Somerset Hills Bancorp Reports 2010 Second Quarter and Six-Month Earnings

BERNARDSVILLE, N.J., July 22, 2010 (GLOBE NEWSWIRE) -- Somerset Hills Bancorp (Nasdaq:SOMH) (the "Company"), parent company of Somerset Hills Bank (the "Bank"), reported net income available to common stockholders of $601,000, or $0.11 per diluted share, for the quarter ended June 30, 2010 versus $74,000, or $0.01 per diluted share, for the second quarter of 2009 and $410,000, or $0.07 per diluted share, for the first quarter of 2010. For the first six months of 2010, net income available to common stockholders was $1.0 million, or $0.18 per diluted share, versus $600,000, or $0.11 per diluted share, for the first six months of 2009.

Prior year net income available to common stockholders was negatively impacted by $257,000 for the second quarter of 2009 and by $350,000 for the first six months of 2009 due to accretion, dividends, and repurchase premium related to $7.4 million of preferred stock issued in January 2009 to the U.S. Treasury under the Capital Purchase Program. During the second quarter of 2009, the Company repurchased all shares of preferred stock and warrants issued to the Treasury, thus eliminating any dilutive effect in prospective periods. Net income (which excludes the aforementioned items) for the second quarter 2010 increased by 81.6% and 46.6% from the second quarter of 2009 and first quarter of 2010, respectively.

Stewart E. McClure, Jr., President and CEO, stated, "We again are very pleased with quarterly results and progress, which reflect continued sound asset quality metrics, strong capital and improved profitability ratios. Our nonperforming assets at quarter-end remain very low at just 0.11% of total assets, while our loans past due 30 to 89 days, measured as a percent of total loans, remained constant at only 0.09%. There were no new nonaccrual loans and no charge-offs during the quarter, and our allowance grew to 1.54% of total loans and 876% of nonaccrual loans." Mr. McClure continued, "Our profitability is improving as well. Return on assets for the quarter increased to 0.79%, reflecting a sequential widening of our net interest margin, which is now in excess of 4%, and a decline in operating expenses. Our liquidity remains high by historical standards and with a strong tangible common equity ratio in excess of 12%, we stand well-positioned to benefit from increased loan demand as the economy recovers. Our balance sheet continues to be asset-sensitive, that is, we currently expect net interest income to increase should interest rates rise."

Net interest income on a fully taxable equivalent basis for the 2010 second quarter totaled $2.9 million, an increase of $307,000, or 11.9%, from $2.6 million earned in the year ago quarter. The increase in net interest income was largely due to a widening of the net interest margin which increased by 55 basis points to 4.06% in the current quarter from 3.51% in the prior year quarter. Partially offsetting the wider margin was a decrease in average interest-earning assets, which were $285.5 million for the second quarter 2010, down 3.3% from $295.3 million in the second quarter of 2009. For the first half of 2010, net interest income on a fully taxable equivalent basis was $5.6 million and the net interest margin was 3.90%, up from $5.2 million and 3.64% for the first half of 2009.  Average interest-earning assets decreased slightly to $287.3 million for the first six months of 2010 from $289.6 million for the same period one year ago. The increases in the net interest margin for the three- and six-month periods versus last year were primarily due to a reduction in rates paid for deposits and an improved deposit mix weighted more towards transaction accounts. The decline in average-earning assets reflected a general lack of demand for loans, consistent with a struggling economy.

