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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
[ ] 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)
Registrant'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.
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the past 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
The aggregate market value of the voting and non-voting equity
held by non-affiliates of the Registrant based on the average of the bid and
asked prices of $26.00 at February 28, 1998, was $33,846,696.
As of February 28, 1998, the Registrant had outstanding
1,381,603 shares of its common stock, par value $1.25 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1998 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 Registrant for the year
ended December 31, 1997, are incorporated by reference in Part II of this Annual
Report.
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CCFNB BANCORP, INC.
FORM 10-K
INDEX
<TABLE>
<CAPTION>
Part Page
- ---- ----
<S> <C>
Item 1. Business......................................................... 3
Item 2. Properties....................................................... 20
Item 3. Legal Proceedings................................................ 21
Item 4. Submission of Matters to a Vote of Security Holders.............. Not Applicable
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters........................................................ 21
Item 6. Selected Financial Data.......................................... 23
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operation....................................... 23
Item 7A. Quantitative and Qualitative Disclosure About Market Risk........ 24
Item 8. Financial Statements and Supplementary Data...................... 25
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure....................................... Not Applicable
Part III
Item 10. Directors and Executive Officers of the Registrant............... 25
Item 11. Executive Compensation........................................... 25
Item 12. Security Ownership of Certain Beneficial Owners and Management... 25
Item 13. Certain Relationships and Related Transactions................... 25
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.. 26
Signatures ............................................................ 27
Index to Exhibits......................................................... 29
</TABLE>
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CCFNB BANCORP, INC.
FORM 10-K
PART I
ITEM 1. 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, 1997, Bancorp had total consolidated
assets, deposits and stockholders' equity of approximately $174 million, $128
million and $22 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, 1997, 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").
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 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.
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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 or
their subsidiaries to engage in nonbanking activities so closely related to
banking or 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 nonbanking activities that presently may be
conducted by a bank holding company or its subsidiary without prior approval of
the Federal Reserve Board are:
(1) Extending credit and servicing loans. Making, acquiring,
brokering, or servicing loans or other extensions of credit (including
factoring, issuing letters of credit and accepting drafts) for the company's
account or for the account of others.
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(2) Activities related to extending credit. Any activity usual
in connection with making, acquiring, brokering or servicing loans or other
extensions of credit, as determined by the Federal Reserve Board. The Federal
Reserve Board has determined that the following activities are usual in
connection with making, acquiring, brokering or servicing loans or other
extensions of credit:
(i) Real estate and personal property appraising.
Performing appraisals of real estate and tangible and intangible
personal property, including securities.
(ii) Arranging commercial real estate equity
financing. 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, if the bank holding company and its affiliates do not
have an interest in, or participate in managing or developing, a real
estate project for which it arranges equity financing, and do not
promote or sponsor the development of the property.
(iii) Check-guaranty services. Authorizing a
subscribing merchant to accept personal checks tendered by the
merchant's customers in payment for goods and services, and purchasing
from the merchant validly authorized checks that are subsequently
dishonored.
(iv) Collection agency services. Collecting
overdue accounts receivable, either retail or commercial.
(v) Credit bureau services. Maintaining information
related to the credit history of consumers and providing the
information to a credit grantor who is considering a borrower's
application for credit or who has extended credit to the borrower.
(vi) Asset management, servicing, and collection
activities. Engaging under contract with a third party in asset
management, servicing, and collection of assets of a type that an
insured depository institution may originate and own, if the company
does not engage in real property management or real estate brokerage
services as part of these services.
(vii) Acquiring debt in default. Acquiring debt that
is in default at the time of acquisition under certain conditions.
(viii) Real estate settlement servicing. Providing
real estate settlement services.
(3) Leasing personal or real property. Leasing personal or
real property or acting as agent, broker, or adviser in leasing such property
under certain conditions.
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(4) Operating nonbank depository institutions:
(i) Industrial banking. Owning, controlling, or
operating an industrial bank, Morris Plan bank, or industrial loan
company, so long as the institution is not a bank.
(ii) Operating savings association. Owning,
controlling or operating a savings association, if the savings
association engages only in deposit-taking activities, lending, and
other activities that are permissible for bank holding companies.
(5) Trust company functions. Performing functions or
activities that may be performed by a trust company (including activities of a
fiduciary, agency, or custodial nature), in the manner authorized by federal or
state law, so long as the company is not a bank for purposes of the Bank Holding
Company Act.
(6) Financial and investment advisory activities. Acting as
investment or financial advisor to any person, including (without, in any way,
limiting the foregoing):
(i) Serving as investment adviser (as defined in
section 2(a)(20) of the Investment Company Act of 1940, 15 U.S.C.
80a-2(a)(20)), to an investment company registered under that act,
including sponsoring, organizing, and managing a closed-end investment
company;
(ii) Furnishing general economic information and
advice, general economic statistical forecasting services, and industry
studies;
(iii) Providing advice in connection with mergers,
acquisitions, divestitures, investments, joint ventures, leveraged
buyouts, recapitalizations, capital structurings, financing
transactions and similar transactions, and conducting financial
feasibility studies;
(iv) Providing information, statistical forecasting,
and advice with respect to any transaction in foreign exchange, swaps,
and similar transactions, commodities, and any forward contract,
option, future, option on a future, and similar instruments;
(v) Providing educational courses, and instructional
materials to consumers on individual financial management matters; and
(vi) Providing tax-planning and tax-preparation
services to any person.
(7) Agency transactional services for customer investments:
(i) Securities brokerage. Providing securities
brokerage services (including securities clearing and/or securities
execution services on an exchange), whether alone or in combination
with investment advisory services, and incidental activities (including
related securities credit activities and custodial services), if the
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securities brokerage services are restricted to buying and selling
securities solely as agent for the account of customers and do not
include securities underwriting or dealing.
(ii) Riskless principal transactions. Buying and
selling in the secondary market all types of securities on the order of
customers as a "riskless principal" to the extent of engaging in a
transaction in which the company, after receiving an order to buy (or
sell) a security from a customer, purchases (or sells) the security for
its own account to offset a contemporaneous sale to (or purchase from)
the customer. This does not include:
(A) Selling bank-ineligible securities at
the order of a customer that is the issuer of the securities,
or selling bank-ineligible securities in any transaction where
the company has a contractual agreement to place the
securities as agent of the issuer; or
(B) Acting as a riskless principal in any
transaction involving a bank-ineligible security for which the
company or any of its affiliates acts as underwriter (during
the period of the underwriting or for 30 days thereafter) or
dealer.
(iii) Private placement services. Acting as agent for
the private placement of securities in accordance with the requirements
of the Securities Act of 1933 ("1933 Act") and the rules of the
Securities and Exchange Commission, if the company engaged in the
activity does not purchase or repurchase for its own account the
securities being placed, or hold in inventory unsold portions of issues
of these securities.
(iv) Futures commission merchant. Acting as a futures
commission merchant ("FCM") for unaffiliated persons in the execution,
clearance, or execution and clearance of any futures contract and
option on a futures contract traded on an exchange in the United States
or abroad under certain conditions.
(v) Other transactional services. Providing to
customers as agent transactional services with respect to swaps and
similar transactions.
(8) Investment transactions as principal:
(i) Underwriting and dealing in government
obligations and money market instruments. Underwriting and dealing in
obligations of the United States, general obligations of states and
their political subdivisions, and other obligations that state member
banks of the Federal Reserve System may be authorized to underwrite and
deal in under 12 U.S.C. 24 and 335, including banker's acceptances and
certificates of deposit, under the same limitations as would be
applicable if the activity were performed by the bank holding company's
subsidiary member banks or its subsidiary nonmember banks as if they
were member banks.
(ii) Investing and trading activities. Engaging as
principal in:
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(A) Foreign exchange;
(B) Forward contracts, options, futures,
options on futures, swaps, and similar contracts, whether
traded on exchanges or not, based on any rate, price,
financial asset (including gold, silver, platinum, palladium,
copper, or any other metal approved by the Board),
nonfinancial asset, or group of assets, other than a
bank-ineligible security under certain conditions.
(C) Forward contracts, options, futures,
options on futures, swaps, and similar contracts, whether
traded on exchanges or not, based on an index of a rate, a
price, or the value of any financial asset, nonfinancial
asset, or group of assets, if the contract requires such
settlement.
(iii) Buying and selling bullion, and related
activities. Buying, selling and storing bars, rounds, bullion, and
coins of gold, silver, platinum, palladium, copper, and any other metal
approved by the Federal Reserve Board, for the company's own account
and the account of others, and providing incidental services such as
arranging for storage, safe custody, assaying, and shipment.
(9) Management consulting and counseling activities:
(i) Management consulting. Providing management
consulting advice under certain conditions.
(ii) Employee benefits consulting services. Providing
consulting services to employee benefit, compensation and insurance
plans, including designing plans, assisting in the implementation of
plans, providing administrative services to plans, and developing
employee communication programs for plans.
(iii) Career counseling services. Providing career
counseling services to:
(A) A financial organization and individuals
currently employed by, or recently displaced from, a financial
organization;
(B) Individuals who are seeking employment
at a financial organization; and
(C) Individuals who are currently employed
in or who seek positions in the finance, accounting, and audit
departments of any company.
(10) Support services:
(i) Courier services. Providing courier services for:
(A) Checks, commercial papers, documents,
and written instruments (excluding currency or bearer-type
negotiable instruments) that are exchanged among banks and
financial institutions; and
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(B) Audit and accounting media of a banking
or financial nature and other business records and documents
used in processing such media.
(ii) Printing and selling MICR-encoded items.
Printing and selling checks and related documents, including corporate
image checks, cash tickets, voucher checks, deposit slips, savings
withdrawal packages, and other forms that require Magnetic Ink
Character Recognition ("MICR") encoding.
(11) Insurance agency and underwriting:
(i) Credit insurance. Acting as principal, agent, or
broker for insurance (including home mortgage redemption insurance)
that is:
(A) Directly related to an extension of
credit by the bank holding company or any of its subsidiaries;
and
(B) Limited to ensuring the repayment of the
outstanding balance due on the extension of credit in the
event of the death, disability, or involuntary unemployment of
the debtor.
(ii) Finance company subsidiary. Acting as agent or
broker for insurance directly related to an extension of credit by a
finance company that is a subsidiary of a bank holding company under
certain conditions.
(iii) Insurance in small towns. 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:
(A) Has a population not exceeding 5,000 (as
shown in the preceding decennial census); or
(B) Has inadequate insurance agency
facilities, as determined by the Federal Reserve Board, after
notice and opportunity for hearing.
(iv) Insurance-agency activities conducted on May 1,
1982. Under certain restrictions, engaging in any specific
insurance-agency activity if the bank holding company, or subsidiary
conducting the specific activity, conducted such activity on May 1,
1982, or received the Federal Reserve Board approval to conduct such
activity on or before May 1, 1982.
(v) Supervision of retail insurance agents.
Supervising on behalf of insurance underwriters the activities of
retail insurance agents who sell:
(A) Fidelity insurance and property and
casualty insurance on the real and personal property used in
the operations of the bank holding company or its
subsidiaries; and
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(B) Group insurance that protects the
employees of the bank holding company or its subsidiaries.
(vi) Small bank holding companies. Engaging in any
insurance-agency activity if the bank holding company has total
consolidated assets of $50 million or less.
(v) Insurance-agency activities conducted before
1971. Engaging in any insurance-agency activity performed at any
location in the United States directly or indirectly by a bank holding
company that was engaged in insurance-agency activities prior to
January 1, 1971, as a consequence of approval by the Federal Reserve
Board prior to January 1, 1971.
(12) Community development activities:
(i) Financing and investment activities. 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.
(ii) Advisory activities. Providing advisory and
related services for programs designed primarily to promote community
welfare.
(13) Money orders, savings bonds, and traveler's checks. The
issuance and sale at retail of money orders and similar consumer-type payment
instruments; the sale of U.S. savings bonds; and the issuance and sale of
traveler's checks.
(14) Data processing. Providing data processing and data
processing and data transmission services, facilities (including data processing
and data transmission hardware, software, documentation, or operating
personnel), data bases, advice, and access to such services, facilities, or data
bases by any technological means under certain conditions.
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 Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Interstate Banking Law"), amended various federal banking laws
to provide for nationwide interstate banking, interstate bank mergers and
interstate branching. The interstate banking
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provisions allow for the acquisition by a bank holding company of a bank located
in another state.
Interstate bank mergers and branch purchase and assumption
transactions were allowed effective June 1, 1997; however, states may "opt-out"
of the merger and purchase and assumption provisions by enacting a law which
specifically prohibits such interstate transactions. States could, in the
alternative, enact legislation to allow interstate merger and purchase and
assumption transactions prior to June 1, 1997. States could also enact
legislation to allow for de novo interstate branching of out-of-state banks. In
July 1995, Pennsylvania adopted "opt-in" legislation which allows such
transactions.
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 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
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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:
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."
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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 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.
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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, 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.
FDIC Insurance Assessments
The FDIC has implemented a risk-related premium schedule for
all insured depository institutions that results in the assessment of premiums
based on capital and supervisory measures.
Under the risk-related premium schedule, the FDIC, on a
semiannual basis, assigns each institution to one of three capital groups (well
capitalized, adequately capitalized or under capitalized) and further assigns
such institution to one of three subgroups within a capital group corresponding
to the FDIC's judgment of the institution's strength based on supervisory
evaluations, including examination reports, statistical analysis and other
information relevant to gauging the risk posed by the institution. Only
institutions with a total capital to risk-adjusted
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<PAGE> 15
assets ratio of 10.0% or greater, a Tier 1 capital to risk-adjusted assets ratio
of 6.0% or greater and a Tier 1 leverage ratio of 5.0% or greater, are assigned
to the well-capitalized group.
Over the last two years, FDIC insurance assessments have seen
several changes for both BIF and SAIF institutions. The most recent change
occurred on September 30, 1996, when the President signed into law a bill
designed to remedy the disparity between BIF and SAIF deposit premiums. The
first part of the bill called for the SAIF to be capitalized by a one-time
assessment on all SAIF insured deposits held as of March 31, 1995. This
assessment, which was 65.7 cents per $100 in deposits, raised approximately $4.7
billion to bring the SAIF up to is required 1.25 reserve ratio. This special
assessment, paid in 1996, had no effect on the Bank. The second part of the bill
remedied the future anticipated shortfall with respect to the payment of FICO
interest. For 1997 through 1999, the banking industry will help pay the FICO
interest payments at an assessment rate that is one-fifth the rate paid by
thrifts. The FICO assessment on BIF insured deposits is 1.29 cents per $100 in
deposits; for SAIF insured deposits it is 6.44 cents per $100 in deposits.
Beginning January 1, 2000, the FICO interest payments will be paid pro-rata by
banks and thrifts based on deposits. At December 31, 1997, the FICO interest
assessment paid by the Bank was approximately $15,761. The Bank has not been
required to pay any FDIC insurance assessments since the fourth quarter of 1996
because BIF has met its statutorily required ratios and the Bank is categorized
as "well capitalized."
Regulatory Capital Requirements
The following table presents Bancorp's consolidated capital
ratios at December 31, 1997.
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
Tier I Capital................................................................................ $ 21,963
Tier II Capital............................................................................... $ 901
Total Capital................................................................................. $ 22,864
Adjusted Total Average Assets................................................................. $171,159
Total Adjusted Risk-Weighted Assets(1)........................................................ $104,568
Tier I Risk-Based Capital Ratio(2)........................................................... 20.98%
Required Tier I Risk-Based Capital Ratio...................................................... 4.00%
Excess Tier I Risk-Based Capital Ratio........................................................ 16.98%
Total Risk-Based Capital Ratio(3)............................................................. 21.84%
Required Total Risk-Based Capital Ratio....................................................... 8.00%
Excess Total Risk-Based Capital Ratio......................................................... 13.84%
Tier I Leverage Ratio(4)...................................................................... 12.57%
Required Tier I Leverage Ratio................................................................ 3.00%
Excess Tier I Leverage Ratio.................................................................. 9.57%
</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.
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<PAGE> 16
(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, 1997, the Bank had total assets of $174
million, total shareholders' equity of $22 million and total deposits and other
liabilities of $152 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
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<PAGE> 17
credit cards available to its 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 6 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 a need for banking
services or facilities such as are
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<PAGE> 18
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
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<PAGE> 19
relationship with their bank. 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.
