Attached files
file | filename |
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EX-32 - SOMERSET HILLS BANCORP | c65669_ex32.htm |
EX-31.2 - SOMERSET HILLS BANCORP | c65669_ex31-2.htm |
EX-31.1 - SOMERSET HILLS BANCORP | c65669_ex31-1.htm |
WASHINGTON, DC 20549
FORM 10-Q
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x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended March 31, 2011 |
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or |
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o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from _______________________ to _____________________ |
Commission file number 0-50055
SOMERSET
HILLS BANCORP
(Exact name of Registrant as Specified in Its Charter)
NEW
JERSEY
(State or other jurisdiction of incorporation or
organization)
22-3768777
(I.R.S. Employer Identification Number)
155
MORRISTOWN ROAD
BERNARDSVILLE, NEW JERSEY 07924
(Address of Principal Executive Offices)
(908)
221-0100
(Issuers Telephone Number, including area code)
(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 and 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 o
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Yes x |
No o |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and small reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o |
Accelerated filer o |
Non-accelerated filer o |
Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes o No x
As of May 5, 2011 there were 5,455,857 shares of common stock, no par value, outstanding.
SOMERSET HILLS BANCORP
FORM 10-Q
INDEX
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Page(s) |
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Consolidated Balance Sheets |
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As of March 31, 2011 and December 31, 2010 (Unaudited) |
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3 |
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Consolidated Statements of Income for the Three Months ended March 31, 2011 and 2010 (Unaudited) |
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4 |
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5 |
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Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010 (Unaudited) |
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6 |
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7-17 |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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18-22 |
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23 |
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23 |
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24 |
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24 |
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24 |
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Certifications |
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26-29 |
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Exhibit 32 |
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30 |
- 2 -
PART I FINANCIAL INFORMATION
SOMERSET
HILLS BANCORP
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
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March 31, 2011 |
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December 31, 2010 |
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ASSETS |
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Cash and due from banks |
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$ |
6,797 |
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$ |
5,480 |
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Interest bearing deposits at other banks |
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39,368 |
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52,086 |
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Total cash and cash equivalents |
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46,165 |
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57,566 |
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Loans held for sale |
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1,183 |
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2,230 |
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Investment securities held to maturity (Approximate fair value of $10,653 in 2011 and $10,548 in 2010) |
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10,740 |
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10,740 |
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Investment securities available-for-sale |
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31,251 |
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35,993 |
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Loans receivable |
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219,347 |
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207,146 |
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Less: Allowance for loan losses |
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(2,953 |
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(2,875 |
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Net loans receivable |
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216,394 |
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204,271 |
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Premises and equipment, net |
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5,184 |
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5,285 |
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Bank owned life insurance |
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8,124 |
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8,053 |
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Accrued interest receivable |
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1,114 |
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1,111 |
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Prepaid expenses |
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1,155 |
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1,251 |
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Other assets |
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2,852 |
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2,396 |
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Total assets |
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$ |
324,162 |
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$ |
328,896 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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LIABILITIES |
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Deposits: |
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Non-interest bearing deposits-demand |
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$ |
64,419 |
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$ |
68,521 |
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Interest bearing deposits-NOW, money market and savings |
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166,084 |
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166,304 |
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Certificates of deposit, under $100,000 |
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20,880 |
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21,101 |
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Certificates of deposit, $100,000 and over |
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20,305 |
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20,615 |
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Total deposits |
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271,688 |
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276,541 |
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Federal Home Loan Bank advances |
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11,000 |
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11,000 |
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Other liabilities |
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1,669 |
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1,964 |
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Total Liabilities |
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284,357 |
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289,505 |
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Commitments and contingencies |
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STOCKHOLDERS EQUITY |
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Preferred stock 1,000,000 shares authorized; none issued |
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Common Stock-authorized 9,000,000 Shares of no par value; issued and outstanding, 5,450,838 shares in 2011 and 5,421,924 in 2010 |
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37,789 |
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37,600 |
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Retained earnings |
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1,422 |
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1,145 |
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Accumulated other comprehensive income |
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594 |
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646 |
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Total stockholders equity |
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39,805 |
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39,391 |
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Total liabilities and stockholders equity |
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$ |
324,162 |
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$ |
328,896 |
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See accompanying notes to unaudited consolidated financial statements
- 3 -
SOMERSET HILLS BANCORP
CONSOLIDATED STATEMENTS OF
INCOME
(In thousands, except per share data)
(Unaudited)
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Three
Months Ended |
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2011 |
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2010 |
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INTEREST INCOME |
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Loans, including fees |
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$ |
2,871 |
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$ |
2,805 |
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Investment securities |
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429 |
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476 |
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Interest bearing deposits with other banks |
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25 |
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28 |
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Total interest income |
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3,325 |
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3,309 |
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INTEREST EXPENSE |
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Deposits |
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359 |
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550 |
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Federal Home Loan Bank advances |
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91 |
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91 |
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Total interest expense |
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450 |
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641 |
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Net interest income |
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2,875 |
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2,668 |
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Provision for loan losses |
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75 |
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75 |
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Net interest income after provision for loan losses |
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2,800 |
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2,593 |
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NON-INTEREST INCOME |
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Service fees on deposit accounts |
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75 |
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79 |
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Gains on sales of mortgage loans, net |
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147 |
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187 |
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Bank owned life insurance |
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71 |
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75 |
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Gain on sales of investment securities, net |
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9 |
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Other income |
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94 |
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81 |
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Total non-interest income |
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396 |
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422 |
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NON-INTEREST EXPENSE |
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Salaries and employee benefits |
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1,317 |
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1,366 |
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Occupancy expense |
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412 |
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435 |
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Advertising and business promotion |
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29 |
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43 |
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Stationery and supplies |
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43 |
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40 |
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Data processing |
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135 |
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127 |
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FDIC insurance |
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83 |
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110 |
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Other operating expense |
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334 |
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329 |
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Total non-interest expense |
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2,353 |
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2,450 |
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Income before provision for taxes |
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843 |
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565 |
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Provision for income taxes |
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240 |
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155 |
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Net income |
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$ |
603 |
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$ |
410 |
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Earnings per share: |
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Basic |
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$ |
0.11 |
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$ |
0.08 |
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Diluted |
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$ |
0.11 |
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$ |
0.07 |
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See accompanying notes to unaudited consolidated financial statements
- 4 -
SOMERSET HILLS BANCORP
CONSOLIDATED STATEMENT OF
CHANGES IN STOCKHOLDERS EQUITY
(In thousands, except share data)
(Unaudited)
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Common |
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Common |
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Retained |
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Accumulated |
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Comprehensive |
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Total |
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Balance January 1, 2011 |
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5,421,924 |
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$ |
37,600 |
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$ |
1,145 |
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$ |
646 |
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$ |
39,391 |
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Exercise of common stock options, net of tax benefit |
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28,914 |
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177 |
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177 |
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Stock based compensation |
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12 |
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12 |
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Cash dividend paid common |
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(326 |
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(326 |
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Net income for the period |
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603 |
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$ |
603 |
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603 |
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Other comprehensive income, net of taxes |
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(52 |
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(52 |
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(52 |
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Total comprehensive income |
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$ |
551 |
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Balance March 31, 2011 |
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5,450,838 |
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$ |
37,789 |
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$ |
1,422 |
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$ |
594 |
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$ |
39,805 |
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See accompanying notes to unaudited consolidated financial statements
- 5 -
SOMERSET HILLS BANCORP
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(In thousands)
(Unaudited)
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Three Months Ended |
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2011 |
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2010 |
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OPERATING ACTIVITIES: |
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Net income |
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$ |
603 |
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$ |
410 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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156 |
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135 |
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Provision for loan losses |
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75 |
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75 |
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Gain on sale of investment securities, net |
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(9 |
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Stock-based compensation |
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12 |
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9 |
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Mortgage loans originated for sale |
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(15,687 |
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(27,054 |
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Proceeds from mortgage loan sales |
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16,881 |
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30,453 |
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Gain on sale of mortgage loans |
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(147 |
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(187 |
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(Increase) decrease in accrued interest receivable |
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(3 |
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42 |
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Increase in bank owned life insurance |
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(71 |
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(74 |
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Increase in other assets |
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(360 |
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(167 |
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Decrease in other liabilities |
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(270 |
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(50 |
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Net cash provided by operating activities |
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1,180 |
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3,592 |
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INVESTING ACTIVITIES: |
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Purchases of investment securities available-for-sale |
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(1,000 |
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(2,916 |
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Maturity and payments of investment securities available for sale |
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3,699 |
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5,732 |
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Proceeds from sale of investment securities available for sale |
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1,934 |
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Net increase in loans receivable |
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(12,198 |
) |
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(2,088 |
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Purchases of premises and equipment |
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(14 |
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(20 |
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Net cash (used in) provided by investing activities |
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(7,579 |
) |
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708 |
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FINANCING ACTIVITIES: |
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Net decrease in demand deposit and savings accounts |
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(4,322 |
) |
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(12,906 |
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Net decrease in certificates of deposit |
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(531 |
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(4,792 |
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Net change in proceeds from exercise of stock options |
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177 |
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106 |
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Cash dividends paid |
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(326 |
) |
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(261 |
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Net cash used in financing activities |
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(5,002 |
) |
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(17,853 |
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Net increase in cash and cash equivalents |
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(11,401 |
) |
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(13,553 |
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Cash and cash equivalents at beginning of period |
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57,566 |
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56,292 |
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Cash and cash equivalents at end of period |
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$ |
46,165 |
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$ |
42,739 |
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Supplemental information: |
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Cash paid during the year for: |
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Interest |
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$ |
454 |
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$ |
658 |
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Income taxes |
|
$ |
377 |
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$ |
328 |
|
See accompanying notes to unaudited consolidated financial statements
- 6 -
SOMERSET HILLS BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Summary of Significant Accounting Policies
a) Basis of Presentation
Somerset Hills Bancorp (the Company) is a bank holding company, formed in January 2001 to own all the common stock of Somerset Hills Bank (the Bank), a New Jersey chartered commercial bank that opened for business in Bernardsville, Somerset County, New Jersey in December 1998. The only activity of Somerset Hills Bancorp is ownership of Somerset Hills Bank and its subsidiaries. At March 31, 2011, the Bank operated six banking offices: its main office, located in Somerset County, New Jersey, four branch offices in Morris County, New Jersey and one branch office in Union County, New Jersey. The Bank operates a licensed mortgage company subsidiary, Sullivan Financial Services, Inc. The Bank also operates a wealth management subsidiary, Somerset Hills Wealth Management, LLC. The Bank is also a 50% owner of Somerset Hills Title Group, LLC., a full service title agency based in Parsippany, New Jersey. During the first quarter of 2006 the Bank established a subsidiary to hold and manage a portion of the Banks investment portfolio, Somerset Hills Investment Holdings Inc. During the second quarter of 2008 the Bank established a subsidiary to hold and manage any foreclosed real estate properties the Bank may take title to, SOMH Holdings, LLC. The Company is subject to the supervision and regulation of the Board of Governors of the Federal Reserve System (the FRB). The Banks deposits are insured by the Deposit Insurance Fund (DIF) of the Federal Deposit Insurance Corporation (FDIC) up to applicable limits. The operations of the Company and the Bank are subject to the supervision and regulation of the FRB, FDIC and the New Jersey Department of Banking and Insurance (the Department). The operations of Somerset Hills Wealth Management, LLC are subject to the supervision and regulation of the Department. The operations of Sullivan Financial Services are subject to the supervision and regulation by the U. S. Department of Housing and Urban Development (HUD), the Veterans Administration, the Department and the Banking Departments in New York, Pennsylvania and Florida.
