UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
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þ
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Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
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For the quarterly period ended September 30, 2010
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o
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Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
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For the transition period from
to
Commission File Number 000-32955
LSB Corporation
(Exact name of registrant as specified in its charter)
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Massachusetts
(State or other jurisdiction of
incorporation or organization)
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04-3557612
(I.R.S. Employer
Identification Number)
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30 Massachusetts Avenue, North Andover, MA
(Address of principal executive offices)
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01845
(Zip Code)
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(978) 725-7500
(Registrants telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the Registrant was required to file such report), and (2) has been subject
to such filing requirements for the past 90 days.
Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definition of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act (check one).
Large Accelerated Filer
o
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Accelerated Filer
o
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Non-Accelerated Filer
o
(Do not check if a smaller reporting company)
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Smaller Reporting Company
þ
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes
o
No
þ
Indicate the number of shares outstanding of each of the registrants classes of common stock, as
of the latest practicable date.
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Class
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Outstanding as of November 10, 2010
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Common Stock, par value $.10 per share
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4,506,686 shares
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LSB CORPORATION AND SUBSIDIARY
INDEX
2
PART 1 FINANCIAL INFORMATION
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ITEM 1.
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FINANCIAL STATEMENTS
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LSB CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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September 30,
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December 31,
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2010
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2009
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(In thousands, except share data)
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ASSETS
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Assets:
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Cash and due from banks
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$
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7,908
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$
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8,615
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Federal funds sold
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24,619
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6,597
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Total cash and cash equivalents
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32,527
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15,212
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Investment securities available for sale, at fair value,
amortized cost of $163,961 in 2010 and $224,130 in 2009
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170,954
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230,533
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Federal Home Loan Bank stock, at cost
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11,825
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11,825
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Loans, net of allowance for loan losses
of $7,075 in 2010 and $7,168 in 2009
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532,175
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529,451
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Premises and equipment
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8,604
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7,209
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Accrued interest receivable
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2,469
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2,727
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Deferred income tax asset, net
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4,195
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4,315
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Bank-owned life insurance
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11,466
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11,120
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Other real estate owned
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2,432
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Prepaid FDIC insurance
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2,484
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3,069
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Other assets
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1,221
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1,137
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Total assets
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$
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780,352
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$
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816,598
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LIABILITIES AND STOCKHOLDERS EQUITY
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Liabilities:
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Core deposits
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$
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262,683
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$
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252,389
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Retail term deposits
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197,510
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211,061
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Brokered term deposits
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14,950
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29,344
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Total deposits
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475,143
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492,794
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Long-term borrowed funds
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221,847
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245,971
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Short-term borrowed funds
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7,730
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7,111
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Subordinated debt
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6,000
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6,000
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Mortgagors escrow accounts
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949
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776
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Other liabilities
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4,673
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3,426
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Total liabilities
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716,342
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756,078
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Stockholders equity:
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Preferred stock, Series A, $.10 par value per share:
5,000,000 shares authorized, none issued
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Common stock, $.10 par value per share;
20,000,000 shares authorized;
4,506,686 shares issued and outstanding at
September 30, 2010 and December 31, 2009, respectively
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451
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451
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Additional paid-in capital
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60,004
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60,004
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Accumulated deficit
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(645
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)
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(3,802
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)
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Accumulated other comprehensive income
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4,200
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3,867
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Total stockholders equity
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64,010
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60,520
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Total liabilities and stockholders equity
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$
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780,352
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$
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816,598
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The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.
3
LSB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
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Three months ended
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Nine months ended
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September 30,
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September 30,
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2010
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2009
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2010
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2009
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(In thousands, except share data)
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Interest and dividend income:
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Loans
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$
|
7,921
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|
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$
|
7,462
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$
|
23,489
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$
|
21,216
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Investment securities available for sale
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1,857
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|
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2,795
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6,347
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9,162
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Short term investments
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8
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11
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22
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22
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|
|
|
|
|
|
|
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Total interest and dividend income
|
|
|
9,786
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|
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10,268
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|
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29,858
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30,400
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Interest expense:
|
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Deposits
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1,828
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2,501
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6,018
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|
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7,746
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Long-term borrowed funds
|
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|
2,262
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|
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|
2,721
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|
|
|
7,035
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8,265
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|
Short-term borrowed funds
|
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|
4
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|
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|
4
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|
|
12
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|
47
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Subordinated debt
|
|
|
132
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|
393
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|
|
|
|
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|
Total interest expense
|
|
|
4,226
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|
|
|
5,226
|
|
|
|
13,458
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|
|
|
16,058
|
|
|
|
|
|
|
|
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|
|
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Net interest income
|
|
|
5,560
|
|
|
|
5,042
|
|
|
|
16,400
|
|
|
|
14,342
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|
Provision for loan losses
|
|
|
750
|
|
|
|
400
|
|
|
|
2,150
|
|
|
|
1,100
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|
|
|
|
|
|
|
|
|
|
|
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Net interest income, after provision for loan losses
|
|
|
4,810
|
|
|
|
4,642
|
|
|
|
14,250
|
|
|
|
13,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Non-interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit account fees
|
|
|
249
|
|
|
|
253
|
|
|
|
710
|
|
|
|
710
|
|
Loan servicing fees, net
|
|
|
76
|
|
|
|
34
|
|
|
|
227
|
|
|
|
150
|
|
Gain on sales of securities, net
|
|
|
688
|
|
|
|
572
|
|
|
|
2,064
|
|
|
|
1,030
|
|
Income on bank-owned life insurance
|
|
|
116
|
|
|
|
115
|
|
|
|
346
|
|
|
|
364
|
|
Prepayment penalty on FHLB advances
|
|
|
|
|
|
|
|
|
|
|
(149
|
)
|
|
|
|
|
Other income
|
|
|
133
|
|
|
|
122
|
|
|
|
394
|
|
|
|
347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
|
1,262
|
|
|
|
1,096
|
|
|
|
3,592
|
|
|
|
2,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
2,097
|
|
|
|
1,643
|
|
|
|
5,842
|
|
|
|
5,013
|
|
Occupancy and equipment
|
|
|
422
|
|
|
|
357
|
|
|
|
1,364
|
|
|
|
1,077
|
|
Data processing
|
|
|
207
|
|
|
|
228
|
|
|
|
741
|
|
|
|
702
|
|
Professional
|
|
|
71
|
|
|
|
113
|
|
|
|
312
|
|
|
|
450
|
|
Marketing
|
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|
67
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|
|
|
116
|
|
|
|
307
|
|
|
|
374
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|
Other real estate owned
|
|
|
184
|
|
|
|
4
|
|
|
|
199
|
|
|
|
6
|
|
FDIC deposit insurance
|
|
|
201
|
|
|
|
262
|
|
|
|
612
|
|
|
|
1,022
|
|
Merger expense
|
|
|
475
|
|
|
|
|
|
|
|
475
|
|
|
|
|
|
Other
|
|
|
501
|
|
|
|
544
|
|
|
|
1,452
|
|
|
|
1,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
|
4,225
|
|
|
|
3,267
|
|
|
|
11,304
|
|
|
|
10,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
1,847
|
|
|
|
2,471
|
|
|
|
6,538
|
|
|
|
5,497
|
|
Income tax provision
|
|
|
708
|
|
|
|
910
|
|
|
|
2,254
|
|
|
|
1,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before preferred stock
dividends and accretion
|
|
|
1,139
|
|
|
|
1,561
|
|
|
|
4,284
|
|
|
|
3,586
|
|
Preferred stock dividends and accretion
|
|
|
|
|
|
|
(215
|
)
|
|
|
|
|
|
|
(588
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
1,139
|
|
|
$
|
1,346
|
|
|
$
|
4,284
|
|
|
$
|
2,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average basic common shares outstanding
|
|
|
4,506,686
|
|
|
|
4,495,356
|
|
|
|
4,506,686
|
|
|
|
4,479,316
|
|
Common stock equivalents
|
|
|
42,102
|
|
|
|
1,324
|
|
|
|
15,853
|
|
|
|
1,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average diluted common shares outstanding
|
|
|
4,548,788
|
|
|
|
4,496,680
|
|
|
|
4,522,539
|
|
|
|
4,480,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.25
|
|
|
$
|
0.30
|
|
|
$
|
0.95
|
|
|
$
|
0.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.25
|
|
|
$
|
0.30
|
|
|
$
|
0.95
|
|
|
$
|
0.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited Consolidated Financial
Statements.
4
LSB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2009 AND THE
NINE MONTHS ENDED SEPTEMBER 30, 2010
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Preferred
|
|
|
Common
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income
|
|
|
Equity
|
|
|
|
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
14,455
|
|
|
$
|
447
|
|
|
$
|
60,179
|
|
|
$
|
(6,250
|
)
|
|
$
|
3,311
|
|
|
$
|
72,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,037
|
|
|
|
|
|
|
|
5,037
|
|
Other comprehensive income -
Unrealized gain on securities
available for sale
(tax effect $343)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
556
|
|
|
|
556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
121
|
|
Exercise of stock options
and tax benefits (28,995 shares)
|
|
|
|
|
|
|
4
|
|
|
|
264
|
|
|
|
|
|
|
|
|
|
|
|
268
|
|
Common dividends declared and
paid ($0.30 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,344
|
)
|
|
|
|
|
|
|
(1,344
|
)
|
Preferred dividends declared
and paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(700
|
)
|
|
|
|
|
|
|
(700
|
)
|
Accretion of discount on
preferred stock
|
|
|
545
|
|
|
|
|
|
|
|
|
|
|
|
(545
|
)
|
|
|
|
|
|
|
|
|
Redemption of preferred stock
|
|
|
(15,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,000
|
)
|
Repurchase of warrants issued
with preferred stock
|
|
|
|
|
|
|
|
|
|
|
(560
|
)
|
|
|
|
|
|
|
|
|
|
|
(560
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
|
|
|
|
451
|
|
|
|
60,004
|
|
|
|
(3,802
|
)
|
|
|
3,867
|
|
|
|
60,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,284
|
|
|
|
|
|
|
|
4,284
|
|
Other comprehensive income -
Unrealized gain on securities
available for sale, net
(tax effect $257)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
333
|
|
|
|
333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,617
|
|
Dividends declared and paid
($0.25 per common share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,127
|
)
|
|
|
|
|
|
|
(1,127
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2010
|
|
$
|
|
|
|
$
|
451
|
|
|
$
|
60,004
|
|
|
$
|
(645
|
)
|
|
$
|
4,200
|
|
|
$
|
64,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.