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<PAGE> 20
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, 1997. Therefore, the Bank will be evaluated for CRA compliance
using the streamlined procedures for a small bank. The Bank received a
"satisfactory" rating in 1997.
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. PROPERTIES
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>
It is management's opinion that the facilities currently
utilized are suitable and adequate for current and immediate future purposes.
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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 REGISTRANT'S 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, 1998, 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, 1996. 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.
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<PAGE> 22
<TABLE>
<CAPTION>
Average Stock Prices Dividends
Bid Asked Declared
--- ----- --------
<S> <C> <C> <C>
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
1997:
First quarter.................................. $17.29 $18.67 $.116
Second quarter................................. $18.42 $20.83 $.116
Third quarter.................................. $20.33 $21.75 $.116
Fourth quarter................................. $22.21 $23.50 $.116
</TABLE>
As of February 28, 1998, Bancorp had approximately 754
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 of the approval of the OCC as
well as that of the holders of two thirds of the outstanding shares of the
Common Stock.
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<PAGE> 23
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. SELECTED FINANCIAL DATA
The information called for by this item is filed at Exhibit 13
hereto and is incorporated by reference in its entirety under this Item 6.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in Bancorp's Annual Report (at
page 20 thereto) filed at Exhibit 13 hereto is incorporated in its entirety by
reference under this Item 7.
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being
written using two digits rather than four to define the applicable year. Any of
the Bank's computer programs that
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<PAGE> 24
have date-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, calculate
correct accruals, or engage in similar normal business activities.
An assessment of the Bank's software and hardware has revealed
those portions which will be required to be modified or replaced in order to
properly utilize dates beyond December 31, 1999. The Bank presently believes
that with modifications to existing software and conversions to new software,
the Year 2000 Issue can be mitigated. However, if such modifications and
conversions are not made, or are not completed timely, the Year 2000 Issue could
have a material impact on the operations of the Bank.
Another consideration is the fact that there can be no
guarantee that the systems of other companies on which the Bank's systems rely
will be timely converted, or that a failure to convert by another company, or a
conversion that is incompatible with the Bank's systems, would not have a
material adverse effect on the Bank. Bancorp management is engaging in due
diligence to assure that these possibilities will not occur. The Bank has
determined it has no exposure to contingencies related to the Year 2000 Issue
for its products offered to it's customers.
The Bank will utilize both internal and external resources to
reprogram, or replace, and test the software for Year 2000 modifications. The
Bank plans to complete the Year 2000 project no later than December 31, 1998.
The Bank has already spent $179,300 and anticipates it will spend $229,750 to
complete the Year 2000 project. These costs are considered manageable by the
Bank and are being funded through operating cash flows. The costs will not have
a material effect on the results of operations in 1998 or beyond.
The time lines and costs are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those plans. Specific factors that might cause such material difference include,
but are not limited to, the availability and cost of personnel trained in this
area, the ability to locate and correct all relevant computer codes and similar
uncertainties.
For further discussion, refer to the Year 2000 section in
Bancorp's Annual Report (at page 32 thereto) under "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by this item is found under the
caption "Interest Rate Risk Management" in the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in
Bancorp's Annual Report (at page 30 thereto) filed at Exhibit 13 hereto and is
incorporated in its entirety by reference under this Item 7A.
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<PAGE> 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Bancorp's Consolidated Financial Statements and notes thereto
contained in the Annual Report (beginning at page 4 thereto) filed at Exhibit 13
hereto are incorporated in their entirety by reference under this Item 8.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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 5, 11 and 4 hereof,
respectively) filed at Exhibit 99A hereto is incorporated in their entirety by
reference under this Item 10.
ITEM 11. EXECUTIVE COMPENSATION
The caption "Executive Compensation" contained in Bancorp's
Proxy Statement (at pages 8 through 10 hereof) filed at Exhibit 99A hereto is
incorporated in its entirety by reference under this Item 11.
ITEM 12. 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 3 hereof) filed at
Exhibit 99A hereto is incorporated in its entirety by reference under this Item
12.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Certain Transactions"
contained in Bancorp's Proxy Statement (at page 10 hereof) filed at Exhibit 99A
hereto is incorporated in its entirety by reference under this Item 13.
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<PAGE> 26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. The Registrant's consolidated financial statements and
notes thereto as well as the applicable reports of the independent certified
public accountants are filed at Exhibit 13 hereto and are incorporated in their
entirety by reference under this Item 14(a)1.
2. All schedules are omitted because they are not
applicable or the required information is shown in the financial statements or
notes thereto.
3. The exhibits required by Item 601 of the Regulation S-K
are included under Item 14(c) hereto.
(b) Bancorp filed no reports on Form 8-K during the last
quarter of the year ended December 31, 1997.
(c) Exhibits required by Item 601 of Regulation S-B:
<TABLE>
<CAPTION>
Exhibit Number Referred to
Item 601 of Regulation S-K Description of Exhibit
- -------------------------- ----------------------
<S> <C>
2 None.
3(i) None.
3(ii)
4 None.
9 None.
10 None.
11 None.
12 None.
13 Annual Report to Shareholders for Fiscal Year Ended December
31, 1997.
16 None.
18 None.
21 List of Subsidiaries of Bancorp.
22 None.
23 None.
24 None.
27 Financial Data Schedule.
99A Proxy Statement, Notice of
Annual Meeting and Form of
Proxy for the Annual
Meeting of Shareholders to
be held May 12, 1998.
99B SEC Guide 3 Financial Information.
</TABLE>
26
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
CCFNB BANCORP, INC.
(Bancorp)
By: /s/ Paul E. Reichart Date: March 26, 1998
-------------------------------------
Paul E. Reichart
President and Vice Chairman
of the Board
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
By: /s/ Don E. Bangs Date: March 26, 1998
-------------------------------------
Don E. Bangs
Director and Secretary
By: /s/ Stanley Barchik Date: March 26, 1998
-------------------------------------
Stanley Barchik
Director
By: /s/ Robert M. Brewington, Jr. Date: March 26, 1998
-------------------------------------
Robert M. Brewington, Jr.
Director
By: /s/ Edward L. Campbell Date: March 26, 1998
-------------------------------------
Edward L. Campbell
Director
By: /s/ Elwood R. Harding, Jr. Date: March 26, 1998
-------------------------------------
Elwood R. Harding, Jr.
Director
27
<PAGE> 28
By: /s/ William F. Hess Date: March 26, 1998
-------------------------------------
William F. Hess
Director and Chairman of the
Board
By: /s/ Willard H. Kile, Sr. Date: March 26, 1998
-------------------------------------
Willard H. Kile, Sr.
Director
By: /s/ Charles E. Long Date: March 26, 1998
-------------------------------------
Charles E. Long
Director
By: /s/ Paul E. Reichart Date: March 26, 1998
-------------------------------------
Paul E. Reichart
Director, President, Chief
Executive Officer and Vice
Chairman of the Board
(Chief Executive Officer)
By: /s/ Virginia D. Kocher Date: March 26, 1998
-------------------------------------
Virginia D. Kocher
Treasurer
(Principal Financial and
Accounting Officer)
28
<PAGE> 29
INDEX TO EXHIBITS
Item Number Description Page
- ----------- ----------- ----
13 Annual Report to Shareholders for the
Fiscal Year Ended December 31, 1997........................ 30
21 List of Subsidiaries of Bancorp............................. 69
99A Proxy Statement, Notice of Annual
Meeting and Form of Proxy for
the Annual Meeting of Shareholders
to be held May 12, 1998................................... 70
99B SEC Guide 3 Financial Information........................... 87
27 Financial Data Schedules.................................... 91
29
<PAGE> 1
EXHIBIT 13
ANNUAL REPORT TO SHAREHOLDERS
FOR FISCAL YEAR ENDED DECEMBER 31, 1997
30
<PAGE> 2
PROVIDING
QUALITY
CUSTOMER
SERVICE
FOR
OVER
80
YEARS
1997
ANNUAL
REPORT
[CCFNB LOGO]
CCFNB BANCORP, INC. AND SUBSIDIARY CORPORATION
<PAGE> 3
CCFNB BANCORP, INC. AND SUBSIDIARY
CCFNB Bancorp, Inc. is a registered bank holding company and is 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,
1997, on Form 10-K 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>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
EARNINGS
Interest income $ 12,499 $ 11,844 $ 11,466
Interest expense 5,976 5,588 5,557
Provision for loan losses 60 80 42
Investment securities gains 57 28 83
Net income $ 2,025 $ 1,824 $ 1,625
PER SHARE
Net income $ 1.47 $ 1.33 $ 1.19
Cash dividends .46 .45 .45
BALANCES AT DECEMBER 31
Assets $173,866 $170,086 $162,066
Investment securities 43,862 37,407 40,384
Net loans 118,144 114,679 110,919
Deposits 127,719 131,400 128,985
Stockholders' equity 22,105 20,657 19,512
RATIOS
Return on average assets 1.18% 1.11% 1.03%
Return on average equity 9.79% 9.35% 8.99%
Dividend payout ratio 31.65% 33.95% 37.88%
</TABLE>
CONTENTS
Financial Highlights..................................................... 1
Officers and Directors................................................... 2
Message to Shareholders.................................................. 3
Consolidated Balance Sheets.............................................. 4
Consolidated Statements of Income........................................ 5
Consolidated Statements of Stockholder' Equity........................... 6
Consolidated Statements of Cash Flows.................................... 7
Notes to Consolidated Financial Statements............................... 8-18
Report of Independent Certified Public Accountants....................... 19
Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 20-32
CCFNB Employees.......................................................... 33
Ten Years in Review (Graphs)............................................. 34
Quality Customer Service................................................. 35
Market Makers............................................................ 36
CCFNB Locations.......................................................... 36
1
<PAGE> 4
CCFNB BANCORP, INC. BOARD OF DIRECTORS
[PHOTO] [PHOTO] [PHOTO]
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 BANCORP, INC. OFFICERS
Willard H. Kile, Sr.
Chairman of the Board
William F. Hess
Vice-Chairman of the Board
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. Richard L. Sierer
Chairman of the Board Financial Planner/Trust Officer
William F. Hess Lily M. Boudman
Vice Chairman of the Board Assistant Vice President
Paul E. Reichart Florence H. Martz
President and Chief Executive Officer Assistant Vice President
Don E. Bangs Gloria M. Miller
Secretary of the Board Assistant Vice President
J. Jan Girton Karen Z. Wenner
Executive Vice President, Mortgage Loan Officer
Chief Operating Officer and
Assistant Secretary Luanne Bittenbender
Training Director and Security Officer
Lance O. Diehl
Senior Vice President Dolores M. Bennett
Community Office Manager
Linda A. Huttenstine
Senior Vice President and Cashier Christopher R. Bower
Community Office Manager
Jacob S. Trump
Senior Vice President and Connie L. Yoder
Financial Planning Officer Community Office Manager
Edwin A. Wenner Jean E. MacDermott
Senior Vice President Customer Service Officer
Elaine M. Edwards Michelle M. Karas
Vice President Marketing Coordinator
Dean R. Kelchner Betty Jean Kline
Vice President Community Office Supervisor
Virginia D. Kocher
Vice President, Controller and
Assistant Secretary
CCFNB MANAGEMENT TEAM
[PHOTO]
Jacob S. Trump, Edwin A. Wenner
Paul E. Reichart, Lance O. Diehl, J. Jan Girton
3
<PAGE> 5
TO OUR SHAREHOLDERS:
As we conclude 1997, a year of record earnings for CCFNB Bancorp, Inc., I
recognize with great pride that it was our 80th year of service to our local
communities. In an era where takeovers and mergers are commonplace, I am proud
that Columbia County Farmers National Bank has been able to overcome the
challenges and implement the necessary changes to remain a solid financial
institution for our customers.
As I ponder our 80 years of existence, I realize that this was possible
primarily because of our friendly customer service. Being a relatively small,
independent bank, we believe it is important to get to know our customers on a
first-name basis. This close relationship allows us to best understand and meet
the needs of our customers.
STATISTICS ILLUSTRATE SUCCESS
The year 1997 was highlighted by a record profit level and higher returns. The
figures below reflect the bottom-line focus of our employees in their decision
making, and our relentless efforts to earn a favorable spread despite the
challenging economic conditions.
- - Net Income increased 11.02%, from $1,824,000 in 1996 to $2,025,000 in 1997
- - Return on Average Assets rose from 1.11% in 1996 to 1.18% in 1997
- - Return on Equity grew from 9.35% in 1996 to 9.79% in 1997
- - Loans increased 2.99%, from $115,590,000 in 1996 to $119,045,000 in 1997
- - Assets grew by 2.22%, from $170,086,000 in 1996 to $173,866,000 in 1997
- - Capital growth of 7.01% was realized, from $20,657,000 in 1996 to $22,105,000
in 1997
CONTINUOUS IMPROVEMENT
As with any prosperous business, we realize that we cannot rest because of
past successes. During 1997, we implemented many changes that should prove
beneficial to our customers. A significant addition to our organization occurred
in March with the opening of our new Investment Center. Via this department, we
are able to offer retail investment products such as stocks, bonds, mutual
funds, annuities, unit investment trusts and long-term care insurance. This
strategic move takes us one step closer to being a full-service financial
institution.
Another innovative move in the past year was the introduction of the debit
card, a product our customers are pleased to have available. This card provides
a faster, more economical and convenient way to purchase products and services,
as well as offers the traditional benefits of an ATM card.
LOOKING FORWARD
As I look ahead into 1998, I envision a very exciting year for our
organization. A top priority will be moving our data processing, which we have
been outsourcing, to an in-house mainframe system. We are confident that this
strategic move will give us the control and flexibility necessary to efficiently
operate our computer system.
Another goal in the coming year is the implementation of telephone banking.
After researching the needs of our customers, we believe that this banking
method is desired by many. In today's fast-paced society, many individuals are
looking for ways to save valuable time. Telephone banking will permit customers
24 hour a day access to check balances, transfer funds, determine if a check has
cleared, and more.
[PHOTO]
In the first quarter of 1998, we plan to introduce the option of check
safekeeping to our customers. We also are looking to expand our IRA product
offerings to include the Roth and Educational IRA's. Additionally, a committee
comprised of Directors and Officers has been formed and are working to ensure
that our organization is prepared to handle all Year 2000 computer-related
issues. We are confident that we will have a smooth transition into the new
millennium.
As you can see, much is on the horizon for CCFNB. These objectives can only be
achieved through the hard work, cooperation, and dedication of our Directors,
management team, and our employees. I thank each of them for their ongoing
efforts. I would also like to acknowledge the 13 years of excellent, dedicated
service of our Chairman of the Board, Willard H. Kile, Sr.. At the time this
letter was written, Mr. Kile has resigned his position as Chairman, but will
remain on the Board. The organization is grateful for his leadership and vision.
We also look forward to the leadership of our newly elected Chairman, William F.
Hess.
As always, I want to thank you, the shareholders, for your loyal support. It
is only through your support that CCFNB Bancorp, Inc. can continue to meet and
exceed the financial needs of our customers.
