EVANS BANCORP, INC. 10-Q
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For quarterly period ended June 30, 2008
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o |
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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 0-18539
EVANS BANCORP, INC.
(Exact name of registrant as specified in its charter)
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New York
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16-1332767 |
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(State of other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
14
-16 North Main Street, Angola, New York 14006
(Address of principal
executive offices)
(Zip Code)
(716) 926-2000
(Registrants
telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities 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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer
o
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Non-accelerated filer o
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Smaller reporting company
þ |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act.) Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date:
Common Stock, $.50 par value 2,755,274 shares as of August 1, 2008
INDEX
EVANS BANCORP, INC. AND SUBSIDIARIES
1
PART I FINANCIAL INFORMATION
ITEM I FINANCIAL STATEMENTS
EVANS BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2008 AND DECEMBER 31, 2007
(in thousands, except share and per share amounts)
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June 30, |
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December 31, |
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2008 |
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2007 |
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ASSETS |
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|
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Cash and due from banks |
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$ |
16,031 |
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$ |
12,335 |
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Interest-bearing deposits at banks |
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|
653 |
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|
269 |
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Securities: |
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Available for sale, at fair value |
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64,978 |
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70,144 |
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Held to maturity, at amortized cost |
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2,079 |
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2,266 |
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Loans and leases, net of allowance for loan and lease losses of $5,059
in 2008 and $4,555 in 2007 |
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360,961 |
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319,556 |
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Properties and equipment, net |
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8,512 |
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8,366 |
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Goodwill |
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10,046 |
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|
10,046 |
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Intangible assets |
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2,180 |
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|
2,507 |
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Bank-owned life insurance |
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10,968 |
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|
10,760 |
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Other assets |
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8,331 |
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6,480 |
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TOTAL ASSETS |
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$ |
484,739 |
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$ |
442,729 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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LIABILITIES |
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Deposits: |
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Demand |
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$ |
76,947 |
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$ |
69,268 |
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NOW |
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16,691 |
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|
10,141 |
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Regular savings |
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107,845 |
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92,864 |
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Muni-vest |
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17,952 |
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24,530 |
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Time |
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152,025 |
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129,026 |
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Total deposits |
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371,460 |
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325,829 |
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Securities sold under agreement to repurchase |
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4,342 |
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3,825 |
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Other short-term borrowings |
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23,083 |
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33,980 |
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Other liabilities |
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10,877 |
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10,361 |
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Junior subordinated debentures |
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11,330 |
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11,330 |
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Long-term borrowings |
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18,349 |
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14,101 |
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|
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|
|
|
|
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Total liabilities |
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439,441 |
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399,426 |
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CONTINGENT LIABILITIES AND COMMITMENTS |
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STOCKHOLDERS EQUITY: |
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Common stock, $.50 par value; 10,000,000 shares authorized;
2,759,700 and 2,756,731 shares issued, respectively, and
2,755,274 and 2,751,698 shares outstanding, respectively |
|
|
1,380 |
|
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|
1,378 |
|
Capital surplus |
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|
26,459 |
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|
26,380 |
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Retained earnings |
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17,573 |
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15,612 |
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Accumulated other comprehensive (loss) income, net of tax |
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(39 |
) |
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16 |
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Less: Treasury stock, at cost (4,426 and 5,033 shares, respectively) |
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(75 |
) |
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(83 |
) |
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Total stockholders equity |
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45,298 |
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43,303 |
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
484,739 |
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$ |
442,729 |
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See Notes to Unaudited Consolidated Financial Statements
2
PART I FINANCIAL INFORMATION
ITEM I FINANCIAL STATEMENTS
EVANS BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2008 AND 2007
in thousands, except share and per share amounts)
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Three Months Ended |
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June 30 |
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2008 |
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2007 |
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INTEREST INCOME |
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Loans and leases |
|
$ |
6,434 |
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$ |
6,094 |
|
Interest bearing deposits at banks |
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3 |
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|
10 |
|
Securities: |
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Taxable |
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320 |
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|
861 |
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Non-taxable |
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|
392 |
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|
435 |
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|
|
|
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Total interest income |
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7,149 |
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|
7,400 |
|
INTEREST EXPENSE
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Deposits |
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|
1,866 |
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|
|
2,670 |
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Other borrowings |
|
|
299 |
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|
313 |
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Junior subordinated debentures |
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154 |
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223 |
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|
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Total interest expense |
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2,319 |
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|
|
3,206 |
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NET INTEREST INCOME |
|
|
4,830 |
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|
4,194 |
|
PROVISION FOR LOAN AND LEASE LOSSES |
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|
675 |
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|
345 |
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN AND LEASE LOSSES |
|
|
4,155 |
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|
|
3,849 |
|
NON-INTEREST INCOME: |
|
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|
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Bank charges |
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|
540 |
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|
|
548 |
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Insurance service and fees |
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|
1,617 |
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|
1,423 |
|
Net gain (loss) on sales of securities |
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|
7 |
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|
(2,302 |
) |
Premium on loans sold |
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|
4 |
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|
4 |
|
Bank-owned life insurance |
|
|
151 |
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|
|
177 |
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Other |
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|
493 |
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|
|
439 |
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|
|
|
|
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Total non-interest income |
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2,812 |
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|
289 |
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NON-INTEREST EXPENSE: |
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Salaries and employee benefits |
|
|
2,837 |
|
|
|
2,621 |
|
Occupancy |
|
|
578 |
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|
|
525 |
|
Supplies |
|
|
62 |
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|
|
73 |
|
Repairs and maintenance |
|
|
143 |
|
|
|
140 |
|
Advertising and public relations |
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|
102 |
|
|
|
133 |
|
Professional services |
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|
254 |
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273 |
|
Technology and communications |
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|
290 |
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|
|
255 |
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Amortization of intangibles |
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|
166 |
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|
142 |
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Other insurance |
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|
84 |
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|
90 |
|
Other |
|
|
526 |
