<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, 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 May 3, 1999.
<PAGE>
FIRST NATIONAL BANCORP, INC. AND SUBSIDIARY
CONTENTS
<TABLE>
<CAPTION>
Part I. Financial Information
<S> <C>
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
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 14
Part II. Other Information
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature Page 17
</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>
March 31,
1999 December 31,
(Unaudited) 1998
-------- --------
<S> <C> <C>
ASSETS
Cash and due from banks $37,100 $39,710
Federal funds sold 56,300 31,000
Securities available-for-sale 61,735 66,927
Securities held-to-maturity (fair value of $172,645 at March
31, 1999 and $195,526 at December 31, 1998) 171,748 193,733
Loans, net of unearned discount 544,636 540,946
Allowance for loan losses (5,177) (4,946)
-------- --------
Loans, net 539,459 536,000
Premises and equipment, net 19,004 18,753
Accrued interest receivable and other assets 8,775 8,067
Intangibles,net 8,234 8,485
-------- --------
TOTAL ASSETS $902,355 $902,675
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand, non-interest bearing $139,381 $142,427
NOW accounts 84,044 87,611
Money market accounts 51,071 45,736
Savings 180,474 172,329
Time deposits, $100,000 and over 71,185 69,871
Other time deposits 241,571 228,342
-------- --------
Total deposits 767,726 746,316
Short-term borrowings 43,403 65,540
Long-term debt 1,259 3,059
Accrued interest and other liabilities 6,650 5,652
-------- --------
Total liabilities 819,038 820,567
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock - -
Common stock 24,318 24,318
Additional paid-in capital 14 14
Retained earnings 60,509 58,578
Treasury stock (750) (750)
Unrealized loss on securities available-for-sale,
net of tax (774) (52)
-------- --------
Total Stockholders' Equity 83,317 82,108
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $902,355 $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
March 31,
1999 1998
---- ----
<S> <C> <C>
INTEREST INCOME:
Loans $11,176 $11,472
Securities:
Taxable 3,117 2,701
Tax-exempt 394 435
Federal funds sold 418 694
--------------------------------
Total interest income 15,105 15,302
--------------------------------
INTEREST EXPENSE:
Deposits 5,573 6,129
Short-term borrowings 582 561
Long-term debt 41 97
--------------------------------
Total interest expense 6,196 6,787
--------------------------------
Net interest income 8,909 8,515
Provision for loan losses 375 309
--------------------------------
Net interest income after provision for loan losses 8,534 8,206
--------------------------------
NONINTEREST INCOME:
Trust fees 355 320
Service charges on deposit accounts 920 898
Securities gains, net 27 59
Other income 469 425
--------------------------------
Total noninterest income 1,771 1,702
--------------------------------
NONINTEREST EXPENSES:
Salaries and employee benefits 3,293 3,283
Occupancy and equipment expense 790 791
Data processing expense 257 280
Amortization of intangibles 251 251
Other expenses 1,228 1,355
--------------------------------
Total noninterest expenses 5,819 5,960
--------------------------------
INCOME BEFORE INCOME TAXES 4,486 3,948
Income tax expense 1,527 1,333
--------------------------------
NET INCOME $2,959 $2,615
--------------------------------
--------------------------------
Earnings per common share $1.22 $1.08
--------------------------------
--------------------------------
Weighted average number of shares outstanding 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
Three Months Ended Three Months Ended
March 31, March 31,
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 $2,959 $2,615 2,959 2,615
Cash dividends declared (1,028) (912)
------------------------
End of period 60,509 54,310
------------------------
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 (722) 14
-----------------------
Other comprehensive income (722) 14 (722) 14
----------------------- ------------------------
End of period (774) 34
------------------------
Total comprehensive income $2,237 $2,629
-----------------------
-----------------------
TOTAL STOCKHOLDERS' EQUITY $83,317 $78,662
------------------------
------------------------
</TABLE>
<PAGE>
Page 4
FIRST NATIONAL BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $2,959 $2,615
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 434 419
Provision for loan losses 375 309
Amortization of securities premiums, net of accretion 13 11
Net securities gains (27) (59)
Net gains on sale of other real estate - (2)
Amortization of intangibles 251 251
(Increase) decrease in accrued interest and other assets (233) 1,087
Increase in accrued interest and other liabilities 998 364
------------------------------
