UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One) | |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES |
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| For the quarterly period ended September 30, 2008 |
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OR | |
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o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES |
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| For the transition period from to |
Commission file number: 001-32971
Fox Chase Bancorp, Inc.
(Exact name of registrant as specified in its charter)
United States |
| 33-1145559 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
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4390 Davisville Road, Hatboro, Pennsylvania |
| 19040 |
(Address of principal executive offices) |
| (Zip Code) |
(215) 682-7400
(Registrant’s 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 o
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 the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer o | Accelerated Filer x |
Non-Accelerated Filer o | Smaller Reporting Company o |
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
Yes o No x
As of November 3, 2008, there were 14,129,859 shares of the registrant’s common stock outstanding.
FOX CHASE BANCORP, INC.
2
FOX CHASE BANCORP, INC
Consolidated Statements of Condition
(In Thousands, Except Share Data)
|
| September 30, |
| December 31, |
| ||
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| 2008 |
| 2007 |
| ||
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| (Unaudited) |
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| ||
ASSETS |
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| ||
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Cash and due from banks |
| $ | 382 |
| $ | 3,307 |
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Interest-earning demand deposits in other banks |
| 6,100 |
| 7,968 |
| ||
Money market funds |
| — |
| 20,000 |
| ||
Total cash and cash equivalents |
| 6,482 |
| 31,275 |
| ||
Investment securities available-for-sale |
| 23,805 |
| 91,159 |
| ||
Mortgage related securities available-for-sale |
| 240,429 |
| 205,145 |
| ||
Loans, net of allowance for loan losses of $4,261 and $3,376 at September 30, 2008 and December 31, 2007, respectively |
| 572,838 |
| 447,035 |
| ||
Federal Home Loan Bank stock, at cost |
| 8,961 |
| 5,875 |
| ||
Bank-owned life insurance |
| 12,100 |
| 11,762 |
| ||
Premises and equipment |
| 13,921 |
| 14,466 |
| ||
Accrued interest receivable |
| 3,452 |
| 3,360 |
| ||
Mortgage servicing rights |
| 955 |
| 1,066 |
| ||
Deferred tax asset, net |
| 1,641 |
| 410 |
| ||
Other assets |
| 2,090 |
| 1,366 |
| ||
Total Assets |
| $ | 886,674 |
| $ | 812,919 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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LIABILITIES |
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Deposits |
| $ | 593,398 |
| $ | 585,560 |
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Federal Home Loan Bank advances |
| 131,060 |
| 80,000 |
| ||
Other borrowed funds |
| 35,000 |
| 20,000 |
| ||
Advances from borrowers for taxes and insurance |
| 1,682 |
| 2,374 |
| ||
Accrued interest payable |
| 651 |
| 504 |
| ||
Accrued expenses and other liabilities |
| 4,201 |
| 2,110 |
| ||
Total Liabilities |
| 765,992 |
| 690,548 |
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STOCKHOLDERS’ EQUITY |
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Preferred stock ($.01 par value; 1,000,000 shares authorized, none issued and outstanding at September 30, 2008 or December 31, 2007) |
| — |
| — |
| ||
Common stock ($.01 par value; 35,000,000 shares authorized, 14,679,750 shares issued; 14,129,859 and 14,352,750 shares outstanding at September 30, 2008 and December 31, 2007, respectively) |
| 147 |
| 147 |
| ||
Additional paid-in capital |
| 63,213 |
| 62,909 |
| ||
Treasury stock (at cost, 549,891 and 327,000 shares at September 30, 2008 and December 31, 2007, respectively) |
| (6,595 | ) | (3,924 | ) | ||
Common stock acquired by benefit plans |
| (7,915 | ) | (8,732 | ) | ||
Retained earnings |
| 72,783 |
| 71,475 |
| ||
Accumulated other comprehensive income (loss), net |
| (951 | ) | 496 |
| ||
Total Stockholders’ Equity |
| 120,682 |
| 122,371 |
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Total Liabilities and Stockholders’ Equity |
| $ | 886,674 |
| $ | 812,919 |
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See accompanying notes to the unaudited consolidated financial statements.
3
FOX CHASE BANCORP, INC.
Consolidated Statements of Operations
(Unaudited)
(In Thousands, Except Per Share Data)
|
| Three Months Ended |
| Nine Months Ended |
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| 2008 |
| 2007 |
| 2008 |
| 2007 |
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INTEREST INCOME |
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Interest and fees on loans |
| $ | 8,106 |
| $ | 6,746 |
| $ | 22,415 |
| $ | 18,338 |
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Interest on money market funds |
| — |
| — |
| 521 |
| — |
| ||||
Interest on mortgage related securities available-for-sale |
| 3,138 |
| 1,657 |
| 9,248 |
| 5,187 |
| ||||
Interest on investment securities available-for-sale: |
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Taxable |
| 121 |
| 905 |
| 876 |
| 1,813 |
| ||||
Non-taxable |
| 146 |
| 205 |
| 469 |
| 709 |
| ||||
Dividend income |
| 69 |
| 61 |
| 193 |
| 189 |
| ||||
Other interest income |
| 17 |
| 1,019 |
| 124 |
| 3,970 |
| ||||
Total Interest Income |
| 11,597 |
| 10,593 |
| 33,846 |
| 30,206 |
| ||||
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INTEREST EXPENSE |
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Deposits |
| 4,345 |
| 5,309 |
| 14,004 |
| 15,322 |
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Federal Home Loan Bank advances |
| 1,230 |
| 375 |
| 3,380 |
| 1,111 |
| ||||
Other borrowed funds |
| 203 |
| — |
| 567 |
| — |
| ||||
Total Interest Expense |
| 5,778 |
| 5,684 |
| 17,951 |
| 16,433 |
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Net Interest Income |
| 5,819 |
| 4,909 |
| 15,895 |
| 13,773 |
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Provision for loan losses |
| 500 |
| 125 |
| 900 |
| 200 |
| ||||
Net Interest Income after Provision for Loan Losses |
| 5,319 |
| 4,784 |
| 14,995 |
| 13,573 |
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NONINTEREST INCOME |
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Service charges and other fee income |
| 218 |
| 204 |
| 633 |
| 623 |
| ||||
Net gain on sale of: |
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Loans |
| 6 |
| — |
| 10 |
| 73 |
| ||||
Fixed assets |
| — |
| — |
| — |
| 874 |
| ||||
Securities |
| — |
| 19 |
| 118 |
| 19 |
| ||||
Income on bank-owned life insurance |
| 114 |
| 111 |
| 338 |
| 327 |
| ||||
Other |
| 21 |
| 53 |
| 56 |
| 160 |
| ||||
Total Noninterest Income |
| 359 |
| 387 |
| 1,155 |
| 2,076 |
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NONINTEREST EXPENSE |
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Salaries, benefits and other compensation |
| 2,928 |
| 2,485 |
| 8,790 |
| 7,154 |
| ||||
Occupancy expense |
| 458 |
| 475 |
| 1,412 |
| 1,354 |
| ||||
Furniture and equipment expense |
| 226 |
| 230 |
| 669 |
| 712 |
| ||||
Data processing costs |
| 402 |
| 388 |
| 1,204 |
| 1,149 |
| ||||
Professional fees |
| 285 |
| 460 |
| 863 |
| 1,445 |
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Marketing expense |
| 117 |
| 152 |
| 337 |
| 449 |
| ||||
FDIC premiums |
| 26 |
| 20 |
| 81 |
| 62 |
| ||||
Other |
| 347 |
| 416 |
| 1,111 |
| 1,300 |
| ||||
Total Noninterest Expense |
| 4,789 |
| 4,626 |
| 14,467 |
| 13,625 |
| ||||
Income Before Income Taxes |
| 889 |
| 545 |
| 1,683 |
| 2,024 |
| ||||
Income tax provision |
| 230 |
| 90 |
| 375 |
| 424 |
| ||||
Net Income |
| $ | 659 |
| $ | 455 |
| $ | 1,308 |
| $ | 1,600 |
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Earnings per share: |
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| ||||
Basic |
| $ | 0.05 |
| $ | 0.03 |
| $ | 0.10 |
| $ | 0.11 |
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Diluted |
| $ | 0.05 |
| $ | 0.03 |
| $ | 0.10 |
| $ | 0.11 |
|
See accompanying notes to the unaudited consolidated financial statements.
4
FOX CHASE BANCORP, INC.
Consolidated Statement of Changes in Equity
Nine Months Ended September 30, 2008
(Unaudited)
(In Thousands)
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| Common |
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| Accumulated |
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| Stock |
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| Other |
| Total |
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| Additional |
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| Acquired |
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| Comprehensive |
| Stock- |
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| Common |
| Paid-in |
| Treasury |
| by |
| Retained |
| Income (Loss), |
| holders’ |
| |||||||
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| Stock |
| Capital |
| Stock |
| Benefit Plans |
| Earnings |
| Net |
| Equity |
| |||||||
BALANCE - DECEMBER 31, 2007 |
| $ | 147 |
| $ | 62,909 |
| $ | (3,924 | ) | $ | (8,732 | ) | $ | 71,475 |
| $ | 496 |
| $ | 122,371 |
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Purchase of treasury stock |
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| (2,671 | ) |
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| (2,671 | ) | |||||||
Stock based compensation expense |
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| 710 |
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| 710 |
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Issuance of stock for vested equity awards |
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| (529 | ) |
|
| 529 |
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|
|
| — |
| |||||||
Unallocated ESOP shares committed to employees |
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|
| 45 |
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| 288 |
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| 333 |
| |||||||
Shares allocated in long-term incentive plan |
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| 78 |
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| 78 |
| |||||||
Net income |
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| 1,308 |
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| 1,308 |
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Other comprehensive loss |
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| (1,447 | ) | (1,447 | ) | |||||||
BALANCE – SEPTEMBER 30, 2008 |
| $ | 147 |
| $ | 63,213 |
| $ | (6,595 | ) | $ | (7,915 | ) | $ | 72,783 |
| $ | (951 | ) | $ | 120,682 |
|
See accompanying notes to the unaudited consolidated financial statements.
