PART
I. Item 1.
ES
BANCSHARES, INC.
CONSOLIDATED
BALANCE SHEET
(Unaudited)
(In
thousands, except share data)
|
|
|
September
30,
|
|
|
December
31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents:
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
1,412
|
|
|
$
|
2,734
|
|
|
Federal
funds sold
|
|
|
6,320
|
|
|
|
11,609
|
|
|
Total
cash and cash equivalents
|
|
|
7,732
|
|
|
|
14,343
|
|
|
Certificates
of deposit at other financial institutions
|
|
|
5,795
|
|
|
|
5,746
|
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
Available
for sale, at fair value
|
|
|
10,067
|
|
|
|
9,443
|
|
|
Real
estate mortgage loans held for sale
|
|
|
354
|
|
|
|
215
|
|
|
Loans
receivable, net
|
|
|
|
|
|
|
|
|
|
Real
estate mortgage loans
|
|
|
44,468
|
|
|
|
35,151
|
|
|
Commercial
and lines of credit
|
|
|
13,276
|
|
|
|
10,903
|
|
|
Home
equity and consumer loans
|
|
|
7,164
|
|
|
|
6,046
|
|
|
Construction
or development loans
|
|
|
6,532
|
|
|
|
9,128
|
|
|
Deferred
cost
|
|
|
380
|
|
|
|
344
|
|
|
Allowance
for loan losses
|
|
|
(617
|
)
|
|
|
(581
|
)
|
|
Total
loans receivable, net
|
|
|
71,203
|
|
|
|
60,991
|
|
|
Accrued
interest receivable
|
|
|
566
|
|
|
|
515
|
|
|
Federal
Reserve Bank stock
|
|
|
324
|
|
|
|
335
|
|
|
Federal
Home Loan Bank stock
|
|
|
89
|
|
|
|
—
|
|
|
Goodwill
|
|
|
581
|
|
|
|
581
|
|
|
Office
properties and equipment, net
|
|
|
718
|
|
|
|
741
|
|
|
Prepaid
expenses
|
|
|
168
|
|
|
|
74
|
|
|
Other
assets
|
|
|
62
|
|
|
|
55
|
|
|
Total
assets
|
|
$
|
97,659
|
|
|
$
|
93,039
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing
|
|
$
|
9,196
|
|
|
$
|
8,156
|
|
|
Interest
bearing
|
|
|
76,773
|
|
|
|
73,318
|
|
|
Borrowed
funds
|
|
|
84
|
|
|
|
53
|
|
|
Accrued
interest payable
|
|
|
130
|
|
|
|
130
|
|
|
Other
liabilities
|
|
|
888
|
|
|
|
440
|
|
|
Total
liabilities
|
|
|
87,071
|
|
|
|
82,097
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
|
|
Capital
stock (par value $0.01; 5,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
|
1,721,437
shares issued at September 30, 2007
|
|
|
17
|
|
|
|
17
|
|
|
1,719,227
shares issued at December 31, 2006)
|
|
|
|
|
|
|
|
|
|
Additional
paid-in-capital
|
|
|
16,906
|
|
|
|
16,869
|
|
|
Accumulated
deficit
|
|
|
(6,310
|
)
|
|
|
(5,845
|
)
|
|
Accumulated
other comprehensive loss
|
|
|
(25
|
)
|
|
|
(99
|
)
|
|
Total
stockholders’ equity
|
|
|
10,588
|
|
|
|
10,942
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
97,659
|
|
|
$
|
93,039
|
|
See
accompanying notes to financial statements
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND
2006
(In
thousands, except per share data)
|
|
|
For
the Three Months
|
|
|
For
the Nine Months
|
|
|
|
|
Ended
September 30,
|
|
|
Ended
September 30,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and dividend income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
1,317
|
|
|
$
|
1,032
|
|
|
$
|
3,738
|
|
|
$
|
2,442
|
|
|
Securities
|
|
|
105
|
|
|
|
107
|
|
|
|
296
|
|
|
|
289
|
|
|
Certificates
of deposit
|
|
|
81
|
|
|
|
42
|
|
|
|
243
|
|
|
|
103
|
|
|
Fed
Funds and other earning assets
|
|
|
121
|
|
|
|
141
|
|
|
|
400
|
|
|
|
367
|
|
|
Total
interest and dividend income
|
|
|
1,624
|
|
|
|
1,322
|
|
|
|
4,677
|
|
|
|
3,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
933
|
|
|
|
747
|
|
|
|
2,701
|
|
|
|
1,653
|
|
|
Borrowed
funds
|
|
|
2
|
|
|
|
1
|
|
|
|
4
|
|
|
|
1
|
|
|
Total
interest expense
|
|
|
935
|
|
|
|
748
|
|
|
|
2,705
|
|
|
|
1,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
689
|
|
|
|
574
|
|
|
|
1,972
|
|
|
|
1,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
27
|
|
|
|
344
|
|
|
|
36
|
|
|
|
394
|
|
|
Net
interest income after provision for loan losses
|
|
|
662
|
|
|
|
230
|
|
|
|
1,936
|
|
|
|
1,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
charges and fees
|
|
|
71
|
|
|
|
58
|
|
|
|
225
|
|
|
|
99
|
|
Net
gain on sales of real estate mortgage
loans held for
sale
|
|
|
69
|
|
|
|
30
|
|
|
|
135
|
|
|
|
144
|
|
|
Other
|
|
|
33
|
|
|
|
17
|
|
|
|
57
|
|
|
|
21
|
|
|
Total
non-interest income
|
|
|
173
|
|
|
|
105
|
|
|
|
417
|
|
|
|
264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
520
|
|
|
|
472
|
|
|
|
1,455
|
|
|
|
1,394
|
|
|
Occupancy
and equipment
|
|
|
156
|
|
|
|
153
|
|
|
|
472
|
|
|
|
473
|
|
|
Data
processing service fees
|
|
|
52
|
|
|
|
37
|
|
|
|
136
|
|
|
|
104
|
|
|
Other
|
|
|
245
|
|
|
|
254
|
|
|
|
755
|
|
|
|
690
|
|
|
Total
non-interest expense
|
|
|
973
|
|
|
|
916
|
|
|
|
2,818
|
|
|
|
2,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) before income taxes
|
|
|
(138
|
)
|
|
|
(581
|
)
|
|
|
(465
|
)
|
|
|
(1,244
|
)
|
|
Income
tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss)
|
|
$
|
(138
|
)
|
|
$
|
(581
|
)
|
|
$
|
(465
|
)
|
|
$
|
(1,244
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized gain/(loss) on available-for-sale securities
|
|
|
45
|
|
|
|
(70
|
)
|
|
|
74
|
|
|
|
(43
|
)
|
|
Comprehensive
income (loss)
|
|
$
|
(93
|
)
|
|
$
|
(651
|
)
|
|
$
|
(391
|
)
|
|
$
|
(1,287
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares
|
|
|
1,721,336
|
|
|
|
1,719,227
|
|
|
|
1,720,115
|
|
|
|
1,719,198
|
|
|
(Loss)
per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
& diluted
|
|
$
|
(0.08
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(0.72
|
)
|
See
accompanying notes to financial statements
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(In
thousands of dollars except, share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
Capital
Stock
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
(Loss)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2006
|
|
|
1,719,177
|
|
|
$
|
8,596
|
|
|
$
|
8,276
|
|
|
$
|
(4,418
|
)
|
|
$
|
(122
|
)
|
|
$
|
12,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange
of 1,719,227 shares of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Empire
State Bank, NA $5.00 par
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
value
for 1,719,227 shares of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ES
Bancshares, Inc. $0.01 par value
|
|
|
|
|
|
|
(8,579
|
)
|
|
|
8,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of stock warrants
|
|
|
50
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation, net
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,244
|
)
|
|
|
|
|
|
|
(1,244
|
)
|
Net
unrealized (loss) on available-
for-sale
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
20
|
|
|
Total
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,224
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2006
|
|
|
1,719,227
|
|
|
$
|
17
|
|
|
$
|
16,865
|
|
|
$
|
(5,662
|
)
|
|
$
|
(102
|
)
|
|
$
|
11,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2007
|
|
|
1,719,227
|
|
|
$
|
17
|
|
|
$
|
16,869
|
|
|
$
|
(5,845
|
)
|
|
$
|
(99
|
)
|
|
$
|
10,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of stock warrants
|
|
|
2,210
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(465
|
)
|
|
|
|
|
|
|
(465
|
)
|
Net
unrealized gain on available-
for-sale
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
|
|
|
|
74
|
|
|
Total
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(391
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2007
|
|
|
1,721,437
|
|
|
$
|
17
|
|
|
$
|
16,906
|
|
|
$
|
(6,310
|
)
|
|
$
|
(25
|
)
|
|
$
|
10,588
|
|
See
accompanying notes to financial statements
ES
BANCSHARES, INC.
