UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the Quarter Ended June 30, 2012
OR
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from
_____
to
_____
Commission file number: 0-19212
JEFFERSONVILLE BANCORP
(Exact name of registrant as specified in
its charter)
New York
|
|
22-2385448
|
(State or other jurisdiction of incorporation or organization)
|
|
(I.R.S. Employer Identification No.)
|
4866 State Rte. 52, Jeffersonville, New York
|
|
12748
|
(Address of principal executive offices)
|
|
(Zip Code)
|
(845) 482-4000
(Registrant’s telephone number, including
area code)
Securities registered pursuant to Section
12(b) of the Act:
Title of class
|
|
Name of each exchange on which registered
|
Common Stock, par value $0.50 per share
|
|
The NASDAQ Capital Market
|
Securities registered pursuant to Section
12(g) of the Act:
None
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 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
¨
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes
x
No
¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of
“large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Large
accelerated filer
¨
Accelerated filer
¨
Non-accelerated filer
¨
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
¨
No
x
Indicate the number of shares outstanding
of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
|
|
Outstanding at August 13, 2012
|
Common Stock, $0.50 par value per share
|
|
4,234,505 shares
|
INDEX TO FORM 10-Q
|
|
|
Page
|
|
|
|
|
PART 1
|
|
Financial Information
|
|
|
|
|
|
|
Item 1.
|
Financial Statements
|
|
|
|
|
|
|
|
Consolidated Interim Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
Consolidated Balance Sheets at June 30, 2012 and December 31, 2011
|
3
|
|
|
|
|
|
|
Consolidated Statements of Income for the three months ended June 30, 2012 and 2011
|
4
|
|
|
|
|
|
|
Consolidated Statements of Other Comprehensive Income for the three months ended June 30,
2012 and 2011
|
5
|
|
|
|
|
|
|
Consolidated Statements of Income for the six months ended June 30, 2012 and 2011
|
6
|
|
|
|
|
|
|
Consolidated Statements of Other Comprehensive Income for the six months ended June 30, 2012
and 2011
|
7
|
|
|
|
|
|
|
Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011
|
8
|
|
|
|
|
|
|
Notes to Unaudited Consolidated Interim Financial Statements
|
9
|
|
|
|
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
23
|
|
|
|
|
|
Item 3.
|
Quantitative and Qualitative Disclosures about Market Risk
|
31
|
|
|
|
|
|
Item 4T.
|
Controls and Procedures
|
31
|
|
|
|
|
PART 2
|
|
Other Information
|
|
|
|
|
|
|
Item 1.
|
Legal Proceedings
|
32
|
|
|
|
|
|
Item 1A.
|
Risk Factors
|
32
|
|
|
|
|
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
32
|
|
|
|
|
|
Item 3.
|
Defaults Upon Senior Securities
|
32
|
|
|
|
|
|
Item 4.
|
Mine Safety Disclosure
|
32
|
|
|
|
|
|
Item 5.
|
Other Information
|
32
|
|
|
|
|
|
Item 6.
|
Exhibits
|
32
|
|
|
|
|
|
|
Signatures
|
33
|
Jeffersonville Bancorp and Subsidiary
Consolidated Balance Sheets
(In thousands, except share and per share data)
|
|
As of June 30,
|
|
|
As of December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
37,773
|
|
|
$
|
11,776
|
|
Securities available for sale, at fair value
|
|
|
114,316
|
|
|
|
107,428
|
|
Securities held to maturity, estimated fair value of $4,808 at June 30, 2012 and $6,989 at December 31, 2011
|
|
|
4,471
|
|
|
|
6,613
|
|
Loans, net of allowance for loan losses of $5,154 at June 30, 2012 and $4,712 at December 31, 2011
|
|
|
262,520
|
|
|
|
271,926
|
|
Accrued interest receivable
|
|
|
1,746
|
|
|
|
1,797
|
|
Bank-owned life insurance
|
|
|
14,905
|
|
|
|
15,342
|
|
Foreclosed real estate
|
|
|
1,874
|
|
|
|
2,954
|
|
Premises and equipment, net
|
|
|
5,306
|
|
|
|
5,500
|
|
Restricted investments
|
|
|
2,159
|
|
|
|
2,420
|
|
Other assets
|
|
|
6,507
|
|
|
|
7,756
|
|
Total Assets
|
|
$
|
451,577
|
|
|
$
|
433,512
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Demand deposits (non-interest bearing)
|
|
$
|
72,295
|
|
|
$
|
61,441
|
|
NOW and super NOW accounts
|
|
|
51,614
|
|
|
|
45,693
|
|
Savings and insured money market deposits
|
|
|
112,334
|
|
|
|
102,180
|
|
Time deposits
|
|
|
146,841
|
|
|
|
150,395
|
|
Total Deposits
|
|
|
383,084
|
|
|
|
359,709
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank long-term borrowings
|
|
|
10,000
|
|
|
|
15,000
|
|
Other liabilities
|
|
|
8,150
|
|
|
|
9,388
|
|
Total Liabilities
|
|
|
401,234
|
|
|
|
384,097
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
|
|
|
|
|
|
Series A preferred stock, no par value; 2,000,000 shares authorized, none issued
|
|
|
—
|
|
|
|
—
|
|
Common stock, $0.50 par value; 11,250,000 shares authorized, 4,767,786 shares issued with 4,234,505 outstanding at both June 30, 2012 and December 31, 2011
|
|
|
2,384
|
|
|
|
2,384
|
|
Paid-in capital
|
|
|
6,483
|
|
|
|
6,483
|
|
Treasury stock, at cost; 533,281 shares at both June 30, 2012 and December 31, 2011
|
|
|
(4,965
|
)
|
|
|
(4,965
|
)
|
Retained earnings
|
|
|
45,942
|
|
|
|
44,862
|
|
Accumulated other comprehensive income
|
|
|
499
|
|
|
|
651
|
|
Total Stockholders’ Equity
|
|
|
50,343
|
|
|
|
49,415
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
451,577
|
|
|
$
|
433,512
|
|
See accompanying notes to unaudited consolidated
interim financial statements.
Jeffersonville Bancorp and Subsidiary
Consolidated Statements of Income
(In thousands, except per share data)
For the three months ended June 30,
|
|
2012
|
|
|
2011
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
INTEREST AND DIVIDEND INCOME
|
|
|
|
|
|
|
|
|
Loan interest and fees
|
|
$
|
4,081
|
|
|
$
|
4,226
|
|
Securities:
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
381
|
|
|
|
424
|
|
Tax-exempt
|
|
|
669
|
|
|
|
627
|
|
Interest bearing deposits
|
|
|
15
|
|
|
|
8
|
|
Total Interest and Dividend Income
|
|
|
5,146
|
|
|
|
5,285
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
451
|
|
|
|
691
|
|
Federal Home Loan Bank borrowings
|
|
|
125
|
|
|
|
150
|
|
Total Interest Expense
|
|
|
576
|
|
|
|
841
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
4,570
|
|
|
|
4,444
|
|
Provision for loan losses
|
|
|
450
|
|
|
|
400
|
|
Net Interest Income after Provision for Loan Losses
|
|
|
4,120
|
|
|
|
4,044
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST INCOME
|
|
|
|
|
|
|
|
|
Service charges
|
|
|
352
|
|
|
|
382
|
|
Fee income
|
|
|
259
|
|
|
|
244
|
|
Earnings on bank-owned life insurance
|
|
|
123
|
|
|
|
124
|
|
Net gain on sale of securities
|
|
|
1
|
|
|
|
9
|
|
Other non-interest income
|
|
|
62
|
|
|
|
60
|
|
Total Non-Interest Income
|
|
|
797
|
|
|
|
819
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST EXPENSES
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
1,952
|
|
|
|
2,007
|
|
Occupancy and equipment expenses
|
|
|
518
|
|
|
|
533
|
|
Foreclosed real estate expense, net
|
|
|
365
|
|
|
|
341
|
|
Other non-interest expenses
|
|
|
823
|
|
|
|
856
|
|
Total Non-Interest Expenses
|
|
|
3,658
|
|
|
|
3,737
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
1,259
|
|
|
|
1,126
|
|
Income tax expense
|
|
|
214
|
|
|
|
151
|
|
Net Income
|
|
$
|
1,045
|
|
|
$
|
975
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
0.25
|
|
|
$
|
0.23
|
|
Average common shares outstanding
|
|
|
4,235
|
|
|
|
4,235
|
|
Cash dividends declared per share
|
|
$
|
0.13
|
|
|
$
|
0.13
|
|
See accompanying notes to unaudited consolidated
interim financial statements.
Jeffersonville Bancorp and Subsidiary
Consolidated Statements of Comprehensive Income
(In thousands)
For the three months ended June 30,
|
|
|
|
|
2012
|
|
|
|
|
|
2011
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
$
|
1,045
|
|
|
|
|
|
|
$
|
975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized holding gains (losses) arising during the period
|
|
$
|
(319
|
)
|
|
|
|
|
|
$
|
683
|
|
|
|
|
|
Income tax (expense) benefit
|
|
|
128
|
|
|
|
|
|
|
|
(274
|
)
|
|
|
|
|
Net unrealized holding gains (losses) arising during the period, net of tax
|
|
|
|
|
|
|
(191
|
)
|
|
|
|
|
|
|
409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for net realized gains included in income
|
|
|
(1
|
)
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
Income tax expense
|
|
|
—
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
Reclassification adjustment for net realized gains included in income, net of tax
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of pension and post retirement liabilities’ gains
|
|
|
43
|
|
|
|
|
|
|
|
48
|
|
|
|
|
|
Income tax expense
|
|
|
(17
|
)
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
Amortization of pension and post retirement liabilities’ gains, net of tax
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax
|
|
|
|
|
|
|
(166
|
)
|
|
|
|
|
|
|
433
|
|
Comprehensive income
|
|
|
|
|
|
$
|
879
|
|
|
|
|
|
|
$
|
1,408
|
|
See accompanying notes to unaudited consolidated
interim financial statements.
Jeffersonville Bancorp and Subsidiary
Consolidated Statements of Income
(In thousands, except per share data)
For the six months ended June 30,
|
|
2012
|
|
|
2011
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
INTEREST AND DIVIDEND INCOME
|
|
|
|
|
|
|
|
|
Loan interest and fees
|
|
$
|
8,361
|
|
|
$
|
8,534
|
|
Securities:
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
716
|
|
|
|
815
|
|
Tax-exempt
|
|
|
1,310
|
|
|
|
1,216
|
|
Interest bearing deposits
|
|
|
23
|
|
|
|
15
|
|
Total Interest and Dividend Income
|
|
|
10,410
|
|
|
|
10,580
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
939
|
|
|
|
1,400
|
|
Federal Home Loan Bank borrowings
|
|
|
275
|
|
|
|
299
|
|
Other
|
|
|
—
|
|
|
|
1
|
|
Total Interest Expense
|
|
|
1,214
|
|
|
|
1,700
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
9,196
|
|
|
|
8,880
|
|
Provision for loan losses
|
|
|
1,050
|
|
|
|
1,000
|
|
Net Interest Income after Provision for Loan Losses
|
|
|
8,146
|
|
|
|
7,880
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST INCOME
|
|
|
|
|
|
|
|
|
Service charges
|
|
|
697
|
|
|
|
743
|
|
Fee income
|
|
|
502
|
|
|
|
483
|
|
Earnings on bank-owned life insurance
|
|
|
213
|
|
|
|
238
|
|
Life insurance benefit
|
|
|
93
|
|
|
|
—
|
|
Net gain on sale of securities
|
|
|
34
|
|
|
|
9
|
|
Other non-interest income
|
|
|
91
|
|
|
|
88
|
|
Total Non-Interest Income
|
|
|
1,630
|
|
|
|
1,561
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST EXPENSES
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
3,947
|
|
|
|
4,017
|
|
Occupancy and equipment expenses
|
|
|
1,014
|
|
|
|
1,112
|
|
Foreclosed real estate expense, net
|
|
|
418
|
|
|
|
380
|
|
Other non-interest expenses
|
|
|
1,859
|
|
|
|
2,088
|
|
Total Non-Interest Expenses
|
|
|
7,238
|
|
|
|
7,597
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
2,538
|
|
|
|
1,844
|
|
Income tax expense
|
|
|
358
|
|
|
|
165
|
|
Net Income
|
|
$
|
2,180
|
|
|
$
|
1,679
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
0.51
|
|
|
$
|
0.40
|
|
Average common shares outstanding
|
|
|
4,235
|
|
|
|
4,235
|
|
Cash dividends declared per share
|
|
$
|
0.26
|
|
|
$
|
0.26
|
|
See accompanying notes to unaudited consolidated
interim financial statements.
Jeffersonville Bancorp and Subsidiary
Consolidated Statements of Comprehensive Income
(In thousands)
For the six months ended June 30,
|
|
|
|
|
2012
|
|
|
|
|
|
2011
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
$
|
2,180
|
|
|
|
|
|
|
$
|
1,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized holding gains (losses) arising during the period
|
|
$
|
(303
|
)
|
|
|
|
|
|
$
|
863
|
|
|
|
|
|
Income tax (expense) benefit
|
|
|
122
|
|
|
|
|
|
|
|
(346
|
)
|
|
|
|
|
Net unrealized holding gains (losses) arising during the period, net of tax
|
|
|
|
|
|
|
(181
|
)
|
|
|
|
|
|
|
517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for net realized gains included in income
|
|
|
(34
|
)
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
Income tax expense
|
|
|
13
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
Reclassification adjustment for net realized gains included in income, net of tax
|
|
|
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of pension and post retirement liabilities’ gains
|
|
|
83
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
Income tax expense
|
|
|
(33
|
)
|
|
|
|
|
|
|
(28
|
)
|
|
|
|
|
Amortization of pension and post retirement liabilities’ gains, net of tax
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax
|
|
|
|
|
|
|
(152
|
)
|
|
|
|
|
|
|
554
|
|
Comprehensive income
|
|
|
|
|
|
$
|
2,028
|
|
|
|
|
|
|
$
|
2,233
|
|
See accompanying notes to unaudited consolidated
interim financial statements.
Jeffersonville Bancorp and Subsidiary
Consolidated Statements of Cash Flows
(In thousands)
For the six months ended June 30,
|
|
2012
|
|
|
2011
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,180
|
|
|
$
|
1,679
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
1,050
|
|
|
|
1,000
|
|
Depreciation and amortization
|
|
|
374
|
|
|
|
371
|
|
Net loss on revaluation and sale of foreclosed real estate
|
|
|
188
|
|
|
|
113
|
|
Earnings on bank-owned life insurance
|
|
|
(213
|
)
|
|
|
(238
|
)
|
Life insurance benefit
|
|
|
(93
|
)
|
|
|
—
|
|
Net gain on sale of securities
|
|
|
(34
|
)
|
|
|
(9
|
)
|
(Benefit) expense deferred income tax
|
|
|
(18
|
)
|
|
|
325
|
|
Decrease in accrued interest receivable
|
|
|
51
|
|
|
|
113
|
|
Decrease in other assets
|
|
|
1,347
|
|
|
|
104
|
|
Decrease in other liabilities
|
|
|
(1,155
|
)
|
|
|
(471
|
)
|
Net Cash Provided by Operating Activities
|
|
|
3,677
|
|
|
|
2,987
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from maturities and calls:
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
18,520
|
|
|
|
16,605
|
|
Securities held to maturity
|
|
|
2,357
|
|
|
|
1,195
|
|
Proceeds from sales of securities available for sale
|
|
|
348
|
|
|
|
651
|
|
Purchases:
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
(26,059
|
)
|
|
|
(25,062
|
)
|
Securities held to maturity
|
|
|
(215
|
)
|
|
|
(2,539
|
)
|
Principal collections, net of disbursement for loans
|
|
|
7,329
|
|
|
|
3,674
|
|
Proceeds from cash surrender value of bank-owned life insurance
|
|
|
1,078
|
|
|
|
—
|
|
Purchase of bank owned life insurance
|
|
|
(335
|
)
|
|
|
—
|
|
Purchase of restricted investments
|
|
|
—
|
|
|
|
(230
|
)
|
Redemption of restricted investments
|
|
|
261
|
|
|
|
616
|
|
Purchases of premises and equipment
|
|
|
(180
|
)
|
|
|
(100
|
)
|
Proceeds from sales of foreclosed real estate
|
|
|
1,941
|
|
|
|
529
|
|
Net Cash Provided by (Used in) Investing Activities
|
|
|
5,045
|
|
|
|
(4,661
|
)
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net increase in deposits
|
|
|
23,375
|
|
|
|
20,449
|
|
Net decrease in short-term debt
|
|
|
—
|
|
|
|
(9,303
|
)
|
Repayments of Federal Home Loan Bank borrowings
|
|
|
(5,000
|
)
|
|
|
—
|
|
Cash dividends paid
|
|
|
(1,100
|
)
|
|
|
(1,101
|
)
|
Net Cash Provided by Financing Activities
|
|
|
17,275
|
|
|
|
10,045
|
|
|
|
|
|
|
|
|
|
|
Net Increase in Cash and Cash Equivalents
|
|
|
25,997
|
|
|
|
8,371
|
|
Cash and Cash Equivalents at Beginning of Year
|
|
|
11,776
|
|
|
|
7,518
|
|
Cash and Cash Equivalents at End of Period
|
|
$
|
37,773
|
|
|
$
|
15,889
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
1,264
|
|
|
$
|
1,727
|
|
Cash paid for income taxes
|
|
|
470
|
|
|
|
131
|
|
Transfer of loans to foreclosed real estate
|
|
|
1,027
|
|
|
|
2,000
|
|
See accompanying notes to unaudited consolidated
interim financial statements.
