MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 contains safe harbor provisions regarding forward-looking statements. When used in this discussion, the words
“believes”, “anticipates”, “contemplates”, “expects”, and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could
cause actual results to differ materially from those projected. Those risks and uncertainties include changes in interest rates, risks associated with the ability to control costs and expenses, and general economic conditions. Killbuck Bancshares,
Inc. undertakes no obligation to publicly release the results of any revisions to those forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
The Company conducts no significant business or operations of its own other than holding all of the outstanding stock of the Killbuck Savings Bank
Company. As a result, references to the Company generally refer to the Bank unless the context indicates otherwise.
Critical Accounting
Policies
The Company’s accounting policies are integral to understanding the results reported. The accounting policies are described in detail in
Note 1 of the consolidated financial statements filed with the Commission as part of the Company’s annual report on Form 10-K for its fiscal year ended December 31, 2006. Our most complex accounting policies require management’s
judgment to ascertain the valuation of assets, liabilities, commitments and contingencies. We have established detailed policies and control procedures that are intended to ensure valuation methods are well controlled and applied consistently from
period to period. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The following is a brief description of our current accounting policies involving
significant management valuation judgments.
Allowance for Loan Losses
- Arriving at an appropriate level of allowance for loan losses involves a
high degree of judgment. The Company’s allowance for loan losses provides for probable losses based upon evaluations of known and inherent risks in the loan portfolio.
Management uses historical information to assess the adequacy of the allowance for loan losses as well as the prevailing business environment as it is affected by changing economic conditions and various external
factors, which may impact the portfolio in ways currently unforeseen. The allowance is increased by provisions for loan losses and by recoveries of loans previously charged-off and reduced by loans charged-off. For a full discussion of the
Company’s methodology of assessing the adequacy of the reserve for loan losses, refer to Note 1 of the consolidated financial statements filed with the Commission as part of the Company’s annual report on Form 10-K for its fiscal year
ended December 31, 2006.
Goodwill and Other Intangible Assets
- As discussed in Note 7 of the consolidated financial statements, filed with
the Commission as part of the Company’s annual report on Form 10-K for its fiscal year ended December 31, 2006, the Company must assess goodwill and other intangible assets each year for impairment. This assessment involves estimating cash
flows for future periods. If the future cash flows were less than the recorded goodwill and other intangible assets balances, we would be required to take a charge against earnings to write down the assets to the lower value.
Deferred Tax Assets
- We use an estimate of future earnings to support our position that the benefit of our deferred tax assets will be realized. If future income
should prove non-existent or less than the amount of the deferred tax assets within the tax years to which they may be applied, the asset may not be realized and our net income will be reduced. Our deferred tax assets are described further in Note
14 of the consolidated financial statements filed with the Commission as part of the Company’s annual report on Form 10-K for its fiscal year ended December 31, 2006.
-11-
Financial Condition
Total assets at September 30, 2007 were $331,556,000 compared to $313,205,000 at December 31, 2006.
Cash and
cash equivalents decreased by $5,065,000 or 11.9% from December 31, 2006, to September 30, 2007, with federal funds sold decreasing $4,203,000. The decrease was used to partially fund the increase in the Bank’s loan portfolio.
Investment securities available for sale increased by $11,002,000 or 31.7% from December 31, 2006, to September 30, 2007, due to an effort to
rebuild the securities portfolio. Investments held to maturity increased $3,162,000 or 10.5% due to the same planned rebuilding of the portfolio.
Net
loans increased by $7,673,000 or 4.0% from December 31, 2006 to September 30, 2007. An increase of $9,575,000 occurred in the real estate loan category, which is attributable primarily to commercial lending activity which was offset by
decreases of $6,530,000 in the residential and $2,994,000 in farm lending. Management believes the residential and residential construction loan activities have slowed significantly in the Bank’s lending area, and a very competitive interest
rate environment exists in the bank’s commercial lending marketplace. Commercial and other loan balances increased by $7,403,000. The Consumer loans balance increased by $219,000.
Total deposits at September 30, 2007 were $280,059,000 compared to $264,301,000 at December 31, 2006. Time deposits increased $17,896,000, demand accounts decreased $3,277,000 and money market and savings
accounts increased $1,140,000. Management attributes these changes to the increase in Time deposit interest rates. While these rates will begin to decrease, Management does not expect the balances to decrease. Management believes the demand accounts
decreases are attributable to several different reasons including normal fluctuations due to customer usage, and the disintermediation into other financial markets.
