<PAGE> 1
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, 1998
[ ] 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: (570) 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 $21.25 at February 28, 1999, was $28,743,026.25.
As of February 28, 1999, the Registrant had outstanding
1,375,306 shares of its common stock, par value $1.25 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1999 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, 1998, are incorporated by reference in Part II of this Annual
Report.
Page 1 of 95
Exhibit Index on Page 30
<PAGE> 2
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............................................................... 20
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..................................... 24
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.............................. 24
Item 11. Executive Compensation.......................................................... 26
Item 12. Security Ownership of Certain Beneficial Owners and Management.................. 26
Item 13. Certain Relationships and Related Transactions.................................. 26
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................. 26
Signatures ............................................................................... 28
Index to Exhibits............................................................................. 30
</TABLE>
2
<PAGE> 3
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, 1998, Bancorp had total consolidated
assets, deposits and stockholders' equity of approximately $185 million, $138
million and $23 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, 1998, 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.
3
<PAGE> 4
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.
4
<PAGE> 5
(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.
5
<PAGE> 6
(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
6
<PAGE> 7
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:
7
<PAGE> 8
(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
8
<PAGE> 9
(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
9
<PAGE> 10
(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
10
<PAGE> 11
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.
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
11
<PAGE> 12
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."
12
<PAGE> 13
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.
13
<PAGE> 14
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
14
<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, 1998, the FICO interest
assessment paid by the Bank was approximately $18,000. 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, 1998.
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
Tier I Capital................................................... $ 23,012
Tier II Capital.................................................. $ 955
--------
Total Capital.................................................... $ 23,967
========
Adjusted Total Average Assets.................................... $177,643
Total Adjusted Risk-Weighted Assets(1)........................... $109,947
Tier I Risk-Based Capital Ratio(2)............................... 20.93%
Required Tier I Risk-Based Capital Ratio......................... 4.00%
Excess Tier I Risk-Based Capital Ratio........................... 16.93%
Total Risk-Based Capital Ratio(3)................................ 21.80%
Required Total Risk-Based Capital Ratio.......................... 8.00%
Excess Total Risk-Based Capital Ratio............................ 13.80%
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.
(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.
15
<PAGE> 16
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, 1998, the Bank had total assets of $185
million, total shareholders' equity of $23 million and total deposits and other
liabilities of $162 million.
The Bank is a community bank which seeks to provide personal
attention and professional financial assistance to its customers. The Bank is a
locally managed and locally oriented financial institution established to serve
the needs of individuals and small and medium-sized businesses. The Bank's
business philosophy includes offering direct access to its President and other
officers and providing friendly, informed and courteous service, local and
timely decision making, flexible and reasonable operating procedures, and
consistently-applied credit policies.
The Bank is a full-service commercial bank offering a range of
commercial and retail banking services to its clients. These include personal
and business checking and savings accounts, certificates of deposit, and
mortgage, home equity and commercial loans. In addition, the Bank provides safe
deposit boxes, traveler's checks, wire transfers of funds, and certain personal,
corporate and pension trust services. The Bank is a member of the MAC system and
provides clients with access to this automated teller machine network. The Bank
also makes credit cards available to its customers. In addition, the Bank has a
trust department that provides traditional fiduciary services to its clients.
16
<PAGE> 17
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
headquartered 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 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
17
<PAGE> 18
place of business is located, and another banking institution that has its
principal place of business in the county in which the proposed branch would be
located, has in good faith, notified the OCC of its intention to establish a
branch in the same municipal location in which the proposed branch would be
located.
Multi-bank holding companies are permitted in Pennsylvania
within certain limitations. See sections entitled "Pennsylvania Banking Law" and
"Interstate Banking and Branching."
A subsidiary bank of a bank holding company is subject to
certain restrictions imposed by the Federal Reserve Act on any extensions of
credit to the bank holding company or its subsidiaries, on investments in the
stock or other securities of the bank holding company or its subsidiaries and on
taking such stock or securities as collateral for loans. The Federal Reserve Act
and Federal Reserve Board regulations also place certain limitations and
reporting requirements on extensions of credit by a bank to principal
shareholders of its parent holding company, among others, and to related
interests of such principal shareholders. In addition, such legislation and
regulations may affect the terms upon which any person becoming a principal
shareholder of a holding company may obtain credit from banks with which the
subsidiary bank maintains a correspondent relationship.
Federal law also prohibits acquisitions of control of a bank
holding company without prior notice to certain federal bank regulators. Control
is defined for this purpose as the power, directly or indirectly, to influence
the management or policies of the bank or bank holding company or to vote
twenty-five percent (25%) or more of any class of voting securities of the bank
holding company.
From time to time, various types of federal and state
legislation have been proposed that could result in additional regulations of,
and restrictions on, the business of the Bank. It cannot be predicted whether
any such legislation will be adopted or how such legislation would affect the
business of the Bank. As a consequence of the extensive regulation of commercial
banking activities in the United States, the Bank's business is particularly
susceptible to being affected by federal legislation and regulations that may
increase the costs of doing business.
Under the Federal Deposit Insurance Act, the OCC possesses the
power to prohibit institutions regulated by it (such as the Bank) from engaging
in any activity that would be an unsafe and unsound banking practice and in
violation of the law. Moreover, the Financial Institutions and Interest Rate
Control Act of 1987 ("FIRA") generally expands the circumstances under which
officers or directors of a bank may be removed by the institution's federal
supervisory agency; restricts lending by a bank to its executive officers,
directors, principal shareholders or related interests thereof; restricts
management personnel of a bank from serving as directors in other management
positions with certain depository institutions whose assets exceed a specified
amount or which have an office within a specified geographic area; and restricts
management personnel from borrowing from another institution that has a
correspondent relationship with their bank. 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
18
<PAGE> 19
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.
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.
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.
For the purposes of the revised CRA regulations, the Bank is
deemed to be a "small bank," based upon financial information as of December 31,
1998. Therefore, the Bank
19
<PAGE> 20
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.
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
20
<PAGE> 21
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 March 10,
1999, 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.
<TABLE>
<CAPTION>
Average Stock Prices Dividends
-------------------- ---------
Bid Asked Declared
--- ----- --------
<S> <C> <C> <C> <C>
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
1998:
First quarter.................................. $24.67 $26.42 $.116
Second quarter................................. $29.17 $35.17 $.116
Third quarter.................................. $30.33 $32.17 $.116
Fourth quarter................................. $25.50 $26.50 $.116
</TABLE>
As of February 28, 1999, Bancorp had approximately 760
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
21
<PAGE> 22
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.
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, 1998, 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
22
<PAGE> 23
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 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 June 30, 1999. The
Bank has already spent $265,000 and anticipates it will spend in the aggregate
$340,000 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 1999 or
beyond.
23
<PAGE> 24
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.
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 "Board of Directors" and "Stock Ownership"
contained in Bancorp's Proxy Statement (at pages 2 and 6 thereof, respectively)
filed at Exhibit 99A hereto is incorporated in their entirety by reference under
this Item 10.
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:
24
<PAGE> 25
<TABLE>
<CAPTION>
Held Bank Number of Shares Age as of
Name Office and Position Held Since Employee Since Beneficially Owned March 23, 1999
- ---- ------------------------ ----- -------------- ------------------ --------------
<S> <C> <C> <C> <C> <C>
William F. Hess Vice Chairman of the Board 1996 (1) 4,050.212 (2) 65
Chairman of the Board 1998
Paul E. Reichart President and CEO 1985 1960 7,566.000 (2) 61
Vice Chairman of the Board 1998
Don E. Bangs Secretary 1993 (1) 8,027.066 (2) 67
Virginia D. Kocher Treasurer 1991 1972 391.000 (2) 51
- ----------------------------
</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>
Held Bank Number of Shares Age as of
Name Office and Position Held Since Employee Since Beneficially Owned March 23, 1999
- ---- ------------------------ ----- -------------- ------------------ --------------
<S> <C> <C> <C> <C> <C>
William F. Hess Vice Chairman of the Board 1996 (1) 4,050.212 (2) 65
Chairman of the Board 1998
Don E. Bangs Secretary 1993 (1) 8,027.066 (2) 67
Paul E. Reichart President and CEO 1985 1960 7,566.000 (2) 61
Vice Chairman of the Board 1998
J. Jan Girton Executive Vice President, 1987 1985 1,524.792 (3) 58
Chief Operating Officer
and Assistant Secretary 1992
Lance O. Diehl(6) Senior Vice President 1997 1995 142.000 (2) 33
Linda A. Huttenstine Senior Vice President 1991 1963 355.000 (4) 54
and Cashier 1985
Jacob S. Trump Senior Vice President and 1989 1989 214.809 (4) 51
Financial Planning Officer
Edwin A. Wenner Senior Vice President 1996 1974 325.000 (5) 45
Virginia D. Kocher Vice President, 1987 1972 391.000 (2) 51
Controller and 1982
Assistant Secretary 1991
Richard L. Sierer Financial Planner 1997 1997 97.000 (4) 54
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 131.087 shares of Common Stock held individually by Mr. Girton and
1,393.705 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.
25
<PAGE> 26
ITEM 11. EXECUTIVE COMPENSATION
The caption "Executive Compensation" contained in Bancorp's
Proxy Statement (at page 7 thereof) 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 "Stock Ownership" contained in Bancorp's Proxy
Statement (at page 6 thereof) 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 "Other Information"
contained in Bancorp's Proxy Statement (at page 10 thereof) filed at Exhibit 99A
hereto is incorporated in its entirety by reference under this Item 13.
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, 1998.
(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.
</TABLE>
26
<PAGE> 27
<TABLE>
<CAPTION>
Exhibit Number Referred to
Item 601 of Regulation S-K Description of Exhibit
- -------------------------- ----------------------
<S> <C>
11 None.
12 None.
13 Annual Report to Shareholders for Fiscal Year Ended
December 31, 1998.
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, 1999.
99B SEC Guide 3 Financial Information.
</TABLE>
27
<PAGE> 28
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 25, 1999
-------------------------------
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 25, 1999
-------------------------------
Don E. Bangs
Director and Secretary
By: /s/ Stanley Barchik Date: March 25, 1999
-------------------------------
Stanley Barchik
Director
By: /s/ Robert M. Brewington, Jr. Date: March 25, 1999
-------------------------------
Robert M. Brewington, Jr.
Director
By: /s/ Edward L. Campbell Date: March 25, 1999
-------------------------------
Edward L. Campbell
Director
By: /s/ Elwood R. Harding, Jr. Date: March 25, 1999
-------------------------------
Elwood R. Harding, Jr.
Director
28
<PAGE> 29
By: /s/ William F. Hess Date: March 25, 1999
-------------------------------
William F. Hess
Director and Chairman of the Board
By: /s/ Willard H. Kile, Sr. Date: March 25, 1999
-------------------------------
Willard H. Kile, Sr.
Director
By: /s/ Charles E. Long Date: March 25, 1999
-------------------------------
Charles E. Long
Director
By: /s/ Paul E. Reichart Date: March 25, 1999
-------------------------------
Paul E. Reichart
Director, President, Chief
Executive Officer and Vice
Chairman of the Board
(Chief Executive Officer)
By: /s/ Virginia D. Kocher Date: March 25, 1999
-------------------------------
Virginia D. Kocher
Treasurer
(Principal Financial and
Accounting Officer)
29
<PAGE> 30
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Item Number Description Page
----------- ----------- ----
<S> <C> <C>
13 Annual Report to Shareholders for the
Fiscal Year Ended December 31, 1998........................ 31
21 List of Subsidiaries of Bancorp............................. 73
99A Proxy Statement, Notice of Annual
Meeting and Form of Proxy for
the Annual Meeting of Shareholders
to be held May 12, 1999................................... 74
99B SEC Guide 3 Financial Information........................... 90
27 Financial Data Schedule..................................... 94
</TABLE>
30
<PAGE> 1
EXHIBIT 13
ANNUAL REPORT TO SHAREHOLDERS
FOR FISCAL YEAR ENDED DECEMBER 31, 1998
31
<PAGE> 2
CCFNB BANCORP, INC.
AND SUBSIDIARY
1998 ANNUAL REPORT
32
<PAGE> 3
CCFNB BANCORP, INC. BOARD OF DIRECTORS
Paul E. Reichart
William F. Hess
Don E. Bangs
Robert M. Brewington, Jr.
Willard H. Kile, Sr.
Edward L. Campbell
Elwood R. Harding, Jr.
Stanley Barchik
Charles E. Long
CCFNB BANCORP, INC. OFFICERS
William F. Hess
Chairman of the Board
Don E. Bangs
Secretary of the Board
Paul E. Reichart
President and Chief Executive Officer
Vice Chairman of the Board
Virginia D. Kocher
Treasurer and Assistant Secretary
CCFNB MANAGEMENT TEAM
Edwin A. Wenner
Lance O. Diehl
Jacob S. Trump
J. Jan Girton
Paul E. Reichart
COLUMBIA COUNTY FARMERS NATIONAL BANK OFFICERS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
William F. Hess Jacob S. Trump Lily M. Boudman Christopher R. Bower
Chairman of the Board Senior Vice President and Assistant Vice President Community Office Manager
Financial Planning Officer
Don E. Bangs Florence H. Martz Connie L. Yoder
Secretary of the Board Edwin A. Wenner Assistant Vice President Community Office Manager
Senior Vice President
Paul E. Reichart Gloria M. Miller Jean E. MacDermott
President and Chief Executive Officer Elaine M. Edwards Assistant Vice President Loan Centralization
Vice Chairman of the Board Vice President Department Associate
Karen Z. Wenner
J. Jan Girton Dean R. Kelchner Loan Centralization Stephanie D. Gallagher
Executive Vice President, Chief Vice President Department Manager Marketing Coordinator
Operating Officer and Assistant
Secretary Virginia D. Kocher Luanne Bittenbender Betty Jean Kline
Vice President, Training Director and Community Office
Lance O. Diehl Controller and Assistant Security Officer Supervisor
Senior Vice President Secretary
Linda A. Huttenstine Richard L. Sierer Dolores M. Bennett
Senior Vice President and Cashier Financial Planner/Trust Community Office Manager
Officer
</TABLE>
33
<PAGE> 4
TO OUR SHAREHOLDERS:
Looking back over 1998, excellent customer service continues to be the
primary focus of our corporate culture. I am excited about the progress that was
made regarding the implementation of new products and services geared toward
meeting the ever-changing needs of our customer base. Columbia County Farmers
National Bank continues to remain a locally-owned, independent community bank in
a time of unprecedented bank mergers and acquisitions. This is something we are
extremely proud of because it allows us to develop and foster close
relationships with our customers.
1998 ACCOMPLISHMENTS
In 1998, new services were instituted to keep up with today's technology.
Perhaps the most significant was the introduction of Telebank (Telephone
Banking) which allows our customers to access a variety of account information
and make simple transactions right from their home or office. We were also
successful in implementing Check Safekeeping which eliminates the need for
customers to store burdensome stacks of canceled checks. If the need should
arise for a copy of a canceled check, CCFNB is able to quickly produce a copy of
the check. Our accomplishments also included the development of an informational
Web site which will be on-line and available to the public during the first
quarter of 1999. This site will contain information on the bank's history,
products and services, rates and much more. It will be located at www.ccfnb.com.
In order to maintain a competitive edge in this ever-changing industry,
CCFNB began a sales training program which will provide our loan officers with
added knowledge and expertise. Although our net income decreased approximately
six percent in 1998, resulting from declining interest rates and therefore a
refinancing of in-house mortgages to secondary markets as well as the tightening
of the net interest margin, we strongly believe that a successful sales program
will provide the foundation necessary for increased profitability in the future.
Growth continues in our Financial Planning Department, with assets under
management now at over $24 million. Additionally, our Investment Center, which
offers retail investment products and was established in 1997, has already
developed some excellent customer relationships and is a fine complement to our
line of quality products and services. Last, but certainly not least, in the
first quarter of 1998 we successfully converted our data processing system
in-house. Although this was a significant expenditure, we believe this was an
important move in that it provides us with the flexibility and control necessary
in today's ever-changing financial arena.
A LOOK AT THE NUMBERS
o Total Assets increased 6.55% from $173,866,000 in 1997 to $185,258,000
in 1998
o Deposits increased 7.80% from $127,719,000 in 1997 to $137,679,000 in
1998
o Service charge and fee income increased 10.71% from $523,000 in 1997
to $579,000 in 1998
o Net income decreased from $2,025,000 in 1997 to $1,902,000 in 1998, a
6.07% decrease
o Loans decreased slightly from $119,045,000 in 1997 to $118,558,000 in
1998
o Return on Assets was a healthy 1.07%
o Fee income in the Financial Planning Department increased 39.80% from
$103,000 in 1997 to $144,000 in 1998
LOOKING AHEAD
Looking forward to 1999, one of our top priorities will be preparing for
the Year 2000. Throughout 1999, we will continue to test and re-test our
computer systems to ensure January 1, 2000 will be just like any other day.
During 1999, we will begin researching PC Banking as an additional
alternative to branch banking. This service will provide virtually everything
you need to conveniently and successfully manage your finances. It will allow
customers to access their accounts via personal computer at their home, office,
or anywhere they have access to a PC.
Another objective for the coming year is to strengthen our sales culture.
We recognize the importance of officer calls, and will implement a measuring
system to monitor our results.
As we enter the new millennium, we must continue to provide courteous
service and develop new products and services to meet the ever-changing needs of
our customers. More than ever, we are dependent on our most important asset -
customer goodwill. Quality products and services are necessary components of a
successful business, but equally important is the need to continue to provide
"service beyond expectations" to ensure continuous growth and rise to the
challenge of new competitive pressures. Most importantly, we will continue to
implement the appropriate strategic decisions to maximize value to our
shareholders.
I would like to personally thank our board of directors, officers, and
employees for their continuing support and dedication. A special thanks to you,
our shareholders, for your continued loyalty.
Sincerely,
Paul E. Reichart
President and Chief Executive Officer
34
<PAGE> 5
CCFNB BANCORP, INC. AND SUBSIDIARY
CCFNB Bancorp, Inc. (the "Corporation") is a registered bank holding
company and organized under the Pennsylvania business corporation law. The
assets are primarily those of its wholly owned subsidiary, the Columbia County
Farmers National Bank.
