UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
|
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
For
the quarterly period ended June 30, 2008
|
|
|
¨
|
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: 000-51037
SFSB,
INC.
(Exact
name of registrant as specified in its charter)
United
States
|
|
20-2077715
|
(State
or other jurisdiction of
|
|
(I.R.S.
Employer
|
incorporation
or organization)
|
|
Identification
No.)
|
1614
Churchville Road, Bel Air, Maryland 21015
(Address
of principal executive offices)
(Zip
Code)
(443)
265-5570
(Registrant’s
telephone number, including area code)
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.
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
definition of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
¨
Accelerated
filer
¨
Non-accelerated
filer
¨
(Do
not check if a smaller reporting company)
Smaller
reporting company
þ
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
¨
Yes
x
No
Indicate
the number of shares outstanding of each of the issuer’s classes of common
equity, as of the latest practicable date:
As
of
August 13, 2008, there were 2,758,011 shares of the issuer’s Common Stock, par
value $0.01 per share, outstanding.
TABLE
OF CONTENTS
Item
|
|
Description
|
|
Page
|
|
|
|
|
|
|
|
PART
1
|
|
|
1
|
|
Financial
Statements (Unaudited)
|
|
|
|
|
Consolidated
Statements of Financial Condition
|
|
3
|
|
|
Consolidated
Statements of Operations
|
|
4
|
|
|
Consolidated
Statements of Comprehensive Loss
|
|
5
|
|
|
Consolidated
Statements of Cash Flows
|
|
6
|
|
|
Notes
to Consolidated Financial Statements
|
|
7-11
|
2
|
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
|
12
|
3
|
|
Quantitative
and Qualitative Disclosures About Market Risk
|
|
31
|
4
|
|
Controls
and Procedures
|
|
31
|
|
|
|
|
|
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|
PART
11
|
|
|
1
|
|
Legal
Proceedings
|
|
32
|
2
|
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
|
32
|
3
|
|
Defaults
Upon Senior Securities
|
|
32
|
4
|
|
Submission
of Matters to a Vote of Securities Holders
|
|
32
|
5
|
|
Other
Information
|
|
33
|
6
|
|
Exhibit
Index
|
|
33
|
|
|
Signatures
|
|
34
|
|
|
Exhibits
|
|
|
PART
I -
FINANCIAL INFORMATION
Item
1. Financial Statements
SFSB,
Inc.
CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
|
|
June 30,
2008
|
|
December 31,
2007
|
|
|
|
(Dollars in thousands, except share data)
|
|
ASSETS
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
575
|
|
$
|
612
|
|
Federal
funds sold
|
|
|
960
|
|
|
665
|
|
Cash
and cash equivalents
|
|
|
1,535
|
|
|
1,277
|
|
|
|
|
|
|
|
|
|
Investment
securities - available for sale
|
|
|
8,462
|
|
|
8,942
|
|
Investment
securities - held to maturity (fair value of 2008 $2,001; 2007
$2,987)
|
|
|
2,000
|
|
|
3,000
|
|
Mortgage-backed
securities - held to maturity (fair value of 2008 $1,839; 2007
$2,221)
|
|
|
1,846
|
|
|
2,247
|
|
Loans
receivable - net of allowance for loan losses of
|
|
|
|
|
|
|
|
2008
$1,044; 2007 $972
|
|
|
154,170
|
|
|
147,744
|
|
Foreclosed
Real Estate
|
|
|
1,096
|
|
|
1,083
|
|
Federal
Home Loan Bank of Atlanta stock, at cost
|
|
|
1,706
|
|
|
1,844
|
|
Premises
and equipment, net
|
|
|
5,026
|
|
|
5,107
|
|
Accrued
interest receivable
|
|
|
612
|
|
|
564
|
|
Other
assets
|
|
|
809
|
|
|
436
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
177,262
|
|
$
|
172,244
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
122,071
|
|
$
|
114,098
|
|
Checks
outstanding in excess of bank balance
|
|
|
188
|
|
|
1,077
|
|
Borrowings
|
|
|
31,000
|
|
|
34,000
|
|
Advance
payments by borrowers for taxes and insurance
|
|
|
1,728
|
|
|
339
|
|
Other
liabilities
|
|
|
656
|
|
|
961
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
155,643
|
|
|
150,475
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity
|
|
|
|
|
|
|
|
Preferred
stock, no par value, 1,000,000 shares authorized, none issued and
outstanding
|
|
|
-
|
|
|
-
|
|
Common
stock, par value $.01, 9,000,000 shares authorized, 2,975,625 shares
issued at June 30, 2008 and December 31, 2007 and 2,817,044 and 2,817,644
shares outstanding at June 30, 2008 and December 31, 2007,
respectively
|
|
|
30
|
|
|
30
|
|
Additional
paid-in capital
|
|
|
12,879
|
|
|
12,828
|
|
Retained
earnings (substantially restricted)
|
|
|
11,680
|
|
|
11,496
|
|
Unearned
Employee Stock Ownership Plan shares
|
|
|
(962
|
)
|
|
(992
|
)
|
Treasury
Stock at cost, June 30, 2008, 158,581 shares and December 31, 2007,
157,981 shares
|
|
|
(1,439
|
)
|
|
(1,434
|
)
|
Accumulated
other comprehensive loss
|
|
|
(569
|
)
|
|
(159
|
)
|
Total
stockholders’ equity
|
|
|
21,619
|
|
|
21,769
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
177,262
|
|
$
|
172,244
|
|
See
notes
to consolidated financial statements.
SFSB,
Inc.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30
,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(Dollars
in thousands, except for per share data)
|
|
Interest
and fees on loans
|
|
$
|
2,300
|
|
$
|
2,056
|
|
$
|
4,525
|
|
$
|
4,098
|
|
Interest
and dividends on investment securities
|
|
|
110
|
|
|
151
|
|
|
237
|
|
|
297
|
|
Interest
on mortgage-backed securities
|
|
|
21
|
|
|
31
|
|
|
45
|
|
|
65
|
|
Other
interest income
|
|
|
38
|
|
|
85
|
|
|
74
|
|
|
165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest income
|
|
|
2,469
|
|
|
2,323
|
|
|
4,881
|
|
|
4,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on deposits
|
|
|
1,142
|
|
|
1,149
|
|
|
2,318
|
|
|
2,263
|
|
Interest
on short-term borrowings
|
|
|
33
|
|
|
108
|
|
|
100
|
|
|
257
|
|
Interest
on long-term borrowings
|
|
|
268
|
|
|
263
|
|
|
536
|
|
|
524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest expense
|
|
|
1,443
|
|
|
1,520
|
|
|
2,954
|
|
|
3,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
1,026
|
|
|
803
|
|
|
1,927
|
|
|
1,581
|
|
Provision
for loan losses
|
|
|
38
|
|
|
149
|
|
|
74
|
|
|
182
|
|
Net
interest income after provision for loan
losses
|
|
|
988
|
|
|
654
|
|
|
1,853
|
|
|
1,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
income
|
|
|
63
|
|
|
41
|
|
|
105
|
|
|
80
|
|
Other
income
|
|
|
59
|
|
|
33
|
|
|
100
|
|
|
53
|
|
Gain
on sale of loans
|
|
|
7
|
|
|
31
|
|
|
7
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other income
|
|
|
129
|
|
|
105
|
|
|
212
|
|
|
172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and other related expenses
|
|
|
484
|
|
|
426
|
|
|
968
|
|
|
860
|
|
Occupancy
expense
|
|
|
94
|
|
|
90
|
|
|
191
|
|
|
185
|
|
Advertising
expense
|
|
|
48
|
|
|
64
|
|
|
102
|
|
|
108
|
|
Service
bureau expense
|
|
|
42
|
|
|
40
|
|
|
89
|
|
|
83
|
|
Furniture,
fixtures and equipment
|
|
|
30
|
|
|
31
|
|
|
61
|
|
|
65
|
|
Telephone,
postage and delivery
|
|
|
22
|
|
|
19
|
|
|
43
|
|
|
38
|
|
Other
expenses
|
|
|
147
|
|
|
146
|
|
|
295
|
|
|
295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-interest expenses
|
|
|
867
|
|
|
816
|
|
|
1,749
|
|
|
1,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income tax provision (benefit)
|
|
|
250
|
|
|
(57
|
)
|
|
316
|
|
|
(63
|
)
|
Income
tax provision (benefit)
|
|
|
108
|
|
|
(19
|
)
|
|
132
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
142
|
|
$
|
(38
|
)
|
$
|
184
|
|
$
|
(48
|
)
|
Basic
Earnings (Loss) per Share
|
|
$
|
0.05
|
|
$
|
(0.01
|
)
|
$
|
0.07
|
|
$
|
(0.02
|
)
|
Diluted
Earnings (Loss) per Share
|
|
$
|
0.05
|
|
$
|
(0.01
|
)
|
$
|
0.07
|
|
$
|
(0.02
|
)
|
See
notes
to consolidated financial statements.
SFSB,
Inc.
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
|
|
Three
Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
142
|
|
$
|
(38
|
)
|
$
|
184
|
|
$
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized loss on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available
for sale during the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(net
of taxes of $(231), $(17), $(267) and $(14))
|
|
|
(354
|
)
|
|
(28
|
)
|
|
(410
|
)
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Comprehensive Loss
|
|
$
|
(212
|
)
|
$
|
(66
|
)
|
$
|
(226
|
)
|
$
|
(70
|
)
|
See
notes
to consolidated financial statements.
SFSB,
Inc.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
|
|
(Dollars
in thousands)
|
|
Cash
Flows From Operating Activities
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
184
|
|
$
|
(48
|
)
|
Adjustments
to Reconcile Net Income (Loss) to Net Cash Provided (Used in) by
Operating
Activities:
|
|
|
|
|
|
|
|
Non-cash
compensation under stock based compensation plans and Employee Stock
Ownership Plan
|
|
|
81
|
|
|
87
|
|
Net
amortization of premiums and discounts of investment
securities
|
|
|
5
|
|
|
5
|
|
Amortization
of deferred loan fees
|
|
|
(93
|
)
|
|
(23
|
)
|
Provision
for loan losses
|
|
|
74
|
|
|
182
|
|
Gain
on sale of loans
|
|
|
(7
|
)
|
|
(39
|
)
|
Loans
originated for sale
|
|
|
(648
|
)
|
|
(4,688
|
)
|
Proceeds
from loans sold
|
|
|
655
|
|
|
4,727
|
|
Provision
for depreciation
|
|
|
113
|
|
|
117
|
|
(Increase)
decrease in accrued interest receivable
and other
assets
|
|
|
(154
|
)
|
|
211
|
|
(Decrease)
increase in other liabilities
|
|
|
(305
|
)
|
|
179
|
|
Net
Cash (Used in) Provided by Operating Activities
|
|
|
(95
|
)
|
|
710
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities
|
|
|
|
|
|
|
|
Purchase
of available for sale securities
|
|
|
(198
|
)
|
|
(222
|
)
|
Proceeds
from redemption of held to maturity securities
|
|
|
1,000
|
|
|
-
|
|
Net
(increase) decrease
in
loans
|
|
|
(6,285
|
)
|
|
1,943
|
|
Purchase
of loans
|
|
|
(134
|
)
|
|
-
|
|
Principal
collected on mortgage-backed securities
|
|
|
396
|
|
|
465
|
|
Purchase
of Federal Home Loan Bank of Atlanta stock
|
|
|
(23
|
)
|
|
-
|
|
Redemption
of Federal Home Loan Bank of Atlanta stock
|
|
|
161
|
|
|
277
|
|
Purchases
of premises and equipment
|
|
|
(32
|
)
|
|
(65
|
)
|
Net
Cash (Used in) Provided by Investing Activities
|
|
|
(5,115
|
)
|
|
2,398
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities
|
|
|
|
|
|
|
|
Net
increase in deposits
|
|
|
7,973
|
|
|
2,465
|
|
(Decrease)
increase in checks outstanding in excess of bank balance
|
|
|
(889
|
)
|
|
270
|
|
Proceeds
from long-term borrowings
|
|
|
-
|
|
|
5,000
|
|
Repayment
of long-term borrowings
|
|
|
-
|
|
|
(5,000
|
)
|
Net
change in short-term borrowings
|
|
|
(3,000
|
)
|
|
(5,500
|
)
|
Increase
in advance payments by borrowers for taxes and insurance
|
|
|
1,389
|
|
|
1,410
|
|
Issuance
of common stock
|
|
|
-
|
|
|
67
|
|
Purchase
of treasury stock
|
|
|
(5
|
)
|
|
(293
|
)
|
Net
Cash Provided by (Used in) Financing Activities
|
|
|
5,468
|
|
|
(1,581
|
)
|
|
|
|
|
|
|
|
|
Increase
in cash and cash equivalents
|
|
|
258
|
|
|
1,527
|
|
Cash
and cash equivalents at beginning of period
|
|
|
1,277
|
|
|
2,851
|
|
Cash
and cash equivalents at end of period
|
|
$
|
1,535
|
|
$
|
4,378
|
|
Supplemental
Disclosures of Cash Flows Information
:
|
|
|
|
|
|
|
|
Income
taxes paid
|
|
$
|
223
|
|
$
|
-
|
|
Interest
expense paid
|
|
$
|
2,963
|
|
$
|
3,037
|
|
Transfer
of loan to foreclosed real estate
|
|
$
|
-
|
|
$
|
1,083
|
|
See
notes
to consolidated financial statements.
