UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________

FORM 10-Q/A

(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, 2009

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.

333-24121

 

FIRST NATIONAL COMMUNITY BANCORP, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Pennsylvania

23-2900790

 

 

(State or Other Jurisdiction

of Incorporation or Organization)

(I.R.S. Employer

Identification No.)

 

102 E. Drinker St., Dunmore, PA

18512

(Address of Principal Executive Offices)

(Zip Code)

 

Registrant’s telephone number, including area code (570) 346-7667

 

_____________________________________

(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 by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer," "accelerated filer” and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

|__|

Accelerated Filer

| X |

Non-Accelerated Filer

|__|

Smaller reporting company

|__|

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b-2 of the Exchange Act).

Yes

|__|

No

| X |

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date:

Common Stock, $1.25 par value

 

16,154,176 shares

 

(Title of Class)

 

(Outstanding at May 8, 2009)

 

 

 

 


EXPLANATORY NOTE

 

This amendment on Form 10-Q/A (THIS "Amendment") amends the quarterly report on Form 10-Q for the quarterly period ended March 31, 2009 originally filed with the Securities and Exchange Commission on May 8, 2009 of First National Community Bancorp, Inc. (the "Original Form 10-Q"). The purpose of this Amendment is to revise an error made in the March 31, 2009 financial statements. The error related to a $2.1 million provision to the allowance for credit losses which the Company originally determined should be allocated to the quarter ended June 30, 2009 but was later determined that it should have been properly attributed to the quarter ended March 31, 2009. The Amendment specifically revises Part I, Items 1 and 2. Except for the changes to Part I, Items 1 and 2 in this Amendment, the remainder of the Original Form 10-Q shall remain in effect as of the date of filing the Original Form 10-Q. Additionally, this Amendment does not purport to provide an update or discussion of any other developments subsequent to the filing of the Original Form 10-Q.

 

FIRST NATIONAL COMMUNITY BANCORP, INC.

 

INDEX

 

PART I

FINANCIAL INFORMATION

Page

No.

Item 1.

Consolidated Financial Statements.

 

 

Consolidated Statements of Financial Condition

March 31, 2009 (restated) (unaudited) and December 31, 2008

 

1

 

Consolidated Statements of Income

Three Months Ended March 31, 2009 (restated) and March 31, 2008 (unaudited)

 

2

 

Consolidated Statements of Cash Flows

Three Months Ended March 31, 2009 (restated) and March 31, 2008 (unaudited)

 

3

 

Consolidated Statements of Changes in Stockholders’ Equity

Three Months Ended March 31, 2009 (restated) (unaudited)

 

5

 

Notes to Consolidated Financial Statements

6

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations.

 

8

 

 

 

 

 

PART II

OTHER INFORMATION

 

20

 

 

 

Item 6.

Exhibits.

 

 

 

 

Signatures

 

21

 

 

(ii)

 


FIRST NATIONAL COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in thousands)

 

 

 

March 31,

2009

 

December 31,

2008

 

 

(RESTATED)

 

 

 

 

(UNAUDITED)

 

(AUDITED)

ASSETS

 

 

 

 

Cash and cash equivalents:

 

 

 

 

Cash and due from banks

 

$ 17,536

 

$ 18,171

Federal funds sold

 

0

 

0

Total cash and cash equivalents

 

17,536

 

18,171

Securities:

 

 

 

 

Available-for-sale, at fair value

 

220,566

 

245,900

Held-to-maturity, at cost (fair value $1,856 on March 31, 2009 and $1,774 on December 31, 2008)

 

 

1,830

 

 

1,808

Federal Reserve Bank and FHLB stock, at cost

 

11,515

 

11,087

Net loans

 

975,354

 

956,674

Bank premises and equipment

 

17,683

 

17,785

Intangible Assets

 

9,836

 

9,781

Other assets

 

56,930

 

52,553

Total Assets

 

$1,311,250

 

$1,313,759

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

Liabilities:

 

 

 

 

Deposits:

 

 

 

 

Demand – non-interest bearing

 

$ 77,083

 

$ 79,760

Interest bearing demand

 

295,221

 

302,058

Savings

 

78,276

 

79,526

Time ($100,000 and over)

 

205,421

 

191,052

Other time

 

311,039

 

300,496

Total deposits

 

967,040

 

952,892

Borrowed funds

 

236,147

 

245,197

Other liabilities

 

13,026

 

15,328

Total Liabilities

 

$1,216,213

 

$1,213,417

Shareholders' equity:

 

 

 

 

Common Stock, $1.25 par value,

Authorized: 50,000,000 shares

Issued and outstanding:

16,154,176 shares at March 31, 2009 and

16,047,928 shares at December 31, 2008

 

 

 

 

 

$ 20,193

 

 

 

 

 

$ 20,060

Additional Paid-in Capital

 

60,506

 

59,591

Retained Earnings

 

42,365

 

40,892

Accumulated Other Comprehensive Income (Loss)

 

(28,027)

 

(20,201)

Total shareholders' equity

 

$ 95,037

 

$ 100,342

Total Liabilities and Shareholders’ Equity

 

$1,311,250

 

$1,313,759

 

Note: The balance sheet at December 31, 2008 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

 

See notes to financial statements

(1)

 


 

FIRST NATIONAL COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollars in thousands, except per share amounts)

 

 

 

Three Months Ended

 

 

March 31,

 

March 31,

 

 

2009

 

2008

 

 

(RESTATED)

 

 

Interest Income:

 

 

 

 

Loans

 

$ 13,358

 

$ 15,491

Investments

 

3,492

 

3,909

Federal Funds Sold

 

0

 

0

Total interest income

 

16,850

 

19,400

Interest Expense:

 

 

 

 

Deposits

 

4,145

 

6,861

Borrowed Funds

 

2,038

 

2,700

Total interest expense

 

6,183

 

9,561

Net Interest Income before Loan Loss Provision

 

10,667

 

9,839

Provision for credit losses

 

2,460

 

300

Net interest income

 

8,207

 

9,539

Other Income:

 

 

 

 

Service charges

 

687

 

729

Other Income

 

663

 

627

Gain / (Loss) on sale of:

 

 

 

 

Loans

 

546

 

206

Securities

 

527

 

645

Other Real Estate

 

0

 

0

Total other income

 

2,423

 

2,207

Other expenses:

 

 

 

 

Salaries & benefits

 

