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| CCFN.OB > SEC Filings for CCFN.OB > Form 10-Q on 14-Nov-2008 | All Recent SEC Filings |
14-Nov-2008
Quarterly Report
Consolidated Summary of Operations
(Dollars in Thousands, except for per share data)
At and For the Nine
Months
Ended September 30, At and For the Years Ended December 31,
2008 2007 2007 2006 2005 2004 2003
Income and Expense:
Interest income $ 13,757 $ 10,827 $ 14,483 $ 13,202 $ 11,442 $ 10,843 $ 11,221
Interest expense 5,061 4,626 6,185 5,301 4,131 3,669 4,366
Net interest income 8,696 6,201 8,298 7,901 7,311 7,174 6,855
Provision for possible
loan losses 0 30 30 175 90 140 200
Net interest income
after loan loss
provision 8,696 6,171 8,268 7,726 7,221 7,034 6,655
Non-interest income 2,191 1,722 2,305 1,900 1,713 1,530 1,508
Non-interest expense 7,964 5,231 7,038 6,437 6,077 5,746 5,409
Income before income
taxes 2,923 2,662 3,535 3,189 2,857 2,818 2,754
Income taxes 653 675 888 777 631 601 591
Net income $ 2,270 $ 1,987 $ 2,647 $ 2,412 $ 2,226 $ 2,217 $ 2,163
Per Share: (1)
Net income $ 1.51 $ 1.61 $ 2.15 $ 1.93 $ 1.76 $ 1.74 $ 1.69
Cash dividends paid .66 .61 .82 .78 .74 .70 .66
Average shares
outstanding 1,503,955 1,235,249 1,233,339 1,249,844 1,262,171 1,267,718 1,281,265
Average Balance Sheet:
Loans $ 205,486 $ 160,038 $ 160,348 $ 158,554 $ 150,065 $ 147,348 $ 149,485
Investments 98,444 57,503 58,553 53,703 54,943 61,999 58,152
Other earning assets 9,870 14,362 12,767 7,621 7,503 5,705 8,036
Total assets 313,800 247,625 248,476 236,569 230,081 231,477 230,975
Deposits 250,799 170,489 172,803 167,024 167,812 172,028 171,956
Other interest-bearing
liabilities 46,279 45,440 42,770 36,676 32,253 29,823 29,772
Stockholders' equity 39,602 30,658 31,003 29,672 28,789 28,136 27,223
Balance Sheet Data:
Loans $ 324,747 $ 161,476 $ 161,460 $ 160,641 $ 154,271 $ 149,900 $ 147,631
Investments 209,817 62,159 57,686 53,486 53,919 61,834 62,775
Other earning assets 12,168 11,790 13,401 10,712 6,239 6,233 6,882
Total assets 582,241 254,202 245,324 241,920 231,218 235,377 232,914
Deposits 438,252 172,556 170,938 169,285 164,847 172,487 171,786
Other interest-bearing
liabilities 81,098 48,504 40,648 40,607 35,910 30,080 32,325
Stockholders' equity 58,951 31,228 31,627 30,248 29,012 28,506 27,603
Ratios: (2)
Return on average
assets .89 % 1.07 % 1.07 % 1.02 % .97 % .96 % .94 %
Return on average
equity 7.64 % 8.64 % 8.54 % 8.13 % 7.73 % 7.88 % 7.95 %
Dividend payout ratio 46.39 % 37.80 % 38.15 % 40.39 % 41.92 % 40.19 % 39.02 %
Average equity to
average assets ratio 11.68 % 12.38 % 12.89 % 12.54 % 12.51 % 12.17 % 11.79 %
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(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, 2008 and 2007 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, the Bank, which reflects the acquisition of CFC and the resulting merger of Columbia County Farmers National Bank. Therefore, our discussion and analysis that follows is primarily centered on the performance of this bank.
Earnings Summary
Assets and liabilities of CFC are recorded at estimated fair values as of the
acquisition date and financial results reflected in the statements of this
report include results of earnings of he Corporation from January 1, 2008
through September 30, 2008, which includes the earnings results of the acquired
entities from July 18, 2008 through September 30, 2008.
