Attached files
file | filename |
---|---|
EX-32.2 - FIRST KEYSTONE FINANCIAL INC | v185480_ex32-2.htm |
EX-10.5 - FIRST KEYSTONE FINANCIAL INC | v185480_ex10-5.htm |
EX-31.1 - FIRST KEYSTONE FINANCIAL INC | v185480_ex31-1.htm |
EX-10.1 - FIRST KEYSTONE FINANCIAL INC | v185480_ex10-1.htm |
EX-31.2 - FIRST KEYSTONE FINANCIAL INC | v185480_ex31-2.htm |
EX-32.1 - FIRST KEYSTONE FINANCIAL INC | v185480_ex32-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended March 31, 2010
OR
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from .......... to ..........
Commission
File Number: 000-25328
FIRST KEYSTONE FINANCIAL,
INC.
|
(Exact name of registrant as specified in its charter)
|
Pennsylvania
|
23-2576479
|
||
(State
or other jurisdiction
|
(I.R.S.
Employer
|
||
of
incorporation or organization)
|
Identification
Number)
|
22
West State Street
|
|||
Media, Pennsylvania
|
19063
|
||
(Address
of principal executive office)
|
(Zip
Code)
|
Registrant's
telephone number, including area code: (610) 565-6210
Indicate
by check mark whether the Registrant (1) has filed all reports required by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file
such reports) and (2) has been subject to such filing requirements for the past
90 days. Yes x No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
¨
Yes ¨No
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer”, “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check
one):
Large
accelerated filer ¨ Accelerated
filer ¨
Non-accelerated filer ¨ (Do not check if a “smaller reporting
company”)
Smaller reporting company x
Indicate
by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). Yes ¨
No x
Number of
shares of Common Stock outstanding as of April 30, 2010: 2,432,998
FIRST
KEYSTONE FINANCIAL, INC.
Contents
Page
|
||
PART
I
|
FINANCIAL
INFORMATION:
|
|
Item
1.
|
Financial
Statements
|
|
Unaudited
Consolidated Statements of Financial Condition as of
|
||
March
31, 2010 and September 30, 2009
|
1
|
|
Unaudited
Consolidated Statements of Income for the Three
|
||
and
Six Months Ended March 31, 2010 and 2009
|
2
|
|
Unaudited
Consolidated Statement of Changes in Stockholders' Equity
|
||
for
the Six Months Ended March 31, 2010 and 2009
|
3
|
|
Unaudited
Consolidated Statements of Cash Flows for the Six Months
|
||
Ended
March 31, 2010 and 2009
|
4
|
|
Notes
to Unaudited Consolidated Financial Statements
|
5
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and
|
|
Results
of Operations
|
20
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
26
|
Item
4T.
|
Controls
and Procedures
|
27
|
PART
II
|
OTHER
INFORMATION
|
|
Item
1.
|
Legal
Proceedings
|
28
|
Item
1A.
|
Risk
Factors
|
28
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
28
|
Item
3.
|
Defaults
Upon Senior Securities
|
28
|
Item
4.
|
(Removed
and Reserved)
|
28
|
Item
5.
|
Other
Information
|
28
|
Item
6.
|
Exhibits
|
29
|
SIGNATURES
|
31
|
FIRST
KEYSTONE FINANCIAL, INC.
UNAUDITED
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars
in thousands)
March 31,
2010
|
September 30,
2009
|
|||||||
ASSETS
|
||||||||
Cash
and amounts due from depository institutions
|
$ | 2,416 | $ | 2,277 | ||||
Interest-bearing
deposits with depository institutions
|
58,042 | 45,381 | ||||||
Total
cash and cash equivalents
|
60,458 | 47,658 | ||||||
Investment
securities available for sale
|
36,087 | 27,564 | ||||||
Mortgage-related
securities available for sale
|
35,532 | 86,197 | ||||||
Investment
securities held to maturity – at amortized cost (approximate fair value of
$2,984 and $2,964 at March 31, 2010 and September 30, 2009,
respectively)
|
2,804 | 2,805 | ||||||
Mortgage-related
securities held to maturity - at amortized cost (approximate fair value of
$17,099 and $19,929 at March 31, 2010 and September 30, 2009,
respectively)
|
16,430 | 19,158 | ||||||
Loans
receivable (net of allowance for loan losses of $6,674 and $4,657 at March
31, 2010 and September 30, 2009, respectively)
|
295,346 | 306,600 | ||||||
Accrued
interest receivable
|
2,054 | 2,343 | ||||||
FHLBank
stock, at cost
|
7,060 | 7,060 | ||||||
Office
properties and equipment, net
|
4,002 | 4,200 | ||||||
Deferred
income taxes
|
2,981 | 3,660 | ||||||
Cash
surrender value of life insurance
|
18,591 | 18,381 | ||||||
Prepaid
FDIC assessment
|
2,832 | — | ||||||
Prepaid
expenses and other assets
|
4,324 | 2,775 | ||||||
Total
Assets
|
$ | 488,501 | $ | 528,401 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Liabilities:
|
||||||||
Deposits
|
||||||||
Non-interest-bearing
|
$ | 21,603 | $ | 18,971 | ||||
Interest-bearing
|
309,739 | 328,153 | ||||||
Total
deposits
|
331,342 | 347,124 | ||||||
Short-term
borrowings
|
6,072 | 27,395 | ||||||
Other
borrowings
|
102,649 | 102,653 | ||||||
Junior
subordinated debentures
|
11,649 | 11,646 | ||||||
Accrued
interest payable
|
1,680 | 2,110 | ||||||
Advances
from borrowers for taxes and insurance
|
2,026 | 887 | ||||||
Accounts
payable and accrued expenses
|
2,504 | 2,866 | ||||||
Total
Liabilities
|
457,922 | 494,681 | ||||||
Commitments
and contingencies
|
— | — | ||||||
Stockholders’
Equity:
|
||||||||
Preferred
stock, $.01 par value, 10,000,000 shares authorized; none
issued
|
— | — | ||||||
Common
stock, $.01 par value, 20,000,000 shares authorized; issued 2,712,556
shares; outstanding at March 31, 2010 and September 30, 2009, 2,432,998
shares
|
27 | 27 | ||||||
Additional
paid-in capital
|
12,562 | 12,565 | ||||||
Employee
stock ownership plan
|
(2,687 | ) | (2,751 | ) | ||||
Treasury
stock at cost: 279,558 shares at March 31, 2010 and September 30,
2009
|
(4,244 | ) | (4,244 | ) | ||||
Accumulated
other comprehensive income
|
1,405 | 87 | ||||||
Retained
earnings-partially restricted
|
23,444 | 27,932 | ||||||
Total
First Keystone Financial, Inc. Stockholders’ Equity
|
30,507 | 33,616 | ||||||
Noncontrolling
interest
|
72 | 104 | ||||||
Total
Stockholders’ Equity
|
30,579 | 33,720 | ||||||
Total
Liabilities and Stockholders’ Equity
|
$ | 488,501 | $ | 528,401 |
See notes
to unaudited consolidated financial statements.
- 1
-
FIRST
KEYSTONE FINANCIAL, INC.
UNAUDITED
CONSOLIDATED STATEMENTS OF INCOME
(dollars
in thousands, except per share data)
Three months ended
|
Six months ended
|
|||||||||||||||
March 31,
|
March 31,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
INTEREST
INCOME:
|
||||||||||||||||
Interest and fees on
loans
|
$ | 4,106 | $ | 4,092 | $ | 8,404 | $ | 8,353 | ||||||||
Interest and dividends
on:
|
||||||||||||||||
Mortgage-related
securities
|
1,020 | 1,424 | 2,199 | 2,978 | ||||||||||||
Investment
securities:
|
||||||||||||||||
Taxable
|
332 | 316 | 572 | 666 | ||||||||||||
Tax-exempt
|
41 | 46 | 83 | 88 | ||||||||||||
Dividends
|
3 | 4 | 6 | 7 | ||||||||||||
Interest on interest-bearing
deposits
|
13 | 12 | 30 | 27 | ||||||||||||
Total interest
income
|
5,515 | 5,894 | 11,294 | 12,119 | ||||||||||||
INTEREST
EXPENSE:
|
||||||||||||||||
Interest
on:
|
||||||||||||||||
Deposits
|
929 | 1,492 | 2,121 | 3.219 | ||||||||||||
Short-term
borrowings
|
7 | 19 | 17 | 38 | ||||||||||||
Other
borrowings
|
1,266 | 1,267 | 2,559 | 2,638 | ||||||||||||
Junior subordinated
debentures
|
286 | 286 | 571 | 571 | ||||||||||||
Total interest
expense
|
2,488 | 3,064 | 5,268 | 6,466 | ||||||||||||
Net interest
income
|
3,027 | 2,830 | 6,026 | 5,653 | ||||||||||||
Provision for loan
losses
|
1,000 | 700 | 2,100 | 775 | ||||||||||||
Net interest income after
provision for loan losses
|
2,027 | 2,130 | 3,926 | 4,878 | ||||||||||||
NON-INTEREST INCOME (LOSS):
|
||||||||||||||||
Service charges and other
fees
|
329 | 331 | 705 | 743 | ||||||||||||
Net gain on sales of loans held
for sale
|
32 | 75 | 46 | 83 | ||||||||||||
Net gain (loss) on sale of
investments
|
(2,560 | ) | (10 | ) | (2,550 | ) | 180 | |||||||||
Total other-than-temporary
impairment losses
|
(41 | ) | (994 | ) | (1,393 | ) | (1,417 | ) | ||||||||
Portion of loss recognized in
other comprehensive income (before taxes)
|
— | 245 | 510 | 245 | ||||||||||||
Net impairment loss recognized in
earnings
|
(41 | ) | (749 | ) | (883 | ) | (1,172 | ) | ||||||||
Increase in cash surrender value
of life insurance
|
101 | 90 | 210 | 245 | ||||||||||||
Other
income
|
67 | 98 | 135 | 189 | ||||||||||||
Total non-interest
income
(loss)
|
(2,072 | ) | (165 | ) | (2,337 | ) | 268 | |||||||||
NON-INTEREST
EXPENSE:
|
||||||||||||||||
Salaries and employee
benefits
|
1,367 | 1,438 | 2,771 | 2,911 | ||||||||||||
Occupancy and
equipment
|
403 | 415 | 797 | 812 | ||||||||||||
Professional
fees
|
342 | 297 | 659 | 659 | ||||||||||||
Federal deposit insurance
premium
|
202 | 219 | 430 | 329 | ||||||||||||
Data
processing
|
160 | 140 | 316 | 293 | ||||||||||||
Advertising
|
44 | 84 | 112 | 215 | ||||||||||||
Deposit
processing
|
169 | 177 | 323 | 323 | ||||||||||||
Merger-related
costs
|
164 | — | 549 | — | ||||||||||||
Other
|
281 | 384 | 629 | 746 | ||||||||||||
Total non-interest
expense
|
3,132 | 3,154 | 6,586 | 6,288 | ||||||||||||
Loss before income tax benefit
|
(3,177 | ) | (1,189 | ) | (4,997 | ) | (1,142 | ) | ||||||||
Income tax benefit
|
— | (402 | ) | (540 | ) | (310 | ) | |||||||||
Net loss
|
(3,177 | ) | (787 | ) | (4,457 | ) | (832 | ) | ||||||||
Less: Net income attributable to
noncontrolling interest
|
(17 | ) | (19 | ) | (31 | ) | (36 | ) | ||||||||
Net loss attributable to First
Keystone Financial, Inc.
|
$ | (3,194 | ) | $ | (806 | ) | $ | (4,488 | ) | $ | (868 | ) | ||||
Earnings
per common share:
|
||||||||||||||||
Basic
|
$ | (1.37 | ) | $ | (0.35 | ) | $ | (1.92 | ) | $ | (0.37 | ) | ||||
Diluted
|
$ | (1.37 | ) | $ | (0.35 | ) | $ | (1.92 | ) | $ | (0.37 | ) | ||||
Weighted average shares –
basic
|
2,334,456 | 2,325,768 | 2,333,358 | 2,324,670 | ||||||||||||
Weighted average shares –
diluted
|
2,334,456 | 2,325,768 | 2,333,358 | 2,324,670 |
See notes
to unaudited consolidated financial statements.
- 2
-
FIRST
KEYSTONE FINANCIAL, INC.