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|
460 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense |
|
|
5,042 |
|
|
|
4,712 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
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|
INCOME (LOSS) BEFORE INCOME TAXES |
|
|
1,925 |
|
|
|
(574 |
) |
INCOME TAX PROVISION (BENEFIT) |
|
|
540 |
|
|
|
(435 |
) |
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
1,385 |
|
|
|
($139 |
) |
|
|
|
|
|
|
|
|
Net income (loss) per common share-basic |
|
$ |
0.50 |
|
|
$ |
(0.05 |
) |
|
|
|
|
|
|
|
Net income (loss) per common share-diluted |
|
$ |
0.50 |
|
|
$ |
(0.05 |
) |
|
|
|
|
|
|
|
Cash dividends per common share |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
|
|
|
|
|
|
Weighted average number of common shares |
|
|
2,748,771 |
|
|
|
2,743,819 |
|
|
|
|
|
|
|
|
Weighted average number of diluted shares |
|
|
2,750,563 |
|
|
|
2,743,819 |
|
|
|
|
|
|
|
|
See Notes to Unaudited Consolidated Financial Statements
3
PART I FINANCIAL INFORMATION
ITEM I FINANCIAL STATEMENTS
EVANS BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(in thousands, except share and per share amounts)
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|
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|
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Six Months Ended |
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|
June 30, |
|
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2008 |
|
|
2007 |
|
INTEREST INCOME
|
|
|
|
|
|
|
|
|
Loans and leases |
|
$ |
12,608 |
|
|
$ |
11,694 |
|
Interest bearing deposits at banks |
|
|
7 |
|
|
|
97 |
|
Securities: |
|
|
|
|
|
|
|
|
Taxable |
|
|
641 |
|
|
|
1,873 |
|
Non-taxable |
|
|
791 |
|
|
|
878 |
|
|
|
|
|
|
|
|
Total interest income |
|
|
14,047 |
|
|
|
14,542 |
|
INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
Deposits |
|
|
3,823 |
|
|
|
5,373 |
|
Other borrowings |
|
|
689 |
|
|
|
663 |
|
Junior subordinated debentures |
|
|
347 |
|
|
|
441 |
|
|
|
|
|
|
|
|
Total interest expense |
|
|
4,859 |
|
|
|
6,477 |
|
NET INTEREST INCOME |
|
|
9,188 |
|
|
|
8,065 |
|
PROVISION FOR LOAN AND LEASE LOSSES |
|
|
1,232 |
|
|
|
660 |
|
|
|
|
|
|
|
|
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES |
|
|
7,956 |
|
|
|
7,405 |
|
NON-INTEREST INCOME: |
|
|
|
|
|
|
|
|
Bank charges |
|
|
1,072 |
|
|
|
1,019 |
|
Insurance service and fees |
|
|
3,751 |
|
|
|
3,552 |
|
Net gain (loss) on sales of securities |
|
|
7 |
|
|
|
(2,303 |
) |
Premium on loans sold |
|
|
5 |
|
|
|
5 |
|
Bank-owned life insurance |
|
|
208 |
|
|
|
317 |
|
Pension curtailment |
|
|
328 |
|
|
|
|
|
Other |
|
|
972 |
|
|
|
843 |
|
|
|
|
|
|
|
|
Total non-interest income |
|
|
6,343 |
|
|
|
3,433 |
|
NON-INTEREST EXPENSE: |
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
5,709 |
|
|
|
5,289 |
|
Occupancy |
|
|
1,204 |
|
|
|
1,128 |
|
Supplies |
|
|
129 |
|
|
|
151 |
|
Repairs and maintenance |
|
|
290 |
|
|
|
279 |
|
Advertising and public relations |
|
|
210 |
|
|
|
220 |
|
Professional services |
|
|
522 |
|
|
|
525 |
|
Technology and communications |
|
|
565 |
|
|
|
519 |
|
Amortization of intangibles |
|
|
328 |
|
|
|
286 |
|
Other insurance |
|
|
165 |
|
|
|
180 |
|
Other |
|
|
1,009 |
|
|
|
1,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense |
|
|
10,131 |
|
|
|
9,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES |
|
|
4,168 |
|
|
|
1,194 |
|
INCOME TAX PROVISION |
|
|
1,190 |
|
|
|
46 |
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
2,978 |
|
|
$ |
1,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share-basic |
|
$ |
1.08 |
|
|
$ |
0.42 |
|
|
|
|
|
|
|
|
Net income per common share-diluted |
|
$ |
1.08 |
|
|
$ |
0.42 |
|
|
|
|
|
|
|
|
Cash dividends per common share |
|
$ |
0.37 |
|
|
$ |
0.34 |
|
|
|
|
|
|
|
|
Weighted average number of common shares |
|
|
2,748,643 |
|
|
|
2,737,232 |
|
|
|
|
|
|
|
|
Weighted average number of diluted shares |
|
|
2,749,645 |
|
|
|
2,737,914 |
|
|
|
|
|
|
|
|
See Notes to Unaudited Consolidated Financial Statements
4
PART 1 FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
EVANS BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Common |
|
|
Capital |
|
|
Retained |
|
|
Comprehensive |
|
|
Treasury |
|
|
|
|
|
|
Stock |
|
|
Surplus |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Stock |
|
|
Total |
|
Balance, January 1, 2007 |
|
$ |
1,373 |
|
|
$ |
26,160 |
|
|
$ |
14,196 |
|
|
$ |
(1,917 |
) |
|
$ |
(269 |
) |
|
$ |
39,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
|
1,148 |
|
|
|
|
|
|
|
|
|
|
|
1,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on available-for-sale
securities, net of reclassification of loss of
$1,413 (after tax) and tax effect of ($629) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
985 |
|
|
|
|
|
|
|
985 |
|
Amortization of prior service cost and net
loss, net tax effect ($17) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26 |
|
|
|
|
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends ($0.34 per common share) |
|
|
|
|
|
|
|
|
|
|
(928 |
) |
|
|
|
|
|
|
|
|
|
|
(928 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options expense |
|
|
|
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56 |
|
|
Reissued 8,747 shares treasury stock
under dividend reinvestment plan |
|
|
|
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
195 |
|
|
|
174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reissued 2,500 shares of restricted stock |
|
|
|
|
|
|
(53 |
) |
|
|
|
|
|
|
|
|
|
|
53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued 7,983 shares treasury stock |
|
|
4 |
|
|
|
161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reissued 4,689 shares treasury stock
under employee stock purchase plan |
|
|
|
|
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
101 |
|
|
|
81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased 9,300 shares for treasury |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(189 |
) |
|
|
(189 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2007 |
|
$ |
1,377 |
|
|
$ |
26,283 |
|
|
$ |
14,416 |
|
|
$ |
(906 |
) |
|
$ |
(109 |
) |
|
$ |
41,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2008 |
|
$ |
1,378 |
|
|
$ |
26,380 |
|
|
$ |
15,612 |
|
|
$ |
16 |
|
|
$ |
(83 |
) |
|
$ |
43,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
|
2,978 |
|
|
|
|
|
|
|
|
|
|
|
2,978 |
|
|
Unrealized loss on available-for-sale
securities, net of tax effect of $65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(101 |
) |
|
|
|
|
|
|
(101 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost and net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37 |
|
|
|
|
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension curtailment adjustment net of taxes $7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends ($0.37 per common share) |
|
|
|
|
|
|
|
|
|
|
(1,017 |
) |
|
|
|
|
|
|
|
|
|
|
(1,017 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options expense |
|
|
|
|
|
|
74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reissued 7,733 shares treasury stock
under dividend reinvestment plan |
|
|
|
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
130 |
|
|
|
118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued 2,969 shares under dividend
reinvestment plan |
|
|
2 |
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reissued 6,575 shares treasury stock
under employment stock purchase plan |
|
|
|
|
|
|
(27 |
) |
|
|
|
|
|
|
|
|
|
|
112 |
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased 13,701 shares for treasury |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(234 |
) |
|
|
(234 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2008 |
|
$ |
1,380 |
|
|
$ |
26,459 |
|
|
$ |
17,573 |
|
|
$ |
(39 |
) |
|
$ |
(75 |
) |
|
$ |
45,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Unaudited Consolidated Financial Statements
5
PART IFINANCIAL INFORMATION
ITEM IFINANCIAL STATEMENTS
EVANS BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Interest received |
|
$ |
14,020 |
|
|
$ |
13,748 |
|
Fees received |
|
|
5,677 |
|
|
|
5,367 |
|
Interest paid |
|
|
(4,963 |
) |
|
|
(6,416 |
) |
Cash paid to employees and suppliers |
|
|
(8,484 |
) |
|
|
(8,525 |
) |
Income taxes paid |
|
|
(2,344 |
) |
|
|
(1,069 |
) |
Proceeds from sale of loans held for resale |
|
|
1,391 |
|
|
|
1,117 |
|
Originations of loans held for resale |
|
|
(1,336 |
) |
|
|
(1,385 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
3,961 |
|
|
|
2,837 |
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Available for sales securities: |
|
|
|
|
|
|
|
|
Purchases |
|
|
(49,005 |
) |
|
|
(66,937 |
) |
Proceeds from sales |
|
|
|
|
|
|
45,653 |
|
Proceeds from maturities |
|
|
54,149 |
|
|
|
39,733 |
|
Held to maturity securities: |
|
|
|
|
|
|
|
|
Purchases |
|
|
(41 |
) |
|
|
(93 |
) |
Proceeds from maturities |
|
|
229 |
|
|
|
1,917 |
|
Additions to properties and equipment |
|
|
(536 |
) |
|
|
(193 |
) |
Increase in loans, net of repayments |
|
|
(43,088 |
) |
|
|
(13,676 |
) |
Sale of other real estate |
|
|
|
|
|
|
(6 |
) |
Cash paid on earn-out agreements |
|
|
(40 |
) |
|
|
(202 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
(38,332 |
) |
|
|
6,196 |
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from short-term borrowings |
|
|
7,517 |
|
|
|
|
|
Proceeds from long-term borrowings |
|
|
5,000 |
|
|
|
|
|
Repayments of short-term borrowings |
|
|
(18,585 |
) |
|
|
(21,285 |
) |
Repayments of long-term borrowings |
|
|
(64 |
) |
|
|
(2,381 |
) |
Increase in deposits |
|
|
45,631 |
|
|
|
17,378 |
|
Dividends paid |
|
|
(1,017 |
) |
|
|
(928 |
) |
Purchase of treasury stock |
|
|
(234 |
) |
|
|
(189 |
) |
Re-issuance of treasury stock |
|
|
203 |
|
|
|
255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
38,451 |
|
|
|
(7,150 |
) |
|
|
|
|
|
|
|
|
|
Net increase in cash and equivalents |
|
|
4,080 |
|
|
|
1,883 |
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS: |
|
|
|
|
|
|
|
|
Beginning of period |
|
|
12,604 |
|
|
|
12,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
16,684 |
|
|
$ |
14,475 |
|
|
|
|
|
|
|
|
6
PART IFINANCIAL INFORMATION
ITEM IFINANCIAL STATEMENTS
EVANS BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,978 |
|
|
$ |
1,148 |
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
813 |
|
|
|
856 |
|
Deferred tax benefit |
|
|
66 |
|
|
|
91 |
|
Provision for loan and lease losses |
|
|
1,232 |
|
|
|
660 |
|
Net (gain) loss on sales of assets |
|
|
(7 |
) |
|
|
2,309 |
|
Premiums on loans sold |
|
|
(5 |
) |
|
|
(5 |
) |
Stock options expense |
|
|
74 |
|
|
|
56 |
|
Proceeds from sale of loans held for resale |
|
|
1,391 |
|
|
|
1,117 |
|
Originations of loans held for resale |
|
|
(1,336 |
) |
|
|
(1,385 |
) |
Changes in assets and liabilities affecting cash flow: |
|
|
|
|
|
|
|
|
Other assets |
|
|
(2,514 |
) |
|
|
(2,968 |
) |
Other liabilities |
|
|
1,269 |
|
|
|
958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
$ |
3,961 |
|
|
$ |
2,837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for earn out agreement |
|
$ |
|
|
|
$ |
165 |
|
See Notes to Unaudited Consolidated Financial Statements
7
PART 1 FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
EVANS BANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007
1. |
|
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
|
|
|
The accounting and reporting policies followed by Evans Bancorp, Inc. (the Company), a
financial holding company, and its two direct, wholly-owned subsidiaries: (i) Evans National
Bank, effective August 1, 2008 its name was changed to Evans Bank, National Association (the
Bank), and the Banks subsidiaries, Evans National Leasing, Inc. (ENL) and Evans National
Holding Corp. (ENHC); and (ii) Evans National Financial Services, Inc. (ENFS), and ENFSs
subsidiary ENB Insurance Agency, Inc. (ENBI) and ENBIs subsidiaries, Frontier Claims
Services, Inc. (FCS) and ENB Associates Inc. (ENB), in the preparation of the
accompanying interim unaudited consolidated financial statements conform with U.S. generally
accepted accounting principles and with general practice within the banking industry. Except
as the context otherwise requires, the Company and its direct and indirect subsidiaries are
collectively referred to in this report as the Company. |
|
|
|
The accompanying consolidated financial statements are unaudited. In the opinion of
management, all adjustments necessary for a fair presentation of the Companys financial
position and results of operations for the interim periods have been made. Such adjustments
are of a normal recurring nature. |
|
|
|
The results of operations for the three and six month period ended June 30, 2008 are not
necessarily indicative of the results to be expected for the full year. The accompanying
unaudited consolidated financial statements should be read in conjunction with the Audited
Consolidated Financial Statements and the Notes thereto included in our Annual Report on Form
10-K for the year ended December 31, 2007. |
|
2. |
|
SECURITIES |
|
|
|
Securities which the Company has the positive ability and intent to hold to maturity are
stated at amortized cost. Securities which the Company has identified as available-for-sale
are stated at fair value with unrealized gains and losses excluded from earnings and reported
net of deferred income taxes, in accumulated other comprehensive income, a component of
stockholders equity. Available-for-sale securities are shown at fair value which includes an
unrealized gain of $0.6 million, $1.2 million and $0.7 million as of June 30, 2008, March 31,
2008, and December 31, 2007, respectively. As of June 30, 2008 the securities portfolio
should not contain any other than temporary declines in fair value. |
|
3. |
|
FAIR VALUE MEASUREMENTS |
|
|
|
As of January 1, 2008, the Company adopted on a prospective basis certain required provisions
of Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements, as
amended by Financial Accounting Standards Board (FASB) Financial Staff Position (FSP) No.
