Citizens & Northern Corp (CZNC, Financial) filed Quarterly Report for the period ended 2009-03-31.
Citizens & Northern Corporation is a one-bank holding company whose principal subsidiary is Citizens & Northern Bank. The Corporation's principal office is located in Wellsboro Pennsylvania. The Corporation's other wholly-owned subsidiaries are Citizens & Northern InvestmentCorporation and Bucktail Life Insurance Company. Citizens & Northern Investment Corporation was formed in 1999 to engage in investmentactivities. Bucktail provides credit life and accident and health insurance on behalf of the Bank. Citizens & Northern Corp has a market cap of $160.67 million; its shares were traded at around $17.93 with a P/E ratio of 16.01 and P/S ratio of 2.07. The dividend yield of Citizens & Northern Corp stocks is 5.35%. Citizens & Northern Corp had an annual average earning growth of 3% over the past 10 years.
OTTI charges in the first quarter 2009 included pre-tax impairment charges on pooled trust-preferred securities totaling $11,105,000 and bank stocks totaling $5,575,000. Pooled trust-preferred securities are long-term instruments, mainly issued by banks, with 30 or more companies included in each pool. The impairment charges on pooled trust-preferred securities resulted from managements assessment that it is unlikely some of the previously anticipated principal and interest will be received on several of the securities. Accordingly, management wrote down the cost basis of these securities to their estimated fair value based on discounted cash flows as of March 31, 2009. After the impact of the impairment charges, the Corporations cost basis in pooled trust-preferred securities totaled $75.0 million, and the estimated fair value at March 31, 2009 was $49.8 million. As described in more detail in Notes 2 and 6 to the Consolidated Financial Statements, the Corporation adopted three new accounting principles in the first quarter 2009, including FSP FAS 115-2 and FAS 124-2. This new FSP resulted in a change in the measurement of OTTI, which reduced the amount of loss that would have been realized in earnings by $8,301,000 (pretax). Managements decision to record OTTI losses on bank stocks was based on a combination of: (1) significant market depreciation, including an average reduction in market prices of 15% in the first quarter 2009, and (2) the possibility the Corporation may sell some of the stocks in 2009 to take advantage of income tax opportunities. After the impact of the impairment charges, the Corporations cost basis in equity securities totaled $15.0 million, and the estimated fair value at March 31, 2009 was $14.7 million.
premiums are expected to increase by approximately $1 million for the year, and the FDIC has issued for public comment a request for a special assessment of 10 basis points, which would cost the Corporation approximately $800,000 in the third quarter 2009. Also, total noninterest revenue may be lower in 2009 than in 2008. In 2008, noninterest income included a gain of $533,000 from redemption of Visa shares, resulting from Visas initial public offering. Another source of revenue that is not expected to recur in 2009 is dividend income from the Federal Home Loan Bank of Pittsburgh restricted stock, which totaled $334,000 in 2008. The Federal Home Loan Bank of Pittsburghs 2008 financial results were affected by significant losses on its securities portfolio, and it has discontinued paying dividends for the foreseeable future. Based on the information that has become publicly available through early May 2009, management does not believe its investment in Federal Home Loan Bank of Pittsburgh restricted stock of $8.6 million to be impaired at March 31, 2009; however, management will monitor the situation for possible deterioration that could result in an impairment loss in 2009. In addition to these issues, the Corporations revenues from Trust and Financial Management activities are expected to fall slightly in 2009, because the market value of assets under management (which is used as the basis for determining the amount of fees for most Trust services) has fallen as a result of the significant declines in U.S. and international equity markets.
Although the Corporation is well-capitalized (as described in more detail in the Stockholders Equity and Capital Adequacy section of Managements Discussion and Analysis), current economic conditions are volatile. Accordingly, management and the Corporations Board of Directors decided to raise more capital by participating in the TARP Capital Purchase Program. Management believes the additional capital raised through the TARP Capital Purchase Program provides a form of protection that should allow the Corporation to continue its normal lending and other operating activities, regardless of the possibility of securities losses, loan losses or other issues that could arise in the current economic environment. On January 16, 2009, the Corporation issued 26,440 shares of Series A Preferred Stock (Preferred Stock) and a Warrant to purchase up to 194,794 shares of common stock at an exercise price of $20.36 per share. The Corporation sold the Preferred Stock and Warrant to the United States Department of the Treasury for an aggregate price of $26,440,000. In 2009, the Corporation recorded issuance of the Preferred Stock and Warrant, net of direct issuance costs of $31,000 as increases in stockholders equity. The Preferred Stock and Warrant qualify as Tier 1 capital for regulatory purposes. A more complete description of the terms and conditions surrounding the TARP Capital Purchase Program is provided in Note 10 to the consolidated financial statements.
