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| JFBC > SEC Filings for JFBC > Form 10-Q on 10-Nov-2008 | All Recent SEC Filings |
10-Nov-2008
Quarterly Report
Forward-Looking Statements
In addition to historical information, this report includes certain forward-looking statements with respect to the financial condition, results of operations and business of the Company based on current management's expectations. Economic circumstances, the Company's operations and the Company's actual results could differ significantly from those discussed in the forward-looking statements. Factors that could cause future results to vary from current management expectations include, but are not limited to, general economic conditions, legislative and regulatory changes, monetary and fiscal policies of the federal government, changes in tax policies, rates and regulations, changes in interest rates, deposit flows, the cost of funds, demand for loan products, demand for financial services, competition, changes in the quality or composition of the Company's loan and securities portfolios, changes in accounting principles, and other economic, competitive, governmental, and technological factors affecting the Company's operations, markets, products, services and prices. Some of these and other factors are discussed in the Company's annual and quarterly reports filed with the Securities and Exchange Commission. Such developments could have an adverse impact on the Company's financial position and results of operations.
A. Overview - Financial Condition
During the period from December 31, 2007 to September 30, 2008, total assets increased $10,152,000 or 2.6%, from $387,430,000 to $397,582,000, primarily due to an increase in our loan portfolio. Net loans increased from $249,633,000 at December 31, 2007 to $259,772,000 at September 30, 2008, an increase of $10,139,000 or 4.1%.
Total deposits decreased from $299,242,000 at December 31, 2007 to $292,443,000 at September 30, 2008, a decrease of $6,799,000 or 2.3%. Interest bearing accounts decreased $6,596,000 from December 31, 2007. Savings deposit decreased $9,295,000 or 10.6% from $88,011,000 at December 31, 2007 to $78,716,000 at September 30, 2008. Partially offsetting this decrease was an increase in NOW and super NOW accounts of $1,974,000 from December 31, 2007 to $30,020,000 or 7.0% at September 30, 2008. Time deposits increased $725,000 or 0.6% to $121,767,000 at September 30, 2008 from December 31, 2007. Non interest bearing demand deposits decreased $203,000 to $61,940,000 at September 30, 2008, a decrease of 0.3%. Short-term debt increased $13,396,000 to $18,905,000 and Federal Home Loan Bank borrowing increased $5,000,000 to $35,000,000 at September 30, 2008 in part to replace brokered deposit maturities of $5,052,000 and to help fund loan growth.
Total stockholders' equity decreased $2,025,000 or 4.6% from $43,958,000 at December 31, 2007 to $41,933,000 at September 30, 2008. This decrease was the result of cash dividends of $1,651,000, the cumulative effect of adopting EITF 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements in the amount of $255,000 and an increase in accumulated other comprehensive loss of $188,000 partially offset by $69,000 of net income.
Loan Portfolio Composition, dollars in thousands:
September 30, 2008 December 31, 2007
Amount Percent Amount Percent
REAL ESTATE LOANS
Residential 1 $ 99,016 37.6 % $ 98,266 38.9 %
Commercial 1 90,292 34.3 83,528 33.0
Home Equity 30,683 11.7 25,977 10.3
Farm land 3,835 1.5 3,883 1.5
Construction 6,060 2.3 5,531 2.2
229,886 87.4 217,185 85.9
OTHER LOANS
Commercial loans 24,610 9.4 26,431 10.4
Consumer installment loans 7,927 3.0 8,948 3.5
Other consumer loans 158 0.1 148 0.1
Agricultural loans 375 0.1 273 0.1
33,070 12.6 35,800 14.1
Total loans 262,956 100.0 % 252,985 100.0 %
Allowance for loan losses (3,184 ) (3,352 )
Total loans, net $ 259,772 $ 249,633
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1 Historical data restated to conform with current classifications
B. Allowance for Loan Losses
The allowance for loan losses reflects management's assessment of the risk inherent in the loan portfolio, which includes factors such as the general state of the economy and past loan experience. While a (credit) for loan losses of ($370,000) was recorded for the nine months ended September 30, 2007, a $140,000 provision was recorded in the nine months ended September 30, 2008. Total charge-offs for the nine month period ended September 30, 2008 were $468,000 compared to $152,000 for the same period in the prior year, while recoveries decreased from $504,000 for the 2007 period to $160,000 for the 2008 period. The amounts represent net charge-offs of $308,000 in the nine months ended September 2008 and net recoveries of $352,000 for the same period in the prior year. Based on management's analysis of the loan portfolio and the decline in the non-accrual and non-performing loans, management believes the current level of the allowance for loan losses is adequate.
