SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______________ to _____________
Commission file number 0-19028
CCFNB BANCORP, INC.
(Name of small business Issuer in its charter)
PENNSYLVANIA 23-2254643
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
232 East Street, Bloomsburg, PA 17815
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (570) 784-4400
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirings for the past 90
days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. 1,259,529 shares of $1.25
(par) common stock were outstanding as of October 27, 2005.
CCFNB BANCORP, INC. AND SUBSIDIARY
TABLE OF CONTENTS
SEPTEMBER 30, 2005
Page
-----
PART 1 - FINANCIAL INFORMATION:
- Consolidated Balance Sheets 2
- Consolidated Statements of Income 3
- Consolidated Statements of Cash Flows 4
- Notes to Consolidated Financial Statements 5-14
- Report of Independent Registered Public Accounting Firm 15
- Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations 16-22
- Controls and Procedures 23
PART II - OTHER INFORMATION 24
SIGNATURES 25-28
CCFNB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
Unaudited
September December
30, 2005 31, 2004
--------- --------
ASSETS
Cash and due from banks $ 5,138 $ 5,018
Interest-bearing deposits with other banks 1,122 1,821
Federal funds sold 5,839 5,994
Investment securities available-for-sale 52,598 61,834
Loans, net of unearned income 151,381 149,900
Allowance for loan losses 1,502 1,392
-------- --------
Net loans 149,879 148,508
Premises and equipment, net 4,932 4,519
Cash surrender value of bank-owned life insurance 6,426 6,199
Accrued interest receivable 823 816
Other assets 1,029 668
-------- --------
TOTAL ASSETS $227,786 $235,377
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing $ 17,193 $ 18,687
Interest bearing 146,842 153,800
-------- --------
Total Deposits 164,035 172,487
Short-term borrowings 22,171 21,757
Long-term borrowings 11,314 11,323
Accrued interest and other expenses 1,282 1,269
Other liabilities 50 34
-------- --------
TOTAL LIABILITIES 198,852 206,870
-------- --------
STOCKHOLDERS' EQUITY
Common stock, par value $1.25 per share;
authorized 5,000,000 shares; issued and
outstanding 1,261,529 shares in 2005 and
1,267,718 shares in 2004 1,577 1,585
Surplus 3,216 3,385
Retained earnings 24,233 23,324
Accumulated other comprehensive income (loss) (92) 213
-------- --------
TOTAL STOCKHOLDERS' EQUITY 28,934 28,507
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $227,786 $235,377
======== ========
See accompanying notes to Consolidated Financial Statements.
-2-
CCFNB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
UNAUDITED
For the Nine For the Three
Months Ending Months Ending
September 30, September 30,
----------------------- -----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
INTEREST AND DIVIDEND INCOME
Interest and fees on loans:
Taxable $ 6,475 $ 6,211 $ 2,215 $ 2,055
Tax-exempt 329 271 112 108
Interest and dividends on investment securities:
Taxable 1,116 1,126 356 374
Tax-exempt 275 345 89 105
Dividends 61 52 20 26
Federal funds sold 135 7 71 3
Deposits in other banks 40 37 21 15
---------- ---------- ---------- ----------
TOTAL INTEREST AND DIVIDEND INCOME 8,431 8,049 2,884 2,686
---------- ---------- ---------- ----------
INTEREST EXPENSE
Deposits 2,079 2,008 720 671
Short-term borrowings 415 206 170 76
Long-term borrowings 507 510 171 171
---------- ---------- ---------- ----------
TOTAL INTEREST EXPENSE 3,001 2,724 1,061 918
---------- ---------- ---------- ----------
Net interest income 5,430 5,325 1,823 1,768
Provision for loan losses 90 110 30 30
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 5,340 5,215 1,793 1,738
---------- ---------- ---------- ----------
NON-INTEREST INCOME
Service charges and fees 754 582 268 213
Gain on sale of loans 29 12 6 3
Bank-owned life insurance income 193 191 62 63
Trust department 106 109 35 34
Other 172 221 54 78
Investment securities gains, net -- 3 -- 3
---------- ---------- ---------- ----------
TOTAL NON-INTEREST INCOME 1,254 1,118 425 394
---------- ---------- ---------- ----------
NON-INTEREST EXPENSE
Salaries 1,726 1,712 594 573
Pensions and other employee benefits 596 598 197 198
Occupancy, net 346 294 115 93
Equipment 389 351 139 116
State shares tax 211 212 70 73
Professional services 220 171 63 53
Directors' fees 142 110 48 37
Stationery and supplies 98 96 22 26
Other 829 768 270 240
---------- ---------- ---------- ----------
TOTAL NON-INTEREST EXPENSE 4,557 4,312 1,518 1,409
---------- ---------- ---------- ----------
Income before income taxes 2,037 2,021 700 723
Income tax expense 433 424 152 157
---------- ---------- ---------- ----------
NET INCOME $ 1,604 $ 1,597 $ 548 $ 566
========== ========== ========== ==========
PER SHARE DATA
Net income $ 1.27 $ 1.25 $ 0.43 $ 0.44
Cash dividends $ 0.55 $ 0.52 $ 0.19 $ 0.18
Weighted average shares outstanding 1,263,405 1,275,743 1,263,405 1,275,743
See accompanying notes to Consolidated Financial Statements.
-3-
CCFNB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
UNAUDITED
For the Nine
Months Ending
September 30,
------------------
2005 2004
------- --------
OPERATING ACTIVITIES
Net income $ 1,604 $ 1,597
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 90 110
Depreciation and amortization 315 282
Premium amortization on investment securities 195 242
Discount accretion on investment securities (8) (21)
Deferred income taxes (benefit) (87) (11)
(Gain) on sale of loans (29) (12)
(Gain) on sales of investment securities -- (3)
Proceeds from sale of mortgage loans 1,536 1,328
Originations of mortgage loans for resale (1,239) (1,316)
(Income) loss from investment in insurance agency (16) (10)
(Increase) decrease in accrued interest receivable and other assets (108) (40)
Net increase in cash surrender value of bank-owned life insurance (227) (225)
Increase in accrued interest, other expenses and other liabilities 31 156
------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,057 2,077
------- --------
INVESTING ACTIVITIES
Purchase of investment securities available-for-sale (1,058) (24,026)
Proceeds from sales, maturities and redemptions of investment
securities available-for-sale 9,645 22,007
Net (increase) in loans (1,730) (1,572)
Purchases of premises and equipment (729) (467)
------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 6,128 (4,058)
------- --------
FINANCING ACTIVITIES
Net (decrease) in deposits (8,452) (258)
Net increase (decrease) in short-term borrowings 414 (256)
Net decrease in long-term borrowings (9) (8)
Acquisition of treasury stock (335) (288)
Proceeds from issuance of common stock 158 160
Cash dividends paid (695) (663)
------- --------
NET CASH (USED IN) FINANCING ACTIVITIES (8,919) (1,313)
------- --------
(DECREASE) IN CASH AND CASH EQUIVALENTS (734) (3,294)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,833 12,362
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $12,099 $ 9,068
======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 2,991 $ 2,726
Income taxes $ 443 $ 391
See accompanying notes to Consolidated Financial Statements.