SFSB,
Inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
1 – Principles of Consolidation
The
consolidated financial statements include the accounts of SFSB, Inc. (“the
Company”), its wholly-owned subsidiaries, Slavie Federal Savings Bank (“the
Bank”) and the Bank’s wholly-owned subsidiary, Slavie Holdings, LLC
(“Holdings”). The accompanying consolidated financial statements include the
accounts and transactions of these companies on a consolidated basis since
inception. All intercompany accounts and transactions have been eliminated
in
the consolidated financial statements.
Slavie
Bancorp, MHC, a mutual holding company whose activity is not included in the
accompanying consolidated financial statements, owns 58.10% of the outstanding
common stock of the Company as of June 30, 2008.
Note
2 – Basis of
Presentation
The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America
(GAAP) for interim financial information and with the instructions to SEC Form
10-Q. Accordingly, they do not include all the information and footnotes
required by GAAP for complete financial statements.
The
foregoing consolidated financial statements in the opinion of management include
all adjustments (consisting only of normal recurring adjustments) necessary
for
a fair presentation thereof. These consolidated financial statements should
be
read in conjunction with the consolidated financial statements and notes thereto
included in the Company’s Annual Report on Form 10-K for the year ended December
31, 2007. The results of operations for the six months ended June 30, 2008
are
not necessarily indicative of the results that may be expected for the full
year.
Note
3 – Earnings (Loss) Per Share
Basic
earnings (loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding for the appropriate period.
Unearned Employee Stock Ownership Plan (“ESOP”) shares are not included in
outstanding shares. Diluted earnings (loss) per share is computed by dividing
net income (loss) by the weighted average shares outstanding as adjusted for
the
dilutive effect of outstanding stock options and unvested stock awards.
Potential common shares related to stock options and unvested stock awards
are
determined based on the “treasury stock” method. Information related to the
calculation of earnings (loss) per share is summarized for the three and six
months ended June 30 as follows:
|
|
Three
Months
Ended
|
|
Six
Months Ended
|
|
|
|
June
30, 2008
|
|
June
30, 2008
|
|
|
|
Basic
|
|
Diluted
|
|
Basic
|
|
Diluted
|
|
|
|
(Dollars
in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
142
|
|
$
|
142
|
|
$
|
184
|
|
$
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
2,717
|
|
|
2,717
|
|
|
2,716
|
|
|
2,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Unvested
Stock Awards
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
Weighted average shares
|
|
|
2,717
|
|
|
2,717
|
|
|
2,716
|
|
|
2,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Share Amount
|
|
$
|
0.05
|
|
$
|
0.05
|
|
$
|
0.07
|
|
$
|
0.07
|
|
|
|
Three
Months
Ended
|
|
Six
Months Ended
|
|
|
|
June
30, 2007
|
|
June
30, 2007
|
|
|
|
Basic
|
|
Diluted
|
|
Basic
|
|
Diluted
|
|
|
|
(Dollars
in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(38
|
)
|
$
|
(38
|
)
|
$
|
(48
|
)
|
$
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
2,795
|
|
|
2,795
|
|
|
2,794
|
|
|
2,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Unvested
Stock Awards
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
Weighted average shares
|
|
|
2,795
|
|
|
2,795
|
|
|
2,794
|
|
|
2,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Share Amount
|
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
$
|
(0.02
|
)
|
$
|
(0.02
|
)
|
Note
4 – Regulatory Capital Requirements
At
June
30, 2008, the Bank met each of the three minimum regulatory capital
requirements. The following table summarizes the Bank’s regulatory capital
position at June 30, 2008 and December 31, 2007.
|
|
|
|
|
|
|
|
|
|
To
Be Well
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized
Under
|
|
|
|
|
|
|
|
For
Capital
|
|
Prompt
Corrective
|
|
|
|
Actual
|
|
Adequacy
Purposes
|
|
Action
Provision
|
|
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
|
|
(Dollars
in thousands)
|
|
June
30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible
(1)
|
|
$
|
17,193
|
|
|
9.64
|
%
|
$
|
2,675
|
|
|
1.50
|
%
|
|
N/A
|
|
|
N/A
|
|
Tier
I capital (2)
|
|
|
17,193
|
|
|
16.25
|
%
|
|
N/A
|
|
|
N/A
|
|
$
|
6,350
|
|
|
6.00
|
%
|
Core
(leverage) (1)
|
|
|
17,193
|
|
|
9.64
|
%
|
|
7,134
|
|
|
4.00
|
%
|
|
8,918
|
|
|
5.00
|
%
|
Risk-weighted
(2)
|
|
|
18,137
|
|
|
17.14
|
%
|
|
8,467
|
|
|
8.00
|
%
|
|
10,583
|
|
|
10.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible
(1)
|
|
$
|
16,948
|
|
|
9.81
|
%
|
$
|
2,591
|
|
|
1.50
|
%
|
|
N/A
|
|
|
N/A
|
|
Tier
I capital (2)
|
|
|
16,948
|
|
|
16.42
|
%
|
|
N/A
|
|
|
N/A
|
|
$
|
6,194
|
|
|
6.00
|
%
|
Core
(leverage) (1)
|
|
|
16,948
|
|
|
9.81
|
%
|
|
6,909
|
|
|
4.00
|
%
|
|
8,637
|
|
|
5.00
|
%
|
Risk-weighted
(2)
|
|
|
17,920
|
|
|
17.36
|
%
|
|
8,259
|
|
|
8.00
|
%
|
|
10,324
|
|
|
10.00
|
%
|
_____________________
(1)
To
adjusted total assets.
(2)
To
risk-weighted assets.
Note
5 – Stock-Based Compensation
The
compensation cost charged against income for stock-based compensation plans,
excluding ESOP, was
$30,000
and $60,000 for the three and six months ended June 30, 2008. The total income
tax benefit recognized was $8,000 and $17,000
for
the
three and six months ended June 30, 2008. The compensation cost charged against
income for stock-based compensation plans, excluding ESOP, was
$30,000
and $60,000 for the three and six months ended June 30, 2007. The total income
tax benefit recognized was $8,000 and $17,000
for
the
three and six months ended June 30, 2007.
Note
6 – Fair Values for Financial Instruments
In
September 2006, the Financial Accounting Standards Board issued FASB Statement
No. 157, “Fair Value Measurements,” (SFAS 157) which defines fair value,
establishes a framework for measuring fair value under Generally Accepted
Accounting Principles, and expands disclosures about fair value measurements.
SFAS 157 applies to other accounting pronouncements that require or permit
fair
value measurements. The new guidance is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and for interim
periods within those fiscal years. Effective January 1, 2008, the Company
adopted SFAS 157. The primary effect of SFAS 157 on the Company was to expand
the required disclosures pertaining to the methods used to determine fair
values.
SFAS
157
establishes a fair value hierarchy that prioritizes the inputs to valuation
methods used to measure fair value. The hierarchy gives the highest priority
to
unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1 measurement) and the lowest priority to unobservable inputs (Level
3
measurements).
The
three
levels of the fair value hierarchy under SFAS 157 are as follows:
Level
1:
Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or liabilities.
Level
2:
Quoted prices in markets that are not active, or inputs that are observable
either directly or indirectly, for substantially the full term of the asset
or
liability.
Level
3:
Prices or valuation techniques that require inputs that are both significant
to
the fair value measurement and unobservable (i.e. supported with little or
no
market activity).
An
asset
or liability’s level within the fair value hierarchy is based on the lowest
level of input that is significant to the fair value measurement.
For
assets measured at fair value, the fair value measurements by level within
the
fair value hierarchy used at June 30, 2008 are as follows:
|
|
June
30,
2008
|
|
(Level
1)
Quoted
Prices
in
Active
Markets
for
Identical
Assets
|
|
(Level
2
)
Significant
Other
Observable
Inputs
|
|
(Level
3)
Significant
Other
Unobservable
Inputs
|
|
|
|
(Dollars
in thousands)
|
|
Securities
available for sale
|
|
$
|
8,462
|
|
$
|
8,462
|
|
$
|
-
|
|
$
|
-
|
|
Impaired
loans
|
|
|
239
|
|
|
-
|
|
|
-
|
|
|
239
|
|
Foreclosed
Real Estate
|
|
|
1,096
|
|
|
-
|
|
|
-
|
|
|
1,096
|
|
Total
|
|
$
|
9,797
|
|
$
|
8,462
|
|
$
|
-
|
|
$
|
1,335
|
|
The
following valuation techniques were used to measure the fair value of assets
in
the table above on a recurring basis as of June 30, 2008.
Available
for sale securities
–
The fair value on available for sale securities was based on available market
pricing for the securities.
Impaired
Loans
–
Loans included in the above table are those that are accounted for under SFAS
114,
Accounting
by Creditors for Impairment of a Loan,
in which
the Company has measured impairment generally based on the fair value of the
loan’s collateral. Fair value was determined based upon a discounted cash flow
from the expected proceeds. This asset is included as Level 3 fair value, based
upon the lowest level of input that is significant to the fair value
measurements. The fair value consists of the loan balance reduced by any
specific impairment reserve.
Foreclosed
Real Estate
–
Fair
value of foreclosed real estate was based on an independent third party
appraisal of the property. This value was determined based on the sale price
of
similar development properties in the proximate vicinity. There has been no
significant activity during the first six months of 2008 in foreclosed real
estate.
Note
7 – Recent Accounting Pronouncements
In
May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” This Statement identifies the sources of accounting
principles and the framework for selecting the principles used in the
preparation of financial statements. This Statement is effective 60 days
following the SEC’s approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with
Generally Accepted Accounting Principles.” The Company is currently evaluating
the potential impact the new pronouncement will have on its consolidated
financial statements.
In
April
2008, the FASB issued FASB Staff Position (“FSP”) FAS 142-3, “Determination of
the Useful Life of Intangible Assets.” This FSP amends the factors that should
be considered in developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset under FASB Statement
No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). The intent of
this FSP is to improve the consistency between the useful life of a recognized
intangible asset under SFAS 142 and the period of expected cash flows used
to measure the fair value of the asset under SFAS 141R, and other GAAP. This
FSP
is effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. Early
adoption is prohibited.