5
FOX CHASE BANCORP, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands)
|
| Nine Months Ended |
| ||||
|
| September 30, |
| ||||
|
| 2008 |
| 2007 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES |
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Net income |
| $ | 1,308 |
| $ | 1,600 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
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Provision for loan losses |
| 900 |
| 200 |
| ||
Depreciation |
| 736 |
| 770 |
| ||
Net amortization of securities premiums and discounts |
| 656 |
| 165 |
| ||
(Benefit) provision for deferred income taxes |
| (397 | ) | 150 |
| ||
Shares committed to be released to the ESOP |
| 333 |
| 381 |
| ||
Shares earned in the long-term incentive plan |
| 78 |
| 124 |
| ||
Compensation cost for stock options and stock awards |
| 710 |
| 68 |
| ||
Pension plan settlement |
| 137 |
| — |
| ||
Originations of loans held for sale |
| (3,197 | ) | (6,112 | ) | ||
Proceeds from sale of loans held for sale |
| 3,193 |
| 7,331 |
| ||
Net realized gains on sales of fixed assets |
| — |
| (874 | ) | ||
Net gains on sales of securities |
| (118 | ) | (19 | ) | ||
Net gain on sales of loans and loans held for sale |
| (10 | ) | (73 | ) | ||
Earnings on investment in bank-owned life insurance |
| (338 | ) | (327 | ) | ||
Decrease in mortgage servicing rights |
| 111 |
| 90 |
| ||
(Increase) decrease in accrued interest receivable and other assets |
| (454 | ) | 812 |
| ||
Increase (decrease) in accrued interest payable, accrued expenses and other liabilities |
| 2,241 |
| (119 | ) | ||
Net Cash Provided by Operating Activities |
| 5,889 |
| 4,167 |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Equity investment in unaffiliated entity |
| — |
| (300 | ) | ||
Investment securities available-for-sale: |
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Purchases |
| (17,128 | ) | (76,264 | ) | ||
Proceeds from sales |
| 72,398 |
| 108 |
| ||
Proceeds from maturities, calls and principal repayments |
| 11,495 |
| 28,182 |
| ||
Mortgage related securities available-for-sale: |
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Purchases |
| (108,495 | ) | (11,149 | ) | ||
Proceeds from sales |
| 22,051 |
| — |
| ||
Proceeds from maturities, calls and principal repayments |
| 48,525 |
| 36,164 |
| ||
Net increase in loans |
| (107,449 | ) | (39,387 | ) | ||
Purchase of loan participations |
| (19,254 | ) | (27,614 | ) | ||
Net (increase) decrease in Federal Home Loan Bank stock |
| (3,086 | ) | 450 |
| ||
Increase in other investments |
| (83 | ) | — |
| ||
Purchases of premises and equipment |
| (201 | ) | (2,207 | ) | ||
Proceeds from sales of premises and equipment |
| 10 |
| 1,732 |
| ||
Net Cash Used in Investing Activities |
| (101,217 | ) | (90,285 | ) | ||
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CASH FLOWS FROM FINANCING ACTIVITIES |
|
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Net increase (decrease) in deposits |
| 7,838 |
| (11,940 | ) | ||
Decrease in advances from borrowers for taxes and insurance |
| (692 | ) | (989 | ) | ||
Purchase of treasury stock |
| (2,671 | ) | — |
| ||
Principal payments on Federal Home Loan Bank advances |
| (25,710 | ) | — |
| ||
Federal Home Loan Bank advances |
| 76,770 |
| — |
| ||
Other borrowings |
| 15,000 |
| — |
| ||
Acquisition of stock to fund equity incentive plan |
| — |
| (1,374 | ) | ||
Net Cash Provided by (Used in) Financing Activities |
| 70,535 |
| (14,303 | ) | ||
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| ||
Net Decrease in Cash and Cash Equivalents |
| (24,793 | ) | (100,421 | ) | ||
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Cash and Cash Equivalents – Beginning |
| 31,275 |
| 134,441 |
| ||
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Cash and Cash Equivalents – Ending |
| $ | 6,482 |
| $ | 34,020 |
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
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Interest paid |
| $ | 17,804 |
| $ | 16,404 |
|
Income taxes paid |
| $ | 836 |
| $ | 19 |
|
See accompanying notes to the unaudited consolidated financial statements.
6
FOX CHASE BANCORP, INC
Notes to the Unaudited Consolidated Financial Statements
NOTE 1 - PRINCIPLES OF CONSOLIDATION AND PRESENTATION
Fox Chase Bancorp, Inc. (the “Bancorp”) was organized on September 29, 2006 under the laws of the United States to be a holding company for Fox Chase Bank (the “Bank”), a stock savings bank also organized under the laws of the United States. On September 29, 2006, the Bancorp completed its initial public offering in which it sold 6,395,835 shares, or 43.57% of its outstanding common stock to the public, including 575,446 shares purchased by the Fox Chase Bank Employee Stock Ownership Plan (the “ESOP”). An additional 8,148,915 shares, or 55.51% of the Bancorp’s outstanding stock, were issued to Fox Chase MHC, the Bancorp’s federally chartered mutual holding company. Net proceeds of the offering totaled $56.6 million. Additionally, the Bancorp contributed $150,000 in cash and issued 135,000 shares, or 0.92% of its outstanding common stock, to the Fox Chase Bank Charitable Foundation.
The Bancorp’s primary business has been that of holding the common stock of the Bank and making a loan to the ESOP. The Bancorp is authorized to pursue other business activities permissible by laws and regulations for other savings and loan holding companies.
The Bancorp and the Bank are subject to regulations of certain federal banking agencies. These regulations can and do change significantly from period to period. The Bancorp and the Bank also undergo periodic examinations by regulatory agencies which may subject them to further changes with respect to asset valuations, amounts of required loss allowances and operating restrictions resulting from the regulators’ judgments based on information available to them at the time of their examinations.
The Bancorp and the Bank (collectively referred to as the “Company”) provide a wide variety of financial products and services to individuals and businesses through the Bank’s eleven branches in Philadelphia, Richboro, Willow Grove, Warminster, Lahaska, Hatboro, Media and West Chester, Pennsylvania, and Ocean City, Marmora and Egg Harbor Township, New Jersey. The operations of the Company are managed as a single business segment. The Company competes with other financial institutions and other companies that provide financial services.
The consolidated financial statements include the accounts of the Bancorp and its wholly owned subsidiary, the Bank. The Bank’s operations include the accounts of its wholly owned subsidiary, Fox Chase Financial, Inc. Fox Chase Financial, Inc. is a Delaware chartered investment holding company and its sole purpose is to manage and hold investment securities. The financial statements do not include the transactions and balances of Fox Chase MHC. All material inter-company transactions and balances have been eliminated in consolidation. Prior period amounts are reclassified, when necessary, to conform with the current year’s presentation.
The Company follows accounting principles and reporting practices which are in compliance with U.S. generally accepted accounting principles (“GAAP”). The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclose contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation and realizability of deferred tax assets and the evaluation of other than temporary impairment of investment securities. These interim financial statements do not contain all necessary disclosures required by GAAP for complete financial statements and therefore should be read in conjunction with the audited financial statements and the notes thereto included in Fox Chase Bancorp, Inc.’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 14, 2008. These financial statements include all normal and recurring adjustments which management believes were necessary in order to conform to GAAP. The results for the nine months ended September 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.
7
NOTE 1 - PRINCIPLES OF CONSOLIDATION AND PRESENTATION (CONTINUED)
Per Share Information
The Company follows the provisions of SFAS No. 128, “Earnings Per Share.” Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted-average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. Unallocated shares in the Bank’s employee stock ownership plan (“ESOP”), unvested shares in the Company’s long-term incentive plan and shares purchased to fund the Bancorp’s 2007 Equity Incentive Plan are not included in either basic or diluted earnings per share.
The following table presents the reconciliation of the numerators and denominators of the basic and diluted earnings per share computations (unaudited).
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| September 30, |
| September 30, |
| ||||||||
|
| 2008 |
| 2007 |
| 2008 |
| 2007 |
| ||||
|
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|
|
|
|
|
| ||||
Net Income |
| $ | 659,000 |
| $ | 455,000 |
| $ | 1,308,000 |
| $ | 1,600,000 |
|
|
|
|
|
|
|
|
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|
| ||||
Weighted-average common shares outstanding (1) |
| 14,191,655 |
| 14,679,750 |
| 14,275,109 |
| 14,679,750 |
| ||||
Average common stock acquired by stock benefit plans: |
|
|
|
|
|
|
|
|
| ||||
Unvested shares - long-term incentive plan |
| (25,114 | ) | (38,362 | ) | (25,114 | ) | (38,697 | ) | ||||
ESOP shares unallocated |
| (476,272 | ) | (514,635 | ) | (485,804 | ) | (524,131 | ) | ||||
Shares purchased by trust |
| (274,254 | ) | (9,897 | ) | (283,053 | ) | (3,335 | ) | ||||
|
|
|
|
|
|
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|
|
| ||||
Weighted-average common shares used to calculate basic earnings per share |
| 13,416,015 |
| 14,116,856 |
| 13,481,138 |
| 14,113,587 |
| ||||
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Dilutive effect: |
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|
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|
|
|
|
| ||||
Unvested shares - long-term incentive plans |
| 25,114 |
| 38,362 |
| 25,114 |
| 38,697 |
| ||||
Restricted stock awards |
| 1,712 |
| 378 |
| 6,934 |
| 125 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Weighted-average common stock shares used to calculate diluted earnings per share |
| 13,442,841 |
| 14,155,596 |
| 13,513,186 |
| 14,152,409 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Earnings per share - basic |
| $ | 0.05 |
| $ | 0.03 |
| $ | 0.10 |
| $ | 0.11 |
|
Earnings per share - diluted |
| $ | 0.05 |
| $ | 0.03 |
| $ | 0.10 |
| $ | 0.11 |
|
|
|
|
|
|
|
|
|
|
| ||||
Outstanding anti-dilutive common stock equivalents |
| 793,068 |
| — |
| 787,846 |
| — |
|
(1) Excludes treasury stock.
8
NOTE 2 - INVESTMENT AND MORTGAGE RELATED SECURITIES
The amortized cost and fair value of securities available-for-sale as of September 30, 2008 and December 31, 2007 are summarized as follows:
|
| September 30, 2008 (Unaudited) |
| ||||||||||
|
| Amortized |
| Gross |
| Gross |
| Fair |
| ||||
|
| (In Thousands) |
| ||||||||||
|
|
|
| ||||||||||
State and political subdivisions |
| $ | 14,677 |
| $ | 25 |
| $ | (444 | ) | $ | 14,258 |
|
Corporate securities |
| 9,706 |
| 4 |
| (163 | ) | 9,547 |
| ||||
|
| 24,383 |
| 29 |
| (607 | ) | 23,805 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Private label residential mortgage related security |
| 930 |
| — |
| (442 | ) | 488 |
| ||||
Private label commercial mortgage related securities |
| 10,054 |
| — |
| (722 | ) | 9,332 |
| ||||
Agency residential mortgage related securities |
| 230,368 |
| 1,404 |
| (1,163 | ) | 230,609 |
| ||||
Total mortgage related securities |
| 241,352 |
| 1,404 |
| (2,327 | ) | 240,429 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total securities |
| $ | 265,735 |
| $ | 1,433 |
| $ | (2,934 | ) | $ | 264,234 |
|
|
| December 31, 2007 |
| ||||||||||
|
| Amortized |
| Gross |
| Gross |
| Fair |
| ||||
|
| (In Thousands) |
| ||||||||||
|
|
|
|
|
|
|
|
|
| ||||
Obligations of U.S. government agencies |
| $ | 10,000 |
| $ | 16 |
| $ | — |
| $ | 10,016 |
|
State and political subdivisions |
| 81,019 |
| 126 |
| (2 | ) | 81,143 |
| ||||
|
| 91,019 |
| 142 |
| (2 | ) | 91,159 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Private label residential mortgage related security |
| 1,181 |
| 27 |
| — |
| 1,208 |
| ||||
Private label commercial mortgage related securities |
| 10,069 |
| 68 |
| — |
| 10,137 |
| ||||
Agency residential mortgage related securities |
| 193,112 |
| 983 |
| (295 | ) | 193,800 |
| ||||
Mortgage related securities |
| 204,362 |
| 1,078 |
| (295 | ) | 205,145 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total securities |
| $ | 295,381 |
| $ | 1,220 |
| $ | (297 | ) | $ | 296,304 |
|
9
NOTE 2 - INVESTMENT AND MORTGAGE RELATED SECURITIES (CONTINUED)
The following tables show gross unrealized losses and fair value of securities, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2008 and December 31, 2007:
|
| September 30, 2008 (Unaudited) |
| ||||||||||||||||
|
| Less than 12 Months |
| 12 Months or More |
| Total |
| ||||||||||||
|
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| ||||||
|
| (In Thousands) |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
State and political subdivisions |
| $ | 10,186 |
| $ | (444 | ) | $ | — |
| $ | — |
| $ | 10,186 |
| $ | (444 | ) |
Corporate securities |
| 7,581 |
| (163 | ) | — |
| — |
| 7, 581 |
| (163 | ) | ||||||
|
| 17,767 |
| (607 | ) | — |
| — |
| 17,767 |
| (607 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Private label residential mortgage related security |
| 488 |
| (442 | ) | — |
| — |
| 488 |
| (442 | ) | ||||||
Private label commercial mortgage related securities |
| 9,332 |
| (722 | ) | — |
| — |
| 9,332 |
| (722 | ) | ||||||
Agency residential mortgage related securities |
| 80,482 |
| (1,114 | ) | 706 |
| (49 | ) | 81,188 |
| (1,163 | ) | ||||||
Mortgage related securities |
| 90,302 |
| (2,278 | ) | 706 |
| (49 | ) | 91,008 |
| (2,327 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total securities |
| $ | 108,069 |
| $ | (2,885 | ) | $ | 706 |
| $ | (49 | ) | $ | 108,775 |
| $ | (2,934 | ) |
|
| December 31, 2007 |
| ||||||||||||||||
|
| Less than 12 Months |
| 12 Months or More |
| Total |
| ||||||||||||
|
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| ||||||
|
| (In Thousands) |
| ||||||||||||||||
|
|
|
| ||||||||||||||||
State and political subdivisions |
| $ | 597 |
| $ | (1 | ) | $ | 672 |
| $ | (1 | ) | $ | 1,269 |
| $ | (2 | ) |
Agency residential mortgage related securities |
| 32,627 |
| (78 | ) | 25,977 |
| (217 | ) | 58,604 |
| (295 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total securities |
| $ | 33,224 |
| $ | (79 | ) | $ | 26,649 |
| $ | (218 | ) | $ | 59,873 |
| $ | (297 | ) |
Management evaluates securities for other-than-temporary impairment on at least a quarterly basis. Management does not believe that any individual unrealized loss represents an other-than-temporary impairment at September 30, 2008 and December 31, 2007. Management believes the temporary impairment on its investment securities and mortgage related securities at September 30, 2008 is primarily related to increases in required market yields driven primarily by dislocations in the credit markets. These individual impairments are deemed temporary based on the direct relationship to movements in required market returns as well as the Company’s ability and intent to hold these securities to recovery.
