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, 2000
[ ]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)
2,506,247 shares
(Outstanding at July 17, 2000)
<PAGE>
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, 2000 and December 31, 1999 1
Consolidated Statements of Income
Three Months Ended June 30, 2000 and 1999
YTD Ended June 30, 2000 and 1999 2
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2000 and 1999 3-4
Consolidated Statements of Changes in Stockholders' Equity
Six Months Ended June 30, 2000 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)
<PAGE>
FIRST NATIONAL COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
June 30, Dec. 31,
2000 1999
--------- ---------
(UNAUDITED) (AUDITED)
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 16,069 $ 15,971
Federal funds sold 375 0
-------- --------
Total cash and cash equivalents 16,444 15,971
Interest-bearing balances with
financial institutions 3,270 2,874
Securities:
Available-for-sale, at fair value 142,572 136,393
Held-to-maturity, at cost
(fair value $1,935 on June 30, 2000 and
$1,809 on December 31, 1999) 2,267 2,199
Federal Reserve Bank and FHLB stock, at cost 5,034 7,936
Net loans 381,531 359,244
Bank premises and equipment 5,478 4,825
Other assets 10,988 10,921
-------- --------
Total Assets $567,584 $540,363
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand - non-interest bearing $ 45,837 $ 42,535
Interest bearing demand 78,840 64,483
Savings 45,943 43,502
Time ($100,000 and over) 74,046 70,931
Other time 193,266 189,675
-------- --------
Total deposits 437,932 411,126
Borrowed funds 84,739 88,173
Other liabilities 4,684 4,009
-------- --------
Total Liabilities $527,355 $503,308
-------- --------
Shareholders' equity:
Common Stock, $1.25 par value,
Authorized: 20,000,000 shares at
June 30, 2000, and 5,000,000 shares
at December 31, 1999;
Issued and outstanding: 2,506,247 shares
at June 30, 2000 and 2,493,507 shares
at December 31, 1999
$ 3,133 $ 3,117
Additional Paid-in Capital 10,226 9,841
Retained Earnings 30,682 28,349
Accumulated Other Comprehensive Income/(Loss) (3,812) (4,252)
-------- --------
Total shareholders' equity $ 40,229 $ 37,055
-------- --------
Total Liabilities and Shareholders' Equity $567,584 $540,363
======== ========
Note: The balance sheet at December 31, 1999 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)
<PAGE>
FIRST NATIONAL COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands, except per share amounts)
Three Months Ending Year-to-Date
------------------- ------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
------- ------- ------- --------
Interest Income:
Loans $ 8,169 $ 7,411 $15,763 $14,205
Balances with banks 47 33 93 66
Investments 2,606 2,138 5,126 4,102
Federal Funds Sold 4 7 15 76
------- ------- ------- -------
Total interest income 10,826 9,589 20,997 18,449
------- ------- ------- -------
Interest Expense:
Deposits 4,644 3,917 8,892 7,829
Borrowed Funds 1,382 1,074 2,706 2,040
------- ------- ------- -------
Total interest expense 6,026 4,991 11,598 9,869
------- ------- ------- -------
Net Interest Income
before Loan Loss Provision 4,800 4,598 9,399 8,580
Provision for loan losses 180 180 360 360
------- ------- ------- -------
Net interest income 4,620 4,418 9,039 8,220
------- ------- ------- -------
Other Income:
Service charges 260 205 477 398
Other Income 116 129 235 240
Gain (Loss) on sale of:
Securities 22 0 12 213
------- ------- ------- -------
Total other income 398 334 724 851
------- ------- ------- -------
Other expenses:
Salaries & benefits 1,436 1,322 2,882 2,645
Occupancy & equipment 500 432 985 868
Other 943 817 1,820 1,668
------- ------- ------- -------
Total other expenses 2,879 2,571 5,687 5,181
------- ------- ------- -------
Income before income taxes 2,139 2,181 4,076 3,890
Income tax expense 481 547 894 940
------- ------- ------- -------
NET INCOME $ 1,658 $ 1,634 $ 3,182 $ 2,950
======= ======= ======= =======
Basic earnings per share (1) $ 0.66 $ 0.68 $ 1.27 $ 1.23
======= ======= ======= =======
Weighted average number of shares (1) 2,501,189 2,398,398 2,497,965 2,398,379