-4-
CCFNB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of CCFNB Bancorp, Inc. and Subsidiary (the
"Corporation") are in accordance with the accounting principles generally
accepted in the United States of America and conform to common practices within
the banking industry. The more significant policies follow:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of CCFNB Bancorp,
Inc. and its wholly owned subsidiary, Columbia County Farmers National Bank (the
"Bank"). All significant inter-company balances and transactions have been
eliminated in consolidation.
NATURE OF OPERATIONS & LINES OF BUSINESS
The Corporation provides full banking services, including trust services,
through the Bank, to individuals and corporate customers. The Bank has seven
offices covering an area of approximately 484 square miles in North Central
Pennsylvania. The Corporation and its banking subsidiary are subject to
regulation of the Office of the Comptroller of the Currency, The Federal Deposit
Insurance Corporation and the Federal Reserve Bank of Philadelphia.
Procuring deposits and making loans are the major lines of business. The
deposits are mainly deposits of individuals and small businesses and the loans
are mainly real estate loans covering primary residences and small business
enterprises. The trust services, under the name of CCFNB and Co., include
administration of various estates, pension plans, self-directed IRA's and other
services. A third-party brokerage arrangement is also resident in the
Lightstreet location. This investment center offers a full line of stocks, bonds
and other non-insured financial services.
SEGMENT REPORTING
The Corporation's banking subsidiary acts as an independent community financial
services provider, and offers traditional banking and related financial services
to individual, business and government customers. Through its branch, internet
banking, telephone and automated teller machine network, the Bank offers a full
array of commercial and retail financial services, including the taking of time,
savings and demand deposits; the making of commercial, consumer and mortgage
loans; and the providing of other financial services. The Bank also performs
personal, corporate, pension and fiduciary services through its Trust Department
as well as offering diverse investment products through its investment center.
Management does not separately allocate expenses, including the cost of funding
loan demand, between the commercial, retail, trust and investment center
operations of the Corporation. As such, discrete financial information is not
available and segment reporting would not be meaningful.
-5-
USE OF ESTIMATES
The preparation of these consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of these consolidated financial statements and the
reported amounts of income and expenses during the reporting periods. Actual
results could differ from those estimates.
INVESTMENT SECURITIES
The Corporation classifies its investment securities as either
"Held-to-Maturity" or "Available-for-Sale" at the time of purchase. Debt
securities are classified as Held-to-Maturity when the Corporation has the
ability and positive intent to hold the securities to maturity. Investment
securities Held-to-Maturity are carried at cost adjusted for amortization of
premiums and accretion of discounts to maturity.
Debt securities not classified as Held-to-Maturity and equity securities
included in the Available-for-Sale category, are carried at fair value, and the
amount of any unrealized gain or loss net of the effect of deferred income taxes
is reported as other comprehensive income (loss) (see Note 6). 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.
LOANS
Loans are stated at their outstanding principal balances, net of deferred fees
or costs, unearned income, and the allowance for loan losses. Interest on loans
is accrued on the principal amount outstanding, primarily on an actual day
basis. Non-refundable loan fees and certain direct costs are deferred and
amortized over the life of the loans using the interest method. The amortization
is reflected as an interest yield adjustment, and the deferred portion of the
net fees and costs is reflected as a part of the loan balance.
Real estate mortgage loans held for resale are carried at the lower of cost or
market on an aggregate basis. These loans are sold with limited recourse to the
Corporation.
PAST DUE LOANS - Generally, a loan is considered past due when a payment is in
arrears for a period of 10 or 15 days, depending on the type of loan. Delinquent
notices are issued at this point and collection efforts will continue on loans
past due beyond 60 days which have not been satisfied. Past due loans are
continually evaluated with determination for charge-off being made when no
reasonable chance remains that the status of the loan can be improved.
-6-
NON-ACCRUAL LOANS - Generally, a loan is classified as non-accrual, with the
accrual of interest on such a loan discontinued when the contractual payment of
principal or interest has become 90 days past due or management has serious
doubts about further collectibility of principal or interest, even though the
loan currently is performing. A loan may remain on accrual status if it is in
the process of collection and is either guaranteed or well secured. When a loan
is placed on non-accrual status, unpaid interest credited to income in the
current year is reversed, and unpaid interest accrued in prior years is charged
against the allowance for loan losses. Certain non-accrual loans may continue to
perform, wherein, payments are still being received with those payments
generally applied to principal. Non-accrual loans remain under constant scrutiny
and if performance continues, interest income may be recorded on a cash basis
based on management's judgement as to collectibility of principal.
ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is established through
provisions for loan losses charged against income. Loans deemed to be
uncollectible are charged against the allowance for loan losses, and subsequent
recoveries, if any, are credited to the allowance.
A factor in estimating the allowance for loan losses is the measurement of
impaired loans. A loan is considered impaired when, based on current information
and events, it is probable that the Corporation will be unable to collect all
amounts due according to the contractual terms of the loan agreement. Under
current accounting standards, the allowance for loan losses related to impaired
loans is based on discounted cash flows using the loan's effective interest rate
or the fair value of the collateral for certain collateral dependent loans.
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.
DERIVATIVES
The Bank has outstanding loan commitments that relate to the origination of
mortgage loans that will be held for resale. Pursuant to Statement of Financial
Accounting Standards (SFAS) No. 133 "Accounting for Derivative Instruments and
Hedging Activities" as amended by SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities", and SFAS No. 149
"Amendments to SFAS 133 on Derivative Instruments and Hedging Activities" and
the guidance contained in the Derivatives Implementation Group Statement 133
Implementation Issue No. C 13, the Bank has accounted for such loan commitments
as derivative instruments. The outstanding loan commitments in this category did
not give rise to any losses for the period ended September 30, 2005 and the year
ended December 31, 2004, as the fair market value of each outstanding loan
commitment exceeded the Bank's cost basis in each loan commitment.
-7-
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation computed
principally on the straight-line method over the estimated useful lives of the
assets. Maintenance and minor repairs are charged to operations as incurred. The
cost and accumulated depreciation of the premises and equipment retired or sold
are eliminated from the property accounts at the time of retirement or sale, and
the resulting gain or loss is reflected in current operations.
MORTGAGE SERVICING RIGHTS
The Corporation originates and sells real estate loans to investors in the
secondary mortgage market. After the sale, the Corporation retains the right to
service some of these loans. When originated mortgage loans are sold and
servicing is retained, a servicing asset is capitalized based on relative fair
value at the date of sale. Servicing assets are amortized as an offset to other
fees in proportion to, and over the period of, estimated net servicing income.
The unamortized cost is included in other assets in the accompanying
consolidated balance sheet. The servicing rights are periodically evaluated for
impairment based on their relative fair value.
OTHER REAL ESTATE OWNED
Real estate properties acquired through, or in lieu of, loan foreclosure are
held for sale and are initially recorded at fair value on the date of
foreclosure establishing a new cost basis. After foreclosure, valuations are
periodically performed by management and the real estate is carried at the lower
of carrying amount or fair value less cost to sell and is included in other
assets. Revenues derived from and costs to maintain the assets and subsequent
gains and losses on sales are included in other non-interest income and expense.
BANK OWNED LIFE INSURANCE
The Corporation invests in Bank Owned Life Insurance (BOLI). Purchase of BOLI
provides life insurance coverage on certain directors and employees with the
Corporation being owner and primary beneficiary of the policies.