Additionally, Management performed a cash flow analysis of the private label residential mortgage-related security as of September 30, 2008. The security has a balance of $930,000 and an unrealized loss of $442,000 at September 30, 2008. The security had a balance of $1.2 million and an unrealized gain of $27,000 at December 31, 2007. Management has concluded that the security is not other-than-temporarily impaired (1) because the security continues to cash flow based on its contractual terms, (2) because the security continues to maintain a credit rating of AAA, (3) based on Management’s analysis the security appears to have adequate credit enhancement to absorb future losses, and (4) Management’s ability and intent to hold this security to recovery.
10
NOTE 3 - LOANS
The composition of net loans at September 30, 2008 and December 31, 2007 is provided below (in thousands).
|
| September 30, |
| December 31, |
| ||
|
| (Unaudited) |
|
|
| ||
Real estate loans: |
|
|
|
|
| ||
One-to four-family |
| $ | 253,862 |
| $ | 215,817 |
|
Multi-family and commercial |
| 147,439 |
| 76,287 |
| ||
Construction |
| 63,459 |
| 46,471 |
| ||
|
| 464,760 |
| 338,575 |
| ||
|
|
|
|
|
| ||
Consumer loans: |
|
|
|
|
| ||
Home equity |
| 65,168 |
| 68,431 |
| ||
Automobile |
| 315 |
| 565 |
| ||
Lines of credit |
| 9,962 |
| 9,642 |
| ||
Other |
| 111 |
| 106 |
| ||
|
| 75,556 |
| 78,744 |
| ||
Commercial loans |
| 36,505 |
| 33,356 |
| ||
|
|
|
|
|
| ||
Total Loans |
| 576,821 |
| 450,675 |
| ||
|
|
|
|
|
| ||
Unearned loan origination costs (fees), net |
| 278 |
| (264 | ) | ||
Allowance for loan losses |
| (4,261 | ) | (3,376 | ) | ||
|
|
|
|
|
| ||
Net Loans |
| $ | 572,838 |
| $ | 447,035 |
|
The following table presents changes in the allowance for loan losses (in thousands):
|
| Nine Months |
| Year |
| |||||
|
| 2008 |
| 2007 |
| 2007 |
| |||
|
| (Unaudited) |
|
|
| |||||
Allowance at beginning of period |
| $ | 3,376 |
| $ | 2,949 |
| $ | 2,949 |
|
Provision for loan losses |
| 900 |
| 200 |
| 425 |
| |||
Loans charged off |
| (18 | ) | (2 | ) | (2 | ) | |||
Recoveries |
| 3 |
| 3 |
| 4 |
| |||
Allowance at end of period |
| $ | 4,261 |
| $ | 3,150 |
| $ | 3,376 |
|
As of September 30, 2008 and December 31, 2007, the Bank had one interest rate swap in the notional amount of $1.2 million to hedge a 15-year fixed rate loan, which was earning interest at 7.43%. The Company is receiving a variable rate payment of three-month LIBOR plus 2.24% and is paying a fixed rate payment of 7.43%. The swap matures in April 2022 and had a market value loss position of $76,000 and $60,000 at September 30, 2008 and December 31, 2007, respectively.
Effective January 1, 2008, the Company adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Liabilities - Including an Amendment of FASB Statement No. 115” (SFAS No. 159), which is further discussed in Note 10. In conjunction with the adoption of SFAS No. 159, the Company identified two financial instruments to be designated for fair value reporting. The identified instruments are the loan and the related swap discussed in the preceding paragraph.
As the loan is contractually current, the Company has determined the market value of the gain position of the loan is equal to the market value loss position of the swap as of both December 31, 2007 and September 30, 2008. Accordingly, adopting SFAS No. 159 for these two financial instruments has no impact on the Company’s beginning of period retained earnings or net income for the nine months ended September 30, 2008.
The Company elected to adopt SFAS No. 159 for these two financial instruments as they represent the financial instruments associated with the Company’s only swap agreement. The critical terms of the loan and the swap are a mirror image, except the loan includes a default interest rate clause.
11
NOTE 4 – MORTGAGE SERVICING ACTIVITY
Loans serviced for others are not included in the accompanying consolidated statements of condition. The unpaid principal balances of these loans were $110.9 million and $120.4 million at September 30, 2008 and 2007, respectively, and $118.1 million at December 31, 2007.
The following summarizes mortgage servicing rights for the nine months ended September 30, 2008 and 2007 and the year ended December 31, 2007 (in thousands):
|
| Nine Months |
| Years |
| |||||
|
| 2008 |
| 2007 |
| 2007 |
| |||
|
| (Unaudited) |
|
|
| |||||
Balance, beginning |
| $ | 1,066 |
| $ | 1,177 |
| $ | 1,177 |
|
Mortgage servicing rights capitalized |
| — |
| 1 |
| 1 |
| |||
Mortgage servicing rights amortized |
| (80 | ) | (91 | ) | (112 | ) | |||
Valuation allowance |
| (31 | ) | — |
| — |
| |||
Balance, ending |
| $ | 955 |
| $ | 1,087 |
| $ | 1,066 |
|
For the periods ended September 30, 2008, September 30, 2007 and December 31, 2007, the aggregate fair value of the mortgage servicing rights (“MSRs”) was $1.0 million (unaudited), $1.4 million (unaudited) and $1.3 million, respectively.
The fair value of the MSRs for these periods was determined using a valuation model that calculates the present value of estimated future servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds and discount rates. Mortgage loan prepayment speed is the annual rate at which borrowers are forecasted to repay their mortgage loan principal and is based on historical experience. The discount rate used to determine the present value of future net servicing income - another key assumption in the model - is the required rate of return the market would expect for an asset with similar risk. Both assumptions can, and generally will, change quarterly valuations as market conditions and interest rates change.
MSRs are subject to a disaggregated impairment test at the end of each reporting period, based on the predominant risk characteristics of the underlying loans. The Bank utilizes original funding date as the predominant risk characteristic and segments the MSR asset into eight distinct tranches. As of September 30, 2008, two of the MSR tranches had a net impairment and the Bank recorded a valuation allowance of $31,000.
This reduction in the aggregate MSR fair value from $1.4 million at September 30, 2007 to $1.0 million at September 30, 2008 and the resulting valuation allowance is primarily a result of the valuation model increasing the required discount from 10% to 13% during the quarter ended September 30, 2008
NOTE 5 - DEPOSITS
Deposits and their respective weighted average interest rate at September 30, 2008 and December 31, 2007 consist of the following (dollars in thousands):
|
| September 30, 2008 |
| December 31, 2007 |
| ||||||
|
| Weighted |
| Amount |
| Weighted |
| Amount |
| ||
|
| (Unaudited) |
|
|
|
|
| ||||
Non-interest bearing demand accounts |
| — | % | $ | 46,365 |
| — | % | $ | 43,462 |
|
NOW accounts |
| 1.12 |
| 34,107 |
| 1.70 |
| 39,299 |
| ||
Money market accounts |
| 2.72 |
| 89,746 |
| 3.13 |
| 50,568 |
| ||
Savings and club accounts |
| 0.25 |
| 50,777 |
| 0.65 |
| 54,019 |
| ||
Certificates of deposit |
| 4.03 |
| 372,403 |
| 4.71 |
| 398,212 |
| ||
|
| 3.03 | % | $ | 593,398 |
| 3.64 | % | $ | 585,560 |
|
12
NOTE 6 – BORROWINGS
Federal Home Loan Bank Advances
Pursuant to collateral agreements with the Federal Home Loan Bank of Pittsburgh (the “FHLB”), advances are secured by qualifying first mortgage loans, qualifying fixed-income securities, FHLB stock and an interest-bearing demand deposit account with the FHLB. As of September 30, 2008, the Bank had $157.3 million in qualifying collateral pledged against its advances.
Maturity Date |
| Interest Rate |
| Strike Rate |
| Call Date |
| Amount |
| |
|
|
|
|
|
|
|
| (in thousands) |
| |
|
|
|
|
|
|
|
|
|
| |
February 2010 |
| 2.84 | % | — |
|
|
| $ | 10,000 |
|
August 2011 |
| 4.89 | % | 7.50 | % |
|
| 20,000 |
| |
August 2011 |
| 4.87 | % | 7.50 | % |
|
| 10,000 |
| |
July 2013 |
| 4.10 | % | — |
|
|
| 9,962 |
| |
January 2015 |
| 3.49 | % | — |
|
|
| 27,448 |
| |
November 2017 |
| 3.62 | % |
|
| November 2010 |
| 15,000 |
| |
November 2017 |
| 3.87 | % |
|
| November 2011 |
| 15,000 |
| |
December 2017 |
| 2.83 | % |
|
| December 2008 |
| 20,000 |
| |
Term advances |
|
|
|
|
|
|
| $ | 127,410 |
|
|
|
|
|
|
|
|
|
|
| |
Collateralized line of credit |
| 2.07 | % |
|
|
|
| 3,650 |
| |
Total advances |
|
|
|
|
|
|
| $ | 131,060 |
|
For the borrowings that contractually mature in August 2011, if three-month LIBOR is greater than or equal to the Strike Rate, as defined, the FHLB can notify the Bank of its intention to convert the borrowing to an adjustable-rate advance equal to three-month LIBOR (4.05% at September 30, 2008) plus .2175% on a quarterly basis. The Bank has the option to repay these advances at each of the option dates without penalty. Accordingly, the contractual maturities above may differ from actual maturities.
