The allowance for loan losses is established through a provision for loan losses charged to expense. The Company maintains the allowance at a level believed to cover all known and inherent losses in the portfolio that are both probable and reasonable to estimate at each reporting date. Management reviews the allowance for loan losses no less than quarterly in order to identify these inherent losses and to assess the overall collection probability for the loan portfolio in view of these inherent losses. For each primary type of loan, a loss factor is established reflecting an estimate of the known and inherent losses in such loan type using both a quantitative analysis as well as consideration of qualitative factors. The evaluation process includes, among other things, an analysis of delinquency trends, non-performing loan trends, the level of charge-offs and recoveries, prior loss experience, total loans outstanding, the volume of loan originations, the type, size and geographic concentration of our loans, the value of collateral securing the loans, the borrowers’ ability to repay and repayment performance, the number of loans requiring heightened management oversight, local economic conditions and industry experience.
Commercial real estate loans entail significant additional credit risks compared to one-to-four family residential mortgage loans, as they generally involve large loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment experience on loans secured by income-producing properties typically depends on the successful operation of the related real estate project and/or business operation of the borrower who is also the primary occupant, and thus may be subject to a greater extent to the effects of adverse conditions in the real estate market and in the economy in general. Commercial business loans typically involve a higher risk of default than residential loans of like duration since their repayment is generally dependent on the successful operation of the borrower’s business and the sufficiency of collateral, if any. Land acquisition, development and construction lending exposes us to greater credit risk than permanent mortgage financing. The repayment of land acquisition, development and construction loans depends upon the sale of the property to third parties or the availability of permanent financing upon completion of all improvements. These events may adversely affect the borrowers and the value of the collateral property.
The following table summarizes the primary segments of the allowance for loan losses, segmented into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment. Activity in the allowance is presented for the three and six month periods ended March 31, 2014 and 2013:
No troubled debt restructurings defaulted during the three and six month periods ended March 31, 2014 or 2013.
(1) Includes $145.7 million of funds held in escrow at September 30, 2013 from the Company’s second-step conversion relating to stock subscriptions.
Items that gave rise to significant portions of deferred income taxes are as follows:
| | | March 31, | | | September 30, | |
| | | 2014 | | | 2013 | |
| Deferred tax assets: | | (Dollars in Thousands) | |
| Allowance for loan losses | | $ | 1,054 | | | $ | 1,037 | |
| Real estate owned expenses | | | 22 | | | | - | |
| Nonaccrual interest | | | 119 | | | | 125 | |
| Accrued vacation | | | 93 | | | | 86 | |
| Capital loss carryforward | | | 660 | | | | 1,423 | |
| Impairment loss | | | 937 | | | | 1,117 | |
| Split dollar life insurance | | | 21 | | | | 21 | |
| Post-retirement benefits | | | 135 | | | | 136 | |
| Unrealized loss on available for sale securities | | | 652 | | | | 666 | |
| Employee benefit plans | | | 358 | | | | 455 | |
| | | | | | | | | |
| Total deferred tax assets | | | 4,051 | | | | 5,066 | |
| Valuation allowance | | | (1,597 | ) | | | (2,540 | ) |
| Total deferred tax assets, net of valuation allowance | | | 2,454 | | | | 2,526 | |
| | | | | | | | | |
| Deferred tax liabilities: | | | | | | | | |
| Property | | | 478 | | | | 461 | |
| Deferred loan fees | | | 847 | | | | 759 | |
| | | | | | | | | |
| Total deferred tax liabilities | | | 1,325 | | | | 1,220 | |
| | | | | | | | | |
| Net deferred tax asset | | $ | 1,129 | | | $ | 1,306 | |
The Company establishes a valuation allowance for deferred tax assets when management believes that the use of the deferred tax assets is not likely to be realized through a carry back to taxable income in prior years or future reversals of existing taxable temporary differences, and/or to a lesser extent, future taxable income. The tax deduction generated by the redemption of the shares of the mutual fund and the subsequent impairment charge on the assets acquired through the redemption in kind are considered a capital loss and can only be utilized to the extent of capital gains over a five year period, resulting in the establishment of a valuation allowance for the carryforward period. The valuation allowance totaled $1.6 million at March 31, 2014. The gross deferred tax assets related to capital loss carryforwards decreased by $670,000 due to a portion of the capital loss carryforward expiring during the quarter ended December 31, 2013.
There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. The Company recognizes, when applicable, interest and penalties related to unrecognized tax benefits in the provision for income taxes in the Consolidated Statements of Operations as a component of income tax expense. As of March 31, 2014, the Internal Revenue Service conducted an audit of the Company’s tax returns for the year ended September 30, 2010, and no adverse findings were reported. The Company’s federal and state income tax returns for taxable years through September 30, 2010 have been closed for purposes of examination by the Internal Revenue Service and the Pennsylvania Department of Revenue.
8. STOCK COMPENSATION PLANS
The Company maintains a Recognition and Retention Plan (“RRP”) which is administered by a committee of the Board of Directors of the Company. The RRP provides for the grant of shares of common stock of the Company to officers, employees and directors of the Company. In order to fund the grant of shares under the RRP, the RRP Trust purchased 213,529 (on a converted basis) shares of the Company’s common stock in the open market for approximately $2.5 million, at an average purchase price per share of $11.49. The Company made sufficient contributions to the RRP Trust to fund these purchases. No additional purchases of shares are expected to be made by the RRP Trust under this plan. As of March 31, 2014, all the shares had been awarded as part of the RRP. Shares subject to awards under the RRP generally vest at the rate of 20% per year over five years. As of March 31, 2014, 174,738 (on a converted basis) of the awarded shares had become fully vested.
