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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 March 31, 2003
[ ] 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. 1,287,004 shares of
$1.25 (par) common stock were outstanding as of April 28, 2003.
CCFNB BANCORP, INC. AND SUBSIDIARY
MARCH 31, 2003
INDEX 10-Q
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 - 14
- Report of Independent Certified Public Accountants 15
- Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations 16 - 23
PART II - OTHER INFORMATION 24 - 28
SIGNATURES 29
CCFNB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH
31, 2003 DECEMBER
UNAUDITED 31, 2002
--------- --------
ASSETS
Cash and due from banks....................................... $ 5,013 $ 5,953
Interest-bearing deposits with other banks.................... 4,055 8,010
Federal funds sold............................................ 3,008 2,057
Investment securities:
Securities Available-for-Sale............................... 57,277 53,527
Loans, net of unearned income................................. 149,066 151,338
Allowance for loan losses..................................... 1,350 1,298
-------- --------
Net loans................................................... $147,716 $150,040
Premises and equipment........................................ 4,378 4,415
Other real estate owned....................................... 43 68
Cash surrender value life insurance........................... 3,674 3,627
Accrued interest receivable................................... 859 894
Other assets.................................................. 620 441
-------- --------
TOTAL ASSETS............................................. $226,643 $229,032
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing........................................ $ 14,749 $ 15,238
Interest bearing............................................ 156,967 156,889
-------- --------
Total Deposits........................................... $171,716 $172,127
Short-term borrowings......................................... 15,227 17,274
Long-term borrowings.......................................... 11,344 11,347
Accrued interest and other expenses........................... 1,291 1,332
Other liabilities............................................. 28 112
-------- --------
TOTAL LIABILITIES........................................ $199,606 $202,192
-------- --------
STOCKHOLDERS' EQUITY
Common stock, par value $1.25 per share; authorized
5,000,000 shares; issued and outstanding 1,289,004 shares
in 2003 and 1,292,724 shares in 2002........................ $ 1,611 $ 1,616
Surplus....................................................... 3,922 4,009
Retained earnings............................................. 20,980 20,679
Accumulated other comprehensive income (loss)................. 524 536
-------- --------
TOTAL STOCKHOLDERS' EQUITY............................... $ 27,037 $ 26,840
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............... $226,643 $229,032
======== ========
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 THREE
MONTHS ENDING
MARCH 31,
------------
2003 2002
---- ----
INTEREST INCOME
Interest and fees on loans:
Taxable.......................................................... $ 2,333 $ 2,472
Tax-exempt....................................................... 45 32
Interest and dividends on investment securities:
Taxable interest................................................. 340 456
Tax-exempt interest.............................................. 184 206
Dividends........................................................ 16 16
Interest on federal funds sold..................................... 12 3
Interest on deposits in other banks................................ 14 17
---------- ----------
TOTAL INTEREST INCOME......................................... $ 2,944 $ 3,202
---------- ----------
INTEREST EXPENSE
Interest on deposits............................................... $ 1,017 $ 1,169
Interest on short-term borrowings.................................. 80 83
Interest on long-term borrowings................................... 168 168
---------- ----------
TOTAL INTEREST EXPENSE........................................ $ 1,265 $ 1,420
---------- ----------
Net interest income................................................ $ 1,679 $ 1,782
Provision for loan losses.......................................... 50 24
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES........... $ 1,629 $ 1,758
---------- ----------
NON-INTEREST INCOME
Service charges and fees........................................... $ 183 $ 162
Trust department income............................................ 36 48
Other income....................................................... 107 33
---------- ----------
TOTAL NON-INTEREST INCOME..................................... $ 326 $ 243
---------- ----------
NON-INTEREST EXPENSES
Salaries and wages................................................. $ 525 $ 534
Pensions and other employee benefits............................... 186 184
Occupancy expense, net............................................. 103 89
Furniture and equipment expense.................................... 118 154
Other operating expenses........................................... 384 349
---------- ----------
TOTAL NON-INTEREST EXPENSES................................... $ 1,316 $ 1,310
---------- ----------
Income before income taxes......................................... $ 639 $ 691
Income tax expense................................................. 132 159
---------- ----------
NET INCOME.................................................... $ 507 $ 532
========== ==========
PER SHARE DATA
Net income......................................................... $ .39 $ .40
Cash dividends..................................................... $ .16 $ .15
Weighted average shares outstanding................................ 1,289,815 1,320,694
See accompanying notes to Consolidated Financial Statements.