Federal Home Loan Bank advances had a net decrease of $529,000 due to maturities and scheduled repayments, and short-term borrowings increased $820,000 at September 30, 2007 from December 31, 2006.
Shareholders’ Equity increased by $2,188,000 or 5.6%, which was mainly due to earnings of $3,654,000 for the first nine months of 2007 and a $194,000
unrealized gain on securities included in other comprehensive income, decreased by dividends paid totaling $859,000 and by the purchase of Treasury stock for $801,000. Treasury stock purchases are monitored against the Company’s Strategic Plan
and the goals set forth in the plan. The Treasury stock purchases have not exceeded the Strategic Plan’s guidelines for the first nine months of 2007. Management monitors risk-based capital and leveraged capital ratios in order to assess
compliance of the regulatory guidelines. At September 30, 2007, the total capital ratio was 18.92%; the Tier I capital ratio was 17.78%, and the leverage ratio was 12.26%, compared to regulatory capital requirements of 8.00%, 4.00%, and 4.00%
respectively. These ratios are well in excess of regulatory capital requirements.
-12-
RESULTS OF OPERATIONS
Comparison of the Nine Months Ended September 30, 2007 and 2006
Net income for the nine-month period
ended September 30, 2007, was $3,654,000, a decrease of $217,000 or 5.6% from the $3,871,000 reported at September 30, 2006.
Total interest
income of approximately $16,279,000 for the nine-month period ended September 30, 2007, compares to $14,774,000 for the same period in 2006, an increase of $1,505,000 or 10.2%. The increase in total interest income is primarily attributable to
Investment securities - taxable. Investment income on taxable securities increased $790,000 or 100.1% for the nine-month period ended September 30, 2007 compared to the same period for 2006. The increase in investment income on taxable
securities is primarily due to an increase in volume. Average investment balances on taxable securities were $38,842,000 compared to $19,646,000 and the yields were 5.2% compared to 4.8% for the first nine months of 2007 and 2006 respectively. The
Interest and fees on loans increased $515,000 or 4.2% for the nine-month period ended September 30, 2007 compared to the same period for 2006. The increase in interest and fees on loans is due to an increase in the average yield on the
underlying principle balances. See “Average Balance Sheet” for the nine-month periods ended September 30, 2007 and 2006. The yield on loans increased to 8.36% for the first nine months of 2007 compared to 7.98% for the first nine
months of 2006. Average loan balances were $203,298,000 for the first nine months of 2007 compared to $204,175,000 for the first nine months of 2006.
Total interest expense of $5,972,000 for the nine-month period ending September 30, 2006 represents an increase of $1,798,000 from the $4,174,000 reported for the same nine-month period in 2006. The increase in interest expense on
deposits of $1,839,000 is due mainly to an increase in volume, specifically the Time deposits. Average Time deposits were $ 142,019,000 for the first nine months of 2007 compared to $ 113,104,000 for the first nine months of 2006. The cost of Time
deposits was 4.64% compared to 3.75% for this nine-month period of 2007 and 2006, respectively. See “Average Balance Sheet” for the nine-month periods ended September 30, 2007 and 2006. Average interest-bearing deposits were
$225,842,000 for the first nine months of 2007 compared to $202,582,000 for the first nine months of 2006. The cost on interest bearing deposits was 3.4%, compared to 2.6% for the nine-month periods of 2007 and 2006 respectively.
Net interest income of $10,307,000 for the nine months ended September 30, 2007, compares to $10,600,000 for the same nine-month period in 2006, a decrease of
$293,000 or 2.8%. Management expects the cost on average interest-bearing liabilities to begin to decrease while the current competitive loan-pricing environment continues to exert a downward pressure on the yields on loans. The net interest margin
is expected to continue to experience compression in 2007.