3,332

 

3,089

Occupancy & equipment

 

1,070

 

1,011

Advertising expense

 

240

 

240

Data processing expense

 

436

 

418

FDIC Assessment

 

240

 

95

Bank Shares Tax

 

217

 

170

Other

 

1,142

 

1,108

Total other expenses

 

6,677

 

6,131

Income before income taxes

 

3,953

 

5,615

Income tax expense

 

715

 

1,424

NET INCOME

 

3,238

 

$ 4,191

 

 

 

 

 

Basic earnings per share

 

$ 0.20

 

$ 0.27

Diluted earnings per share

 

$ 0.20

 

$ 0.26

 

 

 

 

 

Weighted average number of basic shares

 

16,064,455

 

15,759,321

Weighted average number of diluted shares

 

16,460,979

 

16,112,913

 

 

 

 

 

 

 

See notes to financial statements

(2)

 


FIRST NATIONAL COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2009 AND 2008

(UNAUDITED)

 

 

 

 

March 31,

 

March 31,

 

 

2009

 

2008

 

 

(RESTATED)

 

 

 

 

(Dollars in thousands)

INCREASE (DECREASE) IN CASH EQUIVALENTS:

 

 

 

 

Cash Flows From Operating Activities:

 

 

 

 

Interest Received

 

$ 16,544

 

$ 19,588

Fees & Commissions Received

 

1,379

 

1,372

Interest Paid

 

(7,284)

 

(10,763)

Income Taxes Paid

 

(1,132)

 

(618)

Cash Paid to Suppliers & Employees

 

(8,528)

 

(6,149)

Net Cash Provided by Operating Activities

 

$ 979

 

$ 3,430

Cash Flows from Investing Activities:

 

 

 

 

Securities available for sale:

 

 

 

 

Proceeds from Sales prior to maturity

 

$ 9,142

 

$ 51,580

Proceeds from Calls prior to maturity

 

13,538

 

9,330

Purchases

 

(8,354)

 

(20,797)

Net Increase in Loans to Customers

 

(19,878)

 

(24,042)

Capital Expenditures

 

(283)

 

(1,203)

Net Cash Provided/(Used) by Investing Activities

 

$(5,835)

 

$ 14,868

Cash Flows from Financing Activities:

 

 

 

 

Net Decrease in Demand Deposits, Money Market Demand, NOW Accounts, and Savings Accounts

 

 

$(10,764)

 

 

$(19,827)

Net Increase/(Decrease) in Certificates of Deposit

 

24,912

 

(12,918)

Net Increase/(Decrease) in Borrowed Funds

 

(9,050)

 

19,872

Net Proceeds from Issuance of Common Stock Through Dividend Reinvestment

 

 

889

 

 

707

Net Proceeds from Issuance of Common Stock – Stock Option Plans

 

 

0

 

 

76

Dividends Paid

 

(1,766)

 

(1,733)

Net Cash Provided/(Used) by Financing Activities

 

$ 4,221

 

$(13,823)

Net Increase/(Decrease) in Cash and Cash Equivalents

 

$ (635)

 

$ 4,475

Cash & Cash Equivalents at Beginning of Year

 

$ 18,171

 

$ 24,735

CASH & CASH EQUIVALENTS AT END OF PERIOD

 

$ 17,536

 

$ 29,210

 

 

 

 

 

 

(Continued)

(3)

 


 

FIRST NATIONAL COMMUNITY BANCORP, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)

 

THREE MONTHS ENDED MARCH 31, 2009 AND 2008

(UNAUDITED)

 

 

 

 

2009

 

2008

 

 

(RESTATED)

 

 

 

 

 

(Dollars in thousands)

RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:

 

 

 

 

Net Income

 

$ 3,238

 

$4,191

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

 

 

 

 

Amortization (Accretion), Net

 

(952)

 

(846)

Equity in trust

 

(2)

 

(3)

Depreciation and Amortization

 

458

 

438

Provision for Probable Credit Losses

 

2,460

 

300

Provision for Deferred Taxes

 

(56)

 

(50)

Gain on Sale of Loans

 

(546)

 

(205)

Gain on Sale of Investment Securities

 

(527)

 

(645)

Increase/(Decrease) in Taxes Payable

 

(505)

 

110

Decrease in Interest Receivable

 

646

 

1,034

Decrease in Interest Payable

 

(1,101)

 

(1,202)

Increase in Prepaid Expenses and Other Assets

 

(1,596)

 

(494)

Increase/(Decrease) in Accrued Expenses and Other Liabilities

 

(538)

 

802

Total Adjustments

 

$(2,259)

 

$(761)

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

$ 979

 

$3,430

 

 

 

 

 

 

 

 

 

 

See notes to financial statements

(4)

 


 

FIRST NATIONAL COMMUNITY BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN

STOCKHOLDERS' EQUITY

For The Three Months Ended March 31, 2009

(RESTATED)

(In thousands, except share data)

(UNAUDITED)

 

ACCUM-

ULATED OTHER COMP-REHEN-SIVE

INCOME/

(LOSS)

 

 

 

 

 

 

 

 

 

COMP-REHEN-SIVE

INCOME

 

 

 

COMMON STOCK

 

 

ADD’L

PAID-IN

CAPITAL

 

 

 

RETAINED

EARNINGS

 

 

 

 

SHARES

 

AMOUNT

TOTAL

BALANCES, DECEMBER 31, 2008

 

16,047,928

 

$20,060

$59,591

$40,892

$(20,201)

$100,342

 

Comprehensive Income:

 

 

 

 

 

 

 

 

 

 

Net income for the period

3,238

 

 

 

 

3,238

 

3,238

 

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on securities available-for-sale, net of deferred income tax benefit of $4,398

 

 

 

(8,353)

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for gain or loss included in income, net of deferred income taxes of $184

 

 

 

527

 

 

 

 

 

 

 

 

 

Total other comprehensive income/(loss), net of tax

 

(7,826)

 

 

 

 

 

 

(7,826)

 

(7,826)

 

Comprehensive Income/(Loss)

(4,588)

 

 

 

 

 

 

 

 

Stock Options Awarded

 

 

 

 

159

 

 

159

 

Issuance of Common Stock through Dividend Reinvestment

 

 

106,248

 

 

133

 

756

 

 

 

 

 

889

 

Cash dividends paid, $0.11 per share

 

 

 

 

 

(1,765)

 

(1,765)