The Columbia County Farmers National 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, 1998, on Form 10-K as filed with the Securities and Exchange Commission will
be furnished without charge upon written request to Mr. Paul E. Reichart,
President and Chief Executive Officer, 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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
EARNINGS
Interest income ........... $ 12,444 $ 12,487 $ 11,844
Interest expense .......... 6,072 5,976 5,588
Provision for loan losses . 78 60 80
Investment securities gains 64 57 28
Net income ................ $ 1,902 $ 2,025 $ 1,824
PER SHARE
Net income ................ $ 1.38 $ 1.47 $ 1.33
Cash dividends ............ .46 .46 .45
BALANCES AT DECEMBER 31
Assets .................... $185,258 $173,866 $170,086
Investment securities ..... 48,151 43,862 37,407
Net loans ................. 117,604 118,144 114,679
Deposits .................. 137,679 127,719 131,400
Stockholders' equity ...... 23,480 22,105 20,657
RATIOS
Return on average assets .. 1.07% 1.18% 1.11%
Return on average equity .. 8.54% 9.79% 9.35%
Dividend payout ratio ..... 33.59% 31.65% 33.95%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
CONTENTS
Message to shareholders ................................................................. 1
Consolidated balance sheets ............................................................. 2
Consolidated statements of income ....................................................... 3
Consolidated statements of stockholders' equity ......................................... 4
Consolidated statements of cash flows ................................................... 5
Notes to consolidated financial statements .............................................. 6 - 19
Report of Independent Certified Public Accountants ...................................... 20
Management's discussion and analysis of financial condition and results of operations.... 21 - 37
</TABLE>
35
<PAGE> 6
CCFNB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks ........................................... $ 5,104,807 $ 4,734,655
Interest-bearing deposits with other banks ........................ 6,381,236 582,143
Federal funds sold ................................................ 1,000,000 0
Investment securities:
Securities Available-for-Sale ................................ 47,586,027 43,142,265
Securities to be Held-to-Maturity (estimated
fair value 1998, $569,076; 1997, $726,340) ................... 565,000 720,000
Loans, net of unearned income ..................................... 118,558,382 119,044,568
Allowance for loan losses ......................................... 954,516 900,889
------------- -------------
Net loans .................................................... $ 117,603,866 $ 118,143,679
Premises and equipment ............................................ 5,649,537 5,146,174
Other real estate owned ........................................... 23,989 0
Accrued interest receivable ....................................... 831,914 937,697
Other assets ...................................................... 511,256 459,357
------------- -------------
TOTAL ASSETS ................................................. $ 185,257,632 $ 173,865,970
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing ......................................... $ 13,315,596 $ 12,137,705
Interest bearing ............................................. 124,363,740 115,581,404
------------- -------------
Total Deposits ........................................... $ 137,679,336 $ 127,719,109
Short-term borrowings ............................................. 20,418,105 22,362,505
Long-term borrowings .............................................. 2,290,703 439,787
Accrued interest and other expenses ............................... 1,176,107 1,140,740
Other liabilities ................................................. 213,669 99,016
------------- -------------
TOTAL LIABILITIES ........................................ $ 161,777,920 $ 151,761,157
------------- -------------
STOCKHOLDERS' EQUITY
Common stock, par value $1.25 per share; authorized
5,000,000 shares; issued 1,382,433 shares 1998 and 1997 ...... $ 1,728,041 $ 1,728,041
Surplus ........................................................... 5,849,157 5,854,388
Retained earnings ................................................. 15,670,223 14,406,930
Accumulated other comprehensive income ............................ 447,551 142,001
Less: Treasury stock at cost, 6,976 shares 1998, 1,183 shares 1997 (215,260) (26,547)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY ............................... $ 23,479,712 $ 22,104,813
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............... $ 185,257,632 $ 173,865,970
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
36
<PAGE> 7
CCFNB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans ..................... $ 9,584,559 $ 9,823,607 $ 9,304,073
Interest and dividends on investment securities:
Taxable ................................... 1,867,265 1,812,883 1,779,437
Tax-exempt ................................ 656,654 513,112 504,808
Dividends ................................. 74,118 61,572 58,856
Federal funds sold ............................. 32,336 124,019 46,651
Deposits in other banks ........................ 229,324 151,586 149,813
----------- ----------- -----------
TOTAL INTEREST INCOME ................. $12,444,256 $12,486,779 $11,843,638
----------- ----------- -----------
INTEREST EXPENSE
Deposits ....................................... $ 4,910,321 $ 4,911,541 $ 4,840,794
Short-term borrowings .......................... 1,046,161 1,048,645 723,308
Long-term borrowings ........................... 115,143 16,035 23,502
----------- ----------- -----------
TOTAL INTEREST EXPENSE ................ $ 6,071,625 $ 5,976,221 $ 5,587,604
----------- ----------- -----------
Net interest income ............................ $ 6,372,631 $ 6,510,558 $ 6,256,034
Provision for loan losses ...................... 78,000 60,000 80,000
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES ....................... $ 6,294,631 $ 6,450,558 $ 6,176,034
----------- ----------- -----------
NON-INTEREST INCOME
Service charges and fees ....................... $ 579,338 $ 523,050 $ 513,341
Trust department ............................... 143,838 103,189 75,804
Other .......................................... 193,479 132,283 145,298
Investment securities gains, net ............... 64,419 57,326 27,680
----------- ----------- -----------
TOTAL NON-INTEREST INCOME ............. $ 981,074 $ 815,848 $ 762,123
----------- ----------- -----------
NON-INTEREST EXPENSE
Salaries ....................................... $ 1,885,446 $ 1,817,389 $ 1,784,776
Pensions and other employee benefits ........... 563,266 522,388 509,435
Occupancy, net ................................. 334,072 375,379 392,854
Equipment ...................................... 556,302 420,271 410,524
FDIC insurance ................................. 15,430 15,761 2,000
Other .......................................... 1,384,511 1,340,945 1,350,526
----------- ----------- -----------
TOTAL NON-INTEREST EXPENSE ............ $ 4,739,027 $ 4,492,133 $ 4,450,115
----------- ----------- -----------
Income before income taxes ..................... $ 2,536,678 $ 2,774,273 $ 2,488,042
Income tax expense ............................. 634,278 748,777 663,552
----------- ----------- -----------
NET INCOME ............................ $ 1,902,400 $ 2,025,496 $ 1,824,490
=========== =========== ===========
PER SHARE DATA
Net income ..................................... $ 1.38 $ 1.47 $ 1.33
----------- ----------- -----------
Cash dividends ................................. $ .46 $ .46 $ .45
----------- ----------- -----------
Weighted average shares outstanding ............ 1,378,339 1,381,800 1,375,875
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
37
<PAGE> 8
CCFNB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Common Comprehensive Retained
Stock Surplus Income Earnings
----- ------- ------ --------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995..................... $1,715,823 $5,693,849 $11,817,277
Comprehensive income:
Net income..................................... 0 0 $1,824,490 1,824,490
Other comprehensive income, net of tax:
Unrealized gains (losses) on investment
securities of $(197,736), net of
reclassification adjustment for gains
included in net income of $18,269........... 0 0 (216,005) 0
----------
Comprehensive income........................... $1,608,485
==========
Issuance of 9,053 shares of common
stock under dividend reinvestment
and stock purchase plans....................... 11,316 144,604 0
Cash dividends $.45 per share.................... 0 0 (619,269)
---------- ---------- -----------
BALANCE AT DECEMBER 31, 1996..................... $1,727,139 $5,838,453 $13,022,498
Comprehensive income:
Net income..................................... 0 0 $2,025,496 2,025,496
Other comprehensive income, net of tax:
Unrealized gains on investment
securities of $111,045, net of
reclassification adjustment for gains
included in net income of $37,835........... 0 0 73,210 0
----------
Comprehensive income........................... $2,098,706
==========
Issuance of 6,814 shares of common
stock under dividend reinvestment
and stock purchase plans...................... 8,517 130,543 0
Purchase of 7,275 shares of treasury stock...... 0 0 0
Retirement of 6,092 shares of treasury
stock......................................... (7,615) (114,608) 0
Cash dividends $.46 per share................... 0 0 (641,064)
---------- ---------- -----------
BALANCE AT DECEMBER 31, 1997.................... $1,728,041 $5,854,388 $14,406,930
Comprehensive income:
Net income.................................... 0 0 $1,902,400 1,902,400
Other comprehensive income, net of tax:
Unrealized gains on investment
securities of $348,067, net of
reclassification adjustment for gains
included in net income of $42,517.......... 0 0 305,550 0
----------
Comprehensive income.......................... $2,207,950
==========
Issuance of 5,013 shares of common
stock under dividend reinvestment
and stock purchase plans...................... 6,266 135,224 0
Sale of 453 shares of treasury stock............ 0 (66) 0
Purchase of 11,259 shares of treasury stock..... 0 0 0
Retirement of 5,013 shares of treasury
stock......................................... (6,266) (140,389) 0
Cash dividends $.46 per share................... 0 0 (639,107)
---------- ---------- -----------
BALANCE AT DECEMBER 31, 1998.................... $1,728,041 $5,849,157 $15,670,223
========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive Treasury
Income Stock Total
------ ----- -----
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995..................... $ 284,796 $ 0 $19,511,745
Comprehensive income:
Net income..................................... 0 0 1,824,490
Other comprehensive income, net of tax:
Unrealized gains (losses) on investment
securities of $(197,736), net of
reclassification adjustment for gains
included in net income of $18,269........... (216,005) 0 (216,005)
Comprehensive income...........................
Issuance of 9,053 shares of common
stock under dividend reinvestment
and stock purchase plans....................... 0 0 155,920
Cash dividends $.45 per share.................... 0 0 (619,269)
---------- --------- -----------
BALANCE AT DECEMBER 31, 1996..................... $ 68,791 $ 0 $20,656,881
Comprehensive income:
Net income..................................... 0 0 2,025,496
Other comprehensive income, net of tax:
Unrealized gains on investment
securities of $111,045, net of
reclassification adjustment for gains
included in net income of $37,835........... 73,210 0 73,210
Comprehensive income...........................
Issuance of 6,814 shares of common
stock under dividend reinvestment
and stock purchase plans...................... 0 0 139,060
Purchase of 7,275 shares of treasury stock...... 0 (148,770) (148,770)
Retirement of 6,092 shares of treasury
stock......................................... 0 122,223 0
Cash dividends $.46 per share................... 0 0 (641,064)
---------- ---------- -----------
BALANCE AT DECEMBER 31, 1997.................... $ 142,001 $ (26,547) $22,104,813
Comprehensive income:
Net income.................................... 0 0 1,902,400
Other comprehensive income, net of tax:
Unrealized gains on investment
securities of $348,067, net of
reclassification adjustment for gains
included in net income of $42,517.......... 305,550 0 305,550
Comprehensive income..........................
Issuance of 5,013 shares of common
stock under dividend reinvestment
and stock purchase plans...................... 0 0 141,490
Sale of 453 shares of treasury stock............ 0 9,747 9,681
Purchase of 11,259 shares of treasury stock..... 0 (345,115) (345,115)
Retirement of 5,013 shares of treasury stock... 0 146,655 0
Cash dividends $.46 per share................... 0 0 (639,107)
---------- --------- -----------
BALANCE AT DECEMBER 31, 1998.................... $ 447,551 $(215,260) $23,479,712
========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
38
<PAGE> 9
CCFNB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income ............................................................. $ 1,902,400 $ 2,025,496 $ 1,824,490
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses ......................................... 78,000 60,000 80,000
Depreciation ...................................................... 516,947 373,307 386,021
Premium amortization on investment securities ..................... 92,031 21,995 2,228
Discount accretion on investment securities ....................... (38,746) (27,084) (16,294)
Deferred income taxes (benefit) ................................... (14,828) 20,331 (9,303)
(Gain) on sales of investment securities Available-for-Sale ....... (64,415) (57,326) (27,680)
(Gain) on sale of premises and equipment .......................... 0 (1,623) (116)
Loss on impairment of bank premise ................................ 0 20,000 30,958
(Gain) on sale of other real estate ............................... 0 0 (53,808)
(Increase) decrease in accrued interest receivable ................ 105,783 27,234 (115,195)
(Increase) in other assets - net .................................. (51,899) (96,013) (3,168)
Increase in accrued interest and other expenses ................... 35,367 82,773 151,292
Increase (decrease) in other liabilities - net .................... (23,808) 36,826 (109,587)
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ....................... $ 2,536,832 $ 2,485,916 $ 2,139,838
------------ ------------ ------------
INVESTMENT ACTIVITIES
Purchases of investment securities Available-for-Sale .................. $(38,178,221) $(25,177,358) $(12,813,932)
Proceeds from sales, maturities and redemptions of investment securities
Available-for-Sale .................................................. 34,204,427 18,647,390 15,430,246
Proceeds from maturities and redemptions of investment securities
Held-to-Maturity .................................................... 155,000 250,000 75,000
Net (increase) decrease in loans ....................................... 437,824 (3,524,606) (3,839,730)
Purchases of premises and equipment .................................... (1,020,309) (266,185) (629,777)
Proceeds from sale of premises and equipment ........................... 0 22,850 275
Proceeds from sale of other real estate ................................ 0 0 53,808
------------ ------------ ------------
NET CASH (USED) IN INVESTING ACTIVITIES ......................... $ (4,401,279) $(10,047,909) $ (1,724,110)
------------ ------------ ------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits .................................... $ 9,960,227 $ (3,680,927) $ 2,414,764
Net increase (decrease) in short-term borrowings ....................... (1,944,400) 5,708,524 4,588,410
Proceeds from long-term borrowings ..................................... 2,071,628 225,000 0
Repayment of long-term borrowings ...................................... (220,712) (82,199) (67,579)
Proceeds from sale of treasury stock ................................... 9,681 0 0
Acquisition of treasury stock .......................................... (345,115) (148,770) 0
Proceeds from issuance of common stock ................................. 141,490 139,060 155,920
Cash dividends paid .................................................... (639,107) (641,064) (619,269)
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ....................... $ 9,033,692 $ 1,519,624 $ 6,472,246
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ................................................... $ 7,169,245 $ (6,042,369) $ 6,887,974
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ......................... 5,316,798 11,359,167 4,471,193
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ............................ $ 12,486,043 $ 5,316,798 $ 11,359,167
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest ............................................................ $ 6,059,842 $ 5,984,797 $ 5,575,448
Income taxes ........................................................ $ 606,446 $ 795,855 $ 571,730
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
39
<PAGE> 10
CCFNB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
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 OPERATIONS & LINES OF BUSINESS
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.
Gathering deposits and making loans are the major lines of business.
The deposits are mainly deposits of individuals and small businesses and
the loans are mainly real estate loans covering primary residences and
small business enterprises. The trust services, under the name of CCFNB and
Co., include administration of various estates, pension plans,
self-directed IRA's and other services. A third-party brokerage
arrangement, Invest, is also resident in the main branch, namely
Bloomsburg. This Invest Financial Service offers a full line of stocks,
bonds and other non-insured financial services.
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 net of the effect of
deferred income taxes is reported as other comprehensive income in the
Statement of Stockholders' Equity. 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 income 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
40
<PAGE> 11
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 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.
A principal factor in estimating the allowance for loan losses is the
measurement of impaired loans. A loan is considered impaired when, based on
current information and events, it is probable that the Corporation will be
unable to collect all amounts due according to the contractual terms of the
loan agreement. Under current accounting standards, the allowance for loan
losses related to impaired loans is based on discounted cash flows using
the loan's effective interest rate or the fair value of the collateral for
certain collateral dependent loans.
The allowance for loan losses is maintained at a level established by
management to be adequate to absorb estimated potential loan losses.
Management's periodic evaluation of the adequacy of the allowance for loan
losses is based on the Corporation's past loan loss experience, known and
inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay (including the timing of future payments), the
estimated value of any underlying collateral, composition of the loan
portfolio, current economic conditions, and other relevant factors. This
evaluation is inherently subjective as it requires material estimates,
including the amounts and timing of future cash flows expected to be
received on impaired loans that may be susceptible to significant change.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation
computed principally on the straight-line method over the estimated useful
lives of the assets. Maintenance and minor repairs are charged to
operations as incurred. The cost and accumulated depreciation of the
premises and equipment retired or sold are eliminated from the property
accounts at the time of retirement or sale, and the resulting gain or loss
is reflected in current operations.
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
of Financial Accounting Standards (SFAS) 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.
41
<PAGE> 12
PER SHARE DATA
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
Per Share", requires dual presentation of basic and diluted earnings per
share. Basic earnings per share is calculated by dividing net income by the
weighted average number of shares of common stock outstanding at the end of
each period. Diluted earnings per share is calculated by increasing the
denominator for the assumed conversion of all potentially dilutive
securities. The Corporation does not have any securities which have or will
have a dilutive effect, accordingly, basic and diluted per share data is
the same.
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 (SFAS) 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.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income", is effective and has been implemented for the year
ended December 31, 1998. SFAS 130 established standards for reporting and
display of comprehensive income and its components. The adoption of SFAS
130 did not have a material effect on the Corporation's financial condition
or results of operations.
Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities", provides accounting and reporting standards for sales,
securitizations, and servicing of receivables and other financial assets,
for certain serviced borrowings and collateral transactions, and for
extinguishment of liabilities. As a result of SFAS 127, provisions of SFAS
125 became fully effective in 1998 and has not had a significant impact on
the Corporation's consolidated financial condition or results of
operations.
Statement of Financial Accounting Standards (SFAS) No. 131,
"Disclosures about Segments of an Enterprise and Related Information",
became effective for 1998 and establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The
Corporation adopted the provisions of this statement for 1998. The
disclosure requirements had no impact on the financial position or results
of operations.
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities", becomes effective for
years beginning after June 15, 1999. SFAS 133 requires fair value
accounting for all stand-alone derivatives and many derivatives embedded in
other instruments and contracts. Since the Corporation does not enter into
transactions involving derivatives described in the standard and does not
engage in hedging activities, the standard is not expected to have a
significant impact on the Corporation's consolidated financial condition or
results of operations.
