<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the transition period from _____________to________________
Commission file Number: 0-19028
CCFNB BANCORP, INC.
(Name of small business issuer in its charter)
PENNSYLVANIA 23-2254643
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
232 East Street, Bloomsburg, Pennsylvania 17815
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (717) 784-4400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $1.25 per share.
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year were $12,605,761.
The aggregate market value of the voting stock held by non-affiliates
of the issuer based on the average of the bid and asked price of $18.00 at
February 28, 1997, was $23,455,224.
As of February 28, 1997, the issuer had outstanding 1,381,711 shares
of its common stock, par value $1.25 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the issuer's 1997 definitive Proxy Statement are
incorporated by reference in Part III of this Annual Report. In addition,
portions of the Annual Report to stockholders of the issuer for the year ended
December 31, 1996, are incorporated by reference in Part II of this Annual
Report.
Page 1 of 83
Exhibit Index on Page 25
<PAGE> 2
CCFNB BANCORP, INC.
FORM 10-KSB
Index
<TABLE>
<CAPTION>
Part I Page
- ------ ----
<S> <C>
Item 1. Description of the Business............................. 3
Item 2. Description of Property................................. 17
Item 3. Legal Proceedings....................................... 18
Item 4. Submission of Matters to a Vote of Security Holders..... Not Applicable
Part II
Item 5. Market for Common Equity and Related
Stockholder Matters................................... 18
Item 6. Management's Discussion and Analysis or Plan
of Operation.......................................... 20
Item 7. Financial Statements.................................... 20
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................... Not Applicable
Part III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the
Exchange Act.......................................... 21
Item 10. Executive Compensation.................................. 21
Item 11. Security Ownership of Certain Beneficial Owners
and Management........................................ 21
Item 12. Certain Relationships and Related Transactions.......... 21
Item 13. Exhibits and Reports on Form 8-K........................ 21
Signatures........................................................ 23
Index to Exhibits................................................. 26
</TABLE>
2
<PAGE> 3
CCFNB BANCORP, INC.
FORM 10-KSB
PART I
ITEM 1. DESCRIPTION OF THE BUSINESS
General
CCFNB Bancorp, Inc. ("Bancorp"), a Pennsylvania business
corporation, is a bank holding company, registered with and supervised by the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board").
Bancorp was organized on June 20, 1983, and commenced operations on March 31,
1984. Bancorp has one wholly-owned subsidiary, the Columbia County Farmers
National Bank (the "Bank"). Bancorp's business has consisted primarily of
managing and supervising the Bank, and its principal source of income has been
dividends paid by the Bank. At December 31, 1996, Bancorp had total consolidated
assets, deposits and stockholders' equity of approximately $170 million, $131
million and $21 million, respectively.
The Bank was organized in 1917. The Bank is a national banking
association that is a member of the Federal Reserve System and the deposits of
which are insured by the Federal Deposit Insurance Corporation (the "FDIC")
under the Bank Insurance Fund ("BIF"). As of December 31, 1996, the Bank has 6
branch locations, including its main office in Bloomsburg, Pennsylvania. All of
the Bank's offices are located in Columbia County, Pennsylvania. The Bank is a
full service commercial bank providing a wide range of services to individuals
and small to medium sized businesses in its north eastern Pennsylvania market
area, including accepting time, demand, and savings deposits and making secured
and unsecured commercial, real estate and consumer loans. In addition, the Bank
has a trust department.
Supervision and Regulation - Bancorp
Bancorp is subject to the jurisdiction of the Securities and
Exchange Commission ("SEC") relating to the offering and sale of its securities.
Bancorp is currently subject to the SEC's rules and regulations relating to
periodic reporting, insider trading reports and proxy solicitation material in
accordance with the Securities Exchange Act of 1934 (the "Exchange Act").
Furthermore, Bancorp qualifies as a "small business issuer" as that term is
defined under Item 10 of Regulation S-B of the SEC, and has elected to make its
SEC filings under the disclosure requirements afforded to small business
issuers.
Bancorp is also subject to the provisions of the Bank Holding
Company Act of 1956, as amended ("Bank Holding Company Act"), and to supervision
by the Federal Reserve Board. The Bank Holding Company Act will require Bancorp
to secure the prior approval of the Federal Reserve Board before it owns or
controls, directly or indirectly, more than 5% of the voting shares of
substantially all of the assets of any institution, including another bank. The
Bank Holding Company Act prohibits acquisition by Bancorp of more than 5% of the
voting shares of, or interest
3
<PAGE> 4
in, or substantially all of the assets of, any bank located outside Pennsylvania
unless such an acquisition is specifically authorized by laws of the state in
which such bank is located.
A bank holding company is prohibited from engaging in or
acquiring direct or indirect control of more than 5% of the voting shares of any
company engaged in non-banking activities unless the Federal Reserve Board, by
order or regulation, has found such activities to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto. In
making this determination, the Federal Reserve Board considers whether the
performance of these activities by a bank holding company would offer benefits
to the public that outweigh possible adverse effects.
The Bank Holding Company Act also prohibits acquisitions of
control of a bank holding company, such as Bancorp, without prior notice to the
Federal Reserve Board. Control is defined for this purpose as the power,
directly or indirectly, to direct the management or policies of a bank holding
company or to vote twenty-five percent (25%) (or ten percent (10%), if no other
person or persons acting on concert, holds a greater percentage of the Common
Stock) or more of Bancorp's Common Stock.
Bancorp is required to file an annual report with the Federal
Reserve Board and any additional information that the Federal Reserve Board may
require pursuant to the Bank Holding Company Act. The Federal Reserve Board may
also make examinations of Bancorp and any or all of its subsidiaries. Subject to
certain exceptions, a bank holding company and its subsidiaries are generally
prohibited from engaging in certain tie-in arrangements in connection with any
extension of credit or provision of credit or provision of any property or
services. The so-called "Anti-tie-in" provisions state generally that a bank may
not extend credit, lease, sell property or furnish any service to a customer on
the condition that the customer provide additional credit or service to the
bank, to its bank holding company or to any other subsidiary of its bank holding
company or on the condition that the customer not obtain other credit or service
from a competitor of the bank, its bank holding company or any subsidiary of its
bank holding company.
Subsidiary banks of a bank holding company are subject to
certain restrictions imposed by the Federal Reserve Act on any extensions of
credit to the bank holding company or any of its subsidiaries, on investments in
the stock or other securities of the bank holding company and on taking of such
stock or securities as collateral for loans to any borrower.
Permitted Non-Banking Activities
The Federal Reserve Board permits bank holding companies to
engage in non-banking activities so closely related to banking, managing or
controlling banks as to be a proper incident thereto. While the types of
permissible activities are subject to change by the Federal Reserve Board, the
principal non-banking activities that presently may be conducted by a bank
holding company, without prior approval of the Federal Reserve Board, are:
4
<PAGE> 5
1. Making, acquiring or servicing loans and other extensions
of credit for its own account or for the account of others, such as would be
made by the following types of companies: consumer finance, credit card,
mortgage, commercial finance and factoring.
2. Operating as an industrial bank, Morris Plan bank or
industrial loan company in the manner authorized by state law so long as the
institution does not accept demand deposits or make commercial loans.
3. Operating as a trust company in the manner authorized by
federal or state law so long as the institution does not make certain types of
loans or investments or accept deposits, except as may be permitted by the
Federal Reserve Board.
4. Subject to certain limitations, acting as an investment or
financial advisor to investment companies and other persons.
5. Leasing personal and real property or acting as agent,
broker, or advisor in leasing property, provided that it is reasonably
anticipated that the transaction will compensate the lessor for not less than
the lessor's full investment in the property and provided further that the
lessor may rely on estimated residual values of up to 100% of the acquisition
cost of the leased property.
6. Making equity and debt investments in corporations or
projects designed primarily to promote community welfare, such as the economic
rehabilitation and development of low-income areas by providing housing,
services or jobs for residents.
7. Providing to others financially oriented data processing or
bookkeeping services.
8. Subject to certain limitations: (a) acting as an insurance
principal, agent or broker in relation to insurance for itself and its
subsidiaries or for insurance directly related to extensions of credit by the
bank holding company system; (b) acting as agent or broker for insurance
directly related to an extension of credit by a finance company, that is a
subsidiary; and (c) engaging in any insurance agency activity in a place where
the bank holding company or a subsidiary of the bank holding company has a
lending office and that: (1) has a population not exceeding 5,000 and (2) has
inadequate insurance agency facilities.
9. Owning, controlling or operating a savings association, if
the savings association engages only in deposit taking activities and lending,
and other activities permissible for bank holding companies.
10. Providing courier services of a limited character.
11. Subject to certain limitations, providing management
consulting advice to nonaffiliated banks and nonbank depository institutions.
5
<PAGE> 6
12. Selling money orders having a face value of $1,000 or
less, travelers' checks and United States savings bonds.
13. Performing appraisals of real estate and personal
property, including securities.
14. Subject to certain conditions, acting as intermediary for
the financing of commercial or industrial income-producing real estate by
arranging for the transfer of the title, control and risk of such a real estate
project to one or more investors.
15. Subject to certain limitations, providing full-service
brokerage and financial advisory activities; and selling, solely as an agent or
broker for customers, shares of investment companies advised by an affiliate of
the bank holding company or providing investment advice to customers about the
purchase and sale of shares of investment companies advised by an affiliate of
the bank holding company.
16. Underwriting and dealing in obligations of the United
States, general obligations of states and their political subdivisions and other
obligations such as bankers' acceptances and certificates of deposits.
17. Subject to certain limitations, providing by any means,
general information and statistical forecasting with respect to foreign exchange
markets; advisory services designed to assist customers in monitoring,
evaluating and managing their foreign exchange exposures; and certain
transactional services with respect to foreign exchange.
18. Subject to certain limitations, acting as a futures
commission merchant in the execution and clearance on major commodity exchanges
of futures contracts and options on futures contracts for bullion, foreign
exchange, government securities, certificates of deposit and other money market
instruments.
19. Subject to certain limitations, providing commodity
trading and futures commission merchant advice, including counsel, publications,
written analysis and reports.
20. Providing consumer financial counseling that involves
counseling, educational courses and distribution of instructional materials to
individuals on consumer-oriented financial management matters, including debt
consolidation, mortgage applications, bankruptcy, budget management, real estate
tax shelters, tax planning, retirement and estate planning, insurance and
general investment management, so long as this activity does not include the
sale of specific products or investments.
21. Providing tax planning and preparation advice such as
strategies designed to minimize tax liabilities and includes, for individuals,
analysis of the tax implications of retirement plans, estate planning and family
trusts. For a corporation, tax planning includes the analysis of the tax
implications of mergers and acquisitions, portfolio mix, specific investments,
previous tax
6
<PAGE> 7
payments and year-end tax planning. Tax preparation involves the preparation of
tax forms and advice concerning liability based on records and receipts supplied
by the client.
22. Providing check guaranty services to subscribing
merchants.
23. Subject to certain limitations, operating a collection
agency.
24. Operating a credit bureau that maintains files on the past
credit history of consumers and providing such information to a lender that is
considering a borrower's application for credit, provided that the credit bureau
does not grant preferential treatment to an affiliated bank in the bank holding
company system.
Pennsylvania Banking Law
Under the Pennsylvania Banking Code of 1965, as amended (the
"Code"), Bancorp is permitted to control an unlimited number of banks. However,
Bancorp would be required, under the Bank Holding Company Act, to obtain the
prior approval of the Federal Reserve Board before it could acquire all or
substantially all of the assets of any bank, or acquire ownership or control of
any voting shares of any bank other than the Bank, if, after such acquisition,
it would own or control more than five percent (5%) of the voting shares of such
bank.
Interstate Banking and Branching
The following discussion describes those provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act") that would pertain to Bancorp. It is not an exhaustive
description of all provisions of the Interstate Banking Act.
In general, the Federal Reserve Board may approve an
application by Bancorp to acquire control of, or acquire all or substantially
all of the assets of, a bank located outside of the Commonwealth of Pennsylvania
without regard to whether such acquisition is prohibited under the law of any
state, but subject to certain state law restrictions and requirements enumerated
in the Interstate Banking Act. The Federal Reserve Board may approve such
application if it finds, among other things, that Bancorp is "adequately
capitalized" and "adequately managed." Moreover, the Federal Reserve Board may
not approve such acquisition if the target bank has not been in existence for
the minimum period of time, if any, required by such target bank's "home" state.
The Federal Reserve Board may, however, approve the acquisition of the target
bank that has been in existence for at least five years without regard to any
longer minimum period of time required under the law of the "home" state of the
target bank.
Furthermore, the Interstate Banking Law provides that,
beginning June 1, 1997, appropriate federal supervisory agencies may approve a
merger of the Bank with another bank located in a different state or the
establishment by the Bank of a new branch office either by acquisition or de
novo, unless the Commonwealth of Pennsylvania enacts a law prior to June 1,
1997, allowing an interstate merger or expressly prohibiting merger with an
out-of-state bank. The Commonwealth of Pennsylvania has enacted a law to
"opt-in" early of interstate mergers.
7
<PAGE> 8
Moreover, the Interstate Banking Law provides that the Bank
may establish and operate a de novo branch in any state that "opts-in" to de
novo branching. A "de novo branch" is a branch office that is originally
established as a branch and does not become a branch as a result of an
acquisition or merger. The Commonwealth of Pennsylvania has enacted a law to
"opt-in" early to de novo interstate branching.
As of May 2, 1996, the State Bank Supervisors of the states of
Alabama, Delaware, Maryland, New Jersey and North Carolina and the Commonwealths
of Pennsylvania and Virginia executed a Cooperative Agreement which governs the
manner in which state-chartered banks with branches in multiple states will be
supervised. This Cooperative Agreement was necessitated by the Interstate
Banking Law and was drafted to create a level playing field for state-chartered
banks with respect to supervision and regulation of branch offices in a multiple
state setting. Specifically, this agreement outlines general principles for
determining whether home or host state law applies, including the following: (1)
host state law applies to operational issues relating to a branch located in a
host state, including antitrust, community reinvestment, consumer protection,
usury and fair lending laws; (2) the state law of the home state will apply to
corporate structure issues, such as, charter, by-laws, incorporation,
liquidation, stockholders and directors, capital and investments; and (3) bank
powers issues will be resolved with reference to both home and host state laws.
The Bank is a national association and is governed by, among other laws and
regulations, the National Bank Act and regulations promulgated by the
Comptroller of the Currency. Therefore, the Cooperative Agreement does not apply
to the Bank.
As of the filing date of this report, Bancorp and the Bank
have no plans to engage in interstate banking or branching.
Legislation and Regulatory Changes
From time to time, legislation is enacted which has the effect
of increasing the cost of doing business, limiting or expanding permissible
activities or affecting the competitive balance between banks and other
financial institutions. Proposals to change the laws and regulations governing
the operations and taxation of banks, bank holding companies and other financial
institutions are frequently made in Congress, and before various bank regulatory
agencies. No prediction can be made as to the likelihood of any major changes or
the impact such changes might have on Bancorp and its subsidiary bank. Certain
changes of potential significance to Bancorp which have been enacted or
promulgated, as the case may be, by Congress or various regulatory agencies,
respectively, are discussed below.
Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA")
On August 9, 1989, major reform and financing legislation,
i.e., FIRREA, was enacted into law in order to restructure the regulation of the
thrift industry, to address the financial condition of the Federal Savings and
Loan Insurance Corporation and to enhance the supervisory and enforcement powers
of the Federal bank and thrift regulatory agencies. The Office of the
Comptroller of the Currency ("OCC"), as the primary Federal regulator of the
Bank, is primarily responsible for supervision of the Bank. The OCC and FDIC
have far greater flexibility to impose
8
<PAGE> 9
supervisory agreements on an institution that fails to comply with its
regulatory requirements, particularly with respect to the capital requirements.
Possible enforcement actions include the imposition of a capital plan,
termination of deposit insurance and removal or temporary suspension of an
officer, director or other institution-affiliated party.
Under FIRREA, civil penalties are classified into three
levels, with amounts increasing with the severity of the violation. The first
tier provides for civil penalties of up to $5,000 per day for any violation of
law or regulation. A civil penalty of up to $25,000 per day may be assessed if
more than a minimal loss or a pattern of misconduct is involved. Finally, a
civil penalty of up to $1.0 million per day may be assessed for knowingly or
recklessly causing a substantial loss to an institution or taking action that
results in a substantial pecuniary gain or other benefit. Criminal penalties are
increased to $1.0 million per violation, up to $5.0 million for continuing
violations or for the actual amount of gain or loss. These monetary penalties
may be combined with prison sentences for up to five years.
Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA")
General. The FDICIA reformed a variety of bank regulatory
laws. Certain of these provisions are discussed below.
Examinations and Audits. Annual full-scope, on-site
examinations are required for all FDIC-insured institutions with assets of $500
million or more. For bank holding companies with $500 million or more in assets,
the independent accountants of such companies shall attest to the accuracy of
management's report. Such accountants shall also monitor management's compliance
with governing laws and regulations. Such companies are also required to select
an independent audit committee composed of outside directors who are independent
of management, to review with management and the independent accountants the
reports that must be submitted to the appropriate bank regulatory agencies. If
the independent accountants resign or are dismissed, written notification must
be given to the FDIC and to the appropriate federal and state bank regulatory
agency.
Prompt Corrective Action. In order to reduce losses to the
deposit insurance funds, the FDICIA established a format to more closely monitor
FDIC-insured institutions and to enable prompt corrective action by the
appropriate federal supervisory agency if an institution begins to experience
any difficulty. The FDICIA established five "Capital" categories. They are: (1)
well-capitalized; (2) adequately capitalized; (3) undercapitalized; (4)
significantly undercapitalized; and (5) critically undercapitalized. The overall
goal of these new capital measures is to impose more scrutiny and operational
restrictions on depository institutions as they descend the capital categories
from well capitalized to critically undercapitalized.
The FDIC, the OCC, the Federal Reserve Board and the Office of
Thrift Supervision have issued jointly final regulations relating to these
capital categories and prompt corrective action. These capital measures for
prompt corrective action are defined as follows:
9
<PAGE> 10
A "well-capitalized" institution would be one that has at
least a 10% total risk-based capital ratio, a 6% or greater Tier I risk-based
capital ratio, a 5% or greater Tier I leverage capital ratio, and is not subject
to any written order or final directive by the FDIC to meet and maintain a
specific capital level.
An "adequately capitalized" institution would be one that
meets the required minimum capital levels, but does not meet the definition of a
"well-capitalized" institution. The existing capital rules generally require
banks to maintain a Tier I leverage capital ratio of at least 4% and an 8% or
greater total risk-based capital ratio. Since the risk-based standards also
require at least half of the total risk-based capital requirement to be in the
form of Tier I capital, this also will mean that an institution would need to
maintain at least a 4% Tier I risk-based capital ratio. Thus, an institution
would need to meet each of the required minimum capital levels in order to be
deemed "adequately capitalized."
An "undercapitalized" institution would fail to meet one or
more of the required minimum capital levels for an "adequately capitalized"
institution. An "undercapitalized" institution must file a capital restoration
plan and is automatically subject to restrictions on dividends, management fees
and asset growth. In addition, the institution is prohibited from making
acquisitions, opening new branches or engaging in new lines of business without
the prior approval of its primary federal regulator. A number of other
discretionary restrictions also may be imposed on a case-by-case basis, and
harsher restrictions that otherwise would apply to "significantly
undercapitalized" institutions may be imposed on an "undercapitalized"
institution that fails to file or implement an acceptable capital restoration
plan.
A "significantly undercapitalized" institution would have a
total risk-based capital ratio of less than 6%, a Tier I risk-based capital
ratio of less than 3%, or a Tier I leverage capital ratio of less than 3%, as
the case may be. Institutions in this category would be subject to all the
restrictions that apply to "undercapitalized" institutions. Certain other
mandatory prohibitions also would apply, such as restrictions against the
payment of bonuses or raises to senior executive officers without the prior
approval of the institution's primary federal regulator. A number of other
restrictions may be imposed.
A "critically undercapitalized" institution would be one with
a tangible equity (Tier I capital) ratio of 2% or less. In addition to the same
restrictions and prohibitions that apply to "undercapitalized" and
"significantly undercapitalized" institutions, the FDIC's rule implementing this
provision of FDICIA also addresses certain other provisions for which the FDIC
has been accorded responsibility as the insurer of depository institutions.
At a minimum, any institution that becomes "critically undercapitalized" is
prohibited from taking the following actions without the prior written approval
of its primary federal supervisory agency: engaging in any material transactions
other than in the usual course of business; extending credit for highly
leveraged transactions ("HLTs"); amending its charter or bylaws; making any
material changes in accounting methods; engaging in certain transactions with
affiliates; paying excessive compensation or bonuses; and paying interest on
liabilities exceeding the prevailing rates in the
10
<PAGE> 11
institution's market area. In addition, a "critically undercapitalized"
institution is prohibited from paying interest or principal on its subordinated
debt and is subject to being placed in conservatorship or receivership if its
tangible equity capital level is not increased within certain mandated time
frames.
At any time, an institution's primary federal supervisory
agency may reclassify it into a lower capital category. All institutions are
prohibited from declaring any dividends, making any other capital distribution,
or paying a management fee if it would result in downward movement into any of
the three undercapitalized categories. The FDICIA provides an exception to this
requirement for stock redemptions that do not lower an institution's capital and
would improve its financial condition, if the appropriate federal supervisory
agency has consulted with the FDIC and approved the redemption.
The regulation requires institutions to notify the FDIC
following any material event that would cause such institution to be placed in a
lower category. Additionally, the FDIC monitors capital levels through call
reports and examination reports.
Deposit Insurance. As a result of the special assessment due
on October 1, 1996 and required by the Deposit Insurance Funds Act of 1996 (the
"Funds Act"), the Savings Association Insurance Fund ("SAIF") was capitalized at
the Designated Reserve Rate of 1.25 percent of estimated insured deposits on
October 1, 1996. The FDIC has, therefore, lowered the rates on assessments paid
to the SAIF. Effective January 1, 1997, the Funds Act separates the Financing
Corporation ("FICO") assessment to service the interest on its bond obligations
from the SAIF and BIF deposit insurance assessments. The amount assessed on the
Bank by the FICO will be in addition to any amount paid for deposit insurance.
FICO assessment rates for the first semi-annual period of 1997 were set at 1.3
basis points annually for BIF-assessable deposits (which are the type of
deposits held by the Bank) and 6.48 basis points annually for SAIF-assessable
deposits. The FICO rate on BIF-assessable deposits must be one-fifth the rate on
SAIF-assessable deposits until the BIF and SAIF are merged or until January 1,
2000, whichever occurs first.
Real Estate Lending Standards. Pursuant to the FDICIA, the OCC
and other federal banking agencies adopted real estate lending guidelines which
would set loan-to-value ("LTV") ratios for different types of real estate loans.
A LTV ratio is generally defined as the total loan amount divided by the
appraised value of the property at the time the loan is originated. If the
institution does not hold a first lien position, the total loan amount would be
combined with the amount of all senior liens when calculating the ratio. In
addition to establishing the LTV ratios, the guidelines require all real estate
loans to be based upon proper loan documentation and a recent appraisal of the
property.
Bank Enterprise Act of 1991. Within the overall FDICIA is a
separate subtitle called the "Bank Enterprise Act of 1991." The purpose of this
Act is to encourage banking institutions to establish "basic transaction
services for consumers" or so-called "lifeline accounts." The FDIC assessment
rate is reduced for all lifeline depository accounts. This Act establishes ten
(10) factors which are the minimum requirements to qualify as a lifeline
depository account. Some of these factors relate to minimum opening and balance
amounts, minimum number of monthly withdrawals,
11
<PAGE> 12
the absence of discriminatory practices against low-income individuals and
minimum service charges and fees. Moreover, the Housing and Community
Development Act of 1972 requires that the FDIC's risk-based assessment system
include provisions regarding life-line accounts. Assessment rates applicable to
life-line accounts are to be established by FDIC rule.
