Increase) Decrease in Loans to Customers (26,664) (34,246)
Capital Expenditures (1,401) (728)
-------- --------
Net Cash Provided (Used) by Investing
Activities $(29,261) $(52,141)
-------- --------
Cash Flows from Financing Activities:
Net Increase (Decrease) in Demand Deposits,
Money Market Demand, NOW Accounts,
and Savings Accounts $ 18,669 $ 17,727
Net Increase in Certificates of Deposit 14,093 11,545
Net Increase (Decrease) in Borrowed Funds (7,570) 19,186
Net Proceeds from Issuance of Common Stock
Through Dividend Reinvestment 390 364
Dividends Paid (1,325) (1,128)
-------- --------
Net Cash Provided (Used) by Financing
Activities $ 24,257 $ 47,694
-------- --------
Net Increase (Decrease) in Cash and
Cash Equivalents $ 1,051 $ (872)
Cash & Cash Equivalents at Beginning of Year $ 15,971 $ 13,459
-------- --------
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 17,022 $ 12,587
======== ========
(Continued)
(3)
FIRST NATIONAL COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Sept. 30, Sept. 30,
2000 1999
--------- ---------
(Dollars in thousands)
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net Income $ 4,742 $ 4,327
-------- --------
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Amortization (Accretion), Net (190) (31)
Depreciation 653 581
Provision for Probable Credit Losses 540 540
Loss (Gain) on Sale of Investment Securities 11 (197)
Increase (Decrease) in Taxes Payable (309) (104)
Decrease (Increase) in Interest Receivable (529) (469)
Increase (Decrease) in Interest Payable 646 (42)
Decrease (Increase) in Prepaid Expenses
and Other Assets (151) (1,895)
Increase (Decrease) in Accrued Expenses
and Other Liabilities 642 865
-------- --------
Total Adjustments $ 1,313 $ (752)
-------- --------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES $ 6,055 $ 3,575
======== ========
See notes to financial statements
(4)
FIRST NATIONAL COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
For The Nine Months Ended September 30, 2000
(In thousands, except share data)
(UNAUDITED)
ACCUM-
ULATED
OTHER
COMP-
COMP- REHEN-
REHEN- COMMON STOCK ADD'L SIVE
SIVE -------------------- PAID-IN RETAINED INCOME
INCOME SHARES AMOUNT CAPITAL EARNINGS (LOSS) TOTAL
-------- ------------ --------- --------- ---------- --------- -------
BALANCES, DECEMBER 31, 1999 2,493,507 $3,117 $9,841 $28,349 $(4,252) $37,055
Comprehensive Income:
Net income for the period 4,742 4,742 4,742
Other comprehensive income, net
of tax:
Unrealized gain on securities
available-for-sale, net of
deferred income taxes of $862 1,661
Reclassification adjustment 11
------
Total other comprehensive
income, net of tax 1,672 1,672 1,672
------
Comprehensive Income 6,414
Issuance of Common Stock through
Dividend Reinvestment 12,740 16 374 390
Cash dividends paid, $0.53 per share (1,325) (1,325)
--------- --------- ------- --------- ------- -------
BALANCES, SEPTEMBER 30, 2000 2,506,247 $3,133 $10,215 $31,766 $(2,580) $42,534
--------- --------- ------- --------- ------- -------
See notes to financial statements
(5)
FIRST NATIONAL COMMUNITY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) The accounting and financial reporting policies of First National
Community Bancorp, Inc. and its subsidiary conform to generally accepted
accounting principles and to general practice within the banking industry.
The consolidated statements include the accounts of First National
Community Bancorp, Inc. and its wholly owned subsidiary, First National
Community Bank (Bank) including its subsidiary, FNCB Realty, Inc.
(collectively, Company). All material intercompany accounts and
transactions have been eliminated in consolidation. The accompanying
interim financial statements are unaudited. In management's opinion, the
consolidated financial statements reflect a fair presentation of the
consolidated financial position of First National Community Bancorp, Inc.
and subsidiary, and the results of its operations and its cash flows for
the interim periods presented, in conformity with generally accepted
accounting principles.
These interim financial statements should be read in conjunction with
the audited financial statements and footnote disclosures in the Bank's
Annual Report to Shareholders for the fiscal year ended December 31, 1999.
(2) Basic earnings per share have been computed by dividing net income
(the numerator) by the weighted average number of common shares (the
denominator) for the period. Such shares amounted to 2,506,247 and
2,402,809 for the periods ending September 30, 2000 and 1999, respectively.
