|
|
ITEM
2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
|
The
purpose of this discussion and analysis is to provide information necessary
to
gain an understanding of the financial condition, changes in financial condition
and results of operations of GS Financial Corp. (“GS Financial” or the
“Company”), and its subsidiary during the first nine months of 2007 and
2006. Virtually all of the Company’s operations are dependent on the
operations of its subsidiary, Guaranty Savings Bank (“Guaranty” or the
“Bank”). Prior to June 15, 2006 the subsidiary was known as Guaranty
Savings and Homestead Association. The subsidiary had its name
legally changed but remains a state-charted savings association. This
discussion is presented to highlight and supplement information presented
elsewhere in this quarterly report on Form 10-QSB, particularly the consolidated
financial statements and related notes in Item 1. This discussion and
analysis should be read in conjunction with accompanying tables and the
Company’s 2006 annual report on Form 10-K.
FORWARD-LOOKING
STATEMENTS
In
addition to the historical information, this discussion includes certain
forward-looking statements as that term is defined by the Private Securities
Litigation Reform Act of 1995. Such statements include, but may not
be limited to comments regarding (a) the potential for earnings volatility
from
changes in the estimated allowance for loan losses over time, (b) the expected
growth rate of the loan portfolio, (c) future changes in the mix of deposits,
(d) the results of net interest income simulations run by the Company to measure
interest rate sensitivity, (e) the performance of Guaranty’s net interest income
and net interest margin assuming certain future conditions, and (f) changes
or
trends in certain expense levels.
Forward-looking
statements are based on numerous assumptions, certain of which may be referred
to specifically in connection with a particular statement. Some of
the more important assumptions include:
|
|
·
|
expectations
about overall economic strength and the performance of the economies
in
Guaranty’s market area,
|
|
|
·
|
expectations
about the movement of interest rates, including actions that may
be taken
by the Federal Reserve Board in response to changing economic
conditions,
|
|
|
·
|
reliance
on existing or anticipated changes in laws or regulations affecting
the
activities of the banking industry and other financial service
providers,
|
|
|
·
|
expectations
regarding the nature and level of competition, changes in customer
behavior and preferences, and Guaranty’s ability to execute its plans to
respond effectively, and
|
|
|
·
|
expectations
regarding the ability of Guaranty’s market area to recover economically
from the damages caused by Hurricane
Katrina.
|
Because
it is uncertain whether future conditions and events will confirm these
assumptions, there is a risk that the Company’s future results will differ
materially from what is stated or implied by such forward-looking
statements. The Company cautions the reader to consider this
risk.
The
Company undertakes no obligation to update any forward-looking statement
included in this quarterly report, whether as a result of new information,
future events or developments, or for any other reason.
FINANCIAL
CONDITION
LOANS
AND ALLOWANCE FOR LOAN LOSSES
Total
loans increased $15.5 million, or 15.9%, from year-end 2006 to the end of the
third quarter of 2007. Average loans for the third quarter of 2007
were $111.3 million, up $19.4 million (21.2%) compared to the third quarter
of
2006. Year-to-date average loans at September 30, 2007 totaled $104.5
million, up $20.0 million (23.7%) from the same time period in 2006. Table
1,
which is based on regulatory reporting codes, shows loan balances at September
30, 2007 and at the end of the four prior quarters and average loans outstanding
during each quarter.
|
TABLE
1. COMPOSITION OF LOAN PORTFOLIO
|
|
|
2007
|
2006
|
|
($
in thousands)
|
September
30
|
June
30
|
March
31
|
December
31
|
September
30
|
|
Real
estate loans – residential
|
$ 58,885
|
$ 55,282
|
$ 51,056
|
$ 48,610
|
$ 46,285
|
|
Real
estate loans - commercial and other
|
43,528
|
42,822
|
40,019
|
36,896
|
34,345
|
|
Real
estate loans - construction
|
7,392
|
7,859
|
7,120
|
9,089
|
10,257
|
|
Consumer
loans
|
668
|
658
|
676
|
677
|
744
|
|
Commercial
business loans
|
2,779
|
2,264
|
2,306
|
2,445
|
2,071
|
|
Total
Loans
|
$ 113,252
|
$ 108,885
|
$ 101,177
|
$ 97,717
|
$ 93,702
|
|
Average
Total Loans During Period
|
$ 111,274
|
$ 104,448
|
$ 99,004
|
$ 95,649
|
$ 91,846
|
The
Bank
has hired three experienced commercial loan officers, a mortgage banking manager
and a residential loan officer since the beginning of 2006. The loan
growth since the beginning of 2006 reflects the start of an economic recovery
in
the Bank’s market area subsequent to Hurricane Katrina and the efforts of the
new loan officers.
All
loans
carry a degree of credit risk. Management’s evaluation of this risk ultimately
is reflected in the estimate of probable loan losses that is reported in the
Company’s financial statements as the allowance for loan
losses. Changes in this ongoing evaluation over time are reflected in
the provision for loan losses charged to operating expense. At
September 30, 2007 the allowance for loan losses was $3.4 million, or 3.03%
of
total loans. Table 2 presents an analysis of the activity in the
allowance for loan losses for the past five quarters. Reductions in
the allowance were taken in the second quarter of 2007 and in the third quarter
of 2006 to reflect improvements in the quality of the loan portfolio as
borrowers have exceeded management’s initial expectations in meeting their
obligations subsequent to Hurricane Katrina.
|
TABLE
2. SUMMARY OF ACTIVITY IN THE ALLOWANCE FOR LOAN
LOSSES
|
|
|
|
|
2007
|
|
|
2006
|
|
|
($
in thousands)
|
|
Third
Quarter
|
|
|
Second
Quarter
|
|
|
First
Quarter
|
|
|
Fourth
Quarter
|
|
|
Third
Quarter
|
|
|
Beginning
Balance
|
|
$
|
3,432
|
|
|
$
|
3,732
|
|
|
$
|
3,732
|
|
|
$
|
3,732
|
|
|
$
|
5,713
|
|
|
Provision
for Losses
|
|
|
-
|
|
|
|
(300
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,981
|
)
|
|
Loans
Charged Off
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Recoveries
of loans previously charged off
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Ending
Balance
|
|
$
|
3,432
|
|
|
$
|
3,432
|
|
|
$
|
3,732
|
|
|
$
|
3,732
|
|
|
$
|
3,732
|
|
|
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
to average loans
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Provision
for loan losses to charge-offs
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
Allowance
for loan losses to charge-offs
(annualized)
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
Allowance
for loan losses to ending loans
|
|
|
3.03
|
%
|
|
|
3.15
|
%
|
|
|
3.69
|
%
|
|
|
3.82
|
%
|
|
|
3.99
|
%
|
Tables
3
and 4 set forth the Company’s delinquent loans and nonperforming assets at
September 30, 2007 and at the end of the preceding four
quarters. The balances presented in Table 3 are total principal
balances outstanding on the loans rather than the actual principal past
due. Nonperforming assets consist of loans on non-accrual status and
foreclosed assets. There were no loans 90 days delinquent and still
accruing interest at the end of any of the five quarters presented.