CONSOLIDATED
STATEMENT OF CASH FLOWS
|
|
|
For
the Nine Months
|
|
|
|
|
Ended
September 30,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
loss for period
|
|
$
|
(465
|
)
|
|
$
|
(1,244
|
)
|
Adjustments
to reconcile net losses to net cash
provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
36
|
|
|
|
394
|
|
|
Depreciation
expense
|
|
|
130
|
|
|
|
147
|
|
|
Amortization
of deferred fees, discounts and premiums, net
|
|
|
2
|
|
|
|
(5
|
)
|
|
Net
originations on loans held for sale
|
|
|
(4
|
)
|
|
|
519
|
|
|
Net
gain on sale of real estate mortgage loans held for sale
|
|
|
(135
|
)
|
|
|
(144
|
)
|
|
Stock
compensation expense
|
|
|
15
|
|
|
|
9
|
|
|
Changes
in assets and liabilities
|
|
|
|
|
|
|
|
|
|
Increase
in other assets
|
|
|
(152
|
)
|
|
|
(293
|
)
|
|
Increase
in accrued expenses and other liabilities
|
|
|
449
|
|
|
|
423
|
|
|
Net
cash used in operating activities
|
|
|
(124
|
)
|
|
|
(194
|
)
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Maturity
of cerfificates of deposit at other financial institutions
|
|
|
6,645
|
|
|
|
3,249
|
|
|
Purchase
of cerfificates of deposit at other financial institutions
|
|
|
(6,694
|
)
|
|
|
(4,098
|
)
|
|
Purchase
of available-for-sale securities
|
|
|
(3,500
|
)
|
|
|
(5,397
|
)
|
|
Proceeds
from principal payments and maturities/calls of securities
|
|
|
2,947
|
|
|
|
2,084
|
|
|
Net
disbursements for loan originations
|
|
|
(10,248
|
)
|
|
|
(25,898
|
)
|
|
Purchase
of Federal Home Loan Bank stock
|
|
|
(89
|
)
|
|
|
|
|
|
Redemption
of Federal Reserve Bank stock
|
|
|
11
|
|
|
|
30
|
|
|
Leasehold
improvements and acquisitions of capital assets
|
|
|
(107
|
)
|
|
|
(17
|
)
|
|
Net
cash used in investing activities
|
|
|
(11,035
|
)
|
|
|
(30,047
|
)
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Net
increase in deposits
|
|
|
4,495
|
|
|
|
31,494
|
|
|
Proceeds
of advance from line of credit
|
|
|
31
|
|
|
|
50
|
|
|
Proceeds
from stock issuance
|
|
|
22
|
|
|
|
1
|
|
|
Net
cash provided by financing activities
|
|
|
4,548
|
|
|
|
31,545
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(6,611
|
)
|
|
|
1,304
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
14,343
|
|
|
|
10,801
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
7,732
|
|
|
$
|
12,105
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
2,705
|
|
|
$
|
1,574
|
|
|
Income
taxes paid
|
|
$
|
|
|
|
$
|
|
|
See
accompanying notes to financial statements
ES
BANCSHARES, INC.
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
|
Note
1.
|
Commencement
of Operations
|
On
April
28, 2004, Empire State Bank, NA (the “Bank”) sold 1,650,000 shares of its common
stock at a price of $10.00 per share, for an aggregate consideration of
$16,500,000 (the “Offering”). In addition, for every five (5) shares
of common stock purchased by a subscriber in the offering, such subscriber
received a warrant to purchase, within a three-year period, one (1) share
of
common stock at an exercise price of $12.50 per share. The Bank
commenced operations on June 28, 2004.
|
Note
2.
|
Holding
Company Formation
|
On
August 15, 2006, the Bank
reorganized into a one-bank holding company structure (the
“Reorganization”). In connection with the Reorganization, the Bank
formed ES Bancshares, Inc. (the “Company”), a Maryland corporation, to serve as
the holding company. The Reorganization was effected by an exchange
of all of the outstanding shares of Bank Common Stock for shares of Company
Common Stock (the “Share Exchange”). Following the Share Exchange,
the Bank became a wholly-owned subsidiary of the Company and former shares
of
Bank Common Stock represent the same number of shares of Company Common
Stock.
|
Note
3.
|
Basis
of Presentation
|
The
consolidated financial statements
included herein include the accounts of the Company and the Bank, subsequent
to
the elimination of all significant intercompany balances and transactions,
and
have been prepared by the Company without audit. In the opinion of
management, the unaudited financial statements include all adjustments,
consisting of normal recurring accruals, necessary for a fair presentation
of
the financial position and results of operations for the periods
presented. Certain information and footnote disclosures normally
included in accordance with generally accepted accounting principles of
the
United States have been condensed or omitted pursuant to the rules and
regulations of the SEC, however, the Company believes that the disclosures
are
adequate to make the information presented not misleading. The
operating results for the periods presented are not necessarily indicative
of
results to be expected for any other interim period or for the entire fiscal
year ending December 31, 2007. The unaudited interim financial
statements presented herein should be read in conjunction with the annual
financial statements of the Company as of and for the fiscal year ended
December
31, 2006, included in Form 10-KSB filed with the SEC.
The
financial statements have been
prepared in conformity with generally accepted accounting principles of
the
United States. In preparing the financial statements, management is
required to make estimates and assumptions that affect the reported amounts
of
assets, liabilities, income and expense. Actual results could differ
significantly from these estimates. Material estimates that are
particularly susceptible to significant change relate to the determination
of
the allowance for losses on loans, and the valuation allowance on deferred
tax
assets.
|
Note
4.
|
Summary
of Significant Accounting
Policies
|
Warrants
Effective
April 15, 2007, the Company
modified the terms of the warrants to purchase common stock of the Company
by
reducing the exercise price of $12.50 to $10.00 and extended the expiration
date
from June 28, 2007 to June 28, 2008. There was no additional expense
recognized as a result of the modification. At September 30, 2007 the
Company had 327,690 stockholder warrants issued and
outstanding. Additionally, there were 190,000 issued and outstanding
organizer warrants as of September
30,
2007. The organizer warrants are convertible into common shares at an
exercise price of $10.00 and exercisable through June 27, 2009 and their
original terms have not been modified. The organizer warrants were
valued at $323,000 and were expensed at the time of issuance in accordance
with
FAS 123. The fair value was determined using the minimum value method using
the
following assumptions: Grant date of June 28, 2004, $10.00 strike price,
$10.00
fair value of a share of capital stock at grant date, risk-free rate of
3.8%, no
dividends, five (5) year life and no volatility.
Stock
Options
On
October 19, 2004 the Board of
Directors approved the adoption of the Company’s Stock Option Plan and option
grants were made for 173,000 shares at an exercise price of $10.50 per
share. These options have a 10-year term and may be either
non-qualified stock options or incentive stock options. These options
were not deemed granted until shareholder approval occurred on May 3,
2005. Subsequently, incentive options on 10,000 shares at an exercise
price of $10.00 per share, 6,250 shares at an exercise price of $10.50
per
share, 5,000 shares at an exercise price of $10.00 per share, and 10,000
shares
at an exercise price of $10.50 per share were awarded on November 15, 2005,
December 20, 2005, January 12, 2006, and January 16, 2007,
respectively. Additionally, 5,000 non-qualified stock options at an
exercise price of $10.50 were also awarded on January 16, 2007. The
options vest at a rate of 20% on each of five annual vesting dates except
for
65,000 options granted to Directors, which vested immediately. Each
option entitles the holder to purchase one share of common stock at an
exercise
price equal to the fair market value of the stock on the grant
date.
