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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______________ to _____________
Commission file number 0-19028
CCFNB BANCORP, INC.
(Name of small business Issuer in its charter)
PENNSYLVANIA 23-2254643
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
232 East Street, Bloomsburg, PA 17815
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (570) 784-4400
Check whether the issuer (1) 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 issuer was required to file such
reports), and (2) has been subject to such filing requirings 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. 1,299,989 shares of
$1.25 (par) common stock were outstanding as of October 30, 2002.
CCFNB BANCORP, INC. AND SUBSIDIARY
SEPTEMBER 30, 2002
INDEX 10-Q
EXHIBIT 27 - FINANCIAL DATA SCHEDULE NO PAGE
#
PART I - FINANCIAL INFORMATION:
- Consolidated Balance Sheets 1
- Consolidated Statements of Income 2
- Consolidated Statements of Cash Flows 3
- Notes to Consolidated Financial Statements 4 - 11
- Report of Independent Certified Public Accountants 12
- Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations 13 - 20
PART II - OTHER INFORMATION 21 - 25
SIGNATURES 26
CCFNB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
SEPTEMBER DECEMBER
30, 2002 31, 2001
UNAUDITED
--------- --------
ASSETS
Cash and due from banks ............................................. $ 5,987 $ 6,205
Interest-bearing deposits with other banks .......................... 2,195 2,313
Federal funds sold .................................................. 4,540 0
Investment securities:
Securities Available-for-Sale ..................................... 58,015 57,121
Loans, net of unearned income ....................................... 150,624 142,990
Allowance for loan losses ........................................... 1,279 1,028
-------- --------
Net loans ......................................................... $149,345 $141,962
Premises and equipment .............................................. 4,524 4,635
Other real estate owned ............................................. 89 0
Accrued interest receivable ......................................... 898 977
Other assets ........................................................ 1,017 1,025
-------- --------
TOTAL ASSETS ................................................... $226,610 $214,238
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing .............................................. $ 16,079 $ 14,712
Interest bearing .................................................. 152,457 140,954
-------- --------
Total Deposits ................................................. $168,536 $155,666
Short-term borrowings ............................................... 18,301 19,781
Long-term borrowings ................................................ 11,350 11,357
Accrued interest and other expenses ................................. 1,334 1,382
Other liabilities ................................................... 167 10
-------- --------
TOTAL LIABILITIES .............................................. $199,688 $188,196
======== ========
STOCKHOLDERS' EQUITY
Common stock, par value $1.25 per share; authorized 5,000,000 shares;
issued and outstanding 1,301,989 shares
in 2002 and 1,326,172 shares in 2001 .............................. $ 1,627 $ 1,658
Surplus ............................................................. 4,221 4,730
Retained earnings ................................................... 20,453 19,579
Accumulated other comprehensive income (loss) ....................... 621 75
-------- --------
TOTAL STOCKHOLDERS' EQUITY ..................................... $ 26,922 $ 26,042
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..................... $226,610 $214,238
======== ========
See accompanying notes to Consolidated Financial Statements.
-1-
CCFNB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
UNAUDITED
FOR THE NINE FOR THE THREE
MONTHS ENDING MONTHS ENDING
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
INTEREST INCOME
Interest and fees on loans:
Taxable ...................................... $ 7,514 $ 7,899 $ 2,507 $ 2,640
Tax-exempt ................................... 108 123 43 43
Interest and dividends on investment securities:
Taxable interest ............................. 1,314 1,350 413 460
Tax-exempt interest .......................... 611 603 202 207
Dividends .................................... 44 62 14 21
Interest on federal funds sold ................. 41 58 22 18
Interest on deposits in other banks ............ 52 247 19 49
---------- ---------- ---------- ----------
TOTAL INTEREST INCOME ..................... $ 9,684 $ 10,342 $ 3,220 $ 3,438
---------- ---------- ---------- ----------
INTEREST EXPENSE
Interest on deposits ........................... $ 3,557 $ 4,202 $ 1,205 $ 1,385
Interest on short-term borrowings .............. 258 607 88 167
Interest on long-term borrowings ............... 509 560 172 172
---------- ---------- ---------- ----------
TOTAL INTEREST EXPENSE .................... $ 4,324 $ 5,369 $ 1,465 $ 1,724
---------- ---------- ---------- ----------
Net interest income ............................ $ 5,360 $ 4,973 $ 1,755 $ 1,714
Provision for loan losses ...................... 264 148 205 125
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES ............................... $ 5,096 $ 4,825 $ 1,550 $ 1,589
---------- ---------- ---------- ----------
NON-INTEREST INCOME
Service charges and fees ....................... $ 487 $ 453 $ 161 $ 151
Trust department income ........................ 151 165 48 53
Securities gains - net ......................... 107 71 107 34
Other income ................................... 143 132 58 36
---------- ---------- ---------- ----------
TOTAL NON-INTEREST INCOME ................. $ 888 $ 821 $ 374 $ 274
---------- ---------- ---------- ----------
NON-INTEREST EXPENSES
Salaries and wages ............................. $ 1,638 $ 1,524 $ 563 $ 517
Pensions and other employee benefits ........... 566 518 193 178
Occupancy expense, net ......................... 268 281 88 87
Furniture and equipment expense ................ 442 406 141 139
Other operating expenses ....................... 1,162 1,103 404 375
---------- ---------- ---------- ----------
TOTAL NON-INTEREST EXPENSES ............... $ 4,076 $ 3,832 $ 1,389 $ 1,296
---------- ---------- ---------- ----------
Income before income taxes ..................... $ 1,908 $ 1,814 $ 535 $ 567
Income tax expense ............................. 419 401 101 118
---------- ---------- ---------- ----------
NET INCOME ................................ $ 1,489 $ 1,413 $ 434 $ 449
========== ========== ========== ==========
PER SHARE DATA
Net income ..................................... $ 1.13 $ 1.05 $ .33 $ .33
Cash dividends ................................. $ .47 $ .44 $ .16 $ .15
Weighted average shares outstanding ............ 1,312,811 1,340,749 1,312,811 1,340,749
See accompanying notes to Consolidated Financial Statements.
