<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 March 31, 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 May 1, 1998.
<PAGE>
FIRST NATIONAL BANCORP, INC. AND SUBSIDIARY
CONTENTS
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
<PAGE>
Page 1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST NATIONAL BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(Unaudited)
----------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $31,513 $34,591
Federal funds sold 66,700 50,800
Securities available-for-sale 12,062 11,831
Securities held-to-maturity (Fair value of $181,771 and
$206,269 at March 31,1998 and December 31,1997) 180,324 204,870
Loans, net of unearned discount 523,227 526,380
Allowance for loan losses (4,391) (4,437)
----------- ------------
Loans, net 518,836 521,943
Premises and equipment, net 18,747 18,840
Accrued interest and other assets 7,300 8,392
Intangibles,net 9,238 9,489
----------- ------------
TOTAL ASSETS $844,720 $860,756
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand, non-interest bearing $123,268 $129,243
NOW accounts 73,320 78,660
Money Market accounts 33,664 37,086
Savings 174,038 165,341
Time deposits, $100,000 and over 69,110 70,472
Other time deposits 242,538 245,354
----------- ------------
Total Deposits 715,938 726,156
----------- ------------
Short-term borrowings 38,423 46,207
Long-term debt 4,692 4,817
Accrued interest and other liabilities 7,005 6,631
----------- ------------
Total Liabilities 766,058 783,811
----------- ------------
STOCKHOLDERS' EQUITY
Preferred stock - -
Common stock 24,318 24,318
Retained earnings 54,310 52,607
Accumulated other comprehensive income 34 20
----------- ------------
Total Stockholders' Equity 78,662 76,945
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $844,720 $860,756
----------- ------------
----------- ------------
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
Page 2
<TABLE>
<CAPTION>
FIRST NATIONAL BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended
March 31,
1998 1997
------- -------
<S> <C> <C>
INTEREST INCOME:
Loans $11,472 $10,134
Securities:
Taxable 2,701 3,000
Tax-exempt 435 484
Federal funds sold 694 638
------- -------
Total interest income 15,302 14,256
------- -------
INTEREST EXPENSE:
Deposits 6,129 5,721
Short-term borrowings 561 588
Long-term debt 97 136
------- -------
Total interest expense 6,787 6,445
------- -------
Net interest income 8,515 7,811
Provision for loan losses 309 202
------- -------
Net interest income after provision for loan losses 8,206 7,609
------- -------
NONINTEREST INCOME:
Trust department income and farm management income 320 299
Service fees 1,205 1,012
Securities gains, net 59 1
Other income 118 102
------- -------
Total noninterest income 1,702 1,414
------- -------
NONINTEREST EXPENSES:
Salaries and employee benefits 3,283 3,003
Occupancy and equipment expense 791 736
Data processing expense 280 187
Amortization of intangibles 251 268
Other expenses 1,355 1,178
------- -------
Total noninterest expenses 5,960 5,372
------- -------
INCOME BEFORE INCOME TAXES 3,948 3,651
Income tax expense 1,333 1,200
------- -------
NET INCOME $2,615 $2,451
------- -------
------- -------
Earnings per common share $1.08 $1.01
------- -------
------- -------
Weighted average number of shares outstanding 2,431,804 2,431,804
------- -------
------- -------
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
Page 3
<TABLE>
<CAPTION>
FIRST NATIONAL BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND OTHER COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands)
Comprehensive Income Stockholders' Equity
Three Months Ended Three Months Ended
March 31, March 31,
1998 1997 1998 1997
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
COMMON STOCK:
Beginning and end of period $24,318 $12,159
--------- ---------
ADDITIONAL PAID-IN CAPITAL:
Beginning and end of period - 8,846
---------- --------
RETAINED EARNINGS:
Beginning of period 52,607 50,394
Net income $2,615 $2,451 2,615 2,451
Cash dividends declared (912) (1,824)
----------- -------
End of period 54,310 51,021
----------- -------
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 13 (24)
Reclassification adjustment for gains (losses) on
securities and premiums/discounts
included in net income, net of income taxes 1 2
--------- --------
Other comprehensive income 14 (22) 14 (22)
--------- --------- ----------- -------
End of period accumulated other comprehensive income 34 (30)
----------- -------
COMPREHENSIVE INCOME $2,629 $2,429
-------- ---------
-------- ---------
TOTAL STOCKHOLDERS' EQUITY $78,662 $71,996
----------- -------
----------- -------
</TABLE>
<PAGE>
Page 4
<TABLE>
<CAPTION>
FIRST NATIONAL BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
Three Months Ended
March 31,