Effective
January 1, 2006, the Company
adopted Statement of Financial Accounting Standards No. 123 (revised 2004)
“Share-based Payment” (“SFAS 123(R)”), using the modified prospective transition
method. Previously, the Company accounted for stock-based
compensation under the fair value method of accounting in accordance with
SFAS
123 prior to revision. For accounting purposes, the Company
recognizes expense for shares of common stock awarded under the Company’s Stock
Option Plan over the vesting period at the fair market value of the shares
on
the date they are awarded. The fair values of options granted are
computed using the Black-Scholes option-pricing model, using the following
weighted-average assumptions as of the grant dates.
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk
free interest rate
|
|
|
4.74
|
%
|
|
|
4.35
|
%
|
|
|
3.98
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
option life
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
stock price volatility
|
|
|
0.10
|
%
|
|
|
0.10
|
%
|
|
|
0.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average fair value of options
granted
|
|
$
|
—
|
|
|
$
|
2.20
|
|
|
$
|
1.08
|
|
A
summary
of options outstanding under the Company’s Stock Option Plan as of September 30,
2007, and changes during the nine-month period then ended is presented
below.
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term
(yrs.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at
January 1, 2007
|
|
|
147,750
|
|
|
$
|
10.47
|
|
|
|
7.1
|
|
|
Granted
|
|
|
15,000
|
|
|
|
10.50
|
|
|
|
9.3
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at
September 30, 2007
|
|
|
162,750
|
|
|
$
|
10.47
|
|
|
|
7.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exerciseable at
September 30, 2007
|
|
|
97,150
|
|
|
$
|
10.49
|
|
|
|
7.2
|
|
As
of September 30, 2007, there was
$44,036 of total unrecognized compensation cost related to nonvested stock
options granted under the Stock Option Plan. The cost is expected to
be recognized over a period of approximately 30 months.
Earnings
(Loss) Per Share
Basic
earnings (loss) per share is
computed by dividing net income (loss) by the weighted average number of
common
shares outstanding for the period. Diluted earnings (loss) per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock (such as stock warrants and options) were
exercised or converted into common stock or resulted in the issuance of
common
stock that then shared in the earnings of the entity. Diluted
earnings (loss) per share is computed by dividing net income (loss) by
the
weighted-average number of shares outstanding for the period plus
common-equivalent shares computed using the treasury stock method. None
of the
327,690 stockholder warrants, or 190,000 organizer warrants, or 162,750
stock
options were considered in computing diluted earnings (loss) per share
because
to do so would have been antidilutive
.
Income
Taxes
Deferred
tax assets and liabilities are the expected future tax amounts for the
temporary
differences between carrying amounts and tax bases of assets and liabilities,
computed using tax rates. Temporary differences are differences
between the tax basis of assets and liabilities and their reported amounts
in
the financial statements that will result in taxable or deductible amounts
in
future years. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date. The
tax
benefit on net operating losses, included in deferred tax assets, was
approximately $2.3 million at September 30, 2007. The net operating
losses are being carried forward and will be available to reduce future
taxable
income. Realization of deferred tax assets is dependent upon the
generation of future taxable income. A valuation allowance is
provided when it is more likely than not that some portion of the deferred
tax
asset will not be realized. Because the Bank has no operating
history, management recorded a valuation allowance against the total amount
of
deferred tax assets.
Securities
The
Company is required to report readily-marketable equity and debt securities
in
one of the following categories: (i) “held-to-maturity” (management has the
positive intent and ability to hold to maturity), which are reported at
amortized cost; (ii) “trading” (held for current resale), which are to be
reported at fair value, with unrealized gain and losses included in earnings;
and (iii) “available for sale” (all other debt and marketable equity
securities), which are to be reported at fair value, with unrealized gains
and
losses reported net of taxes, as accumulated other comprehensive income,
a
separate component of stockholders’ equity. The Company currently
classifies all securities as available-for-sale.
Premiums
and discounts on investments in debt and equity securities are amortized
to
expense or accreted to income over the estimated life of the respective
securities using methods approximating the effective interest method. Gains
and
losses on the sales of securities are recognized upon realization based
on the
specific identification method.
Loans
Held for Sale
Loans
originated and intended for sale
in the secondary market are carried at the lower of cost or estimated fair
value
in the aggregate. All sales are made with servicing released and without
recourse. Gains and losses on the disposition of loans held for sale are
determined on the specific identification basis. Net unrealized losses
on loans
held for sale are recognized through a valuation allowance by charges to
income. There were no valuation allowances as of September 30,
2007.
Loans
Loans
receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at their unpaid
principal adjusted for any charge-offs, the allowance for loan losses,
and any
deferred fees and costs on originated loans and any unamortized premiums
or
discounts on purchased loans. Loan origination and commitment fees and
certain
direct loan origination costs will be deferred and the net amount amortized
as
an adjustment of the related loan’s yield using methods that approximate the
interest method over the contractual life of the loan. Loan interest income
is
accrued daily on outstanding balances.
Non-Performing
Assets
Loans
are reviewed on a regular basis,
and are placed on non-accrual status when either principal or interest
is 90
days or more past due, or, in the opinion of management, there is sufficient
reason to question the borrower’s ability to continue to meet principal or
interest payment obligations. Interest accrued and unpaid at the time
a loan is placed on non-accrual status is reversed from interest income
related
to current year income and charged to the allowance for loan losses with
respect
to income that was recorded in the prior fiscal year. At and for the
nine-month period ending September 30, 2007, we had one non-accrual loan
in the
amount of $10,000. We did not have any non-accrual loans at and for
the year ending December 31, 2006.
Classification
of Assets
Regulations
require that the Company
classify its own assets on a regular basis and establish prudent valuation
allowances based on such classifications. In addition, in connection
with examinations, Office of the Comptroller of the Currency (the “OCC”)
examiners have the authority to identify problem assets, and if appropriate,
require that they be classified. There are three classifications for problem
assets: substandard, doubtful, and loss. Substandard assets have one
or more defined weaknesses and are
characterized
by the distinct possibility that the institution will sustain some loss
if the
deficiencies are not corrected. Doubtful assets have the weaknesses
of substandard assets, with the additional characteristics that the weaknesses
make collection or liquidation in full on the basis of currently existing
facts,
conditions and values questionable, and there is a high possibility of
loss. An asset classified loss is considered uncollectible and of
such little value that continuance as an asset on the balance sheet of
the
institution is not warranted. Assets classified as substandard or
doubtful require the Company to establish general allowances for loan
losses. If an asset or portion thereof is classified as loss, the
Company must either establish specific allowances for loan losses in the
amount
of 100% of the portion of the asset classified loss, or charge off such
amount. If a bank does not agree with an examiner’s classification of
an asset, it may appeal this determination to the Regional Director of
the
OCC. On the basis of management’s review, at September 30, 2007, the
Bank had $275,255 of assets classified as substandard. There were no
assets classified as doubtful or loss.
Allowance
for Loan Losses
The
allowance for loan losses is increased by provisions for loan losses charged
to
income. Losses are charged to the allowance when all or a portion of
a loan is deemed to be uncollectible. Subsequent recoveries of loans
previously charged off are credited to the allowance for loan losses when
realized.
