<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, 1999
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: 2,420,436 shares of the
Company's Common Stock ($10.00 par value) were outstanding as of August 3,
1999.
<PAGE>
FIRST NATIONAL BANCORP, INC. AND SUBSIDIARY
CONTENTS
Part I. Financial Information
<TABLE>
<CAPTION>
Item 1. Financial Statements Page
<S> <C>
a. Condensed Consolidated Balance Sheets 1
b. Condensed Consolidated Statements of Income 2
c. Condensed Consolidated Statements of Stockholders' Equity 3
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
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
Part II. Other Information
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signature Page 18
</TABLE>
<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>
June 30,
1999 December 31,
(Unaudited) 1998
---------------- ----------------
<S> <C> <C>
ASSETS
Cash and due from banks $35,235 $39,710
Federal funds sold 39,100 31,000
Securities available-for-sale 65,268 66,927
Securities held-to-maturity (fair value of $203,082 at June
30, 1999 and $195,526 at December 31, 1998) 204,660 193,733
Loans, net of unearned discount 570,872 540,946
Allowance for loan losses (5,542) (4,946)
---------------- ----------------
Loans, net 565,330 536,000
Premises and equipment, net 19,043 18,753
Accrued interest receivable and other assets 8,936 8,067
Intangibles,net 7,982 8,485
---------------- ----------------
TOTAL ASSETS $945,554 $902,675
---------------- ----------------
---------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand, non-interest bearing $134,913 $142,427
NOW accounts 89,107 87,611
Money market accounts 52,448 45,736
Savings 182,552 172,329
Time deposits, $100,000 and over 74,498 69,871
Other time deposits 247,838 228,342
---------------- ----------------
Total deposits 781,356 746,316
Short-term borrowings 72,338 65,540
Long-term debt 1,259 3,059
Accrued interest and other liabilities 5,709 5,652
---------------- ----------------
Total liabilities 860,662 820,567
---------------- ----------------
STOCKHOLDERS' EQUITY
Preferred stock - -
Common stock 24,318 24,318
Additional paid-in capital 14 14
Retained earnings 62,362 58,578
Treasury stock (750) (750)
Unrealized loss on securities available-for-sale,
net of tax (1,052) (52)
---------------- ----------------
Total Stockholders' Equity 84,892 82,108
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $945,554 $902,675
---------------- ----------------
---------------- ----------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
Page 2
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,
1999 1998 1999 1998
--------------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans $11,545 $11,540 $22,721 $23,012
Securities:
Taxable 3,203 2,612 6,320 5,313
Tax-exempt 385 430 779 865
Federal funds sold 521 834 939 1,528
--------------- ------------- --------------- -------------
Total interest income 15,654 15,416 30,759 30,718
--------------- ------------- --------------- -------------
INTEREST EXPENSE:
Deposits 5,817 6,059 11,390 12,188
Short-term borrowings 552 568 1,134 1,129
Long-term debt 24 94 65 191
--------------- ------------- --------------- -------------
Total interest expense 6,393 6,721 12,589 13,508
--------------- ------------- --------------- -------------
Net interest income 9,261 8,695 18,170 17,210
Provision for loan losses 375 375 750 684
--------------- ------------- --------------- -------------
Net interest income after provision for loan losses 8,886 8,320 17,420 16,526
--------------- ------------- --------------- -------------
NONINTEREST INCOME:
Trust fees 328 269 683 589
Service charges on deposit accounts 979 1,014 1,899 1,912
Securities gains, net (12) 15 15 74
Other income 513 434 982 859
--------------- ------------- --------------- -------------
Total noninterest income 1,808 1,732 3,579 3,434
--------------- ------------- --------------- -------------
NONINTEREST EXPENSES:
Salaries and employee benefits 3,316 3,309 6,609 6,592
Occupancy and equipment expense 750 854 1,540 1,645
Data processing expense 388 379 645 659