The accompanying unaudited consolidated financial statements included herein have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the Securities and Exchange Commission and reflect all adjustments which, in the opinion of management, are considered necessary for a fair presentation of the financial condition and results of operations for the periods presented. All adjustments made were of a normal and recurring nature. Operating results for the three months ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ended December 31, 2011. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto, included in the Companys Annual Report on Form 10-K for the year ended December 31, 2010.
The current dividend payments are being made out of income earned during the period. On April 26, 2011, the Board of Directors of the Company declared a quarterly cash dividend of $0.06 per share payable May 31, 2011 to shareholders of record as of May 19, 2011. The Board will review the amount and frequency of the Companys cash dividends on an ongoing basis, based upon the Companys results of operations, capital needs and other appropriate factors.
These financial statements consider events that occurred through the filing of this quarterly report.
b) Net Income Per Common Share
Basic net income per share of common stock is calculated by dividing net income applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net income per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding during the period plus the dilutive effect of potential common shares.
The following tables set forth the computations of basic and diluted earnings per share (dollars and share data in thousands, except per share amounts):
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Three Months Ended, March 31, 2011 |
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Three Months Ended, March 31, 2010 |
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Income |
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Shares |
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Per |
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Income |
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Shares |
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Per |
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Basic earnings per share: |
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Net income applicable to common stockholders |
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$ |
603 |
|
|
5,429 |
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$ |
0.11 |
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$ |
410 |
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|
5,455 |
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$ |
0.08 |
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Effect of dilutive securities: |
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Options/warrants |
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61 |
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40 |
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Diluted earnings per share: |
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Net income applicable to common stock-holders and assumed conversions |
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$ |
603 |
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|
5,490 |
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$ |
0.11 |
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$ |
410 |
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5,495 |
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$ |
0.07 |
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The table above excludes options with exercise prices that exceed the average market price of the Companys common stock during the periods presented because such options would have an anti-dilutive effect on the diluted earnings per common share calculation. The number of anti-dilutive common stock options totaled 10,805 and 24,168 for the three months ended March 31, 2011 and 2010, respectively.
- 7 -
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c) Comprehensive Income |
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The components of comprehensive income for the three months ended March 31, 2011 and 2010 are as follows (in thousands): |
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Three Months Ended |
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2011 |
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2010 |
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Net income |
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$ |
603 |
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$ |
410 |
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Unrealized holding gains (losses) on available for sale securities arising during the period |
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(87 |
) |
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125 |
|
Reclassification adjustment for losses (gains) in realized income |
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9 |
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Net change in unrealized gains (losses) |
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(78 |
) |
|
125 |
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Tax effect |
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26 |
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|
(42 |
) |
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Net unrealized (losses) gains |
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(52 |
) |
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83 |
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Comprehensive income |
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$ |
551 |
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$ |
493 |
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d) Stock-Based Compensation |
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Stock Options: |
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For accounting purposes, the Company recognizes expense for shares of common stock awarded over the vesting period at the fair market value of the shares on the date they are awarded. |
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The following table summarizes stock option activity. |
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Number of Shares |
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Weighted
average |
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Weighted
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Aggregate |
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Outstanding at December 31, 2010 |
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302,591 |
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$ |
7.15 |
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Granted |
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45,750 |
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9.83 |
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Exercised |
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(28,914 |
) |
|
6.07 |
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Forfeited |
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(2,362 |
) |
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7.45 |
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Outstanding at March 31, 2011 |
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317,065 |
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$ |
7.63 |
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4.9 Years |
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$ |
501 |
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Exercisable as of March 31, 2011 |
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242,507 |
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$ |
7.21 |
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4.4 Years |
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$ |
452 |
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The total stock-based compensation expense for the first three months of 2011 and 2010 was approximately $12 thousand and $9 thousand, respectively. The total intrinsic value of common stock options exercised for the first three months of 2011 was approximately $84 thousand. The total intrinsic value of common stock options exercised for the first three months of 2010 was approximately $27 thousand.
The per share weighted-average fair values of stock options granted during the first three months of 2011 and 2010 was $1.96 and $1.65, respectively, on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions for 2011 and 2010: expected dividend yield of 2.44% and 2.53%, stock price volatility of 21.69% and 22.48%, risk-free interest rate of 2.84% and 3.12% and expected lives of 7 years.
During the first quarter of 2011, the expiration date of 25,000 options with a strike price of $6.05, held by the Companys Chief Executive Officer, was extended by three years to March 19, 2014. No additional expense was recorded, since there was no increase in the fair value of the options resulting from the modification using the Black-Scholes option pricing model.
Stock Awards:
At the 2007 Annual Meeting the stockholders approved the adoption of the 2007 Equity Incentive Plan. The Company established the 2007 Equity Incentive Plan for directors, officers and employees of the Company. Up to 125,000 shares of common stock have been approved for grants of options and restricted stock under the Plan.
For accounting purposes, the Company recognizes compensation expense for grants of restricted stock awarded under equity incentive plans over the vesting period at the fair market value of the shares on the date they are awarded. For share awards granted to date, the vesting period is four years with 25 percent of the award for each year vesting annually on May 23 of each year. As of March 31, 2011, 2,474 shares were vested. For the three-month period ended March 31, 2011, the Company recognized $1 thousand of compensation expense related to the shares awarded. As of March 31, 2011 there was approximately $1 thousand of unrecognized compensation costs related to non-vested restricted stock plan shares. These costs are expected to be recognized over a period of approximately 0.2 years. The fair value of non-vested stock awards at March 31, 2011 was $6 thousand.
A summary of the status of the Companys nonvested plan shares as of March 31, 2011 and changes during the quarter is as follows:
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For the Three Months Ended March 31, 2011 |
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Shares |
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Weighted Average |
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Non-vested at beginning of period |
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|
731 |
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$ |
11.56 |
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Granted |
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Forfeited |
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Vested |
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Non-vested at end of period |
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731 |
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$ |
11.56 |
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- 8 -
e) Recent Accounting Pronouncements
Adoption of New Accounting Guidance
In July 2010, the FASB issued ASU No. 2010-20 Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. This ASU requires significantly more information about credit quality in a financial institutions portfolio and the allowance for credit losses. The disclosure requirements are effective for interim and annual reporting periods ending on or after December 15, 2010. The impact of adoption was not material.
