UNITED
STATES
|
SECURITIES
AND EXCHANGE COMMISSION
|
Washington,
D.C. 20549
|
x
|
Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
|
o
|
Transition
Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
|
PENNSYLVANIA
|
68-0593604
|
(State
or other jurisdiction of incorporation or organization)
|
(IRS
Employer Identification No.)
|
1834
OREGON AVENUE
|
19145
|
PHILADELPHIA,
PENNSYLVANIA
|
(Zip
Code)
|
(Address
of Principal Executive Offices)
|
Title
of Each Class
|
Name
of Each Exchange on Which Registered
|
Common
Stock (par value $0.01 per share)
|
The
Nasdaq Stock Market, LLC
|
Large
Accelerated Filer o
|
Accelerated
Filer o
|
Non-Accelerated
Filer o (Do
not check if a smaller reporting
company)
|
Smaller
Reporting Company x
|
1.
|
Portions
of the Definitive Proxy Statement for the 2008 Annual Meeting of
Stockholders are incorporated by reference in Part
III.
|
Page
|
||
PART
I
|
||
Item
1.
|
Business
|
1
|
Item
1A.
|
Risk
Factors
|
37
|
Item
1B.
|
Unresolved
Staff Comments
|
44
|
Item
2.
|
Properties
|
45
|
Item
3.
|
Legal
Proceedings
|
45
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
46
|
PART
II
|
||
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
47
|
Item
6.
|
Selected
Financial Data
|
49
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
51
|
Item
7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
65
|
Item
8.
|
Financial
Statements and Supplementary Data
|
69
|
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
107
|
Item
9A.
|
Controls
and Procedures
|
107
|
Item
9B.
|
Other
Information
|
108
|
PART
III
|
||
Item
10.
|
Directors,
Executive Officers and Corporate Governance
|
108
|
Item
11.
|
Executive
Compensation
|
108
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
109
|
Item
13.
|
Certain
Relationships and Related Transactions and Director
Independence
|
109
|
Item
14.
|
Principal
Accounting Fees and Services
|
109
|
PART
IV
|
||
Item
15.
|
Exhibits
and Financial Statement Schedules
|
109
|
Signatures
|
September
30,
|
||||||||||||||||||||||||||||||||||||||||
2008
|
2007
|
2006
|
2005
|
2004
|
||||||||||||||||||||||||||||||||||||
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||||||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||||||||||||||||||||||
Real
estate loans:
|
||||||||||||||||||||||||||||||||||||||||
One-
to four-family residential(1)
|
$ | 191,344 | 74.02 | % | $ | 159,945 | 67.85 | % | $ | 155,454 | 60.69 | % | $ | 135,394 | 67.22 | % | $ | 124,085 | 71.54 | % | ||||||||||||||||||||
Multi-family
residential
|
2,801 | 1.08 | % | 4,362 | 1.85 | % | 5,074 | 1.98 | % | 2,541 | 1.26 | % | 3,181 | 1.84 | % | |||||||||||||||||||||||||
Commercial
real estate
|
20,518 | 7.94 | % | 18,019 | 7.64 | % | 11,339 | 4.42 | % | 9,875 | 4.90 | % | 5,608 | 3.23 | % | |||||||||||||||||||||||||
Construction
and land development
|
42,634 | 16.49 | % | 52,429 | 22.24 | % | 82,800 | 32.33 | % | 52,093 | 25.86 | % | 39,217 | 22.61 | % | |||||||||||||||||||||||||
Total
real estate loans
|
257,297 | 99.53 | % | 234,755 | 99.58 | % | 254,667 | 99.42 | % | 199,903 | 99.24 | % | 172,091 | 99.22 | % | |||||||||||||||||||||||||
Commercial
business loans
|
465 | 0.18 | % | 155 | 0.07 | % | 234 | 0.09 | % | 188 | 0.09 | % | 145 | 0.08 | % | |||||||||||||||||||||||||
Consumer
loans
|
739 | 0.29 | % | 832 | 0.35 | % | 1,239 | 0.49 | % | 1,347 | 0.67 | % | 1,206 | 0.70 | % | |||||||||||||||||||||||||
Total
loans
|
258,501 | 100.00 | % | 235,742 | 100.00 | % | 256,140 | 100.00 | % | 201,438 | 100.00 | % | 173,442 | 100.00 | % | |||||||||||||||||||||||||
Less:
|
||||||||||||||||||||||||||||||||||||||||
Undisbursed
portion of construction loans in process
|
13,515 | 15,897 | 36,257 | 25,824 | 21,338 | |||||||||||||||||||||||||||||||||||
Deferred
loan fees
|
(574 | ) | (315 | ) | (153 | ) | (35 | ) | (19 | ) | ||||||||||||||||||||||||||||||
Allowance
for loan losses
|
1,591 | 1,011 | 618 | 558 | 558 | |||||||||||||||||||||||||||||||||||
Net
loans
|
$ | 243,969 | $ | 219,149 | $ | 219,418 | $ | 175,091 | $ | 151,565 |
(1)
|
Includes
home equity loans and lines of credit of $14.4 million and $4.9 million
respectively as of September 30, 2008.
|
During the 2008 period, our one-to four-family residential loans increased while the construction loan portfolio decreased as market conditions became less favorable for construction lending. |
One-to-Four
Family
Residential
|
Multi-family
Residential
|
Commercial
Real
Estate
|
Construction
and
Land
Development
|
Commercial
Business
|
Consumer
|
Total
|
||||||||||||||||||||||
(In
Thousands)
|
||||||||||||||||||||||||||||
Amounts
due after September 30, 2008 in:
|
||||||||||||||||||||||||||||
One
year or less
|
$ | 1,443 | $ | 129 | $ | 738 | $ | 35,234 | $ | 207 | $ | 63 | $ | 37,814 | ||||||||||||||
After
one year through two years
|
3,186 | — | 342 | 7,400 | — | 16 | 10,944 | |||||||||||||||||||||
After
two years through three years
|
4,113 | — | 1,543 | — | — | 122 | 5,778 | |||||||||||||||||||||
After
three years through five years
|
8,756 | 327 | 1,570 | — | 7 | 382 | 11,042 | |||||||||||||||||||||
After
five years through ten years
|
27,790 | 1,195 | 13,815 | — | 251 | — | 43,051 | |||||||||||||||||||||
After
ten years through fifteen years
|
91,775 | 1,113 | 2,417 | — | — | 156 | 95,461 | |||||||||||||||||||||
After
fifteen years
|
54,281 | 37 | 93 | — | — | — | 54,411 | |||||||||||||||||||||
Total
|
$ | 191,344 | $ | 2,801 | $ | 20,518 | $ | 42,634 | $ | 465 | $ | 739 | $ | 258,501 |
Fixed-Rate
|
Floating
or
Adjustable-Rate
|
Total
|
||||||||||
(In
Thousands)
|
||||||||||||
One-
to four-family residential (1)
|
$ | 173,474 | $ | 16,427 | $ | 189,901 | ||||||
Multi-family
residential
|
2,672 | — | 2,672 | |||||||||
Commercial
real estate
|
17,867 | 1,913 | 19,780 | |||||||||
Construction
and land development
|
— | 7,400 | 7,400 | |||||||||
Commercial
business
|
258 | — | 258 | |||||||||
Consumer
|
627 | 49 | 676 | |||||||||
Total
|
$ | 194,898 | $ | 25,789 | $ | 220,687 |
(1)
|
Includes
home equity loans and lines of
credit.
|
Year
Ended September 30,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
(In
Thousands)
|
||||||||||||
Loan
originations:
|
||||||||||||
One-
to four-family residential
|
$ | 51,289 | $ | 28,538 | $ | 46,368 | ||||||
Multi-family
residential
|
— | 2,167 | 2,631 | |||||||||
Commercial
real estate
|
3,124 | 6,401 | 1,365 | |||||||||
Construction
and land development
|
15,933 | 27,464 | 40,257 | |||||||||
Commercial
business
|
5,464 | 6,393 | 920 | |||||||||
Consumer
|
773 | 366 | 455 | |||||||||
Total
loan originations
|
76,583 | 71,329 | 91,996 | |||||||||
Loans
purchased
|
— | — | — | |||||||||
Total
loans originated & acquired
|
76,583 | 71,329 | 91,996 | |||||||||
Loans
sold
|
— | — | — | |||||||||
Loan
principal repayments
|
50,932 | 71,550 | 47,943 | |||||||||
Total
loans sold and principal repayments
|
50,932 | 71,550 | 47,943 | |||||||||
(Decrease)
or increase due to other items, net (1)
|
(831 | ) | (48 | ) | 274 | |||||||
Net
increase in loan portfolio
|
$ | 24,820 | $ | (269 | ) | $ | 44,327 |
(1)
|
Other
items consist of loans in process, deferred fees and the allowance for
loan losses. The 2008 balance consisted primarily of the $1.1 loan loss
provision offset by a $253,000 amortization of deferred loan fee
income.
|
September
30, 2008
|
September
30, 2007
|
|||||||||||||||||||||||||||||||
30-89
Days
Overdue
|
90
or More Days
Overdue
|
30-89
Days
Overdue
|
90
or More Days
Overdue
|
|||||||||||||||||||||||||||||
Number
of
Loans
|
Principal
Balance
|
Number
of
Loans
|
Principal
Balance
|
Number
of
Loans
|
Principal
Balance
|
Number
of
Loans
|
Principal
Balance
|
|||||||||||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||||||||||||||
One-
to four-family residential
|
11 | $ | 838 | 4 | $ | 152 | 15 | $ | 1,502 | 4 | $ | 151 | ||||||||||||||||||||
Multi-family
residential
|
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Commercial
real estate
|
2 | 315 | 1 | 244 | — | — | — | — | ||||||||||||||||||||||||
Construction
and land development
|
1 | 3,000 | — | — | — | — | — | — | ||||||||||||||||||||||||
Commercial
business
|
— | — | — | — | 1 | 1 | — | — | ||||||||||||||||||||||||
Consumer
|
1 | 6 | — | — | — | — | — | — | ||||||||||||||||||||||||
Total
delinquent loans
|
15 | $ | 4,159 | 5 | $ | 396 | 16 | $ | 1,503 | 4 | $ | 151 | ||||||||||||||||||||
Delinquent
loans to total net loans
|
1.70 | % | 0.16 | % | 0.68 | % | 0.07 | % | ||||||||||||||||||||||||
Delinquent
loans to total loans
|
1.61 | % | 0.15 | % | 0.59 | % | 0.06 | % | ||||||||||||||||||||||||
September
30,
|
||||||||||||||||||||
2008
|
2007
|
2006
|
2005
|
2004
|
||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||
Non-accruing
loans:
|
||||||||||||||||||||
One-
to four-family residential
|
$ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Multi-family
residential
|
— | — | — | — | — | |||||||||||||||
Commercial
real estate
|
— | — | — | — | — | |||||||||||||||
Construction
and land development
|
3,640 | 2,022 | — | — | — | |||||||||||||||
Commercial
business
|
— | — | — | — | — | |||||||||||||||
Consumer
|
— | — | — | — | — | |||||||||||||||
Total
non-accruing loans
|
3,640 | 2,022 | — | — | — | |||||||||||||||
Accruing
loans 90 days or more past due:
|
||||||||||||||||||||
One-
to four-family residential
|
152 | 502 | 151 | 240 | 478 | |||||||||||||||
Multi-family
residential
|
— | — | — | — | — | |||||||||||||||
Commercial
real estate
|
244 | — | — | — | — | |||||||||||||||
Construction
|
— | — | — | — | — | |||||||||||||||
Commercial
business
|
69 | — | — | — | ||||||||||||||||
Consumer
|
— | — | — | — | 1 | |||||||||||||||
Total
accruing loans 90 days or more past due
|
396 | 571 | 151 | 240 | 479 | |||||||||||||||
Total
non-performing loans(1)
|
4,036 | 2,593 | 151 | 240 | 479 | |||||||||||||||
Real
estate owned, net(2)
|
1,488 | — | — | 360 | 548 | |||||||||||||||
Total
non-performing assets
|
$ | 5,524 | $ | 2,593 | $ | 151 | $ | 600 | $ | 1,027 | ||||||||||
Total
non-performing loans as a percentage of loans, net
|
1.65 | % | 1.18 | % | 0.07 | % | 0.14 | % | 0.32 | % | ||||||||||
Total
non-performing loans as a percentage of total assets
|
0.82 | % | 0.55 | % | 0.03 | % | 0.05 | % | 0.12 | % | ||||||||||
Total
non-performing assets as a percentage of total assets
|
1.13 | % | 0.55 | % | 0.03 | % | 0.13 | % | 0.25 | % |
(1)
|
Non-performing
loans consist of non-accruing loans plus accruing loans 90 days or more
past due.
|
|
(2) | Real estate owned balances are shown net of related loss allowances and consists solely of real property. |
At
or For the Year Ended September 30,
|
||||||||||||||||||||
2008
|
2007
|
2006
|
2005
|
2004
|
||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||
Total
loans outstanding at end of period
|
$ | 258,501 | $ | 235,742 | $ | 256,140 | $ | 201,438 | $ | 173,442 | ||||||||||
Average
loans outstanding
|
227,662 | 221,262 | 197,913 | 163,166 | 142,348 | |||||||||||||||
Allowance
for loan losses, beginning of period
|
1,011 | 618 | 558 | 558 | 553 | |||||||||||||||
Provision
(recovery) for loan losses
|
1,084 | 395 | 60 | — | 50 | |||||||||||||||
Charge-offs:
|
||||||||||||||||||||
One-
to four-family residential
|
— | 2 | — | — | — | |||||||||||||||
Multi-family
residential and commercial real estate
|
— | — | — | — | 50 | |||||||||||||||
Construction
|
504 | — | — | — | 28 | |||||||||||||||
Commercial
business
|
— | — | — | — | ||||||||||||||||
Consumer
|
— | — | — | — | — | |||||||||||||||
Total
charge-offs
|
504 | 2 | — | — | 78 | |||||||||||||||
Recoveries
on loans previously charged off
|
— | — | — | — | 33 | |||||||||||||||
Allowance
for loan losses, end of period
|
$ | 1,591 | $ | 1,011 | $ | 618 | $ | 558 | $ | 558 | ||||||||||
Allowance
for loan losses as a percent of total loans
|
0.62 | % | 0.43 | % | 0.24 | % | 0.28 | % | 0.32 | % | ||||||||||
Allowance
for loan losses as a percent of non-performing loans
|
39.42 | % | 38.97 | % | 409.66 | % | 223.47 | % | 116.49 | % | ||||||||||
Ratio
of net charge-offs during the period to average loans outstanding during
the period
|
0.22 | % | * | * | * | 0.03 | % |
*
Not meaningful
|
September
30,
|
||||||||||||||||||||||||||||||||||||||||
2008
|
2007
|
2006
|
2005
|
2004
|
||||||||||||||||||||||||||||||||||||
|
Amount
of
Allowance
|
Loan
Category
as
a %
of
Total
Loans
|
Amount
of
Allowance
|
Loan
Category
as
a %
of
Total
Loans
|
Amount
of
Allowance
|
Loan
Category
as
a %
of
Total
Loans
|
Amount
of
Allowance
|
Loan
Category
as
a %
of
Total
Loans
|
Amount
of
Allowance
|
Loan
Category
as
a %
of
Total
Loans
|
||||||||||||||||||||||||||||||
(Dollars in
thousands)
|
||||||||||||||||||||||||||||||||||||||||
One-
to four-family residential
|
$ | 155 | 74.02 | % | $ | 186 | 67.85 | % | $ | 148 | 60.69 | % | $ | 163 | 67.22 | % | $ | 182 | 70.92 | % | ||||||||||||||||||||
Multi-family
residential
|
4 | 1.08 | % | 22 | 1.85 | % | 23 | 1.98 | % | 13 | 1.26 | % | 16 | 1.83 | % | |||||||||||||||||||||||||
Commercial
real estate
|
106 | 7.94 | % | 179 | 7.64 | % | 102 | 4.42 | % | 98 | 4.90 | % | 44 | 2.53 | % | |||||||||||||||||||||||||
Construction
and land development
|
1,323 | 16.49 | % | 610 | 22.24 | % | 343 | 32.33 | % | 227 | 25.86 | % | 197 | 22.69 | % | |||||||||||||||||||||||||
Commercial
business
|
1 | 0.18 | % | 12 | 0.07 | % | 2 | 0.09 | % | 2 | 0.09 | % | 29 | 1.70 | % | |||||||||||||||||||||||||
Consumer
|
2 | 0.29 | % | 2 | 0.35 | % | — | 0.49 | % | 1 | 0.67 | % | 1 | 0.33 | % | |||||||||||||||||||||||||
Unallocated
|
— | — | — | — | — | — | 54 | — | 89 | — | ||||||||||||||||||||||||||||||
Total
allowance for loan losses
|
$ | 1,591 | 100.00 | % | $ | 1,011 | 100.00 | % | $ | 618 | 100.00 | % | $ | 558 | 100.00 | % | $ | 558 | 100.00 | % |
September
30,
|
||||||||||||||||||||||||
2008
|
2007
|
2006
|
||||||||||||||||||||||
|
Amortized
Cost
|
Market
Value
|
Amortized
Cost
|
Market
Value
|
Amortized
Cost
|
Market
Value
|
||||||||||||||||||
(In
Thousands)
|
||||||||||||||||||||||||
Agency
mortgage-backed securities
|
$ | 78,359 | $ | 78,230 | $ | 54,026 | $ | 52,762 | $ | 54,894 | $ | 54,142 | ||||||||||||
Non-agency
mortgage backed securities
|
15,048 | 13,765 | — | — | — | — | ||||||||||||||||||
U.S.