Amortization of intangibles 251 251 502 502
Other expenses 1,629 1,417 2,857 2,772
--------------- ------------- --------------- -------------
Total noninterest expenses 6,334 6,210 12,153 12,170
--------------- ------------- --------------- -------------
INCOME BEFORE INCOME TAXES 4,360 3,842 8,846 7,790
Income tax expense 1,478 1,281 3,005 2,614
--------------- ------------- --------------- -------------
NET INCOME $2,882 $2,561 $5,841 $5,176
--------------- ------------- --------------- -------------
--------------- ------------- --------------- -------------
Earnings per common share $1.19 $1.05 $2.41 $2.13
--------------- ------------- --------------- -------------
--------------- ------------- --------------- -------------
Weighted average number of shares outstanding 2,420,436 2,431,804 2,420,436 2,431,804
--------------- ------------- --------------- -------------
--------------- ------------- --------------- -------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
Page 3
FIRST NATIONAL BANCORP, INC. AND SUBSIDIARY
-------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Comprehensive Income Stockholders' Equity
Six Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
COMMON STOCK:
Beginning and end of period $24,318 $24,318
------------- --------------
ADDITIONAL PAID-IN CAPITAL:
Beginning and end of period 14 -
------------- --------------
RETAINED EARNINGS:
Beginning of period 58,578 52,607
Net income $5,841 $5,176 5,841 5,176
Cash dividends declared (2,057) (1,824)
------------- --------------
End of period 62,362 55,959
------------- --------------
TREASURY STOCK (AT COST):
Beginning and end of period (750) -
------------- --------------
UNREALIZED GAIN (LOSS) ON SECURITIES
AVAILABLE-FOR-SALE:
Beginning of period (52) 20
Unrealized gains (losses) on securities,
net of reclassification adjustment (1,000) 11
------------- -------------
Other comprehensive income (1,000) 11 (1,000) 11
------------- ------------- ------------- --------------
End of period (1,052) 31
------------- --------------
Total comprehensive income $4,841 $5,187
------------- -------------
------------- -------------
TOTAL STOCKHOLDERS' EQUITY $84,892 $80,308
------------- --------------
------------- --------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
Page 4
FIRST NATIONAL BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 5,841 $ 5,176
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation 870 843
Provision for loan losses 750 684
Amortization of securities premiums, net of accretion 28 28
Net securities gains (15) (74)
Net gains on sale of other real estate - (2)
Amortization of intangibles 502 502
(Increase) decrease in accrued interest receivable and other assets (211) 346
Increase in accrued interest and other liabilities 57 461
----------- ------------
Net cash from operating activities 7,822 7,964
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Change in federal funds sold, net (8,100) (38,300)
Proceeds from maturities of securities 66,090 79,070
Proceeds from sale of securities 6,998 -
Purchase of securities (84,026) (53,844)
Loans made to customers, net of principal collections (30,130) (7,104)
Purchase of premises and equipment (1,160) (488)
Proceeds from sale of other real estate 50 7
----------- ------------
Net cash from investing activities (50,278) (20,659)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 35,040 7,428
Net increase in short-term borrowings 6,798 10,253
Principal paid on long-term debt (1,800) (250)
Dividends paid (2,057) (1,824)
----------- ------------
Net cash from financing activities 37,981 15,607
----------- ------------
Net change in cash and due from banks (4,475) 2,912
CASH AND DUE FROM BANKS
Beginning 39,710 34,591
----------- ------------
Ending $ 35,235 $ 37,503
----------- ------------
----------- ------------
SUPPLEMENTAL DISCLOSURES
Cash payments for:
Interest paid $ 12,761 $ 12,964
Income taxes 3,150 2,187
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
Page 5
FIRST NATIONAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 1999
(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.
