Liberty Bell Bank Reports Fourth Quarter 2013 Results of Operations

  Liberty Bell Bank Reports Fourth Quarter 2013 Results of Operations

Business Wire

MARLTON, N.J. -- March 18, 2014

Liberty Bell Bank (OTCQB:LBBB) today reported a net loss of $656,000 or
$(0.20) per diluted share for the three months ended December 31, 2013,
compared to a net loss of $1.0 million or $(0.34) per diluted share for the
same period in 2012, a decrease of $376,000. For the year ended December 31,
2013, the Bank had a $3.0 million net loss, or $(0.89) per diluted share,
compared to a net loss of $3.4 million or $(1.12) per diluted share for 2012.
At December 31, 2013, the Bank is adequately capitalized by all regulatory
measures.

The loss of $656,000 in the last quarter of 2013 was due primarily to $250,000
write-down of other real estate owned to market values, the recording of an
additional provision for loan losses of $231,000 in connection with a $228,000
charge off of loans secured by fraudulent leases, and a $151,000 pre-payment
penalty in conjunction with the early retirement of the Bank’s $5.0 million
borrowing due to its above-market interest rate of 3.99%.

President and CEO Kevin Kutcher stated, “Coming out of 2013 and emerging from
the great recession economy, we have three over-riding areas of concurrent
focus – augmenting capital, compliance with the regulatory Consent Orders we
entered into with the FDIC and the New Jersey Department of Banking in the
fourth quarter of 2013, and reducing problem assets. To those ends – we
anticipate a $5 million capital offering to be commenced before the end of
March 2014 that has sincere indications of interest approaching $4 million.
Consequently, we anticipate a likely short offering period with approximately
$5 million of new capital proceeds in the early part of the second quarter.”

“We believe we are in satisfactory compliance with all of the provisions of
the Consent Orders except for the completion of our capital offering,” he
added, “and we are experiencing meaningful progress in reducing problem loans.
Since year-end we have completed a transaction reducing one of our problem
assets by $1 million and have posted a partial recovery approximating $250,000
from a previously charged off problem asset. In addition, we are in the final
negotiations for a contract of sale on another problem loan property that
should reduce problem assets another $1.5 million in 2014.”

Mr. Kutcher continued, “Once we consummate the offering, we’ll also then be in
position, with the added $4 to $5 million of capital, to potentially
accelerate further problem asset reductions by absorbing justifiable modest
discounts to motivate buyers. Reduced problem assets/loans along with
augmented capital has the potential to accelerate the termination of the
Consent Orders as well. Continuing progress reducing problem assets, net
additions to capital associated with the offering proceeds and reducing
expenses as problem assets are eliminated should return the Bank to profitable
core operations in 2014. With problem assets and related costs diminishing,
our lending staff will be available to focus on productive lending. The new
capital and returning to profitable operations will help support loan growth
and investment in staff and process improvements in our loan and credit area.”

The $376,000 reduction in the Bank’s quarterly loss as compared to the three
months ended December 31, 2012 was due primarily to a reduction of losses on
the sale of other real estate owned of $434,000 from $684,000 in 2012 to
$250,000 in 2013, as well as to a decrease in the provision for loan losses of
$39,000. Fee income increased $10,000 in the three months ended December 31,
2013 as compared to the three months ended December 31, 2012. These positive
variances were partially offset by a decrease in net interest income of
$51,000, an increase in non-interest expense of $32,000 and a decrease in the
provision for income taxes of $24,000.

The decrease of $51,000 in net interest income for the three months ended
December 31, 2013 as compared to the three months ended December 31, 2012 was
due to a $147,000 decrease in interest income partially offset by a $96,000
reduction in interest expense, primarily on deposits. The decrease in interest
income was due primarily to a decrease of $174,000 in interest from loans
offset by an increase of $27,000 in interest earned from investments.

