The bank was doing fairly well up until it got that kick in the gut.
Liberty Bell Bank Reports Second Quarter 2013 Results of Operations
MARLTON, N.J.--(BUSINESS WIRE)--Liberty Bell Bank (OTCQB:LBBB) today reported net loss of $2.6 million or $(0.77) per diluted share for the three months ended June 30, 2013, compared to a net loss of $796,000 or $(0.26) per diluted share for the same period in 2012, an increased loss of $1.8 million or $(0.51) per diluted share. The net loss for the six months ended June 30, 2013 was $2.4 million or $(0.71) per diluted share, compared to a net loss of $761,000 or $(0.25) per diluted share for the same period in 2012. At June 30, 2013, the Bank is adequately capitalized by all regulatory measures.
“We are vigorously pursuing the collection of the loss we sustained from the check kiting activities of our customer”
.
The loss for the three months ended June 30, 2013 is primarily due to the Bank being a victim of a check kiting scheme by one of its commercial deposit and loan customers. As a result of this check kiting, the Bank recognized approximately $2.1 million ($.60 per diluted share) as a loan charge-off. The Bank is aggressively pursuing collection of the loss; however, the timing and potential results of these efforts are uncertain.
In addressing the check kiting scheme, the Bank’s Chairman, William C. Dunkelberg stated: “There were several banks involved in a very complex fraud, and we believe all banks sustained substantial losses. To this point, we are uncertain as to the exact magnitude of our loss which may be significantly less than the amount we had to recognize for financial accounting purposes. The Bank is actively pursuing all means to recover these monies. Any recovered monies will be reported in future releases. Until the investigation is complete, no other relevant details can be reported.”
The increase in the Bank’s quarterly net loss of $1.8 million over the same period in 2012 was due primarily to an increase in the provision for loan losses of $1.9 million. The increased provision was needed to rebuild the Bank’s allowance for loan losses after the $2.1 million charge off. In addition, net interest income decreased $82,000 and non-interest income decreased $24,000. These negative variances were partially offset by a decrease of $180,000 in non-interest expense from $1.6 million for the three months ended June 30, 2012 to $1.4 million for the three months ended June 30, 2013.
The decrease of $82,000 in net interest income for the three months ended June 30, 2013 as compared to the three months ended June 30, 2012 was due to a $190,000 decrease in interest and dividend income partially offset by a $108,000 reduction in interest expense, primarily from a decrease of interest on deposits. The decrease in interest and dividend income was due primarily to a decrease of $232,000 in interest and fees from loans, offset partially by an increase of $42,000 in interest earned from investments.
The decrease of $232,000 in interest and fees from loans was due primarily to a 41 basis point reduction of the yield from the loan portfolio from 5.48% to 5.07%. In addition, the average loan balances outstanding for the three months ended June 30, 2013 as compared to the three months ended June 30, 2012 decreased by $8.4 million. The reduction in average loan balances was due primarily to pay-downs and pay-off of commercial loans. The increase of $42,000 in interest on investments was due primarily to an increase in the average balance outstanding of $12.4 million from $27.1 million to $39.5 million.
The $180,000 decrease in non-interest expense was due primarily to a $62,000 reduction in compensation expense, a $73,000 reduction in expenses related to other real estate owned and a $26,000 reduction in equipment expense.
Net interest margin for the second quarter of 2013 was 3.33%, a decrease of 0.32% from the 3.65% net interest margin for the second quarter of 2012. The margin decrease was mainly the result of a 0.62% lower yield from interest-earning assets partially offset by a 0.30% reduction in the rate paid for interest-bearing deposits.
The $1.6 million increase in the Bank’s net loss for the six months ended June 30, 2013 over the same period in 2012 was due primarily to an increase in the provision for loan losses of $1.8 million for the reason described above. In addition, net interest income decreased by $176,000. These negative variances were partially offset by an increase of $115,000 in non-interest income and a decrease of $247,000 in non-interest expense from $3.0 million for the six months ended June 30, 2012 to $2.8 million for the six months ended June 30, 2013.