UNAUDITED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(dollars
in thousands)
Common
stock
|
Additional
paid-in
capital
|
Employee
stock
ownership
plan
|
Treasury
stock
|
Accumulated
other
comprehensive
income (loss)
|
Retained
earnings-
partially
restricted
|
Non-
controlling
interest
|
Total
stockholders’
equity
|
|||||||||||||||||||||||||
BALANCE
AT OCTOBER 1, 2008
|
$ | 27 | $ | 12,586 | $ | (2,872 | ) | $ | (4,244 | ) | $ | (2,714 | ) | $ | 29,513 | $ | 113 | $ | 32,409 | |||||||||||||
Net
income (loss)
|
— | — | — | — | — | (868 | ) | 36 | (832 | ) | ||||||||||||||||||||||
Cash
dividends issued
|
— | — | — | — | — | — | (79 | ) | (79 | ) | ||||||||||||||||||||||
Other
comprehensive income (loss), net of tax:
|
||||||||||||||||||||||||||||||||
Unrealized
loss on securities for which an other-than-temporary impairment loss has
been recognized in earnings, net of taxes of
$83
|
— | — | — | — | (162 | ) | — | — | (162 | ) | ||||||||||||||||||||||
Net unrealized gain
on securities, net of reclassification adjustment, net of taxes of
$(955)(1)
|
— | — | — | — | 1,854 | — | — | 1,854 | ||||||||||||||||||||||||
Comprehensive
income
|
— | — | — | — | — | — | — | 781 | ||||||||||||||||||||||||
Share-based
compensation
|
— | 4 | — | — | — | — | — | 4 | ||||||||||||||||||||||||
ESOP
shares committed to be released
|
— | — | 59 | — | — | — | — | 59 | ||||||||||||||||||||||||
Difference
between cost and fair value of ESOP shares committed to be
released
|
— | (16 | ) | — | — | — | — | — | (16 | ) | ||||||||||||||||||||||
BALANCE
AT MARCH 31, 2009
|
$ | 27 | $ | 12,574 | $ | (2,813 | ) | $ | (4,244 | ) | $ | (1,022 | ) | $ | 28,645 | $ | 70 | $ | 33,237 | |||||||||||||
BALANCE
AT OCTOBER 1, 2009
|
$ | 27 | $ | 12,565 | $ | (2,751 | ) | $ | (4,244 | ) | $ | 87 | $ | 27,932 | $ | 104 | $ | 33,720 | ||||||||||||||
Net
income (loss)
|
— | — | — | — | — | (4,488 | ) | 31 | (4,457 | ) | ||||||||||||||||||||||
Cash
dividends issued
|
— | — | — | — | — | — | (63 | ) | (63 | ) | ||||||||||||||||||||||
Other
comprehensive income (loss), net of tax:
|
||||||||||||||||||||||||||||||||
Unrealized
loss on securities for which an other-than-temporary impairment loss has
been recognized in earnings, net of taxes of
$(173)
|
— | — | — | — | 337 | — | — | 580 | ||||||||||||||||||||||||
Net unrealized gain
on securities, net of reclassification adjustment net of taxes of
$(505)
(1)
|
— | — | — | — | 981 | — | — | 738 | ||||||||||||||||||||||||
Comprehensive
loss
|
— | — | — | — | — | — | — | (3,202 | ) | |||||||||||||||||||||||
Share-based
compensation
|
— | 6 | — | — | — | — | — | 6 | ||||||||||||||||||||||||
ESOP
shares committed to be released
|
— | — | 64 | — | — | — | — | 64 | ||||||||||||||||||||||||
Difference
between cost and fair value of ESOP shares committed to be
released
|
— | (9 | ) | — | — | — | — | — | (9 | ) | ||||||||||||||||||||||
BALANCE
AT MARCH 31, 2010
|
$ | 27 | $ | 12,562 | $ | (2,687 | ) | $ | (4,244 | ) | $ | 1,405 | $ | 23,444 | $ | 72 | $ | 30,579 |
(1)
|
Components
of other comprehensive gain:
|
March 31,
|
||||||||
2010
|
2009
|
|||||||
Change
in net unrealized gain (loss) on investment securities available for sale,
net of taxes
|
$ | (948 | ) | $ | 1,037 | |||
Reclassification
adjustment for net (gains) losses included in net loss, net of taxes of
$(867) and $61, respectively
|
1,683 | (119 | ) | |||||
Reclassification
adjustment for other-than-temporary impairment losses on securities
included in net loss, net of tax benefit of $300 and $398,
respectively
|
583 | 774 | ||||||
Net
unrealized gain (loss) on securities, net of taxes
|
$ | 1,318 | $ | 1,692 |
- 3
-
FIRST
KEYSTONE FINANCIAL, INC.
UNAUDITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars
in thousands)
Six months ended
March 31,
|
||||||||
2010
|
2009
|
|||||||
OPERATING
ACTIVITIES:
|
||||||||
Net loss
|
$ | (4,488 | ) | $ | (868 | ) | ||
Adjustments to reconcile net
loss to net cash provided
by (used
in) operating
activities:
|
||||||||
Provision for depreciation and
amortization
|
256 | 288 | ||||||
Amortization of premiums and
discounts
|
149 | (4 | ) | |||||
Increase in cash surrender value
of life insurance
|
(210 | ) | (245 | ) | ||||
(Gain) loss on sales
of:
|
||||||||
Loans held for
sale
|
(46 | ) | (83 | ) | ||||
Investment securities available
for sale
|
3,697 | 85 | ||||||
Mortgage-related securities
available for sale
|
(1,147 | ) | (265 | ) | ||||
Impairment losses realized in
earnings
|
883 | 1,172 | ||||||
Provision for loan
losses
|
2,100 | 775 | ||||||
Amortization of
ESOP
|
55 | 43 | ||||||
Share-based
compensation
|
6 | 4 | ||||||
Change in noncontrolling
interest
|
31 | 36 | ||||||
Changes in assets and liabilities
which provided (used) cash:
|
||||||||
Origination of loans held for
sale
|
(3,635 | ) | (10,035 | ) | ||||
Loans sold in the secondary
market
|
3,681 | 10,118 | ||||||
Accrued interest
receivable
|
289 | 204 | ||||||
Prepaid FDIC
assessment
|
(3,024 | ) | — | |||||
Prepaid expenses and other
assets
|
(987 | ) | (885 | ) | ||||
Accrued interest
payable
|
(430 | ) | (15 | ) | ||||
Accrued
expenses
|
(425 | ) | (62 | ) | ||||
Net cash provided by (used in) operating
activities
|
(3,245 | ) | 263 | |||||
INVESTING
ACTIVITIES:
|
||||||||
Loans
originated
|
(34,591 | ) | (73,031 | ) | ||||
Purchases
of:
|
||||||||
Mortgage-related securities available for
sale
|
(6,706 | ) | (24,187 | ) | ||||
Investment securities available for
sale
|
(17,693 | ) | (4,966 | ) | ||||
Redemption of FHLB
stock
|
— | 1,328 | ||||||
Purchase of FHLB
stock
|
— | (1,393 | ) | |||||
Proceeds from sales of investment
and mortgage-related securities available for sale
|
53,572 | 23,532 | ||||||
Principal collected on
loans
|
43,355 | 68,421 | ||||||
Proceeds from maturities, calls,
or repayments of:
|
||||||||
Investment securities available
for sale
|
676 | 4,421 | ||||||
Mortgage-related securities
available for sale
|
10,748 | 8,753 | ||||||
Mortgage-related securities held
to maturity
|
2,712 | 2,637 | ||||||
Purchase of property and
equipment
|
(58 | ) | (208 | ) | ||||
Net cash provided by (used in)
investing
activities
|
52,015 | (5,307 | ) | |||||
FINANCING
ACTIVITIES:
|
||||||||
Net decrease in deposit
accounts
|
(15,782 | ) | (6,860 | ) | ||||
FHLBank advances and other
borrowings - repayments
|
(4 | ) | (98,936 | ) | ||||
FHLBank advances and other
borrowings - draws
|
— | 88,024 | ||||||
Net increase in advances from
borrowers for taxes and insurance
|
1,139 | 1,078 | ||||||
Net increase (decrease) in
short-term borrowings
|
(21,323 | ) | 18,076 | |||||
Net cash provided by (used in) financing
activities
|
(35,970 | ) | 1,382 | |||||
Increase in cash and cash
equivalents
|
12,800 | 6,952 | ||||||
Cash and cash equivalents at
beginning of period
|
47,658 | 39,320 | ||||||
Cash and cash equivalents at end
of period
|
$ | 60,458 | $ | 46,272 | ||||
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW AND NON-CASH INFORMATION:
|
||||||||
Cash payments for interest on
deposits and borrowings
|
$ | 5,698 | $ | 6,481 | ||||
Cash payments (refunds) of income
taxes
|
(130 | ) | 60 |
See notes
to unaudited consolidated financial statements.
- 4
-
FIRST
KEYSTONE FINANCIAL, INC.
NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars
in thousands, except per share amounts)
1.
|
BASIS
OF PRESENTATION
|
The
accompanying unaudited consolidated financial statements have been prepared in
accordance with instructions to Form 10-Q. Accordingly, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial
statements. However, such information reflects all adjustments
(consisting solely of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the
periods.
The
results of operations for the three and six months ended March 31, 2010 are not
necessarily indicative of the results to be expected for the fiscal year ending
September 30, 2010 or any other period. The consolidated financial
statements presented herein should be read in conjunction with the audited
consolidated financial statements and related notes thereto included in the
First Keystone Financial, Inc. (the “Company”) Annual Report on Form 10-K for
the year ended September 30, 2009.
2.
|
INVESTMENT
SECURITIES
|
The
amortized cost and approximate fair value of investment securities available for
sale and held to maturity, by contractual maturities, are as
follows:
March 31, 2010
|
||||||||||||||||
Amortized
Cost
|
Gross
Unrealized
Gain
|
Gross
Unrealized
Loss
|
Approximate
Fair Value
|
|||||||||||||
Available
for Sale:
|
||||||||||||||||
Municipal
obligations
|
||||||||||||||||
1
to 5 years
|
$ | 1,837 | $ | 101 | $ | — | $ | 1,938 | ||||||||
5
to 10 years
|
5,033 | 342 | — | 5,375 | ||||||||||||
Over
10 years
|
998 | 66 | — | 1,064 | ||||||||||||
Corporate
bonds
|
||||||||||||||||
Less
than 1 year
|
5,529 | 249 | — | 5,778 | ||||||||||||
1
to 5 years
|
1,171 | 25 | — | 1,196 | ||||||||||||
Mutual
funds
|
2,917 | 124 | — | 3,041 | ||||||||||||
U.S.
government agency bonds
|
||||||||||||||||
1
to 5 years
|
17,062 | 1 | (46 | ) | 17,017 | |||||||||||
Other
equity investments
|
735 | — | (57 | ) | 678 | |||||||||||
Total
|
$ | 35,282 | $ | 908 | $ | (103 | ) | $ | 36,087 | |||||||
Held
to Maturity:
|
||||||||||||||||
Municipal
obligations
|
||||||||||||||||
1
to 5 years
|
$ | 2,804 | $ | 180 | $ | — | $ | 2,984 |
- 5
-
Provided
below is a summary of investment securities available for sale and held to
maturity which were in an unrealized loss position at March 31,
2010.
Loss Position
Less than 12 Months
|
Loss Position
12 Months or Longer
|
Total
|
||||||||||||||||||||||
Approximate
Fair Value
|
Unrealized
Losses
|
Approximate
Fair Value
|
Unrealized
Losses
|
Approximate
Fair Value
|
Unrealized
Losses
|
|||||||||||||||||||
U.S.
government agency bonds
|
$ | 12,516 | $ | (46 | ) | $ | — | $ | — | $ | 12,516 | $ | (46 | ) | ||||||||||
Other
equity investments
|
277 | (57 | ) | — | — | 277 | (57 | ) | ||||||||||||||||
Total
|
$ | 12,793 | $ | (103 | ) | $ | — | $ | — | $ | 12,793 | $ | (103 | ) |
The above
table represents four investment securities where the current value was less
than the related amortized cost.
The
Company adopted a provision of generally accepted accounting principles (“GAAP”)
which provides for the bifurcation of other-than-temporary impairments (“OTTI”)
into two categories: (a) the amount of the total OTTI related to a decrease in
cash flows expected to be collected from the debt security (the credit loss)
which is recognized in earnings and (b) the amount of total OTTI related to all
other factors, which is recognized, net of income taxes, as a component of other
comprehensive income (“OCI”). The Company recorded, during the six months ended
March 31, 2010, a $536 (before tax) impairment not related to credit losses on
its investment in three pooled trust preferred securities, through other
comprehensive income rather than through earnings and a $659 (before tax)
credit-related impairment on the same three pooled trust preferred securities,
through earnings.
The
following table details the rollforward of credit-related impairments on pooled
trust preferred securities recorded in earnings and as a component of OCI for
the six months ended March 31, 2010:
Gross OTTI
|
OTTI Included
in OCI
|
OTTI Included
in Earnings
|
||||||||||
October
1, 2009
|
$ | 1,291 | $ | 853 | $ | 438 | ||||||
Additions:
|
1,195 | 536 | 659 | |||||||||
Reductions
for securities sold:
|
(2,486 | ) | (1,389 | ) | (1,097 | ) | ||||||
Balance,
March 31, 2010
|
$ | — | $ | — | $ | — |
For the
six months ended March 31, 2009, pre-tax, credit-related and non-credit-related
impairments on one pooled trust preferred security recorded in earnings and as a
component of other comprehensive income, respectively, totaled $490 and $220,
respectively.