BALANCES, MARCH 31, 2009

 

16,154,176

 

$20,193

$60,506

$42,365

$(28,027)

$95,037

 

 

 

 

 

 

 

 

See notes to financial statements

(5)

 


FIRST NATIONAL COMMUNITY BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(1)        The accounting and financial reporting policies of First National Community Bancorp, Inc. and its subsidiary conform to U.S. generally accepted accounting principles and to general practice within the banking industry. The consolidated statements of First National Community Bancorp, Inc. and its subsidiary, First National Community Bank (Bank) including its subsidiary, FNCB Realty, Inc. (collectively, Company) were compiled in accordance with the accounting policies set forth in note 1 of Notes to Consolidated Financial Statements in the Company's 2008 Annual Report to Shareholders. All material intercompany accounts and transactions have been eliminated in consolidation. The accompanying interim financial statements are unaudited. In management’s opinion, the consolidated financial statements reflect a fair presentation of the consolidated financial position of the Company and subsidiary, and the results of its operations and its cash flows for the interim periods presented, in conformity with U.S. generally accepted accounting principles. Also in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the Company’s financial position, results of operations and cash flows at March 31, 2009 and for all periods presented have been made.

These interim financial statements should be read in conjunction with the audited financial statements and footnote disclosures in the Company's Annual Report to Shareholders for the fiscal year ended December 31, 2008.

(2)        Basic earnings per share have been computed by dividing net income (the numerator) by the weighted average number of common shares (the denominator) for the period. Such shares amounted to 16,064,455 and 15,759,321 for the periods ending March 31, 2009 and 2008, respectively.

Diluted earnings per share have been computed by dividing net income (the numerator) by the weighted average number of common shares and options outstanding (the denominator) for the period. Such shares amounted to 16,460,979 and 16,112,913 for the periods ending March 31, 2009 and 2008, respectively.

(3)        During the first quarter of calendar 2003, the Company adopted the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, for stock-based employee compensation, effective as of January 1, 2003. Under the prospective method of adoption selected by the Company, stock-based compensation cost will be recognized using the fair value method for all awards granted, modified or settled on or after that effective date.

 

A summary of the status of the Corporation’s stock option plans is presented below:

 

 

 

Three months ended March 31,

 

 

2009

 

2008

 

 

 

 

 

Shares

 

Weighted

Average

Exercise

Price

 

 

 

 

Shares

 

Weighted

Average

Exercise

Price

Outstanding at the beginning of the period

 

325,134

 

$12.36

 

360,694

 

$11.93

Granted

 

74,600

 

10.81

 

0

 

 

Exercised

 

0

 

 

 

(12,750)

 

5.93

Forfeited

 

0

 

 

 

(2,061)

 

19.72

Outstanding at the end of the period

 

399,734

 

12.07

 

345,883

 

12.10

 

 

 

 

 

 

 

 

 

Options exercisable at March 31,

 

325,134

 

12.36

 

297,258

 

11.32

Weighted average fair value of options granted during the period

 

 

 

 

2.13

 

 

 

 

---

 

 

 

 

(6)

 


Information pertaining to options outstanding at March 31, 2009 is as follows:

 

 

 

Options Outstanding

 

Options Exercisable

 

 

 

Range of Exercise Price

 

 

 

 

Number

Outstanding

 

Weighted

Average

Remaining

Contractual

Life

 

 

Weighted

Average

Exercise

Price

 

 

 

 

Number

Exercisable

 

 

Weighted

Average

Exercise

Price

$5.19-$23.13

 

399,734

 

6.1 years

 

$12.07

 

325,134

 

$12.36

 

 

 

(4)

The financial statements for March 31, 2009 have been restated to reflect:

(a)          a $2.1 million provision to the allowance for credit losses which the Company originally determined should be allocated to the quarter ended June 30, 2009 but was later determined that it should have been properly attributed to the quarter ended March 31, 2009,

 

 

(b)

the income tax effect of the above in the amount of $714,000, and

 

(c)

the net income effect of $1,386,000.

 

 

The following table illustrates the restatement:

 

 

 

 

 

 

 

Net Income

 

Basic

Earnings per

Share

 

Diluted

Earnings

per

Share

 

 

 

 

 

 

 

Net Income, as reported

 

$ 4,624

 

$ 0.29

 

$ 0.28

Net adjustment for additional provision to the allowance for credit losses

 

 

(1,386)

 

 

(0.09)

 

 

(0.08)

Net Income, as restated

 

$ 3,238

 

$ 0.20

 

$ 0.20

 

 

 

 

 

 

 

 

 

 

 

(7)

 


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward Looking Statements

This quarterly report may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Actual results and trends could differ materially from those set forth in such statements due to various factors. Such factors include the possibility that anticipated cost savings may not be realized, estimated synergies may not occur, increased demand or prices for the company's financial services and products may not occur, changing economic and competitive conditions, technological developments and other risks and uncertainties. Such risks, uncertainties and other factors that could cause actual results and experience to differ from those projected include, but are not limited to, the following: ineffectiveness of their business strategy due to changes in current or future market conditions; the effects of competition, and of changes in laws and regulations on competition, including industry consolidation and development of competing financial products and services; interest rate movements; difficulties in integrating distinct business operations, including information technology difficulties; disruptions making it more difficult to maintain relationships with customers and employees, and challenges in establishing and maintaining operations in new markets; volatilities or significant deterioration in the securities markets; and deteriorating economic conditions. When we use words such as “believes”, “expects”, “anticipates”, or similar expressions, we are making forward-looking statements. The company undertakes no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this report.

 

Shareholders should note that many factors, some of which are discussed elsewhere in this document, the Annual Report on Form 10-K for the year ended December 31, 2008, the company’s Forms 8-K, and in the documents that are incorporated by reference, could affect the future financial results of the company, the bank or the combined company and could cause those results to differ materially from those expressed in the forward-looking statements contained or incorporated by reference in this document. These factors include but are not limited to the following:

 

 

Volatilities in the securities markets;

 

Deteriorating economic conditions;

 

Effects of deterioration of economic conditions on customers, specifically the effect on loan customers ability to repay loans;

 

Operating, legal and regulatory risks;

 

Economic, political and competitive forces;

 

Rapidly changing technology; and

 

Our analyses of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful.

 

Readers should carefully review the risk factors described in the Annual Report and other documents that we periodically file with the Securities and Exchange Commission, including our Form 10-K for the year ended December 31, 2008.