-2-
CCFNB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
UNAUDITED
FOR THE NINE
MONTHS ENDING
SEPTEMBER 30,
-------------
2002 2001
-------- --------
OPERATING ACTIVITIES
Net income .................................................. $ 1,489 $ 1,413
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses ................................ 264 148
Provision for depreciation and amortization .............. 361 331
Premium amortization on investment securities ............ 149 58
Discount accretion on investment securities .............. (17) (13)
Securities gains - net ................................... (107) (71)
Deferred income taxes (benefit) .......................... (114) (47)
(Increase) decrease in accrued interest receivable and
other assets ........................................... 34 (348)
(Decrease) in accrued interest, other expenses and other
liabilities ............................................ (15) (6)
Loss from investment in insurance agency ................. 6 0
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES .............. $ 2,050 $ 1,465
-------- --------
INVESTING ACTIVITIES
Proceeds from sales, maturities and redemptions of investment
securities Available-for-Sale ............................. $ 26,042 $ 25,408
Purchase of investment securities Available-for-Sale ........ (26,130) (29,762)
Net (increase) decrease in loans ............................ (7,736) (4,231)
Purchases of premises and equipment ......................... (250) (72)
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES .... $ (8,074) $ (8,657)
-------- --------
FINANCING ACTIVITIES
Net increase (decrease) in deposits ......................... $ 12,870 $ 8,765
Net increase (decrease) in short-term borrowings ............ (1,480) 1,132
Net increase (decrease) in long-term borrowings ............. (7) (2,007)
Proceeds from issuance of common stock ...................... 135 113
Acquisition of treasury stock ............................... (675) (328)
Cash dividends paid ......................................... (615) (589)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES .............. $ 10,228 $ 7,086
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ....... $ 4,204 $ (106)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............ 8,518 12,663
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............ $ 12,722 $ 12,557
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest .................................................. $ 4,353 $ 5,369
Income taxes .............................................. $ 532 $ 468
See accompanying notes to Consolidated Financial Statements.
-3-
CCFNB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of CCFNB Bancorp, Inc. and
Subsidiary (the "Corporation") are in accordance with accounting
principles generally accepted in the United States of America and
conform to common practices within the banking industry. The more
significant policies follow:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of CCFNB
Bancorp, Inc. and its wholly owned subsidiary, Columbia County Farmers
National Bank (the "Bank") and all other equity interests. All
significant inter-company balances and transactions have been
eliminated in consolidation.
NATURE OF OPERATIONS & LINES OF BUSINESS
The Corporation provides full banking services, including trust
services, through the Bank, to individuals and corporate customers. The
Bank has six offices covering an area of approximately 484 square miles
in Northeastern Pennsylvania. The Corporation and its banking
subsidiary are subject to regulation of the Office of the Comptroller
of the Currency, The Federal Deposit Insurance Corporation and the
Federal Reserve Bank of Philadelphia.
Procuring deposits and making loans are the major lines of business.
The deposits are mainly deposits of individuals and small businesses
and the loans are mainly real estate loans covering primary residences
and small business enterprises. The trust services, under the name of
CCFNB and Co., include administration of various estates, pension
plans, self-directed IRA's and other services. A third-party brokerage
arrangement is also resident in the main branch, namely Bloomsburg.
This investment center offers a full line of stocks, bonds and other
non-insured financial services.
On December 19, 2000, the Corporation became a Financial Holding
Company by having filed an election to do so with the Federal Reserve
Board. The Bancorp acquired a 50% interest in a local insurance agency
during January 2001.
USE OF ESTIMATES
The preparation of these consolidated financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of these
consolidated financial statements and the reported amounts of income
and expenses during the reporting periods. Actual results could differ
from those estimates.
-4-
INVESTMENT SECURITIES
The Corporation classifies its investment securities as either
"Held-to- Maturity" or "Available-for-Sale" at the time of purchase.
Debt securities are classified as Held-to-Maturity when the Corporation
has the ability and positive intent to hold the securities to maturity.
Investment securities Held-to-Maturity are carried at cost adjusted for
amortization of premiums and accretion of discounts to maturity.
Debt securities not classified as Held-to-Maturity and equity
securities included in the Available-for-Sale category, are carried at
fair value, and the amount of any unrealized gain or loss net of the
effect of deferred income taxes is reported as a component of
Stockholders' Equity. Management's decision to sell Available-for-Sale
securities is based on changes in economic conditions controlling the
sources and uses of funds, terms, availability of and yield of
alternative investments, interest rate risk, and the need for
liquidity.
The cost of debt securities classified as Held-to-Maturity or
Available-for-Sale is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization and accretion, as
well as interest and dividends, is included in interest income from
investments. Realized gains and losses are included in net investment
securities gains. The cost of investment securities sold, redeemed or
matured is based on the specific identification method.
LOANS
Loans are stated at their outstanding principal balances, net of
deferred fees or costs, unearned income, and the allowance for loan
losses. Interest on loans is accrued on the principal amount
outstanding, primarily on an actual day basis. Non-refundable loan fees
and certain direct costs are deferred and amortized over the life of
the loans using the interest method. The amortization is reflected as
an interest yield adjustment, and the deferred portion of the net fees
and costs is reflected as a part of the loan balance.
Non-Accrual Loans - Generally, a loan is classified as non-accrual,
with the accrual of interest on such a loan discontinued when the
contractual payment of principal or interest has become 90 days past
due or management has serious doubts about further collectibility of
principal or interest, even though the loan currently is performing. A
loan may remain on accrual status if it is in the process of collection
and is either guaranteed or well secured. When a loan is placed on
non-accrual status, unpaid interest credited to income in the current
year is reversed, and unpaid interest accrued in prior years is charged
against the allowance for credit losses. Certain non-accrual loans may
continue to perform, that is, payments are still being received with
those payments generally applied to principal. Non-accrual loans remain
under constant scrutiny and if performance continues, interest income
may be recorded on a cash basis based on management's judgement as to
collectibility of principal.
-5-
Allowance for Loan Losses - The allowance for loan losses is
established through provisions for loan losses charged against income.
Loans deemed to be uncollectible are charged against the allowance for
loan losses, and subsequent recoveries, if any, are credited to the
allowance.
A factor in estimating the allowance for loan losses is the measurement
of impaired loans. A loan is considered impaired when, based on current
information and events, it is probable that the Corporation will be
unable to collect all amounts due according to the contractual terms of
the loan agreement. Under current accounting standards, the allowance
for loan losses related to impaired loans is based on discounted cash
flows using the loan's effective interest rate or the fair value of the
collateral for certain collateral dependent loans.
The allowance for loan losses is maintained at a level established by
management to be adequate to absorb estimated potential loan losses.
Management's periodic evaluation of the adequacy of the allowance for
loan losses is based on the Corporation's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may
affect the borrower's ability to repay (including the timing of future
payments), the estimated value of any underlying collateral,
composition of the loan portfolio, current economic conditions, and
other relevant factors. This evaluation is inherently subjective as it
requires material estimates, including the amounts and timing of future
cash flows expected to be received on impaired loans that may be
susceptible to significant change.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation
computed principally on the straight-line method over the estimated
useful lives of the assets. Maintenance and minor repairs are charged
to operations as incurred. The cost and accumulated depreciation of the
premises and equipment retired or sold are eliminated from the property
accounts at the time of retirement or sale, and the resulting gain or
loss is reflected in current operations.