5
LSB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,284
|
|
|
$
|
2,998
|
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
2,150
|
|
|
|
1,100
|
|
Gains on sales of securities
|
|
|
(2,064
|
)
|
|
|
(1,030
|
)
|
Net accretion of investment securities
|
|
|
(110
|
)
|
|
|
(528
|
)
|
Depreciation and amortization of premises and equipment
|
|
|
567
|
|
|
|
453
|
|
Decrease in accrued interest receivable
|
|
|
258
|
|
|
|
25
|
|
Deferred income tax (benefit) provision
|
|
|
(136
|
)
|
|
|
132
|
|
Stock-based compensation
|
|
|
|
|
|
|
19
|
|
Income on bank-owned life insurance
|
|
|
(346
|
)
|
|
|
(364
|
)
|
Decrease in other assets and prepaid FDIC Insurance
|
|
|
500
|
|
|
|
15
|
|
Increase in other liabilities
|
|
|
1,247
|
|
|
|
719
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
6,350
|
|
|
|
3,539
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds from maturities of investment securities available for sale
|
|
|
23,279
|
|
|
|
20,367
|
|
Proceeds from sales of investment securities available for sale
|
|
|
42,254
|
|
|
|
19,348
|
|
Purchases of investment securities available for sale
|
|
|
(44,943
|
)
|
|
|
(74,902
|
)
|
Principal payments of investment securities available for sale
|
|
|
41,753
|
|
|
|
64,167
|
|
Loan originations, net of principal payments
|
|
|
(7,603
|
)
|
|
|
(59,333
|
)
|
Loans purchased
|
|
|
|
|
|
|
(6,837
|
)
|
Proceeds from sales of other real estate owned
|
|
|
297
|
|
|
|
|
|
Purchases of premises and equipment
|
|
|
(1,962
|
)
|
|
|
(1,378
|
)
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
53,075
|
|
|
|
(38,568
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Net (decrease) increase in deposits
|
|
|
(17,651
|
)
|
|
|
62,688
|
|
Additions to long-term borrowed funds
|
|
|
9,000
|
|
|
|
|
|
Payments on long-term borrowed funds
|
|
|
(33,124
|
)
|
|
|
(10,117
|
)
|
Net increase (decrease) in short-term borrowed funds
|
|
|
619
|
|
|
|
(11,558
|
)
|
Increase in mortgagors escrow accounts
|
|
|
173
|
|
|
|
267
|
|
Dividends paid to preferred shareholders
|
|
|
|
|
|
|
(507
|
)
|
Dividends paid to common shareholders
|
|
|
(1,127
|
)
|
|
|
(1,119
|
)
|
Proceeds from exercise of stock options
|
|
|
|
|
|
|
265
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(42,110
|
)
|
|
|
39,919
|
|
|
Net increase in cash and cash equivalents
|
|
|
17,315
|
|
|
|
4,890
|
|
Cash and cash equivalents, beginning of period
|
|
|
15,212
|
|
|
|
13,328
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
32,527
|
|
|
$
|
18,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest on deposits
|
|
$
|
6,041
|
|
|
$
|
7,758
|
|
Interest on borrowed funds
|
|
|
7,562
|
|
|
|
8,399
|
|
Income taxes paid
|
|
|
1,608
|
|
|
|
1,791
|
|
|
|
|
|
|
|
|
|
|
Supplemental non cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Transfers to other real estate owned
|
|
$
|
2,729
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.
6
LSB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010
(UNAUDITED)
1. BASIS OF PRESENTATION AND PENDING MERGER
LSB Corporation (the Corporation or the Company) is a Massachusetts corporation and the holding
company of its wholly-owned subsidiary River Bank (the Bank), a state-chartered Massachusetts
savings bank organized in 1868. The Corporation was organized by the Bank on July 1, 2001 to be a
bank holding company and to acquire all of the capital stock of the Bank.
On July 15, 2010, the Company entered into an Agreement and Plan of Merger with Peoples United
Financial, Inc. to acquire the Company in an all-cash transaction valued at $21.00 per share or
approximately $96 million.
The completion of the merger is subject to customary conditions, including the approval of the
shareholders of LSB Corporation and the receipt of regulatory approvals. The shareholders of LSB
approved the Agreement and Plan of Merger at a special meeting of shareholders held on October 27,
2010. Assuming satisfaction of all of the remaining conditions to closing, including the receipt
of regulatory approvals, completion of the merger is expected to occur in the fourth quarter of
2010.
The Corporation is supervised by the Board of Governors of the Federal Reserve System (FRB), and
it is also subject to the jurisdiction of the Massachusetts Division of Banks, while the Bank is
subject to the regulations of, and periodic examination by, the Federal Deposit Insurance
Corporation (FDIC) and the Massachusetts Division of Banks. The Banks deposits are currently
insured by the Deposit Insurance Fund of the FDIC up to $250,000 per depositor, as defined by the
FDIC. On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed
into law which made permanent the current standard maximum deposit insurance amount of $250,000.
The FDIC coverage limit applies per depositor, per insured depository institution, for each account
ownership category. The Depositors Insurance Fund (DIF) of Massachusetts, a private
industry-sponsored insurer, insures the Banks customer deposit amounts in excess of FDIC insurance
limits.
The Consolidated Financial Statements include the accounts of LSB Corporation and its wholly-owned
consolidated subsidiary, River Bank, and the Banks wholly-owned subsidiaries, Shawsheen Security
Corporation, Shawsheen Security Corporation II, and Spruce Wood Realty Trust. All inter-company
balances and transactions have been eliminated in consolidation. The Company has one reportable
operating segment. In the opinion of management, the accompanying Consolidated Financial
Statements reflect all necessary adjustments consisting of normal recurring adjustments for fair
presentation. Certain amounts in prior periods may be re-classified to conform to the current
presentation.
The Corporations Consolidated Financial Statements have been prepared in conformity with
accounting principles generally accepted in the United States of America. Accordingly, management
is required to make estimates and assumptions that affect amounts reported in the balance sheets
and statements of income. Actual results could differ significantly from those estimates and
judgments. Material estimates that are particularly susceptible to change relate to the allowance
for loan losses, income taxes and impairment of investment securities.
The interim results of consolidated income are not necessarily indicative of the results for any
future interim period or for the entire year. These interim Consolidated Financial Statements do
not include all disclosures associated with annual financial statements and, accordingly, should be
read in conjunction with the annual Consolidated Financial Statements and accompanying notes
included in the Companys Annual Report on Form 10-K as of and for the year ended December 31, 2009
filed with the Securities and Exchange Commission.
7
2. INVESTMENTS
The following table reflects the components and carrying values of the investment securities
portfolio at September 30, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/30/10
|
|
|
12/31/09
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury obligations
|
|
$
|
5,544
|
|
|
$
|
366
|
|
|
$
|
|
|
|
$
|
5,910
|
|
|
$
|
5,557
|
|
|
$
|
237
|
|
|
$
|
|
|
|
$
|
5,794
|
|
Government-sponsored enterprise obligations (1)
|
|
|
38,329
|
|
|
|
353
|
|
|
|
(1
|
)
|
|
|
38,681
|
|
|
|
33,379
|
|
|
|
188
|
|
|
|
(49
|
)
|
|
|
33,518
|
|
Residentialmortgage-backed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government guaranteed
|
|
|
11,270
|
|
|
|
611
|
|
|
|
|
|
|
|
11,881
|
|
|
|
16,037
|
|
|
|
483
|
|
|
|
|
|
|
|
16,520
|
|
Government-sponsored enterprises
|
|
|
76,313
|
|
|
|
4,805
|
|
|
|
|
|
|
|
81,118
|
|
|
|
118,537
|
|
|
|
5,543
|
|
|
|
(71
|
)
|
|
|
124,009
|
|
Residential collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government guaranteed
|
|
|
23,106
|
|
|
|
764
|
|
|
|
|
|
|
|
23,870
|
|
|
|
21,965
|
|
|
|
94
|
|
|
|
(80
|
)
|
|
|
21,979
|
|
Government-sponsored enterprises
|
|
|
5,942
|
|
|
|
86
|
|
|
|
|
|
|
|
6,028
|
|
|
|
21,283
|
|
|
|
389
|
|
|
|
|
|
|
|
21,672
|
|
Private-label
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,415
|
|
|
|
93
|
|
|
|
|
|
|
|
1,508
|
|
Corporate obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,489
|
|
|
|
|
|
|
|
(111
|
)
|
|
|
2,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
160,504
|
|
|
|
6,985
|
|
|
|
(1
|
)
|
|
|
167,488
|
|
|
|
220,662
|
|
|
|
7,027
|
|
|
|
(311
|
)
|
|
|
227,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
|
1,000
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
999
|
|
|
|
1,000
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
966
|
|
Equity securities
|
|
|
2,457
|
|
|
|
10
|
|
|
|
|
|
|
|
2,467
|
|
|
|
2,468
|
|
|
|
|
|
|
|
(279
|
)
|
|
|
2,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
3,457
|
|
|
|
10
|
|
|
|
(1
|
)
|
|
|
3,466
|
|
|
|
3,468
|
|
|
|
|
|
|
|
(313
|
)
|
|
|
3,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
$
|
163,961
|
|
|
$
|
6,995
|
|
|
$
|
(2
|
)
|
|
$
|
170,954
|
|
|
$
|
224,130
|
|
|
$
|
7,027
|
|
|
$
|
(624
|
)
|
|
$
|
230,533
|
|
|
|
|
|
(1)
|
|
Government-sponsored enterprise obligations include investment securities issued by
government sponsored enterprises (GSEs) such as Federal National Mortgage Association
(FNMA), Federal Home Loan Mortgage Corporation (FHLMC) and the Federal Home Loan Bank
(FHLB). These investment securities do not represent obligations of the U.S. Government
and are not backed by the full faith and credit of the Treasury.
|
The net unrealized gains on securities available for sale at September 30, 2010 totaled $7.0
million, or $4.2 million net of taxes. One preferred equity security was on the Banks securities
watch list due to its credit rating by external, independent rating agencies and has since
recovered all of the unrealized losses during 2010 due to the improved outlook of the issuer. The
gross unrealized losses resulted from changes in interest rates and are not material as of
September 30, 2010.
The following table shows the gross unrealized losses and fair value of the Companys investments
with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by
investment category and length of time that individual securities have been in a continuous
unrealized loss position, at September 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Unrealized
|
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored enterprises
|
|
$
|
4,008
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,008
|
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
4,008
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
4,008
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
|
|
|
|
|
|
|
|
|
999
|
|
|
|
(1
|
)
|
|
|
999
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
|
|
|
|
|
|
|
|
999
|
|
|
|
(1
|
)
|
|
|
999
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
4,008
|
|
|
$
|
(1
|
)
|
|
$
|
999
|
|
|
$
|
(1
|
)
|
|
$
|
5,007
|
|
|
$
|
(2
|
)
|
|
8
The Company realized gross gains of $2.1 million and gross losses of $5,000 on the sale of
$42.3 million of investments available for sale in the first nine months of 2010.
The following table is a summary of the contractual maturities of debt securities available for
sale at September 30, 2010. Mortgage-backed securities and collateralized mortgage obligations are
shown at their final contractual maturity date but are expected to have shorter average lives.
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
$
|
499
|
|
|
$
|
500
|
|
After 1 year through 5 years
|
|
|
46,241
|
|
|
|
47,078
|
|
After 5 years through 10 years
|
|
|
16,733
|
|
|
|
17,201
|
|
After 10 years
|
|
|
97,031
|
|
|
|
102,709
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
$
|
160,504
|
|
|
$
|
167,488
|
|
|
Investment securities pledged as collateral for customer repurchase and wholesale repurchase
agreements at September 30, 2010 totaled $8.5 million and $47.2 million, respectively.
3. CONTINGENCIES
George Assad, Jr. and William S. Madden, both alleged stockholders of the Company, each filed
putative class action lawsuits on July 27, 2010 and August 20, 2010, respectively, allegedly on
behalf of all Company stockholders. The lawsuits were filed in the Massachusetts Superior Court,
Essex County, against the Company, River Bank, the Companys board of Directors, Peoples United
Financial, Inc. (Peoples United), Peoples United Bank, a wholly-owned subsidiary of Peoples
United, and Bridgeport Merger Corporation, a wholly-owned subsidiary of Peoples United. The case
filed by Mr. Assad is captioned
George Assad, Jr. v. LSB Corporation et al.
, Civ. A. No. 2010-1616.
The case filed by Mr. Madden is captioned
William S. Madden v. LSB Corporation et al.,
Civ. A. No.
2010-1702. Mr. Assad and Mr. Madden both filed amended complaints on August 27, 2010. The
complaints generally allege that the Companys board of directors breached its fiduciary duties by
approving the agreement and plan of merger, dated as of July 15, 2010, by and among the Company,
River Bank, Peoples United, Peoples United Bank and Bridgeport Merger Corporation, because,
plaintiffs allege, the proposed merger would deny Company stockholders the right to share
proportionately in the value of the Companys ongoing business and future growth, the merger
consideration of $21.00 per share is inadequate, the merger agreements termination fee and no
solicitation provisions discourage bids from other sources and the transaction unfairly benefits
the Companys board of directors and chief executive officer to the disadvantage of its
stockholders. The amended complaints further allege that the proxy statement sent to the Companys
stockholders and filed with the Securities and Exchange Commission is deficient in that it fails to
disclose all of the underlying methodologies, projections, key inputs and multiples relied upon and observed by Sandler ONeill. The amended complaints also
allege that Peoples United, Peoples United Bank and Bridgeport Merger Corporation aided and
abetted our Boards breach of fiduciary duties. The complaints seek an order preliminarily and
permanently enjoining the defendants from consummating, or closing the merger; in the event that
the merger is consummated, an order rescinding it and setting it aside or awarding rescissory
damages; an accounting; and attorneys fees and costs. The cases were subsequently consolidated and
transferred to the Business Litigation Section of the Massachusetts Superior Court sitting in
Suffolk County. The consolidated case is captioned
George Assad, Jr. v. LSB Corporation et al.