========= ========= ========= =========
See notes to financial statements
(2)
<PAGE>
FIRST NATIONAL COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
June 30, June 30,
2000 1999
-------- --------
(Dollars in thousands)
INCREASE (DECREASE) IN CASH EQUIVALENTS:
Cash Flows From Operating Activities:
Interest Received $ 20,694 $ 18,263
Fees & Commissions Received 712 638
Interest Paid (11,139) (9,718)
Income Taxes Paid (1,097) (804)
Cash Paid to Suppliers & Employees (4,975) (6,174)
--------- ---------
Net Cash Provided (Used) by Operating
Activities $ 4,195 $ 2,205
--------- ---------
Cash Flows from Investing Activities:
Securities available for sale:
Proceeds from Maturities $ 0 $ 1,000
Proceeds from Sales prior to maturity 14,297 18,260
Proceeds from Calls prior to maturity 8,102 12,045
Purchases (24,931) (37,172)
Securities held to maturity:
Proceeds from Calls prior to maturity 0 249
Purchases 0 (1,622)
Net (Increase) Decrease in
Interest-Bearing Bank Balances (396) 198
Net (Increase) Decrease in
Loans to Customers (22,647) (20,208)
Capital Expenditures (1,071) (500)
-------- --------
Net Cash Provided (Used) by Investing
Activities $(26,646) $(27,750)
-------- --------
Cash Flows from Financing Activities:
Net Increase (Decrease) in Demand
Deposits, Money Market Demand,
NOW Accounts, and Savings Accounts $ 20,100 $ 14,962
Net Increase in Certificates of Deposit 6,706 552
Net Increase (Decrease) in Borrowed Funds (3,434) 9,362
Net Proceeds from Issuance of Common Stock
Through Dividend Reinvestment 401 135
Dividends Paid (849) (720)
-------- --------
Net Cash Provided (Used) by Financing
Activities $ 22,924 $ 24,291
-------- --------
Net Increase (Decrease) in Cash and
Cash Equivalents $ 473 $ (1,254)
Cash & Cash Equivalents at Beginning of Year $ 15,971 $ 13,459
-------- --------
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 16,444 $ 12,205
======== ========
(Continued)
(3)
<PAGE>
FIRST NATIONAL COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
2000 1999
---------- ----------
(Dollars in thousands)
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net Income $ 3,182 $ 2,950
------- --------
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating
Activities:
Amortization (Accretion), Net (133) (3)
Depreciation 417 380
Provision for Probable Credit Losses 360 360
Loss (Gain) on Sale of Investment Securities (12) (213)
Increase (Decrease) in Taxes Payable (204) 137
Decrease (Increase) in Interest Receivable (170) (184)
Increase (Decrease) in Interest Payable 460 151
Decrease (Increase) in Prepaid Expenses
and Other Assets (124) (1,890)
Increase (Decrease) in Accrued Expenses
and Other Liabilities 419 517
------- -------
Total Adjustments $ 1,013 $ (745)
------- -------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES $ 4,195 $ 2,205
======= =======
See notes to financial statements
(4)
<PAGE>
<TABLE>
FIRST NATIONAL COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
For The Six Months Ended June 30, 2000
(In thousands, except share data)
(UNAUDITED
<CAPTION>
ACCUM-
ULATED
OTHER
COMP-
COMP- REHEN-
REHEN- COMMON STOCK ADD'L RETAINED SIVE
SIVE -------------------- PAID-IN RETAINED INCOME/
INCOME SHARES AMOUNT CAPITAL EARNINGS (LOSS) TOTAL
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1999 2,493,507 $3,117 $ 9,841 $28,349 $(4,252) $37,055
Comprehensive Income:
Net income for the period 3,182 3,182 3,182
Other comprehensive income, net
of tax:
Unrealized gain on securities
available-for-sale, net of
deferred income taxes of $227 452
Reclassification adjustment (12)
-----
Total other comprehensive
income, net of tax 440 440 440
-----
Comprehensive Income 3,622
Issuance of Common Stock through
Dividend Reinvestment 12,740 16 385 401
Cash dividends paid, $0.34 per share (849) (849)
----------------------------------------------------------------------
BALANCES, JUNE 30, 2000 2,506,247 $3,133 $10,226 $30,682 $(3,812) $40,229
----------------------------------------------------------------------
</TABLE>
See notes to financial statements
(5)
<PAGE>
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, 1999.