-2-
CCFNB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
UNAUDITED
FOR THE THREE
MONTHS ENDING
MARCH 31,
---------
2003 2002
---- ----
OPERATING ACTIVITIES
Net income........................................................ $ 507 $ 532
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses...................................... 50 24
Depreciation and amortization.................................. 95 126
Premium amortization on investment securities.................. 105 58
Discount accretion on investment securities.................... (12) (6)
Deferred income taxes (benefit)................................ (25) (8)
(Gain) on sales of investment securities Available-for-Sale.... 0 0
(Gain) on sale of mortgage loans............................... (14) 0
Proceeds from sale of mortgage loans........................... 1,221 0
Originations of mortgage loans for resale...................... (1,207) 0
(Gain) on sale of other real estate owned...................... (12) 0
(Gain) loss from investment in insurance agency................ 6 8
(Increase) decrease in accrued interest receivable and
other assets................................................. (150) (201)
Net increase in cash surrender value of bank owned life
insurance.................................................... (47) (12)
Increase (decrease) in accrued interest, other expenses and
other liabilities............................................ (93) (62)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................... $ 424 $ 459
-------- --------
INVESTING ACTIVITIES
Purchase of investment securities Available-for-Sale.............. $(16,164) $ (5,000)
Proceeds from sales, maturities and redemptions of investment
securities Available-for-Sale................................... 12,304 8,791
Net (increase) decrease in loans.................................. 2,273 (2,384)
Purchases of premises and equipment............................... (59) (58)
Proceeds from sale of other real estate owned..................... 37 0
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES.......... $ (1,609) $ 1,349
-------- --------
FINANCING ACTIVITIES
Net increase (decrease) in deposits............................... $ (411) $ 3,686
Net increase (decrease) in short-term borrowings.................. (2,047) (182)
Net increase (decrease) in long-term borrowings................... (3) (3)
Acquisition of treasury stock..................................... (144) (245)
Proceeds from issuance of common stock............................ 52 51
Cash dividends paid............................................... (206) (197)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.......... $ (2,759) $ 3,110
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. $ (3,944) $ 4,918
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................. 16,020 8,518
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 12,076 $ 13,436
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest........................................................ $ 1,332 $ 1,506
Income taxes.................................................... $ 0 $ 68
See accompanying notes to Consolidated Financial Statements.
-3-
CCFNB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of CCFNB Bancorp, Inc. and
Subsidiary (the "Corporation") are in accordance with the 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"). 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 Financial Holding Company status was required in order to acquire
an interest in a local insurance agency that occurred 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 other comprehensive
income in the consolidated Statement 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.
Real estate mortgage loans held for resale are carried at the lower of
cost or market on an aggregate basis. These loans are sold with limited
recourse to the Corporation.
PAST DUE LOANS - Generally, a loan is considered past due when a
payment is in arrears for a period of 10 or 15 days, depending on the
type of loan. Delinquent notices are issued at this point and
collection efforts will continue on loans past due beyond 60 days which
have not been satisfied. Past due loans are continually evaluated with
determination for charge-off being made when no reasonable chance
remains that the status of the loan can be improved.
-5-
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 loan losses. Certain non-accrual loans may
continue to perform, wherein, 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.
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.
DERIVATIVES
The Bank has outstanding loan commitments that relate to the
origination of mortgage loans that will be held for resale. Pursuant to
Statement of Financial Accounting Standards (SFAS) No. 133 "Accounting
for Derivative Instruments and Hedging Activities" as amended by SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities" and the guidance contained in the Derivatives
Implementation Group Statement 133 Implementation Issue No. C 13, the
Bank has accounted for such loan commitments as derivative instruments.
The effective date of the implementation guidance was the first day of
the first fiscal quarter beginning after April 10, 2002. The
outstanding loan commitments in this category did not give rise to any
losses for the period ended March 31, 2003 and the year ended December
31, 2002, as the fair market value of each outstanding loan commitment
exceeded the Bank's cost basis in each loan commitment.
-6-
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.
MORTGAGE SERVICING RIGHTS
The Corporation originates and sells real estate loans to investors in
the secondary mortgage market. After the sale, the Corporation retains
the right to service these loans. When originated mortgage loans are
sold and servicing is retained, a servicing asset is capitalized based
on relative fair value at the date of sale. Servicing assets are
amortized as an offset to other fees in proportion to, and over the
period of, estimated net servicing income. The unamortized cost is
included in other assets in the accompanying consolidated balance
sheet. The servicing rights are periodically evaluated for impairment
based on their relative fair value.
OTHER REAL ESTATE OWNED
Real estate properties acquired through, or in lieu of, loan
foreclosure are held for sale and are initially recorded at fair value
on the date of foreclosure establishing a new cost basis. After
foreclosure, valuations are periodically performed by management and
the real estate is carried at the lower of carrying amount or fair
value less cost to sell and is included in other assets. Revenues
derived from and costs to maintain the assets and subsequent gains and
losses on sales are included in other non-interest income and expense.
BANK OWNED LIFE INSURANCE
The Corporation invests in Bank Owned Life Insurance (BOLI). Purchase
of BOLI provides life insurance coverage on certain employees with the
Corporation being owner and beneficiary of the policies.
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 as of March 31, 2003 and December 31, 2002 was
$159,293 and $165,431, respectively, and is carried in other assets in
the accompanying consolidated balance sheets.
-7-
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 are 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.
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.
