e10vq
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2008
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o |
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TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0-19028
CCFNB BANCORP, INC.
(Name of small business Issuer in its charter)
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PENNSYLVANIA
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23-2254643 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification Number) |
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232 East Street, Bloomsburg, PA
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17815 |
(Address of principal executive offices)
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(Zip Code) |
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Issuers telephone number, including area code: (570) 784-4400
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Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that
the issuer was required to file such reports), and (2) has been subject to such filing requirings
for the past 90 days. Yes þ No o
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. (Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company þ |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No o
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date. 1,217,783 shares of $1.25 (par) common stock were outstanding as
of July 17, 2008.
CCFNB Bancorp, Inc. and Subsidiary
Table of Contents
June 30, 2008
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Page |
FINANCIAL INFORMATION: |
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Consolidated Balance Sheets |
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2 |
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Consolidated Statements of Income |
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3 |
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Consolidated Statements of Cash Flows |
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4 |
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Notes to Consolidated Financial Statements |
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5 - 17 |
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Report of Independent Registered Public Accounting Firm |
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18 |
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Managements Discussion and Analysis of Consolidated Financial Condition
and Results of Operations |
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19 - 27 |
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Controls and Procedures |
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28 |
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OTHER INFORMATION |
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29 |
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SIGNATURES |
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30 - 33 |
CCFNB Bancorp, Inc. and Subsidiary
Consolidated Balance Sheets
(in Thousands)
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Unaudited |
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June |
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December |
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30, 2008 |
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31, 2007 |
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ASSETS |
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Cash and due from banks |
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$ |
4,404 |
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$ |
5,550 |
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Interest-bearing deposits with other banks |
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518 |
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732 |
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Federal funds sold |
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6,094 |
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7,119 |
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Investment securities available-for-sale |
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61,223 |
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57,686 |
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Loans, net of unearned income |
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161,240 |
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161,460 |
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Allowance for loan losses |
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1,436 |
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1,437 |
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Net loans |
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159,804 |
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160,023 |
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Premises and equipment, net |
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4,917 |
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5,087 |
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Cash surrender value of bank-owned life insurance |
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7,234 |
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7,077 |
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Accrued interest receivable |
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1,020 |
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1,082 |
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Other assets |
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1,965 |
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968 |
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TOTAL ASSETS |
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$ |
247,179 |
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$ |
245,324 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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LIABILITIES |
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Deposits: |
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Non-interest bearing |
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$ |
20,721 |
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$ |
19,394 |
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Interest bearing |
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154,500 |
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151,544 |
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Total Deposits |
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175,221 |
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170,938 |
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Short-term borrowings |
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28,973 |
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29,511 |
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Long-term borrowings |
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9,134 |
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11,137 |
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Accrued interest and other expenses |
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1,852 |
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2,082 |
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Other liabilities |
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23 |
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29 |
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TOTAL LIABILITIES |
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215,203 |
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213,697 |
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STOCKHOLDERS EQUITY |
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Common stock, par value $1.25 per share; authorized
5,000,000 shares; issued and outstanding 1,219,783 shares
in 2008 and 1,226,536 shares in 2007 |
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1,525 |
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1,533 |
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Surplus |
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2,105 |
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2,271 |
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Retained earnings |
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28,563 |
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27,679 |
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Accumulated other comprehensive income (loss) |
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(217 |
) |
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144 |
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TOTAL STOCKHOLDERS EQUITY |
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31,976 |
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31,627 |
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
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$ |
247,179 |
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$ |
245,324 |
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See accompanying notes to Consolidated Financial Statements.
- 2 -
CCFNB Bancorp, Inc. and Subsidiary
Consolidated Statements of Income
(in Thousands Except Per Share Data)
Unaudited
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For the Six |
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For the Three |
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Months Ending |
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Months Ending |
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June 30 |
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June 30 |
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2008 |
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2007 |
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2008 |
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2007 |
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INTEREST AND DIVIDEND INCOME |
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Interest and fees on loans: |
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Taxable |
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$ |
5,079 |
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$ |
5,259 |
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$ |
2,496 |
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$ |
2,635 |
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Tax-exempt |
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298 |
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231 |
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154 |
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115 |
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Interest and dividends on investment securities: |
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Taxable |
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1,253 |
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1,100 |
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645 |
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579 |
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Tax-exempt |
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84 |
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97 |
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39 |
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47 |
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Dividends |
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49 |
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60 |
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24 |
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30 |
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Federal funds sold |
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108 |
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274 |
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44 |
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139 |
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Deposits in other banks |
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20 |
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88 |
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7 |
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53 |
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TOTAL INTEREST AND DIVIDEND INCOME |
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6,891 |
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7,109 |
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3,409 |
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3,598 |
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INTEREST EXPENSE |
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Deposits |
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2,026 |
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1,978 |
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990 |
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1,011 |
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Short-term borrowings |
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358 |
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702 |
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130 |
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353 |
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Long-term borrowings |
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292 |
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334 |
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138 |
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167 |
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TOTAL INTEREST EXPENSE |
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2,676 |
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3,014 |
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1,258 |
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1,531 |
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Net interest income |
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4,215 |
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4,095 |
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2,151 |
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2,067 |
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Provision for loan losses |
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30 |
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7 |
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NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES |
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4,215 |
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4,065 |
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2,151 |
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2,060 |
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NON-INTEREST INCOME |
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Service charges and fees |
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480 |
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440 |
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241 |
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235 |
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Gain on sale of loans |
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106 |
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64 |
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59 |
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43 |
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Bank-owned life insurance income |
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133 |
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143 |
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68 |
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73 |
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Investment center |
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92 |
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271 |
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54 |
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89 |
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Trust department |
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74 |
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82 |
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36 |
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39 |
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Other |
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152 |
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149 |
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79 |
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81 |
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TOTAL NON-INTEREST INCOME |
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1,037 |
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1,149 |
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537 |
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560 |
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NON-INTEREST EXPENSE |
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Salaries |
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1,419 |
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1,501 |
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716 |
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730 |
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Pensions and other employee benefits |
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470 |
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448 |
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225 |
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217 |
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Occupancy, net |
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256 |
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247 |
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118 |
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118 |
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Equipment |
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222 |
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242 |
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107 |
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121 |
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State shares tax |
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163 |
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159 |
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78 |
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77 |
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Professional services |
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132 |
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129 |
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66 |
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68 |
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Directors fees |
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97 |
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93 |
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51 |
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46 |
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Stationery and supplies |
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54 |
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|
95 |
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27 |
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54 |
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Other |
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|
571 |
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|
605 |
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297 |
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312 |
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TOTAL NON-INTEREST EXPENSE |
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3,384 |
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3,519 |
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1,685 |
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1,743 |
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Income before income taxes |
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1,868 |
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1,695 |
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|
1,003 |
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|
877 |
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Income tax expense |
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|
470 |
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|
426 |
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256 |
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223 |
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NET INCOME |
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$ |
1,398 |
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$ |
1,269 |
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$ |
747 |
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$ |
654 |
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PER SHARE DATA |
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Net income |
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$ |
1.14 |
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$ |
1.03 |
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$ |
0.61 |
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$ |
0.53 |
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Cash dividends |
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$ |
0.42 |
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$ |
0.40 |
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$ |
0.21 |
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$ |
0.20 |
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Weighted average shares outstanding |
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1,224,552 |
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1,237,119 |
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1,224,552 |
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1,237,119 |
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See accompanying notes to Consolidated Financial Statements.
- 3 -
CCFNB Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(in Thousands)
Unaudited
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For the Six |
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Months Ending |
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June 30, |
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2008 |
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2007 |
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OPERATING ACTIVITIES |
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Net income |
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$ |
1,398 |
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$ |
1,269 |
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Adjustments to reconcile net income to net cash provided by operating
activities: |
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Provision for loan losses |
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30 |
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Depreciation and amortization |
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188 |
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|
202 |
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Employee stock purchase plan expense |
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2 |
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|
2 |
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Premium amortization on investment securities |
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46 |
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45 |
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Discount accretion on investment securities |
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(26 |
) |
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(10 |
) |
Deferred income taxes (benefit) |
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(62 |
) |
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(40 |
) |
(Gain) on sale of loans |
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(106 |
) |
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(64 |
) |
Proceeds from sale of mortgage loans |
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6,182 |
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|
3,994 |
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Originations of mortgage loans for resale |
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(5,921 |
) |
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(4,067 |
) |
(Income) from investment in insurance agency |
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|
(10 |
) |
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|
(1 |
) |
(Increase) in accrued interest receivable and other assets |
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|
(678 |
) |
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|
(251 |
) |
Net (increase) in cash surrender value of bank-owned life insurance |
|
|
(157 |
) |
|
|
(159 |
) |
Increase in accrued interest, other expenses and other liabilities |
|
|
(236 |
) |
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|
72 |
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|
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
|
620 |
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|
1,022 |
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INVESTING ACTIVITIES |
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|
Purchase of investment securities available-for-sale |
|
|
(29,600 |
) |
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|
(22,515 |
) |
Proceeds from sales, maturities and redemptions of investment
securities available-for-sale |
|
|
25,497 |
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|
16,274 |
|
Net (increase) decrease in loans |
|
|
64 |
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|
2,737 |
|
Purchases of premises and equipment |
|
|
(18 |
) |
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|
(192 |
) |
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NET CASH (USED IN) INVESTING ACTIVITIES |
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(4,057 |
) |
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(3,696 |
) |
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FINANCING ACTIVITIES |
|
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Net increase in deposits |
|
|
4,283 |
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|
5,019 |
|
Net increase in short-term borrowings |
|
|
(538 |
) |
|
|
2,667 |
|
Net (decrease) in long-term borrowings |
|
|
(2,003 |
) |
|
|
(158 |
) |
Acquisition of treasury stock |
|
|
(304 |
) |
|
|
(338 |
) |
Proceeds from issuance of common stock |
|
|
128 |
|
|
|
122 |
|
Cash dividends paid |
|
|
(514 |
) |
|
|
(494 |
) |
|
|
|
|
|
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES |
|
|
1,052 |
|
|
|
6,818 |
|
|
|
|
|
|
|
|
|
|
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|
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|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
(2,385 |
) |
|
|
4,144 |
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
|
|
13,401 |
|
|
|
15,531 |
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
|
$ |
11,016 |
|
|
$ |
19,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
2,717 |
|
|
$ |
3,068 |
|
Income taxes |
|
$ |
622 |
|
|
$ |
443 |
|
See accompanying notes to Consolidated Financial Statements.