Governnment and agency obligations
|
123,572 | 121,183 | 135,331 | 134,251 | 132,198 | 129,675 | ||||||||||||||||||
Municipal
obligations
|
2,450 | 2,434 | 2,450 | 2,411 | 2,884 | 2,853 | ||||||||||||||||||
Mutual
funds
|
— | — | 34,982 | 33,807 | 34,982 | 34,052 | ||||||||||||||||||
Total
|
219,429 | 215,612 | 226,789 | 223,231 | 224,958 | 220,722 | ||||||||||||||||||
FHLB
stock
|
2,620 | 2,620 | 2,397 | 2,397 | 2,217 | 2,217 | ||||||||||||||||||
FHLMC
stock
|
26 | 45 | 26 | 1,560 | 26 | 1,754 | ||||||||||||||||||
FNMA
stock
|
1 | 1 | 1 | 7 | 1 | 7 | ||||||||||||||||||
Total
investment and mortgage-backed securities
|
$ | 222,076 | $ | 218,278 | $ | 229,213 | $ | 227,195 | $ | 227,202 | $ | 224,700 |
Amounts
at September 30, 2008 Which Mature In
|
||||||||||||||||||||||||||||||||
|
One
Year
or
Less
|
Weighted
Average
Yield
|
Over
One
Year
Through
Five
Years
|
Weighted
Average
Yield
|
Over
Five
Through
Ten
Years
|
Weighted
Average
Yield
|
Over
Ten
Years
|
Weighted
Average
Yield
|
||||||||||||||||||||||||
(Dollars
in Thousands)
|
||||||||||||||||||||||||||||||||
Bonds
and other debt securities:
|
||||||||||||||||||||||||||||||||
U.S.
gov and agency oblig
|
$ | — | — | $ | 4,000 | 4.56 | % | $ | 50,424 | 5.19 | % | $ | 69,148 | 5.48 | % | |||||||||||||||||
Municipal
obligations
|
— | — | 790 | 3.19 | % | 1,660 | 3.68 | % | — | — | ||||||||||||||||||||||
Mortgage-backed
securities
|
— | — | 2,322 | 5.23 | % | 19 | 6.85 | % | 91,066 | 6.08 | % | |||||||||||||||||||||
Total
|
$ | — | — | $ | 7,112 | 4.27 | % | $ | 52,103 | 5.14 | % | $ | 160,214 | 5.82 | % |
September
30,
|
||||||||||
2008
|
2007
|
2006
|
||||||||
(In
Thousands)
|
||||||||||
GNMA
|
$ | 55,649 | $ | 42,471 | $ | 46,991 | ||||
FHLMC
|
3,312 | 1,693 | 1,920 | |||||||
FNMA
|
19,398 | 9,862 | 5,983 | |||||||
Non-agency
|
15,048 | — | — | |||||||
Total
mortgage-backed securities
|
$ | 93,407 | $ | 54,026 | $ | 54,894 |
Amounts
at September 30, 2008 Which Mature In
|
|||||||||||||||||||
|
One
Year
or
Less
|
Weighted
Average
Yield
|
Over
One
through
Five
Years
|
Weighted
Average
Yield
|
Over
Five
Years
|
Weighted
Average
Yield
|
|||||||||||||
(Dollars
in Thousands)
|
|||||||||||||||||||
GNMA
|
$ | — | — | $ | — | — | $ | 55,649 | 5.32 | % | |||||||||
FHLMC
|
— | — | 1,499 | 4.50 | % | 1,813 | 6.17 | % | |||||||||||
FNMA
|
— | — | — | — | 19,398 | 5.54 | % | ||||||||||||
Non-agency
|
— | — | 823 | 6.48 | % | 14,225 | 9.77 | % | |||||||||||
Total
|
$ | — | — | $ | 2,322 | 5.20 | % | $ | 91,085 | 6.08 | % |
At
or For the
Year
Ended September 30,
|
|||||||||
2008
|
2007
|
2006
|
|||||||
(Dollars
in Thousands)
|
|||||||||
Mortgage-backed
securities at beginning of period
|
$ | 54,026 | $ | 54,894 | $ | 66,828 | |||
Purchases
|
23,324 | 6,762 | 4,610 | ||||||
Securities
acquired through redemption in kind
|
24,755 | — | — | ||||||
Other
than temporary impairment of securities
|
(726 | ) | — | — | |||||
Maturities
and repayments
|
(8,270 | ) | (8,009 | ) | (12,011 | ) | |||
Sales
|
— | — | (4,564 | ) | |||||
Amortizations
of premiums and discounts, net
|
298 | 379 | 31 | ||||||
Mortgage-backed
securities at end of period
|
$ | 93,407 | $ | 54,026 | $ | 54,894 | |||
Weighted
average yield at end of period
|
6.06 | % | 5.16 | % | 5.09 | % |
September
30,
|
||||||||||||||||||||||||
2008
|
2007
|
2006
|
||||||||||||||||||||||
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||||||
Certificate
accounts:
|
||||||||||||||||||||||||
2.00%
- 2.99%
|
$ | 6,509 | 1.73 | % | $ | — | — | $ | 617 | 0.18 | % | |||||||||||||
3.00%
- 3.99%
|
58,617 | 15.56 | % | 14,745 | 4.16 | % | 30,933 | 8.91 | % | |||||||||||||||
4.00%
- 4.99%
|
89,650 | 23.79 | % | 36,827 | 10.40 | % | 70,410 | 20.27 | % | |||||||||||||||
5.00%
- 5.99%
|
60,314 | 16.00 | % | 138,993 | 39.26 | % | 69,642 | 20.05 | % | |||||||||||||||
Total
certificate accounts
|
215,090 | 57.08 | % | 190,565 | 53.82 | % | 171,602 | 49.41 | % | |||||||||||||||
Transaction
accounts:
|
||||||||||||||||||||||||
Savings
|
67,921 | 18.03 | % | 70,903 | 20.03 | % | 76,989 | 22.17 | % | |||||||||||||||
Checking:
|
||||||||||||||||||||||||
Interest
bearing
|
25,403 | 6.74 | % | 26,806 | 7.57 | % | 29,675 | 8.55 | % | |||||||||||||||
Non-interest
bearing
|
1,932 | 0.51 | % | 2,089 | 0.59 | % | 4,528 | 1.30 | % | |||||||||||||||
Money
market
|
66,484 | 17.64 | % | 63,675 | 17.99 | % | 64,498 | 18.57 | % | |||||||||||||||
Total
transaction accounts
|
161,740 | 42.92 | % | 163,473 | 46.18 | % | 175,690 | 50.59 | % | |||||||||||||||
Total
deposits
|
$ | 376,830 | 100.00 | % | $ | 354,038 | 100.00 | % | $ | 347,292 | 100.00 | % |
Year
Ended September 30,
|
|||||||||||||||||||||||||||
2008
|
2007
|
2006
|
|||||||||||||||||||||||||
|
Average
Balance
|
Interest
Expense
|
Average
Rate
Paid
|
Average
Balance
|
Interest
Expense
|
Average
Rate
Paid
|
Average
Balance
|
Interest
Expense
|
Average
Rate
Paid
|
||||||||||||||||||
(Dollars
in Thousands)
|
|||||||||||||||||||||||||||
Savings
|
$ | 66,636 | $ | 1,681 | 2.52 | % | $ | 71,815 | $ | 1,986 | 2.77 | % | $ | 81,472 | $ | 2,458 | 3.02 | % | |||||||||
Interest-bearing
checking and money market accounts
|
92,418 | 2,793 | 3.02 | % | 93,701 | 3,321 | 3.54 | % | 98,112 | 3,081 | 3.14 | % | |||||||||||||||
Certificate
accounts
|
204,981 | 8,922 | 4.35 | % | 181,604 | 7,944 | 4.37 | % | 156,869 | 5,304 | 3.38 | % | |||||||||||||||
Total
interest-bearing deposits
|
364,035 | $ | 13,396 | 3.68 | % | 347,120 | $ | 13,251 | 3.82 | % | 336,453 | $ | 10,843 | 3.22 | % | ||||||||||||
Non-interest bearing
deposits
|
4,824 | 5,009 | 3,789 | ||||||||||||||||||||||||
Total
deposits
|
$ | 368,859 | 3.63 | % | $ | 352,129 | 3.76 | % | $ | 340,242 | 3.19 | % |
Year
Ended September 30,
|
|||||||||
|
2008
|
2007
|
2006
|
||||||
(In
Thousands)
|
|||||||||
Total
deposits
|
$ | 497,527 | $ | 516,548 | $ | 488,409 | |||
Total
withdrawals
|
(482,786 | ) | (518,719 | ) | (485,532 | ) | |||
Interest
credited
|
8,051 | 8,916 | 7,948 | ||||||
Total
increase in deposits
|
$ | 22,792 | $ | 6,745 | $ | 10,825 |
|
Balance
at September 30, 2008
Maturing
in the 12 Months Ending September 30,
|
|||||||||||||||||||
Certificates
of Deposit
|
2009
|
2010
|
2011
|
Thereafter
|
Total
|
|||||||||||||||
(In
Thousands)
|
||||||||||||||||||||
2.00%
- 2.99%
|
$ | 6,509 | $ | — | $ | — | $ | — | $ | 6,509 | ||||||||||
3.00%
- 3.99%
|
51,111 | 4,920 | 2,560 | 27 | 58,618 | |||||||||||||||
4.00%
- 4.99%
|
69,660 | 7,024 | 4,218 | 8,747 | 89,649 | |||||||||||||||
5.00%
- 5.99%
|
29,413 | 489 | 13,052 | 17,360 | 60,314 | |||||||||||||||
Total
certificate accounts
|
$ | 156,693 | $ | 12,433 | $ | 19,830 | $ | 26,134 | $ | 215,090 |
Quarter
Ending:
|
Amount
|
Weighted
Avg
Rate
|
||||||
(Dollars
in Thousands)
|
||||||||
December
31, 2008
|
$ | 16,944 | 4.14 | % | ||||
March
31, 2009
|
10,673 | 4.09 | % | |||||
June
30, 2009
|
17,633 | 4.03 | % | |||||
September
30, 2009
|
3,336 | 3.66 | % | |||||
After
September 30, 2009
|
18,137 | 4.62 | % | |||||
Total
certificates of deposit with balances
of $100,000 or more
|
$ | 66,723 | 4.21 | % |
At
or For the Year Ended September 30,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
|
(Dollars
in Thousands)
|
|||||||||||
FHLB
advances:
|
||||||||||||
Average
balance outstanding
|
$ | 27,638 | $ | 27,686 | $ | 19,628 | ||||||
Maximum
amount outstanding at any month-end
during the period
|
33,705 | 33,743 | 31,784 | |||||||||
Balance
outstanding at end of period
|
31,701 | 33,743 | 31,784 | |||||||||
Average
interest rate during the period
|
4.55 | % | 5.54 | % | 5.57 | % | ||||||
Weighted
average interest rate at end of period
|
3.98 | % | 5.26 | % | 5.49 | % |
●
|
banking
or managing or controlling banks and other subsidiaries authorized under
the Bank Holding Company Act; and
|
|
●
|
any
Bank Holding Company Act activity the Federal Reserve Board has determined
to be so closely related that it is incidental to banking or managing or
controlling banks.
|
●
|
investing
in the stock of one or more financial institution
subsidiaries;
|
|
●
|
acquiring
one or more additional financial institution subsidiaries into a
subsidiary of the holding company;
|
|
●
|
merging
with or acquiring another holding company, one of whose subsidiaries is a
financial institution subsidiary;
|
|
●
|
investing
in a corporation the capital stock of which is available for purchase by a
savings bank under federal law or under the Pennsylvania Banking
Code;
|
|
●
|
engaging
in such activities as are permitted, by statute or regulation, to a
holding company of a federally chartered insured mutual institution under
federal law; and
|
|
●
|
engaging
in such other activities as may be permitted by the Pennsylvania
Department of Banking.
|
|
If
a mutual holding company acquires or merges with another holding company,
the holding company acquired or the holding company resulting from such
merger or acquisition may only invest in assets
and engage in activities listed above, and has a period of two years to
cease any non-conforming activities and divest of any non-conforming
investments.
|
●
|
the
Federal Deposit Insurance Corporation determines the activity or
investment does not pose a significant risk of loss to the Deposit
Insurance Fund; and
|
|
●
|
Prudential
Savings Bank meets all applicable capital
requirements.
|
●
|
merging
the Savings Association Insurance Fund and Bank Insurance Fund, which
became effective March 31,
2006;
|
●
|
maintaining
basic deposit and municipal account insurance coverage at $100,000 but
providing for a new basic insurance coverage for retirement accounts of
$250,000. Insurance coverage for basic deposit and retirement accounts
could be increased for inflation every five years in $10,000 increments
beginning in 2011;
|
|
●
|
providing
the Federal Deposit Insurance Corporation with the ability to set the
designated reserve ratio within a range of between 1.15% and 1.50%, rather
than maintaining 1.25% at all times regardless of prevailing economic
conditions;
|
|
●
|
providing
a one-time assessment credit of $4.7 billion to banks and savings
associations in existence on December 31, 1996, which may be used to
offset future premiums with certain limitations; and
|
|
●
|
requiring
the payment of dividends of 100% of the amount that the insurance fund
exceeds 1.5% of the estimated insured deposits and the payment of 50% of
the amount that the insurance fund exceeds 1.35% of the estimated insured
deposits (when the reserve is greater than 1.35% but no more than
1.5%).
|
Capital
Category
|
Total
Risk-Based
Capital
|
Tier
1
Risk-Based
Capital
|
Tier
1
Leverage
Capital
|
||||
Well
capitalized
|
10%
or more
|
6%
or more
|
5%
or more
|
||||
Adequately
capitalized
|
8%
or more
|
4%
or more
|
4%
or more
|
||||
Undercapitalized
|
Less
than 8%
|
Less
than 4%
|
Less
than 4%
|
||||
Significantly
undercapitalized
|
Less
than 6%
|
Less
than 3%
|
Less
than 3%
|
|
Actual
|
Required
for Capital
Adequacy
Purposes
|
To
Be
Well
Capitalized
Under
Prompt
Corrective
Action
Provisions
|
Excess
Over
Well
Capitalized
Provisions
|
||||||||||||||||||||||||||||
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
|||||||||||||||||||||||||
(Dollars
in Thousands)
|
||||||||||||||||||||||||||||||||
Total
risk-based capital
|
||||||||||||||||||||||||||||||||
Company
|
$ | 71,166 | 32.12 | % | $ | 17,722 | 8.00 | % | N/A | N/A | N/A | N/A | ||||||||||||||||||||
Bank
|
65,708 | 29.66 | 17,722 | 8.00 | $ | 22,153 | 10.00 | % | $ | 43,555 | 19.66 | % | ||||||||||||||||||||
Tier
1 risk-based capital
|
||||||||||||||||||||||||||||||||
Company
|
69,566 | 31.40 | 8,861 | 4.00 | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||
Bank
|
64,108 | 28.94 | 8,861 | 4.00 | 13,292 | 6.00 | 50,816 | 22.94 | ||||||||||||||||||||||||
Tier
1 leverage capital
|
||||||||||||||||||||||||||||||||
Company
|
69,566 | 14.58 | 19,091 | 4.00 | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||
Bank
|
64,108 | 13.22 | 19,395 | 4.00 | 24,244 | 5.00 | 39,864 | 8.22 |
●
|
A
decrease in the demand for loans and other products and services offered
by us;
|
●
|
An
increase or decrease in the usage of unfunded commitments;
or
|
●
|
An
increase in the number of our customers and counterparties who become
delinquent, file for protection under bankruptcy laws or default on their
loans or other obligations to us. An increase in the number of
delinquencies, bankruptcies or defaults could result in a higher level of
nonperforming assets, net charge-offs, provision for loan
losses.
|
●
|
Cash
flow of the borrower and/or the project being financed;
|
●
|
In
the case of a collateralized loan, the changes and uncertainties as to the
future value of the collateral;
|
●
|
The
credit history of a particular borrower;
|
●
|
Changes
in economic and industry conditions; and
|
●
|
The
duration of the
loan.
|
●
|
Authority
for the Federal Reserve to pay interest on depository institution
balances
|
●
|
Mortgage
loss mitigation and homeowner protection
|
●
|
Temporary
increase in Federal Deposit Insurance Corporation (“FDIC”) insurance
coverage from $100,000 to $250,000 through December 31, 2009;
and
|
●
|
Authority
to the Securities and Exchange Commission (the “SEC”) to suspend
mark-to-market accounting requirements for any issuer or class of category
of
transactions.
|
●
|
We
expect to face increased regulation of our industry. Compliance with such
regulation may increase our costs and limit our ability to pursue business
opportunities.
|
●
|
Our
ability to assess the creditworthiness of our customers may be impaired if
the models and approaches we use to select, manage and underwrite our
customers become less predictive of future behaviors.
|
●
|
The
process we use to estimate losses inherent in our credit exposure requires
difficult, subjective and complex judgments, including forecasts of
economic conditions and how these economic predictions might impair the
ability of our borrowers to repay their loans, which may no longer be
capable of accurate estimation which may, in turn, impact the reliability
of the
process.
|
●
|
Our
ability to borrow from other financial institutions on favorable terms or
at all could be adversely affected by further disruptions in the capital
markets or other events, including actions by rating agencies and
deteriorating investor expectations.
|
●
|
Competition
in our industry could intensify as a result of the increasing
consolidation of financial services companies in connection with current
market conditions.
|
●
|
We
may be required to pay significantly higher deposit insurance premiums
because market developments have significantly depleted the insurance fund
of the Federal Deposit Insurance Corporation and reduced the ratio of
reserves to insured
deposits.
|
Description/Address
|
Leased/Owned
|
Date
of
Lease
Expiration
|
Net
Book
Value
of
Property
|
Amount
of
Deposits
|
||||||||||
(In
Thousands)
|
||||||||||||||
Main
Office
|
Owned
|
N/A | $ | 507 | $ | 195,690 | ||||||||
1834
Oregon Avenue
|
||||||||||||||
Philadelphia,
PA 19145-4725
|
||||||||||||||
Snyder
Branch
|
Owned
|
N/A | 6 | 25,131 | ||||||||||
2101
South 19th
Street
|
||||||||||||||
Philadelphia,
PA 19145-3709
|
||||||||||||||
Center
City Branch
|
Owned
|
N/A | 18 | 29,265 | ||||||||||
112
South 19th
Street
|
||||||||||||||
Philadelphia,
PA 19103-4667
|
||||||||||||||
Broad
Street Branch
|
Owned
|
N/A | 233 | 53,194 | ||||||||||
1722
South Broad Street
|
||||||||||||||
Philadelphia,
PA 19145-2388
|
||||||||||||||
Pennsport
Branch
|
Owned
|
N/A | 58 | 38,746 | ||||||||||
238A
Moore Street
|
||||||||||||||
Philadelphia,
PA 19148-1925
|
||||||||||||||
Drexel
Hill Branch
|
Owned
|
N/A | 91 | 31,253 | ||||||||||
601
Morgan Avenue
|
||||||||||||||
Drexel
Hill, PA 19026-3105
|
||||||||||||||
Old
City Branch
|
Leased
|
May
2009
|
437 | 3,551 | ||||||||||
28
North 3rd
Street
|
||||||||||||||
Philadelphia,
PA 19106-2108
|
Period
Ending
|
||||||||||||||||||||||||
Index
|
03/30/05
|
06/30/05
|
09/30/05
|
09/30/06
|
09/30/07
|
09/30/08
|
||||||||||||||||||
Prudential
Bancorp, Inc. of PA
|
$ | 100.00 | $ | 110.36 | $ | 121.75 | $ | 135.95 | $ | 129.51 | $ | 106.91 | ||||||||||||
NASDAQ
Composite
|
100.00 | 102.56 | 107.28 | 112.60 | 134.69 | 104.30 | ||||||||||||||||||
SNL
MHC Thrift Index
|
100.00 | 103.90 | 104.06 | 132.49 | 140.14 | 143.69 | ||||||||||||||||||
SNL
Thrift Index
|
100.00 | 104.98 | 102.32 | 119.11 | 108.70 | 55.99 |
*
Source: SNL Financial LC
|
Cash
dividends per share |
||||||||||||
Stock
Price
|
||||||||||||
|
High
|
Low
|
||||||||||
Quarter
ended:
|
||||||||||||
September
30, 2008
|
$ | 11.49 | $ | 10.00 | $ | 0.05 | ||||||
June
30, 2008
|
12.49 | 10.05 | 0.05 | |||||||||
March
31, 2008
|
13.00 | 11.40 | 0.05 | |||||||||
December
31, 2007
|
13.50 | 12.20 | 0.05 |
Cash
dividends per share |
||||||||||||
Stock
Price
|
||||||||||||
High
|
Low
|
|||||||||||
Quarter
ended:
|
||||||||||||
September
30, 2007
|
$ | 13.75 | $ | 12.38 | $ | 0.05 | ||||||
June
30, 2007
|
13.85 | 13.36 | 0.05 | |||||||||
March
31, 2007
|
13.89 | 13.38 | 0.05 | |||||||||
December
31, 2006
|
13.88 | 13.15 | 0.04 |
At
September 30,
|
||||||||||||||||||||
|
2008
|
2007
|
2006
|
2005
|
2004
|
|||||||||||||||
(Dollars
in Thousands)
|
||||||||||||||||||||
Selected
Financial and Other Data:
|
||||||||||||||||||||
Total
assets
|
$ | 489,337 | $ | 474,192 | $ | 472,381 | $ | 446,592 | $ | 406,638 | ||||||||||
Cash
and cash equivalents
|
9,454 | 12,269 | 13,428 | 26,815 | 10,061 | |||||||||||||||
Investment
securities:
|
||||||||||||||||||||
Held-to-maturity
|
123,022 | 134,782 | 132,084 | 129,840 | 114,806 | |||||||||||||||
Available-for-sale
|
2,922 | 38,343 | 38,747 | 38,584 | 40,287 | |||||||||||||||
Mortgage-backed
securities:
|
||||||||||||||||||||
Held-to-maturity
|
40,281 | 45,534 | 50,360 | 66,828 | 80,932 | |||||||||||||||
Available-for-sale
|
52,184 | 8,549 | 4,615 | — | — | |||||||||||||||
Loans
receivable, net
|
243,969 | 219,149 | 219,418 | 175,091 | 151,565 | |||||||||||||||
Deposits
|
376,830 | 354,038 | 347,292 | 336,468 | 349,159 | |||||||||||||||
FHLB
advances
|
31,701 | 33,743 | 31,784 | 13,823 | 13,862 | |||||||||||||||
Total
equity, substantially restricted
|
68,875 | 80,961 | 87,448 | 90,825 | 39,099 | |||||||||||||||
Banking
offices
|
7 | 7 | 6 | 6 | 6 |
Year
Ended September 30,
|
||||||||||||||||||||
|
2008
|
2007
|
2006
|
2005
|
2004
|
|||||||||||||||
(Dollars
in Thousands)
|
||||||||||||||||||||
Selected
Operating Data:
|
||||||||||||||||||||
Total
interest income
|
$ | 26,408 | $ | 26,907 | $ | 24,542 | $ | 21,077 | $ | 19,513 | ||||||||||
Total
interest expense
|
14,654 | 14,784 | 11,935 | 9,297 | 9,002 | |||||||||||||||
Net
interest income
|
11,754 | 12,123 | 12,607 | 11,780 | 10,511 | |||||||||||||||
Provision
for loan losses
|
1,084 | 395 | 60 | — | 50 | |||||||||||||||
Net
interest income after provision for loan
losses
|
10,670 | 11,728 | 12,547 | 11,780 | 10,461 | |||||||||||||||
Total
non-interest income (charges)
|
(5,285 | ) | 1,046 | 938 | 567 | 581 | ||||||||||||||
Total
non-interest expense
|
8,775 | 7,990 | 7,875 | 7,069 | 7,323 | |||||||||||||||
(Loss)
income before income taxes
|
(3,390 | ) | 4,784 | 5,610 | 5,278 | 3,719 | ||||||||||||||
Income
taxes
|
755 | 1,387 | 1,773 | 1,886 | 1,246 | |||||||||||||||
Net
(loss) income
|
$ | (4,145 | ) | $ | 3,397 | $ | 3,837 | $ | 3,392 | $ | 2,473 | |||||||||
Basic
(loss) earnings per share (1)
|
$ | (0.38 | ) | $ | 0.30 | $ | 0.32 | $ | 0.15 | — | ||||||||||
Diluted
(loss) earnings per share (1)
|
$ | (0.38 | ) | $ | 0.30 | $ | 0.32 | $ | 0.15 | — | ||||||||||
Selected
Operating Ratios(2):
|
||||||||||||||||||||
Average
yield earned on interest-earning assets
|
5.75 | % | 5.92 | % | 5.58 | % | 5.03 | % | 4.97 | % | ||||||||||
Average
rate paid on interest-bearing liabilities
|
3.73 | 3.93 | 3.34 | 2.64 | 2.48 | |||||||||||||||
Average
interest rate spread(3)
|
2.02 | 1.99 | 2.24 | 2.39 | 2.49 | |||||||||||||||
Net
interest margin(3)
|
2.56 | 2.67 | 2.87 | 2.81 | 2.68 | |||||||||||||||
Average
interest-earning assets to average interest-bearing
liabilities
|
116.77 | 120.64 | 122.94 | 118.81 | 108.13 | |||||||||||||||
Net
interest income after provision for
loan losses to non-interest expense
|
121.60 | 146.78 | 159.33 | 166.64 | 142.85 | |||||||||||||||
Total
non-interest expense to average assets
|
1.84 | 1.70 | 1.73 | 1.64 | 1.80 | |||||||||||||||
Efficiency
ratio(4)
|
135.65 | 60.67 | 58.14 | 57.25 | 66.02 | |||||||||||||||
Return
on average assets
|
(0.87 | ) | 0.72 | 0.84 | 0.79 | 0.61 | ||||||||||||||
Return
on average equity
|
(5.44 | ) | 3.98 | 4.26 | 5.14 | 6.50 | ||||||||||||||
Average
equity to average assets
|
15.95 | 18.15 | 19.82 | 15.30 | 9.36 |
At
or For the
Year
Ended September 30,
|
||||||||||||||||||||
2008
|
2007
|
2006
|
2005
|
2004
|
||||||||||||||||
Asset
Quality Ratios(5):
|
||||||||||||||||||||
Non-performing
loans as a percent of total
loans receivable(6)
|
1.65 | % | 1.18 | % | 0.07 | % | 0.14 | % | 0.32 | % | ||||||||||
Non-performing
assets as a percent of total
assets(6)
|
1.13 | 0.55 | 0.03 | 0.13 | 0.25 | |||||||||||||||
Allowance
for loan losses as a percent of non-performing
loans
|
39.42 | 38.97 | 409.66 | 233.47 | 116.49 | |||||||||||||||
Net
charge-offs to average loans receivable
|
0.21 | — | — | — | 0.03 | |||||||||||||||
Capital
Ratios(5):
|
||||||||||||||||||||
Tier
1 leverage ratio
|
||||||||||||||||||||
Company
|
14.58 | % | 17.08 | % | 18.64 | % | 20.98 | % | N/A | |||||||||||
Bank
|
13.22 | 15.52 | 14.74 | 14.55 | 9.39 | % | ||||||||||||||
Tier
1 risk-based capital ratio
|
||||||||||||||||||||
Company
|
31.40 | % | 37.88 | % | 39.23 | % | 48.54 | % | N/A | |||||||||||
Bank
|
28.94 | 34.22 | 31.12 | 34.71 | 24.50 | |||||||||||||||
Total
risk-based capital ratio
|
||||||||||||||||||||
Company
|
32.12 | % | 38.43 | % | 39.68 | % | 48.98 | % | N/A | |||||||||||
Bank
|
29.66 | 34.77 | 31.56 | 35.16 | 25.22 |
(1)
|
Due
to the timing of the Bank’s reorganization into the mutual holding company
form and the completion of the Company’s initial public offering on March
29, 2005, earnings per share for the year ended September 30, 2005 is for
the six month period ended September 30, 2005. There were no shares of
common stock of the Company outstanding prior to the reorganization on
March 29, 2005.