The decrease of $176,000 in net interest income for the six months ended June 30, 2013 as compared to the six months ended June 30, 2012, was due to a $408,000 decrease in interest and dividend income, partially offset by a $233,000 reduction in interest expense, primarily resulting from a decrease of interest on deposits. The decrease in interest and dividend income was due primarily to a decrease of $503,000 in interest and fees from loans, offset partially by an increase of $95,000 in interest earned from investments.
The decrease of $503,000 in interest and fees from loans was due primarily to a 43 basis point reduction of the yield from the loan portfolio from 5.62% to 5.19%. In addition, the average loan balances outstanding for the six months ended June 30, 2013 as compared to the six months ended June 30, 2012 decreased by $8.5 million for the reasons discussed above. The increase of $95,000 in interest earned from investments was due primarily to an increase in the average balance outstanding of $11.3 million from $27.4 million to $38.7 million.
The $247,000 decrease in non-interest expense for the six months ended June 30, 2013 as compared to the six months ended June 30, 2012 was due primarily to a $95,000 reduction in compensation expense due to staff reductions. In addition, expenses related to other real estate owned decreased $56,000, insurance expensed decreased $69,000 and audit expense decreased $24,000 primarily due to the Bank’s deregistration as a public company. Expenses related to equipment decreased $57,000 as computer equipment and software were fully amortized. Partially offsetting these positive variances, legal and professional fees increased $60,000.
Net interest margin for the first six months of 2013 was 3.42%, a decrease of 0.29% from the 3.71% net interest margin for the first six months of 2012. The margin decrease was mainly the result of a 0.60% lower yield from interest-earning assets partially offset by a 0.31% reduction in the rate paid for interest-bearing liabilities.
Total assets at June 30, 2013 were $173.8 million, representing a decrease of $554,000 from $174.3 million at December 31, 2012. The decrease was due primarily to cash and cash equivalents, which decreased $2.2 million and net loans which decreased $4.4 million from December 31, 2012. These decreases were partially offset by investments which increased $5.1 million, other assets which increased $600,000, and other real estate owned which increased $402,000 from $5.6 million at December 31, 2012 to $6.1 million at June 30, 2013. The reduction in loans was due primarily to the pay down and pay off of commercial loans. Excess cash was invested in the securities portfolio with the purchase of primarily government and agency bonds.
Total deposits increased $3.1 million to $157.9 million at June 30, 2013 from $154.8 million at December 31, 2012. The increase was primarily due to a $5.8 million increase in non-interest bearing accounts offset by a $2.7 million decrease in interest bearing accounts.
The Bank continues to increase non-interest bearing deposit accounts. Total non-interest bearing deposit accounts at June 30, 2013 were $21.2 million as compared to $15.4 million at December 31, 2012. The growth in non-interest bearing deposits continues to be from the Bank’s local market area.
The decrease in interest-bearing deposit accounts of $2.7 million was due primarily to a decrease in certificates of deposit, our highest cost deposits, which decreased $1.4 million from $68.8 million at December 31, 2012 to $67.4 million at June 30, 2013. Money Market accounts decreased $567,000 and interest bearing checking accounts decreased $852,000.
Total capital decreased $3.6 million from $11.6 million at December 31, 2012 to 8.0 million at June 30, 2013. The decrease was due to the net loss for the first six months of 2013 of $2.4 million and the shift from an unrealized gain in the mark-to-market of securities available for sale of $337,000 at December 31, 2012 to an unrealized loss of $887,000 at June 30, 2012. The shift to an unrealized loss is due primarily to the sudden increase in interest rates during the second quarter of 2013. These are not actual losses, but “mark to market” losses on Treasury and similar securities that are not at risk for a loss of principal but are held for collateral purposes.
At June 30, 2013, our criticized/classified assets totaled $11.4 million which includes $2.6 million of loans associated with the commercial customer who perpetrated the check kiting scheme. These loans are secured by receivables from U.S. government related agencies, and management believes they are ultimately collectible. Without these loans, our criticized/classified assets totaled $8.7 million, substantially the same as at December 31, 2012, but $7.0 million less than the $15.6 million in such assets at December 31, 2011. Other real estate owned increased $402,000 from $5.6 million at December 31, 2012 to $6.1 million at June 30, 2013.