(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 2,497,965 and
2,398,379 for the periods ending June 30, 2000 and 1999, respectively.
(6)
<PAGE>
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, 2000 and 1999. 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 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 company operates 10
full-service branch banking offices in its principal market area in Lackawanna
and Luzerne Counties. At June 30, 2000, the company had 181 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:
- the Main Office in Dunmore
- the downtown Scranton Office established in 1980
- the Dickson City Office opened in December 1984
- the Fashion Mall Office, Scranton/Carbondale Highway opened in July 1988
- the Wilkes-Barre Office which opened in July 1993
- the Pittston Office which opened in April 1995
- the Kingston Office which opened in August 1996
- the Exeter Office which opened in November 1998
- the Daleville Office which opened in April 2000
- the Plains Office which opened in June 2000.
(7)
<PAGE>
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, 2000 amounted to $3,182,000,
an increase of $232,000 or 8% compared to the same period of the previous year.
This increase can be attributed to the $819,000 improvement in net interest
income. Earnings from securities sales decreased $201,000. Non-interest expenses
increased $506,000, or 10%, over the same period of last year due primarily to
costs associated with two new community offices. Operating income for the same
period, after excluding the effect of asset sales and loan loss provisions,
increased $433,000 or 14%.
RESULTS OF OPERATIONS
Net Interest Income:
--------------------
The Company's primary source of revenue is net interest income which
totaled $9,399,000 and $8,580,000 for the first six months of 2000 and 1999,
respectively. Year to date net interest margins (tax equivalent) decreased four
basis points from 3.78% reported in 1999 to 3.74% comprised of a nineteen basis
point increase in the yield earned on earning assets and a twenty-eight basis
point increase in the cost of interest-bearing liabilities.
Earning assets increased $25 million to $545 million during the first six
months of 2000 and now total 96.0% of total assets, comparable to the year-end
level of 96.1%.
(8)
<PAGE>
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, 2000
-------------------------------------
Average Yield/
Balance Interest Cost
--------- -------- -----
(Dollars in thousands)
Assets:
Interest-earning assets:
Loans (taxable) $365,072 $15,359 8.37%
Loans (tax-free) (1) 12,747 404 9.50
Investment securities (taxable) 115,533 3,959 6.85
Investment securities (tax-free)(1) 42,591 1,168 8.31
Time deposits with banks and
federal funds sold 3,440 108 6.31
-------- ------- ----
Total interest-earning assets 539,383 20,998 8.05%
------- ----
Non-interest earning assets 17,815
--------
Total Assets $557,198
========
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Deposits $380,228 $ 8,892 4.70%
Borrowed funds 91,560 2,706 5.85
-------- ------- ----
Total interest-bearing liabilities 471,788 11,598 4.92%
------- ----
Other liabilities and shareholders' equity 85,410
--------
Total Liabilities and Shareholders' Equity $557,198
========
Net interest income/rate spread $ 9,400 3.13%
Net yield on average interest-
earning assets 3.74%
Interest-earning assets as a
percentage of interest-
bearing liabilities 114%
(1) Yields on tax-exempt loans and investment securities have been computed
on a tax equivalent basis.