Net cash from operating activities 4,770 4,995
------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Change in federal funds sold, net (25,300) (15,900)
Proceeds from maturities of securities 52,675 37,094
Proceeds from sale of securities - -
Purchase of securities (26,681) (12,707)
Loans made to customers, net of principal collections (3,884) 2,798
Purchase of premises and equipment (685) (326)
Proceeds from sale of other real estate 50 7
------------------------------
Net cash from investing activities (3,825) 10,966
------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 21,410 (10,218)
Net decrease in short-term borrowings (22,137) (7,784)
Principal paid on long-term debt (1,800) (125)
Dividends paid (1,028) (912)
------------------------------
Net cash from financing activities (3,555) (19,039)
------------------------------
Net change in cash and due from banks (2,610) (3,078)
CASH AND DUE FROM BANKS
Beginning 39,710 34,591
------------------------------
Ending $37,100 $31,513
------------------------------
------------------------------
SUPPLEMENTAL DISCLOSURES
Cash payments for:
Interest paid $6,379 $6,986
Income taxes 180 -
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
Page 5
FIRST NATIONAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 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 March 31,
1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
----------- -----------
<S> <C> <C>
March 31, 1999
--------------
U. S. Treasury $999 $1,028
U. S. Government agencies 59,990 58,679
Corporate 1,022 1,021
Federal Reserve Bank stock 1,007 1,007
----------- -----------
$63,018 $61,735
----------- -----------
----------- -----------
Amortized Fair
Cost Value
----------- -----------
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 March 31,
1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
----------- -----------
<S> <C> <C>
March 31, 1999
--------------
U. S. Treasury $9,021 $9,157
U. S. Government agencies 133,105 132,978
States and political subdivisions 29,622 30,510
----------- -----------
$171,748 $172,645
----------- -----------
----------- -----------
Amortized Fair
Cost Value
----------- -----------
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 $136,000,000 and $155,000,000
at March 31, 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 March 31, 1999 and December 31, 1998 were as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Commercial and commercial real estate $191,055 $184,988
Residential real estate 129,042 136,894
Construction 15,523 15,624
Agricultural 8,365 9,763
Consumer 200,651 193,677
----------- -----------
Total loans $544,636 $540,946
----------- -----------
----------- -----------
</TABLE>
Impaired loans consist of commercial and commercial real estate loans. Impaired
loans amounted to $779,000 at March 31, 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 375 309
Loans charged-off (319) (420)
Recoveries 175 65
----------- -----------
Balance, March 31, 1999 and 1998 $5,177 $4,391
----------- -----------
----------- -----------
</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,
1999 1998
--------- ------------
<S> <C> <C>
Loan commitments $71,924 $69,092
Standby letters of credit 17,659 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 $2.2 million for the first three months of 1999,
compared to $2.6 million for the first three 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 decreased $320,000 or .03% to $902,355,000 as of March 31, 1999,
compared to December 31, 1998. During the first three months of 1999, net loans
increased $3,459,000, up .65% from December 31, 1998. Deposits increased
$21,410,000 during the first three months of 1999, up 2.87% from December 31,
1998. Stockholders' Equity increased $1,209,000, up 1.47% from December 31,
1998.
At March 31, 1999, earning assets were $834,419,000, an increase of $1,813,000
or .22% from $832,606,000 at December 31, 1998. Average earning assets for the
three months ended March 31, 1999 were $818,635,000, an increase of $34,445,000,
or 4.39% from the same period in 1998, primarily due to an increase of
$16,528,000 in the average loan portfolio.
Interest-bearing liabilities were $673,007,000 at March 31, 1999, an increase of
$519,000 or .08%, from $672,488,000 at December 31, 1998. The increase was
primarily due to an increase of 11.66% in money market accounts, a 4.73%
increase in savings accounts, and a 4.88% increase in time deposits. These
increases were offset in part by a decrease of 33.78% 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 March 31, 1999
were $665,350,000, an increase of $24,537,000, or 3.83% from the same period in
1998. The increase was primarily due to a 3.08% increase in interest-bearing
deposits and a 24.01% increase in short-term borrowings.
