<PAGE>
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 quarterly period ended September 30, 1997
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)
717-724-3411
(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) 5,168,354 SHARES ISSUED AND OUTSTANDING
OCTOBER 1, 1997
1
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CITIZENS & NORTHERN CORPORATION
INDEX
PART I. FINANCIAL INFORMATION Page
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statement of Condition - September 30, 1997 and
December 31, 1996 3
Consolidated Statements of Income - Three Months Ended
September 30, 1997, 1996 and Nine Months Ended
September 30, 1997, 1996 4,5
Consolidated Statements of Cash Flows - Nine Months Ended
September 30, 1997, 1996 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONAND RESULTS OF OPERATIONS 8 thru 21
ITEM 3. INFORMATION ABOUT MARKET RISK 19
PART II. OTHER INFORMATION 22
ITEM 1. LEGAL PROCEEDINGS 22
ITEMS 2,3, AND 5 HAVE BEEN OMITTED AS THEY ARE NOT APPLICABLE TO
REGISTRANT.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 22
SIGNATURES 23
2
<PAGE>
CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet
(In Thousands)
Unaudited Audited
September 30, December 31,
1997 1996
ASSETS
Cash & Due From Banks $14,556 $14,320
Interest Bearing Deposits 610 655
Available-for-Sale Securities:
U.S. Treasury Securities 2,530 2,475
Securities of Other U.S. Government Agencies 74,146 36,341
Mortgage Backed Securities 137,862 183,483
Obligations of States and Municipal Subdivisions 62,224
55,943
Other Securities 30,684 29,611
Total Available-for-Sale Securities 307,446 307,853
Held-to-Maturity Securities:
U.S. Treasury Securities 599 699
Securities of Other U.S. Government Agencies 350 100
Mortgage Backed Securities 664 770
Total Held-to-Maturity Securities 1,613 1,569
Federal Funds Sold
Loans:
Loans to Political Subdivisions 6,430 6,555
Other Loans 278,879 272,084
Total Loans 285,309 278,639
Less - Allowance for Possible Loan Losses (4,880) (4,776)
Unearned Income (41) (42)
Loans, Net 280,388 273,821
Bank Premises and Equipment 6,628 6,609
Other Real Estate 189 583
Accrued Interest on Bonds and Loans 4,223 4,404
Other Assets 753 378
TOTAL ASSETS $616,406 $610,192
LIABILITIES
Deposits:
Demand $46,539 $47,320
Interest Checking 37,012 38,916
Money Market 107,472 100,523
Savings 45,298 46,175
Other Time 201,565 197,377
Total Deposits 437,886 430,311
Dividends Payable 911 902
Borrowed Funds 50,665 59,600
Securities Sold Under Agreement to Repurchase 36,800 44,650
Other Liabilities 8,830 3,136
TOTAL LIABILITIES 535,092 538,599
SHAREHOLDERS' EQUITY
Common Stock, Par Value $ 1.00 per Share 5,168 5,117
Authorized 10,000,000; Issued 5,168,354
and 5,117,182 in 1997 and 1996, respectively
Stock Dividend Distributable 1305
Paid in Capital 13,795 12,539
Retained Earnings 52,814 47,862
Total 71,777 66,823
Unrealized Gains on Available-for-Sale
Securities 10,533 5,767
Less: Treasury Stock at Cost
105,761 shares at September 30, 1997 (996)
105,100 shares at September 30, 1996 (997)
TOTAL SHAREHOLDERS' EQUITY 81,314 71,593
TOTAL LIABILITIES &
SHAREHOLDERS' EQUITY $616,406 $610,192
The accompanying notes are an integral part of these condensed financial
statements.
3
<PAGE>
CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
Part I - Financial Information
Item 1. Financial Statements
Three Months Ended
CONSOLIDATED STATEMENT OF INCOME September 30,
1997 1996
INTEREST INCOME (Current) (Prior Year)
Interest and Fees on Loans $ 7,254 $ 6,986
Interest on Balances with Depository
Institutions 16 10
Interest on Loans to Political Subdivisions 100 106
Interest on Federal Funds Sold 118 1
Income from Available-for-Sale and
Held-to-Maturity Securities:
Taxable 3,525 4,000
Tax Exempt 916 785
Dividends 217 206
Total Interest and Dividend Income 12,146 12,094
INTEREST EXPENSE
Interest on Deposits 4,697 4,521
Interest on Other Borrowings 1,189 1,415
Total Interest Expense 5,886 5,936
Interest Margin 6,260 6,158
Provision for Possible Loan Losses 181 175
Interest Margin After Provision for Possible
Loan Losses 6,079 5,983
OTHER INCOME
Service Charges on Deposit Accounts 272 289
Service Charges and Fees 79 70
Trust Department Income 264 227
Insurance Commissions, Fees and Premiums 110 134
Other Operating Income 19 7
Total Other Income Before Realized
Gains on Securities, Net 744 727
Realized Gains on Securities, Net 62 183
Total Other Income 806 910
OTHER EXPENSES
Salaries and Wages 1,493 1,484
Pensions and Other Employee Benefits 396 415
Occupancy Expense, Net 180 174
Furniture and Equipment Expense 178 181
Other Operating Expense 1,475 1,398
Total Other Expenses 3,722 3,652
Income Before Income Tax Provision 3,163 3,241
Income Tax Provision 724 875
NET INCOME $ 2,439 $ 2,366
PER SHARE DATA:
Net Income $0.48 $0.47
Dividend Per Share $0.18 $0.17
Number Shares Used in Computation 5,062,536 5,062,453
Number Shares Issued 5,168,354 5,117,182
Number Shares Authorized 10,000,000 10,000,000
Dividends Actually Paid $0.18 $0.17
The accompanying notes are an integral part of these condensed financial
statements.