“We are vigorously pursuing the collection of the loss we sustained from the check kiting activities of our customer,” said CEO Kevin Kutcher, adding, “We continue to see positive activity that is giving us reasonable and justifiable optimism that we will see further reduction of problem loans and assets, primarily left over from the recession. Our core operations are producing net profits and we expect this to continue going forward as we resolve remaining problem assets. We are vigorously pursuing the overdraft issue and hold a portfolio of government loans associated with that overdraft that continues to produce revenue. Our cost of funds continues to decline which supports our net interest margin in a very difficult rate environment. As the economy continues to improve, we hope to resolve the bulk of the recession-related loan problems by the end of the year.”
Set forth below is certain selected balance sheet and income statement data at June 30, 2013 and December 31, 2012 and for the three and six months ended June 30, 2013 and 2012.
SELECTED BALANCE SHEET DATA
(Unaudited, in thousands)
June 30,
December 31,
2013
2012
Cash and cash equivalents
$
17,070
$
19,319
Investment securities
26,740
21,655
Net loans receivable
118,074
122,508
Total assets
173,774
174,328
Deposits
157,077
154,811
Shareholders’ equity
7,975
11,572
SELECTED INCOME STATEMENT DATA
(Unaudited, in thousands except per share data)
Quarter ended
Quarter ended
Six months end
Six months end
June 30,
June 30,
June 30,
June 30,
2013
2012
2013
2012
Net interest income
$
1,326
$
1,408
$
2,686
$
2,862
Provision for loan losses
2,542
680
2,551
740
Gain on sale of securities
26
0
183
0
Recovery of Fraud Loss
0
151
0
151
Other Non-interest income
91
128
179
244
Loss on write-down of ORE
75
213
77
227
Other expenses
1,401
1,581
2,787
3,033
Provision for income taxes
6
9
12
18
Net income
$
(2,581
)
$
(796
)
$
(2,379
)
$
(761
)
Earnings per share:
Basic
$
(0.77
)
$
(0.26
)
Diluted
$
(0.77
)
$
(0.26
)
Capital Ratios:
Leverage Capital
5.08
%
7.59
%
Total risk based capital
8.21
%
10.70
%
Liberty Bell Bank is a full-service, state-chartered commercial bank, whose deposits are insured by the Federal Deposit Insurance Corporation (FDIC).
The Bank provides diversified financial products through two locations in Burlington County, New Jersey and one location in Camden County, New Jersey. The Bank closed its Mount Laurel branch on June 15, 2013.
The Bank may from time to time make written or oral “forward-looking statements”, including statements contained in this release. Such statements are not historical facts and include expressions about management's confidence and strategies and management's current views and expectations about new and existing programs and products, relationships, opportunities, taxation, technology and market conditions. Actual results may differ materially from such forward-looking statements, and no undue reliance should be placed on any forward-looking statement. Factors that may cause results to differ materially from such forward-looking statements include, but are not limited to, unanticipated changes in the financial markets and the direction of interest rates; volatility in earnings due to certain financial assets and liabilities held at fair value; stronger competition from banks, other financial institutions and other companies; insufficient allowance for credit losses; a higher level of net loan charge-offs and delinquencies than anticipated; material adverse changes in the Bank’s operations or earnings; a decline in the economy in our primary market areas; changes in relationships with major customers; changes in effective income tax rates; higher or lower cash flow levels than anticipated; inability to hire or retain qualified employees; a decline in the levels of deposits or loss of alternate funding sources; a decrease in loan origination volume; changes in laws and regulations, including issues related to compliance with anti-money laundering and the bank secrecy act laws; adoption, interpretation and implementation of new or pre-existing accounting pronouncements; operational risks, including the risk of fraud by employees and customers; the inability to successfully implement new lines of business or new products and services .and other factors, many of which are beyond the Bank's control. The words “may”, “could”, “should”, “would”, “believe”, “anticipate”, “estimate”, “expect”, “intend”, “plan”, and similar expressions are intended to identify forward-looking statements. All such statements are made in good faith by the Bank pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. The Bank does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Bank.
Contacts
Liberty Bell Bank
Benjamin F. Watts, 856-830-1135
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