Compensation expense related to the shares subject to restricted stock awards granted is recognized ratably over the five-year vesting period in an amount which totals the grant date fair value multiplied by the number of shares subject to the grant. During the three and six months ended March 31, 2014, $25,000 and $141,000, respectively, was recognized in compensation expense for the RRP. An income tax benefit of $1,000 was recognized for the three months ended March 31, 2014 while an income tax benefit of $39,000 was recognized for the six months ended March 31, 2014. During the three and six months ended March 31, 2013, $128,000 and $225,000, respectively, was recognized in compensation expense for the RRP. An income tax benefit of $30,000 was recognized for the three months ended March 31, 2013 while income tax expense of $3,000 was recognized for the six months ended March 31, 2013. At March 31, 2014, approximately $287,000 in additional compensation expense for the shares awarded related to the RRP remained unrecognized.
A summary of the Company’s non-vested stock award activity for the six months ended March 31, 2014 is presented in the following table:
| | | | | | | | |
| | | Six Months Ended
March 31, 2014 | |
| | | Number of
Shares (1) | | |
Weighted Average Grant Date Fair
Value | |
| Nonvested stock awards at October 1, 2013 | | 79,477 | | | $ | 9.56 | |
| Issued | | - | | | | - | |
| Forfeited | | - | | | | - | |
| Vested | | (40,686) | | | | 10.95 | |
| Nonvested stock awards at the March 31, 2014 | | 38,791 | | | $ | 8.11 | |
| | | | | | | | |
| (1) Amounts reflected on post-conversion basis. | | | | | | | |
The Company maintains a Stock Option Plan which authorizes the grant of stock options to officers, employees and directors of the Company to acquire shares of common stock with an exercise price at least equal to the fair market value of the common stock on the grant date. Options generally become vested and exercisable at the rate of 20% per year over five years and are generally exercisable for a period of ten years after the grant date. A total of 533,821 (on a converted basis) shares of common stock were approved for future issuance pursuant to the Stock Option Plan. As of March 31, 2014, substantially all of the options had been awarded under the Plan. As of March 31, 2014, 415,733 (on a converted basis) options were vested.
A summary of the status of the Company’ stock options under the Stock Option Plan as of March 31, 2014 and changes during the six month period ended March 31, 2014 are presented below:
| | | | | | | |
| | | Six Months Ended
March 31, 2014 | |
| | | Number of Shares (1) | | Weighted Average
Exercise Price | |
| | | | | | | |
| Outstanding at October 1, 2013 | | 516,739 | | $ | 10.86 | |
| Granted | | 13,545 | | | 10.68 | |
| Exercised | | - | | | - | |
| Forfeited | | - | | | - | |
| Outstanding at March 31, 2014 | | 530,284 | | $ | 10.86 | |
| Exercisable at March 31, 2014 | | 415,733 | | $ | 11.57 | |
| | | | | | | |
| (1) Amounts reflectedon a post-conversion basis. | | | | |
The weighted average remaining contractual term was approximately 5.9 years for options outstanding as of March 31, 2014.
The estimated fair value of options granted during fiscal 2009 was $2.98 per share, $2.92 for options granted during fiscal 2010, $3.34 for options granted during 2013 and $4.67 for options granted during 2014. The fair value was estimated on the date of grant using the Black-Scholes pricing model. No options were granted in fiscal years 2011 and 2012.
During the three and six months ended March 31, 2014, $27,000 and $106,000, respectively, was recognized in compensation expense for the Stock Option Plan. Tax benefits of $3,000 and $11,000, respectively, were recognized for the three and six months ended March 31, 2014. During the three and six months ended March 31, 2013, $68,000 and $129,000, respectively, were recognized in compensation expense for the Stock Option Plan. Tax benefits of $7,000 and $13,000, respectively, were recognized for the three and six months ended March 31, 2013. At March 31, 2014, approximately $305,000 in additional compensation expense for awarded options remained unrecognized. The weighted average period over which this expense will be recognized is approximately 3.9 years.
| 9. | COMMITMENTS AND CONTINGENT LIABILITIES |
At March 31, 2014, the Company had $20.4 million in outstanding commitments to originate fixed and variable-rate loans with market interest rates ranging from 3.25% to 10.00%. At September 30, 2013, the Company had $12.8 million in outstanding commitments to originate fixed and variable-rate loans with market interest rates ranging from 3.25% to 6.00%. The aggregate undisbursed portion of loans-in-process amounted to $2.7 million at March 31, 2014 and $1.7 million at September 30, 2013.
The Company also had commitments under unused lines of credit of $4.8 million and $4.7 million, respectively, at March 31, 2014 and September 30, 2013 and letters of credit outstanding of $109,000 and $187,000, respectively, at March 31, 2014 and September 30, 2013.
Among the Company’s contingent liabilities are exposures to limited recourse arrangements with respect to the Company’s sales of whole loans and participation interests. At March 31, 2014, the exposure, which represents a portion of credit risk associated with the interests sold, amounted to $64,000. This exposure is for the life of the related loans and payables, on our proportionate share, as actual losses are incurred.
