MARLTON, N.J.--(BUSINESS WIRE)--Liberty Bell Bank (OTCQB:LBBB) today reported a net loss of $656,000 or $(0.20) per diluted share for the three months ended December 31, 2013, compared to a net loss of $1.0 million or $(0.34) per diluted share for the same period in 2012, a decrease of $376,000. For the year ended December 31, 2013, the Bank had a $3.0 million net loss, or $(0.89) per diluted share, compared to a net loss of $3.4 million or $(1.12) per diluted share for 2012. At December 31, 2013, the Bank is adequately capitalized by all regulatory measures.
The loss of $656,000 in the last quarter of 2013 was due primarily to $250,000 write-down of other real estate owned to market values, the recording of an additional provision for loan losses of $231,000 in connection with a $228,000 charge off of loans secured by fraudulent leases, and a $151,000 pre-payment penalty in conjunction with the early retirement of the Bank’s $5.0 million borrowing due to its above-market interest rate of 3.99%.
President and CEO Kevin Kutcher stated, “Coming out of 2013 and emerging from the great recession economy, we have three over-riding areas of concurrent focus – augmenting capital, compliance with the regulatory Consent Orders we entered into with the FDIC and the New Jersey Department of Banking in the fourth quarter of 2013, and reducing problem assets. To those ends – we anticipate a $5 million capital offering to be commenced before the end of March 2014 that has sincere indications of interest approaching $4 million. Consequently, we anticipate a likely short offering period with approximately $5 million of new capital proceeds in the early part of the second quarter.”
“We believe we are in satisfactory compliance with all of the provisions of the Consent Orders except for the completion of our capital offering,” he added, “and we are experiencing meaningful progress in reducing problem loans. Since year-end we have completed a transaction reducing one of our problem assets by $1 million and have posted a partial recovery approximating $250,000 from a previously charged off problem asset. In addition, we are in the final negotiations for a contract of sale on another problem loan property that should reduce problem assets another $1.5 million in 2014.”
Mr. Kutcher continued, “Once we consummate the offering, we’ll also then be in position, with the added $4 to $5 million of capital, to potentially accelerate further problem asset reductions by absorbing justifiable modest discounts to motivate buyers. Reduced problem assets/loans along with augmented capital has the potential to accelerate the termination of the Consent Orders as well. Continuing progress reducing problem assets, net additions to capital associated with the offering proceeds and reducing expenses as problem assets are eliminated should return the Bank to profitable core operations in 2014. With problem assets and related costs diminishing, our lending staff will be available to focus on productive lending. The new capital and returning to profitable operations will help support loan growth and investment in staff and process improvements in our loan and credit area.”
The $376,000 reduction in the Bank’s quarterly loss as compared to the three months ended December 31, 2012 was due primarily to a reduction of losses on the sale of other real estate owned of $434,000 from $684,000 in 2012 to $250,000 in 2013, as well as to a decrease in the provision for loan losses of $39,000. Fee income increased $10,000 in the three months ended December 31, 2013 as compared to the three months ended December 31, 2012. These positive variances were partially offset by a decrease in net interest income of $51,000, an increase in non-interest expense of $32,000 and a decrease in the provision for income taxes of $24,000.
The decrease of $51,000 in net interest income for the three months ended December 31, 2013 as compared to the three months ended December 31, 2012 was due to a $147,000 decrease in interest income partially offset by a $96,000 reduction in interest expense, primarily on deposits. The decrease in interest income was due primarily to a decrease of $174,000 in interest from loans offset by an increase of $27,000 in interest earned from investments.
The decrease of $174,000 in interest from loans was due primarily to a 26 basis point reduction of the yield from the loan portfolio from 5.32% to 5.06%. In addition, the average loan balances outstanding for the three months ended December 31, 2013 as compared to the three months ended December 31, 2012 decreased by $8.0 million. The reduction in average loan balances was due primarily to pay-downs and pay-offs of commercial loans. The increase of $27,000 in interest on investments, including overnight fed funds sold, was due primarily to an increase in the average balances outstanding of $12.6 million from $30.4 million to $43.0 million.
The $32,000 increase in non-interest expense was due primarily to an increase of $185,000 in other operating expenses of which $151,000 was a pre-payment penalty in conjunction with the early retirement of the Bank’s $5.0 million borrowing from the Federal Home Loan Bank of New York (“the FHLB”). This obligation was prepaid due to its above-market interest rate of 3.99%. Partially offsetting these negative variances, compensation expense decreased $83,000 due primarily to a decrease in personnel caused by the Mt. Laurel branch closing and the resignation of two senior officers to pursue other opportunities. In addition, marketing expense decreased $22,000; occupancy expense decreased $13,000 due to the closing of the Mt. Laurel office and expenses related to other real estate owned decreased $44,000.
