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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[ X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No.__________
FIRST NATIONAL COMMUNITY BANCORP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Pennsylvania 23-2900790
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
102 E. Drinker St. Dunmore, PA 18512
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (570) 346-7667
Securities registered pursuant to Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
NONE
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $1.25 par value
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
The aggregate market value of the Company's common stock held by non-affiliates
at March 16, 2000: $75,003,300.
REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes _______ No ________
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date. 2,500,110 shares of common
stock
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Annual Report to security holders for the Fiscal
Year Ended December 31, 1999 are incorporated by reference.
FIRST NATIONAL COMMUNITY BANCORP, INC.
Part I.
Item 1 - Business
CORPORATE PROFILE
The Business of First National Community Bancorp, Inc.
THE COMPANY
First National Community Bancorp, Inc. (the "company") is a
Pennsylvania Corporation, incorporated in 1997 and is registered as a bank
holding company under the Bank Holding Company Act of 1956, as amended. The
company became an active bank holding company on July 1, 1998 when it assumed
ownership of First National Community Bank (the "bank"). The bank is a
wholly-owned subsidiary of the company.
The company's primary activity consists of owning and operating the
bank, which provides the customary retail and commercial banking services to
individuals and businesses. The bank provides practically all of the company's
earnings as a result of its banking services.
THE BANK
The bank was established as a national banking association in 1910 as
"The First National Bank of Dunmore." Based upon shareholder approval received
at a Special Shareholders' Meeting held October 27, 1987, the bank changed its
name to "First National Community Bank" effective March 1, 1988. The bank's
operations are conducted from offices located in Lackawanna and Luzerne
Counties, Pennsylvania
o Main Office in Dunmore,
o Scranton Office established in 1980,
o Dickson City Office opened in December 1984,
o Fashion Mall Office, Scranton/Carbondale Highway opened in July 1988,
o Wilkes-Barre Office which opened in July 1993,
o Pittston Plaza Office which opened in April 1995,
o Kingston Office which opened in August 1996
o Exeter Office which opened in November 1998.
The bank provides the usual commercial banking services to individuals
and businesses, including a wide variety of deposit instruments. Consumer loans
include both secured and unsecured installment loans, fixed and variable rate
mortgages, home equity term loans and Lines of Credit and "Instant Money"
overdraft protection loans. Additionally, the bank is also in the business of
underwriting indirect auto loans which are originated through various auto
dealers in northeastern Pennsylvania and in 1999 began to originate dealer floor
plan loans. MasterCard and VISA personal credit cards are available through the
bank, as well as the FNCB Check Card which allows customers to access their
checking account at any retail location that accepts VISA and serves the dual
purpose of an ATM card. In the commercial lending field, the Bank offers demand
and term loans, either secured or unsecured, letters of credit, working capital
loans, accounts receivable, inventory or equipment financing loans, and
commercial mortgages. In addition, the bank offers MasterCard and VISA
processing services to its commercial customers, as well as Auto Cash Manager
which is a personal computer based, menu driven product that allows our business
customers to have direct access to their account information and the ability to
perform certain daily transactions from their place of business. As a result of
the bank's partnership with INVEST, our customers are able to access alternative
products such as mutual funds, annuities, stock and bond purchases, etc.
directly from our INVEST representatives. The bank also offers customers the
convenience of 24-hour banking, seven days a week, through its Money Access
Center ("MAC") network. These automated teller machines are available at the
following community offices and remote locations:
o Dunmore
o Dickson City
o Fashion Mall
o Pittston
o Kingston
o Exeter
o C-Plus Mini Mart, 309 Main Street, Blakely
o U. S. Mini Mart, 1650 W. Main Street, Stroudsburg
o Bill's Shursave Supermarket, Rt. 502, Daleville.
Additionally, to further enhance 24-hour banking services, Telephone
Banking (Account Link), Loan by Phone, and Mortgage Link are available to
customers. These services provide consumers the ability to access account
information, perform related account transfers, and apply for a loan through the
use of a touch tone telephone. Internet banking is also available through the
"FNCB Online" system.
As of December 31, 1999, no material portion of the bank's deposits has
been obtained from a single person or entity. Industry concentrations exist with
regard to the hotel and automobile dealership industries as well as with loans
and lines of credit to shopping centers/retail complexes and office
complexes/units. As of December 31, 1999, loans and lines of credit to each of
these industries were as follows:
o Hotels $18,564,000
o Automobile Dealers $14,005,000
o Shopping Centers/Retail Complexes $14,711,000
o Office Complexes/Units $14,079,000
First lien mortgages on the real estate, carefully selected dealers and
a diverse group of borrowers provide security against undue risks in the
portfolio.
COMPETITION
The bank is one of two financial institutions with principal offices in
Dunmore. Primary competition in the Dunmore, Scranton and Mid Valley markets
comes from several commercial banks and savings and loan associations operating
in these areas. Our Luzerne County offices share many of the same competitors we
face in Lackawanna County as well as several banks and savings & loans that are
not in our Lackawanna County market. Deposit deregulation has intensified the
competition for deposits among banks in recent years. Additional competition is
derived from credit unions, finance companies, brokerage firms, insurance
companies and retailers.
REGULATORY MATTERS
The company is subject to certain annual reporting requirements
regarding its business operations. As a registered company under the Bank
Holding Company Act of 1956, as amended, the company is subject to the
supervision and examination by the Federal Reserve Board under the Act.
The bank is subject to regulation and supervision by the Office of the
Comptroller of the Currency, which includes regular examinations of the bank's
records and operations. As a member of the Federal Deposit Insurance Corporation
(FDIC), the bank's depositors' accounts are insured up to $100,000 per
depositor. To obtain this protection for its depositors, the bank pays an
assessment and is subject to the regulations of the FDIC. The bank is also a
member of the Federal Reserve System and as such is subject to the rules
promulgated by the Federal Reserve Board.
EMPLOYEES
As of December 31, 1999 the bank employed 186 persons, including 36
part-time employees.
Item 2 - Properties
Type of
Property Location Ownership Use
1 102 East Drinker Street
Dunmore, PA Own Main Office
2 419-421 Spruce Street
Scranton, PA Own Scranton Branch
3 934 Main Avenue
Dickson City, PA Own Dickson City Branch
4 277 Scranton/Carbondale Highway
Scranton, PA Lease Fashion Mall Branch
5 23 West Market Street
Wilkes-Barre, PA Lease Wilkes-Barre Branch
6 1700 N. Township Blvd.
Pittston, PA Lease Pittston Plaza Branch
7 754 Wyoming Avenue
Kingston, PA Lease Kingston Branch
8 1625 Wyoming Avenue
Exeter, PA Lease Exeter Branch
9 200 S. Blakely Street
Dunmore, PA Lease Administrative Center
10 107-109 S. Blakely Street
Dunmore, PA Own Parking Lot
11 114-116 S. Blakely Street
Dunmore, PA Own Parking Lot
12 1708 Tripp Avenue
Dunmore, PA Own Parking Lot
Item 3 - Legal Proceedings
The company is not involved in any material pending legal proceedings,
other than routine litigation incidental to the business.
Item 4 - Submission of Matters to a Vote of Security Holders
Not Applicable
Part II.
Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters
INVESTOR INFORMATION
MARKET PRICES OF STOCK AND DIVIDENDS PAID
The company's common stock is not actively traded. The principal market
area for the company's stock is northeastern Pennsylvania. First National
Community Bancorp, Inc. is listed in the Over-The-Counter (OTC) Bulletin Board
Stocks under the symbol "FNCB". Quarterly market highs and lows and dividends
paid for each of the past two years are presented below. These prices do not
necessarily represent actual transactions. The bank expects that comparable cash
dividends will be paid in the future. All prices and dividends have been
restated to reflect the retroactive effect of the 100% stock dividend paid to
shareholders on July 20, 1998.
MARKET PRICE DIVIDENDS PAID
HIGH LOW PER SHARE *
QUARTER 1999
First $39.00 $32.00 $ .15
Second 42.00 39.50 .15
Third 43.50 39.00 .17
Fourth 41.50 37.00 .33
$0.80
QUARTER 1998
First $23.50 $19.00 $ .135
Second 23.75 21.19 .135
Third 23.75 23.75 .15
Fourth 32.00 24.25 .29
$0.71
* Dividends paid have been restated to reflect the retroactive effect of the
100% stock dividend paid in 1998.
MARKET MAKERS
Morgan Stanley Dean Witter INVEST Financial Corporation
415 Spruce Street 102 E. Drinker Street
Scranton, PA 18503 Dunmore, PA 18512
(570) 961-7700 1-888-845-3622
First Montauk Securities Legg Mason Wood Walker, Inc.
507 Linden Street 330 Montage Mountain Road
Scranton, PA 18503 Scranton, PA 18507
(570) 941-8700 (570) 346-9300
Tucker Anthony Inc. Ryan, Beck and Co.
Mid Atlantic Division 80 Main Street
666 Fifth Avenue West Orange, NJ 07052
New York, NY 10103 1-800-325-7926
1-800-526-6371
TRANSFER AGENT
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016-9982
Shareholder questions regarding stock ownership should be directed to the
Investor Relations Department at Registrar and Transfer Company at
1-800-368-5948.
DIVIDEND CALENDAR
Dividends on the Company's common stock, if approved by the Board of
Directors, are customarily paid on or about March 15, June 15, September 15 and
December 15. Record dates for dividends are customarily March 1, June 1,
September 1, and December 1.
SHAREHOLDERS' INQUIRIES
A copy of the company's annual report for the year ended December 31,
1999 on Form 10-K, as required to be filed with the Securities and Exchange
Commission, may be obtained free of charge by writing to:
Treasurer
First National Community Bancorp, Inc.
102 East Drinker Street
Dunmore, PA 18512
INTERNET ADDRESS
www.fncb.com
E-MAIL ADDRESS
fncb@fncb.com
Item 6 - Selected Financial Data
FIRST NATIONAL COMMUNITY BANCORP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(In thousands, except per share data)
For the Years Ended December 31,
-------------------------------------------------
1999 1998 1997 1996 1995
-------------------------------------------------
Total assets 540,363 483,385 428,335 372,438 18,026
Interest-bearing balances
with financial institutions 2,874 2,478 1,586 2,771 775
Securities 146,528 131,830 121,367 82,476 69,408
Net loans 359,244 324,610 280,731 259,880 229,643
Total deposits 411,126 380,039 345,668 320,968 275,739
Stockholders' equity 37,055 34,679 31,580 27,631 25,547
Net interest income before
provision for credit losses 17,643 15,445 14,580 12,765 11,286
Provision for credit losses 1,020 920 1,110 820 796
Other income 1,577 1,583 1,628 1,099 921
Other expenses 10,795 9,423 8,839 7,904 7,097
Income before income taxes 7,405 6,685 6,259 5,140 4,314
Provision for income taxes 1,756 1,578 1,616 1,265 1,100
Net income 5,649 5,107 4,643 3,875 3,214
Cash dividends paid 1,922 1,703 1,396 1,178 887
Per share data:
Net income (1) 2.35 2.13 1.94 1.62 1.52
Cash dividends (2) 0.80 0.71 0.58 0.49 0.41
Book value (1)(3) 15.39 14.46 13.17 11.52 12.08
Weighted average number of
shares outstanding 2,407,278 2,398,360 2,398,360 2,398,360 2,114,192
(1) Earnings per share and book value per share are calculated based on the
weighted average number of shares outstanding during each year, after
giving retroactive effect to the 100% stock dividend declared in 1998 and
the 10% stock dividends declared in 1997 and 1996.
(2) Cash dividends per share have been restated to reflect to retroactive
effect of the 100% stock dividend declared in 1998 and the 10% stock
dividends declared in 1997 and 1996.
(3) Reflects the effect of SFAS No. 115 in the amount of $(4,252,000) in 1999,
$791,000 in 1998, $1,097,000 in 1997, $384,000 in 1996 and $991,000 in
1995.
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following financial review of First National Community Bancorp,
Inc. (the "company") is presented on a consolidated basis and is intended to
provide a comparison of the financial performance of the company and its
wholly-owned subsidiary, First National Community Bank (the "bank") for the
years ended December 31, 1999, 1998 and 1997. The information presented below
should be read in conjunction with the company's consolidated financial
statements and accompanying notes appearing elsewhere in this report. All share
and per share data has been restated to reflect the 100% stock dividend paid to
shareholders on July 20, 1998 and the 10% stock dividend paid December 31, 1997.
RESULTS OF OPERATIONS
SUMMARY
Net income was $5,649,000 in 1999 which was $542,000, or 11%, higher
than the $5,107,000 earned in 1998. The $5,107,000 earned in 1998 was $464,000,
or 10%, higher than the 1997 level. Earnings per share were $2.35, $2.13 and
$1.94 for 1999, 1998 and 1997, respectively. The weighted average number of
shares outstanding were 2,407,278 in 1999 and 2,398,360 in 1998 and 1997, after
giving retroactive effect to the stock dividends paid in each of the periods.
The increase in 1999 earnings is due primarily to a $2.2 million, or
14%, improvement in net interest income which exceeded the $1.4 million increase
in other expenses and a $300,000 increase in other costs, net. Growth of the
balance sheet again contributed to the improved earnings as increases due to
volume far exceeded a slight decrease related to repricing.
The increase recorded in 1998 was also attributed to the $865,000, or
6%, improvement in net interest income combined with a reduced provision for
credit losses which more than offset the $585,000, or 7%, increase in other
expenses. Management's focus on improvement through growth proved successful as
increased earnings due to volume variances more than compensated for the
negative impact of repricing which resulted from the reduction in interest rates
during the fourth quarter.
Return on assets for the years ended December 31, 1999, 1998 and 1997
was 1.09%, 1.13% and 1.16%, respectively while the return on equity recorded
during the same periods amounted to 16.26%, 15.29% and 15.85%.
NET INTEREST INCOME
Net interest income, the difference between interest income and fees on
earning assets and interest expense on deposits and borrowed funds, is the
largest component of the company's operating income and as such is the primary
determinant of profitability. Before providing for future credit losses, net
interest income increased 14% from the $15.4 million recorded in 1998 to $17.6
million in 1999. Changes in net interest income generally occur due to
fluctuations in the balances and/or mixes of interest-earning assets and
interest-bearing liabilities, and changes in their corresponding interest yields
and costs. Changes in non-performing assets, together with interest lost and
recovered on those assets, also impact comparisons of net interest income. In
the following schedules, net interest income is analyzed on a tax-equivalent
basis, thereby increasing interest income on certain tax-exempt loans and
investments by the amount of federal income tax savings realized. In this
manner, the true economic impact on earnings from various assets and liabilities
can be more accurately compared.
In 1999, tax-equivalent net interest income increased $2.3 million, or
14%, from the $16.7 million reported in 1998. Sound pricing policies, aggressive
growth strategies and effective asset-liability management techniques again
enabled the company to improve net interest income during this period of
interest rate volatility.