RECLASSIFICATION
Certain amounts in the consolidated financial statements of the prior
years have been reclassified to conform with presentation used in the 1998
consolidated financial statements. Such reclassifications had no effect on
the Corporation's consolidated financial condition or net income.
42
<PAGE> 13
2. RESTRICTED CASH BALANCES
The Bank is required to maintain average reserve balances with the
Federal Reserve Bank. The amount required at December 31, 1998 was $834,000
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, 1998, these balances were $507,000.
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, 1998 and 1997:
<TABLE>
<CAPTION>
Available-for-Sale Securities
-----------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1998: Cost Gains Losses Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Obligations of U.S. Government Corporations
and Agencies:
Mortgage-backed ............................ $22,137,279 $270,995 $ 6,406 $22,401,868
Other ...................................... 9,777,510 4,875 0 9,782,385
Obligations of state and political subdivisions 13,606,379 423,379 0 14,029,758
Equity securities .............................. 1,388,780 0 16,764 1,372,016
----------- -------- ------- -----------
Total .......................................... $46,909,948 $699,249 $23,170 $47,586,027
=========== ======== ======= ===========
Held-to-Maturity Securities
-----------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1998: Cost Gains Losses Value
--------- ---------- ---------- ---------
Obligations of state and political subdivisions.. $ 565,000 $ 4,076 $ 0 $ 569,076
=========== ======== ======= ===========
Available-for-Sale Securities
-----------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1998: Cost Gains Losses Value
--------- ---------- ---------- -----
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
=========== ======== ======= ===========
Held-to-Maturity Securities
---------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1998: Cost Gains Losses Value
--------- ---------- ---------- ---------
Obligations of state and political subdivisions... $ 720,000 $ 6,340 $ 0 $ 726,340
=========== ======== ======== ===========
</TABLE>
Securities Available-for-Sale with an aggregate fair value of
$29,787,808 in 1998 and $31,360,090 in 1997, respectively, were pledged to
secure public funds, trust funds, securities sold under agreements to
repurchase and other balances of $24,797,741 in 1998 and $27,419,841 in
1997, respectively, as required by law.
The amortized cost and estimated fair value of debt securities, by
expected maturity, are shown below at December 31, 1998. 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.
43
<PAGE> 14
<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 .............. $365,000 $366,587 $ 2,493,141 $ 2,498,236
Due after one year through five years 200,000 202,489 26,605,660 26,908,757
Due after five years through ten years 0 0 6,496,137 6,526,952
Due after ten years .................. 0 0 11,315,010 11,652,082
-------- -------- ----------- -----------
Total ................................ $565,000 $569,076 $46,909,948 $47,586,027
======== ======== =========== ===========
</TABLE>
The Bank holds stock in the Federal Home Loan Bank of Pittsburgh
(FHLB). The Bank must hold this FHLB stock as long as it remains a member
of the FHLB System. The Bank does not anticipate that it will discontinue
its FHLB membership and therefore, the investment in this FHLB stock in the
amounts of $864,000 and $738,700 in 1998 and 1997, respectively are
classified as equity securities.
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
1998, 1997 and 1996 were $34,204,427, $18,647,390 and $15,430,246,
respectively. Gross gains realized on these sales were $64,415, $57,935 and
$27,680, respectively. Gross losses on these sales were $609 in 1997. There
were no gross losses on the 1998 and 1996 sales. Net unrealized gains on
securities Available-for-Sale, net of tax, were $447,551, $142,001 and
$68,791 in 1998, 1997 and 1996, respectively and are included as a separate
component of accumulated other comprehensive income in the consolidated
stockholders' equity.
4. LOANS
Major classifications of loans at December 31, 1998 and 1997 consisted of:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Commercial ........................ $ 8,991,476 $ 7,550,674
Tax-exempt ........................ 2,512,335 2,591,233
Qualified municipal leases ........ 19,935 0
Real estate - construction ........ 1,278,041 637,025
Real estate ....................... 96,741,691 99,779,958
Personal .......................... 9,460,832 8,906,792
------------ ------------
Total gross loans ................. $119,004,310 $119,465,682
Less: Unearned discount .......... 376,371 323,684
Unamortized loan fees, net of costs 69,557 97,430
------------ ------------
Loans, net of unearned income ..... $118,558,382 $119,044,568
============ ============
</TABLE>
Non-accrual loans at December 31, 1998, 1997 and 1996 were $536,640,
$69,368 and $109,000, 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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Gross interest due under terms $55,411 $3,846 $9,849
Amount included in income .... 9,609 0 0
------- ------ ------
Interest income not recognized $45,802 $3,846 $9,849
======= ====== ======
</TABLE>
At December 31, 1998 and 1997 the recorded investment in loans that are
considered to be impaired as defined by SFAS No. 114 was $28,355 and $0,
respectively. No additional charge to operations was required to provide
for the impaired loans since the total allowance for loan losses is
estimated by management to be adequate to provide for the loan loss
allowance required by SFAS No. 114 along with any other potential losses.
The average recorded investment in impaired loans during the years ended
December 31, 1998 and 1997 was approximately $17,721 and $0, respectively.
At December 31, 1998, there were no significant commitments to lend
additional funds with respect to non-accrual and restructured loans.
44
<PAGE> 15
Changes in the allowance for loan losses for the years ended December
31, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year .... $ 900,889 $ 910,711 $ 912,253
Provision charged to operations 78,000 60,000 80,000
Loans charged-off ............. (83,140) (102,474) (144,980)
Recoveries .................... 58,767 32,652 63,438
--------- --------- ---------
Balance, end of year .......... $ 954,516 $ 900,889 $ 910,711
========= ========= =========
</TABLE>
5. PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1998 and 1997 follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Land .......................... $ 567,939 $ 567,939
Buildings and improvements .... 4,490,372 4,382,745
Furniture and equipment ....... 3,148,240 3,111,390
---------- ----------
$8,206,551 $8,062,074
Less: Accumulated depreciation 2,557,014 2,915,900
---------- ----------
$5,649,537 $5,146,174
</TABLE>
Depreciation amounted to $516,947 for 1998, $373,307 for 1997 and
$386,021 for 1996.
In accordance with SFAS No. 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, 1998 and 1997 consisted
of:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Demand - non-interest bearing $ 13,315,596 $ 12,137,705
Demand - interest bearing ... 22,452,236 19,453,384
Savings ..................... 33,493,560 31,742,490
Time $100,000 and over ...... 11,988,742 11,460,722
Other time .................. 56,429,202 52,924,808
------------ ------------
$137,679,336 $127,719,109
------------ ------------
</TABLE>
The following is a schedule reflecting remaining maturities of time
deposits of $100,000 and over at December 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
1999 ............................................ $ 6,301,309
2000 ............................................ 3,905,260
2001 ............................................ 751,713
2002 ............................................ 100,000
2003 and thereafter.............................. 930,460
-----------
Total ........................................... $11,988,742
===========
</TABLE>
Interest expense related to time deposits of $100,000 or more was $672,469
in 1998, $674,683 in 1997 and $636,407 in 1996.
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, 1998 and 1997:
45
<PAGE> 16
<TABLE>
<CAPTION>
1998 1997
---- ----
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..... $20,225,777 $20,149,603 $23,003,016 5.06% $21,362,505 $19,350,482 $22,940,764 5.26%
Federal Home Loan
Bank.............. 0 5,342 0 3.62% 0 8,767 0 6.18%
U.S. Treasury tax
and loan notes.... 192,328 486,931 1,000,000 5.38% 1,000,000 583,549 1,000,000 5.08%
----------- ----------- ----------- ---- ----------- ----------- ----------- ----
Total............... $20,418,105 $20,641,876 $24,003,016 5.07% $22,362,505 $19,942,798 $23,940,764 5.26%
=========== =========== =========== ==== =========== =========== =========== ====
</TABLE>
8. LONG-TERM BORROWINGS
Long-term borrowings at December 31, 1998 and 1997 consisted of:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Federal Home Loan Bank borrowings $2,290,703 $225,000
Capitalized lease obligations ... 0 214,787
---------- --------
Total ........................... $2,290,703 $439,787
========== ========
</TABLE>
Long-term borrowings were comprised of three long-term borrowings from
Federal Home Loan Bank (FHLB) and capital lease obligations incurred as a
result of acquiring computer and related equipment.
The interest rate on capitalized leases was imputed at 6.30% which was
based on the lower of the Corporation's incremental borrowing rate at the
inception of the leases. The leases were paid off in 1998.
In November 1997, the Bank borrowed $225,000 from the FHLB. The loan is
for a ten year term with a fixed interest rate of 6.12% and monthly
payments of principal and interest in the amount of $1,627. The loan will
mature in 2007 with a balloon principal payment of $146,690.
In February 1998, the Bank borrowed $2,000,000 from the FHLB. The loan
is a 10 year term with a five year put. The interest rate is fixed at 5.48%
with a floating rate option attached at the end of five years. Interest
only is payable monthly.
In June 1998, the Bank borrowed $72,000 from the FHLB. The loan is a 30
year term with a fixed rate of 5.856% and monthly payments of principal and
interest in the amount of $425. The loan will mature in 2028.
At December 31, 1998 the annual maturities of long-term debt were as
follows: $7,229 in 1999, $7,682 in 2000, $8,162 in 2001, $8,672 in 2002,
$9,215 in 2003 and $2,249,743 thereafter.
9. STOCKHOLDERS' EQUITY AND STOCK PURCHASE PLANS
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.
The Corporation offers employees a 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 may annually
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 was:
<TABLE>
<CAPTION>
Per Share
---------
Number Employees' Cost
of Purchase of
Date Issued Shares Price Shares
----------- ------ -------- ------
<S> <C> <C> <C>
1998............................................ 453 $21.37 $23.75
1997............................................ 435 $15.75 $17.50
1996............................................ 195 $14.40 $16.00
</TABLE>
46
<PAGE> 17
The Corporation also offers to its stockholders a Dividend Reinvestment
and Stock Purchase Plan. Under the plan the Corporation registered with the
Securities and Exchange Commission 500,000 shares of the Common Stock to be
sold pursuant to the 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:
<TABLE>
<CAPTION>
Number Total
Year Of Shares Proceeds
---- --------- --------
<S> <C> <C>
1998............................................ 5,013 $140,405
1997............................................ 6,379 $132,209
1996............................................ 9,053 $153,112
1995............................................ 7,036 $ 77,037
</TABLE>
10. INCOME TAXES
The provision for income tax expense consisted of the following components:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current ................................................ $649,106 $728,446 $672,855
Deferred (benefit) ..................................... (14,828) 20,331 (9,303)
-------- -------- --------
TOTAL PROVISION FOR INCOME TAXES $634,278 $748,777 $663,552
======== ======== ========
</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>
1998 1997 1996
---- ---- ----
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Provision at statutory rate ........ $ 862,471 34.0% $ 943,253 34.0% $ 845,934 34.0%
Tax-exempt income .................. (263,702) (10.4) (224,865) (8.1) (207,332) (8.3)
Non-deductible expenses ............ 30,509 1.2 35,817 1.3 24,553 1.0
Other, net ......................... 5,000 .2 (5,428) (.2) 397 .0
--------- ---- --------- ---- --------- ----
Actual federal income tax and rate.. $ 634,278 25.0% $ 748,777 27.0% $ 663,552 26.7%
========= ==== ========= ==== ========= ====
</TABLE>
Income taxes applicable to realized security gains included in the
provision for income taxes totalled $21,902 in 1998, $19,491 in 1997 and
$9,411 in 1996.
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>
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Loan loss reserve ....................................................... $ 222,774 $ 204,541
Deferred compensation ................................................... 125,777 115,114
Contributions ........................................................... 6,068 6,018
--------- ---------
TOTAL $ 354,619 $ 325,673
--------- ---------
Deferred tax liabilities:
Loan fees and costs ..................................................... $ (60,860) $ (54,588)
Accretion ............................................................... (5,072) (7,356)
Unrealized investment securities gains .................................. (228,518) (75,230)
Depreciation ............................................................ (240,370) (230,240)
--------- ---------
TOTAL $(534,820) $(367,414)
--------- ---------
Net deferred tax asset (liability) .......................................... $(180,201) $ (41,741)
========= =========
</TABLE>
The above net deferred liability is included in other liabilities on
the consolidated balance sheets. It is anticipated that all tax assets
will be realized, accordingly, no valuation allowance was provided.
47
<PAGE> 18
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 amounted to
$20,961, $18,266 and $19,788 for 1998, 1997 and 1996, respectively.
Discretionary contributions amounted to $85,988, $108,099 and $97,564 in
1998, 1997 and 1996, 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. As of December 31, 1998 and
1997, the net cash value of insurance policies was $169,377 and $131,084,
respectively, and the total accrued liability was $205,997 and $183,769,
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, 1998 and 1997, the net
cash value of insurance policies was $164,629 and $148,585, respectively,
and the total accrued liability was $163,935 and $154,800, respectively,
relating to these executive officers' deferred compensation agreements.
12. LEASE COMMITMENTS AND CONTINGENCIES
At December 31, 1998 the Bank was leasing some minor office equipment
under operating leases. In prior years the Bank had also contracted for
outside data processing service and related equipment which was
discontinued in 1998 as a result of the Bank's acquisition and
implementation of its own in-house computer system.
Rental expense under operating leases and contracted data processing
services for the years ended December 31, 1998, 1997 and 1996 were $71,928,
$170,398 and $153,084, respectively.
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.
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, 1998 and 1997. 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, six executive officers and their related companies,
consisted of the following:
48
<PAGE> 19
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Balance, beginning of year... $ 1,643,193 $ 2,100,225
Additions ................... 761,586 359,080
Deductions .................. (850,934) (816,112)
----------- -----------
Balance, end of year ........ $ 1,553,845 $ 1,643,193
=========== ===========
</TABLE>
The above loans represent funds drawn and outstanding at the date of
this consolidated financial statement. Commitments by the Bank to related
parties on lines of credit for 1998 and 1997 and credit card agreements for
the year 1997 only presented an additional off-balance sheet risk to the
extent of undisbursed funds in the amount of $227,409 and $327,833,
respectively, on the above loans. Additionally, the presented loans include
credit card accounts totalling $0 and $3,348, 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 $2,352,090
plus additional amounts equal to the net income earned in 1999 for the
period January 1, 1999, through the date of declaration, less any dividends
which may have already been paid in 1999. 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, 1998, 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:
49
<PAGE> 20
<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, 1998:
Total Capital
(To risk-weighted assets).... $23,967 21.80% $8,796 8.00% $10,995 10.00%
Tier I Capital
(To risk-weighted assets).... $23,012 20.93% $4,398 4.00% $ 6,597 6.00%
Tier I Capital
(To average assets).......... $23,012 12.95% $7,106 4.00% $ 8,882 5.00%
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%
</TABLE>
The Corporation's capital ratios are not materially different from
those of the Bank.
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, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit .................................. $10,928,888 $ 8,536,044
Credit card arrangements ...................................... 0 1,238,765
Financial standby letters of credit ........................... 713,754 704,493
Performance standby letters of credit ......................... 235,000 326,372
Dealer floor plans ............................................ 283,776 520,624
</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.
50
<PAGE> 21
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, 1998 varied from 0 percent to 100 percent; the
average amount collateralized was 89.9 percent.
The Corporation granted commercial, consumer and residential loans to
customers within Pennsylvania. Of the total loan portfolio 82% 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 Financial Accounting Standards (SFAS) 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. SFAS 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 were estimated based on bid prices published in
financial newspapers or bid quotations received from securities
dealers.
LOANS
Fair values were estimated for categories of loans with similar
financial characteristics. Loans were segregated by type such as
commercial, tax-exempt, real estate mortgages and consumer. For
estimation purposes, each loan category was further segmented into
fixed and adjustable rate interest terms and also into performing and
non-performing classifications.
The fair value of each category of performing loans was calculated
by discounting future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings
and for the same remaining maturities.
Fair value for non-performing loans was based on management's
estimate of future cash flows discounted using a rate commensurate with
the risk associated with the estimated future cash flows. The
assumptions used by management were judgmentally determined using
specific borrower information.
DEPOSITS
Under SFAS 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,
1998 and 1997.
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.
51
<PAGE> 22
LONG-TERM BORROWINGS
The fair values of long-term borrowings, other than capitalized
leases, are estimated using discounted cash flow analyses based on the
Corporation's incremental borrowing rate for similar instruments. 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 STANDBY 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 value
at the time of funding.