The
allowance for loan losses is a significant estimate based upon management’s
periodic evaluation of the loan portfolio under current economic conditions,
considering factors such as the Company’s past loss experience, known and
inherent risks in the portfolio, adverse situations that may affect the
borrower’s ability to repay, and the estimated value of the underlying
collateral. Establishing the allowance for loan losses involves
significant management judgment, utilizing the best available information
at the
time of review. Those judgments are subject to further review by
various sources, including the Bank’s regulators, who may require the Company to
recognize additions to the allowance based on their judgment about information
available to them at the time of their examination. While management
estimates loan losses using the best available information, future adjustments
to the allowance may be necessary based on changes in economic and real
estate
market conditions, further information obtained regarding known problem
loans,
the identification of additional problem loans, and other
factors. Allocations of the allowance may be made for specific loans,
but the entire allowance is available for any loan that in management’s judgment
should be charged off.
Cash
Flows
Cash
and cash equivalents include cash,
deposits with other financial institutions, and federal funds
sold. Net cash flows are reported for customer loan and deposit
transactions, interest-bearing deposits in other financial institutions,
and
federal funds purchased.
|
Note
5.
|
Commitments
and Contingencies
|
Legal
Proceedings
The
Company has not been a party to any legal proceedings, which may have a
material
effect on the Company’s results of operations and financial
condition. However, in the normal course of its business, the Company
may become involved as plaintiff or defendant in proceedings such as judicial
mortgage foreclosures and proceedings to collect on loan obligations and
to
enforce contractual obligations.
Operating
Lease Commitments
The
Company is obligated under non-cancelable operating leases for its main
office
location in Newburgh, New York and its branch office location in New Paltz,
New
York. The leases are for initial terms of 10 years and 15 years,
respectively and have various renewal options. Rent expense under
operating
leases was $70,000 for the three months ended September 30, 2007. At
September 30, 2007, the future minimum rental payments under operating
lease
agreements for the fiscal years ending December 31 are $53,000 in 2007,
$215,000
in 2008, $219,000 in 2009, $226,000 in 2010, $229,000 in 2011 and a total
of
$1.1 million for 2012 and thereafter.
The Bank’s lease
obligation for its Staten Island, New York and Lynbrook, New York lending
offices is on a month-to-month basis at $800 per month.
The
Company also entered into a lease agreement for office space in Staten
Island,
New York at a cost of $2,700 per month and applied to the OCC for permission
to
open a full service branch banking facility. Subsequent to the OCC’s
approval the Company renovated the office, hired and trained a team of
experienced managers and employees, and will be opening the new branch
office in
mid-November 2007. We currently estimate that the new branch will
result in a $32,000 increase in our monthly operating expenses.
Off-Balance
Sheet Financial Instruments
The
Company’s off-balance sheet
financial instruments at September 30, 2007 were limited to loan origination
commitments of $14.4 million (including one- to four-family loans held
for sale
of $3.2 million) and unused lines of credit (principally commercial and
home
equity lines) extended to customers of $12.3 million. Substantially
all of these commitments and lines of credit have been provided to customers
within the Bank’s primary lending area. Loan origination commitments
at September 30, 2007 consisted of adjustable and fixed rate commitments
of
$10.0 million and $4.4 million respectively, with interest rates ranging
from
5.00% to 10.00%.
Item
2.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Forward-Looking
Statements
This
Report on Form 10-QSB of the
Company includes “forward-looking statements” within the meaning of the
Securities Act of 1933, as amended, and the Securities Exchange Act of
1934, as
amended, that are based on the current beliefs of, as well as assumptions
made
by and information currently available to, the management of the
Company. All statements other than statements of historical facts
included in this Report, including, without limitation, statements contained
under the caption “Management’s Discussion and Analysis” regarding the Company’s
business strategy and plans and objectives of the management of the Company
for
future operations, are forward-looking statements. When used in this
Report, the words “anticipate”, “believe”, “estimate”, “project”, “predict”,
“expect”, “intend” or words or phrases of similar import, as they relate to the
Company or the Company’s management, are intended to identify forward-looking
statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, such expectations
may not prove to be correct. All forward-looking statements are
subject to risks and uncertainties that could cause actual results to differ
materially from those anticipated, believed, estimated, projected, predicted,
expected or intended including risks and uncertainties including changes
in
economic conditions in our market area, changes in local real estate values,
changes in regulatory policies, fluctuations in interest rates, local loan
and
deposit demand levels, competition, our ability to control expenses, our
ability
to increase our lower cost deposits, our ability to execute our plan to
attain
profitability, and other factors. The Company does not intend to
update these forward-looking statements. All subsequent written and
oral forward-looking statements attributable to the Company or persons
acting on
its behalf are expressly qualified in their entirety by applicable cautionary
statements.
Comparison
of Financial Condition at September 30, 2007 and December 31,
2006
Total
assets at September 30, 2007
amounted to nearly $97.7 million, representing an increase of approximately
$4.7
million, or 5.0%, from $93.0 million at December 31, 2006. Asset
growth during the
period
primarily reflected increases in total loans and securities that were funded
by
deposit growth and decreases in cash and cash equivalents.
Overall,
total loans (loans receivable,
net and mortgage loans held for sale) increased $10.4 million, or 17.0%,
from
$61.2 million at December 31, 2006 to $71.6 million at September 30,
2007. During that nine-month period commercial real estate mortgage
loans increased $6.0 million, or 17.9%, from $33.6 million to $39.6 million,
while residential mortgage loans, excluding mortgage loans held for sale,
remained unchanged at $1.5 million. Commercial loans and commercial
lines of credit increased $2.4 million, or 22.0% from $10.9 million at
December
31, 2006, to $13.3 million at September 30, 2007, and home equity and consumer
loans increased nearly $1.2 million, or 20.0% from $6.0 million to $7.2
million
over the same nine-month period. Concurrently, construction loan
balances decreased $2.6 million, or 28.6%, to $6.5 million at September
30, 2007
from $9.1 million at December 31, 2006, as a result of contractual repayments
of
principal that occurred upon the completion of a number of associated
projects. Future growth in construction loans as well as in the other
loan categories will depend on economic conditions (including prevailing
real
estate values) as well as regulatory, deposit growth and capital
considerations.
Total
securities, which are comprised solely of U.S. government agency and U.S.
government sponsored agency debt obligations, increased $624,000, or 6.6%
from
$9.4 million at December 31, 2006 to $10.1 million at September 30, 2007,
while
certificates of deposit at other financial institutions increased from
$5.7
million to $5.8 million during the same period. At September 30, 2007
the balance of cash and cash equivalents totaled $7.7 million as compared
to
$14.3 million at December 31, 2006. The decrease of $6.6 million, or
46.2% resulted as those available funds were deployed into the relatively
higher-yielding loans and investments discussed above, in lieu of relying
primarily on incremental higher-costing liabilities.
Funding
for the growth in total assets
was provided primarily by a $4.5 million increase in total
deposits. Interest bearing deposits grew $3.5 million, or 4.8%, to
$76.8 million at September 30, 2007 from $73.3 million at December 31,
2006. That growth over the nine-month period consisted of increases
of $4.3 million in savings accounts and $2.3 million in certificates of
deposit
that were partially offset by decreases of $3.1 million in money market
accounts
and $19,000 in NOW accounts. Over the same nine-month period
non-interest bearing accounts increased $1.0 million, or 12.2% from $8.2
million
to $9.2 million.
Stockholders’
equity
decreased by
$354,000 to $10.6 million at September 30, 2007 from $10.9 million at December
31, 2006. The decrease is primarily attributable to a net loss for
the nine-month period of $465,000 that was partially mitigated by a $37,000
increase in additional paid-in-capital that resulted mostly from the exercise
of
2,210 shareholder warrants, and a decrease of $74,000 in the net unrealized
loss
in the market value of securities available-for-sale.
The
ratio
of stockholders’ equity to total assets decreased to 10.8% at September 30, 2007
from 11.8% at December 31, 2006. Book value per share decreased to
$6.15 at September 30, 2007 from $6.36 at December 31, 2006. See
“Liquidity and Capital Resources” for information regarding the Bank’s
regulatory capital amounts and ratios.
