<PAGE> 1
CONFORMED
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1994
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------ -------------------
Commission File No. 0-15828
FIRST NATIONAL BANK CORP.
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-2711692
-------- ----------
(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
18800 Hall Road, Clinton Township, MI 48038-1340
-------------------------------------------------
(Address of principal executive offices) (Zip Code)
(810) 465-2400
(Registrant's telephone number, including area code)
No change since last report
---------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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.
Class Outstanding at May 5, 1994
----- --------------------------
Common Stock, $3.125 Par Value 2,432,060 Shares
<PAGE> 2
FIRST NATIONAL BANK CORP.
FORM 10-Q (continued)
Part 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
The financial statements of First National Bank Corp. (the Corporation) include
the consolidation of its two subsidiaries; First National Bank in Macomb County
(the Bank) and Bankers Fund Life Insurance Co. (the Insurance Company).
The unaudited financial statements of the Corporation for the three month
periods ended March 31, 1994 and 1993, reflect all adjustments, consisting of
normal recurring items, which are, in the opinion of management, necessary to
present a fair statement of the results for the interim periods. The operating
results for the quarter are not necessarily indicative of results of operations
for the entire year. Reference should be made to the consolidated financial
statements included with the Corporation's annual report on Form 10-K for the
year ended December 31, 1993.
Following are the Corporation's Consolidated Balance Sheet as of March 31,
1994, December 31, 1993, and March 31, 1993; and Consolidated Statements of
Income, Changes in Stockholders' Equity, and Cash Flow for the three month
periods ended March 31, 1994 and 1993:
2
<PAGE> 3
FIRST NATIONAL BANK CORP.
FORM 10-Q (continued)
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31, March 31,
Assets 1994 1993 1993
- - ---------------------------------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Cash and due from banks $24,587 $25,383 $27,257
Federal funds sold 8,200 22,900 7,600
- - ---------------------------------- --------- --------- ---------
Cash and Cash Equivalents 32,787 48,283 34,857
- - ---------------------------------- --------- --------- ---------
Securities available for sale
(at fair value) (1) 7,643 7,506 5,040
Investment securities
(at amortized cost) (2) 104,185 80,066 80,177
Loans
Residential real estate 60,491 60,362 70,086
Commercial 210,378 212,035 202,541
Installment 54,860 55,629 57,673
- - ---------------------------------- --------- --------- ---------
Total Loans 325,729 328,026 330,300
Allowance for loan losses (4,679) (4,598) (4,735)
- - ---------------------------------- --------- --------- ---------
Net Loans 321,050 323,428 325,565
- - ---------------------------------- --------- --------- ---------
Property and equipment (net of depreciation) 15,200 15,596 14,514
Accrued interest receivable 3,282 2,600 3,408
Other real estate 3,054 3,290 3,369
Other assets 3,566 3,564 3,770
- - ---------------------------------- --------- --------- ---------
Total Assets $490,767 $484,333 $470,700
- - -------------------------------- --------- --------- ---------
- - -------------------------------- --------- --------- ---------
</TABLE>
(1) Amortized cost of $7.8 million at March 31, 1994. Prior to 1994, these
securities were reported at the lower of amortized cost or fair value.
(2) Fair value of $104.3 million at March 31, 1994; $82.4 million at December
31, 1993; and $82.7 million at March 31, 1993. Investment securities of
$3.9 million were pledged at March 31, 1994, to secure public funds on
deposit, and for other purposes required by law.
(continued)
3
<PAGE> 4
FIRST NATIONAL BANK CORP.
FORM 10-Q (continued)
Consolidated Balance Sheet, continued
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31, March 31,
Liabilities and Stockholders' Equity 1994 1993 1993
- - ---------------------------------- --------- --------- ---------
(in thousands, except share data)
<S> <C> <C> <C>
Deposits
Demand
Noninterest bearing $74,228 $76,343 $75,967
Interest bearing 119,405 121,544 119,416
Savings 88,963 88,467 85,333
Time 163,063 153,698 146,551
- - ---------------------------------- --------- --------- ---------
Total Deposits 445,659 440,052 427,267
- - ---------------------------------- --------- --------- ---------
Short term borrowings 1,100 1,100 1,100
Other liabilities 6,030 5,909 5,862
Long term debt ---- ---- 5,456
- - ---------------------------------- --------- --------- ---------
Total Liabilities 452,789 447,061 439,685
- - ---------------------------------- --------- --------- ---------
Stockholders' Equity
Common stock -- $3.125 par value;
8,000,000 shares authorized;
2,431,456 shares issued and
outstanding at 3/31/94; 2,315,671
shares outstanding at 12/31/93;
and 1,471,241 shares outstanding
at 3/31/93. 7,598 7,236 4,598
Additional paid-in capital 17,957 15,659 13,916
Retained earnings 12,498 14,377 12,501
Unrealized loss on securities
available for sale (75) ---- ----
- - ---------------------------------- --------- --------- ---------
Total Stockholders' Equity 37,978 37,272 31,015
- - ---------------------------------- --------- --------- ---------
Total Liabilities and Stockholders'
Equity $490,767 $484,333 $470,700
- - -------------------------------- --------- --------- ---------
- - -------------------------------- --------- --------- ---------
</TABLE>
4
<PAGE> 5
FIRST NATIONAL BANK CORP.
