UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________
FORM 10-QSB
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2007
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
For the transition period from ______________ to _____________
Commission file number 000 - 51408_________________
FIRST VALLEY BANCORP, INC.
(Exact name of small business issuer as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
FOUR RIVERSIDE AVENUE, BRISTOL, CT, 06010
(Address of principal executive offices)
860-582-8868
(Issuer’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act
Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. N/A
As of April 30, 2007, there were 1,194,550 shares of the registrant’s common stock outstanding.
Transitional Small Business Disclosure Format Yes ____ No X
| | | Page |
| | | |
Part I | FINANCIAL INFORMATION | |
| | | |
| Item 1. | Financial Statements: | |
| | Consolidated Statements of Financial Condition as of March 31, 2007 and December 31, 2006 | 3 |
| | | |
| | Consolidated Statements of Income for the three month periods ended March 31, 2007 and 2006 | 4 |
| | | |
| | Consolidated Statements of Cash Flows for the three month periods ended March 31, 2007 and 2006 | 5 |
| | | |
| | Notes to Consolidated Financial Statements | 6 - 9 |
| | | |
| Item 2. | Management’s Discussion and Analysis or Plan of Operation | 9 - 18 |
| | | |
| Item 3. | Controls and Procedures | 18 |
| | | |
Part II | OTHER INFORMATION | |
| | | |
| Item 1. | Legal Proceedings | 18 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 18 |
| Item 3. | Defaults Upon Senior Securities | 18 |
| Item 4. | Submission of Matters to a Vote of Security Holders | 18 |
| Item 5. | Other Information | 18 |
| | | |
| Item 6. | Exhibits | 18 - 19 |
| | | |
| SIGNATURES | | 20 |
| CERTIFICATIONS | | 21 - 26 |
| |
(in thousands except share data) | |
| | | March 31, | | December 31, | |
| | | 2007 | | 2006 | |
| | | (Unaudited) | | | |
| | | | | | | | |
ASSETS | | | | | | | |
| Cash and due from depository institutions | | $ | 5,443 | | $ | 12,319 | |
| Federal funds sold and money market accounts | | | 13,358 | | | 13,841 | |
| Investment securities | | | 25,026 | | | 26,672 | |
| Loans receivable, net | | | 135,285 | | | 133,709 | |
| Loans held for sale | | | 444 | | | 1,080 | |
| Premises and equipment, net | | | 2,858 | | | 2,321 | |
| FHLBB Stock, at cost | | | 602 | | | 719 | |
| Accrued income receivable | | | 788 | | | 865 | |
| Deferred income taxes | | | 1,010 | | | 1,052 | |
| Other assets | | | 94 | | | 569 | |
TOTAL ASSETS | | $ | 184,908 | | $ | 193,147 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | |
| Deposits: | | | | | | | |
| Non-interest bearing | | $ | 19,235 | | $ | 18,225 | |
| Interest bearing | | | 143,208 | | | 146,533 | |
| Total deposits | | | 162,443 | | | 164,758 | |
| Borrowed funds | | | 8,875 | | | 14,952 | |
| Mortgagors' escrow accounts | | | 81 | | | 169 | |
| Other liabilities | | | 2,977 | | | 2,737 | |
| Total Liabilities | | | 174,376 | | | 182,616 | |
| | | | | | | | |
| Commitments and contingencies | | | | | | | |
| | | | | | | | |
| Stockholders' Equity: | | | | | | | |
| Common stock, no par value; authorized 3,000,000 shares; | | | | | | | |
| issued and outstanding 1,194,550 at March 31, 2007 and | | | | | | | |
| December 31, 2006 | | | 899 | | | 899 | |
| Additional paid-in capital | | | 8,273 | | | 8,273 | |
| Retained earnings | | | 1,561 | | | 1,627 | |
| Accumulated other comprehensive loss | | | (201 | ) | | (268 | ) |
| Total Stockholders' Equity | | | 10,532 | | | 10,531 | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | | $ | 184,908 | | $ | 193,147 | |
| | | | | | | | |
| See notes to consolidated financial statements |
| |
MARCH 31, 2007 | |
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) | |
|
| | | | | | |
| | Three Months Ended | |
| | March 31, | |
| Interest income: | | | 2007 | | | 2006 | |
| Interest on loans | | $ | 2,528 | | $ | 1,996 | |
| Interest and dividends on investments | | | 456 | | | 384 | |
| Total interest income | | | 2,984 | | | 2,380 | |
| | | | | | | | |
| Interest expense: | | | | | | | |
| Deposits and escrow | | | 1,422 | | | 753 | |
| Borrowed funds | | | 122 | | | 239 | |
| Total interest expense | | | 1,544 | | | 992 | |
| Net interest income | | | 1,440 | | | 1,388 | |
| | | | | | | | |
| Provision for loan losses | | | 99 | | | 75 | |
| | | | | | | | |
| Net interest income after provision for loan losses | | | 1,341 | | | 1,313 | |
| | | | | | | | |
| Noninterest income: | | | | | | | |
| Service charges and other fees | | | 156 | | | 86 | |
| Realized gains (losses) on investments | | | - | | | (86 | ) |
| Total noninterest income | | | 156 | | | - | |
| | | | | | | | |
| Noninterest expenses: | | | | | | | |
| Salaries | | | 691 | | | 454 | |
| Employee benefits and taxes | | | 136 | | | 90 | |
| Occupancy and equipment | | | 378 | | | 182 | |
| Professional fees | | | 82 | | | 46 | |