 

The consolidated financial information of First National Community Bancorp, Inc. (the “company”) provides a comparison of the performance of the company for the periods ended March 31, 2009 and 2008. The financial information presented should be read in conjunction with the consolidated financial statements and accompanying notes appearing elsewhere in this report.

 

 

 

 

(8)

 


Background

The company is a Pennsylvania Corporation, incorporated in 1997 and is registered as a financial holding company under the Bank Holding Company Act of 1956, as amended. The company became an active bank holding company on July 1, 1998 when it assumed ownership of First National Community Bank (the “bank”). On November 2, 2000, the Federal Reserve Bank of Philadelphia approved the company’s application to change its status to a financial holding company as a complement to the company’s strategic objective which includes expansion into financial services activities. The bank is a wholly-owned subsidiary of the company.

The company’s primary activity consists of owning and operating the bank, which provides the customary retail and commercial banking services to individuals and businesses. The bank provides practically all of the company’s earnings as a result of its banking services. As of March 31, 2009, the company had 20 full-service branch banking offices in its principal market area in Lackawanna, Luzerne, Wayne and Monroe Counties, Pennsylvania. At March 31, 2009, the company had 285 full-time equivalent employees.

The bank was established as a national banking association in 1910 as "The First National Bank of Dunmore." Based upon shareholder approval received at a Special Shareholders' Meeting held October 27, 1987, the bank changed its name to "First National Community Bank" effective March 1, 1988. The bank's operations are conducted from offices located in Lackawanna, Luzerne, Wayne and Monroe Counties, Pennsylvania:

 

Office

Date Opened

Main

October 1910

Scranton

September 1980

Dickson City

December 1984

Keyser Village

April 2008 (formerly Fashion Mall; July 1988)

Wilkes-Barre

July 1993

Pittston Plaza

April 1995

Kingston

August 1996

Exeter

November 1998

Daleville

April 2000

Plains

June 2000

Back Mountain

October 2000

Clarks Green

October 2001

Hanover Township

January 2002

Nanticoke

April 2002

Hazleton

October 2003

Route 315

February 2004

Honesdale

November 2006

Stroudsburg

May 2007

Honesdale Route 6

October 2007

Marshall's Creek

May 2008

 

 

The bank provides the usual commercial banking services to individuals and businesses, including a wide variety of loan, deposit instruments and investment options. As a result of the bank’s partnership with FNCB Investment Services, our customers are able to access alternative products such as mutual funds, bonds, equities and annuities directly from our FNCB Investment Services representatives.

During 1996, FNCB Realty Inc. was formed as a wholly owned subsidiary of the Bank to manage, operate and liquidate properties acquired through foreclosure.

 

 

 

 

(9)

 


Summary:

Net income for the three months ended March 31, 2009 amounted to $3,238,000, a decrease of $953,000 or 23% compared to the same period of the previous year. The decrease is primarily due to a $2.1 million increase in the provision for credit losses caused by deteriorating economic conditions which was partially offset by an $828,000 improvement in net interest income before the provision for credit losses which reflects the benefits derived from balance sheet growth and the repricing of interest-sensitive assets and liabilities. Other income increased $216,000 primarily due to gains on the sale of loans of $340,000, offset by a decrease in gains on security sales of $118,000. Other expenses increased $546,000 over the same period of last year due primarily to an increase in Salaries & Benefits of $243,000, an increase in FDIC insurance of $145,000, a $59,000 increase in occupancy and equipment costs related to the company's expansion and an increase in other operating expenses of $34,000.

 

                

RESULTS OF OPERATIONS

Net Interest Income:

 

The company’s primary source of revenue is net interest income which totaled $10,667,000 and $9,839,000 (before the provision for credit losses) during the first three months of 2009 and 2008, respectively. The year to date net interest margin (tax equivalent) increased twenty-five basis points to 3.74% in 2009 compared to 2008 comprised of a ninety-four basis point decrease in the yield earned on earning assets which was offset by a one hundred thirty-four basis point decrease in the cost of interest-bearing liabilities. Excluding investment leveraging transactions, the 2009 margin would be 3.87% which is twenty-four basis points higher than the 3.63% recorded during the first three months of last year.

Earning assets decreased $7 million to $1.230 billion during the first three months of 2009 and total 93.8% of total assets, a slight decrease from the 94.2% at year-end.

 

Yield/Cost Analysis

The following tables set forth certain information relating to the company’s Statement of Financial Condition and reflect the weighted average yield on assets and weighted average costs of liabilities for the periods indicated. Such yields and costs are derived by dividing the annualized income or expense by the weighted average balance of assets or liabilities, respectively, for the periods shown:

 

 

 

 

 

 

 

 

 

 

 

 

(10)

 


 

 

 

Three months ended March 31,

 

 

2009

 

 

Average

Balance

 

 

Interest

 

Yield/

Cost

 

 

(Dollars in thousands)

Assets:

 

 

 

 

 

 

Interest-earning assets:

 

 

 

 

 

 

Loans (taxable)

 

$906,082

 

$12,750

 

5.65%

Loans (tax-free) (1)

 

53,362

 

608

 

7.01

Investment securities (taxable)

 

177,746

 

2,272

 

5.11

Investment securities (tax-free)(1)

 

108,663

 

1,220

 

6.91

Time deposits with banks and federal funds sold

 

 

38

 

 

0

 

 

0.33

Total interest-earning assets

 

1,245,891

 

16,850

 

5.74%

Non-interest earning assets

 

81,651

 

 

 

 

Total Assets

 

$1,327,542

 

 

 

 

Liabilities and Shareholders' Equity:

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

Deposits

 

$871,625

 

$ 4,145

 

1.93%

Borrowed funds

 

264,729

 

2,038

 

3.08

Total interest-bearing liabilities

 

1,136,354

 

6,183

 

2.20%

Other liabilities and shareholders' equity

 

 

191,188

 

 

 

 

Total Liabilities and Shareholders' Equity

 

 

$1,327,542

 

 

 

 

 

 

 

 

 

 

 

Net interest income/rate spread

 

 

 

$10,667

 

3.54%

 

 

 

 

 

 

 

Net yield on average interest-earning assets

 

 

 

 

 

 

3.74%

 

 

 

 

 

 

 

Interest-earning assets as a percentage of interest-bearing liabilities

 

 

 

 

 

 

110%

 

(1)

Yields on tax-exempt loans and investment securities have been computed on a tax equivalent basis.