FORM 10-Q (continued)
Consolidated Statement of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1993
- - ------------------------------ ------- -------
(in thousands)
<S> <C> <C>
Interest Income
Loans (including fees) $6,564 $6,760
Securities
Taxable 873 814
Tax-exempt 520 564
Federal funds sold 107 36
- - ------------------------------ ------- -------
Total Interest Income 8,064 8,174
- - ------------------------------ ------- -------
Interest Expense
Deposits 2,767 2,798
Short term borrowings 11 21
Long term debt ---- 175
- - ------------------------------ ------- -------
Total Interest Expense 2,778 2,994
- - ------------------------------ ------- -------
Net Interest Income 5,286 5,180
Provision for loan losses 150 225
- - ------------------------------ ------- -------
Net Interest Income after Provision
for Loan Losses 5,136 4,955
- - ------------------------------ ------- -------
Noninterest Income
Service charges on deposit accounts 663 631
Net realized security gains (losses) 1 (4)
Other income 516 240
- - ------------------------------ ------- -------
Total Noninterest Income 1,180 867
- - ------------------------------ ------- -------
Noninterest Expense
Salaries, benefits, and payroll taxes 1,985 1,938
Occupancy 478 421
Equipment 380 481
Other operating expense 1,936 1,718
- - ------------------------------ ------- -------
Total Noninterest Expense 4,779 4,558
- - ------------------------------ ------- -------
</TABLE>
(continued)
5
<PAGE> 6
FIRST NATIONAL BANK CORP.
FORM 10-Q (continued)
Consolidated Statement of Income, continued
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1993
- - ------------------------------ ------- -------
(in thousands, except per share data)
<S> <C> <C>
Income Before Taxes and Cumulative
Effect of Change in Accounting
Principle 1,537 1,264
Income tax expense 355 245
- - ------------------------------ ------- -------
Income Before Cumulative Effect
of Change in Accounting Principle 1,182 1,019
Cumulative effect of change
in accounting principle ---- (1,183)
- - ------------------------------ ------- -------
Net Income (Loss) $1,182 ($164)
- - ---------------------------- ------- -------
- - ---------------------------- ------- -------
Per share data:
Primary Income Before Cumulative
Effect of Change in Accounting
Principle $0.48 $0.52
Cumulative effect of change in
accounting principle ---- (0.60)
- - ------------------------------ ------- -------
Primary Net Income (Loss) $0.48 ($0.08)
- - ---------------------------- ------- ------
- - ---------------------------- ------- ------
Fully Diluted Income Before Cumulative
Effect of Change in Accounting
Principle $0.48 $0.46
Cumulative effect of change in
accounting principle ---- (0.49)
- - ------------------------------ -------- -------
Fully Diluted Net Income (Loss) $0.48 ($0.03)
- - ---------------------------- -------- -------
- - ---------------------------- -------- -------
Cash Dividends $0.18 $0.17
- - ---------------------------- ------- ------
- - ---------------------------- ------- ------
</TABLE>
6
<PAGE> 7
FIRST NATIONAL BANK CORP.
FORM 10-Q (continued)
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1993
- - -------------------------------- ---------- ---------
(in thousands, except per share data)
<S> <C> <C>
Common Stock:
Balance, beginning of period $7,236 $4,074
Stock dividend (A)(B) 362 87
Conversion of debentures ---- 34
Exercise of equity contracts ---- 402
Exercise of stock options ---- 1
- - -------------------------------- ---------- ---------
Balance, end of period 7,598 4,598
- - -------------------------------- ---------- ---------
Additional Paid-in Capital:
Balance, beginning of period 15,659 11,033
Exercise of stock options 11 5
Stock dividend (A)(B) 2,287 665
Conversion of debentures ---- 176
Exercise of equity contracts ---- 2,037
- - -------------------------------- ---------- ---------
Balance, end of period 17,957 13,916
- - -------------------------------- ---------- ---------
Retained Earnings:
Balance, beginning of period 14,377 14,900
Net income (loss) 1,182 (164)
Cash dividends ($0.18 per share in 1994,
$0.17 in 1993) (D) (440) (340)
Change in ESOP loan guarantee 28 (69)
Stock dividend (A)(B) (2,649) (1,820)
Exercise of stock options ---- (6)
- - -------------------------------- ---------- ---------
Balance, end of period 12,498 12,501
- - -------------------------------- ---------- ---------
Unrealized Security Gains (Losses):
Balance, beginning of period ---- ----
Change in unrealized gain (loss) (75) ----
- - -------------------------------- ---------- ---------
Balance, end of period (75) ----
- - -------------------------------- ---------- ---------
Treasury Stock:
Balance, beginning of period ---- (598)
Repurchase of common stock (C) ---- (470)
Stock dividend (B) ---- 1,068
- - -------------------------------- ---------- ---------
Balance, end of period ---- ----
- - -------------------------------- ---------- ---------
Total Stockholders' Equity, End of Period $37,978 $31,015
- - ------------------------------ ---------- ---------
- - ------------------------------ ---------- ---------
</TABLE>
See notes on following page.
7
<PAGE> 8
FIRST NATIONAL BANK CORP.
FORM 10-Q (continued)
Notes, from preceding page:
(A) On March 30, 1994, the Board of Directors of the Corporation declared a 5%
stock dividend to stockholders of record on April 13, 1994, payable May
4, 1994.
(B) On March 24, 1993, the Board of Directors of the Corporation declared a 5%
stock dividend to stockholders of record on April 14, 1993, payable May
5, 1993.