| Marketing | | | 40 | | | 25 | |
| Office supplies | | | 29 | | | 15 | |
| Outside service fees | | | 65 | | | 50 | |
| Merger related expenses | | | 35 | | | - | |
| Other | | | 123 | | | 77 | |
| Total noninterest expenses | | | 1,579 | | | 939 | |
| Income (loss) before income tax expense | | | (82 | ) | | 374 | |
| Income tax expense (benefit) | | | (16 | ) | | 153 | |
NET INCOME (LOSS) | | $ | (66 | ) | $ | 221 | |
| | | | | | | | |
| Basic income (loss) per share | | $ | (0.06 | ) | $ | 0.19 | |
| Diluted income (loss) per share | | $ | (0.05 | ) | $ | 0.18 | |
| | | | | | | | |
| Weighted-average shares outstanding - basic | | | 1,194,550 | | | 1,187,573 | |
| Weighted-average shares outstanding - diluted | | | 1,265,391 | | | 1,247,984 | |
| | | | | | | | |
| See notes to consolidated financial statements | | | | | | | |
|
MARCH 31, 2007 |
| |
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) |
(in thousands) |
| | Three Months Ended March 31, | |
Cash flows from operating activities | | | 2007 | | | 2006 | |
| Net income (loss) | | $ | (66 | ) | $ | 221 | |
| Adjustments to reconcile net income to net | | | | | | | |
| cash provided by operating activities: | | | | | | | |
| Realized losses on investments | | | - | | | 86 | |
| Depreciation | | | 87 | | | 57 | |
| Provision for loan losses | | | 99 | | | 75 | |
| Amortization of debt issuance costs | | | 1 | | | 1 | |
| Amortization (accretion) of premiums (discounts), net | | | 20 | | | 33 | |
| Common stock issued as compensation | | | - | | | 22 | |
| Net Change in: | | | | | | | |
| Accrued income receivable | | | 77 | | | 18 | |
| Deferred loan fees | | | (9 | ) | | 34 | |
| Other assets | | | 475 | | | (102 | ) |
| Other liabilities | | | 240 | | | (989 | ) |
| Net cash provided (used) by operating activities | | | 924 | | | (544 | ) |
| | | | | | | | |
Cash flows from investing activities | | | | | | | |
| Proceeds from maturities, calls and paydowns | | | | | | | |
| of available-for-sale securities | | | 4,235 | | | 1,679 | |
| Proceeds from sales of available-for-sale securities | | | - | | | 3,122 | |
| Purchase of available-for-sale securities | | | (2,500 | ) | | - | |
| Loan originations net of principal payments | | | (1,030 | ) | | (6,978 | ) |
| Redemption (purchase) of Federal Home Loan Bank of | | | | | | | |
| Boston Stock | | | 117 | | | (88 | ) |
| Purchases of premises and equipment | | | (624 | ) | | (91 | ) |
| Net cash provided (used) by investing activities | | | 198 | | | (2,356 | ) |
| | | | | | | | |
Cash flows from financing activities | | | | | | | |
| Change in DDA, NOW, money market and | | | | | | | |
| savings accounts | | | 2,921 | | | (6,848 | ) |
| Change in time deposit accounts | | | (5,236 | ) | | 8,601 | |
| Proceeds from borrowed funds | | | - | | | 11,000 | |
| Repayments of borrowed funds | | | (6,078 | ) | | (10,818 | ) |
| Change in mortgagors' escrow accounts | | | (88 | ) | | (78 | ) |
| Net cash provided (used) by financing activities | | | (8,481 | ) | | 1,857 | |
| Net change in cash and cash equivalents | | | (7,359 | ) | | (1,043 | ) |
| Cash and cash equivalents at beginning of period | | | 26,160 | | | 12,667 | |
Cash and cash equivalents at end of period | | $ | 18,801 | | $ | 11,624 | |
| | | | | | | | |
Supplemental Disclosures | | | | | | | |
| Cash paid during the period for: | | | | | | | |
| Interest | | $ | 1,591 | | $ | 994 | |
| Income taxes | | $ | 245 | | $ | 345 | |
| See notes to consolidated financial statements |
MARCH 31, 2007
(Unaudited)
Note 1. Business
First Valley Bancorp, Inc. (the “Company”), a Connecticut corporation, was formed in 2005 for the purpose of becoming the one-bank holding company of Valley Bank (the “Bank”), a wholly-owned subsidiary. The Company’s activity is currently limited to the holding of the Bank’s outstanding common stock and the Bank is the Company’s primary investment. The Company’s net income is largely derived from the business of the Bank.
The Bank commenced operations as a Connecticut state-chartered commercial bank on November 15, 1999. The Bank is an insured bank under the Federal Deposit Insurance Act up to its applicable limits. Like most state-chartered commercial banks in Connecticut, it is not a member of the Federal Reserve System.
On November 21, 2006, the Company entered into a definitive merger agreement in which the Company will merge with and into New England Bancshares Acquisition, Inc. in exchange for cash and common stock of New England Bancshares, Inc. (“NEB”). See Note 9 Definitive Merger Agreement for additional details.
The Bank conducts its business from four locations serving the greater Bristol community, its main office at Four Riverside Avenue, Bristol, Connecticut, 06010, and three additional full-service offices at 8 South Main Street in the Terryville section of Plymouth, Connecticut, 06786, at 98 Main Street in Southington, Connecticut, 06489, and at 888 Farmington Avenue, Bristol, Connecticut 06010.
