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| CSBK > SEC Filings for CSBK > Form 10-Q on 6-Nov-2009 | All Recent SEC Filings |
6-Nov-2009
Quarterly Report
FORWARD-LOOKING STATEMENTS
This Form 10-Q may include, and from time to time the Company may disclose, certain forward-looking statements based on current management expectations. The Company's actual results could differ materially from those management expectations. 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 of federal, state and local tax authorities, 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 loan and investment portfolios, changes in accounting principles, policies or guidelines, and other economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and prices. Additional factors are discussed in the Company's Annual Report on Form 10-K for the year ended March 31, 2009 under "Item 1A. Risk Factors". These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Forward-looking statements speak only as of the date they are made and the Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date of the forward-looking statements or to reflect the occurrence of unanticipated events. Accordingly, past results and trends should not be used by investors to anticipate future results or trends.
OVERVIEW OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's results of operations depend primarily on its net interest income, which is a direct result of the interest rate environment. Net interest income is the difference between the interest income earned on interest-earning assets and the interest paid on interest-bearing liabilities. It is a function of the average balances of loans and securities versus deposits and borrowed funds outstanding in any one period and the yields earned on those loans and securities and the cost of those deposits and borrowed funds.
Interest-earning assets consist primarily of investment and mortgage-backed securities and loans which comprised 45.8% and 48.0%, respectively, of total assets at September 30, 2009, as compared to 41.1% and 48.8%, respectively, at March 31, 2009. Cash and cash equivalents decreased to 1.5% of total assets at September 30, 2009, as compared to 5.3% at March 31, 2009. The Company's investment and mortgage-backed securities portfolios consist of only U.S. government-sponsored or guaranteed enterprises.
Interest-bearing liabilities consist of deposits and borrowings from the Federal Home Loan Bank of New York ("FHLB"). Deposits increased $56.4 million, or 8.9%, between March 31, 2009 and September 30, 2009, and borrowed funds decreased by $1.9 million, or 1.3%, during this period. Borrowed funds totaled $142.4 million at September 30, 2009 as compared to $144.3 million at March 31, 2009. During the six months ended September 30, 2009, $8.9 million of long-term borrowings were repaid in accordance with their original terms, while one $7.0 million short-term borrowing was originated during the period.
Net interest income increased $555,000, or 11.9%, during the three months ended September 30, 2009, when compared with the same 2008 period. Such increase was due to an $87,000 increase in total interest income coupled with a decrease in total interest expense of $468,000. Average interest-earning assets increased $71.7 million, or 8.2%, while average interest-bearing liabilities increased $89.0 million, or 12.2%. The $17.3 million decrease in average net interest-earning assets was mainly attributable to an
OVERVIEW OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D)
increase of $108.5 million in interest-bearing deposits and a decrease of $6.3 million in other interest-earning assets, partially offset by increases of $23.6 million in interest-earning loans and $54.4 million in securities coupled with a decrease of $19.5 million in borrowings. The net interest rate spread increased 27 basis points to 1.85% from 1.58%. This was due to a 62 basis point decrease in the cost of interest-bearing liabilities which was partially offset by a decrease of 35 basis points in the yield earned on interest-earning assets. Results of operations also depend, to a lesser extent, on non-interest income generated, any provision for loan losses recorded, and non-interest expenses incurred. During the three months ended September 30, 2009, non-interest income increased $7,000, or 1.2%, to $292,000, as compared with $285,000 for the same 2008 period. The provision for loan losses increased $218,000, or 189.6%, to $333,000 from $115,000 for the three months ended September 30, 2009 and 2008, and non-interest expenses increased $420,000, or 14.9% between periods.
CHANGES IN FINANCIAL CONDITION
The Company's assets at September 30, 2009 totaled $1.02 billion, which represents an increase of $57.1 million or 5.9% as compared with $959.8 million at March 31, 2009.
Cash and cash equivalents decreased $35.6 million, or 69.7% to $15.5 million at September 30, 2009 as compared to $51.1 million at March 31, 2009, as funds were redeployed into higher yielding assets.
Securities available for sale at September 30, 2009 decreased $7.7 million, or 8.7% to $80.5 million when compared with $88.2 million at March 31, 2009. The decrease during the six months ended September 30, 2009 resulted primarily from repayments totaling $13.1 million, and an increase in the unrealized gain of $418,000 on the portfolio, partially offset by purchases of $5.0 million.