Analysis
of Net Interest Income
The
following tables summarize the Company’s average balance sheets for interest
earning assets and interest bearing liabilities, average yields and costs
(on an
annualized basis), and certain other information for the three and nine-month
periods ended September 30, 2007 as compared to the comparable three and
nine-month periods ended September 30, 2006. The yields and costs
were derived by dividing interest income or expense by the average balance
of
assets and liabilities
for the period
shown. Substantially all average balances were computed based on
daily balances. The yields include deferred fees and discounts, which
are considered yield adjustments.
|
|
|
For
the Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
Average
|
|
|
|
|
|
Yield
/
|
|
|
Average
|
|
|
|
|
|
Yield
/
|
|
|
|
|
Balance
|
|
|
Interest
|
|
|
Cost
|
|
|
Balance
|
|
|
Interest
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars
in thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
71,504
|
|
|
$
|
1,317
|
|
|
|
7.37%
|
|
|
$
|
56,599
|
|
|
$
|
1,032
|
|
|
|
7.29%
|
|
|
Fed
Funds
|
|
|
8,772
|
|
|
|
114
|
|
|
|
5.16%
|
|
|
|
10,362
|
|
|
|
136
|
|
|
|
5.21%
|
|
|
Certificates
of deposit
|
|
|
5,917
|
|
|
|
81
|
|
|
|
5.43%
|
|
|
|
3,059
|
|
|
|
42
|
|
|
|
5.45%
|
|
|
FRB
Stock
|
|
|
468
|
|
|
|
7
|
|
|
|
5.98%
|
|
|
|
356
|
|
|
|
5
|
|
|
|
6.07%
|
|
|
Securities-available
for sale
|
|
|
8,297
|
|
|
|
105
|
|
|
|
5.06%
|
|
|
|
9,232
|
|
|
|
107
|
|
|
|
4.62%
|
|
|
Total
interest-earning assets
|
|
|
94,958
|
|
|
$
|
1,624
|
|
|
|
6.84%
|
|
|
|
79,608
|
|
|
$
|
1,322
|
|
|
|
6.59%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
|
(607
|
)
|
|
|
|
|
|
|
|
|
|
|
(180
|
)
|
|
|
|
|
|
|
|
|
|
Cash
& Due from banks
|
|
|
1,983
|
|
|
|
|
|
|
|
|
|
|
|
1,840
|
|
|
|
|
|
|
|
|
|
|
Other
Non-interest earning assets
|
|
|
1,915
|
|
|
|
|
|
|
|
|
|
|
|
2,086
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
98,249
|
|
|
|
|
|
|
|
|
|
|
$
|
83,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW
accounts
|
|
$
|
1,657
|
|
|
$
|
5
|
|
|
|
1.20%
|
|
|
$
|
1,080
|
|
|
$
|
1
|
|
|
|
0.37%
|
|
|
Money
Market accounts
|
|
|
46,958
|
|
|
|
583
|
|
|
|
4.93%
|
|
|
|
39,940
|
|
|
|
494
|
|
|
|
4.91%
|
|
|
Regular
savings accounts
|
|
|
8,399
|
|
|
|
76
|
|
|
|
3.59%
|
|
|
|
3,596
|
|
|
|
25
|
|
|
|
2.76%
|
|
|
Certficates
of Deposit
|
|
|
21,294
|
|
|
|
269
|
|
|
|
5.01%
|
|
|
|
18,590
|
|
|
|
227
|
|
|
|
4.84%
|
|
|
Total
interest-bearing deposits
|
|
|
78,308
|
|
|
|
933
|
|
|
|
4.73%
|
|
|
|
63,206
|
|
|
|
747
|
|
|
|
4.69%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
84
|
|
|
|
2
|
|
|
|
8.25%
|
|
|
|
41
|
|
|
|
1
|
|
|
|
8.75%
|
|
|
Total
interest-bearing liabilities
|
|
$
|
78,392
|
|
|
$
|
935
|
|
|
|
4.73%
|
|
|
$
|
63,247
|
|
|
$
|
748
|
|
|
|
4.69%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing
liabilities
|
|
|
9,003
|
|
|
|
|
|
|
|
|
|
|
|
8,626
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
87,395
|
|
|
|
|
|
|
|
|
|
|
|
71,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
10,854
|
|
|
|
|
|
|
|
|
|
|
|
11,481
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
98,249
|
|
|
|
|
|
|
|
|
|
|
$
|
83,354
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
|
$
|
689
|
|
|
|
|
|
|
|
|
|
|
$
|
574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
interest rate spread
(1)
|
|
|
|
|
|
|
|
|
|
|
2.11%
|
|
|
|
|
|
|
|
|
|
|
|
1.90%
|
|
|
Net
interest margin
(2)
|
|
|
|
|
|
|
|
|
|
|
2.90%
|
|
|
|
|
|
|
|
|
|
|
|
2.89%
|
|
|
Net
interest-earning assets
(3)
|
|
$
|
16,566
|
|
|
|
|
|
|
|
|
|
|
$
|
16,361
|
|
|
|
|
|
|
|
|
|
Ratio
of average interest-earning assets to average interest-bearing
liabilities
|
|
|
|
|
|
|
|
|
|
|
121.13%
|
|
|
|
|
|
|
|
|
|
|
|
125.87%
|
|
|
(1)
|
Average
interest rate spread represents the difference between the
yield on
average interest-earning assets and and the cost of average
interest-bearing liabilities.
|
|
(2)
|
Net
interest margin represents net interest income divided by
average total
interest-earning assets.
|
|
(3)
|
Net
interest-earning assets represents total interest-earning
assets less
total interest-bearing
liabilities.
|
|
|
|
For
the Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
Average
|
|
|
|
|
|
Yield
/
|
|
|
Average
|
|
|
|
|
|
Yield
/
|
|
|
|
|
Balance
|
|
|
Interest
|
|
|
Cost
|
|
|
Balance
|
|
|
Interest
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars
in thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
67,737
|
|
|
$
|
3,738
|
|
|
|
7.36%
|
|
|
$
|
46,183
|
|
|
$
|
2,443
|
|
|
|
7.05%
|
|
|
Fed
Funds & other investments
|
|
|
9,734
|
|
|
|
383
|
|
|
|
5.19%
|
|
|
|
9,550
|
|
|
|
350
|
|
|
|
4.90%
|
|
|
Certificates
of deposit
|
|
|
5,985
|
|
|
|
243
|
|
|
|
5.43%
|
|
|
|
2,714
|
|
|
|
104
|
|
|
|
5.12%
|
|
|
FRB
Stock
|
|
|
418
|
|
|
|
17
|
|
|
|
5.42%
|
|
|
|
367
|
|
|
|
16
|
|
|
|
5.99%
|
|
|
Securities-available
for sale
|
|
|
8,034
|
|
|
|
296
|
|
|
|
4.91%
|
|
|
|
8,632
|
|
|
|
289
|
|
|
|
4.46%
|
|
|
Total
interest-earning assets
|
|
|
91,908
|
|
|
$
|
4,677
|
|
|
|
6.80%
|
|
|
|
67,446
|
|
|
$
|
3,202
|
|
|
|
6.35%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
|
(592
|
)
|
|
|
|
|
|
|
|
|
|
|
(144
|
)
|
|
|
|
|
|
|
|
|
|
Cash
& Due from banks
|
|
|
2,018
|
|
|
|
|
|
|
|
|
|
|
|
1,884
|
|
|
|
|
|
|
|
|
|
|
Other
Non-interest earning assets
|
|
|
1,898
|
|
|
|
|
|
|
|
|
|
|
|
1,990
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
95,232
|
|
|
|
|
|
|
|
|
|
|
$
|
71,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW
accounts
|
|
$
|
1,232
|
|
|
$
|
8
|
|
|
|
0.87%
|
|
|
$
|
789
|
|
|
$
|
1
|
|
|
|
0.31%
|
|
|
Money
Market accounts
|
|
|
47,888
|
|
|
|
1,785
|
|
|
|
4.98%
|
|
|
|
29,304
|
|
|
|
1,015
|
|
|
|
4.63%
|
|
|
Regular
savings accounts
|
|
|
6,997
|
|
|
|
185
|
|
|
|
3.54%
|
|
|
|
3,623
|
|
|
|
75
|
|
|
|
2.77%
|
|
|
Certficates
of Deposit
|
|
|
19,267
|
|
|
|
723
|
|
|
|
5.02%
|
|
|
|
16,242
|
|
|
|
562
|
|
|
|
4.63%
|
|
|
Total
interest-bearing deposits
|
|
|
75,384
|
|
|
|
2,701
|
|
|
|
4.79%
|
|
|
|
49,958
|
|
|
|
1,653
|
|
|
|
4.42%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
67
|
|
|
|
4
|
|
|
|
8.75%
|
|
|
|
41
|
|
|
|
1
|
|
|
|
0
|
|
|
Total
interest-bearing liabilities
|
|
$
|
75,451
|
|
|
$
|
2,705
|
|
|
|
4.79%
|
|
|
$
|
49,999
|
|
|
$
|
1,654
|
|
|
|
4.42%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing
liabilities
|
|
|
8,660
|
|
|
|
|
|
|
|
|
|
|
|
9,376
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
84,111
|
|
|
|
|
|
|
|
|
|
|
|
59,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
11,121
|
|
|
|
|
|
|
|
|
|
|
|
11,801
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
95,232
|
|
|
|
|
|
|
|
|
|
|
$
|
71,176
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
|
$
|
1,972
|
|
|
|
|
|
|
|
|
|
|
$
|
1,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
interest rate spread
(1)
|
|
|
|
|
|
|
|
|
|
|
2.01%
|
|
|
|
|
|
|
|
|
|
|
|
1.93%
|
|
|
Net
interest margin
(
2)
|
|
|
|
|
|
|
|
|
|
|
2.87%
|
|
|
|
|
|
|
|
|
|
|
|
3.07%
|
|
|
Net
interest-earning assets
(3)
|
|
$
|
16,457
|
|
|
|
|
|
|
|
|
|
|
$
|
17,447
|
|
|
|
|
|
|
|
|
|
Ratio
of average interest-earning assets to average interest-bearing
liabilities
|
|
|
|
|
|
|
|
|
|
|
121.81%
|
|
|
|
|
|
|
|
|
|
|
|
134.89%
|
|
|
(1)
|
Average
interest rate spread represents the difference between the
yield on
average interest-earning assets and the cost of average interest-bearing
liabilities.