- 4 -
CCFNB Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
June 30, 2008
NOTE 1 Summary of Significant Accounting Policies
The accounting and reporting policies of CCFNB Bancorp, Inc. and Subsidiary (the Corporation) are
in accordance with the accounting principles generally accepted in the United States of America and
conform to common practices within the banking industry. The more significant policies follow:
Principles of Consolidation
The consolidated financial statements include the accounts of CCFNB Bancorp, Inc. and its wholly
owned subsidiary, Columbia County Farmers National Bank (the Bank). All significant
inter-company balances and transactions have been eliminated in consolidation.
Nature of Operations & Lines of Business
The Corporation provides full banking services, including trust services, through the Bank, to
individuals and corporate customers. The Bank has eight offices covering an area of approximately
484 square miles in Northcentral Pennsylvania. The Corporation and its banking subsidiary are
subject to regulation of the Office of the Comptroller of the Currency, The Federal Deposit
Insurance Corporation and the Federal Reserve Bank of Philadelphia.
Procuring deposits and making loans are the major lines of business. The deposits are mainly
deposits of individuals and small businesses and the loans are mainly real estate loans covering
primary residences and small business enterprises. The trust services, under the name of CCFNB and
Co., include administration of various estates, pension plans, self-directed IRAs and other
services. A third-party brokerage arrangement is also resident in the Lightstreet branch. This
investment center offers a full line of stocks, bonds and other non-insured financial services.
Segment Reporting
The Corporations banking subsidiary acts as an independent community financial services provider,
and offers traditional banking and related financial services to individual, business and
government customers. Through its branch, internet banking, telephone and automated teller machine
network, the Bank offers a full array of commercial and retail financial services, including the
taking of time, savings and demand deposits; the making of commercial, consumer and mortgage loans;
and the providing of other financial services. The Bank also performs personal, corporate, pension
and fiduciary services through its Trust Department as well as offering diverse investment products
through its investment center.
Management does not separately allocate expenses, including the cost of funding loan demand,
between the commercial, retail, trust and investment center operations of the Corporation. As
such, discrete financial information is not available and segment reporting would not be
meaningful.
- 5 -
Use of Estimates
The preparation of these consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of these consolidated financial statements and the reported
amounts
of income and expenses during the reporting periods. Actual results could differ from those
estimates.
Investment Securities
The Corporation classifies its investment securities as either held-to-maturity or
available-for-sale at the time of purchase. Debt securities are classified as held-to-maturity
when the Corporation has the ability and positive intent to hold the securities to maturity.
Investment securities held-to-maturity are carried at cost adjusted for amortization of premiums
and accretion of discounts to maturity.
Debt securities not classified as held-to-maturity and equity securities included in the
available-for-sale category, are carried at fair value, and the amount of any unrealized gain or
loss net of the effect of deferred income taxes is reported as other comprehensive income (loss)
(see Note 6). Managements decision to sell available-for-sale securities is based on changes in
economic conditions controlling the sources and uses of funds, terms, availability of and yield of
alternative investments, interest rate risk, and the need for liquidity.
The cost of debt securities classified as held-to-maturity or available-for-sale is adjusted for
amortization of premiums and accretion of discounts to maturity. Such amortization and accretion,
as well as interest and dividends, is included in interest income from investments. Realized gains
and losses are included in net investment securities gains. The cost of investment securities
sold, redeemed or matured is based on the specific identification method.
Loans
Loans are stated at their outstanding principal balances, net of deferred fees or costs, unearned
income, and the allowance for loan losses. Interest on loans is accrued on the principal amount
outstanding, primarily on an actual day basis. Non-refundable loan fees and certain direct costs
are deferred and amortized over the life of the loans using the interest method. The amortization
is reflected as an interest yield adjustment, and the deferred portion of the net fees and costs is
reflected as a part of the loan balance.
Real estate mortgage loans held for resale are carried at the lower of cost or market on an
aggregate basis. These loans are sold with limited recourse to the Corporation.
Past Due Loans - Generally, a loan is considered past due when a payment is in arrears for a period
of 10 or 15 days, depending on the type of loan. Delinquent notices are issued at this point and
collection efforts will continue on loans past due beyond 60 days which have not been satisfied.
Past due loans are continually evaluated with determination for charge-off being made when no
reasonable chance remains that the status of the loan can be improved.
- 6 -
Non-Accrual Loans - Generally, a loan is classified as non-accrual, with the accrual of interest on
such a loan discontinued when the contractual payment of principal or interest has become 90 days
past due or management has serious doubts about further collectibility of principal or interest,
even though the loan currently is performing. A loan may remain on accrual status if it is in the
process of collection and is either guaranteed or well secured. When a loan is placed on
non-accrual status, unpaid interest credited to income in the current year is reversed, and unpaid
interest accrued in prior years is charged against the allowance for loan losses. Certain
non-accrual loans may continue to perform, wherein, payments are still being received with those
payments generally applied to
principal. Non-accrual loans remain under constant scrutiny and if performance continues, interest
income may be recorded on a cash basis based on managements judgement as to collectibility of
principal.
Allowance for Loan Losses - The allowance for loan losses is established through provisions for
loan losses charged against income. Loans deemed to be uncollectible are charged against the
allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance.
A factor in estimating the allowance for loan losses is the measurement of impaired loans. A loan
is considered impaired when, based on current information and events, it is probable that the
Corporation will be unable to collect all amounts due according to the contractual terms of the
loan agreement. Under current accounting standards, the allowance for loan losses related to
impaired loans is based on discounted cash flows using the loans effective interest rate or the
fair value of the collateral for certain collateral dependent loans. The recognition of interest
income on impaired loans is the same as for non-accrual loans as discussed above.
The allowance for loan losses is maintained at a level established by management to be adequate to
absorb estimated potential loan losses. Managements periodic evaluation of the adequacy of the
allowance for loan losses is based on the Corporations past loan loss experience, known and
inherent risks in the portfolio, adverse situations that may affect the borrowers ability to repay
(including the timing of future payments), the estimated value of any underlying collateral,
composition of the loan portfolio, current economic conditions, and other relevant factors. This
evaluation is inherently subjective as it requires material estimates, including the amounts and
timing of future cash flows expected to be received on impaired loans that may be susceptible to
significant change.
In addition, an allowance is provided for possible credit losses on off-balance sheet credit
exposures. This allowance is estimated by management and is classified in other liabilities.
Derivatives
The Bank has outstanding loan commitments that relate to the origination of mortgage loans that
will be held for resale. Pursuant to Statement of Financial Accounting Standards (SFAS) No. 133
Accounting for Derivative Instruments and Hedging Activities as amended by SFAS No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities, and SFAS No. 149
Amendments to SFAS 133 on Derivative Instruments and Hedging Activities and the guidance
contained in the Derivatives Implementation Group Statement 133 Implementation Issue No. C 13, the
Bank has accounted for such loan commitments as derivative instruments. The outstanding loan
commitments in this category did not give rise to any losses for the six-month period ended June
30, 2008 and the year ended December 31, 2007, as the fair market value of each outstanding loan
commitment exceeded the Banks cost basis in each loan commitment.
- 7 -
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation computed principally on the
straight-line method over the estimated useful lives of the assets. Maintenance and minor repairs
are charged to operations as incurred. The cost and accumulated depreciation of the premises and
equipment retired or sold are eliminated from the property accounts at the time of retirement or
sale, and the resulting gain or loss is reflected in current operations.
Mortgage Servicing Rights
The Corporation originates and sells real estate loans to investors in the secondary mortgage
market. After the sale, the Corporation retains the right to service some of these loans. When
originated mortgage loans are sold and servicing is retained, a servicing asset is capitalized
based on relative fair value at the date of sale. Servicing assets are amortized as an offset to
other fees in proportion to, and over the period of, estimated net servicing income. The
unamortized cost is included in other assets in the accompanying consolidated balance sheet. The
servicing rights are periodically evaluated for impairment based on their relative fair value.
Other Real Estate Owned
Real estate properties acquired through, or in lieu of, loan foreclosure are held for sale and are
initially recorded at fair value on the date of foreclosure establishing a new cost basis. After
foreclosure, valuations are periodically performed by management and the real estate is carried at
the lower of carrying amount or fair value less cost to sell and is included in other assets.
Revenues derived from and costs to maintain the assets and subsequent gains and losses on sales are
included in other non-interest income and expense.
Bank Owned Life Insurance
The Corporation invests in Bank Owned Life Insurance (BOLI). Purchase of BOLI provides life
insurance coverage on certain directors and employees with the Corporation being owner and primary
beneficiary of the policies.
Investment in Insurance Agency
On January 2, 2001, the Corporation acquired a 50% interest in a local insurance agency, a
corporation organized under the laws of the Commonwealth of Pennsylvania. The income or loss from
this investment is accounted for under the equity method of accounting. The carrying value of this
investment as of June 30, 2008 and December 31, 2007 was $223,000 and $213,000, respectively, and
is carried in other assets in the accompanying consolidated balance sheets.
- 8 -
Income Taxes
The provision for income taxes is based on the results of operations, adjusted primarily for
tax-exempt income. Certain items of income and expense are reported in different periods for
financial reporting and tax return purposes. Deferred tax assets and liabilities are determined
based on the differences between the consolidated financial statement and income tax bases of
assets and liabilities measured by using the enacted tax rates and laws expected to be in effect
when the timing differences are
expected to reverse. Deferred tax expense or benefit is based on the difference between deferred
tax asset or liability from period to period.