4
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CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
Part I - Financial Information
Item 1. Financial Statements
Nine Months Ended
Consolidated Statement of Income September 30,
(In Thousands) 1997 1996
INTEREST INCOME (Current) (Prior Year)
Interest and Fees on Loans $ 21,382 $ 20,516
Interest on Balances with Depository
Institutions 35 27
Interest on Loans to Political Subdivisions 295 318
Interest on Federal Funds Sold 242 59
Income from Available-for-Sale and
Held-to-Maturity Securities:
Taxable 10,699 12,059
Tax Exempt 2,668 2,226
Dividends 629 613
Total Interest and Dividend Income 35,950 35,818
INTEREST EXPENSE
Interest on Deposits 13,670 13,290
Interest on Other Borrowings 3,799 4,218
Total Interest Expense 17,469 17,508
Interest Margin 18,481 18,310
Provision for Possible Loan Losses 543 525
Interest Margin After Provision for Possible
Loan Losses 17,938 17,785
OTHER INCOME
Service Charges on Deposit Accounts 812 847
Service Charges and Fees 210 200
Trust Department Income 774 615
Insurance Commissions, Fees and Premiums 343 402
Other Operating Income 382 34
Total Other Income Before Realized Gains
on Securities, Net 2,521 2,098
Realized Gains on Securities, Net 869 451
Total Other Income 3,390 2,549
OTHER EXPENSES
Salaries and Wages 4,459 4,406
Pensions and Other Employee Benefits 1,266 1,300
Occupancy Expense, Net 535 541
Furniture and Equipment Expense 513 546
Other Operating Expense 4,501 4,070
Total Other Expenses 11,274 10,863
Income Before Income Tax Provision 10,054 9,471
Income Tax Provision 2,368 2,439
NET INCOME $ 7,686 $ 7,032
PER SHARE DATA:
Net Income $1.52 $1.39
Dividend Per Share $0.54 $0.51
Number Shares Used in Computation 5,062,536 5,062,453
Number Shares Issued 5,168,354 5,117,182
Number Shares Authorized 10,000,000 10,000,000
Dividends Actually Paid $0.54 $0.51
The accompanying notes are an integral part of these condensed financial
statements.
5
<PAGE>
CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
Part I - Financial Information
Item 1. Financial Statements
Periods Ended
September 30,
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands) 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 7,686 $ 7,032
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities
Provision for Possible Loan Losses 543 525
Realized (Gain) on Available-for-Sale and
Held-to-Maturity Securities, Net (869) (451)
Provision for Depreciation 530 572
Accretion and Amortization 507 869
Deferred Income Tax (118) (67)
(Increase) Decrease in Accrued Interest
Receivable and Other Assets 759 (1,182)
Increase in Accrued Interest Payable and
Other Liabilities 3,246 5,112
Net Cash Provided by Operating Activities 12,284 12,410
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the Maturity of
Held-to-Maturity Securities 206 118
Purchase of Held-to-Maturity Securities (250) (199)
Proceeds from Sales of Available-for-Sale
Securities 131,333 11,573
Proceeds from Maturities of
Available-for-Sale Securities 36,371 28,844
Purchase of Available-for-Sale Securities (160,547) (55,452)
Net Increase in Loans (7,110) (12,194)
Purchase of Premises and Equipment (549) (319)
Sale of Foreclosed Assets 487 212
Purchase of Other Real Estate (93) (455)
Net Cash Used in Investing Activities (152) (27,872)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Deposits 7,575 325
Increase (Decrease) in Short
Term Borrowings (7,850) 7,650
Proceeds from (Repayment of) Long
Term Borrowings (8,935) 14,000
Sale of Treasury Stock 3
Dividends Declared (2,734) (2,556)
Net Cash Provided by Financing
Activities (11,941) 19,419
INCREASE IN CASH AND CASH EQUIVALENTS 191 3,957
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 14,975 13,590
CASH AND CASH EQUIVALENTS, END OF YEAR $ 15,166 $ 17,547
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Interest Paid $ 12,978 $ 13,567
Income Taxes Paid $ 2,466 $ 2,599
The accompanying notes are an integral part of these condensed financial
statements.
6
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CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
Part I - Financial Information (continued )
Item 1. Financial Statements ( continued )
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The financial information included herein, with the exception of the
Consolidated Balance Sheet dated December 31, 1996, is unaudited;
however, such information reflects all adjustments ( consisting solely of
normal recurring adjustments ) that are, in the opinion of management,
necessary to a fair presentation of the financial position, results of
operations and changes in financial position for the interim periods.
Results reported for the nine-month period ended September 30, 1997
may not be indicative of the results for the year ended December 31, 1997.
This document has not been reviewed or confirmed for accuracy or
relevance by the Federal Deposit Insurance Corporation.
2. The Financial Accounting Standards Board, in June 1997, issued SFAS
No. 130 "Reporting Comprehensive Income". The Statement is to become
effective for fiscal years beginning after December 15, 1997; however,
earlier implementation is acceptable. If adopted at September 30, 1997,
there would not be a significant impact on the financial statements of the
Corporation.
7
<PAGE>
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
EARNINGS OVERVIEW
The Corporation reported net income for the nine months ended
September 30, 1997 of $7,686,000, or $1.52 per common share. This
compares to $ 7,032,000, or $1.39 per share, for the nine-month period
ended September 30, 1996.
The increase was the result of realized gains on the sale of
Available-for-Sale securities and certain equity investments, as well as
the sale of a copyright. The gross realized gains amounted to $869,000;
this compares to realized gains reported September 30, 1996 of $451,000.
Excluding realized securities gains and the copyright sale, net income was
slightly ahead of budget and last year actuals for the nine-month period.
The directors and management of the Corporation expect that 1997 will
produce results comparable to those reported for 1996. This assumption is
based on the current interest rate environment and could change if the FOMC
decides to raise rates again in 1997.
NET INTEREST MARGIN
Nine-Month Periods Ended September 30, 1997/1996
The net spread between the rate of return on earning assets and the
cost of interest-bearing liabilities declined slightly when compared to the
nine-month period ended September 30, 1996. The net spread for the
nine-month periods ended September 30, 1997 and September 30, 1996 was 3.47
percent and 3.52 percent, respectively. The net spread for the year ended
December 31, 1996 was 3.49 percent. The gross rate of return on earning
assets for the nine-month periods ended September 30, 1997, September 30,
1996 and the year ended December 31, 1996 was 8.32 percent, 8.31 percent
and 8.29 percent, respectively. The average cost of interest-bearing
liabilities for the same periods was 4.84 percent, 4.79 percent and 4.80
percent, respectively. Interest rates have remained relatively flat since
the FOMC increased the Federal Funds rate by 25 basis points at its April
1997 meeting. The Corporation is anticipating very little change in the
current rate structure for the balance of the fourth quarter.
To increase the return and market value of the Available-for Sale
investment portfolio, $111,000,000 in seasoned mortgage-backed securities
were sold and replaced with higher yielding mortgage-backed instruments.