Net interest margin for the fourth quarter of 2013 was 3.28%, a decrease of 0.25% from the 3.53% net interest margin for the fourth quarter of 2012. The margin decrease was mainly the result of a 0.53% lower yield from interest-earning assets partially offset by a 0.22% reduction in the rate paid for interest-bearing liabilities.
The loss for the year ended December 31, 2013 was 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 activity, the Bank recognized approximately $2.1 million ($.62 per diluted share) as a loan charge-off. In addition, the Bank has $2.1 million of loans secured by leases originated through this customer. The Bank continues to take steps it deems necessary to ensure the payment of the related lease payment receivables.
The Bank’s net loss of $3.0 million for 2013 was $390,000 less than the loss for the year ended December 31, 2012. The provision for loan losses for 2013 was $2.8 million, an increase of $941,000 as compared to $1.9 million for 2012. The increase in the provision for loan losses was primarily due to the $2.1 million charge-off. Net interest income decreased by $249,000 from $5.5 million to $5.3 million for 2012 and 2013, respectively. These negative variances were offset by an increase of $1.1 million in non-interest income and a decrease of $450,000 in non-interest expense.
The decrease of $249,000 in net interest income, for 2013 as compared to 2012, was due to a $690,000 decrease in interest income, partially offset by a $441,000 reduction in interest expense. The decrease in interest income was due primarily to a decrease of $855,000 in interest from loans, offset partially by an increase of $165,000 in interest earned from investments, while the decrease in interest expense primarily resulted from a decrease of interest paid on deposits.
The decrease of $855,000 in interest from loans was due primarily to a 38 basis point reduction of the yield from the loan portfolio from 5.52% to 5.14%. In addition, the average loan balances outstanding for 2013 as compared to 2012 decreased by $7.5 million. The increase of $165,000 in interest earned from investments was due primarily to an increase of $11.5 million in the average balance outstanding from $29.4 million to $40.9 million.
The $1.1 million increase in non-interest income was due primarily to a $1.2 million decrease in losses from the sale and write-down of other real estate owned from $1.5 million for 2012 to $335,000 for 2013. In addition, the Bank recognized $183,000 from the sale of investment securities in 2013 versus no such gain in 2012. Partially offsetting these positive variances, miscellaneous fees decreased $160,000 primarily due to the $151,000 fraud loss recovery recognized in 2012 and fees from deposit and loan accounts decreased $87,000 from $401,000 for 2012 to $315,000 for 2013.
The $450,000 decrease in non-interest expense for 2013 as compared to 2012 was due primarily to a $319,000 reduction in compensation expense due primarily to staff reductions from the closing of the Mt. Laurel office and consolidation of management. In addition, expenses related to other real estate owned decreased $129,000, insurance expense decreased $39,000 and audit expense decreased $96,000 primarily due to the Bank’s deregistration as a public company. Expenses related to equipment decreased $63,000, marketing expense decreased $41,000 and occupancy expenses decreased $30,000. Partially offsetting these positive variances, other miscellaneous expenses increased $153,000 due primarily to the $151,000 pre-payment expense related to retirement of the FHLB borrowing, legal expense increased $19,000, professional expenses increased $39,000 primarily related to other real estate activity and loan administration expenses increased $18,000. In addition, data processing expense increased $35,000 as the Bank outsourced the network administration function with the resignation of its Chief Information Technology Officer.
Net interest margin for 2013 was 3.36%, a decrease of 0.26% from the 3.62% net interest margin for 2012. The margin decrease was mainly the result of a 0.56% lower yield from interest-earning assets partially offset by a 0.28% reduction in the rate paid for interest-bearing liabilities.
Total assets at December 31, 2013 were $157.8 million, representing a decrease of $16.5 million from $174.3 million at December 31, 2012. The decrease was due primarily to net loans which decreased $12.5 million, cash and cash equivalents which decreased $7.3 million and fixed and other assets which decreased $425,000 from December 31, 2012. These decreases were partially offset by investments which increased $3.1 million and other real estate owned which increased $594,000 from $5.6 million at December 31, 2012 to $6.2 million at December 31, 2013. The reduction in loans was due primarily to the pay down and pay off of commercial loans and the sale of $4.5 million of loans in September 2013, as the Bank moved to reduce its risk profile and increase regulatory capital ratios. Excess cash was invested in the securities portfolio with the purchase of primarily government and agency bonds.