OTHER REAL ESTATE OWNED
Other real estate owned is comprised of property acquired through a
foreclosure proceeding or acceptance of a deed-in-lieu of foreclosure
and loans classified as in-substance foreclosure. In accordance with
Statement of Financial Accounting Standards (SFAS) No. 114, a loan is
classified as in-substance foreclosure when the Corporation has taken
possession of the collateral regardless of whether formal foreclosure
proceedings take place. Other real estate owned is recorded at fair
value at the date of foreclosure, establishing a new cost basis and is
included in other assets. After foreclosure, valuations are
periodically performed by management, and the real estate is carried at
the lower of (1) cost or (2) fair value minus estimated costs to sell.
Income and expenses from operations of other real estate owned and
changes in the valuation allowance are included in other non-interest
income and expense.
-6-
INVESTMENT IN INSURANCE AGENCY
On January 2, 2001, the Corporation acquired a 50% interest in a local
insurance agency, a corporation organized under the laws of the
Commonwealth of Pennsylvania. The income or loss from this investment
is accounted for under the equity method of accounting. The carrying
value of this investment was $159,289 and $165,352 at September 30,
2002 and December 31, 2001, respectively.
INCOME TAXES
The provision for income taxes is based on the results of operations,
adjusted primarily for tax-exempt income. Certain items of income and
expense are reported in different periods for financial reporting and
tax return purposes. Deferred tax assets and liabilities are determined
based on the differences between the consolidated financial statement
and income tax bases of assets and liabilities measured by using the
enacted tax rates and laws expected to be in effect when the timing
differences are expected to reverse. Deferred tax expense or benefit is
based on the difference between deferred tax asset or liability from
period to period.
PER SHARE DATA
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
Per Share", requires dual presentation of basic and diluted earnings
per share. Basic earnings per share is calculated by dividing net
income by the weighted average number of shares of common stock
outstanding at the end of each period. Diluted earnings per share is
calculated by increasing the denominator for the assumed conversion of
all potentially dilutive securities. The Corporation does not have any
securities which have or will have a dilutive effect, accordingly,
basic and diluted per share data is the same.
CASH FLOW INFORMATION
For purposes of reporting consolidated cash flows, cash and cash
equivalents include cash on hand and due from banks, interest-bearing
deposits in other banks and federal funds sold. The Corporation
considers cash classified as interest-bearing deposits with other banks
as a cash equivalent because they are represented by cash accounts
essentially on a demand basis. Federal funds are also included as a
cash equivalent because they are generally purchased and sold for
one-day periods.
TRUST ASSETS AND INCOME
Property held by the Corporation in a fiduciary or agency capacity for
its customers is not included in the accompanying consolidated
financial statements because such items are not assets of the
Corporation. Trust Department income is generally recognized on a cash
basis and is not materially different than if it was reported on an
accrual basis.
-7-
SEGMENT REPORTING
The Corporation's banking subsidiary acts as an independent community
financial services provider, and offers traditional banking and related
financial services to individual, business and government customers.
Through its branch, internet banking, telephone and automated teller
machine network, the Bank offers a full array of commercial and retail
financial services, including the taking of time, savings and demand
deposits; the making of commercial, consumer and mortgage loans; and
the providing of other financial services. The Bank also performs
personal, corporate, pension and fiduciary services through its Trust
Department as well as offering diverse investment products through its
investment center.
Management does not separately allocate expenses, including the cost of
funding loan demand, between the commercial, retail, trust and
investment center operations of the Corporation. As such, discrete
financial information is not available and segment reporting would not
be meaningful.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS) No. 140, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities", is generally effective for transactions occurring after
March 31, 2001. For recognition and reclassification of collateral and
for disclosure related to securitization transactions and collateral,
the effective date is for fiscal years ending after December 15, 2000.
SFAS No. 140 replaces SFAS No. 125 and provides revisions to the
standards for accounting and requirements for certain disclosures
relating to securitizations and other transfers of financial assets.
The standard is not expected to have a significant impact on the
Corporation's consolidated financial condition or results of
operations.
RECLASSIFICATION
Certain amounts in the consolidated financial statements of the prior
years have been reclassified to conform with presentation used in the
2002 consolidated financial statements. Such reclassifications had no
effect on the Corporation's consolidated financial condition or net
income.
NOTE 2 - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the periods ended
September 30, 2002 and September 30, 2001 were as follows:
(AMOUNTS IN THOUSANDS)
----------------------
2002 2001
------- -------
Balance, beginning of year ............ $ 1,028 $ 1,008
Provision charged to operations ....... 264 148
Loans charged-off ..................... (65) (145)
Recoveries ............................ 52 37
------- -------
Balance, September 30 ................. $ 1,279 $ 1,048
======= =======
-8-
At September 30, 2002 the recorded investment in loans that are
considered to be impaired as defined by SFAS No. 114 was $38,602. No
additional charge to operations was required to provide for the
impaired loans since the total allowance for loan losses is estimated
by management to be adequate to provide for the loan loss allowance
required by SFAS No. 114 along with any other potential losses.
At September 30, 2002, there were no significant commitments to lend
additional funds with respect to non-accrual and restructured loans.
NOTE 3 - SHORT-TERM BORROWINGS
Federal funds purchased, securities sold under agreements to
repurchase, and Federal Home Loan Bank advances generally represented
overnight or less than 30-day borrowings. U.S. Treasury tax and loan
notes for collections made by the Bank were payable on demand.
NOTE 4 - LONG-TERM BORROWINGS
Long-term borrowings are comprised of advances from the Federal Home
Loan Bank.
