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, 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)
2,541,102 shares
(Outstanding at October 26, 2001)
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, 2001 and December 31, 2000 1
Consolidated Statements of Income
Three Months Ended September 30, 2001 and 2000
YTD Ended September 30, 2001 and 2000 2
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2001 and 2000 3-4
Consolidated Statements of Changes in Stockholders' Equity
Nine Months Ended September 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)
Sept. 30, Dec. 31,
2001 2000
------------ ---------
(UNAUDITED) (AUDITED)
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 11,064 $ 12,854
Federal funds sold 0 6,950
-------- --------
Total cash and cash equivalents 11,064 19,804
Interest-bearing balances with
financial institutions 3,458 3,359
Securities:
Available-for-sale, at fair value 200,428 144,956
Held-to-maturity, at cost
(fair value $1,779 on September 30, 2001
and $2,204 on December 31, 2000) 1,869 2,337
Federal Reserve Bank and FHLB stock, at cost 5,438 5,023
Net loans 427,248 393,125
Bank premises and equipment 6,071 5,905
Other assets 15,831 9,343
-------- --------
Total Assets $671,407 $583,852
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand - non-interest bearing $ 48,306 $ 44,544
Interest bearing demand 94,830 83,463
Savings 51,354 42,846
Time ($100,000 and over) 91,482 75,824
Other time 222,282 213,741
-------- --------
Total deposits 508,254 460,418
Borrowed funds 103,495 70,908
Other liabilities 6,317 5,842
-------- --------
Total Liabilities $618,066 $537,168
-------- --------
Shareholders' equity:
Common Stock, $1.25 par value,
Authorized: 20,000,000 shares
Issued and outstanding: 2,541,102 shares
at Sept 30, 2001 and 2,516,872 shares at
December 31, 2000 $ 3,176 $ 3,146
Additional Paid-in Capital 11,193 10,491
Retained Earnings 35,916 32,167
Accumulated Other Comprehensive Income 3,056 880
-------- --------
Total shareholders' equity $ 53,341 $ 46,684
-------- --------
Total Liabilities and Shareholders' Equity $671,407 $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
------------------- --------------------
Sept 30, Sept 30, Sept 30, Sept 30,
2001 2000 2001 2000
------- ------- ------- -------
Interest Income:
Loans $ 8,237 $ 8,390 $25,162 $24,153
Balances with banks 58 61 182 154
Investments 2,944 2,498 8,291 7,624
Federal Funds Sold 102 170 335 185
------- ------- ------- -------
Total interest income 11,341 11,119 33,970 32,116
------- ------- ------- -------
Interest Expense:
Deposits 5,105 5,086 15,941 13,978
Borrowed Funds 1,372 1,260 3,671 3,966
------- ------- ------- -------
Total interest expense 6,477 6,346 19,612 17,944
------- ------- ------- -------
Net Interest Income
before Loan Loss Provision 4,864 4,773 14,358 14,172
Provision for loan losses 180 180 540 540
------- ------- ------- -------
Net interest income 4,684 4,593 13,818 13,632
------- ------- ------- -------
Other Income:
Service charges 261 273 781 750
Other Income 303 133 879 368
Gain (Loss) on sale of:
Securities 283 (23) 569 (11)
Other Real Estate 12 0 91 0
------- ------ ------- -------
Total other income 859 383 2,320 1,107
------- ------ ------- -------
Other expenses:
Salaries & benefits 1,553 1,504 4,655 4,386
Occupancy & equipment 517 497 1,613 1,482
Data processing expense 215 191 683 568
Other 801 750 2,363 2,193
------- ------- ------- -------
Total other expenses 3,086 2,942 9,314 8,629
------- ------- ------- -------
Income before income taxes 2,457 2,034 6,824 6,110
Income tax expense 543 474 1,434 1,368
------- ------- ------- -------
NET INCOME $ 1,914 $ 1,560 $ 5,390 $ 4,742
======= ======= ======= =======
Basic earnings per share $ 0.76 $ 0.62 $ 2.13 $ 1.90
======= ======= ======= =======
Diluted earnings per share $ 0.74 $ 0.62 $ 2.09 $ 1.89
======= ======= ======= =======
Weighted average number
of shares 2,534,719 2,506,247 2,526,461 2,500,746
========= ========= ========= =========
See notes to financial statements
(2)
FIRST NATIONAL COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(UNAUDITED)
Sept 30, Sept 30,
2001 2000
-------- --------
(Dollars in thousands)
INCREASE (DECREASE) IN CASH EQUIVALENTS:
Cash Flows From Operating Activities:
Interest Received $ 33,855 $ 31,397
Fees & Commissions Received 1,660 1,118
Interest Paid (20,185) (17,297)
Income Taxes Paid (1,576) (1,678)
Cash Paid to Suppliers & Employees (14,610) (7,485)
-------- --------
Net Cash Provided (Used) by Operating Activities $ (856) $ 6,055
-------- --------
Cash Flows from Investing Activities:
Securities available for sale:
