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| THRD > SEC Filings for THRD > Form 10-Q on 14-Aug-2009 | All Recent SEC Filings |
14-Aug-2009
Quarterly Report
GENERAL
The Company may from time to time make written or oral "forward-looking statements", including statements contained in the Company's filings with the Securities and Exchange Commission (including this Quarterly Report on Form 10-Q and the exhibits thereto), in its reports to stockholders and in other communications by the Company, which are made in good faith by the Company pursuant to the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations, estimates and intentions that are subject to change based on various important factors (some of which are beyond the Company's control). The following factors, among others, could cause the Company's financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements: the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System, inflation, interest rate, market and monetary fluctuations; the timely development of and acceptance of new products and services of the Company and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors' products and services; the willingness of users to substitute competitors' products and services for the Company's products and services; the success of the Company in gaining regulatory approval of its products and services, when required; the impact of changes in financial services' laws and regulations (including laws concerning taxes, banking, securities and insurance); technological changes, acquisitions; changes in consumer spending and saving habits; and the success of the Company at managing the risks involved in the foregoing.
The Company cautions that the foregoing list of important factors is not exclusive. The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company.
Financial Position
The Company's total assets at June 30, 2009 and December 31, 2008 were $724.5 million and $733.7 million, respectively, a decrease of $9.2 million, or 1.3% during the six-month period. Mortgage-backed securities available for sale decreased by $10.2 million due to principal repayments received of $16.0 million, offset by purchases of $4.6 million, an increase in the fair value of the securities of $1.1 million and net discount accretion of $0.1million. Mortgage-backed securities held to maturity decreased by $0.7 million mainly as a result of principal repayments. Loans receivable, net decreased by $3.3 million during the first six months of 2009. Principal repayments of loans receivable totaled $46.7 million which were offset by originations of consumer and single-family residential mortgage loans of $36.2 million and commercial loans of $11.4 million. The Company increased the allowance for loan losses by $1.3 million and also transferred $2.2 million from loans to real estate acquired through foreclosure. Loans receivable held for sale decreased by $0.7 million, mainly the net result of loans originated for sale during the first six months of 2009 of $28.6 million, less $29.5 million in proceeds from the sale of loans in the secondary market.
Cash and cash equivalents increased $3.5 million and these funds were applied towards investment purchases settling in July. Investment securities available for sale increased $0.4 million due to purchases of municipal bonds of $6.8 million which offset sales and security redemptions of $6.0 million as well as $0.4 million of market value decline and premium amortization.
Total liabilities decreased by $11.2 million during the first six months of 2009. Advances from the Federal Home Loan Bank decreased by $67.0 million in the first six months of 2009, the result of a $32.4 million decrease in short-term borrowings and scheduled amortization payments of $34.6 million. Other short-term borrowings with the Federal Reserve Bank increased by $10.0 million during the first six months of 2009.
Deposits grew by $41.2 million due to an increase of $10.0 million in retail certificates of deposit and an increase in money market, interest and non-interest checking accounts of $38.4 million less a decrease in savings accounts of $7.2 million.
Total consolidated stockholder's equity of the Company was $69.7 million or 9.6% of total assets at June 30, 2009. During the first six months of 2009, the Company issued 873 shares of common stock as a result of stock option exercises. At June 30, 2009, there were approximately 102,000 shares available for repurchase under the previously announced share repurchase plan.
Asset Quality
During 2009, the Company completed foreclosure proceedings on three parcels of real estate. These loans were non-performing at December 31, 2008. As a result of these foreclosures, the Bank recorded a charge-off in the amount of $94,000. Two properties with a carrying value of $1.0 million were sold and the Company realized a gain of $303,000 from the disposition of the properties. The remaining property with a carrying value of $1.1 million is included in other assets in the consolidated balance sheet at June 30, 2009. Subsequent to June 30, 2009 the Company sold the property and realized net proceeds of approximately $1.2 million. During the first six months of 2009 and 2008, the Company's provision for loan losses was $1,255,000 and $340,000, respectively. With respect to each of the remaining non-performing loans, all of which are real estate secured, the Bank is taking appropriate steps to resolve the individual situations.