 

 

 

 

 

 

 

 

 

(11)

 


 

 

 

Three months ended March 31,

 

 

2008

 

 

Average

Balance

 

 

Interest

 

Yield/

Cost

 

 

(Dollars in thousands)

Assets:

 

 

 

 

 

 

Interest-earning assets:

 

 

 

 

 

 

Loans (taxable)

 

$861,653

 

$14,935

 

6.88%

Loans (tax-free) (1)

 

46,834

 

556

 

7.11

Investment securities (taxable)

 

210,581

 

3,077

 

5.83

Investment securities (tax-free)(1)

 

78,419

 

832

 

6.53

Time deposits with banks and federal funds sold

 

 

0

 

 

0

 

 

0

Total interest-earning assets

 

1,197,487

 

19,400

 

6.68%

Non-interest earning assets

 

84,674

 

 

 

 

Total Assets

 

$1,282,161

 

 

 

 

Liabilities and Shareholders' Equity:

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

Deposits

 

$838,139

 

$ 6,861

 

3.28%

Borrowed funds

 

241,176

 

2,700

 

4.43

Total interest-bearing liabilities

 

1,079,315

 

9,561

 

3.54%

Other liabilities and shareholders' equity

 

 

202,846

 

 

 

 

Total Liabilities and Shareholders' Equity

 

 

$1,282,161

 

 

 

 

 

 

 

 

 

 

 

Net interest income/rate spread

 

 

 

$ 9,839

 

3.14%

 

 

 

 

 

 

 

Net yield on average interest-earning assets

 

 

 

 

 

 

3.49%

 

 

 

 

 

 

 

Interest-earning assets as a percentage of interest-bearing liabilities

 

 

 

 

 

 

111%

 

(1)

Yields on tax-exempt loans and investment securities have been computed on a tax equivalent basis.

 

 

 

 

 

 

 

 

 

(12)

 


Rate Volume Analysis

The table below sets forth certain information regarding the changes in the components of net interest income for the periods indicated. For each category of interest earning asset and interest bearing liability, information is provided on changes attributed to: (1) changes in rate (change in rate multiplied by current volume); (2) changes in volume (change in volume multiplied by old rate); (3) the total. The net change attributable to the combined impact of volume and rate has been allocated proportionately to the change due to volume and the change due to rate (in thousands).

 

 

 

Period Ended March 31,

2009 vs 2008

 

 

Increase (Decrease)

Due to

 

 

 

 

Rate

 

Volume

 

Total

Loans (taxable)

 

$(2,796)

 

$ 611

 

$(2,185)

Loans (tax-free)

 

(11)

 

63

 

52

Investment securities (taxable)

 

(448)

 

(357)

 

(805)

Investment securities (tax-free)

 

320

 

68

 

388

Time deposits with banks and federal funds sold

 

0

 

0

 

0

Total interest income

 

$(2,935)

 

$ 385

 

$(2,550)

 

 

 

 

 

 

 

Deposits

 

$(3,142)

 

$ 426

 

$(2,716)

Borrowed funds

 

(1,639)

 

977

 

(662)

Total interest expense

 

$(4,781)

 

$ 1,403

 

$(3,378)

Net change in net interest income

 

$ 1,846

 

$(1,018)

 

$ 828

 

 

 

 

Period Ended March 31,

2008 vs 2007

 

 

Increase (Decrease)

Due to

 

 

 

 

Rate

 

Volume

 

Total

Loans (taxable)

 

$(1,359)

 

$ 787

 

$ (572)

Loans (tax-free)

 

(11)

 

199

 

188

Investment securities (taxable)

 

470

 

93

 

563

Investment securities (tax-free)

 

(82)

 

11

 

(71)

Time deposits with banks and federal funds sold

 

0

 

(17)

 

(17)

Total interest income

 

$ (982)

 

$1,073

 

$ 91

 

 

 

 

 

 

 

Deposits

 

$ (922)

 

$(147)

 

$(1,069)

Borrowed funds

 

272

 

451

 

723

Total interest expense

 

$ (650)

 

$ 304

 

$ (346)

Net change in net interest income

 

$ (332)

 

$ 769

 

$ 437

 

 

 

 

 

 

(13)

 


Other Income and Expenses:

Other income in the first three months of 2009 increased $216,000 in comparison to the same period of 2008. Service charges and fees decreased $6,000 compared to the prior period. Income from service charges on deposits decreased $42,000, or 6%, in comparison to the same period of last year. Other fee income increased $36,000, or 6%. Net gains from asset sales increased $222,000 comprised of a $340,000 increase in gains on residential mortgage loans to reduce the risk to rising rates and a $118,000 decrease in security gains as securities were sold to restructure the portfolio and to generate liquidity to meet loan demand.

Other expenses increased $546,000 or 9% for the period ended March 31, 2009 compared to the same period of the previous year. Salaries and Benefits costs added $243,000, or 8% in comparison to the first three months of 2008 due to additional staff and merit increases. Occupancy and equipment costs increased $59,000, or 6%, data processing expenses increased $18,000, or 4%, FDIC insurance expense increased $145,000, or 153%, due to increased premiums, bank shares tax expense increased $47,000, or 28%, and other operating expenses increased $34,000, or 3%.

 

Other Comprehensive Income:

The Company’s other comprehensive income includes unrealized holding gains (losses) on securities which it has classified as available-for-sale in accordance with FASB 115, “Accounting for Certain Investments in Debt and Equity Securities.”

 

Provision for Income Taxes:

The provision for income taxes is calculated based on annualized taxable income. The provision for income taxes differs from the amount of income tax determined applying the applicable U.S. statutory federal income tax rate to pre-tax income from continuing operations as a result of the following differences:

 

 

 

 

2009

 

2008

Provision at statutory rate

 

$1,344

 

$1,909

Add (Deduct):

 

 

 

 

Tax effect of non-taxable interest income

 

(622)

 

(472)

Tax effect of other tax free income

 

(80)

 

(83)

Non-deductible interest expense

 

61

 

69

Tax benefit from stock options exercised

 

0

 

(3)

Deferred tax benefits

 

(7)

 

(6)

Other items, net

 

19

 

10

Income tax expense

 

$ 715

 

$1,424

 

 

Federal Deposit Insurance Corporation (“FDIC”) Activity:

The Federal Deposit Insurance Reform Act of 2005 (“the Act”) amended regulations to create a new risk differentiation system, to establish a new base assessment rate schedule, and to set assessment rates effective January 1, 2007. Also, eligible insured depository institutions shared in a one-time assessment credit, which was approximately $445,000 for the bank. The bank used $385,000 of this credit for the year ended December 31, 2007, and the remaining $60,000 for the year ended December 31, 2008.