At March
31, 2010, there were no investment securities in a gross unrealized loss
position for twelve months or longer. During the quarter ended March 31, 2010,
as a result of the continued deterioration of the Company’s pooled trust
preferred securities, the Company sold its entire portfolio of pooled trust
preferred securities with an aggregate recorded book value and an estimated
aggregate fair value of $7.7 million and $5.1 million, respectively, at December
31, 2009 (with an aggregate unrealized loss of $2.5 million (pre-tax) recorded
as a component of other comprehensive income at such date). Proceeds from the
sale totaled $3.8 million and resulted in a pre-tax loss of $3.8 million. The
Company will continue to review its investment portfolio to determine whether
any particular impairment contained therein is other than temporary. Management
does not believe that any individual unrealized loss as of March 31, 2010
represents an OTTI.
Proceeds
from the sales of available-for-sale investments securities for the six months
ended March 31, 2010 totaled $7.0 million. Gains on sales of available-for-sale
investment securities for the six months ended March 31, 2010 totaled $142.
Losses on sales of available-for-sale investment securities for the six months
ended March 31, 2010 totaled $3.8 million, resulting in a pre-tax net loss of
$3.7 million.
- 6
-
The
amortized cost and approximate fair value of investment securities available for
sale and held to maturity, by contractual maturities, as of September 30, 2009
are as follows:
September 30, 2009
|
||||||||||||||||
Amortized
Cost
|
Gross
Unrealized
Gain
|
Gross
Unrealized
Loss
|
Approximate
Fair Value
|
|||||||||||||
Available
for Sale:
|
||||||||||||||||
Municipal
obligations
|
||||||||||||||||
1
to 5 years
|
$ | 941 | $ | 18 | $ | — | $ | 959 | ||||||||
5
to 10 years
|
7,076 | 592 | — | 7,668 | ||||||||||||
Over
10 years
|
998 | 89 | — | 1,087 | ||||||||||||
Corporate
bonds
|
||||||||||||||||
Less
than 1 year
|
588 | 15 | — | 603 | ||||||||||||
1
to 5 years
|
7,401 | 220 | (201 | ) | 7,420 | |||||||||||
Pooled
trust preferred securities
|
8,521 | — | (2,903 | ) | 5,618 | |||||||||||
Mutual
funds
|
3,387 | 140 | — | 3,527 | ||||||||||||
Other
equity investments
|
734 | — | (52 | ) | 682 | |||||||||||
Total
|
$ | 29,646 | $ | 1,074 | $ | (3,156 | ) | $ | 27,564 | |||||||
Held
to Maturity:
|
||||||||||||||||
Municipal
obligations
|
||||||||||||||||
1
to 5 years
|
$ | 2,805 | $ | 159 | $ | — | $ | 2,964 |
Provided
below is a summary of investment securities available for sale and held to
maturity which were in an unrealized loss position at September 30,
2009.
Loss Position
|
Loss Position
|
|||||||||||||||||||||||
Less than 12 Months
|
12 Months or Longer
|
Total
|
||||||||||||||||||||||
Approximate
|
Unrealized
|
Approximate
|
Unrealized
|
Approximate
|
Unrealized
|
|||||||||||||||||||
Fair Value
|
Losses
|
Fair Value
|
Losses
|
Fair Value
|
Losses
|
|||||||||||||||||||
Corporate
bonds
|
$ | — | $ | — | $ | 2,371 | $ | (201 | ) | $ | 2,371 | $ | (201 | ) | ||||||||||
Pooled
trust preferred securities
|
— | — | 5,618 | (2,903 | ) | 5,618 | (2,903 | ) | ||||||||||||||||
Other
equity investments
|
282 | (52 | ) | — | — | 282 | (52 | ) | ||||||||||||||||
Total
|
$ | 282 | $ | (52 | ) | $ | 7,989 | $ | (3,104 | ) | $ | 8,271 | $ | (3,156 | ) |
|
Proceeds
from the sales of available-for-sale investment securities for the six
months ending March 31, 2009 totaled $4.2 million. Losses on sales of
available-for-sale investment securities for the six months ending March
31, 2009 totaled $85. There were no gains on sales of available-for-sale
investment securities for the six months ending March 31,
2009.
|
- 7
-
3.
|
MORTGAGE-RELATED
SECURITIES
|
Mortgage-related securities available
for sale and held to maturity are summarized as follows:
March 31, 2010
|
||||||||||||||||
Amortized Cost
|
Gross
Unrealized
Gain
|
Gross
Unrealized
Loss
|
Approximate
Fair Value
|
|||||||||||||
Available
for Sale:
|
||||||||||||||||
FHLMC
pass-through certificates
|
$ | 4,209 | $ | 229 | $ | — | $ | 4,438 | ||||||||
FNMA
pass-through certificates
|
23,770 | 911 | — | 24,681 | ||||||||||||
GNMA
pass-through certificates
|
942 | 22 | — | 964 | ||||||||||||
Collateralized
mortgage obligations
|
5,287 | 181 | (19 | ) | 5,449 | |||||||||||
Total
|
$ | 34,208 | $ | 1,343 | $ | (19 | ) | $ | 35,532 | |||||||
Held
to Maturity:
|
||||||||||||||||
FHLMC
pass-through certificates
|
$ | 6,173 | $ | 213 | $ | — | $ | 6,386 | ||||||||
FNMA
pass-through certificates
|
10,257 | 462 | (6 | ) | 10,713 | |||||||||||
Total
|
$ | 16,430 | $ | 675 | $ | (6 | ) | $ | 17,099 |
Provided
below is a summary of mortgage-related securities available for sale and held to
maturity which were in an unrealized loss position at March 31,
2010.
Loss Position
Less than 12 Months
|
Loss Position
12 Months or Longer
|
Total
|
||||||||||||||||||||||
Approximate
Fair Value
|
Unrealized
Losses
|
Approximate
Fair Value
|
Unrealized
Losses
|
Approximate
Fair Value
|
Unrealized
Losses
|
|||||||||||||||||||
Pass-through
certificates
|
$ | — | $ | — | $ | 72 | $ | (6 | ) | $ | 72 | $ | (6 | ) | ||||||||||
Collateralized
mortgage obligations
|
205 | (6 | ) | 89 | (13 | ) | 294 | (19 | ) | |||||||||||||||
Total
|
$ | 205 | $ | (6 | ) | $ | 161 | $ | (19 | ) | $ | 366 | $ | (25 | ) |
The above
table represents six mortgage-related securities for which the market value at
March 31, 2010 was less than the amortized cost.
The
Company reviews mortgage-related securities on an ongoing basis for the presence
of OTTI with formal reviews performed quarterly. The Company adopted a provision
of GAAP which provides for the bifurcation of OTTI into two categories: (a) the
amount of the total OTTI related to a decrease in cash flows expected to be
collected from the debt security (the credit loss) which is recognized in
earnings and (b) the amount of total OTTI related to all other factors, which is
recognized, net of income taxes, as a component of OCI. The Company recorded
through earnings, during the six months ended March 31, 2010, credit-related
impairments aggregating $225 on five private label collateralized mortgage
obligations.
The
following table details the rollforward of credit-related impairments on
collateralized mortgage obligations recorded in earnings and as a component of
OCI for the six months ended March 31, 2010:
Gross OTTI
|
OTTI Included
in OCI
|
OTTI Included
in Earnings
|
||||||||||
October
1, 2009
|
$ | 81 | $ | 26 | $ | 55 | ||||||
Additions:
|
— | — | — | |||||||||
Reductions
for credit losses _recognized in
earnings:
|
(81 | ) | (26 | ) | (55 | ) | ||||||
Balance,
March 31, 2010
|
$ | — | $ | — | $ | — |
For the
six months ended March 31, 2009, pre-tax, credit-related and non-credit-related
impairments on two private label collateralized mortgage obligations recorded in
earnings and as a component of other comprehensive income, respectively, totaled
$43 and $26, respectively.
- 8
-
Proceeds
from the sales of available-for-sale mortgage-related securities for the six
months ending March 31, 2010 totaled $46.6 million. Gains on sales of
available-for-sale mortgage-related securities for the six months ending March
31, 2010 totaled $1.2 million. Losses on sales of available-for-sale
mortgage-related securities for the six months ending March 31, 2010 totaled
$47, resulting in a net pre-tax gain of $1.1 million.
At March
31, 2010, mortgage-related securities in a gross unrealized loss position for
twelve months or longer consisted of two securities having an aggregate
depreciation of 10.3% from the Company's amortized cost basis. Management does
not believe any individual unrealized loss as of March 31, 2010 represents an
other-than-temporary impairment. The unrealized losses reported for
mortgage-related securities relate primarily to securities issued by the FMNA
and private institutions. Management believes that the substantial majority of
the unrealized losses associated with mortgage-related securities are
attributable to changes in interest rates and conditions in the financial and
credit markets not due to the deterioration of the creditworthiness of the
issuer. The Company does not have the intent to sell these securities and it is
more likely than not that it will not have to sell the securities before
recovery of their cost bases. However, the Company will continue to review its
investment portfolio to determine whether any particular impairment is other
than temporary.
Mortgage-related
securities available for sale and held to maturity as of September 30, 2009 are
summarized as follows:
September 30, 2009
|
||||||||||||||||
Amortized
Cost
|
Gross
Unrealized
Gain
|
Gross
Unrealized
Loss
|
Approximate
Fair Value
|
|||||||||||||
Available
for Sale:
|
||||||||||||||||
FHLMC
pass-through certificates
|
$ | 17,757 | $ | 663 | $ | (4 | ) | $ | 18,416 | |||||||
FNMA
pass-through certificates
|
41,930 | 1,662 | (3 | ) | 43,589 | |||||||||||
GNMA
pass-through certificates
|
4,019 | 24 | (14 | ) | 4,029 | |||||||||||
Collateralized
mortgage obligations
|
20,277 | 243 | (357 | ) | 20,163 | |||||||||||
Total
|
$ | 83,983 | $ | 2,592 | $ | (378 | ) | $ | 86,197 | |||||||
Held
to Maturity:
|
||||||||||||||||
FHLMC
pass-through certificates
|
$ | 7,258 | $ | 280 | $ | — | $ | 7,538 | ||||||||
FNMA
pass-through certificates
|
11,900 | 496 | (5 | ) | 12,391 | |||||||||||
Total
|
$ | 19,158 | $ | 776 | $ | (5 | ) | $ | 19,929 |
Provided
below is a summary of mortgage-related securities available for sale and held to
maturity which were in an unrealized loss position at September 30,
2009.
Loss Position
Less than 12 Months
|
Loss Position
12 Months or Longer
|
Total
|
||||||||||||||||||||||
Approximate
Fair Value
|
Unrealized
Losses
|
Approximate
Fair Value
|
Unrealized
Losses
|
Approximate
Fair Value
|
Unrealized
Losses
|
|||||||||||||||||||
Pass-through
certificates
|
$ | 5,867 | $ | (20 | ) | $ | 82 | $ | (6 | ) | $ | 5,949 | $ | (26 | ) | |||||||||
Collateralized
mortgage obligations
|
— | — | 8,385 | (357 | ) | 8,385 | (357 | ) | ||||||||||||||||
Total
|
$ | 5,867 | $ | (20 | ) | $ | 8,467 | $ | (363 | ) | $ | 14,334 | $ | (383 | ) |
- 9
-
The
collateralized mortgage obligations contain both fixed and adjustable-rate
classes of securities which are repaid in accordance with a predetermined
priority. The underlying collateral of the securities consisted of
loans which are primarily guaranteed by FHLMC, FNMA and GNMA.
Proceeds
from the sales of available-for-sale mortgage-related securities for the six
months ending March 31, 2009 totaled $19.3 million. Gains on sales of
available-for-sale mortgage-related securities for the six months ending March
31, 2009 totaled $289. Losses on sales of available-for-sale mortgage-related
securities for the six months ending March 31, 2009 totaled $24, resulting in a
net pre-tax gain of $265.
4.
|
FAIR
VALUE MEASUREMENT
|
The
Company adopted new, generally accepted accounting principles related to fair
value measurements on October 1, 2008, which are designed to provide consistency
and comparability in determining fair value measurements and provide for
expanded disclosures about fair value measurements. The definition of fair value
maintains the exchange price notion in earlier definitions of fair value but
focuses on the exit price of the asset or liability. The exit price is the price
that would be received to sell the asset or paid to transfer the liability
adjusted for certain inherent risks and restrictions. Expanded disclosures are
also required about the use of fair value to measure assets and
liabilities.
