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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the three-month period ended March 31, 2001
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ____________ to ___________
Commission file number: 0-16084
CITIZENS & NORTHERN CORPORATION
(Exact name of Registrant as specified in its charter)
Pennsylvania 23-2451943
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
90-92 Main Street
Wellsboro, Pa. 16901
(Address of principal executive offices) (Zip code)
570-724-3411
(Registrant's telephone number including area code)
Not applicable
(Former name, former address, and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
--- ---
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Title Outstanding
Common Stock ($1.00 par value) 5,253,339 Shares Outstanding May 10, 2001
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CITIZENS & NORTHERN CORPORATION
Index
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet - March 31, 2001 and
December 31, 2000 Page 3
Consolidated Statement of Income - Three Months Ended
March 31, 2001 and 2000 Page 4
Consolidated Statement of Cash Flows - Three Months Ended
March 31, 2001 and 2000 Page 5
Notes to Consolidated Financial Statements Pages 6 and 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations Pages 7 through 18
Item 3. Quantitative and Qualitative Information About Market Risk Pages 19 and 20
Part II. Other Information Page 21
Signatures Page 22
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CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET MARCH 31, DECEMBER 31,
(In Thousands Except Share Data) 2001 2000
(UNAUDITED) (NOTE)
ASSETS
Cash and due from banks:
Noninterest-bearing $ 11,016 $ 11,638
Interest-bearing 4,895 2,186
--------------------------------------------------------------------------------------------
Total cash and cash equivalents 15,911 13,824
Available-for-sale securities 406,498 346,747
Held-to-maturity securities 1,675 1,911
Loans, net 324,379 323,014
Bank-owned life insurance 15,222 15,000
Accrued interest receivable 5,159 4,953
Bank premises and equipment, net 9,237 9,332
Foreclosed assets held for sale 372 316
Other assets 2,803 4,238
--------------------------------------------------------------------------------------------
TOTAL ASSETS $ 781,256 $ 719,335
============================================================================================
LIABILITIES
Deposits:
Noninterest-bearing $ 65,879 $ 66,125
Interest-bearing 464,987 462,842
--------------------------------------------------------------------------------------------
Total deposits 530,866 528,967
Dividends payable 1,366 1,353
Short-term borrowings 87,385 94,691
Long-term borrowings 60,600 605
Accrued interest and other liabilities 6,954 4,750
--------------------------------------------------------------------------------------------
TOTAL LIABILITIES 687,171 630,366
============================================================================================
STOCKHOLDERS' EQUITY
Common stock, par value $1.00 per share; authorized 10,000,000
shares; issued 5,378,212 in 2001 and 5,324,962 in 2000 5,378 5,325
Stock dividend distributable -- 1,054
Paid-in capital 19,757 18,756
Retained earnings 66,105 65,206
--------------------------------------------------------------------------------------------
Total 91,240 90,341
Accumulated other comprehensive income 4,429 82
Unamortized stock compensation (35) (35)
Treasury stock, at cost:
125,094 shares at March 31, 2001 (1,549)
117,718 shares at December 31, 2000 (1,419)
--------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 94,085 88,969
============================================================================================
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 781,256 $ 719,335
============================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
Note: The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date but does not include all the information and
notes required by generally accepted accounting principles for complete
financial statements.
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CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
CONSOLIDATED STATEMENT OF INCOME
3 MONTHS ENDED
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) MARCH 31, MARCH 31,
2001 2000
INTEREST INCOME
Interest and fees on loans $ 6,902 $ 6,508
Interest on balances with depository institutions 19 25
Interest on loans to political subdivisions 171 163
Interest on federal funds sold 61 6
Income from available-for-sale and held-to-maturity securities:
Taxable 4,733 4,679
Tax-exempt 944 1,114
Dividends 384 362
-----------------------------------------------------------------------------------------------
Total interest and dividend income 13,214 12,857
-----------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 5,693 5,413
Interest on short-term borrowings 1,331 1,060
Interest on long-term borrowings 468 672
-----------------------------------------------------------------------------------------------
Total interest expense 7,492 7,145
-----------------------------------------------------------------------------------------------
Interest margin 5,722 5,712
Provision for loan losses 150 226
-----------------------------------------------------------------------------------------------
Interest margin after provision for loan losses 5,572 5,486
-----------------------------------------------------------------------------------------------
OTHER INCOME
Service charges on deposit accounts 296 268
Service charges and fees 68 51
Trust and financial management revenue 387 401
Insurance commissions, fees and premiums 138 80
Increase in cash surrender value of life insurance 222 --
Fees related to credit card operation 128 465
Other operating income 74 93
-----------------------------------------------------------------------------------------------
Total other income before realized gains on
securities, net 1,313 1,358
Realized gains on securities, net 455 15
-----------------------------------------------------------------------------------------------
Total other income 1,768 1,373
-----------------------------------------------------------------------------------------------
OTHER EXPENSES
Salaries and wages 2,018 1,829
Pensions and other employee benefits 580 487
Occupancy expense, net 259 253
Furniture and equipment expense 346 253
Expenses related to credit card operation 77 191
Pennsylvania shares tax 196 181
Other operating expense 1,122 1,015
-----------------------------------------------------------------------------------------------
Total other expenses 4,598 4,209
-----------------------------------------------------------------------------------------------
Income before income tax provision 2,742 2,650
Income tax provision 477 501
-----------------------------------------------------------------------------------------------
NET INCOME $ 2,265 $ 2,149
===============================================================================================
PER SHARE DATA:
Net income - basic $ 0.43 $ 0.41
Net income - diluted $ 0.43 $ 0.41
-----------------------------------------------------------------------------------------------
Dividend per share $ 0.26 $ 0.24
-----------------------------------------------------------------------------------------------
Number of shares used in computation - basic 5,256,002 5,257,366
Number of shares used in computation - diluted 5,256,230 5,259,367
The accompanying notes are an integral part of these consolidated financial
statements.