NOTE 5 - STOCKHOLDERS' EQUITY
Changes in stockholders' equity for the period ended September 30, 2002
were as follows:
(AMOUNTS IN THOUSANDS, EXCEPT COMMON SHARE DATA)
------------------------------------------------
ACCUMULATED
OTHER
COMPREHENSIVE COMPREHENSIVE
COMMON COMMON INCOME RETAINED INCOME TREASURY
SHARES STOCK SURPLUS (LOSS) EARNINGS (LOSS) STOCK TOTAL
------ ----- ------- ------ -------- ------ ----- -----
Balance at January 1, 2002 ........ 1,326,172 $1,658 $4,730 $ 0 $19,579 $ 75 $ 0 $26,042
Comprehensive Income:
Net income ....................... 0 0 0 1,489 1,489 0 0 1,489
Change in unrealized gain (loss)
on investment securities
available-for-sale net of
reclassification adjustment
and tax effects ................. 0 0 0 546 0 546 0 546
-------
TOTAL COMPREHENSIVE INCOME (LOSS) $ 2,035
=======
Issuance of 6,317 shares of common
stock under dividend reinvestment
and stock purchase plans ........ 6,317 8 127 0 0 0 135
Purchase of 30,500 shares of
treasury stock .................. 0 0 0 0 0 (675) (675)
Retirement of 30,500 shares of
treasury stock .................. (30,500) (39) (636) 0 0 675 0
Cash dividends $.31 per share ..... 0 0 0 (615) 0 0 (615)
--------- ------ ------ -------- ---------- -------- -------
Balance at September 30, 2002 ..... 1,301,989 $1,627 $4,221 $20,453 $ 621 $ 0 $26,922
========= ====== ====== ======== ========== ======== =======
-9-
NOTE 6 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK
The Corporation is a party to financial instruments with off-balance
sheet risk in the normal course of business to meet the financing needs
of its customers. These financial instruments include commitments to
extend credit, standby letters of credit and commercial letters of
credit. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
consolidated balance sheets. The contract or notional amounts of those
instruments reflect the extent of involvement the Corporation has in
particular classes of financial instruments. The Corporation does not
engage in trading activities with respect to any of its financial
instruments with off-balance sheet risk.
The Corporation may require collateral or other security to support
financial instruments with off-balance sheet credit risk. The contract
or notional amounts at September 30, 2002 and December 31, 2001 were as
follows:
(Amounts in Thousands)
----------------------
SEPTEMBER DECEMBER
30, 2002 31, 2001
--------- --------
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit .................................... $12,607 $11,842
Financial standby letters of credit ............................. 1,887 2,348
Performance standby letters of credit ........................... 48 15
Dealer floor plans .............................................. 1,911 1,884
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Because many of
the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The Corporation evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Corporation upon extension of
credit, is based on management's credit evaluation of the
counter-party. Collateral held varies but may include accounts
receivable, inventory, property, plant, equipment and income-producing
commercial properties.
Standby letters of credit and commercial letters of credit are
conditional commitments issued by the Corporation to guarantee the
performance of a customer to a third party. The credit risk involved in
issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers. The Corporation holds
collateral supporting those commitments for which collateral is deemed
necessary.
The Corporation's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for
commitments to extend credit and letters of credit is represented by
the contractual notional amount of those instruments. The Corporation
uses the same credit policies in making commitments and conditional
obligations, as it does for on-balance sheet instruments.
-10-
The Corporation granted commercial, consumer and residential loans to
customers within Pennsylvania. Of the total loan portfolio at September
30, 2002, 82.6% was for real estate loans, principally residential. It
was the opinion of management that the high concentration did not pose
an adverse credit risk. Further, it was management's opinion that the
remainder of the loan portfolio was balanced and diversified to the
extent necessary to avoid any significant concentration of credit.
NOTE 7 - MANAGEMENT'S ASSERTIONS AND COMMENTS REQUIRED TO BE PROVIDED WITH FORM
10Q FILING
In management's opinion, the consolidated interim financial statements
reflect fair presentation of the consolidated financial position of
CCFNB Bancorp, Inc. and Subsidiary, and the results of their operations
and their cash flows for the interim periods presented. Further, the
consolidated interim financial statements are unaudited however they
reflect all adjustments, which are in the opinion of management,
necessary to present fairly the consolidated financial condition and
consolidated results of operations and cash flows for the interim
periods presented and that all such adjustments to the consolidated
financial statements are of a normal recurring nature.
The results of operations for the nine-month period ended September 30,
2002, are not necessarily indicative of the results to be expected for
the full year.
These consolidated interim financial statements have been prepared in
accordance with requirements of Form 10Q and therefore do not include
all disclosures normally required by accounting principles generally
accepted in the United States of America applicable to financial
institutions as included with consolidated financial statements
included in the Corporation's annual Form 10K filing. The reader of
these consolidated interim financial statements may wish to refer to
the Corporation's annual report or Form 10K for the period ended
December 31, 2001, filed with the Securities and Exchange Commission.
-11-
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders of CCFNB Bancorp, Inc.:
We have reviewed the accompanying consolidated balance sheet of CCFNB Bancorp,
Inc. and Subsidiary as of September 30, 2002, and the related consolidated
statements of income and cash flows for the three and nine month periods ended
September 30, 2002 and 2001. These consolidated financial statements are the
responsibility of the management of CCFNB Bancorp, Inc. and Subsidiary.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with accounting principles generally accepted in the United
States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of
CCFNB Bancorp, Inc. and Subsidiary as of December 31, 2001, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
year then ended (not presented herein); and in our report dated January 18,
2002, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 2001, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
/s/ J.H. Williams & Co., LLP
J.H. Williams & Co., LLP
Kingston, Pennsylvania
October 23, 2002
-12-
CCFNB BANCORP, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 2002
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Consolidated Summary of Operations
(Dollars in Thousands, except for per share data)
At and For the Nine
Months
Ended September 30,
-------------------
2002 2001
---- ----
Income and Expense:
Interest income $ 9,684 $ 10,342
Interest expense 4,324 5,369
----- -----
Net interest income 5,360 4,973
Loan loss provision 264 148
----- -----
Net interest income after loan loss
Provision 5,096 4,825
Non-interest income 888 821
Non-interest expense 4,076 3,832
----- -----
Income before income taxes 1,908 1,814
Income taxes 419 401
----- -----
Net income $ 1,489 $ 1,413
=========== ===========
Per Share (1):
Net income $ 1.13 $ 1.05