Average loans increased $50 million, or 17%, from the 1998 level and
provided an increase of $3.4 million of interest income. Commercial loans
provided $40 million of the increased balances and $2.9 million of the increased
earnings, while average consumer loans increased $10 million and added $500,000
to the improved earnings. The lower interest rate environment which prevailed
during the first three quarters of 1999 resulted in a twenty-six basis point
reduction in the yield on average loans when compared to 1998 due to growth and
repricing at the lower rates.
Securities in the company's investment portfolio averaged $14 million
higher than in 1998 and provided an $800,000 increase in interest income. Yields
earned on securities decreased nine basis points from the 1998 levels. Average
money market assets, which include interest-bearing deposits with banks and
federal funds sold, were $2 million lower than in 1998 which resulted in a
$139,000 decrease in interest income earned.
Average interest-bearing deposits increased $35 million, or 11%, in
1999 comprised of $20 million in time certificates of deposit and $15 million in
lower costing savings and interest-bearing demand deposits. The reduced level of
interest rates contributed to a twenty-seven basis point reduction in the
company's cost of deposits. Borrowed funds and other interest-bearing
liabilities were $21 million higher on the average in 1999 but the lower rate
scenario resulted in a twenty-one basis point reduction in the cost of these
liabilities.
As a result of the growth of the balance sheet and the overall
reduction in yields earned and paid, the company's net interest margin decreased
slightly in 1999 from 3.84% to 3.82%. Investment leveraging transactions
continue to add to the profitability of the company, as evidenced by the
$518,000 earned on the transactions in 1999, but also continue to compress the
company's net interest margin. Exclusive of the investment leveraging
transactions, the 1999 net interest margin would have been 4.10% compared to
4.15% in 1998.
Tax-equivalent net interest income increased $927,000, or 6%, in 1998
from the $15.8 million reported in 1997. Average loans increased $26 million, or
10%, in 1998 and contributed an increase of $1.8 million of interest income over
the 1997 level. Commercial loans provided the majority of the growth in 1998 as
average loan balances increased $24 million and earnings on those balances
improved by $1.8 million. Installment loans also provided significant increases
in 1998 comprised of $15 million in average loan balances and $1.2 million of
interest income due primarily to growth in indirect auto loans. Mortgage loans
outstanding averaged $13 million lower in 1998 than in 1997 due to the sale of
almost $23 million of long-term, fixed rate assets in 1998. As a result of the
reduced level of average loans outstanding, interest income on mortgage loans
decreased $1.2 million in 1998. Repricing and new volume resulted in the sixteen
basis point reduction earned on average loan balances in 1998 when compared to
the prior period.
Average securities increased $24 million over the 1997 average balance
and generated $1.3 million of additional earnings. Declining rates impacted
securities yields through repricing, new volume and principal reductions,
resulting in a thirty-nine basis point decrease from the 1997 level. Average
money market assets, which include interest-bearing deposits with banks and
federal funds sold, were $1.2 million less in 1998 than in 1997 and earnings
from these assets decreased $61,000.
Average interest-bearing deposits increased $22 million in 1998
comprised of an $18 million increase in average certificates of deposit and a $4
million increase in low-cost deposits. Competition for deposits remained fierce
in local markets, resulting in an average cost of deposits which was equal to
the 1997 level. Borrowed funds and other interest-bearing liabilities increased
$20 million on the average due to additional Federal Home Loan Bank advances but
repricing and reduced costs on new borrowings resulted in a twenty-five basis
point reduction in the cost of these liabilities.
As a result of the interest rate reductions in 1998 and the more
immediate impact on interest earning assets, the company's net interest margin
decreased twenty-five basis points to 3.84% in 1998. Investment leveraging
transactions added $433,000 in earnings in 1998, but also contributed to
reduction in the overall net interest margin. Exclusive of the investment
leveraging transactions, the 1998 net interest margin would have been 4.15%, or
seven basis points lower than the comparable period of 1997.
Yield Analysis
(dollars in thousands-taxable equivalent basis)(1)
1999 1998 1997
-----------------------------------------------------------------------------------------
Interest Average Interest Average Interest Average
Average Income/ Interest Average Income/ Interest Average Income/ Interest
Balance Expense Rate Balance Expense Rate Balance Expense Rate
-----------------------------------------------------------------------------------------
ASSETS:
Earning Assets:(2)
Commercial loans-taxable $203,276 $17,311 8.52 $161,839 $14,272 8.82 $138,214 $12,450 9.01
Commercial loans-tax free 10,366 978 9.43 11,648 1,106 9.50 11,714 1,135 9.69
Mortgage loans 44,870 3,496 7.79 50,072 3,951 7.89 62,814 5,097 8.11
Installment loans 94,363 7,529 7.98 78,971 6,606 8.37 63,501 5,433 8.56
--------- ------- ------ -------- ------- ------ -------- ------- ------
Total Loans 352,875 29,314 8.31 302,530 25,935 8.57 276,243 24,115 8.73
--------- ------- ------ -------- ------- ------ -------- ------- ------
Securities-taxable 102,035 6,619 6.49 95,602 6,239 6.53 74,605 5,147 6.90
Securities-tax free 37,342 3,040 8.14 30,196 2,587 8.57 26,934 2,380 8.84
--------- ------- ------ -------- ------- ------ -------- ------- ------
Total Securities 139,377 9,659 6.93 125,798 8,826 7.02 101,539 7,527 7.41
--------- ------- ------ -------- ------- ------ -------- ------- ------
Interest-bearing deposits
with banks 2,553 145 5.68 2,918 177 6.07 2,839 170 5.99
Federal funds sold 2,346 115 4.90 4,007 222 5.54 5,251 290 5.52
--------- ------- ------ -------- ------- ------ -------- ------- ------
Total Money Market Assets 4,899 260 5.31 6,925 399 5.76 8,090 460 5.69
--------- ------- ------ -------- ------- ------ -------- ------- ------
Total Earning Assets 497,151 39,233 7.89 435,253 35,160 8.08 385,872 32,102 8.32
Non-earning assets 24,658 21,657 19,278
Allowance for credit losses (4,469) (3,932) (3,446)
--------- -------- --------
Total Assets $517,340 $452,978 $401,704
========= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-Bearing Liabilities:
Interest-bearing demand deposits $ 62,183 $ 1,490 2.40 $ 50,504 $ 1,225 2.43 $ 45,682 $ 1,110 2.43
Savings deposits 45,716 1,020 2.23 41,983 1,001 2.38 42,482 1,038 2.44
Time deposits over $100,000 68,800 3,494 5.08 61,618 3,265 5.30 53,784 2,827 5.26
Other time deposits 184,229 9,937 5.39 171,147 9,764 5.71 161,331 9,253 5.74
--------- ------- ------ -------- ------- ------ -------- ------- -----
Total Interest-Bearing Deposits 360,928 15,941 4.42 325,252 15,255 4.69 303,279 14,228 4.69
Borrowed funds and other
Interest-bearing liabilities 75,803 4,284 5.65 54,661 3,202 5.86 34,327 2,098 6.11
--------- ------- ------ -------- ------- ------ -------- ------- -----
Total Interest-Bearing Liabilities 436,731 20,225 4.63 379,913 18,457 4.86 337,606 16,326 4.84
Demand deposits 41,810 35,887 31,707
Other liabilities 4,191 3,779 3,103
Stockholders' equity 34,608 33,399 29,288
--------- -------- --------
Total Liabilities and
Stockholders' Equity $517,340 $452,978 $401,704
========= ======== ========
-------- ------- ------ -------
Net Interest Income Spread $19,008 3.26 $16,703 3.22 $15,776 3.48
======== ====== ======= ====== ======= =====
Net Interest Margin 3.82 3.84 4.09
====== ====== =====
(1) In this schedule and other schedules presented on a tax-equivalent basis,
income that is Exempt from federal income taxes, i.e. interest on state and
municipal securities, has been Adjusted to a taxable equivalent basis using a
34% federal income tax rate.
(2) Excludes non-performing loans.
The most significant impact on net income between periods is derived from
the interaction of changes in the volume of and rates earned or paid on
interest-earning assets and interest-bearing liabilities. The volume of earning
dollars in loans and investments, compared to the volume of interest-bearing
liabilities represented by deposits and borrowings, combined with the spread,
produces the changes in net interest income between periods. Components of
interest income and interest expense are presented on a tax-equivalent basis
using the statutory federal income tax rate of 34%.
The following table shows the relative contribution of changes in average
volume and average interest rates to changes in net interest income for the
periods indicated. The change in interest income and interest expense
attributable to changes in both volume and rate, which cannot be segregated, has
been allocated proportionately to the change due to volume and the change due to
rate.
Rate/Volume Variance Report(1)
(dollars in thousands-taxable equivalent basis)
1999 vs 1998 1998 vs 1997
--------------------------- -------------------------
Increase(Decrease) Increase(Decrease)
------------------- ------------------------
Total Due to Due to Total Due to Due to
Change Volume Rate Change Volume Rate
-------------------------- -----------------------
Interest Income:
Commercial loans-taxable $3,039 $3,486 $(447) $1,822 $2,126 $(304)
Commercial loans-tax free (128) (122) (6) (29) (7) (22)
Mortgage loans (455) (412) (43) (1,146) (1,032) (114)
Installment loans 923 1,268 (345) 1,173 1,332 (159)
------------------------ ----------------- -----
Total Loans 3,379 4,220 (841) 1,820 2,419 (599)
------------------------ ------------------------
Securities-taxable 380 421 (41) 1,092 1,430 (338)
Securities-tax free 453 612 (159) 207 288 (81)
------------------------ ------------------------
Total Securities 833 1,033 (200) 1,299 1,718 (419)
------------------------ ------------------------
Interest-bearing deposits
with banks (32) (22) (10) 7 5 2
Federal funds sold (107) (92) (15) (68) (69) 1
------------------------ ------------------------
Total Money Market Assets (139) (114) (25) (61) (64) 3
------------------------ ------------------------
Total Interest Income 4,073 5,139 (1,066) 3,058 4,073 (1,015)
------------------------ ------------------------
Interest Expense:
Interest-bearing
demand deposits 265 273 (8) 115 96 19
Savings deposits 19 88 (69) (37) (11) (26)
Time deposits over
$100,000 229 381 (152) 438 412 26
Other time deposits 173 746 (573) 511 563 (52)
------------------------ ------------------------
Total Interest-Bearing
Deposits 686 1,488 (802) 1,027 1,060 (33)
Borrowed funds and
other interest-bearing
liabilities 1,082 1,239 (157) 1,104 1,243 (139)
------------------------ ------------------------
Total Interest Expense 1,768 2,727 (959) 2,131 2,303 (172)
------------------------ ------------------------
Net Interest Income $2,305 $2,412 $(107) $927 $1,770 $(843)
======================== ========================
(1) Changes in interest income and interest expense attributable to changes
in both volume and rate have been allocated proportionately to changes due to
volume and changes due to rate.
CURRENT YEAR
In 1999, tax-equivalent net interest income increased $2.3 million in
comparison to the prior year. Balance sheet growth was directly responsible for
the improved earnings as evidenced by the $2.4 million increase due to volume.
Loan growth added $4.2 million to interest income comprised of increases in both
commercial and consumer loans while investment portfolio activity and money
market assets contributed an additional $900,000. Funding for the loan and
investment growth was derived from deposits and borrowed funds. The additional
cost generated from the growth of interest-bearing liabilities was $2.7 million
in 1999. Repricing had a minimal effect on overall net interest income in 1999
due to effective asset/liability management techniques. Lower yields on new
earning assets and repricing resulted in a $1.1 million reduction in interest
income but this negative impact was offset by a $1 million reduction in the cost
of interest-bearing liabilities. Certificate of deposit repricing provided the
majority of this variance as the lower rates which developed during the fourth
quarter of 1998 affected the portfolio during the first half of 1999.
PRIOR YEAR
In 1998, tax-equivalent net interest income increased $927,000 over the
1997 level. Balance sheet growth provided improved earnings as evidenced by the
$1.8 million increase in net interest income due to volume. Loan growth added
$2.4 million to interest income due to the increases in both commercial and
installment loans outstanding. New securities purchases, including those
purchased in leveraging transactions, also contributed to the improved earnings
in the amount of $1.7 million. In order to fund the growth in loans and
investments, new deposits and borrowed funds were added which resulted in a $2.3
million increase in interest expense.
The negative impact of rate reductions can be seen in the $1.0 million
decrease in interest income due to rate which was only partially offset by the
$172,000 decrease in the cost of liabilities due to repricing. Variable rate
assets which reprice immediately were reduced by seventy-five basis points
during the fourth quarter as the Federal Reserve cut interest rates three times
in a seven week period. New volume at lower than historic levels also
contributed to the negative variance due to rate. During this same period, the
company held rates steady on its low-cost deposit base while the effect of
repricing on certificates of deposit materialized over time.
PROVISION FOR CREDIT LOSSES
The provision for credit losses varies from year to year based on
management's evaluation of the adequacy of the allowance for credit losses in
relation to the risks inherent in the loan portfolio. In its evaluation,
management considers credit quality, changes in loan volume, composition of the
loan portfolio, past experience, delinquency trends, and the economic
conditions. Consideration is also given to examinations performed by regulatory
authorities and the company's independent auditors. The provision for credit
losses was $1,020,000 in 1999, $920,000 in 1998 and $1,110,000 in 1997. The
ratio of the loan loss reserve to total loans was 1.30% as of December 31, 1999
and 1998.
OTHER INCOME
Other Income 1999 1998 1997
------ ------ ------
(in thousands)
Service charges $845 $ 780 $759
Net gain/loss on the sale of securities 197 125 (8)
Net gain on the sale of other real estate 23 47 377
Net gain on the sale of other assets 0 0 156
Other 512 631 344
------ ------ ------
Total Other Income $1,577 $1,583 $1,628
====== ====== ======
The company's other income category can be separated into three distinct
sub-categories; service charges make up the core component of this area of
earnings while net gains (losses) from the sale of assets and other fee income
comprise the balance.
During 1999, income from service charges on deposits increased $65,000, or
8%. Net gains from securities sales amounted to $197,000 in 1999 as management
sold securities prior to the exercise of near-term call options. The $23,000 net
gain on the sale of other assets represents earnings generated from properties
carried in the bank's real estate subsidiary, FNCB Realty, Inc. In 1999, the
company continued to shed interest rate risk through the sale of $15 million of
fixed rate residential mortgage loans. These loan sales, with rates ranging from
6.125% to 8.50%, added $49,000 to 1999 earnings after accounting for fees
associated with the sale. As importantly, the servicing rights were retained
which allowed us to shed risk without impacting our customers while at the same
time improving future profits through servicing fee income. Servicing fees
collected in 1999 totaled $124,000 which was $27,000 higher than in 1998 while
earnings generated through our partnership with INVEST Financial Services
totaled $78,000 in 1999.
