U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended June 30, 2002
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _____________ to _____________
Commission File No.____________
First National Community Bancorp, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Pennsylvania 23-2900790
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
102 E. Drinker St. Dunmore, PA 18512
(Address of Principal Executive Offices)
(717) 346-7667
(Registrant's Telephone Number, Including Area Code)
_____________________________________
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
Common Stock, $1.25 par value
(Title of Class)
2,575,892 shares
(Outstanding at July 18, 2002)
FIRST NATIONAL COMMUNITY BANCORP, INC.
INDEX
Page No.
Part I - Consolidated Financial Statements
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition
June 30, 2002 and December 31, 2001 1
Consolidated Statements of Income
Three Months Ended June 30, 2002 and 2001
YTD Ended June 30, 2002 and 2001 2
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2002 and 2001 3-4
Consolidated Statements of Changes in Stockholders' Equity
Six Months Ended June 30, 2002 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-18
Part II - Other Information: 19
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures 20
(ii)
FIRST NATIONAL COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
June 30, Dec. 31,
2002 2001
----------- ---------
(UNAUDITED) (AUDITED)
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 16,092 $ 15,652
Federal funds sold 9,850 0
Total cash and cash equivalents 25,942 15,652
Interest-bearing balances with
financial institutions 3,557 3,161
Securities:
Available-for-sale, at fair value 196,516 186,777
Held-to-maturity, at cost
(fair value $1,855 on June 30, 2002
and $1,757 on December 31, 2001) 1,948 1,895
Federal Reserve Bank and FHLB stock, at cost 6,241 5,437
Net loans 458,667 439,884
Bank premises and equipment 7,004 6,599
Other assets 17,001 16,902
-------- --------
Total Assets $716,876 $676,307
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand - non-interest bearing $ 56,012 $ 52,918
Interest bearing demand 100,158 100,057
Savings 56,699 51,424
Time ($100,000 and over) 96,721 86,840
Other time 226,174 226,095
Total deposits 535,764 517,334
Borrowed funds 117,972 101,610
Other liabilities 5,132 5,577
-------- --------
Total Liabilities $658,868 $624,521
-------- --------
Shareholders' equity:
Common Stock, $1.25 par value,
Authorized: 20,000,000 shares
Issued and outstanding: 2,575,892 shares
at June 30, 2002 and 2,553,797 shares
at December 31, 2001 $ 3,220 $ 3,192
Additional Paid-in Capital 12,216 11,566
Retained Earnings 39,232 36,492
Accumulated Other Comprehensive Income 3,340 536
Total shareholders' equity $ 58,008 $ 51,786
-------- --------
Total Liabilities and Shareholders' Equity $716,876 $676,307
======== ========
Note: The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to financial statements
(1)
FIRST NATIONAL COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands, except per share amounts)
Three Months Ended Year-To-Date
----------------------- ----------------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
--------- --------- -------- --------
Interest Income:
Loans $ 7,919 $ 8,412 $15,631 $16,925
Balances with banks 38 63 79 124
Investments 2,964 2,676 5,848 5,347
Federal Funds Sold 20 101 68 233
------- ------- ------- -------
Total interest income 10,941 11,252 21,626 22,629
------- ------- ------- -------
Interest Expense:
Deposits 3,778 5,334 7,817 10,836
Borrowed Funds 1,545 1,164 2,967 2,299
Total interest expense 5,323 6,498 10,784 13,135
------- ------- ------- -------
Net Interest Income
before Loan Loss Provision 5,618 4,754 10,842 9,494
Provision for loan losses 325 180 650 360
------- ------- ------- -------
Net interest income 5,293 4,574 10,192 9,134
Other Income:
Service charges 340 278 643 520
Other Income 214 172 504 343
Gain on sale of:
Loans 46 178 150 233
Securities 96 92 332 286
Other Real Estate 0 79 180 79
------- ------- ------- -------
Total other income 696 799 1,809 1,461
------- ------- ------- -------
Other expenses:
Salaries & benefits 1,760 1,540 3,420 3,102
Occupancy & equipment 642 528 1,263 1,096
Data processing expense 233 232 473 468
Other 815 803 1,748 1,562
------- ------- ------- -------
Total other expenses 3,450 3,103 6,904 6,228
------- ------- ------- -------
Income before income taxes 2,539 2,270 5,097 4,367
Income tax expense 525 449 1,075 891