Cash dividends paid .47 .44
Average shares outstanding 1,312,811 1,340,749
Average Balance Sheet:
Loans $ 146,565 $ 139,468
Investments 54,381 51,680
Other earning assets 7,590 8,213
Total assets 219,015 210,011
Deposits 162,157 150,820
Other interest-bearing liabilities 29,417 31,781
Stockholders' equity 26,036 26,008
Balance Sheet Data:
Loans $ 150,624 $ 142,990
Investments 58,015 57,121
Other earning assets 6,735 2,313
Total assets 226,610 214,238
Deposits 168,536 155,666
Other interest-bearing liabilities 29,651 31,138
Stockholders' equity 26,922 26,042
Ratios: (2)
Return on average assets .91% .90%
Return on average equity 7.63 7.23%
Dividend payout ratio 41.30% 41.68%
Average equity to average assets ratio 11.89% 12.38%
At and For the Years Ended December 31,
---------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Income and Expense:
Interest income $ 13,720 $ 13,552 $ 12,669 $ 12,444 $ 12,498
Interest expense 6,924 6,859 6,099 6,072 5,976
----- ----- ----- ----- -----
Net interest income 6,796 6,693 6,570 6,372 6,522
Loan loss provision 163 54 78 78 60
----- ----- ----- ----- -----
Net interest income after loan loss
Provision 6,633 6,639 6,492 6,294 6,462
Non-interest income 1,149 1,053 1,050 981 804
Non-interest expense 5,104 4,967 4,818 4,739 4,492
----- ----- ----- ----- -----
Income before income taxes 2,678 2,725 2,724 2,536 2,774
Income taxes 621 671 685 634 749
----- ----- ----- ----- -----
Net income $ 2,057 $ 2,054 $ 2,039 $ 1,902 $ 2,025
=========== =========== ========== ========== ==========
Per Share (1):
Net income $ 1.54 $ 1.51 $ 1.48 $ 1.38 $ 1.47
Cash dividends paid .59 .56 .51 .46 .46
Average shares outstanding 1,338,007 1,355,624 1,375,572 1,378,339 1,381,800
Average Balance Sheet:
Loans $ 139,219 $ 134,325 $ 123,185 $ 116,490 $ 116,771
Investments 50,593 47,003 49,827 45,878 41,671
Other earning assets 6,569 219 1,638 3,890 2,736
Total assets 208,630 196,727 186,597 177,643 171,159
Deposits 149,601 139,774 138,963 131,366 129,054
Other interest-bearing liabilities 31,629 31,203 23,458 22,660 20,198
Stockholders' equity 25,890 23,910 22,874 22,264 20,690
Balance Sheet Data:
Loans $ 142,990 $ 137,360 $ 134,423 $ 118,558 $ 119,045
Investments 57,121 47,311 49,104 48,151 43,862
Other earning assets 63,312 4,814 1,343 5,133 1,708
Total assets 214,238 203,054 196,122 185,258 173,866
Deposits 142,990 143,169 138,606 137,679 127,719
Other interest-bearing liabilities 31,384 33,477 33,224 22,709 22,802
Stockholders' equity 26,042 25,050 23,047 23,480 22,105
Ratios: (2)
Return on average assets .99% 1.04% 1.09% 1.07% 1.18%
Return on average equity 7.92% 8.59% 8.91% 8.54% 9.79%
Dividend payout ratio 38.31% 36.89% 34.09% 33.59% 31.65%
Average equity to average assets ratio 12.16% 12.34% 11.75% 12.53% 12.09%
(1) Per share data has been calculated on the weighted average number of
shares outstanding.
(2) The ratios for the nine month period ending September 30, 2002 and 2001
are annualized.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Form 10-Q, both in the MD & A and elsewhere, contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Such statements are not historical facts and include expressions about our
confidence and strategies and our expectations about new and existing programs
and products, relationships, opportunities, technology and market conditions.
These statements may be identified by such forward-looking terminology as
"expect," "look," "believe," "anticipate," "may," "will," or similar statements
or variations of such terms. Such forward-looking statements involve certain
risks and uncertainties. These include, but are not limited to, the direction of
interest rates, continued levels of loan quality and origination volume,
continued relationships with major customers, and sources for loans, as well as
the effects of economic conditions and legal and regulatory barriers and
structure. Actual results may differ materially from such forward-looking
statements. We assume no obligation for updating any such forward-looking
statement at any time. Our consolidated financial condition and results of
operations are essentially those of our wholly-owned subsidiary bank, Columbia
County Farmers National Bank. Therefore, our discussion and analysis that
follows is primarily centered on the performance of this bank.
13
EARNINGS SUMMARY
Net income for the nine months ended September 30, 2002 was $1,489 thousand or
$1.13 per basic and diluted share. These results compare with net income of
$1,413 thousand, or $1.050 per basic and diluted share for the same period in
2001. Annualized return on average equity increased to 7.63 percent from 7.23
percent, while the annualized return on average assets increased to .91 percent
from .90 percent, for the nine months ended September 30, 2002 and 2001
respectively.
Net interest income continues to be the largest source of our operating income.
Net interest income on a tax equivalent basis increased to $5.7 million at
September 30, 2002, compared with $5.2 million for the nine months ended
September 30, 2001. The increase in net interest income is primarily due to the
decreased interest rates on deposits "catching up" with decreased loan rates.
The tax equavilized interest margin increased to 3.66 percent for the nine
months ended September 30, 2002, compared to 3.49 percent for the nine months
ended September 30, 2001.
Average interest earning assets increased $9.2 million or 4.6 percent for the
nine months ended September 30, 2002 over the same period in 2001. Average loans
increased $7.1 million or 5.1 percent, average investments increased $2.7
million or 5.2 percent and average federal funds sold and interest-bearing
deposits with other financial institutions decreased .6 million or 7.6 percent
for this nine month period.
Average interest bearing liabilities for the nine months ended September 30,
2002 increased $8.8 million or 5.2 percent from the same period in 2001. Average
short-term borrowings were $18.1 million at September 30, 2002 and $20.4 million
at September 30, 2001. Long-term debt, which includes primarily FHLB advances,
remained at 13.4 million at September 30, 2002 and September 30, 2001 Average
demand deposits increased $200 thousand from 2001 balances.
The average interest rate on total interest earning assets was 6.19 percent for
the nine months ended September 30, 2002, compared with 6.92 percent for the
nine months ended September 30, 2001. The average interest rate for loans
decreased 74 basis points to 6.93 percent at September 30, 2002 compared to 7.67
percent September 30, 2001. Interest-bearing deposits with other Financial
Institutions interest rates decreased drastically 373 basis points to 1.57
percent from 5.30 percent at September 30, 2002 and September 30, 2002
respectively. Average rates on interest bearing deposits decreased by 89 basis
points to 3.21 percent from 4.10 percent one year ago. Average interest rates
also decreased on total interest bearing liabilities by 100 basis points to 3.25
percent from 4.25 percent. The reason for these decreases on interest bearing
liabilities was primarily attributed to the decreasing rates on all deposit
liabilities and the tied-to-prime interest rates paid on repurchase agreements
with large customers. The net interest margin increased to 3.66 percent for the
nine months ended September 30, 2002 from 3.49 percent for the nine months ended
September 30, 2001.
NET INTEREST INCOME
Net interest income increased to $5.4 million for the nine months ended
September 30, 2002 compared to $5.0 million for the same period in 2001.
The following table reflects the components of net interest income for each of
the nine months ended September 30, 2002 and 2001.