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $2,615 $2,451
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 419 354
Provision for loan losses 309 202
Amortization of securities premiums, net of accretion 11 21
Net securities gains (59) (1)
Net losses (gains) on sale of other real estate (2) 6
Amortization of intangibles 251 268
(Increase) decrease in accrued interest and other assets 1,087 (28)
Increase in accrued interest and other liabilities 364 201
-------- --------
Net cash from operating activities 4,995 3,474
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Change in federal funds sold, net (15,900) 59,040
Proceeds from maturities of securities 37,094 21,238
Proceeds from sale of securities - -
Purchase of securities (12,707) (62,114)
Loans made to customers, net of principal collections 2,798 (11,820)
Purchase of premises and equipment (326) (1,211)
Proceeds from sale of other real estate 7 7
-------- --------
Net cash from investing activities 10,966 5,140
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits (10,218) (7,449)
Net decrease in short-term borrowings (7,784) (2,941)
Principal paid on long-term debt (125) (250)
Dividends paid (912) (1,824)
-------- --------
Net cash from financing activities (19,039) (12,464)
-------- --------
Net change in cash and due from banks (3,078) (3,850)
CASH AND DUE FROM BANKS
Beginning 34,591 35,785
-------- --------
Ending $31,513 $31,935
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURES
Cash payments for:
Interest paid $6,986 $7,058
Income taxes - -
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
Page 5
FIRST NATIONAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 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>
Page 6
NOTE 2 - SECURITIES
The amortized cost and fair value of securities available-for-sale at March 31,
1998 and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------- --------
<S> <C> <C>
MARCH 31, 1998
U. S. Treasury $7,997 $8,038
U. S. government agencies 3,001 3,017
Other 1,007 1,007
--------- --------
$12,005 $12,062
--------- --------
--------- --------
</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 March 31,
1998 and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------- --------
<S> <C> <C>
MARCH 31, 1998
U. S. Treasury $22,513 $22,656
U. S. government agencies 126,872 127,205
States and political subdivisions 30,939 31,910
--------- --------
$180,324 $181,771
--------- --------
--------- --------
</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 $129,000,000 and $150,000,000 at March
31, 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>
Page 7
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 March 31, 1998 and December 31, 1997 were as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
<S> <C> <C>
Commercial and commercial real estate $184,477 $181,343
Residential real estate 137,582 147,625
Construction 15,102 14,106
Agricultural 9,297 10,769
Consumer 176,869 172,695
-------- --------
Total loans 523,327 526,538
Unearned discount (100) (158)
-------- --------
Loans, net of unearned discount $523,227 $526,380
-------- --------
-------- --------
</TABLE>
Impaired loans consist of commercial and commercial real estate loans.
Impaired loans amounted to $723,000 at March 31, 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 309 202
Loans charged-off (420) (169)
Recoveries 65 31
------ ------
Balance, March 31, 1998 and 1997 $4,391 $4,478
------ ------
------ ------
</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>
Page 8
A summary of the contract amounts of the Bank's exposure to off-balance-sheet
risk is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------- ------------
<S> <C> <C>
Loan commitments $75,982 $87,612
Standby letters of credit 20,252 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
as an addition to (deduction from) net income to arrive at comprehensive income
of $2.6 million for the first quarter of 1998, compared to $2.4 million for the
first quarter of 1997.
<PAGE>
Page 9
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 decreased $16,036,000 or 1.86% to $844,720,000 as of March 31,
1998, compared to December 31, 1997. During the first three months of 1998, net
loans decreased $3,107,000, down .60% from December 31, 1997. Deposits decreased
$10,218,000 during the first three months of 1998, down 1.41% from December 31,
1997. Stockholders' Equity increased $1,717,000, up 2.23% from December 31,
1997.
At March 31, 1998, earning assets were $782,313,000, a decrease of $11,568,000
or 1.5% from $793,881,000 at December 31, 1997. Average earning assets for the
three months ended March 31, 1998 were $784,190,000, an increase of $32,692,000,
or 4.4% from the same period in 1997, primarily due to an increase of
$51,561,000 in the average loan portfolio.