Respectfully,
/s/ Paul E. Reichart
Paul E. Reichart
President & CEO
3
<PAGE> 6
CCFNB Bancorp, Inc. And Subsidiary
CONSOLIDATED BALANCE SHEETS
December 31, 1997 And 1996
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 4,734,655 $ 4,502,893
Interest-bearing deposits with other banks 582,143 3,856,274
Federal funds sold 0 3,000,000
Investment securities:
Securities available for sale 43,142,265 36,436,880
Securities to be held to maturity
(estimated fair value 1997, $ 726,340; 1996, $ 981,013) 720,000 970,000
Loans, net of unearned income 119,044,568 115,589,784
Allowance for loan losses 900,889 910,711
------------- -------------
Net loans $ 118,143,679 $ 114,679,073
Premises and equipment 5,146,174 5,294,523
Accrued interest receivable 937,697 964,931
Other assets 459,357 381,726
------------- -------------
Total Assets $ 173,865,970 $ 170,086,300
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Non-interest bearing $ 12,137,705 $ 12,280,044
Interest bearing 115,581,404 119,119,992
------------- -------------
Total Deposits $ 127,719,109 $ 131,400,036
Short-term borrowings 22,362,505 16,653,981
Long-term borrowings 439,787 296,986
Accrued interest and other expenses 1,140,740 1,057,967
Other liabilities 99,016 20,449
------------- -------------
Total Liabilities $ 151,761,157 $ 149,429,419
============= =============
STOCKHOLDERS' EQUITY
Common stock, par value $1.25 per share; authorized
5,000,000 shares; issued 1,382,433 shares 1997 and
1,381,711 shares 1996 $ 1,728,041 $ 1,727,139
Surplus 5,854,388 5,838,453
Retained earnings 14,406,930 13,022,498
Unrealized gain on investment securities available
for sale, net of tax 142,001 68,791
Less: Treasury stock at cost (1,183 shares) (26,547) 0
------------- -------------
Total Stockholders' Equity $ 22,104,813 $ 20,656,881
------------- -------------
Total Liabilities And Stockholders' Equity $ 173,865,970 $ 170,086,300
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
[PHOTO] Jennifer Fester, provides quality service for our customers
from behind the scenes as a member of the Operations
Department.
4
<PAGE> 7
CCFNB Bancorp, Inc. And Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
For Years Ended December 31, 1997, 1996 And 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans:
Taxable $ 9,687,196 $ 9,199,079 $ 8,883,251
Tax exempt 148,256 104,994 132,875
Interest and dividends on investment securities:
Taxable 1,812,883 1,779,437 1,725,565
Tax exempt 513,112 504,808 492,878
Dividends 61,572 58,856 56,605
Federal funds sold 124,019 46,651 60,201
Deposits in other banks 151,586 149,813 114,372
----------- ----------- -----------
Total Interest Income $12,498,624 $11,843,638 $11,465,747
=========== =========== ===========
INTEREST EXPENSE
Deposits $ 4,911,541 $ 4,840,794 $ 4,916,162
Short-term borrowings 1,048,645 723,308 633,902
Long-term borrowings 16,035 23,502 6,872
----------- ----------- -----------
Total Interest Expense $ 5,976,221 $ 5,587,604 $ 5,556,936
----------- ----------- -----------
Net interest income $ 6,522,403 $ 6,256,034 $ 5,908,811
Provision for loan losses 60,000 80,000 42,000
----------- ----------- -----------
Net Interest Income After Provision For Loan Losses $ 6,462,403 $ 6,176,034 $ 5,866,811
=========== =========== ===========
NON-INTEREST INCOME
Service charges and fees $ 555,414 $ 513,341 $ 502,901
Trust department 103,189 75,804 50,905
Other 88,074 145,298 56,078
Investment securities gains, net 57,326 27,680 82,954
----------- ----------- -----------
Total Non-Interest Income $ 804,003 $ 762,123 $ 692,838
=========== =========== ===========
NON-INTEREST EXPENSE
Salaries $ 1,817,389 $ 1,784,776 $ 1,653,056
Pensions and other employee benefits 522,388 509,433 447,555
Occupancy, net 375,379 392,854 258,514
Equipment 420,271 410,524 348,921
FDIC insurance 15,761 2,000 148,418
Other 1,340,945 1,350,526 1,517,192
----------- ----------- -----------
Total Non-Interest Expense $ 4,492,133 $ 4,450,115 $ 4,373,656
----------- ----------- -----------
Income before income taxes $ 2,774,273 $ 2,488,042 $ 2,185,993
Income tax expense 748,777 663,552 561,122
----------- ----------- -----------
Net Income $ 2,025,496 $ 1,824,490 $ 1,624,871
=========== =========== ===========
PER SHARE DATA
Net income $ 1.47 $ 1.33 $ 1.19
----------- ----------- -----------
Cash dividends $ .46 $ .45 $ .45
----------- ----------- -----------
Weighted average shares outstanding 1,381,800 1,375,875 1,367,595
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 8
CCFNB Bancorp, Inc. And Subsidiary
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For Years Ended December 31, 1997, 1996 And 1995
<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, 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 tax 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 and stock
purchase plans 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 tax 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
Net income 0 0 2,025,496 0 0 2,025,496
Issuance of 6814 shares of
common stock under dividend
reinvestment and stock
purchase plans 8,517 130,543 0 0 0 139,060
Purchase of 7275 shares of
treasury stock 0 0 0 (148,770) 0 (148,770)
Retirement of 6092 shares of
treasury stock (7,615) (114,608) 0 122,223 0 0
Cash dividends $.46 per share 0 0 (641,064) 0 0 (641,064)
Change in unrealized gain
(loss) on investment
securities available for
sale, net of tax 0 0 0 0 73,210 73,210
------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1997 $ 1,728,041 $ 5,854,388 $ 14,406,930 $ (26,547) $ 142,001 $ 22,104,813
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE> 9
CCFNB Bancorp, Inc. And Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Years Ended December 31, 1997, 1996 And 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,025,496 $ 1,824,490 $ 1,624,871
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 60,000 80,000 42,000
Depreciation 373,307 386,021 293,305
Premium amortization on investment securities 21,995 2,228 8,657
Discount accretion on investment securities (27,084) (16,294) (10,345)
Deferred income taxes (benefit) 20,331 (9,303) 49,392
Gain on sales of investment securities available for sale (57,326) (27,680) (82,954)
(Gain) loss on sale of premises and equipment (1,623) (116) 71,669
Loss on impairment of bank premise 20,000 30,958 0
(Gain) on sale of other real estate 0 (53,808) 0
(Increase) decrease in accrued interest receivable 27,234 (115,195) (6,661)
(Increase) in other assets - net (96,013) (3,168) (69,412)
Increase in accrued interest and other expenses 82,773 151,292 228,717
Increase (decrease) in other liabilities - net 36,826 (109,587) 107,604
------------ ------------ ------------
Net Cash Provided By Operating Activities $ 2,485,916 $ 2,139,838 $ 2,256,843
============ ============ ============
INVESTMENT ACTIVITIES
Purchases of investment securities available for sale $(25,177,358) $(12,813,932) $(30,378,156)
Proceeds from sales, maturities and redemptions of
investment securities available for sale 18,647,390 15,430,246 16,535,237
Purchases of investment securities held to maturity 0 0 (887,660)
Proceeds from maturities and redemptions of
investment securities held to maturity 250,000 75,000 14,928,876
Net increase in loans (3,524,606) (3,839,730) (2,104,640)
Purchases of premises and equipment (266,185) (629,777) (2,156,715)
Proceeds from sale of premises and equipment 22,850 275 0
Proceeds from sale of other real estate 0 53,808 0
------------ ------------ ------------
Net Cash Used In Investing Activities $(10,047,909) $ (1,724,110) $ (4,063,058)
============ ============ ============
FINANCING ACTIVITIES
Net increase (decrease) in deposits $ (3,680,927) $ 2,414,764 $ 2,121,329
Net increase in short-term borrowings 5,708,524 4,588,410 156,023
Proceeds from long-term borrowings 225,000 0 364,565
Repayment of long-term borrowings (82,199) (67,579) 0
Proceeds from sale of treasury stock 0 0 0
Acquisition of treasury stock (148,770) 0 0
Proceeds from issuance of common stock 139,060 155,920 77,037
Cash dividends paid (641,064) (619,269) (615,504)
------------ ------------ ------------
Net Cash Provided By Financing Activities $ 1,519,624 $ 6,472,246 $ 2,103,450
============ ============ ============
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (6,042,369) $ 6,887,974 $ 297,235
Cash And Cash Equivalents At Beginning Of Year 11,359,167 4,471,193 4,173,958
------------ ------------ ------------
Cash And Cash Equivalents At End Of Year $ 5,316,798 $ 11,359,167 $ 4,471,193
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 5,984,797 $ 5,575,448 $ 5,447,107
Income taxes $ 795,855 $ 571,730 $ 557,937
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE> 10
CCFNB Bancorp, Inc. And Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For Years Ended December 31, 1997, 1996 And 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of CCFNB Bancorp, Inc. and Subsidiary
(the "Corporation") are in accordance with generally accepted accounting
principles and conform to common practices within the banking industry. The more
significant policies follow:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of CCFNB Bancorp,
Inc. and its wholly owned subsidiary, Columbia County Farmers National Bank (the
"Bank"). All significant inter-company balances and transactions have been
eliminated in consolidation.
NATURE OF 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 classifies its investment securities as either "Held to
Maturity" or "Available for Sale" at the time of purchase. Debt securities are
classified as held to maturity when the Corporation has the ability and positive
intent to hold the securities to maturity. Investment securities held to
maturity are carried at cost adjusted for amortization of premiums and accretion
of discounts to maturity.
Debt securities not classified as held to maturity and equity securities
included in the available for sale category, are carried at fair value, and the
amount of any unrealized gain or loss 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 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. 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 these 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 poten-
8
<PAGE> 11
tial 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 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.
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.
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.
CASH FLOW INFORMATION
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.
TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT OF LIABILITIES
In June 1996, The Financial Accounting Standards Board (FASB) issued Statement
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." This Statement provides new accounting and
reporting standards for sales, securitizations and servicing of receivables and
other financial assets, for certain secured borrowing and collateral
transactions and extinguishments of liabilities.
Implementation of certain transfer provisions of FASB 125 was delayed by FASB
127, "Deferral of the Effective Date of Certain Provisions of FASB Statement
125." For repurchase agreements, dollar roll, securities lending and similar
transactions, the FASB 125 transfer provisions and related disclosures are
effective for those transactions occurring after December 31, 1997 and adoption
of this segment of the standard is not expected to have a material impact on the
consolidated financial statements.
For securitizations, servicing of assets and extinguishments of liabilities
the FASB 125 provisions are effective for transactions occurring after December
31, 1996 and were implemented by the Corporation where applicable with no
material impact on these consolidated financial statements.
REPORTING COMPREHENSIVE INCOME
In June 1997, The Financial Accounting Standards Board issued Statement 130
"Reporting Comprehensive Income."
9
<PAGE> 12
FASB 130 establishes standards for reporting and display of comprehensive income
and its components (income, expenses, gains and losses) in a full set of
general-purpose financial statements. FASB 130 is effective for fiscal years
beginning after December 15, 1997. The Corporation has determined that the
impact of adopting the standard will not be material to the financial position
or results of operations.
REPORTING FORMAT
Certain amounts in the financial statements of the prior periods have been
reclassified to conform with presentation used in the 1997 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, 1997 was $770,000 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, 1997, these
balances were $1,187,000.
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, 1997 and 1996:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE SECURITIES
-----------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1997: COST GAINS LOSSES VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 2,999,778 $ 0 $ 2,278 $ 2,997,500
Obligations of U.S. Government Corporations
and Agencies:
Mortgage-backed 14,491,408 0 40,953 14,450,455
Other 14,576,412 0 30,504 14,545,908
Obligations of state and political subdivisions 9,189,078 269,859 0 9,458,937
Corporate debt securities 498,483 916 609 498,790
Equity securities 1,169,875 21,300 500 1,190,675
----------- ----------- ----------- -----------
Total $42,925,034 $ 292,075 $ 74,844 $43,142,265
=========== =========== =========== ===========
<CAPTION>
HELD TO MATURITY SECURITIES
-----------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1997: COST GAINS LOSSES VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Obligations of state and political subdivisions $ 720,000 $ 6,340 $ 0 $ 726,340
----------- ----------- ----------- -----------
Total $ 720,000 $ 6,340 $ 0 $ 726,340
=========== =========== =========== ===========
<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
=========== =========== =========== ===========
<CAPTION>
HELD TO MATURITY SECURITIES
-----------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1996: COST GAINS LOSSES VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Obligations of state and political subdivisions $ 970,000 $ 11,013 $ 0 $ 981,013
----------- ----------- ----------- -----------
Total $ 970,000 $ 11,013 $ 0 $ 981,013
=========== =========== =========== ===========
</TABLE>
10
<PAGE> 13
Securities available for sale with an aggregate fair value of $31,360,090 in
1997 and $26,904,079 in 1996, respectively, were pledged to secure public funds,
trust funds, securities sold under agreements to repurchase and other balances
of $27,919,841 in 1997 and $22,550,981 in 1996, respectively, as required by
law.
The amortized cost and estimated fair value of debt securities, by contractual
maturity, are shown below at December 31, 1997. 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 $ 155,000 $ 155,599 $ 6,798,730 $ 6,792,374
Due after one year through five years 565,000 570,741 24,015,129 23,977,493
Due after five years through ten years 0 0 6,465,154 6,534,495
Due after ten years 0 0 5,646,021 5,837,903
----------- ----------- ----------- -----------
Total $ 720,000 $ 726,340 $42,925,034 $43,142,265
=========== =========== =========== ===========
</TABLE>
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 1997,
1996 and 1995 were $4,954,603, $1,529,234 and $2,535,237, respectively. Gross
gains realized on these sales were $57,935, $27,680 and $82,954, respectively.
Gross losses on these sales were $609 in 1997. 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 $142,001, $68,791 and $284,796 in 1997, 1996 and 1995, respectively.
4. LOANS
Major classifications of loans at December 31, 1997 and 1996 consisted of:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Commercial $ 7,550,674 $ 7,957,064
Tax exempt 2,591,233 2,063,757
Qualified municipal leases 0 34,777
Real estate - construction 637,025 660,071
Real estate 99,779,958 96,439,184
Personal 8,523,907 8,446,682
Credit cards 382,885 441,385
------------- -------------
Total gross loans $ 119,465,682 $ 116,042,920
Less: Unearned discount (323,684) (324,517)
Unamortized loan fees net of costs (97,430) (128,619)
------------- -------------
Loans, net of unearned income $ 119,044,568 $ 115,589,784
============= =============
</TABLE>
Non-accrual loans at December 31, 1997, 1996 and 1995 were $69,368, $109,000 and
$13,343, 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>
1997 1996 1995
--------- --------- ----------
<S> <C> <C> <C>
Gross interest due under terms $ 3,846 $ 9,849 $ 2,266
Amount included in income 0 0 (111)
--------- --------- ----------
Interest income not recognized $ 3,846 $ 9,849 $ 2,155
========= ========= ==========
</TABLE>
At December 31, 1997 and 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, 1997, 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,
1997, 1996 and 1995 were as follows:
11
<PAGE> 14
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Balance, beginning of year $ 910,711 $ 912,253 $ 943,371
Provision charged to operations 60,000 80,000 42,000
Loans charged-off (102,474) (144,980) (107,190)
Recoveries 32,652 63,438 34,072
--------- --------- ---------
Balance, end of year $ 900,889 $ 910,711 $ 912,253
========= ========= =========
</TABLE>
5. PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Land $ 567,939 $ 558,288
Buildings and improvements 4,382,745 4,387,756
Furniture and equipment 2,838,862 2,627,321
Capitalized leases - equipment 272,528 287,837
---------- ----------
$8,062,074 $7,861,202
Less: Accumulated depreciation 2,915,900 2,566,679
---------- ----------
$5,146,174 $5,294,523
========== ==========
</TABLE>
Depreciation amounted to $373,307 for 1997, $386,021 for 1996 and $293,305 for
1995.
In accordance with FASB 121, impairment losses were recognized in the amounts
of $20,000 in 1997 and $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, 1997 and 1996 consisted of:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Demand - non-interest bearing $ 12,137,705 $ 12,280,044
Demand - interest bearing 19,453,384 20,105,506
Savings 31,742,490 35,625,308
Time $100,000 and over 11,460,722 12,975,134
Other time 52,924,808 50,414,044
------------ ------------
$127,719,109 $131,400,036
============ ============
</TABLE>
The following is a schedule reflecting remaining maturities of time deposits
of $100,000 and over at December 31, 1997:
<TABLE>
<S> <C>
1998 $ 7,913,121
1999 1,850,703
2000 1,389,120
2001 207,778
2002 and thereafter 100,000
-----------
Total $11,460,722
===========
</TABLE>
Interest expense related to time deposits of $100,000 or more was $674,683 in
1997, $636,407 in 1996 and $513,290 in 1995.
