SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ______________ to _____________
Commission file number 0-19028
CCFNB BANCORP, INC.
(Name of small business Issuer in its charter)
PENNSYLVANIA 23-2254643
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
232 East Street, Bloomsburg, PA 17815
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (570) 784-4400
Check whether the issuer (1) 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 issuer was required to file such
reports), and (2) has been subject to such filing requirings 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. 1,333,232 shares of
---------
$1.25 (par) common stock were outstanding as of October 18, 2001.
----------------
CCFNB BANCORP, INC. AND SUBSIDIARY
SEPTEMBER 30, 2001
INDEX 10-Q
EXHIBIT 27 - FINANCIAL DATA SCHEDULE NO PAGE
#
PART I - FINANCIAL INFORMATION:
- Consolidated Balance Sheets 1
- Consolidated Statements of Income 2
- Consolidated Statements of Cash Flows 3
- Notes to Consolidated Financial Statements 4 - 11
- Report of Independent Certified Public Accountants 12
- Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations 13 - 20
PART II - OTHER INFORMATION 21
SIGNATURES 22
CCFNB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
UNAUDITED
SEPTEMBER DECEMBER
30, 2001 31, 2000
-------- --------
ASSETS
Cash and due from banks....................................... $ 4,650 $ 6,722
Interest-bearing deposits with other banks.................... 5,907 5,441
Federal funds sold............................................ 2,000 500
Investment securities:
Securities Available-for-Sale............................... 51,415 46,185
Loans, net of unearned income................................. 141,483 137,360
Allowance for loan losses..................................... 1,048 1,008
-------- --------
Net loans................................................... $140,435 $136,352
Premises and equipment........................................ 4,662 4,922
Accrued interest receivable................................... 1,002 1,038
Other assets.................................................. 2,183 1,894
-------- --------
TOTAL ASSETS............................................. $212,254 $203,054
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing........................................ $ 14,048 $ 14,593
Interest bearing............................................ 137,886 128,576
-------- --------
Total Deposits........................................... $151,934 $143,169
Short-term borrowings......................................... 21,241 20,109
Long-term borrowings.......................................... 11,360 13,367
Accrued interest and other expenses........................... 1,325 1,326
Other liabilities............................................. 178 33
-------- --------
TOTAL LIABILITIES........................................ $186,038 $178,004
-------- --------
STOCKHOLDERS' EQUITY
Common stock, par value $1.25 per share; authorized 5,000,000
shares; issued 1,335,687 shares in 2001 and
1,346,328 shares in 2000.................................... $ 1,670 $ 1,683
Surplus....................................................... 4,944 5,146
Retained earnings............................................. 19,134 18,310
Accumulated other comprehensive income (loss)................. 468 (89)
-------- --------
TOTAL STOCKHOLDERS' EQUITY............................... $ 26,216 $ 25,050
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............... $212,254 $203,054
======== ========
See accompanying notes to Consolidated Financial Statements.
-1-
CCFNB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
UNAUDITED
FOR THE NINE FOR THE THREE
MONTHS ENDING MONTHS ENDING
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2001 2000 2001 2000
---- ---- ---- ----
INTEREST INCOME
Interest and fees on loans:
Taxable...................................... $ 7,899 $ 7,840 $ 2,640 $ 2,666
Tax-exempt................................... 123 97 43 34
Interest and dividends on investment securities:
Taxable interest............................. 1,350 1,461 460 470
Tax-exempt interest.......................... 603 544 207 181
Dividends.................................... 6 7 2 3
Interest on federal funds sold................. 58 0 18 0
Interest on deposits in other banks............ 247 23 49 15
Other interest income.......................... 56 57 19 19
-------- -------- -------- --------
TOTAL INTEREST INCOME..................... $ 10,342 $ 10,029 $ 3,438 $ 3,388
-------- -------- -------- --------
INTEREST EXPENSE
Interest on deposits........................... $ 4,202 $ 3,806 $ 1,385 $ 1,289
Interest on short-term borrowings.............. 607 839 167 262
Interest on long-term borrowings............... 560 366 172 161
-------- -------- -------- --------
TOTAL INTEREST EXPENSE.................... $ 5,369 $ 5,011 $ 1,724 $ 1,712
-------- -------- -------- --------
Net interest income............................ $ 4,973 $ 5,018 $ 1,714 $ 1,676
Provision for loan losses...................... 148 47 125 8
-------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES............................... $ 4,825 $ 4,971 $ 1,589 $ 1,668
-------- -------- -------- --------
NON-INTEREST INCOME
Service charges and fees....................... $ 453 $ 447 $ 151 $ 152
Trust department income........................ 165 121 53 39
Securities gains - net......................... 71 0 34 0
Other income................................... 132 182 36 59
-------- -------- -------- --------
TOTAL NON-INTEREST INCOME................. $ 821 $ 750 $ 274 $ 250
-------- -------- -------- --------
NON-INTEREST EXPENSES
Salaries and wages............................. $ 1,524 $ 1,513 $ 517 $ 501
Pensions and other employee benefits........... 518 486 178 156
Occupancy expense, net......................... 281 249 87 79
Furniture and equipment expense................ 406 466 139 154
Other operating expenses....................... 1,103 1,049 375 337
-------- -------- -------- --------
TOTAL NON-INTEREST EXPENSES............... $ 3,832 $ 3,763 $ 1,296 $ 1,227
-------- -------- -------- --------
Income before income taxes..................... $ 1,814 $ 1,958 $ 567 $ 691
Income tax expense............................. 401 473 118 167
-------- -------- -------- --------
NET INCOME................................ $ 1,413 $ 1,485 $ 449 $ 524
======== ======== ======== ========
PER SHARE DATA
Net income..................................... $ 1.05 $ 1.09 $ .33 $ .39
Cash dividends................................. $ .44 $ .42 $ .15 $ .14
Weighted average shares outstanding............ 1,340,749 1,358,633 1,340,749 1,362,569
See accompanying notes to Consolidated Financial Statements.
-2-
CCFNB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
UNAUDITED
FOR THE NINE
MONTHS ENDING
SEPTEMBER 30,
-------------
2001 2000
---- ----
OPERATING ACTIVITIES
Net income............................................................. $ 1,413 $ 1,485
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses........................................... 148 47
Provision for depreciation and amortization......................... 331 400
Premium amortization on investment securities....................... 58 27
Discount accretion on investment securities......................... (13) (13)
Gain (loss) on sales of investment securities....................... (71) 0
Deferred income taxes (benefit)..................................... (47) (10)
(Increase) in accrued interest receivable and other assets.......... (348) (146)
(Decrease) in accrued interest, other expenses and other
liabilities....................................................... (6) (32)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES......................... $ 1,465 $ 1,758
-------- --------
INVESTING ACTIVITIES
Proceeds from sales, maturities and redemptions of investment
securities Available-for-Sale........................................ $ 25,408 $ 3,540
Proceeds from maturities and redemptions of Held-to-Maturity
investment securities................................................ 0 200
Purchase of investment securities Available-for-Sale................... (29,762) 0
Net increase (decrease) in loans....................................... (4,231) (305)
Purchases of premises and equipment.................................... (72) (146)
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES............... $ (8,657) $ 3,289
-------- --------
FINANCING ACTIVITIES
Net increase (decrease) in deposits.................................... $ 8,765 $ 468
Net increase (decrease) in short-term borrowings....................... 1,132 (8,700)
Net increase (decrease) in long-term borrowings........................ (2,007) 10,994
Proceeds from issuance of common stock................................. 113 117
Acquisition of treasury stock.......................................... (328) (445)
Cash dividends paid.................................................... (589) (569)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES......................... $ 7,086 $ 1,865
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. $ (106) $ 6,912
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD....................... 12,663 6,072
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD....................... $ 12,557 $ 12,984
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest............................................................. $ 5,369 $ 5,028
Income taxes......................................................... $ 468 $ 516
See accompanying notes to Consolidated Financial Statements.