The Company is involved in various legal proceedings occurring in the ordinary course of business. Management of the Company, based on discussions with litigation counsel, believes that such proceedings will not have a material adverse effect on the financial condition, operations or cash flows of the Company. However, there can be no assurance that any of the outstanding legal proceedings to which the Company is a party will not be decided adversely to the Company’s interests and not have a material adverse effect on the financial condition and operations of the Company.
| 10. | FAIR VALUE MEASUREMENT |
The fair value estimates presented herein are based on pertinent information available to management as of March 31, 2014 and September 30, 2013, respectively. Although management is not aware of any factors that would significantly affect the fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.
Generally accepted accounting principles used in the United States establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value.
The three broad levels of hierarchy are as follows:
| Level 1 | Quoted prices in active markets for identical assets or liabilities. |
| Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. |
Those assets as of March 31, 2014 which are to be measured at fair value on a recurring basis are as follows:
| | | | | | | | | | | | | | | | | |
| | | Category Used for Fair Value Measurement | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | | (Dollars in Thousands) | |
| | | | | | | | | | | | | |
| Assets: | | | | | | | | | | | | |
| Securities available for sale: | | | | | | | | | | | | |
| U.S. Government and agency obligations | | $ | - | | | $ | 17,272 | | | $ | - | | | $ | 17,272 | |
| Mortgage-backed securities - U.S. Government agencies | | | - | | | | 27,841 | | | | - | | | | 27,841 | |
| Mortgage-backed securities - Non-agency | | | - | | | | 2,155 | | | | - | | | | 2,155 | |
| FHLMC preferred stock | | | 103 | | | | - | | | | - | | | | 103 | |
| Total | | $ | 103 | | | $ | 47,268 | | | $ | - | | | $ | 47,371 | |
Those assets as of September 30, 2013 which are measured at fair value on a recurring basis are as follows:
| | | | | | | | | | | | | |
| | | Category Used for Fair Value Measurement | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | | (Dollars in Thousands) | |
| | | | | | | | | | | | | |
| Assets: | | | | | | | | | | | | |
| Securities available for sale: | | | | | | | | | | | | |
| U.S. Government and agency obligations | | $ | - | | | $ | 17,259 | | | $ | - | | | $ | 17,259 | |
| Mortgage-backed securities - U.S. Government agencies | | | - | | | | 20,959 | | | | - | | | | 20,959 | |
| Mortgage-backed securities - Non-agency | | | - | | | | 3,530 | | | | - | | | | 3,530 | |
| FHLMC preferred stock | | | 33 | | | | - | | | | - | | | | 33 | |
| Total | | $ | 33 | | | $ | 41,748 | | | $ | - | | | $ | 41,781 | |
Certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The Company measures impaired loans and real estate owned at fair value on a non-recurring basis.
Impaired Loans
The Company considers loans to be impaired when it becomes more likely than not that the Company will be unable to collect all amounts due in accordance with the contractual terms of the loan agreements. Collateral dependent impaired loans are based on the fair value of the collateral which is based on appraisals and would be categorized as Level 2 measurement. In some cases, adjustments are made to the appraised values for various factors including the age of the appraisal, age of the comparables included in the appraisal, and known changes in the market and in the collateral. These adjustments are based upon unobservable inputs, and therefore, the fair value measurement has been categorized as a Level 3 measurement. These loans are reviewed for impairment and written down to their net realizable value by charges against the allowance for loan losses. The collateral underlying these loans had a fair value in excess of $13.4 million.
Real Estate Owned
Once an asset is determined to be uncollectible, the underlying collateral is generally repossessed and reclassified to foreclosed real estate and repossessed assets. These repossessed assets are carried at the lower of cost or fair value of the collateral, based on independent appraisals, less cost to sell and would be categorized as Level 2 measurement. In some cases, adjustments are made to the appraised values for various factors including age of the appraisal, age of the comparables included in the appraisal, and known changes in the market and in the collateral. Thus the evaluations are based upon unobservable inputs, and therefore, the fair value measurement has been categorized as a Level 3 measurement.