------- ------- ------- -------
NET INCOME $ 2,014 $ 1,821 $ 4,022 $ 3,476
======= ======= ======= =======
Basic earnings per share $ 0.78 $ 0.72 $ 1.57 $ 1.38
======= ======= ======= =======
Diluted earnings per share $ 0.76 $ 0.71 $ 1.52 $ 1.35
======= ======= ======= =======
Weighted average number
of basic shares 2,568,487 2,526,152 2,562,756 2,522,264
========= ========= ========= =========
Weighted average number
of diluted shares 2,654,387 2,574,778 2,649,916 2,571,076
========= ========= ========= =========
See notes to financial statements
(2)
FIRST NATIONAL COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
June 30, June 30,
2002 2001
-------- --------
(Dollars in thousands)
INCREASE (DECREASE) IN CASH EQUIVALENTS:
Cash Flows From Operating Activities:
Interest Received $ 21,977 $ 22,504
Fees & Commissions Received 1,147 863
Interest Paid (11,474) (12,780)
Income Taxes Paid (1,357) (951)
Cash Paid to Suppliers & Employees (6,372) (5,428)
-------- --------
Net Cash Provided by Operating Activities $ 3,921 $ 4,208
-------- --------
Cash Flows from Investing Activities:
Securities available for sale:
Proceeds from Sales prior to maturity 33,975 21,408
Proceeds from Calls prior to maturity 19,244 14,214
Proceeds from Maturities 500 0
Purchases (60,164) (70,520)
Securities held to maturity:
Proceeds from Calls prior to maturity 0 274
Net Increase in Interest-Bearing Bank Balances (396) (198)
Purchase of life insurance 0 (5,000)
Net Increase in Loans to Customers (20,053) (17,129)
Capital Expenditures (925) (468)
-------- --------
Net Cash Used by Investing Activities $(27,819) $(57,419)
-------- --------
Cash Flows from Financing Activities:
Net Increase in Demand Deposits, Money Market
Demand, NOW Accounts, and Savings Accounts $ 8,471 $ 26,033
Net Increase in Certificates of Deposit 9,959 16,694
Net Increase in Borrowed Funds 16,362 22,148
Net Proceeds from Issuance of Common Stock
Through Dividend Reinvestment 554 432
Net Proceeds from Issuance of Common Stock -
Stock Option Plans 124 57
Dividends Paid (1,282) (1,058)
-------- --------
Net Cash Provided by Financing Activities $ 34,188 $ 64,306
-------- --------
Net Increase in Cash and Cash Equivalents $ 10,290 $ 11,095
Cash & Cash Equivalents at Beginning of Year $ 15,652 $ 19,804
-------- --------
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 25,942 $ 30,899
======== ========
(Continued)
(3)
FIRST NATIONAL COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
2002 2001
------ ------
(Dollars in thousands)
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net Income $ 4,022 $ 3,476
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating
Activities:
Amortization (Accretion), Net 429 52
Depreciation 520 505
Provision for Probable Credit Losses 650 360
Provision for Deferred Taxes (90) (46)
Gain on Sale of Loans (150) (233)
Gain on Sale of Investment Securities (332) (286)
Gain on Sale of Other Real Estate (180) (78)
Decrease in Taxes Payable (690) (16)
Increase in Interest Receivable (78) (177)
Increase (Decrease) in Interest Payable (300) 356
Increase in Prepaid Expenses
and Other Assets (425) (346)
Increase in Accrued Expenses
and Other Liabilities 545 641
------- -------
Total Adjustments $ (101) $ 732
------- -------
NET CASH PROVIDED BY OPERATING
ACTIVITIES $ 3,921 $ 4,208
======= =======
See notes to financial statements
(4)
FIRST NATIONAL COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
For The Six Months Ended June 30, 2002
(In thousands, except share data)
(UNAUDITED)
ACCUM-
ULATED
OTHER
COMP-
COMP- REHEN-
REHEN- COMMON STOCK ADD'L SIVE
SIVE -------------------- PAID-IN RETAINED INCOME/
INCOME SHARES AMOUNT CAPITAL EARNINGS (LOSS) TOTAL
-----------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 2001 2,553,797 $3,192 $11,566 $36,492 $ 536 $51,786
Comprehensive Income:
Net income for the period $ 4,022 4,022 4,022
Other comprehensive income, net
of tax:
Unrealized gain on securities
available-for-sale, net of
deferred income taxes
of $1,445 2,472
Reclassification adjustment 332
------
Total other comprehensive
income, net of tax 2,804 2,804 2,804
------
Comprehensive Income 6,826
------
Issuance of Common Stock -
Stock Option Plans 4,000 5 119 124
Issuance of Common Stock through
Dividend Reinvestment 18,095 23 531 554
Cash dividends paid, $0.50 per share (1,282) (1,282)
---------- ------ ------- ------- ------ -------
BALANCES, JUNE 30, 2002 2,575,892 $3,220 $12,216 $39,232 $3,340 $58,008