Total non-interest income for the nine-month period ended September 30, 2007, of
$1,076,000 compares to $931,000 for the same nine-month period in 2006, an increase of $145,000 or 15.6%. The increase of $171,000 in service charges on deposit accounts was attributable primarily to an increase in the Non-sufficient funds (NSF)
charge. The net Non-sufficient funds fees and overdraft fees increased $174,000 in 2007 on a comparative basis to 2006 due to the Non-sufficient funds (NSF) fee increase May 1, 2006 and the introduction of a new NSF program in the fourth
quarter of 2006. The NSF fee increase was partially offset by an increase in the volume of accounts in the free checking account product category. Gain on sale of loans decreased $16,000 due to the decline in residential lending and an in-house
fixed rate loan product. Other income decreased $10,000 due to the decrease of $4,000 in alternative investment income and miscellaneous service charges decreased approximately $6,000.
Total non-interest expense of $6,181,000 for the nine months ended September 30, 2007, compares to $6,050,000 for the same nine-month period in 2006. This represents an increase of $131,000 or 2.2%. Salary and
employee benefits increased approximately $158,000. Approximately $30,000 of the $158,000 increase was due to increased medical group insurance costs and the remaining expense was due to normal increases in salaries and employee benefits. Salaries
and Benefits were partially offset by a $29,000 decrease in Professional fees and approximately a $16,000 decrease in Occupancy expense. The changes in the remaining expense accounts were attributable to increases/decreases in items that are normal
and recurring in nature.
-13-
RESULTS OF OPERATIONS
Comparison of the Three Months Ended September 30, 2007 and 2006
Net income for the three-month period
ended September 30, 2007, was $1,174,000, a decrease of $188,000 or 13.8% from the $1,362,000 reported at September 30, 2006.
Total interest
income of approximately $5,496,000 for the three-month period ended September 30, 2007, compares to $5,110,000 for the same period in 2006, an increase of $386,000 or 7.6%. The increase in total interest income is primarily attributable to an
increase in the Investment securities category specifically taxable issues. The increase in interest on investment securities – taxable of $225,000 was due to an increase in the average balances outstanding of $41,571,000 for 2007 compared to
$24,831,000 for 2006 and the yield was 5.19% compared to 5.06% for this three-month period of 2007 and 2006 respectively. See “Average Balance Sheet” for the three-month periods ended September 30, 2007 and 2006. Interest and fees on
loans increased $54,000 or 1.3% for the three-month period ended September 30, 2007 compared to the same period for 2006. The increase in interest and fees on loans is due to an increase in the volume of principle loan balances. Average loan
balances were $202,252,000 compared to $200,225,000, and the yield was 8.38% compared to 8.35% for this three-month period of 2007 and 2006 respectively. See “Average Balance Sheet” for the three-month periods ended September 30, 2007
and 2006.
Total interest expense of $2,088,000 for the three-month period ending September 30, 2007, represents an increase of $561,000 from the
$1,527,000 reported for the same three-month period in 2006. The increase in interest expense on deposits of $576,000 is due mainly to increases in the average interest bearing deposits, specifically the Time deposits. The average interest-bearing
Time deposits were $147,624,000 for this three-month period of 2007 compared to $117,274,000 for the same three months of 2006. The cost of Time deposits was 4.73% compared to 4.07% for this three-month period of 2007 and 2006, respectively. Average
interest-bearing deposits were $229,885,000 for this three-month period of 2007 compared to $203,740,000 for the same three months of 2006. The cost of interest bearing deposits was 3.5% compared to 2.8% for this three-month period of 2007 and 2006
respectively.
Net interest income of $3,408,000 for the three months ended September 30, 2007, compares to $3,583,000 for the same three-month period
in 2006, a decrease of $175,000 or 4.9%. Management expects the current competitive loan pricing environment to continue exerting a downward pressure on the yields on loans. The net interest margin is expected to continue to decrease in 2007.
Total non-interest income for the three-month period ended September 30, 2007, of $377,000 compares to $304,000 for the same three-month period in
2006, an increase of $73,000 or 24.0%. The service fee income on deposits increased $69,000 primarily due to the $67,000 increase in the Non-sufficient funds (NSF) income. A new NSF program was introduced in the fourth quarter of 2006.
Total non-interest expense of $2,113,000 for the three months ended September 30, 2007, compares to $2,017,000 for the same three-month period in 2006. This
represents an increase of $96,000 or 4.8%. Salary and employee benefits increased $68,000. Of this $68,000 approximately $36,000 is due to increased medical group insurance costs and the remaining expense was due to normal increases in salaries and
employee benefits. The changes in the remaining expense accounts were attributable to increases/decreases in items that are normal and recurring in nature.