<PAGE>
Page 10
RESULTS OF OPERATIONS
For the three months ended March 31, 1999, the Company earned $2,959,000 or
$1.22 per share as compared to $2,615,000 or $1.08 per share for the same period
in 1998. On a percentage basis, net income for the first quarter of 1999
increased by 13.15% over that of the first quarter of 1998. The Company's
annualized return on average assets for the three months ended March 31, 1999
was 1.34% versus 1.24% for the same period in 1998. Annualized return on average
equity was 14.46% for the first quarter of 1999 compared to 13.59% for the first
quarter of 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 4.54%
for the three months ended March 31, 1999, and for the same period in 1998.
For the three months ending March 31, 1999, the yield on earning assets
decreased 43 basis points to 7.48% and the cost of interest bearing liabilities
decreased 53 basis points to 3.77% 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 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 rates paid on those
funds.
Tax equivalent net interest income for the three months ended March 31, 1999,
increased $397,000 or 4.53% compared to the same period in 1998. The increase in
the volume of earning assets net of interest bearing liabilities produced
$394,000 of the net interest income increase while changes in interest rates
increased income by $3,000.
NONINTEREST INCOME
Noninterest income consists primarily of service charges on customer deposit
accounts and trust fees. Total noninterest income was $1,771,000 for the three
months ended March 31, 1999, an increase of $69,000, or 4.05%, from the same
period in 1998. The ratio of noninterest income to income before taxes was
39.48% and 43.11% for the three months ended March 31, 1999 and 1998,
respectively.
The noninterest income increase of $69,000 was primarily attributable to an
increase of $22,000 in overdraft and demand deposit service charges as a result
of increases in the number of demand deposit accounts. Other increases include
$35,000 in trust fees, a $43,000 increase in net gains on the sale of loans, and
an increase of $25,000 in ATM surcharge fees. These increases are offset in part
by a decrease in net securities gains of $32,000.
<PAGE>
Page 11
NONINTEREST EXPENSE
Noninterest expense decreased $141,000, or 2.37%, to $5,819,000 for the three
months ended March 31, 1999 as compared to $5,960,000 in the same period in
1998.
Details of noninterest expenses for the three months ended March 31, 1999 and
1998 are presented in the following schedule:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
---- ----
<S> <C> <C>
Salaries and employee benefits $3,293 $3,283
Occupancy and equipment expense 790 791
Data processing 257 280
FDIC insurance and bank exam assessment 66 62
Printing, stationery, and supplies 110 157
Postage 89 144
Amortization of intangibles 251 251
All other expenses 963 992
--------------------------------------
Total noninterest expense $5,819 $5,960
--------------------------------------
--------------------------------------
</TABLE>
Salaries and employee benefits represented the largest category of noninterest
expense, accounting for 56.59% of total noninterest expense for the three months
ended March 31, 1999 versus 55.08% in the same period in 1998. Salaries and
employee benefits increased $10,000, or .30%, for the three months ended March
31, 1999 over the same period in 1998. The decrease in data processing,
supplies, and postage expenses from 1998 to 1999 were primarily a result of 1998
including expenses incurred to merge the subsidiary banks.
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, 1999, the Company's nonperforming loans were $2,489,000 or .46%
of total loans compared to $3,164,000 or .59% of total loans at December 31,
1998. The decrease is attributable to decreases of $693,000 in nonperforming
real estate loans, $31,000 in nonperforming consumer loans, and $58,000 in
nonperforming other loans offset by an increase of $107,000 in nonperforming
commercial loans. Impaired loans amounted to $779,000 at March 31, 1999, and
$786,000 at December 31, 1998.
<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 increased $231,000 for the three month period
ended March 31, 1999 to $5,177,000, which represented .95% of total loans. At
December 31, 1998, the allowance for loan losses represented .91% of total
loans.
