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 March 31, 2001
[ ] 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)
2,524,606 shares
(Outstanding at April 19, 2000)
FIRST NATIONAL COMMUNITY BANCORP, INC.
INDEX
Page No.
Part I - Consolidated Financial Statements
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition
March 31, 2001 and December 31, 2000 1
Consolidated Statements of Income
Three Months Ended March 31, 2001 and 2000
YTD Ended March 31, 2001 and 2000 2
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2001 and 2000 3-4
Consolidated Statements of Changes in Stockholders' Equity
Three Months Ended March 31, 2001 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)
March 31, Dec. 31,
2001 2000
(UNAUDITED) (AUDITED)
----------- ---------
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 10,366 $ 12,854
Federal funds sold 16,400 6,950
-------- --------
Total cash and cash equivalents 26,766 19,804
Interest-bearing balances with
financial institutions 3,755 3,359
Securities:
Available-for-sale, at fair value 162,613 144,956
Held-to-maturity, at cost
(fair value $1,745 on March 31, 2001
and $2,204 on December 31, 2000) 1,818 2,337
Federal Reserve Bank and FHLB stock, at cost 5,023 5,023
Net loans 402,736 393,125
Bank premises and equipment 5,760 5,905
Other assets 9,496 9,343
-------- --------
Total Assets $617,967 $583,852
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand - non-interest bearing $ 43,106 $ 44,544
Interest bearing demand 91,183 83,463
Savings 44,299 42,846
Time ($100,000 and over) 84,341 75,824
Other time 218,715 213,741
-------- --------
Total deposits 481,644 460,418
Borrowed funds 80,948 70,908
Other liabilities 6,786 5,842
-------- --------
Total Liabilities $569,378 $537,168
Shareholders' equity:
Common Stock, $1.25 par value,
Authorized: 20,000,000 shares at
March 31, 2001, and December 31, 2000;
Issued and outstanding: 2,524,606 shares
at March 31, 2001 and 2,516,872 shares
at December 31, 2000 $ 3,156 $ 3,146
Additional Paid-in Capital 10,697 10,491
Retained Earnings 33,294 32,167
Accumulated Other Comprehensive Income 1,442 880
-------- --------
Total shareholders' equity $ 48,589 $ 46,684
-------- --------
Total Liabilities and Shareholders' Equity $617,967 $583,852
======== ========
Note: The balance sheet at December 31, 2000 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
---------------------- ---------------------
March 31, March 31, March 31, March 31,
2001 2000 2001 2000
--------- --------- --------- ---------
Interest Income:
Loans $ 8,513 $ 7,594 $ 8,513 $ 7,594
Balances with banks 61 46 61 46
Investments 2,671 2,520 2,671 2,520
Federal Funds Sold 132 11 132 11
------- ------- ------- -------
Total interest income 11,377 10,171 11,377 10,171
------- ------- ------- -------
Interest Expense:
Deposits 5,502 4,248 5,502 4,248
Borrowed Funds 1,135 1,324 1,135 1,324
------- ------- ------- -------
Total interest expense 6,637 5,572 6,637 5,572
------- ------- ------- -------
Net Interest Income
before Loan Loss Provision 4,740 4,599 4,740 4,599
Provision for loan losses 180 180 180 180
------- ------- ------- -------
Net interest income 4,560 4,419 4,560 4,419
------- ------- ------- -------
Other Income:
Service charges 242 217 242 217
Other Income 226 119 226 119
Gain (Loss) on sale of:
Securities 194 (10) 194 (10)
------- ------- ------- -------
Total other income 662 326 662 326
------- ------- ------- -------
Other expenses:
Salaries & benefits 1,562 1,446 1,562 1,446
Occupancy & equipment 320 268 320 268
Other 1,243 1,094 1,243 1,094
------- ------- ------- -------
Total other expenses 3,125 2,808 3,125 2,808
------- ------- ------- -------
Income before income taxes 2,097 1,937 2,097 1,937
Income tax expense 442 413 442 413
------- ------- ------- -------
NET INCOME $ 1,655 $ 1,524 $ 1,655 $ 1,524
======= ======= ======= =======
Basic earnings per share $ 0.66 $ 0.61 $ 0.66 $ 0.61
======= ======= ======= =======
Diluted earnings per share $ 0.64 $ 0.61 $ 0.64 $ 0.61
======= ======= ======= =======
Weighted average number
of shares 2,518,333 2,494,741 2,518,333 2,494,741