The sale accomplished two goals: it increased pretax income and improved
the market value of portfolio equity. Pretax income is expected to improve
$772,000 per annum and the market value of the portfolio in a rising rate
scenario of 200 basis points improved $2,500,000 immediately. The
restructuring did, however, lengthen the average life of the
mortgage-backed portfolio by 3.1 years. The sale and replacement generated
a before-tax loss of $1,885,000 that was offset by the sale of equity
investments.
The average rate of return on Available-for-Sale investments was 6.46
percent, down 3 basis points when compared to the same period in 1996 and 4
basis points when compared to the year ended December 31, 1996. The average
value of the Available-for-Sale investments was $287,959,000 for the nine
months ended September 30, 1997, compared to $303,548,000 for the 12 months
ending December 31, 1996 and $305,462,000 for the nine-month period ended
September 30 1996. The decline was caused by an increase in loan demand
that was funded by the payment stream of the mortgage-backed investments.
The rate of return on the loan portfolio was 10.29 percent, off by 14
basis points, when comparing the nine months ended September 30, 1997 to
the same nine-month period in 1996. The rate of return on the loan
portfolio for the year ended December 31, 1996 was 10.31 percent. Average
gross loans for the periods ended September 30, 1997, December 31, 1996 and
September 30, 1996 totaled $281,774,000, $271,618,000 and $267,190,000,
respectively. The composition of the portfolio has remained unchanged with
loans secured by real estate remaining the largest single category of
loans. Other loan categories also remained unchanged with the exception of
consumer loans which declined slightly.
On the interest-bearing liability side of the balance sheet, average
total interest-bearing deposit balances increased 1 percent during the nine
months ended September 30, 1997 when compared to the period ended September
30, 1996 and 1.4 percent when compared to the year ended December 31, 1996.
Interest-bearing deposits posting the largest increase were money market
accounts. All other deposit categories remained relatively flat except
Interest-checking accounts which were down about $2,000,000 when compared
to the year ended December 31, 1996 and the nine months ended September 30,
1996. Average interest-bearing balances for the periods, respectively,
amounted to $391,970,000 and $388,659,000. Average interest-bearing
balances for the year ended December 31, 1996 were $386,536,000. The
Corporation still maintains a strong base of Money Market accounts and
average balances have increased $6,671,000 since the period ended September
30, 1996. The corporation has had difficulty attracting deposits due to
the flow of funds into mutual funds and the competition in our market area
from credit unions.
Average borrowed funds for the nine months ended September 30, 1997
have decreased $10,803,000 when compared to the nine months ended September
30, 1996 and $11,797,000 when compared to the year ended December 31,
1996. The decline is caused by a flat yield curve making investment
opportunities with spreads large enough to make the risk worthwhile scarce.
8
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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 (continued)
Management is expecting interest rates to remain stable during the
remainder of 1997. If the FOMC does raise rates it will probable be in the
25 basis points range.
Tables I and II are provided to reflect average balances and rates
paid for the quarters ended September 30, 1997, September 30, 1996 and the
year ended December 31, 1996.
9
<PAGE>
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 (continued)
Table I - Analysis of Average Daily Balances and Rates
<TABLE>
<CAPTION>
Rate Rate Rate
Period Earned/ Period Earned/ Period Earned/
(In Thousands) Ended Paid Ended Paid Ended Paid
EARNING ASSETS 09/30/97 % 12/31/96 % 09/30/96 %
<S> <C> <C> <C> <C> <C> <C>
Available-for-Sale Securities:
U. S. Treasury Securities $2,511 5.38 $2,506 5.11 $2,507 5.12
Securities of Other U.S. Government Agencies
and Corporations 32,502 7.03 30,514 6.96 28,580 6.91
Mortgage Backed Securities 174,409 6.71 197,581 6.64 203,037 6.57
Obligations of States and Political Subdivisions 58,840 6.06 49,700 6.06 47,962 6.21
Stock 14,941 5.64 16,342 5.34 16,392 5.00
Other Securities 4,756 1.38 6,905 6.84 6,984 8.21
Total Available-for-Sale Securities 287,959 6.46 303,548 6.50 305,462 6.49
Held-to-Maturity Securities:
U. S. Treasury Securities 598 6.26 698 6.02 698 6.13
Securities of Other U. S. Government
Agencies and Corporations 279 7.19 50 8.00 44 6.08
Mortgage Backed Securities 707 7.56 829 7.12 844 6.97
Obligations of States and Political Subdivisions
Stock
Other Securities
Total Held-to-Maturity Securities 1,584 7.01 1,577 6.66 1,586 6.58
Interest -bearing Due from Banks 698 6.70 455 8.13 568 6.36
Federal Funds Sold 5,999 5.39 1,100 5.45 1,444 5.46
Loans:
Real Estate 222,935 9.03 210,289 9.17 205,520 9.34
Consumer 32,122 20.24 35,305 18.13 35,438 17.92
Agricultural 2,720 10.08 2,750 10.11 2,739 10.10
Commercial/Industrial 16,682 9.65 16,207 9.73 16,346 9.64
Other 679 8.27 237 10.55 268 7.98
Political Subdivisions 6,397 6.17 6,629 6.40 6,685 6.36
Leases 239 7.83 201 7.96 194 8.96
Total Loans 281,774 10.29 271,618 10.31 267,190 10.43
Total Earning Assets 578,014 8.32 578,298 8.29 576,250 8.31
Cash 12,252 11,502 13,962
Securities Valuation Reserve 7,968 5,924 5,776
Allowance for Possible Loan Losses (4,814) (4,726) (4,647)
Other Assets 5,858 6,617 5,347
Bank Premises & Equipment 6,549 6,793 6,822
Total Assets $605,827 $604,408 $603,510
INTEREST-BEARING LIABILITIES
Interest Checking $38,614 2.47 $40,558 2.46 $40,664 2.47
Money Market 106,712 4.54 100,618 4.53 100,041 4.55
Savings 46,629 2.48 46,751 2.50 47,225 2.49
Certificates of Deposit 118,599 5.48 117,596 5.47 117,595 5.50
Individual Retirement Accounts 78,999 6.03 79,076 5.77 80,069 5.63
Other Time Deposits 2,417 2.43 1,937 2.99 2,465 2.44
Federal Funds Purchased 498 6.17 967 5.69 1,220 5.92
Other Borrowed Funds 89,793 5.62 101,121 5.56 99,874 5.57
Total Interest-bearing Liabilities 482,261 4.84 488,624 4.80 489,153 4.79
Demand Deposits 42,296 42,500 42,786
Other Liabilities 7,121 6,794 6,467
TOTAL LIABILITIES 531,678 537,918 538,406
Stockholders' Equity 68,855 62,797 61,291
