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Form 8-K CITIZENS & NORTHERN CORP For: Apr 19

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April 19, 2018 12:23 PM EDT
 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported)           April 19, 2018

 

CITIZENS & NORTHERN CORPORATION

(Exact name of registrant as specified in its charter)

 

Pennsylvania 0-16084 23-2451943
(State or other jurisdiction of incorporation) (Commission File Number) (I.R.S. Employer Identification No.)
     
90-92 Main Street, Wellsboro, PA 16901
(Address of Principal Executive Office) (Zip Code)

 

Registrant’s telephone number, including area code           (570) 724-3411

 

N/A

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by checkmark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR 230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR 240.12b-2)

 

Emerging growth company ¨

 

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ¨

 

 

 

 

 

ITEM 2.02. Results of Operations and Financial Condition

 

Citizens & Northern Corporation (the “Company”) announced unaudited, consolidated financial results for the three-month period ended March 31, 2018. On April 19, 2018, the Company issued a press release titled “C&N Declares Dividend and Announces First Quarter 2018 Unaudited Financial Results,” a copy of which is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference. The Company’s “banCNotes,” a report that includes unaudited financial information, will be mailed to shareholders on or about April 26, 2018. A copy of the unaudited quarterly financial information included in banCNotes is furnished as Exhibit 99.2 to this Current Report on Form 8-K and is incorporated herein by reference. Also, supplemental, unaudited financial information is furnished as Exhibit 99.3 to this Current Report on Form 8-K and is incorporated herein by reference.

 

ITEM 8.01. Other Events

 

On April 19, 2018, the Company’s Board of Directors declared a dividend on its common stock of $0.27 per share, payable May 11, 2018 to shareholders of record as of April 30, 2018. The Company announced the dividend in the press release which is attached hereto as Exhibit 99.1 and incorporated herein by reference.

 

ITEM 9.01. Financial Statements and Exhibits

 

(a)Not applicable.
(b)Not applicable.
(c)Not applicable.
(d)Exhibits.

 

Exhibit 99.1:           Press Release issued by Citizens & Northern Corporation dated April 19, 2018, titled “C&N Declares Dividend and Announces First Quarter 2018 Unaudited Financial Results.”

 

Exhibit 99.2:           Unaudited financial information included in “banCNotes” report to be mailed to shareholders on or about April 26, 2018.

 

Exhibit 99.3:           Supplemental, unaudited financial information.

 

 

Signatures

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Current Report on Form 8-K to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  CITIZENS & NORTHERN CORPORATION
   
Date: 4/19/18 By:  /s/ Mark A. Hughes
    Treasurer and Chief Financial Officer

 

 

 

 

Exhibit 99.1

 

 

 

  Contact:  Charity Frantz
April 19, 2018 570-724-0225
  [email protected]

 

C&N DECLARES DIVIDEND AND ANNOUNCES FIRST QUARTER 2018 UNAUDITED FINANCIAL RESULTS

 

FOR IMMEDIATE RELEASE:

 

Wellsboro, PA – Citizens & Northern Corporation (“C&N”) (NASDAQ: CZNC) announced its most recent dividend declaration and its unaudited, consolidated financial results for the three-month period ended March 31, 2018.

 

Dividend Declared

 

C&N’s Board of Directors has declared a regular quarterly cash dividend of $0.27 per share. The dividend is payable on May 11, 2018 to shareholders of record as of April 30, 2018. Declaration of the dividend was made at the April 19, 2018 meeting of C&N’s Board of Directors.

 

Unaudited Financial Information

 

Net income was $0.36 per diluted share in the first quarter 2018, up from $0.16 in the fourth quarter 2017 and $0.28 in the first quarter 2017. First quarter 2018 earnings reflected the benefit of the reduction in the federal corporate income tax rate to 21%, effective January 1, 2018, from the 35% marginal tax rate in effect throughout 2017. In contrast, fourth quarter 2017 results included additional income tax expense related to a reduction in the carrying value of the net deferred tax asset, resulting in a reduction of $0.18 in diluted earnings per share.

 

Highlights related to C&N’s first quarter 2018 earnings results as compared to the fourth quarter 2017 and first quarter 2017 are presented below.

 

First Quarter 2018 as Compared to Fourth Quarter 2017

 

Net income was $4,375,000 in the first quarter 2018, an increase of $2,432,000 over fourth quarter 2017 net income of $1,943,000. Fourth quarter 2017 results included a tax charge of $2,159,000 resulting from reduction in the carrying value of the net deferred tax asset due to the change in the marginal corporate tax rate. The effective tax rate (income tax provision as a percentage of income before tax), which includes adjustments to the marginal rate for the impact of tax-exempt interest income and other factors, was 14.5% for the first quarter 2018. In comparison, excluding the effects of the tax charge due to the change in rate, the effective tax rate for the fourth quarter 2017 was 25.1%. Other significant variances were as follows:

 

·Net interest income increased $111,000 (1.0%) in the first quarter 2018 as compared to the fourth quarter 2017. Growth in average loans outstanding of $13,995,000 (1.74%) from the fourth quarter 2017, and an increase in average yield on taxable loans of 0.12%, contributed significantly to the increase. The net interest margin of 3.84% for the first quarter 2018 was 1 basis point lower than the fourth quarter 2017 margin, as the fully taxable-equivalent yield on municipal securities and loans dropped as a result of the reduced corporate tax rate. The average rate paid on interest-bearing liabilities was 0.49% in the first quarter 2018, an increase of 1 basis point as compared to the fourth quarter 2017, as the average rate paid on deposits increased 0.04% while the average cost of borrowed funds dropped significantly as a result of the pay-off of higher-cost borrowings that matured in the latter portion of 2017.