|
TABLE
3. DELINQUENT LOANS
|
|
|
|
|
2007
|
|
|
2006
|
|
|
($
in thousands)
|
|
September
30
|
|
|
June
30
|
|
|
March
31
|
|
|
December
31
|
|
|
September
30
|
|
|
30-89
Days
|
|
$
|
4,054
|
|
|
$
|
2,577
|
|
|
$
|
1,234
|
|
|
$
|
1,379
|
|
|
$
|
642
|
|
|
90+
Days
|
|
|
990
|
|
|
|
502
|
|
|
|
335
|
|
|
|
179
|
|
|
|
491
|
|
|
Total
|
|
$
|
5,044
|
|
|
$
|
3,079
|
|
|
$
|
1,569
|
|
|
$
|
1,558
|
|
|
$
|
1,133
|
|
|
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
delinquent 90 days to total loans
|
|
|
0.87
|
%
|
|
|
0.46
|
%
|
|
|
0.33
|
%
|
|
|
0.18
|
%
|
|
|
0.52
|
%
|
|
Total
delinquent loans to total loans
|
|
|
4.45
|
%
|
|
|
2.83
|
%
|
|
|
1.55
|
%
|
|
|
1.59
|
%
|
|
|
1.21
|
%
|
|
Allowance
for loan losses to 90+ day delinquent loans
|
|
|
346.67
|
%
|
|
|
683.67
|
%
|
|
|
1,114.03
|
%
|
|
|
2,084.92
|
%
|
|
|
760.08
|
%
|
|
Allowance
for loan losses to total delinquent loans
|
|
|
68.04
|
%
|
|
|
111.46
|
%
|
|
|
237.86
|
%
|
|
|
239.54
|
%
|
|
|
329.39
|
%
|
|
TABLE
4. NONPERFORMING ASSETS
|
|
|
|
|
2007
|
|
|
2006
|
|
|
($
in thousands)
|
|
September
30
|
|
|
June
30
|
|
|
March
31
|
|
|
December
31
|
|
|
September
30
|
|
|
Loans
accounted for on a nonaccrual basis
|
|
$
|
1,310
|
|
|
$
|
502
|
|
|
$
|
335
|
|
|
$
|
179
|
|
|
$
|
491
|
|
|
Foreclosed
assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
nonperforming assets
|
|
$
|
1,310
|
|
|
$
|
502
|
|
|
$
|
335
|
|
|
$
|
179
|
|
|
$
|
491
|
|
|
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming
assets to loans plus foreclosed assets
|
|
|
1.16
|
%
|
|
|
0.46
|
%
|
|
|
0.33
|
%
|
|
|
0.18
|
%
|
|
|
0.52
|
%
|
|
Nonperforming
assets to total assets
|
|
|
0.74
|
%
|
|
|
0.30
|
%
|
|
|
0.20
|
%
|
|
|
0.11
|
%
|
|
|
0.28
|
%
|
|
Allowance
for loan losses to nonperforming assets
|
|
|
261.98
|
%
|
|
|
683.67
|
%
|
|
|
1,114.03
|
%
|
|
|
2,084.92
|
%
|
|
|
760.08
|
%
|
INVESTMENT
IN SECURITIES
At
September 30, 2007, the Company’s total securities available-for-sale were $50.1
million, compared to $55.1 million at December 31, 2006 and $62.2 million at
September 30, 2006. The reductions in the investment portfolio
have been to provide liquidity to fund loan growth.
At
September 30, 2007, the net unrealized losses on the Company’s entire securities
portfolio was $370,000 or 0.73% of amortized cost, compared to net unrealized
losses of $477,000, or 0.86% of amortized cost at December 31,
2006. These losses consist primarily of losses on collateralized
mortgage obligations and agency securities as rises in long-term interest rates
over recent periods have most adversely affected longer-term investments with
fixed coupon payments. Management believes that these losses are
temporary in nature and will reverse themselves when interest rates become
more
favorable for those types of investments.
|
TABLE
5. COMPOSITION OF INVESTMENT PORTFOLIO
|
|
|
|
|
September
30, 2007
|
|
|
December
31, 2006
|
|
|
September
30, 2006
|
|
|
($
in thousands)
|
|
Amortized
Cost
|
|
|
Market
Value
|
|
|
Amortized
Cost
|
|
|
Market
Value
|
|
|
Amortized
Cost
|
|
|
Market
Value
|
|
|
U.S.
Agency Securities
|
|
$
|
23,487
|
|
|
$
|
23,341
|
|
|
$
|
23,485
|
|
|
$
|
23,326
|
|
|
$
|
23,439
|
|
|
$
|
23,343
|
|
|
Mortgage
Backed Securities
|
|
|
5,935
|
|
|
|
5,947
|
|
|
|
3,764
|
|
|
|
3,791
|
|
|
|
3,918
|
|
|
|
3,937
|
|
|
Collateralized
Mortgage Obligations
|
|
|
15,240
|
|
|
|
15,060
|
|
|
|
17,486
|
|
|
|
17,173
|
|
|
|
18,567
|
|
|
|
18,109
|
|
|
Mutual
funds
|
|
|
5,836
|
|
|
|
5,780
|
|
|
|
10,832
|
|
|
|
10,800
|
|
|
|
16,834
|
|
|
|
16,820
|
|
|
Total
Investments
|
|
$
|
50,498
|
|
|
$
|
50,128
|
|
|
$
|
55,567
|
|
|
$
|
55,090
|
|
|
$
|
62,758
|
|
|
$
|
62,209
|
|
DEPOSITS
At
September 30, 2007, deposits were 7.0%, or $8.7 million, above the level at
December 31, 2006 and up $5.2 million, or 4.2% from the level at the end of
the
third quarter of 2006. Average deposits totaled $128.4 million in the
third quarter of 2007, up $3.9 million (3.1%) from the second quarter of 2007
and up $7.2 million (5.9%) from the third quarter of 2006.