Securities held to maturity at September 30, 2009 increased $79.5 million or 26.0% to $385.7 million when compared with $306.2 million at March 31, 2009. The increase during the six months ended September 30, 2009, resulted primarily from purchases of securities totaling $132.9 million, partially offset by maturities, calls and repayments totaling $53.4 million.
Net loans at September 30, 2009 increased $19.3 million or 4.1% to $487.8 million when compared with $468.5 million at March 31, 2009. The increase during the six months ended September 30, 2009, resulted primarily from internal origination and refinance volume, primarily in residential real estate loans, which more than offset repayment levels. The largest increase in the loan portfolio was in residential real estate loans which increased $17.6 million, or 4.1%.
Total liabilities increased $55.0 million, or 7.0% to $841.6 million at September 30, 2009 from $786.6 million at March 31, 2009. Deposits at September 30, 2009 increased $56.4 million, or 8.9% to $690.0 million when compared with $633.6 million at March 31, 2009, as the Bank continued to offer very competitive rates on its deposit products. Borrowed funds decreased $1.9 million, or 1.3% to $142.4 million at September 30, 2009, as compared with $144.3 million at March 31, 2009. During the period ended September 30, 2009, $8.9 million of long-term borrowings were repaid in accordance with their original terms while one $7.0 million short-term borrowing was originated. At September 30, 2009, the remaining borrowings of $142.4 million had an average interest rate of 3.65%.
Stockholders' equity totaled $175.3 million and $173.2 million at September 30, 2009 and March 31, 2009, respectively. The increase of $2.1 million, or 1.2%, for the six months ended September 30, 2009, resulted primarily from net income of $2.2 million, ESOP shares committed to be released of $390,000,
CHANGES IN FINANCIAL CONDITION (CONT'D)
$599,000 for stock options and restricted stock awards earned under the Company's 2005 Equity Incentive Plan and related tax benefits, and a net increase in unrealized gains, net of tax, of $251,000 on the available for sale securities portfolios, partially offset by the repurchase of approximately 40,000 shares of Company common stock for $398,000 and cash dividends paid of $921,000.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
Net income decreased $43,000, or 3.2% to $1.32 million for the three months ended September 30, 2009 compared with $1.36 million for the same 2008 period. The decrease in net income during the 2009 period primarily was the result of an increase in provision for loan losses of $218,000 and an increase in non-interest expense of $420,000, partially offset by an increase in net interest income of $556,000 and to a lesser extent, a decrease of $33,000 in income taxes.
Interest income on loans increased by $125,000, or 2.1% to $6.12 million during the three months ended September 30, 2009, when compared with $5.99 million for the same 2008 period. The increase during the 2009 period resulted from an increase in the average loan balance of $23.6 million, or 5.2% when compared to the same period in 2008, partially offset by a decrease in the yield earned on the loan portfolio of 16 basis points to 5.12% from 5.28%. Interest income on mortgage-backed securities increased $245,000, or 6.0% to $4.33 million during the three months ended September 30, 2009, when compared with $4.08 million for the same 2008 period. The increase during the 2009 period resulted from an increase of $30.5 million, or 9.8% in the average balance of mortgage-backed securities outstanding, partially offset by a decrease in the yield earned on mortgage-backed securities outstanding, of 18 basis points to 5.04% from 5.22%. Interest earned on investment securities decreased by $177,000, or 20.5% to $686,000 during the three months ended September 30, 2009, when compared to $863,000 during the same 2008 period, due to a decrease in the average yield of 187 basis points to 2.81% from 4.68%, partially offset by an increase of $23.9 million, or 32.4%, in the average balance when compared to the same period in 2008. Interest earned on other interest-earning assets decreased by $106,000, or 48.0% to $115,000 during the three months ended September 30, 2009, when compared to $221,000 during the same 2008 period primarily due to a decrease of 101 basis points in yield to 2.02% from 3.03%, coupled with a decrease of $6.3 million, or 21.8%, in the average balance of other interest-earning assets.