In April 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update(ASU) No. 2011-02, A Creditors Determination of Whether a Restructuring is a Troubled Debt Restructuring. The provisions of ASU No. 2011-02 amend and clarify GAAP related to the accounting for debt restructurings. Specifically, ASU No. 2011-02 requires that, when evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that both (i) the restructuring constitutes a concession and (ii) the debtor is experiencing financial difficulties. In evaluating whether a concession has been granted, a creditor must evaluate whether (i) a debtor has access to funds at a market rate for debt with similar risk characteristics as the restructured debt in order to determine if the restructuring would be considered to be at a below-market rate, indicating that the creditor has granted a concession, (ii) a temporary or permanent increase in the contractual interest rate as a result of a restructuring may be considered a concession because the new contractual interest rate on the restructured debt is still below the market interest rate for new debt with similar risk characteristics, and (iii) a restructuring that results in a delay in payment is either significant and is a concession or is insignificant and is not a concession. In evaluating whether a debtor is experiencing financial difficulties, a creditor may conclude that a debtor is experiencing financial difficulties, even though the debtor is not currently in payment default. A creditor should evaluate whether it is probable that the debtor would be in payment default on any of its debt in the foreseeable future without a modification of the debt. The provisions of ASU No. 2011-02 are effective for the first interim or annual period beginning on or after June 15, 2011 and should be applied retroactively to the beginning of the annual period of adoption.
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2. |
Segment Information |
The Companys mortgage operations are managed separately from the traditional banking and related financial services that the Company also offers. The mortgage company originates, predominantly for resale in the secondary market, conventional and non-conventional 1-4 family residential mortgages, Veterans Administration guaranteed mortgages, Department of Housing and Urban Development guaranteed mortgages and non-conventional programs, such as jumbo mortgages and a wide variety of adjustable products.
The following table sets forth certain information about and the reconciliation of reported net income for each of the reportable segments for the three months ended March 31, 2011 (in thousands):
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The Bank and |
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Sullivan Financial |
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Eliminating |
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Consolidated |
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Interest income |
|
$ |
3,311 |
|
$ |
23 |
|
$ |
(9 |
) |
$ |
3,325 |
|
Interest expense |
|
|
450 |
|
|
9 |
|
|
(9 |
) |
|
450 |
|
Provision for loan losses |
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|
75 |
|
|
|
|
|
|
|
|
75 |
|
Non-interest income |
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|
279 |
|
|
147 |
|
|
(30 |
) |
|
396 |
|
Non-interest expense including tax provision |
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|
2,424 |
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|
199 |
|
|
(30 |
) |
|
2,593 |
|
Net income (loss) |
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|
641 |
|
|
(38 |
) |
|
|
|
|
603 |
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|
Total assets |
|
$ |
323,898 |
|
$ |
3,622 |
|
$ |
(3,358 |
) |
$ |
324,162 |
|
The following table sets forth certain information about and the reconciliation of reported net income for each of the reportable segments for the three months ended March 31, 2010 (in thousands)
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|
|
The Bank and |
|
Sullivan Financial |
|
Eliminating |
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Consolidated |
|
||||
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|
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|
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|
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|
|
Interest income |
|
$ |
3,288 |
|
$ |
31 |
|
$ |
(10 |
) |
$ |
3,309 |
|
Interest expense |
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|
641 |
|
|
10 |
|
|
(10 |
) |
|
641 |
|
Provision for loan losses |
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|
75 |
|
|
|
|
|
|
|
|
75 |
|
Non-interest income |
|
|
267 |
|
|
187 |
|
|
(32 |
) |
|
422 |
|
Non-interest expense including tax provision |
|
|
2,412 |
|
|
225 |
|
|
(32 |
) |
|
2,605 |
|
Net income (loss) |
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|
427 |
|
|
(17 |
) |
|
|
|
|
410 |
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|
|
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|
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|
Total assets |
|
$ |
312,056 |
|
$ |
3,695 |
|
$ |
(2,999 |
) |
$ |
312,752 |
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|
3. |
Fair Value |
ASC 820 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable
- 9 -
inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
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Level 1: Quoted prices (unadjusted) of identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. |
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Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. |
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|
Level 3: Significant unobservable inputs that reflect a reporting entitys own assumptions about the assumptions that market participants would use in pricing an asset or liability. |
The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used to in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities relationship to other benchmark quoted securities (Level 2 inputs).
Assets Measured on a Recurring Basis
Assets measured at fair value on a recurring basis are summarized below at March 31, 2011 and December 31, 2010 (in thousands):
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Fair Value Measurements at March 31, 2011 Using |
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Quoted Prices in Active |
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Significant Other |
|
Significant |
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Assets: |
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Available for sale securities: |
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|
U.S. Government sponsored |
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|
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Agency Securities |
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$ |
|
|
$ |
6,566 |
|
$ |
|
|
Mortgage Backed Securities - Residential |
|
|
|
|
|
18,307 |
|
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|
|
Collateralized Mortgage Obligations |
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|
|
|
|
4,906 |
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|
Corporate Debt Securities |
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|
|
1,472 |
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Fair Value Measurements at December 31, 2010 Using |
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|
|||||||
|
|
Quoted Prices in Active |
|
Significant |
|
Significant |
|
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Assets: |
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|
Available for sale securities |
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|
U.S. Government sponsored |
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Agency Securities |
|
$ |
|
|
$ |
9,023 |
|
$ |
|
|
Mortgage Backed Securities - Residential |
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|
|
|
|
19,847 |
|
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|
|
Collateralized Mortgage Obligations |
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|
|
|
|
5,677 |
|
|
|
|
Corporate Debt Securities |
|
|
|
|
|
1,446 |
|
|
|
|
Assets Measured on a Non-Recurring Basis
Assets measured at fair value on a non-recurring basis are summarized below at March 31, 2011 and December 31, 2010 (in thousands):
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|
Fair Value Measurements at March 31, 2011 Using |
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|
|||||||
|
|
Quoted Prices in Active |
|
Significant Other |
|
Significant |
|
|||
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|
|||
Assets: |
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|
|
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|
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|
|
|
Impaired loans |
|
$ |
|
|
$ |
|
|
$ |
145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2010 Using |
|
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|
|
|
|||||||
|
|
Quoted Prices in Active |
|
Significant Other |
|
Significant |
|
|||
|
|
|
|
|
|
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|
|||
Assets: |
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
$ |
|
|
$ |
|
|
$ |
356 |
|
A loan is impaired when full payment under the loan terms is not expected. The fair value measurement is based on the lesser of appraised value, broker opinion or projected list price of the property less estimated expenses for the disposal of the property which include taxes, commissions, first
- 10 -
liens and legal fees. Collateral dependent impaired loans for which there is a specific reserve had a carrying amount of $254 thousand with a valuation allowance of $109 thousand as of March 31, 2011, and had a carrying amount of $471 thousand with a valuation allowance of $114 thousand as of December 31, 2010. Specific reserves for impaired loans decreased by $5 thousand during the first quarter of 2011. At March 31, 2011 there was one commercial mortgage loan in this loan portfolio class. At December 31, 2010 there was one commercial loan and one commercial mortgage in this loan portfolio class.
The recorded value of loans held for sale is approximately $1.2 million and $2.2 million at March 31, 2011 and December 31, 2010, respectively, and approximates their fair value. No impairment charges were recognized on loans held for sale for the period ending March 31, 2011 and December 31, 2010.
Estimated fair values have been determined by the Company using the best available data and an estimation methodology suitable for each category of financial instrument. The estimation methodologies used, the estimated fair values, and recorded book balances at March 31, 2011 and December 31, 2010 are outlined below.
For cash and due from banks and interest bearing deposits, the recorded book value approximates fair value. The fair values of loans are estimated based on a discounted cash flow analysis using interest rates currently offered for loans with similar terms to borrowers of similar credit quality. The estimated fair values of demand deposits (i.e., interest and non-interest bearing checking accounts, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts of variable rate, fixed-term money market accounts, and certificates of deposit approximate their fair values at the reporting date. The fair values of fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies market interest rates to a schedule of aggregated expected monthly time deposit maturities. The fair value of fixed-rate Federal Home Loan Bank borrowings are estimated using a discounted cash flow calculation that applies interest rates currently being offered to a schedule of aggregated expected monthly Federal Home Loan borrowings maturities. The fair value of commitments to extend credit is estimated based on the amount of unamortized deferred loan commitment fees. The fair value of letters of credit is based on the amount of unearned fees plus the estimated costs to terminate the letters of credit. Fair values of unrecognized financial instruments including commitments to extend credit and the fair value of letters of credit are considered immaterial.
