e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year-ended December 31, 2009
or
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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 registrant as specified in its charter)
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PENNSYLVANIA
(State or other jurisdiction of
incorporation or organization)
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23-2254643
(I.R.S. Employer
Identification Number) |
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232 East Street, Bloomsburg, Pennsylvania
(Address of principal executive offices)
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17815
(Zip Code) |
Registrant’s telephone number, including area code: (570) 784-4400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $1.25 per
share
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to section 13 or
section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of Registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. 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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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 þ
The aggregate market value of the voting and non-voting common equity held by non-affiliates
computed by reference to the price at which the common equity was last sold, or the average bid and
asked price of such common equity, as of the last business day of the Registrant’s most recently
completed second fiscal quarter, $48,195,601 as of June 30, 2009.
As of March 9, 2010, the Registrant had outstanding 2,241,250 shares of its common stock, par value
$1.25 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement prepared in connection with its annual
meeting of Shareholders to be held May 11, 2010, are incorporated by reference into parts III and
IV of this report.
CCFNB BANCORP, INC.
FORM 10-K
INDEX
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PART I |
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Item 1. Business |
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Item 1A. Risk Factors |
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Item 1B. Unresolved Staff Comments |
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Item 2. Properties |
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Item 3. Legal Proceedings |
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Item 4. Submission of Matters to a Vote of Security Holders |
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PART II |
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Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities |
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Item 6. Selected Financial Data |
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 7A. Quantitative and Qualitative Disclosures about Market Risk |
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Item 8. Financial Statements and Supplementary Data |
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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
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Item 9A(T)Controls and Procedures |
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Item 9B. Other Information |
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PART III |
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Item 10. Directors, Executive Officers and Corporate Governance |
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Item 11. Executive Compensation |
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters |
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Item 13. Certain Relationships and Related Transactions, and Director Independence |
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Item 14. Principal Accounting Fees and Services |
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PART IV |
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Item 15. Exhibits, Financial Statements Schedules |
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SIGNATURES |
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INDEX TO EXHIBITS |
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PART I
General
We are a registered financial holding company, bank holding company, and Pennsylvania business
corporation, and are headquartered in Bloomsburg, Pennsylvania. We have one wholly-owned bank
subsidiary which is First Columbia Bank & Trust Co.(the “Bank”). A substantial part of our
business consists of the management and supervision of the Bank. Our principal source of income is
dividends paid by the Bank. At December 31, 2009, we had approximately:
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$602 million in total assets; |
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$330 million in gross loans; |
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$462 million in deposits; and |
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$65 million in stockholders’ equity. |
The Bank is a state-chartered bank whose deposits are insured by the Bank Insurance Fund of
the FDIC. The Bank is a full-service commercial bank providing a range of services and products,
including time and demand deposit accounts, consumer, commercial and mortgage loans to individuals
and small to medium-sized businesses in its Northcentral Pennsylvania market area. The Bank also
operates a full-service trust department. Third-party brokerage services are also resident in the
Bank’s office in Lightstreet, Pennsylvania. At December 31, 2009, the Bank had 13 branch banking
offices which are located in the Pennsylvania counties of Columbia, Luzerne, and Northumberland.
We consider our branch banking offices to be a single operating segment, because these
branches have similar:
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economic characteristics, |
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products and services, |
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operating processes, |
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delivery systems, |
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customer bases, and |
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regulatory oversight. |
We have not operated any other reportable operating segments in the 3-year period ended
December 31, 2009. We have combined financial information for our third-party brokerage operation
with our financial information, because this company does not meet the quantitative threshold for a
reporting operating segment.
We hold a 50 percent interest in a local insurance agency. The name of this agency is
Neighborhood Group, Inc. and trades under the fictitious name of Neighborhood Advisors (insurance
agency). Through this joint venture, we sell insurance products and services. We account for this
local insurance agency using the equity method of accounting.
As of December 31, 2009, we had 180 employees on a full-time equivalent basis. The
Corporation and the Bank are not parties to any collective bargaining agreement and employee
relations are considered to be good.
On July 18, 2008, the Corporation completed its acquisition of Columbia Financial
Corporation(“CFC”). Under the terms of the Agreement and Plan of Reorganization dated as of
November 29, 2007, CFC merged with and into the Corporation; and the Corporations’ wholly-owned
subsidiary, Columbia County Farmers National Bank merged with and into the Bank. The Corporation
acquired 100% of the outstanding shares of CFC for a total purchase price of $26,316,000. The
transaction was accounted for in accordance with FASB ASC 805, Business Combinations (SFAS No.
141-Business Combinations). In connection therewith, the
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Corporation issued approximately 1,030,286 shares of its common stock and paid cash of
approximately $3,000 in lieu of the issuance of fractional shares in exchange for all of the
issued and outstanding shares of CFC common stock. Assets and liabilities of CFC were recorded at
estimated fair values as of the acquisition date and the results of the acquired entity operations
are included in income from that date. The fair values of acquired assets and liabilities,
including identified intangible assets, were finalized as quickly as possible following the
acquisition. The CFC purchase price allocation is complete.
Supervision and Regulation
The following discussion sets forth the material elements of the regulatory framework
applicable to us and the Bank and provides certain specific information. This regulatory framework
is primarily intended for the protection of investors in our common stock, depositors at the Bank
and the Bank Insurance Fund that insures bank deposits. To the extent that the following
information describes statutory and regulatory provisions, it is qualified by reference to those
provisions. A change in the statutes, regulations or regulatory policies applicable to us or the
Bank may have a material effect on our business.
Intercompany Transactions
Various governmental requirements, including Sections 23A and 23B of the Federal Reserve Act
and Regulation W of the Federal Reserve Board, limit borrowings by us from the Bank and also limit
various other transactions between us and the Bank. For example, Section 23A of the Federal
Reserve Act limits to no more than ten percent of its total capital the aggregate outstanding
amount of the Bank’s loans and other “covered transactions” with any particular non-bank affiliate
(including a financial subsidiary) and limits to no more than 20 percent of its total capital the
aggregate outstanding amount of the Bank’s covered transactions with all of its affiliates
(including financial subsidiaries). At December 31, 2009, approximately $5.6 million was available
for loans to us from the Bank. Section 23A of the Federal Reserve Act also generally requires that
the Bank’s loans to its non-bank affiliates (including financial subsidiaries) be secured, and
Section 23B of the Federal Reserve Act generally requires that the Bank’s transactions with its
non-bank affiliates (including financial subsidiaries) be on arm’s-length terms. Also, we, the
Bank, and any financial subsidiary are prohibited from engaging in certain “tie-in” arrangements in
connection with extensions of credit or provision of property or services.
Supervisory Agencies
As a Pennsylvania-chartered bank, the Bank is subject to primary supervision, regulation, and
examination by the Pennsylvania Department of Banking and secondary regulation by the FDIC. The
Bank is subject to extensive statutes and regulations that significantly affect its business and
activities. The Bank must file reports with its regulators concerning its activities and financial
condition and obtain regulatory approval to enter into certain transactions. The Bank is also
subject to periodic examinations by its regulators to ascertain compliance with various regulatory
requirements. Other applicable statutes and regulations relate to insurance of deposits, allowable
investments, loans, leases, acceptance of deposits, trust activities, mergers, consolidations,
payment of dividends, capital requirements, reserves against deposits, establishment of branches
and certain other facilities, limitations on loans to one borrower and loans to affiliated persons,
activities of subsidiaries and other aspects of the business of banks. Recent federal legislation
has instructed federal agencies to adopt standards or guidelines governing banks’ internal
controls, information systems, loan documentation, credit underwriting, interest rate exposure,
asset growth, compensation and benefits, asset quality, earnings and stock valuation, and other
matters. The federal banking agencies have great flexibility in implementing standards on asset
quality, earnings, and stock valuation. Regulatory authorities have broad flexibility to initiate
proceedings designed to prohibit banks from engaging in unsafe and unsound banking practices.
We and the Bank are also affected by various other governmental requirements and regulations,
general economic conditions, and the fiscal and monetary policies of the federal government and the
Federal Reserve Board. The monetary policies of the Federal Reserve Board influence to a
significant extent the overall growth of loans, leases, investments, deposits, interest rates
charged on loans, and interest rates paid on deposits. The nature and impact of future changes in
monetary policies are often not predictable.
We are subject to the jurisdiction of the SEC for matters relating to the offering and sale of
our securities. We are also subject to the SEC’s rules and regulations relating to periodic
reporting, insider trader reports and proxy solicitation materials. Our common stock is not listed
for quotation of prices on The NASDAQ Stock Market or any other nationally-recognized stock
exchange. However, daily bid and asked price quotations are maintained on the interdealer
electronic bulletin board system.
Support of the Bank
Under current Federal Reserve Board policy, we are expected to act as a source of financial
and managerial strength to the Bank by standing ready to use available resources to provide
adequate capital funds to the Bank during periods of financial adversity and by maintaining the
financial flexibility and capital-raising capacity to obtain additional resources for assisting the
Bank. The
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support expected by the Federal Reserve Board may be required at times when we may not have the
resources or inclination to provide it.
If a default occurred with respect to the Bank, any capital loans to the Bank from us would be
subordinate in right of payment to payment of the Bank depositors and certain of its other
obligations.
Liability of Commonly Controlled Banks
The Bank can be held liable for any loss incurred, or reasonably expected to be incurred, by
the FDIC in connection with:
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the default of a commonly controlled FDIC-insured depository institution or |
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any assistance provided by the FDIC to a commonly controlled FDIC-insured depository
institution in danger of default. |
“Default” generally is defined as the appointment of a conservator or receiver, and “in danger
of default” generally is defined as the existence of certain conditions indicating that a default
is likely to occur in the absence of regulatory assistance.
Depositor Preference Statute
In the “liquidation or other resolution” of the Bank by any receiver, federal legislation
provides that deposits and certain claims for administrative expenses and employee compensation
against the Bank are afforded a priority over the general unsecured claims against the Bank,
including federal funds and letters of credit.
Allowance For Loan Losses
Commercial loans and commercial real estate loans comprised 52.8 percent of our total
consolidated loans as of December 31, 2009. Commercial loans are typically larger than residential
real estate loans and consumer loans. Because our loan portfolio contains a significant number of
commercial loans and commercial real estate loans with relatively large balances, the deterioration
of one or a few of these loans may cause a significant increase in nonperforming loans. An
increase in nonperforming loans could result in a loss of earnings from these loans 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, among other
things, our historical experience, an evaluation of economic conditions, and regular reviews of any
delinquencies and loan portfolio quality. We cannot assure you that charge-offs in future periods
will not exceed the allowance for loan losses or that additional increases in the allowance for
loan losses will not be required. Additions to the allowance for loan losses would result in a
decrease in our net income and, possibly, our capital.
In evaluating our allowance for loan losses, we divide our loans into the following
categories:
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commercial, financial, and agricultural |
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real estate mortgages, |
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consumer, and |
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unallocated. |
We evaluate some loans as a group and some individually. We use the following criteria in
choosing loans to be evaluated individually:
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by risk profile, and |
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by past due status. |
After our evaluation of these loans, we allocate portions of our allowance for loan losses to
categories of loans based upon the following considerations:
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historical trends, |
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economic conditions, and |
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any known deterioration. |
We use a self-correcting mechanism to reduce differences between estimated and actual losses.
We will, on an annual basis, weigh our loss experience among the various categories and reallocate
the allowance for loan losses.
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For a more in-depth presentation of our allowance for loan losses and the components of this
allowance, please refer to Item 7 of this report under Management’s Discussion and Analysis of
Financial Condition and Results of Operations at “Provision for Loan Losses,” “Allowance for Loan
Losses,” and “Non-performing Loans,” as well as Note 4, Item 8 to this report.
Sources of Funds
General. Our primary source of funds is the cash flow provided by our investing activities,
including principal and interest payments on loans and mortgage-backed and other securities. Our
other sources of funds are provided by operating activities (primarily net income) and financing
activities, including borrowings and deposits.
Deposits. We offer a variety of deposit accounts with a range of interest rates and terms. We
currently offer savings accounts, NOW accounts, money market accounts, demand deposit accounts and
certificates of deposit. The flow of deposits is influenced significantly by general economic
conditions, changes in prevailing interest rates, pricing of deposits and competition. Our
deposits are primarily obtained from areas surrounding our banking offices. We rely primarily on
marketing, new products, service and long-standing relationships with customers to attract and
retain these deposits. At December 31, 2009, our deposits totaled $462 million.
When we determine the levels of our deposit rates, consideration is given to local
competition, yields of U.S. Treasury securities and the rates charged for other sources of funds.
We have maintained a high level of core deposits, which has contributed to our low cost of funds.
Core deposits include savings, money market, NOW and demand deposit accounts, which, in the
aggregate, represented 49.5 percent of total deposits at December 31, 2009 and 48.0 percent of
total deposits at December 31, 2008.
We are not dependent for deposits nor exposed by loan concentrations to a single customer, or
to a small group of customers of which the loss of any one or more would have a materially adverse
effect on our financial condition.
For a further discussion of our deposits, please refer to Item 7 of this report under
Management’s Discussion and Analysis of Financial Condition and Results of Operations at
“Deposits,” as well as Note 7, Item 8 to this report.
Capital Requirements
We are subject to risk-based capital requirements and guidelines imposed by the Federal
Reserve Board. For this purpose, a bank holding company’s consolidated assets and certain
specified off-balance sheet commitments are assigned to four risk categories, each weighted
differently based on the level of credit risk that is ascribed to those assets or commitments. In
addition, risk-weighted assets are adjusted for low-level recourse and market-risk equivalent
assets. A bank’s or bank holding company’s capital, in turn, includes the following tiers:
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core (“Tier 1”) capital, which includes common equity, non-cumulative perpetual
preferred stock, a limited amount of cumulative perpetual preferred stock, and minority
interests in equity accounts of consolidated subsidiaries, less goodwill, certain
identifiable intangible assets, and certain other assets; and |
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supplementary (“Tier 2”) capital, which includes, among other items, perpetual
preferred stock not meeting the Tier 1 definition, mandatory convertible securities,
subordinated debt and allowances for loan and lease losses, subject to certain
limitations, less certain required deductions. |
We, like other bank holding companies, are required to maintain Tier 1 and “Total Capital”
(the sum of Tier 1 and Tier 2 capital, less certain deductions) equal to at least four percent and
eight percent of our total risk-weighted assets (including certain off-balance sheet items, such as
unused lending commitments and standby letters of credit), respectively. At December 31, 2009, we
met both requirements, with Tier 1 and Total Capital equal to 16.4 percent and 17.6 percent of
total risk-weighted assets.
The Federal Reserve Board has adopted rules to incorporate market and interest rate risk
components into their risk-based capital standards. Under these market-risk requirements, capital
will be allocated to support the amount of market risk related to a financial institution’s ongoing
trading activities.
The Federal Reserve Board also requires bank holding companies to maintain a minimum “Leverage
Ratio” (Tier 1 capital to adjusted total assets) of three percent if the bank holding company has
the highest regulatory rating and meets certain other requirements, or of three percent plus an
additional cushion of at least one to two percentage points if the bank holding company does not
meet these requirements. At December 31, 2009, our leverage ratio was 9.8 percent.
The Federal Reserve Board may set capital requirements higher than the minimums noted above
for holding companies whose circumstances warrant it. For example, bank holding companies
experiencing or anticipating significant growth may be
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expected to maintain strong capital positions substantially above the minimum supervisory levels without
significant reliance on intangible assets. Furthermore, the Federal Reserve Board has indicated
that it will consider a “Tangible Tier 1 Leverage Ratio” (deducting all intangibles) and other
indications of capital strength in evaluating proposals for expansion or new activities, or when a
bank holding company faces unusual or abnormal risk. The Federal Reserve Board has not advised us
of any specific minimum leverage ratio applicable to us.
Failure to meet capital requirements could subject the Bank to a variety of enforcement
remedies, including the termination of deposit insurance by the FDIC, and to certain restrictions
on its business. The Federal Deposit Insurance Corporation Improvements Act of 1991 (“FDICIA”),
among other things, identifies five capital categories for insured banks – well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized, and critically
undercapitalized – and requires federal bank regulatory agencies to implement systems for “prompt
corrective action” for insured banks that do not meet minimum capital requirements based on these
categories. The FDICIA imposed progressively more restrictive constraints on operations,
management, and capital distributions, depending on the category in which an institution is
classified. Unless a bank is well capitalized, it is subject to restrictions on its ability to
offer brokered deposits, on “pass-through” insurance coverage for certain of its accounts, and on
certain other aspects of its operations. FDICIA generally prohibits a bank from paying any
dividend or making any capital distribution or paying any management fee to its holding company if
the bank would thereafter be undercapitalized. An undercapitalized bank is subject to regulatory
monitoring and may be required to divest itself of or liquidate subsidiaries. Holding companies of
such institutions may be required to divest themselves of such institutions or divest themselves of
or liquidate other affiliates. An undercapitalized bank must develop a capital restoration plan,
and its parent bank holding company must guarantee the bank’s compliance with the plan up to the
lesser of five percent of the bank’s assets at the time it became undercapitalized or the amount
needed to comply with the plan. Critically undercapitalized institutions are prohibited from
making payments of principal and interest on subordinated debt and are generally subject to the
mandatory appointment of a conservator or receiver.
Brokered Deposits
Under FDIC regulations, no FDIC-insured bank can accept brokered deposits unless it (1) is
well capitalized, or (2) is adequately capitalized and receives a waiver from the FDIC. In
addition, these regulations prohibit any bank that is not well capitalized from paying an interest
rate on brokered deposits in excess of three-quarters of one percentage point over certain
prevailing market rates. As of December 31, 2009, the Bank held no brokered deposits.
Dividend Restrictions
We are a legal entity separate and distinct from the Bank. In general, under Pennsylvania
law, we cannot pay a cash dividend if such payment would render us insolvent. Our revenues consist
primarily of dividends paid by the Bank. The Pennsylvania Banking Code of 1965 limits the amount
of dividends the Bank can pay to us without regulatory approval. The Bank may declare and pay
dividends to us if:
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the Bank’s surplus is at least equal to its paid-in capital, and |
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the payment of the dividend would not reduce the Bank’s surplus below the required
level. |
At December 31, 2009, approximately $18,517,000 was available for payment of dividends to us
from the Bank.
In addition, federal bank regulatory authorities have authority to prohibit the Bank from
engaging in an unsafe or unsound practice in conducting its business. Depending upon the financial
condition of the bank in question, the payment of dividends could be deemed to constitute an unsafe
or unsound practice. The ability of the Bank to pay dividends in the future is currently
influenced, and could be further influenced, by bank regulatory policies and capital guidelines.
Accordingly, in 2010, without prior federal regulatory approval, the Corporation may declare
dividends to Shareholders in the amount of the net income available to shareholders for the past
four quarters, net of dividends paid during that period. As of December 31, 2009, the amount
available for payment of dividends, without prior federal regulatory approval, was $3,559,000.
Deposit Insurance
The FDIC is an independent federal agency that insures deposits, up to prescribed statutory
limits, of federally insured banks and savings institutions and safeguards the safety and soundness
of the banking and savings industries. The FDIC insures our customer deposits through the DIF up
to prescribed limits for each depositor. Pursuant to the EESA, the maximum deposit insurance
amount has been increased from $100,000 to $250,000 per depositor. The EESA, as amended by the
Helping Families Save Their Homes Act of 2009, provides that the basic deposit insurance limit will
return to $100,000 after December 31, 2013. The amount of FDIC assessments paid by each DIF member
institution is based on its relative risk of default as measured by regulatory capital ratios and
other supervisory factors. Pursuant to the Federal Deposit Insurance Reform Act of 2005, the FDIC
is authorized to set the
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reserve ratio for the DIF annually at between 1.15% and 1.50% of estimated insured deposits. The FDIC
may increase or decrease the assessment rate schedule on a semi-annual basis.
The FDIC made several adjustments to the assessment rate during 2009 including a special
assessment permitted under statutory authority granted in 2008. The assessment schedule published
as of April 1, 2009 and effective for assessments on and after September 30, 2009 provides for
assessment ranges, based upon risk assessment of each insured depository institution, of between 7
and 77.5 cents per $100 of domestic deposits. The Bank is currently in Risk Category 1, the lowest
risk category, which provides for a base assessment range of 7 to 24 cents per $100 of domestic
deposits. The special assessment was applicable to all insured depository institutions and totaled
5 basis points of each institution’s total assets less tier 1 capital as of June 30, 2009, not to
exceed 10 basis points of domestic deposits.
On November 21, 2008, the FDIC adopted a final rule relating to the Temporary Liquidity
Guaranty Program, or TLG, Program. Under the TLG Program, the FDIC will (1) guarantee, through the
earlier of maturity or June 30, 2012, certain newly issued senior unsecured debt issued by
participating institutions on or after October 14, 2008 and before June 30, 2009 and (2) provide
full FDIC deposit insurance coverage for non-interest bearing transaction deposit accounts,
Negotiable Order of Withdrawal, or NOW, accounts paying 0.5% or less interest per annum and
Interest on Lawyers Trust Accounts, or IOLTA, held at participating FDIC-insured institutions
through June 30, 2010. On March 17, 2009, the FDIC extended the debt guarantee program through
October 31, 2009. The Bank elected to participate in the deposit insurance coverage guarantee
program. The Bank has not elected to participate in the unsecured debt guarantee program because
more cost-effective liquidity sources are available to us. Coverage under the TLG Program was
available for the first 30 days without charge. The fee assessment for deposit insurance coverage
is 10 basis points per annum on amounts in covered accounts exceeding $250,000.
All FDIC-insured institutions are required to pay assessments to the FDIC to fund interest
payments on bonds issued by the Financing Corporation, or FICO, an agency of the Federal government
established to recapitalize the predecessor to the DIF. The FICO assessment rates, which are
determined quarterly, averaged 0.01% of insured deposits in fiscal 2009. These assessments will
continue until the FICO bonds mature in 2017.
On November 17, 2009, the FDIC imposed a prepayment requirement on most insured depository
organizations, requiring that the organizations prepay estimated quarterly risk-based assessments
for the fourth quarter of 2009 and for each calendar quarter for calendar years 2010, 2011 and
2012. The FDIC has stated that the prepayment requirement was imposed in response to a negative
balance in the DIF.
The Bank made its prepayment on December 31, 2009 in the total amount of $2.0 million. The
actual assessments becoming due from the Bank on the last day of each calendar quarter will be
applied against the prepaid amount until the prepayment amount is exhausted. If the prepayment
amount is not exhausted before June 30, 2013 any remaining balance will be returned to the Bank.
The prepayment amount does not bear interest.
TARP Capital Purchase Program
On October 3, 2008, President Bush signed into law the Emergency Economic Stabilization Act of
2008 (the “EESA”). Pursuant to the EESA, the United States Treasury has the authority to, among
other things, invest in financial institutions and purchase mortgages, mortgage-backed securities
and certain other financial instruments from financial institutions, in an aggregate amount up to
$700 billion, for the purpose of stabilizing and providing liquidity to the United States financial
markets. On October 14, 2008, the United States Treasury announced a plan, referred to as the
Capital Purchase Program, or the CPP, to invest up to $250 billion of this $700 billion amount in
certain eligible United States banks, thrifts and their holding companies in the form of
non-voting, senior preferred stock initially paying quarterly dividends at a 5% annual rate. In
the event the United States Treasury makes any such senior preferred investment in any company it
will also receive 10-year warrants to acquire common shares of the company having an aggregate
market price of 15% of the amount of the senior preferred investment.
After a review of the conditions and restrictions with respect to the TARP Capital Purchase
Program, our Board of Directors decided not to participate in the CPP.
Interstate Banking and Branching
Bank holding companies (including bank holding companies that also are financial holding
companies) are required to obtain the prior approval of the Federal Reserve Board before acquiring
more than five percent of any class of voting stock of any non-affiliated bank. Pursuant to the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Interstate Banking and
Branching Act”), a bank holding company may acquire banks located in states other than its home
state without regard to the permissibility of such acquisitions under state law, but subject to any
state requirement that the bank has been organized and operating
8
for a minimum period of time, not to exceed five years, and the requirement that the bank holding
company, after the proposed acquisition, controls no more than 10.0 percent of the total amount of
deposits of insured depository institutions in the United States and no more than 30.0 percent or
such lesser or greater amount set by state law of such deposits in that state.
Subject to certain restrictions, the Interstate Banking and Branching Act also authorizes
banks to merge across state lines to create interstate banks. The ability of banks to acquire
branch offices through purchases or openings of other branches is contingent, however, on the host
state having adopted legislation “opting in” to those provisions of Riegle-Neal. In addition, the
ability of a bank to merge with a bank located in another state is contingent on the host state not
having adopted legislation “opting out” of that provision of Riegle-Neal. Pennsylvania has opted in
to all of these provisions upon the condition that another host state has similar or reciprocal
requirements. As of the date of this report, we are not contemplating any interstate acquisitions
of a bank or a branch office.
Control Acquisitions
The Change in Bank Control Act prohibits a person or group of persons from acquiring “control”
of a bank holding company, unless the Federal Reserve Board has been notified and has not objected
to the transaction. Under a rebuttable presumption established by the Federal Reserve Board, the
acquisition of ten percent or more of a class of voting stock of a bank holding company with a
class of securities registered under Section 12 of the Exchange Act, such as we, would, under the
circumstances set forth in the presumption, constitute acquisition of control of the bank holding
company.
In addition, a company is required to obtain the approval of the Federal Reserve Board under
the Bank Holding Company Act before acquiring 25 percent (five percent in the case of an acquirer
that is a bank holding company) or more of any class of outstanding common stock of a bank holding
company, such as we, or otherwise obtaining control or a “controlling influence” over that bank
holding company.
Permitted Non-Banking Activities
The Federal Reserve Board permits us or our subsidiaries to engage in nonbanking activities
that are so closely related to banking or managing or controlling banks as to be a proper incident
thereto. The Federal Reserve Board requires us to serve as a source of financial and managerial
strength to the Bank and not to conduct our operations in an unsafe or unsound manner. Whenever
the Federal Reserve Board believes an activity that we perform or our control of a nonbank
subsidiary, other than a nonbank subsidiary of the Bank, constitutes a serious risk to the
financial safety, soundness or stability of the Bank and is inconsistent with sound banking
principles or the purposes of the federal banking laws, the Federal Reserve Board may require us to
terminate that activity or to terminate control of that subsidiary.
Community Reinvestment Act
The Community Reinvestment Act of 1977, as amended (“CRA”), and the regulations promulgated to
implement the CRA, are designed to create a system for bank regulatory agencies to evaluate a
depository institution’s record in meeting the credit needs of its community. The Bank received a
“satisfactory” rating in its last CRA examination which occurred in 2004.
Financial Services Modernization
We must comply with the Gramm-Leach-Bliley Act of 1999 (the “GLB Act”) in the conduct of our
operations. The GLB Act eliminates the restrictions placed on the activities of banks and bank
holding companies and creates two new structures, financial holding companies and financial
subsidiaries. We and the Bank are now allowed to provide a wider array of financial services and
products that were reserved only for insurance companies and securities firms. In addition, we can
now affiliate with an insurance company and a securities firm. We have elected to become a
financial holding company. A financial holding company has authority to engage in activities
referred to as “financial activities” that are not permitted to bank holding companies. A financial
holding company may also affiliate with companies that are engaged in financial activities. A
“financial activity” is an activity that does not pose a safety and soundness risk and is financial
in nature, incidental to an activity that is financial in nature, or complimentary to a financial
activity.
Privacy
Title V of the GLB Act creates a minimum federal standard of privacy by limiting the instances
which we and the Bank may disclose nonpublic personal information about a consumer of our products
or services to nonaffiliated third parties. The GLB Act distinguishes “consumers” from “customers”
for purposes of the notice requirements imposed by this Act. We are required to give a “consumer” a
privacy notice only if we intend to disclose nonpublic personal information about the consumer to a
nonaffiliated third party. However, by contrast, we are required to give a “customer” a notice of
our privacy policy at the time of the establishment of a customer relationship and then annually,
thereafter during the continuation of the customer relationship.
9
Terrorist Activities
The Office of Foreign Assets Control (“OFAC”) of the Department of the Treasury has, and will,
send us and our banking regulatory agencies lists of names of persons and organizations suspected
of aiding, harboring or engaging in terrorist acts. If the Bank finds a name on any transaction,
account or wire transfer that is on an OFAC list, the Bank must freeze such account, file a
suspicious activity report and notify the Federal Bureau of Investigation. The Bank has appointed
an OFAC compliance officer to oversee the inspection of its accounts and the filing of any
notifications.
The USA PATRIOT Act
The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism (“USA PATRIOT”) Act of 2001 was enacted by Congress as a result of the terrorist
attack on the World Trade Center on September 11, 2001. Under the USA PATRIOT Act, financial
institutions are subject to prohibitions against specified financial transactions and account
relationships, as well as enhanced due diligence and “know your customer” standards in their
dealings with foreign financial institutions and foreign customers.
Subprime and Predatory Lending
The Federal Reserve Board has issued regulations which implement the Home Ownership and Equity
Protection Act (“HOEPA”). This Act imposes additional disclosure requirements and certain
substantive limitations on certain mortgage loans with rates or fees above specified levels. The
regulations lower the rate levels that trigger the application of HOEPA and include additional fees
in the calculation of the fee amount that triggers HOEPA. The loans that the Bank currently makes
are generally below the rate and fee levels that trigger HOEPA.
The Bank must also comply with a Pennsylvania law, Act 55 of 2001, the Mortgage Bankers and
Brokers and Consumer Equity Protection Act. This Act addresses what is known as “predatory
lending”, among other things, and is applicable to the Bank’s closed-end home equity mortgage
loans, involving property located in Pennsylvania, in an amount less than $100 thousand made at a
“high cost,” which is generally the rate and point triggers in the HOEPA. Those HOEPA triggers are:
| |
• |
|
An annual percentage rate exceeding 8.00 percentage points above comparable term U.S.
Treasury securities for first-lien mortgages and 10 percent for subordinate-lien
mortgages; and/or |
| |
| |
• |
|
Total points and fees payable by the consumer at or before closing that exceed the
greater of 8.0 percent of the total loan amount or $583. The $583 is adjusted annually
by the annual percentage change in the Consumer Price Index. |
On July 8, 2008, Pennsylvania Governor Rendell signed into law Acts 56, 57, 58, 59 and 60 of
2008 which pertain to the mortgage industry in Pennsylvania. Act 56 of 2008 combined two mortgage
licensing laws that pertain to first and secondary lien residential mortgage lending into a single
licensing law and requires individuals engaged in nonclerical mortgage activities to obtain
separate individual “mortgage originator” licenses. Act 57 of 2008 amended the Pennsylvania Usury
Law by increasing from $50,000 to $217,873 the applicability of the usury law to residential
mortgage loans. Act 58 of 2008 authorizes the Department of Banking to require initial and renewal
license applicants for lender and broker licenses to use a national electronic licensing system and
to pay related processing fees. Act 59 of 2008 increased penalties for violation of the Real
Estate Appraisers Certification Act and added three government officials to the State Board of
Certified Real Estate Appraisers. Act 60 of 2008 amended the Pennsylvania Housing Finance Agency
Law (PHFA) by requiring mortgage lenders, including First Columbia Bank & Trust Co., to
periodically provide to PHFA a list of residential mortgage foreclosure notices issued during the
most recent period and contained amendments to the rules for providing a mortgage borrower in
default with a Notice of Intention to Foreclose.
Electronic Funds Transfers
On November 17, 2009, the Federal reserve Board published a final rule amending Regulation E,
which implements the Electronic Fund Transfer Act. The final rule limits the ability of financial
institutions to access an overdraft fee for paying automated teller machine transactions and
one-time debit card transactions that overdraw a customer’s account unless the customer
affirmatively consents, or opts in, to the institution’s payment of overdrafts for these
transactions.
