Attached files
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EXCEL - IDEA: XBRL DOCUMENT - HARLEYSVILLE SAVINGS FINANCIAL CORP | Financial_Report.xls |
EX-32.0 - EXHIBIT 32.0 - HARLEYSVILLE SAVINGS FINANCIAL CORP | d276017dex320.htm |
EX-31.1 - EXHIBIT 31.1 - HARLEYSVILLE SAVINGS FINANCIAL CORP | d276017dex311.htm |
EX-31.2 - EXHIBIT 31.2 - HARLEYSVILLE SAVINGS FINANCIAL CORP | d276017dex312.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20429
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2011
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 0-29709
HARLEYSVILLE SAVINGS FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania | 23-3028464 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
271 Main Street, Harleysville, Pennsylvania | 19438 | |
(Address of principal executive offices) | (Zip Code) |
(215) 256-8828
(Registrants telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed 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 x 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 definition 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 |
¨ |
Smaller reporting company |
x |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date:
Common Stock, $.01 Par Value, 3,712,418 shares outstanding as of February 10, 2012.
Table of Contents
HARLEYSVILLE SAVINGS FINANCIAL CORPORATION
PAGE(S) | ||||
Part I FINANCIAL INFORMATION |
||||
Item 1. Financial Statements |
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1 | ||||
Unaudited Consolidated Statements of Income for the Three Months Ended December 31, 2011 and 2010 |
2 | |||
3 | ||||
4 | ||||
5 | ||||
6 - 26 | ||||
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |
27 - 30 | |||
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
30 - 32 | |||
33 | ||||
33 | ||||
33 | ||||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
33 | |||
34 | ||||
34 | ||||
34 | ||||
34 | ||||
35 |
Table of Contents
Harleysville Savings Financial Corporation
Unaudited Consolidated Statements of Financial Condition
December 31, | September 30, | |||||||
(In thousands, except share data) |
2011 | 2011 | ||||||
Assets |
||||||||
Cash and amounts due from depository institutions |
$ | 3,820 | $ | 3,857 | ||||
Interest bearing deposits |
27,955 | 18,725 | ||||||
|
|
|
|
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Total cash and cash equivalents |
31,775 | 22,582 | ||||||
Investments and mortgage-backed securities: |
||||||||
Available for sale (amortized costDecember 31, $2,255; September 30, $18,560) |
2,315 | 18,515 | ||||||
Held to maturity (fair valueDecember 31, $250,622; September 30, $240,581) |
241,768 | 231,756 | ||||||
Loans receivable (net of allowance for loan losses |
||||||||
December 31, $3,559; September 30, $3,311) |
512,934 | 518,486 | ||||||
Accrued interest receivable |
2,833 | 2,847 | ||||||
Federal Home Loan Bank stockat cost |
12,455 | 13,110 | ||||||
Foreclosed real estate |
322 | 196 | ||||||
Office properties and equipment, net |
11,898 | 12,005 | ||||||
Prepaid expenses and other assets |
16,330 | 16,216 | ||||||
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TOTAL ASSETS |
$ | 832,630 | $ | 835,713 | ||||
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Liabilities and Stockholders Equity |
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Liabilities: |
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Deposits |
$ | 530,371 | $ | 524,401 | ||||
Long-term debt |
238,676 | 250,194 | ||||||
Accrued interest payable |
1,170 | 1,315 | ||||||
Advances from borrowers for taxes and insurance |
3,456 | 1,368 | ||||||
Accounts payable and accrued expenses |
924 | 1,353 | ||||||
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|
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Total liabilities |
774,597 | 778,631 | ||||||
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Commitments and contingencies |
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Stockholders equity: |
||||||||
Preferred Stock: $.01 par value; 7,500,000 shares authorized; none issued |
| | ||||||
Common stock: $.01 par value; 15,000,000 shares authorized; 3,921,177 shares issued; outstanding December 31, 2011 3,772,028 shares September 30, 2011 3,758,751 shares |
39 | 39 | ||||||
Additional paid-in capital |
8,396 | 8,346 | ||||||
Treasury stock, at cost (December 31, 2011, 149,149 shares; |
(2,222 | ) | (2,405 | ) | ||||
September 30, 2011, 162,426 shares) |
||||||||
Retained earningspartially restricted |
51,781 | 51,131 | ||||||
Accumulated other comprehensive income (loss) |
39 | (29 | ) | |||||
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|
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Total stockholders equity |
58,033 | 57,082 | ||||||
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
$ | 832,630 | $ | 835,713 | ||||
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|
See notes to unaudited consolidated financial statements.
1
Table of Contents
Harleysville Savings Financial Corporation
Unaudited Consolidated Statements of Income
For the Three Months Ended | ||||||||
December 31, | ||||||||
(In thousands, except per share data) |
2011 | 2010 | ||||||
Interest Income: |
||||||||
Interest on mortgage loans |
$ | 4,662 | $ | 4,804 | ||||
Interest on commercial loans |
1,390 | 1,236 | ||||||
Interest on mortgage-backed securities |
1,414 | 1,405 | ||||||
Interest on consumer and other loans |
987 | 1,052 | ||||||
Interest on other taxable investments |
369 | 731 | ||||||
Interest on tax-exempt investments |
182 | 201 | ||||||
Dividends on investment securities |
1 | 1 | ||||||
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|
|
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Total interest income |
9,005 | 9,430 | ||||||
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Interest Expense: |
||||||||
Interest on deposits |
1,548 | 2,018 | ||||||
Interest on borrowings |
2,419 | 2,957 | ||||||
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Total interest expense |
3,967 | 4,975 | ||||||
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Net Interest Income |
5,038 | 4,455 | ||||||
Provision for loan losses |
250 | 150 | ||||||
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Net Interest Income after Provision for Loan Losses |
4,788 | 4,305 | ||||||
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Other Income: |
||||||||
Customer service fees |
160 | 138 | ||||||
Income on bank-owned life insurance |
122 | 123 | ||||||
Other income |
289 | 240 | ||||||
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Total other income |
571 | 501 | ||||||
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Other Expenses: |
||||||||
Salaries and employee benefits |
1,889 | 1,729 | ||||||
Occupancy and equipment |
365 | 346 | ||||||
Deposit insurance premiums |
132 | 226 | ||||||
Data processing |
186 | 167 | ||||||
Other |
726 | 693 | ||||||
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|
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Total other expenses |
3,298 | 3,161 | ||||||
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Income before Income Tax Expense |
2,061 | 1,645 | ||||||
Income tax expense |
697 | 429 | ||||||
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Net Income |
$ | 1,364 | $ | 1,216 | ||||
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|
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Basic Earnings Per Share |
$ | 0.36 | $ | 0.33 | ||||
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Diluted Earnings Per Share |
$ | 0.36 | $ | 0.33 | ||||
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Dividends Per Share |
$ | 0.19 | $ | 0.19 | ||||
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|
See notes to unaudited consolidated financial statements.
2
Table of Contents
Harleysville Savings Financial Corporation
Unaudited Consolidated Statements of Comprehensive Income
Three Months Ended | ||||||||
December 31, | ||||||||
(In Thousands) |
2011 | 2010 | ||||||
Net Income |
$ | 1,364 | $ | 1,216 | ||||
Other Comprehensive Income |
||||||||
Unrealized gain on securities available for sale, net of tax expense 2011, $37; 2010, $35 |
68 | (1) | 70 | (1) | ||||
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|
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Total Comprehensive Income |
$ | 1,432 | $ | 1,286 | ||||
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2011 | 2010 | |||||||
(1) Disclosure of reclassification amount, net of tax for the three months ended: |
||||||||
Net unrealized gain arising during the three months ended |
$ | 105 | $ | 105 | ||||
Reclassification adjustment for net losses (gains) included in net income |
| | ||||||
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105 | 105 | |||||||
Tax expense |
(37 | ) | (35 | ) | ||||
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Net unrealized gain on securities available for sale |
$ | 68 | $ | 70 | ||||
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|
|
See notes to unaudited consolidated financial statements.