157-2, Effective Date of FASB Statement No. 157. Those provisions relate to financial assets
and liabilities carried at fair value and fair value disclosures related to financial assets
and liabilities. SFAS 157 defines fair value, expands related disclosure requirements and
specifies a hierarchy of valuation techniques based on the nature of the inputs used to
develop the fair value measures. Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. There are three levels of inputs to fair value
measurements- Level 1, meaning the use of quoted prices for identical instruments in active
markets; Level 2, meaning the use of quoted prices for similar instruments in active markets
or quoted prices for identical or similar instruments in markets that are not active or are
directly or indirectly observable; and Level 3, meaning the use of unobservable inputs.
Observable market data should be used when available. |
8
|
|
Investments that are classified as available-for-sale securities are carried at fair value,
with unrealized gains and losses, net of tax, reported in Other Comprehensive Income. The
fair value measurement of these instruments are measured using quoted prices for similar
instruments in active markets, which is defined as
Level 2 inputs. All other financial assets and liabilities, including held to maturity
securities, loans and leases, deposits, securities sold under agreement to repurchase, other
short-term borrowings, junior subordinated debentures, and long-term borrowings are carried
at either amortized cost or historical proceeds. The adoption of SFAS 157 did not have
significant impact on our consolidated financial statements. The Company did not elect to
adopt SFAS 157 for acquired non-financial assets and assumed non-financial liabilities. |
|
4. |
|
ALLOWANCE FOR LOAN AND LEASE LOSSES |
|
|
|
The provision for loan and lease losses represents the amount charged against the Banks
earnings to maintain an allowance for probable loan and lease losses based on managements
evaluation of the loan and lease portfolio at the balance sheet date. Factors considered by
the Banks management in establishing the allowance include: the collectibility of individual
loans and leases, current loan and lease concentrations, charge-off history, delinquent loan
and lease percentages, input from regulatory agencies and general economic conditions. |
|
|
|
On a quarterly basis, management of the Bank meet to review and determine the adequacy of the
allowance for loan and lease losses. In making this determination, the Banks management
analyzes the ultimate collectibility of the loans and leases in its portfolio by
incorporating feedback provided by the Banks internal loan and lease staff, an independent
internal loan and lease review function and information provided by examinations performed by
regulatory agencies. |
|
|
|
The analysis of the allowance for loan and lease losses is composed of three components:
specific credit allocation, general portfolio allocation and a subjective allocation. The
specific credit allocation includes a detailed review of the credit in accordance with the
Statement of Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors for
Impairment of a Loan and SFAS No. 118, Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures, and allocation is made based on this analysis. The
general portfolio allocation consists of an assigned reserve percentage based on the
historical loss experience of the loan or lease category. |
|
|
|
The subjective portion of the allowance reflects managements evaluation of various
conditions, and involves a higher degree of uncertainty because this component of the
allowance is not identified with specific problem credits or portfolio segments. The
conditions evaluated in connection with this component include the following: industry and
regional conditions; seasoning of the loan and lease portfolio and changes in the composition
of and growth in the loan and lease portfolio; the strength and duration of the business
cycle; existing general economic and business conditions in the lending areas; credit quality
trends in nonaccruing loans and leases; historical loan and lease charge-off experience; and
the results of bank regulatory examinations. |
|
9
|
|
The following table sets forth information regarding the allowance for loan and lease losses
for the six month periods ended June 30, 2008 and 2007. |
Allowance for loan and lease losses
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(in thousands) |
|
Beginning balance, January 1 |
|
$ |
4,555 |
|
|
$ |
3,739 |
|
Charge-offs: |
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
(153 |
) |
Real estate |
|
|
(1 |
) |
|
|
(5 |
) |
Installment loans |
|
|
(3 |
) |
|
|
(4 |
) |
Overdrafts |
|
|
(26 |
) |
|
|
(16 |
) |
Direct financing leases |
|
|
(838 |
) |
|
|
(400 |
) |
|
|
|
|
|
|
|
Total charge-offs |
|
|
(868 |
) |
|
|
(578 |
) |
|
|
|
|
|
|
|
|
|
Recoveries: |
|
|
|
|
|
|
|
|
Commercial |
|
|
18 |
|
|
|
9 |
|
Real estate |
|
|
|
|
|
|
|
|
Installment loans |
|
|
2 |
|
|
|
1 |
|
Overdrafts |
|
|
13 |
|
|
|
8 |
|
Direct financing leases |
|
|
107 |
|
|
|
27 |
|
|
|
|
|
|
|
|
Total recoveries |
|
|
140 |
|
|
|
45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
(728 |
) |
|
|
(533 |
) |
|
|
|
|
|
|
|
|
|
Provision for loan and lease losses |
|
|
1,232 |
|
|
|
660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance, June 30 |
|
$ |
5,059 |
|
|
$ |
3,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net charge-offs to average
total loans and leases outstanding (annualized) |
|
|
0.43 |
% |
|
|
0.37 |
% |
|
|
|
|
|
|
|
The common stock per share information is based upon the weighted average number of shares
outstanding during each period, retroactively adjusted for stock dividends and stock splits. The
Companys potential dilutive securities included 1,792 and 1,002 dilutive shares for the three and
six month periods ended June 30, 2008, respectively. This compares with 0 and 682 for the three
and six month periods ended June 30, 2007, respectively.
Potential common shares that would have the effect of increasing diluted earnings per share are
considered to be anti-dilutive and not included in calculating diluted earnings per share. For the
three and six months periods ended June 30, 2008, there were approximately 106 thousand and 100
thousand shares, respectively, that were not included in calculating diluted earnings per share
because their effect was anti-dilutive. For the three and six months periods ended June 30, 2007,
there were approximately 74 thousand and 61 thousand shares, respectively, that were not included
in calculating diluted earnings per share because their effect was anti-dilutive.
6. |
|
SEGMENT INFORMATION |
|
|
|
The Company is comprised of two primary business segments, banking and insurance agency
activities. The following tables set forth information regarding these segments for the three
and six month periods ended June 30, 2008 and 2007. |
10
Three Months Ended
June 30, 2008
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Agency |
|
|
|
|
|
|
Banking Activities |
|
|
Activities |
|
|
Total |
|
Net interest income (expense) |
|
$ |
4,898 |
|
|
$ |
(68 |
) |
|
$ |
4,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan and lease losses |
|
|
675 |
|
|
|
|
|
|
|
675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense) after
provision for loan and lease losses |
|
|
4,223 |
|
|
|
(68 |
) |
|
|
4,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income |
|
|
1,195 |
|
|
|
|
|
|
|
1,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance service and fees |
|
|
|
|
|
|
1,617 |
|
|
|
1,617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense |
|
|
3,761 |
|
|
|
1,281 |
|
|
|
5,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
1,657 |
|
|
|
268 |
|
|
|
1,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision |
|
|
437 |
|
|
|
103 |
|
|
|
540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,220 |
|
|
$ |
165 |
|
|
$ |
1,385 |
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2008
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Agency |
|
|
|
|
|
|
Banking Activities |
|
|
Activities |
|
|
Total |
|
Net interest income (expense) |
|
$ |
9,347 |
|
|
$ |
(159 |
) |
|
$ |
9,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan and lease losses |
|
|
1,232 |
|
|
|
|
|
|
|
1,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense) after
provision for loan and lease losses |
|
|
8,115 |
|
|
|
(159 |
) |
|
|
7,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income |
|
|
2,592 |
|
|
|
|
|
|
|
2,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance service and fees |
|
|
|
|
|
|
3,751 |
|
|
|
3,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense |
|
|
7,557 |
|
|
|
2,574 |
|
|
|
10,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
3,150 |
|
|
|
1,018 |
|
|
|
4,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision |
|
|
796 |
|
|
|
394 |
|
|
|
1,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,354 |
|
|
$ |
624 |
|
|
$ |
2,978 |
|
|
|
|
|
|
|
|
|
|
|
11
Three Months Ended
June 30, 2007
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Agency |
|
|
|
|
|
|
Banking Activities |
|
|
Activities |
|
|
Total |
|
Net interest income (expense) |
|
$ |
4,297 |
|
|
$ |
(103 |
) |
|
$ |
4,194 |
|
Provision for loan and lease losses |
|
|
345 |
|
|
|
|
|
|
|
345 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense) after
provision for loan and lease losses |
|
|
3,952 |
|
|
|
(103 |
) |
|
|
3,849 |
|
Non-interest loss |
|
|
(1,134 |
) |
|
|
|
|
|
|
(1,134 |
) |
Insurance service and fees |
|
|
|
|
|
|
1,423 |
|
|
|
1,423 |
|
Non-interest expense |
|
|
3,577 |
|
|
|
1,135 |
|
|
|
4,712 |
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
(759 |
) |
|
|
185 |
|
|
|
(574 |
) |
Income tax (benefit) provision |
|
|
(509 |
) |
|
|
74 |
|
|
|
(435 |
) |
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
|
($250 |
) |
|
$ |
111 |
|
|
$ |
(139 |
) |
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2007
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Agency |
|
|
|
|
|
|
Banking Activities |
|
|
Activities |
|
|
Total |
|
Net interest income (expense) |
|
$ |
8,288 |
|
|
$ |
(223 |
) |
|
$ |
8,065 |
|
Provision for loan and lease losses |
|
|
660 |
|
|
|
|
|
|
|
660 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense) after
provision for loan and lease losses |
|
|
7,628 |
|
|
|
(223 |
) |
|
|
7,405 |
|
Non-interest loss |
|
|
(119 |
) |
|
|
|
|
|
|
(119 |
) |
Insurance service and fees |
|
|
|
|
|
|
3,552 |
|
|
|
3,552 |
|
Non-interest expense |
|
|
7,360 |
|
|
|
2,284 |
|
|
|
9,644 |
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
149 |
|
|
|
1,045 |
|
|
|
1,194 |
|
Income tax (benefit) provision |
|
|
(372 |
) |
|
|
418 |
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
521 |
|
|
$ |
627 |
|
|
$ |
1,148 |
|
|
|
|
|
|
|
|
|
|
|
7. |
|
CONTINGENT LIABILITIES AND COMMITMENTS |
|
|
|
The unaudited consolidated financial statements do not reflect various commitments and
contingent liabilities, which arise in the normal course of business, and which involve
elements of credit risk, interest rate risk and liquidity risk. These commitments and
contingent liabilities consist of commitments to extend credit and standby letters of credit.