Changes in the allowance for loan losses are summarized as follows for the periods indicated, dollars in thousands:
Nine months Nine months
ended ended Year ended
September 30, September 30, December 31,
2008 2007 2007
Balance at beginning of period $ 3,352 $ 3,516 $ 3,516
Provision (credit) for loan losses 140 (370 ) (370 )
Loans charged-off (468 ) (152 ) (318 )
Recoveries 160 504 524
Balance at end of period $ 3,184 $ 3,498 $ 3,352
Annualized net charge-offs
(recoveries) as a percentage of
average outstanding loans 0.16 % (0.19 )% (0.08 )%
Allowance for loan losses to:
Total loans 1.21 % 1.40 % 1.32 %
Total non-performing loans 127.9 % 111.6 % 72.2 %
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C. Nonaccrual and Past Due Loans
The Company places a loan on nonaccrual status when collectability of principal or interest in accordance with the provisions of the loan documents is doubtful, or when either principal or interest is 90 days or more past due. The majority of the Company's total nonaccrual and past due loans are secured loans and, as such, management anticipates there will be limited risk of loss upon their ultimate resolution. Interest income on nonaccrual loans that are well secured are recorded on a cash basis.
Nonperforming loans are summarized as follows at the following dates, dollars in thousands:
September 30, December 31,
2008 2007
Nonaccrual loans $ 2,099 $ 3,761
Loans past due 90 days or more and still
accruing interest 390 883
Total nonperforming loans $ 2,489 $ 4,644
Non-performing loans as a percentage of
total loans 0.95 % 1.84 %
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As of September 30, 2008, there were $1,893,000 in loans, compared to $3,394,000 as of December 31, 2007, which were considered to be impaired under Statement of Financial Accounting Standards ("SFAS") No.114. Management includes market risks in assessing the adequacy of loan losses and in estimating carrying values of foreclosed real estate. As impaired loans are well collateralized and secured, management is comfortable with only a specific reserve of $8,000 at September 30, 2008 versus no specific reserve at December 31, 2008. The decline in impaired loans during the nine months ended September 30, 2008 is principally the result of the foreclosure on a property securing a loan with a principal balance of $1,254,000.
D. Capital
Under the Federal Reserve Board's risk-based capital rules, the Bank's Tier I risk-based capital was 15.9% and total risk-based capital was 17.1% of risk-weighted assets at September 30, 2008. These risk-based capital ratios are well above the minimum regulatory requirements of 4.0% for Tier I capital and 8.0% for total capital. The Bank's leverage ratio (Tier I capital to average assets) of 10.9% at September 30, 2008 is well above the 4.0% minimum regulatory requirement.
The following table shows the Bank's actual capital measurements compared to the minimum regulatory requirements as of September 30, 2008, dollars in thousands:
As of September 30, 2008 TIER I CAPITAL Stockholders' equity, excluding accumulated other comprehensive loss $ 40,953 Add deferred tax on ordinary loss(1) 1,908 Tier 1 Capital(1) 42,861 TIER II CAPITAL Allowance for loan losses (2) 3,203 Total risk-based capital $ 46,064 Risk-weighted assets (1) $ 269,162 Average assets $ 394,510 RATIOS Tier I risk-based capital (minimum 4.0%) (1) 15.9 % Total risk-based capital (minimum 8.0%)(1) 17.1 % Leverage (minimum 4.0%)(1) 10.9 % |
1 The Office of the Comptroller of the Currency announced a decision to allow
the recognition of the October 2008 tax law change in response to the Emergency
Economic Stabilization Act of 2008, which allows the loss on Fannie Mae and
Freddie Mac preferred stock to be taxed as an ordinary loss, to be reflected in
regulatory capital
2 For Federal Reserve risk-based capital rule purposes: the allowance for loan
losses includes allowance for credit losses on off-balance sheet letters of
credit.
