Attached files
file | filename |
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EX-32 - SOMERSET HILLS BANCORP | c70607_ex32.htm |
EX-31.1 - SOMERSET HILLS BANCORP | c70607_ex31-1.htm |
EX-31.2 - SOMERSET HILLS BANCORP | c70607_ex31-2.htm |
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SECURITIES AND EXCHANGE COMMISSION |
WASHINGTON, DC 20549 |
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FORM 10-Q |
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(Mark One) |
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x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2012 |
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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
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See definition 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 August 3, 2012 there were 5,324,703 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 as of June 30, 2012 and December 31, 2011 (Unaudited) |
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3 |
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4 |
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5 |
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6 |
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Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011 (Unaudited) |
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7 |
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8-20 |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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21-27 |
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27 |
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27 |
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28 |
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28 |
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28 |
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28 |
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28 |
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29 |
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Certifications |
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30-31 |
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Exhibit 32 |
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32 |
- 2 -
PART I FINANCIAL INFORMATION
SOMERSET HILLS BANCORP
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
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June 30, 2012 |
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December 31, 2011 |
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ASSETS |
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Cash and due from banks |
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$ |
6,799 |
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$ |
4,588 |
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Interest bearing deposits at other banks |
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49,712 |
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55,411 |
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Total cash and cash equivalents |
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56,511 |
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59,999 |
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Loans held for sale |
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2,181 |
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2,969 |
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Investment securities held to maturity (Estimated fair value of $9,799 in 2012 and $10,849 in 2011) |
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9,560 |
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10,738 |
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Investment securities available for sale |
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31,971 |
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43,579 |
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Loans receivable |
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238,771 |
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232,485 |
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Less: Allowance for loan losses |
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(3,089 |
) |
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(2,982 |
) |
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Net loans receivable |
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235,682 |
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229,503 |
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Premises and equipment, net |
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4,927 |
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4,996 |
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Bank owned life insurance |
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8,111 |
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8,000 |
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Accrued interest receivable |
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1,092 |
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1,168 |
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Prepaid expenses |
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872 |
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985 |
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Other assets |
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2,615 |
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2,088 |
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Total assets |
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$ |
353,522 |
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$ |
364,025 |
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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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$ |
77,153 |
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$ |
80,532 |
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Interest bearing deposits-NOW, money market and savings |
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188,243 |
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193,276 |
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Certificates of deposit, under $100,000 |
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19,323 |
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20,875 |
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Certificates of deposit, $100,000 and over |
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18,767 |
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20,031 |
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Total deposits |
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303,486 |
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314,714 |
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Federal Home Loan Bank advances |
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7,500 |
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7,500 |
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Other liabilities |
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1,522 |
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1,442 |
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Total liabilities |
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312,508 |
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323,656 |
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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, 5,324,703 shares in 2012 and 5,344,648 in 2011 |
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36,826 |
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36,972 |
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Retained earnings |
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3,529 |
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2,608 |
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Accumulated other comprehensive income |
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659 |
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789 |
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Total stockholders equity |
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41,014 |
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40,369 |
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Total liabilities and stockholders equity |
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$ |
353,522 |
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$ |
364,025 |
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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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Six Months Ended |
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2012 |
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2011 |
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2012 |
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2011 |
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INTEREST INCOME |
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Loans, including fees |
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$ |
2,951 |
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$ |
2,945 |
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$ |
5,977 |
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$ |
5,816 |
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Investment securities |
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330 |
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397 |
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733 |
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826 |
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Interest bearing deposits with other banks |
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27 |
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34 |
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53 |
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60 |
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Total interest income |
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3,308 |
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3,376 |
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6,763 |
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6,702 |
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INTEREST EXPENSE |
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Deposits |
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273 |
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371 |
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564 |
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730 |
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Federal Home Loan Bank advances |
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66 |
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92 |
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131 |
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184 |
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Total interest expense |
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339 |
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463 |
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695 |
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914 |
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Net interest income |
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2,969 |
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2,913 |
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6,068 |
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5,788 |
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Provision for loan losses |
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90 |
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30 |
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165 |
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105 |
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Net interest income after provision for loan losses |
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2,879 |
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2,883 |
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5,903 |
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5,683 |
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NON-INTEREST INCOME |
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Service fees on deposit accounts |
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76 |
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69 |
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147 |
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144 |
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Gains on sales of mortgage loans, net |
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314 |
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139 |
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621 |
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286 |
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Bank owned life insurance |
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68 |
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72 |
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135 |
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143 |
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Gain on sales of investment securities, net |
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161 |
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161 |
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9 |
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Other income |
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93 |
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88 |
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199 |
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183 |
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Total non-interest income |
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712 |
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368 |
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1,263 |
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765 |
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NON-INTEREST EXPENSE |
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Salaries and employee benefits |
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1,291 |
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1,288 |
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2,658 |
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2,606 |
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Occupancy expense |
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332 |
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361 |
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681 |
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|
774 |
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Advertising and business promotion |
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32 |
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40 |
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61 |
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69 |
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Stationery and supplies |
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35 |
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38 |
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80 |
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81 |
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Data processing |
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122 |
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138 |
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252 |
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272 |
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Other operating expense |
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378 |
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353 |
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775 |
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687 |
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Total non-interest expense |
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2,190 |
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2,278 |
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4,507 |
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4,632 |
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Income before provision for income taxes |
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1,401 |
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973 |
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2,659 |
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1,816 |
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Provision for income taxes |
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500 |
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322 |
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938 |
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562 |
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Net income |
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$ |
901 |
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$ |
651 |
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$ |
1,721 |
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$ |
1,254 |
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Earnings per share: |
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Basic |
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$ |
0.17 |
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$ |
0.12 |
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$ |
0.32 |
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$ |
0.23 |
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Diluted |
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$ |
0.17 |
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$ |
0.12 |
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$ |
0.32 |
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$ |
0.23 |
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See accompanying notes to unaudited consolidated financial statements.
- 4 -
SOMERSET HILLS BANCORP
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
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Three
Months Ended |
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Six
Months Ended |
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2012 |
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2011 |
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2012 |
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2011 |
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Net income |
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$ |
901 |
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$ |
651 |
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$ |
1,721 |
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$ |
1,254 |
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Unrealized gains and losses on securities available for sale: |
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(127 |
) |
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265 |
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(36 |
) |
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196 |
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Reclassification adjustment for losses (gains) in realized income |
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(161 |
) |
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(161 |
) |
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(9 |
) |
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Net change in unrealized gains (losses) |
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(288 |
) |
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265 |
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(197 |
) |
|
187 |
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Tax effect |
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98 |
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(89 |
) |
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67 |
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(63) |
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Other comprehensive income (losses) |
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(190 |
) |
|
176 |
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(130 |
) |
|
124 |
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Comprehensive income |
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$ |
711 |
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$ |
827 |
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$ |
1,591 |
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$ |
1,378 |
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See accompanying notes to unaudited consolidated financial statements.