,
Suffolk Civil Action No. 2010-3626-BLS2. The Company believes that the allegations in the
complaint are without merit and intends to vigorously defend this action. On October 22, 2010, the
Superior Court denied the plaintiffs motion for preliminary injunction to prevent, pending
additional disclosure, the shareholder vote scheduled for October 27, 2010, stating that overall,
the Court concludes that the plaintiffs have not established a likelihood of success on the merits
of their claim of inadequate disclosure.
4. FAIR VALUES OF ASSETS AND LIABILITIES
The Company uses fair value measurements to record fair value adjustments to certain assets and
liabilities and to determine fair value disclosures. The fair value of a financial instrument is
the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. Fair value is best determined
based upon quoted market prices. However, in many instances, there are no quoted market prices for
the Companys various financial instruments. In cases where quoted market prices are not
9
available,
fair values are based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an
immediate settlement of the instrument.
The estimated fair values of the Companys financial instruments at September 30, 2010 and December
31, 2009, follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
December 31, 2009
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
|
Value
|
|
Value
|
|
Value
|
|
Value
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
7,908
|
|
|
$
|
7,908
|
|
|
$
|
8,615
|
|
|
$
|
8,615
|
|
Federal Funds sold
|
|
|
24,619
|
|
|
|
24,619
|
|
|
|
6,597
|
|
|
|
6,597
|
|
Investment securities available for sale
|
|
|
170,954
|
|
|
|
170,954
|
|
|
|
230,533
|
|
|
|
230,533
|
|
Federal Home Loan Bank stock
|
|
|
11,825
|
|
|
|
11,825
|
|
|
|
11,825
|
|
|
|
11,825
|
|
Accrued interest receivable
|
|
|
2,469
|
|
|
|
2,469
|
|
|
|
2,727
|
|
|
|
2,727
|
|
Loans, net
|
|
|
532,175
|
|
|
|
545,924
|
|
|
|
529,451
|
|
|
|
526,087
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core deposits
|
|
|
262,683
|
|
|
|
262,683
|
|
|
|
252,389
|
|
|
|
252,389
|
|
Certificates of deposit
|
|
|
212,460
|
|
|
|
218,004
|
|
|
|
240,405
|
|
|
|
244,002
|
|
Borrowed funds
|
|
|
235,577
|
|
|
|
261,108
|
|
|
|
259,082
|
|
|
|
272,320
|
|
Mortgagors escrow accounts
|
|
|
949
|
|
|
|
949
|
|
|
|
776
|
|
|
|
776
|
|
Accrued interest payable
|
|
|
841
|
|
|
|
841
|
|
|
|
987
|
|
|
|
987
|
|
The fair values for cash and short-term investments approximate their carrying amounts because
of the short-term nature of the assets. The securities measured at fair value in Level 1 are based
on quoted market prices in an active exchange market. These securities include marketable equity
securities and U.S. Treasury obligations. Securities measured at fair value in Level 2 are based
on pricing models from an independent pricing service that consider standard input factors such as
observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit
spreads and new issue data. The Company did not make any changes to the input factors used by the
external pricing service. These securities include government-sponsored enterprise obligations,
mortgage-backed securities, collateralized mortgage obligations and corporate obligations.
Securities measured at fair value in Level 3 include non-marketable equity securities that are
carried at par value based on the redemptive provisions of the issuers. The fair value of stock in
the Federal Home Loan Bank of Boston is based upon the redemption value of the
stock which equates to its carrying value. Loans are estimated by discounting contractual cash
flows adjusted for prepayment estimates and using discount rates approximately equal to current
market rates on loans with similar characteristics and maturities. The incremental credit risk for
non-performing loans has been considered in the determination of the fair value of the loans. The
fair values of demand deposit accounts, NOW accounts, savings accounts and money market accounts
are equal to their respective carrying amounts because they are equal to the amounts payable on
demand at the reporting date. Certificates of deposit, Federal Home Loan Bank advances, and
wholesale repurchase agreements are estimated using discounted value of contractual cash flows.
The discount rates used are representative of approximate market rates currently offered on
instruments with similar remaining maturities. The fair values of short-term borrowed funds,
accrued interest receivable, mortgagors escrow accounts and accrued interest payable approximate
their carrying amounts because of the short-term nature of the liabilities. The majority of the
Companys commitments for unused lines and outstanding standby letters of credit and unadvanced
portions of loans are at floating rates and, therefore, there is no fair value adjustment.
10
Assets measured at fair value on a recurring basis at September 30, 2010 and December 31, 2009, are
summarized below. There are no liabilities measured at fair value on a recurring basis. The
Company had no transfers into or out of Levels 1, 2 or 3 during the nine months ended September 30,
2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair Value
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury obligations
|
|
$
|
5,910
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,910
|
|
All other debt securities
|
|
|
|
|
|
|
161,578
|
|
|
|
|
|
|
|
161,578
|
|
Equity securities
|
|
|
2,049
|
|
|
|
1,001
|
|
|
|
416
|
|
|
|
3,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring assets
|
|
$
|
7,959
|
|
|
$
|
162,579
|
|
|
$
|
416
|
|
|
$
|
170,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair Value
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury obligations
|
|
$
|
5,794
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,794
|
|
All other debt securities
|
|
|
|
|
|
|
221,584
|
|
|
|
|
|
|
|
221,584
|
|
Equity securities
|
|
|
1,760
|
|
|
|
970
|
|
|
|
425
|
|
|
|
3,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring assets
|
|
$
|
7,554
|
|
|
$
|
222,554
|
|
|
$
|
425
|
|
|
$
|
230,533
|
|
|
There was a minimal change in Level 3 assets measured at fair value on a recurring basis for the
nine months ended September 30, 2010 and the year ended December 31, 2009. The investments carried
under Level 3 assumptions are carried at par value since all redemptions have been made at par
value and represent non-marketable securities.
The Company may also be required, from time to time, to measure certain other assets or liabilities
on a non-recurring basis in accordance with generally accepted accounting principles. Asset
adjustments to fair value usually result from application of lower-of-cost-or-market accounting or
write-downs of individual assets. There are no liabilities measured at fair value on a
non-recurring basis at September 30, 2010 or December 31, 2009. The following table summarizes the
fair value hierarchy used to determine each adjustment and the carrying value of the assets
measured at fair value on a non-recurring basis as of September 30, 2010 and December 31, 2009.
The losses represent the amount of losses recorded during 2010 on the assets held at September 30,
2010 and during 2009 on the assets held at December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
September 30, 2010
|
2010
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total Losses
|
|
Total Losses
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
Impaired loans
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,513
|
|
|
$
|
122
|
|
|
$
|
398
|
|
Other real estate owned
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,432
|
|
|
$
|
613
|
|
|
$
|
1,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
2009
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
Total Losses
|
|
|
(In thousands)
|
|
|
|
|
Impaired loans
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,781
|
|
|
|
|
|
|
$
|
415
|
|
|
Losses applicable to impaired loans that are collateral dependent are based on the appraised value
of the underlying collateral, discounted as necessary due to managements estimates of changes in
market conditions. The factors used to determine the fair value of such collateral include selling
prices of similar properties, expected future cash flows of the subject property and other economic
factors. These losses are recorded as a component in determining the overall adequacy of the
allowance for loan losses. Adjustments to the estimated fair value of impaired loans may result in
increases or decreases to the provision for loan losses.
5. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2009, the Financial Accounting Standards Board (FASB) amended its guidance surrounding the
accounting for transfers and servicing of financial assets and extinguishments of liabilities and
will now require more information about transfers of financial assets, including securitization
transactions, where entities have continuing exposure to the risks related to transferred financial
assets. This guidance eliminates the concept of a qualifying
11
special-purpose entity, changes the
requirements for derecognizing financial assets, and requires additional disclosures. The Company
adopted this new guidance on January 1, 2010, as required, and it did not have a material impact on
the Companys Consolidated Financial Statements.
In June 2009, the FASB amended its guidance on the consolidation of variable interest entities and
changed how a reporting entity determines when an entity that is insufficiently capitalized or is
not controlled through voting (or similar rights) should be consolidated. The determination of
whether a reporting entity is required to consolidate another entity is based on, among other
things, the other entitys purpose and design and the reporting entitys ability to direct the
activities of the other entity that most significantly impact the other entitys economic
performance. The Company adopted this new guidance on January 1, 2010, as required, and it did not
have a material impact on the Companys Consolidated Financial Statements.
In September 2009, the FASB amended its guidance on fair value measurements and disclosures
relating to investments in certain entities that calculate net asset value per share (or its
equivalent). This guidance permits a reporting entity to measure the fair value of certain
investments on the basis of the net asset value per share of the investment (or its equivalent).
This guidance also requires new disclosures, by major category of investments, about the attributes
of investments within the scope of this guidance. The Company adopted this new guidance on January
1, 2010, as required, and it did not have a material impact on the Companys Consolidated Financial
Statements.
In January 2010, the FASB amended its guidance on fair value measurements and disclosures. These
changes increase the disclosures about purchases, sales, issuances, and settlements in the roll
forward of activity in Level 3 fair value measurements.
In July 2010, the FASB issued an Accounting Standards Update,
Disclosures about the Credit Quality
of Financing Receivables and the Allowance for Credit Losses.
The objective of this Update is for
an entity to provide disclosures that facilitate financial statement users evaluation of (1) the
nature of credit risk inherent in the entitys portfolio of financing receivables (2) how that risk
is analyzed and assessed in arriving at the allowance for credit losses (3) the changes and reasons
for those changes in the allowance for credit losses. For public entities, the disclosures as of
the end of a reporting period are effective for interim and annual reporting periods ending on or
after December 15, 2010 and the disclosures about activity that occurs during a reporting period
are effective for interim and annual reporting periods beginning on or after December 15, 2010.
This update will significantly expand the Companys relevant disclosures in the Companys
Consolidated Financial Statements.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
In this report, the Company has made forward-looking statements (within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934 as
amended) that are subject to risks and uncertainties. Such forward-looking statements are
expressions of managements expectations as of the date of this report regarding future events or
trends which do not relate to historical matters. Such expectations may or may not be realized,
depending on a number of variable factors, including, but not limited to, changes in interest
rates, general economic conditions, including real estate conditions in the Banks lending areas,
regulatory considerations, competition and consummation of the merger with Peoples United
Financial, Inc. For more information about these factors, please see our 2009 Annual Report on
Form 10-K on file with the SEC, including the sections entitled Risk Factors and Managements
Discussion and Analysis of Financial Condition and Results of Operations and the section entitled
Risk Factors in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 on file
with the SEC. As a result of such risk factors and uncertainties, among others, the Companys
actual results may differ materially from such forward-looking statements. The Company does not
undertake and specifically disclaims any obligation to publicly release updates or revisions to any
such forward-looking statements as a result of new information, future events or otherwise.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company has not changed its significant accounting and reporting policies from those disclosed
in its 2009 Annual Report on Form 10-K. In applying these accounting policies, management is
required to exercise judgment in determining many of the methodologies, assumptions and estimates
to be utilized. As discussed in the
12
Companys 2009 Annual Report on Form 10-K, the three most
significant areas in which management applies critical assumptions and estimates that are
particularly susceptible to change relate to the determination of the allowance for loan losses,
income taxes and impairment of the investment portfolio. Managements estimates and assumptions
affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and
expenses for the period. Actual results could differ from the amount derived from managements
estimates and assumptions under different conditions.