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 Compnany's 1998 Annual Report on Form 10-K filed with the
Securities and Exchange Commission. The December 31, 1998 balance sheet has been
derived from the audited financial statements included in the Company's 1998
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, 1999. 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, 1999 and 1998 and
the six months ended June 30, 1999 and 1998 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 June 30,
1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---------------- ----------------
<S> <C> <C>
June 30, 1999
-------------
U. S. Treasury $ - $ -
U. S. Government agencies 64,984 63,261
Corporate 1,021 1,000
Federal Reserve Bank stock 1,007 1,007
---------------- ----------------
$ 67,012 $ 65,268
---------------- ----------------
---------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---------------- ----------------
<S> <C> <C>
December 31, 1998
-----------------
U. S. Treasury $ 5,998 $ 6,048
U. S. Government agencies 58,985 58,845
Corporate 1,023 1,027
Federal Reserve Bank stock 1,007 1,007
---------------- ----------------
$ 67,013 $ 66,927
---------------- ----------------
---------------- ----------------
</TABLE>
The amortized cost and fair value of securities held-to-maturity at June 30,
1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---------------- ----------------
<S> <C> <C>
June 30, 1999
-------------
U. S. Treasury $ 9,015 $ 9,093
U. S. Government agencies 165,505 163,415
States and political subdivisions 30,140 30,574
---------------- ----------------
$ 204,660 $ 203,082
---------------- ----------------
---------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---------------- ----------------
<S> <C> <C>
December 31, 1998
-----------------
U. S. Treasury $ 16,021 $ 16,250
U. S. Government agencies 147,673 148,235
States and political subdivisions 30,039 31,041
---------------- ----------------
$ 193,733 $ 195,526
---------------- ----------------
---------------- ----------------
</TABLE>
Securities with a carrying value of approximately $178,118,000 and $155,000,000
at June 30, 1999 and December 31, 1998, 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 June 30, 1999 and December 31, 1998 were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------------- ----------------
<S> <C> <C>
Commercial and commercial real estate $ 203,964 $ 184,988
Residential real estate 127,236 136,894
Construction 13,339 15,624
Agricultural 10,106 9,763
Consumer 216,227 193,677
---------------- ----------------
Total loans $ 570,872 $ 540,946
---------------- ----------------
---------------- ----------------
</TABLE>
Impaired loans consist of commercial and commercial real estate loans. Impaired
loans amounted to $347,000 at June 30, 1999 and $786,000 at December 31, 1998.
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Balance, beginning of year $ 4,946 $ 4,437
Provision charged to operations 750 684
Loans charged-off (727) (678)
Recoveries 573 120
---------------- ----------------
Balance, June 30, 1999 and 1998 $ 5,542 $ 4,563
---------------- ----------------
---------------- ----------------
</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>
June 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Loan commitments $ 69,523 $ 69,092
Standby letters of credit 13,002 16,833
</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.
The Company and its subsidiary are involved in litigation arising in the
ordinary course of business. The resolution of these matters is not expected,
either individually or in the aggregate, to have a material effect on the
Company's financial condition or results of operations.
NOTE 5 - 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 $4.8 million for the first six months of 1999, compared
to $5.2 million for the first six months of 1998.
<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.
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.
FINANCIAL CONDITION
Total assets increased $42,879,000 or 4.75% to $945,554,000 as of June 30,
1999, compared to December 31, 1998. During the first six months of 1999, net
loans increased $29,330,000, up 5.47% from December 31, 1998. Deposits
increased $35,040,000 during the first six months of 1999, up 4.70% from
December 31, 1998. Stockholders' Equity increased $2,784,000, up 3.39% from
December 31, 1998.
At June 30, 1999, earning assets were $879,900,000, an increase of
$47,294,000 or 5.68% from $832,606,000 at December 31, 1998. Average earning
assets for the three months ended June 30, 1999 were $847,038,000, an
increase of $58,882,000, or 4.13% from the same period in 1998, primarily due
to an increase of $28,258,000 in the average loan portfolio and an increase
of $30,624,000 in average investments.
Interest-bearing liabilities were $720,040,000 at June 30, 1999, an increase
of $47,552,000 or 7.07%, from $672,488,000 at December 31, 1998. The increase
was primarily due to an increase of 14.68% in money market accounts, a 5.93%
increase in savings accounts, a 8.09% increase in time deposits, and an
increase of 10.37% in short-term borrowings as a result of fluctuations in
the balances of seasonal public funds.
Average interest-bearing liabilities for the three months ended June 30, 1999
were $684,801,000, an increase of $42,119,000, or 6.55% from the same period
in 1998. The increase was primarily due to a 6.53% increase in
interest-bearing deposits and a 12.90% increase in short-term borrowings.