INVESTMENT IN INSURANCE AGENCY
On January 2, 2001, the Corporation acquired a 50% interest in a local insurance
agency, a corporation organized under the laws of the Commonwealth of
Pennsylvania. The income or loss from this investment is accounted for under the
equity method of accounting. The carrying value of this investment as of
September 30, 2005 and December 31, 2004 was $203,000 and $187,000,
respectively, and is carried in other assets in the accompanying consolidated
balance sheets.
-8-
INCOME TAXES
The provision for income taxes is based on the results of operations, adjusted
primarily for tax-exempt income. Certain items of income and expense are
reported in different periods for financial reporting and tax return purposes.
Deferred tax assets and liabilities are determined based on the differences
between the consolidated financial statement and income tax bases of assets and
liabilities measured by using the enacted tax rates and laws expected to be in
effect when the timing differences are expected to reverse. Deferred tax expense
or benefit is based on the difference between deferred tax asset or liability
from period to period.
PER SHARE DATA
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share", requires dual presentation of basic and diluted earnings per share.
Basic earnings per share is calculated by dividing net income by the weighted
average number of shares of common stock outstanding at the end of each period.
Diluted earnings per share is calculated by increasing the denominator for the
assumed conversion of all potentially dilutive securities. The Corporation does
not have any securities which have or will have a dilutive effect, accordingly,
basic and diluted per share data are the same.
CASH FLOW INFORMATION
For purposes of reporting consolidated cash flows, cash and cash equivalents
include cash on hand and due from banks, interest-bearing deposits in other
banks and federal funds sold. The Corporation considers cash classified as
interest-bearing deposits with other banks as a cash equivalent because they are
represented by cash accounts essentially on a demand basis. Federal funds are
also included as a cash equivalent because they are generally purchased and sold
for one-day periods.
TRUST ASSETS AND INCOME
Property held by the Corporation in a fiduciary or agency capacity for its
customers is not included in the accompanying consolidated financial statements
because such items are not assets of the Corporation. Trust Department income is
generally recognized on a cash basis and is not materially different than if it
was reported on an accrual basis.
RECENT ACCOUNTING PRONOUNCEMENTS
In January 2004, the Financial Accounting Standards Board (FASB) issued Staff
Position No. 106-1 "Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization Act of 2003", which
allows companies to recognize or defer recognizing the effects of the Medicare
Prescription Drug Improvement and Modernization Act of 2003, or Medicare Act,
for annual financial statements of fiscal years ending after December 7, 2003.
The Medicare Act introduced both a Medicare prescription-drug benefit and a
federal subsidy to sponsors of retiree health-care plans that provide a benefit
at least "actuarially equivalent" to the Medicare benefit. These provisions of
the Medicare Act affect accounting measurements. This standard did not have any
material impact on the Corporation's consolidated financial condition or results
of operations.
-9-
In September 2004, the FASB issued Staff Position Emerging Issues Task Force
("EITF") Issue No. 03-01, "Effective Date of Paragraphs 10-20 of EITF Issue No.
03-01, The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments", which delays the effective date for the measurement and
recognition guidance contained in EITF Issue No. 03-01. EITF Issue No. 03-01
provides guidance for evaluating whether an investment is other-than-temporarily
impaired and was originally effective for other-than-temporarily impairment
evaluations made in reporting periods beginning after June 15, 2004. The delay
in the effective date for the measurement and recognition guidance contained in
paragraphs 10 through 20 of EITF Issue No. 03-01 does not suspend the
requirement to recognize other-than-temporary impairments as required by
existing authoritative literature. The disclosure guidance in paragraphs 21 and
22 of EITF Issue No. 03-01 remains effective. The delay will be superseded
concurrent with the final issuance of EITF Issue No. 03-01a, which is expected
to provide implementation guidance on matters such as impairment evaluations for
declines in value caused by increases in interest rates and/or sector spreads.
In December 2004, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 153, "Exchanges of Nonmonetary Assets", which amends APB Opinion
No. 29, "Accounting for Nonmonetary Transactions". SFAS No. 153 eliminates the
exception from fair value measurement for nonmonetary exchanges of similar
productive assets in Opinion No. 29 and replaces it with an exception for
exchanges that do not have commercial substance. SFAS No. 153 specifies that a
nonmonetary exchange has commercial substance if the future cash flows of the
entity are expected to change significantly as a result of the exchange. SFAS
No. 153 is effective for nonmonetary exchanges occurring in fiscal periods
beginning after June 15, 2005. This standard did not have any material impact on
the Corporation's consolidated financial condition or results of operations.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment". This Statement is a revision of SFAS No. 123, "Accounting for
Stock-Based Compensation", and supersedes APB Opinion No. 25, "Accounting for
Stock Issued to Employees", and its related guidance. SFAS No. 123 (revised
2004) established standards for the accounting for transactions in which an
entity exchanges its equity instruments for goods or services. This Statement
requires that the cost resulting from all share-based payment transactions be
recognized in the financial statements. This Statement established fair value as
the measurement objective in accounting for share-based payment arrangements and
requires all entities to apply a fair-value-based measurement method in
accounting for share-based payment transactions with employees, except for
equity instruments held by employee share ownership plans. This Statement is
effective for public entities that do not file as small business issuers as of
the beginning of the first interim or annual reporting period that begins after
June 15, 2005. This standard did not have any material impact on the
Corporation's consolidated financial condition or results of operations.
ADVERTISING COSTS
It is the Corporation's policy to expense advertising costs in the period in
which they are incurred. Advertising expense for the nine month periods ended
September 30, 2005 and 2004 was approximately $61,000 and $57,000, respectively.
RECLASSIFICATION
Certain amounts in the consolidated financial statements of the prior years have
been reclassified to conform with presentation used in the 2005 consolidated
financial statements. Such reclassifications had no effect on the Corporation's
consolidated financial condition or net income.
-10-
NOTE 2 - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the periods ended September 30,
2005 and September 30, 2004 were as follows:
(Amounts in Thousands)
----------------------
2005 2004
------ ------
Balance, beginning of year $1,392 $1,415
Provision charged to operations 90 110
Loans charged-off (31) (124)
Recoveries 51 24
------ ------
Balance, September 30 $1,502 $1,425
====== ======
At September 30, 2005, the total recorded investment in loans that are
considered to be impaired as defined by SFAS No. 114 was $881,000. These
impaired loans had a related allowance for loan losses of $150,000. No
additional charge to operations was required to provide for the impaired loans
since the total allowance for loan losses is estimated by management to be
adequate to provide for the loan loss allowance required by SFAS No. 114 along
with any other potential losses.
At September 30, 2005, there were no significant commitments to lend additional
funds with respect to non-accrual and restructured loans.
Non-accrual loans at September 30, 2005 and December 31, 2004 were $881,000 and
$1,241,000, respectively, all of which were considered impaired.
Loans past due 90 days or more and still accruing interest amounted to $42,000
at September 30, 2005.
NOTE 3 - SHORT-TERM BORROWINGS
Securities sold under agreements to repurchase, and Federal Home Loan Bank
advances generally represented overnight or less than 30-day borrowings. U.S.
Treasury tax and loan notes for collections made by the Bank were payable on
demand.
NOTE 4 - LONG-TERM BORROWINGS
Long-term borrowings are comprised of advances from the Federal Home Loan Bank.
-11-
NOTE 5 - DEFERRED COMPENSATION PLANS
The Bank has entered into certain non-qualified deferred compensation agreements
with certain executive officers and directors. Expenses related to these
non-qualified deferred compensation plans amounted to $113,000 and $103,000 for
the nine month periods ended September 30, 2005 and 2004, respectively.
