SEC Company Response from CITIZENS & NORTHERN CORP (CZNC) (CIK 0000810958) (CZNC) — Oct 7, 2009
CITIZENS & NORTHERN CORP (CZNC) (CIK 0000810958)
Date: Oct. 7, 2009 · CIK: 0000810958 · Accession: 0001144204-09-051902
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 000-16084
Referenced dates: August 21, 2009
Letter
Senior Assistant Chief Accountant Division of Corporation Finance United States Securities and Exchange Commission Washington, DC 20549
Re:
Dear Mr. Nolan:
Following is information as of June 30, 2009 that you requested in your comment letter dated August 21, 2009.
Trust Preferred Securities Issued by Individual Institutions
The following table provides information related to trust preferred securities issued by individual institutions as of June 30, 2009:
(In Thousands)
Moody's/
Cumulative
S&P/
Unrealized
Realized
Fitch
Amortized
Fair
Gain
Credit
Credit
Name of Issuer
Issuer's Parent Company
Cost
Value
(Loss)
Losses
Ratings
Astoria Capital Trust I
Astoria Financial Corporation
$ 5,317
$ 3,376
$ (1,941 )
$
Baa2/BB-/BBB
Carolina First Mortgage Loan Trust
The South Financial Group, Inc.
4,009
2,600
(1,409 )
NR
Patriot Capital Trust I
Susquehanna Bancshares, Inc.
1,000
(410 )
NR
Total
$ 10,326
$ 6,566
$ (3,760 )
$
NR = not rated.
None of the issuers of trust preferred securities described in the table above have deferred or defaulted on payments associated with the Corporation’s securities. Management assesses each of the trust preferred securities issued by individual institutions for the possibility of other-than-temporary impairment (OTTI) by reviewing financial information that is publicly available. As of June 30, 2009, management concluded there was no OTTI on these securities.
Pooled Trust Preferred Securities – Mezzanine Tranches
The following table provides detailed information related to pooled trust preferred securities – mezzanine tranches as of June 30, 2009:
(In Thousands)
Cumulative
Unrealized
Realized
Amortized
Fair
Gain
Credit
Description
Cost
Value
(Loss)
Losses
ALESCO Preferred Funding II, Ltd.
$ 3,572
$ 2,785
$ (787 )
$ (1,428 )
ALESCO Preferred Funding III, Ltd.
3,327
2,396
(931 )
(4,156 )
ALESCO Preferred Funding VI, Ltd.
(2,018 )
ALESCO Preferred Funding IX, Ltd.
1,889
1,053
(836 )
(1,089 )
ALESCO Preferred Funding X, Ltd.
4,448
2,600
(1,848 )
(653 )
MMCAPS Funding I, Ltd.
5,846
3,760
(2,086 )
Preferred Term Securities, Ltd. (Pre TSL I)
2,799
1,870
(929 )
(292 )
Preferred Term Securities XVIII, Ltd.
(7,293 )
Preferred Term Securities XXI, Ltd.
(334 )
(891 )
Preferred Term Securities XXIII, Ltd. (C-1)
3,450
1,917
(1,533 )
Preferred Term Securities XXIII, Ltd. (D-1)
1,537
(995 )
(3,476 )
TPREF Funding II, Ltd.
1,348
(365 )
(652 )
TPREF Funding III, Ltd. (B-1)
1,365
1,009
(356 )
(633 )
TPREF Funding III, Ltd. (B-2)
3,414
2,523
(891 )
(1,582 )
Trapeza CDO II, LLC
1,121
(291 )
(876 )
Tropic CDO III, Ltd.
3,303
2,261
(1,042 )
(3,638 )
U.S. Capital Funding II, Ltd. (B-1)
2,011
1,478
(533 )
U.S. Capital Funding II, Ltd. (B-2)
3,000
2,220
(780 )
U.S. Capital Funding IV, Ltd.
(493 )
(3,966 )
Total
$ 44,029
$ 28,999
$ (15,030 )
$ (32,643 )
(Table continued)
Expected
Actual
Additional
Deferrals
Net Deferrals
and
and
Excess
Number
Moody's/
Defaults
Defaults
Subordination
of Banks
Fitch
as % of
as % of
as % of
Currently
Credit
Outstanding
Performing
Performing
Description
Performing
Ratings (1)
Collateral
Collateral
Collateral
ALESCO Preferred Funding II, Ltd.