The fully taxable equivalent net interest margin was $11,597,000 in 2009, $1,055,000 (10.0%) higher than in 2008. As shown in Table IV, net increases in volume had the effect of increasing net interest income $492,000 in 2009 over 2008, and interest rate changes had the effect of increasing net interest income $563,000. The most significant component of the volume change in interest income in 2009 was an increase of $350,000 attributable to growth in the available-for-sale securities portfolio. The most significant volume change in interest expense in 2009 was a decrease of $205,000 resulting from a decrease in borrowed funds. As presented in Table III, the Interest Rate Spread (excess of average rate of return on earning assets over average cost of funds on interest-bearing liabilities) was 3.38% in 2009, as compared to 3.06% in 2008.
Interest income totaled $18,203,000 in 2009, a decrease of 5.2% from 2008. Income from available-for-sale securities decreased $17,000, or 0.3%, and interest and fees from loans decreased $910,000, or 7.1%. As indicated in Table III, total average available-for-sale securities (at amortized cost) in 2009 rose to $463,948,000, an increase of $22,487,000, or 5.1% from 2008. As a result of the turmoil in the municipal security market, the Corporation has been able to grow its municipal security portfolio and increase its yield at attractive prices. The Corporations yield on taxable securities fell primarily because interest rates on variable-rate trust preferred securities have decreased. The average rate of return on available-for-sale securities was 5.44% for 2009 and 5.68% in 2008.
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Citizens & Northern Corporation is a one-bank holding company whose principal subsidiary is Citizens & Northern Bank. The Corporation's principal office is located in Wellsboro Pennsylvania. The Corporation's other wholly-owned subsidiaries are Citizens & Northern InvestmentCorporation and Bucktail Life Insurance Company. Citizens & Northern Investment Corporation was formed in 1999 to engage in investmentactivities. Bucktail provides credit life and accident and health insurance on behalf of the Bank. Citizens & Northern Corp has a market cap of $160.67 million; its shares were traded at around $17.93 with a P/E ratio of 16.01 and P/S ratio of 2.07. The dividend yield of Citizens & Northern Corp stocks is 5.35%. Citizens & Northern Corp had an annual average earning growth of 3% over the past 10 years.
Highlight of Business Operations:
The Corporation reported a net loss available to common shareholders of $7,334,000, or $0.82 per diluted share, in the first quarter 2009, which included positive Core Earnings available to common shareholders of $3,675,000 ($0.41 per diluted share), reduced by after-tax other-than-temporary impairment (OTTI) charges on available-for-sale securities of $11,009,000. For the first quarter 2008, C&N reported net income of $3,116,000, or $0.35 per diluted share, including Core Earnings of $3,280,000 ($0.36 per diluted share), reduced by after-tax OTTI charges on available-for-sale securities of $164,000. Core Earnings is an earnings performance measurement which the Corporations management has defined to exclude OTTI losses on available-for-sale securities. Core Earnings is a performance measurement that is not based on U.S. generally accepted accounting principles. Management believes Core Earnings information is meaningful for evaluating the Corporations operating performance, because it excludes some of the impact of market volatility as it relates to investments in pooled trust-preferred securities and bank stocks.OTTI charges in the first quarter 2009 included pre-tax impairment charges on pooled trust-preferred securities totaling $11,105,000 and bank stocks totaling $5,575,000. Pooled trust-preferred securities are long-term instruments, mainly issued by banks, with 30 or more companies included in each pool. The impairment charges on pooled trust-preferred securities resulted from managements assessment that it is unlikely some of the previously anticipated principal and interest will be received on several of the securities. Accordingly, management wrote down the cost basis of these securities to their estimated fair value based on discounted cash flows as of March 31, 2009. After the impact of the impairment charges, the Corporations cost basis in pooled trust-preferred securities totaled $75.0 million, and the estimated fair value at March 31, 2009 was $49.8 million. As described in more detail in Notes 2 and 6 to the Consolidated Financial Statements, the Corporation adopted three new accounting principles in the first quarter 2009, including FSP FAS 115-2 and FAS 124-2. This new FSP resulted in a change in the measurement of OTTI, which reduced the amount of loss that would have been realized in earnings by $8,301,000 (pretax). Managements decision to record OTTI losses on bank stocks was based on a combination of: (1) significant market depreciation, including an average reduction in market prices of 15% in the first quarter 2009, and (2) the possibility the Corporation may sell some of the stocks in 2009 to take advantage of income tax opportunities. After the impact of the impairment charges, the Corporations cost basis in equity securities totaled $15.0 million, and the estimated fair value at March 31, 2009 was $14.7 million.