Non-interest income decreased by $231,000 to $485,000 in the second quarter of 2010, from $716,000 in the second quarter of 2009, primarily due to a $251,000 decline in gains on sales of residential loans at Sullivan Financial Services, Inc., a wholly-owned mortgage banking subsidiary of the Bank, which originates loans for sale strictly on a pre-sold flow-basis. Sullivan's revenue was down due to significantly lower refinancing activity in the current quarter versus the second quarter 2009. Partially offsetting the reduction in mortgage banking revenue were higher banking and wealth management fees. For the six months ended June 30, 2010, non-interest income was $907,000, down $880,000 from $1.8 million earned during the first six months of 2009. Bank owned life insurance income was significantly lower in 2010, as the bank received $568,000 on a life insurance policy in 2009 in connection with the death of its former CFO. In addition, gains on sales of residential mortgage loans declined by $349,000 versus the same period one year ago, due to the reduction in refinancing activity. Partially offsetting these declines were higher banking and wealth management fees. We expect the Bank's revenues to be unaffected by recent legislation aimed at curtailing debit card overdraft charges, as our consumer-friendly policy has historically been to not automatically charge for these types of overdrafts. 

Non-interest expenses decreased by $220,000, or 8.3%, to $2.4 million in the second quarter of 2010 from $2.6 million in the second quarter of 2009. FDIC insurance assessment expense declined by $174,000 largely due to a special assessment incurred during last year's second quarter. In addition, management's continued cost containment efforts have yielded cost savings in all areas of the Bank's operations, with a particular emphasis on occupancy expenses and legal and professional advisory fees. For the six months ended June 30, 2010, non-interest expense was $4.9 million, down $436,000, or 8.2%, from the first six months of 2009. The decrease for the six-month period comparison was due to the 2009 FDIC special assessment, a 2009 non-recurring $183,000 charge for retirement plan liability, and management focus on cost control.

The Company recorded provisions for income taxes of $291,000 and $446,000 for the second quarter and first half of 2010, respectively, versus $114,000 and $33,000 for the second quarter and first half of 2009, respectively. The effective tax rates were 32.6% and 30.6% for the second quarter and first half of 2010, respectively, versus 25.6% and 3.4% for the second quarter and first half of 2009, respectively. The increase in the effective tax rates this year versus last was due to an increase in income from taxable sources, whereas recurring non-taxable income has remained relatively constant. In addition, pretax income for the first half of 2009 included a tax-free $568 thousand death benefit payment on bank owned life insurance, which resulted in a very low effective rate for the applicable period.

For the second quarter of 2010, there was no provision for loan losses and a net $3,000 of recoveries of loans previously charged-off, while for the second quarter of 2009, the provision for loan losses was $150,000 and there were no net charge-offs. For the first six months of 2010, the provision for loan losses was $75,000 and there were $3,000 in net recoveries, while for the first six months of 2009, the provision for loan losses was $600,000 and net charge-offs were $646,000. The allowance for loan losses at June 30, 2010 was $3.2 million, representing 1.54% of total loans. At June 30, 2009, the allowance was $2.8 million, representing 1.33% of total loans. Non-accrual loans at June 30, 2010 totaled $364,000, representing 0.18% of total loans, up from $119,000, or 0.06% of total loans one year ago. The non-performing asset ratio, which is defined as nonaccrual loans and OREO as a percentage of total assets, was 0.11% at June 30, 2010 and 0.04% at June 30, 2009. The Company had no OREO at either June 30, 2010 or June 30, 2009 and one troubled debt restructured loan ("TDR") totaling $392,000 at June 30, 2010. As of June 30, 2010, the Company had $180,000 in loans delinquent 30 to 89 days, representing 0.09% of total loans, versus $121,000, or 0.06% of total loans, at June 30, 2009.

As of June 30, 2010, the Company's tangible common equity ratio and tangible book value per share were 12.31% and $7.15, respectively. As of June 30, 2009, the Company's tangible common equity ratio and tangible book value per share were 12.03% and $6.92, respectively.

The Board of Directors has declared a quarterly cash dividend of $0.05 per share payable August 31, 2010 to shareholders of record as of August 17, 2010.

Neal Golding has resigned from our Board of Directors and joined the Board of Hudson City Bancorp, Inc. We want to thank Neal for his years of dedicated service to the Company and we wish him well in his new role.

Forward-Looking Statements

This news release contains certain forward-looking statements which are based on certain assumptions and describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, changes in interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company's market area and accounting principles and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.