(6)
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The consolidated financial review of First National Community Bancorp, Inc. (the
"company") provides a comparison of the performance of the company for the
periods ended September 30, 2000 and 1999. The financial information presented
should be reviewed in conjunction with the consolidated financial statements and
accompanying notes appearing elsewhere in this report.
Background
First National Community Bancorp, Inc. (the company) is a Pennsylvania
Corporation, incorporated in 1997 and is registered as a bank holding
company under the Bank Holding Company Act of 1956, as amended. The company
became an active bank holding company on July 1, 1998 when it assumed
ownership of First National Community Bank (the bank). The bank is a
wholly-owned subsidiary of the company.
The company's primary activity consists of owning and operating the
bank, which provides the customary retail and commercial banking services
to individuals and businesses. The bank provides practically all of the
company's earnings as a result of its banking services. The company
operates 11 full-service branch banking offices in its principal market
area in Lackawanna and Luzerne Counties. At September 30, 2000, the company
had 175 full-time equivalent employees.
The bank was established as a national banking association in 1910 as
"The First National Bank of Dunmore." Based upon shareholder approval
received at a Special Shareholders' Meeting held October 27, 1987, the bank
changed its name to "First National Community Bank" effective March 1,
1988. The bank's operations are conducted from offices located in
Lackawanna and Luzerne Counties, Pennsylvania:
- the Main Office in Dunmore
- the downtown Scranton Office established in 1980
- the Dickson City Office opened in December 1984
- the Fashion Mall Office,Scranton/Carbondale Highway opened in July 1988
- the Wilkes-Barre Office which opened in July 1993
- the Pittston Office which opened in April 1995
- the Kingston Office which opened in August 1996
- the Exeter Office which opened in November 1998
- the Daleville Office which opened in April 2000
- the Plains Office which opened in June 2000
- the Back Mountain Office which opened in October 2000.
(7)
The bank provides the usual commercial banking services to individuals
and businesses, including a wide variety of loan and deposit instruments.
As a result of the bank's partnership with INVEST, our customers are able
to access alternative products such as mutual funds, bonds, equities and
annuities directly from our INVEST representatives.
During 1996, FNCB Realty Inc. was formed as a wholly owned subsidiary
of the Bank to manage, operate and liquidate properties acquired through
foreclosure.
Summary:
Net income for the nine months ended September 30, 2000 amounted to
$4,742,000, an increase of $415,000 or 10% compared to the same period of
the previous year. This increase can be attributed to the $1,108,000
improvement in net interest income. Earnings from securities sales
decreased $208,000. Non-interest expenses increased $672,000, or 8%, over
the same period of last year due primarily to costs associated with two new
community offices. Operating income for the same period, after excluding
the effect of asset sales and loan loss provisions, increased $623,000 or
13%.
RESULTS OF OPERATIONS
Net Interest Income:
The Company's primary source of revenue is net interest income which
totaled $14,172,000 and $13,064,000 for the first nine months of 2000 and
1999, respectively. Year to date net interest margins (tax equivalent)
decreased eight basis points from 3.80% reported in 1999 to 3.72% comprised
of a twenty-nine basis point increase in the yield earned on earning assets
and a forty-four basis point increase in the cost of interest-bearing
liabilities.
Earning assets increased $34 million to $553 million during the first
nine months of 2000 and now total 96.7% of total assets, comparable to the
year-end level of 96.1%.
(8)
Yield/Cost Analysis
The following tables set forth certain information relating to the
Company's Statement of Financial Condition and reflect the weighted average
yield on assets and weighted average costs of liabilities for the periods
indicated. Such yields and costs are derived by dividing the annualized
income or expense by the weighted average balance of assets or liabilities,
respectively, for the periods shown:
Nine-months ended September 30, 2000
------------------------------------
Average Yield/
Balance Interest Cost
--------- ---------- ------
(Dollars in thousands)
Assets:
Interest-earning assets:
Loans (taxable) $369,106 $23,610 8.48%
Loans (tax-free) (1) 11,195 543 9.68
Investment securities (taxable) 113,974 5,891 6.89
Investment securities (tax-free)(1) 42,476 1,733 8.24
Time deposits with banks and
federal funds sold 6,909 339 6.52
-------- ------- ----
Total interest-earning assets 543,660 32,116 8.13%
------- ----
Non-interest earning assets 19,094
--------
Total Assets $562,754
========
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Deposits $386,858 $13,978 4.84%
Borrowed funds 88,804 3,966 5.89
-------- ------- ----
Total interest-bearing liabilities 475,662 17,944 5.04%
------- ----
Other liabilities and
shareholders' equity 87,092
--------
Total Liabilities and
Shareholders' Equity $562,754
========
Net interest income/rate spread $14,172 3.09%
Net yield on average interest-
earning assets 3.72%
Interest-earning assets as a
percentage of interest-
bearing liabilities 114%
(1) Yields on tax-exempt loans and investment securities have been computed on
a tax equivalent basis.