Total deposits decreased $7.9 million to $146.9 million at December 31, 2013 from $154.8 million at December 31, 2012. The decrease was primarily due to a $12.5 million decrease in interest bearing deposits partially offset by a $4.6 million increase in non-interest bearing deposits. In addition, total borrowings decreased $4.1 million due primarily to repayment of $5.0 million borrowing from the FHLB in December 2013.
The Bank continues to increase non-interest bearing deposit accounts. Total non-interest bearing deposit accounts at December 31, 2013 were $20.1 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 $12.5 million was due primarily to a decrease in certificates of deposit, our highest cost deposits, which decreased $9.5 million from $68.8 million at December 31, 2012 to $59.3 million at December 31, 2013. Money Market accounts decreased $1.7 million and interest bearing checking accounts and savings accounts decreased $497,000 and $840,000, respectively.
Total capital decreased $4.5 million from $11.6 million at December 31, 2012 to $7.1 million at December 31, 2013. The decrease was due to the net loss for 2013 of $3.0 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 $1.2 million at December 31, 2013. The shift to an unrealized loss is due primarily to the sudden increase in market interest rates during the second quarter and continuing to year-end 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 primarily held for revenue and collateral purposes.
At December 31, 2013, our criticized/classified loans totaled $10.5 million, an increase of $1.6 million from $8.9 million of criticized/classified loans at December 31, 2012, but $5.1 million less than the $15.6 million in such loans at December 31, 2011. The $10.5 million of criticized/classified loans at December 31, 2013 included $2.1 million of loans associated with the commercial customer who perpetrated the check kiting scheme. These loans are secured primarily by receivables from U.S. government related agencies, and management continues to believe these loans are ultimately collectible. Other real estate owned increased $594,000 from $5.6 million at December 31, 2012 to $6.2 million at December 31, 2013. “We may recognize some comparatively small losses in 2014 associated with opportunities to accelerate sales of problem asset collateral,” said Mr. Kutcher, “but if so these will be absorbed, by design, by a portion of the proceeds from the anticipated $5 million of new capital.”
Set forth below is certain selected balance sheet and income statement data at December 31, 2013 and December 31, 2012 and for the three months and years ended December 31, 2013 and 2012.
| SELECTED BALANCE SHEET DATA | ||||||||||
| (Unaudited, in thousands) | December 31, | December 31, | ||||||||
|
2013 |
2012 |
|||||||||
| Cash and cash equivalents | $ | 12,072 | $ | 19,319 | ||||||
| Investment securities | 24,966 | 21,655 | ||||||||
| Net loans receivable | 110,039 | 122,508 | ||||||||
| Total assets | 157,871 | 174,328 | ||||||||
| Deposits | 146,888 | 154,811 | ||||||||
| Shareholders’ equity | 7,069 | 11,572 | ||||||||
| SELECTED INCOME STATEMENT DATA | ||||||||||||||||
| (Unaudited, in thousands except per share data) | ||||||||||||||||
| Quarter ended | Quarter ended | Year ended | Year ended | |||||||||||||
| December 31, | December 31, | December 31, | December 31, | |||||||||||||
|
2013 |
2012 |
2013 |
2012 |
|||||||||||||
| Net interest income | $ | 1,264 | $ | 1,315 | $ | 5,282 | $ | 5,531 | ||||||||
| Provision for loan losses | 231 | 270 | 2,792 | 1,850 | ||||||||||||
| Gain on sale of securities | 0 | 0 | 183 | 0 | ||||||||||||
| Recovery of Fraud Loss | 0 | 0 | 0 | 151 | ||||||||||||
| Other Non-interest income | 83 | 74 | 336 | 431 | ||||||||||||
| Loss on write-down of ORE | 250 | 684 | 335 | 1,528 | ||||||||||||
| Other expenses | 1,522 | 1,490 | 5,669 | 6,120 | ||||||||||||
| Provision for income taxes | 0 | (24 | ) | 2 | 2 | |||||||||||
| Net income | $ | (656 | ) | $ | (1,033 | ) | $ | (2,997 | ) | $ | (3,387 | ) | ||||
| Earnings per share: | ||||||||||||||||
| Basic | $ | (0.20 | ) | $ | (0.34 | ) | $ | (0.89 | ) | $ | (1.12 | ) | ||||
| Diluted | $ | (0.20 | ) | $ | (0.34 | ) | $ | (0.89 | ) | $ | (1.12 | ) | ||||
| Capital Ratios: | ||||||||||||||||
| Leverage Capital | 4.95 | % | 6.42 | % | ||||||||||||
| Total risk based capital | 8.37 | % | 10.03 | % | ||||||||||||
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 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.