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| CCFN.OB > SEC Filings for CCFN.OB > Form 10-Q on 11-Aug-2009 | All Recent SEC Filings |
11-Aug-2009
Quarterly Report
CAUTIONARY STATEMENT
Certain statements in this section and elsewhere in this Quarterly Report on
Form 10-Q, other periodic reports filed by us under the Securities Exchange Act
of 1934, as amended, and any other written or oral statements made by or on
behalf of us may include "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 which reflect our current views
with respect to future events and financial performance. Such forward looking
statements are based on general assumptions and are subject to various risks,
uncertainties, and other factors that may cause actual results to differ
materially from the views, beliefs and projections expressed in such statements.
These risks, uncertainties and other factors include, but are not limited to:
• Our business and financial results are affected by business and economic
conditions, both generally and specifically in the Northcentral
Pennsylvania market in which we operate. In particular, our business and
financial results may be impacted by:
• 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 business 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
2009 vs. 2008
Tax-equivalent net interest income increased $5.7 million to $10.0 million
for the six months ended June 30, 2009. Reported tax-equivalent interest income
increased $7.5 million to $14.5 million for the six months ended June 30, 2009.
The increase primarily resulted from the acquisition of Columbia Financial
Corporation ("CFC") as described in Note 6 of the Notes to the Consolidated
Financial Statements included in Item 1 of this Form 10-Q. The acquisition of
CFC contributed to 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 in other banks of $129,000. Reported interest expense
increased $1.8 million or 66.5 percent to $4.5 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 3.84 percent at June 30, 2009 from
3.79 percent at June 30, 2008. The increase in margin resulted primarily from
the yield on interest-bearing deposits decreasing 65 basis points to
2.01 percent at June 30, 2009 while the yield on total borrowings decreased 159
basis points to 1.81 percent at June 30, 2009. A decrease of 180 basis points on
the short-term borrowings for the six months ended June 30, 2009 was the primary
reason for the yield decrease in the total borrowings as the long-term borrowing
yield decreased 11 basis point over the same period. The short-term borrowing
had an average balance of $43.7 million and $28.6 million as of June 30, 2009
and 2008, 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 59
basis points to 5.55 percent for the six months ended June 30, 2009. The yield
on total loans decreased 71 basis points to 6.18 percent for the six months
ended June 30, 2009.
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 six months ended June 30, 2009 and
2008.
AVERAGE BALANCE SHEET AND RATE ANALYSIS
SIX MONTHS ENDED JUNE 30,
2009 2008
Average Balance Interest Average Rate Average Balance Interest Average Rate
(In Thousands) (1) (1)
ASSETS:
Tax-exempt loans $ 19,643 $ 546 5.61 % $ 13,183 $ 399 6.10 %
All other loans 304,794 9,403 6.22 % 147,160 5,079 6.96 %
Total loans (2)(3)(4) 324,437 9,949 6.18 % 160,343 5,478 6.89 %
Taxable securities 182,479 4,264 4.67 % 56,475 1,301 4.61 %
Tax-exempt securitites (3) 9,126 258 5.65 % 3,607 113 6.27 %
Total securities 191,605 4,522 4.72 % 60,082 1,414 4.71 %
Federal funds sold 7,989 6 0.15 % 8,385 108 2.60 %
Interest-bearing deposits 667 1 0.30 % 1,450 20 2.78 %
Total interest-earning
assets 524,698 14,478 5.55 % 230,260 7,020 6.14 %
Other assets 43,676 18,236
TOTAL ASSETS $ 568,374 $ 248,496
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LIABILITIES: Savings $ 56,204 111 0.40 % $ 24,809 49 0.40 % Now deposits 68,076 50 0.15 % 28,863 45 0.31 % Money market deposits 44,900 249 1.12 % 7,356 24 0.66 % Time deposits 225,833 3,523 3.15 % 92,719 1,908 4.15 % Total deposits 395,013 3,933 2.01 % 153,747 2,026 2.66 % Short-term borrowings 43,716 159 0.73 % 28,559 358 2.53 % Long-term borrowings 10,043 287 5.76 % 10,034 292 5.87 % Junior subordinate debentures 4,640 76 3.30 % - - - Total borrowings 58,399 522 1.80 % 38,593 650 3.40 % Total interest-bearing liabilities 453,412 4,455 1.98 % 192,340 2,676 2.81 % Demand deposits 50,201 20,009 Other liabilities 2,554 4,340 Stockholders' equity 62,207 31,807 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 568,374 $ 248,496 Interest rate spread (6) 3.57 % 3.33 % Net interest income/margin (5) $ 10,023 3.84 % $ 4,344 3.79 % |
(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 2009 and 2008.
