UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2009
ES BANCSHARES, INC.
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(Exact name of small business issuer as specified in its charter)
MARYLAND 20-4663714
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
68 North Plank Road, Newburgh, New York 12550
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(Address of principal executive offices)
(866) 646-0003
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Issuer's telephone number, including area code:
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for 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.
YES [X]. NO [ ].
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files).
YES [ ]. NO [ ].
Indicate by check mark whether the registrant is a large accelerated filer, a
non-accelerated filer or a smaller reporting company. See the definitions of
"large accelerated filer," "accelerated filer" and "smaller reporting company"
in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act. YES [ ]. NO [X].
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.
As of August 1, 2009 there were 1,996,070 issued and outstanding shares of the
Registrant's Common Stock.
ES BANCSHARES, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2009
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at June 30, 2009 and December 31, 2008.........................1
Consolidated Statements of Income for the Three and Six Months Ended
June 30, 2009, and 2008................................................................2
Consolidated Statement of Changes in Stockholders' Equity
For the Six Months Ended June 30, 2009 and 2008........................................3
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2009 and 2008.................................................................4
Notes to Unaudited Consolidated Financial Statements.......................................5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................................18
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................26
Item 4T. Controls and Procedures...................................................................26
PART II - OTHER INFORMATION
Item 1. Legal Procedures..........................................................................26
Item 1A Risk Factors..............................................................................26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds...............................27
Item 3 Defaults Upon Senior Securities...........................................................27
Item 4. Submission of Matters to a Vote of Security Holders.......................................27
Item 5. Other Information.........................................................................28
Item 6. Exhibits..................................................................................29
Signatures................................................................................30
Part 1. Item 1.
ES BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except per share data)
June 30, December 31,
2009 2008
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ASSETS
Cash and cash equivalents:
Cash and due from banks $ 16,984 $ 12,454
Federal funds sold - 5
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Total cash and cash equivalents 16,984 12,459
Certificates of deposit at other financial institutions 3,354 6,628
Securities:
Available for sale, at fair value 4,259 4,974
Held to maturity, at amortized cost (fair value of $29,399
at June 30, 2009, and $24,166 at December 31, 2008) 28,794 23,529
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Total securities 33,053 28,503
Real estate mortgage loans held for sale 1,036 -
Loans receivable 97,639 94,978
Deferred costs 505 512
Allowance for loan losses (1,031) (862)
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Total loans receivable, net 97,113 94,628
Accrued interest receivable 606 603
Federal Reserve Bank stock 287 299
Federal Home Loan Bank stock 594 528
Goodwill 581 581
Office properties and equipment, net 720 757
Other assets 435 280
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Total assets $ 154,763 $ 145,266
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LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 13,492 $ 12,840
Interest bearing 120,117 111,922
Borrowed funds 9,603 10,074
Accrued interest payable 174 205
Other liabilities 1,650 994
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Total liabilities 145,036 136,035
Commitments and contingencies
Stockholders' equity
Preferred Stock (par value $0.01; 5,000,000 shares authorized; 0 shares
issued at June 30, 2009 and December 31, 2008,
respectively) - -
Capital stock (par value $0.01; 5,000,000 shares authorized;
1,996,070 shares issued at June 30, 2009,
1,868,505 at December 31, 2008) 20 19
Additional paid-in-capital 18,605 17,911
Accumulated deficit (8,790) (8,484)
Accumulated other comprehensive loss (108) (215)
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Total stockholders' equity 9,727 9,231
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Total liabilities and stockholders' equity $ 154,763 $ 145,266
============== ===============
See accompanying notes to financial statements.
1
ES BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------------------- ---------------------------------
2009 2008 2009 2008
-------------- --------------- --------------- --------------
Interest and dividend income:
Loans $ 1,397 $ 1,207 $ 2,762 $ 2,432
Securities 406 294 790 379
Certificates of deposit 11 69 40 136
Fed Funds and other earning assets 20 45 36 103
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Total interest and dividend income 1,834 1,615 3,628 3,050
-------------- --------------- --------------- --------------
Interest expense:
Deposits 755 678 1,605 1,367
Borrowed funds 84 69 172 70
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Total interest expense 839 747 1,777 1,437
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Net interest income 995 868 1,851 1,613
Provision for loan losses 97 90 180 83
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Net interest income after 898 778 1,671 1,530
provision for loan losses
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Non-interest income:
Service charges and fees 124 119 224 207
Net gain on sales of real estate
mortgage loans held for sale 89 23 154 38
Net gain on securities available for
sale -- -- - 7
Other 158 20 207 42
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Total non-interest income 371 162 585 294
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Non-interest expense:
Compensation and benefits 584 577 1,146 1,151
Occupancy and equipment 183 211 386 405
Data processing service fees 72 65 142 130
Other 595 322 887 648
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Total non-interest expense 1,434 1,175 2,561 2,334
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Net (loss) before income taxes (165) (235) (305) (510)
Income tax expense -- -- -- --
-------------- --------------- --------------- --------------
Net (loss) $ (165) $ (235) $ (305) $ (510)
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Other comprehensive income (loss):
Net unrealized gain/(loss) on
available-for-sale securities 170 (55) 107 (36)
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Comprehensive income (loss) $ 5 $ (290) $ (198) $ (546)
============== =============== =============== ==============
Weighted average:
Common shares 1,869,907 1,721,437 1,869,214 1,721,437
(Loss) per common share:
Basic & diluted $ (0.09) $ (0.14) $ (0.16) $ (0.30)
============== =============== =============== ==============
See accompanying notes to finanacial statements.
2
ES BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(Unaudited)
(In thousands, except per share data)
Accumulated
Additional Other
Capital Stock Paid-In Accumulated Comprehensive
Shares Amount Capital Deficit Gain Total
------ ------ ------- ------- ---- -----
Balance at January 1, 2008 1,721,437 $ 17 $ 16,911 $ (6,553) $ 7 $ 10,382
Stock based compensation - - 5 - - 5
Comprehensive loss:
Net loss for the period - - - (510) - (510)
Net unrealized gain on
available-for-sale securities - - - - (36) (36)
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Total comprehensive loss (546)
------------ ------------- ------------ ------------ ----------- ------------
Balance at June 30, 2008 1,721,437 $ 17 $ 16,916 $ (7,063) $ (29) $ 9,841
============ ============= ============ ============ ============ ============
Balance at January 1, 2009 1,868,505 $ 19 $ 17,911 $ (8,484) $ (215) $ 9,231
Stock based compensation - - 9 - - 9
Comprehensive loss:
Net loss for the period - - - (305) - (305)
Net unrealized gain on
available-for-sale securities - - - - 107 107
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Total comprehensive loss (198)
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Net proceeds from issuance
of common stock 127,565 1 685 - - 686
Balance at June 30, 2009 1,996,070 $ 20 $ 18,605 $ (8,790) $ (108) $ 9,727
============ ============= ============ ============= ============ ============
3
ES BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands, except per share data)
For the Six Months
Ended June 30,
2009 2008
---- ----
Cash flows from operating activities:
Net loss for period $ (305) $ (510)
Adjustments to reconcile net losses to net cash provided by
operating activities
Provision for loan losses 180 83
Depreciation expense 132 179
Amortization of deferred fees, discounts and premiums, net (25) 3
Net proceeds (originations) on loans held for sale (1,036) 387
Net gain on sale of real estate mortgage loans held for sale (154) (38)
Net gain on sale of securities available for sale - (7)
Gain on sale of fixed assets - (9)
Stock compensation expense 8 5
Changes in assets and liabilities
Increase in other assets (157) (147)
Increase in accrued expenses and other liabilities 626 49
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Net cash used in operating activities (732) (5)
Cash flows from investing activities:
Maturity of certificates of deposit at other financial institutions 6,279 4,249
Purchase of certificates of deposit at other financial institutions (3,005) (7,102)
Purchase of available-for-sale securities - (2,929)
Purchase of held-to-maturity securities (11,356) (20,265)
Proceeds on sale of securities available for sale - 506
Proceeds from principal payments and maturities of securities 6,895 3,601
Proceeds on sale of fixed assets - 9
Net disbursements for loan originations (2,468) (10,137)
Purchase of Federal Home Loan Bank stock (67) (463)
Redemption of Federal Home Loan Bank stock - 3
Redemption of Federal Reserve Bank stock 12 18
Leasehold improvements and acquisitions of capital assets (94) (49)
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Net cash used in investing activities (3,805) (32,559)
Cash flows from financing activities:
Net increase in deposits 8,847 25,835
Proceeds of advance from FHLB - 9,948
Repayment of borrowings (471) -
Net proceeds from common stock issuance 686 -
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Net cash provided by financing activities 9,062 35,783
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Net increase in cash and cash equivalents 4,525 3,219
Cash and cash equivalents at beginning of period 12,459 6,752
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Cash and cash equivalents at end of period $ 16,984 $ 9,971
============== ===============
Supplemental cash flow information
Interest paid $ 1,808 $ 1,390
Income taxes paid - -
See accompanying notes to financial statements
4
ES BANCSHARES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Note 1. Nature of Operations
Empire State Bank (the "Bank") was organized under federal law in 2004
as a national bank regulated by the Office of the Comptroller of the Currency
("OCC"). The Bank's deposits are insured up to legal limits by the FDIC. In
March 2009, the Bank converted its charter to a New York State commercial bank
charter, with the New York Banking Department becoming its primary state
regulator.