Sales of Insurance
Our federal banking regulatory agencies have issued consumer protection rules with respect to
the retail sale of insurance products by us, the Bank, or a subsidiary or joint venture of us or
the Bank. These rules generally cover practices, solicitations, advertising or offers of any
insurance product by a depository institution or any person that performs such activities at an
office of, or on behalf of, us or the Bank. Moreover, these rules include specific provisions
relating to sales practices, disclosures and advertising, the physical separation of banking and
nonbanking activities and domestic violence discrimination.
10
Corporate Governance
The Sarbanes-Oxley Act of 2002 (“SOX”) has substantially changed the manner in which public
companies govern themselves and how the accounting profession performs its statutorily required
audit function. SOX makes structural changes in the way public companies make disclosures and
strengthens the independence of auditors and audit committees. SOX requires direct responsibility
of senior corporate management, namely the Chief Executive Officer (“CEO”) and Chief Financial
Officer (“CFO”), for establishing and maintaining an adequate internal control structure and
procedures for financial reporting and disclosure by public companies.
Under SOX, audit committees will be primarily responsible for the appointment, compensation
and oversight of the work of their auditors. The independence of the members of the audit
committee is assured by barring members who accept consulting fees from the company or are
affiliated with the company other than in their capacity as members of the board of directors.
SOX prohibits insider trades during pension fund blackout periods and requires prompt
disclosure of insider transactions in company stock, which must be reported by the second business
day following an insider transaction. Furthermore, SOX established a new federal crime of
securities fraud with substantial penalties.
The Bank
The Bank’s legal headquarters are located at 232 East Street, Bloomsburg, Columbia County,
Pennsylvania 17815. The Bank is a locally managed community bank that seeks to provide personal
attention and professional financial assistance to its customers. The Bank serves the needs of
individuals and small to medium-sized businesses. The Bank’s business philosophy includes offering
direct access to its President and other officers and providing friendly, informed and courteous
service, local and timely decision making, flexible and reasonable operating procedures and
consistently-applied credit policies.
The Bank solicits small and medium-sized businesses located primarily within the Bank’s market
area that typically borrow in the $25,000 to $2.0 million range. In the event that certain loan
requests may exceed the Bank’s lending limit to any one customer, the Bank seeks to arrange such
loans on a participation basis with other financial institutions.
Marketing Area
The Bank’s primary market area encompasses Columbia County, a 484 square mile area located in
Northcentral Pennsylvania with a population of approximately 64,151 based on 2000 census data. The
Town of Bloomsburg is Columbia County’s largest municipality and its center of industry and
commerce. Bloomsburg has a population of approximately 12,375 based on 2000 census data, and is
the county seat. Berwick, located on the eastern boundary of the Columbia County, is the second
largest municipality, with a 2000 census data population of approximately 10,774. The Bank
currently serves its market area through thirteen branch offices located in Bloomsburg, Benton,
Berwick, Buckhorn, Catawissa, Elysburg, Hazelton, Lightstreet, Millville, Orangeville and Scott
Township.
The Bank competes with other depository institutions in Columbia, Luzerne, and Northumberland
Counties. The Bank’s major competitors are: First Keystone National Bank, PNC Bank and M & T
Bank, as well as several credit unions.
The Bank’s extended market area includes the adjacent Pennsylvania counties of Lycoming,
Montour, Schuylkill and Sullivan.
Available Information
We file reports, proxy, information statements and other information electronically with the
SEC through the Electronic Data Gathering Analysis and Retrieval (EDGAR)filing system. You may read
and copy any materials that we file with the SEC at the SEC’s Public Reference Room located at 450
5th Street, N.W., Washington, DC 20549. You can obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site
that contains reports, proxy and information statements and other information regarding issuers
that file electronically with the SEC. The SEC’s website address is http://www.sec.gov. Our website
address is http://www.firstcolumbiabank.com. Copies of our Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable
after we electronically file such material with, or furnish it to, the SEC may be obtained without
charge by writing to CCFNB Bancorp, Inc., 232 East Street, Bloomsburg, PA 17815; Attn: Mr.
Jeffrey T. Arnold, CFO and Treasurer.
11
Adverse changes in the economic conditions in our market area could materially and negatively
affect our business.
Substantially all of our business is with consumers and small to mid-sized companies located
within Columbia, Lycoming, Luzerne, Montour, and Northumberland Counties, Pennsylvania. Our
business is directly impacted by factors such as economic, political and market conditions, broad
trends in industry and finance, legislative and regulatory changes, changes in government monetary
and fiscal policies and inflation, all of which are beyond our control. A deterioration in economic
conditions, whether caused by national or local concerns, in particular an economic slowdown in
northcentral Pennsylvania, could result in the following consequences, any of which could
materially harm our business:
| |
• |
|
customers’ credit quality may deteriorate; |
| |
| |
• |
|
loan delinquencies may increase; |
| |
| |
• |
|
problem assets and foreclosures may increase; |
| |
| |
• |
|
demand for our products and services may decrease; |
| |
| |
• |
|
competition for low cost or non-interest bearing deposits may increase; and |
| |
| |
• |
|
collateral securing loans may decline in value. |
Competitive pressures from financial services companies and other companies offering banking
services could negatively impact our business.
We conduct banking operations primarily in northcentral Pennsylvania. Increased competition
in the Bank’s market may result in reduced loans and deposits, high customer turnover, and lower
net interest rate margins. Ultimately, the Bank may not be able to compete successfully against
current and future competitors. Many competitors in the Bank’s market area, including regional
banks, other community-focused depository institutions and credit unions, offer the same banking
services as the Bank offers. The Bank also faces competition from many other types of financial
institutions, including without limitation, finance companies, brokerage firms, insurance
companies, mortgage banks and other financial intermediaries. These competitors often have greater
resources affording them the competitive advantage of maintaining numerous retail locations and
ATMs and conducting extensive promotional and advertising campaigns. Moreover, our credit union
competitors pay no corporate taxes and can, therefore, more aggressively price many products and
services.
Changes in interest rates could reduce our income and cash flows.
The Bank’s income and cash flows and the value of its assets and liabilities depend to a great
extent on the difference between the income earned on interest-earning assets such as loans and
investment securities, and the interest expense paid on interest-bearing liabilities such as
deposits and borrowings. These rates are highly sensitive to many factors which are beyond our
control, including general economic conditions and policies of various governmental and regulatory
agencies, in particular, the Federal Reserve Board. Changes in monetary policy, including changes
in interest rates, will influence the origination of loans and investment securities and the
amounts paid on deposits. If the rates of interest the Bank pays on its deposits and other
borrowings increases more than the rates of interest the Bank earns on its loans and other
investments, the Bank’s net interest income, and therefore our earnings, could be adversely
affected. The Bank’s earnings could also be adversely affected if the rates on its loans or other
investments fall more quickly than those on its deposits and other borrowings.
Significant increases in interest rates may affect customer loan demand and payment habits.
Significant increases in market interest rates, or the perception that an increase may occur,
could adversely impact the Bank’s ability to generate new loans. An increase in market interest
rates may also adversely impact the ability of adjustable rate borrowers to meet repayment
obligations, thereby causing nonperforming loans and loan charge-offs to increase in these mortgage
products.
If the Bank’s loan growth exceeds that of its deposit growth, then the Bank may be required to
obtain higher cost sources of funds.
Our growth strategy depends upon generating an increasing level of loans at the Bank while
maintaining a low level of loan losses for the Bank. As the Bank’s loans grow, it is necessary for
the Bank’s deposits to grow at a comparable pace in order to avoid the need for the Bank to obtain
other sources of loan funds at higher costs. If the Bank’s loan growth exceeds the deposit growth,
the Bank may have to obtain other sources of funds at higher costs which could adversely affect our
earnings.
If the Bank’s allowance for loan losses is not adequate to cover actual loan losses, its earnings
may decline.
The Bank maintains an allowance for loan losses to provide for loan defaults and other
classified loans due to unfavorable characteristics. The Bank’s allowance for loan losses may not
be adequate to cover actual loan losses, and future provisions for loan losses could materially and
adversely affect our operating results. The Bank’s allowance for loan losses is based on prior
experience, as well as an evaluation of risks in the current portfolio. The amount of future
losses is susceptible to changes in economic, operating
12
and other conditions, including changes in interest rates, changes in borrowers’ creditworthiness,
and the value of collateral securing loans and leases that may be beyond the Bank’s control, and
these losses may exceed our current estimates. The FDIC and Pennsylvania Department of Banking
review the Bank’s loans and allowance for loan losses and may require the Bank to increase its
allowance. While we believe that the Bank’s allowance for loan losses is adequate to cover current
losses, we cannot assure that the Bank will not further increase the allowance for loan losses or
that the regulators will not require the Bank to increase the allowance. Either of these
occurrences could adversely affect our earnings.
Adverse changes in the market value of securities and investments that we manage for others may
negatively impact the growth level of the Bank’s non-interest income.
The Bank provides a broad range of trust and investment management services for estates,
trusts, agency accounts, and individual and employer sponsored retirement plans. The market value
of the securities and investments managed by the Bank may decline due to factors outside the Bank’s
control. Any such adverse changes in the market value of the securities and investments could
negatively impact the growth of the non-interest income generated from providing these services.
The Bank’s branch locations may be negatively affected by changes in demographics.
We and the Bank have strategically selected locations for bank branches based upon regional
demographics. Any changes in regional demographics may impact the Bank’s ability to reach or
maintain profitability at its branch locations. Changes in regional demographics may also affect
the perceived benefits of certain branch locations and management may be required to reduce the
number of locations of its branches.
Changes in the regulatory environment may adversely affect the Bank’s business.
The banking industry is highly regulated and the Bank is subject to extensive state and
federal regulation, supervision, and legislation. The Bank is subject to regulation and
supervision by the FDIC, the Pennsylvania Department of Banking, and indirectly, the Securities and
Exchange Commission. These laws and regulations may change from time to time and may limit our
ability to offer new products and services, obtain financing, attract deposits, and originate
loans. Any changes to these laws and regulations may adversely affect loan demand, credit quality,
consumer spending and saving habits, interest rate margins, FDIC assessments, and operating
expenses. Therefore, our results of operations and financial condition may be materially
negatively impacted by such changes.
Training and technology costs, as well as product development and operating costs, may exceed our
expectations and negatively impact our profitability.
The financial services industry is constantly undergoing technological changes in the types of
products and services provided to customers to enhance customer convenience. Our future success
will depend upon our ability to address the changing technological needs of our customers. We have
invested a substantial amount of resources to update our technology and train the management team.
This investment in technology and training seeks to increase efficiency in the management team’s
performance and improve accessibility to customers. We are also investing in the expansion of bank
branches, improvement of operating systems, and the development of new marketing initiatives. The
costs of implementing the technology, training, product development, and marketing costs may exceed
our expectations and negatively impact our results of operations and profitability.
If we fail to maintain an effective system of internal controls, we may not be able to accurately
report our financial results or prevent fraud.
If we fail to maintain an effective system of internal controls; fail to correct any issues in
the design or operating effectiveness of internal controls over financial reporting; or fail to
prevent fraud, our shareholders could lose confidence in our financial reporting, which could harm
our business and the trading price of our common stock.
The loss of one or more of our key personnel may materially and adversely affect our prospects.
We depend on the services of our President and Chief Executive Officer, Lance O. Diehl, and a
number of other key management personnel. The loss of Mr. Diehl’s services or that of other key
personnel could materially and adversely affect our results of operations and financial condition.
Our success also depends, in part, on our ability to attract and retain additional qualified
management personnel. Competition for such personnel is strong in the banking industry and we may
not be successful in attracting or retaining such personnel due to our geographic location and
prevailing salary levels in our market area.
|
|
|
| Item 1B. |
|
Unresolved Staff Comments |
Not applicable.
13
Item 2. Properties
Our executive offices are at 232 East Street, Bloomsburg, Pennsylvania . The Bank’s
legal or registered office is also at 232 East Street, Bloomsburg, Pennsylvania.
We own all of the banking centers except 2 branch facilities and 2 ATM facilities, which we
lease. See Footnote 14 at Item 8 for lease details. During 2009 we sold the 1016 West Front
Street Berwick and the South Centre, PA former branch buildings. The remaining banking centers are
described as follows:
| |
|
|
|
|
|
|
|
|
| |
|
Approximate |
|
|
|
|
| Location |
|
Square Footage |
|
Own or Lease |
|
Use |
Red Rock Road, Benton, PA
|
|
|
2,814 |
|
|
Own
|
|
For Sale |
Market Street, Benton, PA
|
|
|
4,672 |
|
|
Own
|
|
Banking Services |
1919 W. Front Street, Berwick, PA
|
|
|
2,240 |
|
|
Own
|
|
Banking Services |
Market Street, Berwick, PA
|
|
|
|
|
|
Own
|
|
Future expansion |
1 Hospital Drive, Bloomsburg
|
|
|
120 |
|
|
Lease
|
|
ATM Facility |
17 E. Main Street, Bloomsburg
|
|
|
|
|
|
Lease
|
|
ATM Facility |
232 East Street, Bloomsburg
|
|
|
11,686 |
|
|
Own
|
|
Main Office and Bancorp Headquarters |
Market Street, Bloomsburg
|
|
|
1,335 |
|
|
Lease
|
|
Banking Services |
Buckhorn, PA
|
|
|
693 |
|
|
Lease
|
|
Banking Services (In Wal-Mart Supercenter) |
Buckhorn, PA
|
|
|
3,804 |
|
|
Own
|
|
Banking Services |
Catawissa, PA
|
|
|
1,558 |
|
|
Own
|
|
Banking Services |
Catawissa, PA
|
|
|
2,804 |
|
|
Own
|
|
Residential |
Elysburg, PA
|
|
|
2,851 |
|
|
Own
|
|
Banking Services |
Millville, PA
|
|
|
2,520 |
|
|
Own
|
|
Banking Services |
Orangeville, PA
|
|
|
2,259 |
|
|
Own
|
|
Banking Services |
1199 Lightstreet Road, Scott
Township, PA
|
|
|
16,500 |
|
|
Own
|
|
Banking Services, Financial Planning, IT and Deposit Operations |
2691 Columbia Blvd, Scott
Township, PA
|
|
|
3,680 |
|
|
Own
|
|
Banking Services |
992 Central Road, Scott
Township, PA
|
|
|
12,624 |
|
|
Own
|
|
Operations Center |
West Hazleton, PA
|
|
|
3,015 |
|
|
Own
|
|
Banking Services |
We consider our facilities to be suitable and adequate for our current and immediate future purposes.
14
|
|
|
| Item 3. |
|
Legal Proceedings |
We and the Bank are not parties to any legal proceedings that could have a material
effect upon our financial condition or income. In addition, we and the Bank are not parties to any
legal proceedings under federal and state environmental laws.
|
|
|
| Item 4. |
|
Submission of Matters to a Vote of Security Holders |
During the fourth quarter of 2009, no matters were submitted to a vote of security
holders through a solicitation of proxies or otherwise.
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
We had 1,026 stockholders of record not including individual participants in security
position listings and 2,241,250 shares of common stock, par value of $1.25 per share, the only
authorized class of common stock, outstanding as of March 1, 2010. Quotations for our common
stock appear under the symbol “CCFN” on the OTC Bulletin Board. These quotations represent
inter-dealer prices and do not include retail mark up, markdown or commission. They may not
necessarily represent actual transactions. The high and
low closing sale prices and dividends per share of our common stock for the four quarters of 2009
and 2008 are summarized in the following table.
| |
|
|
|
|
|
|
| 2009: |
|
High ($) |
|
Low ($) |
|
Dividends Declared ($) |
First quarter |
|
19.00 |
|
14.00 |
|
.24 |
Second quarter |
|
22.50 |
|
18.35 |
|
.24 |
Third quarter |
|
24.00 |
|
20.90 |
|
.27 |
Fourth quarter |
|
28.00 |
|
23.50 |
|
.28 |
| |
|
|
|
|
|
|
| 2008: |
|
High ($) |
|
Low ($) |
|
Dividends Declared ($) |
First quarter |
|
26.00 |
|
24.30 |
|
.21 |
Second quarter |
|
25.45 |
|
23.70 |
|
.21 |
Third quarter |
|
23.80 |
|
21.00 |
|
.24 |
Fourth quarter |
|
22.00 |
|
18.50 |
|
.24 |
We have paid cash dividends since 1983. It is our present intention to continue the dividend
payment policy, although the payment of future dividends must necessarily depend upon earnings,
financial position, appropriate restrictions under applicable law and other factors relevant at the
time the Board of Directors considers any declaration of dividends. Our ability to pay dividends
is subject to certain legal restrictions described in Item 1 above under “Dividend Restrictions”.
Following is a schedule of the shares of the Corporation’s common stock purchased by the
Corporation during the fourth quarter of 2009:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total |
|
|
Average |
|
|
Total Number of |
|
|
Maximum Number (or |
|
| |
|
Number of |
|
|
Price Paid |
|
|
Shares (or Units) |
|
|
Approximate Dollar Value) |
|
| |
|
Shares (or |
|
|
per Share |
|
|
Purchased as Part of |
|
|
of Shares (or Units) that |
|
| |
|
Units) |
|
|
(or Units) |
|
|
Publicly Announced |
|
|
May Yet Be Purchased |
|
| Period |
|
Purchased |
|
|
Purchased |
|
|
Plans or Programs (1) |
|
|
Under the Plans or Programs |
|
Month #1 (October 1 - October 31, 2009) |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
|
187,500 |
|
Month #2 (November 1 - November 30, 2009) |
|
|
10,000 |
|
|
|
26.50 |
|
|
|
10,000 |
|
|
|
177,500 |
|
Month #3 (December 1 - December 31, 2009) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
177,500 |
|
|
|
|
| (1) |
|
This program was announced in 2009. The Board of Directors approved the purchase of
200,000 shares from time to time at prevailing market prices in block trades on the open
market or in privately negotiated transactions, as market conditions warrant. No
expiration date is associated with this program. |
15
Item 6. Selected Financial Data
During the year ended December 31, 2008, we completed the acquisition of Columbia
Financial Corporation which had a material affect on the comparability of the information listed
below. Details of the merger are included in footnote 15 of the Notes to Consolidated Financial
Statements included in Item 8 of this form 10-K.
CCFNB BANCORP, INC.
SELECTED CONSOLIDATED FINANCIAL SUMMARY
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Year Ending December 31, |
|
| (In Thousands except per share data) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
| |
|
|
INCOME STATEMENT DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
$ |
28,420 |
|
|
$ |
21,357 |
|
|
$ |
14,483 |
|
|
$ |
13,202 |
|
|
$ |
11,442 |
|
Total interest expense |
|
|
8,614 |
|
|
|
7,504 |
|
|
|
6,185 |
|
|
|
5,301 |
|
|
|
4,131 |
|
| |
|
|
Net interest income |
|
|
19,806 |
|
|
|
13,853 |
|
|
|
8,298 |
|
|
|
7,901 |
|
|
|
7,311 |
|
Provision for possible loan losses |
|
|
1,025 |
|
|
|
750 |
|
|
|
30 |
|
|
|
175 |
|
|
|
90 |
|
Non interest income |
|
|
5,065 |
|
|
|
3,043 |
|
|
|
2,305 |
|
|
|
1,900 |
|
|
|
1,713 |
|
Non interest expenses |
|
|
15,914 |
|
|
|
12,172 |
|
|
|
7,038 |
|
|
|
6,437 |
|
|
|
6,077 |
|
Federal income taxes |
|
|
2,055 |
|
|
|
896 |
|
|
|
888 |
|
|
|
777 |
|
|
|
631 |
|
| |
|
|
Net income |
|
$ |
5,877 |
|
|
$ |
3,078 |
|
|
$ |
2,647 |
|
|
$ |
2,412 |
|
|
$ |
2,226 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER SHARE DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (1) |
|
$ |
2.61 |
|
|
$ |
1.82 |
|
|
$ |
2.15 |
|
|
$ |
1.93 |
|
|
$ |
1.76 |
|
Cash dividends declared per share |
|
$ |
1.03 |
|
|
$ |
0.90 |
|
|
$ |
0.82 |
|
|
$ |
0.78 |
|
|
$ |
0.74 |
|
Book value per share |
|
$ |
28.95 |
|
|
$ |
26.94 |
|
|
$ |
25.79 |
|
|
$ |
24.36 |
|
|
$ |
23.06 |
|
Average annual shares outstanding |
|
|
2,253,087 |
|
|
|
1,688,498 |
|
|
|
1,233,339 |
|
|
|
1,249,844 |
|
|
|
1,262,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
602,489 |
|
|
$ |
568,319 |
|
|
$ |
245,324 |
|
|
$ |
241,920 |
|
|
$ |
231,218 |
|
Total loans |
|
|
330,489 |
|
|
|
320,068 |
|
|
|
161,460 |
|
|
|
160,641 |
|
|
|
154,271 |
|
Total securities |
|
|
223,250 |
|
|
|
196,580 |
|
|
|
57,686 |
|
|
|
53,486 |
|
|
|
53,919 |
|
Total deposits |
|
|
462,288 |
|
|
|
434,309 |
|
|
|
170,938 |
|
|
|
169,285 |
|
|
|
164,847 |
|
FHLB advances-long-term |
|
|
15,128 |
|
|
|
9,133 |
|
|
|
11,137 |
|
|
|
11,297 |
|
|
|
11,311 |
|
Total stockholders’ equity |
|
|
65,086 |
|
|
|
60,775 |
|
|
|
31,627 |
|
|
|
30,249 |
|
|
|
29,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PERFORMANCE RATIOS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets |
|
|
1.01 |
% |
|
|
0.77 |
% |
|
|
1.07 |
% |
|
|
1.02 |
% |
|
|
0.97 |
% |
Return on average stockholders’ equity |
|
|
9.25 |
% |
|
|
6.91 |
% |
|
|
8.54 |
% |
|
|
7.97 |
% |
|
|
7.73 |
% |
Net interest margin (2) |
|
|
3.80 |
% |
|
|
3.90 |
% |
|
|
3.74 |
% |
|
|
3.74 |
% |
|
|
3.65 |
% |
Total non-interest expense as a percentage of
average assets |
|
|
2.73 |
% |
|
|
3.06 |
% |
|
|
2.83 |
% |
|
|
2.72 |
% |
|
|
2.64 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSET QUALITY RATIOS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for possible loan losses as a
percentage of loans, net |
|
|
1.27 |
% |
|
|
1.17 |
% |
|
|
0.89 |
% |
|
|
0.91 |
% |
|
|
1.02 |
% |
Allowance for possible loan losses as a
percentage of non-performing loans (3) |
|
|
89.87 |
% |
|
|
83.29 |
% |
|
|
102.64 |
% |
|
|
686.79 |
% |
|
|
185.54 |
% |
Non-performing loans as a percentage of total
loans, net (3) |
|
|
1.42 |
% |
|
|
1.43 |
% |
|
|
0.09 |
% |
|
|
0.13 |
% |
|
|
0.85 |
% |
Non-performing assets as a percentage of total
assets (3) |
|
|
0.78 |
% |
|
|
0.86 |
% |
|
|
0.57 |
% |
|
|
0.09 |
% |
|
|
0.36 |
% |
Net charge-offs as a percentage of average net
loans (4) |
|
|
-0.18 |
% |
|
|
-0.05 |
% |
|
|
-0.03 |
% |
|
|
-0.17 |
% |
|
|
0.05 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIQUIDITY AND CAPITAL RATIOS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average equity to average assets |
|
|
10.90 |
% |
|
|
11.19 |
% |
|
|
12.48 |
% |
|
|
12.79 |
% |
|
|
12.51 |
% |
Tier 1 capital to risk-weighted assets (5) |
|
|
16.38 |
% |
|
|
15.37 |
% |
|
|
18.10 |
% |
|
|
19.25 |
% |
|
|
19.24 |
% |
Leverage ratios (5) (6) |
|
|
9.82 |
% |
|
|
9.27 |
% |
|
|
12.71 |
% |
|
|
12.71 |
% |
|
|
12.74 |
% |
Total capital to risk-weighted assets (5) |
|
|
17.62 |
% |
|
|
16.48 |
% |
|
|
18.93 |
% |
|
|
20.29 |
% |
|
|
20.32 |
% |
Dividend Payout Ratio |
|
|
39.44 |
% |
|
|
51.75 |
% |
|
|
38.16 |
% |
|
|
40.38 |
% |
|
|
41.92 |
% |
16
|
|
|
| (1) |
|
Based upon average shares and common share equivalents outstanding. |
| |
| (2) |
|
Represents net interest income as a percentage of average total interest-earning assets,
calculated on a tax-equivalent basis. |
| |
| (3) |
|
Non-performing loans are comprised of (i) loans which are on a non-accrual basis, (ii)
accruing loans that are 90 days or more past due, and (iii) restructured loans.
Non-performing assets are comprised of non-performing loans and foreclosed real estate (assets
acquired in foreclosure), if applicable. |
| |
| (4) |
|
Based upon average balances for the respective periods. |
| |
| (5) |
|
Based on the Federal Reserve Bank’s risk-based capital guidelines, as applicable to the
Corporation. The Bank is subject to similar requirements imposed by the FDIC. |
| |
| (6) |
|
The leverage ratio is defined as the ratio of Tier 1 Capital to average total assets less
intangible assets, if applicable. |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY STATEMENT
Certain statements in this section and elsewhere in this Annual Report on Form 10-K,
other periodic reports filed by us under the Securities Exchange Act of 1934, as amended, and any
other written or oral statements made by or on behalf of us may include “forward looking
statements” within the meaning of the Private Securities Litigation Reform Act of 1995 which
reflect our current views with respect to future events and financial performance. Such forward
looking statements are based on general assumptions and are subject to various risks,
uncertainties, and other factors that may cause actual results to differ materially from the views,
beliefs and projections expressed in such statements. These risks, uncertainties and other factors
include, but are not limited to:
| |
• |
|
Our business and financial results are affected by business and economic
conditions, both generally and specifically in the Northcentral Pennsylvania market
in which we operate. In particular, our businesses and financial results may be
impacted by: |
| |
| |
• |
|
Changes in interest rates and valuations in the debt, equity and other financial
markets. |
| |
| |
• |
|
Disruptions in the liquidity and other functioning of financial markets,
including such disruptions in the market for real estate and other assets commonly
securing financial products. |
| |
| |
• |
|
Actions by the Federal Reserve Board and other government agencies, including
those that impact money supply and market interest rates. |
| |
| |
• |
|
Changes in our customers’ and suppliers’ performance in general and their
creditworthiness in particular. |
| |
| |
• |
|
Changes in customer preferences and behavior, whether as a result of changing
business and economic conditions or other factors. |
| |
| |
• |
|
Changes resulting from the newly enacted Emergency Economic Stabilization Act of
2008. |
| |
| |
• |
|
A continuation of recent turbulence in significant segments of the United States
and global financial markets, particularly if it worsens, could impact our
performance, both directly by affecting our revenues and the value of our assets and
liabilities and indirectly by affecting our customers and suppliers and the economy
generally. |
| |
| |
• |
|
Our business and financial performance could be impacted as the financial
industry restructures in the current environment by changes in the competitive
landscape. |
| |
| |
• |
|
Given current economic and financial market conditions, our forward-looking
financial statements are subject to the risk that these conditions will be
substantially different than we are currently expecting. These statements are based
on our current expectations that interest rates will remain low throughout most of
2010 with consistent credit spreads and our view that national economic trends
currently point to a continuation of recessionary conditions into 2010 followed by a
subdued recovery. |
| |
| |
• |
|
Legal and regulatory developments could have an impact on our ability to operate
our businesses or our financial condition or results of operations or our
competitive position or reputation. Reputational impacts, in turn, could affect
matters such as business generation and retention, our ability to attract and retain
management, liquidity and funding. These legal and regulatory developments could
include: (a) the unfavorable resolution of legal proceedings
or regulatory and other governmental inquiries; (b) increased litigation risk from
recent regulatory and |
17
| |
|
|
other governmental developments; (c) the results of the
regulatory examination process, and regulators’ future use of supervisory and
enforcement tools; (d) legislative and regulatory reforms, including changes to laws
and regulations involving tax, pension, education and mortgage lending, the protection
of confidential customer information, and other aspects of the financial institution
industry; and (e) changes in accounting policies and principles. |
| |
| |
• |
|
Our business and operating results are affected by our ability to identify and
effectively manage risks inherent in our businesses, including, where appropriate,
through the effective use of third-party insurance and capital management
techniques. |
| |
| |
• |
|
Our ability to anticipate and respond to technological changes can have an impact
on our ability to respond to customer needs and to meet competitive demands. |
| |
| |
• |
|
Our ability to implement our business initiatives and strategies could affect our
financial performance over the next several years. |
| |
| |
• |
|
Competition can have an impact on customer acquisition, growth and retention, as
well as on our credit spreads and product pricing, which can affect market share,
deposits and revenues. |
| |
| |
• |
|
Our business and operating results can also be affected by widespread natural
disasters, terrorist activities or international hostilities, either as a result of
the impact on the economy and capital and other financial markets generally or on us
or on our customers and suppliers. |
The words “believe,” “expect,” “anticipate,” “project” and similar expressions signify forward
looking statements. Readers are cautioned not to place undue reliance on any forward looking
statements made by or on behalf of us. Any such statement speaks only as of the date the statement
was made. We undertake no obligation to update or revise any forward looking statements.
The following discussion and analysis should be read in conjunction with the detailed
information and consolidated financial statements, including notes thereto, included elsewhere in
this Annual Report. Our consolidated financial condition and results of operations are essentially
those of our subsidiary, the Bank. Therefore, the analysis that follows is directed to the
performance of the Bank.
RESULTS OF OPERATIONS
NET INTEREST INCOME
2009 vs. 2008
Tax-equivalent net interest income increased $6.1 million or 42.5 percent to $20.5 million for
the year ended December 31, 2009.
Reported tax-equivalent interest income increased $7.2 million or 33.0 percent to $29.1
million for the year ended December 31, 2009. The increase primarily resulted from the 2008
acquisition of Columbia Financial Corporation (“CFC”) as described in Note 15 of the Notes to the
Consolidated Financial Statements included in Item 8. The acquisition of CFC, completed July 18,
2008, contributed a 2008 increase in net loans in the amount of $160.7 million, an increase in
investment securities in the amount of $138.3 million, an increase in federal funds sold in the
amount of $517,000, and an increase in interest-bearing deposits in other banks of $129,000.
Reported interest expense increased $1.1 million or 14.8 percent to $8.6 million. The 2008
acquisition of CFC contributed an increase in deposits in the amount of $264.7 million, an
increase in other borrowings of $31.9 million, and an increase of $4.6 million in junior
subordinate debentures.
Net interest margin decreased to 3.80 percent at December 31, 2009 from 3.90 percent at
December 31, 2008. The decrease in margin resulted primarily from the yield on interest-bearing
liabilities decreasing 51 basis points to 1.86 percent while the yield on interest-earning assets
decreased 54 basis points to 5.40 percent. The 54 basis point decrease to interest-earning assets
was driven by related decreases of 49 basis points to the loan yield and the 40 basis point
decrease to the investment yield. Tax-equivalent net interest income from loans increased to
$20.2 million for the year ended December 31, 2009. Despite the increased income, an overall
decrease in the yield resulted as variable rate real estate loans re-priced to market rates. For
the year ended December 31, 2009, tax-equivalent net interest income from investments increased
$2.9 million while the yield decreased 40 basis points. The primary cause of the yield decrease
was the 2009 reinvestment of called U.S. Agency securities. The 51 basis point decrease on
interest-bearing liabilities resulted from related decreases of 44 basis points to the deposit
yield and the 92 basis point decrease to the
18
borrowing yield. The total deposit yield decreased 44
basis points to 1.88 percent at December 31, 2009 while the yield on total borrowings decreased 92
basis points to 1.72 percent at December 31, 2009. A decrease of 59 basis points on the time
deposits for the year ended December 31, 2009 was the primary reason for the yield decrease in
total deposits. Time deposits had an average balance of $228.0 million and $154.3 million as of
December 31, 2009 and 2008, respectively. A decrease of 101 basis points on the short-
term borrowings for the year ended December 31, 2009 was the primary reason for the yield
decrease in the total borrowings as the long-term borrowing yield decreased 96 basis points over
the same period. The short-term borrowing had an average balance of $48.8 million and $42.9 million
as of December 31, 2009 and 2008, respectively. The yield decreases were driven by the rate
decreases enacted throughout 2008 by the Federal Open Market Committee (FOMC) as well as local
market competition.
