SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
FOR THE QUARTERSIX MONTH PERIOD ENDED: MARCH 31,JUNE 30, 1995
COMMISSION FILE NUMBER: 0-16084
-------0-6084
CITIZENS AND NORTHERN CORPORATION
STATE OF INCORPORATION: PENNSYLVANIA
I.R.S. EMPLOYER IDENTIFICATION NUMBER: 23-2451943
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REGISTRANT'S TELEPHONE NUMBER (INCLUDING AREA CODE) : 717-724-3411
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ADDRESS OF PRINCIPAL EXECUTIVE OFFICE: THOMPSON STREET
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RALSTON, PA 17763
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MAILING ADDRESS OF EXECUTIVE OFFICE: 90-92 MAIN STREET
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WELLSBORO, PAPA. 16901
-------------------
Indicate by check mark whether the registrant (1) has filledfiled all reports required
to be filed by section 13 or 15 (D) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes Xx No
---- --------- -----
As of AprilAugust 1, 1995 5,066,516 COMMON SHARES WERE OUTSTANDING
1
CITIZENS AND NORTHERN CORPORATION - FORM 10-Q
Part I - Financial Information
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET
March 31,June 30, December 31,
(In Thousands) 1995 1994
-------------------------
(Unaudited) (Audited)
ASSETS
Cash & Due From Banks 11,89813,033 11,572
Interest Bearing Deposits 1,0911,101 835
-------------------------
Total Cash and Cash Equivalents 12,98914,134 12,407
Available-for-Sale Securities 274,113291,601 260,624
Held-to-Maturity Securities 1,3661,330 1,196
Loans, Net 253,009256,107 254,243
Bank Premises and Equipment 6,8356,671 6,920
Foreclosed Assets Held for Sale 592584 644
Accrued Interest on Bonds and Loans 3,9803,857 3,861
Other Assets 4,2061,561 6,583
-------------------------
TOTAL ASSETS 557,090575,845 546,478
-------------------------
-------------------------
LIABILITIES
Deposits:
Noninterest Bearing 40,73442,462 42,855
Interest-Bearing 365,138Interest - Bearing 370,504 356,408
-------------------------
Total Deposits 405,872412,966 399,263
Dividends Payable 794 786
Borrowed Funds 94,50099,500 98,500
Accrued Interest and Other Liabilities 3,0443,827 1,133
-------------------------
TOTAL LIABILITIES 504,210517,087 499,682
STOCKHOLDERS' EQUITY
Common Stock, Par Value $ 1.00 per Share 5,067 5,016
Authorized 10,000,000; Issued 5,066,516
and 5,016,352 in 1995 and 1994, respectively
Stock Dividend Distributable 1,016
Paid in Capital 11,57411,575 10,610
Retained Earnings 40,67541,547 39,743
-------------------------
Total 57,31658,189 56,385
Unrealized Holding Loss on Available-for-Sale Securities (3,436)1,569 (8,589)
Less: Treasury Stock at Cost
104,060 shares at March 31,June 30, 1995 (1,000) 103,030-
103,030** shares at December 31, 1994 (1,000)
-------------------------
TOTAL STOCKHOLDERS' EQUITY 52,88058,758 46,796
-------------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY 557,090575,845 546,478
-------------------------
-------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
** Common stock adjusted to reflect 100% stock dividend issued October 1994
2
CITIZENS & NORTHERN CORPORATION - FORM 10-Q
Part I - Financial Information (continued)
Item 1. - Financial InformationStatements (continued)
CONSOLIDATED STATEMENT OF INCOME
(Dollars in Thousands except Per Share Data)
3 Months Ending Fiscal Year to Date March 31, 3 Months ending
6 Months Ending March 31,June 30, June 30,
1995 1994 1995 1994
(Current) (Prior Year) (Current) (Prior Year)
--------------------------------------------------------------
INTEREST INCOME
Interest and Fees on Loans $ 6,123 $ 5,548 $ 6,123 $ 5,54812,599 11,206 6,460 5,658
Interest on Balances with Depository Institutions 23 41 15 8 33 8 33
Interest on Loans to Political Subdivisions 101 69 101 69208 144 107 75
Interest on Federal Funds Sold 63 8 63 8
Income from Available-for-Sale and
Held-to-Maturity Securities:
Taxable 3,630 3,550 3,630 3,5507,320 7,349 3,690 3,799
Tax Exempt 627 679 627 6791,299 1,343 672 664
Dividends 182 162 182 162
--------------- ------------ --------------- ------------354 311 172 149
Total Interest and Dividend Income 10,734 10,049 10,734 10,04921,866 20,402 11,116 10,353
INTEREST EXPENSE
Interest on Deposits 4,607 3,524 4,607 3,5249,414 7,294 4,807 3,770
Interest on Other Borrowings 1,488 1,081 1,488 1,081
--------------- ------------ --------------- ------------2,816 2,289 1,328 1,208
Total Interest Expense 6,095 4,605 6,095 4,605
--------------- ------------ --------------- ------------12,230 9,583 6,135 4,978
Interest Margin 4,639 5,444 4,639 5,4449,636 10,819 4,981 5,375
Provision for Loan Losses 368 369 184 184 184 184
--------------- ------------ --------------- ------------185
Interest Margin After Provision for Possible Loan Losses 4,455 5,260 4,455 5,2609,268 10,450 4,797 5,190
OTHER INCOME
Service Charges on DepositDepssit Accounts 556 520 282 274 246 274 246
Service Charges and Fees 63 61 63 61131 144 68 83
Trust Department Income 189 106 189 106384 270 195 164
Insurance Commissions, Fees and Premiums 157 144 157 144313 275 156 131
Other Operating Income 35 300 35 30029 307 10 7
Realized Gains on Available-for-Sale and
Held-to-Maturity Securities, Net 774 542 774 542
--------------- ------------ --------------- ------------851 695 77 153
Total Other Income 1,492 1,399 1,492 1,3992,264 2,211 788 812
OTHER EXPENSES
Salaries and Wages 2,728 2,484 1,364 1,257 1,364 1,2571,227
Pensions and Other Employee Benefits 460 460 460 460878 906 418 446
Occupancy Expense, Net 180 187 180 187356 352 176 165
Furniture and Equipment Expense 152 126 152 126310 259 158 133
Other Operating Expense 1,491 1,356 1,491 1,356
--------------- ------------ --------------- ------------3,037 2,810 1,546 1,454
Total Other Expenses 3,647 3,386 3,647 3,386
--------------- ------------ --------------- ------------7,309 6,811 3,662 3,425
Income Before Income Tax Provision 2,300 3,273 2,300 3,2734,223 5,850 1,923 2,577
Income Tax Provision 575 820 575 820
--------------- ------------ --------------- ------------831 1,513 256 693
NET INCOME $ 1,725 $ 2,453 $ 1,725 $ 2,453
--------------- ------------ --------------- ------------
--------------- ------------ --------------- ------------3,392 4,337 1,667 1,884
PER SHARE DATA:
NET INCOME $ 0.35 $ 0.49 $ 0.35 $ 0.490.68 0.87 0.34 0.38
NUMBER SHARES USED IN COMPUTATION 4,962,456 4,962,456 4,962,456 4,962,456
NUMBER SHARES ISSUED 5,066,516 5,016,352 5,066,516 5,016,352
NUMBER SHARES AUTHORIZED 10,000,000 10,000,000 10,000,000 10,000,000
DIVIDEND PER SHARE $0.32 0.30 0.16 $ 0.15 $ 0.16 $ 0.15
3
CITIZENS AND NORTHERN CORPORATION - FORM 10-Q
Part I - Financial Information (continued)
Item 1. Financial statementsStatements (continued)
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands) Periods Ended March 31,Ending June 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,725 $ 2,4533,392 4,337
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities
Provision for Possible Loan Losses 184 184368 369
Realized (Gain), on Available-for-Sale and
Held-to-Maturity Securities, Net (774) (542)
Gain on Sale of Other Assets - (265)(851) (695)
Provision for Depreciation 184 143368 287
Accretion and Amortization 78 (132)161 100
Deferred Income Tax - (21)(26) (25)
(Increase) in Accrued Interest
Receivable and Other Assets (397) (2,410)(181) (2,104)
Increase in Accrued Interest Payable and
Other liabilities 1,917 3,296
- - ----------------------------------------------------------------------------------------Liabilities 2,700 4,706
Net Cash Provided by Operating Activities 2,917 2,706
- - ----------------------------------------------------------------------------------------5,931 6,975
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the Maturity of Held-to-Maturity Securities 28 3364 115
Purchase of Held-to-Maturity Securities (198) (219)(320)
Proceeds from Sales of Available-for-Sale Securities 1,435 36,5713,295 36,929
Proceeds from Maturities of Available-for-Sale Securities 5,016 16,38216,191 28,001
Purchase of Available-for-Sale Securities (11,434) (47,239)(34,381) (58,571)
Net (Increase) Decrease in Loans 1,050 1,099(2,232) (5,702)
Proceeds from the Sale of Other Assets
265
Purchase of Premises and Equipment (99) (269)(119) (637)
Sale of Other Real Estate 162 42228 87
Purchase of Other RealEstate (110) -
- - ----------------------------------------------------------------------------------------Real Estate (167) (501)
Net Cash Used in Investing Activities (4,150) 6,665
- - ----------------------------------------------------------------------------------------(17,319) (599)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Deposits 6,609 66613,703 5,248
Increase (Decrease) in Short Term Borrowings (14,000) (7,333)21,000 4,667
Proceeds from (Repayment of) Long Term Borrowings 10,000 -(20,000) (15,000)
Dividends Declared (794) (737)
- - ----------------------------------------------------------------------------------------(1,588) (1,474)
Net Cash Provided by Financing Activities 1,815 (7,404)
- - ----------------------------------------------------------------------------------------13,115 (6,559)
INCREASE IN CASH AND CASH EQUIVALENTS 582 1,9671,727 (183)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 12,407 13,122
- - ----------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 12,989 $ 15,089
- - ----------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------14,134 12,939
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest Paid $ 8,688 $ 18,197
- - ----------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------9,629 6,651
Income Taxes Paid $ 2 $ 2,851
- - ----------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------779 1,630
The accompanying notes are an integral part of the consolidated financial
statements.