- 5 -
SOMERSET HILLS BANCORP
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS EQUITY
(Dollars in thousands)
(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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Total |
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Balance, January 1, 2012 |
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5,344,648 |
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$ |
36,972 |
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$ |
2,608 |
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$ |
789 |
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$ |
40,369 |
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Exercise of common stock options, net of tax benefit |
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2,812 |
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17 |
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17 |
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Stock based compensation |
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25 |
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25 |
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Net income for the period |
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1,721 |
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1,721 |
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Cash dividends paid common ($0.15 per share) |
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(800 |
) |
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(800 |
) |
Common stock repurchased |
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(22,757 |
) |
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(188 |
) |
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(188 |
) |
Other comprehensive income, net of taxes |
|
|
|
|
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|
|
|
|
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(130 |
) |
|
(130 |
) |
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Balance, June 30, 2012 |
|
|
5,324,703 |
|
$ |
36,826 |
|
$ |
3,529 |
|
$ |
659 |
|
$ |
41,014 |
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Balance, January 1, 2011 |
|
|
5,421,924 |
|
$ |
37,600 |
|
$ |
1,145 |
|
$ |
646 |
|
$ |
39,391 |
|
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Exercise of common stock options, net of tax benefit |
|
|
34,371 |
|
|
211 |
|
|
|
|
|
|
|
|
211 |
|
Stock based compensation |
|
|
(979 |
) |
|
22 |
|
|
|
|
|
|
|
|
22 |
|
Net income for the period |
|
|
|
|
|
|
|
|
1,254 |
|
|
|
|
|
1,254 |
|
Cash dividends paid common ($0.12 per share) |
|
|
|
|
|
|
|
|
(653 |
) |
|
|
|
|
(653 |
) |
Other comprehensive income, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
124 |
|
|
124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2011 |
|
|
5,455,316 |
|
$ |
37,833 |
|
$ |
1,746 |
|
$ |
770 |
|
$ |
40,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
- 6 -
SOMERSET HILLS BANCORP
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|||||
|
|
2012 |
|
2011 |
|
|||
|
|
|
|
|
|
|||
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,721 |
|
$ |
1,254 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
289 |
|
|
301 |
|
|
Provision for loan losses |
|
|
165 |
|
|
105 |
|
|
Gain on sale of investment securities, net |
|
|
(161 |
) |
|
(9 |
) |
|
Stock-based compensation |
|
|
25 |
|
|
22 |
|
|
Mortgage loans originated for sale |
|
|
(45,820 |
) |
|
(27,937 |
) |
|
Proceeds from mortgage loan sales |
|
|
47,229 |
|
|
27,533 |
|
|
Gain on sale of mortgage loans |
|
|
(621 |
) |
|
(286 |
) |
|
Decrease (increase) in accrued interest receivable |
|
|
76 |
|
|
(29 |
) |
|
Increase in bank owned life insurance |
|
|
(111 |
) |
|
(143 |
) |
|
Increase in other assets |
|
|
(414 |
) |
|
(305 |
) |
|
Increase (decrease) in other liabilities |
|
|
147 |
|
|
(436 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
2,525 |
|
|
70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Maturity and payments of investment securities held to maturity |
|
|
1,175 |
|
|
1 |
|
|
Purchases of investment securities available for sale |
|
|
(1,966 |
) |
|
(7,131 |
) |
|
Maturity and payments of investment securities available for sale |
|
|
7,736 |
|
|
6,449 |
|
|
Proceeds from sale of investment securities available for sale |
|
|
5,666 |
|
|
1,934 |
|
|
Increase in loans receivable |
|
|
(6,344 |
) |
|
(15,108 |
) |
|
Purchases of premises and equipment |
|
|
(81 |
) |
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
6,186 |
|
|
(13,869 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net (decrease) increase in demand deposit and savings accounts |
|
|
(8,412 |
) |
|
8,879 |
|
|
Net (decrease) increase in certificates of deposit |
|
|
(2,816 |
) |
|
94 |
|
|
Proceeds from exercise of stock options |
|
|
17 |
|
|
211 |
|
|
Common stock repurchased |
|
|
(188 |
) |
|
|
|
|
Cash dividends paid common stock |
|
|
(800 |
) |
|
(653 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(12,199 |
) |
|
8,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(3,488 |
) |
|
(5,268 |
) |
|
Cash and cash equivalents at beginning of period |
|
|
59,999 |
|
|
57,566 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
56,511 |
|
$ |
52,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information: |
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
705 |
|
$ |
977 |
|
|
Income taxes |
|
|
988 |
|
|
927 |
|
|
See accompanying notes to unaudited consolidated financial statements.
- 7 -
SOMERSET HILLS BANCORP AND SUBSIDIARY
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 June 30, 2012, 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 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 U.S. generally accepted accounting principles 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 six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ended December 31, 2012. 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, 2011.
The current dividend payments are being made out of income earned during the period. On July 19, 2012, the Board of Directors of the Company declared a quarterly cash dividend of $0.08 per share payable August 31, 2012 to shareholders of record as of August 17, 2012. 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.
b) Net Income Per Common Share
Basic earnings per share of common stock is calculated by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2012 |
|
Six Months Ended June 30, 2011 |
|
||||||||||||||
|
|
|
|
|
|
||||||||||||||
|
|
Income |
|
Shares |
|
Per Share |
|
Income |
|
Shares |
|
Per Share |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stockholders |
|
$ |
1,721 |
|
|
5,334 |
|
$ |
0.32 |
|
$ |
1,254 |
|
|
5,442 |
|
$ |
0.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
|
|
|
48 |
|
|
|
|
|
|
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock holders and assumed conversions |
|
$ |
1,721 |
|
|
5,382 |
|
$ |
0.32 |
|
$ |
1,254 |
|
|
5,499 |
|
$ |
0.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 8 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2012 |
|
Three Months Ended June 30, 2011 |
|
||||||||||||||
|
|
|
|
|
|
||||||||||||||
|
|
Income |
|
Shares |
|
Per
Share |
|
Income |
|
Shares |
|
Per
Share |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stockholders |
|
$ |
901 |
|
|
5,329 |
|
$ |
0.17 |
|
$ |
651 |
|
|
5,454 |
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
|
|
|
41 |
|
|
|
|
|
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock holders and assumed conversions |
|
$ |
901 |
|
|
5,370 |
|
$ |
0.17 |
|
$ |
651 |
|
|
5,514 |
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tables above exclude 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 26,897 and 10,407 for the three months ended June 30, 2012 and 2011, respectively. The number of anti-dilutive common stock options totaled 21,842 and 12,909 for the six months ended June 30, 2012 and 2011, respectively.
c) Stock-Based Compensation
At the 2012 Annual Meeting the stockholders approved the adoption of the 2012 Equity Incentive Plan. The Company established the 2012 Equity Incentive Plan for directors, officers and employees of the Company. Up to 150,000 shares of common stock have been approved for grants of options and restricted stock under the Plan.
Stock Options:
|
|
|
For accounting purposes, the Company recognizes expense for common stock options awarded over the vesting period at the fair market value of the options on the date they are awarded. |
|
|
|
The following table summarizes stock option activity. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares |
|
Weighted average |
|
Weighted |
|
Aggregate |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Outstanding at December 31, 2011 |
|
|
346,018 |
|
$ |
7.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(2,812 |
) |
|
5.97 |
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2012 |
|
|
343,206 |
|
$ |
7.65 |
|
|
4.4 Years |
|
$ |
447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of June 30, 2012 |
|
|
251,247 |
|
$ |
7.34 |
|
|
2.8 Years |
|
$ |
404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total stock-based compensation expense for the first six months of 2012 and 2011 was approximately $25 thousand and $22 thousand, respectively. The total intrinsic value of common stock options exercised for the first six months of 2012 and 2011 was approximately $6 thousand and $99 thousand, respectively.
The per share weighted-average fair values of stock options granted during the first six months of 2011 was $1.96 on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions for 2011: expected dividend yield of 2.44%, stock price volatility of 21.69%, risk-free interest rate of 2.84% and expected lives of 7 years. There were no stock options granted during the first six months of 2012.
Stock Awards:
For accounting purposes, the Company recognizes compensation expense for grants of restricted stock awarded under the Equity Incentive Plan 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 June 30, 2012, 3,067 shares were vested. For the six month period ended June 30, 2012, the Company did not recognize any compensation expense related to the shares awarded. As of June 30, 2012 all share awards were vested and no additional costs related to previously granted shares are expected to be recognized.
- 9 -
d) Recent Accounting Pronouncements
Adoption of New Accounting Guidance
In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs which represents the convergence of the FASBs and the IASBs guidance on fair value measurement. ASU 2011-04 reflects the common requirements under U.S. GAAP and IFRS for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning for the term fair value. The new guidance does not extend the use of fair value but, rather, provides guidance about how fair value should be applied where it is already required or permitted under IFRS or U.S. GAAP. For U.S. GAAP, most of the changes are clarifications of existing guidance or wording changes to align with IFRS 13. A public company is required to apply the ASU prospectively for interim and annual periods beginning after December 15, 2011. The adoption of this ASU did not have a material impact on the Companys financial condition or results of operations.
In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220) Presentation of Comprehensive Income the provisions of which allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Under both options, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders equity. ASU 2011-05 does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. ASU 2011-05 should be applied retrospectively and is effective for public companies for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this ASU did not have a material impact on the Companys financial condition or results of operations.