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CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED
(IN THOUSANDS) (UNAUDITED) MARCH 31, MARCH 31,
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,265 $ 2,149
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 150 226
Realized gains on securities, net (455) (15)
Gain on sale of foreclosed assets, net (25) (34)
Depreciation expense 305 263
Accretion and amortization, net (627) (592)
Increase in cash surrender value of life insurance (222) --
Deferred income taxes -- 28
(Increase) decrease in accrued interest receivable
and other assets (1,010) 668
Increase in accrued interest payable and other liabilities 2,204 726
----------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 2,585 3,419
----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of held-to-maturity securities 860 12
Purchase of held-to-maturity securities (626) (96)
Proceeds from sales of available-for-sale securities 576 864
Proceeds from maturities of available-for-sale securities 36,530 3,112
Purchase of available-for-sale securities (89,187) (5,435)
Net increase in loans (1,651) (1,643)
Purchase of premises and equipment (210) (713)
Proceeds from sale of foreclosed assets 105 269
----------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (53,603) (3,630)
----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 1,899 (3,586)
Net increase (decrease) in short-term borrowings (7,306) 10,088
Proceeds from long-term borrowings 60,000 --
Repayments of long-term borrowings (5) (9,405)
Proceeds from sale of treasury stock -- 4
Purchase of treasury stock (130) --
Dividends paid (1,353) (1,249)
----------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities 53,105 (4,148)
----------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,087 (4,359)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 13,824 18,063
----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 15,911 $ 13,704
====================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Assets acquired through foreclosure of real estate loans $ 136 $ 220
Interest paid $ 5,437 $ 5,810
Income taxes paid $ 25 $ 475
The accompanying notes are an integral part of these consolidated financial
statements.
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CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF INTERIM PRESENTATION
The financial information included herein, with the exception of the
consolidated balance sheet dated December 31, 2000, is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) that are, in the opinion of management, necessary for a fair
presentation of the financial position, results of operations and cash flows for
the interim periods.
Results reported for the three-month period ended March 31, 2001 might not be
indicative of the results for the year ending December 31, 2001.
This document has not been reviewed or confirmed for accuracy or relevance by
the Federal Deposit Insurance Corporation or any other regulatory agency.
2. PER SHARE DATA
Net income per share is based on the weighted-average number of shares of common
stock outstanding. The number of shares used in calculating net income and cash
dividends per share reflect the retroactive effect of stock dividends for all
periods presented. The following data show the amounts used in computing net
income per share and the weighted average number of shares of dilutive stock
options. The dilutive effect of stock options is computed as the
weighted-average common shares available from the exercise of all dilutive stock
options, less the number of shares that could be repurchased with the proceeds
of stock option exercises based on the average share price of the Corporation's
common stock during the period.
WEIGHTED-
AVERAGE EARNINGS
NET COMMON PER
INCOME SHARES SHARE
QUARTER ENDED MARCH 31, 2001
Earnings per share - basic $2,265,000 5,256,002 $ 0.43
Dilutive effect of stock options 228
----------------------------------------------------------------------------------
Earnings per share - diluted $2,265,000 5,256,230 $ 0.43
==================================================================================
QUARTER ENDED MARCH 31, 2000
Earnings per share - basic $2,149,000 5,257,366 $ 0.41
Dilutive effect of stock options 2,001
----------------------------------------------------------------------------------
Earnings per share - diluted $2,149,000 5,259,367 $ 0.41
==================================================================================
3. COMPREHENSIVE INCOME
Accounting principles generally require that recognized revenue, expenses, gains
and losses be included in net income. Although certain changes in assets and
liabilities, such as unrealized gains and losses on available-for-sale
securities, are reported as a separate component of the equity section of the
balance sheet, such items, along with net income, are components of
comprehensive income.
Comprehensive income is calculated as follows:
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CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
QUARTERS ENDED MARCH 31,
(IN THOUSANDS) 2001 2000
Net income $ 2,265 $ 2,149
Other comprehensive income (loss):
Unrealized holding gains (losses) on available-for-sale
securities:
Gains (losses) arising during the period 7,041 (623)
Reclassification adjustment for realized gains (455) (15)
---------------------------------------------------------------------------------------------
Other comprehensive income (loss) before income tax 6,586 (638)
Income tax related to other comprehensive income/loss (2,239) 217
---------------------------------------------------------------------------------------------
Other comprehensive income (loss) 4,347 (421)
---------------------------------------------------------------------------------------------
Comprehensive income $ 6,612 $ 1,728
=============================================================================================
CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
PART I - FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Certain statements in this section and elsewhere in Form 10-K are
forward-looking statements. Citizens & Northern Corporation and its wholly-owned
subsidiaries (collectively, the Corporation) intend such forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Reform Act of 1995.
Forward-looking statements, which are based on certain assumptions and describe
future plans, business objectives and expectations, are generally identifiable
by the use of words such as, "believe", "expect", "intend", "anticipate",
"estimate", "project", and similar expressions. The Corporation's ability to
predict results or the actual effect of future plans or occurrences is
inherently uncertain. Factors which could have a material adverse effect on the
operations and future prospects of the Corporation include, but are not limited
to, the following:
- changes in monetary and fiscal policies of the U.S. Treasury and the
Federal Reserve Board, particularly related to changes in interest rates
- changes in general economic conditions
- legislative or regulatory changes
- downturn in demand for loan, deposit and other financial services in the
Corporation's market area
- increased competition from other banks and non-bank providers of financial
services
- technological changes and increased technology-related costs
- changes in accounting principles.
These risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements.
REFERENCES TO 2001 AND 2000
Unless otherwise noted, all references to "2001" in the following discussion of
operating results are intended to mean the three months ended March 31, 2001,
and similarly, references to "2000" are intended to mean the first three months
of 2000.