---------- ------ ------- ------- ------ -------
See notes to financial statements
(5)
FIRST NATIONAL COMMUNITY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) The accounting and financial reporting policies of First National
Community Bancorp, Inc. and its subsidiary conform to generally accepted
accounting principles and to general practice within the banking industry. The
consolidated statements include the accounts of First National Community
Bancorp, Inc. and its wholly owned subsidiary, First National Community Bank
(Bank) including its subsidiary, FNCB Realty, Inc. (collectively, Company). All
material intercompany accounts and transactions have been eliminated in
consolidation. The accompanying interim financial statements are unaudited. In
management's opinion, the consolidated financial statements reflect a fair
presentation of the consolidated financial position of First National Community
Bancorp, Inc. and subsidiary, and the results of its operations and its cash
flows for the interim periods presented, in conformity with generally accepted
accounting principles.
These interim financial statements should be read in conjunction with the
audited financial statements and footnote disclosures in the Bank's Annual
Report to Shareholders for the fiscal year ended December 31, 2001.
(2) Basic earnings per share have been computed by dividing net income (the
numerator) by the weighted average number of common shares (the denominator) for
the period. Such shares amounted to 2,562,756 and 2,522,264 for the periods
ending June 30, 2002 and 2001, respectively.
Diluted earnings per share have been computed by dividing net income (the
numerator) by the weighted average number of common shares and options
outstanding (the denominator) for the period. Such shares amounted to 2,649,916
and 2,571,076 for the periods ending June 30, 2002 and 2001, respectively.
(6)
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The consolidated financial review of First National Community Bancorp, Inc. (the
"company") provides a comparison of the performance of the company for the
periods ended June 30, 2002 and 2001. The financial information presented should
be reviewed in conjunction with the consolidated financial statements and
accompanying notes appearing elsewhere in this report.
Background
First National Community Bancorp, Inc. (the company) is a Pennsylvania
Corporation, incorporated in 1997 and is registered as a financial holding
company under the Bank Holding Company Act of 1956, as amended. The company
became an active bank holding company on July 1, 1998 when it assumed ownership
of First National Community Bank (the bank). On November 2, 2000, the Federal
Reserve Bank of Philadelphia approved the company's application to change its
status to a financial holding company as a complement to the company's strategic
objective. The bank is a wholly-owned subsidiary of the company.
The company's primary activity consists of owning and operating the bank, which
provides the customary retail and commercial banking services to individuals and
businesses. The bank provides practically all of the company's earnings as a
result of its banking services. As of June 30, 2002, the company had 14
full-service branch banking offices in its principal market area in Lackawanna
and Luzerne Counties, Pennsylvania. At June 30, 2002, the company had 211
full-time equivalent employees.
The bank was established as a national banking association in 1910 as "The First
National Bank of Dunmore." Based upon shareholder approval received at a Special
Shareholders' Meeting held October 27, 1987, the bank changed its name to "First
National Community Bank" effective March 1, 1988. The bank's operations are
conducted from offices located in Lackawanna and Luzerne Counties, Pennsylvania:
Office Date Opened
Main October 1910
Scranton September 1980
Dickson City December 1984
Fashion Mall July 1988
Wilkes-Barre July 1993
Pittston Plaza April 1995
Kingston August 1996
Exeter November 1998
Daleville April 2000
Plains June 2000
Back Mountain October 2000
Clarks Green October 2001
Hanover Township January 2002
Nanticoke April 2002
(7)
The bank provides the usual commercial banking services to individuals and
businesses, including a wide variety of loan and deposit instruments. As a
result of the bank's partnership with INVEST, our customers are able to access
alternative products such as mutual funds, bonds, equities and annuities
directly from our INVEST representatives.