|
(2)
|
With
the exception of end of period ratios, all ratios are based on average
monthly balances during the indicated periods.
|
(3)
|
Average
interest rate spread represents the difference between the average yield
on interest-earning assets and the average rate paid on interest-bearing
liabilities, and net interest margin represents net interest income as a
percentage of average interest-earning assets.
|
(4)
|
The
efficiency ratio represents the ratio of non-interest expense divided by
the sum of net interest income and non-interest income.
|
(5)
|
Asset
quality ratios and capital ratios are end of period ratios, except for net
charge-offs to average loans receivable. Since the Company did not have
any capital stock outstanding prior to March 29, 2005, no capital ratios
are presented for the pre-2005 periods.
|
(6)
|
Non-performing
assets consist of non-performing loans and real estate owned.
Non-performing loans consist of all loans 90 days or more past due and
loans in excess of 90 days delinquent and still accruing interest. It is
our policy to cease accruing interest on all loans, other than
single-family residential mortgage loans, 90 days or more past due. Real
estate owned consists of real estate acquired through foreclosure and real
estate acquired by acceptance of a deed-in-lieu of
foreclosure.
|
●
|
Levels
of past due, classified and non-accrual loans, troubled debt
restructurings and modifications
|
|
●
|
Nature
and volume of loans
|
|
●
|
Changes
in lending policies and procedures, underwriting standards, collections,
charge-offs and recoveries and for commercial loans, the level of loans
being approved with exceptions to policy
|
|
●
|
Experience,
ability and depth of management and staff
|
|
●
|
National
and local economic and business conditions, including various market
segments
|
|
|
●
|
Quality
of Company’s loan review system and degree of Board
oversight
|
|
●
|
Concentrations
of credit and changes in levels of such concentrations
|
●
|
Effect
of external factors on the level of estimated credit losses in the current
portfolio
|
|
Level
1
|
Quoted
prices in active markets for identical assets or
liabilities.
|
|
Level
2
|
Observable
inputs other than Level 1 prices, such as quoted prices for similar assets
or liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or
liabilities.
|
|
Level
3
|
Unobservable
inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities. Level 3 assets
and liabilities include financial instruments whose value is determined
using pricing models, discounted cash flow methodologies, or similar
techniques, as well as instruments for which the determination of fair
value requires significant management judgment or
estimation.
|
Total
Amounts
Committed
|
Amount
of Commitment Expiration - Per Period
|
|||||||||||||||||||
To
1
Year
|
1-3
Years
|
4-5
Years
|
After
5
Years
|
|||||||||||||||||
(In
Thousands)
|
||||||||||||||||||||
Letters
of credit
|
$ | 95 | $ | — | $ | 95 | $ | — | $ | — | ||||||||||
Lines
of credit
|
5,901 | — | — | — | 5,901 | |||||||||||||||
Undisbursed
portions of loans in process (1)
|
13,515 | 9,782 | 3,733 | — | — | |||||||||||||||
Commitments
to originate loans
|
18,563 | 18,563 | — | — | — | |||||||||||||||
Total
commitments
|
$ | 38,074 | $ | 28,345 | $ | 3,828 | $ | — | $ | 5,901 |
(1)
|
Includes
participation interests sold to other financial institutions totaling $2.2
million; Prudential Savings Bank will fund such amount and be reimbursed
by the participants.
|
(2)
|
The
majority of available lines of credit are for home equity
loans.
|
Payments
Due By Period
|
||||||||||||||||||||
Total
|
To
1
Year
|
1-3
Years
|
4-5
Years
|
After
5
Years
|
||||||||||||||||
(In
Thousands)
|
||||||||||||||||||||
Certificates
of deposit
|
$ | 215,090 | $ | 156,693 | $ | 32,262 | $ | 26,135 | $ | — | ||||||||||
FHLB
advances(1)
|
31,701 | 18,043 | 13,089 | 229 | 340 | |||||||||||||||
Total
long-term debt
|
246,791 | 174,736 | 45,351 | 26,364 | 340 | |||||||||||||||
Advances
from borrowers for taxes and insurance
|
1,348 | 1,348 | — | — | — | |||||||||||||||
Operating
lease obligations
|
70 | 55 | 15 | — | — | |||||||||||||||
Total
contractual obligations
|
$ | 248,209 | $ | 176,139 | $ | 45,366 | $ | 26,364 | $ | 340 |
(1)
|
Does
not include interest due annually on FHLB
advances.
|
Year
Ended September 30,
|
||||||||||||||||||||||||||||||||||||
2008
|
2007
|
2006
|
||||||||||||||||||||||||||||||||||
|
Average
Balance
|
Interest
|
Average
Yield/
Rate(1)
|
Average
Balance
|
Interest
|
Average
Yield/
Rate
|
Average
Balance
|
Interest
|
Average
Yield/
Rate
|
|||||||||||||||||||||||||||
(Dollars
in Thousands)
|
||||||||||||||||||||||||||||||||||||
Interest-earning
assets:
|
||||||||||||||||||||||||||||||||||||
Investment
securities
|
$ | 157,917 | $ | 8,128 | 5.15 | % | $ | 173,760 | $ | 8,768 | 5.05 | % | $ | 173,713 | $ | 8,019 | 4.62 | % | ||||||||||||||||||
Mortgage-backed
securities
|
66,254 | 3,780 | 5.71 | % | 53,759 | 2,820 | 5.25 | % | 60,750 | 3,147 | 5.18 | % | ||||||||||||||||||||||||
Loans
receivable(1)
|
227,661 | 14,349 | 6.30 | % | 221,262 | 15,136 | 6.84 | % | 197,913 | 13,077 | 6.61 | % | ||||||||||||||||||||||||
Other
interest-earning assets
|
7,483 | 151 | 2.02 | % | 5,372 | 183 | 3.41 | % | 7,307 | 299 | 4.09 | % | ||||||||||||||||||||||||
Total
interest-earning assets
|
459,315 | 26,408 | 5.75 | % | 454,153 | 26,907 | 5.92 | % | 439,683 | 24,542 | 5.58 | % | ||||||||||||||||||||||||
Non-interest-earning
assets
|
17,962 | 15,864 | 14,786 | |||||||||||||||||||||||||||||||||
Total
assets
|
$ | 477,277 | $ | 470,017 | $ | 454,469 | ||||||||||||||||||||||||||||||
Interest-bearing
liabilities:
|
||||||||||||||||||||||||||||||||||||
Savings
accounts
|
$ | 66,636 | $ | 1,673 | 2.51 | % | $ | 71,815 | $ | 1,977 | 2.75 | % | $ | 81,472 | $ | 2,449 | 3.01 | % | ||||||||||||||||||
Checking
& money market accounts
|
92,418 | 2,793 | 3.02 | % | 93,701 | 3,321 | 3.54 | % | 98,112 | 3,081 | 3.14 | % | ||||||||||||||||||||||||
Certificate
accounts
|
204,981 | 8,922 | 4.35 | % | 181,604 | 7,944 | 4.37 | % | 156,869 | 5,304 | 3.38 | % | ||||||||||||||||||||||||
Total
deposits
|
364,035 | 13,388 | 3.68 | % | 347,120 | 13,242 | 3.81 | % | 336,453 | 10,834 | 3.22 | % | ||||||||||||||||||||||||
FHLB
advances
|
27,638 | 1,258 | 4.55 | % | 27,686 | 1,533 | 5.54 | % | 19,628 | 1,092 | 5.56 | % | ||||||||||||||||||||||||
Real
estate tax escrow accounts
|
1,688 | 8 | 0.47 | % | 1,635 | 9 | 0.55 | % | 1,552 | 9 | 0.58 | % | ||||||||||||||||||||||||
Other
interest-bearing liabilities
|
— | — | 0.00 | % | — | — | 0.00 | % | — | — | 0.00 | % | ||||||||||||||||||||||||
Total
interest-bearing liabilities
|
393,361 | 14,654 | 3.73 | % | 376,441 | 14,784 | 3.93 | % | 357,633 | 11,935 | 3.34 | % | ||||||||||||||||||||||||
Non-interest-bearing
liabilities
|
7,790 | 8,259 | 6,762 | |||||||||||||||||||||||||||||||||
Total
liabilities
|
401,151 | 384,700 | 364,395 | |||||||||||||||||||||||||||||||||
Stockholders’
Equity
|
76,126 | 85,317 | 90,074 | |||||||||||||||||||||||||||||||||
Total
liabilities and Stockholders’ Equity
|
$ | 477,277 | $ | 470,017 | $ | 454,469 | ||||||||||||||||||||||||||||||
Net
interest-earning assets
|
$ | 65,954 | $ | 77,712 | $ | 82,050 | ||||||||||||||||||||||||||||||
Net
interest income; interest rate spread
|
$ | 11,754 | 2.02 | % | $ | 12,123 | 1.99 | % | $ | 12,607 | 2.24 | % | ||||||||||||||||||||||||
Net
interest margin (2)
|
2.56 | % | 2.67 | % | 2.87 | % | ||||||||||||||||||||||||||||||
Average
interest-earning assets to average interest-bearing
liabilities
|
116.77 | % | 120.64 | % | 122.94 | % |
(1)
|
Includes
nonaccrual loans during the respective periods. Calculated net of deferred
fees and discounts, loans in process and allowance for loan
losses.
|
|
(2)
|
Equals
net interest income divided by average interest-earning
assets.
|
2008
vs. 2007
|
2007
vs. 2006
|
|||||||||||||||||||||||||||||||
Increase
(Decrease) Due to
|
Increase
(Decrease) Due to
|
|||||||||||||||||||||||||||||||
Rate
|
Volume
|
Rate/
Volume
|
Total
Increase
(Decrease)
|
Rate
|
Volume
|
Rate/
Volume
|
Total
Increase
(Decrease)
|
|||||||||||||||||||||||||
(In
Thousands)
|
||||||||||||||||||||||||||||||||
Interest
income:
|
||||||||||||||||||||||||||||||||
Investment
securities
|
$ | 175 | $ | (799 | ) | $ | (16 | ) | $ | (640 | ) | $ | 747 | $ | 2 | $ | — | $ | 749 | |||||||||||||
Mortgage-backed
securities
|
247 | 655 | 57 | 959 | 40 | (362 | ) | (5 | ) | (327 | ) | |||||||||||||||||||||
Loans
receivable, net
|
(1,190 | ) | 438 | (34 | ) | (786 | ) | 462 | 1,543 | 54 | 2,059 | |||||||||||||||||||||
Other
interest-earning assets
|
(75 | ) | 72 | (29 | ) | (32 | ) | (50 | ) | (79 | ) | 13 | (116 | ) | ||||||||||||||||||
Total
interest-earning assets
|
(843 | ) | 366 | (22 | ) | (499 | ) | 1,199 | 1,104 | 62 | 2,365 | |||||||||||||||||||||
Interest
expense:
|
||||||||||||||||||||||||||||||||
Savings
accounts
|
(174 | ) | (143 | ) | 13 | (304 | ) | (206 | ) | (290 | ) | 24 | (472 | ) | ||||||||||||||||||
Checking
accounts
|
(490 | ) | (45 | ) | 7 | (528 | ) | 396 | (139 | ) | (17 | ) | 240 | |||||||||||||||||||
(interest-bearing
and non-interest bearing)
|
||||||||||||||||||||||||||||||||
Certificate
accounts
|
(40 | ) | 1,023 | (5 | ) | 978 | 1,558 | 836 | 246 | 2,640 | ||||||||||||||||||||||
Total
deposits
|
(704 | ) | 835 | 15 | 146 | 1,748 | 407 | 253 | 2,408 | |||||||||||||||||||||||
FHLB
advances
|
(273 | ) | (3 | ) | — | (276 | ) | (5 | ) | 448 | (2 | ) | 441 | |||||||||||||||||||
Other
interest-bearing liabilities
|
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Total
interest-bearing liabilities
|
(977 | ) | 832 | 15 | (130 | ) | 1,743 | 855 | 251 | 2,849 | ||||||||||||||||||||||
Increase
(decrease) in net interest income
|
$ | 134 | $ | (466 | ) | $ | (37 | ) | $ | (369 | ) | $ | (544 | ) | $ | 249 | $ | (189 | ) | $ | (484 | ) |
●
|
we
have reduced our exposure in callable agency bonds and increased our
portfolio of agency issued mortgage-backed securities;
and
|
|
●
|
we
have maintained moderate levels of short-term liquid
assets.
|
3
Months
or
Less
|
More
than
3
Months
to
1 Year
|
More
than
1
Year
to
3 Years
|
More
than
3
Years
to
5 Years
|
More
than
5
Years
|
Total
Amount
|
|||||||||||||||||||
(Dollars
in Thousands)
|
||||||||||||||||||||||||
Interest-earning
assets(1):
|
||||||||||||||||||||||||
Investment
securities
|
$ | 5,995 | $ | 0 | $ | 2,000 | $ | 2,790 | $ | 115,263 | $ | 126,048 | ||||||||||||
Mortgage-backed
securities
|
10,336 | 15,477 | 14,766 | 18,456 | 34,372 | 93,407 | ||||||||||||||||||
Loans
receivable(2)
|
34,939 | 45,119 | 64,796 | 41,026 | 59,106 | 244,986 | ||||||||||||||||||
Other
interest earning assets(3)
|
7,756 | — | — | — | — | 7,756 | ||||||||||||||||||
Total
interest-earning assets
|
$ | 59,026 | $ | 60,596 | $ | 81,562 | $ | 62,272 | $ | 208,741 | $ | 472,197 | ||||||||||||
Interest-bearing
liabilities:
|
||||||||||||||||||||||||
Savings
accounts
|
696 | 107 | 39,265 | 13,088 | 13,088 | 66,244 | ||||||||||||||||||
Checking
& money market accounts
|
— | 33,242 | 48,053 | 4,937 | 4,937 | 91,169 | ||||||||||||||||||
Certificate
accounts
|
57,562 | 99,130 | 32,262 | 26,136 | — | 215,090 | ||||||||||||||||||
FHLB
advances
|
18,022 | 66 | 13,184 | 89 | 340 | 31,701 | ||||||||||||||||||
Real
estate tax escrow accounts
|
1,348 | — | — | — | — | 1,348 | ||||||||||||||||||
Other
interest-bearing liabilities
|
||||||||||||||||||||||||
Total
interest-bearing Liabilities
|
$ | 77,628 | $ | 132,545 | $ | 132,764 | $ | 44,250 | $ | 18,365 | $ | 405,552 | ||||||||||||
Interest-earning
assets less interest-bearing liabilities
|
($ | 18,602 | ) | ($ | 71,949 | ) | ($ | 51,202 | ) | $ | 18,022 | $ | 190,376 | $ | 66,645 | |||||||||
Cumulative
interest-rate sensitivity gap(4)
|
($ | 18,602 | ) | ($ | 90,551 | ) | ($ | 141,753 | ) | ($ | 123,731 | ) | $ | 66,645 | ||||||||||
Cumulative
interest-rate gap as a percentage of total assets at September 30,
2008
|
-3.80 | % | -18.50 | % | -28.97 | % | -25.29 | % | 13.62 | % | ||||||||||||||
Cumulative
interest-earning assets as a percentage of cumulative interest-bearing
liabilities at September 30, 2008
|
76.04 | % | 56.92 | % | 58.67 | % | 68.04 | % | 116.43 | % |
(1)
|
Interest-earning
assets are included in the period in which the balances are expected to be
redeployed and/or repriced as a result of anticipated prepayments,
scheduled rate adjustments and contractual maturities.
|
|
(2)
|
For
purposes of the gap analysis, loans receivable includes non-performing
loans gross of the allowance for loan losses, undisbursed loan funds,
unamortized discounts and deferred loan fees.