The
Company is currently evaluating the potential impact the new pronouncement
will
have on its consolidated financial statements.
In
June
2008, the FASB issued FASB Staff Position (FSP) EITF 03-6-1, “Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities.” This FSP clarifies that all outstanding unvested
share-based payment awards that contain rights to non-forfeitable dividends
participate in undistributed earnings with common shareholders. Awards of this
nature are considered participating securities and the two-class method of
computing basic and diluted earnings per share must be applied. This FSP is
effective for fiscal years beginning after December 15, 2008. The Company is
currently evaluating the potential impact the new pronouncement will have on
its
consolidated financial statements.
FASB
statement No. 141 (R) “Business Combinations” was issued in December of 2007.
This Statement establishes principles and requirements for how the acquirer
of a
business recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any non-controlling interest
in
the acquired. The Statement also provides guidance for recognizing and measuring
the goodwill acquired in the business combination and determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. The guidance
will
become effective as of the beginning of a company’s fiscal year beginning after
December 15, 2008. This new pronouncement will impact the Company’s accounting
for business combinations completed beginning January 1, 2009.
Item
2.
Management's
Discussion and Analysis
Introduction
Some
of
the matters discussed below include forward-looking statements within the
meaning of the federal securities laws. Forward-looking statements often use
words such as “believe,” “expect,” “plan,” “may,” “will,” “should,” “project,”
“contemplate,” “anticipate,” “forecast,” “intend” or other words of similar
meaning. You can also identify them by the fact that they do not relate strictly
to historical or current facts. Our actual results and the actual outcome of
our
expectations and strategies could be materially different from those anticipated
or estimated for the reasons discussed below and the reasons under the heading
“Information Regarding Forward Looking Statements.”
Overview
Earnings
increased to $184,000 for the six months ended June 30, 2008 as compared to
a
net loss of $48,000 for the same period in 2007. This increase was primarily
due
to an increase of interest income as a result of an increase in higher yielding
commercial real estate loan originations and an increase in fee income from
commissions earned through a financial services operation established in
mid-2007. The increase also resulted from a decrease in interest expense because
the interest rates we pay on deposit accounts have dropped as a result of
decreases in the prime rate instituted by the Federal Reserve Board in response
to the unfavorable economy. These increases were partially offset by an increase
in non-interest expenses primarily due to an increase in compensation expenses
related to the hiring of two experienced commercial loan originators and a
certified financial planner.
Interest
income increased $256,000, or 5.54%, non-interest income increased $40,000,
or
23.26%, and interest expense decreased $90,000, or 2.96%. These improvements
were offset by a $115,000, or 7.04%, increase in non- interest expenses.
Assets
increased during the first six months of 2008 primarily because we increased
our
loan portfolio by $6,426,000, or 4.35%, to $154,170,000 at June 30, 2008 from
$147,744,000 at December 31, 2007. The increase is also the result of increases
in cash and cash equivalents of $258,000, or 20.20%, to $1,535,000 at June
30,
2008 from $1,277,000 at December 31, 2007, accrued interest receivable of
$48,000, or 8.51%, to $612,000 at June 30, 2008 from $564,000 at December 31,
2007 and other assets of $373,000, or 85.55%, to $809,000 at June 30, 2008
from
$436,000 at December 31, 2007. These increases were partially offset by
decreases in investment securities held to maturity of $1,000,000, or 33.33%,
to
$2,000,000 at June 30, 2008 from $3,000,000 at December 31, 2007, investment
securities available for sale of $480,000, or 5.37%, to $8,462,000 at June
30,
2008 from $8,942,000 at December 31, 2007, Federal Home Loan Bank of Atlanta
stock of $138,000, or 7.48%, to $1,706,000 at June 30, 2008 from $1,844,000
at
December 31, 2007 and mortgage backed securities held to maturity of $401,000,
or 17.85%, to $1,846,000 at June 30, 2008 from $2,247,000 at December 31,
2007.
As
further discussed in the Asset Quality section of this report, we hold a 19%
participation (approximately $1,096,000 in unpaid principal balance) in an
acquisition and development loan. This loan was transferred foreclosed
real estate. The foreclosed property had been contracted for sale subject to
a
feasibility study, however, the feasibility study period expired on June 15,
2008. The buyer has requested an extension to the original contract subject
to a
feasibility study period to expire on April 30, 2009. If the new contract is
accepted, settlement is expected before the end of the third quarter of 2009.
We
still believe that we will recover the carrying amount of the real estate,
although there can be no assurance that this will be the case. Additionally,
a
$100,000 business line of credit loan, restructured in the third quarter of
2007, is classified as impaired, because we believe that there is a substantial
likelihood that we will not collect the total amount of the outstanding
principal balance on this loan. A specific reserve of $100,000, or 100%, of
the
remaining loan balance continues to remain in our allowance for loan losses
with
respect to this loan.
To
remain
competitive and offer even more choices to our customers, we
implemented
a
health
savings account to assist customers in making medical expenses more affordable
and a Coverdell Education Savings Account to assist our customers with planning
for educational expenses. We also offer an eight month certificate of deposit
and a carefree premium checking account with what we believe are attractive
interest rates. In addition, we offer a merchant bank card service through
a
third party vendor, which offers our commercial checking account customers
the
convenience of processing their debit and credit transactions with ease and
foreign currency services for our customers traveling abroad. We also offer
a
comprehensive and full service approach to managing finances and investing
in
the future. The creation of Slavie Financial Services and the addition of a
certified financial planner in mid-2007 enabled us to bring investment guidance
and financial planning expertise to our customers, while expanding our ability
to provide personalized services that focus on the successful financial well
being of our customers.
We
expect
that during the third quarter of 2008, our product development and review
committee will implement remote deposit for commercial accountholders, a Slavie
credit card,
and
check
imaging services for our checking accountholders to provide an even wider
variety of products and services to our customers. We also plan to expand our
Automated Teller Machine network to include access to 47,000 ATMs throughout
the
United States and offer coin counting services in each of our lobbies. In
addition, we hired an investment advisor who will join Slavie Financial Services
in the third quarter of 2008.
We
continue to implement strategies formed during strategic planning meetings
of
the Board of Directors and the Company’s officers during 2006. In our continued
efforts to boost the yield of our interest earning assets during a period of
net
interest margin compression, management, along with our two experienced
commercial loan originators, continues to increase and diversify the Bank’s mix
of commercial loans to residential loans in its portfolio. In addition, we
intensified our marketing strategy by offering incentives to attract new
checking accounts in an effort to attain our goal of decreasing the cost of
our
interest bearing liabilities. Our directors, officers, management and staff
remain committed in a unified effort to improve the Bank’s profitability.
Key
measurements and events for the three- and six-month periods ended June 30,
2008
include the following:
|
·
|
Total
assets at June 30, 2008 increased by 2.91% to $177,262,000 as compared
to
$172,244,000 as of December 31,
2007.
|
|
·
|
Total
borrowings decreased by 8.82% from $34,000,000 as of December 31,
2007 to
$31,000,000 as of June 30, 2008.
|
|
·
|
Net
loans outstanding increased by 4.35% from $147,744,000 as of December
31,
2007 to $154,170,000 as of June 30,
2008.
|
|
·
|
Nonperforming
loans and foreclosed real estate totaled $3,305,000 at June 30, 2008
as
compared with a total of $1,551,000 at December 31, 2007. We believe
an
appropriate allowance for loan losses continues to be
maintained.
|
|
·
|
Deposits
at June 30, 2008 were $122,071,000, an increase of $7,973,000 or
6.99%
from $114,098,000 at December 31, 2007.
|
|
·
|
We
realized net income of $142,000 and $184,000 for the three-month
and
six-month periods ended June 30, 2008. This compares to a net loss
of
$38,000 and $48,000 for the three-month and six-month periods ended
June
30, 2007.
|
|
·
|
Net
interest income, our main source of income, was $1,026,000 and $1,927,000
during the three-month and six-month periods ended June 30, 2008
compared
to $803,000 and $1,581,000 for the same periods in 2007. This represents
an increase of 27.77% and 21.88% for the three months and six months
ended
June 30, 2008 as compared to the same periods in 2007.
|
|
·
|
We
had four overdraft protection loan charge-offs totaling $2,300 during
the
six-month period ending June 30, 2008. We had a commercial non-real
estate
loan charge-off of $120,000 and two overdraft protection loan charge-offs
totaling $1,100 during the six-month period ending June 30, 2007.
|
|
·
|
Non-interest
income increased by $24,000 and $40,000, or 22.86% and 23.26%, for
the
three-month and six-month periods ended June 30, 2008, as compared
to the
three-month and six-month periods ended June 30, 2007.
|
|
·
|
Non-interest
expenses increased by $51,000 and $115,000, or 6.25% and 7.04%, for
the
three-month and six-month periods ended June 30, 2008, as compared
to the
three- and six-month periods ended June 30, 2007.
|
A
detailed discussion of the factors leading to these changes can be found in
the
discussion below.
Critical
Accounting Policies
The
Company’s consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America or
GAAP, and follow general practices within the industry in which we operate.
Application of these principles requires management to make estimates,
assumptions, and judgments that affect the amounts reported in the financial
statements and accompanying notes. These estimates, assumptions, and judgments
are based on information available as of the date of the financial statements;
accordingly, as this information changes, the 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 allowance 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.
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 losses as an
accounting area that requires the subjective or complex judgments, and as such
could be subject to revision as new information becomes available.
Securities
available for sale are carried at fair value. Unrealized gains and losses,
net
of tax, on available for sale securities are reported as accumulated other
comprehensive income (loss) until realized. Realized gains and losses on sales,
determined using the specific identification method, are included in earnings.
Investments and mortgage-backed securities held to maturity are carried at
amortized cost since management has the ability and intention to hold them
to
maturity. Amortization of related premiums and discounts are computed using
the
level yield method over the terms of the securities.
The
Company evaluates securities for other-than-temporary impairment on a quarterly
basis. Consideration is given to (1) the length of time and the extent to which
the fair value has been less than the cost, (2) the financial condition and
near-term prospects of the issuer, and (3) the intent and ability of the Company
to retain its investment with the issuer for a period of time sufficient to
allow for an anticipated recovery in fair value. In evaluating an issuer’s
financial condition, management considers whether the securities are issued
by
the federal government or its agencies, whether downgrades by bond rating
agencies have occurred and industry analysts’ reports.
The
Company purchased Shay Asset Management Fund (AMF) Ultra Short Mortgages,
consisting of short-term adjustable rate mortgage portfolio mutual funds, to
control its interest rate risks and to generate interest income. It purchased
the mutual funds incrementally between the years 2001 and 2003. As of June
30,
2008, the mutual fund has an amortized cost of $9,400,000 and a fair value
of
$8,500,000. Management has identified the Shay AMF Ultra Short Mortgage Fund
as
an impaired asset, meaning that the fair value is below the cost of the
investment and these securities available for sale are carried at fair value.
The unrealized losses of $900,000 on the available for sale securities are
reported as accumulated other comprehensive loss. The unrealized losses are
the
result of declines in pricing levels differing from those existing at the time
of the purchase of the fund. No gains or losses have been realized in income
for
any year since the initial purchases. The mutual funds have no stated maturity
date.
Management
believes that the unrealized losses of the securities available for sale, which
have existed over the last few years, are only temporary and are due to the
fund’s pricing decline. The Fund has paid an attractive yield and has made all
principal and interest payments on time.