Net income for the nine months ended September 30, 2008 was $2,270,000 or $1.51
per basic and diluted share. These results compare with net income of $1,987,000
or $1.61 per basic and diluted share for the same period in 2007. Annualized
return on average equity decreased to 7.64 percent from 8.64 percent, while the
annualized return on average assets decreased to .89 percent from 1.07 percent,
for the nine months ended September 30, 2008 and 2007 respectively.
Net interest income continues to be the largest source of our operating income.
Net interest income on a tax equivalent basis increased 39.8 percent to
$9,036,000 at September 30, 2008 from $6,461,000 at September 30, 2007. Overall,
interest earning assets yielded 5.99 percent for the nine months ended
September 30, 2008 compared to 6.37 percent yield for the nine months ended
September 30, 2007. The tax equivalized net interest margin increased to
3.84 percent compared to 3.72 percent for the nine months ended September 30,
2007.
Average interest earning assets increased $81.9 million or 35.3 percent for the
nine months ended September 30, 2008 over the same period in 2007 from
$231.9 million at September 30, 2007 to $313.8 million at September 30, 2008.
Average loans increased $45.4 million for the nine months ended September 30,
2008 from $160.0 million at September 30, 2007 to $205.5 million at
September 30, 2008. Average investments increased $40.9 million or 71.1 percent
from $57.5 million at September 30, 2007 to $98.4 million at September 30, 2008
and average federal funds sold and interest-bearing deposits with other
financial institutions decreased $4.5 million or 31.3 percent from $14.4 million
at September 30, 2007 to $9.9 million at September 30, 2008.
Average interest bearing liabilities for the nine months ended September 30,
2008 were $268.0 million and for the nine month period ending September 30,
2007, they were $197.6 million, an increase of $70.4 million or 35.7 percent.
Average short-term borrowings were $34.3 million at September 30, 2007 and
$35.7 million at September 30, 2008. Average long-term debt, which includes
primarily FHLB advances, was $11.1 million at September 30, 2007 and
$9.5 million at September 30, 2008. Average Junior subordinate debentures were
$0 at September 30, 2007 and $1.1 million at September 30, 2008. Average demand
deposits increased from $18.4 million at September 30, 2007 to $29.1 million at
September 30, 2008.
The average interest rate for loans decreased to 6.73 percent at September 30,
2008 from 7.06 at September 30, 2007, a 33 basis point decrease.
Interest-bearing deposits with other Financial Institutions and Federal Funds
Sold rates decreased 271 basis points to 2.37 percent at September 30, 2008 from
5.08 percent at September 30, 2007. Average rates on interest bearing deposits
decreased by 23 basis points from 2.64 percent to 2.41 percent in one year.
Average interest rates decreased on total interest bearing liabilities by 60
basis points to 2.52 percent from 3.12 percent. The cost of long-term debt
averaged 6.06 percent at September 30, 2008 compared to 6.01 percent at
September 30, 2007. $2 million of this long term debt was able to be paid off in
2008 with the remaining $9 million due in 2010. This high costing liability will
remain due to the fact that the Federal Home Loan Bank has the option to reprice
these loans at their discretion. We will continue to price deposits accordingly.
Junior subordinate debentures, acquired July 18, 2008, reflects an average rate
of 5.40 percent at September 30, 2008 and 0 percent at September 30, 2007.
Net Interest Income
Tax equivalized net interest income increased $2.5 million at September 30, 2008
from $6.5 million at September 30, 2007 to $9.0 million at September 30, 2008.