Jeffersonville Bancorp and Subsidiary
Notes to Consolidated Interim Financial
Statements
June 30, 2012
(Unaudited)
|
A.
|
Financial Statement Presentation
|
The accompanying unaudited interim consolidated
financial statements include the accounts of Jeffersonville Bancorp and its wholly owned subsidiary, The First National Bank of
Jeffersonville (collectively, Jeffersonville Bancorp and its subsidiary are referred to herein as the “Company”), with
all significant intercompany transactions having been eliminated. In the opinion of management of the Company, the accompanying
unaudited consolidated interim financial statements contain all adjustments necessary to present the financial position of the
Company as of June 30, 2012 and December 31, 2011, the results of operations for the three and six month periods ended June 30,
2012 and 2011, and the cash flows for the six month periods ended June 30, 2012 and 2011. Certain reclassifications have been made,
when necessary, in order to conform to the current year’s presentation. All adjustments are normal and recurring. Interim
period results are not necessarily indicative of full year results. The accompanying unaudited consolidated interim financial statements
have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and should be read in conjunction with the
Company's consolidated year-end financial statements, including notes thereto, which are included in the 2011 Annual Report on
Form 10-K, as filed with the Securities and Exchange Commission on March 29, 2012.
The Company has evaluated subsequent events
and transactions occurring through the date of issuance of the financial data included herein.
Basic earnings per share amounts were calculated
based on weighted average common shares outstanding. For the three and six month periods ended June 30, 2012 and 2011, the weighted
average common shares outstanding were 4,234,505. There were no dilutive securities outstanding during either period.
|
C.
|
Accumulated Other Comprehensive Income
|
At June 30, 2012 and December 31, 2011,
the components of accumulated other comprehensive income are as follows (in thousands):
|
|
June 30,
|
|
|
December 31,
|
|
Accumulated Other Comprehensive Income, Net of Tax
|
|
2012
|
|
|
2011
|
|
Supplemental executive retirement plan
|
|
$
|
(557
|
)
|
|
$
|
(604
|
)
|
Postretirement benefits
|
|
|
2,430
|
|
|
|
2,512
|
|
Defined benefit pension liability
|
|
|
(4,302
|
)
|
|
|
(4,420
|
)
|
Net unrealized holding gains on securities available for sale
|
|
|
3,260
|
|
|
|
3,597
|
|
Accumulated other comprehensive income, before tax
|
|
|
831
|
|
|
|
1,085
|
|
Income taxes related to accumulated other comprehensive income
|
|
|
(332
|
)
|
|
|
(434
|
)
|
Total
|
|
$
|
499
|
|
|
$
|
651
|
|
|
D.
|
New Accounting Pronouncements
|
In November 2008, the SEC released a proposed
roadmap regarding the potential use by U.S. issuers of financial statements prepared in accordance with International Financial
Reporting Standards (IFRS). IFRS is a comprehensive series of accounting standards published by the International Accounting Standards
Board (“IASB”) and is being worked on in a joint project with the Financial Accounting Standards board (FASB). The
joint project currently has several items out in Exposure Drafts of which the proposed provisions for accounting for leases may
impact the Company. At this time the impact of the proposed lease accounting would be to treat qualifying leased property as a
right-of-use asset and a liability representing an obligation to make lease payments. The Company is currently assessing the impact
that this potential change would have on its consolidated financial statements and it will continue to monitor the development
of the potential implementation of IFRS.
Other accounting standards
that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the
Company’s consolidated financial position, results of operations, comprehensive income or cash flows.
The major classifications of loans are
as follows at June 30, 2012 and December 31, 2011 (in thousands):
Loans, Net
|
|
2012
|
|
|
2011
|
|
Commercial
|
|
|
|
|
|
|
|
|
Commercial real estate loans:
|
|
|
|
|
|
|
|
|
Commercial mortgage
|
|
$
|
91,643
|
|
|
$
|
94,799
|
|
Farm land
|
|
|
5,937
|
|
|
|
6,336
|
|
Construction
|
|
|
1,851
|
|
|
|
1,873
|
|
Total commercial real estate loans
|
|
|
99,431
|
|
|
|
103,008
|
|
Other commercial loans:
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
24,533
|
|
|
|
24,715
|
|
Agricultural loans
|
|
|
1,999
|
|
|
|
1,806
|
|
Total other commercial loans
|
|
|
26,532
|
|
|
|
26,521
|
|
Total commercial loans
|
|
|
125,963
|
|
|
|
129,529
|
|
Consumer
|
|
|
|
|
|
|
|
|
Consumer real estate loans:
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
103,656
|
|
|
|
107,316
|
|
Home equity
|
|
|
29,799
|
|
|
|
31,081
|
|
Construction
|
|
|
2,449
|
|
|
|
2,107
|
|
Total residential real estate loans
|
|
|
135,904
|
|
|
|
140,504
|
|
Other consumer loans:
|
|
|
|
|
|
|
|
|
Consumer installment loans
|
|
|
4,540
|
|
|
|
5,250
|
|
Other consumer loans
|
|
|
1,267
|
|
|
|
1,355
|
|
Total other loans
|
|
|
5,807
|
|
|
|
6,605
|
|
Total consumer loans
|
|
|
141,711
|
|
|
|
147,109
|
|
Total gross loans
|
|
|
267,674
|
|
|
|
276,638
|
|
Allowance for loan losses
|
|
|
(5,154
|
)
|
|
|
(4,712
|
)
|
Total loans, net
|
|
$
|
262,520
|
|
|
$
|
271,926
|
|
Included in the above loan amounts are
deferred loan fees and origination costs of $305,000 and $313,000 as of June 30, 2012 and December 31, 2011, respectively.
The Company originates consumer and commercial
loans primarily to borrowers in Sullivan County, New York. A substantial portion of the loan portfolio is secured by real estate
properties located in that area. The ability of the Company’s borrowers to make principal and interest payments is dependent
upon, among other things, the level of overall economic activity and the real estate market conditions prevailing within the Company’s
concentrated lending area.
Nonperforming Loans
Nonperforming loans are loans where the
collection of interest or principal is in doubt, except for residential mortgages that are well secured and in the process of collection,
or loans that are past due more than 90 days and still considered an accruing loan. Impaired loan disclosures and classification
apply to loans that are individually evaluated for collectability. A loan is impaired when, based on current information and events,
it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement.
Loans restructured under the guidelines of
ASC 310-40 Receivables Troubled Debt Restructures by Creditors
are classified
as impaired.
Information on nonperforming loans is summarized
as follows at June 30, 2012 and December 31, 2011 (in thousands):
|
|
|
|
|
Commercial
|
|
|
Commercial
|
|
|
Residential
|
|
|
Consumer
|
|
Nonperforming Loans
|
|
Total Loans
|
|
|
Real Estate
|
|
|
Other
|
|
|
Real Estate
|
|
|
Other
|
|
June 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans
|
|
$
|
7,771
|
|
|
$
|
4,742
|
|
|
$
|
1,025
|
|
|
$
|
1,861
|
|
|
$
|
143
|
|
Trouble debt restructures
|
|
|
1,163
|
|
|
|
409
|
|
|
|
66
|
|
|
|
688
|
|
|
|
—
|
|
Total nonaccrual loans
|
|
|
8,934
|
|
|
|
5,151
|
|
|
|
1,091
|
|
|
|
2,549
|
|
|
|
143
|
|
Loans past due 90 days or more and still accruing interest
|
|
|
1,388
|
|
|
|
206
|
|
|
|
218
|
|
|
|
961
|
|
|
|
3
|
|
Total nonperforming loans
|
|
$
|
10,322
|
|
|
$
|
5,357
|
|
|
$
|
1,309
|
|
|
$
|
3,510
|
|
|
$
|
146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans
|
|
$
|
7,950
|
|
|
$
|
5,221
|
|
|
$
|
1,109
|
|
|
$
|
1,477
|
|
|
$
|
143
|
|
Trouble debt restructures
|
|
|
1,132
|
|
|
|
412
|
|
|
|
106
|
|
|
|
614
|
|
|
|
—
|
|
Total nonaccrual loans
|
|
|
9,082
|
|
|
|
5,633
|
|
|
|
1,215
|
|
|
|
2,091
|
|
|
|
143
|
|
Loans past due 90 days or more and still accruing interest
|
|
|
1,148
|
|
|
|
135
|
|
|
|
8
|
|
|
|
1,004
|
|
|
|
1
|
|
Total nonperforming loans
|
|
$
|
10,230
|
|
|
$
|
5,768
|
|
|
$
|
1,223
|
|
|
$
|
3,095
|
|
|
$
|
144
|
|
There were no nonperforming loans in the
consumer installment class at June 30, 2012 or December 31, 2011.
The nonaccrual loan income recognition
policy of the Bank is that interest is not recognized as income until it is received in cash and the loan’s collateral is
adequate to support both the interest recognized plus the loan balance, or until the borrower demonstrates the ability to make
scheduled payments of interest and principal and the loan has remained current for a period of at least six months. Until such
time, these cash payments are applied to the principal balance of the loan.
Impaired commercial loans are also included
in nonperforming loans in the table above. The table below presents impaired loans, including trouble debt restructurings, as of
June 30, 2012 and December 31, 2011 and their effect on interest income for the three and six months ended June 30, 2012 and June
30, 2011 (in thousands).
|
|
|
|
|
Commercial
|
|
|
Commercial
|
|
|
Residential
|
|
Impaired Loans
|
|
Total Loans
|
|
|
Real Estate
|
|
|
Other
|
|
|
Real Estate
|
|
June 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid principal balance
|
|
$
|
8,732
|
|
|
$
|
6,590
|
|
|
$
|
1,356
|
|
|
$
|
786
|
|
Recorded investment
|
|
|
7,858
|
|
|
|
6,079
|
|
|
|
1,091
|
|
|
|
688
|
|
Average balance
|
|
|
8,292
|
|
|
|
6,502
|
|
|
|
1,100
|
|
|
|
690
|
|
Interest income for the three months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest contractually due at original rates
|
|
|
119
|
|
|
|
99
|
|
|
|
19
|
|
|
|
1
|
|
Interest income recognized
|
|
|
112
|
|
|
|
86
|
|
|
|
15
|
|
|
|
11
|
|
Interest income for the six months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest contractually due at original rates
|
|
|
219
|
|
|
|
177
|
|
|
|
39
|
|
|
|
3
|
|
Interest income recognized
|
|
|
191
|
|
|
|
141
|
|
|
|
30
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with no allowance
|
|
$
|
6,556
|
|
|
$
|
5,268
|
|
|
$
|
689
|
|
|
$
|
599
|
|
Loans with an allowance recorded
|
|
|
1,302
|
|
|
|
811
|
|
|
|
402
|
|
|
|
89
|
|
Related specific allowance
|
|
$
|
387
|
|
|
$
|
161
|
|
|
$
|
210
|
|
|
$
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid principal balance
|
|
$
|
10,319
|
|
|
$
|
8,331
|
|
|
$
|
1,480
|
|
|
$
|
508
|
|
Recorded investment
|
|
|
8,632
|
|
|
|
6,853
|
|
|
|
1,299
|
|
|
|
480
|
|
Average balance
|
|
|
11,658
|
|
|
|
9,627
|
|
|
|
1,534
|
|
|
|
497
|
|
Interest income for the three months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest contractually due at original rates
|
|
|
150
|
|
|
|
134
|
|
|
|
11
|
|
|
|
5
|
|
Interest income recognized
|
|
|
59
|
|
|
|
48
|
|
|
|
11
|
|
|
|
—
|
|
Interest income for the six months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest contractually due at original rates
|
|
|
332
|
|
|
|
299
|
|
|
|
28
|
|
|
|
5
|
|
Interest income recognized
|
|
|
245
|
|
|
|
207
|
|
|
|
38
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with no allowance
|
|
$
|
5,551
|
|
|
$
|
4,368
|
|
|
$
|
703
|
|
|
$
|
480
|
|
Loans with an allowance recorded
|
|
|
3,081
|
|
|
|
2,485
|
|
|
|
596
|
|
|
|
—
|
|
Related specific allowance
|
|
$
|
362
|
|
|
$
|
274
|
|
|
$
|
88
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid principal balance
|
|
$
|
9,513
|
|
|
$
|
7,328
|
|
|
$
|
1,416
|
|
|
$
|
769
|
|
Recorded investment
|
|
|
8,147
|
|
|
|
6,271
|
|
|
|
1,201
|
|
|
|
675
|
|
Average balance
|
|
|
11,493
|
|
|
|
9,238
|
|
|
|
1,491
|
|
|
|
764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with no allowance
|
|
$
|
6,342
|
|
|
$
|
4,978
|
|
|
$
|
689
|
|
|
$
|
675
|
|
Loans with an allowance recorded
|
|
|
1,805
|
|
|
|
1,293
|
|
|
|
512
|
|
|
|
—
|
|
Related specific allowance
|
|
$
|
328
|
|
|
$
|
205
|
|
|
$
|
123
|
|
|
$
|
—
|
|
Loans restructured under the guidelines
of
ASC 310-40 Receivables Troubled Debt Restructures by Creditors
are disclosed below as of June 30, 2012 and 2011 (in thousands):
|
|
As of June 30, 2012
|
|
|
As of December 31, 2012
|
|
|
|
|
|
|
Pre-Mod-
|
|
|
Post-Mod-
|
|
|
|
|
|
|
|
|
Pre-Mod-
|
|
|
Post-Mod-
|
|
|
|
|
|
|
|
|
|
ification
|
|
|
ification
|
|
|
Current
|
|
|
|
|
|
ification
|
|
|
ification
|
|
|
Current
|
|
Trouble Debt
|
|
|
|
|
Recorded
|
|
|
recorded
|
|
|
recorded
|
|
|
|
|
|
recorded
|
|
|
recorded
|
|
|
recorded
|
|
Restructure
|
|
No.
|
|
|
investment
|
|
|
investment
|
|
|
investment
|
|
|
No.