The following table sets forth information regarding the Company's asset quality (dollars in thousands):
June 30, December 31, June 30,
2009 2008 2008
Loans delinquent 30-89 days $ 1,297 $ 891 $ 1,066
Loans delinquent 90 days or more and
other non performing loans 3,039 5,279 2,368
Ratio of non-performing loans to gross
loans 0.55 % 0.96 % 0.43 %
Ratio of non-performing loans to total
assets 0.42 % 0.72 % 0.33 %
Foreclosed real estate 1,130 - 306
Ratio of total non-performing assets to
total assets 0.58 % 0.72 % 0.37 %
Ratio of allowance for loan losses to
total loans 0.91 % 0.70 % 0.52 %
Ratio of allowance for loan losses to
non-performing loans 163.54 % 73.03 % 120.14 %
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Management maintains an allowance for loan losses at levels that are believed to be adequate; however, there can be no assurances that further additions will not be necessary or that losses inherent in the existing loan portfolio will not exceed the allowance. The following table sets forth the activity in the allowance for loan losses during the periods indicated (in thousands):
2009 2008
Beginning balance, January 1, $ 3,855 $ 2,842
Provision 1,255 340
Less: charge-off's, net 140 337
Ending balance, June 30, $ 4,970 $ 2,845
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RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2009 AND 2008
Net Income. The Company recorded net income of $1,222,000, or $0.48 per diluted share, for the three months ended June 30, 2009 as compared to net income of $1,184,000, or $0.44 per diluted share, for the three months ended June 30, 2008.
Average Balance Sheet
The following table sets forth information (dollars in thousands) relating to the Company's average balance sheet and reflects the average yield on assets and average cost of liabilities for the periods indicated. Yield and cost are computed by dividing income or expense by the average daily balance of interest-earning assets or interest-bearing liabilities, respectively, for the three-month periods indicated.
June 30,
2009 2008
Average Average Average Average
balance Interest yld/cost balance Interest yld/cost
ASSETS
Interest-earning
assets:
Loans receivable(1) $ 542,569 $ 7,658 5.66 % $ 545,958 $ 8,155 6.01 %
Mortgage-backed
securities 104,491 1,294 4.97 % 97,397 1,132 4.67 %
Investment
securities(2) 38,060 379 3.99 % 41,915 471 4.52 %
Other interest-earning
assets(3) 2,011 - * - % 665 4 2.42 %
Total interest-earning
assets 687,131 9,331 5.45 % 685,935 9,762 5.72 %
Non interest-earning
assets 38,517 36,265
Total assets $ 725,648 $ 722,200
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Deposits 518,374 2,441 1.89 % 486,394 2,926 2.42 %
Borrowings from the
FHLB and other
borrowings 128,620 1,208 3.77 % 155,675 1,571 4.06 %
Total interest-bearing
liabilities 646,994 3,649 2.26 % 642,069 4,497 2.82 %
Non interest-bearing
liabilities 9,302 9,934
Total liabilities 656,296 652,003
Stockholders' equity 69,352 70,197
Total liabilities and
stockholders' equity $ 725,648 $ 722,200
Net interest
income-tax equivalent
basis $ 5,682 $ 5,265
Interest rate
spread(4)-tax
equivalent basis 3.19 % 2.90 %
Net yield on
interest-earning
assets(5) -tax
equivalent basis 3.32 % 3.09 %
Ratio of average
interest-earning
assets to average
interest-bearing
liabilities 106.20 % 106.83 %
Less: tax-equivalent
interest adjustment (103 ) (106 )
Net interest income $ 5,579 $ 5,159
Interest rate
spread(4) 3.12 % 2.84 %
Net yield on
interest-earning
assets(5) 3.26 % 3.02 %
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Rate/Volume Analysis
The following table presents, for the periods indicated, the change in interest
income and interest expense (in thousands) attributed to (i) changes in volume
(changes in the weighted average balance of the total interest earning asset and
interest bearing liability portfolios multiplied by the prior year rate), and
(ii) changes in rate (changes in rate multiplied by prior year volume). Changes
attributable to the combined impact of volume and rate have been allocated
proportionately based on the absolute value of changes due to volume and changes
due to rate.