Securities Valuation Reserve 5,294 3,693 3,813
Total Liabilities and Stockholders'
Equity $605,827 $604,408 $603,510
Interest Rate Spread 3.47 3.49 3.52
</TABLE>
10
<PAGE>
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 (continued)
Table II - Analysis of the Effect of Volume and Rate Changes in Interest
Income and Interest Expense
<TABLE>
<CAPTION>
Nine-Month period Ended September 30, 1997/1996
(In Thousands) Change in Change in Total
Volume Rate Change
<S> <C> <C> <C>
EARNING ASSETS
Available-for-Sale Securities:
U. S. Treasury Securities $0 $5 $5
Securities of Other U.S. Government Agencies and Corporations 206 27 233
Mortgage Backed Securities (1,442) 219 (1,223)
Obligations of States and Political Subdivisions 492 (50) 442
Stock (39) 56 17
Other Securities (105) (275) (380)
Total Available-for-Sale Securities (888) (18) (906)
Held-to-Maturity Securities:
U. S. Treasury Securities (5) 1 (4)
Securities of Other U.S. Government Agencies and Corporations 13 0 13
Mortgage Backed Securities (8) 4 (4)
Obligations of States and Political Subdivisions
Stock
Other Securities
Total Held-to-Maturity Securities 0 5 5
Interest -bearing Due from Banks 6 2 8
Federal Funds Sold 184 (1) 183
Loans:
Real Estate Loans 1,150 (448) 702
Consumer (294) 407 113
Agricultural (1) (1) (2)
Commercial/Industrial 24 1 25
Other 25 1 26
Political Subdivisions (13) (10) (23)
Leases 2 (1) 1
Total Loans 893 (51) 842
Total Interest Income $195 ($63) $132
INTEREST BEARING LIABILITIES
Interest Checking (38) (2) (40)
Money Market 227 (10) 217
Savings (11) (3) (14)
Certificates of Deposit 41 (17) 24
Individual Retirement Accounts (44) 239 195
Other Time Deposits (1) (0) (1)
Federal Funds Purchased (33) 2 (31)
Other Borrowed Funds (424) 35 (389)
Total Interest Expense (283) 244 (39)
NET INTEREST INCOME $478 $(307) $171
</TABLE>
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.
11
<PAGE>
CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
Part 1 - Financial Information ( continued )
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ( continued )
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The Allowance for Possible Loan Losses is a reserve established by
management, which it believes will be adequate to absorb future loan losses
based on management's assessment of the quality of the total loan
portfolio. The assessment is performed on an ongoing basis and reviewed by
the Board of Directors quarterly.
The quarterly assessment process is conducted by a loan quality
committee which consists of the President, Chief Financial Officer,
Executive Vice Presidents in charge of loans and branch administration and
the Auditor. The committee reviews the "Watch List", a collection of loans
that have had a history of delinquency, past due reports, nonperforming
loans and historical information related to charge-offs and recoveries by
loan categories.
The committee then allocates the reserve balance across the various
loan categories to determine the unallocated portion. The committee uses
two methods of allocation. The first calculates a ratio of average losses
by type to the average outstanding balance by type. The ratio is then
applied to the current outstanding balance of the various loan categories
to determine the portion of the reserve to be allocated. The second method
extracts loans by a quality rating system. The loans are categorized as
"Substandard", "Doubtful" and "Loss". Regulatory guidelines of 15 percent
of substandard, 50 percent of doubtful and 100 percent of loss are applied
to establish reserve allocations. The following allocations are as of June
30, 1997 as the committee had not completed the third quarter review at
this writing. The third quarter allocations should not vary greatly from
those of the second quarter presented here. The Corporation also employs
and relies heavily on an independent loan appraiser. However, his work is
only performed annually and on loans of $175,000 or higher. The report of
the independent appraiser as of June 13, 1997 lists substandard loans at
$7,878,483, doubtful loans at $357,809 and loss loans at $3,205. The
reserve allocation based upon these classifications would amount to
$1,363,882.
Other factors used to evaluate the reserve level are loan growth,
economic conditions of the market area and peer group comparisons.
Tables III through VI present current and historical information
related to the Allowance for Possible Loan Losses.
Table III - Reconciliation of the Reserve for Possible Loan Losses
<TABLE>
<CAPTION>
Estimated Actual Actual Actual Actual
Dec. 31, 1997 Sept. 30, 1997 Dec. 31, 1996 Dec. 31, 1995 Dec 31, 1994
<S> <C> <C> <C> <C> <C>
Beginning Balance January 1, $4,775,960 $4,775,960 $4,579,210 $4,228,741 43,816,982
Provision Charged to Earnings 723,500 542,628 700,500 736,500 737,496
Year-to-Date Recoveries $196,167 $78,898 $167,926 $187,473 $194,312
Year-to-Date Charge-offs (495,627) (517,749) (671,676) (573,504) (520,049)
Ending Balance $5,200,000 $4,879,737 $4,775,960 $4,579,210 $4,228,741
</TABLE>
12
<PAGE>
CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
Part 1 - Financial Information ( continued )
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ( continued )
Table IV - Loan Loss History and Other Statistics
<TABLE>
<CAPTION>
(In Thousands)
1997 Est 1996 1995 1994 1993 1992 1991 AVERAGE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Loans * 293,542 278,597 264,182 258,472 238,755 225,475 199,072 244,092
Net Charge offs 448 504 387 326 247 518 3,142 854
Allowance Balance 5,200 4,776 4,579 4,229 3,817 3,356 2,548 3,884
Provision Charged to Earnings 724 721 737 737 708 1,326 3,151 1,230
Earnings (Budget) 8,676 9,255 7,866 7,494 8,127 7,290 5,643 7,613
Earnings Coverage of Net Charge offs 19.4 x 18.4 x 20.3 x 23.0 x 32.9 x 14.1 x 1.8 x 18 x
Allowance Coverage of Net Charge offs 11.6 x 9.5 x 11.8 x 13.0 x 15.5 x 6.5 x 0.8 x 10 x
Loans Ninety Days or More Past Due and
Still Accruing 2,900 2,994 2,915 2,743 2,899 2,532 3,810 2,982
Net Charge offs as a Percentage of
the Provision 61.9% 69.9% 52.5% 44.2% 34.9% 39.1% 99.7% 56.7%
Year-End Nonperforming Loans 864 279 624 843 1,351 417 730
Allowance as a Percentage of Gross
Loans: *
Bank (1) 1.71% 1.71% 1.73% 1.64% 1.60% 1.49% 1.28% 1.58%
Peer Group (2) 1.45% 1.50% 1.61% 1.65% 1.82% 1.42% 1.44% 1.57%
* Gross Loans less Unearned Discount
(1) At September 30, 1997
(2) At June 30, 1997
Averages are based on the years 1991 through 1996.