The
following table presents information about the Company’s available for sale
securities, mortgage servicing rights and impaired loans measured at fair value
as of March 31, 2010, and indicates the fair value hierarchy of the valuation
techniques utilized by the Company to determine such fair value:
Fair Value Measurement at March 31, 2010 Using:
|
||||||||||||||||
Total
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
Significant Other
Observable Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
|||||||||||||
Assets measured at fair value
on a recurring basis:
|
||||||||||||||||
Pass-through
certificates
|
$ | 30,083 | $ | — | $ | 30,083 | $ | — | ||||||||
Collateralized
mortgage obligations
|
5,449 | — | 5,449 | — | ||||||||||||
U.S.
government agency bonds
|
17,017 | 17,017 | — | |||||||||||||
Municipal
obligations
|
8,377 | — | 8,377 | — | ||||||||||||
Corporate
bonds
|
5,944 | — | 5,944 | — | ||||||||||||
Mutual
funds
|
3,041 | 3,041 | — | — | ||||||||||||
Other
equity investments
|
277 | 277 | — | — | ||||||||||||
Assets measured at fair value
on a non-recurring basis:
|
||||||||||||||||
Mortgage
servicing rights
|
319 | — | — | 319 | ||||||||||||
Impaired
loans
|
6,659 | — | 6,659 | — | ||||||||||||
Other
real estate owned
|
370 | — | 370 | — |
- 10
-
The
following table presents information about the Company’s available for sale
securities, mortgage servicing rights and impaired loans measured at fair value
as of September 30, 2009, and indicates the fair value hierarchy of the
valuation techniques utilized by the Company to determine such fair
value:
Fair Value Measurement at September 30, 2009 Using:
|
||||||||||||||||
Total
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
Significant Other
Observable Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
|||||||||||||
Assets measured at fair value
on a recurring basis:
|
||||||||||||||||
Pass-through
certificates
|
$ | 66,034 | $ | — | $ | 66,034 | $ | — | ||||||||
Collateralized
mortgage obligations
|
20,163 | — | 20,163 | — | ||||||||||||
Municipal
obligations
|
9,714 | — | 9,714 | — | ||||||||||||
Corporate
bonds
|
8,023 | — | 8,023 | — | ||||||||||||
Pooled
trust preferred securities
|
5,618 | — | — | 5,618 | ||||||||||||
Mutual
funds
|
3,527 | 3,527 | — | — | ||||||||||||
Other
equity investments
|
282 | 282 | — | — | ||||||||||||
Assets measured at fair value
on a non-recurring basis:
|
||||||||||||||||
Mortgage
servicing rights
|
314 | — | — | 314 | ||||||||||||
Impaired
loans
|
6,667 | — | 6,667 | — |
The
following table presents the changes in the Level 3 fair-value category for the
six months ended March 31, 2010. The Company classifies financial instruments in
Level 3 of the fair-value hierarchy when there is reliance on at least one
significant unobservable input to the valuation model. In addition to these
unobservable inputs, the valuation models for Level 3 financial instruments
typically also rely on a number of inputs that are readily observable either
directly or indirectly.
Fair Value Measurements Using
Significant Unobservable Inputs
(Level 3)
|
||||
Available for Sale Securities
|
||||
Beginning
balance
|
$ | 5,618 | ||
Total
gains or losses (realized/unrealized)
|
||||
|
||||
Included
in earnings
|
(659 | ) | ||
Included
in other comprehensive income
|
2,903 | |||
Purchases,
sales, issuances and settlements, net
|
(7,862 | ) | ||
Transfers
in and/or out of Level 3
|
— | |||
Ending
balance
|
$ | — | ||
The
amount of total losses for the period included in earnings attributable to
the change in unrealized losses relating to assets still held at the
reporting date
|
$ | — |
- 11
-
Most of
the securities classified as available for sale are reported at fair value
utilizing Level 2 inputs. For these securities, the Company obtains fair value
measurements from an independent pricing service. The fair value
measurements consider observable data that may include dealer quoted market
spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade
execution data, market consensus prepayment speeds, credit information and the
securities’ terms and conditions, among other things.
Securities
reported at fair value utilizing Level 1 inputs are limited to actively traded
equity securities whose market price is readily available from the New York
Stock Exchange or the NASDAQ stock market.
Securities
reported at fair value utilizing Level 3 inputs consist predominantly of
corporate debt securities for which there is no active market. Fair values for
these securities are determined utilizing discounted cash flow models which
incorporate various assumptions including average historical spreads, credit
ratings, and liquidity of the underlying securities.
Mortgage
servicing rights (“MSRs”) are carried at the lower of cost or estimated fair
value. The estimated fair values of MSRs are obtained through independent
third-party valuations through an analysis of future cash flows, incorporating
estimates of assumptions market participants would use in determining fair
value, including market discount rates, prepayment speeds, servicing income,
servicing costs, default rates and other market-driven data, including the
market’s perception of future interest rate movements and, as such, are
classified as Level III.
Other
real estate owned is carried at estimated fair value based on independent
third-party valuations, less selling costs.
The
Company has measured impairment on impaired loans generally based on the fair
value of the loan’s collateral. Fair value is generally determined based upon
independent third-party appraisals of the properties. These assets are included
above as Level 2 fair values. The fair value consists of the loan balances of
$9.7 million and $7.9 million less their valuation allowances of $3.0 million
and $1.3 million at March 31, 2010 and September 30, 2009,
respectively.
5.
|
LOANS
RECEIVABLE
|
Loans receivable consist of the
following:
March 31,
|
September 30,
|
|||||||
2010
|
2009
|
|||||||
Single-family
|
$ | 142,137 | $ | 146,258 | ||||
Construction
and land
|
27,206 | 28,984 | ||||||
Multi-family
and commercial
|
67,066 | 67,241 | ||||||
Home
equity and lines of credit
|
51,518 | 54,612 | ||||||
Consumer
loans
|
1,340 | 2,030 | ||||||
Commercial
loans
|
20,747 | 22,180 | ||||||
Total
loans
|
310,014 | 321,305 | ||||||
Loans
in process
|
(8,195 | ) | (10,228 | ) | ||||
Allowance
for loan losses
|
(6,674 | ) | (4,657 | ) | ||||
Deferred
loan costs
|
201 | 180 | ||||||
Loans
receivable, net
|
$ | 295,346 | $ | 306,600 |
At March
31, 2010 and September 30, 2009, non-performing loans (which include loans in
excess of 90 days delinquent) amounted to approximately $7,244 and $5,417,
respectively. At March 31, 2010, non-performing loans consisted of
eight single-family residential mortgage loans aggregating $703, three
non-residential mortgage loans aggregating $2,800, one commercial business loan
of $85, five construction loans aggregating $3,557, one home equity loan of $93,
and one consumer loan of $5.
At March
31, 2010 and September 30, 2009 the Company had impaired loans with a total
recorded investment of $9,688 and $7,934, respectively. Interest
income of $234 was recognized on these impaired loans during the six months
ended March 31, 2010. Interest income of approximately $117 was not
recognized as interest income due to the non-accrual status of such loans for
the six months ended March 31, 2010.
- 12
-
Loans
collectively evaluated for impairment include single-family residential real
estate, home equity (including lines of credit) and consumer loans and are not
included in the data that follow:
March 31,
2010
|
September 30,
2009
|
|||||||
Impaired
loans with related allowance for loan losses under ASC
310-10-35-13
|
$ | 8,119 | $ | 4,536 | ||||
Impaired
loans with no related allowance for loan losses under ASC
310-10-35-13
|
1,569 | 3,398 | ||||||
Total
impaired loans
|
$ | 9,688 | $ | 7,934 | ||||
Valuation
allowance related to impaired loans
|
$ | 3,029 | $ | 1,267 |
The
following is an analysis of the allowance for loan losses:
Six Months Ended
|
||||||||
March 31,
|
||||||||
2010
|
2009
|
|||||||
Balance
beginning of period
|
$ | 4,657 | $ | 3,453 | ||||
Provisions
charged to income
|
2,100 | 775 | ||||||
Charge-offs
|
(171 | ) | (250 | ) | ||||
Recoveries
|
88 | 20 | ||||||
Total
|
$ | 6,674 | $ | 3,998 |
6.
|
DEPOSITS
|
Deposits consist of the following major
classifications:
March
31,
|
September
30,
|
|||||||||||||||
2010
|
2009
|
|||||||||||||||
Amount
|
Percent
|
Amount
|
Percent
|
|||||||||||||
Non-interest
bearing
|
$ | 21,603 | 6.5 | % | $ | 18,971 | 5.5 | % | ||||||||
NOW
|
75,407 | 22.8 | 73,620 | 21.2 | ||||||||||||
Passbook
|
42,818 | 12.9 | 39,361 | 11.3 | ||||||||||||
Money
market demand
|
50,063 | 15.1 | 46,604 | 13.4 | ||||||||||||
Certificates
of deposit
|
141,451 | 42.7 | 168,568 | 48.6 | ||||||||||||
Total
|
$ | 331,342 | 100.0 | % | $ | 347,124 | 100.0 | % |
- 13
-
7.
|
EARNINGS
PER SHARE
|
Basic net
income (loss) per share is based upon the weighted average number of common
shares outstanding, while diluted net income (loss) per share is based upon the
weighted average number of common shares outstanding and common share
equivalents that would arise from the exercise of dilutive
securities. All dilutive shares consist of options the exercise price
of which is lower than the market price of the common stock covered thereby at
the dates presented. At March 31, 2010 and 2009, anti-dilutive shares consisted
of options covering 26,198 and 58,566 shares, respectively.
The calculation of basic and diluted
earnings per share (“EPS”) is as follows:
Three Months Ended
March 31,
|
Six Months Ended
March 31,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Numerator
|
$ | (3,194 | ) | $ | (806 | ) | $ | (4,488 | ) | $ | (868 | ) | ||||
Denominators:
|
||||||||||||||||
Basic
shares outstanding
|
2,334,456 | 2,325,768 | 2,333,358 | 2,324,670 | ||||||||||||
Effect
of dilutive securities
|
— | — | — | — | ||||||||||||
Dilutive
shares outstanding
|
2,334,456 | 2,325,768 | 2,333,358 | 2,324,670 | ||||||||||||
Earnings
per share:
|
||||||||||||||||
Basic
|
$ | (1.37 | ) | $ | (0.35 | ) | $ | (1.92 | ) | $ | (0.37 | ) | ||||
Diluted
|
$ | (1.37 | ) | $ | (0.35 | ) | $ | (1.92 | ) | $ | (0.37 | ) |
8.
|
REGULATORY
CAPITAL REQUIREMENTS
|
The Bank
is subject to various regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum regulatory capital
requirements can result in certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Company’s financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank’s assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The Bank’s capital amounts and
classification are also subject to qualitative judgments by regulators about
components, risk weightings, and other factors.
Quantitative
measures established by regulation to ensure capital adequacy require the Bank
to maintain minimum amounts and ratios (set forth below) of tangible and core
capital (as defined in the regulations) to adjusted assets (as defined), and of
Tier I and total capital (as defined) to average assets (as defined). Management
believes, as of March 31, 2010, that the Bank met all regulatory capital
adequacy requirements to which it was subject.
The
Bank’s actual capital amounts and ratios are presented in the following
table.
- 14
-
Actual
|
Required for
Capital Adequacy
Purpose
|
Well Capitalized
Under Prompt
Corrective Action
|
||||||||||||||||||||||
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
|||||||||||||||||||
At
March 31, 2010:
|
||||||||||||||||||||||||
Core
Capital (to Adjusted Tangible Assets)
|
$ | 39,299 | 8.11 | % | $ | 19,388 | 4.0 | % | $ | 24,235 | 5.0 | % | ||||||||||||
Tier
I Capital (to Risk-Weighted Assets)
|
39,299 | 12.84 | N/A | N/A | 18,366 | 6.0 | ||||||||||||||||||
Total
Capital (to Risk-Weighted Assets)
|
43,000 | 14.05 | 24,488 | 8.0 | 30,609 | 10.0 | ||||||||||||||||||
Tangible
Capital (to Tangible Assets)
|
39,265 | 8.10 | 7,270 | 1.5 | N/A | N/A | ||||||||||||||||||
At
September 30, 2009:
|
||||||||||||||||||||||||
Core
Capital (to Adjusted Tangible Assets)
|
$ | 43,308 | 8.23 | % | $ | 21,049 | 4.0 | % | $ | 26,312 | 5.0 | % | ||||||||||||
Tier
I Capital (to Risk-Weighted Assets)
|
43,308 | 12.75 | N/A | N/A | 20,380 | 6.0 | ||||||||||||||||||
Total
Capital (to Risk-Weighted Assets)
|
46,761 | 13.77 | 27,174 | 8.0 | 33,967 | 10.0 | ||||||||||||||||||
Tangible
Capital (to Tangible Assets)
|
43,270 | 8.22 | 7,893 | 1.5 | N/A | N/A |
On
February 13, 2006, the Bank entered into a supervisory agreement with the Office
of Thrift Supervision (“OTS”). The supervisory agreement requires the
Bank, among other things, to maintain minimum core capital and total risk-based
capital ratios of 7.5% and 12.5%, respectively. At March 31, 2010,
the Bank was in compliance with such requirement. The Bank has been deemed to be
"well-capitalized" for purposes of the prompt corrective action regulations by
the OTS. However, due to the supervisory agreement, it is still deemed to be in
“troubled condition.”
