Bank began 2013 with significant balance sheet restructuring
HOPEWELL TOWNSHIP — Patrick L. Ryan, chairman, and James Hyman, president and CEO, of Hopewell Valley Community Bank (PinkSheets: HWDY) jointly announced that the Bank started 2013 with a significant balance sheet restructuring by repaying three long-term Federal Home Loan Bank (FHLB) advances totaling $20,000,000 on which the bank was paying interest at an average effective rate of 3.78 percent.
Due to the early extinguishment of these obligations, the Bank paid a penalty of $2,697,796, which was charged against earnings. The decision to repay the advances, however, will save the Bank more than $750,000 per year in interest expense and a total of nearly $3.2 million of interest expense over what would have been the remaining duration of the advances.
Additionally, HVCBank’s first quarter 2013 earnings were reduced by an additional loan loss reserve allocation of$476,000 related to the revaluation of collateral for a single commercial mortgage loan.
”We subsequently took a partial write-down of that loan to more accurately reflect the reduced collateral value. The Bank is actively working with the owner of the property in question to seek recovery,” said a spokesman.
Due to the Bank’s historical profitability, the first quarter net income before tax loss of ($2,803,142) was significantly mitigated by an income tax benefit of $1,199,900. As a result, reported net income for the first quarter of 2013 came in at a loss of ($1,603,242) or ($.50) a share, as compared to the 2012 equivalent period total of$490,255 or $.14 per share. Because of prior profitability and the tax benefit, total equity ended the March 31,2013, quarter at $41,732,254.
Despite the advance repayment and reserve adjustments discussed above, HVCBank’s core growth continued with total assets for the first quarter of 2013 of $430,978,328, a 3.6 percent increase over the corresponding 2012 quarterly figure of $415,899,591. Total deposits rose 10.1percent to $384,039,456 at the quarter’s end, increasing from$348,805,149 at the end of the first quarter of 2012. Total loans also grew by 15.3percent to $286,604,612.
Loan growth, higher investment income and decreased interest expense drove a strong rise of 9.3 percent in net interest income.
Chairman Ryan observed that: “While we are not happy to report the effects of the FHLB advance repayment and the negative consequences of our loan portfolio adjustments, we are pleased that our institutional growth and core asset performance continues in a positive direction. We have been fortunate to perform as well as we have through the past five years, following the beginning of the financial crisis, but we were not immune from its full effects.”
Mr. Ryan continued, “We obtained the FHLB advances in 2006 and 2007 at rates below those available in the deposit market at that time in order to finance loan growth. Subsequent extraordinary Federal Reserve policies addressing the financial crisis have resulted in these advances becoming too burdensome to retain. In 2012, the advances represented 4.9 percent of our average interest-bearing liabilities, yet they constituted a much higher 23.6 percent of our interest expense. Their elimination will markedly improve the Bank’s profitability as our cost of funds will benefit from the annual savings outlined above.”
President Hyman commented: “While repayment of the FHLB advances was painful, it was determined that keeping them on our balance sheet for their almost five year remaining term would have been detrimental to our long term profitability. Our strong liquidity position enabled us to clean-up the balance sheet and the effect is an almost 10percentimmediate improvement in our net interest margin, thereby greatly enhancing our opportunity for higher profitability going forward.”
Mr. Hyman added, “The need to set aside additional reserves, while also distasteful, allows us to now deal with resolution of the commercial loan in question with a substantially reduced exposure and, therefore, a greater likelihood of recovery.
”Looking forward, we have strong expectations for the remainder of the year. We continue to have strong primary capital, now 9.68 percent, and we have a promising, expanded footprint of 10 branches, including two new Hunterdon County offices, in Flemington and Pittstown, along with our new Somerset County office in Skillman, from which to grow. Outstanding loans continue to increase, and our board, officers, and staff are all committed to meeting the needs of our markets. The future remains bright.”
Hopewell Valley Community Bank is a locally owned and managed, full-service, FDIC insured commercial bank. Founded in 1998, HVCBank provides a “friendly, personalized banking experience” for residents and small business owners with 10 banking offices in Hopewell, Pennington, Hamilton, Ewing and Princeton in Mercer County, Ringoes, Flemington and Pittstown in Hunterdon County, Skillman in Somerset County, and through its fully interactive website at www.hvcbonline.com.
For further information, contact Mr. Hyman at 609-466-2900.