There were no substantial changes in other plans as disclosed in the 2004 Annual
Report.
NOTE 6 - STOCKHOLDERS' EQUITY
Changes in stockholders' equity for the period ended September 30, 2005 were as
follows:
(Amounts in Thousands, Except Common Share Data)
-------------------------------------------------------------------------------------
Accumulated
Other
Comprehensive
Common Common Comprehensive Retained Income Treasury
Shares Stock Surplus Income Earnings (Loss) Stock Total
--------- ------ ------- ------------- -------- ------------- -------- -------
Balance at January 1, 2005 1,267,718 $1,585 $3,385 $23,324 $ 213 $ -- $28,507
Comprehensive Income:
Net income -- -- -- $1,604 1,604 -- -- 1,604
Change in unrealized gain (loss)
on investment securities
available-for-sale net of
reclassification adjustment
and tax effects -- -- -- (305) -- (305) -- (305)
------
TOTAL COMPREHENSIVE
INCOME $1,299
======
Issuance of 5,811 shares of
common stock under dividend
reinvestment and stock
purchase plans 5,811 7 151 158
Purchase of 12,000 shares of
treasury stock -- -- -- -- -- (335) (335)
Retirement of 12,000 shares of
treasury stock (12,000) (15) (320) -- -- 335 --
Cash dividends $.55 per share -- -- -- (695) -- -- (695)
--------- ------ ------ ------- ----- ----- -------
Balance at September 30, 2005 1,261,529 $1,577 $3,216 $24,233 $ (92) $ -- $28,934
========= ====== ====== ======= ===== ===== =======
NOTE 7 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK
The Corporation is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These consolidated financial instruments include commitments to extend credit,
standby letters of credit and commercial letters of credit. Those instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the consolidated balance sheets. The contract or
notional amounts of those instruments reflect the extent of involvement the
Corporation has in particular classes of financial instruments. The Corporation
does not engage in trading activities with respect to any of its financial
instruments with off-balance sheet risk.
-12-
The Corporation may require collateral or other security to support financial
instruments with off-balance sheet credit risk. The contract or notional amounts
at September 30, 2005 and December 31, 2004 were as follows:
(Amounts in Thousands)
----------------------
September December
30, 2005 31, 2004
--------- --------
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit $16,308 $13,829
Financial standby letters of credit 1,613 1,742
Performance standby letters of credit 570 846
Dealer floor plans 2,616 852
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. 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 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
within Pennsylvania. Of the total loan portfolio at September 30, 2005, 83.42%
was for real estate loans, principally residential. It was the opinion of
management that the high concentration did not pose an adverse credit risk.
Further, it was 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.
-13-
NOTE 8 - MANAGEMENT'S ASSERTIONS AND COMMENTS REQUIRED TO BE PROVIDED WITH FORM
10Q FILING
In management's opinion, the consolidated interim financial statements reflect
fair presentation of the consolidated financial position of CCFNB Bancorp, Inc.
and Subsidiary, and the results of their operations and their cash flows for the
interim periods presented. Further, the consolidated interim financial
statements are unaudited, however they reflect all adjustments, which are in the
opinion of management, necessary to present fairly the consolidated financial
condition and consolidated results of operations and cash flows for the interim
periods presented and that all such adjustments to the consolidated financial
statements are of a normal recurring nature.
The results of operations for the nine-month period ended September 30, 2005,
are not necessarily indicative of the results to be expected for the full year.
These consolidated interim financial statements have been prepared in accordance
with requirements of Form 10Q and therefore do not include all disclosures
normally required by accounting principles generally accepted in the United
States of America applicable to financial institutions as included with
consolidated financial statements included in the Corporation's annual Form 10K
filing. The reader of these consolidated interim financial statements may wish
to refer to the Corporation's annual report or Form 10K for the period ended
December 31, 2004, filed with the Securities and Exchange Commission.
-14-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders of CCFNB Bancorp, Inc.:
We have reviewed the accompanying consolidated balance sheet of CCFNB Bancorp,
Inc. and Subsidiary as of September 30, 2005, and the related consolidated
statements of income for the three and nine-month periods ended September 30,
2005 and 2004 and the consolidated statements of cash flows for the nine-month
periods ended September 30, 2005 and 2004. These consolidated interim financial
statements are the responsibility of the management of CCFNB Bancorp, Inc. and
Subsidiary.
We conducted our reviews in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the consolidated interim financial statements referred to above for
them to be in conformity with accounting principles generally accepted in the
United States of America.
We have previously audited, in accordance with the auditing standards of the
Public Company Accounting Oversight Board (United States), the consolidated
balance sheet of CCFNB Bancorp, Inc. and Subsidiary as of December 31, 2004, and
the related consolidated statements of income, changes in stockholders' equity,
and cash flows for the year then ended (not presented herein); and in our report
dated January 14, 2005, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying consolidated balance sheet as of December 31, 2004, is fairly
stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived.
/s/ J.H. Williams & Co., LLP
-------------------------------------
J.H. Williams & Co., LLP
Kingston, Pennsylvania
October 19, 2005
-15-
CCFNB BANCORP, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 2005
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Consolidated Summary of Operations
(Dollars in Thousands, except for per share data)
At and For the Nine
Months
Ended September 30, At and For the Years Ended December 31,
---------------------- ----------------------------------------------------------
2005 2004 2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income and Expense:
Interest income $ 8,431 $ 8,049 $ 10,843 $ 11,221 $ 12,780 $ 13,720 $ 13,552
Interest expense 3,001 2,724 3,669 4,366 5,741 6,924 6,859
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income 5,430 5,325 7,174 6,855 7,039 6,796 6,693
Loan loss provision 90 110 140 200 309 163 54
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after loan loss
provision 5,340 5,215 7,034 6,655 6,730 6,633 6,639
Non-interest income 1,254 1,118 1,530 1,508 1,210 1,149 1,053
Non-interest expense 4,557 4,312 5,746 5,409 5,479 5,104 4,967
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes 2,037 2,021 2,818 2,754 2,461 2,678 2,725
Income taxes 433 424 601 591 539 621 671
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income $ 1,604 $ 1,597 $ 2,217 $ 2,163 $ 1,922 $ 2,057 $ 2,054
========== ========== ========== ========== ========== ========== ==========
Per Share: (1)
Net income $ 1.27 $ 1.25 $ 1.74 $ 1.69 $ 1.47 $ 1.54 $ 1.51
Cash dividends paid .55 .52 .70 .66 .63 .59 .56
Average shares outstanding 1,263,405 1,275,743 1,267,718 1,281,265 1,309,084 1,338,007 1,355,624
Average Balance Sheet:
Loans $ 149,342 $ 148,367 $ 147,348 $ 149,485 $ 147,545 $ 139,219 $ 134,325
Investments 56,972 63,633 61,999 58,152 54,197 50,593 47,003
Other earning assets 7,769 5,027 5,705 8,036 5,309 6,569 219
Total assets 230,459 233,108 231,477 230,975 223,476 208,630 196,727
Deposits 168,878 171,657 172,028 171,956 150,883 149,601 139,774
Other interest-bearing liabilities 31,730 32,193 29,823 29,772 29,356 31,629 31,203
Stockholders' equity 28,721 27,980 28,136 27,223 26,615 25,890 23,910
Balance Sheet Data:
Loans $ 151,381 $ 149,103 $ 149,900 $ 147,631 $ 151,338 $ 142,990 $ 137,360
Investments 52,598 64,490 61,834 62,775 53,528 57,121 47,311
Other earning assets 6,961 4,052 11,012 6,882 10,068 9,644 4,814
Total assets 227,786 233,302 235,377 232,914 229,032 214,238 203,054
Deposits 164,035 171,528 172,487 171,786 172,127 155,666 143,169
Other interest-bearing liabilities 33,485 32,061 33,080 32,325 28,621 31,384 33,477
Stockholders' equity 28,934 28,357 28,506 27,603 26,840 26,042 25,050
Ratios (2)
Return on average assets .93% .91% .96% .94% .86% .99% 1.04%
Return on average equity 7.45% 7.61% 7.88% 7.95% 7.22% 7.90% 8.59%
Dividend payout ratio 41.33% 41.52% 40.19% 39.02% 42.86% 38.31% 37.09%
Average equity to average assets ratio 12.46% 12.00% 12.17% 11.79% 11.77% 12.16% 12.34%
(1) Per share data has been calculated on the weighted average number of shares
outstanding.