During 1996, FNCB Realty Inc. was formed as a wholly owned subsidiary of the
Bank to manage, operate and liquidate properties acquired through foreclosure.
Summary:
Net income for the six months ended June 30, 2002 amounted to $4,022,000, an
increase of $546,000 or 16% compared to the same period of the previous year.
This increase can be mainly attributed to the $1,348,000 improvement in net
interest income before the provision for credit losses and the $348,000 increase
in other income. Non-interest expenses increased $676,000, or 11%, over the same
period of last year due to costs associated with three new community offices and
increased operating expenses.
RESULTS OF OPERATIONS
Net Interest Income:
The Company's primary source of revenue is net interest income which totaled
$10,842,000 and $9,494,000 (before the provision for credit losses) during the
first six months of 2002 and 2001, respectively. Year to date net interest
margins (tax equivalent) remained constant at 3.49% for 2002 and 2001 comprised
of a one hundred and twenty-three basis point decrease in the yield earned on
earning assets and a one hundred and forty-three basis point decrease in the
cost of interest-bearing liabilities. Excluding investment leveraging
transactions, the year-to-date margin increased fifteen basis points when
compared to the same six month period of last year.
Earning assets increased $36 million to $677 million during the first six months
of 2002 and now total 94.5% of total assets, a slight decrease from the year-end
level of 94.9%.
(8)
Yield/Cost Analysis
The following tables set forth certain information relating to the Company's
Statement of Financial Condition and reflect the weighted average yield on
assets and weighted average costs of liabilities for the periods indicated. Such
yields and costs are derived by dividing the annualized income or expense by the
weighted average balance of assets or liabilities, respectively, for the periods
shown:
Six-months ended June 30,
2002
-------------------------------
Average Yield/
Balance Interest Cost
------- -------- -------
(Dollars in thousands)
Assets:
Interest-earning assets:
Loans (taxable) $434,235 $15,157 6.97%
Loans (tax-free) (1) 17,458 474 8.18
Investment securities (taxable) 155,449 4,506 5.80
Investment securities (tax-free)(1) 51,027 1,342 7.97
Time deposits with banks and
federal funds sold 11,219 147 2.63
-------- ------- ----
Total interest-earning assets 669,388 21,626 6.73%
------- ----
Non-interest earning assets 36,080
--------
Total Assets $705,468
========
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Deposits $476,901 $ 7,817 3.31%
Borrowed funds 113,562 2,967 5.20
-------- ------- ----
Total interest-bearing liabilities 590,463 10,784 3.67%
------- ----
Other liabilities and shareholders' equity 115,005
--------
Total Liabilities and
Shareholders' Equity $705,468
========
Net interest income/rate spread $10,842 3.06%
Net yield on average interest-
earning assets 3.49%
Interest-earning assets as a
percentage of interest-
bearing liabilities 113%
(1) Yields on tax-exempt loans and investment securities have been computed on a
tax equivalent basis.
(9)
Six-months ended June 30,
2001
----------------------------------
Average Yield/
Balance Interest Cost
------- -------- ------
(Dollars in thousands)
Assets:
Interest-earning assets:
Loans (taxable) $391,795 $16,357 8.33%
Loans (tax-free) (1) 17,331 568 9.87
Investment securities (taxable) 122,712 4,119 6.71
Investment securities (tax-free) (1) 46,149 1,228 8.06
Time deposits with banks and
federal funds sold 12,935 357 5.52
-------- ------- ----
Total interest-earning assets 590,922 22,629 7.96%
------- ----
Non-interest earning assets 26,655
--------
Total Assets $617,577
========
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Deposits $434,954 $10,836 5.02%
Borrowed funds 83,007 2,299 5.51
-------- ------- ----
Total interest-bearing liabilities 517,961 13,135 5.10%
------- ----
Other liabilities and shareholders' equity 99,616
--------
Total Liabilities and
Shareholders' Equity $617,577
========
Net interest income/rate spread $ 9,494 2.86%
Net yield on average interest-
earning assets 3.49%
Interest-earning assets as a
percentage of interest-
bearing liabilities 114%
(1) Yields on tax-exempt loans and investment securities have been computed on a
tax equivalent basis.
