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 June 30, 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)
2,533,272 shares
(Outstanding at July 23, 2001)
FIRST NATIONAL COMMUNITY BANCORP, INC.
INDEX
Page No.
Part I - Consolidated Financial Statements
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition
June 30, 2001 and December 31, 2000 1
Consolidated Statements of Income
Three Months Ended June 30, 2001 and 2000
YTD Ended June 30, 2001 and 2000 2
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2001 and 2000 3-4
Consolidated Statements of Changes in Stockholders' Equity
Six Months Ended June 30, 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)
June 30, Dec. 31,
2001 2000
---------- ---------
(UNAUDITED) (AUDITED)
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 12,399 $ 12,854
Federal funds sold 18,500 6,950
-------- --------
Total cash and cash equivalents 30,899 19,804
Interest-bearing balances with
financial institutions 3,557 3,359
Securities:
Available-for-sale, at fair value 181,030 144,956
Held-to-maturity, at cost
(fair value $1,749 on June 30, 2001
and $2,204 on December 31, 2000) 1,843 2,337
Federal Reserve Bank and FHLB stock, at cost 5,023 5,023
Net loans 410,206 393,125
Bank premises and equipment 5,868 5,905
Other assets 14,667 9,343
-------- --------
Total Assets $653,093 $583,852
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand - non-interest bearing $ 51,334 $ 44,544
Interest bearing demand 99,452 83,463
Savings 46,101 42,846
Time ($100,000 and over) 89,516 75,824
Other time 216,744 213,741
-------- --------
Total deposits 503,147 460,418
Borrowed funds 93,056 70,908
Other liabilities 6,823 5,842
-------- --------
Total Liabilities $603,026 $537,168
-------- --------
Shareholders' equity:
Common Stock, $1.25 par value,
Authorized:
20,000,000 shares at June 30, 2001,
and December 31, 2000;
Issued and outstanding:
2,533,272 shares at June 30, 2001 and
2,516,872 shares at December 31, 2000 $ 3,167 $ 3,146
Additional Paid-in Capital 10,959 10,491
Retained Earnings 34,585 32,167
Accumulated Other Comprehensive Income 1,356 880
-------- --------
Total shareholders' equity $ 50,067 $ 46,684
-------- --------
Total Liabilities and
Shareholders' Equity $653,093 $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
--------------------- ------------------
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
-------- -------- -------- -------
Interest Income:
Loans $ 8,412 $ 8,169 $16,925 $15,763
Balances with banks 63 47 124 93
Investments 2,676 2,606 5,347 5,126
Federal Funds Sold 101 4 233 15
------- ------- ------- -------
Total interest income 11,252 10,826 22,629 20,997
------- ------- ------- -------
Interest Expense:
Deposits 5,334 4,644 10,836 8,892
Borrowed Funds 1,164 1,382 2,299 2,706
------- ------- ------- -------
Total interest expense 6,498 6,026 13,135 11,598
------- ------- ------- -------
Net Interest Income
before Loan Loss Provision 4,754 4,800 9,494 9,399
Provision for loan losses 180 180 360 360
------- ------- ------- -------
Net interest income 4,574 4,620 9,134 9,039
------- ------- ------- -------
Other Income:
Service charges 278 260 520 477
Other Income 350 116 576 235
Gain (Loss) on sale of:
Securities 92 22 286 12
Other Real Estate 79 0 79 0
------- ------- ------- -------
Total other income 799 398 1,461 724
------- ------- ------- -------
Other expenses:
Salaries & benefits 1,540 1,436 3,102 2,882
Occupancy & equipment 528 500 1,096 985
Data processing expense 232 194 468 376
Other 803 749 1,562 1,444
------- ------- ------- -------
Total other expenses 3,103 2,879 6,228 5,687
------- ------- ------- -------
Income before income taxes 2,270 2,139 4,367 4,076
Income tax expense 449 481 891 894
------- ------- ------- -------
NET INCOME $ 1,821 $ 1,658 $ 3,476 $ 3,182
======= ======= ======= =======
Basic earnings per share $ 0.72 $ 0.66 $ 1.38 $ 1.27
======= ======= ======= =======
Diluted earnings per share $ 0.71 $ 0.66 $ 1.35 $ 1.27
======= ======= ======= =======
Weighted average number
of shares 2,526,152 2,501,189 2,522,264 2,497,965
========= ========= ========= =========
See notes to financial statements
(2)
FIRST NATIONAL COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)
June 30, June 30,
2001 2000
-------- --------