Per Share Data
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share, requires dual
presentation of basic and diluted earnings per share. Basic earnings per share is calculated by
dividing net income by the weighted average number of shares of common stock outstanding at the end
of each period. Diluted earnings per share is calculated by increasing the denominator for the
assumed conversion of all potentially dilutive securities. The Corporation does not have any
securities which have or will have a dilutive effect, accordingly, basic and diluted per share data
are the same.
Cash Flow Information
For purposes of reporting consolidated cash flows, cash and cash equivalents include cash on hand
and due from banks, interest-bearing deposits in other banks and federal funds sold. The
Corporation considers cash classified as interest-bearing deposits with other banks as a cash
equivalent because they are represented by cash accounts essentially on a demand basis. Federal
funds are also included as a cash equivalent because they are generally purchased and sold for
one-day periods.
Trust Assets and Income
Property held by the Corporation in a fiduciary or agency capacity for its customers is not
included in the accompanying consolidated financial statements because such items are not assets of
the Corporation. Trust Department income is generally recognized on a cash basis and is not
materially different than if it was reported on an accrual basis.
Recent Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (FASB) issued State of Financial
Accounting Standards SFAS
141(R), Business Combinations. SFAS 141(R) will significantly change
how entities apply the acquisition method to business combinations. The most significant changes
affecting how the Corporation will account for business combinations under this Statement include:
the acquisition date will be the date the acquirer obtains control; all (and only) identifiable
assets acquired, liabilities assumed, and noncontrolling interests in the acquiree will be stated
at fair value on the acquisition date; assets or liabilities arising from noncontractual
contingencies will be measured at their acquisition date fair value only if it is more likely than
not that they meet the definition of an asset or liability on the acquisition date; adjustments
subsequently made to the provisional amounts recorded on the acquisition date will be made
retroactively during a measurement period not to exceed one year; acquisition-related restructuring
costs that do not meet the criteria in SFAS 146, Accounting for Costs Associated with Exit or
Disposal Activities, will be expensed as incurred; transaction costs will be expensed as incurred;
reversals of deferred income tax valuation allowances and income tax contingencies will be
recognized in earnings subsequent to the measurement period; and the allowance for loan losses of
an acquiree will not be permitted to be recognized by the
- 9 -
acquirer. Additionally, SFAS 141(R) will require new and modified disclosures surrounding
subsequent changes to acquisition-related contingencies, contingent consideration, noncontrolling
interests, acquisition-related transaction costs, fair values and cash flows not expected to be
collected for acquired loans, and an enhanced goodwill rollforward.
The Corporation will be required to prospectively apply SFAS 141(R) to all business combinations
completed on or after January 1, 2009. Early adoption is not permitted. For business combinations
in which the acquisition date was before the effective date, the provisions of SFAS 141(R) will
apply to
the subsequent accounting for deferred income tax valuation allowances and income tax contingencies
and will require any changes in those amounts to be recorded in earnings. Management is currently
evaluating the effects that SFAS 141(R) will have on the financial condition, results of
operations, liquidity, and the disclosures that will be presented in the consolidated financial
statements.
In December 2007, the FASB issued Statement of Financial Accounting Standards SFAS 160,
Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB 51. SFAS 160
establishes new accounting and reporting standards for noncontrolling interests in a subsidiary and
for the deconsolidation of a subsidiary. SFAS 160 will require entities to classify noncontrolling
interests as a component of stockholders equity and will require subsequent changes in ownership
interest in a subsidiary to be accounted for as an equity transaction. Additionally, SFAS 160 will
require entities to recognize a gain or loss upon the loss of control of a subsidiary and to
remeasure any ownership interest retained at fair value on that date. This statement also requires
expanded disclosures that clearly identify and distinguish between the interests of the parent and
the interests of the noncontrolling owners. SFAS 160 is effective on a prospective basis for
fiscal years, and interim periods within those fiscal years, beginning on or after December 15,
2008, except for the presentation and disclosure requirements, which are required to be applied
retrospectively. Early adoption is not permitted. The adoption of this standard is not expected
to have a material impact on the Corporations consolidated financial condition, results of
operations or liquidity.
EITF 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement
Split-Dollar Life Insurance Arrangements, was issued in September 2006 and is effective for fiscal
years beginning after December 15, 2007 with earlier application permitted. EITF 06-4 requires
that, for split-dollar life insurance arrangements that provide a benefit to an employee that
extends to postretirement periods, an employer should recognize a liability for future benefits in
accordance with SFAS No. 106. EITF 06-4 requires that recognition of the effects of adoption
should be either by (a) a change in accounting principle through a cumulative-effect adjustment to
retained earnings as of the beginning of the year of adoption or (b) a change in accounting
principle through retrospective application to all prior periods. The Corporation adopted this
standard as of January 1, 2007 through a cumulative-effect adjustment to beginning retained
earnings. This adjustment represented a decrease of $12,570 to retained earnings.
In November 2007, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No.
109, which addresses the valuation of written loan commitments accounted for at fair value through
earnings. The guidance in SAB 109 expresses the staffs view that the measurement of fair value
for a written loan commitment accounted for at fair value through earnings should incorporate the
expected net future cash flows related to the associated servicing of the loan. Previously under
SAB 105, Application of Accounting Principles to Loan Commitments, this component of value was not
incorporated into the fair value of the loan commitment. The Corporation does not account for any
written loan commitments at fair value through earnings.
- 10 -
In June 2007, the FASB ratified the consensus reached in EITF 06-11, Accounting for Income Tax
Benefits of Dividends on Share-Based Payment Awards. EITF 06-11 applies to entities that have
share-based payment arrangements that entitle employees to receive dividends or dividend
equivalents on equity-classified nonvested shares when those dividends or dividend equivalents are
charged to retained earnings and result in an income tax deduction. Entities that have share-based
payment arrangements that fall within the scope of EITF 06-11 will be required to increase capital
surplus for any realized income tax benefit associated with dividends or dividend equivalents paid
to employees for equity classified nonvested equity awards. Any increase recorded to capital
surplus is required to be included in an entitys pool of excess tax benefits that are available to
absorb potential future tax deficiencies on share-based payment awards. The Corporation will adopt
EITF 06-11 on January 1, 2008 for dividends declared on share-based payment awards subsequent to
this date. The impact of adoption is not expected to have a material impact on financial
condition, results of operations, or liquidity.
In April 2007, the FASB issued FSP 39-1, Amendment of FASB Interpretation No. 39, Offsetting of
Amounts Related to Certain Contracts. FSP 39-1 permits entities to offset fair value amounts
recognized for multiple derivative instruments executed with the same counterparty under a master
netting agreement. FSP 39-1 clarifies that the fair value amounts recognized for the right to
reclaim cash collateral, or the obligation to return cash collateral, arising from the same master
netting arrangement, should also be offset against the fair value of the related derivative
instruments.
Effective January 1, 2008, the Corporation adopted a net presentation for derivative positions and
related collateral entered into under master netting agreements pursuant to the guidance in FIN 39
and FSP 39-1. The adoption of this guidance would result in balance sheet reclassifications of
certain cash collateral-based short-term investments against the related derivative liabilities and
certain deposit liability balances against the related fair values of derivative assets. The
effects of these reclassifications will fluctuate based on the fair values of derivative contracts
but overall would not have a material impact on either total assets or total liabilities. The
adoption of these standards will not have an impact on the Corporations consolidated financial
condition, results of operations or liquidity
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Liabilities. The statement allows an entity to elect to measure certain financial assets and
liabilities at fair value with changes in fair value recognized in the income statement each
period. The statement also requires additional disclosures to identify the effects of an entitys
fair value election on its earnings. The election is irrevocable. The Corporation is currently
assessing whether it will elect to adopt
SFAS 159.
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards SFAS 158 Employers Accounting for Defined Benefit Pension and Other Post
Retirement Plans which requires the Corporation to recognize the funded status of a benefit plan
as either assets or liabilities in the consolidated balance sheet and to recognize as a component
of other comprehensive income, net of tax, the unrecognized actuarial gains or losses, prior
service costs and transition obligations that arise during the period. The adoption of SFAS 158
for the year ended December 31, 2007 did not have a material impact on the Corporations
consolidated financial condition, results of operations or liquidity.
- 11 -
In September 2006, the FASB issued Statement of Financial Accounting Standards SFAS 157, Fair
Value Measurements, which upon adoption will replace various definitions of fair value in existing
accounting literature with a single definition, will establish a framework for measuring fair
value, and will require additional disclosures about fair value measurements. The statement
clarifies that fair value is the price that would be received to sell an asset or the price paid to
transfer a liability in the most advantageous market available to the entity and emphasizes that
fair value is a market-based measurement and should be based on the assumptions market participants
would use. The statement also creates a three-level hierarchy under which individual fair value
estimates are to be ranked based on the relative reliability of the inputs used in the valuation.
This hierarchy is the basis for the disclosure requirements, with fair value estimates based on the
least reliable inputs requiring
more extensive disclosures about the valuation method used and the gains and losses associated with
those estimates. SFAS 157 is required to be applied whenever another financial accounting standard
requires or permits an asset or liability to be measured at fair value. The statement does not
expand the use of fair value to any new circumstances. The Corporation will adopt SFAS 157 on
January 1, 2008, and does not expect it to have a material impact on the Corporations consolidated
financial condition, results of operations or liquidity.
In July 2006, the FASB issued FASB Staff Position FSP 13-2, Accounting for a Change or Projected
Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease
Transaction. This FSP amends SFAS 13, Accounting for Leases, to require a lessor in a leveraged
lease transaction to recalculate the leveraged lease for the effects of a change or projected
change in the timing of cash flows relating to income taxes that are generated by the leveraged
lease. The guidance in FSP 13-2 was adopted by the Corporation on January 1, 2007. The
application of this FSP did not have a material impact on the Corporations consolidated financial
condition, results of operations or liquidity.