-3-
CCFNB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of CCFNB Bancorp, Inc. and
Subsidiary (the "Corporation") are in accordance with accounting
principles generally accepted in the United States of America and
conform to common practices within the banking industry. The more
significant policies follow:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
CCFNB Bancorp, Inc. and its wholly owned subsidiary, Columbia
County Farmers National Bank (the "Bank") and all other equity
interests. All significant inter-company balances and transactions
have been eliminated in consolidation.
NATURE OF OPERATIONS & LINES OF BUSINESS
The Corporation provides full banking services, including trust
services, through the Bank, to individuals and corporate
customers. The Bank has six offices covering an area of
approximately 484 square miles in Northeastern Pennsylvania. The
Corporation and its banking subsidiary are subject to regulation
of the Office of the Comptroller of the Currency, The Federal
Deposit Insurance Corporation and the Federal Reserve Bank of
Philadelphia.
Procuring deposits and making loans are the major lines of
business. The deposits are mainly deposits of individuals and
small businesses and the loans are mainly real estate loans
covering primary residences and small business enterprises. The
trust services, under the name of CCFNB and Co., include
administration of various estates, pension plans, self-directed
IRA's and other services. A third-party brokerage arrangement is
also resident in the main branch, namely Bloomsburg. This
investment center offers a full line of stocks, bonds and other
non-insured financial services.
On December 19, 2000, the Corporation became a Financial Holding
Company by having filed an election to do so with the Federal
Reserve Board. The Bancorp acquired a 50% interest in a local
insurance agency during January 2001.
USE OF ESTIMATES
The preparation of these consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of these consolidated financial statements and the
reported amounts of income and expenses during the reporting
periods. Actual results could differ from those estimates.
-4-
INVESTMENT SECURITIES
The Corporation classifies its investment securities as either
"Held-to-Maturity" or "Available-for-Sale" at the time of
purchase. Debt securities are classified as Held-to-Maturity when
the Corporation has the ability and positive intent to hold the
securities to maturity. Investment securities Held-to-Maturity are
carried at cost adjusted for amortization of premiums and
accretion of discounts to maturity.
Debt securities not classified as Held-to-Maturity and equity
securities included in the Available-for-Sale category, are
carried at fair value, and the amount of any unrealized gain or
loss net of the effect of deferred income taxes is reported as a
component of Stockholders' Equity. Management's decision to sell
Available-for-Sale securities is based on changes in economic
conditions controlling the sources and uses of funds, terms,
availability of and yield of alternative investments, interest
rate risk, and the need for liquidity.
The cost of debt securities classified as Held-to-Maturity or
Available-for-Sale is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization and
accretion, as well as interest and dividends, is included in
interest income from investments. Realized gains and losses are
included in net investment securities gains. The cost of
investment securities sold, redeemed or matured is based on the
specific identification method.
Equity securities that do not have readily determinable fair
values such as Federal Reserve Bank Stock, Federal Home Loan Bank
Stock and Atlantic Central Banker's Bank Stock are carried at cost
and are included in other assets.
LOANS
Loans are stated at their outstanding principal balances, net of
deferred fees or costs, unearned income, and the allowance for
loan losses. Interest on loans is accrued on the principal amount
outstanding, primarily on an actual day basis. Non-refundable loan
fees and certain direct costs are deferred and amortized over the
life of the loans using the interest method. The amortization is
reflected as an interest yield adjustment, and the deferred
portion of the net fees and costs is reflected as a part of the
loan balance.
Non-Accrual Loans - Generally, a loan is classified as
non-accrual, with the accrual of interest on such a loan
discontinued when the contractual payment of principal or interest
has become 90 days past due or management has serious doubts about
further collectibility of principal or interest, even though the
loan currently is performing. A loan may remain on accrual status
if it is in the process of collection and is either guaranteed or
well secured. When a loan is placed on non-accrual status, unpaid
interest credited to income in the current year is reversed, and
unpaid interest accrued in prior years is charged against the
allowance for credit losses. Certain non-accrual loans may
continue to perform, that is, payments are still being received
with those payments generally applied to principal. Non-accrual
loans remain under constant scrutiny and if performance continues,
interest income may be recorded on a cash basis based on
management's judgement as to collectibility of principal.
-5-
Allowance for Loan Losses - The allowance for loan losses is
established through provisions for loan losses charged against
income. Loans deemed to be uncollectible are charged against the
allowance for loan losses, and subsequent recoveries, if any, are
credited to the allowance.
A factor in estimating the allowance for loan losses is the
measurement of impaired loans. A loan is considered impaired when,
based on current information and events, it is probable that the
Corporation will be unable to collect all amounts due according to
the contractual terms of the loan agreement. Under current
accounting standards, the allowance for loan losses related to
impaired loans is based on discounted cash flows using the loan's
effective interest rate or the fair value of the collateral for
certain collateral dependent loans.
The allowance for loan losses is maintained at a level established
by management to be adequate to absorb estimated potential loan
losses. Management's periodic evaluation of the adequacy of the
allowance for loan losses is based on the Corporation's past loan
loss experience, known and inherent risks in the portfolio,
adverse situations that may affect the borrower's ability to repay
(including the timing of future payments), the estimated value of
any underlying collateral, composition of the loan portfolio,
current economic conditions, and other relevant factors. This
evaluation is inherently subjective as it requires material
estimates, including the amounts and timing of future cash flows
expected to be received on impaired loans that may be susceptible
to significant change.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation computed principally on the straight-line method over
the estimated useful lives of the assets. Maintenance and minor
repairs are charged to operations as incurred. The cost and
accumulated depreciation of the premises and equipment retired or
sold are eliminated from the property accounts at the time of
retirement or sale, and the resulting gain or loss is reflected in
current operations.
OTHER REAL ESTATE OWNED
Other real estate owned is comprised of property acquired through
a foreclosure proceeding or acceptance of a deed-in-lieu of
foreclosure and loans classified as in-substance foreclosure. In
accordance with Statement of Financial Accounting Standards (SFAS)
No. 114, a loan is classified as in-substance foreclosure when the
Corporation has taken possession of the collateral regardless of
whether formal foreclosure proceedings take place. Other real
estate owned is recorded at fair value at the date of foreclosure,
establishing a new cost basis and is included in other assets.