(Dollars in thousands)
INCREASE (DECREASE) IN CASH EQUIVALENTS:
Cash Flows From Operating Activities:
Interest Received $ 22,504 $ 20,694
Fees & Commissions Received 1,096 712
Interest Paid (12,780) (11,139)
Income Taxes Paid (951) (1,097)
Cash Paid to Suppliers & Employees (10,428) (4,975)
-------- --------
Net Cash Provided (Used) by Operating
Activities $ (559) $ 4,195
-------- --------
Cash Flows from Investing Activities:
Securities available for sale:
Proceeds from Maturities $ 0 $ 0
Proceeds from Sales prior to maturity 21,408 14,297
Proceeds from Calls prior to maturity 14,214 8,102
Purchases (70,520) (24,931)
Securities held to maturity:
Proceeds from Calls prior to maturity 274 0
Purchases 0 0
Net (Increase) Decrease in
Interest-Bearing Bank Balances (198) (396)
Net (Increase) Decrease in Loans to Customers (17,362) (22,647)
Capital Expenditures (468) (1,071)
-------- --------
Net Cash Provided (Used) by Investing
Activities $(52,652) $(26,646)
-------- --------
Cash Flows from Financing Activities:
Net Increase (Decrease) in Demand Deposits,
Money Market Demand, NOW Accounts, and
Savings Accounts $ 26,033 $ 20,100
Net Increase in Certificates of Deposit 16,694 6,706
Net Increase (Decrease) in Borrowed Funds 22,148 (3,434)
Net Proceeds from Issuance of Common Stock
Through Dividend Reinvestment 432 401
Net Proceeds from Issuance of Common Stock -
Stock Option Plans 57 0
Dividends Paid (1,058) (849)
-------- --------
Net Cash Provided (Used) by Financing
Activities $ 64,306 $ 22,924
-------- --------
Net Increase (Decrease) in Cash and
Cash Equivalents $ 11,095 $ 473
Cash & Cash Equivalents at Beginning of Year $ 19,804 $ 15,971
-------- --------
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 30,899 $ 16,444
======== ========
(Continued)
(3)
FIRST NATIONAL COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
2001 2000
---------- ---------
(Dollars in thousands)
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net Income $ 3,476 $ 3,182
------- --------
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating
Activities:
Amortization (Accretion), Net 52 (133)
Depreciation 505 417
Provision for Probable Credit Losses 360 360
Provision for Deferred Taxes (46) 0
Loss (Gain) on Sale of Investment Securities (286) (12)
Loss (Gain) on Sale of Other Real Estate (78) 0
Increase (Decrease) in Taxes Payable (16) (204)
Decrease (Increase) in Interest Receivable (177) (170)
Increase (Decrease) in Interest Payable 356 460
Decrease (Increase) in Prepaid Expenses
and Other Assets (5,346) (124)
Increase (Decrease) in Accrued Expenses
and Other Liabilities 641 419
------- --------
Total Adjustments $(4,035) $ 1,013
------- --------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES $ (559) $ 4,195
======= ========
See notes to financial statements
(4)
FIRST NATIONAL COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
For The Six Months Ended June 30, 2001
(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, 2000 2,516,872 $3,146 $10,491 $32,167 $ 880 $46,684
Comprehensive Income:
Net income for the period 3,476 3,476 3,476
Other comprehensive income, net
of tax:
Unrealized gain on securities
available-for-sale, net of
deferred income taxes of $246 190
Reclassification adjustment 286
--------
Total other comprehensive
income, net of tax 476 476 476
--------
Comprehensive Income 3,952
Issuance of Common Stock -
Stock Option Plans 2,000 3 54 57
Issuance of Common Stock through
Dividend Reinvestment 14,400 18 414 432
Cash dividends paid, $0.42 per share (1,058) (1,058)
--------- ------ ------- ------- ------ -------
BALANCES, JUNE 30, 2001 2,533,272 $3,167 $10,959 $34,585 $1,356 $50,067
--------- ------ ------- ------- ------ -------
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 2,522,264 and 2,497,965 for the periods
ending June 30, 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 2,571,076
and 2,497,965 for the periods ending June 30, 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 June 30, 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 June 30, 2001, the company had 191
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 six months ended June 30, 2001 amounted to $3,476,000,
an increase of $294,000 or 9% compared to the same period of the previous year.