The borrowing that contractually matures in July 2013 represents an original $10 million five-year borrowing and amortizes over 25 years with equal monthly payments of $53,000.
The borrowing that contractually matures in January 2015 represents an original $30 million seven-year amortizing borrowing and has equal monthly payments of $403,000.
The borrowings that contractually mature in November 2017 may be called by the FHLB on the call date disclosed in the above table. If the borrowing is called, the Bank has the option to pay off the borrowing without penalty. If the Bank fails to do so, the borrowing’s fixed rate will reset to a variable rate of three-month LIBOR plus ..10%. Subsequent to the call date, the borrowings are callable by the FHLB quarterly. Accordingly, the contractual maturities above may differ from actual maturities.
The borrowing that contractually matures in December 2017 may be called by the FHLB on the call date disclosed in the above table. If the borrowing is called, the Bank has the option to pay off the borrowing without penalty. If the Bank fails to do so, the borrowing’s fixed rate will reset to a variable rate of three-month LIBOR plus ..11%. Subsequent to the call date, the borrowing is callable by the FHLB quarterly. Accordingly, the contractual maturities above may differ from actual maturities.
As of September 30, 2008, the Bank had $50.0 million in borrowing capacity under a collateralized line of credit with the FHLB secured by qualifying first mortgage loans, qualifying fixed-income securities, FHLB stock and an interest-bearing demand deposit account with the FHLB. As of September 30, 2008, there was $3.7 million borrowed on the line at a rate of 2.07%.
The Bank had a maximum borrowing capacity with the FHLB of approximately $511.8 million at June 30, 2008, the latest date for which information is available. This maximum borrowing capacity is calculated based on available mortgage related securities, residential mortgage loans and other real estate collateralized loans.
13
NOTE 6 – BORROWINGS (CONTINUED)
Other Borrowed Funds
Other borrowed funds totalled $35.0 million at September 30, 2008, an increase of $15.0 million from $20.0 million at December 30, 2007. Total other borrowed funds had a weighted average rate of 3.49%.
$20.0 million in other borrowed funds with a weighted average rate of 3.60% contractually mature in November 2014 and may be called by the lender in November 2009. Subsequent to the call date, the borrowing is callable by the lender quarterly. $15.0 million in other borrowed funds with a weighted average rate of 3.33% contractually mature in September 2018 and features a one- time call by the lender in September 2012.
Mortgage related securities with a carrying value of $39.0 million at September 30, 2008 were pledged as collateral for these other borrowed funds.
NOTE 7 – EMPLOYEE BENEFITS
Defined Benefit Plan
The Bank previously maintained a qualified non-contributory defined benefit retirement plan covering all employees meeting certain eligibility requirements. The benefits were based on each employee’s years of service and the average of the highest three or five consecutive annual salaries. The Bank amended the plan and froze the benefits for current participants in the plan as of January 1, 2006. In October 2006, the Bank resolved to settle the obligations to the plan participants by terminating the plan, after obtaining required approvals. In the second quarter of 2008, the Bank received a determination letter from the IRS approving the settlement of its plan obligations. As of June 30, 2008, all plan obligations were settled.
The following tables provide a roll forward of the changes in benefit obligations and plan assets for the most recent year and the current nine months ended September 30, 2008:
|
| September 30, |
| December 31, |
| ||
|
| (In Thousands) |
| ||||
Change in benefit obligation: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Net benefit obligation at beginning of period |
| $ | 2,643 |
| $ | 2,389 |
|
Interest cost |
| 67 |
| 120 |
| ||
Actuarial loss |
| 160 |
| 134 |
| ||
Benefits paid |
| (2,870 | ) | — |
| ||
Net benefit obligation at end of period |
| $ | — |
| $ | 2,643 |
|
|
| September 30, |
| December 31, |
| ||
|
| (In Thousands) |
| ||||
Change in plan assets: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Fair value of plan assets at beginning of period |
| $ | 2,407 |
| $ | 2,302 |
|
Actual return on plan assets |
| 31 |
| 105 |
| ||
Employer contributions |
| 432 |
| — |
| ||
Benefits paid |
| (2,870 | ) | — |
| ||
Fair value of plan assets at end of period |
| $ | — |
| $ | 2,407 |
|
14
NOTE 7 – EMPLOYEE BENEFITS (CONTINUED)
The following table sets forth the components of the defined benefit plan costs for the periods presented:
|
| Nine Months |
| Year |
| ||
|
| Ended |
| Ended |
| ||
|
| September 30, |
| December 31, |
| ||
|
| 2008 |
| 2007 |
| ||
|
| (In Thousands) |
| ||||
|
|
|
|
|
| ||
Service cost |
| $ | — |
| $ | — |
|
Interest cost |
| 67 |
| 120 |
| ||
Return on plan assets |
| (31 | ) | (105 | ) | ||
Amortization of unrecognized net actuarial loss |
| 160 |
| 143 |
| ||
Settlement loss |
| 137 |
| — |
| ||
Net periodic benefit costs reported in salaries, benefits and other compensation expense |
| $ | 333 |
| $ | 158 |
|
NOTE 8 – STOCK BASED COMPENSATION
During the nine months ended September 30, 2008, the Company recorded $710,000 of stock based compensation expense in connection with the 2007 Equity Incentive Plan, comprised of stock option expense of $304,000 and restricted stock expense of $406,000.
During 2007, a trust purchased 287,500 shares of Company common stock which the Company anticipates will fund amounts earned under the restricted stock awards. During the quarter ended September 30, 2008, 40,620 shares of restricted stock vested which reduces shares owned by the trust to 246,880 shares.
The following is a summary of the Company’s stock option activity and related information for the 2007 Equity Incentive Plan for the nine months ended September 30, 2008:
|
|
|
| Weighted |
| |
|
| Number of |
| Average |
| |
|
| Stock |
| Exercise |
| |
|
| Options |
| Price |
| |
|
|
|
|
|
| |
Outstanding at December 31, 2007 |
| 518,800 |
| $ | 12.38 |
|
Granted |
| 101,400 |
| 11.42 |
| |
Exercised |
| — |
| — |
| |
Forfeited |
| (5,000 | ) | 12.09 |
| |
Outstanding at September 30, 2008 |
| 615,200 |
| $ | 12.22 |
|
Exercisable at September 30, 2008 |
| 102,860 |
| $ | 12.38 |
|
The following is a summary of the Company’s unvested options as of September 30, 2008 and changes therein during the nine months then ended:
|
|
|
| Weighted |
| |
|
| Number of |
| Average |
| |
|
| Stock |
| Grant Date |
| |
|
| Options |
| Fair Value |
| |
|
|
|
|
|
| |
Unvested at December 31, 2007 |
| 518,800 |
| $ | 3.40 |
|
Granted |
| 101,400 |
| 2.78 |
| |
Exercised |
| — |
| — |
| |
Vested |
| (102,860 | ) | 3.40 |
| |
Forfeited |
| (5,000 | ) | 3.20 |
| |
Unvested at September 30, 2008 |
| 512,340 |
| $ | 3.28 |
|
15
NOTE 8 – STOCK BASED COMPENSATION (CONTINUED)
Expected future expense relating to the 512,340 non-vested options outstanding as of September 30, 2008 is $1.6 million over a weighted average period of 4.0 years.
The following is a summary of the status of the Company’s restricted stock as of September 30, 2008 and changes therein during the nine months then ended:
|
|
|
| Weighted |
| |
|
| Number of |
| Average |
| |
|
| Restricted |
| Grant Date |
| |
|
| Shares |
| Fair Value |
| |
|
|
|
|
|
| |
Unvested at December 31, 2007 |
| 203,400 |
| $ | 12.38 |
|
Granted |
| 17,100 |
| 11.42 |
| |
Vested |
| (40,620 | ) | 12.38 |
| |
Forfeited |
| (300 | ) | 12.38 |
| |
Unvested at September 30, 2008 |
| 179,580 |
| $ | 12.29 |
|
Expected future compensation expense relating to the 179,580 restricted shares at September 30, 2008 is $2.1 million over a weighted average period of 4.1 years.
NOTE 9 - COMPREHENSIVE INCOME
Comprehensive income for the three and nine months ended September 30, 2008 and 2007 is as follows (in thousands):
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| September 30, |
| September 30, |
| ||||||||
|
| 2008 |
| 2007 |
| 2008 |
| 2007 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 659 |
| $ | 455 |
| $ | 1,308 |
| $ | 1,600 |
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|
|
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|
|
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|
|
| ||||
Other comprehensive income: |
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|
|
| ||||
|
|
|
|
|
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|
|
| ||||
Unrealized holding losses arising during the period, net of tax (benefit) (three months ended September 30, 2008 and 2007, $(209) and $548 and for nine months ended September 30, 2008 and 2007 $(884) and $318 respectively) |
| (322 | ) | 998 |
| (1,460 | ) | 626 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Less: Reclassification adjustment for gains included in net income, net of taxes (three months ended September 30, 2008 and 2007, $0 and $0 and for nine months ended September 30, 2008 and 2007 $(40) and $0, respectively) | �� | — |
| 1 |
| 78 |
| — |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Plus: Amortization of pension actuarial loss |
| — |
| 2 |
| 4 |
| 5 |
| ||||
Pension plan settlement |
| — |
| — |
| 87 |
| — |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Other comprehensive income |
| (322 | ) | 999 |
| (1,447 | ) | 631 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Comprehensive income (loss) |
| $ | 337 |
| $ | 1,454 |
| $ | (139 | ) | $ | 2,231 |
|
16
NOTE 10 – ACCOUNTING PRONOUNCEMENTS ADOPTED IN NINE MONTHS ENDED SEPTEMBER 30, 2008
Statement of Financial Accounting Standards No. 159
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115” (SFAS No. 159). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value and amends SFAS No. 115 to, among other things, require certain disclosures for amounts for which the fair value option is applied. This Statement is effective as of the entity’s first fiscal year that begins after November 15, 2007. Effective January 1, 2008, the Company adopted SFAS No. 159 for two financial instruments, which are identified and discussed in Note 3 to these consolidated financial statements.
Statement of Financial Accounting Standards No. 157
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurement” (SFAS No. 157). This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This statement applies under other accounting pronouncements that require or permit fair value measurements. SFAS No. 157 became effective for the Company on January 1, 2008, including interim periods.
SFAS No. 157 describes three levels of inputs that may be used to measure fair value:
Level 1 - Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that are accessible at the measurement date.
Level 2 - Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Valuations are observed from unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The Company classified two financial instruments as Level 3 as of September 30, 2008. The first instrument is a private label collateralized mortgage obligation (“CMO”), the fair value of which, unlike U.S. agency mortgage related securities, is more difficult to determine because they are not actively traded in securities markets. The second instrument is a loan, which was recorded at fair value when the Company adopted SFAS No. 159, since lending credit risk is not an observable input for this individual commercial loan. The unrealized loss in the private label CMO was $442,000 at September 30, 2008 compared to an unrealized gain of $27,000 at January 1, 2008. The unrealized gain on the loan was $76,000 at September 30, 2008 compared to an unrealized gain of $60,000 at January 1, 2008.