A summary of the Banks commitments and contingent liabilities at June 30, 2008 and 2007 is
as follows: |
12
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
|
(in thousands) |
|
Commitments to extend credit |
|
$ |
71,213 |
|
|
$ |
57,662 |
|
|
|
|
|
|
|
|
|
|
Standby letters of credit |
|
|
2,787 |
|
|
|
2,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
74,000 |
|
|
$ |
59,751 |
|
|
|
|
|
|
|
|
Commitments to extend credit and standby letters of credit include some exposure to credit
loss in the event of nonperformance of the customer. The Banks credit policies and
procedures for credit commitments and financial guarantees are the same as those for
extensions of credit that are recorded on the Companys unaudited consolidated balance
sheets. Because these instruments have fixed maturity dates, and because they may expire
without being drawn upon, they do not necessarily represent cash requirements of the Bank.
The Bank has not incurred any losses on its commitments during the past two years.
Certain lending commitments for construction residential mortgage loans are considered
derivative instruments under the guidelines of SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. The changes in the fair value of these commitments due
to interest rate risk are not recorded on the consolidated balance sheets as the fair value
of these derivatives are not considered material.
The Company is subject to possible litigation proceedings in the normal course of business.
As of June 30, 2008, there were no claims pending against the Company that management considered to
be material.
Certain reclassifications have been made to the 2007 unaudited consolidated financial
statements to conform with the presentation used in 2008.
9. |
|
NET PERIODIC BENEFIT COSTS |
On January 31, 2008, the Bank froze its defined benefit pension plan. The plan covered
substantially all Company employees. The plan provides benefits that are based on the
employees compensation and years of service. Under the freeze, eligible employees will
receive the benefits already earned through January 31, 2008 at retirement, but will not be
able to accrue any additional benefits. As a result, service cost will no longer be
incurred.
The Bank used an actuarial method of amortizing prior service cost and unrecognized net gains
or losses which result from actual experience and assumptions being different than those that
are projected. The
amortized method the Bank used recognized the prior service cost and net gains or losses over
the average remaining service period of active employees. The freezing of the defined
benefit pension plan was considered a curtailment. This resulted in the elimination of the
unrecognized prior service cost and the unrecognized net loss. The elimination of those two
components resulted in a $328 thousand gain in the first quarter of 2008.
The Bank also maintains a nonqualified supplemental executive retirement plan covering
certain members of the Companys senior management. The Bank uses an actuarial method of
amortizing unrecognized net gains or losses which result from actual expense and assumptions
being different than those that are projected. The amortization method the Bank uses
recognizes the net gains or losses over the average remaining service period of active
employees.
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, |
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
Supplemental Executive |
|
|
|
Pension Benefits |
|
|
Retirement Plan |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
Service cost |
|
$ |
|
|
|
$ |
91 |
|
|
$ |
30 |
|
|
$ |
15 |
|
Interest cost |
|
|
118 |
|
|
|
61 |
|
|
|
87 |
|
|
|
40 |
|
Expected return on plan assets |
|
|
(146 |
) |
|
|
(62 |
) |
|
|
|
|
|
|
|
|
Amortization of prior service cost |
|
|
|
|
|
|
(4 |
) |
|
|
28 |
|
|
|
14 |
|
Amortization of the net loss |
|
|
|
|
|
|
7 |
|
|
|
9 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic (benefit) cost |
|
$ |
(28 |
) |
|
$ |
93 |
|
|
$ |
154 |
|
|
$ |
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. RECENT ACCOUNTING PRONOUNCEMENTS
FASB Statement No. 162, The Hierarchy of Generally Accepted Accounting Principles. In May 2008,
the Financial Accounting Standards Board (FASB) issued SFAS No. 162. SFAS 162 identifies the
sources of accounting principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are presented in conformity
with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). We
expect the hierarchical guidance provided by SFAS 162 will not have a significant impact on the
Companys financial statements.
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q may contain certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and
Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), that involve
substantial risks and uncertainties. When used in this report, or in the documents incorporated by
reference herein, the words anticipate, believe, estimate, expect, intend, may, plan,
seek, and similar expressions identify such forward-looking statements. These forward-looking
statements include statements regarding the Companys business plans, prospects, growth and
operating strategies, statements regarding the asset quality of the Companys loan and investment
portfolios, and estimates of the Companys risks and future costs and benefits.
These forward-looking statements are based largely on the expectations of the Companys management
and are subject to a number of risks and uncertainties, including but not limited to general
economic conditions, either nationally or in the Companys market areas, that are worse than
expected; increased competition among depository or other financial institutions; inflation and
changes in the interest rate environment that reduce the Companys margins or reduce the fair value
of financial instruments; changes in laws or government regulations affecting financial
institutions, including changes in regulatory fees and capital requirements; the Companys ability
to enter new markets successfully and capitalize on growth opportunities; the Companys ability to
successfully integrate acquired entities; changes in accounting pronouncements and practices, as
adopted by financial institution regulatory agencies, the Financial Accounting Standards Board and
the Public Company Accounting Oversight Board; changes in consumer spending, borrowing and saving
habits; changes in the Companys organization, compensation and benefit plans; and other factors
discussed elsewhere in this Report on Form 10-Q, as well as in the Companys periodic reports filed
with the Securities and Exchange Commission (the SEC). Many of these factors are beyond the
Companys control and are difficult to predict.
Because of these and other uncertainties, the Companys actual results, performance or achievements
could differ materially from those contemplated, expressed or implied by the forward-looking
statements contained herein.
14
Forward-looking statements speak only as of the date they are made.
The Company undertakes no obligation, to publicly update or revise forward-looking information,
whether as a result of new, updated information, future events or otherwise.
APPLICATION OF CRITICAL ACCOUNTING ESTIMATES
The Companys Unaudited Consolidated Financial Statements are prepared in accordance with U.S.
generally accepted accounting principles and follow general practices within the industries in
which it operates. Application of these principles requires management to make estimates,
assumptions and judgments that affect the amounts reported in the Companys Unaudited Consolidated
Financial Statements and Notes. These estimates, assumptions and judgments are based on
information available as of the date of the Unaudited Consolidated Financial Statements.
Accordingly, as this information changes, the Unaudited Consolidated Financial Statements could
reflect different estimates, assumptions and judgments. Certain policies inherently have a greater
reliance on the use of estimates, assumptions and judgments, and as such, have a greater
possibility of producing results that could be materially different than originally reported.
Estimates, assumptions and judgments are necessary when assets and liabilities are required to be
recorded at fair value, when a decline in the value of an asset not carried on the financial
statements at fair value warrants an impairment write-down or valuation reserve to be established,
or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets
and liabilities at fair value inherently results in more financial statement volatility. The fair
values and the information used to record valuation adjustments for certain assets and liabilities
are based either on quoted market prices or are provided by other third-party sources, when
available. When third-party information is not available, valuation adjustments are estimated in
good faith by management primarily through the use of internal cash flow modeling techniques.
Refer to Note 3 in Item 1 of this report for further detail on fair value measurement.
The most significant accounting policies followed by the Company are presented in Note 1 to the
Audited Consolidated Financial Statements included in Item 8 in its Annual Report on Form 10-K.
These policies, along with the disclosures presented in the other Notes to the Companys Audited
Consolidated Financial Statements contained in its Annual Report on Form 10-K and in this financial
review, provide information on how significant assets and liabilities are valued in the Companys
Unaudited Consolidated Financial Statements and how those values are determined.
Based on the valuation techniques used and the sensitivity of financial statement amounts to the
methods, assumptions and estimates underlying those amounts, management has identified the
determination of the allowance for loan and lease losses and valuation of goodwill to be the
accounting areas that require the most subjective or complex judgments, and as such, could be most
subject to revision as new information becomes available.
Allowance for Loan and Lease Losses
The allowance for loan and lease losses represents managements estimate of probable losses in the
Companys loan and lease portfolio. Determining the amount of the allowance for loan and lease
losses is considered a critical
accounting estimate because it requires significant judgment on the part of management and the use
of estimates related to the amount and timing of expected future cash flows on impaired loans and
leases, estimated losses on pools of homogeneous loans and leases based on historical loss
experience and consideration of current economic trends and conditions, all of which may be
susceptible to significant change. The loan and lease portfolio also represents the largest asset
type on the Unaudited Consolidated Balance Sheets. Note 1 to the Audited Consolidated Financial
Statements included in Item 8 in its Annual Report on Form 10-K describes the methodology used to
determine the allowance for loan and lease losses.
Goodwill
The amount of goodwill reflected in the Companys Unaudited Consolidated Financial Statements is
required to be tested by management for impairment on at least an annual basis. The test for
impairment of goodwill on the identified reporting unit is considered a critical accounting
estimate because it requires judgment on the part of management and the use of estimates related to
the growth assumptions and market multiples used in the valuation model.
15
ANALYSIS OF FINANCIAL CONDITION
Loan and Lease Activity
Total loans and leases grew to $366.0 at June 30, 2008, reflecting a $26.3 million or 7.7%
increase from March 31, 2008 and a $41.9 million or 12.9% increase from December 31, 2007. Gross
loans and leases are net of $10.1 million, $9.8 million and $9.7 million of unearned income on
direct financing leases as of June 30, 2008, March 31, 2008 and December 31, 2007, respectively.
Commercial loans and leases totaled $267.2 million at June 30, 2008, reflecting a $24.4 million or
10.1% increase from March 31, 2008 and a $38.8 million or 17.0% increase from December 31, 2007.
Growth in commercial real estate loans of $16.8 million for the second fiscal quarter and $28.2
million for the year to date was largely responsible for the increase in commercial loans and
leases from March 31, 2008 and December 31, 2007, respectively, to June 30, 2008.