|
|
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|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
March 31, 2011 |
|
December 31, 2010 |
|
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|
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|
|
||||||||
|
|
Carrying
|
|
Estimated |
|
Carrying
|
|
Estimated |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Cash and due from banks |
|
$ |
6,797 |
|
$ |
6,797 |
|
$ |
5,480 |
|
$ |
5,480 |
|
Interest bearing deposits |
|
|
39,368 |
|
|
39,368 |
|
|
52,086 |
|
|
52,086 |
|
Loans, including deferred fees and costs |
|
|
219,347 |
|
|
220,048 |
|
|
207,146 |
|
|
208,199 |
|
Non-time deposits |
|
|
230,503 |
|
|
230,503 |
|
|
234,825 |
|
|
234,825 |
|
Time deposits |
|
|
41,185 |
|
|
41,854 |
|
|
41,716 |
|
|
42,456 |
|
Federal Home Loan Bank borrowings |
|
|
11,000 |
|
|
12,663 |
|
|
11,000 |
|
|
12,707 |
|
|
|
4. |
Securities |
|
|
|
The amortized cost, gross unrealized gains and losses, and fair value of the Companys investment securities held to maturity and available-for-sale are as follows at March 31, 2011 (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
Gross |
|
Gross |
|
Estimated |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Held to Maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of US States and Political Subdivisions |
|
$ |
9,228 |
|
$ |
146 |
|
$ |
(106 |
) |
$ |
9,268 |
|
Corporate debt securities |
|
|
1,512 |
|
|
|
|
|
(127 |
) |
|
1,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total held to maturity |
|
$ |
10,740 |
|
$ |
146 |
|
$ |
(233 |
) |
$ |
10,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Debt Securities |
|
$ |
1,472 |
|
$ |
13 |
|
$ |
(13 |
) |
$ |
1,472 |
|
U.S. Government Sponsored Agency Securities |
|
|
6,604 |
|
|
1 |
|
|
(39 |
) |
|
6,566 |
|
Mortgage Backed Securities - Residential |
|
|
17,447 |
|
|
867 |
|
|
(7 |
) |
|
18,307 |
|
Collaterized Mortgage Obligations |
|
|
4,828 |
|
|
78 |
|
|
|
|
|
4,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale |
|
$ |
30,351 |
|
$ |
959 |
|
$ |
(59 |
) |
$ |
31,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost, gross unrealized gains and losses, and fair value of the Companys investment securities held to maturity and available-for-sale are as follows at December 31, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
Gross |
|
Gross |
|
Estimated |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Held to Maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of US States and Political Subdivisions |
|
$ |
9,227 |
|
$ |
120 |
|
$ |
(138 |
) |
$ |
9,209 |
|
Corporate debt securities |
|
|
1,513 |
|
|
|
|
|
(174 |
) |
|
1,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total held to maturity |
|
$ |
10,740 |
|
$ |
120 |
|
$ |
(312 |
) |
$ |
10,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Debt Securities |
|
$ |
1,470 |
|
$ |
5 |
|
$ |
(29 |
) |
$ |
1,446 |
|
U.S. Government Sponsored Agency Securities |
|
|
9,051 |
|
|
15 |
|
|
(43 |
) |
|
9,023 |
|
Mortgage Backed Securities - Residential |
|
|
18,909 |
|
|
940 |
|
|
(2 |
) |
|
19,847 |
|
Collaterized Mortgage Obligations |
|
|
5,583 |
|
|
94 |
|
|
|
|
|
5,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale |
|
$ |
35,013 |
|
$ |
1,054 |
|
$ |
(74 |
) |
$ |
35,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 11 -
The amortized cost and fair value of the Companys investment securities held to maturity and available-for-sale at March 31, 2011 and December 31, 2010 by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands).
|
|
|
|
|
|
|
|
March 31, 2011 |
|
Amortized |
|
Estimated |
|
||
|
|
|
|
|
|
||
Held to Maturity |
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
|
|
$ |
|
|
Due in one to five years |
|
|
580 |
|
|
605 |
|
Due in five years to ten years |
|
|
1,634 |
|
|
1,627 |
|
Due after ten years |
|
|
8,526 |
|
|
8,421 |
|
|
|
|
|
|
|
|
|
|
|
$ |
10,740 |
|
$ |
10,653 |
|
|
|
|
|
|
|
|
|
Available for Sale |
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
|
|
$ |
|
|
Due in one year to five years |
|
|
4,534 |
|
|
4,534 |
|
Due in five years to ten years |
|
|
3,088 |
|
|
3,051 |
|
Due after ten years |
|
|
454 |
|
|
453 |
|
Mortgage Backed Securities and Collaterized Mortgage Obligations |
|
|
22,275 |
|
|
23,213 |
|
|
|
|
|
|
|
|
|
|
|
$ |
30,351 |
|
$ |
31,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
Amortized |
|
Estimated |
|
||
|
|
|
|
|
|
||
Held to Maturity |
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
|
|
$ |
|
|
Due in one to five years |
|
|
581 |
|
|
608 |
|
Due in five years to ten years |
|
|
1,917 |
|
|
1,894 |
|
Due after ten years |
|
|
8,242 |
|
|
8,046 |
|
|
|
|
|
|
|
|
|
|
|
$ |
10,740 |
|
$ |
10,548 |
|
|
|
|
|
|
|
|
|
Available for Sale |
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
|
|
$ |
|
|
Due in one year to five years |
|
|
3,542 |
|
|
3,538 |
|
Due in five years to ten years |
|
|
5,564 |
|
|
5,528 |
|
Due after ten years |
|
|
1,415 |
|
|
1,403 |
|
Mortgage Backed Securities and Collaterized Mortgage Obligations |
|
|
24,492 |
|
|
25,524 |
|
|
|
|
|
|
|
|
|
|
|
$ |
35,013 |
|
$ |
35,993 |
|
|
|
|
|
|
|
|
|
Gross unrealized losses on securities and the estimated fair value of the related securities aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2011 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months |
|
12 Months or longer |
|
Total |
|
||||||||||||
|
|
|
|
|
|
|
|
||||||||||||
|
|||||||||||||||||||
|
|
Estimated |
|
Unrecog |
|
Estimated |
|
Unrecog |
|
Estimated |
|
Unrecog |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Held to Maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal securities |
|
$ |
2,224 |
|
$ |
68 |
|
$ |
281 |
|
$ |
38 |
|
$ |
2,505 |
|
$ |
106 |
|
Corporate debt securities |
|
|
511 |
|
|
2 |
|
|
874 |
|
|
125 |
|
|
1,385 |
|
|
127 |
|
|
|
|
|
|
|
|
|
||||||||||||
Total |
|
$ |
2,735 |
|
$ |
70 |
|
$ |
1,155 |
|
$ |
163 |
|
$ |
3,890 |
|
$ |
233 |
|
|
|
|
|
|
|
|
|
- 12 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months |
|
12 Months or longer |
|
Total |
|
||||||||||||
|
|
|
|
|
|
|
|
||||||||||||
|
|
Estimated |
|
Unreal- |
|
Estimated |
|
Unreal- |
|
Estimated |
|
Unreal- |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Sponsored Agency Securities |
|
$ |
4,974 |
|
$ |
39 |
|
$ |
|
|
$ |
|
|
$ |
4,974 |
|
$ |
39 |
|
Mortgage Backed Securities |
|
|
982 |
|
|
7 |
|
|
|
|
|
|
|
|
982 |
|
|
7 |
|
Corporate debt securities |
|
|
987 |
|
|
13 |
|
|
|
|
|
|
|
|
987 |
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6,943 |
|
$ |
59 |
|
$ |
|
|
$ |
|
|
$ |
6,943 |
|
$ |
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross unrealized losses on securities and the estimated fair value of the related securities aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months |
|
12 Months or longer |
|
Total |
|
||||||||||||
|
|
|
|
|
|
|
|
||||||||||||
|
|
Estimated |
|
Unrecog |
|
Estimated |
|
Unrecog |
|
Estimated |
|
Unrecog |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal securities |
|
$ |
3,708 |
|
$ |
98 |
|
$ |
279 |
|
$ |
40 |
|
$ |
3,987 |
|
$ |
138 |
|
Corporate debt securities |
|
|
503 |
|
|
11 |
|
|
836 |
|
|
163 |
|
|
1,339 |
|
|
174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,211 |
|
$ |
109 |
|
$ |
1,115 |
|
$ |
203 |
|
$ |
5,326 |
|
$ |
312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months |
|
12 Months or longer |
|
Total |
|
||||||||||||
|
|
|
|
|
|
|
|
||||||||||||
|
|
Estimated |
|
Unreal- |
|
Estimated |
|
Unreal- |
|
Estimated |
|
Unreal- |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Sponsored Agency Securities |
|
$ |
5,576 |
|
$ |
43 |
|
$ |
|
|
$ |
|
|
$ |
5,576 |
|
$ |
43 |
|
Mortgage Backed Securities |
|
|
1,004 |
|
|
2 |
|
|
|
|
|
|
|
|
1,004 |
|
|
2 |
|
Corporate debt securities |
|
|
971 |
|
|
29 |
|
|
|
|
|
|
|
|
971 |
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
7,551 |
|
$ |
74 |
|
$ |
|
|
$ |
|
|
$ |
7,551 |
|
$ |
74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2011 the gross proceeds on sale of investment securities was approximately $1.9 million. For the three months ended March 31, 2011 gross gains on sale of investment securities were $20 thousand and gross losses on sale of investment securities were $11 thousand. There were no sales of investment securities for the three months ended March 31, 2010.
At March 31, 2011, there were $1.2 million in securities held to maturity with gross unrealized losses that had been in a continuous unrealized loss position for twelve or more months. Unrealized losses on these securities have not been recognized into income because the issuer(s) bonds are investment grade, management does not intend to sell and it is not likely that management will be required to sell the securities prior to their anticipated recovery. The decline in fair value is largely a result of the securities of these issuers falling out of favor in the broader bond market. The fair value is expected to recover as the bond(s) approach maturity.
Securities with an amortized cost of $1.1 million were pledged to secure public funds on deposit at March 31, 2011.