CAPITAL RESOURCES
Stockholders' equity was $83,317,000 at March 31, 1999, an increase of
$1,209,000, or 1.47% over December 31, 1998. At March 31, 1999, stockholders'
equity represented 9.23% 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 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, 1999 and December
31, 1998 are summarized below:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
-------- ------------
<S> <C> <C>
Total Capital to risk-weighted assets 13.65% 13.43%
Tier I Capital to risk-weighted assets 12.79% 12.59%
Tier I Capital to average assets 8.63% 8.43%
</TABLE>
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 2000, 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.
<PAGE>
Page 13
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 is not expected to have a material 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 is not expected to have a
material impact on the Company.
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 Currency, and their current review
schedule will continue throughout 1999. The Company has also developed
contingency plans to deal with system failures should they occur internally or
externally.
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 is in the process of upgrading to those compliant software versions. By
the end of the second quarter of 1999, the upgrading and testing of these
systems will be completed. In addition, alarms, heating and cooling systems, and
other computer controlled mechanical devices which the Company relies on will be
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 started a program to communicate with key customers to ensure that they are
aware of and are properly prepared for the Year 2000.
<PAGE>
Page 14
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
March 31, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
Analysis as of March 31, 1999
Expected Maturity Amounts for Years Ending March 31,
----------------------------------------------------------------------------
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 $ - $ 499 $47,513 $15,006 $63,018 $61,735
Average interest rate - 6.39% 5.35% 6.04% 5.52%
Held-to-maturity 7,745 15,527 126,292 22,184 171,748 172,645
Average interest rate 5.88% 6.10% 5.79% 5.73% 5.81%
Loans, fixed rate (1) 97,617 53,162 187,360 85,634 423,773 427,360
Average interest rate 8.54% 8.67% 8.39% 7.96% 8.37%
LIABILITIES
NOW, money market and
savings deposits (2) $315,589 $ - $ - $ - $315,589 $315,589
Average interest rate 2.45% - - - 2.45%
Time deposits, fixed rate 282,305 16,768 13,683 - 312,756 314,232
Average interest rate 4.82% 5.48% 5.70% - 4.90%
Short-term borrowings, fixed rate 43,403 - - - 43,403 43,403
Average interest rate 4.87% - - - 4.87%
Long-term debt, variable rate 1,259 - - - 1,259 1,259
Average interest rate 7.75% - - - 7.75%
</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 March 31, 2000, are
considered by management as core deposits for asset/liability management
purposes with account lives extending beyond one year.
<PAGE>
Page 15
<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>
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 16
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 17
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 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 37,100
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 56,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 61,735
<INVESTMENTS-CARRYING> 171,748
<INVESTMENTS-MARKET> 172,645
<LOANS> 544,636
<ALLOWANCE> 5,177
<TOTAL-ASSETS> 902,355
<DEPOSITS> 767,726
<SHORT-TERM> 43,403
<LIABILITIES-OTHER> 6,650
<LONG-TERM> 1,259
0
0
<COMMON> 24,318
<OTHER-SE> 58,999
<TOTAL-LIABILITIES-AND-EQUITY> 902,355
<INTEREST-LOAN> 11,176
<INTEREST-INVEST> 3,511
<INTEREST-OTHER> 418
<INTEREST-TOTAL> 15,105
<INTEREST-DEPOSIT> 5,573
<INTEREST-EXPENSE> 6,196
<INTEREST-INCOME-NET> 8,909
<LOAN-LOSSES> 375
<SECURITIES-GAINS> 27
<EXPENSE-OTHER> 5,819
<INCOME-PRETAX> 4,486
<INCOME-PRE-EXTRAORDINARY> 4,486
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,959
<EPS-PRIMARY> 1.22
<EPS-DILUTED> 1.22
<YIELD-ACTUAL> 4.41
<LOANS-NON> 1,105
<LOANS-PAST> 1,384
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,946
<CHARGE-OFFS> 319
<RECOVERIES> 175
<ALLOWANCE-CLOSE> 5,177
<ALLOWANCE-DOMESTIC> 5,177
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