<CAPTION>
Table V - Allocation of the Allowance for Possible Loan Losses based on
Historical Data
LOAN CLASSIFICATION 1997 Est 1996 1995 1994 1993 1992 1991 Average
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, Ag.,
Mun. & Other $20,000 $29,832 $26,318 $22,649 $26,376 $22,712 $23,541 $25,238 0.02006 X $29,832 = $598
Real Estate
- - Construction 1,250 1,166 1,284 2,593 2,224 993 982 1,540 0.00000 X 1,166 =
Real Estate
- - Mortgage 229,042 213,957 200,066 193,095 170,532 162,434 136,716 179,467 0.00027 X 213,957 = 59
Credit Card
& Related Plans 10,000 8,902 9,934 9,896 9,212 9,991 6,694 9,105 0.01369 X 8,902 = 122
All Other
Loans to
Individuals 33,000 24,518 26,417 30,094 30,282 29,182 31,762 28,709 0.00605 X 24,518 = 148
Lease Financing 250 222 163 145 154 162 129 163 0.00000 X 222 = 0
Total Loans 293,542 278,597 264,182 258,472 238,780 225,474 199,824 244,222
Letter of
Credit
Commitments 5,000 5,106 2,633 4,415 5,046 4,670 N/A 4,191 0.04010 X 4,191 = 168
All Other
Commitments
Consumer 28,000 28,049 24,811 24,202 23,323 22,174 N/A 23,628 0.00605 X 28,049 = 170
Mortgage 6,000 5,802 7,276 9,566 9,466 9,117 N/A 8,856 0.00027 X 5,802 = 2
Commercial $11,000 $10,825 $10,201 $9,901 $9,790 $5,670 N/A $8,891 0.02006 X $10,825 = $217
Reserve Allocation $1,484
FASB 114 Allocation 113
Unallocated Portion 3,603
Reserve Balance $5,200
</TABLE>
The reserve allocation is determined by using the six-year average net
charge-offs divided by the six-year average loan balance by type.
Table VI - Allocation of The Allowance for Possible Loan Losses Based on
Regulatory Standards
June 30, 1997
Loan Classifications
Substandard @ 15 % $ 1,364,941
Doubtful @ 50 % 217,500
Loss @ 100 % 139,323
Required Reserve 1,721,764
Unallocated 3,157,696
Total Reserve $ 4,879,460
13
<PAGE>
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 ( continued )
Table VII - Major Categories of Noninterest Income
Nine-Month Periods Ended
September 30,
$ %
1997 1996 Change Change
Service Charges on Deposit Accounts $812 $847 $(35) (4.13)
Service Charges and Fees 210 200 10 5.00
Trust Department Income 774 615 159 25.85
Ins. Commissions, Fees and Premiums 343 402 (59) (14.68)
Other Operating Income 382 34 348 1,023.53
Total Other Income, Excl.
Realized Sec. Gains 2,521 2,098 423 20.16
Realized Gains on Sec., Net 869 451 418 92.68
Total Other Income $3,390 $2,549 $841 32.99
Total Other Income increased 20.16 percent when comparing the nine months
ended September 30, 1997 to the same nine-month period in 1996 and (1.13)
percent when compared to the nine months beginning April 1, 1996 and ending
December 31, 1996. Other Operating Income consists of Service Charges on
Deposit Accounts, Other Service Charges and Fees, Trust Department Income,
Insurance Commissions, Fees, and Premiums and Other Operating Income. The
significant increase recorded during the nine-month period being reviewed was
due to the sale of a registered logo owned by the Corporation; the copyright
was sold for $301,000.
Service Charges on Deposit Accounts consist of fees generated by the use
of the deposit accounts and overdraft charges. There was a 4 percent decline
between the current nine-month period when compared to the same period in 1996,
and nearly 5 percent when comparing the current period to the nine months ended
December 31, 1996. The fees collected monthly are nearly evenly split between
overdraft charges and checking account maintenance. The total monthly fees
collected normally average between $92,000 and $94,000; however, during the
nine months ended September 30, 1997 the fees have averaged about $90,000 per
month. The decline is due in part to a reduction in overdrafts.
Other Service Charges and Fees is comprised of debit card fees, credit
card annual fees, fees for issuing official checks, noncustomer check cashing
fees and other miscellaneous fees. A comparison of the current nine-month
period, the previous nine months and the nine months ended September 30, 1996
reveals a 5 percent increase during the current period compared to the previous
nine-month periods. Normally, the miscellaneous fees average $22,000 to
$23,000 per month.
Trust Department Income is the second largest contributor to noninterest
income, excluding realized securities gains. Income generated by the Trust
Department for the nine months ended September 30, 1997, December 31, 1996 and
September 30, 1996, respectively, amounted to $774,000, $615,000 and $647,000.
The observable increase in Trust Income is due to an increase in the number of
accounts under management and the increase in the market value of the trust
assets. There has been an increase of nearly 100 accounts since June 30, 1996.
The Trust Department normally contributes $80,000 to $85,000 in income per
month.
Insurance Commissions, Fees and Premiums generated by Bucktail Life
Insurance Company for the nine-month periods ended September 30, 1997, December
31, 1996 and September 30, 1996 were $343,000, $436,000 and $402,000,
respectively. Premiums generated in the nine months ended December 31, 1996
were slightly higher than the other comparable nine-month periods because the
amount included ten months of premium income. Also, life premiums experienced a
decline from an average of $17,000 per month during 1996 to $10,000 per month
during the current nine-month period. The insurance company writes life and
accident and health insurance on the bank's consumer loan portfolio.