(C) The Corporation repurchased 18,000 shares of its common stock in 1993 at an
average price of $26.12 per share. (The per share average price has not
been adjusted for stock dividends or splits.)
(D) Per share amounts of cash dividends have been adjusted to give effect to
the 5% stock dividends in 1994 and 1993, and the 4-for-3 stock split in
1993.
8
<PAGE> 9
FIRST NATIONAL BANK CORP.
FORM 10-Q (continued)
<TABLE>
<CAPTION>
Consolidated Statement of Cash Flow Three Months Ended
(Unaudited) March 31,
----------------------
1994 1993
- - --------------------------------------------- ---------- ----------
(in thousands)
<S> <C> <C>
Operating Activities:
Net income (loss) $1,182 ($164)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Provision for loan losses 150 225
Depreciation expense 316 344
Gain on sales of property and equipment (269) ----
Net amortization of security premiums 430 166
Net realized security losses (gains) (1) 4
Increase in interest receivable (682) (768)
Decrease in interest payable (71) (157)
Decrease (increase) in other assets 283 (729)
Increase in other liabilities 220 1,966
- - --------------------------------------------- ---------- ----------
Net Cash Provided by Operating Activities 1,558 887
Investing Activities:
Proceeds from maturities and calls of securities
available for sale 3,035 ----
Purchases of securities available for sale (3,339) ----
Proceeds from maturities and calls of investment
securities 3,165 3,563
Purchases of investment securities (27,659) (5,944)
Net increase in residential real estate loans (129) (4,648)
Net decrease (increase) in commercial loans 1,633 (7,286)
Net decrease (increase) in installment loans 724 (1,225)
Purchases of property and equipment (600) (149)
Proceeds from sales of property and equipment 949 ----
- - --------------------------------------------- ---------- ----------
Net Cash Used in Investing Activities (22,221) (15,689)
Financing Activities:
Net increase (decrease) in noninterest bearing demand
deposits (2,115) 7,688
Net decrease in interest bearing demand deposits (2,139) (6,735)
Net increase in savings deposits 496 2,473
Net increase in time deposits 9,365 12,905
Net increase in short term borrowings ---- 155
Cash dividends paid (440) (340)
Repurchase of common stock ---- (470)
Proceeds from exercise of equity contracts and
stock options ---- 150
Cash paid for equity contract redemption ---- (257)
- - --------------------------------------------- ---------- ----------
Net Cash Provided by Financing Activities 5,167 15,569
- - --------------------------------------------- ---------- ----------
Increase (Decrease) in Cash and Cash Equivalents (15,496) 767
Cash and Cash Equivalents at the Beginning
of the Period 48,283 34,090
- - --------------------------------------------- ---------- ----------
Cash and Cash Equivalents at the End
of the Period $32,787 $34,857
- - ------------------------------------------ ---------- ---------
- - ------------------------------------------ ---------- ---------
</TABLE>
9
<PAGE> 10
FIRST NATIONAL BANK CORP.
FORM 10-Q (continued)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(A) Analysis of Financial Condition
Total assets of the Corporation have increased by slightly over 1%, or $6.5
million, to $490.8 million at March 31, 1994, compared with $484.3 million at
December 31, 1993, and by 4%, or $20.1 million, over March 31, 1993.
During the first quarter, total deposits rose by $5.6 million, while loans
decreased by $2.3 million. Because of the loan slowdown, and also to reduce
excess federal funds sold, the Corporation purchased a large volume of
securities during the quarter.
The following tables show the amortized cost and fair value of the
Corporation's security portfolios as of the dates indicated. On the balance
sheet, investment securities (i.e., those which the Corporation has the ability
and intent to hold to maturity) are stated at cost, adjusted for amortization
of premium and accretion of discount. Securities available for sale are
reported at fair value beginning January 1, 1994. Prior to that, securities
available had been carried at the lower of amortized cost or fair value.
<TABLE>
<CAPTION>
March 31, 1994
-------- -------- --------
Amortized Fair
Cost Value Variance
-------- -------- --------
<S> <C> <C> <C>
(in thousands)
Securities available for sale:
United States Treasury $2,035 $2,025 ($10)
United States Government agencies 5,721 5,618 (103)
-------- -------- --------
Total securities available for sale 7,756 7,643 (113)
-------- -------- --------
Investment securities:
United States Treasury 17,610 17,527 (83)
United States Government agencies 49,129 48,598 (531)
Municipal obligations 35,503 36,231 728
Other securities 1,943 1,943 ----
-------- -------- --------
Total investment securities 104,185 104,299 114
-------- -------- --------
Total Securities $111,941 $111,942 $1
-------- -------- --------
-------- -------- --------
</TABLE>
10
<PAGE> 11
FIRST NATIONAL BANK CORP.