Table
6
presents the composition of average deposits for the quarters ended September
30, 2007, June 30, 2007 and September 30, 2006.
|
TABLE
6. DEPOSIT COMPOSITION
|
|
|
|
|
Third
Quarter 2007
|
|
|
Second
Quarter 2007
|
|
|
Third
Quarter 2006
|
|
|
($
in thousands)
|
|
Average
Balances
|
|
|
%
of Deposits
|
|
|
Average
Balances
|
|
|
%
of Deposits
|
|
|
Average
Balances
|
|
|
%
of Deposits
|
|
|
Noninterest
bearing demand deposits
|
|
$
|
4,340
|
|
|
|
3.4
|
%
|
|
$
|
3,952
|
|
|
|
3.2
|
%
|
|
$
|
1,453
|
|
|
|
1.2
|
%
|
|
NOW
account deposits
|
|
|
23,821
|
|
|
|
18.5
|
|
|
|
20,606
|
|
|
|
16.5
|
|
|
|
7,093
|
|
|
|
5.8
|
|
|
Savings
deposits
|
|
|
19,783
|
|
|
|
15.4
|
|
|
|
20,707
|
|
|
|
16.6
|
|
|
|
29,439
|
|
|
|
24.3
|
|
|
Time
deposits
|
|
|
80,496
|
|
|
|
62.7
|
|
|
|
79,315
|
|
|
|
63.7
|
|
|
|
83,268
|
|
|
|
68.7
|
|
|
Total
|
|
$
|
128,440
|
|
|
|
100.0
|
%
|
|
$
|
124,580
|
|
|
|
100.0
|
%
|
|
$
|
121,253
|
|
|
|
100.0
|
%
|
BORROWINGS
At
September 30, 2007, the Company’s borrowings from the Federal Home Loan Bank
increased $372,000, or 2.2%, from December 31, 2006 and decreased $962,000,
or
5.2%, from September 30, 2006. Average advances for the third quarter
of 2007 were $17.1 million, an increase of $1.8 million, or 11.8%, from the
second quarter of 2007 and a decrease of $4.6 million, or 21.2%, from the prior
year’s third quarter. The decreases were due to regularly scheduled
principal payments that were offset by new borrowings during the second and
third quarters of 2007. The Company borrowed $2.0 million in the
third quarter of 2007 and $2.5 million in the second quarter of 2007 as a
funding source for loan growth. The Company may borrow in the future
as a potential liquidity funding source.
STOCKHOLDERS’
EQUITY AND CAPITAL ADEQUACY
At
September 30, 2007, stockholders’ equity totaled $27.3 million, an increase of
$143,000 from December 31, 2006. This increase was due to net income
of $458,000 and unrealized net securities gains of $75,000 being partially
offset by cash dividends paid of $390,000.
Since
1998, the Company has been regularly repurchasing shares of its common stock
when shares have been available at prices and amounts deemed prudent by
management. Due to the highly capitalized condition of the Company,
management believed in the past that these purchases, most of which were at
a
discount to book value, were an effective way to reduce capital while still
enhancing shareholder value. These shares have not been retired and
could potentially serve as a source of capital funding should the need arise
in
the future. Table 7 summarizes the share repurchases of its common
stock by year.
|
TABLE
7. SUMMARY OF STOCK REPURCHASES
|
|
|
Year
Ended December 31,
|
|
Shares
|
|
|
Cost
($000)
|
|
|
Average
Price Per Share
|
|
|
1998
|
|
|
491,054
|
|
|
$
|
8,324
|
|
|
$
|
16.95
|
|
|
1999
|
|
|
299,000
|
|
|
|
3,653
|
|
|
|
12.22
|
|
|
2000
|
|
|
679,600
|
|
|
|
8,590
|
|
|
|
12.64
|
|
|
2001
|
|
|
305,684
|
|
|
|
4,612
|
|
|
|
15.09
|
|
|
2002
|
|
|
142,201
|
|
|
|
2,516
|
|
|
|
17.69
|
|
|
2003
|
|
|
216,181
|
|
|
|
4,109
|
|
|
|
19.01
|
|
|
2004
|
|
|
16,842
|
|
|
|
315
|
|
|
|
18.70
|
|
|
2005
|
|
|
3,907
|
|
|
|
74
|
|
|
|
19.06
|
|
|
2006
|
|
|
17,763
|
|
|
|
300
|
|
|
|
16.87
|
|
|
2007
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
Stock Repurchases
|
|
|
2,172,232
|
|
|
$
|
32,493
|
|
|
$
|
14.96
|
|
The
ratios in Table 8 indicate that the Bank remained well capitalized for
regulatory compliance purposes at September 30, 2007. The
regulatory capital ratios of Guaranty Savings Bank exceed the minimum required
ratios, and the Bank has been categorized as “well-capitalized” in the most
recent notice received from its primary regulatory agency.
|
TABLE
8. REGULATORY CAPITAL AND CAPITAL RATIOS
|
|
|
|
|
2007
|
|
|
2006
|
|
|
($
in thousands)
|
|
September
30
|
|
|
December
31
|
|
|
September
30
|
|
|
Tier
1 regulatory capital
|
|
$
|
26,579
|
|
|
$
|
26,580
|
|
|
$
|
26,218
|
|
|
Tier
2 regulatory capital
|
|
|
1,243
|
|
|
|
1,096
|
|
|
|
1,044
|
|
|
Total
regulatory capital
|
|
$
|
27,822
|
|
|
$
|
27,676
|
|
|
$
|
27,262
|
|
|
Adjusted
total assets
|
|
$
|
176,191
|
|
|
$
|
167,126
|
|
|
$
|
171,531
|
|
|
Risk-weighted
assets
|
|
$
|
99,462
|
|
|
$
|
87,645
|
|
|
$
|
83,529
|
|
|
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1 capital to total assets
|
|
|
15.09
|
%
|
|
|
15.90
|
%
|
|
|
15.28
|
%
|
|
Tier
1 capital to risk-weighted assets
|
|
|
26.72
|
%
|
|
|
30.33
|
%
|
|
|
31.39
|
%
|
|
Total
capital to risk-weighted assets
|
|
|
27.97
|
%
|
|
|
31.58
|
%
|
|
|
32.64
|
%
|
|
Shareholders'
equity to total assets
|
|
|
15.09
|
%
|
|
|
15.90
|
%
|
|
|
15.28
|
%
|
LIQUIDITY
AND CAPITAL RESOURCES
The
objective of liquidity management is to ensure that funds are available to
meet
cash flow requirements of depositors and borrowers, while at the same time
meeting the operating, capital and strategic cash flow needs of the Company
and
the Bank, all in the most cost-effective manner. The Company develops
its liquidity management strategies and measures and monitors liquidity risk
as
part of its overall asset/liability management process.
On
the
liability side, liquidity management focuses on growing the base of more stable
core deposits at competitive rates, while at the same time ensuring access
to
economical wholesale funding sources. The sections above on Deposits
and Borrowings discuss changes in these liability-funding sources in the first
three and nine months of 2007.