<PAGE>
Page 10
RESULTS OF OPERATIONS
For the three months ended June 30, 1999, the Company earned $2,882,000 or
$1.19 per share as compared to $2,561,000 or $1.05 per share for the same
period in 1998. On a percentage basis, net income for the second quarter of
1999 increased by 12.53% over that of the second quarter of 1998. The
Company's annualized return on average assets for the three months ended June
30, 1999 was 1.26% versus 1.19% for the same period in 1998. Annualized
return on average equity was 13.70% for the second quarter of 1999 compared
to 12.89% for the second quarter of 1998.
For the six months ended June 30, 1999, the Company earned $5,841,000 or
$2.41 per share as compared to $5,176,000 or $2.13 per share for the same
period in 1998. During this period, net income increased 12.85% over the same
period in 1998. The Company's annualized return on average assets for the six
months ended June 30, 1999 was 1.30% versus 1.22% for the same period in
1998. Annualized return on average equity was 14.07% for the six months ended
June 30, 1999 compared to 13.23% for the same period in 1998.
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 and
monitoring interest rates offered to customers, 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 4.51%
for the three months ended June 30, 1999, as compared to 4.55% for the same
period in 1998.
For the three months ending June 30, 1999, the yield on earning assets
decreased 44 basis points to 7.41% and the cost of interest-bearing
liabilities decreased 45 basis points to 3.74% as compared to the same period
in 1998. The decrease in the yield on earning assets is due primarily to the
decrease in loan and securities interest rates. The decrease in the cost of
interest-bearing liabilities is due primarily to a combination of the
increase in the volume of savings, money market, and time deposit accounts
and the decrease in the interest rates paid on those funds.
Tax equivalent net interest income for the three months ended June 30, 1999,
increased $572,000 or 6.40% compared to the same period in 1998. The increase
in the volume of earning assets net of interest-bearing liabilities produced
$588,000 of the net interest income increase while changes in interest rates
decreased income by $16,000.
For the six months ended June 30, 1999, on a tax equivalent basis, the
Company's net interest income expressed as a percentage of average interest
earning assets was 4.52% as compared to 4.54% for the same period in 1998.
The yield on earning assets decreased 43 basis points to 7.45% and the cost
of interest-bearing liabilities decreased 48 basis points to 3.76%. Tax
equivalent net interest income for the six months ended June 30, 1999
increased $969,000 or 5.47% compared to the same period in 1998. The increase
in the volume of earning assets net of interest-bearing liabilities produced
$986,000 of the net interest income increase while changes in interest rates
decreased income by $17,000.
<PAGE>
Page 11
NONINTEREST INCOME
Noninterest income consists primarily of service charges on deposit accounts
and trust fees. Total noninterest income was $1,808,000 for the three months
ended June 30, 1999, an increase of $76,000, or 4.39%, from the same period
in 1998. The ratio of noninterest income to income before taxes was 41.47%
and 45.08% for the three months ended June 30, 1999 and 1998, respectively.
The noninterest income increase of $76,000 was primarily attributable to an
increase of $30,000 in servicing fees on real estate mortgage loans sold, an
increase of $59,000 in trust fees, and an increase of $10,000 in ATM
surcharge fees. These increases are offset in part by a decrease in net
securities gains of $27,000 and a decrease of $35,000 in deposit service
charges.
For the six months ended June 30, 1999, the total noninterest income was
$3,579,000 an increase of $145,000 or 4.22% from the same period in 1998. The
increase included increases in trust fees of $94,000, servicing fees on real
estate mortgage loans sold of $57,000, ATM surcharge fees of $35,000, and
gains on the sale of loans of $20,000. These increases are offset by
decreases in deposit service charges of $13,000 and securities gains of
$59,000.
NONINTEREST EXPENSE
Noninterest expense increased $124,000, or 2.00%, to $6,334,000 for the three
months ended June 30, 1999 as compared to $6,210,000 in the same period in
1998. For the six months ended June 30,1999, noninterest expense decreased
$17,000 or .14% to $12,153,000 as compared to $12,170,000 for the same period
in 1998.