-8-
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. 142, "Goodwill
and Other Intangible Assets" is generally effective for fiscal years
beginning after December 31, 2001, and addresses the financial
accounting and reporting for acquired goodwill and other intangible
assets and replaces APB Opinion No. 17 "Intangible Assets". The
statement addresses how intangible assets that are acquired
individually or with a group or other assets (but not those acquired in
a business combination) should be accounted for in financial statements
upon their acquisition. Goodwill and other intangible assets with an
indefinite useful life should not be amortized but should be tested for
impairment at least annually. Intangibles that are separable from
goodwill and that have a determinable useful life should be amortized
over the determinable useful life. The standard does not have any
impact on the Corporation's consolidated financial condition or results
of operations.
Statement of Financial Accounting Standards (SFAS) No. 143 "Accounting
for Asset Retirement Obligations" is generally effective for financial
statements for fiscal years beginning after June 15, 2002. The
statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. It applies to legal obligations
associated with the retirement of long-lived assets that result from
the acquisition, construction development and (or) the normal operation
of a long-lived asset. The Statement requires that the fair value of a
liability for an asset retirement obligation be recognized in the
period in which it is incurred if a reasonable estimate of fair value
can be made. The associated asset retirement costs are capitalized as
part of the carrying amount of the long-lived asset. This standard is
not expected to have any impact on the Corporation's consolidated
financial condition or results of operations.
Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting
for Impairment or Disposal of Long-Lived Assets" is generally effective
for financial statements issued for fiscal years beginning after
December 15, 2001, and for interim periods within those fiscal years.
The statement addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. The statement replaces
FASB Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of", and the accounting
and reporting provisions of APB Opinion No. 30, "Reporting the Results
of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events
and Transactions", for the disposal of a "segment of a business" (as
previously defined in that opinion). The statement also amends ARB No.
51, "Consolidated Financial Statements", to eliminate the exception to
consolidation for a subsidiary for which control is likely to be
temporary. This standard does not have any impact on the Corporation's
consolidated financial conditions or results of operations.
-9-
Statement of Financial Accounting Standards (SFAS) No. 145, "Recession
of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13
and Technical Corrections" is generally effective for financial
statements issued on or after May 15, 2002. The statement rescinds FASB
Statement No. 4, "Reporting Gains and Losses from Extinguishment of
Debt", and an amendment of that statement, FASB Statement No. 64,
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements".
The statement amends FASB Statement No. 13, "Accounting for Leases", to
eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain
lease modifications that have economic effects that are similar to
sale-leaseback transactions. The statement also amends other existing
authoritative pronouncements to make various technical corrections,
clarify meanings, or describe their applicability under changed
conditions. This standard does not have any impact on the Corporation's
consolidated financial condition or results of operations.
Statement of Financial Accounting Standards (SFAS) No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure" is generally
effective for financial statements for fiscal years and interim periods
beginning after December 31, 2002. The statement amends SFAS No. 123,
"Accounting for Stock-Based Compensation", to provide alternative
methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. The
statement also amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based compensation
and the effect of the method used on reported results. The Corporation
does not have any stock-based compensation, therefore the standard has
no impact on the Corporation's consolidated financial condition or
results of operations.
ADVERTISING COSTS
It is the Corporation's policy to expense advertising costs in the
period in which they are incurred. Advertising expense for the periods
ended March 31, 2003 and March 31, 2002, were approximately $15,871 and
$12,717, respectively.
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.
-10-
NOTE 2 - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the periods ended March
31, 2003 and March 31, 2002 were as follows:
(Amounts in Thousands)
--------------------
2003 2002
---- ----
Balance, beginning of year......................... $ 1,298 $ 1,028
Provision charged to operations.................... 50 24
Loans charged-off.................................. (19) (53)
Recoveries......................................... 21 16
-------- --------
Balance, March 31.................................. $ 1,350 $ 1,015
======== ========
At March 31, 2003 the recorded investment in loans that are considered
to be impaired as defined by SFAS No. 114 was $302,675. 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 March 31, 2003, there were no significant commitments to lend
additional funds with respect to non-accrual and restructured loans.
There were no real estate loans held for resale at March 31, 2003 and
December 31, 2002.
Non-accrual loans at March 31, 2003 and December 31, 2002 were
$2,348,000 and $2,122,074, respectively.
Loans past due 90 days or more and still accruing interest amounted to
$587,000 at March 31, 2003.
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.
-11-
NOTE 5 - DEFERRED COMPENSATION PLANS
In April 2003 the Bank entered into non-qualified deferred compensation
agreements with three executive officers to provide supplemental
retirement benefits commencing with the executive's retirement and
ending 15 years thereafter. The aggregate commitment under these
agreements is $2,400,000, and the expected charge to operations to fund
such plans for the year ending December 31, 2003 is estimated to be
approximately $48,775.