|
|
(3)
|
Includes
FHLB stock.
|
|
(4)
|
Interest-rate
sensitivity gap represents the difference between total interest-earning
assets and total interest-bearing
liabilities.
|
Change
in
Interest
Rates
In
Basis Points
(Rate
Shock)
|
Net
Portfolio Value
|
NPV
as % of Portfolio
Value
of Assets
|
|||||||||||||||||||
Amount
|
$
Change
|
%
Change
|
NPV
Ratio
|
Change
|
|||||||||||||||||
(Dollars
in Thousands)
|
|||||||||||||||||||||
300
|
$ | 26,770 | ($ | 45,915 | ) | -63.17 | % | 6.31 | % | -8.62 | % | ||||||||||
200
|
$ | 40,293 | ($ | 32,392 | ) | -44.56 | % | 9.09 | % | -5.84 | % | ||||||||||
100
|
$ | 55,999 | ($ | 16,686 | ) | -22.96 | % | 12.06 | % | -2.87 | % | ||||||||||
Static
|
$ | 72,685 | — | — | 14.93 | % | — | ||||||||||||||
(100)
|
$ | 82,074 | $ | 9,389 | 12.92 | % | 16.34 | % | 1.41 | % | |||||||||||
(200)
|
$ | 80,363 | $ | 7,678 | 10.56 | % | 15.86 | % | 0.93 | % | |||||||||||
(300)
|
$ | 78,555 | $ | 5,870 | 8.08 | % | 15.37 | % | 0.44 | % |
PRUDENTIAL
BANCORP, INC. OF PENNSYLVANIA AND SUBSIDIARY
|
CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
|
September
30,
|
||||||||
2008
|
2007
|
|||||||
(Dollars
in Thousands)
|
||||||||
ASSETS
|
||||||||
Cash
and amounts due from depository institutions
|
$ | 4,318 | $ | 4,133 | ||||
Interest-bearing
deposits
|
5,136 | 8,136 | ||||||
Total
cash and cash equivalents
|
9,454 | 12,269 | ||||||
Investment
securities held to maturity (fair value—September
30, 2008, $120,741; September 30, 2007, $133,693)
|
123,022 | 134,782 | ||||||
Investment
securities available for sale (amortized cost—September
30, 2008, $3,026; September 30, 2007, $38,007)
|
2,922 | 38,343 | ||||||
Mortgage-backed
securities held to maturity (fair value—September
30, 2008, $39,811; September 30, 2007, $44,213)
|
40,281 | 45,534 | ||||||
Mortgage-backed
securities available for sale (amortized cost—September
30, 2008, $53,126; September 30, 2007, $8,492)
|
52,184 | 8,549 | ||||||
Loans
receivable—net of allowance for loan losses (September 30, 2008, $1,591;
September
30, 2007, $1,011)
|
243,969 | 219,149 | ||||||
Accrued
interest receivable:
|
||||||||
Loans
receivable
|
1,291 | 1,264 | ||||||
Mortgage-backed
securities
|
393 | 234 | ||||||
Investment
securities
|
1,493 | 2,006 | ||||||
Real
Estate Owned
|
1,488 | — | ||||||
Federal
Home Loan Bank stock—at cost
|
2,620 | 2,397 | ||||||
Office
properties and equipment—net
|
2,182 | 2,363 | ||||||
Prepaid
expenses and other assets
|
7,147 | 7,274 | ||||||
Deferred
income taxes, net
|
891 | 28 | ||||||
TOTAL
ASSETS
|
$ | 489,337 | $ | 474,192 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
LIABILITIES:
|
||||||||
Deposits:
|
||||||||
Noninterest-bearing
|
$ | 4,327 | $ | 4,480 | ||||
Interest-bearing
|
372,503 | 349,558 | ||||||
Total
deposits
|
376,830 | 354,038 | ||||||
Advances
from Federal Home Loan Bank
|
31,701 | 33,743 | ||||||
Accrued
interest payable
|
3,471 | 2,868 | ||||||
Advances
from borrowers for taxes and insurance
|
1,348 | 1,117 | ||||||
Accounts
payable and accrued expenses
|
6,581 | 913 | ||||||
Accrued
dividend payable
|
531 | 552 | ||||||
Total
liabilities
|
420,462 | 393,231 | ||||||
COMMITMENTS
AND CONTINGENCIES (Note 13)
|
||||||||
STOCKHOLDERS’
EQUITY:
|
||||||||
Preferred
stock, $.01 par value, 10,000,000 shares authorized; none
issued
|
— | — | ||||||
Common
stock, $.01 par value, 40,000,000 shares authorized; issued 12,563,750;
outstanding
- 11,069,866 at September 30, 2008: 11,478,366 at September 30,
2007
|
126 | 126 | ||||||
Additional
paid-in capital
|
54,925 | 54,880 | ||||||
Unearned
ESOP shares
|
(3,680 | ) | (3,903 | ) | ||||
Treasury
stock, at cost: 1,493,884 shares at September 30, 2008; 1,085,384
shares at September 30, 2007
|
(19,481 | ) | (14,372 | ) | ||||
Retained
earnings (substantially restricted)
|
37,676 | 43,971 | ||||||
Accumulated
other comprehensive (loss) income
|
(691 | ) | 259 | |||||
Total
stockholders’
equity
|
68,875 | 80,961 | ||||||
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$ | 489,337 | $ | 474,192 |
PRUDENTIAL
BANCORP, INC. OF PENNSYLVANIA AND SUBSIDIARY
|
CONSOLIDATED
STATEMENTS OF INCOME
|
Years
Ended September 30,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
(Dollars
in Thousands Except Per Share Amounts)
|
||||||||||||
INTEREST
INCOME:
|
||||||||||||
Interest
and fees on loans
|
$ | 14,349 | $ | 15,136 | $ | 13,077 | ||||||
Interest
on mortgage-backed securities
|
3,780 | 2,820 | 3,147 | |||||||||
Interest
and dividends on investments
|
8,279 | 8,951 | 8,318 | |||||||||
Total
interest income
|
26,408 | 26,907 | 24,542 | |||||||||
INTEREST
EXPENSE:
|
||||||||||||
Interest
on deposits
|
13,396 | 13,251 | 10,843 | |||||||||
Interest
on borrowings
|
1,258 | 1,533 | 1,092 | |||||||||
Total
interest expense
|
14,654 | 14,784 | 11,935 | |||||||||
NET
INTEREST INCOME
|
11,754 | 12,123 | 12,607 | |||||||||
PROVISION
FOR LOAN LOSSES
|
1,084 | 395 | 60 | |||||||||
NET
INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES
|
10,670 | 11,728 | 12,547 | |||||||||
NON-INTEREST
INCOME:
|
||||||||||||
Fees
and other service charges
|
539 | 613 | 549 | |||||||||
Gain
on sale of real estate owned
|
— | — | 106 | |||||||||
Gain
on sale of mortgage-backed securities
|
— | — | 48 | |||||||||
Impairment
charge on investment and mortgage-backed securities
|
(2,218 | ) | — | — | ||||||||
Loss
on redemption of investment securities
|
(4,016 | ) | — | — | ||||||||
Other
|
410 | 433 | 235 | |||||||||
Total
non-interest income (charges)
|
(5,285 | ) | 1,046 | 938 | ||||||||
NON-INTEREST
EXPENSES:
|
||||||||||||
Salaries
and employee benefits
|
4,342 | 4,536 | 4,466 | |||||||||
Data
processing
|
505 | 489 | 468 | |||||||||
Professional
services
|
586 | 608 | 600 | |||||||||
Office
occupancy
|
382 | 356 | 328 | |||||||||
Depreciation
|
336 | 246 | 242 | |||||||||
Payroll
taxes
|
264 | 262 | 256 | |||||||||
Director
compensation
|
258 | 264 | 260 | |||||||||
Other
|
2,102 | 1,229 | 1,255 | |||||||||
Total
non-interest expenses
|
8,775 | 7,990 | 7,875 | |||||||||
(LOSS)
INCOME BEFORE INCOME TAXES
|
(3,390 | ) | 4,784 | 5,610 | ||||||||
INCOME
TAXES:
|
||||||||||||
Current
|
1,128 | 1,455 | 1,646 | |||||||||
Deferred
(benefit) expense
|
(373 | ) | (68 | ) | 127 | |||||||
Total
|
755 | 1,387 | 1,773 | |||||||||
NET
(LOSS) INCOME
|
$ | (4,145 | ) | $ | 3,397 | $ | 3,837 | |||||
BASIC
(LOSS) EARNINGS PER SHARE
|
$ | (0.38 | ) | $ | 0.30 | $ | 0.32 | |||||
DILUTED
(LOSS) EARNINGS PER SHARE
|
$ | (0.38 | ) | $ | 0.30 | $ | 0.32 | |||||
DIVIDENDS
PER SHARE
|
$ | 0.20 | $ | 0.19 | $ | 0.16 |
See
notes to consolidated financial statements.
|
PRUDENTIAL
BANCORP, INC. OF PENNSYLVANIA AND SUBSIDIARY
|
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND COMPREHENSIVE
INCOME
|
Common
Stock
|
Additional
Paid-In
Capital
|
Unearned
ESOP
Shares
|
Treasury
Stock
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Income
(Loss)
|
Total
Stockholders’
Equity
|
Comprehensive
Income
|
|||||||||||||||||||||||||
(Dollars
in Thousands)
|
||||||||||||||||||||||||||||||||
BALANCE,
SEPTEMBER 30, 2005
|
$ | 126 | $ | 54,734 | $ | (4,350 | ) | $ | (654 | ) | $ | 40,595 | $ | 375 | $ | 90,826 | ||||||||||||||||
Comprehensive
income:
|
||||||||||||||||||||||||||||||||
Net
income
|
3,837 | 3,837 | 3,837 | |||||||||||||||||||||||||||||
Net
unrealized holding gain on available for sale securities arising during
the period, net of income tax expense of $84
|
159 | 159 | 159 | |||||||||||||||||||||||||||||
Comprehensive
income
|
$ | 3,996 | ||||||||||||||||||||||||||||||
Cash
dividends ($0.16 per share)
|
(1,893 | ) | (1,893 | ) | ||||||||||||||||||||||||||||
Treasury
stock purchased
|
(5,768 | ) | (5,768 | ) | ||||||||||||||||||||||||||||
ESOP
shares committed to be released
|
64 | 223 | 287 | |||||||||||||||||||||||||||||
BALANCE,
SEPTEMBER 30, 2006
|
$ | 126 | $ | 54,798 | $ | (4,127 | ) | $ | (6,422 | ) | $ | 42,539 | $ | 534 | $ | 87,448 | ||||||||||||||||
Cummulative
adjustment related to the adoption of SAB 108
|
172 | 172 | ||||||||||||||||||||||||||||||
Comprehensive
income:
|
||||||||||||||||||||||||||||||||
Net
income
|
3,397 | 3,397 | 3,397 | |||||||||||||||||||||||||||||
Net
unrealized holding loss on available for sale securities arising during
the period, net of income tax benefit of $153
|
(275 | ) | (275 | ) | (275 | ) | ||||||||||||||||||||||||||
Comprehensive
income
|
$ | 3,122 | ||||||||||||||||||||||||||||||
Cash
dividends ($0.19 per share)
|
(2,137 | ) | (2,137 | ) | ||||||||||||||||||||||||||||
Treasury
stock purchased
|
(7,950 | ) | (7,950 | ) | ||||||||||||||||||||||||||||
ESOP
shares committed to be released
|
82 | 224 | 306 | |||||||||||||||||||||||||||||
BALANCE,
SEPTEMBER 30, 2007
|
$ | 126 | $ | 54,880 | $ | (3,903 | ) | $ | (14,372 | ) | $ | 43,971 | $ | 259 | $ | 80,961 | ||||||||||||||||
Comprehensive
income and loss:
|
||||||||||||||||||||||||||||||||
Net
loss
|
(4,145 | ) | (4,145 | ) | (4,145 | ) | ||||||||||||||||||||||||||
Net
unrealized holding loss on available for sale securities arising during
the period, net of income tax benefit of $1,243
|
(2,414 | ) | (2,414 | ) | (2,414 | ) | ||||||||||||||||||||||||||
Reclassification
adjustment for other than temporary impairment net of tax of
$754
|
1,464 | 1,464 | 1,464 | |||||||||||||||||||||||||||||
Comprehensive
loss
|
$ | (5,095 | ) | |||||||||||||||||||||||||||||
Cash
dividends ($0.20 per share)
|
(2,150 | ) | (2,150 | ) | ||||||||||||||||||||||||||||
Treasury
stock purchased
|
(5,109 | ) | (5,109 | ) | ||||||||||||||||||||||||||||
ESOP
shares committed to be released
|
45 | 223 | 268 | |||||||||||||||||||||||||||||
BALANCE,
SEPTEMBER 30, 2008
|
$ | 126 | $ | 54,925 | $ | (3,680 | ) | $ | (19,481 | ) | $ | 37,676 | $ | (691 | ) | $ | 68,875 |
PRUDENTIAL
BANCORP, INC. OF PENNSYLVANIA AND SUBSIDIARY
|
STATEMENTS
OF CASH FLOWS
|
Years
Ended September 30,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
(Dollars
in Thousands)
|
||||||||||||
OPERATING
ACTIVITIES:
|
||||||||||||
Net
(loss) income
|
$ | (4,145 | ) | $ | 3,397 | $ | 3,837 | |||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||||||
Provision
for loan losses
|
1,084 | 395 | 60 | |||||||||
Depreciation
|
336 | 246 | 242 | |||||||||
Net
gain on sale of real estate owned
|
— | — | (106 | ) | ||||||||
Net
gain on sale of mortgage-backed securities held to
maturity
|
— | — | (48 | ) | ||||||||
Net
accretion of premiums/discounts
|
(307 | ) | (72 | ) | (48 | ) | ||||||
Income
from bank owned life insurance
|
(201 | ) | (210 | ) | (165 | ) | ||||||
Amortization
of deferred loan fees
|
(253 | ) | (347 | ) | (333 | ) | ||||||
Amortization
of ESOP
|
268 | 306 | 287 | |||||||||
Impairment
charge on investment and mortgage-backed securities
|
2,218 | — | — | |||||||||
Impairment
charge on real estate owned
|
163 | — | — | |||||||||
Loss
on redemption of investment securities
|
4,016 | — | — | |||||||||
Deferred
income tax (benefit) expense
|
(373 | ) | (68 | ) | 127 | |||||||
Changes
in assets and liabilities which (used) provided cash:
|
||||||||||||
Accounts
payable and accrued expenses
|
5,668 | (313 | ) | (838 | ) | |||||||
Accrued
interest payable
|
603 | (25 | ) | 967 | ||||||||
Prepaid
expenses and other assets
|
620 | (468 | ) | (3,773 | ) | |||||||
Accrued
interest receivable
|
387 | (309 | ) | (395 | ) | |||||||
Net
cash provided by (used in) operating activities
|
10,084 | 2,532 | (186 | ) | ||||||||
INVESTING
ACTIVITIES:
|
||||||||||||
Purchase
of investment securities held to maturity
|
(82,919 | ) | (25,990 | ) | (6,227 | ) | ||||||
Purchase
of investment securities available for sale
|
(2,000 | ) | — | — | ||||||||
Purchase
of mortgage-backed securities held to maturity
|
— | (1,992 | ) | — | ||||||||
Purchase
of mortgage-backed available for sale
|
(23,324 | ) | (4,770 | ) | (4,610 | ) | ||||||
Principal
collected on loans
|
49,281 | 71,550 | 47,943 | |||||||||
Principal
payments received on mortgage-backed securities:
|
||||||||||||
Held-to-maturity
|
5,299 | 7,195 | 11,934 | |||||||||
Available
for sale
|
2,970 | 814 | 77 | |||||||||
Loans
originated or acquired
|
(76,583 | ) | (71,329 | ) | (91,996 | ) | ||||||
Proceeds
from call/maturity or sale of investment securities:
|
||||||||||||
Held
to maturity
|
94,688 | 23,307 | 4,000 | |||||||||
Available
for sale
|
1,999 | — | — | |||||||||
Proceeds
from sale of mortgage-backed securities
|
— | — | 4,612 | |||||||||
Net
purchase of Federal Home Loan Bank stock
|
(223 | ) | (180 | ) | (406 | ) | ||||||
Proceeds
from sale of real estate owned
|
— | — | 466 | |||||||||
Proceeds
from redemption of investment available for sale
|
4,367 | — | — | |||||||||
Purchases
of equipment
|
(155 | ) | (888 | ) | (217 | ) | ||||||
Net
cash used in investing activities
|
(26,600 | ) | (2,283 | ) | (34,424 | ) | ||||||
FINANCING
ACTIVITIES:
|
||||||||||||
Net
decrease in demand deposits, NOW accounts, and savings
accounts
|
(1,732 | ) | (12,219 | ) | (16,460 | ) | ||||||
Net
increase in certificates of deposit
|
24,524 | 18,964 | 27,285 | |||||||||
Net
(repayment) borrowing with Federal Home Loan Bank
|
(2,042 | ) | 1,959 | 17,960 | ||||||||
Increase
(decrease) in advances from borrowers for taxes and
insurance
|
231 | (113 | ) | 116 | ||||||||
Cash
dividends paid
|
(2,171 | ) | (2,049 | ) | (1,910 | ) | ||||||
Purchase
of treasury stock
|
(5,109 | ) | (7,950 | ) | (5,768 | ) | ||||||
Net
cash provided by (used in) financing activities
|
13,701 | (1,408 | ) | 21,223 | ||||||||
NET
DECREASE IN CASH AND CASH EQUIVALENTS
|
(2,815 | ) | (1,159 | ) | (13,387 | ) | ||||||
CASH
AND CASH EQUIVALENTS—Beginning of year
|
12,269 | 13,428 | 26,815 | |||||||||
CASH
AND CASH EQUIVALENTS—End of year
|
$ | 9,454 | $ | 12,269 | $ | 13,428 | ||||||
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
||||||||||||
Interest
paid on deposits and advances from Federal
|
||||||||||||
Home
Loan Bank
|
$ | 14,052 | $ | 14,806 | $ | 10,968 | ||||||
Income
taxes paid
|
$ | 750 | $ | 1,628 | $ | 1,616 | ||||||
SUPPLEMENTAL
DISCLOSURES OF NONCASH ITEMS:
|
||||||||||||
Real
estate acquired in settlement of loans
|
$ | 1,651 | $ | — | $ | — | ||||||
Mortgage-backed
securities received through redemption in kind
|
$ | 24,755 | $ | — | $ | — |
PRUDENTIAL
BANCORP, INC. OF PENNSYLVANIA AND SUBSIDIARY
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
FOR
THE YEARS ENDED SEPTEMBER 30, 2008, 2007 AND
2006
|
1.
|
NATURE
OF OPERATIONS AND BASIS OF PRESENTATION
|
Prudential
Bancorp, Inc. of Pennsylvania (the “Company”) is a Pennsylvania
corporation, which was organized to be the mid-tier holding company for
Prudential Savings Bank (the “Bank”), which is a Pennsylvania-chartered,
FDIC-insured savings bank with seven full service branches in the
Philadelphia area. The Company was organized in conjunction with the
Bank’s reorganization from a mutual savings bank to the mutual holding
company structure in March 2005. Financial statements prior to the
reorganization were the financial statements of the Bank. The Bank is
principally in the business of attracting deposits from its community
through its branch offices and investing those deposits, together with
funds from borrowings and operations, primarily in single-family
residential loans. The Bank’s sole subsidiary as of September 30, 2008 was
PSB Delaware, Inc. (“PSB”), a Delaware-chartered company established to
hold certain investments of the Bank. As of September 30, 2008, PSB had
assets of $97.1 million primarily consisting of mortgage-backed
securities.
|
|
Prudential
Mutual Holding Company, a Pennsylvania corporation, is the mutual holding
company parent of the Company. As of September 30, 2008, Prudential Mutual
Holding Company owns 63.4% (7,023,062 shares) of the Company’s outstanding
common stock and must always own at least a majority of the voting stock
of the Company. In addition to the shares of the Company, Prudential
Mutual Holding Company was capitalized with $100,000 in cash from the Bank
in connection with the completion of the reorganization. The consolidated
financial statements of the Company include the accounts of the Company
and the Bank. All intercompany balances and transactions have been
eliminated.
|
|
Prior
to the reorganization described above, the Board of Directors approved a
plan of charter conversion in May 2004 pursuant to which the Bank would
convert its charter from a Pennsylvania-chartered mutual savings and loan
association to a Pennsylvania-chartered mutual savings bank. Such
conversion was subject to receipt of both member and regulatory approval.