Details of noninterest expenses for the three months ended June 30, 1999 and
1998 and the six months ended June 30, 1999 and 1998, are presented in the
following schedule:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---------------- ---------------- --------------- -------------
<S> <C> <C> <C> <C>
Salaries and employee benefits $3,316 $3,309 $6,609 $6,592
Occupancy and equipment expense 750 854 1,540 1,645
Data processing 388 379 645 659
FDIC insurance and bank exam assessment 67 57 133 119
Printing, stationery, and supplies 139 161 249 318
Postage 102 109 191 253
Amortization of intangibles 251 251 502 502
All other expenses 1,321 1,090 2,284 2,082
---------------- ---------------- --------------- -------------
Total noninterest expense $6,334 $6,210 $12,153 $12,170
---------------- ---------------- --------------- -------------
---------------- ---------------- --------------- -------------
</TABLE>
Salaries and employee benefits represented the largest category of
noninterest expense, accounting for 52.35% of total noninterest expense for
the three months ended June 30, 1999 versus 53.29% in the same period in
1998. Salaries and benefits represented 54.38% of total noninterest expense
for the six months ended June 30, 1999 versus 54.17% in the same period in
1998. Salaries and employee benefits for the three months and six months
ended June 30, 1999 were substantially the same as the respective prior year
periods. Compensation expense has been controlled through efficiencies
resulting from merging all four of the Company's subsidiary banks together in
March 1998. The Company's number of full-time equivalent employees at June
30, 1999 were 363, compared to 356 and 364 at December 31, 1998 and 1997,
respectively.
The year-to-date decrease in data processing, supplies, and postage expenses
from 1998 to 1999 were primarily a result of expenses incurred in 1998 to
merge the subsidiary banks.
<PAGE>
Page 12
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, 1999, the Company's nonperforming loans were $1,910,000 or
.33% of total loans compared to $3,164,000 or .58% of total loans at December
31, 1998. The decrease is attributable to decreases of $1,105,000 in
nonperforming real estate loans, $29,000 in nonperforming consumer loans,
$45,000 in nonperforming other loans, and $75,000 in nonperforming commercial
loans. Impaired loans amounted to $347,000 at June 30, 1999, and $786,000 at
December 31, 1998.
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 $596,000 for the six month period
ended June 30, 1999 to $5,542,000, which represented .97% of total loans. At
December 31, 1998, the allowance for loan losses represented .91% of total
loans.
CAPITAL RESOURCES
Stockholders' equity was $84,892,000 at June 30, 1999, an increase of
$2,784,000, or 3.39% over December 31, 1998. At June 30, 1999, stockholders'
equity represented 8.98% of total assets compared to 9.10% at December 31,
1998.
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
1 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, 1999 and
December 31, 1998 are summarized below:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- ------------
<S> <C> <C>
Total Capital to risk-weighted assets 13.41% 13.43%
Tier I Capital to risk-weighted assets 12.53% 12.59%
Tier I Capital to average assets 8.67% 8.43%
</TABLE>
<PAGE>
Page 13
NEW ACCOUNTING PRONOUNCEMENTS
In 1999 and 2000, new accounting pronouncements that have been issued will
take effect. These pronouncements and their expected effects on the Company,
are summarized below.
Statement of Financial Accounting Standards (Statement) 133 on derivatives
will, in 2001, require all derivatives to be recorded at fair value in the
balance sheet, with changes in fair value charged or credited to income. If
derivatives are documented and effective as hedges, the change in the
derivative fair value will be offset by an equal change in the fair value of
the hedged item. Under the new standard, securities held-to-maturity can no
longer be hedged, except for changes in the issuer's creditworthiness.
Therefore, upon adoption of Statement 133, companies will have another
one-time window of opportunity to reclassify held-to-maturity securities to
either trading or available-for-sale, provided certain citeria are met. This
Statement may be adopted early at the start of a calendar quarter. Since the
Company has no significant derivative instruments or hedging activities,
adoption of Statement 133 is not expected to have a material impact on the
Company's financial statements. However, the Company may take advantage of
the opportunity provided by Statement 133 to reclassify held-to-maturity
securities to available-for-sale. Management has not decided whether to adopt
Statement 133 early.