Ca/CC
19.2 %
20.9 %
-16.5 %
ALESCO Preferred Funding III, Ltd.
Ca/CC
23.0 %
23.1 %
-26.3 %
ALESCO Preferred Funding VI, Ltd.
(a)
Ca/CC
24.0 %
22.2 %
-22.9 %
ALESCO Preferred Funding IX, Ltd.
(b)
Ca/CC
16.5 %
24.9 %
-6.5 %
ALESCO Preferred Funding X, Ltd.
(c)
Ca/CC
15.7 %
21.2 %
-6.6 %
MMCAPS Funding I, Ltd.
Ca/CCC
9.2 %
20.5 %
1.6 %
Preferred Term Securities, Ltd. (Pre TSL I)
Caa1/CC
15.9 %
14.9 %
-1.1 %
Preferred Term Securities XVIII, Ltd.
(d)
NR/C
16.5 %
16.4 %
-15.6 %
Preferred Term Securities XXI, Ltd.
(e)
Ca/CC
21.9 %
15.9 %
-12.8 %
Preferred Term Securities XXIII, Ltd. (C-1)
(f)
Caa3/CCC
16.8 %
15.3 %
-5.6 %
Preferred Term Securities XXIII, Ltd. (D-1)
(f)
NR/CC
16.8 %
15.3 %
-14.6 %
TPREF Funding II, Ltd.
Caa3/CC
26.6 %
24.6 %
-21.1 %
TPREF Funding III, Ltd. (B-1)
Ca/CC
22.0 %
25.9 %
-15.3 %
TPREF Funding III, Ltd. (B-2)
Ca/CC
22.0 %
25.9 %
-15.3 %
Trapeza CDO II, LLC
Caa2/CC
28.8 %
22.9 %
-20.2 %
Tropic CDO III, Ltd.
Ca/CC
23.2 %
23.1 %
-11.5 %
U.S. Capital Funding II, Ltd. (B-1)
Ca/CC
9.1 %
19.5 %
-2.5 %
U.S. Capital Funding II, Ltd. (B-2)
Ca/CC
9.1 %
19.5 %
-2.5 %
U.S. Capital Funding IV, Ltd.
(g)
Ca/CC
28.5 %
22.3 %
-30.9 %
(1) The table above presents ratings information as of June 30, 2009. The securities had "investment grade" ratings by Moody's (Baa2 or better)
and/or Fitch (BBB or better) at the time of purchase, but have since been downgraded by the ratings agencies.
NR = not rated.
(a) In addition to banks, there are 15 insurance companies currently performing in ALESCO Preferred Funding VI, Ltd.
(b) In addition to banks, there are 15 insurance companies currently performing in ALESCO Preferred Funding IX, Ltd.
(c) In addition to banks, there are 21 insurance companies currently performing in ALESCO Preferred Funding X, Ltd.
(d) In addition to banks, there are 9 insurance companies and 2 pooled trust preferred entities currently performing in Preferred Term Securities XVIII, Ltd.
(e)In addition to banks, there are 14 insurance companies and 1 real estate investment trust (REIT) currently performing in Preferred Term Securities XXI, Ltd.
(f) In addition to banks, there are 12 insurance companies and 1 REIT currently performing in Preferred Term Securities XXIII, Ltd.
(g) In addition to banks, there are 3 pooled trust preferred entities currently performing in U.S. Capital Funding IV, Ltd.
In determining the amount of “currently performing” collateral for purposes of the table above, the total amount of issuers’ balances outstanding have been reduced by the amount in default or deferral (pooled trust preferred securities typically permit issuers to defer payment of interest for up to 5 years, though the issuers’ obligation to pay the interest is cumulative). Also, for some of the securities, management further reduced the total performing balance for the effects of issuers’ subsequent announcements of their intent to defer on the next applicable payment, and for other relevant circumstances. Management considered all such announcements and circumstances known to us in evaluating the pooled trust preferred securities for OTTI as of June 30, 2009.