There were no substantial changes in other plans as disclosed in the
2002 Annual Report.
NOTE 6 - STOCKHOLDERS' EQUITY
Changes in stockholders' equity for the period ended March 31, 2003
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, 2003......... 1,292,724 $ 1,616 $ 4,009 $ 0 $20,679 $ 536 $ 0 $26,840
Comprehensive Income:
Net income........................ 0 0 0 507 507 0 0 507
Change in unrealized gain (loss)
on investment securities
available-for-sale net of
reclassification adjustment
and tax effects.................. 0 0 0 (12) 0 (12) 0 (12)
-------
TOTAL COMPREHENSIVE INCOME (LOSS) $ 495
Issuance of 2,280 shares of common =======
stock under dividend reinvestment
and stock purchase plans......... 2,280 3 49 0 0 0 52
Purchase of 6,000 shares of
treasury stock................... 0 0 0 0 0 (144) (144)
Retirement of 6,000 shares of
treasury stock................... (6,000) (8) (136) 0 0 144 0
Cash dividends $.16 per share...... 0 0 0 (206) 0 0 (206)
--------- ------- ------- ------- ------- ------ -------
Balance at March 31, 2003.......... 1,289,004 $ 1,611 $ 3,922 $20,980 $ 524 $ 0 $27,037
========= ======= ======= ======= ======= ====== =======
-12-
NOTE 7 - 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 March 31, 2003 and December 31, 2002 were as
follows:
(AMOUNTS IN THOUSANDS)
----------------------
MARCH DECEMBER
31, 2003 31, 2002
-------- --------
FINANCIAL INSTRUMENTS WHOSE CONTRACT AMOUNTS
REPRESENT CREDIT RISK:
Commitments to extend credit..................... $10,681,391 $11,768,038
Financial standby letters of credit.............. 1,842,578 1,842,578
Performance standby letters of credit............ 48,404 48,404
Dealer floor plans............................... 1,661,903 1,393,763
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.
-13-
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.
The Corporation granted commercial, consumer and residential loans to
customers within Pennsylvania. Of the total loan portfolio at March 31,
2003, 82.07% 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 8 - 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 three-month period ended March 31,
2003, 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, 2002, filed with the Securities and Exchange Commission.
-14-
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 March 31, 2003, and the related consolidated
statements of income and cash flows for the three month periods ended March 31,
2003 and 2002. These consolidated interim 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
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, 2002, 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 20,
2003, 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, 2002, 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
April 22, 2003
-15-
CCFNB BANCORP, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 2003
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 Three
Months
Ended March 31, At and For the Years Ended December 31,
--------------- ---------------------------------------
2003 2002 2002 2001 2000 1999 1998
---- ---- ---- ---- ---- ---- ----
Income and Expense:
Interest income .................... $ 2,944 $ 3,202 $ 12,780 $ 13,720 $ 13,552 $ 12,669 $ 12,444
Interest expense ................... 1,265 1,420 5,741 6,924 6,859 6,099 6,072
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income ................ 1,679 1,782 7,039 6,796 6,693 6,570 6,372
Loan loss provision ................ 50 24 309 163 54 78 78
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income after loan loss
Provision ........................ 1,629 1,758 6,730 6,633 6,639 6,492 6,294
Non-interest income ................ 326 243 1,210 1,149 1,053 1,050 981
Non-interest expense ............... 1,316 1 310 5,479 5,104 4,967 4,818 4,739
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes ......... 639 691 2,461 2,678 2,725 2,724 2,536
Income taxes ....................... 132 159 539 621 671 685 634
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income ......................... $ 507 $ 532 $ 1,922 $ 2,057 $ 2,054 $ 2,039 $ 1,902
=========== =========== =========== =========== =========== =========== ===========
Per Share: (1)
Net income ......................... $ .39 $ 40 $ 1.47 $ 1.54 $ 1.51 $ 1.48 $ 1.38
Cash dividends paid ................ .16 .15 .63 .59 .56 .51 .46
Average shares outstanding ......... 1,289,815 1,320,694 1,309,084 1,338,007 1,355,624 1,375,572 1,378,339
Average Balance Sheet:
Loans .............................. $ 150,025 $ 143,568 $ 147,545 $ 139,219 $ 134,325 $ 123,185 $ 116,490
Investments ........................ 54,539 55,067 54,197 50,593 47,003 49,827 45,878
Other earning assets ............... 8,016 5,529 5,309 6,569 219 1,638 3,890
Total assets ....................... 227,838 215,940 223,476 208,630 196,727 186,597 177,643
Deposits ........................... 171,922 157,509 150,883 149,601 139,774 138,963 131,366
Other interest-bearing liabilities . 27,595 30,939 29.356 31.629 31,203 23,458 22,660
Stockholders' equity ............... 26,939 26,024 26,615 25,890 23,910 22,874 22,264
Balance Sheet Data:
Loans .............................. $ 149,066 $ 145,337 $ 151,338 $ 142,990 $ 137,360 $ 134,423 $ 118,558
Investments ........................ 57,277 53,012 53,528 57,121 47,311 49,104 48,151
Other earning assets ............... 7,063 6,399 10,068 3,32 4,814 1,343 5,133
Total assets ....................... 226,643 217,641 229,032 214,238 203,054 196,122 185,258
Deposits ........................... 171,716 159,352 172,127 155,666 143,169 138,606 137,679
Other interest-bearing liabilities . 26,571 30,953 28,621 31,384 33,477 33,224 22,709
Stockholders' equity ............... 27,037 26,006 26,840 26,042 25,050 23,047 23,480
Ratios: (2)
Return on average assets ........... .89% .99% .86% .99% 1.04% 1.0911% 1.07%
Return on average equity ........... 7.56% 8.18% 7.22% 7.90% 8.59% 8.91% 8.54%
Dividend payout ratio .............. 40.63% 37.03% 42.86% 38.31% 37.09% 34.09% 33.59%
Average equity to average assets
ratio............................... 11.52% 12.05% 11.77% 12.16% 12.34% 11.75% 12.53%
(1) Per share data has been calculated on the weighted average number of
shares outstanding.