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, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
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 $21,362,505 $19,350,482 $22,940,764 5.26% $16,110,547 $13,986,864 $17,128,643 4.98%
Federal Home Loan Bank 0 8,767 0 6.18% 0 19,604 0 5.52%
U.S. Treasury tax and loan notes 1,000,000 583,549 1,000,000 5.08% 543,434 522,076 1,000,000 4.97%
----------- ----------- ----------- ---- ----------- ----------- ----------- ----
Total $22,362,505 $19,942,798 $23,940,764 5.26% $16,653,981 $14,528,544 $18,128,643 4.97%
=========== =========== =========== ==== =========== =========== =========== ====
</TABLE>
12
<PAGE> 15
8. LONG-TERM BORROWINGS
Long-term borrowings at December 31, 1997 and 1996 consisted of:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Federal Home Loan Bank loan with interest at 6.12% $225,000 $ 0
Capitalized lease obligations for computer equipment 214,787 296,986
-------- --------
Total $439,787 $296,986
======== ========
</TABLE>
In November 1997 the Bank incurred a ten year loan with the Federal Home Loan
Bank which requires monthly payments of $1,628 including interest at a fixed
rate of 6.12%.
In 1994 the Bank acquired certain computer equipment under capitalized leases.
Interest rates on the capitalized leases were 6.3%, which was the lower of the
Bank's incremental borrowing rate.
As a result of the Bank's planned acquisition of an in-house computer data
processing system in 1998, (See Note 12 Lease Commitments and Contingency) the
above capitalized leases will be paid.
Hence, these capitalized lease obligations are included in the 1998 portion of
annual maturities of long-term debt. At December 31, 1997 the annual maturities
of long-term debt were as follows: $220,712 in 1998, $6,298 in 1999, $6,695 in
2000, $7,116 in 2001, $7,564 in 2002 and $191,402 thereafter.
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 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. Stock issued to participating employees under
the plan occurred in January 1996 whereby 195 shares were issued for $14.40 a
share at a cost per share of $16.00 and January 1997 whereby 435 shares were
issued for $15.75 a share at a cost per share of $17.50.
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. Shares
issued under this plan were 6,379 shares with proceeds of $132,209 in 1997,
9,053 shares with proceeds of $153,112 in 1996 and 7,036 shares issued in 1995
with proceeds of $77,037 net of the initial cost to establish the plan.
10.INCOME TAXES
The provision for income tax expense consisted of the following components:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current $ 728,446 $ 672,855 $ 511,730
Deferred (benefit) 20,331 (9,303) 49,392
--------- --------- ---------
Total Provision For Income Taxes $ 748,777 $ 663,552 $ 561,122
========= ========= =========
</TABLE>
A reconciliation of income tax expense and the amounts which would have been
recorded based upon the statutory rate of 34% follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
AMOUNT RATE AMOUNT RATE AMOUNT RATE
--------- ---- --------- ---- --------- ----
<S> <C> <C> <C> <C> <C> <C>
Provision at statutory rate $ 943,253 34.0% $ 845,934 34.0% $ 743,238 34.0%
Tax exempt income (224,865) (8.1) (207,332) (8.3) (212,756) (9.7)
Non-deductible expenses 35,817 1.3 24,553 1.0 30,796 1.4
Other, net (5,428) (.2) 397 .0 (156) .0
--------- ---- --------- ---- --------- ----
Actual federal income tax and rate $ 748,777 27.0% $ 663,552 26.7% $ 561,122 25.7%
========= ==== ========= ==== ========= ====
</TABLE>
13
<PAGE> 16
Income taxes applicable to realized security gains included in the provision
for income taxes totalled $19,491 in 1997, $9,411 in 1996 and $28,204 in 1995.
The net deferred tax asset (liability) recorded by the Corporation consisted of
the following tax effects of temporary timing differences at December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Loan loss reserve $ 204,541 $ 207,880
Impairment loss 0 10,526
Deferred compensation 115,114 96,137
Contributions 6,018 8,571
--------- ---------
Total $ 325,673 $ 323,114
========= =========
Deferred tax liabilities:
Loan fees and costs $ (54,588) $ (37,840)
Accretion (7,356) (9,035)
Unrealized investment securities gains (75,230) (35,438)
Depreciation (230,240) (222,419)
--------- ---------
Total $(367,414) $(304,732)
--------- ---------
Net deferred tax asset (liability) $ (41,741) $ 18,382
========= =========
</TABLE>
The above net deferred asset (liability) is included in other assets
(liabilities), respectively. It is anticipated that all tax assets will be
realized, accordingly, no valuation allowance was provided.
11. BENEFIT AND DEFERRED COMPENSATION PLANS
The Bank maintains a 401K salary deferred profit sharing plan for the benefit
of its employees. Under the salary deferral component, employees may elect to
contribute up to 10% of their compensation with the possibility that the Bank
may make matching contributions to the plan. Under the profit sharing component,
contributions are made at the discretion of the Board of Directors.
Matching contributions amount to $18,266, $19,788 and $0 for 1997, 1996 and
1995, respectively. Discretionary contributions amounted to $108,099, $97,564
and $86,755 in 1997, 1996 and 1995, respectively.
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 himself 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, 1997 and 1996, the net cash value of insurance policies was
$131,084 and $61,818, respectively, and the total accrued liability was $181,268
and $153,756, respectively, relating to these directors' deferred compensation
agreements.
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, 1997 and 1996, the
net cash value of insurance policies was $148,585 and $117,955, respectively,
and the total accrued liability was $154,800 and $129,000, respectively,
relating to these executive officers' deferred compensation agreements.
12. LEASE COMMITMENTS AND CONTINGENCIES
At December 31, 1997 the Bank contracted for outside data processing services
and also leased some minor office equipment under operating leases.
Rental expense under operating leases and contracted data processing services
for the years ended December 31, 1997, 1996 and 1995 were $170,398, $153,084 and
$253,626, respectively.
In 1998 the Bank will acquire an in-house computer data processing system as a
result of cancelling a third party outside data processor. Estimated costs to be
incurred for this conversion include acquisition of additional computer
equipment for $758,000, contracted processing fees to conversion date of $50,000
and one time conversion costs of $73,598. In addition, existing capitalized
lease obligations in the amount of $214,787 will be paid-off.
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
<PAGE> 17
13. 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, 1997 and 1996. 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.
A summary of the activity on the related party loans, comprised of seven
directors, seven executive officers and their related companies, consisted of
the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Balance, beginning of year $ 2,100,225 $ 1,608,042
Additions 359,080 764,735
Deductions (816,112) (272,552)
----------- -----------
Balance, end of year $ 1,643,193 $ 2,100,225
=========== ===========
</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 $327,833 and $193,183,
respectively, on the above loans. Additionally, the presented loans include
credit card accounts totalling $3,348 and $4,606, respectively.
These loans did not present more than the normal risk of collectibility nor
present other unfavorable features.
14. REGULATORY MATTERS
Dividends are paid by the Corporation to shareholders from its assets which
are mainly provided by dividends from the Bank. However, national banking laws
place certain restrictions on the amount of cash 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 1998, without prior
regulatory approval, the Bank may declare dividends to the Corporation in the
amount of $2,353,321 plus additional amounts equal to the net income earned in
1998 for the period January 1, 1998, through the date of declaration, less any
dividends which may have already been paid in 1998. Regulations also limit the
amount of loans and advances from the Bank to the Corporation to 10% of
consolidated net assets.
The Corporation is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a direct
material effect on the Corporation's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Corporation must meet specific capital guidelines that involve quantitative
measures of the Corporation's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Corporation's
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation to maintain minimum amounts and ratios (set forth in the
table below) of Total and Tier I Capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I Capital (as defined) to average
assets (as defined).
As of December 31, 1997, the most recent notification from the Office of the
Comptroller of the Currency categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category.
The Bank's actual capital amounts (in thousands) and ratios are presented in
the following table:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS:
------ ----------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital (To risk-weighted assets) $22,864 21.84% $ 8,375 8.00% $10,469 10.00%
Tier I Capital (To risk-weighted assets) $21,963 20.98% $ 4,187 4.00% $ 6,281 6.00%
Tier I Capital (To average assets) $21,963 12.57% $ 6,989 4.00% $ 8,736 5.00%
As of December 31, 1996:
Total Capital (To risk-weighted assets) $21,499 21.49% $ 8,003 8.00% $10,004 10.00%
Tier I Capital (To risk-weighted assets) $20,588 20.58% $ 8,235 4.00% $12,353 6.00%
Tier I Capital (To average assets) $20,588 12.23% $ 6,734 4.00% $ 8,417 5.00%
</TABLE>
The Corporation's capital ratios are not materially different from those of
the Bank.
15
<PAGE> 18
15. 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, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit $8,536,044 $9,693,267
Credit card arrangements 1,238,765 1,256,635
Standby letters of credit 704,493 636,200
Performance standby letters of credit 326,372 256,993
Dealer floor plans 520,624 598,398
</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, 1997 varied from
0 percent to 100 percent; the average amount collateralized was 74.6% percent.
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.
16. 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
16
<PAGE> 19
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, 1997 and 1996.
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.
At December 31, 1997 and 1996, the carrying values and estimated fair values
of financial instruments of the Corporation are presented in the table below:
<TABLE>
<CAPTION>
1997 1996
---- ----
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and short-term investments $ 5,316,798 $ 5,316,798 $ 11,359,167 $ 11,359,167
Investment securities 43,862,265 43,868,605 37,406,880 37,417,893
Loans:
Commercial 7,550,674 7,801,898 7,957,064 7,957,064
Tax exempt 2,591,233 2,680,688 2,063,757 2,028,384
Qualified municipal leases 0 0 34,777 34,777
Real estate - construction 637,025 634,129 660,071 658,390
Real estate 99,779,958 98,835,906 96,439,184 96,066,609
Personal 8,523,907 8,421,895 8,446,682 8,436,195
Credit cards 382,885 382,885 441,385 441,385
------------ ------------ ------------ ------------
Gross loans $119,465,682 $118,757,401 $116,042,920 $115,622,804
Less: Unearned discount 323,684 0 324,517 0
Unamortized loan fees net of costs 97,430 0 128,619 0
------------ ------------ ------------ ------------
Loans net of unearned income $119,044,568 $118,757,401 $115,589,784 $115,622,804
Less allowance for losses 900,889 0 910,711 0
------------ ------------ ------------ ------------
Net Loans $118,143,679 $118,757,401 $114,679,073 $115,622,804
------------ ------------ ------------ ------------
Financial Liabilities:
Deposits:
Demand - non-interest bearing $ 12,137,705 $ 12,137,705 $ 12,280,044 $ 12,280,044
Demand - interest bearing 19,453,384 19,453,384 20,105,506 20,105,506
Savings 31,742,490 31,742,490 35,625,308 35,625,308
Time - $100,000 and over 11,460,722 11,549,942 12,975,134 13,055,996
Other time 52,924,808 53,231,715 50,414,044 50,659,791
------------ ------------ ------------ ------------
Total Deposits $127,719,109 $128,115,236 $131,400,036 $131,726,645
------------ ------------ ------------ ------------
Short-Term Borrowings $ 22,362,505 $ 22,362,505 $ 16,653,981 $ 16,653,981
Long-Term Borrowings 439,787 439,787 296,986 296,986
Off-Balance Sheet Assets (Liabilities):
Commitments to extend credit 8,536,044 9,693,267
Credit card arrangements 1,238,765 1,256,635
Standby letters of credit 704,493 636,200
Performance standby letters of credit 326,372 256,993
Dealer floor plans 520,624 598,398
</TABLE>
17
<PAGE> 20
17. PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information for CCFNB Bancorp, Inc. (Parent Company only)
was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
BALANCE SHEETS 1997 1996
------------ ------------
<S> <C> <C>
Assets
Cash in subsidiary Bank $ 248,136 $ 577,734
Investment in subsidiary 21,644,692 20,023,861
Investment in other equity securities 218,875 0
Prepayments and other assets 0 14,235
Receivable from subsidiary 14,251 110,306
------------ ------------
Total Assets $ 22,125,954 $ 20,726,136
============ ============
Liabilities and Stockholders' Equity
Accrued expenses and other liabilities $ 21,141 $ 69,255
------------ ------------
Total Liabilities $ 21,141 $ 69,255
------------ ------------
Stockholders' Equity
Common stock $ 1,728,041 $ 1,727,139
Surplus 5,854,388 5,838,453
Retained earnings 14,406,930 13,022,498
Unrealized gain on investment securities available for sale 142,001 68,791
Less treasury stock at cost (26,547) 0
------------ ------------
Total Stockholders' Equity $ 22,104,813 $ 20,656,881
------------ ------------
Total Liabilities and Stockholders' Equity $ 22,125,954 $ 20,726,136
============ ============
<CAPTION>
INCOME STATEMENTS
YEARS ENDED DECEMBER 31,
------------------------
Income 1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Dividends from subsidiary bank $ 637,610 $ 916,664 $ 615,504
Dividends - other 980 0 0
Interest 17,724 13,464 12,918
----------- ----------- -----------
Total Income $ 656,314 $ 930,128 $ 628,422
Operating Expenses 62,071 57,737 48,496
----------- ----------- -----------
Income Before Taxes and Equity in Undistributed
Net Income of Subsidiary $ 594,243 $ 872,391 $ 579,926
Applicable income tax (benefit) (14,978) (15,053) (12,097)
----------- ----------- -----------
Income Before Equity in Undistributed Net Income
of Subsidiary $ 609,221 $ 887,444 $ 592,023
Equity in undistributed income of subsidiary 1,416,275 937,046 1,032,848
----------- ----------- -----------
Net Income $ 2,025,496 $ 1,824,490 $ 1,624,871
=========== =========== ===========
STATEMENTS OF CASH FLOWS
Operating Activities
Net income $ 2,025,496 $ 1,824,490 $ 1,624,871
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed net income of subsidiary (1,416,275) (937,046) (1,032,848)
(Increase) decrease in prepaid expenses and other assets 14,235 30,308 16,362
(Increase) decrease in receivable from subsidiary 96,055 (110,306) 0
Increase (decrease) in advances payable to subsidiary 0 (20,173) (16,349)
Increase (decrease) in income taxes and accrued expenses payable (56,557) 68,855 (13,757)
----------- ----------- -----------
Net Cash Provided By Operating Activities $ 662,954 $ 856,128 $ 578,279
----------- ----------- -----------
Investing Activities
Purchase of equity securities $ (198,075) $ 0 $ 0
Investment in subsidiary (143,703) (102,390) 0
----------- ----------- -----------
Net Cash Provided (Used) in Investing Activities $ (341,778) $ (102,390) $ 0
----------- ----------- -----------
Financing Activities
Acquisition of treasury stock $ (148,770) $ 0 $ 0
Proceeds from issuance of common stock 139,060 155,920 77,037
Cash dividends (641,064) (619,269) (615,504)
----------- ----------- -----------
Net Cash Provided (Used) By Financing Activities $ (650,774) $ (463,349) $ (538,467)
----------- ----------- -----------
Increase (Decrease) in Cash and Cash Equivalents $ (329,598) $ 290,389 $ 39,812
Cash and Cash Equivalents at Beginning of Year 577,734 287,345 247,533
----------- ----------- -----------
Cash and Cash Equivalents at End of Year $ 248,136 $ 577,734 $ 287,345
=========== =========== ===========
</TABLE>
18
<PAGE> 21
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, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
[J.H. Williams & Co., LLP LOGO]
J.H. Williams & Co., LLP
Kingston, Pennsylvania
January 20, 1998
Nancy Diehl enjoying her work as a member of the Corporate [PHOTO]
Department team.