This increase can be attributed to the $95,000 improvement in net interest
income and earnings from securities sales which increased $274,000. Net gains
from the sale of residential mortgage loans increased $236,000 over the 2000
level while income from the disposition of other real estate improved $79,000.
Non-interest expenses increased $541,000, or 10%, 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, increased $20,000 or 1%.
RESULTS OF OPERATIONS
Net Interest Income:
The Company's primary source of revenue is net interest income which
totaled $9,494,000 and $9,399,000 for the first six months of 2001 and 2000,
respectively. Year to date net interest margins (tax equivalent) decreased
twenty-five basis points from 3.74% reported in 2000 to 3.49% comprised of a
nine basis point decrease in the yield earned on earning assets and an eighteen
basis point increase in the cost of interest-bearing liabilities. The decision
of the Federal Reserve to decrease interest rates by two hundred seventy-five
basis points during the first half of 2001 had a more immediate impact on asset
yields, thereby significantly impacting the net interest margin.
Earning assets increased $64 million to $623 million during the first six
months of 2001 and now total 95.4% of total assets, a slight decrease 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:
Six-months ended June 30, 2001
--------------------------------------
Average Yield/
Balance Interest Cost
-------- -------- ------
(Dollars in thousands)
Assets:
Interest-earning assets:
Loans (taxable) $391,795 $16,357 8.33%
Loans (tax-free) (1) 17,331 568 9.87
Investment securities (taxable) 122,712 4,119 6.71
Investment securities (tax-free)(1) 46,149 1,228 8.06
Time deposits with banks and
federal funds sold 12,935 357 5.52
-------- ------- -----
Total interest-earning assets 590,922 22,629 7.96%
------- -----
Non-interest earning assets 26,655
--------
Total Assets $617,577
========
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Deposits $434,954 $10,836 5.02%
Borrowed funds 83,007 2,299 5.51
-------- ------- -----
Total interest-bearing liabilities 517,961 13,135 5.10%
------- -----
Other liabilities and shareholders'
equity 99,616
--------
Total Liabilities and Shareholders'
Equity $617,577
========
Net interest income/rate spread $ 9,494 2.86%
Net yield on average interest-
earning assets 3.49%
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)
Six-months ended June 30, 2000
------------------------------------
Average Yield/
Balance Interest Cost
-------- -------- -----
(Dollars in thousands)
Assets:
Interest-earning assets:
Loans (taxable) $365,072 $15,359 8.37%
Loans (tax-free) (1) 12,747 404 9.50
Investment securities (taxable) 115,533 3,958 6.85
Investment securities (tax-free) (1) 42,591 1,168 8.31
Time deposits with banks and
federal funds sold 3,440 108 6.31
-------- ------- ----
Total interest-earning assets 539,383 20,997 8.05%
------- ----
Non-interest earning assets 17,815
--------
Total Assets $557,198
========
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Deposits $380,228 $ 8,892 4.70%
Borrowed funds 91,560 2,706 5.85
-------- ------- ----
Total interest-bearing liabilities 471,788 11,598 4.92%
------- ----
Other liabilities and shareholders'
equity 85,410
--------
Total Liabilities and Shareholders'
Equity $557,198
========
Net interest income/rate spread $ 9,399 3.13%
Net yield on average interest-
earning assets 3.74%
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 June 30,
(Dollars in thousands)
2001 vs 2000
Increase (Decrease)
Due to
Rate Volume Total
------ -------- -------
Loans (taxable) $ (151) $1,150 $ 999
Loans (tax-free) 21 143 164
Investment securities (taxable) (90) 250 160
Investment securities (tax-free) (37) 98 61
Time deposits with banks and
federal funds sold (26) 274 248
------ ------ ------
Total interest income $ (283) $1,915 $1,632
------ ------ ------
Deposits $ 667 $1,277 $1,944
Borrowed funds (154) (253) (407)
------ ------ ------
Total interest expense $ 513 $1,024 $1,537
------ ------ ------
Net change in net interest income $ (796) $ 891 $ 95
====== ====== ======
Period Ended June 30,
(Dollars in thousands)
2000 vs 1999
Increase (Decrease)
Due to
Rate Volume Total
------ ------ -------
Loans (taxable) $ 188 $1,347 $1,535
Loans (tax-free) 24 0 24
Investment securities (taxable) 285 544 829
Investment securities (tax-free) 16 179 195
Time deposits with banks and
federal funds sold 14 (49) (35)
------ ------ ------
Total interest income $ 527 $2,021 $2,548
------ ------ ------
Deposits $ 554 $ 509 $1,063
Borrowed funds 151 515 666
------ ------ ------
Total interest expense $ 705 $1,024 $1,729
------ ------ ------
Net change in net interest income $ (178) $ 997 $ 819
====== ====== ======
(11)
Other Income and Expenses:
- -------------------------
Other income in the first six months of 2001 increased $737,000 in
comparison to the same period of 2000. This increase can be attributed primarily
to a $274,000 increase in the gain on the sale of securities, a $236,000
increase in income from the sale of residential mortgage loans and a $79,000
gain on the sale of other real estate.
