<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
____________________
(X) Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the period ended June 30, 1998
or
( ) Transition Report Pursuant to Section 13 of 15(d) of
the Securities Exchange Act of 1934
For the transition period from _____ to _____
____________________
Commission file number 0-15123
I.R.S. Employer Identification Number 31-1182986
FIRST NATIONAL BANCORP, INC.
(an Illinois Corporation)
78 N. Chicago St.
Joliet, Illinois 60432
Telephone: (815) 726-4371
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 preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 2,431,804 shares of the
Company's Common Stock ($10.00 par value) were outstanding as of August 1,
1998.
<PAGE>
FIRST NATIONAL BANCORP, INC. AND SUBSIDIARY
CONTENTS
<TABLE>
<S> <C>
Part I. Financial Information
Item 1. Financial Statements Page
a. Condensed Consolidated Balance Sheets 1
b. Condensed Consolidated Statements of Income 2
c. Condensed Consolidated Statements of Stockholders' Equity 3
and Other Comprehensive Income
d. Condensed Consolidated Statements of Cash Flows 4
e. Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Part II. Other Information
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature Page 16
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST NATIONAL BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30,
1998 December 31,
(Unaudited) 1997
----------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 37,503 $ 34,591
Federal funds sold 89,100 50,800
Securities available-for-sale 11,556 11,831
Securities held-to-maturity (Fair value of $181,206 and
$206,269 at June 30,1998 and December 31,1997) 179,984 204,870
Loans, net of unearned discount 532,825 526,380
Allowance for loan losses (4,563) (4,437)
-------- --------
Loans, net 528,262 521,943
Premises and equipment, net 18,485 18,840
Accrued interest and other assets 8,142 8,392
Intangibles, net 8,987 9,489
-------- --------
TOTAL ASSETS $882,019 $860,756
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand, non-interest bearing $126,368 $129,243
NOW accounts 93,433 78,660
Money Market accounts 38,435 37,086
Savings 174,965 165,341
Time deposits, $100,000 and over 63,227 70,472
Other time deposits 237,156 245,354
-------- --------
Total Deposits 733,584 726,156
Short-term borrowings 56,460 46,207
Long-term debt 4,567 4,817
Accrued interest and other liabilities 7,100 6,631
-------- --------
Total Liabilities 801,711 783,811
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock - -
Common stock 24,318 24,318
Retained earnings 55,959 52,607
Accumulated other comprehensive income 31 20
-------- --------
Total Stockholders' Equity 80,308 76,945
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $882,019 $860,756
-------- --------
-------- --------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
FIRST NATIONAL BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans $11,540 $10,662 $23,012 $20,796
Securities:
Taxable 2,612 3,434 5,313 6,434
Tax-exempt 430 484 865 968
Federal funds sold 834 111 1,528 749
---------------------- ----------------------
Total interest income 15,416 14,691 30,718 28,947
---------------------- ----------------------
INTEREST EXPENSE:
Deposits 6,059 5,787 12,188 11,508
Short-term borrowings 568 477 1,129 1,065
Long-term debt 94 196 191 332
---------------------- ----------------------
Total interest expense 6,721 6,460 13,508 12,905
---------------------- ----------------------
Net interest income 8,695 8,231 17,210 16,042
Provision for loan losses 375 228 684 430
---------------------- ----------------------
Net interest income after provision for loan losses 8,320 8,003 16,526 15,612
---------------------- ----------------------
NONINTEREST INCOME:
Trust department income and farm management income 269 235 589 534
Service fees 1,300 1,097 2,505 2,109
Securities gains, net 15 - 74 1
Other income 148 111 266 213
---------------------- ----------------------
Total noninterest income 1,732 1,443 3,434 2,857
---------------------- ----------------------
NONINTEREST EXPENSES:
Salaries and employee benefits 3,309 3,018 6,592 6,021
Occupancy and equipment expense 854 752 1,645 1,488
Data processing expense 379 255 659 442
Amortization of intangibles 251 251 502 519
Other expenses 1,417 1,306 2,772 2,484
---------------------- ----------------------
Total noninterest expenses 6,210 5,582 12,170 10,954
---------------------- ----------------------
INCOME BEFORE INCOME TAXES 3,842 3,864 7,790 7,515
Income tax expense 1,281 1,229 2,614 2,429
---------------------- ----------------------
NET INCOME $ 2,561 $ 2,635 $ 5,176 $ 5,086
---------------------- ----------------------
---------------------- ----------------------
Earnings per common share $ 1.05 $ 1.08 $ 2.13 $ 2.09
---------------------- ----------------------
---------------------- ----------------------
Weighted average number of shares outstanding 2,431,804 2,431,804 2,431,804 2,431,804
---------------------- ----------------------
---------------------- ----------------------
</TABLE>
See Notes to Condensed Consolidated Financial statements.
