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| CCFN.OB > SEC Filings for CCFN.OB > Form 10-K on 27-Mar-2009 | All Recent SEC Filings |
27-Mar-2009
Annual Report
• Changes in interest rates and valuations in the debt, equity and other financial markets.
• Disruptions in the liquidity and other functioning of financial markets, including such disruptions in the market for real estate and other assets commonly securing financial products.
• Actions by the Federal Reserve Board and other government agencies, including those that impact money supply and market interest rates.
• Changes in our customers' and suppliers' performance in general and their creditworthiness in particular.
• Changes in customer preferences and behavior, whether as a result of changing business and economic conditions or other factors.
• Changes resulting from the newly enacted Emergency Economic Stabilization Act of 2008.
• A continuation of recent turbulence in significant segments of the United States and global financial markets, particularly if it worsens, could impact our performance, both directly by affecting our revenues and the value of our assets and liabilities and indirectly by affecting our customers and suppliers and the economy generally.
• Our business and financial performance could be impacted as the financial industry restructures in the current environment by changes in the competitive landscape.
• Given current economic and financial market conditions, our forward-looking financial statements are subject to the risk that these conditions will be substantially different than we are currently expecting. These statements are based on our current expectations that interest rates will remain low through 2009 with continued wide market credit spreads and our view that national economic trends currently point to a continuation of severe recessionary conditions through 2009 followed by a subdued recovery.
• Legal and regulatory developments could have an impact on our ability to
operate our businesses or our financial condition or results of operations
or our competitive position or reputation. Reputational impacts, in turn,
could affect matters such as business generation and retention, our
ability to attract and retain management, liquidity and funding. These
legal and regulatory developments could include: (a) the unfavorable
resolution of legal proceedings or regulatory and other governmental
inquiries; (b) increased litigation risk from recent regulatory and other
governmental developments; (c) the results of the regulatory examination
process, and regulators' future use of supervisory and enforcement tools;
(d) legislative and regulatory reforms, including changes to laws and
regulations involving tax, pension, education and mortgage lending, the
protection of confidential customer information, and other aspects of the
financial institution industry; and (e) changes in accounting policies and
principles.
• Our business and operating results are affected by our ability to identify
and effectively manage risks inherent in our businesses, including, where
appropriate, through the effective use of third-party insurance and
capital management techniques.
• Our ability to anticipate and respond to technological changes can have an impact on our ability to respond to customer needs and to meet competitive demands.
• Our ability to implement our business initiatives and strategies could affect our financial performance over the next several years.
• Competition can have an impact on customer acquisition, growth and retention, as well as on our credit spreads and product pricing, which can affect market share, deposits and revenues.
• Our business and operating results can also be affected by widespread natural disasters, terrorist activities or international hostilities, either as a result of the impact on the economy and capital and other financial markets generally or on us or on our customers and suppliers.
The words "believe," "expect," "anticipate," "project" and similar
expressions signify forward looking statements. Readers are cautioned not to
place undue reliance on any forward looking statements made by or on behalf of
us. Any such statement speaks only as of the date the statement was made. We
undertake no obligation to update or revise any forward looking statements.
The following discussion and analysis should be read in conjunction with the
detailed information and consolidated financial statements, including notes
thereto, included elsewhere in this Annual Report. Our consolidated financial
condition and results of operations are essentially those of our subsidiary, the
Bank. Therefore, the analysis that follows is directed to the performance of the
Bank.
RESULTS OF OPERATIONS
NET INTEREST INCOME
2008 vs. 2007
Tax-equivalent net interest income increased $5.7 million or 65.7 percent to
$14.3 million for the year ended December 31, 2008. Reported tax-equivalent
interest income increased $7.0 million or 47.3 percent to $21.9 million for the
year ended December 31, 2008. The increase primarily resulted from the
acquisition of Columbia Financial Corporation ("CFC") as described in Note 15 of
the Notes to the Consolidated Financial Statements included in Item 8. The
acquisition of CFC contributed an increase in net loans in the amount of
$160.7 million, an increase in investment securities in the amount of
$138.3 million, an increase in federal funds sold in the amount of $517,000, and
an increase in interest-bearing deposits of $129,000. Reported interest expense
increased $1.3 million or 21.3 percent to $7.5 million. The acquisition of CFC
contributed an increase in deposits in the amount of $264.7 million, an increase
in other borrowings of $31.9 million, and an increase of $4.6 million in junior
subordinate debentures.