The members of the Bank approved the plan of conversion at a special
meeting held on July 20, 2004 and the Pennsylvania Department of Banking
approved the Bank’s application to convert its charter on July 21, 2004.
The conversion to a Pennsylvania-chartered mutual savings bank was
completed on August 20, 2004. As a result of the charter conversion, the
Bank’s primary federal banking regulator changed from the Office of Thrift
Supervision to the Federal Deposit Insurance Corporation. The Pennsylvania
Department of Banking remains as the Bank’s state banking
regulator.
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Consolidation –The accompanying
consolidated financial statements include the accounts of the Company and
the Bank. All significant intercompany accounts and transactions have been
eliminated in consolidation.
|
Use of
Estimates in the Preparation of Financial Statements—The preparation of
financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of income and
expenses during the reporting period. The most significant estimates and
assumptions in the Company’s financial statements are recorded in the
allowance for loan losses, the fair value measurement for investment
securities available for sale and deferred income taxes. Actual results
could differ from those estimates.
|
|
Cash and
Cash Equivalents—For purposes of
reporting cash flows, cash and cash equivalents include cash and amounts
due from depository institutions and interest-bearing deposits (maturing
within 90 days).
|
|
Investment
Securities and
Mortgage-Backed Securities—The Bank classifies
and accounts for debt and equity securities as follows:
|
|
Held to
Maturity—Debt securities that management has the positive intent
and ability to hold until maturity are classified as held to maturity and
are carried at their remaining unpaid principal balance, net of
unamortized premiums or unaccreted discounts. Premiums are amortized and
discounts are accreted using the interest method over the estimated
remaining term of the underlying security.
|
|
Available
for Sale—Debt and equity securities that will be held for
indefinite periods of time, including securities that may be sold in
response to changes in market interest or prepayment rates, needs for
liquidity, and changes in the availability of and the yield of alternative
investments, are classified as available for sale. These assets are
carried at fair value. Fair value is determined using public market
prices, dealer quotes, and prices obtained from independent pricing
services that may be derivable from observable and unobservable market
inputs. Unrealized gains and losses are excluded from earnings and are
reported net of tax as a separate component of stockholders’ equity until
realized. Realized gains or losses on the sale of investment and
mortgage-backed securities are reported in earnings as of the trade date
and determined using the adjusted cost of the specific security
sold.
|
|
Management
evaluates securities for other-than-temporary impairment at least on a
quarterly basis, and more frequently when economic or market concerns
warrant such evaluation. For all securities that are in an unrealized loss
position for an extended period of time and for all securities whose fair
value is significantly below amortized cost, the Company performs an
evaluation of the specific events attributable to the market decline of
the security. The Company considers the length of time and extent to which
the security’s market value has been below cost as well as the general
market conditions, industry characteristics, and the fundamental operating
results of the issuer to determine if the decline is other-than-temporary.
The Company also considers as part of the evaluation its intent and
ability to hold the security until its market value has recovered to a
level at least equal to the amortized cost. When the Company determines
that a security’s unrealized loss is other-than-temporary, a realized loss
is recognized in the period in which the decline in value is determined to
be other-than-temporary. The write-downs are measured based on public
market prices of the security at the time the Company determines the
decline in value was other-than-temporary.
|
|
Loans
Receivable—Mortgage loans consist
of loans secured primarily by first liens on 1-4 family residential
properties and are stated at their unpaid principal balances net of
unamortized net fees/costs. Other loans consist of residential
construction loans, consumer loans, commercial real estate loans,
commercial business loans, and loans secured by savings accounts which are
likewise stated at their unpaid principal balances net of unamortized net
fees/costs. Generally, the intent of management is to hold loans
originated and purchased to maturity. The Bank defers all loan fees, net
of certain direct loan origination costs. The balance is accreted into
interest income as a yield adjustment over the life of the loan using the
interest method.
|
Allowance
for Loan Losses—The
allowance for loan losses is determined by management based upon past
experience, evaluation of estimated loss and impairment in the loan
portfolio, current economic conditions and other pertinent factors. The
allowance for loan losses is maintained at a level that management
considers adequate to provide for estimated losses and impairment based
upon an evaluation of known and inherent risk in the loan portfolio. Loan
impairment is evaluated based on the fair value of collateral or estimated
net realizable value. While management uses the best information available
to make such evaluations, future adjustments to the allowance may be
necessary if economic conditions differ substantially from the assumptions
used in making the evaluations.
|
|
The
allowance for loan losses is established through a provision for loan
losses charged to expense which is based upon past loan and loss
experience and an evaluation of estimated losses in the current loan
portfolio, including the evaluation of impaired loans. In determining the
allowance for loan losses, management has established both specific and
general pooled allowances. Specific allowance is generally established for
loans deemed impaired in accordance with SFAS 114. The general component
covers classified and nonclassified loans and is based on
historical loss experience adjusted for qualitative
factors.
|
|
Under
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan- an
amendment of FASB Statements No. 5 and 15", a loan is considered to be
impaired when, based upon current information and events, it is probable
that the Company will be unable to collect all amounts due according to
the contractual terms of the loan. An insignificant delay or insignificant
shortfall in amount of payments does not necessarily result in the loan
being identified as impaired. The Bank measures impaired loans based on
the present value of expected future cash flows discounted at the loan's
effective interest rate, or the loan's observable market price, or the
fair value of the collateral if the loan is collateral-dependent.
Impairment losses are included in the provision for loan
losses.
|
|
Mortgage
Servicing Rights—The Bank originates
mortgage loans held for investment and held for sale. At origination, the
mortgage loan is identified as either held for sale or for investment.
Mortgage loans held for sale are carried at the lower of cost or the value
of forward committed contracts (which approximates market), determined on
a net aggregate basis. The Bank had no loans classified as held for sale
at September 30, 2008 and 2007.
|
|
The
Bank assesses the retained interest in the servicing asset or liability
associated with the sold loans based on the relative fair values. The
servicing asset or liability is amortized in proportion to and over the
period during which estimated net servicing income or net servicing loss,
as appropriate, will be received. Assessment of the fair value of the
retained interest is performed on a continual basis. At September 30, 2008
and 2007, mortgage servicing rights of $18,000 and $23,000, respectively,
were included in prepaid expenses and other assets. No valuation allowance
was deemed necessary at the periods presented.
|
|
Amortization
of the servicing asset totaled $6,000, $5,000 and $7,000 for the years
ended September 2008, 2007 and 2006, respectively.
|
|
Unamortized
Premiums and Discounts—Unamortized premiums
and discounts on loans receivable, mortgage-backed securities and
investment securities are amortized over the estimated average lives of
the loans or securities purchased using a method which approximates the
interest method.
|
Real Estate
Owned—Real
estate acquired through, or in lieu of, loan foreclosure is initially
recorded at the lower of book value or the estimated fair value at the
date of acquisition, less estimated selling costs, establishing a new cost
basis. Costs related to the development and improvement of real estate
owned properties are capitalized and those relating to holding the
properties are charged to expense. After foreclosure, valuations are
periodically performed by management and write-downs are recorded, if
necessary, by a charge to operations if the carrying value of a property
exceeds its estimated fair value minus estimated costs to
sell.
|
|
FHLB
Stock –
FHLB stock is classified as a restricted equity security because
ownership is restricted and there is not an established market for its
resale. FHLB stock is carried at cost and is evaluated for impairment when
certain conditions warrant further consideration.
|
|
Office
Properties and Equipment—Land is carried at
cost. Office properties and equipment are recorded at cost less
accumulated depreciation. Depreciation is computed using the straight-line
method over the expected useful lives of the assets. The costs of
maintenance and repairs are expensed as they are incurred, and renewals
and betterments are capitalized and depreciated over their useful
lives.
|
|
Cash
Surrender Value of Life Insurance—The Bank funds the
premiums for insurance policies on the lives of certain directors of the
Bank. The cash surrender value of the insurance policies, up to the total
amount of premiums paid, is recorded as an asset in the statements of
financial condition and included in other assets. In fiscal 2006, the
Company purchased $5.0 million of bank owned life insurance (“BOLI”). The
BOLI provides an attractive tax-exempt return to the Company and is being
used by the Company to fund various employee benefit plans. The BOLI is
included in other assets at its cash surrender value.
|
|
Dividend
Payable – On September 25, 2008, the Company’s Board of Directors
declared a quarterly cash dividend of $.05 per share on the common stock
of the Company payable on October 24, 2008 to the shareholders of record
at the close of business on October 10, 2008. The Company had 11,069,866
shares outstanding at the time of the dividend declaration resulting in a
payable of $531,000 at September 30, 2008. A portion of the cash dividend
was payable to Prudential Mutual Holding Company on the shares of the
Company’s common stock it owns and totaled $353,000.
|
|
Employee
Stock Ownership Plan – In fiscal year 2005,
the Bank established an employee stock ownership plan (“ESOP”) for
substantially all of its full-time employees. The ESOP purchased 452,295
shares of the Company’s common stock on the open market for approximately
$4.5 million. The Bank accounts for its ESOP in accordance with Statement
of Position (“SOP”) 93-6, Employers’ Accounting for
Employee Stock Ownership Plans. Shares of the Company’s common
stock purchased by the ESOP are held in a suspense account until released
for allocation to participants. Shares released will be allocated to each
eligible participant based on the ratio of each such participant’s
compensation, as defined in the ESOP, to the total compensation of all
eligible plan participants. As the unearned shares are released from
suspense, the Company recognizes compensation expense equal to the fair
value of the ESOP shares during the periods in which they become committed
to be released. To the extent that the fair value of the ESOP shares
released differs from the cost of such shares, the difference is recorded
to equity as additional paid-in capital. As of September 30, 2008 the
Company had allocated a total of 62,205 shares from the suspense account
to participants and committed to release an additional 16,965 shares. The
Company recognized compensation expense related to the ESOP of $257,000,
$306,000 and $287,000 the years ended September 30, 2008, 2007 and 2006
respectively,
|
Treasury
Stock –
Stock held in treasury by the Company is accounted for using the cost
method, which treats stock held in treasury as a reduction to total
stockholders’ equity. On January 22, 2008, the Company announced its sixth
stock repurchase program to repurchase up to 220,000 shares or
approximately 5% of the Company’s outstanding common stock held by
shareholders other than Prudential Mutual Holding Company (the “MHC”). The
program commenced upon completion of the fifth stock repurchase program.
The program was completed during May 2008. In addition, the MHC announced
that its Board of Directors also approved the purchase of 220,000 shares
or approximately 5% of the Company’s common stock held by shareholders
other than the MHC. As of September 30, 2008, The MHC had purchased
113,000 shares at an average cost of $11.05 per share. The average cost
per share of the shares which have been repurchased by the Company was
$12.51, $13.57 and $13.32 per share during fiscal 2008, 2007 and 2006,
respectively. The repurchased shares are available for general corporate
purposes.
|
|
Comprehensive
Income—The Company presents in the statement of comprehensive
income those amounts from transactions and other events which currently
are excluded from the statement of income and are recorded directly to
stockholders’ equity. For the years ended September 30, 2008, 2007 and
2006, the only components of comprehensive income were net income and
unrealized holding gains and losses, net of income tax expense and
benefit, on available for sale securities. A comprehensive loss of $5.1
was recognized for the year ended September 30, 2008. Comprehensive income
totaled $3.1 million and $4.0 million for the years ended September 30,
2007 and 2006, respectively.
|
|
Loan
Origination and Commitment Fees—The Bank defers loan
origination and commitment fees, net of certain direct loan origination
costs. The balance is accreted into income as a yield adjustment over the
life of the loan using the level-yield method.
|
|
Interest on
Loans—The
Bank recognizes interest on loans on the accrual basis. Income recognition
is generally discontinued when a loan becomes 90 days or more delinquent.
Any interest previously accrued is deducted from interest income. Such
interest ultimately collected is credited to income when collection of
principal and interest is no longer in doubt.
|
|
Income
Taxes— The
Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes
and FIN No. 48, Accounting for Uncertainty in
Income Taxes – an interpretation of FASB Statement No. 109. SFAS
No. 109 requires the recording of deferred income taxes that reflect the
net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. Management exercises significant judgment in
the evaluation of the amount and timing of the recognition of the
resulting tax assets and liabilities. The judgments and estimates required
for the evaluation are updated based upon changes in business factors and
the tax laws. If actual results differ from the assumptions and other
considerations used in estimating the amount and timing of tax recognized,
there can be no assurance that additional expenses will not be required in
future periods. On October 1, 2007, the Company incorporated FIN No. 48
with its existing accounting policy. FIN No. 48 prescribes a minimum
probability threshold that a tax position must meet before a financial
statement benefit is recognized. The Company recognizes, when applicable,
interest and penalties related to unrecognized tax benefits in the
provision for income taxes in the consolidated income statement.
Assessment of uncertain tax positions under FIN No. 48 requires careful
consideration of the technical merits of a position based on management’s
analysis of tax regulations and interpretations. Significant judgment may
be involved in applying the requirements of FIN No.
48.
|
Accounting
for Derivative Instruments and Hedging Activities—The Company adopted
the provisions of Statement of Financial Accounting Standards (“SFAS”) No.
133, Accounting for
Derivative Instruments and Hedging Activities, as amended by SFAS
Nos. 137 and 138, and as interpreted by the FASB and the Derivatives
Implementation Group through “Statement 133 Implementation Issues,” as of
October 1, 2000. Currently, the Company has no instruments with embedded
derivatives. The Company currently does not employ hedging activities that
require designation as either fair value or cash flow hedges, or hedges of
a net investment in a foreign operation.
|
|
Transfers
and Servicing of Financial Assets and Extinguishments of
Liabilities—The Company accounts
for transfers and servicing of financial assets in accordance with SFAS
No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities (a replacement of SFAS No. 125). This statement revises
the standards for accounting for securitizations and other transfers of
financial assets and collateral and requires certain disclosures, but it
carries over most of the provisions of SFAS No. 125 without
reconsideration. The statement requires an entity to recognize the
financial and servicing assets it controls and the liabilities it has
incurred, derecognize financial assets when control has been surrendered,
and derecognize liabilities when extinguished. It requires that servicing
assets and other retained interests in the transferred assets be measured
by allocating the previous carrying amount between the asset sold, if any,
and retained interests, if any, based on their relative fair values at the
date of transfer.
|
|
Recent
Accounting Pronouncements
|
|
On
July 13, 2006, the Financial Accounting Standards Board (“FASB”) issued
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN
48”), which is effective for fiscal years beginning after December 15,
2006. FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in the financial statements in accordance with FASB Statement
No. 109, “Accounting for Income Taxes.” This Interpretation prescribes a
comprehensive model for how a company should recognize, measure, present
and disclose in its financial statements uncertain tax positions that the
company has taken or expects to take on a tax return. The Company adopted
FIN 48 on October 1, 2007, and the adoption did not have a significant
impact of on the Company’s financial statements.
|
|
In
September 2006, the Emerging Issues Task Force (“EITF”) of FASB issued
EITF Issue No. 06-4, “Accounting for Deferred Compensation and
Postretirement Benefit Aspects of Endorsement Split Dollar Life Insurance
Arrangements” (EITF 06-04). EITF 06-4 requires the recognition of a
liability related to the postretirement benefits covered by an endorsement
split-dollar life insurance arrangement. EITF 06-4 is effective for fiscal
years beginning after December 15, 2007, with earlier application
permitted. The Company adopted the provisions of the EITF on October 1,
2008 and is currently assessing the impact of the adoption of EITF 06-04
on its financial statements, but does not expect it to be
material.
|
|
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements.
SFAS No. 157 defines fair value, establishes a framework for measuring
fair value, and expands disclosures about fair value measurements. SFAS
No. 157 does not require any new fair value measurements. The definition
of fair value retains the exchange price notion in earlier definitions of
fair value. SFAS No. 157 clarifies that the exchange price is the price in
an orderly transaction between market participants to sell the asset or
transfer the liability in the market in which the reporting entity would
transact for the asset or liability. The definition focuses on the price
that would be received to sell the asset or paid to transfer the liability
(an exit price), not the price that would be paid to acquire the asset or
received to assume the liability (an entry price). SFAS No. 157 emphasizes
that fair value is a market-based measurement, not an entity-specific
measurement. FSP No. 157-2, Effective Date of FASB Statement No. 157,
issued in February 2008, delays the effective date of SFAS No. 157 for
nonfinancial assets and nonfinancial liabilities, except for items that
are recognized or disclosed at fair value in an entity’s financial
statements on a recurring basis (at least annually), to fiscal years
beginning after November 15, 2008. The Company is currently assessing the
impact of SFAS No. 157 on its financial
statements.
|
SFAS
No. 157 establishes a fair value hierarchy which requires an entity to
maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. The standard describes three levels of
inputs that may be used to measure fair value:
|
||
Level
1
|
Quoted
prices in active markets for identical assets or
liabilities.
|
|
Level
2
|
Observable
inputs other than Level 1 prices, such as quoted prices for similar assets
or liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or
liabilities.
|
|
Level
3
|
Unobservable
inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities. Level 3 assets
and liabilities include financial instruments whose value is determined
using pricing models, discounted cash flow methodologies, or similar
techniques, as well as instruments for which the determination of fair
value requires significant management judgment or
estimation.
|
|
In
October 2008, the FASB issued FSP FAS 157-3, “Determining the Fair Value
of a Financial Asset When the Market for That Asset Is Not Active” (“FSP
FAS 157-3”). The purpose of FSP FAS 157-3 was to clarify the application
of Statement of Financial Accounting Standards No. 157, “Fair Value
Measurements” (“SFAS 157”), for a market that is not active. It also
allows for the use of management’s internal assumptions about future cash
flows with appropriately risk-adjusted discount rates when relevant
observable market data does not exist. FSP FAS 157-3 did not change the
objective of SFAS 157 which is the determination of the price that would
be received in an orderly transaction that is not a forced liquidation or
distressed sale at the measurement date. FSP FAS 157-3 was effective upon
issuance, including prior periods for which financial statements had not
been issued. The Company is currently assessing the impact of FAS No.
157-3 on its financial statements.
|
||
In
September 2006, the Securities and Exchange Commission (“SEC”) issued SAB
No. 108 expressing the SEC staff’s views regarding the process of
quantifying financial statement misstatements and the build up of improper
amounts on the balance sheet. SAB No. 108 requires that registrants
quantify errors using both a balance sheet and income statement approach
and evaluate whether either approach results in a misstated amount that,
when all relevant quantitative and qualitative factors are considered, is
material. The built up misstatements, while not considered material in the
individual years in which the misstatements were built up, may be
considered material in a subsequent year if a company were to correct
those misstatements through current period earnings. Initial application
of SAB No. 108 allows registrants to elect not to restate prior periods
but to reflect the initial application in their annual financial
statements covering the first fiscal year ending after November 15, 2006.
The cumulative effect of the initial application should be reported in the
carrying amounts of assets and liabilities as of the beginning of that
fiscal year and the offsetting adjustment, net of tax, should be made to
the opening balance of retained earnings for that
year.
|
The
Company implemented SAB No. 108 on October 1, 2006 which resulted in an
increase in mortgage-backed securities held to maturity of approximately
$321,000, an increase in income tax liabilities of approximately $149,000
and a cumulative adjustment to increase retained earnings as of that date
by approximately $172,000. The adjustment relates to two separate
accounting entries. The first entry pertains to the method of accounting
that was utilized in past years for the recognition of investment income
on mortgage-backed securities. Prior to fiscal 2006, the Company used the
straight line method over the contractual life of the securities rather
than using the effective yield method prescribed by SFAS No. 91,
“Accounting for Nonrefundable Fees and Costs Associated with Originating
or Acquiring Loans and Initial Direct Costs of Leases”. The impact of this
entry was the correction of an understatement of mortgage-backed
securities by approximately $321,000 and a corresponding understatement of
income tax payable of $109,000. The second entry relates to a write off of
a deferred tax asset of approximately $40,000 that was incorrectly
accounted for in prior periods.
|
|
In
prior periods, management performed a quantitative and qualitative
analysis of the differences between these two methods of accounting and
concluded that there was not a material impact on any past individual
quarter or annual reporting periods.
|
|
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities”. The Statement provides
companies with an option to report selected financial assets and
liabilities at fair value. This Statement is effective as of the beginning
of an entity’s first fiscal year that begins after November 15, 2007.