The Bank is engaged principally in the business of attracting deposits from the general public and investing those deposits in small business, commercial real estate, residential real estate and consumer loans. In connection with both loans and deposits, the Bank does a substantial amount of business with individuals as well as customers in commercial and professional businesses. The Bank offers safe deposit boxes at all full-service locations, and other customary bank services to its customers. The Bank has drive-up facilities and automated teller machines which are connected to the NYCE, SUM and PLUS networks.
Note 2. Basis of presentation
The interim consolidated financial statements of the Company include those of the Company and its wholly owned subsidiary, Valley Bank. Inter-company transactions have been eliminated. The Company does not consolidate its subsidiary, FVB Capital Trust I, as described in Note 8. The accounting and reporting policies of the Company conform to generally accepted accounting principles in the United States of America and to general practices within the banking industry. Such policies have been followed on a consistent basis.
In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet, and income and expenses for the period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for losses on loans. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in credit quality and economic conditions, particularly in Connecticut.
FIRST VALLEY BANCORP, INC. FORM 10-QSB QUARTERLY REPORT MARCH 31, 2007
The data presented for the three months ended March 31, 2007 and 2006 reflect, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) which are necessary to present fairly the results for such interim periods.
Interim results at and for the three months ended March 31, 2007 are not necessarily indicative of the results that may be expected for the fiscal year ended December 31, 2007.
Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income” establishes standards for disclosure of comprehensive income, which includes net income and any changes in equity from non-owner sources that are not recorded in the income statement (such as changes in the net unrealized gains (losses) on securities).
The Company’s one source of other comprehensive income is the net unrealized gain (loss) on securities.
| | | Three Months Ended | |
| (in thousands) | | March 31, | |
| | | 2007 | | 2006 | |
| Net Income (loss) | | $ | (66 | ) | $ | 221 | |
| | | | | | | | |
Other comprehensive income (loss): | | | | | | | |
| Net unrealized holding gains (losses) on securities available for sale | | | 110 | | | (66 | ) |
| Reclassification adjustment for loss recognized in net income | | | - | | | 86 | |
| Other comprehensive income (loss) before tax expense | | | 110 | | | 20 | |
| Income tax expense (benefit) related to items of other comprehensive income (loss) | | | 43 | | | 8 | |
| Other comprehensive income (loss) net of tax | | | 67 | | | 12 | |
Total comprehensive income | | $ | 1 | | $ | 233 | |
The Company has computed and presented income per share in accordance with Statement of Financial Accounting Standards No. 128.
Note 5. Commitment to Extend Credit
The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit. These commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statement of financial condition.
FIRST VALLEY BANCORP, INC. FORM 10-QSB QUARTERLY REPORT
MARCH 31, 2007
The contractual amounts of outstanding commitments March 31, 2007 and December 31, 2006 were as follows:
| (in thousands) | | | | | |
| | March 31, 2007 | December 31, 2006 |
| Commitments to extend credit: | | | | | | | |
| Loan commitments | | $ | 9,661 | | $ | 8,759 | |
| Unadvanced lines of credit | | | 25,396 | | | 21,992 | |
| Unused overdraft privilege | | | 2,335 | | | - | |
| Standby letters of credit | | | 2,139 | | | 2,139 | |
| Outstanding commitments | | $ | 39,531 | | $ | 32,890 | |
Note 6. Stock Based Compensation
The Company has a long-term incentive plan authorizing various types of market and performance based incentive awards that may be granted to directors, officers and employees. Information regarding stock options as of March 31, 2007 is summarized below:
| | | | | | |
| | | Number of shares | | Weighted Average Exercise Price | |
| Outstanding at December 31, 2006 | | | 118,242 | | $ | 8.22 | |
| Granted | | | - | | | - | |
| Exercised | | | - | | | - | |
| Forfeited | | | - | | | - | |
| Outstanding at March 31, 2007 | | | 118,242 | | $ | 8.22 | |
| | | | | | | | |
| Options exercisable at March 31, 2007 | | | 118,242 | | $ | 8.22 | |
On January 1, 2006, the Company adopted the provision of SFAS 123R using the modified prospective transition method. Under this transition method, compensation expense is recognized currently for all outstanding options not yet vested. All of the Company’s outstanding options were fully vested as of the effective date and therefore no compensation expense was recognized. Previously, the Company applied APB Opinion 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its long-term incentive plan.
Note 7. Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” to define fair value, establish a framework for measuring fair value and expand disclosures about fair values. The Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company does not expect SFAS No. 157 to have a material impact on the Company’s financial position or results of operation.
FIRST VALLEY BANCORP, INC. FORM 10-QSB QUARTERLY REPORT MARCH 31, 2007
In February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”), which permits entities to choose and measure many financial instruments and certain other items at fair value. The Company will be required to adopt SFAS No. 159 in the first quarter of 2008 with earlier adoption permitted, and is currently evaluating the impact of the adoption of SFAS No. 159 on its financial position and results of operations.
Note 8. Long Term Debt
In July 2005, the Company formed FVB Capital Trust I (the “Trust”). The Trust has no independent assets or operations and was created for the sole purpose of issuing trust preferred securities and investing the proceeds thereof in an equivalent amount of junior subordinated debentures issued by the Company.
Trust preferred securities issued by the statutory trust are considered regulatory capital for purposes of determining the Company’s Tier I capital ratio and the Bank’s Tier I capital ratio to the extent that the trust preferred proceeds have been invested in the Bank’s capital.