In 1998, earnings from service charges were $21,000, or 3%, higher than the
1997 total. Net gains from securities sales totaled $125,000 in 1998 as
management sold securities to minimize the risk from prepayments on
mortgage-backed securities. The $47,000 net gain from the sale of other assets
included earnings generated from the bank's real estate subsidiary, FNCB Realty,
Inc. During 1998, the company sold $22.8 million of fixed rate residential
mortgage loans. These loan sales, with rates ranging from 6.125% to 9.125%,
added $189,000 to 1998 earnings after accounting for fees associated with the
sale. Servicing fees collected on mortgage loans which have been sold were
$97,000 in 1998, or $43,000 higher than the same period of 1997. All other fee
income increased $81,000 over the 1997 total including a $40,000 improvement
from our INVEST relationship.
OTHER EXPENSES
Other Expenses 1999 1998 1997
------ ------ ------
(in thousands)
Salary expense $ 4,297 $3,772 $3,482
Employee benefit expense 1,121 977 960
Occupancy expense 993 869 842
Equipment expense 781 677 610
Advertising expense 468 341 272
Data Processing expense 616 530 424
Other operating expenses 2,519 2,257 2,249
------- ------ ------
Total Other Expenses $10,795 $9,423 $8,839
======= ====== ======
Total other expenses increased $1.4 million, or 15%, in 1999 in comparison
to the prior year. Employee costs increased $669,000, or 49% of the total
increase, while occupancy and equipment costs rose $228,000, or 17% of the
total. All other expenses increased $475,000, or 34% of the total, due primarily
to increases in advertising and data processing costs. The company's overhead
ratio, which measures non-interest expenses in relation to average assets was
2.09% in 1999 compared to 2.08% in 1998.
Salary and benefit costs amounted to 50% of the company's total other
expenses. In 1999, salary expense increased $525,000, or 14%, due partially to
merit increases but also due to a full year's expense associated with the bank's
Exeter Office which opened in November, 1998. Full-time equivalent employees at
December 31, 1999 were 168 which matches the same number as of year end 1998.
Employee benefit costs increased $144,000, or 15%, in 1999 due to a $64,000
increase in company provided health care costs, a $55,000 increase in payroll
related benefits, and a $25,000 increase in the company's contribution to a
defined contribution profit sharing plan.
Occupancy expenses increased $124,000 due primarily to costs associated
with a new community office. Rental expense, real estate taxes, depreciation
expense and utility costs comprise 76% of the increase. Equipment costs
increased $104,000 in 1999 due almost entirely to depreciation expense on new
equipment.
All other operating expenses increased $475,000, or 15%, in 1999.
Advertising costs increased $127,000 due to bank promotions while data
processing costs increased $86,000 due to increased services and the overall
growth of the bank.
In 1998, total other expenses increased $584,000, or 7%, in comparison to
the prior year. Employee costs accounted for $307,000, or 53%, of the increase
while occupancy and equipment costs rose $94,000, or 16% of the total. All other
expenses increased $183,000, or 31% of the total, due primarily to increases in
advertising and data processing costs. The company's overhead ratio improved
from the 2.20% recorded in 1997 to 2.08%.
Salary and benefit costs amounted to 50% of the company's total other
expenses. During 1998, salary expense increased $290,000, or 8%, due to merit
increases and the addition of staff to meet the growing sales and administrative
needs of the company. Full-time equivalent employees increased from 151 on
December 31, 1997 to 168 at year end 1998. Employee benefit costs increased
$17,000, or 2%, in 1998 due primarily to a $30,000 increase in the company's
contribution to a defined contribution profit sharing plan. Hospitalization
costs, payroll taxes and other benefits decreased $13,000 in comparison to 1997.
Occupancy expenses increased $27,000, or 3%, in 1998 due primarily to
rental expense associated with a new community office. Increases in maintenance
expenses and depreciation on the new facilities were offset by a reduced level
of real estate taxes. Equipment costs increased $67,000, or 11%, due to
depreciation expense on new equipment, including computers and related
technology.
All other operating expenses increased $183,000, or 6%, compared to 1997.
Advertising costs increased $69,000 while data processing expenses rose $106,000
in 1998. All other components of other operating expenses were limited to an
$8,000 net increase.
PROVISION FOR INCOME TAXES
During 1999, federal income tax expense increased $178,000 from the 1998
total. The increase can be attributed to the $720,000 improvement in pre-tax
income while the benefits received from tax-exempt interest income and other
deferred items increased $67,000 in comparison to the prior year. The company's
effective tax rate for 1999 and 1998 was 23.7% and 23.6%, respectively.
Federal income tax expense decreased $39,000 in 1998 in comparison to the
1997 total in spite of the $426,000 improvement in income before taxes. Tax
benefits derived from an increased level of tax-exempt income had a $40,000
positive effect while the effect of deferred taxes and other items reduced the
1998 provision by $144,000. The effective tax rate for 1997 was 25.8%.
FINANCIAL CONDITION
Total assets increased $57 million, or 12%, in 1999 which was comparable to
the $55 million, or 13%, increase recorded in 1998. A $31 million increase in
total deposits provided the majority of the growth while a $23 million increase
in borrowed funds and proceeds from the sale of $3 million of common stock also
provided available liquidity. These new funds were put to use in the form of $35
million in new loans and $15 million in new securities.
SECURITIES
The primary objectives in managing the company's securities portfolio are
to maintain the necessary flexibility to meet liquidity and asset and liability
management needs and to provide a stable source of interest income.
In 1999, total securities increased $15 million after including an $8
million decrease in the fair value of the portfolio caused by rising interest
rates. Included in the 1999 growth is approximately $19 million of securities
which were purchased with structured borrowings from the Federal Home Loan Bank
of Pittsburgh, thereby allowing the company to earn a favorable spread between
the rate earned on the securities and the cost of the borrowed funds. As of
December 31, 1999, the company was a party to $53 million of such transactions.
Management remains committed to strategies which limit purchases to those that
are virtually free of credit risk and will help to meet the objectives of the
company's investment and asset/liability management policies.
The following table sets forth the carrying amount of securities at the
dates indicated:
December 31,
--------------------------------------------------
1999 1998 1997
(in thousands)
U.S. Treasury securities
and obligations of U.S.
government agencies $ 20,785 $ 13,109 $31,808
Obligations of state and
political subdivisions 39,097 33,671 27,043
Mortgage-backed securities 77,763 77,590 56,615
Corporate debt securities 937 992 0
Equity securities 7,946 6,468 5,901
-------- -------- --------
Total $146,528 $131,830 $121,367
======== ======== ========
The following table sets forth the maturities of securities at December 31,
1999 (in thousands) and the weighted average yields of such securities
calculated on the basis of the cost and effective yields weighted for the
scheduled maturity of each security. Tax-equivalent adjustments, using a 34%
rate, have been made in calculating yields on obligations of state and political
subdivisions.
Within Mortgage
One Year 2 - 5 6 - 10 Over backed No Fixed
Years Years 10 Years Securities Maturity Total
-------- ------- ------ -------- --------- -------- -----
U.S. Treasury securities $0 $2,004 $ 0 $ 0 $ 0 $ 0 $ 2,004
Yield 5.62% 5.62%
Obligations of U.S. government
agencies 500 11,770 7,242 19,512
Yield 6.03% 7.10% 7.01% 7.04%
Obligations of state and political
subdivisions(1) 1,930 6,705 32,312 40,947
Yield 10.60% 9.35% 7.73% 8.22%
Corporate debt securities 504 497 1,001
Yield 6.53% 7.00% 6.76%
Mortgage-backed securities 81,561 81,561
Yield 6.94% 6.94%
Equity securities(2) 7,946 7,946
Yield 6.61% 6.61%
------ ------- ------- ------- ------- ------- --------
Total maturities $0 $ 4,434 $18,979 $40,051 $81,561 $ 7,946 $152,971
====== ======= ======= ======= ======= ======= ========
Weighted yield 7.83% 7.88% 7.59% 6.94% 6.61% 7.24%
======= ======= ======= ======= ======= ========
(1) Yields on state and municipal securities have been adjusted to a
tax-equivalent basis using a 34% federal income tax rate.
(2) Yield presented represents 1999 actual return.
LOANS
Total loans increased $35 million, or 11%, in 1999. Loans secured by real
estate, both residential and commercial, generated $18 million of the growth.
Commercial loans secured by real estate increased $21 million in 1999 and
provided the growth in this area of lending. Residential mortgage loans
decreased $3 million as the company continued with its strategy of reducing
interest rate risk through the sale of long-term, fixed rate assets. In 1999,
over $15 million of these long term assets were sold in the secondary market
resulting in a reduction of the company's interest rate risk exposure while
providing a net gain of approximately $49,000. The sale of these assets provides
liquidity for future growth and also allows the company to provide competitive
products in today's interest rate environment. Commercial and financial loans
increased $12 million while installment loans increased $6 million due entirely
to growth in indirect auto loans.
Details regarding the loan portfolio for each of the last five years are as
follows:
Loans Outstanding
(in thousands)
December 31,
1999 1998 1997 1996 1995
Commercial and Financial $ 61,337 $ 49,796 $ 36,790 $ 29,625 $26,987
Real Estate 230,029 211,554 190,266 181,455 165,362
Installment 65,075 58,799 46,174 43,200 31,252
Other 7,517 8,748 11,133 8,785 8,879
-------- -------- -------- -------- --------
Total Loans Gross 363,958 328,897 284,363 263,065 232,480
Unearned Discount 0 (4) (10) (18) (37)
-------- -------- -------- -------- --------
Total Loans 363,958 328,893 284,353 263,047 232,443
Allowance for Credit Losses (4,714) (4,283) (3,623) (3,167) (2,800)
-------- -------- -------- -------- --------
Net Loans $359,244 $324,610 $280,730 $259,880 $229,643
======== ======== ======== ======== ========
The following schedule shows the repricing distribution of loans
outstanding as of December 31, 1999. Also provided are these amounts classified
according to sensitivity to changes in interest rates.
Loans Outstanding - Repricing Distribution
(in thousands)
Within One to Over Five
One Year Five Years Years Total
--------- ---------- -------- --------
Commercial and Financial $ 44,352 $ 13,065 $ 3,920 $ 61,337
Real Estate 77,386 100,879 51,764 230,029
Installment 3,111 60,769 1,195 65,075
Other 1,748 118 5,651 7,517
-------- -------- ------- --------
Total $126,597 $174,831 $62,530 $363,958
======== ======== ======= ========
Loans with predetermined
interest rates $ 16,588 $ 87,804 $51,203 $155,595
Loans with floating rates 110,009 87,027 11,327 208,363
-------- -------- ------- --------
Total $126,597 $174,831 $62,530 $363,958
======== ======== ======= ========
ASSET QUALITY
The company manages credit risk through the application of policies and
procedures designed to foster sound underwriting and credit monitoring
practices, although, as is the case with any financial institution, a certain
degree of credit risk is dependent in part on local and general economic
conditions that are beyond the company's control.
The company's risk management committee meets quarterly or more often as
required and makes recommendations to the board of directors regarding
provisions for credit losses. The committee reviews individual problem credits
and ensures that ample reserves are established considering both general
allowances and specific allocations.
The following schedule reflects various non-performing categories as of
December 31 for each of the last five years:
(in thousands)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Nonaccrual:
Impaired $0 $0 $0 $447 $1,341
Other 288 845 207 267 288
Loans past due 90 days
or more and still
accruing 498 452 1,224 354 157
Other Real Estate Owned 0 0 0 337 25
---- ------ ------ ------ ------
Total Non-Performing Assets $786 $1,297 $1,431 $1,405 $1,811
==== ====== ====== ====== ======
In 1999, total non-performing assets decreased $511,000 due to a reduction
in nonaccrual loans. During the year, approximately $350,000 of the loans
carried as nonaccrual at December 31, 1998 were deemed uncollectible and were
charged-off while other balances were reduced as a result of payments received
or reclassification to performing status.
As of December 31, 1999, the company's ratio of nonaccrual loans to total
loans was .08%, down from the prior year's ratio of .26%. The company continues
to acknowledge the weakness in local real estate markets, emphasizing strict
underwriting standards to minimize the negative impact of the current
environment. Management remains ever conscious to avoid the problems of
over-lending experienced during the 1980's and expects future efforts to control
delinquency percentages during 2000.
ALLOWANCE FOR CREDIT LOSSES
The following table presents an allocation of the allowance for credit
losses as of the end of each of the last five years:
Loan Loss Reserve Allocation
(in thousands)
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
-------------------- ------------------- ------------------- ------------------ ----------------
Percentage Percentage Percentage Percentage Percentage
of of of of of
Loans in Loans in Loans in Loans in Loans in
Each Each Each Each Each
Category Category Category Category Category
To Total to Total to Total to Total to Total
Loans Loans Loans Loans Loans
Amount Amount Amount Amount Amount
Commercial and
Financial $2,917 61% $1,706 58% $1,340 56% $1,326 52% $ 1,094 52%
Real Estate 89 13% 117 14% 118 20% 98 26% 105 29%
Installment 94 26% 92 28% 69 24% 61 22% 38 19%
Unallocated 1,614 2,368 2,096 1,682 1,563
--------------- --------------- ---------------- --------------- -----------------
$4,714 100% $4,283 100% $3,623 100% $3,167 100% $ 2,800 100%
=============== =============== ================ =============== =================
The following schedule presents an analysis of the allowance for credit
losses for each of the last five years:
(in thousands)
Years Ended December 31,
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
Balance, January 1 $4,283 $3,623 $3,167 $2,800 $2,250
Charge-Offs:
Commercial and Financial 123 77 547 420 449
Real Estate 462 50 9 20 97
Installment 271 180 141 141 59
------ ------ ------ ------ ------
Total Charge-Offs 856 307 697 581 605
------ ------ ------ ------ ------
Recoveries on Charged-Off Loans:
Commercial and Financial 23 11 8 109 327
Real Estate 154 1 0 0 1
Installment 90 35 35 19 31
------ ------ ------ ------ ------
Total Recoveries 267 47 43 128 359
------ ------ ------ ------ ------
Net Charge-Offs 589 260 654 453 246
------ ------ ------ ------ ------
Provision for Credit Losses 1,020 920 1,110 820 796
------ ------ ------ ------ ------
Balance, December 31 $4,714 $4,283 $3,623 $3,167 $2,800
====== ====== ====== ====== ======
Net Charge-Offs during the period
as a percentage of average loans
outstanding during the period .17% .09% .24% .18% .12%
Allowance for credit losses as a
percentage of net loans
outstanding at end of period 1.30% 1.30% 1.27% 1.20% 1.20%
In 1999, net charge-offs were .17% of average loans outstanding, an
increase from the .09% recorded in 1998, but more closely resembled prior
periods. Losses on loans secured by real estate that were included in
non-accrual loans at December 31, 1998 were recognized in 1999. The increase in
installment loan charge-offs represents delinquencies in the company's indirect
auto loan portfolio, many of which were recovered later in 1999. The significant
recoveries recognized in 1995 represent payments on loans previously charged-off
in 1991, 1992 and 1994.