(9)
Nine-months ended September 30, 1999
--------------------------------------
Average Yield/
Balance Interest Cost
---------- ---------- ------
(Dollars in thousands)
Assets:
Interest-earning assets:
Loans (taxable) $337,998 $20,980 8.23%
Loans (tax-free) (1) 11,140 512 9.19
Investment securities (taxable) 98,728 4,740 6.40
Investment securities (tax-free) (1) 36,728 1,483 8.16
Time deposits with banks and
federal funds sold 5,162 201 5.17
-------- ------- ----
Total interest-earning assets 489,756 27,916 7.84%
------- ----
Non-interest earning assets 20,511
--------
Total Assets $510,267
========
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Deposits $357,434 $11,784 4.41%
Borrowed funds 72,778 3,068 5.56
-------- ------- ----
Total interest-bearing liabilities 430,212 14,852 4.60%
-------
Other liabilities and
shareholders' equity 80,055
--------
Total Liabilities and
Shareholders' Equity $510,267
========
Net interest income/rate spread $13,064 3.24%
Net yield on average interest-
earning assets 3.80%
Interest-earning assets as a
percentage of interest-
bearing liabilities 114%
(1) Yields on tax-exempt loans and investment securities have been computed on
a tax equivalent basis.
(10)
Rate Volume Analysis
The table below sets forth certain information regarding the changes
in the components of net interest income for the periods indicated. For
each category of interest earning asset and interest bearing liability,
information is provided on changes attributed to: (1) changes in rate
(change in rate multiplied by current volume); (2) changes in volume
(change in volume multiplied by old rate); (3) the total. The net change
attributable to the combined impact of volume and rate has been allocated
proportionately to the change due to volume and the change due to rate.
Period Ended September 30,
(Dollars in thousands)
2000 vs 1999
Increase (Decrease)
Due to
---------------------
Rate Volume Total
------ ------ ------
Loans (taxable) $ 660 $1,971 $2,631
Loans (tax-free) 27 3 30
Investment securities (taxable) 418 733 1,151
Investment securities (tax-free) 18 232 250
Time deposits with banks and
federal funds sold 71 67 138
------ ------ ------
Total interest income $1,194 $3,006 $4,200
------ ------ ------
Deposits $1,316 $ 878 $2,194
Borrowed funds 222 676 898
------ ------ ------
Total interest expense $1,538 $1,554 $3,092
------ ------ ------
Net change in net interest income $ (344) $1,452 $1,108
====== ====== ======
Period Ended September 30,
(Dollars in thousands)
1999 vs 1998
Increase (Decrease)
Due to
---------------------
Rate Volume Total
----- ------ ------
Loans (taxable) $ (895) $3,579 $2,684
Loans (tax-free) (4) (69) (73)
Investment securities (taxable) (82) 299 217
Investment securities (tax-free) (149) 253 104
Time deposits with banks and
federal funds sold (23) (121) (144)
------- ------ ------
Total interest income $(1,153) $3,941 $2,788
------- ------ ------
Deposits $ (689) $1,155 $ 466
Borrowed funds (152) 914 762
------- ------ ------
Total interest expense $ (841) $2,069 $1,228
------- ------ ------
Net change in net interest income $ (312) $1,872 $1,560
======= ====== ======
(11)
Other Income and Expenses:
Other income in the first nine months of 2000 decreased $47,000 in
comparison to the same period of 1999. This decrease can be attributed
primarily to a $208,000 decrease in the gain on the sale of securities.
Excluding income from asset sales, other income increased $161,000 or 17%,
during the first nine months of 2000 as compared to the same period of last
year. Income from service charges increased $132,000, or 21%, in comparison
to the same period of last year while other fee income increased $29,000,
or 9%. New products as well as a larger deposit base contributed to the
increases.
Other expenses increased $672,000 or 8% for the period ended September
30, 2000 compared to the same period of the previous year. Salaries and
Benefits costs account for a majority of the increase, adding $323,000, or
8% in comparison to the first nine months of 1999. Occupancy and equipment
costs rose 11% while other operating expenses increased $198,000, or 8%.