3
Table of Contents
Harleysville Savings Financial Corporation
Unaudited Consolidated Statements of Stockholders Equity
Common | Retained | Accumulated | ||||||||||||||||||||||||||
Stock | Additional | Earnings- | Other | Total | ||||||||||||||||||||||||
Shares | Common | Paid-in | Partially | Comprehensive | Treasury | Stockholders | ||||||||||||||||||||||
(In thousands, except share and per share data) |
Outstanding | Stock | Capital | Restricted | (Loss) / Income | Stock | Equity | |||||||||||||||||||||
Balance at October 1, 2011 |
3,758,751 | $ | 39 | $ | 8,346 | $ | 51,131 | $ | (29 | ) | $ | (2,405 | ) | $ | 57,082 | |||||||||||||
Net income |
1,364 | 1,364 | ||||||||||||||||||||||||||
Dividends$.19 per share |
(714 | ) | (714 | ) | ||||||||||||||||||||||||
Restricted stock |
565 | (8 | ) | 8 | | |||||||||||||||||||||||
Stock option compensation |
57 | 57 | ||||||||||||||||||||||||||
Treasury stock delivered under reinvestment plan |
10,378 | 8 | 143 | 151 | ||||||||||||||||||||||||
Employee options exercised |
2,334 | (7 | ) | 32 | 25 | |||||||||||||||||||||||
Change in unrealized holding loss on available-for-sale securities, net of reclassification and tax |
68 | 68 | ||||||||||||||||||||||||||
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Balance at December 31, 2011 |
3,772,028 | $ | 39 | $ | 8,396 | $ | 51,781 | $ | 39 | $ | (2,222 | ) | $ | 58,033 | ||||||||||||||
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Consolidated Statements of Stockholders' Equity
Common | Retained | Accumulated | ||||||||||||||||||||||||||
Stock | Additional | Earnings- | Other | Total | ||||||||||||||||||||||||
Shares | Common | Paid-in | Partially | Comprehensive | Treasury | Stockholders | ||||||||||||||||||||||
(In thousands, except share and per share data) |
Outstanding | Stock | Capital | Restricted | Income | Stock | Equity | |||||||||||||||||||||
Balance at October 1, 2010 |
3,687,409 | $ | 39 | $ | 8,126 | $ | 48,562 | $ | 7 | $ | (3,383 | ) | $ | 53,351 | ||||||||||||||
Net income |
1,216 | 1,216 | ||||||||||||||||||||||||||
Dividends$.19 per share |
(701 | ) | (701 | ) | ||||||||||||||||||||||||
Stock option compensation |
47 | 47 | ||||||||||||||||||||||||||
Treasury stock purchase |
||||||||||||||||||||||||||||
Treasury stock delivered under reinvestment plan |
9,913 | 13 | 136 | 149 | ||||||||||||||||||||||||
Employee options exercised |
7,618 | (32 | ) | 104 | 72 | |||||||||||||||||||||||
Change in unrealized holding gain on available-for-sale securities, net of reclassification and tax |
70 | 70 | ||||||||||||||||||||||||||
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Balance at December 31, 2010 |
3,704,940 | $ | 39 | $ | 8,154 | $ | 49,077 | $ | 77 | $ | (3,143 | ) | $ | 54,204 | ||||||||||||||
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See notes to unaudited consolidated financial statements.
4
Table of Contents
Harleysville Savings Financial Corporation
Unaudited Consolidated Statements of Cash Flows
Three Months Ended December 31, | ||||||||
(In Thousands) |
2011 | 2010 | ||||||
Operating Activities: |
||||||||
Net Income |
$ | 1,364 | $ | 1,216 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation |
154 | 153 | ||||||
Provision for loan losses |
250 | 150 | ||||||
Amortization of deferred loan fees |
88 | 73 | ||||||
Net accretion of premiums and discounts |
(48 | ) | (27 | ) | ||||
Increase in cash surrender value of bank owned life insurance |
(122 | ) | (123 | ) | ||||
Stock based compensation |
57 | 47 | ||||||
Changes in assets and liabilities which provided (used) cash: |
||||||||
Decrease in accounts payable and accrued expenses |
(430 | ) | (234 | ) | ||||
(Decrease) increase in prepaid expenses and other assets |
(27 | ) | 130 | |||||
Increase in accrued interest receivable |
14 | 181 | ||||||
Decrease in accrued interest payable |
(145 | ) | (27 | ) | ||||
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Net cash provided by operating activities |
1,155 | 1,539 | ||||||
Investing Activities: |
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Purchase of mortgage-backed securities held to maturity |
(18,950 | ) | (8,958 | ) | ||||
Purchase of investment securities held to maturity |
(10,987 | ) | (34,000 | ) | ||||
Purchase of investment securities available-for-sale |
(13,939 | ) | (17,220 | ) | ||||
Net redemption FHLB stock |
655 | 805 | ||||||
Proceeds from the redemption of investment securities available-for-sale |
30,243 | 35,345 | ||||||
Proceeds from maturities of investment securities held to maturity |
6,825 | 11,000 | ||||||
Principal collected on mortgage-backed securities held to maturity |
13,148 | 13,431 | ||||||
Principal collected on long term loans |
46,095 | 34,477 | ||||||
Long term loans originated or acquired |
(41,007 | ) | (29,469 | ) | ||||
Purchases of premises and equipment |
(47 | ) | (147 | ) | ||||
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Net cash provided by investing activities |
12,036 | 5,264 | ||||||
Financing Activities: |
||||||||
Net increase in demand deposits, NOW accounts and savings accounts |
14,876 | 4,367 | ||||||
Net decrease in certificates of deposit |
(8,906 | ) | (820 | ) | ||||
Cash dividends |
(563 | ) | (552 | ) | ||||
Repayment of long-term debt |
(11,518 | ) | (6,700 | ) | ||||
Treasury stock delivered under employee stock plans |
25 | 72 | ||||||
Net increase in advances from borrowers for taxes and insurance |
2,088 | 2,102 | ||||||
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Net cash used in provided by financing activities |
(3,998 | ) | (1,531 | ) | ||||
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INCREASE IN CASH AND CASH EQUIVALENTS |
9,193 | 5,272 | ||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR |
22,582 | 20,190 | ||||||
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CASH AND CASH EQUIVALENTS AT END OF YEAR |
$ | 31,775 | $ | 25,462 | ||||
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Supplemental Disclosure of Cash Flow Information |
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Cash paid during the period for: |
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Interest (credited and paid) |
$ | 4,112 | $ | 5,002 | ||||
Income taxes |
700 | 490 | ||||||
Foreclosed real estate acquired in settlement of loans |
126 | 75 |
See notes to unaudited consolidated financial statements.
5
Table of Contents
Harleysville Savings Financial Corporation
Notes to Unaudited Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation -The unaudited consolidated financial statements include the accounts of Harleysville Savings Financial Corporation (the Company) and its subsidiary. Harleysville Savings Bank (the Bank) is the wholly owned subsidiary of the Company. The accompanying consolidated financial statements include the accounts of the Company, the Bank, and the Banks wholly owned subsidiaries, HSB Inc, a Delaware corporation which was formed in order to hold certain assets, Freedom Financial LLC, a Pennsylvania limited liability Company that allows the Company to offer non deposit products, and HARL LLC, a limited liability Company that allows the Bank to invest in equity investments. All significant intercompany accounts and transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and therefore do not include information or footnotes necessary for a complete presentation of financial condition, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America. However, all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation of the consolidated financial statements have been included. The results of operations for the three months ended December 31, 2011 are not necessarily indicative of the results which may be expected for the entire fiscal year ending September 30, 2012 or any other period. The financial information should be read in conjunction with the Companys Annual Report on Form 10-K for the period ended September 30, 2011.
Use of Estimates in Preparation of Consolidated Financial Statements
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. The most significant of these estimates is the allowance for loan losses, the determination of other-than-temporary impairment on securities and the valuation of deferred tax assets. Actual results could differ from those estimates.
Subsequent Events
The Company has evaluated events and transactions occurring subsequent to the statement of financial condition date of December 31, 2011 for items that should potentially be recognized or disclosed in these financial statements. The evaluation was conducted through the date these consolidated financial statements were issued.
6
Table of Contents
Recent Accounting Pronouncements ASU 2010-20, Receivables (Topic 310): (Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses), will help investors assess the credit risk of a companys receivables portfolio and the adequacy of its allowance for credit losses held against the portfolios by expanding credit risk disclosures.
This ASU requires more information about the credit quality of financing receivables in the disclosures to financial statements, such as aging information and credit quality indicators. Both new and existing disclosures must be disaggregated by portfolio segment or class. The disaggregation of information is based on how a company develops its allowance for credit losses and how it manages its credit exposure.
The amendments in this update apply to all public and nonpublic entities with financing receivables. Financing receivables include loans and trade accounts receivable. However, short-term trade accounts receivable, receivables measured at fair value or lower of cost or fair value, and debt securities are exempt from these disclosure amendments.
The effective date of ASU 2010-20 differs for public and nonpublic companies. For public companies, the amendments that require disclosures as of the end of a reporting period are effective for periods ending on or after December 15, 2010. The amendments that require disclosures about activity that occurs during a reporting period are effective for periods beginning on or after December 15, 2010. For nonpublic companies, the amendments are effective for annual reporting periods ending on or after December 15, 2011. The Company has provided the required credit quality disclosures as of the end of the reporting periods December 31, 2010 and December 31, 2011 and disclosures about the activity for the three months ended December 31, 2011.
In April 2011, the FASB issued Accounting Standard Update (ASU) No. 2011-02, Receivables (Topic 310): (A Creditors Determination of Whether a Restructuring is a Troubled Debt Restructuring), to clarify the accounting principles applied to loan modifications. ASU No. 2011-02 was issued to address the recording of an impairment loss in FASB ASC 310, Receivables. ASU No. 2011-02 adds text to the scope guidance Section 310-40-15 that is meant to help determine when a lender has granted a concession on their terms of a loan. The added material also provides criteria that should be used to help determine when the loan restructuring delays a payment by a length of time that is considered insignificant and when the borrower is having financial problems. For public companies the effective date is for fiscal quarters and years that start June 15, 2011, or later with the retrospective application to the beginning of the fiscal year for loans that are restructured during the year in which the changes are adopted. The adoption of this guidance is not expected to have a material impact on the Companys consolidated financial condition statements.
In April 2011, the FASB issued Accounting Standard Update (ASU) 2011-03 (Reconsideration of Effective Control for Repurchase Agreements). The FASB has issued this Update to clarify the accounting principles applied to repurchase agreements, as set forth by FASB ASC Topic 860, Transfers and Servicing. This update, entitled Reconsideration of Effective Control for Repurchase Agreements, amends one of three criteria used to determine whether or not a transfer of assets may be treated as a sale by the transferor. Under Topic 860, the transferor may not maintain effective control over the transferred assets in order to qualify as a sale. This Update eliminates the criteria under which the transferor must retain collateral sufficient to repurchase or redeem the collateral on substantially agreed upon terms as a method of maintaining effective control. This Update is effective for both public and nonpublic entities for interim and annual reporting periods beginning on or after December 31, 2011, and requires prospective application to transactions or modifications of transactions which occur on or after the effective date. Early adoption is not permitted. The Company is in the process of evaluating the adoption of this update will have on their financial condition or statement of operations.