(9)
<PAGE>
Six-months ended June 30, 1999
---------------------------------------
Average Yield/
Balance Interest Cost
--------- ---------- ------
(Dollars in thousands)
Assets:
Interest-earning assets:
Loans (taxable) $ 333,802 $13,824 8.27%
Loans (tax-free) (1) 12,759 380 8.99
Investment securities (taxable) 98,403 3,129 6.36
Investment securities (tax-free) (1) 35,952 973 8.20
Time deposits with banks and
federal funds sold 5,634 143 5.07
-------- ------- ----
Total interest-earning assets 486,550 18,449 7.86%
------- ----
Non-interest earning assets 20,531
--------
Total Assets $507,081
========
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Deposits $354,647 $ 7,829 4.45%
Borrowed funds 73,105 2,040 5.55
-------- ------- ----
Total interest-bearing liabilities 427,752 9,869 4.64%
------- ----
Other liabilities and shareholders' equity 79,329
--------
Total Liabilities and Shareholders' Equity $507,081
========
Net interest income/rate spread $ 8,580 3.22%
Net yield on average interest-
earning assets 3.78%
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)
<PAGE>
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)
2000 vs 1999
Increase (Decrease)
Due to
Rate Volume Total
------ -------- --------
Loans (taxable) $ 188 $1,347 $1,535
Loans (tax-free) 24 0 24
Investment securities (taxable) 285 544 829
Investment securities (tax-free) 16 179 195
Time deposits with banks
and federal funds sold 14 (49) (35)
----- ------ ------
Total interest income $ 527 $2,021 $2,548
----- ------ ------
Deposits $ 554 $ 509 $1,063
Borrowed funds 151 515 666
----- ------ ------
Total interest expense $ 705 $1,024 $1,729
----- ------ ------
Net change in net interest income $(178) $ 997 $ 819
===== ====== ======
Period Ended June 30,
(Dollars in thousands)
1999 vs 1998
Increase (Decrease)
Due to
Rate Volume Total
------ -------- -------
Loans (taxable) $(575) $2,507 $1,932
Loans (tax-free) (4) (56) (60)
Investment securities (taxable) (144) 219 75
Investment securities (tax-free) (56) 198 142
Time deposits with banks
and federal funds sold (19) (47) (66)
----- ------ ------
Total interest income $(798) $2,821 $2,023
----- ------ ------
Deposits $(414) $ 825 $ 411
Borrowed funds (116) 678 562
----- ------ ------
Total interest expense $(530) $1,503 $ 973
----- ------ ------
Net change in net interest income $(268) $1,318 $1,050
===== ====== ======
(11)
<PAGE>
Other Income and Expenses:
-------------------------
Other income in the first six months of 2000 decreased $127,000 in
comparison to the same period of 1999. This decrease can be attributed primarily
to a $201,000 decrease in the gain on the sale of securities. Excluding income
from asset sales, other income increased $74,000 or 12%, during the first six
months of 2000 as compared to the same period of last year. Income from service
charges increased $79,000, or 20%, in comparison to the same period of last year
while other fee income decreased $5,000, or 2%.
Other expenses increased $506,000 or 10% for the period ended June 30, 2000
compared to the same period of the previous year. Salaries and Benefits costs
account for a majority of the increase, adding $237,000, or 9% in comparison to
the first six months of 1999. Occupancy and equipment costs rose 13% while other
operating expenses increased $152,000, or 9%.
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:
2000 1999
------ ------
Provision at statutory rate $1,394 $1,330
Add (Deduct):
Tax effect of non-taxable interest income (534) (460)
Non-deductible interest expense 78 64
Other items, net (44) 6
------ ------
Income tax expense $ 894 $ 940
====== ======
(12)
<PAGE>
Securities:
Carrying amounts and approximate fair value of investment securities are
summarized as follows:
June 30, 2000 December 31, 1999
--------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------ -------- ------
(Dollars in thousands)
U.S. Treasury securities and
obligations of U.S.