Early adoption is permitted under certain circumstances. The Company
adopted SFAS No. 159 as of October 1, 2008 and it did not have an impact
on the Company’s financial condition or results of operation as the
Company did not elect to fair value any of its financial assets and
financial liabilities that are not currently required to be measured at
fair value.
|
|
In
March 2007, the FASB ratified EITF Issue No. 06-10 “Accounting for
Collateral Assignment Split-Dollar Life Insurance Agreements: (EITF
06-10). EITF 06-10 provides guidance for determining a liability for the
postretirement benefit obligation as well as recognition and measurement
of the associated asset on the basis of the terms of the collateral
assignment agreement. EITF 06-10 is effective for fiscal years beginning
after December 15, 2007. The Company adopted the provisions of the EITF on
October 1, 2008 and is currently assessing the impact of the adoption of
EITF 06-10 on its financial statements, but does not expect it to be
material.
|
|
In
May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally
Accepted Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies
the sources of accounting principles and the framework for selecting the
principles to be used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with GAAP. SFAS
No. 162 is effective sixty days following the SEC approval of the Public
Company Accounting Oversight Board (“PCAOB”) amendments to AU Section 411,
The Meaning of Present Fairly in Conformity with Generally Accepted
Accounting Principles. The Company does not expect SFAS No. 162 will have
an impact on its financial condition or results of operations as it is not
expected to change its current
practices.
|
In
September 2008, the FASB issued a FASB Staff Position (“FSP”) No. FAS
133-1 and FIN 45-4 “Disclosures about Credit Derivatives and Certain
Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation
No. 45”; and “Clarification of the Effective Date of FASB Statement No.
161”. The FSP is intended to improve disclosures about credit derivatives
by requiring more information about the potential adverse effects of
changes in credit risk on the financial position, financial performance,
and cash flows of the sellers of credit derivatives. It amends FASB
Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, to require disclosures by sellers of credit derivatives,
including credit derivatives embedded in hybrid instruments. This FSP
encourages that the amendments to SFAS No. 133 and Interpretation 45 be
applied in periods earlier than the effective date to facilitate
comparisons at initial adoption. In periods after initial adoption, this
FSP requires comparative disclosures only for periods ending subsequent to
initial adoption. The FSP is effective for reporting periods (annual or
interim) ending after November 15, 2008. The Company is currently
evaluating the requirements of FSP Nos. FAS 133-1 and FIN 45-4 and has not
yet determined the impact, if any, on the Company’s financial condition or
results of operations.
|
|
3.
|
EARNINGS
PER SHARE
|
Basic
earnings per common share is computed based on the weighted average number
of shares outstanding. Diluted earnings per share is computed based on the
weighted average number of shares outstanding and common share equivalents
(“CSEs”) that would arise from the exercise of dilutive securities. As of
September 30, 2008, the Company had not issued and did not have
outstanding any CSEs.
|
|
The
calculated basic and diluted earnings per share are as
follows:
|
Year
Ended September 30,
|
|||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
(Dollars in Thousands Except Per Share Data) | |||||||||||||
Net
(loss) income
|
$ | (4,145 | ) | $ | 3,397 | $ | 3,837 | ||||||
Weighted
average shares outstanding used in basic earnings per share
computation
|
10,832,957 | 11,404,314 | 11,919,101 | ||||||||||
Effect
of CSEs
|
— | — | — | ||||||||||
Adjusted
weighted average shares used in diluted earnings per share
computation
|
10,832,957 | 11,404,314 | 11,919,101 | ||||||||||
(Loss)
earnings per share - basic and diluted
|
$ | (0.38 | ) | $ | 0.30 | $ | 0.32 |
4.
|
INVESTMENT
SECURITIES
|
The
amortized cost and fair value of securities, with gross unrealized gains
and losses, are as follows:
|
September
30, 2008
|
|||||||||||||||||
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Estimated
Fair
Value
|
||||||||||||||
(Dollars
in Thousands)
|
|||||||||||||||||
Securities
Held to Maturity:
|
|||||||||||||||||
Debt
securities - U.S. Treasury securities and securities of U.S. Government
agencies
|
$ | 120,572 | $ | 112 | $ | (2,377 | ) | $ | 118,307 | ||||||||
Debt
securities - Municipal bonds
|
2,450 | — | (16 | ) | 2,434 | ||||||||||||
Total
securities held to maturity
|
$ | 123,022 | $ | 112 | $ | (2,393 | ) | $ | 120,741 | ||||||||
Securities
Available for Sale:
|
|||||||||||||||||
Debt
securities - U.S. Treasury securities and securities of U.S. Government
agencies
|
$ | 3,000 | $ | — | $ | (124 | ) | $ | 2,876 | ||||||||
FNMA
stock
|
— | 1 | — | 1 | |||||||||||||
FHLMC
preferred stock
|
26 | 19 | — | 45 | |||||||||||||
Total
securities available for sale
|
$ | 3,026 | $ | 20 | $ | (124 | ) | $ | 2,922 |
September
30, 2007
|
|||||||||||||||||
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Estimated
Fair
Value
|
||||||||||||||
(Dollars
in Thousands)
|
|||||||||||||||||
Securities
Held to Maturity:
|
|||||||||||||||||
Debt
securities - U.S. Treasury securities and securities of U.S. Government
agencies
|
$ | 132,332 | $ | 109 | $ | (1,159 | ) | $ | 131,282 | ||||||||
Debt
securities - Municipal bonds
|
2,450 | 1 | (40 | ) | 2,411 | ||||||||||||
Total
securities held to maturity
|
$ | 134,782 | $ | 110 | $ | (1,199 | ) | $ | 133,693 | ||||||||
Securities
Available for Sale:
|
|||||||||||||||||
Debt
securities - U.S. Treasury securities and securities of U.S. Government
agencies
|
$ | 2,999 | $ | — | $ | (30 | ) | $ | 2,969 | ||||||||
FNMA
stock
|
— | 7 | — | 7 | |||||||||||||
Mutual
fund
|
34,982 | — | (1,175 | ) | 33,807 | ||||||||||||
FHLMC
preferred stock
|
26 | 1,534 | — | 1,560 | |||||||||||||
Total
securities available for sale
|
$ | 38,007 | $ | 1,541 | $ | (1,205 | ) | $ | 38,343 |
During
the second quarter of 2008, the Company analyzed the continued decline in
the fair value of the Company’s investment in its $35.0 million mutual
funds portfolio and identified the impairment of these securities as other
than temporary, recording a pretax loss of $1.5 million as an other than
temporary charge against operating results. Due to the continued decline
in the NAV of the $35.0 investment in a mutual fund and the fund manager’s
decision to activate the redemption in kind provision, the Bank redeemed
its shares in the fund during June 2008. As a result, the Bank received
approximately $4.3 million in cash and $24.7 million of securities based
on its representative interest in the securities held by the mutual fund.
The securities received in the redemption are classified as
mortgage-backed securities available for sale. The decline in the NAV and
a subsequent impairment charge related to the securities held by the fund
resulted in a pre-tax charge of $6.2 million for the year ended September
30, 2008.
|
|
The
following table shows the gross unrealized losses and related estimated
fair values of the Company’s investment securities, aggregated by
investment category and length of time that individual securities have
been in a continuous loss position at September 30,
2008:
|
Less
than 12 months
|
More
than 12 months
|
||||||||||||||||
Gross
Unrealized
Losses
|
Estimated
Fair
Value
|
Gross
Unrealized
Losses
|
Estimated
Fair
Value
|
||||||||||||||
(Dollars
in Thousands)
|
|||||||||||||||||
Securities
Held to Maturity:
|
|||||||||||||||||
U.S.
Treasury and Government agencies
|
$ | 2,377 | $ | 99,203 | $ | — | $ | — | |||||||||
Municipal
bonds
|
9 | 1,280 | 7 | 343 | |||||||||||||
Total
securities held to maturity
|
2,386 | 100,483 | 7 | 343 | |||||||||||||
Securities
Available for Sale:
|
|||||||||||||||||
U.S.
Treasury and Government agencies
|
124 | 2,876 | — | — | |||||||||||||
Total
securities available for sale
|
124 | 2,876 | — | — | |||||||||||||
Total
|
$ | 2,510 | $ | 103,359 | $ | 7 | $ | 343 |
The
following table shows the gross unrealized losses and related estimated
fair values of the Company’s investment securities, aggregated by
investment category and length of time that individual securities have
been in a continuous loss position at September 30,
2007:
|
Less
than 12 months
|
More
than 12 months
|
||||||||||||||||
Gross
Unrealized
Losses
|
Estimated
Fair
Value
|
Gross
Unrealized
Losses
|
Estimated
Fair
Value
|
||||||||||||||
(Dollars
in Thousands)
|
|||||||||||||||||
Securities
Held to Maturity:
|
|||||||||||||||||
U.S.
Treasury and Government agencies
|
$ | 92 | $ | 14,899 | $ | 1,067 | $ | 82,715 | |||||||||
Municipal
bonds
|
— | — | 40 | 1,599 | |||||||||||||
Total
securities held to maturity
|
92 | 14,899 | 1,107 | 84,314 | |||||||||||||
Securities
Available for Sale:
|
|||||||||||||||||
U.S.
Treasury and Government agencies
|
— | — | 30 | 2,969 | |||||||||||||
Mutual
fund
|
— | — | 1,175 | 33,807 | |||||||||||||
Total
securities available for sale
|
— | — | 1,205 | 36,776 | |||||||||||||
Total
|
$ | 92 | $ | 14,899 | $ | 2,312 | $ | 121,090 |
Management
evaluates securities for other-than-temporary impairment at least on a
quarterly basis, and more frequently when economic or market concerns
warrant such evaluation. The Company determines whether the unrealized
losses are temporary in accordance with EITF 99-20, Recognition of Interest Income
and Impairment on Purchased and Retained Beneficial Interests in
Securitized Financial Asset, when applicable and FSP SFAS No. 115-1
and SFAS No. 124-1, The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments. For all securities that are in an unrealized loss
position for an extended period of time and for all securities whose fair
value is significantly below amortized cost, the Company performs an
evaluation of the specific events attributable to the market decline of
the security. The evaluation is based upon factors such as the
creditworthiness of the issuers/guarantors, the underlying collateral, if
applicable, and the continuing performance of the securities. The Company
considers the length of time and extent to which the security’s market
value has been below cost as well as the general market conditions,
industry characteristics, and the fundamental operating results of the
issuer to determine if the decline is other-than-temporary. The Company
also considers as part of the evaluation its intent and ability to hold
the security until its market value has recovered to a level at least
equal to the amortized cost. When the Company determines that a security’s
unrealized loss is other-than-temporary, a realized loss is recognized in
the period in which the decline in value is determined to be
other-than-temporary. The write-downs of the securities are measured based
on public market prices, dealer quotes, and prices obtained from
independent pricing services that may be derivable from observable and
unobservable market inputs at the time the Company determines the decline
in value was
other-than-temporary.
|
At
September 30, 2008, securities in a gross unrealized loss position for
twelve months or longer consisted of one security having an aggregate
depreciation of 2.1% from the Company’s amortized cost basis. Securities
in a gross unrealized loss position for less than twelve months consist of
84 securities having an aggregate depreciation of 2.4% from the Company’s
amortized cost basis. The Company believes the unrealized losses are due
to increases in market interest rates since the time the underlying
securities were purchased. The fixed income markets, in particular those
segments that include a credit spread, have been negatively impacted
during 2008 as credit spreads widened dramatically. The Company believes
recovery of fair value is expected as credit spreads return to more normal
levels, as the securities approach their maturity date or as valuations
for such securities improve as market yields change. Although the fair
value will fluctuate as the market interest rates move, the majority of
the Company’s investment portfolio consists of low-risk securities from
U.S. government agencies or government sponsored enterprises As of
September 30, 2008, management concluded that an other-than-temporary
impairment did not exist based upon its analysis performed and in addition
to the Company’s ability and intent to hold these investments for a period
of time sufficient to allow for the anticipated recovery of fair value,
which may be maturity.
|
|
The
amortized cost and estimated fair value of debt securities, by contractual
maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment
penalties.
|
September
30, 2008
|
|||||||||||||||||
Held
to Maturity
|
Available
for Sale
|
||||||||||||||||
Amortized
Cost
|
Estimated
Fair
Value
|
Amortized
Cost
|
Estimated
Fair Value |
||||||||||||||
(Dollars
in Thousands)
|
|||||||||||||||||
Due
within one year
|
$ | — | $ | — | $ | — | $ | — | |||||||||
Due
after one through five years
|
4,790 | 4,820 | — | — | |||||||||||||
Due
after five through ten years
|
51,084 | 50,311 | 1,000 | 991 | |||||||||||||
Due
after ten years
|
67,148 | 65,610 | 2,000 | 1,885 | |||||||||||||
Total
|
$ | 123,022 | $ | 120,741 | $ | 3,000 | $ | 2,876 |
September
30, 2007
|
||||||||||||||
Held
to Maturity
|
Available
for Sale
|
|||||||||||||
|
Amortized
Cost
|
Estimated
Fair
Value
|
Amortized
Cost
|
Estimated
Fair
Value
|
||||||||||
(Dollars
in Thousands)
|
||||||||||||||
Due
within one year
|
$ | 6,000 | $ | 5,981 | $ | — | $ | — | ||||||
Due
after one through five years
|
25,002 | 24,950 | — | — | ||||||||||
Due
after five through ten years
|
39,592 | 39,427 | 1,000 | 999 | ||||||||||
Due
after ten years
|
64,188 | 63,335 | 1,999 | 1,970 | ||||||||||
Total
|
$ | 134,782 | $ | 133,693 | $ | 2,999 | $ | 2,969 |
5.
|
MORTGAGE-BACKED
SECURITIES
|
September
30, 2008
|
|||||||||||||||||
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Estimated
Fair
Value
|
||||||||||||||
(Dollars
in Thousands)
|
|||||||||||||||||
Securities
held to maturity
|
|||||||||||||||||
GNMA
pass-through certificates
|
$ | 37,438 | $ | 79 | $ | (536 | ) | $ | 36,981 | ||||||||
FNMA
pass-through certificates
|
1,344 | — | (29 | ) | 1,315 | ||||||||||||
FHLMC
pass-through certificates
|
1,499 | 16 | — | 1,515 | |||||||||||||
Total
securities held to maturity
|
$ | 40,281 | $ | 95 | $ | (565 | ) | $ | 39,811 | ||||||||
Securities
available for sale
|
|||||||||||||||||
GNMA
|
$ | 18,211 | $ | 198 | $ | (87 | ) | $ | 18,322 | ||||||||
FNMA
|
18,054 | 274 | (73 | ) | 18,255 | ||||||||||||
FHLMC
|
1,813 | 29 | — | 1,842 | |||||||||||||
Non
agency
|
15,048 | 32 | (1,315 | ) | 13,765 | ||||||||||||
Total
securities available for sale
|
$ | 53,126 | $ | 533 | $ | (1,475 | ) | $ | 52,184 |
September
30, 2007
|
|||||||||||||||||
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Estimated
Fair
Value
|
||||||||||||||
(Dollars
in Thousands)
|
|||||||||||||||||
Securities
held to maturity
|
|||||||||||||||||
GNMA
pass-through certificates
|
$ | 42,471 | $ | 22 | $ | (1,261 | ) | $ | 41,232 | ||||||||
FNMA
pass-through certificates
|
1,370 | — | (60 | ) | 1,310 | ||||||||||||
FHLMC
pass-through certificates
|
1,693 | — | (22 | ) | 1,671 | ||||||||||||
Total
securities held to maturity
|
$ | 45,534 | $ | 22 | $ | (1,343 | ) | $ | 44,213 | ||||||||
Securities
available for sale
|
|||||||||||||||||
FNMA
pass-through certificates
|
$ | 8,492 | $ | 66 | $ | (9 | ) | $ | 8,549 | ||||||||
Total
securities available for sale
|
$ | 8,492 | $ | 66 | $ | (9 | ) | $ | 8,549 |
There
were no mortgage-backed securities sold during fiscal 2008 or 2007. During
fiscal 2006, $4.6 million of mortgage-backed securities were sold at a
pre-tax gain of $48,000. Although these securities were classified under
FASB Statement No. 115 as “Held to Maturity”, at the time of purchase, the
sale was permissible because the remaining balances of the investments
were 15% or less than their original purchased par value. Simultaneously,
we purchased $4.6 million in mortgage-backed securities classified as
available-for-sale.
|
Due
to the continued decline in the market value of the securities and
deterioration in the underlying credit of certain non-agency mortgage back
securities, the Company recorded an impairment charge related to the value
of certain non-agency mortgage back securities that were deemed to be
other-than-temporarily-impaired. The Company has recognized an
other-than-temporary impairment for these securities of $726, 000 on a
pre-tax basis in 2008
|
|
The
following table shows the gross unrealized losses and related estimated
fair values of the Company’s mortgage-backed securities and length of time
that individual securities have been in a continuous loss position at
September 30, 2008:
|
Less
than 12 months
|
More
than 12 months
|
|||||||||||||
Gross
Unrealized
Losses
|
Estimated
Fair
Value
|
Gross
Unrealized
Losses
|
Estimated
Fair
Value
|
|||||||||||
(Dollars
in Thousands)
|
||||||||||||||
Securities
held to maturity:
|
||||||||||||||
GNMA
pass-through certificates
|
$
|
279
|
$
|
22,488
|
$
|
257
|
$
|
5,778
|
||||||
FNMA
pass-through certificates
|
29
|
1,315
|
—
|
—
|
||||||||||
FHLMC
pass-through certificates
|
—
|
—
|
—
|
—
|
||||||||||
Total
securities held to maturity
|
$
|
308
|
$
|
23,803
|
$
|
257
|
$
|
5,778
|
||||||
Securities
available for sale:
|
||||||||||||||
GNMA
|
$
|
87
|
$
|
7,640
|
$
|
—
|
$
|
—
|
||||||
FNMA
|
73
|
7,061
|
—
|
—
|
||||||||||
FHLMC
|
—
|
—
|
—
|
—
|
||||||||||
Non
Agency
|
1,315
|
8,276
|
—
|
—
|
||||||||||
Total
securities available for sale
|
$
|
1,475
|
$
|
22,977
|
$
|
—
|
$
|
—
|
The
following table shows the gross unrealized losses and related estimated
fair values of the Company’s mortgage-backed securities and length of time
that individual securities have been in a continuous loss position at
September 30, 2007:
|
Less
than 12 months
|
More
than 12 months
|
||||||||||||||||
Gross
Unrealized
Losses
|
Estimated
Fair
Value
|
Gross
Unrealized
Losses
|
Estimated
Fair
Value
|
||||||||||||||
(Dollars
in Thousands)
|
|||||||||||||||||
Securities
held to maturity:
|
|||||||||||||||||
GNMA
pass-through certificates
|
$ | 129 | $ | 7,968 | $ | 1,132 | $ | 31,050 | |||||||||
FNMA
pass-through certificates
|
— | — | 60 | 1,310 | |||||||||||||
FHLMC
pass-through certificates
|
— | — | 22 | 1,671 | |||||||||||||
Total
securities held to maturity
|
$ | 129 | $ | 7,968 | $ | 1,214 | $ | 34,031 | |||||||||
Securities
available for sale:
|
|||||||||||||||||
FNMA
pass-through certificates
|
9 | 844 | — | — | |||||||||||||
Total
securities available for sale
|
$ | 9 | $ | 844 | $ | — | $ | — | |||||||||
Total
|
Management
evaluates securities for other-than-temporary impairment at least on a
quarterly basis, and more frequently when economic or market concerns
warrant such evaluation. The Company determines whether the unrealized
losses are temporary in accordance with EITF 99-20, Recognition of Interest Income
and Impairment on Purchased and Retained Beneficial Interests in
Securitized Financial Asset, when applicable and FSP SFAS No. 115-1
and SFAS No. 124-1, The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments. For all securities that are in an unrealized loss
position for an extended period of time and for all securities whose fair
value is significantly below amortized cost, the Company performs an
evaluation of the specific events attributable to the market decline of
the security. The evaluation is based upon factors such as the
creditworthiness of the issuers/guarantors, the underlying collateral, if
applicable, and the continuing performance of the securities. The Company
considers the length of time and extent to which the security’s market
value has been below cost as well as the general market conditions,
industry characteristics, and the fundamental operating results of the
issuer to determine if the decline is other-than-temporary. The Company
also considers as part of the evaluation its intent and ability to hold
the security until its market value has recovered to a level at least
equal to the amortized cost. When the Company determines that a security’s
unrealized loss is other-than-temporary, a realized loss is recognized in
the period in which the decline in value is determined to be
other-than-temporary. The write-downs of the securities are measured based
on public market prices, dealer quotes, and prices obtained from
independent pricing services that may be derivable from observable and
unobservable market inputs at the time the Company determines the decline
in value was
other-than-temporary.
|
At
September 30, 2008, mortgage-backed securities in a gross unrealized loss
position for twelve months or longer consisted of 11 securities having an
aggregate depreciation of 4.5% from the Company’s amortized cost basis.