The majority of the cost increases can be attributed to two new community
offices.
Other Comprehensive Income:
The Company's other comprehensive income includes unrealized holding
gains (losses) on securities which it has classified as available-for-sale
in accordance with FASB 115, "Accounting for Certain Investments in Debt
and Equity Securities."
Provision for Income Taxes:
The provision for income taxes is calculated based on annualized
taxable income. The provision for income taxes differs from the amount of
income tax determined applying the applicable U.S. statutory federal income
tax rate to pre-tax income from continuing operations as a result of the
following differences:
2000 1999
------ ------
Provision at statutory rate $2,090 $1,970
Add (Deduct):
Tax effect of non-taxable interest income (774) (678)
Non-deductible interest expense 116 94
Other items, net (64) 8
------ ------
Income tax expense $1,368 $1,394
====== ======
(12)
Securities:
Carrying amounts and approximate fair value of investment securities
are summarized as follows:
September 30, 2000 December 31, 1999
--------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- -------
(Dollars in thousands)
U.S. Treasury securities and
obligations of U.S.
government agencies $ 19,041 $ 18,915 $ 20,785 $ 20,629
Obligations of state &
political subdivisions 43,008 42,836 39,097 38,863
Mortgage-backed securities 81,190 81,190 77,763 77,763
Corporate debt securities 1,482 1,482 937 937
Equity securities 5,033 5,033 7,946 7,946
-------- -------- -------- --------
Total $149,754 $149,456 $146,528 $146,138
======== ======== ======== ========
The following summarizes the amortized cost, approximate fair value,
gross unrealized holding gains, and gross unrealized holding losses at
September 30, 2000 of the Company's Investment Securities classified as
available-for-sale:
September 30, 2000
(Dollars in thousands)
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
--------- ---------- ---------- --------
U.S. Treasury securities and
obligations of U.S.
government agencies: $ 18,415 $ 18 $ 488 $ 17,945
Obligations of state and
political subdivisions: 42,759 461 1,418 41,802
Mortgage-backed securities: 83,618 269 2,697 81,190
Corporate debt securities: 1,536 7 61 1,482
Equity securities: 5,033 0 0 5,033
-------- ---- ------ --------
Total $151,361 $755 $4,664 $147,452
======== ==== ====== ========
(13)
The following summarizes the amortized cost, approximate fair value,
gross unrealized holding gains, and gross unrealized holding losses at
September 30, 2000 of the Company's Investment Securities classified as
held-to-maturity:
September 30, 2000
(Dollars in thousands)
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
--------- ---------- ---------- ------
U.S. Treasury securities and
obligations of U.S.
government agencies: $1,096 $ 0 $126 $ 970
Obligations of state and
political subdivisions: 1,206 0 172 1,034
Mortgage-backed securities: 0 0 0 0
Corporate debt securities: 0 0 0 0
Equity securities: 0 0 0 0
------ ---- ---- ------
Total $2,302 $ 0 $298 $2,004
====== ==== ==== ======
The following table shows the amortized cost and approximate fair
value of the company's debt securities at September 30, 2000 using
contractual maturities. Expected maturities will differ from contractual
maturity because issuers may have the right to call or prepay obligations
with or without call or prepayment penalties.
Available-for-sale Held-to-maturity
---------------------- ----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ------- --------- ------
(Dollars in Thousands) (Dollars in Thousands)
Amounts maturing in:
One year or less $ 498 $ 497 $ 0 $ 0
After one year through
five years 2,999 2,976 0 0
After five years through
ten years 12,502 12,371 0 0
After ten years 46,711 45,385 2,302 2,004
Mortgage-backed securities 83,618 81,190 0 0
-------- -------- ------ ------
Total $146,328 $142,419 $2,302 $2,004
======== ======== ====== ======
Gross proceeds from the sale of investment securities for the periods
ended September 30, 2000 and 1999 were $39,413,606 and $20,305,784
respectively with the gross realized gains being $60,347 and $253,641
respectively, and gross realized losses being $69,313 and $56,982,
respectively.
At September 30, 2000 and 1999, investment securities with a carrying
amount of $82,836,182 and $83,051,488 respectively, were pledged as
collateral to secure public deposits and for other purposes.