The subordinated debentures, which bear an interest rate fixed at 6.42% for the first five years and a floating interest rate set at three-month LIBOR plus 190 basis points thereafter, mature on August 23, 2035 and can be redeemed at the Company’s option in an amount equal to 100% of the principal amount of the debt securities beginning in 2010 and thereafter. The trust securities have identical terms except the duration of the trust is 35 years.
Note 9. Definitive Merger Agreement
On November 21, 2006, the Company entered into a definitive agreement in which the Company will merge with and into New England Bancshares Acquisition, Inc. in exchange for cash and common stock of New England Bancshares, Inc. (“NEB”). NEB is a Maryland corporation based in Enfield, Connecticut and is the holding company for Enfield Federal Savings and Loan Association in Enfield, Connecticut. At the effective time of the merger, the separate corporate existence of the Company shall cease, and Valley Bank, the Company’s subsidiary, will become a subsidiary of NEB. Per the definitive agreement, Valley Bank will continue as a separate subsidiary for a minimum of five years after the effective date, absent the occurrence of certain unexpected events.
The transaction is valued at approximately $25.6 million. The terms of the definitive agreement call for each outstanding share of the Company to be converted into the right to receive .8907 shares of NEB common stock and $9.00 in cash.
The transaction has received the requisite regulatory approvals but is subject to approval by the shareholders of the Company.
Part I. - FINANCIAL INFORMATION
Cautionary Statement
Reports issued by First Valley Bancorp, Inc. including this quarterly report on Form 10-QSB contain statements relating to future results of the Company that are considered “forward looking” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to, among other things, expectations concerning loan demand, growth and performance, simulated changes in interest rates and the adequacy of the Company’s allowance for loan losses. Actual results may differ materially from
FIRST VALLEY BANCORP, INC. FORM 10-QSB QUARTERLY REPORT MARCH 31, 2007
those expressed or implied as a result of certain risks and uncertainties, including but not limited to, changes in political and economic conditions, interest rate fluctuations, personal and corporate customers’ bankruptcies, inflation, acquisitions and integrations of acquired businesses, results from branch expansion, technological fluctuations, success in gaining regulatory approvals when required as well as other risks and uncertainties reported from time to time in the Company’s filings with the SEC.
(a) Plan of Operation
Not applicable since the Company had revenues from operations in each of the last two fiscal years.
(b) Management's Discussion and Analysis of Financial Condition and Results of Operation
Overview
The Company is the holding company for Valley Bank (the “Bank”), a Connecticut state-chartered commercial bank located in Bristol, Connecticut. The Bank, which has its main office in Bristol, and full-service branch offices at 8 South Main Street, in the Terryville section of Plymouth, at 98 Main Street in Southington, and at 888 Farmington Avenue in Bristol. The Southington and Farmington Avenue offices opened in January and March 2007, respectively. The Bank provides banking services to commercial and individual customers primarily in the town of Bristol and the neighboring communities of Burlington, Farmington, Plainville, Plymouth, Southington and Wolcott. The Bank offers to its business customers demand, savings and time deposit accounts and the granting of various types of commercial loans and commercial real estate loans.
In April 2006, the Bank entered into a sublease for an operations center on 45 North Main Street, Bristol, Connecticut. The sublease expires in September 2007. The Bank has entered into an operating lease for the same premises that will become effective and replace the sublease in September 2007.
The services provided by the Bank to consumers include checking, savings and time deposit accounts, as well as mortgage loans, consumer loans and investment services.
In January 2006, the Board of Directors authorized the Bank to begin offering full-time access to advisory and investment services to consumers and businesses on retirement planning, individual investment portfolios, and strategic asset management. The new services provided by the Bank (d/b/a Riverside Investment Services) include mutual funds, life insurance options, tax and estate planning, and investment portfolio analysis. In April 2006, the Bank hired Thomas O. Barnes, Jr. as the Manager of Riverside Investment Services and began to provide these services. Riverside Investment Services is located on the second floor of the Bank’s main office on Four Riverside Avenue, Bristol, Connecticut.
In April 2006, the Bank entered into a broker/dealer relationship with LPL (Linsco/Private Ledger) in Boston.
Prior to April 2006, the Bank had offered its customers investment services on a part-time basis through a relationship with Tracy Driscoll, Inc., a local insurance agency, and Bannon, Ohanesian & Lecours, Inc., a full-service, independent broker/dealer headquartered in West Hartford, Connecticut.
MARCH 31, 2007
In December 2006, the Company announced that Mark J. Blum, the Executive Vice President, Treasurer and Chief Financial Officer of Valley Bank and the Company, had been elected a director of both the Bank and the Company.
First Valley Bancorp, Inc. lists its stock on the Over The Counter Bulletin Board at www.otcbb.com under the symbol “FVLY”.
The following discussion and analysis presents a review of the operating results and financial condition of the Company, for the three month periods ended March 31, 2007 and 2006. The discussion below should be read in conjunction with the financial statements and other financial data presented elsewhere herein.
FINANCIAL CONDITION
General
Total assets decreased by $8.2 million, or 4.3%, during the first quarter of 2007. Total loans grew by $1.7 million, or 1.2%, for the quarter, while total investment securities declined by $1.6 million, or 6.2%. Total deposits decreased by $2.3 million, or 1.4%, in the first quarter of 2007 and total borrowed funds balances declined by $6.1 million, or 40.6%, for the quarter.