<PAGE>
FIRST NATIONAL BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND OTHER COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Comprehensive Income Stockholders' Equity
Six Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
COMMON STOCK:
Beginning of period $24,318 $12,159
2-for-1stock split effected in the form of a 100%
stock dividend - 12,159
--------------------
End of period 24,318 24,318
--------------------
ADDITIONAL PAID-IN CAPITAL:
Beginning of period - 8,846
2-for-1stock split effected in the form of a 100%
stock dividend - (8,846)
--------------------
End of period - -
--------------------
RETAINED EARNINGS:
Beginning of period 52,607 50,394
Net income $5,176 $5,086 5,176 5,086
2-for-1stock split effected in the form of a 100%
stock dividend - (3,313)
Cash dividends declared (1,824) (2,432)
--------------------
End of period 55,959 49,735
--------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME:
Beginning of period unrealized gains (losses)
on securities, net of income taxes 20 (8)
Unrealized holding gains (losses) on securities
arising during period, net of income taxes 10 3
Reclassification adjustment for gains (losses) on
securities and premiums/discounts included in net
income, net of income taxes 1 2
------------------
Other comprehensive income 11 5 11 5
------------------ --------------------
End of period accumulated other comprehensive income 31 (3)
--------------------
COMPREHENSIVE INCOME $5,187 $5,091
------------------
------------------
TOTAL STOCKHOLDERS' EQUITY $80,308 $74,050
--------------------
--------------------
</TABLE>
<PAGE>
FIRST NATIONAL BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 5,176 $ 5,086
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 843 715
Provision for loan losses 684 430
Amortization of securities premiums, net of accretion 28 31
Net securities gains (74) (1)
Net losses (gains) on sale of other real estate (2) 6
Amortization of intangibles 502 519
(Increase) decrease in accrued interest and other assets 346 (1,330)
Increase (decrease) in accrued interest and other liabilities 461 (498)
---------------------
Net cash from operating activities 7,964 4,958
---------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Change in federal funds sold, net (38,300) 60,082
Proceeds from maturities of securities 79,070 34,148
Proceeds from sale of securities - -
Purchase of securities (53,844) (66,607)
Loans made to customers, net of principal collections (7,104) (36,391)
Purchase of premises and equipment (488) (1,445)
Proceeds from sale of other real estate 7 7
---------------------
Net cash from investing activities (20,659) (10,206)
---------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 7,428 8,391
Net increase (decrease) in short-term borrowings 10,253 (2,881)
Principal paid on long-term debt (250) (375)
Dividends paid (1,824) (2,432)
---------------------
Net cash from financing activities 15,607 2,703
---------------------
Net change in cash and due from banks 2,912 (2,545)
CASH AND DUE FROM BANKS
Beginning 34,591 35,785
---------------------
Ending $37,503 $33,240
---------------------
---------------------
SUPPLEMENTAL DISCLOSURES
Cash payments for:
Interest paid $12,964 $13,658
Income taxes 2,187 2,151
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
FIRST NATIONAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 1998
(Unaudited)
(Table amounts in thousands of dollars, except per share data)
NOTE 1 - BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of First
National Bancorp, Inc.(the Company) and its subsidiary, First National Bank
of Joliet, (the Bank). All material intercompany items and transactions have
been eliminated in consolidation.
During the first quarter 1998, the Company merged Bank of Lockport, Community
Bank of Plano, and Southwest Suburban Bank into the First National Bank of
Joliet.