19
<PAGE> 22
CCFNB Bancorp, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Selected Consolidated Financial Summary Not Covered By Report Of Independent
Accountants
(Dollars in thousands, except per share date and ratios)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total interest income $ 12,498 $ 11,844 $ 11,466 $ 10,459 $ 9,914
Total interest expense 5,976 5,588 5,557 4,785 4,634
------------- ------------- ------------- ------------- -------------
Net interest income 6,522 6,256 5,909 5,674 5,280
Provision for possible loan losses 60 80 42 160 105
Other operating income 804 762 693 569 568
Other operating expenses 4,492 4,450 4,374 3,958 3,763
Federal income taxes 749 664 561 560 497
Change in accounting principle 0 0 0 0 196
------------- ------------- ------------- ------------- -------------
Net income 2,025 1,824 1,625 1,565 1,679
============= ============= ============= ============= =============
PER SHARE DATA:
Earnings per share(1)(2) $ 1.47 $ 1.33 $ 1.19 $ 1.35 $ 1.51
Cash dividends declared per share 0.46 0.45 0.45 0.42 0.40
Book value per share 15.68 14.95 13.99 12.92 11.94
Average shares outstanding 1,381,800 1,375,875 1,367,595 1,163,199 1,109,837
BALANCE SHEET DATA:
Total assets $ 173,866 $ 170,086 $ 162,066 $ 157,124 $ 152,386
Total loans $ 119,045 $ 115,590 $ 111,832 $ 109,800 $ 96,423
Total securities $ 43,862 $ 37,407 $ 40,384 $ 39,323 $ 44,542
Total deposits $ 127,719 $ 131,400 $ 128,985 $ 126,864 $ 124,023
FHLB advances - long-term $ 225 $ 0 $ 0 $ 0 $ 0
Total stockholders' equity $ 22,105 $ 20,657 $ 19,512 $ 17,650 $ 13,452
PERFORMANCE RATIOS:
Return on average assets 1.18% 1.11% 1.03% 1.03% 1.17%
Return on average stockholders' equity 9.79% 9.35% 8.99% 11.39% 8.90%
Net interest margin(3) 4.23% 4.24% 4.15% 4.12% 4.14%
Total other operating expenses
as a percentage of average assets 2.62% 2.70% 2.77% 2.61% 2.63%
ASSET QUALITY RATIOS:
Allowance for possible loan losses as a
percentage of loans, net 0.76% 0.79% 0.82% 0.87% 0.85%
Allowance for possible loan losses as a
percentage of nonperforming loans(4) 129.27% 208.00% 222.00% 287.50% 104.00%
Nonperforming loans as a percentage of
total loans, net(4) 0.59% 0.38% 0.37% 0.30% 0.81%
Nonperforming assets as a percentage of
total assets(4) 0.40% 0.26% 0.25% 0.21% 0.62%
Net charge-offs as a percentage of
average net loans 0.06% 0.07% 0.07% 0.14% 0.07%
LIQUIDITY AND CAPITAL RATIOS:
Equity to assets(5) 12.09% 11.86% 11.44% 11.39% 13.18%
Tier 1 capital to risk-weighted assets(6) 20.98% 20.58% 28.21% 20.19% 10.28%
Leverage ratio(5)(6)(7) 12.57% 12.23% 12.39% 12.15% 8.83%
Total capital to risk-weighted assets(5) 21.84% 21.49% 29.46% 21.24% 10.99%
Dividend payout ratio 31.65% 33.95% 37.88% 31.74% 26.44%
</TABLE>
20
<PAGE> 23
(1) Based upon average shares and common share equivalents outstanding.
(2) 1993 earnings per share as adjusted for effect of change in accounting
principle.
(3) Represents net interest income as a percentage of average total
interest-earning assets, calculated on a tax-equivalent basis.
(4) Nonperforming loans are comprised of (i) loans which are on a nonaccrual
basis, (ii) accruing loans that are 90 days or more past due, and (iii)
restructured loans. Nonperforming assets are comprised of nonperforming loans
and foreclosed REAL estate (assets acquired in foreclosure), if applicable.
(5) Based upon average balances for the respective periods.
(6) Based on the FRB risk-based capital guidelines, as applicable to the
Corporation. CCFNB is subject to similar requirements imposed by the Office of
the Comptroller of the Currency (the "OCC").
(7) The leverage ratio is defined as the ratio of Tier 1 capital to average
total assets less intangible assets, if applicable.
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 Corporation's results of operations. A
downward trend in several areas, however, including real estates, 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
comprised of interest rate risk, mortgage risk, and deposit pricing risk
components, 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, 1997, 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 $423 thousand, representing a cumulative one
year interest rate sensitivity gap as a percentage of total assets of negative
.24%. 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 its 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 11.02% to $2,025,496 for 1997, compared
to $1,824,490 for 1996. Earnings per common share for the current year were
$1.47 compared to $1.33 per common share in 1996. Beginning June 1995, dividend
reinvestment and employee's stock option plans went into effect for the
Corporation. Additionally, in 1997 the Corporation purchased and partially
retired treasury stock. The net additional shares issued as a result of the
aforementioned capital transactions were 722, 9,053, and 7,036 for 1997, 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 1,381,800, 1,375,875 and 1,367,595 for
1997, 1996 and 1995, respectively.
Loans increased 2.99% throughout 1997 to $119,044,568 from $115,589,784 in
1996. Real estate loans continued to provide the growth in loans particularly
through the home equity product line. Return on average assets ("ROA") increased
to 1.18% for 1997 compared to 1.11% for 1996. The return on average equity
("ROE") increased to 9.79% for 1997 compared to 9.35% for 1996.
Tax-equivalent net interest income increased 4.28% in 1997 from $6,582,000 in
1996 to $6,864,000 in 1997. Average earning assets increased 4.38% in 1997 from
$155,328,000 in 1996 to $162,131,000 in 1997. This increased net interest income
was a result of changes in strategies in the loan and security area experienced
during the past year.
21
<PAGE> 24
TABLE OF NON-INTEREST INCOME
(Dollars in Thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Service charges and fees $ 556 $ 513 $ 503
Trust department income 103 76 51
Investment securities gain (losses) - net 57 28 83
Other 88 145 56
------- ------- -------
Total non-interest income $ 804 $ 762 $ 693
======= ======= =======
</TABLE>
Total non-interest income increased 5.51% during 1997 from $762,000 in 1996 to
$804,000 in 1997. Continued growth of the Trust Department resulted in an
increase in income of 35.53% from $76,000 in 1996 to $103,000 in 1997. Service
fees and charges increased from $513,000 in 1996 to $556,000 in 1997 or 8.38%.
Other income also decreased 39.31% from $145,000 in 1996 to $88,000 in 1997 and
was attributable primarily to a gain on sale of Other Real Estate Owned of
$54,000 in 1996.
TABLE OF NON-INTEREST EXPENSE
(Dollars in Thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Salaries and wages $ 1,817 $ 1,785 $ 1,653
Employee benefits 523 509 448
Net occupancy expense 375 393 259
Furniture and equipment expense 420 411 349
FDIC insurance 16 2 148
Other expense 1,341 1,350 1,517
------- ------- -------
Total non-interest expense $ 4,492 $ 4,450 $ 4,374
======= ======= =======
</TABLE>
Total non-interest expense increased to $4,492,000 in 1997 from $4,450,000 in
1996 or .94%. The overall modest increase was generally the result of normally
expected cost increases since there was not any addition of personnel or
equipment related expenses in 1997 as compared to 1996.
A key factor in measuring non-interest expense is to express the expense as a
percentage of average total assets. In 1996, this percentage was 2.70% compared
to 2.62% in 1997. Accordingly, the Corporation had a positive improvement.
NET INTEREST INCOME
Tax-equivalent net interest income for 1997 was $6,864,000 compared to
$6,582,000 in 1996, an increase of 4.28%. Lending strategies continued in 1997
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 continued to add to the investment security portfolio with these
securities producing an improved yield.
Average cost of funds for 1997 was 4.35% compared to 4.22% for 1996. Yield on
average interest earning assets was 7.71% in 1997 compared to 7.63% in 1996.
TAX-EQUIVALENT NET INTEREST INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Interest income $12,498 $11,844 $11,466
Interest expense 5,976 5,588 5,557
------- ------- -------
Net interest income $ 6,522 $ 6,256 $ 5,909
Tax equivalent adjustment 342 326 337
------- ------- -------
Net interest income (fully taxable equivalent) $ 6,864 $ 6,582 $ 6,246
======= ======= =======
</TABLE>
The net interest margin, which is the total tax-equivalent net interest income
as a percentage of total average interest-earning assets, decreased slightly in
1997 to 4.23% compared to 4.24% in 1996. 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
1997, 1996 and 1995.
22
<PAGE> 25
AVERAGE BALANCE SHEET AND RATE ANALYSIS
Three Years Ended December 31 (Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
BALANCE INC/EXP YD/RATE BALANCE INC/EXP YD/RATE BALANCE INC/EXP YD/RATE
--------- --------- ---- -------- -------- ---- -------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS: (1) (2) (1) (2) (1) (2)
Interest Bearing Deposits With
Other Financial Institutions $ 2,797 $ 152 5.43% $ 2,849 $ 150 5.27% $ 1,727 $ 114 6.60%
Investment Securities:
U.S. Government Securities 28,182 1,726 6.12 26,799 1,640 6.12 24,817 1,526 6.15
State and Municipal Obligations(3) 9,783 513 7.94 9,471 505 8.57 8,680 493 8.57
Other Securities 2,342 149 6.36 2,978 198 6.65 3,566 256 7.18
--------- --------- ---- -------- -------- ---- -------- -------- ----
Total Investment Securities $ 40,307 $ 2,388 5.92% $ 39,248 $ 2,343 5.97% $ 37,063 $ 2,275 6.14%
Federal Funds Sold 2,256 124 5.50 890 47 5.28 735 60 8.16
Consumer 8,635 811 9.39 8,477 797 9.40 8,271 788 9.53
Dealer Floor Plan 1,552 135 8.70 379 33 8.71 0 0 .00
Mortgage 97,822 8,133 8.31 95,445 7,777 8.15 95,165 7,674 8.06
Commercial 6,212 608 9.79 6,232 604 9.69 5,348 437 8.17
Tax Free (3) 2,550 148 8.79 1,808 105 9.11 2,196 133 9.11
--------- --------- ---- -------- -------- ---- -------- -------- ----
Total Loans $ 116,771 $ 9,835 8.42% $112,341 $ 9,316 8.29% $110,980 $ 9,032 8.14%
Total Interest Earning Assets 162,131 12,499 7.71 155,328 11,856 7.63 150,505 11,481 7.63
--------- --------- ---- -------- -------- ---- -------- -------- ----
Reserve for Loan Losses $ (918) $ (910) $ (936)
Cash and Due from Banks 1,372 1,535 1,961
Other Assets 8,574 8,559 6,427
--------- -------- --------
Total Assets $ 171,159 $164,512 $157,957
========= ======== ========
Liabilities And Capital
SUPER NOW Deposits $ 19,735 $ 415 2.10% $ 19,835 $ 430 2.17% $ 19,128 $ 534 2.79%
IRA 8,112 405 4.99 7,997 400 5.00 8,249 413 5.01
Money Market Deposits 12,015 352 2.93 13,570 401 2.96 18,229 562 3.08
Savings Deposits 21,498 575 2.67 23,619 645 2.73 25,378 818 3.22
Time Deposits over $ 100,000 11,450 675 5.90 10,927 650 5.95 9,031 513 5.68
Other Time Deposits 44,276 2,490 5.62 41,466 2,315 5.58 36,480 2,076 5.69
--------- --------- ---- -------- -------- ---- -------- -------- ----
Total Interest Bearing Deposits $ 117,086 $ 4,912 4.20% $117,414 $ 4,841 4.12% $116,495 $ 4,916 4.22%
--------- --------- ---- -------- -------- ---- -------- -------- ----
FHLB 9 0 .00% 20 0 .00% 400 23 5.75%
Other Borrowed Funds 585 30 5.13 522 27 5.17 793 32 4.04
Long-Term Borrowings 254 16 6.30 331 24 7.25 123 5 4.07
Repurchase Agreements 19,350 1,018 5.26 13,987 696 4.98 10,573 581 5.50
--------- --------- ---- -------- -------- ---- -------- -------- ----
Total Interest Bearing Liabilities $ 137,284 $ 5,976 4.35% $132,274 $ 5,588 4.22% $128,384 $ 5,557 4.33%
--------- --------- ---- -------- -------- ---- -------- -------- ----
Demand Deposits $ 11,968 $ 11,416 $ 10,602
Other Liabilities 1,217 1,310 904
Stockholders' Equity 20,690 19,512 18,067
--------- -------- --------
Total Liabilities and Capital $ 171,159 $164,512 $157,957
========= ======== ========
Net Interest Income/Net
Interest Margin(4) $ 6,523 4.02% $ 6,268 4.04% $ 5,924 3.94%
========= ======== ========
Tax-Equivalent Net Interest
Income/Net Interest Margin(5) $ 6,864 4.23% $ 6,582 4.24% $ 6,246 4.15%
========= ======== ========
</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
1997, 1996 & 1995.
23
<PAGE> 26
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 comparative
table below reflects these changes:
TABLE OF NET INTEREST INCOME COMPONENTS ON A TAX-EQUIVALENT BASIS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 VERSUS 1996 1996 VERSUS 1995 1995 VERSUS 1994
----------------------------- ----------------------------- -----------------------------
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 $ (3) $ 5 $ 2 $ 74 $ (23) $ 51 $ (17) $ 58 $ 41
U.S. Government Securities 85 0 85 122 (7) 115 (205) 393 188
State and Municipal Obligations 25 (13) 12 68 0 68 27 2 29
Other Securities (42) (9) (51) (42) (19) (61) (28) (1) (29)
Federal Funds Sold 72 2 74 13 (21) (8) 8 22 30
Consumer Loans 15 12 27 20 (11) 9 (79) (53) (132)
Dealer Floor Plan 102 0 102 0 0 0 0 0 0
Mortgage Loans(1) 194 153 347 23 86 109 1,371 263 1,634
Commercial Loans (2) 6 4 72 81 153 (718) (176) (894)
Tax Free Loans 65 0 65 (35) 0 (35) 89 (8) 81
------- ------- ------- ------- ------- ------- ------- ------- -------
Total Earnings Assets $ 511 $ 156 $ 667 $ 315 $ 86 $ 401 $ 448 $ 500 $ 948
Interest Expense:
SUPER NOW Deposits (2) (14) (16) 20 (119) (99) 25 (20) 5
IRA 6 (1) 5 (13) (1) (14) 9 1 10
Money Market Deposits (46) (4) (50) (143) (22) (165) (306) (66) (372)
Savings Deposits (58) (14) (72) (57) (124) (181) (2) (44) (46)
Time Deposits over $100,000 31 (5) 26 108 24 132 124 70 194
Other Time Deposits 157 17 174 284 (40) 244 318 331 649
FHLB 0 0 0 (22) (23) (45) 0 5 5
Other Borrowed Funds 3 0 3 (11) 9 (2) 13 (2) 11
Long-Term Borrowings (6) (3) (9) 8 4 12 0 0 0
Repurchase Agreements 267 39 306 188 (55) 133 6 155 161
------- ------- ------- ------- ------- ------- ------- ------- -------
Total Interest Bearing Deposits $ 352 $ 15 $ 367 $ 362 $ (347) $ 15 $ 187 $ 430 $ 617
------- ------- ------- ------- ------- ------- ------- ------- -------
Net Interest Income $ 159 $ 141 $ 300 $ (47) $ 433 $ 386 $ 26 $ 70 $ 331
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
(1) Includes non-accrual loans
Strategies implemented during 1997 by the Senior Management team had a direct
influence on the favorable increase in net interest income along with
controlling non-interest expenses which resulted in only a modest expected
increase for the year.
FINANCIAL CONDITION
The Corporation's total consolidated assets at December 31, 1997 were $174
million which represented an increase of $4 million or 2.35% over $170 million
at December 31, 1996. The 1996 growth rate was 4.95% or $8 million.
Capital growth of 4.76% for 1997 from $21 million in 1996 to $22 million in
1997 reflected the proceeds of the dividend reinvestment plan and earnings of
$2.0 million.
Total average assets grew 3.64% from 1996 at $165 million to 1997 at $171
million. Average earning assets grew 4.52% from 1996 at $155 million to 1997 at
$162 million.
Loans increased 2.59% from 1996 at $116 million to 1997 at $119 million. The
Home Equity Lines introduced in 1996 continued to be the predominent factor in
the favorable increase in loan yield.
Core deposits grew 5.26% from $11.4 million in average non-interest bearing
deposits in 1996 to $12.0 million in 1997. Interest-bearing average deposits at
December 31, 1997 and 1996 remained the same at $117 million.
The loan-to-deposit ratio is a key measurement of liquidity. The
loan-to-deposit ratio remained high at 93.21% at December 31, 1997 and 87.97% at
December 31, 1996.