On April 28, 2004, the Bank sold 1,650,000 shares of its common stock
at a price of $10.00 per share, for an aggregate consideration of $16,500,000
(the "Offering"). In addition, for every five (5) shares of common stock
purchased by a subscriber in the offering, such subscriber received a warrant to
purchase, within a three-year period, one (1) share of common stock at an
exercise price of $12.50 per share. As discussed in Note 4, these warrants were
subsequently modified.
The Board of Directors entered into an Agreement and Plan of Share
Exchange (the "Plan") on March 21, 2006, as amended and restated as of May 16,
2006, under which the Bank reorganized into a one-bank holding company structure
(the "Reorganization"). In connection with the Reorganization, the Bank formed
ES Bancshares, Inc. (the "Company"), a Maryland corporation, to serve as its
holding company. The Reorganization was effected by an exchange of all of the
outstanding shares of Bank Common Stock for shares of Company Common Stock (the
"Share Exchange"). Following the Share Exchange, the Bank became a wholly owned
subsidiary of the Company and former shares of Bank Common Stock represent the
same number of shares of Company Common Stock.
The Company filed a Registration Statement on Form S-4 that the
Securities and Exchange Commission (the "SEC") declared effective on May 25,
2006. The Bank's shareholders approved the Reorganization at our Annual Meeting
of Shareholders on July 6, 2006. The Reorganization was completed on August 15,
2006.
The consolidated financial statements include the accounts of the
Company and the Bank, its wholly owned subsidiary. The Company's financial
condition and operating results principally reflect those of the Bank. All
intercompany balances and amounts have been eliminated.
The Bank is a full service commercial bank that offers a variety of
financial services to meet the needs of communities in its market area. The Bank
attracts deposits from the general public and uses such deposits to originate
commercial loans, revolving lines of credit, commercial real estate, mortgage
loans secured by one-to four-family residences, home equity lines, and to a
lesser extent construction, land, and consumer installment loans. The Bank also
invests in mortgage-backed and other securities permissible for a New York State
chartered commercial bank. The Bank also operated two loan production offices,
one in Staten Island, New York, and another in Lynbrook, New York. However, in
November of 2007, the Staten Island loan production office was closed in
conjunction with the opening of the Bank's new full service branch in that
borough. During the first quarter of 2008, the Bank closed its loan production
office in Lynbrook, Nassau County, New York. The Bank's primary area for
deposits includes the Town of Newburgh and the Village of New Paltz, in addition
to the communities surrounding those offices, and the borough of Staten Island.
The Bank's primary market area for its lending activities consists of the
communities within Orange County, Ulster County, the five boroughs of New York
City, and portions of Dutchess, Rockland, Putnam and Westchester Counties, New
York.
5
Note 2. Basis of Presentation
The consolidated financial statements included herein include the
accounts of the Company and the Bank, subsequent to the elimination of all
significant intercompany balances and transactions, and have been prepared by
the Company without audit. In the opinion of management, the unaudited financial
statements include all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the financial position and results of
operations for the periods presented. Certain information and footnote
disclosures normally included in accordance with generally accepted accounting
principles of the United States have been condensed or omitted pursuant to the
rules and regulations of the SEC, however, the Company believes that the
disclosures are adequate to make the information presented not misleading. The
operating results for the periods presented are not necessarily indicative of
results to be expected for any other interim period or for the entire year
ending December 31, 2009. The unaudited interim financial statements presented
herein should be read in conjunction with the annual financial statements of the
Company as of and for the year ended December 31, 2008, included in Form 10-K
filed with the SEC on March 31, 2009.
The financial statements have been prepared in conformity with
generally accepted accounting principles of the United States. In preparing the
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets, liabilities, income and expense.
Actual results could differ significantly from these estimates. Material
estimates that are particularly susceptible to significant change relate to the
determination of the allowance for losses on loans, and the valuation allowance
on deferred tax assets.
Stock Options
The Company has a stock-based compensation plan as more fully described
in Note 4. For accounting purposes, the Company recognizes expense for shares of
common stock awarded under the Company's Stock Option Plan over the vesting
period at the fair market value of the shares on the date they are awarded.
Total expense incurred during the six months ended June 30, 2009 and 2008,
relating to the options was $9 thousand and $5 thousand, respectively.
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding for the
period. Diluted earnings (loss) per share reflects the potential dilution that
could occur if securities or other contracts to issue common stock (such as
stock warrants and options) were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. Diluted earnings (loss) per share is computed by dividing net income
(loss) by the weighted-average number of shares outstanding for the period plus
common-equivalent shares computed using the treasury stock method. None of the
warrants or stock options were considered in computing diluted earnings (loss)
per share because to do so would have been anti-dilutive.
Income Taxes
Deferred tax assets and liabilities are the expected future tax amounts
for the temporary differences between carrying amounts and tax bases of assets
and liabilities, computed using tax rates. Temporary differences are differences
between the tax basis of assets and liabilities and their reported amounts in
the financial statements that will result in taxable or deductible amounts in
future years. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date. The tax
6
benefit on net operating losses, included in deferred tax assets, was
approximately $2.6 million at June 30, 2009. The net operating losses are being
carried forward and will be available to reduce future taxable income.
Realization of deferred tax assets is dependent upon the generation of future
taxable income. A valuation allowance is provided when it is more likely than
not that some portion of the deferred tax asset will not be realized. Because
the Bank has limited operating experience, management recorded a valuation
allowance against the total amount of deferred tax assets.
Securities
The Company is required to report readily-marketable equity and debt
securities in one of the following categories: (i) "held-to-maturity"
(management has the positive intent and ability to hold to maturity), which are
reported at amortized cost; (ii) "trading" (held for current resale), which are
to be reported at fair value, with unrealized gain and losses included in
earnings; and (iii) "available for sale" (all other debt and marketable equity
securities), which are to be reported at fair value, with unrealized gains and
losses reported net of taxes, as accumulated other comprehensive income, a
separate component of stockholders' equity.
Premiums and discounts on investments in debt and equity securities are
amortized to expense or accreted to income over the estimated life of the
respective securities using methods approximating the effective interest method.
Gains and losses on the sales of securities are recognized upon realization
based on the specific identification method.
Loans Held for Sale
Loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated fair value in the aggregate. All sales
are made with servicing released and without recourse. Gains and losses on the
disposition of loans held for sale are determined on the specific identification
basis. Net unrealized losses on loans held for sale are recognized through a
valuation allowance by charges to income. There were no valuation allowances as
of June 30, 2009.
Loans
Loans receivable that management has the intent and ability to hold for
the foreseeable future or until maturity or payoff are reported at their unpaid
principal adjusted for any charge-offs, the allowance for loan losses, and any
deferred fees and costs on originated loans and any unamortized premiums or
discounts on purchased loans. Loan origination and commitment fees and certain
direct loan origination costs will be deferred and the net amount amortized as
an adjustment of the related loan's yield using methods that approximate the
interest method over the contractual life of the loan. Loan interest income is
accrued daily on outstanding balances.
Allowance for Loan Losses
The allowance for loan losses is increased by provisions for loan
losses charged to income. Losses are charged to the allowance when all or a
portion of a loan is deemed to be uncollectible. Subsequent recoveries of loans
previously charged off are credited to the allowance for loan losses when
realized. The allowance for loan losses is a significant estimate based upon
management's periodic evaluation of the loan portfolio under current economic
conditions, considering factors such as the Company's past loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrower's ability to repay, and the estimated value of the underlying
collateral. Establishing the allowance for loan losses involves significant
management judgment, utilizing the best available information at the time of
review. Those judgments are subject to further review by various sources,
including the Bank's regulators, who may require the Company to recognize
additions to the allowance based on their judgment about information available
to them at the time of their examination. While management estimates loan losses
using the best available information, future adjustments to the allowance may be
7
necessary based on changes in economic and real estate market conditions,
further information obtained regarding known problem loans, the identification
of additional problem loans, and other factors. Allocations of the allowance may
be made for specific loans, but the entire allowance is available for any loan
that in management's judgment should be charged off.
Subsequent Events
Events occurring subsequent to June 30, 2009 have been evaluated as to
their potential impact to the financial statements through the date of filing
this Form 10-Q, August 13, 2009.
Cash Flows
Cash and cash equivalents include cash, deposits with other financial
institutions, and federal funds sold. Net cash flows are reported for customer
loan and deposit transactions, interest-bearing deposits in other financial
institutions, and federal funds purchased.