premiums are expected to increase by approximately $1 million for the year, and the FDIC has issued for public comment a request for a special assessment of 10 basis points, which would cost the Corporation approximately $800,000 in the third quarter 2009. Also, total noninterest revenue may be lower in 2009 than in 2008. In 2008, noninterest income included a gain of $533,000 from redemption of Visa shares, resulting from Visas initial public offering. Another source of revenue that is not expected to recur in 2009 is dividend income from the Federal Home Loan Bank of Pittsburgh restricted stock, which totaled $334,000 in 2008. The Federal Home Loan Bank of Pittsburghs 2008 financial results were affected by significant losses on its securities portfolio, and it has discontinued paying dividends for the foreseeable future. Based on the information that has become publicly available through early May 2009, management does not believe its investment in Federal Home Loan Bank of Pittsburgh restricted stock of $8.6 million to be impaired at March 31, 2009; however, management will monitor the situation for possible deterioration that could result in an impairment loss in 2009. In addition to these issues, the Corporations revenues from Trust and Financial Management activities are expected to fall slightly in 2009, because the market value of assets under management (which is used as the basis for determining the amount of fees for most Trust services) has fallen as a result of the significant declines in U.S. and international equity markets.
Although the Corporation is well-capitalized (as described in more detail in the Stockholders Equity and Capital Adequacy section of Managements Discussion and Analysis), current economic conditions are volatile. Accordingly, management and the Corporations Board of Directors decided to raise more capital by participating in the TARP Capital Purchase Program. Management believes the additional capital raised through the TARP Capital Purchase Program provides a form of protection that should allow the Corporation to continue its normal lending and other operating activities, regardless of the possibility of securities losses, loan losses or other issues that could arise in the current economic environment. On January 16, 2009, the Corporation issued 26,440 shares of Series A Preferred Stock (Preferred Stock) and a Warrant to purchase up to 194,794 shares of common stock at an exercise price of $20.36 per share. The Corporation sold the Preferred Stock and Warrant to the United States Department of the Treasury for an aggregate price of $26,440,000. In 2009, the Corporation recorded issuance of the Preferred Stock and Warrant, net of direct issuance costs of $31,000 as increases in stockholders equity. The Preferred Stock and Warrant qualify as Tier 1 capital for regulatory purposes. A more complete description of the terms and conditions surrounding the TARP Capital Purchase Program is provided in Note 10 to the consolidated financial statements.
The fully taxable equivalent net interest margin was $11,597,000 in 2009, $1,055,000 (10.0%) higher than in 2008. As shown in Table IV, net increases in volume had the effect of increasing net interest income $492,000 in 2009 over 2008, and interest rate changes had the effect of increasing net interest income $563,000. The most significant component of the volume change in interest income in 2009 was an increase of $350,000 attributable to growth in the available-for-sale securities portfolio. The most significant volume change in interest expense in 2009 was a decrease of $205,000 resulting from a decrease in borrowed funds. As presented in Table III, the Interest Rate Spread (excess of average rate of return on earning assets over average cost of funds on interest-bearing liabilities) was 3.38% in 2009, as compared to 3.06% in 2008.
Interest income totaled $18,203,000 in 2009, a decrease of 5.2% from 2008. Income from available-for-sale securities decreased $17,000, or 0.3%, and interest and fees from loans decreased $910,000, or 7.1%. As indicated in Table III, total average available-for-sale securities (at amortized cost) in 2009 rose to $463,948,000, an increase of $22,487,000, or 5.1% from 2008. As a result of the turmoil in the municipal security market, the Corporation has been able to grow its municipal security portfolio and increase its yield at attractive prices. The Corporations yield on taxable securities fell primarily because interest rates on variable-rate trust preferred securities have decreased. The average rate of return on available-for-sale securities was 5.44% for 2009 and 5.68% in 2008.
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