Interest expense on deposits decreased $267,000, or 5.4% to $4.65 million during the three months ended September 30, 2009, when compared to $4.91 million during the same 2008 period. Such decrease was primarily attributable to a decrease of 70 basis points in the cost of interest-bearing deposits to 2.74% from 3.44%, partially offset by an increase of $108.5 million, or 19.0% in the average balance of interest-bearing deposits. The decrease in the average cost of deposits reflected lower market interest rates. Interest expense on borrowed money decreased approximately $201,000, or 12.8% to $1.37 million during the three months ended September 30, 2009 when compared with $1.57 million during the same 2008 period. Such decrease was primarily attributable to a decrease of $19.5 million, or 12.1% in the average balance of borrowings, coupled with a decrease of 3 basis points in the cost of borrowings to 3.87% from 3.90%. The decrease in the cost of borrowings was a result of both existing borrowings at a higher rate being repaid in accordance with their original terms, and a new borrowing originated at a market interest rate well below the average cost of existing borrowings.
Net interest income increased $555,000 million, or 11.9% during the three months ended September 30, 2009, to $5.22 million when compared to $4.67 million for the same 2008 period. Such increase was due
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009
AND 2008 (CONT'D.)
to an $87,000 increase in total interest income coupled with a decrease in total interest expense of $468,000. Average interest-earning assets increased $71.7 million, or 8.2% while average interest-bearing liabilities increased $89.0 million, or 12.2%. The $71.7 million increase in average interest-earning assets was mainly attributable to increases of $23.6 million in loans, $30.5 million in mortgage-backed securities, and $23.9 million in investment securities, partially offset by decrease of $6.3 million in other interest earning assets. Loans, mortgage-backed and investment securities increased primarily due to the redeployment of funds resulting from the growth in deposits into higher yielding assets. The $89.0 million increase in average interest-bearing liabilities was primarily due to an increase of $108.5 million in interest-bearing deposits partially offset by a decrease $19.5 million in borrowings. The net interest rate spread increased 27 basis points to 1.85% as a 35 basis point decrease to 4.78% in the average yield earned on interest-earning assets was more than offset by a decrease of 62 basis points to 2.93% in the average cost of interest-bearing liabilities.
During the three months ended September 30, 2009 and 2008, the Bank recorded $333,000 and $115,000, respectively, to the provision for loan losses. The increased provision in the current period was the result of increases in non-performing loans due to worsening economic conditions and to a lesser extent, the increase in the loan portfolio. The allowance for loan losses is based on management's evaluation of the risk inherent in the Bank's loan portfolio and gives due consideration to the changes in general market conditions and in the nature and volume of the Bank's loan activity. The Bank intends to continue to evaluate the need for a provision for loan losses based on its periodic review of the loan portfolio and general market conditions. At September 30, 2009 and September 30, 2008, the Bank's non-performing loans, all of which were delinquent ninety days or more, and all of which were in a nonaccrual status, totaled $2.7 million and $533,000 respectively, representing 0.54% and 0.11%, respectively, of total gross loans, and 0.26% and 0.06%, respectively, of total assets at the end of each period. At March 31, 2009, nonaccrual loans totaled 870,000, or 0.19% and 0.09% of total gross loans and total assets, respectively. During the three months ended September 30, 2009 and 2008, the Bank charged off $83,000 and $0, respectively. During the period ended September 30, 2009, the $83,000 charge-off represented a partial loss from the restructuring of one residential real estate loan. This was the first loan charge-off recorded by the Bank in more than ten years. At September 30, 2009, non-performing loans consisted of eleven loans secured by one- to four-family residential real estate, two loans secured by commercial real estate, and one loan secured by a multi-family dwelling, while at September 30, 2008, non-performing loans consisted of nine one- to four-family residential real estate loans. At March 31, 2009, non-performing loans consisted of seven one- to four-family residential real estate loans. All non-performing loans included above are located in the state of New Jersey. The allowance for loan losses amounted to $2.1 million, representing 0.42% of total gross loans at September 30, 2009, and $1.7 million, representing 0.36% of total gross loans at March 31, 2009.
Non-interest income increased $7,000, or 2.5% to $292,000 during the three months ended September 30, 2009 as compared to $285,000 for the same 2008 period.
Non-interest expense increased by $421,000, or 14.9% to $3.24 million during the three months ended September 30, 2009, when compared with $2.82 million during the same 2008 period. The components of non-interest expense which experienced the most significant change were federal deposit insurance premiums, legal expense and other miscellaneous expenses which increased $163,000, or 679.2%, $111,000, or 191.4%, and $59,000, or 16.5%, respectively. The increase in federal deposit insurance premiums in 2009 was due to an increase in the quarterly assessment rates for all financial institutions.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009
AND 2008 (CONT'D.)