(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 Six Months Ended June 30,
(In Thousands) 2009 2008
Total interest income $ 14,274 $ 6,891
Total interest expense 4,455 2,676
Net interest income 9,819 4,215
Tax equivalent adjustment 204 129
Net interest income
(fully taxable equivalent) $ 10,023 $ 4,344
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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 2009 versus 2008:
Six Months Ended June 30,
2009 vs 2008
Increase (Decrease)
Due to
(In Thousands) Volume Rate Net
Interest income:
Loans, tax-exempt $ 180 $ (33 ) $ 147
Loans 4,864 (539 ) 4,325
Taxable investment securities 2,944 19 2,963
Tax-exempt investment securities 156 (11 ) 145
Federal funds sold - (102 ) (102 )
Interest bearing deposits (1 ) (18 ) (19 )
Total interest-earning assets 8,143 (684 ) 7,459
Interest expense:
Savings 62 - 62
NOW deposits 29 (24 ) 5
Money market deposits 208 17 225
Time deposits 2,077 (462 ) 1,615
Short-term borrowings 55 (254 ) (199 )
Long-term borrowings, FHLB - (5 ) (5 )
Junior subordinate debentures 77 - 77
Total interest-bearing liabilities 2,508 (728 ) 1,780
Change in net interest income $ 5,635 $ 44 $ 5,679
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PROVISION FOR LOAN LOSSES
2009 vs. 2008
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
June 30, 2009, 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 $220,000 and $0 for the six months
ended June 30, 2009 and 2008, respectively. Management concluded the increase of
the provision was appropriate considering the gross loan growth experience of
$8,101,000, 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.
NON-INTEREST INCOME
2009 vs. 2008
Total non-interest income increased $1.5 million or 143.7 percent to
$2.5 million for the six months ended June 30, 2009. The increase primarily
resulted from the acquisition of CFC as described in Note 6 of the Notes to the
Consolidated Financial Statements included in Item 1 of this Form 10-Q. The
service charges and fees increased $344,000 or 71.7 percent to $824,000 for the
six months ended June 30, 2009. Gain on sale of loans increased $240,000 or
226.4 percent from $106,000 in 2008 to $346,000 in 2009. Brokerage income
increased $15,000 or 16.3 percent from $92,000 in 2008 to $107,000 in 2009.
Trust income increased $238,000 or 321.6 percent from $74,000 in 2008 to
$312,000 in 2009. Other income increased $630,000 from $152,000 in 2008 to
$782,000 in 2009 primarily as a result of $183,000 in gains recorded on the sale
of property and equipment as well as increased ATM transaction revenue and
related surcharges.
For The Six Months Ended
June 30, 2009 June 30, 2008 Change
(In Thousands) Amount % Total Amount % Total Amount %
Service charges and fees $ 824 32.6 % $ 480 46.3 % $ 344 71.7 %
Gain on sale of loans 346 13.7 106 10.2 240 226.4
Earnings on bank-owned life insurance 217 8.6 133 12.8 84 63.2
Brokerage and insurance 107 4.2 92 8.9 15 16.3
Trust 312 12.3 74 7.1 238 321.6
Investment security losses (61 ) (2.4 ) - - (61 ) -
Other 782 31.0 152 14.7 630 414.5
Total non-interest income $ 2,527 100.0 % $ 1,037 100.0 % $ 1,490 143.7 %
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NON-INTEREST EXPENSE
2009 vs. 2008
Total non-interest expense increased $4.7 million or 138.5% from $3.4 million
in 2008 to $8.1 million in 2009. The increases primarily resulted from the
acquisition of CFC as described in Note 6 of the Notes to the Consolidated
Financial Statements included in Item 1 of this Form 10-Q. Salaries and employee
benefits increased $2.1 million or 110.6 percent for the six months ended
June 30, 2009. Professional fees increased $143,000 or 108.3 percent from
$132,000 in 2008 to $275,000 in 2009. FDIC assessments increased $428,000 due to
the imposition of a 5 basis point special assessment and an increase in the
regular quarterly assessment rate. Other expenses, Occupancy, Furniture and
Equipment, and Directors fees all experienced net increases as a result of the
CFC acquisition.