Summary of Non-Recurring Fair Value Measurements
| | | | | | | | | | | | | | | |
| | | At March 31, 2014 | |
| | | (Dollars in Thousands) | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Impaired loans | | $ | - | | | $ | - | | | $ | 13,391 | | | $ | 13,391 | |
| Real estate owned | | | - | | | | - | | | | 489 | | | $ | 489 | |
| Total | | $ | - | | | $ | - | | | $ | 13,880 | | | $ | 13,880 | |
| | | | | | | | | | | | | |
| | | At September 30, 2013 | |
| | | (Dollars in Thousands) | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Impaired loans | | $ | - | | | $ | - | | | $ | 15,118 | | | $ | 15,118 | |
| Real estate owned | | | - | | | | - | | | | 406 | | | $ | 406 | |
| Total | | $ | - | | | $ | - | | | $ | 15,524 | | | $ | 15,524 | |
The following table provides information describing the valuation processes used to determine nonrecurring fair value measurements categorized within Level 3 of the fair value hierarchy:
| | | | | | | | | |
| | | At March 31, 2014 |
| | | (Dollars in Thousands) |
| | | | | Valuation | | | | |
| | | Fair Value | | Technique | | Unobservable Input | | Range |
| Impaired loans | | $ | 13,391 | | Property appraisals | | Management discount for selling costs, property type and market volatility | | 10% - 20% discount |
| | | | | | | | | | |
| Real estate owned | | $ | 489 | | Property appraisals | | Management discount for selling costs, property type and market volatility | | 10% - 20% discount |
| | | | | | | |
| | | At September 30, 2013 |
| | | (Dollars in Thousands) |
| | | | | Valuation | | | | |
| | | Fair Value | | Technique | | Unobservable Input | | Range |
| Impaired loans | | $ | 15,118 | | Property appraisals | | Management discount for selling costs, property type and market volatility | | 10% - 20% discount |
| | | | | | | | | | |
| Real estate owned | | $ | 406 | | Property appraisals | | Management discount for selling costs, property type and market volatility | | 10% - 20% discount |
The fair value of financial instruments amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
| | | | | | | | | | |
| | | | | | | | | Fair Value Measurements at | |
| | | | | | | | | March 31, 2014 | |
| | | Carrying | | | Fair | | | | | | | | | | |
| | | Amount | | | Value | | | (Level 1) | | | (Level 2) | | | (Level 3) | |
| | | (Dollars in Thousands) | |
| Assets: | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 51,352 | | | $ | 51,352 | | | $ | 51,352 | | | $ | - | | | $ | - | |
Investment and mortgage-backed securities available for sale | | | 47,371 | | | | 47,371 | | | | 103 | | | | 47,268 | | | | - | |
Investment and mortgage-backed securities held to maturity | | | 82,300 | | | | 78,846 | | | | - | | | | 78,846 | | | | - | |
| Loans receivable, net | | | 318,562 | | | | 318,511 | | | | - | | | | - | | | | 318,511 | |
| Accrued interest receivable | | | 1,772 | | | | 1,772 | | | | 1,772 | | | | - | | | | - | |
| Federal Home Loan Bank stock | | | 1,181 | | | | 1,181 | | | | 1,181 | | | | - | | | | - | |
| Bank owned life insurance | | | 7,214 | | | | 7,214 | | | | 7,214 | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | | | | | | | | | |
| Checking accounts | | | 39,892 | | | | 39,892 | | | | 39,892 | | | | - | | | | - | |
| Money market deposit accounts | | | 67,065 | | | | 67,065 | | | | 67,065 | | | | - | | | | - | |
Passbook, club and statement savings accounts | | | 74,056 | | | | 74,056 | | | | 74,056 | | | | - | | | | - | |
| Certificates of deposit | | | 202,457 | | | | 206,374 | | | | - | | | | 206,374 | | | | - | |
Advances from Federal Home Loan Bank | | | 340 | | | | 340 | | | | 340 | | | | - | | | | - | |
| Accrued interest payable | | | 562 | | | | 562 | | | | 562 | | | | - | | | | - | |
Advances from borrowers for taxes and insurance | | | 1,460 | | | | 1,460 | | | | 1,460 | | | | - | | | | - | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | Fair Value Measurements at | |
| | | | | | | | | September 30, 2013 | |
| | | Carrying | | | Fair | | | | | | | | | | |
| | | Amount | | | Value | | | (Level 1) | | | (Level 2) | | | (Level 3) | |
| | | (Dollars in Thousands) | |
| Assets: | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 158,984 | | | $ | 158,984 | | | $ | 158,984 | | | $ | - | | | $ | - | |
Investment and mortgage-backed securities available for sale | | | 41,781 | | | | 41,781 | | | | 33 | | | | 41,748 | | | | - | |
Investment and mortgage-backed securities held to maturity | | | 83,732 | | | | 80,582 | | | | - | | | | 80,582 | | | | - | |
| Loans receivable, net | | | 306,517 | | | | 308,606 | | | | - | | | | - | | | | 308,606 | |
| Accrued interest receivable | | | 1,791 | | | | 1,791 | | | | 1,791 | | | | - | | | | - | |
| Federal Home Loan Bank stock | | | 1,181 | | | | 1,181 | | | | 1,181 | | | | - | | | | - | |
| Bank owned life insurance | | | 7,119 | | | | 7,119 | | | | 7,119 | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | | | | | | | | | |
| Checking accounts | | | 39,537 | | | | 39,537 | | | | 39,537 | | | | - | | | | - | |
| Money market deposit accounts | | | 65,298 | | | | 65,298 | | | | 65,298 | | | | - | | | | - | |
Passbook, club and statement savings accounts | | | 223,615 | | | | 223,615 | | | | 223,615 | | | | - | | | | - | |
| Certificates of deposit | | | 214,298 | | | | 218,572 | | | | - | | | | 218,572 | | | | - | |
Advances from Federal Home Loan Bank | | | 340 | | | | 340 | | | | 340 | | | | - | | | | - | |
| Accrued interest payable | | | 1,666 | | | | 1,666 | | | | 1,666 | | | | - | | | | - | |
Advances from borrowers for taxes and insurance | | | 1,480 | | | | 1,480 | | | | 1,480 | | | | - | | | | - | |
Cash and Cash Equivalents—For cash and cash equivalents, the carrying amount is a reasonable estimate of fair value.
Investments and Mortgage-Backed Securities—The fair value of investment securities and mortgage-backed securities is based on quoted market prices, dealer quotes, and prices obtained from independent pricing services.