2008 vs. 2007
Tax-equivalent net interest income increased $5.7 million or 65.7 percent to $14.3 million for
the year ended December 31, 2008. Reported tax-equivalent interest income increased $7.0 million
or 47.3 percent to $21.9 million for the year ended December 31, 2008. The increase primarily
resulted from the acquisition of Columbia Financial Corporation (“CFC”) as described in Note 15 of
the Notes to the Consolidated Financial Statements included in Item 8. The acquisition of CFC
contributed an increase in net loans in the amount of $160.7 million, an increase in investment
securities in the amount of $138.3 million, an increase in federal funds sold in the amount of
$517,000, and an increase in interest-bearing deposits in other banks of $129,000. Reported
interest expense increased $1.3 million or 21.3 percent to $7.5 million. The acquisition of CFC
contributed an increase in deposits in the amount of $264.7 million, an increase in other
borrowings of $31.9 million, and an increase of $4.6 million in junior subordinate debentures.
Net interest margin increased to 3.90 percent at December 31, 2008 from 3.74 percent at
December 31, 2007. The increase in margin resulted primarily from the yield on interest-bearing
deposits decreasing 33 basis points to 2.32 percent at December 31, 2008 while the yield on total
borrowings decreased 233 basis points to 2.64 percent at December 31, 2008. A decrease of 285 basis
points on the short-term borrowings for the year ended December 31, 2008 was the primary reason
for the yield decrease in the total borrowings as the long-term borrowing yield increased 9 basis
points over the same period. The short-term borrowing had an average balance of $42.9 million and
$31.6 million as of December 31, 2008 and 2007, respectively. The yield decreases were driven by
the rate decreases enacted throughout 2008 by the Federal Open Market Committee (FOMC) as well as
local market competition. The yield on interest-earning assets decreased 47 basis points to 5.94
percent for the year ended December 31, 2008. The yield on total loans decreased 42 basis points
to 6.66 percent for the year ended December 31, 2008.
The following Average Balance Sheet and Rate Analysis table presents the average assets,
actual income or expense and the average yield on assets, liabilities and stockholders’ equity for
the years 2009, 2008 and 2007.
19
AVERAGE BALANCE SHEET AND RATE ANALYSIS
YEARS ENDED DECEMBER 31,
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
|
2008 |
|
|
2007 |
|
| |
|
Average Balance |
|
|
Interest |
|
|
Average Rate |
|
|
Average Balance |
|
|
Interest |
|
|
Average Rate |
|
|
Average Balance |
|
|
Interest |
|
|
Average Rate |
|
| (In Thousands) |
|
(1) |
|
|
|
|
|
|
|
|
|
|
(1) |
|
|
|
|
|
|
|
|
|
|
(1) |
|
|
|
|
|
|
|
|
|
ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt loans |
|
$ |
19,627 |
|
|
$ |
1,254 |
|
|
|
6.39 |
% |
|
$ |
16,156 |
|
|
$ |
1,070 |
|
|
|
6.62 |
% |
|
$ |
11,389 |
|
|
$ |
771 |
|
|
|
6.77 |
% |
All other loans |
|
|
307,450 |
|
|
|
18,925 |
|
|
|
6.16 |
% |
|
|
218,915 |
|
|
|
14,587 |
|
|
|
6.66 |
% |
|
|
148,959 |
|
|
|
10,585 |
|
|
|
7.11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans (2)(3)(4) |
|
|
327,077 |
|
|
|
20,179 |
|
|
|
6.17 |
% |
|
|
235,071 |
|
|
|
15,657 |
|
|
|
6.66 |
% |
|
|
160,348 |
|
|
|
11,356 |
|
|
|
7.08 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable securities |
|
|
189,202 |
|
|
|
8,220 |
|
|
|
4.34 |
% |
|
|
118,012 |
|
|
|
5,633 |
|
|
|
4.77 |
% |
|
|
54,353 |
|
|
|
2,546 |
|
|
|
4.68 |
% |
Tax-exempt securitites (3) |
|
|
11,550 |
|
|
|
650 |
|
|
|
5.63 |
% |
|
|
6,765 |
|
|
|
385 |
|
|
|
5.69 |
% |
|
|
4,200 |
|
|
|
281 |
|
|
|
6.69 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities |
|
|
200,752 |
|
|
|
8,870 |
|
|
|
4.42 |
% |
|
|
124,777 |
|
|
|
6,018 |
|
|
|
4.82 |
% |
|
|
58,553 |
|
|
|
2,827 |
|
|
|
4.83 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold |
|
|
7,639 |
|
|
|
10 |
|
|
|
0.13 |
% |
|
|
6,990 |
|
|
|
155 |
|
|
|
2.22 |
% |
|
|
10,013 |
|
|
|
512 |
|
|
|
5.11 |
% |
Interest-bearing deposits |
|
|
2,877 |
|
|
|
8 |
|
|
|
0.28 |
% |
|
|
873 |
|
|
|
22 |
|
|
|
2.52 |
% |
|
|
2,754 |
|
|
|
145 |
|
|
|
5.27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
538,345 |
|
|
|
29,067 |
|
|
|
5.40 |
% |
|
|
367,711 |
|
|
|
21,852 |
|
|
|
5.94 |
% |
|
|
231,668 |
|
|
|
14,840 |
|
|
|
6.41 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
44,460 |
|
|
|
|
|
|
|
|
|
|
|
30,117 |
|
|
|
|
|
|
|
|
|
|
|
16,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
582,805 |
|
|
|
|
|
|
|
|
|
|
$ |
397,828 |
|
|
|
|
|
|
|
|
|
|
$ |
248,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings |
|
$ |
56,493 |
|
|
|
225 |
|
|
|
0.40 |
% |
|
$ |
39,223 |
|
|
|
156 |
|
|
|
0.40 |
% |
|
$ |
24,602 |
|
|
|
98 |
|
|
|
0.40 |
% |
Now deposits |
|
|
68,650 |
|
|
|
100 |
|
|
|
0.15 |
% |
|
|
47,534 |
|
|
|
129 |
|
|
|
0.27 |
% |
|
|
29,321 |
|
|
|
91 |
|
|
|
0.31 |
% |
Money market deposits |
|
|
43,906 |
|
|
|
452 |
|
|
|
1.03 |
% |
|
|
21,119 |
|
|
|
350 |
|
|
|
1.66 |
% |
|
|
8,894 |
|
|
|
59 |
|
|
|
0.66 |
% |
Time deposits |
|
|
228,005 |
|
|
|
6,701 |
|
|
|
2.94 |
% |
|
|
154,334 |
|
|
|
5,447 |
|
|
|
3.53 |
% |
|
|
90,375 |
|
|
|
3,810 |
|
|
|
4.22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
397,054 |
|
|
|
7,478 |
|
|
|
1.88 |
% |
|
|
262,210 |
|
|
|
6,082 |
|
|
|
2.32 |
% |
|
|
153,192 |
|
|
|
4,058 |
|
|
|
2.65 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings |
|
|
48,826 |
|
|
|
368 |
|
|
|
0.75 |
% |
|
|
42,912 |
|
|
|
754 |
|
|
|
1.76 |
% |
|
|
31,582 |
|
|
|
1,457 |
|
|
|
4.61 |
% |
Long-term borrowings |
|
|
12,492 |
|
|
|
640 |
|
|
|
5.12 |
% |
|
|
9,413 |
|
|
|
572 |
|
|
|
6.08 |
% |
|
|
11,188 |
|
|
|
670 |
|
|
|
5.99 |
% |
Junior subordinate debentures |
|
|
4,640 |
|
|
|
128 |
|
|
|
2.76 |
% |
|
|
1,605 |
|
|
|
96 |
|
|
|
5.98 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowings |
|
|
65,958 |
|
|
|
1,136 |
|
|
|
1.72 |
% |
|
|
53,930 |
|
|
|
1,422 |
|
|
|
2.64 |
% |
|
|
42,770 |
|
|
|
2,127 |
|
|
|
4.97 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
463,012 |
|
|
|
8,614 |
|
|
|
1.86 |
% |
|
|
316,140 |
|
|
|
7,504 |
|
|
|
2.37 |
% |
|
|
195,962 |
|
|
|
6,185 |
|
|
|
3.16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
51,908 |
|
|
|
|
|
|
|
|
|
|
|
34,403 |
|
|
|
|
|
|
|
|
|
|
|
19,611 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
4,359 |
|
|
|
|
|
|
|
|
|
|
|
2,761 |
|
|
|
|
|
|
|
|
|
|
|
1,900 |
|
|
|
|
|
|
|
|
|
Stockholders’ equity |
|
|
63,526 |
|
|
|
|
|
|
|
|
|
|
|
44,524 |
|
|
|
|
|
|
|
|
|
|
|
31,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
$ |
582,805 |
|
|
|
|
|
|
|
|
|
|
$ |
397,828 |
|
|
|
|
|
|
|
|
|
|
$ |
248,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread (6) |
|
|
|
|
|
|
|
|
|
|
3.54 |
% |
|
|
|
|
|
|
|
|
|
|
3.57 |
% |
|
|
|
|
|
|
|
|
|
|
3.25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/margin (5) |
|
|
|
|
|
$ |
20,453 |
|
|
|
3.80 |
% |
|
|
|
|
|
$ |
14,348 |
|
|
|
3.90 |
% |
|
|
|
|
|
$ |
8,655 |
|
|
|
3.74 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Average volume information was compared using daily averages for interest-earning and
bearing accounts. |
| |
| (2) |
|
Interest on loans includes loan fee income. |
| |
| (3) |
|
Tax exempt interest revenue is shown on a
tax-equivalent basis using a statutory federal income tax rate of 34 percent for 2009, 2008 and
2007. |
| |
| (4) |
|
Nonaccrual loans have been included with loans for the purpose of analyzing net interest
earnings. |
| |
| (5) |
|
Net interest margin is computed by dividing annualized tax-equivalent net interest income by
total interest earning assets. |
| |
| (6) |
|
Interest rate spread represents the difference between the
average rate earned on interest-earning assets and the average rate paid on interest-bearing
liabilities. |
20
Reconcilement of Taxable Equivalent Net Interest Income
For the Years Ended December 31,
| |
|
|
|
|
|
|
|
|
|
|
|
|
| (In Thousands) |
|
2009 |
|
2008 |
|
2007 |
Total interest income |
|
$ |
28,420 |
|
|
$ |
21,357 |
|
|
$ |
14,483 |
|
Total interest expense |
|
|
8,614 |
|
|
|
7,504 |
|
|
|
6,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
19,806 |
|
|
|
13,853 |
|
|
|
8,298 |
|
Tax equivalent adjustment |
|
|
647 |
|
|
|
495 |
|
|
|
357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
(fully taxable equivalent) |
|
$ |
20,453 |
|
|
$ |
14,348 |
|
|
$ |
8,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate/Volume Analysis
To enhance the understanding of the effects of volumes (the average balance of earning assets
and costing liabilities) and average interest rate fluctuations on the balance sheet as it pertains
to net interest income, the table below reflects these changes for 2009 versus 2008, and 2008
versus 2007:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2009 vs 2008 |
|
|
2008 vs 2007 |
|
| |
|
Increase (Decrease) |
|
|
Increase (Decrease) |
|
| |
|
Due to |
|
|
Due to |
|
| (In Thousands) |
|
Volume |
|
|
Rate |
|
|
Net |
|
|
Volume |
|
|
Rate |
|
|
Net |
|
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, tax-exempt |
|
$ |
223 |
|
|
$ |
(39 |
) |
|
$ |
184 |
|
|
$ |
316 |
|
|
$ |
(17 |
) |
|
$ |
299 |
|
Loans |
|
|
5,346 |
|
|
|
(1,008 |
) |
|
|
4,338 |
|
|
|
4,614 |
|
|
|
(612 |
) |
|
|
4,002 |
|
Taxable investment securities |
|
|
3,133 |
|
|
|
(546 |
) |
|
|
2,587 |
|
|
|
3,040 |
|
|
|
47 |
|
|
|
3,087 |
|
Tax-exempt investment securities |
|
|
269 |
|
|
|
(4 |
) |
|
|
265 |
|
|
|
151 |
|
|
|
(47 |
) |
|
|
104 |
|
Federal funds sold |
|
|
13 |
|
|
|
(158 |
) |
|
|
(145 |
) |
|
|
(255 |
) |
|
|
(102 |
) |
|
|
(357 |
) |
Interest bearing deposits |
|
|
19 |
|
|
|
(33 |
) |
|
|
(14 |
) |
|
|
124 |
|
|
|
(247 |
) |
|
|
(123 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
9,003 |
|
|
|
(1,788 |
) |
|
|
7,215 |
|
|
|
7,990 |
|
|
|
(978 |
) |
|
|
7,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings |
|
|
69 |
|
|
|
— |
|
|
|
69 |
|
|
|
58 |
|
|
|
— |
|
|
|
58 |
|
NOW deposits |
|
|
44 |
|
|
|
(73 |
) |
|
|
(29 |
) |
|
|
51 |
|
|
|
(13 |
) |
|
|
38 |
|
Money market deposits |
|
|
272 |
|
|
|
(170 |
) |
|
|
102 |
|
|
|
(1,325 |
) |
|
|
1,615 |
|
|
|
290 |
|
Time deposits |
|
|
2,278 |
|
|
|
(1,024 |
) |
|
|
1,254 |
|
|
|
2,339 |
|
|
|
(702 |
) |
|
|
1,637 |
|
Short-term borrowings |
|
|
93 |
|
|
|
(479 |
) |
|
|
(386 |
) |
|
|
404 |
|
|
|
(1,107 |
) |
|
|
(703 |
) |
Long-term borrowings, FHLB |
|
|
168 |
|
|
|
(100 |
) |
|
|
68 |
|
|
|
(107 |
) |
|
|
10 |
|
|
|
(97 |
) |
Junior subordinate debentures |
|
|
84 |
|
|
|
(52 |
) |
|
|
32 |
|
|
|
96 |
|
|
|
— |
|
|
|
96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
3,008 |
|
|
|
(1,898 |
) |
|
|
1,110 |
|
|
|
1,516 |
|
|
|
(197 |
) |
|
|
1,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net interest income |
|
$ |
5,995 |
|
|
$ |
110 |
|
|
$ |
6,105 |
|
|
$ |
6,474 |
|
|
$ |
(781 |
) |
|
$ |
5,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR LOAN LOSSES
2009 vs. 2008
The provision for loan losses is based upon management’s quarterly review of the loan
portfolio. The purpose of the review is to assess loan quality, identify impaired loans, analyze
delinquencies, evaluate potential charge-offs and recoveries, and assess the general conditions in
the markets served. Management remains committed to an aggressive and thorough program of problem
loan identification and resolution. Annually, an independent loan review is performed for the
Bank. The allowance for loan losses is evaluated quarterly and is calculated by applying historic
loss factors to the various outstanding loans types while excluding loans for which a specific
allowance has already been determined. Loss factors are based on management’s consideration of the
nature of the
21
portfolio segments, historical loan loss experience, industry standards and trends
with respect to nonperforming loans, and its core knowledge and experience with specific loan
segments.
Although management believes that it uses the best information available to make such
determinations and that the allowance for loan losses is adequate at December 31, 2009, future
adjustments could be necessary if circumstances or economic conditions differ substantially from
the assumptions used in making the initial determinations. A downturn in the local economy or
employment and delays in receiving financial information from borrowers could result in increased
levels of nonperforming assets and charge-offs, increased loan loss provisions and reductions in
interest income. Also, as part of the examination process, bank regulatory agencies periodically
review the Bank’s loan loss allowance. The bank regulators could require the recognition of
additions to the loan loss allowance based on their judgment of information available to them at
the time of their examination.
The provision for loan losses amounted to $1,025,000 and $750,000 for the years ended December
31, 2009 and 2008, respectively. Management concluded the increase of the provision was
appropriate considering the gross loan growth experience of $10.2 million, increases in
nonperforming assets, and the general downturn in the national economy. Utilizing the resources
noted above, management concluded that the allowance for loan losses remains at a level adequate to
provide for probable losses inherent in the loan portfolio.
2008 vs. 2007
The provision for loan losses increased from $30,000 in 2007 to $750,000 in 2008.
NON-INTEREST INCOME
2009 vs. 2008
Total non-interest income increased $2.0 million or 66.4 percent to $5.1 million for the year
ended December 31, 2009. The increase primarily resulted from the 2008 acquisition of CFC as
described in Note 15 of the Notes to the Consolidated Financial Statements included in Item 8. The
service charges and fees increased $423,000 or 33.0 percent to $1,704,000 for the year ended
December 31, 2009. Gain on sale of loans increased $467,000 or 137.8 percent from $339,000 in 2008
to $806,000 in 2009. Brokerage income increased $63,000 or 28.9 percent from $218,000 in 2008 to
$281,000 in 2009. Income from Trust services increased $221,000 or 50.9 percent from $434,000 in
2008 to $655,000 in 2009. During 2009, we recorded an other than temporary impairment loss on the
equity security portfolio in the amount of $69,000 and a realized loss from the sale of equity
securities in the amount of $316,000. Other income increased $397,000 from $419,000 in 2008 to
$816,000 in 2009 primarily as a result of a 2009 gain on the sale of property and equipment in the
amount of $129,000.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For The Year Ended |
| |
|
December 31, 2009 |
|
December 31, 2008 |
|
Change |
| (In Thousands) |
|
Amount |
|
% Total |
|
Amount |
|
% Total |
|
Amount |
|
% |
| |
|
|
|
|
|
|
Service charges and fees |
|
$ |
1,704 |
|
|
|
33.6 |
% |
|
$ |
1,281 |
|
|
|
42.1 |
% |
|
$ |
423 |
|
|
|
33.0 |
% |
Gain on sale of loans |
|
|
806 |
|
|
|
15.9 |
|
|
|
339 |
|
|
|
11.1 |
|
|
|
467 |
|
|
|
137.8 |
|
Earnings on bank-owned life insurance |
|
|
445 |
|
|
|
8.8 |
|
|
|
366 |
|
|
|
12.0 |
|
|
|
79 |
|
|
|
21.6 |
|
Brokerage and insurance |
|
|
281 |
|
|
|
5.5 |
|
|
|
218 |
|
|
|
7.2 |
|
|
|
63 |
|
|
|
28.9 |
|
Trust |
|
|
655 |
|
|
|
12.9 |
|
|
|
434 |
|
|
|
14.3 |
|
|
|
221 |
|
|
|
50.9 |
|
Investment security (losses) gains |
|
|
(385 |
) |
|
|
(7.6 |
) |
|
|
(431 |
) |
|
|
(14.2 |
) |
|
|
46 |
|
|
|
(10.7 |
) |
Bank card and credit card interchange fees |
|
|
743 |
|
|
|
14.7 |
|
|
|
417 |
|
|
|
13.7 |
|
|
|
326 |
|
|
|
78.2 |
|
Other |
|
|
816 |
|
|
|
16.2 |
|
|
|
419 |
|
|
|
13.8 |
|
|
|
397 |
|
|
|
94.7 |
|
| |
|
|
|
|
|
|
Total non-interest income |
|
$ |
5,065 |
|
|
|
100.0 |
% |
|
$ |
3,043 |
|
|
|
100.0 |
% |
|
$ |
2,022 |
|
|
|
66.4 |
% |
| |
|
|
|
|
|
|
2008 vs. 2007
Total non-interest income increased $738 thousand or 51.0 percent to $3.0 million for the
year ended December 31, 2008. The increase primarily resulted from the acquisition of CFC as
described in Note 15 of the Notes to the Consolidated Financial Statements included in Item 8. The
service charges and fees increased $339,000 or 36.0 percent to $1,281,000 for the year ended
December 31, 2008. Gain on sale of loans increased $157,000 or 86.3 percent from $182,000 in 2007
to $339,000 in 2008. Brokerage income decreased $181,000 or 45.4 percent from $399,000 in 2007 to
$218,000 in 2008. The decrease in brokerage income was significantly influenced by the national
economic crises and the related market contraction that followed. During 2008, we recorded an
other than temporary impairment loss on the equity security portfolio in the amount of $437,000.
Bank and credit card
22
card interchange fees and other income increased $536,000 from $300,000 in 2007 to $836,000
in 2008 as a result of increased ATM transaction revenue and related surcharges
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For The Year Ended |
|
| |
|
December 31,2008 |
|
|
December 31,2007 |
|
|
Change |
|
| (In Thousands) |
|
Amount |
|
|
% Total |
|
|
Amount |
|
|
% Total |
|
|
Amount |
|
|
% |
|
Service charges and fees |
|
$ |
1,281 |
|
|
|
42.1 |
% |
|
$ |
942 |
|
|
|
40.9 |
% |
|
$ |
339 |
|
|
|
36.0 |
% |
Gain on sale of loans |
|
|
339 |
|
|
|
11.1 |
|
|
|
182 |
|
|
|
7.9 |
|
|
|
157 |
|
|
|
86.3 |
|
Earnings on bank-owned life insurance |
|
|
366 |
|
|
|
12.0 |
|
|
|
285 |
|
|
|
12.4 |
|
|
|
81 |
|
|
|
28.4 |
|
Brokerage and insurance |
|
|
218 |
|
|
|
7.2 |
|
|
|
399 |
|
|
|
17.3 |
|
|
|
(181 |
) |
|
|
(45.4 |
) |
Trust |
|
|
434 |
|
|
|
14.3 |
|
|
|
196 |
|
|
|
8.5 |
|
|
|
238 |
|
|
|
121.4 |
|
Investment security (losses) gains |
|
|
(431 |
) |
|
|
(14.2 |
) |
|
|
1 |
|
|
|
— |
|
|
|
(432 |
) |
|
|
— |
|
Bank card and credit card interchange fees |
|
|
417 |
|
|
|
13.7 |
|
|
|
173 |
|
|
|
7.5 |
|
|
|
244 |
|
|
|
141.0 |
|
Other |
|
|
419 |
|
|
|
13.8 |
|
|
|
127 |
|
|
|
5.5 |
|
|
|
292 |
|
|
|
229.9 |
|
| |
|
|
|
|
|
|
Total non-interest income |
|
$ |
3,043 |
|
|
|
100.0 |
% |
|
$ |
2,305 |
|
|
|
100.0 |
% |
|
$ |
738 |
|
|
|
32.0 |
% |
| |
|
|
|
|
|
|
NON-INTEREST EXPENSE
2009 vs. 2008
Total non-interest expense increased $3.8 million or 30.7% from $12.1 million in 2008 to $15.9
million in 2009. The increases primarily resulted from the 2008 acquisition of CFC as described in
Note 15 of the Notes to the Consolidated Financial Statements included in Item 8. Salaries and
employee benefits increased $865 thousand or 12.5 percent for the year ended December 31, 2009.
Other expenses, Occupancy, Furniture and Equipment, Professional fees, Directors fees,
Telecommunications, and Amortization of core deposit intangible all experienced net increases as a
result of the 2008 CFC acquisition. FDIC assessments increased $839 thousand from $81 thousand in
2008 to $920 thousand in 2009 due to the special assessment and an overall industry wide increase
in assessment rates.
One standard to measure non-interest expense is to express non-interest expense as a
percentage of average total assets. In 2009 this percentage was 2.73 percent compared to 3.06
percent in 2008.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For The Years Ended |
|
| |
|
December 31,2009 |
|
|
December 31,2008 |
|
|
Change |
|
| (In Thousands) |
|
Amount |
|
|
% Total |
|
|
Amount |
|
|
% Total |
|
|
Amount |
|
|
% |
|
Salaries |
|
$ |
6,314 |
|
|
|
39.7 |
% |
|
$ |
4,762 |
|
|
|
39.1 |
% |
|
$ |
1,552 |
|
|
|
32.6 |
% |
Employee benefits |
|
|
1,492 |
|
|
|
9.4 |
|
|
|
2,179 |
|
|
|
17.9 |
|
|
|
(687 |
) |
|
|
(31.5 |
) |
Occupancy |
|
|
1,062 |
|
|
|
6.7 |
|
|
|
760 |
|
|
|
6.2 |
|
|
|
302 |
|
|
|
39.7 |
|
Furniture and equipment |
|
|
1,272 |
|
|
|
8.0 |
|
|
|
927 |
|
|
|
7.6 |
|
|
|
345 |
|
|
|
37.2 |
|
State shares tax |
|
|
529 |
|
|
|
3.3 |
|
|
|
418 |
|
|
|
3.4 |
|
|
|
111 |
|
|
|
26.6 |
|
Professional fees |
|
|
587 |
|
|
|
3.7 |
|
|
|
570 |
|
|
|
4.7 |
|
|
|
17 |
|
|
|
3.0 |
|
Directors fees |
|
|
284 |
|
|
|
1.8 |
|
|
|
244 |
|
|
|
2.0 |
|
|
|
40 |
|
|
|
16.4 |
|
FDIC assessments |
|
|
920 |
|
|
|
5.8 |
|
|
|
81 |
|
|
|
0.7 |
|
|
|
839 |
|
|
|
1,035.8 |
|
Telecommunications |
|
|
347 |
|
|
|
2.2 |
|
|
|
215 |
|
|
|
1.8 |
|
|
|
132 |
|
|
|
61.4 |
|
Amortization of core deposit intangible |
|
|
643 |
|
|
|
4.0 |
|
|
|
280 |
|
|
|
2.3 |
|
|
|
363 |
|
|
|
129.6 |
|
Automated teller machine and interchange |
|
|
509 |
|
|
|
3.2 |
|
|
|
286 |
|
|
|
2.3 |
|
|
|
223 |
|
|
|
78.0 |
|
Other |
|
|
1,955 |
|
|
|
12.2 |
|
|
|
1,450 |
|
|
|
12.0 |
|
|
|
505 |
|
|
|
34.8 |
|
| |
|
|
|
|
|
|
Total non-interest expense |
|
$ |
15,914 |
|
|
|
100.0 |
% |
|
$ |
12,172 |
|
|
|
100.0 |
% |
|
$ |
3,742 |
|
|
|
30.7 |
% |
| |
|
|
|
|
|
|
2008 vs. 2007
Total non-interest expense increased $5.1 million or 72.9% from $7.0 million in 2007 to $12.1
million in 2008. The increases primarily resulted from the acquisition of CFC as described in Note
15 of the Notes to the Consolidated Financial Statements included in Item 8. Salaries and employee
benefits increased $3.0 million or 78.1 percent for the year ended December 31, 2008. Included in
the increase was approximately $672,000 of compensation and benefits offered as severance packages
to former Columbia County Farmers National Bank employees. Professional fees increased $255,000 or
81.0 percent from $315,000 in 2007 to $570,000 in 2008. Other expenses, Occupancy, Furniture and
Equipment, Professional fees, and Directors fees all experienced net increases as a result of the
CFC acquisition.
23
One standard to measure non-interest expense is to express non-interest expense as a
percentage of average total assets. In 2008 this percentage was 3.06 percent compared to 2.83
percent in 2007.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For The Years Ended |
|
| |
|
December 31,2008 |
|
|
December 31,2007 |
|
|
Change |
|
| (In Thousands) |
|
Amount |
|
|
% Total |
|
|
Amount |
|
|
% Total |
|
|
Amount |
|
|
% |
|
Salaries |
|
$ |
4,762 |
|
|
|
39.1 |
% |
|
$ |
3,000 |
|
|
|
42.6 |
% |
|
$ |
1,762 |
|
|
|
58.7 |
% |
Employee benefits |
|
|
2,179 |
|
|
|
17.9 |
|
|
|
897 |
|
|
|
12.7 |
|
|
|
1,282 |
|
|
|
142.9 |
|
Occupancy |
|
|
760 |
|
|
|
6.2 |
|
|
|
491 |
|
|
|
7.0 |
|
|
|
269 |
|
|
|
54.8 |
|
Furniture and equipment |
|
|
927 |
|
|
|
7.6 |
|
|
|
485 |
|
|
|
6.9 |
|
|
|
442 |
|
|
|
91.1 |
|
State shares tax |
|
|
418 |
|
|
|
3.4 |
|
|
|
313 |
|
|
|
4.4 |
|
|
|
105 |
|
|
|
33.5 |
|
Professional fees |
|
|
570 |
|
|
|
4.7 |
|
|
|
315 |
|
|
|
4.5 |
|
|
|
255 |
|
|
|
81.0 |
|
Directors fees |
|
|
244 |
|
|
|
2.0 |
|
|
|
188 |
|
|
|
2.7 |
|
|
|
56 |
|
|
|
29.8 |
|
FDIC assessments |
|
|
81 |
|
|
|
0.7 |
|
|
|
20 |
|
|
|
0.3 |
|
|
|
61 |
|
|
|
305.0 |
|
Telecommunications |
|
|
215 |
|
|
|
1.8 |
|
|
|
49 |
|
|
|
0.7 |
|
|
|
166 |
|
|
|
338.8 |
|
Amortization of core deposit intangible |
|
|
280 |
|
|
|
2.3 |
|
|
|
— |
|
|
|
— |
|
|
|
280 |
|
|
|
— |
|
Automated teller machine and interchange |
|
|
286 |
|
|
|
2.3 |
|
|
|
167 |
|
|
|
2.4 |
|
|
|
119 |
|
|
|
71.3 |
|
Other |
|
|
1,450 |
|
|
|
12.0 |
|
|
|
1,113 |
|
|
|
15.8 |
|
|
|
337 |
|
|
|
30.3 |
|
| |
|
|
|
|
|
|
Total non-interest expense |
|
$ |
12,172 |
|
|
|
100.0 |
% |
|
$ |
7,038 |
|
|
|
100.0 |
% |
|
$ |
5,134 |
|
|
|
72.9 |
% |
| |
|
|
|
|
|
|
FINANCIAL CONDITION
Our consolidated assets at December 31, 2009 were $602.5 million which represented an
increase of $34.2 million or 6.0 percent from $568.3 million at December 31, 2008. The increase
for 2008 from 2007 was 131.7 percent or $324.0 million. The 2008 increase primarily resulted from
the acquisition of CFC as described in Note 15 of the Notes to the Consolidated Financial
Statements included in Item 8.
Capital increased 7.1 percent from $60.8 million in 2008 to $65.1 million in 2009, after an
adjustment for the fair market value of securities which was an increase in capital of $901
thousand for 2009 compared to a increase in capital of $1.5 million for 2008. Common stock and
surplus increased a net $388 thousand resulting primarily from issuance of 17,770 shares of stock
issued under our Employee Stock Purchase Plan and the Dividend Reinvestment Plan.
Total average assets increased 46.5 percent from $397.8 million at December 31, 2008 to $582.8
million at December 31, 2009. Average earning assets were $538.3 million in 2009 and $367.7
million in 2008.
Loans increased 3.3 percent from $320.1 million at December 31, 2008 to $330.5 million at
December 31, 2009.
Interest bearing deposits increased 6.47 percent to $406.6 million at December 31, 2009 from
$381.8 million at December 31, 2008. Noninterest-bearing deposits increased 6.2 percent from $52.5
million in 2008 to $55.7 million in 2009.
The loan-to-deposit ratio is a key measurement of liquidity. Our loan-to-deposit ratio
decreased during 2009 to 71.5 percent compared to 73.7 percent during 2008.
It is our opinion that the asset/liability mix and the interest rate risk associated with the
balance sheet is within manageable parameters. Constant monitoring using asset/liability reports
and interest rate risk scenarios are in place along with quarterly asset/liability management
meetings on the committee level by the Bank’s Board of Directors. Additionally, the Bank’s
Asset/Liability Committee meets quarterly with an investment consultant.