Excluding income from asset sales, other income increased $147,000 or 21%,
during the first six months of 2001 as compared to the same period of last year.
Income from service charges increased $43,000, or 9%, in comparison to the same
period of last year while other fee income increased $101,000, or 42%. New
products and a larger deposit base also contributed to the increases.
Other expenses increased $541,000 or 10% for the period ended June 30, 2001
compared to the same period of the previous year. Salaries and Benefits costs
added $220,000, or 8% in comparison to the first six months of 2000. Occupancy
and equipment costs rose 11%, data processing costs rose $92,000, or 24% and
other operating expenses increased $118,000, or 8%. Included in the increase is
$356,000 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 $1,494 $1,394
Add (Deduct):
Tax effect of non-taxable interest income (610) (534)
Non-deductible interest expense 95 78
Other items, net (88) (44)
------ ------
Income tax expense $ 891 $ 894
====== ======
(12)
Securities:
Carrying amounts and approximate fair value of investment securities are
summarized as follows:
June 30, 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 $ 12,370 $ 12,360 $ 17,611 $ 17,544
Obligations of state &
political subdivisions 50,068 49,984 46,776 46,710
Mortgage-backed securities 118,636 118,636 81,147 81,147
Corporate debt securities 1,789 1,789 1,749 1,749
Equity securities 10 10 10 10
-------- -------- -------- --------
Total $182,873 $182,779 $147,293 $147,160
======== ======== ======== ========
The following summarizes the amortized cost, approximate fair value, gross
unrealized holding gains, and gross unrealized holding losses at June 30, 2001
of the Company's Investment Securities classified as available-for-sale:
June 30, 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: $ 11,641 $ 149 $ 12 $ 11,778
Obligations of state and
political subdivisions: 48,102 1,138 423 48,817
Mortgage-backed securities: 117,439 1,487 290 118,636
Corporate debt securities: 1,783 47 41 1,789
Equity securities: 10 0 0 10
-------- ------ ---- -------
Total $178,975 $2,821 $766 $181,030
======== ====== ==== ========
(13)
The following summarizes the amortized cost, approximate fair value, gross
unrealized holding gains, and gross unrealized holding losses at June 30, 2001
of the Company's Investment Securities classified as held-to-maturity:
June 30, 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: $ 592 $ 0 $10 $ 582
Obligations of state and
political subdivisions: 1,251 0 84 1,167
------ ---- --- ------
Total $1,843 $ 0 $94 $1,749
====== ==== === ======
The following table shows the amortized cost and approximate fair value of
the company's debt securities at June 30, 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 $ 1,003 $ 1,014 $ 0 $ 0
After one year through
five years 1,995 2,025 0 0
After five years through
ten years 11,791 12,131 0 0
After ten years 46,737 47,214 1,843 1,749
Mortgage-backed securities 117,439 118,636 0 0
-------- -------- ------ ------
Total $178,965 $181,020 $1,843 $1,749
======== ======== ====== ======
Gross proceeds from the sale of investment securities for the periods ended
June 30, 2001 and 2000 were $21,408,149 and $14,297,515 respectively with the
gross realized gains being $418,785 and $41,961 respectively, and gross realized
losses being $132,634 and $29,686, respectively.