|
|
(2)
|
Net
interest margin represents net interest income divided by
average total
interest-earning assets.
|
|
(3)
|
Net
interest-earning assets represents total interest-earning
assets less
total interest-bearing
liabilities.
|
Results
of Operations for the Quarters Ended September 30, 2007 and September 30,
2006
General.
For
the quarter ended September 30, 2007, the Company recognized a net loss
of
$138,000, or ($0.08) per diluted share, as compared to a net loss of $581,000,
or ($0.34) per diluted share, for the comparable quarter ended one year
earlier. The decreased loss is primarily the result of a decrease to
the provision for loan losses, and, to a lesser extent, to increases in
net
interest income and non-interest income, that were partially mitigated
by an
increase in non-interest expense. Losses from operations are expected
to continue until the Bank achieves a higher sustainable level of loans
and core
deposits.
Interest
Income.
Interest income amounted to $1.6 million for
the quarter ended September 30, 2007, as compared to $1.3 million for the
quarter ended September 30, 2006. The increase of $302,000, or 22.8%,
was primarily attributable to the increase in average interest-earning
assets,
which increased to $95.0 million for the quarter ended September 30, 2007
from
$79.6 million for the comparable quarter ended one year earlier, and to
the
higher overall yields over the same respective periods. During the
quarter ended September 30, 2007 short-term interest rates decreased prior
to
and after the Federal Open Market Committee formally lowered its Federal
Funds
target rate from 5.25% to 4.75% at its September meeting. That
decision had a more immediate impact on the yields earned by the Company’s
federal funds sold, which fell to 5.16%, and certificates of deposit at
other
financial institutions, which decreased to 5.43%, than on the yields of
its
generally longer-term loans and securities available for sale, which increased
to 7.37% and 5.06%, respectively. Average loan balances and the
average balance of certificates of deposit at other financial institutions
grew
by $14.9 million and $2.9 million, respectively, for the quarter ended
September
30, 2007, as compared to the quarter ended September 30, 2006, while the
average
balances of fed funds sold and securities available for sale decreased
$1.6
million and $900,000, respectively, over the same comparable
quarters.
Interest
Expense.
Total interest expense for the quarter ended
September 30, 2007 increased by $187,000, or 25.0%, when compared to the
same
three-month period one year earlier. The increase was primarily due
to the increase in the average balances of the Company’s interest-bearing
liabilities, which increased $15.2 million, or 24.1%, from $63.2 million
for the
quarter ended September 30, 2006 to $78.4 million for the quarter ended
September 30, 2007, and to the generally higher costs associated with those
liabilities leading up to the reduction to the Federal Open Market Committee’s
Federal Funds target rate mentioned above. For the quarter ended
September 30, 2007, average money market account balances increased $7.0
million, or 17.6%, to $47.0 million as compared to the quarter ended September
30, 2006. The cost of those average balances increased to 4.93% from
4.91%, respectively, for the quarter ended September 30, 2007 as compared
to the
same quarter ended one year earlier. Over the same respective
periods, the average balances and costs of regular savings accounts increased
$4.8 million, or 133% from $3.6 million at a cost of 2.76%, to $8.4 million,
at
an average cost of 3.59%. The average balances and costs of the
Bank’s certificates of deposit portfolio increased $2.7 million, or 14.5% to
$21.3 million at an average cost of 5.01% over the quarter ended September
30,
2007, from $18.6 million at an average cost of 4.84% over the same quarter
ended
one-year earlier. For the quarter ended September 30, 2007, the
average balance of the Company’s borrowed funds was $84,000 and its average cost
was 8.25%. These borrowed funds were used primarily for expenses that
pertained to the Company’s formation during the quarter ended September 30,
2006, and, to a lesser degree, for various expenses incurred by the Company
for
its annual meeting and the production and distribution of its annual report
and
proxy statement to the shareholders of record.
Net
Interest
Income.
Net interest income was approximately $689,000
for the quarter ended September 30, 2007 as compared to $574,000 for the
same
quarter in the prior year. The Bank’s average interest rate spread
increased to 2.11% for the quarter ended September 30, 2007 from 1.90%
for the
quarter ended September 30, 2006, while the net interest margin increased
to
2.90% from 2.89%, over the same respective periods.
Provision
for Loan Losses
.
For the three months
ended September 30, 2007 the provision for loan losses decreased $317,000
as
compared to the three months ended September 30, 2006. The provision
in 2006 resulted primarily from a changed and enhanced methodology for
establishing provisions for the allowance of loan losses that the Company
adopted at that time.
Prior
to
the quarter ended September 30, 2006, the Company, as a de novo institution,
did
not have any historical loan losses to enable management to estimate the
probable credit losses imbedded within the portfolio. Alternatively,
along with other criteria, the Company previously considered peer group
credit
loss data each period in providing the provision, which, based on the moderate
growth exhibited by the loan portfolio, was deemed
appropriate. However, in consideration of the significant increase in
commercial real estate loan, commercial business loan, and construction
loan
balances, the Company believed it appropriate to change its methods for
establishing provisions and expanded its risk analysis
methodologies. Management bifurcated the loan portfolio segments into
various pools in order to better evaluate the risks to credits associated
by
distinct geographic and business type concentrations. Additional risk
was associated to portions of the increase in commercial real estate loan
balances that resulted from loan participations because of potential different
lead-bank underwriting standards, and to the absence of a direct relationship
between the Company and those borrowers. Moreover, management
determined that the weakening local economy probably had a detrimental
impact on
the Company’s business borrowers, most of which had only a short-term
relationship with the Company. Accordingly, based on that
quantitative and qualitative overall assessment, the Company concluded
that a
more significant provision was appropriate given the relatively unseasoned
nature of the loan portfolio.
Non-interest
Income.