 

 

 

 

·The provision for loan losses was $292,000 in the first quarter 2018, up from $23,000 in the fourth quarter 2017. The first quarter 2018 provision included $191,000 attributable to the change in total specific allowances on impaired loans, as adjusted for net charge-offs during the period, and $101,000 due to loan growth and a slight increase in the historical loss experience factor used in the estimate of the collectively determined portion of the allowance for loan losses. In comparison, the fourth quarter provision included $179,000 related to the change in total specific allowances on impaired loans, as adjusted for net charge-offs, along with an estimated $81,000 due to loan growth, partially offset by the net effect of a reduction in the collectively determined allowance related to historical loss experience and qualitative factors.

 

·Noninterest income totaled $4,406,000 in the first quarter 2018, an increase of $289,000 (7.0%) from the fourth quarter 2017 amount. Within this category, first quarter 2018 income included $166,000 from tax credits related to charitable donations and other activities. There was no income from tax credits recorded in the fourth quarter 2017.

 

·Total noninterest expense of $9,895,000 in the first quarter 2018 was $494,000 (5.3%) higher than the fourth quarter 2017 amount. Salaries and wages expense was $143,000 (3.6%) higher in the first quarter 2018 than the corresponding fourth quarter 2017 total, including an increase in estimated cash and stock-based incentive compensation expense of $99,000. Pensions and other employee benefits expense was $126,000 higher in the first quarter 2018 as compared to the fourth quarter 2017, as payroll taxes and similar expenses increased, consistent with the normal pattern of such costs being highest in the beginning of the calendar year. The net increase in employee benefits expense also included a decrease of $186,000 in health insurance expense from C&N’s partially self-insured plan. Other noninterest expense was $139,000 higher in the first quarter 2018 as compared to the fourth quarter 2017, as charitable donations increased $149,000. In the first quarter 2018, charitable donations were made under a state program that resulted in a credit to be applied against Pennsylvania Bank Shares Tax of $135,000.

 

First Quarter 2018 as Compared to First Quarter 2017

 

Net income of $4,375,000 in the first quarter 2018 was up $941,000 (27.4%) over the first quarter 2017 amount. Pre-tax income was $698,000 (15.8%) higher in the first quarter 2018 as compared to the first quarter 2017, while the income tax provision was $243,000 lower. As noted above, the marginal federal income tax rate in effect in 2018 is 21%, down from the 2017 marginal rate of 35%. Accordingly, the effective tax rate of 14.5% for the first quarter 2018 was significantly lower than the first quarter 2017 effective tax rate of 22.3%. Other significant earnings-related variances were as follows:

 

·Net interest income increased $738,000 (7.3%) in the first quarter 2018 over the first quarter 2017 amount. Total interest and dividend income increased $778,000, while interest expense increased $40,000. The net interest margin of 3.84% for the first quarter 2018 was 0.06% higher than the first quarter 2017 level. Despite the decrease in fully taxable-equivalent yields on municipal securities and loans resulting from the reduced corporate tax rate, the average yield on earning assets increased to 4.18% in the first quarter 2018 from 4.11% in the first quarter 2017. The improvement in average yield included the impact of an increase in average yield on taxable loans, reflecting the effects of recent increases in interest rates, along with a favorable change in the mix of earning assets with growth in loans and a reduction in securities. Average total loans outstanding were higher by $57.5 million (7.6%) in the first quarter 2018 as compared to the first quarter 2017, while average total available-for-sale debt securities were lower by $34.9 million. Average total deposits were $30.3 million (3.1%) higher in the first quarter 2018 as compared to the first quarter 2017. The average rate paid on interest-bearing liabilities of 0.49% in the first quarter 2018 was up 0.02% as compared to the first quarter 2017. The average rate paid on deposits was up 0.11% in the first quarter 2018 as compared to the first quarter 2017, while the average cost of borrowed funds dropped to 1.64% from 2.20% as a result of the pay-off of higher-cost borrowings that matured in the latter portion of 2017.

 

 

 

 

·The provision for loan losses of $292,000 in the first quarter 2018 was lower than the first quarter 2017 provision of $452,000. As noted above, the first quarter 2018 provision included $191,000 attributable to the change in total specific allowances on impaired loans, as adjusted for net charge-offs during the period. In comparison, the first quarter 2017 provision included $388,000 from the net increase in specific allowances on impaired loans as adjusted for net charge-offs.

 

·Noninterest income increased $542,000 (14.0%) in the first quarter 2018 over the first quarter 2017 amount. Trust and financial management revenue increased $242,000 (20.5%), reflecting growth in assets under management resulting from market appreciation and new business, as well as an increase in fee levels. Service charges on deposit accounts increased $103,000 (9.4%) in the first quarter 2018 over the first quarter 2017 total, mainly due to increased fees from the overdraft privilege program and reflecting the benefit of operational improvements to the program that were instituted early in 2018.

 

·There were no realized gains or losses from available-for-sale debt securities in the first quarter 2018. In comparison, gains from sales of securities totaled $145,000 in the first quarter 2017.