At December 31, 1998 and 1997, the carrying values and estimated
fair values of financial instruments are presented in the table below:
<TABLE>
<CAPTION>
1998 1997
---- ----
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and short-term investments ..... $ 12,486,043 $ 12,486,043 $ 5,316,798 $ 5,316,798
Investment securities ............... 48,151,027 48,155,103 43,862,265 43,868,605
Loans:
Commercial .......................... 8,991,476 8,991,476 7,550,674 7,550,674
Tax-exempt .......................... 2,512,335 2,541,052 2,591,233 2,680,688
Qualified municipal leases .......... 19,935 19,935 0 0
Real estate - construction .......... 1,278,041 1,272,324 637,025 634,129
Real estate ......................... 96,741,690 97,034,525 99,779,958 99,087,130
Personal ............................ 9,460,832 9,298,772 8,523,907 8,421,895
Credit cards ........................ 0 0 382,885 382,885
------------ ------------ ------------ ------------
Gross loans ......................... $119,004,309 $119,158,084 $119,465,682 $118,757,401
Less: Unearned discount ............ 376,370 0 323,684 0
Unamortized loan fees, net
of costs ................... 69,557 0 97,430 0
------------ ------------ ------------ ------------
Loans, net of unearned income $118,558,382 $119,158,084 $119,044,568 $118,757,401
Less allowance for losses .... 954,516 0 900,889 0
------------ ------------ ------------ ------------
Net Loans ........................ $117,603,866 $119,158,084 $118,143,679 $118,757,401
------------ ------------ ------------ ------------
Financial Liabilities:
Deposits:
Demand - non-interest bearing .... $ 13,315,596 $ 13,315,596 $ 12,137,705 $ 12,137,705
Demand - interest bearing ........ 22,452,236 22,452,236 19,453,384 19,453,384
Savings .......................... 33,493,560 33,493,560 31,742,490 31,742,490
Time - $100,000 and over ......... 11,988,742 12,177,705 11,460,722 11,549,942
Other time ....................... 56,429,202 57,131,868 52,924,808 53,231,715
------------ ------------ ------------ ------------
Total Deposits ................. $137,679,336 $138,570,965 $127,719,109 $128,115,236
------------ ------------ ------------ ------------
Short-Term Borrowings ................. $ 20,418,105 $ 20,418,105 $ 22,362,505 $ 22,362,505
Long-Term Borrowings .................. 2,290,703 2,373,493 439,787 439,787
Off-Balance Sheet Assets (Liabilities):
Commitments to extend credit ........ 10,928,888 8,536,044
Credit card arrangements ............ 0 1,238,765
Standby letters of credit ........... 713,754 704,493
Performance standby letters of credit 235,000 326,372
Dealer floor plans .................. 283,776 520,624
</TABLE>
52
<PAGE> 23
17. PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information for CCFNB Bancorp, Inc. (Parent
Company only) was as follows:
<TABLE>
<CAPTION>
BALANCE SHEETS December 31,
-------------- ------------
Assets 1998 1997
---- ----
<S> <C> <C>
Cash in subsidiary Bank ................................................ $ 293,362 $ 248,136
Investment in subsidiary ............................................... 22,910,536 21,644,692
Investment in other equity securities .................................. 256,055 218,875
Prepayments and other assets ........................................... 8,284 0
Receivable from subsidiary ............................................. 55,981 14,251
------------ ------------
Total Assets ...................................................... $ 23,524,218 $ 22,125,954
============ ============
Liabilities and Stockholders' Equity
Accrued expenses and other liabilities.................................. $ 44,506 $ 21,141
------------ ------------
Total Liabilities.................................................. $ 44,506 $ 21,141
------------ ------------
Stockholders' Equity
Common stock ........................................................... $ 1,728,041 $ 1,728,041
Surplus ................................................................ 5,849,157 5,854,388
Retained earnings ...................................................... 15,670,223 14,406,930
Unrealized gain on investment securities Available-for-Sale ............ 447,551 142,001
Less treasury stock at cost ............................................ (215,260) (26,547)
------------ ------------
Total Stockholders' Equity ........................................ $ 23,479,712 $ 22,104,813
------------ ------------
Total Liabilities and Stockholders' Equity ........................ $ 23,524,218 $ 22,125,954
============ ============
</TABLE>
<TABLE>
<CAPTION>
INCOME STATEMENTS Years Ended December 31,
----------------- ------------------------
Income 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Dividends from subsidiary bank .................................. $ 1,001,449 $ 637,610 $ 916,664
Dividends - other ............................................... 6,027 980 0
Interest ........................................................ 5,451 17,724 13,464
----------- ----------- -----------
Total Income .................................................. $ 1,012,927 $ 656,314 $ 930,128
Operating Expenses ................................................ 66,470 62,071 57,737
----------- ----------- -----------
Income Before Taxes and Equity in Undistributed
Net Income of Subsidiary .................................... $ 946,457 $ 594,243 $ 872,391
Applicable income tax (benefit) ................................... (20,128) (14,978) (15,053)
----------- ----------- -----------
Income Before Equity in Undistributed Net Income
of Subsidiary ............................................... $ 966,585 $ 609,221 $ 887,444
Equity in undistributed income of subsidiary ...................... 935,815 1,416,275 937,046
----------- ----------- -----------
Net Income .................................................... $ 1,902,400 $ 2,025,496 $ 1,824,490
=========== =========== ===========
STATEMENTS OF CASH FLOWS
Operating Activities
Net income ........................................................ $ 1,902,400 $ 2,025,496 $ 1,824,490
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed net income of subsidiary .............. (935,815) (1,416,275) (937,046)
Decrease in prepaid expenses and other assets ................. 0 14,235 30,308
(Increase) decrease in receivable from subsidiary ............. (41,730) 96,055 (110,306)
(Decrease) in advances payable to subsidiary .................. 0 0 (20,173)
Increase (decrease) in income taxes and accrued expenses
payable ..................................................... 31,809 (56,557) 68,855
----------- ----------- -----------
Net Cash Provided By Operating Activities ................... $ 956,664 $ 662,954 $ 856,128
----------- ----------- -----------
Investing Activities
Purchase of equity securities ..................................... $ (78,387) $ (198,075) $ 0
Investment in subsidiary .......................................... 0 (143,703) (102,390)
----------- ----------- -----------
Net Cash (Used) in Investing Activities ..................... $ (78,387) $ (341,778) $ (102,390)
----------- ----------- -----------
Financing Activities
Proceeds from sale of treasury stock............................... $ 9,681 $ 0 $ 0
Acquisition of treasury stock ..................................... (345,115) (148,770) 0
Proceeds from issuance of common stock ............................ 141,490 139,060 155,920
Cash dividends .................................................... (639,107) (641,064) (619,269)
----------- ----------- -----------
Net Cash (Used) By Financing Activities ..................... $ (833,051) $ (650,774) $ (463,349)
----------- ----------- -----------
Increase (Decrease) in Cash and Cash Equivalents ............ $ 45,226 $ (329,598) $ 290,389
Cash and Cash Equivalents at Beginning of Year .................... 248,136 577,734 287,345
----------- ----------- -----------
Cash and Cash Equivalents at End of Year .................... $ 293,362 $ 248,136 $ 577,734
=========== =========== ===========
</TABLE>
53
<PAGE> 24
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, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
/s/ J.H. Williams & Co., LLP
- -----------------------------------
J.H. Williams & Co., LLP
Kingston, Pennsylvania
January 19, 1999
54
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CCFNB BANCORP, INC.
SELECTED CONSOLIDATED FINANCIAL SUMMARY
NOT COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total interest income ................................... $ 12,444 $ 12,487 $ 11,844 $ 11,466 $ 10,459
Total interest expense .................................. 6,072 5,976 5,588 5,557 4,785
----------- ---------- ---------- ----------- ----------
Net interest income ..................................... 6,372 6,511 6,256 5,909 5,674
Provision for possible loan losses ...................... 78 60 80 42 160
Other operating income .................................. 981 815 762 693 569
Other operating expenses ................................ 4,739 4,492 4,450 4,374 3,958
Federal income taxes .................................... 634 749 664 561 560
----------- ---------- ---------- ----------- ----------
Net income .............................................. $ 1,902 $ 2,025 $ 1,824 $ 1,625 $ 1,565
=========== ========== ========== =========== ==========
PER SHARE DATA:
Earnings per share (1) .................................. $ 1.38 $ 1.47 $ 1.33 $ 1.19 $ 1.35
Cash dividends declared per share ....................... $ 0.46 $ 0.46 $ 0.45 $ 0.45 $ 0.42
Book value per share .................................... $ 17.03 $ 5.68 $ 14.95 $ 13.99 $ 12.92
Average shares outstanding .............................. 1,378,339 1,381,800 1,375,875 1,367,595 1,163,199
BALANCE SHEET DATA:
Total assets ............................................ $ 185,258 $ 173,866 $ 170,086 $ 162,066 $ 157,124
Total loans ............................................. $ 118,558 $ 119,045 $ 115,590 $ 111,832 $ 109,800
Total securities ........................................ $ 48,151 $ 43,862 $ 37,407 $ 40,384 $ 39,323
Total deposits .......................................... $ 137,679 $ 127,719 $ 131,400 $ 128,985 $ 126,864
FHLB advances - long-term ............................... $ 2,291 $ 225 $ 0 $ 0 $ 0
Total stockholders' equity .............................. $ 23,480 $ 22,105 $ 20,657 $ 19,512 $ 17,650
PERFORMANCE RATIOS:
Return on average assets ................................ 1.07% 1.18% 1.11% 1.03% 1.03%
Return on average stockholders' equity .................. 8.54% 9.79% 9.35% 8.99% 11.39%
Net interest margin (2) ................................. 4.05% 4.23% 4.24% 4.15% 4.12%
Total other operating expenses as a percentage of
average assets ....................................... 2.67% 2.62% 2.70% 2.77% 2.61%
ASSET QUALITY RATIOS:
Allowance for possible loan losses as a
percentage of loans, net ................................ 0.81% 0.76% 0.79% 0.82% 0.87%
Allowance for possible loan losses as a percentage of
non-performing loans (3) ............................. 100.32% 129.27% 208.00% 222.00% 287.50%
Non-performing loans as a percentage of total loans,
net (3) .............................................. 0.81% 0.59% 0.38% 0.37% 0.30%
Non-performing assets as a percentage of total assets (3) 0.51% 0.40% 0.26% 0.25% 0.21%
Net charge-offs as a percentage of average net loans .... 2.11% 0.06% 0.07% 0.07% 0.14%
LIQUIDITY AND CAPITAL RATIOS:
Equity to assets (4) .................................... 12.53% 12.09% 11.86% 11.44% 11.39%
Tier 1 Capital to risk-weighted assets (5) .............. 20.93% 20.98% 20.58% 28.21% 20.19%
Leverage ratio (4)(5)(6) ................................ 12.95% 12.57% 12.23% 12.39% 12.15%
Total capital to risk-weighted assets (4) ............... 21.80% 21.84% 21.49% 29.46% 21.24%
Dividend payout ratio ................................... 33.59% 31.65% 33.95% 37.88% 31.74%
- ----------
</TABLE>
(1) Based upon average shares and common share equivalents outstanding.
(2) Represents net interest income as a percentage of average total
interest-earning assets, calculated on a tax-equivalent basis.
(3) Non-performing loans are comprised of (i) loans which are on a non-accrual
basis, (ii) accruing loans that are 90 days or more past due, and (iii)
restructured loans. Non-performing assets are comprised of non-performing
loans and foreclosed real estate (assets acquired in foreclosure), if
applicable.
(4) Based upon average balances for the respective periods.
(5) Based on the Federal Reserve Bank's 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").
(6) The leverage ratio is defined as the ratio of Tier 1 Capital to average
total assets less intangible assets, if applicable.
55
<PAGE> 26
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. These factors influence interest rates, the
volume, rate and mix of interest-earning assets and interest-bearing
liabilities, and the level of non-performing 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, 1998, total interest-earning assets maturing or
repricing within one year were more than total interest-bearing liabilities
maturing or repricing in the same period by $9,330,000, representing a
cumulative one year interest rate sensitivity gap as a percentage of total
assets of positive 5.04%. This condition suggests that the yield on the
Corporation's interest-earning assets should adjust to changes in market
interest rate at a faster rate than the cost of the Corporation's
interest-bearing liabilities. Consequently, the Corporation's net interest
income could decrease during periods of falling 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. Although the
competition may be bigger, the Corporation still believes that by providing
superior customer service we can effectively compete in the marketplace. Because
of our service area we know our customer base better than larger based
competition and we can react quicker to the needs of our customers.
RESULTS OF OPERATIONS
The Corporation's net income decreased 6.07% to $1,902,000 for 1998,
compared to $2,025,000 for 1997. Earnings per common share for the current year
were $1.38 compared to $1.47 per common share in 1997. Beginning June 1995, the
stockholders' dividend reinvestment plan and the employees' stock purchase plan
went into effect. Additionally, in 1997 and 1998, the Corporation purchased and
partially retired treasury stock. The net
56
<PAGE> 27
additional shares issued as a result of the aforementioned capital transactions
were 0, 722 and 9,053 for 1998, 1997 and 1996, respectively. These factors
affected the earnings per share by increasing or decreasing the weighted average
number of shares which resulted in weighted average number of shares outstanding
of 1,378,339, 1,381,800 and 1,375,875 for 1998, 1997 and 1996 respectively.
Loans decreased .41% comparing 1998 at $118,558,000 to $119,045,000 in
1997. Commercial and personal loans increased while real estate loans decreased.
Return on average assets ("ROA") decreased to 1.07% for 1998 compared to 1.18%
for 1997. The return on average equity ("ROE") decreased to 8.54% for 1998
compared to 9.79% for 1997.
Tax-equivalent net interest income decreased 1.38% comparing 1998 at
$6,769,000 to $6,864,000 in 1997. Average earning assets increased 3.20% in 1998
from $162,131,000 in 1997 to $167,320,000 in 1998. The decrease in net interest
income was the result of decreased loan demand and related market conditions
experienced during the past year. Although interest-earning assets increased,
net interest income decreased because the higher yielding loans decreased as an
increase correspondingly occurred in lower yielding investment securities.
Additionally, falling interest rates throughout 1998 had a negative impact on
net interest income, because adjustable rate mortgages, which comprises a
significant part of the loan portfolio, repriced to lower rates.
TABLE OF NON-INTEREST INCOME
(Dollars in Thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service charges and fees ........... $579 $523 $513
Trust department income ............ 144 103 76
Investment securities gains - net... 64 57 28
Other .............................. 194 132 145
---- ---- ----
Total non-interest income .......... $981 $815 $762
==== ==== ====
</TABLE>
Total non-interest income increased 20.37% during 1998 from $815,000 in
1997 to $981,000 in 1998. The following table identifies specific items which
account for the major part of the increase in income:
<TABLE>
<CAPTION>
Amount
of Increase
-----------
<S> <C>
Service charges and fees:
MAC interchange income increased due to introduction of a new product, namely
Visa debit card ............................................................... $ 17,000
MAC surcharge fee increased for fees charged to foreign MAC customers ........... 48,000
Trust income increased due to trust department growth .............................. 41,000
Other income - invest income increased due to department growth. (The net effect to
income is $15,000 since $43,000 is reflected in other expense.) ................. 58,000
--------
$164,000
========
</TABLE>
TABLE OF NON-INTEREST EXPENSE
(Dollars in Thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Salaries and wages ............... $1,886 $1,817 $1,785
Employee benefits ................ 563 523 509
Net occupancy expense ............ 334 375 393
Furniture and equipment expense... 556 420 411
Other expense .................... 1,400 1,357 1,352
------ ------ ------
Total non-interest expense ...... $4,739 $4,492 $4,450
====== ====== ======
</TABLE>
57
<PAGE> 28
Total non-interest expense increased to $4,739,000 in 1998 from $4,492,000
in 1997 or 5.50%. The following two components of non-interest expense accounted
for most of that increase: a 4.66% increase in salaries and benefits
attributable mainly to normal merit and cost of living increases and increased
benefit costs, and a 32.38% increase in furniture and equipment expense
increased from $420,000 in 1997 to $556,000 in 1998 as a result of increased
depreciation, maintenance and service contracts on equipment resulting from the
conversion of data processing services from a third party provider to an
in-house computer system completed during the second quarter 1998.
A key factor in measuring non-interest expense is to express the expense as
a percentage of average total assets. In 1998, this percentage was 2.67%
compared to 2.62% in 1997 or a 1.91% increase.
Although credit quality remains high and delinquencies manageable, the
provision for loan losses for 1998 increased 30.00% to $78,000 from $60,000 in
1997.
NET INTEREST INCOME
Tax-equivalent net interest income for 1998 equaled $6,769,000 compared to
$6,853,000 in 1997, a decrease of 1.23%. The decrease in the overall net
interest margin resulted from a decline in loans and falling interest rates.
Interest income at $12,444,000 in 1998 fell from $12,487,000 in 1997 or .34% and
additionally interest expense increased to $6,072,000 in 1998 from $5,976,000 in
1997 or a 1.61% increase. This "contraction" in the net interest spread was the
principal factor in the decreased net income for 1998.
Average cost of funds for 1998 was 4.11% compared to 4.20% for 1997, a
favorable decrease of 2.14%. Yield on average interest-earning assets was 7.44%
for 1998 compared to 7.70% for 1997. A 3.14% decrease in real estate loans from
$99,780,000 in 1997 to $96,742,000 in 1998 had an expected negative impact on
interest income. Additionally, repricing of one and three year real estate loans
reflected lower interest yields throughout 1998.
TAX-EQUIVALENT NET INTEREST INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Interest income ................................ $12,444 $12,487 $11,844
Interest expense ............................... 6,072 5,976 5,588
------- ------- -------
Net interest income ............................ $ 6,372 $ 6,511 $ 6,256
Tax-equivalent adjustment ...................... 397 342 326
------- ------- -------
Net interest income (fully taxable equivalent).. $ 6,769 $ 6,853 $ 6,582
======= ======= =======
</TABLE>
The net interest margin, which is the total tax-equivalent net interest
income as a percentage of total average interest-earning assets, decreased in
1998 to 4.05% compared to 4.23% in 1997, a decrease of 18 basis points. 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 1998, 1997 and 1996.