4
CITIZENS AND NORTHERN CORPORATION - FORM 10-Q
Part I - Financial Information (continued)
Item 1. Financial Statements (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to Consolidated Financial Statements
1. The financial information included herein, with the exception of the
Consolidated Balance Sheet dated December 31, 1994 is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) that are, in the opinion of management, necessary to a fair
presentation of the financial position, results of operations, and changes in
financial position for the interim periods.
During the first quarter of 1995 the Corporation implemented SFAS No. 114
"Accounting by Creditors for impairmentImpairment of a Loan". The pronouncement requires
that impaired loans that are within the scope of this Statementstatement be measured
based on the present value of expected future cash flows discounted at the
loan's effective interest rate or at the loan's observable market price or the
fair value of collateral if the loan is collateral dependent. The implementation
of this standard did not have a material impact on the Corporation's balance
sheet.
At the regular annual meeting of the Corporation, the shareholders approved
a Stock Incentive Plan. The shares of stock that may be issued under the Stock
Incentive Plan shall not exceed in the aggregate 60,000 shares (subject to
proportional adjustment to reflect increases or decreases resulting from stock
splits, stock dividends and recapitalizations) of the Corporation's common
stock, par value $1.00 per share. Such Stockstock utilized by the Stock Incentive
Plan may be authorized and unissued capital stock of the Corporation or it may
be such capital stock issued and subsequently reacquired by the Corporation as
treasury stock.
Certain 1994 information has been restated to reflect a 2 for 1 stock split
in the form of a stock dividend on October 14, 1994.
This document has not been reviewed or confirmed for accuracy or relevance
by the Federal Deposit Insurance Corporation.
5
CITIZENS AND NORTHERN CORPORATION - FORM 10-Q
Part I - Financial Information (continued)
Item 2. Management's discussionDiscussion and Analysis of Financial Condition
and Results of Operations
EARNINGS OVERVIEW
The Corporation reported net income for the quartersix month period ending March 31,June
30, 1995 of $ 1,725,000,$3,392,000 or $ .35.68 per common share,share; this compares to $ 2,453,000$4,337,000 or
$ .49.87 per share for the quartersame period ending March 31,June 30, 1994.
The decline in net income reflects the increase in interest rates that
occurred during 1994 as the Federal Reserve attemptedincreased interest rates to control
inflation. The net spread between earning assets and interest-bearing
liabilities for the first quarter ofperiods ending June 30, 1995, December 31, 1994, and June
30, 1994 was 2.752.83, 3.39, and 3.59 percent compared to
3.67 percent for the comparable quarter in 1994.respectively.
The directors and management of the Corporation expect that 1995 will be a
profitable year, howeverthough profits are not expected to reach levels attained during
1994 and 1993.
NET INTEREST MARGIN
1995 / 1995/1994
The net spread between the rate of return on earning assets and the cost of
interest bearinginterest-bearing liabilities dropped from 3.673.59 percent for the quartersix month period
ending March 31,June 30, 1994 to 2.752.83 percent for the quartersix month period ending March 31,June 30,
1995. The net spread for the quarteryear ending December 31, 1994 was 3.39 percent. The
gross rate of return on earning assets for the quartersperiods ending March 31,June 30, 1995,
December 31, 1994, and March 31,June 30, 1994 was 8.108.18 percent, 7.91 percent, and 7.817.84
percent, respectively.
Even though theThe gross rate of return continueson earning assets has begun to reflect the
increase in interest rates as new
and maturing assets reprice,it has moved from 7.84 percent at June 30, 1994 to
8.18 percent at June 30, 1995. The rate of return on the investment portfolio
has increased 23 basis points since June 30, 1994 as payments received on the
mortgage backed securities are reinvested at somewhat higher rates. The rate of
return on the loan portfolio has increased 42 basis points since June 30, 1994
due in part to adjustable rate mortgages reflecting higher rates. Also, the
average balance of real estate loans outstanding has increased significantly
since June 30, 1994.
The increase in the average cost of interest bearinginterest-bearing liabilities has been
increasing at a faster rate, thiswas 110
basis points between the periods ending June 30, 1995 and June 30, 1994. This is
due to the much shorter maturityrepricing schedule of the liabilities.liabilities, primarily Money Market
and Interest Checking accounts. The grossaverage rate paid on Money Market and
Interest Checking accounts increased 184 basis points and 162 basis points
respectively since June 30, 1994. Also posting a significant increase since June
30, 1994 was the cost of interest bearing liabilities respectively
for the quarters ending March 31, 1995, December 31, 1994 and March 31, 1994 was
5.35 percent, 4.52 percent and 4.14 percent.
Repriced liabilities that have the greatest impact on the net interest
spread are Money Market accounts and Federal Home Loan Bank borrowings. Money
market accounts account for approximately 20 percent of the interest bearing
liabilities and reprice weekly.borrowed funds. The average cost of thoseborrowed funds has increased
223 basis points sincefor
the endsix month period ending June 30, 1995 was 6.06 percent; this compares to an
average cost of March4.75 percent for the comparable period in 1994.
Other borrowings consist of
Repurchase agreementsIt appears that interest rates have leveled off and term borrowings. They comprise 20 percent of the
interest bearing liabilities and the average rate paid on those liabilities has
increased 156 basis points since March 31, 1994.
Individual Retirement accounts also carry an interest ratemanagement is expecting
a decline in rates that is
higher than other institutions in our market area, however the Corporation
considers the accounts core deposits which support a substantial portion of the
loan portfolio and is therefore willing to pay a higher rate.
It is expected thatshould improve the net spread will stabilizeinterest margin during the
second
quarterremainder of 1995 and gradually widen during the third and fourth quarters of 1995
as loans and other maturing assets begin to reflect higher rates. This
assumption is based on the current interest rate structure and precludes further
rate increases by the Federal Reserve Open Market Committee.
Tables I and II are provided to reflect average balances and rates paid
for the quarters ended March 31, 1995, December 31, 1994 and March 31, 1994
respectfully.1995.
6
CITIZENS AND NORTHERN CORPORATION - FORM 10-Q
Part 1I - Financial Information (continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Tables I and II are provided to reflect average balances and rates paid for the
periods ending June 30, 1995, December 31, 1994, and June 30, 1994,
respectfully.