(10)
Rate Volume Analysis
The table below sets forth certain information regarding the changes in the
components of net interest income for the periods indicated. For each category
of interest earning asset and interest bearing liability, information is
provided on changes attributed to: (1) changes in rate (change in rate
multiplied by current volume); (2) changes in volume (change in volume
multiplied by old rate); (3) the total. The net change attributable to the
combined impact of volume and rate has been allocated proportionately to the
change due to volume and the change due to rate.
Period Ended June 30,
(Dollars in thousands)
2002 vs 2001
--------------------------------
Increase (Decrease)
Due to
-------------------
Rate Volume Total
-------- ------ -------
Loans (taxable) $(3,108) $1,908 $(1,200)
Loans (tax-free) (98) 4 (94)
Investment securities (taxable) (716) 1,103 387
Investment securities (tax-free) (15) 129 114
Time deposits with banks and
federal funds sold (164) (46) (210)
------- ------ -------
Total interest income $(4,101) $3,098 $(1,003)
------- ------ -------
Deposits $(3,844) $ 824 $(3,020)
Borrowed funds (178) 846 668
------- ------ -------
Total interest expense $(4,022) $1,670 $(2,352)
------- ------ -------
Net change in net interest income $ (79) $1,428 $ 1,349
======= ====== =======
Period Ended June 30,
(Dollars in thousands)
2001 vs 2000
--------------------------------
Increase (Decrease)
Due to
--------------------
Rate Volume Total
-------- ------ -------
Loans (taxable) $ (151) $1,150 $ 999
Loans (tax-free) 21 143 164
Investment securities (taxable) (90) 250 160
Investment securities (tax-free) (37) 98 61
Time deposits with banks and
federal funds sold (26) 274 248
------ ------ ------
Total interest income $ (283) $1,915 $1,632
------ ------ ------
Deposits $ 667 $1,277 $1,944
Borrowed funds (154) (253) (407)
------ ------ ------
Total interest expense $ 513 $1,024 $1,537
------ ------ ------
Net change in net interest income $ (796) $ 891 $ 95
====== ====== ======
(11)
Other Income and Expenses:
Other income in the first six months of 2002 increased $348,000 in comparison to
the same period of 2001. This increase can be attributed primarily to an
additional $101,000 gain from the sale of other real estate and a $46,000
increase in the gain from the sale of securities offset by an $83,000 decrease
in the gain on sale of residential mortgages.
Excluding income from asset sales, other income increased $284,000 or 33%,
during the first six months of 2002 as compared to the same period of last year.
Income from service charges increased $123,000, or 24%, in comparison to the
same period of last year while other fee income increased $161,000, or 47%. New
products and a larger deposit base contributed to the increases.
Other expenses increased $676,000 or 11% for the period ended June 30, 2002
compared to the same period of the previous year. Salaries and Benefits costs
added $318,000, or 10% in comparison to the first six months of 2001. Occupancy
and equipment costs rose 15%, data processing costs rose 1% and other operating
expenses increased $186,000, or 12%. Included in the total increase is $583,000
that can be attributed to three new community offices.
Other Comprehensive Income:
The Company's other comprehensive income includes unrealized holding gains
(losses) on securities which it has classified as available-for-sale in
accordance with FASB 115, "Accounting for Certain Investments in Debt and Equity
Securities."
Provision for Income Taxes:
The provision for income taxes is calculated based on annualized taxable income.
The provision for income taxes differs from the amount of income tax determined
applying the applicable U.S. statutory federal income tax rate to pre-tax income
from continuing operations as a result of the following differences:
2002 2001
------ ------
Provision at statutory rate $1,739 $1,494
Add (Deduct):
Tax effect of non-taxable interest income (617) (610)
Non-deductible interest expense 73 95
Other items, net (120) (88)
------ ------
Income tax expense $1,075 $ 891
====== ======
(12)
Securities:
Carrying amounts and approximate fair value of investment securities are
summarized as follows:
June 30, 2002 December 31, 2001
------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------ -------- ------
(Dollars in thousands)
U.S. Treasury securities and
obligations of U.S.