The accompanying unaudited interim condensed consolidated financial
statements have been prepared pursuant to the rules and regulations for
reporting on Form 10-Q. Accordingly, certain disclosures required by generally
accepted accounting principles are not included herein. These interim
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's 1997 Annual Report on
Form 10-K filed with the Securities and Exchange Commission. The December 31,
1997 balance sheet has been derived from the audited financial statements
included in the Company's 1997 Annual Report on Form 10-K filed with the
Securities and Exchange Commission, but does not include all disclosures
required by generally accepted accounting principles.
Interim statements are subject to possible adjustment in connection with the
annual audit of the Company for the year ending December 31, 1998. In the
opinion of management of the Company, the accompanying unaudited interim
condensed consolidated financial statements reflect all adjustments
(consisting of normal recurring adjustments) necessary for a fair
presentation of the consolidated financial position and consolidated results
of operations for the periods presented. The results of operations for the
three months ended June 30, 1998 and 1997 and the six months ended June 30,
1998 and 1997, are not necessarily indicative of the results to be expected
for the full year.
Earnings per share of common stock is based on weighted average number of
shares outstanding during the period.
<PAGE>
NOTE 2 - SECURITIES
The amortized cost and fair value of securities available-for-sale at June 30,
1998 and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
JUNE 30, 1998
U. S. Treasury $ 7,497 $ 7,534
U. S. government agencies 3,000 3,015
Other 1,007 1,007
-------- --------
$11,504 $11,556
-------- --------
-------- --------
</TABLE>
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
DECEMBER 31, 1997
U. S. Treasury $ 7,997 $ 8,029
U. S. government agencies 3,501 3,502
Other 300 300
-------- --------
$11,798 $11,831
-------- --------
-------- --------
</TABLE>
The amortized cost and fair value of securities held-to-maturity at June 30,
1998 and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
JUNE 30, 1998
U. S. Treasury $ 21,518 $ 21,653
U. S. government agencies 127,273 127,506
States and political subdivisions 31,193 32,047
-------- --------
$179,984 $181,206
-------- --------
-------- --------
</TABLE>
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
DECEMBER 31, 1997
U. S. Treasury $ 24,509 $ 24,621
U. S. government agencies 147,373 147,628
States and political subdivisions 32,988 34,020
-------- --------
$204,870 $206,269
-------- --------
-------- --------
</TABLE>
Securities with a carrying value of $146,000,000 and $150,000,000 at June 30,
1998 and December 31, 1997, respectively, were pledged to secure public
deposits, securities sold under agreements to repurchase, and for other
purposes required or permitted by law.
<PAGE>
NOTE 3 - LOANS
The subsidiary bank makes loans to both individuals and commercial entities
in a wide variety of industries. Loan terms vary as to interest rate,
repayment period, and collateral requirements based on the type of loan
requested and the credit worthiness of the prospective borrower. Credit risk
tends to be geographically concentrated in that the majority of the loan
customers are located in the markets served by the subsidiary bank.
The components of loans at June 30, 1998 and December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---- -----
<S> <C> <C>
Commercial and commercial real estate $179,847 $181,343
Residential real estate 140,080 147,625
Construction 18,308 14,106
Agricultural 9,848 10,769
Consumer 184,806 172,695
-------- ---------
Total loans 532,889 526,538
Unearned discount (64) (158)
-------- ---------
Loans, net of unearned discount $532,825 $526,380
-------- ---------
-------- ---------
</TABLE>
Impaired loans consist of commercial and commercial real estate loans.
Impaired loans amounted to $1,359,000 at June 30, 1998 and $876,000 at
December 31, 1997.
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
1998 1997
---- -----
<S> <C> <C>
Balance, beginning of year $4,437 $4,414
Provision charged to operations 684 430
Loans charged-off (678) (509)
Recoveries 120 77
------- -------
Balance, June 30, 1998 and 1997 $4,563 $4,412
------- -------
------- -------
</TABLE>
NOTE 4 - COMMITMENTS AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is 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 and standby
letters of credit which, to varying degrees, involve elements of credit risk
in excess of the amount recognized in the balance sheet.