58
<PAGE> 29
AVERAGE BALANCE SHEET AND RATE ANALYSIS
THREE YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
---- ----
Average Interest Average Average Interest Average
Balance Inc/Exp Yd/Rate Balance Inc/Exp Yd/Rate
------- ------- ------- ------- ------- -------
(1) (2) (1) (2)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest Bearing Deposits With
Other Financial Institutions........ $ 4,330 $ 229 5.29% $ 2,797 $ 152 5.43%
-------- -------- ---- -------- ------- ----
Investment Securities:
U.S. Government Securities.......... $ 31,135 $ 1,838 5.29 $ 28,182 $ 1,726 6.12
State and Municipal Obligations (3) 13,216 657 7.53 9,783 513 7.94
Other Securities.................... 1,527 103 6.75 2,342 149 6.36
-------- ------- ---- -------- ------- ----
Total Investment Securities............ $ 45,878 $ 2,598 5.66% $ 40,307 $ 2,388 5.92%
-------- ------- ---- -------- ------- ----
Federal Funds Sold..................... $ 622 $ 32 5.14% $ 2,256 $ 124 5.50%
-------- ------- ---- -------- ------- ----
Consumer............................ 9,183 819 8.92 8,635 811 9.39
Dealer Floor Plan................... 2,044 176 8.61 1,552 135 8.70
Mortgage............................ 97,387 7,897 8.11 97,822 8,121 8.30
Commercial.......................... 5,954 579 9.72 6,212 608 9.79
Tax Free (3)........................ 1,922 114 8.99 2,550 148 8.79
-------- ------- ---- -------- ------- ----
Total Loans............................ $116,490 $ 9,585 8.23% $116,771 $ 9,823 8.41%
-------- ------- ---- -------- ------- ----
Total Interest-Earning Assets.......... $167,320 $12,444 7.44% $162,131 $12,487 7.70%
------- ---- ------- ----
Reserve for Loan Losses................ (932) (918)
Cash and Due from Banks................ 1,971 1,372
Other Assets........................... 9,284 8,574
-------- --------
Total Assets........................... $177,643 $171,159
======== ========
LIABILITIES AND CAPITAL:
SUPER NOW Deposits..................... $ 20,255 $ 348 1.72% $ 19,735 $ 415 2.10%
IRA's under $100,000................... 7,987 409 5.12 8,112 405 4.99
Money Market Deposits.................. 11,924 346 2.90 12,015 352 2.93
Savings Deposits....................... 20,771 538 2.59 21,498 575 2.67
Time Deposits including IRA's
over $100,000....................... 11,319 672 5.94 11,450 675 5.90
Other Time Deposits under $100,000 47,095 2,598 5.52 44,276 2,490 5.62
-------- ------- ---- -------- ------- ----
Total Interest-Bearing Deposits........ $119,351 $ 4,911 4.11% $117,086 $ 4,912 4.20%
U.S. Treasury Short-Term Borrowings ... 488 26 5.33 585 30 5.13%
Short-term Borrowings - Other.......... 5 0 0.00 9 0 .00
Long-Term Borrowings................... 2,017 115 5.70 254 16 6.30
Repurchase Agreements.................. 20,150 1,020 5.06 19,350 1,018 5.26
-------- ------- ---- -------- ------- ----
Total Interest-Bearing Liabilities .... $142,011 $ 6,072 4.28% $137,284 $ 5,976 4.35%
------- ---- ------- ----
Demand Deposits........................ 12,015 11,968
Other Liabilities...................... 1,353 1,217
Stockholders' Equity................... 22,264 20,690
-------- --------
Total Liabilities and Capital.......... $177,643 $171,159
========= ========
NET INTEREST INCOME/NET
INTEREST MARGIN (4)................. $ 6,372 3.31% $ 6,511 4.02%
======= ==== ======= ====
TAX-EQUIVALENT NET INTEREST
INCOME/NET INTEREST MARGIN (5)...... $ 6,769 4.05% $ 6,853 4.23%
======= ==== ======= ====
</TABLE>
<TABLE>
<CAPTION>
1996
----
Average Interest Average
Balance Inc/Exp Yd/Rate
------- ------- -------
(1) (2)
<S> <C> <C> <C>
ASSETS:
Interest Bearing Deposits With
Other Financial Institutions........ $ 2,849 $ 150 5.27%
-------- ------- ----
Investment Securities:
U.S. Government Securities.......... $ 26,799 $ 1,640 6.12
State and Municipal Obligations (3). 9,471 505 8.57
Other Securities.................... 2,978 198 6.65
-------- ------- ----
Total Investment Securities............ $ 39,248 $ 2,343 5.97%
-------- ------- ----
Federal Funds Sold..................... $ 890 $ 47 5.28%
-------- ------- ----
Consumer............................ 8,477 797 9.40
Dealer Floor Plan................... 379 33 8.71
Mortgage............................ 95,445 7,765 8.15
Commercial.......................... 6,232 604 9.69
Tax Free (3)........................ 1,808 105 9.11
-------- ------- ----
Total Loans............................ $112,341 $ 9,304 8.29%
-------- ------- ----
Total Interest-Earning Assets.......... $155,328 $11,844 7.63%
------- ----
Reserve for Loan Losses................ (910)
Cash and Due from Banks................ 1,535
Other Assets........................... 8,559
--------
Total Assets........................... $164,512
========
LIABILITIES AND CAPITAL:
SUPER NOW Deposits..................... 19,835 $ 430 2.17%
IRA's under $100,000................... 7,997 400 5.00
Money Market Deposits.................. 13,570 401 2.96
Savings Deposits....................... 23,619 645 2.73
Time Deposits including IRA's
over $100,000....................... 10,927 650 5.95
Other Time Deposits under $100,000..... 41,466 2,315 5.58
-------- ------- ----
Total Interest-Bearing Deposits........ $117,414 $ 4,841 4.12%
U.S. Treasury Short-Term Borrowings ... 522 27 5.17%
Short-term Borrowings - Other.......... 30 0 .00
Long-Term Borrowings................... 331 24 7.25
Repurchase Agreements.................. 13,987 696 4.98
-------- ------- ----
Total Interest-Bearing Liabilities .... $132,273 $ 5,588 4.22%
------- ----
Demand Deposits........................ 11,416
Other Liabilities...................... 1,310
Stockholders' Equity................... 19,512
--------
Total Liabilities and Capital.......... $164,512
========
NET INTEREST INCOME/NET
INTEREST MARGIN (4)................. $ 6,256 4.03%
======== ====
TAX-EQUIVALENT NET INTEREST
INCOME/NET INTEREST MARGIN (5)...... $ 6,582 4.24%
======== ====
</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
1998, 1997 & 1996.
COMPONENTS OF NET INTEREST INCOME
To enhance the understanding of the effects of volumes (the average balance
of earning assets and costing liabilities) and average interest rate
fluctuations on the balance sheet as it pertains to net interest income, the
table below reflects these changes for 1998 verses 1997 and preceding two years:
59
<PAGE> 30
TABLE OF NET INTEREST INCOME COMPONENTS ON A TAX-EQUIVALENT BASIS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 Versus 1997 1997 Versus 1996 1996 Versus 1995
---------------- ---------------- ----------------
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 $ 83 $ (4) $ 79 $ (3) $ 5 $ 2 $ 74 $ (23) $ 51
U.S. Government Securities .... 181 (62) 119 85 0 85 122 (7) 115
State and Municipal Obligations 273 (40) 233 25 (13) 12 68 0 68
Other Securities .............. (52) 9 (43) (42) (9) (51) (42) (19) (61)
Federal Funds Sold ............ (90) (8) (98) 72 2 74 13 (21) (8)
Consumer Loans ................ 51 (41) 10 15 12 27 20 (11) 9
Dealer Floor Plan ............. 43 (1) 42 102 0 102 0 0 0
Mortgage Loans(1) ............. (36) (196) (232) 194 153 347 23 86 109
Commercial Loans .............. (25) (4) (29) (2) 6 4 72 81 153
Tax Free Loans ................ (55) 5 (50) 65 0 65 (35) 0 (35)
----- ----- ----- ----- ----- ----- ----- ----- -----
Total Earnings Assets ......... $ 373 $(342) $ 31 $ 511 $ 156 $ 667 $ 315 $ 86 $ 401
----- ----- ----- ----- ----- ----- ----- ----- -----
Interest Expense:
SUPER NOW Deposits ............ $ 11 $ (75) $ (64) $ (2) $ (14) $ (16) $ 20 $(119) $ (99)
IRA ........................... (6) 11 5 6 (1) 5 (13) (1) (14)
Money Market Deposits ......... (3) (4) (7) (46) (4) (50) (143) (22) (165)
Savings Deposits .............. (19) (17) (36) (58) (14) (72) (57) (124) (181)
Time Deposits over $100,000 ... (8) 5 (3) 31 (5) 26 108 24 132
Other Time Deposits ........... 158 (44) 114 157 17 174 284 (40) 244
FHLB .......................... 0 0 0 0 0 0 (22) (23) (45)
Other Borrowed Funds .......... (5) 1 (4) 3 0 3 (11) 9 (2)
Long-Term Borrowings .......... 111 (2) 109 (6) (3) (9) 8 4 12
Repurchase Agreements ......... 42 (39) 3 267 39 306 188 (55) 133
----- ----- ----- ----- ----- ----- ----- ----- -----
Total Interest-Bearing Deposits $ 281 $(164) $ 117 $ 352 $ 15 $ 367 $ 362 $(347) $ 15
----- ----- ----- ----- ----- ----- ----- ----- -----
NET INTEREST INCOME ........... $ 92 $(178) $ (86) $ 159 $ 141 $ 300 $ (47) $ 433 $ 386
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
- ------------------
(1) Includes non-accrual loans.
FINANCIAL CONDITION
The Corporation's total consolidated assets at December 31, 1998 were $185
million which represented an increase of $11 million or 6.32% over $174 million
at December 31, 1997. The 1997 asset growth rate was 2.35% or $4 million over
1996.
Capital growth experienced an increase of 9.09% for 1998 from $22 million
in 1997 to $24 million in 1998.
Total average assets increased 4.09% from 1997 at $171 million to 1998 at
$178 million. Average earning assets increased 3.09% from 1997 at $162 million
to 1998 at $167 million.
Although loans remained at $119 million for 1998 and 1997 the overall yield
decreased because of changes within the loan classes in the loan portfolio and
the lower interest rate environment in 1998, namely, a decline in real estate
loans of 3.04% or $3 million coupled with downward rates as a result of
repricing which was offset somewhat by increases in higher yielding commercial
and personal loans.
Core deposits also remained at $12 million in average non-interest bearing
deposits in 1998 and 1997. Interest-bearing average deposits grew 1.71% from
$117 million in 1997 to $119 million in 1998. The loan-to-deposit ratio is a key
measurement of liquidity. The loan-to-deposit ratio fell during 1998 to a ratio
of 85.51% as compared to a ratio of 93.21% at year end 1997.
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.
60
<PAGE> 31
INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Outstanding Balance at December 31,
-----------------------------------
1998 1997 1996
---- ---- ----
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 .. $ 0 $ 0 $ 2,997 $ 0 $ 6,994 $ 0
Federal Agency Obligations 9,782 0 14,546 0 16,765 0
Mortgage-backed Securities 22,402 0 14,450 0 1,683 0
Obligations of State and
Political Subdivisions . 14,030 565 9,459 720 8,567 970
Other Securities .......... 1,372 0 1,690 0 2,428 0
------- ------- ------- ------- ------- -------
Total Investment Securities $47,586 $ 565 $43,142 $ 720 $36,437 $ 970
======= ======= ======= ======= ======= =======
</TABLE>
- -------------------
(1) Carried at amortized cost.
(2) Carried at estimated fair value.
The following table sets forth the expected 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, 1998. Yields are presented on a
tax-equivalent basis, are based upon carrying value and are weighted for the
scheduled maturity. At December 31, 1998 the Corporation's investment securities
portfolio had an average maturity of approximately 5.8 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 0.00% $ 0 0.00% $ 0 0.00% $ 0 0.00% $ 0 0.00%
Federal Agency
Obligations .......... 0 0.00 0 0.00 0 0.00 0 0.00 0 0.00
Obligations of State and
Political Subdivisions 365 6.83 200 6.74 0 0.00 0 0.00 565 6.79
Other Securities ....... 0 0.00 0 0.00 0 0.00 0 0.00 0 0.00
------ ---- ------- ---- ------ ---- ------- ---- ------- ----
TOTAL $ 365 6.83% $ 200 6.74% $ 0 0.00% $ 0 0.00% $ 565 6.79%
====== ==== ======= ==== ====== ==== ======= ==== ======= ====
AVAILABLE-FOR-SALE
SECURITIES AT FAIR
VALUE
U.S. Treasury Securities $ 0 0.00% $ 0 0.00% $ 0 0.00% $ 0 0.00% $ 0 0.00%
Federal Agency
Obligations.......... $2,198 5.66 26,007 6.27 3,979 5.79 0 0.00 32,184 6.16
Obligations of State and
Political Subdivisions 300 6.36 902 6.79 2,548 7.85 10,280 7.35 14,030 7.39
Other, including Equity
Securities............. 0 0.00 0 0.00 0 0.00 1,372 4.92 1,372 4.92
------ ---- ------- ---- ------ ---- ------- ---- ------- ----
TOTAL $2,498 5.83% $26,909 6.28% $6,527 6.57% $11,652 7.06% $47,586 6.50%
====== ==== ======= ==== ====== ==== ======= ==== ======= ====
</TABLE>
Available-for-Sale securities were reported on the balance sheet at fair
value. The net effect of changes in fair value adjusted for applicable deferred
taxes is reported as other comprehensive income as a part of capital. The
possibility of material price volatility in a rising or declining 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 SFAS No. 115
provided an unrealized gain, net
61
<PAGE> 32
of deferred tax, on December 31, 1998 of $448,000 compared to an unrealized
gain, net of tax, on December 31, 1997 of $142,000.
Several local municipal holdings were retained in the Held-to-Maturity
category. These holdings comprised 1.17% and 2.21% of the entire portfolio at
December 31, 1998 and 1997, respectively. The total at December 31, 1998 was
$565,000 and 1997 was $970,000.
Available-for-Sale securities total $47,586,000 at December 31, 1998
compared to $43,142,000 at December 31, 1997 or a increase of 10.30%.
The mix of securities in the portfolio was 20.32% U.S. agencies, 46.52%
mortgage-backed securities, 30.31% municipal and 2.85% other. The Corporation
does not engage in derivative investment securities.
LOANS
LOAN PORTFOLIO
LOANS OUTSTANDING
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Commercial ........................ $ 8,991 $ 7,551 $ 7,957
Tax-Exempt ........................ 2,512 2,591 2,064
Qualified Municipal Leases ........ 20 0 35
Real Estate - Construction ........ 1,278 637 660
Real Estate ....................... 96,742 99,780 96,439
Personal .......................... 9,461 8,907 8,888
-------- -------- --------
$119,004 $119,466 $116,043
Unamortized Loan Fees, Net of Costs 70 97 129
Unearned Discount ................. 376 324 324
-------- -------- --------
Loans, Net ........................ $118,558 $119,045 $115,590
======== ======== ========
</TABLE>
A net decline of .34% was experienced in the loan portfolio, from $119.0
million in 1997 compared to $118.6 million in 1998. The distribution of the loan
portfolio reflects 82.36% real estate loans at $98,020,000; 7.56% commercial
loans at $8,991,000; 2.11% tax-exempt loans at $2,512,000; .02% qualified
municipal leases at $20,000 and 7.95% consumer loans at $9,461,000. Variable
rate real estate loans were comprised of 70.52% with 3 year adjustable rate,
15.84% with 1 year adjustable rate and 13.64% with one day to 3 month adjustable
rates. Many 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,
------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Demand deposits .......................... $ 32,270 $ 31,703 $ 31,251
Savings deposits ......................... 32,695 33,513 37,189
Time deposits ............................ 55,082 52,388 49,463
Certificates of deposit, $100,000 and over 11,319 11,450 10,927
-------- -------- --------
Total .................................... $131,366 $129,054 $128,830
======== ======== ========
</TABLE>
62
<PAGE> 33
TABLE OF MATURITY DISTRIBUTION OF TIME DEPOSITS OVER $100,000
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Three months or less ............. $ 1,994 $ 4,574 $ 7,664
Over three months to six months... 651 3,665 2,546
Over six months to twelve months.. 3,656 2,914 1,867
Over twelve months ............... 5,688 308 898
------- ------- -------
Total ............................ $11,989 $11,461 $12,975
======= ======= =======
</TABLE>
Total average deposits increased 1.55% from $129 million at year end 1997
to $131 million at year end 1998. Average savings deposits declined .30% from
$34 million at year end 1997 to $33 million at year end 1998. Average time
deposits increased 5.77% from $52 million at year end 1997 to $55 million at
year end 1998. Average non-interest bearing demand deposits remained constant at
$12 million at year end 1998 and 1997. Average interest bearing NOW accounts
also remained the same at $20 million at year end 1998 and 1997.
Short-term borrowings, securities sold under agreements to repurchase,
increased 5.26% from $19 million at year end 1997 to $20 million at year end
1998. Long-term borrowings, specifically, borrowings from the Federal Home Loan
Bank of Pittsburgh increased from $440,000 at December 31, 1997 to $2,291,000 at
December 31, 1998. Average Treasury Tax and Loan deposits held by the
Corporation for the U.S. Treasury averaged $488,000 for 1998 and one day
borrowings averaged $5,000 for 1998.
NON-PERFORMING ASSETS
PAST DUE AND NON-ACCRUAL LOANS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Lease
Real Installment Financing
1998 Estate Loans Commercial Receivables Total
---- ------ ----- ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
Days 30-89 ... $ 865 $ 182 $ 16 $ 0 $1,063
Days 90 Plus.. 398 2 15 0 415
Non-accrual.. 537 0 0 0 537
------ ------ ------ ------ ------
Total ...... $1,800 $ 184 $ 31 $ 0 $2,015
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Lease
Real Installment Financing
1997 Estate Loans Commercial Receivables Total
---- ------ ----- ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
Days 30-89 ... $1,049 $ 232 $ 50 $ 0 $1,331
Days 90 Plus.. 586 13 29 0 628
Non-accrual... 69 0 0 0 69
------ ------ ------ ------ ------
Total ........ $1,704 $ 245 $ 79 $ 0 $2,028
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Lease
Real Installment Financing
1996 Estate Loans Commercial Receivables Total
---- ------ ----- ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
Days 30-89 ... $ 806 $ 126 $ 17 $ 0 $ 949
Days 90 Plus.. 292 16 14 7 329
Non-accrual.. 109 0 0 0 109
------ ------ ------ ------ ------
Total ........ $1,207 $ 142 $ 31 $ 7 $1,387
====== ====== ====== ====== ======
</TABLE>
At year end 1998, loans 30-89 days past due totaled $1,063,000 compared to
$1,331,000 at year end 1997, a 20.14% decrease. Past due loans 90 days plus
total $415,000 at year end 1998 compared to $628,000 at year end
63
<PAGE> 34
1997, a 33.92% decrease. Non-accrual loans at year end 1998 totaled $537,000
compared to $69,000 at year end 1997, a 678.26% increase. Overall, past due and
non-accrual loans decreased .65% from $2,028,000 at year end 1997 to $2,015,000
at year end 1998. During this same period of time the ratio of net charge-offs
compared to average loans outstanding during the period was .02%, a 66.66%
decrease from .06% for 1997. (See Summary of Loan Loss Experience). Management
does not consider the absolute percentage differences 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 is 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
collectibility of principal or interest, even though the loan currently is
performing.