government agencies $ 8,809 $ 8,801 $ 10,453 $ 10,440
Obligations of state &
political subdivisions 54,656 54,571 51,757 51,632
Mortgage-backed securities 134,537 134,537 125,240 125,240
Corporate debt securities 452 452 1,212 1,212
Equity securities 10 10 10 10
-------- -------- -------- --------
Total $198,464 $198,371 $188,672 $188,534
======== ======== ======== ========
The following summarizes the amortized cost, approximate fair value, gross
unrealized holding gains, and gross unrealized holding losses at June 30, 2002
of the Company's Investment Securities classified as available-for-sale:
June 30, 2002
-------------------------------------------
(Dollars in thousands)
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
--------- ---------- ---------- ------
U.S. Treasury securities and
obligations of U.S.
government agencies: $ 8,074 $ 103 $ 2 $ 8,175
Obligations of state and
political subdivisions: 51,657 1,752 67 53,342
Mortgage-backed securities: 131,216 3,333 12 134,537
Corporate debt securities: 499 0 47 452
Equity securities: 10 0 0 10
-------- ------ ---- --------
Total $191,456 $5,188 $128 $196,516
======== ====== ==== ========
(13)
The following summarizes the amortized cost, approximate fair value, gross
unrealized holding gains, and gross unrealized holding losses at June 30, 2002
of the Company's Investment Securities classified as held-to-maturity:
June 30, 2002
--------------------------------------------
(Dollars in thousands)
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
--------- ---------- ----------- ------
U.S. Treasury securities and
obligations of U.S.
government agencies: $ 634 $ 0 $ 8 $ 626
Obligations of state and
political subdivisions: 1,314 0 85 1,229
------ ---- --- ------
Total $1,948 $ 0 $93 $1,855
====== ==== === ======
The following table shows the amortized cost and approximate fair value of the
company's debt securities at June 30, 2002 using contractual maturities.
Expected maturities will differ from contractual maturity because issuers may
have the right to call or prepay obligations with or without call or prepayment
penalties.
Available-for-sale Held-to-maturity
------------------------ -----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ------- --------- -------
(Dollars in Thousands) (Dollars in Thousands)
Amounts maturing in:
One year or less $ 999 $ 1,018 $ 0 $ 0
After one year through
five years 3,340 3,380 0 0
After five years through
ten years 5,051 5,305 0 0
After ten years 50,840 52,266 1,948 1,855
Mortgage-backed securities 131,216 134,537 0 0
-------- -------- ------ ------
Total $191,446 $196,506 $1,948 $1,855
======== ======== ====== ======
Gross proceeds from the sale of investment securities for the periods ended June
30, 2002 and 2001 were $33,974,698 and $21,408,149 respectively with the gross
realized gains being $342,664 and $418,785 respectively, and gross realized
losses being $11,097 and $132,634, respectively.
At June 30, 2002 and 2001, investment securities with a carrying amount of
$95,716,853 and $84,322,599 respectively, were pledged as collateral to secure
public deposits and for other purposes.