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Table of Contents
In May 2011, the FASB issued Accounting Standard Update (ASU) 2011-04 (Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs). This update amends FASB ASC Topic 820, Fair Value Measurements, to bring U.S. GAAP for fair value measurements in line with International Accounting Standards. The Update clarifies existing guidance for items such as: the application of the highest and best use concept to non-financial assets and liabilities; the application of fair value measurement to financial instruments classified in a reporting entitys stockholders equity; and disclosure requirements regarding quantitative information about unobservable inputs used in the fair value measurements of level 3 assets. The Update also creates an exception to Topic 820 for entities which carry financial instruments within a portfolio or group, under which the entity is now permitted to base the price used for fair valuation upon a price that would be received to sell the net asset position or transfer a net liability position in an orderly transaction. The Update also allows for the application of premiums and discounts in a fair value measurement if the financial instrument is categorized in level 2 or 3 of the fair value hierarchy. Lastly, the ASU contains new disclosure requirements regarding fair value amounts categorized as level 3 in the fair value hierarchy such as: disclosure of the valuation process used; effects of and relationships between unobservable inputs; usage of nonfinancial assets for purposes other than their highest and best use when that is the basis of the disclosed fair value; and categorization by level of items disclosed at fair value, but not measured at fair value for financial statement purposes. For public entities, this Update is effective for interim and annual periods beginning after December 15, 2011. For nonpublic entities, the Update is effective for annual periods beginning after December 15, 2011. Early adoption is not permitted. The Company is in the process of evaluating the adoption of this update will have on their financial condition or statement of operations.
In June 2011, The FASB issued Accounting Standard Update (ASU) 2011-05 (Presentation of Comprehensive Income). The provisions of this update amend FASB ASC Topic 220, Comprehensive Income, to facilitate the continued alignment of U.S. GAAP with International Accounting Standards. The Update prohibits the presentation of the components of comprehensive income in the statement of stockholders equity. Reporting entities are allowed to present either: a statement of comprehensive income, which reports both net income and other comprehensive income; or separate, but consecutive, statements of net income and other comprehensive income. Under previous GAAP, all 3 presentations were acceptable. Regardless of the presentation selected, the Reporting Entity is required to present all reclassifications between other comprehensive and net income on the face of the new statement or statements. The provisions of this Update are effective for fiscal years and interim periods beginning after December 31, 2011 for public entities. For nonpublic entities, the provisions are effective for fiscal years ending after December 31, 2012, and for interim and annual periods thereafter. The Company is in the process of evaluating the adoption of this update will have on their financial condition or statement of operations.
ASU 2011-12 (Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update 2011-05), In December, 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update 2011-05. In response to stakeholder concerns regarding the operational ramifications of the presentation of these reclassifications for current and previous years, the FASB has deferred the implementation date of this provision to allow time for further consideration. The requirement in ASU 2011-05, Presentation of Comprehensive Income, for the presentation of a combined statement of comprehensive income or separate, but consecutive, statements of net income and other comprehensive income is still effective for fiscal years and interim periods beginning after December 15, 2011 for public companies, and fiscal years ending after December 15, 2011 for nonpublic companies.
8
Table of Contents
2. INVESTMENT AND MORTGAGE-BACKED SECURITIES
The amortized cost and fair value of the Companys securities gross unrealized gains and losses, as of December 31, 2011 and September 30, 2011 are as follows:
Available for sale securities:
December 31, 2011 | ||||||||||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
|||||||||||||
(In Thousands) |
||||||||||||||||
Equity securities |
$ | 355 | $ | 94 | $ | (82 | ) | $ | 367 | |||||||
Collateralized mortgage obligations |
785 | 48 | | 833 | ||||||||||||
U.S. Government money market funds |
1,115 | | | 1,115 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Available for Sale Securities |
$ | 2,255 | $ | 142 | $ | (82 | ) | $ | 2,315 | |||||||
|
|
|
|
|
|
|
|
|||||||||
September 30, 2011 |
||||||||||||||||
(In Thousands) |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
||||||||||||
Equity securities |
$ | 355 | $ | 44 | $ | (110 | ) | $ | 289 | |||||||
Collateralized mortgage obligations |
785 | 21 | | 806 | ||||||||||||
U.S. Government money market funds |
17,420 | | | 17,420 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Available for Sale Securities |
$ | 18,560 | $ | 65 | $ | (110 | ) | $ | 18,515 | |||||||
|
|
|
|
|
|
|
|
Held to maturity securities:
December 31, 2011 | ||||||||||||||||
(In Thousands) |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
||||||||||||
Mortgage-backed securities- U.S. Government Sponsored Enterprises (GSEs) |
$ | 134,336 | $ | 7,520 | $ | | $ | 141,856 | ||||||||
Collateralized mortgage obligations |
21,241 | 114 | (39 | ) | 21,316 | |||||||||||
Municipal bonds |
15,212 | 1,047 | | 16,259 | ||||||||||||
U.S. Government Agencies |
70,979 | 216 | (4 | ) | 71,191 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Held to Maturity Securities |
$ | 241,768 | $ | 8,897 | $ | (43 | ) | $ | 250,622 | |||||||
|
|
|
|
|
|
|
|
|||||||||
September 30, 2011 |
||||||||||||||||
(In Thousands) |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
||||||||||||
Mortgage-backed securities- U.S. Government Sponsored Enterprises (GSEs) |
$ | 124,576 | $ | 7,855 | $ | | $ | 132,431 | ||||||||
Collateralized mortgage obligations |
25,165 | 118 | (33 | ) | 25,250 | |||||||||||
Municipal bonds |
16,022 | 814 | (21 | ) | 16,815 | |||||||||||
U.S. Government Agencies |
65,993 | 146 | (54 | ) | 66,085 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Held to Maturity Securities |
$ | 231,756 | $ | 8,933 | $ | (108 | ) | $ | 240,581 | |||||||
|
|
|
|
|
|
|
|
9
Table of Contents
All the Companys mortgage-backed securities and collateralized mortgage obligations are residential. At December 31, 2011, The Bank holds $21.2 million in Collateralized Mortgage Obligations (CMOs) of which $18.2 million are issued by Government Sponsored Enterprises and $3.0 million are privately-issued. These private label securities are adequately rated. A summary of securities with unrealized losses, aggregated by category, at December 31, 2011 is as follows:
Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
(In Thousands) |
Fair Value | Unrealized Losses |
Fair Value | Unrealized Losses |
Total Fair Value |
Total Unrealized Losses |
||||||||||||||||||
Collateralized mortgage obligations |
$ | 14,773 | $ | (39 | ) | $ | | $ | | $ | 14,773 | $ | (39 | ) | ||||||||||
U.S. Government Agencies |
2,990 | (4 | ) | | | 2,990 | (4 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Subtotal debt securities |
17,763 | (43 | ) | | | 17,763 | (43 | ) | ||||||||||||||||
Equity securities |
30 | (3 | ) | 133 | (79 | ) | 163 | (82 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total temporarily impaired securities |
$ | 17,793 | $ | (46 | ) | $ | 133 | $ | (79 | ) | $ | 17,926 | $ | (125 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2011, debt securities in a gross unrealized loss position consisted of 10 securities that at such date had an aggregate depreciation of 0.25% from the Companys amortized cost basis. Management believes that the estimated fair value of the securities disclosed above is primarily dependent upon the movement in market interest rates. Management evaluated the length of time and the extent to which the fair value has been less than cost; the financial condition and near term prospects of the issuer, including any specific events which may influence the operations of the issuer. The Company has the ability and intent to hold these securities until maturity and the Company does not believe it will be required to sell such securities prior to the recovery of the amortized cost basis. Management does not believe any individual unrealized loss as of December 31, 2011 represents an other-than-temporary impairment.
As of December 31, 2011, there were three equity securities in an unrealized loss position. Management evaluated the length of time and the extent to which the market value has been less than cost; the financial condition and near term prospects of the issuer, including any specific events which may influence the operations of the issuer such as changes in technology that may impair the earnings potential of the investment or the discontinuance of a segment of the business that may effect the future earnings potential. The Company has the ability and intent to hold these securities until the anticipated recovery of fair value occurs. Management does not believe any individual unrealized loss of December 31, 2011 represents an other-than-temporary impairment.
A summary of securities with unrealized losses, aggregated by category, at September 30, 2011 is as follows:
Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
(In Thousands) |
Fair Value | Unrealized Losses |
Fair Value | Unrealized Losses |
Total Fair Value |
Total Unrealized Losses |
||||||||||||||||||
Collateralized mortgage obligations |
$ | 11,830 | $ | (33 | ) | $ | | $ | | $ | 11,830 | $ | (33 | ) | ||||||||||
Municipal bonds |
| | 1,517 | (21 | ) | 1,517 | (21 | ) | ||||||||||||||||
U.S. Government Agencies and GSEs |
12,942 | (54 | ) | | | 12,942 | (54 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Subtotal debt securities |
24,772 | (87 | ) | 1,517 | (21 | ) | 26,289 | (108 | ) | |||||||||||||||
Equity Securities |
45 | (13 | ) | 114 | (97 | ) | 159 | (110 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total temporarily impaired securities |
$ | 24,817 | $ | (100 | ) | $ | 1,631 | $ | (118 | ) | $ | 26,448 | $ | (218 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
10
Table of Contents
The following table sets forth the stated maturities of the investment and mortgage-backed securities at December 31, 2011. Money market funds and equity securities are not included in the table based on lack of maturity.
