Colonial Bankshares Inc. Reports Operating Results (10-Q)

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May 17, 2010
Colonial Bankshares Inc. (COBK, Financial) filed Quarterly Report for the period ended 2010-03-31.

Colonial Bankshares Inc. has a market cap of $44.23 million; its shares were traded at around $10 with and P/S ratio of 1.6. Colonial Bankshares Inc. had an annual average earning growth of 7.4% over the past 5 years.COBK is in the portfolios of Third Avenue Management, Martin Whitman of Third Avenue Value Fund.

Highlight of Business Operations:

Net loans receivable increased $6.8 million, or 2.1%, to $328.4 million at March 31, 2010 from $321.6 million at December 31, 2009. Commercial real estate loans increased $11.3 million, or 11.6%, to $108.4 million at March 31, 2010 from $97.1 million at December 31, 2009. Construction loans decreased $5.1 million to $9.0 million at March 31, 2010 from $14.1 million at December 31, 2009. One- to four-family residential real estate loans decreased $150,000 to $151.2 million at March 31, 2010 from $151.4 million at December 31, 2009. Home equity loans and lines of credit increased $244,000 to $38.1 million at March 31, 2010 from $37.9 million at December 31, 2009. Multi-family mortgage loans decreased slightly to $3.7 million at March 31, 2010 from $4.1 million at December 31, 2009. Commercial loans increased by $1.4 million to $19.3 million at March 31, 2010 from $17.9 million at December 31, 2009. As a result of recent increases in our loan portfolio relative to our regulatory capital position, we are controlling the growth of our commercial real estate portfolio and, in the future, we intend to limit all loans (other than one- to four-family residential real estate loans) to 275% of the sum of core capital (generally common stockholders equity (including retained earnings) and minority interests in equity accounts of consolidated subsidiaries, less certain intangible assets) plus our allowance for loan losses.

Securities available-for-sale decreased $704,000 to $165.7 million at March 31, 2010 from $166.4 million at December 31, 2009. The decrease was the result of sales, calls and maturities in the amount of $16.2 million, $8.7 million in principal amortization offset by purchases in the amount of $23.5 million. In addition, securities held-to-maturity decreased by $6.7 million, to $34.3 million at March 31, 2010 from $41.0 million at December 31, 2009. This decrease was the result of sales, call and maturities in the amount of $7.6 million and $143,000 in principal amortization offset by purchases in the amount of $1.0 million and an impairment charge on an investment security of $20,000. The sales were on investment securities that had been downgraded by a credit rating agency to below investment grade, and on which we had previously recognized other-than-temporary impairment charges. The other-than-temporary charge was all related to credit loss, and no bifurcation was done with respect to the impairment (i.e. all of the other-than-temporary impairment was recorded as a loss against operations, and not as a reduction in other comprehensive income.)

Deposits increased $3.7 million, or 0.7%, to $504.0 million at March 31, 2010 from $500.4 million at December 31, 2009. The largest increase was in savings accounts, which increased $14.3 million, or 15.7%, to $105.3 million at March 31, 2010 from $91.0 million at December 31, 2009. The increase in savings accounts was due to an increase in county governmental-related accounts. NOW accounts increased $8.7 million, or 8.8%, to $107.5 million at March 31, 2010 from $98.8 million at December 31, 2009. Super NOW accounts increased by $3.4 million to $23.2 million at March 31, 2010 from $19.8 million at December 31, 2009. Non-interest bearing demand accounts decreased by $4.2 million to $16.9 million at March 31, 2010 from $21.1 million at December 31, 2009. Certificates of deposit decreased by $19.0 million to $187.7 million at March 31, 2010 from $206.7 million at December 31, 2009. Included in the balance in certificates of deposits are brokered deposits in the amount of $13.8 million at March 31, 2010, which decreased $5.5 million from $19.3 million at December 31, 2009. We have reduced our reliance on brokered certificates of deposit in favor of lower cost, core deposits, which has decreased our cost of funds. We did not aggressively price our certificates of deposit upon maturity, but some certificate of deposit customers remained with us by opening other types of deposit accounts.