Management believes that there is a strong correlation between market rate
movement and a widening of mortgage spreads. The combination of a current bond
market with falling rates and a widening of mortgage spreads, along with an
abnormally flat treasury curve, create a situation where unrealized losses
are
higher than ever. There is a strong indication that the turmoil in the U.S.
housing market brought about, in part, by the subprime lending situation has
driven the widening of the mortgage spreads and has created a perception of
credit problems within the fund’s loan portfolio. Management believes these
disruptions are only temporary in nature and expects the asset values of the
fund to improve once liquidity is restored to the market and mortgage pricing
spreads begin to narrow and return to a more stable market. As management has
the intent and ability to hold these securities for the foreseeable future
until
anticipated recovery, the declines are not deemed to be other than temporary.
Management
believes that the mutual fund has performed as intended within its investment
objectives of seeking to protect its net interest margin in periods of rising
rates and of providing as high a level of current income as is consistent with
the preservation of capital and maintenance of liquidity. The yield of the
Shay
Asset Management Fund has consistently, since its inception, performed better
than federal funds rates, the mutual funds hold primarily the highest quality
credit rating adjustable rate mortgages and the investment is paying as agreed.
Assets
acquired through, or in lieu of, loan foreclosure are held for sale and are
initially recorded at fair value less cost to sell at the date of foreclosure,
establishing a new cost basis. Subsequent to foreclosure, valuations are
periodically performed by management and the assets are carried at the lower
of
carrying amount or fair value less cost to sell. Revenue and expenses from
operations and changes in the valuation allowance are included in other
expenses.
Management’s
judgment is inherent in the determination of the provision and allowance for
loan losses, including in connection with the valuation of collateral and the
financial condition of the borrower. The establishment of allowance factors
is a
continuing exercise and allowance factors may change over time, resulting in
an
increase or decrease in the amount of the provision or allowance based upon
the
same volume and classification of loans. Changes in allowance factors or in
management’s interpretation of those factors will have a direct impact on the
amount of the provision, and a corresponding effect on income and assets. Also,
errors in management’s perception and assessment of the allowance factors could
result in the allowance not being adequate to cover losses in the portfolio,
and
may result in additional provisions or charge-offs, which would adversely affect
income and capital. For additional information regarding the allowance for
loan
losses, see “Results of Operations for the Three and Six Months Ended June 30,
2008 and 2007 - Provision for Loan Losses and Analysis of Allowance for Loan
Losses.”
Results
of Operations for the Three and Six Months Ended June 30, 2008 and
2007
General
.
Net
income increased $180,000 to a net income of $142,000 for the three months
ended
June 30, 2008 compared to a net loss of $38,000 for the same period in the
prior
year. The increase was due primarily to a $146,000 increase in interest
income.
Net
income increased $232,000, to a net income of $184,000 for the six months ended
June 30, 2008 compared to a net loss of $48,000 for the same period in the
prior
year. The increase was due primarily to a $256,000 increase in interest income
and a $40,000 increase in non-interest income, offset by a $115,000 increase
in
non-interest expenses.
Average
Balances, Net Interest Income, Yields Earned and Rates Paid.
The
following tables present for the periods indicated the total dollar amount
of
interest income from average interest earning assets and the resultant yields,
as well as the interest expense on average interest bearing liabilities,
expressed both in dollars and rates. No tax equivalent adjustments were made
because no income was exempt from federal income taxes. All average balances
are
monthly average balances. We do not believe that the monthly averages differ
materially from what the daily averages would have been. Non-accruing loans
have
been included in the table as loans carrying a zero yield. The amortization
of
loan fees is included in computing interest income, however, such fees are
not
material.
|
|
Three
Months Ended
June
30, 2008
|
|
Three
Months
Ended
June
30, 2007
|
|
|
|
Average
Outstanding
Balance
|
|
Interest
Earned/
Paid
|
|
Yield/
Rate
|
|
Average
Outstanding
Balance
|
|
Interest
Earned/
Paid
|
|
Yield/
Rate
|
|
|
|
Dollars
in Thousands
|
|
Dollars
in Thousands
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
receivable(1)
|
|
$
|
152,338
|
|
$
|
2,300
|
|
|
6.04
|
%
|
$
|
144,668
|
|
$
|
2,056
|
|
|
5.68
|
%
|
Mortgage-backed
securities
|
|
|
1,916
|
|
|
21
|
|
|
4.38
|
|
|
2,816
|
|
|
31
|
|
|
4.40
|
|
Investment
securities (available
for sale)
|
|
|
8,643
|
|
|
94
|
|
|
4.35
|
|
|
8,704
|
|
|
113
|
|
|
5.19
|
|
Investment
securities (held to
maturity)
|
|
|
2,000
|
|
|
16
|
|
|
3.20
|
|
|
4,000
|
|
|
38
|
|
|
3.80
|
|
Other
interest-earning
assets
|
|
|
3,442
|
|
|
38
|
|
|
4.42
|
|
|
5,628
|
|
|
85
|
|
|
6.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest-earning
assets
|
|
|
168,339
|
|
|
2,469
|
|
|
5.87
|
%
|
|
165,816
|
|
|
2,323
|
|
|
5.60
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
earning assets
|
|
|
8,159
|
|
|
|
|
|
|
|
|
6,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
176,498
|
|
|
|
|
|
|
|
$
|
172,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
deposits
|
|
$
|
13,662
|
|
|
28
|
|
|
0.82
|
%
|
$
|
16,580
|
|
|
48
|
|
|
1.16
|
%
|
Demand
and NOW
accounts
|
|
|
10,995
|
|
|
62
|
|
|
2.26
|
|
|
7,292
|
|
|
42
|
|
|
2.30
|
|
Certificates
of
deposit
|
|
|
94,790
|
|
|
1,052
|
|
|
4.44
|
|
|
88,183
|
|
|
1,059
|
|
|
4.80
|
|
Escrows
|
|
|
3
|
|
|
-
|
|
|
-
|
|
|
9
|
|
|
-
|
|
|
-
|
|
Borrowings
|
|
|
31,667
|
|
|
301
|
|
|
3.80
|
|
|
33,833
|
|
|
371
|
|
|
4.39
|
|
Total
interest-bearing liabilities
|
|
|
151,117
|
|
|
1,443
|
|
|
3.82
|
%
|
|
145,897
|
|
|
1,520
|
|
|
4.17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing liabilities
|
|
|
3,697
|
|
|
|
|
|
|
|
|
4,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
154,814
|
|
|
|
|
|
|
|
|
150,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
equity
|
|
|
21,684
|
|
|
|
|
|
|
|
|
22,343
|
|
|
|
|
|
|
|
Total
liabilities and equity
|
|
$
|
176,498
|
|
|
|
|
|
|
|
$
|
172,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
$
|
1,026
|
|
|
|
|
|
|
|
$
|
803
|
|
|
|
|
Interest
rate spread(2)
|
|
|
|
|
|
|
|
|
2.05
|
%
|
|
|
|
|
|
|
|
1.43
|
%
|
Net
interest-earning assets
|
|
$
|
17,222
|
|
|
|
|
|
|
|
$
|
19,919
|
|
|
|
|
|
|
|
Net
interest margin(3)
|
|
|
|
|
|
|
|
|
2.44
|
%
|
|
|
|
|
|
|
|
1.94
|
%
|
Ratio
of interest earning assets to interest bearing
liabilities
|
|
|
|
|
|
1.11x
|
|
|
|
|
|
|
|
|
1.14x
|
|
|
|
|
(1)
|
Loans
receivable are net of the allowance for loan
losses.
|
(2)
|
Net
interest rate spread represents the difference between the average
yield
on interest earning assets and the average cost of interest bearing
liabilities.
|
(3)
|
Net
interest margin represents net interest income as a percentage of
average
interest earning assets.
|
|
|
Six
Months Ended
June
30, 2008
|
|
Six
Months Ended
June
30, 2007
|
|
|
|
Average
Outstanding
Balance
|
|
Interest
Earned/
Paid
|
|
Yield/
Rate
|
|
Average
Outstanding
Balance
|
|
Interest
Earned/
Paid
|
|
Yield/
Rate
|
|
|
|
Dollars
in Thousands
|
|
Dollars
in Thousands
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
receivable(1)
|
|
$
|
151,079
|
|
$
|
4,525
|
|
|
5.99
|
%
|
$
|
145,350
|
|
$
|
4,098
|
|
|
5.64
|
%
|
Mortgage-backed
securities
|
|
|
2,024
|
|
|
45
|
|
|
4.45
|
|
|
2,933
|
|
|
65
|
|
|
4.43
|
|
Investment
securities (available
for sale)
|
|
|
8,806
|
|
|
198
|
|
|
4.50
|
|
|
8,655
|
|
|
222
|
|
|
5.13
|
|
Investment
securities (held to
maturity)
|
|
|
2,167
|
|
|
39
|
|
|
3.60
|
|
|
4,000
|
|
|
75
|
|
|
3.75
|
|
Other
interest-earning
assets
|
|
|
3,113
|
|
|
74
|
|
|
4.75
|
|
|
5,460
|
|
|
165
|
|
|
6.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest-earning
assets
|
|
|
167,189
|
|
|
4,881
|
|
|
5.84
|
%
|
|
166,398
|
|
|
4,625
|
|
|
5.56
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
earning assets
|
|
|
8,002
|
|
|
|
|
|
|
|
|
6,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
175,191
|
|
|
|
|
|
|
|
$
|
173,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
deposits
|
|
$
|
13,977
|
|
|
64
|
|
|
0.92
|
%
|
$
|
16,965
|
|
|
95
|
|
|
1.12
|
%
|
Demand
and NOW
accounts
|
|
|
9,862
|
|
|
120
|
|
|
2.43
|
|
|
7,253
|
|
|
84
|
|
|
2.32
|
|
Certificates
of
deposit
|
|
|
93,155
|
|
|
2,134
|
|
|
4.58
|
|
|
87,483
|
|
|
2,084
|
|
|
4.76
|
|
Escrows
|
|
|
2
|
|
|
-
|
|
|
-
|
|
|
7
|
|
|
-
|
|
|
-
|
|
Borrowings
|
|
|
32,917
|
|
|
636
|
|
|
3.86
|
|
|
35,250
|
|
|
781
|
|
|
4.43
|
|
Total
interest-bearing liabilities
|
|
|
149,913
|
|
|
2,954
|
|
|
3.94
|
%
|
|
146,958
|
|
|
3,044
|
|
|
4.14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing liabilities
|
|
|
3,538
|
|
|
|
|
|
|
|
|
4,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
153,451
|
|
|
|
|
|
|
|
|
151,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
equity
|
|
|
21,740
|
|
|
|
|
|
|
|
|
22,376
|
|
|
|
|
|
|
|
Total
liabilities and equity
|
|
$
|
175,191
|
|
|
|
|
|
|
|
$
|
173,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
$
|
1,927
|
|
|
|
|
|
|
|
$
|
1,581
|
|
|
|
|
Interest
rate spread(2)
|
|
|
|
|
|
|
|
|
1.90
|
%
|
|
|
|
|
|
|
|
1.42
|
%
|
Net
interest-earning assets
|
|
$
|
17,276
|
|
|
|
|
|
|
|
$
|
19,440
|
|
|
|
|
|
|
|
Net
interest margin(3)
|
|
|
|
|
|
|
|
|
2.31
|
%
|
|
|
|
|
|
|
|
1.90
|
%
|
Ratio
of interest earning assets to interest bearing
liabilities
|
|
|
|
|
|
1.12x
|
|
|
|
|
|
|
|
|
1.13x
|
|
|
|
|
(1)
|
Loans
receivable are net of the allowance for loan
losses.
|
(2)
|
Net
interest rate spread represents the difference between the average
yield
on interest earning assets and the average cost of interest bearing
liabilities.
|
(3)
|
Net
interest margin represents net interest income as a percentage of
average
interest earning assets.
|
Net
Interest Income
.
Three
months ended June 30, 2008 compared to three months ended June 30,
2007
.