December 31, 2011 | ||||||||
(In Thousands) |
Amortized Cost |
Fair Value | ||||||
Available for sale: |
||||||||
Due in one year or less |
$ | | $ | | ||||
Due after one year through five years |
| | ||||||
Due after five years through ten years |
785 | 833 | ||||||
Due after ten years |
| | ||||||
|
|
|
|
|||||
Total |
$ | 785 | $ | 833 | ||||
|
|
|
|
|||||
Held to maturity: |
||||||||
Due in one year or less |
$ | 103,493 | $ | 104,251 | ||||
Due after one year through five years |
106,680 | 113,234 | ||||||
Due after five years through ten years |
31,595 | 33,137 | ||||||
Due after ten years |
| | ||||||
|
|
|
|
|||||
Total |
$ | 241,768 | $ | 250,622 | ||||
|
|
|
|
Certain of the Companys investment securities, totaling $14.0 million and $8.9 million at December 31, 2011 and September 30, 2011, respectively, were pledged as collateral to secure deposit sweep accounts and public deposits as required or permitted by law. Other securities, totaling $49.8 million and $52.8 million at December 31, 2011 and September 30, 2011, respectively, were pledged for long-term advances of $50 million as described in Note 8.
3. LOANS RECEIVABLE
Loans receivable consists of the following:
(In Thousands) |
December 31, 2011 | September 30, 2011 | ||||||
Residential Mortgages |
$ | 330,343 | $ | 336,379 | ||||
Construction |
7,231 | 5,818 | ||||||
Home Equity |
83,064 | 85,521 | ||||||
Commercial Mortgages |
93,674 | 91,085 | ||||||
Commercial Business Loans |
5,899 | 6,262 | ||||||
Consumer Non-Real Estate |
1,268 | 1,136 | ||||||
|
|
|
|
|||||
Total |
521,479 | 526,201 | ||||||
Undisbursed portion of loans in process |
(3,922 | ) | (3,401 | ) | ||||
Deferred loan fees |
(1,064 | ) | (1,003 | ) | ||||
Allowance for loan losses |
(3,559 | ) | (3,311 | ) | ||||
|
|
|
|
|||||
Loans Receivablenet |
$ | 512,934 | $ | 518,486 | ||||
|
|
|
|
The total amount of loans being serviced for the benefit of others was approximately $1.2 million and $1.7 million at December 31, 2011 and September 30, 2011, respectively.
11
Table of Contents
The loans receivable portfolio is segmented into consumer and commercial loans. Consumer loans consist of the following classes: residential mortgage loans, construction loans, home equity loans and other consumer non-real estate loans. Commercial loans consist of the following classes: commercial mortgages and commercial business loans. For all classes of loans receivable, the accrual of interest is discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses. Interest received on nonaccrual loans including impaired loans generally is either applied against principal or reported as interest income, according to managements judgment as to the collectability of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally six months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt. The past due status of all classes of loans receivable is determined based on contractual due dates for loan payments.
The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments. The allowance for loan losses represents managements estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The reserve for unfunded lending commitments represents managements estimate of losses inherent in its unfunded loan commitments and is recorded in other liabilities on the consolidated balance sheet. The allowance for credit losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely. Because all identified losses are immediately charged off, no portion of the allowance for loan losses is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all loan losses.
The allowance for credit losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Companys past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrowers ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.
The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers pools of loans by loan class. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors. These significant factors may include changes in lending policies and procedures, changes in existing general economic and business conditions affecting our primary lending areas, credit quality trends, collateral value, loan volumes and concentrations, seasoning of the loan portfolio, recent loss experience in particular segments of the portfolio, duration of the current business cycle and bank regulatory examination results. The applied loss factors are reevaluated quarterly to ensure their relevance in the current economic environment.
Residential mortgage lending generally entails a lower risk of default than other types of lending. Other consumer loans and commercial real estate loans generally involve more risk of collectability because of the type and nature of the collateral and, in certain cases, the absence of collateral. It is the Companys policy to establish specific reserves for losses on delinquent consumer loans and commercial loans when it determines that losses are probable.
12
Table of Contents
An unallocated component is maintained to cover uncertainties that could affect managements estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrowers prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for loans by either the present value of expected future cash flows discounted at the loans effective interest rate or the fair value of the collateral if the loan is collateral dependent.
An allowance for loan losses is established for an impaired loan if its carrying value exceeds its estimated fair value. The estimated fair values of substantially all of the Companys impaired loans are measured based on the estimated fair value of the loans collateral. Interest payments on impaired loans and non-accrual loans are applied to principal unless the ability to collect the principal amount is fully secured, in which case interest is recognized on the cash basis.
For residential mortgage loans, home equity loans and commercial loans secured by real estate, estimated fair values are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.
For commercial business loans secured by non-real estate collateral, such as accounts receivable, inventory and equipment, estimated fair values are determined based on the borrowers financial statements, inventory reports, accounts receivable aging or equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.
The allowance calculation methodology includes further segregation of loan classes into risk rating categories. The borrowers overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated annually for commercial loans or when credit deficiencies arise, such as delinquent loan payments, for commercial and consumer loans. Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful and loss. Loans criticized special mention have potential weaknesses that deserve managements close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loan not classified are rated pass.
13
Table of Contents
In addition, Federal regulatory agencies, as an integral part of their examination process, periodically review the Companys allowance for loan losses and may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on managements comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate.
The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Companys internal risk rating system as of December 31, 2011 and September 30, 2011:
December 31, 2011 | ||||||||||||||||||||
(In Thousands) |
Pass | Special Mention |
Substandard | Doubtful | Total | |||||||||||||||
Residential Mortgages |
$ | 326,544 | $ | 75 | $ | 3,084 | $ | 640 | $ | 330,343 | ||||||||||
Construction |
7,231 | | | | 7,231 | |||||||||||||||
Home Equity |
82,862 | 50 | 152 | | 83,064 | |||||||||||||||
Commercial Mortgages |
83,536 | 8,679 | 1,459 | | 93,674 | |||||||||||||||
Commercial Business Loans |
5,799 | 100 | | | 5,899 | |||||||||||||||
Consumer Non-Real Estate |
1,268 | | | | 1,268 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 507,240 | $ | 8,904 | $ | 4,695 | $ | 640 | $ | 521,479 | ||||||||||
|
|
|
|
|
|
|
|
|
|
September 30, 2011 | ||||||||||||||||||||
(In Thousands) |
Pass | Special Mention |
Substandard | Doubtful | Total | |||||||||||||||
Residential Mortgages |
$ | 333,243 | $ | 77 | $ | 2,417 | $ | 642 | $ | 336,379 | ||||||||||
Construction |
5,818 | | | | 5,818 | |||||||||||||||
Home Equity |
85,285 | 50 | 186 | | 85,521 | |||||||||||||||
Commercial Mortgages |
80,615 | 10,343 | | 127 | 91,085 | |||||||||||||||
Commercial Business Loans |
6,162 | 100 | | | 6,262 | |||||||||||||||
Consumer Non-Real Estate |
1,136 | | | | 1,136 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 512,259 | $ | 10,570 | $ | 2,603 | $ | 769 | $ | 526,201 | ||||||||||
|
|
|
|
|
|
|
|
|
|
14
Table of Contents
The following table summarizes information in regards to impaired loans by loan portfolio class as of December 31, 2011 and September 30, 2011:
December 31, 2011 | ||||||||||||||||||||
(In Thousands) |
Recorded Investment |
Unpaid Principal Balance |
Related Allowance |
Average Recorded Investment |
Interest Income Recognized |
|||||||||||||||
With no related allowance recorded: |
||||||||||||||||||||
Residential Mortgages |
$ | 1,708 | $ | 1,708 | $ | | $ | 1,536 | $ | 12 | ||||||||||
Construction |
| | | | | |||||||||||||||
Home Equity |
76 | 76 | | 76 | 1 | |||||||||||||||