========= ========= ========= =========
See notes to financial statements
(2)
FIRST NATIONAL COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
March 31, March 31,
2001 2000
--------- ---------
(Dollars in thousands)
INCREASE (DECREASE) IN CASH EQUIVALENTS:
Cash Flows From Operating Activities:
Interest Received $ 11,100 $ 9,699
Fees & Commissions Received 468 336
Interest Paid (6,327) (5,646)
Income Taxes Paid (20) (53)
Cash Paid to Suppliers & Employees (2,863) (2,626)
-------- -------
Net Cash Provided (Used) by Operating
Activities $ 2,358 $ 1,710
-------- -------
Cash Flows from Investing Activities:
Securities available for sale:
Proceeds from Maturities $ 0 $ 0
Proceeds from Sales prior to maturity 17,285 5,971
Proceeds from Calls prior to maturity 4,973 2,066
Purchases (38,583) (17,864)
Securities held to maturity:
Proceeds from Calls prior to maturity 274 0
Purchases 0 0
Net (Increase) Decrease in Interest-Bearing Bank Balances (396) 0
Net (Increase) Decrease in Loans to Customers (9,791) (14,349)
Capital Expenditures (110) (336)
-------- --------
Net Cash Provided (Used) by Investing
Activities $(26,348) $(24,512)
-------- --------
Cash Flows from Financing Activities:
Net Increase (Decrease) in Demand Deposits,
Money Market Demand, NOW Accounts,
and Savings Accounts $ 7,734 $ 7,395
Net Increase in Certificates of Deposit 13,490 2,869
Net Increase (Decrease) in Borrowed Funds 10,040 6,926
Net Proceeds from Issuance of Common Stock
Through Dividend Reinvestment 216 216
Dividends Paid (528) (423)
-------- --------
Net Cash Provided (Used) by Financing
Activities $ 30,952 $ 16,983
-------- --------
Net Increase (Decrease) in Cash and
Cash Equivalents $ 6,962 $ (5,819)
Cash & Cash Equivalents at Beginning of Year $ 19,804 $ 15,971
-------- --------
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 26,766 $ 10,152
======== ========
(Continued)
(3)
FIRST NATIONAL COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
2001 2000
-------- --------
(Dollars in thousands)
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net Income $ 1,655 $ 1,524
-------- --------
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Amortization (Accretion), Net (40) (54)
Depreciation 255 205
Provision for Probable Credit Losses 180 180
Loss (Gain) on Sale of Investment Securities (194) 10
Increase (Decrease) in Taxes Payable 420 360
Decrease (Increase) in Interest Receivable (236) (418)
Increase (Decrease) in Interest Payable 309 (74)
Decrease (Increase) in Prepaid Expenses
and Other Assets (206) (198)
Increase (Decrease) in Accrued Expenses
and Other Liabilities 215 175
-------- --------
Total Adjustments $ 703 $ 186
-------- --------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES $ 2,358 $ 1,710
======== ========
See notes to financial statements
(4)
FIRST NATIONAL COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
For The Three Months Ended March 31, 2001
(In thousands, except share data)
(UNAUDITED)
ACCUM-
ULATED
OTHER
COMP-
COMP REHEN-
PREHEN- COMMON STOCK ADD'L SIVE
SIVE ------------------- PAID-IN RETAINED INCOME/
INCOME SHARES AMOUNT CAPITAL EARNINGS (LOSS) TOTAL
--------- --------- -------- --------- -------- ------- -------
BALANCES, DECEMBER 31, 2000 2,516,872 $3,146 $10,491 $32,167 $ 880 $46,684
Comprehensive Income:
Net income for the period $ 1,655 1,655 1,655
Other comprehensive income, net
of tax:
Unrealized gain on securities
available-for-sale, net of
deferred income taxes of $290 368
Reclassification adjustment 194
-------
Total other comprehensive
income, net of tax 562 562 562
-------
Comprehensive Income $ 2,217
Issuance of Common Stock through
Dividend Reinvestment 7,734 10 206 216
Cash dividends paid, $0.21 per share (528) (528)
---------- ------ ------- ------- ------ -------
BALANCES, MARCH 31, 2001 2,524,606 $3,156 $10,697 $33,294 $1,442 $48,589
---------- ------ ------- ------- ------ -------
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, 2000.
(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 2,518,333 and 2,494,741 for the periods
ending March 31, 2001 and 2000, respectively.
