It’s official now: no power for 2 hours a day

This is official, but may not be final. Bescom on Tuesday announced there will be no power in Bangalore for two hours, and in other towns for four hours.

This increase in capital has allowed the Company to reinforce itscommitment to serve the credit needs of our clients and the communities in whichwe operate.The Company has $20 million in outstanding trust preferred securities thatqualify as Tier I capital. The increase is primarily a result of the issuance of$37 million in preferred stock and a warrant under the Treasury's CPP inDecember 2008. As a percentageof average total loans and leases outstanding, these net amounts represented, onan annualized basis, 0.5% for the second quarter of 2009, 0.8% for the secondquarter of 2008 and 1.0% for the first quarter of 2009.CapitalTotal stockholders' equity was $149 million at June 30, 2009 compared to $112million at June 30, 2008. The allowance as a percentage of loans and leasesoutstanding (excluding loans held for sale) was 1.6% at June 30, 2008 and 2.3%at March 31, 2009.The Company recorded net loan and lease charge-offs of $1.4 million in thesecond quarter of 2009 versus net charge-offs of $2.1 million in the secondquarter of 2008 and $2.8 million in the first quarter of 2009.

The Company held no Other RealEstate Owned at June 30, 2009, June 30, 2008 or March 31, 2009.As of June 30, 2009, the Company's allowance for loan and lease losses amountedto $28 million or 2.5% of period-end loans and leases outstanding (excludingloans held for sale). The allowance for loan and lease losses as a percentage oftotal non-accrual loans and leases amounted to 81% at June 30, 2009 versus 158%at June 30, 2008 and 91% at March 31, 2009. The allowance for loan and leaselosses as a percentage of non-accrual loans and leases, excluding non-accrualloans categorized as held for sale, amounted to 122% at June 30, 2009 versus158% at June 30, 2008 and 134% at March 31, 2009. The increase in non-accrual loans at June 30, 2009 compared with March31, 2009 was primarily due to a residential construction loan totaling $4million and a commercial real estate relationship, categorized as held for sale,totaling $3 million. These relationships consisted of residential constructionand commercial real estate credits totaling $27 million, and commercial andindustrial loans totaling $5 million. These additions were reduced bycharge-offs of non-accrual loans of $5 million and cash payments received of $4million.

The increase in non-accrual loans and leases at June 30, 2009 compared toJune 30, 2008 resulted primarily from the addition of seven relationships tonon-accrual status. Non-accrual loans categorized as heldfor sale (which have been previously written down to estimated realizable value)amounted to $12 million and $13 million at June 30, 2009 and March 31, 2009,respectively. The Company had no non-accrual loans held for sale at June 30,2008. The Company recorded a $2.0million income tax benefit in the first half of 2009 versus a $1.7 millionincome tax expense in the comparable period a year ago.Asset QualityNon-accrual loans and leases totaled $35 million or 3.1% of total loans andleases outstanding at June 30, 2009 versus $11 million or 1.0% of total loansand leases outstanding at June 30, 2008 and $28 million or 2.5% of total loansand leases outstanding at March 31, 2009. Theseimprovements were offset by a $2.1 million increase in FDIC and NYS assessmentexpenses in 2009 resulting from higher FDIC insurance premiums, growth indeposits, additional deposit insurance programs and the previously noted FDICspecial assessment of $730 thousand recorded in the second quarter of 2009.Marketing and advertising expenses increased by $463 thousand in 2009 for thesame reasons noted in the second quarter discussion. Otheroperating expenses decreased by $512 thousand, almost entirely related to thesale of the Company's former equipment leasing subsidiary in June 2008. Salariesand other employee benefits expenses declined by $441 thousand in 2009 due to areduction in head count coupled with lower retirement plan expenses.

Otheroperating income decreased by $622 thousand in 2009, due to reductions in sweepprogram fees coupled with losses recorded on certain customer interest rateswaps in the first half of 2009.Total operating expenses decreased by $653 thousand or 2.9% to $21.7 million in2009, primarily due to the previously noted reduction in legal expenses ($2.4million) related to the shareholder derivative lawsuit settled in 2008. Income from bank owned life insurance ("BOLI") declined by $145 thousandin 2009 versus 2008 due to a lower rate of return on BOLI assets. Theincreased provision for loan and lease losses in 2009 versus the comparable 2008period was due to several factors, including an increase in non-accrual loansand leases, internal risk rating downgrades of several commercial loanrelationships and the growth in total loans outstanding.The decline in noninterest income in 2009 resulted principally from an increasein net security losses of $3.3 million due to a previously disclosed $4.0million first quarter 2009 non-cash other-than-temporary impairment ("OTTI")charge. Partiallyoffsetting the foregoing negative factors was a $653 thousand decline in totaloperating expenses, which occurred despite the $730 thousand special FDICinsurance fund assessment fee recorded in 2009.The decrease in net interest income was due to a 19 basis point narrowing of theCompany's net interest margin to 3.96% in 2009 from 4.15% a year ago. The increases in FDIC and NYS assessment and marketing expenseswere offset by a $1.3 million reduction in legal expenses in 2009 primarilyrelated to outside counsel fees incurred during the previously disclosedshareholder derivative suit settled during the third quarter of 2008.Earnings Summary for the Six Months Ended June 30, 2009The decrease in net income in the first six months of 2009 compared with 2008resulted from several factors, most notably an increase in the provision forloan and lease losses of $7.0 million and reductions in net interest income andnoninterest income of $1.3 million and $4.1 million, respectively. Marketing expenses increased by $456 thousand as the result ofcorporate branding efforts undertaken in 2009 coupled with significantreductions in print, broadcast and other media advertising during the secondquarter of 2008. This increase wasprimarily due to growth of $1.1 million in FDIC and NYS assessment fees, whichincludes a special FDIC insurance fund assessment fee of $730 thousand recordedin 2009.