CONSOLIDATED AVERAGE BALANCE SHEET
For the nine months ended September 30, 2008
(Fully taxable equivalent)
Dollars in thousands
Average Interest Average
balance earned/paid yield/rate
ASSETS
Securities available for sale and held to
maturity: (1)
Taxable securities $ 54,729 $ 1,971 4.80 %
Tax exempt securities (2) 46,599 2,247 6.43 %
Total securities 101,328 4,218 5.55 %
Short-term investments 1,460 29 2.65 %
Loans
Real estate mortgages 187,676 9,900 7.03 %
Home equity loans 27,321 1,317 6.43 %
Time and demand loans 24,762 1,165 6.27 %
Installment and other loans 18,175 1,410 10.34 %
Total loans (3) 257,934 13,792 7.13 %
Total interest earning assets 360,722 18,039 6.67 %
Other assets 31,625
Total assets $ 392,347
LIABILITIES AND STOCKHOLDERS' EQUITY
NOW and Super NOW deposits $ 31,370 117 0.50 %
Savings and insured money market deposits 85,152 725 1.14 %
Time deposits 124,191 3,604 3.87 %
Total interest bearing deposits 240,713 4,446 2.46 %
Federal funds purchased and other short-term
debt 3,856 74 2.56 %
Long-term debt 31,201 987 4.22 %
Total interest bearing liabilities 275,770 5,507 2.66 %
Demand deposits 63,270
Other liabilities 9,172
Total liabilities 348,212
Stockholders' equity 44,135
Total liabilities and stockholders' equity $ 392,347
Net interest income - tax effected 12,532
Less: Tax gross up on exempt securities (728 )
Net interest income per statement of
operations $ 11,804
Net interest spread 4.01 %
Net interest margin (4) 4.63 %
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1 Yields on securities available for sale are based on amortized cost.
2 Tax exempt securities are affected using a 34% tax rate for fully tax exempt
municipals and 24% for dividends.
3 For the purpose of this schedule, interest on nonaccruing loans has been
included only to the extent reflected in the consolidated income statement.
However, the nonaccrual loan balances are included in the average amount
outstanding.
4Computed by dividing tax effected net interest income by total interest earning
assets.
CONSOLIDATED AVERAGE BALANCE SHEET
For the nine months ended September 30, 2007
(Fully taxable equivalent)
Dollars in thousands
Average Interest Average
balance earned/paid yield/rate
ASSETS
Securities available for sale and held to
maturity: (1)
Taxable securities $ 60,290 $ 2,227 4.93 %
Tax exempt securities (2) 46,051 2,072 6.00 %
Total securities 106,341 4,299 5.39 %
Short-term investments 2,948 113 5.11 %
Loans
Real estate mortgages 181,772 9,545 7.00 %
Home equity loans 24,609 1,257 6.81 %
Time and demand loans 25,426 1,679 8.80 %
Installment and other loans 17,920 1,449 10.78 %
Total loans (3) 249,727 13,930 7.44 %
Total interest earning assets 359,016 18,342 6.81 %
Other assets 32,059
Total assets $ 391,075
LIABILITIES AND STOCKHOLDERS' EQUITY
NOW and Super NOW deposits $ 33,085 123 0.50 %
Savings and insured money market deposits 103,996 1,956 2.51 %
Time deposits 117,238 3,643 4.14 %
Total interest bearing deposits 254,319 5,722 3.00 %
Federal funds purchased and other short-term
debt 1,972 79 5.34 %
Long-term debt 17,070 663 5.18 %
Total interest bearing liabilities 273,361 6,464 3.15 %
Demand deposits 65,700
Other liabilities 10,168
Total liabilities 349,229
Stockholders' equity 41,846
Total liabilities and stockholders' equity $ 391,075
Net interest income - tax effected 11,878
Less: Tax gross up on exempt securities (705 )
Net interest income per statement of
operations $ 11,173
Net interest spread 3.66 %
Net interest margin (4) 4.41 %
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1 Yields on securities available for sale are based on amortized cost.
2 Tax exempt securities are affected using a 34% tax rate.
3 For the purpose of this schedule, interest on nonaccruing loans has been
included only to the extent reflected in the consolidated income statement.
However, the nonaccrual loan balances are included in the average amount
outstanding.
4Computed by dividing tax effected net interest income by total interest earning
assets.
CONSOLIDATED AVERAGE BALANCE SHEET
For the three months ended September 30, 2008
(Fully taxable equivalent)
Dollars in thousands
Average Interest Average
balance earned/paid yield/rate
ASSETS
Securities available for sale and held to
maturity: (1)
Taxable securities $ 58,139 $ 669 4.60 %
Tax exempt securities (2) 44,985 651 5.79 %
Total securities 103,124 1,320 5.12 %
Short-term investments 86 - 1.75 %
Loans
Real estate mortgages 190,152 3,379 7.11 %
Home equity loans 29,561 463 6.27 %
Time and demand loans 24,248 348 5.74 %
Installment and other loans 17,861 467 10.46 %
Total loans (3) 261,822 4,657 7.11 %
Total interest earning assets 365,032 5,977 6.55 %
Other assets 31,441
Total assets $ 396,473
LIABILITIES AND STOCKHOLDERS' EQUITY
NOW and Super NOW deposits $ 30,296 38 0.50 %
Savings and insured money market deposits 84,168 240 1.14 %
Time deposits 121,951 1,078 3.54 %
Total interest bearing deposits 236,415 1,356 2.29 %
Federal funds purchased and other short-term
debt 8,866 52 2.35 %
Long-term debt 33,603 348 4.14 %
Total interest bearing liabilities 278,884 1,756 2.52 %
Demand deposits 64,614
Other liabilities 9,408
Total liabilities 352,906
Stockholders' equity 43,567
Total liabilities and stockholders' equity $ 396,473
Net interest income - tax effected 4,221
Less: Tax gross up on exempt securities (220 )
Net interest income per statement of
operations $ 4,001
Net interest spread 4.03 %
Net interest margin (4) 4.63 %
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1 Yields on securities available for sale are based on amortized cost.