After foreclosure, valuations are periodically performed by
management, and the real estate is carried at the lower of (1)
cost or (2) fair value minus estimated costs to sell. Income and
expenses from operations of other real estate owned and changes in
the valuation allowance are included in loss on other real estate
owned.
-6-
INCOME TAXES
The provision for income taxes is based on the results of
operations, adjusted primarily for tax-exempt income. Certain
items of income and expense are reported in different periods for
financial reporting and tax return purposes. Deferred tax assets
and liabilities are determined based on the differences between
the consolidated financial statement and income tax bases of
assets and liabilities measured by using the enacted tax rates and
laws expected to be in effect when the timing differences are
expected to reverse. Deferred tax expense or benefit is based on
the difference between deferred tax asset or liability from period
to period.
PER SHARE DATA
Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share", requires dual presentation of basic and
diluted earnings per share. Basic earnings per share is calculated
by dividing net income by the weighted average number of shares of
common stock outstanding at the end of each period. Diluted
earnings per share is calculated by increasing the denominator for
the assumed conversion of all potentially dilutive securities. The
Corporation does not have any securities which have or will have a
dilutive effect, accordingly, basic and diluted per share data is
the same.
CASH FLOW INFORMATION
For purposes of reporting consolidated cash flows, cash and cash
equivalents include cash on hand and due from banks,
interest-bearing deposits in other banks and federal funds sold.
The Corporation considers cash classified as interest-bearing
deposits with other banks as a cash equivalent because they are
represented by cash accounts essentially on a demand basis.
Federal funds are also included as a cash equivalent because they
are generally purchased and sold for one-day periods.
TRUST ASSETS AND INCOME
Property held by the Corporation in a fiduciary or agency capacity
for its customers is not included in the accompanying consolidated
financial statements because such items are not assets of the
Corporation. Trust Department income is generally recognized on a
cash basis and is not materially different than if it was reported
on an accrual basis.
SEGMENT REPORTING
The Corporation's banking subsidiary acts as an independent
community financial services provider, and offers traditional
banking and related financial services to individual, business and
government customers. Through its branch, internet banking,
telephone and automated teller machine network, the Bank offers a
full array of commercial and retail financial services, including
the taking of time, savings and demand deposits; the making of
commercial, consumer and mortgage loans; and the providing of
other financial services. The Bank also performs personal,
corporate, pension and fiduciary services through its Trust
Department as well as offering diverse investment products through
its investment center.
-7-
Management does not separately allocate expenses, including the
cost of funding loan demand, between the commercial, retail, trust
and investment center operations of the Corporation. As such,
discrete financial information is not available and segment
reporting would not be meaningful.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS) No. 133 (as
amended by SFAS No. 138), "Accounting for Derivative Instruments
and Hedging Activities", becomes effective for financial reporting
periods beginning after June 15, 2000. SFAS No. 133 requires the
recognition of the fair value of all derivative instruments on the
consolidated balance sheets. Since the Corporation does not enter
into transactions involving derivatives described in the standard
and does not engage in hedging activities, the standard is not
expected to have a significant impact on the Corporation's
consolidated financial condition or results of operations.
Statement of Financial Accounting Standards (SFAS) No. 140,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities", is generally effective for
transactions occurring after March 31, 2001. For recognition and
reclassification of collateral and for disclosure related to
securitization transactions and collateral, the effective date is
for fiscal years ending after December 15, 2000. SFAS No. 140
replaces SFAS No. 125 and provides revisions to the standards for
accounting and requirements for certain disclosures relating to
securitizations and other transfers of financial assets. The
standard is not expected to have a significant impact on the
Corporation's consolidated financial condition or results of
operations.
RECLASSIFICATION
Certain amounts in the consolidated financial statements of the
prior years have been reclassified to conform with presentation
used in the 2001 consolidated financial statements. Such
reclassifications had no effect on the Corporation's consolidated
financial condition or net income.
NOTE 2 - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the periods ended
September 30, 2001, and September 30, 2000 were as follows:
(AMOUNTS IN THOUSANDS)
----------------------
2001 2000
---- ----
Balance, beginning of year......................... $ 1,008 $ 985
Provision charged to operations.................... 148 47
Loans charged-off.................................. (145) (68)
Recoveries......................................... 37 41
-------- --------
Balance, September 30.............................. $ 1,048 $ 1,005
======== ========
-8-
At September 30, 2001 the recorded investment in loans that are
considered to be impaired as defined by SFAS No. 114 was $68,697.
No additional charge to operations was required to provide for the
impaired loans since the total allowance for loan losses is
estimated by management to be adequate to provide for the loan
loss allowance required by SFAS No. 114 along with any other
potential losses.
At September 30, 2001, there were no significant commitments to
lend additional funds with respect to non-accrual and restructured
loans.
NOTE 3 -- SHORT-TERM BORROWINGS
Federal funds purchased, securities sold under agreements to
repurchase, and Federal Home Loan Bank advances generally
represented overnight or less than 30-day borrowings. U.S.
Treasury tax and loan notes for collections made by the Bank were
payable on demand.
NOTE 4 -- LONG-TERM BORROWINGS
Long-term borrowings are comprised of advances from the Federal
Home Loan Bank.
NOTE 5 -- STOCKHOLDERS' EQUITY
Changes in stockholders' equity for the period ended September 30,
2001 were as follows:
(AMOUNTS IN THOUSANDS, EXCEPT COMMON SHARE DATA)
------------------------------------------------
ACCUMULATED
OTHER
COMPREHENSIVE COMPREHENSIVE
COMMON COMMON INCOME RETAINED INCOME TREASURY
SHARES STOCK SURPLUS (LOSS) EARNINGS (LOSS) STOCK TOTAL
------ ----- ------- ------ -------- ------ ----- -----
Balance at January 1, 2001......... 1,346,328 $ 1,683 $ 5,146 $ 0 $18,310 $ (89) $ 0 $25,050
Comprehensive Income:
Net income........................ 0 0 0 1,413 1,413 0 0 1,413
Change in unrealized gain (loss)
on investment securities
available-for-sale net of
reclassification adjustment
and tax effects.................. 0 0 0 557 0 557 0 557
-------
TOTAL COMPREHENSIVE INCOME $ 1,970
=======
Issuance of 5,805 shares of common
stock under dividend reinvestment
and stock purchase plans......... 5,805 8 105 0 0 0 113
Purchase of 16,446 shares of
treasury stock................... 0 0 0 0 0 (328) (328)
Retirement of 16,446 shares of
treasury stock................... (16,446) (21) (307) 0 0 328 0
Cash dividends $.44 per share...... 0 0 0 (589) 0 0 (589)
--------- ------- ------- ------- ------- ------ -------
Balance at September 30, 2001...... 1,335,687 $ 1,670 $ 4,944 $19,134 $ 468 $ 0 $26,216
========= ======= ======= ======= ======= ====== =======
-9-
NOTE 6 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND
CONCENTRATIONS OF CREDIT RISK
The Corporation is a 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, standby letters of credit
and commercial letters of credit. Those instruments involve, to
varying degrees, elements of credit and interest rate risk in
excess of the amount recognized in the consolidated balance
sheets. The contract or notional amounts of those instruments
reflect the extent of involvement the Corporation has in
particular classes of financial instruments. The Corporation does
not engage in trading activities with respect to any of its
financial instruments with off-balance sheet risk.