The following table of the Company’s fair value measurements at September 30, 2008 includes (1) investment securities and mortgage related securities available-for-sale; (2) the two financial instruments recorded at fair value in conjunction with the Company’s adoption of SFAS No. 159 in the first quarter of 2008 and (3) the two tranches of MSRs recorded at fair value in the third quarter 2008.
|
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|
| Fair Value Measurements at Reporting Date Using |
| ||||||||
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|
| Quoted Prices in |
| Significant |
| Significant |
| ||||
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|
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| Active Markets |
| Other |
| Other |
| ||||
|
|
|
| for Identical |
| Observable |
| Unobservable |
| ||||
|
| As of |
| Assets |
| Inputs |
| Inputs |
| ||||
Description |
| 9/30/2008 |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| ||||
|
| (In Thousands) |
| ||||||||||
State and Political Subdivisions |
| $ | 14,258 |
| $ | — |
| $ | 14,258 |
| $ | — |
|
Corporate Securities |
| 9,547 |
| — |
| 9,547 |
| — |
| ||||
Private label residential mortgage related security |
| 488 |
| — |
| — |
| 488 |
| ||||
Private label commercial mortgage related securities |
| 9,332 |
| — |
| 9,332 |
| — |
| ||||
Agency residential mortgage related securities |
| 230,609 |
| — |
| 230,609 |
| — |
| ||||
Mortgage servicing rights (two tranches) |
| 302 |
| — |
| 302 |
| — |
| ||||
Loans (1) |
| 1,201 |
| — |
| — |
| 1,201 |
| ||||
Other Assets – Swap Contract (1) |
| (76 | ) | — |
| (76 | ) | — |
| ||||
Total |
| $ | 265,661 |
| $ | — |
| $ | 263,972 |
| $ | 1,689 |
|
17
(1) Such assets are recorded at fair value in conjunction with adoption of SFAS No. 159.
The Company utilizes an external pricing service to perform evaluations on its investment portfolio on a quarterly basis. The Company will be evaluating the appropriateness of the identified Level 1, 2 or 3 classifications on a recurring basis. The Company has also adopted FASB Staff Position No. 157-2, which allowed it to defer the effective date of SFAS No. 157 for certain nonfinancial assets and liabilities until January 1, 2009.
Emerging Issues Task Force Issue No. 06-4
In Emerging Issues Task Force (“EITF”) Issue No. 06-4 “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements”, the EITF concluded that an endorsement split dollar life insurance policy does not effectively settle an employer’s obligation to provide the post retirement benefit that the policy was designed to provide. Therefore, some current expense recognition may need to be made for any endorsement split dollar plans with post retirement benefits.
This guidance applies to all post retirement endorsement split dollar arrangements. This will not impact split dollar plans that only provide pre-retirement death benefits.
The accrual for the liability would be calculated in one of two ways:
· the actuarial present value of the future death benefit or
· the cost of insurance of the policy during the postretirement period.
Compliance with this EITF must be applied to fiscal years beginning after December 15, 2007 (January 1, 2008 for calendar year entities). It can be made through a cumulative–effect adjustment to retained earnings in the year of adoption or as a change in accounting principles through retrospective application to all prior periods. As required, the Company adopted this EITF in the first quarter of 2008. This did not have a material impact to the Company’s results of operations or financial position, accordingly no cumulative effect adjustment was made.
NOTE 11 – OTHER ACCOUNTING PRONOUNCMENTS
In March 2008, the FASB issued SFAS No. 161 “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133” (SFAS No. 161). SFAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company is evaluating this statement and has not yet determined the impact of its required disclosures. The Company does not intend to early adopt this statement.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This quarterly report contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiary include, but are not limited to, changes in interest rates, national and regional economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality and composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company’s market area, changes in real estate market values in the Company’s market area, changes in relevant accounting principles and guidelines and the inability of third party service providers to perform their functions. Additional factors that may affect our results are discussed in the section titled “Risk Factors” in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 14, 2008, and its other Securities and Exchange Commission reports.
These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.
18
Critical Accounting Policies
We consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. We consider the following to be our critical accounting policies: allowance for loan losses, other-than-temporary impairment of securities, and deferred income taxes.
Allowance for Loan Losses. The allowance for loan losses is maintained at a level representing management’s best estimate of known and inherent losses in the loan portfolio, based on management’s evaluation of the portfolio’s collectibility. The allowance is established through the provision for loan losses, which is charged against income. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are: loss exposure at default; the amount and timing of future cash flows on impacted loans; value of collateral; and determination of loss factors to be applied to the various elements of the portfolio. All of these estimates are susceptible to significant change. Management reviews the level of the allowance on a quarterly basis and establishes the provision for loan losses based upon an evaluation of the size and composition of the portfolio, loss experience in particular segments of the portfolio, trends and absolute levels of classified and criticized loans, trends and absolute levels in delinquent loans, trends in risk ratings, actual charge-offs, trends in industry charge-offs by particular segments and changes in existing general economic and business conditions affecting our lending areas and the national economy. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. In addition, the Office of Thrift Supervision, as an integral part of its examination process, periodically reviews our allowance for loan losses. Such agency may require us to recognize adjustments to the allowance based on its judgments about information available to it at the time of its examination. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would negatively affect earnings.
During the three months ended June 30, 2008, management refined its methodology for determining its loss factors for new commercial loans originated in 2008. Under this methodology, management reviews and provides a loss factor for each individual new loan relationship. Generally, management believes the risk of default on recently underwritten loans is relatively low at the time of origination. This is supported by the concept that the fair value of the loan at inception approximates its book value. However, based on its industry experience, management believes the default risk on loans is initially low, increases with time, at some point moderating. These 2008 loans will be reviewed on a quarterly basis, and loss reserve factors adjusted commensurate with assessed changes in the loan’s risk.
Other-Than-Temporary Impairment of Investment Securities. Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and FASB Staff Position FAS 115-1 and 124-1 “The Meaning of Other Than Temporary Impairment and Its Application to Certain Investments,” require companies to perform periodic reviews of individual securities in their investment portfolios to determine whether a decline in the value of a security is other than temporary. A review of other-than-temporary impairment requires companies to make certain judgments regarding the nature of the decline, its effect on the financial statements and the probability, extent and timing of a valuation recovery and the company’s intent and ability to hold the security. Pursuant to these requirements, we assess valuation declines to determine the extent to which such changes are attributable to (1) fundamental factors specific to the issuer, such as financial condition, business prospects or other factors, or (2) market-related factors, such as required market yields, interest rates or equity market declines. If the decline in the market value of a security is determined to be other than temporary, we reduce the book value of such security to its current market value, recognizing the decline as a realized loss on the income statement.
As disclosed in Note 2 – Investment and Mortgage Related Securities, the Company’s investment portfolio had an unrealized loss of $1.5 million at September 30, 2008 compared to an unrealized gain of $923,000 at December 31, 2007. The net unrealized loss represents 0.56% of the book value of the investment portfolio. Management evaluates individual securities for other-than-temporary impairment on at least a quarterly basis. Management does not believe that any individual unrealized loss represents an other-than-temporary impairment at September 30, 2008 and December 31, 2007. Management believes the temporary impairment on its investment securities and mortgage related securities as of September 30, 2008 is primarily related to increases in required market yields, driven primarily by dislocations in the credit markets. These individual impairments are deemed temporary based on the direct relationship to movements in required market returns as well as the Company’s ability and intent to hold these securities to recovery.
Deferred Income Taxes. We use the asset and liability method of accounting for income taxes as prescribed in Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes.” Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We
19
exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. The Company had a charitable contribution carryover of $1.2 million as of September 30, 2008, resulting in a deferred tax asset of $404,000. Utilization of this carryover is limited to 10% of taxable income on an annual basis. Such carryover will expire on December 31, 2011, if not utilized. If the Company is unable to generate sufficient taxable income to utilize this carryover it may require us to record a valuation allowance against this deferred tax asset. Any valuation allowance would result in additional income tax expense in the period, which would negatively affect earnings.
Comparison of Financial Condition at September 30, 2008 and December 31, 2007
Total assets increased $73.8 million, or 9.1%, to $886.7 million at September 30, 2008, compared to $812.9 million at December 31, 2007. Loans increased $125.8 million from December 31, 2007 to September 30, 2008. Approximately $91.3 million of this increase was in commercial, commercial real estate and construction loans as we continue our strategic initiative to increase our commercial loan portfolio. Additionally, $38.0 million of this increase was in one-to four-family real estate loans as we were able to grow this portfolio, within our geographic region, through our correspondent relationships. The growth in loans was funded through the liquidation of $60.0 million in short-term auction rate bonds, the liquidation of $20.0 million of money market funds, increased Federal Home Loan Bank advances of $11.1 million and additional other borrowed funds of $15.0 million in the third quarter of 2008. The remaining increase of $40.0 million in Federal Home Loan Bank advances funded the $35.3 million increase in agency residential mortgage related securities due to a leverage strategy implemented during the first quarter 2008.
Deposits increased $7.8 million, or 1.3%, from $585.6 at December 31, 2007 to $593.4 million at September 30, 2008. Core deposits, defined as non-interest and interest bearing checking accounts, money market accounts and savings accounts, increased $33.6 million, or 18.0%, from $187.3 million at December 31, 2007 to $221.0 million at September 30, 2008 as the Bank (1) increased commercial business checking accounts through the efforts of its commercial lending and cash management teams and (2) increased money market accounts through promotional activities.
Stockholders’ equity decreased $1.7 million to $120.7 million at September 30, 2008 compared to $122.4 million at December 31, 2007 primarily due to unrealized losses on the investment portfolio of $1.4 million and the repurchase of 222,891 shares of common stock at a cost of $2.7 million, offset by net income of $1.3 million.
Comparison of Operating Results for the Three and Nine Months Ended September 30, 2008 and 2007
General. Net income increased $204,000, or 44.8%, to $659,000 for the three months ended September 30, 2008, compared to $455,000 for the three months ended September 30, 2007. The increase in net income was primarily the result of an increase in net interest income of $910,000 offset by an increase in loan loss provision of $375,000, an increase of $163,000 in noninterest expense and an increase of $140,000 in income tax expense.
Net income decreased $292,000, or 18.3%, to $1.3 million for the nine months ended September 30, 2008 from $1.6 million for the nine months ended September 30, 2007. The decrease in net income was primarily the result of an decrease in noninterest income of $921,000, an increase in noninterest expense of $842,000 and an increase in loan loss provision of $700,000, offset by an increase in net interest income of $2.1 million and a decrease in tax expense of $49,000. The decrease in noninterest income of $921,000 was primarily the result of a gain of $874,000 (after tax $577,000) related to the sale of the Bank’s former operations center in the second quarter of 2007. The increase in noninterest expense of $842,000 includes an expense of $297,000 (after tax $196,000) associated with final distributions from the Company’s terminated pension plan in the second quarter of 2008.
Net Interest Income. Net interest income increased $910,000, or 18.5%, during the three months ended September 30, 2008, compared to the same period in 2007. The increase in net interest income was primarily due to an increase in total interest income of $1.0 million offset by a $94,000 increase in total interest expense. The increase in total interest income was primarily due to an increase in average balance of interest-earning assets of $111.7 million offset by a decrease in the average yield on interest-earning assets from 5.85% to 5.54%. The increase in average balances of interest-earning assets was primarily due to: (1) an increase in the average balance of loans of $127.9 million year over year primarily related to the implementation of the Company’s focus on increasing its levels of commercial lending; (2) an increase in the average balance of mortgage related securities of $113.5 million year over year primarily due to leverage strategies implemented in the fourth quarter of 2007 and first quarter of 2008, offset by a decrease of $70.6 million in average interest-earning demand deposits and money market funds, which were utilized to fund loan growth. The increase in total interest expense was primarily due to an increase in average balances on interest-bearing liabilities of $114.5 million offset by a decrease in the average cost on interest-bearing liabilities from 3.90% to 3.31%. The increase in the average balance of interest-bearing liabilities was primarily due to an increase in the average balance of FHLB advances and other borrowed funds of $121.8 million, which were used to fund the leverage strategies and loan growth offset by a decrease in the average balance of interest-bearing deposits of $7.3 million.