9.
|
RECENT
ACCOUNTING PRONOUNCEMENTS
|
In September 2009, the FASB issued new
guidance impacting Topic 820. This creates a practical expedient to measure the
fair value of an alternative investment that does not have a readily
determinable fair value. This guidance also requires certain additional
disclosures. This guidance is effective for interim and annual periods ending
after December 15, 2009. The adoption of this guidance did not have a material
impact on the Company’s financial position or results of
operation.
In August
2009, the FASB issued ASU No. 2009-05, Fair Value Measurements and
Disclosures (Topic 820) – Measuring Liabilities at Fair
Value. This ASU provides amendments for fair value
measurements of liabilities. It provides clarification that in
circumstances in which a quoted price in an active market for the identical
liability is not available, a reporting entity is required to measure fair value
using one or more techniques. ASU 2009-05 also clarifies that when
estimating a fair value of a liability, a reporting entity is not required to
include a separate input or adjustment to other inputs relating to the existence
of a restriction that prevents the transfer of the liability. ASU
2009-05 is effective for the first reporting period (including interim periods)
beginning after issuance or the quarter ending December 31, 2009. The adoption
of this guidance did not have a significant impact on the Company’s financial
statements
In
October 2009, the FASB issued ASU 2009-15, Accounting for Own-Share Lending
Arrangements in Contemplation of Convertible Debt Issuance or Other
Financing. ASU 2009-15 amends Subtopic 470-20 to expand accounting and
reporting guidance for own-share lending arrangements issued in contemplation of
convertible debt issuance. ASU 2009-15 is effective for fiscal years beginning
on or after December 15, 2009 and interim periods within those fiscal years for
arrangements outstanding as of the beginning of those fiscal years. The adoption
of this guidance is not expected to have a significant impact on the Company’s
financial statements.
- 15
-
In
December 2009, the FASB issued ASU 2009-16, Accounting for Transfer of Financial
Assets. ASU 2009-16 provides guidance to improve the
relevance, representational faithfulness, and comparability of the information
that an entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferor’s continuing involvement, if any,
in transferred financial assets. ASU 2009-16 is effective for fiscal
years beginning after November 15, 2009 and for interim periods within those
fiscal years. The adoption of this standard is not expected to have a
material effect on the Company’s results of operations or financial
position.
In December 2009, the FASB issued ASU
2009-17, Improvements to Financial Reporting
by Enterprises Involved with Variable Interest Entities. The objective of ASU 2009-17 is to
improve financial reporting by enterprises involved with variable interest
entities and to provide more relevant and reliable information to users of
financial statements. ASU 2009-17 is effective for fiscal years beginning after November 15, 2009 and
for interim periods within those fiscal years. The adoption of this standard
is not expected to have a
material effect on the Company’s results of operations or financial
position.
In
June 2009, the FASB issued an accounting standard related to the accounting
for transfers of financial assets, which is effective for fiscal years beginning
after November 15, 2009, and interim periods within those fiscal
years. This standard enhances reporting about transfers of financial
assets, including securitizations, and where companies have continuing exposure
to the risks related to transferred financial assets. This standard eliminates
the concept of a “qualifying special-purpose entity” and changes the
requirements for derecognizing financial assets. This standard also requires
additional disclosures about all continuing involvements with transferred
financial assets including information about gains and losses resulting from
transfers during the period. This accounting standard was
subsequently codified into ASC Topic 860. The adoption of this
standard is not expected to have a material effect on the Company’s results of
operations or financial position.
In
December 2007, the FASB issued an accounting standard related to
noncontrolling interests in consolidated financial statements, which is
effective for fiscal years beginning on or after December 15,
2008. This standard establishes accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary,
which is sometimes referred to as minority interest, is an ownership interest in
the consolidated entity that should be reported as equity in the consolidated
financial statements. Among other requirements, this statement requires
consolidated net income to be reported at amounts that include the amounts
attributable to both the parent and the noncontrolling interest. It also
requires disclosure, on the face of the consolidated income statement, of the
amounts of consolidated net income attributable to the parent and to the
noncontrolling interest. This accounting standard was subsequently
codified into ASC 810-10, Consolidation. The
adoption of this standard is reflected in the Company’s financial
statements.
In June 2009, the FASB issued new
authoritative accounting guidance under ASC Topic 810, Consolidation, which amends prior guidance to change
how a company determines when an entity that is insufficiently capitalized or is
not controlled through voting (or similar rights) should be consolidated. The
determination of whether a company is required to consolidate an entity is based
on, among other things, an entity’s purpose and design and a company’s ability
to direct the activities of the entity that most significantly impact the
entity’s economic performance. The new authoritative accounting guidance
requires additional disclosures about the reporting entity’s involvement with
variable-interest entities and any significant changes in risk exposure due to
that involvement as well as its affect on the entity’s financial statements. The
new authoritative accounting guidance under ASC Topic 810 became effective
January 1, 2010 and is not expected to have a significant impact on the
Company’s financial position or results of operations.
On December 30, 2008, the FASB issued
new authoritative accounting guidance under ASC Topic 715, Compensation—Retirement
Benefits, which provides
guidance related to an employer’s disclosures about plan assets of defined
benefit pension or other post-retirement benefit plans. Under ASC Topic 715,
disclosures should provide users of financial statements with an understanding
of how investment allocation decisions are made, the factors that are pertinent
to an understanding of investment policies and strategies, the major categories
of plan assets, the inputs and valuation techniques used to measure the fair
value of plan assets, the effect of fair value measurements using significant
unobservable inputs on changes in plan assets for the period and significant
concentrations of risk within plan assets. This guidance is effective for fiscal
years ending after December 15, 2009. The new authoritative
accounting guidance under ASC Topic 715 is not expected to have a significant
impact on the Company’s financial position or results of
operations.
- 16
-
In
January 2010, the FASB issued ASU 2010-01, Equity (Topic 505): Accounting for Distributions to
Shareholders with Components of Stock and Cash – a consensus of the FASB
Emerging Issues Task Force. ASU 2010-01 clarifies that the stock portion of a
distribution to shareholders that allows them to elect to receive cash or stock
with a potential limitation on the total amount of cash that all shareholders
can elect to receive in the aggregate is considered a share issuance that is
reflected in EPS prospectively and is not a stock dividend. ASU
2010-01 is effective for interim and annual periods ending on or after December
15, 2009 and should be applied on a retrospective basis. The adoption
of this guidance did not have a material impact on the Company’s financial
position or results of operation.
In
January 2010, the FASB issued ASU 2010-02, Consolidation (Topic 810):
Accounting and reporting for Decreases in Ownership of a Subsidiary – a Scope
Clarification. ASU 2010-02 amends Subtopic 810-10 to address
implementation issues related to changes in ownership provisions including
clarifying the scope of the decrease in ownership and additional
disclosures. ASU 2010-02 is effective beginning in the period that an
entity adopts Statement 160. If an entity has previously adopted
Statement 160, ASU 2010-02 is effective beginning in the first interim or annual
reporting period ending on or after December 15, 2009 and should be applied
retrospectively to the first period Statement 160 was
adopted. The adoption of this guidance did not have a material
impact on the Company’s financial position or results of operation.
In
January 2010, the FASB issued ASU 2010-04, Accounting for Various Topics –
Technical Corrections to SEC Paragraphs. ASU 2010-04 makes technical
corrections to existing SEC guidance including the following topics: accounting
for subsequent investments, termination of an interest rate swap, issuance of
financial statements - subsequent events, use of residential method to value
acquired assets other than goodwill, adjustments in assets and liabilities for
holding gains and losses, and selections of discount rate used for measuring
defined benefit obligation. ASU 2010-04 is effective January 15,
2010. The adoption of this guidance did not have a material impact on
the Company’s financial position or results of operation.
In
January 2010, the FASB issued ASU 2010-05, Compensation – Stock Compensation
(Topic 718): Escrowed Share Arrangements and the Presumption of
Compensation. ASU 2010-05 updates existing guidance to address the SEC
staff’s views on overcoming the presumption that for certain shareholders
escrowed share arrangements represent compensation. ASU 2010-05 is
effective January 15, 2010. The adoption of this guidance did not
have a material impact on the Company’s financial position or results of
operation.
In
January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements. ASU 2010-06 amends Subtopic 820-10 to clarify existing
disclosures, require new disclosures, and includes conforming amendments to
guidance on employers’ disclosures about postretirement benefit plan assets. ASU
2010-06 is effective for interim and annual periods beginning after December 15,
2009, except for disclosures about purchases, sales, issuances, and settlements
in the roll forward of activity in Level 3 fair value measurements. Those
disclosures are effective for fiscal years beginning after December 15, 2010 and
for interim periods within those fiscal years. The adoption of this
guidance is not expected to have a significant impact on the Company’s financial
statements.
In
February 2010, the FASB issued ASU 2010-08, Technical Corrections to Various
Topics. ASU 2010-08 clarifies guidance on embedded derivatives and
hedging. ASU 2010-08 is effective for interim and annual periods beginning after
December 15, 2009. The adoption of this guidance did not have a material impact
on the Company’s financial position or results of operation.
In March
2010, the FASB issued ASU 2010-11, Derivatives and
Hedging. ASU 2010-11 provides clarification and related
additional examples to improve financial reporting by resolving potential
ambiguity about the breadth of the embedded credit derivative scope exception in
ASC 815-15-15-8. ASU 2010-11 is effective at the beginning of the
first fiscal quarter beginning after June 15, 2010. The adoption of this
guidance is not expected to have a significant impact on the Company’s financial
statements.
- 17
-
In April
2010, the FASB issued ASU 2010-13, Compensation – Stock Compensation
(Topic 718): Effect of Denominating the Exercise Price of a
Share-Based Payment Award in the Currency of the Market in Which the Underlying
Equity Security Trades. ASU 2010-13 provides guidance on the
classification of a share-based payment award as either equity or a
liability. A share-based payment that contains a condition that is
not a market, performance, or service condition is required to be classified as
a liability. ASU 2010-13 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2010 and
is not expected to have a significant impact on the Company’s financial
statements.
10.
|
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 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.
March 31, 2010
|
September 30, 2009
|
|||||||||||||||
Carrying/
Notional
Amount
|
Estimated
Fair
Value
|
Carrying/
Notional
Amount
|
Estimated
Fair
Value
|
|||||||||||||
Assets:
|
||||||||||||||||
Cash
and cash equivalents
|
$ | 60,458 | $ | 60,458 | $ | 47,658 | $ | 47,658 | ||||||||
Investment
securities
|
38,891 | 39,071 | 30,369 | 30,528 | ||||||||||||
Loans,
net
|
295,346 | 304,422 | 306,600 | 316,975 | ||||||||||||
Mortgage-related
securities
|
51,962 | 52,631 | 105,355 | 106,126 | ||||||||||||
FHLBank
stock
|
7,060 | 7,060 | 7,060 | 7,060 | ||||||||||||
Mortgage
servicing rights
|
319 | 319 | 314 | 314 | ||||||||||||
Accrued
interest receivable
|
2,054 | 2,054 | 2,343 | 2,343 | ||||||||||||
Liabilities:
|
||||||||||||||||
Passbook
deposits
|
42,818 | 42,818 | 39,361 | 39,361 | ||||||||||||
NOW
and money market deposits
|
125,470 | 125,470 | 120,224 | 120,224 | ||||||||||||
Certificates
of deposit
|
141,451 | 143,703 | 168,568 | 171,759 | ||||||||||||
Short-term
borrowings
|
6,072 | 6,072 | 27,395 | 27,395 | ||||||||||||
Other
borrowings
|
102,649 | 107,039 | 102,653 | 107,749 | ||||||||||||
Junior
subordinated debentures
|
11,649 | 9,650 | 11,646 | 9,650 | ||||||||||||
Accrued
interest payable
|
1,680 | 1,680 | 2,110 | 2,110 |
The fair
value of cash and cash equivalents is their carrying value due to their
short-term nature. The fair value of investment and mortgage-related securities
is based on quoted market prices, dealer quotes, and prices obtained from
independent pricing services. Prices on trust preferred securities were
calculated based on credit and prepayment assumptions. The present value of the
projected cash flows was calculated using a discount rate equal to the current
yield used to accrete the beneficial interest plus a liquidity and credit
premium to reflect higher credit spreads due to economic stresses in the
marketplace and lower credit ratings. The fair value of loans and mortgage
servicing rights are estimated, based on present values using approximate
current entry value interest rates, applicable to each category of such
financial instruments. The fair value of FHLB stock approximates its carrying
amount.