Three months ended June 30
2009 vs 2008
Increase (decrease) due to
Volume Rate Net
Interest income:
Loans receivable, net $ (48 ) $ (449 ) $ (497 )
Mortgage-backed securities 87 75 162
Investment securities (1) (41 ) (51 ) (92 )
Other interest-earning assets 19 (23 ) (4 )
Total interest-earning assets 17 (448 ) (431 )
Interest expense:
Deposits 1,079 (1,564 ) (485 )
Borrowings from the FHLB and other borrowings (257 ) (106 ) (363 )
Total interest-bearing liabilities 822 (1,670 ) (848 )
Net change in net interest income $ (805 ) $ 1,222 $ 417
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Total Interest Income. Total interest income, on a taxable equivalent basis, decreased by $431,000 or 4.4% to $9.3 million for the quarter ended June 30, 2009 compared with the second quarter of 2008. Interest income from loans receivable decreased by $497,000, the result of a decrease in the average balance of loans outstanding of $3.4 million, plus a decrease in the yield on loans of 35 basis points primarily as a result of the Company's reduction of its prime rate three times during the last quarter of 2008 by a combined 175 basis points mirroring the action taken by the Federal Open Markets Committee (FOMC) when it acted to reduce the fed funds rate. Interest income from investment securities decreased as a result of the decrease of $56,000 in dividends paid on the Company's $9.9 million required holdings of FHLB stock. The FHLB had paid dividends on the stock for the second quarter of 2008 but suspended dividend payments until further notice during the fourth quarter of 2008. Interest income from mortgage-backed securities was higher in the second quarter of 2009 in comparison to the same period of 2008 due to purchases of $32.9 million of securities which exceeded principal repayments of $26.1 million during the intervening period.
Total Interest Expense. Total interest expense decreased by $848,000 to $3.6 million during the three-month period ended June 30, 2009 as compared with the second quarter of 2008. The average balance of deposits increased by $32.0 million between the two quarters, and interest rates paid on the Bank's deposits were 53 basis points lower in 2009.
Interest expense associated with borrowings from the Federal Home Loan Bank and the Federal Reserve Bank decreased $363,000 between the second quarters of 2009 and 2008. During the intervening period, the Bank reduced its average outstanding borrowings by $27.1 million and replaced maturing higher cost advances with low cost short-term advances.
Non-interest income. Total non-interest income was $1.4 million for the second quarter of 2009 compared with $1.1 million for the same period in 2008. The second quarter of 2009 included a gain on the sale of an investment security of $116,000 while there was no such gain in the same quarter of 2008. Also, during 2009, the gain on sale of loans held for sale increased by $156,000 as a result of the high level of residential loan refinancing activity which occurred in the second quarter of 2009.
Non-interest expense. Total non-interest expense increased by $444,000 to $4.8 million for the three months ended June 30, 2009 compared to the same period in 2008. FDIC insurance premiums increased by $498,000 between the two quarters due to a special assessment imposed by the FDIC of $330,000 in addition to an increase in the regular FDIC insurance premium as a result of increased deposits, an increased assessment rate and the exhaustion of a credit the Company has been entitled to apply against the quarterly billed insurance premium. Compensation expense associated with stock options and grants decreased $164,000 during the quarter as a result of substantial completion of the vesting period used for expense recognition in 2008. Offsetting this reduction was an increase in employee compensation of $79,000, the combined result of annual salary increases and decreased commercial loan originations which lowered the deferral of in-house compensation costs. Also, costs associated with employee benefit plans increased $60,000 between the two quarters. The decrease in occupancy and equipment costs is due to the closing of the branch office on Quakerbridge Road in Mercer County during the second quarter of 2008.
Income tax expense. The Company's effective tax rate was 26.0% for the quarter ended June 30, 2009 compared to 27.1% for the quarter ended June 30, 2008. These effective tax rates are lower than the Company's marginal tax rate of 34% largely due to the tax-exempt income associated with the Company's investments in tax-exempt municipal bonds and bank-owned life insurance.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
Net Income. The Company recorded net income of $2,242,000, or $0.89 per diluted share, for the six months ended June 30, 2009 as compared to net income of $2,465,000, or $0.92 per diluted share, for the six months ended June 30, 2008.
Average Balance Sheet
The following table sets forth information (dollars in thousands) relating to the Company's average balance sheet and reflects the average yield on assets and average cost of liabilities for the periods indicated. Yield and cost are computed by dividing income or expense by the average daily balance of interest-earning assets or interest-bearing liabilities, respectively, for the six-month periods indicated.