24
INVESTMENTS SECURITIES AVAILABLE-FOR-SALE
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Years Ended December 31, |
|
| (In Thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Federal Agency Obligations |
|
$ |
68,339 |
|
|
$ |
64,080 |
|
|
$ |
27,547 |
|
Mortgage-backed Securities |
|
|
138,856 |
|
|
|
118,046 |
|
|
|
23,782 |
|
Obligations of State amd Political Subdivisions |
|
|
11,374 |
|
|
|
9,994 |
|
|
|
4,045 |
|
Marketable Equity Securities |
|
|
1,697 |
|
|
|
2,293 |
|
|
|
1,037 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
220,266 |
|
|
$ |
194,413 |
|
|
$ |
56,411 |
|
|
|
|
|
|
|
|
|
|
|
All of our securities are available-for-sale and are carried at estimated fair value. The
following table shows the maturities of investment securities, at amortized cost, at December 31,
2009 and the weighted average yields (for tax-exempt obligations on a fully taxable basis a 34
percent tax rate) of such:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
After One Year |
|
|
After Five Year |
|
|
|
|
|
|
|
| |
|
Within |
|
|
But Within |
|
|
But Within |
|
|
After |
|
|
|
|
| |
|
One Year |
|
|
Five Years |
|
|
Ten Years |
|
|
Ten Years |
|
|
Total |
|
| (In Thousands) |
|
Amount |
|
|
Yield |
|
|
Amount |
|
|
Yield |
|
|
Amount |
|
|
Yield |
|
|
Amount |
|
|
Yield |
|
|
Amount |
|
|
Yield |
|
Federal Agency Obligations |
|
$ |
1,007 |
|
|
|
3.92 |
% |
|
$ |
55,004 |
|
|
|
2.86 |
% |
|
$ |
26,903 |
|
|
|
4.65 |
% |
|
$ |
120,171 |
|
|
|
4.44 |
% |
|
$ |
203,085 |
|
|
|
4.03 |
% |
Obligations of State and Political Subdivisions |
|
|
471 |
|
|
|
3.06 |
% |
|
|
3,257 |
|
|
|
5.25 |
% |
|
|
2,839 |
|
|
|
6.30 |
% |
|
|
4,698 |
|
|
|
6.21 |
% |
|
|
11,265 |
|
|
|
5.82 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,478 |
|
|
|
|
|
|
$ |
58,261 |
|
|
|
|
|
|
$ |
29,742 |
|
|
|
|
|
|
$ |
124,869 |
|
|
|
|
|
|
|
214,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable Equity Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Invesment Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
216,443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities are reported on the consolidated balance sheet at fair
value with an offsetting adjustment to deferred taxes. The possibility of material price volatility
in a changing interest rate environment is offset by the availability to the bank of restructuring
the portfolio for gap positioning at any time through the securities classed as available-for-sale.
The impact of the fair value accounting was an unrealized gain, net of tax, on December 31, 2009 of
$2,523,000 compared to an unrealized gain, net of tax, on December 31, 2008 of $1,622,000, which
represents an unrealized gain, net of tax, of $901,000 for 2009.
The mix of securities in the portfolio at December 31, 2009 was 94.0 percent Federal Agency
Obligations, 5.2 percent Municipal Securities, and 0.8 percent Other. We did not trade in
derivative investment products during 2009.
LOANS
The loan portfolio increased 3.3 percent from $320.1 million in 2008 to $330.5 million in
2009. The percentage distribution in the loan portfolio was 80.8 percent in real estate loans at
$267 million; 11.4 percent in commercial loans at $37.6 million; 2.3 percent in consumer loans at
$7.7 million; and 5.5 percent in tax exempt loans at $18.1 million.
The following table presents the five-year breakdown of loans by type as of the date
indicated:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Years Ended December 31, |
|
| (In Thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Commercial, financial and agricultural |
|
$ |
37,642 |
|
|
$ |
27,165 |
|
|
$ |
8,074 |
|
|
$ |
9,574 |
|
|
$ |
12,097 |
|
Tax-exempt |
|
|
18,055 |
|
|
|
16,762 |
|
|
|
13,108 |
|
|
|
9,621 |
|
|
|
9,019 |
|
Real estate |
|
|
253,463 |
|
|
|
262,539 |
|
|
|
132,453 |
|
|
|
135,009 |
|
|
|
127,170 |
|
Real estate construction |
|
|
13,526 |
|
|
|
5,307 |
|
|
|
3,698 |
|
|
|
2,231 |
|
|
|
1,548 |
|
Installment loans to individuals |
|
|
7,725 |
|
|
|
8,202 |
|
|
|
4,059 |
|
|
|
4,118 |
|
|
|
4,348 |
|
Add (deduct): Unearned discount |
|
|
(15 |
) |
|
|
(24 |
) |
|
|
(23 |
) |
|
|
(19 |
) |
|
|
(30 |
) |
Unamortized loan costs, net of fees |
|
|
93 |
|
|
|
117 |
|
|
|
91 |
|
|
|
107 |
|
|
|
119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans |
|
$ |
330,489 |
|
|
$ |
320,068 |
|
|
$ |
161,460 |
|
|
$ |
160,641 |
|
|
$ |
154,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
The following table presents the percentage distribution of loans by category as of the date
indicated:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Years Ended December 31, |
|
| |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Commercial, financial and agricultural |
|
|
11.4 |
% |
|
|
8.5 |
% |
|
|
5.0 |
% |
|
|
6.0 |
% |
|
|
7.8 |
% |
Tax-exempt |
|
|
5.5 |
|
|
|
5.2 |
|
|
|
8.1 |
|
|
|
6.0 |
|
|
|
5.8 |
|
Real estate |
|
|
76.7 |
|
|
|
82.1 |
|
|
|
82.1 |
|
|
|
84.1 |
|
|
|
82.5 |
|
Real estate construction |
|
|
4.1 |
|
|
|
1.7 |
|
|
|
2.3 |
|
|
|
1.4 |
|
|
|
1.0 |
|
Installment loans to individuals |
|
|
2.3 |
|
|
|
2.5 |
|
|
|
2.5 |
|
|
|
2.5 |
|
|
|
2.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the maturity of loans in specified categories of the Bank’s
loan portfolio at December 31, 2009, and the amount of such loans with predetermined fixed rates or
with floating or adjustable rates. The table does not include any estimate of prepayments which
significantly shortens the average useful life of all loans and may cause our actual repayment
experience to differ from that shown below.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
One Year |
|
|
|
|
|
|
|
| |
|
In One Year |
|
|
Through |
|
|
Over |
|
|
|
|
| (In Thousands) |
|
or Less |
|
|
Five Years |
|
|
Five Years |
|
|
Total |
|
Commercial, Tax exempt, Real estate and
Personal loans |
|
$ |
9,666 |
|
|
$ |
36,614 |
|
|
$ |
270,683 |
|
|
$ |
316,963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction |
|
|
13,526 |
|
|
|
— |
|
|
|
— |
|
|
|
13,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
23,192 |
|
|
$ |
36,614 |
|
|
$ |
270,683 |
|
|
$ |
330,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts of Such Loans with: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predetermined Fixed Rates |
|
$ |
5,900 |
|
|
$ |
26,496 |
|
|
$ |
82,004 |
|
|
$ |
114,400 |
|
Floating or Adjustable Rates |
|
|
17,292 |
|
|
|
10,118 |
|
|
|
188,679 |
|
|
|
216,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
23,192 |
|
|
$ |
36,614 |
|
|
$ |
270,683 |
|
|
$ |
330,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses was $4.2 million at December 31, 2009, compared to $3.8 million
at December 31, 2008. This allowance equaled 1.3 percent and 1.2 percent of total loans, net of
unearned income, at the end of 2009 and 2008, respectively. During 2008, an increase of $1.7
million resulted from the acquisition of CFC as described in Note 15 of the Notes to the
Consolidated Financial Statements included in Item 8. The loan loss reserve was analyzed quarterly
and reviewed by the Bank’s Board of Directors. No concentration or apparent deterioration in
classes of loans or pledged collateral was evident. Twice monthly loan meetings with the
Bank’s Director Loan Committee reviewed new loans. Delinquent loans, loan exceptions and
certain large loans are addressed by the full Board no less than monthly to determine compliance
with policies. Allowance for loan losses was considered adequate based on delinquency trends and
actual loans written as it relates to the loan portfolio.
The following table presents an allocation of the Bank’s allowance for loan losses for
specific categories:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Years Ended December 31, |
|
| (In Thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Commercial, financial, and agricultural |
|
$ |
567 |
|
|
$ |
402 |
|
|
$ |
104 |
|
|
$ |
101 |
|
|
$ |
208 |
|
Real estate mortgages |
|
|
3,132 |
|
|
|
2,461 |
|
|
|
700 |
|
|
|
659 |
|
|
|
694 |
|
Installment loans to indiviuals |
|
|
149 |
|
|
|
158 |
|
|
|
28 |
|
|
|
27 |
|
|
|
32 |
|
Unallocated |
|
|
362 |
|
|
|
737 |
|
|
|
605 |
|
|
|
669 |
|
|
|
619 |
|
| |
|
|
|
|
|
$ |
4,210 |
|
|
$ |
3,758 |
|
|
$ |
1,437 |
|
|
$ |
1,456 |
|
|
$ |
1,553 |
|
| |
|
|
|
26
The following table presents a summary of the Bank’s loan loss experience as of the dates
indicated:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Years Ended December 31, |
|
| (In Thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Average Loans Outstanding during
the period |
|
$ |
327,077 |
|
|
$ |
235,071 |
|
|
$ |
160,348 |
|
|
$ |
158,554 |
|
|
$ |
150,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
$ |
3,758 |
|
|
$ |
1,437 |
|
|
$ |
1,456 |
|
|
$ |
1,553 |
|
|
$ |
1,392 |
|
Provision charged to operations |
|
|
1,025 |
|
|
|
750 |
|
|
|
30 |
|
|
|
175 |
|
|
|
90 |
|
Allowance acquired |
|
|
— |
|
|
|
1,683 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans charged off: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and agricultural |
|
|
(116 |
) |
|
|
— |
|
|
|
— |
|
|
|
(185 |
) |
|
|
— |
|
Real estate mortgages |
|
|
(407 |
) |
|
|
(42 |
) |
|
|
(29 |
) |
|
|
(65 |
) |
|
|
— |
|
Installment loans to indiviuals |
|
|
(76 |
) |
|
|
(106 |
) |
|
|
(56 |
) |
|
|
(50 |
) |
|
|
(54 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries : |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and agricultural |
|
|
1 |
|
|
|
4 |
|
|
|
— |
|
|
|
8 |
|
|
|
79 |
|
Real estate mortgages |
|
|
10 |
|
|
|
2 |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
Installment loans to indiviuals |
|
|
15 |
|
|
|
30 |
|
|
|
35 |
|
|
|
20 |
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year |
|
$ |
4,210 |
|
|
$ |
3,758 |
|
|
$ |
1,437 |
|
|
$ |
1,456 |
|
|
$ |
1,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs to Average loans
outstanding during the period |
|
|
-0.18 |
% |
|
|
-0.05 |
% |
|
|
-0.03 |
% |
|
|
-0.17 |
% |
|
|
0.05 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-PERFORMING LOANS
In 2009, loans 30-89 days past due totaled $1.7 million compared to $1.6 million in 2008.
There were no 90-days past due loans that were not classified as non-accrual at December 31, 2009
or 2008. Non-accrual loans at December 31, 2009 totaled $4.4 million as compared to $4.5 million
in 2008. Overall, past due and non-accrual loans remained at $6.1 million in 2009. For the year
ended December 31, 2009 and 2008, the ratio of net charge-offs during the period to average loans
outstanding during the period was (0.18) percent and (0.05) percent, respectively (See Summary of
Allowance for Loan Losses). Refer to the Loan section of Note 1 and Note 4— Notes to the
Consolidated Financial Statements included in Item 8 of this Form 10-K filing.
The following table presents past due and non-accrual loans by loan type and in summary as of
the dates indicated:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Years Ended December 31, |
|
| (In Thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Commercial, financial and agricultural |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Days 30-89 |
|
$ |
14 |
|
|
$ |
61 |
|
|
$ |
168 |
|
|
$ |
— |
|
|
$ |
12 |
|
Days 90 plus |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Non-accrual |
|
|
145 |
|
|
|
581 |
|
|
|
— |
|
|
|
— |
|
|
|
189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Days 30-89 |
|
|
1,632 |
|
|
|
1,528 |
|
|
|
259 |
|
|
|
598 |
|
|
|
1,152 |
|
Days 90 plus |
|
|
— |
|
|
|
— |
|
|
|
70 |
|
|
|
67 |
|
|
|
128 |
|
Non-accrual |
|
|
4,216 |
|
|
|
3,780 |
|
|
|
77 |
|
|
|
91 |
|
|
|
518 |
|
Installment loans to individuals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Days 30-89 |
|
|
49 |
|
|
|
9 |
|
|
|
33 |
|
|
|
40 |
|
|
|
65 |
|
Days 90 plus |
|
|
— |
|
|
|
— |
|
|
|
10 |
|
|
|
— |
|
|
|
2 |
|
Non-accrual |
|
|
— |
|
|
|
92 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,056 |
|
|
$ |
6,051 |
|
|
$ |
617 |
|
|
$ |
796 |
|
|
$ |
2,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Days 30-89 |
|
$ |
1,695 |
|
|
$ |
1,598 |
|
|
$ |
460 |
|
|
$ |
638 |
|
|
$ |
1,229 |
|
Days 90 plus |
|
|
— |
|
|
|
— |
|
|
|
80 |
|
|
|
67 |
|
|
|
130 |
|
Non-accrual |
|
|
4,361 |
|
|
|
4,453 |
|
|
|
77 |
|
|
|
91 |
|
|
|
707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,056 |
|
|
$ |
6,051 |
|
|
$ |
617 |
|
|
$ |
796 |
|
|
$ |
2,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured loans still accruing |
|
$ |
323 |
|
|
$ |
58 |
|
|
$ |
1,018 |
|
|
$ |
539 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned |
|
$ |
29 |
|
|
$ |
373 |
|
|
$ |
— |
|
|
$ |
14 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income that would have been
recorded under original terms |
|
$ |
285 |
|
|
$ |
320 |
|
|
$ |
10 |
|
|
$ |
98 |
|
|
$ |
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income recorded during the year |
|
$ |
241 |
|
|
$ |
116 |
|
|
$ |
4 |
|
|
$ |
90 |
|
|
$ |
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
DEPOSITS
Total average deposits increased by 51.4 percent from $296.6 million in 2008 to 449.0 million
in 2009. These large increases were primarily attributed to the CFC acquisition completed on July
18, 2008. Average savings deposits increased 44.0 percent to $56.5 million in 2009 from $39.2
million in 2008. Average time deposits increased 47.7 percent from $154.3 million in 2008 to
$228.0 million in 2009. Average non-interest bearing demand deposits increased to $51.9 million in
2009 from $34.4 million in 2008. Average interest bearing NOW accounts increased 44.4 percent from
$47.5 million in 2008 to $68.7 million in 2009.
Total average deposits increased by 71.6 percent from $172.8 million in 2007 to $296.6 million
in 2008. Average savings deposits increased 59.4 percent to $39.2 million in 2008 from $24.6
million in 2007. Average time deposits increased 70.8 percent from $90.4 million in 2007 to $154.3
million in 2008. Average non-interest bearing demand deposits increased to $34.4 million in 2008
from $19.6 million in 2007. Average interest bearing NOW accounts increased 62.1 percent from $29.3
million in 2007 to $47.5 million in 2008. These large increases were attributed to the CFC
acquisition.
The average balance and average rate paid on deposits are summarized as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
2008 |
|
2007 |
| |
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
| (In Thousands) |
|
Balance |
|
|
Rate |
|
|
Balance |
|
|
Rate |
|
|
Balance |
|
|
Rate |
|
Non-interest bearing |
|
$ |
51,908 |
|
|
|
— |
% |
|
$ |
34,403 |
|
|
|
— |
% |
|
$ |
19,611 |
|
|
|
— |
% |
Savings |
|
|
56,493 |
|
|
|
0.40 |
|
|
|
39,223 |
|
|
|
0.40 |
|
|
|
24,602 |
|
|
|
0.40 |
|
Now deposits |
|
|
68,650 |
|
|
|
0.15 |
|
|
|
47,534 |
|
|
|
0.27 |
|
|
|
29,321 |
|
|
|
0.31 |
|
Money market deposits |
|
|
43,906 |
|
|
|
1.03 |
|
|
|
21,119 |
|
|
|
1.66 |
|
|
|
8,894 |
|
|
|
0.66 |
|
Time deposits |
|
|
228,005 |
|
|
|
2.94 |
|
|
|
154,334 |
|
|
|
3.53 |
|
|
|
90,375 |
|
|
|
4.22 |
|
| |
|
|
|
|
|
|
Total deposits |
|
$ |
448,962 |
|
|
|
1.67 |
% |
|
$ |
296,613 |
|
|
|
2.05 |
% |
|
$ |
172,803 |
|
|
|
2.35 |
% |
| |
|
|
|
|
|
|
The remaining maturities of certificates of deposit of $100,000 or more are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Years Ended |
| (In Thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
| |
|
|
Three months or less |
|
$ |
8,346 |
|
|
$ |
9,353 |
|
|
$ |
8,932 |
|
Three months to six months |
|
|
8,666 |
|
|
|
9,259 |
|
|
|
7,662 |
|
Six months to twelve months |
|
|
20,805 |
|
|
|
24,095 |
|
|
|
5,799 |
|
Over twelve months |
|
|
33,903 |
|
|
|
15,672 |
|
|
|
8,248 |
|
| |
|
|
Total |
|
$ |
71,720 |
|
|
$ |
58,379 |
|
|
$ |
30,641 |
|
| |
|
|
As a percentage of total average
time deposits |
|
|
31.5 |
% |
|
|
37.8 |
% |
|
|
33.9 |
% |
| |
|
|
BORROWED FUNDS
The average balance of short-term borrowings, including securities sold under agreements to
repurchase and day-to-day FHLB — Pittsburgh borrowings increased $5.9 million or 13.8 percent from
$42.9 million in 2008 to $48.8 million in 2009. Short-term borrowings amounted to 10.5 percent of
total interest-bearing liabilities as of December 31, 2009 as compared to 13.6 percent in 2008.
Long-term borrowings, namely borrowings from the FHLB-Pittsburgh, averaged $17.1 million in 2009
and $11.0 million in 2008. As part of the 2008 acquisition of CFC, we assumed the junior
subordinate debentures which amounted to $4.6 million at December 31, 2009 and 2008.
28
The average balance of other borrowed funds are summarized as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2009 |
|
|
December 31, 2008 |
|
|
December 31, 2007 |
|
| (In Thousands) |
|
Amount |
|
|
% Total |
|
|
Amount |
|
|
% Total |
|
|
Amount |
|
|
% Total |
|
| |
|
|
|
|
|
|
Short-term borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold under agreement to repurchase |
|
$ |
47,873 |
|
|
|
72.6 |
% |
|
$ |
41,573 |
|
|
|
77.1 |
% |
|
$ |
31,206 |
|
|
|
72.9 |
% |
Other short-term borrowings, FHL B |
|
|
352 |
|
|
|
0.5 |
|
|
|
849 |
|
|
|
1.6 |
|
|
|
— |
|
|
|
— |
|
U .S. Treasury tax and loan notes |
|
|
601 |
|
|
|
0.9 |
|
|
|
490 |
|
|
|
0.9 |
|
|
|
376 |
|
|
|
0.9 |
|
| |
|
|
|
|
|
|
Total short-term borrowings |
|
|
48,826 |
|
|
|
74.0 |
% |
|
|
42,912 |
|
|
|
79.6 |
% |
|
|
31,582 |
|
|
|
73.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long -term borrowing s, FH LB |
|
|
12,492 |
|
|
|
19.0 |
|
|
|
9,413 |
|
|
|
17.4 |
|
|
|
11,188 |
|
|
|
26.2 |
|
Junior subordinate debentures |
|
|
4,640 |
|
|
|
7.0 |
|
|
|
1,605 |
|
|
|
3.0 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
Total borrowed funds |
|
$ |
65,958 |
|
|
|
100.0 |
% |
|
$ |
53,930 |
|
|
|
100.0 |
% |
|
$ |
42,770 |
|
|
|
100.0 |
% |
| |
|
|
|
|
|
|
CAPITAL RESOURCES
Capital continues to be a strength for the Bank. Capital is critical as it must provide
growth, payment to shareholders, and absorption of unforeseen losses. The federal regulators
provide standards that must be met.
As of December 31, 2009, the Bank was categorized as well-capitalized under the regulatory
framework for prompt corrective action. To be categorized as well-capitalized, the Bank must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios.
Our actual consolidated capital amounts and ratios are in the following table:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
|
2008 |
|
| (In Thousands) |
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
Total Capital
(to Risk-weighted Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual |
|
$ |
60,322 |
|
|
|
17.6 |
% |
|
$ |
55,851 |
|
|
|
16.5 |
% |
For Capital Adequacy Purposes |
|
|
27,394 |
|
|
|
8.0 |
|
|
|
27,112 |
|
|
|
8.0 |
|
To Be Well-Capitalized |
|
|
34,243 |
|
|
|
10.0 |
|
|
|
33,890 |
|
|
|
10.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Capital
(to Risk-weighted Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual |
|
$ |
56,102 |
|
|
|
16.4 |
% |
|
$ |
52,083 |
|
|
|
15.4 |
% |
For Capital Adequacy Purposes |
|
|
13,697 |
|
|
|
4.0 |
|
|
|
13,556 |
|
|
|
4.0 |
|
To Be Well-Capitalized |
|
|
20,546 |
|
|
|
6.0 |
|
|
|
20,334 |
|
|
|
6.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Capital
(to Average Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual |
|
$ |
56,102 |
|
|
|
9.8 |
% |
|
$ |
52,083 |
|
|
|
9.3 |
% |
For Capital Adequacy Purposes |
|
|
22,861 |
|
|
|
4.0 |
|
|
|
22,476 |
|
|
|
4.0 |
|
To Be Well-Capitalized |
|
|
28,577 |
|
|
|
5.0 |
|
|
|
28,095 |
|
|
|
5.0 |
|
Our capital ratios are not materially different from those of the Bank.
Dividend payouts are restricted by federal bank regulatory authorities and the Pennsylvania
Business Corporation Law of 1988, as amended (the BCL). These restrictions operate generally to
preclude dividend payments if the effect thereof would render us unable to meet our obligations as
they become due. As a practical matter, our payment of dividends is contingent upon our ability to
obtain funding in the form of dividends from the Bank. Payment of dividends to us by the Bank is
subject to the restrictions set forth in the Pennsylvania Banking Code of 1965 (the “code”).
Generally, the Code would permit the Bank to declare dividends in 2010 to us of approximately
$18,517,000. In addition, federal bank regulatory authorities have authority to prohibit the Bank
from engaging in an unsafe or unsound practice in conducting its business. Depending upon the
financial condition of the bank in question, the payment of dividends could be deemed to constitute
an unsafe or unsound practice. The ability of the Bank to pay dividends in the future is currently
influenced, and could be further influenced, by bank regulatory policies and capital guidelines.
Accordingly, in 2010, without prior federal regulatory approval, the Corporation may declare
dividends to Shareholders in the amount of the net income available to shareholders for the past
four quarters, net of dividends paid during that period. As of December 31, 2009, the amount
available for payment of dividends, without prior federal regulatory approval, was $3,559,000.
29
LIQUIDITY
Liquidity management is required to ensure that adequate funds will be available to meet
anticipated and unanticipated deposit withdrawals, debt service payments, investment commitments,
commercial and consumer loan demand, and ongoing operating expenses. Funding sources include
principal repayments on loans, sales of assets, growth in core deposits, short and long-term
borrowings, investment securities coming due, loan prepayments and repurchase agreements. Regular
loan payments are a dependable source of funds, while the sale of investment securities, deposit
growth and loan prepayments are significantly influenced by general economic conditions and the
level of interest rates.
We manage liquidity on a daily basis. We believe that our liquidity is sufficient to meet
present and future financial obligations and commitments on a timely basis. However, see Item 1A –
Risk Factors and refer to consolidated Statements of Cash Flows at Item 8 in this Form 10-K.
INTEREST RATE RISK MANAGEMENT
Interest rate risk management involves managing the extent to which interest-sensitive assets
and interest-sensitive liabilities are matched. Interest rate sensitivity is the relationship
between market interest rates and earnings volatility due to the repricing characteristics of
assets and liabilities. The Bank’s net interest income is affected by changes in the level of
market interest rates. In
order to maintain consistent earnings performance, the Bank seeks to manage, to the extent
possible, the repricing characteristics of its assets and liabilities.
One major objective of the Bank when managing the rate sensitivity of its assets and
liabilities is to stabilize net interest income. The management of and authority to assume
interest rate risk is the responsibility of the Bank’s Asset/Liability Committee (“ALCO”), which is
comprised of senior management and Board members. ALCO meets quarterly to monitor the ratio of
interest sensitive assets to interest sensitive liabilities. The process to review interest rate
risk management is a regular part of the management of the Bank. Consistent policies and practices
of measuring and reporting interest rate risk exposure, particularly regarding the treatment of
noncontractual assets and liabilities, are in effect. In addition, there is an annual process to
review the interest rate risk policy with the Board of Directors which includes limits on the
impact to earnings from shifts in interest rates.
The ratio between assets and liabilities repricing in specific time intervals is referred to
as an interest rate sensitivity gap. Interest rate sensitivity gaps can be managed to take
advantage of the slope of the yield curve as well as forecasted changes in the level of interest
rates.
To manage the interest sensitivity position, an asset/liability model called “gap analysis” is
used to monitor the difference in the volume of the Bank’s interest sensitive assets and
liabilities that mature or reprice within given periods. A positive gap (asset sensitive)
indicates that more assets reprice during a given period compared to liabilities, while a negative
gap (liability sensitive) has the opposite effect. The Bank employs computerized net interest
income simulation modeling to assist in quantifying interest rate risk exposure. This process
measures and quantifies the impact on net interest income through varying interest rate changes and
balance sheet compositions. The use of this model assists the ALCO to gauge the effects of the
interest rate changes on interest sensitive assets and liabilities in order to determine what
impact these rate changes will have upon our net interest spread.
STATEMENT OF INTEREST SENSITIVITY GAP
December 31, 2009
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
> 90 Days |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
90 Days |
|
|
But |
|
|
1 to 5 |
|
|
5 to 10 |
|
|
> 10 |
|
|
|
|
| (In Thousands) |
|
Or Less |
|
|
< 1 Year |
|
|
Years |
|
|
Years |
|
|
Years |
|
|
Total |
|
Interest-bearing deposits at banks |
|
$ |
708 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
708 |
|
Investment securities (1) |
|
|
16,257 |
|
|
|
37,383 |
|
|
|
134,619 |
|
|
|
23,247 |
|
|
|
11,744 |
|
|
|
223,250 |
|
Loans (1) |
|
|
49,928 |
|
|
|
54,917 |
|
|
|
164,622 |
|
|
|
38,707 |
|
|
|
22,315 |
|
|
|
330,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate Sensitive Assets |
|
|
66,893 |
|
|
|
92,300 |
|
|
|
299,241 |
|
|
|
61,954 |
|
|
|
34,059 |
|
|
|
554,447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits (2) |
|
|
— |
|
|
|
— |
|
|
|
57,117 |
|
|
|
14,279 |
|
|
|
— |
|
|
|
71,396 |
|
Savings (2) |
|
|
9,487 |
|
|
|
16,989 |
|
|
|
63,447 |
|
|
|
11,614 |
|
|
|
— |
|
|
|
101,537 |
|
Time |
|
|
36,237 |
|
|
|
95,069 |
|
|
|
101,892 |
|
|
|
398 |
|
|
|
25 |
|
|
|
233,621 |
|
Borrowed funds |
|
|
49,622 |
|
|
|
1,353 |
|
|
|
1,022 |
|
|
|
— |
|
|
|
— |
|
|
|
51,997 |
|
Long-term debt |
|
|
5,000 |
|
|
|
4,005 |
|
|
|
6,022 |
|
|
|
36 |
|
|
|
65 |
|
|
|
15,128 |
|
Junior Subordinated Debentures |
|
|
4,640 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate Sensitive Liabilities |
|
|
104,986 |
|
|
|
117,416 |
|
|
|
229,500 |
|
|
|
26,327 |
|
|
|
90 |
|
|
|
478,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Sensitivity Gap |
|
$ |
(38,093 |
) |
|
$ |
(25,116 |
) |
|
$ |
69,741 |
|
|
$ |
35,627 |
|
|
$ |
33,969 |
|
|
$ |
76,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Gap |
|
$ |
(38,093 |
) |
|
$ |
(63,209 |
) |
|
$ |
6,532 |
|
|
$ |
42,159 |
|
|
$ |
76,128 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
| (1) |
|
Investments and loans are included at the earlier of repricing or maturity and adjusted
for the effects of prepayments. |
| |
| (2) |
|
Interest bearing demand and savings accounts are included based on historical experience and
managements’ judgment about the behavior of these deposits in changing interest rate environments. |
At December 31, 2009, our cumulative gap positions and the potential earnings change resulting
from a 200 basis point change in rates were within the internal risk management guidelines.
Upon reviewing the current interest sensitivity scenario at the one to five year intervals,
interest rates should not significantly affect net income because the Bank’s maturing and repricing
assets and liabilities are near equally matched. At the one year through ten year intervals an
increasing interest rate environment would positively affect net income because more assets than
liabilities would reprice.
Certain shortcomings are inherent in the method of analysis presented in the above table.
Although certain assets and liabilities may have similar maturities or periods of repricing, they
may react in different degrees to changes in market interest rates.
The interest rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other types of assets and liabilities may
lag behind changes in market interest rates. Certain assets, such as adjustable-rate mortgages,
have features which restrict changes in interest rates on a short-term basis and over the life of
the asset. In the event of a change in interest rates, prepayment and early withdrawal levels may
deviate significantly from those assumed in calculating the table. The ability of many borrowers
to service their adjustable-rate debt may decrease in the event of an interest rate increase.
In addition to gap analysis, the Bank uses earnings simulation to assist in measuring and
controlling interest rate risk. The Bank also simulates the impact on net interest income of plus
and minus 100, 200 and 300 basis point rate shocks. The results of these theoretical rate shocks
provide an additional tool to help manage the Bank’s interest rate risk.
|
|
|
| Item 7A. |
|
Quantitative and Qualitative Disclosures about Market Risk |
The information called for by this item can be found at Item 7 of this report on Form
10-K under the caption “Interest Rate Risk Management” and is incorporated in its entirety by
reference under this Item 7A.
|
|
|
| Item 8. |
|
Financial Statements and Supplementary Data |
31
CCFNB Bancorp, Inc.
Consolidated Balance Sheets
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| (In Thousands) |
|
2009 |
|
|
2008 |
|
ASSETS |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
10,751 |
|
|
$ |
10,173 |
|
Interest-bearing deposits in other banks |
|
|
116 |
|
|
|
149 |
|
Federal funds sold |
|
|
592 |
|
|
|
5,163 |
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
|
11,459 |
|
|
|
15,485 |
|
|
|
|
|
|
|
|
|
|
Investment securities, available for sale, at fair value |
|
|
220,266 |
|
|
|
194,413 |
|
Restricted securities, at cost |
|
|
2,984 |
|
|
|
2,167 |
|
Loans,net of unearned income |
|
|
330,489 |
|
|
|
320,068 |
|
Less: Allowance for loan losses |
|
|
4,210 |
|
|
|
3,758 |
|
|
|
|
|
|
|
|
Loans, net |
|
|
326,279 |
|
|
|
316,310 |
|
Premises and equipment, net |
|
|
12,583 |
|
|
|
12,609 |
|
Accrued interest receivable |
|
|
2,006 |
|
|
|
2,388 |
|
Cash surrender value of bank-owned life insurance |
|
|
11,440 |
|
|
|
10,943 |
|
Investment in limited partnerships |
|
|
687 |
|
|
|
845 |
|
Intangible Assets: |
|
|
|
|
|
|
|
|
Core deposit |
|
|
2,768 |
|
|
|
3,411 |
|
Goodwill |
|
|
7,937 |
|
|
|
7,937 |
|
Prepaid FDIC assessment |
|
|
2,037 |
|
|
|
— |
|
Other assets |
|
|
2,043 |
|
|
|
1,811 |
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
602,489 |
|
|
$ |
568,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
$ |
406,554 |
|
|
$ |
381,849 |
|
Noninterest-bearing deposits |
|
|
55,734 |
|
|
|
52,460 |
|
|
|
|
|
|
|
|
Total deposits |
|
|
462,288 |
|
|
|
434,309 |
|
|
|
|
|
|
|
|
|
|
Short-term borrowings |
|
|
51,997 |
|
|
|
55,462 |
|
Long-term borrowings |
|
|
15,128 |
|
|
|
9,133 |
|
Junior subordinate debentures |
|
|
4,640 |
|
|
|
4,640 |
|
Accrued interest payable |
|
|
859 |
|
|
|
1,075 |
|
Other liabilities |
|
|
2,491 |
|
|
|
2,925 |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
537,403 |
|
|
|
507,544 |
|
|
|
|
|
|
|
|
| |
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Common stock, par value $1.25 per share; authorized
5,000,000 shares; issued 2,270,850 shares
in 2009 and 2,253,080 shares in 2008 |
|
|
2,838 |
|
|
|
2,816 |
|
Surplus |
|
|
27,539 |
|
|
|
27,173 |
|
Retained earnings |
|
|
32,723 |
|
|
|
29,164 |
|
Accumulated other comprehensive income |
|
|
2,523 |
|
|
|
1,622 |
|
Treasury stock, at cost; 22,500 shares in 2009 and 0 shares
in 2008 |
|
|
(537 |
) |
|
|
— |
|
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS’ EQUITY |
|
|
65,086 |
|
|
|
60,775 |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
$ |
602,489 |
|
|
$ |
568,319 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements .
32
CCFNB Bancorp, Inc.
Consolidated Statements of Income
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Years Ended December 31, |
|
| (In Thousands, Except Per Share Data) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
INTEREST AND DIVIDEND INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
$ |
18,925 |
|
|
$ |
14,586 |
|
|
$ |
10,585 |
|
Tax-exempt |
|
|
828 |
|
|
|
706 |
|
|
|
509 |
|
Interest and dividends on investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
8,162 |
|
|
|
5,521 |
|
|
|
2,423 |
|
Tax-exempt |
|
|
429 |
|
|
|
254 |
|
|
|
186 |
|
Dividend and other interest income |
|
|
58 |
|
|
|
112 |
|
|
|
123 |
|
Federal funds sold |
|
|
10 |
|
|
|
155 |
|
|
|
512 |
|
Deposits in other banks |
|
|
8 |
|
|
|
23 |
|
|
|
145 |
|
|
|
|
|
|
|
|
|
|
|
TOTAL INTEREST AND DIVIDEND INCOME |
|
|
28,420 |
|
|
|
21,357 |
|
|
|
14,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
7,478 |
|
|
|
6,083 |
|
|
|
4,058 |
|
Short-term borrowings |
|
|
368 |
|
|
|
753 |
|
|
|
1,457 |
|
Long-term borrowings |
|
|
640 |
|
|
|
572 |
|
|
|
670 |
|
Junior subordinate debentures |
|
|
128 |
|
|
|
96 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
TOTAL INTEREST EXPENSE |
|
|
8,614 |
|
|
|
7,504 |
|
|
|
6,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME |
|
|
19,806 |
|
|
|
13,853 |
|
|
|
8,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR LOAN LOSSES |
|
|
1,025 |
|
|
|
750 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |
|
|
18,781 |
|
|
|
13,103 |
|
|
|
8,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
Service charges and fees |
|
|
1,704 |
|
|
|
1,281 |
|
|
|
942 |
|
Gain on sale of loans |
|
|
806 |
|
|
|
339 |
|
|
|
182 |
|
Earnings on bank-owned life insurance |
|
|
445 |
|
|
|
366 |
|
|
|
285 |
|
Brokerage |
|
|
281 |
|
|
|
218 |
|
|
|
399 |
|
Trust |
|
|
655 |
|
|
|
434 |
|
|
|
196 |
|
Investment security (losses) gains |
|
|
(385 |
) |
|
|
(431 |
) |
|
|
1 |
|
Bank card and credit card interchange fees |
|
|
743 |
|
|
|
417 |
|
|
|
173 |
|
Other |
|
|
816 |
|
|
|
419 |
|
|
|
127 |
|
|
|
|
|
|
|
|
|
|
|
TOTAL NON-INTEREST INCOME |
|
|
5,065 |
|
|
|
3,043 |
|
|
|
2,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries |
|
|
6,314 |
|
|
|
4,762 |
|
|
|
3,000 |
|
Employee benefits |
|
|
1,492 |
|
|
|
2,179 |
|
|
|
897 |
|
Occupancy |
|
|
1,062 |
|
|
|
760 |
|
|
|
491 |
|
Furniture and Equipment |
|
|
1,272 |
|
|
|
927 |
|
|
|
485 |
|
State shares tax |
|
|
529 |
|
|
|
418 |
|
|
|
313 |
|
Professional fees |
|
|
587 |
|
|
|
570 |
|
|
|
315 |
|
Director’s fees |
|
|
284 |
|
|
|
244 |
|
|
|
188 |
|
FDIC assessments |
|
|
920 |
|
|
|
81 |
|
|
|
20 |
|
Telecommunications |
|
|
347 |
|
|
|
215 |
|
|
|
49 |
|
Amortization of core deposit intangible |
|
|
643 |
|
|
|
280 |
|
|
|
— |
|
Automated teller machine and interchange |
|
|
509 |
|
|
|
286 |
|
|
|
167 |
|
Other |
|
|
1,955 |
|
|
|
1,450 |
|
|
|
1,113 |
|
|
|
|
|
|
|
|
|
|
|
TOTAL NON-INTEREST EXPENSE |
|
|
15,914 |
|
|
|
12,172 |
|
|
|
7,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAX PROVISION |
|
|
7,932 |
|
|
|
3,974 |
|
|
|
3,535 |
|
INCOME TAX PROVISION |
|
|
2,055 |
|
|
|
896 |
|
|
|
888 |
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
5,877 |
|
|
$ |
3,078 |
|
|
$ |
2,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARE |
|
$ |
2.61 |
|
|
$ |
1.82 |
|
|
$ |
2.15 |
|
|
|
|
|
|
|
|
|
|
|
CASH DIVIDENDS PER SHARE |
|
$ |
1.03 |
|
|
$ |
0.90 |
|
|
$ |
0.82 |
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING |
|
|
2,253,087 |
|
|
|
1,688,498 |
|
|
|
1,233,339 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
33
CCFNB Bancorp, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
| |
|
Common |
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Total |
|
| |
|
Stock |
|
|
|
|
|
|
Retained |
|
|
Comprehensive |
|
|
Treasury |
|
|
Stockholders’ |
|
| (In Thousands Except Per Share Data) |
|
Shares |
|
|
Amount |
|
|
Surplus |
|
|
Earnngs |
|
|
Income (loss) |
|
|
Stock |
|
|
Equity |
|
Balance, December 31, 2006 |
|
|
1,241,664 |
|
|
$ |
1,552 |
|
|
$ |
2,673 |
|
|
$ |
26,054 |
|
|
$ |
(30 |
) |
|
$ |
— |
|
|
$ |
30,249 |
|
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,647 |
|
|
|
|
|
|
|
|
|
|
|
2,647 |
|
Change in net unrealized gain on
investment securities available-for-sale,
net of reclassification adjustment and
tax effects. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174 |
|
|
|
|
|
|
|
174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of change in accounting
for deferred compensation endorsement
split-dollar life insurance arrangements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
(12 |
) |
Common stock issuance under dividend
reinvestment and stock purchase plans |
|
|
8,872 |
|
|
|
11 |
|
|
|
225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
236 |
|
Recognition of employee stock purchase
plan expense |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Purchase of treasury stock (24,000 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(658 |
) |
|
|
(658 |
) |
Retirement of treasury stock |
|
|
(24,000 |
) |
|
|
(30 |
) |
|
|
(628 |
) |
|
|
|
|
|
|
|
|
|
|
658 |
|
|
|
— |
|
Cash dividends, ($0.82 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,010 |
) |
|
|
|
|
|
|
|
|
|
|
(1,010 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007 |
|
|
1,226,536 |
|
|
|
1,533 |
|
|
|
2,271 |
|
|
|
27,679 |
|
|
|
144 |
|
|
|
— |
|
|
|
31,627 |
|
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,078 |
|
|
|
|
|
|
|
|
|
|
|
3,078 |
|
Change in net unrealized gain on
investment securities available-for-sale,
net of reclassification adjustment and
tax effects. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,478 |
|
|
|
|
|
|
|
1,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Par value of new shares issued to acquire
Columbia Financial |
|
|
1,030,286 |
|
|
|
1,288 |
|
|
|
25,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,314 |
|
Common stock issuance under dividend
reinvestment and stock purchase plans |
|
|
12,258 |
|
|
|
15 |
|
|
|
252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
267 |
|
Recognition of employee stock purchase
plan expense |
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
Purchase of treasury stock (16,000 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(398 |
) |
|
|
(398 |
) |
Retirement of treasury stock |
|
|
(16,000 |
) |
|
|
(20 |
) |
|
|
(378 |
) |
|
|
|
|
|
|
|
|
|
|
398 |
|
|
|
— |
|
Cash dividends, ($0.90 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,593 |
) |
|
|
|
|
|
|
|
|
|
|
(1,593 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 |
|
|
2,253,080 |
|
|
|
2,816 |
|
|
|
27,173 |
|
|
|
29,164 |
|
|
|
1,622 |
|
|
|
— |
|
|
|
60,775 |
|
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,877 |
|
|
|
|
|
|
|
|
|
|
|
5,877 |
|
Change in net unrealized gain on
investment securities available-for-sale,
net of reclassification adjustment and
tax effects. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
901 |
|
|
|
|
|
|
|
901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issuance under dividend
reinvestment and stock purchase plans |
|
|
17,770 |
|
|
|
22 |
|
|
|
359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
381 |
|
Recognition of employee stock purchase
plan expense |
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
Purchase of treasury stock (22,500 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(537 |
) |
|
|
(537 |
) |
Cash dividends, ($1.03 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,318 |
) |
|
|
|
|
|
|
|
|
|
|
(2,318 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Balance, December 31, 2009 |
|
|
2,270,850 |
|
|
$ |
2,838 |
|
|
$ |
27,539 |
|
|
$ |
32,723 |
|
|
$ |
2,523 |
|
|
$ |
(537 |
) |
|
$ |
65,086 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
34
CCFNB Bancorp, Inc.
Consolidated Statements of Cash Flows
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, |
|
| (In Thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
5,877 |
|
|
$ |
3,078 |
|
|
$ |
2,647 |
|
Adjustments to reconcile net income to net cash |
|
|
|
|
|
|
|
|
|
|
|
|
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
1,025 |
|
|
|
750 |
|
|
|
30 |
|
Depreciation and amortization |
|
|
1,023 |
|
|
|
693 |
|
|
|
409 |
|
Loss (gain) on sale of investment securities |
|
|
316 |
|
|
|
(6 |
) |
|
|
— |
|
Impairment loss on securites |
|
|
69 |
|
|
|
437 |
|
|
|
— |
|
Amortization and accretion on investment securities |
|
|
606 |
|
|
|
350 |
|
|
|
43 |
|
(Gain) loss on sale of premises and equipment |
|
|
(117 |
) |
|
|
29 |
|
|
|
— |
|
Loss on sale of other real estate owned |
|
|
94 |
|
|
|
— |
|
|
|
— |
|
Deferred income taxes (benefit) |
|
|
35 |
|
|
|
(259 |
) |
|
|
(25 |
) |
Gain on sale of loans |
|
|
(806 |
) |
|
|
(339 |
) |
|
|
(182 |
) |
Proceeds from sale of mortgage loans |
|
|
35,263 |
|
|
|
17,407 |
|
|
|
9,979 |
|
Originations of mortgage loans held for resale |
|
|
(33,847 |
) |
|
|
(16,477 |
) |
|
|
(10,215 |
) |
Amortization of intangibles and invesment in limited partnerships |
|
|
801 |
|
|
|
353 |
|
|
|
— |
|
Decrease (increase) in accrued interest receivable |
|
|
382 |
|
|
|
228 |
|
|
|
(88 |
) |
Increases in cash surrender value of bank-owned life insurance |
|
|
(497 |
) |
|
|
(404 |
) |
|
|
(309 |
) |
(Decrease) increase in accrued interest payable |
|
|
(216 |
) |
|
|
(164 |
) |
|
|
80 |
|
Increase in prepaid FDIC assessment |
|
|
(2,037 |
) |
|
|
— |
|
|
|
— |
|
Other, net |
|
|
(1,501 |
) |
|
|
(211 |
) |
|
|
115 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
6,470 |
|
|
|
5,465 |
|
|
|
2,484 |
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases |
|
|
(117,943 |
) |
|
|
(49,809 |
) |
|
|
(39,718 |
) |
Proceeds from sales, maturities and redemptions |
|
|
92,463 |
|
|
|
50,001 |
|
|
|
35,783 |
|
Proceeds from redemption of restricted securities |
|
|
— |
|
|
|
1,806 |
|
|
|
16 |
|
Purchase of restricted securities |
|
|
(817 |
) |
|
|
(1,176 |
) |
|
|
(62 |
) |
Net (increase) decrease in loans |
|
|
(12,350 |
) |
|
|
2,723 |
|
|
|
(449 |
) |
Proceeds from sale of premises and equipment |
|
|
1,294 |
|
|
|
786 |
|
|
|
— |
|
Proceeds from sale of other real estate owned |
|
|
996 |
|
|
|
— |
|
|
|
— |
|
Acquisition of bank cash |
|
|
— |
|
|
|
5,803 |
|
|
|
— |
|
Acquisition of premises and equipment |
|
|
(2,174 |
) |
|
|
(2,534 |
) |
|
|
(448 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash (used for) provided by investing activities |
|
|
(38,531 |
) |
|
|
7,600 |
|
|
|
(4,878 |
) |
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in deposits |
|
|
27,979 |
|
|
|
(1,321 |
) |
|
|
1,654 |
|
Net (decrease) increase in short-term borrowings |
|
|
(3,465 |
) |
|
|
(5,932 |
) |
|
|
201 |
|
Proceeds from long-term borrowings |
|
|
6,000 |
|
|
|
— |
|
|
|
— |
|
Repayment of long-term borrowings |
|
|
(5 |
) |
|
|
(2,004 |
) |
|
|
(160 |
) |
Acquisition of treasury stock |
|
|
(537 |
) |
|
|
(398 |
) |
|
|
(658 |
) |
Proceeds from issuance of common stock |
|
|
381 |
|
|
|
267 |
|
|
|
236 |
|
Cash dividends paid |
|
|
(2,318 |
) |
|
|
(1,593 |
) |
|
|
(1,010 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) financing activities |
|
|
28,035 |
|
|
|
(10,981 |
) |
|
|
263 |
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
(4,026 |
) |
|
|
2,084 |
|
|
|
(2,131 |
) |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
|
|
15,485 |
|
|
|
13,401 |
|
|
|
15,532 |
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD |
|
$ |
11,459 |
|
|
$ |
15,485 |
|
|
$ |
13,401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
8,830 |
|
|
$ |
6,904 |
|
|
$ |
6,135 |
|
Income taxes paid |
|
|
1,790 |
|
|
|
992 |
|
|
|
889 |
|
Loans transferred to other real estate owned |
|
|
746 |
|
|
|
373 |
|
|
|
— |
|
See accompanying notes to the consolidated financial statements.
35
CCFNB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of CCFNB Bancorp, Inc. (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, First Columbia Bank & Trust Co. (the “Bank”). Columbia Financial
Corporation (“CFC”), the former parent company of the Bank was acquired by CCFNB Bancorp, Inc. on
July 18, 2008 and Columbia County Farmers National Bank (“CCFNB”) merged with and into the Bank on
July 18, 2008. The 2008 financial results reflected in the statements of this report include
results of earnings of the Corporation from January 1, 2008 through December 31, 2008, which
includes the earnings results of the acquired entities from July 18, 2008 through December 31,
2008. All significant inter-company balances and transactions have been eliminated in
consolidation.
NATURE OF OPERATIONS
The Corporation is a financial holding company that provides full-banking services, including
trust services, through the Bank, to individuals and corporate customers. The Bank has thirteen
offices covering an area of approximately 752 square miles in Northcentral Pennsylvania. The
Corporation and Bank are subject to the regulation of the Pennsylvania Department of Banking, 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 include various types of checking accounts,
passbook and statement savings, money market accounts, interest checking accounts, individual
retirement accounts, and certificates of deposit. The Bank also offers non-insured “Repo sweep”
accounts. Lending products include commercial, consumer, and mortgage loans. The trust services,
trading under the name of B.B.C.T.,Co. include administration of various estates, pension plans,
self-directed IRA’s 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 Bank 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, remote capture, 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 B.B.C.T., Co. as well as offers 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.
USE OF ESTIMATES
The preparation of these consolidated financial statements in conformity with accounting
principles 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
revenue 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
36
comprehensive income in the
Consolidated Statement of Changes in Stockholders’ Equity. Management’s 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.
RESTRICTED SECURITIES
Restricted equity securities consist of stock in the Federal Home Loan Bank of Pittsburgh
(“FHLB — Pittsburgh”), and Atlantic Central Bankers Bank (“ACBB”) and do not have a readily
determinable fair value because their ownership is restricted, and they can be sold back only to
the FHLB-Pittsburgh, ACBB or to another member institution. Therefore, these securities are
classified as restricted equity investment securities, carried at cost, and evaluated for
impairment. At December 31, 2009, the Corporation held $2,949,000 in stock of the FHLB-Pittsburgh
and $35,000 in stock of ACBB. At December 31, 2008, the Corporation held $2,132,000 in stock of
FHLB-Pittsburgh and $35,000 in stock of ACBB.
The Corporation evaluated its holding of restricted stock for impairment and deemed the stock
to not be impaired due to the expected recoverability of par value, which equals the value
reflected within the Corporation’s financial statements. The decision was based on several items
ranging from the estimated true economic losses embedded within FHLB’s mortgage portfolio to the
FHLB’s liquidity position and credit rating. The Corporation utilizes the impairment framework
outlined in GAAP to evaluate stock for impairment. The following factors were evaluated to
determine the ultimate recoverability of the par value of the Corporation’s restricted stock
holdings; (i) the significance of the decline in net assets of the FHLB as compared to the capital
stock amount for the FHLB and the length of time this situation has persisted; (ii) commitments by
the FHLB to make payments required by law or regulation and the level of such payments in relation
to the operating performance of the FHLB; (iii) the impact of legislative and regulatory changes on
the institutions and, accordingly, on the customer base of the FHLB; (iv) the liquidity position of
the FHLB; and (v) whether a decline is temporary or whether it affects the ultimate recoverability
of the FHLB stock based on (a) the materiality of the carrying amount to the member institution and
(b) whether an assessment of the institution’s operational needs for the foreseeable future allow
management to dispose of the stock. Based on the analysis of these factors, the Corporation
determined that its holding of restricted stock were not impaired at December 31, 2009 and 2008.
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. A portion of these loans are sold with limited recourse by 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.
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 management’s
judgment as to collectibility of principal.
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 loan’s 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 discussed
above.
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.
37
The allowance for loan losses is maintained at a level established by management to be
adequate to absorb estimated potential loan losses. Management’s periodic evaluation of the
adequacy of the allowance for loan losses is based on the Corporation’s past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect the borrower’s
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. The allowance is estimated by management and is classified in other liabilities.
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 Bank originates and sells real estate loans to investors in the secondary mortgage market.
After the sale, the Bank retains the right to service 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 sheets. The servicing rights are periodically
evaluated for impairment based on their relative fair value.
JUNIOR SUBORDINATE DEBENTURES
During 2006, CFC issued $4,640,000 in junior debentures due December 15, 2036 to Columbia
Financial Statutory Trust I (Trust). On July 18, 2008, the Corporation became the successor to
CFC and to this Trust, respectively. The Corporation owns all of the $140,000 in common equity of
the Trust and the debentures are the sole asset of the Trust. The Trust, a wholly-owned
unconsolidated subsidiary of the Corporation, issued $4,500,000 of floating-rate trust capital
securities in a non-public offering in reliance on Section 4 (2) of the Securities Act of 1933.
The floating-rate capital securities provide for quarterly distributions at a variable annual
coupon rate, reset quarterly, based on the 3-month LIBOR plus 1.75%. The coupon rate was 2.00% at
December 31, 2009. The securities are callable by the Corporation, subject to any required
regulatory approval, at par, after five years. The Corporation unconditionally guarantees the
trust capital securities. The terms of the junior subordinated debentures and the common equity of
the trust mirror the terms of the trust capital securities issued by the Trust.
INTANGIBLE ASSETS — GOODWILL
Goodwill represents the excess of the purchase price over the fair market value of net assets
acquired. The Corporation has recorded net goodwill of $7,937,000 at December 31, 2009 and 2008
related to the 2008 acquisition of Columbia Financial Corporation and it’s subsidiary, First
Columbia Bank & Trust Co. In accordance with current accounting standards, goodwill is not
amortized. Management performs an annual evaluation for impairment. Any impairment of goodwill
results in a charge to income. The Corporation periodically assesses whether events or changes in
circumstances indicate that the carrying amounts of goodwill and other intangible assets may be
impaired. Goodwill is tested for impairment at the reporting unit level and an impairment loss is
recorded to the extent that the carrying amount of goodwill exceeds its implied fair value. The
Company employs general industry practices in evaluating the impairment of its goodwill and other
intangible assets. The Company calculates the value of goodwill using a combination of the
following valuation methods: dividend discount analysis under the income approach, which calculates
the present value of all excess cash flows plus the present value of a terminal value, the
price/earnings multiple under the market approach and the change in control premium to market price
approach. Based upon these reviews, management determined there was no impairment of goodwill
during 2009. No assurance can be given that future impairment tests will not result in a charge to
earnings.
INTANGIBLE ASSETS — CORE DEPOSIT
The Corporation has an amortizable intangible asset related to the deposit premium paid for
the acquisition of Columbia Financial Corporation’s subsidiary, First Columbia Bank & Trust Co.
This intangible asset is being amortized on a sum of the years digits method over 10 years and has
a carrying value of $2,768,000 as of December 31, 2009. At December 31, 2008, the intangible asset
had a carrying value of $3,411,000. The recoverability of the carrying value is evaluated on an
ongoing basis, and permanent declines in value, if any, are charged to expense. Amortization of
the core deposit intangible amounted to $643,000 and $280,000 for
38
the years ended December 31, 2009
and 2008, respectively. The Corporation did not have a core deposit intangible as of December 31,
2007.
The estimated amortization expense of the core deposit intangible over its remaining life is as
follows:
| |
|
|
|
|
| For the Year Ended: |
|
|
|
|
2010 |
|
$ |
576,000 |
|
2011 |
|
|
509,000 |
|
2012 |
|
|
442,000 |
|
2013 |
|
|
374,000 |
|
2014 |
|
|
308,000 |
|
Thereafter |
|
|
559,000 |
|
|
|
|
|
Total |
|
$ |
2,768,000 |
|
|
|
|
|
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. The amount of other real estate owned
was $29,000 and $373,000 as of December 31, 2009 and 2008, respectively and is included in other
assets in the accompanying consolidated balance sheets.
BANK OWNED LIFE INSURANCE
The Corporation invests in Bank Owned Life Insurance (BOLI). Purchase of BOLI provides life
insurance coverage on certain employees with the Corporation being owner and primary beneficiary of
the policies.
INVESTMENTS IN LIMITED PARTNERSHIPS
The Corporation is a limited partner in three partnerships at December 31, 2009 that provide
low income elderly housing in the Corporation’s geographic market area. The investments are
accounted for under the effective yield method. Under the effective yield method, the Corporation
recognizes tax credits as they are allocated and amortizes the initial cost of the investment to
provide a constant effective yield over the period that the tax credits are allocated to the
Corporation. Under this method, the tax credits allocated, net of any amortization of the
investment in the limited partnerships, are recognized in the consolidated statements of income as
a component of income tax expense. The amount of tax credits allocated to the Corporation were
$187,000 and the amortization of the investments in limited partnerships was $158,000 in 2009. The
amount of tax credits allocated to the Corporation were $93,000 and the amortization of the
investments in limited partnerships was $73,000 in 2008. The carrying value of the Corporation’s
investments in limited partnerships was $687,000 and $845,000 at December 31, 2009 and 2008,
respectively.
INVESTMENT IN INSURANCE AGENCY
The Corporation owns a 50 percent 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 December 31, 2009 and 2008 was $232,000 and $218,000, respectively, and is
included in other assets in the accompanying consolidated balance sheets.
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 basis 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
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, so accordingly, basic and diluted per share data are the same.
39
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.
TREASURY STOCK
The purchase of the Corporation’s common stock is recorded at cost. At the date of subsequent
reissue, the treasury stock account is reduced by the cost of such stock on a last-in first-out
basis.
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 and the Bank. Trust Department income is generally recognized on a cash basis and
is not materially different than if it was reported on an accrual basis.
ACCUMULATED OTHER COMPREHENSIVE INCOME
The Corporation is required to present accumulated other comprehensive income in a full set of
general-purpose financial statements for all periods presented. Accumulated other comprehensive
income is comprised of unrealized holding gains on the available for sale investment securities
portfolio. The Corporation has elected to report the effects of other comprehensive income as part
of the Consolidated Statement of Changes in Stockholders’ Equity.
ADVERTISING COSTS
It is the Corporation’s policy to expense advertising costs in the period in which they are
incurred Advertising expense for the years ended December 31, 2009, 2008, and 2007 was
approximately $199,000, $145,000, and $104,000, respectively.
SUBSEQUENT EVENTS
Management has evaluated subsequent events for reporting and disclosure in these consolidated
financial statements through March 9, 2010, the date the consolidated financial statements were
available to be issued. No material subsequent events have occurred since December 31, 2009 that
require recognition or disclosure in the consolidated financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS
FASB ASC 105-10 — In June 2009, the Financial Accounting Standards Board (FASB) issued
Statement No. 168 — The FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles (FASB ASC 105-10, Generally Accepted Accounting Principles). SFAS
No. 168 replaces SFAS No. 162 and establishes the FASB Accounting Standards Codification as the
source of authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in conformity with generally
accepted accounting principles (“GAAP”). Rules and interpretive releases of the Securities and
Exchange Commission under federal securities laws are also sources of authoritative GAAP for SEC
registrants. The FASB Accounting Standards Codification (“ASC”) will be effective for financial
statements that cover interim and annual periods ending after September 15, 2009. Other than
resolving certain minor inconsistencies in current GAAP, the FASB Accounting Standards Codification
is not intended to change GAAP, but rather to make it easier to review and research GAAP applicable
to a particular transaction or accounting issue. Technical references to generally accepted
accounting principles included in the Notes to Consolidated Financial Statements are provided under
the new FASB ASC structure with the prior terminology included parenthetically.
FASB ASC 805 - In December 2007, the FASB issued new guidance impacting FASB ASC 805,
Business Combinations (SFAS No. 141(R) — Business Combinations). The new guidance establishes
principles and requirements for how an acquiring corporation (1) recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed and any
noncontrolling interest in the acquired, (2) recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase, and (3) determines what information to
disclose to enable users of the financial statements to evaluate the nature and financial effects
of the business combination.
The Corporation was required to prospectively apply FASB ASC 805 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 FASB ASC 805 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. The
Corporation adopted FASB
40
ASC 805 for any business combinations occurring at or subsequent to
January 1, 2009. The adoption of this standard did not have a material impact on the
Corporation’s consolidated financial condition, results of operations or liquidity.
FASB ASC 810-10 - In December 2007, the FASB issued FASB ASC 810-10, Consolidation (Statement
No. 160 — Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB 51).
FASB ASC 810-10 establishes new accounting and reporting standards for noncontrolling interests in
a subsidiary and for the deconsolidation of a subsidiary. The new standard 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, the new standard 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.
The new standard 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 did not have a material impact on the Corporation’s
consolidated financial condition, results of operations or liquidity.
FASB ASC 815-10 — In March 2008 the FASB issued FASB ASC 815-10, Derivatives and Hedging
(Statement No. 161-Disclosures about Derivative Instruments and Hedging Activities — an amendment
of FASB Statement No. 133). FASB ASC 815-10 requires enhanced disclosures about how and why an
entity uses derivative instruments, how derivative instruments and related items are accounted for
and how derivative instruments and related hedged items affect an entity’s financial position,
financial performance and cash flows. The new standard became effective for the Corporation on
January 1, 2009. The adoption of this standard did not have a material impact on the Corporation’s
consolidated financial position or results of operations.
FASB ASC 855 — In May 2009, the FASB issued FASB ASC 855, Subsequent Events (Statement No.
164 — Subsequent Events). FASB ASC 855 established the period after the balance sheet date during
which management shall evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements and the circumstances under which an entity shall recognize
events or transactions that occur after the balance sheet date. FASB ASC 855 also requires
disclosure of the date through which subsequent events have been evaluated. The Corporation
adopted this standard for the interim reporting period ending June 30, 2009. The adoption of this
standard did not have a material impact on the Corporation’s consolidated financial position or
results of operations.
FASB ASC 860 — In June 2009, the FASB issued new guidance impacting FASH ASC 860, Transfers
and servicing (Statement No. 166 — Accounting for Transfers of Financial Assets — an amendment
of FASB Statement No. 140). The new guidance removes the concept of a qualifying special-purpose
entity and limits the circumstances in which a financial asset, or portion of a financial asset,
should be derecognized when the transferor has not transferred the entire financial asset to an
entity that is not consolidated with the transferor in the financial statements being presented
and/or when the transferor has continuing involvement with the transferred financial asset. The
new standard will become effective for the Corporation on January 1, 2010. The Corporation is
currently evaluating the impact of adopting the new standard on the consolidated financial
statements.
FASB ASC 810-10 — In June 2009, the FASB issued new guidance impacting FASB ASC 810-10,
Consolidation (Statement No. 167 — Amendments to FASB Interpretation No. 46 (R). The new guidance
amends tests for variable interest entities to determine whether a variable interest entity must be
consolidated. FASB ASC 810-10 requires an entity to perform an analysis to determine whether an
entity’s variable interest or interests give it a controlling financial interest in a variable
interest entity. This standard requires ongoing reassessments of whether an entity is the primary
beneficiary of the variable interest entity and enhanced disclosures that provide more transparent
information about an entity’s involvement with a variable interest entity. The new guidance will
become effective for the Corporation on January 1, 2010 and the Corporation is currently evaluating
the impact of adopting the standard on the consolidated financial statements.
FASB ASC 715-20-50 — In December 2008, the FASB issued new guidance impacting FASB ASC
715-20-50, Compensation Retirement Benefits — Defined Benefit Plans — General (FASB Staff
Position No. 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets). This
provides guidance on an employer’s disclosures about plan assets of a defined benefit pension or
other postretirement plan. The guidance requires disclosure of the fair value of each major
category of plan assets for pension plans and other postretirement benefit plans. This standard
becomes effective for the Corporation on December 31, 2009. The implementation of this new
guidance did not have a material impact on the Corporation’s consolidated financial statements.
FASB ASC 825-10-50 — In April 2009, the FASB issued new guidance impacting FASB ASC
825-10-50, Financial Instruments (FASB Staff Position No. FAS 107-1 and APB 28-1, Interim
Disclosures about Fair Value of Financial Instruments). This guidance amends existing GAAP to
require disclosures about fair values of financial instruments for interim reporting periods as
41
well as in annual financial statements. The guidance also amends existing GAAP to require those
disclosures in summarized financial information at interim reporting periods. The Corporation
adopted this standard for the interim reporting period ending March 31, 2009 and it did not have a
material impact on the Corporation’s consolidated financial position or results of operations.