Diluted earnings per share have been computed by dividing net income (the
numerator) by the weighted average number of common shares and options
outstanding (the denominator) for the period. Such shares amounted to 2,567,333
and 2,494,741 for the periods ending March 31, 2001 and 2000, 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 March 31, 2001 and 2000. 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 financial 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). On November 2, 2000, the Federal
Reserve Bank of Philadelphia approved the company's application to change its
status to a financial holding company as a complement to the company's strategic
objective. 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, Pennsylvania. At March 31, 2001, the company had 189
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:
Office Date Opened
------ -----------
Main October 1910
Scranton September 1980
Dickson City December 1984
Fashion Mall July 1988
Wilkes-Barre July 1993
Pittston Plaza April 1995
Kingston August 1996
Exeter November 1998
Daleville April 2000
Plains June 2000
Back Mountain 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 three months ended March 31, 2001 amounted to
$1,655,000, an increase of $131,000 or 9% compared to the same period of the
previous year. This increase can be attributed to the $141,000 improvement in
net interest income and earnings from securities sales which increased $204,000.
Non-interest expenses increased $317,000, or 11%, over the same period of last
year due primarily to costs associated with three new community offices.
Operating income for the same period, after excluding the effect of securities
sales and loan loss provisions, decreased $73,000 or 4%.
RESULTS OF OPERATIONS Net Interest Income:
The Company's primary source of revenue is net interest income which
totaled $4,740,000 and $4,599,000 for the first three months of 2001 and 2000,
respectively. Year to date net interest margins (tax equivalent) decreased
nineteen basis points from 3.73% reported in 2000 to 3.54% comprised of a
twenty-three basis point increase in the yield earned on earning assets and a
forty-six basis point increase in the cost of interest-bearing liabilities. The
decision of the Federal Reserve to decrease interest rates by one hundred fifty
basis points during the first quarter of 2001 had a more immediate impact on
asset yields, thereby significantly impacting the first quarter margin.
Earning assets increased $36 million to $595 million during the first three
months of 2001 and now total 96.3% of total assets, an increase from the
year-end level of 95.8%.
(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:
Three-months ended March 31, 2001
------------------------------------
Average Yield/
Balance Interest Cost
--------- ---------- ------
(Dollars in thousands)
Assets:
Interest-earning assets:
Loans (taxable) $386,118 $32,994 8.54%
Loans (tax-free) (1) 17,645 1,757 9.96
Investment securities (taxable) 119,086 8,291 6.96
Investment securities (tax-free)(1) 44,948 3,628 8.07
Time deposits with banks and
federal funds sold 13,138 773 5.89
-------- ------- ----
Total interest-earning assets 580,935 47,443 8.17%
------- ----
Non-interest earning assets 26,126
--------
Total Assets $607,061
========
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Deposits $428,926 $22,312 5.20%
Borrowed funds 80,747 4,539 5.62
-------- ------- ----
Total interest-bearing liabilities 509,673 26,851 5.27%
------- ----
Other liabilities and
shareholders' equity 97,388
--------
Total Liabilities and
Shareholders' Equity $607,061
========
Net interest income/rate spread $20,592 2.90%
Net yield on average interest-
earning assets 3.54%
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)
Three-months ended March 31, 2000
-----------------------------------
Average Yield/
Balance Interest Cost
--------- -------- ------
(Dollars in thousands)
Assets:
Interest-earning assets:
Loans (taxable) $356,774 $ 7,391 8.24%
Loans (tax-free) (1) 12,873 203 9.47
Investment securities (taxable) 114,772 1,946 6.78
Investment securities (tax-free) (1) 42,244 574 8.23
Time deposits with banks and
federal funds sold 3,668 57 6.19
-------- ------- ----
Total interest-earning assets 530,331 10,171 7.94%
------- ----
Non-interest earning assets 17,409
--------
Total Assets $547,740
========
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Deposits $373,500 $ 4,248 4.57%
Borrowed funds 90,496 1,324 5.79
-------- ------- ----
Total interest-bearing liabilities 463,996 5,572 4.81%
------- ----
Other liabilities and
shareholders' equity 90,496
--------
Total Liabilities and
Shareholders' Equity $547,740
========
Net interest income/rate spread $ 4,599 3.13%
Net yield on average interest-
earning assets 3.73%
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 March 31,
(Dollars in thousands)
2001 vs 2000
---------------------------------
Increase (Decrease)
Due to
-------------------
Rate Volume Total
----- ------ ------
Loans (taxable) $ 241 $ 592 $ 833
Loans (tax-free) 14 73 87
Investment securities (taxable) 50 76 126