TABLE I - ANALYSIS OF THE EFFECT OF VOLUME AND RATE CHANGES IN INTEREST INCOME
AND INTEREST EXPENSE
Quarters ended March 31,Periods Ending June 30, 1995/1994
(In Thousands)
Change in Change in Total
Volume Rate Change
EARNING ASSETS
Available-for-Sale Securities:
U. S. Treasury Securities
$ - $ 1 $ 1
Securities of Other U.S. Government Agencies and Corporations 182 3 185139 (2) 137
Mortgage Backed Securities (309) 240 (69)(473) 385 (88)
Obligations of States and Political Subdivisions (4) (48) (52)7 (50) (43)
Stock 16 4 2021 22 43
Other Securities (79) 42 (37)
- - ---------------------------------------------------------------------------------------------------------------(34) (47) (81)
Total Available-for-Sale Securities (194) 242 48
- - ---------------------------------------------------------------------------------------------------------------(338) 306 (32)
Held-to-Maturity Securities
U. S. Treasury Securities - - -5 4 9
Securities of Other U.S. Government Agencies and Corporations
- - -
Mortgage Backed Securities (3) (1) (4)(7) 1 (6)
Obligations of States and Political Subdivisions
- - -
Stock - - -
Other Securities - - -
- - ---------------------------------------------------------------------------------------------------------------
Total Held-to-Maturity Securities (3) (1) (4)
- - ---------------------------------------------------------------------------------------------------------------(2) 5 3
Interest-bearing Due from Banks (5) (20) (25)(6) (11) (17)
Federal Funds Sold 48 737 18 55
Loans:
Real Estate Loans 405 140 545761 414 1,175
Consumer (6) (31) (37)70 26 96
Agricultural - 8 85 14 19
Commercial/Industrial (3) 63 60(14) 119 105
Other (3)(4) 1 (2)(3)
Political Subdivisions 25 7 3249 15 64
Leases - - -
- - ---------------------------------------------------------------------------------------------------------------
Total Loans 418 188 606
- - ---------------------------------------------------------------------------------------------------------------867 589 1,456
Total Interest Income 264 416 680
- - ---------------------------------------------------------------------------------------------------------------558 907 1,465
INTEREST BEARING LIABILITIES
Interest Checking
97 116 21323 331 354
Money Market 158 412 570254 757 1,011
Savings (16) 2 (14)(51) (51)
Certificates of Deposit (96) 193 97(113) 521 408
Individual Retirement Accounts 156 51 207299 90 389
Other Time Deposits (1) (2) (3) 11 8
Federal Funds Purchased (203) 95 (108)(231) 130 (101)
Other Borrowed Funds 196 319 515
- - ---------------------------------------------------------------------------------------------------------------46 583 629
Total Interest Expense 291 1,186 1,477
- - ---------------------------------------------------------------------------------------------------------------224 2,423 2,647
NET INTEREST INCOME (27) (770) (797)
- - ---------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------334 (1,516) (1,182)
7
CITIZENS AND NORTHERN CORPORATION - FORM 10-Q
Part 1 - Financial Information (continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
TABLE II - ANALYSIS OF AVERAGE DAILY BALANCES AND RATES
(In Thousands) Rate of Rate of Rate of
Return/ Return/ Return/
Cost of Cost of Cost of
funds funds funds
3/31/Funds Funds Funds
6/30/95 % 12/31/94 % 3/31/6/30/94 %
EARNING ASSETS
Available-for-Sale Securities:
U. S. Treasury Securities $ 2,511 5.172,510 5.14 2,512 5.10 2,513 5.035.10
Securities of Other U.S. Government Agencies and Corporations 13,096 6.3810,838 6.22 9,761 6.32 1,495 5.656,330 6.26
Mortgage Backed Securities 200,931 6.67204,000 6.68 219,627 6.40 219,713 6.23218,694 6.31
Obligations of States and Political Subdivisions 40,501 6.2841,262 6.35 40,464 6.56 40,757 6.7641,036 6.60
Stock 13,467 5.4813,381 5.34 13,010 5.12 12,301 5.3312,482 5.02
Other Securities 3,987 6.515,161 4.55 4,011 9.35 8,900 5.41
- - ------------------------------------------------------------------------------------------------------------------------------------6,432 6.22
Total Available-for-Sale Securities 274,493 6.52 289,386277,152 6.49 289,385 6.39 285,679 6.22
- - ------------------------------------------------------------------------------------------------------------------------------------287,487 6.26
Held-to-Maturity Securities
U. S. Treasury Securities - -299 6.31 50 6.00 - -
Securities of Other U. S. Government Agencies and Corporations
- - - - - -
Mortgage Backed Securities 1,074 7.171,057 7.65 1,185 7.34 1,263 7.301,246 7.46
Obligations of States and Political Subdivisions
- - - - - -
Stock - - - - - -
Other Securities - - - - - -
- - ------------------------------------------------------------------------------------------------------------------------------------
Total Held-to-Maturity Securities 1,074 7.171,356 7.35 1,235 7.29 1,263 7.30
- - ------------------------------------------------------------------------------------------------------------------------------------1,246 7.46
Interest-bearing Due from Banks 1,105 2.941,107 4.31 1,114 5.92 1,802 7.351,318 6.27
Federal Funds Sold 4,166 6.132,071 6.01 346 3.76 980 3.33490 3.29
Loans:
Real Estate Loans 196,770 8.89197,268 8.93 185,535 8.61 178,312 8.50179,782 8.48
Consumer 36,665 15.3936,575 16.12 35,073 16.53 36,824 15.6435,697 16.40
Agricultural 3,045 10.263,082 10.29 3,028 9.78 3,036 9.122,977 9.36
Commercial/Industrial 13,502 10.0013,650 9.99 13,843 8.81 13,625 8.0713,976 8.24
Other 203 7.99192 7.63 272 6.99 343 6.42293 6.65
Political Subdivisions 6,276 6.536,446 6.45 5,244 6.01 4,695 5.874,865 5.91
Leases 139 8.75154 8.37 152 8.55 152 9.03
- - ------------------------------------------------------------------------------------------------------------------------------------147 8.87
Total Loans 256,600 9.84257,367 10.03 243,147 9.72 236,987 9.53237,737 9.61
Less Unearned Discount - - - - (2) -(1)
Net Loans & Leases 256,600 9.84257,367 10.03 243,147 9.72 236,985 9.53
- - ------------------------------------------------------------------------------------------------------------------------------------237,736 9.62
Total Earning Assets 537,428 8.10539,053 8.18 535,227 7.91 526,709 7.81528,277 7.84
Cash 12,082 -11,831 13,775 - 12,673 -13,088
Securities Valuation Reserve (12,413) -(8,578) (851) - - -3,306
Allowance for Possible Loan Losses (4,301) -(4,393) (4,064) - (3,895) -(3,971)
Other Assets 9,221 -8,069 4,372 - 8,122 -6,532
Bank Premises & Equipment 6,883 -6,832 6,199 - 5,506 -
- - ------------------------------------------------------------------------------------------------------------------------------------5,820
Total Assets 548,910 -552,814 554,658 - 549,115 -
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------553,052
INTEREST-BEARING LIABILITIES
Interest Checking 50,222 3.7241,806 4.45 41,061 3.31 39,663 2.5440,511 2.83
Money Market 87,178 5.1889,046 5.11 79,050 3.84 74,826 2.9576,809 3.27
Savings 41,341 3.0649,877 2.48 53,853 2.50 53,290 2.4854,008 2.49
Certificates of Deposit 105,166 5.05107,149 5.28 109,174 4.43 112,908 4.35111,892 4.32
Individual Retirement Accounts 77,525 7.2378,221 7.15 70,537 6.92 68,777 6.9369,635 6.91
Other Time Deposits 2,285 2.662,397 2.45 2,555 2.39 2,426 3.042,541 2.63
Federal Funds Purchased 1,578 5.915,220 6.39 11,565 4.31 15,533 3.4214,439 3.71
Other Borrowed Funds 96,167 6.1886,870 6.06 92,614 5.17 83,292 4.62
- - ------------------------------------------------------------------------------------------------------------------------------------85,166 4.75
Total Interest-bearing Liabilities 461,462460,586 5.35 460,409 4.52 450,715 4.14455,001 4.25
Demand Deposits 38,561 -38,664 39,282 - 37,225 -37,888
Other Liabilities 2,083 -2,494 2,877 - 5,973 -
- - ------------------------------------------------------------------------------------------------------------------------------------6,939
TOTAL LIABILITIES 502,106 -501,744 502,568 - 492,913 -499,828
Stockholders' Equity 54,997 -50,633 52,629 - 55,202 -
- - ------------------------------------------------------------------------------------------------------------------------------------51,042
Securities Valuation Reserve (8,193)437 (539) - - ------------------------------------------------------------------------------------------------------------------------------------2,182
Total Liabilities and Stockholders'
Equity $ 548,910 -552,814 554,658 - 549,115 -
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------553,052
Interest Rate Spread 2.752.83 3.39 3.67
---------------------------------------------------------------------------3.59
8
CITIZENS AND NORTHERN CORPORATION - FORM 10-Q
Part 1 - Financial Information (continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The Allowance for Possible Loan Losses is a reserve established by
management which it believes will be adequate to absorb future loan losses based
on management's assessment of the quality of the total loan portfolio. The
assessment is performed on an ongoing basis and reviewed by the Board of
Directors quarterly.