It is management's opinion that the balance sheet mix and the interest rate
risk associated with the balance sheet is within manageable parameters. Constant
monitoring using asset/liability reports and interest rate risk scenarios are in
place along with quarterly asset/liability management meetings on the committee
level by the Board of Directors.
24
<PAGE> 27
INVESTMENTS
(Dollars in thousands)
<TABLE>
<CAPTION>
OUTSTANDING BALANCE AT DECEMBER 31,
-----------------------------------
1997 1996 1995
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 $ 2,997 $ 0 $ 6,994 $ 0 $15,034 $ 0
Federal Agency Obligations 14,546 0 16,765 0 13,121 0
Mortgage-backed Securities 14,450 0 1,683 0 0 0
Obligations of State and Political Subdivisions 9,459 720 8,567 970 7,685 1,045
Other Securities 1,690 0 2,428 0 3,499 0
------- ------- ------- ------- ------- -------
Total Investment Securities $43,142 $ 720 $36,437 $ 970 $39,339 $ 1,045
======= ======= ======= ======= ======= =======
</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, 1997. Yields are presented on a
tax-equivalent basis, are based upon carrying value and are weighted for the
scheduled maturity. At December 31, 1997 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 155 6.96 565 6.80 0 .00 0 .00 720 6.84
Other Securities 0 .00 0 .00 0 .00 0 .00 0 .00
------- ---- ------- ---- ------- --- ------- --- ------- ----
Total $ 155 6.96% $ 565 6.80% $ 0 .00% $ 0 .00% $ 720 6.84%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
AVAILABLE-FOR-SALE SECURITIES
AT FAIR VALUE
U.S. Treasury Securities $ 2,997 5.51% $ 0 .00% $ 0 .00% $ 0 .00% $ 2,997 5.51%
Federal Agency Obligations 3,795 5.70 21,778 6.39 3,423 6.61 0 .00 28,996 6.32
Obligations of State and
Political Subdivisions 0 .00 1,701 7.05 3,111 8.10 4,647 8.16 9,459 7.89
Other Securities 0 .00 499 6.13 0 .00 1,191 5.29 1,690 5.57
------- ---- ------- ---- ------- --- ------- --- ------- ----
Total $ 6,792 5.65% $23,978 6.43% $ 6,534 7.32% $ 5,838 7.59% $43,142 6.60%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
</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, 1997 of $142,000
compared to an unrealized gain, net of tax, on December 31, 1996 of $69,000.
Several local municipal holdings were placed in the Held-to-Maturity category.
These holdings comprised 2.21% and 2.59% of the entire portfolio at December 31,
1997 and 1996, respectively.The total at December 31, 1997 and 1996 was
$970,000.
Available-for-sale securities total $43,142,000 at December 31, 1997 compared
to $36,437,000 at December 31, 1996 or a decrease of 18.40%.
The mix of securities in the portfolio was 6.83% U.S. Treasuries, 32.95%
Mortgage-backed Securities, 33.16% other U.S. Agencies, 23.21% Municipal and
3.85% Other. The Corporation does not engage in derivative investment products.
25
<PAGE> 28
LOANS
Loan Portfolio
Loans Outstanding (Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Commercial $ 7,551 $ 7,957 $ 5,990
Tax Exempt 2,591 2,064 1,520
Qualified Municipal Leases 0 35 131
Real Estate - Construction 637 660 941
Real Estate 99,780 96,439 95,293
Personal 8,524 8,447 8,058
Credit Cards 383 441 447
-------- -------- --------
$119,466 $116,043 $112,380
Unamortized Loan Fees Net of Costs 97 129 188
Unearned Discount 324 324 360
-------- -------- --------
Loans, Net $119,045 $115,590 $111,832
======== ======== ========
</TABLE>
A growth of 2.59% was experienced in the loan portfolio, from $116 million in
1996 to $119 million in 1997. The distribution of the loan portfolio reflected
84.05% real estate loans at $100,417,000; 6.32% commercial loans at $7,551,000;
2.17% tax exempt loans at $2,591,000; and 7.46% consumer loans at $8,907,000.
Variable rate real estate loans were comprised of 84.14% with 3 year
adjustable rate, 10.10% with 1 year adjustable rate and 5.76% with one day to 3
month adjustable rates. The three year and one year adjustable rate loans have
bi weekly payments.
DEPOSITS AND BORROWED FUNDS
Table of Distribution of Average Deposits (Dollars in Thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Demand deposits $ 31,703 $ 31,251 $ 29,730
Savings deposits 33,513 37,189 43,607
Time deposits 52,388 49,463 44,729
Certificates of deposit, $100,000 and over 11,450 10,927 9,031
-------- -------- --------
Total $129,054 $128,830 $127,097
======== ======== ========
</TABLE>
Table Of Maturity Distribution Of Time Deposits Over $100,000
(Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Three months or less $ 4,574 $ 7,664 $ 4,171
Over three months to six months 3,665 2,546 1,401
Over six months to twelve months 2,914 1,867 1,372
Over twelve months 308 898 4,090
-------- -------- --------
Total $ 11,461 $ 12,975 $ 11,034
======== ======== ========
</TABLE>
Total average deposits remained at $129 million for December 31, 1997 and
1996. The trend of a shift from savings to time deposits continued through 1997.
This was reflected in the 8.82% decline in average savings deposits from $37
million at December 31, 1996 to $34 million at December 31, 1997; and the 5.00%
increase in average time deposits from $60 million at December 31, 1996 to $63
million at December 31, 1997. Average non-interest bearing demand deposits
remained at $12 million at December 31, 1996 and December 31, 1997.
Short-term borrowings and securities sold under agreements to repurchase
increased 29.41% from $17 million at December 31, 1996 to $22 million at
December 31, 1997. Long-term borrowings totalled $440,000 at December 31, 1997
compared to $297,000 at December 31, 1996. Average Treasury Tax and Loan
deposits held by the Corporation for the U.S. Treasury averaged $584,000 for
1997 and one day borrowings averaged $9,000 for 1997.
NONPERFORMING ASSETS
Past Due And Non-Accrual Loans (Dollars in thousands)
<TABLE>
<CAPTION>
LEASE
REAL INSTALLMENT CREDIT FINANCING
1997 ESTATE LOANS COMMERCIAL CARDS RECEIVABLES TOTAL
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Days 30-89 $1,049 $ 226 $ 50 $ 6 $ 0 $1,331
Days 90 Plus 586 12 29 1 0 628
Non-accrual 69 0 0 0 0 69
------ ------ ------ ------ ------ ------
Total $1,704 $ 238 $ 79 $ 7 $ 0 $2,028
====== ====== ====== ====== ====== ======
</TABLE>
26
<PAGE> 29
<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
====== ====== ====== ====== ====== ======
</TABLE>
At December 31, 1997, loans 30-89 days past due totalled $1,331,000 compared
to $949,000 at December 31, 1996, a 40.25% increase. Past due loans 90 days and
over totalled $628,000 at December 31, 1997 compared to $329,000 at December 31,
1996, a 90.88% increase. Non-accrual loans at December 31, 1997 totalled $69,000
compared to $109,000 at December 31, 1996. Overall, past due and non-accrual
loans increased 46.21% from $1,387,000 at December 31, 1996 to $2,028,000 at
December 31, 1997. During this same period of time the ratio of net charge-offs
during the period to average loans outstanding during the period remained at
only .06%, which is consistent with the Bank's historical performance in this
area (see Summary of Loan Loss Experience). Management does not consider these
absolute percentage increases to be significant or material.
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
collectability 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
continues, interest income may be recorded on a cash basis based on management's
judgment as to collectability of principal.
ALLOWANCE FOR LOAN LOSSES AND RELATED PROVISION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
% 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 $ 83 9% $ 79 9% $ 73 7%
Real estate mortgages 516 84% 500 84% 513 86%
Consumer 99 7% 96 7% 53 7%
Credit cards 20 0% 20 0% 25 0%
Lease financing receivables 0 0% 0 0% 2 0%
Unallocated 183 N/A 216 N/A 246 N/A
--- --- ---- --- ---- ---
$901 100% $911 100% $912 100%
==== === ==== === ==== ===
</TABLE>
The allowance for loan losses was $901,000 at December 31, 1997, compared to
$911,000 at December 31, 1996. This allowance equalled .08% of total loans, net
of unearned income, at December 31, 1997 and 1996. This allowance was considered
adequate based on delinquency trends and actual loans written as it relates to
the loan portfolio.
The loan loss reserve was analyzed quarterly and reviewed by the Board of
Directors. The assessment of the loan policies and procedures during 1997
revealed no anticipated loss on any loans considered "significant". No
concentration or apparent
27
<PAGE> 30
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,
------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Loans outstanding at end of period $ 119,045 $ 115,590 $ 111,832
========= ========= =========
Average loans outstanding $ 116,771 $ 112,341 $ 110,980
========= ========= =========
Allowance for loan losses:
Balance, beginning of year $ 911 $ 912 $ 943
Loans charged-off:
Commercial and industrial (15) (19) (65)
Real estate mortgages 0 0 0
Consumer (84) (118) (38)
Lease financing receivables 0 0 0
Credit cards (4) (8) (4)
--------- --------- ---------
Total loans charged-off (103) (145) (107)
--------- --------- ---------
Recoveries:
Commercial and industrial 0 17 13
Real estate mortgages 0 0 0
Consumer 29 41 6
Lease financing receivables 1 3 12
Credit cards 3 3 3
--------- --------- ---------
Total recoveries 33 64 34
--------- --------- ---------
Net loans charged-off (70) (81) (73)
--------- --------- ---------
Provision charged to expense 60 80 42
--------- --------- ---------
Balance, end of period $ 901 $ 911 $ 912
========= ========= =========
Ratio of net charge-offs during the period to average loans
outstanding during period .06% .07% .07%
</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 these 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 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 deposit 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, 1997, cash and cash equivalents totalled $5,316,798 compared
to $11,359,167 at December 31, 1996. Changes in cash were measured by changes in
the
28
<PAGE> 31
three major classifications of cash flows known as operating, investing and
financing activities.
At December 31, 1997, net cash provided by operating activities equaled
$2,485,916 which consisted mainly of net income adjusted for non-cash items such
as depreciation, loss on impairment of bank premises, provision for loan losses,
amortization, accretion and deferred taxes.
Net cash used for investing activities totalled $10,047,909 which was
principally the result of a net increase in loans of $3,524,606, purchases of
premises and equipment of $266,185 and $6,279,968 excess of purchases of
Available-for-Sale Investment Securities over the proceeds on sale and
redemption of available-for-sale and held-to-maturity securities.
Net cash provided by financing activities totalled $1,519,624 at December 31,
1997 and consisted mostly of an increase in short term borrowings of $5,708,524
less a decrease in deposits of $3,680,927 and dividends paid of $641,064.
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 Corporation is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a direct
material effect on the Corporation's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Corporation must meet specific capital guidelines that involve quantitative
measures of the Corporation's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Corporation's
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation to maintain minimum amounts and ratios (set forth in the
table below) of Total and Tier I Capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I Capital (as defined) to average
assets (as defined).
As of December 31, 1997, the most recent notification from the Office of the
Comptroller of the Currency categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category.
The Bank's actual capital amounts are ratios in the following table:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS:
------ ----------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital (To risk-weighted assets) $22,864 21.84% $ 8,375 8.00% $10,469 10.00%
Tier I Capital (To risk-weighted assets) $21,963 20.98% $ 4,187 4.00% $ 6,281 6.00%
Tier I Capital (To average assets) $21,963 12.57% $ 6,989 4.00% $ 8,736 5.00%
As of December 31, 1996:
Total Capital (To risk-weighted assets) $21,499 21.49% $ 8,003 8.00% $10,004 10.00%
Tier I Capital (To risk-weighted assets) $20,588 20.58% $ 8,235 4.00% $12,353 6.00%
Tier I Capital (To average assets) $20,588 12.23% $ 6,734 4.00% $ 8,417 5.00%
</TABLE>
The Corporation's capital ratios are not materially different from those of
the Bank.
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 set forth in the National Bank Act. Generally, the
National Bank Act would permit the Bank to declare dividends in 1998 of
approximately $2,353,321 plus additional amounts equal to the net income earned
in 1998 for the period January 1, 1998 through the date of declaration, less any
dividends which may be paid in 1998.
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>
1997 1996
---- ----
QUARTERLY QUARTERLY
HIGHEST LOWEST DIVIDEND HIGHEST LOWEST DIVIDEND
------- ------ -------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Fourth quarter $ 22.75 $ 21.63 $ 0.116 $ 16.88 $ 16.75 $ 0.15
Third quarter $ 20.50 $ 20.25 $ 0.116 $ 16.75 $ 16.75 $ 0.10
Second quarter $ 19.00 $ 18.00 $ 0.116 $ 16.50 $ 16.25 $ 0.10
First quarter $ 17.50 $ 17.13 $ 0.116 $ 16.38 $ 16.00 $ 0.10
</TABLE>
29
<PAGE> 32
INTEREST RATE RISK MANAGEMENT
Interest rate risk management involves managing the extent to which
interest-sensitive assets and interest-sensitive liabilities are matched.
Interest rate sensitivity is the relationship between market interest rates and
earnings volatility due to the repricing characteristics of assets and
liabilities. The Bank's net interest income is affected by changes in the level
of market interest rates. In order to maintain consistent earnings performance,
the Bank seeks to manage, to the extent possible, the repricing characteristics
of its assets and liabilities.
One major objective of the Bank 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 the Banks's
Asset/Liability Committee ("ALCO"), which is comprised of senior management and
Board members. ALCO meets quarterly to monitor the ratio of interest sensitive
assets to interest sensitive liabilities. The process to review interest rate
risk management is a regular part of 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 with the Board of Directors which includes limits on the impact
to earnings from shifts in interest rates.
The ratio between assets and liabilities repricing in specific time intervals
is referred to as an interest rate sensitivity gap. Interest rate sensitivity
gaps can be managed to take advantage of the slope of the yield curve as well as
forecasted changes in the level of interest rate changes.
To manage the interest sensitivity position, an asset/liability model called
"gap analysis" is used to monitor the difference in the volume of the Bank's
interest sensitive assets and liabilities that mature or reprice within given
periods. A positive gap (asset sensitive) indicates that more assets reprice
during a given period compared to liabilities, while a negative gap (liability
sensitive) has the opposite effect. The Bank employs computerized net interest
income simulation modeling to assist in quantifying interest rate risk exposure.
This process measures and quantifies the impact on net interest income through
varying interest rate changes and balance sheet compositions. The use of this
model assists the ALCO to gauge the effects of the interest rate changes on
interest sensitive assets and liabilities in order to determine what impact
these rate changes will have upon the net interest spread.
STATEMENT OF INTEREST SENSITIVITY GAP (DOLLARS IN THOUSANDS)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
> 90 DAYS
90 DAYS BUT 1 TO 5 5 TO 10 > 10
OR LESS < 1 YEAR YEARS YEARS YEARS TOTAL
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Short-term investments $ 582 $ 0 $ 0 $ 0 $ 0 $ 582
Securities available for sale(1) 8,967 13,919 14,741 3,628 1,887 43,142
Securities held to maturity(1) 0 155 565 0 0 720
Loans(1) 24,319 28,731 58,424 3,180 4,391 119,045
-------- -------- -------- -------- -------- --------
Rate Sensitive Assets $ 33,868 $ 42,805 $ 73,730 $ 6,808 $ 6,278 $163,489
======== ======== ======== ======== ======== ========
Deposits:
Interest-bearing demand deposits(2) $ 2,918 $ 2,723 $ 13,812 $ 0 $ 0 $ 19,453
Savings(2)(3) 4,761 4,444 22,537 0 0 31,742
Time 16,097 22,735 25,554 0 0 64,386
Borrowed funds 17,564 4,599 200 0 0 22,363
Long-term debt 23 71 346 0 0 440
Shareholders' equity 553 2,763 8,842 4,973 4,974 22,105
-------- -------- -------- -------- -------- --------
Rate Sensitive Liabilities and
Shareholders' Equity $ 41,916 $ 37,335 $ 71,291 $ 4,973 $ 4,974 $160,489
-------- -------- -------- -------- -------- --------
Interest Sensitivity Gap (8,048) 5,470 2,439 1,835 1,304 0
Cumulative Gap (8,048) (2,578) (139) 1,696 3,000 3,000
</TABLE>
(1) Investments and loans are included at the earlier of repricing of maturity
adjusted for the effects of prepayments.