DEPOSITS
The primary source of funds to support the company's growth is its deposit
base, and emphasis has been placed on accumulating new deposits while making
every effort to retain current relationships. Total deposits increased $31
million in 1999 including almost $18 million in low-cost savings and demand
accounts and over $13 million in certificates of deposit.
The average daily amount of deposits and rates paid on such deposits is
summarized for the periods indicated in the following table:
Year Ended December 31,
------------------------------
1999 1998 1997
----------------- ------------------ ----------------
Amount Rate Amount Rate Amount Rate
----------------- ------------------ ----------------
(in thousands)
Noninterest bearing
demand deposits $ 41,810 $ 35,887 $ 31,707
Interest-bearing demand
deposits 62,183 2.40% 50,504 2.43% 45,682 2.43%
Savings deposits 45,716 2.23% 41,983 2.38% 42,482 2.44%
Time deposits 253,029 5.31% 232,765 5.60% 215,115 5.62%
-------- -------- --------
Total $402,738 $361,139 $334,986
======== ======== ========
Maturities of time certificates of deposit of $100,000 or more outstanding at
December 31, 1999 are summarized as follows:
Time Certificates of Deposit
(in thousands)
3 months or less $48,513
Over 3 through 6 months 9,456
Over 6 through 12 months 6,455
Over 12 months 6,507
-------
Total $70,931
=======
CAPITAL
A strong capital base is essential to the continued growth and
profitability of the company and in that regard the maintenance of appropriate
levels of capital is a management priority. The company's principal capital
planning goals are to provide an adequate return to shareholders while retaining
a sufficient base from which to provide for future growth, while at the same
time complying with all regulatory standards. As more fully described in Note 12
to the financial statements, regulatory authorities have prescribed specified
minimum capital ratios as guidelines for determining capital adequacy to help
insure the safety and soundness of financial institutions.
As a result of the significant growth the company has experienced in recent
years, capital ratios, although well above the regulatory minimums, had been
steadily decreasing. Based on management's intent to maintain a well-capitalized
status as well as a desire to attract new shareholders, the company sold 75,000
shares of stock in 1999 which resulted in an increase of $2.9 million of Tier 1
capital. On May 15, 1996, stockholders voted to increase the number of
authorized shares from 1,500,000 to 5,000,000.
The following schedules present information regarding the company's
risk-based capital at December 31, 1999, 1998 and 1997 and selected other
capital ratios.
CAPITAL ANALYSIS
(in thousands)
December 31,
--------------------------------
1999 1998 1997
------ ------ ------
Tier I Capital:
Shareholders'equity $ 41,307 $ 33,887 $ 30,483
-------- -------- --------
Total Tier I Capital $ 41,307 $ 33,887 $ 30,483
-------- -------- --------
Tier II Capital:
Allowable portion of
allowance for credit losses $ 4,714 $ 4,157 $ 3,483
-------- -------- --------
Total Risk-Based Capital $ 46,021 $ 38,044 $ 33,966
======== ======== ========
Total Risk-Weighted Assets $381,805 $332,519 $278,680
======== ======== ========
CAPITAL RATIOS
December 31,
-----------------------------
Regulatory
Minimum 1999 1998 1997
--------- ------- ------- -------
Total Risk-Based Capital 8.00% 12.05% 11.45% 12.19%
Tier I Risk-Based Capital 4.00% 10.82% 10.19% 10.94%
Tier I Leverage Ratio 3.00% 7.62% 7.10% 7.28%
Return on Assets N/A 1.09% 1.13% 1.16%
Return on Equity* N/A 16.26% 15.29% 15.85%
Equity to Assets Ratio* N/A 6.86% 7.17% 7.37%
Dividend Payout Ratio N/A 34.02% 33.35% 30.06%
* Includes the effect of SFAS 115 in the amount of ($4,252,000) in 1999,
$791,000 in 1998, and $1,097,000 in 1997.
It is the philosophy of management and the board of directors to increase
capital primarily through the retention of earnings. During 1995, the bank
offered and sold 144,000 shares of stock increasing the number of outstanding
shares to 991,504. In 1996, the Board approved a 10% stock dividend which
resulted in the issuance of 98,920 new shares and which increased the total
number of shares outstanding to 1,090,424. During 1997, the Board of Directors
again approved the payment of a 10% stock dividend adding 108,756 new shares and
increasing the total number of shares outstanding to 1,199,180. In 1998,
shareholders received a 100% stock dividend which doubled the outstanding shares
to 2,398,360.
In 1999, the company again sold stock in the form of a public offering,
resulting in the issuance of 75,000 new shares and a $2.9 million increase in
capital. During 1999, the company also implemented a Dividend Reinvestment Plan
which resulted in the issuance of over 20,000 shares and an additional influx to
capital of $763,000.
During 1999, regulatory capital increased $7.4 million. The increase was
comprised of retained earnings after paying $1.9 million in cash dividends and
$3.7 million from the issuance of new stock. As of December 31, 1999, there were
2,506,493 shares of stock available for future sale or stock dividends. The
approximate number of stockholders of record at December 31, 1999 was 1000.
Quarterly market highs and lows, dividends paid and known market makers are
highlighted in the Investor Information section of this Annual Report. Refer to
Note 12 to the financial statements for further discussion of capital
requirements and dividend limitations.
ECONOMIC CONDITIONS AND FORWARD OUTLOOK
Economic conditions affect financial institutions, as they do other
businesses, in a number of ways. Rising inflation affects all businesses through
increased operating costs but affects banks primarily through the manner in
which they manage their interest sensitive assets and liabilities in a rising
rate environment. Economic recession can also have a material effect on
financial institutions as the assets and liabilities affected by a decrease in
interest rates must be managed in a way that will maximize the largest component
of a bank's income, that being net interest income. Recessionary periods may
also tend to decrease borrowing needs and increase the uncertainty inherent in
the borrowers' ability to pay previously advanced loans. Additionally,
reinvestment of investment portfolio maturities can pose a problem as attractive
rates are not as available. Management closely monitors the interest rate risk
of the balance sheet and the credit risk inherent in the loan portfolio in order
to minimize the effects of fluctuations caused by changes in general economic
conditions.
As we entered 1999, the Federal Reserve had just completed a series of
interest rate cuts, decreasing both the federal funds target and indirectly the
prime lending rates by .75% each over a seven week period. Global economies,
namely Asia and Japan, were experiencing financial and economic weaknesses which
reduced the chances of inflationary pressures domestically. In the opening
months of 1999, however, governments in those countries took aggressive actions
to deal with their crippled systems and their recoveries shifted the Fed's focus
back to the United States. Domestically, the stock market continued to add
stimulus to the economy.
During the first quarter, economic activity continued to expand while
tight labor markets presented a constant concern for rising inflation. Consumer
spending was particularly strong while business spending, although slower than
its fourth quarter 1998 surge, was still quite rapid. Despite these signs,
however, there was no evidence of rising price inflation. In the second quarter,
the Federal Reserve Policy Board shifted its bias toward tightening in light of
persistent strength in domestic demand and the reduced risk of economic weakness
abroad. While an upward trend in underlying inflation had not yet materialized,
members of the Federal Reserve's policy making board were concerned that if
recent developments continued, inflation was more likely to rise over time.
Throughout this period, U.S. Treasury rates began a steady climb upwards,
resulting in increases of over 1.00% in most terms and a yield on the
thirty-year Treasury of 6.06%. At its meeting of June 30, 1999, the Federal
Reserve increased rates by twenty-five basis points, the first increase in over
two years. During the second half of 1999, fears of additional Fed tightening
were ever present and these fears materialized in rate increases of twenty-five
basis points at both the August and November Policy Board meetings. By year-end,
the yield on the thirty-year Treasury had increased 129 basis points to 6.44%
and future increases appeared imminent, although signs of a slowing economy
began to develop. With this in mind, management maintains a philosophy of not
attempting to predict future rate movements but rather on focusing efforts to
maintain earnings momentum in various rate environments.
The company has addressed over the past several years a universal problem
commonly referred to as Year 2000 Compliance which relates to the ability of
computer programs and systems to properly recognize and process date sensitive
information on and after January 1, 2000. The company formed a Year 2000
Operations Committee consisting of officers and employees from every area of the
bank to ensure that all mission critical systems and applications were tested
before the century date rollover. In addition, an Executive Committee was formed
consisting of Senior Management to ensure that adequate resources were provided
to the Year 2000 project and to update the Board of Directors regarding the
status of Year 2000 readiness.
During the review of our computer systems, we took affirmative steps to
remedy Year 2000 problems within our systems, programs and applications. In
1998, we spent $120,000 on renovations and upgrades and in 1999 we expended
$48,000 for remedial measures. We have allotted an additional $25,000 in the
2000 budget in the event of future systems interruptions related to the Year
2000 problem.
The company did not experience any Year 2000 Compliance problems in
conjunction with the century date rollover and does not expect future problems
which will have a material effect on its financial condition or results of
operations. In addition, to date, the company is not aware of any significant
customer, vendor, supplier, financial organization or service provider who
experienced critical Year 2000 Compliance problems.
As of this writing, the bank was not aware of any pronouncements or
legislation that would have a material impact on the results of operations.
Item 7A - Quantitative and Qualitative Disclosures About Market Risk
ASSET AND LIABILITY MANAGEMENT
The major objectives of the company's asset and liability management are to
(1) manage exposure to changes in the interest rate environment to achieve a
neutral interest sensitivity position within reasonable ranges, (2) ensure
adequate liquidity and funding, (3) maintain a strong capital base, and (4)
maximize net interest income opportunities. The company manages these objectives
through its Senior Management and Asset and Liability Management Committees.
Members of the committees meet regularly to develop balance sheet strategies
affecting the future level of net interest income, liquidity and capital. Items
that are considered in asset and liability management include balance sheet
forecasts, the economic environment, the anticipated direction of interest rates
and the company's earnings sensitivity to changes in these rates.
INTEREST RATE SENSITIVITY
The company analyzes its interest sensitivity position to manage the risk
associated with interest rate movements through the use of gap analysis and
simulation modeling. Interest rate risk arises from mismatches in the repricing
of assets and liabilities within a given time period. Gap analysis is an
approach used to quantify these differences. A positive gap results when the
amount of interest-sensitive assets exceeds that of interest-sensitive
liabilities within a given time period. A negative gap results when the amount
of interest-sensitive liabilities exceeds that of interest-sensitive assets.
While gap analysis is a general indicator of the potential effect that
changing interest rates may have on net interest income, the gap report has some
limitations and does not present a complete picture of interest rate
sensitivity. First, changes in the general level of interest rates do not affect
all categories of assets and liabilities equally or simultaneously. Second,
assumptions must be made to construct a gap table. For example, non-maturity
deposits are assigned a repricing interval based on internal assumptions.
Management can influence the actual repricing of these deposits independent of
the gap assumption. Third, the gap table represents a one-day position and
cannot incorporate a changing mix of assets and liabilities over time as
interest rates change.
Because of the limitations of the gap reports, the company uses simulation
modeling to project future net interest income streams incorporating the current
gap position, the forecasted balance sheet mix, and the anticipated spread
relationships between market rates and bank products under a variety of interest
rate scenarios.
The company's interest sensitivity at December 31, 1999 was essentially
neutral within reasonable ranges; for example, an interest rate fluctuation of
up or down 200 basis points would not be expected to have a significant impact
on net interest income.
INTEREST RATE GAP
The following schedule illustrates the company's interest rate gap position as
of December 31, 1999. At that date, the company's cumulative gap position at all
intervals measured within one year were within internal guidelines.
Interest Rate Sensitivity Analysis
as of December 31, 1999
(in thousands)
Rate Sensitive
--------------------------------------------------------- Not
1 to 90 91 to 180 181 to 365 1 to 5 Beyond Rate
Days Days Days Years 5 Years Sensitive Total
-------- ------- ------- -------- -------- --------- ---------
Commercial loans $ 99,871 $5,100 $14,803 $87,265 $19,220 $0 $226,259
Mortgage loans 2,549 2,089 5,062 19,081 14,691 0 43,472
Installment loans 10,579 6,363 12,095 56,949 7,311 0 93,297
-------- ------- ------- -------- -------- -------- --------
Total Loans 112,999 13,552 31,960 163,295 41,222 0 363,028
-------- ------- ------- -------- -------- -------- --------
Securities-taxable 28,862 5,195 2,632 19,686 48,154 1,502 106,031
Securities-tax free 625 1,220 2,960 8,812 26,880 0 40,497
-------- ------- ------- -------- -------- -------- --------
Total Securities 29,487 6,415 5,592 28,498 75,034 1,502 146,528
-------- ------- ------- -------- -------- -------- --------
Interest-bearing
deposits with banks 792 297 1,785 0 0 0 2,874
Federal funds sold 0 0 0 0 0 0 0
-------- ------- -------- -------- -------- -------- --------
Total Money Market Assets 792 297 1,785 297 0 0 2,874
-------- ------- -------- -------- -------- -------- --------
Total Earning Assets 143,278 20,264 39,337 191,793 116,256 1,502 512,430
Non-earning assets 0 0 0 0 0 32,647 32,647
Allowance for credit losses 0 0 0 0 0 (4,714) (4,714)
-------- ------- ------- -------- -------- -------- --------
Total Assets $143,278 $20,264 $39,337 $191,793 $116,256 $29,435 $540,363
======== ======= ======= ======== ======== ======== ========
Interest-bearing
demand deposits $ 40,658 $0 $0 $23,825 $ 0 $0 $64,483
Savings deposits 0 489 702 42,311 0 0 43,502
Time deposits
$100,000 and over 48,512 9,456 6,455 6,289 219 0 70,931
Other time deposits 47,678 32,848 41,774 67,069 306 0 189,675
-------- ------- ------- -------- -------- ------- --------
Total Interest-Bearing
Deposits 136,848 42,793 48,931 139,494 525 0 368,591
-------- ------- ------- -------- -------- ------- --------
Borrowed funds and other
Interest-bearing liabilities 34,592 659 1,318 51,604 0 0 88,173
-------- ------- ------- -------- -------- ------- --------
Total Interest-Bearing Liabilities 171,440 43,452 50,249 191,098 525 0 456,764
Demand deposits 0 0 0 0 0 42,535 42,535
Other liabilities 0 0 0 0 0 4,009 4,009
Stockholders' equity 0 0 0 0 0 37,055 37,055
-------- ------- ------- -------- -------- ------- --------
Total Liabilities and
Stockholders' Equity $171,440 $43,452 $50,249 $191,098 $ 525 $83,599 $540,363
======== ======= ======= ======== ======== ======= ========
Interest Rate Sensitivity gap (28,162) (23,188) (10,912) 695 115,731 (54,164)
============================================================================
Cumulative gap (28,162) (51,350) (62,262) (61,567) 54,164
=================================================================
The company's computerized simulation modeling system also measures
exposure to interest rate risk, taking into account a growing balance sheet
under various interest rate scenarios. As of December 31, 1999, the modeling
system provided results which were within policy guidelines of plus or minus ten
percent assuming a 200 basis point shift in market interest rates.