Adoption of New Accounting Standards
In September 2006, the Financial Accounting Standards Board ("FASB")
issued Statement No. 157, Fair Value Measurements. This Statement defines fair
value, establishes a framework for measuring fair value and expands disclosures
about fair value measurements. This Statement establishes a fair value hierarchy
about the assumptions used to measure fair value and clarifies assumptions about
risk and the effect of a restriction on the sale or use of an asset. The
standard is effective for fiscal years beginning after November 15, 2007. In
February 2008, the FASB issued Staff Position ("FSP") 157-2, Effective Date of
FASB Statement No. 157. This FSP delays the effective date of FAS 157 for all
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value on a recurring basis (at least annually)
to fiscal years beginning after November 15, 2008, and interim periods within
those fiscal years. The impact of adoption was not material.
In February 2007, the FASB issued Statement No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities. The standard provides
companies with an option to report selected financial assets and liabilities at
fair value and establishes presentation and disclosure requirements designed to
facilitate comparisons between companies that choose different measurement
attributes for similar types of assets and liabilities. The new standard is
effective for the Company on January 1, 2008. The Company did not elect the fair
value option for any financial assets or financial liabilities as of January 1,
2008.
In April 2009, the FASB issued FSP No. 115-2 and No.124-2, Recognition
and Presentation of Other-Than-Temporary Impairments, which amends existing
guidance for determining whether impairment is other-than-temporary for debt
securities. The FSP requires an entity to assess whether it intends to sell, or
it is more likely than not that it will be required to sell, a security in an
unrealized loss position before recovery of its amortized cost basis. If either
of these criteria is met, the entire difference between amortized cost and fair
value is recognized in earnings. For securities that do not meet the
aforementioned criteria, the amount of impairment recognized in earnings is
limited to the amount related to credit losses, while impairment related to
other factors is recognized in other comprehensive income. Additionally, the FSP
expands and increases the frequency of existing disclosures about
other-than-temporary impairments for debt and equity securities. This FSP is
effective for interim and annual reporting periods ending after June 15, 2009.
The impact of adoption was not material.
In April 2009, the FASB issued FSP No. 157-4, Determining Fair Value
When the Volume and Level of Activity for the Asset and Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly. This
8
FSP emphasizes that even if there has been a significant decrease in the volume
and level of activity, the objective of a fair value measurement remains the
same. Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction (that is, not a forced
liquidation or distressed sale) between market participants. The FSP provides a
number of factors to consider when evaluating whether there has been a
significant decrease in the volume and level of activity for an asset or
liability in relation to normal market activity. In addition, when transactions
or quoted prices are not considered orderly, adjustments to those prices based
on the weight of available information may be needed to determine the
appropriate fair value. The FSP also requires increased disclosures. This FSP is
effective for interim and annual reporting periods ending after June 15, 2009,
and shall be applied prospectively. Early adoption is permitted for periods
ending after March 15, 2009. The Company adopted this FSP in the second quarter,
however, the adoption did not have a material effect on the results of operation
or financial position.
In April 2009, the FASB issued FSP No. 107-1 and APB 28-1, Interim
Disclosures about Fair Value of Financial Instruments. This FSP amends FASB
Statement No. 107, Disclosures about Fair Value of Financial Instruments, to
require disclosures about fair value of financial instruments for interim
reporting periods of publicly traded companies that were previously only
required in annual financial statements. This FSP is effective for interim
reporting periods ending after June 15, 2009, with early adoption permitted for
periods ending after March 15, 2009. The Company adopted this FSP in the second
quarter of 2009. The impact of the adoption was not material.
In May 2009, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 165, Subsequent Events, which establishes principles and
requirements for subsequent events. In particular, this Statement defines (i)
the period after the balance sheet date during which management of a reporting
entity shall evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements, (ii) the circumstances
under which an entity shall recognize events or transactions occurring after the
balance sheet date in its financial statements, and (iii) the disclosures that
an entity shall make about events or transactions that occurred after the
balance sheet date. SFAS No. 165 is effective for interim or annual financial
periods ending after June 15, 2009, and shall be applied prospectively. The
adoption of SFAS No. 165 did not have a material effect on the Company's
financial condition, results of operations or cash flows.
On June 12, 2009, the FASB issued Statements No. 166, Accounting for
Transfers of Financial Assets, and No. 167, Amendments to FASB Interpretation
No. 46(R). Statement No. 166 is a revision to FASB Statement No. 140, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, and will require more information about transfers of financial
assets, including securitization transactions, and where entities have
continuing exposure to the risks related to transferred financial assets. It
eliminates the concept of a "qualifying special-purpose entity," changes the
requirements for derecognizing financial assets, and requires additional
disclosures. Statement No. 167 amends FIN 46(R) to replace the
quantitative-based risks and rewards calculation for determining which
enterprise, if any, has a controlling financial interest in a variable interest
entity with a qualitative approach focused on identifying which enterprise has
the power to direct the activities of a variable interest entity (VIE) that most
significantly impact the entity's economic performance and (1) the obligation to
absorb losses of the entity or (2) the right to receive benefits from the
entity. Unlike FIN 46 (R), this Statement requires ongoing reconsideration of
whether (1) an entity is a VIE and (2) an enterprise is the primary beneficiary
of a VIE. Statement Nos. 166 and 167 will be effective at the start of the first
fiscal year beginning after November 15, 2009. The adoption of these standards
are not expected to impact the Company's consolidated financial statements.
On June 29, 2009, the FASB issued FASB Statement No. 168, The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles - A Replacement of FASB Statement No. 162. With the
issuance of this statement, the FASB Accounting Standards CodificationTM
(Codification) became the source of authoritative U.S. generally accepted
9
accounting principles (GAAP) recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the Securities and
Exchange Commission (SEC) under authority of federal securities laws are also
sources of authoritative GAAP for SEC registrants. On the effective date of this
Statement, the Codification superseded all then-existing non-SEC accounting and
reporting standards. All other non-grandfathered, non-SEC accounting literature
not included in the Codification became non-authoritative. The issuance of the
Codification is not intended to change GAAP. This Statement is effective for
financial statements issued for interim and annual periods ending after
September 15, 2009. The adoption of this standard is not expected to impact the
Company's consolidated financial statements.
The SEC's Office of the Chief Accountant published Staff Accounting Bulletin
(SAB) No. 112. SAB 112 which was effective June 10, 2009 and amends or rescinds
portions of the interpretive guidance included in the Staff Accounting Bulletin
Series to make the relevant interpretive guidance consistent with current
authoritative accounting and auditing guidance and SEC rules and regulations.
Specifically, SAB 112 aims to bring existing guidance into conformity with
recent pronouncements by the FASB, including FASB Statement No. 141 (Revised
December 2007), Business Combinations, and FASB Statement No. 160,
Noncontrolling Interests in Consolidated Financial Statements. The adoption of
this bulletin is not expected to impact the Company's consolidated financial
statements.
NOTE 3 - INVESTMENT SECURITIES
The following is a summary of the amortized cost, gross unrealized
gains and losses, and estimated fair market value of investment securities
available-for-sale at June 30, 2009 and December 31, 2008.
June 30, 2009
----------------------------------------------------
(in thousands)
Amortized Gross Unrealized Fair
------------------------
Cost Gains Losses Value
-------------- ----------- ----------- ------------
Residential MBS $ 1,567 $ 14 $ (2) $ 1,579
U.S. Government Agencies 1,499 7 -- 1,506
Trust Preferred Securities 1,300 -- (126) 1,174
-------------- ----------- ----------- ------------
Total $ 4,366 $ 21 $ (128) $ 4,259
============== =========== =========== ============
December 31, 2008
----------------------------------------------------
(in thousands)
Amortized Gross Unrealized Fair
------------------------
Cost Gains Losses Value
-------------- ----------- ----------- ------------
Residential MBS $ 1,807 $ -- $ (47) $ 1,760
U.S. Government Agencies 2,080 15 -- 2,095
Trust Preferred Securities 1,302 (183) 1,119
-------------- ----------- ----------- ------------
Total $ 5,189 $ 15 $ (230) $ 4,974
============== =========== =========== ============
10
The following is a summary of the amortized cost, gross unrealized
gains and losses, and estimated fair market value of investment securities
held-to-maturity at June 30, 2009 and December 31, 2008.
June 30, 2009
----------------------------------------------------
(in thousands)
Amortized Gross Unrealized Fair
------------------------
Cost Gains Losses Value
-------------- ------------------------ ------------
Mortgaged-backed securities $ 28,194 $ 645 $ (63) $ 28,776
U.S. Government Agencies 600 23 -- 623
-------------- ------------------------ ------------
Total $ 28,794 $ 668 $ (63) $ 29,399
============== ======================== ============
----------------------------------------------------
December 31, 2008
----------------------------------------------------
(in thousands)
Amortized Gross Unrealized Fair
------------------------
Cost Gains Losses Value
-------------- ------------------------ ------------
Mortgaged-backed securities $ 19,459 $ 596 $ -- $ 20,055
U.S. Government Agencies 4,070 41 -- 4,111
-------------- ------------------------ ------------
Total $ 23,529 $ 637 $ -- $ 24,166
============== ======================== ============
11
The following is a summary of the amortized cost and estimated fair
market value of investment securities available-for-sale and held-to-maturity at
June 30, 2009, with amounts shown by remaining term to contractual maturity.