Commercial Mortgages |
| 126 | | | | |||||||||||||||
Commercial Business Loans |
| | | | | |||||||||||||||
Consumer Non-Real Estate |
| | | | | |||||||||||||||
With an allowance recorded: |
||||||||||||||||||||
Residential Mortgages |
$ | 2,017 | $ | 2,017 | $ | (310 | ) | $ | 1,567 | $ | 2 | |||||||||
Construction |
| | | | | |||||||||||||||
Home Equity |
76 | 76 | (47 | ) | 98 | 31 | ||||||||||||||
Commercial Mortgages |
1,459 | 1,459 | (110 | ) | 1,459 | | ||||||||||||||
Commercial Business Loans |
| | | | | |||||||||||||||
Consumer Non-Real Estate |
| | | | | |||||||||||||||
Total: |
||||||||||||||||||||
Residential Mortgages |
$ | 3,725 | $ | 3,725 | $ | (310 | ) | $ | 3,103 | $ | 14 | |||||||||
Construction |
| | | | | |||||||||||||||
Home Equity |
152 | 152 | (47 | ) | 174 | 32 | ||||||||||||||
Commercial Mortgages |
1,459 | 1,585 | (110 | ) | 1,459 | | ||||||||||||||
Commercial Business Loans |
| | | | | |||||||||||||||
Consumer Non-Real Estate |
| | | | |
15
Table of Contents
September 30, 2011 | ||||||||||||||||||||
(In Thousands) |
Recorded Investment |
Unpaid Principal Balance |
Related Allowance |
Average Recorded Investment |
Interest Income Recognized |
|||||||||||||||
With no related allowance recorded: |
||||||||||||||||||||
Residential Mortgages |
$ | 1,526 | $ | 1,530 | $ | | $ | 1,541 | $ | 87 | ||||||||||
Construction |
| | | | | |||||||||||||||
Home Equity |
77 | 77 | | 77 | | |||||||||||||||
Commercial Mortgages |
127 | 232 | | 194 | | |||||||||||||||
Commercial Business Loans |
| | | | | |||||||||||||||
Consumer Non-Real Estate |
| | | 5 | | |||||||||||||||
With an allowance recorded: |
||||||||||||||||||||
Residential Mortgages |
$ | 1,533 | $ | 1,632 | $ | (198 | ) | $ | 1,639 | $ | 28 | |||||||||
Construction |
| | | | | |||||||||||||||
Home Equity |
109 | 109 | (79 | ) | 111 | 2 | ||||||||||||||
Commercial Mortgages |
| | | | | |||||||||||||||
Commercial Business Loans |
| | | | | |||||||||||||||
Consumer Non-Real Estate |
| | | | | |||||||||||||||
Total: |
||||||||||||||||||||
Residential Mortgages |
$ | 3,059 | $ | 3,162 | $ | (198 | ) | $ | 3,180 | $ | 115 | |||||||||
Construction |
| | | | | |||||||||||||||
Home Equity |
186 | 186 | (79 | ) | 188 | 2 | ||||||||||||||
Commercial Mortgages |
127 | 232 | | 194 | | |||||||||||||||
Commercial Business Loans |
| | | | | |||||||||||||||
Consumer Non-Real Estate |
| | | 5 | |
16
Table of Contents
The performance and credit quality of the loan portfolio is also monitored by the analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the past due status as of December 31, 2011 and September 30, 2011:
December 31, 2011 | ||||||||||||||||||||||||
(In Thousands) |
30-89 Days
Past Due |
Greater than 90 Days |
Total Past Due |
Current | Total
Loans Receivables |
Loans Receivable > 90 Days and Accruing |
||||||||||||||||||
Residential Mortgages |
$ | 5,816 | $ | 3,273 | $ | 9,089 | $ | 321,254 | $ | 330,343 | $ | | ||||||||||||
Construction |
| | | 7,231 | 7,231 | | ||||||||||||||||||
Home Equity |
1,126 | 88 | 1,214 | 81,850 | 83,064 | | ||||||||||||||||||
Commercial Mortgages |
4,517 | 1,459 | 5,976 | 87,698 | 93,674 | | ||||||||||||||||||
Commercial Business Loans |
| | | 5,899 | 5,899 | | ||||||||||||||||||
Consumer Non-Real Estate |
36 | 3 | 39 | 1,229 | 1,268 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 11,495 | $ | 4,823 | $ | 16,318 | $ | 505,161 | $ | 521,479 | $ | | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011 | ||||||||||||||||||||||||
(In Thousands) |
30-89 Days
Past Due |
Greater than 90 Days |
Total Past Due |
Current | Total
Loans Receivables |
Loans Receivable > 90 Days and Accruing |
||||||||||||||||||
Residential Mortgages |
$ | 1,719 | $ | 2,771 | $ | 4,490 | $ | 331,889 | $ | 336,379 | $ | | ||||||||||||
Construction |
| | | 5,818 | 5,818 | | ||||||||||||||||||
Home Equity |
467 | 100 | 567 | 84,954 | 85,521 | 15 | ||||||||||||||||||
Commercial Mortgages |
4,180 | 127 | 4,307 | 86,778 | 91,085 | | ||||||||||||||||||
Commercial Business Loans |
| | | 6,262 | 6,262 | | ||||||||||||||||||
Consumer Non-Real Estate |
| 4 | 4 | 1,132 | 1,136 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 6,366 | $ | 3,002 | $ | 9,368 | $ | 516,833 | $ | 526,201 | $ | 15 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
17
Table of Contents
The following table provides the activity in the allowance for loan losses by loan class for three-months ended December 31, 2011 and the balance in the allowance for loan losses at September 30, 2011 disaggregated on the basis of the Companys impairment method by loan class along with the balance of loans receivable by class disaggregated on the basis of the Companys impairment methodology.
Allowance for Loan Loss:
Residential Mortgages |
Construction | Home Equity |
Commercial Mortgages |
Commercial Business Loans |
Consumer Non-Real Estate |
Unallocated | Totals | |||||||||||||||||||||||||
Three Months ended December 31, 2011: |
||||||||||||||||||||||||||||||||
Beginning Balance, October 1, 2011 |
$ | 871 | $ | 33 | $ | 431 | $ | 1,516 | $ | 214 | $ | 5 | $ | 241 | $ | 3,311 | ||||||||||||||||
Charge-offs |
| | | (127 | ) | | (5 | ) | | (132 | ) | |||||||||||||||||||||
Recoveries |
— | — | — | 128 | — | 2 | — | 130 | ||||||||||||||||||||||||
Provisions |
90 | 7 | (40 | ) | 133 | (7 | ) | 3 | 64 | 250 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Ending balance, December 31, 2011 |
$ | 961 | $ | 40 | $ | 391 | $ | 1,650 | $ | 207 | $ | 5 | $ | 305 | $ | 3,559 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Ending balance: |
||||||||||||||||||||||||||||||||
Individually evaluated for impairment |
$ | 310 | $ | | $ | 47 | $ | 110 | $ | | $ | | $ | | $ | 467 | ||||||||||||||||
Ending balance: |
||||||||||||||||||||||||||||||||
Collectively evaluated for impairment |
$ | 651 | $ | 40 | $ | 344 | $ | 1,540 | $ | 207 | $ | 5 | $ | 305 | $ | 3,092 | ||||||||||||||||
Loans: |
||||||||||||||||||||||||||||||||
Ending balance: |
$ | 330,343 | $ | 7,231 | $ | 83,064 | $ | 93,674 | $ | 5,899 | $ | 1,268 | $ | | $ | 521,479 | ||||||||||||||||
Ending balance: |
||||||||||||||||||||||||||||||||
Individually evaluated for impairment |
$ | 3,725 | $ | | $ | 152 | $ | 1,459 | $ | | $ | | $ | | $ | 5,336 | ||||||||||||||||
Ending balance: |
||||||||||||||||||||||||||||||||
Collectively evaluated for impairment |
$ | 326,618 | $ | 7,231 | $ | 82,912 | $ | 92,215 | $ | 5,899 | $ | 1,268 | $ | | $ | 516,143 |
18
Table of Contents
Ending balance, September 30, 2011: |
||||||||||||||||||||||||||||||||
Individually evaluated for impairment |
$ | 198 | $ | | $ | 79 | $ | | $ | | $ | | $ | | $ | 277 | ||||||||||||||||
Ending balance: |
||||||||||||||||||||||||||||||||
Collectively evaluated for impairment |
$ | 673 | $ | 33 | $ | 352 | $ | 1,516 | $ | 214 | $ | 5 | $ | 241 | $ | 3,034 | ||||||||||||||||
Loans: |
||||||||||||||||||||||||||||||||
Ending balance: |
$ | 336,379 | $ | 5,818 | $ | 85,521 | $ | 91,085 | $ | 6,262 | $ | 1,136 | $ | | $ | 526,201 | ||||||||||||||||
Ending balance: |
||||||||||||||||||||||||||||||||
Individually evaluated for impairment |
$ | 3,059 | $ | | $ | 186 | $ | 127 | $ | | $ | | $ | | $ | 3,372 | ||||||||||||||||
Ending balance: |
||||||||||||||||||||||||||||||||
Collectively evaluated for impairment |
$ | 333,320 | $ | 5,818 | $ | 85,335 | $ | 90,958 | $ | 6,262 | $ | 1,136 | $ | | $ | 522,829 |
As a result of adopting the amendments in ASU No. 2011-02, the Company reassessed all restructurings that occurred on or after January 1, 2011 for identification as troubled debt restructurings. The Company identified no loans for which the allowance for loan losses had previously been measured under a general allowance for credit losses methodology that are now considered troubled debt restructurings in accordance with ASU No. 2011-02, and as such, there are no retroactive disclosures required. The company had no loans modified as troubled debt restructurings for the three months ended December 31, 2011. The Company had no loans modified as troubled debt restructurings with the previous three months from December 31, 2011 which were in payment default.
The following table presents nonaccrual loans by classes of the loan portfolio as of December 31, 2011 and September 30, 2011:
December 31, | September 30, | |||||||
(In Thousands) |
2011 | 2011 | ||||||
Residential Mortgages |
$ | 3,592 | $ | 3,059 | ||||
Construction |
| | ||||||
Home Equity |
88 | 171 | ||||||
Commercial Mortgages |
1,459 | 127 | ||||||
Commercial Business Loans |
| | ||||||
Consumer Non-Real Estate |
3 | | ||||||
|
|
|
|
|||||
Total |
$ | 5,142 | $ | 3,357 | ||||
|
|
|
|
19
Table of Contents
4. FEDERAL HOME LOAN BANK STOCK
Federal law requires a member institution of the Federal Home Loan Bank (FHLB) to hold stock of its district FHLB according to a predetermined formula. The restricted stock is carried at cost. In December 2008, the FHLB of Pittsburgh notified member banks that it was suspending dividend payments and the repurchase of capital stock. During 2010 and 2011, the FHLB allowed certain redemptions.
Managements determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB.
Management believes no impairment charge is necessary related to the FHLB restricted stock as of December 31, 2011.