 

·Total noninterest expense increased $597,000 (6.4%) in the first quarter 2018 over the first quarter 2017 amount. Salaries and wages expense increased $256,000 (6.6%), including the effects of annual performance-based salary adjustments for a majority of employees along with an increase of $86,000 in estimated cash and stock-based compensation expense and an increase in the average number of full-time equivalent employees (FTEs) to 294 in the first quarter 2018 from 289 in the first quarter 2017. Pensions and other employee benefits expense increased $86,000, including an increase of $81,000 in health care expenses due to higher claims on the partially self-insured plan. Over the last half of 2017 and first three months of 2018, C&N installed a new telephone system throughout most locations and implemented a new loan origination system. Costs associated with these projects contributed to increases in professional fees, data processing and other noninterest expense in the first quarter 2018 as compared to the first quarter 2017.

 

Other Information:

 

Changes in other unaudited financial information are as follows:

 

·Total assets amounted to $1,258,116,000 at March 31, 2018, as compared to $1,276,959,000 at December 31, 2017 and $1,233,924,000 at March 31, 2017.

 

·Net loans outstanding (excluding mortgage loans held for sale) were $808,300,000 at March 31, 2018, up from $806,857,000 at December 31, 2017 and up 7.3% from $753,277,000 at March 31, 2017. In comparing outstanding balances at March 31, 2018 and 2017, total residential mortgage loans increased $20.0 million, or 4.7%, and total commercial loans increased $33.9 million, or 10.5%. At March 31, 2018, the outstanding balance of commercial loan participations with other financial entities was $62.8 million, up from $43.6 million at March 31, 2017.

 

·The outstanding balance of residential mortgages originated by C&N and sold to third parties, with servicing retained, totaled $171,237,000 at March 31, 2018, up from $169,725,000 at December 31, 2017 and $164,291,000 at March 31, 2017.

 

·Total nonperforming assets as a percentage of total assets was 1.39% at March 31, 2018 as compared to 1.47% at December 31, 2017 and 1.28% at March 31, 2017.

 

·Deposits and repo sweep accounts totaled $1,023,563,000 at March 31, 2018 as compared to $1,012,215,000 at December 31, 2017, and up 3.8% from $986,495,000 at March 31, 2017.

 

 

 

 

·Total shareholders’ equity was $186,382,000 at March 31, 2018 as compared to $188,443,000 at December 31, 2017 and $187,350,000 at March 31, 2017. Within shareholders’ equity, the portion of accumulated other comprehensive loss related to available-for-sale debt securities was $5,679,000 at March 31, 2018 as compared to $1,566,000 at December 31, 2017 and $630,000 at March 31, 2017. Fluctuations in accumulated other comprehensive loss have been caused by increases in interest rates and the effect of the lower corporate income tax rate on municipal bonds, which have resulted in an overall net reduction in the fair value of available-for-sale debt securities. Also, the larger accumulated other comprehensive loss at March 31, 2018 reflected the impact of the lower federal corporate income tax rate, as the associated deferred tax asset has been reduced, consistent with the lower rate.

 

·C&N and Citizens & Northern Bank are subject to various regulatory capital requirements. At March 31, 2018, C&N and Citizens & Northern Bank continue to maintain regulatory capital ratios that exceed all capital adequacy requirements.

 

·Assets under management by C&N’s Trust and Financial Management Group amounted to $916,295,000 at March 31, 2018 as compared to $916,580,000 at December 31, 2017 and up 4.0% from $880,979,000 a year earlier.

 

Citizens & Northern Corporation is the parent company of Citizens & Northern Bank, a local, independent community bank providing complete financial, investment and insurance services through 26 full service offices throughout Tioga, Bradford, Sullivan, Lycoming, Potter, Cameron and McKean counties in Pennsylvania and in Canisteo and South Hornell, New York. C&N’s most recently opened location, in Elmira, New York, offers commercial, residential and consumer lending services. C&N can be found on the worldwide web at www.cnbankpa.com. The Company’s stock is listed on NASDAQ Capital Market Securities under the symbol CZNC.

 

Safe Harbor Statement: Except for historical information contained herein, the matters discussed in this release are forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainty, including without limitation, the following: changes in monetary and fiscal policies of the Federal Reserve Board and the U.S. Government, 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 management’s assessment of realization of securities and other assets; and changes in accounting principles, or the application of generally accepted accounting principles. Citizens & Northern disclaims any intention or obligation to publicly update or revise any forward-looking statements, whether as a result of events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

 

 

 

 

EXHIBIT 99.2

 

March 31, 2018 QUARTERLY REPORT  

 

Dear Shareholder:

 

C&N made substantial progress on a number of fronts that further align our Team’s efforts to “Create Value” for our customers, communities, and shareholders. Balancing our objectives of growing relationships, revenue and earnings today, while positioning C&N to compete successfully tomorrow and into the future, is the ongoing challenge. During the first three months of 2018, we produced strong financial results, which we will discuss further. At the same time, we completed development of a new mortgage loan origination system that will enable C&N to improve the customer experience, expand our product line, and compete aggressively with on-line providers. More to come as 2018 unfolds. We also introduced “PeoplePay,” our entry into the person-to-person (P2P) payments market, a fast, secure and easy way to send funds directly from one person to another. And finally, we introduced Instant Issue debit cards in a number of branches, providing the ability to issue a debit card to customers on the spot and for the Customer to activate their card in the branch and use it immediately.  This service will be of value to both new customers and those in need of a replacement. All of these initiatives add to our capacity to create value for our customers and shareholders today, tomorrow, and into the future.