Non-interest income for the quarter ended
September 30, 2007 was approximately $173,000 as compared to $105,000 for
the
comparable quarter ended one year earlier. The increased income
resulted primarily from servicing an increased number of loan and deposit
customers. For the quarter ended September 30, 2007, income
earned from the net gain on sale of real estate mortgage loans held for
sale
increased to $69,000 from $30,000, income from service charges and fees
increased to $71,000 from $58,000, and other non-interest income, comprised
principally of income earned from the sale of annuities, increased to $33,000
from $17,000 as compared to the quarter ended September 30, 2006.
Non-interest
Expense.
Non-interest expense for the quarter ended
September 30, 2007 increased $57,000 when compared to the same quarter
in
2006. Compensation and benefits increased $48,000 primarily due to
merit salary increases over the prior period’s base level and sales related
commissions. Data processing service fees increased contractually by
$15,000 primarily as a result of the increased number of loan and deposit
customer relationships that are now serviced. Other non-interest
expense decreased $9,000 primarily from decreases in advertising expenses
and
professional and consulting fees that were partially offset by increases
in most
other operating expenses related to the expansion of the Bank’s business
activities.
Income
Tax Expense.
We receive no tax benefit from our net
operating losses as they are being carried forward and will be available
to
reduce future taxable income.
Results
of Operations for the Nine Months Ended September 30, 2007 and September
30,
2006
General.
For
the nine months ended September 30, 2007, the Bank recognized a net loss
of
$465,000, or ($0.27) per diluted share, as compared to a net loss of $1.2
million, or ($0.72) per diluted share, for the comparable nine-month period
ended one year earlier. The $779,000 improvement is primarily the
result of increased net interest
income attributable to
the Bank’s larger asset size, the decreased provision for loan losses discussed
earlier related to the revised methodology that management adopted during
the
third quarter of 2006, and increased non-interest income related to the
Bank’s
growing business activities that were mitigated by increased operating
expenses.
Interest
Income.
Compared to the first nine months of 2006,
interest income for the nine-month period ended September 30, 2007 increased
$1.5 million, or 46.1%, to $4.7 million. The increase was primarily
attributable to the increase in average interest-earning assets to $91.9
million
for the nine-month period ended September 30, 2007 from $67.4 million for
the
comparable nine-month period ended one year earlier, and to the higher
yields
associated with those assets. Over the comparable periods average
loan balances increased from $46.2 million to $67.7 million, while their
average
yield increased from 7.05% to 7.36%. The average balances of
certificates of deposit at other financial institutions with maturities
ranging
from three to 15 months increased $3.3 million, or 122%, from $2.7 million
to
$6.0 million. Over the nine-month period ending September 30, 2007
the average yield of this asset segment increased to 5.43% as compared
to an
average yield of 5.12% over the same nine-month period ended one year
earlier. Over the comparable nine-month periods ended September 30,
2007 and 2006, the average balances of the Company’s fed funds and other
investments increased to $9.7 million from $9.6 million, respectively,
and their
respective average yields increased to 5.19% from 4.90%. The average
balance of securities available for sale decreased $598,000 from $8.6 million
for the nine-month period ended September 30, 2006 to $8.0 million for
the
comparable period ended September 30, 2007. The average yield of
these investments increased from 4.46% to 4.91% over the same respective
periods.
Interest
Expense.
Total interest expense for the nine-month
period ended September 30, 2007 increased by $1.0 million when compared
to the
nine-month period ended September 30, 2006. The increase was
primarily due to an increase in the average balances of interest-bearing
deposits, which increased from $50.0 million over the nine-month period
ended
September 30, 2006 to $75.4 million over the nine-month period ended September
30, 2006, and an increase in the average costs from 4.42% to 4.79% associated
with those deposits over the same respective periods. Average money
market account balances increased $18.6 million, from $29.3 million for
the
nine-month period ended September 30, 2006 to $47.9 million for the same
nine-month period ended one year later. Over those respective
periods, the average costs for those balances increased 35 basis points,
from
4.63% to 4.98%. The average balances of the Bank’s certificates of
deposit increased to $19.3 million over the nine-month period ended September
30, 2007 from $16.2 million over the nine-month period ended September
30,
2006. The average cost of those deposits increased to 5.02% from
4.63% over the same respective periods.
Provision
for Loan Losses
. The provision for loan losses for the
nine months ended September 30, 2007 decreased $358,000 compared to the
nine
months ended September 30, 2006. As discussed previously, the
decrease in the provision was a result of management’s assessment of the loan
portfolio and its assessment of the local economy and market conditions,
and the
adequacy of the allowance for loan losses at September 30, 2006 as compared
to
September 30, 2007.
Net
Interest
Income.
Net interest income was approximately $2.0
million for the nine-month period ended September 30, 2007 as compared
to $1.5
million for the nine-month period ended September 30, 2006. The
average interest rate spread increased to 2.01% from 1.93%,
while
the net interest margin decreased to 2.87% from
3.07%, which was primarily attributable to an approximate $700,000 decrease
in
average non-interest-bearing liabilities over the same comparable
periods.
Non-Interest
Income.
Non-interest income for the nine-month period
ended September 30, 2007 increased $153,000 in comparison to the nine-month
period ended September 30, 2006 primarily as a result of the increases
in the
number of loan and deposit customers served by the Bank. Deposit
service charges and loan fees increased to $225,000 for the current nine-month
period, which was an increase of $126,000, or 127.3%, over the same period
last
year. Other income, which consists mainly of income earned on the
sale of annuities, increased by 36,000, or 171.4%, to $57,000 for the nine-month
period ended September 30, 2007, from $21,000 for the same nine-month period
ended one year earlier. Over the same comparable periods net gain on
the sales of real estate mortgage loans held for sale decreased by $9,000
from
$144,000 to $135,000 primarily as a result of the general softening in
the
overall housing market in 2007 as compared to 2006.
Non-Interest
Expense.
Non-interest expense for the nine-month period
ended September 30, 2007 increased $157,000 to $2.8 million from $2.7 million
for the nine-month period ended September 30, 2006. Compensation and
benefits increased $61,000 primarily as a result of annual merit
increases. Data processing fees, which increased to $136,000 from
$104,000 over the same respective periods, increased primarily as a result
of
timed contractual increases predicated on the number of loan and deposit
customers serviced by the Bank. Other non-interest expense increased
$65,000, or 9.4%, from $690,000 for the nine-month period ended September
30,
2006 to $755,000 for the first nine months of 2007. Growth related
increases in this category included increased professional and consulting
fees,
advertising, supplies expense and general overhead, and higher regulatory
assessments imposed by the OCC and the Federal Deposit Insurance Corporation
(“FDIC”).
Liquidity
and Capital Resources
The
primary sources of funds are
deposits, capital, proceeds from the sale of loans, and principal and interest
payments on loans and securities. While maturities and scheduled
payments on loans and securities provide an indication of the timing of
the
receipt of funds, other sources of funds such as loan prepayments and deposit
inflows are less predictable due to the effects of changes in interest
rates,
economic conditions and competition.
The
primary investing activities of the Company are the origination of loans
and the
purchase of investment securities. For the nine months ended
September 30, 2007, the Company originated loans of approximately $35.7
million
including real estate mortgage loans held for sale. At September 30,
2007, the Company had outstanding loan origination commitments of $14.4
million
(including one-to-four-family real estate mortgage loans held for sale
of $3.2
million) and undisbursed lines of credit and construction loans in process
of
$12.3 million. The Company anticipates that it will have sufficient
funds available to meet its current loan originations and other
commitments.
At
September 30, 2007, total deposits were approximately $86.0 million of
which
approximately $21.6 million were in certificates of
deposit. Certificates of deposit scheduled to mature in one year or
less from September 30, 2008 totaled $15.0 million. Based on past
experience the Company anticipates that most such certificates of deposit
can be
renewed upon their expiration.
As
stated
earlier, the Company completed the holding company formation during the
quarter
ended September 30, 2006. In order to pay the various costs
associated with the formation, as well as other subsequent expenses as
incurred,
the Company secured a credit facility of $200,000 from its wholesale
correspondent bank, Atlantic Central Bankers Bank, of which the Company
exercised and has outstanding $84,000.