20
Net interest income increased $2.1 million, or 15.4%, during the nine months ended September 30, 2008, compared to the same period in 2007. The increase in net interest income was due to an increase in total interest income of $3.6 million offset by a $1.5 million increase in total interest expense. The increase in total interest income was primarily due to an increase in average total interest earning assets of $107.7 million, offset by a decrease in the average yield on interest-earning assets from 5.64% to 5.45%. The increase in average balances of interest-earning assets was primarily due to: (1) an increase in the average balance of loans of $102.5 million year over year primarily related to the implementation of the Company’s focus on increasing its levels of commercial lending; (2) an increase in the average balance of mortgage related securities of $106.5 million year over year primarily due to the leverage strategies implemented in the fourth quarter of 2007 and first quarter of 2008, offset by a decrease of $71.1 million in average interest-earning demand deposits and money market funds, which were utilized to fund loan growth. The increase in total interest expense was primarily due to an increase in average balances on interest-bearing liabilities of $108.5 million offset by a decline in the average cost on interest-bearing liabilities from 3.82% to 3.50%. The increase in the average balance of interest-bearing liabilities was primarily due to an increase in the average balance of FHLB advances and other borrowed funds of $109.6 million, which were used to fund the leverage strategies and loan growth offset by a decrease in the average balance of interest-bearing deposits of $1.1 million.
The following table summarizes average balances and average yields and costs of interest-earning assets and interest-bearing liabilities for the three and nine months ended September 30, 2008 and 2007. Yields are not presented on a tax-equivalent basis. Any adjustments necessary to present yields on a tax-equivalent basis are insignificant.
21
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| Three Months Ended September 30, |
| Nine Months Ended September 30, |
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| 2008 |
| 2007 |
| 2008 |
| 2007 |
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| Interest |
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| Interest |
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| Interest |
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| and |
| Yield/ |
| Average |
| and |
| Yield/ |
| Average |
| and |
| Yield/ |
| Average |
| and |
| Yield/ |
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| Balance |
| Dividends |
| Cost |
| Balance |
| Dividends |
| Cost |
| Balance |
| Dividends |
| Cost |
| Balance |
| Dividends |
| Cost |
| ||||||||
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| (Dollars in thousands) |
| (Dollars in thousands) |
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Assets: |
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Interest-earning assets: |
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Interest-earning demand deposits |
| $ | 7,830 |
| $ | 17 |
| 0.84 | % | $ | 78,458 |
| $ | 1,019 |
| 5.15 | % | $ | 9,749 |
| $ | 124 |
| 1.70 | % | $ | 102,405 |
| $ | 3,970 |
| 5.18 | % |
Money market funds |
| 2 |
| — |
| 2.42 | % | — |
| — |
| 0.00 | % | 21,515 |
| 521 |
| 3.23 | % | — |
| — |
| 0.00 | % | ||||||||
Mortgage-related securities |
| 245,497 |
| 3,138 |
| 5.11 | % | 132,015 |
| 1,657 |
| 5.02 | % | 248,184 |
| 9,248 |
| 4.97 | % | 141,678 |
| 5,187 |
| 4.88 | % | ||||||||
Taxable securities |
| 18,474 |
| 190 |
| 4.12 | % | 69,138 |
| 966 |
| 5.59 | % | 32,775 |
| 1,069 |
| 4.35 | % | 53,160 |
| 2,002 |
| 5.02 | % | ||||||||
Nontaxable securities |
| 14,558 |
| 146 |
| 4.02 | % | 22,094 |
| 205 |
| 3.70 | % | 15,707 |
| 469 |
| 3.98 | % | 24,879 |
| 709 |
| 3.80 | % | ||||||||
Loans (1): |
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Residential loans |
| 248,333 |
| 3,525 |
| 5.68 | % | 208,215 |
| 2,992 |
| 5.75 | % | 231,635 |
| 9,838 |
| 5.66 | % | 207,704 |
| 8,855 |
| 5.68 | % | ||||||||
Commercial loans |
| 221,723 |
| 3,494 |
| 6.17 | % | 128,976 |
| 2,558 |
| 7.76 | % | 188,227 |
| 9,254 |
| 6.46 | % | 104,475 |
| 5,901 |
| 7.45 | % | ||||||||
Consumer loans |
| 75,634 |
| 1,087 |
| 5.75 | % | 80,626 |
| 1,196 |
| 5.94 | % | 76,673 |
| 3,323 |
| 5.78 | % | 81,834 |
| 3,582 |
| 5.84 | % | ||||||||
Total Loans |
| 545,690 |
| 8,106 |
| 5.89 | % | 417,817 |
| 6,746 |
| 6.41 | % | 496,535 |
| 22,415 |
| 5.98 | % | 394,013 |
| 18,338 |
| 6.18 | % | ||||||||
Allowance for loan losses |
| (3,895 | ) |
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| (3,076 | ) |
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| (3,643 | ) |
|
|
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| (3,007 | ) |
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| ||||||||
Net loans |
| 541,795 |
| 8,106 |
|
|
| 414,741 |
| 6,746 |
|
|
| 492,892 |
| 22,415 |
|
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| 391,006 |
| 18,338 |
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Total interest-earning assets |
| 828,156 |
| 11,597 |
| 5.54 | % | 716,446 |
| 10,593 |
| 5.85 | % | 820,822 |
| 33,846 |
| 5.45 | % | 713,128 |
| 30,206 |
| 5.64 | % | ||||||||
Noninterest-earning assets |
| 36,101 |
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| 36,256 |
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| 36,579 |
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| 36,172 |
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Total assets |
| $ | 864,257 |
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| $ | 752,702 |
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| $ | 857,401 |
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| $ | 749,300 |
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Liabilities and equity: |
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Interest-bearing liabilities: |
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|
|
|
| ||||||||
NOW and money market deposit accounts |
| $ | 113,013 |
| 581 |
| 2.04 | % | $ | 86,108 |
| 577 |
| 2.66 | % | $ | 101,902 |
| 1,571 |
| 2.06 | % | $ | 80,063 |
| 1,453 |
| 2.43 | % | ||||
Savings accounts |
| 52,910 |
| 33 |
| 0.25 | % | 58,268 |
| 108 |
| 0.73 | % | 53,279 |
| 126 |
| 0.32 | % | 60,781 |
| 334 |
| 0.73 | % | ||||||||
Certificates of deposit |
| 373,883 |
| 3,731 |
| 3.97 | % | 402,748 |
| 4,624 |
| 4.56 | % | 388,788 |
| 12,307 |
| 4.23 | % | 404,218 |
| 13,535 |
| 4.48 | % | ||||||||
Total interest-bearing deposits |
| 539,806 |
| 4,345 |
| 3.20 | % | 547,124 |
| 5,309 |
| 3.85 | % | 543,969 |
| 14,004 |
| 3.44 | % | 545,062 |
| 15,322 |
| 3.76 | % | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
FHLB advances |
| 129,554 |
| 1,230 |
| 3.72 | % | 30,000 |
| 375 |
| 4.88 | % | 118,843 |
| 3,380 |
| 3.74 | % | 30,000 |
| 1,111 |
| 4.88 | % | ||||||||
Other borrowed funds |
| 22,278 |
| 203 |
| 3.57 | % | — |
| — |
| 0.00 | % | 20,759 |
| 567 |
| 3.59 | % | — |
| — |
| 0.00 | % | ||||||||
Total borrowings |
| 151,832 |
| 1,433 |
| 3.69 | % | 30,000 |
| 375 |
| 4.88 | % | 139,602 |
| 3,947 |
| 3.72 | % | 30,000 |
| 1,111 |
| 4.88 | % | ||||||||
Total interest-bearing liabilities |
| 691,638 |
| 5,778 |
| 3.31 | % | 577,124 |
| 5,684 |
| 3.90 | % | 683,571 |
| 17,951 |
| 3.50 | % | 575,062 |
| 16,433 |
| 3.82 | % | ||||||||
Noninterest-bearing deposits |
| 47,439 |
|
|
|
|
| 44,848 |
|
|
|
|
| 46,065 |
|
|
|
|
| 43,245 |
|
|
|
|
| ||||||||
Other noninterest-bearing liabilities |
| 4,336 |
|
|
|
|
| 4,121 |
|
|
|
|
| 5,586 |
|
|
|
|
| 4,929 |
|
|
|
|
| ||||||||
Total liabilities |
| 743,413 |
|
|
|
|
| 626,093 |
|
|
|
|
| 735,222 |
|
|
|
|
| 623,236 |
|
|
|
|
| ||||||||
Stockholders’ equity |
| 121,738 |
|
|
|
|
| 127,680 |
|
|
|
|
| 121,835 |
|
|
|
|
| 126,993 |
|
|
|
|
| ||||||||
Accumulated comprehensive income |
| (894 | ) |
|
|
|
| (1,071 | ) |
|
|
|
| 344 |
|
|
|
|
| (929 | ) |
|
|
|
| ||||||||
Total stockholders’ equity |
| 120,844 |
|
|
|
|
| 126,609 |
|
|
|
|
| 122,179 |
|
|
|
|
| 126,064 |
|
|
|
|
| ||||||||
Total liabilities and stockholders’ equity |
| $ | 864,257 |
|
|
|
|
| $ | 752,702 |
|
|
|
|
| $ | 857,401 |
|
|
|
|
| $ | 749,300 |
|
|
|
|
| ||||
Net interest income |
|
|
| $ | 5,819 |
|
|
|
|
| $ | 4,909 |
|
|
|
|
| $ | 15,895 |
|
|
|
|
| $ | 13,773 |
|
|
| ||||
Interest rate spread |
|
|
|
|
| 2.23 | % |
|
|
|
| 1.95 | % |
|
|
|
| 1.95 | % |
|
|
|
| 1.82 | % | ||||||||
Net interest margin |
|
|
|
|
| 2.79 | % |
|
|
|
| 2.72 | % |
|
|
|
| 2.55 | % |
|
|
|
| 2.55 | % | ||||||||
Average interest-earning assets to average interest-bearing liabilities |
|
|
|
|
| 119.74 | % |
|
|
|
| 124.14 | % |
|
|
|
| 120.08 | % |
|
|
|
| 124.01 | % |
(1) Nonperforming loans are included in average balance computations
22
Rate/Volume Analysis. The following table sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by current volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the columns. For purposes of this table, changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionally based on the changes due to rate and the changes due to volume.