EXECUTIVE LEVEL OVERVIEW
The Company recorded third quarter 2010 net income available to common shareholders of $1.1
million, or $0.25 per diluted common share, compared to $1.3 million, or $0.30 per diluted common
share, for the third quarter of 2009. The largest factors affecting the quarterly results were the
$518,000 improvement in net interest income, the increase in the provision for loan losses totaling
$750,000 and $400,000 in the third quarter of 2010 versus 2009, merger expenses of $475,000
incurred in 2010 relating to our pending acquisition by Peoples United partially offset by gains
on sales of investments totaling $688,000 and $572,000 in the third quarter of 2010 and 2009,
respectively, as well as the preferred stock dividend and accretion of $215,000 in the third
quarter of 2009.
On July 15, 2010, the Company entered into an Agreement and Plan of Merger with Peoples United
Financial, Inc. to acquire the Company in an all-cash transaction valued at $21.00 per share or
approximately $96 million. The completion of the merger is subject to customary conditions,
including the approval of the shareholders of LSB Corporation and the receipt of regulatory
approvals. The shareholders of LSB approved the Agreement and Plan of Merger at a special meeting
of shareholders held on October 27, 2010. Assuming satisfaction of the remaining conditions to
closing, including the receipt of regulatory approvals, completion of the merger is expected to
occur in the fourth quarter of 2010.
The Companys financial results are dependent on the following areas of the income statement: net
interest income, provision for loan losses, non-interest income, non-interest expense and provision
for income taxes. Net interest income is the Companys most significant source of revenue and is
the main focus of management. Net interest income is the difference between interest earned on
loans and investment securities and interest paid on deposits and borrowings. Managements efforts
in this area are to increase the corporate loan portfolio, which includes construction, commercial
real estate and commercial loans, and the residential loan portfolio. Managements efforts for
funding are to increase core deposit accounts, which are lower interest-bearing accounts and
include savings and money market accounts, and demand deposit accounts. Deposits and borrowings
typically have short durations and the costs of these funds do not necessarily rise and fall
concurrently with earnings from loans and investment securities. There are many risks involved in
managing net interest income including, but not limited to, credit risk,
interest rate risk and duration risk. These risks have a direct impact on the level of net
interest income. The Company manages these risks through its internal credit and underwriting
function and reviews these risks at meetings of the Asset and Liability Management Committee
(ALCO) on a regular basis. The credit review process reviews loans for underwriting and grading
of loan quality while ALCO reviews the liquidity, interest rate risk, duration risk and allocation
of capital resources. Loan quality has a direct impact on the amount of provisions for loan losses
the Company reports.
Non-interest income includes gains and losses on sales of investment securities, various fees and
increases in the cash surrender value of the Companys investment in Bank-Owned Life Insurance
(BOLI). Customers loan and deposit accounts generate various amounts of fee income depending on
the product selected. The Company receives fee income from servicing loans that were sold in
previous periods. Non-interest income is primarily impacted by the volume of customer
transactions, which could change in response to changes in interest rates, pricing and competition
as well as securities gains or losses.
Non-interest expenses include salaries and employee benefits, occupancy and equipment,
professional, data processing and other expenses of the Company, which generally are directly
related to business volume and are controlled by a budget process.
Income tax expense is directly related to earnings of the Company. Changes in the statutory tax
rates and the earnings of the Company, the Bank and its subsidiaries, as well as the mix of
earnings among the different entities, would also affect the amount of income tax expense reported
and the overall effective income tax rate recorded.
13
The Company believes that the most significant challenge in the current interest rate
environment is to increase net interest income while also maintaining competitive deposit rates.
The Companys net interest income for the nine months ended September 30, 2010 was $16.4 million, a
14.3% increase from $14.3 million for the comparable period in 2009, primarily due to sustained
loan growth. The results from the Companys continued emphasis on increasing loan originations
instead of purchasing lower-yielding investment securities favorably affected net interest income
during the nine months ended September 30, 2010.
FINANCIAL CONDITION
SUMMARY
The Company maintains its commitment to servicing the banking needs of the local community in the
Merrimack Valley area of northeastern Massachusetts and southern New Hampshire. The Company had
total assets of $780.4 million at September 30, 2010, compared to $816.6 million at December 31,
2009. The decrease in asset size at September 30, 2010 from December 31, 2009 reflected a measured
effort to reduce wholesale funding. The Company experienced local loan growth of $2.6 million, or
0.5%, from December 31, 2009.
Investments:
The investment securities portfolio totaled $171.0 million, or 21.9% of total assets, at September
30, 2010, a decrease of $59.6 million, or 25.8%, compared to $230.5 million, or 28.2% of total
assets at December 31, 2009.
During the first nine months of 2010, the Bank experienced cash inflows of $41.8 million from
principal payments and prepayments of investments, $23.3 million in calls and maturities, as well
as $42.3 million in proceeds from sales of investments. The funds were reinvested in investment
securities purchases totaling $44.9 million, funded new loan originations and paid down maturing
FHLBB advances. These purchases were primarily for use as collateral for wholesale repurchase
agreements, FHLBB short-term and long-term advances and customer repurchase agreements. The
Company intends to utilize future principal paydowns and maturities from the investment portfolio
to fund future loan growth.
Loans:
Total loans increased $2.6 million to $539.3 million and represented 69.1% of total assets at
September 30, 2010, versus $536.6 million and 65.7% of total assets, respectively, at December 31,
2009. Retail loans, comprised primarily of residential mortgage loans, increased $5.0 million
while corporate loans, comprised mainly of construction and commercial real estate loans, increased
$2.4 million during the same period. The increase is due to loan growth experienced in the
commercial business, commercial real estate and residential loan categories and reflects the
continued strategic preference toward loan originations rather than investment security purchases.
There has been continued demand from the Banks existing borrowers which is reflected in the
commercial business loans. During the first nine months of 2010, construction loans decreased $9.8
million due to sales of the underlying collateral in the portfolio and the transfer of $2.7 million
primarily from construction loans to OREO.
The following table reflects the loan portfolio at September 30, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
9/30/10
|
|
|
12/31/09
|
|
|
|
(In thousands)
|
|
Residential real estate
|
|
$
|
134,918
|
|
|
$
|
131,441
|
|
Home equity lines and second mortgages
|
|
|
28,493
|
|
|
|
27,003
|
|
Consumer
|
|
|
733
|
|
|
|
657
|
|
|
|
|
|
|
|
|
Retail loans
|
|
|
164,144
|
|
|
|
159,101
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
52,923
|
|
|
|
62,772
|
|
Commercial real estate
|
|
|
283,488
|
|
|
|
282,716
|
|
Commercial business
|
|
|
38,695
|
|
|
|
32030
|
|
|
|
|
|
|
|
|
Corporate loans
|
|
|
375,106
|
|
|
|
377,518
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
539,250
|
|
|
|
536,619
|
|
Allowance for loan losses
|
|
|
(7,075
|
)
|
|
|
(7,168
|
)
|
|
|
|
|
|
|
|
Net loans
|
|
$
|
532,175
|
|
|
$
|
529,451
|
|
|
|
|
|
|
|
|
14
Allowance For Loan Losses:
The following table summarizes changes in the allowance for loan losses for the three and nine
months ended September 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
9/30/10
|
|
|
9/30/09
|
|
|
9/30/10
|
|
|
9/30/09
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Beginning balance
|
|
$
|
7,467
|
|
|
$
|
6,399
|
|
|
$
|
7,168
|
|
|
$
|
5,885
|
|
Provision for loan losses
|
|
|
750
|
|
|
|
400
|
|
|
|
2,150
|
|
|
|
1,100
|
|
Recoveries on loans previously charged-off
|
|
|
46
|
|
|
|
1
|
|
|
|
51
|
|
|
|
3
|
|
Loans charged-off
|
|
|
(1,188
|
)
|
|
|
(164
|
)
|
|
|
(2,294
|
)
|
|
|
(352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
7,075
|
|
|
$
|
6,636
|
|
|
$
|
7,075
|
|
|
$
|
6,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized net charge-offs to average
loans outstanding
|
|
|
0.84
|
%
|
|
|
0.13
|
%
|
|
|
0.55
|
%
|
|
|
0.10
|
%
|
Allowance for loan losses to total
loans at end of period
|
|
|
1.31
|
%
|
|
|
1.28
|
%
|
|
|
1.31
|
%
|
|
|
1.28
|
%
|
The allowance for loan losses totaled $7.1 million at September 30, 2010 compared to $7.2 million
and $6.6 million, respectively, at December 31, 2009 and September 30, 2009. The coverage of the
allowance for loan losses decreased slightly to 1.31% at September 30, 2010 from 1.34% at December
31, 2009 and increased from 1.28% at September 30, 2009. The Company recorded charge-offs of $1.3
million in the first nine months of 2010 on one commercial construction loan that was foreclosed in
July 2010 and the remaining balance of $1.0 million was transferred into other real estate owned
(OREO) at that time. The Company believes that asset quality remains high, as evidenced by the
relatively low levels of non-performing and delinquent loans as a percentage of total loans and
OREO or total assets as defined below. See Risk Assets below. The higher level of loan
charge-offs offset by the low levels of delinquent loans and sustained asset quality of the loan
portfolio contributed to the assessment of the allowance for loan losses and resulted in the
decrease in the allowance for loan loss coverage as a percentage of total loans from December 31,
2009 to September 30, 2010. The Company has not engaged in any subprime lending, which it views as
one-to-four-family residential loans to a borrower with a credit score below 620 on a scale that
ranges from 300 to 850.
The Company considers the current level of the allowance for loan losses to be appropriate and
adequate. The amount of the allowance for loan losses reflects managements assessment of
estimated credit quality and is based on a review of the risk characteristics of the loan
portfolio. The Company considers many factors in determining the adequacy of the allowance for
loan losses. Collateral values on a loan by loan basis, trends of loan delinquencies on a
portfolio segment level, risk classification identified in the Companys regular review of
individual loans, and economic conditions are primary factors in establishing allowance levels.
Management believes the allowance level is adequate to absorb the estimated credit losses inherent
in the loan portfolio.
Risk Assets:
Risk assets consist of non-performing loans and OREO. Non-performing loans consist of both loans
that are 90 days or more past due and loans that are placed on non-accrual because full collection
of the principal balance and interest is in doubt. OREO is comprised of foreclosed properties
where the Company has formally received title or has possession of the collateral and is carried at
the estimated fair value of the property, less selling costs.
Total risk assets were $6.7 million at September 30, 2010, compared to $6.0 million at December 31,
2009 and $3.7 million as of September 30, 2009. As evidenced by the table below, the economy has
had an impact on the level of non-performing loans and on residential and commercial real estate
non-performing loans in particular. The Bank expects the commercial business non-performing loans
totaling $437,000 will be partially protected by a guaranty by the SBA in the amount of $387,000.
Impaired loans consist of commercial and commercial real estate loans and individually significant
residential mortgage loans for which management believes it is probable that the Company will not
be able to collect all
15
amounts due according to the contractual terms of the loan agreement. Impaired loans totaled $8.5
million and $7.3 million at September 30, 2010 and December 31, 2009, respectively, with specific
reserves of $117,000 and $415,000, respectively. Of the $8.5 million in impaired loans, $1.6
million represent modifications on residential, owner-occupied properties at September 30, 2010.
Additionally, one construction loan for residential condominiums with a balance of $1.3 million and
four commercial rentals from the same project with an aggregate balance of $1.3 million were
modified at a lower interest rate as the project experienced a slow down in sales activity during
the winter months of 2009. This construction loan and related rental units totaled $2.6 million at
September 30, 2010, down from a combined balance of $4.9 million in December 2009 and $4.1 million
as of June 30, 2010, are included in the accruing loan portfolio. The Company does not have
collateral concerns and the loans remained current on their respective payment status. The
remaining impaired loans are reported as nonaccrual loans in the table below in their respective
loan category. All of the impaired loans at September 30, 2010, have been measured using either
the fair value of the collateral method or the estimated cash flow method. The Company had
impaired loans totaling $4.6 million at September 30, 2009, with specific reserves of $50,000.