(2) The ratios for the three month period ending March 31, 2003 and 2002
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.
EARNINGS SUMMARY
Net income for the three months ended March 31, 2003 was $507 thousand or $.39
per basic and diluted share. These results compare with net income of $532
thousand, or $.40 per basic and diluted share for the same period in 2002.
Annualized return on average equity decreased to 7.53 percent from 8.18
16
percent, while the annualized return on average assets decreased to .89 percent
from .99 percent, for the three months ended March 31, 2003 and 2002
respectively.
Net interest income continues to be the largest source of our operating income.
Net interest income on a tax equivalent basis decreased to $3.1 million at March
31, 2003, compared with $3.3 million for the three months ended March 31, 2002.
The decrease in net interest income is primarily due to the decreased interest
rates on investment securities and the downward repricing of adjustable rate
mortgages. Overall, interest earning assets yielded 5.76 percent for the quarter
ended March 31, 2003 compared to 6.27 percent yield for the quarter ended March
31, 2002. The tax equivalized interest margin decreased to 3.38 percent for the
three months ended March 31, 2003 compared to 3.73 percent for the three months
ended March 31, 2002. Part of the decrease is attributable to the investment in
Bank Owned Life Insurance which commenced in December 2002. The effect of this
BOLI created $43,000 tax free non interest income and such income is not
included in the Net Interest Margin since it is reflected in other income.
Average interest earning assets increased $8.4 million or 4.1 percent for the
three months ended March 31, 2003 over the same period in 2002. Average loans
increased $6.4 million or 4.5 percent, average investments decreased $.5 million
or 1 percent and average federal funds sold and interest-bearing deposits with
other financial institutions increased 3 million or 45.2 percent for this three
month period, from $5.5 million at March 31, 2002 to $8 million at March 31,
2003.
Average interest bearing liabilities for the three months ended March 31, 2003
increased $10.9 million or 6.3 percent from the same period in 2002. Average
short-term borrowings were $19.6 million at March 31, 2002 and $16.2 million at
March 31, 2003, a decrease of 16.8 percent. Long-term debt, which includes
primarily FHLB advances, was 11.3 million at March 31, 2002 and 2003. Average
demand deposits increased $266 thousand from 2002 balances.
The average interest rate for loans decreased 58 basis points to 6.40 percent at
March 31, 2003 compared to 6.98 percent March 31, 2002. Interest-bearing
deposits with other Financial Institutions interest rates decreased 50 basis
points to 1.02 percent from 1.52 percent at March 31, 2003 and March 31, 2002
respectively. Average rates on interest bearing deposits decreased by 68 basis
points from 3.27 percent to 2.59 percent in one year. Average interest rates
also decreased on total interest bearing liabilities by 52 basis points to 2.74
percent from 3.26 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.
The net interest margin decreased to 3.38 percent for the three months ended
March 31, 2003 from 3.73 percent for the three months ended March 31, 2002. The
decrease in the overall net interest margin is a result of interest rate changes
with adjustable loan rates repricing downward throughout 2002 in this continuing
downward interest rate environment. Income received on one-day investments fell.
This "squeeze" caused by interest rates is keeping the net interest spread in a
declining mode; however, the change in net interest margin is gradual and
slight. Our "asset" sensitive position places us in a position to have an
increase in our net interest margin when rates rise. The cost of long-term debt
averaged 5.99% for the past several years which contributed to the declining net
interest margin. This long-term debt will remain a deterrent to us in a
declining interest rate environment. This is due to the fact that the Federal
Home Loan Bank has the option to reprice these loans at their discretion. Until
interest rates would rise to make the current 5.99% average rate unattractive,
this in all probability will not occur. We will continue to use the following
strategies to mitigate this decline in our net interest margin: Pricing of
deposits will continue to be monitored and lowered, if necessary, to meet
current market conditions; large deposits over $100,000 will continue to be
priced conservatively; and in this low interest rate environment the majority of
new investments will be kept short term in anticipation of rising rates.
NET INTEREST INCOME
Net interest income decreased to $1.7 million for the three months ended March
31, 2003 compared to $1.8 million for the same period in 2002.
The following table reflects the components of net interest income for each of
the three months ended March 31, 2003 and 2002 .