(2) The ratios for the nine month period ending September 30, 2005 and 2004 are
annualized.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Form 10-Q, both in the MD & A and elsewhere, contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Such statements are not historical facts and include expressions about our
confidence and strategies and our expectations about new and existing programs
and products, relationships, opportunities, technology and market conditions.
These statements may be identified by such forward-looking terminology as
"expect," "look," "believe," "anticipate," "may," "will," or similar statements
or variations of such terms. Such forward-looking statements involve certain
risks and uncertainties. These include, but are not limited to, the direction of
interest rates, continued levels of loan quality and origination volume,
continued relationships with major customers, and sources for loans, as well as
the effects of economic conditions and legal and regulatory barriers and
structure. Actual results may differ materially from such forward-looking
statements. We assume no obligation for updating any such forward-looking
statement at any time. Our consolidated financial condition and results of
operations are essentially those of our wholly-owned subsidiary bank, Columbia
County Farmers National Bank. Therefore, our discussion and analysis that
follows is primarily centered on the performance of this bank.
-16-
EARNINGS SUMMARY
Net income for the nine months ended September 30, 2005 was $1,604 thousand or
$1.27 per basic and diluted share. These results compare with net income of
$1,597 thousand, or $1.25 per basic and diluted share for the same period in
2004. Annualized return on average equity decreased to 7.45 percent from 7.61
percent, while the annualized return on average assets increased to .93 percent
from .91 percent, for the nine months ended September 30, 2005 and 2004
respectively.
Net interest income continues to be the largest source of our operating income.
Net interest income on a tax equivalent basis remained at 5.7 million at
September 30, 2005 and 2004. Overall, interest earning assets yielded 5.44
percent for the nine months ended September 30, 2005 compared to 5.32 percent
yield for the nine months ended September 30, 2004. The tax equivalized interest
margin increased to 3.58 percent for the nine months ended September 30, 2005
compared to 3.48 percent for the nine months ended September 30, 2004.
Average interest earning assets decreased $2.9 million or 1.3 percent for the
nine months ended September 30, 2005 over the same period in 2004 from $217.
million at September 30, 2004 to $214.1 million at September 30, 2005. Average
loans increased $.9 million or .6 percent, average investments decreased $6.6
million or 10.4 percent from $63.6 million at September 30, 2004 to $57 million
at September 30, 2005 and average federal funds sold and interest-bearing
deposits with other financial institutions increased $2.8 million or 56 percent
from $5. million at September 30, 2004 to $7.8 million at September 30, 2005.
Average interest bearing liabilities for the nine months ended September 30,
2005 were $183.4 million and for the nine month period ending September 30, 2004
they were $186.5 million. Average short-term borrowings were $20.9 million at
September 30, 2004 and $20.4 million at September 30, 2005. Long-term debt,
which includes primarily FHLB advances, was $11.3 million at September 30, 2004
and 2005. Average demand deposits decreased $.1 million from $17.3 million at
September 30, 2004 compared to $17.2 million at September 30, 2005.
The average interest rate for loans increased 16 basis points to 6.23 percent at
September 30, 2005 compared to 6.07 percent September 30, 2004. Interest-bearing
deposits with other Financial Institutions and Federal Funds Sold rates
increased 1.83 basis points to 3.00 percent at September 30, 2005 from 1.17
percent at September 30, 2004. Average rates on interest bearing deposits
increased by 10 basis points from 1.73 percent to 1.83 percent in one year.
Average interest rates also increased on total interest bearing liabilities by
23 basis points to 2.18 percent from 1.95 percent. The reason for these
increases on interest bearing liabilities was primarily attributed to the
interest rates on all deposit liabilities and the tied-to-prime interest rates
paid on repurchase agreements rising slowly throughout the year. The tax
equivalized net interest margin increased to 3.58 percent for the nine months
ended September 30, 2005 from 3.48 percent for the nine months ended September
30, 2004. The cost of long-term debt averaged 5.98 percent for the past several
years which negatively impacted net interest margin. This high costing liability
will remain due to the fact that the Federal Home Loan Bank has the option to
reprice these loans at their discretion. Until interest rates would rise to make
the current 5.98 percent average rate unattractive, this in all probability will
not occur. We will continue to price conservatively.
NET INTEREST INCOME
Net interest income increased from $5.3 million at September 30, 2004 to $5.4
million at September 30, 2005.
The following table reflects the components of net interest income for each of
the nine months ended September 30, 2005 and 2004.
ANALYSIS OF AVERAGE ASSETS, LIABILITIES AND CAPITAL EQUITY
AND
NET INTEREST INCOME ON A TAX EQUIVALENT BASIS
AVERAGE BALANCE SHEET AND RATE ANALYSIS
(Dollars in Thousands)
Nine Months Ended September 30, 2005 and 2004
--------------------------------------------------------------
Interest Interest
Average Income/ Average Average Income/ Average
Balance Expense Yield Balance Expense Yield
(1) (2) /Rate (1) (2) /Rate
-------- -------- ------- --------- -------- -------
ASSETS:
Interest-bearing deposits with other
financial institutions $ 1,843 $ 40 2.89% $ 4,498 $ 37 1.10%
Investment securities (3) 56,972 1,452 3.73% 63,633 1,523 3.91%
Federal Funds Sold 5,926 135 3.04% 529 7 1.76%
Loans 149,342 6,804 6.23% 148,367 6,482 6.07%
-------- ------ -------- ------
Total interest earning assets $214,083 $8,431 5.44% $217,027 $8,049 5.32%
-------- ------ -------- ------
Reserve for loan losses (1,447) (1,420)
Cash and due from banks 4,851 5,687
Other assets 12,972 11,814
-------- --------
Total assets $230,459 $233,108
-------- --------
17
LIABILITIES AND CAPITAL:
Interest bearing deposits $151,673 $2,079 1.83% $154,356 $2,008 1.73%
Short-term borrowings 20,412 416 2.72% 20,862 206 1.32%
Long-term borrowings 11,318 506 5.96% 11,331 510 6.00%
-------- ------ -------- ------
Total interest-bearing liabilities $183,403 $3,001 2.18% $186,549 $2,724 1.95%
-------- ------ -------- ------
Demand deposits $ 17,205 $ 17,301
Other liabilities 1,130 1,278
Stockholders' equity 28,721 27,980
-------- --------
Total liabilities and capital $230,459 $223,108
-------- --------
NET INTEREST INCOME / $5,430 3.38% $5,325 3.27%
NET INTEREST MARGIN (4)
TAX EQUIVALENT NET INTEREST INCOME / $5,741 3.58% $5,651 3.48%
NET INTEREST MARGIN (5)
(1) Average volume information was computed using daily (or monthly) averages
for interest earning and bearing accounts. Certain balance sheet items
utilized quarter end balances for averages. Due to the availability of
certain daily and monthly average balance information, certain
reclassifications were made to prior period amounts.