The following table summarizes the Companys risk assets at September 30, 2010, December 31, 2009
and September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/30/10
|
|
|
12/31/09
|
|
|
9/30/09
|
|
|
|
(Dollars in thousands)
|
|
Non-performing loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$
|
1,247
|
|
|
$
|
1,211
|
|
|
$
|
986
|
|
Construction and land development
|
|
|
285
|
|
|
|
2,527
|
|
|
|
350
|
|
Commercial real estate
|
|
|
2,285
|
|
|
|
1,528
|
|
|
|
1,478
|
|
Commercial business
|
|
|
437
|
|
|
|
683
|
|
|
|
668
|
|
Equity
|
|
|
39
|
|
|
|
54
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans
|
|
|
4,293
|
|
|
|
6,003
|
|
|
|
3,548
|
|
Other real estate owned
|
|
|
2,432
|
|
|
|
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
Total risk assets
|
|
$
|
6,725
|
|
|
$
|
6,003
|
|
|
$
|
3,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured loans accruing
|
|
$
|
5,385
|
|
|
$
|
2,634
|
|
|
$
|
2,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk assets as a percent of total loans and OREO
|
|
|
1.24
|
%
|
|
|
1.12
|
%
|
|
|
0.71
|
%
|
|
|
|
|
|
|
|
|
|
|
Risk assets as a percent of total assets
|
|
|
0.86
|
%
|
|
|
0.74
|
%
|
|
|
0.45
|
%
|
|
|
|
|
|
|
|
|
|
|
Deposits:
Deposits decreased by $17.7 million during the first nine months of 2010 to $475.1 million at
September 30, 2010, from $492.8 million at December 31, 2009. Core deposits, consisting of NOW
accounts, demand deposit accounts, savings accounts and money market accounts, increased $10.3
million, or 4.1%, amounting to $262.7 million at September 30, 2010, compared to $252.4 million at
December 31, 2009. Savings accounts experienced an increase of $10.3 million from December 31,
2009, to $101.0 million at September 30, 2010, primarily due to higher-rate promotional accounts.
NOW and demand deposit accounts increased $4.3 million and $4.1 million, respectively, from
December 31, 2009, to $25.0 million and $38.5 million, respectively, at September 30, 2010. Money
market accounts decreased $8.5 million to $98.2 million at September 30, 2010. Term deposits,
comprised of brokered and retail certificates of deposit, decreased $27.9 million, or 11.6%,
totaling $212.5 million at September 30, 2010, versus $240.4 million at December 31, 2009. Retail
certificates of deposit decreased $13.6 million to $197.5 million at September 30, 2010, while
brokered certificates of deposit decreased $14.4 million to $15.0 million at September 30, 2010.
The decrease in brokered deposits reflects maturities of $14.4 million.
Due to the recent turmoil in the financial markets, the Bank has seen an inflow of core deposits as
evidenced by the 4.1% growth in core deposits during the first nine months of 2010. However, the
Company continues to face strong competition for deposits which will impact the rate of growth of
deposits for the foreseeable future.
16
The following table reflects the components of the deposit portfolio at September 30, 2010 and
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
9/30/10
|
|
|
12/31/09
|
|
|
|
(In thousands)
|
|
NOW accounts
|
|
$
|
24,995
|
|
|
$
|
20,739
|
|
Demand deposit accounts
|
|
|
38,516
|
|
|
|
34,368
|
|
Savings accounts
|
|
|
100,984
|
|
|
|
90,642
|
|
Money market accounts
|
|
|
98,188
|
|
|
|
106,640
|
|
|
|
|
|
|
|
|
Core deposits
|
|
|
262,683
|
|
|
|
252,389
|
|
|
|
|
|
|
|
|
Brokered certificates of deposit
|
|
|
14,950
|
|
|
|
29,344
|
|
Retail certificates of deposit
|
|
|
197,510
|
|
|
|
211,061
|
|
|
|
|
|
|
|
|
Term deposits
|
|
|
212,460
|
|
|
|
240,405
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
475,143
|
|
|
$
|
492,794
|
|
|
|
|
|
|
|
|
Borrowed Funds:
Borrowed funds consist of long-term Federal Home Loan Bank of Boston (FHLBB) advances, securities
sold under agreements to repurchase and subordinated debt. Total borrowed funds amounted to $235.6
million at September 30, 2010, compared to $259.1 million at December 31, 2009, a decrease of $23.5
million or 9.1%. Short-term borrowings increased $619,000 from December 31, 2009, while long-term
FHLBB borrowed funds decreased $24.1 million due to maturing advances totaling $28.0 million and
$5.0 million in prepayments. Wholesale repurchase agreements remained stable at $40.0 million at
both September 30, 2010 and December 31, 2009. In October 2009, the Bank entered into a
subordinated debt agreement for $6.0 million on an unsecured basis with a final maturity in October
2016. The subordinated agreement calls for a fixed interest rate of 8.5% and equal annual
principal payments of $1.2 million commencing on the third anniversary of the agreement. The
entire amount of the subordinated debt was included as part of the Banks Tier 2 capital for
regulatory purposes at both September 30, 2010 and December 31, 2009. The Company reduced its
borrowing position with a view toward lessening the Companys exposure to rate fluctuations that
may occur in the coming year.
The following table reflects the components of borrowings at September 30, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
9/30/10
|
|
|
12/31/09
|
|
|
|
(In thousands)
|
|
Long-term borrowed funds:
|
|
|
|
|
|
|
|
|
FHLBB long-term advances
|
|
$
|
181,847
|
|
|
$
|
205,971
|
|
Subordinated debt
|
|
|
6,000
|
|
|
|
6,000
|
|
Wholesale repurchase agreements
|
|
|
40,000
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
227,847
|
|
|
|
251,971
|
|
|
|
|
|
|
|
|
Short-term borrowed funds:
|
|
|
|
|
|
|
|
|
Customer repurchase agreements
|
|
|
7,730
|
|
|
|
7,111
|
|
|
|
|
|
|
|
|
|
|
|
7,730
|
|
|
|
7,111
|
|
|
|
|
|
|
|
|
Total borrowed funds
|
|
$
|
235,577
|
|
|
$
|
259,082
|
|
|
|
|
|
|
|
|
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2010 and 2009
SUMMARY
The Company reported net income available to common shareholders of $1.1 million, or $0.25 per
diluted common share, as compared to $1.3 million, or $0.30 per diluted common share, for the three
months ended September 30, 2010 and 2009, respectively. The largest factors affecting net income
were an improvement of $518,000 in the net interest income and an increase in the gains on sales of
investments amounting to $116,000 in the third quarter of 2010 as compared to the third quarter of
2009, as well as the preferred stock dividend and accretion of $215,000 in the third quarter of
2009 not incurred in 2010. Offsetting the impact of these gains were an increased loan loss
17
provision from the third quarter of 2009 of $350,000 and merger expenses relating to our pending
acquisition by Peoples United totaling $475,000 incurred in 2010.
Net Interest Income:
Net interest income for the three months ended September 30, 2010 increased by $518,000, or 10.3%,
to $5.6 million from $5.0 million for the same period of 2009. The net interest rate spread
increased to 2.66% for the three months ended September 30, 2010 versus 2.26% for the same period
of 2009. Interest and dividend income for the three months ended September 30, 2010 decreased
$482,000, or 4.7%, primarily due to a decline in investment security rates and average balances
compared to the same period of 2009. Interest expense decreased $1.0 million or 19.1% to $4.2
million from $5.2 million during the three months ended September 30, 2010, versus 2009,
respectively, primarily due to a decrease in average deposit rates. Net interest margin increased
to 2.90% versus 2.59% for the quarters ended September 30, 2010 and 2009, respectively.
Interest and Dividend Income:
Interest and dividend income decreased $482,000, or 4.7%, during the third quarter of 2010 versus
the same quarter in 2009, primarily due to a decline in investment security rates and average
balances, which was partially offset by a rise in average loan balances.
Interest income on loans for the three months ended September 30, 2010 increased $459,000, or 6.2%,
from the same period of 2009. Average loan interest rates decreased 3 basis points from 5.83% to
5.80% during the third quarter of 2010 as compared to the same quarter of 2009, resulting in a
decrease of $60,000 to interest income. Average loan balances rose $34.3 million, or 6.7%, from
$507.8 million in 2009 to $542.1 million in 2010, contributing $519,000 to interest income.
Interest income on investment securities for the three months ended September 30, 2010 decreased
$941,000, or 33.5%, from the same period in 2009. Average investment security interest rates
decreased 85 basis points during the third quarter of 2010, from 4.22% in 2009 to 3.37% in 2010,
resulting in a decrease of $396,000 to interest income. Average investment security balances
declined $44.0 million, or 16.7%, from $263.6 million in 2009 to $219.6 million in 2010, resulting
in a decrease of $545,000 to interest income.
Interest Expense:
Interest expense decreased $1.0 million during the third quarter of 2010, from $5.2 million in the
third quarter of 2009 to $4.2 million in the third quarter of 2010, primarily due to the decline in
average deposit rates coupled with a decrease in average borrowed funds balances.
Interest expense on deposits for the three months ended September 30, 2010 decreased $673,000, or
26.9%, from the same period in 2009. Average deposit interest rates decreased 70 basis points,
from 2.31% to 1.61% in the third quarter of 2010 as compared to the same quarter of 2009,
decreasing interest expense by $588,000. Average interest-bearing deposit balances increased by
$21.1 million, or 4.9%, from $429.5 million in 2009 to $450.6 million in 2010, accompanied by a
change in the mix resulting in a decrease in higher rate certificates of deposit accounts which
decreased interest expense by $85,000.
Interest expense on borrowed funds for the three months ended September 30, 2010 decreased
$327,000, or 12.0%, from the same period in 2009. Average interest rates on borrowed funds
declined 18 basis points from 4.22% in the third quarter of 2009 to 4.04% in the same quarter of
2010 reducing interest expense by $90,000. Average borrowed funds balances decreased $20.7
million, or 8.1%, from $256.1 million in 2009 to $235.4 million in 2010. This decrease resulted in
a decline in interest expense of $237,000 due primarily to maturities and prepayments of longer
term borrowed funds.
Provision for Loan Losses:
The provision for loan losses totaled $750,000 and $400,000 for the three months ended September
30, 2010 and 2009, respectively. The provisions in 2010 and 2009 reflect managements analysis of
loan growth and changes in
18
risk during the third quarters of 2010 and 2009 with the highest levels of growth coming from the
commercial real estate, commercial business and residential loan portfolios in 2010 and from the
commercial real estate and residential loan portfolios in 2009. The increase in the provision for
loan losses was due to the increase in loan charge-offs in the third quarter of 2010. See Risk
Assets for additional information. The balance of the allowance for loan losses totaled $7.1
million at September 30, 2010, as compared to $7.2 million at December 31, 2009, and $6.6 million
at September 30, 2009.
Non-Interest Income:
Non-interest income increased $166,000 or 15.1% for the three months ended September 30, 2010,
compared to the same period in 2009, to $1.3 million in 2010 compared to income of $1.1 million in
2009. The largest factor in the increase in 2010 was the increase in gains on sales of securities
which increased $116,000 to $688,000 from $572,000 in the third quarter of 2010 versus 2009,
respectively. Deposit account fees decreased slightly to $249,000 from $253,000 for the three
months ended September 30, 2010 and 2009, respectively. Loan servicing fees increased by $42,000
to $76,000 from $34,000 for the three months ended September 30, 2010 and 2009, respectively, due
to the increase in late, prepayment document and modification fees on loans and the absence of
amortization of serviced loan fees. Income on bank-owned life insurance remained stable at
$116,000 for the three months ended September 30, 2010 from $115,000 for the same period in 2009.