The Bank's exposure to credit loss on commitments to extend credit and
standby letters of credit in the event of nonperformance by the customer, is
represented by the contractual amount of those instruments. The Bank uses the
same credit policies in making commitments and conditional obligations as for
on-balance-sheet instruments.
<PAGE>
A summary of the contract amounts of the Bank's exposure to off-balance-sheet
risk is as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---- -----
<S> <C> <C>
Loan commitments $63,539 $87,612
Standby letters of credit 16,115 16,629
</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. Since many of the commitments are
expected to expire without being drawn upon, the commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's credit worthiness on a case-by-case basis. The amount of
collateral obtained is based on management's credit evaluation of the
customer.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loan commitments to customers. Most of the Bank's
standby letters of credit are expected to expire without being drawn upon.
NOTE 5 - COMPREHENSIVE INCOME
During the first quarter of 1998 the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. It includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners.
Specifically, the Company has reported the change in unrealized gains and
losses on securities available-for-sale as an addition to (deduction from)
net income to arrive at comprehensive income of $5.2 million for the first
six months of 1998, compared to $5.1 million for the first six months of 1997.
<PAGE>
FIRST NATIONAL BANCORP, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following presents management's discussion and analysis of the results of
operations and financial condition of the First National Bancorp, Inc. (the
"Company") as of the dates and for the periods indicated. This discussion is
intended to be read in conjunction with the Company's interim condensed
consolidated financial statements and notes thereto.
FINANCIAL CONDITION
Total assets increased $21,263,000 or 2.47% to $882,019,000 as of June 30,
1998, compared to December 31, 1997. During the first six months of 1998, net
loans increased $6,319,000, up 1.21% from December 31, 1997. Deposits
increased $7,428,000 during the first six months of 1998, up 1.02% from
December 31, 1997. Stockholders' Equity increased $3,363,000, up 4.37% from
December 31, 1997.
At June 30, 1998, earning assets were $813,465,000, an increase of
$19,584,000 or 2.47% from $793,881,000 at December 31, 1997. Average earning
assets for the three months ended June 30, 1998 were $788,156,000, an
increase of $33,016,000, or 4.4% from the same period in 1997, primarily due
to an increase of $36,194,000 in the average loan portfolio.
Interest-bearing liabilities were $668,243,000 at June 30, 1998, an increase
of $20,306,000 or 3.1%, from $647,937,000 at December 31, 1997. The increase
was primarily due to an increase of 18.8% in NOW accounts and a 22.2%
increase in short-term borrowings, both as a result of fluctuations in the
balances of seasonal public funds. These increases were offset in part by a
decrease of 4.9% in time deposits.
Average interest-bearing liabilities for the three months ended June 30, 1998
were $642,682,000, an increase of $22,002,000, or 3.5% from the same period
in 1997. The increase was primarily due to a 3.7% increase in
interest-bearing deposits and a 6.0% increase in short-term borrowings.
RESULTS OF OPERATIONS
For the three months ended June 30, 1998, the Company earned $2,561,000 or
$1.05 per share as compared to $2,635,000 or $1.08 per share for the same
period in 1997. On a percentage basis, net income for the second quarter of
1998 decreased by 2.8% over that of the second quarter of 1997. The Company's
annualized return on average assets for the three months ended June 30, 1998
was 1.19% versus 1.28% for the same period in 1997. Annualized return on
average equity was 12.9% for the second quarter of 1998 compared to 14.4% for
the second quarter of 1997.
For the six months ended June 30, 1998, the Company earned $5,176,000 or
$2.13 per share as compared to $5,086,000 or $2.09 per share for the same
period in 1997. During this period, net income increased 1.8% over the same
period in 1997. The Company's annualized return on average assets for the six
months ended June 30, 1998 was 1.2% versus 1.2% for the same period in 1997.
Annualized return on average equity was 13.2% for the six months ended June
30, 1998 compared to 14.2% for the same period in 1997.