5. DEPOSITS
Deposits are summarized as follows:
(In Thousands) | ||||||||
December 31, | September 30, | |||||||
2011 | 2011 | |||||||
Non-interest bearing checking accounts |
$ | 22,877 | $ | 20,836 | ||||
Now accounts |
34,974 | 30,175 | ||||||
Interest bearing checking accounts |
38,820 | 39,135 | ||||||
Money market deposit accounts |
143,008 | 134,611 | ||||||
Passbook and club accounts |
4,148 | 4,194 | ||||||
Certificate of deposits |
286,544 | 295,450 | ||||||
|
|
|
|
|||||
Total Deposits |
$ | 530,371 | $ | 524,401 | ||||
|
|
|
|
The aggregate amount of certificate accounts in denominations of $100,000 or more at December 31, 2011 and September 30, 2011 amounted to approximately $57.5 million and $61.5 million, respectively.
6. COMMITMENTS
At December 31, 2011, the following commitments were outstanding:
(In thousands) | ||||
Letters of credit |
$ | 203 | ||
Commitments to originate loans |
11,383 | |||
Unused portion of home equity lines of credits |
54,429 | |||
Unused portion of commercial lines of credits |
7,691 | |||
Undisbursed portion of construction loans in process |
3,922 | |||
|
|
|||
Total |
$ | 77,628 | ||
|
|
20
Table of Contents
Outstanding letters of credit written are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The majority of these standby letters of credit expire within the next twelve months. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending other loan commitments. The Company requires collateral supporting these letters of credit as deemed necessary. Management believes that the proceeds obtained through a liquidation of such collateral would be sufficient to cover the maximum potential amount of future payments required under the corresponding guarantees. The current amount of the liability as of December 31, 2011 for guarantees under standby letters of credit issued is not material.
7. EARNINGS PER SHARE
The following shares were used for the computation of earnings per share:
For the Three Months Ended | ||||||||
December 30, | ||||||||
2011 | 2010 | |||||||
Basic |
3,763,147 | 3,693,373 | ||||||
Diluted |
3,790,457 | 3,731,203 |
The difference between the number of shares used for computation of basic earnings per share and diluted earnings per share represents the dilutive effect of stock options. There were 293,501 stock options that were anti-dilutive of which 5,263 where unvested restricted stock grants for the three- months ended December 31, 2011, respectively. There were 251,375 stock options that were anti-dilutive of which 2,822 where unvested restricted stock grants for the three month periods ended December 31, 2010, respectively.
8. LONG-TERM DEBT
Advances consists of the following:
December 31, | September 30, | |||||||||||||||
2011 | 2011 | |||||||||||||||
(In thousands) | ||||||||||||||||
Weighted | Weighted | |||||||||||||||
Interest | Interest | |||||||||||||||
Maturing Period |
Amount | Rate | Amount | Rate | ||||||||||||
1 to 12 months |
$ | 42,667 | 4.58 | % | $ | 53,029 | 4.50 | % | ||||||||
13 to 24 months |
36,704 | 3.95 | % | 32,778 | 4.07 | % | ||||||||||
25 to 36 months |
22,766 | 4.35 | % | 27,563 | 4.13 | % | ||||||||||
37 to 48 months |
17,477 | 3.84 | % | 17,656 | 3.84 | % | ||||||||||
49 to 60 months |
10,000 | 4.71 | % | 10,000 | 4.71 | % | ||||||||||
61 to 72 months |
50,000 | 4.43 | % | 45,000 | 4.52 | % | ||||||||||
73 to 84 months |
59,062 | 3.99 | % | 64,168 | 4.38 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 238,676 | 4.24 | % | $ | 250,194 | 4.34 | % | ||||||||
|
|
|
|
|
|
|
|
21
Table of Contents
Federal Home Loan Bank (FHLB) advances are collateralized by Federal Home Loan Bank stock and substantially all first mortgage loans. The Company has a line of credit with the FHLB of which $0 out of $75.0 million was used at December 30, 2011 and September 30, 2011, respectively. Included in the table above at December 31, 2011 and September 30, 2011 are convertible advances whereby the FHLB has the option at a predetermined strike rate to convert the fixed interest rate to an adjustable rate tied to London Interbank Offered Rate (LIBOR). The Company then has the option to repay these advances if the FHLB converts the interest rate. These advances are included in the periods in which they mature. The Company has a total FHLB borrowing capacity of $340.0 million of which $188.7 million was used as of December 30, 2011. In addition, there are four long-term advances from other financial institutions totaling $50 million that are secured by investment and mortgage-backed securities.
9. REGULATORY CAPITAL REQUIREMENTS
The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatoryand possibly additional discretionaryactions by regulators that, if undertaken, could have a direct material effect on the Companys 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 Banks assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Banks capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios (set forth in the table below) of total Tier 1 capital (as defined in the regulations) to risk weighted assets (as defined), and of Tier 1 capital (as defined) to assets (as defined). Management believes, as of December 31, 2011, that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 2011, the most recent notification from the Federal Deposit Insurance Corporation categorized the Company and Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Banks category.
The Banks actual capital amounts and ratios at December 31, 2011 and September 30, 2011 are also presented in the table below. The Companys capital ratios are not significantly different than the Banks disclosed below.
To Be Considered Well | ||||||||||||||||||||||||
Capitalized Under | ||||||||||||||||||||||||
For Capital | Prompt Corrective | |||||||||||||||||||||||
Actual | Adequacy Purposes | Action Provisions | ||||||||||||||||||||||
(Dollars in Thousands) |
Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||
At December 31, 2011 |
||||||||||||||||||||||||
Tier 1 Capital (to assets) |
$ | 58,008 | 7.01 | % | $ | 33,109 | 4.00 | % | $ | 41,386 | 5.00 | % | ||||||||||||
Tier 1 Capital (to risk weighted assets) |
58,008 | 12.56 | % | 18,480 | 4.00 | % | 27,721 | 6.00 | % | |||||||||||||||
Total Capital (to risk weighted assets) |
61,572 | 13.33 | % | 36,961 | 8.00 | % | 46,201 | 10.00 | % | |||||||||||||||
At September 30, 2011 |
||||||||||||||||||||||||
Tier 1 Capital (to assets) |
$ | 57,055 | 6.77 | % | $ | 33,722 | 4.00 | % | $ | 42,153 | 5.00 | % | ||||||||||||
Tier 1 Capital (to risk weighted assets) |
57,055 | 12.23 | % | 18,662 | 4.00 | % | 27,993 | 6.00 | % | |||||||||||||||
Total Capital (to risk weighted assets) |
60,366 | 12.94 | % | 37,325 | 8.00 | % | 46,656 | 10.00 | % |
22
Table of Contents
10. FAIR VALUE MEASUREMENTS AND DISCLOSURES
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with accounting guidance, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Companys various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is determined at a reasonable point within the range that is most representative of fair value under current market conditions.
The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under are as follows:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).
An assets or liabilitys level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
23
Table of Contents
For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2011 and September 30, 2011 are as follows:
Description | December 31, 2011 |
(Level
1) Quoted Prices in Active Markets for Identical Assets |
(Level 2) Significant Other Observable Inputs |
(Level 3) Significant Unobservable Inputs |
||||||||||||
Available for sale securities: |
||||||||||||||||
Equity securities |
$ | 367 | $ | 367 | $ | | $ | | ||||||||
U.S. Government money market funds |
1,115 | 1,115 | | | ||||||||||||
Collateralized mortgage obligations |
833 | | 833 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 2,315 | $ | 1,482 | $ | 833 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Description | September 30, 2011 |
(Level
1) Quoted Prices in Active Markets for Identical Assets |
(Level
2) Significant Other Observable Inputs |
(Level 3) Significant Unobservable Inputs |
||||||||||||
Available for sale securities: |
||||||||||||||||
Equity securities |
$ | 289 | $ | 289 | $ | | $ | | ||||||||
U.S. Government money market funds |
17,420 | 17,420 | | | ||||||||||||
Collateralized mortgage obligations |
806 | | 806 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 18,515 | $ | 17,709 | $ | 806 | $ | | ||||||||
|
|
|
|
|
|
|
|
There were no transfers in and out of Level 1 and Level 2 fair value measurements for the quarter ended December 31, 2011.
For assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2011 and September 30, 2011 are as follows:
Description | December 31, 2011 |
(Level
1) Quoted Prices in Active Markets for Identical Assets |
(Level
2) Significant Other Observable Inputs |
(Level 3) Significant Unobservable Inputs |
||||||||||||
(In Thousands) | ||||||||||||||||
Impaired Loans |
$ | 3,085 | $ | | $ | | $ | 3,085 | ||||||||
|
|
|
|
|
|
|
|
Description | September 30, 2011 |
(Level
1) Quoted Prices in Active Markets for Identical Assets |
(Level
2) Significant Other Observable Inputs |
(Level 3) Significant Unobservable Inputs |
||||||||||||
(In Thousands) | ||||||||||||||||
Impaired Loans |
$ | 1,365 | $ | | $ | | $ | 1,365 | ||||||||
|
|
|
|
|
|
|
|
24
Table of Contents
The following valuation techniques were used to measure fair value of the Companys financial instruments in the tables above and below:
Cash and Cash Equivalents (Carried at Cost)
The carrying amounts for cash and cash equivalents approximate those assets fair values.
Securities
The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities relationship to other benchmark quoted prices.
Loans Receivable (Carried at Cost)
The fair values of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.
Impaired loans are those loans which the Company has measured impairment generally based on the fair value of the loans collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.