The assessment looks atevaluates portfolio quality and includes a historical review
of historical charge-offs using a six year average. Portfolio quality is determined by
regulatory and independent loan reviews. The Corporation employs an independent
loan review specialist who reviews loans of a certain size criteria that isas set by
the Board of Directors. The review includes but is not limited to documentation,
financial statements, tax returns, and a cash flow analysis of each loan.
The Department of Banking completed an examination in late May 1995 and
classified $3,430,000 as substandard or loss. This is a marked reduction since
the FDIC examination completed in August 1994. All loans listed as loss by the
State examiners have been charged off or will be by year end 1995.
Probably the most important tool used by management to determine portfolio
quality is the "Watch List". The "Watch List" is a collection of loans that are
now or have been substandard for a variety of reasons. The list is distributed
to Branch Managers monthly for their review and update before going to the Board
of Directors. The list also contains all nonperforming loans that for purposes
of SFAS No. 114 are segregated for reserve purposes and valued at their
observable collateral value.
Other factors used to evaluate the reserve level are loan growth, economic
conditions of the market area and peer group comparisons.
Tables IV and V present a fivesix year history of the Allowance for Possible
Loan Losses and projection for the current year. Table V projects estimated
losses using the last fivesix years as a base. Years having abnormally large or low
charge-offs are eliminated to present a realistic estimation. Table III provides
reserve activity for the year-to-date, the most probable at year end, and a
worst case scenario which uses a historical average including years which had
larger than normal losses.
TABLE III
RESERVE FOR LOAN LOSSES
RECONCILEMENT
(In Thousands)
Actual Actual Probable Worst Case
Mar. 31,June 30, 1995 Dec.Dec 31, 1994 Dec. 31, 1995 Dec. 31, 1995
------------- ------------- ------------- -------------
Beginning Balance January 1, 1994 4,228,741 3,816,982 4,228,741 4,228,7414,229 3,817 4,229 4,229
Provision Charged to Earnings 184,125 737,496 737,000 737,000368 738 737 737
Recoveries 27,998 194,312 166,000 166,000141 194 166 166
Charge-offs (83,562) (520,049) (525,000) (928,000)
--------------------------------------------------------------(265) (520) (525) (928)
Ending Balance 4,357,302 4,228,741 4,606,741 4,203,741
--------------------------------------------------------------
--------------------------------------------------------------4,473 4,229 4,607 4,204
9
CITIZENS AND NORTHERN CORPORATION - FORM 10-Q
Part I Financial Information (continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
TABLE IV
LOAN LOSS HISTORY FOR THE PAST SIX YEARS
(In Thousands)
1995 Est 1994 1993 1992 1991 1990 1989 AVERAGE
-------- ------- ------- ------- ------- ------- ------- -------Average
*NET LOANS 277,670 258,472 238,755 225,475 199,072 190,544 159,715 221,386
NET CHARGE OFFS 359 326 247 518 3,142 115 222 704
ALLOWANCE BALANCE 4,607 4,229 3,817 3,356 2,548 2,539 2,284 3,340
PROV FOR LN LOSSES 737 737 708 1,326 3,151 326 275 1,037
EARNINGS 7,065 7,494 8,127 7,290 5,643 5,342 4,268 6,461
EARNINGS COVERAGE
OF NET CHG OFFS 19.7 x 23.0 x 32.9 x 14.1 x 1.8 x 46.5 x 19.2 x 9.212.1 x
ALLOWANCE COVERAGE
OF NET CHG OFFS 12.8 x 13.0 x 15.5 x 6.5 x 0.8 x 22.1 x 10.3 x 4.76.2 x
ACCRUING LNS CONTR
90 DAYS PAST DUE 2,800 2,743 2,899 2,532 3,810 2,425 1,684 26992,699.0
NET CHARGE OFFS AS
A %A% OF PROVISION 48.7 % 44.2 % 34.9 % 39.1 % 99.7 % 35.3 % 80.7 % 67.9 %29.4
YEAR END NON-PERF 650 624 843 1,351 417 309 264 637636.9
ALLOWANCE AS A %A%
OF NET LOANS (1) 1.69 % 1.64 % 1.60 % 1.49 % 1.28 % 1.33 % 1.43 %
1.49 %
PEER GROUP (2) 1.60 % 1.65 % 1.82 % 1.42 % 1.44 % 1.34 % 1.32 %
1.77 %
*GROSS LOANS LESS UNEARNED DISCOUNT
(1) At March 31, 1995
(2) At December 31, 1995* Gross loans less unearned discount
TABLE V
Reserve for Possible Loan Losses--AllocationALLOCATION OF RESERVE FOR POSSIBLE LOAN LOSSES
At June 30, 1995
(In Thousands)
1995 Est. 1994 1993 1992 1991 1990 Average Loss Ratio Reserve
Commercial and AgricultureAgricultural 23,500 22,649 26,376 22,712 23,541 21,120 23,316 1.94836 457,8651.96061 461
Real Estate --Construction 2,500 2,593 2,224 993 982 1,249 1,757 0
0
Real Estate -- Mortgage 200,000210,000 193,095 170,532 162,434 136,716 121,987 164,127 0.01619 32,380165,794 0.01603 34
Credit cardsCards and Related Plans 9,750 9,896 9,212 9,991 6,694 5,738 8,547 0.98951 96,47796
All Other Loans to Individuals 31,00031,750 30,094 30,282 29,182 31,762 35,605 31,321 0.44334 137,43531,446 0.45112 143
Lease Financing 150170 145 154 162 129 164 151 0.44334 665154 0 0
Total 266,900277,670 258,472 238,780 225,474 199,824 185,863 229,219 0 085,863 231,014
Letter of Credit Commitments 4,500 4,415 5,046 4,670 N/A N/A 4,658 1.94836 87,67688
Other Commitments 0Commitments:
Consumer 25,000 24,202 23,323 22,174 N/A N/A 23,675 0.44334 110,8350.45112 113
Mortgage 9,600 9,566 9,466 9,117 N/A N/A 9,437 0.01619 1,5540.01603 2
Commercial 10,000 9,901 9,790 5,670 N/A N/A 8,840 1.94836 194,836
Fasb1.96061 196
FASB No. 114 Nonperforming Loans 165,127167 N/A N/A N/A N/A N/A 165,127 165,127167 167
Total Reserve Allocation 1,284,8511,299
Unallocated Portion 3,072,149
---------3,174
Total Reserve Balance 4,367,000
---------4,473
The reserve allocation factor is determined by using a six year average of net
charge offs divided by the six year average loan balance by type.
10
CITIZENS AND NORTHERN CORPORATION - FORM 10-Q
Part I - Financial Information (continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
OTHER INCOME
The following table compares the major categories of other income for the
periods ending March 31,June 30, 1995 and March 31June 30, 1994 and the amount and percentage of
change by category.
TABLE VI
MAJOR CATEGORIES OF OTHER INCOME
(In Thousands)
Period Ended
March 31,Periods Ending
June 30, $ %
1,9951995 1994 Change Change
Service Charges on Deposit Accounts 274 246 28 11.38556 520 36 6.92
Service Charges and Fees 63 61 2 3.28131 144 (13) (9.03)
Trust Department Income 189 106 83 78.30384 270 114 42.22
Insurance Commissions, Fees and Premiums 157 144 13 9.03313 275 38 13.82
Other Operating Income 35 300 (265) (88.33)29 307 (278) (90.55)
Realized Gains on Available-for-Sale and
Held-to-Maturity Securities, Net 774 542 232 42.80
---------------------------------851 695 156 22.45
Total Other Income 1,492 1,399 93 6.65
---------------------------------
---------------------------------2,264 2,211 53 2.40
Other feesincome increased over 62.4 percent forduring the comparable periods.six month period ending June
30, 1995 when compared to the same period last year.