Investment securities (tax-free) (12) 37 25
Time deposits with banks and
federal funds sold 4 132 136
----- ----- ------
Total interest income $ 297 $ 910 $1,207
----- ----- ------
Deposits $ 631 $ 623 $1,254
Borrowed funds (46) (143) (189)
----- ----- ------
Total interest expense $ 585 $ 480 $1,065
----- ----- ------
Net change in net interest income $(288) $ 430 $ 142
===== ===== ======
Period Ended March 31,
(Dollars in thousands)
2000 vs 1999
---------------------------------
Increase (Decrease)
Due to
-------------------
Rate Volume Total
----- ------ ------
Loans (taxable) $ 232 $ 554 $ 786
Loans (tax-free) 12 2 14
Investment securities (taxable) 150 297 447
Investment securities (tax-free) (4) 113 109
Time deposits with banks and
federal funds sold 9 (54) (45)
----- ----- ------
Total interest income $ 399 $ 912 $1,311
----- ----- ------
Deposits $ 128 $ 208 $ 336
Borrowed funds 63 295 358
----- ----- ------
Total interest expense $ 191 $ 503 $ 694
----- ----- ------
Net change in net interest income $ 208 $ 409 $ 617
===== ===== ======
(11)
Other Income and Expenses:
Other income in the first three months of 2001 increased $336,000 in
comparison to the same period of 2000. This increase can be attributed primarily
to a $204,000 increase in the gain on the sale of securities. Excluding income
from securities sales, other income increased $132,000 or 39%, during the first
three months of 2001 as compared to the same period of last year. Income from
service charges increased $25,000, or 12%, in comparison to the same period of
last year while other fee income increased $107,000, or 90%. Gains on loan sales
accounted for $56,000, or 51%, of the increase. New products and a larger
deposit base also contributed to the increases.
Other expenses increased $317,000 or 11% for the period ended March 31,
2001 compared to the same period of the previous year. Salaries and Benefits
costs account for a majority of the increase, adding $116,000, or 8% in
comparison to the first three months of 2000. Occupancy and equipment costs rose
19% while other operating expenses increased $149,000, or 14%. Included in the
increase is $177,000 that can be attributed to three 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:
2001 2000
------ ------
Provision at statutory rate $ 716 $ 663
Add (Deduct):
Tax effect of non-taxable interest income (302) (264)
Non-deductible interest expense 48 38
Other items, net (20) (24)
----- -----
Income tax expense $ 442 $ 413
===== =====
(12)
Securities:
Carrying amounts and approximate fair value of investment securities are
summarized as follows:
March 31, 2001 December 31, 2000
------------------ ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------- -------- -------
(Dollars in thousands)
U.S. Treasury securities and
obligations of U.S.
government agencies $ 13,246 $ 13,236 $ 17,611 $ 17,544
Obligations of state &
political subdivisions 47,876 47,813 46,776 46,710
Mortgage-backed securities 101,530 101,530 81,147 81,147
Corporate debt securities 1,769 1,769 1,749 1,749
Equity securities 10 10 10 10
-------- -------- -------- --------
Total $164,431 $164,358 $147,293 $147,160
======== ======== ======== ========
The following summarizes the amortized cost, approximate fair value, gross
unrealized holding gains, and gross unrealized holding losses at March 31, 2001
of the Company's Investment Securities classified as available-for-sale:
March 31, 2001
----------------------------------------------
(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: $ 12,388 $ 292 $ 16 $ 12,664
Obligations of state and
political subdivisions: 45,766 1,129 255 46,640
Mortgage-backed securities: 100,479 1,327 276 101,530
Corporate debt securities: 1,785 31 47 1,769
Equity securities: 10 0 0 10
-------- ------ ---- --------
Total $160,428 $2,779 $594 $162,613
-------- ------ ---- --------
(13)
The following summarizes the amortized cost, approximate fair value, gross
unrealized holding gains, and gross unrealized holding losses at March 31, 2001
of the Company's Investment Securities classified as held-to-maturity:
March 31, 2001
----------------------------------------------
(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: $ 582 $ 0 $ 10 $ 572
Obligations of state and
political subdivisions: 1,236 0 63 1,173
------ --- ---- ------
Total $1,818 $ 0 $ 73 $1,745
====== === ==== ======
The following table shows the amortized cost and approximate fair value of
the company's debt securities at March 31, 2001 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 $ 499 $ 503 $ 0 $ 0
After one year through
five years 1,499 1,535 0 0
After five years through
ten years 11,463 11,742 0 0
After ten years 46,478 47,293 1,818 1,745
Mortgage-backed securities 100,479 101,530 0 0
-------- -------- ------ ------
Total $160,418 $162,603 $1,818 $1,745
======== ======== ====== ======
Gross proceeds from the sale of investment securities for the periods ended
March 31, 2001 and 2000 were $17,285,444 and $5,970,925 respectively with the
gross realized gains being $296,935 and $2,401 respectively, and gross realized
losses being $102,995 and $12,404, respectively.