The following table sets forth the average balances of, and the interest earned or incurred on, each principal category of assets, liabilities and stockholders' equity, the related rates, net interest income and rate spread created:
ANALYSIS OF AVERAGE ASSETS, LIABILITIES AND CAPITAL EQUITY
AND
NET INTEREST INCOME ON A TAX EQUIVALENT BASIS
AVERAGE BALANCES AND INTEREST RATES
Nine Months Ended Nine Months Ended
September 30, 2008 September 30, 2007
Average Balance Interest Average Rate Average Balance Interest Average Rate
(In Thousands) (1) (2) (1) (2)
Assets:
Tax-exempt loans (3) $ 14,994 $ 750 6.68 % $ 11,880 $ 550 6.19 %
All other loans 190,492 9,614 6.74 % 148,158 7,926 7.15 %
Total loans 205,486 10,364 6.74 % 160,038 8,476 7.08 %
Taxable investment securities 93,239 3,309 4.73 % 53,489 1,849 4.61 %
Tax-exempt investment securities (3) 5,205 248 6.35 % 4,014 214 7.11 %
Total securities 98,444 3,557 4.82 % 57,503 2,063 4.78 %
Interest bearing deposits 9,870 176 2.38 % 14,362 548 5.10 %
Total interest-earning assets 313,800 14,097 6.00 % 231,903 11,087 6.39 %
Other assets 25,220 15,722
Total assets $ 339,020 $ 247,625
Liabilities:
Interest-bearing deposits $ 221,738 4,005 2.41 % $ 152,137 3,016 2.65 %
Short-term borrowings 35,684 580 2.17 % 34,302 1,108 4.32 %
Junior subordinate debt 1,087 44 5.41 % - - N/A
Other borrowings 9,508 432 6.07 % 11,138 502 6.03 %
Total interest-bearing liabilities 268,017 5,061 2.52 % 197,577 4,626 3.13 %
Demand deposits 29,061 18,352
Other liabilities 2,340 1,038
Shareholders' equity 39,602 30,658
$ 339,020 $ 247,625
Interest rate spread (6) 3.48 % 3.26 %
Net interest income/margin (4)(5) $ 9,036 3.84 % $ 6,461 3.72 %
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(1) Average volume information was computed using daily (or monthly) averages for interest earning and bearing accounts. Certain balance sheet items utilized quarter end balances for averages. Due to the availability of certain daily and monthly average balance information, certain reclassifications were made to prior period amounts.
(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 annualized net interest income by total interest earning assets.
(5) Interest and yield are presented on a tax-equivalent basis using 34 percent for 2008 and 2007.
(6) Interest rate spread represents the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities.
The following table presents the adjustment to convert net interest income to net interest income on a fully tax equivalent basis for the nine month period ended September 30, 2008.
For the Nine Months Ended
September 30,
(In Thousands) 2008 2007
Total interest income $ 13,757 $ 10,827
Total interest expense 5,061 4,626
Net interest income 8,696 6,201
Tax equivalent adjustment 340 260
Net interest income (fully taxable equivalent) $ 9,036 $ 6,461
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The following table demonstrates the relative impact on net interest income of changes in volume of interest earning assets and interest bearing liabilities and changes in rates earned and paid by us on such assets and liabilities.
Nine Months Ended September 30,
2008 vs 2007
Increase (Decrease)
Due to (1)
(In Thousands) Volume Rate Net
Interest income:
Loans, tax-exempt $ 144 $ 56 $ 200
Loans 2,265 (577 ) 1,688
Taxable investment securities 1,374 86 1,460
Tax-exempt investment securities 63 (29 ) 34
Interest bearing deposits (171 ) (201 ) (372 )
Total interest-earning assets 3,675 (665 ) 3,010
Interest expense:
Interest -bearing deposits 1,380 (391 ) 989
Short-term borrowings 45 (573 ) (528 )
Junior subordinate debentures 44 - 44
Long-term borrowings, FHLB (73 ) 3 (70 )
Total interest-bearing liabilities 1,396 (961 ) 435
Change in net interest income $ 2,279 $ 296 $ 2,575
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(1) 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
The outstanding balance of loans at September 30, 2008 was $324.7 million and
September 30, 2007 was $161.5 million. The acquisition of CFC contributed an
increase in net loans in the amount of $160.7 as described in Note 7 of the
Notes to Consolidated Financial Statements.
Income from investment securities increased to $3.5 million at September 30,
2008 compared to $2.0 million at September 30, 2007. The average balance of
investment securities for the nine months ended September 30, 2008 was
$98.4 million compared to $57.5 million at September 30, 2007.