The decrease of $174,000 in interest from loans was due primarily to a 26
basis point reduction of the yield from the loan portfolio from 5.32% to
5.06%. In addition, the average loan balances outstanding for the three months
ended December 31, 2013 as compared to the three months ended December 31,
2012 decreased by $8.0 million. The reduction in average loan balances was due
primarily to pay-downs and pay-offs of commercial loans. The increase of
$27,000 in interest on investments, including overnight fed funds sold, was
due primarily to an increase in the average balances outstanding of $12.6
million from $30.4 million to $43.0 million.

The $32,000 increase in non-interest expense was due primarily to an increase
of $185,000 in other operating expenses of which $151,000 was a pre-payment
penalty in conjunction with the early retirement of the Bank’s $5.0 million
borrowing from the Federal Home Loan Bank of New York (“the FHLB”). This
obligation was prepaid due to its above-market interest rate of 3.99%.
Partially offsetting these negative variances, compensation expense decreased
$83,000 due primarily to a decrease in personnel caused by the Mt. Laurel
branch closing and the resignation of two senior officers to pursue other
opportunities. In addition, marketing expense decreased $22,000; occupancy
expense decreased $13,000 due to the closing of the Mt. Laurel office and
expenses related to other real estate owned decreased $44,000.

Net interest margin for the fourth quarter of 2013 was 3.28%, a decrease of
0.25% from the 3.53% net interest margin for the fourth quarter of 2012. The
margin decrease was mainly the result of a 0.53% lower yield from
interest-earning assets partially offset by a 0.22% reduction in the rate paid
for interest-bearing liabilities.

The loss for the year ended December 31, 2013 was primarily due to the Bank
being a victim of a check kiting scheme by one of its commercial deposit and
loan customers. As a result of this check kiting activity, the Bank recognized
approximately $2.1 million ($.62 per diluted share) as a loan charge-off. In
addition, the Bank has $2.1 million of loans secured by leases originated
through this customer. The Bank continues to take steps it deems necessary to
ensure the payment of the related lease payment receivables.

The Bank’s net loss of $3.0 million for 2013 was $390,000 less than the loss
for the year ended December 31, 2012. The provision for loan losses for 2013
was $2.8 million, an increase of $941,000 as compared to $1.9 million for
2012. The increase in the provision for loan losses was primarily due to the
$2.1 million charge-off. Net interest income decreased by $249,000 from $5.5
million to $5.3 million for 2012 and 2013, respectively. These negative
variances were offset by an increase of $1.1 million in non-interest income
and a decrease of $450,000 in non-interest expense.

The decrease of $249,000 in net interest income, for 2013 as compared to 2012,
was due to a $690,000 decrease in interest income, partially offset by a
$441,000 reduction in interest expense. The decrease in interest income was
due primarily to a decrease of $855,000 in interest from loans, offset
partially by an increase of $165,000 in interest earned from investments,
while the decrease in interest expense primarily resulted from a decrease of
interest paid on deposits.

The decrease of $855,000 in interest from loans was due primarily to a 38
basis point reduction of the yield from the loan portfolio from 5.52% to
5.14%. In addition, the average loan balances outstanding for 2013 as compared
to 2012 decreased by $7.5 million. The increase of $165,000 in interest earned
from investments was due primarily to an increase of $11.5 million in the
average balance outstanding from $29.4 million to $40.9 million.

The $1.1 million increase in non-interest income was due primarily to a $1.2
million decrease in losses from the sale and write-down of other real estate
owned from $1.5 million for 2012 to $335,000 for 2013. In addition, the Bank
recognized $183,000 from the sale of investment securities in 2013 versus no
such gain in 2012. Partially offsetting these positive variances,
miscellaneous fees decreased $160,000 primarily due to the $151,000 fraud loss
recovery recognized in 2012 and fees from deposit and loan accounts decreased
$87,000 from $401,000 for 2012 to $315,000 for 2013.