Mortgage-backed securities in a gross unrealized loss position for less
than twelve months consisted of 123 securities having an aggregate
depreciation of 3.7% from the Company’s amortized cost basis. Securities
in unrealized loss position included those issued by U.S Agencies and U.S.
Government Sponsored Agencies, as well as non-agency issued securities.
The Company believes the unrealized losses are due to increases in market
interest rates since the time the underlying securities were purchased and
turbulence in the mortgage markets. The fixed income markets, in
particular those segments that include a credit spread, such as
mortgage-backed issues, have been negatively impacted during 2008 as
credit spreads widened dramatically.
|
|
Agency
securities represent asset backed issues that are issued or guaranteed by
a U.S. Government sponsored agency or carrying the full faith and credit
of the United States through a government agency and are currently rated
AAA by at least one bond credit rating agency. In September of 2008 the
Treasury announced the establishment of the Government- Sponsored
Enterprise Credit Facility to ensure credit availability to Fannie Mae and
Freddie Mac. Treasury also entered into senior preferred stock purchase
agreements, which ensure that each entity maintains a positive net worth
and effectively support the holders of debt and MBS issued or guaranteed
by Fannie Mae and Freddie Mac. The Agreements enhance market stability by
providing additional security to debt holders—senior and subordinated,
thereby alleviating the concern of the credit driven impairment of the
securities. As management has the ability and intent to hold these debt
securities until a forecasted recovery, which may be maturity, no declines
are deemed to be other than temporary.
|
|
The
non-agency securities were acquired through the redemption in-kind of the
Company’s investment in a mutual fund as described in Note 4. Of the
securities acquired through the redemption in-kind, 94.5% of the
securities are rated at investment grade. All of the securities, including
those below investment grade, as of September 30, 2008 were performing
according to their contractual terms. The unrealized loss on these debt
securities relates principally to the changes in market interest rates and
a lack of liquidity currently in the financial markets. Management
believes these unrealized losses are not other-than-temporary based upon
Company’s analysis that the securities will perform in accordance with
their terms, in addition to, the Company’s ability and intent to hold
these investments for a period of time sufficient to allow for the
anticipated recovery of fair value, which may be maturity. The Company
believes recovery of fair value is expected when market conditions have
stabilized and that the Company will receive all contractual principal and
interest payments related to those investments. The corporate debt
securities have no identified credit issues as 96.1% having an “A” rating
or higher. As management has the ability and intent to hold these debt
securities until a forecasted recovery, which may be maturity, the decline
is not deemed to be other than
temporary.
|
6.
|
LOANS
RECEIVABLE
|
Loans
receivable consist of the
following:
|
September
30,
2008
|
September
30,
2007
|
||||||||
(Dollars
in thousands)
|
|||||||||
One-to-four
family residential
|
$ | 191,344 | $ | 159,945 | |||||
Multi-family
residential
|
2,801 | 4,362 | |||||||
Commercial
real estate
|
20,518 | 18,019 | |||||||
Construction
and land development
|
42,634 | 52,429 | |||||||
Commercial
business
|
465 | 155 | |||||||
Consumer
|
739 | 832 | |||||||
Total
loans
|
258,501 | 235,742 | |||||||
Undisbursed
portion of loans-in-process
|
(13,515 | ) | (15,897 | ) | |||||
Deferred
loan fees
|
574 | 315 | |||||||
Allowance
for loan losses
|
(1,591 | ) | (1,011 | ) | |||||
Net
|
$ | 243,969 | $ | 219,149 |
The
Bank originates loans to customers in its local market area. The ultimate
repayment of these loans is dependent, to a certain degree, on the local
economy and real estate market.
|
|
The
Bank originates or purchases both adjustable and fixed interest rate
loans. At September 30, 2008 and 2007, the Bank had $49.9 million and
$57.6 million of adjustable-rate loans, respectively. The adjustable-rate
loans have interest rate adjustment limitations and are generally indexed
to the one-year U.S. Treasury note rate, Wall Street Journal prime rate
or the Average Contract Interest Rate for previously occupied houses as
reported by the Federal Housing Finance Board.
|
|
Certain
officers of the Bank have loans with the Bank. Such loans were made in the
ordinary course of business at the Bank’s normal credit terms, including
interest rate and collateralization, and do not represent more than a
normal risk of collection. The aggregate dollar amount of these loans
outstanding to related parties along with an analysis of the activity is
summarized as follows:
|
Year
Ended September 30,
|
||||||||||||
|
2008
|
2007
|
2006
|
|||||||||
(Dollars
in Thousands)
|
||||||||||||
Balance—beginning
of year
|
$ | 1,634 | $ | 677 | $ | 543 | ||||||
Additions
|
391 | 1,138 | 475 | |||||||||
Repayments
|
(442 | ) | (181 | ) | (341 | ) | ||||||
Balance—end
of year
|
$ | 1,583 | $ | 1,634 | $ | 677 |
The
following schedule summarizes the changes in the allowance for loan
losses:
|
Year
Ended September 30,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
(Dollars
in Thousands)
|
||||||||||||
Balance,
beginning of year
|
$ | 1,011 | $ | 618 | $ | 558 | ||||||
Provision
for loan losses
|
1,084 | 395 | 60 | |||||||||
Charge-offs
|
(504 | ) | (2 | ) | — | |||||||
Recoveries
|
— | — | — | |||||||||
Balance,
end of year
|
$ | 1,591 | $ | 1,011 | $ | 618 |
A
loan is considered to be impaired when, based upon current information and
events, it is probable that the Bank will be unable to collect all amounts
due according to the contractual terms of the loan. During the periods
presented, loan impairment was evaluated based on the fair value of the
loan’s collateral. Impairment losses are included in the provision for
loan losses. Large groups of smaller balance, homogeneous loans are
collectively evaluated for impairment, except for those loans restructured
under a troubled debt restructuring. Loans collectively evaluated for
impairment include smaller balance commercial real estate loans,
residential real estate loans and consumer loans.
|
|
As
of September 30, 2008 and 2007, the recorded investment in loans that are
considered to be impaired was as
follows:
|
Year
Ended September 30,
|
|||||||||
2008
|
2007
|
||||||||
(Dollars
in thousands)
|
|||||||||
Impaired
colateral-dependent loans with related allowance
|
$ | 3,640 | $ | 2,022 | |||||
Impaired
colateral-dependent loans with no related allowance
|
$ | — | $ | — | |||||
Other
data for impaired loans as of September 30, 2008, 2007 and 2006 is as
follow:
|
Year
Ended September 30,
|
|||||||||||||
2008
|
2007
|
2006
|
|||||||||||
(Dollars
in thousands)
|
|||||||||||||
Average
impaired loans
|
$ | 3,640 | $ | 2,022 | $ | — | |||||||
Interest
income recognized on impaired loans
|
$ | — | $ | — | $ | — | |||||||
Cash
basis interest income recognized on impaired loans
|
$ | — | $ | — | $ | — |
The
impaired amount represents two construction loan in which the borrowers
have not satisfied the terms of the loans. Current appraisal has been
obtained of the underlying collateral properties, which shows a
deterioration in the value of such properties consistent with the change
in values in the region. As a result of the Company’s measurement of
impaired loans, a specific reserve of $529,000 was established at
September 30, 2008.
|
|
Interest
income on impaired loans other than nonaccrual loans is recognized on an
accrual basis. Interest income on nonaccrual loans is recognized only as
collected. Interest income foregone on non-accrual loans at September 30,
2008, 2007 and 2006 amounted to $133,000, $28,000 and $-0-,
respectively.
|
Nonperforming
loans (which consist of nonaccrual loans and loans in excess of 90 days
delinquent and still accruing interest) at September 30, 2008 and 2007
amounted to approximately $4.0 million and $2.6 million,
respectively.
|
|
7.
|
OFFICE
PROPERTIES AND EQUIPMENT
|
Office
properties and equipment are summarized by major classifications as
follows:
|
September
30,
|
||||||||
2008
|
2007
|
|||||||
(Dollars
in Thousands)
|
||||||||
Land
|
$ | 247 | $ | 247 | ||||
Buildings
and improvements
|
2,565 | 2,565 | ||||||
Furniture
and equipment
|
2,914 | 2,759 | ||||||
Automobiles
|
122 | 122 | ||||||
Total
|
5,848 | 5,693 | ||||||
Accumulated
depreciation
|
(3,666 | ) | (3,330 | ) | ||||
Total
office properties and equipment, net of accumulated
depreciation
|
$ | 2,182 | $ | 2,363 |
For
the years ended September 30, 2008, 2007 and 2006, depreciation expense
amounted to $336,000, $246,000 and $242,000,
respectively.
|
|
8.
|
DEPOSITS
|
Deposits
consist of the following major
classifications:
|
September
30,
2008
|
September
30,
2007
|
|||||||||||||||
Amount
|
Percent
|
Amount
|
Percent
|
|||||||||||||
(Dollars
in thousands)
|
||||||||||||||||
Money
market deposit accounts
|
$ | 66,484 | 17.6 | % | $ | 63,675 | 18.0 | % | ||||||||
Checking
accounts
|
27,335 | 7.3 | 28,895 | 8.2 | ||||||||||||
Passbook,
club and statement savings
|
67,921 | 18.0 | 70,903 | 20.0 | ||||||||||||
Certificates
maturing in six months or less
|
93,141 | 24.7 | 101,615 | 28.7 | ||||||||||||
Certificates
maturing in more than six months
|
121,949 | 32.4 | 88,950 | 25.1 | ||||||||||||
Total
|
$ | 376,830 | 100.0 | % | $ | 354,038 | 100.0 | % |
At
September 30, 2008 and 2007 the weighted average cost of deposits was
3.34% and 3.88%, respectively.
|
|
The
amount of scheduled maturities of certificate accounts was as
follows:
|
September
30, 2008
|
||||
(Dollars
in Thousands)
|
||||
One
year or less
|
$
|
156,693
|
||
One
through two years
|
12,433
|
|||
Two
through three years
|
19,830
|
|||
Three
through four years
|
12,712
|
|||
Four
through five years
|
13,422
|
|||
Total
|
$
|
215,090
|
The
weighted average rate paid on certificates at September 30, 2008 and 2007
was 4.2% and 4.9%, respectively. Certificates of deposit of $100,000 or
more at each of such dates totaled approximately $66.7 million and $56.4
million, respectively.
|
|
Interest
expense on deposits was comprised of the
following:
|
Year
Ended September 30,
|
|||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
(Dollars
in Thousands)
|
|||||||||||||
NOW
and money market deposits accounts
|
$ | 2,793 | $ | 3,321 | $ | 3,081 | |||||||
Passbook,
club and statement savings accounts
|
1,681 | 1,986 | 2,458 | ||||||||||
Certificate
accounts
|
8,922 | 7,944 | 5,304 | ||||||||||
Total
|
$ | 13,396 | $ | 13,251 | $ | 10,843 |
9.
|
ADVANCES
FROM FEDERAL HOME LOAN BANK
|
Advances
from Federal Home Loan Bank totaled $31.7 million and $33.7 million at
September 30, 2008 and 2007,
respectively.
|
The
following is a schedule of six advances made under the low-income housing
program in which the Bank is a participant. Three of the advances are at
an interest rate of 3.0%, one advance is at an interest rate of 2.0% and
two advances are non-interest-bearing. Repayment of the advances is as
follows:
|
September
30,
|
|||||||||
2008
|
2007
|
||||||||
(Dollars
in thousands)
|
|||||||||
1
to 12 months
|
$ | 43 | $ | 42 | |||||
13
to 24 months
|
44 | 43 | |||||||
25
to 36 months
|
45 | 44 | |||||||
Thereafter
|
569 | 614 | |||||||
Total
|
$ | 701 | $ | 743 |
Advances
from Federal Home Loan Bank not part of the low-income housing program at
September 30, 2008 and 2007 consist of the
following:
|
September
30,
|
|||||||||||||||||
2008
|
2007
|
||||||||||||||||
Due
|
Amount
|
Fixed
Interest
Rate
|
Amount
|
Fixed
Interest
Rate
|
|||||||||||||
(Dollars
in Thousands)
|
|||||||||||||||||
October
2007
|
$ | — | — | $ | 20,000 | 5.07 | % | ||||||||||
October
2008
|
18,000 | 2.78 | % | — | — | ||||||||||||
July
2010
|
2,000 | 5.98 | % | 2,000 | 5.98 | % | |||||||||||
August
2010
|
3,000 | 5.93 | % | 3,000 | 5.93 | % | |||||||||||
September
2010
|
8,000 | 5.69 | % | 8,000 | 5.69 | % | |||||||||||
$ | 31,000 | $ | 33,000 |
The
advances are collateralized by all of the Federal Home Loan Bank stock,
U.S. government and agency investment securities and substantially all
qualifying first mortgage loans held by the
Bank.
|
10.
|
INCOME
TAXES
|
Year
Ended September 30,
|
|||||||||||||
2008
|
2007
|
2006
|
|||||||||||
(Dollars
in thousands)
|
|||||||||||||
Current:
|
|||||||||||||
Federal
|
$ | 1,128 | $ | 1,455 | $ | 1,596 | |||||||
State
|
— | — | 50 | ||||||||||
Total
current taxes
|
1,128 | 1,455 | 1,646 | ||||||||||
Deferred
income tax (benefit) expense
|
(373 | ) | (68 | ) | 127 | ||||||||
Total
income tax provision
|
$ | 755 | $ | 1,387 | $ | 1,773 |
September
30,
|
|||||||||
2008
|
2007
|
||||||||
(Dollars
in Thousands)
|
|||||||||
Deferred
tax assets:
|
|||||||||
Unrealized
loss on available for sale securities
|
$ | 356 | $ | — | |||||
Deposit
premium
|
216 | 265 | |||||||
Allowance
for loan losses
|
594 | 378 | |||||||
Real
estate owned expenses
|
99 | — | |||||||
Non-accrual
interest
|
21 | — | |||||||
Accrued
vacation
|
34 | — | |||||||
Capital
loss carryforward
|
1,873 | — | |||||||
Impairment
loss
|
247 | — | |||||||
Employee
stock ownership plan
|
110 | 79 | |||||||
Total
deferred tax assets
|
3,550 | 722 | |||||||
Valuation
allowance
|
(1,991 | ) | — | ||||||
Total
deferred tax assets, net of valuation allowance
|
1,559 | 722 | |||||||
Deferred
tax liabilities:
|
|||||||||
Unrealized
gain on available for sale securities
|
— | 134 | |||||||
Property
|
467 | 446 | |||||||
Mortgage
servicing
|
6 | 8 | |||||||
Deferred
loan fees
|
195 | 106 | |||||||
Total
|
668 | 694 | |||||||
Net
deferred tax asset
|
$ | 891 | $ | 28 |
The
income tax expense differs from that computed at the statutory federal
corporate tax rate as follows:
|
Year
Ended September 30,
|
||||||||||||||||||||||||
2008
|
2007
|
2006
|
||||||||||||||||||||||
Amount
|
Percentage
of
Pretax
Income
|
Amount
|
Percentage
of
Pretax
Income
|
Amount
|
Percentage
of
Pretax
Income
|
|||||||||||||||||||
(Dollars
in Thousands)
|
||||||||||||||||||||||||
Tax
at statutory rate
|
$ | (1,153 | ) | 34.0 | % | $ | 1,627 | 34.0 | % | $ | 1,907 | 34.0 | % | |||||||||||
Adjustments
resulting from:
|
||||||||||||||||||||||||
State
tax, net of federal tax effect
|
— | — | — | — | 33 | 0.6 | ||||||||||||||||||
Valuation
allowance
|
1,991 | (58.7 | ) | — | — | — | — | |||||||||||||||||
Income
from bank owned life insurance
|
(68 | ) | 2.0 | (72 | ) | (1.5 | ) | (56 | ) | (1.0 | ) | |||||||||||||
Income
from muncipal obligations
|
(29 | ) | 0.9 | (35 | ) | (0.7 | ) | (35 | ) | (0.6 | ) | |||||||||||||
Other
|
14 | (0.5 | ) | (133 | ) | (2.8 | ) | (76 | ) | (1.4 | ) | |||||||||||||
Income
tax expense per statements of income
|
$ | 755 | (22.3 | )% | $ | 1,387 | 29.0 | % | $ | 1,773 | 31.6 | % |
In
June 2006, the FASB issued FIN No. 48. FIN No. 48 clarifies the accounting
for income taxes by prescribing a minimum probability threshold that a tax
position must meet before a financial statement benefit is recognized. The
minimum threshold is defined in FIN No. 48 as a tax position that is more
likely than not to be sustained upon examination by the applicable taxing
authority, including resolution of any related appeals or litigation
processes, based on the technical merits of the position. The tax benefit
to be recognized is measured as the largest amount of benefit that has
greater than fifty percent likelihood of being realized upon ultimate
settlement. FIN No. 48 was applied to all existing tax positions upon
initial adoption. FIN No. 48 was effective for fiscal years beginning
after December 15, 2006. The Company adopted FIN No. 48 on October 1, 2007
and the initial application of the interpretation did not have an impact
to the Company’s financial condition or results of operations. As of the
date of adoption, there was no liability for uncertain tax positions and
no known unrecognized tax benefits. There were no increases or decreases
during 2008 to the liability for unrecognized tax benefits, and no
liability exists as of September 30, 2008.
|
|
11.
|
REGULATORY
CAPITAL REQUIREMENTS
|
The
Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory – and possibly
additional discretionary – actions by regulators that, if undertaken,
could have a direct material effect on the Company’s consolidated
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and the Bank must meet
specific capital guidelines that involve quantitative measures of their
assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Company’s and the Bank’s
capital amounts and the Bank’s classification are also subject to
qualitative judgments by the regulators about components, risk weightings,
and other factors.
|
Quantitative
measures established by regulation to ensure capital adequacy require the
Company and the Bank to maintain minimum amounts and ratios (set forth in
the table below) of Tier 1 capital (as defined in the regulations) to
average assets (as defined) and risk-weighted assets (as defined), and of
total capital (as defined) to risk-weighted assets. Management believes,
as of September 30, 2008 and 2007, that the Company and the Bank met all
regulatory capital adequacy requirements to which they are
subject.
|
|
As
of September 30, 2008 and 2007, the most recent notification from the
Federal Deposit Insurance Corporation categorized the Bank as well
capitalized under the regulatory framework for prompt corrective action.