A loan may remain on accrual status if it is in the process of collection
and is either guaranteed or well secured. When a loan is placed on non-accrual
status, unpaid interest credited to income in the current year is reversed, and
unpaid interest accrued in prior years is charged against the allowance for
credit losses. Potential problem loans are identified by management as 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 collectibility of principal.
ALLOWANCE FOR LOAN LOSSES AND RELATED PROVISION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
% 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 ................ $202 10% $ 83 9% $ 79 9%
Real estate mortgages ..... 510 82% 516 84% 500 84%
Consumer .................. 196 8% 119 7% 116 7%
Lease financing receivables 0 0% 0 0% 0 0%
Unallocated ............... 47 N/A 183 N/A 216 N/A
---- --- ---- --- ---- ----
$955 100% $901 100% $911 100%
==== === ==== === ==== ====
</TABLE>
The allowance for loan losses was $955,000 at December 31, 1998, compared
to $901,000 at December 31, 1997. This allowance equalled .08% of total loans,
net of unearned income, at December 31, 1998 and 1997. This allowance was
considered adequate based on delinquency trends and actual loans written as it
relates to the loan portfolio.
The loan loss reserve is analyzed quarterly and reviewed by the Board of
Directors. The assessment of the loan policies and procedures during 1998
revealed no anticipated loss on any loans considered "significant". No
concentration or apparent deterioration in classes of loans or pledged
collateral was evident. Monthly loan meetings with the Board Credit
Administration Committee reviewed new loans, delinquent loans and loan
exceptions to determine compliance with policies.
The schedule below presents a history of actual charge-offs and recoveries
by category and related balances and ratios.
64
<PAGE> 35
SUMMARY OF LOAN LOSS EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Loans outstanding at end of period ......................................... $ 118,558 $ 119,045 $ 115,590
========= ========= =========
Average loans outstanding .................................................. $ 116,490 $ 116,771 $ 112,341
========= ========= =========
Allowance for loan losses:
Balance, beginning of year.................................................. $ 901 $ 911 $ 912
--------- --------- ---------
Loans charged-off:
Commercial and industrial ............................................. 0 (15) (19)
Real estate mortgages ................................................. (8) 0 0
Consumer .............................................................. (75) (88) (126)
Lease financing receivables ........................................... 0 0 0
--------- --------- ---------
Total loans charged-off .................................................... (83) (103) (145)
--------- --------- ---------
Recoveries:
Commercial and industrial ............................................. 3 0 17
Real estate mortgages ................................................. 8 0 0
Consumer .............................................................. 42 32 44
Lease financing receivables ........................................... 6 1 3
--------- --------- ---------
Total recoveries ........................................................... 59 33 64
--------- --------- ---------
Net loans charged-off ...................................................... (24) (70) (81)
--------- --------- ---------
Provision charged to expense ............................................... 78 60 80
--------- --------- ---------
Balance, end of period...................................................... $ 955 $ 901 $ 911
========= ========= =========
Ratio of net charge-offs during the period to average loans
outstanding during period ............................................. 0.02% 0.06% 0.07%
==== ==== ====
</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.
A principal factor in estimating the allowance for loan losses is the
measurement of impaired loans. A loan is considered impaired when, based on
current information and events, it is probable that the Corporation will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. Under current accounting standards, the allowance for loan losses
related to impaired loans is based on discounted cash flows using the loans
effective interest rate or the fair value of the collateral for certain
collateral dependent 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".
Finally, since the amount of impaired loans was considered to be
insignificant, the existing reserve was more than adequate to provide for any
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 the normal ongoing operating expenses. Funding sources include principal
repayments on loans, sale 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.
65
<PAGE> 36
Liquidity is managed on a daily basis by the Corporation. Management
believes that the Corporation's 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, 1998, cash and cash equivalents totaled $12,486,043
compared to $5,316,798 at December 31, 1997. Changes in cash were measured by
changes in the three major classifications of cash flows known as operating,
investing and financing activities.
At December 31, 1998, net cash provided by operating activities equaled
$2,536,832 which consisted mainly of net income adjusted for non-cash items such
as depreciation, accruals on interest receivable, premiums on investment
securities and provision for loan losses.
Net cash used for investing activities totaled $4,401,279 which was
principally the result of $3,973,794 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 totaled $9,033,692 and consisted
mostly of a net increase in deposits of $9,960,227. Dividends paid were
$639,107.
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 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, 1998, 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, 1998:
Total Capital
(To risk-weighted assets).... $23,967 21.80% $8,796 8.00% $10,995 10.00%
Tier I Capital
(To risk-weighted assets).... $23,012 20.93% $4,398 4.00% $ 6,597 6.00%
Tier I Capital
(To average assets).......... $23,012 12.95% $7,106 4.00% $ 8,882 5.00%
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%
</TABLE>
66
<PAGE> 37
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 1999 of approximately $2,352,090 plus additional amounts equal to
the net income earned in 1999 for the period January 1, 1999 through the date of
declaration, less any dividends which may be paid in 1999.
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>
1998 1997
---- ----
Quarterly Quarterly
Highest Lowest Dividend Highest Lowest Dividend
------- ------ -------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Fourth quarter.......................... $25.75 $25.00 $0.116 $22.75 $21.63 $0.116
Third quarter........................... $31.00 $28.00 $0.116 $20.50 $20.25 $0.116
Second quarter.......................... $30.50 $27.00 $0.116 $19.00 $18.00 $0.116
First quarter........................... $26.25 $23.00 $0.116 $17.50 $17.13 $0.116
</TABLE>
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 Bank'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.
67
<PAGE> 38
STATEMENT OF INTEREST SENSITIVITY GAP
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1998
<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 ............. $ 7,381 $ 0 $ 0 $ 0 $ 0 $ 7,381
Securities Available-for-Sale (1) .. 7,808 10,559 20,917 6,761 1,541 47,586
Securities Held-to-Maturity (1) .... 200 165 200 0 0 565
Loans (1) .......................... 23,893 41,248 49,510 3,447 460 118,558
-------- -------- -------- -------- -------- --------
Rate Sensitive Assets ......... $ 39,282 $ 51,972 $ 70,627 $ 10,208 $ 2,001 $174,090
-------- -------- -------- -------- -------- --------
Deposits:
Interest-bearing demand deposits (2) 3,368 6,960 12,124 0 0 22,452
Savings (2) (3) .................... 5,024 10,383 18,087 0 0 33,494
Time ............................... 10,261 21,207 36,942 0 0 68,410
Borrowed funds ..................... 14,597 5,421 400 0 0 20,418
Long-term debt ..................... 2 5 2,033 251 0 2,291
Shareholders' equity ............... 587 1,761 9,392 11,740 0 23,480
-------- -------- -------- -------- -------- --------
Rate Sensitive Liabilities and
Shareholders' Equity .......... 33,839 45,737 78,978 11,991 0 170,545
-------- -------- -------- -------- -------- --------
Interest Sensitivity Gap ........... 5,443 6,235 (8,351) (1,783) 2,001 0
Cumulative Gap ..................... 5,443 11,678 3,327 1,544 3,545 3,545
</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.
At December 31, 1998 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 negatively effect net income because the Bank is asset
sensitive. In a rising interest rate environment, net income could be positively
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 Corporation's 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 instruments as of December 31, 1998. This
presentation differs from the above gap report primarily due to presenting the
financial instruments based on a contractual maturity as opposed to repricing
scenario as reflected in the above gap report.
68
<PAGE> 39
PRINCIPAL/NOTIONAL AMOUNTS MATURING IN:
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Fair
There- Value
1999 2000 2001 2002 2003 after Total 12-31-98
---- ---- ---- ---- ---- ----- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rate sensitive assets:
Fixed interest loans (1)........... $10,675 $ 6,841 $ 4,413 $ 3,373 $ 2,857 $ 9,379 $37,538 $38,868
Average interest rate........... 8.53% 8.29% 8.53% 8.28% 8.04% 8.51% 8.24%
Variable interest rate loans (2)... $48,783 $16,657 $14,243 $ 422 $ 144 $ 41 $80,290 $80,290
Average interest rate........... 7.83% 7.73% 7.65% 8.37% 8.04% 8.07% 7.72%
Fixed interest rate securities (1). $ 2,863 $ 2,583 $ 2,251 $ 3,029 $ 4,614 $23,540 $38,880 $39,581
Average interest rate........... 5.93% 6.43% 6.05% 6.05% 6.25% 6.75% 6.51%
Variable interest rate securities (1) $ 8,318 $ 0 $ 0 $ 0 $ 0 $ 0 $ 8,318 $ 8,318
Average interest rate........... 6.60% 0.00% 0.00% 0.00% 0.00% 0.00% 6.60%
Other interest-bearing assets...... $ 7,381 $ 0 $ 0 $ 0 $ 0 $ 0 $ 7,381 $ 7,381
Average interest rate........... 4.75% 0.00% 0.00% 0.00% 0.00% 0.00% 4.75%
Rate sensitive liabilities:
Non interest-bearing checking (2).. $ 3,728 $ 2,397 $ 2,397 $ 2,397 $ 2,397 $ 0 $13,316 $13,316
Average interest rate........... 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Savings & interest-bearing
checking (2).................... $12,106 $ 7,782 $ 7,782 $ 7,782 $ 7,784 $ 0 $43,236 $43,236
Average interest rate........... 1.99% 1.99% 1.99% 1.99% 1.99% 0.00% 1.99%
Money market accounts (2).......... $ 5,084 $ 3,813 $ 3,813 $ 0 $ 0 $ 0 $12,710 $12,710
Average interest rate........... 2.62% 2.62% 2.62% 0.00% 0.00% 0.00% 2.62%
Time deposits (under $100,000)..... $27,536 $21,594 $ 2,730 $ 1,499 $ 3,070 $ 0 $56,429 $57,132
Average interest rate........... 5.21% 5.93% 5.36% 6.00% 5.73% 0.00% 5.50%
Time deposits (over $100,000)...... $ 6,302 $ 3,905 $ 752 $ 100 $ 930 $ 0 $11,989 $12,178
Average interest rate........... 5.69% 6.20% 5.96% 6.30% 6.01% 0.00% 5.90%
Fixed interest rate borrowings..... $ 7 $ 8 $ 8 $ 9 $ 9 $ 250 $ 291 $ 291
Average interest rate........... 6.07% 6.07% 6.07% 6.07% 6.07% 6.07% 6.07%
Variable interest rate borrowings.. $20,418 $ 0 $ 0 $ 0 $ 2,000 $ 0 $22,418 $22,418
Average interest rate........... 5.06% 0.00% 0.00% 0.00% 5.48% 0.00% 5.10%
- --------------------
</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.
YEAR 2000
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 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
limited modifications, the Year 2000 Issue can be mitigated.
Another consideration for the imminent Year 2000 readiness are embedded
microchip problems. These microchips could be in such items as water pumps,
sewage pumps, elevators, heat pumps, etc. A survey of all equipment containing
possible microchips has been conducted at all Bank locations. Plumbing and
heating vendors have been contacted as well as the telephone service providers.
"White papers" indicating Year 2000 readiness are being obtained from all
providers. To date, one instance has been identified which requires that one
telephone system must be changed during 1999.
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. 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 its
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 June 30, 1999. The Bank has already
spent approximately $265,000 and anticipates it will spend $75,000 to complete
the Year 2000 project.
69
<PAGE> 40
This estimated expenditure of $340,000 is over a three year period and includes
equipment, Year 2000 software upgrades, technical support and staff time. 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 1999 or beyond.
The time-lines and costs are based on management's best estimates, which
are derived from 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 differences 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.
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.
A Senior Vice President leads a committee consisting of Board members and
officers, who have been meeting for several months and are charged with the
overall responsibility for Year 2000 compliance.
Letters have been sent to vendors requesting, in writing, their effort to
be in compliance with Year 2000. A select group of commercial customers have
been sent letters explaining the Year 2000 issue and asking them to be certain
to address this very important issue. The Bank has also offered to help with any
questions. Notices have been placed in each Bank lobby alerting the public to
this issue. Also, statements have been placed on each deposit statement
concerning the Year 2000 issue.
A time-line has been created for this project. All letters were mailed by
March 15, 1998 and compliance letters were received by June 30, 1998. March 31,
1999 is the deadline for compliance on all levels. Testing will continue until
the Bank is assured all critical systems are confirmed to be Year 2000
compliant.
Vendors and systems have been placed in priority order as to importance.
The third party vendors that are most crucial have communicated with the Bank
stating they are Year 2000 compliant and testing on their systems is continuing.
Our insurance carrier has been contacted. The Bank is 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.
The 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.
70
<PAGE> 41
EMPLOYEES OF COLUMBIA COUNTY FARMERS NATIONAL BANK
<TABLE>
<CAPTION>
<S> <C> <C>
BENTON LIGHTSTREET SOUTH CENTRE
Marlene Baudendisztl Dolores M. Bennett Sue Ann Carl
Glenna J. Birns Deborah B. Deitterick Linda L. Curio
Carla M. Emery Nancy L. Harris Kristy M. Lehman
Judith A. Fink Karen M. Murdock Sandra J. Noss
Gayle D. Gordon Mary L. Seidel Christine R. Portner
Dean R. Kelchner Theresa A. Valencik Connie L. Yoder
Sheila L. Kile
Gloria M. Miller MILLVILLE TRAINING
Debbie A. Peterman Christopher R. Bower Luanne Bittenbender
Lisa L. Remley Betsy L. Fought
Teresa E. Vincent Candace M. Hess FINANCIAL PLANNING
Ruth E. Hunter Richard L. Sierer
BLOOMSBURG Martie J. Johnson Jacob S. Trump
Lori D. Baylor Breanne Phares
Rachel E. Bennett Gina L. Rider PART TIME
Kathleen M. Church Janice J. Yeager MAINTENANCE AND
Elaine M. Edwards COURIERS
Grace I. Flick ORANGEVILLE Linda M. Boudman
Nancy K. Fought Lynn Z. Fritz Penny I. Carl
Kay M. Gerasimoff Candace L. Kesler Charles W. Dyer
J. Jan Girton Betty J. Kline Britt P. Fought
Mary F. Guarino Susan K. McGreevy Linda J. Marks
Barbara M. Hess LouAnn P. Megargell Gloria J. Mensch
Nancy H. Lindenmuth Dale E. Thomas
Florence H. Martz LOAN CENTRALIZATION
Kimberly A. Mumaw Jean E. MacDermott
Paul E. Reichart Sally B. Tucker
Melody A. Rhodes Karen Z. Wenner
Theresa R. Whitmire
OPERATIONS
CORPORATE Trevor A. Barnhart
Sandra J. Boyer Laurie A. Bartholomew
Nancy R. Diehl Anne E. Defrain
Joyce F. Dohl Jennifer L. Fester
Virginia D. Kocher Linda A. Huttenstine
Brenda E. Kalie
MARKETING Phillip J. Karas
Lance O. Diehl Carol J. Martin
Stephanie D. Gallagher Kathleen J. Marzari
Faith R. Smith
CREDIT Diane M. Thomas
Andrea S. Bartlett Tracey L. Travelpiece
Lily Mae Boudman Carol L. Wiggin
Diana L. Chamberlin
Gloria Y. Harvey
Vickie S. Reifendifer
Edwin A. Wenner
</TABLE>
71
<PAGE> 42
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.
HERZOG, HEINE, GEDULD, INC. (908) 233-0700
(201) 418-4000
REGISTRAR & TRANSFER AGENT
JANNEY MONTGOMERY SCOTT, INC.
(215) 665-6000 American Stock Transfer &
Trust Company
M.H. MEYERSON & CO., INC. 40 Wall Street
(201) 459-9521 New York, NY 10005
CCFNB LOCATIONS
Market Street
Benton, PA 17814
(570) 925-6181
232 East Street
Bloomsburg, PA 17815
(570) 784-4400
4242 Old Berwick Road
Bloomsburg, PA 17815
(570) 784-8474
Route 487, Lightstreet Road
Bloomsburg, PA 17815
(570) 784-5600
State Street
Millville, PA 17846
(570) 458-5650
Main Street
Orangeville, PA 17859
(570) 683-5200
72
<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.
73
<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, 1999
74
<PAGE> 2
[CCFNB BANCORP, INC. LOGO]
NOTICE OF 1999
ANNUAL MEETING
OF STOCKHOLDERS
AND PROXY STATEMENT
- --------------------------------------------------------------------------------
PLEASE COMPLETE, SIGN, DATE AND RETURN
YOUR PROXY PROMPTLY
- --------------------------------------------------------------------------------
Wednesday, May 12, 1999
10:30 A.M.
CCFNB Operations Center
Lightstreet Road
Bloomsburg, Pennsylvania
75
<PAGE> 3
[CCFNB BANCORP, INC. LOGO]
March 30, 1999
Dear CCFNB Stockholder:
You are cordially invited to join us at the 1999 Annual Meeting of Stockholders
of CCFNB Bancorp, Inc. (the "Corporation") in Bloomsburg, Pennsylvania on May
12, 1999.
Enclosed with this Proxy Statement are your voting instructions and the 1998
Annual Report.
At this meeting, we will vote on the matters described in the Proxy Statement.
We know that it is not practical for most stockholders to attend the Annual
Meeting in person. In addition, annual meetings are not the most efficient way
to communicate with our stockholders. Therefore, we encourage you to visit our
site on the Worldwide Web at http://www.ccfnb.com for up-to-the-moment news
about the Corporation. As an alternative, you may call for current news releases
via our facsimile on demand service at (570) 387-4017.
Whether or not you plan to attend the Annual Meeting, we strongly encourage you
to designate the proxies shown on the enclosed card to vote your shares. Please
complete, sign, date and return the enclosed proxy card in the postage pre-paid
envelope.
In response to the SEC's recent emphasis on clear and simple communications to
stockholders and investors, the Corporation has redrafted its proxy statement in
"plain English." We hope you like this simplified format and welcome your
comments.