(2) Interest on loans includes fee income.
(3) Yield on tax-exempt obligations has been computed on a tax-equivalent
basis.
(4) Net interest margin is computed by dividing annualized net interest income
by total interest earning assets.
(5) Interest and yield are presented on a tax-equivalent basis using 34 percent
for 2005 and 2004.
The following table demonstrates the relative impact on net interest income of
changes in volume of interest earnings assets and interest bearing liabilities
and changes in rates earned and paid by us on such assets and liabilities.
CHANGE IN NET INTEREST INCOME ON A TAX EQUIVALENT BASIS
Nine Months Ended
September 30, 2005
Compared with 2004
Increase (Decrease)
(2)
---------------------
Volume Rate Total
------ ---- -----
(In thousands)
Interest income:
Loans (1) 59 237 296
Investments (1) (260) (115) (375)
Federal funds sold and other
short-term investments 32 92 124
---- ---- ----
Total Interest Income: (169) 214 45
Interest expense:
Deposits (46) 154 108
Short-term borrowings (6) 292 286
Long term debt (1) (5) (6)
---- ---- ----
Total Interest expense: (53) 441 388
Net Interest Income: (116) (227) (343)
(1) Interest income is adjusted to a tax equivalent basis using a 34 percent
tax rate.
(2) Variances resulting from a combination of changes in volume and rates are
allocated to the categories in proportion to the absolute dollar amounts of
the change in each category.
The outstanding balance of loans at September 30, 2005 was $151.4 million
compared to $149.9 million at December 31, 2004.
Income from investment securities remained at $1.5 million at September 30, 2005
and 2004. The average balance of investment securities for the nine months ended
September 30, 2005 was $57 million compared to $63.6 million at September 30,
2004.
Total interest expense increased $.3 million or 11.1 percent for the first nine
months of 2005 as compared to the first nine months of 2004. The average yield
on interest earning assets increased from 5.32 percent to 5.44 percent as of
September 2004 and 2005, respectively.
18
NON-INTEREST INCOME
The following table presents the components of non-interest income for the nine
months ended September 30, 2005 and 2004:
Nine Months Ended
September 30,
(In thousands)
-----------------
2005 2004
------ ------
Service charges and fees $ 754 $ 582
Trust Department income 106 109
Investment securities gain - net 0 3
Gain on sale of loans 29 12
Gain on Cash Surrender Value of BOLI 193 191
Other 172 221
------ ------
Total $1,254 $1,118
------ ------
Non-interest income continues to represent a considerable source of our income.
We are committed to increasing non-interest income. Increases will be from our
existing sources of non-interest income and any new opportunities that may
develop. For the nine months ended September 30, 2005, total non-interest income
increased $.2 million to $1.3 thousand or 18.2 percent, compared to $1.1 million
for the nine month period ended September 30, 2004. Service charges and fees
increased $172 thousand from $582 thousand at September 30, 2004 to $854
thousand or 29.6 percent at September 30, 2005. This increase is mainly
attributable to the introduction of the "Overdraft Privilege" program in the
second half of 2004. Costs of developing the program were finalized in July
2005, adding to the income derived from this service. Trust Department income
decreased slightly with $109 thousand at September 30, 2004 compared to $106
thousand at September 30, 2005. By selling fixed rate mortgages through the MPF
and PHFA programs we increased our gain on sale of loans from $12 thousand
through September 2004 to $29 thousand through September 2005. The MPF loans are
being serviced by CCFNB and the bank retains minimal credit risk. Other
non-interest income decreased $49 thousand from $221 thousand at September 30,
2004 to $172 thousand at September 30, 2005.
NON-INTEREST EXPENSE
The following table presents the components of non-interest expense for the nine
months ended September 30, 2004 and 2005:
Nine Months Ended
September 30,
----------------------
2005 2004
------ ------
(Dollars in Thousands)
Salaries and wages $1,726 $1,712
Employee benefits 596 598
Net occupancy expense 346 294
Furniture and equipment expense 389 351
State shares tax 211 212
Professional Services 220 171
Director Fees 142 110
Stationery and Supplies 98 96
Other expense 829 768
------ ------
Total $4,557 $4,312
------ ------
Non-interest expense increased from $4.3 million at September 30, 2004 to $4.6
million at September 30, 2005.
Generally, non-interest expense accounts for the cost of maintaining facilities;
providing salaries and benefits to employees; and paying for insurance,
supplies, advertising, data processing services, taxes and other related
expenses. Some of the costs and expenses are variable while others are fixed. To
the extent possible, we utilize budgets and related measures to control variable
expenses.
Salaries remained at $1.7 million at September 30, 2005 and 2004. Employee
benefits also remained at $600 thousand at September 30, 2004 and 2005.
Occupancy expense increased 17.7 percent. This increase is partly attributable
to additional landscaping and the purchase of a property in Berwick for a future
branch bank. Furniture and equipment expense reflects a $38 thousand or 10.8
percent increase for the first nine months of 2005 compared to the first nine
months of 2004. New optical hardware is replacing fully depreciated hardware and
recognition of depreciation on this new equipment will have the effect of
increased expense going forward.
Pennsylvania Bank Shares Tax remained at or near $212 thousand at September 30,
2004 and 2005.
Professional services increased 28.7 percent from $171 thousand at September 30,
2004 to $220 thousand at September 30, 2005. This is partly attributable to the
Sarbanes Oxley (Sox 404) required project that is ongoing through and including
2007.
Director's fees increased 29.1 percent from $110 thousand through September 30,
2004 compared to $142 thousand through September 30, 2005. Beginning January
2005, the Chairman of the Board fee increased from $21 thousand annually to $56
thousand annually.
Stationery and Supplies increased $2 thousand in comparing September 30, 2004 at
$96 thousand and September 30, 2005 at $98 thousand.
19
Other expenses increased $61 thousand or 7.9 percent from $768 thousand at
September 30, 2004 to $829 thousand at September 30, 2005. A Home Equity Program
continues in which the Bank absorbs the costs to underwrite a Home Equity Loan.
This increased expense accounts for $8 thousand for the first nine months of
2005. The addition of an ATM in our branch opening in October 2004 was mainly
responsible for the increase in ATM fees of $17 thousand for the nine months
ending September 30 2004 and 2005 and a third party arrangement is in place in
this branch where $10 thousand, or 33%, of our ATM fees collected were given to
the owner of the building. $30 thousand was paid to a third party consulting
firm to develop and implement our Overdraft Protection program.
INCOME TAXES
Income tax expense as a percentage of pre-tax income was 21.3 percent for the
nine months ended September 30, 2005 compared with 21 percent for the same
period in 2004. The effective tax rate for 2005 remains at 34 percent.