Securities not due at a single maturity date, primarily mortgaged-backed
securities, are shown separately.
--------------------------
June 30, 2009
--------------------------
(in thousands)
Amortized Fair
Cost Value
--------------------------
Available-for-Sale:
Mortgaged-backed securities $ 1,567 $ 1,579
U.S. Government Agencies
Due less than one year -- --
One year to less than three years -- --
Three years to less than five years -- --
Five years to ten years -- --
More than ten years 1,499 1,506
Trust Preferred Securities 1,300 1,174
--------------------------
Total $ 4,366 $ 4,259
==========================
June 30, 2009
------------------------
(in thousands)
------------------------
Amortized Fair
Cost Value
------------------------
Held-to-Maturity:
Mortgaged-backed securities $ 28,194 $ 28,776
U.S. Government Agencies
Due less than one year -- --
One year to less than three years 600 623
Three years to less than five years -- --
Five years to ten years -- --
More than ten years -- --
Trust Preferred Securities -- --
------------------------
Total $ 28,794 $ 29,399
========================
12
The following tables summarize, for all securities in an unrealized
loss position at June 30, 2009 and December 31, 2008, the aggregate fair values
and gross unrealized losses by the length of time those securities had been in a
continuous loss position.
June 30,
2009
------------------------------------
Less Than 12 Months 12 Months or More Total
------------------------------------------------------------------------
Fair Unrealized Fair Unrealized Fair Unrealized
Value Loss Value Loss Value Loss
------------------------------------------------------------------------
(In thousands)
Mortgaged-backed securities $ 5,259 $ 54 $ 1,098 $ 11 $ 6,357 $ 65
U.S. Government Agencies - - - - - -
Trust Preferred Securities - - 1,174 126 1,174 126
------------------------------------------------------------------------
Total temporarily impaired $ 5,259 $ 54 $ 2,272 $ 137 $ 7,531 $ 191
========================================================================
December 31,
2008
------------------------------------
Less Than 12 Months 12 Months or More Total
------------------------------------------------------------------------
Fair Unrealized Fair Unrealized Fair Unrealized
Value Loss Value Loss Value Loss
------------------------------------------------------------------------
(In thousands)
Mortgaged-backed securities $ - $ - $ 1,178 $ 47 $ 1,178 $ 47
U.S. Government Agencies - - - - - -
Trust Preferred Securities 1,119 183 - 1,119 183
------------------------------------------------------------------------
Total temporarily impaired $ 1,119 $ 183 $ 1,178 $ 47 $ 2,297 $ 230
========================================================================
The Bank evaluates securities for other-than-temporary impairment at
least on a quarterly basis, and more frequently when economic or market concerns
warrant such evaluation. Consideration is given to the length of time and the
extent to which the fair value has been less than cost, the financial condition
and near term prospects of the issuer, and the intent and ability of the Bank to
retain its investment in the issuer for a period of time sufficient to allow for
any anticipated recovery in fair value. In analyzing an issuer's financial
condition, the Bank may consider whether the securities are issued by the
federal government or its agencies, whether downgrades by bond rating agencies
have occurred, and the results of reviews of the issuer's financial condition.
At June 30, 2009, five debt securities have unrealized losses of
approximately $54 thousand, and seven others have unrealized losses of
approximately $137 thousand, that have existed for less than twelve months, and
less than thirty months, respectively, from the Bank's cost basis, and are
largely due to changes in interest rates. The fair value is expected to recover
as the securities approach their maturity date or reset date.
13
Note 4. Stock-Based Compensation Plans
Warrants
At January 1, 2008, the Bank had 327,690 total common stock shareholder
warrants issued and outstanding. These warrants were convertible into common
shares at an exercise price of $10.00 exercisable through June 27, 2008.
Additionally, there were 190,000 organizer warrants granted to the Bank's
nineteen organizers in connection with the opening of the Bank as of December
31, 2004. The organizer warrants were convertible into common shares at an
exercise price of $10.00 exercisable through June 27, 2009. The organizer
warrants, valued at $323,000, were expensed at the time of issuance in
accordance with SFAS No. 123.
Effective June 30, 2008, the Company modified the terms of the common
stock shareholder warrants to purchase common stock of the Company attached to
the 2004 Offering by reducing the exercise price of $10.00 to $6.75, and
extended the expiration date from June 28, 2008 to October 31, 2008. Previously,
on April 15, 2007, the Company modified the original expiration term of the
warrants from June 28, 2007 to June 28, 2008, and reduced the original exercise
price from $12.50 to $10.00.
Also effective June 30, 2008, the Company reduced the exercise price of
its 190,000 issued and outstanding organizer warrants from $10.00 to $6.75 for a
period ending on October 31, 2008, after which the exercise price reverted back
to $10.00 per share. There was no additional expense recognized as a result of
any of the modifications.
During 2008, there were 147,068 warrants exercised at $6.75. As of
November 1, 2008, all common stock warrants expired. As of December 31, 2008
there were 92,952 organizer warrants still outstanding. At June 30, 2009, all
organizer warrants were expired. There were no warrants exercised during the
first six months of 2009 or 2008.
Stock Options
On October 19, 2004, the Board of Directors approved the adoption of
the Company's Stock Option Plan which allows for a total of 180,000 shares of
authorized but unissued common stock reserved for issuance under the Stock
Option Plan, although option exercises may also be funded using treasury shares
or shares acquired in open market purchases. These options have a 10-year term
and may be either non-qualified stock options or incentive stock options. These
options were not deemed granted until shareholder approval occurred on May 3,
2005. The options vest at a rate of 20% on each of five annual vesting dates
except for 65,000 options granted to Directors, which vested immediately. Each
option entitles the holder to purchase one share of common stock at an exercise
price equal to the fair market value of the stock on the grant date.
The Company accounts for stock options under SFAS No. 123 (revised
2004), Share-based Payment ("SFAS 123(R)"), using the modified prospective
transition method. For accounting purposes, the Company recognizes expense for
shares of common stock awarded under the Company's Stock Option Plan over the
vesting period at the fair market value of the shares on the date they are
awarded.
14
A summary of options outstanding under the Company's Stock Option Plan
as of June 30, 2009, and changes during the year then ended is presented below.
Weighted
Weighted Average
Average Remaining
Exercise Contractual Intrinsic
Shares Price Term (years) Value
------ ----- ----------- -----
Outstanding at January 1, 2009 157,750 $ 10.42
Granted - -
Exercised - -
Forfeited or expired (500) 10.00
------------ ----------- ----------- -----------
Outstanding at June 30, 2009 157,250 $ 10.42 6.0 -
=========== =========== =========== ===========
Options exercisable at June 30, 2009 126,850 $ 10.47 5.8 -
=========== =========== =========== ===========
Vested and expected to vest 157,250 $ 10.42 6.0
=========== =========== ===========
As of June 30, 2009, there was $10 thousand of total unrecognized
compensation cost related to non-vested stock options granted under the Stock
Option Plan. The cost is expected to be recognized over a period of
approximately 12 months.
At June 30, 2009, there were 22,750 shares available for future grant
under the Stock Option Plan.
Note 5. Fair Value
Statement 157 establishes a fair value hierarchy which requires an
entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. The standard describes three
levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities
in active markets that the entity has the ability to access as of the
measurement date.
Level 2: Significant other observable inputs other than Level 1 prices
such as quoted prices for similar assets or liabilities, quoted prices
in markets that are not active, or other inputs that are observable or
can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting
entity's own assumptions about the assumptions that market participants
would use in pricing an asset or liability.
The fair values of securities available for sale are determined by
obtaining quoted prices on nationally recognized securities exchanges (Level 1
inputs) or matrix pricing, which is a mathematical technique widely used in the
industry to value debt securities without relying exclusively on quoted prices
for the specific securities but rather by relying on the securities'
relationship to other benchmark quoted securities (Level 2 inputs).
15
Assets and liabilities measured at fair value on a recurring basis are
summarized below:
Fair Value Measurements
In Thousands Using
----------------------------------------------------
Quoted Prices Significant
In Active Other Significant
Markets for Observable Unobservable
Markets Assets Inputs Inputs
(Level 1) (Level 2) (Level 3)
-------- -------- --------
Assets:
June 30, 2009 Available for
sale securities $ - $ 4,259 $ -
December 31, 2008 Available for
sale securities $ - $ 4,974 $ -
The fair value of impaired loans with specific allocations of the
allowance for loan losses is generally based on recent real estate appraisals.
These appraisals may utilize a single valuation approach or a combination of
approaches including comparable sales and the income approach. Adjustments are
routinely made in the appraisal process by the appraisers to adjust for
differences between the comparable sales and income data available. Such
adjustments are typically significant and result in a Level 3 classification of
the inputs for determining fair value.
Total non-accrual loans were $2.7 million and $749 thousand at June 30,
2009 and December 31, 2008, respectively.