Federal Home Loan Bank Stock (Carried at Cost)
The carrying amount of this restricted investment in bank stock approximates fair value, and considers the limited marketability of such securities.
Accrued Interest Receivable and Payable (Carried at Cost)
The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.
Deposit Liabilities (Carried at Cost)
The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of a aggregated expected monthly maturities on time deposits.
Borrowings (Carried at Cost)
Fair values of borrowings are estimated using discounted cash flow analysis, based on quoted prices for new advances with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.
25
Table of Contents
Off-Balance Sheet Financial Instruments (Disclosed at Cost)
Fair values for the Companys off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties credit standing. The fair value of these off-balance sheet financial instruments are not considered material as of December 31, 2011 and September 30, 2011.
The estimated fair value amounts have been determined by the Company using available market information appropriate valuation methodologies. However, considerable judgment is necessarily required to interpret the data to develop the estimates.
The carrying amounts and estimated fair values of financial instruments as of December 31, 2011 and September 30, 2011 are as follows.
December 31, 2011 | September 30, 2011 | |||||||||||||||
(In Thousands) |
Carrying Amount |
Estimated
Fair Value |
Carrying Amount |
Estimated
Fair Value |
||||||||||||
Assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 31,775 | $ | 31,775 | $ | 22,582 | $ | 22,582 | ||||||||
Securities held to maturity |
241,768 | 250,622 | 231,756 | 240,581 | ||||||||||||
Securities available-for-sale |
2,315 | 2,315 | 18,515 | 18,515 | ||||||||||||
Loans receivablenet |
512,934 | 537,714 | 518,486 | 543,732 | ||||||||||||
Federal Home Loan Bank stock |
12,455 | 12,455 | 13,110 | 13,110 | ||||||||||||
Accrued interest receivable |
2,833 | 2,833 | 2,847 | 2,847 | ||||||||||||
Liabilities: |
||||||||||||||||
Checking, passbook, club and NOW deposit accounts |
100,819 | 100,819 | 94,340 | 94,340 | ||||||||||||
Money Market deposit accounts |
143,008 | 143,008 | 134,611 | 134,611 | ||||||||||||
Certificate of deposit accounts |
286,544 | 292,924 | 295,450 | 303,290 | ||||||||||||
Borrowings |
238,676 | 262,520 | 250,194 | 276,735 | ||||||||||||
Accrued interest payable |
1,170 | 1,170 | 1,315 | 1,315 | ||||||||||||
Off balance sheet financial instruments |
| | | |
Limitations
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Companys entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Companys financial instruments, fair value estimates are based on many judgments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial instruments include deferred income taxes and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been and have not been considered in the estimate.
11. SUBSEQUENT EVENT
In February 2012, the Company purchased back $1.8 million of treasury stock (123,478 shares at $14.53 per share) from an unrelated party. This purchase was not a part of our current common stock repurchase program. This was a separate resolution to repurchase common stock in an unsolicited private transaction.
26
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
This report contains certain forward-looking statements and information relating to the Company that are based on the beliefs of management as well as assumptions made by and information currently available to management. In addition, in those and other portions of this document, the words anticipate, believe, estimate, intend, should and similar expressions, or the negative thereof, as they relate to the Company or the Companys management, are intended to identify forward-looking statements. Such statements reflect the current views of the Company with respect to future-looking events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. The Company does not intend to update these forward-looking statements.
The Companys business consists of attracting deposits from the general public through a variety of deposit programs and investing such deposits principally in first mortgage loans secured by residential properties, commercial loans and commercial lines of credit in the Companys primary market area. The Company also originates a variety of consumer loans, predominately home equity loans and lines of credit also secured by residential properties in the Companys primary lending area. The Company serves its customers through its full-service branch network as well as through remote ATM locations, the internet and telephone banking.
Critical Accounting Policies and Judgments
The Companys consolidated financial statements are prepared based on the application of certain accounting policies. Certain of these policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or subject to variations and may significantly affect the Companys reported results and financial position for the period or in future periods. Changes in underlying factors, assumptions, or estimates in any of these areas could have a material impact on the Companys future financial condition and results of operations. The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of the consolidated financial statements: allowance for loan losses, other-than-temporary security impairment and deferred income taxes.
Allowance for Loan Losses
Analysis and Determination of the Allowance for Loan LossesThe allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. The Company evaluates the need to establish allowances against losses on loans on a monthly basis. When additional allowances are necessary, a provision for loan losses is charged to earnings.
Our methodology for assessing the appropriateness of the allowance for loan losses consists of three key elements: (1) specific allowances for certain impaired loans; (2) a general valuation allowance on certain identified problem loans; and (3) a general valuation allowance on the remainder of the loan portfolio. Although we determine the amount of each element of the allowance separately, the entire allowance for loan losses is available for the entire portfolio.
Specific Allowance Required for Certain Impaired Loans: We establish an allowance for certain impaired loans for the amounts by which the collateral value, present value of future cash flows or observable market price are lower than the carrying value of the loan. Under current accounting guidelines, a loan is defined as impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due under the contractual terms of the loan agreement.
27
Table of Contents
General Valuation Allowance on Certain Identified Problem LoansWe also establish a general allowance for classified loans that do not have an individual allowance. We segregate these loans by loan category and assign allowance percentages to each category based on inherent losses associated with each type of lending and consideration that these loans, in the aggregate, represent an above-average credit risk and that more of these loans will prove to be uncollectible compared to loans in the general portfolio.
General Valuation Allowance on the Remainder of the Loan PortfolioWe establish another general allowance for loans that are not classified to recognize the inherent losses associated with lending activities, but which, unlike specific allowances, has not been allocated to particular problem assets. This general valuation allowance is determined by segregating the loans by loan category and assigning allowance percentages based on our historical loss experience, delinquency trends and managements evaluation of the collectibility of the loan portfolio. The allowance may be adjusted for significant factors that, in managements judgment, affect the collectability of the portfolio as of the evaluation date. These significant factors may include changes in lending policies and procedures, changes in existing general economic and business conditions affecting our primary lending areas, credit quality trends, collateral value, loan volumes and concentrations, seasoning of the loan portfolio, recent loss experience in particular segments of the portfolio, duration of the current business cycle and bank regulatory examination results. The applied loss factors are reevaluated quarterly to ensure their relevance in the current economic environment.
Other-than-Temporary Impairment of Investment Securities
Securities are evaluated periodically to determine whether a decline in their value is other-than-temporary. Management utilizes criteria such as the magnitude and duration of the decline, in addition to the reasons underlying the decline, to determine whether the loss in value is other-than-temporary. The term other-than-temporary is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value are not necessarily favorable, or that there is a lack of evidence to support realizable value equal to or greater than the carrying value of the investment.
Deferred Tax Assets
In evaluating our ability to recover deferred tax assets, management considers all available positive and negative evidence, including our past operating results and our forecast of future taxable income. In determining future taxable income, management makes assumptions for the amount of taxable income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require us to make judgments about our future taxable income and are consistent with the plans and estimates we use to manage our business. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. An increase in the valuation allowance would result in additional income tax expense in the period and could have a significant impact on our future earnings.
Changes in Financial Position for the Three-Month Period Ended December 31, 2011
Total assets at December 31, 2011 were $832.6 million, a decrease of $3.1 million for the three-month period then ended. The decrease was primarily due to a decreases in loans receivable of $5.6 million, investments available for sale of $16.2 million and repurchase of Federal Home Loan Bank Stock of $655,000. The decreases were partially offset by an increase in cash and investments held to maturity of approximately $19.2 million.
There was a growth in deposits during the three-month period ended December 31, 2011. Total deposits increased $6.0 million to $530.4 million. Advances from borrowers for taxes and insurance also increased by $2.1 million due to the timing of property tax payments. The increases were primarily offset by a decrease in borrowings of $11.5 million due to normal repayments for the period.
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Comparisons of Results of Operations for the Three-Month Period Ended December 31, 2011 with the Three-Month Period Ended December 31, 2010
Net Income
Net income for the three-month period ended December 31, 2011 was $1.4 million compared to $1.2 million for the comparable period in 2010. Basic and diluted earnings per share for the three-month period ending December 31, 2011 was $0.36.
Net Interest Income
Net interest income was $5.0 million for the three-month period ended December 31, 2011 compared to $4.5 million for the comparable period in 2010. Although our average balance in interest-earning assets and interest-bearing liabilities decreased our average interest rate spread increased from 2.13% to 2.49% in the respective December 31, 2010 and 2011 periods.
Non-Interest Income
Non-interest income increased to $571,000 for the three-month period ended December 31, 2011 from $501,000 for the comparable period in 2010. The increase is primarily due to an increase in income on non-deposit products and customer service fees due to the increase in transaction accounts over the current period.
Non-Interest Expenses
For the three-month period ended December 31, 2011, non-interest expenses increased by $137,000 or 4.33% to $3.3 million compared to $3.2 million for the same period in 2010. Salary and employee benefits increased $160,000 to $1.9 million for the three-month period ended December 31, 2011, primarily due to an increase in staffing and bank growth. Occupancy and equipment increased $19,000 and other expenses increased $33,000 for three-month ended December 31, 2011 compared to the same period in 2010. The aforementioned increases are partially offset by a decrease in FDIC insurance expense by $94,000 compared to the same period in 2010. The annualized ratio of non-interest expenses to average assets for the three-month period ended December 31, 2011 and 2010 were 1.57% and 1.48%, respectively.
Income Taxes
The Company made provisions for income taxes of $697,000 for the three-month period ended December 31, 2011, compared to $429,000 for the comparable period in 2010. These provisions are based on the levels of pre-tax income, adjusted primarily for tax-exempt interest income on investments.