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EARNINGS OVERVIEW
Net income in the first quarter 2001 was $2,265,000, or $.43 per share (basic
and diluted). This represents a 5.4% increase over the first quarter 2000, when
net income was $2,149,000, or $.41 per share (basic and diluted). The most
significant income statement changes between periods were as follows:
- Realized gains on securities were $455,000 in 2001, compared to $15,000 in
2000. Most of the gains in 2001 resulted from sales of bank stocks. The
largest individual gain ($301,000) was from the sale of stock from a
banking company that announced it is being acquired.
- In 2001, the Corporation recorded an increase in cash surrender value of
life insurance of $222,000. In late December 2000, the Corporation
purchased bank-owned life insurance (BOLI) at a cost of $15,000,000. The
BOLI purchase was done for 2 main reasons: (1) to provide a funding vehicle
to cover future employee benefit costs, and (2) to generate tax-exempt,
noninterest income at a better rate of return than municipal bonds.
- Credit card fees decreased to $128,000 in 2001 from $465,000 in 2000. In
late 1999, the Corporation sold its merchant processing program, which
dramatically reduced the amount of interchange fees earned and costs
incurred. In the first quarter 2000, the Corporation recorded final
residual fees. The credit card fees and expenses recorded in the 1st
quarter 2001 are in line with the amounts recorded in the last 3 quarters
of 2000 and with the amounts expected for the remainder of 2001.
- Other (noninterest) expenses increased $389,000, or 9.2%, in 2001 compared
to 2000. Changes in other expenses are discussed in more detail later in
Management's Discussion and Analysis.
Looking ahead to the remainder of 2001, management believes the Corporation's
net interest margin may receive a significant "boost" from lower interest rates.
In 2001, the Federal Reserve Board has lowered the Discount Rate (the rate
charged by Federal Reserve Banks to depository institutions for overnight loans)
4 times through April 30, 2001, for a total of 2%. The Corporation is liability
sensitive, which means that rates on its interest-bearing liabilities - deposits
and borrowed funds - change more rapidly than rates on its interest-earning
assets. Some evidence of the positive effect of lower interest rates to the
Corporation is reflected in Table II of the "Net Interest Margin" section of
Management's Discussion and Analysis. Table II shows that the "Interest Rate
Spread" has widened to 2.77% in 2001 compared to the annual rate for 2000 of
2.54%, and that net interest income as a percentage of average earning assets
has increased to 3.55% from 3.50%. Interest spreads may continue to widen in
coming months if the Federal Reserve Board institutes further rate reductions,
and as higher-rate certificates of deposit mature and are refunded.
NET INTEREST MARGIN
The Corporation's primary source of operating income is represented by the net
interest margin. The net interest margin is equal to the difference between the
amounts of interest income and interest expense. Tables I, II and III include
information regarding the Corporation's net interest margin in 2001 and 2000. In
each of these tables, the amounts of interest income earned on tax-exempt
securities and loans have been adjusted to a fully taxable-equivalent basis.
Accordingly, the net interest margin amounts reflected in these tables exceed
the amounts presented in the consolidated financial statements. The discussion
that follows is based on amounts in the Tables.
The net interest margin, on a tax-equivalent basis, was $6,199,000 in 2001, a
decrease of $89,000 or 1.4% from 2000. In December 2000, the Corporation sold
securities with a carrying value of approximately $15 million, and utilized the
proceeds to purchase BOLI (see "Earnings Overview" section of Management's
Discussion and Analysis for discussion of the positive impact of BOLI on
noninterest income). The sale of securities in December 2000 reduced the
Corporation's average balance of available-for-sale securities in 2001 compared
to 2000. This is reflected in Table III, which shows that the lower volume of
obligations of state and political subdivisions (municipal bonds) had the effect
of reducing interest income $234,000 in 2001 compared to 2000. Net interest
income for 2001, plus BOLI income, exceeds net interest income for 2000 by
$133,000. Other significant factors related to the net interest margin are
discussed below.
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INTEREST INCOME AND EARNING ASSETS
Interest income increased 1.9% to $13,691,000 in 2001 from $13,433,000 in 2000.
Income from available-for-sale securities fell $193,000, or 2.9%, while interest
from loans increased $407,000 or 6.0%. The decrease in interest income from
available-for-sale securities was mainly attributable to lower interest rates on
new securities purchased in 2001, and to a lower average investment in municipal
bonds (as discussed in the "Earnings Overview" section of Management's
Discussion and Analysis). As reflected in Table III, the increase in interest
from loans was primarily volume-related. Average gross loans in 2001 was
$328,838,000, or 5.6% higher than in the 1st quarter 2000.
INTEREST EXPENSE AND INTEREST-BEARING LIABILITIES
Interest expense increased to $7,492,000 in 2001, an increase of 4.9% over 2000.
The increase in interest expense resulted from increases in volume, primarily of
CDs and money market accounts. As you can see in Table II, the average balances
of CDs increased $14,593,000 (10.1%) in 2001 compared to 2000, and average money
market balances increased $13,843,000 (9.7%). Growth in each of these deposit
categories resulted from several factors, including the following: (1) increased
deposits from governmental entities and school districts; (2) an expanded branch
system, with relatively new offices opened in Mansfield (1998) and Muncy (2000);
and (3) investors' movement of funds out of the U.S. stock market in recent
months.
As reflected in Table III, lower interest rates significantly reduced interest
expense from money market accounts and IRAs in 2001 compared to 2000. However,
the average rate incurred on CDs was higher in 2001 than in 2000, offsetting
much of the lower interest costs from the other deposit categories. A
significant amount of the CDs as of March 31, 2001 were initiated during 2000,
when short-term interest rates were higher than in 2001. Management expects many
of these accounts to be refunded at lower rates over the remaining months of
2001.