In June 2006, the FASB issued Interpretation No. 48 FIN 48, Accounting for Uncertainty in Income
Taxes, an interpretation of SFAS 109, Accounting for Income Taxes. FIN 48 prescribes a
comprehensive model for how companies should recognize, measure, present, and disclose in their
financial statements uncertain tax positions taken or expected to be taken on a tax return. Under
FIN 48, tax positions shall initially be recognized in the financial statements when it is more
likely than not the position will be sustained upon examination by the tax authorities. Such tax
positions shall initially and subsequently be measured as the largest amount of tax benefit that is
greater than 50% likely of being realized upon ultimate settlement with the tax authority assuming
full knowledge of the position and all relevant facts. FIN 48 also revises disclosure requirements
to include an annual tabular roll-forward of unrecognized tax benefits. The provisions of this
interpretation were adopted by the Corporation on January 1, 2007. The adoption of FIN 48 did not
have a material impact on the Corporations consolidated financial condition, results of operations
or liquidity.
In March 2006, the FASB issued Statement of Financial Accounting Standards SFAS 156, Accounting
for Servicing of Financial Assets, an amendment of SFAS 140. This standard requires entities to
separately recognize a servicing asset or liability whenever it undertakes an obligation to service
financial assets and also requires all separately recognized servicing assets or liabilities to be
initially measured at fair value. Additionally, this standard permits entities to choose among two
alternatives, the amortization method or fair value measurement method, for the subsequent
measurement of each class of separately recognized servicing assets and liabilities. Under the
amortization method, an entity shall amortize the value of servicing assets or liabilities in
proportion to and over the period of estimated net servicing income or net servicing loss and
assess servicing assets or liabilities for impairment or increased obligation based on fair value
at each reporting date. Under the fair value measurement method, an entity shall measure servicing
assets or liabilities at fair value at each reporting date and report changes in fair value in
earnings in the period in which the changes occur.
- 12 -
Effective January 1, 2006, the Corporation adopted this statement by electing amortization method
as its measurement method for residential real estate mortgage servicing rights (MSRs).
In February 2006, the FASB issued Statement of Financial Accounting Standards SFAS 155, Accounting
for Certain Hybrid Financial Instruments, which amends SFAS 133, Accounting for Derivative
Instruments and Hedging Activities, and SFAS 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. SFAS 155 requires entities to evaluate and
identify whether interests in securitized financial assets are freestanding derivatives, hybrid
financial instruments that contain an embedded derivative requiring bifurcation, or hybrid
financial instruments that contain embedded derivatives that do not require bifurcation. SFAS 155
also permits fair value measurement for any hybrid financial instrument that contains an embedded
derivative that otherwise would require bifurcation. This statement was effective for all
financial instruments acquired or issued by the Corporation on or after January 1, 2007 and the
adoption of SFAS 155 did not have a material impact on the Corporations consolidated financial
condition, results of operations or liquidity.
Advertising Costs
It is the Corporations policy to expense advertising costs in the period in which they are
incurred. Advertising expense for the six-month periods ended June 30, 2008 and 2007 was
approximately $39,000 and $52,000, respectively.
Reclassification
Certain amounts in the consolidated financial statements of the prior years have been reclassified
to conform with presentation used in the 2008 consolidated financial statements. Such
reclassifications had no effect on the Corporations consolidated financial condition or net
income.
NOTE 2 Allowance for Loan Losses
Changes in the allowance for loan losses for the six-month periods ended June 30, 2008 and June 30,
2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
(Amounts in Thousands) |
|
|
|
2008 |
|
|
2007 |
|
Balance, beginning of year |
|
$ |
1,437 |
|
|
$ |
1,457 |
|
Provision charged to operations |
|
|
|
|
|
|
30 |
|
Loans charged-off |
|
|
(19 |
) |
|
|
(47 |
) |
Recoveries |
|
|
18 |
|
|
|
29 |
|
|
|
|
|
|
|
|
Balance, June 30 |
|
$ |
1,436 |
|
|
$ |
1,469 |
|
|
|
|
|
|
|
|
At June 30, 2008, the total recorded investment in loans that are considered to be impaired as
defined by SFAS No. 114 was $77,000. These impaired loans had a related allowance for loan losses
of $34,000. No additional charge to operations was required to provide for the impaired loans
since the total allowance for loan losses is estimated by management to be adequate to provide for
the loan loss allowance required by SFAS No. 114 along with any other potential losses.
At June 30, 2008, there were no significant commitments to lend additional funds with respect to
non-accrual and restructured loans.
Non-accrual loans at June 30, 2008, and December 31, 2007 were $226,000 and $77,000, respectively,
all of which were considered impaired.
Loans past due 90 days or more and still accruing interest amounted to $6,000 at June 30, 2008.
- 13 -
NOTE 3 Short-Term Borrowings
Securities sold under agreements to repurchase, and Federal Home Loan Bank advances generally
represented overnight or less than 30-day borrowings. U.S. Treasury tax and loan notes for
collections made by the Bank were payable on demand.
NOTE 4 Long-Term Borrowings
Long-term borrowings are comprised of advances from the Federal Home Loan Bank.
NOTE 5 Deferred Compensation Plans
The Bank has entered into certain non-qualified deferred compensation agreements with certain
executive officers and directors. Expenses related to these non-qualified deferred compensation
plans amounted to $77,000 and $70,000 for the six-month periods ended June 30, 2008 and 2007,
respectively.
There were no substantial changes in other plans as disclosed in the 2007 Annual Report.
NOTE 6 Stockholders Equity
Changes in stockholders equity for the six-month period ended June 30, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in Thousands, Except Common Share Data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive |
|
|
|
|
|
|
|
|
|
Common |
|
|
Common |
|
|
|
|
|
|
Comprehensive |
|
|
Retained |
|
|
Income |
|
|
Treasury |
|
|
|
|
|
|
Shares |
|
|
Stock |
|
|
Surplus |
|
|
Income |
|
|
Earnings |
|
|
(Loss) |
|
|
Stock |
|
|
Total |
|
Balance at January 1, 2008 |
|
|
1,226,536 |
|
|
$ |
1,533 |
|
|
$ |
2,271 |
|
|
|
|
|
|
$ |
27,679 |
|
|
$ |
144 |
|
|
$ |
|
|
|
$ |
31,627 |
|
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,398 |
|
|
|
1,398 |
|
|
|
|
|
|
|
|
|
|
|
1,398 |
|
Change in unrealized gain (loss)
on investment securities
available-for-sale net of
reclassification adjustment
and tax effects |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(361 |
) |
|
|
|
|
|
|
(361 |
) |
|
|
|
|
|
|
(361 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL COMPREHENSIVE
INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of 5,247 shares of
common stock under dividend
reinvestment and stock
purchase plans |
|
|
5,247 |
|
|
|
7 |
|
|
|
121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128 |
|
Recognition of employee stock
purchase plan expense |
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
Purchase of 2,000 shares of
treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(304 |
) |
|
|
(304 |
) |
Retirement of 12,000 shares of
treasury stock |
|
|
(12,000 |
) |
|
|
(15 |
) |
|
|
(289 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
304 |
|
|
|
|
|
Cash dividends $.42 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(514 |
) |
|
|
|
|
|
|
|
|
|
|
(514 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2008 |
|
|
1,219,783 |
|
|
$ |
1,525 |
|
|
$ |
2,105 |
|
|
|
|
|
|
$ |
28,563 |
|
|
$ |
(217 |
) |
|
$ |
|
|
|
$ |
31,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 14 -
NOTE 7 Acquisition
On July 18, 2008, the Corporation consummated the Agreement and Plan or Reorganization dated
as of November 29, 2007, with Columbia Financial Corporation (CFC), whereby CFC merged with and
into the Corporation; and the Corporations wholly-owned subsidiary, Columbia County Farmers
National Bank merged with and into First Columbia Bank & Trust Co. (First Columbia Bank).
The result of these mergers was that First Columbia Bank became the wholly-owned subsidiary of the
Corporation on July 18, 2008, with pro forma combined assets of $575,063,000, deposits of
$441,677,000 and other liabilities and stockholders equity of $133,386,000 as of June 30, 2008.
Also, on July 18, 2008, the Corporation issued approximately 1,030,286 shares of its common stock
and paid cash of approximately $2,804 in lieu of the issuance of fractional shares in exchange for
all of the issued and outstanding shares of common stock of CFC.
NOTE 8 Financial Instruments with Off-Balance Sheet Risk and Concentrations of Credit Risk
The Corporation is a party to financial instruments with off-balance sheet risk in the normal
course of business to meet the financing needs of its customers. These consolidated financial
instruments include commitments to extend credit, standby letters of credit and commercial letters
of credit. Those instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the consolidated balance sheets. The contract or
notional amounts of those instruments reflect the extent of involvement the Corporation has in
particular classes of financial instruments. The Corporation does not engage in trading activities
with respect to any of its financial instruments with off-balance sheet risk.
The Corporation may require collateral or other security to support financial instruments with
off-balance sheet credit risk. The contract or notional amounts at June 30, 2008 and December 31,
2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
(Amounts in Thousands) |
|
|
June |
|
December |
|
|
30, 2008 |
|
31, 2007 |
Financial instruments whose contract amounts represent credit risk: |
|
|
|
|
|
|
|
|
Commitments to extend credit |
|
$ |
20,891 |
|
|
$ |
20,492 |
|
Financial standby letters of credit |
|
|
689 |
|
|
|
756 |
|
Performance standby letters of credit |
|
|
934 |
|
|
|
923 |
|
Dealer floor plans |
|
|
210 |
|
|
|
66 |
|
Loans for resale |
|
|
264 |
|
|
|
418 |
|
Commitments to extend credit are agreements to lend to a customer as long as there is no violation
of any condition established in the contract. Commitments generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Because many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Corporation evaluates each customers creditworthiness on
a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation
upon extension of credit, is based on managements credit evaluation of the customer. Collateral
held varies but may include accounts receivable, inventory, property, plant, equipment and
income-producing commercial properties.
Financial standby letters of credit and performance standby letters of credit are conditional
commitments issued by the Corporation to guarantee payment to a third party. When a customer
either fails to repay an obligation or fails to perform some non-financial obligation, the credit
risk involved in issuing letters of credit is essentially the same as that involved in extending
loan facilities to customers. The Corporation holds collateral supporting those commitments for
which collateral is deemed necessary.
