Citizens & Northern Corporation : C&N Announces Annual And Fourth Quarter 2011 Unaudited Financial Results

WELLSBORO, PA- Citizens & Northern Corporation (C&N) has announced its unaudited, consolidated financial results for the fourth quarter 2011 and for the year ended December 31, 2011.

For the year ended December 31, 2011, net income available to common shareholders was $23,368,000, or $1.92 per basic and diluted share, up 32.4% over net income per share of $1.45 in 2010. In the fourth quarter 2011, net income of $6,141,000, or $0.51 per share, was up 4.1% as compared to net income per share of $0.49 in the third quarter 2011 and 27.5% higher than net income per share of $0.40 in the fourth quarter 2010.

Some of the more significant fluctuations in the components of annual earnings are as follows:

• Net interest income was $4,831,000 (11.3%) higher in 2011than 2010. The improvement in 2011 has resulted from several factors, including reductions in cost of funds, reduction in outstanding borrowings and lower balances maintained in overnight investment with the Federal Reserve and other banks. In 2011, net interest income includes the benefit of accretion of $826,000 from the offset of a previous write-down on a security, with a corresponding benefit of $83,000 recorded in 2010.

• The provision for loan losses was a credit (reduction in expense) of $285,000, as compared to a provision of $1,191,000 in 2010. The credit for loan losses in 2011 resulted, in part, from a reduction in loans outstanding, as the general component of the allowance for loan losses was reduced. Further, in recent years, C&N has experienced a limited amount of loan-related credit problems, as compared to averages for comparable-sized peer banks.

• Total noninterest revenue was $13,938,000 in 2011, up $100,000 over 2010, despite an impairment loss in 2011 of $948,000 related to an investment in a real estate limited partnership. In 2011, noninterest revenue included net gains from sales of premises and equipment totaling $324,000, including a gain in the third quarter of $329,000 from sale of the banking facility at 130 Court Street, Williamsport, PA. The Corporation has entered into a leasing arrangement to continue to utilize a portion of the facility and continues to provide retail, trust and commercial banking services at the location. In 2010, noninterest revenue included net gains from sales of premises and equipment totaling $445,000. Excluding gains from sales of premises and equipment and the impairment loss, noninterest revenue for 2011 totaled $14,562,000, or 8.7% higher than the corresponding 2010 amount. In 2011, revenues increased significantly over 2010 from origination and sale of mortgage loans, interchange on debt card transactions, service charges on deposit accounts, brokerage services and other operating income.

• Gains from available-for-sale securities totaled $2,216,000 in 2011, considerably higher than the total gains of $829,000 realized in 2010. In the first quarter 2011, C&N realized gains of $1,510,000 from two pooled trust-preferred securities that had been written off in prior periods.

• Total noninterest expense was $32,057,000 in 2011, up $567,000, or 1.8%, over 2010. Total salaries and wages for 2011 were $690,000 (6.1%) higher than in 2010, including an increase in total employee stock-based compensation of $319,000. Pensions and employee benefits expense was $567,000 (14.8%) higher in 2011 than in 2010, including higher estimated self-insured employee health insurance expense. Furniture and equipment expense was $171,000 (8.1%) lower in 2011 as compared to 2010, as depreciation expense was lower due to some computer-related hardware and software becoming fully depreciated. FDIC assessments were $618,000 (42.6%) lower in 2011 than in 2010, reflecting the benefit of changes in the FDIC's method for determining assessments and improvements in C&N's financial data that impact the amounts assessed.

• The provision for income taxes totaled $8,714,000 or 27.2% of pre-tax income in 2011, up from $5,800,000 or 23.3% of pre-tax income in 2010. The provision for income taxes was higher in 2011 than in 2010 primarily because of the increase in pre-tax income. Also, the provision for income tax in 2010 included a benefit (reduction in expense) of $373,000 resulting from reduction in a valuation reserve.

• In the third quarter 2010, C&N redeemed preferred stock that had previously been issued, and has had no preferred stock outstanding and no corresponding dividend costs in 2011. In 2010, earnings available for common shareholders were impacted by dividends paid on preferred stock totaling $1,474,000.

Quarterly Results:

Fourth quarter 2011 net income was $6,141,000, or $0.51 per basic and diluted common share, as compared to $5,989,000 ($0.49 per share) in the third quarter 2011. Net interest income was $185,000 (1.5%) higher in the fourth quarter as compared to the third quarter 2011, reflecting a lower average cost of funds and an increase of $97,000 in accretion from a previously written-down security. C&N continued to benefit from favorable loan loss experience, recording a credit for loan losses of $87,000 in the fourth quarter, as compared to a credit for loan losses of $37,000 in the third quarter. Noninterest revenue was $288,000 lower in the fourth quarter 2011 than in the third quarter, as third quarter results included the gain from sale of the Williamsport property referred to above. Gains from sales of securities totaled $188,000 in the fourth quarter 2011, up $162,000 over the third quarter, and noninterest expense was $104,000 lower than the third quarter.

Fourth quarter 2011 net income was $1,257,000 higher than fourth quarter 2010 net income of $4,884,000 ($0.40 per share). Net interest income in the fourth quarter 2011 was $1,204,000 higher than in the fourth quarter 2010, mainly due to a lower average cost of funds, and also reflecting the benefit of an increase of $243,000 in accretion from the previously written-down security. The credit for loan losses of $87,000 in the fourth quarter 2011 compares with a provision for loan losses of $719,000 in the fourth quarter 2010.