Service charges on deposit accounts increased $36,000 or about 7 percent
when comparing the two periods. The increase consists of $11,000 in account and
statement fees increased $28,000 due to increased usage and an increase of deposit account
services provided by565 accounts over last
year; there was also an increase of $25,000 in overdraft charges between the Bank. Trust Departmenttwo
periods
Other service charges and fees increased 78declined $13,000 or 9 percent over
the same period in 1994 , the increase was due to the settlement fees collected
from the settlement of several large estates.
Other operating income decreased significantly during the
first quartersix months of 1995 when compared to the same period in 1994. The 1994
thistotal included a large rebate from the bank's check supplier and interest on a
large tax refund for the years 1991 and 1992; the rebate and the tax refund
interest amounted to $15,000.
Trust Department fees increased 42 percent or $114,000 over the same period
in 1994. The increase can be attributed to several factors. Interest rates and
market values were up significantly during the first six months of 1995 when
compared to the same period last year, both of which contributed to larger
account fees. An increase in the fee schedule was implemented January 1, 1995
and has thus increased fee income. Also, an ongoing effort to sell employee
benefit plans is beginning to generate additional fee income. There were also
fees generated from the settlement of several large estates during the first six
months of 1995.
Other operating income decreased $278,000 during the six month period
ending June 30, 1995 when compared to the same period in 1994. This was due to a
realized gain on the sale of an investment which had been classified as an other
asset. The gain amounted to $265,000 and if excluded the gain were excluded from the March 1994
totalchange between the two
periods would have shown no change.been a decline of $13,000 or 5 percent.
Realized gains on the sale of Available-for-Sale investments amounted to
$774,000$851,000 for the first quartersix months of 1995.1995 and $695,000 during the same period in
1994. The gaingains resulted from the sale of several equity securities which management felt had become overpricedsold because
of a new FDIC policy. The policy requires banks to either sell or the
Corporation hadtransfer to
divest themselves of the securities as they weretheir holding company all equity investments not traded on a recognized
securities exchange. The recorded gains inpolicy gives banks until mid 1996 to accomplish the
first quartersale or transfer. Some of 1994the equity securities sold during both periods were
sold because it was also the result of stocks which had to sold asfelt they were not listed stocks.over priced or the holdings had become
excessive.
11
CITIZENS AND NORTHERN CORPORATION - FORM - 10Q10-Q
Part I - Financial Information (continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
OTHER EXPENSE
The following table compares the various categories of other expense for the
periods ending March 31,June 30, 1995 and March 31,June 30, 1994
TABLE VII
MAJOR CATEGORIES OF OTHER EXPENSE
(In Thousands)
Period Ended
December 31,Periods Ending
June 30, $ %
1995 1994 1993 Change Change
Salaries and Wages 1,364 1,257 107 8.512,728 2,484 244 9.82
Pensions and Other Employee Benefits 460 460 0 0.00878 906 (28) (3.09)
Occupancy Expense, Net 180 187 (7) (3.74)356 352 4 1.14
Furniture and Equipment Expense 152 126 26 20.63310 259 51 19.69
Other Operating Expense 1,491 1,356 135 9.96
---------------------------------3,037 2,810 227 8.08
Total Other Expense 3,647 3,386 261 7.71
---------------------------------
---------------------------------7,309 6,811 498 7.31
Salaries and wages increased just over 89 percent. The increase can be attributed
to an increase in the number of full time equivalent employees and merit raises.
The number of full time equivalent employees was 198 at March 31, 1994 was
187, compared to 196June 30, 1995 and 191 at
March 31, 1995.June 30, 1994. Merit raises effective January 1, 1995 were in the 5 to 6 percent
range.
Pensions and Other Employee Benefits declined by $28,000 or 3 percent when
compared to the same period last year. The decrease was due to the retirement of
two executive officers who received severance payments for accumulated benefits.
Also, the required contributions to the Supplemental Retirement Plan were less
without the two executive officers.
Other categories of other expense reflecting large variances over last year
were furnitureFurniture and fixturesFixtures and other expense.Other Expense. The primary cause for the
increase in this categoryFurniture and Fixture Expense was the purchase of a check imaging
system which became operational in August of 1994. The cost of the system was
approximately $900,000 which caused an increaseand was instrumental in increasing depreciation expense.expense
$63,000 over the periods being compared.
Other expenseExpense increased $135,000$227,000 over the same period in 1994.1994; this
increase includes nearly $50,000 of additional processing costs for the
Corporation's credit card program. There was no other single large contributing
factor to the increase, howeverincrease. However, FDIC expense, Pennsylvania Shares taxTax, Director
and Committee fees, and Bank examination charges were up significantly over the same period
last year.
12
STATEMENT OF CONDITION
Average total assets of the Corporation for the quarter ending March 31,
1995 declined when compared to the quarter ending December 31, 1994. This was
due to the sale of approximately $20,000,000 in Available-for-Sale securities
and a reduction of the short term debt used to fund the investments. The sold
investments consisted of Mortgage-backed investments and were sold in late
December 1994. Total average assets increased nearly $13,000,000 when compared
to the period ending March 31, 1994. The increase was due to an increase in
average deposits of $13,263,000 since March 31, 1994. Average total deposits
have increased $6,866,000 since year end 1994.
Average total loans have increased $13,453,000 and $19,613,000 since
December 31, 1994 and March 31, 1994 respectively, the increase is most notable
in loans secured by real estate. Other loan categories remain relatively
unchanged.
Interest rate swings have caused wide fluctuations in the market value of
the Available-for-Sale securities, thus causing large adjustment to the capital
account. The net adjustment to capital for March 31, 1995, December 31, 1994 and
March 31, 1994 was ($3,436,000), ($8,592,000) and ($733,000) respectively.
Interest rates have declined slightly and stabilized since March 31, 1995, which
has further improved the market value.
The Corporation's capital remains strong at 13.9 percent of total deposits
and 10 percent of total assets on March 31, 1995. Including the net market value
adjustment for the Available-fore-Sale securities the ratios would be 13 percent
and 9.5 percent respectively. The ratio of capital to deposits and total assets
at March 31, 1994 were 13.4 and 9.7 percent respectively. All capital ratios are
well above regulatory requirements.
The reader should refer to table II and table VIII on pages 8 and 14. Table
II reflects average balances for the periods ending March 31, 1995, December 31,
1994 and March 31, 1994. Table VIII reflects the estimated market values of
assets and liabilities at March 31, 1995.
13
CITIZENS AND NORTHERN CORPORATION - FORM 10-Q
Part 1 - Financial Information (continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
STATEMENT OF CONDITION
Average total assets of the Corporation for the six month period ending
June 30, 1995 declined slightly at $2,000,000 when compared to the quarter
ending December 31, 1994; however, the balance sheet structure did not change
significantly between December 31, 1994 and June 30, 1995. The average balance
in the investment portfolio declined $12,200,000 and was offset with an increase
in the average loan volume of $14,200,000. The change in the asset mix was
prompted by the increase in interest rates and a heavier loan demand. The
reduction in the investment portfolio was made in late December 1994 as
approximately $20,000,000 in mortgage backed securities were sold due to the
increased cost of borrowing used to fund the investments. The increase in loans
was primarily larger real estate secured commercial loans.
On the liability side of the balance sheet average total deposits have
increased just over 4 percent since December 31, 1994. The deposit accounts
posting increases were Money Market and Individual Retirement accounts. Other
account balances changed only slightly with the exception of Passbook and
Statement savings accounts, which posted a decline in average balances of
$3,900,000 during the six month period ending June 30, 1995. The amount of the
decline is insignificant, however Regular savings have always maintained
relatively stable and increasing balances. Average borrowed funds also declined
$12,000,000 since December 31, 1994 as a result of the decline in the average
investment portfolio.
Interest rate swings have caused wide fluctuations in the market value of
the Available-for-Sale securities, thus causing a large adjustment to the
capital account. The net adjustment to capital at June 30, 1995, and December
31, 1994 was $1,569,000 and ($8,589,000), a change of $10,158,000 net of income
tax.