While
the
Bank has not borrowed funds since it commenced operations, it may do so
in the
future based upon its need for funds and the cost of deposits as an alternative
source of funds. In general the Bank manages its liquidity by
maintaining sufficient levels of short-term investments so that funds are
available for investment in loans when needed. The Bank monitors its
liquidity on a regular basis. Excess liquidity is invested in
overnight federal funds sold and other short-term investments. The
Bank has unused credit lines of $5.0 million with its correspondent bank,
Atlantic Central Bankers Bank, which is separate from the Company’s credit
facility mentioned above.
OCC
regulations require banks to
maintain a minimum leverage ratio of core (Tier 1) capital to total adjusted
tangible assets of 3.0%, and a minimum ratio of total capital (core capital
and
supplementary capital) to risk-weighted assets of 8.0%, of which 4.0% must
be
core (Tier 1) capital.
Under
its
prompt corrective action regulations, the OCC is required to take certain
supervisory actions with respect to an undercapitalized
institution. The regulations establish a framework for the
classification of depository institutions into five categories: (1)
well-capitalized, (2) adequately capitalized, (3) undercapitalized, (4)
significantly undercapitalized, and (5) critically
undercapitalized. Generally an institution is considered well
capitalized if it has a core (Tier 1) capital ratio of at least 5.0%, a
core
(Tier 1) risk-based capital ratio of at least 6.0%, and a total risk-based
capital ratio of a least 10.0%.
As
of
September 30, 2007, the most recent regulatory notifications categorized
the
Bank as well capitalized under the regulatory framework for prompt corrective
action. There are no conditions or events since that notification
that management believes have changed the institution’s category.
The
foregoing capital ratios are based
in part on specific quantitative measures of assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting
practices. Capital amounts and classifications are also subject to
qualitative judgments by the OCC about capital components, risk weightings
and
other factors.
Management
believes that, as of
September 30, 2007 and December 31, 2006, the Bank met all capital adequacy
requirements to which it was subject.
The
following is a summary of the Bank’s actual capital amounts and ratios, compared
to the OCC requirements for minimum capital adequacy and for classification
as a
well-capitalized institution at September 30, 2007 and December 31,
2006. The capital ratios of the Company are not significantly
different than those shown in the table below for the Bank and exceed the
requirements to be well capitalized. In accordance with the
applicable regulatory requirements, the Bank’s actual tangible and Tier 1
capital amounts exclude goodwill, while the total risk-based capital amounts
include the allowance for loan losses.
|
|
|
|
|
|
|
|
|
Minimum
Capital
|
|
|
Classification
as
|
|
|
|
|
Bank
Actual
|
|
|
Adequacy
|
|
|
Well
Capitalized
|
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
|
(Dollars
in thousands)
|
|
|
September
30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
I (core)capital
|
|
$
|
10,115
|
|
|
|
10.4
|
%
|
|
$
|
2,930
|
|
|
|
3.0
|
%
|
|
$
|
4,883
|
|
|
|
5.0
|
%
|
|
Risk-based
capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
I
|
|
|
10,115
|
|
|
|
12.8
|
|
|
N/A
|
|
|
N/A
|
|
|
|
4,732
|
|
|
|
6.0
|
|
|
Total
|
|
|
10,732
|
|
|
|
13.6
|
|
|
|
6,309
|
|
|
|
8.0
|
|
|
|
7,887
|
|
|
|
10.0
|
|
|
|
|
|
|
|
|
|
|
Minimum
Capital
|
|
|
Classification
as
|
|
|
|
|
Bank
Actual
|
|
|
Adequacy
|
|
|
Well
Capitalized
|
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
|
(Dollars
in thousands)
|
|
|
December
31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
I (core)capital
|
|
$
|
10,522
|
|
|
|
11.3
|
%
|
|
$
|
2,791
|
|
|
|
3.0
|
%
|
|
$
|
4,652
|
|
|
|
5.0
|
%
|
|
Risk-based
capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
I
|
|
|
10,522
|
|
|
|
15.2
|
|
|
N/A
|
|
|
N/A
|
|
|
|
4,145
|
|
|
|
6.0
|
|
|
Total
|
|
|
11,103
|
|
|
|
16.1
|
|
|
|
5,527
|
|
|
|
8.0
|
|
|
|
6,908
|
|
|
|
10.0
|
|
Recent
Accounting Standards
In
September 2006, the FASB issued Statement No. 157, Fair Value
Measurements. This Statement defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. This Statement establishes a fair value hierarchy about
the assumptions used to measure fair value and clarifies assumptions about
risk
and the effect of a restriction on the sale or
use
of an
asset. The standard is effective for fiscal years beginning after
November 15, 2007. The Company has not completed its evaluation of
the impact of the adoption of this standard.
In
February 2006, the Financial Accounting Standards Board (FASB) issued Statement
No. 155, “Accounting for Certain Hybrid Financial Instruments – an amendment to
FASB Statements No. 133 and 140.” This Statement permits fair value
re-measurement for any hybrid financial instruments, clarifies which instruments
are subject to the requirements of Statement No. 133, and establishes a
requirement to evaluate interest in securitized financial assets and other
items. The new standard is effective for financial assets acquired or
issued after the beginning of the entity’s first fiscal year that begins after
September 15, 2006. The Company has determined the adoption of this
Statement does not have a material impact on the Company’s consolidated
financial position or results of operations.
In
March
2006, the FASB issued Statement No. 156, “Accounting for Servicing of Financial
Assets – an amendment of FASB Statement No. 140.” This Statement
provides the following: 1) revised guidance on when a servicing asset
and servicing liability should be recognized; 2) requires all separately
recognized servicing assets and servicing liabilities to be initially measured
at fair value, if practicable; 3) permits an entity to elect to measure
servicing assets and servicing liabilities at fair value each reporting
date and
report changes inn fair value in earnings in the period in which the changes
occur; 4) upon initial adoption, permits a one time reclassification of
available-for-sale securities to trading securities for securities which
are
identified as offsetting the entity’s exposure to change in the fair value of
servicing assets or liabilities that a servicer elects to subsequently
measure
at fair value; and 5) requires separate presentation of servicing assets
and
servicing liabilities subsequently measured at fair value in the statement
of
financial position and additional footnote disclosures. This standard
is effective as of the beginning of an entity’s first fiscal year that begins
after September 15, 2006 with the effects of initial adoption being reported
as
a cumulative effect adjustment to retained earnings. The Company has
determined the adoption of this Statement does not have a material impact
on the
Company’s consolidated financial position or results of operations.
In
February 2007, the FASB issued Statement of Financial Accounting Standards
No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities –
Including an amendment of FASB Statement No. 115” (“SFAS No.
159”). SFAS No. 159 permits entities to choose to measure certain
financial assts and financial liabilities at fair value. SFAS No. 159
is effective as of the beginning of an entity’s first fiscal year beginning
after November 15, 2007. The Company has not completed its evaluation
of the impact of this Statement on the Company’s consolidated financial position
or results of operations.
In
July
2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”), which
prescribes a recognition threshold and measurement attribute for a tax
position
taken or expected to be taken in a tax return. FIN 48 also provides
guidance on derecognition, classification, interest and penalties, accounting
in
interim periods, disclosure and transition. The Company adopted FIN
48 as of January 1, 2007. A tax position is recognized as a benefit
only if it is “more likely than not” that the tax position would be sustained in
a tax examination, with a tax examination being presumed to
occur. The amount recognized is the largest amount of tax benefit
that is greater than 50% likely of being realized on examination. For
tax positions not meeting the “more likely than not” test, no tax benefit is
recorded. The adoption had no affect on the Company’s consolidated
financial position or results of operations. The Company is no longer
subject to examination by taxing authorities for years before
2002. The Company does not expect the total amount of unrecognized
tax benefits to significantly increase in the next twelve months.
The
Company and its subsidiary are subject to U.S. federal income tax as well
as
income tax of the state of New York. The Company does not expect the
total amount of tax benefits to significantly increase in the next twelve
months.