5. Loans
The following table presents information about impaired loans by loan portfolio class as of March 31, 2011 and December 31, 2010 (in thousands):
Impaired Loans
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
Unpaid |
|
Recorded |
|
Related |
|
|||
|
|
|
|
|
|
|
|
|||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
208 |
|
$ |
209 |
|
$ |
|
|
Commercial mortgage |
|
|
777 |
|
|
777 |
|
|
|
|
Construction, land and land development |
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
|
|
Commercial mortgage |
|
|
990 |
|
|
1,007 |
|
|
130 |
|
Construction, land and land development |
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
208 |
|
|
209 |
|
|
|
|
Commercial mortgage |
|
|
1,767 |
|
|
1,784 |
|
|
130 |
|
Construction, land and land development |
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
|
|
|
|
|
|
|
|
- 13 -
Impaired Loans
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
Unpaid |
|
Recorded |
|
Related |
|
|||
|
|
|
|
|
|
|
|
|||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
|
|
$ |
|
|
$ |
|
|
Commercial mortgage |
|
|
782 |
|
|
787 |
|
|
|
|
Construction, land and land development |
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
217 |
|
|
217 |
|
|
5 |
|
Commercial mortgage |
|
|
992 |
|
|
862 |
|
|
134 |
|
Construction, land and land development |
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
217 |
|
|
217 |
|
|
5 |
|
Commercial mortgage |
|
|
1,774 |
|
|
1,649 |
|
|
134 |
|
Construction, land and land development |
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
||||
|
|
|
|
||||
|
|
March
31 |
|
March
31 |
|
||
|
|
|
|
|
|
||
Average of individually impaired loans during period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
213 |
|
$ |
893 |
|
Commercial mortgage |
|
|
1,770 |
|
|
2,041 |
|
Construction, land and land development |
|
|
|
|
|
914 |
|
Consumer |
|
|
|
|
|
205 |
|
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income recognized during impairment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
3 |
|
$ |
9 |
|
Commercial mortgage |
|
|
23 |
|
|
33 |
|
Construction, land and land development |
|
|
|
|
|
7 |
|
Consumer |
|
|
|
|
|
|
|
Residential |
|
|
|
|
|
|
|
There was no cash-basis interest income recognized on any loans for the three months ended March 31, 2011 and 2010, respectively.
The following table presents loans receivable on nonaccrual status by loan portfolio class as of March 31, 2011 and December 31, 2010 (in thousands):
|
|
|
|
|
|
|
|
Nonaccrual loans |
|
March 31, 2011 |
|
December 31, 2010 |
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
Commercial |
|
$ |
|
|
$ |
|
|
Commercial mortgage |
|
|
254 |
|
|
254 |
|
Construction, land and land development |
|
|
|
|
|
|
|
Consumer |
|
|
|
|
|
|
|
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
254 |
|
$ |
254 |
|
|
|
|
|
|
|
|
|
- 14 -
The balance of troubled debt restructured loans at March 31, 2011 and December 31, 2010 is represented by two credits that are currently performing under their restructured terms and for which the Company has no commitment to lend additional funds. The following table presents information about restructured loans by loan portfolio class as of March 31, 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
Number
of |
|
Pre-modification
outstanding |
|
Post-modification |
|
|||
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
$ |
|
|
$ |
|
|
Commercial mortgage |
|
|
2 |
|
|
744 |
|
|
719 |
|
Construction, land and land development |
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
|
|
|
|
|
|
|
|
The following table presents information about restructured loans by loan portfolio class as of December 31, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
Number
of |
|
Pre-modification
outstanding |
|
Post-modification |
|
|||
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
$ |
|
|
$ |
|
|
Commercial mortgage |
|
|
2 |
|
|
744 |
|
|
719 |
|
Construction, land and land development |
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
|
|
|
|
|
|
|
|
The following table presents past due and current loans, including non accrual and restructured loans, by the loan portfolio class as of March 31, 2011 and December 31, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
30-59
days |
|
60-89
days |
|
Greater
than 90 |
|
Total |
|
Current |
|
Total |
|
Loans
past due 90 |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
|
|
$ |
1,845 |
|
$ |
|
|
$ |
1,845 |
|
$ |
29,143 |
|
$ |
30,988 |
|
$ |
|
|
Commercial mortgage |
|
|
501 |
|
|
|
|
|
254 |
|
|
755 |
|
|
107,738 |
|
|
108,493 |
|
|
|
|
Construction, land |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and land development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,891 |
|
|
6,891 |
|
|
|
|
Consumer |
|
|
115 |
|
|
|
|
|
|
|
|
115 |
|
|
41,535 |
|
|
41,650 |
|
|
|
|
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,158 |
|
|
31,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
616 |
|
$ |
1,845 |
|
$ |
254 |
|
$ |
2,715 |
|
$ |
216,465 |
|
$ |
219,180 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
30-59
days |
|
60-89
days |
|
Greater
than 90 |
|
Total |
|
Current |
|
Total |
|
Loans
past due 90 |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
2 |
|
$ |
|
|
$ |
|
|
$ |
2 |
|
$ |
31,554 |
|
$ |
31,556 |
|
$ |
|
|
Commercial mortgage |
|
|
510 |
|
|
|
|
|
254 |
|
|
764 |
|
|
97,419 |
|
|
98,183 |
|
|
|
|
Construction, land |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and land development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,489 |
|
|
7,489 |
|
|
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,864 |
|
|
42,864 |
|
|
|
|
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,907 |
|
|
26,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
512 |
|
$ |
|
|
$ |
254 |
|
$ |
766 |
|
$ |
206,233 |
|
$ |
206,999 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 15 -
The Company categorizes loans into risk categories based on relevant information about the quality and realizable value of collateral, if any, and the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed whenever a credit is extended, renewed or modified, or when an observable event occurs indicating a potential decline in credit quality, and no less than annually for large balance loans. The Company uses the following definitions for risk ratings:
|
|
|
Special Mention - Loans classified as special mention have a potential weakness that deserves managements close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Companys credit position at some future date. |
|
|
|
Substandard - Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor, or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the repayment and liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Normal payment from the borrower is in jeopardy, although loss of principal, while still possible, is not imminent. |
|
|
|
Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable. |
The following table presents the risk category of loans by class of loans based on the most recent analysis performed as of March 31, 2011 and December 31, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit risk profile by
internally |
|
Pass |
|
Special Mention |
|
Substandard |
|
Doubtful |
|
Total |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
27,858 |
|
$ |
2,922 |
|
$ |
208 |
|
$ |
|
|
$ |
30,988 |
|
Commercial mortgage |
|
|
105,523 |
|
|
1,203 |
|
|
1,767 |
|
|
|
|
|
108,493 |
|
Construction, land and land development |
|
|
6,891 |
|
|
|
|
|
|
|
|
|
|
|
6,891 |
|
Consumer |
|
|
41,382 |
|
|
268 |
|
|
|
|
|
|
|
|
41,650 |
|
Residential |
|
|
30,353 |
|
|
805 |
|
|
|
|
|
|
|
|
31,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
212,007 |
|
$ |
5,198 |
|
$ |
1,975 |
|
$ |
|
|
$ |
219,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit risk profile by
internally |
|
Pass |
|
Special Mention |
|
Substandard |
|
Doubtful |
|
Total |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
28,367 |
|
$ |
2,973 |
|
$ |
217 |
|
$ |
|
|
$ |
31,557 |
|
Commercial mortgage |
|
|
95,191 |
|
|
1,217 |
|
|
1,774 |
|
|
|
|
|
98,182 |
|
Construction, land and land development |
|
|
7,489 |
|
|
|
|
|
|
|
|
|
|
|
7,489 |
|
Consumer |
|
|
42,592 |
|
|
272 |
|
|
|
|
|
|
|
|
42,864 |
|
Residential |
|
|
26,102 |
|
|
805 |
|
|
|
|
|
|
|
|
26,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
199,741 |
|
$ |
5,267 |
|
$ |
1,991 |
|
$ |
|
|
$ |
206,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table represents the allocation of allowance for loan losses and the related loans by loan portfolio segment disaggregated based on the impairment methodology at March 31, 2011 and December 31, 2010. |
- 16 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
(in thousands) |
|
Commercial |
|
Commercial |
|
Construction, |
|
Consumer |
|
Residential |
|
Unallocated |
|
Total |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Allowance for Loan Losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
|
$ |
|
|
$ |
130 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
130 |
|
Collectively evaluated for impairment |
|
|
172 |
|
|
1,800 |
|
|
91 |
|
|
492 |
|
|
230 |
|
|
38 |
|
|
2,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
Total |
|
$ |
172 |
|
$ |
1,930 |
|
$ |
91 |
|
$ |
492 |
|
$ |
230 |
|
$ |
38 |
|
$ |
2,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
|
$ |
208 |
|
$ |
1,767 |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
1,975 |
|
Collectively evaluated for impairment |
|
|
30,780 |
|
|
106,726 |
|
|
6,891 |
|
|
41,650 |
|
|
31,158 |
|
|
|
|
|
217,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
Total |
|
$ |
30,988 |
|
$ |
108,493 |
|
$ |
6,891 |
|
$ |
41,650 |
|
$ |
31,158 |
|
|
|
|
$ |
219,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||
(in thousands) |
|
Commercial |
|
Commercial |
|
Construction, |
|
Consumer |
|
Residential |
|
Unallocated |
|
Total |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Allowance for Loan Losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Individually evaluated for impairment |
|
$ |
5 |
|
$ |
134 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
139 |
|
Collectively evaluated for impairment |
|
|
181 |
|
|
1,687 |
|
|
102 |
|
|
506 |
|
|
205 |
|
|
55 |
|
|
2,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
186 |
|
$ |
1,821 |
|
$ |
102 |
|
$ |
506 |
|
$ |
205 |
|
$ |
55 |
|
$ |
2,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
|
$ |
217 |
|
$ |
1,774 |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
1,991 |
|
Collectively evaluated for impairment |
|
|
31,340 |
|
|
96,408 |
|
|
7,489 |
|
|
42,864 |
|
|
26,907 |
|
|
|
|
|
205,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
31,557 |
|
$ |
98,182 |
|
$ |
7,489 |
|
$ |
42,864 |
|
$ |
26,907 |
|
|
|
|
$ |
206,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the amount of the Companys allowance for loan losses by class of loans based on the most recent analysis performed as of March 31, 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses |
|
Commercial |
|
Commercial |
|
Construction, |
|
Consumer |
|
Residential |
|
Unallocated |
|
Total |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Balance beginning of the year |
|
$ |
186 |
|
$ |
1,821 |
|
$ |
102 |
|
$ |
506 |
|
$ |
205 |
|
$ |
55 |
|
$ |
2,875 |
|
Charge-offs |
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
(2 |
) |
Recoveries |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
Provision charged to expense |
|
|
(19 |
) |
|
109 |
|
|
(11 |
) |
|
(12 |
) |
|
25 |
|
|
(17 |
) |
|
75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
172 |
|
$ |
1,930 |
|
$ |
91 |
|
$ |
492 |
|
$ |
230 |
|
$ |
38 |
|
$ |
2,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 17 -
ITEM 2 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this document discuss future expectations, contain projections or results of operations or financial conditions or state other forward-looking information. Those statements are subject to known and unknown risk; uncertainties and other factors that could cause the actual results to differ materially from those contemplated by the statements. We based the forward-looking statements on various factors and using numerous assumptions. Important factors that may cause actual results to differ from those contemplated by forward-looking statements include those disclosed under Item 1A Risk Factors as included in the Companys Annual Report Form 10K filed for the year ended December 31, 2010.