Statement 134 on mortgage banking will, in 1999, allow mortgage loans that
are securitized to be classified as trading, available-for-sale, or, in
certain circumstances, held-to-maturity. Currently, these must be classified
as trading. Since the Company has not securitized mortgage loans, Statement
134 is not expected to affect the Company.
AICPA Statement of Position 98-1, effective in 1999, sets the accounting
requirement to capitalize costs incurred to develop or obtain software that
is to be used solely to meet internal needs. Costs to capitalize are those
direct costs incurred after the preliminary project stage, up to the date
when all testing has been completed and the software is substantially ready
for use. All training costs, research and development costs, costs incurred
to convert data, and all other general and administrative costs are to be
expensed as incurred. The capitalized cost of internal-use software is
amortized over its useful life and reviewed for impairment using the criteria
in Statement 121. Statement of Position 98-1 has not had any impact on the
Company.
AICPA Statement of Position 98-5, also effective in 1999, requires all
start-up, pre-opening, and organization costs to be expensed as incurred. Any
such costs previously capitalized for financial reporting purposes must be
written off to income at the start of the year. Statement 98-5 has not had
any impact on the Company, since no such costs were capitalized at December
31, 1998.
<PAGE>
Page 14
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). Our overall readiness is
reviewed quarterly by the Comptroller of the Currency, and their current review
schedule will continue throughout 1999. The Company has also developed
contingency plans for all critical systems and applications to deal with system
failures should they occur internally or externally. During the third and fourth
quarters, the Company will be testing these contingency plans.
The Company's data processing provider and other vendors have been contacted and
have indicated that their hardware and software is Year 2000 compliant. The
Company has upgraded to those compliant software versions and completed the
testing of these systems. In addition, alarms, heating and cooling systems, and
other computer controlled mechanical devices which the Company relies on have
been evaluated.
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 communicated with key customers to ensure that they are aware of and are
properly prepared for the Year 2000.
<PAGE>
Page 15
FIRST NATIONAL BANCORP, INC. AND SUBSIDIARY
-------------------------------------------
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 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
subsidiary. 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 Tables
present the interest rate sensitivity and expected maturities of securities,
fixed rate loans, time deposits, short-term borrowings and long-term debt as of
June 30, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
ANALYSIS AS OF JUNE 30, 1999
EXPECTED MATURITY AMOUNTS FOR YEARS ENDING JUNE 30,
-------------------------------------------------------------------------------------------------
2002 Fair
Through After Value
2000 2001 2004 2004 Total Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Securities, fixed rate
Available-for-sale $ - $ - $ 49,012 $ 18,000 $ 67,012 $ 65,268
Average interest rate - - 5.36% 6.17% 5.58%
Held-to-maturity 11,311 16,182 143,494 33,673 204,660 203,082
Average interest rate 6.10% 5.91% 5.79% 5.89% 5.83%
Loans, fixed rate (1) 100,873 57,402 209,053 79,516 446,844 448,093
Average interest rate 8.46% 8.62% 8.29% 7.93% 8.31%
LIABILITIES
NOW, money market and
savings deposits (2) $ 324,107 $ - $ - $ - $ 324,107 $ 324,107
Average interest rate 2.48% - - - 2.48%
Time deposits, fixed rate 294,723 14,417 13,144 52 322,336 323,664
Average interest rate 4.79% 5.29% 5.60% 4.25% 4.84%
Short-term borrowings, fixed rate 72,338 - - - 72,338 72,338
Average interest rate 4.80% - - - 4.80%
Long-term debt, variable rate 1,259 - - - 1,259 1,259
Average interest rate 8.00% - - - 8.00%
</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, money market, and savings accounts are variable rate deposits. These
deposit accounts, while shown as maturing in the year ending June 30, 2000, are
considered by management as core deposits for asset/liability management
purposes with account lives extending beyond one year.
