Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. FSB Community Bankshares Inc (1389797) 10-Q published on Aug 14, 2012 at 4:30 pm
Reporting Period: Jun 29, 2012
The credit quality of the Company’s loan portfolio remains strong. The Company ended the first six months of 2012 with no non-performing loans compared to $325,000 in non-performing loans comprised of one residential property at December 31, 2011. We recorded a $15,000 provision for loan losses for the six months ended June 30, 2012 and June 30, 2011. The allowance for loan losses was $411,000, or 0.29% of loans outstanding, at June 30, 2012 compared to $411,000, or 0.32% of loans outstanding, at December 31, 2011. In the first quarter of 2012, we charged off $15,000 to the allowance for loan losses on the sale of a recently foreclosed real estate owned residential property. Management has evaluated the Company’s allowance for loan losses and believes it is adequate at June 30, 2012 based on the quality of the current loan portfolio. At June 30, 2012 and December 31, 2011, the Company had no loans that are considered to be troubled debt restructurings. Management continues to actively monitor the performance of the loan portfolio during these difficult economic times. Credit quality continues to be the highest priority when underwriting loans. Subjective judgments about a borrower’s ability to repay and the value of any underlying collateral are made prior to approving a loan. We believe our stringent underwriting standards have directly resulted in our significantly low level of non-accruing loans.
Income Tax Expense. We had pre-tax income of $2,000 for the three months ended June 30, 2012 compared to pre-tax income of $5,000 for the three months ended June 30, 2011, and had a $9,000 tax benefit for the three months ended June 30, 2012, compared to a $11,000 tax benefit for the three months ended June 30, 2011, a decrease in tax benefit of $2,000. The effective tax rate was (450.00)% for the three months ended June 30, 2012 compared to (220.00)% for the three months ended June 30, 2011. The high effective tax rate in the quarters ended June 30, 2012 and June 30, 2011 were mainly due to the fact that the increase in the cash surrender value of our bank owned life insurance and municipal bond interest income exceeded pre-tax income. The New York State franchise tax recorded on taxable assets for the quarters ended June 30, 2012 and 2011 exceeded the mortgage tax generated in each of these periods.
General. We had a net loss of $102,000 for the six months ended June 30, 2012 compared to a net loss of $30,000 for the six months ended June 30, 2011. The $72,000 increase in net loss for the first six months of 2012 compared to the first six months of 2011 was attributable to an increase in other expense of $809,000, partially offset by an increase in other income of $690,000, an increase in net interest income of $21,000, and an increase in income tax benefit of $26,000. The $809,000 increase in other expense was primarily due to increases in salaries and employee benefits, occupancy, equipment, and miscellaneous other expenses related to the Perinton branch that was opened in October 2011, increased commissions and mortgage fees and taxes with additional mortgage production in 2012, an FHLB prepayment penalty paid to eliminate the interest cost on higher rate FHLB advances in future periods, and additional advertising expenses related to the current deposit checking promotion. The $690,000 increase in other income was mainly due to increases in realized gain on sale of loans, realized gain on sale of securities, mortgage fee income, and fee income related to Oakleaf revenue, partly offset by a decrease in bank owned life insurance income. The $21,000 increase in net interest income was primarily due to a volume increase in higher interest yielding assets and the Company’s ability to reduce the cost of interest-bearing liabilities in a low interest rate environment. The $26,000 increase in income tax benefit (reduction in expense) resulted from the increase in cash surrender value of our bank owned life insurance and municipal bond interest income which are tax exempt for Federal income tax purposes.
Interest Expense. Interest expense decreased $205,000, or 14.4%, to $1.2 million for the six months ended June 30, 2012 from $1.4 million for the six months ended June 30, 2011. The decrease in interest expense on interest-bearing liabilities resulted from lower average rates paid on deposits and borrowings, despite an increase in the aggregate average balance. Average balances in interest-bearing liabilities increased $4.5 million, or 2.4%, to $189.1 million for the six months ended June 30, 2012 compared to $184.6 million for the six months ended June 30, 2011. The average cost of interest-bearing liabilities decreased by 26 basis points to 1.28% for the six months ended June 30, 2012 from 1.54% for the six months ended June 30, 2011. The average cost of deposit accounts decreased by 23 basis points to 0.99% for the six months ended June 30, 2012 compared to 1.22% for the six months ended June 30, 2011. The average cost of borrowings decreased by 5 basis points to 3.40% for the six months ended June 30, 2012 compared to 3.45% for the six months ended June 30, 2011. The decrease in interest expense reflects a significantly lower cost of funds in total deposits and borrowings in a lower interest rate environment.
Net Interest Income. Net interest income increased $21,000, or 0.8%, to $2.6 million for the six months ended June 30, 2012 from $2.6 million for the six months ended June 30, 2011. The increase in net interest income was primarily due to a volume increase in higher interest yielding assets, primarily mortgages, as well as the cost decrease of interest bearing liabilities for the six months ended June 30, 2012 compared to the six months ended June 30, 2011. Our net interest margin decreased by 4 basis points to 2.55% for the six months ended June 30, 2012 from 2.59% for the six months ended June 30, 2011. The decrease in net interest margin was attributable to the decrease in yield on interest-earning assets of 27 basis points, partially offset by a decrease in cost of interest-bearing liabilities of 26 basis points for the six months ended June 30, 2012 compared to the six months ended June 30, 2011.