Net
interest income increased $223,000, or 27.77%, to $1,026,000 for the three
months ended June 30, 2008 from $803,000 for the three months ended June 30,
2007. The increase was primarily a result of a $2,523,000, or 1.52%, increase
in
average interest earning assets to $168,339,000 from $165,816,000, a 27 basis
point increase in the yield on average interest earning assets, from 5.60%
to
5.87% and a 35 basis point decrease in the cost of average interest bearing
liabilities, from 4.17% to 3.82%. These were offset by a $5,220,000, or 3.58%,
increase in average interest bearing liabilities to $151,117,000 from
$145,897,000.
Our
interest rate spread increased to 2.05% for the quarter ended June 30, 2008
from
1.43% for the quarter ended June 30, 2007, reflecting a more rapid increase
in
the yield of our average interest earning assets as compared to the decrease
in
the cost of our average interest bearing liabilities. Our net interest margin
increased to 2.44% from 1.94%, because of a higher yield on average interest
earning assets and a decrease in the cost of our average interest bearing
liabilities. The ratio of interest earning assets to interest bearing
liabilities decreased slightly to 1.11 times for the three months ended June
30,
2008 from 1.14 times for the same period in 2007.
Six
months ended June 30, 2008 compared to six months ended June 30,
2007
.
Net
interest income increased $346,000, or 21.88%, to $1,927,000 for the six months
ended June 30, 2008 from $1,581,000 for the six months ended June 30, 2007.
The
increase was primarily a result of a $791,000, or 0.48%, increase in average
interest earning assets to $167,189,000 from $166,398,000, a 28 basis point
increase in the yield on average interest earning assets, from 5.56% to 5.84%
and a 20 basis point decrease in the cost of average interest bearing
liabilities, from 4.14% to 3.94%. These were offset by a $2,955,000, or 2.01%,
increase in average interest bearing liabilities to $149,913,000 from
$146,958,000.
Our
interest rate spread increased to 1.90% from 1.42%, reflecting a more rapid
increase in the yield of our average interest earning assets as compared to
the
decrease in the cost of our average interest bearing liabilities. Our net
interest margin increased to 2.31% from 1.90%, because of a higher yield on
average interest earning assets and a decrease in the cost of our average
interest bearing liabilities. The ratio of interest earning assets to interest
bearing liabilities remained relatively steady at 1.12 times for the six months
ended June 30, 2008 from 1.13 times for 2007.
Interest
Income
.
Three
months ended June 30, 2008 compared to three months ended June 30,
2007
.
Interest
income increased by $146,000, or 6.28%, to $2,469,000 for the three months
ended
June 30, 2008, from $2,323,000 for the three months ended June 30, 2007. The
increase in interest income resulted from an increase of $244,000, or 11.87%,
in
interest and fee income from loans, partially offset by decreases of $41,000,
or
27.15%, in interest income from investment securities, $10,000, or 32.26%,
in
interest income from mortgage-backed securities and $47,000, or 55.29%, in
interest income from other interest earning assets (primarily consisting of
interest earned on federal funds sold and Federal Home Loan Bank stock).
The
increase in interest income reflects a $2,523,000, or 1.52%, increase in the
average balance of interest-earning assets to $168,339,000 during the quarter
ended June 30, 2008 from $165,816,000 during the quarter ended June 30, 2007
and
a 27 basis point increase in the yield on average interest-earning assets to
5.87% for the three months ended June 30, 2008 from 5.60% for the three months
ended June 30, 2007. This is due to a focus on increasing our commercial real
estate loan origination volume and the higher interest rates those loans yield.
The
increase in interest income and fees on loans was due to a $7,670,000, or 5.30%,
increase in average net loans receivable, from $144,668,000 during the quarter
ended June 30, 2007 to $152,338,000 during the quarter ended June 30, 2008
and a
36 basis point increase in the average yield on net loans receivable. The
decrease in interest income from investment securities was primarily reflective
of a 66 basis point decrease in the average yield and a $2,061,000, or 16.22%,
decrease in the average balance of the investment securities. The decrease
in
interest income from mortgage-backed securities was primarily the result of
a
$900,000, or 31.96%, decline in the average balance of mortgage-backed
securities and a 2 basis point decrease in the average yield on these
securities.
The
decrease in interest income from other interest-earning assets (primarily
federal funds sold) was due to a $2,186,000, or 38.84%, decrease in average
other interest-earning assets, from $5,628,000 during the quarter ended June
30,
2007 to $3,442,000 during the quarter ended June 30, 2008 (as a result of using
federal funds to fund commercial real estate loan settlements and to pay down
Federal Home Loan Bank borrowings) and a 162 basis point decrease in the average
yield on these assets (as a result of decreases in short term market interest
rates).
Six
months ended June 30, 2008 compared to six months ended June 30,
2007
.
Interest
income increased by $256,000, or 5.54%, to $4,881,000 for the six months ended
June 30, 2008, from $4,625,000 for the six months ended June 30, 2007. The
increase in interest income resulted primarily from an increase of $427,000,
or
10.42%, in interest and fee income from loans, partially offset by decreases
of
$60,000, or 20.20%, in interest income from investment securities, $91,000,
or
55.15%, in interest income from other interest earning assets (primarily
consisting of interest earned on federal funds sold and Federal Home Loan Bank
stock) and $20,000, or 30.77%, in interest income from mortgage backed
securities.
The
increase in interest income reflects a $791,000, or 0.48%, increase in the
average balance of interest-earning assets to $167,189,000 from $166,398,000,
and a 28 basis point increase in the yield on average interest-earning assets
to
5.84% for the six months ended June 30, 2008 from 5.56% for the six months
ended
June 30, 2007, reflecting an increase in our loan volume, primarily commercial
real estate loans, and the higher interest rates those loans yield.
The
increase in interest income and fees on loans was due to a $5,729,000, or 3.94%,
increase in average net loans receivable, from $145,350,000 for the six months
ended June 30, 2007 to $151,079,000 for the six months ended June 30, 2008
and a
35 basis point increase in average yield on net loans receivable. The decrease
in interest income from investment securities was primarily reflective of a
43
basis point decrease in the average yield and a $1,682,000, or 13.29%, decrease
in the average balance of the investment securities. The decrease in interest
income from mortgage-backed securities was primarily the result of a $909,000
or
30.99% decline in the average balance of mortgage-backed securities, which
was
partially offset by a 2 basis point increase in the average yield on these
securities.
The
decrease in interest income from other interest-earning assets (primarily
federal funds sold) was due to a $2,347,000, or 75.39%, decrease in average
other interest-earning assets, from $5,460,000 during the six months ended
June
30, 2007 to $3,113,000 during the six months ended June 30, 2008 (as a result
of
using federal funds to fund commercial real estate loan settlements and to
pay
down Federal Home Loan Bank borrowings) and a 129 basis point decrease in the
average yield on these assets (as a result of decreases in short term market
interest rates).
Interest
Expense
.
Three
months ended June 30, 2008 compared to three months ended June 30,
2007
.
Interest
expense, which consists of interest paid on deposits and borrowings, decreased
by $77,000, or 5.07%, to $1,443,000 for the three months ended June 30, 2008
from $1,520,000 for the three months ended June 30, 2007. The decrease in
interest expense resulted from decreases of $75,000, or 69.44%, in interest
paid
on short-term borrowings and $7,000, or 0.61%, in interest paid on deposits,
partially offset by an increase of $5,000, or 1.90%, in interest paid on
long-term borrowings. The decrease in interest expense reflects a 35 basis
point
decrease in the average cost of interest-bearing liabilities, to 3.82% for
the
three months ended June 30, 2008 from 4.17% for the three months ended June
30,
2007, while the average balance of interest-bearing liabilities increased to
$151,117,000 during the quarter ended June 30, 2008 from $145,897,000 during
the
quarter ended June 30, 2007.
The
decrease in interest paid on deposits is due to a 33 basis point decrease in
the
average cost of deposits as a result of lowered market interest rates, partially
offset by a $7,392,000, or 6.60%, increase in the balance of interest bearing
deposits to $119,447,000 for the three months ended June 30, 2008 from
$112,055,000 for the three months ended June 30, 2007. The decrease in interest
paid on borrowings is a result of a decrease in the average balance of
borrowings to $31,667,000 during the quarter ended June 30, 2008 from
$33,833,000 in the same quarter of 2007 and a 59 basis point decrease in the
average cost of borrowings as a result of borrowing at lower interest rates
in
connection with short-term borrowings which are renewed at current interest
rates, which were lower during the 2007 period.
Six
months ended June 30, 2008 compared to six months ended June 30,
2007
.
Interest
expense decreased by $90,000, or 2.96%, to $2,954,000 for the six months ended
June 30, 2008 from $3,044,000 for the six months ended June 30, 2007. The
decrease in interest expense resulted from a decrease of $157,000, or 61.09%,
in
interest paid on short-term borrowings, partially offset by increases of
$55,000, or 2.43%, in interest paid on deposits and $12,000, or 2.29%, in
interest paid on long-term borrowings. The decrease in interest expense reflects
a 20 basis point decrease in the average cost of interest-bearing liabilities,
to 3.94% for the six months ended June 30, 2008 from 4.14% for the six months
ended June 30, 2007, while the average balance of interest-bearing liabilities
increased to $149,913,000 for the six months ended June 30, 2008 from
$146,958,000 for the same period of 2007. Interest paid on deposits increased
due to an increase in the average balance of deposits to $116,994,000 from
$111,701,000, which offset a decrease in the average cost of deposits by 15
basis points as a result of lower market interest rates. The average balance
of
borrowings decreased to $32,917,000 during the six months ended June 30, 2008
from $35,250,000 in the same period of 2007 and the average cost of borrowings
decreased by 57 basis points as a result of borrowing at lower interest rates.
Although the average balance in borrowings and the average cost of borrowings
decreased, the interest on long-term borrowings increased due to a long-term
convertible rate FHLB advance being called in July 2007 and replaced by a
long-term convertible FHLB advance at a higher interest rate.
Provision
for Loan Losses and Analysis of Allowance for Loan Losses
.
We
establish provisions for loan losses, which are charged to operations, at a
level estimated as necessary to absorb known and inherent losses that are both
probable and reasonably estimable at the date of the financial statements.
In
evaluating the level of the allowance for loan losses, management considers,
among other things, historical loss experience, the types of loans and the
amount of loans in the loan portfolio, adverse situations that may affect the
borrower’s ability to repay, estimated value of any underlying collateral, and
prevailing economic conditions (particularly as such conditions relate to our
market area). We charge losses on loans against the allowance when we believe
that collection of loan principal is unlikely. Recoveries on loans previously
charged off are added back to the allowance.
Based
on
our evaluation of these factors, and as discussed further below, management
made
a provision of $38,000 and $149,000 for the three months ended June 30, 2008
and
June 30, 2007, and a provision of $74,000 and $182,000 for the six months ended
June 30, 2008 and June 30, 2007, respectively. There were four overdraft
protection loan charge-offs totaling $2,300 during the six-month period ended
June 30, 2008. There was one commercial non-real estate loan charge-off of
$120,000 during the six-month period ended June 30, 2007 which is discussed
below under “General Valuation Allowance on the Remainder of the Loan
Portfolio.” We used the same methodology
and
generally similar assumptions in computing the allowance for these periods.
We
have
developed a methodology for assessing the adequacy of the allowance for loan
losses. Our methodology consists of three key elements: (1) specific allowances
for identified problem loans, primarily collateral-dependent; (2) a general
valuation allowance on certain identified problem loans; and (3) a general
valuation allowance on the remainder of the loan portfolio.
Specific
Allowance on Identified Problem Loans.