Liquidity
management on the asset side primarily addresses the composition and maturity
structure of the loan and investment securities portfolios and their impact
on
the Company’s ability to generate cash flows from scheduled payments,
contractual maturities and prepayments, their use as collateral for borrowings
and possible sales on the secondary market.
Cash
generated from operations is another important source of funds to meet liquidity
needs. The consolidated statements of cash flows present operating
cash flows and summarize all significant sources and uses of funds for the
first
nine months of 2007 and 2006. The Company reported net income of
$458,000 for the nine months ended September 30, 2007, and generated a net
cash
increase of $477,000 from operations. Certain adjustments are made to
net income to reach the level of cash provided by operating activities,
including non-cash expenses (depreciation, employee compensation made in the
form of stock, and deferred tax provisions) and revenues (accretion of
discounts, and dividends received in the form of stock).
In
addition, management monitors its liquidity position by tracking certain
financial data. Table 9 illustrates some of the factors that the
Company uses to measure liquidity. The Company remains very liquid,
though some liquidity is being utilized to fund loan growth.
|
TABLE
9. KEY LIQUIDITY INDICATORS
|
|
|
|
|
2007
|
|
|
2006
|
|
|
($
in thousands)
|
|
September
30
|
|
|
December
31
|
|
|
September
30
|
|
|
Cash
and cash equivalents
|
|
$
|
7,334
|
|
|
$
|
11,117
|
|
|
$
|
12,055
|
|
|
Total
loans
|
|
|
113,252
|
|
|
|
97,717
|
|
|
|
93,702
|
|
|
Total
deposits
|
|
|
131,407
|
|
|
|
122,754
|
|
|
|
126,152
|
|
|
Deposits
$100,000 and over
|
|
|
33,936
|
|
|
|
27,285
|
|
|
|
27,430
|
|
|
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loans to total deposits
|
|
|
86.18
|
%
|
|
|
79.60
|
%
|
|
|
74.28
|
%
|
|
Deposits
$100,000 and over to total deposits
|
|
|
25.82
|
%
|
|
|
22.23
|
%
|
|
|
21.74
|
%
|
RESULTS
OF OPERATIONS
NET
INTEREST INCOME
Net
interest income for the third quarter of 2007 increased $22,000, or 1.6%, from
the second quarter of 2007, with increases in earning assets and a 5 basis
point
increase in yield partially offset by an increase in average balances of
liabilities and a 9 basis point increase in cost of funds. Third
quarter net interest income for 2007 was down $125,000 or 8.1%, on average
earning assets that were down 1.2% compared with the third quarter of
2006. The year-to-year decrease in net interest income can be
attributed to increasing deposit costs of 71 basis points, with $181,000 in
increased interest expense on deposits attributable to the rate impact of higher
deposit costs.
The
Company’s net interest margin level of 3.38% in the third quarter of 2007 was
down 6 basis points from the margin during the second quarter of 2007 and down
24 basis points from the same quarter in 2006. This margin
compression is consistent with what is being experienced throughout the banking
industry. Tables 10 and 11 show the components of the Company’s net
interest margin and the changes in those components from the second quarter
of
2007 and the third quarter of 2006.
During
the third quarter of 2007, interest income from earning assets was up $128,000,
or 4.7%, from the second quarter of 2007. This increase was due to
the Company’s increased investment in loans. The Company’s average
investment in loans was up $6.8 million in the third quarter of 2007 compared
to
the second quarter of 2007 and average yield increased 9 basis points, resulting
in a $174,000 increase in interest income. This increase was
partially offset by a $24,000 decrease in investment income due to reduced
balances from paydowns on the mortgages underlying certain securities and a
$22,000 decrease in interest income from Federal funds sold and demand deposits
caused by a reduction in the balances maintained in these liquid
assets. Interest income from earning assets was up $61,000, or 2.2%,
from the third quarter of 2006, again due to the increased investment in
loans.
During
the third quarter of 2007, interest expense increased $106,000, or 7.9%, from
the second quarter of 2007 and increased $186,000, or 14.7%, from the third
quarter of 2006. These increases were driven by increases in deposit
rates and certificates of deposit maturing and repricing into higher-yielding
certificates. The Bank has been able to reduce deposit rates late in
the third quarter and early in the fourth quarter of 2007 in conjunction with
Federal Reserve rate cuts and expects to reverse the upward trend in interest
expense. The easing of market interest rates by the Federal Reserve
towards the end of the third quarter of 2007 had only a limited impact on the
net interest margin for the third quarter of 2007.
The
average cost on interest bearing deposits increased to 3.87% for the third
quarter of 2007, from 3.76% in the second quarter of 2007 and 3.16% in the
third
quarter of 2006. These changes in rates contributed $42,000 and
$181,000 of increases in interest expense from the second quarter of 2007 and
the third quarter of 2006, respectively. The changes in deposit
balances contributed increases of $38,000 and $62,000 of interest expense from
the second quarter of 2007 and the third quarter of 2006,
respectively.
Net
interest income for the first nine months of 2007 decreased $515,000, or 11.0%,
from the first nine months of 2006 on average earning assets that were $8.4
million (4.9%) lower. Table 12 shows the components of the Company’s
net interest margin for the first nine months of 2007 and 2006. Net
interest margin was 3.42% for the nine months ended September 30, 2007 and
3.65%
for the prior year’s period. The yield on average earning assets
increased 31 basis points and the total cost of funding earning assets increased
66 basis points compared to the first nine months of 2006.
|
TABLE
10. SUMMARY OF AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND INTEREST
RATES
|
|
|
|
|
Third
Quarter 2007
|
|
|
Second
Quarter 2007
|
|
|
Third
Quarter 2006
|
|
|
($
in thousands)
|
|
Average
Balance
|
|
|
Interest
|
|
|
Average
Yield/ Cost
|
|
|
Average
Balance
|
|
|
Interest
|
|
|
Average
Yield/
Cost
|
|
|
Average
Balance
|
|
|
Interest
|
|
|
Average
Yield/
Cost
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST-EARNING
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
111,274
|
|
|
$
|
2,092
|
|
|
|
7.46
|
%
|
|
$
|
104,448
|
|
|
$
|
1,919
|
|
|
|
7.37
|
%
|
|
$
|
91,835
|
|
|
$
|
1,784
|
|
|
|
7.71
|
%
|
|
U.S.
Treasury securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
87
|
|
|
|
1
|
|
|
|
6.17
|
|
|
U.S.