government agencies $ 21,508 $ 21,371 $ 20,785 $ 20,629
Obligations of state &
political subdivisions 40,653 40,458 39,097 38,863
Mortgage-backed securities 81,231 81,231 77,763 77,763
Corporate debt securities 1,447 1,447 937 937
Equity securities 5,034 5,034 7,946 7,946
-------- -------- -------- --------
Total $149,873 $149,541 $146,528 $146,138
======== ======== ======== ========
The following summarizes the amortized cost, approximate fair value, gross
unrealized holding gains, and gross unrealized holding losses at June 30, 2000
of the Company's Investment Securities classified as available-for-sale:
June 30, 2000
---------------------------------------------
(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: $ 21,260 $ 6 $ 834 $ 20,432
Obligations of state and
political subdivisions: 40,839 281 1,658 39,462
Mortgage-backed securities: 84,711 278 3,758 81,231
Corporate debt securities: 1,538 0 91 1,447
Equity securities: 5,034 0 0 5,034
-------- ---- ------ --------
Total $153,382 $565 $6,341 $147,606
======== ==== ====== ========
(13)
<PAGE>
The following summarizes the amortized cost, approximate fair value, gross
unrealized holding gains, and gross unrealized holding losses at June 30, 2000
of the Company's Investment Securities classified as held-to-maturity:
June 30, 2000
----------------------------------------------
(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: $1,076 $ 0 $137 $ 939
Obligations of state and
political subdivisions: 1,191 0 195 996
Mortgage-backed securities: 0 0 0 0
Corporate debt securities: 0 0 0 0
Equity securities: 0 0 0 0
------ ----- ---- -----
Total $2,267 $ 0 $332 $1,935
====== ===== ==== ======
The following table shows the amortized cost and approximate fair value of
the company's debt securities at June 30, 2000 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 $ 0 $ 0 $ 0 $ 0
After one year through
five years 3,057 3,022 0 0
After five years through
ten years 18,625 18,240 0 0
After ten years 41,955 40,079 2,267 1,935
Mortgage-backed securities 84,711 81,231 0 0
-------- -------- ------ ------
Total $148,348 $142,572 $2,267 $1,935
======== ======== ====== ======
Gross proceeds from the sale of investment securities for the periods ended
June 30, 2000 and 1999 were $14,297,515 and $18,259,633 respectively with the
gross realized gains being $41,961 and $219,060 respectively, and gross realized
losses being $29,686 and $5,869, respectively.
At June 30, 2000 and 1999, investment securities with a carrying amount of
$89,754,565 and $78,445,710 respectively, were pledged as collateral to secure
public deposits and for other purposes.
(14)
<PAGE>
Loans:
The following table sets forth detailed information concerning the
composition of the company's loan portfolio as of the dates specified:
June 30, 2000 December 31, 1999
----------------- -----------------
Amount % Amount %
------- ----- ------- -----
(Dollars in thousands)
Real estate loans, secured by
residential properties $ 96,206 24.9 $ 95,339 26.2
Real estate loans, secured by
nonfarm, nonresidential properties 147,820 38.3 134,690 37.0
Commercial & industrial loans 68,804 17.8 61,337 16.9
Loans to individuals for household,
family and other personal
expenditures 65,680 17.0 65,075 17.9
Loans to state and political
subdivisions 7,570 2.0 7,389 2.0
All other loans, including overdrafts 382 0.0 128 0.0
-------- ----- -------- -----
Total Gross Loans $386,462 100.0 $363,958 100.0
----- -----
Less: Allow. for Loan Losses (4,931) (4,714)
-------- --------
Net Loans $381,531 $359,244
======== ========
The following table sets forth certain information with respect to the company's
allowance for loan losses and charge-offs:
Period Ended
----------------------------------
June 30, Dec 31,
2000 1999
-------- -------
(Dollars in thousands)
Balance, January 1 $4,714 $4,283
Recoveries Credited 81 267
Losses Charged 224 856
Provision for Loan Losses 360 1,020
------ ------
Balance at End of Period $4,931 $4,714
====== ======
(15)
<PAGE>
The following table presents information about the company's non-performing
assets for the periods indicated:
June 30, 2000 Dec 31, 1999
--------------- --------------
(Dollars in thousands)
Nonaccrual loans
Impaired $ 0 $ 0
Other 938 288
Loans past due 90 days or more
and still accruing 363 498
------ -----
Total non-performing loans 1,301 786
------ -----
Other Real Estate Owned 0 0
------ -----
Total non-performing assets $1,301 $ 786
====== =====
June 30, 2000 Dec 31, 1999
------------- ------------
Non-performing loans as a
percentage of gross loans 0.3% 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.