Interest-bearing liabilities were $635,785,000 at March 31, 1998, a decrease of
$12,152,000 or 1.9%, from $647,937,000 at December 31, 1997. The decrease was
primarily due to a decrease of 6.8% in NOW accounts and a 16.8% decrease in
short-term borrowings, both as a result of fluctuations in the balances of
seasonal public funds. These decreases were offset in part by an increase of
5.3% in savings deposits.
Average interest-bearing liabilities for the three months ended March 31, 1998
were $640,813,000, an increase of $20,540,000, or 3.3% from the same period in
1997. The increase was primarily due to a 4.4% increase in interest-bearing
deposits.
RESULTS OF OPERATIONS
For the three months ended March 31, 1998, the Company earned $2,615,000 or
$1.08 per share as compared to $2,451,000 or $1.01 per share for the same
period in 1997. On a percentage basis, net income for the first quarter of
1998 increased by 6.69% over that of the first quarter of 1997. The Company's
annualized return on average assets for the three months ended March 31, 1998
was 1.24% versus 1.22% for the same period in 1997. Annualized return on
average equity was 13.59% for the first quarter of 1998 compared to 13.95%
for the first quarter of 1997.
<PAGE>
Page 10
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 4.54%
for the three months ended March 31, 1998, as compared to 4.36% for the same
period in 1997.
The yield on earning assets increased 22 basis points to 7.91% and the cost of
interest bearing liabilities increased 9 basis points to 4.30%. 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 time deposits and the increase in
rates paid on those deposits.
Net interest income for the three months ended March 31, 1998, increased
$685,000 or 8.47% on a tax equivalent basis compared to the same period in 1997.
The increase in the volume of earning assets net of interest bearing liabilities
produced $402,000 of the net interest income increase while changes in interest
rates increased income by $283,000.
NONINTEREST INCOME
Noninterest income consists primarily of service charges on customer deposit
accounts and fees earned on trust department services. Total noninterest income
was $1,702,000 for the three months ended March 31, 1998, an increase of
$288,000, or 20.4%, from the same period in 1997. The ratio of noninterest
income to income before taxes was 43.1% and 38.7% for the three months ended
March 31, 1998 and 1997, respectively.
The noninterest income increase of $288,000 was primarily attributable to an
increase of $104,000 in overdraft and demand deposit service charges as a result
of increases in the number of demand deposit accounts. Other increases include
$21,000 in trust fees, a $41,000 increase in net gains on the sale of loans,
net securities gains increase of $58,000, and an increase of $24,000 in ATM
surcharge fees.
<PAGE>
Page 11
NONINTEREST EXPENSE
Noninterest expense increased $588,000, or 10.9%, to $5,960,000 for the three
months ended March 31, 1998 as compared to $5,372,000 in the same period in
1997.
Details of noninterest expenses for the three months ended March 31, 1998 and
March 31, 1997 are presented in the following schedule:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Salaries and employee benefits $3,283 $3,003
Occupancy and equipment expense 791 736
Data processing 280 187
FDIC insurance and bank examination assessment 62 58
Printing, stationery, and supplies 157 146
Postage 144 112
Amortization of intangibles 251 268
All other expenses 992 862
------ ------
Total noninterest expense $5,960 $5,372
------ ------
------ ------
</TABLE>
Salaries and employee benefits represented the largest category of
noninterest expense, accounting for 55.1% of total noninterest expense for
the three months ended total March 31, 1998 total versus 55.9% in the same
period in 1997. Salaries and employee benefits increased $280,000, or 9.3%,
for the three months ended March 31, 1998 over the same period in 1997. The
increase is primarily due to an 8.2% increase in the average full-time
equivalent number of employees at the company.
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 March 31, 1998, the Company's nonperforming loans were $3,503,000
compared to $2,105,000 at December 31, 1997. The increase is attributable to
an increase of $1,057,000 in nonperforming real estate loans, and an increase
of $460,000 in nonperforming consumer loans, offset by a decrease of $216,000
in nonperforming commercial loans. The Company's ratio of nonperforming loans
to total loans was .67% at March 31, 1998, compared to .40% at December 31,
1997. Impaired loans amounted to $723,000 at March 31, 1998 and $876,000 at
December 31, 1997.
