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| JFBC > SEC Filings for JFBC > Form 10-Q on 14-May-2009 | All Recent SEC Filings |
14-May-2009
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, 2008 to March 31, 2009, total assets increased $11,914,000 or 3.0%. The increase was due to $11,800,000 in federal funds sold and a $4,420,000 or 4.8% increase in investment securities, partially offset by a $1,321,000 or 0.5% decrease in net loans and a $2,658,000 or 29.7% decrease in cash and cash due from banks. The net increase in total assets was funded by the large increase in deposits.
Total deposits increased from $296,724,000 at December 31, 2008 to $319,642,000 at March 31, 2009, an increase of $22,918,000 or 7.7%. NOW and super NOW accounts increased $8,285,000 or 29.4%, savings and insured money market deposits increased $4,278,000 or 5.8% and time deposits increased $12,555,000 or 9.2% due to seasonal influences and the Bank's enhanced sales initiative, along with changes and uncertainty in the marketplace. Depositors have increasingly brought deposits to Jeff Bank, possibly due to lack of other investment opportunities and uncertainty in the stock market. Demand deposits decreased $2,200,000 to $56,448,000 at March 31, 2009, a decrease of 3.8%. Short-term debt decreased $10,179,000 because the increase in total deposits satisfied the Company's liquidity needs.
Total stockholders' equity increased $74,000 or 0.2% from $42,662,000 at December 31, 2008 to $42,736,000 at March 31, 2009. This increase was the result of net income of $754,000 less an increase of $130,000 in accumulated other comprehensive loss and payment of cash dividends of $550,000.
Loan Portfolio Composition, dollars in thousands:
March 31, 2009 December 31, 2008
Amount Percent Amount Percent
REAL ESTATE LOANS
Residential $ 100,313 37.7 % $ 103,212 38.6 %
Commercial 94,231 35.4 93,069 34.9
Home Equity 30,722 11.6 31,096 11.6
Farm land 3,842 1.4 3,879 1.4
Construction 2,673 1.0 2,737 1.0
231,781 87.1 % 233,993 87.5 %
OTHER LOANS
Commercial loans 25,737 9.7 25,183 9.4
Consumer installment loans 7,594 2.8 7,511 2.8
Other consumer loans 180 0.1 173 0.1
Agricultural loans 688 0.3 430 0.2
34,199 12.9 % 33,297 12.5 %
Total loans 265,980 100.0 % 267,290 100.0 %
Unamortized deferred loan fees and
origination costs 360 273
Allowance for loan losses (3,268 ) (3,170 )
Total loans, net $ 263,072 $ 264,393
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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 no provision was recorded in the first quarter of 2008, a provision of $150,000 was provided for the three months ended March 31, 2009. Total charge-offs for the three month period ended March 31, 2009 were $108,000 compared to $153,000 for the same period in the prior year, and recoveries were $56,000 and $38,000 for the periods ended March 31, 2009 and 2008, respectively. The amounts represent net charge-offs of $115,000 in the first quarter of 2008 versus net charge-offs of $52,000 for the first quarter of 2009. Based on management's analysis of the loan portfolio, 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:
Three months Three months
ended ended Year ended
March 31, March 31, December 31,
2009 2008 2008
Balance at beginning of period $ 3,170 $ 3,352 $ 3,352
Provision for loan losses 150 - 265
Loans charged-off (108 ) (153 ) (647 )
Recoveries 56 38 200
Balance at ending of period $ 3,268 $ 3,237 $ 3,170
Annualized net charge-offs as a percentage of
average outstanding loans 0.08 % 0.18 % 0.17 %
Allowance for loan losses to:
Total loans 1.23 % 1.28 % 1.18 %
Total non-performing loans 38.5 % 115.6 % 51.8 %
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The allowance for loan losses was $3.3 million at March 31, 2009, and $3.2 million at both December 31 and March 31, 2008. Nonperforming loans were $8.4 million at March 31, 2009 and $6.1 million at December 31, 2008. An increase in nonperforming loans with a relatively stable allowance for loan losses is reflected in the decrease of the allowance's coverage on nonperforming loans from 115.6% at March 31, 2008 to 51.8% at December 31, 2008 and 38.5% at March 31, 2009. While nonperforming loans have increased, the Banks loans remain well collateralized, and with the Banks minimal loss history and low charge-offs, management believes the allowance is adequate.