Carrying amounts and estimated fair values of financial instruments at
June 30, 2009 and December 31, 2008 were as follows:
June 30, December 31,
2009 2008
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ---------- -------- --------
Financial assets
Cash and due from banks $ 16,984 $ 16,984 $ 12,454 $ 12,454
Federal Funds Sold - 5 5
Securities available for sale 4,259 4,259 4,974 4,974
Securities held to maturity 28,794 29,399 23,529 24,166
Loans, net 97,113 97,696 94,628 96,610
Federal Home Loan Bank stock 594 594 528 528
Federal Reserve Bank stock 287 287 299 299
Accrued interest receivable 606 606 603 603
Financial Liabilities
Deposits 133,609 133,970 124,762 125,747
Federal Home Loan Bank advances 8,988 9,129 9,459 9,682
Other borrowings 615 625 615 547
Accrued interest payable 174 174 205 205
16
The methods and assumptions used to estimate fair value are described
as follows:
Carrying amount is the estimated fair value for cash and cash
equivalents, interest bearing deposits, accrued interest receivable and payable,
demand deposits, short-term debt, and variable rate loans or deposits that
reprice frequently and fully. For fixed rate loans or deposits and for variable
rate loans or deposits with infrequent repricing or repricing limits, fair value
is based on discounted cash flows using current market rates applied to the
estimated life and credit risk. Fair value of debt is based on current rates for
similar financing. It was not practicable to determine the fair value of FHLB or
FRB stock due to restrictions placed on its transferability. The fair value of
off-balance-sheet items is not considered material.
Note 6. Commitments and Contingencies
Legal Proceedings
The Company has not been a party to any legal proceedings that may have
a material effect on the Company's results of operations and financial
condition. However, in the normal course of its business, the Company may become
involved as plaintiff or defendant in proceedings such as judicial mortgage
foreclosures and proceedings to collect on loan obligations and to enforce
contractual obligations.
Operating Lease Commitments
The Company is obligated under non-cancelable operating leases for its
main office location in Newburgh, New York and its branch office locations in
New Paltz, New York, and Staten Island, New York. The leases are for initial
terms of 10 years, 15 years, and 10 years, respectively and have various renewal
options. Rent expense under operating leases was $80 thousand for the three
months ended June 30, 2009. At June 30, 2009, the future minimum rental payments
under operating lease agreements for the fiscal years ending December 31 are
$134 thousand in 2009, $273 thousand in 2010, $276 thousand in 2011, $262
thousand in 2012; $183 thousand in 2013; and a total of $826 thousand
thereafter.
Off-Balance Sheet Financial Instruments
The Company's off-balance sheet financial instruments at June 30, 2009,
were limited to loan origination commitments of $5.30 million (including
one-to-four family loans held for sale of $3.67 million) and unused lines of
credit (principally commercial and home equity lines) extended to customers of
$10.82 million. Substantially all of these commitments and lines of credit have
been provided to customers within the Bank's primary lending area. Loan
origination commitments at June 30, 2009 consisted of adjustable and fixed rate
commitments of $1.36 million and $3.94 million respectively, with interest rates
ranging from 3.2500% to 6.5000%.
17
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Forward-Looking Statements
This Report on Form 10-Q of the Company includes "forward-looking
statements" within the meaning of the Securities Act of 1933, as amended, and
the Securities Exchange Act of 1934, as amended, that are based on the current
beliefs of, as well as assumptions made by and information currently available
to, the management of the Company. All statements other than statements of
historical facts included in this Report, including, without limitation,
statements contained under the caption "Management's Discussion and Analysis"
regarding the Company's business strategy and plans and objectives of the
management of the Company for future operations, are forward-looking statements.
When used in this Report, the words "anticipate," "believe," "estimate,"
"project," "predict," "expect," "intend" or words or phrases of similar import,
as they relate to the Company or the Company's management, are intended to
identify forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, such
expectations may not prove to be correct. All forward-looking statements are
subject to risks and uncertainties that could cause actual results to differ
materially from those anticipated, believed, estimated, projected, predicted,
expected or intended including risks and uncertainties including changes in
economic conditions in our market area, changes in local real estate values,
changes in regulatory policies, fluctuations in interest rates, local loan and
deposit demand levels, competition, our ability to control expenses, our ability
to increase our lower cost deposits, the level of deposit insurance premiums,
our ability to execute our plan to attain profitability, our ability to expand
operations in our new Staten Island office and other factors. The Company does
not intend to update these forward-looking statements. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by applicable
cautionary statements.
Comparison of Financial Condition at June 30, 2009 and December 31, 2008
Total assets at June 30, 2009, amounted to $154.8 million, representing
an increase of $9.5 million, or 6.5%, from $145.3 million at December 31, 2008.
The increase in assets was primarily attributable to a $4.6 million increase in
total securities, a $1.0 million increase in real estate loans for sale, a $2.5
million increase in total loans receivable, net, and a $4.5 million increase in
total cash and cash equivalents. These increases, which reflect our efforts to
maintain high liquidity and a well capitalized position, were partially offset
by a $4.7 million decrease in certificates of deposit at other financial
institutions.
Overall, net loans receivable increased $2.5 million, or 2.6%, to $97.1
million at June 30, 2009, from $94.6 million at December 31, 2008. Commercial
and residential real estate mortgage loans, excluding mortgage loans held for
sale, increased $2.2 million, or 3.3%, from $65.9 million to $68.1 million.
Commercial loans and commercial lines of credit increased $1.1 million, or 6.7%,
from $16.4 million to $17.5 million, and home equity and consumer loans
decreased $627 thousand or 6.8%, from $9.2 million to $8.6 million, over the
same six-month period. Management continues to emphasize the origination of high
quality loans to the loan portfolio. Non-performing loans, which constitute
non-accrual loans, at June 30, 2009 totaled $2.7 million compared to $753
thousand at December 31, 2008.
Total cash and cash equivalents at June 30, 2009, increased $4.5
million, or 36.0%, to $17.0 million from $12.5 million at December 31, 2008,
while certificates of deposit at other financial institutions decreased $3.2
million, or 48.5%, to $3.4 million from $6.6 million during the same period.
Total securities at June 30, 2009, increased $4.6 million, or 16.1%, to $33.1
million from $28.5 million at December 31, 2008 in an effort to deploy excess
cash flows in a prudent manner.
18
Interest bearing deposits increased by $8.2 million to $120.1 million
at June 30, 2009, from $111.9 million at December 31, 2008. The net growth over
the period consisted of a $6.7 million increase in savings and money market
accounts and a $1.7 million increase in NOW accounts partially offset by a $194
thousand decrease in certificates of deposit. Over the same six-month period
non-interest bearing accounts increased $652 thousand, or 5.1% from $12.8
million to $13.5 million
Stockholders' equity increased by $496 thousand to $9.7 million at June
30, 2009, from $9.2 million at December 31, 2008. The increase was primarily
attributable to an increase in additional paid in capital resulting from $700
thousand in additional capital raised through a private placement offering of
the Company's common stock partially offset by a net loss for the period of $305
thousand. Also contributing to the increase was a $107 thousand decrease in net
unrealized loss in market value of securities available-for-sale. Book value per
share decreased to $4.89 at June 30, 2009, from $4.96 at December 31, 2008. See
"Liquidity and Capital Resources" for information regarding the Bank's
regulatory capital amounts and ratios.
Analysis of Net Interest Income
The following tables summarize the Company's average balance sheets for
interest earning assets and interest bearing liabilities, average yields and
costs (on an annualized basis), and certain other information for the three and
six-month periods ended June 30, 2009, as compared to the comparable three and
six-month periods ended June 30, 2008. The yields and costs were derived by
dividing interest income or expense by the average balance of assets and
liabilities for the period shown. Substantially all average balances were
computed based on daily balances. The yields include deferred fees and
discounts, which are considered yield adjustments.