- 15 -
The Corporations exposure to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to extend credit and letters of credit is represented by the
contractual notional amount of those instruments. The Corporation uses the same credit policies in
making commitments and conditional obligations, as it does for on-balance sheet instruments.
The Corporation granted commercial, consumer and residential loans to customers primarily within
Pennsylvania. Of the total loan portfolio at June 30, 2008, 84.0% was for real estate loans, with
significantly most being residential. It was the opinion of management that the high concentration
did not pose an adverse credit risk. Further, it was managements opinion that the remainder of
the loan portfolio was balanced and diversified to the extent necessary to avoid any significant
concentration of credit.
- 16 -
NOTE 9 Managements Assertions and Comments Required to be Provided with Form 10Q
Filing
In managements opinion, the consolidated interim financial statements reflect fair presentation of
the consolidated financial position of CCFNB Bancorp, Inc. and Subsidiary, and the results of their
operations and their cash flows for the interim periods presented. Further, the consolidated
interim financial statements are unaudited, however they reflect all adjustments, which are in the
opinion of management, necessary to present fairly the consolidated financial condition and
consolidated results of operations and cash flows for the interim periods presented and that all
such adjustments to the consolidated financial statements are of a normal recurring nature.
Due to the mergers with Columbia Financial Corporation and First Columbia Bank & Trust Co., the
results of operations for the six-month period ended June 30, 2008, are not indicative of the
results to be expected for the full year.
These consolidated interim financial statements have been prepared in accordance with requirements
of Form 10Q and therefore do not include all disclosures normally required by accounting principles
generally accepted in the United States of America applicable to financial institutions as included
with consolidated financial statements included in the Corporations annual Form 10K filing. The
reader of these consolidated interim financial statements may wish to refer to the Corporations
annual report or Form 10K for the period ended December 31, 2007 filed with the Securities and
Exchange Commission.
- 17 -
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders of CCFNB Bancorp, Inc.:
We have reviewed the accompanying consolidated balance sheet of CCFNB Bancorp, Inc. and Subsidiary
as of June 30, 2008, the related consolidated statements of income for the three and six-month
periods ended June 30, 2008 and 2007 and cash flows for the six-month periods ended June 30, 2008
and 2007. These consolidated interim financial statements are the responsibility of the management
of CCFNB Bancorp, Inc. and Subsidiary.
We conducted our reviews in accordance with the standards of the Public Company Accounting
Oversight Board (United States). A review of interim financial information consists principally of
applying analytical procedures and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in accordance with
the standards of the Public Company Accounting Oversight Board (United States), the objective of
which is the expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the
consolidated interim financial statements referred to above for them to be in conformity with
accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the auditing standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet of CCFNB Bancorp, Inc.
and Subsidiary as of December 31, 2007, and the related consolidated statements of income, changes
in stockholders equity, and cash flows for the year then ended (not presented herein); and in our
report dated February 28, 2008, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying consolidated balance
sheet as of December 31, 2007, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
/s/ J. H. Williams & Co., LLP
J.H. Williams & Co., LLP
Kingston, Pennsylvania
August 8, 2008
- 18 -
CCFNB Bancorp, Inc.
Form 10-Q
For the Quarter Ended June 30, 2008
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Consolidated Summary of Operations
(Dollars in Thousands, except for per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At and For the Six |
|
|
|
|
Months |
|
|
|
|
|
|
|
|
|
|
|
|
Ended June 30, |
|
At and For the Years Ended December 31, |
|
|
2008 |
|
2007 |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
Income and Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
6,891 |
|
|
$ |
7,109 |
|
|
$ |
14,483 |
|
|
$ |
13,202 |
|
|
$ |
11,442 |
|
|
$ |
10,843 |
|
|
$ |
11,221 |
|
Interest expense |
|
|
2,676 |
|
|
|
3,014 |
|
|
|
6,185 |
|
|
|
5,301 |
|
|
|
4,131 |
|
|
|
3,669 |
|
|
|
4,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
4,215 |
|
|
|
4,095 |
|
|
|
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 |
|
|
4,215 |
|
|
|
4,065 |
|
|
|
8,268 |
|
|
|
7,726 |
|
|
|
7,221 |
|
|
|
7,034 |
|
|
|
6,655 |
|
Non-interest income |
|
|
1,037 |
|
|
|
1,149 |
|
|
|
2,305 |
|
|
|
1,900 |
|
|
|
1,713 |
|
|
|
1,530 |
|
|
|
1,508 |
|
Non-interest expense |
|
|
3,384 |
|
|
|
3,519 |
|
|
|
7,038 |
|
|
|
6,437 |
|
|
|
6,077 |
|
|
|
5,746 |
|
|
|
5,409 |
|
Income before income taxes |
|
|
1,868 |
|
|
|
1,695 |
|
|
|
3,535 |
|
|
|
3,189 |
|
|
|
2,857 |
|
|
|
2,818 |
|
|
|
2,754 |
|
Income taxes |
|
|
470 |
|
|
|
426 |
|
|
|
888 |
|
|
|
777 |
|
|
|
631 |
|
|
|
601 |
|
|
|
591 |
|
Net income |
|
$ |
1,398 |
|
|
$ |
1,269 |
|
|
$ |
2,647 |
|
|
$ |
2,412 |
|
|
$ |
2,226 |
|
|
$ |
2,217 |
|
|
$ |
2,163 |
|
Per Share: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1.14 |
|
|
$ |
1.03 |
|
|
$ |
2.15 |
|
|
$ |
1.93 |
|
|
$ |
1.76 |
|
|
$ |
1.74 |
|
|
$ |
1.69 |
|
Cash dividends paid |
|
|
.42 |
|
|
|
.40 |
|
|
|
.82 |
|
|
|
.78 |
|
|
|
.74 |
|
|
|
.70 |
|
|
|
.66 |
|
Average shares outstanding |
|
|
1,224,552 |
|
|
|
1,237,119 |
|
|
|
1,233,339 |
|
|
|
1,249,844 |
|
|
|
1,262,171 |
|
|
|
1,267,718 |
|
|
|
1,281,265 |
|
Average Balance Sheet: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
160,343 |
|
|
$ |
159,847 |
|
|
$ |
160,348 |
|
|
$ |
158,554 |
|
|
$ |
150,065 |
|
|
$ |
147,348 |
|
|
$ |
149,485 |
|
Investments |
|
|
60,082 |
|
|
|
54,782 |
|
|
|
58,553 |
|
|
|
53,703 |
|
|
|
54,943 |
|
|
|
61,999 |
|
|
|
58,152 |
|
Other earning assets |
|
|
9,835 |
|
|
|
13,692 |
|
|
|
12,767 |
|
|
|
7,621 |
|
|
|
7,503 |
|
|
|
5,705 |
|
|
|
8,036 |
|
Total assets |
|
|
248,496 |
|
|
|
243,189 |
|
|
|
248,476 |
|
|
|
236,569 |
|
|
|
230,081 |
|
|
|
231,477 |
|
|
|
230,975 |
|
Deposits |
|
|
173,756 |
|
|
|
170,237 |
|
|
|
172,803 |
|
|
|
167,024 |
|
|
|
167,812 |
|
|
|
172,028 |
|
|
|
171,956 |
|
Other interest-bearing liabilities |
|
|
38,593 |
|
|
|
40,634 |
|
|
|
42,770 |
|
|
|
36,676 |
|
|
|
32,253 |
|
|
|
29,823 |
|
|
|
29,772 |
|
Stockholders equity |
|
|
31,807 |
|
|
|
30,327 |
|
|
|
31,003 |
|
|
|
29,672 |
|
|
|
28,789 |
|
|
|
28,136 |
|
|
|
27,223 |
|
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
161,240 |
|
|
$ |
158,024 |
|
|
$ |
161,460 |
|
|
$ |
160,641 |
|
|
$ |
154,271 |
|
|
$ |
149,900 |
|
|
$ |
147,631 |
|
Investments |
|
|
61,223 |
|
|
|
59,396 |
|
|
|
57,686 |
|
|
|
53,486 |
|
|
|
53,919 |
|
|
|
61,834 |
|
|
|
62,775 |
|
Other earning assets |
|
|
6,612 |
|
|
|
14,603 |
|
|
|
13,401 |
|
|
|
10,712 |
|
|
|
6,239 |
|
|
|
6,233 |
|
|
|
6,882 |
|
Total assets |
|
|
247,179 |
|
|
|
249,885 |
|
|
|
245,324 |
|
|
|
241,920 |
|
|
|
231,218 |
|
|
|
235,377 |
|
|
|
232,914 |
|
Deposits |
|
|
175,221 |
|
|
|
174,304 |
|
|
|
170,938 |
|
|
|
169,285 |
|
|
|
164,847 |
|
|
|
172,487 |
|
|
|
171,786 |
|
Other interest-bearing liabilities |
|
|
38,107 |
|
|
|
43,116 |
|
|
|
40,648 |
|
|
|
40,607 |
|
|
|
35,910 |
|
|
|
30,080 |
|
|
|
32,325 |
|
Stockholders equity |
|
|
31,976 |
|
|
|
30,613 |
|
|
|
31,627 |
|
|
|
30,248 |
|
|
|
29,012 |
|
|
|
28,506 |
|
|
|
27,603 |
|
Ratios: (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets |
|
|
1.13 |
% |
|
|
1.04 |
% |
|
|
1.07 |
% |
|
|
1.02 |
% |
|
|
.97 |
% |
|
|
.96 |
% |
|
|
.94 |
% |
Return on average equity |
|
|
8.79 |
% |
|
|
8.37 |
% |
|
|
8.54 |
% |
|
|
8.13 |
% |
|
|
7.73 |
% |
|
|
7.88 |
% |
|
|
7.95 |
% |
Dividend payout ratio |
|
|
36.77 |
% |
|
|
38.93 |
% |
|
|
38.15 |
% |
|
|
40.39 |
% |
|
|
41.92 |
% |
|
|
40.19 |
% |
|
|
39.02 |
% |
Average equity to average assets ratio |
|
|
12.80 |
% |
|
|
12.47 |
% |
|
|
12.89 |
% |
|
|
12.54 |
% |
|
|
12.51 |
% |
|
|
12.17 |
% |
|
|
11.79 |
% |
|
|
|
(1) |
|
Per share data has been calculated on the weighted average number of shares outstanding.
|
|
(2) |
|
The ratios for the six month period ending June 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, Columbia County Farmers
National Bank. Therefore, our discussion and analysis that follows is primarily centered on the
performance of this bank.