Truth in Savings Act. The FDICIA also contains the Truth in
Savings Act ("TSA"). The Federal Reserve Board has adopted regulations
("Regulation DD") under the TSA. The purpose of TSA is to require the clear and
uniform disclosure of the rates of interest which are payable on deposit
accounts by depository institutions and the fees that are assessable against
deposit accounts, so that consumers can make a meaningful comparison between the
competing claims of banks with regard to deposit accounts and products. In
addition to disclosures to be provided when a customer establishes a deposit
account, TSA requires the depository institution to include, in a clear and
conspicuous manner, the following information with each periodic statement of a
deposit account: (1) the annual percentage yield earned; (2) the amount of
interest earned; (3) the amount of any fees and charges imposed; and (4) the
number of days in the reporting period. TSA allows for civil lawsuits to be
initiated by customers if the depository institution violates any provision or
regulation under TSA.
Regulatory Capital Requirements
The following table presents Bancorp's consolidated capital
ratios at December 31, 1996.
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
Tier I Capital ............................................. $ 20,588
Tier II Capital ............................................ 21,499
Total Capital .............................................. 20,657
Adjusted Total Average Assets .............................. $ 164,512
Total Adjusted Risk-Weighted Assets(1) ..................... 94,695
Tier I Risk-Based Capital Ratio(2) ......................... 21.74%
Required Tier I Risk-Based Capital Ratio ................... 4.00%
Excess Tier I Risk-Based Capital Ratio ..................... 17.74%
Total Risk-Based Capital Ratio(3) .......................... 22.70%
Required Total Risk-Based Capital Ratio .................... 8.00%
Excess Total Risk-Based Capital Ratio ...................... 14.70%
Tier I Leverage Ratio(4) ................................... 12.22%
Required Tier I Leverage Ratio ............................. 3.00%
Excess Tier I Leverage Ratio ............................... 9.22%
</TABLE>
- ------------------------------
(1) Includes off-balance sheet items at credit-equivalent values less
intangible assets.
(2) Tier I Risk-Based Capital Ratio is defined as the ratio of Tier I
Capital to Total Adjusted Risk-Weighted Assets.
12
<PAGE> 13
(3) Total Risk-Based Capital Ratio is defined as the ratio of Tier I and
Tier II Capital to Total Adjusted Risk-Weighted Assets.
(4) Tier I Leverage Ratio is defined as the ratio of Tier I Capital to
Adjusted Total Average Assets.
Bancorp's ability to maintain the required levels of capital
is substantially dependent upon the success of Bancorp's capital and business
plans; the impact of future economic events on Bancorp's loan customers; and
Bancorp's ability to manage its interest rate risk and investment portfolio and
control its growth and other operating expenses.
Effect of Government Monetary Policies
The earnings of Bancorp are and will be affected by domestic
economic conditions and the monetary and fiscal policies of the United States
government and its agencies.
The monetary policies of the Federal Reserve Board have had,
and will likely continue to have, an important impact on the operating results
of commercial banks through its power to implement national monetary policy in
order, among other things, to curb inflation or combat a recession. The Federal
Reserve Board has a major effect upon the levels of bank loans, investments and
deposits through its open market operations in United States government
securities and through its regulations of, among other things, the discount rate
on borrowings of member banks and the reserve requirements against member bank
deposits. It is not possible to predict the nature and impact of future changes
in monetary and fiscal policies.
History and Business - Bank
The Bank's legal headquarters are located at 232 East Street,
Bloomsburg, Pennsylvania.
As of December 31, 1996, the Bank had total assets of $170
million, total shareholders' equity of $21 million and total deposits and other
liabilities of $131 million.
The Bank is a community bank which seeks to provide personal
attention and professional financial assistance to its customers. The Bank is a
locally managed and locally oriented financial institution established to serve
the needs of individuals and small and medium-sized businesses. The Bank's
business philosophy includes offering direct access to its President and other
officers and providing friendly, informed and courteous service, local and
timely decision making, flexible and reasonable operating procedures, and
consistently-applied credit policies.
The Bank is a full-service commercial bank offering a range of
commercial and retail banking services to its clients. These include personal
and business checking and savings accounts, certificates of deposit, and
mortgage, home equity and commercial loans. In addition, the Bank provides safe
deposit boxes, traveler's checks, wire transfers of funds, and certain personal,
corporate and pension trust services. The Bank is a member of the MAC system and
provides clients with access to this automated teller machine network. The Bank
also makes credit cards available to its
13
<PAGE> 14
customers. In addition, the Bank has a trust department that provides
traditional fiduciary services to its clients.
The Bank solicits small and medium-sized businesses located
primarily within the Bank's market area that typically borrow in the $25,000 to
$1.0 million range. In the event that certain loan requests may exceed the
Bank's lending limit to any one customer, the Bank seeks to arrange such loans
on a participation basis with other financial institutions.
Market Area
The Bank's primary market area is Columbia County, a 484
square mile area located in north eastern Pennsylvania with a population of
approximately 63,200 based on 1990 census data. The Town of Bloomsburg is the
County's largest municipality and its center of industry and commerce.
Bloomsburg has a population of approximately 12,400 based on 1990 census data,
and is the county seat. Berwick, located on the eastern boundary of the County,
is the second largest municipality, with a 1990 population of approximately
11,000. The Bank currently serves its market area through six branch offices
located in Bloomsburg, Benton, Lightstreet, Millville, Orangeville and South
Centre, Columbia County.
The Bank competes with six other commercial banks and two
thrift institutions in Columbia County. The Bank's major competitors are: First
National Bank of Berwick; PNC Bank, N.A., the largest commercial bank in
Pennsylvania; and First Columbia Bank and Trust Company of Bloomsburg,
Pennsylvania. Both PNC Bank, N.A. and First National Bank of Berwick have
greater financial resources than the Bank.
The Bank's extended market area includes the adjacent
Pennsylvania counties of Luzerne, Montour, Northumberland, Schuylkill and
Sullivan.
Supervision and Regulation - Bank
The operations of the Bank are subject to federal and state
statutes applicable to banks chartered under the banking laws of the United
States, to members of the Federal Reserve System and to banks whose deposits are
insured by the FDIC. Bank operations are also subject to regulations of the OCC,
the Federal Reserve Board and the FDIC.
The primary supervisory authority of the Bank is the OCC, that
regularly examines the Bank. The OCC has the authority under the Financial
Institutions Supervisory Act to prevent a national bank from engaging in an
unsafe or unsound practice in conducting its business.
Federal and state banking laws and regulations govern, among
other things, the scope of a bank's business, the investments a bank may make,
the reserves against deposits a bank must maintain, loans a bank makes and
collateral it takes, the activities of a bank with respect to mergers and
consolidations and the establishment of branches. All banks in Pennsylvania are
permitted to maintain branch offices in any county of the state. Branches of
national banks may be established only after approval by the OCC. The OCC is
required to grant approval only if it finds that there is
14
<PAGE> 15
a need for banking services or facilities such as are contemplated by the
proposed branch. The OCC may disapprove the application if the bank does not
have the capital and surplus deemed necessary by the OCC, or if the application
relates to the establishment of a branch in a county contiguous to the county in
which the applicant's principal place of business is located, and another
banking institution that has its principal place of business in the county in
which the proposed branch would be located, has in good faith, notified the OCC
of its intention to establish a branch in the same municipal location in which
the proposed branch would be located.
Multi-bank holding companies are permitted in Pennsylvania
within certain limitations. See sections entitled "Pennsylvania Banking Law" and
"Interstate Banking and Branching."
A subsidiary bank of a bank holding company is subject to
certain restrictions imposed by the Federal Reserve Act on any extensions of
credit to the bank holding company or its subsidiaries, on investments in the
stock or other securities of the bank holding company or its subsidiaries and on
taking such stock or securities as collateral for loans. The Federal Reserve Act
and Federal Reserve Board regulations also place certain limitations and
reporting requirements on extensions of credit by a bank to principal
shareholders of its parent holding company, among others, and to related
interests of such principal shareholders. In addition, such legislation and
regulations may affect the terms upon which any person becoming a principal
shareholder of a holding company may obtain credit from banks with which the
subsidiary bank maintains a correspondent relationship.
Federal law also prohibits acquisitions of control of a bank
holding company without prior notice to certain federal bank regulators. Control
is defined for this purpose as the power, directly or indirectly, to influence
the management or policies of the bank or bank holding company or to vote
twenty-five percent (25%) or more of any class of voting securities of the bank
holding company.
From time to time, various types of federal and state
legislation have been proposed that could result in additional regulations of,
and restrictions on, the business of the Bank. It cannot be predicted whether
any such legislation will be adopted or how such legislation would affect the
business of the Bank. As a consequence of the extensive regulation of commercial
banking activities in the United States, the Bank's business is particularly
susceptible to being affected by federal legislation and regulations that may
increase the costs of doing business.
Under the Federal Deposit Insurance Act, the OCC possesses the
power to prohibit institutions regulated by it (such as the Bank) from engaging
in any activity that would be an unsafe and unsound banking practice and in
violation of the law. Moreover, the Financial Institutions and Interest Rate
Control Act of 1987 ("FIRA") generally expands the circumstances under which
officers or directors of a bank may be removed by the institution's federal
supervisory agency; restricts lending by a bank to its executive officers,
directors, principal shareholders or related interests thereof; restricts
management personnel of a bank from serving as directors in other management
positions with certain depository institutions whose assets exceed a specified
amount or which have an office within a specified geographic area; and restricts
management personnel from borrowing from another institution that has a
correspondent relationship with their bank.
15
<PAGE> 16
Additionally, FIRA requires that no person may acquire control of a bank unless
the appropriate federal supervisory agency has been given 60-days prior written
notice and within that time has not disapproved the acquisition or extended the
period for disapproval.
Under the Bank Secrecy Act ("BSA"), the Bank is required to
report to the Internal Revenue Service currency transactions of more than
$10,000 or multiple transactions of which the Bank is aware in any one day that
aggregate in excess of $10,000. Civil and criminal penalties are provided under
the BSA for failure to file a required report, for failure to supply information
required by the BSA or for filing a false or fraudulent report.
The Garn-St Germain Depository Institutions Act of 1982 ("1982
Act"), removes certain restrictions on the lending powers and liberalizes the
depository abilities of the Bank. The 1982 Act also amends FIRA (see above) by
eliminating certain statutory limits on lending of a bank to its executive
officers, directors, principal shareholders or related interests thereof and by
relaxing certain reporting requirements. However, the 1982 Act strengthened FIRA
provisions respecting management interlocks and correspondent bank relationships
by management personnel.
Community Reinvestment Act
The Community Reinvestment Act of 1977, as amended (the
"CRA"), and the regulations promulgated to implement the CRA are designed to
create a system for bank regulatory agencies to evaluate a depository
institution's record in meeting the credit needs of its community. Until May
1995, a depository institution was evaluated for CRA compliance based upon 12
assessment factors.
The CRA regulations were completely revised as of May 4, 1995,
to establish new performance-based standards for use in examining a depository
institution's compliance with the CRA (the "revised CRA regulations"). The
revised CRA regulations establish new tests for evaluating both small and large
depository institutions' investment in the community. A "small bank" is defined
as a bank which has total assets of less than $250 million and is independent or
is an affiliate of a holding company with less than $1 billion in assets.
Pursuant to the revised CRA regulations, a depository institution which
qualifies as a "small bank" will be examined under a streamlined procedure which
emphasizes lending activities. The streamlined examination procedures for a
small bank became effective on January 1, 1996.
A large retail institution is one which does not meet the
"small bank" definition, above. A large retail institution can be evaluated
under one of two tests: (1) a three-part test evaluating the institution's
lending, service and investment performance; or (2) a "strategic plan" designed
by the institution with community involvement and approved by the appropriate
federal bank regulator. A large institution must choose one of these options
prior to July 1997, but may opt to be examined under one of these two options
prior to that time. Effective January 1, 1996, a large retail institution that
opts to be examined pursuant to a strategic plan may submit its strategic plan
to the bank regulators for approval.
16
<PAGE> 17
In addition, the revised CRA regulations include separate
rules regarding the manner in which "wholesale banks" and "limited purpose
banks" will be evaluated for compliance.
The new CRA regulations will be phased in over a two-year
period, beginning July 1, 1995, with a final effective date of July 1, 1997.
Until the applicable test is phased in, institutions may be examined under the
prior CRA regulations.
On December 27, 1995, the federal banking regulators issued a
joint final rule containing technical amendments to the revised CRA regulations.
Specifically, the recent technical amendments clarify the various effective
dates in the revised CRA regulations, correct certain cross references and state
that once an institution becomes subject to the requirements of the revised CRA
regulations, it must comply with all aspects of the revised CRA regulations,
regardless of the effective date of certain provisions. Similarly, once an
institution is subject to the revised CRA regulations, the prior CRA regulations
do not apply to that institution.
For the purposes of the revised CRA regulations, the Bank is
deemed to be a small depository institution, based upon financial information as
of December 31, 1996. In the future, the Bank will be evaluated for CRA
compliance using the streamlined procedures for a small bank. Under the 12
assessment factors contained in the prior CRA regulations, the Bank received a
"satisfactory" rating in 1995. The Bank expects to receive a rating under the
revised CRA regulations which is consistent with its rating last year.
Concentration
Bancorp and the Bank are not dependent for deposits nor
exposed by loan concentrations to a single customer or to a small group of
customers the loss of any one or more of which would have a materially adverse
effect on the financial condition of Bancorp or the Bank.
ITEM 2. DESCRIPTION OF PROPERTY
Bancorp owns no property other than through the Bank as
follows:
<TABLE>
<CAPTION>
Type of Square
Property Location Ownership Footage Use
- -------- -------- --------- ------- ---
<S> <C> <C> <C> <C>
1 Orangeville, PA Owned 2,259 Banking services.
2 Benton, PA Owned 4,672 Banking services.
3 South Centre, PA Owned 3,868 Banking services.
4 Bloomsburg, PA Owned 11,686 Banking services.
5 Scott Township, PA Owned 16,500 Banking services, corporate,
credit and operations.
6 Millville, PA Owned 2,520 Banking services.
</TABLE>
17
<PAGE> 18
It is management's opinion that the facilities currently
utilized are suitable and adequate for current and immediate future purposes.
ITEM 3. LEGAL PROCEEDINGS
General
The nature of Bancorp's and the Bank's business generates a
certain amount of litigation involving matters arising in the ordinary course of
business. However, in the opinion of management of Bancorp and the Bank, there
are no proceedings pending to which Bancorp and the Bank is a party or to which
their property is subject, which, if determined adversely to Bancorp and the
Bank, would be material in relation to Bancorp's and the Bank's undivided
profits or financial condition, nor are there any proceedings pending other than
ordinary routine litigation incident to the business of Bancorp and the Bank. In
addition, no material proceedings are pending or are known to be threatened or
contemplated against Bancorp and the Bank by government authorities or others.
Environmental Issues
There are several federal and state statutes that govern the
obligations of financial institutions with respect to environmental issues.
Besides being responsible under such statutes for its own conduct, a bank also
may be held liable under certain circumstances for actions of borrowers or other
third parties on properties that collateralize loans held by the bank. Such
potential liability may far exceed the original amount of the loan made by the
bank. Currently, the Bank is not a party to any pending legal proceedings under
any environmental statue nor is the Bank aware of any circumstances that may
give rise to liability of the Bank under any such statute.
PART II
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Shares of Bancorp's Common Stock are traded in the
over-the-counter market and "bid" and "asked" quotations regularly appear on the
Over-the-Counter Bulletin Board system under the symbol "CCFN." As of February
28, 1997, six firms were listed on the Over-the-Counter Bulletin Board system as
market makers for Bancorp's Common Stock. The following table sets forth: (1)
the quarterly average bid and asked prices for a share of Bancorp's Common Stock
during the periods indicated as reported by Hopper Soliday & Co., Inc. of
Lancaster, Pennsylvania, one of the market makers of Bancorp's Common Stock, and
(2) quarterly dividends on a share of the Common Stock with respect to each
quarter since January 1, 1995. The following quotations represent prices between
buyers and sellers and do not include retail markup, markdown or commission.
They may not necessarily represent actual transactions.
18
<PAGE> 19
<TABLE>
<CAPTION>
Average Stock Prices
-------------------- Dividends
Bid Asked Declared
--- ----- --------
<S> <C> <C> <C>
1995:
First quarter.................... $14.25 $15.00 $.10
Second quarter................... $14.25 $14.75 $.10
Third quarter.................... $14.50 $15.00 $.10
Fourth quarter................... $15.50 $16.50 $.15
1996:
First quarter.................... $16.25 $17.63 $.10
Second quarter................... $16.42 $17.67 $.10
Third quarter.................... $16.75 $17.84 $.10
Fourth quarter................... $16.79 $17.67 $.15
</TABLE>
As of February 28, 1997, Bancorp had approximately 759
shareholders of record.
Since its formation in 1983 as the parent holding company of
the Bank, Bancorp has paid cash dividends. It is the present intention of
Bancorp's Board of Directors to continue the dividend payment policy, although
the payment of future dividends must necessarily depend upon earnings, financial
condition, appropriate restrictions under applicable law and other factors
relevant at the time the Board of Directors considers any declaration of
dividends. Cash available for the payment of dividends must initially come from
dividends paid by the Bank to Bancorp. Therefore, the restrictions on the Bank's
dividend payments are directly applicable to Bancorp.
Dividend Restrictions on the Bank
The OCC has issued rules governing the payment of dividends by
national banks. Consequently, the Bank (which is subject to these rules) may not
pay dividends from capital (unimpaired common and preferred stock outstanding)
but only from retained earnings after deducting losses and bad debts therefrom.
"Bad debts" are defined as matured obligations in which interest is past due and
unpaid for ninety (90) days, but do not include well-secured obligations that
are in the process of collection.
Previously, the Bank was permitted to add the balances in its
allowance for possible credit and lease losses in determining retained earnings,
but the OCC's new regulations prohibit that practice. However, to the extent
that (1) the Bank has capital surplus in an amount in excess of common capital
and (2) if the Bank can prove that such surplus resulted from prior period
earnings, the Bank, upon approval of the OCC, may transfer earned surplus to
retained earnings and thereby increase its dividend paying capacity.
If, however, the Bank has insufficient retained earnings to
pay a dividend, the OCC's regulations allow the Bank to reduce its capital to a
specified level and to pay dividends upon receipt
19
<PAGE> 20
of the approval of the OCC as well as that of the holders of two thirds of the
outstanding shares of the Common Stock.
The Bank is allowed to pay dividends no more frequently than
quarterly. Moreover, the Bank must obtain the OCC's approval before paying a
dividend if the total of all dividends declared by the Bank in any calendar year
would exceed the total of (1) the Bank's net profits for that year plus (2) its
retained net profits for the immediately preceding two years less (3) any
required transfers to surplus or a fund for the retirement of preferred stock.
The Bank may not pay any dividends on its capital stock during
the period in which it may be in default in the payment of its assessment for
deposit insurance premium due to the FDIC, nor may it pay dividends on Common
Stock until any cumulative dividends on the Bank's preferred stock (if any) have
been paid in full. The Bank has never been in default in the payments of its
assessments to the FDIC; and, moreover, the Bank has no outstanding preferred
stock. In addition, under the Federal Deposit Insurance Act, dividends cannot be
declared and paid if the OCC obtains a cease and desist order because such
payment would constitute an unsafe and unsound banking practice. As of December
31, 1995, there was $2 million in unrestricted retained earnings and net income
available at the Bank that could be paid as a dividend to Bancorp under the
current OCC regulations.
Dividend Restrictions on Bancorp
Under the Pennsylvania Business Corporation Law of 1988, as
amended (the "BCL"), Bancorp may not pay a dividend if, after giving effect
thereto, either (a) Bancorp would be unable to pay its debts as they become due
in the usual course of business or (b) Bancorp's total assets would be less than
its total liabilities. The determination of total assets and liabilities may be
based upon: (i) financial statements prepared on the basis of generally accepted
accounting principles, (ii) financial statements that are prepared on the basis
of other accounting practices and principles that are reasonable under the
circumstances, or (iii) a fair valuation or other method that is reasonable
under the circumstances.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in Bancorp's Annual Report (at
page ___ thereto) filed at Exhibit 13 hereto is incorporated in its entirety by
reference under this Item 6.
ITEM 7. FINANCIAL STATEMENTS
Bancorp's Consolidated Financial Statements and notes thereto
contained in the Annual Report (beginning at page ___ thereto) filed at Exhibit
13 hereto are incorporated in their entirety by reference under this Item 7.
20
<PAGE> 21
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The captions "Information As To Nominees, Directors and
Executive Officers," "Principal Officers of the Corporation," "Principal
Officers of the Bank" and "Section 16(a) Beneficial Ownership Reporting
Compliance" contained in Bancorp's Proxy Statement (at pages ___, ___, ___ and
___ hereof, respectively) filed at Exhibit 99A hereto is incorporated in their
entirety by reference under this Item 9.
ITEM 10. EXECUTIVE COMPENSATION
The caption "Executive Compensation" contained in Bancorp's
Proxy Statement (at pages ___ through ___ hereof) filed at Exhibit 99A hereto is
incorporated in its entirety by reference under this Item 10.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The caption "Principal Beneficial Owners of the Corporation's
Stock" contained in Bancorp's Proxy Statement (at page ___ hereof) filed at
Exhibit 99A hereto is incorporated in its entirety by reference under this Item
11.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Certain Transactions"
contained in Bancorp's Proxy Statement (at page ___ hereof) filed at Exhibit 99A
hereto is incorporated in its entirety by reference under this Item 12.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-B:
<TABLE>
<CAPTION>
Exhibit Number Referred to
Item 601 of Regulation S-B Description of Exhibit
- -------------------------- ----------------------
<S> <C>
2 None.
3 None.
4 None.
9 None.
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
Exhibit Number Referred to
Item 601 of Regulation S-B Description of Exhibit
- -------------------------- ----------------------
<S> <C>
10 None.
11 None.
13 Annual Report to Shareholders for Fiscal Year Ended
December 31, 1996.
16 None.
18 None.
21 List of Subsidiaries of Bancorp.
22 None.
23 None.
24 None.
27 None.
28 None.
99A Proxy Statement, Notice of Annual Meeting and Form
of Proxy for the Annual Meeting of Shareholders to
be held May 6, 1997.
</TABLE>
(b) Reports on Form 8-K.
Bancorp filed no reports on Form 8-K for the quarter ended
December 31, 1996.
22
<PAGE> 23
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CCFNB BANCORP, INC.
(Bancorp)
By: /s/ Paul E. Reichart
------------------------------
Paul E. Reichart
President
Date: March 13, 1997
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
By: /s/ Don E. Bangs
------------------------------
Don E. Bangs
Director and Secretary
Date: March 13, 1997
By: /s/ Stanley Barchik
------------------------------
Stanley Barchik
Director
Date: March 13, 1997
By: /s/ Robert M. Brewington, Jr.
------------------------------
Robert M. Brewington, Jr.
Director
Date: March 13, 1997
23
<PAGE> 24
By: /s/ Edward L. Campbell
------------------------------
Edward L. Campbell
Director
Date: March 13, 1997
By: /s/ Elwood R. Harding, Jr.
------------------------------
Elwood R. Harding, Jr.
Director
Date: March 13, 1997
By: /s/ William F. Hess
------------------------------
William F. Hess
Director and Vice Chairman
of the Board
Date: March 13, 1997
By: /s/ Willard H. Kile, Sr.
------------------------------
Willard H. Kile, Sr.
Director and Chairman of
the Board
Date: March 13, 1997
By: /s/ Charles E. Long
------------------------------
Charles E. Long
Director
Date: March 13, 1997
24
<PAGE> 25
By: /s/ Paul E. Reichart
------------------------------
Paul E. Reichart
Director, President and
Chief Executive Officer
(Chief Executive Officer)
Date: March 13, 1997
By: /s/ Virginia D. Kocher
------------------------------
Virginia D. Kocher
Treasurer
(Principal Financial and
Accounting Officer)
Date: March 13, 1997
25
<PAGE> 26
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Item Number Description Page
- ----------- ----------- ----
<S> <C> <C>
13 Annual Report to Shareholders
for the Fiscal Year Ended
December 31, 1996.............................. 27
21 List of Subsidiaries of Bancorp.................. 66
99A Proxy Statement, Notice of Annual
Meeting and Form of Proxy for
the Annual Meeting of Shareholders
to be held May 6, 1997......................... 67
</TABLE>
26
<PAGE> 1
EXHIBIT 13
ANNUAL REPORT TO SHAREHOLDERS
FOR FISCAL YEAR ENDED DECEMBER 31, 1996
27
<PAGE> 2
[PHOTO]
CCFNB
BANCORP, INC.