ANALYSIS OF AVERAGE ASSETS, LIABILITIES AND CAPITAL EQUITY
AND
NET INTEREST INCOME ON A TAX EQUIVALENT BASIS
AVERAGE BALANCE SHEET AND RATE ANALYSIS
(Dollars in Thousands)
Nine Months Ended September 30, 2002 and 2001
Interest Average Interest Average
Average Income / Yield / Average Income / Yield /
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
(1) (2) (1) (2)
ASSETS:
Interest-bearing deposits with other financial institutions..... $4,413 $52 1.57% $6,213 $247 5.30%
Investment securities (3)....................................... 54,381 1,969 5.73% 51,680 2,015 6.16%
Federal funds sold.............................................. 3,177 41 1.72% 2,000 58 3.87%
Loans ........................................................ 146,565 7,622 6.93% 139,468 8,022 7.67%
------- ----- ------- -----
Total interest earning assets................................... $208,536 $9,684 6.19% $199,361 $10,342 6.92%
-------- ------ -------- -------
Reserve for loan losses......................................... (1,053) (1,015)
Cash and due from banks......................................... 2,266 4,902
Other assets.................................................... 9,266 6,763
----- -----
Total assets.................................................... $219,015 $210,011
======== ========
14
LIABILITIES AND CAPITAL:
Interest bearing deposits $147,789 $ 3,557 3.21% $136,634 $ 4,202 4.10%
Short-term borrowings 18,064 258 2.91% 20,419 607 3.96%
Long-term borrowings 11,353 509 5.98% 11,362 560 6.57%
-------- ------- -------- -------
Total interest-bearing liabilities $177,206 $ 4,324 3.25% $168,415 $ 5,369 4.25%
-------- ------- -------- -------
Demand deposits................................................. $14,368 $14,186
Other liabilities............................................... 1,405 1,402
Stockholders' equity............................................ 26,036 26,008
------ ------
Total liabilities and capital................................... $219,015 $210,011
-------- --------
NET INTEREST INCOME / $ 5,360 3.43% $ 4,973 3.33%
NET INTEREST MARGIN (4).......................................
TAX EQUIVALENT NET INTEREST INCOME / $ 5,730 3.66% $ 5,219 3.49%
NET INTEREST MARGIN (5).......................................
(1) Average volume information was computed using daily averages.
(2) Interest on loans includes fee income.
(3) Yield on tax-exempt obligations has been computed on a tax-equivalent
basis.
(4) Net interest margin is computed by dividing net interest income by total
interest earning assets.
(5) Interest and yield are presented on a tax-equivalent basis using 34
percent for 2002 and 2001.
The following table demonstrates the relative impact on net interest income of
changes in volume of interest earnings assets and interest bearing liabilities
and changes in rates earned and paid by us on such assets and liabilities.
CHANGE IN NET INTEREST INCOME ON A TAX EQUIVALENT BASIS
Nine Months Ended September 30, 2002
Compared with 2001
Increase (Decrease) (2)
Volume Rate Total
(In thousands)
Interest income:
Loans (1) $ 554 ($1,032) ($ 488)
Investments 166 (222) (56)
Federal funds sold and other short-term investments 46 (43) 3
Interest expense:
Deposits $ 457 ($1,216) ($ 759)
Short-term borrowings 0 (12) (12)
Long term debt (1) (67) (68)
Net: $ 300 $ (2) $ 298
(1) Interest income is adjusted to a tax equivalent basis using a 34 percent
tax rate.
(2) Variances resulting from a combination of changes in volume and rates are
allocated to the categories in proportion to the absolute dollar amounts
of the change in each category.
Average interest earning assets at September 30, 2002 increased by 4.6 percent
over September 30, 2001 to $208.5 million from $199.4 million.
Average loans outstanding increased from $139.5 million to $146.6 million or 5.1
percent for the nine months ended September 30, 2002, as compared to the nine
months ended September 30, 2001.
15
The outstanding balance of loans at September 30, 2002 was $150.6 million
compared to $143 million at December 31, 2001.
Interest income from investment securities remained constant at $2 million for
the nine months ended September 30, 2002 and 2001. The average balance of
investment securities for the nine months ended September 30, 2002 increased 5.2
percent to $5.4 million, compared to the $51.7 million for the same period of
2001.
Total interest expense decreased $1.1 million or 20.4 percent for the first nine
months of 2002 as compared to the first nine months of 2001. The cost of
interest bearing liabilities decreased on an average yield basis from 4.25
percent through September 2001 compared to 3.25 percent through September 2002.
The average yield on interest earning assets decreased from 6.92 percent to 6.19
percent through September 2002 and 2001, respectively.
Average short-term borrowings decreased $2.4 million from $20.4 million at
September 30, 2001 to $18.1 million at September 30, 2002.
Long-term borrowings from Federal Home Loan Bank remained constant at an average
$11.4 million at September 30, 2002 and 2001.
NON-INTEREST INCOME
The following table presents the components of non-interest income for the six
months ended June 30, 2002 and 2001.
Nine Months Ended
September 30,
(In thousands)
2002 2001
---- ----
Service charges and fees $487 $453
Trust Department income 151 165
Investment securities gain - net 107 71
Third party brokerage income 71 43
Other 72 89
----
Total $888 $821
---- ----
Non-interest income continues to represent a considerable source of our income.
We are committed to increasing non-interest income. Increases will be from our
existing sources of non-interest income and any new opportunities that may
develop. For the nine months ended September 30, 2002, total non-interest income
increased $67 thousand to $888 thousand or 8.2 percent, compared to $821
thousand for the nine months period ended September 30, 2001. Service charges
and fees increased $34 thousand from $453 thousand at September 30, 2002 to $487
thousand or 7.5 percent at September 30, 2002. Trust Department income decreased
from $165 thousand at September 30, 2001 to $151 thousand or 8.5 percent at
September 30 2002. Third party brokerage income reflected a $28 thousand
increase or 65.1 percent comparing September 30 2002 to September 30, 2001.
Other non-interest income decreased from $89 thousand at September 30, 2001 to
$72 thousand or 1.9 percent at June 30, 2002. This decrease was attributable to
a change in accounting for loan and credit report fees.
Investment securities gains were $107 thousand at September 30, 2002 and $71
thousand at September 30, 2002. If the investment security gains are not
considered, then the non-interest income increased $31 thousand for the nine
month period ending September 30, 2002 and 2001. This consisted mainly of
increases in interchange income from debit cards and third party brokerage
income increases.
NON-INTEREST EXPENSE
The following table presents the components of non-interest expense for the nine
months ended September 30, 2002 and 2001.
Nine Months Ended
September 30,
2002 2001
---- ----
(Dollars in Thousands)
Salaries and wages $1,638 $1,534
Employee benefits 566 518
Net occupancy expense 268 281
Furniture and equipment expense 442 406
State shares tax 192 181
Other expense 970 922
------ ------
Total $4,076 $3,832
------ ------
Non-interest expense increased from $3.8 million at September 30, 2001 to $4.1
million at September 30, 2002 or 6.4%.