- 19 -
Earnings Summary
Net income for the six months ended June 30, 2008 was $1,398 thousand or $1.14 per basic and
diluted share. These results compare with net income of $1,269 thousand or $1.03 per basic and
diluted share for the same period in 2007. Annualized return on average equity increased to 8.79
percent from 8.37 percent, while the annualized return on average assets increased to 1.13 percent
from 1.04 percent, for the six months ended June 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 3.47 percent to $4,412 thousand at June 30, 2008 from
$4,264 thousand at June 30, 2007. Overall, interest earning assets yielded 6.16 percent for the
six months ended June 30, 2008 compared to 6.38 percent yield for the six months ended June 30,
2007. The tax equivalized net interest margin increased to 3.83 percent compared to 3.74 percent
for the six months ended June 30, 2007.
Average interest earning assets increased $2.0 million or 8.76 percent for the six months ended
June 30, 2008 over the same period in 2007 from $228.3 million at June 30, 2007 to $230.3 million
at June 30, 2008. Average loans increased $.5 million for the six months ended June 30, 2008 from
$159.8 million at June 30, 2007 to $160.3 at June 30, 2008. Average investments increased $5.3
million or 9.67 percent from $54.8 million at June 30, 2007 to $60.1 million at June 30, 2008 and
average federal funds sold and interest-bearing deposits with other financial institutions
decreased $3.9 million or 28.47 percent from $13.7 million at June 30, 2007 to $9.8 million at June
30, 2008.
Average interest bearing liabilities for the six months ended June 30, 2008 were $192.3 million and
for the six month period ending June 30, 2007, they were $191.5 million, an increase of $.8 million
or .42 percent. Average short-term borrowings were $29.4 million at June 30, 2007 and $28.6
million at June 30, 2008. Average long-term debt, which includes primarily FHLB advances, was
$11.2 million at June 30, 2007 and $10.0 million at June 30, 2008. Average demand deposits
increased from $19.3 million at June 30, 2007 to $20.0 million at June 30, 2008.
The average interest rate for loans decreased to 6.90% at June 30, 2008 from 7.02% at June 30,
2007, a 12 basis point decrease. Interest-bearing deposits with other Financial Institutions and
Federal Funds Sold rates decreased 266 basis points to 2.62 percent at June 30, 2008 from 5.28
percent at June 30, 2007. Average rates on interest bearing deposits increased by 2 basis points
from 2.62 percent to 2.64 percent in one year. Average interest rates decreased on total interest
bearing liabilities by 32 basis points to 2.78 percent from 3.10 percent. The cost of long-term
debt averaged 5.82% percent at June 30, 2008 compared to 5.94% at June 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.
Net Interest Income
Tax equivalized net interest income increased $.1 million at June 30, 2008 from $4.3 million at
June 30, 2007 to $4.4 million at June 30, 2008.
- 20 -
The following table reflects the components of net interest income for each of the six months ended
June 30, 2008 and 2007:
ANALYSIS OF AVERAGE ASSETS, LIABILITIES AND CAPITAL EQUITY
AND
NET INTEREST INCOME ON A TAX EQUIVALENT BASIS
Average Balance Sheet and Rate Analysis
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2008 and 2007 |
|
|
|
|
|
|
|
Interest |
|
|
Average |
|
|
|
|
|
|
Interest |
|
|
Average |
|
|
|
Average |
|
|
Income / |
|
|
Yield / |
|
|
Average |
|
|
Income / |
|
|
Yield / |
|
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
|
(1) |
|
|
(2) |
|
|
|
|
|
|
(1) |
|
|
(2) |
|
|
|
|
|
ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits with
other financial institutions |
|
$ |
1,450 |
|
|
$ |
20 |
|
|
|
2.76 |
% |
|
$ |
3,358 |
|
|
$ |
88 |
|
|
|
5.24 |
% |
Investment securities (3) |
|
|
60,082 |
|
|
|
1,386 |
|
|
|
4.76 |
% |
|
|
54,782 |
|
|
|
1,257 |
|
|
|
4.78 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold |
|
|
8,385 |
|
|
|
108 |
|
|
|
2.58 |
% |
|
|
10,334 |
|
|
|
274 |
|
|
|
5.30 |
% |
Loans |
|
|
160,343 |
|
|
|
5,377 |
|
|
|
6.90 |
% |
|
|
159,847 |
|
|
|
5,490 |
|
|
|
7.02 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning assets |
|
$ |
230,260 |
|
|
$ |
6,891 |
|
|
|
6.16 |
% |
|
$ |
228,321 |
|
|
$ |
7,109 |
|
|
|
6.38 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for loan losses |
|
|
(1,438 |
) |
|
|
|
|
|
|
|
|
|
|
(1,483 |
) |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
4,704 |
|
|
|
|
|
|
|
|
|
|
|
4,381 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
14,970 |
|
|
|
|
|
|
|
|
|
|
|
11,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
248,496 |
|
|
|
|
|
|
|
|
|
|
$ |
243,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND CAPITAL: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits |
|
$ |
153,747 |
|
|
$ |
2,026 |
|
|
|
2.64 |
% |
|
$ |
150,892 |
|
|
$ |
1,978 |
|
|
|
2.62 |
% |
Short-term borrowings |
|
|
28,559 |
|
|
|
358 |
|
|
|
2.51 |
% |
|
|
29,395 |
|
|
|
702 |
|
|
|
4.78 |
% |
Long-term borrowings |
|
|
10,034 |
|
|
|
292 |
|
|
|
5.82 |
% |
|
|
11,239 |
|
|
|
334 |
|
|
|
5.94 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
$ |
192,340 |
|
|
$ |
2,676 |
|
|
|
2.78 |
% |
|
$ |
191,526 |
|
|
$ |
3,014 |
|
|
|
3.10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
$ |
20,009 |
|
|
|
|
|
|
|
|
|
|
$ |
19,345 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
4,340 |
|
|
|
|
|
|
|
|
|
|
|
1,991 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
31,807 |
|
|
|
|
|
|
|
|
|
|
|
30,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and capital |
|
$ |
248,496 |
|
|
|
|
|
|
|
|
|
|
$ |
243,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME /
NET INTEREST MARGIN (4) |
|
|
|
|
|
$ |
4,215 |
|
|
|
3.66 |
% |
|
|
|
|
|
$ |
4,095 |
|
|
|
3.59 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TAX EQUIVALENT NET INTEREST
INCOME /
NET INTEREST MARGIN (5) |
|
|
|
|
|
$ |
4,412 |
|
|
|
3.83 |
% |
|
|
|
|
|
$ |
4,264 |
|
|
|
3.74 |
% |
|
|
|
(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. |
- 21 -
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.
CHANGE IN NET INTEREST INCOME ON A TAX EQUIVALENT BASIS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sxi Months Ended June 30, 2008 |
|
|
|
Compared with 2007 |
|
|
|
Increase (Decrease) (2) |
|
|
|
Volume |
|
|
Rate |
|
|
Total |
|
|
|
(In thousands) |
|
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans (1) |
|
$ |
35 |
|
|
$ |
(192 |
) |
|
$ |
(157 |
) |
Investments (1) |
|
|
253 |
|
|
|
(11 |
) |
|
|
242 |
|
Federal funds sold and other short-term investments |
|
|
(204 |
) |
|
|
(368 |
) |
|
|
(572 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Income: |
|
|
84 |
|
|
|
(571 |
) |
|
|
(487 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
75 |
|
|
|
30 |
|
|
|
105 |
|
Short-term borrowings |
|
|
(40 |
) |
|
|
(667 |
) |
|
|
(707 |
) |
Long term debt |
|
|
(72 |
) |
|
|
(13 |
) |
|
|
(85 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Expense: |
|
|
(37 |
) |
|
|
(650 |
) |
|
|
(687 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income: |
|
$ |
121 |
|
|
$ |
79 |
|
|
$ |
200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Interest income is adjusted to a tax equivalent basis using a 34 percent tax rate. |
|
(2) |
|
Variances resulting from a combination of changes in volume and rates are allocated to the
categories in proportion to the absolute dollar amounts of the change in each category |
The outstanding balance of loans at June 30, 2008 was $161.2 million and June 30, 2007 was $158.0
million.
Income from investment securities increased to $1,386 thousand at June 30, 2008 compared to $1,257
thousand at June 30, 2007. The average balance of investment securities for the six months ended
June 30, 2008 was $60.1 million compared to $54.8 million at June 30, 2007.
Total interest expense decreased $.3 million or 11.21 percent for the first six months of 2008 as
compared to the first six months of 2007.
.
Non-Interest Income
The following table presents the components of non-interest income for the six months ended June
30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
(Dollars in thousands) |
|
|
|
2008 |
|
|
2007 |
|
Service charges and fees |
|
$ |
480 |
|
|
$ |
440 |
|
Gain on sale of loans |
|
|
106 |
|
|
|
64 |
|
Bank-owned life insurance income |
|
|
133 |
|
|
|
143 |
|
Investment center |
|
|
92 |
|
|
|
271 |
|
Trust department |
|
|
74 |
|
|
|
82 |
|
Other |
|
|
152 |
|
|
|
149 |
|
|
|
|
|
|
|
|
Total |
|
$ |
1,037 |
|
|
$ |
1,149 |
|
|
|
|
|
|
|
|
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 six months ended June 30, 2008 and June
30, 2007 total non-interest income decreased $112 thousand from $1,149 thousand at June 30, 2007 to
$1,037 thousand at June 30, 2008.