AND
SUBSIDIARY
CORPORATION
[PHOTO]
COMMUNITY INVOLVEMENT
[CCFNB BANCORP, INC. LOGO]
Annual
Report
1996
28
<PAGE> 3
CCFNB BANCORP, INC. AND SUBSIDIARY
CCFNB Bancorp, Inc. is a registered bank holding company and organized under
the Pennsylvania business corporation law. The assets are primarily those of its
wholly owned subsidiary, Columbia County Farmers National Bank.
The Columbia County Farmers National Bank (the "Bank") is a full service
nationally-chartered financial institution serving customers from six locations
in Columbia County; namely Orangeville, Bloomsburg, Benton, South Centre,
Millville and Lightstreet. The deposits of the Bank are insured by the Federal
Deposit Insurance Corporation to the maximum extent provided by law.
A copy of the Corporation's Annual Report for the year ended December 31,
1996, on Form 10-KSB as filed with the Securities and Exchange Commission will
be furnished without charge upon written request to Paul E. Reichart, President,
Columbia County Farmers National Bank, 232 East Street, Bloomsburg, Pennsylvania
17815.
CONSOLIDATED SELECTED FINANCIAL DATA
(In thousands of dollars, except per share data and ratios)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
EARNINGS
Interest income $ 11,856 $ 11,481 $ 10,459
Interest expense 5,588 5,557 4,785
Provision for loan losses 80 42 160
Investment securities gains 28 83 55
Net income $ 1,824 $ 1,625 $ 1,565
PER SHARE
Net income $ 1.33 $ 1.19 $ 1.35
Cash dividends .45 .45 .42
BALANCES AT DECEMBER 31
Assets $170,086 $162,066 $157,124
Investment securities 37,407 40,384 39,323
Net loans 114,679 110,919 108,857
Deposits 131,400 128,985 126,864
Stockholders' equity 20,657 19,512 17,650
RATIOS
Return on average assets 1.11% 1.03% 1.03%
Return on average equity 9.35% 8.99% 11.39%
Dividend payout ratio 33.95% 34.35% 31.74%
</TABLE>
CONTENTS
<TABLE>
<S> <C>
Financial Highlights .................................................................... 1
Officers and Directors .................................................................. 2
Message to Shareholders ................................................................. 3
Consolidated Balance Sheets ............................................................. 4
Consolidated Statements of Income ....................................................... 5
Consolidated Statements of Stockholders' Equity ......................................... 6
Consolidated Statements of Cash Flows ................................................... 7
Notes to Consolidated Financial Statements .............................................. 8-20
Report of Independent Certified Public Accountants ...................................... 21
Management's Discussion and Analysis of Financial Condition and Results of Operations ... 22-33
CCFNB Employees ......................................................................... 33
Ten Years in Review (Graphs) ............................................................ 34-35
Market Makers ........................................................................... 36
CCFNB Locations ......................................................................... 36
</TABLE>
29
<PAGE> 4
CCFNB BANCORP, INC. BOARD OF DIRECTORS
- -------------------------------------------------------------------------------
[IMAGE] [IMAGE] [IMAGE]
Paul E. Reichart, William F. Hess, Elwood R. Harding, Jr.,
Willard H. Kile, Sr., Robert M. Brewington, Jr., Edward L. Campbell,
Don E. Bangs Stanley Barchik Charles E. Long
CCFNB MANAGEMENT TEAM CCFNB BANCORP, INC. OFFICERS
- --------------------- ----------------------------
[IMAGE] Willard H. Kile, Sr.
Chairman of the Board
Jacob S. Trump,
Edwin A. Wenner William F. Hess
Paul E. Reichart, Vice Chairman of the Board
Lance O. Diehl,
J. Jan Girton Paul E. Reichart
President and Chief Executive Officer
Don E. Bangs
Secretary of the Board
Virginia D. Kocher
Treasurer and Assistant Secretary
COLUMBIA COUNTY FARMERS NATIONAL BANK OFFICERS
- -------------------------------------------------------------------------------
Willard H. Kile, Sr.
Chairman of the Board
William F. Hess
Vice-Chairman of the Board
Don E. Bangs
Secretary of the Board
Paul E. Reichart
President and Chief Executive Officer
J. Jan Girton
Executive Vice-President,
Chief Operating Officer
and Assistant Secretary
Linda A. Huttenstine
Sr. Vice-President and Cashier
Jacob S. Trump
Sr. Vice-President and
Financial Planning Officer
Edwin A. Wenner
Sr. Vice-President
Lance O. Diehl
Vice-President
Elaine M. Edwards
Vice-President
Dean R. Kelchner
Vice-President
Virginia D. Kocher
Vice-President, Controller
and Assistant Secretary
Lily M. Boudman
Assistant Vice-President
Florence H. Martz
Assistant Vice-President
Gloria M. Miller
Assistant Vice-President
Karen Z. Wenner
Mortgage Loan Officer
Luanne Bittenbender
Training Director and Security Officer
Dolores M. Bennett
Community Officer Manager
Christopher R. Bower
Community Office Manager
Connie L. Yoder
Community Office Manager
Jean E. MacDermott
Customer Service Officer
Kimberly I. Young
Trust Administator
30
<PAGE> 5
TO OUR SHAREHOLDERS:
- -------------------------------------------------------------------------------
[IMAGE]
As I look back on a financially successful year at Columbia County Farmers
National Bank, I am, as always, struck by the human implications of those
numbers. After all, we at CCFNB are simply people serving other people - and
all of us have a stake in achieving success. That is why community involvement
is such an important theme in our business: by providing more and improved
services for our people - and by joining them in other community causes - we
assure ourselves that we are being not only a successful but a responsive
institution.
In 1996, our responsiveness showed in the "bottom line" response of our
customers, in new services, and in our participation in other community causes.
BOTTOM LINE RESPONSIVENESS
Last year was marked by growth and change. The growth, which was
experienced on many levels, positions our Corporation to remain a vigorous,
viable independent bank well into the 21st Century.
- - Assets grew by 4.95% during 1996, from
$162,066,000 in 1995 to $170,086,000 in 1996.
- - Loans grew 3.36%, from $111,832,000 in 1995
to $115,590,000 in 1996.
- - Capital growth of 5.87% was realized from
$19,512,000 in 1995 to $20,657,000 in 1996.
- - Return on average asset: from 1.03% in
1995 to 1.11% in 1996.
- - Return on equity: from 8.99% in 1995 to
9.35% in 1996.
- - Net income increased 12.25%, from $1,625,000
in 1995 to $1,824,000 in 1996.
CHANGES WITHIN
The changes of recent years continued as we settled into new facilities in
Millville and Bloomsburg, introduced our customers to new loan products, and in
October, we restructured our management team.
Changes in the future include the addition of our new Investment Center.
CCFNB will be able to provide retail investment products through this center.
A comprehensive financial plan can be completed for each client, and they will
be able to purchase or sell stocks, bonds, mutual funds, unit investment trusts
and annuities.
On a sad note, we acknowledge with deep regret the death, on April 25, 1996,
of John I. Mather, Vice-Chairman of the Board of Directors of the Corporation
and the Bank. Appointed to the Board in 1962, John served as treasurer of the
Corporation from 1983-85 and Vice-Chairman from 1985 until his death. John will
be remembered not only for his friendship, but for his devotion to the
Corporation.
Robert M. Brewington, Jr., owner of Sutliff Motors in Benton, was elected to
the Board of Directors on April 30, 1996. We welcome Bob to the Board of
Directors of both the Corporation and the Bank.
COMMUNITY CAUSES
Because CCFNB employees live in all of the communities we serve, we
naturally join in to support important area causes, and 1996 was no exception.
During the past year, CCFNB Directors, Officers and employees have offered
their time and talent to a number of organizations including the Bloomsburg
Public Library, Little Fishing Creek Swimming Pool in Millville, Bloomsburg
Area Fire department and the Benton Rodeo, just to name a few. In the years to
come, our commitment will not waiver, and will increase with the growing needs
of the communities.
As we look toward a new year, we appreciate the support of our Directors, our
management team, our employees, our shareholders, and the thousands of area
people who, by using our services, work together with us to make Columbia
County and its surroundings a wonderful place to live.
/s/ Paul E. Reichart
Paul E. Reichart
President
31
<PAGE> 6
CCFNB Bancorp, Inc. And Subsidiary
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 4,502,893 $ 4,086,509
Interest-bearing deposits with other banks 3,856,274 384,684
Federal funds sold 3,000,000 0
INVESTMENT SECURITIES:
Securities available for sale carried at estimated fair value 36,436,880 39,338,728
Securities to be held to maturity, estimated
fair value 1996, $981,013; 1995, $1,062,433 970,000 1,045,000
Loans, net of unearned income 115,589,784 111,831,596
Allowance for loan losses 910,711 912,253
------------ ------------
Net loans $114,679,073 $110,919,343
Premises and equipment 5,294,523 5,081,884
Accrued interest receivable 964,931 849,736
Other assets 381,726 360,176
------------ ------------
Total Assets $170,086,300 $162,066,060
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Non-interest bearing $ 12,280,044 $ 12,050,780
Interest bearing 119,119,992 116,934,492
------------ ------------
Total Deposits $131,400,036 $128,985,272
Short-term borrowings 16,653,981 12,065,571
Long-term borrowings 296,986 364,565
Accrued interest and other expenses 1,057,967 906,675
Other liabilities 20,449 232,232
------------ ------------
Total Liabilities $149,429,419 $142,554,315
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, par value $1.25 per share; authorized
5,000,000 shares; issued 1,381,711 shares 1996 and
1,372,658 shares 1995 $ 1,727,139 $ 1,715,823
Surplus 5,838,453 5,693,849
Retained earnings 13,022,498 11,817,277
Unrealized gain on investment securities available
for sale, net of taxes 68,791 284,796
------------ ------------
Total Stockholders' Equity $ 20,656,881 $ 19,511,745
------------ ------------
Total Liabilities And Stockholders' Equity $170,086,300 $162,066,060
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
[PHOTO]
[PHOTO]
CCFNB employees play
basketball to benefit Camp
Victory.
32
<PAGE> 7
CCFNB Bancorp, Inc. And Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
For Years Ended December 31, 1996, 1995 And 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans:
Taxable $ 9,211,045 $ 8,896,272 $ 8,116,598
Tax exempt 104,994 132,875 82,406
Interest and dividends on investment securities:
Taxable interest 1,779,437 1,725,565 1,641,062
Tax exempt interest 504,808 492,878 472,244
Dividends 58,856 56,605 40,262
Interest on federal funds sold 46,651 60,201 20,959
Interest on deposits in other banks 149,813 114,372 85,064
----------- ----------- -----------
Total Interest Income $11,855,604 $11,478,768 $10,458,595
----------- ----------- -----------
INTEREST EXPENSE
Interest on deposits $ 4,840,794 $ 4,916,162 $ 4,343,644
Interest on short-term borrowings 723,308 633,902 441,161
Interest on long-term borrowings 23,502 6,872 0
----------- ----------- -----------
Total Interest Expense $ 5,587,604 $ 5,556,936 $ 4,784,805
----------- ----------- -----------
Net interest income $ 6,268,000 $ 5,921,832 $ 5,673,790
Provision for loan losses 80,000 42,000 160,000
----------- ----------- -----------
Net Interest Income After Provision For
Loan Losses $ 6,188,000 $ 5,879,832 $ 5,513,790
----------- ----------- -----------
NON-INTEREST INCOME
Service charges and fees $ 532,657 $ 505,457 $ 427,836
Trust department income 75,804 50,905 50,231
Other income 114,016 40,501 35,983
Investment securities gains, net 27,680 82,954 55,013
----------- ----------- -----------
Total Non-Interest Income $ 750,157 $ 679,817 $ 569,063
----------- ----------- -----------
NON-INTEREST EXPENSE
Salaries $ 1,719,110 $ 1,592,790 $ 1,447,930
Pensions and other employee benefits 598,356 528,596 424,411
Occupancy expense, net 392,854 258,514 277,553
Equipment expense 410,524 348,921 306,100
FDIC insurance 2,000 148,418 277,953
Other operating expense 1,327,271 1,496,417 1,223,760
----------- ----------- -----------
Total Non-Interest Expense $ 4,450,115 $ 4,373,656 $ 3,957,707
----------- ----------- -----------
Income before income taxes and cumulative
effect of a change in accounting principle $ 2,488,042 $ 2,185,993 $ 2,125,146
Income tax expense 663,552 561,122 560,192
----------- ----------- -----------
Net Income $ 1,824,490 $ 1,624,871 $ 1,564,954
=========== =========== ===========
PER SHARE DATA
Net income $ 1.33 $ 1.19 $ 1.35
----------- ----------- -----------
Cash dividends $ .45 $ .45 $ .42
----------- ----------- -----------
Weighted average shares outstanding 1,375,875 1,367,595 1,163,199
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
33
<PAGE> 8
CCFNB Bancorp, Inc. And Subsidiary
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss)
On Investment
Securities
Common Retained Treasury Available
Stock Surplus Earnings Stock For Sale Total
---------- ---------- ------------ -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance At December 31, 1993 $1,387,828 $2,324,228 $ 9,739,741 $ 0 $ 0 $ 13,451,797
Cumulative effect as of January
1, 1994 relating to change in
accounting principle
applicable to investment
securities available for sale,
net of taxes 0 0 0 0 221,032 221,032
Net income 0 0 1,564,954 0 0 1,564,954
Issuance of 255,360 shares
of common stock 319,200 3,301,379 0 0 0 3,620,579
Cash dividends $.42 per share 0 0 (496,785) 0 0 (496,785)
Treasury stock purchased -
1150 shares 0 0 0 (17,825) 0 (17,825)
Sales of treasury stock -
1150 shares 0 0 0 17,825 0 17,825
Change in unrealized gain (loss)
on investment securities
available for sale, net of
taxes 0 0 0 0 (711,359) (711,359)
---------- ---------- ------------ -------- --------- ------------
Balance At December 31, 1994 $1,707,028 $5,625,607 $ 10,807,910 $ 0 $(490,327) $ 17,650,218
Net income 0 0 1,624,871 0 0 1,624,871
Issuance of 7036 shares of
common stock under dividend
reinvestment plan 8,795 68,242 0 0 0 77,037
Cash dividends $.45 per share 0 0 (615,504) 0 0 (615,504)
Change in unrealized gain
(loss) on investment
securities available for
sale, net of taxes 0 0 0 0 775,123 775,123
---------- ---------- ------------ -------- --------- ------------
Balance At December 31, 1995 $1,715,823 $5,693,849 $ 11,817,277 $ 0 $ 284,796 $ 19,511,745
Net income 0 0 1,824,490 0 0 1,824,490
Issuance of 9053 shares of
common stock under dividend
reinvestment plan 11,316 144,604 0 0 0 155,920
Cash dividends $.45 per share 0 0 (619,269) 0 0 (619,269)
Change in unrealized gain
(loss) on investment
securities available for
sale, net of taxes 0 0 0 0 (216,005) (216,005)
---------- ---------- ------------ -------- --------- ------------
Balance At December 31, 1996 $1,727,139 $5,838,453 $ 13,022,498 $ 0 $ 68,791 $ 20,656,881
========== ========== ============ ======== ========= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
34
<PAGE> 9
CCFNB Bancorp, Inc. And Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,824,490 $ 1,624,871 $ 1,564,954
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 80,000 42,000 160,000
Depreciation 386,021 293,305 249,173
Premium amortization on investment securities 2,228 8,657 22,289
Discount accretion on investment securities (16,294) (10,345) (9,507)
Deferred income taxes (benefit) (9,303) 49,392 62,664
Gain on sales of investment securities available for sale (27,680) (82,954) (55,013)
(Gain) loss on sale of premises and equipment (116) 71,669 (1,298)
Loss on impairment of bank premise 30,958 0 0
(Gain) on sale of other real estate (53,808) 0 0
(Increase) in accrued interest receivable (115,195) (6,661) (62,267)
(Increase) in other assets - net (3,168) (69,412) (31,305)
Increase in accrued interest and other expenses 151,292 228,717 107,807
Increase (decrease) in other liabilities - net (109,587) 107,604 (1,501)
------------ ------------ ------------
Net Cash Provided By Operating Activities $ 2,139,838 $ 2,256,843 $ 2,005,996
------------ ------------ ------------
INVESTMENT ACTIVITIES
Purchases of investment securities available for sale $(12,813,932) $(30,378,156) $ (4,938,430)
Proceeds from sales, maturities and redemptions of
investment securities available for sale 15,430,246 16,535,237 2,025,863
Purchases of investment securities held to maturity 0 (887,660) (14,473,863)
Proceeds from maturities and redemptions of
investment securities held to maturity 75,000 14,928,876 21,905,098
Net increase in loans (3,839,730) (2,104,640) (13,514,817)
Purchases of premises and equipment (629,777) (2,156,715) (163,043)
Proceeds from sale of premises and equipment 275 0 5,800
Proceeds from sale of other real estate 53,808 0 0
------------ ------------ ------------
Net Cash Used In Investing Activities $ (1,724,110) $ (4,063,058) $ (9,153,392)
------------ ------------ ------------
FINANCING ACTIVITIES
Net increase in deposits $ 2,414,764 $ 2,121,329 $ 2,841,173
Net increase (decrease) in short-term borrowings 4,588,410 156,023 (2,407,818)
Proceeds from long-term borrowings 0 364,565 0
Repayment of long-term borrowings (67,579) 0 0
Proceeds from sale of treasury stock 0 0 17,825
Acquisition of treasury stock 0 0 (17,825)
Proceeds from issuance of common stock 155,920 77,037 3,620,579
Cash dividends paid (619,269) (615,504) (496,785)
------------ ------------ ------------
Net Cash Provided By Financing Activities $ 6,472,246 $ 2,103,450 $ 3,557,149
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 6,887,974 $ 297,235 $ (3,590,247)
Cash And Cash Equivalents At Beginning Of Year 4,471,193 4,173,958 7,764,205
------------ ------------ ------------
Cash And Cash Equivalents At End Of Year $ 11,359,167 $ 4,471,193 $ 4,173,958
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 5,575,448 $ 5,447,107 $ 4,754,742
Income taxes $ 571,730 $ 557,937 $ 472,600
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
35
<PAGE> 10
CCFNB Bancorp, Inc. And Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For Years Ended December 31, 1996, 1995 And 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of CCFNB Bancorp, Inc. and Subsidiary
(the "Corporation") conform to generally accepted accounting principles and to
general practices within the banking industry. The more significant policies
follow:
Principles Of Consolidation
The consolidated financial statements include the accounts of CCFNB Bancorp,
Inc. and its wholly owned subsidiary, Columbia County Farmers National Bank (the
"Bank"). All significant inter-company balances and transactions have been
eliminated in consolidation.
Nature Of Operation
The Corporation provides full banking services, including trust services,
through the Bank, to individuals and corporate customers. The Bank has six
offices covering an area of approximately 484 square miles in Northeastern
Pennsylvania. The Corporation and its banking subsidiary are subject to
regulation of the Office of the Comptroller of the Currency, The Federal Deposit
Insurance Corporation and the Federal Reserve Bank of Philadelphia.
Use Of Estimates
The preparation of these consolidated 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 these
consolidated financial statements and the reported amounts of income and
expenses during the reporting periods. Actual results could differ from those
estimates.
Investment Securities
The Corporation adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" as required
January 1, 1994. As a result of adopting Statement No. 115, the Corporation
classified investment securities into two categories: those to be held to
maturity and those available for sale. In accordance with the Statement, prior
period consolidated financial statements have not been restated to reflect the
change in accounting principle. The cumulative effect as of January 1, 1994 of
adopting Statement No. 115 increased Stockholders' Equity in the amount of
$221,032 (net of deferred income tax of $113,865) to reflect the net unrealized
gain on investment securities classified as available for sale.
On November 15, 1995, the Financial Accounting Standards Board (FASB)
published a special report, "A Guide to Implementation of Statement No. 115 on
Accounting for Certain Investments in Debt and Equity Securities." The report
included a provision that allowed banks a one-time opportunity to reclassify (at
fair value) held-to-maturity securities without calling into question their
intent to hold other debt securities to maturity in the future. The
reclassifications had to be made in conjunction with implementation of the
supplemental guidance by December 31, 1995. In accordance with provisions in the
FASB Report, the Corporation did make transfers during December, details of
which are disclosed in Note 3.
The classification of investment securities into categories held to maturity
or available for sale is initially determined at the time of purchase and is
reevaluated at each balance sheet date. Debt securities are classified as held
to maturity when the Corporation has the ability and positive intent to hold the
securities to maturity. Investment securities held to maturity are carried at
cost adjusted for amortization of premium and accretion of discount to maturity.
Debt securities not classified as held to maturity and equity securities
included in the available for sale category, are carried at fair value, and the
amount of any unrealized gain or loss is reported as a separate component of
Stockholders' Equity, net of the effect of deferred income tax. Management's
decision to sell available for sale securities is based on changes in economic
conditions controlling the sources and uses of funds, terms, availability of and
yield of alternative investments, interest rate risk, and the need for
liquidity.
The cost of debt securities classified as held to maturity or available for
sale is adjusted for amortization of premiums and accretion of discounts to
maturity. Such amortization and accretion, as well as interest and dividends, is
included in interest from investments. Realized gains and losses are included in
net investment securities gains. The cost of investment securities sold,
redeemed or matured is based on the specific identification method.
Loans
Loans are stated at their outstanding principal balances, net of any deferred
fees or costs, unearned
36
<PAGE> 11
income, and the allowance for loan losses. Interest on loans is accrued on the
principal amount outstanding, primarily on an actual day basis. Non-refundable
loan fees and certain direct costs are deferred and amortized over the life of
the loans using the interest method. The amortization is reflected as an
interest yield adjustment, and the deferred portion of the net fees and costs is
reflected as a part of the loan balance.
Non-Accrual Loans - Generally, a loan (including a loan impaired under
Statement of Financial Accounting Standards No. 114) is classified as
non-accrual, and the accrual of interest on such a loan is discontinued when the
contractual payment of principal or interest has become 90 days past due or
management has serious doubts about further collectibility of principal or
interest, even though the loan currently is performing. A loan may remain on
accrual status if it is in the process of collection and is either guaranteed or
well secured. When a loan is placed on non-accrual status, unpaid interest
credited to income in the current year is reversed, and unpaid interest accrued
in prior years is charged against the allowance for credit losses. Potential
problem loans are identified by management as a part of its loan review process.
Income recognition is in accordance with Statement of Financial Accounting
Standards No. 118. Certain non-accrual loans may continue to perform, that is,
payments are still being received. Generally, the payments are applied to
principal. These loans remain under constant scrutiny and if performance
continues, interest income may be recorded on a cash basis based on management's
judgement as to collectibility of principal.
Allowance for Loan Losses - The allowance for loan losses is established
through provisions for loan losses charged against income. Loans deemed to be
uncollectible are charged against the allowance for loan losses, and subsequent
recoveries, if any, are credited to the allowance.
As of January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan", as amended by Statement of Financial Accounting Standards No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosure." Under the new standards, the allowance for loan losses related to
loans that are identified for evaluation in accordance with Statement No. 114 is
based on discounted cash flows using the loan's initial effective interest rate
or the fair value of the collateral for certain collateral dependent loans.
Prior to 1995, the allowance for loan losses related to these loans was based on
undiscounted cash flows or the fair value of the collateral for collateral
dependent loans. Statement No. 118 allows the continued use of existing methods
for income recognition on impaired loans and amends disclosure requirements to
require information about the recorded investment in certain impaired loans and
related income recognition on those loans. The allowance for loan losses is
maintained at a level by management to be adequate to absorb estimated potential
loan losses. Management's periodic evaluation of the adequacy of the allowance
for loan losses is based on the Corporation's past loan loss experience, known
and inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay (including the timing of future payments), the
estimated value of any underlying collateral, composition of the loan portfolio,
current economic conditions, and other relevant factors. This evaluation is
inherently subjective as it requires material estimates, including the amounts
and timing of future cash flows expected to be received on impaired loans that
may be susceptible to significant change.
Premises And Equipment
Premises and equipment are stated at cost less accumulated depreciation
computed principally on the straight-line method over the estimated useful lives
of the assets. Maintenance and minor repairs are charged to operations as
incurred. The cost and accumulated depreciation of the premises and equipment
retired or sold are eliminated from the property accounts at the time of
retirement or sale, and the resulting gain or loss is reflected in current
operations.