The $450,000 decrease in non-interest expense for 2013 as compared to 2012 was
due primarily to a $319,000 reduction in compensation expense due primarily to
staff reductions from the closing of the Mt. Laurel office and consolidation
of management. In addition, expenses related to other real estate owned
decreased $129,000, insurance expense decreased $39,000 and audit expense
decreased $96,000 primarily due to the Bank’s deregistration as a public
company. Expenses related to equipment decreased $63,000, marketing expense
decreased $41,000 and occupancy expenses decreased $30,000. Partially
offsetting these positive variances, other miscellaneous expenses increased
$153,000 due primarily to the $151,000 pre-payment expense related to
retirement of the FHLB borrowing, legal expense increased $19,000,
professional expenses increased $39,000 primarily related to other real estate
activity and loan administration expenses increased $18,000. In addition, data
processing expense increased $35,000 as the Bank outsourced the network
administration function with the resignation of its Chief Information
Technology Officer.

Net interest margin for 2013 was 3.36%, a decrease of 0.26% from the 3.62% net
interest margin for 2012. The margin decrease was mainly the result of a 0.56%
lower yield from interest-earning assets partially offset by a 0.28% reduction
in the rate paid for interest-bearing liabilities.

Total assets at December 31, 2013 were $157.8 million, representing a decrease
of $16.5 million from $174.3 million at December 31, 2012. The decrease was
due primarily to net loans which decreased $12.5 million, cash and cash
equivalents which decreased $7.3 million and fixed and other assets which
decreased $425,000 from December 31, 2012. These decreases were partially
offset by investments which increased $3.1 million and other real estate owned
which increased $594,000 from $5.6 million at December 31, 2012 to $6.2
million at December 31, 2013. The reduction in loans was due primarily to the
pay down and pay off of commercial loans and the sale of $4.5 million of loans
in September 2013, as the Bank moved to reduce its risk profile and increase
regulatory capital ratios. Excess cash was invested in the securities
portfolio with the purchase of primarily government and agency bonds.

Total deposits decreased $7.9 million to $146.9 million at December 31, 2013
from $154.8 million at December 31, 2012. The decrease was primarily due to a
$12.5 million decrease in interest bearing deposits partially offset by a $4.6
million increase in non-interest bearing deposits. In addition, total
borrowings decreased $4.1 million due primarily to repayment of $5.0 million
borrowing from the FHLB in December 2013.

The Bank continues to increase non-interest bearing deposit accounts. Total
non-interest bearing deposit accounts at December 31, 2013 were $20.1 million
as compared to $15.4 million at December 31, 2012. The growth in non-interest
bearing deposits continues to be from the Bank’s local market area.

The decrease in interest-bearing deposit accounts of $12.5 million was due
primarily to a decrease in certificates of deposit, our highest cost deposits,
which decreased $9.5 million from $68.8 million at December 31, 2012 to $59.3
million at December 31, 2013. Money Market accounts decreased $1.7 million and
interest bearing checking accounts and savings accounts decreased $497,000 and
$840,000, respectively.

Total capital decreased $4.5 million from $11.6 million at December 31, 2012
to $7.1 million at December 31, 2013. The decrease was due to the net loss for
2013 of $3.0 million and the shift from an unrealized gain in the
mark-to-market of securities available for sale of $337,000 at December 31,
2012 to an unrealized loss of $1.2 million at December 31, 2013. The shift to
an unrealized loss is due primarily to the sudden increase in market interest
rates during the second quarter and continuing to year-end 2013. These are not
actual losses, but “mark to market” losses on Treasury and similar securities
that are not at risk for a loss of principal but are primarily held for
revenue and collateral purposes.

At December 31, 2013, our criticized/classified loans totaled $10.5 million,
an increase of $1.6 million from $8.9 million of criticized/classified loans
at December 31, 2012, but $5.1 million less than the $15.6 million in such
loans at December 31, 2011. The $10.5 million of criticized/classified loans
at December 31, 2013 included $2.1 million of loans associated with the
commercial customer who perpetrated the check kiting scheme. These loans are
secured primarily by receivables from U.S. government related agencies, and
management continues to believe these loans are ultimately collectible. Other
real estate owned increased $594,000 from $5.6 million at December 31, 2012 to
$6.2 million at December 31, 2013. “We may recognize some comparatively small
losses in 2014 associated with opportunities to accelerate sales of problem
asset collateral,” said Mr. Kutcher, “but if so these will be absorbed, by
design, by a portion of the proceeds from the anticipated $5 million of new
capital.”