Average total assets have remained nearly unchanged since June 30 1994,
when compared to the period ending June 30, 1995; however, average total
investments have declined $10,335,000. This was due to the previously mentioned
sale of mortgage backed investments and a corresponding reduction of borrowed
funds. Average total loans for the period ending June 30, 1995 exceeded average
total loans for the period ending June 30, 1994 by $19,630,000. The increase in
loan volume was primarily real estate secured commercial loans.
The increase in average loan volume was funded primarily by an increase in
average total deposits of $13,100,000. The deposit growth was centered around
Money Market and Individual Retirement accounts. Average Certificates of Deposit
declined $4,700,000 between June 30, 1994 and June 30, 1995. The decline started
early in 1994 as interest rates began to increase. Presently interest rates have
begun to stabilize and even decline slightly causing Certificates of Deposits
balances to increase to first quarter 1994 levels.
The reader should refer to Table II and Table VIII on pages 8 and 14. Table
II reflects average balances for the periods ending June 30, 1995, December 31,
1994, and June 30, 1994. Table VIII reflects the estimated market values of
assets and liabilities at June 30, 1995.
13
CITIZENS AND NORTHERN CORPORATION - FORM 10-Q
Part I - Financial Information (continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
TABLE VIII
ESTIMATED MARKET VALUES
FOR THE PERIOD ENDING MARCH 31,June 30, 1995
(In Thousands)
CARRYING FAIR
VALUE VALUE DIFFERENCE
ASSETS
Loans:
Gross Loans 257,366 263,709 6,343260,580 255,112 (5,468)
Less: Loan Loss Reserve (4,357) (4,357)(4,473) (4,473) 0
Net Loans 253,009 259,352 6,343256,107 250,639 (5,468)
Held-to-Maturity Securities
U. S. Government Securities 1,366 1,346 (20)1,330 1,335 5
Total Held-to-Maturity Securities 1,366 1,346 (20)1,330 1,335 5
LIABILITIES
Deposits:
Money Market 87,477 87,318 (159)87,830 87,830 0
Interest Checking 41,510 41,488 (22)41,710 41,710 0
Club Accounts 1,615 1,6151,882 1,882 0
Certificates of Deposit 105,600 108,662 3,062110,049 111,755 1,706
Golden Passbook 999 1,074 751,011 1,011 0
Regular/Key Savings 49,472 53,200 3,72848,827 48,827 0
Individual Retirement Accounts 78,465 81,881 3,41679,194 78,597 (597)
Total Interest Bearing Deposits 365,138 375,238 10,100370,503 371,612 1,109
Borrowings:
Fixed Rate Borrowings 23,500 23,513 1310,000 10,060 60
Variable Rate Borrowings 40,000 40,088 8823,500 23,500 0
Total Borrowings 63,500 63,601 10133,500 33,560 60
Federal Funds Purchased 6,000 6,000 016,000 15,960 (40)
Repurchase Agreements 25,000 25,014 1450,000 50,000 0
14
CITIZENS AND NORTHERN CORPORATION - FORM 10-Q
Part I - Financial Information (continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
LIQUIDITY AND INTEREST RATE SENSITIVITY
The Corporation's ability to absorb short termshort-term deposit fluctuations or
unusually heavy loan demand, should theyeither occur, areis met by using a flexline of
credit available through the Federal Home Loan Bank of Pittsburgh or by short
term
repurchase agreements. The flexline of credit provides the Corporation with a
credit line which approximates 10 percent of total assets or about $50 million
dollars. Repurchase agreements are secured with mortgage-backed instruments. The
maturities of the repurchase agreements generally range from 30 days to 90 days.3 years.
At March 31,June 30, 1995 the Corporation was borrowing $31,000,000 on a short term
basishad $63,500,000 in short-term borrowings
(maturing within one year) and $43,500,000$20,000,000 in long term borrowings duethat mature in 2 to mature within 120 days.3
years. The majority of the borrowed funds are repurchase agreements secured with
mortgage backed investments. This short termshort-term borrowing creates a large negative
gap which narrows the net interest spread and lowers the net interest margin
in the short term.during periods of rising interest rates. During the period from March 31, 1994
to March 31, 1995 interest rates have increased approximately 200 basis points,
this will causecausing 1995 earningearnings to decline slightly from the record earnings posted during
19931994 and 1994.1993.
Rising interest rates also have a marked effect on the market value of the
investment portfolio. At December 31, 1994 the market depreciation on the
portfolio of Available-for-Sale securities amounted to $13,000,000, however$13,000,000. However, as
rates began to stabilize late in the first quarter of 1995 the portfolio posted
a market depreciation had declined to $ 5,205,000.appreciation at June 30, 1995 of $2,377,000, which was a market value
improvement of $15,377,000.
The Corporation uses a computer model to measure the theoretical effect of
interest ratesrate swings on the market value and the net interest margin using a
rate shock. The model shocks interest 400 basis points upward and downward. The
reader should refer to pages 16 and 17 for a fuller understanding of the effect
of interest rate movements.
15
CITIZENS AND NORTHERN CORPORATION - FORM 10 - Q10-Q
Part I - Financial Information (continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
TABLE IX
RATE SENSITIVE ASSETS AND RATE SENSITIVE LIABILITIES
FOR THE PERIOD ENDING AT MARCH 31,June 30, 1995
(In Thousands)
Greater Greater Greater GreaterLess Than Less Than Less Than Less Than
3 Mos. 3-6 6-12 1-3 3-5
or Less Mos. Mos. Years Years
ASSETS
Interest-Bearing Deposits 991 -1,001 100 - -
"Available-for-Sale" Securities
U.S. Treasury Securities 2,373 - - - -2,453
U.S. Agency Securities 12,738 - - - -6,994
Mortgage Backed Securities 195,399 - - - -216,956
Municipals 41,440 - - - -43,033
Other Bonds 4,444 - - - -4,425
Stocks 17,719 - - - -17,740
Total "Available-for-Sale" Securities 274,113 0 0 0 0291,601
"Held-to-Maturity" Securities:
U.S. TreasuryU.S.Treasury Securities - - - - 299
Mortgage Backed Securities
- - - - -
Total "Held-to-Maturity" Securities: - - - - 299
Loans and Lease Financing:
Real Estate-Construction 1,684 - - - -1,053
Real Estate-Mortgage 46,245 13,767 32,710 23,793 21,45039,656 19,199 28,528 24,604 22,114
Consumer 8,025 2,408 4,594 9,589 2,401
Agriculture 649 187 484 1,070 4847,370 2,577 4,733 10,380 2,567
Agricultural 761 218 524 1,087 429
Commercial 10,212 390 676 1,136 6509,923 413 687 1,786 795
Other 172178 2 21 28 -42 31 3
Political Subdivisions 925 155 320 1,269 1,206821 153 338 1,265 1,230
Leases 9 9 18 72 3912 12 24 96 50
Total Loans 67,921 16,918 38,823 36,957 26,23059,774 22,574 34,876 39,249 27,188
Less: Unearned Discount - - - - -
Allowance for Loan Losses
- - - - -
- - ---------------------------------------
Net Loans and Leases 67,921 16,918 38,823 36,957 26,230
- - ---------------------------------------------------------------------------------------------59,774 22,574 34,876 39,249 27,188
Cash and Due From Banks
- - - - -
- - ---------------------------------------
Other Assets 3,980 - - - -
- - -----------------------------------------------3,857
Total Assets 347,005 16,918 38,923 36,957 26,529