One standard to measure non-interest expense is to express annualized non-interest expense as a percentage of average total assets. As of June 30, 2009 this percentage was 2.84 percent compared to 2.72 percent in 2008.
For The Six Months Ended
June 30, 2009 June 30, 2008 Change
(In Thousands) Amount % Total Amount % Total Amount %
Salaries $ 3,144 38.9 % $ 1,419 41.9 % $ 1,725 121.6 %
Employee benefits 834 10.3 470 13.9 364 77.4
Occupancy 561 6.9 256 7.6 305 119.1
Furniture and equipment 625 7.7 222 6.6 403 181.5
State shares tax 272 3.4 163 4.8 109 66.9
Professional fees 275 3.4 132 3.9 143 108.3
Directors fees 141 1.7 97 2.9 44 45.4
FDIC assessments 438 5.4 10 0.3 428 4,280.0
Other 1,782 22.3 615 18.1 1,167 189.8
Total non-interest expense $ 8,072 100.0 % $ 3,384 100.0 % $ 4,688 138.5 %
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FINANCIAL CONDITION
Our consolidated assets at June 30, 2009 were $570.3 million which
represented an increase of $2.0 million from $568.3 million at December 31,
2008.
Loans increased 2.5 percent from $320.1 million at December 31, 2008 to
$328.2 million at June 30, 2009.
The loan-to-deposit ratio is a key measurement of liquidity. Our
loan-to-deposit ratio increased during 2009 to 74.3 percent compared to
73.7 percent at December 31, 2008.
INVESTMENTS
All of our securities are available-for-sale and are carried at estimated
fair value. Available-for-sale securities are reported on the consolidated
balance sheet at fair value with an offsetting adjustment to deferred taxes. The
possibility of material price volatility in a changing interest rate environment
is offset by the availability to the bank of restructuring the portfolio for gap
positioning at any time through the securities classified as available-for-sale.
The impact of the fair value accounting was an unrealized gain, net of tax, on
June 30, 2009 of $1,715,000 compared to an unrealized gain, net of tax, on
December 31, 2008 of $1,622,000, which represents an unrealized gain, net of
tax, of $93,000 for the six months ended June 30, 2009. The following table
shows the amortized cost and estimated fair value of the investment securities
as of the dates shown:
June 30, 2009
Estimated
Amortized Fair
(In Thousands) Cost Value
Obligation of U.S.Government Corporations and Agencies:
Mortgage-backed $ 135,337 $ 138,414
Other 41,704 42,051
Obligations of state and political subdivisions 12,845 12,868
Total debt securities 189,886 193,333
Marketable equity securities 2,562 1,714
Restricted equity securities 2,984 2,984
Total investment securities AFS $ 195,432 $ 198,031
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December 31, 2008
Estimated
Amortized Fair
(In Thousands) Cost Value
Obligation of U.S.Government Corporations and Agencies:
Mortgage-backed $ 116,357 $ 118,046
Other 63,031 64,080
Obligations of state and political subdivisions 9,944 9,994
Total debt securities 189,332 192,120
Marketable equity securities 2,623 2,293
Restricted equity securities 2,167 2,167
Total investment securities AFS $ 194,122 $ 196,580
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LOANS
The loan portfolio increased 2.5 percent from $320.1 million at December 31,
2008 to $328.2 million at June 30, 2009. The percentage distribution in the loan
portfolio was 83.0 percent in real estate loans at $272.4 million; 8.6 percent
in commercial loans at $28.4 million; 2.4 percent in consumer loans at
$7.8 million; and 6.0 percent in tax exempt loans at $19.6 million.
The following table presents the breakdown of loans by type as of the date
indicated:
Change
. . .
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