|
|
|
investment
|
|
|
investment
|
|
|
investment
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
2
|
|
|
$
|
417
|
|
|
$
|
430
|
|
|
$
|
409
|
|
|
|
2
|
|
|
$
|
417
|
|
|
$
|
430
|
|
|
$
|
412
|
|
Commercial loans
|
|
|
1
|
|
|
|
110
|
|
|
|
119
|
|
|
|
66
|
|
|
|
1
|
|
|
|
110
|
|
|
|
119
|
|
|
|
106
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
3
|
|
|
|
702
|
|
|
|
792
|
|
|
|
689
|
|
|
|
3
|
|
|
|
580
|
|
|
|
649
|
|
|
|
614
|
|
|
|
For the three months ended June 30, 2012
|
|
|
For the six months ended June 30, 2012
|
|
|
|
|
|
|
Pre-Mod-
|
|
|
Post-Mod-
|
|
|
|
|
|
|
|
|
Pre-Mod-
|
|
|
Post-Mod-
|
|
|
|
|
|
|
|
|
|
ification
|
|
|
ification
|
|
|
Current
|
|
|
|
|
|
ification
|
|
|
ification
|
|
|
Current
|
|
Trouble Debt
|
|
|
|
|
Recorded
|
|
|
recorded
|
|
|
recorded
|
|
|
|
|
|
recorded
|
|
|
recorded
|
|
|
recorded
|
|
Restructure
|
|
No.
|
|
|
investment
|
|
|
investment
|
|
|
investment
|
|
|
No.
|
|
|
investment
|
|
|
investment
|
|
|
investment
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
1
|
|
|
|
122
|
|
|
|
143
|
|
|
|
89
|
|
|
|
1
|
|
|
|
122
|
|
|
|
143
|
|
|
|
89
|
|
A loan is classified as a troubled debt
restructuring (“TDR”) when a concession that the Bank would not otherwise have considered is granted to a borrower
experiencing financial difficulty. Most of the Bank’s TDRs involve the restructuring of loan terms to reduce the total payment
amount in order to assist those borrowers who are experiencing temporary financial difficulty. In a TDR, the Bank may also increase
loan balances for unpaid interest and fees or acquire additional collateral to secure its position. For the three and six months
ended June 30, 2011, the Bank had no new loans that qualified as a TDR. During the first six months of 2012, the Bank had one consumer
real estate loan that qualified as a TDR. As of June 30, 2012, the Bank had $59,000 allocated in specific reserves on TDRs with
a recorded investment of $155,000 and had charged off $91,000 to borrowers whose loan terms have been modified as TDRs. At June
30, 2012 and December 31, 2011, the Bank had a total of $1,009,000 and $1,003,000, respectively, in TDRs which did not require
a specific reserve. The specific reserve component was determined by using fair value of the underlying collateral obtained through
independent appraisals and internal evaluations, or by discounting the total expected future cash flows. The Bank has not committed
to lend any additional funds to customers whose loans are classified as a TDR as of June 30, 2012. The Bank evaluates TDRs that
are over 60 days past due to determine whether or not they are in default. However, all TDRs over 90 days past due are reported
as “in default." For the periods ended June 30, 2012, there were no TDRs considered to be in default for loans restructured
in the preceding twelve months.
Management reviews risk ratings on a monthly
basis and the following illustrates total loans by credit risk profiles based on internally assigned grades and categories as of
June 30, 2012 and December 31, 2011 (in thousands):
|
|
|
|
|
Commercial
|
|
|
Consumer
|
|
Loans by Risk Ratings
|
|
Total
|
|
|
Real Estate
|
|
|
Other
|
|
|
Real Estate
|
|
|
Installment
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
46,494
|
|
|
$
|
36,531
|
|
|
$
|
9,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass watch
|
|
|
47,266
|
|
|
|
36,167
|
|
|
|
11,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special mention
|
|
|
9,334
|
|
|
|
7,650
|
|
|
|
1,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substandard
|
|
|
21,071
|
|
|
|
18,662
|
|
|
|
2,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Doubtful
|
|
|
401
|
|
|
|
120
|
|
|
|
281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-reviewed
|
|
|
143,108
|
|
|
|
301
|
|
|
|
1,096
|
|
|
$
|
135,904
|
|
|
$
|
4,540
|
|
|
$
|
1,267
|
|
Total
|
|
$
|
267,674
|
|
|
$
|
99,431
|
|
|
$
|
26,532
|
|
|
$
|
135,904
|
|
|
$
|
4,540
|
|
|
$
|
1,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
49,110
|
|
|
$
|
37,683
|
|
|
$
|
11,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass watch
|
|
|
49,170
|
|
|
|
38,391
|
|
|
|
10,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special mention
|
|
|
8,408
|
|
|
|
7,197
|
|
|
|
1,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substandard
|
|
|
21,495
|
|
|
|
19,209
|
|
|
|
2,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Doubtful
|
|
|
190
|
|
|
|
142
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-reviewed
|
|
|
148,265
|
|
|
|
386
|
|
|
|
770
|
|
|
$
|
140,504
|
|
|
$
|
5,250
|
|
|
$
|
1,355
|
|
Total
|
|
$
|
276,638
|
|
|
$
|
103,008
|
|
|
$
|
26,521
|
|
|
$
|
140,504
|
|
|
$
|
5,250
|
|
|
$
|
1,355
|
|
The following table illustrates the aging
of past due loans by category as at June 30, 2012 and December 31, 2011 (in thousands):
|
|
|
|
|
|
|
|
Greater
|
|
|
|
|
|
|
|
|
|
|
|
Over 90
|
|
|
|
30-59 Days
|
|
|
60-89 Days
|
|
|
than
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
and
|
|
Category of loans
|
|
past due
|
|
|
past due
|
|
|
90 Days
|
|
|
past due
|
|
|
Current
|
|
|
loans
|
|
|
accruing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
1,369
|
|
|
$
|
4,426
|
|
|
$
|
2,839
|
|
|
$
|
8,634
|
|
|
$
|
90,797
|
|
|
$
|
99,431
|
|
|
$
|
206
|
|
Commercial other
|
|
|
148
|
|
|
|
316
|
|
|
|
217
|
|
|
|
681
|
|
|
|
25,851
|
|
|
|
26,532
|
|
|
|
—
|
|
Residential real estate
|
|
|
2,428
|
|
|
|
3,138
|
|
|
|
1,855
|
|
|
|
7,421
|
|
|
|
128,483
|
|
|
|
135,904
|
|
|
|
961
|
|
Consumer installment
|
|
|
234
|
|
|
|
30
|
|
|
|
3
|
|
|
|
267
|
|
|
|
4,273
|
|
|
|
4,540
|
|
|
|
218
|
|
Other consumer
|
|
|
4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
|
|
1,263
|
|
|
|
1,267
|
|
|
|
3
|
|
Total
|
|
$
|
4,183
|
|
|
$
|
7,910
|
|
|
$
|
4,914
|
|
|
$
|
17,007
|
|
|
$
|
250,667
|
|
|
$
|
267,674
|
|
|
$
|
1,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
1,858
|
|
|
$
|
1,736
|
|
|
$
|
3,250
|
|
|
$
|
6,844
|
|
|
$
|
96,164
|
|
|
$
|
103,008
|
|
|
$
|
135
|
|
Commercial other
|
|
|
435
|
|
|
|
203
|
|
|
|
131
|
|
|
|
769
|
|
|
|
25,752
|
|
|
|
26,521
|
|
|
|
8
|
|
Residential real estate
|
|
|
3,700
|
|
|
|
2,210
|
|
|
|
1,335
|
|
|
|
7,245
|
|
|
|
133,259
|
|
|
|
140,504
|
|
|
|
1,004
|
|
Consumer installment
|
|
|
121
|
|
|
|
103
|
|
|
|
145
|
|
|
|
369
|
|
|
|
4,881
|
|
|
|
5,250
|
|
|
|
1
|
|
Other consumer
|
|
|
5
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5
|
|
|
|
1,350
|
|
|
|
1,355
|
|
|
|
—
|
|
Total
|
|
$
|
6,119
|
|
|
$
|
4,252
|
|
|
$
|
4,861
|
|
|
$
|
15,232
|
|
|
$
|
261,406
|
|
|
$
|
276,638
|
|
|
$
|
1,148
|
|
As of June 30, 2012 and December 31, 2011,
nonaccrual loans included $5.4 million as of both dates which are paying currently but have not met the specific criteria to be
placed on accrual status.
|
F.
|
Allowance for Loan Losses
|
The allowance for loan losses is a valuation
allowance that management has determined to be necessary to absorb probable incurred credit losses inherent in the loan portfolio.
The allowance is established through provisions for losses charged to earnings. Loan losses are charged against the allowance when
management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
Management evaluates the allowance quarterly using past loan loss experience to establish base allowance pool rates for commercial
real estate, other commercial loans, residential real estate loans, consumer installment, and other consumer loans. Reviewed and
Pass-rated commercial mortgage/loan pool rates are determined based on adjusted pool rates, which include weighted three-year average
loss percentages adjusted for the eight risk factors as discussed below.
Special mention and substandard pool rates
are determined by the greater of the Bank’s weighted three-year average loss percentages or historical loss rolling average
of the prior eight quarters. The method used in this calculation collects all commercial loans and mortgages from one year ago,
observes their status and rating at the current time, and computes the historical loss rolling average for these rating categories
by using the losses experienced by those particular loans over the past year. These allowance pool rates are then adjusted based
on management’s current assessment of eight risk factors. These risk factors are:
|
1.
|
Changes in lending policies and procedures, including underwriting
standards and collection, charge-off, and recovery practices.
|
|
2.
|
Changes in national, regional, and local economic and business
conditions as well as the condition of various market segments, including the value of underlying collateral for collateral dependent
loans.
|
|
3.
|
Changes in the nature and volume of the portfolio and terms
of loans.
|
|
4.
|
Changes in the experience, ability, and depth of lending
management and staff.
|
|
5.
|
Changes in volume and severity of past due, classified
and nonaccrual loans as well as other loan modifications.
|
|
6.
|
Changes in the quality of the Bank’s loan review
system and the degree of oversight by the Bank’s board of directors.
|
|
7.
|
The existence and effect of any concentrations of credit
and changes in the level of such concentrations.
|
|
8.
|
The effect of external factors, such as competition and
legal and regulatory requirements.
|
Each factor is assigned a value to reflect
improving, stable or declining conditions based on management’s best judgment using relevant information available at the
time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions in a narrative
accompanying the allowance for loan loss calculation. Several specific factors are believed to have more impact on a loan’s
risk rating, such as those related to national and local economic trends, lending management and staff, volume of past dues and
nonaccruals, and concentrations of credit. Therefore, due to the increased risk inherent in criticized and classified loans, the
values of these specific factors are increased proportionally. Management believes these increased factors provide adequate coverage
for the additional perceived risk. Doubtful loans by definition have inherent losses in which the precise amounts are dependent
on likely future events. These particular loans are reserved at higher pool rates (25%) unless specifically reviewed and deemed
impaired as described below. An unallocated component of the allowance for loan losses has been established to reflect the inherent
imprecision involved in calculating the allowance for loan losses.
The commercial portfolio segment is comprised
of commercial real estate and other commercial loans. This segment is subject to all of the risk factors considered in management’s
assessment of the allowance. Examples of specific risks applicable to the entire segment include changes in economic conditions
that reduce business and consumer spending leading to a loss of revenue, concentrations of credit in business categories that are
disproportionately impacted by current economic conditions, the quality of the Bank’s loan review system and its ability
to identify potential problem loans, and the availability of acceptable new loans to replace maturing, amortizing, and refinanced
loans. In addition, risks specific to commercial mortgages and secured commercial loans would include economic conditions that
lead to declines in property and other collateral values. Prior to applying the allowance pool rate, commercial real estate and
other commercial loans in nonaccrual status or those with a minimum substandard rating and loan relationships of $500,000 or more
and all trouble debt restructures (“TDR”) are individually considered for impairment. Loans that are considered individually
for impairment and not determined to be impaired are returned to their original pools for allowance purposes. If a loan is determined
to be impaired, it is evaluated under guidance which dictates that a creditor shall measure impairment based on either the present
value of expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price, or the
fair value of the collateral less estimated costs to sell if the loan is collateral dependent. If the measure of the impaired loan,
such as the collateral value, is less than the recorded investment in the loan, a specific reserve is established in the allowance
for loan losses. An uncollectible loan is charged off after all reasonable means of collection are exhausted and the recovery of
the principal through the disposal of the collateral is not reasonably expected to cover the costs. Commercial real estate and
other commercial loans with an original principal balance under $10,000 for unsecured loans or under $25,000 for secured loans
are also not individually considered for impairment. Instead, the appropriate allowance pool rate is applied to the aggregate balance
of these pools.
The consumer portfolio segment is comprised
of consumer real estate, consumer installment, and other consumer loans. This segment is also subject to all of the risk factors
considered in management’s assessment of the allowance. Examples of specific risks applicable to the entire segment include
changes in economic conditions that increase unemployment which reduces a consumer’s ability to repay their debt, changes
in legal and regulatory requirements that make it more difficult to originate new loans and collect on existing loans, and competition
from non-local lenders who originate loans in the Bank’s market area at lower rates than the Bank can profitably offer. In
addition, risks specific to residential mortgages and secured consumer loans would include economic conditions that lead to declines
in property and other collateral values. Residential real estate, consumer installment, and other consumer loans are considered
homogenous pools and are generally not individually considered for impairment. Instead, the appropriate allowance pool rate is
applied to the aggregate balance of these pools. The other portfolio segment is comprised primarily of check-loans and loans in-process.
These loans are considered homogenous pools and are not individually considered for impairment. A pool rating is applied to the
aggregate balance of these pools. Loans restructured under a trouble debt restructuring are individually evaluated for impairment.
The amount of the allowance is based on
estimates, and the ultimate losses may vary from such estimates as more information becomes available or as later events occur
or circumstances change. Allocations of the allowance may be made for specific loans, but the entire allowance is available for
any loan that, in management’s judgment, should be charged off. Modifications to the methodology used in the allowance for
loan losses evaluation may be necessary in the future based on economic and real estate market conditions, new information obtained
regarding known problem loans, regulatory guidelines and examinations, the identification of additional problem loans, changes
in generally accepted accounting principles or other factors.