The increase in nonaccrual loans is comprised of five credits which are
adequately secured by mortgages or UCC's on the property. Any loss recognized on
these loans is expected to be minimal.
Other real estate consists of property acquired through foreclosure. The
property is carried at the lower of cost or the estimated fair value based on an
independent appraisal.
Provision for Credit Losses:
---------------------------
The provision for credit losses varies from year to year based on
management's evaluation of the adequacy of the allowance for credit losses in
relation to the risks inherent in the loan portfolio. In its evaluation,
management considers credit quality, changes in loan volume, composition of the
loan portfolio, past experience, delinquency trends, and the economic condition.
Consideration is also given to
(16)
<PAGE>
examinations performed by regulatory authorities and the Company's independent
accountants. A monthly provision of $60,000 was credited to the allowance for
loan losses during the first six months of 2000 and 1999, respectively. The
ratio of the loan loss reserve to total loans at June 30, 2000 and 1999 was
1.28% and 1.30%, 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)
<PAGE>
The short-term liquidity position of the company is strong as evidenced by
$16,069,000 in cash and due from banks and $2,973,000 in interest-bearing
balances with banks maturing within one year. A secondary source of liquidity is
provided by the investment portfolio with $2,579,000 or 2% of the portfolio
maturing or expected to be called within one year and expected cash flow from
principal reductions approximating an additional $2,400,000.
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 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.
Total stockholders' equity increased $3,174,000 or 9% during the first six
months of 2000 comprised of an increase in retained earnings in the amount of
$2,333,000 after paying cash dividends, $401,000 from stock issued through
Dividend Reinvestment and a $440,000 increase in the market value of our
securities available-for-sale. During the same period of 1999, total
stockholders' equity decreased $829,000, or 2%, comprised of an increase in
retained earnings of $2,230,000, after paying cash dividends and $135,000 from
stock issued through Dividend Reinvestment offset by a $3,194,000 decrease in
the market value of our securities available-for-sale. The total dividend payout
during the first six months of 2000 and 1999 represents $.34 per share and $.30
per share, respectively. Excluding the impact due to securities valuation,
increases in core equity amounted to $2,734,000 and $2,365,000, 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, 2000, First National Community Bank met all capital
requirements with a leverage ratio of 7.69% and core capital and total
risk-based capital ratios of 10.72% and 11.92%, respectively.
(18)
<PAGE>
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 2000 Annual Meeting of Shareholders of First National Community
Bancorp, Inc. was held on May 17, 2000 at the Company's Exeter Office, 1625
Wyoming Avenue, Exeter, Pennsylvania, for the purpose of (1) electing four Class
B Directors to serve for a three-year term and until their successors are
elected and qualified and (2) to approve and adopt a proposed amendment to
Article Fifth of the company's Articles of Incorporation to increase the
company's number of authorized shares of common stock, par value $1.25 per
share, from 5,000,000 shares to 20,000,000 shares. The following Class B
directors were elected to serve until 2003: Michael G. Cestone, Martin F.
Gibbons, J. David Lombardi and John R. Thomas. The proposal to increase the
number of authorized shares to 20,000,000 was approved by the shareholders.
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8 - K
On May 30, 2000 a Form 8-K was filed for the purpose of Amending and
Restating the company's Articles of Incorporation concerning the shareholders
vote to increase the aggregate number of shares that the Registrant shall have
the authority to issue to 20,000,000 shares of Common Stock having a par value
of $1.25 per share.
(19)
<PAGE>
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: July 31, 2000 /s/ J. David Lombardi
---------------------- -----------------------------------
J. David Lombardi, President/
Chief Executive Officer
Date: July 31, 2000 /s/ William Lance
---------------------- -----------------------------------
William Lance, Treasurer/
Principal Financial Officer
(20)
