Net Interest Income and Margin

In the second quarter of 2010, net interest income, on a fully tax-equivalent basis, was $12.7 million, reflecting an increase from $12.4 million for the second quarter of 2009, due principally to growth in the investment portfolio funded by growth in lower costing core deposits.

On a fully tax-equivalent basis, the net interest margin was 3.64 percent for the June 2010 quarter compared to 3.71 percent for the June 2009 quarter. In comparing the June 2010 quarter to the same quarter last year, the effect of growth in lower yielding, but less risky and shorter duration cash deposits and investment securities coupled with declining loan balances, contributed to a reduction in margin. This effect was partially offset by the growth of lower cost core deposits and the intentional run-off of higher cost certificates of deposit.

Mr. Kissel stated, “Throughout 2009 and into 2010, we have built substantial liquidity into our balance sheet, so as to be better positioned in the future when we expect loan demand will increase and interest rates will rise.”


Average loans totaled $964.1 million for the second quarter of 2010 as compared to $1.03 billion for the same 2009 quarter, reflecting a decrease of $68.6 million or 6.6 percent. The average residential mortgage loan portfolio declined $53.2 million or 10.9 percent to $436.0 million in the second quarter of 2010 from the same quarter of 2009. The Corporation has opted to sell its longer-term, fixed-rate loan production as an interest rate risk management strategy in the lower rate environment, and loan pay-downs have outpaced the originations retained in portfolio. The average commercial portfolio declined $18.2 million or 3.8 percent from the second quarter of 2009 to $462.5 million for the same quarter in 2010, as loan demand and quality borrowers on the commercial front have remained scarce.