16
Generally, non-interest expense accounts for the cost of maintaining facilities;
providing salaries and benefits to employees; and paying for insurance,
supplies, advertising, data processing services, taxes and other related
expenses. Some of the costs and expenses are variable while others are fixed. To
the extent possible, we utilize budgets and related measures to control variable
expenses.
Salaries increased 6.8 percent at September 30, 2002 compared to September 30,
2001. A 9.3 percent increase was reflected in employee benefits from $518
thousand at September 30, 2002, to $566 thousand at September 30, 2002.
Increased cost of employee benefits, specifically health coverage, accounted for
the increase in employee benefits.
Occupancy expense and furniture and equipment expense reflects a $23 thousand or
3.3 percent increase for the first nine months of 2002 compared to the first
nine months of 2001.
Pennsylvania Bank Shares Tax increased 6.1 percent from $181 thousand at
September 30, 2002 compared to $192 thousand at September 30, 2001.
Other expenses increased 5.2 percent from $922 thousand at September 30, 2001 to
$970 thousand at September 30, 2002.
INCOME TAXES
Income tax expense as a percentage of pre-tax income was 22 percent for the nine
months ended September 30, 2002 compared with 22.1 percent for the same period
in 2001. The effective tax rate for 2002 is expected to approximate 34 percent.
ASSET/LIABILITY MANAGEMENT
INTEREST RATE SENSITIVITY
Our success is largely dependent upon our ability to manage interest rate risk.
Interest rate risk can be defined as the exposure of our net interest income to
the movement in interest rates. We do not currently use derivatives to manage
market and interest rate risks. Our interest rate risk management is the
responsibility of the Asset/Liability Management Committee ("ALCO"), which
reports to the Board of Directors. ALCO establishes policies that monitor and
coordinate our sources, uses and pricing of funds as well as interest-earning
asset pricing and volume.
We use a simulation model to analyze net interest income sensitivity to
movements in interest rates. The simulation model projects net interest income
based on various interest rate scenarios over a 12 and 24 month period. The
model is based on the actual maturity and repricing characteristics of rate
sensitive assets and liabilities. The model incorporates assumptions regarding
the impact of changing interest rates on the prepayment rates of certain assets
and liabilities. In the current stagnant interest rate environment, our net
interest income is not expected to change materially.
LIQUIDITY
Liquidity measures the ability to satisfy current and future cash flow needs as
they become due. Maintaining a level of liquid funds through asset/liability
management seeks to ensure that these needs are met at a reasonable cost. On the
asset side, liquid funds are maintained in the form of cash and due from banks,
federal funds sold, investment securities maturing within one year, and security
and loan payments. Liquid assets amounted to $88.2 million and $101.3 million at
September 30, 2002 and December 31, 2001, respectively. This represents 42.3
percent and 50.0 percent of earning assets, and xxxxx percent and 47.3 percent
of total assets at September 30, 2002 and December 31, 2001, respectively.
On the liability side, the primary source of funds available to meet liquidity
needs is our core deposit base, which generally excludes certificates of deposit
over $100 thousand . Core deposits averaged approximately $132.4 million for the
nine months ended September 30, 2002 and $125.3 million for the year ended
December 31, 2001, representing 60.5 percent and 60.1 percent of average earning
assets. Short-term and long-term borrowings through federal funds lines,
repurchase agreements, Federal Home Loan Bank advances and large dollar
certificates of deposit, generally those over $100 thousand, are used as
supplemental funding sources. Additional liquidity is derived from scheduled
loan and investment payments of principal and interest, as well as prepayments
received. For the nine months ended September 30, 2002 there were $26 million of
proceeds from the sales, maturities and redemptions of investment securities
available for sale. Purchases of investment securities for the nine months ended
September 30, 2002 were $26.1 million. Short-term borrowings and certificates of
deposit over $100 thousand amounted to $47.1 million and $43.7 million for the
nine months ended September 30, 2002 and the year ended December 31, 2001,
respectively.
Our cash requirements consist primarily of dividends to shareholders. This cash
need is routinely satisfied by dividends collected from the bank along with cash
and investments owned. Projected cash flows from this source are expected to be
adequate to pay dividends, given the current capital levels and current
profitable operations of the bank. In addition, we may repurchase shares of our
outstanding common stock for benefit plans and other corporate purposes. The
cash required for a purchase of shares can be met by using our own funds,
dividends received from the bank, and borrowed funds.
As of September 30, 2002, we had $58 million of securities available for sale
recorded at their fair value, compared with $57.1 million at December 31, 2001.
As of September 30, 2002, the investment securities available for sale had an
unrealized gain of $621 thousand, net of deferred taxes, compared with an
unrealized gain of $75 thousand, net of deferred taxes, at December 31, 2001.
These securities are not considered trading account securities which may be sold
on a continuous basis, but rather are securities which may be sold to meet our
various liquidity and interest rate requirements.
17
NON-PERFORMING ASSETS
Shown below is a summary of past due and non-accrual loans:
(Dollars in thousands)
September 30, December 31,
2002 2001
Past due and non-accrual:
Days 30 - 89 $2,049 $ 949
Days 90 plus 92 969
Non-accrual 501 729
------ ------
Total $2,642 $2,647
------ ------
Past due and non-accrual loans remained constant at 2.6 million at September 30,
2002 and December 31, 2001. The loan delinquency expressed as a ratio to total
loans was 1.8% at September 30, 2002 and 1.9% at December 31, 2001.
Subsequently, during the month of October we reclassified 1.3 million from past
due to non-accrual loans.
Any loans classified for regulatory purposes as loss, doubtful, substandard, or
special mention that have not been disclosed under Industry Guide 3 do not (i)
represent or result from trends or uncertainties which we reasonably expect will
materially impact future operating results, liquidity, or capital resources, or
(ii) represent material credits about which we are aware of any information
which causes us to have serious doubts as to the ability of such borrowers to
comply with the loan repayment terms.
We adhere to principles provided by Financial Accounting Standards Board
Statement No. 114, "Accounting by Creditors for Impairment of a Loan" - Refer to
Note 2 above for other details.