FASB ASC 320-10 — In April 2009, the FASB issued new guidance impacting FASB ASC 320-10,
Investments — Debt and Equity Securities (FASB Staff Position No. FAS 115-2 and FAS 124-2,
Recognition and Presentation of Other-Than-Temporary Impairments). This guidance amends the
other-than-temporary impairment guidance in U. S. generally accepted accounting principles for debt
securities. If an entity determines that it has an other-than temporary impairment on a security,
it must recognize the credit loss on the security in the income statement. The credit loss is
defined as the difference between the present value of the cash flows expected to be collected and
the amortized cost basis. FASB ASC 320-10 expands disclosures about other-than-temporary
impairment and requires that the annual disclosures in existing generally accepted accounting
principles be made for interim reporting periods. The Corporation adopted this guidance for the
interim reporting period ending March 31, 2009 and it did not have a material impact on the
Corporation’s consolidated financial position or results of operations..
FASB ASC 820 — In April 2009, the FASB issued new guidance impacting FASB ASC 820, Fair Value
Measurements and Disclosures (FASB Staff Position No. FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly). This provides additional guidance on determining
fair value when the volume and level of activity for the asset or liability have significantly
decreased when compared with normal market activity of the asset or liability. A significant
decrease in the volume or level of activity for the asset or liability is an indication that
transactions or quoted prices may not be determinative of fair value because transactions may not
be orderly. In that circumstance, further analysis of transactions or quoted prices is needed, and
an adjustment to the transactions or quoted prices may be necessary to estimate fair value. The
Corporation adopted this guidance for the interim reporting period ending March 31, 2009 and it did
not have a material impact on the Corporation’s consolidated financial position or results of
operations.
SAB 111 — In April 2009, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 111 (“SAB 111”). SAB 111 amends Topic 5.M. in the Staff Accounting Bulletin series
entitled Other Than Temporary Impairment of Certain
Investments in Debt and Equity Securities. On April 9, 2009, the FASB issued new guidance
impacting FASB ASC 320-10, Investments — Debt and Equity Securities (FASB Staff Position No. FAS
115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments). SAB 111
maintains the previous views related to equity securities an amends Topic 5.M. to exclude debt
securities from its scope. SAB 111 was effective for the Corporation as of March 31, 2009. There
was no material impact to CCFNB Bancorp, Inc.’s consolidated financial position or results of
operations upon adoption.
SAB 112 — In June 2009, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 112 (“SAB 112”). SAB 112 revises or rescinds portions of the interpretative guidance
included in the Staff Accounting Bulletin series in order to make the interpretive guidance
consistent with recent pronouncements by the FASB, specifically FASB ASC 805 and FASB ASC 810-10
(SFAS No. 141 (R) and SAFAS No. 160). SAB 112 was effective for the Corporation as of June 30,
2009. There was no material impact to CCFNB Bancorp, Inc.’s consolidated financial position or
results of operations upon adoption.
FASB ASC 323 — In November 2008, the FASB Emerging Issues Task Force reached a consensus on
FASB ASC 323, Investments — Equity Method and Joint Ventures (Issue No. 08-6, Equity Method
Investment Accounting Considerations). The new guidance clarifies the accounting for certain
transactions and impairment considerations involving equity method investments. An equity investor
shall not separately test an investee’s underlying assets for impairment but will recognize its
share of any impairment charge recorded by an investee in earning and consider the effect of the
impairment on its investment. An equity investor shall account for a share issuance by an investee
as if the investor had sold a proportionate share of its investment, with any gain or loss
recognized in earnings. The new guidance became effective for the Corporation on January 1, 2009
and did not have a material impact on the Corporation’s consolidated financial position or results
of operations.
FASB ASC 350 — In November 2008, the FASB Emerging Issues Task Force reached a consensus on
FASB ASC 350, Intangibles — Goodwill and Other (Issue No. 08-7, Accounting for Defensive
Intangible Assets). The new guidance clarifies how to account for defensive intangible assets
subsequent to initial measurement. The guidance applies to acquired intangible assets in
situations in which an entity does not intend to actively use an asset but intends to hold the
asset to prevent others from obtaining access to the asset. A defensive intangible asset should be
accounted for as a separate unit of accounting with an expected life that reflects the consumption
of the expected benefits related to that asset. The benefit from holding a defensive intangible
asset is the direct and indirect cash flows resulting from the entity preventing others from using
the asset. The new guidance was effective for intangible assets acquired on or after January 1,
2009 and did not have a material impact on the Corporation’s consolidated financial position or
results of operations.
42
FASB ASC 260-10 — In June 2008, the FASB issued new guidance impacting FASB ASC 260-10,
Earnings Per Share (FSP No. EITF 03-06-1, Determining Whether Instruments Granted in Share-Based
Payment Transactions are Participating Securities). This new guidance concluded that all
outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends
participate in undistributed earnings with common shareholders and therefore are considered
participating securities for purposes of computing earning per share. Entities that have
participating securities that are not convertible into common stock are required to use the
“two-class” method of computing earnings per share. The two-class method is an earnings allocation
formula that determines earnings per share for each class of common stock and participating
security according to dividends declared (or accumulated) and participation rights in undistributed
earnings. This new guidance was effective for fiscal years beginning after December 15, 2008 and
interim periods within those fiscal years. This new guidance became effective for the Corporation
on January 1, 2009 and did not have a material impact on the Corporation’s consolidated financial
position or results of operations.
FASB ASC 820-10 — In August 2009, the FASB issued an update (ASC No. 1009-05, Measuring
Liabilities at Fair Value) impacting FASB ASC 820-10, Fair Value Measurements and Disclosures. The
update provides clarification about measuring liabilities at fair value in circumstances where a
quoted price in an active market for an identical liability is not available and the valuation
techniques that should be used. The update also clarifies that when estimating the fair value of a
liability, a reporting entity is not required to include a separate input or adjustment to other
inputs relating to the existence of a restriction that prevents the transfer of the liability.
This update became effective for the Corporation for the reporting period ending September 30, 2009
and did not have a material impact on the Corporation’s consolidate financial position or results
of operations.
FASB ASC 820-10 — In September 2009, the FASB issued an update (ASC No. 2009-12, Investments
in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)) impacting FASB
ASC 820-10, Fair Value Measurements and Disclosures. The amendments in this update permit, as a
practical expedient, a reporting entity to measure the fair value of an investment (or its
equivalent) if the net asset value of the investment is calculated in a manner consistent with the
measurement principles of Topic 946, Financial Services-Investment Companies. The amendments in
this update also require disclosures by major category of investment about the attributes of
investments within the scope of the amendments in this update, such as the nature of an
restrictions on the ability to redeem an investment on the measurement date. This update becomes
effective for the Corporation for interim an annual reporting periods ending after December 15,
2009. The implementation of this standard did not have a material impact on the Corporation’s
consolidated financial statements.
FASB ASC 505-20 — In January 2010, the FASB issued an update (ASC No. 2010-01, Accounting for
Distributions to Shareholders with Components of Stock and Cash) impacting FASB ASC 505-20, Equity
— Stock Dividends and Stock Splits. The amendments in this update clarify that the stock portion
of a distribution to shareholders that allows them to elect to receive cash or stock with a
potential limitation on the total amount of cash that all shareholders can elect to receive in the
aggregate is considered a share issuance that is reflected in earnings per share and is not a stock
dividend. This update became effective for the Corporation for interim and annual periods ending
after December 15, 2009 and did not have a material impact on the Corporation’s consolidated
financial position or results of operations.
FASB ASC 810-10 — In January 2010, the FASB issued an update (ASC No. 2010-02, Accounting and
Reporting for Decreases in Ownership of a Subsidiary — a Scope Clarification) impacting FASB ASC
810-10, Consolidation. The amendments in this update address implementation issues related to the
changes of ownership provisions originally issued as FASB Statement 160. It also improves the
disclosures related to retained investments in a deconsolidated subsidiary or a preexisting
interest held by an acquirer in a business combination. This update became effective for the
Corporation for interim and annual periods ending after December 15, 2009 and did not have a
material impact on the Corporation’s consolidated financial position or results of operations.
FASB ASC 820-10- In January 2010, the FASB issued an update (ASC No. 2010-06, Improving
Disclosures about Fair Value Measurements) impacting FASB ASC 820-10, Fair Value Measurements and
Disclosures. The amendments in this update require new disclosures about significant transfers in
and out of Level 1 and Level 2 fair value measurements. The amendments also require a reporting
entity to provide information about activity for purchases, sales, issuances and settlements in
Level 3 fair value measurements and clarify disclosures about the Level of disaggregation and
disclosures about inputs and valuation techniques. This update becomes effective for the
Corporation for interim and annual reporting periods beginning after December 15, 2009. The
Corporation is currently evaluating the impact of adopting the new guidance on the consolidated
financial statements.
RECLASSIFICATIONS
Certain amounts in the consolidated financial statements of the prior years have been
reclassified to conform with presentations used in the 2009 consolidated financial statements.
Such reclassifications had no effect on the Corporation’s consolidated financial condition or net
income.
43
2. RESTRICTED CASH BALANCES
The Bank is required to maintain average clearing balances with the Federal Reserve Bank. The
amount required at December 31, 2009 was $150,000.
3. INVESTMENT SECURITIES AVAILABLE-FOR-SALE
The amortized cost, related estimated fair value, and unrealized gains and losses for
investment securities were as follows at December 31, 2009 and 2008:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
| |
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
| |
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
| (In Thousands) |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
Obligation
of U.S.Government Corporations and Agencies: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed |
|
$ |
134,762 |
|
|
$ |
4,212 |
|
|
$ |
(118 |
) |
|
$ |
138,856 |
|
Other |
|
|
68,323 |
|
|
|
421 |
|
|
|
(405 |
) |
|
|
68,339 |
|
Obligations of state and political subdivisions |
|
|
11,265 |
|
|
|
116 |
|
|
|
(7 |
) |
|
|
11,374 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
|
214,350 |
|
|
|
4,749 |
|
|
|
(530 |
) |
|
|
218,569 |
|
Marketable equity securities |
|
|
2,093 |
|
|
|
41 |
|
|
|
(437 |
) |
|
|
1,697 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities AFS |
|
$ |
216,443 |
|
|
$ |
4,790 |
|
|
$ |
(967 |
) |
|
$ |
220,266 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 |
|
| |
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
| |
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
| (In Thousands) |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
Obligation
of U.S.Government Corporations and Agencies: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed |
|
$ |
116,357 |
|
|
$ |
1,808 |
|
|
$ |
(119 |
) |
|
$ |
118,046 |
|
Other |
|
|
63,031 |
|
|
|
1,049 |
|
|
|
— |
|
|
|
64,080 |
|
Obligations of state and political subdivisions |
|
|
9,944 |
|
|
|
67 |
|
|
|
(17 |
) |
|
|
9,994 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
|
189,332 |
|
|
|
2,924 |
|
|
|
(136 |
) |
|
|
192,120 |
|
Marketable equity securities |
|
|
2,623 |
|
|
|
73 |
|
|
|
(403 |
) |
|
|
2,293 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities AFS |
|
$ |
191,955 |
|
|
$ |
2,997 |
|
|
$ |
(539 |
) |
|
$ |
194,413 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale with an aggregate fair value of $95,579,000 and
$109,881,000 at December 31, 2009 and 2008, respectively, were pledged to secure public funds,
trust funds, securities sold under agreements to repurchase and other balances of $73,734,000 and
$73,114,000 at December 31, 2009 and 2008, respectively, as required by law.
The amortized cost and estimated fair value of investment securities, by expected maturity,
are shown below at December 31, 2009. Expected maturities on debt securities will differ from
contractual maturities, because some borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties. Other securities and marketable equity securities
are not considered to have defined maturities and are included in the “Due after ten years”
category:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Weighted |
|
| |
|
Amortized |
|
|
Estimated |
|
|
Average |
|
| (In Thousands) |
|
Cost |
|
|
Fair Value |
|
|
Yield |
|
Due in one year or less |
|
$ |
1,478 |
|
|
$ |
1,478 |
|
|
|
3.64 |
% |
Due after one year to five years |
|
|
58,261 |
|
|
|
58,397 |
|
|
|
2.99 |
% |
Due after five years to ten years |
|
|
29,743 |
|
|
|
30,316 |
|
|
|
4.80 |
% |
Due after ten years |
|
|
126,961 |
|
|
|
130,075 |
|
|
|
4.51 |
% |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
216,443 |
|
|
$ |
220,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no aggregate investments with a single issuer (excluding the U. S.
Government and its Agencies) which exceeded ten percent of consolidated stockholders’ equity at
December 31, 2009. The quality rating of all obligations of state and political subdivisions were
“A” or higher, as rated by Moody’s or Standard and Poors. The only exceptions were local issues
which
44
were not rated, but were secured by the full faith and credit obligations of the communities
that issued these securities. All of the state and political subdivision investments were actively
traded in a liquid market.
Proceeds from sales, maturities and redemptions of investments in debt and equity securities
classified as available-for-sale during 2009, 2008 and 2007 were $92,463,000, $51,807,000, and
$35,799,000, respectively. For the year ended December 31, 2009, the Corporation recognized gross
losses on these sales in the amount of $316,000. The Corporation did not realize a gross gain for
the year ended December 31, 2009. Gross gains realized on these sales for the years ended December
31, 2008 and 2007 were $6,000 and $41, respectively. There were no gross losses on the 2008 and
2007 sales.
Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a
quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.
Investment securities classified as available for sale or held-to-maturity are generally evaluated
for OTTI under FASB ASC 320 (SFAS No. 115, Accounting for Certain Investments in Debt and Equity
Securities). In determining OTTI under the FASB ASC 320 (SFAS No. 115) model, management considers
many factors, including (1) the length of time and the extent to which the fair value has been less
than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the
market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent
to sell the debt security or more likely than not will be required to sell the debt security before
its anticipated recovery. The assessment of whether an other-than-temporary decline exists
involves a high degree of subjectivity and judgment and is based on the information available to
management at a point in time.
When other-than-temporary-impairment occurs, the amount of the other-than-temporary-impairment
recognized in earnings depends on whether an entity intends to sell the security or more likely
than not will be required to sell the security before recovery of its amortized cost basis less any
current-period credit loss. If an entity intends to sell or more likely than not will be required
to sell the security before recovery of its amortized cost basis less any current-period credit
loss, the other-than-temporary impairment shall be recognized in earnings equal to the entire
difference between the investment’s amortized cost basis and its fair value at the balance sheet
date. If an entity does not intend to sell the security and it is not more likely than not that
the entity will be required to sell the security before recovery of its amortized cost basis less
any current-period loss, the other-than-temporary impairment shall be separated into the amount
representing the credit loss and the amount related to all other factors. The amount of the total
other-than-temporary impairment related to the credit loss is determined based on the present value
of cash flows expected to be collected and is recognized in earnings. The amount of the total
other-than-temporary- impairment related to the other factors shall be recognized in other
comprehensive income, net of applicable taxes. The previous amortized cost basis less the
other-than-temporary-impairment recognized in earnings shall become the new amortized cost basis of
the investment.
The following summary shows the gross unrealized losses and fair value, aggregated by
investment category of those individual securities that have been in a continuous unrealized loss
position for less than or more than 12 months as of December 31, 2009 and 2008:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
| |
|
Less than Twelve Months |
|
|
Twelve Months or Greater |
|
|
Total |
|
| |
|
Estimated |
|
|
Gross |
|
|
Estimated |
|
|
Gross |
|
|
Estimated |
|
|
Gross |
|
| |
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
| (In Thousands) |
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
Obligations
of U.S. Government Corporations and Agencies: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed |
|
$ |
8,105 |
|
|
$ |
117 |
|
|
$ |
51 |
|
|
$ |
1 |
|
|
$ |
8,156 |
|
|
$ |
118 |
|
Other |
|
|
28,876 |
|
|
|
405 |
|
|
|
— |
|
|
|
— |
|
|
|
28,876 |
|
|
|
405 |
|
Obligations of state and political subdivisions |
|
|
1,856 |
|
|
|
7 |
|
|
|
— |
|
|
|
— |
|
|
|
1,856 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
|
38,837 |
|
|
|
529 |
|
|
|
51 |
|
|
|
1 |
|
|
|
38,888 |
|
|
|
530 |
|
Equity securities |
|
|
366 |
|
|
|
159 |
|
|
|
806 |
|
|
|
278 |
|
|
|
1,172 |
|
|
|
437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
39,203 |
|
|
$ |
688 |
|
|
$ |
857 |
|
|
$ |
279 |
|
|
$ |
40,060 |
|
|
$ |
967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 |
|
| |
|
Less than Twelve Months |
|
|
Twelve Months or Greater |
|
|
Total |
|
| |
|
Estimated |
|
|
Gross |
|
|
Estimated |
|
|
Gross |
|
|
Estimated |
|
|
Gross |
|
| |
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
| (In Thousands) |
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
Obligations of U.S. Government Corporations
and Agencies: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed |
|
$ |
12,894 |
|
|
$ |
114 |
|
|
$ |
1,481 |
|
|
$ |
5 |
|
|
$ |
14,375 |
|
|
$ |
119 |
|
Other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0 |
|
|
|
— |
|
|
|
— |
|
Obligations of state and political subdivisions |
|
|
1,004 |
|
|
|
17 |
|
|
|
— |
|
|
|
— |
|
|
|
1,004 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
|
13,898 |
|
|
|
131 |
|
|
|
1,481 |
|
|
|
5 |
|
|
|
15,379 |
|
|
|
136 |
|
Equity securities |
|
|
1,327 |
|
|
|
304 |
|
|
|
617 |
|
|
|
99 |
|
|
|
1,944 |
|
|
|
403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
15,225 |
|
|
$ |
435 |
|
|
$ |
2,098 |
|
|
$ |
104 |
|
|
$ |
17,323 |
|
|
$ |
539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009, the Corporation had a total of 279 debt securities and 45 equity
security positions. At December 31, 2009, there were a total of 39 individual debt securities
and 13 individual equity securities that were in a continuous unrealized loss position for less
than twelve months. At December 31, 2009, there were a total of 1 debt security and 18 individual
equity securities in a continuous loss position for greater than twelve months.
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 Corporation’s
carrying value at any measurement date. The Corporation does not consider the debt securities
contained in the previous table to be other-than-temporarily impaired since it has both the intent
and ability to hold the securities until a recovery of fair value, which may be maturity.
The Corporation’s marketable equity securities consist of common stock positions in various
Commercial Banks, Savings and Loans/Thrifts, and Diversified Financial Service Corporations varying
in asset size and geographic region. The Corporation’s equity securities represent less than 1
percent of the total available for sale investments as of December 31, 2009. The following tables
display the Corporation’s holdings of these securities by asset size and geographic region as of
December 31, 2009:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2009 |
|
| |
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
| (In Thousands) |
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
| Asset size($) |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
| |
Under $1 Billion |
|
$ |
414 |
|
|
$ |
12 |
|
|
$ |
(61 |
) |
|
$ |
365 |
|
$1 to $5 Billion |
|
|
213 |
|
|
|
— |
|
|
|
(68 |
) |
|
|
145 |
|
$6 to $100 billion |
|
|
780 |
|
|
|
13 |
|
|
|
(233 |
) |
|
|
560 |
|
Over $100 Billion |
|
|
686 |
|
|
|
16 |
|
|
|
(75 |
) |
|
|
627 |
|
| |
|
|
|
|
$ |
2,093 |
|
|
$ |
41 |
|
|
$ |
(437 |
) |
|
$ |
1,697 |
|
| |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2009 |
|
| |
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
| (In Thousands) |
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
| Geographic Region |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
| |
Eastern U.S. |
|
$ |
1,003 |
|
|
$ |
20 |
|
|
$ |
(248 |
) |
|
$ |
775 |
|
Southeastern U.S. |
|
|
110 |
|
|
|
— |
|
|
|
(17 |
) |
|
|
93 |
|
Western U.S. |
|
|
53 |
|
|
|
— |
|
|
|
(27 |
) |
|
|
26 |
|
National |
|
|
927 |
|
|
|
21 |
|
|
|
(145 |
) |
|
|
803 |
|
| |
|
|
|
|
$ |
2,093 |
|
|
$ |
41 |
|
|
$ |
(437 |
) |
|
$ |
1,697 |
|
| |
|
|
46
The fair market value of the equity securities tends to fluctuate with the overall equity
markets as well as the trends specific to each institution. The equity securities portfolio is
reviewed in a similar manner as that of the debt securities with greater emphasis placed on the
length of time the market value has been less than the carrying value and the financial sector
outlook. The Corporation also reviews dividend payment activities, levels of non performing assets
and loan loss reserves, and whether or not the issuer is participating in the TARP Capital Purchase
Program. The starting point for the equity analysis is the length and severity of market value
decline. The Corporation and an independent consultant monitor the entire portfolio monthly with
particular attention given to securities in a continuous loss position of at least ten percent for
over twelve months. During 2009, impairment was recognized on several securities which management
believed that a sufficient amount of credit damage had occurred relative to the issuer’s capital
position to render the security unlikely to recover to our cost within the near term. For the year
ended December 31, 2009, the Corporation recorded an other -than-temporary loss totaling $69,000
related to the investment in equity securities. Securities with an unrealized loss that were
determined to be other-than-temporary were written down to fair value, with the write-down recorded
as a realized loss included in security (losses) gains. The Corporation evaluated the near-term
prospects of the issuer in relation the severity and duration of the market value decline as well
as the other attributes listed above. Based on that evaluation and the Corporation’s ability and
intent to hold these equity securities for a reasonable period of time sufficient for a forecasted
recovery of fair value, the Corporation does not consider these equity securities to be
other-than-temporarily impaired at December 31, 2009.
4. LOANS
Major classifications of loans at December 31, 2009 and 2008 consisted of:
| |
|
|
|
|
|
|
|
|
| (In Thousands) |
|
|
|
|
|
|
| |
|
2009 |
|
|
2008 |
|
Commercial, financial and agricultural |
|
$ |
37,642 |
|
|
$ |
27,165 |
|
Tax-exempt |
|
|
18,055 |
|
|
|
16,762 |
|
Real estate |
|
|
253,463 |
|
|
|
262,539 |
|
Real estate construction |
|
|
13,526 |
|
|
|
5,307 |
|
Installment loans to individuals |
|
|
7,725 |
|
|
|
8,202 |
|
Add (deduct): Unearned discount |
|
|
(15 |
) |
|
|
(24 |
) |
Unamortized loan costs, net of fees |
|
|
93 |
|
|
|
117 |
|
|
|
|
|
|
|
|
Gross loans |
|
$ |
330,489 |
|
|
$ |
320,068 |
|
|
|
|
|
|
|
|
Real estate loans held-for-sale in the amount of $267,000 at December 31, 2009 and $72,000 at
December 31, 2008 are included in real estate loans above and are carried at the lower of cost or
market.
The aggregate amount of demand deposits that have been reclassified as loan balances at
December 31, 2009 and 2008 are $99,000 and $94,000, respectively.
Non-accrual loans at December 31, 2009, 2008 and 2007 were $4,361,000, $4,453,000,and $77,000,
respectively. The gross interest that would have been recorded if all non-accrual loans during the
year had been current in accordance with their original terms and the amounts actually recorded in
income were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| (In Thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Gross interest due under terms |
|
$ |
285 |
|
|
$ |
320 |
|
|
$ |
10 |
|
Amount included in income |
|
|
(241 |
) |
|
|
(116 |
) |
|
|
(4 |
) |
Interest income not recognized |
|
$ |
44 |
|
|
$ |
204 |
|
|
$ |
6 |
|
At December 31, 2009, 2008 and 2007, the recorded investment in loans that are considered to
be impaired was $4,839,000, $4,453,000 and $77,000, respectively. No additional charge to
operations was required to provide for these impaired loans as the specifically allocated allowance
of $494,000 at December 31, 2009, is estimated by management to be adequate to provide for the loan
loss allowance associated with these impaired loans. The portion of the allowance for loan losses
allocated for impaired loans was $198,000 and $5,000 at December 31, 2008 and 2007, respectively.
The average recorded investment in impaired loans during the years ended December 31, 2009, 2008
and 2007 was approximately $4,956,000, $1,905,000 and $55,000, respectively.
Loans past due 90 days or more and still accruing interest amounted to $77,000 at December 31,
2007. There were no loans past due 90 days and still accruing interest at December 31, 2009 and
2008.
At December 31, 2009, there were no significant commitments to lend additional funds with
respect to non-accrual and restructured loans.
47
Changes in the allowance for loan losses for the years ended December 31, 2009, 2008 and 2007
were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| (In Thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Balance, beginning of year |
|
$ |
3,758 |
|
|
$ |
1,437 |
|
|
$ |
1,456 |
|
Provision charged to operations |
|
|
1,025 |
|
|
|
750 |
|
|
|
30 |
|
Allowance acquired |
|
|
— |
|
|
|
1,683 |
|
|
|
— |
|
Loans charged off |
|
|
(599 |
) |
|
|
(148 |
) |
|
|
(85 |
) |
Recoveries |
|
|
26 |
|
|
|
36 |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year |
|
$ |
4,210 |
|
|
$ |
3,758 |
|
|
$ |
1,437 |
|
|
|
|
|
|
|
|
|
|
|
From time to time, the Bank may agree to modify the contractual terms of a borrower’s loan.
In cases where such modifications represent a concession to a borrower experiencing financial
difficulty, the modification is considered a troubled debt restructuring. Loans modified in a
troubled debt restructuring are placed on nonaccrual status until the Bank determines the future
collection of principal and interest is reasonably assured, which generally requires that the
borrower demonstrate a period of performance according to the restructured terms of six months. At
December 31, 2009, there were no significant loans modified in troubled debt restructurings.
5. MORTGAGE SERVICING RIGHTS
The Bank sells real estate mortgages. The mortgage loans sold which are serviced for others
are not included in the accompanying Consolidated Balance Sheets. The unpaid principal balances of
mortgage loans serviced for others were $57,154,000 and $39,702,000 at December 31, 2009 and 2008,
respectively. The balances of amortized mortgage servicing rights included in other assets at
December 31, 2009 and 2008 were $344,000 and $206,000, respectively. Valuation allowances were not
provided since fair values were determined to exceed carrying values. Fair values were determined
using a discount rate of 6% and average expected lives of 3 to 6 years.
The following summarizes mortgage servicing rights capitalized and amortized:
| |
|
|
|
|
|
|
|
|
| (In Thousands) |
|
2009 |
|
|
2008 |
|
Balance, beginning of year |
|
$ |
206 |
|
|
$ |
49 |
|
Servicing asset additions and acquisition |
|
|
214 |
|
|
|
201 |
|
Amortization |
|
|
(76 |
) |
|
|
(44 |
) |
|
|
|
|
|
|
|
Balance, end of year |
|
$ |
344 |
|
|
$ |
206 |
|
|
|
|
|
|
|
|
The Bank does not require custodial escrow accounts in connection with the foregoing loan
servicing.
6. PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 2009 and 2008 follows:
| |
|
|
|
|
|
|
|
|
| (In Thousands) |
|
2009 |
|
|
2008 |
|
Land |
|
$ |
1,704 |
|
|
$ |
1,514 |
|
Premises |
|
|
11,305 |
|
|
|
12,550 |
|
Furniture and equipment |
|
|
9,803 |
|
|
|
9,696 |
|
Leasehold improvements |
|
|
64 |
|
|
|
64 |
|
|
|
|
|
|
|
|
Total |
|
|
22,876 |
|
|
|
23,824 |
|
Less accumulated depreciation
and amortization |
|
|
10,293 |
|
|
|
11,215 |
|
| |
|
|
Net premises and equipment |
|
$ |
12,583 |
|
|
$ |
12,609 |
|
|
|
|
|
|
|
|
Depreciation amounted to $1,023,000, $693,000 and $409,000 in 2009, 2008 and 2007,
respectively.
48
7. DEPOSITS
Major classifications of deposits at December 31, 2009 and 2008 consisted of:
| |
|
|
|
|
|
|
|
|
| (In Thousands) |
|
2009 |
|
|
2008 |
|
Demand deposits |
|
$ |
55,734 |
|
|
$ |
52,460 |
|
Interest-bearing demand deposits |
|
|
71,396 |
|
|
|
63,776 |
|
Savings |
|
|
101,537 |
|
|
|
92,385 |
|
Time deposits over $100,000 |
|
|
71,720 |
|
|
|
58,379 |
|
Other time deposits |
|
|
161,901 |
|
|
|
167,309 |
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
462,288 |
|
|
$ |
434,309 |
|
|
|
|
|
|
|
|
The following is a schedule reflecting remaining maturities of time deposits of $100,000 and
over at December 31, 2009:
| |
|
|
|
|
| (In Thousands) |
|
|
|
|
2010 |
|
$ |
37,817 |
|
2011 |
|
|
7,473 |
|
2012 |
|
|
21,833 |
|
2013 |
|
|
2,379 |
|
2014 |
|
|
2,218 |
|
|
|
|
|
Total |
|
$ |
71,720 |
|
|
|
|
|
Interest expense related to time deposits of $100,000 or more was $1,915,000 in 2009,
$1,581,000 in 2008 and $1,369,000 in 2007.
8. 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. Short-term borrowings consisted of the
following at December 31, 2009 and 2008:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
| |
|
|
|
|
|
Weighted |
|
|
Maximum |
|
|
|
|
| |
|
Ending |
|
|
Average |
|
|
Month End |
|
|
Average |
|
| (In Thousands) |
|
Balance |
|
|
Balance |
|
|
Balance |
|
|
Rate |
|
| |
|
|
Securities sold under agreements
to repurchase |
|
$ |
51,682 |
|
|
$ |
47,873 |
|
|
$ |
56,253 |
|
|
|
0.76 |
% |
Other short-term borrowings |
|
|
— |
|
|
|
352 |
|
|
|
5,400 |
|
|
|
0.64 |
% |
U.S. Treasury tax and loan notes |
|
|
315 |
|
|
|
601 |
|
|
|
994 |
|
|
|
0.00 |
% |
| |
|
|
|
|
|
|
Total |
|
$ |
51,997 |
|
|
$ |
48,826 |
|
|
$ |
62,647 |
|
|
|
0.75 |
% |
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 |
|
| |
|
|
|
|
|
Weighted |
|
|
Maximum |
|
|
|
|
| |
|
Ending |
|
|
Average |
|
|
Month End |
|
|
Average |
|
| (In Thousands) |
|
Balance |
|
|
Balance |
|
|
Balance |
|
|
Rate |
|
| |
|
|
Securities sold under agreements
to repurchase |
|
$ |
54,462 |
|
|
$ |
41,573 |
|
|
$ |
62,692 |
|
|
|
1.77 |
% |
Other short-term borrowings |
|
|
— |
|
|
|
849 |
|
|
|
5,400 |
|
|
|
1.04 |
% |
U.S. Treasury tax and loan notes |
|
|
1,000 |
|
|
|
490 |
|
|
|
1,000 |
|
|
|
1.38 |
% |
| |
|
|
|
|
|
|
Total |
|
$ |
55,462 |
|
|
$ |
42,912 |
|
|
$ |
69,092 |
|
|
|
1.76 |
% |
| |
|
|
|
|
|
|
9. LONG-TERM BORROWINGS
Long-term borrowings consist of advances due to the FHLB — Pittsburgh. Under terms of a
blanket agreement, the loans were secured by certain qualifying assets of the Bank which consisted
principally of first mortgage loans. The carrying value of these collateralized items was
$164,173,000 at December 31, 2009. The Bank has lines of credit with Federal Reserve Bank Discount
Window , Wells Fargo Bank, and FHLB — Pittsburgh in the aggregate amount of $169,173,000 at
December 31, 2009. The unused portion of these lines of credit was $154,045,000 at December 31,
2009. Long-term borrowings consisted of the following at December 31, 2009 and 2008:
49
| |
|
|
|
|
|
|
|
|
| (In Thousands) |
|
2009 |
|
|
2008 |
|
Loan dated June 25, 1998 in the original amount of $72,000 for a 30-year term
requiring monthly payments of $425 including interest at 5.86%. |
|
$ |
58 |
|
|
$ |
60 |
|
|
|
|
|
|
|
|
|
|
Loan dated February 23, 1999 in the original amount of $29,160 for a 20-year term
requiring monthly payments of $179 including interest at 5.50%. |
|
|
21 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
Loan dated August 20, 1999 in the original amount of $32,400 for a 20-year term
requiring monthly payments of $199 including interest at 5.50%. |
|
|
24 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
Loan dated January 27, 2000 in the original amount of $5,000,000 for a 10-year term
with a 1-year conversion date, at the discretion of FHLB, and a 3-month conversion
frequency thereafter. At December 31, 2009 the interest rate was 6.00%. |
|
|
5,000 |
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
Loan dated August 16, 2000 in the original amount of $2,000,000 for a 10-year term
with a 6-month conversion date, at the discretion of FHLB, and a 3-month conversion
frequency thereafter. At December 31, 2009 the interest rate was 5.93%. |
|
|
2,000 |
|
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
Loan dated September 20, 2000 in the original amount of $2,000,000 for a 10-year term
with a 3-year conversion date, at the discretion of FHLB, and a 3-month conversion
frequency thereafter. At December 31, 2009 the interest rate was 6.10%. |
|
|
2,000 |
|
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
Loan dated December 13, 2000 in the original amount of $32,092 for a 20-year term
requiring monthly payments of $197 including interest at 5.50%. |
|
|
25 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
Three FHLB Fixed Rate Community Lending Program loans dated May 7, 2009 in the
original amount of $1,000,000 each for terms ranging from 3 to 5 years. At
December 31, 2009 the interest rates ranged from 2.03% to 2.94%. |
|
|
3,000 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Three FHLB Fixed Rate Community Lending Program loans dated July 15, 2009 in the
original amount of $1,000,000 each for terms ranging from 3 to 5 years. At
December 31, 2009 the interest rates ranged from 1.99% to 3.04%. |
|
|
3,000 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total |
|
$ |
15,128 |
|
|
$ |
9,133 |
|
| |
|
|
The following is a schedule reflecting remaining maturities of long-term debt at December 31,
2009:
| |
|
|
|
|
| (In Thousands) |
|
|
|
|
2010 |
|
$ |
9,005 |
|
2011 |
|
|
5 |
|
2012 |
|
|
2,005 |
|
2013 |
|
|
2,006 |
|
2014 |
|
|
2,006 |
|
Thereafter |
|
|
101 |
|
|
|
|
|
Total |
|
$ |
15,128 |
|
|
|
|
|
50
10. COMPREHENSIVE INCOME
The components of the change in other comprehensive income and related tax effects are as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, |
|
| (In Thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Unrealized holding gains on available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
investment securities |
|
$ |
1,750 |
|
|
$ |
2,671 |
|
|
$ |
262 |
|
Reclassification adjustment for (losses) gains realized in income |
|
|
(385 |
) |
|
|
(431 |
) |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains before tax effect |
|
|
1,365 |
|
|
|
2,240 |
|
|
|
263 |
|
Tax effect |
|
|
464 |
|
|
|
762 |
|
|
|
89 |
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gains |
|
$ |
901 |
|
|
$ |
1,478 |
|
|
$ |
174 |
|
|
|
|
|
|
|
|
|
|
|
11. STOCKHOLDERS’ EQUITY AND STOCK PURCHASE PLANS
The Amended Articles of Incorporation contain a provision that permits the Corporation to
issue warrants for the purchase of shares of common stock, par value $1.25 per share (the “Common
Stock”), at below market prices in the event any person or entity acquires 25% or more of the
Common Stock.