-14-
Liquidity
Management monitors projected liquidity needs and determines the level desirable based in part on the Company’s commitments to make loans and management’s assessment of the Company’s ability to generate
funds.
The primary sources of funds are deposits, repayment of loans, maturities of investments, funds provided from operations and advances from the FHLB
of Cincinnati. While scheduled repayments of loans and maturities of investment securities are predictable sources of funds, deposit flows and loan repayments are greatly influenced by the general level of interest rates, economic conditions and
competition. The Company uses its sources of funds to fund existing and future loan commitments, to fund maturing time deposits and demand deposit withdrawals, to invest in other interest-earning assets, to maintain liquidity, and to meet operating
expenses.
Cash and amounts due from depository institutions and federal funds sold totaled $37,640,000 at September 30, 2007. These assets provide
the primary source of liquidity for the Company. In addition, management has designated a portion of the investment portfolio, $45,755,000 as available for sale and has an available unused line of credit of $40,063,000 with the Federal Home Loan
Bank of Cincinnati to provide additional sources of liquidity at September 30, 2007. As of September 30, 2007, the Company had commitments to fund loans of approximately $1,974,000 and unused lines of credit totaling $41,473,000.
Cash was provided during the nine month period ended September 30, 2007, mainly from operating activities of $2.9 million, the maturities and
repayments of investment securities of $8.7 million, and a net increase in deposits of $15.8 million. A net decrease in Other Real Estate Owned of $.1 million, and an increase in short-term borrowings of $.8 million also contributed. Cash was used
during the nine month period ended September 30, 2007, mainly to fund the purchase of investment securities of $22.6 million, to fund a net increase in loans of $7.8 million, and for a net decrease of $.5 million in Federal Home Loan Bank
advances. In addition, $.8 million was used to purchase equipment, $.8 million was used to purchase Treasury Stock, and $.9 million was used to pay dividends to shareholders. Cash and cash equivalents totaled $37.6 million at September 30,
2007, a decrease of $5.1 million from $42.7 million at December 31, 2006.
Management is not aware of any conditions, including any regulatory
recommendations or requirements, which would adversely affect its liquidity or ability to meet its funding needs in the normal course of business.
-15-
Risk Elements
The table below presents information concerning nonperforming assets including nonaccrual loans, renegotiated loans, loans 90 days or more past due, other real estate loans and repossessed assets at September 30,
2007, and December 31, 2006. The Company ceased accruing interest on residential mortgages secured by real estate and consumer loans when principal or interest payments were delinquent 90 days or more. Commercial loans, that are 90 days or more
past due, are reviewed by the Executive Vice President and the loan officer to determine whether they will be classified as nonperforming. These officers review various factors, which include, but are not limited to, the timing of the maturity of
the loan in relation to the ability to collect, whether the loan is deemed to be well secured, whether the loan is in the process of collection, and the favorable results of the analysis of customer financial data. A nonperforming loan will only be
re-classified as a performing loan when stringent criteria have been met. At the time the accrual of interest is discontinued, future income is recognized only when cash is received or the loan has been returned to performing loan status.
Renegotiated loans are those loans which terms have been renegotiated to provide a reduction or deferral of principal or interest as of result of the deterioration of the borrower.
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2007
|
|
|
December 31,
2006
|
|
|
|
(dollars in thousands)
|
|
|
Loans on nonaccrual basis
|
|
$
|
459
|
|
|
$
|
471
|
|
|
Loans past due 90 days or more
|
|
|
—
|
|
|
|
—
|
|
|
Renegotiated loans
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans
|
|
|
459
|
|
|
|
471
|
|
|
|
|
|
|
Other real estate
|
|
|
—
|
|
|
|
80
|
|
|
Repossessed assets
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets
|
|
$
|
459
|
|
|
$
|
551
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans as a percent of total loans
|
|
|
0.23
|
%
|
|
|
0.24
|
%
|
|
|
|
|
|
Nonperforming loans as a percent of total assets
|
|
|
0.14
|
%
|
|
|
0.15
|
%
|
|
|
|
|
|
Nonperforming assets as a percent of total assets
|
|
|
0.14
|
%
|
|
|
0.18
|
%
|
Management monitors impaired loans on a continual basis. As of September, 2007, impaired loans had no material
effect on the Company’s financial position or results from operations.