FORM 10-Q (continued)
<TABLE>
<CAPTION>
December 31, 1993
-------- -------- --------
Amortized Fair
Cost Value Variance
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Securities available for sale:
United States Treasury $5,047 $5,048 $1
United States Government agencies 2,459 2,460 1
-------- -------- --------
Total securities available for sale 7,506 7,508 2
-------- -------- --------
Investment securities:
United States Treasury 9,229 9,376 147
United States Government agencies 37,118 37,324 206
Municipal obligations 33,162 35,095 1,933
Other securities 557 560 3
-------- -------- --------
Total investment securities 80,066 82,355 2,289
-------- -------- --------
Total Securities $87,572 $89,863 $2,291
-------- -------- --------
-------- -------- --------
March 31, 1993
-------- -------- --------
Amortized Fair
Cost Value Variance
-------- -------- --------
Securities available for sale:
United States Treasury $3,036 $3,141 $105
United States Government agencies 2,004 2,016 12
-------- -------- --------
Total securities available for sale 5,040 5,157 117
-------- -------- --------
Investment securities:
United States Treasury 9,376 9,674 298
United States Government agencies 35,335 35,826 491
Municipal obligations 34,912 36,679 1,767
Other securities 554 556 2
-------- -------- --------
Total investment securities 80,177 82,735 2,558
-------- -------- --------
Total Securities $85,217 $87,892 $2,675
-------- -------- --------
-------- -------- --------
</TABLE>
11
<PAGE> 12
FIRST NATIONAL BANK CORP.
FORM 10-Q (continued)
Effective January 1, 1994, the Corporation adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." This statement requires the classification of debt and
equity securities into three categories; investment, trading, or available for
sale. As noted earlier, investment securities are carried at amortized cost,
and no gains or losses are recorded until realized. Securities available for
sale are carried at fair value. Unrealized gains and losses on securities
available are excluded from earnings, but are reported (net of tax) as a
separate component of stockholders' equity. Securities that are bought and
held principally to sell them in the near term would be classified as trading
securities, and reported at fair value, with unrealized gains and losses
charged to earnings. Since the Corporation does not engage in the short term
buying and resale of securities, management has not placed any securities in
the trading category, and does not expect to do so in the future.
As of March 31, 1994 the Corporation has recorded an unrealized loss of
$113,000 on securities available for sale. An after-tax reduction of $75,000
has been recorded in the stockholders' equity section of the balance sheet.
During 1994, investment securities have increased by 30%, or $24.1 million, to
$104.2 million at March 31, 1994, from $80.1 million at December 31, 1993. The
major increases during this period came in the United States Treasury and
Government agency categories, with increases of $8.4 million and $12.0 million,
respectively. These purchases were made using uninvested funds from December
31, and as deposit growth outpaced loan demand during the three month period.
Investment securities have increased by $24.0 million since the prior March 31.
Total loans decreased by $2.3 million during the three months ended March 31,
1994, and decreased by just over 1%, or $4.6 million, from March 31, 1993.
Residential real estate loans were relatively unchanged in the first quarter.
During the twelve months ended March 31, 1994, residential mortgage loans
decreased by 14%, or $9.6 million. This decrease was due to a large volume of
prepayment and refinancing activity.
Commercial loans have decreased by $1.7 million during the quarter, to $210.4
million at March 31. Over the past year, commercial loans have increased by
4%, or $7.8 million. For the three month period, the majority of the decrease
came in fixed rate loans secured by commercial mortgages. For the year, the
largest increases came from variable rate commercial mortgages and variable
rate lines of credit. Many of the commercial mortgage loans are for general
business purposes, for which the Bank has taken a mortgage as security on the
loan.
Installment loans decreased by $2.8 million, or 5%, during the twelve months
ended March 31, 1994, to $54.9 million. This decrease was largely due to a
$3.5 million decrease in "home equity" lines of credit.
The following table shows the components of nonperforming loans as of the dates
indicated, as well as the ratios of such loans to the total loan portfolio:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1994 1993 1993
---------- ------------ ----------
(in thousands)
<S> <C> <C> <C>
Nonaccrual loans $270 $961 $1,767
Loans over 90 days past due,
but still accruing 2,340 2,626 4,432
---------- ------------ ----------
Total nonperforming loans $2,610 $3,587 $6,199
---------- ------------ ----------
---------- ------------ ----------
Nonperforming loans, as a
percentage of total loans
at period end 0.80% 1.09% 1.88%
</TABLE>
12
<PAGE> 13
FIRST NATIONAL BANK CORP.
FORM 10-Q (continued)
Loans are placed in nonaccrual status when, in the opinion of management,
uncertainty exists as to the ultimate collection of principal and interest.
For the three months ended March 31, 1994, $14,000 would have been recorded in
interest income for loans in nonaccrual status at March 31, 1994, assuming they
had been current in accordance with the original terms of the loans. Interest
received on nonaccrual loans is credited directly to income. Interest income
of $3,000 was collected and included in net income for the quarter ended March
31, for loans in nonaccrual status at period end.
Included in the nonaccrual category at December 31, 1993, were loans totaling
$622,000 to a commercial borrower that was experiencing cash flow problems.
The loans matured in 1992, and no principal or interest payments had been
received since early 1993. Unpaid interest was $55,000 as of December 31,
1993. The loans were secured by a commercial property of the borrower. The
Bank foreclosed on the collateral, and the property was sold in January, 1994.
The entire principal amount was recovered in the sale; however, no interest was
received. Another property of the same borrower is being carried in other real
estate at its estimated net realizable value of $300,000 at March 31, 1994.
Further losses on this property, if any, are not expected to have a material
effect on the Corporation's operating results, liquidity, or capital resources.
In addition, management placed a commercial loan for $2.3 million in other real
estate on December 31, 1990, in accordance with accounting guidelines for
"in-substance" foreclosure loans. The loan is for a commercial construction
project on which the Bank holds a mortgage. The property is being carried at
the lower of the amount of the loan outstanding or net realizable value of the
property, which was $2.8 million at March 31, 1994. The Corporation charged
$200,000 to other real estate expense for this property during the first three
months of 1994. The property was sold by the borrower in 1991, and the new
owner is in the process of recruiting tenants and securing leases. The
construction is essentially complete, with specific improvements made as new
tenants move in. In accordance with accounting rules, the property will be
carried in other real estate and no interest income will be recognized until
the borrower has reached a cumulative investment in the property, which will be
10-20% of the sales value, depending on the borrower meeting certain
requirements.