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CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
TABLE I - ANALYSIS OF INTEREST INCOME AND EXPENSE
(IN THOUSANDS) QUARTERS ENDED MARCH 31,
INTEREST INCOME 2001 2000
Available-for-sale securities:
U.S. Treasury securities $ 37 $ 40
Securities of other U.S. Government agencies and corporations 2,339 2,313
Mortgage-backed securities 1,902 1,870
Obligations of states and political subdivisions 1,344 1,617
Equity securities 384 362
Other securities 428 425
------------------------------------------------------------------------------------------------------
Total available-for-sale securities 6,434 6,627
------------------------------------------------------------------------------------------------------
Held-to-maturity securities:
U.S. Treasury securities 11 9
Securities of other U.S. Government agencies and corporations 11 17
Mortgage-backed securities 5 6
------------------------------------------------------------------------------------------------------
Total held-to-maturity securities 27 32
------------------------------------------------------------------------------------------------------
Interest-bearing due from banks 19 25
Federal funds sold 61 6
Loans:
Real estate loans 5,602 5,283
Consumer 778 757
Agricultural 46 47
Commercial/industrial 456 401
Other 17 17
Political subdivisions 246 236
Leases 5 2
------------------------------------------------------------------------------------------------------
Total loans 7,150 6,743
------------------------------------------------------------------------------------------------------
Total Interest Income 13,691 13,433
------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest checking 204 246
Money market 1,787 1,798
Savings 275 282
Certificates of deposit 2,333 1,919
Individual Retirement Accounts 1,082 1,157
Other time deposits 12 12
Federal funds purchased 36 54
Other borrowed funds 1,763 1,677
------------------------------------------------------------------------------------------------------
Total Interest Expense 7,492 7,145
------------------------------------------------------------------------------------------------------
Net Interest Income $ 6,199 $ 6,288
======================================================================================================
Income on tax-exempt securities and loans is presented on a fully
taxable-equivalent basis, using the Corporation's marginal federal income tax
rate of 34%.
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CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
TABLE II - ANALYSIS OF AVERAGE BALANCES AND RATES
(DOLLARS IN THOUSANDS) 3 MONTHS YEAR 3 MONTHS
ENDED RATE OF ENDED RATE OF ENDED RATE OF
3/31/01 RETURN/ 12/31/00 RETURN/ 3/31/00 RETURN/
AVERAGE COST OF AVERAGE COST OF AVERAGE COST OF
BALANCE FUNDS % BALANCE FUNDS % BALANCE FUNDS %
EARNING ASSETS
Available-for-sale securities, at amortized cost:
U.S. Treasury securities $ 2,508 5.98% $ 2,512 6.13% $ 2,514 6.45%
Securities of other U.S. Government agencies and corporations 136,018 6.97% 133,063 7.08% 131,628 7.13%
Mortgage-backed securities 113,031 6.82% 101,155 6.80% 110,283 6.88%
Obligations of states and political subdivisions 69,005 7.90% 81,312 7.80% 80,967 8.10%
Equity securities 29,103 5.35% 25,899 5.68% 26,299 5.58%
Other securities 22,030 7.88% 22,572 7.64% 21,205 8.13%
-----------------------------------------------------------------------------------------------------------------------------------
Total available-for-sale securities 371,695 7.02% 366,513 7.09% 372,896 7.21%
-----------------------------------------------------------------------------------------------------------------------------------
Held-to-maturity securities:
U.S. Treasury securities 740 6.03% 685 5.40% 635 5.75%
Securities of other U.S. Government agencies and corporations 746 5.98% 1,019 6.67% 1,026 6.72%
Mortgage-backed securities 234 8.67% 283 7.42% 306 7.95%
-----------------------------------------------------------------------------------------------------------------------------------
Total held-to-maturity securities 1,720 6.37% 1,987 6.34% 1,967 6.60%
-----------------------------------------------------------------------------------------------------------------------------------
Interest-bearing due from banks 1,653 4.66% 1,861 6.13% 2,323 4.36%
Federal funds sold 4,358 5.68% 1,000 6.40% 438 5.56%
Loans:
Real estate loans 264,129 8.60% 254,225 8.61% 248,822 8.61%
Consumer 28,100 11.23% 27,760 11.01% 28,688 10.70%
Agricultural 1,934 9.65% 1,963 9.73% 1,986 9.60%
Commercial/industrial 20,996 8.81% 21,336 8.66% 18,687 8.70%
Other 848 8.13% 886 8.01% 859 8.03%
Political subdivisions 12,624 7.90% 12,009 7.57% 12,258 7.81%
Leases 207 9.80% 203 10.84% 192 4.22%
-----------------------------------------------------------------------------------------------------------------------------------
Total loans 328,838 8.82% 318,382 8.79% 311,492 8.78%
-----------------------------------------------------------------------------------------------------------------------------------
Total Earning Assets 708,264 7.84% 689,743 7.87% 689,116 7.91%
Cash 10,458 10,887 10,077
Unrealized gain/loss on securities 570 (12,831) (12,858)
Allowance for loan losses (5,366) (5,233) (5,097)
Bank premises and equipment 9,328 8,712 8,271
Other assets 24,839 12,943 13,725
------------------------------------------------------------------------------------------------------------------------
Total Assets $ 748,093 $704,221 $ 703,234
========================================================================================================================
INTEREST-BEARING LIABILITIES
Interest checking $ 35,574 2.33% $ 36,086 2.87% $ 36,594 2.73%
Money market 156,171 4.64% 146,209 5.39% 142,328 5.12%
Savings 44,982 2.48% 45,963 2.49% 45,516 2.51%
Certificates of deposit 158,772 5.96% 144,997 5.64% 144,179 5.40%
Individual Retirement Accounts 79,279 5.54% 76,439 6.32% 77,311 6.07%
Other time deposits 2,023 2.41% 1,717 2.56% 1,449 3.36%
Federal funds purchased 2,369 6.16% 5,721 6.71% 3,926 5.58%
Other borrowed funds 120,454 5.94% 108,581 6.13% 119,426 5.69%
-----------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Liabilities 599,624 5.07% 565,713 5.33% 570,729 5.08%
Demand deposits 51,867 52,437 50,340
Other liabilities 6,848 7,279 5,313
-----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 658,339 625,429 626,382
-----------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity, excluding other comprehensive income/loss 89,378 87,258 85,013
Other comprehensive income/loss 376 (8,466) (8,161)
-----------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 89,754 78,792 76,852
-----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 748,093 $ 704,221 $ 703,234
===================================================================================================================================
Interest Rate Spread 2.77% 2.54% 2.83%
Net Interest Income/Earning Assets 3.55% 3.50% 3.70%
(1) Rates of return on tax-exempt securities and loans are presented on a fully
taxable-equivalent basis, using the Corporation's marginal federal income
tax rate of 34%.