The carrying value and estimated market values of investment securities are as follows:
(in thousands)
March 31, 2007 |
| Available-for-sale securities: | | Amortized | | Gross Unrealized | | Estimated | |
| Debt securities: | | Cost | | | Gains | | | (Losses) | | Market Value | |
| U.S. agency obligations: | | | | | | | | | | | | | |
| Due in less than one year | | $ | 3,499 | | $ | - | | $ | (32 | ) | $ | 3,467 | |
| Due from one through five years | | | 3,000 | | | - | | | (47 | ) | | 2,953 | |
| | | | 6,499 | | | - | | | (79 | ) | | 6,420 | |
| Corporate bonds: | | | | | | | | | | | | | |
| Due in less than one year | | | 253 | | | - | | | (1 | ) | | 252 | |
| Due from one through five years | | | 1,550 | | | - | | | (41 | ) | | 1,509 | |
| | | | 1,803 | | | - | | | (42 | ) | | 1,761 | |
| | | | | | | | | | | | | | |
| Municipal bonds: | | | | | | | | | | | | | |
| Due after five through ten years | | | 1,179 | | | - | | | (2 | ) | | 1,177 | |
| Due after ten years | | | 1,382 | | | 1 | | | (1 | ) | | 1,382 | |
| | | | 2,561 | | | 1 | | | (3 | ) | | 2,559 | |
| | | | | | | | | | | | | | |
| Mortgage-backed securities | | | 12,489 | | | 11 | | | (214 | ) | | 12,286 | |
| Total debt securities | | | 23,352 | | | 12 | | | (338 | ) | | 23,026 | |
| | | | | | | | | | | | | | |
| Equity securities: | | | | | | | | | | | | | |
| Variable rate preferred securities: | | | 2,000 | | | - | | | - | | | 2,000 | |
| Total available-for-sale securities | | $ | 25,352 | | $ | 12 | | $ | (338 | ) | $ | 25,026 | |
December 31, 2006 | | | | | | | | | |
| Available-for-sale securities: | | Amortized | | Gross Unrealized | | Estimated | |
| Debt securities: | | Cost | | Gains | | (Losses) | | Market Value | |
| U.S. agency obligations: | | | | | | | | | | | | | |
| Due in less than one year | | $ | 3,500 | | $ | - | | $ | (29 | ) | $ | 3,471 | |
| Due from one through five years | | | 4,000 | | | - | | | (73 | ) | | 3,927 | |
| | | | 7,500 | | | - | | | (102 | ) | | 7,398 | |
| Corporate bonds: | | | | | | | | | | | | | |
| Due in less than one year | | | 506 | | | - | | | (2 | ) | | 504 | |
| Due from one through five years | | | 1,554 | | | - | | | (48 | ) | | 1,506 | |
| | | | 2,060 | | | - | | | (50 | ) | | 2,010 | |
| | | | | | | | | | | | | | |
| Municipal bonds: | | | | | | | | | | | | | |
| Due after five through ten years | | | 1,179 | | | - | | | - | | | 1,179 | |
| Due after ten years | | | 1,383 | | | - | | | (6 | ) | | 1,377 | |
| | | | 2,562 | | | - | | | (6 | ) | | 2,556 | |
| | | | | | | | | | | | | | |
| Mortgage-backed securities | | | 12,986 | | | 4 | | | (282 | ) | | 12,708 | |
| Total debt securities | | | 25,108 | | | 4 | | | (440 | ) | | 24,672 | |
| | | | | | | | | | | | | | |
| Equity securities: | | | | | | | | | | | | | |
| Variable rate preferred securities: | | | 2,000 | | | - | | | - | | | 2,000 | |
| Total available-for-sale securities | | $ | 27,108 | | $ | 4 | | $ | (440 | ) | $ | 26,672 | |
The Company had no realized gains or losses on investment securities during the three months ended March 31, 2007, and an $86,000 realized loss on investment securities during the three months ended March 31, 2006.
The Company’s loan portfolio increased by $1.7 million, or 1.2%, during the first quarter of 2007. The majority of growth was in commercial and consumer real estate loans. At March 31, 2007 and December 31, 2006, the composition of the Company’s loan portfolio was as follows (dollars in thousands):
MARCH 31, 2007
| | | At | | At | |
| | | March 31, 2007 | | December 31, 2006 | |
| Commercial mortgages | | $ | 70,858 | | $ | 69,603 | |
| Commercial loans | | | 29,702 | | | 30,162 | |
| Residential mortgages | | | 23,942 | | | 22,925 | |
| Consumer and home equity loans | | | 12,979 | | | 13,127 | |
| | | | 137,481 | | | 135,817 | |
| Less: | | | | | | | |
| Deferred loan origination fees | | | 238 | | | 248 | |
| Allowance for loan losses | | | 1,958 | | | 1,860 | |
| Loans receivable, net | | $ | 135,285 | | $ | 133,709 | |
| Weighted average yield | | | 7.25 | % | | 7.24 | % |
Critical Accounting Policies
In the ordinary course of business, the Company has made a number of estimates and assumptions relating to reporting results of operations and financial condition in preparing its financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions and conditions. The Company believes the following discussion addresses the Company's only critical accounting policy, which is the policy that is most important to the presentation of the Company's financial results. This policy requires management's most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Allowance for Loan Losses
The allowance for loan losses is established by a provision charged to earnings and is maintained at a level considered adequate to provide for potential loan losses based on management’s evaluation of known and inherent risks in the loan portfolio. When a loan or portion of a loan is considered uncollectible, it is charged against the allowance for loan losses. Recoveries of loan previously charged off are credited to the allowance when collected.