On February 27, 2009, The Board of Directors of the FDIC voted to amend the restoration plan for the Deposit Insurance Fund (“DIF”). The FDIC Board also took action to ensure the continued strength of the insurance fund by imposing a special assessment on insured institutions of 20 basis points, implementing changes to the risk-based assessment system, and setting rates beginning the second quarter of 2009. Under the restoration plan approved in October 2008, the FDIC Board set a rate schedule to raise the DIF reserve ratio to 1.15 percent within five years. The February 27, 2009 restoration plan amendment action extends the restoration plan horizon to seven years in recognition of the current significant strains on banks and the financial system and the likelihood of a severe recession. The amended restoration plan was accompanied by a final rule that sets assessment rates and makes adjustments that improve how the assessment system differentiates for risk. Currently, most banks are in the best risk

 

(14)

 


category and pay anywhere from 12 cents per $100 of deposits to 14 cents per $100 for insurance. Under the final rule, banks in this category will pay initial base rates ranging from 12 cents per $100 to 16 cents per $100 on an annual basis, beginning on April 1, 2009. Changes to the assessment system include higher rates for institutions that rely significantly on secured liabilities, which may increase the FDIC's loss in the event of failure without providing additional assessment revenue. Under the final rule, assessments will be higher for institutions that rely significantly on brokered deposits but, for well-managed and well-capitalized institutions, only when accompanied by rapid asset growth. Brokered deposits combined with rapid asset growth have played a role in a number of costly failures, including recent failures. The final rule also would provide incentives in the form of a reduction in assessment rates for institutions to hold long-term unsecured debt and, for smaller institutions, high levels of Tier 1 capital.

The FDIC Board also adopted an interim rule imposing a 20 basis point emergency special assessment on the industry on June 30, 2009. The assessment is to be collected on September 30, 2009. For the bank, based upon our deposit levels at March 31, 2009, the additional amount of 2009 FDIC insurance expense related to this special assessment, if imposed, would be approximately $1,900,000. However, this proposed assessment is subject to regulatory change that could result in greater or lesser amounts. The interim rule would also permit the FDIC Board to impose an emergency special assessment after June 30, 2009, of up to 10 basis points if necessary to maintain public confidence in federal deposit insurance. If this emergency special assessment is imposed, it would add an additional $950,000 to the bank’s 2009 FDIC insurance expense (based upon deposit levels as of March 31, 2009).

 

Securities:

 

Carrying amounts and approximate fair value of investment securities are summarized as follows (in thousands):

 

 

 

March 31, 2009

 

December 31, 2008

 

 

Carrying

Amount

 

Fair

Value

 

Carrying

Amount

 

Fair

Value

U.S. Treasury securities and obligations of U.S. government agencies

 

 

$16,557

 

 

$16,557

 

 

$ 32,233

 

 

$ 32,233

Obligations of state & political subdivisions

 

105,393

 

105,419

 

101,451

 

101,417

Collateralized mortgage obligations

 

59,753

 

59,753

 

61,063

 

61,063

Mortgage-backed securities

 

29,034

 

29,034

 

30,061

 

30,061

Corporate debt securities

 

10,674

 

10,674

 

21,926

 

21,926

Equity securities and mutual funds

 

985

 

985

 

974

 

974

Total

 

$222,396

 

$222,422

 

$247,708

 

$247,674

 

 

 

 

 

 

 

 

 

 

(15)

 


The following summarizes the amortized cost, approximate fair value, gross unrealized holding gains, and gross unrealized holding losses at March 31, 2009 of the company’s Investment Securities classified as available-for-sale (in thousands):

 

 

 

March 31, 2009

 

 

 

 

Amortized

Cost

 

Gross

Unrealized

Holding

Gains

 

Gross

Unrealized

Holding

Losses

 

 

 

Fair

Value

U.S. Treasury securities and obligations of U.S. government agencies:

 

 

 

$ 18,713

 

 

 

$ 188

 

 

 

$ 2,344

 

 

 

$ 16,557

Obligations of state and political subdivisions:

 

 

109,875

 

 

1,049

 

 

7,361

 

 

103,563

Collateralized mortgage obligations:

 

 

66,870

 

 

1,451

 

 

8,568

 

 

59,753

Mortgage-backed securities:

 

27,555

 

1,479

 

0

 

29,034

Corporate debt securities:

 

39,660

 

0

 

28,986

 

10,674

Equity securities and mutual funds:

 

 

1,010

 

 

0

 

 

25

 

 

985

Total

 

$263,683

 

$4,167

 

$47,284

 

$220,566

 

The following summarizes the amortized cost, approximate fair value, gross unrealized holding gains, and gross unrealized holding losses at March 31, 2009 of the company’s Investment Securities classified as held-to-maturity (dollars in thousands):

 

 

 

March 31, 2009

 

 

 

 

Amortized

Cost

 

Gross

Unrealized

Holding

Gains

 

Gross

Unrealized

Holding

Losses

 

 

 

Fair

Value

Obligations of state and political subdivisions:

 

 

$ 1,830

 

 

$ 26

 

 

$ 0

 

 

$ 1,856

Total

 

$1,830

 

$ 26

 

$ 0

 

$ 1,856

 

The following table shows the amortized cost and approximate fair value of the company’s debt securities at March 31, 2009 using contractual maturities. Expected maturities will differ from contractual maturity because issuers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands).

 

 

 

Available- for sale

 

Held-to-maturity

 

 

Amortized

Cost

 

Fair

Value

 

Amortized

Cost

 

Fair

Value

Amounts maturing in:

 

 

 

 

 

 

 

 

One year or less

 

$ 1,008

 

$ 1,018

 

$ 0

 

$ 0

After one year through five years

 

2,890

 

2,325

 

0

 

0

After five years through ten years

 

9,566

 

9,004

 

0

 

0

After ten years

 

154,784

 

118,447

 

1,830

 

1,856

Collateralized mortgage obligations

 

66,870

 

59,753

 

0

 

0

Mortgage-backed securities

 

27,555

 

29,034

 

0

 

0

Total

 

$262,673

 

$219,581

 

$1,830

 

$1,856

 

(16)

 


Gross proceeds from the sale of investment securities for the periods ended March 31, 2009 and 2008 were $9,141,563 and $51,579,535 respectively with the gross realized gains being $527,247 and $698,277 respectively, and gross realized losses being $0 and $53,562 respectively.