At June 30, 2001 and 2000, investment securities with a carrying amount of
$84,322,599 and $89,754,565 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:
June 30, 2001 December 31, 2000
-------------- -----------------
Amount % Amount %
------- ---- ------- ----
(Dollars in thousands)
Real estate loans, secured by residential
properties $ 75,982 18.3 $ 89,827 22.6
Real estate loans, secured by nonfarm,
nonresidential properties 172,596 41.5 156,234 39.2
Commercial & industrial loans 88,918 21.4 79,483 20.0
Loans to individuals for household,
family and other personal expenditures 62,209 15.0 62,504 15.7
Loans to state and political subdivisions 15,517 3.7 10,078 2.5
All other loans, including overdrafts 318 0.1 249 0.0
-------- ----- -------- -----
Total Gross Loans $415,540 100.0 $398,375 100.0
----- -----
Less: Allow. for Loan Losses (5,334) (5,250)
-------- --------
Net Loans $410,206 $393,125
======== ========
The following table sets forth certain information with respect to the
company's allowance for loan losses and charge-offs:
Period Ended
-----------------------------
June 30, Dec 31,
2001 2000
-------- -------
(Dollars in thousands)
Balance, January 1 $5,250 $4,714
Recoveries Credited 141 259
Losses Charged 417 693
Provision for Loan Losses 360 970
------ ------
Balance at End of Period $5,334 $5,250
====== ======
(15)
The following table presents information about the company's non-performing
assets for the periods indicated:
June 30, 2001 Dec 31, 2000
------------- ------------
(Dollars in thousands)
Nonaccrual loans
Impaired $ 0 $ 0
Other 457 645
Loans past due 90 days or more
and still accruing 242 224
---- ----
Total non-performing loans 699 869
Other Real Estate Owned 0 0
---- ----
Total non-performing assets $699 $869
==== ====
June 30, 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.
Nonaccrual loans are comprised of seven 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 six months of 2001 and 2000, respectively. The
ratio of the loan loss reserve to total loans at June 30, 2001 and 2000 was
1.28%.
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
$30,899,000 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 $6 million or 3% of the portfolio
maturing or expected to be called within one year and expected cash flow from
principal reductions approximating an additional $24 million.
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 $3,383,000 or 7% during the first six
months of 2001 comprised of an increase in retained earnings in the amount of
$2,418,000 after paying cash dividends, $489,000 from stock issued through
Dividend Reinvestment and Stock Option Plans and a $476,000 increase in other
comprehensive income. During the same period of 2000, total stockholders' equity
increased $3,174,000, or 9%, comprised of an increase in retained earnings of
$2,333,000, after paying cash dividends and $401,000 from stock issued through
Dividend Reinvestment and $440,000 increase in the market value of our
securities available-for-sale. The total dividend payout during the first six
months of 2001 and 2000 represents $.42 per share and $.34 per share,
respectively. Excluding the impact due to securities valuation, increases in
core equity amounted to $2,907,000 and $2,734,000, 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 June 30, 2001, First National Community Bank met all capital
requirements with a leverage ratio of 7.72% and core capital and total
risk-based capital ratios of 10.28% and 11.42%, 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
The 2001 Annual Meeting of Shareholders of First National Community
Bancorp, Inc. was held on May 16, 2001 at the Company's Exeter Office, 1625
Wyoming Avenue, Exeter, Pennsylvania, for the purpose of electing four Class C
Directors to serve for a three-year term and to approve and adopt the Company's
2000 Stock Incentive Plan and the 2000 Independent Directors Stock Option Plan.
o The following Class C directors were elected to serve until 2004:
Joseph Coccia
William P. Conaboy
Dominick L. DeNaples
John P. Moses
o The Stock Option Plans were approved and ratified by the required number of
shareholders.
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8 - K
None
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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: August 10, 2001 /s/ J. David Lombardi
------------------- -----------------------------------
J. David Lombardi, President/
Chief Executive Officer
Date: August 10, 2001 /s/ William Lance
------------------- -----------------------------------
William Lance, Treasurer/
Principal Financial Officer
(20)