19
For the Three Months Ended June 30,
--------------------------------------------------------------------------
2009 2008
------------------------------------ ------------------------------------
Average Average
Average Yield / Average Yield /
Balance Interest Cost Balance Interest Cost
---------- ---------- ----------- ----------- ----------- -----------
(Dollars in thousands)
Assets
Interest-earning assets:
Loans $ 97,510 $ 1,397 5.73% $ 77,035 $ 1,208 6.31%
Fed Funds Sold 15,047 8 0.22% 7,032 37 2.12%
Certificates of deposit 1,696 11 2.55% 6,916 69 4.01%
FRB & FHLB Stock 891 12 5.26% 1,091 8 2.95%
Investment securities 32,940 407 4.91% 23,595 293 5.01%
---------- ---------- ----------- ----------- ----------- -----------
Total interest-earning assets 148,084 $ 1,834 4.95% 115,669 $ 1,615 5.62%
========== =========== =========== ===========
Allowance for loan losses (959) (620)
Cash & Due from banks 1,848 2,466
Other Non-interest earning assets 2,171 2,117
---------- -----------
Total assets $ 151,144 $ 119,632
========== ===========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
NOW accounts $ 3,808 $ 4 0.45% $ 2,258 $ 6 1.07%
Money Market accounts 36,052 152 1.68% 30,848 164 2.14%
Regular savings accounts 11,557 39 1.34% 14,296 87 2.45%
Certificates of Deposit 66,152 560 3.37% 42,082 421 4.02%
---------- ---------- ----------- ----------- ----------- -----------
Total interest-bearing deposits 117,569 755 2.56% 89,484 678 3.05%
Borrowings 9,067 84 3.63% 8,537 69 3.20%
---------- ---------- ----------- ----------- ----------- -----------
Total interest-bearing $ 126,636 $ 839 2.64% $ 98,021 $ 747 3.06%
liabilities
========== ========== =========== =========== =========== ===========
Non-interest-bearing liabilities 14,839 11,549
---------- -----------
Total liabilities 141,475 109,570
Stockholders' equity 9,669 10,062
---------- -----------
Total liabilities and $ 151,144 $ 119,632
stockholders' equity
========== ---------- =========== -----------
Net interest income $ 995 $ 868
========== ===========
Average interest rate spread (1) 2.31% 2.56%
Net interest margin (2) 2.69% 3.01%
---------- -----------
Net interest-earning assets (3) $ 21,448 $ 17,648
========== ===========
Ratio of average interest-earning
assets to average interest-bearing
liabilities 116.94% 118.00%
20
For the Six Months Ended June 30,
--------------------------------------------------------------------------
2009 2008
------------------------------------ ------------------------------------
Average Average
Average Yield / Average Yield /
Balance Interest Cost Balance Interest Cost
---------- ---------- ----------- ----------- ----------- -----------
(Dollars in thousands)
Assets
Interest-earning assets:
Loans $ 97,042 $ 2,762 5.69% $ 75,241 $ 2,432 6.50%
Fed Funds Sold 12,622 15 0.24% 6,781 87 2.58%
Certificates of deposit 2,665 40 2.99% 5,959 136 4.59%
FRB & FHLB Stock 855 21 4.91% 787 16 4.09%
Investment securities 31,678 790 4.99% 15,037 379 5.07%
---------- ---------- ----------- ----------- ----------- -----------
Total interest-earning assets 144,863 $ 3,628 5.01% 103,805 $ 3,050 5.91%
========== =========== =========== ===========
Allowance for loan losses (921) (622)
Cash & Due from banks 1,857 2,295
Other Non-interest earning assets 2,283 2,137
---------- -----------
Total assets $ 148,081 $ 107,615
========== ===========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
NOW accounts $ 3,120 $ 7 0.45% $ 2,120 $ 14 1.33%
Money Market accounts 32,856 319 1.94% 33,801 457 2.72%
Regular savings accounts 11,925 95 1.60% 12,758 171 2.70%
Certificates of Deposit 67,055 1,184 3.53% 34,058 725 4.28%
---------- ---------- ----------- ----------- ----------- -----------
Total interest-bearing deposits 114,956 1,605 2.79% 82,737 1,367 3.33%
Borrowings 9,186 172 3.68% 4,313 70 3.26%
---------- ---------- ----------- ----------- ----------- -----------
Total interest-bearing $ 124,142 $ 1,777 2.86% $ 87,050 $ 1,437 3.32%
liabilities
========== ========== =========== =========== =========== ===========
Non-interest-bearing liabilities 14,286 10,362
---------- -----------
Total liabilities 138,429 97,412
Stockholders' equity 9,652 10,203
---------- -----------
Total liabilities and $ 148,082 $ 107,615
stockholders' equity
========== ---------- =========== -----------
Net interest income $ 1,851 $ 1,613
========== ===========
Average interest rate spread (1) 2.15% 2.59%
Net interest margin (2) 2.56% 3.11%
---------- -----------
Net interest-earning assets (3) $ 20,721 $ 16,755
========== ===========
Ratio of average interest-earning
assets to average interest-bearing
liabilities 116.69% 119.24%
- -----------------------------
(1) Average interest rate spread represents the difference between the
yield on average interest-earning assets and the cost of average
interest-bearing liabilities.
(2) Net interest margin represents net interest income divided by average
total interest-earning assets.
(3) Net interest-earning assets represents total interest-earning assets
less total interest-bearing liabilities.
21
Results of Operations for the Quarters Ended June 30, 2009 and June 30, 2008
General. For the quarter ended June 30, 2009, the Company recognized a
net loss of $165 thousand, or ($0.09) per basic share, as compared to a net loss
of $235 thousand, or ($0.14) per basic share, for the quarter ended June 30,
2008.
Interest and Dividend Income. Interest and dividend income amounted to
$1.8 million for the quarter ended June 30, 2009, as compared to $1.6 million
for the quarter ended June 30, 2008. The increase of $219 thousand was primarily
attributable to the $31.9 million increase in average interest-earning assets
from $115.7 million for the quarter ended June 30, 2008 to $147.6 million for
the quarter ended June 30, 2009, offset by a decrease in the average yield of
interest earning assets of 67 basis points from 5.62% for the quarter ended June
30, 2008, to 4.95% for the same respective period in 2009.
Average loan balances increased by $20.5 million, from $77.0 million
for the quarter ended June 30, 2008, to $97.5 million for the quarter ended June
30, 2009, while the average yield decreased from 6.31% to 5.73% over the same
respective periods. The average balances of the Bank's Fed Funds increased by
$8.0 million, over the quarter ended June 30, 2009 as compared to the quarter
ended June 30, 2008 while the yield decreased to 0.22% from 2.12% over the same
comparable periods. The average balance and yield of the Bank's investment
securities for the quarter ended June 30, 2009 was $32.9 million and 4.91%,
respectively, as compared to an average balance of $23.6 million and a yield of
5.01% for the comparable quarter ended one-year earlier. The average balance on
certificates of deposit at other financial institutions decreased from $6.9
million for the quarter ended June 30, 2008, to $1.7 million in the respective
period in 2009. The average yield declined to 2.55% for the quarter ended June
30, 2009, as compared to 4.01% at the quarter ended June 30, 2008, or 218 basis
points.
Interest Expense. Total interest expense for the quarter ended June 30,
2009 increased by $92 thousand, from $747 thousand for the quarter ended June
30, 2008 to $839 thousand for the quarter ended June 30, 2009. The average
balances of total interest-bearing liabilities increased $28.1 million to $126.6
million for the quarter ended June 30, 2009 from $98.0 million for the quarter
ended June 30, 2008, but the average costs for those liabilities decreased to
2.64% from 3.06% for the year earlier period.
The average balances of the Bank's certificates of deposit portfolio
increased to $66.2 million at an average cost of 3.37% for the quarter ended
June 30, 2009, from $42.1 million at an average cost of 4.02% for the quarter
ended June 30, 2008. The $24.1 million increase was primarily attributable to
the increase in the number of customers that followed the opening of the Bank's
third full service branch in Staten Island, New York in November 2007. The
average balance of regular savings accounts decreased by $2.7 million from $14.3
million at an average cost of 2.45% for the quarter ended June 30, 2008 to $11.6
million at an average cost of 1.34% for the quarter ended June 30, 2009.
Average money market account balances increased $5.3 million, or 17.21%
to $36.1 million at an average cost of 1.68% for the quarter ended June 30,
2009, from $30.8 million at an average cost of 2.14% for the quarter ended June
30, 2008. The increased balances were primarily attributable to the downturn in
other investment alternatives such as the US stock market and local real estate,
causing an increased demand for more secure investment vehicles such as insured
bank deposits.
For the quarter ended June 30, 2009, the average balance of the
Company's borrowed funds was $9.1 million and its average cost was 3.63%, as
compared to $8.5 million and an average cost of 3.20% for the quarter ended June
30, 2008. These borrowed funds were used by the Company to fund its formation
costs and subsequent expenses.
Net Interest Income. Net interest income was approximately $995
thousand for the quarter ended June 30, 2009 as compared to $868 thousand for
the same quarter in the prior year. The Company's average interest rate spread
22
decreased to 2.32% for the quarter ended June 30, 2009 from 2.56% for the
quarter ended June 30, 2008, while the net interest margin decreased to 2.69%
from 3.01%, over the same respective periods. This decrease is attributable to
the decrease in yield on the commercial loan portfolio as well as other short
term investments whose yield depends on the overall short-term interest rate
environment.
Provision for Loan Losses. For the three months ended June 30, 2009
management provided an additional $97 thousand to the provision. The Company is
still too new to have developed enough internal historical loan loss experience.
As a result, management decided it was prudent to increase several loan loss
reserve components to more adequately reflect the national economic downturn.
Comparatively, the provision was $90 thousand for the quarter ended June 30,
2008.
Non-interest Income. Non-interest income for the quarter ended June 30,
2009 increased $209 thousand to approximately $371 thousand as compared to $162
thousand for the quarter ended June 30, 2008. Service charges and fees increased
by $5 thousand, from $119 thousand for the quarter ended June 30, 2008 to $124
thousand for the quarter ended June 30, 2009, primarily as a result of servicing
a greater number of deposit and loan customers. The net gain on the sales of
real estate mortgage loans increased $66 thousand to $89 thousand for the
quarter ended June 30, 2009, as compared to $23 thousand for the quarter ended
June 30, 2008, primarily because of the increase in refinancing activities.