The increase in legal expenses was mostly due to a $92,000 insurance recovery of previously expensed legal fees relating to litigation reimbursement in the 2008 period. The increase in other miscellaneous expenses was mostly due to increases of $21,000 in consulting fees due to costs associated with information systems testing and an insurance coverage adequacy review, along with $28,000 in correspondent bank service fees.
Income taxes totaled $624,000 and $657,000 during the three months ended September 30, 2009 and 2008, respectively. The decrease of $33,000, or 5.0% during the 2009 period resulted from lower pre-tax income, coupled with a decrease in the overall effective income tax rate which was 32.1% in the 2009 period, compared with 32.5% for 2008. The Company's effective tax rate decreased when overall income decreases, as tax exempt income recognized from the increase in cash surrender value of bank owned life insurance accounts for a larger percentage of overall income.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2009 AND
2008
Net income decreased $331,000, or 13.3% to $2.17 million for the six months ended September 30, 2009 compared with $2.50 million for the same 2008 period. The decrease in net income during the 2009 period primarily was the result of an increase in provision for loan losses of $318,000 and an increase in non-interest expenses of $1.19 million, partially offset by an increase in net interest income of $944,000 and to a lesser extent, a decrease of $226,000 in income taxes.
Interest income on loans increased by $607,000, or 5.2% to $12.22 million during the six months ended September 30, 2009, when compared with $11.62 million for the same 2008 period. The increase during the 2009 period resulted from an increase in the average loan balance of $32.4 million, or 7.3% when compared to the same period in 2008, partially offset by a decrease in the yield earned on the loan portfolio of 11 basis points to 5.15% from 5.26%. Interest income on mortgage-backed securities increased $635,000, or 8.3% to $8.33 million during the six months ended September 30, 2009, when compared with $7.69 million for the same 2008 period. The increase during the 2009 period resulted from an increase of $31.2 million, or 10.6% in the average balance of mortgage-backed securities outstanding, partially offset by a decrease of 10 basis points in the average yield earned on mortgage-backed securities to 5.10% from 5.20%. Interest earned on investment securities decreased by $704,000, or 33.6% to $1.39 million during the six months ended September 30, 2009, when compared to $2.09 million during the same 2008 period, due to a decrease of 181 basis points in average yield to 2.99% from 4.80%, partially offset by an increase of $5.8 million, or 6.7%, in the average balance. Interest earned on other interest-earning assets decreased by $299,000, or 56.8% to $227,000 during the six months ended September 30, 2009, when compared to $526,000 during the same 2008 period primarily due to a decrease of 91 basis points in average yield to 1.89% from 2.80%, coupled with a decrease of $13.5 million, or 36.1%, in the average balance.
Interest expense on deposits decreased $456,000, or 4.5% to $9.60 million during the six months ended September 30, 2009, when compared to $10.06 million during the same 2008 period. Such decrease was primarily attributable to a decrease of 61 basis points in the average cost of interest-bearing deposits to 2.91% from 3.52%, partially offset by an increase of $89.3 million, or 15.6% in the average balance of interest-bearing deposits. The decrease in the average cost of deposits reflected lower market interest
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2009 AND
2008 (CONT'D.)
rates. Interest expense on borrowed money decreased approximately $249,000, or 8.3% to $2.75 million during the six months ended September 30, 2009 when compared with $3.00 million during the same 2008 period. Such decrease was primarily attributable to a decrease of $9.9 million, or 6.5% in the average balance of borrowings, coupled with a decrease of 8 basis points in the average cost of borrowings to 3.86% from 3.94%.
Net interest income increased $944,000, or 10.6% during the six months ended September 30, 2009, to $9.81 million when compared to $8.87 million for the same 2008 period. Such increase was due to a $239,000 increase in total interest income, coupled with a decrease in total interest expense of $705,000. Average interest-earning assets increased $55.9 million, or 6.5% while average interest-bearing liabilities increased $79.4 million, or 11.0%. The $55.9 million increase in average interest-earning assets was attributable to an increase of $32.4 million in loans, $31.2 million in mortgage-backed securities and $5.8 million in investment securities, partially offset by a decrease of $13.5 million in other interest-earning assets. Loans, mortgage-backed and investment securities increased primarily due to the redeployment of funds resulting from the growth in deposits into higher yielding assets. The $79.4 million increase in average interest-bearing liabilities consisted of an increase of $89.3 million in interest-bearing deposits partially offset by a decrease of $9.9 million in borrowings. The net interest rate spread increased 28 basis points to 1.76% as a 26 basis point decrease to 4.83% in the average yield earned on interest-earning assets was more than offset by a decrease of 54 basis points to 3.07% in the average rate paid on interest-bearing liabilities.