In the table above, “Excess Subordination as % of Performing Collateral” (Excess Subordination Ratio) was calculated as follows: (Total face value of performing collateral – Face value of all outstanding note balances not subordinate to our investment)/Total face value of performing collateral
The Excess Subordination Ratio measures the extent to which there may be tranches within each pooled trust preferred structure available to absorb credit losses before the Corporation’s securities would be impacted. In 2008 and the first half of 2009, the amount of deferrals and defaults on the pools described above has risen significantly, which has resulted in substantial reductions in the amounts of performing collateral. As a result, the negative and small positive Excess Subordination Ratio percentages shown in the table signify there is little-to-no support from subordinate tranches available to absorb losses before the Corporation’s securities would be impacted. A low or negative Excess Subordination Ratio is not definitive, in isolation, for determining whether or not OTTI should be recorded for a pooled trust preferred security. Other factors affect the timing and amount of cash flows available for payments to the note holders (investors), including the excess interest paid by the issuers (the issuers typically pay higher rates of interest than are paid out to the note holders).
As of June 30, 2009, management evaluated the pooled trust-preferred securities for OTTI by estimating the cash flows expected to be received from each security, taking into account the structure of each pooled trust preferred instrument, including the low or nonexistent levels of current support from subordinate tranches described above. In determining cash flows, management assumed all issuers currently deferring or in default would make no future payments, and assigned estimated future default levels for the remaining issuers in each security based on financial strength ratings assigned by a national ratings service. In all cases, a 10% recovery rate has been applied to future estimated defaults. Management calculated the present value of each security based on the current book yield, adjusted for future changes in 3-month LIBOR (which is the index rate on the Corporation’s adjustable rate pooled trust-preferred securities) based on the applicable forward curve. Management’s estimates of cash flows used to evaluate other-than-temporary impairment of pooled trust-preferred securities were based on sensitive assumptions regarding the timing and amounts of defaults that may occur, and changes in those assumptions could produce different conclusions for each security.
Consistent with your direction, we will provide disclosure similar to that provided above in our Fo
Show Raw Text
CORRESP
1
filename1.htm
Unassociated Document
90-92
Main Street, P. O. Box 58, Wellsboro,
PA 16901
Stock Symbol: CZNC
Phone: (570)
724-3411 Fax: (570)
723-8097
August
26, 2009
Re:
Citizens
& Northern Corporation
Form
10-K for Fiscal Year Ended December 31, 2008
Filed
March 6, 2009
Forms
10-Q for Fiscal Quarters Ended March 31, 2009
And
June 30, 2009
File
No. 000-16084
Mr. John
P. Nolan
Senior
Assistant Chief Accountant
Division
of Corporation Finance
United
States Securities and Exchange Commission
Washington,
DC 20549
Dear Mr.
Nolan:
Following
is information as of June 30, 2009 that you requested in your comment letter
dated August 21, 2009.
Trust Preferred Securities
Issued by Individual Institutions
The
following table provides information related to trust preferred securities
issued by individual institutions as of June 30, 2009:
(In
Thousands)
Moody's/
Cumulative
S&P/
Unrealized
Realized
Fitch
Amortized
Fair
Gain
Credit
Credit
Name of
Issuer
Issuer's Parent
Company
Cost
Value
(Loss)
Losses
Ratings
Astoria Capital Trust
I
Astoria Financial
Corporation
$
5,317
$
3,376
$
(1,941
)
$
0
Baa2/BB-/BBB
Carolina First Mortgage Loan
Trust
The South Financial Group,
Inc.
4,009
2,600
(1,409
)
0
NR
Patriot Capital Trust
I
Susquehanna Bancshares,
Inc.
1,000
590
(410
)
0
NR
Total
$
10,326
$
6,566
$
(3,760
)
$
0
NR = not
rated.
None of
the issuers of trust preferred securities described in the table above have
deferred or defaulted on payments associated with the Corporation’s
securities. Management assesses each of the trust preferred
securities issued by individual institutions for the possibility of
other-than-temporary impairment (OTTI) by reviewing financial information that
is publicly available. As of June 30, 2009, management concluded
there was no OTTI on these securities.
Pooled Trust Preferred
Securities – Mezzanine Tranches
The
following table provides detailed information related to pooled trust preferred
securities – mezzanine tranches as of June 30, 2009:
(In
Thousands)
Cumulative
Unrealized
Realized
Amortized
Fair
Gain
Credit
Description
Cost
Value
(Loss)
Losses
ALESCO Preferred Funding II,
Ltd.