Changes in the allowance for loan losses
and the related loans evaluated for credit losses are summarized as follows for the periods ended June 30, 2012 and 2011 and December
31, 2011 (in thousands):
|
|
|
|
|
Commercial
|
|
|
Consumer
|
|
|
|
|
Allowance for Loan Losses
|
|
Total
|
|
|
Real Estate
|
|
|
Other
|
|
|
Real Estate
|
|
|
Installment
|
|
|
Other
|
|
|
Unallocated
|
|
Three months ended June 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance April 1
|
|
$
|
5,056
|
|
|
$
|
2,693
|
|
|
$
|
629
|
|
|
$
|
1,289
|
|
|
$
|
83
|
|
|
$
|
68
|
|
|
$
|
294
|
|
Charge-offs
|
|
|
(378
|
)
|
|
|
(40
|
)
|
|
|
(93
|
)
|
|
|
(198
|
)
|
|
|
(31
|
)
|
|
|
(16
|
)
|
|
|
—
|
|
Recoveries
|
|
|
26
|
|
|
|
—
|
|
|
|
5
|
|
|
|
—
|
|
|
|
11
|
|
|
|
10
|
|
|
|
—
|
|
Provision
|
|
|
450
|
|
|
|
72
|
|
|
|
185
|
|
|
|
291
|
|
|
|
29
|
|
|
|
(12
|
)
|
|
|
(115
|
)
|
Ending balance June 30
|
|
$
|
5,154
|
|
|
$
|
2,725
|
|
|
$
|
726
|
|
|
$
|
1,382
|
|
|
$
|
92
|
|
|
$
|
50
|
|
|
$
|
179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance January 1
|
|
$
|
4,712
|
|
|
$
|
2,646
|
|
|
$
|
557
|
|
|
$
|
1,244
|
|
|
$
|
70
|
|
|
$
|
61
|
|
|
$
|
134
|
|
Charge-offs
|
|
|
(676
|
)
|
|
|
(61
|
)
|
|
|
(93
|
)
|
|
|
(385
|
)
|
|
|
(98
|
)
|
|
|
(39
|
)
|
|
|
—
|
|
Recoveries
|
|
|
68
|
|
|
|
1
|
|
|
|
12
|
|
|
|
6
|
|
|
|
23
|
|
|
|
26
|
|
|
|
—
|
|
Provision
|
|
|
1,050
|
|
|
|
139
|
|
|
|
250
|
|
|
|
517
|
|
|
|
97
|
|
|
|
2
|
|
|
|
45
|
|
Ending balance June 30
|
|
$
|
5,154
|
|
|
$
|
2,725
|
|
|
$
|
726
|
|
|
$
|
1,382
|
|
|
$
|
92
|
|
|
$
|
50
|
|
|
$
|
179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance as related to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Evaluated collectively
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[general reserve]
|
|
$
|
4,767
|
|
|
$
|
2,564
|
|
|
$
|
516
|
|
|
$
|
1,366
|
|
|
$
|
92
|
|
|
$
|
50
|
|
|
$
|
179
|
|
Evaluated individually
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[specific reserve]
|
|
|
387
|
|
|
|
161
|
|
|
|
210
|
|
|
|
16
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
267,674
|
|
|
$
|
99,431
|
|
|
$
|
26,532
|
|
|
$
|
135,904
|
|
|
$
|
4,540
|
|
|
$
|
1,267
|
|
|
|
|
|
Loans evaluated for impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans evaluated collectively
|
|
|
259,816
|
|
|
|
93,352
|
|
|
|
25,441
|
|
|
|
135,216
|
|
|
|
4,540
|
|
|
|
1,267
|
|
|
|
|
|
Loans evaluated individually
|
|
|
7,858
|
|
|
|
6,079
|
|
|
|
1,091
|
|
|
|
688
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance April 1
|
|
$
|
4,146
|
|
|
$
|
2,153
|
|
|
$
|
512
|
|
|
$
|
1,232
|
|
|
$
|
94
|
|
|
$
|
64
|
|
|
$
|
91
|
|
Charge-offs
|
|
|
(59
|
)
|
|
|
6
|
|
|
|
(13
|
)
|
|
|
—
|
|
|
|
(13
|
)
|
|
|
(39
|
)
|
|
|
—
|
|
Recoveries
|
|
|
27
|
|
|
|
—
|
|
|
|
2
|
|
|
|
1
|
|
|
|
13
|
|
|
|
11
|
|
|
|
—
|
|
Provision
|
|
|
400
|
|
|
|
176
|
|
|
|
30
|
|
|
|
(21
|
)
|
|
|
(12
|
)
|
|
|
38
|
|
|
|
189
|
|
Ending balance June 30
|
|
$
|
4,514
|
|
|
$
|
2,335
|
|
|
$
|
531
|
|
|
$
|
1,212
|
|
|
$
|
82
|
|
|
$
|
74
|
|
|
$
|
280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance January 1
|
|
$
|
4,335
|
|
|
$
|
2,160
|
|
|
$
|
622
|
|
|
$
|
1,213
|
|
|
$
|
106
|
|
|
$
|
61
|
|
|
$
|
173
|
|
Charge-offs
|
|
|
(890
|
)
|
|
|
(621
|
)
|
|
|
(75
|
)
|
|
|
(100
|
)
|
|
|
(32
|
)
|
|
|
(62
|
)
|
|
|
—
|
|
Recoveries
|
|
|
69
|
|
|
|
10
|
|
|
|
5
|
|
|
|
1
|
|
|
|
31
|
|
|
|
22
|
|
|
|
—
|
|
Provision
|
|
|
1,000
|
|
|
|
786
|
|
|
|
(21
|
)
|
|
|
98
|
|
|
|
(23
|
)
|
|
|
53
|
|
|
|
107
|
|
Ending balance June 30
|
|
$
|
4,514
|
|
|
$
|
2,335
|
|
|
$
|
531
|
|
|
$
|
1,212
|
|
|
$
|
82
|
|
|
$
|
74
|
|
|
$
|
280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance as related to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Evaluated collectively
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[general reserve]
|
|
$
|
4,152
|
|
|
$
|
2,061
|
|
|
$
|
443
|
|
|
$
|
1,212
|
|
|
$
|
82
|
|
|
$
|
74
|
|
|
$
|
280
|
|
Evaluated individually
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[specific reserve]
|
|
|
362
|
|
|
|
274
|
|
|
|
88
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
275,652
|
|
|
$
|
103,340
|
|
|
$
|
25,387
|
|
|
$
|
139,827
|
|
|
$
|
5,708
|
|
|
$
|
1,390
|
|
|
|
|
|
Loans evaluated for impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans evaluated collectively
|
|
|
267,020
|
|
|
|
96,487
|
|
|
|
24,088
|
|
|
|
139,347
|
|
|
|
5,708
|
|
|
|
1,390
|
|
|
|
|
|
Loans evaluated individually
|
|
|
8,632
|
|
|
|
6,853
|
|
|
|
1,299
|
|
|
|
480
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance January 1
|
|
$
|
4,335
|
|
|
$
|
2,160
|
|
|
$
|
622
|
|
|
$
|
1,213
|
|
|
$
|
106
|
|
|
$
|
61
|
|
|
$
|
173
|
|
Charge-offs
|
|
|
(1,943
|
)
|
|
|
(1,404
|
)
|
|
|
(129
|
)
|
|
|
(223
|
)
|
|
|
(80
|
)
|
|
|
(107
|
)
|
|
|
—
|
|
Recoveries
|
|
|
120
|
|
|
|
10
|
|
|
|
13
|
|
|
|
7
|
|
|
|
51
|
|
|
|
39
|
|
|
|
—
|
|
Provision
|
|
|
2,200
|
|
|
|
1,880
|
|
|
|
51
|
|
|
|
247
|
|
|
|
(7
|
)
|
|
|
68
|
|
|
|
(39
|
)
|
Ending balance December 31
|
|
$
|
4,712
|
|
|
$
|
2,646
|
|
|
$
|
557
|
|
|
$
|
1,244
|
|
|
$
|
70
|
|
|
$
|
61
|
|
|
$
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance as related to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Evaluated collectively
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[general reserve]
|
|
$
|
4,384
|
|
|
$
|
2,441
|
|
|
$
|
434
|
|
|
$
|
1,244
|
|
|
$
|
70
|
|
|
$
|
61
|
|
|
$
|
134
|
|
Evaluated individually
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[specific reserve]
|
|
|
328
|
|
|
|
205
|
|
|
|
123
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
276,638
|
|
|
$
|
103,008
|
|
|
$
|
26,521
|
|
|
$
|
140,504
|
|
|
$
|
5,250
|
|
|
$
|
1,355
|
|
|
|
|
|
Loans evaluated for impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans evaluated collectively
|
|
|
268,491
|
|
|
|
96,737
|
|
|
|
25,320
|
|
|
|
139,829
|
|
|
|
5,250
|
|
|
|
1,355
|
|
|
|
|
|
Loans evaluated individually
|
|
|
8,147
|
|
|
|
6,271
|
|
|
|
1,201
|
|
|
|
675
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
There are no commitments to lend additional
funds on the above noted non-performing loans. Management has determined that the majority of these non-performing loans remain
well collateralized. Based on its comprehensive analysis of the loan portfolio, and since the Company has no exposure to subprime
loans, management believes the current level of the allowance for loan losses is adequate. However, Federal regulatory agencies,
as an integral part of their examination process, periodically review the Company’s allowance for loan losses and may require
the Company to recognize additions to the allowance based on their judgments about information available to them at the time of
their examination, which may not be currently available to management.
The amortized cost and estimated fair value
of available for sale and held to maturity securities at June 30, 2012 and December 31, 2011 are as follows (in thousands):
June 30, 2012
|
|
Amortized
|
|
|
Gross unrealized
|
|
|
Estimated
|
|
Investment Securities
|
|
cost
|
|
|
gains
|
|
|
losses
|
|
|
fair value
|
|
Securities Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
Sponsored Enterprises (GSE)
|
|
$
|
3,464
|
|
|
$
|
1
|
|
|
$
|
(1
|
)
|
|
$
|
3,464
|
|
Obligations of states
and political subdivisions – New York State
|
|
|
67,518
|
|
|
|
2,500
|
|
|
|
(98
|
)
|
|
|
69,920
|
|
Mortgage-backed securities
and collateralized mortgage obligations – GSE residential
|
|
|
28,157
|
|
|
|
909
|
|
|
|
(14
|
)
|
|
|
29,052
|
|
Corporate debt –
financial services industry
|
|
|
11,189
|
|
|
|
54
|
|
|
|
(106
|
)
|
|
|
11,137
|
|
Certificates
of deposit – financial services industry
|
|
|
98
|
|
|
|
—
|
|
|
|
—
|
|
|
|
98
|
|
|
|
|
110,426
|
|
|
|
3,464
|
|
|
|
(219
|
)
|
|
|
113,671
|
|
Equity
securities – financial services industry
|
|
|
630
|
|
|
|
18
|
|
|
|
(3
|
)
|
|
|
645
|
|
Total securities available
for sale
|
|
$
|
111,056
|
|
|
$
|
3,482
|
|
|
$
|
(222
|
)
|
|
$
|
114,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
Held to Maturity – Obligations of states and political subdivisions
|
|
$
|
4,471
|
|
|
$
|
337
|
|
|
$
|
—
|
|
|
$
|
4,808
|
|
December 31, 2011
|
|
Amortized
|
|
|
Gross unrealized
|
|
|
Estimated
|
|
Investment Securities
|
|
cost
|
|
|
gains
|
|
|
losses
|
|
|
fair value
|
|
Securities Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
Sponsored Enterprises (GSE)
|
|
$
|
2,260
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
2,261
|
|
Obligations of states
and political subdivisions – New York State
|
|
|
65,591
|
|
|
|
2,856
|
|
|
|
—
|
|
|
|
68,447
|
|
Mortgage-backed securities
and collateralized mortgage obligations – GSE residential
|
|
|
27,536
|
|
|
|
1,119
|
|
|
|
(20
|
)
|
|
|
28,635
|
|
Corporate debt –
financial services industry
|
|
|
7,822
|
|
|
|
7
|
|
|
|
(300
|
)
|
|
|
7,529
|
|
Certificates
of deposit – financial services industry
|
|
|
98
|
|
|
|
—
|
|
|
|
—
|
|
|
|
98
|
|
|
|
|
103,307
|
|
|
|
3,983
|
|
|
|
(320
|
)
|
|
|
106,970
|
|
Equity
securities – financial services industry
|
|
|
524
|
|
|
|
6
|
|
|
|
(72
|
)
|
|
|
458
|
|
Total securities available
for sale
|
|
$
|
103,831
|
|
|
$
|
3,989
|
|
|
$
|
(392
|
)
|
|
$
|
107,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
Held to Maturity – Obligations of states and political subdivisions
|
|
$
|
6,613
|
|
|
$
|
376
|
|
|
$
|
—
|
|
|
$
|
6,989
|
|
Proceeds from sale, gross gains and gross
losses realized on sales of securities available for sale were as follows for the three and six months ended June 30, 2012 and
2011 (in thousands). There were no sales of securities held to maturity during the three or six months ended June 30, 2012 or June
30, 2011.
For the periods ended June 30
|
|
Gross
|
|
|
Gross
|
|
|
|
|
Sale of Available for Sale Securities
|
|
Proceeds
|
|
|
Gains
|
|
|
Losses
|
|
|
Net Gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
113
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
2011
|
|
$
|
651
|
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
348
|
|
|
$
|
34
|
|
|
$
|
—
|
|
|
$
|
34
|
|
2011
|
|
$
|
651
|
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
9
|
|
The amortized cost
and estimated fair value of securities available for sale and held to maturity at June 30, 2012, by remaining period to contractual
maturity, are shown in the following table (in thousands). Actual maturities will differ from contractual maturities because of
security prepayments and the right of certain issuers to call or prepay their obligations.
|
|
Amortized
|
|
|
Estimated
|
|
Investment Securities
|
|
cost
|
|
|
fair value
|
|
Within one year
|
|
$
|
24,392
|
|
|
$
|
24,662
|
|
One to five years
|
|
|
34,703
|
|
|
|
35,813
|
|
Five to ten years
|
|
|
26,943
|
|
|
|
28,231
|
|
Over ten years
|
|
|
702
|
|
|
|
721
|
|
|
|
|
86,740
|
|
|
|
89,427
|
|
Mortgage-backed securities
|
|
|
28,157
|
|
|
|
29,052
|
|
Equity securities
|
|
|
630
|
|
|
|
645
|
|
Total Investment Securities
|
|
$
|
115,527
|
|
|
$
|
119,124
|
|
Investment securities in a continuous unrealized
loss position are reflected in the following table which groups individual securities by length of time that they have been in
a continuous unrealized loss position, and then details by investment category the number of instruments aggregated with their
gross unrealized losses and the fair values at June 30, 2012 and December 31, 2011 (dollars in thousands):
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
June 30, 2012
|
|
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
|
|
|
Estimated
|
|
|
Unrealized
|
|
Investment Securities
|
|
No.
|
|
|
fair value
|
|
|
losses
|
|
|
No.
|
|
|
fair value
|
|
|
losses
|
|
|
No.
|
|
|
fair value
|
|
|
losses
|
|
Securities Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Sponsored Enterprises (GSE)
|
|
|
1
|
|
|
$
|
2,011
|
|
|
$
|
1
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
1
|
|
|
$
|
2,011
|
|
|
$
|
1
|
|
Obligations of states and political subdivisions – New York State
|
|
|
47
|
|
|
|
8,412
|
|
|
|
98
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
47
|
|
|
|
8,412
|
|
|
$
|
98
|
|
Mortgage-backed securities and collateralized mortgage obligations – GSE residential
|
|
|
4
|
|
|
|
3,790
|
|
|
|
6
|
|
|
|
1
|
|
|
|
472
|
|
|
|
8
|
|
|
|
5
|
|
|
|
4,262
|
|
|
$
|
14
|
|
Corporate debt – financial services industry
|
|
|
8
|
|
|
|
6,508
|
|
|
|
106
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8
|
|
|
|
6,508
|
|
|
|
106
|
|
Total debt securities
|
|
|
60
|
|
|
|
20,721
|
|
|
|
211
|
|
|
|
1
|
|
|
|
472
|
|
|
|
8
|
|
|
|
61
|
|
|
|
21,193
|
|
|
|
219
|
|
Equity securities – financial services industry
|
|
|
2
|
|
|
|
281
|
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
281
|
|
|
|
3
|
|
Total securities available for sale
|
|
|
62
|
|
|
$
|
21,002
|
|
|
$
|
214
|
|
|
|
1
|
|
|
$
|
472
|
|
|
$
|
8
|
|
|
|
63
|
|
|
$
|
21,474
|
|
|
$
|
222
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
December 31, 2011
|
|
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
|
|
|
Estimated
|
|
|
Unrealized
|
|
Investment Securities
|
|
No.
|
|
|
fair value
|
|
|
losses
|
|
|
No.
|
|
|
fair value
|
|
|
losses
|
|
|
No.
|
|
|
fair value
|
|
|
losses
|
|
Securities Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities and collateralized mortgage obligations – GSE residential
|
|
|
3
|
|
|
$
|
2,166
|
|
|
$
|
20
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
3
|
|
|
$
|
2,166
|
|
|
$
|
20
|
|
Corporate debt – financial services industry
|
|
|
7
|
|
|
|
6,526
|
|
|
|
300
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7
|
|
|
|
6,526
|
|
|
|
300
|
|
Total debt securities
|
|
|
10
|
|
|
|
8,692
|
|
|
|
320
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10
|
|
|
|
8,692
|
|
|
|
320
|
|
Equity securities – financial services industry
|
|
|
4
|
|
|
|
325
|
|
|
|
72
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
|
|
325
|
|
|
|
72
|
|
Total securities available for sale
|
|
|
14
|
|
|
$
|
9,017
|
|
|
$
|
392
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
14
|
|
|
$
|
9,017
|
|
|
$
|
392
|
|
Included in securities
available for sale are Government Sponsored Enterprises including securities of the Federal Home Loan Bank (FHLB), Federal Home
Loan Mortgage Corporation (FHLMC or “Freddie Mac”), Government National Mortgage Association (GNMA or “Ginnie
Mae”), and Federal National Mortgage Association (FNMA or “Fannie Mae”). FHLB, FHLMC, and FNMA securities are
not backed by the full faith of the U.S. government. Substantially all mortgage-backed securities and collateralized mortgage obligations
consist of residential mortgage securities and are securities guaranteed by Ginnie Mae, Freddie Mac, or Fannie Mae. Obligations
of state and political subdivisions are general obligation and revenue bonds of New York State municipalities, agencies, and authorities.