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 June 30, 2012 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Bank and |
|
Sullivan Financial |
|
Eliminating |
|
Consolidated |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
3,289 |
|
$ |
34 |
|
$ |
(15 |
) |
$ |
3,308 |
|
Interest expense |
|
|
339 |
|
|
15 |
|
|
(15 |
) |
|
339 |
|
Provision for loan losses |
|
|
90 |
|
|
|
|
|
|
|
|
90 |
|
Non-interest income |
|
|
428 |
|
|
314 |
|
|
(30 |
) |
|
712 |
|
Non-interest expense including tax provision |
|
|
2,458 |
|
|
262 |
|
|
(30 |
) |
|
2,690 |
|
Net income |
|
|
830 |
|
|
71 |
|
|
|
|
|
901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
352,749 |
|
$ |
5,374 |
|
$ |
(4,601 |
) |
$ |
353,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 June 30, 2011 (in thousands): |
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Bank and |
|
Sullivan Financial |
|
Eliminating |
|
Consolidated |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
3,364 |
|
$ |
19 |
|
$ |
(7 |
) |
$ |
3,376 |
|
Interest expense |
|
|
463 |
|
|
7 |
|
|
(7 |
) |
|
463 |
|
Provision for loan losses |
|
|
30 |
|
|
|
|
|
|
|
|
30 |
|
Non-interest income |
|
|
259 |
|
|
139 |
|
|
(30 |
) |
|
368 |
|
Non-interest expense including tax provision |
|
|
2,444 |
|
|
186 |
|
|
(30 |
) |
|
2,600 |
|
Net income (loss) |
|
|
686 |
|
|
(35 |
) |
|
|
|
|
651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
337,504 |
|
$ |
4,970 |
|
$ |
(4,018 |
) |
$ |
338,456 |
|
- 10 -
The following table sets forth certain information about and the reconciliation of reported net income for each of the reportable segments for the six months ended June 30, 2012 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Bank and |
|
Sullivan Financial |
|
Eliminating |
|
Consolidated |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
6,726 |
|
$ |
64 |
|
$ |
(27 |
) |
$ |
6,763 |
|
Interest expense |
|
|
695 |
|
|
27 |
|
|
(27 |
) |
|
695 |
|
Provision for loan losses |
|
|
165 |
|
|
|
|
|
|
|
|
165 |
|
Non-interest income |
|
|
702 |
|
|
621 |
|
|
(60 |
) |
|
1,263 |
|
Non-interest expense including tax provision |
|
|
4,982 |
|
|
523 |
|
|
(60 |
) |
|
5,445 |
|
Net income |
|
|
1,586 |
|
|
135 |
|
|
|
|
|
1,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
352,749 |
|
$ |
5,374 |
|
$ |
(4,601 |
) |
$ |
353,522 |
|
The following table sets forth certain information about and the reconciliation of reported net income for each of the reportable segments for the six months ended June 30, 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Bank and |
|
Sullivan Financial |
|
Eliminating |
|
Consolidated |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
6,675 |
|
$ |
42 |
|
$ |
(15 |
) |
$ |
6,702 |
|
Interest expense |
|
|
914 |
|
|
15 |
|
|
(15 |
) |
|
914 |
|
Provision for loan losses |
|
|
105 |
|
|
|
|
|
|
|
|
105 |
|
Non-interest income |
|
|
539 |
|
|
286 |
|
|
(60 |
) |
|
765 |
|
Non-interest expense including tax provision |
|
|
4,869 |
|
|
385 |
|
|
(60 |
) |
|
5,194 |
|
Net income |
|
|
1,326 |
|
|
(72 |
) |
|
|
|
|
1,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
327,504 |
|
$ |
4,970 |
|
$ |
(4,018 |
) |
$ |
338,456 |
|
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 inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
|
|
|
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. |
|
|
|
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. |
|
|
|
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 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).
The fair value of loans held for sale is based upon binding quotes from 3rd party investors (Level 2 inputs).
- 11 -
Assets Measured on a Recurring Basis
Assets measured at fair value on a recurring basis are summarized below at June 30, 2012 and December 31, 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at June 30, 2012 Using |
|
|||||||||||||
|
|
|
|
|||||||||||||
|
|
Quoted Prices in Active |
|
Significant |
|
Significant |
|
|||||||||
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government sponsored |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency Securities |
|
|
$ |
|
|
|
|
$ |
8,030 |
|
|
|
$ |
|
|
|
Mortgage Backed Securities - Residential |
|
|
|
|
|
|
|
|
19,858 |
|
|
|
|
|
|
|
Collateralized Mortgage Obligations |
|
|
|
|
|
|
|
|
1,762 |
|
|
|
|
|
|
|
Corporate debt securities |
|
|
|
|
|
|
|
|
2,321 |
|
|
|
|
|
|
|
Loans held for sale |
|
|
|
|
|
|
|
|
2,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2011 Using |
|
|||||||||||||
|
|
|
|
|||||||||||||
|
|
Quoted Prices in Active |
|
Significant |
|
Significant |
|
|||||||||
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government sponsored |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency Securities |
|
|
$ |
|
|
|
|
$ |
14,753 |
|
|
|
$ |
|
|
|
Mortgage Backed Securities Residential |
|
|
|
|
|
|
|
|
23,814 |
|
|
|
|
|
|
|
Collateralized Mortgage Obligations |
|
|
|
|
|
|
|
|
2,734 |
|
|
|
|
|
|
|
Corporate debt securities |
|
|
|
|
|
|
|
|
2,278 |
|
|
|
|
|
|
|
Loans held for sale |
|
|
|
|
|
|
|
|
2,969 |
|
|
|
|
|
|
|
Assets Measured on a Non-Recurring Basis
There were no assets measured at fair value on a non-recurring basis at June 30, 2012 and December 31, 2011, respectively.
A loan is impaired when full payment under the loan terms is not expected. The fair value measurement for collateral dependent loans 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 liens and legal fees. As of June 30, 2012 and December 31, 2011, there were no collateral dependent impaired loans for which there was a specific reserve.
The Company has elected the fair value option for loans held for sale. These loans are intended for sale and the Company believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the loan and in accordance with the Companys policy on loans held for investment. None of these loans are 90 days or more past due nor on nonaccrual as of June 30, 2012 and December 31, 2011. No impairment charges were recognized on loans held for sale for the period ending June 30, 2012 and December 31, 2011.
As of June 30, 2012 and December 31, 2011, the aggregate fair value, contractual balance (including accrued interest), and gain or loss was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
June 30, 2012 |
|
December 31, 2011 |
|
||
|
|
|
|
|
|
||
|
|||||||
Aggregate fair value |
|
$ |
2,181 |
|
$ |
2,969 |
|
Contractual balance |
|
|
2,131 |
|
|
2,928 |
|
Gain |
|
|
50 |
|
|
41 |
|
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 June 30, 2012 and December 31, 2011 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 receivable 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
- 12 -
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.
The carrying amounts and estimated fair values of financial instruments not previously presented are summarized below at June 30, 2012 and December 31, 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at June 30, 2012 Using |
|
||||||||||||||
|
|
|
|
|
|
||||||||||||||
|
|
Carrying Value |
|
Quoted Prices in |
|
Significant |
|
Significant |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
6,799 |
|
|
$ |
6,799 |
|
|
|
$ |
|
|
|
|
$ |
|
|
|
Interest bearing deposits |
|
|
49,712 |
|
|
|
49,712 |
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities held to maturity |
|
|
9,560 |
|
|
|
|
|
|
|
|
10,849 |
|
|
|
|
|
|
|
Loans receivable, including deferred fees and costs |
|
|
238,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
241,635 |
|
|
Demand, NOW, money market and savings |
|
|
265,396 |
|
|
|
265,396 |
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit |
|
|
38,090 |
|
|
|
|
|
|
|
|
38,912 |
|
|
|
|
|
|
|
Federal Home Loan Bank advances |
|
|
7,500 |
|
|
|
|
|
|
|
|
8,511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2011 Using |
|
||||||||||||||
|
|
|
|
|
|
||||||||||||||
|
|
Carrying Value |
|
Quoted Prices in Active |
|
Significant |
|
Significant |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
4,588 |
|
|
$ |
4,588 |
|
|
|
$ |
|
|
|
|
$ |
|
|
|
Interest bearing deposits |
|
|
55,411 |
|
|
|
55,411 |
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities held to maturity |
|
|
10,738 |
|
|
|
|
|
|
|
|
10,849 |
|
|
|
|
|
|
|
Loans receivable, including deferred fees and costs |
|
|
232,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
235,344 |
|
|
Demand, NOW, money market and savings |
|
|
273,808 |
|
|
|
273,808 |
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit |
|
|
40,906 |
|
|
|
|
|
|
|
|
41,883 |
|
|
|
|
|
|
|
Federal Home Loan Bank advances |
|
|
7,500 |
|
|
|
|
|
|
|
|
8,682 |
|
|
|
|
|
|
|
|
|
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 June 30, 2012 (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
Gross |
|
Gross |
|
Estimated |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Held to Maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of US States and Political Subdivisions |
|
$ |
8,051 |
|
$ |
419 |
|
$ |
|
|
$ |
8,470 |
|
Corporate debt securities |
|
|
1,509 |
|
|
|
|
|
(180 |
) |
|
1,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total held to maturity |
|
$ |
9,560 |
|
$ |
419 |
|
$ |
(180 |
) |
$ |
9,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
Gross |
|
Gross |
|
Estimated |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Sponsored Agency Securities |
|
$ |
7,981 |
|
$ |
49 |
|
$ |
|
|
$ |
8,030 |
|
Mortgage Backed Securities - Residential |
|
|
18,887 |
|
$ |
971 |
|
|
|
|
|
19,858 |
|
Collateralized Mortgage Obligations |
|
|
1,720 |
|
|
42 |
|
|
|
|
|
1,762 |
|
Corporate debt securities |
|
|
2,385 |
|
|
24 |
|
|
(88 |
) |
|
2,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale |
|
$ |
30,973 |
|
$ |
1,086 |
|
$ |
(88 |
) |
$ |
31,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 13 -
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, 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
Gross |
|
Gross |
|
Estimated |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Held to Maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of US states and political subdivisions |
|
$ |
9,228 |
|
$ |
412 |
|
$ |
|
|
$ |
9,640 |
|
Corporate debt securities |
|
|
1,510 |
|
|
|
|
|
(301 |
) |
|
1,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total held to maturity |
|
$ |
10,738 |
|
$ |
412 |
|
$ |
(301 |
) |
$ |
10,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
Gross |
|
Gross |
|
Estimated |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Available for Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government sponsored agency securities |
|
$ |
14,560 |
|
$ |
198 |
|
$ |
(5 |
) |
$ |
14,753 |
|
Mortgage backed securities - residential |
|
|
22,775 |
|
|
1,039 |
|
|
|
|
|
23,814 |
|
Collateralized mortgage obligations |
|
|
2,677 |
|
|
57 |
|
|
|
|
|
2,734 |
|
Corporate debt securities |
|
|
2,372 |
|
|
|
|
|
(94 |
) |
|
2,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale |
|
$ |
42,384 |
|
$ |
1,294 |
|
$ |
(99 |
) |
$ |
43,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost and fair value of the Companys investment securities held to maturity and available for sale at June 30, 2012 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).