- 22 -
Service charges and fees increased $40 thousand from $440 thousand at June 30, 2007 to $480
thousand or 9.09 percent at June 30, 2008.
Income from sales of fixed rate mortgages through the Mortgage Partnership Finance (MPF) and PHFA
programs reflected an increase at June 30, 2008 to $106 thousand compared to $64 thousand at June
30, 2007. The MPF loans are being serviced by the bank and the bank retains minimal credit risk.
Third party brokerage fees at June 30, 2007 of $271 thousand included $68 thousand from the one
time sale of non deposit retail products.
Other income increased from $149 thousand at June 30, 2007 to $152 thousand at June 30, 2008.
Non-Interest Expense
The following table presents the components of non-interest expense for the six months ended June
30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, |
|
|
2008 |
|
2007 |
|
|
(Dollars in Thousands) |
Salaries |
|
$ |
1,419 |
|
|
$ |
1,501 |
|
Pensions and other employee benefits |
|
|
470 |
|
|
|
448 |
|
Occupancy expense-net |
|
|
256 |
|
|
|
247 |
|
Equipment |
|
|
222 |
|
|
|
242 |
|
State shares tax |
|
|
163 |
|
|
|
159 |
|
Professional services |
|
|
132 |
|
|
|
129 |
|
Directors fees |
|
|
97 |
|
|
|
93 |
|
Stationery and supplies |
|
|
54 |
|
|
|
95 |
|
Other |
|
|
571 |
|
|
|
605 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,384 |
|
|
$ |
3,519 |
|
Non-interest expense decreased from $3.5 million at June 30, 2007 to $3.4 million at June 30, 2008,
a decrease of 2.86 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 decreased 6.67 percent from $1.5 million at June 30, 2007 to $1.4 million at June 30,
2008. This is attributable to commissions paid on third party brokerage firm sales. Commissions at
June 30, 2007 were $138 thousand and at June 30, 2008 were $27 thousand due to the factors
discussed above under third party brokerage fee income. Pensions and other employee benefits
increased 4.91 percent from $448 thousand at June 30, 2007 to $470 thousand at June 30, 2008.
Occupancy expense increased 3.64 percent from $247 thousand at June 30, 2007 to $256 thousand at
June 30, 2008. This increase is attributable to general increases in the cost of utilities.
Pennsylvania Bank Shares Tax increased 2.52 percent from $159 thousand at June 30, 2007 to $163
thousand at June 30, 2008.
Professional services increased 2.33 percent from $129 thousand at June 30, 2007 to $132 thousand
at June 30, 2008.
Directors fees increased 4.30 percent from $93 thousand through June 30, 2007 compared to $97
thousand through June 30, 2008.
Stationery and supplies decreased $41 thousand in comparing June 30, 2007 at $95 thousand and June
30, 2008 at $54 thousand, a 43.16 percent decrease. Due to the mergers with Columbia Financial
Corporation and First Columbia Bank & Trust Co., consummated on July 18, 2008, supply expenditures
were greatly reduced due to the new name our bank has assumed.
Other expenses decreased $34 thousand from $605 thousand at June 30, 2007 to $571 thousand at June
30, 2008, a 5.62 percent decrease. Advertising was $13 thousand less than 2007, Training was $11
thousand less than 2007 and ATM communication fees were $7 thousand less than 2007. The
advertising and training are a result of the merger and the ATM communication fees are a result of
a different mode of communication being installed in 2007.
Income Taxes
Income tax expense as a percentage of pre-tax income was 25.16 percent for the six months ended
June 30, 2008 compared with 25.13 percent for the same period in 2007.
- 23 -
ASSET / LIABILITY MANAGEMENT
Interest Rate Sensitivity
Our success is largely dependent upon our ability to manage interest rate risk. Interest rate risk
can be defined as the exposure of our net interest income to the movement in interest rates. We do
not currently use derivatives to manage market and interest rate risks. Our interest rate risk
management is the responsibility of the Asset / Liability Management Committee (ALCO), which
reports to the Board of Directors. ALCO establishes policies that monitor and coordinate our
sources, uses and pricing of funds as well as interest-earning asset pricing and volume.
We use a simulation model to analyze net interest income sensitivity to movements in interest
rates. The simulation model projects net interest income based on various interest rate scenarios
over a 12 and 24 month period. The model is based on the actual maturity and repricing
characteristics of rate sensitive assets and liabilities. The model incorporates assumptions
regarding the impact of changing interest rates on the prepayment rates of certain assets and
liabilities. In the current interest rate environment, our net interest income is not expected to
change materially.
Liquidity
Liquidity measures the ability to satisfy current and future cash flow needs as they become due.
Maintaining a level of liquid funds through asset / liability management seeks to ensure that these
needs are met at a reasonable cost. As of June 30, 2008, we had $61.2 million of securities
available for sale recorded at their fair value, compared with $59.4 million at June 30, 2007. As
of June 30, 2008, the investment securities available for sale had a net unrealized loss of $217
thousand, net of deferred taxes, compared with a net unrealized loss of $224 thousand, net of
deferred taxes, at June 30, 2007. These securities are not considered trading account securities,
which may be sold on a continuous basis, but rather are securities which the Corporation has the
ability and positive intent to hold the securities to maturity and are classified as
available-for-sale.
In accordance with disclosures required by EITF NO. 03-1, the summary below reflects the gross
unrealized losses and fair value, aggregated by investment category the individual securities which
have been in a continuous unrealized loss position for less than or more than 12 months as of June
30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months |
|
12 months or more |
|
Total |
Description of Security |
|
|
|
Unrealized |
|
|
|
Unrealized |
|
|
|
Unrealized |
(Dollars in thousands) |
|
Fair Value |
|
Loss |
|
Fair Value |
|
Loss |
|
Fair Value |
|
Loss |
Obligations of U.S. Government Corporations and Agencies: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage backed |
|
$ |
28,232 |
|
|
$ |
307 |
|
|
$ |
663 |
|
|
$ |
4 |
|
|
$ |
28,895 |
|
|
$ |
311 |
|
Other |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of State and Political
Subdivisions |
|
|
771 |
|
|
|
22 |
|
|
|
0 |
|
|
|
0 |
|
|
|
771 |
|
|
|
22 |
|
Marketable Equity Securities |
|
|
243 |
|
|
|
79 |
|
|
|
338 |
|
|
|
231 |
|
|
|
581 |
|
|
|
310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
29,246 |
|
|
$ |
408 |
|
|
$ |
1,001 |
|
|
$ |
235 |
|
|
$ |
30,247 |
|
|
$ |
643 |
|
|
|
|
Note: This schedule reflects only unrealized losses without the effect of unrealized gains.
The Corporation invests in various forms of agency debt including mortgage backed securities and
callable agency debt. The fair market value of these securities is influenced by market interest
rates, prepayment speeds on mortgage securities, bid to offer spreads in the market place and
credit premiums for various types of agency debt. These factors change continuously and therefore
the market value of these securities may be higher or lower than the Corporations carrying value
at any measurement date. The Corporations marketable equity securities represent common stock
positions in various financial institutions. The fair market value of these equities tends to
fluctuate with the overall equity markets as well as the trends specific to each institution.
Non-Performing Assets
Shown below is a summary of past due and non-accrual loans:
|
|
|
|
|
|
|
|
|
|
|
June |
|
|
December |
|
|
|
30, 2008 |
|
|
31,2007 |
|
Past due and non-accrual: |
|
|
|
|
|
|
|
|
Days 30 89 |
|
$ |
1,929 |
|
|
$ |
460 |
|
Days 90 plus |
|
|
6 |
|
|
|
80 |
|
Non-accrual |
|
|
226 |
|
|
|
77 |
|
|
|
|
|
|
|
|
Total |
|
$ |
2,161 |
|
|
$ |
617 |
|
Past due and non-accrual loans increased 250.24 percent from $617 thousand at December 31, 2007 to
$2,161 thousand at June 30, 2008. The non-performing assets expressed as a ratio to total loans
was .29 percent at June 30, 2008 and .74 at December 31, 2007. Non-performing loans are comprised
of loans which are on a non-accrual basis, accruing loans that are 90 days or more past due, and
restructured loans. Non-performing assets are comprised of non-performing loans and foreclosed
real estate (assets acquired in foreclosure), if applicable.
- 24 -
The provision for loan losses for the first three months of 2008 was $0 compared to the first three
months of 2007 at $30 thousand. Management is diligent in its efforts to maintain low
delinquencies and continues to monitor and review current loans to foresee future delinquency
occurrences and react to them quickly. See the following discussion under Allowance for Loan
Losses below.
Any loans classified for regulatory purposes as loss, doubtful, substandard, or special mention
that have not been disclosed under Industry Guide 3 do not (i) represent or result from trends or
uncertainties which we reasonably expect will materially impact future operating results,
liquidity, or capital resources, or (ii) represent material credits about which we are aware of any
information which causes us to have serious doubts as to the ability of such borrowers to comply
with the loan repayment terms.
We adhere to principles provided by Financial Accounting Standards Board Statement No. 114,
Accounting by Creditors for Impairment of a Loan Refer to Note 2 above for other details.
The following analysis provides a schedule of loan maturities / interest rate sensitivities.