General obligation bonds must have a nationally recognized statistical rating organization (NRSRO) investment grade rating in the
top four categories (S&P “BBB-” or higher). Revenue bonds must have an NRSRO rating in the top three categories
(S&P “A” or higher). Corporate debt securities are comprised of bonds with an NRSRO rating in the top four investment
grades (S&P “BBB-” or higher).
The contractual terms of the government
sponsored enterprise securities and the obligations of state and political subdivisions require the issuer to settle the securities
at par upon maturity of the investment. The contractual cash flows of the mortgage-backed securities and collateralized mortgage
obligations are guaranteed by various government agencies or government sponsored enterprises such as FHLMC, FNMA, and GNMA.
Securities held to maturity consist of
obligations of state and political subdivisions which are general obligation bonds of municipalities local to the Company and are
typically not rated by the NRSRO. In accordance with federal regulations, the Company performs an analysis of the finances of the
municipalities to determine that the bonds are the credit equivalent of investment grade bonds.
Management evaluates
securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis and more frequently when economic
or market conditions warrant such an evaluation. All of the Company’s investment securities classified as available for sale
or held to maturity are evaluated for OTTI. Securities identified as other-than-temporarily impaired are written down to their
current fair market value. For debt and equity securities that are intended to be sold, or that management believes will more-likely-than-not
be required to be sold prior to recovery, the full impairment is recognized immediately in earnings. An impairment charge will
also be recorded if there is credit related loss regardless of whether or not there is the intent to sell the securities. There
are numerous factors to be considered when estimating whether a credit loss exists and the period over which the debt security
is expected to recover. Indicators of a possible credit loss include, but are not limited to: the failure of the issuer of the
security to make scheduled interest or principal payments; any changes to the rating of the security by a rating agency; additional
declines in fair value after the balance sheet date.
In determining whether a credit loss exists, the Company uses its best
estimate of the present value of cash flows expected to be collected from the debt security by discounting the expected cash flows
at the effective interest rate implicit in the security at the date of acquisition. The deficiencies between the present value
of the cash flows expected to be collected and the amortized cost basis of a security is considered to be the credit loss. Once
an impairment is determined to be other-than-temporary, the impairment related to credit loss, if any, is charged to income and
the amount of the impairment related to all other factors is recognized in other comprehensive income (loss).
As of June 30, 2012, management believes
that none of the unrealized losses on debt securities at June 30, 2012 are due to the underlying credit quality of the issuers
of the securities, but instead are primarily related to market interest rates, and the full value of the securities will be realized
upon maturity. Additionally, the Company does not intend to sell the securities and it is more-likely-than-not that the Company
will not be required to sell the securities before recovery of their amortized cost. Therefore, no impairment was recognized on
these securities. As there was no credit loss, no impairment charge was recorded for the six month periods ended June 30, 2012
or June 30, 2011. Management believes the unrealized losses related to the three equity securities held at June 30, 2012 do not
represent other-than-temporary impairment as losses are believed to be due to market fluctuations and not credit concerns with
regard to the issuers.
|
H.
|
Restricted Investments
|
Restricted investments include stock held
in correspondent banks, the Federal Reserve Bank, and trust preferred stock. The trust preferred stock represents the Bank’s
investment in the Sullivan County Senior Housing partnership and cannot be sold to a third party. The stock is valued at par of
$1,000,000 and is fully secured by an investment grade bond. The trust preferred stock is evaluated quarterly for impairment and
the Company believes that there was no impairment on this trust preferred stock for the periods ended June 30, 2012 or June 30,
2011. The investment in the stock of the correspondent banks totaled $210,000 as of June 30, 2012 and December 31, 2011. As a member
of the Federal Home Loan Bank of New York (FHLB), the Company is required to purchase and hold stock in the FHLB to satisfy membership
and borrowing requirements. This stock is restricted in that it can only be sold to the FHLB or to another member institution and
all sales of FHLB stock must be at par value. As a result of these restrictions, FHLB stock is unlike the Company’s other
investment securities insofar as there is no trading market for FHLB stock and the transfer price is determined by FHLB membership
rules, not by market participants. As of June 30, 2012 and December 31, 2011, our FHLB stock totaled $949,000 and $1,210,000, respectively,
and is included as a part of restricted investments on the consolidated balance sheets.
FHLB stock is held as a long-term investment
and its value is determined based on the ultimate recoverability of the par value. The Company evaluates impairment quarterly.
The decision of whether impairment exists is a matter of judgment that reflects our view of the FHLB’s long-term performance,
which includes factors such as:
|
·
|
its operating performance;
|
|
·
|
the severity and duration of declines
in the fair value of its net assets related to its capital stock amount;
|
|
·
|
its commitment to make payments required
by law or regulation and the level of such payments in relation to its operating performance;
|
|
·
|
the impact of legislative and regulatory
changes on the FHLB, and accordingly, on the members of FHLB; and
|
|
·
|
its liquidity and funding position.
|
After evaluating all of these considerations,
the Company concluded that the par value of its investment in FHLB stock will be recovered. Accordingly, no impairment charge was
recorded on these securities during the three or six months ended June 30, 2012 or 2011. Our evaluation of the factors described
above, in future periods, could result in the recognition of impairment charges on FHLB stock.
|
I.
|
Pension and Other Postretirement Benefits
|
The Company has a noncontributory defined
benefit pension plan covering substantially all of its employees. The Company also sponsors a postretirement medical, dental and
life insurance benefit plan for qualifying pension plan retirees as disclosed in the 2011 Annual Report on Form 10-K.
The components of the net periodic benefit
cost (benefit) for the three and six months ended June 30, for these plans were as follows (in thousands):
Net Periodic Benefit Cost (Benefit)
|
|
Pension benefit
|
|
|
Postretirement benefit
|
|
For the three months ended June 30,
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
82
|
|
|
$
|
86
|
|
|
$
|
11
|
|
|
$
|
13
|
|
Interest cost
|
|
|
138
|
|
|
|
141
|
|
|
|
17
|
|
|
|
24
|
|
Expected return on plan assets
|
|
|
(156
|
)
|
|
|
(151
|
)
|
|
|
—
|
|
|
|
—
|
|
Amortization of prior service cost
|
|
|
—
|
|
|
|
—
|
|
|
|
(39
|
)
|
|
|
(39
|
)
|
Recognized net actuarial loss
|
|
|
59
|
|
|
|
35
|
|
|
|
(1
|
)
|
|
|
—
|
|
Net amount recognized
|
|
$
|
123
|
|
|
$
|
111
|
|
|
$
|
(12
|
)
|
|
$
|
(2
|
)
|
Net Periodic Benefit Cost (Benefit)
|
|
Pension benefit
|
|
|
Postretirement benefit
|
|
For the six months ended June 30,
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
164
|
|
|
$
|
172
|
|
|
$
|
22
|
|
|
$
|
26
|
|
Interest cost
|
|
|
276
|
|
|
|
282
|
|
|
|
34
|
|
|
|
48
|
|
Expected return on plan assets
|
|
|
(312
|
)
|
|
|
(302
|
)
|
|
|
—
|
|
|
|
—
|
|
Amortization of prior service cost
|
|
|
—
|
|
|
|
—
|
|
|
|
(78
|
)
|
|
|
(78
|
)
|
Recognized net actuarial loss
|
|
|
118
|
|
|
|
70
|
|
|
|
(2
|
)
|
|
|
—
|
|
Net amount recognized
|
|
$
|
246
|
|
|
$
|
222
|
|
|
$
|
(24
|
)
|
|
$
|
(4
|
)
|
The Company previously disclosed in its
consolidated financial statements for the year ended December 31, 2011, that it expected to contribute $852,000 to its pension
plan and $92,000 to its other postretirement benefits plan in 2012. As of June 30, 2012, a contribution of $852,000 was made to
the pension plan and $44,000 of contributions had been made to the other postretirement benefits plan. It is expected that the
Company will make the full $92,000 contribution this year to the other postretirement benefits plan. No further contributions to
the pension plan are expected this year.
The Company does not issue any guarantees
that would require liability recognition or disclosure, other than its standby letters of credit. The Company has issued unconditional
commitments in the form of standby letters of credit to guarantee payment on behalf of a customer and guarantee the performance
of a customer to a third party. Standby letters of credit generally arise in connection with lending relationships. The credit
risk involved in issuing these instruments is essentially the same as that involved in extending loans to customers. Contingent
obligations under standby letters of credit totaled $557,000 and $693,000 at June 30, 2012 and December 31, 2011, respectively,
and represent the maximum potential future payments the Company could be required to make. Typically, these instruments have terms
of twelve months or less and expire unused; therefore, the total amounts do not necessarily represent future cash requirements.
Each customer is evaluated individually for creditworthiness under the same underwriting standards used for commitments to extend
credit and on-balance-sheet instruments. Company policies governing loan collateral apply to standby letters of credit at the time
of credit extension. Loan-to-value ratios are generally consistent with loan-to-value requirements for other commercial loans secured
by similar types of collateral. The fair value of the Company’s standby letters of credit at June 30, 2012 and December 31,
2011 was not significant.
|
K.
|
Fair Values of Financial Instruments
|
The Company follows ASC Topic 820
Fair
Value Measurements and Disclosures
(“ASC 820”), which provides a framework for measuring and disclosing fair value
under generally accepted accounting principles. ASC 820 requires disclosures about the fair value of assets and liabilities recognized
in the consolidated balance whether the measurements are made on a recurring basis (for example, available-for-sale investment
securities) or on a nonrecurring basis (for example, impaired loans).
ASC 820 defines fair value as the exchange
price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also 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 established a fair value hierarchy that prioritizes the inputs to valuation methods used
to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets
or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of
the fair value hierarchy are as follows:
Level 1
:
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
|
|
|
Level 2
:
|
Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.
|
|
|
Level 3
:
|
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).
|
In instances where inputs used to measure
fair value fall into different levels in the above fair value hierarchy, an asset’s or liability’s level is based on
the lowest level of input that is significant to the fair value measurement.
For assets measured at fair value on a
recurring and non-recurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2012 and
December 31, 2011, respectively are as follows (in thousands):
|
|
|
|
|
(Level 1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
(Level 2)
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
Significant
|
|
|
(Level 3)
|
|
Fair Value Hierarchy
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
For Assets Valued on a
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
Recurring and Non-recurring Basis
|
|
Total
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
June 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government sponsored enterprises (“GSE”)
(a)
|
|
$
|
3,464
|
|
|
$
|
—
|
|
|
$
|
3,464
|
|
|
$
|
—
|
|
Obligations of state and political subdivisions – New York state
(a)
|
|
|
69,920
|
|
|
|
—
|
|
|
|
69,920
|
|
|
|
—
|
|
Mortgage backed securities and collateralized mortgage obligations – GSE residential
(a)
|
|
|
29,052
|
|
|
|
—
|
|
|
|
29,052
|
|
|
|
—
|
|
Corporate debt – financial services industry
|
|
|
11,137
|
|
|
|
—
|
|
|
|
11,137
|
|
|
|
—
|
|
Certificates of deposit – financial services industry
|
|
|
98
|
|
|
|
98
|
|
|
|
—
|
|
|
|
—
|
|
Equity securities – financial services industry
|
|
|
645
|
|
|
|
645
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
114,316
|
|
|
$
|
743
|
|
|
$
|
113,573
|
|
|
$
|
—
|
|
Non-recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed real estate
|
|
$
|
74
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
74
|
|
Impaired loans
|
|
|
915
|
|
|
|
—
|
|
|
|
—
|
|
|
|
915
|
|
|
|
$
|
989
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
989
|
|
December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government sponsored enterprises (“GSE”)
(a)
|
|
$
|
2,261
|
|
|
$
|
—
|
|
|
$
|
2,261
|
|
|
$
|
—
|
|
Obligations of state and political subdivisions – New York state
(a)
|
|
|
68,447
|
|
|
|
—
|
|
|
|
68,447
|
|
|
|
—
|
|
Mortgage backed securities and collateralized mortgage obligations – GSE residential
(a)
|
|
|
28,635
|
|
|
|
—
|
|
|
|
28,635
|
|
|
|
—
|
|
Corporate debt – financial services industry
|
|
|
7,529
|
|
|
|
—
|
|
|
|
7,529
|
|
|
|
—
|
|
Certificates of deposit – financial services industry
|
|
|
98
|
|
|
|
98
|
|
|
|
—
|
|
|
|
—
|
|
Equity securities – financial services industry
|
|
|
458
|
|
|
|
458
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
107,428
|
|
|
$
|
556
|
|
|
$
|
106,872
|
|
|
$
|
—
|
|
Non-recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed real estate
|
|
$
|
831
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
831
|
|
Impaired loans
|
|
|
1,477
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,477
|
|
|
|
$
|
2,308
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,308
|
|
(a)
Based on its analysis of the nature
and risks of these investments, the Company has determined that presenting them as a single class is appropriate.
There were no transfers of assets between
Level 1 and Level 2 for recurring assets.
Foreclosed assets consist primarily of
commercial real estate and are not revalued on a recurring basis. At the time of foreclosure, foreclosed real estate assets are
adjusted to fair value less estimated costs to sell upon transfer of the loans, establishing a new cost basis. Occasionally, additional
valuation adjustments are made based on updated appraisals and other factors and are recorded as recognized. At that time, they
are reported in the Company’s fair value disclosures in the non-recurring table above.
ASC Topic 825
Financial Instruments
(“ASC 825”) requires disclosure of fair value information about financial instruments whether or not recognized on
the balance sheet, for which it is practicable to estimate fair value. Fair value estimates are made as of a specific point in
time based on the characteristics of the financial instruments and the relevant market information. Where available, quoted market
prices are used. In other cases, fair values are based on estimates using present value or other valuation techniques. These
techniques involve uncertainties and are significantly affected by the assumptions used and the judgments made regarding risk characteristics
of various financial instruments, discount rates, prepayments, estimates of future cash flows, future expected loss experience
and other factors. Changes in assumptions could significantly affect these estimates. Derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, may or may not be realized in an immediate sale of the instrument.
Under ASC 825, fair value estimates are
based on existing financial instruments without attempting to estimate the value of anticipated future business and the value of
the assets and liabilities that are not financial instruments. Accordingly, the aggregate fair value amounts of existing financing
instruments do not represent the underlying value of those instruments on the books of the Company.
The following information should not be
interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited
portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity
used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.
The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at June
30, 2012 and December 31, 2011:
Cash and Cash Equivalents
The carrying amounts reported in the consolidated
balance sheet for cash and short-term instruments approximate those assets’ fair values.
Securities
The fair value of securities available
for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices
on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used
widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities
but rather by relying on the securities’ relationship to other benchmark quoted prices. The carrying values for securities
maturing within 90 days approximate fair values because there is little interest rate or credit risk associated with these instruments.
Loans
Fair values are estimated for portfolios
of loans with similar financial characteristics. Loans are segregated by type such as commercial, consumer, real estate and other
loans. Each loan category is further segregated into fixed and adjustable rate interest terms and by performing and nonperforming
categories. The fair values of performing loans are calculated by discounting scheduled cash flows through estimated maturity using
estimated market discount rates that reflect the credit and interest rate risks inherent in the loans. Estimated maturities are
based on contractual terms and repricing opportunities.