 

The themes supporting our strong first quarter 2018 earnings performance are consistent with those we have set forth in prior periods. Revenue growth continued gaining traction as both net interest income and noninterest income showed healthy increases. Net loans outstanding increased, the balance sheet mix improved, trust-related income remained strong, and focus on deepening customer relationships all contributed to first quarter results. For simplicity, we will focus on comparing 2018 performance with the first quarter of 2017, and will address the impact of the late 2017 passage of federal tax reform legislation, as appropriate.

 

Net income was $0.36 per diluted share in the first quarter 2018, up 28.6% from $0.28 per share in the first quarter 2017. Net income was $4,375,000 in the first quarter 2018, an increase of $941,000 (27.4%) over first quarter 2017 net income of $3,434,000. Annualized return on average assets (ROA) and return on average equity (ROE) improved to 1.39% and 9.41% during the first quarter of 2018, as compared to 1.11% and 7.38%, respectively, a year earlier. First quarter 2018 earnings reflected the benefit of the reduction in the federal corporate income tax rate to 21%, effective January 1, 2018, from the 35% marginal tax rate in effect throughout 2017. Pre-tax income was $698,000 (15.8%) higher in the first quarter of 2018 as compared to the first quarter of 2017, while the income tax provision was $243,000 lower reflective of the recent reduction in federal tax rates. As a result, the effective tax rate of 14.5% for the first quarter of 2018 was well below the effective rate of 22.3% experienced in the first three months of 2017.

 

Net interest income increased $738,000 (7.3%) in the first quarter 2018 over the first quarter 2017 amount. Total interest and dividend income increased $778,000, while interest expense increased $40,000 producing a net interest margin of 3.84% for the first quarter 2018, or 0.06% higher than the first quarter 2017 level. The average yield on earning assets increased to 4.18% in the first quarter 2018 from 4.11% in the first quarter 2017. The improvement in average yield included an increase in average yield on taxable loans, due to recent increases in market interest rates, along with a favorable change in the mix of earning assets with growth in loans and a reduction in securities. Average total loans outstanding were higher by $57.5 million (7.6%) in the first quarter 2018 as compared to the first quarter 2017, while average total available-for-sale debt securities were lower by $34.9 million. Average total deposits were $30.3 million (3.1%) higher in the first quarter 2018 as compared to the first quarter 2017. The average rate paid on interest-bearing liabilities of 0.49% in the first quarter 2018 was up 0.02% as compared to the first quarter 2017. The average rate paid on deposits was up 0.11% in the first quarter 2018 as compared to the first quarter 2017, while the average cost of borrowed funds dropped to 1.64% from 2.20% as a result of the pay-off of higher-cost borrowings that matured in the latter portion of 2017.

 

 

 

 

The provision for loan losses of $292,000 in the first quarter 2018 was lower than the first quarter 2017 provision of $452,000. The first quarter 2018 provision included $191,000 attributable to the change in total specific allowances on impaired loans, as adjusted for net charge-offs during the period. In comparison, the first quarter 2017 provision included $388,000 from the net increase in specific allowances on impaired loans as adjusted for net charge-offs.

 

Noninterest income increased $542,000 (14.0%) in the first quarter 2018 over the first quarter 2017 amount. Trust and financial management revenue increased $242,000 (20.5%), reflecting growth in assets under management resulting from market appreciation and new business, as well as an increase in fee levels. Service charges on deposit accounts increased $103,000 (9.4%) in the first quarter 2018 over the first quarter 2017 total, mainly due to increased fees from the overdraft privilege program and reflecting the benefit of operational improvements to the program that were instituted early in 2018.

 

There were no realized gains or losses from available-for-sale debt securities in the first quarter 2018. In comparison, gains from sales of securities totaled $145,000 in the first quarter 2017.

 

Total noninterest expense increased $597,000 (6.4%) in the first quarter 2018 over the first quarter 2017 amount. Salaries and wages expense increased $256,000 (6.6%), including the effects of annual performance-based salary adjustments for a majority of employees along with an increase of $86,000 in estimated cash and stock-based compensation expense and an increase in the average number of full-time equivalent employees (FTEs) to 294 in the first quarter 2018 from 289 in the first quarter 2017. Pensions and other employee benefits expense increased $86,000, including an increase of $81,000 in health care expenses due to higher claims on the partially self-insured plan. Over the last half of 2017 and first three months of 2018, C&N installed a new telephone system throughout most locations and implemented a new loan origination system. Costs associated with these projects contributed to increases in professional fees, data processing and other noninterest expense in the first quarter 2018 as compared to the first quarter 2017.

 

C&N continues to maintain a very strong capital position, providing the Company with the ability to pursue growth and expansion. We increased the quarterly cash dividend paid in February 2018 to $.27 per share from the $.26 per share paid in November 2017, reflecting the Board’s confidence in the ongoing financial strength of the Corporation. On April 19, 2018, the Board of Directors again declared a dividend of $.27 per share payable on May 11, 2018 to shareholders of record as of April 30, 2018. On an annualized basis, the quarterly payment produces a dividend yield of 4.68% on the March 31, 2018 market price of $23.09. In April 2016, the Board announced a common stock repurchase program for the acquisition of up to 600,000 shares. There have been no repurchases of stock under this program to date.

 

We appreciate your investment and ongoing support of C&N.