As of January 1, 1996, the Corporation adopted Statement of Financial
Accounting Standards No. 121, "Accounting For The Impairment Of Long-Lived
Assets And For Long-Lived Assets To Be Disposed Of". The statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. An impairment loss is indicated if the
sum of the expected future cash flows, undiscounted and without interest
charges, is less than the carrying amount of the assets. An impairment loss must
be recognized as the amount by which the carrying amount of the asset exceeds
the fair value of the asset so determined. As a result of implementation of this
statement, the Corporation recognized an impairment loss as disclosed in Note 5.
Other Real Estate Owned
Other real estate owned is comprised of property acquired through a
foreclosure proceeding or acceptance of a deed-in-lieu of foreclosure and loans
classified as in-substance foreclosure. In accordance with Statement No. 114, a
loan is classified as in-substance foreclosure when the Corporation has taken
possession of the collateral regardless of whether formal foreclosure
proceedings take place. Other real estate owned is recorded at fair value at the
date of foreclosure, establishing a new cost basis. After
37
<PAGE> 12
foreclosure, valuations are periodically performed by management, and the real
estate is carried at the lower of (1) cost or (2) fair value minus estimated
costs to sell. Income and expenses from operations of other real estate owned
and changes in the valuation allowance are included in loss on other real estate
owned.
Advertising Costs
Advertising costs are expensed as the costs are incurred. Advertising expenses
amounted to $77,520, $56,039 and $62,520 for 1996, 1995 and 1994, respectively.
Contributions (Charitable)
The Corporation adopted Statement of Financial Accounting Standard No. 116,
"Accounting for Contributions Received and Contributions Made." Under this
Statement, the entire contributions in the form of unconditional promises to pay
(bona fide pledges) must be accrued and reflected as a contribution expense in
the year of the pledge. The measurement of the accrual required is based on the
present value of future cash flows using a current market discount rate. A
prospective change is permitted; however, the Corporation elected not to reflect
the cumulative effect of the change due to implementing Statement No. 116 at
January 1, 1995, because the amount at that date was not significant. Charitable
pledges payable at December 31, 1996 and December 31, 1995, calculated as
required under Statement No. 116 are $39,710 and $56,481, respectively.
Income Taxes
The provision for income taxes is based on the results of operations adjusted
primarily for tax-exempt income. Certain items of income and expense are
reported in different periods for financial reporting and tax return purposes.
Deferred tax assets and liabilities are determined based on the differences
between the consolidated financial statement and income tax bases of assets and
liabilities measured by using the enacted tax rates and laws expected to be in
effect when the timing differences are expected to reverse. Deferred tax expense
or benefit is based on the difference between deferred tax asset or liability
from period to period. Further, the Statement requires that a valuation
allowance be provided in an amount sufficient to reduce the deferred tax asset
to the amount that is more likely than not to be realized. Previously, deferred
income taxes were accounted for using the deferred method.
Net Income Per Share
Net income per share on common stock is calculated by dividing net income by
the weighted average number of shares of common stock outstanding during each
period.
Statements Of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand and due from banks, interest-bearing deposits in other banks and federal
funds sold. The Corporation considers cash classified as interest-bearing
deposits with other banks as a cash equivalent because they are represented by
cash accounts essentially on a demand basis. Federal funds are also included as
a cash equivalent because they are generally purchased and sold for one-day
periods.
Derivative Financial Instruments
The Corporation has no derivative financial instruments requiring disclosure
under Statement of Financial Accounting Standards No. 119, "Disclosures about
Derivative Financial Instruments and Fair Value of Financial Instruments."
Trust Assets And Income
Property held by the Corporation in a fiduciary or agency capacity for its
customers is not included in the accompanying consolidated financial statements
because such items are not assets of the Corporation. Trust Department income is
recognized on a cash basis and is not materially different than if it was
reported on an accrual basis.
Reporting Format
Certain amounts in the financial statements of the prior periods have been
reclassified to conform with presentation used in the 1996 financial statements.
Such reclassifications had no effect on the Corporation's consolidated financial
condition or net income.
2. RESTRICTED CASH BALANCES
The Bank is required to maintain average reserve balances with the Federal
Reserve Bank. The amount required at December 31, 1996 was $756,000 and was
satisfied by vault cash. Additionally, as compensation for check clearing and
other services, compensating balances are required to be maintained with the
Federal Reserve Bank and other correspondent banks. At December 31, 1996, these
balances were $324,000.
38
<PAGE> 13
3. INVESTMENT SECURITIES
The amortized cost, related estimated fair value, and unrealized gains and
losses for investment securities classified as "Available for Sale" or "Held to
Maturity" were as follows at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Available For Sale Securities
-----------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1996: Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 6,990,036 $ 18,062 $ 13,503 $ 6,994,595
Obligations of U.S. Government
Corporations and Agencies:
Mortgage-backed 1,691,058 0 7,797 1,683,261
Other 16,874,064 0 109,351 16,764,713
Obligations of state and political subdivisions 8,328,476 238,278 0 8,566,754
Corporate debt securities 1,496,516 9,618 31,077 1,475,057
Equity securities 952,500 0 0 952,500
----------- ----------- ----------- -----------
Total $36,332,650 $ 265,958 $ 161,728 $36,436,880
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Held to Maturity Securities
---------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1996: Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 0 $ 0 $ 0 $ 0
U.S. government corporations and agencies 0 0 0 0
Obligations of state and political subdivisions 970,000 11,013 0 981,013
Corporate debt securities 0 0 0 0
----------- ----------- ----------- -----------
Total $ 970,000 $ 11,013 $ 0 $ 981,013
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Available For Sale Securities
-----------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1995: Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $14,913,983 $ 119,982 $ 0 $15,033,965
U.S. government corporations and agencies 13,098,912 21,688 0 13,120,600
Obligations of state and political subdivisions 7,453,384 231,929 0 7,685,313
Corporate debt securities 2,498,639 57,911 0 2,556,550
Equity securities 942,300 0 0 942,300
----------- ----------- ----------- -----------
Total $38,907,218 $ 431,510 $ 0 $39,338,728
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Held to Maturity Securities
---------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1995: Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 0 $ 0 $ 0 $ 0
U.S. government corporations and agencies 0 0 0 0
Obligations of state and political subdivisions 1,045,000 17,433 0 1,062,433
Corporate debt securities 0 0 0 0
----------- ----------- ----------- -----------
Total $ 1,045,000 $ 17,433 $ 0 $ 1,062,433
=========== =========== =========== ===========
</TABLE>
Securities available for sale with an aggregate fair value of $26,904,079 in
1996 and $21,679,824 in 1995 were pledged to secure public funds, trust funds,
securities sold under agreements to repurchase and other balances of $22,550,981
in 1996 and $18,022,753 in 1995 as required by law.
The amortized cost and estimated fair value of debt securities, by contractual
maturity, are shown below at December 31, 1996. Expected maturities will differ
from contractual maturities, because some borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Held to Maturity Available for Sale
---------------- ------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less $ 0 $ 0 $ 7,091,891 $ 7,115,733
Due after one year through five years 970,000 981,013 19,385,541 19,284,610
Due after five years through ten years 0 0 4,280,820 4,289,705
Due after ten years 0 0 5,574,398 5,746,832
----------- ----------- ----------- -----------
Total $ 970,000 $ 981,013 $36,332,650 $36,436,880
=========== =========== =========== ===========
</TABLE>
39
<PAGE> 14
The quality rating of all obligations of state and political subdivisions were
"A" or higher, as rated by Moody's or Standard and Poors. The only exceptions
were local issues which were not rated, but were secured by the full faith and
credit obligations of the communities that issued these securities. All of the
state and political subdivision investments were actively traded in a liquid
market.
Proceeds from sale of investments in debt and equity securities during 1996,
1995 and 1994 were $1,529,234, $2,535,237 and $2,025,863, respectively. Gross
gains realized on these sales were $27,680, $82,954 and $63,180, respectively.
Gross losses on these sales were $8,167 in 1994. There were no gross losses on
the 1996 and 1995 sales. Net unrealized gains on securities available for sale
included as a separate component of consolidated stockholders' equity net of tax
was $68,791 and $284,796 in 1996 and 1995 respectively.
As permitted by the one-time transfer allowed by the Financial Accounting
Standards Board as described in Note 1, the Corporation elected to transfer
investment securities classified as held to maturity to the classification
available for sale during December 1995 as follows:
<TABLE>
<S> <C>
Amortized cost at date of transfer $10,822,271
Unrealized gain 327,119
-----------
Fair value at date of transfer $11,149,390
===========
</TABLE>
4. LOANS
Major classifications of loans at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Commercial $ 7,957,064 $ 5,990,247
Tax exempt 2,063,757 1,520,495
Qualified municipal leases 34,777 130,517
Real estate - construction 660,071 941,455
Real estate 96,439,184 95,291,768
Personal 8,446,682 8,058,280
Credit cards 441,385 447,168
------------ ------------
Total gross loans $116,042,920 $112,379,930
Less: Unearned discount 324,517 359,731
Unamortized loan fees net of costs 128,619 188,603
------------ ------------
Loans, net of unearned income $115,589,784 $111,831,596
============ ============
</TABLE>
Non-accrual loans at December 31, 1996, 1995 and 1994 were approximately
$109,000, $13,343 and 23,952, respectively. The gross interest that would have
been recorded if these loans had been current in accordance with their original
terms and the amounts actually recorded in income were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Gross interest due under terms $9,849 $2,266 $47,437
Amount included in income 0 111 28,083
------ ------ -------
Interest income not recognized $9,849 $2,155 $19,354
====== ====== =======
</TABLE>
At December 31, 1996 no loans were considered impaired as defined by Statement
No. 114. At December 31, 1995 the recorded and average investment in impaired
loans was $13,343. No additional charge to operations was required since the
total allowance for loan losses was estimated by management to be adequate to
provide for the loan loss allowance under Statement No. 114 as well as any other
potential loan losses.
At December 31, 1996, there were no significant commitments to lend additional
funds with respect to non-accrual and restructured loans.
Changes in the allowance for loan losses for the years ended December 31,
1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $ 912,253 $ 943,371 $ 920,873
Provision charged to operations 80,000 42,000 160,000
Loans charged-off (144,980) (107,190) (195,853)
Recoveries 63,438 34,072 58,351
--------- --------- ---------
Balance, end of year $ 910,711 $ 912,253 $ 943,371
========= ========= =========
</TABLE>
40
<PAGE> 15
5. PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land $ 558,288 $ 435,174
Buildings and improvements 4,387,756 3,176,192
Furniture and equipment 2,627,321 2,402,528
Capitalized leases - equipment 287,837 287,837
Construction in progress 0 968,150
---------- ----------
$7,861,202 $7,269,881
Less: Accumulated depreciation 2,566,679 2,187,997
---------- ----------
$5,294,523 $5,081,884
========== ==========
</TABLE>
Depreciation amounted to $386,021 for 1996, $293,305 for 1995 and $249,173 for
1994.
In accordance with FASB 121, an impairment loss was recognized in the amount
of $30,958 in 1996 due to a writedown of a temporary branch building to
estimated net realizable value. Such loss is reflected in occupancy expense in
the accompanying consolidated financial statements. The temporary building was
replaced by a permanent structure.
6. DEPOSITS
Major classifications of deposits at December 31, 1996 and 1995 follow:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Demand - non-interest bearing $ 12,280,044 $ 12,050,780
Demand - interest bearing 20,105,506 19,199,306
Savings 35,625,308 38,856,589
Time $100,000 and over 12,975,134 11,033,846
Other time 50,414,044 47,844,751
------------ ------------
$131,400,036 $128,985,272
============ ============
</TABLE>
The following is a schedule reflecting classification and remaining maturities
of time deposits of $100,000 and over at December 31, 1996:
<TABLE>
<S> <C>
Three months or less $ 7,664,134
Over three months to six months 2,546,000
Over six months to twelve months 1,867,000
Over twelve months 898,000
-----------
Total $12,975,134
===========
</TABLE>
Interest expense related to time deposits of $100,000 or more was $636,407 in
1996, $513,290 in 1995 and $270,335 in 1994.
7. SHORT-TERM BORROWINGS
Federal funds purchased, securities sold under agreements to repurchase, and
Federal Home Loan Bank advances generally represented overnight or less than
30-day borrowings. U.S. Treasury tax and loan notes for collections made by the
Bank were payable on demand. Short-term borrowings consisted of the following at
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
Maximum Maximum
Month Month
Ending Average End Average Ending Average End Average
Balance Balance Balance Rate Balance Balance Balance Rate
----------- ----------- ----------- ---- ----------- ----------- ----------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds
purchased and
securities sold
under agreements
to repurchase $16,110,547 $13,986,864 $17,128,643 4.98% $11,810,602 $10,573,000 $13,903,473 5.50%
Federal Home Loan
Bank 0 19,604 0 5.52% 0 400,000 3,250,000 5.75%
U.S. Treasury tax
and loan notes 543,434 522,076 1,000,000 4.97% 254,969 793,000 1,000,000 4.04%
----------- ----------- ----------- ---- ----------- ----------- ----------- ----
Total $16,653,981 $14,528,544 $18,128,643 4.97% $12,065,571 $11,766,000 $18,153,473 5.39%
=========== =========== =========== ==== =========== =========== =========== ====
</TABLE>
8. LONG-TERM BORROWINGS
Long-term borrowings were represented by capital lease obligations. The
obligations were incurred as a result of acquiring computer and related
equipment.
41
<PAGE> 16
Minimum future lease payments under capital leases as of December 31, 1996 for
each of the next four years and in the aggregate are:
<TABLE>
<CAPTION>
Amount
------
<S> <C>
1997 $ 90,039
1998 88,847
1999 88,847
2000 88,847
---------
Total minimum lease payments $ 356,580
Less: Amount representing interest 59,594
---------
Present value of net minimum lease payments $ 296,986
=========
</TABLE>
The interest rate on capitalized leases was imputed at 6.30% which was based
on the lower of Corporation's incremental borrowing rate at the inception of the
leases.
9. STOCKHOLDERS' EQUITY AND STOCK OPTIONS
The Amended Articles of Incorporation contain a provision that permits the
Corporation to issue warrants for the purchase of shares of common stock, par
value $1.25 per share (the "Common Stock"), at below market prices in the event
any person or entity acquires 25% or more of the Common Stock.
On September 6, 1994, the Corporation offered up to 222,052 shares of the
Common Stock, at a price of $15.50 per share, to certain shareholders of record
(the "Rights Offering") at the close of business on August 31, 1994 (the "Record
Date"). The Board of Directors granted to these certain shareholders on the
Record Date ("Record Date Holders") the right (the "Right") to purchase one
share of the Common Stock offered for each five shares of the Common Stock held
of record on the Record Date. The Rights and the Rights Offering terminated on
October 6, 1994.
Concurrently with the Rights Offering, the Corporation offered the shares of
Common Stock not subscribed for in the Rights Offering for sale to the general
public in a direct community offering with preference given to persons residing
in the counties of Columbia, Luzerne, Montour, Northumberland, Schuylkill and
Sullivan, Pennsylvania (the "Community Offering"). The Company exercised its
right to increase the number of shares to be sold by 33,308 to 255,360 pursuant
to an oversubscription reserve, because there was an oversubscription in the
Community Offering. The gross proceeds from the sale of 255,360 shares was
$3,958,080. The net amount realized from the Rights and Community Offerings,
after deducting expenses of $337,501, was $3,620,579.
On April 25, 1995, the Shareholders approved an Employee Stock Purchase Plan.
The maximum number of shares of the Common Stock to be issued under this plan
shall be 20,000. In addition, the Corporation may choose to purchase shares on
the open market to facilitate this plan. A participating employee shall elect
deductions of at least 1% of base pay, but not more than 10% of base pay, to
cover purchases of shares under this plan. A participating employee shall be
deemed to have been granted an option to purchase a number of shares of the
Common Stock equal to the annual aggregate amount of payroll deductions elected
by the employee divided by 90% of the fair market value of Common Stock on the
first day of January in each year. The first activity under this plan occurred
in January 1996 whereby 195 shares were obtained at $16.00 per share on the open
market and issued to the participating employees at $14.40 per share.
On February 2, 1995, the Corporation registered with the Securities and
Exchange Commission 500,000 shares of the Common Stock to be sold pursuant to a
Dividend Reinvestment and Stock Purchase Plan. The price per share for purchases
under this plan is determined at each quarterly dividend payment date by the
reported average mean between the bid and asked prices in the over-the-counter
market for 10 consecutive trading days preceding each quarterly dividend payment
date. Participation in this plan by Shareholders began in June 1995. 9,053
shares were issued in 1996 with proceeds totalling $155,920 and 7,036 shares
were issued in 1995 with proceeds totalling $77,037 net of initial cost to
establish plans.
10. INCOME TAXES
The current and deferred components of the income tax provision (benefit) are
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal
Current $ 672,855 $511,730 $496,743
Deferred (benefit) (9,303) 49,392 62,664
--------- -------- --------
$ 663,552 $561,122 $559,407
State
Current 0 0 785
--------- -------- --------
Total provision for income taxes $ 663,552 $561,122 $560,192
========= ======== ========
</TABLE>
42
<PAGE> 17
The following is a reconciliation between the actual provision for federal
income taxes and the amount of federal income taxes which would have been
provided at the statutory rates of 34%:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Amount Rate Amount Rate Amount Rate
--------- ---- --------- ---- --------- ----
<S> <C> <C> <C> <C> <C> <C>
Provision at statutory rate $ 845,934 34.0% $ 743,238 34.0% $ 722,550 34.0%
Tax exempt income (207,332) (8.3) (212,756) (9.7) (188,581) (8.9)
Non-deductible expenses 24,553 1.0 30,796 1.4 25,851 1.2
Other 397 0 (156) .0 (413) .0
--------- ---- --------- ---- --------- ----
Actual federal income tax and rate $ 663,552 26.7% $ 561,122 25.7% $ 559,407 26.3%
========= ==== ========= ==== ========= ====
</TABLE>
Income taxes applicable to realized security gains included in the provision
for income taxes totalled $9,411 in 1996, $28,204 in 1995 and $18,704 in 1994.
The deferred tax assets and liabilities resulting from temporary timing
differences have been netted to reflect a net deferred tax asset, which was
included in other assets in these consolidated financial statements. The
components of the net deferred tax asset at December 31, 1996, 1995 and 1994
were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets:
Loan loss reserve $ 207,880 $ 208,404 $ 218,984
Loan origination fees and costs 0 0 7,890
Unrealized investment securities losses 0 0 252,593
Impairment loss 10,526 0 0
Deferred compensation 96,137 75,885 56,481
Contributions 8,571 13,140 0
--------- --------- ---------
Total $ 323,114 $ 297,429 $ 535,948
--------- --------- ---------
Deferred tax liabilities:
Loan origination fees and costs $ (37,840) $ (53,950) $ 0
Accretion (9,035) (7,870) (5,208)
Unrealized investment securities gains (35,438) (146,713) 0
Depreciation (222,419) (191,092) (184,238)
--------- --------- ---------
Total $(304,732) $(399,625) $(189,446)
--------- --------- ---------
Net deferred tax asset (liability) $ 18,382 $(102,196) $ 346,502
========= ========= =========
</TABLE>
It is anticipated that all tax assets will be realized, accordingly, no
valuation allowance was provided.
11. BENEFIT AND DEFERRED COMPENSATION PLANS
The Bank had a non-contributory profit sharing plan covering substantially all
employees who attained specified age and length of service requirements. The
Bank's contributions were discretionary and were 100% vested upon an employee's
entrance to the plan. This plan was in effect through December 31, 1994.
The Bank adopted an amendment to this Profit Sharing Plan to include a 401K
component effective January 1, 1995. Under this 401K component, employees may
contribute up to 10% of their compensation with the possibility that the Bank
may make a matching contribution based on the profits for each year. Existing
employees who were participating in the Profit Sharing Plan as of December 31,
1994 were at all times 100% vested. New eligible participants after January 1,
1995 are 100% vested at the end of five full years of participation. In
addition, the length of service requirements were reduced from two 1,000 hour
years to one 1,000 hour year.
Matching contributions amounted to $19,788 and $0 for 1996 and 1995,
respectively. Discretionary contributions amounted to $97,564, $86,755 and
$82,166 in 1996, 1995 and 1994, respectively.
Certain directors and executive officers are participants in non-qualified
deferred compensation plans. A summary of each plan follows:
Directors
The Bank entered into agreements with three directors to establish
non-qualified deferred compensation plans for each of these directors. These
plans are limited to 4-year terms. The Bank may, however, enter into subsequent
similar plans with its directors. Each of the participating directors is
deferring the payment to him of certain directors fees to which he is entitled.
Each director's future payment is based upon the cumulative amount of deferred
fees together with interest currently accruing thereon at the rate of 8% per
annum, subject to change by the Board of Directors. The Bank has obtained life
insurance (designating the Bank as the beneficiary) on the lives of certain
directors in face amounts which are intended to cover the Bank's obligations and
related costs under the Director's Deferred Compensation Plan in aggregate. As
of December 31, 1996 and 1995, the net cash value of insurance policies was
$61,818 and $46,750, respectively, and the total accrued liability was $153,756
and $119,491, respectively, relating to these directors' deferred compensation
agreements.
43
<PAGE> 18
Executive Officers
The Bank entered into agreements with two executive officers to establish
non-qualified deferred compensation plans. Each officer is deferring
compensation in order to participate in this Deferred Compensation Plan. If the
officer continues to serve as an officer of the Bank until he attains sixty-five
(65) years of age, the Bank has agreed to pay him 120 guaranteed consecutive
monthly payments commencing on the first day of the month following the
officer's 65th birthday. Each officer's guaranteed monthly payment is based upon
the future value of life insurance purchased with the compensation the officer
has deferred. The Bank has obtained life insurance (designating the Bank as the
beneficiary) on the life of each participating officer in an amount which is
intended to cover the Bank's obligations under the Deferred Compensation Plan,
based upon certain actuarial assumptions. As of December 31, 1996 and 1995, the
net cash value of insurance policies was $117,955 and $86,201, respectively, and
the total accrued liability was $129,000 and $103,200, respectively, relating to
these executive officers' deferred compensation agreements.
12. LEASE COMMITMENTS AND CONTINGENCY
At December 31, 1996, the Bank contracted for outside data processing
services, as well as leased some minor office equipment.
The expense for all operating leases and contracted data processing services
for the years ended December 31, 1996, 1995 and 1994 was $153,084, $253,626 and
$243,108, respectively. The Bank's operating leases and the outside Data
Processing Center services were on a month-to-month basis through December 31,
1994.
In November 1994, the Bank signed an 8 year agreement with EDS for data
processing, leasing of equipment, and related services. Conversion to the new
system was completed during the third quarter of 1995. The agreement calls for
the minimum payments to be adjusted for cost of living index increases.
The minimum future payments required under the agreement, for each of the next
five years follow:
<TABLE>
<S> <C>
1997 $ 254,293
1998 259,297
1999 263,050
2000 273,049
2001 303,046
Thereafter 551,950
----------
Total $1,904,685
==========
</TABLE>
In addition, there were capital leases reflected as long-term borrowing - see
Note 8.
13. LEGAL MATTERS
In the normal course of business, there were various pending legal actions and
proceedings which were not reflected in the consolidated financial statements.
In the opinion of management, the consolidated financial statements have not and
will not be affected materially by the outcome of such actions and proceedings.
14. RELATED PARTY TRANSACTIONS
Certain directors and executive officers of the Corporation and the Bank and
companies in which they are principal owners (i.e., at least 10%), were indebted
to the Bank at December 31, 1996 and 1995. These loans were made on
substantially the same terms and conditions, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
unrelated parties. In prior reporting periods, the Bank included all family
related loans; however, a change was made in the current year to include only
loans the individuals signed or co-signed. The 1995 information presented was
restated accordingly.
A summary of the activity on the related party loans, comprised of eight
directors, seven executive officers and their related companies, consisted of
the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Balance, beginning of year $ 1,608,042 $ 1,730,032
New loan advances 764,735 538,976
Repayments (272,552) (660,966)
----------- -----------
Balance, end of year $ 2,100,225 $ 1,608,042
=========== ===========
</TABLE>
The above loans represent funds drawn and outstanding at the date of this
consolidated financial statement. Commitments by the Bank on lines of credit and
credit card agreements presented an additional off-balance sheet risk to the
extent of undisbursed funds in the amount of $193,183 and $284,739,
respectively, on the above loans. Additionally, the presented loans include
credit card accounts totalling $4,606 and $5,439, respectively.