Other income increased $11,000 or 9.0% to $133,000 from $122,000 for the three months ended
September 30, 2010 and 2009, respectively, due to an increase in ATM and debit card fees.
Non-Interest Expense:
Non-interest expenses increased $958,000, or 29.3%, during the third quarter of 2010 to $4.2
million versus $3.3 million for the same period of 2009 primarily resulting from merger expenses of
$475,000 incurred in 2010 related to our pending acquisition by Peoples United and an increase in
salaries and benefits of $454,000, or 27.6%, to $2.1 million from $1.6 million in the third quarter
of 2010 and 2009, respectively, due primarily to increases in bonuses, medical and dental insurance
coupled with a reduction in deferred salaries resulting from fewer loan closings in 2010.
Occupancy and equipment expense increased $65,000, or 18.2%, to $422,000 in the third quarter of
2010 from $357,000 in the same period of 2009 due mainly to an increase in depreciation due to the
opening of the newly relocated Lawrence and Methuen, Massachusetts branches coupled with
depreciation of obsolete equipment amounting to $17,000 and an increase in rent expense of $23,000.
Data processing expense decreased $21,000, or 9.2%, to $207,000 from $228,000 in the third
quarters of 2010 and 2009, respectively, due primarily to a decrease of $19,000 in computer
software and license fees. Professional fees decreased $42,000, or 37.2%, to $71,000 in the third
quarter of 2010 from $113,000 in the third quarter of 2009 due primarily to a decrease in audit
fees resulting from the Companys exemption from the Sarbanes-Oxley reporting requirements.
Marketing expenses decreased $49,000, or 42.2%, to $67,000 from $116,000 in 2010 and 2009,
respectively, due primarily to a reduction in direct mail expenses. OREO expense totaled $184,000
in the three months ended September 30, 2010 compared to $4,000 in the same period of 2009
primarily due to several years of unpaid real estate taxes on foreclosed properties. FDIC deposit
insurance premiums decreased $61,000, or 23.3%, to $201,000 from $262,000 for the quarters ended
September 30, 2010 and 2009, respectively due to the absence of a special assessment in 2010.
Other expenses decreased $43,000, or 7.9%, to $501,000 in the third quarter of 2010 from $544,000
in the same period of 2009 due primarily to a decrease in loan workout expenses associated with one
nonaccrual loan coupled with a decrease in expenses associated with a third party debit card fraud
incurred in 2009 and a decrease in directors fees.
Income Taxes:
The Company reported an income tax expense of $708,000 for the three months ended September 30,
2010 for an effective income tax rate of 38.3%. This compares to an income tax expense of $910,000
for the three months ended September 30, 2009 for an effective income tax rate of 36.8%. The
increase in the effective tax rate in the third quarter of 2010 was due primarily to
non-deductibility of the merger expenses incurred in the third quarter of 2010. Subsidiaries
within the consolidated group pay various state income tax rates, the mix of taxable earnings
within the group can change and, beginning in 2010, the taxable losses of one subsidiary can be
used to offset taxable income in another subsidiary in the consolidated group.
19
The following table presents the Companys average balance sheet, net interest income and average
interest rates for the three months ended September 30, 2010 and 2009. Average loans include
non-performing loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Three months ended
|
|
|
|
9/30/10
|
|
|
9/30/09
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
|
|
|
Interest
|
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
|
|
(Dollars in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
13,260
|
|
|
$
|
8
|
|
|
|
0.24
|
%
|
|
$
|
18,057
|
|
|
$
|
11
|
|
|
|
0.24
|
%
|
U. S. Treasury and government-
sponsored enterprise obligations
|
|
|
44,634
|
|
|
|
219
|
|
|
|
1.95
|
|
|
|
26,640
|
|
|
|
148
|
|
|
|
2.20
|
|
Other bonds and equity securities
|
|
|
15,225
|
|
|
|
57
|
|
|
|
1.49
|
|
|
|
18,983
|
|
|
|
107
|
|
|
|
2.24
|
|
Collateralized mortgage
obligations and mortgage-
backed securities
|
|
|
146,499
|
|
|
|
1,581
|
|
|
|
4.28
|
|
|
|
199,933
|
|
|
|
2,540
|
|
|
|
5.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
219,618
|
|
|
|
1,865
|
|
|
|
3.37
|
|
|
|
263,613
|
|
|
|
2,806
|
|
|
|
4.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
|
134,280
|
|
|
|
1,716
|
|
|
|
5.07
|
|
|
|
127,655
|
|
|
|
1,735
|
|
|
|
5.39
|
|
Home equity
|
|
|
28,634
|
|
|
|
278
|
|
|
|
3.85
|
|
|
|
25,611
|
|
|
|
257
|
|
|
|
3.98
|
|
Consumer
|
|
|
827
|
|
|
|
16
|
|
|
|
7.68
|
|
|
|
636
|
|
|
|
11
|
|
|
|
6.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total retail loans
|
|
|
163,741
|
|
|
|
2,010
|
|
|
|
4.87
|
|
|
|
153,902
|
|
|
|
2,003
|
|
|
|
5.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land
|
|
|
53,159
|
|
|
|
783
|
|
|
|
5.84
|
|
|
|
79,821
|
|
|
|
1,170
|
|
|
|
5.82
|
|
Commercial real estate
|
|
|
284,719
|
|
|
|
4,568
|
|
|
|
6.37
|
|
|
|
244,662
|
|
|
|
3,937
|
|
|
|
6.38
|
|
Commercial
|
|
|
40,437
|
|
|
|
560
|
|
|
|
5.49
|
|
|
|
29,407
|
|
|
|
352
|
|
|
|
4.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate loans
|
|
|
378,315
|
|
|
|
5,911
|
|
|
|
6.20
|
|
|
|
353,890
|
|
|
|
5,459
|
|
|
|
6.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
542,056
|
|
|
|
7,921
|
|
|
|
5.80
|
|
|
|
507,792
|
|
|
|
7,462
|
|
|
|
5.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
761 674
|
|
|
|
9,786
|
|
|
|
5.10
|
%
|
|
|
771,405
|
|
|
|
10,268
|
|
|
|
5.28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(7,491
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,454
|
)
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
37,014
|
|
|
|
|
|
|
|
|
|
|
|
30,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
791,197
|
|
|
|
|
|
|
|
|
|
|
$
|
795,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts
|
|
$
|
24,306
|
|
|
$
|
24
|
|
|
|
0.39
|
%
|
|
$
|
18,482
|
|
|
$
|
9
|
|
|
|
0.19
|
%
|
Regular savings accounts
|
|
|
100,550
|
|
|
|
215
|
|
|
|
0.85
|
|
|
|
80,411
|
|
|
|
244
|
|
|
|
1.20
|
|
Money market accounts
|
|
|
108,997
|
|
|
|
279
|
|
|
|
1.02
|
|
|
|
86,088
|
|
|
|
277
|
|
|
|
1.28
|
|
Certificates of deposit
and escrow
|
|
|
216,748
|
|
|
|
1,310
|
|
|
|
2.40
|
|
|
|
244,543
|
|
|
|
1,971
|
|
|
|
3.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
450,601
|
|
|
|
1,828
|
|
|
|
1.61
|
|
|
|
429,524
|
|
|
|
2,501
|
|
|
|
2.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowed funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term borrowed funds
|
|
|
227,861
|
|
|
|
2,394
|
|
|
|
4.17
|
|
|
|
250,309
|
|
|
|
2,721
|
|
|
|
4.31
|
|
Short-term borrowed funds
|
|
|
7,571
|
|
|
|
4
|
|
|
|
0.21
|
|
|
|
5,819
|
|
|
|
4
|
|
|
|
0.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowed funds
|
|
|
235,432
|
|
|
|
2,398
|
|
|
|
4.04
|
|
|
|
256,128
|
|
|
|
2,725
|
|
|
|
4.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
686,033
|
|
|
|
4,226
|
|
|
|
2.44
|
%
|
|
|
685,652
|
|
|
|
5,226
|
|
|
|
3.02
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing deposits
|
|
|
37,640
|
|
|
|
|
|
|
|
|
|
|
|
32,383
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
3,437
|
|
|
|
|
|
|
|
|
|
|
|
3,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
727,110
|
|
|
|
|
|
|
|
|
|
|
|
721,246
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
64,087
|
|
|
|
|
|
|
|
|
|
|
|
74,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
791,197
|
|
|
|
|
|
|
|
|
|
|
$
|
795,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread
|
|
|
|
|
|
|
|
|
|
|
2.66
|
%
|
|
|
|
|
|
|
|
|
|
|
2.26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
5,560
|
|
|
|
|
|
|
|
|
|
|
$
|
5,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin on average earning assets
|
|
|
|
|
|
|
|
|
|
|
2.90
|
%
|
|
|
|
|
|
|
|
|
|
|
2.59
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
SUMMARY
The Company reported net income available to common shareholders of $4.3 million, or $0.95 per
diluted common share, as compared to a net income of $3.0 million, or $0.66 per diluted common
share, for the nine months ended September 30, 2010 and 2009, respectively. The largest factors in
2010s year-to-date results were the increase in net interest income of $2.1 million, the increase
in the gains on sales of investments totaling $1.0 million, a decrease of $410,000 in FDIC deposit
insurance due to the special deposit assessment of $370,000 incurred in the first nine months of
2009, partially offset by an increase in the provision for loan losses of $1.0 million compared to
the nine months ended 2009 and merger expenses of $475,000 relating to our pending acquisition by
Peoples United incurred in 2010.
Net Interest Income:
Net interest income for the nine months ended September 30, 2010 increased by $2.1 million, or
14.3%, to $16.4 million from $14.3 million for the same period of 2009. The net interest rate
spread increased to 2.59% for the nine months ended September 30, 2010 versus 2.19% for the same
period of 2009. Interest income for the nine months ended September 30, 2010 decreased $542,000
primarily due to a decline in investment security average volumes and interest rates compared to
the same period of 2009. Interest expense decreased by $2.6 million, or 16.2%, to $13.5 million in
2010 from $16.1 million in 2009, primarily due to a decrease in average deposit rates. Net
interest margin increased to 2.83% versus 2.53% for the nine months ended September 30, 2010 and
2009, respectively.
Interest and Dividend Income:
Interest and dividend income decreased $542,000, or 1.8%, during the first nine months of 2010
versus the same period in 2009, primarily due to a decline in average investment security volumes
and interest rates.
Average loan interest rates decreased 3 basis points from 5.83% to 5.80% during the first nine
months of 2010 as compared to the same period of 2009, resulting in a decrease of $168,000 to
interest income. Average loan balances rose $55.0 million, or 11.3%, from $486.8 million in 2009
to $541.8 million in 2010, contributing $2.4 million to interest income.
Average investment security interest rates decreased 90 basis points during the first nine months
of 2010, from 4.54% in 2009 to 3.64% in 2010, resulting in a decrease of $1.3 million to interest
income. Average investment security balances declined $36.5 million, from $270.4 million in 2009
to $233.9 million in 2010, resulting in a decrease of $1.5 million to interest income.
Interest Expense:
Interest expense decreased $2.6 million, or 16.2%, during the first nine months of 2010, from $16.1
million in 2009 to $13.5 million in the same period of 2010, primarily due to the decline in
deposit interest rates coupled with a decrease in average borrowed funds volumes.
Average deposit interest rates decreased 78 basis points, from 2.52% to 1.74% in the first nine
months of 2010 as compared to the same period of 2009, decreasing interest expense by $1.9 million.
Average interest-bearing deposit balances increased by $50.3 million, or 12.2%, from $410.8
million in 2009 to $461.1 million in 2010, accompanied by a change in the mix due to maturities of
higher brokered and term certificates of deposit accounts, which increased interest expense by
$140,000.
Average borrowed funds interest rates decreased 10 basis points from 4.21% in the first nine months
of 2009 to 4.11% in the same period of 2010, resulting in a decrease of $236,000 to interest
expense. Average borrowed funds balances declined $22.5 million, or 8.5%, from $264.3 million in
2009 to $241.8 million in 2010. This decrease resulted in a decline in interest expense of
$636,000 due primarily to a decrease in longer term borrowed funds.