I would like to take this opportunity to remind you that your vote is important.
Sincerely,
/s/Paul E. Reichart
--------------------
Paul E. Reichart
President
76
<PAGE> 4
[CCFNB BANCORP, INC. LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
DATE: May 12, 1999
TIME: 10:30 A.M.
PLACE: CCFNB Operations Center
Lightstreet Road
Bloomsburg, PA 17815
MATTERS TO BE VOTED UPON:
1. Election of three Class 1 directors to hold office for a three-year term;
2. Ratification of the appointment of J. H. Williams & Co., LLP as our
independent auditors for the year 1999; and
3. Any other matters that may properly come before the meeting.
YOUR BOARD OF DIRECTORS RECOMMENDS YOU VOTE IN FAVOR OF THE ELECTION OF
DIRECTORS AND THE APPOINTMENT OF J. H. WILLIAMS & CO., LLP.
Stockholders who are holders of record of the Common Stock at the close of
business on March 23, 1999, will be entitled to vote at the meeting.
- --------------------------------------------------------------------------------
IF YOU PLAN TO ATTEND:
Please note that space limitations make it necessary to limit attendance to
stockholders. If you wish to attend, please indicate your wish by checking the
box that appears on the proxy card. "Street name" holders will need to bring a
copy of a brokerage statement reflecting stock ownership as of the record date.
- --------------------------------------------------------------------------------
IT WILL BE HELPFUL TO US IF YOU WILL READ THE PROXY STATEMENT AND THE VOTING
INSTRUCTIONS ON THE PROXY CARD, AND THEN VOTE BY FILLING OUT, SIGNING AND DATING
THE PROXY CARD AND RETURNING IT BY MAIL IN THE POSTAGE PRE-PAID ENVELOPE.
PAUL E. REICHART Bloomsburg, Pennsylvania
President March 30, 1999
77
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
QUESTIONS AND ANSWERS........................................................................... 1
BOARD OF DIRECTORS.............................................................................. 2
o ELECTION OF DIRECTORS (ITEM 1 ON PROXY CARD).................................................. 3
Committees of the Board of Directors of the Bank for 1999..................................... 4
Board of Directors' Compensation.............................................................. 5
STOCK OWNERSHIP................................................................................. 6
Stock Owned by Directors and Executive Officers............................................... 6
Compliance with Section 16(a) of the Securities Exchange Act of 1934.......................... 6
Voting Stock Owned by "Beneficial Owner"...................................................... 7
EXECUTIVE COMPENSATION.......................................................................... 7
Summary Compensation Table.................................................................... 7
Human Resource Committee Report on Executive Compensation..................................... 7
Five-Year Performance Graph................................................................... 9
Annual Total Stockholder Return Performance................................................... 10
INDEPENDENT AUDITORS............................................................................ 10
o PROPOSAL TO APPROVE THE APPOINTMENT OF J. H. WILLIAMS & CO., LLP
(ITEM 2 ON PROXY CARD)........................................................................ 10
OTHER INFORMATION............................................................................... 10
Transactions Involving the Corporation's Directors and Executive Officers..................... 10
No Significant Legal Proceedings.............................................................. 10
Other Proposed Action......................................................................... 11
Stockholder Proposals and Nominations for 2000 Annual Meeting................................. 11
Additional Information Available.............................................................. 11
</TABLE>
- ---------------
o Matters to be voted upon
78
<PAGE> 6
QUESTIONS AND ANSWERS
- --------------------------------------------------------------------------------
Q: WHAT AM I VOTING ON?
A: Two proposals. Item numbers below refer to item numbers on the proxy card.
Item 1. Election of three Class 1 directors Item 2. Ratification of
appointment of J. H. Williams & Co., LLP as independent auditors of the
Corporation
- --------------------------------------------------------------------------------
Q: WHO CAN VOTE?
A: All stockholders of record at the close of business on March 23, 1999, are
entitled to vote. Holders of the Corporation's Common Stock are entitled to
one vote per share. Fractional shares, such as those in the dividend
reinvestment plan, may not be voted.
- --------------------------------------------------------------------------------
Q: HOW DO I VOTE FOR DIRECTORS?
A: Each share is entitled to cast one vote for each nominee. For example, if
you can vote 100 shares, you can cast up to 100 votes for each nominee for
director.
- --------------------------------------------------------------------------------
Q: WHO CAN ATTEND THE MEETING?
A: All stockholders as of the record date, or their duly appointed proxies,
may attend the meeting. Seating, however, is limited. You will be admitted
only if you previously indicated your wish to attend on the proxy card.
Please note that if you hold your shares in "street name" (that is, through
a broker or other nominee), you will need to bring a copy of a brokerage
statement reflecting your stock ownership as of the record date. Everyone
must check in at the registration desk at the meeting.
- --------------------------------------------------------------------------------
Q: HOW DO I VOTE?
A: Complete, date, sign and mail the proxy card in the enclosed postage
pre-paid envelope. By voting with the proxy card, you will authorize the
individuals named on the proxy card, referred to as the proxies, to vote
your shares according to your instructions.
- --------------------------------------------------------------------------------
Q: WHAT HAPPENS IF I DO NOT INDICATE MY PREFERENCE FOR ONE OF THE ITEMS?
A: If you do not indicate how you wish to vote for one or more of the nominees
for director, the proxies will vote FOR election of all the nominees for
Director (Item 1). If you "withhold" your vote for any of the nominees,
this will be counted as a vote AGAINST that nominee. If you leave Item 2
blank, the proxies will vote FOR ratification of the appointment of J. H.
Williams & Co., LLP (Item 2).
- --------------------------------------------------------------------------------
Q: WHAT IF I VOTE AND THEN CHANGE MY MIND?
A: You can revoke your proxy by writing to us, by voting again via mail, or by
attending the meeting and casting your vote in person. Your last vote will
be the vote that is counted.
- --------------------------------------------------------------------------------
Q: WHAT CONSTITUTES A QUORUM?
A: As of the record date, March 23, 1999, the Corporation had 1,375,306 shares
of Common Stock outstanding. The holders of Common Stock have the right to
cast a total of 1,375,306 votes. The presence, in person or by proxy, of
stockholders entitled to cast at least a majority of the votes which all
stockholders are entitled to cast constitutes a quorum for adopting the
proposals at the meeting. If you have properly designated the proxies and
indicated your voting preferences by mail, you will be considered part of
the quorum, and the proxies will vote your shares as you have instructed
them. If a broker holding your shares in "street" name indicates to us on a
proxy card that the broker lacks discretionary authority to vote your
shares, we will not consider your shares as present or entitled to vote for
any purpose.
- --------------------------------------------------------------------------------
79
<PAGE> 7
- --------------------------------------------------------------------------------
Q: IS MY VOTE CONFIDENTIAL?
A: Yes. Proxy cards, ballots and voting tabulations that identify individual
stockholders are kept confidential except in certain circumstances where it
is important to protect the interests of the Corporation and its
stockholders. Generally, only the judge of election and the employees of
American Stock Transfer & Trust Company processing the votes will have
access to your name. They will not disclose your name as the author of any
comments you include on the proxy card unless you ask that your name be
disclosed to management.
- --------------------------------------------------------------------------------
Q: WHO WILL COUNT THE VOTES?
A: Employees of American Stock Transfer & Trust Company will tabulate the
votes and the judge of election will review their tabulation process.
- --------------------------------------------------------------------------------
Q: WHAT SHARES ARE INCLUDED IN THE PROXY CARD?
A: The shares listed on your card sent by the Corporation represent all the
shares of Common Stock held in your name (as distinguished from those held
in "street" name), including those held in the dividend reinvestment plan.
You will receive a separate card or cards from your broker if you hold
shares in "street" name.
- --------------------------------------------------------------------------------
Q: WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?
A: It indicates that your shares are held in more than one account, such as
two brokerage accounts and registered in different names. You should vote
each of the proxy cards to ensure that all of your shares are voted. We
encourage you to register all of your brokerage accounts in the same name
and address for better stockholder service. You may do this by contacting
our transfer agent, American Stock Transfer & Trust Company, at
1-800-937-5449.
- --------------------------------------------------------------------------------
Q: HOW MUCH DID THIS PROXY SOLICITATION COST?
A: The Corporation has retained American Stock Transfer & Trust Company to
solicit and tabulate proxies from stockholders at an estimated fee of
$750.00, plus expenses. (Note that this fee does not include the costs of
printing and mailing the proxy statements.) Some of the officers and other
employees of the Corporation also may solicit proxies personally, by
telephone and by mail. The Corporation will also reimburse brokerage houses
and other custodians for their reasonable out-of-pocket expenses for
forwarding proxy and solicitation material to the beneficial owners of
Common Stock.
- --------------------------------------------------------------------------------
Q: WHOM CAN I CALL WITH ANY QUESTIONS?
A: You may call American Stock Transfer & Trust Company at 1-800-937-5449 or
visit their website: http://www.amstock.com.
BOARD OF DIRECTORS
THIS SECTION GIVES BIOGRAPHICAL INFORMATION ABOUT OUR DIRECTORS AND DESCRIBES
THEIR MEMBERSHIP ON BOARD OF DIRECTORS' COMMITTEES, THEIR ATTENDANCE AT MEETINGS
AND THEIR COMPENSATION.
80
<PAGE> 8
ELECTION OF DIRECTORS
Item 1 on Proxy Card
The Corporation has nine directors who are divided into three classes: three
directors are in Class 1; three directors are in Class 2; and three directors
are in Class 3. Each director holds office for a three-year term. The terms of
the classes are staggered, so that the term of office of one class expires each
year.
At this meeting, the stockholders elect three Class 1 directors. Unless you
withhold authority to vote for one or more of the nominees, the persons named as
proxies intend to vote for the election of the three nominees for Class 1
director. All of the nominees are recommended by the Board of Directors:
Robert M. Brewington, Jr.
Willard H. Kile, Sr.
Charles E. Long
All nominees have consented to serve as directors. The Board of Directors has no
reason to believe that any of the nominees should be unable to act as a
director. However, if any director is unable to stand for re-election, the Board
of Directors will designate a substitute. If a substitute nominee is named, the
proxies will vote for the election of the substitute.
The following information includes the age of each nominee and current director
as of the date of the meeting. All directors of the Corporation are also
directors of the bank.
- --------------------------------------------------------------------------------
CLASS 1 DIRECTORS AND NOMINEES FOR CLASS 1 DIRECTOR WHOSE TERM EXPIRES IN 2002
ROBERT M. BREWINGTON, JR., 48
Director since 1996. Owner of Sutliff Motors (sales and service of cars
and trucks; school bus contractor).
WILLARD H. KILE, SR., 71
Director since 1974 (includes service as a director of the bank prior
to 1983). Former Chairman of the Corporation and the bank. Principal in
Kile and Kile Real Estate and Rentals.
CHARLES E. LONG, 63
Director since 1993. Retired. Former President of Long Supply Co.,
Inc. (a wholesaler and retailer of hardware and masonry products).
- --------------------------------------------------------------------------------
CLASS 2 DIRECTORS WHOSE TERM EXPIRES IN 2001
STANLEY BARCHIK, 65
Director since 1985. President of Stan & Sons, Inc. (a commercial
leasing and retail gasoline sales company).
WILLIAM F. HESS, 65
Director since 1982 (includes service as a director of the bank prior
to 1983). Chairman and former Vice Chairman of the Corporation and the
bank. Dairy farmer.
PAUL E. REICHART, 61
Director since 1983. President, Chief Executive Officer and Vice
Chairman of the Corporation and the bank.
81
<PAGE> 9
- --------------------------------------------------------------------------------
CLASS 3 DIRECTORS WHOSE TERM EXPIRES IN 2000
DON E. BANGS, 67
Director since 1985. Secretary of the Corporation and the bank. Former
owner of Bangs Insurance Agency and former agent for The Thrush
Insurance Agency.
EDWARD L. CAMPBELL, 60
Director since 1985. President of ELC Enterprises, Inc., doing business
as The Heritage House Family Restaurant, and the sole proprietor of
Heritage Acres Christmas tree sales.
ELWOOD R. HARDING, JR., 52
Director since 1984. Partner of Harding & Associates (law firm) and
President of Inter-County Land Abstract Co., Inc. (title insurance).
- --------------------------------------------------------------------------------
REQUIRED VOTE
Nominees will be elected who receive a vote equal to a plurality of the shares
of stock represented at the meeting. Your Board of Directors recommends a vote
FOR the nominees for Class 1 director listed above. Abstentions and votes
withheld for directors will have the same effect as votes against.
COMMITTEES OF THE BOARD OF DIRECTORS OF THE BANK FOR 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
YEAR
LONG CREDIT 2000
BOARD OF RANGE ADMINI- HUMAN ASSET- COMPLI-
NAME DIRECTORS EXECUTIVE AUDIT PLANNING STRATION(1) RESOURCE TRUST LIABILITY ANCE(1)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Don E. Bangs |X| |X| |X|(2) |X|
- ----------------------------------------------------------------------------------------------------------------------
Stanley Barchik |X| |X| |X|
- ----------------------------------------------------------------------------------------------------------------------
Robert M. Brewington, Jr. |X| |X| |X|(2) |X|
- ----------------------------------------------------------------------------------------------------------------------
Edward L. Campbell |X| |X| |X|
- ----------------------------------------------------------------------------------------------------------------------
Elwood R. Harding, Jr. |X| |X|(2) |X| |X| |X|
- ----------------------------------------------------------------------------------------------------------------------
William F. Hess |X|(2) |X|(2) |X| |X| |X| |X| |X|
- ----------------------------------------------------------------------------------------------------------------------
Willard H. Kile, Sr. |X| |X|(2) |X|
- ----------------------------------------------------------------------------------------------------------------------
Charles E. Long |X| |X| |X| |X|(2)
- ----------------------------------------------------------------------------------------------------------------------
Paul E. Reichart |X| |X| |X| |X| |X| |X| |X|
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) There is no chairman for this committee.
(2) Chairman.
NUMBER OF MEETINGS
During 1998, the Corporation's Board of Directors held 13 meetings and the
bank's Board of Directors held 24 meetings. All of the Corporation's directors
attended 75% or more of all Board of Directors and Committee meetings of the
Corporation and the bank during 1998. The Corporation has no standing
committees. This information is for committees of the bank.
EXECUTIVE COMMITTEE
The Executive Committee reviews the operations of the Board of Directors with
respect to directors' fees and frequency of Board of Directors' meetings as well
as the Corporation's capital structure, stock position and earnings. In
addition, the Executive Committee analyzes other management issues and
periodically makes recommendations to the Board of Directors based on its
findings.
82
<PAGE> 10
AUDIT COMMITTEE
The Audit Committee is responsible for the review and evaluation of the system
of internal controls and corporate compliance with applicable rules, regulations
and laws. The Audit Committee meets with outside independent auditors and senior
management to review the scope of the internal and external audit engagements,
the adequacy of the internal and external auditors, corporate policies to ensure
compliance and significant changes in accounting principles.
LONG RANGE PLANNING COMMITTEE
This committee studies the future growth, capital development and corporate
structure of the Corporation.
CREDIT ADMINISTRATION COMMITTEE
This committee reviews all new loans, past due loans, loan compliance, loan
review and other pertinent matters.
HUMAN RESOURCE COMMITTEE
This committee recommends to the Board of Directors the amount to be considered
for contribution to the profit sharing plan and reviews the proposed salary
increases of the officers, before they are presented to the Board of Directors
for approval.
TRUST COMMITTEE
This committee is responsible for the oversight of the Trust Department,
including the Trust Department investments and operations.
ASSET-LIABILITY COMMITTEE
This committee reviews asset-liability positions and provides support and
direction in managing net interest margins and liquidity.
YEAR 2000 COMPLIANCE COMMITTEE
This committee is responsible for oversight of the Year 2000 compliance.
BOARD OF DIRECTORS' COMPENSATION
DIRECTORS' FEES
Directors' fees are paid by the bank as follows:
Fee for each Board of Directors' meeting attended............... $350
Fee for each committee meeting attended......................... $225
The Chairman and Secretary received an additional fee of $1,200 in 1998.
Directors received, in the aggregate, in 1998, $99,783 in fees. Directors of the
Corporation are not paid for attendance at the Corporation's Board of Directors
meetings. 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 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 participating director is deferring
payment to him of directors' fees. If the director continues to serve as a
director until he attains generally 70 or 72 years of age, 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
83
<PAGE> 11
birthday. Each director's guaranteed annual payment is based upon the cumulative
amount of deferred fees together with interest currently accruing 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, 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, 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 1998, the bank accrued
$6,200 as an expense for the director's deferred compensation plans. As of
December 31, 1998, Messrs. Kile, Harding and Barchik were participating in such
plans.
STOCK OWNERSHIP
THIS SECTION DESCRIBES HOW MUCH STOCK OUR DIRECTORS AND EXECUTIVE OFFICERS OWN.
IT ALSO DESCRIBES THE PERSONS OR ENTITIES THAT OWN MORE THAN 5% OF OUR VOTING
STOCK.
STOCK OWNED BY DIRECTORS AND EXECUTIVE OFFICERS
This table indicates the number of shares of Common Stock owned by the executive
officers and directors as of March 23, 1999. The aggregate number of shares
owned by all directors and executive officers is 5.98%. Unless otherwise noted,
each individual has sole voting and investment power for the shares indicated
below.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NAME OF INDIVIDUAL AMOUNT AND NATURE OF
OF IDENTITY OF GROUP BENEFICIAL OWNERSHIP(1) PERCENT OF CLASS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Don E. Bangs 8,027.0660 ----
- ----------------------------------------------------------------------------------------------------------------------
Stanley Barchik 11,445.0000 ----
- ----------------------------------------------------------------------------------------------------------------------
Robert M. Brewington, Jr. 6,027.2406 ----
- ----------------------------------------------------------------------------------------------------------------------
Edward L. Campbell 5,641.1470 ----
- ----------------------------------------------------------------------------------------------------------------------
Elwood R. Harding, Jr. 15,371.2159 1.11%
- ----------------------------------------------------------------------------------------------------------------------
William F. Hess 4,050.2120 ----
- ----------------------------------------------------------------------------------------------------------------------
Willard H. Kile, Sr. 17,835.5667 1.29%
- ----------------------------------------------------------------------------------------------------------------------
Virginia D. Kocher 391.0000 ----
- ----------------------------------------------------------------------------------------------------------------------
Charles E. Long 5,836.7340 ----
- ----------------------------------------------------------------------------------------------------------------------
Paul E. Reichart 7,566.0000 ----
- ----------------------------------------------------------------------------------------------------------------------
All Officers and Directors as a group
(9 directors, 3 nominees, 4 officers,
10 persons in total) 82,191.1822 5.98%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes shares held (a) directly, (b) jointly with a spouse, (c)
individually by spouse, (d) by the transfer agent in the Corporation's
dividend reinvestment account, and (e) in various trusts.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Executive officers and directors and "beneficial owners" of more than ten
percent of the Common Stock must file initial reports of ownership and reports
of changes in ownership with the SEC pursuant to Section 16(a).