These loans did not present more than the normal risk of collectibility nor
did they present other unfavorable features.
44
<PAGE> 19
15. REGULATORY MATTERS
Dividends are paid by the Corporation to stockholders from its assets which
are mainly provided by the Bank.
National banking laws place certain restrictions on the amount of dividends
allowed to be paid by the Bank to the Corporation. Generally, the limitation
provides that dividend payments may not exceed the Bank's current year's
retained income plus retained net income for the preceding two years.
Accordingly, in 1997, without prior regulatory approval, the Bank may declare
dividends to the Corporation in the amount of $1,969,894 plus additional amounts
equal to the net income earned in 1997 for the period January 1, 1997 through
the date of declaration, less any dividends which may be paid in 1997.
Federal regulations provide standards which require that U.S. banking
organizations meet certain minimum capital ratios as a measure of capital
adequacy. In general, the standards require banks and bank holding companies to
maintain capital based on "risk-adjusted" assets so that categories of assets
with potentially higher credit risk will require more capital backing than
assets with lower risk. In addition, banks and bank holding companies are
required to maintain capital to support, on a "risk-adjusted" basis, certain
off-balance sheet activities, such as loan commitments and letters of credit.
The Federal Standards provide specific guidelines which classify Capital into
two Tiers, referred to as Tier 1 and Tier 2. Under these guidelines the
Corporation's Tier 1 Capital consists of common stockholders' equity and Tier 2
Capital consists of the allowance for loan losses. Total qualifying capital
consists of the total of Tier 1 Capital plus Tier 2 Capital with Tier 2 Capital
being limited to 100% of Tier 1 Capital. At December 31, 1996, the Corporation
exceeded all minimum capital requirements as reflected in the following table:
<TABLE>
<CAPTION>
Minimum
Calculated Standard
Risk Based Ratios: Ratios Ratios
- ------------------ ------ ------
<S> <C> <C>
Tier 1 Capital to Risk-Weighted Assets 21.74% 4.00%
Total Qualifying Capital to Risk-Weighted Assets 22.70% 8.00%
</TABLE>
16. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK
The Corporation is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit,
standby letters of credit and commercial letters of credit. Those instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the consolidated balance sheets. The contract or
notional amounts of those instruments reflect the extent of involvement the
Corporation has in particular classes of financial instruments. The Corporation
does not engage in trading activities with respect to any of its financial
instruments with off-balance sheet risk.
The Corporation's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit and
letters of credit is represented by the contractual notional amount of those
instruments. The Corporation uses the same credit policies in making commitments
and conditional obligations, as it does for on-balance sheet instruments.
The Corporation may require collateral or other security to support financial
instruments with off-balance sheet credit risk. The contract or notional amounts
at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit $9,693,267 $7,123,672
Credit card arrangements 1,256,635 1,306,522
Standby letters of credit 636,200 378,600
Performance standby letters of credit 256,993 233,767
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Because many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Corporation evaluates each customer's
creditworthiness on a case-by-case-basis. The amount of collateral obtained, if
deemed necessary by the Corporation upon extension of credit, is based on
management's credit evaluation of the counter-party. Collateral held varies but
may include accounts receivable, inventory, property, plant, equipment, and
income-producing commercial properties.
Standby letters of credit, commercial letters of credit, and performance
standby letters of credit are conditional commitments issued by the Corporation
to guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. The Corporation holds collateral
supporting those commitments for which collateral is deemed necessary. The
extent of collateral held for those commitments at December 31, 1996 varied from
0 percent to 100 percent; the average amount collateralized was 54.4% percent.
45
<PAGE> 20
The Corporation granted commercial, consumer and residential loans to
customers within the state. Of the total loan portfolio 84% was for real estate
loans, principally residential. It was the opinion of management that the high
concentration did not pose any adverse credit risk. Further, it was management's
opinion that the remainder of the loan portfolio was balanced and diversified to
the extent necessary to avoid any significant concentration of credit.
17. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Accounting Standards Board No. 107, "Disclosures about Fair Value
of Financial Instruments", requires disclosure of fair value information about
financial instruments, whether or not required to be recognized in the
consolidated balance sheet, for which it is practicable to estimate such value.
In cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. These techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. Fair value estimates derived through these
techniques cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instrument.
Statement No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the
Corporation.
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments:
Cash And Other Short-Term Instruments
Cash and due from banks, interest bearing deposits with other banks, and
Federal Funds sold had carrying values which were a reasonable estimate of fair
value. Accordingly, fair values regarding these instruments were provided by
reference to carrying values reflected on the consolidated balance sheets.
Investment Securities
The fair value of investment securities which included mortgage backed
securities, except certain state and municipal securities, was estimated based
on bid prices published in financial newspapers or bid quotations received from
securities dealers. The fair value of certain state and municipal securities was
not readily available through market sources other than dealer quotations, thus
fair value estimates were based on quoted market prices of similar instruments,
adjusted for differences between the quoted instruments and the instruments
being valued.
Loans
Fair values were estimated for categories of loans with similar financial
characteristics. Loans were segregated by type such as commercial, tax exempt,
real estate mortgages and consumer. For estimation purposes, each loan category
was further segmented into fixed and adjustable rate interest terms and also
into performing and non-performing classifications.
The fair value of each category of performing loans was calculated by
discounting future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities.
Fair value for non-performing loans was based on management's estimate of
future cash flows discounted using a rate commensurate with the risk associated
with the estimated future cash flows. The assumptions used by management were
judgmentally determined using specific borrower information.
Deposits
Under Statement No. 107, the fair value of deposits with no stated maturity,
such as Demand Deposits, Savings Accounts, and Money Market Accounts, was equal
to the amount payable on demand at December 31, 1996 and 1995.
Fair values for fixed rate certificates of deposit were estimated using a
discounted cash flow calculation that applied interest rates currently being
offered on certificates to a schedule of aggregated expected monthly maturities
on time deposits.
Short-Term Borrowings
The carrying amounts of federal funds purchased and securities sold under
agreements to repurchase and other short-term borrowings approximated their fair
values.
Long-Term Borrowings
The carrying amounts of capitalized leases approximated their fair values,
because the incremental borrowing rate used in the carrying amount calculation
was at the market rate.
Commitments To Extend Credit And Stand-By Letters Of Credit
Management estimated that there were no material differences between the
notional amount and the estimated fair value of those off-balance sheet items,
because they were primarily composed of unfunded loan commitments which were
generally priced at market at the time of funding.
46
<PAGE> 21
At December 31, 1996 and 1995, the carrying values and estimated fair values
of financial instruments of the Corporation are presented in the table below:
<TABLE>
<CAPTION>
1996 1995
---- ----
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and short-term investments $ 11,359,167 $ 11,359,167 $ 4,471,193 $ 4,471,193
Investment securities 37,406,880 37,417,893 40,383,728 40,401,161
Loans:
Commercial 7,957,064 7,957,064 5,990,247 5,990,247
Tax exempt 2,063,757 2,028,384 1,520,495 1,561,548
Qualified municipal leases 34,777 34,777 130,517 130,517
Real estate - construction 660,071 658,390 941,455 950,870
Real estate 96,439,184 96,066,609 95,291,768 96,288,663
Personal 8,446,682 8,436,195 8,058,280 8,085,580
Credit cards 441,385 441,385 447,168 447,168
------------ ------------ ------------ ------------
Gross loans $116,042,920 $115,622,804 $112,379,930 $113,454,593
Less: Unearned discount 324,517 0 359,731 0
Unamortized loan fees net of costs 128,619 0 188,603 0
------------ ------------ ------------ ------------
Loans net of unearned income $115,589,784 $115,622,804 $111,831,596 $113,454,593
Less allowance for losses 910,711 0 912,253 0
------------ ------------ ------------ ------------
Net Loans $114,679,073 $115,622,804 $110,919,343 $113,454,593
============ ============ ============ ============
Financial Liabilities:
Deposits:
Demand - non-interest bearing $ 12,280,044 $ 12,280,044 $ 12,050,780 $ 12,050,780
Demand - interest bearing 20,105,506 20,105,506 19,199,306 19,199,306
Savings 35,625,308 35,625,308 38,856,589 38,856,589
Time - $100,000 and over 12,975,134 13,055,996 11,033,846 10,529,480
Other time 50,414,044 50,659,791 47,844,751 49,058,718
------------ ------------ ------------ ------------
Total Deposits $131,400,036 $131,726,645 $128,985,272 $129,694,873
============ ============ ============ ============
Short-Term Borrowings $ 16,653,981 $ 16,653,981 $ 12,065,571 $ 12,065,571
Long-Term Borrowings 296,986 296,986 364,565 364,365
Off-Balance Sheet Assets (Liabilities):
Commitments to extend credit 9,693,267 7,123,672
Credit card arrangements 1,256,635 1,306,522
Standby letters of credit 636,200 378,600
Performance standby letters of credit 256,993 233,767
</TABLE>
18. PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information for CCFNB Bancorp, Inc. (Parent Company only)
was as follows:
<TABLE>
<CAPTION>
December 31,
------------
Balance Sheets 1996 1995
---- ----
<S> <C> <C>
Assets
Cash in subsidiary Bank $ 577,734 $ 287,345
Investment in subsidiary 20,023,861 19,200,430
Prepayments and other assets 14,235 44,543
Receivable from subsidiary 110,306 0
----------- -----------
Total Assets $20,726,136 $19,532,318
=========== ===========
Liabilities and Stockholders' Equity
Payable to subsidiary $ 0 $ 20,173
Income taxes and accrued expenses 69,255 400
----------- -----------
Total Liabilities $ 69,255 $ 20,573
----------- -----------
Stockholders' Equity
Common stock $ 1,727,139 $ 1,715,823
Surplus 5,838,453 5,693,849
Retained earnings 13,022,498 11,817,277
Unrealized gain on investment securities available for sale 68,791 284,796
----------- -----------
Total Stockholders' Equity $20,656,881 $19,511,745
----------- -----------
Total Liabilities and Stockholders' Equity $20,726,136 $19,532,318
=========== ===========
</TABLE>
47
<PAGE> 22
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
Income Statements 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income
Interest $ 13,464 $ 12,918 $ 25,113
Dividends from subsidiary 916,664 615,504 571,953
----------- ----------- -----------
Total Income $ 930,128 $ 628,422 $ 597,066
Operating Expenses 57,737 48,496 18,570
----------- ----------- -----------
Income Before Taxes and Equity in Undistributed
Net Income of Subsidiary $ 872,391 $ 579,926 $ 578,496
Applicable income tax (benefit) (15,053) (12,097) 2,743
----------- ----------- -----------
Income Before Equity in Undistributed Net Income
of Subsidiary $ 887,444 $ 592,023 $ 575,753
Equity in undistributed income of subsidiary 937,046 1,032,848 989,201
----------- ----------- -----------
Net Income $ 1,824,490 $ 1,624,871 $ 1,564,954
=========== =========== ===========
Statements Of Cash Flows
Operating Activities
Net income $ 1,824,490 $ 1,624,871 $ 1,564,954
Adjustments to reconcile net income
to net cash provided by operating activities:
Equity in undistributed net income of subsidiary (937,046) (1,032,848) (989,201)
(Increase) decrease in prepaid expenses and other assets 30,308 16,362 (49,729)
(Increase) decrease in receivable from subsidiary (110,306) 0 2,198
Increase (decrease) in advances payable to subsidiary (20,173) (16,349) 36,522
Increase (decrease) in income taxes and accrued expenses
payable 68,855 (13,757) 14,157
----------- ----------- -----------
Net Cash Provided By Operating Activities $ 856,128 $ 578,279 $ 578,901
----------- ----------- -----------
Investing Activities
Investment in subsidiary $ (102,390) $ 0 $(3,638,012)
----------- ----------- -----------
Net Cash Provided (Used) in Investing Activities $ (102,390) $ 0 $(3,638,012)
----------- ----------- -----------
Financing Activities
Proceeds from sale of treasury stock $ 0 $ 0 $ 17,825
Acquisition of treasury stock 0 0 (17,825)
Proceeds from issuance of common stock 155,920 77,037 3,620,579
Cash dividends (619,269) (615,504) (496,785)
----------- ----------- -----------
Net Cash Provided (Used) By Financing Activities $ (463,349) $ (538,467) $ 3,123,794
----------- ----------- -----------
Increase (Decrease) in Cash and Cash Equivalents $ 290,389 $ 39,812 $ 64,683
Cash and Cash Equivalents at Beginning of Year 287,345 247,533 182,850
----------- ----------- -----------
Cash and Cash Equivalents at End of Year $ 577,734 $ 287,345 $ 247,533
=========== =========== ===========
</TABLE>
[PHOTO]
CCFNB celebrated Millville's Grand Opening with an
"ice cream and cake social."
48
<PAGE> 23
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders of CCFNB Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of CCFNB Bancorp,
Inc. and Subsidiary as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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 consolidated financial position of CCFNB
Bancorp, Inc. and Subsidiary as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Corporation
changed its method of accounting for impairment of long-lived assets in 1996,
impaired loans and contributions in 1995 and investments in debt and equity
securities in 1994.
/s/ J.H. Williams & Co., LLP
- ----------------------------
J.H. Williams & Co., LLP
Kingston, Pennsylvania
January 17, 1997
(below) CCFNB employees enjoy doing their part for the United Way.
[PHOTO]
[PHOTO]
CCFNB was proud to present the American Red Cross with
a check to help the local flood victims of '96.
49
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Consolidated Summary of Operations (Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME AND EXPENSE:
Interest income $ 11,856 $ 11,481 $ 10,459 $ 9,914 $ 9,768
Interest expense 5,588 5,557 4,785 4,634 5,053
---------- ---------- ---------- ---------- ----------
Net interest income 6,268 5,924 5,674 5,280 4,715
Loan loss provision 80 42 160 105 167
---------- ---------- ---------- ---------- ----------
Net interest income after
loan loss provision 6,188 5,882 5,514 5,175 4,548
Non-interest income 750 678 569 568 547
Non-interest expense 4,450 4,374 3,958 3,763 3,468
---------- ---------- ---------- ---------- ----------
Income before income taxes 2,488 2,186 2,125 1,980 1,627
Income taxes 664 561 560 497 414
Change in accounting principle 0 0 0 196 0
---------- ---------- ---------- ---------- ----------
Net income 1,824 1,625 1,565 1,679 1,213
========== ========== ========== ========== ==========
PER SHARE:
Net income after change in
accounting principle $ 1.33 $ 1.19 $ 1.35 $ 1.51 $ 1.09
Cash dividends paid 0.45 0.45 0.42 0.40 0.33
Average shares outstanding 1,375,875 1,367,595 1,163,199 1,109,837 1,109,602
AVERAGE BALANCE SHEET:
Loans 112,341 111,980 100,628 88,347 77,354
Investments 39,248 37,063 41,410 42,083 38,534
Other earning assets 2,849 1,727 2,696 3,659 1,360
Total assets 164,512 157,957 151,752 143,096 129,045
Deposits 117,414 116,495 115,071 117,105 103,500
Other interest-bearing
liabilities 14,860 11,766 11,014 12,332 12,390
Stockholders' equity 19,512 18,067 13,736 12,739 11,972
BALANCE SHEET AT YEAR-END:
Loans 115,590 111,832 109,800 96,423 82,055
Investments 37,407 40,384 39,323 44,542 39,448
Other earning assets 6,856 385 4,174 3,491 9,885
Total assets 170,086 162,066 157,124 152,386 139,273
Deposits 131,400 128,985 126,864 124,023 113,291
Other interest-bearing liabilities 16,951 12,430 11,910 14,317 13,199
Stockholders' equity 20,657 19,512 17,650 13,452 12,208
RATIOS:
Return on average assets 1.11% 1.03% 1.03% 1.17% .94%
Return on average equity 9.35% 8.99% 11.39% 13.18% 10.13%
Dividend payout ratio 33.95% 34.35% 36.54% 26.44% 30.17%
Average equity to average
assets ratio 11.86% 11.44% 9.05% 8.90% 9.28%
</TABLE>
The following discussion and analysis should be read in conjunction with the
detailed information and consolidated financial statements, including notes
thereto, included elsewhere in this report. The consolidated financial condition
and results of operations of the Corporation are essentially those of its
subsidiary, the Bank. Therefore, the analysis that follows is directed to the
performance of the Bank.
FACTORS THAT MAY AFFECT FUTURE RESULTS
General. Banking is affected, directly and indirectly, by local, domestic and
international economic and political conditions, and by government monetary and
fiscal policies. Conditions such as inflation, recession, unemployment, volatile
interest rates, tight money supply, real estate values, international conflicts
and other factors beyond the control of the Corporation may adversely affect the
future results of operations of the Corporation. Management does not expect any
one particular factor to affect the
50
<PAGE> 25
Corporation's results of operations. A downward trend in several areas, however,
including real estate, construction and consumer spending, could have an adverse
impact on the Corporation's ability to maintain or increase profitability.
Therefore, there is no assurance that the Corporation will be able to continue
their current rates of income and growth.
Interest Rates. The Corporation's earnings depend, to a large extent, upon net
interest income, which is primarily influenced by the relationship between its
cost of funds (deposits and borrowings) and the yield on its interest-earning
assets (loans and investments). This relationship, known as the net interest
spread, is subject to fluctuation and is affected by regulatory, economic and
competitive factors which influence interest rates, the volume, rate and mix of
interest-earning assets and interest-bearing liabilities, and the level of
nonperforming assets. As part of its interest rate risk management strategy,
management seeks to control its exposure to interest rate changes by managing
the maturity and repricing characteristics of interest-earning assets and
interest-bearing liabilities.
As of December 31, 1996, total interest-earning assets maturing or repricing
within one year were less than total interest-bearing liabilities maturing or
repricing in the same period by $2 million, representing a cumulative one-year
interest rate sensitivity gap as a percentage of total assets of negative 1.20%.
This condition suggests that the yield on the Corporation's interest-earning
assets should adjust to changes in market interest rate at a slower rate than
the cost of the Corporation's interest-bearing liabilities. Consequently, the
Corporation's net interest income could decrease during periods of rising
interest rates. See "Interest Rate Sensitivity".
Local Economic Conditions. The success of the Corporation is dependent, to a
certain extent, upon the general economic conditions in the geographic market
served. Although the Corporation expects that economic conditions will continue
to be favorable in this market, no assurance can be given that these economic
conditions will continue. Adverse changes in economic conditions in the
geographic market that the Corporation serves would likely impair it's ability
to collect loans and could otherwise have a material adverse effect on the
results of operations and financial condition of the Corporation.
Competition. The Banking industry is highly competitive, with rapid changes in
product delivery systems and in consolidation of service providers. Many of the
Corporation's competitors are bigger than the Corporation in terms of assets and
have substantially greater technical, marketing and financial resources. Because
of their size, many of these competitors can (and do) offer products and
services that the Corporation does not offer. The Corporation is constantly
striving to meet the convenience and needs of its customers and to enlarge its
customer base. No assurance can be given that these efforts will be successful
in maintaining and expanding the Corporation's customer base.
RESULTS OF OPERATIONS
The Corporation's net income increased 12.29% to $1,824,490 for 1996, compared
to $1,624,871 for 1995. Earnings per common share were $1.33 compared to $1.19
per common share in 1995. In late 1994, a stock offering was successfully
completed, which increased the outstanding number of shares by 255,360.
Beginning June 1995, a dividend reinvestment plan went into effect for the
Corporation which resulted in the issuance of additional shares of 9,053 and
7,036 in 1996 and 1995, respectively. These factors have affected the earnings
per share by increasing the weighted average number of shares which resulted in
weighted average number of shares outstanding of 1,375,875 and 1,367,595 for
1996 and 1995, respectively.
Loans increased 3.36% throughout 1996 to $115,589,784 from $111,831,596 in
1995. New loan products were introduced to change the "mix", most significant of
which were Home Equity Lines and Dealer Floor Plans. Return on average assets
("ROA") increased to 1.11% for 1996 compared to 1.03% for 1995. The return on
average equity ("ROE") increased to 9.35% for 1996 compared to 8.99% for 1995.
Tax-equivalent net interest income increased 5.38% in 1996 from $6,246,000 in
1995 to $6,582,000 in 1996. Average earning assets increased 3.20% in 1996 from
$150,505,000 in 1995 to $155,328,000 in 1996. This increased net interest income
was a result of changes in strategies in the loan and security area experienced
during the past year.
TABLE OF NON-INTEREST INCOME
(Dollars in Thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service charges and fees $532 $505 $428
Trust department income 76 51 50
Investment securities gain (losses)-net 28 83 55
Other 114 39 36
---- ---- ----
Total non-interest income $750 $678 $569
==== ==== ====
</TABLE>
51
<PAGE> 26
Total non-interest income increased 10.62% during 1996 from $678,000 in 1995
to $750,000 in 1996. Continued growth of the Trust Department resulted in an
increase in income of 49% from $51,000 in 1995 to $76,000 in 1996. Service fees
and charges increased from $505,000 in 1995 to $532,000 in 1996 or 5.35%. Other
income also increased 192% from $39,000 in 1995 to $114,000 in 1996 and was
attributable primarily to a gain on sale of Other Real Estate Owned of $54,000.
TABLE OF NON-INTEREST EXPENSE
(Dollars in Thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Salaries and wages $1,719 $1,593 $1,448
Employee benefits 598 529 424
Net occupancy expense 393 259 278
Furniture and equipment expense 411 349 306
FDIC insurance 2 148 278
State shares tax 133 115 104
Other expense 1,194 1,381 1,120
------ ------ ------
Total non-interest expense $4,450 $4,374 $3,958
====== ====== ======
</TABLE>
Total non-interest expense increased to $4,450,000 in 1996 from $4,374,000 in
1995 or 1.74%. Major components of this increase included increases of 9.18% in
salaries and benefits, 5.17% in net occupancy expense and 17.77% in furniture
and equipment expense. These increases were generally attributable to the
continuation of the Bank's expansion of its presence in its market area. The
increases were offset by the 98.65% decrease in the FDIC insurance assessment
for 1996. Other expenses decreased in 1996 principally due to a reduction of
data processing costs.
The benchmark in measuring non-interest expense is to express the expense as a
percentage of average total assets. In 1995, this percentage was 2.77% compared
to 2.70% in 1996. Accordingly, the Corporation had a positive improvement.
NET INTEREST INCOME
Tax-equivalent net interest income for 1996 was $6,582,000 compared to
$6,246,000 in 1995, an increase of 5.38%. Lending strategies were implemented in
1996 to change the loan mix to higher-yielding loans with adjustable rates.
These were the Home Equity Line, with a monthly rate adjustment option and the
Dealer Floor Plan, with immediate rate adjustments. Additionally,
mortgage-backed securities were added to the investment security portfolio with
these securities producing an improved yield.
Average cost of funds for 1996 was 4.22% compared to 4.33% for 1995, a
positive decrease of 2.54%. Yield on average interest earning assets was 7.63%
for both 1996 and 1995. The addition of the Dealer Floor Plan product, yielded
8.71% in 1996 which enhanced the current year's net interest spread.
TAX-EQUIVALENT NET INTEREST INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest income $11,856 $11,481 $10,459
Interest expense $ 5,588 $ 5,557 4,785
------- ------- -------
Net interest income $ 6,268 $ 5,924 5,674
Tax-equivalent adjustment 314 322 286
------- ------- -------
Net interest income (fully taxable equivalent) $ 6,582 $ 6,246 $ 5,960
======= ======= =======
</TABLE>
The net interest margin, which is the total tax-equivalent net interest income
as a percentage of total average interest-earning assets, increased in 1996 to
4.24% compared to 4.15% in 1995. The following Average Balance Sheet and Rate
Analysis table presents the average assets, actual income or expense and the
average yield on assets, liabilities and stockholders' equity for the years
1996, 1995 and 1994.