The Company has no exposure to sub-prime lending, and as a result, the faltering sub-prime
credit market has not affected the Companys loan portfolio. Further, the local real estate market
to date has not experienced the significant deterioration in values seen in high-growth parts of the
United States as local real estate values have remained steady to slightly up. In contrast, some
of the Banks larger competitors and the conduit markets are having capital adequacy and liquidity
problems due to their exposure to sub-prime loans in their investment portfolio or lending
activities in other parts of the United States. These problems have curtailed their lending
activities somewhat and consequently created opportunities in the local commercial real estate
market for smaller banks not experiencing the same issues such as the Bank. The increased
opportunities have resulted in the Banks strong loan growth rates.
Direct finance leases increased $3.5 million or 7.4% from March 31, 2008 and $5.8 million or
12.9% from December 31, 2007. Direct finance leases are sold through a national channel of brokers
with whom the Company has had long standing relationships and finance small commercial equipment.
Direct leases carry a higher risk than the rest of the loan portfolio, but also provide a higher
return. Management employs strict underwriting standards in selecting credits for this portion of
the portfolio. The loan composition strategy is to maintain the direct lease portfolio at an
optimum percentage of the loan portfolio that weights the risk involved in this type of credit.
Consumer loans totaled $97.9 million at June 30, 2008, reflecting a $2.0 million or 2.1%
increase from March 31, 2008 and a $3.0 million or 3.2% increase from December 31, 2007. Real
estate loans increased $0.7 million or 1.2% from March 31, 2008 and $1.3 million or 2.3% from
December 31, 2007. While short-term interest rates have sharply decreased in 2008, long-term fixed
rates have actually been gradually increasing. This has put some downward pressure on the demand
for consumer loans, resulting in lower growth rates in consumer loan balances.
The Bank continues to sell certain fixed rate residential mortgages originated below a
designated interest level to the Federal National Mortgage Association (FNMA), while maintaining
the servicing rights for those mortgages. During the three month period ended June 30, 2008, the
Bank sold mortgages to FNMA totaling $0.9 million, as compared with $0.8 million during the three
month period ended June 30, 2007. During the six month
period ended June 30, 2008, the Bank sold mortgages to FNMA totaling $1.4 million, as compared to
$1.1 million during the six month period ended June 30, 2007. At June 30, 2008, the Bank had a
loan servicing portfolio principal balance of $28.1 million upon which it earns servicing fees, as
compared with $28.2 million at March 31, 2008 and $28.4 million at December 31, 2007.
Loan and Lease Portfolio Composition
The following table presents selected information on the composition of the Companys loan and
lease portfolio in dollar amounts and in percentages as of the dates indicated.
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008 |
|
|
Percentage |
|
|
December 31, 2007 |
|
|
Percentage |
|
|
|
(in thousands) |
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
Commercial Loans and Leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate |
|
$ |
176,498 |
|
|
|
48.2 |
% |
|
$ |
148,257 |
|
|
|
45.7 |
% |
Installment |
|
|
20,647 |
|
|
|
5.6 |
% |
|
|
18,502 |
|
|
|
5.7 |
% |
Direct Financing Leases |
|
|
50,875 |
|
|
|
13.9 |
% |
|
|
45,078 |
|
|
|
13.9 |
% |
Lines of Credit |
|
|
19,148 |
|
|
|
5.2 |
% |
|
|
16,446 |
|
|
|
5.1 |
% |
Cash Reserve |
|
|
79 |
|
|
|
0.0 |
% |
|
|
71 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Loans
and Leases |
|
|
267,247 |
|
|
|
72.9 |
% |
|
|
228,354 |
|
|
|
70.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate |
|
|
57,828 |
|
|
|
15.8 |
% |
|
|
56,529 |
|
|
|
17.5 |
% |
Home Equity |
|
|
37,449 |
|
|
|
10.3 |
% |
|
|
36,035 |
|
|
|
11.1 |
% |
Installment |
|
|
2,199 |
|
|
|
0.6 |
% |
|
|
1,858 |
|
|
|
0.6 |
% |
Overdrafts |
|
|
275 |
|
|
|
0.1 |
% |
|
|
379 |
|
|
|
0.1 |
% |
Other |
|
|
147 |
|
|
|
0.1 |
% |
|
|
75 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consumer Loans |
|
|
97,898 |
|
|
|
26.9 |
% |
|
|
94,876 |
|
|
|
29.3 |
% |
Net Deferred
Costs & Unearned Discounts |
|
|
875 |
|
|
|
0.2 |
% |
|
|
881 |
|
|
|
0.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans and Leases |
|
|
366,020 |
|
|
|
100.0 |
% |
|
|
324,111 |
|
|
|
100.0 |
% |
Allowance for Loan and
Lease Losses |
|
|
(5,059 |
) |
|
|
|
|
|
|
(4,555 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and Leases, net |
|
$ |
360,961 |
|
|
|
|
|
|
$ |
319,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan and lease charge-offs were $368 thousand in the three month period ended June 30,
2008 as compared with $360 thousand in the first quarter of 2008 and $365 thousand in the three
month period ended June
30, 2007. Net charge-offs were $728 thousand for the six month period ended June 30, 2008, as
compared with $533 thousand for the same period of 2007. Despite the turbulent economic
environment, the Bank has experienced a relatively stable charge-off level year-to-date through
June 30, 2008. Non-performing loans and leases, defined as accruing loans and leases greater than
90 days past due and non-accrual loans and leases, totaled 0.12% of total loans and leases
outstanding at June 30, 2008 as compared with 0.13% at March 31, 2008 and 0.22% at December 31,
2007. The allowance for loan and lease losses totaled $5.1 million or 1.38% of total loans and
leases outstanding at June 30, 2008 as compared with $4.8 million or 1.40% of total loans and
leases outstanding as of March 31, 2008 and $4.6 million or 1.41% of total loans and leases at
December 31, 2007.
The adequacy of the Companys allowance for loan and lease losses is reviewed quarterly by the
Companys management with consideration given to loan and lease concentrations, charge-off history,
delinquent loan and lease percentages, and general economic conditions. Management believes the
allowance for loan and lease losses is adequate for losses from existing loans and leases.
17
The following table sets forth information regarding non-performing loans and leases as of the
dates specified.
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008 |
|
|
December 31, 2007 |
|
|
|
(in thousands) |
|
Non-accruing loans and leases: |
|
|
|
|
|
|
|
|
Mortgage loans on real estate
|
|
|
|
|
|
|
|
|
Residential 1-4 family |
|
$ |
|
|
|
$ |
|
|
Commercial and multi-family |
|
|
97 |
|
|
|
112 |
|
Construction |
|
|
|
|
|
|
|
|
Second mortgages |
|
|
|
|
|
|
|
|
Home equity lines of credit |
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans on real estate |
|
|
147 |
|
|
|
112 |
|
|
|
|
|
|
|
|
|
|
Direct financing leases |
|
|
136 |
|
|
|
215 |
|
|
|
|
|
|
|
|
|
|
Commercial loans |
|
|
125 |
|
|
|
224 |
|
|
|
|
|
|
|
|
|
|
Consumer installment loans
|
|
|
|
|
|
|
|
|
Personal |
|
|
|
|
|
|
|
|
Credit cards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
Total consumer installment loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-accruing loans and leases |
|
$ |
408 |
|
|
$ |
551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing loans and leases 90+ days past due |
|
|
22 |
|
|
|
163 |
|
|
|
|
|
|
|
|
Total non-performing loans and leases |
|
|
430 |
|
|
|
714 |
|
|
|
|
|
|
|
|
Total non-performing loans and leases as a
percentage of total assets |
|
|
0.09 |
% |
|
|
0.16 |
% |
Total non-performing loans and leases as a
percentage of total loans and leases |
|
|
0.12 |
% |
|
|
0.22 |
% |
For the three and six month period ended June 30, 2008, gross interest income that would have
been reported on non-accruing loans and leases had they been current was $14 thousand and $30
thousand. For the three
and six month periods ended June 30, 2007, gross interest income that would have been reported on
non-accruing loans and leases had they been current, was $28 thousand and $46 thousand,
respectively. There was $12 thousand and $22 thousand of interest income included in net income
for the three and six month periods ended June 30, 2008 on non-accruing loans and leases. There
was $12 thousand and $18 thousand of interest income included in net income for the three and six
month periods ended June 30, 2007 on non-accruing loans and leases.
Investing Activities
Total securities decreased to $67.1 million at June 30, 2008, reflecting a $6.5 million, or
8.8% decrease from $73.6 million at March 31, 2008, and a $5.3 million, or 7.3% decrease from $72.4
million at December 31, 2007. Securities and interest-bearing deposits at banks made up 16.0% of
the Banks total average interest earning assets in the second quarter of 2008 compared with 18.0%
in the trailing first quarter of 2008 and 30.3% in the second quarter of 2007. The large decline
in the securities portfolio compared with the second quarter of 2007 is a result of the Companys
strategy to de-leverage a portion of its balance sheet. The Company sold $45 million in securities
in June 2007.
18
The Bank continues to have a large concentration in tax-advantaged municipal bonds, which make
up 50.1% of the portfolio at June 30, 2008 compared with 51.5% at March 31, 2008 and 52.3% at
December 31, 2007; and U.S. government-sponsored agency bonds of various types, which comprise
19.5% of the portfolio at June 30, 2008 versus 27.3% at March 31, 2008 and 19.6% at December 31,
2007. Agency mortgage-backed securities comprise 25.6% at June 30, 2008 compared with 16.5% at
March 31, 2008 and 23.2% as of December 31, 2007. As a member of both the Federal Reserve System
and the Federal Home Loan Bank of New York, the Bank is required to hold stock in those entities.
These investments made up 4.8% of the portfolio at June 30, 2008 versus 4.7% at March 31, 2008 and
4.9% of the portfolio at December 31, 2007. The credit quality of the securities portfolio is
believed to be strong, with 96.9% of the securities portfolio carrying the equivalent of a Moodys
rating of Aaa.
The Company monitors extension and prepayment risk in the securities portfolio to limit
potential exposures. Management believes the average expected life of the securities portfolio is
2.9 years as of June 30, 2008 compared with 2.4 years as of March 31, 2008 and December 31, 2007.
Available-for-sale securities with a total fair value of $58.5 million at June 30, 2008 were
pledged as collateral to secure public deposits and for other purposes required or permitted by
law.