CRITICAL ACCOUNTING POLICIES
Disclosure of the Companys significant accounting policies is included in Note 1 to the consolidated financial statements of the Company for the year ended December 31, 2010 included in its Annual Report Form 10-K filed under the Securities Exchange Act of 1934. Some of these policies are particularly sensitive, requiring significant judgments, estimates and assumptions to be made by management. Management believes the Companys policy with respect to the methodology for the determination of the allowance for loan losses involves a higher degree of complexity and requires management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. Changes in these judgments, assumptions or estimates could materially impact results of operations. This critical policy and its application is periodically reviewed with the Audit Committee and the Board of Directors of the Company. The allowance for loan losses is based upon managements evaluation of the adequacy of the allowance, including an assessment of known and inherent risks in the portfolio, giving consideration to the size and composition of the loan portfolio, actual loan loss experience, level of delinquencies, detailed analysis of individual loans for which full collectability may not be assured, the existence and estimated net realizable value of any underlying collateral and guarantees securing the loans, and current economic and market conditions. Although management uses the best information available, the level of the allowance for loan losses remains an estimate, which is subject to significant judgment and short- term change. Various regulatory agencies, as an integral part of their examination process, periodically review the Companys allowance for loan losses. Such agencies may require the Company to make additional provisions for loan losses based upon information available to them at the time of their examination. Furthermore, the majority of the Companys loans are secured by real estate in the state of New Jersey. Accordingly, the collectability of a substantial portion of the carrying value of the Companys loan portfolio is susceptible to changes in local market conditions and may be adversely affected should real estate values decline or the Companys market area experience an adverse economic shock. Future adjustments to the allowance for loan losses may be necessary due to economic, operating, regulatory and other conditions beyond the Companys control. Additional information is contained on pages 20 and 22 of this Form 10-Q for the provision and allowance for loan losses.
RESULTS OF OPERATIONS
Three Months ended March 31, 2011 and March 31, 2010
Overview
For the three months ended March 31, 2011 net income was $603,000, or $0.11 per diluted share, compared to $410,000, or $0.07 per diluted share, for the same period in 2010. The increase in net income for the third quarter of 2011 versus the third quarter of 2010 was due to higher net interest income and lower non-interest expenses. These increases were partially offset by decreases in gains on sales of mortgage loans.
At March 31, 2011, total assets were $324.2 million, a decrease of $4.7 million from $328.9 million at year-end 2010. The decrease was primarily due to a $4.1 million decrease in non-interest bearing demand deposits. Cash and cash equivalents declined by $11.4 million and investment securities available for sale declined by $4.7 million, while loans receivable increased by $12.2 million.
Net Interest Income
Net interest income on a fully taxable equivalent basis for the first quarter of 2011 totaled $2.925 million, an increase of $199,000, or 7.3%, from $2.726 million earned in the year ago quarter. The increase in net interest income was due to a widening of the net interest margin, which increased by 17 basis points to 3.99% in the current quarter from 3.82% in the prior year quarter, coupled with a 2.8% increase in average interest-earning assets to $297.3 million in the current quarter from $289.1 million in the prior year quarter. The increase in the net interest margin was primarily due to a reduction in rates paid for funds. The average rate paid on interest-bearing liabilities was 0.86% for the first quarter of 2011 versus 1.20% for the first quarter of 2010. Further contributing to the wider margin was an improved deposit mix, resulting from core deposit growth, and an improved asset mix, resulting from loan growth. Average core deposits (defined as all deposits other than time deposits) measured as a percent of average total deposits was 84.5% for the first quarter of 2011 versus 81.6% for the first quarter of 2010. The loan portfolio as a percent of total interest earning assets increased to 72.5% in the first quarter of 2011 from 71.2% in the prior year quarter.
The following tables present a summary of the Companys interest-earning assets and their average yields, and interest-bearing liabilities and their average costs and stockholders equity for both the three months ended March 31, 2011 and 2010. The average balances are derived from average daily balances. The average balance of loans includes non-accrual loans, and associated yields include loan fees, which are considered adjustment to yields.
- 18 -
Comparative Average
Balance Sheets
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
2010 |
|
||||||||||||||
|
|
|
|
|
|
||||||||||||||
|
|
Average |
|
Interest |
|
Average
Rates |
|
Average |
|
Interest |
|
Average
Rates |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
(Dollars in Thousands) |
|
||||||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits at other banks |
|
$ |
33,469 |
|
$ |
25 |
|
|
0.31 |
% |
$ |
35,427 |
|
$ |
28 |
|
|
0.32 |
% |
Loans |
|
|
215,494 |
|
|
2,850 |
|
|
5.36 |
% |
|
205,928 |
|
|
2,776 |
|
|
5.47 |
% |
Loans held for sale |
|
|
1,402 |
|
|
21 |
|
|
6.07 |
% |
|
2,077 |
|
|
29 |
|
|
5.70 |
% |
Investment securities |
|
|
46,035 |
|
|
465 |
|
|
4.10 |
% |
|
44,821 |
|
|
522 |
|
|
4.72 |
% |
Restricted stock |
|
|
947 |
|
|
14 |
|
|
5.77 |
% |
|
880 |
|
|
12 |
|
|
5.75 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning assets |
|
$ |
297,347 |
|
$ |
3,375 |
|
|
4.60 |
% |
$ |
289,133 |
|
$ |
3,367 |
|
|
4.72 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest earning assets |
|
|
23,309 |
|
|
|
|
|
|
|
|
22,400 |
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(2,913 |
) |
|
|
|
|
|
|
|
(3,159 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
317,743 |
|
|
|
|
|
|
|
$ |
308,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand deposits |
|
$ |
135,170 |
|
$ |
132 |
|
|
0.40 |
% |
$ |
126,341 |
|
$ |
236 |
|
|
0.76 |
% |
Savings |
|
|
7,502 |
|
|
4 |
|
|
0.21 |
% |
|
6,394 |
|
|
5 |
|
|
0.30 |
% |
Money Market |
|
|
18,554 |
|
|
17 |
|
|
0.37 |
% |
|
24,909 |
|
|
28 |
|
|
0.46 |
% |
Certificates of deposits |
|
|
41,082 |
|
|
206 |
|
|
2.04 |
% |
|
47,340 |
|
|
281 |
|
|
2.40 |
% |
FHLB advances/ other borrowings |
|
|
11,000 |
|
|
91 |
|
|
3.37 |
% |
|
11,000 |
|
|
91 |
|
|
3.37 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities |
|
|
213,308 |
|
|
450 |
|
|
0.86 |
% |
|
215,984 |
|
|
641 |
|
|
1.20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Bearing Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits |
|
|
63,247 |
|
|
|
|
|
|
|
|
52,203 |
|
|
|
|
|
|
|
Other liabilities |
|
|
1,415 |
|
|
|
|
|
|
|
|
1,357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
277,970 |
|
|
|
|
|
|
|
|
269,544 |
|
|
|
|
|
|
|
Stockholders Equity |
|
|
39,773 |
|
|
|
|
|
|
|
|
38,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
317,743 |
|
|
|
|
|
|
|
$ |
308,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income |
|
|
|
|
$ |
2,925 |
|
|
|
|
|
|
|
$ |
2,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Spread |
|
|
|
|
|
|
|
|
3.74 |
% |
|
|
|
|
|
|
|
3.52 |
% |
Net Interest Margin |
|
|
|
|
|
|
|
|
3.99 |
% |
|
|
|
|
|
|
|
3.82 |
% |
The data contained in the table has been adjusted to a tax equivalent basis, based on the Companys federal statutory rate of 34 percent. Management believes that this presentation provides comparability of net interest income and net interest margin arising from both taxable and tax-exempt sources and is consistent with industry practice and SEC rules.