In each quarter, or more frequently as necessary, management evaluates the
problems and potential losses in the loan portfolio. The results of this
evaluation are reflected in the allowance and periodic provision for loan
losses.
At March 31, 1994, there were no significant loans that are not disclosed
above, where known information about possible credit problems of borrowers
causes management to have serious doubts as to the ability of the borrower to
comply with present loan repayment terms and which, in management's judgment,
may result in disclosure of such loans in the discussion above.
Furthermore, management is not aware of any potential problem loans, except for
those described above, which could have a material effect on the Corporation's
operating results, liquidity, or capital resources.
The Bank grants loans to customers who live primarily in Macomb County and
metropolitan Detroit. Although the Bank has a diversified loan portfolio, a
substantial portion of its debtors' ability to honor their loan agreements is
dependent upon the automotive industry. Additionally, nearly all of the Bank's
residential real estate portfolio consists of loans for 1 to 4 family homes
located in Macomb County.
During the three months ended March 31, 1994, total deposits increased by 1%,
or $5.6 million, to $445.7 million. The increase was led by a $9.4 million
increase in time deposits, primarily from the new increasing rate certificates.
Total demand deposits partially offset the time deposit increase with a decline
of $4.3 million. The largest drop came in state, county, and municipal
deposits. For the twelve months ended March 31, 1994, total deposits have
increased by 4%, or $18.4 million. In this period, time deposits again led the
way with a $16.5 million increase. Five year certificates rose by $24.7
million due to a special rate offering. This jump was partially offset by a
decline of $13.8 million in jumbo (greater than $100,000) certificates.
13
<PAGE> 14
FIRST NATIONAL BANK CORP.
FORM 10-Q (continued)
Total capital has increased over the previous March 31 by $7.0 million, while
long term debt decreased by $5.5 million. During this period, approximately
$5.3 million of new equity was created by the conversion of debentures. The
Corporation completed a redemption of its 9.0% Convertible Subordinated
Debentures as of July 15, 1993. The conversions were initiated by holders of
the debt prior to the redemption date.
On March 30, 1994, the Corporation's Board of Directors declared a 5% stock
dividend. Additional shares were distributed beginning May 4, to stockholders
of record April 13. Cash will be paid in lieu of issuing any fractional
shares. The transaction has no effect on the total amount of capital, and the
par value of common stock remains at $3.125 per share. The stock dividend has
been given effect in the March 31, 1994 balance sheet, as well as in
calculations of earnings and dividends per share shown in this report.
Following are selected capital ratios for the Corporation as of the dates
indicated, along with the minimum regulatory requirement for each item:
<TABLE>
<CAPTION>
March 31, December 31, March 31, Minimum
1994 1993 1993 Requirement
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Leverage ratio (Tier 1 capital to assets) 7.74% 7.68% 6.51% 3.00%
Tier 1 capital to risk-based assets 10.82% 10.55% 8.77% 4.00%
Total capital to risk-based assets 12.07% 11.80% 11.58% 8.00%
</TABLE>
14
<PAGE> 15
FIRST NATIONAL BANK CORP.
FORM 10-Q (continued)
(B) Analysis of Results of Operations
ANALYSIS OF CHANGES IN NET INTEREST INCOME
The following table, presented on a fully tax-equivalent (FTE) basis, shows the
dollar amount of changes in net interest income for each major category of
interest earning asset and interest bearing liability, and the amount of change
attributable to changes in average balances (volume) or average rates.
Variances that are attributable to BOTH volume and rate changes have been
allocated to the volume component.
<TABLE>
<CAPTION>
Three Months Ended March 31,
1994 vs. 1993
---------------------------------------------
Increase (Decrease)
Due to Changes In
----------------------------
Total Volume Rate
---------- ---------- -----------
(in thousands)
<S> <C> <C> <C>
Earning Assets - Interest Income:
Federal funds sold $71 $71 ----
Securities
United States Treasury 55 85 ($30)
United States Government agencies (2) 170 (172)
Municipal obligations (62) (35) (27)
Other securities 6 7 (1)
Loans (196) 28 (224)
---------- ---------- ----------
Total (128) 326 (454)
---------- ---------- ----------
Deposits and Borrowed Funds - Interest Expense:
Deposits
Demand - interest bearing (52) 12 (64)
Savings (125) 23 (148)
Time 146 176 (30)
Short term borrowings (10) (14) 4
Long term debt (175) (175) ----
---------- ---------- ----------
Total (216) 22 (238)
---------- ---------- ----------
Tax-Equivalent Net Interest Margin:
Interest income on earning assets
less interest cost of deposits
and borrowed funds $88 $304 ($216)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
For the quarter ended March 31, 1994, net interest income, on a FTE basis
increased by 2%, or $88,000, over the same period one year ago. This was due
to a significant increase in the volume of interest earning assets, especially
in securities. On the liability side, an increase in deposit volumes was
offset by the absence of long term debt in the current year. The boost in
asset volumes was somewhat hampered by falling rates, as they fell
proportionately more than the drop in liability rates. The net interest margin
slipped in the quarter, to 5.01%, compared with 5.28% for the same period one
year ago.