LIQUIDITY
The term liquidity refers to the ability of the company to generate
sufficient amounts of cash to meet its cash-flow needs. Liquidity is required to
fulfill the borrowing needs of the company's credit customers and the withdrawal
and maturity requirements of its deposit customers, as well as to meet other
financial commitments. Cash and cash equivalents (cash and due from banks and
federal funds sold) are the company's most liquid assets. At December 31, 1999
cash and cash equivalents totaled $16.0 million, compared to the December 31,
1998 level of $13.4 million. Financing activities provided $55.9 million and
operating activities provided $5.6 million of cash and cash equivalents during
the year while investing activities utilized $58.8 million. The cash flows
provided by financing activities includes deposit growth, an increase in
borrowed funds outstanding and proceeds from the issuance of common stock while
the funds provided by operating activities pertains to interest payments
received on loans and investments. The cash used in investing activities
consists of loan proceeds and security purchases.
Core deposits, which represent the company's primary source of liquidity,
averaged $333.9 million in 1999, an increase of $34.4 million, or 11%, from the
$299.5 million average in 1998. This increase in average core deposits was
supplemented with a $7.2 million increase in average jumbo certificates and a
$21.1 million increase in average borrowed funds and other interest-bearing
liabilities.
The company has other potential sources of liquidity, including repurchase
agreements. Additionally, the company can borrow on credit lines established at
several correspondent banks and at the Federal Home Loan Bank of Pittsburgh. The
Federal Reserve Discount Window also provides a funding source of last resort.
Item 8 - Financial Statements and Supplementary Data
The information required in Part II, Item 8 is incorporated by reference
from the Company's Annual Report to security holders for the fiscal year
ended December 31, 1999.
Balance Sheet Exhibit A
Statement of Income Exhibit B
Statement of Cash Flows Exhibit C
Statement of Changes in Equity Exhibit D
Additional references are made in Part IV, Item 14 of this Form 10-K.
Item 9- Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
Not Applicable
FIRST NATIONAL COMMUNITY BANCORP, INC.
Part III.
Item 10 - Directors and Executive Officers of the Registrant
A. Identification of Directors of the Company:
Director Since
Name Title Term Expires Company/Bank Age
Michael G. Cestone Director 2000 1998/1988 37
Michael J. Cestone, Jr. Director
Secretary
of the Board
Of the Bank
since 1975 2002 1998/1969 68
Joseph Coccia Director 2001 1998/1998 45
William P. Conaboy Director 2001 1998/1998 41
Dominick L. DeNaples Director 2001 1998/1987 62
Louis A. DeNaples Director
Chairman
of the Board
Since 1988 2002 1998/1972 59
Joseph J. Gentile Director 2002 1998/1989 69
Martin F. Gibbons Director 2000 1998/1979 84
Joseph O. Haggerty Director 2002 1998/1987 60
George N. Juba Director 2001 1998/1973 73
J. David Lombardi Director
President and
Chief Executive
Officer
Since 1988 2000 1998/1986 51
John P. Moses Director 2002 1999/1999 53
John R. Thomas Director 2000 1998/1967 82
The company has a classified Board of Directors with staggered three-year
terms of office. In a classified board, the directors are generally divided into
separate classes of equal number. The terms of the separate classes expire in
successive years. At each Annual Meeting of Shareholders, successors to the
class of directors whose term shall then expire shall be elected to hold office
for a term of three (3) years, so that the term of office of one class of
directors shall expire in each year. The Board of Directors shall have the sole
discretion to increase the number of Directors that shall constitute the whole
Board of Directors; provided however, that the total number of Directors in each
class remains relatively proportionate to the others.
B. Identification of Executive Officers of the Company
The following table sets forth selected information about the executive
officers of the company, each of whom is elected by the Board of Directors
and each of whom holds office at the discretion of the Board of Directors:
Bank
Employee
Office and Position Since Age as of
Name with the Company Held Since 2/29/00
- ----------------- ------------------- -------- ----- -------
Louis A. DeNaples Chairman of the Board 1998 (1) 59
J. David Lombardi President & Chief
Executive Officer 1998 1981 51
Michael J. Cestone, Jr. Secretary 1998 (1) 68
William S. Lance Treasurer 1998 1991 40
(1) Messrs. DeNaples and Cestone are non-management members of the Board of
Directors of the Company.
Identification of executive officers of the bank:
Bank Age
Held Employee as of
Name Office/Position with Bank Since Since 2/29/00
- ------------------ ------------------------- ------ ------ -------
Louis A. DeNaples Chairman of the Board 1988 (1) 59
J. David Lombardi President and Chief
Executive Officer 1988 1981 51
Gerard A. Champi Executive Vice President
Retail Sales and
Operations
Division Manager 1998 1991 39
Thomas P. Tulaney Executive Vice President
Commercial Sales
Division Manager 1998 1994 40
Stephen J. Kavulich First Senior Vice President
Loan Administration/
Compliance/Bank Operations
Division Manager 1998 1991 54
William S. Lance First Senior Vice President
Finance Control
Division Manager 1994 1991 40
Michael J. Cestone, Jr. Secretary 1988 (1) 68
(1) Messrs. DeNaples and Cestone are non-management members of the Board of
Directors of the Company.
C. Identification of Significant Employees:
NONE
D. Family Relationships:
Family relationships exist within the Bank between directors. Michael J.
Cestone, Jr., Secretary of the Board of Directors, is the father of Michael G.
Cestone. Dominick L. DeNaples is the brother of Louis A. DeNaples, Chairman of
the Board.
E. Business Experience:
Michael G. Cestone President, S. G. Mastriani Company
(General Contractor)
Michael J. Cestone, Jr. President, M. R. Co. (Real Estate Corporation)
C.E.O., S. G. Mastriani Company
Joseph Coccia President, Coccia Ford, Inc.
President, Coccia Lincoln Mercury, Inc.
William P. Conaboy Vice President, General Counsel, Allied Services
Dominick L. DeNaples Vice President F & L Realty Corp.
Vice President, DeNaples Auto Parts, Inc.
Vice President, Keystone Landfill Inc.
Louis A. DeNaples President, DeNaples Auto Parts, Inc.
President, Keystone Landfill, Inc.
President, F & L Realty Corp.
Joseph J. Gentile President, Dunmore Oil Co., Inc.
Martin F. Gibbons Partner, Gibbons Ford
Joseph O. Haggerty Retired Superintendent, Dunmore School District
George N. Juba Consultant to the Bank since 1988
William S. Lance Senior Vice President since 1994
Vice President and Comptroller -Finance/Control
Division Manager since 1991
J. David Lombardi President and Chief Executive Officer since 1988
John P. Moses Partner, Moses & Gelso, L.L.P., Attorneys at Law
John R. Thomas Chairman of the Board, Wesel Manufacturing Company
(design and manufacturing of precision machinery)
F. Involvement in Certain Legal Proceedings:
No officer or director is involved in legal proceedings pursuant to this
item.
G. Promoters and Control Persons:
NONE
Item 11 - Executive Compensation
Summary Compensation Table
The following table sets forth all cash compensation paid by the company
for services rendered in all capacities during each of the last three
fiscal years to the Chief Executive Officer of the Company and to all
Executive Officers whose salary and bonus exceed $100,000.
SUMMARY COMPENSATION TABLE
Annual Compensation Long - Term Compensation
------------------------------------------- ------------------------------------
Awards Payouts
------------------------ --------
Securities
Other Under- All
Name and Annual Restricted Lying Other
Principal Compen- Stock Options/ LTIP Compen-
Position Year Salary(1) Bonus(2) Sation(3) Award(s) SARs Payouts sation(4)
($) ($) ($) ($) (#) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
-------------------- -------- ----------- ----------- ---------- ----------- ----------- ----------- ---------
J. David Lombardi,
President and Chief
Executive Officer 1999 $179,000 $250,000 $- $ 0 $ 0 $ 0 $25,604
of the Company and 1998 179,000 250,000 - 0 0 0 25,979
the Bank 1997 169,000 200,000 - 0 0 0 25,402
Thomas P. Tulaney,
Executive Vice 1999 $92,000 $50,000 - $ 0 0 $ 0 $14,164
President of the 1998 87,135 40,000 - 0 0 0 12,538
Bank 1997 81,000 32,000 - 0 0 0 10,651
Gerard A. Champi,
Executive Vice 1999 $84,500 $50,000 $ - $ 0 0 $ 0 $13,359
President of the 1998 79,634 40,000 - 0 0 0 11,496
Bank 1997 72,492 32,000 - 0 0 0 9,645
1 Includes directors' fees of $24,000 for 1997, 1998 and 1999 for Mr. Lombardi.
2 Cash bonuses are awarded at the conclusion of a fiscal year based upon the
Board of Directors' subjective assessment of the Company's performance as
compared to both budget and prior fiscal year performance, and the individual
contributions of the officers involved.
3 The named executive officers did not receive perquisites or other personal
benefits during 1999 which, in the aggregate, cost the Company the lesser of
$50,000 or 10% of the named executive officers salary and bonus earned during
the year. Perquisites and other personal benefits which were received by the
named executives were valued based on their cost to the Company.
4 For Mr. Lombardi, includes $16,096, $16,471 and $15,894 contributed by the
company pursuant to the Employees' Profit Sharing Plan for 1999, 1998 and 1997,
respectively and includes director's bonus of $7,500, in each of 1999, 1998 and
1997, respectively. Also includes $2,008 in premiums paid to purchase additional
life insurance in each of the years 1999, 1998 and 1997. For Mr. Tulaney and Mr.
Champi, represents amounts contributed by the company to the Employees' Profit
Sharing Plan in the years shown.
Employment Agreements
The bank entered into an employment agreement with Mr. J. David
Lombardi, President and Chief Executive Officer effective on January 1,
1990 amended September 28, 1994. On July 8, 1998 the Board of Directors of
the corporation approved and adopted an amendment to the employment
agreement which added the corporation as a party to the agreement. This
agreement is designed to assist the company and the bank in retaining a
highly qualified executive and to help insure that if the company is faced
with an unsolicited tender offer proposal, Mr. Lombardi will continue to
manage the company without being unduly distracted by the uncertainties of
his personal affairs and thereby will be better able to assist in
evaluating such a proposal in an objective manner.
This agreement provided for a base annual salary of $175,000 in 2000.
Additional compensation by way of salary increases, bonuses or fringe
benefits may be established from time to time by appropriate board action.
The agreement does not preclude Mr. Lombardi from serving as a director of
the company and the bank and receiving related fees.
The Agreement may be terminated by the company with or without "just
cause" ("just cause" is defined in the agreement), or upon death, permanent
disability, or normal retirement of Mr. Lombardi, or, upon the termination
of Mr. Lombardi's employment by resignation or otherwise. In the event
employment is terminated with "just cause", Mr. Lombardi shall receive
salary payment at his then effective base salary as if his employment had
not been terminated for a period of three (3) months, excluding bonuses or
fringe or supplemental payments theretofore authorized by the Board of
Directors. In the event that the termination of employment is occasioned by
the company without just cause, Mr. Lombardi shall continue to receive each
month for a period of two (2) years from the effective date of termination;
(1) his monthly base salary payments from the bank at the rate in effect on
the date of the termination; (2) his monthly Board of Directors fee; and
(3) one (1/12th) twelfth of the average of the bonuses paid to him over the
preceding three (3) years; all computed as if his employment had not been
terminated.
In the event that there is a "change in control" (as defined in the
Agreement) and as a result thereof Mr. Lombardi's employment is terminated
or his duties or authority are substantially diminished or he is removed
from the office of Chief Executive Officer of the reorganized employer, Mr.
Lombardi may terminate his employment by giving notice to the bank within
sixty (60) days of the occurance in the "change of control". Upon such
termination, the company is obligated to pay Mr. Lombardi the total sum of
the following: (1) three (3) times his then annual base salary which was in
effect as of the date of the change in control; (2) three (3) times his
then annual Board of Director's fee; and (3) three (3) times the average of
his bonuses for the prior three (3) years.
Subsequent to termination, Mr. Lombardi shall not accept employment in
any office or branch of any financial institution or subsidiary in
Lackawanna County for a period of three (3) years, unless such severance
was made by the company "without just cause".
Compensation of Directors
Members of the bank's Board of Directors are compensated at a rate of
$1,000 per board meeting, including four (4) compensated absences at full
compensation, after which members are not paid for any unexcused absence,
except for Mr. George N. Juba who is compensated for unlimited absences.
Excused absences are limited to non-attendance due to other bank business.
The aggregate amount of such fees paid in 1999 was $321,000. In 1999,
Michael J. Cestone, Jr., George N. Juba and John R. Thomas were compensated
$31,500, in the aggregate, for special services (respectively Secretary,
Special Consultant and Investment Advisor) rendered to the bank. All
directors of the bank also received a bonus of $7,500 in 1999. During 1999,
the Board of Directors of the company held five (5) meetings. Directors
received no additional remuneration for attendance at meetings of the Board
of Directors of the company. Members of the Bank's Senior Loan Committee do
not receive a fee for attendance at Senior Loan Committee meetings.
Item 12- Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information, as of February 29,
2000, regarding the beneficial ownership of Company Stock of each director
and nominee, all directors and principal officers as a group, and all
persons who own beneficially more than five percent of the outstanding
common stock of the Company. Management knows of no persons, other than
directors Louis A. DeNaples and Dominick L. DeNaples, who own beneficially
more than five percent of the outstanding Company Stock. Unless otherwise
listed, shares beneficially owned represent sole voting and investment
power of the individuals named.
Shares
Beneficially
Owned (1) Percent of Class
Michael G. Cestone (2) 10,356 0.42%
Michael J. Cestone, Jr. (3) 36,392 1.46%
Joseph Coccia 17,159 0.69%
William P. Conaboy 1,922 0.08%
Dominick L. DeNaples (4) 166,042 6.66%
Louis A. DeNaples (5) 179,070 7.18%
Joseph J. Gentile (6) 104,067 4.17%
Martin F. Gibbons 12,453 0.50%
Joseph O. Haggerty 3,939 0.16%
George N. Juba 14,644 0.59%
J. David Lombardi (7) 28,197 1.13%
John P. Moses 2,786 0.11%
John R. Thomas (8) 38,487 1.54%
All directors and principal
officers as a group (14) 616,442 24.72%
Note: As used throughout, the term "principal officers" refers to Executive
Officers of the Company including President and Treasurer.