Management makes regular evaluations of the loan portfolio to determine the adequacy of the level of the allowance for loan losses. Numerous factors are considered in the evaluation, including a review of certain borrowers’ current financial status and credit standing, available collateral, loss experience in relation to outstanding loans, the overall loan portfolio quality, management’s judgment regarding prevailing and anticipated economic conditions, and other relevant factors.
In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.
The following summarizes the changes in allowance for loan losses for the three months ended March 31, 2007 (dollars in thousands):
FIRST VALLEY BANCORP, INC. FORM 10-QSB QUARTERLY REPORT
MARCH 31, 2007
| | $ | 1,860 | |
| Provision for loan losses | | | 99 | |
| Chargeoffs | | | (1 | ) |
| Recoveries | | | - | |
| Balance, end of period | | $ | 1,958 | |
Nonperforming loans totaled $257,000 and $270,000 at March 31, 2007 and December 31, 2006, respectively. These loans, delinquent 90 days or more, were accounted for on a non-accrual basis. Impaired loans totaled $870,000 and $720,000 at March 31, 2007 and December 31, 2006, respectively. These loans had specific reserves of $227,000 at March 31, 2007 and $139,000 at December 31, 2006.
Deposits
Deposits declined by $2.3 million, or 1.4%, during the first quarter of 2007. The decrease was almost entirely in time deposit balances, while balances in NOW accounts, money market savings and demand deposit accounts increased.
At March 31, 2007 and December 31, 2006, the Company’s deposit balances were as follows (dollars in thousands):
| | | At March 31 , 2007 | | At December 31, 2006 | |
| | | | | Weighted | | | | Weighted | |
| | | | | Average | | | | Average | |
| | | Amount | | Rate | | Amount | | Rate | |
| Non-interest checking | | $ | 19,235 | | | 0.00 | % | $ | 18,225 | | | 0.00 | % |
| Regular savings | | | 17,564 | | | 0.82 | % | | 17,782 | | | 0.79 | % |
| Money market savings | | | 17,384 | | | 2.85 | % | | 15,309 | | | 2.71 | % |
| NOW accounts | | | 3,700 | | | 0.69 | % | | 3,646 | | | 1.25 | % |
| | | | 57,883 | | | 1.15 | % | | 54,962 | | | 1.09 | % |
| | | | | | | | | | | | | | |
| Time deposits | | | 104,560 | | | 4.74 | % | | 109,796 | | | 4.74 | % |
| Total Deposits | | $ | 162,443 | | | 3.46 | % | $ | 164,758 | | | 3.52 | % |
Borrowed Funds
At March 31, 2007 and December 31, 2005, the Company had $8.9 million and $15.0 million, respectively, in borrowed funds. The Company has used excess liquidity during the first quarter of 2007 to repay maturing Federal Home Loan Bank of Boston ("FHLBB") Advances. The weighted average rates on borrowed funds at March 31, 2007 and December 31, 2006 were 5.29% and 5.32%, respectively.
Liquidity and Capital Resources
At March 31, 2007, approximately 24% of the Company’s assets were held in cash, cash equivalents and securities and 73% of the Company’s assets were held in loans. The Company’s ratio of loans to deposits, which is used as a general guideline in managing the Company’s asset/liability mix, was 83% at March 31, 2007.
The Company has other liquidity related policy targets and thresholds which are reviewed on a regular basis by the Asset/Liability Committee (“ALCO”). The Company reviews and sets deposit rates weekly
MARCH 31, 2007
based upon its need for funds, competition in the market area, and the availability and pricing of other funding sources.
The Bank is also a member of the FHLBB, which provides an alternative funding source for the Bank’s liquidity needs. The Bank currently has approximately $23 million of additional borrowing capacity at the FHLBB.
Each of the Company’s sources of liquidity is vulnerable to various uncertainties beyond the control of the Company. Scheduled loan and security payments are a relatively stable source of funds, but prepayments in loans and securities, securities calls, and deposit flows can all vary widely in reaction to market conditions, primarily prevailing interest rates. The Company’s financial condition is also affected by its ability at attractive rates and other market conditions.
The Company considers its sources of liquidity to be adequate to provide for expected and unexpected balance sheet fluctuations and to provide funds for growth. Management closely monitors its liquidity/cash flow position and is not currently aware of any trends or uncertainties that would create liquidity problems in the near future.
The Company is subject to capital adequacy rules and guidelines issued by the Federal Reserve Bank, and the Bank is subject to capital adequacy rules and guidelines issued by the FDIC. The substantially parallel rules and guidelines require the Company to maintain certain minimum ratios of capital to adjusted total assets and/or risk-weighted assets.
The Bank’s regulatory capital ratios at March 31, 2007 were a total risk-based capital ratio of 11.2% and a Tier 1 capital ratio of 7.8%. Those capital ratios at December 31, 2006 were 11.1% and 7.8%, respectively. The Company’s regulatory capital ratios at March 31, 2007 and December 31, 2006 were similar to the Bank’s ratios. Both the Company’s and the Bank’s capital ratios at March 31, 2007 were considered well capitalized for regulatory purposes.
RESULTS OF OPERATIONS
Comparison of the three month periods ended March 31, 2007 and 2006
Net Income
The Company had a net loss of $66,000, or $0.06 basic loss per share and $0.05 diluted loss per share, for the three-month period ended March 31, 2007, compared to net income of $221,000, or $0.19 basic income per share and $0.18 diluted income per share, for the three-month period ended March 31, 2006. The net loss in the first quarter of 2007 is primarily attributable to expenses related to the operation of two new branch offices that opened for business in the first quarter of 2007.