|
|
|
|
|
|
|
|
June 30, 2012 |
|
Amortized |
|
Estimated |
|
||
|
|
|
|
|
|
||
Held to Maturity |
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
|
|
$ |
|
|
Due in one to five years |
|
|
705 |
|
|
648 |
|
Due in five years to ten years |
|
|
2,196 |
|
|
2,328 |
|
Due after ten years |
|
|
6,659 |
|
|
6,823 |
|
|
|
|
|
|
|
|
|
|
|
$ |
9,560 |
|
$ |
9,799 |
|
|
|
|
|
|
|
|
|
Available for Sale |
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
1,011 |
|
$ |
1,013 |
|
Due in one year to five years |
|
|
3,937 |
|
|
3,970 |
|
Due in five years to ten years |
|
|
1,448 |
|
|
1,374 |
|
Due after ten years |
|
|
3,970 |
|
|
3,994 |
|
Mortgage backed securities and collateralized mortgage obligations |
|
|
20,607 |
|
|
21,620 |
|
|
|
|
|
|
|
|
|
|
|
$ |
30,973 |
|
$ |
31,971 |
|
|
|
|
|
|
|
|
|
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 June 30, 2012 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months |
|
12 Months or longer |
|
Total |
|
||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||
Held to Maturity |
|
|
Estimated |
|
Unrecog |
|
Estimated |
|
Unrecog |
|
Estimated |
|
Unrecog |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Corporate debt securities |
|
$ |
|
|
$ |
|
|
$ |
1,329 |
|
$ |
180 |
|
$ |
1,329 |
|
$ |
180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
$ |
|
|
$ |
1,329 |
|
$ |
180 |
|
$ |
1,329 |
|
$ |
180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 14 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months |
|
12 Months or longer |
|
Total |
|
||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||
Available for Sale |
|
|
Estimated |
|
Unreal- |
|
Estimated |
|
Unreal- |
|
Estimated |
|
Unreal- |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities |
|
$ |
|
|
$ |
|
|
$ |
912 |
|
$ |
88 |
|
$ |
912 |
|
$ |
88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
$ |
|
|
$ |
912 |
|
$ |
88 |
|
$ |
912 |
|
$ |
88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2011 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months |
|
12 Months or longer |
|
Total |
|
||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||
Held to Maturity |
|
|
Estimated |
|
Unrecog- |
|
Estimated |
|
Unrecog- |
|
Estimated |
|
Unrecog- |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities |
|
$ |
450 |
|
$ |
62 |
|
$ |
759 |
|
$ |
239 |
|
$ |
1,209 |
|
$ |
301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
450 |
|
$ |
62 |
|
$ |
759 |
|
$ |
239 |
|
$ |
1,209 |
|
$ |
301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale |
|
|
Estimated |
|
Unreal- |
|
Estimated |
|
Unreal- |
|
Estimated |
|
Unreal- |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government sponsored agency securities |
|
$ |
3,010 |
|
$ |
5 |
|
$ |
|
|
$ |
|
|
$ |
3,010 |
|
$ |
5 |
|
|
Corporate debt securities |
|
|
1,352 |
|
|
20 |
|
|
926 |
|
|
74 |
|
|
2,278 |
|
|
94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,362 |
|
$ |
25 |
|
$ |
926 |
|
$ |
74 |
|
$ |
5,288 |
|
$ |
99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2012, there were $1.3 million in securities held to maturity with gross unrecognized 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.
For the six months ended June 30, 2012 the gross proceeds on sale of investment securities was approximately $5.7 million. For the six months ended June 30, 2012 gross gains on sale of investment securities were $161 thousand.
For the six months ended June 30, 2011 the gross proceeds on sale of investment securities was approximately $1.9 million. For the six months ended June 30, 2011 gross gains on sale of investment securities were $20 thousand and gross losses on sale of investment securities were $11 thousand.
Securities with an amortized cost of $986 thousand were pledged to secure public funds on deposit at June 30, 2012.
5. Loans
The following schedule presents the components of loans, net of unearned income, for each period presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012 |
|
December 31, 2011 |
|
||||||||
|
|
|
|
|
|
||||||||
|
|
Amount |
|
Percent |
|
Amount |
|
Percent |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
|
(Dollars In Thousands) |
|
||||||||||
|
|
|
|
||||||||||
Commercial |
|
$ |
30,015 |
|
|
12.6 |
% |
$ |
32,206 |
|
|
13.9 |
% |
Construction, land and land development |
|
|
5,868 |
|
|
2.5 |
|
|
7,505 |
|
|
3.2 |
|
Commercial mortgages |
|
|
125,137 |
|
|
52.4 |
|
|
113,148 |
|
|
48.7 |
|
Residential mortgages |
|
|
37,906 |
|
|
15.9 |
|
|
37,360 |
|
|
16.1 |
|
Consumer |
|
|
39,618 |
|
|
16.6 |
|
|
42,074 |
|
|
18.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans |
|
|
238,544 |
|
|
100.0 |
% |
|
232,293 |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred costs |
|
|
227 |
|
|
|
|
|
192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
238,771 |
|
|
|
|
|
232,485 |
|
|
|
|
Less: Allowance for loan losses |
|
|
(3,089 |
) |
|
|
|
|
(2,982 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans |
|
$ |
235,682 |
|
|
|
|
$ |
229,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 15 -
The following table presents information about impaired loans by loan portfolio class as of June 30, 2012 and December 31, 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012 |
|
Unpaid |
|
Recorded |
|
Related |
|
|||
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
|
|
$ |
|
|
$ |
|
|
Commercial mortgage |
|
|
|
|
|
|
|
|
|
|
Construction, land and land development |
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
141 |
|
|
141 |
|
|
|
|
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
|
|
Commercial mortgage |
|
|
342 |
|
|
345 |
|
|
9 |
|
Construction, land and land development |
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
|
|
Commercial mortgage |
|
|
342 |
|
|
345 |
|
|
9 |
|
Construction, land and land development |
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
141 |
|
|
141 |
|
|
|
|
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011 |
|
Unpaid |
|
Recorded |
|
Related |
|
|||
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
|
|
$ |
|
|
$ |
|
|
Commercial mortgage |
|
|
765 |
|
|
768 |
|
|
|
|
Construction, land and land development |
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
146 |
|
|
146 |
|
|
|
|
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
|
|
Commercial mortgage |
|
|
344 |
|
|
344 |
|
|
11 |
|
Construction, land and land development |
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
|
|
Commercial mortgage |
|
|
1,109 |
|
|
1,112 |
|
|
11 |
|
Construction, land and land development |
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
146 |
|
|
146 |
|
|
|
|
Residential |
|
|
|
|
|
|
|
|
|
|
- 16 -
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
||||
|
|
|
|
||||
|
|
June 30, |
|
June 30, |
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
Average of individually impaired loans during period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
|
|
$ |
69 |
|
Commercial mortgage |
|
|
342 |
|
|
1,762 |
|
Construction, land and land development |
|
|
|
|
|
|
|
Consumer |
|
|
141 |
|
|
|
|
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income recognized during impairment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
|
|
$ |
1 |
|
Commercial mortgage |
|
|
5 |
|
|
23 |
|
Construction, land and land development |
|
|
|
|
|
|
|
Consumer |
|
|
|
|
|
|
|
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
||||
|
|
|
|
||||
|
|
June 30, |
|
June 30, |
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
Average of individually impaired loans during period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
|
|
$ |
141 |
|
Commercial mortgage |
|
|
724 |
|
|
1,766 |
|
Construction, land and land development |
|
|
|
|
|
|
|
Consumer |
|
|
143 |
|
|
|
|
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income recognized during impairment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
|
|
$ |
4 |
|
Commercial mortgage |
|
|
24 |
|
|
46 |
|
Construction, land and land development |
|
|
|
|
|
|
|
Consumer |
|
|
|
|
|
|
|
Residential |
|
|
|
|
|
|
|
There was no cash-basis interest income recognized on any loans for the three months ended June 30, 2012 and 2011, respectively.