During the six months ended September 30, 2009 and 2008, the Bank recorded $433,000 and $115,000, respectively, as a provision for loan losses. The increased provision in the current period was the result of increases in non-performing loans due to worsening economic conditions and to a lesser extent, the increase in the loan portfolio. See "Comparison of Operating Results for the Three Months Ended September 30, 2009 and 2008" for a discussion of non-performing loans at September 30, 2009. During the six months ended September 30, 2009 and 2008, the Bank charged off $83,000 and $0, respectively. During the period ended September 30, 2009, the $83,000 charge-off represented a partial loss from the restructuring of one residential real estate loan. This was the first loan charge-off recorded by the Bank in more than ten years.
Non-interest income increased $7,000, or 1.2% to $582,000 during the six months ended September 30, 2009 as compared to $575,000 for the same 2008 period.
Non-interest expense increased by $1.19 million, or 21.0% to $6.86 million during the six months ended September 30, 2009, when compared with $5.67 million during the same 2008 period. The components of non-interest expense which experienced the most significant change were legal expense, federal deposit insurance premiums, including a special assessment, and other miscellaneous expenses, which
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2009 AND
2008 (CONT'D.)
increased by $103,000, or 5,150.0%, $780,000, or 1,950.0%, and $190,000, or 29.2%, respectively. Legal expense was higher during the six months ended September 30, 2009 mainly due to a $92,000 insurance recovery of previously expensed legal fees relating to litigation reimbursement in the 2008 period. The increase in federal deposit insurance premiums in 2009 was due to an increase in the quarterly assessment rates for all financial institutions along with a special emergency assessment imposed on order to cover losses of the Deposit Insurance Fund that were incurred from failed institutions, as well as anticipated future losses. The Federal Deposit Insurance Corporation special assessment accrued at June 30, 2009 and paid in September 2009 was $422,000. The special assessment was based on the Bank's June 30, 2009 Total Assets minus Tier 1 Capital multiplied by five basis points. The increase in other miscellaneous expenses was mainly due to a $49,000 recovery of previously expensed consulting fees relating to litigation reimbursement in the 2008 period, along with increases of $40,000 in consulting fees due to costs associated with information systems testing, an insurance coverage adequacy review, and branch feasibility studies, as well as increases of $20,000 in stationery, printing and supplies and $45,000 in correspondent bank service fees.
Income taxes totaled $931,000 and $1.16 million during the six months ended September 30, 2009 and 2008, respectively. The decrease of $226,000, or 19.5% during the 2009 period resulted from lower pre-tax income, coupled with a decrease in the overall effective income tax rate which was 30.1% in the 2009 period, compared with 31.7% for 2008. The Company's effective tax rate decreases when overall income decreases, as tax exempt income recognized from the increase in cash surrender value of bank owned life insurance accounts for a larger percentage of overall income.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains levels of liquid assets sufficient to ensure the Bank's safe and sound operation. The Company adjusts its liquidity levels in order to meet funding needs for deposit outflows, payment of real estate taxes from escrow accounts on mortgage loans, repayment of borrowings, when applicable, and loan funding commitments. The Company also adjusts its liquidity level as appropriate to meet its asset/liability objectives. Liquid assets, which include cash and cash equivalents and securities available for sale, totaled $96.0 million, or 9.4% of total assets at September 30, 2009 as compared to $139.3 million, or 14.5% of total assets at March 31, 2009.
The Company's liquidity, represented by cash and cash equivalents and securities available for sale, is a product of its operating, investing and financing activities.
The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Company is responsible for paying any dividends declared to its shareholders. The Company also has repurchased shares of its common stock. The Company's primary source of income is dividends received from the Bank. The amount of dividends that the Bank may declare and pay to the Company in any calendar year, without the receipt of prior approval from the OTS but with prior notice to the OTS, cannot exceed net income for that year to date plus retained net income (as defined) for the preceding two calendar years.
Cash was generated by operating and financing activities during the three months . . .
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