<PAGE>
Page 12
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 decreased $46,000 for the three month period
ended March 31, 1998 to $4,391,000, which represented .84% 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 $78,662,000 at March 31, 1998, an increase of
$1,717,000, or 2.2% over December 31, 1997. At March 31, 1998, stockholders'
equity represented 9.31% 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 March 31, 1998 and
December 31, 1997 are summarized below:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
Total Capital to risk-weighted assets 13.23% 12.87%
Tier I Capital to risk-weighted assets 12.45% 12.09%
Tier I Capital to average assets 8.32% 8.01%
</TABLE>
YEAR 2000
The Company has conducted a review of its computer systems for those that
could be affected by the Year 2000 issue and is developing an implementation
plan to resolve the issue. The Year 2000 problem is the result of computer
programs being written using two digits rather than four to define the
applicable year. The Company presently believes that, with modifications to
existing software and by converting to new software, the Year 2000 problem
will not pose significant operational problems for the Company's computer
systems as so modified and converted. However, if such modifications and
conversions are not completed timely, the Year 2000 problem may have a
material impact on the operations of the Company. The Company has been in
continual contact with its data processing providers on Year 2000 issues, and
does not anticipate significant problems.
<PAGE>
Page 13
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 $2.175
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 March 31, 1998 fair value
amounts.
<TABLE>
<CAPTION>
Expected Maturity Amounts for Years Ending March 31,
----------------------------------------------------
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 $6,999 - $3,999 $1,007 $ 12,005 $ 12,062
Average interest rate 5.72% - 6.47% 6.00% 5.99%
Held-to-maturity 42,189 7,049 85,537 45,549 180,324 181,771
Average interest rate 5.36% 6.15% 6.23% 6.18% 6.01%
Loans, fixed rate (1) 95,702 56,918 160,588 87,265 400,473 401,051
Average interest rate 8.71% 8.75% 8.90% 8.29% 8.70%
LIABILITIES
NOW, money market and
savings deposits (2) 281,022 - - - 281,022 281,022
Average interest rate 8.71% - - - 8.71%
Time deposits, fixed rate 273,137 22,293 16,213 5 311,648 312,490
Average interest rate 5.47% 5.79% 6.06% 6.64% 5.52%
Short-term borrowings, fixed rate 38,423 - - - 38,423 38,423
Average interest rate 5.29% - - - 5.29%
Long-term debt, variable rate 1,634 3,058 - - 4,692 4,692
Average interest rate 8.23% 7.80% - - 7.95%
</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 March 31, 1998, are considered by management as core
deposits for asset/liability management purposes with account lives extending
beyond one year.
<PAGE>
Page 14
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>
Page 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedngs 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
Not Applicable.
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>
Page 16
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: MAY 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 31,513
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 66,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,062
<INVESTMENTS-CARRYING> 180,324
<INVESTMENTS-MARKET> 181,771
<LOANS> 523,227
<ALLOWANCE> 4,391
<TOTAL-ASSETS> 844,720
<DEPOSITS> 715,938
<SHORT-TERM> 38,423
<LIABILITIES-OTHER> 7,005
<LONG-TERM> 4,692
0
0
<COMMON> 24,318
<OTHER-SE> 54,344
<TOTAL-LIABILITIES-AND-EQUITY> 78,662
<INTEREST-LOAN> 11,472
<INTEREST-INVEST> 3,136
<INTEREST-OTHER> 694
<INTEREST-TOTAL> 15,302
<INTEREST-DEPOSIT> 6,129
<INTEREST-EXPENSE> 6,787
<INTEREST-INCOME-NET> 8,515
<LOAN-LOSSES> 309
<SECURITIES-GAINS> 59
<EXPENSE-OTHER> 5,960
<INCOME-PRETAX> 3,948
<INCOME-PRE-EXTRAORDINARY> 3,948
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,615
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.08
<YIELD-ACTUAL> 4.40
<LOANS-NON> 1,275
<LOANS-PAST> 2,228
<LOANS-TROUBLED> 5
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,437
<CHARGE-OFFS> 420
<RECOVERIES> 65
<ALLOWANCE-CLOSE> 4,391
<ALLOWANCE-DOMESTIC> 4,391
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