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Liquidity and Capital Recourses
For a financial institution, liquidity is a measure of the ability to fund customers needs for loans and deposit withdrawals. The Bank regularly evaluates economic conditions in order to maintain a strong liquidity position. One of the most significant factors considered by management when evaluating liquidity requirements is the stability of the Banks core deposit base. In addition to cash, the Bank maintains a portfolio of short-term investments to meet its liquidity requirements.
The Company also relies upon cash flow from operations and other financing activities, generally short-term and long-term debt. Liquidity is also provided by investing activities including the repayment and maturity of loans and investment securities as well as the management of asset sales when considered necessary. The Bank also has access to and sufficient assets to secure lines of credit and other borrowings in amounts adequate to fund any unexpected cash requirements.
As of December 31, 2011, the Company had $77.6 million in commitments to fund loan originations, disburse loans in process and meet other obligations. Management anticipates that the majority of these commitments will be funded within the next six months by means of normal cash flows and new deposits.
The Company invests excess funds in overnight deposits and other short-term interest-earning assets, which provide liquidity to meet lending requirements. The Company also has available borrowings with the Federal Home Loan Bank of Pittsburgh up to the Companys maximum borrowing capacity, which was $340.0 million at December 31, 2011 of which $188.7 million was outstanding at December 31, 2011.
The Banks net income for the three-month period ended December 31, 2011 was $1.4 million compared to $1.2 million for the comparable period 2010. This increased the Banks stockholders equity to $58.0 million or 6.97% of total assets. This amount is well in excess of the Banks minimum regulatory capital requirement.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company has instituted programs designed to decrease the sensitivity of its earnings to material and prolonged increases in interest rates. The principal determinant of the exposure of the Companys earnings to interest rate risk is the timing difference between the repricing or maturity of the Companys interest-earning assets and the repricing or maturity of its interest-bearing liabilities. If the maturities of such assets and liabilities were perfectly matched, and if the interest rates borne by its assets and liabilities were equally flexible and moved concurrently, neither of which is the case, the impact on net interest income of rapid increases or decreases in interest rates would be minimized. The Companys asset and liability management policies seek to decrease the interest rate sensitivity by shortening the repricing intervals and the maturities of the Companys interest-earning assets. Although management of the Company believes that the steps taken have reduced the Companys overall vulnerability to increases in interest rates, the Company remains vulnerable to material and prolonged increases in interest rates during periods in which its interest rate sensitive liabilities exceed its interest rate sensitive assets. The authority and responsibility for interest rate management is vested in the Companys Board of Directors. The Chief Executive Officer implements the Board of Directors policies during the day-to-day operations of the Company.
Each month, the Chief Financial Officer (CFO) presents the Board of Directors with a report, which outlines the Companys asset and liability gap position in various time periods. The gap is the difference between interest- earning assets and interest-bearing liabilities which mature or reprice over a given time period.
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The CFO also meets weekly with the Companys other senior officers to review and establish policies and strategies designed to regulate the Companys flow of funds and coordinate the sources, uses and pricing of such funds. The first priority in structuring and pricing the Companys assets and liabilities is to maintain an acceptable interest rate spread while reducing the effects of changes in interest rates and maintaining the quality of the Companys assets.
The following table summarizes the amount of interest-earning assets and interest-bearing liabilities outstanding as of December 31, 2011, which are expected to mature, prepay or reprice in each of the future time periods shown. Except as stated below, the amounts of assets or liabilities shown which mature or reprice during a particular period were determined in accordance with the contractual terms of the asset or liability. Adjustable and floating-rate assets are included in the period in which interest rates are next scheduled to adjust rather than in the period in which they are due and fixed-rate loans and mortgage-backed securities are included in the periods in which they are anticipated to be repaid.
The passbook accounts, negotiable order of withdrawal (NOW) accounts, interest bearing accounts, and money market deposit accounts, are included in the Over 5 Years categories based on managements beliefs that these funds are core deposits having significantly longer effective maturities based on the Companys retention of such deposits in changing interest rate environments.
Generally, during a period of rising interest rates, a positive gap would result in an increase in net interest income while a negative gap would adversely affect net interest income. Conversely, during a period of falling interest rates, a positive gap would result in a decrease in net interest income while a negative gap would positively affect net interest income. However, the following table does not necessarily indicate the impact of general interest rate movements on the Companys net interest income because the repricing of certain categories of assets and liabilities is discretionary and is subject to competitive and other pressures. As a result, certain assets and liabilities indicated as repricing within a stated period may in fact reprice at different rate levels.
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(In thousands) |
1 Year or less |
1 to 3 Years |
3 to 5 Years |
Over 5 Years |
Total | |||||||||||||||
Interest-earning assets: |
||||||||||||||||||||
Mortgage loans |
$ | 57,387 | $ | 58,804 | $ | 46,196 | $ | 175,187 | $ | 337,574 | ||||||||||
Commercial loans |
50,433 | 17,700 | 14,927 | 16,513 | 99,573 | |||||||||||||||
Mortgage-backed securities |
54,645 | 44,524 | 25,043 | 32,198 | 156,410 | |||||||||||||||
Consumer and other loans |
67,463 | 8,817 | 4,106 | 3,946 | 84,332 | |||||||||||||||
Investment securities and other investments |
80,794 | 21,583 | 20,414 | 5,291 | 128,082 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total interest-earning assets |
310,722 | 151,428 | 110,686 | 233,135 | 805,971 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
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Interest-bearing liabilities: |
||||||||||||||||||||
Passbook and Club accounts |
400 | | | 3,747 | 4,148 | |||||||||||||||
NOW and checking accounts |
7,379 | | | 66,415 | 73,794 | |||||||||||||||
Consumer Money Market Deposit accounts |
55,156 | | | 60,402 | 115,558 | |||||||||||||||
Business Money Market Deposit accounts |
20,588 | | | 6,863 | 27,450 | |||||||||||||||
Certificate accounts |
111,323 | 128,770 | 46,451 | | 286,544 | |||||||||||||||
Borrowed money |
47,388 | 58,374 | 26,201 | 106,713 | 238,676 | |||||||||||||||
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|
|
|
|
|
|
|
|
|
|||||||||||
Total interest-bearing liabilities |
242,234 | 187,144 | 72,652 | 244,140 | 746,170 | |||||||||||||||
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|
|
|
|
|
|
|
|||||||||||
Repricing GAP during the period |
$ | 68,488 | $ | (35,716 | ) | $ | 38,034 | $ | (11,005 | ) | $ | 59,801 | ||||||||
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|
|
|
|
|
|
|||||||||||
Cumulative GAP |
$ | 68,488 | $ | 32,772 | $ | 70,806 | $ | 59,801 | ||||||||||||
|
|
|
|
|
|
|
|
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Ratio of GAP during the period to total assets |
8.23 | % | -4.29 | % | 4.57 | % | -1.32 | % | ||||||||||||
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|
|
|
|
|
|
|
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Ratio of cumulative GAP to total assets |
8.23 | % | 3.94 | % | 8.50 | % | 7.18 | % | ||||||||||||
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|
|
|
|
|
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Item 4. Controls and Procedures
Our management evaluated, with the participation of our Chief Executive Officer and 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 and Chief Financial Officer have 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 recorded, processed, summarized and reported within the time periods specified in the SECs rules and regulations and are operating in an effective manner.
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-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.
The Company is involved in various legal proceedings occurring in the ordinary course of business. It is the opinion of management that these matters will not materially affect the Companys consolidated financial position or results of operations.
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) | Not applicable. |
(b) | Not applicable. |
(c) | The following table sets forth information with respect to purchases made by or on behalf of the Company of shares of common stock of the Company during the first quarter of fiscal 2012. |
Period |
Total Number of Shares Purchased |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(1) |
||||||||||||
October 1-31, 2011 |
| | | 50,492 | ||||||||||||
November 1-30, 2011 |
| | | 50,492 | ||||||||||||
December 1-31, 2011 |
| | | 50,492 | ||||||||||||
|
|
|
|
|
|
|
|
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Total |
| $ | | | 50,942 | |||||||||||
|
|
|
|
|
|
|
|
(1) | On June 30, 2008, the Company announced its current program to repurchase up to 5.0% of the outstanding shares of common stock of the Company, or 196,000 shares. The program does not have an expiration date and all shares are purchased in the open market. |
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Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. (Removed and Reserved)
Not applicable.
No. |
Descriptions | |
31.1 | Certification of Chief Executive Officer | |
31.2 | Certification of Chief Operating and Financial Officer | |
32.0 | Section 1350 Certification of Chief Executive Officer and Chief Operating and Financial Officer |
The following Exhibits are being furnished* as part of this report:
No. |
Description | |
101.INS | XBRL Instance Document.* | |
101.SCH | XBRL Taxonomy Extension Schema Document.* | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document.* | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document.* | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document.* | |
101.DEF | XBRL Taxonomy Extension Definitions Linkbase Document.* |
* | These interactive data files are being furnished as part of this Quarterly Report, and, in accordance with Rule 402 of Regulation S-T, shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections. |
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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.
HARLEYSVILLE SAVINGS FINANCIAL CORPORATION |
||||||
Date: February 10, 2012 | By: | /s/ Ronald B. Geib | ||||
Ronald B. Geib | ||||||
Chief Executive Officer |
Date: February 10, 2012 | By: | /s/ Brendan J. McGill | ||||
Brendan J. McGill | ||||||
Executive Vice President Chief Operating and Financial Officer |
35