This excerpt taken from the CBNK 10-K filed Mar 28, 2007.
Comparison of Operating Results for the Years Ended December 31, 2006 and December 31, 2005
General. For the year ended December 31, 2006, the Company reported a net loss of $2.5 million compared to net income of $1.4 million for the year ended December 31, 2005. The net loss for the year ended December 31, 2006 was a result of the charitable contribution the Company made to the Foundation of Company common stock in the amount of $5.5 million. The loss from the charitable contribution was partially offset by an increase in net interest income after provision for loan losses of $1.3 million or 11.3%, primarily due to growth in average loans, somewhat offset by higher provision for loan losses.
Net Interest Income. Net interest income, on a tax equivalent basis, totaled $13.6 million for the year ended December 31, 2006, an increase of $1.7 million, or 13.8%, from $11.9 million for the same period in 2005 reflecting growth in average earning assets of $45.0 million, or 13.0%, partially offset by higher cost of deposits. Net interest margin, on a tax equivalent basis, increased 2 basis points to 3.49% for the year ended December 31, 2006 from 3.47% for the same period in 2005 primarily attributable to a increase in the tax equivalent yield on interest-earning assets, offset by higher rates paid on deposits and an increase in higher cost certificate of deposits.
Interest and Dividend Income. Interest and dividend income, on a tax equivalent basis, increased $3.9 million, or 20.8%, to $22.8 million for the year ended December 31, 2006 from $18.9 million in 2005 largely reflecting growth in average interest-earning assets, somewhat mitigated by a higher tax equivalent yield on interest-earning assets. Average interest-earning assets totaled $390.0 million for the year ended December 31, 2006 compared to $345.0 million for the same period last year, representing an increase of $45.0 million, or 13.0%. Average loans increased $35.9 million, or 12.0%, primarily due to strong origination somewhat mitigated by amortization. Average investment securities rose $7.4 million, or 21.1%, mainly attributable to additional purchases of governmental securities, somewhat offset by principal payments. The tax equivalent yield on interest-earning assets increased 39 basis points to 5.85% for the year ended December 31, 2006, largely attributable to higher market rates of interest. The higher interest rate environment led to reduced levels of loan prepayments and refinancing as well as a slow down in cash flows and premium amortization. In addition, a portion of the Companys existing interest-sensitive assets repriced to increased rates.
Interest Expense. Total interest expense increased $2.3 million, or 32.9%, to $9.2 million for the year ended December 31, 2006 from $6.9 million in 2005 resulting primarily from higher rates paid on interest-bearing liabilities. Average interest-bearing liabilities totaled $311.3 million for the year ended December 31, 2006, representing an increase of $8.6 million, or 2.8%, from $302.7 million for the same period in 2005 due to an increase in interest-bearing deposits and borrowings. Average interest-bearing deposits grew $5.6 million, or 2.1%, to $272.4 million for the year ended December 31, 2006, primarily attributable to increased balances in savings deposit accounts, promotional activities, and competitive pricing. Average savings deposit balances rose $16.3 million, or 33.7%, to $64.5 million for the year ended December 31, 2006 due in large part to special promotions. Average borrowings increased $3.0 million, or 8.3%, to $38.9 million for the year ended December 31, 2006. The rate paid on interest-bearing liabilities increased 67 basis points to 2.96% for the year ended December 31, 2006 from 2.29% in 2005, reflecting the higher interest rate environment.
Provision for Loan Losses. The Companys provision for loan losses increased by $320,000 to $440,000 for the year ended December 31, 2006 from $120,000 for the same period in 2005. The primary factors contributing to the higher provision in 2006 are an increase of $975,000 in non-performing loans in 2006 as well as overall loan portfolio growth.
Non-interest Income. Total non-interest income increased $139,000, or 9.3%, to $1.6 million for the year ended December 31, 2006 compared to $1.5 million for the same period in 2005. The 2006 results included gains from loan sales and servicing totaling $117,000, compared to $70,000 in 2005, an increase of $47,000 or 67.0%. This resulted mainly from the increase of $67,000 for the value of additional mortgage servicing rights Fee income increased $170,000, or 12.9%, to $1.5 million for the year ended December 31, 2006 from $1.3 million for the comparable period in 2005 reflecting expansion in deposit balances and transaction volume. In addition, investment commissions totaled $217,000 for the year ended December 31, 2006 compared to $158,000, an increase of $59,000, or 37.3%, mainly resulting from new customers gained as a result of successful business development efforts.
Non-interest Expenses. Non-interest expenses rose $6.8 million, or 61.0%, to $17.9 million for the year ended December 31, 2006 largely attributable to the Companys common stock contribution in the amount of $5.5 million to the Foundation as part of the mutual to stock conversion and growth in salaries and benefits. Salaries and benefits increased $685,000, or 11.2%, to $6.8 million in 2006 mainly as a result of additional staffing costs to support the requirements of a public company, increased benefit costs associated with the Companys implementation of the Banks ESOP and standard wage increases.
Income Taxes. The Companys income tax expense decreased $1.3 million to a tax benefit of $577,000 for the year ended December 31, 2006 compared to a tax expense of $771,000 in 2005 mainly attributable the tax benefit received from the Companys common stock contribution to the Foundation. As of December 31, 2006 a valuation allowance of $800,000 has been established against deferred tax assets related to the uncertain utilization of the charitable contribution carryforward created primarily by the donation to the Foundation as part of the conversion. The judgments applied by management consider the likelihood that sufficient taxable income will be realized within the carryforward period in light of our tax planning strategies and changes in the market conditions.