The outstanding balances of non-accrual loans, loans past due 90 days and still accruing, other real estate owned, and troubled debt restructured loans as of June 30, 2012 and December 31, 2011 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
June 30, 2012 |
|
December 31, 2011 |
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
Nonaccrual loans |
|
$ |
141 |
|
$ |
146 |
|
Loans past due 90 days and still accruing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans |
|
|
141 |
|
|
146 |
|
OREO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets |
|
$ |
141 |
|
$ |
146 |
|
|
|
|
|
|
|
|
|
Troubled debt restructured loans |
|
$ |
342 |
|
$ |
344 |
|
|
|
|
|
|
|
|
|
- 17 -
The following table presents loans receivable on nonaccrual status by loan portfolio class as of June 30, 2012 and December 31, 2011 (in thousands):
|
|
|
|
|
|
|
|
Nonaccrual loans |
|
June 30, 2012 |
|
December 31, 2012 |
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
Commercial |
|
$ |
|
|
$ |
|
|
Commercial mortgage |
|
|
|
|
|
|
|
Construction, land and land development |
|
|
|
|
|
|
|
Consumer |
|
|
141 |
|
|
146 |
|
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
141 |
|
$ |
146 |
|
|
|
|
|
|
|
|
|
The balance of troubled debt restructured loans at June 30, 2012 and December 31, 2011 is represented by one credit that is currently performing under its restructured terms and for which the Company has no commitment to lend additional funds. Troubled debt restructured loans include one or more of the following contractual modifications: a reduction of the stated interest rate on the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction in the recorded investment in the loan. During both the three and six months ended June 30, 2012 there were no new loans modified as troubled debt restructurings. The Companys one troubled debt restructured loan did not have any payment defaults.
The following table presents past due and current loans, including nonaccrual and restructured loans, by the loan portfolio class as of June 30, 2012 and December 31, 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012 |
|
30-59 |
|
60-89 days |
|
Greater than 90 |
|
Total |
|
Current |
|
Total |
|
Loans past due |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
122 |
|
$ |
114 |
|
$ |
|
|
$ |
236 |
|
$ |
29,779 |
|
$ |
30,015 |
|
$ |
|
|
Commercial mortgage |
|
|
442 |
|
|
|
|
|
|
|
|
442 |
|
|
124,695 |
|
|
125,137 |
|
|
|
|
Construction, land and land development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,868 |
|
|
5,868 |
|
|
|
|
Consumer |
|
|
42 |
|
|
525 |
|
|
141 |
|
|
708 |
|
|
38,910 |
|
|
39,618 |
|
|
|
|
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,906 |
|
|
37,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
606 |
|
$ |
639 |
|
$ |
141 |
|
$ |
1,386 |
|
$ |
237,158 |
|
$ |
238,544 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
|
|
$ |
259 |
|
$ |
|
|
$ |
259 |
|
$ |
31,947 |
|
$ |
32,206 |
|
$ |
|
|
Commercial mortgage |
|
|
|
|
|
468 |
|
|
|
|
|
468 |
|
|
112,680 |
|
|
113,148 |
|
|
|
|
Construction, land and land development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,505 |
|
|
7,505 |
|
|
|
|
Consumer |
|
|
|
|
|
148 |
|
|
146 |
|
|
294 |
|
|
41,780 |
|
|
42,074 |
|
|
|
|
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,360 |
|
|
37,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
$ |
875 |
|
$ |
146 |
|
$ |
1,021 |
|
$ |
231,272 |
|
$ |
232,293 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
- 18 -
|
|
|
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 June 30, 2012 and December 31, 2011 (in thousands). Each balance in the table below represents unpaid principal balance, which approximates recorded investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012 |
||||||||||||||||
Credit risk profile by internally |
|
Pass |
|
Special Mention |
|
Substandard |
|
Doubtful |
|
Total |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial |
|
$ |
27,946 |
|
$ |
2,069 |
|
$ |
|
|
$ |
|
|
$ |
30,015 |
|
Commercial mortgage |
|
|
122,339 |
|
|
2,456 |
|
|
342 |
|
|
|
|
|
125,137 |
|
Construction, land and land development |
|
|
5,868 |
|
|
|
|
|
|
|
|
|
|
|
5,868 |
|
Consumer |
|
|
38,809 |
|
|
668 |
|
|
141 |
|
|
|
|
|
39,618 |
|
Residential |
|
|
37,101 |
|
|
805 |
|
|
|
|
|
|
|
|
37,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
232,063 |
|
$ |
5,998 |
|
$ |
483 |
|
$ |
|
|
$ |
238,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011 |
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit risk profile by internally |
|
Pass |
|
Special Mention |
|
Substandard |
|
Doubtful |
|
Total |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial |
|
$ |
29,215 |
|
$ |
2,991 |
|
$ |
|
|
$ |
|
|
$ |
32,206 |
|
Commercial mortgage |
|
|
110,500 |
|
|
1,539 |
|
|
1,109 |
|
|
|
|
|
113,148 |
|
Construction, land and land development |
|
|
7,505 |
|
|
|
|
|
|
|
|
|
|
|
7,505 |
|
Consumer |
|
|
41,780 |
|
|
148 |
|
|
146 |
|
|
|
|
|
42,074 |
|
Residential |
|
|
36,555 |
|
|
805 |
|
|
|
|
|
|
|
|
37,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
225,555 |
|
$ |
5,483 |
|
$ |
1,255 |
|
$ |
|
|
$ |
232,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables represent the allocation of allowance for loan losses and the related loans by loan portfolio segment disaggregated based on the impairment methodology at June 30, 2012 and December 31, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012 |
||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
(in thousands) |
|
Commercial |
|
Commercial |
|
Construction, |
|
Consumer |
|
Residential |
|
Unallocated |
|
Total |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Allowance for Loan Losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
|
$ |
|
|
$ |
9 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
9 |
|
Collectively evaluated for impairment |
|
|
470 |
|
|
1,720 |
|
|
95 |
|
|
529 |
|
|
218 |
|
|
48 |
|
|
3,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
470 |
|
$ |
1,729 |
|
$ |
95 |
|
$ |
529 |
|
$ |
218 |
|
$ |
48 |
|
$ |
3,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
|
$ |
|
|
$ |
342 |
|
$ |
|
|
$ |
141 |
|
$ |
|
|
|
|
|
$ |
483 |
|
Collectively evaluated for impairment |
|
|
30,015 |
|
|
124,795 |
|
|
5,868 |
|
|
39,477 |
|
|
37,906 |
|
|
|
|
|
238,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
30,015 |
|
$ |
125,137 |
|
$ |
5,868 |
|
$ |
39,618 |
|
$ |
37,706 |
|
|
|
|
$ |
238,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 19 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011 |
|
|
|
|
|
|
|
|
|
|||||||||
|
||||||||||||||||||||||
(in thousands) |
|
Commercial |
|
Commercial |
|
Construction, |
|
Consumer |
|
Residential |
|
Unallocated |
|
Total |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
|
$ |
|
|
$ |
11 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
11 |
|
Collectively evaluated for impairment |
|
|
522 |
|
|
1,531 |
|
|
122 |
|
|
531 |
|
|
215 |
|
|
50 |
|
|
2,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
522 |
|
$ |
1,542 |
|
$ |
122 |
|
$ |
531 |
|
$ |
215 |
|
$ |
50 |
|
$ |
2,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
|
$ |
|
|
$ |
1,109 |
|
$ |
|
|
$ |
146 |
|
$ |
|
|
|
|
|
$ |
1,255 |
|
Collectively evaluated for impairment |
|
|
32,206 |
|
|
112,039 |
|
|
7,505 |
|
|
41,928 |
|
|
37,360 |
|
|
|
|
|
231,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
32,206 |
|
$ |
113,148 |
|
$ |
7,505 |
|
$ |
42,074 |
|
$ |
37,360 |
|
|
|
|
$ |
232,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables present activity in the Companys allowance for loan losses by class of loans (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
Commercial |
|
Construction, |
|
Consumer |
|
Residential |
|
Unallocated |
|
Total |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Balance January 1, 2012 |
|
$ |
522 |
|
$ |
1,542 |
|
$ |
122 |
|
$ |
531 |
|
$ |
215 |
|
$ |
50 |
|
$ |
2,982 |
|
Charge-offs |
|
|
(67 |
) |
|
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
|
(72 |
) |
Recoveries |
|
|
6 |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14 |
|
Provision for loan losses |
|
|
9 |
|
|
179 |
|
|
(27 |
) |
|
3 |
|
|
3 |
|
|
(2 |
) |
|
165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2012 |
|
$ |
470 |
|
$ |
1,729 |
|
$ |
95 |
|
$ |
529 |
|
$ |
218 |
|
$ |
48 |
|
$ |
3,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2011 |
|
$ |
186 |
|
$ |
1,821 |
|
$ |
102 |
|
$ |
506 |
|
$ |
205 |
|
$ |
55 |
|
$ |
2,875 |
|
Charge-offs |
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
(2 |
) |
Recoveries |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
Provision for loan losses |
|
|
(31 |
) |
|
130 |
|
|
(2 |
) |
|
(25 |
) |
|
36 |
|
|
(3 |
) |
|
105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2011 |
|
$ |
163 |
|
$ |
1,951 |
|
$ |
100 |
|
$ |
479 |
|
$ |
241 |
|
$ |
52 |
|
$ |
2,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance April 1, 2012 |
|
$ |
456 |
|
$ |
1,628 |
|
$ |
106 |
|
$ |
526 |
|
$ |
219 |
|
$ |
66 |
|
$ |
3,001 |
|
Charge-offs |
|
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
|
(5 |
) |
Recoveries |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
Provision for loan losses |
|
|
11 |
|
|
101 |
|
|
(11 |
) |
|
8 |
|
|
(1 |
) |
|
(18 |
) |
|
90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2012 |
|
$ |
470 |
|
$ |
1,729 |
|
$ |
95 |
|
$ |
529 |
|
$ |
218 |
|
$ |
48 |
|
$ |
3,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance April 1, 2011 |
|
$ |
172 |
|
$ |
1,930 |
|
$ |
91 |
|
$ |
492 |
|
$ |
230 |
|
$ |
38 |
|
$ |
2,953 |
|
Charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
Provision for loan losses |
|
|
(12 |
) |
|
21 |
|
|
9 |
|
|
(13 |
) |
|
11 |
|
|
14 |
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2011 |
|
$ |
163 |
|
$ |
1,951 |
|
$ |
100 |
|
$ |
479 |
|
$ |
241 |
|
$ |
52 |
|
$ |
2,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 20 -
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 risks, 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 1ARisk Factors as included in the Companys Annual Report Form 10-K filed for the year ended December 31, 2011.