<PAGE>
NET INTEREST INCOME
Net interest income, the difference between total interest earned on earning
assets and total interest expense on interest bearing liabilities, is the
Company's principal source of income. Net interest income is influenced by
changes in the volume and yield on earning assets as well as changes in the
volume and rates paid on interest bearing liabilities. The Company attempts
to favorably impact net interest income through investment decisions on
interest earning assets and monitoring the interest rates its banking
subsidiaries offer, particularly rates for time deposits and short-term
borrowings.
On a tax equivalent basis (35% income tax rate), the Company's net interest
income expressed as a percentage of average interest earning assets was 4.55%
for the three months ended June 30, 1998, as compared to 4.52% for the same
period in 1997.
The yield on earning assets increased 5 basis points to 7.85% and the cost of
interest bearing liabilities increased 2 basis points to 4.19%. The increase
in the yield on earning assets is due primarily to the increase in loan
volume. The increase in the cost of interest bearing liabilities is due
primarily to a combination of the increase in the volume of NOW public
accounts and repurchase agreements and the increase in rates paid on those
funds.
Tax equivalent net interest income for the three months ended June 30, 1998,
increased $432,000 or 5.1% compared to the same period in 1997. The increase
in the volume of earning assets net of interest bearing liabilities produced
$366,000 of the net interest income increase while changes in interest rates
increased income by $66,000.
For the six months ended June 30, 1998, on a tax equivalent basis, the
Company's net interest income expressed as a percentage of average interest
earning assets was 4.54% as compared to 4.44% for the same period in 1997.
The yield on earning assets increased 13 basis points to 7.88% and the cost of
interest bearing liabilities increased 5 basis points to 4.24%. Tax
equivalent net interest income for the six months ended June 30, 1998
increased $1,117,000 or 6.7% compared to the same period in 1997. The
increase in the volume of earning assets net of interest bearing liabilities
produced $769,000 of the net interest income increase while changes in
interest rates increased income by $348,000.
NONINTEREST INCOME
Noninterest income consists primarily of service charges on customer deposit
accounts and fees earned on trust department services. Total noninterest
income was $1,732,000 for the three months ended June 30, 1998, an increase
of $289,000, or 20.0%, from the same period in 1997. The ratio of noninterest
income to income before taxes was 45.1% and 37.3% for the three months ended
June 30, 1998 and 1997, respectively.
The noninterest income increase of $289,000 was primarily attributable to an
increase of $121,000 in overdraft and demand deposit service charges as a
result of increases in the number of demand deposit accounts. Other increases
include $34,000 in trust fees, a $75,000 increase in net gains on the sale of
loans, net securities gains increase of $15,000, and an increase of $45,000
in ATM surcharge fees.
For the six months ended June 30, 1998, total noninterest income was
$3,434,000 an increase of $577,000 or 20.2% from the same period in 1997. The
increase occurred primarily in overdraft and deposit sevice fees and
securities gains. The year-to-date ratio of noninterest income to income
before income taxes was 44.1% and 38.0% for 1998 and 1997 respectively.
<PAGE>
NONINTEREST EXPENSE
Noninterest expense increased $628,000, or 11.2%, to $6,210,000 for the three
months ended June 30, 1998 as compared to $5,582,000 in the same period in
1997.
Salaries and employee benefits represented the largest category of
noninterest expense, accounting for 53.3% of total noninterest expense for
the three months ended total June 30, 1998 total versus 54.1% in the same
period in 1997. Salaries and employee benefits increased $291,000, or 9.6%,
for the three months ended June 30, 1998 over the same period in 1997. The
increase is primarily due to an 3.1% increase in the average full-time
equivalent number of employees at the company and general pay increases.
For the six months ended June 30, 1998, noninterest expense increased
$1,216,000 or 11.1% to $12,170,000 as compared to $10,954,000 for the same
period in 1997. Year-to-date June 30, 1998 salaries and employee benefits
increased $571,000 or 9.5% over the same period in 1997. Salaries and
employee benefits represented 54.2% of the total noninterest expense for the
six months ended June 30, 1998 versus 55.0% for the same period in 1997.