The fair
value of NOW deposits, money market deposits and passbook deposits is the amount
reported in the financial statements. The fair value of certificates of deposit,
junior subordinated debentures and borrowings is based on a present value
estimate, using rates currently offered for deposits and borrowings of similar
remaining maturity. The fair value for accrued interest receivable
and payable and short-term borrowings approximates their carrying
value.
Fair
values for off-balance sheet commitments are based on fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standings.
- 18
-
No
adjustment was made to the entry-value interest rates for changes in
credit-performing commercial real estate and business loans, construction loans,
and land loans for which there are no known credit concerns. Management believes
that the risk factor embedded in the entry-value interest rates, along with the
general reserves applicable to the performing commercial, construction, and land
loan portfolios for which there are no known credit concerns, result in a fair
valuation of such loans on an entry-value basis. The fair value of non-accrual
loans, with recorded book values of approximately $5,392 and $3,876 as of March
31, 2010 and September 30, 2009, respectively, was not estimated because it is
not practicable to reasonably assess the credit adjustment that would be applied
in the marketplace for such loans. The fair value estimates presented herein are
based on pertinent information available to management as of March 31, 2010 and
September 30, 2009. 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
March 31, 2010 and September 30, 2009 and, therefore, current estimates of fair
value may differ significantly from the amounts presented herein.
11.
|
PENDING
MERGER
|
On
November 3, 2009, the Company announced that it had signed a definitive
agreement (the “Merger Agreement”) to merge with and into Bryn Mawr Bank
Corporation (“BMBC”) (the “Merger”). Concurrent with the Merger, the Bank will
merge with and into The Bryn Mawr Trust Company (“BMT”), which is a wholly owned
subsidiary of BMBC (the “Bank Merger”).
Under the
terms of the Merger Agreement, shareholders of the Company will receive 0.6973
shares (the “Exchange Ratio”) of BMBC common stock for each share of Company
common stock they own plus $2.06 per share cash consideration (“Per Share Cash
Consideration”), each subject to adjustment as described below. The Exchange
Ratio and Per Share Cash Consideration are subject to downward adjustment in the
event that the Company’s delinquencies, as defined in the Merger Agreement, are
equal to or greater than $10.5 million as of the month end immediately prior to
the closing. As of March 31, 2010 the amount of the Company's delinquencies was
$13.1 million and, if March 31, 2010 were the month-end immediately preceding
the closing of themerger, based on such amount of delinquencies at such date,
the merger consideration to be received for each share of the Company'scommon
stock would be 0.6718 of a share of BMBC common stock and $1.98 in
cash.
Consummation
of the Merger, which received shareholder approval at a special meeting of the
Company's shareholders on March 2, 2010, and which is expected to occur in July
2010, is subject to certain conditions, including, among others, receipt of all
required regulatory approvals and expiration of applicable waiting periods,
accuracy of specified representations and warranties of the other party,
effectiveness of the registration statement to be filed with the SEC to register
shares of BMBC common stock to be offered to Company shareholders, absence of a
material adverse effect, receipt of tax opinions, and obtaining material permits
and authorizations for the lawful consummation of the Merger and the Bank
Merger.
The
foregoing summary of the Merger and the Merger Agreement are qualified in their
entirety by the complete text of the Merger Agreement which was attached as
Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on
November 4, 2009.
- 19
-
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Certain
information in this Quarterly Report on Form 10-Q may constitute forward-looking
statements as that term is defined in the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
estimated due to a number of factors. Persons are cautioned that such
forward-looking statements are not guarantees of future performance and are
subject to various factors, which could cause actual results to differ
materially from those estimated. These factors include, but are not
limited to, changes in general economic and market conditions, the continuation
of an interest rate environment that adversely affects the interest rate spread
or other income from the Company's and the Bank's investments and operations,
the amount of the Company’s delinquent and non-accrual loans, troubled debt
restructurings, other real estate owned and loan charge-offs; the effects of
competition, and of changes in laws and regulations on competition, including
industry consolidation and development of competing financial products and
services; interest rate movements; the proposed merger with Bryn Mawr Bank
Corporation fails to be completed, or if completed, the anticipated benefits
from the merger may not be fully realized due to, among other factors, the
failure to combine First Keystone Financial’s business with Bryn Mawr Bank
Corporation, the anticipated synergies not being achieved or the integration
proves to be more difficult, time consuming or costly than expected;
difficulties in integrating distinct business operations, including information
technology difficulties; disruption from the transaction making it more
difficult to maintain relationships with customers and employees, and challenges
in establishing and maintaining operations in new markets; volatilities in the
securities markets; and deteriorating economic conditions. The Company does not
undertake and specifically disclaims any obligation to publicly release the
result of any revisions which may be made to any forward-looking statements to
reflect the occurrence of anticipated or unanticipated events or circumstances
after the date of such statements.
General
The
Company is a Pennsylvania corporation and the sole stockholder of the Bank, a
federally chartered stock savings bank, which converted to the stock form of
organization in January 1995. The Bank is a community-oriented bank emphasizing
customer service and convenience. The Bank’s primary business is attracting
deposits from the general public and using those funds, together with other
available sources of funds, primarily borrowings, to originate loans. The Bank’s
management remains focused on its long-term strategic plan to continue to shift
the Bank’s loan composition towards increased investment in commercial,
construction and home equity loans and lines of credit in order to provide a
higher yielding loan portfolio with generally shorter contractual
terms.
As
previously noted, the Company entered into an agreement and plan of merger (the
"Merger Agreement") with Bryn Mawr Bank Corporation, pursuant to which the
Company will merge with and into Bryn Mawr Bank Corporation (the “Merger”). For
additional information regarding the proposed Merger, please refer to Note 11 of
the unaudited consolidated financial statements set forth herein.
Critical
Accounting Policies
Accounting
policies involving significant judgments and assumptions by management, which
have, or could have, a material impact on the carrying value of certain assets
or comprehensive income, are considered critical accounting policies. In
management’s opinion, the most critical accounting policy affecting the
Company’s financial statements is the evaluation of the allowance for loan
losses. The Company maintains an allowance for loan losses at a level management
believes is sufficient to provide for known and inherent losses in the loan
portfolio that are both probable and reasonable to estimate. The allowance for
loan losses is considered a critical accounting estimate because there is a
large degree of judgment in (i) assigning individual loans to specific risk
levels (pass, substandard, doubtful and loss), (ii) valuing the underlying
collateral securing the loans, (iii) determining the appropriate reserve factor
to be applied to specific risk levels for criticized and classified loans
(special mention, substandard, doubtful and loss) and (iv) determining reserve
factors to be applied to pass loans based upon loan type. Accordingly, there is
a likelihood that materially different amounts would be reported under
different, but reasonably plausible conditions or assumptions.
- 20
-
The
determination of the allowance for loan losses requires management to make
significant estimates with respect to the amounts and timing of losses and
market and economic conditions. Accordingly, a decline in the economy could
increase loan delinquencies, foreclosures or repossessions resulting in
increased charge-off amounts and the need for additional loan loss allowances in
future periods. The Bank will continue to monitor and adjust its allowance for
loan losses through the provision for loan losses as economic conditions and
other factors dictate. Management reviews the allowance for loan
losses generally on a monthly basis, but at a minimum, at least
quarterly. Although the Bank maintains its allowance for loan losses
at levels considered adequate to provide for the inherent risk of loss in its
loan portfolio, there can be no assurance that future losses will not exceed
estimated amounts or that additional provisions for loan losses will not be
required in future periods. In addition, the Bank's determination as to the
amount of its allowance for loan losses is subject to review by its primary
federal banking regulator, the OTS, as part of its examination process, which
may result in additional provisions to increase the allowance based upon the
judgment and review of the OTS.
Supervisory
Agreements
On
February 13, 2006, the Company and the Bank each entered into a supervisory
agreement with the OTS which primarily addressed issues identified in the OTS
reports of examination detailing findings with regard to the examination of the
Company's and the Bank's operations and financial condition conducted in
2005.
Under the
terms of the supervisory agreement between the Company and the OTS, the Company
agreed to, among other things, (i) develop and implement a three-year capital
plan designed to support the Company's efforts to maintain prudent levels of
capital and to reduce its debt-to-equity ratio below 50%; (ii) not incur any
additional debt without the prior written approval of the OTS; and (iii) not
repurchase any shares of or pay any cash dividends on its common stock until the
Company complied with certain conditions. Upon reducing its
debt-to-equity below 50%, the Company may resume the payment of quarterly cash
dividends at the lesser of the dividend rate in effect immediately prior to
entering into the supervisory agreement ($0.11 per share) or 35% of its
consolidated net income (on an annualized basis), provided that the OTS, upon
review of prior written notice from the Company of the proposed dividend, does
not object to such payment.
The
Company submitted to and received from the OTS approval of a capital plan, which
called for an equity infusion in order to reduce the Company’s debt-to-equity
ratio below 50%. As part of its capital plan, the Company conducted a
private placement of 400,000 shares of common stock, raising gross proceeds of
approximately $6.5 million. In June 2007, the net proceeds of approximately $5.8
million were used to reduce the amount of the Company's outstanding debt through
the redemption of $6.2 million of its junior subordinated debentures. In June
2008, the Company utilized a portion of the proceeds from a $4.9 million
dividend from the Bank to purchase $1.5 million of fixed-rate trust preferred
securities issued by the Company’s wholly owned statutory trust and to redeem
the remaining $2.1 million of floating-rate subordinated debentures that were
still outstanding at September 30, 2007. As a result of such redemptions and
purchases, the Company’s outstanding junior subordinated debt, as of March 31,
2010, was $11.6 million and its debt-to-equity ratio was less than
50%. Although the Company’s debt-to-equity ratio was below 50%, it
does not anticipate resuming the payment of dividends until such time as the
Company’s operating results improve and it is not permitted to pay dividends
under the Merger Agreement without BMBC's prior consent.
Under the
terms of the supervisory agreement between the Bank and the OTS, the Bank agreed
to, among other things, (i) not grow in any quarter in excess of the greater of
3% of total assets (on an annualized basis) or net interest credited on deposit
liabilities during such quarter; (ii) maintain its core capital and total
risk-based capital in excess of 7.5% and 12.5%, respectively; (iii) adopt
revised policies and procedures governing commercial lending; (iv) conduct
periodic reviews of its commercial loan department; (v) conduct periodic
internal loan reviews; (vi) adopt a revised asset classification policy and
(vii) not amend, renew or enter compensatory arrangements with senior executive
officers and directors, subject to certain exceptions, without the prior
approval of the OTS. As a result of the growth restriction imposed on
the Bank, the Company’s growth is currently and will continue to be
substantially constrained unless and until the supervisory agreements are
terminated or modified.
As a
result of the supervisory agreement, the Bank hired a Chief Credit Officer
(“CCO”) and, under the direction of the Board and the CCO, enhanced its credit
review analysis, developed administrative procedures and adopted an asset
classification system. The CCO was appointed Chief Lending Officer (“CLO”)
during fiscal 2008 and has continued the process of enhancing the Bank’s loan
department operations and structure, in particular its commercial lending
operations. The Bank continues to address these areas and to make every effort
to reduce the level of classified assets in order to be in full compliance with
the terms of the supervisory agreements. At March 31, 2010, the
Company believes it and the Bank are in full compliance with all the provisions
of the supervisory agreements.
- 21
-
Under the
terms of the Merger Agreement, we have agreed to use our best efforts to obtain
confirmation from the OTS that the supervisory agreements will be terminated as
of the effective time of the Merger.
Comparison
of Financial Condition at March 31, 2010 and September 30, 2009
Total
assets of the Company decreased by $39.9 million, from $528.4 million at
September 30, 2009 to $488.5 million at March 31, 2010. Gross loans receivable
decreased by $9.2 million, from $311.3 million at September 30, 2009 to $302.0
million at March 31, 2010 with the majority of the decrease accounted for by
declines in the residential mortgage and home equity loan portfolios. Cash and
cash equivalents increased by $12.8 million to $60.5 million at March 31, 2010
from $47.7 million at September 30, 2009 primarily due to the receipt of
proceeds from sales of mortgage-related and investment securities available for
sale. The inflows of cash from investment sales were partially offset by
outflows of cash as deposits decreased $15.8 million, or 4.5%, from $347.1
million at September 30, 2009 to $331.3 million at March 31, 2010. The decrease
in deposits was attributable to a $27.1 million decrease in time deposits from
$168.6 million at September 30, 2009 to $141.5 million at March 31, 2010
reflecting the Company’s determination to not aggressively price its time
deposit products, partially offset by an $11.3 million increase in core
deposits. Other outflows of cash for the six months ended March 31, 2010
included a $3.0 million prepayment of FDIC assessments and the repayment of
$20.0 million in short term borrowings.
Stockholders'
equity decreased $3.1 million from $33.7 million at September 30, 2009 to $30.6
million at March 31, 2010, primarily due to the net loss of $4.5 million for the
six months ended March 31, 2010, partially offset by the $1.3 million increase
in accumulated other comprehensive income related to the unrealized gains on
available for sale investment and mortgage related securities.