(2) Interest bearing demand and savings accounts are included based on
historical experience and managements' judgment about the behavior of these
deposits in changing interest rate environments.
30
<PAGE> 33
At December 31, 1997 the Corporation's cumulative gap positions and the
potential earnings change resulting from a 200 basis point change in rates were
within the internal risk management guidelines.
Upon reviewing the current interest sensitivity scenario, decreasing interest
rates could positively effect net income because the Bank is liability
sensitive. In a rising interest rate environment, net income could be negatively
affected because more liabilities than assets will reprice during a given
period.
Certain shortcomings are inherent in the method of analysis presented in the
above table. Although certain assets and liabilities may have similar maturities
or periods of repricing, they may react in different degrees to changes in
market interest rates. The interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types of assets and liabilities may lag behind changes
in market interest rates. Certain assets, such as adjustable-rate mortgages,
have features which restrict changes in interest rates on a short-term basis and
over the life of the asset. In the event of a change in interest rates,
prepayment and early withdrawal levels may deviate significantly from those
assumed in calculating the table. The ability of many borrowers to service their
adjustable-rate debt may decrease in the event of an interest rate increase.
The following table provides information about the Corporations' financial
instruments. The table presents the financial instruments including the expected
cash flow over the next five years. In addition the average interest rate is
shown for each period presented. The table also includes the fair market value
for each category of financial instrument as of December 31, 1997. This
presentation differs from the above gap report primarily due to presenting the
financial instruments based on a contractual maturity as opposed to a repricing
scenario as reflected in the above gap report.
PRINCIPAL/NOTIONAL AMOUNTS MATURING IN: (DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FAIR
THERE- VALUE
1998 1999 2000 2001 2002 AFTER TOTAL 12-31-97
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rate sensitive assets:
Fixed interest loans(1) $ 10,910 $ 5,257 $ 4,180 $ 3,330 $ 2,812 $ 10,241 $ 36,730 $36,278
Average interest rate 8.30% 9.00% 8.76% 8.43% 8.39% 8.20% 8.44%
Variable interest rate loans(1) $ 2,710 $ 1,536 $ 821 $ 1,156 $ 1,424 $ 74,832 $ 82,479 $82,479
Average interest rate 9.18% 8.56% 9.08% 9.51% 8.53% 8.14% 8.22%
Fixed interest rate securities(1) $ 7,452 $ 4,783 $ 7,321 $ 2,209 $ 1,250 $ 12,177 $ 35,192 $35,198
Average interest rate 5.68% 5.92% 6.37% 6.28% 6.43% 7.43% 6.93%
Variable interest rate securities(1) $ 8,670 $ 0 $ 0 $ 0 $ 0 $ 0 $ 8,670 $ 8,670
Average interest rate 6.70% 0.00% 0.00% 0.00% 0.00% 0.00% 6.70%
Other interest-bearing assets $ 582 $ 0 $ 0 $ 0 $ 0 $ 0 $ 582 $ 582
Average interest rate 5.78% 0.00% 0.00% 0.00% 0.00% 0.00% 5.78%
Rate sensitive liabilities:
Non interest-bearing
checking(2) $ 3,399 $ 2,185 $ 2,185 $ 2,185 $ 2,184 $ 0 $ 12,138 $12,138
Average interest rate 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Savings & interest-bearing
checking(2) $ 11,015 $ 7,240 $ 7,240 $ 7,240 $ 7,240 $ 0 $ 39,975 $39,975
Average interest rate 2.74% 2.74% 2.74% 2.74% 2.74% 0.00% 2.74%
Money market accounts(2) $ 4,488 $ 3,366 $ 3,366 $ 0 $ 0 $ 0 $ 11,220 $11,220
Average interest rate 2.97% 2.97% 2.97% 0.00% 0.00% 0.00% 2.97%
Time deposits
(under $100,000) $ 30,942 $ 14,010 $ 5,737 $ 747 $ 1,489 $ 0 $ 52,925 $53,232
Average interest rate 5.44% 5.78% 6.44% 5.46% 6.00% 0.00% 5.67%
Time deposits
(over $100,000) $ 8,239 $ 1,525 $ 1,389 $ 208 $ 100 $ 0 $ 11,461 $11,550
Average interest rate 5.69% 6.25% 6.91% 5.58% 6.30% 0.00% 5.92%
Fixed interest rate borrowings $ 221 $ 6 $ 7 $ 7 $ 8 $ 191 $ 440 $ 440
Average interest rate 6.30% 6.12% 6.12% 6.12% 6.12% 6.12% 6.21%
Variable interest rate borrowings $ 22,362 $ 0 $ 0 $ 0 $ 0 $ 0 $ 22,362 $22,362
Average interest rate 5.34% 0.00% 0.00% 0.00% 0.00% 0.00% 5.34%
</TABLE>
1) Investments and loans are included at contractual maturity.
2) Non interest-bearing checking, interest-bearing checking, savings and money
market accounts are reflecting historical experience and management's judgment
about the duration of these deposits.
31
<PAGE> 34
YEAR 2000
The Corporation and the Bank are aggressively addressing the Year 2000 issue.
This issue is far-reaching in that it encompasses computer systems, microchips,
anything with time elements, and forces the Bank to ask each vendor, customer,
and third-party provider if they are also ready for the millennium, which is
fast approaching.
A Senior Vice President has been given the responsibility for Y2K compliance.
A committee has been selected consisting of Board Members and Officers who have
been meeting for several months addressing this issue.
Letters have been sent to vendors requesting, in writing, their effort to be
in compliance with Y2K. A select group of commercial customers have been sent
letters explaining the Y2K issues and asking them to be certain to address this
very important issue. The Bank has also offered to help with any questions.
Notices are being placed in each Bank lobby alerting the public to this issue.
Also, a notice will be on each deposit statement concerning the Y2K issue.
Budgets will be prepared assessing the cost to be Y2K compliant. With
conversion to an in-house computer system, the purchase of new equipment and
the testing of existing equipment, Y2K compliance will be achieved. Although the
cost to become Y2K compliant does exist, it is not deemed at this time to be
material as most major vendors and in-house equipment of the Bank are already
Y2K compliant and the Bank staff will be used to monitor compliance in all
areas.
A time-line has been created for this project. All letters will be mailed by
March 15, 1998 and all compliance letters will be in our files by June 30, 1998.
December 31, 1998 is the deadline for compliance on all levels. Testing will
continue until the Bank is assured all critical systems are confirmed to be Y2K
compliant.
Vendors and systems have been placed in priority order as to importance. Most
of the third-party vendors that are most crucial have communicated with us
stating they are Y2K compliant and testing on their systems will continue.
Our insurance carrier has been contacted and we are working closely with it to
prudently assess the Bank's needs and take the appropriate steps to protect the
Bank.
Contingency plans have been discussed and will be written on any systems that
do not comply or are questionable as to their compliance.
The Bank will be diligent in its quest for assurance of compliance and will
change vendors, if necessary, to ensure a smooth change to the millennium and
continuity of banking operations and profit growth.
National bank examiners are reviewing all banks for their compliance with
these issues and the Corporation and the Bank welcome these reviews and any
assistance they will provide.
Ruth Mott, Credit Department, carefully reviews every application. [PHOTO]
32
<PAGE> 35
EMPLOYEES OF COLUMBIA COUNTY FARMERS NATIONAL BANK
BENTON LIGHTSTREET MILLVILLE
Marlene Baudendisztl Trevor A. Barnhart Linda M. Boudman
Carla M. Emery Laurie A. Bartholomew Christopher R. Bower
Judith A. Fink Andrea S. Bartlett Betsy L. Fought
Tracy L. Hess Dolores M. Bennett Gayle D. Gordon
Dean R. Kelchner Luanne Bittenbender Ruth E. Hunter
Sheila L. Kile Lily Mae Boudman Martie J. Johnson
Jean E. MacDermott Sandra J. Boyer Gloria J. Mensch
Gloria M. Miller Diana L. Chamberlin Jennifer L. Omlor
Anna M. Moyer Anne E. DeFrain Gina L. Rider
Debbie A. Peterman Deborah B. Deitterick Mary I. Saienni
Beth M. Preston Lance O. Diehl
Lisa L. Remley Nancy R. Diehl ORANGEVILLE
Sally B. Tucker Joyce F. Dohl Lynn Z. Fritz
Teresa E. Vincent Charles W. Dyer Candace L. Kesler
Jennifer L. Fester Betty J. Kline
BLOOMSBURG Lorraine R. George Susan K. McGreevy
Rachel E. Bennett Kay M. Gerasimoff LouAnn P. Megargell
Sue Ann Carl Nancy L. Harris
Kathleen M. Church Gloria Y. Harvey SOUTH CENTRE
Elaine M. Edwards Linda A. Huttenstine Linda L. Curio
Grace I. Flick Brenda E. Kalie Carey A. Jurbala
Nancy K. Fought Michelle M. Karas Sandra J. Noss
Elmer O. Frantz, III Phillip J. Karas Christine R. Portner
J. Jan Girton Virginia D. Kocher Christy M. Vought
Barbara M. Hess Carol J. Martin Connie L. Yoder
Nancy H. Lindenmuth Kathleen J. Marzari
Denise A. Long Ruth E. Mott
Florence H. Martz Karen M. Murdock
Kimberly A. Mumaw Jay L. Oman
Paul E. Reichart Vickie S. Reifendifer
Richard L. Sierer Mary L. Seidel
Darlene L. Tappe Faith R. Smith
Jamie S. Tingley Dale E. Thomas
Jacob S. Trump Diane M. Thomas
Karen Z. Wenner Tracey L. Travelpiece
Theresa R. Whitmire Theresa A. Valencik
Janice J. Yeager Edwin A. Wenner
Carol L. Wiggin
[CCFNB LOGO]
33
<PAGE> 36
<TABLE>
<CAPTION>
TEN YEARS IN REVIEW
ASSETS (MILLIONS) DEPOSITS (MILLIONS)
----------------- -------------------
<S> <C> <C> <C>
1997 173,866 1997 127,719
1996 170,086 1996 131,400
1995 162,066 1995 128,985
1994 157,124 1994 126,864
1993 152,386 1993 124,023
1992 139,273 1992 113,291
1991 118,558 1991 95,334
1990 109,526 1990 88,567
1989 103,337 1989 87,307
1988 95,789 1988 83,169
</TABLE>
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (MILLIONS) LOANS (MILLIONS) NET INCOME (THOUSANDS)
- ------------------------------- ---------------- ----------------------
<S> <C> <C> <C> <C> <C>
1997 22,105 1997 119,045 1997 2,025
1996 20,657 1996 115,590 1996 1,824
1995 19,512 1995 111,832 1995 1,625
1994 17,650 1994 109,800 1994 1,565
1993 13,452 1993 96,423 1993 1,679
1992 12,208 1992 82,055 1992 1,213
1991 11,361 1991 73,347 1991 1,029
1990 10,667 1990 70,771 1990 1,301
1989 9,354 1989 66,273 1989 1,040
1988 8,258 1988 56,629 1988 865
</TABLE>
34
<PAGE> 37
QUALITY CUSTOMER SERVICE
Exceeding customer expectations by providing Quality Customer Service has been
the goal of CCFNB for over 80 years.
[PHOTO]
Elaine Edwards, Vice President/Bloomsburg Branch Manager, exemplifies the
friendly, high quality service found at all our branch offices.
[PHOTO]
Karen Murdock, Teller, is one of the many friendly faces customers meet when
doing business with CCFNB.
[PHOTO]
Dick Sierer and Jamie Tingley of the Financial Planning Department work
diligently to make our customers' goals become reality.
[PHOTO]
A meeting with Nancy Harris, Customer Service Representative, sums up the warmth
and sincerity of CCFNB's service.
35
<PAGE> 38
CCFNB BANCORP, INC. MARKET MAKERS
HOPPER SOLIDAY & CO., INC. F.J. MORRISSEY & CO., INC.
(800) 646-8647 (215) 563-8500
(717) 560-3042
RYAN, BECK & CO.
FERRIS, BAKER WATTS, INC. (908) 233-0700
(410) 659-4600
REGISTRAR & TRANSFER AGENT
HERZOG, HEINE, GEDULD, INC.
(201) 418-4000 American Stock Transfer & Trust Company
40 Wall Street
JANNEY MONTGOMERY SCOTT, INC. New York, NY 10005
(215) 665-6000
CCFNB LOCATIONS
[MAP OF COLUMBIA COUNTY]
Market Street Route 487, Lightstreet Road
Benton, PA 17814 Bloomsburg, PA 17815
(717) 925-6181 (717) 784-5600
232 East Street State Street
Bloomsburg, PA 17815 Millville, PA 17846
(717) 784-4400 (717) 458-5650
4242 Old Berwick Road Main Street
Bloomsburg, PA 17815 Orangeville, PA 17859
(717) 784-8474 (717) 683-5200
36
<PAGE> 39
[CCFNB BANCORP, INC. LOGO]
<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.
69
<PAGE> 1
EXHIBIT 99A
PROXY STATEMENT, NOTICE OF ANNUAL MEETING AND
FORM OF PROXY FOR THE ANNUAL MEETING
OF SHAREHOLDERS TO BE HELD MAY 12, 1998
70
<PAGE> 2
CCFNB BANCORP, INC.
PROXY
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 12, 1998
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 12,
1998 at 10:30 a.m., prevailing time, and at any adjournment or postponement
thereof as follows:
1. ELECTION OF CLASS 2 DIRECTORS TO SERVE FOR A THREE-YEAR TERM
[ ] For all nominees listed [ ] WITHHOLD AUTHORITY
below (except as marked to vote on all nominees
to the contrary below) listed below
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, WRITE THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)
Stanley Barchik, William F. Hess and Paul E. Reichart
___________________________________________________________
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, 1998.
[ ] 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 ___________________________, 1998
_______________________________________
_______________________________________
Signature(s)
Number of Shares Held of
Record on March 25, 1998: _______________
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.
71
<PAGE> 3
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 12, 1998, at the CCFNB Operations Center,
Lightstreet Road, Bloomsburg, Pennsylvania 17815, for the following purposes:
1. To elect three (3) Class 2 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, 1998; 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
12:30 p.m., on Wednesday, March 25, 1998, 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, 1997, 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 1, 1998
72
<PAGE> 4
CCFNB BANCORP, INC.
PROXY STATEMENT FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD MAY 12, 1998
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 12, 1998, 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 1, 1998.
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 2
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, 1998.
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
73
<PAGE> 5
owners of stock held 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 25, 1998, the Corporation
had 5,000,000 shares of common stock, par value $1.25 per share, the only
authorized class of stock, of which 1,380,903 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 25, 1998, 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.
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<PAGE> 6
PRINCIPAL BENEFICIAL OWNERS OF THE CORPORATION'S STOCK
PRINCIPAL OWNER
As of March 25, 1998, 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 25, 1998, 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) 7,941.044 (7) ----
Stanley Barchik(5) 11,445.000 (8) ----
Robert M. Brewington, Jr.(6) 4,604.152 (9) ----
Edward L. Campbell(4) 5,142.194 (10) ----
Elwood R. Harding, Jr.(4) 15,347.734 (11) 1.11%
William F. Hess(5) 4,083.663 (12) ----
Willard H. Kile, Sr.(6) 17,703.879 (13) 1.28%
Virginia D. Kocher 391.000 (14) ----
Charles E. Long(6) 5,732.879 (15) ----
Paul E. Reichart(5) 7,416.000 (16) ----
All Officers and Directors
as a Group (9 directors,
3 nominees, 4 officers,
10 persons in total) 79,807.545 5.78%
</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 25, 1998.
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 2000.
(5) A Class 2 Director whose term expires in 1998 and a nominee for Class 2
Director whose term expires in 2001.
(6) A Class 1 Director whose term expires in 1999.
75
<PAGE> 7
(7) Includes 5,158,312 shares of Common Stock held individually by Mr.
Bangs; 53,732 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 3,226,001 shares of Common Stock held individually by Mr.