Proceeds from Maturities $ 0 $ 0
Proceeds from Sales prior to maturity 38,012 39,414
Proceeds from Calls prior to maturity 25,786 12,254
Purchases (115,821) (52,179)
Securities held to maturity:
Proceeds from Calls prior to maturity 274 0
Purchases 0 0
Net Increase in Interest-Bearing Bank Balances (99) (685)
Net Increase in Loans to Customers (34,634) (26,664)
Capital Expenditures (915) (1,401)
-------- --------
Net Cash Used by Investing Activities $(87,397) $(29,261)
-------- --------
Cash Flows from Financing Activities:
Net Increase in Demand Deposits, Money Market
Demand, NOW Accounts, and Savings Accounts $ 23,636 $ 18,669
Net Increase in Certificates of Deposit 24,199 14,093
Net Increase (Decrease) in Borrowed Funds 32,587 (7,570)
Net Proceeds from Issuance of Common Stock
Through Dividend Reinvestment 675 390
Net Proceeds from Issuance of Common Stock -
Stock Option Plans 57 0
Dividends Paid (1,641) (1,325)
-------- --------
Net Cash Provided by Financing Activities $ 79,513 $ 24,257
-------- --------
Net Increase (Decrease) in Cash and
Cash Equivalents $ (8,740) $ 1,051
Cash & Cash Equivalents at Beginning of Year $ 19,804 $ 15,971
-------- --------
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 11,064 $ 17,022
======== ========
(Continued)
(3)
FIRST NATIONAL COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
2001 2000
-------- --------
(Dollars in thousands)
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net Income $ 5,390 $ 4,742
------- -------
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating
Activities:
Amortization (Accretion), Net 197 (190)
Depreciation 749 653
Provision for Probable Credit Losses 540 540
Provision for Deferred Taxes (85) 0
Loss (Gain) on Sale of Investment Securities (569) 11
Loss (Gain) on Sale of Other Real Estate (91) 0
Increase (Decrease) in Taxes Payable (107) (309)
Decrease (Increase) in Interest Receivable (313) (529)
Increase (Decrease) in Interest Payable (572) 646
Decrease (Increase) in Prepaid Expenses
and Other Assets (6,920) (151)
Increase (Decrease) in Accrued Expenses
and Other Liabilities 925 642
------- -------
Total Adjustments $(6,246) $ 1,313
------- -------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES $ (856) $ 6,055
======= =======
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, 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
-------------------------------------------------------------------------------
<c>
BALANCES, DECEMBER 31, 2000 2,516,872 $3,146 $10,491 $32,167 $ 880 $46,684
Comprehensive Income:
Net income for the period 5,390 5,390 5,390
Other comprehensive income, net
of tax:
Unrealized gain on securities
available-for-sale, net of
deferred income taxes of
$1,121 1,607
Reclassification adjustment 569
------
Total other comprehensive
income, net of tax 2,176 2,176 2,176
------
Comprehensive Income 7,566
------
Issuance of Common Stock -
Stock Option Plans 2,000 3 54 57
Issuance of Common Stock through
Dividend Reinvestment 22,230 27 648 675
Cash dividends paid, $0.65 per share (1,641) (1,641)
--------- ------ ------- ------- ------ -------
BALANCES, SEPTEMBER 30, 2001 2,541,102 $3,176 $11,193 $35,916 $3,056 $53,341
--------- ------ ------- ------- ------ -------
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) Basicearnings 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 2,526,461 and
2,500,746 for the periods ending September 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
2,581,549 and 2,506,468 for the periods ending September 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 September 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 12 full-service branch
banking offices in its principal market area in Lackawanna and Luzerne Counties,
Pennsylvania. At September 30, 2001, the company had 198 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
Clarks Green October 2001
(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, 2001 amounted to $5,390,000,
an increase of $648,000 or 14% compared to the same period of the previous year.
This increase can be attributed to the $186,000 improvement in net interest
income and earnings from securities sales which increased $580,000. Net gains
from the sale of residential mortgage loans increased $294,000 over the 2000
level while income from the disposition of other real estate improved $91,000.
Non-interest expenses increased $685,000, or 8%, over the same period of last
year due primarily to costs associated with four new community offices.
Operating income for the same period, after excluding the effect of securities
sales and loan loss provisions, increased $68,000 or 1%.