Comparison
of Results of Operations for the Three and Six Months Ended March 31, 2010 and
2009
Net Loss. Net loss
for the three and six months ended March 31, 2010 was $3.2 million, or $(1.37)
per diluted share, and $4.5 million, or $(1.92) per share, respectively, as
compared to net loss of $806,000, or $(0.35) per diluted share, and $868,000, or
$(0.37) per share for the same periods in 2009.
Net Interest
Income. Net interest income increased $197,000, or 7.0%, to
$3.0 million and $373,000, or 6.6% to $6.0 million for the three and six months
ended March 31, 2010, respectively, as compared to the same periods in 2009. The
increases in net interest income for the three and six months ended March 31,
2010 were primarily due to decreases in interest expense of $576,000, or 18.8%
and $1.2 million, or 18.5%, respectively, as compared to the same periods in
2009. The decreases in interest expense for the three and six months ended March
31, 2010 were partially offset by decreases in interest income of $379,000, or
6.4%, and $825,000, or 6.8%, respectively, as compared to the same periods in
2009. The weighted average yield earned on interest-earning assets for the three
and six months ended March 31, 2010 decreased 39 basis points to 4.82% and 53
basis points to 4.79%, respectively, compared to the same periods in 2009. The
decline in the weighted average rate earned on interest-earning assets was
attributable to declines in the market rates of interest charged on newly
originated loans. In addition, management's decision to sell, at a gain, a
portion of its longer term mortgage-related securities portfolio resulted in a
decrease in the weighted average yield earned on mortgage-related securities.
However, for the three and six months ended March 31, 2010, the weighted average
rate paid on interest-bearing liabilities decreased to an even greater degree,
decreasing 56 basis points to 2.19% and 61 basis points to 2.26%, respectively,
for the same periods in the prior fiscal year. The decline in the weighted
average rate paid on interest-bearing liabilities was primarily attributable to
management's decision not to aggressively price its time deposit
products.
The
interest rate spread and net interest margin were 2.63% and 2.64%, respectively,
for the three months ended March 31, 2010 as compared to 2.46% and 2.50%,
respectively, for the same period in 2009. The interest rate spread and net
interest margin were 2.53% and 2.55%, respectively, for the six months ended
March 31, 2010 as compared to 2.45% and 2.48%, respectively, for the same period
in 2009. The slightly smaller increase in the net interest margin, as
compared to the increase in spread for the three- and six-month comparisons, was
primarily due to the relative shift in net interest-earning assets. The increase
in the spread and margin reflected the more rapid repricing downward of the
Company’s interest-bearing liabilities.
- 22
-
The
following tables present the average balances for various categories of assets
and liabilities, and income and expense related to those assets and liabilities
for the three months ended March 31, 2010 and 2009.
For the three months ended
|
||||||||||||||||||||||||
March 31, 2010
|
March 31, 2009
|
|||||||||||||||||||||||
(Dollars
in thousands)
|
Average
Balance
|
Interest
|
Average
Yield/
Cost
|
Average
Balance
|
Interest
|
Average
Yield/
Cost
|
||||||||||||||||||
Interest-earning
assets:
|
||||||||||||||||||||||||
Loans
receivable(1)
|
$ | 298,027 | $ | 4,106 | 5.51 | % | $ | 285,271 | $ | 4,092 | 5.74 | % | ||||||||||||
Mortgage-related
securities(2)
|
93,827 | 1,020 | 4.35 | 116,307 | 1,424 | 4.90 | ||||||||||||||||||
Investment
securities(2)
|
34,646 | 376 | 4.34 | 31,624 | 366 | 4.63 | ||||||||||||||||||
Other
interest-earning assets
|
31,483 | 13 | 0.17 | 19,390 | 12 | 0.25 | ||||||||||||||||||
Total
interest-earning assets
|
457,983 | 5,515 | 4.82 | 452,592 | 5,894 | 5.21 | ||||||||||||||||||
Non-interest-earning
assets
|
36,692 | 33,603 | ||||||||||||||||||||||
Total
assets
|
$ | 494,675 | $ | 486,195 | ||||||||||||||||||||
Interest-bearing
liabilities:
|
||||||||||||||||||||||||
Deposits
|
$ | 335,564 | 929 | 1.11 | $ | 324,838 | 1,492 | 1.84 | ||||||||||||||||
FHLB
advances and other borrowings
|
108,138 | 1,273 | 4.71 | 108,644 | 1,286 | 4.73 | ||||||||||||||||||
Junior
subordinated debentures
|
11,648 | 286 | 9.82 | 11,641 | 286 | 9.83 | ||||||||||||||||||
Total
interest-bearing liabilities
|
455,350 | 2,488 | 2.19 | 445,123 | 3,064 | 2.75 | ||||||||||||||||||
Interest
rate spread(3)
|
2.63 | % | 2.46 | % | ||||||||||||||||||||
Non-interest-bearing
liabilities
|
6,769 | 7,915 | ||||||||||||||||||||||
Total
liabilities
|
462,119 | 453,038 | ||||||||||||||||||||||
Stockholders’
equity
|
32,556 | 33,157 | ||||||||||||||||||||||
Total
liabilities and stockholders’ equity
|
$ | 494,675 | $ | 486,195 | ||||||||||||||||||||
Net
interest-earning assets
|
$ | 2,633 | $ | 7,469 | ||||||||||||||||||||
Net
interest income
|
$ | 3,027 | $ | 2,830 | ||||||||||||||||||||
Net
interest margin(4)
|
2.64 | % | 2.50 | % | ||||||||||||||||||||
Ratio
of average interest-earning assets to average interest-bearing
liabilities
|
100.58 | % | 101.68 | % |
(1)
Includes non-accrual loans.
(2)
Includes assets classified as either available for sale or held to
maturity.
(3)
Average yield on interest-earning assets minus average yield on interest-bearing
liabilities
(4) Net
interest income divided by average interest-earning assets.
- 23
-
For
the six months ended
|
||||||||||||||||||||||||
March
31, 2010
|
March
31, 2009
|
|||||||||||||||||||||||
(Dollars
in thousands)
|
Average
Balance
|
Interest
|
Average
Yield/
Cost
|
Average
Balance
|
Interest
|
Average
Yield/
Cost
|
||||||||||||||||||
Interest-earning
assets:
|
||||||||||||||||||||||||
Loans
receivable(1)
|
$ | 301,708 | $ | 8,404 | 5.57 | % | $ | 285,661 | $ | 8,353 | 5.85 | % | ||||||||||||
Mortgage-related
securities(2)
|
100,897 | 2,199 | 4.36 | 119,806 | 2,978 | 4.97 | ||||||||||||||||||
Investment
securities(2)
|
36,198 | 661 | 3.65 | 32,783 | 761 | 4.64 | ||||||||||||||||||
Other
interest-earning assets
|
33,076 | 30 | 0.18 | 17,768 | 27 | 0.32 | ||||||||||||||||||
Total
interest-earning assets
|
471,879 | 11,294 | 4.79 | 456,018 | 12,119 | 5.32 | ||||||||||||||||||
Non-interest-earning
assets
|
34,590 | 34,124 | ||||||||||||||||||||||
Total
assets
|
$ | 506,469 | $ | 490,142 | ||||||||||||||||||||
Interest-bearing
liabilities:
|
||||||||||||||||||||||||
Deposits
|
$ | 346,303 | 2,121 | 1.22 | $ | 323,622 | 3,219 | 1.99 | ||||||||||||||||
FHLB
advances and other borrowings
|
108,720 | 2,576 | 4.74 | 114,875 | 2,676 | 4.66 | ||||||||||||||||||
Junior
subordinated debentures
|
11,647 | 571 | 9.81 | 11,640 | 571 | 9.81 | ||||||||||||||||||
Total
interest-bearing liabilities
|
466,670 | 5,268 | 2.26 | 450,137 | 6,466 | 2.87 | ||||||||||||||||||
Interest
rate spread(3)
|
2.53 | % | 2.45 | % | ||||||||||||||||||||
Non-interest-bearing
liabilities
|
6,566 | 7,464 | ||||||||||||||||||||||
Total
liabilities
|
473,236 | 457,601 | ||||||||||||||||||||||
Stockholders’
equity
|
33,233 | 32,541 | ||||||||||||||||||||||
Total
liabilities and stockholders’ equity
|
$ | 506,469 | $ | 490,142 | ||||||||||||||||||||
Net
interest-earning assets
|
$ | 5,209 | $ | 5,881 | ||||||||||||||||||||
Net
interest income
|
$ | 6,026 | $ | 5,653 | ||||||||||||||||||||
Net
interest margin(4)
|
2.55 | % | 2.48 | % | ||||||||||||||||||||
Ratio
of average interest-earning assets to average interest-bearing
liabilities
|
101.12 | % | 101.31 | % |
(1)
Includes non-accrual loans.
(2)
Includes assets classified as either available for sale or held to
maturity.
(3)
Average yield on interest-earning assets minus average yield on interest-bearing
liabilities
(4) Net
interest income divided by average interest-earning assets.
Provision for Loan
Losses. For the three and six months ended March 31, 2010, as
compared to the same periods in the prior fiscal year, the provision for loan
losses increased $300,000 to $1.0 million and increased $1.3 million to $2.1
million, respectively. For the three
and six months ended March 31, 2010, the provision for loan loss was based on
the Company’s monthly review of the credit quality of its loan portfolio and the
continual evaluation of the classified and pass loan portfolios in order to
maintain the overall allowance for loan losses at a level deemed appropriate.
The increase in the level of the provision reflected the increase in
non-performing assets. At March 31, 2010 classified and criticized loans totaled
$22.0 million, as compared to $23.3 million at September 30, 2009. The Company's
coverage ratio, which is the ratio of the allowance for loan losses to
non-performing loans, was 68.8% and 86.0% at March 31, 2010 and September 30,
2009, respectively.
- 24
-
At March
31, 2010, non-performing assets increased $4.7 million to $10.1 million, or
2.1%, of total assets, from $5.4 million at September 30,
2009. Non-performing assets at March 31, 2010 consisted of
non-accrual loans aggregating $5.4 million comprised of eight single-family
residential mortgage loans aggregating $703,000, two commercial real estate
loans aggregating $2.0 million, one land acquisition and development loan of
$795,000 and two residential construction loans aggregating $1.7 million. Also
included in non-performing assets at March 31, 2010 were two construction loans
aggregating $996,000 and an $850,000 commercial real estate loan which had
exceeded their contractual maturity but which continue to pay interest in
accordance with the original terms of the loans. Troubled debt restructurings,
also considered non-performing loans, as of March 31, 2010 totaled $2.5 million
and included four commercial real estate and commercial business loans to the
same borrower aggregating $1.7 million and nine residential mortgage loans
aggregating $800,000 which had been modified in accordance with the federal
government’s Home Affordable Modification Program. In addition to non-performing
loans, non-performing assets at March 31, 2010 included a real estate owned
property consisting of a $370,000 condominium located in Philadelphia. This
property became real estate owned during the first quarter of fiscal
2010.
Management continues to review its loan
portfolio to determine the extent, if any, to which additional loss provisions
may be deemed necessary. There can be no assurance that the allowance
for losses will be adequate to cover losses which may in fact be realized in the
future and that additional provisions for losses will not be
required.
Non-interest Income. For the three
months ended March 31, 2010, non-interest income decreased $1.9 million from a
loss of $165,000 for the same period last year to a loss of $2.1 million in the
current period. The decrease was primarily due to losses incurred by the sale of
the Bank's $5.1 million available for sale pooled trust preferred securities
portfolio which resulted in a pre-tax loss of $3.8 million as discussed in Note
2 of the Consolidated Financial Statements. Partially offsetting the loss was a
$1.1 million pre-tax gain recognized on the sale of $46.6 million of longer term
available for sale mortgage-backed securities. For the six months ended March
31, 2010, non-interest income decreased $2.6 million from $268,000 for the same
period last year to a loss of $2.4 million in the current period. The decrease
in non-interest income was primarily the result of the aforementioned net loss
on the sale of available for sale securities.
Non-interest
Expense. Non-interest expense for the three months ended March
31, 2010 decreased $22,000 to $3.1 million as compared to the same period last
year. The slight decrease was the result of a $71,000 decrease in salaries and
employee benefits, a $50,000 recovery of stolen branch cash and a $47,000
decrease in other operating expense related to the Bank's insurance subsidiary,
as compared to the same period last year, substantially offset by merger-related
costs of $164,000. Non-interest expense for the six months ended March 31, 2010
increased $298,000 to $6.6 million as compared to the same period last year. The
increase was primarily the result of $549,000 in merger-related costs and a
$101,000 increase in FDIC premiums, partially offset by a decrease of $140,000
in salaries and employee benefits and a $103,000 decrease in advertising expense
as compared to the same period last year.
Income Tax Expense. The Company recognized
an income tax benefit for the three months ended December 31, 2009 of $540,000.