- - ---------------------------------------------------------------------------------------------356,233 22,574 34,976 39,249 27,487
LIABILITIES AND EQUITY
Interest BearingInterest-Bearing Deposits:
Money Market 87,537 - - - -87,830
NOW and SNOW 41,510 - - - -41,710
Christmas/Fund Clubs 425 - 1,190 - -1,786 96
CD's 25,019 24,497 19,100 16,213 20,60923,937 23,272 25,416 27,223 10,158
Reg/Key Savings
- - - - -
GPS
- - - - -
IRA's - - - - -
Total Interest-Bearing Deposits 154,491 24,497 20,290 16,213 20,609153,477 25,058 25,512 27,223 10,158
Demand Deposits
- - - - -
Repurchase Agreements 25,000 - - - -30,000 20,000
Federal Funds Purchased 6,000 - - - -16,000
Borrowed Funds:
Variable 23,500
- - - -
Fixed 40,000 - - - -
- - ---------------------------------------------------------------------------------------------10,000
Total Borrowed Funds 63,500 0 0 0 -
- - ---------------------------------------------------------------------------------------------23,500 10,000
Other Liabilities 794
- - - -
- - ---------------------------------------------------------------------------------------------
Stockholder'sStockholders' Equity - - - - -
- - ---------------------------------------------------------------------------------------------
Total Liabilities and Equity 249,785 24,497 20,290 16,213 20,609193,771 55,058 25,512 57,223 10,158
Interest Rate Sensitivity Gap $97,220 ($7,579) $18,633 $20,744 $5,920
- - ---------------------------------------------------------------------------------------------162,462 (32,484) 9,464 (17,974) 17,329
Greater Greater GreaterLess Than Less Than Less Than
5-10 10-20 20 Non-
Years Years Years Interest Total
ASSETS
Interest-Bearing Deposits - - - - 1,0911,101
"Available-for-Sale" Securities
U.S. TreasuryU.S.Treasury Securities - - - - 2,373
U.S. Agency2,453
U.S.Agency Securities - - - - 12,7386,994
Mortgage Backed Securities - - - - 195,399216,956
Municipals - - - - 41,44043,033
Other Bonds - - - - 4,4444,425
Stocks - - - - 17,71917,740
Total "Available-for-Sale" Securities 0 0 - 0 274,113291,601
"Held-to-Maturity" Securities:
U.S. TreasuryU.S.Treasury Securities - - - - 299
Mortgage Backed Securities 63 792 212 - 1,06751 778 202 1,031
Total "Held-to-Maturity" Securities: 63 792 212 - 1,36651 778 202 1,330
Loans and Lease Financing:
Real Estate-Construction - 1,6841,053
Real Estate-Mortgage 38,964 18,69242,406 21,719 4 - 195,625198,230
Consumer 492 66 9,146 - 36,721
Agriculture 104 47 - - 3,025425 59 9,120 37,231
Agricultural 80 24 3,123
Commercial 165 - - - 13,229200 13,804
Other - - - - 223256
Political Subdivisions 1,602 1,221 33 - 6,7311,348 1,547 21 6,723
Leases - - - - 147194
Total Loans 41,327 20,026 9,183 - 257,38544,459 23,349 9,145 260,614
Less: Unearned Discount - - - (19) (19)(34) (34)
Allowance for Loan Losses - - - (4,357) (4,357)
---------------------------------------------------------(4,473) (4,473)
Net Loans and Leases 41,327 20,026 9,183 (4,376) 253,009
---------------------------------------------------------44,459 23,349 9,145 (4,507) 256,107
Cash and Due From Banks - - - 11,898 11,898
---------------------------------------------------------13,033 13,033
Other Assets - - - 11,633 15,613
---------------------------------------------------------8,816 12,673
Total Assets 41,390 20,818 9,395 19,155 557,090
---------------------------------------------------------44,510 24,127 9,347 17,342 575,845
LIABILITIES AND EQUITY
Interest BearingInterest-Bearing Deposits:
Money Market - - - - 87,53787,830
NOW and SNOW - - - - 41,51041,710
Christmas/Fund Clubs - - - - 1,6151,882
CD's 107 - - - 105,54544 110,050
Reg/Key Savings - - 49,466 - 49,46648,827 48,827
GPS - - 999 - 9991,011 1,011
IRA's - - 78,466 - 78,46679,194 79,194
Total Interest-Bearing Deposits 107 - 128,931 - 365,13844 129,032 370,504
Demand Deposits - - - 40,734 40,73442,462 42,462
Repurchase Agreements - - - - 25,00050,000
Federal Funds Purchased - - - - 6,00016,000
Borrowed Funds:
Variable - - - - 23,500
Fixed - - - - 40,000
---------------------------------------------------------10,000
Total Borrowed Funds - - - - 63,500
---------------------------------------------------------33,500
Other Liabilities - - - 3,044 3,838
---------------------------------------------------------
Stockholder's3,827 4,621
Stockholders' Equity - - - 52,880 52,880
---------------------------------------------------------58,758 58,758
Total Liabilities and Equity 107 - 128,931 96,658 557,09044 129,032 105,047 575,845
Interest Rate Sensitivity Gap $41,283 $20,818 ($119,536) ($77,503) ($0)
---------------------------------------------------------44,466 24,127 (119,685) (87,705)
16
CITIZENS &AND NORTHERN CORPORATION - FORM 10-Q
Part 1I - Financial Information (continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
CAPITAL ADEQUACY
Total capital of the Corporation excluding unrealized gains on Available-
for-Sale investments totaled $58,189,000, $56,385,000, and $54,774,000 at June
30, 1995, December 31, 1994, and June 30, 1994 respectively. The ratio of
capital to assets for the same periods was 10.10 percent, 10.31 percent, and
9.94 percent respectively.
The Corporation's risk based capital ratio, which measures the amount of
risk assets to total capital, was 18.59 percent, 18.36 percent, and 17.17
percent for the periods ending June 30, 1995, December 31, 1994, and June 30,
1994 respectively. The ratios exclude the Available-for Sale market value
adjustment as mandated by SFAS No. 115.
Management is aware of the possible detrimental effect that a large
negative gap can have on the capital of the Corporation during prolonged periods
of rising interest rates. However, management continually monitors interest
rates and their effect on net interest income and the market value of the
Corporation's asset base.
There are no planned capital expenditures that will have a material effect
on the capital ratios of the Corporation or the results of operations.
17
CITIZENS AND NORTHERN CORPORATION - FORM 10-Q
Part I - Financial Information (continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
TABLE X
RATE SHOCK ANALYSIS
COMPARISON OF EXECUTIVE SUMMARIES
FOR THE PERIOD ENDING MARCH 31,June 30, 1995
(in thousands)(In Thousands)
-4.00 -3.00 -2.00 -1.00 FLAT 1.00 2.00 3.00 4.00
INCOME STATEMENT
INTEREST INCOME
LOANS 20,647 21,560 22,473 23,385 24,298 25,211 26,138 27,037 27,94920,964 21,855 22,747 23,639 24,531 25,423 26,315 27,207 28,099
INVESTMENTS 17,525 17,730 17,934 18,139 18,343 18,548 18,752 18,957 19,16118,301 18,432 18,563 18,694 18,825 18,956 19,087 19,218 19,350
TOTAL INT INC 38,172 39,290 40,407 41,524 42,641 43,759 44,890 45,994 47,11039,265 40,287 41,310 42,333 43,356 44,379 45,402 46,425 47,449
INTEREST EXPENSE
DEPOSITS 7,039 9,923 12,808 15,692 18,577 21,461 24,345 27,230 30,1146,542 9,396 12,250 15,104 17,958 20,812 23,666 26,520 29,374
BORROWINGS 1,032 1,289 1,547 1,804 2,061 2,319 2,576 2,834 3,091760 845 930 1,016 1,101 1,186 1,272 1,357 1,443
F F PURCHASED 1,077 1,692 2,325 2,976 3,645 4,333 5,038 5,762 6,5051,495 2,271 3,064 3,876 4,707 5,557 6,425 7,313 8,220
TOTAL INT EXP 9,148 12,904 16,680 20,472 24,283 28,113 31,959 35,826 39,7108,797 12,512 16,244 19,996 23,766 27,555 31,363 35,190 39,037