Impaired Loans
Impaired loans, which are predominately
commercial real estate loans where it is probable that the Bank will be unable to collect all amounts due per the contractual terms
of the loan agreement, are those in which the Bank has measured impairment generally based on the fair value of the loan’s
collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, liquidation value
or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest
level of input that is significant to the fair value measurements. Impaired loans are transferred out of the Level 3 fair value
hierarchy when payments reduce the outstanding loan balance below the fair value of the loan’s collateral or the loan is
foreclosed upon. If the financial condition of the borrower improves such that collectability of all contractual amounts due is
probable, and payments are current for nine months, the loan is transferred out of impaired status. As of June 30, 2012 and December
31, 2011, the fair values of collateral-dependent impaired loans were calculated using an outstanding balance of $1,302,000 and
$1,805,000, less a valuation allowance of $387,000 and $328,000, respectively. Impaired loans not requiring an allowance represent
loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans.
Accrued Interest Receivable and
Payable
The carrying amount of accrued interest
receivable and accrued interest payable approximates its fair value.
Restricted Investments
The carrying amount of restricted investments
approximates fair value and considers the limited marketability of such securities.
Deposit Liabilities
The fair values disclosed for demand deposits
(e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable
on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated
using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a
schedule of aggregated expected monthly maturities on time deposits.
Short-Term Debt
The carrying amounts of short-term debt
approximate their fair values.
Federal Home Loan Bank Borrowings
Fair values of FHLB borrowings are estimated
using discounted cash flow analysis, based on quoted prices for new FHLB borrowings with similar credit risk characteristics, terms
and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the
transfer price if the liability were assumed by a third party.
Off-Balance-Sheet Financial Instruments
Fair values for the Bank’s off-balance-sheet
financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into
similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing.
For fixed rate loan commitments, fair value
estimates also consider the difference between current market interest rates and the committed rates. At June 30, 2012 and December
31, 2011, the fair values of these financial instruments approximated the related carrying values which were not significant.
The following table presents additional
quantitative information about assets measured at fair value on a nonrecurring basis for which the Company has computed fair value
based on Level 3 values:
|
|
Fair value
|
|
|
Valuation
|
|
|
Unobservable
|
|
|
|
|
Nonrecurring Assets
|
|
estimate
|
|
|
techniques
|
|
|
input
|
|
|
Range
|
|
Foreclosed real estate
|
|
$
|
74
|
|
|
Appraisal of collateral
|
(a)
|
|
Appraisal adjustments
|
(b)
|
|
0% to -10%
|
|
|
|
|
|
|
|
|
|
|
Liquidation expenses
|
(b)
|
|
0% to -20%
|
|
Impaired loans
|
|
$
|
915
|
|
|
Appraisal of collateral
|
(a)
|
|
Appraisal adjustments
|
(b)
|
|
0% to -10%
|
|
|
|
|
|
|
|
|
|
|
Liquidation expenses
|
(b)
|
|
0% to -20%
|
|
Note a: Fair value is generally determined
through independent appraisals of the underlying collateral, which generally includes various level 3 inputs which are not identifiable.
Note b: Appraisals may be adjusted
by management for qualitative factors such as economic conditions and desired turn-over rate. Liquidation expenses are determined
on an asset by asset basis and include expenses such as realtor fees, legal fees, transfer tax and other costs.
The following is a summary of the net carrying
amounts and estimated fair values of the Company’s financial assets and liabilities (none of which were held for trading
purposes) at June 30, 2012 and December 31, 2011 (in thousands):
|
|
June 30, 2012
|
|
|
December 31, 2011
|
|
|
|
Net carrying
|
|
|
Estimated
|
|
|
Net carrying
|
|
|
Estimated
|
|
Financial Assets and Liabilities (in thousands)
|
|
amount
|
|
|
fair value
|
|
|
amount
|
|
|
fair value
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
37,773
|
|
|
$
|
37,773
|
|
|
$
|
11,776
|
|
|
$
|
11,776
|
|
Securities available for sale
|
|
|
114,316
|
|
|
|
114,316
|
|
|
|
107,428
|
|
|
|
107,428
|
|
Securities held to maturity
|
|
|
4,471
|
|
|
|
4,808
|
|
|
|
6,613
|
|
|
|
6,989
|
|
Loans, net
|
|
|
262,520
|
|
|
|
262,904
|
|
|
|
271,926
|
|
|
|
270,801
|
|
Accrued interest receivable
|
|
|
1,746
|
|
|
|
1,746
|
|
|
|
1,797
|
|
|
|
1,797
|
|
Restricted investments
|
|
|
2,159
|
|
|
|
2,159
|
|
|
|
2,420
|
|
|
|
2,420
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, money market and checking accounts
|
|
|
236,243
|
|
|
|
236,243
|
|
|
|
209,314
|
|
|
|
209,314
|
|
Time deposits
|
|
|
146,841
|
|
|
|
147,296
|
|
|
|
150,395
|
|
|
|
150,922
|
|
Accrued interest payable
|
|
|
160
|
|
|
|
160
|
|
|
|
210
|
|
|
|
210
|
|
Federal Home Loan Bank borrowings
|
|
|
10,000
|
|
|
|
10,304
|
|
|
|
15,000
|
|
|
|
15,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off balance sheet financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending commitments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Letters of credit
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
The following table presents financial
assets and financial liabilities that were measured or disclosed at fair value on a recurring and nonrecurring basis by level within
the fair value hierarchy as of June 30, 2012.
|
|
|
|
|
(Level 1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
(Level 2)
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
Significant
|
|
|
(Level 3)
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
Fair
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
Financial Assets and Liabilities (in thousands)
|
|
Value
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
37,773
|
|
|
$
|
37,773
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Securities available for sale
|
|
|
114,316
|
|
|
|
743
|
|
|
|
113,473
|
|
|
|
—
|
|
Securities held to maturity
|
|
|
4,808
|
|
|
|
—
|
|
|
|
4,808
|
|
|
|
—
|
|
Loans, net
|
|
|
262,904
|
|
|
|
—
|
|
|
|
—
|
|
|
|
262,904
|
|
Accrued interest receivable
|
|
|
1,746
|
|
|
|
1,746
|
|
|
|
—
|
|
|
|
—
|
|
Restricted investments
|
|
|
2,159
|
|
|
|
2,159
|
|
|
|
—
|
|
|
|
—
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, money market and checking accounts
|
|
|
236,243
|
|
|
|
236,243
|
|
|
|
—
|
|
|
|
—
|
|
Time deposits
|
|
|
147,296
|
|
|
|
—
|
|
|
|
147,296
|
|
|
|
—
|
|
Accrued interest payable
|
|
|
160
|
|
|
|
160
|
|
|
|
—
|
|
|
|
—
|
|
Federal Home Loan Bank borrowings
|
|
|
10,304
|
|
|
|
—
|
|
|
|
10,304
|
|
|
|
—
|
|
Item
2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking
Statements
In addition to historical information,
this report includes certain forward-looking statements with respect to the financial condition, results of operations and business
of the Company based on current management’s expectations. Economic circumstances, the Company's operations and the Company’s
actual results could differ significantly from those discussed in the forward-looking statements. Factors that could cause future
results to vary from current management expectations include, but are not limited to, general economic conditions, legislative
and regulatory changes, monetary and fiscal policies of the federal government, changes in tax policies, rates and regulations,
changes in interest rates, deposit flows, the cost of funds, demand for loan products, demand for financial services, competition,
changes in the quality or composition of the Company’s loan and securities portfolios, changes in accounting principles,
and other economic, competitive, governmental, and technological factors affecting the Company's operations, markets, products,
services and prices. Some of these and other factors are discussed in the Company’s annual and quarterly reports filed with
the Securities and Exchange Commission. Such developments could have an adverse impact on the Company’s financial position
and results of operations.
A.
Overview – Financial Condition
During
the period from December 31, 2011 to June 30, 2012, total assets increased $18.0 million or 4.2%. The increase was primarily due
to a net $26.0 million increase in cash and cash equivalents to $37.8 million and a $6.9 million or 6.4% increase to $114.3 million
in available for sale securities partially offset by a $9.4 million or 3.5% decrease in net loans to $262.5 million at June 30,
2012 and a $2.1 million or 32.4% decrease in securities held to maturity. The net increase in total assets was funded by deposit
growth.
Total
deposits increased $23.4 million or 6.5% to $383.1 million at June 30, 2012. NOW and super NOW accounts increased $5.9 million
or 13.0% to $51.6 million, and savings and insured money market deposits increased $10.2 million or 9.9% to $112.3 million all
due to the Bank’s enhanced sales initiative and the continued shift of customer money to safer investments. Core non-interest
bearing deposits increased $10.9 million or 17.7% to $72.3 million at June 30, 2012. In addition, depositors have increasingly
brought deposits to the Bank, due to a lack of other investment opportunities and economic uncertainty. Time deposits decreased
$3.6 million or 2.4% to $146.8 million at June 30, 2012 as high yielding deposits were not replaced. Long-term borrowings consisting
of loans from the Federal Home Loan Bank were repaid in the amount of $5.0 million and not replaced.
Total
stockholders’ equity increased $928,000 or 1.9% from $49.4 million at December 31, 2011 to $50.3 million at June 30, 2012.
This increase was the result of net income of $2,180,000 plus a decrease of $152,000 in accumulated other comprehensive income,
partially offset by the payment of cash dividends of $1,100,000.
Loans
Various statistics follow as of and for
the periods ended June 30, 2012 and 2011 and as of and for the year ended December 31, 2011:
|
|
June 30,
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2011
|
|
Annualized net charge-offs as a percentage of average outstanding loans
|
|
|
0.45
|
%
|
|
|
0.59
|
%
|
|
|
0.66
|
%
|
Allowance for loan losses to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
1.93
|
%
|
|
|
1.64
|
%
|
|
|
1.70
|
%
|
Total non-performing loans
|
|
|
49.9
|
%
|
|
|
40.8
|
%
|
|
|
46.1
|
%
|
The allowance for loan losses was $5.2
million at June 30, 2012, $4.5 million at June 30, 2011 and $4.7 million at December 31, 2011. Total nonperforming loans were $10.3
million at June 30, 2012 and $10.2 million at December 31, 2011, an increase of $92,000. Net loan charge-offs decreased to $608,000
for the six months ended June 30, 2012 from $821,000 in the same period of 2011, and gross charge-offs decreased to $676,000 in
2012 from $890,000 in 2011. The provision for loan losses was $1,050,000 and $1,000,000 for the six months ended June 30, 2012
and June 30, 2011, respectively. The allowance’s coverage on nonperforming loans was 49.9% at June 30, 2012, 46.1% at December
31, 2011 and 40.8% at June 30, 2011. The increase in the allowance for loan losses reflects the increased average historical rolling
loss due to the timing of historical charge-offs, which factors into the allowance calculations. The Bank’s loans remain
well collateralized, and based on management’s analysis of the loan portfolio, management believes the current level of the
allowance for loan losses is adequate. However, Federal regulatory agencies, as an integral part of their examination process,
periodically review the Company’s allowance for loan losses and may require the Company to recognize additions to the allowance
based on their judgments about information available to them at the time of their examination, which may not be currently available
to management.
B. Capital
Under the Federal Reserve’s risk-based
capital rules at June 30, 2012, the Bank’s Tier I risk-based capital was 17.2 % and total risk-based capital was 18.5% of
risk-weighted assets. These risk-based capital ratios are well above the minimum regulatory requirements of 4.0% for Tier I capital
and 8.0% for total risk-based capital. The Bank’s leverage ratio (Tier I capital to average assets) of 10.7% is well above
the 4.0% minimum regulatory requirement.
The following table shows the Bank’s
actual capital measurements compared to the minimum regulatory requirements (dollars in thousands).
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Tier I Capital
|
|
|
|
|
|
|
|
|
Banks’ equity, excluding the after-tax net of accumulated other comprehensive income
|
|
$
|
47,627
|
|
|
$
|
46,476
|
|
Tier II Capital
|
|
|
|
|
|
|
|
|
Allowance for loan losses
(1)
|
|
$
|
3,481
|
|
|
$
|
3,557
|
|
Total risk-based capital
|
|
$
|
51,108
|
|
|
$
|
50,033
|
|
Risk-weighted assets
(2)
|
|
$
|
276,829
|
|
|
$
|
283,369
|
|
Average assets
|
|
$
|
446,943
|
|
|
$
|
434,113
|
|
Ratios
|
|
|
|
|
|
|
|
|
Tier I risk-based capital (minimum 4.0%)
|
|
|
17.2
|
%
|
|
|
16.4
|
%
|
Total risk-based capital (minimum 8.0%)
|
|
|
18.5
|
%
|
|
|
17.7
|
%
|
Leverage (minimum 4.0%)
|
|
|
10.7
|
%
|
|
|
10.7
|
%
|
1
For Federal Reserve
risk-based capital rule purposes, the allowance for loan losses includes allowance for credit losses on off-balance sheet letters
of credit and is limited to 1.25% of risk-weighted assets
2
Risk-weighted assets have been reduced for the
portion allowance of loan losses excluded from total risk-based capital.
Jeffersonville Bancorp is a small bank
holding company with pro forma consolidated assets of less than $500 million, and is exempt from regulatory capital requirements
administered by the Federal Reserve System.
DISTRIBUTION
OF ASSETS, LIABILITIES & STOCKHOLDERS’ EQUITY:
INTEREST
RATES & INTEREST DIFFERENTIAL
The following schedule presents the condensed
average consolidated balance sheets for quarters ended June 30, 2012 and 2011. The total dollar amount of interest income from
earning assets and the resultant yields are calculated on a tax equivalent basis. The interest paid on interest-bearing liabilities,
expressed in dollars and rates, are also presented with dollars in thousands.