Details of noninterest expenses for the three months ended June 30, 1998 and
1997 and six months ended June 30, 1998 and 1997 are presented in the
following schedule:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
------ ------ ------- -------
<S> <C> <C> <C> <C>
Salaries and employee benefits $3,309 $3,018 $ 6,592 $ 6,021
Occupancy and equipment expense 854 752 1,645 1,488
Data processing 379 255 659 442
FDIC insurance and bank exam assessment 57 61 119 119
Printing, stationery, and supplies 161 138 318 284
Postage 109 121 253 233
Amortization of intangibles 251 251 502 519
All other expenses 1,090 986 2,082 1,848
------------------ ------------------
Total noninterest expense $6,210 $5,582 $12,170 $10,954
------------------ ------------------
------------------ ------------------
</TABLE>
NONPERFORMING LOANS
Nonperforming loans are comprised of those loans on which interest income is not
being accrued and other loans which are contractually in arrears as to principal
or interest for ninety days or more.
As of June 30, 1998, the Company's nonperforming loans were $4,232,000 or .79%
of total loans compared to $2,105,000 or .40% of total loans at December 31,
1997. The increase is attributable to an increase of $676,000 in nonperforming
real estate loans, an increase of $1,003,000 in nonperforming consumer loans,
and an increase of $448,000 in nonperforming commercial loans. Impaired loans
amounted to $1,359,000 at June 30, 1998, and $876,000 at December 31, 1997.
<PAGE>
ALLOWANCE FOR LOAN LOSSES
The allowance is an amount that management believes will be adequate to
absorb possible losses on existing loans that may become uncollectible, based
on evaluations of the collectibility of loans and prior loan loss experience.
This evaluation also takes into consideration such factors as changes in the
nature and volume of the loan portfolio quality, review of specific problem
loans and current economic conditions that may affect the borrower's ability
to pay.
The allowance for loan losses increased $126,000 for the six month period
ended June 30, 1998 to $4,563,000, which represented .86% of total loans, net
of unearned income. At December 31, 1997, the allowance for loan losses
represented .84% of such loan balances.
CAPITAL RESOURCES
Stockholders' equity was $80,308,000 at June 30, 1998, an increase of
$3,363,000, or 4.4% over December 31, 1997. At June 30, 1998, stockholders'
equity represented 9.11% of total assets compared to 8.94% at December 31,
1997.
Under rules adopted by federal bank regulatory agencies, bank holding
companies and financial institutions are subject to risk based capital
measurements. These regulations establish minimum levels for risk-based Tier
I Capital and Total Capital ratios and the leverage ratio. The parent company
(on a consolidated basis) and its subsidiary bank currently are considered
well capitalized and exceed the capital requirements established by federal
bank regulatory agencies.
The Company's consolidated actual capital ratios at June 30, 1998 and
December 31, 1997 are summarized below:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
<S> <C> <C>
Total Capital to risk-weighted assets 13.34% 12.87%
Tier I Capital to risk-weighted assets 12.55% 12.09%
Tier I Capital to average assets 8.48% 8.01%
</TABLE>
YEAR 2000
Many current computer programs use only two digits to identify the calendar
year in the date field. These programs were designed and developed with
little or no consideration of the upcoming change in the century. If not
rectified, many computer applications could fail or incur errors when the
Year 2000 arrives. The Year 2000 issue affects nearly all companies. The
federal banking regulators have issued several statements providing guidance
to financial institutions on steps the regulators expect financial
institutions to take to ensure Year 2000 compliance.
The Company is taking a proactive approach to this problem and is evaluating
the impact of the Year 2000 issue on its computer systems and software
applications. The Company utilizes and is dependent upon data processing
systems and software to conduct its business. The data processing systems and
software include those developed and maintained by the Company's data
processing provider and purchased software which is run on in-house computer
networks and workstations.
The Company has developed a strategic plan for Year 2000 compliance which is
being administered by a committee comprised of individuals from all
functional areas of the Company as well as being reviewed by senior
management and the board of directors. The plan follows guidelines set forth
by the Federal Financial Institutions Examinations Council (FFEIC).
The Company's data processing provider and other vendors have been contacted
and have indicated that they expect their hardware and software will be Year
2000 compliant by the end of 1998. This will allow time for testing
compliance. In addition, alarms, heating and cooling systems, and other
computer controlled mechanical devices which the Company relies on will be
evaluated.