The Corporation may require collateral or other security to
support financial instruments with off-balance sheet credit risk.
The contract or notional amounts at September 30, 2001 and
December 31, 2000 were as follows:
(AMOUNTS IN THOUSANDS)
----------------------
SEPTEMBER DECEMBER
30, 2001 31, 2000
-------- --------
FINANCIAL INSTRUMENTS WHOSE CONTRACT AMOUNTS REPRESENT
CREDIT RISK:
Commitments to extend credit........................ $ 12,321 $ 9,685
Financial standby letters of credit................. 2,388 1,990
Performance standby letters of credit............... 19 18
Dealer floor plans.................................. 1,956 1,098
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.
Because many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Corporation evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Corporation upon
extension of credit, is based on management's credit evaluation of
the counter-party. Collateral held varies but may include accounts
receivable, inventory, property, plant, equipment and
income-producing commercial properties.
Standby letters of credit and commercial letters of credit are
conditional commitments issued by the Corporation 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 facilities to customers. The
Corporation holds collateral supporting those commitments for
which collateral is deemed necessary.
The Corporation's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for
commitments to extend credit and letters of credit is represented
by the contractual notional amount of those instruments. The
Corporation uses the same credit policies in making commitments
and conditional obligations, as it does for on-balance sheet
instruments.
-10-
The Corporation granted commercial, consumer and residential loans
to customers within Pennsylvania. Of the total loan portfolio at
September 30, 2001, 80.5% was for real estate loans, principally
residential. It was the opinion of management that the high
concentration did not pose an adverse credit risk. Further, it was
management's opinion that the remainder of the loan portfolio was
balanced and diversified to the extent necessary to avoid any
significant concentration of credit.
NOTE 7 - MANAGEMENT'S ASSERTIONS AND COMMENTS REQUIRED TO BE PROVIDED WITH
FORM 10Q FILING
In management's opinion, the consolidated interim financial
statements reflect fair presentation of the consolidated financial
position of CCFNB Bancorp, Inc. and Subsidiary, and the results of
their operations and their cash flows for the interim periods
presented. Further, the consolidated interim financial statements
are unaudited however they reflect all adjustments, which are in
the opinion of management, necessary to present fairly the
consolidated financial condition and consolidated results of
operations and cash flows for the interim periods presented and
that all such adjustments to the consolidated financial statements
are of a normal recurring nature.
The results of operations for the nine-month period ended
September 30, 2001, are not necessarily indicative of the results
to be expected for the full year.
These consolidated interim financial statements have been prepared
in accordance with requirements of Form 10Q and therefore do not
include all disclosures normally required by accounting principles
generally accepted in the United States of America applicable to
financial institutions as included with consolidated financial
statements included in the Corporation's annual Form 10K filing.
The reader of these consolidated interim financial statements may
wish to refer to the Corporation's annual report or Form 10K for
the period ended December 31, 2000, filed with the Securities and
Exchange Commission.
-11-
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders of CCFNB Bancorp, Inc.:
We have reviewed the accompanying consolidated balance sheet of CCFNB
Bancorp, Inc. and Subsidiary as of September 30, 2001, and the related
consolidated statements of income and cash flows for the nine and
three-month periods ended September 30, 2001 and 2000. These consolidated
financial statements are the responsibility of the management of CCFNB
Bancorp, Inc. and Subsidiary.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with auditing standards generally
accepted in the United States of America, the objective of which is the
expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the consolidated financial statements referred to above
for them to be in conformity with accounting principles generally accepted
in the United States of America.
We have previously audited, in accordance with auditing standards
generally accepted in the United States of America, the consolidated
balance sheet of CCFNB Bancorp, Inc. and Subsidiary as of December 31,
2000, and the related consolidated statements of income, stockholders'
equity, and cash flows for the year then ended (not presented herein); and
in our report dated January 19, 2001, we expressed an unqualified opinion
on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
December 31, 2000, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
J.H. Williams & Co., LLP
Kingston, Pennsylvania
October 16, 2001
-12-
CCFNB BANCORP, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 2001
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Consolidated Summary of Operations
(Dollars in Thousands, except for per share data)
At and For the At and For the Years Ended December 31,
Nine Months ---------------------------------------
Ended September 30,
-------------------
2001 2000 2000 1999 1998 1997 1996
---- ---- ---- ---- ---- ---- ----
Income and Expense:
Interest income ........... $ 10,342 $ 10,029 $ 13,522 $ 12,669 $ 12,444 $ 12,498 $ 11,844
Interest expense .......... 5,369 5,011 6,859 6,099 6,072 5,976 5,588
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income ....... 4,973 5,018 6,693 6,570 6,372 6,522 6,256
Loan loss provision ....... 148 47 54 78 78 60 80
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after
loan loss Provision ....... 4,825 4,971 6,639 6,492 6,294 6,462 6,176
Non-interest income ....... 821 750 1,053 1,050 981 804 762
Non-interest expense ...... 3,832 3,763 4,967 4,818 4,739 4,492 4,450
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes 1,814 1,958 2,725 2,724 2,536 2,774 2,488
Income taxes .............. 401 473 671 685 634 749 664
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income ................ $ 1,413 $ 1,485 $ 2,054 $ 2,039 $ 1,902 $ 2,025 $ 1,824
========== ========== ========== ========== ========== ========== ==========
Per Share: (1)
Net income ................ $ 1.05 $ 1.09 $ 1.51 $ 1.48 $ 1.38 $ 1.47 $ 1.33
Cash dividends paid ....... .44 .42 .56 .51 .46 .46 .45
Average shares outstanding 1,340,749 1,358,633 1,355,624 1,375,572 1,378,339 1,381,800 1,375,875
Average Balance Sheet:
Loans ..................... $ 139,468 $ 133,350 $ 134,325 $ 123,185 $ 116,490 $ 116,771 $ 112,341
Investments ............... 50,554 46,038 45,877 48,726 44,906 39,335 38,299
Other earning assets ...... 9,339 1,608 1,345 2,739 4,952 5,053 3,739
Total assets .............. 210,011 191,531 196,727 186,597 177,643 171,159 164,512
Deposits .................. 150,820 138,766 139,774 138,963 131,366 129,054 131,401
Other interest-bearing
liabilities ............... 31,781 28,591 31,203 23,458 22,660 20,198 14,860
Stockholders' equity ...... 26,008 22,925 23,910 22,874 22,264 20,690 19,512
Balance Sheet Data:
Loans ..................... $ 141,483 $ 134,701 $ 137,360 $ 134,423 $ 118,558 $ 119,045 $ 115,590
Investments ............... 51,415 46,068 46,185 46,877 47,179 41,545 36,458
Other earning assets ...... 9,033 8,402 5,940 1,343 6,105 1,708 6,856
Total assets .............. 212,254 199,916 203,054 196,122 185,258 173,866 170,086
Deposits .................. 151,934 139,074 143,169 138,606 137,679 127,719 131,400
Other interest-bearing
liabilities ............... 32,601 35,518 33,477 33,224 22,709 22,802 16,951
Stockholders' equity ...... 26,216 24,111 25,050 23,047 23,480 22,105 20,657
Ratios: (2)
Return on average assets .. .90% 1.03% 1.04% 1.09% 1.07% 1.18% 1.11%
Return on average equity .. 7.24% 8.64% 8.59% 8.91% 8.54% 9.79% 9.35%
Dividend payout ratio ..... 41.68% 38.32% 36.89% 34.09% 33.59% 31.65% 33.95%
Average equity to average
assets ratio .............. 12.38% 11.97% 12.34% 11.75% 12.53% 12.71% 11.86%
(1) Per share data has been calculated on the weighted average number of
shares outstanding.