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, 2011 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 are 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 23 and 25 of this Form 10-Q for the provision and allowance for loan losses.
RESULTS OF OPERATIONS
Overview
Net income was $901,000 for the second quarter of 2012, a 38.4% increase over the $651,000 earned during the second quarter of 2011. Diluted earnings per share were $0.17 in the second quarter of 2012, up from $0.12 in the second quarter of 2011. For the first six months of 2012, net income was $1.7 million, representing a 37.2% increase from net income of $1.3 million in the comparable 2011 period. Six-month diluted earnings per share were $0.32 in 2012 versus $0.23 in 2011. Second quarter and six-month 2012 earnings included net securities gains of $161,000 ($97,000 on an after-tax basis), while six-month 2011 earnings included net securities gains of $9,000 ($5,000 on an after-tax basis). Excluding the securities gains, the Companys second quarter 2012 net income increased by 23.5% and its 2012 six-month net income increased by 30.0% over the comparable prior year periods. The increases in net income, exclusive of net securities gains, were primarily due to higher net interest income, higher gains on sales of residential mortgage loans and lower operating expenses, partially offset by higher provisions for loan losses.
Total assets declined by $10.5 million to $353.5 million, at June 30, 2012 from $364.0 million at year-end 2011, reflecting largely a decline in deposit balances. Within total assets, investment securities declined by $12.8 million and cash and cash equivalents declined by $3.5 million, while loans receivable grew by $6.3 million. Total deposits as of June 30, 2012 totaled $303.5 million, representing an $11.2 million decrease from year-end 2011. The decrease in deposit balances at the specified dates largely reflects seasonal fluctuations and does not reflect the Banks recent trends of growth in deposits (see Comparative Average Balance Sheets below).
Net Interest Income
Fully taxable equivalent (FTE) net interest income for the second quarter of 2012 totaled $3.0 million, an increase of $50,000, or 1.7%, from the year ago quarter. FTE net interest income for the first half of 2012 totaled $6.2 million, an increase of $271,000, or 4.6%, from $5.9 million earned in the prior year first half. The increases in FTE net interest income were primarily due to increases in interest-earning assets, which grew by 4.9% in the quarter comparison and by 7.8% in the first half comparison. The benefit to net interest income from higher interest-earning assets was partially offset by a contraction in the net interest margin, which narrowed by 11 basis points to 3.71% in the current quarter from the prior year quarter and by 13 basis points to 3.77% in the first half of 2012 from the
- 21 -
first half of 2011. Growth in average interest-earning assets was primarily due to loan growth and, to a lesser extent, securities portfolio growth. Average total loans increased by $15.1 million, or 6.7%, in the quarter comparison, and by $16.1 million, or 7.4%, in the first half comparison. The average securities portfolio balance increased by $3.2 million, or 7.4%, in the quarterly comparison and by $5.4 million, or 12.3%, in the first half comparison. The Banks FTE net interest income has continued to increase, reflecting growth in average interest earning assets and growth in average core deposits, despite the net interest margin compression which has resulted from the maturity, prepayment or contractual repricing of loans and securities in this extended period of low interest rates.
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 and six months ended June 30, 2012 and 2011. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparative Average |
|
||||||||||||||||
|
|
2012 |
|
2011 |
|
||||||||||||||
|
|
|
|
|
|
||||||||||||||
|
|
Average |
|
Interest |
|
Average Rates |
|
Average |
|
Interest |
|
Average Rates |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
(Dollars in Thousands) |
|
||||||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits at other banks |
|
$ |
42,152 |
|
$ |
27 |
|
|
0.25 |
% |
$ |
46,874 |
|
$ |
34 |
|
|
0.29 |
% |
Loans |
|
|
234,592 |
|
|
2,917 |
|
|
5.00 |
% |
|
219,469 |
|
|
2,929 |
|
|
5.35 |
% |
Loans held for sale |
|
|
3,113 |
|
|
34 |
|
|
4.36 |
% |
|
1,322 |
|
|
16 |
|
|
5.01 |
% |
Investment securities |
|
|
45,934 |
|
|
365 |
|
|
3.19 |
% |
|
42,751 |
|
|
436 |
|
|
4.09 |
% |
Restricted stock |
|
|
831 |
|
|
8 |
|
|
4.11 |
% |
|
942 |
|
|
10 |
|
|
4.35 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning assets |
|
$ |
326,622 |
|
$ |
3,351 |
|
|
4.13 |
% |
$ |
311,358 |
|
$ |
3,425 |
|
|
4.41 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest earning assets |
|
|
23,489 |
|
|
|
|
|
|
|
|
23,544 |
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(3,028 |
) |
|
|
|
|
|
|
|
(2,971 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
347,083 |
|
|
|
|
|
|
|
$ |
331,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand deposits |
|
$ |
151,965 |
|
$ |
69 |
|
|
0.18 |
% |
$ |
145,052 |
|
$ |
141 |
|
|
0.39 |
% |
Savings |
|
|
7,220 |
|
|
2 |
|
|
0.10 |
% |
|
7,215 |
|
|
4 |
|
|
0.20 |
% |
Money Market |
|
|
21,057 |
|
|
10 |
|
|
0.20 |
% |
|
15,677 |
|
|
13 |
|
|
0.34 |
% |
Certificates of deposits |
|
|
39,067 |
|
|
192 |
|
|
1.98 |
% |
|
41,634 |
|
|
213 |
|
|
2.05 |
% |
FHLB advances/ other borrowings |
|
|
7,500 |
|
|
66 |
|
|
3.52 |
% |
|
11,000 |
|
|
92 |
|
|
3.37 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities |
|
|
226,809 |
|
|
339 |
|
|
0.60 |
% |
|
220,578 |
|
|
463 |
|
|
0.84 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Bearing Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits |
|
|
77,751 |
|
|
|
|
|
|
|
|
69,899 |
|
|
|
|
|
|
|
Other liabilities |
|
|
1,257 |
|
|
|
|
|
|
|
|
1,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
305,817 |
|
|
|
|
|
|
|
|
291,562 |
|
|
|
|
|
|
|
Stockholders Equity |
|
|
41,266 |
|
|
|
|
|
|
|
|
40,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
347,083 |
|
|
|
|
|
|
|
$ |
331,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income |
|
|
|
|
$ |
3,012 |
|
|
|
|
|
|
|
$ |
2,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Spread |
|
|
|
|
|
|
|
|
3.53 |
% |
|
|
|
|
|
|
|
3.57 |
% |
Net Interest Margin |
|
|
|
|
|
|
|
|
3.71 |
% |
|
|
|
|
|
|
|
3.82 |
% |
- 22 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparative Average |
|
||||||||||||||||
|
|
2012 |
|
2011 |
|
||||||||||||||
|
|
|
|
|
|
||||||||||||||
|
|
Average |
|
Interest |
|
Average Rates |
|
Average |
|
Interest |
|
Average Rates |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
(Dollars in Thousands) |
|
||||||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits at other banks |
|
$ |
41,216 |
|
$ |
53 |
|
|
0.26 |
% |
$ |
40,209 |
|
$ |
60 |
|
|
0.30 |
% |
Loans |
|
|
233,550 |
|
|
5,914 |
|
|
5.09 |
% |
|
217,492 |
|
|
5,778 |
|
|
5.36 |
% |
Loans held for sale |
|
|
2,720 |
|
|
63 |
|
|
4.69 |
% |
|
1,362 |
|
|
38 |
|
|
5.55 |
% |
Investment securities |
|
|
49,826 |
|
|
805 |
|
|
3.25 |
% |
|
44,384 |
|
|
901 |
|
|
4.09 |
% |
Restricted stock |
|
|
808 |
|
|
18 |
|
|
4.50 |
% |
|
944 |
|
|
24 |
|
|
5.06 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning assets |
|
$ |
328,120 |
|
$ |
6,853 |
|
|
4.20 |
% |
$ |
304,391 |
|
$ |
6,801 |
|
|
4.51 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest earning assets |
|
|
23,814 |
|
|
|
|
|
|
|
|
23,427 |
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(3,018 |
) |
|
|
|
|
|
|
|
(2,942 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
348,916 |
|
|
|
|
|
|
|
$ |
324,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand deposits |
|
$ |
152,867 |
|
$ |
140 |
|
|
0.18 |
% |
$ |
140,138 |
|
$ |
273 |
|
|
0.39 |
% |
Savings |
|
|
7,370 |
|
|
4 |
|
|
0.11 |
% |
|
7,358 |
|
|
8 |
|
|
0.21 |
% |
Money Market |
|
|
23,496 |
|
|
23 |
|
|
0.20 |
% |
|
17,108 |
|
|
30 |
|
|
0.35 |
% |
Certificates of deposits |
|
|
39,814 |
|
|
397 |
|
|
2.00 |
% |
|
41,359 |
|
|
419 |
|
|
2.04 |
% |
FHLB advances/ other borrowings |
|
|
7,500 |
|
|
131 |
|
|
3.52 |
% |
|
11,000 |
|
|
184 |
|
|
3.37 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities |
|
|
231,047 |
|
|
695 |
|
|
0.61 |
% |
|
216,963 |
|
|
914 |
|
|
0.85 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Bearing Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits |
|
|
75,505 |
|
|
|
|
|
|
|
|
66,592 |
|
|
|
|
|
|
|
Other liabilities |
|
|
1,252 |
|
|
|
|
|
|
|
|