Agency securities
|
|
|
23,031
|
|
|
|
343
|
|
|
|
5.91
|
|
|
|
23,039
|
|
|
|
339
|
|
|
|
5.90
|
|
|
|
20,858
|
|
|
|
273
|
|
|
|
5.19
|
|
|
Mortgage-backed
securities
|
|
|
6,258
|
|
|
|
94
|
|
|
|
5.93
|
|
|
|
6,323
|
|
|
|
87
|
|
|
|
5.52
|
|
|
|
4,018
|
|
|
|
81
|
|
|
|
7.98
|
|
|
Collateralized
mortgage obligations
|
|
|
15,304
|
|
|
|
193
|
|
|
|
5.06
|
|
|
|
16,218
|
|
|
|
229
|
|
|
|
5.66
|
|
|
|
18,389
|
|
|
|
235
|
|
|
|
5.07
|
|
|
Mutual
funds
|
|
|
5,787
|
|
|
|
77
|
|
|
|
5.28
|
|
|
|
5,808
|
|
|
|
76
|
|
|
|
5.24
|
|
|
|
21,344
|
|
|
|
265
|
|
|
|
4.92
|
|
|
Total
investment in securities
|
|
|
50,380
|
|
|
|
707
|
|
|
|
5.57
|
|
|
|
51,388
|
|
|
|
731
|
|
|
|
5.70
|
|
|
|
64,696
|
|
|
|
855
|
|
|
|
5.24
|
|
|
FHLB
stock
|
|
|
1,009
|
|
|
|
13
|
|
|
|
5.13
|
|
|
|
996
|
|
|
|
13
|
|
|
|
5.13
|
|
|
|
1,346
|
|
|
|
18
|
|
|
|
5.35
|
|
|
Federal
funds sold and demand deposits
|
|
|
3,873
|
|
|
|
49
|
|
|
|
5.32
|
|
|
|
5,311
|
|
|
|
70
|
|
|
|
5.32
|
|
|
|
10,687
|
|
|
|
143
|
|
|
|
5.33
|
|
|
Total
interest-earning assets
|
|
|
166,536
|
|
|
|
2,861
|
|
|
|
6.81
|
%
|
|
|
162,143
|
|
|
|
2,733
|
|
|
|
6.76
|
%
|
|
|
168,564
|
|
|
|
2,800
|
|
|
|
6.59
|
%
|
|
NONINTEREST-EARNING
ASSETS
|
|
|
Other
assets
|
|
|
10,787
|
|
|
|
|
|
|
|
|
|
|
|
9,799
|
|
|
|
|
|
|
|
|
|
|
|
8,889
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
|
(3,432
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,729
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,691
|
)
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
173,891
|
|
|
|
|
|
|
|
|
|
|
$
|
168,213
|
|
|
|
|
|
|
|
|
|
|
$
|
171,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
INTEREST-BEARING
LIABILITIES
|
|
|
NOW
account deposits
|
|
$
|
23,820
|
|
|
|
198
|
|
|
|
3.30
|
%
|
|
$
|
20,606
|
|
|
|
171
|
|
|
|
3.34
|
%
|
|
$
|
19,510
|
|
|
|
123
|
|
|
|
2.51
|
%
|
|
Savings
deposits
|
|
|
19,783
|
|
|
|
62
|
|
|
|
1.25
|
|
|
|
20,707
|
|
|
|
65
|
|
|
|
1.25
|
|
|
|
25,433
|
|
|
|
80
|
|
|
|
1.25
|
|
|
Time
deposits
|
|
|
80,496
|
|
|
|
951
|
|
|
|
4.69
|
|
|
|
79,315
|
|
|
|
895
|
|
|
|
4.53
|
|
|
|
76,743
|
|
|
|
764
|
|
|
|
3.95
|
|
|
Total
interest-bearing deposits
|
|
|
124,099
|
|
|
|
1,211
|
|
|
|
3.87
|
|
|
|
120,628
|
|
|
|
1,131
|
|
|
|
3.76
|
|
|
|
121,686
|
|
|
|
967
|
|
|
|
3.16
|
|
|
Borrowings
|
|
|
17,056
|
|
|
|
237
|
|
|
|
5.52
|
|
|
|
15,273
|
|
|
|
211
|
|
|
|
5.54
|
|
|
|
21,679
|
|
|
|
293
|
|
|
|
5.37
|
|
|
Total
interest-bearing liabilities
|
|
|
141,155
|
|
|
|
1,448
|
|
|
|
4.05
|
%
|
|
|
135,901
|
|
|
|
1,342
|
|
|
|
3.96
|
%
|
|
|
143,365
|
|
|
|
1,262
|
|
|
|
3.49
|
%
|
|
NONINTEREST-BEARING
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
Demand
deposits
|
|
|
4,340
|
|
|
|
|
|
|
|
|
|
|
|
3,946
|
|
|
|
|
|
|
|
|
|
|
|
1,453
|
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
1,244
|
|
|
|
|
|
|
|
|
|
|
|
1,216
|
|
|
|
|
|
|
|
|
|
|
|
521
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
27,152
|
|
|
|
|
|
|
|
|
|
|
|
27,150
|
|
|
|
|
|
|
|
|
|
|
|
28,934
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity
|
|
$
|
173,891
|
|
|
|
|
|
|
|
|
|
|
$
|
168,213
|
|
|
|
|
|
|
|
|
|
|
$
|
185,447
|
|
|
|
|
|
|
|
|
|
|
Net
interest income and margin
|
|
|
|
|
|
$
|
1,413
|
|
|
|
3.38
|
%
|
|
|
|
|
|
$
|
1,391
|
|
|
|
3.44
|
%
|
|
|
|
|
|
$
|
1,539
|
|
|
|
3.62
|
%
|
|
Net
interest-earning assets and spread
|
|
$
|
25,381
|
|
|
|
|
|
|
|
2.76
|
%
|
|
$
|
26,243
|
|
|
|
|
|
|
|
2.80
|
%
|
|
$
|
25,199
|
|
|
|
|
|
|
|
3.10
|
%
|
|
Cost
of funding interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
3.47
|
%
|
|
|
|
|
|
|
|
|
|
|
3.32
|
%
|
|
|
|
|
|
|
|
|
|
|
2.97
|
%
|
|
TABLE
11. SUMMARY OF CHANGES IN NET INTEREST
MARGIN
|
|
|
|
Third
Quarter 2007 Compared to:
|
|
|
|
Second
Quarter of 2007
|
|
|
Third
Quarter of 2006
|
|
|
|
Due
to Change in
|
|
|
Total
Increase (Decrease)
|
|
|
Due
to Change in
|
|
Total
Increase
(Decrease)
|
|
($
in thousands)
|
|
Volume
|
|
|
Rate
|
|
|
Volume
|
|
|
Rate
|
|
|
INTEREST
INCOME
|
|
Loans
|
|
$
|
128
|
|
|
$
|
46
|
|
|
$
|
174
|
|
|
$
|
366
|
|
$ (57)
|
$ 309
|
|
U.S.