The loan
portfolio is segregated first between loans that are on our “watch list” and
loans that are not. Our watch list includes:
|
·
|
loans
90 or more days delinquent;
|
|
·
|
loans
with anticipated losses;
|
|
·
|
loans
referred to attorneys for collection or in the process of
foreclosure;
|
|
·
|
loans
classified as substandard, doubtful or loss by either our internal
classification system or by regulators during the course of their
examination of us; and
|
|
·
|
troubled
debt restructurings and other non-performing
loans.
|
Two
of
our officers review each loan on the watch list and establish an individual
allowance allocation on certain loans based on such factors as: (1) the strength
of the customer’s personal or business cash flow; (2) the availability of other
sources of repayment; (3) the amount due or past due; (4) the type and value
of
collateral; (5) the strength of our collateral position; (6) the estimated
cost
to sell the collateral; and (7) the borrower’s effort to cure the delinquency.
We
review
and establish, if necessary, an allowance for impaired loans for the amounts
by
which the discounted cash flows (or collateral value or observable market price)
are lower than the carrying value of the loan. Under current accounting
guidelines, a loan is defined as impaired when, based on current information
and
events, it is probable that a creditor will be unable to collect all amounts
when due under the contractual terms of the loan agreement.
General
Valuation Allowance on Certain Identified Problem Loans.
We
also
establish a general allowance for watch list loans that do not meet the
definition of impaired and do not have an individual allowance. We segregate
these loans by loan category and assign allowance percentages to each category
based on inherent losses associated with each type of lending and consideration
that these loans, in the aggregate, represent an above-average credit risk
and
that more of these loans will prove to be uncollectible compared to loans in
the
general portfolio.
General
Valuation Allowance on the Remainder of the Loan Portfolio.
We
establish another general allowance for loans that are not on the watch list
to
recognize the inherent losses associated with lending activities, but which,
unlike specific allowances and the general valuation allowance on certain
identified problem loans, has not been allocated to particular problem assets.
This general valuation allowance is determined by segregating the loans by
loan
category and assigning allowance percentages based on our historical loss
experience and delinquency trends. The allowance may be adjusted for significant
factors that, in management’s judgment, affect the collectibility of the
portfolio as of the evaluation date. These significant factors may include
changes in lending policies and procedures, changes in existing general economic
and business conditions affecting our primary lending areas, credit quality
trends, collateral value, loan volumes and concentrations, seasoning of the
loan
portfolio, specific industry conditions within portfolio segments, recent loss
experience in a particular segment of the portfolio, duration of the current
business cycle and bank regulatory examination results. The applied loss factors
are reevaluated annually to ensure their relevance in the current
environment.
Although
we believe that we use the best information available to establish the allowance
for loan losses, the evaluation is inherently subjective as it requires
estimates that are susceptible to significant revisions as more information
becomes available or as future events change. If circumstances differ
substantially from the assumptions used in making our determinations, future
adjustments to the allowance for loan losses may be necessary and our results
of
operations could be adversely affected. In addition, the Office of Thrift
Supervision, as an integral part of its examination process, periodically
reviews our allowance for loan losses. The Office of Thrift Supervision may
require us to increase the allowance for loan losses based on its judgments
about information available to it at the time of its examination, which would
adversely affect our results of operations.
The
allowance for loan losses totaled $1,044,000
or
0.67%
of gross loans outstanding of $155,526,000 at June 30, 2008, compared to an
allowance for loan losses of $972,000, or 0.65%, of
gross
loans outstanding of $150,501,000 at December 31, 2007. The increase to the
loan
loss reserve is due to the increased commercial real estate loan balances,
which
historically create a mix of riskier loan products since commercial loans are
considered to be a higher risk than residential mortgage loans. As of June
30,
2008, we have specific reserves of $100,000 within the allowance for loan losses
because we believe there is a substantial likelihood that we will not collect
the total amount of the outstanding principal balance on a commercial non-real
estate loan that is classified as impaired. The corporate commercial loan
borrower filed Chapter 7 corporate bankruptcy in the third quarter of 2006
and
filed Chapter 7 personal bankruptcy in the second quarter of 2007. We
restructured the remaining debt to facilitate repayment of the loan in the
third
quarter of 2007 and the borrower has been making payments in accordance with
the
terms of the restructured loan agreement.
The
following table summarizes the activity in the provision for loan losses for
the
three and six months ended June 30, 2008 and 2007.
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
June
30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(Dollars
in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
$
|
1,007
|
|
$
|
764
|
|
$
|
972
|
|
$
|
850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
(1)
|
|
|
(1
|
)
|
|
(1
|
)
|
|
(2
|
)
|
|
(120
|
)
|
Recoveries
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
charge-offs
|
|
|
(1
|
)
|
|
(1
|
)
|
|
(2
|
)
|
|
(120
|
)
|
Provision
for loan losses
|
|
|
38
|
|
|
149
|
|
|
74
|
|
|
182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$
|
1,044
|
|
$
|
912
|
|
$
|
1,044
|
|
$
|
912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of net charge-offs during the period to average loans outstanding,
net,
during the period
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
0.08
|
%
|
Ratio
of allowance for loan losses to total loans outstanding
|
|
|
0.67
|
%
|
|
0.63
|
%
|
|
0.67
|
%
|
|
0.63
|
%
|
Allowance
for loan losses as a percent of total non-performing loans
|
|
|
47.26
|
%
|
|
219.76
|
%
|
|
47.26
|
%
|
|
219.76
|
%
|
(1)
|
Charge
offs consisted primarily of the principal loss of overdraft protection
lines of credit with the exception of a commercial non-real estate
loan
charge off of $120,000 in 2007.
|
Other
Income
.
Three
months ended June 30, 2008 compared to three months ended June 30,
2007
.
Historically,
our non-interest income has been relatively modest and one of our strategic
initiatives is to increase our non-interest income. Non-interest income
increased $24,000, or 22.86%, to $129,000 for the three months ended June 30,
2008, as compared to $105,000 for the three months ended June 30, 2007. The
primary reason for the increase in non-interest income is a $26,000, or 78.79%,
increase in other income (primarily consisting of fees earned from the sale
of
non-insured investment products, processing fees and late charges on loan
products and income from checking accounts and ATM usage) to $59,000 for the
three months ended June 30, 2008, as compared to $33,000 for the three months
ended June 30, 2007 and a $22,000, or 53.66%, increase in rental income from
our
headquarters building to $63,000 for the three months ended June 30, 2008,
as
compared to $41,000 for the three months ended June 30, 2007 (as a result of
a
$11,500 early termination penalty as a tenant vacated their space prior to
the
contract expiration and paid in full their portion of the costs of $9,000
associated with building improvements and an increase in leasing rates to
certain non-affiliated tenants since June 2007). One tenant has vacated a
portion of our leaseable space, terminated their lease and paid us in full
through July 31, 2008. While we have experienced the loss of another small
tenant in the second quarter of 2008, they continue to pay the rent due pursuant
to the agreed upon rent schedule while we seek to lease their space. Our rental
income has also remained constant due to increases in rental rates provided
for
in the applicable lease agreements of the remaining tenants. As of June 30,
2008, we leased 100% of the total leaseable space in our headquarters building.
We expect this figure to decrease only slightly to 93% in the third quarter
of
2008 as we do not anticipate any vacant leaseable space in our headquarters
building, other than due to the tenants mentioned above.
Six
months ended June 30, 2008 compared to six months ended June 30,
2007
.
Non-interest
income increased $40,000, or 23.26%, to $212,000 for the six months ended June
30, 2008, as compared to $172,000 for the six months ended June 30, 2007. The
primary reason for the increase in non-interest income is a $47,000, or 88.68%,
increase in other income and a $25,000, or 31.25%, increase in rental income
from our headquarters building.
Non-interest
Expense
.
Three
months ended June 30, 2008 compared to three months ended June 30,
2007
.
Non-interest
expense was $867,000 for the three months ended June 30, 2008 as compared to
$816,000 for the three months ended June 30, 2007, an increase of $51,000,
or
6.25%. The increase was due primarily to an increase of $58,000, or 13.62%,
in
compensation and related expenses, partially offset by a decrease of $16,000,
or
25.00%, in advertising expenses. The increase in compensation and related
expenses is the result of hiring two experienced commercial loan originators,
one in February of 2007 and one in November 2007 and a certified financial
planner in June 2007.
Six
months ended June 30, 2008 compared to six months ended June 30,
2007
.
Non-interest
expense was $1,749,000 for the six months ended June 30, 2008, as compared
to
$1,634,000 for the six months ended June 30, 2007, an increase of
$115,000
or
7.04%.
The increase was due
primarily
to a $108,000, or 12.56%, increase in compensation expenses, partially offset
by
a decrease of $6,000, or 5.56%, in advertising expenses. The increase in
compensation expenses for the six months ended June 30, 2008 is due to the
same
factors as stated above for the three month period.
Income
Tax Expense
.
Three
months ended June 30, 2008 compared to three months ended June 30,
2007
.
The
provision for income taxes was $108,000 for the three months ended June 30,
2008
compared to a benefit for income taxes of $19,000 for the three months ended
June 30, 2007, representing a $127,000, or 668.42%, increase. The increase
in
the provision for income taxes was primarily due to our income before taxes
of
$250,000 for the three months ended June 30, 2008, as compared to our loss
of
$57,000 for the three months ended June 30, 2007. The effective tax rate was
43.20% for the three months ended June 30, 2008 compared with 33% for the same
period in 2007. The increase in the effective tax rate was primarily due to
the
lower interest on the U.S. obligations which are exempt for state tax purposes
for the three months ended June 30, 2008, as compared to the three months ended
June 30, 2007.
Six
months ended June 30, 2008 compared to six months ended June 30,
2007
.
The
provision for income taxes was $132,000 for the six months ended June 30, 2008
compared to a benefit for income taxes of $15,000 for the six months ended
June
30, 2007, representing a $147,000, or 980.00%, increase. The increase in the
provision for income taxes was primarily due to our income before taxes of
$316,000 for the six months ended June 30, 2008, as compared to our loss of
$63,000 for the six months ended June 30, 2007. The effective tax rate was
41.77% for the six months ended June 30, 2008 compared with 23.81% for the
same
period in 2007. The reason for the increase
in
the
effective tax rate for the six month period ending June 30, 2008 is the same
as
stated above for the quarter ending June 30, 2008.
Analysis
of Financial Condition
Assets.
General
.
Our
total
assets increased by $5,018,000 or 2.91%, to $177,262,000 at June 30, 2008,
from
$172,244,000 at December 31, 2007. The increase in total assets resulted
primarily from increases of $6,426,000, or 4.35% increase in net loans
receivable, from $147,744,000 at December 31, 2007 to $154,170,000 at June
30,
2008, $258,000, or 20.20%, increase in cash and cash equivalents, from
$1,277,000 at December 31, 2007 to $1,535,000 at June 30, 2008 and $373,000,
or
85.55%, in other assets (consisting primarily of deferred income taxes, prepaid
assets, and an investment in Mortgage Department Services, LLC), from $436,000
at December 31, 2007 to $809,000 at June 30, 2008. These increases were offset
by a $1,000,000, or 33.33%, decrease in investment securities - held to
maturity, from $3,000,000 at December 31, 2007 to $2,000,000 at June 30, 2008,
a
$480,000, or 5.37%, decrease in investment securities - available for sale,
from
$8,942,000 at December 31, 2007 to $8,462,000 at June 30, 2008 and a $401,000,
or 17.85%, decrease in mortgage backed securities-held to maturity, from
$2,247,000 at December 31, 2007 to $1,846,000 at June 30, 2008.
Investment
Securities
.
The
investment portfolio at June 30, 2008 amounted to $12,308,000, a decrease of
$1,881,000, or 13.26%,
from
$14,189,000 at December 31, 2007. Investment securities – available for sale,
decreased $480,000, or 5.37%, to $8,462,000 at June 30, 2008 from $8,942,000
at
December 31, 2007, primarily as a result of unrealized losses to the account.