(14)
Loans:
The following table sets forth detailed information concerning the
composition of the company's loan portfolio as of the dates specified:
September 30, 2000 December 31, 1999
Amount % Amount %
-------- ----- -------- ----
(Dollars in thousands)
Real estate loans, secured by residential
properties $ 95,610 24.5 $ 95,339 26.2
Real estate loans, secured by nonfarm,
nonresidential properties 148,815 38.1 134,690 37.0
Commercial & industrial loans 72,349 18.6 61,337 16.9
Loans to individuals for household,
family and other personal expenditures 64,138 16.4 65,075 17.9
Loans to state and political subdivisions 9,013 2.3 7,389 2.0
All other loans, including overdrafts 248 0.1 128 0.0
-------- ----- -------- -----
Total Gross Loans $390,173 100.0 $363,958 100.0
Less: Allow. for Loan Losses (4,880) (4,714)
-------- --------
Net Loans $385,293 $359,244
======== ========
The following table sets forth certain information with respect to the
company's allowance for loan losses and charge-offs:
Period Ended
Sept. 30, Dec 31,
2000 1999
--------- -------
(Dollars in thousands)
Balance, January 1 $4,714 $4,283
Recoveries Credited 92 267
Losses Charged 466 856
Provision for Loan Losses 540 1,020
------ ------
Balance at End of Period $4,880 $4,714
====== ======
(15)
The following table presents information about the company's
non-performing assets for the periods indicated:
Sept. 30, 2000 Dec 31, 1999
-------------- ------------
(Dollars in thousands)
Nonaccrual loans
Impaired $ 0 $ 0
Other 901 288
Loans past due 90 days or more
and still accruing 309 498
------ -----
Total non-performing loans 1,210 786
Other Real Estate Owned 75 0
------ -----
Total non-performing assets $1,285 $ 786
====== =====
Sept. 30, 2000 Dec 31, 1999
-------------- ------------
Non-performing loans as a
percentage of gross loans 0.3% 0.2%
==== ====
Non-performing assets as a
percentage of total assets 0.2% 0.1%
==== ====
Non-performing assets are comprised of non-accrual loans and loans
past due 90 days or more and still accruing, and other real estate owned.
Loans are placed in nonaccrual status when management believes that the
collection of interest or principal is doubtful, or generally when a
default of interest or principal has existed for 90 days or more, unless
such loan is fully secured and in the process of collection. When interest
accrual is discontinued, interest credited to income in the current year is
reversed and interest accrued in prior years is charged against the
allowance for credit losses. Any payments received are applied, first to
the outstanding loan amounts, then to the recovery of any charged-off loan
amounts. Any excess is treated as a recovery of lost interest. The increase
in nonaccrual loans is comprised of five credits which are adequately
secured by mortgages or UCC's on the property. Any loss recognized on these
loans is expected to be minimal.
Other real estate consists of property acquired through foreclosure.
The property is carried at the lower of cost or the estimated fair value
based on an independent appraisal.
Provision for Credit Losses:
The provision for credit losses varies from year to year based on
management's evaluation of the adequacy of the allowance for credit losses
in relation to the risks inherent in the loan portfolio. In its evaluation,
management considers credit quality, changes in loan volume, composition of
the loan portfolio, past experience, delinquency trends, and the economic
condition. Consideration is also given to
(16)
examinations performed by regulatory authorities and the Company's
independent accountants. A monthly provision of $60,000 was credited to the
allowance for loan losses during the first nine months of 2000 and 1999,
respectively. The ratio of the loan loss reserve to total loans at
September 30, 2000 and 1999 was 1.25% and 1.18%, respectively.
Asset/Liability Management, Interest Rate Sensitivity and Inflation
The major objectives of the company's asset and liability management
are to (1) manage exposure to changes in the interest rate environment to
achieve a neutral interest sensitivity position within reasonable ranges,
(2) ensure adequate liquidity and funding, (3) maintain a strong capital
base, and (4) maximize net interest income opportunities. First National
Community Bank manages these objectives through its Senior Management and
Asset and Liability Management Committees. Members of the committees meet
regularly to develop balance sheet strategies affecting the future level of
net interest income, liquidity and capital. Items that are considered in
asset and liability management include balance sheet forecasts, the
economic environment, the anticipated direction of interest rates and the
Bank's earnings sensitivity to changes in these rates.
The company analyzes its interest sensitivity position to manage the
risk associated with interest rate movements through the use of gap
analysis and simulation modeling. Because of the limitations of the gap
reports, the bank uses simulation modeling to project future net interest
income streams incorporating the current "gap" position, the forecasted
balance sheet mix, and the anticipated spread relationships between market
rates and bank products under a variety of interest rate scenarios.