Net Interest Income
Net interest income for the three months ended March 31, 2007 was $1,440,000 compared to $1,388,000 for the same period in 2006. The increase for the three-month period is due to growth in interest-earning assets which more than offset compression in the Bank’s average net interest margin, which was 3.31% for the quarter ended March 31, 2007 compared to 3.65% for the same quarter in 2006.
Interest Income
Total interest income for the three-month periods ended March 31, 2007 and 2006 was $2,984,000 and $2,380,000, respectively. The average rate on interest-earning assets was higher by 62 basis points in the 2007 quarter versus the same quarter in 2006, while average interest earning assets were increased by $21.8 million.
MARCH 31, 2007
Interest Expense
Total interest expense for the three-month periods ended March 31, 2007 and 2006 was $1,544,000 and $992,000, respectively. The average rate on deposits and borrowings was 4.08% in the first quarter of 2007 compared to 3.05% in the same quarter of 2006, an increase of 103 basis points. The increase in the average rate reflects a shift of savings and money market deposits into time deposits. The higher interest expense in the current quarter reflects the higher average rate as well as strong growth in average interest-bearing liabilities which increased by $21.6 in the first quarter of 2007.
The tables below shows the major categories of average assets and average liabilities together with their respective interest income or expense and the rates earned and paid by the Company (dollars in thousands):
| | | For Three Months Ended |
| | | March 31, 2007 | March 31, 2006 | |
Interest-Earning Assets: | | Average | | Income/ | | Average | | Average | | Income/ | | Average | |
| Federal funds sold and money | | Balance | | Expense | | Rate | | Balance | | Expense | | Rate | |
| market accounts | | $ | 13,458 | | $ | 172 | | | 5.18 | % | $ | 6,256 | | $ | 70 | | | 4.51 | % |
| Investment securities | | | 26,722 | | | 284 | | | 4.31 | % | | 31,757 | | | 314 | | | 4.01 | % |
| Loans | | | 135,988 | | | 2,528 | | | 7.54 | % | | 116,339 | | | 1,996 | | | 6.96 | % |
| Total interest-earnings assets | | | 176,168 | | | 2,984 | | | 6.87 | % | | 154,352 | | | 2,380 | | | 6.25 | % |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Non-interest-earning assets | | | 9,154 | | | | | | | | | 5,421 | | | | | | | |
| Total assets | | $ | 185,322 | | | | | | | | $ | 159,773 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Interest-Bearing Liabilities: | | | | | | | | | | | | | | | | | | | |
| NOW accounts | | | 2,858 | | | 7 | | | 1.02 | % | | 3,033 | | | 4 | | | 0.53 | % |
| Savings and money market accounts | | | 33,186 | | | 138 | | | 1.68 | % | | 42,558 | | | 159 | | | 1.52 | % |
| Time deposits | | | 108,457 | | | 1,277 | | | 4.78 | % | | 66,655 | | | 590 | | | 3.59 | % |
| Borrowed money | | | 9,101 | | | 122 | | | 5.44 | % | | 19,773 | | | 239 | | | 4.90 | % |
| Total interest-bearing liabilities | | | 153,602 | | | 1,544 | | | 4.08 | % | | 132,019 | | | 992 | | | 3.05 | % |
| Non-interest-bearing demand deposits | | | 18,950 | | | | | | | | | 16,677 | | | | | | | |
| Other non-interest-bearing liabilities | | | 2,225 | | | | | | | | | 1,214 | | | | | | | |
| Capital accounts | | | 10,545 | | | | | | | | | 9,863 | | | | | | | |
| Total liabilities and capital accounts | | $ | 185,322 | | | | | | | | $ | 159,773 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Net interest income | | | | | $ | 1,440 | | | | | | | | $ | 1,388 | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Net interest margin | | | | | | 3.31 | % | | | | | | | | 3.65 | % | | | |
| Interest rate spread | | | | | | 2.79 | % | | | | | | | | 3.20 | % | | | |
| |
FIRST VALLEY BANCORP, INC. FORM 10-QSB QUARTERLY REPORT
MARCH 31, 2007
Net interest income can be analyzed in terms of the impact of changing rates and changing volumes. The following table describes the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected the Company’s interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by the prior rate), (ii) changes attributable to changes in rates (changes in rates multiplied by prior volume), and (iii) the net change (dollars in thousands):
| | |
| | | For the 3 Months Ended | | |
| | | March 31, 2007 versus 2006 | | |
| Interest Income: | | Increase (Decrease) Due to | |
| Federal funds sold and money | | | Rate | | | Volume | | | Total | | |
| market accounts | | $ | 12 | | $ | 90 | | $ | 102 | | |
| Investment securities | | | 23 | | | (53 | ) | | (30 | ) | |
| Loans | | | 176 | | | 356 | | | 532 | | |
| Total interest income | | | 211 | | | 393 | | | 604 | | |
| | | | | | | | | | | | |
| Interest Expense: | | | | | | | | | | | |
| NOW accounts | | | 3 | | | - | | | 3 | | |
| Savings and money market accounts | | | 16 | | | (38 | ) | | (22) | | |
| Time deposits | | | 237 | | | 451 | | | 688 | | |
| Borrowed money | | | 25 | | | (141) | | | (117) | | |
| Total interest expense | | | 281 | | | 272 | | | 552 | | |
| Change in Net interest income | | $ | (70 | ) | $ | 121 | | $ | 52 | | |
Provision for Loan Losses
The Company’s provision for loan losses was $99,000 in the first quarter of 2007 compared with $75,000 for the first quarter of 2006. Management performs a quarterly review of the loan portfolio and based on this review sets the level of provision necessary to maintain an adequate loan loss allowance. At March 31, 2007, the allowance for loan losses totaled $1,957,000, or 1.42% of total gross loans outstanding, compared to $1,860,000, or 1.37% of total loans outstanding, at December 31, 2006.