Other non-interest income categories increased to $73 thousand for the quarter
ended June 30, 2009 from $20 thousand for the same quarter in 2008, an increase
of $53 thousand.
Non-interest Expense. Non-interest expense for the quarter ended June
30, 2009 increased $259 thousand when compared to the same quarter in 2008.
Compensation and benefits increased $7 thousand. Other non-interest expense
increased to $595 thousand for the quarter ended June 30, 2009, from $322
thousand for the quarter ended June 30, 2008. The $273 thousand increase was
primarily due to increases in professional and consulting fees, advertising,
FDIC assessments and other operating expenses related to the expansion of the
Bank's business activities. An FDIC special assessment based on the Bank's Tier
1 capital at June 30, 2009 payable on September 30, 2009 in the amount of $68
thousand is fully accrued at June 30, 2009.
Income Tax Expense. We receive no tax benefit from our net operating
losses as they are being carried forward and will be available to reduce future
taxable income.
Results of Operations for the Six Months Ended June 30, 2009 and June 30, 2008
General. For the six months ended June 30, 2009, the Company recognized
a net loss of $305 thousand, or ($0.16) per basic share, as compared to a net
loss of $510 thousand, or ($0.30) per basic share, for the six months ended June
30, 2008. The $205 thousand decrease in net loss was primarily the result of
increased net interest income and non-interest income partially offset by an
increase in non-interest expense.
Interest Income. Compared to the first six months of 2008, interest
income for the six-month period ended June 30, 2009 increased by $578 thousand,
or 19.0%, to $3.6 million from $3.1 million for the comparable six month period
one year earlier. The increase in interest income resulted from an increase in
average interest-earning assets to $144.9 million for the six-month period ended
June 30, 2009 from $103.8 million for the comparable six-month period ended one
year earlier, partially offset by a lower overall yield associated with those
assets. Over the comparable periods, average loan balances increased from $75.2
million to $97.0 million, while their average yield decreased from 6.50% to
5.69%. The average balances of the investment securities portfolio increased by
$16.6 million, from $15.0 million to $31.7 million, while the average balances
of fed funds sold also increased by nearly $5.8 million, from $6.8 million to
$12.6 million, over the six-month period ended June 30, 2009 as compared to the
same six-month period in the previous year. The average yield on investment
securities decreased to 4.99% for the six months ended June 30, 2009 from 5.07%
for the six-month period ended June 30, 2008 primarily from the addition of
mortgage-backed securities to the portfolio during the end of 2008 and the first
23
half of 2009 at generally lower yields. The yield on fed funds sold decreased to
0.24% from 2.58% over the same respective periods as a result of the decrease in
short-term interest rates.
During the six-month period ended June 30, 2009 the Company decreased
by approximately $2.7 million the average balance invested in a variety of
certificates of deposit at other financial institutions with maturities ranging
from three to twelve months. Due to the decrease in short-term interest rates
available in the marketplace, the average yield of this asset segment decreased
from 4.59% for the six-month period ended June 30, 2008 to 2.99% for the
comparable six-month period in 2009.
Interest Expense. Total interest expense increased $340 thousand from
$1.4 million for the six months ended June 30, 2008 to $1.8 million for the six
months ended June 30, 2009. The increase resulted from an increase in the
average balances of the Bank's interest-bearing deposits and borrowings
partially offset by a decrease in the cost of short-term deposits. The average
balances of the Bank's certificates of deposit portfolio increased to $67.1
million at an average cost of 3.53% over the six-month period ended June 30,
2009, from $34.1 million at an average cost of 4.28% over the same six-month
period ended one-year earlier. Average money market account balances decreased
$0.9 million, from $33.8 million for the six-month period ended June 30, 2008 to
$32.9 million for the six-month period ended June 30, 2009. Over those
respective periods the average costs for those balances decreased 78 basis
points, from 2.72% to 1.94%. Average regular savings account balances decreased
$900 thousand to $11.9 million for the six-month period ended June 30, 2009,
from $12.8 million for the six-month period ended June 30, 2008, while the
average costs decreased 110 basis points, to 1.60% from 2.70%, over the same
respective periods. For the six-month period ended June 30, 2009, the average
balance of the Company's borrowed funds was $9.2 million at an average cost of
3.68% as compared to an average balance of $4.3 million at an average cost of
3.26% one year-earlier. The increase in borrowed funds was primarily used to
help fund the increase in the loan and investment portfolios.
Provision for Loan Losses. Provisions for loan losses were $180
thousand and $83 thousand for the six months ended June 30, 2009 and 2008,
respectively. The increase was primarily due to the portfolio's net loan growth.
As discussed previously, following management's analysis of the adequacy of the
allowance for loan losses, the Company determined that an increased provision
was warranted because of an increase in the loan portfolio's overall risk
profile under current market conditions at June 30, 2009, and from economic
weakness in its market areas.
Net Interest Income. Net interest income was approximately $1.9 million
for the six-month period ended June 30, 2009 as compared to $1.6 million for the
six-month period ended June 30, 2008. The average interest rate spread decreased
to 2.15% from 2.59% due to the decrease in yield on the commercial loan
portfolio as well as other short term investments whose yield depends on the
overall short-term interest rate environment. The net interest margin decreased
to 2.56% from 3.11% over the same comparable periods.
Non-Interest Income. Non-interest income for the six-month period ended
June 30, 2009 totaled $585 thousand, which represented an increase of $291
thousand from $294 thousand earned over the six-month period ended June 30,
2008. The increase was primarily attributable to a $17 thousand increase in
service charges and fees earned from an increased number of deposit and loan
customer relationships, and a $116 thousand increase in the net gain on the sale
of real estate mortgage loans held for sale resulting from an increase in real
estate mortgage loan refinance activity. There was also an $80 thousand increase
in other categories of non-interest income, attributable, primarily, to a
recovery of $90 thousand in prior amounts written off.
Non-Interest Expense. Non-interest expense for the six-month period
ended June 30, 2009 increased $227 thousand to $2.6 million from $2.3 million
for the six-month period ended June 30, 2008. Compensation and benefits
24
decreased by $5 thousand, or 1.4%, despite the increase in personnel needed to
staff the previously mentioned new full-service branch in Staten Island, New
York that opened in November 2007. Occupancy and equipment expense also
decreased by $19 thousand, or 4.7%, due to the consolidation of loan origination
offices into the new Staten Island location. Data processing expense increased
by $12 thousand, or 9.2%, due to the increased number of deposit and loan
relationships. Other non-interest expense increased to $887 thousand for the
six-month period ended June 30, 2009 from $648 thousand for the comparable
six-month period ended June 30, 2008. The $239 thousand increase was primarily
due to increases in professional and consulting fees, advertising, FDIC
assessments, and other operating expenses related to the expansion of the Bank's
business activities. An FDIC special assessment based on the Bank's Tier 1
capital at June 30, 2009 payable on September 30, 2009 in the amount of $68
thousand is fully accrued at June 30, 2009.
Liquidity and Capital Resources
The primary sources of funds are deposits, capital, proceeds from the
sale of loans, and principal and interest payments on loans and securities.
While maturities and scheduled payments on loans and securities provide an
indication of the timing of the receipt of funds, other sources of funds such as
loan prepayments and deposit inflows are less predictable due to the effects of
changes in interest rates, economic conditions and competition.
The primary investing activities of the Company are the origination of
loans and the purchase of investment securities. For the six months ended June
30, 2009, the Company originated loans of approximately $25.9 million including
real estate mortgage loans held for sale. At June 30, 2009, the Company had
outstanding loan origination commitments of $5.30 million (including
one-to-four-family real estate mortgage loans held for sale of $3.67 million)
and undisbursed lines of credit and construction loans in process of $10.82
million. The Company anticipates that it will have sufficient funds available to
meet its current loan originations and other commitments.
At June 30, 2009, total deposits were approximately $133.6 million of
which approximately $69.0 million was in certificates of deposit. Certificates
of deposit scheduled to mature in one year or less from June 30, 2009 totaled
$33.1 million. Based on past experience the Company anticipates that most such
certificates of deposit can be renewed upon their expiration.
The Company has a line of credit with a correspondent bank for an
amount of up to $3.2 million. This credit facility is secured by 100% of the
outstanding shares of the Bank for a period of two years with an additional one
year renewal, at the Company's option. As of June 30, 2009, the outstanding
balance is $615 thousand. The Company utilized this credit facility primarily to
provide funds to the Company to downstream to the Bank to enable it to maintain
strong capital ratios and leverage the balance sheet by increasing assets. The
line of credit also repaid the amounts due to the same correspondent bank on its
previously drawn line of credit, to fund operating expenses and to provide funds
for an interest reserve to be applied toward monthly interest payments. Under
the debt covenants on this line of credit, the Bank is required to remain well
capitalized under the regulatory definition.