The allowance for loan losses at September 30, 2007, totaled $2,549,000
or 1.26% of total loans as compared to $2,394,000 or 1.23% at December 31, 2006. Provisions for loan losses were $127,000 for the nine months ended September 30, 2007 and $120,000 for the nine months ended September 30, 2006.
The level of funding for the provision is a reflection of the overall loan portfolio. Nonperforming loans consist of approximately $321,000 in commercial
real estate and $138,000 in one to four family residential mortgages. The collateral requirements on such loans reduce the risk of potential losses to an acceptable level in management’s opinion.
Management performs a quarterly evaluation of the allowance for loan losses. The evaluation incorporates internal loan review, actual historical losses, as well as any
negative economic trends in the local market. The evaluation is presented to and approved by the Board of Directors. Although the Company maintains its allowance for loan losses at a level that it considers to be adequate to provide for the inherent
risk of loss in its portfolio, there can be no assurance that future losses will not exceed estimated amounts or that additional provisions for loan losses will not be required in future periods.
-16-
AVERAGE BALANCE SHEET
Average Balance Sheet for the Nine Month Period Ended September 30
The following table sets forth certain
information relating to the Company’s average balance sheet and reflects the average yield on assets and average cost of liabilities for the periods indicated and the average yields earned and rates paid. Such yields and costs are derived by
dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented. Average balances are derived from month-end balances. Management does not believe that the use of month-end balances instead of
daily average balances has caused any material differences in the information presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Average
Balance
|
|
|
Interest
|
|
Yield/
Rate
|
|
|
Average
Balance
|
|
|
Interest
|
|
Yield/
Rate
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Earnings Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (1)(2)(3)
|
|
$
|
203,297,871
|
|
|
$
|
12,740,769
|
|
8.36
|
%
|
|
$
|
204,174,682
|
|
|
$
|
12,226,647
|
|
7.98
|
%
|
|
Securities-taxable (4)
|
|
|
38,842,068
|
|
|
|
1,501,478
|
|
5.15
|
%
|
|
|
19,645,606
|
|
|
|
710,622
|
|
4.82
|
%
|
|
Securities-nontaxable (4)
|
|
|
31,828,071
|
|
|
|
1,050,831
|
|
4.40
|
%
|
|
|
32,086,520
|
|
|
|
1,055,955
|
|
4.39
|
%
|
|
Securities-Equity (4,5)
|
|
|
1,680,628
|
|
|
|
72,596
|
|
5.76
|
%
|
|
|
1,622,949
|
|
|
|
64,348
|
|
5.29
|
%
|
|
Federal funds sold
|
|
|
23,200,924
|
|
|
|
913,114
|
|
5.25
|
%
|
|
|
19,733,436
|
|
|
|
716,946
|
|
4.84
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earnings assets
|
|
|
298,849,562
|
|
|
|
16,278,788
|
|
7.26
|
%
|
|
|
277,263,193
|
|
|
|
14,774,518
|
|
7.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from other institutions
|
|
|
10,507,877
|
|
|
|
|
|
|
|
|
|
9,892,512
|
|
|
|
|
|
|
|
|
Premises and equipment, net
|
|
|
5,817,197
|
|
|
|
|
|
|
|
|
|
5,240,857
|
|
|
|
|
|
|
|
|
Accrued interest
|
|
|
1,453,017
|
|
|
|
|
|
|
|
|
|
1,140,853
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
5,837,800
|
|
|
|
|
|
|
|
|
|
5,714,161
|
|
|
|
|
|
|
|
|
Less allowance for loan losses
|
|
|
(2,451,509
|
)
|
|
|
|
|
|
|
|
|
(2,391,973
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest earnings assets
|
|
|
21,164,382
|
|
|
|
|
|
|
|
|
|
19,596,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
320,013,944
|
|
|
|
|
|
|
|
|
$
|