Set forth below is certain selected balance sheet and income statement data at
December 31, 2013 and December 31, 2012 and for the three months and years
ended December 31, 2013 and 2012.

                                              
SELECTED BALANCE SHEET DATA
(Unaudited, in thousands)         December 31,       December 31,
                                  2013               2012

Cash and cash equivalents         $   12,072         $   19,319
Investment securities                 24,966             21,655
Net loans receivable                  110,039            122,508
Total assets                          157,871            174,328
Deposits                              146,888            154,811
Shareholders’ equity                  7,069              11,572
                                                         

                                                              
SELECTED INCOME STATEMENT DATA
(Unaudited, in thousands except
per share data)

                  Quarter ended   Quarter ended   Year ended     Year ended
                   December 31,    December 31,    December 31,   December 31,
                   2013            2012            2013           2012

Net interest       $   1,264       $  1,315        $  5,282       $  5,531
income
Provision for          231            270             2,792          1,850
loan losses
Gain on sale of        0              0               183            0
securities
Recovery of            0              0               0              151
Fraud Loss
Other
Non-interest           83             74              336            431
income
Loss on
write-down of          250            684             335            1,528
ORE
Other expenses         1,522          1,490           5,669          6,120
Provision for          0              (24     )       2              2
income taxes
Net income         $   (656   )    $  (1,033  )    $  (2,997  )   $  (3,387  )

Earnings per
share:
Basic              $   (0.20  )    $  (0.34   )    $  (0.89   )   $  (1.12   )
Diluted            $   (0.20  )    $  (0.34   )    $  (0.89   )   $  (1.12   )
Capital Ratios:
Leverage               4.95   %       6.42    %
Capital
Total risk             8.37   %       10.03   %
based capital
                                                                  

Liberty Bell Bank is a full-service, state-chartered commercial bank, whose
deposits are insured by the Federal Deposit Insurance Corporation (FDIC). The
Bank provides diversified financial products through two locations in
Burlington County, New Jersey and one location in Camden County, New Jersey.

The Bank may from time to time make written or oral “forward-looking
statements”, including statements contained in this release. Such statements
are not historical facts and include expressions about management's confidence
and strategies and management's current views and expectations about new and
existing programs and products, relationships, opportunities, taxation,
technology and market conditions. Actual results may differ materially from
such forward-looking statements, and no undue reliance should be placed on any
forward-looking statement. Factors that may cause results to differ materially
from such forward-looking statements include, but are not limited to,
unanticipated changes in the financial markets and the direction of interest
rates; volatility in earnings due to certain financial assets and liabilities
held at fair value; stronger competition from banks, other financial
institutions and other companies; insufficient allowance for credit losses; a
higher level of net loan charge-offs and delinquencies than anticipated;
material adverse changes in the Bank’s operations or earnings; a decline in
the economy in our primary market areas; changes in relationships with major
customers; changes in effective income tax rates; higher or lower cash flow
levels than anticipated; inability to hire or retain qualified employees; a
decline in the levels of deposits or loss of alternate funding sources; a
decrease in loan origination volume; changes in laws and regulations,
including issues related to compliance with anti-money laundering and the bank
secrecy act laws; adoption, interpretation and implementation of new or
pre-existing accounting pronouncements; operational risks, including the risk
of fraud by employees and customers; the inability to successfully implement
new lines of business or new products and services .and other factors, many of
which are beyond the Bank's control. The words “may”, “could”, “should”,
“would”, “believe”, “anticipate”, “estimate”, “expect”, “intend”, “plan”, and
similar expressions are intended to identify forward-looking statements. All
such statements are made in good faith by the Bank pursuant to the “safe
harbor” provisions of the Private Securities Litigation Reform Act of 1995.
The Bank does not undertake to update any forward-looking statement, whether
written or oral, that may be made from time to time by or on behalf of the
Bank.

Contact:

Liberty Bell Bank
Benjamin F. Watts
Chief Financial Officer
856-830-1135
 
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