15
<PAGE> 16
FIRST NATIONAL BANK CORP.
FORM 10-Q (continued)
AVERAGE STATEMENTS OF CONDITION
The following table, also presented on a FTE basis, shows the Corporation's
consolidated average balances of assets, liabilities, and stockholders' equity;
the amount of interest income or interest expense and the average yield or rate
for each category of interest earning asset and interest bearing liability; the
net interest spread, and the net interest margin, for the three month periods
ended March 31, 1994 and 1993. Average balances for securities in the
"available for sale" category are calculated using amortized cost.
Nonperforming loans are included in average loans. Interest on loans includes
loan fees. The tax-equivalent calculation for tax-exempt income on securities
and loans assumes a 34% federal tax rate, and is adjusted for any interest
expense deduction that would be disallowed, according to current tax law.
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------------------------------------------------------
1994 1993
--------- --------- --------- --------- ---------- ---------
Average Average
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
--------- --------- --------- --------- ---------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Federal funds sold $13,867 $107 3.09% $4,676 $36 3.08%
Securities
United States Treasury 18,929 247 5.22 12,450 192 6.17
United States Government
agencies 48,305 612 5.07 34,893 614 7.04
Municipal obligations 33,946 762 8.98 35,490 824 9.29
Other securities 1,111 14 5.04 557 8 5.75
Loans 326,831 6,587 8.06 325,427 6,783 8.34
---------- -------- -------- ---------- -------- --------
Total Earning Assets/Total Interest
Income 442,989 8,329 7.52% 413,493 8,457 8.18%
-------- -------- -------- --------
Cash and due from banks 25,457 25,523
All other assets 20,824 19,907
---------- ----------
Total Assets $489,270 $458,923
---------- ----------
---------- ----------
Liabilities and Stockholders'
Equity:
Deposits
Demand-interest bearing $123,847 741 2.39% $121,889 793 2.60%
Savings 88,325 394 1.78 83,167 519 2.50
Time 157,409 1,632 4.15 140,473 1,486 4.23
Short term borrowings 1,089 11 4.04 2,431 21 3.46
Long term debt ---- ---- ---- 7,746 175 9.04
---------- -------- -------- ---------- -------- --------
Total Interest Bearing Liabilities/
Total Interest Expense 370,670 2,778 3.00% 355,706 2,994 3.37%
-------- -------- -------- --------
Noninterest bearing demand deposits 74,728 68,849
All other liabilities 6,054 3,968
Stockholders' equity 37,818 30,400
--------- ----------
Total Liabilities and Stockholders'
Equity $489,270 $458,923
--------- ----------
--------- ----------
FTE Interest Spread (Average Rate
Earned Minus Average Rate Paid) 4.52% 4.81%
------- -------
------- -------
FTE Net Interest Income $5,551 $5,463
------- -------
------- -------
FTE Net Interest Margin (Net
Interest Income/Total Earning
Assets) 5.01% 5.28%
-------- -------
-------- -------
</TABLE>
16
<PAGE> 17
FIRST NATIONAL BANK CORP.
FORM 10-Q (continued)
ANALYSIS OF INCOME STATEMENT ITEMS
Net income for the quarter ended March 31, 1994, was $1.2 million, contrasted
with a net loss of $164,000 for the same period one year ago. This represents
the best opening quarter in the Corporation's history, while 1993's opening
quarter loss was the result of a one-time accounting charge for postretirement
benefits.
First quarter net interest income increased by 2% over the prior year, to $5.3
million. As discussed earlier, this was mostly due to larger average balances
of earning assets, and was partly offset by a larger drop in average rates on
earning assets versus paying liabilities. See the preceding analysis of
changes in net interest income for more details.
The provision for loan losses decreased by $75,000 from 1993's first quarter.
This brought net interest income after the provision to $5.1 million for the
period, an increase of nearly 4% over the first three months of 1993.
For the quarter, noninterest income increased by $313,000 over the previous
year. The primary contributor to this increase was a $269,000 gain on the sale
of a parcel of land.
Noninterest expense for the three month period rose by $221,000, to $4.8
million. Once again, the increase is mostly attributable to a single factor; a
nonrecurring, $200,000 charge to expense related to an other real estate
property.
For the three months ended March 31, 1994, income before taxes and the
cumulative effects of accounting changes increased by almost 22%, or $273,000,
to $1.5 million. In the first quarter of 1993, a one-time charge of $1.2
million had been recorded for postretirement benefits, due to the
implementation of SFAS No. 106, "Employer's Accounting for Postretirement
Benefits Other Than Pensions." Income tax expense was $355,000 for the three
months ended March 31, 1994, compared with $245,000 in 1993. This brought
year-to-date net income to $1,182,000 for the three months ended March 31,
1994, compared with a net loss of $164,000 for the same period one year
earlier.
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
The liquidity of a bank allows it to provide funds to meet loan requests, to
accommodate possible outflows in deposits, and to take advantage of other
investment opportunities. Funding of loan requests, providing for liability
outflows, and managing interest rate margins require continuous analysis to
match the maturities of specific categories of loans and investments with
specific types of deposits and borrowings. Bank liquidity is thus normally
defined by the nature and mix of the banking institution's sources and uses of
funds. For the Corporation, the major sources of liquidity have been federal
funds sold, and loans (including demand loans) and securities maturing within
one year. At March 31, 1994 and 1993, federal funds sold amounted to $8.2
million and $7.6 million, respectively. Loans (including demand loans) and
securities maturing within one year amounted to $110.9 million at March 31,
1994, and $106.4 million at March 31, 1993. Additional liquidity is provided
by two repurchase agreement lines of credit, totaling $20.0 million; and, as of
April, 1994, a $25.0 million line of credit with the Federal Home Loan Bank
(FHLB), which could be drawn upon for short term liquidity needs, if necessary.