(14)
Loans:
The following table sets forth detailed information concerning the composition
of the company's loan portfolio as of the dates specified:
June 30, 2002 December 31, 2001
-------------- -----------------
Amount % Amount %
-------- ----- --------- ----
(Dollars in thousands)
Real estate loans, secured by residential
properties $ 71,393 15.4 $ 82,403 18.5
Real estate loans, secured by nonfarm,
nonresidential properties 201,319 43.3 191,852 43.1
Commercial & industrial loans 107,632 23.2 94,360 21.2
Loans to individuals for household,
family and other personal expenditures 63,936 13.8 62,786 14.1
Loans to state and political subdivisions 20,222 4.3 13,949 3.1
All other loans, including overdrafts 43 0.0 128 0.0
-------- ----- -------- -----
Total Gross Loans $464,545 100.0 $445,478 100.0
Less: Allow. for Loan Losses (5,878) (5,594)
-------- --------
Net Loans $458,667 $439,884
======== ========
The following table sets forth certain information with respect to the company's
allowance for loan losses and charge-offs:
Three months Year to date
Ended Ended
June 30, Dec 31,
2002 2001
------------ ------------
(Dollars in thousands)
Balance, January 1 $5,594 $5,250
Recoveries Credited 77 191
Losses Charged (443) (1,067)
Provision for Loan Losses 650 1,220
------ ------
Balance at End of Period $5,878 $5,594
====== ======
(15)
The following table presents information about the company's non-performing
assets for the periods indicated:
June 30, 2002 Dec 31, 2001
------------- ------------
(Dollars in thousands)
Nonaccrual loans
Impaired $ 0 $ 0
Other 378 343
Loans past due 90 days or more
and still accruing 214 426
------ -----
Total non-performing loans 592 769
Other Real Estate Owned 1,000 50
------ -----
Total non-performing assets $1,592 $ 819
====== =====
June 30, 2002 Dec 31, 2001
------------- ------------
Non-performing loans as a
percentage of gross loans 0.1% 0.2%
==== ====
Non-performing assets as a
percentage of total assets 0.2% 0.1%
==== ====
Non-performing assets are comprised of non-accrual loans and loans past due 90
days or more and still accruing, and other real estate owned. Loans are placed
in nonaccrual status when management believes that the collection of interest or
principal is doubtful, or generally when a default of interest or principal has
existed for 90 days or more, unless such loan is fully secured and in the
process of collection. When interest accrual is discontinued, interest credited
to income in the current year is reversed and interest accrued in prior years is
charged against the allowance for credit losses. Any payments received are
applied, first to the outstanding loan amounts, then to the recovery of any
charged-off loan amounts. Any excess is treated as a recovery of lost interest.
Nonaccrual loans are comprised of nine credits which are adequately secured by
mortgages or UCC's on the property. Any loss recognized on these loans is
expected to be minimal.
Other real estate consists of property acquired through foreclosure. The
property is carried at the lower of cost or the estimated fair value based on an
independent appraisal. At June 30, 2002, the balance of Other Real Estate
consisted of one property which management believes will be disposed of during
2002 with no negative impact.
Provision for Credit Losses:
The provision for credit losses varies from year to year based on management's
evaluation of the adequacy of the allowance for credit losses in relation to the
risks inherent in the loan portfolio. In its evaluation, management considers
credit quality, changes in loan volume, composition of the loan portfolio, past
experience, delinquency trends, and the economic condition. Consideration is
also given to
(16)
examinations performed by regulatory authorities and the Company's independent
accountants. A monthly provision of $75,000 was credited to the allowance for
loan losses during the first six months of 2002 with an extra $100,000 provision
in March and June. A monthly provision of $60,000 was credited to the allowance
for loan losses during the first six months of 2001. The ratio of the loan loss
reserve to total loans at June 30, 2002 and 2001 was 1.27% and 1.28%,
respectively.
Asset/Liability Management, Interest Rate Sensitivity and Inflation
The major objectives of the company's asset and liability management are to (1)
manage exposure to changes in the interest rate environment to achieve a neutral
interest sensitivity position within reasonable ranges, (2) ensure adequate
liquidity and funding, (3) maintain a strong capital base, and (4) maximize net
interest income opportunities. First National Community Bank manages these
objectives through its Senior Management and Asset and Liability Management
Committees. Members of the committees meet regularly to develop balance sheet
strategies affecting the future level of net interest income, liquidity and
capital. Items that are considered in asset and liability management include
balance sheet forecasts, the economic environment, the anticipated direction of
interest rates and the Bank's earnings sensitivity to changes in these rates.
The company analyzes its interest sensitivity position to manage the risk
associated with interest rate movements through the use of gap analysis and
simulation modeling. Because of the limitations of the gap reports, the bank
uses simulation modeling to project future net interest income streams
incorporating the current "gap" position, the forecasted balance sheet mix, and
the anticipated spread relationships between market rates and bank products
under a variety of interest rate scenarios.
Economic conditions affect financial institutions, as they do other businesses,
in a number of ways. Rising inflation affects all businesses through increased
operating costs but affects banks primarily through the manner in which they
manage their interest sensitive assets and liabilities in a rising rate
environment. Economic recession can also have a material effect on financial
institutions as the assets and liabilities affected by a decrease in interest
rates must be managed in a way that will maximize the largest component of a
bank's income, that being net interest income. Recessionary periods may also
tend to decrease borrowing needs and increase the uncertainty inherent in the
borrowers' ability to pay previously advanced loans. Additionally, reinvestment
of investment portfolio maturities can pose a problem as attractive rates are
not as available. Management closely monitors the interest rate risk of the
balance sheet and the credit risk inherent in the loan portfolio in order to
minimize the effects of fluctuations caused by changes in general economic
conditions.