296,859,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand
|
|
|
27,141,403
|
|
|
|
119,554
|
|
0.59
|
%
|
|
|
31,025,385
|
|
|
|
132,763
|
|
0.57
|
%
|
|
Money market accounts
|
|
|
19,467,642
|
|
|
|
394,599
|
|
2.70
|
%
|
|
|
18,223,824
|
|
|
|
311,368
|
|
2.28
|
%
|
|
Savings deposits
|
|
|
37,214,597
|
|
|
|
284,516
|
|
1.02
|
%
|
|
|
40,229,597
|
|
|
|
274,483
|
|
0.91
|
%
|
|
Time deposits
|
|
|
142,018,599
|
|
|
|
4,939,164
|
|
4.64
|
%
|
|
|
113,103,522
|
|
|
|
3,180,189
|
|
3.75
|
%
|
|
Short term borrowings
|
|
|
5,168,874
|
|
|
|
108,132
|
|
2.79
|
%
|
|
|
3,924,436
|
|
|
|
78,883
|
|
2.68
|
%
|
|
Federal Home Loan Advances
|
|
|
2,941,388
|
|
|
|
126,123
|
|
5.72
|
%
|
|
|
5,142,109
|
|
|
|
196,443
|
|
5.09
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities
|
|
|
233,952,503
|
|
|
|
5,972,088
|
|
3.40
|
%
|
|
|
211,648,873
|
|
|
|
4,174,129
|
|
2.63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
44,239,812
|
|
|
|
|
|
|
|
|
|
45,730,856
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
|
3,298,436
|
|
|
|
|
|
|
|
|
|
3,267,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest bearing liabilities
|
|
|
47,538,248
|
|
|
|
|
|
|
|
|
|
48,998,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
38,523,193
|
|
|
|
|
|
|
|
|
|
36,212,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders’ Equity
|
|
$
|
320,013,944
|
|
|
|
|
|
|
|
|
$
|
296,859,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
10,306,700
|
|
|
|
|
|
|
|
|
$
|
10,600,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread (6)
|
|
|
|
|
|
|
|
|
3.86
|
%
|
|
|
|
|
|
|
|
|
4.47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on interest earning assets (7)
|
|
|
|
|
|
|
|
|
4.60
|
%
|
|
|
|
|
|
|
|
|
5.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For purposes of these computations, the daily average loan amounts outstanding are net of deferred loan fees.
|
|
(2)
|
Included in loan interest income are loan related fees of $266,147 and $248,723 in 2007 and 2006, respectively.
|
|
(3)
|
Nonaccrual loans are included in loan totals and do not have a material impact on the information presented.
|
|
(4)
|
Average balance is computed using the carrying value of securities. The average yield has been computed using the historical amortized cost average balance for securities.
|
|
(5)
|
Equity securities are comprised of common stock of the Federal Home Loan Bank, Federal Reserve Bank, and Great Lakes Bankers Bank.
|
|
(6)
|
Interest rate spread represents the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities.
|
|
(7)
|
Net yield on interest earning assets represents net interest income as a percentage of average interest earning assets.
|
-17-
AVERAGE BALANCE SHEET
Average Balance Sheet for the Three-Month Period Ended September 30
The following table sets forth certain information relating to the Company’s average balance sheet and reflects the average yield on assets and average cost of
liabilities for the periods indicated and the average yields earned and rates paid. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented. Average
balances are derived from month-end balances. Management does not believe that the use of month-end balances instead of daily average balances has caused any material differences in the information presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Average
Balance
|
|
|
Interest
|
|
Yield/
Rate
|
|
|
Average
Balance
|
|
|
Interest
|
|
Yield/
Rate
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Earnings Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (1)(2)(3)
|
|
$
|
202,251,651
|
|
|
$
|
4,235,981
|
|
8.38
|
%
|
|
$
|
200,224,658
|
|
|
$
|
4,181,992
|
|