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 is recorded on a cash basis.
Nonperforming loans are summarized as follows at the following dates, dollars in thousands:
March 31, December 31,
2009 2008
Nonaccrual loans $ 7,791 $ 5,434
Loans past due 90 days or more and
still accruing interest 704 686
Total nonperforming loans $ 8,495 $ 6,120
Non-performing loans as a percentage of total loans 3.19 % 2.29 %
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As of March 31, 2009, there were $6,771,000 in loans, compared to $5,191,000 at December 31, 2008, which were considered to be impaired under Statement of Financial Accounting Standards ("SFAS") No.114.
D. Capital
Under the Federal Reserve'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 March 31, 2009. 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 11.0% at March 31, 2009 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 March 31, 2009, dollars in thousands:
As of March 31, 2009 TIER I CAPITAL Banks' equity, excluding the after-tax net other comprehensive loss $ 43,310 TIER II CAPITAL Allowance for loan losses (1) 3,285 Total risk-based capital $ 46,595 Risk-weighted assets (2) $ 272,580 Average assets $ 394,498 RATIOS Tier I risk-based capital (minimum 4.0%) 15.9 % Total risk-based capital (minimum 8.0%) 17.1 % Leverage (minimum 4.0%) 11.0 % |
1 For Federal Reserve risk-based capital rule purposes, the allowance for loan losses includes allowance for credit losses on off-balance sheet letters of credit.
2 Risk-weighted assets have been reduced for the portion allowance of loan losses excluded from total risk-based capital.
CONSOLIDATED AVERAGE BALANCE SHEET
For the three months ended March 31, 2009
(Fully taxable equivalent)
Dollars in thousands
Average Interest Annualized
balance earned/paid yield/rate
ASSETS
Securities available for sale and held to maturity: (1)
Taxable securities $ 48,378 $ 580 4.80 %
Tax exempt securities (2) 42,218 645 6.11 %
Total securities 90,596 1,225 5.41 %
Other 2,955 2 0.27 %
Loans
Real estate mortgages 193,399 3,204 6.63 %
Home equity loans 30,864 469 6.08 %
Time and demand loans 25,200 264 4.19 %
Installment and other loans 18,066 427 9.45 %
Total loans (3) 267,529 4,364 6.52 %
Total interest earning assets 361,080 5,591 6.19 %
Other assets 39,522
Total assets $ 400,602
LIABILITIES AND STOCKHOLDERS' EQUITY
NOW and Super NOW deposits $ 35,813 22 0.25 %
Savings and insured money market deposits 72,926 94 0.52 %
Time deposits 142,599 1,109 3.11 %
Total interest bearing deposits 251,338 1,225 1.95 %
Other 1,695 2 0.47 %
Federal Home Loan Bank borrowings 35,000 366 4.19 %
Total interest bearing liabilities 288,033 1,593 2.21 %
Demand deposits 57,143
Other liabilities 12,455
Total liabilities 357,631
Stockholders' equity 42,971
Total liabilities and stockholders' equity $ 400,602
Net interest income - tax effected 3,998
Less: Tax gross up on exempt securities (218 )
Net interest income per statement of income $ 3,780
Net interest spread 3.98 %
Net interest margin (4) 4.43 %
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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.