Loans Receivable—The fair value of loans is estimated based on present value using the current market rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The carrying value that fair value is compared to is net of the allowance for loan losses and other associated premiums and discounts. Due to the significant judgment involved in evaluating credit quality, loans are classified within Level 3 of the fair value hierarchy.
Accrued Interest Receivable – For accrued interest receivable, the carrying amount is a reasonable estimate of fair value.
Federal Home Loan Bank (FHLB) Stock—Although FHLB stock is an equity interest in an FHLB, it is carried at cost because it does not have a readily determinable fair value as its ownership is restricted and it lacks a market. The estimated fair value approximates the carrying amount.
Bank Owned Life Insurance—The fair value of bank owned life insurance is based on the cash surrender value obtained from an independent advisor that is derivable from observable market inputs.
Checking Accounts, Money Market Deposit Accounts, Passbook Accounts, Club Accounts, Statement Savings Accounts, and Certificates of Deposit—The fair value of passbook accounts, club accounts, statement savings accounts, checking accounts, and money market deposit accounts is the amount reported in the financial statements. The fair value of certificates of deposit is based on market rates currently offered for deposits of similar remaining maturity.
Advances from Federal Home Loan Bank—The fair value of advances from FHLB is the amount payable on demand at the reporting date.
Accrued Interest Payable – For accrued interest payable, the carrying amount is a reasonable estimate of fair value.
Advances from borrowers for taxes and insurance – For advances from borrowers for taxes and insurance, the carrying amount is a reasonable estimate of fair value.
Commitments to Extend Credit and Letters of Credit—The majority of the Bank’s commitments to extend credit and letters of credit carry current market interest rates if converted to loans. Because commitments to extend credit and letters of credit are generally unassignable by either the Bank or the borrower, they only have value to the Bank and the borrower. The estimated fair value approximates the recorded deferred fee amounts, which are not significant.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our unaudited consolidated financial statements included elsewhere in this Form 10-Q and with our Annual Report on Form 10-K for the year ended September 30, 2013 (the “Form 10-K”).
Overview. Prudential Bancorp, Inc. (the “Company”) was formed by Prudential Bancorp, Inc. of Pennsylvania to become the successor holding company for Prudential Savings Bank (the “Bank”) as a result of the second-step conversion completed in October 2013. The Company’s results of operations are primarily dependent on the results of the Bank, which is a wholly owned subsidiary of the Company. The Company’s results of operations depend to a large extent on net interest income, which primarily is the difference between the income earned on its loan and securities portfolios and the cost of funds, which is the interest paid on deposits and borrowings. Results of operations are also affected by our provisions for loan losses, non-interest income (which includes impairment charges) and non-interest expense. Non-interest expense principally consists of salaries and employee benefits, office occupancy expense, depreciation, data processing expense, payroll taxes and other expense. Our results of operations are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, government policies and actions of regulatory authorities. Future changes in applicable laws, regulations or government policies may materially impact our financial condition and results of operations. The Bank is subject to regulation by the Federal Deposit Insurance Corporation (“FDIC”) and the Pennsylvania Department of Banking and Securities (the “Department”). The Bank’s main office is in Philadelphia, Pennsylvania, with six additional full-service banking offices located in Philadelphia and Delaware Counties in Pennsylvania. The Bank’s primary business consists of attracting deposits from the general public and using those funds together with borrowings to originate loans and to invest primarily in U.S. Government and agency securities and mortgage-backed securities. In November 2005, the Bank formed PSB Delaware, Inc., a Delaware corporation, as a subsidiary of the Bank. In March 2006, all mortgage-backed securities then owned by the Company were transferred to PSB Delaware, Inc. PSB Delaware, Inc.’s. activities are included as part of the consolidated financial statements.
Critical Accounting Policies. In reviewing and understanding financial information for the Company, you are encouraged to read and understand the significant accounting policies used in preparing our financial statements. These policies are described in Note 1 of the notes to our consolidated financial statements included in Item 1 hereof as well as in Note 2 to our audited consolidated financial statements included in the Form 10-K. The accounting and financial reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) and to general practices within the banking industry. Accordingly, the financial statements require certain estimates, judgments and assumptions, which are believed to be reasonable, based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities as well as contingent assets and contingent liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. The following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods.
Allowance for Loan Losses. The allowance for loan losses is established through a provision for loan losses charged to expense. Losses are charged against the allowance for loan losses when management believes that the collectability in full of the principal of a loan is unlikely. Subsequent recoveries are added to the allowance. The allowance for loan losses is maintained at a level that management considers adequate to provide for estimated losses and impairments based upon an evaluation of known and inherent losses in the loan portfolio that are both probable and reasonable to estimate. Loan impairment is evaluated based on the fair value of collateral or estimated net realizable value. It is the policy of management to provide for losses on unidentified loans in its portfolio in addition to criticized and classified loans.