NET INT INC BEFBEFORE
RATE SWAPS/FIXTURES/FUTURES/
OTHER ADJUST 29,024 26,386 23,727 21,052 18,358 15,646 12,931 10,168 7,40030,468 27,775 25,066 22,337 19,590 16,824 14,039 11,235 8,412
NET INT INC 29,024 26,386 23,727 21,052 18,358 15,646 12,931 10,168 7,400INCOME 30,468 27,775 25,066 22,337 19,590 16,824 14,039 11,235 8,412
MEMO:
NET INT INC
TAX EQUIV 30,413 27,759 25,087 22,397 19,689 16,962 14,217 11,453 8,67031,975 29,267 26,540 23,794 21,030 18,246 15,443 12,621 9,780
LN LOSS PROV 737 737 737 737 737 737 737 737 737
NET AFTER PROV 28,287 25,649 22,990 20,315 17,621 14,909 12,194 9,431 6,66329,731 27,038 24,329 21,600 18,853 16,087 13,302 10,498 7,675
OTHER OPER INC 1,950 1,950 1,950 1,950 1,950 1,950 1,950 1,950 1,9502,050 2,050 2,050 2,050 2,050 2,050 2,050 2,050 2,050
OTHER OPER EXP 13,093 13,093 13,093 13,093 13,093 13,093 13,093 13,093 13,09313,062 13,062 13,062 13,062 13,062 13,062 13,062 13,062 13,062
INC BEFORE TAXES 17,144 14,506 11,847 9,172 6,478 3,766 1,051 (1,712)(4,480)18,719 16,026 13,317 10,588 7,841 5,075 2,290 (514) (3,337)
TAXES 4,913 4,025 3,131 2,231 1,325 412 (506)(1,431)(2,361)5,369 4,465 3,555 2,639 1,716 787 (148) (1,089) (2,037)
NET INCOME 12,231 10,481 8,716 6,941 5,153 3,354 1,557 (281)(2,119)13,350 11,561 9,762 7,949 6,125 4,288 2,438 575 (1,300)
DIVIDENDS 3,300 3,300 3,300 3,300 3,300 3,300 3,300 3,300 3,300
1718
CITIZENS &AND NORTHERN CORPORATION - FORM 10-Q
Part 1I - Financial Information (continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
TABLE XI
RATE SHOCK ANALYSIS
COMPARISON OF EQUITY MARKET VALUES
FOR THE PERIOD ENDING MARCH 31,June 30, 1995
(in thousands)(In Thousands)
-4.00 -3.00 -2.00 -1.00 FLAT 1.00 2.00 3.00 4.00
ASSETS
BOOK VALUE 562,227 562,227 562,227 562,227 562,227 562,227 562,227 562,227 562,227568,597 568,597 568,597 568,597 568,597 568,597 568,597 568,597 568,597
MARKET VALUE 676,369 648,051 622,187 598,497 576,738 556,698 538,194 521,065 505,170693,485 660,267 630,215 602,941 578,113 565,464 548,034 532,290 516,728
CHANGE 114,142 85,824 59,960 36,270 14,511 (5,529) (24,033) (41,162) (57,057)124,888 91,670 61,618 34,344 9,516 (3,133) (20,563) (36,307) (51,869)
LIABILITIES
BOOK VALUE 514,757 514,757 514,757 514,757 514,757 514,757 514,757 514,757 514,757515,165 515,165 515,165 515,165 515,165 515,165 515,165 515,165 515,165
MARKET VALUE 559,180 546,838 535,324 524,577 514,540 505,161 496,392 488,186 480,503562,304 549,580 537,713 526,639 516,299 509,256 503,040 496,834 491,732
CHANGE (44,423) (32,081) (20,567) (9,820) 217 9,596 18,365 26,571 34,254(47,139) (34,415) (22,548) (11,474) (1,134) 5,909 12,125 18,331 23,433
EQUITY
BEG BALANCE 47,471 47,471 47,471 47,471 47,471 47,471 47,471 47,471 47,47153,433 53,433 53,433 53,433 53,433 53,433 53,433 53,433 53,433
ASSET CHANGE 114,142 85,824 59,960 36,270 14,511 (5,529) (24,033) (41,162) (57,057)124,888 91,670 61,618 34,344 9,516 (3,133) (20,563) (36,307) (51,869)
LIAB CHANGE (44,423) (32,081) (20,567) (9,820) 217 9,596 18,365 26,571 34,254(47,139) (34,415) (22,548) (11,474) (1,134) 5,909 12,125 18,331 23,433
MARKET VALUE 117,190 101,214 86,864 73,921 62,199 51,538 41,803 32,880 24,668131,182 110,688 92,503 76,303 61,815 56,209 44,995 35,457 24,997
DURATION
ASSETS 4.480 4.276 4.086 3.907 3.741 3.585 3.440 3.304 3.1775.286 5.043 4.816 4.604 4.406 4.274 4.123 3.986 3.853
LIABILITIES 2.898 2.807 2.720 2.637 2.557 2.480 2.406 2.336 2.2702.939 2.846 2.758 2.672 2.590 2.538 2.493 2.446 2.407
EQUITY 12.031 12.212 12.499 12.923 13.535 14.417 15.708 17.668 20.85115.349 15.950 16.782 17.938 19.578 20.003 22.352 25.568 32.293
19
CITIZENS AND NORTHERN CORPORATION - FORM 10-Q
Part I - Financial Information (continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
TABLE XII
CURRENT EXPOSURE TO HYPOTHETICAL CHANGES IN INTEREST RATES
FOR THE PERIOD ENDING MARCH 31,June 30, 1995
PERCENTAGE CHANGE IN:
CHANGES IN NET INTEREST INCOME MV OF PORTFOLIO EQUITY
INT RATES PROJECTED PROJECTED
(BASIS POINTS) CHANGE (%) CHANGE (%)
400 -46.6 -60.3
300 -34.8 -47.1
200 -23.1 -32.8
100 -11.5 -17.1
0 0.0 0.0
-100 11.4 18.8
-200 22.8 39.7
-300 34.1 62.7
-400 45.3 88.4
MEMO: NET INTEREST INCOME PROJECTED UNDER CONSTANT INT RATES: 22,962.7
MARKET VALUEMV OF PORTFOLIO EQUITY
UNDER CURRENT INT RATES: 62,198.7
18RATES PROJECTED PROJECTED
(BASIS POINTS) CHANGE (%) CHANGE (%)
400 -41.4 -59.6
300 -35.4 -42.6
200 -23.7 -27.2
100 -12.3 -9.1
0 0.0 0.0
-100 13.1 23.4
-200 26.2 49.6
-300 39.2 79.1
-400 52.0 112.2
20
CITIZENS AND NORTHERN CORPORATION - FORM 10-Q
Part II - Other Information
Item 1. Legal Proceedings
Citizens and Northern Corporation is not a litigant in any pending material
lawsuits.
It is the opinion of the counsel of Citizens and Northern Corporation
that minor lawsuits whichthat are pending will not have a significant or materially
detrimental effect on the capital of the Corporation or in any way effectaffect the
results of operations.
Item 4. Submission of Matters to a Vote of security Holders
The Annual Meeting of Shareholders of Citizens & Northern corporation
was held on Tuesday, April 18, 1995. The Board of Directors fixed the close of
business on March 3, 1995 as the record date for the determination of
stockholders entitled to notice of and to vote at the Annual Meeting and at any
adjournment thereof. On this record date, there were outstanding and entitled to
vote 4,962,456 shares of Common Stock.
The total number of votes cast were 3,716,102. all were voted by proxy
for the following purposes and with the following results.
1. The election of the following as Class II Directors to serve for
a term of three years.
R. James Dunham Leonard Simpson
Edward L. Learn Donald E. Treat
John H. Macafee
The total votes in favor of any one of the above-listed Directors were
not less than 3,680,564
2. The approval and adoption of the Citizens & Northern Corporation
1995 Stock Incentive Plan.
Total Votes in Favor 3,445,734
Total Votes Against 167,157
Total Votes Abstained 103,211
3. The ratification of the action of the Board of Directors in the
appointment of the firm of Parente, Randolph, Orlando, Carey & Associates as
independent auditors of the Corporation.
Total votes in Favor 3,675,703
Total Votes Against 8,736
Total Votes Abstained 31,663
21
CITIZENS AND NORTHERN CORPORATION - FORM 10-Q
Part II - Other Information (continued)
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits filed as part of this report are listed below:
Exhibit 1 -- Quarterly Report to Shareholders for period ending
March 31,June 30, 1995
b. No reports on Form 8-K were filed during the period ending
March 31,June 30, 1995
1922
CITIZENS AND NORTHERN CORPORATION - FORM 10 - Q10-Q
SIGNATURE PAGE
Pursuant to the requirements 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.
Date May 5,August 7, 1995 /s/ WILLIAM K FRANCIS -------------------------------------/S/
-----------------------
William K. Francis
President and Chief Executive Officer
Date May 5,August 7, 1995 /s/ JAMES W SEIPLER --------------------------------------/S/
-----------------------
James W. Seipler
Treasurer
(Chief financialFinancial Officer)
2023