Treasury securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
-
|
(1)
|
|
U.S.
Agency securities
|
|
|
-
|
|
|
|
4
|
|
|
|
4
|
|
|
|
32
|
|
38
|
70
|
|
Mortgage-backed
securities
|
|
|
(1
|
)
|
|
|
8
|
|
|
|
7
|
|
|
|
34
|
|
(21)
|
13
|
|
Collateralized
mortgage obligations
|
|
|
(12
|
)
|
|
|
(24
|
)
|
|
|
(36
|
)
|
|
|
(45
|
)
|
3
|
(42)
|
|
Mutual
funds
|
|
|
-
|
|
|
|
1
|
|
|
|
1
|
|
|
|
(207
|
)
|
19
|
(188)
|
|
Total
investment in securities
|
|
|
(13
|
)
|
|
|
(11
|
)
|
|
|
(24
|
)
|
|
|
(187
|
)
|
39
|
(148)
|
|
FHLB
stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4
|
)
|
(1)
|
(5)
|
|
Federal
funds sold and demand deposits
|
|
|
(18
|
)
|
|
|
(4
|
)
|
|
|
(22
|
)
|
|
|
(84
|
)
|
(11)
|
(95)
|
|
Total
interest income
|
|
|
97
|
|
|
|
31
|
|
|
|
128
|
|
|
|
91
|
|
(30)
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
EXPENSE
|
|
NOW
account deposits
|
|
$
|
27
|
|
|
$
|
-
|
|
|
$
|
27
|
|
|
$
|
36
|
|
$ 39
|
$ 75
|
|
Savings
deposits
|
|
|
(3
|
)
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
(18
|
)
|
-
|
(18)
|
|
Time
deposits
|
|
|
14
|
|
|
|
42
|
|
|
|
56
|
|
|
|
44
|
|
142
|
186
|
|
Total
interest-bearing deposits
|
|
|
38
|
|
|
|
42
|
|
|
|
80
|
|
|
|
62
|
|
181
|
243
|
|
Borrowings
|
|
|
25
|
|
|
|
1
|
|
|
|
26
|
|
|
|
(99
|
)
|
43
|
(56)
|
|
Total
interest expense
|
|
|
63
|
|
|
|
43
|
|
|
|
106
|
|
|
|
(37
|
)
|
224
|
(187)
|
|
Change
in net interest income
|
|
|
34
|
|
|
|
(12
|
)
|
|
|
22
|
|
|
|
128
|
|
(254)
|
(126)
|
|
TABLE
12. SUMMARY OF AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND INTEREST
RATES
|
|
|
|
|
Nine
Months Ended
September
30, 2007
|
|
|
Nine
Months Ended
September
30, 2006
|
|
|
($
in thousands)
|
|
Average
Balance
|
|
|
Interest
|
|
|
Average
Yield/
Cost
|
|
|
Average
Balance
|
|
|
Interest
|
|
|
Average
Yield/
Cost
|
|
|
ASSETS
|
|
|
INTEREST-EARNING
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
104,530
|
|
|
$
|
5,804
|
|
|
|
7.36
|
%
|
|
$
|
84,532
|
|
|
$
|
5,018
|
|
|
|
7.94
|
%
|
|
U.S.
Treasury securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
364
|
|
|
|
19
|
|
|
|
6.85
|
|
|
U.S.
Agency securities
|
|
|
22,475
|
|
|
|
989
|
|
|
|
5.88
|
|
|
|
14,345
|
|
|
|
551
|
|
|
|
5.14
|
|
|
Mortgage-backed
securities
|
|
|
5,503
|
|
|
|
218
|
|
|
|
5.30
|
|
|
|
2,035
|
|
|
|
111
|
|
|
|
7.29
|
|
|
Collateralized
mortgage obligations
|
|
|
16,118
|
|
|
|
672
|
|
|
|
5.57
|
|
|
|
19,943
|
|
|
|
863
|
|
|
|
5.79
|
|
|
Mutual
funds
|
|
|
7,221
|
|
|
|
281
|
|
|
|
5.21
|
|
|
|
35,296
|
|
|
|
1,178
|
|
|
|
4.46
|
|
|
Total
investment in securities
|
|
|
51,307
|
|
|
|
2,160
|
|
|
|
5.63
|
|
|
|
71,983
|
|
|
|
2,722
|
|
|
|
5.06
|
|
|
FHLB
stock
|
|
|
996
|
|
|
|
40
|
|
|
|
5.37
|
|
|
|
1,552
|
|
|
|
57
|
|
|
|
4.91
|
|
|
Federal
funds sold and demand deposits
|
|
|
6,256
|
|
|
|
244
|
|
|
|
5.21
|
|
|
|
13,384
|
|
|
|
497
|
|
|
|
4.80
|
|
|
Total
interest-earning assets
|
|
|
163,089
|
|
|
|
8,248
|
|
|
|
6.76
|
%
|
|
|
171,451
|
|
|
|
8,294
|
|
|
|
6.45
|
%
|
|
NONINTEREST-EARNING
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
10,290
|
|
|
|
|
|
|
|
|
|
|
|
9,098
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
|
(3,630
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,647
|
)
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
169,749
|
|
|
|
|
|
|
|
|
|
|
$
|
174,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
INTEREST-BEARING
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW
account deposits
|
|
$
|
20,839
|
|
|
$
|
531
|
|
|
|
3.41
|
%
|
|
$
|
16,295
|
|
|
$
|
242
|
|
|
|
1.99
|
%
|
|
Savings
deposits
|
|
|
20,946
|
|
|
|
195
|
|
|
|
1.25
|
|
|
|
28,398
|
|
|
|
266
|
|
|
|
1.25
|
|
|
Time
deposits
|
|
|
79,521
|
|
|
|
2,679
|
|
|
|
4.50
|
|
|
|
76,368
|
|
|
|
2,102
|
|
|
|
3.68
|
|
|
Total
interest-bearing deposits
|
|
|
121,306
|
|
|
|
3,405
|
|
|
|
3.75
|
|
|
|
121,061
|
|
|
|
2,610
|
|
|
|
2.88
|
|
|
Borrowings
|
|
|
16,189
|
|
|
|
670
|
|
|
|
5.53
|
|
|
|
25,101
|
|
|
|
996
|
|
|
|
5.31
|
|
|
Total
interest-bearing liabilities
|
|
|
137,495
|
|
|
|
4,075
|
|
|
|
3.96
|
%
|
|
|
146,162
|
|
|
|
3,606
|
|
|
|
3.30
|
%
|
|
NONINTEREST-BEARING
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
deposits
|
|
|
3,640
|
|
|
|
|
|
|
|
|
|
|
|
1,953
|
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
1,412
|
|
|
|
|
|
|
|
|
|
|
|
1,313
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
27,202
|
|
|
|
|
|
|
|
|
|
|
|
25,474
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity
|
|
$
|
169,749
|
|
|
|
|
|
|
|
|
|
|
$
|
174,902
|
|
|
|
|
|
|
|
|
|
|
Net
interest income and margin
|
|
|
|
|
|
$
|
4,173
|
|
|
|
3.42
|
%
|
|
|
|
|
|
$
|
4,688
|
|
|
|
3.65
|
%
|
|
Net
interest-earning assets and spread
|
|
$
|
26,263
|
|
|
|
|
|
|
|
2.80
|
%
|
|
$
|
25,737
|
|
|
|
|
|
|
|
3.15
|
%
|
|
Cost
of funding interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
3.34
|
%
|
|
|
|
|
|
|
|
|
|
|
2.80
|
%
|
|
TABLE
13. SUMMARY OF CHANGES IN NET INTEREST
MARGIN
|
|
|
|
|
First
Nine Months 2007 Compared to:
|
|
|
|
|
First
Nine Months of 2006
|
|
|
|
|
Due
to Change in
|
|
Total
Increase (Decrease)
|
|
|
|
($
in thousands)
|
|
Volume
|
|
|
Rate
|
|
|
INTEREST
INCOME (LOSS)
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
1,110
|
|
|
$
|
(324
|
)
|
$ 786
|
|
U.S.