At March 31, 2009 and 2008, investment securities with a carrying amount of $163,471,053 and $177,925,125 respectively, were pledged as collateral to secure public deposits and for other purposes.

 

Loans:

The following table sets forth detailed information concerning the composition of the company’s loan portfolio as of the dates specified (in thousands):

 

 

 

March 31, 2009

 

December 31, 2008

 

 

Amount

 

%

 

Amount

 

%

Real estate loans, secured by residential properties

 

$198,777

 

20.2

 

$169,358

 

17.5

Real estate loans, secured by nonfarm, nonresidential properties

 

 

391,578

 

 

39.7

 

 

420,983

 

 

43.6

Commercial & industrial loans

 

221,032

 

22.4

 

221,026

 

22.9

Loans to individuals for household, family and other personal expenditures

 

 

133,268

 

 

13.5

 

 

119,501

 

 

12.4

Loans to state and political subdivisions

 

41,098

 

4.2

 

34,027

 

3.5

All other loans, including overdrafts

 

342

 

0.0

 

413

 

0.1

Total Gross Loans

 

$986,095

 

100.0

 

$965,308

 

100.0

Less: Allow. for Credit Losses

 

(10,382)

 

 

 

(8,254)

 

 

Less: Unearned Discount

 

(359)

 

 

 

(380)

 

 

Net Loans

 

$975,354

 

 

 

$956,674

 

 

 

 

The following table sets forth certain information with respect to the company’s allowance for credit losses and charge-offs (in thousands)

 

 

 

Three months Ended

March 31, 2009

 

Year to date Ended

December 31, 2008

Balance, January 1

 

$9,150

 

$7,569

Recoveries Credited

 

44

 

208

Losses Charged

 

(376)

 

(1,327)

Provision for Credit Losses

 

2,460

 

2,700

Balance at End of Period

 

$11,278

 

$9,150

 

 

 

 

 

Allocated as:

 

 

 

 

Allowance for off-balance sheet commitments

 

 

$ 896

 

 

$ 896

Allowance for credit losses

 

10,382

 

8,254

Balance at End of Period

 

$11,278

 

$9,150

 

 

 

 

(17)

 


The following table presents information about the company’s non-performing assets for the periods indicated (in thousands):

 

 

 

March 31, 2009

 

December 31, 2008

Nonaccrual loans:

 

 

 

 

Impaired

 

$32,310

 

$22,087

Other

 

174

 

176

Loans past due 90 days or more and still accruing

 

2,295

 

1,151

Total non-performing loans

 

34,779

 

23,414

Other Real Estate Owned

 

2,308

 

2,308

Total non-performing assets

 

$37,087

 

$25,722

 

 

 

 

 

Non-performing loans as a percentage of gross loans

 

3.5%

 

2.4%

Non-performing assets as a percentage of total assets

 

2.8%

 

2.0%

 

Non-performing assets are comprised of non-accrual loans and loans past due 90 days or more and still accruing, and other real estate owned. Loans are placed in nonaccrual status when management believes that the collection of interest or principal is doubtful, or generally when a default of interest or principal has existed for 90 days or more, unless such loan is fully secured and in the process of collection. When interest accrual is discontinued, interest credited to income in the current year is reversed and interest accrued in prior years is charged against the allowance for credit losses. Any payments received are applied, first to the outstanding loan amounts, then to the recovery of any charged-off loan amounts. Any excess is treated as a recovery of lost interest. Nonaccrual loans at March 31, 2009 were comprised of twelve credits totaling $32.5 million. Declining real estate values are placing significant pressure on the collateral requirements, and management projects that losses on these credits could approximate $10 million if conditions do not improve.

 

Subsequent Events:

 

The company disclosed the following events on Form 8-K filed April 29, 2009:

 

Other-than-temporary impairment of certain pooled trust preferred investment securities:

The Registrant expects to record non-cash charges for the second quarter of 2009 related to an other-than-temporary impairment of certain pooled trust preferred investment securities.  The other-than-temporary impairment charge is expected to be approximately $240,000.

As previously disclosed, the Registrant, like other financial institutions, maintains a portfolio of investment securities, which may from time to time include pooled trust preferred securities, both as a means to deploy assets and as a source of liquidity.  

The Registrant has concluded that a $3.0 million issue of these pooled trust preferred securities has become other-than-temporarily impaired based upon its analysis of estimated cash flows in accordance with United States generally accepted accounting principles (“GAAP”).  The $240,000 impairment charge represents the credit component of the price deterioration of the security, while the remainder of the fair value deficiency will be recorded in Other Comprehensive Income in accordance with GAAP.

 

Increase in Loan Loss Reserve:

The Registrant recorded a provision for loan losses of $7.25 million for the second quarter of 2009, compared to a provision of $2,460,000 in the first quarter of 2009. As a result, the total provision for loan losses for the year ending December 31, 2009 is now expected to be approximately $18.4 million. The expected increase in the provision for loan losses is a result of a variety of factors including current and expected economic conditions, as well as an increase in non-performing assets and net charge-offs primarily in the commercial real estate portfolio.

 

 

 

(18)

 


Provision for Credit Losses:

The provision for credit losses varies from year to year based on management's evaluation of the adequacy of the allowance for credit losses in relation to the risks inherent in the loan portfolio. In its evaluation, management considers credit quality, changes in loan volume, composition of the loan portfolio, past experience, delinquency trends, and the economic condition. Consideration is also given to examinations performed by regulatory authorities and the company’s independent accountants. A monthly provision of $120,000 was credited to the allowance during the first three months of 2009 plus a special insertion of $2.1 million as a result of deficient collateral valuation on one credit which was received in April, 2009. A monthly provision of $100,000 was recognized during the first three months of 2008. The ratio of the loan loss reserve to total loans at March 31, 2009 and 2008 was 1.05% and 0.68%, respectively.