 

 

J. Bradley Scovill

President and CEO

 

 

 

 

CONDENSED, CONSOLIDATED EARNINGS INFORMATION      
(Dollars In Thousands, Except Per Share Data)   (Unaudited)      
   1ST  1ST      
   QUARTER  QUARTER      
   2018  2017      
   (Current)  (Prior Year)  $ Incr. (Decr.)  % Incr. (Decr.)
Interest and Dividend Income  $11,890   $11,112   $778    7.00%
Interest Expense   993    953    40    4.20%
Net Interest Income   10,897    10,159    738    7.26%
Provision for Loan Losses   292    452    (160)   -35.40%
Net Interest Income After Provision for Loan Losses   10,605    9,707    898    9.25%
Noninterest Income   4,406    3,864    542    14.03%
Net Gains on Securities   0    145    (145)   -100.00%
Noninterest Expense   9,895    9,298    597    6.42%
Income Before Income Tax Provision   5,116    4,418    698    15.80%
Income Tax Provision   741    984    (243)   -24.70%
Net Income  $4,375   $3,434   $941    27.40%
Net Income Attributable to Common Shares (1)  $4,352   $3,416   $936    27.40%
PER COMMON SHARE DATA:                    
Net Income – Basic  $0.36   $0.28   $0.08    28.57%
Net Income – Diluted  $0.36   $0.28   $0.08    28.57%
Dividend Per Share  $0.27   $0.26   $0.01    3.85%
Number of Shares Used in Computation – Basic   12,189,471    12,085,729           
Number of Shares Used in Computation – Diluted   12,222,256    12,131,410           

 

(1)Basic and diluted net income per common share are determined based on net income less earnings allocated to nonvested restricted shares with nonforfeitable dividends.

 

CONDENSED, CONSOLIDATED BALANCE SHEET DATA      
(In Thousands)    (Unaudited)      
   MARCH 31,  MARCH 31,  MARCH 31, 2018 vs 2017
   2018  2017  $ Incr. (Decr.)  % Incr. (Decr.)
ASSETS                    
Cash & Due from Banks  $36,860   $32,543   $4,317    13.27%
Available-for-sale Debt Securities   341,133    375,948    (34,815)   -9.26%
Loans Held for Sale   225    163    62    38.04%
Loans, Net   808,300    753,277    55,023    7.30%
Intangible Assets   11,953    11,958    (5)   -0.04%
Other Assets   59,645    60,035    (390)   -0.65%
TOTAL ASSETS  $1,258,116   $1,233,924   $24,192    1.96%
LIABILITIES                    
Deposits  $1,018,081   $980,251   $37,830    3.86%
Repo Sweep Accounts   5,482    6,244    (762)   -12.20%
Total Deposits and Repo Sweeps   1,023,563    986,495    37,068    3.76%
Borrowed Funds   39,122    52,888    (13,766)   -26.03%
Other Liabilities   9,049    7,191    1,858    25.84%
TOTAL LIABILITIES   1,071,734    1,046,574    25,160    2.40%
SHAREHOLDERS’ EQUITY                    
Common Shareholders’ Equity, Excluding Accumulated Other Comprehensive Loss   191,920    187,825    4,095    2.18%
Accumulated Other Comprehensive Loss:                    
Net Unrealized Losses on Available-for-sale Securities   (5,679)   (630)   (5,049)   801.43%
Defined Benefit Plans   141    155    (14)   -9.03%
TOTAL SHAREHOLDERS’ EQUITY   186,382    187,350    (968)   -0.52%
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY  $1,258,116   $1,233,924   $24,192    1.96%

 

 

 

 

EXHIBIT 99.3 – Supplemental, Unaudited Financial Information

CONDENSED, CONSOLIDATED FINANCIAL HIGHLIGHTS

(Dollars In Thousands, Except Per Share Data)       (Unaudited)

 

   AS OF OR FOR THE     
   THREE MONTHS ENDED   % 
   MARCH 31,   INCREASE 
   2018   2017   (DECREASE) 
EARNINGS PERFORMANCE               
Net Income  $4,375   $3,434    27.40%
Return on Average Assets (Annualized)   1.39%   1.11%   25.23%
Return on Average Equity (Annualized)   9.41%   7.38%   27.51%
                
BALANCE SHEET HIGHLIGHTS               
Total Assets  $1,258,116   $1,233,924    1.96%
Available-for-Sale Debt Securities   341,133    375,948    -9.26%
Loans (Net)   808,300    753,277    7.30%
Allowance for Loan Losses   9,049    8,744    3.49%
Deposits and Repo Sweep Accounts   1,023,563    986,495    3.76%
                
OFF-BALANCE SHEET               
Outstanding Balance of Mortgage Loans Sold with Servicing Retained   171,237    164,291    4.23%
Trust Assets Under Management   916,295    880,979    4.01%
                
SHAREHOLDERS’ VALUE (PER COMMON SHARE)               
Net Income - Basic  $0.36   $0.28    28.57%
Net Income - Diluted  $0.36   $0.28    28.57%
Dividends  $0.27   $0.26    3.85%
Common Book Value  $15.20   $15.41    -1.36%
Tangible Common Book Value (a)  $14.22   $14.42    -1.39%
Market Value (Last Trade)  $23.09   $23.28    -0.82%
Market Value /  Common Book Value   151.91%   151.07%   0.56%
Market Value /  Tangible Common Book Value   162.38%   161.44%   0.58%
Price Earnings Multiple (Annualized)   16.03    20.79    -22.90%
Dividend Yield (Annualized)   4.68%   4.47%   4.70%
Common Shares Outstanding, End of Period   12,264,284    12,159,607    0.86%