At March 31, 2001 and 2000, investment securities with a carrying amount of
$68,473,389 and $102,675,995 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:
March 31, 2001 December 31, 2000
--------------- -----------------
Amount % Amount %
------- ---- ------- ----
(Dollars in thousands)
Real estate loans, secured by residential
properties $ 83,694 24.5 $ 89,827 22.6
Real estate loans, secured by nonfarm,
nonresidential properties 165,953 38.1 156,234 39.2
Commercial & industrial loans 78,545 18.6 79,483 20.0
Loans to individuals for household,
family and other personal expenditures 61,532 16.4 62,504 15.7
Loans to state and political subdivisions 17,364 2.3 10,078 2.5
All other loans, including overdrafts 930 0.1 249 0.0
-------- ----- -------- -----
Total Gross Loans $408,018 100.0 $398,375 100.0
Less: Allow. for Loan Losses (5,282) (5,250)
-------- --------
Net Loans $402,736 $393,125
======== ========
The following table sets forth certain information with respect to the
company's allowance for loan losses and charge-offs:
Period Ended
March 31, Dec 31,
2001 2000
--------- -------
(Dollars in thousands)
Balance, January 1 $5,250 $4,714
Recoveries Credited 84 259
Losses Charged 232 693
Provision for Loan Losses 180 970
------ ------
Balance at End of Period $5,282 $5,250
====== ======
(15)
The following table presents information about the company's non-performing
assets for the periods indicated:
March 31, 2001 Dec 31, 2000
-------------- ------------
(Dollars in thousands)
Nonaccrual loans
Impaired $ 0 $ 0
Other 668 645
Loans past due 90 days or more
and still accruing 24 224
----- -----
Total non-performing loans 692 869
Other Real Estate Owned 25 0
----- -----
Total non-performing assets $ 717 $ 869
===== =====
March 31, 2001 Dec 31, 2000
-------------- ------------
Non-performing loans as a
percentage of gross loans 0.2% 0.2%
Non-performing assets as a
percentage of total assets 0.1% 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 three months of 2001 and 2000, respectively. The
ratio of the loan loss reserve to total loans at March 31, 2001 and 2000 was
1.29% and 1.29%, 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.
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The short-term liquidity position of the company is strong as evidenced by
$26,776,000 in cash and cash equivalents and $2,774,000 in interest-bearing
balances with banks maturing within one year. A secondary source of liquidity is
provided by the investment portfolio with $10,228,000 or 6% of the portfolio
maturing or expected to be called within one year and expected cash flow from
principal reductions approximating an additional $12,000,000. 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 13 to the year end audited 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 $1,905,000 or 4% during the first
three months of 2001 comprised of an increase in retained earnings in the amount
of $1,127,000 after paying cash dividends, $216,000 from stock issued through
Dividend Reinvestment and a $562,000 increase in other comprehensive income.
During the same period of 2000, total stockholders' equity increased $1,558,000,
or 4%, comprised of an increase in retained earnings of $1,101,000, after paying
cash dividends and $216,000 from stock issued through Dividend Reinvestment and
$241,000 increase in the market value of our securities available-for-sale. The
total dividend payout during the first three months of 2001 and 2000 represents
$.21 per share and $.17 per share, respectively. Excluding the impact due to
securities valuation, increases in core equity amounted to $1,343,000 and
$1,317,000, 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 March 31, 2001, First National Community Bank met all capital
requirements with a leverage ratio of 7.74% and core capital and total
risk-based capital ratios of 10.30% and 11.46%, respectively.
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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: May 7, 2001 /s/ J. David Lombardi
----------------- -------------------------------
J. David Lombardi, President/
Chief Executive Officer
Date: May 7, 2001 /s/ William Lance
----------------- ------------------------------
William Lance, Treasurer/
Principal Financial Officer
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