Investment securities – held to maturity, decreased $1,000,000, or 33.33%,
to $2,000,000 at June 30, 2008 from $3,000,000 at December 31, 2007, as a result
of a principal repayment on a matured investment. Mortgage-backed securities
–
held to maturity, decreased $401,000, or 17.85%, to $1,846,000 at June 30,
2008
from $2,247,000 at December 31, 2007, as a result of principal repayments.
As we
are not continuing to purchase mortgage-backed securities, we expect continued
decreases in this asset both in amount and as a percentage of our
assets
.
The
carrying value of available for sale securities includes a net unrealized loss
of $936,000 at June 30, 2008 (reflected as accumulated other comprehensive
loss
of $569,000 in equity after deferred taxes) as compared to a net unrealized
loss
of $258,000 ($158,000 net of taxes) as of December 31, 2007. In general, the
increase in unrealized loss was a result of
instability
in the mortgage-backed securities market.
Loan
Portfolio
Loans
receivable, net, increased $6,426,000, or 4.35%, to $154,170,000 at June 30,
2008 from $147,744,000 at December 31, 2007. The commercial real estate loan
portfolio increased $3,430,000, or 21.62%, to
$19,296,000
at
June
30, 2008 from $15,866,000 at December 31, 2007. One-to-four family residential
loans decreased $1,853,000, or 1.65% to $110,385,000 at June 30, 2008 from
$112,238,000 at December 31, 2007. Our loan customers are generally located
in
the Baltimore Metropolitan area and its surrounding counties in Maryland.
Asset
Quality
.
Loans
are
reviewed on a regular basis and are generally placed on non-accrual status
when
they become more than 90 days delinquent. When we classify a loan as
non-accrual, we no longer accrue interest on such loan and reverse any interest
previously accrued but not collected. Typically, payments received on a
non-accrual loan are applied to the outstanding principal and interest as
determined at the time of collection of the loan. We return a non-accrual loan
to accrual status when factors indicating doubtful collection no longer exist
and the loan has been brought current. We consider repossessed assets and loans
that are 90 days or more past due to be non-performing assets.
Real
estate and other assets that we acquire as a result of foreclosure or by
deed-in-lieu of foreclosure or repossession on collateral-dependent loans are
classified as real estate or other repossessed assets until sold. Such assets
are recorded at fair value less estimated selling costs at foreclosure or other
repossession and updated quarterly at the lower of cost or estimated fair value
less estimated selling costs. Any portion of the outstanding loan balance in
excess of fair value at the time of foreclosure is charged off against the
allowance for loan losses. If, upon ultimate disposition of the property, net
sales proceeds exceed the net carrying value of the property, a gain on sale
of
foreclosed real estate or other assets is recorded. We have one foreclosed
real
estate participation loan totaling $1,096,000 at June 30, 2008. This asset
is an
acquisition and development real estate participation that became delinquent
in
the fourth quarter of 2004 and was placed on non-accrual status in the third
quarter of 2005. Both the principal of the borrower and the entity that owns
the
collateral property filed for bankruptcy in the fourth quarter of 2006. An
automatic stay was imposed in connection with the bankruptcy filings that had
prevented the sale of the property, which was lifted in the second quarter
of
2007. The property was sold at auction to the lead participating bank, requiring
us to reclassify the participation as foreclosed real estate in the same
quarter. Subsequently, a real estate developer made an offer to purchase the
foreclosed property and the lead participating bank accepted a letter of intent
and executed a contract with a feasibility study period, which expired on June
15, 2008. The real estate developer is requesting reinstatement of the contract
of sale with a new expiration date of April 30, 2009, with a pending settlement
expected before the end of the third quarter of 2009. We are also pursuing
other
interested buyers. We still expect to recover the carrying amount of the real
estate, although there can be no assurance that this will be the
case.
We
had
foreclosed real estate of $1,096,000 at June 30, 2008 and $1,083,000 at December
31, 2007.
Non-accrual
loans totaled $772,000, or 0.50%, $468,000, or 0.32% and
$415,000,
or 0.29% of net loans receivable at June 30, 2008, December 31, 2007 and June
30, 2007, respectively. Of the non-accrual loans at June 30, 2008, $100,000
consisted of a commercial non-real estate loan and $672,000 consisted of four
one- to-four-family residential mortgage loans. The increase in the amount
of
non-accrual loans between the first six months of 2008 and 2007 is due to an
increase in the number of residential loans that are over ninety days past
due
during the second quarter of 2008.
Under
current accounting guidelines, a loan is defined as impaired when, based on
current information and events, it is probable that a creditor will be unable
to
collect all amounts when due under the contractual terms of the loan
agreement. We consider one- to four-family mortgage loans and consumer
installment loans to be homogeneous and, therefore, do not separately evaluate
them for impairment. All other loans are evaluated for impairment on an
individual basis. We generally classify non-accrual loans as
impaired.
As
of
June 30, 2008, we have classified a commercial non-real estate loan as impaired
as was discussed in the “Provision for Loan Losses and Analysis of Allowance for
Loan Losses” section of this report. In anticipation of a minimal recovery of
principal on this loan, we charged a portion of the loan balance against our
allowance for loan losses and we have reserved $100,000, or 100%, of the
remaining balance of the loan to our allowance for loan losses in 2007. The
remaining debt was restructured at that time.
We
have
also placed a commercial real estate loan in the amount of $1,133,000 on our
watch list due to slow housing sales. The borrower is a well regarded builder
and developer and we expect all payments to be made as agreed. As of June 30,
2008, the loan is being paid as agreed.
Other
than as disclosed in the paragraphs above, there are no other loans at June
30,
2008 about which management has serious doubts concerning the ability of the
borrowers to comply with the present loan repayment terms.
Liabilities.
General
.
Total
liabilities increased by $5,168,000, or 3.43%, to $155,643,000 at June 30,
2008,
from $150,475,000 at December 31, 2007. The increase in total liabilities
resulted from increases of $7,973,000, or 6.99% in deposits and $1,389,000,
or
409.73%, in advance payments by borrowers for taxes and insurance, partially
offset by decreases of $3,000,000, or 8.82%, in borrowings and $889,000, or
82.54%, in checks outstanding in excess of bank balance. The decrease in
borrowings is the result of paying down the Federal Home Loan Bank advances
when
our liquidity is favorable. Advance payments by borrowers for taxes and
insurance increased because the July 2008 semi-annual property taxes had not
been paid as of
June
30,
2008. The balance in checks outstanding in excess of bank balance at the end
of
a period is dependent on the number and amounts of checks issued on the account
at our correspondent’s bank and when such checks are presented for payment. Any
excess funds are automatically transferred into an interest-earning federal
funds account. Therefore, changes in checks outstanding in excess of bank
balance as reflected on the balance sheet, generally, do not reflect any
underlying changes in the Company’s financial condition. The other liabilities
consist primarily of accrued federal and state income taxes and accrued interest
on Federal Home Loan Bank borrowings.
Deposits
Deposits
increased $7,973,000, or 6.99%, to $122,071,000 at June 30, 2008 from
$114,098,000 at December 31, 2007. Certificates of deposits increased
$5,728,000, or 6.39%, to $95,403,000 at June 30, 2008 from $89,675,000 at
December 31, 2007, and NOW and money market demand deposit accounts increased
by
$2,368,000, or 14.18%, to $19,073,000 at June 30, 2008 from $16,705,000 at
December 31, 2007. Savings deposits decreased by $123,000, or 1.59%, to
$7,595,000 at June 30, 2008 from $7,718,000 at December 31, 2007. We believe
that, as deposit rates fall and the stock market remains volatile, our customers
are moving funds into shorter term investments with higher yields or keeping
their funds liquid in anticipation of an economic recovery, thus accounting
for
the increase in certificate of deposit and core deposit accounts and the decline
in lower rate paying savings deposit accounts.
Borrowings
.
At
June
30, 2008, we were permitted to borrow up to $53,179,000 from the Federal Home
Loan Bank of Atlanta. We had $31,000,000 and $34,000,000 of Federal Home Loan
Bank advances outstanding as of June 30, 2008 and December 31, 2007,
respectively, and we averaged
$32,917,000
and $33,917,000 of Federal Home Loan Bank advances during the six months ended
June 30, 2008 and the year ended December 31, 2007, respectively. The decrease
in borrowings reflects $3,000,000 Federal Home Loan Bank advance pay downs
and
$26,000,000 in the rollover of advances, offset by maturing advances of
$26,000,000 in the first half of 2008.
Liquidity
Management
Liquidity
is the ability to meet current and future financial obligations of a short-term
nature. Our primary sources of funds consist of deposit inflows, borrowings
from
the Federal Home Loan Bank of Atlanta, scheduled amortization and prepayment
of
loans and mortgage-backed securities, maturities and calls of held to maturity
investment securities and earnings and funds provided from operations. While
scheduled principal repayments on loans and mortgage-backed securities are
a
relatively predictable source of funds, deposit flows, calls of securities
and
loan prepayments are greatly influenced by market interest rates, economic
conditions, and rates offered by our competitors.
We
regularly adjust our investments in liquid assets based upon our assessment
of
(1) expected loan demand, (2) expected deposit flows, (3) yields available
on
interest-earning deposits and securities and (4) the objectives of our
asset/liability management policy.
Our
most
liquid assets are cash and cash equivalents. The levels of these assets depend
on our operating, financing, lending and investing activities during any given
period. At June 30, 2008, cash and cash equivalents totaled $1,535,000.
Securities classified as available-for-sale, which can provide additional
sources of liquidity, totaled $8,462,000 at June 30, 2008. However, because
all
of these securities were in an unrealized loss position at June 30, 2008, and
because management has the intent and ability to hold these securities until
recovery or maturity, management does not consider these securities as a source
of liquidity at June 30, 2008.
Also,
at
June 30, 2008, we had advances outstanding of $31,000,000 from the Federal
Home
Loan Bank of Atlanta. On that date, we had the ability to borrow an additional
$22,179,000.
At
June
30, 2008, we had outstanding commitments to originate loans of $786,000
(excluding the undisbursed portions of loans). These commitments do not
necessarily represent future cash requirements since certain of these
instruments may expire without being funded, although this would be unusual.
We
also extend lines of credit to customers, primarily home equity lines of credit.
The borrower is able to draw on these lines as needed, thus the funding is
generally unpredictable. Unused home equity lines of credit amounted to
$4,957,000 at June 30, 2008. Since the majority of unused lines of credit expire
without being funded, it is anticipated that our obligation to fund the above
commitment amounts will be substantially less than the amounts
reported.
Certificates
of deposit accounts scheduled to mature within one year totaled $63,159,000
or
51.74% of total deposits at June 30, 2008. Management believes that the large
percentage of deposits in shorter-term certificates of deposit reflects
customers’ hesitancy to invest their funds in long-term certificates of deposit
in the current interest rate environment. If these deposits do not remain with
us, we will be required to seek other sources of funds, including other
certificates of deposit and/or additional borrowings. Depending on market
conditions, we may be required to pay higher rates on such deposits or other
borrowings than we currently pay on the certificates of deposit due on or before
June 30, 2009. We believe, however, that, based on past experience, a
significant portion of our certificates of deposit will remain with us. We
also
believe we have the ability to attract and retain deposits by adjusting the
interest rates offered.
Our
borrowings are with the Federal Home Loan Bank of Atlanta and are secured by
Federal Home Loan Bank of Atlanta stock that we own and a blanket lien on
mortgages. Borrowings at June 30, 2008 consisted of
$4,500,000
short
term fixed rate FHLB advances bearing interest at rates ranging from 2.57%
to
2.77% and $26,500,000 long term convertible rate FHLB advances with fixed
interest rates ranging from 3.63% to 4.90%. If not repaid or converted to a
different product, the convertible rate advances will convert from a fixed
to a
floating rate after the initial borrowing periods ranging from three months
to
sixty months.