Treasury securities
|
|
|
(19
|
)
|
|
|
-
|
|
(19)
|
|
U.S.
Agency securities
|
|
|
358
|
|
|
|
80
|
|
438
|
|
Mortgage-backed
securities
|
|
|
137
|
|
|
|
(30
|
)
|
107
|
|
Collateralized
mortgage obligations
|
|
|
(159
|
)
|
|
|
(32
|
)
|
(191)
|
|
Mutual
funds
|
|
|
(1,093
|
)
|
|
|
196
|
|
(897)
|
|
Total
investment in securities
|
|
|
(776
|
)
|
|
|
214
|
|
(562)
|
|
FHLB
stock
|
|
|
(22
|
)
|
|
|
5
|
|
(17)
|
|
Federal
funds sold and demand deposits
|
|
|
(278
|
)
|
|
|
25
|
|
(253)
|
|
Total
interest income (loss)
|
|
|
34
|
|
|
|
(80
|
)
|
(46)
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
NOW
account deposits
|
|
$
|
116
|
|
|
$
|
173
|
|
$ 289
|
|
Savings
deposits
|
|
|
(162
|
)
|
|
|
91
|
|
(71)
|
|
Time
deposits
|
|
|
106
|
|
|
|
471
|
|
577
|
|
Total
interest-bearing deposits
|
|
|
60
|
|
|
|
735
|
|
795
|
|
Borrowings
|
|
|
(369
|
)
|
|
|
43
|
|
(326)
|
|
Total
interest expense
|
|
|
(309
|
)
|
|
|
778
|
|
469
|
|
Change
in net interest income
|
|
|
343
|
|
|
|
(858
|
)
|
(515)
|
PROVISION
FOR LOAN LOSSES
The
Company made no provision for losses in the third or first quarter of
2007. The Company made a reversal of $300,000 of its provision for
loan losses in the second quarter of 2007 due to improvement in credit quality
as the Company’s borrowers continue to recover from the impact of Hurricane
Katrina. In the third quarter of 2006 the Company also made a
reversal of its provision for loan losses of $1,981,000.
For
a
more detailed discussion of changes in the allowance for loan losses,
nonperforming assets and general credit quality, see the earlier section on
Loans and Allowance for Loan Losses. The future level of the
allowance for loan losses will reflect management’s ongoing evaluation of credit
risk, based on established internal policies and practices.
NON-INTEREST
INCOME
Non-interest
income, excluding securities transactions, increased $78,000 for the third
quarter of 2007 compared to the same time period in 2006 and increased $103,000
for the first nine months of 2007 compared to the first nine months of 2006,
primarily due to the sale of mortgage loans on the secondary market, an activity
the Bank did not commence until the fourth quarter of 2006. Losses
from the sale of securities totaled $92,000 in the first nine months of
2006. There were no security sales in the first nine months of
2007. The major categories of non-interest income for the three and
nine months ended September 30, 2007 and 2006 are presented in Table
14.
|
TABLE
14. NON-INTEREST INCOME
|
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
($
in thousands)
|
|
Septmber
30, 2007
|
|
|
September
30, 2006
|
|
|
Percentage
Increase (Decrease)
|
|
|
September
30, 2007
|
|
|
September
30, 2006
|
|
|
Percentage
Increase (Decrease)
|
|
|
Service
charges on deposit accounts
|
|
$
|
6
|
|
|
$
|
4
|
|
|
|
50
|
%
|
|
$
|
16
|
|
|
$
|
10
|
|
|
|
60
|
%
|
|
ATM
fees
|
|
|
2
|
|
|
|
1
|
|
|
|
100
|
|
|
|
6
|
|
|
|
3
|
|
|
|
100
|
|
|
Early
closing penalties
|
|
|
4
|
|
|
|
10
|
|
|
|
(60
|
)
|
|
|
10
|
|
|
|
13
|
|
|
|
(23
|
)
|
|
Income
from real estate held for investment
|
|
|
13
|
|
|
|
13
|
|
|
|
-
|
|
|
|
39
|
|
|
|
39
|
|
|
|
-
|
|
|
Gain
on sales of mortgage loans
|
|
|
82
|
|
|
|
-
|
|
|
(a)
|
|
|
|
104
|
|
|
|
-
|
|
|
(a)
|
|
|
Miscellaneous
|
|
|
2
|
|
|
|
3
|
|
|
|
(33
|
)
|
|
|
6
|
|
|
|
13
|
|
|
|
(54
|
)
|
|
Total
noninterest income before securities transactions
|
|
|
109
|
|
|
|
31
|
|
|
|
252
|
|
|
|
181
|
|
|
|
78
|
|
|
|
132
|
|
|
Securities
transactions
|
|
|
-
|
|
|
|
-
|
|
|
(a)
|
|
|
|
-
|
|
|
|
(92
|
)
|
|
(a)
|
|
|
Total
noninterest income
|
|
$
|
109
|
|
|
$
|
31
|
|
|
|
252
|
|
|
$
|
181
|
|
|
$
|
(14
|
)
|
|
(a)
|
|
|
(a)
Not meaningful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST
EXPENSE
Non-interest
expense for the third quarter of 2007 totaled $1.4 million, a $180,000 (14.3%)
increase from the third quarter of 2006. For the first
nine months of 2007, non-interest expenses were $4.0 million, a $451,000 (12.6%)
increase from 2006. Non-interest expense for the three
and nine months ended September 30, 2007 and 2006 are presented in Table 15
below.