Net interest margin increased to 3.90 percent at December 31, 2008 from
3.74 percent at December 31, 2007. The increase in margin resulted primarily
from the yield on interest-bearing deposits decreasing 33 basis points to
2.32 percent at December 31, 2008 while the yield on total borrowings decreased
233 basis points to 2.64 percent at December 31, 2008. A decrease of 285 basis
points on the short-term borrowings for the year ended December 31, 2008 was the
primary reason for the yield decrease in the total borrowings as the long-term
borrowing yield increased 9 basis points over the same period. The short-term
borrowing had an average balance of $42.9 million and $31.6 million as of
December 31, 2008 and 2007, respectively. The yield decreases were driven by the
rate decreases enacted throughout 2008 by the Federal Open Market Committee
(FOMC) as well as local market competition. The yield on interest-earning assets
decreased 47 basis points to 5.94 percent for the year ended December 31, 2008.
The yield on total loans decreased 42 basis points to 6.66 percent for the year
ended December 31, 2008.
2007 vs. 2006
Tax-equivalent net interest income for 2007 equaled $8.7 million compared to
$8.3 million in 2006, an increase of 4.83 percent. The overall net interest
margin remained the same at 3.74 percent from 2006 to 2007. These rates were
monitored and adjusted which contributed to the overall increased performance of
the Bank. Interest received on interest-bearing deposits with other financial
institutions increased from an average yield of 5.20 percent for 2006 to an
average yield of 5.27 percent for 2007. The cost of long-term debt averaged
5.99 percent for the year which will continue to have a negative impact on our
net interest margin, until rates would rise enough to allow us to pay off this
debt. We will continue to use the following strategies to mitigate this period
of
pressure on our net interest margin: pricing of deposits will continue to be
monitored to meet current market conditions; large deposits over $100,000 will
continue to be priced conservatively; and in this low interest rate environment,
the majority of new investments will be kept short-term in anticipation of
rising rates.
The following Average Balance Sheet and Rate Analysis table presents the
average assets, actual income or expense and the average yield on assets,
liabilities and stockholders' equity for the years 2008, 2007 and 2006.
AVERAGE BALANCE SHEET AND RATE ANALYSIS
YEARS ENDED DECEMBER 31,
(In Thousands) 2008 2007 2006
Average Average Average Average Average Average
Balance(1) Interest Rate Balance(1) Interest Rate Balance(1) Interest Rate
ASSETS:
Tax-exempt loans $ 16,156 $ 1,070 6.62 % $ 11,389 $ 771 6.77 % $ 9,433 $ 638 6.76 %
All other loans 218,915 14,587 6.66 % 148,959 10,585 7.11 % 149,121 10,239 6.87 %
Total loans (2)(3)(4) 235,071 15,657 6.66 % 160,348 11,356 7.08 % 158,554 10,877 6.86 %
Taxable securities 118,012 5,633 4.77 % 54,353 2,546 4.68 % 47,857 1,850 3.87 %
Tax-exempt
securitites (3) 6,765 385 5.69 % 4,200 281 6.69 % 5,846 406 6.94 %
Total securities 124,777 6,018 4.82 % 58,553 2,827 4.83 % 53,703 2,256 4.20 %
Federal funds sold 6,990 155 2.22 % 10,013 512 5.11 % 7,621 385 5.05 %
Interest-bearing
deposits 873 22 2.52 % 2,754 145 5.27 % 750 39 5.20 %
Total
interest-earning
assets 367,711 21,852 5.94 % 231,668 14,840 6.41 % 220,628 13,557 6.14 %
Other assets 30,117 16,808 15,941
TOTAL ASSETS $ 397,828 $ 248,476 $ 236,569
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LIABILITIES: Savings $ 39,223 156 0.40 % $ 24,602 98 0.40 % $ 25,671 103 0.40 % Now deposits 47,534 129 0.27 % 29,321 91 0.31 % 29,029 88 0.30 % Money market deposits 21,119 350 1.66 % 8,894 59 0.66 % 9,795 65 0.66 % Time deposits 154,334 5,447 3.53 % 90,375 3,810 4.22 % 84,261 3,207 3.81 % Total deposits 262,210 6,082 2.32 % 153,192 4,058 2.65 % 148,756 3,463 2.33 % Short-term borrowings 42,912 754 1.76 % 31,582 1,457 4.61 % 25,373 1,161 4.58 % Long-term borrowings 9,413 572 6.08 % 11,188 670 5.99 % 11,303 677 5.99 % Junior subordinate debentures 1,605 96 5.98 % - - - - - - Total borrowings 53,930 1,422 2.64 % 42,770 2,127 4.97 % 36,676 1,838 5.01 % Total interest-bearing liabilities 316,140 7,504 2.37 % 195,962 6,185 3.16 % 185,432 5,301 2.86 % Demand deposits 34,403 19,611 18,268 Other liabilities 2,761 1,900 2,620 Stockholders' equity 44,524 31,003 30,249 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 397,828 $ 248,476 $ 236,569 Interest rate spread (6) 3.57 % 3.25 % 3.29 % Net interest income/margin (5) $ 14,348 3.90 % $ 8,655 3.74 % $ 8,256 3.74 % |
(1) Average volume information was compared using daily (or monthly) averages for interest-earning and bearing accounts. Certain balance sheet items utilized quarter-end balances for averages.