$
3,572
$
2,785
$
(787
)
$
(1,428
)
ALESCO Preferred Funding III,
Ltd.
3,327
2,396
(931
)
(4,156
)
ALESCO Preferred Funding VI,
Ltd.
0
0
0
(2,018
)
ALESCO Preferred Funding IX,
Ltd.
1,889
1,053
(836
)
(1,089
)
ALESCO Preferred Funding X,
Ltd.
4,448
2,600
(1,848
)
(653
)
MMCAPS Funding I,
Ltd.
5,846
3,760
(2,086
)
0
Preferred Term Securities, Ltd.
(Pre TSL I)
2,799
1,870
(929
)
(292
)
Preferred Term Securities XVIII,
Ltd.
0
0
0
(7,293
)
Preferred Term Securities XXI,
Ltd.
608
274
(334
)
(891
)
Preferred Term Securities XXIII,
Ltd. (C-1)
3,450
1,917
(1,533
)
0
Preferred Term Securities XXIII,
Ltd. (D-1)
1,537
542
(995
)
(3,476
)
TPREF Funding II,
Ltd.
1,348
983
(365
)
(652
)
TPREF Funding III, Ltd.
(B-1)
1,365
1,009
(356
)
(633
)
TPREF Funding III, Ltd.
(B-2)
3,414
2,523
(891
)
(1,582
)
Trapeza CDO II,
LLC
1,121
830
(291
)
(876
)
Tropic CDO III,
Ltd.
3,303
2,261
(1,042
)
(3,638
)
U.S. Capital Funding II, Ltd.
(B-1)
2,011
1,478
(533
)
0
U.S. Capital Funding II, Ltd.
(B-2)
3,000
2,220
(780
)
0
U.S. Capital Funding IV,
Ltd.
991
498
(493
)
(3,966
)
Total
$
44,029
$
28,999
$
(15,030
)
$
(32,643
)
(Table
continued)
Expected
Actual
Additional
Deferrals
Net
Deferrals
and
and
Excess
Number
Moody's/
Defaults
Defaults
Subordination
of Banks
Fitch
as % of
as % of
as % of
Currently
Credit
Outstanding
Performing
Performing
Description
Performing
Ratings (1)
Collateral
Collateral
Collateral
ALESCO Preferred Funding II,
Ltd.
36
Ca/CC
19.2
%
20.9
%
-16.5
%
ALESCO Preferred Funding III,
Ltd.
38
Ca/CC
23.0
%
23.1
%
-26.3
%
ALESCO Preferred Funding VI,
Ltd.
32
(a)
Ca/CC
24.0
%
22.2
%
-22.9
%
ALESCO Preferred Funding IX,
Ltd.
42
(b)
Ca/CC
16.5
%
24.9
%
-6.5
%
ALESCO Preferred Funding X,
Ltd.
42
(c)
Ca/CC
15.7
%
21.2
%
-6.6
%
MMCAPS Funding I,
Ltd.
26
Ca/CCC
9.2
%
20.5
%
1.6
%
Preferred Term Securities, Ltd.
(Pre TSL I)
29
Caa1/CC
15.9
%
14.9
%
-1.1
%
Preferred Term Securities XVIII,
Ltd.
54
(d)
NR/C
16.5
%
16.4
%
-15.6
%
Preferred Term Securities XXI,
Ltd.
47
(e)
Ca/CC
21.9
%
15.9
%
-12.8
%
Preferred Term Securities XXIII,
Ltd. (C-1)
97
(f)
Caa3/CCC
16.8
%
15.3
%
-5.6
%
Preferred Term Securities XXIII,
Ltd. (D-1)
97
(f)
NR/CC
16.8
%
15.3
%
-14.6
%
TPREF Funding II,
Ltd.
24
Caa3/CC
26.6
%
24.6
%
-21.1
%
TPREF Funding III, Ltd.
(B-1)
27
Ca/CC
22.0
%
25.9
%
-15.3
%
TPREF Funding III, Ltd.
(B-2)
27
Ca/CC
22.0
%
25.9
%
-15.3
%
Trapeza CDO II,
LLC
22
Caa2/CC
28.8
%
22.9
%
-20.2
%
Tropic CDO III,
Ltd.
36
Ca/CC
23.2
%
23.1
%
-11.5
%
U.S. Capital Funding II, Ltd.