This schedule presents a repricing and maturity analysis as required by the FFIEC:
MATURITY AND REPRICING DATA FOR LOANS AND LEASES
|
|
|
|
|
|
|
June 30 |
|
|
|
2008 |
|
|
|
(Dollars in |
|
|
|
thousands) |
|
(1) Three months or less |
|
$ |
4,617 |
|
(2) Over three months through 12 months |
|
|
13,570 |
|
(3) Over one year through three years |
|
|
26,107 |
|
(4) Over three years through five years |
|
|
4,132 |
|
(5) Over five years through 15 years |
|
|
18,257 |
|
(6) Over 15 years |
|
|
286 |
|
All loans and leases other than closed-end loans secured by first liens on 1-4 family residential
properties with a remaining maturity or repricing frequency of: |
|
|
|
|
(1) Three months or less |
|
|
17,680 |
|
(2) Over three months through 12 months |
|
|
16,295 |
|
(3) Over one year through three years |
|
|
25,366 |
|
(4) Over three years through five years |
|
|
12,877 |
|
(5) Over five years through 15 years |
|
|
21,712 |
|
(6) Over 15 years |
|
|
142 |
|
|
|
|
|
Sub-total |
|
|
161,041 |
|
|
|
|
|
|
Add: Non-accrual loans not included above |
|
|
226 |
|
Less: Unearned income |
|
|
(27 |
) |
|
|
|
|
|
|
|
|
|
Total Loans and Leases |
|
$ |
161,240 |
|
|
|
|
|
Allowance for Loan Losses
Because our loan portfolio contain a significant number of commercial loans with relatively large
balances, the deterioration of one or several of these loans may result in a possible significant
increase in loss of interest income, higher carrying costs, and an increase in the provision for
loan losses and loan charge-offs.
We maintain an allowance for loan losses to absorb any loan losses based on our historical
experience, an evaluation of economic conditions, and regular reviews of delinquencies and loan
portfolio quality. In evaluating our allowance for loan losses, we segment our loans into the
following categories:
Commercial mortgages, Residential mortgages, Consumer loans, Municipal loans and Non real estate
commercial loans.
We evaluate some loans as a homogeneous group and others on an individual basis. Commercial loans
with balances exceeding $250 thousand are reviewed individually. After our evaluation of all
loans, we determine the required allowance for loan losses based upon the following considerations:
Historical loss levels,
Prevailing economic conditions,
Delinquency trends,
Changes in the nature and volume of the portfolio,
Concentrations of credit risk, and
Changes in loan policies or underwriting standards.
Management and the Board of Directors review the adequacy of the reserve on a quarterly basis and
adjustments, if needed, are made accordingly.
- 25 -
The following table presents a summary of CCFNBs loan loss experience as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
For the Six Months |
|
|
|
Ended June 30, |
|
|
|
(Dollars in thousands) |
|
|
|
2008 |
|
|
2007 |
|
Average loans outstanding: |
|
$ |
160,343 |
|
|
$ |
159,847 |
|
|
|
|
|
|
|
|
Total loans at end of period |
|
|
161,240 |
|
|
|
158,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
1,437 |
|
|
$ |
1,457 |
|
Total charge-offs |
|
|
(19 |
) |
|
|
(47 |
) |
Total recoveries |
|
|
18 |
|
|
|
29 |
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
(1 |
) |
|
|
(18 |
) |
Provision for loan losses |
|
|
0 |
|
|
|
30 |
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
1,436 |
|
|
$ |
1,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs as a percent of average loans outstanding during period |
|
|
|
|
|
|
(.01 |
)% |
Allowance for loan losses as a percent of total loans |
|
|
.89 |
% |
|
|
.93 |
% |
The allowance for loan losses is based on our evaluation of the allowance for loan losses in
relation to the credit risk inherent in the loan portfolio. In establishing the amount of the
provision required, management considers a variety of factors, including but not limited to,
general economic conditions, volumes of various types of loans, collateral adequacy and potential
losses from significant borrowers. On a monthly basis, the Board of Directors and the banks
Credit Administration Committee review information regarding specific loans and the total loan
portfolio in general in order to determine the amount to be charged to the provision for loan
losses.
Capital Adequacy
A major strength of any financial institution is a strong capital position. This capital is very
critical as it must provide growth, dividend payments to shareholders, and absorption of unforeseen
losses. Our federal regulators provide standards that must be met. These standards measure
risk-adjusted assets against different categories of capital. The risk-adjusted assets reflect
off balance sheet items, such as commitments to make loans, and also place balance sheet assets on
a risk basis for collectibility. The adjusted assets are measured against the standards of Tier
I Capital and Total Qualifying Capital. Tier I Capital is common shareholders equity. Total
Qualifying Capital includes so-called Tier II Capital, which are common shareholders equity and
the allowance for loan and lease losses. The allowance for loan and lease losses must be lower
than or equal to common shareholders equity to be eligible for Total Qualifying Capital.
We exceed all minimum capital requirements as reflected in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008 |
|
December 31, 2007 |
|
|
|
|
|
|
Minimum |
|
|
|
|
|
Minimum |
|
|
Calculated |
|
Standard |
|
Calculated |
|
Standard |
|
|
Ratios |
|
Ratios |
|
Ratios |
|
Ratios |
Risk Based Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Capital to risk-weighted assets |
|
|
19.23 |
% |
|
|
4.00 |
% |
|
|
18.10 |
% |
|
|
4.00 |
% |
Total Qualifying Capital to risk-weighted assets |
|
|
20.14 |
% |
|
|
8.00 |
% |
|
|
18.93 |
% |
|
|
8.00 |
% |
Additionally, certain other ratios also provide capital analysis as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2008 |
|
2007 |
Tier I Capital to average assets |
|
|
12.36 |
% |
|
|
12.71 |
% |
We believe that the banks current capital position and liquidity positions are strong and that its
capital position is adequate to support its operations.
Book value per share amounted to $26.21 at June 30, 2008, compared with $25.79 per share at
December 31, 2007.
Cash dividends declared amounted to $.42 per share for the six months ended June 30, 2008,
equivalent to a dividend payout ratio of 36.77 percent, compared with 38.93 percent for the same
period in 2007. The Board of Directors continues to believe that cash dividends are an important
component of shareholder value and that, at the banks current level of performance and capital; we
expect to continue our current dividend policy of a quarterly cash distribution of earnings to our
shareholders. Pursuant to the agreement and plan of reorganization with Columbia Financial
Corporation, which was consummated July 18, 2008, the Board of Directors has increased the third
quarter cash dividend to at least 23 cents per share.
- 26 -
The following table presents information on the shares of our common stock that we repurchased
during the second quarter of 2008:
CCFNB BANCORP, INC.
ISSUER PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NUMBER OF SHARES |
|
|
|
|
|
|
|
|
|
|
|
|
PURCHASED AS PART |
|
NUMBER OF SHARES |
|
|
|
|
|
|
|
|
|
|
OF PUBLICLY |
|
THAT MAY YET BE |
|
|
NUMBER OF SHARES |
|
PRICE PAID PER |
|
ANNOUNCED |
|
PURCHASED UNDER |
PERIOD |
|
PURCHASED |
|
SHARE |
|
PROGRAM (1) |
|
THE PROGRAM |
04/01/08 04/30/08 |
|
|
4,000 |
|
|
$ |
25.48 |
|
|
|
4,000 |
|
|
|
10,000 |
|
05/01/08 05/31/08 |
|
|
2,000 |
|
|
$ |
25.45 |
|
|
|
2,000 |
|
|
|
8,000 |
|
06/01/08 06/30/08 |
|
|
4,000 |
|
|
$ |
24.50 |
|
|
|
4,000 |
|
|
|
4,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
|
10,000 |
|
|
|
|
|
|
|
10,000 |
|
|
|
|
|
|
|
|
(1) |
|
This program was announced in 2003 and represents the second buy-back program. The
Board of Directors approved the purchase of 100,000 shares. There is no expiration date
associated with this program. |
- 27 -
Controls and Procedures
Item 4. Controls and Procedures
Our Chief Executive Officer (CEO) and Principal Financial Officer (PFO) have concluded that
our disclosure controls and procedures (as defined in Rules 13a 15(e) and 15d 15(e) under the
Securities Exchange Act of 1934, as amended), based on their evaluation of these controls and
procedures as of the end of the period covered by this Report, were effective as of such date at
the reasonable assurance level as discussed below to ensure that information required to be
disclosed by us in the reports we file under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time periods specified in the rules and
forms of the Securities and Exchange Commission and that such information is accumulated and
communicated to our management, including its principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required disclosure.
Our management, including the CEO and PFO, does not expect that our disclosure controls and
internal controls will prevent all errors and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of
the system are met. Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of fraud, if any,
within our company have been detected. These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns can occur because of simple error
or mistake. In addition, controls can be circumvented by the individual acts of some persons, by
collusion of two or more people or by management override of the controls.
The CEO and PFO have evaluated the changes to our internal controls over financial reporting
that occurred during our fiscal Quarter Ended June 30, 2008, as required by paragraph (d) Rules 13a
15 and 15d 15 under the Securities Exchange Act of 1934, as amended, and have concluded that
there were no changes that materially affected, or are reasonably likely to materially affect, our
internal controls over financial reporting.
- 28 -
PART II OTHER INFORMATION;
Item 1. Legal Proceedings
Management and the Corporations legal counsel are not aware of any litigation that would have a
material adverse effect on the consolidated financial position of the Corporation. There are no
proceedings pending other than the ordinary routine litigation incident to the business of the
Corporation and its subsidiary, Columbia County Farmers National Bank. In addition, no material
proceedings are pending or are known to be threatened or contemplated against the Corporation and
the Bank by government authorities.
Item 2. Changes in Securities Nothing to report.
Item 3. Defaults Upon Senior Securities Nothing to report.
Item 4. Submission of Matters to a Vote of Security Holders Nothing to report.
Item 5. Other Information Nothing to report.
Item 6. Exhibits and Reports on Form 8-K
On July 23, 2008 a form 8K was filed with the Commission concerning the merger with Columbia
Financial Corporation. The merger was consummated July 18, 2008.
- 29 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this quarterly report on Form 10-Q for the period ended June 30, 2008, to be signed on its behalf
by the undersigned thereunto duly authorized.
|
|
|
|
|
|
CCFNB BANCORP, INC.
(Registrant)
|
|
|
By |
/s/ Lance O. Diehl
|
|
|
|
Lance O. Diehl |
|
|
|
President and CEO |
|
|
|
Date: August 8, 2008 |
|
|
|
|
|
|
|
|
By |
/s/ Virginia D. Kocher
|
|
|
|
Virginia D. Kocher |
|
|
|
Treasurer |
|
|
|
Date: August 8, 2008 |
|
- 30 -