4 Computed by dividing tax effected net interest income by total interest earning assets.
CONSOLIDATED AVERAGE BALANCE SHEET
For the three months ended March 31, 2008
(Fully taxable equivalent)
Dollars in thousands
Average Interest Annualized
balance earned/paid yield/rate
ASSETS
Securities available for sale and held to maturity: (1)
Taxable securities $ 52,624 $ 651 4.95 %
Tax exempt securities (2) 47,336 820 6.93 %
Total securities 99,960 1,471 5.89 %
Other 2,445 18 2.94 %
Loans
Real estate mortgages 185,467 3,245 7.00 %
Home equity loans 25,955 434 6.69 %
Time and demand loans 24,902 460 7.39 %
Installment and other loans 18,146 471 10.38 %
Total loans (3) 254,470 4,610 7.25 %
Total interest earning assets 356,875 6,099 6.84 %
Other assets 31,917
Total assets $ 388,792
LIABILITIES AND STOCKHOLDERS' EQUITY
NOW and Super NOW deposits $ 33,339 41 0.49 %
Savings and insured money market deposits 84,121 270 1.28 %
Time deposits 124,899 1,327 4.25 %
Total interest bearing deposits 242,359 1,638 2.70 %
Other 1,329 14 4.21 %
Federal Home Loan Bank borrowings 30,000 323 4.31 %
Total interest bearing liabilities 273,688 1,975 2.89 %
Demand deposits 61,913
Other liabilities 8,917
Total liabilities 344,518
Stockholders' equity 44,274
Total liabilities and stockholders' equity $ 388,792
Net interest income - tax effected 4,124
Less: Tax gross up on exempt securities (260 )
Net interest income per statement of income $ 3,864
Net interest spread 3.95 %
Net interest margin (4) 4.62 %
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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.
4 Computed by dividing tax effected net interest income by total interest earning assets.
VOLUME AND RATE ANALYSIS
(Dollars in thousands)
Three months ended March 31,
2009 compared to 2008
increase (decrease) due to change in
Volume Rate Total
INTEREST INCOME
Securities1 $ (138 ) $ (108 ) $ (246 )
Other 4 (20 ) (16 )
Loans 237 (483 ) (246 )
Total interest income 103 (611 ) (508 )
INTEREST EXPENSE
NOW and Super NOW deposits 3 (22 ) (19 )
Savings and insured money market deposits (36 ) (140 ) (176 )
Time deposits 188 (406 ) (218 )
Other 4 (16 ) (12 )
Federal Home Loan Bank borrowings 54 (11 ) 43
Total interest expense 213 (595 ) (382 )
Net interest income $ (110 ) $ (16 ) $ (126 )
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1 Interest income on the tax exempt portion of securities are affected using a 34% tax rate for fully tax exempt municipals and 24% for dividends to provide tax equivalent volume and rates.
Liquidity
The objective of maintaining adequate liquidity is to assure the ability of the Company and its subsidiary to meet their financial obligations. These obligations include the payment of interest on deposits, borrowings, withdrawal of deposits on demand or at their contractual maturity, and the repayment of borrowings as they mature, the ability to fund new and existing loan commitments and the ability to take advantage of new business opportunities. The Company and its subsidiary achieve liquidity by maintaining a strong base of core customer funds, maturing short-term assets, the ability to sell securities, the availability of lines of credit and access to capital markets.
Liquidity at the subsidiary Bank level is managed through the monitoring of anticipated changes in loans, the investment portfolio, core deposits and wholesale funds. The strength of the subsidiary Bank's liquidity position is a result of its base of core customer deposits. These core deposits are supplemented by wholesale funding sources, including credit lines with the other banking institutions, and the Federal Home Loan Bank.
The primary source of liquidity for the parent Company is dividends from the Bank. OCC regulations prohibit the Bank to pay a dividend without prior OCC approval if the total amount of all dividends declared during the calendar year, including the proposed dividend, exceeds the sum of its retained net income to date during the calendar year and its retained net income over the preceding two years. As of March 31, 2009, the Bank is permitted to pay a dividend without prior OCC approval.
For the three months ended March 31, 2009, a total of $9,142,000 in cash was generated. Financing activities accounted for $12,189,000 in cash provided, partially offset by cash used for operating and investing activities of $153,000 and $2,894,000, respectively. See the Consolidated Statements of Cash Flows for additional information.