(2) Nonaccrual loans have been included with loans for the purpose of analyzing
net interest earnings.
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CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
TABLE III - ANALYSIS OF THE EFFECT OF VOLUME AND RATE CHANGES ON INTEREST INCOME
AND INTEREST EXPENSE
(IN THOUSANDS) QUARTERS ENDED MARCH 31, 2001/2000
CHANGE IN CHANGE IN TOTAL
VOLUME RATE CHANGE
EARNING ASSETS
Available-for-sale securities:
U.S. Treasury securities $ -- $ (3) $ (3)
Securities of other U.S. Government agencies
And corporations 76 (50) 26
Mortgage-backed securities 46 (14) 32
Obligations of states and political subdivisions (234) (39) (273)
Equity securities 38 (16) 22
Other securities 16 (13) 3
--------------------------------------------------------------------------------------------------
Total available-for-sale securities (58) (135) (193)
--------------------------------------------------------------------------------------------------
Held-to-maturity securities:
U.S. Treasury securities 2 -- 2
Securities of other U.S. Government agencies
and corporations (4) (2) (6)
Mortgage-backed securities (1) -- (1)
--------------------------------------------------------------------------------------------------
Total held-to-maturity securities (3) (2) (5)
--------------------------------------------------------------------------------------------------
Interest-bearing due from banks (8) 2 (6)
Federal funds sold 55 -- 55
Loans:
Real estate loans 325 (6) 319
Consumer (16) 37 21
Agricultural (1) -- (1)
Commercial/industrial 50 5 55
Other -- -- --
Political subdivisions 7 3 10
Leases -- 3 3
--------------------------------------------------------------------------------------------------
Total loans 365 42 407
--------------------------------------------------------------------------------------------------
Total Interest Income 351 (93) 258
--------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
Interest checking (7) (35) (42)
Money market 166 (177) (11)
Savings (3) (4) (7)
Certificates of deposit 204 210 414
Individual Retirement Accounts 29 (104) (75)
Other time deposits 4 (4) --
Federal funds purchased (23) 5 (18)
Other borrowed funds 14 72 86
--------------------------------------------------------------------------------------------------
Total Interest Expense 384 (37) 347
--------------------------------------------------------------------------------------------------
Net Interest Income $ (33) $ (56) $ (89)
==================================================================================================
(1) Changes in income on tax-exempt securities and loans are presented on a
fully taxable-equivalent basis, using the Corporation's marginal federal income
tax rate of 34%.
(2) The change in interest due to both volume and rates has been allocated to
volume and rate changes in proportion to the relationship of the absolute dollar
amount of the change in each.
12
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CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
TABLE IV - COMPARISON OF NONINTEREST INCOME
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31, MARCH 31,
2001 2000
Service charges on deposit accounts $ 296 $ 268
Service charges and fees 68 51
Trust and financial management revenue 387 401
Insurance commissions, fees and premiums 138 80
Increase in cash surrender value of life insurance 222 --
Fees related to credit card operation 128 465
Other operating income 74 93
----------------------------------------------------------------------------------
Total other operating income, before realized
gains on securities, net 1,313 1,358
Realized gains on securities, net 455 15
----------------------------------------------------------------------------------
Total Other Income $1,768 $1,373
==================================================================================
Total noninterest income increased $395,000, or 28.8%, in 2001 compared to 2000.
The most significant changes - the increase in security gains, income from the
(BOLI) life insurance contract and the decrease in credit card-related fees -
are discussed in the "Earnings Overview" section of Management's Discussion and
Analysis.
TABLE V- COMPARISON OF NONINTEREST EXPENSE
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31, MARCH 31,
2001 2000
Salaries and wages $2,018 $1,829
Pensions and other employee benefits 580 487
Occupancy expense, net 259 253
Furniture and equipment expense 346 253
Pennsylvania shares tax 196 181
Other operating expense 1,122 1,015
-------------------------------------------------------------------------
Total other expenses, excluding expenses
Related to credit card operation 4,521 4,018
Expenses related to credit card operation 77 191
-------------------------------------------------------------------------
Total Other Expense $4,598 $4,209
=========================================================================
Salaries and wages increased $189,000, or 10.3%, in 2001 compared to 2000. The
increase is the result of annual merit raises ranging from 2%-5%, and an
increase in the number of full-time equivalent employees to 239 as of March 31,
2001 from 218 a year earlier. Higher staffing levels were required for the Muncy
branch, trust and financial management and insurance sales and service.
Pensions and other employee benefits increased $93,000, or 19.1%, in 2001
compared to 2000. In addition to increased costs resulting from the higher
number of employees, the Corporation experienced an increase in medical
insurance premium rates.
13
14
CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
Furniture and equipment expense increased $93,000, or 36.8%, in 2001 compared to
2000. The major categories of furniture and equipment expense that increased in
2001 compared to 2000 were maintenance costs associated with computer hardware
and software, and depreciation. The increase in computer maintenance costs is
mainly attributable to the timing of certain expenses. Increased depreciation
expense resulted primarily from the addition of the Muncy branch, which began
operations in the 4th quarter 2000, and the opening of a new credit card
operations facility in mid-2000.