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||||||||
|
| Increase (Decrease) |
|
|
| Increase (Decrease) |
|
|
| ||||||||||
|
| Rate |
| Volume |
| Net |
| Rate |
| Volume |
| Net |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest and dividend income: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest-earning demand deposits |
| $ | (85 | ) | $ | (917 | ) | $ | (1,002 | ) | $ | (254 | ) | $ | (3,592 | ) | $ | (3,846 | ) |
Money market funds |
| — |
| — |
| — |
| — |
| 521 |
| 521 |
| ||||||
Mortgage related securities |
| 56 |
| 1,425 |
| 1,481 |
| 162 |
| 3,899 |
| 4,061 |
| ||||||
Taxable securities |
| (69 | ) | (707 | ) | (776 | ) | (165 | ) | (768 | ) | (933 | ) | ||||||
Nontaxable securities |
| 11 |
| (70 | ) | (59 | ) | 21 |
| (261 | ) | (240 | ) | ||||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Residential loans |
| (43 | ) | 576 |
| 533 |
| (37 | ) | 1,020 |
| 983 |
| ||||||
Commercial and construction loans |
| (903 | ) | 1,839 |
| 936 |
| (1,378 | ) | 4,731 |
| 3,353 |
| ||||||
Consumer loans |
| (35 | ) | (74 | ) | (109 | ) | (33 | ) | (226 | ) | (259 | ) | ||||||
Total loans |
| (981 | ) | 2,341 |
| 1,360 |
| (1,448 | ) | 5,525 |
| 4,077 |
| ||||||
Total interest-earning assets |
| (1,068 | ) | 2,072 |
| 1,004 |
| (1,684 | ) | 5,324 |
| 3,640 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
NOW and money market deposits |
| (176 | ) | 180 |
| 4 |
| (278 | ) | 396 |
| 118 |
| ||||||
Savings accounts |
| (65 | ) | (10 | ) | (75 | ) | (167 | ) | (41 | ) | (208 | ) | ||||||
Certificates of deposit |
| (562 | ) | (331 | ) | (893 | ) | (711 | ) | (517 | ) | (1,228 | ) | ||||||
Total interest-bearing deposits |
| (803 | ) | (161 | ) | (964 | ) | (1,156 | ) | (162 | ) | (1,318 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
FHLB advances |
| (388 | ) | 1,243 |
| 855 |
| (1,021 | ) | 3,290 |
| 2,269 |
| ||||||
Other borrowings |
| — |
| 203 |
| 203 |
| — |
| 567 |
| 567 |
| ||||||
Total borrowings |
| (388 | ) | 1,446 |
| 1,058 |
| (1,021 | ) | 3,857 |
| 2,836 |
| ||||||
Total interest-bearing liabilities |
| (1,191 | ) | 1,285 |
| 94 |
| (2,177 | ) | 3,695 |
| 1,518 |
| ||||||
Net change in net interest income |
| $ | 123 |
| $ | 787 |
| $ | 910 |
| $ | 493 |
| $ | 1,629 |
| $ | 2,122 |
|
23
Provision for Loan Losses. The Company recorded a provision for loan losses of $500,000 and $900,000 for the three and nine months ended September 30, 2008 compared to $125,000 and $200,000 for the three and nine months ended September 30, 2007. The increase in the provision reflected loan growth, primarily in the commercial categories, an increase in nonperforming and classified loans, an increase in the loan loss reserve assumptions for construction loans to reflect the challenging economic environment, and partially affected by the change in the allowance methodology as previously discussed and implemented in the June 2008 quarter.
The following table provides information with respect to the Bank’s nonperforming assets at the dates indicated. There were no troubled debt restructurings as of the dates presented below.
|
| At September 30, |
| At December 31, |
| ||
|
| (Dollars in thousands) |
| ||||
Nonaccrual loans: |
|
|
|
|
| ||
One- to four-family |
| $ | 1,275 |
| $ | 155 |
|
Consumer |
| 129 |
| — |
| ||
Multi-family and commercial real estate |
| 467 |
| 105 |
| ||
Total |
| 1,871 |
| 260 |
| ||
Accruing loans past due 90 days or more: |
|
|
|
|
| ||
One- to four-family |
| — |
| 559 |
| ||
Total |
| — |
| 559 |
| ||
Total of nonaccrual loans and accruing loans 90 days or more past due |
| $ | 1,871 |
| $ | 819 |
|
Real estate owned |
| — |
| — |
| ||
Total nonperforming assets |
| $ | 1,871 |
| $ | 819 |
|
Total nonperforming loans to total loans |
| 0.32 | % | 0.18 | % | ||
Total nonperforming loans to total assets |
| 0.21 |
| 0.10 |
| ||
Total nonperforming assets to total assets |
| 0.21 |
| 0.10 |
| ||
Allowance for loan losses to nonperforming loans |
| 228 | % | 412 | % |
The increase in nonaccrual loans to $1.9 million at September 30, 2008 from $260,000 at December 31, 2007 was primarily a result of (1) a $505,000 residential mortgage and a $54,000 home equity loan to one borrower secured by a residential property in southern New Jersey, both of which were placed on nonaccrual during the three month period ended March 31, 2008 (the loans were previously included in the 90 days past due and still accruing category as of December 31, 2007); (2) one commercial loan totaling $362,000 and four residential mortgage loans totaling $832,000 placed on nonaccrual in the June and September 2008 quarters offset by two residential mortgage loans totaling $155,000 which were on nonaccrual at December 31, 2007 that are making payments and became current in 2008. The loans placed on nonaccrual during the June and September 2008 quarters are secured by real estate properties located in southern New Jersey and southeastern Pennsylvania.
24
Noninterest Income. The following table summarizes noninterest income for the three and nine months ended September 30, 2008 and 2007.
|
| Three Months |
|
|
|
|
| Nine Months |
|
|
|
|
| ||||||||||
|
| Ended September 30, |
|
|
|
|
| Ended September 30, |
|
|
|
|
| ||||||||||
|
| 2008 |
| 2007 |
| $ Change |
| % Change |
| 2008 |
| 2007 |
| $ Change |
| % Change |
| ||||||
|
| (Dollars in thousands) |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges and other fee income |
| $ | 218 |
| $ | 204 |
| $ | 14 |
| 6.9 | % | $ | 633 |
| $ | 623 |
| $ | 10 |
| 1.6 | % |
Net gain on sale of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans |
| 6 |
| — |
| 6 |
| 100.0 | % | 10 |
| 73 |
| (63 | ) | (86.3 | )% | ||||||
Fixed assets |
| — |
| — |
| — |
| — |
| — |
| 874 |
| (874 | ) | (100.0 | )% | ||||||
Securities available-for-sale |
| — |
| 19 |
| (19 | ) | (100.0 | )% | 118 |
| 19 |
| 99 |
| 521.1 | % | ||||||
Income on bank-owned life insurance |
| 114 |
| 111 |
| 3 |
| 2.7 | % | 338 |
| 327 |
| 11 |
| 3.4 | % | ||||||
Other |
| 21 |
| 53 |
| (32 | ) | (60.4 | )% | 56 |
| 160 |
| (104 | ) | (65.0 | )% | ||||||
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| $ | 359 |
| $ | 387 |
| $ | (28 | ) | (7.2 | )% | $ | 1,155 |
| $ | 2,076 |
| $ | (921 | ) | (44.4 | )% |
For the three months ended September 30, 2008, gain on sale of securities decreased $19,000 compared to the same period in 2007, as the Company had no investment sales in the current quarter compared to the same quarter in 2007. Other income decreased $32,000 during the three-month period as a result of the Bank receiving a reduced rate on the funds held at a third party check processor. These decreases were offset by an increase in service charges and other fee income of $14,000 as the Bank changed the structure of certain fees related to overdrafts and dormant accounts.
The decrease in the nine months ended September 30, 2008 was primarily the result of the Bank recognizing a pre-tax gain of $874,000 on the sale of its operations center in the second quarter of 2007, gain on sale of loans decreasing $63,000 compared to the same period in 2007 as the Company discontinued selling residential mortgage loans during the second quarter of 2007 and other income decreasing $104,000 during the nine-month period as a result of the Bank receiving a reduced rate on the funds held at a third party check processor. These decreases were offset by an increase in the gain on sale of investment securities of $99,000 during the nine months ended September 30, 2008 as the Company took advantage of the steepening yield curve to liquidate certain securities at a gain and reinvest the proceeds in higher-yielding securities.
During the three months ended September 30, 2008, the Bank discontinued its relationship with its third party check processor and began to process checks internally. Accordingly, other income from third party check processors will discontinue in the fourth quarter 2008, but such decrease will be offset by a nominal improvement in net interest income as the Bank receives the benefit of float associated with outstanding checks.
25
Noninterest Expense. The following table summarizes noninterest expense for the three and nine months ended September 30, 2008 and 2007.
|
| Three Months |
|
|
|
|
| Nine Months |
|
|
|
|
| ||||||||||
|
| Ended September 30, |
|
|
|
|
| Ended September 30, |
|
|
|
|
| ||||||||||
|
| 2008 |
| 2007 |
| $ Change |
| % Change |
| 2008 |
| 2007 |
| $ Change |
| % Change |
| ||||||
|
| (Dollars in thousands) |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Salaries, benefits and other compensation |
| $ | 2,928 |
| $ | 2,485 |
| $ | 443 |
| 17.8 | % | $ | 8,790 |
| $ | 7,154 |
| $ | 1,636 |
| 22.9 | % |
Occupancy expense |
| 458 |
| 475 |
| (17 | ) | (3.6 | )% | 1,412 |
| 1,354 |
| 58 |
| 4.3 | % | ||||||
Furniture and equipment expense |
| 226 |
| 230 |
| (4 | ) | (1.7 | )% | 669 |
| 712 |
| (43 | ) | (6.0 | )% | ||||||
Data processing costs |
| 402 |
| 388 |
| 14 |
| 3.6 | % | 1,204 |
| 1,149 |
| 55 |
| 4.8 | % | ||||||
Professional fees |
| 285 |
| 460 |
| (175 | ) | (38.0 | )% | 863 |
| 1,445 |
| (582 | ) | (40.3 | )% | ||||||
Marketing expense |
| 117 |
| 152 |
| (35 | ) | (23.0 | )% | 337 |
| 449 |
| (112 | ) | (24.9 | )% | ||||||
FDIC premiums |
| 26 |
| 20 |
| 6 |
| 30.0 | % | 81 |
| 62 |
| 19 |
| 30.6 | % | ||||||
Other |
| 347 |
| 416 |
| (69 | ) | (16.6 | )% | 1,111 |
| 1,300 |
| (189 | ) | (14.5 | )% | ||||||
Total |
| $ | 4,789 |
| $ | 4,626 |
| $ | 163 |
| 3.5 | % | $ | 14,467 |
| $ | 13,625 |
| $ | 842 |
| 6.2 | % |
Noninterest expense increased $163,000, or 3.5%, during the three months ended September 30, 2008 compared to the same period in 2007. The largest changes for the three month period were salaries, benefits and other compensation of $443,000, or 17.8% primarily due to a $209,000 increase related to equity awards granted under the 2007 Equity Incentive Plan, costs associated with the opening of the Bank’s West Chester, Pennsylvania branch in October 2007 and annual merit increases offset by a decrease of $175,000, or 38.0%, in professional fees primarily from lower levels of Sarbanes-Oxley compliance and audit related costs in the current quarter versus the same period in 2007 and a decrease in other noninterest expense of $69,000, or 16.6%, as the Company continued its disciplined focus on managing its other expenses.
Noninterest expense increased $842,000, or 6.2%, during the nine months ended September 30, 2008 compared to the same period in 2007. The largest changes for the nine month period were salaries, benefits and other compensation of $1.6, million, or 22.9%, primarily due to a $642,000 increase related to equity awards granted under the 2007 Equity Incentive Plan costs associated with the opening of the Bank’s West Chester, Pennsylvania branch in October 2007 and annual merit increases offset by a decrease of $582,000, or 40.3%, in professional fees primarily from primarily due to legal fees paid in the first quarter of 2007 in relation to the litigation with the Bank’s former Chief Executive Officer, which was settled in the fourth quarter of 2007, a decrease in consulting fees in connection with the Company’s first year of becoming Sarbanes-Oxley compliant in 2007 and reduced audit costs versus the same period in 2007, a decrease in marketing expense of $112,000, or 24.9% due to reduced promotional offers and advertising performed during 2008 and a decrease in other noninterest expense of $189,000, or 14.5%, as the Company continued its disciplined focus on managing its other expenses.