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)
Three Months Ended March 31, 2003 and 2002
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...................................... $ 5,483 $ 14 1.02% $ 4,462 $ 17 1.52%
Investment securities (3)......................... 54,539 540 4.66% 55,067 678 4.92%
Federal funds sold................................ 2,533 12 1.89% 1,067 3 1.12%
Loans .......................................... 150,025 2,378 6.40% 143,568 2,504 6.98%
--------- --------- --------- ---------
Total interest earning assets..................... $ 212,580 $ 2,944 5.76% $ 204,164 $ 3,202 6.27%
--------- --------- --------- ---------
Reserve for loan losses........................... (1,324) (1,022)
Cash and due from banks........................... 5,483 2,291
Other assets...................................... 11,099 10,507
--------- ---------
Total assets...................................... $ 227,838 $ 215,940
--------- ---------
17
LIABILITIES AND CAPITAL:
Interest bearing deposits......................... $ 157,177 $ 1,017 2.59% $ 143,030 $ 1,169 3.27%
Short-term borrowings............................. 16,250 81 1.98% 19,583 83 1.70%
Long-term borrowings.............................. 11,345 167 5.89% 11,356 168 5.92%
--------- --------- --------- ---------
Total interest-bearing liabilities................ $ 184,772 $ 1265 2.74% $ 173,969 $ 1,420 3.26%
--------- --------- ---------
Demand deposits................................... $ 14,745 $ 14,479
Other liabilities................................. 1,382 1,468
Stockholders' equity.............................. 26,939 26,024
--------- ---------
Total liabilities and capital..................... $ 227,838 $ 215,940
--------- ---------
NET INTEREST INCOME / $ 1,679 3.16% $ 1,782 3.49%
NET INTEREST MARGIN (4).........................
TAX EQUIVALENT NET INTEREST INCOME / $ 1,797 3.38% $ 1,905 3.73%
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 2003 and 2002.
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
Three Months Ended March 31, 2003
Compared with 2002
Increase (Decrease) (2)
Volume Rate Total
------ ---- -----
Interest income: (In thousands)
Loans (1) $ 451 $ (833) $ (382)
Investments (26) (143) (169)
Federal funds sold and other short-term 36 (8) 28
investments
Interest expense:
Deposits $ 463 $ (973) $ (510)
Short-term borrowings (57) 55 (2)
Long term debt (1) (3) (4)
-------------
Net: $ 56 $ (63) $ (7)
(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 March 31, 2003 increased by 5.5 percent over
March 31, 2002 to $227.8 million from $215.9 million.
Average loans outstanding increased from $143.6 million to $150. million or 4.5
percent for the three months ended March 31, 2003 as compared with the three
months ended March 31, 2002.
The outstanding balance of loans at March 31, 2003 was $149.1 million compared
to $151.3 million at December 31, 2002.
Interest income from investment securities declined $138 thousand at $540
thousand for the three months ended March 31, 2003 compared to $678 thousand at
March 31, 2002. The average balance of investment securities for the three
months ended March 31, 2003 decreased 1.1 percent to $54.5 million, compared to
the $55.1 million for the same period of 2002.
18
Total interest expense decreased $155 thousand or 10.9 percent for the first
three months of 2003 as compared to the first three months of 2002. The cost of
interest bearing liabilities decreased on an average yield basis from 3.26
percent through March 2002 compared to 2.74 percent through March 2003. The
average yield on interest earning assets decreased from 6.27 percent to 5.76
percent through March 2003 and 2002 respectively.
Average short-term borrowings decreased $3.3 million from $19.6 million at March
31, 2002 to $16.3 million at March 31, 2003.
Long-term borrowings from Federal Home Loan Bank remained at 11.3 million at
March 31, 2002 and 2003 respectively.
NON-INTEREST INCOME
The following table presents the components of non-interest income for the nine
months ended March 31, 2003 and 2002:
Three Months Ended
March 31,
(In thousands)
--------------
2003 2002
---- ----
Service charges and fees....................................... $ 183 $ 162
Trust Department income........................................ 36 48
Investment securities gain - net............................... 0 0
Gain on sale of loans.......................................... 14 0
Gain on sale of Other Real Estate Owned........................ 12 0
Gain on Cash Surrender Value of BOLI........................... 41 0
Third party brokerage income................................... 19 24
Other.......................................................... 21 9
------ ---------
Total.............................................. $ 326 $ 243
------ ---------
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 three months ended March 31, 2003, total non-interest income
increased $83 thousand to $326 thousand or 34.2 percent, compared to $243
thousand for the three months period ended March 31, 2002. Service charges and
fees increased $21 thousand from $162 thousand at March 31, 2002 to $183
thousand or 13 percent at March 31, 2003. Trust Department income decreased from
$48 thousand at March 31, 2002 to $36 thousand or 25 percent at March 31, 2003.
Third party brokerage income reflected a $5 thousand decrease or 20.8 percent
comparing March 31, 2002 to March 31, 2003. Both of these areas are reflective
of the present economy and the investor being cautious. We began selling fixed
rate mortgages during 2003 and the fees derived from these sales was $14
thousand through March 31, 2003 compared to 0 through March 31, 2002. The loans
are being serviced by CCFNB and the bank retains some credit risk. Investment in
Bank Owned Life Insurance is reflected in the March 31, 2003 balance sheet and
income statement. Other non-interest income increased $12 thousand from $9
thousand at March 31, 2002 to $21 thousand at March 31, 2003. This increase was
attributable mainly to an increase in collection of non sufficient funds fees.