Economic conditions affect financial institutions, as they do other
businesses, in a number of ways. Rising inflation affects all businesses
through increased operating costs but affects banks primarily through the
manner in which they manage their interest sensitive assets and liabilities
in a rising rate environment. Economic recession can also have a material
effect on financial institutions as the assets and liabilities affected by
a decrease in interest rates must be managed in a way that will maximize
the largest component of a bank's income, that being net interest income.
Recessionary periods may also tend to decrease borrowing needs and increase
the uncertainty inherent in the borrowers' ability to pay previously
advanced loans. Additionally, reinvestment of investment portfolio
maturities can pose a problem as attractive rates are not as available.
Management closely monitors the interest rate risk of the balance sheet and
the credit risk inherent in the loan portfolio in order to minimize the
effects of fluctuations caused by changes in general economic conditions.
Liquidity
The term liquidity refers to the ability of the company to generate
sufficient amounts of cash to meet its cash-flow needs. Liquidity is
required to fulfill the borrowing needs of the bank's credit customers and
the withdrawal and maturity requirements of its deposit customers, as well
as to meet other financial commitments.
(17)
The short-term liquidity position of the company is strong as
evidenced by $17,022,000 in cash and due from banks and $2,667,000 in
interest-bearing balances with banks maturing within one year. A secondary
source of liquidity is provided by the investment portfolio with $1,451,000
or 1% of the portfolio maturing or expected to be called within one year
and expected cash flow from principal reductions approximating an
additional $6,000,000.
The company has relied primarily on its retail deposits as a source of
funds. The bank is primarily a seller of Federal funds to invest excess
cash; however, the bank can also borrow in the Federal Funds market to meet
temporary liquidity needs. Other sources of potential liquidity include
repurchase agreements, Federal Home Loan Bank advances and the Federal
Reserve Discount Window.
Capital Management
A strong capital base is essential to the continued growth and
profitability of the company and in that regard the maintenance of
appropriate levels of capital is a management priority. The company's
principal capital planning goals are to provide an adequate return to
shareholders while retaining a sufficient base from which to provide for
future growth, while at the same time complying with all regulatory
standards. As more fully described in Note 12 to the financial statements,
regulatory authorities have prescribed specified minimum capital ratios as
guidelines for determining capital adequacy to help insure the safety and
soundness of financial institutions.
Total stockholders' equity increased $5,479,000 or 15% during the
first nine months of 2000 comprised of an increase in retained earnings in
the amount of $3,417,000 after paying cash dividends, $390,000 from stock
issued through Dividend Reinvestment and a $1,672,000 increase in the
market value of our securities available-for-sale. During the same period
of 1999, total stockholders' equity decreased $492,000, or 1%, comprised of
an increase in retained earnings of $3,198,000, after paying cash dividends
and $364,000 from stock issued through Dividend Reinvestment offset by a
$4,054,000 decrease in the market value of our securities
available-for-sale. The total dividend payout during the first nine months
of 2000 and 1999 represents $.53 per share and $.47 per share,
respectively. Excluding the impact due to securities valuation, increases
in core equity amounted to $3,807,000 and $3,562,000, respectively.
The Board of Governors of the Federal Reserve System and other various
regulatory agencies have specified guidelines for purposes of evaluating a
bank's capital adequacy. Currently, banks must maintain a leverage ratio of
core capital to total assets at a prescribed level, namely 3%. In addition,
bank regulators have issued risk-based capital guidelines. Under such
guidelines, minimum ratios of core capital and total qualifying capital as
a percentage of risk-weighted assets and certain off-balance sheet items of
4% and 8% are required. As of September 30, 2000, First National Community
Bank met all capital requirements with a leverage ratio of 7.81% and core
capital and total risk-based capital ratios of 10.91% and 12.09%,
respectively.
(18)
Part II Other Information
Item 1 - Legal Proceeding
The Bank is not involved in any material pending legal proceedings,
other than routine litigation incidental to the business.
Item 2 - Changes in Securities
None
Item 3 - Defaults upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8 - K
None
(19)
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Registrant: FIRST NATIONAL COMMUNITY BANCORP, INC
Date: October 19, 2000 /s/ J. David Lombardi
---------------------
J. David Lombardi, President/
Chief Executive Officer
Date: October 19, 2000 /s/ William Lance
-----------------
William Lance, Treasurer/
Principal Financial Officer
(20)