While there will be some expenses incurred during this process, the Company
has not identified any situations that will require material cost
expenditures in order to become fully compliant. An unknown element at this
time is the impact of the Year 2000 on the Company's borrowing customers. The
Company has started a program to communicate with key customers to ensure
that they are aware of and are properly prepared for the Year 2000.
<PAGE>
MARKET RISK
The company does not engage in foreign currency transactions, forward
position or futures contracts, options, swaps or other types of complex
financial instruments, nor does it engage in trading account activities.
Thus, market risk is primarily limited to the interest rate risks associated
with the investing, lending, customer deposit taking and borrowing activities
of its banking subsidiaries. Except for a term note borrowing of $2.050
million payable to another financial institution that accrues interest based
on the London Interbank Offered Rate, the Company's exposure to interest rate
risk results from changes in either the short-term U.S. prime interest rate
or the rates offered for short and medium term bonds and notes of the U.S.
Treasury. The following table presents the interest rate sensitivity and
expected maturities of securities, fixed rate loans, time deposits,
short-term borrowings and long-term debt at June 30, 1998 fair value amounts.
<TABLE>
<CAPTION>
Expected Maturity Amounts for Years Ending June 30,
-------------------------------------------------------
2001 Fair
Through After Value
1999 2000 2003 2003 Total Total
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Securities, fixed rate
Available-for-sale $ 6,498 - $ 3,999 $ 1,007 $ 11,504 $ 11,556
Average interest rate 5.77% - 6.47% 6.00% 6.03%
Held-to-maturity 36,099 $11,315 83,382 49,188 179,984 181,206
Average interest rate 5.36% 6.21% 6.21% 6.13% 6.02%
Loans, fixed rate (1) 97,699 54,039 169,897 85,862 407,497 407,519
Average interest rate 8.74% 8.83% 8.74% 8.25% 8.65%
LIABILITIES
NOW, money market and
savings deposits (2) 306,833 - - - 306,833 306,833
Average interest rate 2.64% - - - 2.64%
Time deposits, fixed rate 262,947 22,622 14,814 - 300,383 301,071
Average interest rate 5.44% 5.85% 5.92% - 5.50%
Short-term borrowings, fixed rate 56,460 - - - 56,460 56,460
Average interest rate 5.40% - - - 5.40%
Long-term debt, variable rate 1,634 2,933 - - 4,567 4,567
Average interest rate 8.23% 7.82% - - 7.97%
</TABLE>
(1) Information on variable rate loans by maturity period is not readily
available. Interest rate risk on loan commitments, unused lines of credit and
standby letters of credit is minimal since most are for terms of ninety days
or less and include variable rate features.
(2) NOW and savings accounts are fixed rates deposits whereas money market
accounts are variable rate deposits. These deposit accounts, while shown as
maturing in the year ending June 30, 1999, are considered by management as
core deposits for asset/liability management purposes with account lives
extending beyond one year.
<PAGE>
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This report contains certain forward looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain
assumptions and describe future plans, strategies and expectations of the
Company, are generally identifiable by use of the words believe, expect,
intend, anticipate, estimate, project or similar expressions. The Company's
ability to predict results or the actual effect of future plans or strategies
is inherently uncertain. Factors which could have a material adverse affect
on the operations and future prospects of the Company and the subsidiary
include, but are not limited to, changes in: interest rates, general economic
conditions, legislative/regulatory changes, monetary and fiscal policies of
the U.S. Government, including policies of the U.S. Treasury and the Federal
Reserve Board, the quality or composition of the loan or investment
portfolios, demand for loan products, deposit flows, competition, demand for
financial services in the Company's market area and accounting principles,
policies and guidelines. These risks and uncertainties should be considered
in evaluating forward-looking statements and undue reliance should not be
placed on such statements. Further information concerning the Company and its
business, including additional factors that could materially affect the
Company's financial results, is included in the Company's filings with the
Securities and Exchange Commission.