The Bank does borrow based upon its need for funds and the cost of
deposits as an alternative source of funds. In general the Bank manages its
liquidity by maintaining sufficient levels of short-term investments so that
funds are available for investment in loans when needed. The Bank monitors its
liquidity on a regular basis. Excess liquidity is invested in overnight federal
funds sold and other short-term investments. The Bank has a line of credit with
the same correspondent bank for an amount of up to $5.0 million. This credit
facility is on a secured basis for $2.5 million for a period of one hundred
eighty (180) calendar days and an unsecured basis of $2.5 million for a period
of fourteen (14) calendar days. The Bank did not utilize this credit facility at
any time during the quarter ending June 30, 2009.
The Bank is subject to the risk based capital guidelines administered
by bank regulatory agencies. The guidelines require the Bank to maintain a
25
minimum leverage ratio of core (Tier 1) capital to total adjusted tangible
assets of 3.0%, and a minimum ratio of total capital (core capital and
supplementary capital) to risk-weighted assets of 8.0%, of which 4.0% must be
core (Tier 1) capital. As of June 30, 2009, the Bank's risk weighted capital to
risk weighted assets was 11.09%; its Tier 1 capital to risk weighted assets was
10.03% and its Tier 1 capital to average assets capital ratio was 6.78%. As of
December 31, 2008, the Bank's risk weighted capital to risk weighted assets,
Tier 1 capital to risk weighted assets, and Tier 1 capital to average assets
capital ratios were 11.0%, 10.1% and 6.8%, respectively.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
This item is not applicable to a Smaller Reporting Company.
Item 4T. Controls and Procedures
The Company has adopted interim disclosure controls and procedures
designed to facilitate the Company's financial reporting. The interim disclosure
controls currently consist of communications among the Co-Chief Executive
Officers, the Chief Financial Officer and each department head to identify any
transactions, events, trends, risks or contingencies which may be material to
the Company's operations. In addition, the Co-Chief Executive Officers, Chief
Financial Officer and the Audit Committee meet on a quarterly basis and discuss
the Company's material accounting policies. The Company's Co-Chief Executive
Officers and Chief Financial Officer have evaluated the effectiveness of these
interim disclosure controls as of June 30, 2009, and found them to be adequate.
The Company maintains internal control over financial reporting. There
have not been any significant changes in such internal control over financial
reporting that have materially been affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.
PART II
Item 1. Legal Proceedings
The Company is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business. At June
30, 2009, we were not involved in any legal proceedings, the outcome of which
would be material to our financial condition or results of operations.
Item 1A. Risk Factors
In addition to the other information contained this Quarterly Report on
Form 10-Q, the following risk factors represent material updates and additions
to the risk factors previously disclosed in the Company's Annual Report on Form
10-K for the Year Ended December 31, 2008, as filed with the Securities and
Exchange Commission. Additional risks not presently known to us, or that we
currently deem immaterial, may also adversely affect our business, financial
condition or results of operations. Further, to the extent that any of the
information contained in this Quarterly Report on Form 10-Q constitutes
forward-looking statements, the risk factors set forth below also are cautionary
statements identifying important factors that could cause our actual results to
differ materially from those expressed in any forward-looking statements made by
or on behalf of us.
Any Future FDIC Insurance Premiums Will Adversely Impact Our Earnings.
On May 22, 2009, the FDIC adopted a final rule levying a five basis
point special assessment on each insured depository institution's assets minus
Tier 1 capital as of June 30, 2009. The special assessment is payable on
September 30, 2009. We recorded an expense of $68,000 during the quarter ended
26
June 30, 2009, to reflect the special assessment. The final rule permits the
FDIC's Board of Directors to levy up to two additional special assessments of up
to five basis points each during 2009 if the FDIC estimates that the Deposit
Insurance Fund reserve ratio will fall to a level that the FDIC's Board of
Directors believes would adversely affect public confidence or to a level that
will be close to or below zero. The FDIC has publicly announced that it is
probable that it will levy an additional special assessment of up to five basis
points later in 2009, the amount and timing of which are currently uncertain.
Any further special assessments that the FDIC levies will be recorded as an
expense during the appropriate period. In addition, the FDIC materially
increased the general assessment rate and, therefore, our FDIC general insurance
premium expense will increase substantially compared to prior periods.
Item 2. Unregistered Sales of Securities and Use of Proceeds
(a) The information required by this Item was previously disclosed
by the Company in its Current Report on Form 8-K filed with
the Securities and Exchange Commission on July 1, 2009.
(b) Not applicable
(c) Not applicable
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
(a) On May, 2009 the Company held its Annual Meeting of Stockholders.
(b) At the meeting, Harold L. Kahn, David N. Mesches, M.D., Michael P.
Ostrow, Albert J. Pagano and Peter J. Savago, were elected, each to
serve a three-year term.
The following directors continue in office:
William W. Davenport
Peter B. Ferrante
Andrew G. Finklestein
Gale L. Foster
Thomas D. Weddell
Anthony P. Costa
Philip Guarnieri
David Freer, Jr.
27
(c) Stockholders voted on the following matters:
(i) The election of the following directors of the Company:
DIRECTOR FOR WITHHELD
-------- --- --------
Harold L. Kahn 1,116,275 68,046
David N. Mesches, M.D 1,092,275 92,046
Michael P. Ostrow 1,114,525 69,796
Albert J. Pagano 1,092,275 92,046
Peter J. Savago 1,077,778 106,543
(ii) The ratification of the appointment of Crowe Horwath LLP
as the independent registered public auditing firm for the Company for
the year ending December 31, 2009:
VOTES FOR AGAINST ABSTENTIONS
----- --- ------- -----------
1,183,071 250 1000
Item 5. Other Information
None
28
Item 6. Exhibits
Reference to Previous Filing
Exhibit Number Document If Applicable
- -------------- -------- -------------
3.1 Articles of Incorporation *
3.2 Amended Bylaws *
4 Form of Stock Certificate **
10.1 Employment Agreement dated September 23, 2004 **
Between the Bank and Anthony P. Costa.
10.2 Employment Agreement dated September 23, 2004 **
Between the Bank and Philip Guarnieri
10.4 Empire State Bank, N.A. 2004 Stock Option Plan **
31.1 Certification of Chief Executive Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
* Previously filed with the SEC as an exhibit to the Company's Quarterly Report
on Form 10-QSB for the period ended September 30, 2006.
** Previously filed with the SEC as an exhibit to the Company's Registration
Statement on Form S-4 filed on April 14, 2006 and subsequently amended on April
18, 2006, May 1, 2006 and May 23, 2006 and a post-effective amendment filed on
June 9, 2006. All of such previously filed documents are hereby incorporated
herein by reference in accordance with Item 601 of Regulation S-B.
29
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934 (the "Exchange Act"), the registrant caused this report to be signed on its
behalf by the undersigned, hereunto duly authorized, as of August 13, 2009.
ES Bancshares, Inc.
By: /s/ Anthony P Costa
--------------------------------------
Date: August 13, 2009 Anthony P. Costa
Chairman and Co-Chief Executive Officer
By: /s/ Thomas P. Sperzel
--------------------------------------
Date: August 13, 2009 Thomas P. Sperzel
Chief Financial Officer
30
Exhibit 31.1
Certification of Principal Executive Officer
I, Anthony P. Costa, certify that:
I have reviewed this quarterly report on Form 10-Q of ES Bancshares, Inc.;
Based on my knowledge, this report does not contain any untrue statements of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly report;
Based on my knowledge, the financial statements and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15) for the
registrant and we have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting, to be
designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the
disclosure controls and procedures as of the end of the period
covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonable likely to materially
affect, the registrant's internal control over financial
reporting; and
The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
small business issuer's ability to record, process, summarize
and report financial information; and
b) Any fraud, whether material or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls over financial reporting.
/s/ Anthony P Costa Date: August 13, 2009
- ----------------------------------------- -------------------
Anthony P. Costa
Chairman and Co-Chief Executive Officer
Exhibit 31.2
Certification of Principal Financial Officer
I, Thomas P. Sperzel, certify that:
I have reviewed this quarterly report on Form 10-Q of ES Bancshares, Inc.;
Based on my knowledge, this report does not contain any untrue statements of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly report;
Based on my knowledge, the financial statements and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15) for the
registrant and we have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting, to be
designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the
disclosure controls and procedures as of the end of the period
covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonable likely to materially
affect, the registrant's internal control over financial
reporting; and
The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
small business issuer's ability to record, process, summarize
and report financial information; and
b) Any fraud, whether material or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls over financial reporting.
/s/ Thomas P. Sperzel Date: August 13, 2009
- --------------------- ------------------
Thomas P. Sperzel
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of ES Bancshares, Inc. (the
"Company") on Form 10-Q for the period ending June 30, 2009 (the "Report"), I,
Anthony P. Costa, Chairman and Co-Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:
(1) The report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.
Date: August 13, 2009 /s/ Anthony P Costa
-------------------------- --------------------------------------
Anthony P. Costa
Chairman and Co-Chief Executive Officer
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of ES Bancshares, Inc. (the
"Company") on Form 10-Q for the period ending June 30, 2009 (the "Report"), I,
Thomas P. Sperzel, Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.
Date: August 13, 2009 /s/ Thomas P. Sperzel
-------------------------- --------------------------------------
Thomas P. Sperzel
Chief Financial Officer