(2) The ratios for the nine month period ending September 30, 2001 and 2000
are annualized.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Form 10-Q, both in the MD & A and elsewhere, contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Such statements are not historical facts and include expressions about our
confidence and strategies and our expectations about new and existing programs
and products, relationships, opportunities, technology and market conditions.
These statements may be identified by such forward-looking terminology as
"expect," "look," "believe," "anticipate," "may," "will," or similar statements
or variations of such terms. Such forward-looking statements involve certain
risks and uncertainties. These include, but are not limited to, the direction of
interest rates, continued levels of loan quality and origination volume,
continued relationships with major customers, and sources for loans, as well as
the effects of economic conditions and legal and regulatory barriers and
structure. Actual results may differ materially from such forward-looking
statements. We assume no obligation for updating any such forward-looking
statement at any time. Our consolidated financial condition and results of
operations are essentially those of our wholly-owned subsidiary bank, Columbia
County Farmers National Bank. Therefore, our discussion and analysis that
follows is primarily centered on the performance of this bank.
EARNINGS SUMMARY
Net income for the nine months ended September 30, 2001 was $1.4 million or
$1.05 per basic and diluted share. These results compare with net income of $1.5
million, or $1.09 per basic and diluted share for the same period in 2000.
Annualized return on average equity decreased to 7.24 percent from 8.64 percent,
while the annualized return on average assets decreased to .90 percent from 1.03
percent, for the nine months ended September 30, 2001 and 2000, respectively.
13
Net income was $449 thousand or $.33 per basic and diluted share for the three
month period ended September 30, 2001, compared with $524 thousand or $0.39
per basic and diluted share for the same period in 2000.
Net interest income continues to be the largest source of our operating
income. Net interest income on a tax equivalent basis decreased to $5.2
million at September 30, 2001, compared with $5.3 million for the nine months
ended September 30, 2000. The decrease in net interest income is primarily due
to the yield on loans and investment securities decreasing at a faster pace
than the cost of interest on deposits for both the nine months and three
months ended September 30, 2001 compared to the prior year. This decrease was
partially mitigated by changing interest rates. The net interest margin
declined to 3.49 percent for the nine months ended September 30, 2001,
compared to 3.94 percent for the nine months ended September 30, 2000.
Beginning in January 2001 the Federal Reserve decreased interest rates eight
times during the nine months ended September 30, 2001 amounting to 350 basis
points due to general weakness in the economy. Further declines in short-term
interest rates are possible which may affect net interest income during the
remainder of 2001.
Average interest earning assets increased $18.4 million or 10.1 percent for
the nine months ended September 30, 2001 over the same period in 2000. This
was mainly the result of the increases in average balances of loans of $6.1
million or 4.6 percent, investments of $4.5 million or 9.8 percent and federal
funds sold and interest-bearing deposits with other financial institutions of
$7.7 million.
Average interest bearing liabilities for the nine months ended September 30,
2001 increased $14.6 million or 9.5 percent from the same period in 2000.
Average short-term borrowings remained at 20.4 million and long-term debt,
which includes primarily FHLB advances, increased $3.2 million, or 40 percent.
Average demand deposits increased $637 thousand from 2000 balances. During the
first half of 2001, in conjunction with declining interest rates, we began to
extend maturities on short-term borrowings by converting to longer term
Federal Home Loan Bank advances. The extension of maturities is part of an
effort to more closely match a portion of our funding sources with our
mortgage portfolio and reduce interest rate risk.
The average interest rate on total interest earning assets was 7.15 percent
for the nine months ended September 30, 2001, compared with 7.39 percent for
the nine months ended September 30, 2000. The average interest rate for loans
decreased 23 basis points to 7.71 percent. Other short-term interest rates
decreased 1.40 basis points to 5.15 percent. Average interest rates on
deposits decreased by 1 basis point to 4.10 percent. Average interest rates
also decreased on total interest bearing liabilities by 9 basis points to 4.25
percent from 4.34 percent. The reason for these decreases on interest bearing
liabilities was primarily attributed to the decreasing rates on all deposit
liabilities and the tied-to-prime interest rates paid on repurchase agreements
with large customers. The net interest margin decreased to 3.49 percent for
the nine months ended Septemer 30, 2001 from 3.94 percent for the nine months
ended September 30, 2000.
NET INTEREST INCOME
Net interest income remained constant at $1.6 million for the three months
ended September 30, 2001 compared with the same period in 2000.
The following table reflects the components of net interest income for each of
the nine months ended September 30, 2001 and 2000.
ANALYSIS OF AVERAGE ASSETS, LIABILITIES AND CAPITAL EQUITY
AND
NET INTEREST INCOME ON A TAX EQUIVALENT BASIS
AVERAGE BALANCE SHEET AND RATE ANALYSIS
(Dollars in Thousands)
Nine Month Ended September 30, 2001 and 2000
Interest Average Interest Average
Average Income / Yield / Average Income / Yield /
Balance Expense Rate Balance Expense Rate
------- ------- ------ ------- -------- -------
(1) (2) (1) (2)
ASSETS:
Interest-bearing deposits with other financial
institutions........................................ $ 6,213 $ 247 5.30% $ 467 $ 23 6.57%
Investment securities (3)........................... 50,554 1,959 5.70% 46,038 2,013 5.85%
Federal funds sold.................................. 2,000 58 3.87% 15 0 .00%
Loans .............................................. 139,468 8,022 7.71% 133,350 7,937 7.94%
Other assets/equity securities...................... 1,126 56 6.63% 1,126 56 6.63%
-------- -- -------- ---
Total interest earning assets....................... $199,361 $ 10,342 7.15% $180,996 $ 10,029 7.39%
Reserve for loan losses............................. (1,015) (1,020)
Cash and due from banks............................. 4,902 2,040
Other assets........................................ 6,763 9,515
-------- --------
Total assets........................................ $210,011 $191,531
-------- --------
LIABILITIES AND CAPITAL:
Interest bearing deposits........................... $136,634 $ 4,202 4.10% $125,217 $ 3,806 4.11%
Short-term borrowings............................... 20,419 607 3.96% 20,477 839 5.46%
Long-term borrowings................................ 11,362 560 6.57% 8,114 366 6.01%
-------- -------- -------- --------
Total interest-bearing liabilities.................. $168,415 $ 5,369 4.25% $153,808 $ 5,011 4.34%
-------- -------- -------- --------
Demand deposits..................................... $ 14,186 $ 13,549
Other liabilities................................... 1,402 1,249
Stockholders' equity................................ 26,008 22,925
-------- --------
14
Total liabilities and capital....................... $201,011 $191,531
======= =======
NET INTEREST INCOME
NET INTEREST MARGIN (4)........................... $ 4,973 3.33% $ 5,018 3.70%
======== ==== ======== ====
TAX EQUIVALENT NET INTEREST INCOME /
NET INTEREST MARGIN (5)........................... $ 5,219 3.49% $ 5,348 3.94%
======== ==== ======== ====
(1) Average volume information was computed using daily averages.
