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| SOMH > SEC Filings for SOMH > Form 10-Q on 12-Aug-2009 | All Recent SEC Filings |
12-Aug-2009
Quarterly Report
Disclosure of the Company's significant accounting policies is included in Note 1 to the consolidated financial statements of the Company for the year ended December 31, 2008 included in its Annual Report Form 10-K filed under the Securities Exchange Act of 1934. Some of these policies are particularly sensitive, requiring significant judgments, estimates and assumptions to be made by management. Management believes the Company's policy with respect to the methodology for the determination of the allowance for loan losses involves a higher degree of complexity and requires management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. Changes in these judgments, assumptions or estimates could materially impact results of operations. This critical policy and its application are periodically reviewed with the Audit Committee and the Board of Directors of the Company. The allowance for loan losses is based upon management's evaluation of the adequacy of the allowance, including an assessment of known and inherent risks in the portfolio, giving consideration to the size and composition of the loan portfolio, actual loan loss experience, level of delinquencies, detailed analysis of individual loans for which full collectability may not be assured, the existence and estimated net realizable value of any underlying collateral and guarantees securing the loans, and current economic and market conditions. Although management uses the best information available, the level of the allowance for loan losses remains an estimate, which is subject to significant judgment and short- term change. Various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses. Such agencies may require the Company to make additional provisions for loan losses based upon information available to them at the time of their examination. Furthermore, the majority of the Company's loans are secured by real estate in the State of New Jersey. Accordingly, the collectability of a substantial portion of the carrying value of the Company's loan portfolio is susceptible to changes in local market conditions and may be adversely affected by declines in real estate values or if the Central New Jersey area experience an adverse economic shock. Future adjustments to the allowance for loan losses may be necessary due to economic, operating, regulatory and other conditions beyond the Company's control. Additional information is contained on pages 16 and 19 of this Form 10-Q for the provision and allowance for loan losses.
Overview
For the three months ended June 30, 2009 net income available to common stockholders was $74 thousand, or $0.02 per basic and diluted share, compared to $367 thousand, or $0.07 per basic and diluted share, for the same period in 2008. For the six months ended June 30, 2009 net income available to common stockholders was $600 thousand, or $0.12 per basic and diluted share, compared to $811 thousand, or $0.16 per basic and $0.15 per diluted share, for the same period in 2008.
Net income available to common stockholders and per share earnings for both the three- and six-month periods ending June 30, 2009 reflects the impact of dividends and accretion of discount (totaling $257 thousand for the three-month period and $350 thousand for the six-month period) in connection with preferred stock sold by the Company to the U.S. Treasury under the Capital Purchase Program. The Company redeemed these preferred shares during the second quarter of 2009. Results for the six-month period ended June 30, 2009 also reflect a $386 thousand increase in the provision for loan losses over the prior year period, as well as $568 thousand in tax-free proceeds from a bank-owned life insurance policy and a one-time $183 thousand expense for retirement liability related to the death of our founding Chief Financial Officer, Gerard Riker.
At June 30, 2009, total assets were $312.9 million, an increase of $13.2 million from total assets of $299.7 million at year-end 2008. The increase primarily reflects an increase of $17.5 million in cash and cash equivalents and an $8.3 million increase in loans held for sale. These increases were partially offset by an $8.7 million decrease in securities available for sale. The increase in total assets was funded largely through a $12.4 million increase in total deposits.
Interest Income
Total interest income decreased $243 thousand, or 6.6%, to $3.4 million for the quarter ended June 30, 2009 from $3.7 million for the same period in 2008. The reduction in interest income for the second quarter reflected a decrease of 102 basis points, from 5.69% during 2008 to 4.67% in 2009, in the rate earned on average interest earning assets. Reflecting a similar trend, for the six months ended June 30, 2009, total interest income decreased $730 thousand, or 9.5%, to $6.9 million from $7.6 million for the same period in 2008. The reduction in interest income for the first half of 2009 reflected a decrease of 116 basis points, from 5.97% in 2008 to 4.81% in 2009, in the rate earned on average interest earning assets. The declines in the interest rates earned in the second quarter and first half of 2009 were largely due to a declining short-term interest rate environment in which the Federal Reserve lowered the target fed funds rate by more than 200 basis points over the course of the year. The decline in market rates had the effect of lowering the rate we earned on our loan portfolio by 58 basis points for the second quarter and by 87 basis points for the first half compared to the prior year periods. Further contributing to a decrease in interest income was management's strategic decision to remain relatively more liquid by investing a majority of its cash flow into short term investments, which during 2009 earned a materially lower rate than longer term loans or securities.
Interest Expense
Interest expense for the second quarter of 2009 decreased $91 thousand, or 9.1%, to $914 thousand from $1.0 million in the second quarter of 2008. For the six months ended June 30, 2008 interest expense decreased $499 thousand, or 21.8%, to $1.8 million from $2.3 million for the same period a year ago. Directionally consistent with the decline in overall market interest rates, the average rate paid on our interest bearing liabilities declined by 41 basis points to 1.67% during the second quarter of 2009 from 2.08% in the same period of 2008 and by 71 basis points to 1.68% during the first six months of 2009 from 2.39% in the same period of 2008. The overall rate we paid for funds was down less than the decline in the general level of interest rates as the aforementioned management strategy to remain relatively more liquid involved raising in excess of $27 million in promotional rate time deposits during the latter half of 2008. This resulted in a significant increase in interest-bearing liabilities (up 12.5% and 11.2% for the three- and six-month comparisons, respectively) and had the temporary effect of shifting the company's deposit mix more towards time deposits,
The following tables present a summary of the Company's interest-earning assets and their average yields, and interest-bearing liabilities and their average costs and stockholders' equity for both the three and six months ended June 30, 2009 and 2008. The average balances are derived from average daily balances. The average balance of loans includes non-accrual loans, and associated yields include loan fees, which are considered adjustment to yields.
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