Other expense increased $107,000, or 10.5%, in 2001 compared to 2000. This
category includes many different types of expenses. The most significant
fluctuations in individual types of expenses between years are as follows:
- Employee meetings, educational seminars and other education-related
expenses increased $34,000, to $103,000, in 2001. Included in this category
are costs associated with trust and financial management employees' efforts
to obtain required licenses, several executive officers' attendance at the
American Bankers' Association conference in February 2001, and a variety of
other conferences and courses.
- Telephone expenses related to data lines increased $31,000, to $60,000, in
2001. These costs are mainly related to the Corporation's computer network
that allows all branches and operating locations to access mainframe and PC
applications. The Corporation's monthly data line costs increased to
approximately the current level starting in the 2nd quarter 2000.
- Advertising expenses increased $27,000, to $88,000, in 2001. This increase
resulted from several factors, including a decision to advertise on an
additional cable television network, costs related to promoting the Muncy
branch and costs associated with internet advertising for the Corporation's
"Virtual Village" program. Virtual Village is an e-commerce web site for
consumers and businesses in the Corporation's market area.
- Expenses and losses from other real estate transactions decreased $30,000,
to $24,000, in 2001.
Credit card expenses decreased in 2001 because of lower interchange fees paid.
This change resulted from the sale of the merchant banking program, as discussed
in the "Earnings Overview" section of Management's Discussion and Analysis.
FINANCIAL CONDITION
Significant changes in the average balances of the Corporation's earning assets
and interest-bearing liabilities are described in the "Net Interest Margin"
section of Management's Discussion and Analysis. This section addresses changes
in the Corporation's balance sheet (excluding the allowance for loan losses and
stockholders' equity, which are discussed in separate sections) that are not
addressed in that discussion.
As reflected in the consolidated statement of cash flows, the Corporation made
purchases of available-for-sale securities of $89,185,000 in the 1st quarter
2001. Of this amount, $60,768,000 consisted of mortgage-backed securities. These
purchases were funded primarily from 2 sources: (1) proceeds from maturities of
available-for-sale securities (mainly U.S. Agency securities that were called)
of $35,915,000, and (2) long-term borrowings of $60,000,000. The terms of the
long-term borrowings range from 2002 to 2011, with $35,000,000 maturing in 2002
and 2003. As short-term and intermediate-term interest rates declined in the 1st
quarter 2001, management identified opportunities to purchase securities using
borrowed funds at a positive spread.
Table VI presents information regarding outstanding investment securities at
March 31, 2001 and December 31, 2000.
14
15
TABLE VI - INVESTMENT SECURITIES
(IN THOUSANDS)
MARCH 31, 2001 DECEMBER 31, 2000
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
AVAILABLE-FOR-SALE SECURITIES:
Obligations of the U.S. Treasury $ 2,507 $ 2,563 $ 2,509 $ 2,533
Obligations of other U.S. Government agencies 131,967 131,710 132,713 128,883
Obligations of states and political subdivisions 69,942 70,965 68,236 69,065
Other securities 21,891 21,417 22,111 20,964
Mortgage-backed securities 144,130 144,609 91,708 91,240
-------------------------------------------------------------------------------------------------------------
Total debt securities 370,437 371,264 317,277 312,685
Marketable equity securities 29,345 35,234 29,346 34,062
-------------------------------------------------------------------------------------------------------------
Total $399,782 $406,498 $346,623 $346,747
=============================================================================================================
HELD-TO-MATURITY SECURITIES:
Obligations of the U.S. Treasury $ 743 $ 751 $ 707 $ 708
Obligations of other U.S. Government agencies 696 708 946 947
Mortgage-backed securities 236 240 258 259
-------------------------------------------------------------------------------------------------------------
Total $ 1,675 $ 1,699 $ 1,911 $ 1,914
=============================================================================================================
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses includes two components, allocated and
unallocated. The allocated component of the allowance for loan losses reflects
expected losses resulting from the analysis of individual loans, specific
allowances for loans in certain industries and historical loss experience for
each loan category. The historical loan loss experience element is determined
based on the ratio of net charge-offs to average loan balances over a five-year
period, for each significant type of loan. The charge-off ratio is then applied
to the current outstanding loan balance for each type of loan (net of other
loans that are individually evaluated).
The unallocated portion of the allowance is determined based on management's
assessment of general economic conditions as well as specific economic factors
in the market area. This determination inherently involves a higher degree of
uncertainty and considers current risk factors that may not have yet manifested
themselves in the Bank's historical loss factors used to determine the allocated
component of the allowance, and it recognizes that knowledge of the portfolio
may be incomplete.
As noted in Table VIII below, the unallocated portion of the allowance for loan
losses increased to $2,331,000 at March 31, 2001 from $1,983,000 at December 31,
2000. The larger unallocated allowance reflects management's concern related to
adverse changes in the economy, including several local plant lay-offs. Through
March 31, 2001, these adverse changes had not yet resulted in increased levels
of delinquent loans.
The provision for loan losses decreased to $150,000 in 2001 from $226,000 in
2000. The amount of the provision in each period is determined based on the
amount required to maintain an appropriate allowance in light of the factors
described above.
Tables VII, VIII and IX present an analysis of the allowance for loan losses,
the allocation of the allowance and a five-year summary of loans by type.