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definitions of "beneficial ownership" set forth in the
regulations of the Securities and Exchange Commission and may include
securities owned by or for the individual's spouse and minor children and
any other relative who has the same home, as well as securities to which
the individual has or shares voting or investment power or has the right to
acquire beneficial ownership within sixty (60) days after February 29,
2000. Beneficial ownership may be disclaimed as to certain of the
securities. Unless otherwise indicated, all shares are legally owned by the
reporting person individually or jointly with his spouse.
(2) Includes 200 shares held jointly with his children.
(3) Includes 8,090 shares owned individually by his spouse.
(4) Includes 12,207 shares held jointly with his children.
(5) Includes 2,301 shares owned individually by his spouse and 8,291 shares
held jointly with his children.
(6) Includes 21,960 shares owned individually by his spouse.
(7) Includes 14,025 shares owned individually by his spouse and 146 shares held
by his minor children.
(8) Includes 5,472 shares owned individually by his spouse.
Item 13 - Certain Relationships and Related Transactions
Some of the directors and officers of the bank and the companies with
which they are associated were customers of, and had banking transactions
with, the bank in the ordinary course of its business during 1999 and the
bank expects to have such banking transactions in the future. All loans and
commitments to loan included in such transactions were made on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other persons
of similar creditworthiness and in the opinion of the Board of Directors of
the Bank, do not involve more than a normal risk of collectibility or
present other unfavorable features.
Insider Trading Matters
NONE
Part IV.
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
The information required in Item 14 is incorporated by reference from
the Company's Annual Report to security holders for the fiscal year ended
December 31, 1999:
EXHIBIT A - Balance Sheet - December 31, 1999 and 1998
EXHIBIT B - Statement of Income - December 31, 1999, 1998 and 1997
EXHIBIT C - Statement of Cash Flows - December 31, 1999, 1998 and 1997
EXHIBIT D - Statement of Changes in Stockholders' Equity - December 31,
1999, 1998 and 1997
Notes to Consolidated Financial Statements
1 Summary of Significant Accounting Policies
2 Restricted Cash Balances
3 Investment Securities
December 31, 1999 and 1998
4 Loans and Changes in Allowance for Loan Loss
December 31, 1999 and 1998
5 Bank Premises and Equipment
December 31, 1999 and 1998
6 Deposits
7 Borrowed Funds
December 31, 1999 and 1998
8 Benefit Plans
9 Income Taxes
December 31, 1999, 1998 and 1997
10 Related Party Transactions
11 Commitments
12 Regulatory Matters
December 31, 1999 and 1998
13 Disclosures about Fair Value of Financial Instruments
December 31, 1999 and 1998
14 Condensed Financial Information - Parent Company Only
15 Selected Quarterly Financial Data
1999 and 1998
EXHIBIT E- Independent Auditor's Report
Pursuant to the requirements of Section 13 or 15(d) 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:
Registrant: FIRST NATIONAL COMMUNITY BANCORP, INC.
/s/ J. David Lombardi
----------------------------
J. David Lombardi, President and
Chief Executive Officer
/s/ William Lance
-----------------------------
William Lance, Treasurer
Principal Financial Officer
DATE: March 22, 2000
Pursuant to the requirements of the Securities Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Directors:
/s/ Michael G. Cestone 3/22/00
- ------------------------- ----------- --------------------- -----------
Michael G. Cestone Date Martin F. Gibbons Date
/s/ Joseph O. Haggerty 3/22/00
- ------------------------- ----------- --------------------- -----------
Michael J. Cestone, Jr. Date Joseph O. Haggerty Date
/s/ Joseph Coccia 3/22/00
- ------------------------- ----------- ---------------------- ----------
Joseph Coccia Date George N. Juba Date
/s/ Willaim P. Conaboy 3/22/00 /s/ J. David Lombardi 3/22/00
- ------------------------- ----------- ---------------------- ----------
William P. Conaboy Date J. David Lombardi Date
/s/ Dominick L. DeNaples 3/22/00 /s/ John P. Moses 3/22/00
- ------------------------- ----------- ---------------------- ----------
Dominick L. DeNaples Date John P. Moses Date
/s/ Louis A. DeNaples 3/22/00 /s/ John R. Thomas 3/22/00
- ------------------------- ----------- ---------------------- ----------
Louis A. DeNaples Date John R. Thomas Date
/s/ Joseph J. Gentile 3/22/00
- ------------------------- -----------
Joseph J. Gentile Date
Exhibit A - Balance Sheet
FIRST NATIONAL COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, (in thousands, except share data) 1999 1998
------- --------
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 15,971 $ 10,027
Federal funds sold 0 3,400
-------- --------
Total cash and cash equivalents 15,971 13,427
Interest-bearing balances
with financial institutions 2,874 2,478
Securities:
Available-for-sale, at fair value 136,393 124,661
Held-to-maturity, at cost
(fair value $1,809 and $714) 2,199 711
Federal Reserve Bank and FHLB
stock, at cost 7,936 6,458
Net loans 359,244 324,610
Bank premises and equipment 4,825 4,812
Accrued interest receivable 2,937 2,657
Other assets 7,984 3,571
-------- --------
TOTAL ASSETS $540,363 $483,385
======== ========
LIABILITIES
Deposits:
Demand $ 42,535 $ 39,427
Interest-bearing demand 64,483 51,240
Savings 43,502 42,017
Time ($100,000 and over) 70,931 69,341
Other time 189,675 178,014
-------- --------
Total deposits 411,126 380,039
Borrowed funds 88,173 65,176
Accrued interest payable 2,696 2,587
Other liabilities 1,313 905
-------- --------
Total liabilities $503,308 $448,707
-------- --------
STOCKHOLDERS' EQUITY
Common Stock ($1.25 par)
Authorized: 5,000,000 shares
Issued and outstanding:
2,493,507 shares in 1999 and
2,398,360 shares in 1998 $ 3,117 $ 2,998
Additional paid-in capital 9,841 6,267
Retained earnings 28,349 24,622
Accumulated other comprehensive
income (loss) (4,252) 791
-------- --------
Total stockholders' equity 37,055 34,678
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $540,363 $483,385
======== ========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
Exhibit B - Statements of Income
FIRST NATIONAL COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31, 1999 1998 1997
(in thousands, except per share data) ------ ------ ------
INTEREST INCOME
Interest and fees on loans $28,982 $25,559 $23,729
------- ------- -------
Interest and dividends on securities:
U.S. Treasury and government agencies 6,048 5,831 4,885
State and political subdivisions 2,017 1,708 1,570
Other securities 561 408 262
------- ------- -------
Total interest and dividends on securities 8,626 7,947 6,717
------- ------- -------
Interest on balances with financial institutions 145 178 170
Interest on federal funds sold 115 222 290
------- ------- -------
TOTAL INTEREST INCOME 37,868 33,906 30,906
------- ------- -------
INTEREST EXPENSE
Interest-bearing demand 1,490 1,225 1,110
Savings 1,020 1,001 1,038
Time ($100,000 and over) 3,494 3,265 2,827
Other time 9,937 9,764 9,253
Interest on borrowed funds 4,284 3,206 2,098
------- ------- -------
TOTAL INTEREST EXPENSE 20,225 18,461 16,326
------- ------- -------
Net interest income before
provision for credit losses 17,643 15,445 14,580
Provision for credit losses 1,020 920 1,110
------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 16,623 14,525 13,470
------- ------- -------
OTHER INCOME
Service charges 845 780 759
Net gain/(loss) on the sale of securities 197 125 (8)
Net gain on the sale of other real estate 23 47 377
Net gain on the sale of other assets 0 0 156
Other 512 631 344
------- ------- -------
TOTAL OTHER INCOME 1,577 1,583 1,628
------- ------- -------
OTHER EXPENSES
Salaries and employee benefits 5,418 4,749 4,441
Occupancy expense 993 869 842
Equipment expense 781 677 610
Other operating expenses 3,603 3,128 2,946
------- ------- -------
TOTAL OTHER EXPENSES 10,795 9,423 8,839
------- ------- -------
INCOME BEFORE INCOME TAXES 7,405 6,685 6,259
Provision for income taxes 1,756 1,578 1,616
------- ------- -------
NET INCOME $5,649 $5,107 $4,643
======= ======= =======
BASIC EARNINGS PER SHARE $2.35 $2.13 $1.94
======= ======= =======
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
Exhibit C - Statements of Cash Flows
FIRST NATIONAL COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, (in thousands) 1999 1998 1997
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $37,503 $34,495 $30,613
Fees and commissions received 1,358 1,411 1,103
Interest paid (20,116) (18,074) (16,154)
Cash paid to suppliers and employees (11,255) (9,087) (8,697)
Income taxes paid (1,908) (1,942) (1,608)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,582 6,803 5,257
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Securities available for sale:
Proceeds from maturities 2,000 1,500 0
Proceeds from sales prior to maturity 28,903 14,451 8,920
Proceeds from calls prior to maturity 18,927 46,533 17,251
Purchases (70,517) (73,550) (63,401)
Securities held to maturity:
Proceeds from calls prior to maturity 249 257 0
Purchases (1,622) (231) (655)
Net (increase)/decrease in
interest-bearing bank balances (396) (892) (1,185)
Net increase in loans to customers (35,631) (44,753) (21,584)
Capital expenditures (806) (1,370) (684)
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (58,893) (58,055) (58,968)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits,
money market demand, NOW accounts,
and savings accounts 17,835 7,286 5,766
Net increase in certificates of deposit 13,251 27,085 18,933
Net increase in borrowed funds 22,998 18,181 26,656
Repayment of debt 0 (851) (76)
Proceeds from issuance of common stock
net of stock issuance costs 3,693 0 0
Cash dividends paid (1,922) (1,703) (1,396)
Cash paid in lieu of fractional shares
in conjunction with 10% stock dividend 0 0 (11)
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 55,855 49,998 49,872
-------- -------- --------
NET INCREASE (DECREASE)IN CASH AND
CASH EQUIVALENTS 2,544 (1,254) (3,839)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 13,427 14,681 18,520
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $15,971 $13,427 $14,681
======== ======== ========
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $5,649 $5,107 $4,643
-------- -------- --------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization and accretion, net (84) 239 66
Depreciation and amortization 794 653 612
Provision for credit losses 1,020 920 1,110
Provision for deferred taxes (218) (306) (47)
Loss/(Gain) on sale of securities (197) (125) 8
Gain on sale of other real estate (23) (47) (377)
Gain on sale of other assets 0 0 (156)
Increase in interest payable 109 388 173
Increase in taxes payable 53 (16) 16
Increase (decrease) in accrued
expenses and other liabilities 356 128 232
Decrease (increase) in prepaid
expenses and other assets (1,597) (488) (664)
Decrease (increase) in interest receivable (280) 350 (359)
-------- -------- --------
Total adjustments (67) 1,696 614
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $5,582 $6,803 $5,257
======== ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
Exhibit D - Statements of Changes in Stockholders' Equity
FIRST NATIONAL COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1999, 1998 and 1997
(in thousands, except share data)
ACCUM-
ULATED
OTHER
COMP-
COMP- REHEN-
REHEN- COMMON STOCK ADD'L SIVE
SIVE --------------------- PAID-IN RETAINED INCOME
INCOME SHARES AMOUNT CAPITAL EARNINGS (LOSS) TOTAL
--------- --------- --------- --------- ---------- --------- -------
BALANCES, DECEMBER 31, 1996 1,090,424 1,363 6,267 19,617 384 27,631
Comprehensive Income:
Net income for the year 4,643 4,643 4,643
Other comprehensive income, net of tax:
Unrealized gain on securities
available-for-sale, net of deferred
income taxes of $367 705
Reclassification adjustment for gain
or loss included in income 8
---------
Total other comp. Income, net of tax 713 713 713
---------
Comprehensive Income 5,356
=========
Cash dividends paid, $0.58 per share (1,396) (1,396)
10% stock dividend 108,756 136 (147) (11)
--------- -------- -------- --------- ------- -------
BALANCES, DECEMBER 31, 1997 1,199,180 1,499 6,267 22,717 1,097 31,580
Comprehensive Income:
Net income for the year 5,107 5,107 5,107
Other comprehensive income, net of tax:
Unrealized loss on securities
available-for-sale,
net of deferred income tax
benefit of $157 (181)
Reclassification adjustment for gain
or loss included in income (125)
---------
Total other comp. Loss, net of tax (306) (306) (306)
---------
Comprehensive Income 4,801
=========
Cash dividends paid, $0.71 per share (1,703) (1,703)
100% stock dividend 1,199,180 1,499 (1,499) 0
--------- -------- -------- --------- ------- -------
BALANCES, DECEMBER 31, 1998 2,398,360 2,998 6,267 24,622 791 34,678
Comprehensive Income:
Net income for the year 5,649 5,649 5,649
Other comprehensive income, net of tax:
Unrealized loss on securities
available-for-sale,
net of deferred income tax
benefit of $2,598 (5,240)
----------
Reclassification adjustment for gain
or loss included in income 197
----------
Total other comp. Loss, net of tax (5,043) (5,043) (5,043)
----------
Comprehensive Income 606
==========
Cash dividends paid, $0.80 per share (1,922) (1,922)
Proceeds from sale of 75,000 shares of
Common Stock, at $40.00, net of issuance
costs 75,000 94 2,836 2,930
Proceeds from issuance of Common Stock
through dividend reinvestment 20,147 25 738 763
--------- -------- ------- --------- ------- -------
BALANCES, DECEMBER 31, 1999 2,493,507 3,117 9,841 28,349 (4,252) 37,055
========= ======== ======= ========= ======= =======
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
Notes to Consolidated Financial Statements:
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accounting and reporting policies that affect the more significant
elements of First National Community Bancorp, Inc.'s (the "Company") financial
statements are summarized below. They have been followed on a consistent basis
and are in accordance with generally accepted accounting principles and conform
to general practice within the banking industry.
NATURE OF OPERATIONS
The Company is a registered bank holding company, incorporated under
the laws of the state of Pennsylvania. It is the Parent Company of First
National Community Bank (the "Bank") and it's wholly owned subsidiary FNCB
Realty, Inc.
The Bank provides a variety of financial services to individuals and
corporate customers through its eight banking locations located in northeastern
Pennsylvania. It provides a full range of commercial banking services which
includes commercial, residential and consumer lending. Additionally, the Bank
provides to it's customers a variety of deposit products, including demand
checking and interest-bearing deposit accounts.
FNCB Realty, Inc.'s operating activities include the acquisition,
holding, and disposition of certain real estate acquired in satisfaction of loan
commitments owed by third party debtors to First National Community Bank.
PRINCIPLES OF CONSOLIDATION
On July 1, 1998, the Company acquired First National Community Bank in
a business combination accounted for as a pooling of interests. The Bank became
the wholly owned subsidiary of the Company through the exchange of 1,199,180
shares of its common stock for all of the outstanding stock of the Bank.