 

 

 

 

CONDENSED, CONSOLIDATED FINANCIAL HIGHLIGHTS (Continued)

(Dollars In Thousands, Except Per Share Data)       (Unaudited)

 

   AS OF OR FOR THE   
   THREE MONTHS ENDED  %
   MARCH 31,  INCREASE
   2018  2017  (DECREASE)
SAFETY AND SOUNDNESS               
Tangible Common Equity / Tangible Assets (a)   14.00%   14.35%   -2.48%
Nonperforming Assets / Total Assets   1.39%   1.28%   8.59%
Allowance for Loan Losses / Total Loans   1.11%   1.15%   -3.48%
Total Risk Based Capital Ratio (b)   23.38%   23.72%   -1.43%
Tier 1 Risk Based Capital Ratio (b)   22.23%   22.57%   -1.51%
Common Equity Tier 1 Risk Based Capital Ratio (b)   22.23%   22.57%   -1.51%
Leverage Ratio (b)   14.38%   14.29%   0.63%
                
AVERAGE BALANCES               
Average Assets  $1,257,704   $1,241,392    1.31%
Average Equity  $185,960   $186,202    -0.13%
                
EFFICIENCY RATIO               
Net Interest Income on a Fully Taxable-Equivalent               
Basis  $11,226   $10,841    3.55%
Noninterest Income   4,406    3,864    14.03%
Total (1)  $15,632   $14,705    6.30%
Noninterest Expense (2)  $9,895   $9,298    6.42%
Efficiency ratio = (2)/(1)   63.30%   63.23%   0.11%

 

(a) Tangible book value per common share and tangible common equity as a percentage of tangible assets are non-U.S. GAAP ratios.  Management believes this non-GAAP information is helpful in evaluating the strength of the Corporation’s capital and in providing an alternative, conservative valuation of the Corporation’s net worth.  The ratios shown above are based on the following calculations of tangible assets and tangible common equity:

 

Total Assets  $1,258,116   $1,233,924              
Less: Intangible Assets, Primarily Goodwill   (11,953)   (11,958)             
Tangible Assets  $1,246,163   $1,221,966              
                
Total Shareholders’ Equity  $186,382   $187,350              
Less: Intangible Assets, Primarily Goodwill   (11,953)   (11,958)             
Tangible Common Equity (3)  $174,429   $175,392              
                
Common Shares Outstanding, End of Period (4)   12,264,284    12,159,607              
Tangible Common Book Value per Share = (3)/(4)  $14.22   $14.42              

 

(b) Capital ratios for the most recent period are estimated.    

 

 

 

 

QUARTERLY CONDENSED, CONSOLIDATED        
INCOME STATEMENT INFORMATION        
(In Thousands, Except Per Share Data) (Unaudited)  For the Three Months Ended:      
   March 31,  Dec. 31,  Sept. 30,  June 30,  March 31,
   2018  2017  2017  2017  2017
Interest income  $11,890   $11,785   $11,626   $11,340   $11,112 
Interest expense   993    999    985    978    953 
Net interest income   10,897    10,786    10,641    10,362    10,159 
Provision for loan losses   292    23    322    4    452 
Net interest income after provision for loan losses   10,605    10,763    10,319    10,358    9,707 
Noninterest income   4,406    4,117    4,066    4,106    3,864 
Net gains on securities   0    0    5    107    145 
Noninterest expense   9,895    9,401    9,192    9,076    9,298 
Income before income tax provision   5,116    5,479    5,198    5,495    4,418 
Income tax provision   741    3,536    1,262    1,374    984 
Net income  $4,375   $1,943   $3,936   $4,121   $3,434 
Net income attributable to common shares  $4,352   $1,933   $3,916   $4,100   $3,416 
Basic earnings per common share  $0.36   $0.16   $0.32   $0.34   $0.28 
Diluted earnings per common share  $0.36   $0.16   $0.32   $0.34   $0.28 

 

QUARTERLY CONDENSED, CONSOLIDATED        
BALANCE SHEET INFORMATION         
(In Thousands) (Unaudited)  As of:            
   March 31,  Dec. 31,  Sept. 30,  June 30,  March 31,
   2018  2017  2017  2017  2017
ASSETS                         
Cash & Due from Banks  $36,860   $40,244   $32,850   $34,643   $32,543 
Available-for-Sale Debt Securities   341,133    355,937    364,108    363,776    375,948 
Loans Held for Sale   225    765    437    1,708    163 
Loans, Net   808,300    806,857    792,112    771,057    753,277 
Intangible Assets   11,953    11,954    11,956    11,957    11,958 
Other Assets   59,645    61,202    58,458    60,260    60,035 
TOTAL ASSETS  $1,258,116   $1,276,959   $1,259,921   $1,243,401   $1,233,924 
                          
LIABILITIES                         
Deposits  $1,018,081   $1,008,449   $1,021,625   $997,262   $980,251 
Repo Sweep Accounts   5,482    3,766    4,739    4,875    6,244 
Total Deposits and Repo Sweeps   1,023,563    1,012,215    1,026,364    1,002,137    986,495 
Borrowed Funds   39,122    67,189    34,256    42,321    52,888 
Other Liabilities   9,049    9,112    8,288    9,084    7,191 
TOTAL LIABILITIES   1,071,734    1,088,516    1,068,908    1,053,542    1,046,574 
                          