14
<PAGE>
CITIZENS AND NORTHERN CORPORATION - FORM 10 - Q
Part I - Financial Information ( continued )
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ( continued )
Other Operating Income for the nine months ended September 30, 1997,
December 31, 1996 and September 30, 1996 amounted to $382,000, $47,000 and
$34,000, respectively. The large increase posted during the nine-month period
ended September 30, 1997 reflects the sale of the copyright mentioned earlier.
Also posted during the nine months ended September 30, 1997 was $26,000 in
income associated with the Corporation's Supplemental Retirement Plan. This
income had previously been added back to the Asset account. Other Operating
Income is normally $8,000 to $12,000 per month.
Realized Securities Gains and Losses amounted to $869,000 during the nine
months ended September 30, 1997. The recognized gains were primarily from the
sale of bank stocks which management and the Board of Directors felt had become
overpriced in relation to the book value and some had been driven up in price
because of merger speculation. It was deemed appropriate to lock in the
appreciated value. The holdings of six equity investments were sold at a gain
of $1,625,000 to offset the loss generated by the restructuring of the
mortgage-backed investment portfolio. The Corporation also sold two thirds of
it Student Loan portfolio due to disappointing returns on that asset; a premium
amounting to $28,000 was realized.
15
<PAGE>
CITIZENS AND NORTHERN CORPORATION - FORM 10 - Q
Part I - Financial Information ( continued )
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ( continued )
The following table compares the various categories of other expense for the
periods ended September 30, 1997 and September 30, 1996.
Table VIII - Major Categories of Noninterest Expense
Nine-Month Periods Ended
September 30,
$ %
1997 1996 Change Change
Salaries and Wages $4,459 $4,406 $53 1.20
Pensions and Other Employee Benefits 1,266 1,300 (34) (2.62)
Occupancy Expense, Net 535 541 (6) (1.11)
Furniture and Equipment Expense 513 546 (33) (6.04)
Other Operating Expense 4,501 4,070 431 10.59
Total Other Expense $11,274 $10,863 $411 3.78
Other Noninterest Expense consists of Salaries and Wages, Pension and
Other Employee Benefits Expense, Furniture and Equipment Expense and Other
Operating Expense.
Salaries and Wages increased $53,000 when comparing the nine-month periods
ended September 30, 1997 and September 30, 1996 and $21,000 when comparing the
nine-month period ended December 31, 1996 to the current nine-month period.
The absence of a larger increase in salaries and wages even after merit
increases can be attributed to several retirements, including the
Corporation's President.
Pensions and Other Employee Benefits declined $34,000 when comparing the
nine-month periods ended September 30, 1997 and 1996. Several factors
contributed to the decrease, including a decrease in the cost of group health
insurance. Also, the retirement of the President reduced the contribution to
the Supplemental Employees Retirement Plan.
Occupancy Expense is made up of depreciation, building maintenance and
real estate taxes and has remained insignificantly unchanged during the
comparable periods.
Furniture and Equipment Expense consists primarily of depreciation,
maintenance and rental costs. Normally Furniture and Equipment Expense will
average between $55,000 and $60,000 per month and it has not increased
significantly when comparing the current and previous year's nine-month
periods.
Other Operating Expense averages between $450,000 and $500,000 per month.
The largest of the Other Operating Expense categories are credit card
processing costs, Pennsylvania Shares Tax, Bucktail Life Ins. Co. commissions
and fees, advertising, postage and Directors' fees. Combined they make up 62
percent of Other Operating Expense. The largest contributor to Other Operating
Expense is credit card processing costs. Credit card processing costs amounted
to $1,799,000 for the current nine-month period and $1,601,000 during the same
period in 1996; for the nine-month period ended December 31, 1996 costs
amounted to $1,747,000. On the income side, credit cards generated interest
and fees amounting to $2,837,000 for the nine-month period ended September 30,
1997, contributing average net monthly income of about $115,000.
Other Operating Expense increased 11 percent and 4 percent, respectively,
when comparing the nine-month periods ended September 30, 1996 and December 31,
1996 to the current nine-month period.
16
<PAGE>
CITIZENS AND NORTHERN CORPORATION - FORM 10 - Q
Part I - Financial Information ( continued )
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ( continued )
STATEMENT OF CONDITION
Average total assets of the Corporation have remained relatively unchanged
during the past year. Average total assets for the nine-month periods ended
September 30, 1997, September 30, 1996 and the year ended December 31, 1996
were $605,827,000, $603,510,000 and $604,408,000, respectively.
The asset side of the balance sheet saw a decline in the average
investment portfolio as the amortization of the mortgage-backed investments was
used to fund loan growth. The municipal bond portfolio has increased from an
average balance of $47,962,000 during the nine-month period ended September
30,1996 to an average of $58,840,000 for the current nine-month period. The
increase is due to the favorable after tax returns available on tax free
investments. The respective average balance of the loan portfolio was
$281,774,000, $267,190,000 and $271,618,000 for the nine-month periods ended
September 30, 1997, September 30, 1996 and the year ended December 31, 1996.
The loan growth was centered around real estate secured loans as other loan
categories showed little or no change. Consumer loans did decline slightly as
just over $2,000,000 in students loans were sold.
The Available-for-Sale investment portfolio was restructured during August
and September 1997. Approximately $111,000,000 in mortgage-backed instruments,
primarily FNMA pools, were sold at a loss of $1,885,000. The investments were
replaced with higher yielding FNMA pools and U.S. Agency investments, primarily
Federal Home Loan Bank instruments. The loss was offset by the sale of equity
investments totaling $3,600,000 with accumulated appreciation amounting to
$1,838,000. The restructuring will increase the yield on the sold investments
by approximately $772,000 per year; however, the average life of the
investments purchased versus the sold securities will increase by an estimated
3.1 years.