Funding Activities
Total deposits at June 30, 2008 were $371.5 million, reflecting a $27.9 million or 8.1%
increase from March 31, 2008 and a $45.7 million or 14.0% increase from December 31, 2007. Demand
deposits at June 30, 2008 were $76.9 million, reflecting a $3.6 million or 4.9% increase from March
31, 2008 and a $7.6 million or 11.1% increase from December 31, 2007. Demand deposit balances
fluctuate day-to-day based on the high volume of transactions normally associated with the demand
product. Average demand deposit growth is a better measure of sustained growth. Average demand
deposits in the three month period ended June 30, 2008 were 4.2% higher than the first quarter of
2008 and 2.2% higher than the prior years second quarter. Much of the overall deposit growth in
the second quarter ended June 30, 2008 is attributable to an increase in regular savings deposits
of $21.7 million, or 25.2%, to $107.8 million. After a period of flat growth to declining
balances, the Company introduced a new money market product in an effort to attract savings
deposits. The effort resulted in the increase in savings deposits in the second quarter ended June
30, 2008. Compared with December 31, 2007, savings deposits have increased $14.9 million, or
16.1%. Time deposits were $152.0 million at June 30, 2008, reflecting a $5.0 million or 3.4%
increase from March 31, 2008, and a $23.0 million or 17.8% increase from December 31, 2007. Due to
the significant growth in the Companys loan and lease portfolio, the Company has been aggressive
in attracting time deposits, particularly those with longer-term maturities. NOW deposits
increased in the second quarter ended June 30, 2008 while muni-vest balances decreased in the same
quarter as a result of one large municipal customer moving money between two products with similar
rates.
Short-term borrowings from other correspondent banks and the Federal Home Loan Bank of New
York decreased from $34.0 million at December 31, 2007 and $27.4 million at March 31, 2008 to $23.1
million at June 30, 2008. In contrast, long-term borrowings remained at $18.3 million at June 30,
2008, virtually flat to the balance at March 31, 2008, and higher than the December 31, 2007
balance of $14.1 million. The Federal Reserve continued to cut its target rate for federal funds
in the first half of 2008 in light of a sluggish economy. By the end of the 2008 second quarter,
the target rate stood at 2.00%. Compared to historical norms, interest rates were at a
lower than usual level in the first and second quarter of 2008, prompting the Company to lock in
relatively low rates for a longer period of time, resulting in the increase in long-term borrowings
and the decrease in short-term borrowings.
19
ANALYSIS OF RESULTS OF OPERATIONS
Average Balance Sheet
The following tables present the significant categories of the assets and liabilities of the
Company, interest income and interest expense, and the corresponding yields earned and rates paid
for the periods indicated. The assets and liabilities are presented as daily averages. The
average loan and lease balances include both performing and non-performing loans and leases.
Investments are included at amortized cost. Yields are presented on a non-tax-equivalent basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
June 30, 2007 |
|
|
|
|
|
|
Average |
|
|
Interest |
|
|
|
|
|
|
Average |
|
|
Interest |
|
|
|
|
|
|
Outstanding |
|
|
Earned/ |
|
|
Yield/ |
|
|
Outstanding |
|
|
Earned/ |
|
|
Yield/ |
|
|
|
Balance |
|
|
Paid |
|
|
Rate |
|
|
Balance |
|
|
Paid |
|
|
Rate |
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
(dollars in thousands) |
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases, net |
|
$ |
345,200 |
|
|
$ |
6,434 |
|
|
|
7.46 |
% |
|
$ |
294,365 |
|
|
$ |
6,094 |
|
|
|
8.28 |
% |
Taxable securities |
|
|
29,130 |
|
|
|
320 |
|
|
|
4.39 |
% |
|
|
85,975 |
|
|
|
861 |
|
|
|
4.01 |
% |
Tax-exempt securities |
|
|
35,947 |
|
|
|
392 |
|
|
|
4.36 |
% |
|
|
39,425 |
|
|
|
435 |
|
|
|
4.41 |
% |
Interest bearing deposits at banks |
|
|
651 |
|
|
|
3 |
|
|
|
1.84 |
% |
|
|
2,333 |
|
|
|
10 |
|
|
|
1.71 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
410,928 |
|
|
|
7,149 |
|
|
|
6.96 |
% |
|
|
422,098 |
|
|
|
7,400 |
|
|
|
7.01 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
12,143 |
|
|
|
|
|
|
|
|
|
|
|
10,789 |
|
|
|
|
|
|
|
|
|
Premises and equipment, net |
|
|
8,343 |
|
|
|
|
|
|
|
|
|
|
|
8,653 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
29,734 |
|
|
|
|
|
|
|
|
|
|
|
29,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
|
461,148 |
|
|
|
|
|
|
|
|
|
|
$ |
471,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES & STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW |
|
$ |
12,722 |
|
|
$ |
24 |
|
|
|
0.75 |
% |
|
$ |
11,015 |
|
|
$ |
6 |
|
|
|
0.22 |
% |
Regular savings |
|
|
93,448 |
|
|
|
285 |
|
|
|
1.22 |
% |
|
|
85,638 |
|
|
|
256 |
|
|
|
1.20 |
% |
Muni-Vest savings |
|
|
24,457 |
|
|
|
118 |
|
|
|
1.93 |
% |
|
|
46,989 |
|
|
|
514 |
|
|
|
4.38 |
% |
Time deposits |
|
|
145,705 |
|
|
|
1,439 |
|
|
|
3.95 |
% |
|
|
156,521 |
|
|
|
1,894 |
|
|
|
4.84 |
% |
Other borrowed funds |
|
|
39,901 |
|
|
|
288 |
|
|
|
2.89 |
% |
|
|
30,495 |
|
|
|
298 |
|
|
|
3.91 |
% |
Junior subordinated debentures |
|
|
11,330 |
|
|
|
154 |
|
|
|
5.44 |
% |
|
|
11,330 |
|
|
|
223 |
|
|
|
7.87 |
% |
Securities sold U/A to repurchase |
|
|
5,363 |
|
|
|
11 |
|
|
|
0.82 |
% |
|
|
7,453 |
|
|
|
15 |
|
|
|
0.81 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
332,926 |
|
|
$ |
2,319 |
|
|
|
2.79 |
% |
|
|
349,441 |
|
|
$ |
3,206 |
|
|
|
3.67 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
72,940 |
|
|
|
|
|
|
|
|
|
|
|
71,340 |
|
|
|
|
|
|
|
|
|
Other |
|
|
10,493 |
|
|
|
|
|
|
|
|
|
|
|
9,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
416,359 |
|
|
|
|
|
|
|
|
|
|
$ |
430,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
44,789 |
|
|
|
|
|
|
|
|
|
|
|
40,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity |
|
|
461,148 |
|
|
|
|
|
|
|
|
|
|
$ |
471,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest earnings |
|
|
|
|
|
$ |
4,830 |
|
|
|
|
|
|
|
|
|
|
$ |
4,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on interest earning assets |
|
|
|
|
|
|
|
|
|
|
4.70 |
% |
|
|
|
|
|
|
|
|
|
|
3.97 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread |
|
|
|
|
|
|
|
|
|
|
4.17 |
% |
|
|
|
|
|
|
|
|
|
|
3.34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|
|
June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
June 30, 2007 |
|
|
|
|
|
|
Average |
|
|
Interest |
|
|
|
|
|
|
Average |
|
|
Interest |
|
|
|
|
|
|
Outstanding |
|
|
Earned/ |
|
|
Yield/ |
|
|
Outstanding |
|
|
Earned/ |
|
|
Yield/ |
|
|
|
Balance |
|
|
Paid |
|
|
Rate |
|
|
Balance |
|
|
Paid |
|
|
Rate |
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
(dollars in thousands) |
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases, net |
|
$ |
333,680 |
|
|
$ |
12,608 |
|
|
|
7.56 |
% |
|
$ |
290,696 |
|
|
$ |
11,694 |
|
|
|
8.05 |
% |
Taxable securities |
|
|
31,023 |
|
|
|
641 |
|
|
|
4.13 |
% |
|
|
90,159 |
|
|
|
1,873 |
|
|
|
4.15 |
% |
Tax-exempt securities |
|
|
36,400 |
|
|
|
791 |
|
|
|
4.35 |
% |
|
|
40,327 |
|
|
|
878 |
|
|
|
4.35 |
% |
Interest bearing deposits at banks |
|
|
676 |
|
|
|
7 |
|
|
|
2.07 |
% |
|
|
4,676 |
|
|
|
97 |
|
|
|
4.15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
401,779 |
|
|
|
14,047 |
|
|
|
6.99 |
% |
|
|
425,858 |
|
|
|
14,542 |
|
|
|
6.83 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
12,086 |
|
|
|
|
|
|
|
|
|
|
|
10,889 |
|
|
|
|
|
|
|
|
|
Premises and equipment, net |
|
|
8,332 |
|
|
|
|
|
|
|
|
|
|
|
8,681 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
29,684 |
|
|
|
|
|
|
|
|
|
|
|
29,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
|
451,881 |
|
|
|
|
|
|
|
|
|
|
$ |
475,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES & STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW |
|
$ |
11,549 |
|
|
$ |
39 |
|
|
|
0.68 |
% |
|
$ |
11,532 |
|
|
$ |
12 |
|
|
|
0.21 |
% |
Regular savings |
|
|
90,089 |
|
|
|
541 |
|
|
|
1.20 |
% |
|
|
86,933 |
|
|
|
508 |
|
|
|
1.17 |
% |
Muni-Vest savings |
|
|
24,458 |
|
|
|
295 |
|
|
|
2.41 |
% |
|
|
47,458 |
|
|
|
1,032 |
|
|
|
4.35 |
% |
Time deposits |
|
|
140,896 |
|
|
|
2,948 |
|
|
|
4.18 |
% |
|
|
156,988 |
|
|
|
3,821 |
|
|
|
4.87 |
% |
Other borrowed funds |
|
|
41,566 |
|
|
|
667 |
|
|
|
3.21 |
% |
|
|
32,248 |
|
|
|
634 |
|
|
|
3.93 |
% |
Junior subordinated debentures |
|
|
11,330 |
|
|
|
347 |
|
|
|
6.13 |
% |
|
|
11,330 |
|
|
|
441 |
|
|
|
7.78 |
% |
Securities sold U/A to repurchase |
|
|
5,439 |
|
|
|
22 |
|
|
|
0.81 |
% |
|
|
7,447 |
|
|
|
29 |
|
|
|
0.78 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
325,327 |
|
|
$ |
4,859 |
|
|
|
2.99 |
% |
|
|
353,936 |
|
|
$ |
6,477 |
|
|
|
3.66 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
71,464 |
|
|
|
|
|
|
|
|
|
|
|
71,132 |
|
|
|
|
|
|
|
|
|
Other |
|
|
10,651 |
|
|
|
|
|
|
|
|
|
|
|
9,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
407,442 |
|
|
|
|
|
|
|
|
|
|
$ |
434,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
44,439 |
|
|
|
|
|
|
|
|
|
|
|
40,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity |
|
|
451,881 |
|
|
|
|
|
|
|
|
|
|
$ |
475,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest earnings |
|
|
|
|
|
$ |
9,188 |
|
|
|
|
|
|
|
|
|
|
$ |
8,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on interest earning assets |
|
|
|
|
|
|
|
|
|
|
4.57 |
% |
|
|
|
|
|
|
|
|
|
|
3.79 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread |
|
|
|
|
|
|
|
|
|
|
4.01 |
% |
|
|
|
|
|
|
|
|
|
|
3.17 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
Net income for the second quarter of 2008 was $1.39 million, or $0.50 per diluted share, compared
with a net loss of $0.14 million, or $0.05 per diluted share, in the second quarter of 2007. In
last years second quarter, the Company sold $45 million of securities at an after-tax loss of
$1.41 million, or $0.51 per diluted share. Return on average equity was 12.37% for the second
quarter 2008, compared with a negative 1.37% in last years second quarter. For the six-month
period ended June 30, 2008, net income was $2.98 million, or $1.08 per diluted share, up from $1.15
million, or $0.42 per diluted share, in the same period in 2007. The return on average equity was
13.40% and 5.70% for the six-month periods ended June 30, 2008 and 2007, respectively.