The
increases in non-interest expense have been part of management’s long-term
business plan, which involves converting the Bank’s operations from that of a
traditional thrift to that of a full-service community
bank. Management believes that it has nearly completed putting the
infrastructure, including personnel, products, systems and locations in place
to
successfully operate as a community bank. Expense growth should slow
or even reverse in coming months, while revenues are expected to continue to
increase as the bank has the resources to continue to attract new
business.
|
TABLE
15. NON-INTEREST EXPENSE
|
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
($
in thousands)
|
|
September
30, 2007
|
|
|
September
30, 2006
|
|
|
Percentage
Increase (Decrease)
|
|
|
September
30, 2007
|
|
|
September
30, 2006
|
|
|
Percentage
Increase (Decrease)
|
|
|
Employee
compensation
|
|
$
|
667
|
|
|
$
|
607
|
|
|
|
10
|
%
|
|
$
|
1,797
|
|
|
$
|
1,604
|
|
|
|
12
|
%
|
|
Employee
benefits
|
|
|
199
|
|
|
|
228
|
|
|
|
(13
|
)
|
|
|
679
|
|
|
|
741
|
|
|
|
(8
|
)
|
|
Total
personnel expense
|
|
|
866
|
|
|
|
835
|
|
|
|
4
|
|
|
|
2,476
|
|
|
|
2,345
|
|
|
|
6
|
|
|
Net
occupancy expense
|
|
|
179
|
|
|
|
148
|
|
|
|
21
|
|
|
|
467
|
|
|
|
397
|
|
|
|
18
|
|
|
Ad
valorem taxes
|
|
|
64
|
|
|
|
39
|
|
|
|
64
|
|
|
|
193
|
|
|
|
155
|
|
|
|
24
|
|
|
Data
processing costs
|
|
|
78
|
|
|
|
70
|
|
|
|
11
|
|
|
|
216
|
|
|
|
172
|
|
|
|
26
|
|
|
Advertising
|
|
|
61
|
|
|
|
8
|
|
|
|
663
|
|
|
|
105
|
|
|
|
29
|
|
|
|
262
|
|
|
ATM
server expenses
|
|
|
12
|
|
|
|
8
|
|
|
|
50
|
|
|
|
29
|
|
|
|
20
|
|
|
|
45
|
|
|
Professional
fees
|
|
|
43
|
|
|
|
22
|
|
|
|
95
|
|
|
|
143
|
|
|
|
121
|
|
|
|
18
|
|
|
Deposit
insurance and supervisory fees
|
|
|
27
|
|
|
|
25
|
|
|
|
8
|
|
|
|
80
|
|
|
|
74
|
|
|
|
8
|
|
|
Printing
and office supplies
|
|
|
34
|
|
|
|
32
|
|
|
|
6
|
|
|
|
94
|
|
|
|
91
|
|
|
|
3
|
|
|
Telephone
|
|
|
15
|
|
|
|
14
|
|
|
|
7
|
|
|
|
47
|
|
|
|
36
|
|
|
|
31
|
|
|
Dues
and subscriptions
|
|
|
33
|
|
|
|
22
|
|
|
|
50
|
|
|
|
85
|
|
|
|
55
|
|
|
|
55
|
|
|
Other
operating expenses
|
|
|
29
|
|
|
|
38
|
|
|
|
(24
|
)
|
|
|
96
|
|
|
|
85
|
|
|
|
13
|
|
|
Total
non-interest expense
|
|
$
|
1,441
|
|
|
|
1,261
|
|
|
|
14
|
%
|
|
$
|
4,031
|
|
|
$
|
3,580
|
|
|
|
13
|
%
|
|
Efficiency
Ratio
|
|
|
91.67
|
%
|
|
|
94.68
|
%
|
|
|
|
|
|
|
91.44
|
%
|
|
|
92.58
|
%
|
|
|
|
|
Personnel
costs, which represent the largest component of non-interest expense, increased
$31,000, or 3.7% to $866,000 in the third quarter of 2007 compared to $835,000
in the third quarter of 2007. The increase relates to the hiring of
additional personnel to staff the Mid-City office which re-opened in August,
2007 and the Manhattan Blvd. location which opened in October,
2007. Personnel costs increased $131,000, or 5.6%, to $2.5 million in
the first nine months of 2007 which is consistent with the Company’s increase in
headcount as it continues to add service capacity. No further
headcount increases are anticipated in the immediate future.
Occupancy
expense increased $31,000, or 20.9%, in the third quarter of 2007 compared
with
the same period in 2006 and increased $70,000, or 17.6% for the first nine
months of 2007 compared with the first nine months of 2006. This is
the result of added costs relating to the new operating locations.
Ad
valorem taxes increased $25,000, or 64.1% in the third quarter of 2007 compared
to the third quarter of 2006 and increased $38,000, or 24.5% for the first
nine
months of 2007 compared to the nine months of 2006. The Bank had
unusually low ad valorem tax expense in 2006 due to an overaccrual in 2005
because of Hurricane Katrina. The level of taxes in 2007 is normal
and consistent with historical figures.
Data
processing costs increased $8,000, or 11.4% the third quarter of 2007 compared
to the same period for 2006 and $44,000, or 25.6% for the first three quarters
of 2007 compared to the first three quarters of 2006. The increase
relates to increases in the fee structure of the Bank’s third-party processor,
increased customer transaction volume and additions of and enhancements to
technology-driven product offerings. Advertising costs of $61,000
were incurred in the third quarter of 2007 and were only $8,000 in the same
period of 2006. The Bank had a concentrated print advertising
campaign during the quarter to coincide with the opening of new branches and
hiring of new bankers.
SUBSEQUENT
EVENT
On
October 15, 2007 all outstanding options issued under the option plan discussed
above in Note 4 expired. Subsequent to the report date and prior to
October 15, 2007, 30,000 options were exercised for $515,000 cash, and the
remaining options expired unexercised.
Item
3 - Controls and Procedures
Our
management evaluated, with the participation of our Chief Executive Officer
and
Chief Financial Officer, the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this
report. Based on such evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that our disclosure controls and
procedures are designed to ensure that information required to be disclosed
by
us in the reports that we file or submit under the Securities Exchange Act
of
1934 is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and regulations and are operating in an effective
manner.
No
change
in our internal control over financial reporting (as defined in Rules 13a–15(f)
or 15(d)-15(f) under the Securities Exchange Act of 1934) occurred during the
most recent fiscal quarter that has materially affected, or is reasonably likely
to affect, our internal control over financial reporting.