21
Provision for Loan Losses:
The provision for loan losses totaled $2.2 million and $1.1 million for the nine months ended
September 30, 2010 and 2009, respectively. The provisions in 2010 and 2009 reflect managements
analysis of loan growth and changes in risk during the first nine months of 2010 and 2009 with the
highest levels of growth coming from the commercial real estate and residential loan portfolio.
The increase in the provision for loan losses was due to an increase in the level of loan
charge-offs in the first nine months of 2010, including one commercial construction loan
relationship currently included in other real estate owned at September 30, 2010, with total
charge-offs of $1.2 million. The balance of the allowance for loan losses grew to $7.1 million at
September 30, 2010, from $6.6 million at September 30, 2009.
Non-Interest Income:
Non-interest income increased $991,000, or 38.1%, for the nine months ended September 30, 2010 to
$3.6 million in 2010 versus $2.6 million in 2009. The largest factor in 2010 was the increase in
the gains on sales of investments of $1.0 million, or 100.4%, to $2.1 million in the nine months
ended September 30, 2010 compared to $1.0 million in 2009. Deposit account fees remained stable at
$710,000 for the nine months ended September 30, 2010 and 2009, respectively. Loan servicing fees
increased by $77,000, or 51.3%, to $227,000 from $150,000 for the nine months ended September 30,
2010 and 2009, respectively, due to increased commercial loan prepayments received and the absence
of amortization of serviced loan fees. Income on bank-owned life insurance decreased $18,000 to
$346,000 for the nine months ended September 30, 2010 from $364,000 for the same period in 2009.
Other income increased to $47,000, or 13.5%, to $394,000 from $347,000 for the nine months ended
September 30, 2010 and 2009, respectively, primarily due to an increase in ATM and debit card fees.
Non-Interest Expense:
Non-interest expenses increased by $950,000, or 9.3%, to $11.3 million from $10.3 million during
the first nine months of 2010 versus the same period of 2009. Salary and employee benefits
increased $829,000, or 16.5%, to $5.8 million for the nine months ended September 30, 2010, due to
an increase in head count and accrued bonuses, increased medical and dental insurance costs, and a
reduction in deferred salaries due to fewer loan closings in 2010. Occupancy and equipment expense
increased $287,000, or 26.6%, to $1.4 million in the first nine months of 2010 from $1.1 million in
the same period of 2009 due to an increase in depreciation resulting from the opening of the
relocated branches in Lawrence and Methuen, Massachusetts, coupled with depreciation on obsolete
equipment, an increase in rent expense and equipment purchases. Data processing expense increased
$39,000, or 5.6% to $741,000 in the first nine months of 2010, primarily due to an increase in
software license fees. Professional fees decreased $138,000, or 30.7%, to $312,000 in the first
nine months of 2010 from $450,000 in the first nine months of 2009 due primarily to a decrease in
legal and audit fees. Marketing expenses decreased $67,000, or 17.9%, to $307,000 in the first
nine months of 2010 from $374,000 for the comparable period of 2009 primarily due to decreased
marketing campaigns in 2010 versus 2009 which included the opening of the Derry, New Hampshire
branch in 2009. OREO expense totaled $199,000 in the nine months ended September 30, 2010 compared
to $6,000 in 2009. FDIC deposit insurance decreased $410,000, or 40.1%, to $612,000 from $1.0
million in the nine months ended 2010 compared to the nine months of 2009 due to the absence of a
special assessment in 2010. Merger expenses of $475,000 have been incurred in 2010 relating to the
pending acquisition by Peoples United. Other expenses decreased $250,000, or 14.7%, to $1.5
million in the first nine months of 2010 from $1.7 million in the same period of 2009 due primarily
to a decrease in loan workout expenses associated with one nonaccrual loan.
Income Taxes:
The Company reported an income tax expense of $2.3 million for the nine months ended September 30,
2010 for an effective income tax rate of 34.5%. This compares to an income tax expense of $1.9
million for the nine months ended September 30, 2009 for an effective income tax rate of 34.8%.
The modest decrease in the effective tax rate in the first nine months of 2010 resulted primarily
due to the reversal of a previously recorded state tax valuation reserve on the Fannie Mae and
Freddie Mac preferred stock holdings recognized in the first quarter
of 2010. The reduction in tax expense was offset by an increase in
effective tax rate due to the non-deductibility of the merger expenses incurred in 2010.
Notwithstanding the reversal of the valuation reserve, the effective tax rate would have been
38.9%.
22
The following table presents the Companys average balance sheet, net interest income and average
interest rates for the nine months ended September 30, 2010 and 2009. Average loans include
non-performing loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
Nine months ended
|
|
|
|
9/30/10
|
|
|
9/30/09
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
|
|
|
Interest
|
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
12,018
|
|
|
$
|
22
|
|
|
|
0.24
|
%
|
|
$
|
14,715
|
|
|
$
|
22
|
|
|
|
0.20
|
%
|
U. S. Treasury and government-
sponsored enterprise obligations
|
|
|
43,423
|
|
|
|
675
|
|
|
|
2.08
|
|
|
|
23,153
|
|
|
|
519
|
|
|
|
3.00
|
|
Corporate and other
investment securities
|
|
|
15,836
|
|
|
|
184
|
|
|
|
1.55
|
|
|
|
19,456
|
|
|
|
360
|
|
|
|
2.47
|
|
Collateralized mortgage
obligations and mortgage-backed securities
|
|
|
162,607
|
|
|
|
5,488
|
|
|
|
4.51
|
|
|
|
213,031
|
|
|
|
8,283
|
|
|
|
5.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
233,884
|
|
|
|
6,369
|
|
|
|
3.64
|
|
|
|
270,355
|
|
|
|
9,184
|
|
|
|
4.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
|
133,629
|
|
|
|
5,256
|
|
|
|
5.26
|
|
|
|
122,118
|
|
|
|
5,029
|
|
|
|
5.51
|
|
Home equity
|
|
|
27,984
|
|
|
|
805
|
|
|
|
3.85
|
|
|
|
24,661
|
|
|
|
754
|
|
|
|
4.09
|
|
Consumer
|
|
|
721
|
|
|
|
33
|
|
|
|
6.12
|
|
|
|
683
|
|
|
|
35
|
|
|
|
6.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total retail loans
|
|
|
162,334
|
|
|
|
6,094
|
|
|
|
5.02
|
|
|
|
147,462
|
|
|
|
5,818
|
|
|
|
5.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land
|
|
|
58,034
|
|
|
|
2,451
|
|
|
|
5.65
|
|
|
|
66,769
|
|
|
|
2,759
|
|
|
|
5.52
|
|
Commercial real estate
|
|
|
283,579
|
|
|
|
13,444
|
|
|
|
6.34
|
|
|
|
242,157
|
|
|
|
11,545
|
|
|
|
6.37
|
|
Commercial
|
|
|
37,865
|
|
|
|
1,500
|
|
|
|
5.30
|
|
|
|
30,447
|
|
|
|
1,094
|
|
|
|
4.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate loans
|
|
|
379,478
|
|
|
|
17,395
|
|
|
|
6.13
|
|
|
|
339,373
|
|
|
|
15,398
|
|
|
|
6.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
541,812
|
|
|
|
23,489
|
|
|
|
5.80
|
|
|
|
486,835
|
|
|
|
21,216
|
|
|
|
5.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
775,696
|
|
|
|
29,858
|
|
|
|
5.15
|
%
|
|
|
757,190
|
|
|
|
30,400
|
|
|
|
5.37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(7,437
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,219
|
)
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
36,350
|
|
|
|
|
|
|
|
|
|
|
|
30,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
804,609
|
|
|
|
|
|
|
|
|
|
|
$
|
781,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW and super NOW accounts
|
|
$
|
23,174
|
|
|
$
|
66
|
|
|
|
0.38
|
%
|
|
$
|
18,419
|
|
|
$
|
27
|
|
|
|
0.20
|
%
|
Regular savings accounts
|
|
|
99,473
|
|
|
|
689
|
|
|
|
0.93
|
|
|
|
69,294
|
|
|
|
685
|
|
|
|
1.32
|
|
Money market accounts
|
|
|
113,727
|
|
|
|
941
|
|
|
|
1.11
|
|
|
|
80,245
|
|
|
|
911
|
|
|
|
1.52
|
|
Certificates of deposit
and escrow
|
|
|
224,729
|
|
|
|
4,322
|
|
|
|
2.57
|
|
|
|
242,867
|
|
|
|
6,123
|
|
|
|
3.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
461,103
|
|
|
|
6,018
|
|
|
|
1.74
|
|
|
|
410,825
|
|
|
|
7,746
|
|
|
|
2.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowed funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term borrowed funds
|
|
|
235,518
|
|
|
|
7,428
|
|
|
|
4.22
|
|
|
|
255,207
|
|
|
|
8,265
|
|
|
|
4.33
|
|
Short-term borrowed funds
|
|
|
6,279
|
|
|
|
12
|
|
|
|
0.26
|
|
|
|
9,067
|
|
|
|
47
|
|
|
|
0.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowed funds
|
|
|
241,797
|
|
|
|
7,440
|
|
|
|
4.11
|
|
|
|
264,274
|
|
|
|
8,312
|
|
|
|
4.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
702,900
|
|
|
|
13,458
|
|
|
|
2.56
|
%
|
|
|
675,099
|
|
|
|
16,058
|
|
|
|
3.18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing deposits
|
|
|
36,002
|
|
|
|
|
|
|
|
|
|
|
|
30,403
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
3,042
|
|
|
|
|
|
|
|
|
|
|
|
3,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
741,944
|
|
|
|
|
|
|
|
|
|
|
|
708,557
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
62,665
|
|
|
|
|
|
|
|
|
|
|
|
73,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
804,609
|
|
|
|
|
|
|
|
|
|
|
$
|
781,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread
|
|
|
|
|
|
|
|
|
|
|
2.59
|
%
|
|
|
|
|
|
|
|
|
|
|
2.19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
16,400
|
|
|
|
|
|
|
|
|
|
|
$
|
14,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin on average earning assets
|
|
|
|
|
|
|
2.83
|
%
|
|
|
|
|
|
|
|
|
|
|
2.53
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
LIQUIDITY AND CAPITAL RESOURCES:
The Companys primary source of funds is cash dividends from its wholly-owned subsidiary, River
Bank. The Bank paid $2.0 million in dividends to the Company in the first nine months of 2010
compared to none in the same period of 2009.
The Banks primary sources of funds include collections of principal payments and repayments on
outstanding loans, investment security maturities and amortization, increases in deposits, advances
from the FHLBB and securities sold under agreements to repurchase.
Based on our monitoring of deposit trends and our current pricing strategy for deposits, management
believes the Company will retain a large portion of its existing deposit base. Continued deposit
growth during the remainder of 2010 will depend on several factors, including the interest rate
environment and competitor pricing. The Company also considers the use of brokered certificates of
deposit as an additional source of deposits and evaluates them in conjunction with its own retail
certificates of deposit.
The Bank has a collateralized line of credit of $3.0 million with the FHLBB. At September 30,
2010, the entire $3.0 million was available.
The FHLBB requires member banks to maintain qualified collateral for its advances. Collateral is
comprised of the Banks residential mortgage portfolio, certain commercial real estate loans, home
equity lines and loans and the portion of the investment portfolio that meets FHLBB qualifying
collateral requirements and has been designated as such. The Banks borrowing capacity at the
FHLBB at September 30, 2010 was $223.1 million, of which $181.8 million had been borrowed.
At September 30, 2010, the Companys stockholders equity totaled $64.0 million, an increase of
$3.5 million when compared to $60.5 million at December 31, 2009. The increase was primarily
attributable to net income of $4.3 million coupled with an increase in the net unrealized gain on
investment securities available for sale of $333,000, net of tax, partially offset by cash
dividends to common shareholders of $1.1 million.