Management monitors its allowance for loan losses at least quarterly and makes adjustments to the allowance through the provision for loan losses as economic conditions and other pertinent factors indicate. The quarterly review and adjustment of the qualitative factors employed in the allowance methodology and the updating of historic loss experience allow for timely reaction to emerging conditions and trends. In this context, a series of qualitative factors are used in a methodology as a measurement of how current circumstances are affecting the loan portfolio. Included in these qualitative factors are:
| | ● | Levels of past due, classified, criticized and non-accrual loans, troubled debt restructurings and loan modifications; |
| | | Nature and volume of loans; |
| | | Changes in lending policies and procedures, underwriting standards, collections, charge-offs and recoveries and for commercial loans, the level of loans being approved with exceptions to lending policy; |
| | | Experience, ability and depth of management and staff; |
| | | National and local economic and business conditions, including various market segments; |
| | | Quality of the Company’s loan review system and degree of Board oversight; |
| | | Concentrations of credit and changes in levels of such concentrations; and |
| | | Effect of external factors on the level of estimated credit losses in the current portfolio. |
In determining the allowance for loan losses, management has established general pooled allowances. Values assigned to the qualitative factors and those developed from historic loss experience provide a dynamic basis for the calculation of reserve factors for both pass-rated loans (general pooled allowance) and those for criticized and classified loans. The amount of the specific allowance is determined through a loan-by-loan analysis of certain large dollar commercial real estate loans. Loans not individually reviewed are evaluated as a group using reserve factor percentages based on historical loss experience and the qualitative factors described above. In determining the appropriate level of the general pooled allowance, management makes estimates based on internal risk ratings, which take into account such factors as debt service coverage, loan-to-value ratios and external factors. Estimates are periodically measured against actual loss experience.
This evaluation is inherently subjective as it requires material estimates including, among others, exposure at default, the amount and timing of expected future cash flows on impaired loans, value of collateral, estimated losses on our commercial, construction and residential loan portfolios and historical loss experience. All of these estimates may be susceptible to significant change.
While management uses the best information available to make loan loss allowance evaluations, adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance. In addition, the Department and the FDIC, as an integral part of their examination processes, periodically review our allowance for loan losses. The Department and the FDIC may require the recognition of adjustments to the allowance for loan losses based on their judgment of information available to them at the time of their examinations. To the extent that actual outcomes differ from management’s estimates, additional provisions to the allowance for loan losses may be required that would adversely affect earnings in future periods.
Investment and mortgage-backed securities available for sale. Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated using quoted prices of securities with similar characteristics or discounted cash flows and are classified within Level 2 of the fair value hierarchy. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy, although there were no securities with that classification as of March 31, 2014 or September 30, 2013.
Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. The Company determines whether the unrealized losses are temporary in accordance with U.S. GAAP. The evaluation is based upon factors such as the creditworthiness of the issuers/guarantors, the underlying collateral, if applicable, and the continuing performance of the securities. In addition the Company also considers the likelihood that the security will be required to be sold by a regulatory agency, our internal intent not to dispose of the security prior to maturity and whether the entire cost basis of the security is expected to be recovered. In determining whether the cost basis will be recovered, management evaluates other facts and circumstances that may be indicative of an “other-than-temporary” impairment condition. This includes, but is not limited to, an evaluation of the type of security, length of time and extent to which the fair value has been less than cost, and near-term prospects of the issuer.
In addition, certain assets are measured at fair value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The Company measures impaired loans, FHLB stock and loans transferred into real estate owned at fair value on a non-recurring basis.
Valuation techniques and models utilized for measuring financial assets and liabilities are reviewed and validated by the Company at least quarterly.
Income Taxes. The Company accounts for income taxes in accordance with U.S. GAAP. The Company records deferred income taxes that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Management exercises significant judgment in the evaluation of the amount and timing of the recognition of the resulting tax assets and liabilities. The judgments and estimates required for the evaluation are updated based upon changes in business factors and the tax laws. If actual results differ from the assumptions and other considerations used in estimating the amount and timing of tax recognized, there can be no assurance that additional expenses will not be required in future periods.
In evaluating our ability to recover deferred tax assets, we consider all available positive and negative evidence, including our past operating results and our forecast of future taxable income. In determining future taxable income, we make assumptions for the amount of taxable income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require us to make judgments about our future taxable income and are consistent with the plans and estimates we use to manage our business. Any reduction in estimated future taxable income may require us to record an additional valuation allowance against our deferred tax assets. An increase in the valuation allowance would result in additional income tax expense in the period and could have a significant impact on our future earnings.
U.S. GAAP prescribes a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The Company recognizes, when applicable, interest and penalties related to unrecognized tax benefits in the provision for income taxes in the consolidated income statement. Assessment of uncertain tax positions requires careful consideration of the technical merits of a position based on management’s analysis of tax regulations and interpretations. Significant judgment may be involved in the assessment of the tax position.
Forward-looking Statements. In addition to historical information, this Quarterly Report on Form 10-Q includes certain “forward-looking statements” based on management’s current expectations. The Company’s actual results could differ materially, as such term is defined in the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, from management’s expectations. Such forward-looking statements include statements regarding management’s current intentions, beliefs or expectations as well as the assumptions on which such statements are based. These forward-looking statements are subject to significant business, economic and competitive uncertainties and contingencies, many of which are not subject to the Company’s control. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Factors that could cause future results to vary from current management expectations include, but are not limited to, general economic conditions, legislative and regulatory changes, monetary and fiscal policies of the federal government, changes in tax policies, rates and regulations of federal, state and local tax authorities, changes in interest rates, deposit flows, the cost of funds, demand for loan products, demand for financial services, competition, changes in the quality or composition of the Company’s loan and investment portfolios, changes in accounting principles, policies or guidelines and other economic, competitive, governmental and technological factors affecting the Company’s operations, markets, products, services and fees.