For the three months Ended June 30,
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
Average
|
|
|
Earned
|
|
|
yield/
|
|
|
Average
|
|
|
Earned
|
|
|
yield/
|
|
|
|
balance
|
|
|
paid
|
|
|
rate
|
|
|
balance
|
|
|
paid
|
|
|
rate
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits
|
|
$
|
22,872
|
|
|
$
|
15
|
|
|
|
0.25
|
%
|
|
$
|
13,048
|
|
|
$
|
8
|
|
|
|
0.25
|
%
|
Securities available for sale and held to maturity:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable securities
|
|
|
42,775
|
|
|
|
381
|
|
|
|
3.56
|
|
|
|
45,683
|
|
|
|
424
|
|
|
|
3.71
|
|
Tax-exempt securities
(2)
|
|
|
76,152
|
|
|
|
1,007
|
|
|
|
5.29
|
|
|
|
69,062
|
|
|
|
943
|
|
|
|
5.46
|
|
Total securities
|
|
|
118,927
|
|
|
|
1,388
|
|
|
|
4.67
|
|
|
|
114,745
|
|
|
|
1,367
|
|
|
|
4.77
|
|
Short-term investments
|
|
|
50
|
|
|
|
—
|
|
|
|
0.02
|
|
|
|
46
|
|
|
|
—
|
|
|
|
0.01
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate mortgages
|
|
|
196,877
|
|
|
|
3,003
|
|
|
|
6.10
|
|
|
|
198,564
|
|
|
|
3,059
|
|
|
|
6.16
|
|
Home equity loans
|
|
|
29,812
|
|
|
|
411
|
|
|
|
5.51
|
|
|
|
31,031
|
|
|
|
444
|
|
|
|
5.72
|
|
Time and demand loans
|
|
|
24,995
|
|
|
|
306
|
|
|
|
4.90
|
|
|
|
27,883
|
|
|
|
320
|
|
|
|
4.59
|
|
Installment and other loans
|
|
|
17,200
|
|
|
|
361
|
|
|
|
8.40
|
|
|
|
19,257
|
|
|
|
403
|
|
|
|
8.37
|
|
Total loans
(3)
|
|
|
268,884
|
|
|
|
4,081
|
|
|
|
6.07
|
|
|
|
276,735
|
|
|
|
4,226
|
|
|
|
6.11
|
|
Total interest earning assets
|
|
|
410,733
|
|
|
|
5,484
|
|
|
|
5.34
|
|
|
|
404,574
|
|
|
|
5,601
|
|
|
|
5.54
|
|
Other non-interest bearing assets
|
|
|
39,827
|
|
|
|
|
|
|
|
|
|
|
|
38,594
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
450,560
|
|
|
|
|
|
|
|
|
|
|
$
|
443,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW and Super NOW deposits
|
|
$
|
51,469
|
|
|
|
12
|
|
|
|
0.09
|
%
|
|
$
|
42,282
|
|
|
$
|
26
|
|
|
|
0.25
|
%
|
Savings and insured money market deposits
|
|
|
111,834
|
|
|
|
66
|
|
|
|
0.24
|
|
|
|
102,697
|
|
|
|
124
|
|
|
|
0.48
|
|
Time deposits
|
|
|
149,032
|
|
|
|
373
|
|
|
|
1.00
|
|
|
|
161,595
|
|
|
|
541
|
|
|
|
1.34
|
|
Total interest bearing deposits
|
|
|
312,335
|
|
|
|
451
|
|
|
|
0.58
|
|
|
|
306,574
|
|
|
|
691
|
|
|
|
0.90
|
|
Federal funds purchased and other short-term debt
|
|
|
4
|
|
|
|
—
|
|
|
|
1.12
|
|
|
|
274
|
|
|
|
—
|
|
|
|
0.28
|
|
Long-term debt
|
|
|
12,418
|
|
|
|
125
|
|
|
|
3.98
|
|
|
|
15,000
|
|
|
|
150
|
|
|
|
3.99
|
|
Total interest bearing liabilities
|
|
|
324,757
|
|
|
|
576
|
|
|
|
0.71
|
|
|
|
321,848
|
|
|
|
841
|
|
|
|
1.05
|
|
Demand deposits
|
|
|
67,263
|
|
|
|
|
|
|
|
|
|
|
|
66,203
|
|
|
|
|
|
|
|
|
|
Other non-interest bearing liabilities
|
|
|
8,098
|
|
|
|
|
|
|
|
|
|
|
|
8,027
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
400,118
|
|
|
|
|
|
|
|
|
|
|
|
396,078
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
50,442
|
|
|
|
|
|
|
|
|
|
|
|
47,090
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
450,560
|
|
|
|
|
|
|
|
|
|
|
$
|
443,168
|
|
|
|
|
|
|
|
|
|
Net interest bearing assets
|
|
$
|
85,976
|
|
|
|
|
|
|
|
|
|
|
$
|
82,726
|
|
|
|
|
|
|
|
|
|
Net interest income – tax effected
|
|
|
|
|
|
|
4,908
|
|
|
|
|
|
|
|
|
|
|
|
4,760
|
|
|
|
|
|
Less: Tax gross up on exempt securities
|
|
|
|
|
|
|
338
|
|
|
|
|
|
|
|
|
|
|
|
316
|
|
|
|
|
|
Net interest income per statement of income
|
|
|
|
|
|
$
|
4,570
|
|
|
|
|
|
|
|
|
|
|
$
|
4,444
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
|
|
|
|
|
4.63
|
%
|
|
|
|
|
|
|
|
|
|
|
4.49
|
%
|
Net interest margin
(4)
|
|
|
|
|
|
|
|
|
|
|
4.78
|
%
|
|
|
|
|
|
|
|
|
|
|
4.71
|
%
|
|
1
|
Yields on securities available for sale are based on
amortized cost.
|
|
2
|
Tax exempt securities are affected using a 34% tax rate
for fully tax exempt municipals and 24% for dividends.
|
|
3
|
For the purpose of this schedule, interest on nonaccruing loans has been included only to the
extent reflected in the consolidated income statement. However, the nonaccrual loan balances are included in the average amount
outstanding.
|
|
4
|
Computed by dividing tax effected net interest income
by total interest earning assets.
|
For the six months Ended June 30,
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
Average
|
|
|
Earned
|
|
|
yield/
|
|
|
Average
|
|
|
Earned
|
|
|
yield/
|
|
|
|
balance
|
|
|
paid
|
|
|
rate
|
|
|
balance
|
|
|
paid
|
|
|
rate
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits
|
|
$
|
20,306
|
|
|
$
|
23
|
|
|
|
0.25
|
%
|
|
$
|
12,035
|
|
|
$
|
15
|
|
|
|
0.25
|
%
|
Securities available for sale and held to maturity:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable securities
|
|
|
41,313
|
|
|
|
716
|
|
|
|
3.47
|
|
|
|
45,163
|
|
|
|
815
|
|
|
|
3.61
|
|
Tax-exempt securities
(2)
|
|
|
75,483
|
|
|
|
1,977
|
|
|
|
5.24
|
|
|
|
67,255
|
|
|
|
1,833
|
|
|
|
5.45
|
|
Total securities
|
|
|
116,796
|
|
|
|
2,693
|
|
|
|
4.61
|
|
|
|
112,418
|
|
|
|
2,648
|
|
|
|
4.71
|
|
Short-term investments
|
|
|
46
|
|
|
|
—
|
|
|
|
0.03
|
|
|
|
43
|
|
|
|
—
|
|
|
|
0.01
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate mortgages
|
|
|
197,828
|
|
|
|
6,146
|
|
|
|
6.21
|
|
|
|
199,168
|
|
|
|
6,154
|
|
|
|
6.18
|
|
Home equity loans
|
|
|
30,148
|
|
|
|
838
|
|
|
|
5.56
|
|
|
|
31,271
|
|
|
|
888
|
|
|
|
5.68
|
|
Time and demand loans
|
|
|
25,504
|
|
|
|
626
|
|
|
|
4.91
|
|
|
|
28,866
|
|
|
|
648
|
|
|
|
4.49
|
|
Installment and other loans
|
|
|
17,723
|
|
|
|
751
|
|
|
|
8.47
|
|
|
|
18,541
|
|
|
|
844
|
|
|
|
9.10
|
|
Total loans
(3)
|
|
|
271,203
|
|
|
|
8,361
|
|
|
|
6.17
|
|
|
|
277,846
|
|
|
|
8,534
|
|
|
|
6.14
|
|
Total interest earning assets
|
|
|
408,351
|
|
|
|
11,077
|
|
|
|
5.43
|
|
|
|
402,342
|
|
|
|
11,197
|
|
|
|
5.57
|
|
Other non-interest bearing assets
|
|
|
41,139
|
|
|
|
|
|
|
|
|
|
|
|
39,249
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
449,490
|
|
|
|
|
|
|
|
|
|
|
$
|
441,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW and Super NOW deposits
|
|
$
|
55,045
|
|
|
|
25
|
|
|
|
0.09
|
%
|
|
$
|
43,812
|
|
|
$
|
54
|
|
|
|
0.25
|
%
|
Savings and insured money market deposits
|
|
|
107,879
|
|
|
|
133
|
|
|
|
0.25
|
|
|
|
100,607
|
|
|
|
244
|
|
|
|
0.49
|
|
Time deposits
|
|
|
149,514
|
|
|
|
781
|
|
|
|
1.04
|
|
|
|
160,031
|
|
|
|
1,102
|
|
|
|
1.38
|
|
Total interest bearing deposits
|
|
|
312,438
|
|
|
|
939
|
|
|
|
0.60
|
|
|
|
304,450
|
|
|
|
1,400
|
|
|
|
0.92
|
|
Federal funds purchased and other short-term debt
|
|
|
10
|
|
|
|
—
|
|
|
|
1.12
|
|
|
|
767
|
|
|
|
1
|
|
|
|
0.30
|
|
Long-term debt
|
|
|
13,709
|
|
|
|
275
|
|
|
|
3.99
|
|
|
|
15,000
|
|
|
|
299
|
|
|
|
3.99
|
|
Total interest bearing liabilities
|
|
|
326,157
|
|
|
|
1,214
|
|
|
|
0.74
|
|
|
|
320,217
|
|
|
|
1,700
|
|
|
|
1.06
|
|
Demand deposits
|
|
|
64,744
|
|
|
|
|
|
|
|
|
|
|
|
65,607
|
|
|
|
|
|
|
|
|
|
Other non-interest bearing liabilities
|
|
|
8,203
|
|
|
|
|
|
|
|
|
|
|
|
7,371
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
399,104
|
|
|
|
|
|
|
|
|
|
|
|
393,195
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
50,386
|
|
|
|
|
|
|
|
|
|
|
|
48,396
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
449,490
|
|
|
|
|
|
|
|
|
|
|
$
|
441,591
|
|
|
|
|
|
|
|
|
|
Net interest bearing assets
|
|
$
|
82,194
|
|
|
|
|
|
|
|
|
|
|
$
|
82,125
|
|
|
|
|
|
|
|
|
|
Net interest income – tax effected
|
|
|
|
|
|
|
9,863
|
|
|
|
|
|
|
|
|
|
|
|
9,497
|
|
|
|
|
|
Less: Tax gross up on exempt securities
|
|
|
|
|
|
|
667
|
|
|
|
|
|
|
|
|
|
|
|
617
|
|
|
|
|
|
Net interest income per statement of income
|
|
|
|
|
|
$
|
9,196
|
|
|
|
|
|
|
|
|
|
|
$
|
8,880
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
|
|
|
|
|
4.69
|
%
|
|
|
|
|
|
|
|
|
|
|
4.51
|
%
|
Net interest margin
(4)
|
|
|
|
|
|
|
|
|
|
|
4.83
|
%
|
|
|
|
|
|
|
|
|
|
|
4.72
|
%
|
|
1
|
Yields on securities available for sale are based on
amortized cost.
|
|
2
|
Tax exempt securities are affected using a 34% tax rate
for fully tax exempt municipals and 24% for dividends.
|
|
3
|
For the purpose of this schedule, interest on nonaccruing loans has been included only to the
extent reflected in the consolidated income statement. However, the nonaccrual loan balances are included in the average amount
outstanding.
|
|
4
|
Computed by dividing tax effected net interest income
by total interest earning assets.
|
VOLUME AND RATE ANALYSIS
The following schedule sets forth, for
each major category of interest earning assets and interest bearing liabilities, the dollar amount of interest income (calculated
on a tax equivalent basis) and interest expense, and changes therein for the three and six months ended June 30, 2012 as compared
to 2011. The increase and decrease in interest income and expense due to both rate and volume have been allocated to the two categories
of variances (volume and rate) based on percentage relationships of such variance to each other, with dollars in thousands.
|
|
June 30, 2012 compared to 2011
|
|
|
|
increase (decrease) due to change in
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
For the three months ended
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
7
|
|
Total securities
(1)
|
|
|
50
|
|
|
|
(29
|
)
|
|
|
21
|
|
Loans
|
|
|
(156
|
)
|
|
|
11
|
|
|
|
(145
|
)
|
Total interest income
|
|
|
(99
|
)
|
|
|
(18
|
)
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW and Super NOW deposits
|
|
|
6
|
|
|
|
(20
|
)
|
|
|
(14
|
)
|
Savings and insured money market deposits
|
|
|
11
|
|
|
|
(69
|
)
|
|
|
(58
|
)
|
Time deposits
|
|
|
(42
|
)
|
|
|
(126
|
)
|
|
|
(168
|
)
|
Long-term debt
|
|
|
(26
|
)
|
|
|
1
|
|
|
|
(25
|
)
|
Total interest expense
|
|
|
(51
|
)
|
|
|
(214
|
)
|
|
|
(265
|
)
|
Net interest income
|
|
$
|
(48
|
)
|
|
$
|
196
|
|
|
$
|
148
|
|
|
|
June 30, 2012 compared to 2011
|
|
|
|
increase (decrease) due to change in
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
For the six months ended
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
8
|
|
Total securities
(1)
|
|
|
103
|
|
|
|
(58
|
)
|
|
|
45
|
|
Loans
|
|
|
(255
|
)
|
|
|
82
|
|
|
|
(173
|
)
|
Total interest income
|
|
|
(144
|
)
|
|
|
24
|
|
|
|
(120
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW and Super NOW deposits
|
|
|
14
|
|
|
|
(43
|
)
|
|
|
(29
|
)
|
Savings and insured money market deposits
|
|
|
18
|
|
|
|
(129
|
)
|
|
|
(111
|
)
|
Time deposits
|
|
|
(72
|
)
|
|
|
(249
|
)
|
|
|
(321
|
)
|
Federal funds purchased and other short-term debt
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
(1
|
)
|
Long-term debt
|
|
|
(26
|
)
|
|
|
2
|
|
|
|
(24
|
)
|
Total interest expense
|
|
|
(67
|
)
|
|
|
(419
|
)
|
|
|
(486
|
)
|
Net interest income
|
|
$
|
(77
|
)
|
|
$
|
443
|
|
|
$
|
366
|
|
|
1
|
Fully taxable-equivalent basis.
|
The Company’s operating results are affected by inflation
in the long term and government monetary policy in the short term to the extent that interest rates, loan demand and deposit levels
adjust to inflation and Federal Reserve Bank policies, and impact net interest income. Management can best counter the effect of
inflation over the long term by controlling expenses and government monetary policies in the short term by managing net interest
income through asset and liability allocations.
LIQUIDITY
The objective of maintaining adequate liquidity
is to assure the ability of the Company and its subsidiary to meet their financial obligations. These obligations include the payment
of interest on deposits, borrowings, withdrawal of deposits on demand or at their contractual maturity, the repayment of borrowings
as they mature, the ability to fund new and existing loan commitments, and the ability to take advantage of new business opportunities.
The Company and its subsidiary achieve liquidity by maintaining a strong base of core customer funds, maturing short-term assets,
the ability to sell securities, the availability of lines of credit, and access to capital markets.
Liquidity at the subsidiary Bank level
is managed through the monitoring of anticipated changes in loans, the investment portfolio, core deposits, and wholesale funds.
The strength of the subsidiary Bank’s liquidity position is a result of its base of core customer deposits. These core deposits
are supplemented by wholesale funding sources, including credit lines with the other banking institutions, and the Federal Home
Loan Bank.
The primary source of liquidity for the
parent Company is dividends from the Bank. OCC regulations prohibit the Bank to pay a dividend without prior OCC approval if the
total amount of all dividends declared during the calendar year, including the proposed dividend, exceeds the sum of its retained
net income to date during the calendar year and its retained net income over the preceding two years. As of June 30, 2012, the
Bank is permitted to pay a dividend without prior OCC approval.
For the six months ended June 30, 2012,
cash used in operating activities amounted to $3.7 million, cash provided by financing activities was $17.3 million and cash provided
by investing activities amounted to $5.0 million, resulting in a net increase in cash and cash equivalents of $26.0 million to
$37.8 million at June 30, 2012. See the Consolidated Statements of Cash Flows for additional information.
The following table reflects the Maturities
of Time Deposits of $100,000 or more for June 30, 2012 and December 31, 2011 and Federal Home Loan Bank (FHLB) borrowings for both
periods, dollars in thousands:
|
|
Maturity of Time Deposits
|
|
|
|
|
|
|
Of $100,000 or More
|
|
|
FHLB Borrowings
|
|
As of
|
|
June 30, 2012
|
|
|
December 31, 2011
|
|
|
June 30, 2012
|
|
|
December 31, 2011
|
|
Due three months or less
|
|
$
|
21,880
|
|
|
$
|
21,641
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Over three months through six months
|
|
|
13,483
|
|
|
|
15,350
|
|
|
|
—
|
|
|
|
5,000
|
|
Over six months through twelve months
|
|
|
8,249
|
|
|
|
12,360
|
|
|
|
5,000
|
|
|
|
5,000
|
|
Over twelve months
|
|
|
18,311
|
|
|
|
13,983
|
|
|
|
5,000
|
|
|
|
5,000
|
|
Total
|
|
$
|
61,923
|
|
|
$
|
63,334
|
|
|
$
|
10,000
|
|
|
$
|
15,000
|
|
Management anticipates that most of these
maturing deposits will be retained at maturity and that liquidity will be adequate to meet funding requirements.
Comparison
of the three month periods ending June 30, 2012 and 2011
Net
income for the second three months of 2012 increased $70,000 or 7.2% to $1,045,000 from $975,000 for the same period in 2011. Net
interest income after provision for loan losses increased $76,000 or 1.9% to $4,120,000. This increase is primarily due to a $240,000
decrease in interest expense on deposits partially offset by a $145,000 decrease in interest and fees on loans. Non-interest income
decreased $22,000 and non-interest expenses decreased $79,000 resulting in an increase in income before income tax expense of $133,000.