15
16
TABLE VII - ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
(IN THOUSANDS) QUARTER
ENDED
MARCH 31, YEARS ENDED DECEMBER 31:
2001 2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------------------------------------
Balance at beginning of year $5,291 $5,131 $4,820 $4,913 $4,776 $4,579
Charge-offs:
Real estate loans 30 272 81 257 246 157
Installment loans 19 77 138 144 230 240
Credit cards and related plans 48 214 192 264 305 201
Commercial and other loans 53 219 301 3 74
-------------------------------------------------------------------------------------------------------------------
Total charge-offs 97 616 630 966 784 672
-------------------------------------------------------------------------------------------------------------------
Recoveries:
Real estate loans 2 26 81 12 21 22
Installment loans 2 23 60 43 64 53
Credit cards and related plans 10 28 30 40 30 38
Commercial and other loans 26 23 10 15 9 55
-------------------------------------------------------------------------------------------------------------------
Total recoveries 40 100 181 110 124 168
-------------------------------------------------------------------------------------------------------------------
Net charge-offs 57 516 449 856 660 504
Additions charged to operations 150 676 760 763 797 701
-------------------------------------------------------------------------------------------------------------------
Balance at end of period $5,384 $5,291 $5,131 $4,820 $4,913 $4,776
===================================================================================================================
TABLE VIII - ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES BY TYPE
(IN THOUSANDS)
QUARTER
ENDED
MARCH 31, YEARS ENDED DECEMBER 31:
2001 2000 1999 1998 1997 1996
Commercial $1,506 $1,612 $2,081 $ 650 $ 625 $ 630
Noncommercial mortgages 851 952 834 97 350 58
Impaired loans 210 273 609 290 274 113
Consumer 486 471 437 702 375 303
All other commitments -- -- 150 202 343 369
Unallocated 2,331 1,983 1,020 2,879 2,946 3,303
--------------------------------------------------------------------------------
Total Allowance $5,384 $5,291 $5,131 $4,820 $4,913 $4,776
================================================================================
16
17
TABLE IX - LOANS BY TYPE
(IN THOUSANDS) MAR. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
2001 2000 1999 1998 1997 1996
Real estate - construction $ 372 $ 452 $ 649 $ 1,004 $ 406 $ 1,166
Real estate - mortgage 264,120 263,325 247,604 230,815 219,952 213,957
Consumer 28,202 28,141 29,140 30,924 33,094 33,420
Agriculture 1,896 1,983 1,899 1,930 2,424 2,603
Commercial 21,528 20,776 18,050 17,630 17,176 15,751
Other 1,005 948 1,025 1,062 6,260 5,014
Political subdivisions 12,443 12,462 12,332 7,449 5,895 6,464
Lease receivables 197 218 222 218 256 264
---------------------------------------------------------------------------------------------------------------
Total 329,763 328,305 310,921 291,032 285,463 278,639
Less: unearned discount - - (29) (29) (37) (42)
---------------------------------------------------------------------------------------------------------------
329,763 328,305 310,892 291,003 285,426 278,597
Less: allowance for loan losses (5,384) (5,291) (5,131) (4,820) (4,913) (4,776)
---------------------------------------------------------------------------------------------------------------
Loans, net $ 324,379 $ 323,014 $ 305,761 $ 286,183 $ 280,513 $ 273,821
---------------------------------------------------------------------------------------------------------------
LIQUIDITY
Liquidity is the ability to quickly raise cash at a reasonable cost. An adequate
liquidity position permits the Corporation to pay creditors, compensate for
unforeseen deposit fluctuations and fund unexpected loan demand. The Corporation
maintains overnight borrowing facilities with several correspondent banks that
provide a source of day-to-day liquidity. Also, the Corporation maintains
borrowing facilities with the Federal Home Loan Bank of Pittsburgh, secured by
mortgage loans and mortgage-backed securities. At March 31, 2001, the
Corporation had unused borrowing availability with correspondent banks and the
Federal Home Loan Bank of Pittsburgh totaling approximately $188,211,000.
Additionally, the Corporation uses repurchase agreements placed with brokers to
borrow short-term funds secured by investment assets, and uses "RepoSweep"
arrangements to borrow funds from commercial banking customers on an overnight
basis.
STOCKHOLDERS' EQUITY AND CAPITAL ADEQUACY
The Corporation and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. For many years, the
Corporation and the Bank have maintained strong capital positions. The following
table presents consolidated capital ratios at March 31, 2001:
TABLE X - CAPITAL RATIOS
CITIZENS & REGULATORY STANDARDS:
NORTHERN
CORPORATION MINIMUM WELL
(ACTUAL) STANDARD CAPITALIZED
------------------------------------------------------------------------------------------------
Total capital to risk-weighted
assets 22.63% 8% 10%
Tier 1 capital to risk-weighted
assets 20.77% 4% 6%
Tier 1 capital to average total assets 11.98% 4% 5%
Management expects the Corporation and the Bank to maintain capital levels that
exceed the regulatory standards for well-capitalized institutions for the next
12 months and for the foreseeable future. Planned capital expenditures during
the next 12 months are not expected to have a detrimental effect on capital
ratios or results of operations.
17
18
INFLATION
Over the last several years, direct inflationary pressures on the Corporation's
payroll-related and other noninterest costs have been modest. However, the
Corporation is significantly affected by the Federal Reserve Board's efforts to
control inflation through changes in interest rates. Management monitors the
impact of economic trends, including any indicators of inflationary pressure, in
managing interest rate and other financial risks.
18
19
CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
PART I - FINANCIAL INFORMATION (CONTINUED)
ITEM 3. INTEREST RATE RISK AND MARKET RISK
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
------------------------------------------------------------------
MARKET RISK
The Corporation's two major categories of market risk, interest rate and equity
securities risk, are discussed in the following sections.
INTEREST RATE RISK
Business risk arising from changes in interest rates is an inherent factor in
operating a bank. The Corporation's assets are predominantly long-term, fixed
rate loans and debt securities. Funding for these assets comes principally from
short-term deposits and borrowed funds. Accordingly, there is an inherent risk
of lower future earnings or decline in fair value of the Corporation's financial
instruments when interest rates change.