To be categorized as well capitalized, the Bank must maintain the minimum
Tier 1 capital, Tier 1 risk-based, and total risk-based ratios as set
forth in the table below. There are no conditions or events since that
notification that management believes have changed the Bank’s
category.
|
|
The
Company’s and the Bank’s actual capital amounts and ratios are also
presented in the following table:
|
Actual
|
Required
for Capital
Adequacy
Purposes
|
To
Be
Well
Capitalized
Under
Prompt
Corrective
Action
Provisions
|
||||||||||||||||||||||
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
|||||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||||||
September
30, 2008:
|
||||||||||||||||||||||||
Tier
1 capital (to average assets)
|
||||||||||||||||||||||||
Company
|
$ | 69,566 | 14.58 | % | $ | 19,091 | 4.0 | % | N/A | N/A | ||||||||||||||
Bank
|
64,108 | 13.22 | 19,395 | 4.0 | $ | 24,244 | 5.0 | % | ||||||||||||||||
Tier
1 capital (to risk-weighted assets) Company
|
69,566 | 31.40 | 8,861 | 4.0 | N/A | N/A | ||||||||||||||||||
Bank
|
64,108 | 28.94 | 8,861 | 4.0 | 13,292 | 6.0 | ||||||||||||||||||
Total
capital (to risk-weighted assets) Company
|
71,166 | 32.12 | 17,722 | 8.0 | N/A | N/A | ||||||||||||||||||
Bank
|
65,708 | 29.66 | 17,722 | 8.0 | 22,153 | 10.0 | ||||||||||||||||||
September
30, 2007:
|
||||||||||||||||||||||||
Tier
1 capital (to average assets)
|
||||||||||||||||||||||||
Company
|
$ | 80,702 | 17.08 | % | $ | 18,900 | 4.0 | % | N/A | N/A | ||||||||||||||
Bank
|
72,906 | 15.52 | 18,785 | 4.0 | $ | 23,482 | 5.0 | % | ||||||||||||||||
Tier
1 capital (to risk-weighted assets) Company
|
80,702 | 37.88 | 8,522 | 4.0 | N/A | N/A | ||||||||||||||||||
Bank
|
72,906 | 34.22 | 8,522 | 4.0 | 12,783 | 6.0 | ||||||||||||||||||
Total
capital (to risk-weighted assets) Company
|
81,877 | 38.43 | 17,044 | 8.0 | N/A | N/A | ||||||||||||||||||
Bank
|
74,081 | 34.77 | 17,044 | 8.0 | 21,305 | 10.0 |
12.
|
EMPLOYEE
BENEFITS
|
The
Bank is a member of a multi-employer defined benefit pension plan covering
all employees meeting certain eligibility requirements. The Bank’s policy
is to fund pension costs accrued. Information regarding the actuarial
present values of vested and nonvested benefits and fair value of plan
assets for the separate employers in the plan is not available. The
expense relating to this plan for the years ended September 30, 2008, 2007
and 2006 was $355,000, $472,000 and $550,000,
respectively.
|
The
Bank also has a defined contribution plan for employees meeting certain
eligibility requirements. The defined contribution plan may be terminated
at any time at the discretion of the Bank. There was no expense relating
to this plan for the years ended September 30, 2008, 2007 and 2006. The
elimination of the expense reflected the Company’s decision to discontinue
the employer match in conjunction with the establishment of the employee
stock ownership plan (“ESOP”) discussed below.
|
|
In
fiscal 2005, the Bank established an ESOP for substantially all of its
full-time employees meeting certain eligibility requirements. The purchase
of shares of the Company’s common stock by the ESOP was funded by a loan
from the Company. The loan will be repaid principally from the Bank’s
contributions to the ESOP. Shares of the Company’s common stock purchased
by the ESOP are held in a suspense account and released for allocation to
participants on a pro rata basis as debt service payments are made on the
loan. Shares released are allocated to each eligible participant based on
the ratio of each such participant’s base compensation, as defined in the
ESOP, to the total base compensation of all eligible plan participants. As
the unearned shares are released and allocated among participants, the
Bank recognizes compensation expense based on the current market price of
the shares released. The ESOP purchased 452,295 shares of the Company’s
common stock on the open market for a total cost of approximately $4.5
million. The average purchase price was $9.86 per share. As of September
30, 2008 the Company had allocated a total of 62,205 shares from the
suspense account to participants and committed to release an additional
16,965 shares. The expense relating to this plan for the years ended
September 30, 2008, 2007 and 2006 was $257,000, $306,000, and $287,000,
respectively.
|
|
13.
|
COMMITMENTS
AND CONTINGENT LIABILITIES
|
At
September 30, 2008, the Bank had $18.6 million in outstanding commitments
to originate fixed and variable-rate loans with market interest rates
ranging from 5.50% to 8.50%. At September 30, 2007, the Bank had $10.4
million in outstanding commitments to originate fixed and variable-rate
loans with market interest rates ranging from 6.625% to
9.25%.
|
|
The
Bank also had commitments under unused lines of credit of $5.9 million and
$7.2 million and letters of credit outstanding of $95,000 at both
September 30, 2008 and 2007.
|
|
The
Company is subject to various pending claims and contingent liabilities
arising in the normal course of business which are not reflected in the
accompanying consolidated financial statements. Management considers that
the aggregate liability, if any, resulting from such matters will not be
material.
|
|
Among
the Bank’s contingent liabilities are exposures to limited recourse
arrangements with respect to the Bank’s sales of whole loans and
participation interests. At September 30, 2008, the exposure, which
represents a portion of credit risk associated with the sold interests,
amounted to $64,000. This exposure is for the life of the related loans
and payables, on our proportionate share, as actual losses are
incurred.
|
The
company leases certain property and equipment under non-cancelable
operating leases. Scheduled minimum payments are as follows for the fiscal
years ended:
|
September
30,
|
Lease
Obligation
|
|||||
|
(Dollars
in thousands)
|
|||||
2009
|
$
|
55
|
||||
2010
|
13
|
|||||
2011
|
2
|
|||||
2012
|
—
|
|||||
2013
|
—
|
|||||
Thereafter
|
—
|
|||||
Total
|
$
|
70
|
Rent
expense for all operating leases was approximately $76,000, $73,000, and
$27,000 for fiscal years ending September 30, 2008, 2007, and 2006,
respectively.
|
|
14.
|
FAIR
VALUE OF FINANCIAL INSTRUMENTS
|
The
following disclosure of the estimated fair value of financial instruments
is made in accordance with the requirements of SFAS No. 107, Disclosure
about Fair Value of Financial Instruments.
|
|
The
estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies.
However, considerable judgment is necessarily required to interpret market
data to develop the estimates of fair value.
|
|
Accordingly,
the estimates presented herein are not necessarily indicative of the
amounts the Company could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value
amounts.
|
September
30,
|
||||||||||||||||
2008
|
2007
|
|||||||||||||||
Carrying
Amount
|
Estimated
Fair
Value
|
Carrying
Amount
|
Estimated
Fair
Value
|
|||||||||||||
(Dollars
in thousands)
|
||||||||||||||||
Assets:
|
||||||||||||||||
Cash
and cash equivalents
|
$ | 9,454 | $ | 9,454 | $ | 12,269 | $ | 12,269 | ||||||||
Investment
securities held to maturity
|
123,022 | 120,741 | 134,782 | 133,693 | ||||||||||||
Investment
securities available for sale
|
2,922 | 2,922 | 38,343 | 38,343 | ||||||||||||
Mortgage-backed
securities held to maturity
|
40,281 | 39,811 | 45,534 | 44,213 | ||||||||||||
Mortgage-backed
securities available for sale
|
52,184 | 52,184 | 8,549 | 8,549 | ||||||||||||
Loans
receivable, net
|
243,969 | 244,772 | 219,527 | 216,915 | ||||||||||||
Federal
Home Loan Bank stock
|
2,620 | 2,620 | 2,397 | 2,397 | ||||||||||||
Liabilities:
|
||||||||||||||||
NOW
accounts
|
27,335 | 27,335 | 28,895 | 28,895 | ||||||||||||
Money
market deposit accounts
|
66,484 | 66,484 | 63,675 | 63,675 | ||||||||||||
Passbook,
club and statement savings accounts
|
67,921 | 67,921 | 70,903 | 70,903 | ||||||||||||
Certificates
of deposit
|
215,090 | 217,290 | 190,565 | 191,024 | ||||||||||||
Advances
from Federal Home Loan Bank
|
31,701 | 32,233 | 33,743 | 34,199 |
Cash
and Cash Equivalents—For cash and cash equivalents, the carrying
amount is a reasonable estimate of fair
value.
|
|
Investments
and Mortgage-Backed Securities—The
fair value of investment securities and mortgage-backed securities is
based on quoted market prices, dealer quotes, and prices obtained from
independent pricing services that may be derivable from observable and
unobservable market inputs.
|
|
Loans
Receivable—The
fair value of loans is estimated based on present value using the current
rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining
maturities.
|
|
Federal
Home Loan Bank (FHLB) Stock—Although
FHLB stock is an equity interest in an FHLB, it is carried at cost because
it does not have a readily determinable fair value as its ownership is
restricted and it lacks a market. The estimated fair value approximates
the carrying amount.
|
|
NOW
Accounts, Money Market Deposit Accounts, Passbook Accounts, Club Accounts,
Statement Savings Accounts, and Certificates of Deposit—The
fair value of passbook accounts, club accounts, statement savings
accounts, NOW accounts, and money market deposit accounts is the amount
reported in the financial statements. The fair value of certificates of
deposit is based on a present value estimate using rates currently offered
for deposits of similar remaining
maturity.
|
Advances
from Federal Home Loan Bank—The
fair value of advances from FHLB is the amount payable on demand at the
reporting date.
|
|
Commitments
to Extend Credit and Letters of Credit—The
majority of the Bank’s commitments to extend credit and letters of credit
carry current market interest rates if converted to loans. Because
commitments to extend credit and letters of credit are generally
unassignable by either the Bank or the borrower, they only have value to
the Bank and the borrower. The estimated fair value approximates the
recorded deferred fee amounts, which are not significant. As discussed in
Note 13, the related amounts at September 30, 2008 and 2007 were, in the
aggregate, $24.6 million and $17.7 million,
respectively.
|
|
The
fair value estimates presented herein are based on pertinent information
available to management as of September 30, 2008 and 2007, respectively.
Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since
that date and, therefore, current estimates of fair value may differ
significantly from the amounts presented
herein.
|
15.
|
PRUDENTIAL
BANCORP, INC. OF PENNSYLVANIA (PARENT COMPANY ONLY)
|
The
condensed financial statements of Prudential Bancorp, Inc. of Pennsylvania
(Parent Company) are as follows:
|
STATEMENT
OF FINANCIAL CONDITION
At
September 30,
|
2008
|
2007
|
||||||
(Dollars
in thousands)
|
||||||||
Assets:
|
||||||||
Cash
|
$ | 1,834 | $ | 4,115 | ||||
ESOP
loan receivable
|
3,998 | 4,139 | ||||||
Investment
in Bank
|
63,417 | 73,165 | ||||||
Other
assets
|
179 | 116 | ||||||
Total
assets
|
$ | 69,428 | $ | 81,535 | ||||
Liabilities:
|
||||||||
Accrued
dividend payable
|
$ | 553 | $ | 574 | ||||
Total
liabilities
|
553 | 574 | ||||||
Stockholders’
equity:
|
||||||||
Preferred
stock
|
— | — | ||||||
Common
stock
|
126 | 126 | ||||||
Additional
paid-in-capital
|
54,925 | 54,880 | ||||||
Unearned
ESOP shares
|
(3,680 | ) | (3,903 | ) | ||||
Treasury
stock
|
(19,481 | ) | (14,372 | ) | ||||
Retained
earnings
|
37,676 | 43,971 | ||||||
Accumulated
other comprehensive (loss) income
|
(691 | ) | 259 | |||||
Total
stockholders’ equity
|
68,875 | 80,961 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 69,428 | $ | 81,535 |
INCOME
STATEMENT
For
the year ended September 30,
|
2008
|
2007
|
||||||
(Dollars
in thousands)
|
||||||||
Interest
on ESOP loan
|
$ | 235 | $ | 242 | ||||
Equity
in the undistributed (loss) earnings of the Bank
|
(4,054 | ) | 3,492 | |||||
Dividend
from Bank
|
5,000 | — | ||||||
Other
income
|
51 | 55 | ||||||
Total
income
|
1,232 | 3,789 | ||||||
Professional
services
|
250 | 296 | ||||||
Other
expense
|
172 | 141 | ||||||
Total
expense
|
422 | 437 | ||||||
Income
before income taxes
|
810 | 3,352 | ||||||
Income
tax benefit
|
(45 | ) | (45 | ) | ||||
Net
income
|
$ | 855 | $ | 3,397 |
CASH
FLOWS
For
the year ended September 30,
|
2008
|
2007
|
||||||
(Dollars
in thousands)
|
||||||||
Operating
activities:
|
||||||||
Net
income
|
$ | 855 | $ | 3,397 | ||||
Increase
(decrease) in assets
|
(62 | ) | 90 | |||||
Decease
in liabilities
|
— | (173 | ) | |||||
Equity
in the undistributed loss (earnings) of the Bank
|
4,054 | (3,492 | ) | |||||
Net
cash used in (provided by) operating activities
|
4,847 | (178 | ) | |||||
Investing
activities:
|
||||||||
Repayments
received on ESOP loan
|
141 | 134 | ||||||
Net
cash provided by investing activities
|
141 | 134 | ||||||
Financing
activities:
|
||||||||
Cash
dividends paid
|
(2,160 | ) | (2,050 | ) | ||||
Payment
to repurchase common stock
|
(5,109 | ) | (7,950 | ) | ||||
Net
cash used in financing activities
|
(7,269 | ) | (10,000 | ) | ||||
Net
decrease in cash and cash equivalents
|
(2,281 | ) | (10,044 | ) | ||||
Cash
and cash equivalents, beginning of year
|
4,115 | 14,159 | ||||||
Cash
and cash equivalents, end of year
|
$ | 1,834 | $ | 4,115 |
16.
|
QUARTERLY
FINANCIAL DATA (UNAUDITED)
|
Unaudited
quarterly financial data for the years ended September 30, 2008 and 2007
is as follows:
|
September
30, 2008
|
September
30, 2007
|
|||||||||||||||||||||||||||||||
1st
Qtr
|
2nd
Qtr
|
3rd
Qtr
|
4th
Qtr
|
1st
Qtr
|
2nd
Qtr
|
3rd
Qtr
|
4th
Qtr
|
|||||||||||||||||||||||||
(In
thousands)
|
(In
thousands)
|
|||||||||||||||||||||||||||||||
Interest
income
|
$ | 6,661 | $ | 6,565 | $ | 6,465 | $ | 6,717 | $ | 6,683 | $ | 6,692 | $ | 6,746 | $ | 6,787 | ||||||||||||||||
Interest
expenses
|
3,894 | 3,767 | 3,503 | 3,490 | 3,594 | 3,574 | 3,742 | 3,874 | ||||||||||||||||||||||||
Net
interest income
|
2,767 | 2,798 | 2,962 | 3,227 | 3,089 | 3,118 | 3,004 | 2,913 | ||||||||||||||||||||||||
Provision
for loan losses
|
75 | 75 | 112 | 821 | 60 | 15 | (20 | ) | 340 | |||||||||||||||||||||||
Net
income after provision for loan losses
|
2,692 | 2,723 | 2,850 | 2,406 | 3,029 | 3,103 | 3,024 | 2,573 | ||||||||||||||||||||||||
Non-interest
income (charges)
|
222 | (1,279 | ) | (3,798 | ) | (430 | ) | 310 | 221 | 262 | 252 | |||||||||||||||||||||
Non-interest
expense
|
2,016 | 2,509 | 1,913 | 2,337 | 2,021 | 2,122 | 1,853 | 1,994 | ||||||||||||||||||||||||
Income
(loss) before income taxes
|
898 | (1,065 | ) | (2,861 | ) | (361 | ) | 1,318 | 1,202 | 1,433 | 831 | |||||||||||||||||||||
Income
tax expense (benefit)
|
288 | (383 | ) | 703 | 148 | 422 | 237 | 456 | 271 | |||||||||||||||||||||||
Net
income
|
$ | 610 | $ | (682 | ) | $ | (3,564 | ) | $ | (509 | ) | $ | 896 | $ | 965 | $ | 977 | $ | 560 | |||||||||||||
Per share: |
||||||||||||||||||||||||||||||||
Earnings
(loss) per share - basic
|
$ | 0.06 | $ | (0.06 | ) | $ | (0.33 | ) | $ | (0.05 | ) | $ | 0.08 | $ | 0.08 | $ | 0.09 | $ | 0.05 | |||||||||||||
Earnings
(loss) per share - diluted
|
0.06 | (0.06 | ) | (0.33 | ) | (0.05 | ) | 0.08 | 0.08 | 0.09 | 0.05 | |||||||||||||||||||||
Dividends
per share
|
0.05 | 0.05 | 0.05 | 0.05 | 0.04 | 0.05 | 0.05 | 0.05 |
17.
|
SUBSEQUENT
EVENTS
|
The
Company, at its Board of Directors meeting held on December 17, 2008,
declared a quarterly cash dividend of $0.05 per share on the common stock
of the Company payable on January 26, 2009 to the shareholders of record
at the close of business on January 12,
2009.
|
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | |
Not Applicable. | |
Item 9A (T). Controls and Procedures |
●
|
maintain
records that accurately reflect the Company’s
transactions;
|
|
●
|
prepare
financial statement and footnote disclosures in accordance with GAAP that
can be relied upon by external users;
|
|
●
|
prevent
and detect unauthorized acquisition, use or disposition of the Company’s
assets that could have a material effect on the financial
statements.
|
/s/
Thomas A. Vento
|
/s/
Joseph R. Corrato
|
|||
President
and Chief Executive Officer
|
Executive
Vice President,
|
|||
Chief
Financial Officer and
|
||||
Chief
Accounting Officer
|
(a)
|
Documents
Filed as Part of this Report.
|
(1)
|
The
following financial statements are incorporated by reference from Item 8
hereof:
|
Consolidated
Statements of Financial Condition
|
|
Consolidated
Statements of Income
|
|
Consolidated
Statements of Changes in Stockholders’ Equity and Comprehensive
Income
|
|
Consolidated
Statements of Cash Flows
|
|
Notes
to Consolidated Financial Statements
|
|
(2)
|
All
schedules for which provision is made in the applicable accounting
regulation of the SEC are omitted because of the absence of conditions
under which they are required or because the required information is
included in the consolidated financial statements and related notes
thereto.
|
(3)
|
The
following exhibits are filed as part of this Form 10-K, and this list
includes the Exhibit Index.
|
Exhibit
No.
|
Description
|
|||
3.1
|
Articles
of Incorporation of Prudential Bancorp, Inc. of
Pennsylvania(1)
|
|||
3.2
|
Bylaws
of Prudential Bancorp, Inc. of Pennsylvania(1)
|
|||
4.0
|
Form
of Stock Certificate of Prudential Bancorp, Inc. of
Pennsylvania(1)
|
|||
10.1
|
Amended
and Restated Employment Agreement between Prudential Savings Bank and
Thomas A. Vento(2)
|
|||
10.2
|
Amended
and Restated Employment Agreement between Prudential Savings Bank and
Joseph R. Corrato(2)
|
|||
10.3
|
Amended
and Restated Post Retirement Agreement between Prudential Savings Bank and
Joseph W. Packer, Jr. (2)
|
|||
10.4
|
Amended
and Restated Split-Dollar Collateral Assignment with Joseph W. Packer, Jr.
and Diane B. Packer(2)
|
|||
10.5
|
Amended
and Restated Split-Dollar Collateral Assignment with Joseph W. Packer, Jr.
(2)
|
|||
10.6
|
Amendment
No. 1 to Split-Dollar Agreement between the Bank and Joseph W. Packer, Jr.
(2)
|
|||
21.0
|
Subsidiaries
of the Registrant – Reference is made to “Item 1. Business – Subsidiaries”
for the required information
|
|||
23.0
|
Consent
of Deloitte & Touche LLP
|
|||
31.1
|
Section
1350 Certification of the Chief Executive Officer
|
|||
31.2
|
Section
1350 Certification of the Chief Financial Officer
|
|||
32.0
|
Section
906 Certification
|
*
|
Management
contract or compensatory plan or arrangement required to be filed as an
exhibit to this Form 10-K pursuant to Item 15(b)
hereof.
|
||
(1)
|
Incorporated
by reference from the Company’s Registration Statement on Form S-1
(Commission File No. 333-119130) filed with the Commission on September
30, 2004.
|
||
(2)
|
Incorporated
by reference from the Company’s Current Report on Form 8-K, dated November
19, 2008 and filed with the Commission on November 25, 2008 (Commission
File No. 000-51214).
|
(b)
|
Exhibits
|
||
The
exhibits listed under (a)(3) of this Item 15 are filed
herewith.
|
|||
(c)
|
Reference
is made to (a)(2) of this Item
15.
|
Prudential
Bancorp, Inc. of Pennsylvania
|
||
December
29, 2008
|
By:
|
/s/
Thomas
A. Vento
|
Thomas
A. Vento
|
||
President
and Chief Executive Officer
|
/s/
Joseph
W. Packer,
Jr.
|
December
29, 2008
|
|
Joseph
W. Packer, Jr.
|
||
Chairman
of the Board
|
||
/s/
Thomas
A. Vento
|
December
29, 2008
|
|
Thomas
A. Vento
|
||
President
and Chief Executive Officer
|
||
/s/
Jerome
R. Balka,
Esq.
|
December
29, 2008
|
|
Jerome
R. Balka, Esq.
|
||
Director
|
||
/s/
A. J. Fanelli
|
||
A.
J. Fanelli
|
December
29, 2008
|
|
Director
|
||
/s/
Francis
V. Mulcahy
|
||
Francis
V. Mulcahy
|
December
29, 2008
|
|
Director
|
||
/s/
Joseph
R. Corrato
|
||
Joseph
R. Corrato
|
December
29, 2008
|
|
Executive
Vice President, Chief Financial Officer and Chief
|
||
Accounting
Officer
|