SHAREHOLDERS’ EQUITY                         
Common Shareholders’ Equity, Excluding                         
Accumulated Other Comprehensive Income (Loss)   191,920    189,950    190,639    189,339    187,825 
Accumulated Other Comprehensive Income (Loss):                         
Net Unrealized Gains (Losses) on Available-for-sale Securities   (5,679)   (1,566)   227    369    (630)
Defined Benefit Plans   141    59    147    151    155 
TOTAL SHAREHOLDERS’ EQUITY   186,382    188,443    191,013    189,859    187,350 
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY  $1,258,116   $1,276,959   $1,259,921   $1,243,401   $1,233,924 

 

 

 

 

AVAILABLE-FOR-SALE DEBT SECURITIES  March 31, 2018  December 31, 2017
(In Thousands)  Amortized  Fair  Amortized  Fair
   Cost  Value  Cost  Value
Obligations of U.S. Government agencies  $8,023   $7,803   $8,026   $7,873 
Obligations of states and political subdivisions:                    
Tax-exempt   103,598    103,403    103,673    105,111 
Taxable   24,140    24,038    25,431    25,573 
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:                    
Residential pass-through securities   50,880    49,335    52,992    52,347 
Residential collateralized mortgage obligations   127,886    124,008    134,314    131,814 
Commercial mortgage-backed securities   33,793    32,546    33,881    33,219 
Total Available-for-Sale Debt Securities  $348,320   $341,133   $358,317   $355,937 

 

Summary of Loans by Type         
(Excludes Loans Held for Sale)         
(In Thousands)  March 31,  Dec. 31,  March 31,
   2018  2017  2017
Residential mortgage:               
Residential mortgage loans - first liens  $358,786   $359,987   $340,431 
Residential mortgage loans - junior liens   25,870    25,325    23,717 
Home equity lines of credit   34,595    35,758    36,810 
1-4 Family residential construction   25,790    26,216    24,041 
Total residential mortgage   445,041    447,286    424,999 
Commercial:               
Commercial loans secured by real estate   161,571    159,266    153,385 
Commercial and industrial   89,346    88,276    79,493 
Political subdivisions   56,224    59,287    44,625 
Commercial construction and land   13,232    14,527    15,252 
Loans secured by farmland   7,015    7,255    7,497 
Multi-family (5 or more) residential   7,621    7,713    7,622 
Agricultural loans   5,803    6,178    3,992 
Other commercial loans   16,079    10,986    11,131 
Total commercial   356,891    353,488    322,997 
Consumer   15,417    14,939    14,025 
Total   817,349    815,713    762,021 
Less: allowance for loan losses   (9,049)   (8,856)   (8,744)
Loans, net  $808,300   $806,857   $753,277 

 

Loans Held for Sale         
(In Thousands)  March 31,  Dec. 31,  March 31,
   2018  2017  2017
Residential mortgage loans originated and serviced - outstanding balance  $171,462   $170,490   $164,454 
Less: outstanding balance of loans sold   (171,237)   (169,725)   (164,291)
Loans held for sale, net  $225   $765   $163 

 

 

 

 

ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES        
(In Thousands)            
   3 Months  3 Months  3 Months  Year
   Ended  Ended  Ended  Ended
   March 31,  Dec. 31,  March 31,  Dec. 31,
   2018  2017  2017  2017
Balance, beginning of period  $8,856   $8,900   $8,473   $8,473 
Charge-offs   (115)   (77)   (200)   (479)
Recoveries   16    10    19    61 
Net charge-offs   (99)   (67)   (181)   (418)
Provision for loan losses   292    23    452    801 
Balance, end of period  $9,049   $8,856   $8,744   $8,856 

 

PAST DUE AND IMPAIRED LOANS, NONPERFORMING ASSETS      
AND TROUBLED DEBT RESTRUCTURINGS (TDRs)      
(Dollars In Thousands)         
   March 31,  Dec 31,  March 31,
   2018  2017  2017
Impaired loans with a valuation allowance  $4,699   $4,100   $3,319 
Impaired loans without a valuation allowance   5,507    5,411    5,380 
Total impaired loans  $10,206   $9,511   $8,699 
                
Total loans past due 30-89 days and still accruing  $5,927   $9,449   $6,476 
                
Nonperforming assets:               
Total nonaccrual loans  $13,587   $13,404   $11,231 
Total loans past due 90 days or more and still accruing   2,795    3,724    2,714 
Total nonperforming loans   16,382    17,128    13,945 
Foreclosed assets held for sale (real estate)   1,100    1,598    1,878 
Total nonperforming assets  $17,482   $18,726   $15,823 
                
Loans subject to troubled debt restructurings (TDRs):               
Performing  $774   $636   $752 
Nonperforming   2,987    3,027    3,083 
Total TDRs  $3,761   $3,663   $3,835 
                
Total nonperforming loans as a % of loans   2.00%   2.10%   1.83%
Total nonperforming assets as a % of assets   1.39%   1.47%   1.28%
Allowance for loan losses as a % of total loans   1.11%   1.09%   1.15%
Allowance for loan losses as a % of nonperforming loans   55.24%   51.70%   62.70%

 

 

 

 