8.35
|
%
|
|
Securities-taxable (4)
|
|
|
41,570,652
|
|
|
|
539,209
|
|
5.19
|
%
|
|
|
24,831,480
|
|
|
|
313,919
|
|
5.06
|
%
|
|
Securities-nontaxable (4)
|
|
|
32,887,881
|
|
|
|
363,217
|
|
4.42
|
%
|
|
|
32,988,706
|
|
|
|
361,794
|
|
4.39
|
%
|
|
Securities-Equity (4,5)
|
|
|
1,680,910
|
|
|
|
24,057
|
|
5.72
|
%
|
|
|
1,640,469
|
|
|
|
20,772
|
|
5.06
|
%
|
|
Federal funds sold
|
|
|
25,991,815
|
|
|
|
333,295
|
|
5.13
|
%
|
|
|
17,665,447
|
|
|
|
231,403
|
|
5.24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earnings assets
|
|
|
304,382,909
|
|
|
|
5,495,759
|
|
7.22
|
%
|
|
|
277,350,760
|
|
|
|
5,109,880
|
|
7.37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from other institutions
|
|
|
10,729,460
|
|
|
|
|
|
|
|
|
|
9,774,850
|
|
|
|
|
|
|
|
|
Premises and equipment, net
|
|
|
5,993,462
|
|
|
|
|
|
|
|
|
|
5,369,594
|
|
|
|
|
|
|
|
|
Accrued interest
|
|
|
1,443,927
|
|
|
|
|
|
|
|
|
|
1,212,836
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
5,889,582
|
|
|
|
|
|
|
|
|
|
5,767,009
|
|
|
|
|
|
|
|
|
Less allowance for loan losses
|
|
|
(2,501,740
|
)
|
|
|
|
|
|
|
|
|
(2,418,710
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest earnings assets
|
|
|
21,554,691
|
|
|
|
|
|
|
|
|
|
19,705,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
325,937,600
|
|
|
|
|
|
|
|
|
$
|
297,056,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand
|
|
$
|
26,230,167
|
|
|
|
39,194
|
|
0.60
|
%
|
|
$
|
30,276,825
|
|
|
|
44,301
|
|
0.59
|
%
|
|
Money market accounts
|
|
|
19,681,760
|
|
|
|
138,136
|
|
2.81
|
%
|
|
|
17,110,971
|
|
|
|
106,992
|
|
2.50
|
%
|
|
Savings deposits
|
|
|
36,348,964
|
|
|
|
93,738
|
|
1.03
|
%
|
|
|
39,078,060
|
|
|
|
94,799
|
|
0.97
|
%
|
|
Time deposits
|
|
|
147,623,817
|
|
|
|
1,744,225
|
|
4.73
|
%
|
|
|
117,274,243
|
|
|
|
1,193,353
|
|
4.07
|
%
|
|
Short term borrowings
|
|
|
5,443,314
|
|
|
|
33,163
|
|
2.44
|
%
|
|
|
3,882,231
|
|
|
|
29,719
|
|
3.06
|
%
|
|
Federal Home Loan Advances
|
|
|
2,765,560
|
|
|
|
39,453
|
|
5.71
|
%
|
|
|
3,889,608
|
|
|
|
57,961
|
|
5.96
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities
|
|
|
238,093,582
|
|
|
|
2,087,909
|
|
3.51
|
%
|
|
|
211,511,938
|
|
|
|
1,527,125
|
|
2.89
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
45,370,443
|
|
|
|
|
|
|
|
|
|
45,107,976
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
|
4,659,626
|
|
|
|
|
|
|
|
|
|
4,809,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest bearing liabilities
|
|
|
50,030,069
|
|
|
|
|
|
|
|
|
|
49,917,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
37,813,949
|
|
|
|
|
|
|
|
|
|
35,626,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders’ Equity
|
|
$
|
325,937,600
|
|
|
|
|
|
|
|
|
$
|
297,056,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
3,407,850
|
|
|
|
|
|
|
|
|
$
|
3,582,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread (6)
|
|
|
|
|
|
|
|
|
3.71
|
%
|
|
|
|
|
|
|
|
|
4.48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on interest earning assets (7)
|
|
|
|
|
|
|
|
|
4.48
|
%
|
|
|
|
|
|
|
|
|
5.17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For purposes of these computations, the daily average loan amounts outstanding are net of deferred loan fees.
|
|
(2)
|
Included in loan interest income are loan related fees of $99,806 and $87,196 in 2007 and 2006, respectively.
|
|
(3)
|
Nonaccrual loans are included in loan totals and do not have a material impact on the information presented.
|
|
(4)
|
Average balance is computed using the carrying value of securities. The average yield has been computed using the historical amortized cost average balance for securities.