<PAGE>
Page 16
<TABLE>
<CAPTION>
ANALYSIS AS OF DECEMBER 31, 1998
EXPECTED MATURITY AMOUNTS FOR YEARS ENDING DECEMBER 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 $ 4,999 $ - $ 47,008 $ 15,006 $ 67,013 $ 66,927
Average interest rate 6.05% - 5.35% 6.04% 5.55%
Held-to-maturity 14,821 12,126 136,638 30,148 193,733 195,526
Average interest rate 5.85% 6.09% 5.90% 5.78% 5.89%
Loans, fixed rate (1) 97,040 52,838 187,935 83,262 421,075 425,351
Average interest rate 8.63% 8.74% 8.46% 8.07% 8.46%
LIABILITIES
NOW, money market and
savings deposits (2) $ 305,676 $ - $ - $ - $ 305,676 $ 305,676
Average interest rate 2.50% - - - 2.50%
Time deposits, fixed rate 266,648 16,586 14,979 - 298,213 300,001
Average interest rate 4.98% 5.68% 5.77% - 5.06%
Short-term borrowings, fixed rate 65,540 - - - 65,540 65,540
Average interest rate 4.92% - - - 4.92%
Long-term debt, variable rate 3,059 - - - 3,059 3,059
Average interest rate 7.49% - - - 7.49%
</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, money market, and savings accounts are variable rate deposits. These
deposit accounts, while shown as maturing in the year ending December 31, 1999,
are considered by management as core deposits for asset/liability management
purposes with account lives extending beyond one year.
<PAGE>
Page 17
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
On March 11, 1999, the annual meeting of stockholders was held. At the
meeting, Sheldon C. Bell, George H. Buck, Albert G. D'Ottavio, Watson A.
Healy, 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 2000.
There were 2,420,436 outstanding shares of Common Stock entitled to vote at
the annual meeting. The voting on each item presented at the annual was as
follows:
<TABLE>
<CAPTION>
Election of Directors For Withheld
- --------------------- ---------- --------
<S> <C> <C>
Sheldon C. Bell 1,866,626 --
George H. Buck 1,866,626 --
Albert G. D'Ottavio 1,866,626 --
Watson A. Healy 1,866,554 72
Harvey A. Lewis 1,865,294 1,332
Walter F. Nolan 1,866,626 --
Charles R. Peyla 1,861,082 5,544
Louis R. Peyla 1,865,282 1,344
Kevin T. Reardon 1,862,368 4,258
Michael C. Reardon 1,866,258 368
Howard E. Reeves 1,866,542 84
</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>
Page 18
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 5, 1999
/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-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 35,235
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 39,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 65,268
<INVESTMENTS-CARRYING> 204,660
<INVESTMENTS-MARKET> 203,082
<LOANS> 570,872
<ALLOWANCE> 5,542
<TOTAL-ASSETS> 945,554
<DEPOSITS> 781,356
<SHORT-TERM> 72,338
<LIABILITIES-OTHER> 5,709
<LONG-TERM> 1,259
0
0
<COMMON> 24,318
<OTHER-SE> 60,574
<TOTAL-LIABILITIES-AND-EQUITY> 945,554
<INTEREST-LOAN> 22,721
<INTEREST-INVEST> 7,099
<INTEREST-OTHER> 939
<INTEREST-TOTAL> 30,759
<INTEREST-DEPOSIT> 11,390
<INTEREST-EXPENSE> 12,589
<INTEREST-INCOME-NET> 18,170
<LOAN-LOSSES> 750
<SECURITIES-GAINS> 15
<EXPENSE-OTHER> 12,153
<INCOME-PRETAX> 8,846
<INCOME-PRE-EXTRAORDINARY> 8,846
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,841
<EPS-BASIC> 2.41
<EPS-DILUTED> 2.41
<YIELD-ACTUAL> 4.40
<LOANS-NON> 1,075
<LOANS-PAST> 835
<LOANS-TROUBLED> 200
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,946
<CHARGE-OFFS> 727
<RECOVERIES> 573
<ALLOWANCE-CLOSE> 5,542
<ALLOWANCE-DOMESTIC> 5,542
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