(2) Interest on loans includes fee income.
(3) Tax exempt
interest revenue
is shown on a
tax-equivalent
basis using a
statutory
federal income
tax rate of
34 percent for
2008,2007 and
2006.
(4) Nonaccrual
loans have been
included with
loans for the
purpose of
analyzing net
interest
earnings.
(5) Net interest margin is computed by dividing annualized net interest income by total interest earning assets.
(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.
Reconcilement of Taxable Equivalent Net Interest Income
For the Years Ended December 31,
(In Thousands) 2008 2007 2006
Total interest income $ 21,357 $ 14,483 $ 13,202
Total interest expense 7,504 6,185 5,301
Net interest income 13,853 8,298 7,901
Tax equivalent adjustment 495 357 355
Net interest income (fully taxable equivalent) $ 14,348 $ 8,655 $ 8,256
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Rate/Volume Analysis To enhance the understanding of the effects of volumes (the average balance of earning assets and costing liabilities) and average interest rate fluctuations on the balance sheet as it pertains to net interest income, the table below reflects these changes for 2008 versus 2007, and 2007 versus 2006:
(In Thousands) Year Ended December 31,
2008 vs 2007 2007 vs 2006
Increase (Decrease) Increase (Decrease)
Due to Due to
Volume Rate Net Volume Rate Net
Interest income:
Loans, tax-exempt $ 316 $ (17 ) $ 299 $ 132 $ 1 $ 133
Loans 4,614 (612 ) 4,002 (11 ) 357 346
Taxable investment
securities 3,040 47 3,087 156 540 696
Tax-exempt investment
securities 151 (47 ) 104 (109 ) (16 ) (125 )
Federal funds sold (255 ) (102 ) (357 ) 123 5 128
Interest bearing
deposits 124 (247 ) (123 ) 105 - 105
Total
interest-earning
assets 7,990 (978 ) 7,012 396 887 1,283
Interest expense:
Savings 58 - 58 (4 ) (1 ) (5 )
NOW deposits 51 (13 ) 38 1 2 3
Money market deposits (1,325 ) 1,615 290 (6 ) - (6 )
Time deposits 2,339 (702 ) 1,637 181 422 603
Short-term borrowings 404 (1,107 ) (703 ) 286 10 296
Long-term borrowings,
FHLB (107 ) 10 (97 ) (7 ) - (7 )
Junior subordinate
debentures 96 - 96 - - -
Total
interest-bearing
liabilities 1,516 (197 ) 1,319 451 433 884
Change in net
interest income $ 6,474 $ (781 ) $ 5,693 $ (55 ) $ 454 $ 399
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PROVISION FOR LOAN LOSSES
2008 vs. 2007
The provision for loan losses is based upon management's quarterly review of
the loan portfolio. The purpose of the review is to assess loan quality,
identify impaired loans, analyze delinquencies, evaluate potential charge-offs
and recoveries, and assess the general conditions in the markets served.
Management remains committed to an aggressive and thorough program of problem
loan identification and resolution. Periodically, an independent loan review is
performed for the Bank. The allowance for loan losses is evaluated quarterly and
is calculated by applying historic loss factors to the various outstanding loans
types while excluding loans for
which a specific allowance has already been determined. Loss factors are based
on management's consideration of the nature of the portfolio segments,
historical loan loss experience, industry standards and trends with respect to
nonperforming loans, and its core knowledge and experience with specific loan
segments.
Although management believes that it uses the best information available to
make such determinations and that the allowance for loan losses is adequate at
December 31, 2008, future adjustments could be necessary if circumstances or
economic conditions differ substantially from the assumptions used in making the
initial determinations. A downturn in the local economy or employment and delays
in receiving financial information from borrowers could result in increased
levels of nonperforming assets and charge-offs, increased loan loss provisions
and reductions in interest income. Also, as part of the examination process,
bank regulatory agencies periodically review the Bank's loan loss allowance. The
bank regulators could require the recognition of additions to the loan loss
allowance based on their judgment of information available to them at the time
of their examination.
The provision for loan losses amounted to $750,000 and $30,000 for the years
ended December 31, 2008 and 2007, respectively. Management concluded the
increase of the provision was appropriate considering the gross loan growth
experience of $158,608,000, increases in nonperforming assets, and the general
downturn in the national economy. Utilizing the resources noted above,
management concluded that the allowance for loan losses remains at a level
adequate to provide for probable losses inherent in the loan portfolio.