The Bank uses a simulation model to calculate the potential effects of interest
rate fluctuations on net interest income and the market value of portfolio
equity. Only assets and liabilities of the Bank are included in management's
monthly simulation model calculations. Since the Bank makes up more than 90% of
the Corporation's total assets and liabilities, and because the Bank is the
source of the most volatile interest rate risk, management does not consider it
necessary to run the model for the remaining entities within the consolidated
group. For purposes of these calculations, the market value of portfolio equity
includes the fair values of financial instruments, such as securities, loans,
deposits and borrowed funds, and the book values of nonfinancial assets and
liabilities, such as premises and equipment and accrued interest. The model
measures and projects potential changes in net interest income, and calculates
the discounted present value of anticipated cash flows of financial instruments,
under the "base most likely" and "what if" scenarios. Typically, management runs
these calculations assuming increases and decreases of 100 basis points (1%),
200 basis points and 300 basis points from the base most likely scenario.
The Bank's Board of Directors has established policy guidelines for acceptable
levels of interest rate risk, based on an increase or decrease in interest rates
of 200 basis points. The policy limit for fluctuation in net interest income is
minus 20% from the base most likely one-year scenario. The policy limit for
market value variance is minus 30% from the base most likely one-year scenario.
Throughout most of 2000, the Bank's calculations showed projected decreases in
net interest income and market value of portfolio equity, in the plus 200 basis
point scenario, that exceeded the policy thresholds. As the table below shows,
as of March 31, 2001, the Bank's interest rate risk calculations were within the
policy thresholds. This improvement is mainly attributable to 2 factors: (1)
shortened assumed maturities of callable agency securities, because of lower
interest rates, and (2) corrections of certain discount rate calculations.
The table that follows was prepared using the simulation model described above.
The model makes estimates, at each level of interest rate change, regarding cash
flows from principal repayments on loans and mortgage-backed securities and call
activity on other investment securities. Actual results could vary significantly
from these estimates, which could result in significant differences in the
calculations of projected changes in net interest margin and market value of
portfolio equity. Also, the model does not make estimates related to changes in
the composition of the deposit portfolio that could occur due to rate
competition and the table does not necessarily reflect changes that management
would make to realign the portfolio as a result of changes in interest rates.
19
20
TABLE XI - THE EFFECT OF HYPOTHETICAL CHANGES IN INTEREST RATES
PERIOD ENDING MARCH 31, 2002
(IN THOUSANDS)
PLUS 200 MINUS 200
MOST LIKELY BASIS BASIS
FORECAST POINTS POINTS
AMOUNT AMOUNT % CHANGE AMOUNT % CHANGE
Interest income:
Securities $ 24,419 $ 25,178 3.11 $ 23,548 (3.57)
Interest-bearing due from banks
and federal funds sold 327 378 15.60 215 (34.25)
Loans 29,896 31,264 4.58 27,594 (7.70)
----------------------------------------------------------------------------------------------------------------------
Total interest income 54,642 56,820 3.99 51,357 (6.01)
----------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits 21,656 27,426 26.64 16,773 (22.55)
Interest on borrowed funds 6,883 7,702 11.90 6,112 (11.20)
----------------------------------------------------------------------------------------------------------------------
Total interest expense 28,539 35,128 23.09 22,885 (19.81)
----------------------------------------------------------------------------------------------------------------------
Net Interest Income $ 26,103 $ 21,692 (16.90) $ 28,472 9.08
======================================================================================================================
Market Value of Portfolio Equity at March 31, 2001 $ 85,892 $ 63,373 (26.22) $ 98,977 15.23
======================================================================================================================
EQUITY SECURITIES RISK
The Corporation's equity securities portfolio consists primarily of investments
in stock of banks and bank holding companies located mainly in Pennsylvania. The
Corporation also owns restricted stock issued by the Federal Home Loan Bank of
Pittsburgh.
Investments in bank stocks are subject to the risk factors that affect the
banking industry in general, including competition from nonbank entities, credit
risk, interest rate risk and other factors, which could result in a decline in
market prices. Also, losses could occur in individual stocks held by the
Corporation because of specific circumstances related to each bank. Further,
since the stocks held are bank and bank holding companies concentrated in
Pennsylvania, these investments could decline in market value if there is a
downturn in the state's economy.
Equity securities held as of March 31, 2001 and December 31, 2000 are presented
in Table XII.
TABLE XII - EQUITY SECURITIES Hypothetical Hypothetical
10% Decline 20% Decline
Fair In In
Cost Value Market Value Market Value
AT MARCH 31, 2001
Banks and bank holding companies $22,097 $27,986 $(2,799) $(5,597)
Federal Home Loan Bank 7,248 7,248 (725) (1,450)
------------------------------------------------------------------------------------------
Total $29,345 $35,234 $(3,524) $(7,047)
==========================================================================================
Hypothetical Hypothetical
10% Decline 20% Decline
Fair In In
Cost Value Market Value Market Value
AT DECEMBER 31, 2000
Banks and bank holding companies $22,098 $26,814 $ (2,681) $ (5,362)
Federal Home Loan Bank 7,248 7,248 (725) (1,450)
------------------------------------------------------------------------------------------
Total $29,346 $34,062 $ (3,406) $ (6,812)
==========================================================================================
20
21
CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Neither the Corporation nor any of its subsidiaries is a party to any
material pending legal proceedings.
Item 2. Not Applicable
Item 3. Not Applicable
Item 4. Not Applicable
Item 5. Other Information
a. None
Item 6. Exhibits and Reports on Form 8 - K
a. Exhibits have been omitted either because not applicable or because
the required information is included elsewhere in Form 10-Q.
b. There were no reports on Form 8-K filed during the 1st quarter
2001.
21
22
CITIZENS AND NORTHERN CORPORATION - FORM 10 - Q
Signature Page
SIGNATURES
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.
CITIZENS & NORTHERN CORPORATION
May 11, 2001 By: Craig G. Litchfield /s/
------------ -----------------------
Date Chairman, President and Chief Executive Officer
May 11, 2001 By: Mark A. Hughes /s/
------------ ------------------
Date Treasurer and Principal Accounting Officer
22