June 30,
2009 2008
Average Average Average Average
balance Interest yld/cost balance Interest yld/cost
ASSETS
Interest-earning
assets:
Loans receivable(1) $ 543,826 $ 15,313 5.69 % $ 537,411 $ 16,338 6.11 %
Mortgage-backed
securities 106,921 2,679 5.07 % 99,810 2,363 4.76 %
Investment
securities(2) 38,755 759 3.96 % 41,850 990 4.76 %
Other interest-earning
assets(3) 1,260 - * - % 818 10 2.46 %
Total interest-earning
assets 690,762 18,751 5.49 % 679,889 19,701 5.83 %
Non interest-earning
assets 36,754 35,344
Total assets $ 727,516 $ 715,233
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Deposits 506,677 4,954 1.98 % 479,497 6,212 2.61 %
Borrowings from the
FHLB and other
borrowings 143,193 2,493 3.52 % 157,363 3,203 4.09 %
Total interest-bearing
liabilities 649,870 7,447 2.32 % 636,860 9,415 2.97 %
Non interest-bearing
liabilities 8,882 9,285
Total liabilities 658,752 646,145
Stockholders' equity 68,764 69,088
Total liabilities and
stockholders' equity $ 727,516 $ 715,233
Net interest
income-tax equivalent
basis $ 11,304 $ 10,286
Interest rate
spread(4)-tax
equivalent basis 3.17 % 2.86 %
Net yield on
interest-earning
assets(5) -tax
equivalent basis 3.31 % 3.05 %
Ratio of average
interest-earning
assets to average
interest-bearing
liabilities 106.29 % 106.76 %
Less: tax-equivalent
interest adjustment (206 ) (212 )
Net interest income $ 11,098 $ 10,074
Interest rate
spread(4) 3.11 % 2.79 %
Net yield on
interest-earning
assets(5) 3.25 % 2.98 %
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Rate/Volume Analysis
The following table presents, for the periods indicated, the change in interest
income and interest expense (in thousands) attributed to (i) changes in volume
(changes in the weighted average balance of the total interest earning asset and
interest bearing liability portfolios multiplied by the prior year rate), and
(ii) changes in rate (changes in rate multiplied by prior year volume). Changes
attributable to the combined impact of volume and rate have been allocated
proportionately based on the absolute value of changes due to volume and changes
due to rate.
Six months ended June 30,
2009 vs 2008
Increase (decrease) due to
Volume Rate Net
Interest income:
Loans receivable, net $ 516 $ (1,541 ) $ (1,025 )
Mortgage-backed securities 166 150 316
Investment securities (1) (71 ) (160 ) (231 )
Other interest-earning assets 11 (21 ) (10 )
Total interest-earning assets 622 (1,572 ) (950 )
Interest expense:
Deposits 907 (2,165 ) (1,258 )
Borrowings from the FHLB and other borrowings (278 ) (432 ) (710 )
Total interest-bearing liabilities 629 (2,597 ) (1,968 )
Net change in net interest income $ (7 ) $ 1,025 $ 1,018
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Total Interest Income. Total interest income, on a taxable equivalent basis, decreased by $950,000 or 4.8% to $18.8 million for the six months ended June 30, 2009 compared with the first six months of 2008. Interest income from loans receivable decreased by $1.0 million, the result of a decrease in the average yield on loans of 42 basis points primarily as a result of the Company's reduction of its prime rate three times during the last quarter of 2008 by a combined 175 basis points mirroring the action taken by the Federal Open Markets Committee (FOMC) when it acted to reduce the fed funds rate. However the average balance of loans receivable increased $6.4 million during the intervening period. Interest income from investment securities decreased as a result of the decrease of $151,000 in dividends paid on the Company's $9.9 million required holdings of FHLB stock. The dividends had been paid through September 30, 2008 but were suspended indefinitely during the fourth quarter of 2008. Interest income from mortgage-backed securities was higher in the first two quarters of 2009 in comparison to the same period of 2008 due to purchases of $32.9 million of securities which exceeded principal repayments of $26.1 million during the intervening period.
Total Interest Expense. Total interest expense decreased by $2.0 million to $7.4 million during the six-month period ended June 30, 2009 as compared with the first half of 2008 There was a $27.2 million increase in average outstanding deposit balances during the six months ended June 30, 2009, and the average interest rates paid on the Bank's deposits were 57 basis points lower in 2009. Interest expense associated with borrowings decreased $0.7 million between the first six months of 2009 and 2008. During the intervening period, the Bank . . .
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