The Company undertakes no obligation to update or revise any forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results that occur subsequent to the date such forward-looking statements are made unless required by law or regulations.
Market Overview. Although the economy improved during 2012 and 2013 and the beginning of 2014, we still view the current environment as challenging.
The Company continues to focus on the credit quality of its customers, closely monitoring the financial status of borrowers throughout the Company’s markets, gathering information, working on early detection of potential problems, taking pre-emptive steps where necessary and performing the analysis required to maintain adequate reserves for loan losses.
Despite the current market and economic conditions, the Company continues to maintain capital well in excess of regulatory requirements.
The following discussion provides further details on the financial condition of the Company at March 31, 2014 and September 30, 2013, and the results of operations for the three and six months ended March 31, 2014 and 2013.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2014 AND SEPTEMBER 30, 2013
At March 31, 2014, we had total assets of $515.4 million, as compared to $607.9 million at September 30, 2013, a decrease of $92.5 million or 15.2%. The primary reason for the $92.5 million decrease in assets was the return to subscribers of $74.3 million in excess subscription funds received in connection with the second-step conversion offering. Cash and cash equivalents decreased $107.6 million to $51.4 million at March 31, 2014, compared to $159.0 million at September 30, 2013. This decrease was attributable to the $74.3 million returned to subscribers, as well as the use of cash and cash equivalents to fund the increase in outstanding net loan balances of $12.0 million and a reduction of deposits of $13.6 million (excluding the $145.7 million of subscription funds held in escrow related to the second-step stock offering). Loans receivable increased to $318.6 million at March 31, 2014 from $306.5 million at September 30, 2013. A majority of the loan growth consisted of the origination of single-family residential loans within our immediate market area. During the quarter the Company completed a sale of five below investment grade mortgage-backed securities aggregating $1.0 million, reflecting a gain of $274,000.
Total liabilities decreased to $386.9 million at March 31, 2014 from $548.0 million at September 30, 2013. The $161.1 million decrease in total liabilities was primarily due to the return of $74.3 million to subscribers due to an oversubscription in the offering as well as the transfer to equity of $69.4 million of net proceeds from the offering. In addition, the Company continued with its strategy to allow certain higher costing certificates of deposit to run-off as part of our asset/liability management strategy. The deposit outflows experienced during the quarter were funded from cash and cash equivalents.
Total stockholders’ equity increased by $68.6 million to $128.5 million at March 31, 2014 from $59.9 million at September 30, 2013. The increase reflected the receipt of net proceeds of approximately $69.4 million from the Company’s second-step offering which closed October 9, 2013. Other items that impacted equity during the six months ended March 31, 2014 were the recognition of $873,000 in earnings, the receipt of $847,000 of cash transferred from the mutual holding company as part of the conversion and a slight increase in the market value of the remaining available for sale securities in the investment portfolio due to improvement in market rates since September 30, 2013.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2014 AND 2013
Net income. The Company recognized net income of $535,000, or $0.06 per basic and diluted share, for the quarter ended March 31, 2014 as compared to $14,000 or $0.00 per basic and diluted share, for the comparable period ended March 31, 2013. For the six months ended March 31, 2014, the Company recognized net income of $873,000, or $0.10 per basic and $0.09 per diluted share, as compared to net income of $286,000, or $0.03 per basic and diluted share for the comparable period in 2013. The improved profitability for the three and six months ended March 31, 2014 was primarily due to gains recorded in 2014 from the sale of investment securities and a lower expense recorded in 2014, compared to 2013, relating to real estate owned expense.
Net interest income. For the three months ended March 31, 2014, net interest income increased $119,000 or 3.8% to $3.2 million as compared to $3.1 million for the same period in 2013. Interest expense declined by $286,000 or 25.1% partially offset by a decrease of $167,000 or 3.9% in interest earned on assets. The decrease in interest expense resulted primarily from a 20 basis point decrease to 0.89% in the weighted average rate paid on interest-bearing liabilities, reflecting the continued repricing downward of interest-bearing liabilities during the past year combined with a $31.3 million or 7.5% decrease in the average balance of interest-bearing liabilities, primarily certificates of deposit, for the three months ended March 31, 2014, as compared to the same period in fiscal 2013. The decrease in interest income resulted from a 35 basis point decrease to 3.31% in the weighted average yield earned on interest-earning assets partially offset by a $36.0 million or 7.7% increase to $501.3 million in the average balance of interest-earning assets for the three months ended March 31, 2014, as compared to the same period in fiscal 2013. The decrease in the weighted average yield earned was primarily due to the origination of new loans at lower current market rates of interest combined with the reinvestment at lower current market rates of the proceeds from called investment and mortgage-backed securities. The increase in the average balance of interest-earning assets reflected the Company’s efforts to grow the loan portfolio in a controlled manner.