The FHLB line of credit would be collateralized with securities, if drawn upon.
The Corporation has identified certain securities as "available for sale."
These are securities that may be sold for liquidity or other purposes.
Management determines the adequacy of items so classified by considering normal
deposit fluctuations, expected loan demand, and the other liquidity sources and
needs discussed above. The Corporation's dependence on large deposits that
experience volatile rate changes is closely monitored. These deposits consist
mainly of time certificates of deposit of $100,000 and over, of which the
balance was $66.1 million and $71.7 million at March 31, 1994 and 1993,
respectively.
Managing rates on earning assets and interest bearing liabilities focuses on
maintaining stability in the net interest spread, an important factor in
earnings growth and stability. Emphasis is placed on maintaining a controlled
rate sensitivity position, to avoid wide swings in spreads and to minimize risk
due to changes in general interest rates.
17
<PAGE> 18
FIRST NATIONAL BANK CORP.
FORM 10-Q (continued)
The following table shows the rate sensitivity of the Corporation's interest
earning assets and interest bearing liabilities as of March 31, 1994. This
table displays the interest rate sensitivity gap (i.e., interest rate sensitive
assets less interest rate sensitive liabilities), cumulative interest rate
sensitivity gap, the interest rate sensitivity gap ratio (i.e., interest rate
sensitive assets divided by interest rate sensitive liabilities), and
cumulative interest rate sensitivity gap ratio. For the purposes of this
table, an asset or liability is considered rate sensitive within a specified
period when it matures or could be repriced within such period, generally
according to its contractual terms.
<TABLE>
<CAPTION>
AFTER THREE AFTER SIX AFTER ONE
WITHIN MONTHS BUT MONTHS BUT YEAR BUT AFTER
THREE WITHIN SIX WITHIN ONE WITHIN FIVE
MONTHS MONTHS YEAR FIVE YEARS YEARS TOTAL
--------- ------------ ------------ ----------- ------ -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Federal funds sold $8,200 ---- ---- ---- ---- $8,200
Loans 209,052 $3,941 $7,691 $63,331 $41,714 325,729
Securities (1) 13,144 4,731 10,963 65,470 17,633 111,941
-------- ------- ------- ------- ------- -------
Total 230,396 8,672 18,654 128,801 59,347 445,870
Interest bearing liabilities:
Interest bearing demand
deposits (2) 69,147 ---- ---- 50,258 ---- 119,405
Savings (2) ---- ---- ---- 88,963 ---- 88,963
Time > $100,000 51,099 8,491 1,251 5,172 100 66,113
Time < $100,000 20,164 19,180 8,962 45,364 3,280 96,950
Borrowed funds 1,100 ---- ---- ---- ---- 1,100
-------- ------- ------- ------- ------- -------
Total 141,510 27,671 10,213 189,757 3,380 372,531
-------- ------- ------- ------- ------- -------
Interest rate sensitivity gap 88,886 (18,999) 8,441 (60,956) 55,967
Cumulative interest rate
sensitivity gap $88,886 $69,887 $78,328 $17,372 $73,339 $73,339
Interest rate sensitivity gap
ratio 1.63x 0.31x 1.83x 0.68x 17.56x
Cumulative interest rate
sensitivity gap ratio 1.63x 1.41x 1.44x 1.05x 1.20x 1.20x
</TABLE>
(1) Securities in the "available for sale" category are reported in
this table at amortized cost.
(2) Now account deposits of $50,258,000 and savings deposits of
$88,963,000 are included in the "one to five year" category, due
to the Corporation's experience that the interest rates on (and
balances of) these accounts are relatively insensitive to
interest rate changes.
The preceding table indicates the time periods in which interest earning assets
and interest bearing liabilities will mature or may be repriced, generally
according to their contractual terms. However, this table does not necessarily
indicate the impact that general interest rate movements would have on the
Corporation's net interest yield, because the repricing of various categories
of assets and liabilities is discretionary and is subject to competitive and
other pressures. As a result, various assets and liabilities indicated as
repricing within the same period may, in fact, price at different times and by
different increments.
At March 31, 1994, the Corporation is considered "asset sensitive" according to
the preceding table. In a rising rate environment, the Corporation might be
able to increase prices on earning assets faster than the increase in rates on
interest bearing liabilities.
18
<PAGE> 19
FIRST NATIONAL BANK CORP.
FORM 10-Q (continued)
The Corporation also uses a computer model to simulate the effects of possible
interest rate changes. As a guideline, estimated negative exposure to changing
rates is limited to 5% of net interest income. The exposure estimate is based
on a variety of assumptions built into the model, and assumed interest rate
changes of plus or minus 200 basis points. The results of this analysis are
reported to the Asset/Liability and Funds Management Committee, to assist in
the interest rate risk management process.
