Community National Bank Announces Earnings for Second Quarter

Community National Bank (SYMBOL: CBNY.OB) today announced second quarter results for 2012. Highlights for the quarter include:

• Net income of $672 thousand or $0.10 per share for the second quarter of 2012 compared to net income of $635 thousand or $0.10 per share for the same period in 2011.
• Net interest income increased 23% or $1.0 million to $5.1 million for the quarter ended June 30, 2012 compared to $4.1 million for the quarter ended June 30, 2011.
• Net interest margin improved seven basis points to 3.57% for the quarter ended June 30, 2012 from 3.50% for the same period in 2011.
• Commercial loan growth of 39% or $82.2 million to $290.6 million at June 30, 2012 when compared to June 30, 2011.
• Deposits increased 22% or $94 million to $511.9 million at June 30, 2012 compared to $418.4 million at June 30, 2011.
• Demand deposits increased $20 million or 20% from June 30, 2011 to $120.2 million at June 30, 2012.
• Opened our tenth branch location, which is our first branch in Manhattan.
• Strong asset quality with non-performing assets to total assets of 0.21%, which is well below peer group average
• Significant capital strength with Tier 1 leverage, Tier 1 Risk-based and total risk-based capital ratios of 11.00%, 15.53% and 16.78%, respectively, at June 30, 2012.
• Return on average assets and equity of 0.44% and 3.88%, respectively, for the quarter ended June 30, 2012.

Stuart Lubow, Chairman, President, and CEO of Community National Bank, stated “Our second quarter results reflect the continued execution of our business model. The opening of our tenth branch location, which resulted in expansion into Manhattan, and growth in our commercial lending group has allowed for the improvement in our net interest margin, higher service charges and other core fees, and increases in demand deposits and our commercial loan portfolio. Our management team’s focus on developing core commercial business relationships is the key to building value for our customers, community and shareholders. While we focus on growth, we remain cognizant of the challenging economic times that still confront both businesses and individuals. We adhere to strict underwriting standards. Our asset quality remains strong as evidenced by a non-performing loan to total loan ratio of 0.17% at June 30, 2012.”

Earnings and Net Interest Income

Net income for the quarter ended June 30, 2012 was $672 thousand or $0.10 basic earnings per share compared to net income of $635 thousand or $0.10 basic earnings per share for the same period in 2011, a slight increase of $37 thousand. Net income for the six months ended June 30, 2012 was $1.2 million or $0.18 basic earnings per share compared to net income of $1.3 million or $0.19 basic earnings per share for the same period in 2011, a slight decrease of $58 thousand.

The modest change in net income for both the quarter and six months ended June 30, 2012 was impacted mainly by lower SBA sales volume and increased expenses associated with branch expansion and the hiring of additional commercial lenders, which were offset by higher net interest income, fee income from service charges and income from Bank Owned Life Insurance (“BOLI”) and a lower provision for loan losses.

On a linked quarter basis, net income for the second quarter of 2012 increased $145 thousand or 28% when compared to the first quarter of 2012 primarily due to an increase in net interest income and gains from the sale of SBA loans, which were partially offset by expenses associated with the opening of our Manhattan branch location.

Net interest income for the quarter ended June 30, 2012 increased $1.0 million or 23% to $5.1 million compared to $4.1 million for the quarter ended June 30, 2011. The net interest margin also increased by seven basis points to 3.57% for the second quarter of 2012 compared to 3.50% for the same period in 2011. Net interest income for the six months ended June 30, 2012 increased $1.9 million or 24% to $9.9 million compared to $8.0 million for the six months ended June 30, 2011. The net interest margin also increased during these corresponding periods by twelve basis points to 3.62% for the six months ended June 30, 2012 from 3.50% for the prior year period.

The increase in net interest income and margin for both the quarter and six months ended June 30, 2012 was primarily due to (1) growth in our commercial and residential loan portfolios; (2) higher non-interest bearing demand deposits; and (3) a continued decline in overall cost of funds on deposits.

Non-Interest Income

Non-interest income decreased approximately $146 thousand or 14% to $866 thousand for the quarter ended June 30, 2012 compared to $1.0 million for the prior year quarter. Non-interest income for the six months ended June 30, 2012 decreased $1.2 million or 43% to $1.5 million compared to $2.7 million for the same period in 2011. The decrease in non-interest income was mostly attributable to a decline in gains from the sale of SBA loans for both the quarter and six months ended June 30, 2012. The lower gain from the sale of SBA loans was partially offset by higher service charge fee income and BOLI income.

Non-Interest Expense

Non-interest expense increased $764 thousand or 20% to $4.5 million for the quarter ended June 30, 2012 from $3.7 million for the same period in 2011. The increase was primarily attributable to higher compensation associated with the hiring of commercial lenders, support staff, and a Director of Municipal Banking and higher occupancy costs associated with three new branch locations.

Balance Sheet and Asset Quality

Total assets grew to $618.7 million at June 30, 2012, a 19% increase over total assets of $520.4 million at June 30, 2011. Total loans increased $90 million or 25% to $445.5 million at June 30, 2012 when compared to June 30, 2011. The commercial loan portfolio increased $82.2 million or 39% when compared to June 30, 2011. The residential loan portfolio increased $8.2 million or 5.6% when compared to June 30, 2011. The loan growth was primarily driven by deposits from our new branch locations, new municipal relationships and the continued development of core banking relationships, which was evident by the $20 million increase in demand deposits since June 30, 2011.

Our asset quality remains strong and a core focus during these challenging economic times. Non-performing loans, consisting of loans past due 90 days or more, decreased $4.2 million or 85% to $0.7 million or 0.17% of total loans at June 30, 2012 from $4.9 million or 1.39% of total loans at June 30, 2011. The decrease in non-performing loans was attributable to (1) the payoff of a $2.4 million commercial mortgage in from an auction sale of a building that collateralized the loan; (2) the transfer of $0.6 million in loans through a deed in lieu of foreclosure to other real estate owned; and (3) commercial loan charge-offs.

The Bank had $475 thousand in provision for loan losses for the second quarter of 2012, flat when compared to the prior year quarter. The allowance for loan losses was $5.4 million or 1.21% of total loans at June 30, 2012, an increase of approximately $600 thousand from $4.8 million or 1.35% of total loans at June 30, 2011. The increase in the allowance for loan losses was due to general valuation reserves associated with the significant loan growth throughout the period.

The Bank had one property classified as other real estate owned, which totaled $0.5 million at June 30, 2012.

Deposits

Total deposits increased $93.5 million or 22% to $511.9 million at June 30, 2012 compared to $418.4 million at June 30, 2011. Demand deposits grew $19.6 million or 20% to $120.2 million at June 30, 2012 when compared to June 30, 2011.

Further information about the financial condition and performance of Community National Bank is available from its Call Reports filed by the Bank with the FDIC and available on the FDIC website at: http://www2.fdic.gov/idasp/main_bankfind.asp. The Bank expects to file its June 30, 2012 Call Report on or around July 30, 2012.

ABOUT COMMUNITY NATIONAL BANK

Community National Bank is a Long Island based independent commercial bank and operates ten locations in Nassau, Suffolk, Queens and Manhattan County. We offer a full range of modern financial services, backed by state-of-the-art technology. In addition to commercial loans, commercial mortgages, small business loans and lines of credit and residential mortgages, CNB also provides a complete selection of traditional personal and commercial deposit products such as no fee individual and business checking accounts, IRA accounts and statement savings.