RESULTS OF OPERATIONS
Net Interest Income:
The Company's primary source of revenue is net interest income which totaled
$14,358,000 and $14,172,000 for the first nine months of 2001 and 2000,
respectively. Year to date net interest margins (tax equivalent) decreased
twenty-nine basis points from 3.72% reported in 2000 to 3.43% comprised of a
thirty-seven basis point decrease in the yield earned on earning assets and a
ten basis point increase in the cost of interest-bearing liabilities. The
decision of the Federal Reserve to decrease interest rates by three hundred
fifty basis points during the first nine months of 2001 had a more immediate
impact on asset yields, thereby significantly impacting the net interest margin.
Earning assets increased $79 million to $639 million during the first nine
months of 2001 and now total 95.1% 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:
Nine-months ended September 30,
-----------------------------------
2001
-----------------------------------
Average Yield/
Balance Interest Cost
------- -------- -----
(Dollars in thousands)
Assets:
Interest-earning assets:
Loans (taxable) $397,689 $24,418 8.13%
Loans (tax-free) (1) 15,287 744 9.73
Investment securities (taxable) 130,111 6,425 6.58
Investment securities (tax-free)(1) 46,784 1,866 8.06
Time deposits with banks and
federal funds sold 13,557 517 5.06
-------- ------- -----
Total interest-earning assets 603,428 33,970 7.76%
-------- -------
Non-interest earning assets 28,616
--------
Total Assets $632,044
========
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Deposits $441,328 $15,942 4.83%
Borrowed funds 88,527 3,670 5.47
-------- ------- -----
Total interest-bearing liabilities 529,855 19,612 4.94%
-------- -------
Other liabilities and shareholders' equity 102,189
--------
Total Liabilities and
Shareholders' Equity $632,044
========
Net interest income/rate spread $14,358 2.82%
Net yield on average interest-
earning assets 3.43%
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,
----------------------------------
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.
(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)
2001 vs 2000
Increase (Decrease)
Due to
Rate Volume Total
------ -------- ---------
Loans (taxable) $(1,069) $1,877 $ 808
Loans (tax-free) 6 196 202
Investment securities (taxable) (306) 839 533
Investment securities (tax-free) (43) 176 133
Time deposits with banks and
federal funds sold (143) 321 178
------- ------ -------
Total interest income $(1,555) $3,409 $ 1,854
------- ------ -------
Deposits $ (15) $1,979 $ 1,964
Borrowed funds (283) (12) (295)
------- ------ -------
Total interest expense $ (298) $1,967 $ 1,669
------- ------ -------
Net change in net interest income $(1,257) $1,442 $ 185
======= ====== =======
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
====== ====== ======
(11)
Other Income and Expenses:
Other income in the first nine months of 2001 increased $1,213,000 in
comparison to the same period of 2000. This increase can be attributed
primarily to a $580,000 increase in the gain on the sale of securities, a
$294,000 increase in income from the sale of residential mortgage loans and
a $91,000 gain on the sale of other real estate.
Excluding income from asset sales, other income increased $243,000 or
22%, during the first nine months of 2001 as compared to the same period of
last year. Income from service charges increased $31,000, or 4%, in
comparison to the same period of last year while other fee income increased
$212,000, or 57%. New products and a larger deposit base also contributed
to the increases.
Other expenses increased $685,000 or 8% for the period ended September
30, 2001 compared to the same period of the previous year. Salaries and
Benefits costs added $269,000, or 6% in comparison to the first nine months
of 2000. Occupancy and equipment costs rose 9%, data processing costs rose
$115,000, or 20% and other operating expenses increased $170,000, or 8%.
Included in the increase is $320,000 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 $2,334 $2,090
Add (Deduct):
Tax effect of non-taxable interest income (887) (774)
Non-deductible interest expense 135 116
Other items, net (148) (64)
------ ------
Income tax expense $1,434 $1,368
====== ======
(12)
Securities:
Carrying amounts and approximate fair value of investment securities
are summarized as follows:
September 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 $ 17,301 $ 17,280 $ 17,611 $ 17,544
Obligations of state &
political subdivisions 51,999 51,930 46,776 46,710
Mortgage-backed securities 131,167 131,167 81,147 81,147
Corporate debt securities 1,820 1,820 1,749 1,749
Equity securities 10 10 10 10
-------- -------- -------- --------
Total $202,297 $202,207 $147,293 $147,160
======== ======== ======== ========
The following summarizes the amortized cost, approximate fair value,
gross unrealized holding gains, and gross unrealized holding losses at
September 30, 2001 of the Company's Investment Securities classified as
available-for-sale:
September 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 $ 16,473 $ 226 $ 0 $ 16,699
Obligations of state and
political subdivisions 49,651 1,466 385 50,732
Mortgage-backed securities 127,881 3,292 6 131,167
Corporate debt securities 1,782 78 40 1,820
Equity securities 10 0 0 10
-------- ------ ---- --------
Total $195,797 $5,062 $431 $200,428
======== ====== ==== ========
(13)
The following summarizes the amortized cost, approximate fair value,
gross unrealized holding gains, and gross unrealized holding losses at
September 30, 2001 of the Company's Investment Securities classified as
held-to-maturity:
September 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: $ 602 $ 0 $21 $ 581
Obligations of state and
political subdivisions: 1,267 0 69 1,198
------ --- --- ------
Total $1,869 $ 0 $90 $1,779
====== === === ======
The following table shows the amortized cost and approximate fair
value of the company's debt securities at September 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 $ 1,498 $ 1,529 $ 0 $ 0
After one year through
five years 3,599 3,656 0 0
After five years through
ten years 11,286 11,692 0 0
After ten years 51,523 52,374 1,869 1,779
Mortgage-backed securities 127,881 131,167 0 0
-------- -------- ------ ------
Total $195,787 $200,418 $1,869 $1,779
======== ======== ====== ======
Gross proceeds from the sale of investment securities for the periods
ended September 30, 2001 and 2000 were $38,012,340 and $39,413,606
respectively with the gross realized gains being $727,455 and $60,347
respectively, and gross realized losses being $158,750 and $69,313,
respectively.