52
<PAGE> 27
AVERAGE BALANCE SHEET AND RATE ANALYSIS
Three Years Ended December 31 (Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Average Interest Average Average Interest Average Average Interest Average
Balance Inc/Exp Yd/Rate Balance Inc/Exp Yd/Rate Balance Inc/Exp Yd/Rate
------- ------- ------- ------- ------- ------- ------- ------- -------
Assets: (1) (2) (1) (2) (1) (2)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Bearing Deposits With
Other Financial Institutions $ 2,849 $ 150 5.27% $ 1,727 $ 114 6.60% $ 2,168 $ 85 3.92%
Investment Securities:
U.S. Government Securities 26,799 1,640 6.12 24,817 1,526 6.15 29,086 1,396 4.80
State and Municipal
Obligations (3) 9,471 505 8.57 8,680 493 8.57 8,364 472 8.55
Other Securities 2,978 198 6.65 3,566 256 7.18 3,960 285 7.20
--------- --------- ---- --------- --------- ---- --------- --------- -----
Total Investment Securities $ 39,248 $ 2,343 5.97% $ 37,063 $ 2,275 6.14% $ 41,410 $ 2,153 5.20%
Federal Funds Sold 890 47 5.28 735 60 8.16 528 21 3.98
Consumer 8,477 797 9.40 8,271 788 9.53 9,056 916 10.11
Dealer Floor Plan 379 33 8.71 0 0 .00 0 0 .00
Mortgage 95,445 7,777 8.15 95,165 7,674 8.06 77,410 5,973 7.72
Commercial 6,232 604 9.69 5,348 437 8.17 12,874 1,228 9.54
Tax Free (3) 1,808 105 9.11 2,196 133 9.11 1,288 83 9.76
--------- --------- ---- --------- --------- ---- --------- --------- -----
Total Loans $ 112,341 $ 9,316 8.29% $ 110,980 $ 9,032 8.14% $ 100,628 $ 8,200 8.15%
Total Interest Earning Assets 155,328 11,856 7.63 150,505 11,481 7.63 144,734 10,459 7.23
--------- --------- ---- --------- --------- ---- --------- --------- -----
Reserve for Loan Losses $ (910) $ (936) $ (886)
Cash and Due from Banks 1,535 1,961 1,237
Other Assets 8,559 6,427 6,667
--------- --------- ---------
Total Assets $ 164,512 $ 157,957 $ 151,752
========= ========= =========
Liabilities and Capital:
SUPER NOW Deposits $ 19,835 $ 430 2.17% $ 19,128 $ 534 2.79% $ 18,259 $ 529 2.90%
IRA 7,997 400 5.00 8,249 413 5.01 8,068 403 5.00
Money Market Deposits 13,570 401 2.96 18,229 562 3.08 27,459 912 3.32
Savings Deposits 23,619 645 2.73 25,378 818 3.22 25,835 881 3.41
Time Deposits over $100,000 10,927 650 5.95 9,031 513 5.68 5,920 270 4.56
Other Time Deposits 41,466 2,315 5.58 36,480 2,076 5.69 29,530 1,349 4.57
--------- --------- ---- --------- --------- ---- --------- --------- -----
Total Interest Bearing Deposits $ 117,414 $ 4,841 4.12% $ 116,495 $ 4,916 4.22% $ 115,071 $ 4,344 3.78
--------- --------- ---- --------- --------- ---- --------- --------- -----
FHLB 20 0 .00% 400 23 5.75% 79 3 3.80
Other Borrowed Funds 522 27 5.17 793 32 4.04 512 22 4.30
Long-Term Borrowings 331 24 7.25 123 5 4.07 0 0 .00
--------- --------- ---- --------- --------- ---- --------- --------- -----
Repurchase Agreements 13,987 696 4.98 10,573 581 5.50 10,423 416 3.99
Total Interest Bearing Liabilities $ 132,274 $ 5,588 4.22% $ 128,384 $ 5,557 4.33% $ 126,085 $ 4,785 3.80%
--------- --------- ---- --------- --------- ---- --------- --------- -----
Demand Deposits $ 11,416 $ 10,602 $ 10,937
Other Liabilities 1,310 904 994
Stockholders' Equity 19,512 18,067 13,736
--------- --------- ---------
Total Liabilities and Capital $ 164,512 $ 157,957 $ 151,752
========= ========= =========
Net Interest Income/Net
Interest Margin (4) $ 6,268 4.04% $ 5,924 3.94% $ 5,674 3.92%
========= ==== ========= ==== ========= =====
Tax-Equivalent Net Interest
Income/Net Interest Margin (5) $ 6,582 4.24% $ 6,246 4.15% $ 5,960 4.12%
========= ==== ========= ==== ========= =====
</TABLE>
- ---------
(1) Average volume information was compared using daily (or monthly) averages.
(2) Interest on loans includes fee income.
(3) Yield on tax-exempt obligations has been computed on a tax-equivalent basis.
(4) Net interest margin is computed by dividing net interest income by total
interest earning assets.
(5) Interest and yield are presented on a tax-equivalent basis using 34% for
1996, 1995 & 1994.
[PHOTO]
A community celebration at Bloomsburg's Grand Opening.
53
<PAGE> 28
COMPONENTS OF NET INTEREST INCOME
To enhance the understanding of the effects of volumes (the average balance of
earning assets and costing liabilities) and average interest rate fluctuations
on the balance sheet as it pertains to net interest income, the table below
reflects these changes for 1996 versus 1995.
Table of Net Interest Income Components on a Tax-Equivalent Basis
For the twelve months ended December 31, 1996 (Dollars in thousands)
<TABLE>
<CAPTION>
1996 Versus 1995 1995 Versus 1994 1994 Versus 1993
--------------------------- --------------------------- ----------------------------
Increase (Decrease) Increase (Decrease) Increase (Decrease)
Due to Changes In Due to Changes In Due to Changes In
--------------------------- --------------------------- ----------------------------
Average Average Average Average Average Average
Volume Rate Total Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income:
Interest Bearing Deposits with
Other Financial Institutions 74 (23) 51 (17) 58 41 (44) 34 (10)
U.S. Government Securities 122 (7) 115 (205) 393 188 (3) 82 79
State and Municipal Obligations 68 0 68 27 2 29 15 (23) (8)
Other Securities (42) (19) (61) (28) (1) (29) (58) (14) (72)
Federal Funds Sold 13 (21) (8) 8 22 30 (11) 10 (1)
Consumer Loans 20 (11) 9 (79) (53) (132) 35 (21) 14
Dealer Floor Plan 0 0 0 0 0 0 0 0 0
Mortgage Loans (1) 23 86 109 1,371 263 1,634 1,184 (606) 578
Commercial Loans 72 81 153 (718) (176) (894) (76) 332 256
Tax Free Loans (35) 0 (35) 89 (8) 81 (62) 6 (56)
---- ---- ---- ----- ---- ----- ----- ---- ----
Total Earnings Assets 315 86 401 448 500 948 980 (200) 780
Interest Expense:
SUPER NOW Deposits 20 (119) (99) 25 (20) 5 65 (6) 59
IRA (13) (1) (14) 9 1 10 47 (32) 15
Money Market Deposits (143) (22) (165) (306) (66) (372) (5) (55) (60)
Savings Deposits (57) (124) (181) (2) (44) (46) 184 (6) 178
Time Deposits over $100,000 108 24 132 124 70 194 45 (1) 44
Other Time Deposits 284 (40) 244 318 331 649 (73) (44) (117)
FHLB (22) (23) (45) 0 5 5 0 0 0
Other Borrowed Funds (11) 9 (2) 13 (2) 11 1 7 8
Long-Term Borrowings 8 4 12 0 0 0 0 0 0
Repurchase Agreements 188 (55) 133 6 155 161 (44) 84 40
---- ---- ---- ----- ---- ----- ----- ---- ----
Total Interest Bearing Deposits 362 (347) 15 187 430 617 220 (53) 167
---- ---- ---- ----- ---- ----- ----- ---- ----
Net Interest Income (47) 433 386 261 70 331 760 (147) 613
==== ==== ==== ===== ==== ===== ===== ==== ====
</TABLE>
(1) Includes non-accrual loans.
At the Corporation, there was a restructuring of management duties and a more
enhanced system of information flow to the senior management group. Management
anticipates that these changes should increase the non-interest income and
decrease the non-interest expense, which will impact the net income during the
coming year. In addition, management established an incentive plan for
employees, which will compensate employees through bonus payments based on the
net income of the Bank. This incentive plan has created interest among all
employees in the daily income and expense items generated by their decisions.
Management is very pleased with this new incentive program and the positive
impact it should have on future earnings.
FINANCIAL CONDITION
The Corporation's total consolidated assets at December 31, 1996 were $170
million which represented an increase of $8 million or 4.95% over $162 million
at December 31, 1995. The 1995 growth rate was 3.2% or $5 million.
Capital growth of 5.87% for 1996 from $20 million in 1995 to $21 million in
1996 reflected the proceeds of the dividend reinvestment plan and earnings of
$1.8 million.
Total average assets grew 4.15% from 1995 at $158 million to 1996 at $165
million. Average earning assets grew 3.20% from 1995 at $151 million to 1996 at
$155 million.
Loans increased 3.36% from 1995 at $112 million to 1996 at $116 million. New
loan products offered during 1996 started a new mix of loans which should
continue to increase the yield.
Core deposits grew 7.68% from $10.6 million in average non-interest bearing
deposits in 1995 to $11.4 million in 1996. Interest-bearing average deposits
grew 7.89% from $116 million in 1995 to $117 million in 1996.
54
<PAGE> 29
The loan-to-deposit ratio is a key measurement of liquidity. The
loan-to-deposit ratio remained high at 87.81% at December 31, 1996 and 87.19% at
December 31, 1995.
It is management's opinion that the balance sheet mix and the interest rate
risk associated with the balance sheet was within manageable parameters.
Constant monitoring using asset/liability reports and interest rate risk
scenarios were in place along with quarterly asset/liability management meetings
on the committee level by the Board of Directors. Several seminars provided by a
special consultant on asset/liability management and specific features of
different types of securities have been presented to the responsible committee
of the Board of Directors.
INVESTMENTS
(Dollars in thousands)
<TABLE>
<CAPTION>
Outstanding Balance at December 31,
-----------------------------------
1996 1995 1994
---- ---- ----
Available Held To Available Held To Available Held To
For Sale Maturity For Sale Maturity For Sale Maturity
-------- -------- -------- -------- -------- --------
(2) (1) (2) (1) (2) (1)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities $ 6,994 $ 0 $ 15,034 $ 0 $ 9,596 $ 13,832
Federal Agency Obligations 16,765 0 13,121 0 1,806 2,098
Mortgage-backed Securities 1,683 0 0 0 0 0
Obligations of State and Political
Subdivisions 8,567 970 7,685 1,045 0 8,458
Other Securities 2,428 0 3,499 0 2,027 1,506
-------- ----- -------- ------- -------- --------
Total Investment Securities $ 36,437 $ 970 $ 39,339 $ 1,045 $ 13,429 $ 25,894
======== ===== ======== ======= ======== ========
</TABLE>
(1) Carried at amortized cost.
(2) Carried at estimated fair value.
The following table sets forth the maturity distribution of the investment
portfolio's held-to-maturity and available-for-sale securities, the weighted
average yield for each type of held-to-maturity and available-for-sale security
and ranges of maturity at December 31, 1996. Yields are presented on a
tax-equivalent basis, are based upon carrying value and are weighted for the
scheduled maturity. At December 31, 1996 the Corporation's investment securities
portfolio had an average maturity of approximately 4.1 years.
<TABLE>
<CAPTION>
(Dollars in Thousands)
----------------------
After One After Five
Year But Years But
Within Within Within After
One Year Five Years Ten Years Ten Years Total
-------- ---------- --------- --------- -----
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Held-To-Maturity Securities
At Amortized Cost
U.S. Treasury Securities $ 0 .00% $ 0 .00% $ 0 .00% $ 0 .00% $ 0 .00%
Federal Agency
Obligations 0 .00 0 .00 0 .00 0 .00 0 .00
Obligations of State and
Political Subdivisions 0 .00 970 7.22 0 .00 0 .00 970 7.22
Other Securities 0 .00 0 .00 0 .00 0 .00 0 .00
------ ---- ------- ---- ------ ---- ------ ---- ------- ----
Total $ 0 .00% $ 970 7.22% $ 0 .00% $ 0 .00% $ 970 7.22%
====== ==== ======= ==== ====== ==== ====== ==== ======= ====
Available-For-Sale
Securities At Fair Value
U.S. Treasury Securities $4,000 5.89% $ 2,995 5.51% $ 0 .00% $ 0 .00% $ 6,995 5.73%
Federal Agency
Obligations 3,116 6.52 14,354 6.11 978 6.38 0 .00 18,448 6.19
Obligations of State and
Political Subdivisions 0 .00 1,444 7.35 2,329 8.27 4,794 8.72 8,567 8.38
Other Securities 0 .00 492 6.13 983 6.39 952 6.26 2,427 6.30
------ ---- ------- ---- ------ ---- ------ ---- ------- ----
Total $7,116 5.95% $19,285 6.04% $4,290 7.27% $5,746 8.31% $36,437 6.65%
====== ==== ======= ==== ====== ==== ====== ==== ======= ====
</TABLE>
Available-for-Sale securities were reported on the balance sheet at fair
value. An adjustment to capital, net of deferred taxes was the offset for this
entry. The possibility of material price volatility in a rising interest rate
environment was offset by the availability to the Corporation of restructuring
the portfolio for gap positioning at any time through the securities classed as
Available for Sale. The impact of the fair value adjustment under FASB 115
provided an unrealized gain, net of tax, on December 31, 1996 of $69,000
compared to an unrealized gain, net of tax, on December 31, 1995 of $285,000.
Several local municipal holdings were placed in the Held-to-Maturity category.
These holdings
55
<PAGE> 30
comprised 2.59% of the entire portfolio at December 31, 1996 and 1995. The total
at December 31, 1996 was $970,000 compared to $1,045,000 at December 31, 1995.
Available-for-sale securities total $36,437,000 at December 31, 1996 compared
to $39,339,000 at December 31, 1995 or a decrease of 7.37%.
The mix of securities in the portfolio was 18.70% U.S. Treasuries, 4.50%
Mortgage-backed Securities, 44.82% other U.S. Agencies, 25.49% Municipal and
6.49% Other. A new security type added to the portfolio during 1996 was mortgage
backed securities. The monthly cash flow generated by these securities should
favorably impact the gap position of the Corporation. The Corporation does not
engage in derivative investment products.
LOANS
Loan Portfolio
Loans Outstanding (Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Commercial and Easy Access $ 7,957 $ 5,990 $ 5,472
Tax Exempt 2,064 1,520 2,398
Lease Financing Receivables 35 131 277
Real Estate - Construction 660 941 994
Real Estate - Mortgage 96,439 95,293 94,030
Consumer 8,447 8,058 6,577
Credit Cards 441 447 468
-------- -------- --------
$116,043 $112,380 $110,216
Unamortized Loan Fees Net of Costs 129 188 273
Unearned Income 324 360 143
-------- -------- --------
Loans, Net $115,590 $111,832 $109,800
======== ======== ========
</TABLE>
A growth of 3.36% was experienced in the loan portfolio, from $112 million in
1995 to $116 million in 1996. The distribution of the loan portfolio reflected
83.67% real estate loans at $97,099,000; 6.86% commercial loans at $7,957,000;
1.81% tax exempt loans at $2,099,000; and 7.66% consumer loans at $8,888,000.
Variable rate real estate loans were comprised of 84.55% with 3 year
adjustable rate, 5.52% with 1 year adjustable rate and 9.93% with one day to 3
month adjustable rates. The three year and one year adjustable rate loans can
have bi-weekly payments.
DEPOSITS AND BORROWED FUNDS
Table of Distribution of Average Deposits (Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Demand deposits $ 31,251 $ 29,730 $ 29,196
Savings deposits 37,189 43,607 53,294
Time deposits 49,463 44,729 37,598
Certificates of deposit, $100,000 and over 10,927 9,031 5,920
-------- -------- --------
Total $128,830 $127,097 $126,008
======== ======== ========
</TABLE>
Table of Maturity Distribution of Time Deposits Over $100,000
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Three months or less $ 7,664 $ 4,171 $2,751
Over three months to six months 2,546 1,401 1,134
Over six months to twelve months 1,867 1,372 1,610
Over twelve months 898 4,090 1,516
------- ------- ------
Total $12,975 $11,034 $7,011
======= ======= ======
</TABLE>
Total average deposits increased 1.36% from $127 million at December 31, 1995
to $129 million at December 31, 1996. A shift from savings to time deposits
(mainly certificates of deposit) continued throughout 1996. This was reflected
in the 14.72% decline in average savings deposits from $44 million at December
31, 1995 to $37 million at December 31, 1996; and the 12.33% increase in average
time deposits from $54 million at December 31, 1995 to $60 million at December
31, 1996. Average non-interest bearing demand deposits grew 5.12% from $30
million at December 31, 1995 to $31 million at December 31, 1996.
Short-term borrowings and securities sold under agreements to repurchase
increased 36.41% from $12 million at December 31, 1995 to $16 million at
December 31, 1996. Long-term borrowings totalled
56
<PAGE> 31
$297,000 at December 31, 1996 compared to $365,000 at December 31, 1995. Average
Treasury Tax and Loan deposits held by the Corporation for the U.S. Treasury
averaged $522,000 for 1996 and one day borrowings averaged $20,000 for 1996.
NONPERFORMING ASSETS
Past Due And Non-Accrual Loans
(Dollars in thousands)
<TABLE>
<CAPTION>
Lease
Real Installment Credit Financing
1996 Estate Loans Commercial Cards Receivables Total
- ---- ------ ----- ---------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Days 30-89 $ 806 $125 $ 17 $1 $ 0 $ 949
Days 90 Plus 292 15 14 1 7 329
Non-accrual 109 0 0 0 0 109
------ ---- ---- -- --- ------
Total $1,207 $140 $ 31 $2 $ 7 $1,387
====== ==== ==== == === ======
1995
Days 30-89 $1,022 $213 $ 93 $2 $ 0 $1,330
Days 90 Plus 332 31 0 3 31 397
Non-accrual 13 0 0 0 0 13
------ ---- ---- -- --- ------
Total $1,367 $244 $ 93 $5 $31 $1,740
====== ==== ==== == === ======
1994
Days 30-89 $ 586 $133 $152 $4 $ 0 $ 875
Days 90 Plus 131 47 69 2 55 304
Non-accrual 15 1 8 0 0 24
------ ---- ---- -- --- ------
Total $ 732 $181 $229 $6 $55 $1,203
====== ==== ==== == === ======
</TABLE>
At December 31, 1996, loans 30-89 days past due totalled $949,000 compared to
$1,330,000 at December 31, 1995, a 28.65% decrease. Past due loans 90 days and
over totalled $329,000 at December 31, 1996 compared to $397,000 at December 31,
1995, a 17.13% decrease. Non-accrual loans at December 31, 1996 totalled
$109,000 compared to $13,000 at December 31, 1995. Overall, past due and
non-accrual loans decreased 20.29% from $1,740,000 at December 31, 1995 to
$1,387,000 at December 31, 1996.
Loans were stated at their outstanding principal balances, net of any deferred
fees or costs, unearned income, and the allowance for loan losses. Interest on
loans accrued on the principal amount outstanding, primarily on the actual day
basis. Non-renewable loan fees and certain direct costs were deferred and
amortized over the life of the loans using the interest method. The amortization
was reflected on an interest yield adjustment, and the deferred portion of the
net fees and costs was reflected as a part of the loan balance.
Generally, a loan is classified as non-accrual, and the accrual of interest on
such a loan is discontinued when the contractual payment of principal or
interest becomes 90 days past due or management has serious doubts about further
collect ability of principal or interest, even though the loan currently is
performing.
A loan may remain on accrual status if it is in the process of collection and
is either guaranteed or well secured. When a loan is placed on non-accrual
status, unpaid interest credited to income in the current year is reversed, and
unpaid interest accrued in prior years is charged against the allowance for
credit losses. Potential problem loans are identified by management as part of
its loan review process.
Income recognition is in accordance with Statement of Financial Accounting
Standards No. 118. Certain non-accrual loans may continue to perform, that is,
payments are still being received. Generally, the payments are applied to
principal. These loans remain under constant scrutiny and if performance
continued, interest income may be recorded on a cash basis based on management's
judgment as to collect ability of principal.
There was no impact upon implementing Statements of Financial Accounting
Standards No.'s 114 and 118, because the amount of impaired loans reflected by
such accounting statements was relatively insignificant.
Management does not believe that there are any trends or uncertainties which
will materially impact future results of operations, liquidity or capital
resources. Management is not aware of any information which causes it to have
serious doubts as to the ability of its borrowers to comply with loan repayment
terms.
57
<PAGE> 32
ALLOWANCE FOR LOAN LOSSES AND RELATED PROVISION
(Dollars in Thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
% of Loans % of Loans % of Loans
in Category in Category in Category
Amount to Total Loans Amount to Total Loans Amount to Total Loans
------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 79 9% $ 73 7% $133 14%
Real estate mortgages 500 84% 513 86% 447 75%
Consumer 96 7% 53 7% 203 9%
Credit cards 20 0% 25 0% 27 1%
Lease financing receivables 0 0% 2 0% 7 1%
Unallocated 216 N/A 246 N/A 126 N/A
---- --- ---- --- ---- ---
$911 100% $912 100% $943 100%
==== === ==== === ==== ===
</TABLE>
The allowance for loan losses was $911,000 at December 31, 1996, compared to
$912,000 at December 31, 1995. This allowance equalled .08% of total loans, net
of unearned income, at December 31, 1996 and 1995. This allowance was considered
adequate based on delinquency trends and loan growth.
The loan loss reserve was analyzed quarterly and reviewed by the Board of
Directors. The assessment of the loan policies and procedures during 1996
revealed no anticipated loss on any loans considered "significant." No
concentration or apparent deterioration in classes of loans or pledged
collateral was evident. Monthly loan meetings with the Board Credit
Administration Committee reviewed new loans, delinquent loans and loan
exceptions to determine compliance with policies.
The schedule below presents a history of actual charge-offs and recoveries by
category and related balances and ratios.
Summary of Loan Loss Experience (Dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Loans outstanding at end of period $ 115,590 $ 111,832 $ 109,800
========= ========= =========
Average loans outstanding $ 112,342 $ 110,980 $ 100,628
========= ========= =========
Allowance for loan losses:
Balance, beginning of year $ 912 $ 943 $ 921
Loans charged-off:
Commercial and industrial (19) (65) (21)
Real estate mortgages 0 0 (147)
Consumer (118) (38) (23)
Lease financing receivables 0 0 0
Credit cards (8) (4) (5)
--------- --------- ---------
Total loans charged-off (145) (107) (196)
--------- --------- ---------
Recoveries:
Commercial and industrial 17 13 4
Real estate mortgages 0 0 1
Consumer 41 6 17
Lease financing receivables 3 12 32
Credit cards 3 3 4
--------- --------- ---------
Total recoveries 64 34 58
--------- --------- ---------
Net loans charged-off (81) (73) (138)
--------- --------- ---------
Provision charged to expense 80 42 160
--------- --------- ---------
Balance, end of period $ 911 $ 912 $ 943
========= ========= =========
Ratio of net charge-offs during the period to average loans
outstanding during period .07% .04% .14%
</TABLE>
The allowance for loan losses was established through provisions for loan
losses charged against income. Loans deemed to be uncollectible were charged
against the allowance for loan losses, and subsequent recoveries, if any, were
credited to the allowance.
As of January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standards No. 114. "Accounting for Creditors for Impairment of a Loan
- - Income Recognition and Disclosure." Under the new standards, the allowance for
loan losses related to loans that were identified for evaluation in accordance
with Statement No. 114 which was based on discounted cash flows using the loan's
initial effective interest rate or the fair value of the collateral for certain
collateral dependent loans. Prior to 1995, the allowance for loan losses related
to these loans was based on undiscounted cash flows or the fair value of the
collateral for collateral dependent loans. Statement No. 118 allowed the
continued use of
58
<PAGE> 33
existing methods for income recognition on impaired loans and amended disclosure
requirements to require information about the recorded investment in certain
impaired loans and related income recognition on those loans. The allowance for
loan losses was maintained at a level by management to be adequate to absorb
estimated potential loan losses. Management's periodic revaluation of the
adequacy of the allowance for loan losses was based on the Corporation's past
loan loss experience; known and inherent risks in the portfolio; adverse
situations that may affect the borrower's ability to repay (including the timing
of future payments); and other relevant factors. This evaluation was inherently
subjective as it required material estimates, including the amounts and timing
of future cash flows expected to be received on impaired loans that may be
susceptible to significant change. See "Factors That May Affect Future Results."