No additional income tax benefit was recognized for the quarter ended March 31,
2010 as management has determined that it is unlikely that sufficient
near-future taxable income will be generated to fully utilize all of the
Company’s net operating loss carryforward.
Liquidity
and Capital Resources
The Company’s liquidity, represented by
cash and cash equivalents, is a product of its operating, investing and
financing activities. The Company’s primary sources of funds are deposits,
amortization, prepayments and maturities of outstanding loans and
mortgage-related securities, sales of loans, maturities of investment securities
and other short-term investments, borrowings and funds provided from operations.
While scheduled payments from the amortization of loans and mortgage-related
securities and maturing investment securities and short-term investments are
relatively predictable sources of funds, deposit flows and loan and
mortgage-related securities prepayments are greatly influenced by general
interest rates, economic conditions and competition. In addition, the Company
invests excess funds in overnight deposits and other short-term interest-earning
assets which provide liquidity to meet lending requirements. The Company has the
ability to obtain advances from the FHLBank Pittsburgh through several credit
programs with the FHLB in amounts not to exceed the Bank’s maximum borrowing
capacity and subject to certain conditions, including holding a predetermined
amount of FHLB stock as collateral. As an additional source of funds, the
Company has access to the FRB discount window, but only after it has exhausted
its access to the FHLB. At March 31, 2010, the Company had $102.6 million of
outstanding advances and no overnight borrowings from the FHLBank
Pittsburgh. The Bank currently has the ability to obtain up to $72.2
million of additional advances from the FHLBank Pittsburgh.
- 25
-
Liquidity management is both a daily
and long-term function of business management. Excess liquidity is
generally invested in short-term investments such as overnight
deposits. On a longer term basis, the Company maintains a strategy of
investing in various lending products, mortgage-related securities and
investment securities. The Company uses its sources of funds
primarily to meet its ongoing commitments, to fund maturing certificates of
deposit and savings withdrawals, fund loan commitments and maintain a portfolio
of mortgage-related and investment securities. At March 31, 2010,
total approved loan commitments outstanding amounted to $1.4 million, not
including $8.0 million in loans in process. At the same date,
commitments under unused lines of credit amounted to $40.4
million. Certificates of deposit scheduled to mature in one year or
less at March 31, 2010 totaled $98.0 million. Based upon the Company’s
historical experience, management believes that a significant portion of
maturing deposits will remain with the Company.
The Bank is required under applicable
federal banking regulations to maintain tangible capital equal to at least 1.5%
of its adjusted total assets, core capital equal to at least 4.0% of its
adjusted total assets and total capital (or risk-based) equal to at least 8.0%
of its risk-weighted assets. At March 31, 2010, the Bank had tangible
capital and core capital equal to 8.1% of adjusted total assets and total
capital equal to 14.1% of risk-weighted assets. However, as a result
of the supervisory agreement discussed in Item 2 of Part I hereof, the Bank is
required to maintain core and risk-based capital in excess of 7.5% and 12.5%,
respectively. The Bank is in compliance with such higher requirements
imposed by the supervisory agreement.
Impact
of Inflation and Changing Prices
The Consolidated Financial Statements
of the Company and related notes presented herein have been prepared in
accordance with generally accepted accounting principles which requires the
measurement of financial position and operating results in terms of historical
dollars, without considering changes in the relative purchasing power of money
over time due to inflation.
Unlike most industrial companies,
substantially all of the assets and liabilities of a financial institution are
monetary in nature. As a result, interest rates have a more
significant impact on a financial institution's performance than the effects of
general levels of inflation. Interest rates do not necessarily move
in the same direction or in the same magnitude as the price of goods and
services, since such prices are affected by inflation to a larger extent than
interest rates. In the current interest rate environment, liquidity
and the maturity structure of the Company's assets and liabilities are critical
to the maintenance of acceptable performance levels.
Item
3.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
For a discussion of the Company’s asset
and liability management policies, see “Management’s Discussion and Analysis of
Financial Condition and Results of Operation” in the Company’s Annual Report on
Form 10-K for the year ended September 30, 2009.
The Company utilizes reports prepared
by the OTS to measure interest rate risk. Using data from the Bank’s quarterly
thrift financial reports, the OTS models the net portfolio value (“NPV”) of the
Bank over a variety of interest rate scenarios. The NPV is defined as
the present value of expected cash flows from existing assets less the present
value of expected cash flows from existing liabilities plus the present value of
net expected cash inflows from existing off-balance sheet
contracts. The model assumes instantaneous, parallel shifts in the
U.S. Treasury Securities yield curve up to 300 basis points, and a decline of
100 basis points.
The interest rate risk measures used by
the OTS include an “Exposure Measure” or “Post-Shock” NPV ratio and a
“Sensitivity Measure”. The “Post-Shock” NPV ratio is the net present
value as a percentage of assets over the various yield curve
shifts. A low “Post-Shock” NPV ratio indicates greater exposure to
interest rate risk and can result from a low initial NPV ratio or high
sensitivity to changes in interest rates. The “Sensitivity Measure”
is the decline in the NPV ratio, in basis points, caused by a 2% increase or
decrease in rates, whichever produces a larger decline. The following
sets forth the Bank’s NPV as of March 31, 2010.
- 26
-
Net Portfolio Value
|
||||||||||||||||||||
(Dollars in thousands)
|
||||||||||||||||||||
Changes in
Rates in
Basis Points
|
Amount
|
Dollar
Change
|
Percentage
Change
|
Net
Portfolio Value As
a % of Assets
|
Change
|
|||||||||||||||
300
|
$ | 44,007 | $ | (12,158 | ) | (22 | )% | 8.98 | % | (206 | ) bp | |||||||||
200
|
49,109 | (7,056 | ) | (13 | ) | 9.88 | (116 | ) bp | ||||||||||||
100
|
53,427 | (2,738 | ) | ( 5 | ) | 10.61 | (43 | ) bp | ||||||||||||
0
|
56,165 | — | — | 11.04 | — | bp | ||||||||||||||
(100)
|
57,482 | 1,317 | 2 | 11.23 | 19 | bp |
As of March 31, 2010, the Company’s NPV
was $56.2 million or 11.04% of the market value of assets. Following
a 200 basis point increase in interest rates, the Company’s “post shock” NPV
would be $49.1 million or 9.88% of the market value of assets. The
change in the NPV ratio or the Company’s sensitivity measure was a decline of
116 basis points.
As of September 30, 2009, the Company’s
NPV was $58.0 million or 10.56% of the market value of
assets. Following a 200 basis point increase in interest rates, the
Company’s “post shock” NPV would be $49.3 million or 9.20% of the market value
of assets. The change in the NPV ratio or the Company’s sensitivity
measure was a decline of 136 basis points.
Item
4T.
Controls and Procedures
Our management evaluated, with the
participation of our Chief Executive Officer and our Chief Financial Officer,
the effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end
of the period covered by this report. Based on such evaluation, our Chief
Executive Officer has concluded that our disclosure controls and procedures are
designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Securities Exchange Act of 1934 is (i)
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and regulations and (ii) accumulated and communicated to
management, including the Chief Executive Officer, or persons performing similar
functions, as appropriate to allow timely decisions regarding required
disclosure and that such disclosure controls and procedures are operating in an
effective manner.
No change in our internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Securities Exchange Act of 1934) occurred during the most recent fiscal quarter
that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
- 27
-
PART
II
Item
1.
|
Legal
Proceedings
|
No
material changes have occurred in the legal proceedings previously disclosed in
Item 3 of the Company’s Annual Report on Form 10-K for the fiscal year ended
September 30, 2009.
Item
1A.
|
Risk
Factors
|
There
were no material changes from the risk factors described in the Company’s Annual
Report onForm 10-K for the fiscal year ended September 30,
2009.
Item
2.
|
Unregistered Sales of
Equity Securities and Use of
Proceeds
|
(a) – (b)
Not applicable.
(c)
Not
applicable. No shares were repurchased by the Company during the
quarter.
Item
3.
|
Defaults Upon Senior
Securities
|
Not
applicable.
Item
4.
|
(Removed
and Reserved)
|
Item
5.
|
Other
Information
|
(a)
Not
applicable
(b)
No
changes in procedures.
- 28
-
Item
6.
|
Exhibits
|
List of Exhibits
Exhibit
|
No
|
Description
|
|
2.1
|
Agreement
and Plan of Merger By and Between Bryn Mawr Bank Corporation and First
Keystone Financial, Inc. dated November 3, 2009
1
|
|
3.1
|
Amended
and Restated Articles of Incorporation of First Keystone Financial, Inc.
2
|
|
3.2
|
Amended
and Restated Bylaws of First Keystone Financial, Inc.
2
|
|
4.1
|
Specimen
Stock Certificate of First Keystone Financial, Inc.
3
|
|
4.2
|
Instrument
defining the rights of security holders
**
|
|
10.1
|
Amended
and Restated Severance Agreement between First Keystone Financial, Inc.
and Carol Walsh*
|
|
10.2
|
Amended
and Restated 1995 Stock Option Plan 4,
*
|
|
10.3
|
Amended
and Restated 1995 Recognition and Retention Plan and Trust Agreement
4,*
|
|
10.4
|
Amended
and Restated 1998 Stock Option Plan 4,
*
|
|
10.5
|
Amended
and Restated Severance Agreement between First Keystone Bank and Carol
Walsh *
|
|
10.6
|
Amended
and Restated First Keystone Bank Supplemental Executive Retirement Plan
5,*
|
|
10.7
|
Form
of Amended and Restated Transition, Consulting, Noncompetition and
Retirement Agreement by and between First Keystone Financial, Inc., First
Keystone Bank and Donald S. Guthrie
4,*
|
|
10.8
|
Severance
and Release Agreement by and among First Keystone Financial, Inc., First
Keystone Bank and Thomas M. Kelly
6,*
|
|
10.9
|
Letter
dated December 11, 2006 with respect to appointment to Board
7
|
|
10.10
|
Form
of Registration Rights Agreement 8
|
|
11
|
Statement
re: computation of per share earnings. See Note 7 to the
Unaudited Consolidated Financial Statements included in Part I
hereof.
|
|
31.1
|
Section
302 Certification of Chief Executive
Officer
|
|
31.2
|
Section
302 Certification of Chief Financial
Officer
|
|
32.1
|
Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
|
32.2
|
Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
|
99.1
|
Supervisory
Agreement between First Keystone Financial, Inc. and the Office of Thrift
Supervision dated February 13, 2006.
9
|
|
99.2
|
Supervisory
Agreement between First Keystone Bank and the Office of Thrift Supervision
dated February 13, 2006. 9
|
|
____________________________
|
|
(1)
|
Incorporated
by reference to the like-numbered exhibit included in the Form 8-K filed
by the Registrant with the SEC on November 4,
2009.
|
|
(2)
|
Incorporated
by reference from Exhibit 3.1(with respect to the Articles) and Exhibit
3.2 (with respect to the Bylaws) on Form 8-K filed by the Registrant with
the SEC on February 12, 2008.
|
|
(3)
|
Incorporated
by reference from the Registration Statement on Form S-1
(Registration No. 33-84824) filed by the Registrant with the
SEC on October 6, 1994,
as amended.
|
|
(4)
|
Incorporated
by reference from Exhibits 10.4, 10.6, 10.5, and 10.3, respectively, in
the Form 8-K filed by the Registrant with SEC on December 1, 2008 (File
No. 000-25328).
|
|
(5)
|
Incorporated
by reference from Exhibit 10.1 in the Form 8-K filed by the Registrant
with the SEC on July 2, 2007.
|
- 29
-
|
(6)
|
Incorporated
by reference from Exhibit 10.1 in the Form 8-K filed by the Registrant
with the SEC on August 19, 2008.
|
|
(7)
|
Incorporated
by reference from Exhibit 10.1 in the Form 8-K filed by the Registrant
with the SEC on December 20, 2006.
|
|
(8)
|
Incorporated
by reference from the Form 10-K for the year ended September 30, 2006
filed by the Registrant with the SEC on December 29,
2006
|
|
(9)
|
Incorporated
by reference from the Form 10-Q for the quarter ended December 31, 2005
filed by the Registrant with the SEC on February 14,
2006.
|
|
(*)
|
Consists
of a management contract or compensatory
plan
|
|
(**)
|
The
Company has no instruments defining the rights of holders of long-term
debt where the amount of securities authorized under such instrument
exceeds 10% of the total assets of the Company and its subsidiaries on a
consolidated basis. The Company hereby agrees to furnish a copy
of any such instrument to the SEC upon
request.
|
- 30
-
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
FIRST
KEYSTONE FINANCIAL, INC.
|
||
Date:
May 17, 2010
|
By:
|
/s/ David M. Takats
|
David
M. Takats
|
||
Senior
Vice President and Chief Financial Officer
|
||
Date:
May 17, 2010
|
By:
|
/s/ Hugh J. Garchinsky
|
Hugh
J. Garchinsky
|
||
President
and Chief Executive
Officer
|
- 31
-