1,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
307,804 |
|
|
|
|
|
|
|
|
284,803 |
|
|
|
|
|
|
|
Stockholders Equity |
|
|
41,112 |
|
|
|
|
|
|
|
|
40,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
348,916 |
|
|
|
|
|
|
|
$ |
324,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income |
|
|
|
|
$ |
6,158 |
|
|
|
|
|
|
|
$ |
5,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Spread |
|
|
|
|
|
|
|
|
3.59 |
% |
|
|
|
|
|
|
|
3.66 |
% |
Net Interest Margin |
|
|
|
|
|
|
|
|
3.77 |
% |
|
|
|
|
|
|
|
3.90 |
% |
The data contained in the above tables have 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 $90,000 and $165,000 for the second quarter and first half of 2012, respectively compared with $30,000 and $105,000 for the second quarter and first half of 2011, respectively. The loan loss provisioning during 2012 and 2011 was largely due to loan portfolio growth. The provision for the first half of 2012 was also due to the charge-off of one specific credit in the first quarter of 2012. The Companys asset quality metrics, such as nonaccrual loan, charge-off, and delinquency ratios remain sound relative to its competitive peer groups, and the relatively low level of loan loss provisioning during both 2012 and 2011 reflects very few new problem credits. Nevertheless, management continues to believe that there remains a heightened risk 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.
- 23 -
Non-Interest Income
Non-interest income increased to $712,000 and $1.3 million in the second quarter and first half of 2012, respectively, from $368,000 and $765,000 in the second quarter and first half of 2011, respectively. During the second quarter of 2012, the Bank sold $5.5 million of available-for-sale investment securities as part of its asset liability management strategy to maintain asset durations in light of loan portfolio growth. The sales resulted in net securities gains of $161,000. During the first quarter of 2011 the Bank realized $9,000 in net securities gains. The increases in non-interest income were also due to increased origination volume and sales of residential loans at Sullivan Financial Services, Inc., a wholly-owned mortgage banking subsidiary of the Bank. Mortgage originations increased due to higher residential mortgage refinancing activity, which is typically elevated during periods of low interest rates. Gains on the sale of loans totaled $314,000 and $621,000 in the second quarter and first half of 2012, respectively, versus $139,000 and $286,000 in the comparable 2011 periods. The increases in non-interest income in 2012 versus 2011 also reflect modest growth in service fees on deposit accounts and debit card income.
Non-Interest Expense
Non-interest expenses decreased by $88,000, or 3.9%, to $2.2 million in the second quarter of 2012 from $2.3 million in the prior year second quarter, and by $125,000, or 2.7%, to $4.5 million in the first half of 2012 from $4.6 million in the prior year first half. The declines in operating expenses were due primarily to decreases in (i) occupancy, due largely to lower depreciation costs, (ii) data processing, due to lower fees paid to the banks technology service providers and (iii) FDIC assessment costs, due to changes in the method of calculating premiums which generally benefitted community banks. Management continues its expense containment efforts which have yielded cost savings in many areas of the Companys operations.
Income Taxes
The Company recorded provisions for income taxes of $500,000 and $938,000 for the second quarter and first half of 2012, respectively, versus $322,000 and $562,000 for the second quarter and first half of 2011, respectively. The effective tax rates were 35.7% and 35.3% for the second quarter and first half of 2012, respectively, versus 33.1% and 30.9% for the second quarter and first half of 2011, respectively. The increase in the effective tax rates for 2012 was due to an increase in revenue from taxable sources.
FINANCIAL CONDITION
June 30, 2012 as compared to December 31, 2011
At June 30, 2012, total assets were $353.5 million, a decrease of $10.5 million from $364.0 million at year-end 2011. The decrease was primarily due to a $12.8 million decline in investment securities and a $3.5 million decline in cash and cash equivalents, partially offset by a $6.3 million increase in loans receivable. Total deposits as of June 30, 2012 totaled $303.5 million, representing an $11.2 million decrease from year-end 2011. The decreases in deposit balances as of June 30, 2012 from year-end 2011 largely represent seasonal variances and do not reflect the Banks recent trends of growth in loans, securities and deposits (see Comparative Average Balance Sheets below).
Our portfolio of investment securities available for sale decreased, from $43.6 million at year-end 2011 to $32.0 million at June 30, 2012, due in part to the sale of $5.5 million in securities in conjunction with the Banks asset/liability management strategies. In addition, during the first six months of 2012, $7.7 million in securities matured, were called or prepaid, as the prolonged period of lower interest rates has resulted in increased amortization of mortgage-related securities and calls of certain agency obligations. There were $659 thousand in recorded net unrealized gains, net of taxes, in the available for sale portfolio and $138 thousand in net amortization expenses during the first six months of 2012.
Since 2009, 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. As a result, cash and cash equivalents have remained high by historical standards. Cash and cash equivalents totaled $56.5 million at June 30, 2012 and $60.0 million at December 31, 2011.
Total loans receivable at June 30, 2012 increased $6.3 million to $238.8 million from $232.5 million at year-end 2011. The changes in and composition of the loan portfolio, by category, as of June 30, 2012 compared to December 31, 2011 are as follows: Commercial loans decreased $2.2 million to $30.0 million, construction, land and land development loans decreased by $1.6 million to $5.9 million, commercial mortgage loans increased $12.0 million to $125.1 million; consumer loans decreased by $2.5 million to $39.6 million; and residential mortgage loans increased by $0.5 million to $37.9 million. At the end of the second quarter of 2012, the Banks commercial loan pipeline of approved loans approximated $10.3 million.
- 24 -
The following schedule presents the components of loans, net of unearned income, for each period presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012 |
|
December 31, 2011 |
|
||||||||
|
|
|
|
|
|
||||||||
|
|
Amount |
|
Percent |
|
Amount |
|
Percent |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
|
(Dollars In Thousands) |
|
||||||||||
|
|
|
|
||||||||||
Commercial |
|
$ |
30,015 |
|
|
11.8 |
% |
$ |
32,206 |
|
|
13.9 |
% |
Construction, land and land development |
|
|
5,868 |
|
|
2.8 |
|
|
7,505 |
|
|
3.2 |
|
Commercial mortgages |
|
|
125,137 |
|
|
51.9 |
|
|
113,148 |
|
|
48.7 |
|
Residential mortgages |
|
|
37,906 |
|
|
16.5 |
|
|
37,360 |
|
|
16.1 |
|
Consumer |
|
|
39,618 |
|
|
17.0 |
|
|
42,074 |
|
|
18.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans |
|
|
238,544 |
|
|
100.0 |
% |
|
232,293 |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred costs |
|
|
227 |
|
|
|
|
|
192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
238,771 |
|
|
|
|
|
232,485 |
|
|
|
|
Less: Allowance for loan losses |
|
|
3,089 |
|
|
|
|
|
2,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans |
|
$ |
235,682 |
|
|
|
|
$ |
229,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
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):
|
|
|
|
|
|
|
|
|
|
June 30, 2012 |
|
December 31, 2011 |
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
Non-accrual loans |
|
$ |
141 |
|
$ |
146 |
|
Loans past due 90 days and still accruing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans |
|
$ |
141 |
|
$ |
146 |
|
OREO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets |
|
$ |
141 |
|
$ |
146 |
|
|
|
|
|
|
|
|
|
Troubled debt restructured loans |
|
$ |
342 |
|
$ |
344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accrual loans as a percentage of total loans |
|
|
0.06 |
% |
|
0.06 |
% |
Non-performing assets as a percentage of total assets |
|
|
0.04 |
|
|
0.04 |
|
Allowance for loan losses as a percentage of non-performing loans |
|
|
2,191 |
|
|
2,042 |
|
Allowance for loan losses as a percentage of total loans |
|
|
1.30 |
|
|
1.28 |
|
Loans delinquent 30-89 days were $1.2 million at June 30, 2012, and $875 thousand at December 31, 2011.