(2) Interest on loans includes fee income.
(3) Yield on tax-exempt obligations has been computed on a tax-equivalent
basis.
(4) Net interest margin is computed by dividing net interest income by
total interest earning assets.
(5) Interest and yield are presented on a tax-equivalent basis using 34
percent for 2001 and 2000.
The following table demonstrates the relative impact on net interest income of
changes in volume of interest earnings assets and interest bearing liabilities
and changes in rates earned and paid by us on such assets and liabilities.
CHANGE IN NET INTEREST INCOME ON A TAX EQUIVALENT BASIS
Nine Months Ended September 30, 2001
Compared with 2000
Increase (Decrease) (2)
Volume Rate Total
------ ---- -----
(in thousands)
Interest income:
Loans (1)................................................ 486 (307) 179
Investments.............................................. 264 (69) 195
Federal funds sold and other short-term investments...... 0 1 1
Interest expense:
Deposits................................................. 469 (13) 456
Short-term borrowings.................................... (3) (307) (310)
Long -term debt.......................................... 195 45 240
Net: 89 100 (11)
(1) Interest income is adjusted to a tax equivalent basis using a 34 percent
tax rate.
(2) Variances resulting from a combination of changes in volume and rates are
allocated to the categories in proportion to the absolute dollar amounts
of the change in each category.
Average interest earning assets at September 30, 2001 increased by 10.1
percent over September 30, 2000 to $199.4 million from $181 million.
Average loans outstanding increased from $133.4 million to $139.5 million or
4.6 percent for the nine months ended September 30, 2001, as compared to the
nine months ended September 30, 2000.
The outstanding balance of loans at September 30, 2001 was $141.5 million
compared to $137.4 million at December 31, 2000.
Interest income from investment securities remained at $2.0 million for the
nine months ended September 30, 2001 and 2000. The average balance of
investment securities for the nine months ended September 30, 2001 increased
10 percent to $50.6 million, compared to the $46 million for the same period
of 2000.
Total interest expense increased $358 thousand or 7.1 percent for the first
nine months of 2001 as compared to the first nine months of 2000. The cost of
interest bearing liabilities decreased on an average yield basis from 4.34
percent through September 2000 compared to 4.25 percent through September
2001. The average yield on interest earning assets decreased from 7.39 percent
to 7.15 percent through September 2000 and 2001, respectively.
Average short-term borrowings decreased slightly from $20.5 million at
September 30, 2000 to $20.4 million at September 30, 2001.
Long-term borrowings from Federal Home Loan Bank increased from an average
$8.1 million at Setpember 30, 2000 to $11.4 million at September 30, 2001. $2
million of long-term debt was repaid during the second quarter of 2001.
15
NON-INTEREST INCOME
The following table presents the components of non-interest income for the nine
months ended September 30, 2001 and 2000.
Nine Months Ended
September 30,
(In thousands)
2001 2000
---- ----
Service charges and fees............................ $ 453 $ 447
Trust Department income............................. 165 121
Investment securities gain - net.................... 71 0
Third party brokerage income........................ 43 77
Other............................................... 89 105
-- ---
Total....................................... $821 $750
Non-interest income continues to represent a considerable source of our
income. We are committed to increasing non-interest income. Increases will be
from our existing sources of non-interest income and any new opportunities
that may develop. For the nine months ended September 30, 2001, total
non-interest income increased $71 thousand to $821 thousand or 9.5 percent,
compared to $750 thousand for the nine months period ended September 30, 2000.
Service charges and fees increased $6 thousand from $447 thousand at September
30, 2000 to $453 thousand or 1.3 percent at September 30, 2001. Trust
Department income increased from $121 thousand at September 30, 2000 to $165
thousand or 36.4 percent at September 30, 2001. This increase was attributed
to new trust customers, especially one large financial management account.
Third party brokerage income reflected a $34 thousand decrease or 44.2 percent
comparing September 30, 2000 to September 30, 2001. Income from this source is
dependent upon the investment climate.
Other non-interest income decreased from $105 thousand at September 30, 2000
to $89 thousand or 15.2 percent at September 30, 2001. This decrease was
comprised mostly of penalties received on early withdrawals of Certificates of
Deposit due to declining interest rates during 2000 with fewer certificates
redeemed early.in 2001.
For the quarter ended September 30, 2001, total non-interest income was $274
thousand compared to $250 thousand for the quarter ended September 30, 2000.
NON-INTEREST EXPENSE
The following table presents the components of non-interest expense for the
six months ended September 30, 2001 and 2000.
Nine Months Ended
September 30,
2001 2000
---- ----
(Dollars in Thousands)
Salaries and wages.......................... $ 1,524 $ 1,513
Employee benefits............................ 518 486
Net occupancy expense........................ 281 249
Furniture and equipment expense.............. 406 466
State shares tax............................. 181 164
Other expense................................ 922 885
------- --------
Total................................ $ 3,832 $ 3,763
======= ========
Non-interest expense remained constant at $3.8 million at September 30, 2000
and 2001.
Generally, non-interest expense accounts for the cost of maintaining
facilities; providing salaries and benefits to employees; and paying for
insurance, supplies, advertising, data processing services, taxes and other
related expenses. Some of the costs and expenses are variable while others are
fixed. To the extent possible, we utilize budgets and related measures to
control variable expenses.
Salaries remained at $1.5 million at September 30, 2001 and 2000. A 6.6
percent increase was reflected in employee benefits from $486 thousand at
September 30, 2000 to $518 thousand at September 30, 2001. Increased cost of
employee benefits, specifically health coverage, accounted for the increase in
employee benefits.
Occupancy expense and furniture and equipment expense reflects a $28 thousand
or 3.9 percent decrease for the first nine months of 2001 compared to the
first six months of 2000. Less depreciation expense on furniture and fixtures
is the reason for this decrease.
Pennsylvania Bank Shares Tax increased 10.4 percent from $164 thousand at
September 30, 2000 to $181 thousand at September 30, 2001.
Other expenses increased 4.2 percent from $885 thousand at September 30, 2000
to $922 thousand at September 30, 2001.
The efficiency ratio measures a bank's gross operating expense as a percentage
of fully-taxable equivalent net interest income and other non-interest income
without taking into account security gains and losses and other non-recurring
items. Our efficiency ratio for the nine months ended September 30, 2001 was
63.44 percent, compared with an efficiency ratio of 60.64 percent for the year
ended December 31, 2000. We strive to control our efficiency ratio and
expenses as a means of producing increased earnings for our shareholders and
constantly look for ways to lower our efficiency ratio. In comparison with our
peer-group of commercial banks, our efficiency ratio is in the 55 percentile
with peers being 66.08 percent.