Each of the Company and the Bank was well-capitalized for regulatory purposes at September 30,
2010.
The following table presents the Companys and the Banks capital ratios at September 30, 2010,
December 31, 2009, and September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory Threshold
|
|
|
|
|
|
|
|
|
for Well Capitalized
|
|
|
|
|
|
|
|
|
Category
|
|
09/30/10
|
|
12/31/09
|
|
09/30/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LSB Corporation Tier 1 risk-based
|
|
|
6.0
|
%
|
|
|
10.48
|
%
|
|
|
9.74
|
%
|
|
|
12.64
|
%
|
River Bank Tier 1 leverage ratio
|
|
|
5.0
|
%
|
|
|
7.42
|
%
|
|
|
6.85
|
%
|
|
|
8.17
|
%
|
River Bank Tier 1 risk-based
|
|
|
6.0
|
%
|
|
|
10.23
|
%
|
|
|
9.57
|
%
|
|
|
11.54
|
%
|
River Bank total risk-based
|
|
|
10.0
|
%
|
|
|
12.53
|
%
|
|
|
11.84
|
%
|
|
|
12.72
|
%
|
The increase in the Companys and the Banks regulatory capital ratios was primarily attributable
to the decrease in total assets as well as the increase in total stockholders equity since
December 31, 2009.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Management believes there have been no material changes to the discussion under the caption
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK of the Companys 2009 Annual Report on
Form 10-K which is incorporated by reference.
24
ITEM 4: CONTROLS AND PROCEDURES
The Companys chief executive officer and chief financial officer, after evaluating the
effectiveness of the Companys disclosure controls and procedures (as defined in the Securities
Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this
quarterly report (the Evaluation Date), have concluded that as of the Evaluation Date the
Companys disclosure controls and procedures were effective and designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commissions rules and forms.
During the period covered by this quarterly report, there were no changes in the Companys internal
controls that have materially affected, or are reasonably likely to materially affect, the
Companys internal controls over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
George Assad, Jr. and William S. Madden, both alleged stockholders of the Company, each filed
putative class action lawsuits on July 27, 2010 and August 20, 2010, respectively, allegedly on
behalf of all Company stockholders. The lawsuits were filed in the Massachusetts Superior Court,
Essex County, against the Company, River Bank, the Companys board of Directors, Peoples United
Financial, Inc. (Peoples United), Peoples United Bank, a wholly-owned subsidiary of Peoples
United, and Bridgeport Merger Corporation, a wholly-owned subsidiary of Peoples United. The case
filed by Mr. Assad is captioned
George Assad, Jr. v. LSB Corporation et al.
, Civ. A. No. 2010-1616.
The case filed by Mr. Madden is captioned
William S. Madden v. LSB Corporation et al.,
Civ. A. No.
2010-1702. Mr. Assad and Mr. Madden both filed amended complaints on August 27, 2010. The
complaints generally allege that the Companys board of directors breached its fiduciary duties by
approving the agreement and plan of merger, dated as of July 15, 2010, by and among the Company,
River Bank, Peoples United, Peoples United Bank and Bridgeport Merger Corporation, because,
plaintiffs allege, the proposed merger would deny Company stockholders the right to share
proportionately in the value of the Companys ongoing business and future growth, the merger
consideration of $21.00 per share is inadequate, the merger agreements termination fee and no
solicitation provisions discourage bids from other sources and the transaction unfairly benefits
the Companys board of directors and chief executive officer to the disadvantage of its
stockholders. The amended complaints further allege that the proxy statement sent to the Companys
stockholders and filed with the Securities and Exchange Commission is deficient in that it fails to
disclose all of the underlying methodologies, projections, key inputs and multiples relied upon and
observed by Sandler ONeill. The amended complaints also allege that Peoples United, Peoples
United Bank and Bridgeport Merger Corporation aided and abetted our Boards breach of fiduciary
duties. The complaints seek an order preliminarily and permanently enjoining the defendants from
consummating, or closing the merger; in the event that the merger is consummated, an order
rescinding it and setting it aside or awarding rescissory damages; an accounting; and attorneys
fees and costs. The cases were subsequently consolidated and transferred to the Business
Litigation Section of the Massachusetts Superior Court sitting in Suffolk County. The consolidated
case is captioned
George Assad, Jr. v. LSB Corporation et al.
, Suffolk Civil Action No.
2010-3626-BLS2. The Company believes that the allegations in the complaint are without merit and
intends to vigorously defend this action. On October 22, 2010, the Superior Court denied the
plaintiffs motion for preliminary injunction to prevent, pending additional disclosure, the
shareholder vote scheduled for October 27, 2010, stating that overall, the Court concludes that
the plaintiffs have not established a likelihood of success on the merits of their claim of
inadequate disclosure.
Additionally, the Company is involved in various legal proceedings incidental to its business.
Except as set forth above, during the three months ended September 30, 2010, no new legal
proceeding was filed or terminated and no material development in any pending legal proceeding
occurred that the Company expects will have a material adverse effect on its financial condition or
operating results.
25
ITEM 1A. RISK FACTORS
Other than the risk factors discussed below, management believes that there have been no material
changes in the Companys risk factors as reported in the Annual Report on Form 10-K for the year
ended December 31, 2009.
Proposed Merger with Peoples United Financial, Inc.
On July 15, 2010, the Company entered into an Agreement and Plan of Merger with Peoples United
Financial, Inc. to acquire the Company in an all-cash transaction. Completion of the merger is
subject to various customary closing conditions including, but not limited to, certain regulatory
approvals and the affirmative vote of the holders of not less than two-thirds of the shares of the
Companys common stock outstanding and entitled to vote. The shareholders approved the Agreement
and Plan of Merger at the special meeting of shareholders which was held on October 27, 2010. The
Company currently expects that the merger will be completed in the fourth quarter of 2010. It is
possible, however, that factors outside of the Companys control could require the parties to
complete the merger at a later time, or not to complete the merger at all. Delay or failure to
consummate the merger could have a negative impact on the price of the Companys common stock.
Financial Regulatory Reform Legislation
On July 21, 2010, the President signed the Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010 (the Act) into law. The Act comprehensively reforms the regulation of financial
institutions, products and services. Among other things, the Act provides for new capital
standards that eliminate the treatment of trust preferred securities as Tier 1 capital. Existing
trust preferred securities are grandfathered for banking entities with less than $15 billion of
assets, such as the Company. The Act permanently raises deposit insurance levels to $250,000,
retroactive to January 1, 2008, and extends for two years the Transaction Account Guarantee
Program, which will become mandatory for all insured depository institutions. Pursuant to
modifications under the Act, deposit insurance assessments will be calculated based on an insured
depository institutions assets rather than its insured deposits and the minimum reserve ratio will
be raised to 1.35%. In addition, the Act authorizes the FRB to regulate interchange fees for debit
card transactions and establishes new minimum mortgage underwriting standards for residential
mortgages. The Act also establishes the Bureau of Consumer Financial Protection (CFPB) as an
independent bureau of the FRB. The CFPB has the exclusive authority to prescribe rules governing
the provision of consumer financial products and services.
The Act grants the SEC express authority to adopt rules granting proxy access for shareholder
nominees, and grants shareholders a non-binding vote on executive compensation and golden
parachute payments. Pursuant to modifications of the proxy rules under the Act, the Company will
be required to disclose the relationship between executive pay and financial performance, the ratio
of the median pay of all employees to the pay of the chief executive officer, and employee and
director hedging activities. The Act also requires that stock exchanges amend their listing rules
(i) to require, among other things, that each listed companys compensation committee be granted
the authority and funding to retain independent advisors and (ii) to prohibit the listing of any
security of an issuer that does not adopt policies governing the claw back of excess executive
compensation based on inaccurate financial statements.
It is difficult to predict at this time what specific impact the Act and the yet to be written
implementing rules and regulations will have on community banks. However, it is expected that at a
minimum these emerging regulations will increase the Companys operating and compliance costs.
ITEM 6. EXHIBITS
|
|
|
Number
|
|
Description
|
|
|
|
2.1
|
|
Plan of Reorganization and Acquisition, dated as of March 12, 2001 between LSB Corporation
and Lawrence Savings Bank (Filed as Exhibit 2.1 to the Companys Current Report on Form 8-K
filed July 2, 2001, (File Number 000-32955) and incorporated herein by reference)
|
26
|
|
|
Number
|
|
Description
|
|
|
|
2.2
|
|
Agreement and Plan of Merger, dated as of July 15, 2010, by and among LSB Corporation, River
Bank, Peoples United Financial, Inc., Peoples United Bank, and Bridgeport Merger Corporation
(filed as Exhibit 2.1 to the Companys Current Report on Form 8-K filed July 16, 2010, and
incorporated herein by reference)
|
|
|
|
3(i).1
|
|
Articles of Organization of LSB Corporation (Filed as Exhibit 3.1 to the Companys Current
Report on Form 8-K filed July 2, 2001, (File Number 000-32955) and incorporated by reference)
|
|
|
|
3(i).2
|
|
Articles of Amendment of the Articles of Organization of LSB Corporation, as submitted for
filing in the Office of the Secretary of the Commonwealth of Massachusetts on December 30,
2005, (Filed as Exhibit 3(i).1 to the Companys Current Report on Form 8-K filed January 6,
2006, and incorporated herein by reference)
|
|
|
|
3(i).3
|
|
Articles of Amendment to the Articles of Organization of LSB Corporation, establishing the
fixed rate cumulative perpetual preferred stock, Series B (Filed as Exhibit 3.1 to the
Companys Current Report of Form 8-K filed December 17, 2008, and incorporated herein by
reference)
|
|
|
|
3(ii)
|
|
Amended and Restated By-Laws of LSB Corporation (Filed as Exhibit 3.1 to the Companys
Current Report on Form 8-K filed October 31, 2007, and incorporated herein by reference)
|
|
|
|
3(iii)
|
|
Lawrence Savings Bank Certificate of Vote of Directors Establishing a Series of a Class of
Stock (Filed as Exhibit 3(iii) to the Companys 2005 Annual Report on Form 10-K and
incorporated herein by reference)
|
|
|
|
4.1
|
|
Specimen certificate of shares of common stock of the Company (Filed as Exhibit 4.1 to the
Companys Current Report on Form 8-K filed July 2, 2001, (File Number 000-32955) and
incorporated herein by reference)
|
|
|
|
4.2
|
|
Renewed Rights Agreement dated as of November 17, 2005, between LSB Corporation and
Computershare Trust Company, N.A., as Rights Agent (Filed as Exhibit 4.1 to the Companys
Current Report on Form 8-K filed January 31, 2006, and incorporated herein by reference)
|
|
|
|
4.3
|
|
Amendment to Renewed Rights Agreement, dated as of July 15, 2010, by and between LSB
Corporation and Computershare Trust Company (filed as Exhibit 4.1 to the Companys Current
Report on Form 8-K filed July 16, 2010, and incorporated herein by reference).
|
|
|
|
31.1
|
|
Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
32.1
|
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as added by
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
32.2
|
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as added by
Section 906 of the Sarbanes-Oxley Act of 2002.
|
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
LSB CORPORATION
|
|
November 10, 2010
|
/s/ Gerald T. Mulligan
|
|
|
Gerald T. Mulligan
|
|
|
President and
Chief Executive Officer
|
|
|
|
|
|
November 10, 2010
|
/s/ Diane L. Walker
|
|
|
Diane L. Walker
|
|
|
Executive Vice President, Treasurer and
Chief Financial Officer
|
|
28
LSB CORPORATION AND SUBSIDIARY
Quarterly Report on Form 10-Q for the nine months ended September 30, 2010
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
|
31.1
|
|
Certification of Chief Executive Officer under Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
30
|
|
|
|
|
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer under Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
31
|
|
|
|
|
|
|
|
|
32.1
|
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
added by Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
32
|
|
|
|
|
|
|
|
|
32.2
|
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
added by Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
33
|
|
29
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