Provision for Loan Losses
The provision for loan losses was $75,000 for both the first quarter of 2011 and 2010. The loan loss provisioning during 2011 was largely due to loan growth, whereas the provisioning in 2010 was primarily attributable to deterioration of specific credits, consistent with the continued downturn in the economy at that time. Although the Companys asset quality metrics, such as nonaccrual loan, charge-off, and delinquency ratios remain among the soundest relative to its competitive peer groups, management believes there continue to be heightened risks in certain segments of the loan portfolio. Management regularly reviews the adequacy of its allowance and may provide for additional provisions in future periods due to increased general weakness in the economy or in our geographic trade area, deterioration or impairment of specific credits, or as management may deem necessary.
Non-Interest Income
Non-interest income declined to $396,000 in the first quarter of 2011 from $422,000 in the first quarter of 2010, due primarily to a $40,000 decline in gains on sales of residential loans at Sullivan Financial Services, Inc., a wholly-owned mortgage banking subsidiary of the Bank, which originates loans for sale strictly on a pre-sold flow-basis. Sullivans origination volume was down due to declining residential mortgage refinancing activity and continued low home purchase activity. Partially offsetting the reduction in mortgage banking revenue was $9,000 in net gains realized on the sale of investment securities during the 2011 first quarter.
- 19 -
Non-Interest Expense
Non-interest expenses decreased by $97,000, or 4.0%, to $2.353 million in the first quarter of 2011 from $2.450 million in the first quarter of 2010, due primarily to decreases in employee, occupancy and FDIC premium expenses. Employee costs declined $49,000 due to improved utilization of new and existing staff; occupancy costs improved by $23,000 due largely to lower branch lease costs; and the Banks FDIC assessment declined $27,000, due to the elimination of the FDIC transaction account guarantee program as well as higher anticipated premiums in the 2010 first quarter. Management continues its cost containment efforts, which have yielded cost savings in all areas of the Companys operations.
Income Taxes
The Company recorded provisions for income taxes of $240,000 for the first quarter of 2011 and $155,000 for the first quarter of 2010. The effective tax rate was 28.5% for the first quarter of 2011 and 27.4% for same period one year ago. The increase in the effective tax rate for this years first quarter was due to an increase in income from taxable sources, partially offset by an income tax benefit resulting from a restructuring of certain employee stock options previously granted.
FINANCIAL CONDITION
March 31, 2011 as compared to December 31, 2010
Total assets as of March 31, 2011 decreased to $324.2 million from $328.9 million at December 31, 2010. The largest components of the decrease were cash and cash equivalents (down $11.4 million), loans held for sale (down $1.0 million) and investment securities available for sale (down $4.7 million). These declines were partially offset by a $12.2 increase in loans receivable. The decline in cash reflects largely seasonal factors associated with our level of deposits, which spiked up at year-end. The decline in loans held for sale, which consist of mortgage loans originated by our mortgage banking subsidiary, was also related to seasonal factors as well as an industry-wide reduction in mortgage refinancing activity. Our portfolio of investment securities available for sale declined as the prolonged period of lower interest rates has resulted in continued pay-downs of mortgage-backed securities and calls of certain agency obligations. In addition, during the first quarter of 2011 the Company sold $2.0 million of U.S. Treasury securities as part of its interest-rate risk management processes. The sale resulted in a pretax capital gain of $9,000. Over the course of 2009 and 2010 and into 2011, management has taken a cautious approach with regard to liquidity and interest rate risk by largely depositing net inflows into the Banks Federal Reserve Bank account, which is currently earning 0.25% per annum. The increase in loans reflects managements successful efforts to build the Banks loan portfolio as overall economic conditions begin to stabilize.
Total loans at March 31, 2011 increased $12.2 million to $219.3 million from $207.1 million at year-end 2010. The changes in and composition of the loan portfolio, by category, as of March 31, 2011 compared to December 31, 2010 is as follows: Commercial loans decreased $0.6 million to $31.0 million, construction, land and land development loans decreased by $0.6 million to $6.9 million, commercial mortgage loans increased $10.3 million to $108.5 million; home equity loans decreased by $1.1 million to $41.2 million; residential mortgage loans increased by $4.3 million to $31.2 million; and other consumer loans decreased by $66 thousand to $466 thousand. During the first three months of 2011, the loan portfolio was positively impacted by an increase in commercial and commercial real estate loan demand, as well as refinancing strategies employed by many of the Banks borrowers. With regard to new loan originations, the Bank has made a strategic decision to hold in its loan portfolio a portion of residential mortgages that meet high credit quality standards that were closed by Sullivan Financial, the Banks mortgage banking subsidiary.
The following schedule presents the components of loans, net of unearned income, for each period presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
December 31, 2010 |
|
||||||
|
|
|
|
|
|
||||||
|
|
Amount |
|
Percent |
|
Amount |
|
Percent |
|
||
|
|
|
|
|
|
|
|
|
|
||
|
|
(Dollars In Thousands) |
|
||||||||
|
|
|
|
||||||||
Commercial |
|
$ |
30,988 |
|
14.1 |
% |
$ |
31,556 |
|
15.2 |
% |
Construction, land and land development |
|
|
6,891 |
|
3.2 |
% |
|
7,489 |
|
3.6 |
% |
Commercial mortgages |
|
|
108,493 |
|
49.5 |
% |
|
98,183 |
|
47.4 |
% |
Residential mortgages |
|
|
31,158 |
|
14.2 |
% |
|
26,907 |
|
13.0 |
% |
Consumer |
|
|
41,650 |
|
19.0 |
% |
|
42,864 |
|
20.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans |
|
|
219,180 |
|
100.0 |
% |
|
206,999 |
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred costs |
|
|
167 |
|
|
|
|
147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
219,347 |
|
|
|
|
207,146 |
|
|
|
Less: Allowance for loan losses |
|
|
2,953 |
|
|
|
|
2,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loans |
|
$ |
216,394 |
|
|
|
$ |
204,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans are loans made for business purposes and are primarily secured by collateral, such as cash balances with the Bank, marketable securities held by or under the control of the Bank, business assets including accounts receivable, inventory and equipment and liens on commercial and residential real estate. Construction, land and land development loans include loans secured by first liens on commercial or residential properties to finance the construction or renovation of such properties. Commercial mortgages include loans secured by first liens on completed commercial properties to purchase or refinance such properties. Residential mortgages include loans secured by first liens on residential real estate, and are generally made to existing customers of the Bank to purchase or refinance primary and secondary residences. Consumer loans consist primarily of home equity loans secured by 1st or 2nd liens.
- 20 -
Securities available for sale decreased $4.7 million, or 13.1%, from $36.0 million at year-end 2010 to $31.3 million at March 31, 2011. Securities held to maturity remained constant at $10.7 million from December 31, 2010 to March 31, 2011. The Company purchased $1.0 million in new securities during the first three months of 2011 and $5.6 million in securities matured or were sold, called or prepaid. There were $594 thousand in recorded net unrealized gains, net of taxes, in the available for sale portfolio and $41 thousand in net amortization expenses during the first three months of 2011.
Total deposits decreased $4.8 million to $271.7 million as of March 31, 2011 from $276.5 million as of December 31, 2010. Core deposits (i.e., all deposits other than time deposits) declined $4.3 million, largely due to seasonal factors that impact our commercial customers. Management continues to monitor the Banks deposit portfolio through its Investment and Asset/Liability Committee.
ASSET QUALITY
The following table sets forth information concerning the Companys non-performing assets and troubled debt restructurings TDRs as of the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
December 31, 2010 |
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
Non-accrual loans |
|
$ |
254 |
|
$ |
254 |
|
Loans past due 90 days and still accruing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans |
|
$ |
254 |
|
$ |
254 |
|
OREO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets |
|
$ |
254 |
|
$ |
254 |
|
|
|
|
|
|
|
|
|
Troubled debt restructured loans |
|
$ |
736 |
|
$ |
738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accrual loans to total loans |
|
|
0.12 |
% |
|
0.12 |
% |
Non-performing assets to total assets |
|
|
0.08 |
% |
|
0.08 |
% |
Allowance for loan losses as a % of non-performing loans |
|
|
1,163 |
% |
|
1,132 |
% |
Allowance for loan losses to total loans |
|
|
1.35 |
% |
|
1.39 |
% |
Loans delinquent 30-89 days were $2.5 million at March 31, 2011, up from $512 thousand at December 31, 2010.