2 Tax exempt securities are affected using a 34% tax rate for fully tax exempt
municipals and 24% for dividends.
3 For the purpose of this schedule, interest on nonaccruing loans has been
included only to the extent reflected in the consolidated income statement.
However, the nonaccrual loan balances are included in the average amount
outstanding.
4Computed by dividing tax effected net interest income by total interest earning
assets.
CONSOLIDATED AVERAGE BALANCE SHEET
For the three months ended September 30, 2007
(Fully taxable equivalent)
Dollars in thousands
Average Interest Average
balance earned/paid yield/rate
ASSETS
Securities available for sale and held to
maturity: (1)
Taxable securities $ 63,305 $ 772 4.88 %
Tax exempt securities (2) 44,994 692 6.15 %
Total securities 108,299 1,464 5.41 %
Short-term investments 594 7 5.15 %
Loans
Real estate mortgages 182,220 3,199 7.02 %
Home equity loans 25,299 422 6.67 %
Time and demand loans 25,125 529 8.42 %
Installment and other loans 18,775 510 10.87 %
Total loans (3) 251,419 4,660 7.41 %
Total interest earning assets 360,312 6,131 6.81 %
Other assets 31,439
Total assets $ 391,751
LIABILITIES AND STOCKHOLDERS' EQUITY
NOW and Super NOW deposits $ 31,609 39 0.49 %
Savings and insured money market deposits 106,396 645 2.42 %
Time deposits 112,567 1,179 4.19 %
Total interest bearing deposits 250,572 1,863 2.97 %
Federal funds purchased and other short-term
debt 4,758 63 5.30 %
Long-term debt 15,165 196 5.17 %
Total interest bearing liabilities 270,495 2,122 3.14 %
Demand deposits 68,421
Other liabilities 10,077
Total liabilities 348,993
Stockholders' equity 42,758
Total liabilities and stockholders' equity $ 391,751
Net interest income - tax effected 4,009
Less: Tax gross up on exempt securities (236 )
Net interest income per statement of
operations $ 3,773
Net interest spread 3.67 %
Net interest margin (4) 4.45 %
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1 Yields on securities available for sale are based on amortized cost.
2 Tax exempt securities are affected using a 34% tax rate.
3 For the purpose of this schedule, interest on nonaccruing loans has been
included only to the extent reflected in the consolidated income statement.
However, the nonaccrual loan balances are included in the average amount
outstanding.
4Computed by dividing tax effected net interest income by total interest earning
assets.
VOLUME AND RATE ANALYSIS
(Dollars in thousands)
Nine months ended September 30,
2008 compared to 2007
Increase (decrease) due to change in
Volume Rate Total
INTEREST INCOME
Securities $ (203 ) $ 122 $ (81 )
Short-term investments (57 ) (27 ) (84 )
Loans 458 (596 ) (138 )
Total interest income 198 (501 ) (303 )
INTEREST EXPENSE
NOW and Super NOW deposits (6 ) - (6 )
Savings and insured money market
deposits (354 ) (877 ) (1,231 )
Time deposits 216 (255 ) (39 )
Federal funds purchased and other
short-term debt 75 (80 ) (5 )
Long-term debt 549 (225 ) 324
Total interest expense 480 (1,437 ) (957 )
Net interest income $ (282 ) $ 936 $ 654
Three months ended September 30,
2008 compared to 2007
Increase (decrease) due to change in
Volume Rate Total
INTEREST INCOME
Securities $ (55 ) $ (89 ) $ (144 )
Short-term investments (6 ) (1 ) (7 )
Loans 246 (249 ) (3 )
Total interest income 185 (339 ) (154 )
INTEREST EXPENSE
NOW and Super NOW deposits (1 ) - (1 )
Savings and insured money market
. . .
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