The FDIC deposit insurance premium increased $6,000 and $19,000 for the three and nine-month periods ended September 30, 2008. This expense benefited from the utilization of the one-time assessment credit that was provided to eligible insured depository institutions under the Federal Deposit Insurance reform Act of 2005. As of December 31, 2007 and September 30, 2008, the remaining balance of the one-time credit was approximately $220,000 and $10,000, respectively. Management anticipates that this credit will be fully utilized in the fourth quarter of 2008 and FDIC deposit insurance costs will approximate $75,000 to $100,000 during the fourth quarter of 2008. In addition, the FDIC proposed raising premiums by seven basis points in the first quarter of 2009, to rates ranging from 12 to 14 basis points, for about 90 percent of banks. In the second quarter of 2009, those banks, which pay a premium of 5 to 7 basis points, would be charged at rates ranging from 8 to 21 basis points. During the third quarter of 2008, the Bank was charged at 5.23 basis points.
Income Taxes. The income tax provision for the three and nine months ended September 30, 2008 was $230,000 and $375,000, respectively, compared to $90,000 and $424,000 for the three and nine months ended September 30, 2007, respectively. The Company’s effective income tax rate was 25.9% and 16.5% for the three-month periods ended September 30, 2008 and 2007, respectively and 22.3% and 20.9% for the nine months ended September 30, 2008 and 2007, respectively. These rates reflect the Company’s levels of tax-exempt income for both periods relative to the overall level of taxable income.
26
Liquidity and Capital Management
Liquidity Management. Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, FHLB advances and other borrowings, loan repayments, maturities and sales of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition.
The following table presents certain of our contractual obligations as of September 30, 2008 and December 31, 2007.
|
|
|
| Payments Due by period |
| |||||||||||
Contractual Obligations |
| Total |
| Less than |
| One to |
| Three to |
| More Than |
| |||||
|
| (In thousands) |
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
At September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
| |||||
Operating lease obligations (1) |
| $ | 1,777 |
| $ | 478 |
| $ | 908 |
| $ | 391 |
| $ | — |
|
FHLB advances and other borrowings (2) |
| 201,161 |
| 13,850 |
| 59,781 |
| 25,588 |
| 101,942 |
| |||||
Other long-term obligations (3) |
| 2,892 |
| 1,949 |
| 906 |
| 37 |
| — |
| |||||
Total |
| $ | 205,830 |
| $ | 16,277 |
| $ | 61,595 |
| $ | 26,016 |
| $ | 101,942 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
At December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
| |||||
Operating lease obligations (1) |
| $ | 2,192 |
| $ | 494 |
| $ | 963 |
| $ | 735 |
| $ | — |
|
FHLB advances and other borrowings (2) |
| 127,460 |
| 3,939 |
| 7,859 |
| 35,861 |
| 79,801 |
| |||||
Other long-term obligations (3) |
| 3,481 |
| 1,910 |
| 1,571 |
| — |
| — |
| |||||
Total |
| $ | 133,133 |
| $ | 6,343 |
| $ | 10,393 |
| $ | 36,596 |
| $ | 79,801 |
|
(1) Represents lease obligations for operations center, one commercial loan production office and equipment.
(2) Includes principal and projected interest payments.
(3) Represents obligations to the Company’s third party data processing provider and other vendors.
We regularly adjust our investments in liquid assets based upon our assessment of: (1) expected loan demands; (2) expected deposit flows; (3) yields available on interest-earning deposits and securities; and (4) the objectives of our asset/liability management policy. We use a variety of measures to assess our liquidity needs, which are provided to our Asset/Liability Management and Pricing Committees on a regular basis. Our most liquid assets are cash and cash equivalents. The levels of these assets depend on our operating, financing and investing activities during any given period. At September 30, 2008, cash and cash equivalents totaled $6.5 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $264.2 million at September 30, 2008. In addition, at June 30, 2008, the latest date available, we had the ability to borrow a total of approximately $511.8 million from the Federal Home Loan Bank of Pittsburgh. On September 30, 2008, we had $131.1 million of borrowings outstanding.
At September 30, 2008, we had $99.2 million in loan commitments outstanding, which consisted of $7.2 million of mortgage loan commitments, $21.2 million in unused home equity lines of credit, $2.7 million in consumer loan commitments or lines of credit, $67.7 million in commercial loan commitments and $252,000 in stand-by letters of credit. Certificates of deposit due within one year of September 30, 2008 totaled $212.2 million, or 57.0%, of total certificates of deposit. We believe the large percentage of certificates of deposit that mature within one year reflects customers’ hesitancy to invest their funds for long periods in the current interest rate environment. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other forms of deposits and borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before September 30, 2009. We believe, however, based on past experience that a significant portion of these certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.
Our primary investing activities are the origination of loans and the purchase of securities. Our primary financing activities consist of activity in deposit accounts, FHLB advances and other borrowed funds. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors. We generally manage the pricing of our deposits to be competitive and to increase core deposit relationships. Occasionally, we offer promotional rates on certain deposit products to attract deposits.
27
The following table presents our primary investing and financing activities during the periods indicated and does not include loans originated and held for sale.
|
| Nine Months Ended |
| Year Ended |
| ||
Investing activities: |
|
|
|
|
| ||
Loan originations |
| $ | (176,739 | ) | $ | (193,870 | ) |
Loan principal payments and other decreases in loans |
| 69,290 |
| 134,091 |
| ||
Loan sales |
| — |
| — |
| ||
Loan participation purchases |
| (19,254 | ) | (32,064 | ) | ||
Security purchases |
| (125,623 | ) | (187,984 | ) | ||
Security sales |
| 94,449 |
| 36,268 |
| ||
Security maturities, calls and principal repayments |
| 60,020 |
| 86,128 |
| ||
Financing activities: |
|
|
|
|
| ||
Net change in deposits |
| 7,838 |
| (10,974 | ) | ||
Increase in FHLB advances |
| 51,060 |
| 50,000 |
| ||
Increase in other borrowings |
| 15,000 |
| 20,000 |
| ||
Purchase of treasury stock |
| (2,671 | ) | (3,924 | ) | ||
Capital Management. The Bank is subject to various regulatory capital requirements administered by the Office of Thrift Supervision, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At September 30, 2008, the Bank exceeded all of regulatory capital requirements and was considered a “well capitalized” institution under regulatory guidelines.
The following table presents the Bank’s capital ratios and the minimum capital requirements to be considered ‘‘well capitalized” by the OTS as of September 30, 2008 and December 31, 2007:
|
| Ratio |
| Minimum |
|
September 30, 2008: |
|
|
|
|
|
Total risk-based capital (to risk-weighted assets) |
| 19.52 | % | >10.0 | % |
Tier 1 capital (to risk-weighted assets) |
| 18.72 | % | > 6.0 | % |
Tier 1 capital (to adjusted assets) |
| 11.20 | % | > 5.0 | % |
|
|
|
|
|
|
December 31, 2007: |
|
|
|
|
|
Total risk-based capital (to risk-weighted assets) |
| 22.54 | % | >10.0 | % |
Tier 1 capital (to risk-weighted assets) |
| 21.78 | % | > 6.0 | % |
Tier 1 capital (to adjusted assets) |
| 12.03 | % | > 5.0 | % |
As a result of Fox Chase Bancorp’s initial public stock offering, the Bank’s capital was increased by $30.0 million in September 2006. The remaining proceeds of the offering were retained by Fox Chase Bancorp to be used for general corporate purposes. The capital ratios above reflect this infusion of capital.
Total stockholders’ equity to total assets was 13.61% at September 30, 2008, 15.05% at December 31, 2007 and 17.05% at September 30, 2007.
The capital from the offering significantly increased our liquidity and capital resources. Over time, this initial level of liquidity has been reduced as net proceeds from the stock offering have been used for general corporate purposes, including the funding of lending activities. The Company’s financial condition and results of operations have been enhanced by the capital from the offering, resulting in increased net interest-earning assets. However, the large increase in equity resulting from the capital raised in the offering has had an adverse impact on our return on equity. The Company may use capital management tools such as cash dividends and share repurchases as well as improving operating income to increase its return on equity.
We do not intend at this time under the current circumstances to apply for government assistance through the United States Treasury Department’s Troubled Asset Relief Program (“TARP”). We believe our high capital level and liquid balance sheet provides us with flexibility in today’s environment to execute our business plan without TARP capital.
28
Off-Balance Sheet Arrangements
In the normal course of operations, we engage in a variety of financial transactions that, in accordance with U.S. generally accepted accounting principles, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments, letters of credit and lines of credit.
For the period ended September 30, 2008, we did not engage in any off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There has not been any material change to the market risk disclosure from that contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.
Item 4. Controls and Procedures
The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”): (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. In addition, no change in the Company’s internal control over financial reporting occurred during the quarter ended September 30, 2008 that has materially affected, or is reasonably likely to materially effect, Company’s internal control over financial reporting.
Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.
As of September 30, 2008, the risk factors of the Company have not changed materially from those reported in the Company’s Annual Report on Form 10-K. In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Period |
| Total |
| Average |
| Total Number |
| Maximum |
| |
|
|
|
|
|
|
|
|
|
| |
July 1, 2008 through July 31, 2008 |
| — |
| — |
| — |
| 525,100 |
| |
|
|
|
|
|
|
|
|
|
| |
August 1, 2008 through August 31, 2008 |
| 57,100 |
| $ | 12.19 |
| 57,100 |
| 468,000 |
|
|
|
|
|
|
|
|
|
|
| |
September 1, 2008 through September 30, 2008 |
| 36,891 |
| $ | 12.00 |
| 36,891 |
| 431,109 |
|
Total |
| 93,991 |
| $ | 12.11 |
| 93,991 |
|
|
|
(1) On February 7, 2008, the Company announced that the Board of Directors had approved a stock repurchase program authorizing the Company to repurchase up to 327,000 shares of the Company’s common stock (the “February 2008 program”). On July 31, 2008, the Company announced that the Board of Directors approved the repurchase of up to an additional 327,000 shares of the Company’s common stock (the “July 2008 program”). These repurchase programs will continue until they are completed or terminated by the Board of Directors.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Not applicable.
3.1 |
| Charter of Fox Chase Bancorp, Inc. (1) |
3.2 |
| Bylaws of Fox Chase Bancorp, Inc. (2) |
4.1 |
| Stock Certificate of Fox Chase Bancorp, Inc. (1) |
31.1 |
| Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer |
31.2 |
| Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer |
32.0 |
| Section 1350 Certification of Chief Executive Officer and Chief Financial Officer |
|
| (1) | Incorporated by reference to this document from the exhibits to the Company’s Registration Statement on Form S-1 (File No. 333-134160), as amended, initially filed with the Securities and Exchange Commission on May 16, 2006. |
|
|
|
|
|
| (2) | Incorporated by reference to this document from the exhibits to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchnage Commission on May 9, 2008. |
30
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.
| FOX CHASE BANCORP, INC. | |
|
|
|
Dated: November 6, 2008 | By: | /s/ Thomas M. Petro |
|
| Thomas M. Petro |
|
| President and Chief Executive Officer |
|
| (principal executive officer) |
|
|
|
Dated: November 6, 2008 | By: | /s/ Roger S. Deacon |
|
| Roger S. Deacon |
|
| Chief Financial Officer |
|
| (principal financial officer) |