As of June 30, 2012 and December 31, 2011, there were $483 thousand in impaired loans. The amount of the allowance for loan losses allocated for impaired loans as of June 30, 2012 and December 31, 2011 was $9 thousand and $11 thousand, respectively.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level considered adequate to provide for probable 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 June 30, 2012, the allowance for loan losses was $3.1 million, an increase of $107,000 from year-end 2011. Net charge-offs totaled $2,000 during the second quarter of 2012 and $58,000 during the first half of 2012. Net recoveries totaled $3,000 during the first quarter of 2011 and $6,000 during the first half of 2011. The allowance for loan losses as a percentage of loans receivable was 1.30% at June 30, 2012 and 1.28% at December 31, 2011.
- 25 -
The following table describes the activity in the allowance for loan losses account (in thousands):
|
|
|
|
|
|
|
|
|
|
For the six months ended |
|
For the six months ended |
|
||
|
|
|
|
|
|
||
|
|||||||
Allowance for loan losses at beginning of period |
|
$ |
2,982 |
|
$ |
2,875 |
|
Charge-offs |
|
|
(72 |
) |
|
(2 |
) |
Recoveries |
|
|
14 |
|
|
8 |
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
(58 |
) |
|
6 |
|
Provision for loan losses |
|
|
165 |
|
|
105 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses at end of period |
|
$ |
3,089 |
|
$ |
2,986 |
|
|
|
|
|
|
|
|
|
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 June 30, 2012 and 2011, 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, which is based on multiple assumptions, 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 June 30, 2012, we estimated that a gradual (often referred to as ramped) 200 basis-point increase in the general level of interest rates will increase our net interest income by 2.7%, while a ramped 200 basis-point decrease in interest rates (which, due to the current interest rate environment results in a flattening of the yield curve) will decrease net interest income by 3.3%. As of June 30, 2011, our model predicted that a 200 basis point gradual increase in general interest rates will have no effect on our net interest income, while a 200 basis point decrease would decrease net interest income by 1.8%.
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 estimated variance in EVPE as a percentage of assets as of June 30, 2012, was -1.35% with a rate shock of up 200 basis points, and -0.21% with a rate shock of down 200 basis points. At June 30, 2011, the variances were -1.55% assuming an up 200 basis points rate shock and -0.02% assuming a down 200 basis points rate shock.
LIQUIDITY MANAGEMENT AND CAPITAL RATIOS
The Companys liquidity is a measure of its ability to fund loans, withdrawals or maturities of deposits, and other cash outflows in a cost-effective manner. The Companys principal sources of funds are deposits, scheduled amortization and prepayments of loan principal, maturities of investment securities, and funds provided by operations. While scheduled loan payments and maturing investments are relatively predictable sources of funds, deposit flow and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition.
At June 30, 2012, the amount of liquid assets remained at a level management deemed adequate to ensure that, on a short- and long-term basis, contractual liabilities, depositors withdrawal requirements, and other operational and customer credit needs could be satisfied. As of June 30, 2012, liquid assets (cash and due from banks, interest bearing deposits at other banks and unencumbered available-for-sale investment securities) were $83.2 million, which represented 23.5% of total assets and 26.8% of total deposits and borrowings.
The Bank is a member of the Federal Home Loan Bank of New York and, based on available qualified collateral as of June 30, 2012, had the ability to borrow $76.2 million. The Bank also has a credit facility with the Federal Reserve Bank of New York for direct discount window borrowings that had, as of June 30, 2012, an approximate borrowing capacity based on pledged collateral of $9.1 million. In addition, the Bank has in place additional borrowing capacity of $18.5 million through correspondent banks. At June 30, 2012, the Bank had aggregate available and unused credit of $96.3 million, which represents the aforementioned facilities totaling $103.8 million net of $7.5 million in outstanding borrowings. At June 30, 2012 outstanding commitments for the Bank to extend credit were $95.6 million.
Total stockholders equity increased to $41.0 million at June 30, 2012 from $40.4 million at year-end 2011. Activity in stockholders equity consisted of an increase in retained earnings of $921 thousand, which represents net income of $1.7 million earned during the first six months of 2012 offset by cash dividend payments of $800 thousand. During the first six months of 2012, common stock decreased by $146 thousand due to common stock repurchases of $188 thousand, partially offset by the exercise of previously issued stock options of $17 thousand and $25 thousand in stock based compensation. Accumulated comprehensive income decreased by $130 thousand resulting from a net change in unrealized gain on securities available for sale.
- 26 -
At June 30, 2012 the Bank exceeded each of the regulatory capital requirements applicable to it. The table below presents the capital ratios at June 30, 2012 and 2011, for the Bank, as well as the minimum regulatory requirements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual |
|
Minimum |
|
For Classification |
|
||||||||||||
|
|
|
|
|
|
|
|
||||||||||||
|
|
Amount |
|
Ratio |
|
Amount |
|
Minimum Ratio |
|
Amount |
|
Ratio |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage Capital |
|
$ |
38,745 |
|
|
11.17 |
% |
$ |
13,871 |
|
|
4.00 |
% |
$ |
17,339 |
|
|
³5.00 |
% |
Tier 1-Risk Based |
|
|
38,745 |
|
|
14.52 |
|
|
10,675 |
|
|
4.00 |
|
|
16,013 |
|
|
³6.00 |
|
Total Risk-Based |
|
|
41,834 |
|
|
15.67 |
|
|
21,350 |
|
|
8.00 |
|
|
26,689 |
|
|
³10.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage Capital |
|
$ |
35,390 |
|
|
10.67 |
% |
$ |
13,265 |
|
|
4.00 |
% |
$ |
16,581 |
|
|
³5.00 |
% |
Tier 1-Risk Based |
|
|
35,390 |
|
|
13.83 |
|
|
10,236 |
|
|
4.00 |
|
|
15,354 |
|
|
³6.00 |
|
Total Risk-Based |
|
|
38,376 |
|
|
15.00 |
|
|
20,472 |
|
|
8.00 |
|
|
25,590 |
|
|
³10.00 |
|
The Companys ratio of equity capital to total assets was 11.60% at June 30, 2012 and 11.92% at June 30, 2011. As the Company has less than $500 million in consolidated assets, it is not subject to regulatory capital requirements on a consolidated basis.
ITEM 3- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
ITEM 4 CONTROLS AND PROCEDURES
|
|
|
|
(a) |
Evaluation of disclosure controls and procedures |
|
|
|
|
|
The Company carried out an evaluation, under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period reported on in this report, the Companys disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Companys periodic SEC filings. |
|
|
|
|
(b) |
Changes in internal controls. |
|
|
|
|
|
There has been no change in the Companys internal controls over financial reporting during the quarter that has materially affected, or is reasonably likely to affect, the Companys internal control over financial reporting. |
- 27 -
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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) and (b) - none
|
|
|
|
(c) |
In February of 2007, our Board of Directors adopted a stock repurchase program under which we may repurchase up to 250,000 shares of our common stock in open market or privately negotiated transactions. In October, 2007 the Board increased this program by 250,000 shares and in October, 2011 the Board increased this program by another 250,000 shares. The following table shows the Companys repurchases during the second quarter of 2012: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
|
Total Number of |
|
Average Price |
|
Total Number of Shares |
|
Maximum Number of |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1 April 30 |
|
|
|
|
$ |
|
|
|
|
|
|
293,607 |
|
May 1 May 29 |
|
|
5,600 |
|
|
8.49 |
|
|
5,600 |
|
|
288,007 |
|
June 1 June 30 |
|
|
1,480 |
|
|
8.89 |
|
|
1,480 |
|
|
286,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
7,080 |
|
|
8.57 |
|
|
7,080 |
|
|
286,527 |
|
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Mine Safety Disclosures
Not applicable
Not applicable
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 |
- 28 -
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: August 13, 2012 |
|
|
By: /s/ William S. Burns |
|
|
|
|
|
|
William S. Burns |
|
|
|
Executive Vice President and |
|
|
|
Chief Financial Officer |
- 29 -