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes changes (by loan category) in the allowance for
loan losses arising from loans charged off and recoveries on loans previously
charged off; and additions to the allowance that were charged to expense; and
selected ratios:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1994 1993
------- -------
(in thousands)
<S> <C> <C>
Allowance for loan losses at
beginning of period $4,598 $4,585
Loans charged off:
Commercial 96 145
Installment 74 83
-------- --------
Total 170 228
Recoveries on loans previously charged off:
Commercial 72 117
Installment 29 36
-------- --------
Total 101 153
-------- --------
Net loans charged off 69 75
Provision charged to expense 150 225
-------- --------
Allowance for loan losses at end of period $4,679 $4,735
-------- --------
-------- --------
Annualized ratio of net charge-offs during
the period to average loans outstanding 0.08% 0.09%
Allowance for loan losses as a percentage
of loans and leases at period end 1.44% 1.43%
</TABLE>
19
<PAGE> 20
FIRST NATIONAL BANK CORP.
FORM 10-Q (continued)
In each accounting period, the allowance for loan losses is adjusted by
management to the amount necessary to maintain the allowance at adequate
levels. Through its internal loan review department, management has attempted
to allocate specific portions of the allowance for loan losses based on
specifically identifiable problem loans. Management's evaluation of the
allowance is further based on consideration of actual loss experience, the
present and prospective financial condition of borrowers, adequacy of
collateral, industry concentrations within the portfolio, and general economic
conditions. Management believes that the present allowance is adequate, based
on the broad range of considerations listed above.
The primary risk element considered by management regarding each installment
and residential real estate loan is lack of timely payment. Management has a
reporting system that monitors past due loans and has adopted policies to
pursue its creditor's rights in order to preserve the Bank's position. The
primary risk elements concerning commercial loans are the financial condition
of the borrower, the sufficiency of collateral, and lack of timely payment.
Management has a policy of requesting and reviewing annual financial statements
from its commercial loan customers and periodically reviews existence of
collateral and its value.
Although management believes that the allowance for loan losses is adequate to
absorb losses as they arise, there can be no assurance that the Bank will not
sustain losses in any given period that could be substantial in relation to the
size of the allowance for loan losses.
Management is not aware of any factors that would cause future net loan
charge-offs, in total or by loan category, to significantly differ from those
experienced in the past.
20
<PAGE> 21
FIRST NATIONAL BANK CORP.
FORM 10-Q (continued)
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
As a depository of funds, the Bank is occasionally named as a defendant in
lawsuits (such as garnishment proceedings) involving claims to the
ownership of funds in particular accounts. All such litigation is
incidental to the Bank's business.
The Corporation's management believes that no litigation is threatened or
pending in which the Corporation, or any of its subsidiaries, is likely to
experience loss or exposure that would materially affect the Corporation's
equity, results of operations, or liquidity as presented herein.
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:
(11) Statement of Computation of Per Share Earnings
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which
this report is filed.
21
<PAGE> 22
FIRST NATIONAL BANK CORP.
FORM 10-Q (continued)
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 BANK CORP.
By: S/ HAROLD W. ALLMACHER
Harold W. Allmacher;
Vice Chairman, President
and CEO
(Principle Executive Officer)
By: S/ RICHARD J. MILLER
Richard J. Miller;
Treasurer
(Principle Financial and Accounting
Officer)
DATE: May 9, 1994
22
<PAGE> 23
FIRST NATIONAL BANK CORP.
FORM 10-Q (continued)
EXHIBIT INDEX
The following constitute the exhibits to the Corporation's Quarterly
Report on Form 10-Q for the period ended March 31, 1994:
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER EXHIBIT PAGE NUMBER
-------- ------- -------------
<S> <C> <C>
(11) Statement of Computation of
Per Share Earnings 24
</TABLE>
23
<PAGE> 1
FIRST NATIONAL BANK CORP.
FORM 10-Q (continued)
EXHIBIT (11)
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------
1994 1993
---- ----
PRIMARY EARNINGS PER SHARE: (in thousands, except per share data)
- - ---------------------------
<S> <C> <C>
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE $1,182 $1,019
/ WEIGHTED AVERAGE SHARES 2,468 1,966
- - ---------------------------- ------- -------
PER SHARE $0.48 $0.52
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE ---- ($1,183)
/ WEIGHTED AVERAGE SHARES 2,468 1,966
- - ---------------------------- ------- -------
PER SHARE $0.00 ($0.60)
- - ------------------------------ ------- -------
PRIMARY NET INCOME (LOSS) PER SHARE $0.48 ($0.08)
------- -------
------- -------
FULLY DILUTED EARNINGS PER SHARE:
- - ---------------------------------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE $1,182 $1,101
/ WEIGHTED AVERAGE SHARES 2,471 2,391
- - ---------------------------- ------- -------
PER SHARE $0.48 $0.46
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE ---- ($1,183)
/ WEIGHTED AVERAGE SHARES 2,471 2,391
- - ---------------------------- ------- -------
PER SHARE $0.00 ($0.49)
- - ------------------------------ ------- -------
FULLY DILUTED NET INCOME (LOSS)
PER SHARE $0.48 ($0.03)
------- -------
------- -------
</TABLE>
Notes:
- Primary and fully diluted shares are adjusted for the potential dilutive
effects of equity contracts and stock options, where applicable. The
adjustments are made using the "treasury stock" method.
- Fully diluted earnings per share are adjusted for the potential dilutive
effects of convertible debt, where applicable, which includes elimination
of any related after-tax interest expense. The adjustments are made using
the "if converted" method.
- Number of shares in each category are adjusted to give effect to the 5%
stock dividends in 1994 and 1993, and the 4-for-3 stock split in 1993.