Brewington; 1,136,921 shares of Common Stock held jointly with his
spouse; 120,615 held by the Bank's Trust Department for the benefit of
Mr. Brewington; and 120,615 held by the Bank's Trust Department for the
benefit of Mrs. Brewington.
(10) Includes 3,191,707 shares of Common Stock held individually by Mr.
Campbell and 1,950,487 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; 752,255 held by the Bank's Trust Department for the benefit of
Mr. Harding; and 670,479 held by the Bank's Trust Department for the
benefit of Mrs. Harding.
(12) Includes 3,546,339 shares of Common Stock held individually by Mr. Hess
and 537,324 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 1,919,879 shares held by the Bank's Trust Department for the
benefit of Mr. Kile.
(14) All shares of Common Stock held by the named person are held as an
individual.
(15) Includes 5,496,900 shares of Common Stock held individually by Mr. Long
and 235,979 shares of Common Stock held individually by his spouse.
(16) Includes 2,500,000 shares of Common Stock held individually by Mr.
Reichart and 4,916,000 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, 1997 through December 31, 1997, 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.
76
<PAGE> 8
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 2
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 2 Director whose term expires in
2001, current Class 2 Directors whose term expires in 1998, and the Class 1
Directors and Class 3 Directors whose terms of office expire in 1999 and 2000,
respectively:
<TABLE>
<CAPTION>
Age as of Principal Occupation During Past
March 25, Five Years and/or Position(s) Director
Name 1998 Held With The Corporation Since
- ---- -------------- ---------------------------------- ---------
CURRENT CLASS 2 DIRECTORS WHOSE TERM EXPIRES IN 1998 AND
NOMINEES FOR CLASS 2 DIRECTOR WHOSE TERM EXPIRES IN 2001
<S> <C> <C> <C>
Stanley Barchik 64 President, Stan & Sons, Inc., 1985
commercial leasing and retail
gasoline sales
William F. Hess 64 Chairman and Former Vice Chairman 1982(1)
of the Corporation and the Bank;
Director of the Corporation and the
Bank; dairy farmer
Paul E. Reichart 60 President, Chief Executive Officer, 1983(1)
Vice Chairman and Director of the
Corporation and the Bank
</TABLE>
77
<PAGE> 9
<TABLE>
<CAPTION>
Age as of Principal Occupation During Past
March 25, Five Years and/or Position(s) Director
Name 1998 Held With The Corporation Since
- ---- -------------- ---------------------------------- ---------
CLASS 1 DIRECTORS WHOSE TERM EXPIRES IN 1999
<S> <C> <C> <C>
Robert M. Brewington, Jr. 47 Owner, Sutliff Motors; selling and 1996
servicing cars and trucks; school
bus contractor
Willard H. Kile, Sr. 70 Former Chairman of the Corporation 1974(1)
and the Bank; Director of the
Corporation and the Bank; Kile and
Kile Real Estate and Rentals
Charles E. Long 62 Retired; former President, Long 1993
Supply Co., Inc., wholesaler and
retailer of hardware and masonry
products
CLASS 3 DIRECTORS WHOSE TERM EXPIRES IN 2000
Don E. Bangs 66 Secretary of the Corporation and 1985
the Bank; former owner of Bangs
Insurance Agency and agent for
The Thrush Insurance Agency
Edward L. Campbell 59 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. 51 Attorney, Harding & Associates, 1984
Bloomsburg; President, Inter-County
Land Abstract Co., Inc.
</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 1998:
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
78
<PAGE> 10
the Board of Directors. Messrs. Hess (Chairman), Bangs and Reichart are members
of the Executive Committee.
Long Range Planning Committee. This Committee studies the
future growth, capital development and corporate structure of the Bank. Messrs.
Bangs (Chairman), Harding, Long 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. Long
(Chairman), Bangs, Harding 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. Harding (Chairman), Bangs, Brewington
and Long 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. Hess (Chairman), Brewington, Campbell 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. Brewington (Chairman),
Bangs, Long 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. Kile (Chairman), Barchik, Campbell and Reichart are members
of the Trust Committee.
Year 2000 Compliance Committee. This Committee is responsible
for oversight of the Year 2000 compliance. Messrs. Harding (Chairman),
Brewington and Reichart are members of the Year 2000 Compliance Committee.
During 1997, the Corporation's Board of Directors held eleven
(11) meetings and the Bank's Board of Directors held twenty-four (24) 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.
79
<PAGE> 11
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 1997,
1996 and 1995, 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 1997 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 1997 $85,677 $27,239(4) $8,400 $3,571
(President and Chief 1996 $85,677 $25,759(5) $8,400 $3,552
Executive Officer) 1995 $80,826 $23,307(6) $7,800 $3,528
</TABLE>
(1) From January 1, 1995 through December 31, 1997, 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; $5,978 as a contribution to the Bank's profit
sharing plan; $1,285 representing 50% up to 3% matching contribution to
Mr. Reichart's 401K plan; $800 representing car expense; and $4,176
representing cafeteria plan benefits.
(5) 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.
(6) 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.
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. Mr. Reichart was named
Vice Chairman in 1998. 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 into
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<PAGE> 12
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 1997, 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 1997,
1996 and 1995 were $108,099, $97,564 and $86,755, respectively. The Bank made a
matching contribution in 1997 under the 401K Savings Plan feature. The match was
50% of the first 3% of employee contribution and amounted to $18,266.
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<PAGE> 13
COMPENSATION OF DIRECTORS
During 1997, 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 1997, 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 1997, the Bank accrued $17,200 as an
expense for the Director Deferred Compensation Plans. As of December 31, 1997,
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.
Total loans outstanding from the Corporation and the Bank as
of December 31, 1997, 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
82
<PAGE> 14
10% or more was $4,097,245, or approximately 18.54% 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 25, 1998
- ---- ------------- ----- -------- ------------------ --------------
<S> <C> <C> <C> <C> <C>
William F. Hess Vice Chairman of the Board 1996 (1) 4,083.663 (2) 64
Chairman of the Board 1998
Paul E. Reichart President and CEO 1985 1960 7,416.000 (2) 60
Vice Chairman of the Board 1998
Don E. Bangs Secretary 1993 (1) 7,941.044 (2) 66
Virginia D. Kocher Treasurer 1991 1972 391.000 (2) 50
</TABLE>
- ----------------------------
(1) Messrs. 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:
<TABLE>
<CAPTION>
Bank
Office and Held Employee Number of Shares Age as of
Name Position Held Since Since Beneficially Owned March 25, 1998
- ---- ------------- ----- -------- ------------------ --------------
<S> <C> <C> <C> <C> <C>
William F. Hess Vice Chairman of the Board 1996 (1) 4,083.663 (2) 64
Chairman of the Board 1998
Don E. Bangs Secretary 1993 (1) 7,941.044 (2) 66
Paul E. Reichart President and CEO 1985 1960 7,416.000 (2) 60
Vice Chairman of the Board 1998
</TABLE>
83
<PAGE> 15
<TABLE>
<CAPTION>
Bank
Office and Held Employee Number of Shares Age as of
Name Position Held Since Since Beneficially Owned March 25, 1998
- ---- ------------- ----- -------- ------------------ --------------
<S> <C> <C> <C> <C> <C>
J. Jan Girton Executive Vice President, 1987 1985 1,203.608 (3) 57
Chief Operating Officer
and Assistant Secretary 1992
Lance O. Diehl(6) Senior Vice President 1997 1995 -0- 32
Linda A. Huttenstine Senior Vice President 1991 1963 333.000 (4) 53
and Cashier 1985
Jacob S. Trump Senior Vice President and 1989 1989 211.322 (4) 50
Financial Planning Officer
Edwin A. Wenner Senior Vice President 1996 1974 325.000 (5) 44
Virginia D. Kocher Vice President, 1987 1972 391.000 (2) 50
Controller and 1982
Assistant Secretary 1991
Richard L. Sierer Financial Planner 1997 1997 -0- 53
Trust Officer
</TABLE>
- ----------------------------
(1) Messrs. 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 128.959 shares of Common Stock held individually by Mr. Girton
and 1,074.649 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, a Director 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 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.
84
<PAGE> 16
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, 1998. 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
1997 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
1998 fiscal year, another accounting firm will be chosen to provide independent
public accountant audit services for the 1998 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, 1998.
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 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.
85
<PAGE> 17
ANNUAL REPORT
A copy of the Corporation's Annual Report for its fiscal year
ended December 31, 1997 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 2,
1998.
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-K for its fiscal year ended December 31, 1997,
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.
86
<PAGE> 1
EXHIBIT 99B
SEC GUIDE 3 FINANCIAL INFORMATION
87
<PAGE> 2
CCFNB BANCORP, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLAR AMOUNTS IN THOUSANDS)
The following table sets forth the composition of CCFNB's loan
portfolio as of the date indicated:
<TABLE>
<CAPTION>
For The Years Ended December 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial....................................... $ 7,551 $ 7,957 $ 5,990 $ 5,472 $ 5,880
Tax Exempt....................................... 2,591 2,064 1,520 2,398 530
Qualified Municipal Leases....................... 0 35 131 277 597
Real Estate-Construction......................... 637 660 941 994 1,452
Real Estate...................................... 99,780 96,439 95,293 94,030 83,863
Personal......................................... 8,524 8,447 8,058 6,577 4,107
Credit Cards..................................... 383 441 447 468 514
------------------------ ------------ ------------ ----------
$119,466 $116,043 $112,380 $110,216 $96,943
Unamortized Loan Fees Net of Costs............... 97 129 188 273 64
Unearned Discount................................ 324 324 360 143 489
------------------------ ------------ ------------ ----------
Loans, Net....................................... $119,045 $115,590 $111,832 $109,800 $96,390
======== ======== ======== ======== =======
</TABLE>
The following table presents the percentage distribution of
loans by category as of the date indicated:
<TABLE>
<CAPTION>
For The Years Ended December 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial....................................... 6.32% 6.85% 5.33% 4.97% 6.06%
Tax Exempt....................................... 2.17% 1.78% 1.35% 2.18% 0.54%
Qualified Municipal Leases....................... 0.00% 0.03% 0.11% 0.25% 0.62%
Real Estate-Construction......................... 0.53% 0.57% 0.84% 0.90% 1.50%
Real Estate...................................... 83.52% 83.11% 84.80% 85.31% 86.51%
Personal......................................... 7.14% 7.28% 7.17% 5.97% 4.24%
Credit Cards..................................... 0.32% 0.38% 0.40% 0.42% 0.53%
--------- --------- --------- --------- ---------
Total Loans...................................... 100.00% 100.00% 100.00% 100.00% 100.00%
======= ======= ======= ======= =======
</TABLE>
The following table shows the maturity of loans in the
specified categories of CCFNB's loan portfolio at December 31, 1997, and the
amount of such loans with predetermined fixed rates or with floating or
adjustable rates:
88
<PAGE> 3
<TABLE>
<CAPTION>
Maturing Maturing
Maturing After After Maturing
In One One Year Five Years After
Year Through Through Ten
Or Less Five Years Ten Years Years Total
------- ---------- --------- ----- -----
<S> <C> <C> <C> <C> <C>
Commercial, Tax Exempt, Qualified Municipal
Leases, Real Estate, Personal and Credit
Card Loans..................................... $7,352 $15,402 $26,837 $69,238 $118,829
Real Estate-Construction Loans.................... 637 0 0 0 637
--- - - - ---
Total............................................. $7,989 $15,402 $26,837 $69,238 $119,466
====== ======= ======= ======= ========
Amount of Such Loans with:
Predetermined Fixed Rates...................... $7,352 $10,576 $ 8,272 $ 2,069 $ 28,269
Floating or Adjustable Rates................... 637 4,826 18,565 67,169 91,197
--- ----- ------ ------ ------
Total............................................. $7,989 $15,402 $26,837 $69,238 $119,466
====== ======= ======= ======= ========
</TABLE>
The following table presents a summary of CCFNB's loan loss
experience as of the dates indicated:
<TABLE>
<CAPTION>
For The Years Ended December 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans Outstanding at End of Period $ 119,045 $ 115,590 $ 111,832 $ 109,800 $ 96,423
--------- --------- --------- --------- --------
Average Loans Outstanding During the Period $ 116,771 $ 112,341 $ 110,980 $ 100,628 $ 88,347
--------- --------- --------- --------- --------
Allowance for Loan Losses:
Balance, Beginning of Period $ 911 $ 912 $ 943 $ 921 $ 876
Loans Charged Off:
Commercial and Industrial (15) (19) (65) (21) (2)
Real Estate Mortgages 0 0 0 (147) (60)
Consumer (84) (118) (38) (23) (22)
Lease Financing Receivables 0 0 0 0 (16)
Credit Cards (4) (8) (4) (5) (5)
--------- --------- --------- --------- --------
Total Loans Charged Off (103) (145) (107) (196) (105)
Recoveries:
Commercial and Industrial 0 17 13 4 1
Real Estate Mortgages 0 0 0 1 17
Consumer 29 41 6 17 25
Lease Financing Receivables 1 3 12 32 0
Credit Cards 3 3 3 4 2
--------- --------- --------- --------- --------
Total Recoveries 33 64 34 58 45
Net Loans Charged Off (70) (81) (73) (138) (60)
--------- --------- --------- --------- --------
Provision for Loan Losses 60 80 42 160 105
--------- --------- --------- --------- --------
Balance, End of Period $ 901 $ 911 $ 912 $ 943 $ 921
--------- --------- --------- --------- --------
Net Loans Charged Off During the Period
as a Percent of Average Loans
Outstanding During the Period 0.06% 0.07% 0.07% 0.14% 0.07%
--------- --------- --------- --------- --------
</TABLE>
89
<PAGE> 4
The following table presents an allocation of CCFNB's
allowance for loan losses as to indicated categories as of the dates indicated:
<TABLE>
<CAPTION>
For The Years Ended December 31,
---------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial....................................... $ 83 $ 79 $ 73 $133 $179
Real Estate Mortgages............................ 516 500 513 447 390
Consumer......................................... 99 96 53 203 59
Credit Cards..................................... 20 20 25 27 36
Lease Financing Receivables...................... 0 0 2 7 7
Unallocated...................................... 183 216 246 126 250
----- ----- ----- ----- -----
Total............................................ $901 $911 $912 $943 $921
==== ==== ==== ==== ====
</TABLE>
The following table presents a summary of CCFNB's nonaccrual,
restructured and past due loans as of the date indicated:
<TABLE>
<CAPTION>
For The Years Ended December 31,
-------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonaccrual, Restructured and Past Due Loans:
Nonaccrual Loans $ 69 $ 109 $ 13 $ 24 $ 494
Restructured Loans on Accrual Status 0 0 0 0 0
Accrual Loans Past Due 90 Days or More 586 329 397 304 391
------ ------ ------- -------- -------
Total Nonaccrual, Restructured and Past
Due Loans $ 655 $ 438 $ 410 $ 328 $ 885
------ ------ ------- -------- -------
Other Real Estate $ 0 $ 0 $ 0 $ 0 $ 0
------ ------ ------- -------- -------
Interest Income That Would Have Been
Recorded Under Original Terms $3,846 $9,849 $2,266 $47,437 $32,371
------ ------ ------- -------- -------
Interest Income Recorded During the Period $ 0 $ 0 $ 111 $28,083 $ 1,225
------ ------ ------- -------- -------
</TABLE>
90
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) 10 Q
9-30-97 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) 10 Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 7,675
<SECURITIES> 44,738
<RECEIVABLES> 118,325
<ALLOWANCES> 924
<INVENTORY> 0
<CURRENT-ASSETS> 119,814
<PP&E> 5,110
<DEPRECIATION> 0
<TOTAL-ASSETS> 174,924
<CURRENT-LIABILITIES> 153,178
<BONDS> 0
0
0
<COMMON> 1,728
<OTHER-SE> 20,018
<TOTAL-LIABILITY-AND-EQUITY> 174,924
<SALES> 9,318
<TOTAL-REVENUES> 9,860
<CGS> 4,434
<TOTAL-COSTS> 4,434
<OTHER-EXPENSES> 3,339
<LOSS-PROVISION> 45
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,042
<INCOME-TAX> 548
<INCOME-CONTINUING> 1,494
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,494
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.08
</TABLE>