The Company did not conduct business activities prior to the July 1,
1998 stock exchange. Accordingly, the Parent Company Only financial information
included in Note 14 of these financial statements presents the Company's results
of operations and cash flows for the year ended December 31, 1999 and for it's
initial period of operations commencing July 1, 1998 and ending on December 31,
1998.
The accompanying consolidated financial statements for 1998 are based
on the assumption that the companies were combined for the full year, and the
financial statements of prior years have been restated to give effect to the
combination. All significant intercompany transactions and balances have been
eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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 the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
SECURITIES
Debt securities that management has the ability and intent to hold to
maturity are classified as held-to-maturity and carried at cost, adjusted for
amortization of premium and accretion of discounts using methods approximating
the interest method. Other marketable securities are classified as
available-for-sale and are carried at fair value. Unrealized gains and losses on
securities available-for-sale are recognized as direct increases or decreases in
stockholders' equity. Cost of securities sold is recognized using the specific
identification method.
LOANS
Loans are stated at face value, net of unearned discount, unamortized
loan fees and costs and the allowance for credit losses. Unearned discount on
installment loans is recognized as income over the terms of the loans primarily
using the "actuarial method." Interest on all other loans is recognized on the
accrual basis, based upon the principal amount outstanding.
Loans are placed on nonaccrual when a loan is specifically determined
to be impaired or when management believes that the collection of interest or
principal is doubtful. This is generally when a default of interest or principal
has existed for 90 days or more, unless such loan is fully secured and in the
process of collection. When interest accrual is discontinued, interest credited
to income in the current year is reversed and interest income in prior years is
charged against the allowance for credit losses. Any payments received are
applied, first to the outstanding loan amounts, then to the recovery of any
charged-off loan amounts. Any excess is treated as a recovery of lost interest.
LOAN IMPAIRMENT
The Bank applies the provisions of SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures," in it's
evaluation of the loan portfolio. SFAS 114 requires that certain impaired loans
be measured based on the present value of expected future cash flows, net of
disposal costs, discounted at the loan's original effective interest rate. As a
practical expedient, impairment may be measured based on the loan's observable
market price or the fair value of the collateral, net of disposal costs, if the
loan is collateral dependent. When the measure of the impaired loan is less than
the recorded investment in the loan, the impairment is recorded through a
valuation allowance.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is maintained at a level which, in
management's judgment, is adequate to absorb credit losses inherent in the loan
portfolio. The amount of the allowance is based on management's evaluation of
the collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, and economic conditions. Allowances for impaired loans are generally
determined based on collateral values or the present value of estimated cash
flows. The allowance is increased by a provision for credit losses, which is
charged to expense, and reduced by charge-offs, net of recoveries. Changes in
the allowance relating to impaired loans are charged or credited to the
provision for credit losses.
LOAN FEES
Loan origination and commitment fees, as well as certain direct loan
origination costs are deferred and the net amount is amortized as an adjustment
of the related loan's yield. The Bank is generally amortizing these amounts over
the life of the related loans except for residential mortgage loans, where the
timing and amount of prepayments can be reasonably estimated. For these mortgage
loans, the net deferred fees are amortized over an estimated average life of 7.5
years. Amortization of deferred loan fees is discontinued when a loan is placed
on nonaccrual status.
OTHER REAL ESTATE (ORE)
Real estate acquired in satisfaction of a loan and in-substance
foreclosures are reported in other assets. In-substance foreclosures are
properties in which the borrower has little or no equity in collateral, where
repayment of the loan is expected only from the operation or sale of the
collateral, and the borrower either effectively abandons control of the property
or the borrower has retained control of the property but his ability to rebuild
equity based on current financial conditions is considered doubtful. Properties
acquired by foreclosure or deed in lieu of foreclosure and properties classified
as in-substance foreclosures are transferred to ORE and recorded at the lower of
cost or fair value (less estimated selling cost for disposal of real estate) at
the date actually or constructively received. Costs associated with the repair
or improvement of the real estate are capitalized when such costs significantly
increase the value of the asset, otherwise, such costs are expensed. An
allowance for losses on ORE is maintained for subsequent valuation adjustments
on a specific property basis.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less accumulated
depreciation. Routine maintenance and repair expenditures are expensed as
incurred while significant expenditures are capitalized. Depreciation expense is
determined on the straight-line method over the following ranges of useful
lives:
Buildings and improvements 10 to 40 years
Furniture, fixtures and equipment 3 to 15 years
Leasehold improvements 5 to 30 years
ADVERTISING COSTS
Advertising costs are charged to operations in the year incurred and
totaled $468,000, $341,000 and $272,000 in 1999, 1998 and 1997, respectively.
INCOME TAXES
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
CASH EQUIVALENTS
For purposes of reporting cash flows, cash equivalents include cash on
hand, amounts due from banks, and federal funds sold. Generally, federal funds
are purchased and sold for one-day periods.
NET INCOME PER SHARE
Basic earnings per share have been computed by dividing net income (the
numerator) by the weighted-average number of common shares (the denominator) for
the period. Such shares amounted to 2,407,278 in 1999, and 2,398,360 in 1998 and
1997 after giving retroactive effect to the 100% stock dividend declared in 1998
and the 10% stock dividend declared in 1997.
COMPREHENSIVE INCOME
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). SFAS 130 established standards for reporting and display
of comprehensive income and its components in the financial statements. SFAS 130
applies to fiscal years beginning after December 15, 1997. Reclassification of
financial statements for earlier periods has been provided for comparative
purposes. The adoption of SFAS had no impact on the Company's consolidated
results of operations, financial position or cash flows.
SEGMENT REPORTING
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 requires that public
companies report certain information about operating segments in complete sets
of financial statements of the company and in condensed financial statements of
interim periods issued to shareholders. It also requires that public companies
report certain information about their products and services, the geographic
areas in which they operate, and their major customers. SFAS No. 131 applies to
fiscal years beginning after December 15, 1997.
First National Community Bancorp, Inc. is a one bank holding company
operating primarily in northeastern Pennsylvania. The primary purpose of the
company is the delivery of financial services within its market by means of a
branch network located in Lackawanna and Luzerne counties. Each of the company's
entities are part of the same reporting segment, whose operating results are
regularly reviewed by management. Therefore, consolidated financial statements,
as presented, fairly reflect the operating results of the financial services
segment of our business.
NEW FINANCIAL ACCOUNTING STANDARDS
During 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which establishes accounting
and reporting standards for derivative instruments and for hedging activities.
The statement requires that all derivatives be recognized as either assets or
liabilities in the statement of financial position and be measured at fair
value. SFAS 133 is effective for fiscal quarters of all fiscal years beginning
after June 15, 1999; earlier application is permitted. The company does not hold
or issue derivative instruments as defined by SFAS 133; and accordingly, it is
the opinion of management that there will be no future impact from this recent
accounting standard.
2. RESTRICTED CASH BALANCES:
The Bank is required to maintain certain average reserve balances as
established by the Federal Reserve Bank. The amount of those reserve balances
for the reserve computation period which included December 31, 1999 was $75,000,
which amount was satisfied through the restriction of vault cash.
In addition, the Bank maintains compensating balances at correspondent
banks, most of which are not required, but are used to offset specific charges
for services. At December 31, 1999, the amount of these balances was $1,535,000.
3. SECURITIES:
Securities have been classified in the consolidated financial
statements according to management's intent. The carrying amount of securities
and their approximate fair values (in thousands) at December 31 follow:
Available-for-sale Securities:
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
--------- ---------- ------------ --------
December 31, 1999
U.S. Treasury securities
and obligations of U.S.
government agencies $ 20,479 $ 0 $731 $ 19,748
Obligations of state and
political subdivisions 39,785 298 2,148 37,935
Mortgage-backed securities 81,561 160 3,958 77,763
Corporate debt securities 1,001 0 64 937
Equity securities 10 0 0 10
-------- ---- ------ --------
Total $142,836 $458 $6,901 $136,393
======== ==== ====== ========
December 31, 1998
U.S. Treasury securities
and obligations of U.S.
government agencies $12,366 $ 47 $ 15 $ 12,398
Obligations of state and
political subdivisions 32,453 1,283 65 33,671
Mortgage-backed securities 77,632 223 265 77,590
Corporate debt securities 1,001 4 13 992
Equity securities 10 0 0 10
-------- ------ ---- --------
Total $123,462 $1,557 $358 $124,661
======== ====== ==== ========
Held-to-maturity Securities:
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
December 31, 1999
U.S. Treasury securities
and obligations of U.S.
government agencies $1,037 $0 $156 $ 881
Obligations of state and
political subdivisions 1,162 0 234 928
------ ----- ------ ------
Total $2,199 $0 $390 $1,809
====== ====== ====== ======
December 31, 1998
U.S. Treasury securities
and obligations of U.S.
government agencies $ 711 $5 $2 $714
====== ===== ====== ======
The following table shows the amortized cost and approximate fair value
of the Bank's debt securities (in thousands) at December 31, 1999 using
contracted maturities. Expected maturities will differ from contractual maturity
because issuers may have the right to call or prepay obligations with or without
call or prepayment penalties.
Available-for-sale Held-to-maturity
------------------- -------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-------- -------- -------- -------
Amounts maturing in:
One Year or Less $ 0 $ 0 $ 0 $ 0
One Year through Five Years 4,433 4,440 0 0
After Five Years through Ten Years 18,979 18,716 0 0
After Ten Years 37,853 35,464 2,199 1,809
Mortgage-backed Securities 81,561 77,763 0 0
-------- -------- ------ ------
Total $142,826 $136,383 $2,199 $1,809
======== ======== ====== ======
Gross proceeds from the sale of securities for the years ended December
31, 1999, 1998, and 1997 were $28,903,000, $14,451,000, and $8,920,000,
respectively with the gross realized gains being $254,000, $153,000, and
$65,000, respectively, and gross realized losses being $57,000, $28,000, and
$73,000, respectively.
At December 31, 1999 and 1998, securities with a carrying amount of
$85,399,000 and $73,195,000, respectively, were pledged as collateral to secure
public deposits and for other purposes.
4. LOANS:
Major classifications of loans are summarized as follows:
(in thousands)
1999 1998
-------- --------
Real estate loans, secured by residential properties $ 95,339 $ 98,534
Real estate loans, secured by nonfarm, nonresidential
properties 134,690 113,020
Commercial and industrial loans 61,337 49,796
Loans to individuals for household, family and other
personal expenditures 65,075 58,799
Loans to state and political subdivisions 7,389 8,570
All other loans, including overdrafts 128 178
-------- --------
Gross loans 363,958 328,897
Less: Unearned discount on loans (0) (4)
-------- --------
Subtotal 363,958 328,893
Less: Allowance for credit losses (4,714) (4,283)
-------- --------
Net loans $359,244 $324,610
======== ========
Changes in the allowance for credit losses were as follows:
(in thousands)
1999 1998 1997
------- ------- -------
Balance, beginning of year $ 4,283 $ 3,623 $ 3,167
Recoveries credited to allowance 267 47 43
Provision for credit losses 1,020 920 1,110
------- ------- -------
TOTAL 5,570 4,590 4,320
Losses charged to allowance 856 307 697
------- ------- -------
Balance, end of year $ 4,714 $ 4,283 $ 3,623
======= ======= =======
Information concerning the Bank's recorded investment in nonaccrual and
restructured loans is as follows:
(in thousands)
1999 1998
---- ----
Nonaccrual loans
Impaired $ 0 $ 0
Other 288 845
Restructured loans 283 289
---- ------
Total $571 $1,134
==== ======
The interest income that would have been earned in 1999, 1998 and 1997
on nonaccrual and restructured loans outstanding at December 31, 1999, 1998 and
1997 in accordance with their original terms approximated $50,000, $125,000 and
$99,000. The interest income actually realized on such loans in 1999, 1998 and
1997 approximated $23,000, $51,000 and $85,000. As of December 31, 1999, there
were no outstanding commitments to lend additional funds to borrowers of
impaired, restructured or nonaccrual loans.
5. BANK PREMISES AND EQUIPMENT:
Bank premises and equipment are summarized as follows:
(dollars in thousands)
1999 1998
------ ------
Land $ 783 $783
Buildings 2,278 2,268
Furniture, fixtures and equipment 4,366 3,889
Leasehold improvements 1,924 1,756
------ -----
Total 9,351 8,696
Less accumulated depreciation 4,526 3,884
------ ------
Net $4,825 $4,812
====== ======
6. DEPOSITS:
At December 31, 1999, time deposits including certificates of deposit and
Individual Retirement Accounts have the scheduled maturities as follows:
(in thousands)
Time Deposits
$100,000 Other
and Over Time Deposits Total
------------- ------------- -------
2000 $ 64,424 $122,305 $186,729
2001 2,820 48,875 51,695
2002 1,409 8,225 9,634
2003 0 5,774 5,774
2004 and Thereafter 2,278 4,496 6,774
-------- -------- --------
Total $70,931 $189,675 $260,606
======== ======== ========
7. BORROWED FUNDS:
Borrowed funds at December 31, 1999 and 1998 include the following (in
thousands):
1999 1998
------- -------
Treasury Tax and Loan Demand Note $ 356 $ 437
Federal Funds Purchased 4,845 0
Other Short-Term Borrowings 3,732 0
Borrowings under Lines of Credit 79,240 64,739
------- -------
Total $88,173 $65,176
======= =======
Federal funds purchased represent primarily overnight borrowings providing for
the short-term funding requirements of the Company's banking subsidiary and
generally mature within one business day of the transaction. Other short-term
borrowings consist of transactions with maturities greater than one business
day.
The following table presents Federal Home Loan Bank of Pittsburgh ("FHLB of
Pittsburgh") advances at the earlier of the callable date or maturity date (in
thousands):
December 31, 1999
Weighted
Average
Amount Interest Rate
------- ------------
Within one year $35,000 5.94%
After one year but within two years 7,033 5.85
After two years but within three years 4,728 6.42
After three years but within four years 15,000 5.57
After four years but within five years 10,200 5.51
After five years 7,279 5.39
-------
$79,240
=======
The FHLB of Pittsburgh advances are comprised of $59,240,000 of fixed rate
advances and $20,000,000 of variable rate borrowings. All advances are
collateralized either under a blanket pledge agreement by one to four family
mortgage loans or with mortgage-backed securities.
At December 31, 1999, the Company had available from the FHLB of Pittsburgh an
open line of credit for $18,701,000 which expires on October 19, 2000. The line
of credit may bear interest at either a fixed rate or a variable rate, such rate
being set at the time of the funding request. At December 31, 1999 and 1998, the
Company had no borrowings under this credit line. In addition, at December 31,
1999, the Company had available overnight repricing lines of credit with other
correspondent banks totaling $24,000,000. At December 31, 1999, the Company had
$4,845,000 outstanding with correspondent banks. There were no borrowings under
these lines at December 31, 1998.