As of each of March 31, 2011 and December 31, 2010, there were $2.0 million in impaired loans. The amount of the allowance for loan losses allocated for impaired loans as of March 31, 2011 and December 31, 2010 was $130 thousand and $139 thousand, respectively.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level considered adequate to provide for probable incurred loan losses. The level of the allowance is based on managements evaluation of estimated losses in the portfolio, after consideration of risk characteristics of the loans and prevailing and anticipated economic conditions. Provisions are charged to expense and the allowance is reduced by charge-offs, net of recoveries, and is increased by the provision. Although management strives to maintain an allowance it deems adequate, future economic changes, deterioration of borrowers creditworthiness, and the impact of examinations by regulatory agencies all could cause changes to the Companys allowance for loan losses.
At March 31, 2011, the allowance for loan losses was $3.0 million, up $78 thousand from year-end 2010. There were $3,000 in net loan recoveries for the quarter ended March 31, 2011 compared to no charge-offs or recoveries in 2010. The allowance for loan losses as a percentage of loans receivable was 1.35% at March 31, 2011 and 1.39% at December 31, 2010.
The following table describes the activity in the allowance for loan losses account for the periods ended (in thousands):
|
|
|
|
|
|
|
|
|
|
For
the three months ended |
|
For
the three months ended |
|
||
|
|
|
|
|
|
||
|
|||||||
Allowance for loan losses at beginning of period |
|
$ |
2,875 |
|
$ |
3,111 |
|
Charge-offs |
|
|
(2 |
) |
|
|
|
Recoveries |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
Net recoveries |
|
|
3 |
|
|
|
|
Provision for loan losses |
|
|
75 |
|
|
75 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses at end of period |
|
$ |
2,953 |
|
$ |
3,186 |
|
|
|
|
|
|
|
|
|
- 21 -
INTEREST RATE SENSITIVITY ANALYSIS
The principal objective of the Companys asset and liability management function is to evaluate the interest-rate risk included in certain balance sheet accounts; determine the level of risk appropriate given the Companys business focus, operating environment, and capital and liquidity requirements; establish prudent asset concentration guidelines; and manage the risk consistent with Board approved guidelines. The Company seeks to reduce the vulnerability of its operations to changes in interest rates, and actions in this regard are taken under the guidance of the Asset/Liability Committee (the ALCO). The ALCO generally reviews the Companys liquidity, cash flow needs, maturities of investments, deposits and borrowings, and current market conditions and interest rates.
The Company currently utilizes net interest income simulation and economic value of portfolio equity (EVPE) models to measure the potential impact to the Company of future changes in interest rates. As of March 31, 2011 and 2010 the results of the models were within guidelines prescribed by the Companys Board of Directors. If model results were to fall outside prescribed ranges, action would be required by the ALCO.
The net interest income simulation model attempts to measure the change in net interest income over the next one-year period assuming certain changes in the general level of interest rates. In our model, which was run as of March 31, 2011, we estimated that a gradual (often referred to as ramped) 200 basis-point increase in the general level of interest rates will decrease our net interest income by 0.4%, while a ramped 200 basis-point decrease in interest rates will decrease net interest income by 1.4%. As of March 31, 2010, our model predicted that a 200 basis point gradual increase in general interest rates would increase net interest income by 2.7%, while a 200 basis point decrease would decrease net interest income by 1.3%.
An EVPE analysis is also used to dynamically model the present value of asset and liability cash flows with rate shocks of up and down 200 basis points. The economic value of equity is likely to be different as interest rates change. The Companys variance in EVPE as a percentage of assets as of March 31, 2011, was -1.51% with a rate shock of up 200 basis points, and 0.33% with a rate shock of down 200 basis points. At March 31, 2010, the variances were -0.61% assuming an up 200 basis points rate shock and -0.86% assuming a down 200 basis points rate shock.
LIQUIDITY MANAGEMENT AND CAPITAL RATIOS
At March 31, 2011, the amount of liquid assets remained at a level management deemed adequate to ensure that contractual liabilities, depositors withdrawal requirements, and other operational and customer credit needs could be satisfied.
At March 31, 2011, liquid assets (cash and due from banks, interest bearing deposits at other banks, and investment securities available for sale) were approximately $77.4 million, which represents 23.9% of total assets and 27.4% of total deposits and borrowings.
The Bank is a member of the Federal Home Loan Bank of New York and has the ability to borrow a total of $81.0 million (subject to available qualified collateral, with current borrowings of $11.0 million outstanding at March 31, 2011). In addition, during 2009, the Bank established a credit facility (with an approximate borrowing capacity based on pledged collateral as of March 31, 2011 of $9.8 million) with the Federal Reserve Bank of New York for direct discount window borrowings. In addition, the Bank has in place additional borrowing capacity of $13.0 million through correspondent banks. At March 31, 2011 outstanding commitments for the Bank to extend credit were $82.4 million. Management believes that our combined aggregate liquidity position is sufficient to meet the funding requirements of loan demand and deposit maturities and withdrawals over the next twelve months.
Total stockholders equity increased to $39.8 million at March 31, 2011. Activity in stockholders equity consisted of an increase in retained earnings of $277 thousand which represents net income of $603 thousand earned during the first three months of 2011 offset by a cash dividend payment of $326 thousand. Common stock increased by $177 thousand from the exercise of stock options for the first three months of 2011. Accumulated comprehensive income decreased by $52 thousand resulting from a net change in unrealized gain on securities available for sale.
At March 31, 2011the Bank exceeded each of the regulatory capital requirements applicable to it. The table below presents the capital ratios at March 31, 2011 and 2010, for the Bank, as well as the minimum regulatory requirements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Actual |
|
Minimum |
|
For Classification |
|
|||||||||||||
|
|
|
|
|
||||||||||||||||
March 31, 2011 |
|
Amount |
|
Ratio |
|
Amount |
|
Minimum Ratio |
|
Amount |
|
Ratio |
|
|||||||
|
|
|
|
|
|
|
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Bank: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage Capital |
|
$ |
34,723 |
|
|
10.94 |
% |
$ |
12,699 |
|
|
4.00 |
% |
$ |
15,873 |
|
|
≥5.00 |
% |
|
Tier 1-Risk Based |
|
$ |
34,723 |
|
|
13.84 |
% |
$ |
10,033 |
|
|
4.00 |
% |
$ |
15,050 |
|
|
≥6.00 |
% |
|
Total Risk-Based |
|
$ |
37,676 |
|
|
15.02 |
% |
$ |
20,066 |
|
|
8.00 |
% |
$ |
25,084 |
|
|
≥10.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
Amount |
|
Ratio |
|
Amount |
|
Minimum Ratio |
|
Amount |
|
Ratio |
|
|||||||
|
|
|
|
|
|
|
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Bank: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage Capital |
|
$ |
31,992 |
|
|
10.38 |
% |
$ |
12,324 |
|
|
4.00 |
% |
$ |
15,405 |
|
|
≥5.00 |
% |
|
Tier 1-Risk Based |
|
$ |
31,992 |
|
|
13.27 |
% |
$ |
9,642 |
|
|
4.00 |
% |
$ |
14,463 |
|
|
≥6.00 |
% |
|
Total Risk-Based |
|
$ |
35,007 |
|
|
14.52 |
% |
$ |
19,284 |
|
|
8.00 |
% |
$ |
24,106 |
|
|
≥10.00 |
% |
The Companys tangible common equity ratio was 12.28% as of March 31, 2011 and 12.33% as of March 31, 2010. As the Company has less than $500 million in consolidated assets, it is not subject to regulatory capital requirements at the company level.
- 22 -
- 23 -
|
|
Legal Proceedings |
|
|
|
The Company and the Bank are periodically involved in various legal proceedings as a normal incident to their businesses. In the opinion of management, no material loss is expected from any such pending lawsuit. |
|
|
|
Unregistered Sales of Equity Securities and Use of Proceeds |
|
|
|
(a) and (b) - none |
|
|
|
|
(c) |
In February of 2007, the Registrants Board of Directors approved a repurchase program pursuant to which the registrant may repurchase up to 250,000 shares of its outstanding common stock. In October, 2007 the Board increased this program by another 250,000 shares. There were no securities repurchased during the first quarter of 2011. |
|
|
Defaults Upon Senior Securities |
|
|
|
Not applicable |
|
|
|
(Reserved) |
|
|
|
Other Information |
|
|
|
Not applicable |
|
|
|
Exhibits |
|
|
|
Exhibits |
|
|
|
Exhibit 31.1 Certification of Stewart E. McClure, Jr. pursuant to SEC Rule 13a-14(a) |
|
Exhibit 31.2 Certification of William S. Burns pursuant to SEC Rule 13a-14(a) |
|
Exhibit 32 - Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
- 24 -
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.
|
|
|
|
|
SOMERSET HILLS BANCORP |
|
||
Date: May 12, 2011 |
|
By:/s/ William S. Burns |
|
||
|
|
WILLIAM S. BURNS |
|
|
Executive Vice President and |
|
|
Chief Financial Officer |
- 25 -