MOUNT AIRY — Surrey Bancorp (Pink Sheets: SRYB), the holding company for Surrey Bank & Trust reported earnings for the first quarter of 2018.
For the quarter ended March 31, net income totaled $1,063,275 or $0.26 per fully diluted common share, compared with $947,725 or $0.23 per fully diluted common share earned during the first quarter of 2017.
The increase in earnings results from a reduction in the provision for income taxes due to the rate reductions in the Tax Cuts and Jobs Act. Income tax expense decreased from $509,000, on an income before income taxes of $1,456,725 in 2017 to $312,400, on an income before income taxes of $1,375,675 in 2018. This is a reduction in the effective income tax rate from 34.9 percent to 22.7 percent.
Net interest income increased from $2,691,248 in the first quarter of 2017 to $3,157,691 in 2018 due to loan growth and an increase in the net interest margin. The net interest margin increased from 4.22 percent to 4.71 percent from 2017 to 2018 due to a combination of higher assets yields and a change in asset mix.
Higher yielding loans made up 81.5 percent of average interest earning assets in the first quarter of 2017 as opposed to 83.7 percent in the first quarter of 2018. Loan yields increased from 5.40 percent in 2017 to 5.70 percent in 2018 due to a general increase in interest rates and the realization of discounts on certain loans due to payoffs and the repurchase of a large loan previously sold. Discounts totaling $162,692 were recorded as additional interest income in the first quarter of 2018.
The cost of funds decreased slightly from 0.39 percent in the first quarter of 2017 to 0.38 percent in the first quarter of 2018 as non-interest bearing deposits made up a higher percentage of average deposits.
The provision for loan losses increased from a recapture of $186,663 in the first quarter of 2017 to a provision for loan losses of $50,006 in 2018. This increase is due to loan growth. Loans outstanding increased $6,941,719 in the first quarter of 2018 as opposed to a decrease of $2,707,138 in first quarter of 2017. The government guaranteed portion of the 2018 increase amounted to $2,877,441, resulting in a net credit exposure increase of $4,064,278.
Noninterest income decreased from $621,987 in the first quarter of 2017 to $513,106 during the same period in 2018. This decrease was due to the write off of loan servicing rights associated with a loan previously sold with servicing retained. The loan was repurchased during the quarter resulting in the write off.
The amount of the servicing rights charged against noninterest income amounted to $179,501. Excluding the servicing rights charged off noninterest income increased by $70,620 due to increases in deposit services charges and insurance commissions. Noninterest expenses increased 9.9 percent from $2,043,173 in the first quarter of 2017, to $2,245,116 in 2018. This increase was primarily due to the salaries, benefits and other cost associated with the opening of a new branch office in December of 2017.
The allowance for loan loss reserves was $3,854,315 or 1.67 percent of total loans as of March 31. Non-performing assets were 0.20 percent of total assets at March 31, compared to 0.47 percent on that date in 2017. At March 31, the allowance equals 144 percent of impaired and non-performing assets, net of government guarantees.
Total assets as of March 31 were $294,590,985, an increase of 4.4 percent from $282,215,303 reported as of March 31, 2017. Total deposits were $247,917,486 at quarter-end 2018, a 4.9 percent increase from the $236,425,858 reported at the end of the first quarter of 2017. Net loans increased to $227,331,402 at the end of the first quarter of 2018, compared to $206,044,608, as of March 31, 2017, a 10.3 percent decrease.
Surrey Bank & Trust operates full-service branch offices at 145 N. Renfro St., 1280 W. Pine St. and 2050 Rockford St. in Mount Airy. Full-service branch offices are also located at 653 S. Key St. in Pilot Mountain, 393 CC Camp Road in Elkin and 1096 Main St. in North Wilkesboro and 940 Woodland Drive in Stuart, Virginia.