Service Bancorp, Inc. Reports Results for the Quarter and Year Ended June 30, 2008

Service Bancorp, Inc. Reports Results for the Quarter and Year Ended June 30,
2008

MEDWAY, Mass., July 31 /PRNewswire-FirstCall/ -- Service Bancorp, Inc.
(OTC Bulletin Board: SERC), the bank holding company for Strata Bank,
announced a net loss for the quarter ended June 30, 2008 of $2.5 million, or
$1.52 per diluted share, compared with net income of $260,000, or $0.16 per
diluted share, for the same quarter a year ago. The net loss for the year
ended June 30, 2008 was $2.6 million, or $1.61 per diluted share, compared
with net income for last year of $1.2 million, or $0.75 per diluted share.
Pamela J. Montpelier, Chief Executive Officer and President of Service
Bancorp, Inc. and Strata Bank, stated: "Our net loss for the fourth quarter
and the year primarily resulted from losses incurred on commercial loans on
residential construction projects, including two loans with total charge-offs
of $3.4 million for those periods. One of these loans, a substantially
uncompleted residential construction project, was recently sold with a
resulting charge-off of $2.8 million. In that case, and after our assessment
of the project, we determined that the additional expense and uncertainty of
acquiring and completing the property would not be prudent. Our remaining
commercial construction loan portfolio following these transactions is $17.6
million, or 5.3% of total loans as of our year end. We remain diligent in
reducing the number of non-performing loans and monitoring our commercial
lending portfolio as many commercial customers are faced with economic
challenges such as the real estate market."
The provision for loan losses was $3.9 million for the quarter ended June
30, 2008, which was $3.8 million higher than the $105,000 recorded for the
same quarter last year. Net charge-offs totaled $3.9 million for the quarter
ended June 30, 2008, including $3.5 million related to commercial real estate
and construction loans and $399,000 related to other commercial and small
business loans. For the year ended June 30, 2008, the provision for loan
losses was $5.0 million, which was $4.4 million higher than the $643,000
recorded last year. Net charge-offs totaled $4.8 million for the year ended
June 30, 2008, including $3.5 million related to commercial real estate and
construction loans and $1.3 million related to other commercial and small
business loans. The allowance for loan losses totaled $3.3 million at June 30,
2008, and represented 1.00% of loans outstanding compared with 0.94% of loans
outstanding at June 30, 2007. These loan loss provisions were based primarily
on management's assessment of several key factors, including internal loan
review classifications reflecting commercial loan relationships deemed by the
Company to be impaired, historical loss experience, changes in portfolio size
and composition, and current economic conditions.
For the quarter ended June 30, 2008, net interest income increased
$141,000, or 5.2%, to $2.8 million from $2.7 million for the same quarter last
year, primarily due to a decrease of 61 basis points in the cost of interest-
bearing liabilities to 3.37%, partially offset by a decrease of 40 basis
points in the yield on interest-earning assets to 5.87% and a $2.2 million
decrease in net average interest-earning assets to $45.9 million. The net
interest rate spread and net interest margin were 2.50% and 2.89%,
respectively, for the quarter ended June 30, 2008, compared to 2.29% and
2.78%, respectively, for the same quarter last year. For the year ended June
30, 2008, net interest income decreased $267,000, or 2.4%, to $10.7 million
from $11.0 million for the same period last year, primarily due to a decrease
of 21 basis points in the yield on interest-earning assets to 6.05% and a $2.2
million decrease in net average interest-earning assets to $45.5 million,
partially offset by a decrease of 16 basis points in the cost of interest-
bearing liabilities to 3.72%. The net interest rate spread and net interest
margin were 2.33% and 2.75%, respectively, for the year ended June 30, 2008,
compared to 2.38% and 2.86%, respectively, for last year. Also contributing to
the decrease in net interest income for the year ended June 30, 2008 as
compared to the same periods last year were a decline in average core deposits
of $7.9 million, which were replaced with higher cost certificates of deposit
and borrowings, and the higher levels of non-performing loans.
Non-interest income decreased $146,000, or 25.0%, to $439,000 for the
quarter ended June 30, 2008 from $585,000 for the same quarter last year,
primarily due to lower gains from sales of investment securities. For the year
ended June 30, 2008, non-interest income increased $32,000, or 1.5%, to $2.1
million from last year. Non-interest income in the current year periods
reflected higher customer service fee income, lower gains from mortgage
banking activities as a result of reduced residential loan sales, and lower
gains from sales of investment securities than the same periods last year. The
Company, through its residential loan origination division, the Strata
Mortgage Center, sold $6.1 million in residential real estate loans in the
secondary market during the year ended June 30, 2008. By comparison, the
Company sold $20.7 million in the secondary market during the year ended June
30, 2007.
Total non-interest expense for the quarter ended June 30, 2008 increased
$374,000, or 13.0%, to $3.2 million compared to the same quarter last year,
primarily due to increases in salaries and benefits expenses of $247,000,
technology costs of $59,000, professional fees of $30,000 and other operating
expenses of $148,000, partially offset by a decrease in occupancy and
equipment expenses of $110,000. For the year ended June 30, 2008, non-interest
expense increased $1.4 million, or 13.1%, to $12.1 million from last year,
primarily due to increases in salaries and benefits expenses of $257,000,
occupancy and equipment expenses of $259,000, technology costs of $289,000,
professional fees of $207,000 and other operating expenses of $395,000. The
increases in salaries and benefits expenses were primarily due to increased
staffing levels. The increase for the year in occupancy and equipment expenses
was the result of the consolidation of the executive and operations center to
a central location within the Company's market area during the last quarter of
fiscal year 2007. The increases in technology costs are primarily related to