At March 31, 2007 and December 31, 2006, the Bank had nonperforming loans totaling $257,000 and $270,000, respectively.
Noninterest Income
The Company had $156,000 of service charges and other fees for the three months March 31, 2007 compared to $86,000 for the same period in 2006. The growth in 2007 reflects higher fees on deposit accounts as well as fees from Riverside Investment Services. The first quarter of 2006 also includes an $86,000 net realized loss on investment securities.
FIRST VALLEY BANCORP, INC. FORM 10-QSB QUARTERLY REPORT
MARCH 31, 2007
Noninterest Expense
Total noninterest expenses in the first quarter of 2007 were $1,579,000 versus $939,000 in the first quarter of 2006, an increase of $640,000. The growth in 2007 reflects the operating expenses related to two full service branches that were opened in the first quarter of 2007 and an operations center that was occupied in the third quarter of 2006. The increase also includes compensation and benefits expenses and other costs related to the startup and operation of Riverside Investment Services. The Bank had 55 full-time equivalent employees at March 31, 2007 versus 52 full-time equivalent employees at December 31, 2006 and 34 full-time equivalent employees at March 31, 2006.
Income Taxes
Total income tax benefit for the three-month periods ended March 31, 2007 was $16,000 compared with an income tax expense of $153,000 for the same quarter in 2006. The effective income tax rates for the respective quarters were 19.6% and 40.9%.
(c) Off Balance Sheet Arrangements
There have been no significant changes in the Company's off balance sheet arrangements, which primairly consist of commitments to lend, during the quarter ended March 31, 2007.
Based upon an evaluation as of the end of the period covered by this report, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect the Company’s internal controls subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| Legal Proceedings - Not applicable |
| Unregistered Sales of Equity Securities and Use of Proceeds - Not applicable |
| Defaults Upon Senior Securities - Not applicable |
| Submission of Matters to a Vote of Security Holders - Not applicable |
| Other Information - Not applicable |
| Exhibits - |
| | 2.1 | Agreement and Plan of Reorganization by and between Valley Bank and First Valley Bancorp, Inc. dated as of May 23, 2005 (incorporated by reference to Company's Form 8-A dated June 27, 2005) |
| | 2.2 | Agreement and Plan of Merger dated November 21, 2006 by and between New England Bancshares, Inc., New England Bancshares Acquisition, Inc. and First Valley Bancorp, Inc. (incorporated by reference to Company's Form 8-K dated November 28, 2006) |
| | 3.1 | Certificate of Incorporation (incorporated by reference to Company's Form 8-A dated June 27, 2005) |
| | 3.2 | Bylaws (incorporated by reference to Company's Form 8-A dated June 27, 2005) |
| | 4.1 | Instruments Defining Rights of Security Holders (incorporated by reference to Company's Form 8-A dated June 27, 2005) |
| | 10.1 | Employment Agreement between Valley Bank and Robert L. Messier, Jr. dated July 1, 2004 (incorporated by reference to Company's Form 8-A dated June 27, 2005) |
| | 10.1.1 | Amendment to Employment Agreement between Valley Bank and Robert L. Messier, Jr. dated November 1, 2004 (incorporated by reference to Company's Form 8-A dated June 27, 2005) |
| | 10.1.2 | Addendum to Employment Agreement between Valley Bank and Robert L. Messier, Jr. dated November 21, 2006. |
| | 10.2 | Change in Control Agreement dated October 1, 2004 by and between Valley Bank and Mark J. Blum (incorporated by reference to Company's Form 8-A dated June 27, 2005) |
| | 10.3 | Change in Control Agreement dated October 1, 2004 by and between Valley Bank and Anthony M. Mattioli (incorporated by reference to Company's Form 8-A dated June 27, 2005) |
| | 10.4 | Change in Control Agreement dated October 1, 2004 by and between Valley Bank and Robert L. Messier, Jr. (incorporated by reference to Company's Form 8-A dated June 27, 2005) |
| | 10.5 | Stock Option and Stock Compensation Plan (incorporated by reference to Company's Form 8-A dated June 27, 2005) |
| | 10.6 | Supplemental Executive Retirement Plan dated November 21, 2006 between Valley Bank and Robert L. Messier, Jr. |
| | 31.1 | Chief Executive Officer Certification Pursuant to 17 CFR 240.13a-14, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002. |
| | 31.2 | Chief Financial Officer Certification Pursuant to 17 CFR 240.13a-14, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002. |
| | 32.1 | Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002. |
| | 32.2 | Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002. |
FIRST VALLEY BANCORP, INC. FORM 10-QSB QUARTERLY REPORT
MARCH 31, 2007
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | FIRST VALLEY BANCORP, INC. |
| | (Registrant) |
| | |
| | |
| | |
| Date: May 14, 2007 | /s/ Robert L. Messier, Jr. |
| | Robert L. Messier, Jr. |
| | President and Chief Executive |
| | Officer |
| | |
| | |
| Date: May 14, 2007 | /s/Mark J. Blum |
| | Mark J. Blum |
| | Executive Vice President, Treasurer |
| | and Chief Financial Officer |