Maturity Schedule of Time Deposits of $100,000 or more at March 31, 2009, dollars in thousands:
Deposits
Due three months or less $ 14,870
Over three months through six months 15,155
Over six months though twelve months 8,777
Over twelve months 16,254
$ 55,056
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E. Results of Operations
Net income for the first three months of 2009 decreased $300,000 to $754,000 from $1,054,000 for the same period in 2008. Net interest income after provision for loan losses decreased $234,000 or 6.1% to $3,630,000. This decrease is primarily due to a $150,000 provision for loan losses for the quarter ended March 31, 2009 versus no provision for the same quarter in 2008 and a decrease in interest income of $466,000 or 8.0%, partly offset by decreased interest expense of $382,000. Non-interest expenses increased $280,000, while there was an increase in non-interest income of $69,000 and a reduction in income tax expense of $145,000. The Company's annualized return on average assets was 0.8% for the three months ended March 31, 2009, down from 1.1% for the same period last year. The annualized return on average stockholders' equity was 7.0% and 9.5% for the three months ended March 31, 2009 and 2008, respectively.
Total interest income decreased $466,000 or 8.0% to $5,373,000, of which $246,000 or 5.3% of the decrease is attributable to lower income on loans, a result of lower variable rates and new loans replacing higher yielding loans. Interest income on investment securities decreased $204,000 or 16.8% primarily resulting from calls of higher yielding securities being replaced late in the quarter by lower market rate investments. Interest expense decreased $382,000 or 19.3% from $1,975,000 for the three months ended March 31, 2008 to $1,593,000 for the three months ended March 31, 2009. The majority of the decrease came from a 25.2% or $413,000 decrease in interest expense on deposits, from $1,638,000 in 2008 to $1,225,000 in 2009. Interest expense on Federal Home Loan Bank borrowings increased due to a higher level of borrowings. Total interest expense decreased as a result of a decrease in the rates paid on interest bearing liabilities despite an increase in the average balance of interest bearing liabilities.
Tax equivalent net interest spread increased 3 basis points and net interest margin decreased 19 basis points, to 4.43% in the first quarter of 2009 from 4.62% in the same quarter of 2008. Tax equivalent net interest income decreased $126,000 or 3.1% in the first three months of 2009 compared to the same period in 2008. Income on average interest earning assets experienced a decrease of $508,000 or 65 basis points, mostly composed of lower tax equivalent interest income on average loans and average investment securities, which both decreased by $246,000 for the three months ended March 31, 2009. The 65 basis point decrease was due primarily to lower interest rates on average loans of 73 basis points and a decrease in the average balance of investment securities due to the timing between calls and purchases. Loan rates decreased due to variable rate features and economic conditions, with rates on time and demand loans decreasing the most, from 7.39% to 4.19%. This resulted in a decrease of $196,000 or 4.2% in interest income on average time and demand loans. As average rates on bonds and other securities fell, many obligations were called faster than they were replaced. Partially offsetting the decrease in total interest income was a decrease in the total interest expense of $382,000 as a result of a 68 basis point decrease on the average rate paid on total interest-bearing liabilities. Declining interest rates on interest-bearing deposits were the primary source. Interest expense on total interest bearing deposits decreased 75 basis points, primarily in time deposits (a decrease of 114 basis points or $218,000) and savings and insured money market deposits (a decrease of 76 basis points or $176,000).
The total average balance for interest earning assets was $361,080,000 for the three month period ended March 31, 2009 compared to $356,875,000 for the same three month period in 2008, an increase of $4,205,000 or 1.2%. The overall yield on average interest earning assets decreased 65 basis points from 6.84% in 2008 to 6.19% in 2009. Average loans increased $13,059,000 or 5.1%. Average real estate mortgages and home equity loans increased by $7,932,000 or 4.3% and $4,909,000 or 18.9%, respectively, as many customers took advantage of historically low rates. Average yields on those loans decreased by 37 and 61 basis points, respectively, for the three months ended March 31, 2009 compared to the same period in 2008. Partially offsetting the increase in average loans was a decrease in average investment securities of $9,364,000 and 48 basis points from March 31, 2008 to March 31, 2009. The average balance of tax exempt securities decreased $5,118,000 and 82 basis points due to calls and maturities from the falling interest rates. Average taxable securities decreased $4,246,000 and 15 basis points as agency securities were not called as frequently. Average short-term investments, primarily federal funds sold, increased $510,000, with a yield decrease of 267 basis points, from 2.94% to 0.27%, due to the continuing reduction of the federal funds rate by the Federal Reserve Bank.
The provision for loan losses was $150,000 for the three months ended March 31, 2009, which was an increase from no provision for the three months ended March . . .
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