2007 vs. 2006
The provision for loan losses decreased from $175,000 in 2006 to $30,000 in
2007 as loans increased by $819 thousand.
NON-INTEREST INCOME
2008 vs. 2007
Total non-interest income increased $738 thousand or 51.0 percent to
$3.5 million for the year ended December 31, 2008. The increase primarily
resulted from the acquisition of CFC as described in Note 15 of the Notes to the
Consolidated Financial Statements included in Item 8. The service charges and
fees increased $339,000 or 36.0 percent to $1,281,000 for the year ended
December 31, 2008. Gain on sale of loans increased $157,000 or 86.3 percent from
$182,000 in 2007 to $339,000 in 2008. Brokerage income decreased $181,000 or
45.4 percent from $399,000 in 2007 to $218,000 in 2008. The decrease in
brokerage income was significantly influenced by the national economic crises
and the related market contraction that followed. During 2008, we recorded an
other than temporary impairment loss on the equity security portfolio in the
amount of $437,000. Other income increased $536,000 from $300,000 in 2007 to
$836,000 in 2008 as a result of increased ATM transaction revenue and related
surcharges.
(In Thousands) For The Year Ended
December 31, 2008 December 31, 2007 Change
Amount % Total Amount % Total Amount %
Service charges and
fees $ 1,281 42.1 % $ 942 40.9 % $ 339 36.0 %
Gain on sale of loans 339 11.1 182 7.9 157 86.3
Earnings on bank-owned
life insurance 366 12.0 285 12.4 81 28.4
Brokerage and
insurance 218 7.2 399 17.3 (181 ) (45.4 )
Trust 434 14.3 196 8.5 238 121.4
Investment security
(losses) gains (431 ) (14.2 ) 1 - (432 ) -
Other 836 27.5 300 13.0 536 178.7
Total non-interest
income $ 3,043 100.0 % $ 2,305 100.0 % $ 738 32.0 %
|
2007 vs. 2006
Total non-interest income increased 21.3 percent during 2007 from
$1.9 million in 2006 to $2.3 million in 2007. Service fees and charges increased
from $845,000 in 2006 to $942,000 in 2007 or 11.5 percent. "Overdraft Privilege"
was instrumental in this increase. Gain on sale of loans increased 304.4% from
$45,000 in 2006 to $182,000 in 2007. Management and employees participated in an
incentive program to market these fixed rate loans and the program was very
successful. Investment center income showed a dramatic 82.2% increase from
$219,000 in 2006 to $399,000 in 2007. The Bank added another broker to its
financial services department which should help continue success in the future.
Other income decreased $46,000 from $346,000 in 2006 to $300,000 in 2007.
(In Thousands) For The Year Ended
December 31, 2007 December 31, 2006 Change
Amount % Total Amount % Total Amount %
Service charges and
fees $ 942 40.9 % $ 845 44.5 % $ 97 11.5 %
Gain on sale of loans 182 7.9 45 2.4 137 304.4
Earnings on bank-owned
life insurance 285 12.4 253 13.3 32 12.6
Brokerage and
insurance 399 17.3 219 11.5 180 82.2
Trust 196 8.5 191 10.1 5 2.6
Investment security
gains 1 - 1 0.1 - -
Other 300 13.0 346 18.1 (46 ) (13.3 )
Total non-interest
income $ 2,305 100.0 % $ 1,900 100.0 % $ 405 21.3 %
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NON-INTEREST EXPENSE
2008 vs. 2007
Total non-interest expense increased $5.1 million or 72.9% from $7.0 million
in 2007 to $12.1 million in 2008. The increases primarily resulted from the
acquisition of CFC as described in Note 15 of the Notes to the Consolidated
Financial Statements included in Item 8. Salaries and employee benefits
increased $3.0 million or 78.1 percent for the year ended December 31, 2008.
Included in the increase was approximately $672,000 of compensation and benefits
offered as severance packages to former Columbia County Farmers National Bank
employees. Professional fees increased $255,000 or 81.0 percent from $315,000 in
2007 to $570,000 in 2008. Other expenses, Occupancy, Furniture and Equipment,
Professional fees, and Directors fees all experienced net increases as a result
of the CFC acquisition.
One standard to measure non-interest expense is to express non-interest
expense as a percentage of average total assets. In 2008 this percentage was
3.06 percent compared to 2.83 percent in 2007.
(In Thousands) For The Years Ended
December 31, 2008 December 31, 2007 Change
Amount % Total Amount % Total Amount %
Salaries $ 4,762 39.1 % $ 3,000 42.6 % $ 1,762 58.7 %
Employee benefits 2,179 17.9 897 12.7 1,282 142.9
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