The liability side of the balance sheet has also remained relatively
constant during the past twelve to fifteen months. Average total deposits have
begun to show some improvement after a lackluster 1996. Interest Checking and
Individual Retirement Accounts did decline slightly during 1996; however, the
decline was offset by the strength of the Money Market Accounts which continue
to exhibit growth. Also, Certificates of Deposit have begun to add growth since
year-end 1996. Total average borrowed funds have declined to an average balance
of $89,793,000 for the nine-month period ended September 30, 1997. This
compares to an annual average of $101,121,000 for 1996 and a nine-month average
of $99,874,000 for the period ended September 30, 1997. The decrease is the
result of paying off borrowings of $4,850,000 in April 1997 and $10,000,000 in
June 1997. The primary source of borrowed funds is repurchase agreements placed
with the Federal Home Loan Bank of Pittsburgh and other brokers. Terms of the
Repurchase Agreements range from one to five years. Other borrowed funds are in
the form of term loans with the Federal Home Loan Bank of Pittsburgh which are
secured by a blanket security agreement.
Interest rate fluctuations cause the market value of the investment
portfolio to vary by wide margins during periods of rising and falling rates.
The net adjustments to capital for September 30, 1997, December 31, 1996 and
September 30, 1996 were $10,533,000, $5,767,000 and $3,338,000, respectively.
Management and the Board of Directors are aware of the market risk associated
with rising interest rates and have a self imposed limitation of a 25 percent
decline in capital at a 200 basis point increase in interest rates. The
limitation may seem excessive, however, the corporation's capital is well in
excess of the regulatory definition of a "Well Capitalized" institution.
Interest rates have remained stable during the mid and latter months of 1997
after a slight rise in the first quarter. Management expects rates to remain
about the same for the remainder of 1997.
The Corporation's capital remains well in excess of regulatory guidelines
and will be discussed later in Management's Discussion and Analysis.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The Corporation is able to absorb short term deposit fluctuations or meet
unusually heavy loan demand, should either occur, by using a flexline of credit
available through the Federal Home Loan Bank of Pittsburgh, repurchase
agreements or payments derived from amortizing investments. The flexline of
credit provides the Corporation with a credit line which approximates 10
percent of the Corporation's borrowing capacity, or about $28.5 million.
Repurchase agreements are secured with mortgage-backed instruments. The
maturities of the repurchase agreements generally range from one to five years.
The Corporation also has credit lines with correspondent banks totaling
approximately $15,000,000 and amortizing payments received on the investment
portfolio amount to about $2,100,000 each month.
17
<PAGE>
CITIZENS AND NORTHERN CORPORATION - FORM 10 - Q
Part I - Financial Information ( continued )
Item 2. Management's Discussion and Analysis of Condition
and Results of Operations (continued)
The Corporation uses a computer model to measure the theoretical effect of
increases or decreases in interest rates on the market value and the net
interest margin. The model shocks the rate of return on the earning assets of
the bank and the rates paid on interest-bearing liabilities. The rate shock is
applied to the assets and liabilities based on the stated maturity of the asset
or liability. For instance, Money Market accounts reprice weekly; therefore,
the rate is shocked immediately. One, two and three hundred basis points are
the shock intervals. The Asset and Liability Policy set by the Board of
Directors imposes limits on the change in net interest income and market value
of portfolio equity at a 200 basis point increase in interest rates. Net
interest income may not decline more than 20 percent and the change in market
value of portfolio equity may not decline more than 25 percent. The Board of
Directors feels that the parameters are reasonable based on the capital
strength of the Corporation.
Capital expenditures planned during the next 12 months could amount to
$1,000,000. The largest of these will be the installation of Automated Teller
Machines at an estimated cost of between $200,000 and $500,000 depending on the
type and number installed. Other expenditures for capital assets between now
and December 31, 1998 will amount to approximately $500,000. The planned
capital expenditures will not have an adverse effect on liquidity or projected
earnings of the Corporation.
18
<PAGE>
CITIZENS AND NORTHERN CORPORATION - FORM 10 - Q
Part I - Financial Information ( continued )
Item 2. Management's Discussion and Analysis of Condition
and Results of Operations ( continued )
Table IX - Rate Sensitive Assets and Rate Sensitive Liabilities
<TABLE>
<CAPTION>
Under One to Five Five to Ten Over Ten Non-
ASSETS One Year Years Years Years Interest Total
<S> <C> <C> <C> <C> <C> <C>
Interest-Bearing Deposits $610 $610
"Available-for-Sale" Securities
U.S.Treasury Securities $2,530 2,530
U.S.Agency Securities 10,009 $39,021 $25,116 74,146
Mortgage Backed Securities 6,333 1,060 130,469 137,862
Municipals 2,660 5,491 4,099 49,974 62,224
Other Bonds 2,035 575 1,216 3,826
Stocks 26,858 26,858
Total "Available-for-Sale" Securities 2,660 26,398 44,755 233,633 307,446
"Held-to-Maturity" Securities:
U.S.Treasury Securities 499 100 599
U.S.Agency Securities 200 150 350
Mortgage Backed Securities 25 299 340 664
Total "Held-to-Maturity" Securities 499 125 499 490 1,613
Loans and Lease Financing:
Real Estate-Construction 497 497
Real Estate-Mortgage 82,278 56,294 53,675 31,821 224,068
Consumer 15,376 14,589 1,918 460 32,343
Agricultural 1,116 1,345 70 2,531
Commercial 11,948 4,119 646 173 16,886
Other 673 141 76 890
Political Subdivisions 1,747 2,144 1,166 1,203 6,260
Leases 12 48 60 160 280
Nonperforming Loans $1,554 1,554