Liquidity
The term liquidity refers to the ability of the company to generate sufficient
amounts of cash to meet its cash-flow needs. Liquidity is required to fulfill
the borrowing needs of the bank's credit customers and the withdrawal and
maturity requirements of its deposit customers, as well as to meet other
financial commitments.
(17)
The short-term liquidity position of the company is strong as evidenced by
$25,942,000 in cash and cash equivalents and $3,557,000 in interest-bearing
balances with banks maturing within one year. A secondary source of liquidity is
provided by the investment portfolio with $5,514,000 or 3% of the portfolio
maturing or expected to be called within one year and expected cash flow from
principal reductions approximating an additional $28 million. The company has
relied primarily on its retail deposits as a source of funds. The bank is
primarily a seller of Federal funds to invest excess cash; however, the bank can
also borrow in the Federal Funds market to meet temporary liquidity needs. Other
sources of potential liquidity include repurchase agreements, Federal Home Loan
Bank advances and the Federal Reserve Discount Window.
Capital Management
A strong capital base is essential to the continued growth and profitability of
the company and in that regard the maintenance of appropriate levels of capital
is a management priority. The company's principal capital planning goals are to
provide an adequate return to shareholders while retaining a sufficient base
from which to provide for future growth, while at the same time complying with
all regulatory standards. As more fully described in Note 13 to the year end
audited financial statements, regulatory authorities have prescribed specified
minimum capital ratios as guidelines for determining capital adequacy to help
insure the safety and soundness of financial institutions.
Total stockholders' equity increased $6,222,000 or 12% during the first six
months of 2002 comprised of an increase in retained earnings in the amount of
$2,740,000 after paying cash dividends, $678,000 from stock issued through
Dividend Reinvestment and Stock Option Plans and a $2,804,000 increase in other
comprehensive income. During the same period of 2001, total stockholders' equity
increased $3,383,000, or 7%, comprised of an increase in retained earnings of
$2,418,000, after paying cash dividends and $489,000 from stock issued through
Dividend Reinvestment and a $476,000 increase in other comprehensive income. The
total dividend payout during the first six months of 2002 and 2001 represents
$.50 per share and $.42 per share, respectively. Excluding the impact due to
securities valuation, increases in core equity amounted to $3,418,000 and
$2,907,000, respectively.
The Board of Governors of the Federal Reserve System and other various
regulatory agencies have specified guidelines for purposes of evaluating a
bank's capital adequacy. Currently, banks must maintain a leverage ratio of core
capital to total assets at a prescribed level, namely 3%. In addition, bank
regulators have issued risk-based capital guidelines. Under such guidelines,
minimum ratios of core capital and total qualifying capital as a percentage of
risk-weighted assets and certain off-balance sheet items of 4% and 8% are
required. As of June 30, 2002, First National Community Bank met all capital
requirements with a leverage ratio of 7.62% and core capital and total
risk-based capital ratios of 10.31% and 11.43%, respectively.
(18)
Part II Other Information
Item 1 - Legal Proceeding
The Bank is not involved in any material pending legal proceedings, other
than routine litigation incidental to the business.
Item 2 - Changes in Securities
None
Item 3 - Defaults upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
The 2002 Annual Meeting of Shareholders of First National Community
Bancorp, Inc. was held on May 15, 2002 at the Company's Exeter Office, 1625
Wyoming Avenue, Exeter, Pennsylvania, for the purpose of electing four Class A
Directors to serve for a three-year term.
o The following Class A directors were elected to serve until 2005:
Michael J. Cestone, Jr.
Joseph J. Gentile
Joseph O. Haggerty
Louis A. DeNaples
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8 - K
None
(19)
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Registrant: FIRST NATIONAL COMMUNITY BANCORP, INC
Date: August 5, 2002 /s/ J. David Lombardi
-------------- ---------------------
J. David Lombardi, President/
Chief Executive Officer
Date: August 5, 2002 /s/ William Lance
-------------- ---------------------
William Lance, Treasurer/
Principal Financial Officer
(20)