ASSET / LIABILITY MANAGEMENT
INTEREST RATE SENSITIVITY
Our success is largely dependent upon our ability to manage interest rate risk.
Interest rate risk can be defined as the exposure of our net interest income to
the movement in interest rates. We do not currently use derivatives to manage
market and interest rate risks. Our interest rate risk management is the
responsibility of the Asset / Liability Management Committee ("ALCO"), which
reports to the Board of Directors. ALCO establishes policies that monitor and
coordinate our sources, uses and pricing of funds as well as interest-earning
asset pricing and volume.
We use a simulation model to analyze net interest income sensitivity to
movements in interest rates. The simulation model projects net interest income
based on various interest rate scenarios over a 12 and 24 month period. The
model is based on the actual maturity and repricing characteristics of rate
sensitive assets and liabilities. The model incorporates assumptions regarding
the impact of changing interest rates on the prepayment rates of certain assets
and liabilities. In the current interest rate environment, our net interest
income is not expected to change materially.
LIQUIDITY
Liquidity measures the ability to satisfy current and future cash flow needs as
they become due. Maintaining a level of liquid funds through asset / liability
management seeks to ensure that these needs are met at a reasonable cost As of
September 30, 2005, we had $52.6 million of securities available for sale
recorded at their fair value, compared with $61.8 million at December 31, 2004.
As of September 30, 2005, the investment securities available for sale had a net
unrealized loss of $92 thousand, net of deferred taxes, compared with a net
unrealized gain of $213 thousand, net of deferred taxes, at December 31, 2004.
These securities are not considered trading account securities which may be sold
on a continuous basis, but rather are securities which may be sold to meet our
various liquidity and interest rate requirements.
In accordance with disclosures required by EITF NO. 03-1, the summary below
reflects the gross unrealized losses and fair value, aggregated by investment
category that individual securities have been in a continuous unrealized loss
position for less than or more than 12 months as of September 30, 2005:
Less than 12 months 12 months or more Total
------------------------ ------------------------ ------------------------
Unrealized Unrealized Unrealized
Description of Security Fair Value Loss Fair Value Loss Fair Value Loss
----------------------- ----------- ---------- ----------- ---------- ----------- ----------
Obligations of U.S. Government
Corporations and Agencies:
Mortgage backed $ 7,818,888 $ 76,609 $ 9,148,212 $201,452 $16,967,100 $278.061
Other 11,612,659 137,341 5,371,406 128,594 16,984,065 265,935
Obligations of state and political
Subdivisions 672,241 6,493 0 0 672,241 6,493
0
Marketable Equity Securities 0 0 30,749 13,441 30,749 13,441
----------- -------- ----------- -------- ----------- --------
Total $20,103,788 $220,443 $14,550,367 $343,487 $34,654,155 $563,930
----------- -------- ----------- -------- ----------- --------
Note: This schedule reflects only unrealized losses without the effect of
unrealized gains.
The Corporation invests in various forms of agency debt including mortgage
backed securities and callable agency debt. The fair market value of these
securities is influenced by market interest rates, prepayment speeds on mortgage
securities, bid to offer spreads in the market place and credit premiums for
various types of agency debt. These factors change continuously and therefore
the market value of these securities may be higher or lower than the
Corporations carrying value at any measurement date.
The Corporation's marketable equity securities represent common stock positions
in various financial institutions. The fair market value of these equities tends
to fluctuate with the overall equity markets as well as the trends specific to
each institution.
The Corporation has both the intent and ability to hold the securities contained
in the previous table for a time necessary to recover the cost.
20
NON-PERFORMING ASSETS
Shown below is a summary of past due and non-accrual loans:
(Dollars in thousands)
----------------------------
September 30, December 31,
2005 2004
------------- ------------
Past due and non-accrual:
Days 30 - 89 $1,245 $ 492
Days 90 plus 42 20
Non-accrual 881 1,241
------ ------
Total $2,168 $1,753
Past due and non-accrual loans increased 22.2 percent from $1.8 million at
December 31, 2004 to $2.2 million at September 30 2005. The loan delinquency
expressed as a ratio to total loans was 1.4 percent at September 30, 2005 and
1.2 percent at December 31, 2004.
The increase in past due and non-accrual loans from December 31, 2004 to
September 30, 2005, was due to several residential mortgages showing in the 30 -
89 day column for a gain of approximately $350 thousand as well as one
significant commercial mortgage causing an increase of approximately $400
thousand; offset by a decrease in non accruals of about $360 thousand.
The provision for loan losses for the first nine months of 2005 was $90 thousand
compared to first nine months of 2004 at $110 thousand. Management is diligent
in its efforts to reduce these delinquencies and has increased monitoring and
review of current loans to foresee future delinquency occurrences and react to
them quickly.
Any loans classified for regulatory purposes as loss, doubtful, substandard, or
special mention that have not been disclosed under Industry Guide 3 do not (i)
represent or result from trends or uncertainties which we reasonably expect will
materially impact future operating results, liquidity, or capital resources, or
(ii) represent material credits about which we are aware of any information
which causes us to have serious doubts as to the ability of such borrowers to
comply with the loan repayment terms.
We adhere to principles provided by Financial Accounting Standards Board
Statement No. 114, "Accounting by Creditors for Impairment of a Loan" - Refer to
Note 2 above for other details.
The following analysis provides a schedule of loan maturities / interest rate
sensitivities. This schedule presents a repricing and maturity analysis as
required by the FFIEC:
MATURITY AND REPRICING DATA FOR LOANS AND LEASES
(Dollars in
Thousands)
September 30,
2005
-------------
Closed-end loans secured by first liens and
1-4 family residential properties with a
remaining maturity or repricing frequency of:
(1) Three months or less $ 2,822
(2) Over three months through 12 months 15,839
(3) Over one year through three years 23,982
(4) Over three years through five years 7,742
(5) Over five years through 15 years 18,235
(6) Over 15 years 332
All loans and leases other than closed-end loans secured
by first liens on 1-4 family residential properties
with a remaining maturity or repricing frequency of:
(1) Three months or less 20,638
(2) Over three months through 12 months 12,744
(3) Over one year through three years 21,309
(4) Over three years through five years 13,684
(5) Over five years through 15 years 12,219
(6) Over 15 years 992
--------
Sub-total $150,538
Add: Non-accrual loans not included above 881
Less: Unearned income (38)
--------
Total Loans and Leases $151,381
ALLOWANCE FOR LOAN LOSSES
Because our loan portfolio and delinquencies contains a significant number of
commercial loans with relatively large balances, the deterioration of one or
several of these loans may result in a possible significant increase in loss of
interest income, higher carrying costs, and an increase in the provision for
loan losses and loan charge-offs.
We maintain an allowance for loan losses to absorb any loan losses based on our
historical experience, an evaluation of economic conditions, and regular reviews
of delinquencies and loan portfolio quality. In evaluating our allowance for
loan losses, we segment our loans into the following categories:
- Commercial (including investment property mortgages),
- Residential mortgages, and
- Consumer.
21
We evaluate some loans as a homogeneous group and others on an individual basis.
Commercial loans with balances exceeding $250 thousand are reviewed
individually. After our evaluation of all loans, we determine the required
allowance for loan losses based upon the following considerations:
- Historical loss levels,
- Prevailing economic conditions,
- Delinquency trends,
- Changes in the nature and volume of the portfolio,
- Concentrations of credit risk, and
- Changes in loan policies or underwriting standards.