The Corporation offers employees a stock purchase plan. The maximum number of shares of the
Common Stock to be issued under this plan is 20,000. In addition, the Corporation may choose to
purchase shares on the open market to facilitate this plan. During 2009 the plan was amended to
allow participating employees to elect quarterly deductions of at least 1% of base pay, but not
more than 10% of base pay, to cover purchases of shares under this plan. A participating employee
shall be deemed to have been granted an opportunity to purchase a number of shares of the Common
Stock equal to the quarterly aggregate amount of payroll deductions elected by the employee divided
by the lower of 90% of the fair market value of Common Stock on the average of the last ten days
prior to the offering date or 90% of the fair market value of common Stock on the average of the
last ten days prior to purchase date as defined by the plan. Stock issued to participating
employees under the plan for the most recent three year period was:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Average Per Share |
|
| |
|
|
|
|
|
Employees’ |
|
|
Market |
|
| |
|
Number |
|
|
Purchase |
|
|
Value |
|
| |
|
of Shares |
|
|
Price |
|
|
of Shares |
|
Year Issued: |
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
3154 |
|
|
$ |
20.96 |
|
|
$ |
22.55 |
|
2008 |
|
|
606 |
|
|
$ |
22.86 |
|
|
$ |
25.40 |
|
2007 |
|
|
557 |
|
|
$ |
25.50 |
|
|
$ |
28.33 |
|
The Corporation also offers to its stockholders a Dividend Reinvestment and Stock Purchase
Plan. Under the plan, the Corporation registered with the Securities and Exchange Commission
500,000 shares of the Common Stock to be sold pursuant to the plan. The price per share for
purchases under this plan is determined at each quarterly dividend payment date by the reported
average mean between the bid and asked prices for the shares at the close of trading in the
over-the-counter market on the trading day immediately preceding the quarterly dividend payment
date. Participation in this plan by shareholders began in June 1995. Shares issued under this
plan for the most recent three year period were:
| |
|
|
|
|
|
|
|
|
| |
|
Number |
|
|
Total |
|
| (In Thousands, Except Per Share Data) |
|
of Shares |
|
|
Proceeds |
|
Year: |
|
|
|
|
|
|
|
|
2009 |
|
|
14,616 |
|
|
$ |
319 |
|
2008 |
|
|
11,652 |
|
|
$ |
254 |
|
2007 |
|
|
8,315 |
|
|
$ |
222 |
|
51
12. INCOME TAXES
The provision for income tax expense consisted of the following components:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Years Ended December 31, |
|
| (In Thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Currently payable |
|
$ |
1,980 |
|
|
$ |
1,155 |
|
|
$ |
913 |
|
Deferred tax (benefit) |
|
|
75 |
|
|
|
(259 |
) |
|
|
(25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision |
|
$ |
2,055 |
|
|
$ |
896 |
|
|
$ |
888 |
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the actual provision for federal income tax expense and the amounts which
would have been recorded based upon the statutory rate of 34% follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (In Thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
| |
|
Amount |
|
|
% |
|
|
Amount |
|
|
% |
|
|
Amount |
|
|
% |
|
Provision at statutory rate |
|
$ |
2,697 |
|
|
|
34.0 |
% |
|
$ |
1,351 |
|
|
|
34.0 |
% |
|
$ |
1,202 |
|
|
|
34.0 |
% |
Tax-exempt income |
|
|
(409 |
) |
|
|
(5.2 |
) |
|
|
(327 |
) |
|
|
(8.2 |
) |
|
|
(236 |
) |
|
|
(6.7 |
) |
Bank-owned life insurance income-net |
|
|
(152 |
) |
|
|
(1.9 |
) |
|
|
(124 |
) |
|
|
(3.1 |
) |
|
|
(97 |
) |
|
|
(2.7 |
) |
Tax credit from limited partnerships
less amortization, net |
|
|
(46 |
) |
|
|
(0.6 |
) |
|
|
(68 |
) |
|
|
(1.7 |
) |
|
|
— |
|
|
|
— |
|
Non-decuctible expenses |
|
|
268 |
|
|
|
3.4 |
|
|
|
51 |
|
|
|
1.3 |
|
|
|
32 |
|
|
|
0.9 |
|
Other, net |
|
|
(303 |
) |
|
|
(3.8 |
) |
|
|
13 |
|
|
|
0.2 |
|
|
|
(13 |
) |
|
|
(0.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax and rate |
|
$ |
2,055 |
|
|
|
25.9 |
% |
|
$ |
896 |
|
|
|
22.5 |
% |
|
$ |
888 |
|
|
|
25.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net deferred tax liability recorded by the Corporation consisted of the following tax
effects of temporary timing differences at December 31, 2009 and 2008:
| |
|
|
|
|
|
|
|
|
| (In Thousands) |
|
2009 |
|
|
2008 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
1,101 |
|
|
$ |
991 |
|
Allowance for off balance sheet losses |
|
|
3 |
|
|
|
3 |
|
Deferred compensation and director’s fees |
|
|
418 |
|
|
|
488 |
|
Non-accrual loan interest |
|
|
21 |
|
|
|
106 |
|
Investment in limited partnerships |
|
|
106 |
|
|
|
96 |
|
Impairment losses on investment securities |
|
|
378 |
|
|
|
445 |
|
* Property valuation |
|
|
280 |
|
|
|
309 |
|
Capital loss carryforward |
|
|
238 |
|
|
|
41 |
|
|
|
|
|
|
|
|
Total |
|
|
2,545 |
|
|
|
2,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Loan fees and costs |
|
|
(32 |
) |
|
|
(39 |
) |
Bond accretion |
|
|
(73 |
) |
|
|
(63 |
) |
Depreciation |
|
|
(598 |
) |
|
|
(609 |
) |
Investment in insurance agency |
|
|
(22 |
) |
|
|
(17 |
) |
* Intangibles |
|
|
(905 |
) |
|
|
(843 |
) |
* Other |
|
|
(308 |
) |
|
|
(224 |
) |
Unrealized investment security gains |
|
|
(1,299 |
) |
|
|
(836 |
) |
|
|
|
|
|
|
|
Total |
|
|
(3,237 |
) |
|
|
(2,631 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability, net |
|
$ |
(692 |
) |
|
$ |
(152 |
) |
|
|
|
|
|
|
|
The above net deferred tax liability is included in other liabilities on the accompanying
consolidated balance sheets. Those items noted with an (*) resulted from the 2008 acquisition of
Columbia Financial Corporation, see Note 15. It is anticipated that all
52
tax assets shown above
will be realized, accordingly, no valuation allowance was provided. The Corporation has a capital
loss carryforward in the amount of $699,000 as of December 31, 2009.
The Corporation and the Bank file a consolidated federal income tax return. The Corporation
is also required to file a separate state income tax return and has available state operating loss
carryforwards totaling $734,000. The losses expire through 2028. The related deferred net state
tax asset in the amount of $73,000 has been fully reserved and is not reflected in the net tax
asset since management is of the opinion that such assets will not be realized in the foreseeable
future.
13. EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS
EMPLOYEE BENEFIT PLANS
The Bank maintains a 401K salary deferral profit sharing plan for the benefit of its
employees. Under the salary deferral component, employees may elect to contribute a percentage of
compensation up to the maximum amount allowable not to exceed the limits of IRS Code Section
401(K). The Corporation matches 100% of employee contributions up to 4% of compensation. Under
the profit sharing component, contributions are made at the discretion of the Bank’s Board of
Directors. Matching contributions amounted to $195,000, $157,000 and $91,000 for the years ended
December 31, 2009, 2008 and 2007, respectively. There were no discretionary contributions for the
years ended December 31, 2009, 2008 and 2007.
DEFERRED COMPENSATION PLANS
Directors
During 1990, the Bank entered into agreements with two directors to establish non-qualified
deferred compensation plans for each of these directors. In 1994, additional plans were
established for these two directors plus another director. These plans were limited to four-year
terms. The Bank may, however, enter into subsequent similar plans with its directors. Each of the
participating directors deferred the payment to himself of certain directors’ fees to which he was
entitled. Each director’s future payment was based upon the cumulative amount of deferred fees
together with interest currently accruing thereon at the rate of 8% per annum, subject to change by
the Board of Directors. The total accrued liability as of December 31, 2009 and 2008 was $0 and
$204,000, respectively, relating to these directors’ deferred compensation agreements. During
2009, an amendment to two of the plans allowed for the complete payout of the plans on January 2,
2009 at the then deferred amount of $191,000. Final payment was made on January 2, 2009 in the
amount of $13,000 to another former Director, which payment completed all payouts of these plans.
During 2003, the directors were given the option of receiving or deferring their directors’
fees under a non-qualified deferred compensation plan which allows the director to defer such fees
until the year following the expiration of the directors’ term. Payments are then made over
specified terms under these arrangements up to a ten-year period. Interest is to accrue on these
deferred fees at a 5-year certificate of deposit rate, which was 4.62% in 2008. The certificate
of deposit rate will reset in January 2013. Three directors have elected to participate in this
program and the total accrued liability as of December 31, 2009 and 2008 was $243,000, and
$232,000, respectively.
Total directors fees, including amounts currently paid for the years ended December 31, 2009,
2008 and 2007 were $284,000, $244,000 and $188,000, respectively.
During 2008, the directors were given the option of receiving or deferring their directors’
fees under a non-qualified deferred compensation plan with the same features as the above plan.
The interest rate that will be paid beginning with the January 2009 director pay, is 4% for a
5-year period and will reset in January 2014. Two directors elected to participate in this plan
for 2009. Total accrued liability as of December 31, 2009 and 2008 was $33,000 and $0. The same
two directors have elected to participate in this plan for 2010.
Officers
In 1992, the Bank entered into agreements with two executive officers to establish
non-qualified deferred compensation plans. Each officer deferred compensation in order to
participate in this deferred compensation plan. If the officer continued to serve as an officer of
the Bank until he attained 65 years of age, the Bank agreed to pay him 120 guaranteed consecutive
monthly payments commencing on the first day of the month following the officer’s 65th birthday.
Each officer’s guaranteed monthly payment was based upon the future value of life insurance
purchased with the compensation the officer has deferred. The Bank obtained life insurance
(designating the Bank as the beneficiary) on the life of each participating officer in an amount
which is intended to cover the Bank’s obligations under this deferred compensation plan, based upon
certain actuarial assumptions. During 2002, the agreements with the two executive officers were
modified. Under one agreement, the executive officer receives $225,000 payable monthly over a
10-year period commencing in February 2003. Under another agreement, another executive officer
receives $175,000 payable monthly over a 10-year period commencing in April 2003. This second
agreement also provided post-employment health care benefits to the executive officer until the
attainment of age 65. As of December 31, 2009 and 2008, the net cash value of insurance
53
policies
was $464,000 and $438,000, respectively, and the total accrued liability, equal to the present
value of these obligations, was $117,000 and $150,000, respectively, relating to these executive
officers’ deferred compensation plans.
In April 2003, the Bank entered into non-qualified deferred compensation agreements with three
officers to provide supplemental retirement benefits commencing with the executive’s retirement and
ending 15 years thereafter. One participant began payout during 2009 with amount received being
$8,000 during 2009 and $20,000 each year thereafter. The deferred compensation expense related to
these agreements for the years ended December 31, 2009, 2008 and 2007 was $113,000, $119,000 and
$110,000 respectively, and the total accrued liability as of December 31, 2008 and 2007 was
$658,000 and $553,000, respectively.
In 2009, the Bank entered into a non-qualified deferred compensation agreement with one senior
officer to provide supplemental retirement benefits commencing with the executive’s retirement and
ending 15 years thereafter. The deferred compensation expense related to this agreement for the
year ended December 31, 2009 was $12,000 and the total accrued liability as of December 31, 2009
was $12,000.
The Bank entered into agreements to provide post-retirement benefits to employees in the form
of life insurance payable to the employee’s estate upon their death through endorsement split
dollar life insurance arrangements. The Corporation adopted the guidance in FASB ASC 715-60-35
Compensation — Retirement Benefits — Post Retirement effective January 1, 2007 to recognize the
liability for future benefits in the amount of $12,000. The post- retirement benefit expense
related to these split dollar arrangements amounted to $23,000 and $72,000 for the years ended
December 31, 2009 and 2008. The total accrued liability for the split dollar post retirement
benefits amounted to $166,000 and $297,000 for the years ended December 31, 2009 and 2008,
respectively.
Total deferred compensation and split dollar post retirement benefit expense for current and
retired officers for the years ended December 31, 2009, 2008 and 2007 was $155,000, $187,000 and
$120,000, respectively, and the total accrued liability under the officers’ deferred compensation
and split dollar post retirement plans as of December 31, 2009 and 2008 was $953,000 and
$1,000,000, respectively.
14. LEASE COMMITMENTS AND CONTINGENCIES
The Corporation leases facilities and office equipment under operating leases expiring through
2016. Rental expense under operating leases totals approximately $149,000 in 2009, $78,000 in 2008
and $36,000 in 2007. Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of 1 year as of December 31, 2009 are as follows:
| |
|
|
|
|
| (In Thousands) |
|
|
|
|
2010 |
|
$ |
214 |
|
2011 |
|
|
272 |
|
2012 |
|
|
275 |
|
2013 |
|
|
121 |
|
2014 |
|
|
41 |
|
Thereafter |
|
|
10 |
|
|
|
|
|
Total |
|
$ |
933 |
|
|
|
|
|
In 2008, the Corporation purchased the license to utilize banking software, and entered
into contractual commitments to pay annual license fees associated with the software. The license
fee was waived for the first year and future fees are payable based on the Bank’s asset size. As
part of the agreement, the second and third year license fees will be based on the Bank’s asset
size as of March 31, 2008. The Corporation estimates the annual fees for the years ended December
31, 2010 and 2011 will amount to $97,000 and $159,000, respectively.
15. ACQUISITION
On July 18, 2008, the Corporation completed its acquisition of Columbia Financial
Corporation(“CFC”). Under the terms of the Agreement and Plan of Reorganization dated as of
November 29, 2007, CFC merged with and into the Corporation; and the Corporations’ wholly-owned
subsidiary, Columbia County Farmers National Bank merged with and into the Bank. The Corporation
acquired 100% of the outstanding shares of CFC for a total purchase price of $26,316,000. The
transaction was accounted for in accordance with FASB ASC 805, Business Combinations (SFAS No.
141-Business Combinations). In connection therewith, the Corporation issued approximately
1,030,286 shares of its common stock and paid cash of approximately $3,000 in lieu of the issuance
of fractional shares in exchange for all of the issued and outstanding shares of CFC common stock.
Assets and liabilities of CFC are recorded at estimated fair values as of the acquisition date and
the results of the acquired entity operations are included in
54
income from that date. The fair
values of acquired assets and liabilities, including identified intangible assets, were finalized
as quickly as possible following the acquisition. The CFC purchase price allocation is complete.
The following table shows the excess purchase price of the carrying value of net assets
acquired, purchase price allocation and resulting goodwill recorded for this acquisition. Changes
to the carrying amount of goodwill, premises and equipment and junior subordinate debentures, since
the merger date, reflect additional information obtained about the fair value of the assets
acquired and liabilities assumed.
| |
|
|
|
|
| (In Thousands) |
|
|
|
|
Purchase price |
|
$ |
26,316 |
|
Carrying value of net assets acquired |
|
|
(17,855 |
) |
|
|
|
|
Excess of purchase price over carrying value
of net assets acquired |
|
|
8,461 |
|
|
|
|
|
|
Purchase accounting adjustments: |
|
|
|
|
Loans |
|
|
30 |
|
Premises and equipment |
|
|
853 |
|
Deposits |
|
|
1,235 |
|
Severance and related costs |
|
|
840 |
|
Deferred taxes |
|
|
208 |
|
|
|
|
|
Subtotal |
|
|
11,627 |
|
Core deposit intangibles |
|
|
(3,690 |
) |
|
|
|
|
Goodwill |
|
$ |
7,937 |
|
|
|
|
|
The following table summarized the estimated fair value of net assets acquired:
| |
|
|
|
|
| (In Thousands) |
|
|
|
|
Assets |
|
|
|
|
Cash and cash equivalents |
|
$ |
5,157 |
|
Interest-bearing deposits in other banks |
|
|
129 |
|
Federal funds sold |
|
|
517 |
|
Investment securities |
|
|
138,257 |
|
Loans, net of allowance for loan losses |
|
|
160,724 |
|
Premises and equipment |
|
|
6,492 |
|
Accrued interest receivable |
|
|
1,534 |
|
Bank-owned life insurance |
|
|
3,462 |
|
Investment in limited partnerships |
|
|
919 |
|
Goodwill and other intangibles |
|
|
11,627 |
|
Other assets |
|
|
564 |
|
|
|
|
|
Total assets |
|
$ |
329,382 |
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
Deposits |
|
$ |
264,692 |
|
Borrowings |
|
|
31,883 |
|
Junior subordinate debentures |
|
|
4,640 |
|
Accrued interest payable |
|
|
764 |
|
Other liabilities |
|
|
1,087 |
|
|
|
|
|
Total liabilities |
|
$ |
303,066 |
|
|
|
|
|
|
|
|
|
|
Fair value of net assets acquired |
|
$ |
26,316 |
|
|
|
|
|
55
The following unaudited pro forma consolidated financial information presents the combined
results of operations of the Corporation as if the CFC acquisition had occurred as of the beginning
of 2008 and 2007, respectively:
| |
|
|
|
|
|
|
|
|
| |
|
For the Years Ended December 31, |
|
| (In Thousands, Except Per Share Data) |
|
2008 |
|
|
2007 |
|
| |
|
|
Net interest income |
|
$ |
19,132 |
|
|
$ |
18,047 |
|
Provision for loan losses |
|
|
775 |
|
|
|
330 |
|
| |
|
|
Net interest income after provision for loan losses |
|
|
18,357 |
|
|
|
17,717 |
|
Non-interest income |
|
|
4,739 |
|
|
|
4,137 |
|
Non-interest expense |
|
|
16,923 |
|
|
|
16,181 |
|
| |
|
|
Income before income tax provision |
|
|
6,173 |
|
|
|
5,673 |
|
Income tax provision |
|
|
1,743 |
|
|
|
1,297 |
|
| |
|
|
Net income |
|
$ |
4,430 |
|
|
$ |
4,376 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Net income per common share |
|
$ |
1.97 |
|
|
$ |
1.93 |
|
| |
|
|
Average common shares outstanding |
|
|
2,251,486 |
|
|
|
2,263,625 |
|
| |
|
|
The pro forma results include amortization of fair value adjustments on loans, premises and
equipment, deposits, and debt, and amortization of newly acquired intangibles. The proforma number
of average shares outstanding includes adjustments for shares issued for the acquisitions but does
not assume any incremental repurchases. The pro forma results presented do not reflect cost
savings or revenue enhancements anticipated from the acquisition and are not necessarily indicative
of what actually would have occurred if the acquisition had been completed as of the beginning of
the periods presented, nor are they necessarily indicative of future consolidated results.
16. RELATED PARTY TRANSACTIONS
Certain directors and executive officers of the Corporation and the Bank, as well as companies
in which they are principal owners (i.e., at least 10% ownership), were indebted to the Bank at
December 31, 2009 and 2008. These loans were made on substantially the same terms and conditions,
including interest rates and collateral, as those prevailing at the time for comparable
transactions with unrelated parties. These loans did not present more than the normal risk of
collectibility nor present other unfavorable features. A summary of the activity on these related
party loans consisted of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Beginning |
|
|
|
|
|
|
|
|
|
|
Ending |
|
| (In Thousands) |
|
Balance |
|
|
Additions |
|
|
Payments |
|
|
Balance |
|
| |
2009 |
|
$ |
7,803 |
|
|
$ |
1,441 |
|
|
$ |
(1,399 |
) |
|
$ |
7,845 |
|
2008 |
|
|
926 |
|
|
|
7,633 |
|
|
|
(756 |
) |
|
|
7,803 |
|
The above loans represent funds drawn and outstanding at the date of the accompanying
consolidated financial statement. Commitments by the Bank to related parties on loan commitments
and standby letters of credit for 2009 and 2008 presented an off-balance sheet risk to the extent
of undisbursed funds in the amount of $3,139,000 and $2,696,000 respectively.
Deposits from certain officers and directors and/or their affiliated companies held by the
Bank amounted to $3,756,000 and $9,745,000 at December 31, 2009 and 2008, respectively.
The total consolidated loans made by the bank at December 31, 2009, to its directors and
executive officers as a group, members of their immediate families and companies in which they have
a 10% or more ownership interest was $11,461,000 or approximately 17.7 percent of the Corporation’s
total consolidated capital accounts. This amount also represented the largest amount of all these
loans in 2009. These loans did not involve more than the normal risk of collectability nor did they
present other unfavorable features.
17. REGULATORY MATTERS
Dividends are paid by the Corporation to shareholders from its assets which are mainly
provided by dividends from the Bank. However, national and state banking laws place certain
restrictions on the amount of cash dividends allowed to be paid by the Bank to the Corporation.
Generally, the Bank may not make dividends to the Corporation, if such payments would reduce the
Bank’s surplus to an amount below that of the Bank’s capital. Accordingly, in 2010, the Bank may
declare dividends to the Corporation in
56
the amount of $18,517,000. In addition, federal bank
regulatory authorities have authority to prohibit the Bank from engaging in an unsafe or unsound
practice in conducting its business. Depending upon the financial condition of the bank in
question, the payment of dividends could be deemed to constitute an unsafe or unsound practice.
The ability of the Bank to pay dividends in the future is currently influenced, and could be
further influenced, by bank regulatory policies and capital guidelines. Accordingly, in 2010,
without prior federal regulatory approval, the Corporation may declare dividends to Shareholders in
the amount of the net income available to shareholders for the past four quarters, net of dividends
paid during that period. As of December 31, 2009, the amount available for payment of dividends,
without prior federal regulatory approval, was $3,559,000. Regulations also limit the amount of
loans and advances from the Bank to the Corporation to 10% of total capital.
The Corporation is subject to various regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can initiate certain
mandatory — and possibly additional discretionary — actions by regulators that, if undertaken,
could have a direct material effect on the Corporation’s consolidated financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective action, the
Corporation must meet specific capital guidelines that involve quantitative measures of the
Corporation’s assets, liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Corporation’s capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy require the
Corporation to maintain minimum amounts and ratios (set forth in the table below) of Total and Tier
I Capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I
Capital (as defined) to average assets (as defined). Management believes, as of December 31, 2009
and 2008, that the Corporation and the Bank met all capital adequacy requirements to which they are
subject.
As of December 31, 2009, the Bank was categorized as well-capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized, the Bank must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in
the table.
The following table reflects the Corporation’s actual consolidated capital amounts and ratios
at December 31:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
|
2008 |
|
| (In Thousands) |
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
Total Capital
(to Risk-weighted Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual |
|
$ |
60,322 |
|
|
|
17.6 |
% |
|
$ |
55,851 |
|
|
|
16.5 |
% |
For Capital Adequacy Purposes |
|
|
27,394 |
|
|
|
8.0 |
|
|
|
27,112 |
|
|
|
8.0 |
|
To Be Well-Capitalized |
|
|
34,243 |
|
|
|
10.0 |
|
|
|
33,890 |
|
|
|
10.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Capital
(to Risk-weighted Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual |
|
$ |
56,102 |
|
|
|
16.4 |
% |
|
$ |
52,083 |
|
|
|
15.4 |
% |
For Capital Adequacy Purposes |
|
|
13,697 |
|
|
|
4.0 |
|
|
|
13,556 |
|
|
|
4.0 |
|
To Be Well-Capitalized |
|
|
20,546 |
|
|
|
6.0 |
|
|
|
20,334 |
|
|
|
6.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Capital
(to Average Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual |
|
$ |
56,102 |
|
|
|
9.8 |
% |
|
$ |
52,083 |
|
|
|
9.3 |
% |
For Capital Adequacy Purposes |
|
|
22,861 |
|
|
|
4.0 |
|
|
|
22,476 |
|
|
|
4.0 |
|
To Be Well-Capitalized |
|
|
28,577 |
|
|
|
5.0 |
|
|
|
28,095 |
|
|
|
5.0 |
|
The Corporation’s capital ratios are not materially different from those of the Bank.
18. 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 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
57
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 December 31, 2009 and 2008 were
as follows:
| |
|
|
|
|
|
|
|
|
| (In Thousands) |
|
2009 |
|
|
2008 |
|
Financial instruments whose contract amounts repsresent credit risk: |
|
|
|
|
|
|
|
|
Commitments to extend credit |
|
$ |
71,868 |
|
|
$ |
68,412 |
|
Standby letters of credit |
|
|
3,393 |
|
|
|
3,064 |
|
Dealer floor plans |
|
|
932 |
|
|
|
1,129 |
|
Loans held for sale |
|
|
267 |
|
|
|
72 |
|
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 customer’s
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 management’s credit evaluation of the
counter-party. Collateral held varies but may include accounts receivable, inventory, property,
plant, equipment and income-producing commercial properties.
Standby letters of credit and commercial 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. The extent of collateral held for those commitments at December 31, 2009 varied
from 0 percent to 100 percent. The average amount collateralized was 74.5 percent.
The Corporation’s 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, 80.8% was for real estate loans, principally
residential. It was the opinion of management that this high concentration did not pose an adverse
credit risk. Further, it is management’s opinion that the remainder of the loan portfolio was
balanced and diversified to the extent necessary to avoid any significant concentration of credit.
19. FAIR VALUE MEASUREMENTS
Effective January 1, 2008, the Corporation adopted FASB ASC 820-10 (SFAS No. 157), which,
among other things, requires enhanced disclosures about assets and liabilities carried at fair
value. FASB ASC 820-10 establishes a hierarchal disclosure framework associated with the level of
pricing observability utilized in measuring assets and liabilities at fair value. The standard
describes three levels of inputs that may be used to measure fair values:
| |
|
|
| Level I:
|
|
Quoted prices are available in active markets for identical assets or liabilities as of
the reported date. |
| |
|
|
| Level II:
|
|
Pricing inputs are other than quoted prices in active markets, which are either
directly or indirectly
observables as of the reported date. The nature of these assets and liabilities include
items for which quoted prices are available but traded less frequently, and items that
are fair valued using other financial instruments of which can be directly observed. |
| |
|
|
| Level III:
|
|
Assets and liabilities that have little or no pricing observability as of the
reported date. These items do not have two-way markets and are measured using
management’s best estimate of fair value, where the inputs into determination of fair
value require significant management judgment or estimation. |
58
The following table presents the assets reported on the consolidated statements of financial
condition at their fair value as of December 31, 2009 and 2008 by level within the fair value
hierarchy. As required by FASB ASC 820-10, financial assets and liabilities are classified in
their entirety based on the lowest level of input that is significant to the fair value
measurement.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
December 31, 2009 |
|
|
|
|
| (In Thousands) |
|
Level I |
|
|
Level II |
|
|
Level III |
|
|
Total |
|
Assets Measured on a Recurring Basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Securities, available-for-sale |
|
$ |
1,697 |
|
|
$ |
218,569 |
|
|
$ |
— |
|
|
$ |
220,266 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
December 31, 2008 |
|
|
|
|
| (In Thousands) |
|
Level I |
|
|
Level II |
|
|
Level III |
|
|
Total |
|
Assets Measured on a Recurring Basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Securities, available-for-sale |
|
$ |
2,293 |
|
|
$ |
192,120 |
|
|
$ |
— |
|
|
$ |
194,413 |
|
At December 31, 2009 and 2008, investments measured at fair value on a recurring basis and the
valuation methods used are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
December 31, 2009 |
|
|
|
|
| (In Thousands) |
|
Level I |
|
|
Level II |
|
|
Level III |
|
|
Total |
|
Available for sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation of US Government Agencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed |
|
$ |
— |
|
|
$ |
138,856 |
|
|
$ |
— |
|
|
$ |
138,856 |
|
Other |
|
|
— |
|
|
|
68,339 |
|
|
|
— |
|
|
|
68,339 |
|
Obligations of state and political subdivisions |
|
|
— |
|
|
|
11,374 |
|
|
|
— |
|
|
|
11,374 |
|
Equity securities |
|
|
1,697 |
|
|
|
— |
|
|
|
— |
|
|
|
1,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,697 |
|
|
$ |
218,569 |
|
|
$ |
— |
|
|
$ |
220,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
December 31, 2008 |
|
|
|
|
| (In Thousands) |
|
Level I |
|
|
Level II |
|
|
Level III |
|
|
Total |
|
Available for sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation of US Government Agencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed |
|
$ |
— |
|
|
$ |
118,046 |
|
|
$ |
— |
|
|
$ |
118,046 |
|
Other |
|
|
— |
|
|
|
64,080 |
|
|
|
— |
|
|
|
64,080 |
|
Obligations of state and political subdivisions |
|
|
— |
|
|
|
9,994 |
|
|
|
— |
|
|
|
9,994 |
|
Equity securities |
|
|
2,293 |
|
|
|
— |
|
|
|
— |
|
|
|
2,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,293 |
|
|
$ |
192,120 |
|
|
$ |
— |
|
|
$ |
194,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated fair values of equity securities classified as Level I are derived from
quoted market prices in active markets; these assets consists mainly of stocks held in other
banks. The estimated fair values of all debt securities classified as Level II are obtained from
nationally-recognized third-party pricing agencies. The estimated fair values are derived
primarily from cash flow models, which include assumptions for interest rates, credit losses, and
prepayment speeds. The significant inputs utilized in the cash flow models are based on market
data obtained from sources independent of the Corporation (observable inputs), and are therefore
classified as Level II within the fair value hierarchy.