Moreover, no additions to the Reserve for Loan losses was required as a result
of implementation of Statement No. 114 or Statement No. 118 because the amount
of impaired loans was considered to be insignificant and the existing reserve
was more than adequate to provide for those impaired loans.
LIQUIDITY
Liquidity management is required to ensure that adequate funds will be
available to meet anticipated and unanticipated deposits, withdrawals, debt
service payments, investment commitments, commercial and consumer loan demand,
and ongoing operating expenses. Funding sources include principal repayments on
loans, sales of assets, growth in core deposits, short and long-term borrowings,
investment securities coming due, loan prepayments and repurchase agreements.
Regular loan payments are a dependable source of funds, while the sale of
investment securities, deposit growth and loan prepayments are significantly
influenced by general economic conditions and the level of interest rates.
Liquidity is managed on a daily basis at the Corporation. Management believes
that liquidity is sufficient to meet present and future financial obligations
and commitments on a timely basis. However, see "Factors That May Affect Future
Results."
At December 31, 1996, cash and cash equivalents totalled $11,359,167 compared
to $4,471,193 at December 31, 1995. Changes in cash were measured by changes in
the three major classifications of cash flows known as operating, investing and
financing activities.
At December 31, 1996, net cash provided by operating activities equaled
$2,139,838, which consisted mainly of net income adjusted for non-cash items
such as depreciation, loss on impairment of bank premise, provision for loan
losses, amortization and accretion and deferred taxes.
Net cash used for investing activities totalled $1,724,110, which was
principally the result of a net increase in loans of $3,839,730 and purchases of
premises and equipment of $629,777 less $2,691,314 excess of proceeds on sale
and redemption of Available for Sale and Held to Maturity investment securities
over purchases of Available for Sale Investment Securities.
Net cash provided by financing activities totalled $6,472,246 at December 31,
1996, and consisted mostly of an increase in deposits and other borrowings less
dividends paid.
CAPITAL RESOURCES
Capital continues to be a strength of the Corporation. Capital is critical as
it must provide growth, payment to shareholders, and absorption of unforeseen
losses. The federal regulators provide standards that must be met. These
standards measure "risk-adjusted" assets against different categories of
capital. The "risk-adjusted" assets reflect off balance sheet items, such as
commitments to make loans, and also place balance sheet assets on a "risk" basis
for collectability. The adjusted assets are measured against Tier I Capital and
Total Qualifying Capital. Tier I Capital is common stockholders' equity and Tier
II Capital includes the allowance for loan losses. Allowance for loan losses
must be lower than or equal to common stockholders' equity to be eligible for
Total Qualifying Capital. The following table reflects the Corporation's
position with these capital ratios:
<TABLE>
<CAPTION>
1996 1995
---- ----
Minimum Minimum
Calculated Standard Calculated Standard
Ratios Ratios Ratios Ratios
------ ------ ------ ------
<S> <C> <C> <C> <C>
Risk Based Ratios:
Tier I Capital to Risk-Weighted Assets 21.74% 4.00% 28.21% 4.00%
Total Qualifying Capital to Risk-Weighted Assets 22.70% 8.00% 29.46% 8.00%
</TABLE>
Management believes that the Corporation's current capital position is strong
and adequate to support its operations.
Dividend payouts are restricted by the Pennsylvania Business Corporation Law
of 1988, as amended (the "BCL"). The BCL operates generally to preclude dividend
payments if the effect thereof would render the Corporation unable to meet its
obligations as they become due. As a practical matter, the Corporation's payment
of dividends is contingent upon its ability to obtain funding in the form of
dividends from the Bank. Payment of dividends to the Corporation by the Bank is
subject to the restrictions
59
<PAGE> 34
set forth in the National Bank Act. Generally, the National Bank Act would
permit the Bank to declare dividends in 1997 of approximately $1,969,894 plus
additional amounts equal to the net income earned in 1997 for the period January
1, 1997 through the date of declaration, less any dividends which may be paid in
1997.
Common stock issued by the Corporation is traded on a limited basis in the
local over-the-counter market using the symbol CCFN. The bid prices below are
actual transactions and reflect information from one of the Corporation's
market-makers. The prices do not necessarily reflect any dealer or retail
markup, markdown or commission:
<TABLE>
<CAPTION>
Bid Per Share
-------------
1996 1995
---- ----
Highest Lowest Highest Lowest
------- ------ ------- ------
<S> <C> <C> <C> <C>
Fourth quarter $16.88 $16.75 $15.50 $14.75
Third quarter $16.75 $16.75 $14.50 $14.25
Second quarter $16.50 $16.25 $14.25 $14.00
First quarter $16.38 $16.00 $14.50 $14.25
</TABLE>
INTEREST RATE SENSITIVITY
Interest rate sensitivity is the relationship between market interest rates
and earnings volatility due to the repricing characteristics of assets and
liabilities. The Corporation's net interest income is affected by changes in the
level of market interest rates. In order to maintain consistent earnings
performance, the Corporation seeks to manage, to the extent possible, the
repricing characteristics of its assets and liabilities.
One major objective of the Corporation when managing the rate sensitivity of
its assets and liabilities is to stabilize net interest income. The management
of and authority to assume interest rate risk is the responsibility of senior
management. The process to review interest rate risk is a regular part of the
Corporation's management of the Bank. Consistent policies and practices of
measuring and reporting interest rate risk exposure, particularly regarding the
treatment of noncontractual assets and liabilities, are in effect. In addition,
there is an annual process to review the interest rate risk policy which
includes limits on the impact to earnings and capital from shifts in interest
rates.
Statement Of Interest Sensitivity Gap (Dollars in thousands)
December 31, 1996
<TABLE>
<CAPTION>
Greater Than 90 Days
90 Days But 1 to 5 5 to 10 Greater Than 10
Or Less Less Than 1 Year Years Years Years Total
------- ---------------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Short-term investments $ 6,856 $ 0 $ 0 $ 0 $ 0 $ 6,856
Securities available for sale (1) 6,523 5,416 15,830 4,046 4,622 36,437
Securities held to maturity (1) 0 0 970 0 0 970
Loans (1) 20,829 28,491 55,940 7,243 3,087 115,590
------- -------- -------- ------- ------ --------
Rate Sensitive Assets $34,208 $ 33,907 $ 72,740 $11,289 $7,709 $159,853
------- -------- -------- ------- ------ --------
Deposits:
Interest-bearing demand deposits (2) $ 2,897 $ 2,793 $ 14,416 $ 0 $ 0 $ 20,106
Savings (2) (3) 5,684 6,059 23,882 0 0 35,625
Time 11,692 22,690 29,007 0 0 63,389
Borrowed funds 12,582 4,072 0 0 0 16,654
Long-term debt 22 67 208 0 0 297
Shareholders' equity 399 1,197 8,731 5,164 5,166 20,657
------- -------- -------- ------- ------ --------
Rate Sensitive Liabilities and
Shareholders' Equity $33,276 $ 36,878 $ 76,244 $ 5,164 $5,166 $156,728
------- -------- -------- ------- ------ --------
Interest Sensitivity Gap $ 932 $ (2,971) $ (3,504) $ 6,125 $2,543 $ 3,125
Cumulative Gap $ 932 $ (2,039) $ (5,543) $ 582 $3,125 $ 0
</TABLE>
- ----------
(1) Investments and loans are included in the earlier of the period in which
interest rates are next scheduled to adjust or the period in which they are
due.
(2) The Bank's interest-bearing demand and savings accounts are generally
subject to immediate withdrawal. However, management considers these amounts
of such accounts to be core accounts having significantly longer effective
maturities based on the retention experience of such deposits in changing
interest rate environments. Accordingly, these deposits are assumed to be
withdrawn according to proposed guidelines outlined by the Federal Reserve
Board which management considers reasonable at this time. The withdrawal
rates used are considered by management to be indicative of expected
withdrawal rates.
(3) The preceding table contains savings accounts which are all variable rates.
60
<PAGE> 35
At December 31, 1996 the Corporation had a cumulative asset position at 90
days, five to ten years and beyond ten years. Cumulative liability positions
were reflected for the greater than 90 days but less than one year and the one
to five year category. The position as of December 31, 1996 and the potential
impact to earnings from a 200 basis point change in rates were within the
internal risk management tolerance guidelines.
EMPLOYEES OF COLUMBIA COUNTY FARMERS NATIONAL BANK
BENTON
Marlene Baudendisztl
Carla M. Emery
Judith A. Fink
Tracy L. Hess
Dean R. Kelchner
Sheila L. Kile
Kyle D. Little
Jean E. MacDermott
Gloria M. Miller
Anna M. Moyer
Debbie A. Peterman
Beth M. Preston
Lisa L. Remley
Sally B. Tucker
Teresa E. Vincent
BLOOMSBURG
Sue Ann Carl
Elaine M. Edwards
Nancy K. Fought
Elmer O. Frantz III
J. Jan Girton
Barbara M. Hess
Jamie S. Keller
Rachel E. Kressler
Nancy H. Lindenmuth
Denise A. Long
Florence H. Martz
Lou Ann Neaus
Charity A. Puterbaugh
Paul E. Reichart
Grace I. Shuman
Darlene L. Tappe
Jacob S. Trump
Karen Z. Wenner
Theresa R. Whitmire
Kimberly I. Young
LIGHTSTREET
Trevor A. Barnhart
Laurie A. Bartholomew
Andrea S. Bartlett
Dolores M. Bennett
Luanne Bittenbender
Lily Mae Boudman
Sandra J. Boyer
Diana L. Chamberlin
Mary H. Crawford
Anne E. DeFrain
Deborah B. Deitterick
Lance O. Diehl
Nancy R. Diehl
Patty J. Dinelli
Joyce F. Dohl
Charles W. Dyer
Jennifer L. Fester
Lorraine R. George
Kay M. Gerasimoff
Nancy L. Harris
Gloria Y. Harvey
Linda A. Huttenstine
Brenda E. Kalie
Michelle M. Karas
Phillip J. Karas
Virginia D. Kocher
Carol J. Martin
Kathleen J. Marzari
Ruth E. Mott
Karen M. Murdock
Jay L. Oman
Vickie S. Reifendifer
Faith R. Smith
Dale E. Thomas
Diane M. Thomas
Tracey L. Travelpiece
Theresa A. Valencik
Christy M. Vought
Edwin A. Wenner
Carol L. Wiggin
MILLVILLE
Linda M. Boudman
Christopher R. Bower
Betsy L. Fought
Mary I. Hess
Ruth E. Hunter
Martie J. Johnson
Gloria J. Mensch
Jennifer L. Omlor
Lori A. Reese
Gina L. Rider
ORANGEVILLE
Brenda A. Brudnicki
Lynn Z. Fritz
Betty J. Kline
LouAnn P. Megargell
Susan K. McGreevy
SOUTH CENTRE
Pamela D. Berman
Linda L. Curio
Carey A. Jurbala
Sandra J. Noss
Connie L. Yoder
61
<PAGE> 36
[GRAPH]
[GRAPH]
62
<PAGE> 37
[GRAPH]
[GRAPH]
[GRAPH]
63
<PAGE> 38
CCFNB BANCORP, INC. MARKET MAKERS
Hopper Soliday & Co., Inc.
(800) 646-8647
(717) 560-3042
Ferris, Baker Watts, Incorporated
(410) 659-4600
Herzog, Heine, Geduld, Inc.
(201) 418-4000
Janney Montgomery Scott, Inc.
(215) 665-6000
F.J. Morrissey & Co., Inc.
(215) 563-8500
Ryan, Beck & Co.
(908) 233-0700
REGISTRAR & TRANSFER AGENT
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
CCFNB LOCATIONS
[MAP]
Market Street
Benton, PA 17814
(717) 925-6181
232 East Street
Bloomsburg, PA 17815
(717) 784-4400
4242 Old Berwick Road
Bloomsburg, PA 17815
(717) 784-8474
Route 487, Lightstreet Road
Bloomsburg, PA 17815
(717) 784-5600
State Street
Millville, PA 17846
(717) 458-5650
Main Street
Orangeville, PA 17859
(717) 683-5200
ON THE COVER
The Millville 4th of July
Parade is an annual event that
CCFNB employees enjoyed
participating in. President,
Paul Reichart and Vice
President, Dean Kelchner enjoy
the festivities by the CCFNB
"Dream Team" float.
64
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES OF BANCORP
Direct Subsidiary: Columbia County Farmers National Bank,
chartered under the laws of the United States of
America, a national banking association.
66
<PAGE> 1
EXHIBIT 99A
PROXY STATEMENT, NOTICE OF ANNUAL MEETING AND
FORM OF PROXY FOR THE ANNUAL MEETING
OF SHAREHOLDERS TO BE HELD MAY 6, 1997
67
<PAGE> 2
CCFNB BANCORP, INC.
PROXY STATEMENT FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD MAY 6, 1997
GENERAL
INTRODUCTION, DATE, PLACE AND TIME OF MEETING
This Proxy Statement is being furnished for the solicitation
by the Board of Directors of CCFNB Bancorp, Inc. (the "Corporation"), a
Pennsylvania business corporation, of proxies to be voted at the Annual Meeting
of Shareholders of the Corporation to be held at the CCFNB Operations Center,
Lightstreet Road, Bloomsburg, Pennsylvania 17815, on Tuesday, May 6, 1997, at
10:30 a.m., prevailing time, or at any adjournment or postponement of the Annual
Meeting.
The principal executive offices of the Corporation are located
at Columbia County Farmers National Bank (the "Bank"), 232 East Street,
Bloomsburg, Pennsylvania 17815. The telephone number for the Corporation is
(717) 784-4400. All inquiries should be directed to Paul E. Reichart, President
of the Corporation. The Bank is a wholly-owned subsidiary of the Corporation.
SOLICITATION
This Proxy Statement and the enclosed form of proxy (the
"Proxy") are first being sent to shareholders of the Corporation on or about
April 2, 1997.
Shares represented by proxies on the accompanying Proxy, if
properly signed and returned, will be voted in accordance with the
specifications made thereon by the shareholders. Any Proxy not specifying to the
contrary will be voted for the election of the three nominees for Class 3
Director named below and for the ratification of the selection of J. H. Williams
& Co., LLP, Certified Public Accountants, of Kingston, Pennsylvania, as the
independent auditors for the Corporation for the year ending December 31, 1997.
Execution and return of the enclosed Proxy will not affect a shareholder's right
to attend the Annual Meeting and vote in person, after giving written notice to
the Secretary of the Corporation.
The cost of preparing, assembling, printing, mailing and
soliciting Proxies, and any additional material which the Corporation may
furnish shareholders in connection with the Annual Meeting, will be borne by the
Corporation. In addition to the use of the mails, certain directors, officers
and employees of the Corporation and the Bank may solicit Proxies personally, by
telephone and by telefacsimile. Arrangements will be made with brokerage houses
and other custodians, nominees and fiduciaries to forward proxy solicitation
material to the beneficial owners of stock held
68
<PAGE> 3
of record by these persons, and, upon request therefor, the Corporation will
reimburse them for their reasonable forwarding expenses.
RIGHT OF REVOCATION
A shareholder who returns a Proxy may revoke the Proxy at any
time before it is voted only: (1) by giving written notice of revocation to Don
E. Bangs, Secretary, CCFNB Bancorp, Inc., 232 East Street, Bloomsburg,
Pennsylvania 17815; (2) by executing a later-dated Proxy and giving written
notice thereof to the Secretary of the Corporation; or (3) by voting in person
at the Annual Meeting after giving written notice to the Secretary of the
Corporation.
VOTING SECURITIES, RECORD DATE AND QUORUM
At the close of business on March 26, 1997, the Corporation
had 5,000,000 shares of common stock, par value $1.25 per share, the only
authorized class of stock, of which 1,381,711 shares of common stock were issued
and outstanding (the "Common Stock").
Only holders of common stock of record at the close of
business on March 26, 1997, will be entitled to notice of and to vote at the
Annual Meeting. Cumulative voting rights do not exist with respect to the
election of directors. On all matters to come before the Annual Meeting, each
share of common stock is entitled to one vote.
Under Pennsylvania law and the By-laws of the Corporation, the
presence of a quorum is required for each matter to be acted upon at the Annual
Meeting. Pursuant to the By-laws of the Corporation, the presence, in person or
by proxy, of shareholders entitled to cast at least a majority of the votes
which all shareholders are entitled to cast shall constitute a quorum for the
transaction of business at the Annual Meeting. Votes withheld and abstentions
will be counted in determining the presence of a quorum for the particular
matter. Broker non-votes will not be counted in determining the presence of a
quorum for the particular matter as to which the broker withheld authority.
Assuming the presence of a quorum, the three nominees for
director receiving the highest number of votes cast by shareholders entitled to
vote for the election of directors shall be elected. Votes withheld from a
nominee and broker non-votes will not be cast for such nominee.
Assuming the presence of a quorum, the affirmative vote of a
majority of all votes cast by shareholders is required for the approval of the
ratification of the selection of independent auditors. Abstentions and broker
non-votes are not votes cast and therefore do not count either for or against
such respective approval and ratification. Abstentions and broker non-votes,
however, have the practical effect of reducing the number of affirmative votes
required to achieve a majority for each such matter by reducing the total number
of shares voted from which the required majority is calculated.
69
<PAGE> 4
PRINCIPAL BENEFICIAL OWNERS OF THE CORPORATION'S STOCK
PRINCIPAL OWNER
As of March 26, 1997, to the best of the Corporation's
information and belief, no person holds beneficially or of record, directly or
indirectly, five percent (5%) or more of the outstanding shares of Common Stock.
BENEFICIAL OWNERSHIP BY OFFICERS, DIRECTORS AND NOMINEES
The following table sets forth information concerning the
number of shares of Common Stock beneficially owned, directly or indirectly, as
of March 26, 1997, by (i) each director and nominee, (ii) each executive officer
of the Corporation, and (iii) the directors and the executive officers of the
Corporation as a group.
<TABLE>
<CAPTION>
Name of Individual Amount and Nature of Percent
or Identity of Group Beneficial Ownership(1)(2) of Class(3)
- -------------------- -------------------------- -----------
<S> <C> <C>
Don E. Bangs(4) 7,825.080 (7) ----
Stanley Barchik(5) 11,445.000 (8) ----
Robert M. Brewington, Jr.(6) 4,007.982 (9)
Edward L. Campbell(4) 5,027.785 (10) ----
Elwood R. Harding, Jr.(4) 15,316.078 (11) 1.11%
William F. Hess(5) 3,992.805 (12) ----
Willard H. Kile, Sr.(6) 17,587.066 (13) 1.27%
Virginia D. Kocher 1,309.000 (14) ----
Charles E. Long(6) 4,878.632 (15) ----
Paul E. Reichart(5) 7,254.000 (16) ----
All Officers and Directors
as a Group (9 directors,
3 nominees, 5 officers,
10 persons in total) 78,643.428 5.69%
</TABLE>
- ------------------------------
(1) Information furnished by the directors and the Corporation.
(2) The securities "beneficially owned" by an individual are determined
in accordance with the definitions of "beneficial ownership" set
forth in the General Rules and Regulations of the Securities and
Exchange Commission ("SEC") 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 March 26, 1997.
Beneficial ownership may be disclaimed as to certain of the
securities.
(3) Less than one percent unless otherwise indicated.
(4) A Class 3 Director whose term expires in 1997 and a nominee for Class
3 Director whose term expires in 2000.
(5) A Class 2 Director whose term expires in 1998.
(6) A Class 1 Director whose term expires in 1999.
70
<PAGE> 5
(7) Includes 5,043.544 shares of Common Stock held individually by Mr.
Bangs; 52.536 shares of Common Stock held jointly with his spouse;
and 2,729.000 shares of Common Stock held in a SEP retirement
account.
(8) Includes 2,970.000 shares of Common Stock held individually by Mr.
Barchik and 8,475.000 shares of Common Stock held jointly with his
spouse.
(9) Includes 2,866.523 shares of Common Stock held individually by Mr.
Brewington; 905.595 shares of Common Stock held jointly with his
spouse; 117.932 held by the Bank's Trust Department for the benefit
of Mr. Brewington; and 117.932 held by the Bank's Trust Department
for the benefit of Mrs. Brewington.
(10) Includes 3,120.695 shares of Common Stock held individually by Mr.
Campbell and 1,907.090 shares of Common Stock held jointly with his
spouse.
(11) Includes 7,175.000 shares of Common Stock held individually by Mr.
Harding; 6,750.000 shares of Common Stock held individually by his
spouse; 735.518 held by the Bank's Trust Department for the benefit
of Mr. Harding; and 655.560 held by the Bank's Trust Department for
the benefit of Mrs. Harding.
(12) Includes 3,467.437 shares of Common Stock held individually by Mr.
Hess and 525.368 shares of Common Stock held individually by his
spouse.
(13) Includes 8,284.000 shares of Common Stock held individually by Mr.
Kile; 7,500.000 shares of Common Stock held jointly with his spouse;
and 1,803.066 shares held by the Bank's Trust Department for the
benefit of Mr. Kile.
(14) Includes 809.000 shares of Common Stock held individually by Mrs.
Kocher and 500.000 shares of Common Stock held f/b/o her husband in
an IRA trust.
(15) All shares of Common Stock held by the named person are held as an
individual.
(16) Includes 2,500.000 shares of Common Stock held individually by Mr.
Reichart and 4,754.000 shares of Common Stock held jointly with his
spouse.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires the Corporation's officers and directors, and persons who own
more than ten percent (10%) of the registered class of the Corporation's equity
securities, to file reports of ownership and changes in ownership with the SEC.
Officers, directors and greater than ten-percent (10%) shareholders are required
by SEC regulation to furnish the Corporation with copies of all Section 16(a)
forms they file.
Based solely on its review of the copies of such forms
received by it, or written representations from certain reporting persons that
no Forms 5 were required for those persons, the Corporation believes that during
the period January 1, 1996 through December 31, 1996, its officers and directors
were in compliance with all filing requirements applicable to them.
ELECTION OF DIRECTORS
(ITEM 1)
The Corporation 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. Thus, 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 years, so that the term of
office of one class of directors shall expire in each year.
71
<PAGE> 6
In addition, there is no cumulative voting for the election of
directors. Each share of common stock is entitled to cast only one vote for each
nominee. For example, if a shareholder owns 100 shares of common stock, he or
she may cast up to 100 votes for each of the nominees for director in the class
to be elected.
Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the election of the three nominees for Class 3
Director named below. If any nominee should become unavailable for any reason,
proxies will be voted in favor of a substitute nominee as the Board of Directors
of the Corporation shall determine. The Board of Directors has no reason to
believe the nominees named will be unable to serve if elected. Any vacancy
occurring on the Board of Directors of the Corporation for any reason may be
filled by a majority of the directors then in office until the expiration of the
term of vacancy. Election of a nominee to the office of director will require an
affirmative vote of a majority of the shares of Common Stock represented at the
Annual Meeting.
INFORMATION AS TO NOMINEES,
DIRECTORS AND EXECUTIVE OFFICERS
The following table contains certain information with respect
to the executive officers, nominees for Class 3 Director whose term expires in
2000, current Class 3 Directors whose term expires in 1997, and the Class 2
Directors and Class 1 Directors whose terms of office expire in 1998 and 1999,
respectively:
<TABLE>
<CAPTION>
Age as of Principal Occupation During Past
March 26, Five Years and/or Position(s) Director
Name 1997 Held With The Corporation Since
- ---- -------------- ---------------------------------- -------
<S> <C> <C> <C>
CURRENT CLASS 3 DIRECTORS WHOSE TERM EXPIRES IN 1997 AND
NOMINEES FOR CLASS 3 DIRECTOR WHOSE TERM EXPIRES IN 2000
Don E. Bangs 65 Secretary of the Corporation and 1985
the Bank; former owner of Bangs
Insurance Agency and agent for
The Thrush Insurance Agency
Edward L. Campbell 58 President, ELC Enterprises, Inc. 1985
d/b/a The Heritage House Family
Restaurant and the sole proprietor of
Heritage Acres Christmas tree sales
Elwood R. Harding, Jr. 50 Attorney, Harding & Warren, 1984
Bloomsburg; President, Inter-County
Land Abstract Co., Inc.