The maximum amount of borrowings outstanding at any month end during the years
ended December 31, 1999 and 1998 were $87,818,000 and $64,738,000, respectively.
8. BENEFIT PLANS:
The Bank has a defined contribution profit sharing plan which covers
all eligible employees. The Bank's contribution to the plan is determined at
management's discretion at the end of each year and funded. Contributions to the
plan in 1999, 1998 and 1997 amounted to $275,000, $250,000, and $220,000,
respectively.
During 1994, the Bank established an unfunded non-qualified deferred
compensation plan covering all eligible bank officers and directors as defined
by the plan. This plan provides eligible participants to elect to defer a
portion of their compensation. At December 31, 1999, elective deferred
compensation amounting to $647,000 plus $238,000 in accrued interest has been
recorded as other liabilities in the accompanying balance sheet.
9. INCOME TAXES:
The provision for income taxes included in the statement of income is comprised
of the following components:
1999 1998 1997
------ ------ ------
Current $1,974 $1,884 $1,663
Deferred (218) (306) (47)
------ ------ ------
TOTAL $1,756 $1,578 $1,616
====== ====== ======
Deferred tax (liabilities) assets are comprised of the following at
December 31:
1999 1998
------ ------
Unrealized Holding Gains (Losses) on Securities
Available-for-Sale $ 0 $(408)
Deferred Loan Origination Fees (206) (157)
Depreciation (131) (134)
Other (22) (23)
----- -----
Gross Deferred Tax Liability $(359) $(722)
----- -----
Unrealized Holding Gains (Losses) on Securities
Available-for-Sale $2,191 $ 0
Allowance for Credit Losses 1,427 1,262
Deferred Compensation 307 223
------ ------
Gross Deferred Tax Asset 3,925 1,485
------ ------
Deferred Tax Asset Valuation Allowance (535) (548)
------ ------
Net Deferred Tax (Liabilities) Assets $3,031 $ 215
====== ======
The provision for Income Taxes differs from the amount of income tax
determined applying the applicable U.S. Statutory Federal Income Tax Rate to
pre-tax income from continuing operations as a result of the following
differences (in thousands):
1999 1998 1997
------ ------ ------
Provision at Statutory Tax Rates $2,518 $2,273 $2,128
Add (Deduct):
Tax Effects of Non-Taxable Interest Income (902) (828) (789)
Non-Deductible Interest Expense 127 116 107
Other Items Net 13 17 170
------ ------ ------
Provision for Income Taxes $1,756 $1,578 $1,616
====== ====== ======
The net change in the valuation allowance for deferred tax asset was a
decrease of $13,000 in 1999. The change relates to a decrease in the provision
for income taxes to which this valuation relates.
10. RELATED PARTY TRANSACTIONS:
At December 31, 1999 and 1998, certain officers and directors and/or companies
in which they had 10% or more beneficial ownership were indebted to the Bank in
the aggregate amounts of $15,349,000 and $10,498,000. Such indebtedness was
incurred in the ordinary course of business on substantially the same terms as
those prevailing at the time for comparable transactions with other persons. The
Bank was also committed under standby letters of credit as described in Note 11.
During 1999, $11,326,000 of new loans were made and repayments totaled
6,475,000.
11. COMMITMENTS:
(a) Leases:
The following table shows branch operations from leased facilities:
Date Lease
Branch Address Opened Expiration Renewal Option
- ------------ ----------------------- ---------- ---------- ---------------------
Fashion Mall 277 Scranton/Carbondale
Highway, July 1988 May 2003 Three options of five
Scranton years each with
specified increases at
the beginning of each
option period
Wilkes-Barre 23 W. Market St., July 1993 May 2003 Three options of five
Wilkes-Barre years each with
specified increases at
the beginning of each
option period
Pittston Plaza 1700 N. Township Blvd.,
Pittston April 1995 September 2008 Two options of five
years each with
specified increases at
the beginning of each
option period
Kingston 754 Wyoming Ave.,
Kingston August 1996 August 2006 Two options of five
years each with
specified increases at
the beginning of each
option period
Exeter 1625 Wyoming Ave. November 1998 August 2008 Four options of five
Exeter years each with
specified increases at
the beginning of each
option period
Daleville Rt. 435, Planned opening - December 2010 Four options of five
Daleville second quarter of years each with
2000 specified increases at
the beginning of each
option period
The Bank also leases office space for certain administrative and
operational functions. Such lease, which expires in 2003, provides the bank the
option of renewal for four successive three year periods commencing January 1,
2004; and carries specified annual rental increases.
At December 31, 1999, the Bank was obligated under certain
noncancelable leases for equipment with terms expiring over the next five years.
The aforementioned leases have been treated as operating leases in the
accompanying financial statements. Minimum future obligations under
noncancelable operating leases in effect at December 31, 1999 are as follows (in
thousands):
FACILITIES EQUIPMENT
---------- ---------
2000 $ 298 $ 73
2001 301 48
2002 305 16
2003 137 8
2004 and thereafter 545 2
------ ----
Total $1,586 $147
====== ====
Total rental expense under operating leases amounted to $361,000 in 1999,
$322,000 in 1998, and $295,000 in 1997.
(b) Financial Instruments with Off-Balance Sheet Risk:
The Bank 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. Such financial instruments include commitments to extend credit and
standby letters of credit which involve varying degrees of credit, interest rate
or liquidity risk in excess of the amount recognized in the balance sheet. The
Bank's exposure to credit loss from nonperformance by the other party to the
financial instruments for commitments to extend credit and standby letters of
credit is represented by the contractual amount of those instruments.
The Bank does not require collateral or other security to support
financial instruments with off-balance sheet credit risk.
Financial instruments whose contract amounts represent credit risk at
December 31 are as follows (in thousands):
1999 1998
------- -------
Commitments to extend credit $53,022 $48,567
Standby letters of credit 7,985 11,203
Outstanding commitments to extend credit and standby letters of credit issued to
or on behalf of related parties amounted to $10,274,000 and $3,307,000 and
$446,000 and $5,654,000 at December 31, 1999 and 1998, respectively.
(c) Concentration of Credit Risk:
Cash Concentrations: The Bank maintains cash balances at several
correspondent banks. The aggregate cash balances represent federal funds sold of
$0 and $3,400,000; and due from bank accounts in excess of the limit covered by
the Federal Deposit Insurance Corporation amounting to $7,024,000 and $5,442,000
as of December 31, 1999 and 1998, respectively.
Loan Concentrations: At December 31, 1999, 17% of the Bank's commercial
loan portfolio was concentrated in loans in the following four industries.
Substantially all of these loans are secured by first mortgages on commercial
properties. Floor plan loans to automobile dealers are secured by a first lien
security interest in the vehicle inventories of the dealer.
In thousands %
------------ -----
Hotels $18,564 5.1%
Automobile Dealers 14,005 3.9
Shopping Centers/Retail Complexes 14,711 4.1
Office Complex/Units 14,079 3.9
12. REGULATORY MATTERS:
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1999, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1999, the most recent notification from the Office
of the Comptroller of the Currency categorized the Bank as "Well Capitalized"
under the regulatory framework for prompt corrective action. To be categorized
as "Well Capitalized" the Bank must maintain minimum Total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the institution's category.
(in thousands)
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
------------------ ------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
------- ------- -------- ------ -------- -------
As of December 31, 1999:
Total Capital
(to Risk Weighted Assets) $46,021 12.05% >$30,544 >8.0% >$38,181 >10.0%
Tier I Capital
(to Risk Weighted Assets) $41,307 10.82% >$15,272 >4.0% >$22,908 >6.0%
Tier I Capital
(to Average Assets) $41,307 7.62% >$16,264 >3.0% >$27,107 >5.0%
As of December 31, 1998:
Total Capital
(to Risk Weighted Assets) $38,044 11.45% >$26,592 >8.0% >$33,239 >10.0%
Tier I Capital
(to Risk Weighted Assets) $33,887 10.19% >$13,296 >4.0% >$19,944 >6.0%
Tier I Capital
(to Average Assets) $33,887 7.10% >$14,314 >3.0% >$23,856 >5.0%
Banking Regulations also limit the amount of dividends that may be paid without
prior approval of the Bank's regulatory agency. Retained earnings against which
dividends may be paid without prior approval of the federal banking regulators
amounted to $12,301,000 at December 31, 1999, subject to the minimum capital
ratio requirements noted above.
13. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107 "Disclosures about Fair
Value of Financial Instruments", (SFAS 107) requires annual disclosure of
estimated fair value of on-and off-balance sheet financial instruments.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and short-term investments:
Cash and short-term investments include cash on hand, amounts due from
banks, and federal funds sold. For these short-term instruments, the carrying
amount is a reasonable estimate of fair value.
Interest-Bearing balances with financial institutions:
The fair value of these financial instruments is estimated using rates
currently available for investments of similar maturities.
Securities:
For securities held for investment purposes, the fair values have been
individually determined based on currently quoted market prices. If a quoted
market price is not available, fair value is estimated using quoted market
prices for similar securities.
Loans:
The fair value of loans has been estimated by discounting the future
cash flows using the current rates which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.
Deposits:
The fair value of demand deposits, savings deposits, and certain money
market deposits is the amount payable on demand at the reporting date. The fair
value of fixed-maturity certificates of deposit is estimated using the rates
currently offered for deposits of similar remaining maturities.
Borrowed Funds:
Rates currently available to the Bank for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.
Commitments to extend credit and standby letters of credit:
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the present creditworthiness of the counterparties.
For fixed-rate loan commitments, fair value also considers the difference
between current levels of interest rates and the committed rates. The fair value
of letters of credit is based on fees currently charged for similar agreements
or on the estimated cost to terminate them or otherwise settle the obligations
with the counterparties at the reporting date.
The estimated fair values of the Bank's financial instruments (in thousands) are
as follows:
December 31, 1999
Carrying Fair
Value Value
--------- --------
FINANCIAL ASSETS
Cash and short term investments $ 15,971 $15,971
Interest-bearing balances with financial
institutions 2,874 2,871
Securities 146,528 146,138
Gross Loans 363,958 364,767
FINANCIAL LIABILITIES
Deposits $411,126 $410,847
Borrowed funds 88,173 86,441
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
Commitments to extend credit and standby
letters of credit $0 $129
December 31, 1998
Carrying Fair
Value Value
-------- -------
FINANCIAL ASSETS
Cash and short term investments $ 13,427 $13,427
Interest-bearing balances with financial
institutions 2,478 2,478
Securities 131,830 131,833
Gross Loans 328,893 328,627
FINANCIAL LIABILITIES
Deposits $380,039 $381,215
Borrowed funds 65,176 65,650
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
Commitments to extend credit and standby
letters of credit $0 $68
14. CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY:
Condensed parent company only financial information is as follows (in
thousands):
Condensed Balance Sheet December 31, 1999 1998
------- ------
Assets:
Cash $ 75 $ 32
Investment in Subsidiary (equity method) 36,909 34,595
Other assets 71 52
------- -------
Total Assets $37,055 $34,679
======= =======
Liabilities and Stockholders' Equity:
Stockholders' equity $37,055 $34,679
======= =======
Condensed Statement of Income for the year ending December 31, 1999 and for the
initial period of operations commencing July 1, 1998 and ending December 31,
1998 1999 1998
Income:
Dividends from Subsidiary $1,279 $1,155
Other Income 0 2
Equity in Undistributed Income of Subsidiary 4,429 1,367
------ ------
Total Income $5,708 $2,524
------ ------
Expenses 59 18
------ ------
Net Income $5,649 $2,506
====== ======
Condensed Statement of Cash Flows for the year ending
December 31, 1999 and for the initial period of
operations commencing July 1, 1998 and ending
December 31, 1998
1999 1998
------- -------
Cash Flows from Operating Activities:
Net income $ 5,649 $2,506
Adjustments to reconcile net income
to net cash provided by operating activities:
Equity in undistributed income of subsidiary (4,429) (1,367)
Increase in other assets (18) (52)
------- ------
Net Cash Provided by Operating Activities $ 1,202 $1,087
------- ------
Cash Flows from Investing Activities:
Investment in subsidiary $(2,929) $ 0
------- ------
Net Cash Used in Investing Activities $(2,929) $ 0
------- ------
Cash Flows from Financing Activities:
Cash dividends $(1,922) $(1,055)
Proceeds from borrowings 0 840
Repayment of borrowings 0 (840)
Advances from subsidiary 0 82
Repayment of advances from subsidiary 0 (82)
Proceeds from issuance of common stock
net of stock issuance costs 3,692 0
------- -------
Net Cash Used in Financing Activities $ 1,770 $(1,055)
------- -------
Increase in Cash $ 43 $ 32
Cash at Beginning of Period 32 0
------- -------
Cash at End of Period $ 75 $ 32
======= =======
Non-cash investing and financing activities:
On July 1, 1998, the Company issued 1,199,180 shares of its common stock in
exchange for all of the outstanding shares of the Bank. The investment in
subsidiary was recorded at $33,550,000 which equaled the Stockholders' Equity of
the Bank at the time of the exchange.
15.SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
In thousands, except per share amounts
Quarter Ending
March 31, June 30, September 30, December 31,
-------- ------- ------------ -----------
1999
Interest income $8,860 $9,589 $9,467 $9,952
Interest expense 4,877 4,991 4,983 5,374
------ ------ ------ ------
Net interest income 3,983 4,598 4,484 4,578
Provision for credit losses 180 180 180 480
Other income 516 334 303 424
Other expenses 2,610 2,571 2,776 2,838
Provision for income taxes 393 547 454 362
------ ------ ------ ------
Net income $1,316 $1,634 $1,377 $1,322
====== ====== ====== ======
Basic earnings per share* $0.55 $0.68 $0.57 $0.55
====== ====== ====== ======
1998
Interest income $8,093 $8,332 $8,704 $8,777
Interest expense 4,387 4,509 4,732 4,833
------ ------ ------ ------
Net interest income 3,706 3,823 3,972 3,944
Provision for credit losses 180 180 180 380
Other income 335 449 450 349
Other expenses 2,225 2,260 2,426 2,512
Provision for income taxes 394 473 431 280
------ ------ ------ ------
Net income $1,242 $1,359 $1,385 $1,121
====== ====== ====== ======
Basic earnings per share* $0.52 $0.56 $0.58 $0.47
====== ====== ====== ======
o Per share data reflects the retroactive effect of the 100% stock dividend
issued August 31, 1998.
Exhibit E - Independent Auditors' Report
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of First National Community
Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of First National
Community Bancorp, Inc. and Subsidiaries (the "Company") as of December 31, 1999
and 1998, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits, in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly in all material respects, the financial position of First
National Community Bancorp, Inc. and Subsidiaries as of December 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999 in conformity with generally
accepted accounting principles.
Demetrius & Company, L.L.C.
Wayne, New Jersey
January 21, 2000