Total Loans 113,647 78,680 57,611 33,817 1,554 285,309
Less: Unearned Discount (41) (41)
Allowance for Possible Loan Losses (4,880) (4,880)
Net Loans and Leases 113,647 78,680 57,611 33,817 (3,367) 280,388
Federal Funds Sold
Cash and Due From Banks 14,556 14,556
Other Assets 4,223 7,570 11,793
Total Assets $121,639 $105,203 $102,865 $267,940 $18,759 $616,406
LIABILITIES AND EQUITY
Interest Bearing Deposits:
Money Market $107,472 $107,472
NOW and SNOW 37,012 37,012
Christmas/Fund Clubs 2,591 2,591
CD's 82,898 $36,811 $32 119,741
Reg/Key Savings $45,298 45,298
GPS 700 700
IRA's 78,533 78,533
Total Interest-Bearing Deposits 309,206 36,811 32 45,298 391,347
Demand Deposits $46,539 46,539
Federal Funds Purchased
Repurchase Agreements 21,800 15,000 36,800
Borrowed Funds:
Variable 15,000 15,000
Fixed 25,000 10,000 665 35,665
Total Borrowed Funds 40,000 10,000 665 50,665
Other Liabilities 911 8,830 9,741
Stockholders' Equity 81,314 81,314
Total Liabilities and Equity $371,917 $61,811 $32 $45,963 $136,683 $616,406
Interest Rate Sensitivity Gap $(250,278) $43,392 $102,833 $221,977 $(117,924)
</TABLE>
19
<PAGE>
CITIZENS AND NORTHERN CORPORATION - FORM 10 - Q
Part I - Financial Information (continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Table X - Rate Shock Analysis and the Theoretical Effect on Equity Market
Values for the Period Ended September 30, 1997
(In Thousands)
<TABLE>
<CAPTION>
-3.00 -2.00 -1.00 Flat 1.00 2.00 3.00
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Book Value 616,406 616,406 616,406 616,406 616,406 616,406 616,406
Market Value 671,016 653,929 638,134 631,205 609,291 599,199 589,005
CHANGE 54,610 37,523 21,728 14,799 (7,115) (17,207) (27,401)
LIABILITIES
Book Value 535,092 535,092 535,092 535,092 535,092 535,092 535,092
Market Value 549,867 544,500 539,277 535,319 529,244 524,426 519,735
CHANGE (14,775) (9,408) (4,185) (227) 5,848 10,666 15,357
EQUITY
Beginning Balance 70,781 70,781 70,781 70,781 70,781 70,781 70,781
Asset Change 54,609 37,522 21,727 14,799 (7,116) (17,208) (27,402)
Liability Change (14,774) (9,407) (4,184) (227) 5,849 10,667 15,358
ENDING EQUITY 110,616 98,896 88,324 85,353 69,514 64,240 58,737
</TABLE>
Table XI - Current Exposure to Hypothetical Change in Interest Rates for the
Period Ended September 30, 1997
Net Interest Income MV of Portfolio Equity
Change in Rates Projected Projected
Basis Points Change Change
300 -7.5 -30.3
200 -5.7 -24.1
100 -4.6 -18.1
0 0.0 0.0
-100 4.6 3.4
-200 9.6 15.4
-300 14.6 28.8
20
<PAGE>
CITIZENS AND NORTHERN CORPORATION - FORM 10 - Q
Part I - Financial Information (continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
CAPITAL
Total capital of the Corporation, excluding unrealized gains on
Available-for-Sale Securities, at September 30, 1997, December 31, 1996 and
September 30, 1996 amounted to $69,257,000, $65,826,000 and $62,987,000,
respectively, and as shown in the following table, is well in excess of
regulatory guidelines.
TABLE XII - CAPITAL RATIOS
<TABLE>
<CAPTION>
(In Thousands)
September 30, December 31, September 30,
1997 1996 1996
<S> <C> <C> <C>
Leverage Ratio (Equity/Total Liabilities) 13.3% 12.2% 11.9%
TIER I Total Stockholders' Equity $70,781 $65,826 $64,501
TIER II Allowance for Possible Loan Losses (1) 3,913 3,957 3,934
Total Qualifying Capital $74,694 $69,783 $68,435
Risk Adjusted Assets - Balance Sheet 299,168 303,417 301,762
Risk Adjusted Assets - Off Balance Sheet 13,886 13,172 12,941
Total Risk Adjusted Assets $313,054 $316,589 $314,703
Ratios
TIER I Capital to Risk Weighted Assets 22.61% 20.79% 20.50%
Minimum Required September 30, 1997 4.00%
Minimum Required December 31, 1996 4.00%
Minimum Required September 30, 1996 4.00%
Total Capital to Risk Weighted Assets 23.86% 22.04% 21.75%
Minimum Required December 31, 1996 8.00%
Minimum Required December 31, 1995 8.00%
Minimum Required December 31, 1994 8.00%
</TABLE>
(1) Allowable addition may not exceed 1.25 percent of Risk Adjusted Assets.
21
<PAGE>
CITIZENS AND NORTHERN CORPORATION - FORM 10 - Q
Part II - Other Information
Item 1. Legal Proceedings
It is the opinion of the counsel of Citizens and Northern Corporation that
minor lawsuits which are pending will not have a significant or materially
detrimental affect on the capital of the Corporation or in any way affect the
results of operations.
Item 4. Submission of Matters to A vote of Security Holders
Item 5. Other Events
a. None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits filed as part of this report - None
b. No reports on Form 8-K were filed during the period ended September
30, 1997
22
<PAGE>
CITIZENS AND NORTHERN CORPORATION - FORM 10 - Q
SIGNATURE PAGE
--------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date NOV. 6, 1997 /s/ CRAIG G. LITCHFIELD
------------------------
Craig G. Litchfield
President and Chief Executive Officer
Date NOV. 6, 1997 /s/ JAMES W. SEIPLER
------------------------
James W. Seipler
Treasurer
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<CIK> 0000810958
<NAME> CON CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 14,556
<INT-BEARING-DEPOSITS> 610
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 307,446
<INVESTMENTS-CARRYING> 1,613
<INVESTMENTS-MARKET> 0
<LOANS> 285,309
<ALLOWANCE> 4,880
<TOTAL-ASSETS> 616,406
<DEPOSITS> 437,886
<SHORT-TERM> 36,800
<LIABILITIES-OTHER> 9,741
<LONG-TERM> 50,665
0
0
<COMMON> 5,168
<OTHER-SE> 76,146
<TOTAL-LIABILITIES-AND-EQUITY> 616,406
<INTEREST-LOAN> 21,382
<INTEREST-INVEST> 14,568
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 35,950
<INTEREST-DEPOSIT> 13,670
<INTEREST-EXPENSE> 17,469
<INTEREST-INCOME-NET> 18,481
<LOAN-LOSSES> 543
<SECURITIES-GAINS> 869
<EXPENSE-OTHER> 11,274
<INCOME-PRETAX> 10,054
<INCOME-PRE-EXTRAORDINARY> 10,054
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,686
<EPS-PRIMARY> 1.52
<EPS-DILUTED> 1.52
<YIELD-ACTUAL> 7.93
<LOANS-NON> 1,554
<LOANS-PAST> 2,178
<LOANS-TROUBLED> 185
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,776
<CHARGE-OFFS> 518
<RECOVERIES> 79
<ALLOWANCE-CLOSE> 4,880
<ALLOWANCE-DOMESTIC> 1,597
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,283
</TABLE>