</TABLE>
72
<PAGE> 7
<TABLE>
<CAPTION>
Age as of Principal Occupation During Past
March 26, Five Years and/or Position(s) Director
Name 1997 Held With The Corporation Since
- ---- -------------- ---------------------------------- -------
<S> <C> <C> <C>
CLASS 1 DIRECTORS WHOSE TERM EXPIRES IN 1999
Robert M. Brewington, Jr. 46 Owner, Sutliff Motors; selling and 1996
servicing cars and trucks; school
bus contractor
Willard H. Kile, Sr. 69 Chairman and Director of the 1974(1)
Corporation and the Bank; real
estate broker, Kile and Kile Real
Estate and Rentals
Charles E. Long 61 Retired; former President, Long 1993
Supply Co., Inc., wholesaler and
retailer of hardware and masonry
products
CLASS 2 DIRECTORS WHOSE TERM EXPIRES IN 1998
Stanley Barchik 63 President, Stan & Sons, Inc., 1985
commercial leasing and retail
gasoline sales
William F. Hess 63 Vice Chairman and Director of 1982(1)
the Corporation and the Bank;
dairy farmer
Paul E. Reichart 59 President, Chief Executive Officer 1983(1)
and Director of the Corporation
and the Bank
</TABLE>
- ------------------
(1) Includes period prior to June 20, 1983, when such persons served as
directors of the Bank, which became a wholly-owned subsidiary of the
Corporation on that date. All directors of the Corporation are
currently also directors of the Bank.
The Board of Directors of the Bank has established the
following committees for 1997:
Executive Committee. This Committee exercises the authority of
the Board of Directors in the management of the business of the Bank between the
dates of regular meetings of the Board of Directors. Messrs. Bangs, Hess, Kile
and Reichart are members of the Executive Committee.
73
<PAGE> 8
Long Range Planning Committee. This Committee studies the
future growth, capital development and corporate structure of the Bank. Messrs.
Bangs, Brewington, Kile and Reichart are members of the Long Range Planning
Committee.
Human Resource Committee. This Committee recommends to the
Board of Directors the amount to be considered for contribution to the Bank's
Profit Sharing Plan and reviews the proposed salary increases of the officers
before they are presented to the Board of Directors for approval. Messrs.
Barchik, Kile, Long and Reichart are members of the Human Resource Committee.
Audit Committee. This Committee supervises the audit of the
books of account of the Bank and recommends for approval by the Board of
Directors the services of an independent certified public accountant to examine
the financial matters of the Bank. Messrs. Bangs, Campbell, Harding and Hess are
members of the Audit Committee.
Credit Administration Committee. This Committee reviews all
new loans, past due loans, loan compliance, loan review and other pertinent
matters. Messrs. Brewington, Kile, Long and Reichart are members of the Credit
Administration Committee.
Asset-Liability Committee. This Committee reviews the
asset-liability positions of the Bank and provides support and direction in
managing net interest margins and liquidity. Messrs. Campbell, Harding, Kile and
Reichart are members of the Asset-Liability Committee.
Trust Committee. This Committee is responsible for oversight
of the Bank's Trust Department, including the Department's investments and
operations. Messrs. Barchik, Kile and Reichart are members of the Trust
Committee.
Deferred Compensation Committee. This Committee is responsible
for the administration and review of the Bank's Deferred Compensation Plans.
Messrs. Hess, Kile and Reichart are members of the Deferred Compensation
Committee.
During 1996, the Corporation's Board of Directors held seven
(7) meetings and the Bank's Board of Directors held twenty-eight (28) meetings.
Each Director of the Corporation who is also a Director of the Bank attended at
least 75% of the combined total number of meetings of the Boards of Directors of
the Corporation and the Bank and of the committees of the Bank of which he is a
member.
The Corporation does not have a nominating committee. A
shareholder who desires to propose an individual for consideration by the Board
of Directors as a nominee for director should submit a proposal in writing to
the Secretary of the Corporation in accordance with Section 202 of the By-laws
of the Corporation.
74
<PAGE> 9
EXECUTIVE COMPENSATION
COMPENSATION PAID TO EXECUTIVE OFFICERS
The following table sets forth the total compensation for
services in all capacities paid by the Corporation and the Bank during 1996,
1995 and 1994, to the Corporation's and the Bank's President and Chief Executive
Officer. No other executive officer's annual salary and bonus exceeded $100,000
during 1996 and therefore is not required to be presented.
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
Annual Compensation
----------------------------------------------------------------------------
Name and Principal Fiscal Other Annual All Other
Position Year Salary Bonus Compensation(2) Compensation(3)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Paul E. Reichart 1996 $85,677 $25,759(4) $8,400 $3,552
(President and Chief 1995 $80,826 $23,307(5) $7,800 $3,528
Executive Officer) 1994 $76,978 $24,074(6) $7,500 $2,387
</TABLE>
- ------------------
(1) From January 1, 1994 through December 31, 1996, the Corporation did
not pay any long-term compensation in the form of stock options,
stock appreciation rights, restricted stock or any other long-term
compensation, nor did it make any long-term incentive plan payments.
Accordingly, no such information is presented in the Summary
Compensation Table set forth above. No such arrangements are
currently in effect.
(2) Represents the payment of directors' fees by the Bank for the years
presented. Mr. Reichart did not receive perquisites and other
personal benefits, securities and property that totaled in the
aggregate for the years presented either $50,000 or 10% of the total
of the amounts reported under the salary and bonus columns.
Therefore, the amounts for such perquisites and other personal
benefits, securities and property are not reported.
(3) These figures represent annual term insurance premium payments on the
life of Mr. Reichart.
(4) Includes $15,000 as a life insurance premium payment for a deferred
compensation plan; $3,427 as a cash bonus representing 4% of base
salary; $5,727 as a contribution to the Bank's profit sharing plan;
and $1,605 representing 50% up to 3.58% matching contribution to Mr.
Reichart's 401K plan.
(5) Includes $15,000 as a life insurance premium payment for a deferred
compensation plan; $3,233 as a cash bonus representing 4% of base
salary; and $5,074 as a contribution to the Bank's profit sharing
plan.
(6) Includes $15,000 as a life insurance premium payment for a deferred
compensation plan (see discussion below); $3,849 as a cash bonus
representing 5% of base salary; and $5,225 as a contribution to the
Bank's profit sharing plan.
DEFERRED COMPENSATION AGREEMENTS FOR EXECUTIVE OFFICERS
Paul E. Reichart has served as the Corporation's and the
Bank's President and Chief Executive Officer since 1985. J. Jan Girton has
served as the Executive Vice President, Chief Operating Officer and Assistant
Secretary of the Bank since 1987. As a result of Messrs. Reichart's and Girton's
active involvement and experience in the affairs of the Bank, the Bank has
depended upon, and continues to depend upon, their continued employment. The
Bank does not maintain employment agreements or key man insurance, other than
the deferred compensation agreements described below, with respect to Messrs.
Reichart and Girton. However, in 1992, the Bank entered
75
<PAGE> 10
into agreements with Paul E. Reichart, President and Chief Executive Officer of
the Corporation and the Bank, and J. Jan Girton, Executive Vice President, Chief
Operating Officer and Assistant Secretary of the Bank, to establish a
non-qualified deferred compensation plan (the "Deferred Compensation Plan") for
these officers.
Each officer is deferring compensation in order to participate
in his Deferred Compensation Plan. If the officer continues to serve as an
officer of the Bank until he attains sixty-five (65) years of age, the Bank has
agreed to pay him 120 guaranteed consecutive monthly payments commencing on the
first day of the month following the officer's 65th birthday. Each officer's
guaranteed monthly payment is based upon the future value of life insurance
purchased with the compensation the officer has deferred. If the officer attains
sixty-five (65) years of age but dies before receiving all of the guaranteed
monthly payments, then the Bank will make the remaining payments to the
officer's designated beneficiary or to the representative of his estate. In the
event that the officer dies while serving as an officer, but prior to age
sixty-five (65), then the Bank will remit the guaranteed monthly payments to the
officer's designated beneficiary or to the representative of his estate. The
Bank has obtained life insurance (designating the Bank as the beneficiary) on
the life of each participating officer in an amount which is intended to cover
the Bank's obligations under the Deferred Compensation Plan, based upon certain
actuarial assumptions. In 1996, the Bank accrued $25,800 as an expense for the
Deferred Compensation Plan.
PROFIT SHARING PLAN
The Corporation and the Bank do not have a pension plan. The
Bank, however, does maintain a non-contributory profit sharing plan (the "Plan")
for its employees. To be eligible, an employee must be 21 years of age, have
been employed by the Bank on the last day of the Plan year and generally
completed at least 1,000 hours of service during the Plan year (except in the
case of death, disability or retirement).
In addition, effective January 1, 1995, the Bank amended the
Plan to include a 401K Savings Plan feature. An employee may elect to contribute
up to ten percent of his or her annual aggregate compensation into the 401K
Savings Plan. The Bank may contribute a matching contribution to an employee's
account, if management deems the income (profits) to be adequate to justify this
expense. Employees who participated in the Plan as of December 31, 1994, will be
100% vested. However, employees who began participation in the Plan on or after
January 1, 1995, will have any Bank contributions 100% vested after five years
of service. Under the 401K Savings Plan, an employee must complete at least
1,000 hours of service during the year in order to be eligible to participate in
the 401K Savings Plan.
Contributions reflected as expense under the Plan for 1996,
1995 and 1994 were $97,564, $86,755 and $82,166, respectively. The Bank made a
matching contribution in 1996 under the 401K Savings Plan feature. The match was
50% of the first 3.58% of employee contribution and amounted to $19,787.87.
76
<PAGE> 11
COMPENSATION OF DIRECTORS
During 1996, each member of the Bank's Board of Directors
received $350 for each meeting of the Board and $225 for each committee meeting
attended. In addition, in 1996, the Chairman of the Board of Directors and the
Secretary each received an additional fee of $1,200 for additional services
provided to the Bank. Members of the Corporation's Board of Directors are not
compensated for attending meetings of the Corporation's Board of Directors. Such
meetings usually occur immediately after meetings of the Bank's Board of
Directors.
DEFERRED COMPENSATION AGREEMENTS FOR DIRECTORS
The Bank has entered into agreements with three directors to
establish non-qualified deferred compensation plans (the "Director Deferred
Compensation Plans") for each of these directors. These plans are limited to
4-year terms. The Bank may, however, enter into subsequent similar plans with
its directors. Each of the participating directors is deferring the payment to
him of the directors' fees described above. If the director continues to serve
as a director of the Bank until he attains generally 70 or 72 years of age, as
the case may be, the Bank has agreed to pay him ten equal annual payments
commencing on the first day of the month following such director's 70th or 72nd
birthday, as the case may be. Each director's guaranteed annual payment is based
upon the cumulative amount of deferred fees together with interest currently
accruing thereon at the rate of 8% per annum, subject to change by the Board of
Directors. If the director attains 70 or 72 years of age, as the case may be,
but dies before receiving all ten annual payments, then the Bank will make the
remaining payments to the director's designated beneficiary or to the
representative of his estate. In the event that the director dies while serving
as a director, but prior to age 70 or 72, as the case may be, then the Bank will
remit the annual payments to such director's designated beneficiary or to the
representative of his estate. The Bank has obtained life insurance (designating
the Bank as the beneficiary) on the lives of Messrs. Kile and Harding in face
amounts which are intended to cover the Bank's obligations under those
director's Deferred Compensation Plans. In 1996, the Bank accrued $23,200 as an
expense for the Director Deferred Compensation Plans. As of December 31, 1996,
Messrs. Kile, Harding and Barchik were participating in such Plans.
CERTAIN TRANSACTIONS
There have been no material transactions between the
Corporation and the Bank, nor any material transactions proposed, with any
director or executive officer of the Corporation and the Bank, or any associate
of any of the foregoing persons. The Corporation and the Bank have had and
intend to continue to have banking and financial transactions in the ordinary
course of business with directors and executive officers of the Corporation and
the Bank and their associates on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other persons.
77
<PAGE> 12
Total loans outstanding from the Corporation and the Bank as
of December 31, 1996, to the Corporation's and the Bank's executive officers and
directors as a group and members of their immediate families and companies in
which they had an ownership interest of 10% or more was $5,742,151, or
approximately 28.68% of the total equity capital of the Bank. Loans to such
persons were made in the ordinary course of business, were made on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons, and did not involve
more than the normal risk of collectibility or present other unfavorable
features.
PRINCIPAL OFFICERS OF THE CORPORATION
The following table sets forth selected information about the
principal officers of the Corporation, each of whom is selected by the Board of
Directors and each of whom holds office at the discretion of the Board of
Directors:
<TABLE>
<CAPTION>
Bank
Office and Held Employee Number of Shares Age as of
Name Position Held Since Since Beneficially Owned March 26,1997
- ---- ------------- ----- -------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
Willard H. Kile, Sr. Chairman of the Board 1985 (1) 17,587.066(2) 69
William F. Hess Vice Chairman of the 1996 (1) 3,992.805(2) 63
Board
Paul E. Reichart President and CEO 1985 1960 7,254.000(2) 59
Don E. Bangs Secretary 1993 (1) 7,825.080(2) 65
Virginia D. Kocher Treasurer 1991 1972 1,309.000(2) 49
</TABLE>
- ----------------------------
(1) Messrs. Kile, Hess and Bangs are not employees of the Bank.
(2) See footnotes under "Beneficial Ownership by Officers, Directors and
Nominees" with respect to the stockholdings for this officer.
PRINCIPAL OFFICERS OF THE BANK
The following table sets forth selected information about the
principal officers of the Bank, each of whom is elected by the Board of
Directors of the Bank and each of whom holds office at the discretion of the
Board of Directors of the Bank:
78
<PAGE> 13
<TABLE>
<CAPTION>
Bank
Office and Held Employee Number of Shares Age as of
Name Position Held Since Since Beneficially Owned March 26,1997
- ---- ------------- ----- -------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
Willard H. Kile, Sr. Chairman of the Board 1985 (1) 17,587.066(2) 69
William F. Hess Vice Chairman of the 1996 (1) 3,992.805(2) 63
Board
Don E. Bangs Secretary 1993 (1) 7,825.080(2) 65
Paul E. Reichart President and CEO 1985 1960 7,254.000(2) 59
J. Jan Girton Executive Vice President, 1987 1985 1,176.828(3) 56
Chief Operating Officer
and Assistant Secretary 1992
Linda A. Huttenstine Senior Vice President 1991 1963 309.000(4) 52
and Cashier 1985
Jacob S. Trump Senior Vice President and 1989 1989 206.621(4) 49
Financial Planning Officer
Edwin A. Wenner Senior Vice President 1996 1974 325.000(5) 43
Lance O. Diehl(6) Vice President 1995 1995 -0- 31
Virginia D. Kocher Vice President, 1987 1972 1,309.000(2) 49
Controller and 1982
Assistant Secretary 1991
</TABLE>
- ------------------
(1) Messrs. Kile, Hess and Bangs are not employees of the Bank.
(2) See footnotes under "Beneficial Ownership by Officers, Directors and
Nominees" with respect to the stockholdings for this officer.
(3) Includes 126.089 shares of Common Stock held individually by Mr.
Girton and 1,050.739 shares of Common Stock held jointly with his
spouse.
(4) All shares of Common Stock held by the named person are held as an
individual.
(5) The 325 shares of Common Stock beneficially owned by Mr. Wenner are
jointly held with his spouse.
(6) Mr. Diehl is the nephew of Mr. Kile, the Chairman of the Board of the
Corporation and the Bank.
LEGAL PROCEEDINGS
GENERAL
The nature of the Corporation's and the Bank's business
generates a certain amount of litigation involving matters arising in the
ordinary course of business. However, in the opinion of management of the
Corporation and the Bank, there are no proceedings pending to which the
Corporation and the Bank is a party or to which their property is subject,
which, if determined adversely to the Corporation and the Bank, would be
material in relation to the Corporation's and the Bank's undivided profits or
financial condition, nor are there any proceedings pending other than
79
<PAGE> 14
ordinary routine litigation incident to the business of the Corporation and the
Bank. In addition, no material proceedings are pending or are known to be
threatened or contemplated against the Corporation and the Bank by government
authorities or others.
ENVIRONMENTAL ISSUES
There are several federal and state statutes that govern the
obligations of financial institutions with respect to environmental issues.
Besides being responsible under such statutes for its own conduct, a bank also
may be held liable under certain circumstances for actions of borrowers or other
third parties on properties that collateralize loans held by the bank. Such
potential liability may far exceed the original amount of the loan made by the
bank. Currently, the Bank is not a party to any pending legal proceedings under
any environmental statute nor is the Bank aware of any circumstances that may
give rise to liability of the Bank under any such statute.
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
(ITEM 2)
Unless instructed to the contrary, it is intended that votes
will be cast pursuant to the proxies for the ratification of the selection of J.
H. Williams & Co., LLP, Certified Public Accountants, of Kingston, Pennsylvania
("J. H. Williams"), as the Corporation's independent public accountants for its
fiscal year ending December 31, 1997. The Corporation has been advised by J. H.
Williams that none of its members has any financial interest in the Corporation.
Ratification of J. H. Williams will require an affirmative vote of a majority of
the shares of Common Stock represented at the Annual Meeting. J. H. Williams
served as the Corporation's independent public accountants for the Corporation's
1996 fiscal year.
In addition to performing customary audit services, J. H.
Williams assisted the Corporation with the preparation of its federal and state
tax returns, and provided assistance in connection with regulatory matters,
charging the Corporation for such services at its customary hourly billing
rates. These non-audit services were approved by the Corporation's and the
Bank's Board of Directors, after due consideration of the effect of the
performance thereof on the independence of the accountants and after the
conclusion by the Corporation's and the Bank's Board of Directors that there was
no effect on the independence of the accountants.
In the event that the shareholders do not ratify the selection
of J. H. Williams as the Corporation's independent public accountants for the
1997 fiscal year, another accounting firm will be chosen to provide independent
public accountant audit services for the 1997 fiscal year. The Board of
Directors recommends that the shareholders vote FOR the ratification of the
selection of J. H. Williams as the auditors for the Corporation for the year
ending December 31, 1997.
It is understood that even if the selection of J. H. Williams
is ratified, the Board of Directors, in its discretion, may direct the
appointment of a new independent auditing firm at any
80
<PAGE> 15
time during the year if the Board of Directors determines that such a change
would be in the best interests of the Corporation and its shareholders.
ANNUAL REPORT
A copy of the Corporation's Annual Report for its fiscal year
ended December 31, 1996, is being mailed with this Proxy Statement. A
representative of J. H. Williams, the accounting firm which examined the
financial statements in the Annual Report, will attend the Annual Meeting. This
representative of J. H. Williams will have the opportunity to make a statement,
if he or she desires to do so, and will be available to respond to any
appropriate questions presented by shareholders at the Annual Meeting.
SHAREHOLDER PROPOSALS
Any shareholder who, in accordance with and subject to the
provisions of the proxy rules of the SEC, wishes to submit a proposal for
inclusion in the Corporation's proxy statement for its 1998 Annual Meeting of
Shareholders must deliver such proposal in writing to the Secretary of CCFNB
Bancorp, Inc. at the principal executive offices of the Corporation at 232 East
Street, Bloomsburg, Pennsylvania 17815, not later than Wednesday, December 3,
1997.
OTHER MATTERS
The Board of Directors does not know of any matters to be
presented for consideration other than the matters described in the Notice of
Annual Meeting of Shareholders, but if any matters are properly presented, it is
the intention of the persons named in the accompanying Proxy to vote on such
matters in accordance with their judgment.
ADDITIONAL INFORMATION
Upon written request of any shareholder, a copy of the
Corporation's report on Form 10-KSB for its fiscal year ended December 31, 1996,
including the financial statements and the schedules thereto, required to be
filed with the SEC, may be obtained, without charge, from Paul E. Reichart,
President CCFNB Bancorp, Inc., 232 East Street, Bloomsburg, Pennsylvania 17815;
telephone: (717) 784-4400.
In addition, a copy of the Annual Disclosure Statement of
Columbia County Farmers National Bank may be also obtained, without charge, from
Mr. Reichart.
81
<PAGE> 16
CCFNB BANCORP, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF CCFNB BANCORP, INC.:
Notice is hereby given that the Annual Meeting of Shareholders
of CCFNB Bancorp, Inc. (the "Corporation") will be held at 10:30 a.m.,
prevailing time, on Tuesday, May 6, 1997, at the CCFNB Operations Center,
Lightstreet Road, Bloomsburg, Pennsylvania 17815, for the following purposes:
1. To elect three (3) Class 3 directors to serve for
a three-year term and until their successors are duly elected
and qualified;
2. To ratify the selection of J. H. Williams & Co.,
LLP, Certified Public Accountants, of Kingston, Pennsylvania,
as the independent auditors for the Corporation for the year
ending December 31, 1997; and
3. To transact such other business as may properly
come before the Annual Meeting and any adjournment or
postponement thereof.
Only those shareholders of record at the close of business, at
5:00 p.m., on Friday, March 26, 1997, will be entitled to notice of and to vote
at the Annual Meeting.
A copy of the Corporation's Annual Report for the fiscal year
ended December 31, 1996, is being mailed with this notice.
You are urged to mark, sign, date and promptly return your
proxy in the enclosed envelope so that your shares may be voted in accordance
with your wishes and in order that the presence of a quorum may be assured. The
prompt return of your dated and signed proxy, regardless of the number of shares
you hold, will aid the Corporation in reducing the expense of additional proxy
solicitation. The giving of such proxy does not affect your right to vote in
person if you attend the meeting.
By Order of the Board of Directors
Paul E. Reichart, President
April 2, 1997
82
<PAGE> 17
CCFNB BANCORP, INC.
PROXY
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 6, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints E.L. Carson
and Roy Buck and each and any of them, proxies of the undersigned, with full
power of substitution, to vote all of the shares of CCFNB Bancorp, Inc. (the
"Corporation") that the undersigned may be entitled to vote at the Annual
Meeting of Shareholders of the Corporation to be held at the CCFNB Operations
Center, Lightstreet Road, Bloomsburg, Pennsylvania 17815, on Tuesday, May 6,
1997 at 10:30 a.m., prevailing time, and at any adjournment or postponement
thereof as follows:
1. ELECTION OF CLASS 3 DIRECTORS TO SERVE FOR A THREE-YEAR TERM
<TABLE>
<S> <C>
[ ] For all nominees listed [ ] WITHHOLD AUTHORITY
below (except as marked to vote on all nominees
to the contrary below) listed below
</TABLE>
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, WRITE THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)
Don E. Bangs, Edward L. Campbell and Elwood R. Harding, Jr.
___________________________________________________________
2. Proposal to ratify the selection of J.H. Williams & Co., LLP,
Certified Public Accountants, of Kingston, Pennsylvania, as the
independent auditors for the Corporation for the year ending December
31, 1997.
[ ] FOR [ ] AGAINST
The Board of Directors recommends a vote FOR this proposal.
3. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the annual meeting and any
adjournment or postponement thereof.
THIS PROXY, WHEN PROPERLY SIGNED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR ALL NOMINEES LISTED ABOVE AND FOR PROPOSAL 2.
Dated ___________________________, 1997
_______________________________________
_______________________________________
Signature(s)
Number of Shares Held of
Record on March 26, 1997: _______________
THIS PROXY MUST BE DATED, SIGNED BY THE SHAREHOLDER AND
RETURNED PROMPTLY TO THE CORPORATION IN THE ENCLOSED ENVELOPE. WHEN SIGNING AS
ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE.
IF MORE THAN ONE TRUSTEE, ALL SHOULD SIGN. IF STOCK IS HELD JOINTLY, EACH OWNER
MUST SIGN.
83
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 7,068
<SECURITIES> 39,300
<RECEIVABLES> 114,660
<ALLOWANCES> 901
<INVENTORY> 0
<CURRENT-ASSETS> 160,127
<PP&E> 5,380
<DEPRECIATION> 0
<TOTAL-ASSETS> 165,507
<CURRENT-LIABILITIES> 145,376
<BONDS> 0
0
0
<COMMON> 1,724
<OTHER-SE> 18,407
<TOTAL-LIABILITY-AND-EQUITY> 165,507
<SALES> 8,807
<TOTAL-REVENUES> 9,355
<CGS> 4,152
<TOTAL-COSTS> 4,152
<OTHER-EXPENSES> 3,332
<LOSS-PROVISION> 45
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,826
<INCOME-TAX> 486
<INCOME-CONTINUING> 1,340
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,340
<EPS-PRIMARY> .97
<EPS-DILUTED> .97
</TABLE>