|
|
(5)
|
Equity securities are comprised of common stock of the Federal Home Loan Bank, Federal Reserve Bank, and Great Lakes Bankers Bank.
|
|
(6)
|
Interest rate spread represents the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities.
|
|
(7)
|
Net yield on interest earning assets represents net interest income as a percentage of average interest earning assets.
|
-18-
Rate/Volume Analysis
The table below sets forth certain information regarding changes in interest income and interest expense of the Company for the periods indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in volume (changes in average volume multiplied by old rate) and (ii) changes in rates (changes in rate multiplied by old average volume). Changes, which are not
solely attributable to rate, or volume are allocated to changes in rate due to rate sensitivity of interest-earning assets and interest-bearing liabilities (dollars in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine-Month Period Ended September
2007 Compared to 2006
Increase (Decrease) Due
To
|
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Net
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
(70
|
)
|
|
$
|
585
|
|
|
$
|
515
|
|
|
Securities-taxable
|
|
|
924
|
|
|
|
(134
|
)
|
|
|
790
|
|
|
Securities-nontaxable
|
|
|
(11
|
)
|
|
|
6
|
|
|
|
(5
|
)
|
|
Securities-equities
|
|
|
3
|
|
|
|
6
|
|
|
|
9
|
|
|
Federal funds sold
|
|
|
168
|
|
|
|
28
|
|
|
|
196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning Assets
|
|
|
1,014
|
|
|
|
491
|
|
|
|
1,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand
|
|
|
(22
|
)
|
|
|
9
|
|
|
|
(13
|
)
|
|
Money market accounts
|
|
|
28
|
|
|
|
56
|
|
|
|
84
|
|
|
Savings deposits
|
|
|
(27
|
)
|
|
|
36
|
|
|
|
9
|
|
|
Time deposits
|
|
|
1,084
|
|
|
|
675
|
|
|
|
1,759
|
|
|
Short-term borrowing
|
|
|
33
|
|
|
|
(4
|
)
|
|
|
29
|
|
|
Federal Home Loan Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances
|
|
|
(112
|
)
|
|
|
42
|
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing Liabilities
|
|
|
984
|
|
|
|
814
|
|
|
|
1,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in net interest income
|
|
$
|
30
|
|
|
$
|
(323
|
)
|
|
$
|
(293
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-19-
Rate/Volume Analysis
The table below sets forth certain information regarding changes in interest income and interest expense of the
Company for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (changes in average volume multiplied by old rate) and
(ii) changes in rates (changes in rate multiplied by old average volume). Changes, which are not solely attributable to rate, or volume are allocated to changes in rate due to rate sensitivity of interest-earning assets and interest-bearing
liabilities (dollars in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period Ended September
2007 Compared to 2006
Increase (Decrease) Due
To
|
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Net
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
169
|
|
|
$
|
(115
|
)
|
|
$
|
54
|
|
|
Securities-taxable
|
|
|
847
|
|
|
|
(622
|
)
|
|
|
225
|
|
|
Securities-nontaxable
|
|
|
(4
|
)
|
|
|
5
|
|
|
|
1
|
|
|
Securities-equities
|
|
|
2
|
|
|
|
1
|
|
|
|
3
|
|
|
Federal funds sold
|
|
|
436
|
|
|
|
(333
|
)
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning Assets
|
|
|
1,450
|
|
|
|
(1,064
|
)
|
|
|
386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand
|
|
|
(24
|
)
|
|
|
19
|
|
|
|
(5
|
)
|
|
Money market accounts
|
|
|
64
|
|
|
|
(33
|
)
|
|
|
31
|
|
|
Savings deposits
|
|
|
(27
|
)
|
|
|
26
|
|
|
|
(1
|
)
|
|
Time deposits
|
|
|
1,235
|
|
|
|
(684
|
)
|
|
|
551
|
|
|
Short-term borrowing
|
|
|
48
|
|
|
|
(45
|
)
|
|
|
3
|
|
|
Federal Home Loan Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances
|
|
|
(67
|
)
|
|
|
49
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing Liabilities
|
|
|
1,229
|
|
|
|
(668
|
)
|
|
|
561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in net interest income
|
|
$
|
221
|
|
|
$
|
(396
|
)
|
|
$
|
(175
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-20-