21
Net operating income (as defined in the following Supplemental Non-GAAP Disclosure) is net income
adjusted for what management considers to be non-operating items. Net operating income for the
second quarter of 2008 was $1.48 million, or $0.54 per diluted share, up $0.12 million, or 8.9%,
from net operating income of $1.36 million, or $0.50 per diluted share, in the second quarter of
2007. For the six-month period ended June 30, 2008, net operating income of $3.18 million, or
$1.15 per diluted share, was 16.0% higher than net operating income of $2.74 million, or $1.00 per
diluted share, in the same period in 2007.
Supplemental Reporting of Non-GAAP Results of Operations
To provide investors with greater visibility of the Companys operating results, in addition to the
results measured in accordance with U.S. generally accepted accounting principles (GAAP), the
Company provides supplemental reporting on net operating income, which excludes items that
management believes to be non-operating in nature. Specifically, net operating income excludes
gains and losses on the sale of securities and the amortization of acquisition-related intangible
assets. This non-GAAP information is being disclosed because management believes that providing
these non-GAAP financial measures provides investors with information useful in understanding the
Companys financial performance, its performance trends, and financial position. While the
Companys management uses these non-GAAP measures in its analysis of the Companys performance,
this information should not be viewed as a substitute for financial results determined in
accordance with GAAP or considered to be more important than financial results determined in
accordance with GAAP, nor is it necessarily comparable with non-GAAP measures which may be
presented by other companies.
See the reconciliation of net operating income and diluted net operating earnings per share to net
income and diluted earnings per share in the following table:
Reconciliation of GAAP Net Income to Net Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
Six months ended |
|
|
|
|
|
|
June 30 |
|
|
Inc |
|
|
June 30 |
|
|
|
|
(in thousands, except per share) |
|
2008 |
|
|
2007 |
|
|
(dec) |
|
|
2008 |
|
|
2007 |
|
|
Inc (dec) |
|
GAAP Net Income (Loss) |
|
$ |
1,385 |
|
|
$ |
(139 |
) |
|
|
|
|
|
$ |
2,978 |
|
|
$ |
1,148 |
|
|
|
159.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on sale of securities* |
|
|
(4 |
) |
|
|
1,413 |
|
|
|
|
|
|
|
(4 |
) |
|
|
1,414 |
|
|
|
|
|
Amortization of intangibles* |
|
|
101 |
|
|
|
87 |
|
|
|
|
|
|
|
201 |
|
|
|
176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
|
$ |
1,482 |
|
|
$ |
1,361 |
|
|
|
8.9 |
% |
|
$ |
3,175 |
|
|
$ |
2,738 |
|
|
|
16.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP diluted (loss) earnings per share |
|
$ |
0.50 |
|
|
$ |
(0.05 |
) |
|
|
|
|
|
$ |
1.08 |
|
|
$ |
0.42 |
|
|
|
157.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on sale of securities* |
|
|
|
|
|
|
0.51 |
|
|
|
|
|
|
|
|
|
|
|
0.52 |
|
|
|
|
|
Amortization of intangibles* |
|
|
0.04 |
|
|
|
0.04 |
|
|
|
|
|
|
|
0.07 |
|
|
|
0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net operating earnings per share |
|
$ |
0.54 |
|
|
$ |
0.50 |
|
|
|
8.0 |
% |
|
$ |
1.15 |
|
|
$ |
1.00 |
|
|
|
15.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
After any tax-related effect |
Other Operating Results
Net interest income for the three and six month periods ended June 30, 2008 was $4.8 million and
$9.2 million, respectively, an increase of $0.6 million and $1.1 million over the same periods in
2007. There are several factors driving the increase. First, there has been strong growth in the
Companys commercial loan portfolio, particularly its commercial real estate portfolio. Second,
there has been a benefit to net interest income from the de-leverage
of the balance sheet in June 2007 of low-earning investment securities and high-cost borrowings.
Third, the Company has benefited from a decline in market interest rates as the Federal Reserve has
cut its target federal funds rate by 300 basis points since September 2007 to 2.00% at the end of
June 2008.
22
The net interest margin for the three month period ended June 30, 2008 was 4.70%, as compared with
4.44% in the first quarter of 2008 and 3.97% for the three months ended June 30, 2007. The return
on interest earning assets in the three month period ended June 30, 2008 decreased 7 and 5 basis
points from the linked quarter and the prior year second quarter, respectively. The decrease from
those periods is due to the decreased yield earned on variable rate loans. The cost of
interest-bearing liabilities was 2.79% in the second quarter of 2008, compared to 3.20% in the
linked quarter and 3.67% in the second quarter of 2007. The drop in market interest rates resulted
in lower rates paid on most funding sources, particularly muni-vest savings, time deposits, and
short-term borrowings. Interest free funds contributed 53 basis points to the net interest margin
in the three month period ended June 30, 2008, compared to 61 basis points in the first quarter of
2008, and 63 basis points in the second quarter of 2007. The contribution of interest-free funds
has decreased due to the large decrease in the cost of interest-bearing liabilities.
The net interest margin for the six month period ended June 30, 2008 was 4.57%, as compared with
3.79% in the same period in 2007.
The provision for loan and lease losses for the three month period ended June 30, 2008 increased to
$675 thousand from $557 thousand in the linked quarter and $345 thousand in the same three month
period in 2007 as a result of increased loan growth and additional reserves needed for the
continued seasoning of the leasing portfolio. The ratio of net charge-offs to average loans and
leases decreased from 0.50% in the second quarter of 2007, and from 0.44% in the first quarter of
2008, to 0.42% in the second quarter of 2008. The net charge-off level has remained approximately
the same while the loan and lease portfolio has grown, resulting in a lower ratio. As has been the
experience since the Company began originating small-ticket leases, the majority of write-offs have
been in leases. This is consistent with the nature of these credits in which the Company requires
a higher rate of return.
Non-interest income was $2.8 and $6.3 million for the three and six month periods ended June 30,
2008, respectively. This is an increase of $2.5 and $2.9 million, respectively, from the same
periods of 2007. Most of the increases ($2.3 million) are attributable to the loss on the sale of
$45 million in securities in the second quarter of 2007 when the Company restructured its balance
sheet. Excluding securities gains and losses, all other non-interest income rose 8.5% for the
three month period ended June 30, 2008 and 10.5% for the six month period ended June 30, 2008, when
compared with the same periods of 2007. The largest component of non-interest income, insurance
revenue, improved 13.6% to $1.6 million in the three month period ended June 30, 2008 compared to
the same period of the prior year. For the six month period ended June 30, 2008, it increased
5.6%, or $0.2 million, to $3.8 million when compared with the six month period in the prior year.
The increase in insurance revenue is due in large part to the purchase of an insurance agency in
July 2007.
Total non-interest expenses were $5.0 and $10.1 million for the three and six month periods ended
June 30, 2008, respectively. This is an increase of $0.3 million, or 7.0%, and $0.5 million, or
5.0%, respectively, from the same periods in 2007. Salary and employee benefit expense for the
three month period ended June 30, 2008 increased $0.2 million, or 8.2%, to $2.8 million for the
quarter due to merit increases, the addition of new employees in sales and retail operations, as
well as through the acquisition of an insurance agency in July 2007, an enhanced incentive
compensation system, and increased contributions to the 401(k) savings plan, which were somewhat
offset by savings related to the freezing of the defined benefit pension plan. Those same factors
contributed to the increase in salary and employee benefit expense for the six month period ended
June 30, 2008 of $0.4 million, or 7.9%, to $5.7 million.
Income tax expense totaled $0.5 and $1.2 million for the three and six month periods ended June 30,
2008, respectively. The effective tax rates for the periods were 28.0% and 28.6%, respectively.
The effective tax rates for the comparable periods in 2007 were impacted by the aforementioned loss
on the sale of securities. Excluding the loss on sale of securities, the effective tax rate on all
other income for the three-month and six-month periods ended June 30, 2007 was 26.3% and 26.7%,
respectively. The increase in the effective rate is a result of tax-exempt income such as interest
earned on municipal bonds and the increase in value of bank-owned life insurance being a smaller
portion of total income. The Company records an effective tax rate for the period that will be
reflective of the projected annual tax rate based on expected supportable tax positions.