At September 30, 2001 and 2000, investment securities with a carrying
amount of $93,445,333 and $82,836,182 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, 2001 December 31, 2000
-------------------- -------------------
Amount % Amount %
--------- ----- --------- ----
(Dollars in thousands)
Real estate loans, secured by
residential properties $ 76,539 17.7 $ 89,827 22.6
Real estate loans, secured by nonfarm,
nonresidential properties 186,996 43.2 156,234 39.2
Commercial & industrial loans 92,757 21.5 79,483 20.0
Loans to individuals for household,
family and other personal
expenditures 64,133 14.8 62,504 15.7
Loans to state and political
subdivisions 11,603 2.7 10,078 2.5
All other loans, including overdrafts 368 0.1 249 0.0
-------- ----- -------- -----
Total Gross Loans $432,396 100.0 $398,375 100.0
----- -----
Less: Allow. for Loan Losses (5,148) (5,250)
-------- --------
Net Loans $427,248 $393,125
======== ========
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,
2001 2000
------- --------
(Dollars in thousands)
Balance, January 1 $5,250 $4,714
Recoveries Credited 169 259
Losses Charged (811) (693)
Provision for Loan Losses 540 970
------ ------
Balance at End of Period $5,148 $5,250
====== ======
(15)
The following table presents information about the company's
non-performing assets for the periods indicated:
Sept 30, 2001 Dec 31, 2000
------------- ------------
(Dollars in thousands)
Nonaccrual loans
Impaired $ 0 $ 0
Other 448 645
Loans past due 90 days or more
and still accruing 94 224
----- -----
Total non-performing loans 542 869
----- -----
Other Real Estate Owned 0 0
----- -----
Total non-performing assets $ 542 $ 869
===== =====
Sept 30, 2001 Dec 31, 2000
------------- ------------
Non-performing loans as a
percentage of gross loans 0.1% 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 nine months of 2001 and 2000,
respectively. The ratio of the loan loss reserve to total loans at
September 30, 2001 and 2000 was 1.19% and 1.25%, 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 $11,064,000 in cash and cash equivalents and $3,458,000 in
interest-bearing balances with banks maturing within one year. A secondary
source of liquidity is provided by the investment portfolio with $10
million or 5% of the portfolio maturing or expected to be called within one
year and expected cash flow from principal reductions approximating an
additional $30 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 $6,657,000 or 14% during the
first nine months of 2001 comprised of an increase in retained earnings in
the amount of $3,749,000 after paying cash dividends, $732,000 from stock
issued through Dividend Reinvestment and Stock Option Plans and a
$2,176,000 increase in other comprehensive income. During the same period
of 2000, total stockholders' equity increased $5,479,000, or 15%, comprised
of an increase in retained earnings of $3,417,000, after paying cash
dividends and $390,000 from stock issued through Dividend Reinvestment and
$1,672,000 increase in the market value of our securities
available-for-sale. The total dividend payout during the first nine months
of 2001 and 2000 represents $.65 per share and $.53 per share,
respectively. Excluding the impact due to securities valuation, increases
in core equity amounted to $4,481,000 and $3,807,000, 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, 2001, First National Community
Bank met all capital requirements with a leverage ratio of 7.60% and core
capital and total risk-based capital ratios of 10.12% and 11.16%,
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: November 7, 2001 /s/ J. David Lombardi
--------------------------- ----------------------------
J. David Lombardi, President/
Chief Executive Officer
Date: November 7, 2001 /s/ William Lance
--------------------------- ----------------------------
William Lance, Treasurer/
Principal Financial Officer
(20)