16
INCOME TAXES
Income tax expense as a percentage of pre-tax income was 22.1 percent and 20.8
percent for the nine and three months ended September 30, 2001 respectively,
compared with 24.2 percent and 24.2 percent for the same periods in 2000. The
effective tax rate for 2001 is expected to approximate 34 percent.
ASSET / LIABILITY MANAGEMENT
INTEREST RATE SENSITIVITY
Our success is largely dependent upon our ability to manage interest rate
risk. Interest rate risk can be defined as the exposure of our net interest
income to the movement in interest rates. We do not currently use derivatives
to manage market and interest rate risks. Our interest rate risk management is
the responsibility of the Asset / Liability Management Committee ("ALCO"),
which reports to the Board of Directors. ALCO establishes policies that
monitor and coordinate our sources, uses and pricing of funds as well as
interest-earning asset pricing and volume.
We use a simulation model to analyze net interest income sensitivity to
movements in interest rates. The simulation model projects net interest income
based on various interest rate scenarios over a 12 and 24 month period. The
model is based on the actual maturity and repricing characteristics of rate
sensitive assets and liabilities. The model incorporates assumptions regarding
the impact of changing interest rates on the prepayment rates of certain
assets and liabilities. In a continued declining interest rate environment,
our net interest income is not expected to change materially.
LIQUIDITY
Liquidity measures the ability to satisfy current and future cash flow needs
as they become due. Maintaining a level of liquid funds through asset /
liability management seeks to ensure that these needs are met at a reasonable
cost. On the asset side, liquid funds are maintained in the form of cash and
due from banks, federal funds sold, investment securities maturing within one
year, and security and loan payments. Liquid assets amounted to $101.4 million
and $84.5 million at September 30, 2001 and December 31, 2000, respectively.
This represents 50.9 percent and 44.1 percent of earning assets, and 47.8
percent and 41.6 percent of total assets at September 30, 2001 and December
31, 2000, respectively.
On the liability side, the primary source of funds available to meet liquidity
needs is our core deposit base, which generally excludes certificates of
deposit over $100 thousand . Core deposits averaged approximately $125.2
million for the nine months ended September 30, 2001 and $122.6 million for
the year ended December 31, 2000, representing 62.8 percent and 67.1 percent
of average earning assets. Short-term and long-term borrowings through federal
funds lines, repurchase agreements, Federal Home Loan Bank advances and large
dollar certificates of deposit, generally those over $100 thousand, are used
as supplemental funding sources. Additional liquidity is derived from
scheduled loan and investment payments of principal and interest, as well as
prepayments received. For the nine months ended September 30, 2001 there were
$25.4 million of proceeds from the sales, maturities and redemptions of
investment securities available for sale. Purchases of investment securities
for the nine months ended September 30, 2001 were $29.8 million. Short-term
borrowings and certificates of deposit over $100 thousand amounted to $46
million and $37.5 million, on average, for the nine months ended September 30,
2001 and the year ended December 31, 2000, respectively.
Our cash requirements consist primarily of dividends to shareholders. This
cash need is routinely satisfied by dividends collected from the bank along
with cash and investments owned. Projected cash flows from this source are
expected to be adequate to pay dividends, given the current capital levels and
current profitable operations of the bank. In addition, we may repurchase
shares of our outstanding common stock for benefit plans and other corporate
purposes. The cash required for a purchase of shares can be met by using our
own funds, dividends received from the bank, and borrowed funds.
As of September 30, 2001, we had $51.4 million of securities available for
sale recorded at their fair value, compared with $46.2 million at December 31,
2000. As of September 30, 2001, the investment securities available for sale
had an unrealized gain of $468 thousand, net of deferred taxes, compared with
an unrealized loss of $89 thousand, net of deferred taxes, at December 31,
2000. This change was primarily due to an increase in investment values
resulting from a decreasing interest rate environment. These securities are
not considered trading account securities which may be sold on a continuous
basis, but rather are securities which may be sold to meet our various
liquidity and interest rate requirements.
NON-PERFORMING ASSETS
Shown below is a summary of past due and non-accrual loans:
(Dollars in thousands)
September December
30, 2001 31, 2000
--------- ---------
Past due and non-accrual:
Days 30 - 89.......................... $ 1,282 $ 1,340
Days 90 plus.......................... 572 344
Non-accrual................... 854 312
--- ---
Total $2,708 $1,996
Past due and non-accrual loans increased to $2.7 million at September 30, 2001
from $2.0 million at December 31, 2000. The major portion of the increase was
attributable to increases in commercial and mortgage loans, particularly
commercial mortgages. The loan delinquency expressed as a ratio to total loans
was 1.9% and 1.4% at September 30, 2001 and December 31, 2000, respectively.
Any loans classified for regulatory purposes as loss, doubtful, substandard,
or special mention that have not been disclosed under Industry Guide 3 do not
(i) represent or result from trends or uncertainties which we reasonably
expect will materially impact future operating results, liquidity, or capital
resources, or (ii) represent material credits about which we are aware of any
information which causes us to have serious doubts as to the ability of such
borrowers to comply with the loan repayment terms.
We adhere to principles provided by Financial Accounting Standards Board
Statement No. 114, "Accounting by Creditors for Impairment of a Loan" - Refer
to Note 2 above for other details.
17
The following analysis provides a schedule of loan maturities/interest rate
sensitivities. This schedule presents a repricing and maturity analysis as
required by the FFIEC:
(Dollars
in
Thousands)
September 30, 2001
MATURITY AND REPRICING DATA FOR LOANS AND LEASES
Closed-end loans secured by first liens and 1-4 family residential properties
with a remaining maturity or repricing frequency of:
(1) Three months of less............................................................. $ 3,028
(2) Over three months through 12 months.............................................. 18,154
(3) Over one year through three years................................................ 30,477
(4) Over three years through five years.............................................. 1,504
(5) Over five years through 15 years................................................. 9,456
(6) Over 15 years.................................................................... 1,936
All loans and leases other than closed-end loans secured by first liens on 1-4
family residential properties with a remaining maturity or repricing frequency of:
(1) Three months of less............................................................. 13,690
(2) Over three months through 12 months.............................................. 17,767
(3) Over one year through three years................................................ 15,764
(4) Over three years through five years ............................................. 7,023
(5) Over five years through 15 years................................................. 16,040
(6) Over 15 years.................................................................... 6,138
----------
Sub-total..................................................................... $ 140,977
----------
Add: non-accrual loans not included above................................................. 854
Less: unearned income...................................................................... (348)
----------
Total Loans and Leases........................................................ $ 141,483
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses reflected a balance of $1 million or .07 percent
of total loans at September 30, 2001 and December 31, 2000. The allowance is
believed adequate for possible loan losses in the future.
The provision for loan losses increased $101 thousand or 214.8 percent to $148
thousand for the first nine months of 2001 compared to a year ago. We
increased the loan loss provision due to charge-offs and possible charge offs
during 2001.