The Registrant recorded a provision for loan losses of $7.25 million for the second quarter of 2009, compared to a provision of $2,460,000 in the first quarter of 2009. As a result, the total provision for loan losses for the year ending December 31, 2009 is now expected to be approximately $18.4 million. The expected increase in the provision for loan losses is a result of a variety of factors including current and expected economic conditions, as well as an increase in non-performing assets and net charge-offs primarily in the commercial real estate portfolio.

Asset/Liability Management, Interest Rate Sensitivity and Inflation

The major objectives of the company’s asset and liability management are to (1) manage exposure to changes in the interest rate environment to achieve a neutral interest sensitivity position within reasonable ranges, (2) ensure adequate liquidity and funding, (3) maintain a strong capital base, and (4) maximize net interest income opportunities. The bank manages these objectives through its Senior Management and Asset and Liability Management Committees. Members of the committees meet regularly to develop balance sheet strategies affecting the future level of net interest income, liquidity and capital. Items that are considered in asset and liability management include balance sheet forecasts, the economic environment, the anticipated direction of interest rates and the bank’s earnings sensitivity to changes in these rates.

The company analyzes its interest sensitivity position to manage the risk associated with interest rate movements through the use of gap analysis and simulation modeling. Because of the limitations of the gap reports, the bank uses simulation modeling to project future net interest income streams incorporating the current “gap” position, the forecasted balance sheet mix, and the anticipated spread relationships between market rates and bank products under a variety of interest rate scenarios.

Economic conditions affect financial institutions, as they do other businesses, in a number of ways. Rising inflation affects all businesses through increased operating costs but affects banks primarily through the manner in which they manage their interest sensitive assets and liabilities in a rising rate environment. Economic recession can also have a material effect on financial institutions as the assets and liabilities affected by a decrease in interest rates must be managed in a way that will maximize the largest component of a bank’s income, that being net interest income. Recessionary periods may also tend to decrease borrowing needs and increase the uncertainty inherent in the borrowers’ ability to pay previously advanced loans. Additionally, reinvestment of investment portfolio maturities can pose a problem as attractive rates are not as available. Management closely monitors the interest rate risk of the balance sheet and the credit risk inherent in the loan portfolio in order to minimize the effects of fluctuations caused by changes in general economic conditions.

 

Liquidity

The term liquidity refers to the ability of the company to generate sufficient amounts of cash to meet its cash-flow needs. Liquidity is required to fulfill the borrowing needs of the bank's credit customers and the withdrawal and maturity requirements of its deposit customers, as well as to meet other financial commitments.

The short-term liquidity position of the company is strong as evidenced by $17,536,000 in cash and cash equivalents. A secondary source of liquidity is provided by the investment portfolio with $28 million or 10% of the portfolio maturing or expected to provide cash flow within one year through maturities, projected calls or principal reductions.

The company's focus is on retail deposits as a source of funds, although short-term needs can be funded with municipal deposits. The bank has the ability to sell Federal funds to invest excess cash; however, the bank can also borrow in the Federal Funds market to meet temporary liquidity needs. Other sources of potential liquidity include Federal Home Loan Bank advances, the Federal Reserve Discount Window, CDARS deposits and the Brokered CD market.

 

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Capital Management

A strong capital base is essential to the continued growth and profitability of the company and in that regard the maintenance of appropriate levels of capital is a management priority. The company’s principal capital planning goals are to provide an adequate return to shareholders while retaining a sufficient base from which to provide for future growth, while at the same time complying with all regulatory standards. As more fully described in Note 15 to the year end audited financial statements, regulatory authorities have prescribed specified minimum capital ratios as guidelines for determining capital adequacy to help insure the safety and soundness of financial institutions.

Total stockholders' equity decreased $5,305,000 or 5% during the first three months of 2009 comprised of an increase in retained earnings in the amount of $1,473,000 after paying cash dividends, $889,000 from stock issued through Dividend Reinvestment, Stock Options awarded of $159,000 and a $7,826,000 decrease in other comprehensive income. Management believes that the $43 million unrealized loss recorded as of March 31, 2009 represents "distressed" pricing levels and is a temporary event. As of March 31, 2009, the company has not recognized a loss on securities due to an Other-Than-Temporary-Impairment. During the same period of 2008, total stockholders' equity increased $3,727,000, or 3%, comprised of an increase in retained earnings of $2,458,000, after paying cash dividends, $783,000 from stock issued through Dividend Reinvestment and Stock Option Plans and a $486,000 increase in other comprehensive income. The total dividend payout during the first nine three of 2009 and 2008 represents $.11 per share. Excluding the impact due to securities valuation, increases in core equity amounted to $3,907,000 and $3,241,000, respectively.

 

The Board of Governors of the Federal Reserve System and other various regulatory agencies have specified guidelines for purposes of evaluating a bank's capital adequacy. Currently, banks must maintain a leverage ratio of core capital to total assets at a prescribed level, namely 3%. In addition, bank regulators have issued risk-based capital guidelines. Under such guidelines, minimum ratios of core capital and total qualifying capital as a percentage of risk-weighted assets and certain off-balance sheet items of 4% and 8% are required. As of March 31, 2009, the bank met all capital requirements with a leverage ratio of 9.25% and core capital and total risk-based capital ratios of 9.82% and 10.71%, respectively. On a consolidated basis, the company's leverage ratio, core capital and total risk-based capital ratios at March 31, 2009 were 9.26%, 9.83% and 10.73%, respectively.

 

 

 

Part II Other Information

 

Item 6 – Exhibits.

 

Exhibit 31.1

Certification of Principal Executive Officer

 

Pursuant to Section 302 of the Sarbanes-Oxley Act

 

Exhibit 31.2

Certification of Principal Financial Officer

 

Pursuant to Section 302 of the Sarbanes-Oxley Act

 

Exhibit 32.1

Certification of Principal Executive Officer

 

Pursuant to Section 906 of the Sarbanes-Oxley Act

 

Exhibit 32.2

Certification of Principal Financial Officer

 

Pursuant to Section 906 of the Sarbanes-Oxley Act

 

 

 

 

 

 

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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.

 

 

Registrant: FIRST NATIONAL COMMUNITY BANCORP, INC

 

 

 

Date: July 9, 2009

By: /s/ J. David Lombardi

 

J. David Lombardi, President/

Chief Executive Officer

 

 

 

 

 

 

Date: July 9, 2009

By: /s/ William Lance

 

William Lance, Treasurer

Principal Financial Officer and

Principal Accounting Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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