SUPERVISION AND REGULATION
YEAR 2000
The federal banking regulators have issued several statements providing
guidance to financial institutions on the steps the regulators expect
financial institutions to take to become Year 2000 compliant. Each of the
federal banking regulators is also examining the financial institutions under
its jurisdiction to assess each institution's compliance with the outstanding
guidance. If an institution's progress in addressing the Year 2000 problem is
deemed by its primary federal regulator to be less than satisfactory, the
institution will be required to enter into a memorandum of understanding with
the regulator which will, among other things, require the institution to
promptly develop and submit an acceptable plan for becoming Year 2000
compliant and to provide periodic reports describing the institution's
progress in implementing the plan. Failure to satisfactorily address the Year
2000 problem may also expose a financial institution to other forms of
enforcement action that its primary federal regulator deems appropriate to
address the deficiencies in the institution's Year 2000 remediation program.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or its
subsidiary are a party other than ordinary routine litigation incidental to
their respective businesses.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 12, 1998, the annual meeting of stockholders was held. At the
meeting, Sheldon C. Bell, George H. Buck, Albert G. D'Ottavio, Watson A.
Healy, Paul A. Lambrecht, Harvey J. Lewis, Walter F. Nolan, Charles R. Peyla,
Louis R. Peyla, Kevin T. Reardon, Michael C. Reardon and Howard E. Reeves
were elected to serve as directors with terms expiring in 1999.
There were 2,431,804 issued and outstanding shares of Common Stock entitled
to vote at the annual meeting. The voting on each item presented at the
annual meeting was as follows:
<TABLE>
<CAPTION>
Election of Directors For Withheld
- --------------------- --- --------
<S> <C> <C>
Sheldon C. Bell 1,819,242 --
George H. Buck 1,817,826 1,416
Albert G. D'Ottavio 1,817,370 1,872
Watson A. Healy 1,819,170 72
Paul A. Lambrecht 1,819,170 72
Harvey A. Lewis 1,819,118 124
Walter F. Nolan 1,819,242 --
Charles R. Peyla 1,815,280 3,962
Louis R. Peyla 1,815,208 4,034
Kevin T. Reardon 1,814,650 4,592
Michael C. Reardon 1,815,776 3,466
Howard E. Reeves 1,819,242 --
</TABLE>
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the Requirements 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.
FIRST NATIONAL BANCORP, INC.
(REGISTRANT)
DATE: AUGUST 6, 1998
/s/ Kevin T. Reardon /s/ Albert G. D'Ottavio
- -------------------- -----------------------
Kevin T. Reardon Albert G. D'Ottavio
Chairman of the Board President
Chief Executive Officer Principal Accounting Officer
& Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 37,503
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 89,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 11,556
<INVESTMENTS-CARRYING> 179,984
<INVESTMENTS-MARKET> 181,206
<LOANS> 532,825
<ALLOWANCE> 4,563
<TOTAL-ASSETS> 882,019
<DEPOSITS> 733,584
<SHORT-TERM> 56,460
<LIABILITIES-OTHER> 7,100
<LONG-TERM> 4,567
0
0
<COMMON> 24,318
<OTHER-SE> 55,990
<TOTAL-LIABILITIES-AND-EQUITY> 882,019
<INTEREST-LOAN> 23,012
<INTEREST-INVEST> 6,178
<INTEREST-OTHER> 1,528
<INTEREST-TOTAL> 30,718
<INTEREST-DEPOSIT> 12,188
<INTEREST-EXPENSE> 13,508
<INTEREST-INCOME-NET> 17,210
<LOAN-LOSSES> 684
<SECURITIES-GAINS> 74
<EXPENSE-OTHER> 12,170
<INCOME-PRETAX> 7,790
<INCOME-PRE-EXTRAORDINARY> 7,790
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,176
<EPS-PRIMARY> 2.13
<EPS-DILUTED> 2.13
<YIELD-ACTUAL> 4.27
<LOANS-NON> 1,357
<LOANS-PAST> 2,875
<LOANS-TROUBLED> 4
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,437
<CHARGE-OFFS> 678
<RECOVERIES> 120
<ALLOWANCE-CLOSE> 4,563
<ALLOWANCE-DOMESTIC> 4,563
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