increased data processing and computer software costs that support the
Company's growth in operations. And the increases in professional fees and
other operating expenses were due in large part to expenses associated with
problem loans and foreclosed properties.
Total non-performing assets as a percentage of total assets were 2.28% at
June 30, 2008, 2.89% at March 31, 2008 and 1.23% at June 30, 2007. Non-
performing loans totaled $5.6 million at June 30, 2008, a decrease of $5.4
million, or 49.1%, from $10.9 million at March 31, 2008, and an increase of
$799,000, or 16.7%, from $4.8 million at June 30, 2007. Non-performing loans
at June 30, 2008 were comprised of eight commercial real estate loan
relationships totaling $4.6 million, four commercial business loan
relationships totaling $997,000 and one residential loan for $223,000. All of
these loans were added to non-accrual status since June 30, 2007, with three
commercial real estate loans totaling $1.9 million added since March 31, 2008.
Other real estate owned (OREO) totaled $3.7 million at June 30, 2008,
representing an increase of $2.6 million from March 31, 2008 and $3.4 million
from $306,000 at June 30, 2007. OREO at June 30, 2008 was comprised of three
commercial real estate properties that were acquired through foreclosure since
June 30, 2007, including two properties totaling $2.8 million acquired since
March 31, 2008.
The Company's total assets were $415.1 million as of June 30, 2008,
compared with $415.0 million as of June 30, 2007, an increase of $17,000, or
less than 0.1%. Total loans, net of the allowance for loan losses, decreased
$2.5 million, or 0.8%, since June 30, 2007 to $327.5 million. Total
residential real estate loans increased by $19.4 million, or 12.6%, to $173.5
million at June 30, 2008. Commercial loans, comprised of commercial real
estate, construction and commercial business loans, decreased $20.9 million,
or 13.6%, since June 30, 2007 to $132.6 million. Home equity and consumer
loans decreased $851,000, or 3.5%, since June 30, 2007 to $23.8 million.
Investment securities, which consist primarily of government sponsored
enterprise bonds, mortgage-backed securities, and corporate bonds decreased
$1.7 million, or 2.8%, since June 30, 2007 to $58.0 million at June 30, 2008
due to securities sales and maturities during the period and an increase in
unrealized losses on securities available for sale due to unfavorable changes
in the market prices for corporate debt and equity securities, partially
offset by net purchases since June 30, 2007. Management concluded that no
securities in the Company's portfolio were considered to be other than
temporarily impaired as of June 30, 2008.
Total deposits were $260.8 million, a decrease of $13.4 million, or 4.9%,
since June 30, 2007. Core deposits, or non-certificate deposits, decreased
$11.8 million, or 8.5%. The largest decrease of $9.8 million was in certain
NOW accounts used by attorneys in connection with residential loan closings.
These deposits typically fluctuate with the volume of residential loan
closings in our market area. Certificates of deposit increased $12.4 million,
or 10.2%, while higher cost brokered certificates of deposit were reduced
$14.0 million since June 30, 2007. Borrowings, primarily Federal Home Loan
Bank advances, increased $15.7 million, or 14.3%, as an alternative funding
source to core deposits in the period since June 30, 2007.
Stockholders' equity decreased to $25.8 million, or $15.62 book value per
share, at June 30, 2008 from $29.3 million, or $17.84 book value per share, at
June 30, 2007. The Company's ratio of stockholders' equity to total assets at
June 30, 2008 was 6.22%, which together with other capital measures qualifies
the Company as "well-capitalized" under applicable bank regulatory guidelines.
The comparative ratio at June 30, 2007 was 7.06%. The decrease in the ratio
was primarily due to the net loss for the year of $2.6 million and a net
decrease of $939,000 in accumulated other comprehensive loss due to
unfavorable changes in the market prices for corporate bonds and equity
securities since June 30, 2007.
At June 30, 2008, the Bank also continued to exceed all regulatory capital
requirements necessary to qualify as "well capitalized," having Tier 1 capital
of $27.8 million and a Tier 1 capital to average assets ratio of 6.65%, which
was above the required level of $20.9 million or 5.0%. The Bank's Tier 1
capital to risk-weighted assets ratio was 9.01%, which was above the required
level of $18.5 million or 6.0%. In addition, with total capital of $31.1
million, the Bank's total capital to risk-weighted assets ratio was 10.08%,
which was above the required level of $30.9 million, or 10.0%. The FDIC may,
however, impose higher leverage and risk-based capital requirements on the
Bank when circumstances warrant.
Service Bancorp, Inc. is the bank holding company of Strata Bank, a
Massachusetts-chartered savings bank. Strata Bank serves the communities
centrally located between Boston, MA, Worcester, MA and Providence, RI.
Established in 1871, Strata Bank has assets in excess of $415 million and
operates eight full service offices in Bellingham, Franklin, Hopkinton,
Medfield, Medway, Milford and Millis. Strata Bank is an FDIC and DIF insured
institution. Strata's team of professionals works collectively to provide the
ultimate customer experience through unmatched service, competitive rates and
visible presence in the communities it serves. For more information, visit
www.stratabank.com.
This press release may contain "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believe", "anticipates", "plans", "expects" and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause the Company's actual results to
differ materially from those contemplated by such forward-looking statements.
These important factors include, without limitation, the Company's continued
ability to originate quality loans, fluctuation in interest rates, real estate
conditions in the Company's lending areas, changes in the securities or
financial markets, changes in loan delinquency and charge-off rates, general
and local economic conditions, the Company's continued ability to attract and
retain deposits, the Company's ability to control costs, new accounting
pronouncements, and changing regulatory requirements. The Company undertakes
no obligation to publicly release the results of any revisions to those
forward-looking statements, which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