Provision for Loan Losses. We establish provisions for loan losses, which are charged to operations in order to maintain the allowance for loan losses at a level we consider sufficient to absorb estimated probable loan losses inherent in the loan portfolio. In determining the level of the allowance for loan losses, we consider past and current loss experience, evaluation of real estate collateral, current economic conditions, volume and type of lending, adverse situations that may affect a borrower s ability to repay a loan and the levels of nonperforming and other classified loans. The amount of the allowance is based on estimates and the ultimate losses may vary from such estimates as more information becomes available or later events change. We assess the allowance for loan losses on a quarterly basis and make provisions for loan losses in order to maintain the allowance. For the three months ended March 31, 2010, the provision for loan losses was $460,000 and there was a net charge-off of $50,000. The allowance for loan losses was $3.0 million at March 31, 2010, or 0.91% of total loans, compared to $2.3 million, or 0.74% of total loans at March 31, 2009. We increased the allowance for loan losses at March 31, 2010 due to increases in (i) general reserves, reflecting growth in the loan portfolio, and (ii) specific allowances for substandard loans, loans designated as “special mention” and loans on our watch list, in each case where the recorded investment in the loan exceeds the measured value of the loan. Our balance of loans we analyzed for possible specific allowances increased to $7.2 million at March 31, 2010 from $3.8 million at March 31, 2009, although we provided specific allowances on loans with principal balances of $2.1 million as of March 31, 2010 and $779,000 as of March 31, 2009. During 2008, in recognition of current economic conditions, we increased the loss rates used to determine general reserves based upon historical loss experience. During the three months ended March 31, 2010 and 2009, in further recognition of current economic conditions, we established unallocated allowances for loan losses of $500,000 and $373,000, respectively. The allowance for loan losses represented 124.37% of nonperforming loans at March 31, 2010 and 177.58% of nonperforming loans at March 31, 2009. We have not increased our allowance for loan losses commensurate with our increase in commercial real estate loans, as we originate commercial real estate loans that we believe to be of greater credit quality but that may provide lower yields. Such credit quality can result from one or more of many factors, including, but not limited to: the borrower having substantial net worth; the borrower providing a personal guarantee on the loan; the borrower having deposit relationships with us; the underlying business having a debt service ratio that exceeds the minimum established by our policies; the borrower having a history of creditworthiness, either with us, one of our lending officers or another financial institution; and the collateral being in a desirable location. To the best of our knowledge, we have recorded all losses that are both probable and reasonable to estimate at March 31, 2010 and 2009.

Non-interest Income. Non-interest income was $290,000 for the three months ended March 31, 2010 and $376,000 for the three months ended March 31, 2009. Fees and service charges on deposit accounts increased by $23,000 to $306,000 for the three months ended March 31, 2010 from $282,000 for the three months ended March 31, 2009. The increase in fees and service charges was attributed to increases in volume of overdraft fees and ATM fees. Gains on the sale of loans totaled $20,000 for the three months ended March 31, 2010 and $8,000 for the three months ended March 31, 2009. Non-interest income for the three months ended March 31, 2010 was reduced by an other-than-temporary impairment of a corporate debt security in our available-for-sale investment security portfolio in the amount of $20,000 (pre-tax). For the three months ended March 31, 2009, the other-than-temporary impairment of the mutual fund was $97,000 (pre-tax). For the three months ended March 31, 2010, there was a net loss on the sale and call of investment securities in the amount of $42,000 compared to a gain of $157,000 for the three months ended March 31, 2009.

Non-interest Expense. Non-interest expense increased $26,000 to $2.8 million for the three months ended March 31, 2010 from $2.8 million for the three months ended March 31, 2009. Compensation and benefits expense increased $109,000 to $1.5 million for the three months ended March 31, 2010 from $1.3 million for the three months ended March 31, 2009. Normal salary increases and increases in payroll taxes primarily accounted for the increase in compensation and benefits expense. Occupancy and equipment expense increased $81,000 mainly due to increases in repairs and maintenance and depreciation. Federal deposit insurance premiums decreased to $194,000 for the three months ended March 31, 2010 from $391,000 for the three months ended March 31, 2009. This decrease was mainly due to the FDIC special assessment that was expensed and paid in 2009. Data processing fees increased by $26,000 to $228,000 for the three months ended March 31, 2010 from $202,000 for the three months ended March 31, 2009. This increase was due to an increase in the number of savings and loan accounts being serviced and the addition of services being offered to customers. Professional fees decreased $16,000 mainly due to a decrease in legal fees and auditing and accounting fees offset by an increase in professional fees. Other expenses increased by $48,000 to $322,000 for the three months ended March 31, 2010 from $274,000 for the three months ended March 31, 2009. Correspondent bank fees, dues and subscriptions and loan processing expenses account for the iRead the The complete Report