NON-INTEREST EXPENSE
The following table presents the components of non-interest expense for the
three months ended March 31, 2002 and 2003:
Three Months Ended
March 31,
2003 2002
---- ----
(Dollars in Thousands)
Salaries and wages............................................ $ 525 $ 534
Employee benefits.............................................. 186 184
Net occupancy expense.......................................... 103 89
Furniture and equipment expense................................ 118 154
State shares tax............................................... 69 62
Other expense.................................................. 315 287
------ ---------
Total................................................ $1,316 $ 1,310
------ ---------
Non-interest expense remained at $1.3 million at March 31, 2002 and 2003.
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 decreased 1.7 percent at March 31, 2003 compared to March 31, 2002. A
1.1 percent increase was reflected in employee benefits from $184 thousand at
March 31, 2003 to $186 thousand at March 31, 2002.
Occupancy expense increased 15.7 percent mainly due to snow and ice removal and
heating costs Furniture and equipment expense reflects a $36 or 23.4 percent
decrease for the first three months of 2003 compared to the first three months
of 2002.
Pennsylvania Bank Shares Tax increased 11.3 percent from $62 thousand at March
31, 2002 compared to $69 thousand at March 31, 2003.
Other expenses increased $28 thousand or 9.8 percent from $287 thousand at March
31, 2002 to $315 thousand at March 31, 2003. This increase occurred
proportionately in all components of other expense.
19
INCOME TAXES
Income tax expense as a percentage of pre-tax income was 20.7 percent for the
three months ended March 31, 2003 compared with 23 percent for the same period
in 2002. The effective tax rate for 2003 remains at 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 $118.6 million and $202.3 million
at March 31, 2003 and December 31, 2002, respectively. This represents 59.3
percent and 64.2 percent of earning assets, and 52.3 percent and 56.3 percent of
total assets at March 31, 2003 and December 31, 2002, 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 $140.3 million for the
three months ended March 31, 2003 and $137 million for the year ended December
31, 2002, representing 66 percent and 67.1 percent of average earning assets.
Short-term and long-term borrowings through 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 three months ended March
31, 2003 there were $12.3 million of proceeds from the sales, maturities and
redemptions of investment securities available for sale. Purchases of investment
securities for the three months ended March 31, 2002 were $16.2. Short-term
borrowings and certificates of deposit over $100 thousand amounted to $36.8
million and $48.5 million for the three months ended March 31 2003 and the year
ended December 31, 2002, respectively. This strategy of lowering short-term
borrowings and certificates of deposit interest rates has positively impacted
the interest expense of the bank and is expected to accelerate throughout 2003.
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 March 31, 2003, we had $57.3 million of securities available for sale
recorded at their fair value, compared with $53.5 million at December 31, 2002.
As of March 31, 2003, the investment securities available for sale had an
unrealized gain of $524 thousand, net of deferred taxes, compared with an
unrealized gain of $536 thousand, net of deferred taxes, at December 31, 2002.
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.
NON-PERFORMING ASSETS
Shown below is a summary of past due and non-accrual loans:
(Dollars in thousands)
March 31, December 31,
2003 2002
---- ----
Past due and non-accrual:
Days 30 - 89 $ 2,305 $ 1,841
Days 90 plus 587 50
Non-accrual 2,348 2,122
----------- ------------
Total $ 5,240 $ 4,013
----------- ------------
Past due and non-accrual loans increased 30.6 percent from 4 million at December
31, 2002 to 5.2 million at March 31, 2003. The loan delinquency expressed as a
ratio to total loans was 3.5 percent at March 31, 2003 and 2.6 percent at
December 31, 2002.
Some of the rise in loan delinquencies is attributed to the current economic
conditions, which result in less profitability for many local companies. This
further impacts the local job market and the associated wages. The provision for
loan losses for 2002 increased in response to this rise in delinquencies from
$162.5 thousand in 2001 to $309 thousand in 2002. We further increased the
provision during the first quarter of 2003 by $50 thousand from year end 2002.
Management is diligent in its efforts to reduce these delinquencies and has
increased monitoring and review of current loans to foresee future delinquency
occurrences and react to them quickly. There are plans to hire a Chief Lending
Officer in the near future.
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
20
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 March 31, 2003
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....................................................................... $ 4,406
(2) Over three months through 12 months........................................................ 11,908
(3) Over one year through three years.......................................................... 29,320
(4) Over three years through five years........................................................ 2,003
(5) Over five years through 15 years........................................................... 23,885
(6) Over 15 years.............................................................................. 464
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....................................................................... 25,759
(2) Over three months through 12 months........................................................ 11,441
(3) Over one year through three years.......................................................... 18,550
(4) Over three years through five years ....................................................... 5,926
(5) Over five years through 15 years........................................................... 12,652
(6) Over 15 years.............................................................................. 436
--------------
Sub-total.......................................................................... $ 146,750
Add: non-accrual loans not included above........................................................... 2,348
Less: unearned income................................................................................ (32)
--------------
Total Loans and Leases $ 149,066
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses reflected a balance of $1.4 million or .94 percent
of total loans at March 31, 2003 and a balance of $1.3 million or .86 percent of
total loans at December 31, 2002. The allowance is believed adequate for
possible loan losses in the future.