Management and the Board of Directors review the adequacy of the reserve on a
quarterly basis and adjustments, if needed, are made accordingly.
The following table presents a summary of CCFNB's loan loss experience as of the
dates indicated:
For the Nine Months
Ending September 30,
Amounts in thousands
--------------------
2005 2004
-------- --------
Average loans outstanding: $149,342 $148,367
-------- --------
Total loans at end of period 151,381 149,103
-------- --------
Balance at beginning of period 1,392 1,415
Total charge-offs (31) (124)
Total recoveries 51 24
-------- --------
Net charge-offs 20 (100)
Provision for loan losses 90 110
-------- --------
Balance at end of period $ 1,502 $ 1,425
-------- --------
Net charge-offs as a percent
of average loans
outstanding during period .01% (.07)%
Allowance for loan losses as a
percent of total loans .99% .96%
The allowance for loan losses is based on our evaluation of the allowance for
loan losses in relation to the credit risk inherent in the loan portfolio. In
establishing the amount of the provision required, management considers a
variety of factors, including but not limited to, general economic conditions,
volumes of various types of loans, collateral adequacy and potential losses from
significant borrowers. On a monthly basis, the Board of Directors and the bank's
Credit Administration Committee review information regarding specific loans and
the total loan portfolio in general in order to determine the amount to be
charged to the provision for loan losses.
CAPITAL ADEQUACY
A major strength of any financial institution is a strong capital position. This
capital is very critical as it must provide growth, dividend payments to
shareholders, and absorption of unforeseen losses. Our federal regulators
provide standards that must be met. These standards measure "risk-adjusted"
assets against different categories of capital. The "risk-adjusted" assets
reflect off balance sheet items, such as commitments to make loans, and also
place balance sheet assets on a "risk" basis for collectibility. The adjusted
assets are measured against the standards of Tier I Capital and Total Qualifying
Capital. Tier I Capital is common shareholders' equity. Total Qualifying Capital
includes so-called Tier II Capital, which are common shareholders' equity and
the allowance for loan and lease losses. The allowance for loan and lease losses
must be lower than or equal to common shareholders' equity to be eligible for
Total Qualifying Capital.
We exceed all minimum capital requirements as reflected in the following table:
September 30, 2005 December 31, 2004
--------------------- ---------------------
Minimum Minimum
Calculated Standard Calculated Standard
Ratios Ratios Ratios Ratios
---------- -------- ---------- --------
Risk Based Ratios:
Tier I Capital to risk-weighted assets 19.21% 4.00% 19.27% 4.00%
Total Qualifying Capital to risk-weighted assets 20.25% 8.00% 20.31% 8.00%
Additionally, certain other ratios also provide capital analysis as follows:
June 30, December 31,
2005 2004
-------- ------------
Tier I Capital to average assets 12.62% 12.17%
We believe that the bank's current capital position and liquidity positions are
strong and that its capital position is adequate to support its operations.
Book value per share amounted to $22.94 at September 30, 2005, compared with
$22.49 per share at December 31, 2004.
Cash dividends declared amounted to $.55 per share, for the nine months ended
September 30, 2005, equivalent to a dividend payout ratio of 41.33 percent,
compared with 42.10 percent for the same period in 2004. Our Board of Directors
continues to believe that cash dividends are an important component of
shareholder value and that, at the bank's current level of performance and
capital; we expect to continue our current dividend policy of a quarterly cash
distribution of earnings to our shareholders.
22
The following table presents information on the shares of our common stock that
we repurchased during the third quarter of 2005:
CCFNB BANCORP, INC.
ISSUER PURCHASES OF EQUITY SECURITIES
NUMBER OF SHARES
PURCHASED AS NUMBER OF SHARES
NUMBER OF PART OF PUBLICLY THAT MAY YET BE
SHARES PRICE PAID ANNOUNCED PURCHASED UNDER THE
MONTH PURCHASED PER SHARE PROGRAM (1) PROGRAM
---------------- --------- ---------- ---------------- -------------------
7/1/05 - 7/31/05 0 0 0 72,000
8/1/05 - 8/31/05 0 0 0 72,000
9/1/05 - 9/30/05 2,000 $28.50 2,000 70,000
----- -----
TOTAL 2,000 2,000
(1) This program was announced in 2003 and represents the second buy-back
program. The Board of Directors approved purchase of 100,000 shares. There
is no expiration date associated with this program.
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Controls and Procedures
Item 4. Controls and Procedures
Our Chief Executive Officer (CEO) and Principal Financial Officer (PFO)
have concluded that our disclosure controls and procedures (as defined in Rules
13a - 15(e) and 15d - 15(e) under the Securities Exchange Act of 1934, as
amended), based on their evaluation of these controls and procedures as of the
end of the period covered by this Report, were effective as of such date at the
reasonable assurance level as discussed below to ensure that information
required to be disclosed by us in the reports we file under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission and that such information is accumulated and
communicated to our management, including its principal executive officer and
principal financial officer, as appropriate to allow timely decisions regarding
required disclosure.
Our management, including the CEO and PFO, does not expect that our
disclosure controls and internal controls will prevent all errors and all fraud.
A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the system are met.
Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of
fraud, if any, within our company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. In addition, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people or by management override of the controls.
The CEO and PFO have evaluated the changes to our internal controls over
financial reporting that occurred during our fiscal quarter ended September 30,
2005, as required by paragraph (d) Rules 13a - 15 and 15d - 15 under the
Securities Exchange Act of 1934, as amended, and have concluded that there were
no changes that materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.
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PART II - OTHER INFORMATION;
Item 1. Legal Proceedings
Management and the Corporation's legal counsel are not aware of any litigation
that would have a material adverse effect on the consolidated financial position
of the Corporation. There are no proceedings pending other than the ordinary
routine litigation incident to the business of the Corporation and its
subsidiary, Columbia County Farmers National Bank. In addition, no material
proceedings are pending or are known to be threatened or contemplated against
the Corporation and the Bank by government authorities.
Item 2. Changes in Securities - Nothing to report.
Item 3. Defaults Upon Senior Securities - Nothing to report.
Item 4. Submission of matters to a Vote of Security Holders - Nothing to report.
Item 5. Other Information - Nothing to report.
Item 6. Exhibits and Reports on Form 8-K - The following were filed with the SEC
during 2005:
March 28, 2005 - Proxy dated December 31, 2004
May 10, 2005 - Amended Articles of Incorporation approved by shareholders
on May 5, 2005
August 8, 2005 - Amended December 31, 2004 10K and Amended March 31, 2005
10Q to revise disclosure controls and procedures.
August 15, 2005 - Second Amendment to March 31, 2005 10Q to more clearly
differentiate between internal controls over financial reporting and
disclosure controls and procedures.
October 17, 2005 - S 3 Amendment
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this quarterly report on Form 10-Q for the period
ended September 30, 2005, to be signed on its behalf by the undersigned
thereunto duly authorized.
CCFNB BANCORP, INC.
(Registrant)
By /s/ Lance O. Diehl
------------------------------------
Lance O. Diehl
President and CEO
Date: November 3, 2005
By /s/ Virginia D. Kocher
------------------------------------
Virginia D. Kocher
Treasurer
Date: November 3, 2005
26