Analysis of Average Daily Balances and Rates               
(Dollars in Thousands)               
   3 Months     3 Months     3 Months   
   Ended  Rate of  Ended  Rate of  Ended  Rate of
   3/31/2018  Return/  12/31/2017  Return/  3/31/2017  Return/
   Average  Cost of  Average  Cost of  Average  Cost of
   Balance  Funds %  Balance  Funds %  Balance  Funds %
EARNING ASSETS                              
Available-for-sale debt securities, at amortized cost:                              
Taxable  $249,840    2.21%  $256,714    2.14%  $270,251    2.11%
Tax-exempt   103,177    3.53%   106,773    4.23%   117,628    4.44%
Total available-for-sale debt securities   353,017    2.60%   363,487    2.76%   387,879    2.81%
Marketable equity security   962    2.11%   1,000    2.38%   1,000    2.03%
Interest-bearing due from banks   14,131    1.43%   15,423    1.29%   14,923    0.87%
Loans held for sale   168    4.83%   393    5.05%   201    8.07%
Loans receivable:                              
Taxable   740,655    5.04%   729,219    4.92%   698,042    4.87%
Tax-exempt   76,242    3.72%   73,683    4.56%   61,336    4.55%
Total loans receivable   816,897    4.92%   802,902    4.88%   759,378    4.84%
Total Earning Assets   1,185,175    4.18%   1,183,205    4.18%   1,163,381    4.11%
Cash   16,874         17,645         16,013      
Unrealized gain/loss on securities   (5,529)        (844)        (958)     
Allowance for loan losses   (9,002)        (9,013)        (8,593)     
Bank premises and equipment   15,451         15,313         15,712      
Intangible assets   11,954         11,954         11,959      
Other assets   42,781         42,294         43,878      
Total Assets  $1,257,704        $1,260,554        $1,241,392      
                               
INTEREST-BEARING LIABILITIES                              
Interest-bearing deposits:                              
Interest checking  $212,981    0.34%  $215,300    0.28%  $201,120    0.16%
Money market   179,923    0.21%   188,659    0.19%   191,103    0.17%
Savings   149,618    0.10%   147,382    0.10%   138,805    0.10%
Certificates of deposit   123,974    1.00%   119,936    0.92%   113,636    0.80%
Individual Retirement Accounts   94,311    0.49%   96,148    0.46%   99,028    0.43%
Other time deposits   772    0.00%   682    0.00%   791    0.00%
Total interest-bearing deposits   761,579    0.39%   768,107    0.35%   744,483    0.28%
Borrowed funds:                              
Short-term   52,305    1.54%   25,669    1.28%   41,386    0.75%
Long-term   13,054    2.02%   29,480    3.35%   38,419    3.75%
Total borrowed funds   65,359    1.64%   55,149    2.39%   79,805    2.20%
Total Interest-bearing Liabilities   826,938    0.49%   823,256    0.48%   824,288    0.47%
Demand deposits   235,936         237,518         222,740      
Other liabilities   8,870         9,308         8,162      
Total Liabilities   1,071,744         1,070,082         1,055,190      
Stockholders’ equity, excluding accumulated other comprehensive income/loss   190,129         190,878         186,689      
Accumulated other comprehensive loss   (4,169)        (406)        (487)     
Total Stockholders’ Equity   185,960         190,472         186,202      
Total Liabilities and Stockholders’ Equity  $1,257,704        $1,260,554        $1,241,392      
Interest Rate Spread        3.69%        3.70%        3.64%
Net Interest Income/Earning Assets        3.84%        3.85%        3.78%
                               
Total Deposits (Interest-bearing and Demand)  $997,515        $1,005,625        $967,223      

 

(1)Annualized 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 21% in 2018 and 35% in 2017.
(2)Nonaccrual loans have been included with loans for the purpose of analyzing net interest earnings.
(3)Rates of return on earning assets and costs of funds are presented on an annualized basis.

 

 

 

 

COMPARISON OF NONINTEREST INCOME         
(In Thousands)  Three Months Ended
   March 31,  Dec. 31,  March 31,
   2018  2017  2017
Trust and financial management revenue  $1,422   $1,430   $1,180 
Brokerage revenue   212    246    156 
Insurance commissions, fees and premiums   44    17    41 
Service charges on deposit accounts   1,204    1,160    1,101 
Service charges and fees   86    83    80 
Interchange revenue from debit card transactions   579    572    520 
Net gains from sales of loans   184    167    166 
Loan servicing fees, net   128    82    72 
Increase in cash surrender value of life insurance   97    98    90 
Other noninterest income   450    262    458 
Total noninterest income, before realized gains on available-for-sale securities, net  $4,406   $4,117   $3,864 

 

COMPARISON OF NONINTEREST EXPENSE         
(In Thousands)  Three Months Ended
   March 31,  Dec. 31,  March 31,
   2018  2017  2017
Salaries and wages  $4,124   $3,981   $3,868 
Pensions and other employee benefits   1,610    1,484    1,524 
Occupancy expense, net   637    582    578 
Furniture and equipment expense   271    341    313 
Data processing expenses   641    620    575 
Automated teller machine and interchange expense   322    339    294 
Pennsylvania shares tax   336    321    336 
Professional fees   276    206    187 
Directors’ fees   184    172    185 
Other noninterest expense   1,494    1,355    1,438 
Total noninterest expense  $9,895   $9,401   $9,298 

 

 

 

 


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