CLARKS SUMMIT, Pa., Jan. 29 /PRNewswire-FirstCall/ -- Comm Bancorp, Inc. (Nasdaq: CCBP) today reported net income of $50 thousand or $0.03 per share in 2009 compared to $5,700 thousand or $3.26 per share in 2008. The earnings reduction resulted primarily from a significant increase in the provision for loan losses in the second half of the year. Net income for the fourth quarter was $435 thousand or $0.25 per share in 2009 and $1,000 thousand or $0.58 per share in 2008.
Return on average stockholders' equity and return on average assets were 0.09% and 0.01% for the year ended December 31, 2009, and 10.10% and 0.98% for the year ended December 31, 2008. For the fourth quarter, return on average stockholders' equity and return on average assets were 3.09% and 0.27% in 2009 and 6.96% and 0.65% in 2008.
"This past year was an extremely difficult time for the banking industry, particularly for community banks," commented William F. Farber, Sr., President and Chief Executive Officer. "The effects of the longest and worst recession since the Great Depression continued to permeate through our local economies as evidenced by rising unemployment and depressed real estate values, which have, in turn, resulted in weakened credit quality. We were not exempt from the effects of these conditions as evidenced by us experiencing an increase in the number of troubled loans and significant devaluations of collateral supporting the commercial and construction sectors of our loan portfolio. In the second half of 2009 we took a number of steps to address these conditions. First and foremost, we set aside additional reserves through recognizing a provision for loan losses of $8.7 million in the third quarter of 2009. With this provision, coupled with regular monthly provisions, we believe the allowance for loan losses is adequate to absorb probable credit losses related to specifically identified, criticized loans as well as probable incurred losses inherent in the remainder of the loan portfolio as of December 31, 2009. In addition, we initiated a Capital Plan through which we have made a commitment to aggressively improve asset quality and to increase our regulatory capital ratios," continued Farber. "At the end of 2009, we completed an $8.0 million subordinated debt offering to further strength our capital position in these uncertain times. The Company's ability to raise capital within a very short time is a testimonial to the market's perception of our ability to persevere in these very challenging times," Farber stated. "We believe that through these initiatives we will be able to successfully work through these difficulties," concluded Farber.
INCOME STATEMENT REVIEWTax-equivalent net interest income amounted to $22,568 thousand in 2009, an increase of $180 thousand compared to $22,388 thousand in 2008. A $2,367 thousand or 19.0% decrease in interest expense was almost entirely offset by a $2,187 thousand or 6.3% reduction in tax-equivalent interest revenue. The reduction in interest expense was a result of a decrease in our cost of funds of 73 basis points to 2.11% in 2009, from 2.84% in 2008. We experienced significant reductions in the rates paid for all interest-bearing liability categories. Average interest-bearing liabilities grew $39.5 million or 9.0%, which partially mitigated the positive influence of the reduction in funding costs. The decline in interest revenue resulted primarily from an 83 basis point decrease in the tax-equivalent yield on earning assets to 5.50% in 2009, from 6.33% in 2008. Specifically, a 77 basis point decline in the tax-equivalent yield on the loan portfolio to 5.66% in 2009 from 6.43% in 2008 had the greatest impact on interest income. Partially offsetting the decline in the tax-equivalent yield on earning assets was growth in average earning assets of $43.7 million or 7.9%. Average investments increased $20.8 million comparing 2009 and 2008. In addition, the loan portfolio, which averaged $495.4 million in 2008, grew $16.8 million or 3.4% to an average of $512.2 million in 2009. Our tax-equivalent net interest margin contracted 27 basis points to 3.80% in 2009 compared to 4.07% in 2008. The provision for loan losses totaled $10,430 thousand in 2009, an increase of $8,670 thousand from $1,760 thousand in 2008. The material change in the provision for loan losses in 2009 reflects the effect of measures taken by management to improve its methodology used to determine the adequacy of the allowance for loan losses account in the face of current conditions. Specifically, management is requiring current independent appraisals on all impaired loans which are evaluated individually for impairment. These new appraisals indicate significant market devaluations brought on by the rapid deterioration in the local economy. In addition, management revised its methodology for estimating losses in the remainder of the loan portfolio by shortening the number of historical periods considered for estimating loss factors in order to better reflect the current market conditions given the rapid economic decline in our market area. For the fourth quarter, the provision for loan losses equaled $670 thousand in 2009 compared to $747 thousand in 2008. Noninterest income increased $2,556 thousand or 64.5% to $6,517 thousand in 2009 from $3,961 thousand in 2008. Included in noninterest income in 2009 were net gains of $1,590 thousand from the sale of available-for-sale investment securities and a net gain of $294 thousand from the disposition of the former Tunkhannock and Eaton Township, Pennsylvania branch offices. Adjusting for these gains, noninterest income increased $672 thousand or 17.0%. Due to significantly lower mortgage rates, mortgage banking income increased $760 thousand. Service charges, fees and commissions decreased $88 thousand. Adjusting for $91 thousand in net gains on the sale of investment securities, noninterest income decreased $18 thousand to $1,010 thousand for the fourth quarter of 2009 compared to $1,028 thousand for the same quarter of 2008. Service charges, fees and commissions decreased $43 thousand, while mortgage banking income increased $25 thousand. Noninterest expense increased $2,651 thousand or 16.2% to $18,968 thousand in 2009 from $16,317 thousand in 2008. The increase resulted primarily from a 50.6% increase in other expenses, which were partially offset by slight decreases in salaries and employee benefits expense and net occupancy and equipment expense. Contributing to over half of the increase in other expenses was a rise in the cost of deposit insurance imposed by the FDIC on all insured-depository institutions to help mitigate the effects of recent bank failures on the Deposit Insurance Fund. Also contributing were $467 thousand in losses on the sale of foreclosed assets, and increases of $428 thousand in loan collection and foreclosed asset-related expenses and $174 thousand in legal and consulting fees. For the fourth quarter, noninterest expense increased $852 thousand or 20.3% to $5,055 in 2009 from $4,203 in 2008. Other expenses rose $792 thousand or 53.2%, which was due primarily to the increase in FDIC insurance. Salaries and employee benefits rose $67 thousand, while net occupancy and equipment expenses decreased $7 thousand. BALANCE SHEET REVIEW Total assets amounted to $656.8 million at December 31, 2009, an increase of $52.8 million or 8.7% compared to $604.0 million at the end of 2008. The growth in the balance sheet resulted primarily from a $48.5 million or 8.9% increase in total deposits. Loans, net of unearned income, decreased $9.0 million to $476.9 million at December 31, 2009, from $485.9 million one year ago. Available-for-sale investment securities increased $27.4 million to $108.0 million at the end of 2009 from $80.6 million at December 31, 2008. Federal funds sold outstanding equaled $25.3 million at December 31, 2009, an increase of $12.6 million from $12.7 million at December 31, 2008. Stockholders' equity equaled $55.0 million or $31.93 per share at December 31, 2009, compared to $57.8 million or $33.41 per share at the end of 2008. As part of the newly adopted Capital Plan, management implemented several steps for the purpose of improving risk-based capital ratios. Specifically, Community Bank and Trust Company ("Community Bank"), our wholly-owned subsidiary, completed a subordinated debt offering on December 31, 2009. The subordinated debt offering, which totaled $8.0 million, qualifies as Tier II Capital for risk-based capital purposes. At December 31, 2009, Community Bank far exceeded the requirements to be categorized as well capitalized under the regulatory framework for prompt corrective action with Tier I, Total and Leverage ratios of 9.5%, 12.3% and 7.8%. In addition to the debt offering, management reduced the Company's quarterly dividend by 50% in the fourth quarter of 2009 in order to conserve capital. For the quarter and year ended December 31, 2009, dividends declared were $0.14 per share and $0.98 per share compared to $0.27 per share and $1.08 per share for the respective periods of 2008. Nonperforming assets equaled $28.2 million or 5.86% of loans, net of unearned income and foreclosed assets at December 31, 2009, compared to $24.2 million or 4.99% one year earlier. In comparison to the previous quarter end, nonperforming assets equaled $28.4 million or 5.59% of loans, net of unearned income and foreclosed assets. The allowance for loan losses equaled $10.5 million or 2.19% of loans, net of unearned income, at December 31, 2009, compared to $5.3 million or 1.08% one year ago. Loans charged-off, net of recoveries, increased $4,094 thousand or 362.6% to $5,223 thousand in 2009 from $1,129 thousand in 2008. The Capital Plan, in addition to strengthening risk-based capital ratios, complements other steps implemented by management to improve asset quality, which include:
- Retaining an independent loan review company to assist and advise management with credit risk management practices;
- Adding and redeploying staff to enhance the oversight and workout of classified assets;
- Establishing a Problem Loan Committee for the purpose of monitoring the status of problem assets and devising action plans for the timely workout or liquidation of these assets;
- Overhauling the appraisal process by requiring new appraisals on all impaired loans and certain delinquent loans over 60 days past due;
- Revising the allowance for loan losses methodology to ensure reserves are adequate to address risks; and
- Tightening underwriting standards to ensure a more rigorous review of potential loans.