We have reviewed the reports and written representations from the executive
officers and directors. Except as stated below, the Corporation believes that
all filing requirements were met during 1998.
On May 14, 1998, Director Edward L. Campbell and his spouse purchased 400 shares
of the Common Stock at a price of $35 per share. Mr. Campbell failed to timely
file a report of this purchase on SEC Form 4, but reported this purchase on SEC
Form 5 on January 19, 1999.
84
<PAGE> 12
VOTING STOCK OWNED BY "BENEFICIAL OWNER"
There are no persons or entities known by the Corporation to own beneficially
more than five percent of the Common Stock as of March 23, 1999.
EXECUTIVE COMPENSATION
THIS SECTION CONTAINS CHARTS THAT SHOW THE AMOUNT OF COMPENSATION EARNED BY OUR
EXECUTIVE OFFICERS WHOSE SALARY AND BONUS EXCEEDED $100,000 FOR 1998. IT ALSO
CONTAINS THE PERFORMANCE GRAPH COMPARING THE CORPORATION'S PERFORMANCE RELATIVE
TO ITS PEER GROUP AND THE REPORT OF OUR HUMAN RESOURCE COMMITTEE EXPLAINING THE
COMPENSATION PHILOSOPHY FOR OUR MOST HIGHLY PAID OFFICERS.
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION
------------------------------------------------------
NAME AND PRINCIPAL FISCAL OTHER ANNUAL ALL OTHER
POSITION YEAR SALARY($) BONUS($) COMPENSATION(2)($) COMPENSATION(3)($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Paul E. Reichart 1998 88,247 19,920(4) 8,800 3,542
President and Chief 1997 85,677 27,239(5) 8,400 3,571
Executive Officer 1996 85,677 25,759(6) 8,400 3,552
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) From January 1, 1996 through December 31, 1998, 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 $5,364 as a life insurance premium payment for a deferred
compensation plan; $3,459 as a cash bonus representing 4% of base salary;
$4,455 as a contribution to the bank's profit sharing plan; $1,300
representing 50% up to 3% matching contribution to Mr. Reichart's 401K
plan; $854 representing car expense; and $4,488 representing cafeteria plan
benefits.
(5) 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.
(6) 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.
HUMAN RESOURCE COMMITTEE REPORT ON EXECUTIVE COMPENSATION*
Executive compensation for the officers of the Corporation and the bank is
determined by the Human Resource Committee of the Corporation's Board of
Directors. Salaries and bonuses for the executive officers are reviewed
annually. All executive compensation is paid by the bank to the applicable
executive.
- --------
* Pursuant to the Proxy Rules, this section of the proxy statement is not
deemed "filed" with the SEC and is not incorporated by reference into the
Corporation's Report on Form 10-K.
85
<PAGE> 13
COMPENSATION PHILOSOPHY
The Corporation's executive compensation philosophy is designed to attract,
retain, and motivate the best managerial talent available in line with three
central themes: alignment, accountability, and attraction.
o Alignment with the long-term interests of our stockholders;
o Accountability for results by linking executives to the Corporation
and individual performance; and
o Attraction, motivation and retention of critical talent.
The Human Resource Committee annually conducts a full review of the performance
of the Corporation and its executives in determining compensation levels. For
1998, the Human Resource Committee considered various qualitative and
quantitative indicators of the Corporation and individual performance in
determining the level of compensation for the Corporation's President and Chief
Executive Officer and its other executive officers. The review included an
evaluation of the Corporation's performance both on a short- and long-term
basis. This review included an analysis of quantitative measures, such as Return
on Equity. The Human Resource Committee considered also qualitative measures
such as leadership, experience, strategic direction, community representation
and social responsibility. The Human Resource Committee has been sensitive to
management's maintaining a balance between actions that foster long-term value
creation and short-term performance. In addition, the Human Resource Committee
evaluates total executive compensation in light of the operational and financial
performance and compensation practices of the commercial banking industry in the
Mid-Atlantic region.
Base salaries are reviewed each year and generally adjusted relative to
individual performance and competitive salaries with the commercial banking
industry in the Mid-Atlantic region.
A base salary increase of 3% was made to all executives in 1998. This payment
recognizes the performance of the Corporation in 1997. Actual salaries will
continue to be set according to the scope of the responsibilities of each
executive officer's position.
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
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 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 1998, the bank accrued $9,135 as an expense for the deferred
compensation plan.
86
<PAGE> 14
FIVE-YEAR PERFORMANCE GRAPH*
The following graph and table compare the cumulative total stockholder return on
the Corporation's Common Stock during the five-year period ending on December
31, 1998, with (i) the cumulative total return on the SNL Securities Corporate
Performance Index(1) for 35 publicly-traded banks with under $250 million in
total assets in the Middle Atlantic area(2), and (ii) the cumulative total
return for all United States stocks traded on the NASDAQ Stock Market. The
comparison assumes the value of the investment in the Corporation Common Stock
and each index was $100 on December 31, 1994, and assumes further the
reinvestment of dividends into the applicable securities. The stockholder return
shown on the graph and table below is not necessarily indicative of future
performance.
<TABLE>
<CAPTION>
PERIOD ENDING
------------------------------------------------------------------------------
INDEX 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CCFNB BANCORP, INCORPORATED 100.00 109.20 120.05 130.00 185.26 206.31
NASDAQ - TOTAL US 100.00 97.75 138.26 170.01 208.58 293.21
SNL <$250M BANK ASSET-SIZE INDEX 100.00 106.82 150.22 189.72 309.70 294.39
</TABLE>
- -------------------------
(1) SNL Securities is a research and publishing firm specializing in the
collection and dissemination of data on the banking, thrift and financial
services industries.
(2) The Middle Atlantic area comprises the states of Delaware, Pennsylvania,
Maryland, New Jersey and New York, the District of Columbia and Puerto
Rico.
INDEPENDENT AUDITORS
- -------------------------
* Pursuant to the Proxy Rules, this section of the proxy statement is
deemed "filed" with the SEC and is not incorporated by reference into the
Corporation's Report on Form 10-K.
87
<PAGE> 15
PROPOSAL TO APPROVE THE APPOINTMENT OF J. H. WILLIAMS & CO., LLP
Item 2 on Proxy Card
J. H. Williams & Co., LLP, Certified Public Accountants, have audited the
consolidated financial statements of the Corporation and the bank for many
years, and the Board of Directors has appointed them for 1999. From time to time
J. H. Williams & Co., LLP also performs consulting work for the Corporation. The
firm has no other relationship with the Corporation except for the existing
professional relationship as Certified Public Accountants. The Audit Committee
and the Board of Directors believe that J. H. Williams & Co., LLP's long-term
knowledge of the Corporation and the bank is valuable to the Corporation.
Representatives of J. H. Williams & Co., LLP have direct access to members of
the Audit Committee and regularly attend their meetings.
A representative of J. H. Williams & Co., LLP will attend the Annual Meeting and
will have the opportunity to make a statement if he desires to do so. This
representative will also be available to respond to appropriate questions.
REQUIRED VOTE
The proposal will be approved if it receives the affirmative vote of a majority
of the shares of Common Stock represented in person or by proxy at the meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE APPOINTMENT
OF J. H. WILLIAMS & CO., LLP. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL
BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.
OTHER INFORMATION
THIS SECTION SETS OUT OTHER INFORMATION YOU SHOULD KNOW BEFORE YOU VOTE.
TRANSACTIONS INVOLVING THE CORPORATION'S
DIRECTORS AND EXECUTIVE OFFICERS
The Corporation encourages its directors and executive officers to have banking
and financial transactions with the bank. All of these transactions are made on
comparable terms and with similar interest rates as those prevailing for other
customers.
The total consolidated loans made by the bank at December 31, 1998, to its
directors and officers as a group, members of their immediate families and
companies in which they have a 10% or more ownership interest was $5,848,297 or
approximately 24.9% of the Corporation's total consolidated capital accounts.
The largest amount for all of these loans in 1998 was $5,855,330 million or
approximately 24.9% of the Corporation's total consolidated capital accounts.
These loans did not involve more than the normal risk of collectibility nor did
they present other unfavorable features.
NO SIGNIFICANT LEGAL PROCEEDINGS
The Corporation and the bank are not parties to any legal proceedings that could
have any significant effect upon the Corporation's financial condition or
income. In addition, the Corporation and the bank are not parties to any legal
proceedings under federal and state environmental laws.
88
<PAGE> 16
OTHER PROPOSED ACTION
The Board of Directors is not aware of any other matters to be presented at the
meeting. If any other matters should properly come before the meeting, the
persons named in the enclosed proxy form will vote the proxies in accordance
with their best judgment.
STOCKHOLDER PROPOSALS AND NOMINATIONS FOR 2000 ANNUAL MEETING
Stockholder proposals for the 2000 Annual meeting must be received by November
30, 1999, to be considered for inclusion in the Corporation's 2000 Proxy
Statement. Stockholder proposals for the 2000 Annual Meeting for which the
proponents do not desire them to be included in the 2000 Proxy Statement must be
received by February 15, 2000. Such proposals should be addressed to the
Secretary. Under the Corporation's Bylaws, notice of any stockholder nomination
for director must be given by mail or by personal delivery to the Secretary no
later than 20 days in advance of the meeting. Stockholders wishing to make
nominations should contact the Secretary as to information required to be
supplied in such notice.
ADDITIONAL INFORMATION AVAILABLE
THE CORPORATION FILES AN ANNUAL REPORT ON FORM 10-K WITH THE SEC. STOCKHOLDERS
MAY OBTAIN A PAPER COPY OF THIS REPORT (WITHOUT EXHIBITS), WITHOUT CHARGE, BY
WRITING TO PAUL E. REICHART, PRESIDENT, CCFNB BANCORP, INC., 232 EAST STREET,
BLOOMSBURG, PENNSYLVANIA; TELEPHONE: (570) 784-4400.
IN ADDITION, A COPY OF THE ANNUAL DISCLOSURE STATEMENT OF COLUMBIA COUNTY
FARMERS NATIONAL BANK MAY ALSO BE OBTAINED, AT NO COST, FROM MR. REICHART.
By order of the Board of Directors
/s/Paul E. Reichart
- -------------------
Paul E. Reichart
President
Bloomsburg, Pennsylvania
March 30, 1999
89
<PAGE> 1
EXHIBIT 99B
SEC GUIDE 3 FINANCIAL INFORMATION
90
<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,
-------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial ....................... $ 8,991 $ 7,551 $ 7,957 $ 5,990 $ 5,472
Tax Exempt ....................... 2,512 2,591 2,064 1,520 2,398
Qualified Municipal Leases ....... 20 0 35 131 277
Real Estate-Construction ......... 1,278 637 660 941 994
Real Estate ...................... 96,742 99,780 96,439 95,293 94,030
Personal ......................... 9,461 8,524 8,447 8,058 6,577
Credit Cards ..................... 0 383 441 447 468
-------- -------- -------- -------- --------
$119,004 $119,466 $116,043 $112,380 $110,216
Unamortized Loan Fees Net of Costs 70 97 129 188 273
Unearned Discount ................ 376 324 324 360 143
-------- -------- -------- -------- --------
Loans, Net ....................... $118,558 $119,045 $115,590 $111,832 $109,800
======== ======== ======== ======== ========
</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,
------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial ............... 7.56% 6.32% 6.85% 5.33% 4.97%
Tax Exempt ............... 2.11% 2.17% 1.78% 1.35% 2.18%
Qualified Municipal Leases 0.02% 0.00% 0.03% 0.11% 0.25%
Real Estate-Construction . 1.07% 0.53% 0.57% 0.84% 0.90%
Real Estate .............. 81.29% 83.52% 83.11% 84.80% 85.31%
Personal ................. 7.95% 7.14% 7.28% 7.17% 5.97%
Credit Cards ............. 0.00% 0.32% 0.38% 0.40% 0.42%
------ ------ ------ ------ ------
Total Loans .............. 100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ====== ======
</TABLE>
91
<PAGE> 3
The following table shows the maturity of loans in the specified categories
of CCFNB's loan portfolio at December 31, 1998, and the amount of such loans
with predetermined fixed rates or with floating or adjustable rates:
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------------------------
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 ............................. $ 7,665 $ 23,519 $ 27,292 $ 58,804 $117,280
Real Estate-Construction Loans ............ 1,278 0 0 0 1,278
-------- -------- -------- -------- --------
Total ..................................... $ 8,943 $ 23,519 $ 27,292 $ 58,804 $118,558
======== ======== ======== ======== ========
Amount of Such Loans with:
Predetermined Fixed Rates .............. $ 7,665 $ 17,483 $ 7,252 $ 2,128 $ 34,528
Floating or Adjustable Rates ........... 1,278 6,036 20,040 56,676 84,030
-------- -------- -------- -------- --------
Total ..................................... $ 8,943 $ 23,519 $ 27,292 $ 58,804 $118,558
======== ======== ======== ======== ========
</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,
---------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans Outstanding at End of Period ........ $ 119,004 $ 119,045 $ 115,590 $ 111,832 $ 109,800
========= ========= ========= ========= =========
Average Loans Outstanding During the Period $ 116,490 $ 116,771 $ 112,341 $ 110,980 $ 100,628
========= ========= ========= ========= =========
Allowance for Loan Losses:
Balance, Beginning of Period ........... $ 901 $ 911 $ 912 $ 943 $ 921
Loans Charged Off:
Commercial and Industrial .............. 0 (15) (19) (65) (21)
Real Estate Mortgages .................. (8) 0 0 0 (147)
Consumer ............................... (63) (84) (118) (38) (23)
Lease Financing Receivables ............ 0 0 0 0 0
Credit Cards ........................... (12) (4) (8) (4) (5)
--------- --------- --------- --------- ---------
Total Loans Charged Off ................... (83) (103) (145) (107) (196)
Recoveries:
Commercial and Industrial .............. 3 0 17 13 4
Real Estate Mortgages .................. 8 0 0 0 1
Consumer ............................... 34 29 41 6 17
Lease Financing Receivables ............ 6 1 3 12 32
Credit Cards ........................... 8 3 3 3 4
--------- --------- --------- --------- ---------
Total Recoveries .......................... 59 33 64 34 58
--------- --------- --------- --------- ---------
Net Loans Charged Off ..................... (24) (70) (81) (73) (138)
--------- --------- --------- --------- ---------
Provision for Loan Losses ................. 78 60 80 42 160
--------- --------- --------- --------- ---------
Balance, End of Period .................... $ 955 $ 901 $ 911 $ 912 $ 943
========= ========= ========= ========= =========
Net Loans Charged Off During the Period
as a Percent of Average Loans
Outstanding During the Period........... 0.02% 0.06% 0.07% 0.07% 0.14%
</TABLE>
92
<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,
----------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial ................ $202 $ 83 $ 79 $ 73 $133
Real Estate Mortgages ..... 510 516 500 513 447
Consumer .................. 196 99 96 53 203
Credit Cards .............. 0 20 20 25 27
Lease Financing Receivables 0 0 0 2 7
Unallocated ............... 0 183 216 246 126
---- ---- ---- ---- ----
Total ..................... $955 $901 $911 $912 $943
==== ==== ==== ==== ====
</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,
-------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonaccrual, Restructured and Past Due Loans:
Nonaccrual Loans ........................ $ 537 $ 69 $ 109 $ 13 $ 24
Restructured Loans on Accrual Status .... 0 0 0 0 0
Accrual Loans Past Due 90 Days or More .. 415 586 329 397 304
------- ------- ------- ------- -------
Total Nonaccrual, Restructured and Past
Due Loans ............................... $ 952 $ 655 $ 438 $ 410 $ 328
------- ------- ------- ------- -------
Other Real Estate .......................... $ 0 $ 0 $ 0 $ 0 $ 0
------- ------- ------- ------- -------
Interest Income That Would Have Been
Recorded Under Original Terms ........... $55,411 $ 3,846 $ 9,849 $ 2,266 $47,437
------- ------- ------- ------- -------
Interest Income Recorded During the Period . $ 9,609 $ 0 $ 0 $ 111 $28,083
------- ------- ------- ------- -------
</TABLE>
93
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000731122
<NAME> CCFNB BANCORP, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 6,175
<SECURITIES> 48,774
<RECEIVABLES> 118,300
<ALLOWANCES> 939
<INVENTORY> 0
<CURRENT-ASSETS> 172,310
<PP&E> 5,782
<DEPRECIATION> 0
<TOTAL-ASSETS> 178,092
<CURRENT-LIABILITIES> 155,099
<BONDS> 0
0
0
<COMMON> 1,728
<OTHER-SE> 21,265
<TOTAL-LIABILITY-AND-EQUITY> 178,092
<SALES> 9,333
<TOTAL-REVENUES> 10,073
<CGS> 4,458
<TOTAL-COSTS> 4,458
<OTHER-EXPENSES> 3,664
<LOSS-PROVISION> 59
<INTEREST-EXPENSE> 72
<INCOME-PRETAX> 1,820
<INCOME-TAX> 449
<INCOME-CONTINUING> 1,371
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,371
<EPS-PRIMARY> 0.99
<EPS-DILUTED> 0.99
</TABLE>