In income tax expense increased $63,000. The Company’s annualized return on average assets was 0.9% for both the three months
ended June 30, 2012 and 2011. The annualized return on average stockholders’ equity was 8.3% for both the three months ended
June 30, 2012 and 2011.
Total
net interest income after provision for loan losses increased $76,000 or 1.9% to $4,120,000 for the quarter ended June 30, 2012
up from $4,044,000 from the same period in 2011, of which $240,000 was the result of a decrease in interest expense on deposits
from $691,000 for the three months ended June 30, 2011 to $451,000 for the same period in 2012, partially offset by a $145,000
or 3.4% decrease in interest and fees on loans. The decrease in interest on deposits was attributable to higher yielding time deposits
having been replaced at lower current market rates and lower yields on savings and insured money market deposits. Loan interest
and fees decreased as loan repayments continue to outpace loan origination.
The provision for loan losses was $450,000
for the three months ended June 30, 2012, an increase of $50,000 over the same period in 2011. Management believes the provision
to be adequate.
Non-interest income decreased to $797,000
for the second three months of 2012 compared to $819,000 for the same period in 2011, a change of $22,000 or 2.7%. This decrease
was primarily the result of a $30,000 decrease in service charges on deposit accounts. Non-interest expenses decreased $79,000
or 2.1% from $3,737,000 for the three month period in 2011 to $3,658,000 for the same period in 2012 primarily due to a $55,000
decrease in salaries and employee benefits and a $33,000 decrease in other non-interest expenses.
Income
tax expense was $214,000 for the three month period ended June 30, 2012 compared to $151,000 for the corresponding period in 2011,
an increase of $63,000. The Company’s effective tax rates were 17.0% and 13.4% for the three month periods ended June 30,
2012 and 2011, respectively. The increase in effective tax rates was due to tax exempt interest and earnings on bank-owned life
insurance being a lower percentage of income before income tax expense in 2012 as compared to 2011.
Throughout
the following discussion, net interest income and its components are expressed on a tax equivalent basis which means that, where
appropriate, tax exempt income is shown as if it were earned on a fully taxable basis. The discussion is based on the comparison
of the three month average balances, yields, and interest income and expense for the periods ended June 30, 2012 and 2011. Tax
equivalent net interest spread increased 14 basis points to 4.63% at June 30, 2012 from 4.49% at June 30, 2011. Net interest margin
increased 7 basis points, to 4.78% in the second quarter of 2012 from 4.71% in the same quarter of 2011. Tax equivalent net interest
income increased $148,000 to $4,908,000 for the second three months of 2012 compared to $4,760,000 for the same period in 2011.
The total average balance for net interest earning assets was $85,976,000 for the three month period ended June 30, 2012 compared
to $82,726,000 for the same three month period in 2011, an increase of $3,250,000 or 3.9%. Average interest bearing earning assets
increasing by $6,159,000 or 1.5% with a 20 basis point decrease in yield, which was partially offset by average interest liabilities
increasing $2,909,000 or 0.9% with a 34 basis point decrease in yield for the three months ended June 30, 2012 versus the same
period in 2011. The increase in average interest bearing liabilities was primarily due to average total deposits increasing $5,761,000
or 1.9% to $312,335,000 for the three months ended June 30, 2012 with a corresponding decrease in yield of 32 basis points. This
increase was primarily in average savings and insured money market which increased $9,137,000 or 8.9% and average deposits NOW
and Super NOW accounts which increased $9,187,000 or 21.7% from the three months ended June 30, 2011 to the same period in 2012.
Partially offsetting these increases, average time deposits decreased $12,563,000 or 7.8% for the same periods. The increase in
deposits was due in part to our continued sales initiative and deposit gains in our most recently open branches as they continue
to gain momentum in their respective communities. The yields on all deposit products decreased as higher yielding deposits matured
and were replaced with lower yielding products. Average interest earning assets increased primarily in deposits held in an interest
bearing account at the Federal Reserve Bank [“FED”] by $9,824,000 or 75.3% and average tax-exempt securities of $7,090,000
or 10.3% with a 17 basis point decrease in yield. Partially offsetting these increases, average taxable securities decreased $2,908,000
or 6.4% with a decrease of 15 basis points in yield. As tax-exempt securities continue to provide better returns in this low yield
environment, the Bank continues to shift investments to this market. Deposits held at the “FED” will be used for liquidity
in the coming months to repay maturing Federal Home Loan Bank advances and to fund future loan growth as market conditions improve.
Average total loans decreased $7,851,000 or 2.8% with a net decrease in yield of 4 basis points. Average loans decreased $2,057,000,
$2,888,000, $1,219,000 and $1,687,000 in installment loans, time and demand loans, home equity loans and real estate mortgages
respectively. Average loans decreased as demand was down and customers refinanced and paid down loans. The yields on time and demand
loans increased 31 basis points while the yield on home equity loans decreased 21 basis points. The yield on home equity loans
decreased in response to market pressure. The increase in yield on time and demand loans was due to increased use of higher yielding
commercial lines of credit.
Comparison
of the six month periods ending June 30, 2012 and 2011
Net
income for the first six months of 2012 increased $501,000 or 29.8% to $2,180,000 from $1,679,000 for the same period in 2011.
Net interest income after provision for loan losses increased $266,000 or 3.4% to $8,146,000. This increase is primarily due to
a $461,000 decrease in interest expense on deposits. Non-interest income increased $69,000 and non-interest expenses decreased
$359,000, resulting in an increase in income before income tax expense of $694,000. In addition income tax expense increased $193,000.
The Company’s annualized return on average assets was 1.0% for the six months ended June 30, 2012, up from 0.8% for the same
period last year. The annualized return on average stockholders’ equity was 8.7% for the six months ended June 30, 2012 and
6.9% for the same period in 2011.
Total
net interest income after provision for loan losses increased $266,000 or 3.4% to $8,146,000 for the six months ended June 30,
2012, up from $7,880,000 from the same period in 2011, of which $461,000 was the result of a decrease in interest expense on deposits
from $1,400,000 for the six months ended June 30, 2011 to $939,000 for the same period in 2012. This decrease was attributable
to higher yielding time deposits having been replaced at lower current market rates and lower yields on savings and insured money
market deposits. In addition, interest income on tax-exempt securities increased $94,000 or 7.7% to $1,310,000 for the six months
ended June 30, 2012. Partially offsetting the increases, interest income on taxable investment securities decreased $99,000 or
12.1% to $716,000 and interest on loans decreased $173,000 or 2.0% to $8,361,000 for the six months ended June 30, 2012. The shift
in interest income on taxable versus tax-exempt investment securities was due to slightly higher yields in the municipal market.
The provision for loan losses was $1,050,000
and $1,000,000 for the six months ended June 30, 2012 and 2011, respectively. Management believes the provision to be adequate.
Non-interest income increased to $1,630,000
for the first six months of 2012 compared to $1,561,000 for the same period in 2011, a change of $69,000 or 4.4%. This increase
was primarily the result of a $93,000 life insurance benefit and a $25,000 increase in net security gains. Partially offsetting
these increases was a decrease of $46,000 or 6.2% in income on service charges. Non-interest expenses decreased $359,000 or 4.7%
primarily due to a $229,000 decrease in other non-interest expense, a $98,000 decrease in occupancy and equipment expenses and
a $70,000 decrease in salaries and employee benefits partially offset by a $38,000 increase in foreclosed real estate expense.
The $98,000 decrease in occupancy and equipment expense was primarily due to the full year benefit from cost reduction programs,
with savings of $24,000 in insurance, $28,000 in equipment expense, and $18,000 in utility costs. The $229,000 decrease in other
non-interest expense was primarily due to a $130,000 decrease in pre-foreclosure costs and a $97,000 decrease in FDIC charges.
Income
tax expense was $358,000 for the six month period ended June 30, 2012 compared to $165,000 for the corresponding period in 2011,
an increase of $193,000. The Company’s effective tax rates were 14.1% and 8.9% for the six month periods ended June 30, 2012
and 2011, respectively. The increase in effective tax rates was due to tax exempt interest and earnings on bank-owned life insurance
being a lower percentage of income before income tax expense in 2012 as compared to 2011.
Throughout
the following discussion, net interest income and its components are expressed on a tax equivalent basis which means that, where
appropriate, tax exempt income is shown as if it were earned on a fully taxable basis. The discussion is based on the comparison
of the six month average balance and yields, and year to date interest income and expense for the periods ended June 30, 2012 and
2011. Tax equivalent net interest spread increased 18 basis points to 4.69% at June 30, 2012 from 4.51% at June 30, 2011. Net interest
margin increased 11 basis points, to 4.83% in the first six months of 2012 from 4.72% in the same period of 2011. Tax equivalent
net interest income increased $366,000 to $9,863,000 for the first six months of 2012 compared to $9,497,000 for the same period
in 2011. The total average balance for net interest earning assets was $82,194,000 for the six month period ended June 30, 2012
compared to $82,125,000 for the same six month period in 2011, an increase of $69,000. Average interest earning assets increased
by $6,009,000 or 1.5% with a 14 basis point decrease in yield, which was partially offset by average interest bearing liabilities
which increased $5,940,000 or 1.9% with a 32 basis point decrease in yield for the six months ended June 30, 2012 versus the same
period in 2011. Average interest earning assets increased primarily in deposits held in an interest bearing account at the Federal
Reserve Bank [“FED”] by $8,271,000 or 68.7% and average tax-exempt securities of $8,228,000 or 12.2% with a 21 basis
point decrease in yield. Partially offsetting these increases, average taxable securities decreased $3,850,000 or 8.5% with a decrease
of 14 basis points in yield. As tax-exempt securities continue to provide better returns in this low yield environment, the Bank
continues to shift investments to this market. Deposits held at the “FED” will be used for liquidity in the coming
months to repay maturing Federal Home Loan Bank advances and to fund future loan growth as market conditions improve. Average total
loans decreased $6,643,000 or 2.4% with a net increase in yield of 3 basis points. Average loans decreased $3,362,000, $1,123,000
and $1,340,000 in time and demand loans, home equity loans and real estate mortgages respectively all as a result of low demand.
The yields on time and demand loans increased 42 basis points while the yield on home equity loans decreased 12 basis points and
installment loans decreased 63 basis points. The yield on home equity loans decreased in response to market pressure. The increase
in yield on time and demand loans was due to increased use of higher yielding commercial lines of credit. Installment loan rates
increased due to product mix. The increase in average interest bearing liabilities was primarily due to average total deposits
increasing $7,988,000 or 2.6% to $312,438,000 for the six months ended June 30, 2012 with a corresponding decrease in yield of
32 basis points. This increase was primarily in average NOW and Super NOW accounts which increased $11,233,000 or 25.6% and average
savings and insured money market deposits which increased $7,272,000 or 7.2% from the six months ended June 30, 2011 to the same
period in 2012. Partially offsetting this increase, average time deposits decreased $10,517,000 or 6.6% for the same periods. The
increase in deposits was due in part to our continued sales initiative and deposit gains in our most recently open branches as
they continue to gain momentum in their respective communities. The yields on all deposit products decreased as higher yielding
deposits matured and were replaced with lower yielding products.
|
D.
|
Critical Accounting Policies
|
Management of the Company considers the
accounting policy relating to the allowance for loan losses to be a critical accounting policy given the inherent uncertainty in
evaluating the levels of the allowance required to cover credit losses in the portfolio and the material effect that such judgments
can have on the results of operations. The allowance for loan losses is maintained at a level deemed adequate by management based
on an evaluation of such factors as economic conditions in the Company’s market area, past loan loss experience, the financial
condition of individual borrowers, and underlying collateral values based on independent appraisals. While management uses available
information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in
economic conditions and values of real estate particularly in Sullivan County. Collateral underlying certain real estate loans
could lose value which could lead to future additions to the allowance for loan losses. See Item 2B Management’s Discussion
and Analysis/ Allowance for Loan Losses for further discussion. In addition, Federal regulatory agencies, as an integral part of
their examination process, periodically review the Company’s allowance for loan losses and may require the Company to recognize
additions to the allowance based on their judgments about information available to them at the time of their examination, which
may not be currently available to management.
Foreclosed real estate consists of properties
acquired through foreclosure or by acceptance of a deed in lieu of foreclosure. At the time of initial foreclosure, or when foreclosure
occurs in-substance, these assets are recorded at fair value less estimated costs to sell and the excess, if any, of the loan over
the fair market value of the assets received, less estimated selling costs, is charged to the allowance for loan and lease losses.
Any subsequent valuation adjustments are charged or credited to other non-interest income. Operating costs associated with the
properties are charged to expense as incurred. Gains on the sale of foreclosed real estate are recorded when title has passed and
the sale has met all the requirements prescribed by US GAAP.
Impaired securities are evaluated on at
least a quarterly basis, and more frequently when market conditions warrant such an evaluation, to determine whether the impairment
is other-than-temporary. To determine whether an impairment is other-than-temporary, management utilizes criteria such as the reasons
underlying the impairment, the magnitude and duration of the impairment and the intent and ability of the Company to retain its
investment in the security for a period of time sufficient to allow for an anticipated recovery in the fair value. The term “other-than-temporary”
is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value is
not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying
value of the security. In addition, the total impairment is separated into the amount of the impairment related to (a) credit loss
and (b) the amount of the impairment related to all other factors, such as interest rate changes. The difference between the present
value of the cash flows expected to be collected and the amortized cost basis of a security is considered to be the credit loss.
Once an impairment is determined to be other-than-temporary, the impairment related to credit loss, if any, is charged to income
and the amount of the impairment related to all other factors is recognized in other comprehensive income (loss).
The Company has evaluated subsequent events
and transactions occurring through the date of issuance of the financial data included herein.
Item
3. Quantitative and Qualitative Disclosures about Market Risk
The
Company’s most significant form of market risk is interest rate risk, as the majority of the assets and liabilities are sensitive
to changes in interest rates. There have been no material changes in the Company’s interest rate risk position since December
31, 2011. Other types of market risk, such as foreign exchange rate risk and commodity price risk, do not arise in the normal course
of the Company’s business activities.
ITEM 4T. CONTROLS
AND PROCEDURES
Disclosure
controls and procedures
Management is responsible for establishing
and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f) or 15d-15(f).
The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and
board of directors regarding the preparation and fair presentation of published financial statements. Under the supervision and
with the participation of the Company’s management, including its principal executive officer and principal financial officer,
an evaluation of the effectiveness of internal controls over financial reporting was conducted, based on the framework in
Internal
Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based
on the evaluation under the framework in
Internal Control – Integrated Framework
, management concluded that the internal
controls over financial reporting were effective as of June 30, 2012.
No change in the Company’s internal
control over financial reporting (as defined in Exchange Act Rule 13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934)
occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, its
internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL
PROCEEDINGS
There are no pending legal proceedings,
other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or
which their property is subject.
ITEM 1A. RISK
FACTORS
There have been no material changes from
the risk factors as previously disclosed in response to Item 1A of Part I of the Company’s Annual Report on Form 10-K for
the year ended December 31, 2011.
ITEM 2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3. DEFAULTS
UPON SENIOR SECURITIES
Not Applicable
ITEM 4. MINE
SAFETY DISCLOSURE
Not Applicable
ITEM 5. OTHER
INFORMATION
Not Applicable.
ITEM 6. EXHIBITS
31.1
|
Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002
|
31.2
|
Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002
|
32.1
|
Written Statement of Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002
|
32.2
|
Written Statement of Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002
|
SIGNATURES
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.
|
JEFFERSONVILLE BANCORP
|
|
|
(Registrant)
|
|
|
|
|
|
/s/ Wayne V. Zanetti
|
|
|
Wayne V. Zanetti
|
|
President and Chief Executive Officer
|
|
|
|
|
/s/ John A. Russell
|
|
|
John A. Russell
|
|
Treasurer and Chief Financial Officer
|
August 14, 2012
Jeffersonville Bancorp (QB) (USOTC:JFBC)
Historical Stock Chart
From Apr 2024 to May 2024
Jeffersonville Bancorp (QB) (USOTC:JFBC)
Historical Stock Chart
From May 2023 to May 2024