Because our loan portfolio contains a significant number of commercial loans
with relatively large balances the deterioration of one or several of these
loans may result in a possible significant increase in non-performing loans.
An increase in non-performing loans could result in a loss of interest income,
higher carrying costs, and an increase in the provision for loan losses and
loan charge-offs.
We maintain an allowance for loan losses to absorb any loan losses based on
our historical experience, an evaluation of economic conditions, and regular
reviews of delinquencies and loan portfolio quality. In evaluating our
allowance for loan losses, we segment our loans into the following categories:
- Commercial (including investment property mortgages),
- Residential mortgages, and
- Consumer.
We evaluate some loans as a homogeneous group and others on an individual
basis. Commercial loans with balances exceeding $250 thousand are reviewed
individually. After our evaluation of these loans, we determine the required
allowance for loan losses based upon the following considerations:
- Historical loss levels,
- Prevailing economic conditions,
- Delinquency trends,
- Changes in the nature and volume of the portfolio,
- Concentrations of credit risk, and
- Changes in loan policies or underwriting standards.
Management and the Board of Directors review the adequacy of the reserve on a
quarterly basis and adjustments, if needed, are made accordingly.
18
For the Nine Months
Ended September 30,
Amounts in thousands 2001 2000
-------------------- ---- ----
Average loans outstanding: $139,468 $133,850
Total loans at end of period 141,483 137,360
Balance at beginning of period ....................................... 1,008 985
Total charge-offs ...................................................... 145 68
Total recoveries ..................................................... 37 41
Net charge-offs: ..................................................... 108 27
Provision for loan losses ............................................ 148
Balance at end of period ..................................................... $1,048 $1,005
Net charge-offs as a percent of average loans outstanding during period ....... .08% .02%
Allowance for loan losses as a percent of total loans ......................... .74% .73%
The provision for loan losses is based on our evaluation of the allowance for
loan losses in relation to the credit risk inherent in the loan portfolio. In
establishing the amount of the provision required, management considers a
variety of factors, including but not limited to, general economic conditions,
volumes of various types of loans, collateral adequacy and potential losses from
significant borrowers. On a monthly basis, the Board of Directors and the bank's
Credit Administration Committee review information regarding specific loans and
the total loan portfolio in general in order to determine the amount to be
charged to the provision for loan losses.
For the nine month periods ending September 30, 2001 and 2000, the provision for
loan losses was $1,048,000 and $1,005,000 respectively.
CAPITAL ADEQUACY
A major strength of any financial institution is a strong capital position. This
capital is very critical as it must provide growth, dividend payments to
shareholders, and absorption of unforeseen losses. Our federal regulators
provide standards that must be met. These standards measure "risk-adjusted"
assets against different categories of capital. The "risk-adjusted" assets
reflect off balance sheet items, such as commitments to make loans, and also
place balance sheet assets on a "risk" basis for collectibility. The adjusted
assets are measured against the standards of Tier I Capital and Total Qualifying
Capital. Tier I Capital is common shareholders' equity. Total Qualifying Capital
includes so-called Tier II Capital which is common shareholders' equity and the
allowance for loan and lease losses. The allowance for loan and lease losses
must be lower than or equal to common shareholders' equity to be eligible for
Total Qualifying Capital.
We exceed all minimum capital requirements as reflected in the following table:
September 30, 2001 December 31, 2000
------------------ -----------------
Minimum Minimum
Calculated Standard Calculated Standard
Ratios Ratios Ratios Ratios
------ ------ ------ ------
Risk Based Ratios:
Tier I Capital to risk-weighted assets..................... 18.94% 4.00% 19.59% 4.00%
Total Qualifying Capital to risk-weighted assets........... 19.73% 8.00% 20.38% 8.00%
Additionally, certain other ratios also provide capital analysis as follows:
September December
30, 2001 31, 2000
-------- --------
Tier I Capital to average assets................................................ 12.06% 12.45%
We believes that the bank's current capital position and liquidity positions are
strong and that its capital position is adequate to support its operations.
Book value per share amounted to $19.63 September 30, 2001, compared with $18.61
per share at December 31, 2000.
19
Our primary source of capital growth is through retention of earnings. Our rate
of earnings retention, derived by dividing undistributed earnings by net income,
was 58.3 percent for the nine months ended September 30, 2001, compared with
61.7 percent for the nine months ended September 30, 2000. Cash dividends
declared amounted to $0.44 per share, for the nine months ended September 30,
2001, equivalent to a dividend payout ratio of 41.68 percent, compared with
38.32 percent for the same period in 2000. The annual dividend rate was
increased from $0.56 per share, to $0.59 per share. The increased cash dividend,
which is payable quarterly, began on June 28, 2001. Our Board of Directors
continues to believe that cash dividends are an important component of
shareholder value and that, at the bank's current level of performance and
capital, we expect to continue our current dividend policy of a quarterly cash
distribution of earnings to our shareholders.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 141, "Business Combinations"
(SFAS No. 141), was issued by the Financial Accounting Standards Board (FASB)
on June 27, 2001. SFAS No. 141 eliminated pooling of interests accounting for
mergers. All transactions initiated after June 30, 2001 must use purchase
accounting. SFAS No. 141 also redefines intangible assets and requires
separation of intangible assets from goodwill and requires non-amortization of
new goodwill and certain intangible assets. We anticipate that the adoption of
SFAS No. 141 will not have a material impact on the financial statements.
Statement of Financial Accounting Standards No. 142, "Goodwill and Intangible
Assets" (SFAS No. 142), was issued by the Financial Accounting Standards Board
on June 27, 2001. SFAS No. 142 eliminates the amortization of existing goodwill
and requires evaluating goodwill for impairment on an annual basis whenever
circumstances occur that would reduce the fair value. SFAS No. 142 also requires
allocation of goodwill to reporting segments defined by SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
Statement is effective for fiscal years beginning after December 15, 2001. We
anticipate that the adoption of SFAS No. 142 will not have a material impact on
our financial statements.
20
PART II - OTHER INFORMATION:
Item 1. Legal Proceedings
Management and the Corporation's legal consel are not aware of any litigation
that would have a material adverse effect on the consolidated financial position
of the Corporation. There are no proceedings pending other than the ordinary
routine litigation incident to the business of the Corporation and its
subsidiary, Columbia County Farmers National Bank. In addition, no material
proceedings are pending or are known to be threatened or contemplated against
the Corporation and the Bank by government authorities.
Item 2. Changes in Securities - Nothing to report.
Item 3. Defaults Upon Senior Securities - Nothing to report.
Item 4. Submission of Matters to a Vote of Security Holders - Nothing to
report.
Item 5. Other Information - Nothing to report.
Item 6. Exhibits and Reports on Form 8-K - Nothing to report.
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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.
CCFNB BANCORP, INC.
(Registrant)
By /s/ PAUL E. RIECHART
---------------------------
Paul E. Reichart
President & CEO
Date: November 8, 2001
By /s/ VIRGINIA D. KOCHER
---------------------------
Virginia D. Kocher
Treasurer
Date: November 8, 2001
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