Our
primary investing activity is the origination of loans, primarily one- to
four-family residential mortgage loans and commercial real estate loans. Our
primary financing activity consists of activity in deposit accounts and Federal
Home Loan Bank of Atlanta advances. Deposit growth has continued to outpace
asset growth over the past twelve to fifteen months and the increased liquidity
has been placed in a federal funds account with our correspondent bank and
used
to pay down borrowed funds and to fund commercial real estate and acquisition
and renovation loans. Deposit flows are affected by the overall level of
interest rates, the interest rates and products offered by us and our local
competitors and other factors. We generally manage the pricing of our deposits
to be competitive. Occasionally, we offer promotional rates on certain deposit
products to attract deposits.
We
are
not aware of any known trends, events or uncertainties that will have or are
reasonably likely to have a material effect on our liquidity, capital or
operations, nor are we aware of any current recommendation by regulatory
authorities, which if implemented, would have a material effect on liquidity,
capital or operations.
Stockholders’
Equity
Total
stockholders’ equity decreased $150,000, or 0.69%, to $21,619,000 at June 30,
2008 from $21,769,000 at December 31, 2007 as a result of increases in stock
based compensation of $51,000, net income of $184,000 and an accumulated other
comprehensive loss of $410,000 (resulting from the unrealized losses on
investments available for sale, net of tax). We are considered “well
capitalized” under the risk-based capital guidelines applicable to
us.
Off-balance
Sheet Arrangements
In
the
normal course of operations, we engage in a variety of financial transactions
that, in accordance with generally accepted accounting principles, are not
recorded in our financial statements. These transactions involve, to varying
degrees, elements of credit, interest rate, and liquidity risk. Such
transactions are used primarily to manage customers’ requests for funding and
take the form of loan commitments and lines of credit. Our exposure to credit
loss from non-performance by the other party to the above-mentioned financial
instruments is represented by the contractual amount of those instruments.
We
use the same credit policies in making commitments and conditional obligations
as we do for on-balance sheet instruments.
Financial
Instruments Whose
|
|
|
|
|
|
Contract
Amount Represents
|
|
Contract
Amount At
|
|
Credit
Risk
|
|
June 30, 2008
|
|
December 31, 2007
|
|
|
|
(Dollars
in thousands)
|
|
Lines
of credit – commercial
|
|
$
|
8,227
|
|
$
|
887
|
|
Lines
of credit – home equity
|
|
|
4,957
|
|
|
4,964
|
|
Lines
of credit – overdraft checking
|
|
|
128
|
|
|
129
|
|
Mortgage
loan commitments
|
|
|
786
|
|
|
1,541
|
|
Commercial
real estate lines of credit, including equipment lines of credit discussed
below, are generally secured by a blanket lien on assets of the borrower.
Revolving Lines of Credit (RLOC) are typically used for short term working
capital needs and are based most heavily on the accounts receivable and
inventory components of the borrower’s balance sheet. RLOC have terms of one
year, are subject to annual reaffirmation and carry variable rates of interest.
We generally receive a one percent fee, based on the commitment
amount.
Equipment
lines of credit are secured by equipment being purchased and sometimes by a
blanket lien on assets of the borrower as well. Each advance is repaid over
a
term of three to five years and carries a variable or prevailing fixed rate
of
interest. We will generally advance up to 80% of the cost of the new or used
equipment. These credit facilities are revolving in nature and the commitment
is
subject to annual reaffirmation.
For
both
types of credit facilities listed above, we evaluate each customer’s credit
worthiness on a case-by-case basis.
Home
equity lines of credit are secured by second deeds of trust on residential
real
estate. They have fixed expiration dates as long as there is no violation of
any
condition established in the contract. We evaluate each customer’s credit
worthiness on a case-by-case basis.
Overdraft
lines of credit on checking accounts are unsecured. Linked to any Slavie Federal
personal checking account, the line will automatically make a deposit to the
customer’s checking account if the balance falls below the amount needed to pay
an item presented for payment.
Our
outstanding commitments to make mortgages are at fixed rates ranging from 7.50%
to 8.00% and 6.250% to 8.250% at June 30, 2008 and December 31, 2007,
respectively. Loan commitments expire 60 days from the date of the
commitment.
For
the
six months ended June 30, 2008, we engaged in no off-balance sheet transactions
reasonably likely to have a material effect on our financial condition, results
of operations or cash flows.
Information
Regarding Forward-Looking Statements
In
addition to the historical information contained in Part I of this Quarterly
Report on Form 10-Q, the discussion in Part I of this Quarterly Report on Form
10-Q contains certain forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements often use words
such as “believe,” “expect,” “plan,” “may,” “will,” “should,” “project,”
“contemplate,” “anticipate,” “forecast,” “intend” or other words of similar
meaning. You can also identify them by the fact that they do not relate strictly
to historical or current facts.
Our
goals, objectives, expectations and intentions, including statements regarding
the development and introduction of new products and services, the allowance
for
loan losses, leaseable space in our headquarters building, repayment of
non-accrual and watch list loans, retention of maturing certificates of deposit,
liquidity management, funding of unused lines of credit, our holding of
mortgage-backed securities and financial and other goals are forward looking.
These statements are based on our beliefs, assumptions and on information
available to us as of the date of this filing, and involve risks and
uncertainties. These risks and uncertainties include, among others, those
discussed in this Quarterly Report on Form 10-Q and in our Annual Report on
Form
10-K for the year ended December 31, 2007; the effect of falling interest rates
on our profits and asset values; risks related to our intended increased focus
on commercial real estate and commercial business loans; adverse economic
conditions in our market area; our dependence on key personnel; competitive
factors within our market area; the effect of developments in technology on
our
business; adverse changes in the overall national economy as well as adverse
economic conditions in our specific market area; adequacy of the allowance
for
loan losses; expenses as a result of our stock benefit plans; and changes in
regulatory requirements and/or restrictive banking legislation.
Our
actual results and the actual outcome of our expectations and strategies could
differ materially from those discussed herein and you should not put undue
reliance on any forward-looking statements. All forward-looking statements
speak
only as of the date of this filing, and we undertake no obligation to make
any
revisions to the forward-looking statements to reflect events or circumstances
after the date of this filing or to reflect the occurrence of unanticipated
events.
Item
3.
Quantitative
and Qualitative Disclosures About Market Risk.
Not
Applicable
Item
4.
Controls
and Procedures.
As
of the
end of the period covered by this quarterly report on Form 10-Q, SFSB, Inc.’s
Chief Executive Officer and Chief Financial Officer evaluated the effectiveness
of SFSB, Inc.’s disclosure controls and procedures. Based upon that evaluation,
SFSB, Inc.’s Chief Executive Officer and Chief Financial Officer concluded that
SFSB, Inc.’s disclosure controls and procedures are effective as of June 30,
2008. Disclosure controls and procedures are controls and other procedures
that
are designed to ensure that information required to be disclosed by SFSB, Inc.
in the reports that it files or submits under the Securities Exchange Act of
1934, as amended, is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission’s rules and
forms.
In
addition, there were no changes in SFSB, Inc.’s internal control over financial
reporting (as defined in Rule 13a-15 or Rule 15d-15 under the Securities Act
of
1934, as amended) during the quarter ended June 30, 2008, that have materially
affected, or are reasonably likely to materially affect, SFSB, Inc.’s internal
control over financial reporting.
PART
II - OTHER INFORMATION
Item
1.
Legal
Proceedings.
None.
Item
2.
Unregistered
Sales of Equity Securities and Use of Proceeds.
The
table
below summarizes our repurchases of equity securities during the second quarter
of 2008.
ISSUER
PURCHASES OF SECURITIES
Period
|
|
Total Number of
Shares Purchased
(1)
|
|
Average
Price
Paid per
Share
|
|
Total Number of
Shares
Purchased as Part
of
Publicly Announced
Plans or
Programs
(1)
|
|
Maximum
Number of Shares
that May Yet
Be Purchased
Under
The Plans or
Programs
(1)
|
|
April
1 – 30, 2008
|
|
|
0
|
|
|
n/a
|
|
|
0
|
|
|
58,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May
1 –31, 2008
|
|
|
500
|
|
$
|
6.90
|
|
|
500
|
|
|
58,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
1 - 30, 2008
|
|
|
100
|
|
$
|
6.90
|
|
|
100
|
|
|
57,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Second Quarter
|
|
|
600
|
|
$
|
6.90
|
|
|
600
|
|
|
57,952
|
|
(1)
On
November 21, 2005, SFSB, Inc.’s board of directors adopted a stock repurchase
program to acquire up to 53,561 shares, or approximately 4% of our outstanding
common stock held by persons other than Slavie Bancorp, MHC. SFSB, Inc.’s board
of Directors approved additional repurchases of up to an additional 66,951
shares on May 10, 2006, 62,334 shares on August 6, 2007, 59,052 shares on
February 19, 2008 and 59,022 on July 21, 2008, in each case constituting
approximately 5% of its outstanding common stock held by persons other than
Slavie Bancorp, MHC at such time. Stock purchases are made from time to time
in
the open market at the discretion of management. Any share repurchases under
the
repurchase program are dependent upon market conditions and other applicable
legal requirements and must be undertaken within a 12-month period of the
board’s authorization. As of June 30, 2008, SFSB, Inc. had repurchased 183,947
shares on the open market at an average cost of
$9.14
per
share
to fund a stock-based compensation plan. In accordance with the terms of the
stock repurchase program, as of June 30, 2008, SFSB, Inc. is authorized to
purchase an additional 57,952 shares before February 19, 2009 and, as of the
date of this filing,
an
aggregate of 57,941 shares before July 21, 2009.
Item
3.
Defaults
Upon Senior Securities.
Not
applicable.
Item
4.
Submission
of Matters to a Vote of Securities Holders.
(a)
SFSB,
Inc. held its annual meeting of stockholders on May 15, 2008.
(b)
At
the
annual meeting, Philip E. Logan and Robert M. Stahl IV were elected to serve
a
three-year term expiring upon the date of SFSB, Inc.’s 2011 Annual Meeting. The
term of office of the following directors continued after the meeting: J. Benson
Brown, Thomas J. Drechsler, Charles E. Wagner, Jr. and James D. Wise.
(c)
1.
The
following individuals were nominees for the Board of Directors for a term to
expire at the 2011 annual meeting of stockholders. The number of votes for
or
withheld for each nominee is as follows:
|
For
|
Withheld
|
Total
|
Philip
E. Logan
|
2,769,729
|
72,743
|
2,842,472
|
Robert
M. Stahl IV
|
2,770,229
|
72,243
|
2,842,472
|
2.
The
ratification of the appointment of Beard Miller Company LLP as independent
public accountants to audit the financial statements of SFSB, Inc. for
2008:
For
|
Against
|
Abstain
|
Broker
Non-Votes
|
Total
|
2,804,463
|
37,909
|
100
|
0
|
2,842,472
|
Item
5.
Other
Information.
None.
Item
6.
Exhibits.
31.1
|
Rule
13a-14(a) Certification of Chief Executive Officer
|
|
|
31.2
|
Rule
13a-14(a) Certification of Chief Financial Officer
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32
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Section
1350 Certification of Chief Executive Officer and Chief Financial
Officer
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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.
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SFSB,
Inc.
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Date:
August 14,
2008
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By:
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/s/
Philip E. Logan
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Philip
E. Logan, President
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(Principal
Executive Officer)
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Date:
August 14, 2008
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By:
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/s/
Sophie T. Wittelsberger
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Sophie
Torin Wittelsberger, Chief Financial Officer
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(Principal
Accounting and Financial Officer)
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