23
CAPITAL
The Company has consistently maintained regulatory capital ratios at, or above, federal well
capitalized standards. Equity as a percentage of assets was 9.3% at June 30, 2008, down from 9.6%
at March 31, 2008 and 9.8% at December 31, 2007. The ratio has declined due to assets growing
faster than equity. Book value per outstanding common share was $16.44 at June 30, 2008, compared
with $16.07 at March 31, 2008 and $15.74 at December 31, 2007. Total stockholders equity was
$45.3 million at June 30, 2008, compared with $44.0 million at March 31, 2008 and $43.3 million at
December 31, 2007. The increase is primarily attributable to total comprehensive income of $2.9
million in the first three months of 2008, offset by $1.0 million in dividends.
LIQUIDITY
The Company utilizes cash flows from the investment portfolio and federal funds sold balances to
manage the liquidity requirements related to loan demand and deposit fluctuations. The Bank also
has many borrowing options. As a member of the Federal Home Loan Bank (FHLB) the Bank is able to
borrow funds at competitive rates. Advances of up to $35.0 million can be drawn on the FHLB via an
Overnight Line of Credit Agreement between the Bank and the FHLB. An amount equal to 25% of the
Banks total assets could be borrowed through the advance programs under certain qualifying
circumstances. The Bank also has the ability to purchase up to $14.0 million in federal funds from
its correspondent banks. By placing sufficient collateral in safekeeping at the Federal Reserve
Bank, the Bank could borrow at the discount window. The Companys liquidity needs also can be met
by more aggressively pursuing time deposits, or accessing the brokered time deposit market.
Additionally, the Company has access to capital markets as a funding source.
The cash flows from the investment portfolio are laddered, so that securities mature at regular
intervals, to provide funds from principal and interest payments at various times as liquidity
needs may arise. Contractual maturities are also laddered, with consideration as to the volatility
of market prices. At June 30, 2008, approximately 16.9% of the Banks securities had contractual
maturity dates of one year or less and approximately 49.0% had maturity dates of five years or
less. At June 30, 2008, the Company had net short-term liquidity of $23.4 million as compared with
$17.0 million at March 31, 2008 and $28.2 million at December 31, 2007. Available assets of $70.7
million, divided by public and purchased funds of $154.2 million, resulted in a long-term liquidity
ratio of 46% at June 30, 2008, compared with 48% at March 31, 2008 and 51% at December 31, 2007.
The Company believes that the Bank maintains a sufficient level of U.S. government and government
agency securities and New York State municipal bonds that can be pledged as collateral for
municipal deposits.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Additional information responsive to this Item is contained in the Liquidity section of
Managements Discussion and Analysis of Financial Condition and Results of Operations, which
information is incorporated herein by reference.
Market risk is the risk of loss from adverse changes in market prices and/or interest rates of
the Banks financial instruments. The primary market risk the Company is exposed to is interest
rate risk. The core banking activities of lending and deposit-taking expose the Bank to interest
rate risk, which occurs when assets and liabilities reprice at different times and by different
amounts as interest rates change. As a result, net interest income earned by the Bank is subject to
the effects of changing interest rates. The Bank measures interest rate risk by calculating the
variability of net interest income in the future periods under various interest rate scenarios
using projected balances for interest-earning assets and interest-bearing liabilities. Managements
philosophy toward interest rate risk management is to limit the variability of net interest income
to changes in net interest rates. The balances of financial instruments used in the projections are
based on expected growth from forecasted business opportunities, anticipated prepayments of loans,
and expected maturities of investment securities, loans and deposits. Management supplements the
modeling technique described above with analysis of market values of the Banks financial
instruments and changes to such market values given changes in the interest rates.
24
The Banks Asset Liability Committee, which includes members of senior management, monitors
the Banks interest rate sensitivity with the aid of a computer model that considers the impact of
ongoing lending and deposit taking activities, as well as interrelationships in the magnitude and
timing of the repricing of financial instruments, including the effect of changing interest rates
on expected prepayments and maturities. When deemed prudent, management has taken actions, and
intends to do so in the future, to mitigate exposure to interest rate risk through the use of on-
or off-balance sheet financial instruments. Possible actions include, but are not limited to,
changing the pricing of loan and deposit products, and modifying the composition of
interest-earning assets and interest-bearing liabilities, and other financial instruments used for
interest rate risk management purposes.
The following table demonstrates the possible impact of changes in interest rates on the
Banks net interest income over a 12 month period of time:
SENSITIVITY OF NET INTEREST INCOME
TO CHANGES IN INTEREST RATES
|
|
|
|
|
|
|
|
|
|
|
Calculated (decrease) increase |
|
|
in projected annual net interest income |
|
|
(in thousands) |
|
|
June 30, 2008 |
|
December 31, 2007 |
Changes in interest rates |
|
|
|
|
|
|
|
|
|
+200 basis points |
|
|
(138 |
) |
|
|
(676 |
) |
+100 basis points |
|
|
(66 |
) |
|
|
(333 |
) |
|
|
|
|
|
|
|
|
|
-100 basis points |
|
|
(13 |
) |
|
|
394 |
|
-200 basis points |
|
|
(185 |
) |
|
|
629 |
|
Many assumptions were utilized by management to calculate the impact that changes in the
interest rates may have on the Banks net interest income. The more significant assumptions related
to the rate of prepayments of mortgage-related assets, loan and deposit volumes and pricing, and
deposit maturities. The Bank assumed immediate changes in rates including 200 basis point rate
changes. In the event that the 200 basis point rate changes cannot be achieved, the applicable rate
changes are limited to lesser amounts such that interest rates cannot be less than zero. These
assumptions are inherently uncertain and, as a result, the Bank cannot precisely predict the impact
of changes in interest rates on net interest income. Actual results may differ significantly due to
the timing, magnitude, and frequency of interest rate changes in market conditions and interest
rate differentials (spreads) between maturity/repricing categories, as well as any actions such as
those previously described, which management may take to counter such changes. In light of the
uncertainties and assumptions associated with the process, the amounts presented in the table and
changes in such amounts are not considered significant to the Banks projected net interest income.
ITEM 4 CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
The Companys management, with the participation of the Companys principal executive officer
and principal financial officer, evaluated the effectiveness of the design and operation of the
Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act). Based on that evaluation, the Companys principal executive and principal financial
officers concluded that the Companys disclosure controls and procedures as of June 30, 2008 (the
end of the period covered by this Report) have been designed and are functioning effectively to
provide reasonable assurance that the information required to be disclosed by the Company in its
reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and forms, and that such information is
accumulated and communicated to the Companys management, including its principal executive officer
and principal financial officer, as appropriate to allow timely decisions regarding required
disclosure.
25
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
No changes in the Companys internal control over financial reporting were identified in the
fiscal quarter ended June 30, 2008 that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 2008 annual shareholders meeting of the registrant was held on April 24, 2008. At the meeting
James E. Biddle, Jr., Kenneth C. Kirst, and Nancy W. Ware were re-elected as directors for a term
of three years. The following table reflects the tabulation of votes with respect to each director
who was elected at the 2008 annual meeting.
|
|
|
|
|
|
|
|
|
|
|
Number of Votes |
Director Nominees: |
|
For: |
|
Withheld: |
James E. Biddle, Jr |
|
1,843,841 |
|
|
130,908 |
|
Kenneth C. Kirst |
|
1,854,461 |
|
|
119,488 |
|
Nancy W. Ware |
|
1,850,411 |
|
|
123,537 |
|
The following directors also continued their terms as directors of the Company following the 2008
annual shareholders meeting:
Phillip Brothman
Mary Catherine Militello
Robert G. Miller, Jr.
David J. Nasca
John R. OBrien
David M. Taylor
James Tilley
Thomas H. Waring, Jr.
26
ITEM 6 EXHIBITS
|
|
|
|
|
|
|
Exhibit No. |
|
Name |
|
Page No. |
|
|
|
|
|
|
|
|
10.1
|
|
Summary of Evans Excels Plan
|
|
|
29 |
|
|
|
|
|
|
|
|
31.1
|
|
Certification of Principal Executive Officer pursuant to
section 302 of The Sarbanes-Oxley Act of 2002.
|
|
|
30 |
|
|
|
|
|
|
|
|
31.2
|
|
Certification of the Principal Financial Officer pursuant to section 302 of The
Sarbanes-Oxley Act of 2002.
|
|
|
31 |
|
|
|
|
|
|
|
|
32.1
|
|
Certification of Principal Executive Officer pursuant to 18 USC Section
1350 Chapter 63 of Title 18, United States Code,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
|
|
32 |
|
|
|
|
|
|
|
|
32.2
|
|
Certification of Principal Financial Officer pursuant to 18
USC Section 1350 Chapter 63 of Title 18, United States Code,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
|
|
33 |
|
27
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.
|
|
|
|
|
Evans Bancorp, Inc.
|
|
|
|
|
|
DATE |
|
|
|
|
August 13, 2008
|
|
/s/ David J. Nasca |
|
|
|
|
|
|
|
|
|
David J. Nasca |
|
|
|
|
President and CEO |
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
DATE |
|
|
|
|
August 13, 2008
|
|
/s/ Gary A. Kajtoch |
|
|
|
|
|
|
|
|
|
Gary A. Kajtoch |
|
|
|
|
Treasurer |
|
|
|
|
(Principal Financial Officer) |
|
|
28
Exhibit Index
|
|
|
|
|
|
|
Exhibit No. |
|
Name |
|
Page No. |
|
|
|
|
|
|
|
|
10.1
|
|
Summary of Evans Excels Plan
|
|
|
29 |
|
|
|
|
|
|
|
|
31.1
|
|
Certification of Principal Executive Officer pursuant to
section 302 of The Sarbanes-Oxley Act of 2002.
|
|
|
30 |
|
|
|
|
|
|
|
|
31.2
|
|
Certification of the Principal Financial Officer pursuant to
section 302 of The Sarbanes-Oxley Act of 2002.
|
|
|
31 |
|
|
|
|
|
|
|
|
32.1
|
|
Certification of Principal Executive Officer pursuant to 18
USC Section 1350 Chapter 63 of Title 18, United States Code,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
|
|
32 |
|
|
|
|
|
|
|
|
32.2
|
|
Certification of Principal Financial Officer pursuant to 18
USC Section 1350 Chapter 63 of Title 18, United States Code,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
|
|
33 |
|