Total interest expense increased $.5 million or 10.9 percent for the first nine
months of 2008 as compared to the first nine months of 2007.
Non-Interest Income
The following table presents the components of non-interest income for the nine
months ended September 30, 2008 and 2007:
Nine Months Ended
September 30,
(Dollars in thousands)
2008 2007
Service charges and fees $ 797 $ 680
Gain on sale of loans 194 124
Bank-owned life insurance income 244 217
Investment center 174 339
Trust department 217 132
Other 565 230
Total $ 2,191 $ 1,722
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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, 2008 and September 30, 2007
total non-interest income increased $469 thousand from $1,722 thousand at
September 30, 2007 to $2,191 thousand at September 30, 2008.
Service charges and fees increased $117 thousand from $680 thousand at
September 30, 2007 to $797 thousand, or 17.2 percent, at September 30, 2008.
Income from sales of fixed rate mortgages through the Mortgage Partnership
Finance (MPF) and PHFA programs reflected an increase at September 30, 2008 to
$194 thousand compared to $124 thousand at September 30, 2007. The MPF loans are
being serviced by the bank and the bank retains minimal credit risk.
Third party brokerage fees at September 30, 2007 of $339 thousand included $68
thousand from the one time sale of non deposit retail products. The current
economic environment has affected the investment center income.
Other income increased from $230 thousand at September 30, 2007 to $565 thousand
at September 30, 2008 primarily due to increased ATM related fees.
Non-Interest Expense
The following table presents the components of non-interest expense for the nine
months ended September 30, 2008 and 2007:
Nine Months Ended
September 30,
2008 2007
(Dollars in Thousands)
Salaries $ 3,056 $ 2,224
Employee benefits 1,595 660
Occupancy 496 369
Equipment 583 363
State shares tax 277 236
Professional services 382 213
Director's fees 152 139
Stationery and supplies 153 127
Impairment loss on securities 283 0
Other 987 900
Total $ 7,964 $ 5,231
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Non-interest expense increased from $5.2 million at September 30, 2007 to
$8.0 million at September 30, 2008, an increase of 53.8 percent. 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, the bank utilizes budgets and related measures to control variable
expenses.
Salaries increased 37.4 percent from $2.2 million at September 30, 2007 to
$3.1 million at September 30, 2008. This is attributable to increased staffing
costs from the acquisition of CFC and a decrease in commissions paid on third
party brokerage firm sales. Commissions at September 30, 2007 were $138 thousand
and at September 30, 2008 were $0 thousand due to the factors discussed above
under third party brokerage fee income. Employee benefits increased
141.7 percent from $660 thousand at September 30, 2007 to $1.6 million at
September 30, 2008 as a result of severance costs payable to former CCFNB
employees.
Occupancy expense increased 34.2 percent from $369 thousand at September 30,
2007 to $496 thousand at September 30, 2008. This increase is attributable to
the acquisition and the general increases in the cost of utilities.
Pennsylvania Bank Shares Tax increased 17.4 percent from $236 thousand at
September 30, 2007 to $277 thousand at September 30, 2008.
Professional services increased 79.3 percent from $213 thousand at September 30,
2007 to $382 thousand at September 30, 2008 as a result of increased post
acquisition related accounting and consulting fees.
Director's fees increased 9.4 percent from $139 thousand through September 30,
2007 compared to $152 thousand through September 30, 2008. As a result of the
CFC acquisition, the total number of board members increased to 16 at
September 30, 2008 as compared to 9 at September 30, 2007.
Stationery and supplies increased $26 thousand in comparing September 30, 2007
at $127 thousand and September 30, 2008 at $153 thousand, a 20.5 percent
increase. Due to the mergers with Columbia Financial Corporation and First
Columbia Bank & Trust Co., consummated on July 18, 2008, supply expenditures
were greatly increased due to the bank name change.
Other expenses increased $87 thousand from $900 thousand at September 30, 2007
to $987 thousand at September 30, 2008, a 9.7 percent increase.
Income Taxes
Income tax expense as a percentage of pre-tax income was 22.3 percent for the
nine months ended September 30, 2008 compared with 25.4 percent for the same
period in 2007.
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
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