The following table presents the assets reported on the consolidated statements of financial
condition at their fair value on a non-recurring basis as of December 31, 2009 and 2008 by level
within the fair value hierarchy. As required by FASB ASC 820-10, financial assets and liabilities
are classified in their entirety based on the lowest level of input that is significant to the fair
value measurement.
59
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
December 31, 2009 |
|
|
|
|
| (In Thousands) |
|
Level I |
|
|
Level II |
|
|
Level III |
|
|
Total |
|
Assets Measured on a Non-recurring Basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans |
|
$ |
— |
|
|
$ |
4,839 |
|
|
$ |
— |
|
|
$ |
4,839 |
|
Loans Held for Sale |
|
|
— |
|
|
|
72 |
|
|
|
— |
|
|
|
72 |
|
Mortgage Servicing Rights |
|
|
— |
|
|
|
344 |
|
|
|
— |
|
|
|
344 |
|
Other Real Estate Owned |
|
|
— |
|
|
|
29 |
|
|
|
— |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
— |
|
|
$ |
5,284 |
|
|
$ |
— |
|
|
$ |
5,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
December 31, 2008 |
|
|
|
|
| (In Thousands) |
|
Level I |
|
|
Level II |
|
|
Level III |
|
|
Total |
|
Assets Measured on a Non-recurring Basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans |
|
$ |
— |
|
|
$ |
4,453 |
|
|
$ |
— |
|
|
$ |
4,453 |
|
Loans Held for Sale |
|
|
— |
|
|
|
267 |
|
|
|
— |
|
|
|
267 |
|
Mortgage Servicing Rights |
|
|
— |
|
|
|
206 |
|
|
|
— |
|
|
|
206 |
|
Other Real Estate Owned |
|
|
— |
|
|
|
373 |
|
|
|
— |
|
|
|
373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
— |
|
|
$ |
5,299 |
|
|
$ |
— |
|
|
$ |
5,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20. ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS
The Corporation is required to disclose estimated fair values for its financial instruments.
Fair value estimates are made at a specific point in time, based on relevant market information and
information about the financial instrument. In cases where quoted market prices are not available,
fair values are based on estimates using present value or other valuation techniques. These
techniques are significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. Fair value estimates derived through these techniques cannot be
substantiated by comparison to independent markets and, in many cases, could not be realized in
immediate settlement of the instrument. FASB ASC 825-10 excludes certain financial instruments and
all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the Corporation.
At December 31, 2009 and 2008, the carrying values and estimated fair values of financial
instruments are presented in the table below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
|
2008 |
|
| |
|
Carrying |
|
|
Estimated |
|
|
Carrying |
|
|
Estimated |
|
| (In Thousands) |
|
Amount |
|
|
Fair Value |
|
|
Amount |
|
|
Fair Value |
|
| |
|
|
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and short-term instruments |
|
$ |
11,459 |
|
|
$ |
11,459 |
|
|
$ |
15,485 |
|
|
$ |
15,485 |
|
Investment securities |
|
|
220,266 |
|
|
|
220,266 |
|
|
|
194,413 |
|
|
|
194,413 |
|
Restricted securities |
|
|
2,984 |
|
|
|
2,984 |
|
|
|
2,167 |
|
|
|
2,167 |
|
Loans, net |
|
|
326,279 |
|
|
|
329,726 |
|
|
|
316,310 |
|
|
|
317,203 |
|
Cash surrender value of bank owned life insurance |
|
|
11,440 |
|
|
|
11,440 |
|
|
|
10,943 |
|
|
|
10,943 |
|
Accrued interest receivable |
|
|
2,043 |
|
|
|
2,043 |
|
|
|
2,388 |
|
|
|
2,388 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest- bearing deposits |
|
|
406,554 |
|
|
|
410,168 |
|
|
|
381,849 |
|
|
|
384,105 |
|
Noninterest- bearing deposits |
|
|
55,734 |
|
|
|
55,734 |
|
|
|
52,460 |
|
|
|
52,460 |
|
Short-term borrowings |
|
|
51,997 |
|
|
|
51,997 |
|
|
|
55,462 |
|
|
|
55,462 |
|
Long-term borrowings |
|
|
15,128 |
|
|
|
15,375 |
|
|
|
9,133 |
|
|
|
9,452 |
|
Junior subordinate debentures |
|
|
4,640 |
|
|
|
4,640 |
|
|
|
4,640 |
|
|
|
4,640 |
|
Accrued interest payable |
|
|
859 |
|
|
|
859 |
|
|
|
1,075 |
|
|
|
1,075 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Assets (Liabilities): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit |
|
|
|
|
|
$ |
71,868 |
|
|
|
|
|
|
$ |
68,412 |
|
Standby letters of credit |
|
|
|
|
|
|
3,393 |
|
|
|
|
|
|
|
3,064 |
|
Dealer floor plans |
|
|
|
|
|
|
932 |
|
|
|
|
|
|
|
1,129 |
|
60
The following methods and assumptions were used by the Corporation in estimating its fair
value disclosures for financial instruments:
CASH AND OTHER SHORT-TERM INSTRUMENTS
Cash and due from banks, interest bearing deposits with other banks, and Federal Funds
sold had carrying values which were a reasonable estimate of fair value. Accordingly, fair
values regarding these instruments were provided by reference to carrying values reflected on
the consolidated balance sheets.
INVESTMENT SECURITIES
The fair value of investment securities which included mortgage backed securities were
estimated based on bid prices published in financial newspapers or bid quotations received
from securities dealers.
RESTRICTED SECURITIES
The carrying value of regulatory stock approximates fair value based on applicable
redemption provisions.
LOANS
Fair values were estimated for categories of loans with similar financial
characteristics. Loans were segregated by type such as commercial, tax-exempt, real estate
mortgages and consumer. For estimation purposes, each loan category was further segmented
into fixed and adjustable rate interest terms and also into performing and non-performing
classifications.
The fair value of each category of performing loans was calculated by discounting future
cash flows using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
Fair value for non-performing loans was based on management’s estimate of future cash
flows discounted using a rate commensurate with the risk associated with the estimated future
cash flows. The assumptions used by management were judgmentally determined using specific
borrower information.
CASH SURRENDER VALUE OF BANK OWNED LIFE INSURANCE
The fair values are equal to the current carrying value.
ACCRUED INTEREST RECEIVABLE AND PAYABLE
The fair values are equal to the current carrying value.
DEPOSITS
The fair value of deposits with no stated maturity, such as Demand Deposits, Savings
Accounts, and Money Market Accounts, was equal to the amount payable on demand at December
31, 2009 and 2008.
Fair values for fixed rate Certificates of Deposit were estimated using a discounted
cash flow calculation that applied interest rates currently being offered on certificates to
a schedule of aggregated expected monthly maturities on time deposits.
SHORT-TERM BORROWINGS
The carrying amounts of federal funds purchased and securities sold under agreements to
repurchase and other short-term borrowings approximated their fair values.
LONG-TERM BORROWINGS
The fair values of long-term borrowings, other than capitalized leases, are estimated
using discounted cash flow analyses based on the Corporation’s incremental borrowing rate for
similar instruments. The carrying amounts of capitalized leases approximated their fair
values, because the incremental borrowing rate used in the carrying amount calculation was at
the market rate.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
Management estimated that there were no material differences between the notional amount
and the estimated fair value of those off-balance sheet items, because they were primarily
composed of unfunded loan commitments which were generally priced at market value at the time
of funding.
61
21. PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information for CCFNB Bancorp, Inc. (Parent Company only) was as follows:
BALANCE SHEETS
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2009 |
|
|
2008 |
|
|
2007 |
|
| |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
793 |
|
|
$ |
524 |
|
|
$ |
131 |
|
Investment in subsidiary |
|
|
65,927 |
|
|
|
61,568 |
|
|
|
30,091 |
|
Investment in other equity securities |
|
|
1,697 |
|
|
|
2,292 |
|
|
|
1,037 |
|
Prepayments and other assets |
|
|
1,226 |
|
|
|
942 |
|
|
|
402 |
|
Receivable from subsidiary |
|
|
109 |
|
|
|
200 |
|
|
|
— |
|
| |
|
|
Total Assets |
|
$ |
69,752 |
|
|
$ |
65,526 |
|
|
$ |
31,661 |
|
| |
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
Junior subordinate debentures |
|
$ |
4,640 |
|
|
|
4,640 |
|
|
|
— |
|
Accrued expenses and other liabilities |
|
|
26 |
|
|
$ |
111 |
|
|
$ |
15 |
|
Payable to subsidiary |
|
|
— |
|
|
|
— |
|
|
|
19 |
|
| |
|
|
Total Liabilities |
|
|
4,666 |
|
|
|
4,751 |
|
|
|
34 |
|
| |
|
|
Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
2,838 |
|
|
|
2,816 |
|
|
|
1,533 |
|
Surplus |
|
|
27,539 |
|
|
|
27,173 |
|
|
|
2,271 |
|
Retained earnings |
|
|
32,723 |
|
|
|
29,164 |
|
|
|
27,679 |
|
Accumulated other comprehensive income |
|
|
2,523 |
|
|
|
1,622 |
|
|
|
144 |
|
Treasury stock |
|
|
(537 |
) |
|
|
— |
|
|
|
— |
|
| |
|
|
Total Stockholders’ Equity |
|
|
65,086 |
|
|
|
60,775 |
|
|
|
31,627 |
|
| |
|
|
Total Liabilities and Stockholders’ Equity |
|
$ |
69,752 |
|
|
$ |
65,526 |
|
|
$ |
31,661 |
|
| |
|
|
STATEMENTS OF INCOME
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, |
|
| |
|
2009 |
|
|
2008 |
|
|
2007 |
|
| |
|
|
Income |
|
|
|
|
|
|
|
|
|
|
|
|
Dividends from subsidiary bank |
|
$ |
2,818 |
|
|
$ |
2,359 |
|
|
$ |
1,534 |
|
Dividends — other |
|
|
55 |
|
|
|
81 |
|
|
|
46 |
|
Securities losses, net |
|
|
(383 |
) |
|
|
(431 |
) |
|
|
— |
|
Interest |
|
|
— |
|
|
|
— |
|
|
|
1 |
|
| |
|
|
Total Income |
|
|
2,490 |
|
|
|
2,009 |
|
|
|
1,581 |
|
Operating expenses |
|
|
245 |
|
|
|
202 |
|
|
|
89 |
|
| |
|
|
Income Before Taxes and Equity in Undistributed |
|
|
|
|
|
|
|
|
|
|
|
|
Net Income of Subsidiary and Insurance Agency |
|
|
2,245 |
|
|
|
1,807 |
|
|
|
1,492 |
|
Applicable income tax benefit |
|
|
(204 |
) |
|
|
(206 |
) |
|
|
(21 |
) |
| |
|
|
Income Before Equity in Undistributed Net Income of Subsidiary
and Equity in Income from Insurance Agency |
|
|
2,449 |
|
|
|
2,013 |
|
|
|
1,513 |
|
Equity in undistributed income of subsidiary |
|
|
3,414 |
|
|
|
1,059 |
|
|
|
1,122 |
|
Equity in income from investment in insurance agency |
|
|
14 |
|
|
|
6 |
|
|
|
12 |
|
| |
|
|
Net Income |
|
$ |
5,877 |
|
|
$ |
3,078 |
|
|
$ |
2,647 |
|
| |
|
|
STATEMENTS OF CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, |
|
| |
|
2009 |
|
|
2008 |
|
|
2007 |
|
| |
|
|
Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
5,877 |
|
|
$ |
3,078 |
|
|
$ |
2,647 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Securities losses (gains) |
|
|
314 |
|
|
|
(6 |
) |
|
|
— |
|
Impairment losson securites |
|
|
69 |
|
|
|
437 |
|
|
|
— |
|
Equity in undistributed net income of subsidiary |
|
|
(3,414 |
) |
|
|
(1,059 |
) |
|
|
(1,122 |
) |
Increase in amounts due from subsidiary |
|
|
(44 |
) |
|
|
(219 |
) |
|
|
— |
|
Decrease in income taxes and accrued expenses payable |
|
|
(230 |
) |
|
|
(263 |
) |
|
|
(124 |
) |
| |
|
|
Net Cash Provided By Operating Activities |
|
|
2,572 |
|
|
|
1,968 |
|
|
|
1,401 |
|
| |
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of equity securities |
|
|
— |
|
|
|
(153 |
) |
|
|
— |
|
Acquisition of bank cash |
|
|
— |
|
|
|
251 |
|
|
|
— |
|
Proceeds from sale of equity securities |
|
|
164 |
|
|
|
51 |
|
|
|
— |
|
| |
|
|
Net Cash Provided By Investing Activities |
|
|
164 |
|
|
|
149 |
|
|
|
— |
|
| |
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of treasury stock |
|
|
(537 |
) |
|
|
(398 |
) |
|
|
(658 |
) |
Proceeds from issuance of common stock |
|
|
388 |
|
|
|
267 |
|
|
|
236 |
|
Cash dividends |
|
|
(2,318 |
) |
|
|
(1,593 |
) |
|
|
(1,010 |
) |
| |
|
|
Net Cash Used In Financing Activities |
|
|
(2,467 |
) |
|
|
(1,724 |
) |
|
|
(1,432 |
) |
| |
|
|
Increase (Decrease) in Cash and Cash Equivalents |
|
|
269 |
|
|
|
393 |
|
|
|
(31 |
) |
Cash and Cash Equivalents at Beginning of Year |
|
|
524 |
|
|
|
131 |
|
|
|
162 |
|
| |
|
|
Cash and Cash Equivalents at End of Year |
|
$ |
793 |
|
|
$ |
524 |
|
|
$ |
131 |
|
| |
|
|
62
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders of CCFNB Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of CCFNB Bancorp, Inc. and Subsidiary
as of December 31, 2009 and 2008, and the related consolidated statements of income, changes in
stockholders’ equity, and cash flows for each of the years in the three-year period ended December
31, 2009. These consolidated financial statements are the responsibility of the Corporation’s
management. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material
misstatement. The Corporation is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Corporation’s internal control over financial reporting. Accordingly, we express no such opinion.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of CCFNB Bancorp, Inc. and Subsidiary as of
December 31, 2009 and 2008, and the consolidated results of their operations and their cash flows
for each of the years in the three-year period ended December 31, 2009 in conformity with
accounting principles generally accepted in the United States of America.
/s/ J. H. Williams & Co., LLP
J. H. Williams & Co., LLP
Kingston, Pennsylvania
March 9, 2010
63
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A(T). Controls and Procedures
(a) Disclosure Controls and Internal Controls.
Disclosure Controls are procedures that are designed with the objective of ensuring that
information required to be disclosed in our reports filed under the Securities Exchange Act of 1934
(Exchange Act), such as this report, is recorded, processed, summarized and reported within the
time periods specified in the Commission’s rules. Disclosure Controls are also designed with the
objective of ensuring that such information is accumulated and communicated to our management,
including the CEO and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure.
We have created a disclosure committee. The committee consists of nine key management
personnel. The purpose of the committee is to verify that all internal controls and procedures are
in place in each area of authority. Whistle-Blowing procedures have been put in place and
communicated to all directors and employees. The disclosure committee meets quarterly.
We design Internal Control procedures with the objective of providing reasonable assurance
that: (1) our transactions are properly authorized; (2) our assets are safeguarded against
unauthorized or improper use; and (3) our transactions are properly recorded and reported, all to
permit the preparation of our financial statements in conformity with generally accepted accounting
principals.
Limitations on the Effectiveness of Controls. Our management, including the CEO and Chief
Financial Officer ,does not expect that our Disclosure Controls or our Internal Controls will
prevent all error or all fraud. A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are resource constraints,
and the benefits or controls must be considered relative to their costs. 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 Corporation and the Bank 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. Additionally,
controls can be circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the control The design of any system of controls also is
based in part upon certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all potential future
conditions; over time, a control system may become inadequate because of changes in conditions, or
the degree of compliance with the policies and procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or fraud may occur and
not be detected.
Scope of the Controls Evaluation. The CEO and Chief Financial Officer evaluation of our
Disclosure Controls and Internal Controls included a review of such controls’ objectives and
design, such control’s implementation by us and the Bank and the effect of these controls on the
information generated for use in this report. In the course of the Controls Evaluation, we sought
to identify data errors, controls problems or acts of fraud and to confirm that appropriate
corrective action, including process improvements, were being undertaken. This type of evaluation
will be done on a quarterly basis so that the conclusions concerning controls effectiveness can be
reported in our Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K. Our Internal
Controls are also evaluated on an ongoing basis by our internal auditors, by other personnel in
the Bank and by our external independent auditors in connection with their audit and review
activities. The overall goals of these various evaluation activities are to monitor our Disclosure
Controls and Internal Controls and to make modifications as necessary. Our intent in this regard
is that the Disclosure Controls and Internal Controls will be maintained as dynamic systems that
change (including with improvements and corrections) as conditions warrant.
Among other matters, we sought in our evaluation to determine whether there were any
“significant deficiencies” or “material weaknesses” in our and the Bank’s Internal Controls, or
whether we had identified any acts of fraud involving personnel who have a significant role in our
and the Bank’s Internal Controls. This information was important both for the Controls Evaluation
generally and because items 5 and 6 in the Section 302 Certifications of the CEO and Chief
Financial Officer require that the CEO and Chief Financial Officer disclose that information to our
Board’s Audit Committee and to our independent auditors and to report on related matters in this
section of our Annual Report. In the professional auditing literature, “significant deficiencies”
are referred to as “reportable conditions”. These are control issues that could have a significant
adverse effect on the ability to record, process, summarize and report financial data in the
financial statements. A “material weakness” is defined in the auditing literature as a
64
particularly serious reportable condition where the internal control does not reduce to a
relatively low level the risk that misstatements caused by error or fraud may occur in amounts that
would be material in relation to the financial statements and not be detected within a timely
period by employees in the normal course of performing their assigned functions. In addition, we
sought to deal with other controls matters in the Controls Evaluation, and in each case if a
problem was identified, we considered what revision, improvement or correction to make in accord
with our on-going procedures.
In accord with Commission requirements, the CEO and Chief Financial Officer note that, as of
December 31, 2009, there have been no significant changes in Internal Controls or in other factors
that could significantly affect Internal Controls, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Conclusions. The Corporation’s management, including the Corporation’s chief executive
officer and chief financial officer, have evaluated the effectiveness of the Corporation’s
“disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under
the Securities Exchange Act of 1934, as amended, (“Exchange Act”). Based upon their evaluation,
the chief executive officer and chief financial officer concluded that, as of the end of the period
covered by this report, the Corporation’s disclosure controls and procedures were effective for the
purpose of ensuring that the information required to be disclosed in the reports that the
Corporation files or submits under the Exchange Act with Commission’s is recorded, processed,
summarized and reported within the time periods specified in the Commission’s rules and forms, and
is accumulated and communicated to the Corporation’s management, including its chief executive and
chief financial officers, as appropriate to allow timely decisions regarding required disclosure.
(b) Management’s Report on Internal Control Over Financial Reporting
Management of the Corporation is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the
Exchange Act. The Corporation’s internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a significant deficiency (as defined in Public Company Accounting
Oversight Board Auditing Standard No. 2), or a combination of significant deficiencies, that
results in there being more than a remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or detected on a timely basis by management or
employees in the normal course of performing their assigned functions.
Management assessed the effectiveness of the Corporation’s internal control over financial
reporting as of December 31, 2009. In making this assessment, management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Based on this assessment, management believes that, as of December
31, 2009, the Corporation’s internal control over financial reporting was effective.
This annual report does not include an attestation report of the Corporation’s registered
public accounting firm regarding internal control over financial reporting. Management’s report
was not subject to attestation by the Corporation’s registered public accounting firm pursuant to
temporary rules of the Commission that permit the Corporation to provide only management’s report
in this annual report.
| |
|
|
|
|
| /s/ Lance O. Diehl
|
|
President
Chief Executive Officer
|
|
Date: March 9, 2010
| |
|
|
|
|
| /s/ Jeffrey T. Arnold
|
|
| Chief Financial Officer and Treasurer
|
|
Date: March 9, 2010
65
(c) Changes to Internal Control Over Financial Reporting
There were no changes in the Corporation’s internal control over financial reporting during
the three months ended December 31, 2009 that have materially impacted, or are reasonably likely to
material affect, the Corporation’s internal control over financial reporting.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Directors
For information relating to the directors of the Corporation, the section captioned “Board of
Directors” in the Corporation’s Proxy Statement for the 2010 Annual Meeting of Stockholders is
incorporated by reference.
Executive Officers
For information relating to officers of the Corporation, the section captioned “Executive
Compensation” in the Corporation’s Proxy Statement for the 2010 Annual meeting of Stockholders is
incorporated by reference.
Compliance with Section 16(a) of the Exchange Act
For information regarding compliance with Section 16(a) of the Exchange Act, the section
captioned “Stock Ownership” in the Corporation’s Proxy Statement for the 2010 Annual Meeting of
Stockholders is incorporated by reference.
Disclosure of Code of Ethics
The Corporation has adopted a Code of Ethics that applies to directors, officers, and
employees of the Corporation and the Bank. A copy of the Code of Ethics is posted on the
Corporation’s website at www.firstcolumbiabank.com. Copies of the Code of Ethics may be obtained
without charge by writing to CCFNB Bancorp, Inc., 232 East Street, Bloomsburg, PA 17815; Attn: Mr.
Jeffrey T. Arnold, CFO and Treasurer. The Corporation intends to satisfy the disclosure
requirements under Item 10 of Form 8-K regarding an amendment to, or a waiver from, a provision of
its Code of Ethics by posting such information on its website.
Corporate Governance
For information regarding the nominating and audit committees, the sections captioned
“Corporate Governance”, “Board of Directors” and “Audit Committee Report”, in the Corporation’s
Proxy Statement for the 2010 Annual Meeting of Stockholders are incorporated by reference.
Item 11. Executive Compensation
For information regarding executive compensation, the section captioned “Executive
Compensation” in the Corporation’s Proxy Statement for the 2010 Annual meeting of Stockholders is
incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Security Ownership of Certain Beneficial Owners Information required by this item is
incorporated herein by reference to the section captioned “Stock Ownership” in the Corporation’s
Proxy Statement for the 2010 Annual Meeting of Stockholders.
Security Ownership of Management Information required by this item is incorporated herein by
reference to the section captioned “Stock Ownership” in the Corporation’s Proxy Statement for the
2010 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions, Director Independence
Certain Relationships and Related Transactions
For information relating to transactions with related persons, the section captioned
“Executive Compensation” in the Corporation’s Proxy Statement for the 2010 Annual Meeting of
Stockholders is incorporated herein by reference.
Director Independence
For information regarding director independence, the section captioned “Corporate Governance”
in the Corporation’s Proxy Statement for the 2010 Annual Meeting of Stockholders is incorporated by
reference.
66
14. Principal Accounting Fees and Services
For information regarding the principal accounting fees and expenses, the section
captioned “Independent Registered Public Accounting Firm” in the Corporation’s Proxy Statement for
the 2010 Annual Meeting of Stockholders is incorporated by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this report:
1. The following financial statements are incorporated by reference in Item 8:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheet as of December 31, 2009 and 2008
Consolidated Statement of Income for the Years Ended December 31, 2009, 2008 and 2007
Consolidated Statement of Changes in Stockholders’ Equity for the Years Ended December
31, 2009, 2008 and 2007
Consolidated Statement of Cash Flows for the Years Ended December 31, 2009, 2008 and
2007
Notes to Consolidated Financial Statements
2. All financial statement schedules are omitted because the required information is either
not applicable, not required or is shown in the respective financial statement or in the
notes thereto, which are incorporated by reference at subsection (a) (1) of this item.
3. The following exhibits are filed herewith, or, as indicated, incorporated by
reference as a part of this report.
| |
|
|
|
| |
3.1
|
|
Amended and Restated Articles of Incorporation (1) |
| |
3.2
|
|
Amended Bylaws |
| |
10.1
|
|
Executive Employment Agreement of Lance O. Diehl (2) |
| |
10.2
|
|
Executive Employment Agreement of Edwin A. Wenner (3) |
| |
10.3
|
|
Form of Deferred Director Fees Agreement (4) |
| |
10.4
|
|
Supplemental Executive Retirement Plan Agreement and Amendment for Lance O. Diehl (5)) |
| |
10.5
|
|
Supplemental Executive Retirement Plan Agreement and Amendment for Edwin A. Wenner (6) |
| |
10.6
|
|
Supplemental Executive Retirement Plan Agreement for Paul Page (7) |
| |
10.7
|
|
Executive Employment Agreement for Paul Page (8) |
| |
21
|
|
List of Subsidiaries of the Corporation |
| |
23
|
|
Consent of Independent Registered Public Accounting Firm |
| |
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer |
| |
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer |
| |
32.1
|
|
Section 1350 Certification of Chief Executive Officer |
| |
32.2
|
|
Section 1350 Certification of Chief Financial Officer |
|
|
|
| (1) |
|
Incorporated by reference to Exhibit 1 to Registrant’s Current Report on Form 8-K,
dated May 9, 2005, filed with the commission on May 10, 2005. |
| |
| (2) |
|
Incorporated by reference to Exhibit 10.6 to Registrant’s Registration Statement on
Form S-4 filed with the Commission on March 27, 2008. |
| |
| (3) |
|
Incorporated by reference to Exhibit 10.7 to Registrant’s Registration Statement on
Form S-4 filed with the Commission on March 27, 2008. |
| |
| (4) |
|
Incorporated by reference to Exhibit 10.3 to Registrant’s Current Report on Form 8-K,
dated December 14, 2004, filed with the Commission on December 15, 2004. |
| |
| (5) |
|
Incorporated by reference to Exhibit 10.4 to Registrant’s Current Report on Form 8-K,
dated December 14, 2004, filed with the Commission on December 15, 2004. |
| |
| (6) |
|
Incorporated by reference to Exhibit 10.5 to Registrant’s Current Report on Form 8-K,
dated December 14, 2004, filed with the Commission on December 15, 2004. |
67
|
|
|
| (7) |
|
Incorporated by reference to Exhibit 1 to Registrant’s Current Report on Form 8-K,
dated May 27, 2009, filed with the Commission on May 28, 2009. |
|
| (8) |
|
Incorporated by reference to Exhibit 10.9 to Registrant’s Registration Statement on
Form S-4 filed with the Commission on March 27, 2008. |
(b) See item 15(a)(3)
(c) None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
CCFNB BANCORP, INC.
(Registrant)
| |
|
|
|
|
By:
|
|
/s/ Lance O. Diehl
|
|
Date: March 9, 2010 |
|
|
|
|
|
|
|
Lance O. Diehl |
|
|
|
|
President and Chief Executive Officer |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
| |
|
|
|
|
By:
|
|
/s/ Robert W. Brewington, Jr.
|
|
Date: March 9, 2010 |
|
|
|
|
|
|
|
Robert W. Brewington, Jr. |
|
|
|
|
Director |
|
|
|
|
|
|
|
By:
|
|
/s/ Edward L. Campbell
|
|
Date: March 9, 2010 |
|
|
|
|
|
|
|
Edward L. Campbell. |
|
|
|
|
Director |
|
|
|
|
|
|
|
By:
|
|
/s/ Lance O. Diehl
|
|
Date: March 9, 2010 |
|
|
|
|
|
|
|
Lance O. Diehl |
|
|
|
|
President, Chief Executive Officer and Director |
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
By:
|
|
/s/ Robert W. Dillon
|
|
Date: March 9, 2010 |
|
|
|
|
|
|
|
Robert W. Dillon |
|
|
|
|
Director |
|
|
|
|
|
|
|
By:
|
|
/s/ Frank D. Gehrig
|
|
Date: March 9, 2010 |
|
|
|
|
|
|
|
Frank D. Gehrig |
|
|
|
|
Director |
|
|
|
|
|
|
|
By:
|
|
/s/ William F. Gittler
|
|
Date: March 9, 2010 |
|
|
|
|
|
|
|
William F. Gittler |
|
|
|
|
Director |
|
|
|
|
|
|
|
By:
|
|
/s/ Glenn E. Halterman
|
|
Date: March 9, 2010 |
|
|
|
|
|
|
|
Glenn E. Halterman |
|
|
|
|
Director, Chairman of the Board |
|
|
|
|
|
|
|
By:
|
|
/s/ Elwood R. Harding, Jr.
|
|
Date: March 9, 2010 |
|
|
|
|
|
|
|
Elwood R. Harding, Jr. |
|
|
|
|
Director |
|
|
68
| |
|
|
|
|
By:
|
|
/s/ Joanne I. Keenan
|
|
Date: March 9, 2010 |
|
|
|
|
|
|
|
Joanne I. Keenan |
|
|
|
|
Director |
|
|
|
|
|
|
|
By:
|
|
/s/ Willard H. Kile, Jr.
|
|
Date: March 9, 2010 |
|
|
|
|
|
|
|
Willard H. Kile, Jr. |
|
|
|
|
Director |
|
|
|
|
|
|
|
By:
|
|
/s/ W. Bruce McMichael, Jr.
|
|
Date: March 9, 2010 |
|
|
|
|
|
|
|
W. Bruce McMichael, Jr. |
|
|
|
|
Director |
|
|
|
|
|
|
|
By:
|
|
/s/ Mary Ann B. Naugle
|
|
Date: March 9, 2010 |
|
|
|
|
|
|
|
Mary Ann B. Naugle |
|
|
|
|
Director |
|
|
|
|
|
|
|
By:
|
|
/s/ Andrew B. Pruden
|
|
Date: March 9, 2010 |
|
|
|
|
|
|
|
Andrew B. Pruden |
|
|
|
|
Director |
|
|
|
|
|
|
|
By:
|
|
/s/ Charles B. Pursel
|
|
Date: March 9, 2010 |
|
|
|
|
|
|
|
Charles B. Pursel |
|
|
|
|
Director |
|
|
|
|
|
|
|
By:
|
|
/s/ Paul E. Reichart
|
|
Date: March 9, 2010 |
|
|
|
|
|
|
|
Paul E. Reichart |
|
|
|
|
Director, Vice Chairman of the Board |
|
|
|
|
|
|
|
By:
|
|
/s/ Steven H. Shannon
|
|
Date: March 9, 2010 |
|
|
|
|
|
|
|
Steven H. Shannon |
|
|
|
|
Director |
|
|
|
|
|
|
|
By:
|
|
/s/ Jeffrey T. Arnold
|
|
Date: March 9, 2010 |
|
|
|
|
|
|
|
Jeffrey T. Arnold |
|
|
|
|
Chief Financial Officer and Treasurer |
|
|
|
|
(Principal Financial Officer) |
|
|
|
|
(Principal Accounting Officer) |
|
|
INDEX TO EXHIBITS
| |
|
|
|
|
|
|
| Item Number |
|
Description |
|
Page |
3.2
|
|
Amended Bylaws of CCFNB Bancorp, Inc.
|
|
|
70 |
|
21
|
|
List of Subsidiaries of the Corporation
|
|
|
79 |
|
23
|
|
Consent of Independent Registered Public Accounting
Firm
|
|
|
80 |
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief
Executive Officer
|
|
|
81 |
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief
Financial Officer
|
|
|
82 |
|
32.1
|
|
Section 1350 Certification of Chief Executive Officer
|
|
|
83 |
|
32.2
|
|
Section 1350 Certification of Chief Financial Officer
|
|
|
84 |
|
69