The provision for loan losses was $50 thousand for the first three months of
2003 compared to $24 thousand for the first three months of 2002. After
carefully examining our loan loss reserve analysis, the decision was made to
accrue $50 thousand for the second quarter of 2003.
Because our loan portfolio and delinquencies 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 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.
21
For the Three Months
Ending March 31,
Amounts in thousands 2003 2002
-------------------- ---- ----
Average loans outstanding: $150,025 $143,568
-------- --------
Total loans at end of period 149,066 145,337
-------- --------
Balance at beginning of period 1,298 1,028
Total charge-offs (19) (53)
Total recoveries 21 16
Net charge-offs 2 (37)
Provision for loan losses 50 24
-------- --------
Balance at end of period $ 1,350 $ 1,015
-------- --------
Net charge-offs as a percent of average loans outstanding during period .01% .03%
Allowance for loan losses as a percent of total loans .91% .70%
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.
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:
March 31, 2003 December 31, 2002
-------------- -----------------
Minimum Minimum
Calculated Standard Calculated Standard
Ratios Ratios Ratios Ratios
------ ------ ------ ------
Risk Based Ratios:
Tier I Capital to risk-weighted assets.................................. 18.57% 4.00% 18.53% 4.00%
Total Qualifying Capital to risk-weighted assets........................ 19.53% 8.00% 19.46% 8.00%
Additionally, certain other ratios also provide capital analysis as follows:
March 31, December 31,
2003 2002
Tier I Capital to average assets................................................. 11.52% 11.77%
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 $20.98 at March 31, 2003, compared with $20.76
per share at December 31, 2002.
Cash dividends declared amounted to $0.16 per share, for the three months ended
March 31, 2003, equivalent to a dividend payout ratio of 40.63 percent, compared
with 37.03 percent for the same period in 2002. 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.
22
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 - Northing to report.
Item 4. Submission of matters to a Vote of Security Holders - Nothing to
report.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K - During the first quarter of 2003 two
8K reports were filed Pursuant to Section 3 of 15 (d) of the Securities Exchange
Act of 1934 as follows:
- Filed January 7, 2003...The Director's named Lance O. Diehl, Chief
Executive Officer of CCFNB Bancorp, Inc. and CCFNB, it's subsidiary.
- Filed February 14, 2003..The Director's accepted the resignation of
Director Rodney B. Keller, who had no disagreement over Corporate
Policy and Management. Additionally, the Directors named Lance O.
Diehl President of CCFNB Bancorp, Inc. and CCFNB, it's subsidiary.
Also named to fill the unexpired term of Rodney B. Keller was Lance O.
Diehl.
23
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 BANCOPR, INC.
(Registrant)
By /s/ Lance O. Diehl
-----------------------------
Lance O. Diehl
President and CEO
Date: May 8, 2003
By /s/ Virginia D. Kocher
-----------------------------
Virginia D. Kocher
Treasurer
Date: May 8, 2003
24
EXHIBIT 99B
CCFNB BANCORP, INC.
CEO CERTIFICATION PURSUANT TO
18 U.S.C. Section 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CCFNB Bancorp, Inc. (the
"Company") on Form 10-Q for the quarter-ended March 31, 2003, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Lance
O. Diehl, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly represents, in all
material respects, the financial condition and result of operations
of the Company.
Date: May 8, 2003
/s/ Lance O. Diehl
-------------------------------------
Lance O. Diehl
Chief Executive Officer
25
EXHIBIT 99C
CCFNB BANCORP, INC.
PRINCIPAL FINANCIAL OFFICER
CERTIFICATION PURSUANT TO
18 U.S.C. Section 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CCFNB Bancorp, Inc. (the
"Company") on Form 10-Q for the quarter-ended March 31, 2003, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I,
Virginia D. Kocher, the Principal Financial Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly represents, in all
material respects the financial condition and result of operations
of the Company.
Date: May 8, 2003
/s/ Virginia D. Kocher
-------------------------------------
Virginia D. Kocher
Treasurer (Principal Financial Officer)
26
EXHIBIT 99D
CCFNB BANCORP, INC.
CEO CERTIFICATION PURSUANT TO
SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Lance O. Diehl, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CCFNB Bancorp,
Inc.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report.
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls
27
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 8, 2003
/s/ Lance O. Diehl
-----------------------------
Lance O. Diehl
Chief Executive Officer
28
EXHIBIT 99E
CCFNB BANCORP, INC.
PRINCIPAL FINANCIAL OFFICER
CERTIFICATION PURSUANT TO
SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Virginia D. Kocher, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CCFNB Bancorp,
Inc.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 8, 2003
/s/ Virginia D. Kocher
-----------------------------------------
Virginia D. Kocher
Treasurer (Principal Financial Officer)