The following analysis provides a schedule of loan maturities/interest rate
sensitivities. This schedule presents a repricing and maturity analysis as
required by the FFIEC:
(Dollars in
Thousands)
MATURITY AND REPRICING DATA FOR LOANS AND LEASES September 30,
2002
Closed-end loans secured by first liens and 1-4 family residential properties
with a remaining maturity or repricing frequency of:
(1) Three months or less...................................................... $3,894
(2) Over three months through 12 months....................................... 14,858
(3) Over one year through three years......................................... 28,680
(4) Over three years through five years....................................... 2,758
(5) Over five years through 15 years.......................................... 21,896
(6) Over 15 years............................................................. 318
All loans and leases other than closed-end loans secured by first liens on 1-4
family residential properties with a remaining maturity or repricing frequency
of:
(1) Three months or less...................................................... 24,438
(2) Over three months through 12 months....................................... 12,564
(3) Over one year through three years......................................... 19,971
(4) Over three years through five years ...................................... 6,891
(5) Over five years through 15 years.......................................... 13,511
(6) Over 15 years............................................................. 436
--------
Sub-total..................................................................... $150,215
Add: non-accrual loans not included above.......................................... 501
Less: unearned income............................................................... (92)
--------
Total Loans and Leases $150,624
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses reflected a balance of $1.3 million or .86 percent
of total loans at September 30, 2002 and a balance of $1 million or .70 percent
of total loans at December 31, 2001. The allowance is believed adequate for
possible loan losses in the future.
The provision for loan losses was $264 thousand for the first nine months of
2002 compared to $148 thousand for the first nine months of 2001. After
carefully examining our loan loss reserve analysis, the decision was made to
increase the loan loss provision $160 thousand in September 2002
18
Because our loan portfolio contains a significant number of commercial loans
with relatively large balances the deterioration of one or several of these
loans may result in a possible significant increase in non-performing loans. An
increase in non-performing loans could result in a loss of interest income,
higher carrying costs, and an increase in the provision for loan losses and loan
charge-offs.
We maintain an allowance for loan losses to absorb any loan losses based on our
historical experience, an evaluation of economic conditions, and regular reviews
of delinquencies and loan portfolio quality. In evaluating our allowance for
loan losses, we segment our loans into the following categories:
- Commercial (including investment property mortgages),
- Residential mortgages, and
- Consumer.
We evaluate some loans as a homogeneous group and others on an individual basis.
Commercial loans with balances exceeding $250 thousand are reviewed
individually. After our evaluation of these loans, we determine the required
allowance for loan losses based upon the following considerations:
- Historical loss levels,
- Prevailing economic conditions,
- Delinquency trends,
- Changes in the nature and volume of the portfolio,
- Concentrations of credit risk, and
- Changes in loan policies or underwriting standards.
Management and the Board of Directors review the adequacy of the reserve on a
quarterly basis and adjustments, if needed, are made accordingly.
For the Three Months
Ending September 30,
Amounts in thousands 2002 2001
- -------------------- --------- ---------
Average loans outstanding: $ 146,565 $ 139,468
Total loans at end of period 150,624 142,990
Balance at beginning of period 1,028 1,008
Total charge-offs (52) (145)
Total recoveries 65 37
Net charge-offs 13 (108)
Provision for loan losses 264 148
Balance at end of period $ 1,279 $ 1,048
--------- ---------
Net charge-offs as a percent of average loans outstanding during period .01% .08%
Allowance for loan losses as a percent of total loans .85% .74%
The allowance for loan losses is based on our evaluation of the allowance for
loan losses in relation to the credit risk inherent in the loan portfolio. In
establishing the amount of the provision required, management considers a
variety of factors, including but not limited to, general economic conditions,
volumes of various types of loans, collateral adequacy and potential losses from
significant borrowers. On a monthly basis, the Board of Directors and the bank's
Credit Administration Committee review information regarding specific loans and
the total loan portfolio in general in order to determine the amount to be
charged to the provision for loan losses.
For the nine month periods ending September 30, 2002 and 2001, the allowance for
loan losses was $1,279,000 and $1,048,000 respectively.
19
CAPITAL ADEQUACY
A major strength of any financial institution is a strong capital position. This
capital is very critical as it must provide growth, dividend payments to
shareholders, and absorption of unforeseen losses. Our federal regulators
provide standards that must be met. These standards measure "risk-adjusted"
assets against different categories of capital. The "risk-adjusted" assets
reflect off balance sheet items, such as commitments to make loans, and also
place balance sheet assets on a "risk" basis for collectibility. The adjusted
assets are measured against the standards of Tier I Capital and Total Qualifying
Capital. Tier I Capital is common shareholders' equity. Total Qualifying Capital
includes so-called Tier II Capital which is common shareholders' equity and the
allowance for loan and lease losses. The allowance for loan and lease losses
must be lower than or equal to common shareholders' equity to be eligible for
Total Qualifying Capital.
We exceed all minimum capital requirements as reflected in the following table:
September 30, 2002 December 31, 2001
------------------ -----------------
Minimum Minimum
Calculated Standard Calculated Standard
Ratios Ratios Ratios Ratios
---------- -------- ---------- --------
Risk Based Ratios:
Tier I Capital to risk-weighted assets 18.70% 4.00% 19.06% 4.00%
Total Qualifying Capital to risk-weighted assets 19.61% 8.00% 19.82% 8.00%
Additionally, certain other ratios also provide capital analysis as follows:
September 30, December 31,
2002 2001
Tier I Capital to average assets 12.01% 12.44%
We believe that the bank's current capital position and liquidity positions are
strong and that its capital position is adequate to support its operations.
Book value per share amounted to $20.68 at September 30, 2002, compared with
$19.64 per share at December 31, 2001.
Cash dividends declared amounted to $0.47 per share, for the nine months ended
September 30, 2002, equivalent to a dividend payout ratio of 41.30 percent,
compared with 41.68 percent for the same period in 2001. Our Board of Directors
continues to believe that cash dividends are an important component of
shareholder value and that, at the bank's current level of performance and
capital, we expect to continue our current dividend policy of a quarterly cash
distribution of earnings to our shareholders.
20
PART II - Other Information:
Item 1. Legal Proceedings
Management and the Corporation's legal counsel are not aware of any litigation
that would have a material adverse effect on the consolidated financial position
of the Corporation. There are no proceedings pending other than the ordinary
routine litigation incident to the business of the Corporation and its
subsidiary, Columbia County Farmers National Bank. In addition, no material
proceedings are pending or are known to be threatened or contemplated against
the Corporation and the Bank by government authorities.
Item 2. Changes in Securities - Nothing to report.
Item 3. Defaults Upon Senior Securities - Nothing to report.
Item 4. Submission of Matters to a Vote of Security Holders - Nothing to report.
Item 5. Other Information - Nothing to report.
Item 6. Exhibits and Reports on Form 8-K - Exhibits 99.1, 99.2, 99.3 and 99.4.
-21-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CCFNB BANCORP, INC.
(Registrant)
By /s/ Paul E. Reichart
____________________________
Paul E. Reichart
President & CEO
Date: November 8, 2002
By /s/ Virginia D. Kocher
_____________________________
Virginia D. Kocher
Treasurer
Date: November 8, 2002