(B-1)
48
Ca/CC
9.1
%
19.5
%
-2.5
%
U.S. Capital Funding II, Ltd.
(B-2)
48
Ca/CC
9.1
%
19.5
%
-2.5
%
U.S. Capital Funding IV,
Ltd.
47
(g)
Ca/CC
28.5
%
22.3
%
-30.9
%
(1) The table above presents
ratings information as of June 30, 2009. The securities had
"investment grade" ratings by Moody's (Baa2 or
better)
and/or
Fitch (BBB or better) at the time of purchase, but have since been
downgraded by the ratings agencies.
NR = not
rated.
(a) In addition to banks, there
are 15 insurance companies currently performing in ALESCO Preferred
Funding VI, Ltd.
(b) In addition to banks, there
are 15 insurance companies currently performing in ALESCO Preferred
Funding IX, Ltd.
(c) In addition to banks, there
are 21 insurance companies currently performing in ALESCO Preferred
Funding X, Ltd.
(d) In addition to banks, there
are 9 insurance companies and 2 pooled trust preferred entities currently
performing in Preferred Term Securities XVIII, Ltd.
(e)In addition to banks, there are
14 insurance companies and 1 real estate investment trust (REIT) currently
performing in Preferred Term Securities XXI,
Ltd.
(f) In addition to banks, there
are 12 insurance companies and 1 REIT currently performing in Preferred
Term Securities XXIII, Ltd.
(g) In addition to banks, there
are 3 pooled trust preferred entities currently performing in U.S. Capital
Funding IV, Ltd.
In
determining the amount of “currently performing” collateral for purposes of the
table above, the total amount of issuers’ balances outstanding have been reduced
by the amount in default or deferral (pooled trust preferred securities
typically permit issuers to defer payment of interest for up to 5 years, though
the issuers’ obligation to pay the interest is cumulative). Also, for
some of the securities, management further reduced the total performing balance
for the effects of issuers’ subsequent announcements of their intent to defer on
the next applicable payment, and for other relevant
circumstances. Management considered all such announcements and
circumstances known to us in evaluating the pooled trust preferred securities
for OTTI as of June 30, 2009.
In the
table above, “Excess Subordination as % of Performing Collateral” (Excess
Subordination Ratio) was calculated as follows: (Total face value
of performing collateral – Face value of all outstanding note balances
not subordinate to
our investment)/Total face value of performing collateral
The
Excess Subordination Ratio measures the extent to which there may be tranches
within each pooled trust preferred structure available to absorb credit losses
before the Corporation’s securities would be impacted. In 2008 and
the first half of 2009, the amount of deferrals and defaults on the pools
described above has risen significantly, which has resulted in substantial
reductions in the amounts of performing collateral. As a result, the
negative and small positive Excess Subordination Ratio percentages shown in the
table signify there is little-to-no support from subordinate tranches available
to absorb losses before the Corporation’s securities would be
impacted. A low or negative Excess Subordination Ratio is not
definitive, in isolation, for determining whether or not OTTI should be recorded
for a pooled trust preferred security. Other factors affect the
timing and amount of cash flows available for payments to the note holders
(investors), including the excess interest paid by the issuers (the issuers
typically pay higher rates of interest than are paid out to the note
holders).
As of
June 30, 2009, management evaluated the pooled trust-preferred securities for
OTTI by estimating the cash flows expected to be received from each security,
taking into account the structure of each pooled trust preferred instrument,
including the low or nonexistent levels of current support from subordinate
tranches described above. In determining cash flows, management
assumed all issuers currently deferring or in default would make no future
payments, and assigned estimated future default levels for the remaining issuers
in each security based on financial strength ratings assigned by a national
ratings service. In all cases, a 10% recovery rate has been applied
to future estimated defaults. Management calculated the present value
of each security based on the current book yield, adjusted for future changes in
3-month LIBOR (which is the index rate on the Corporation’s adjustable rate
pooled trust-preferred securities) based on the applicable forward
curve. Management’s estimates of cash flows used to evaluate
other-than-temporary impairment of pooled trust-preferred securities were based
on sensitive assumptions regarding the timing and amounts of defaults that may
occur, and changes in those assumptions could produce different conclusions for
each security.
Consistent
with your direction, we will provide disclosure similar to that provided above
in our Fo