SERVICE BANCORP, INC.
Condensed Financial Information (unaudited)
(Dollars in thousands, except per share amounts)

June 30, March 31, June 30,
2008 2008 2007
Consolidated Balance Sheet Data:
Total assets $415,076 $417,573 $415,059
Total loans, net of allowance for
loan losses 327,473 330,728 330,020
Short-term investments 1,991 4,610 951
Other investments 58,007 60,208 59,697
Deposits 260,768 258,196 274,165
Borrowings 125,214 127,885 109,510
Stockholders' equity 25,809 29,023 29,308

Capital and Asset Quality Ratios and
Other Data:
Stockholders' equity to total assets 6.22% 6.95% 7.06%
Book value per share $15.62 $17.63 $17.84

Non-performing assets to total assets 2.28% 2.89% 1.23%
Allowance for loan losses to loans 1.00% 1.01% 0.94%

Number of full-service offices 8 8 8

Quarter Ended
June 30, March 31, June 30,
2008 2008 2007
Consolidated Statement of Operations
Data:
Total interest income $5,784 $5,965 $6,102
Total interest expense 2,950 3,236 3,409
Net interest income 2,834 2,729 2,693
Provision for loan losses 3,875 265 105
Net interest income (loss), after
provision for loan losses (1,041) 2,464 2,588

Service charges and other income 468 404 424
Mortgage banking gains, net 10 20 55
Securities sale gains (loss), net (39) 152 106
Total non-interest income 439 576 585

Total non-interest expense 3,248 3,002 2,874

Income (loss) before income tax
expense (benefit) (3,850) 38 299
Income tax expense (benefit) (1,342) (65) 39
Net income (loss) ($2,508) $103 $260

Earnings (loss) per share:
Basic ($1.52) $0.06 $0.16
Diluted ($1.52) $0.06 $0.16

Weighted average shares:
Basic 1,652,569 1,646,367 1,642,461
Diluted 1,652,569 1,652,592 1,664,118

Performance Ratios:
Annualized return on average assets -2.41% 0.10% 0.25%
Annualized return on average equity -34.39% 1.39% 3.50%
Net interest spread 2.50% 2.36% 2.29%
Net interest margin 2.89% 2.79% 2.78%

Year Ended June 30,
2008 2007
Consolidated Statement of Operations
Data:
Total interest income $23,708 $24,231
Total interest expense 12,987 13,243
Net interest income 10,721 10,988
Provision for loan losses 5,000 643
Net interest income, after
provision for loan losses 5,721 10,345

Service charges and other income 1,793 1,574
Mortgage banking gains, net 41 163
Securities sale gains, net 313 378
Total non-interest income 2,147 2,115

Total non-interest expense 12,136 10,729

Income (loss) before income tax
expense (benefit) (4,268) 1,731
Income tax expense (benefit) (1,619) 483
Net income (loss) ($2,649) $1,248

Earnings (loss) per share:
Basic ($1.61) $0.76
Diluted ($1.61) $0.75

Weighted average shares:
Basic 1,648,443 1,641,579
Diluted 1,648,443 1,662,481

Performance Ratios:
Annualized return on average assets -0.64% 0.31%
Annualized return on average equity -8.94% 4.28%
Net interest spread 2.33% 2.38%
Net interest margin 2.75% 2.86%

SOURCE Service Bancorp, Inc.

Mark L. Abbate, EVP & Chief Financial Officer of Service Bancorp, Inc.,
+1-888-578-7282