For the six months ended March 31, 2014, net interest income increased $106,000 or 1.7% to $6.4 million as compared to $6.3 million for the same period in 2013. Interest expense declined by $602,000 or 25.5% and was partially offset by a decrease of $496,000 or 5.7% in interest income. The decrease in interest expense resulted primarily from a 22 basis point decrease to 0.90% in the weighted average rate paid on interest-bearing liabilities, reflecting the continued repricing downward of interest-bearing liabilities during the past year combined with a $27.6 million or 6.6% decrease in the average balance of interest-bearing liabilities, primarily certificates of deposit, for the six months ended March 31, 2014, as compared to the same period in fiscal 2013. The decrease in interest income resulted from a 50 basis point decrease to 3.20% in the weighted average yield earned on interest-earning assets partially offset by a $42.6 million or 9.1% increase to $510.3 million in the average balance of interest-earning assets for the six months ended March 31, 2014, as compared to the same period in fiscal 2013. The decrease in the weighted average yield earned was primarily due to the origination of new loans at lower current market rates of interest combined with the reinvestment at lower current market rates of the proceeds from called investment and mortgage-backed securities. The increase in the average balance of interest-earning assets reflected the Company’s efforts to grow the loan portfolio in a controlled manner.
For the three months ended March 31, 2014, the net interest margin was 2.62%, as compared to 2.68% for the same period in fiscal 2013. For the six months ended March 31, 2014, the net interest margin was 2.51%, as compared to 2.69% for the same period in fiscal 2013.
Average balances, net interest income, and yields earned and rates paid. The following table shows for the periods indicated the total dollar amount of interest earned from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities and the resulting costs, expressed both in dollars and rates, and the net interest margin. Average yields and rates have been annualized. Tax-exempt income and yields have not been adjusted to a tax-equivalent basis. All average balances are based on monthly balances. Management does not believe that the monthly averages differ significantly from what the daily averages would be.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months | |
| | | Ended March 31, | |
| | | 2014 | | | 2013 | |
| | | Average | | | | | | Average | | | Average | | | | | | Average | |
| | | Balance | | | Interest | | | Yield/Rate (1) | | | Balance | | | Interest | | | Yield/Rate (1) | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | (Dollars in Thousands) | | | | | | | |
| Interest-earning assets: | | | | | | | | | | | | | | | | | | |
| Investment securities | | $ | 85,779 | | | $ | 540 | | | | 2.55 | % | | $ | 89,131 | | | $ | 552 | | | | 2.48 | % |
| Mortgage-backed securities | | | 41,722 | | | | 346 | | | | 3.36 | | | | 61,140 | | | | 544 | | | | 3.56 | |
| Loans receivable(2) | | | 321,294 | | | | 3,166 | | | | 4.00 | | | | 272,891 | | | | 3,135 | | | | 4.60 | |
| Other interest-earning assets | | | 52,554 | | | | 33 | | | | 0.25 | | | | 42,206 | | | | 22 | | | | 0.21 | |
| Total interest-earning assets | | | 501,349 | | | | 4,085 | | | | 3.30 | | | | 465,368 | | | | 4,253 | | | | 3.66 | |
| Cash and non-interest-bearing balances | | | 2,540 | | | | | | | | | | | | 2,395 | | | | | | | | | |
| Other non-interest-earning assets | | | 12,811 | | | | | | | | | | | | 16,315 | | | | | | | | | |
| Total assets | | $ | 516,700 | | | | | | | | | | | $ | 484,078 | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Savings accounts | | $ | 77,526 | | | | 63 | | | | 0.33 | | | $ | 71,579 | | | | 59 | | | | 0.33 | |
| Money market deposit and NOW accounts | | | 100,077 | | | | 86 | | | | 0.35 | | | | 103,463 | | | | 88 | | | | 0.34 | |
| Certificates of deposit | | | 206,368 | | | | 702 | | | | 1.38 | | | | 240,553 | | | | 991 | | | | 1.65 | |
| Total deposits | | | 383,971 | | | | 851 | | | | 0.90 | | | | 415,595 | | | | 1,138 | | | | 1.10 | |
| Advances from Federal Home Loan Bank | | | 340 | | | | - | | | | 0.00 | | | | 340 | | | | - | | | | 0.00 | |
Advances from borrowers for taxes and insurance | | | 2,339 | | | | 1 | | | | 0.17 | | | | 1,989 | | | | 1 | | | | 0.20 | |
| Total interest-bearing liabilities | | | 386,650 | | | | 852 | | | | 0.89 | | | | 417,924 | | | | 1,139 | | | | 1.09 | |
| Non-interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Non-interest-bearing demand accounts | | | 2,487 | | | | | | | | | | | | 3,208 | | | | | | | | | |
| Other liabilities | | | 3,764 | | | | | | | | | | | | 2,706 | | | | | | | | | |
| Total liabilities | | | 392,901 | | | | | | | | | | | | 423,838 | | | | | | | | | |
Stockholders’ equity | | | 123,799 | | | | | | | | | | | | 60,240 | | | | | | | | | |
| Total liabilities and stockholders’ equity | | $ | 516,700 | | | | | | | | | | | $ | 484,078 | | | | | | | | | |
| Net interest-earning assets | | $ | 114,699 | | | | | | | | | | | $ | 47,444 | | | | | | | | | |
| Net interest income; interest rate spread | | | | | | $ | 3,233 | | | | 2.42 | % | | | | | | $ | 3,114 | | | | 2.57 | % |
| Net interest margin(3) | | | | | | | | | | | 2.62 | % | | | | | | | | | | | 2.68 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Average interest-earning assets to average interest-bearing liabilities | | | | | | | 129.66 | % | | | | | | | | | | | 111.35 | % | | | | |
| (1) | Yields and rates for the three month periods are annualized. |
| (2) | Includes non-accrual loans. Calculated net of unamortized deferred fees, undisbursed portion of loans-in-process and the allowance for loan losses. |
| (3) | Equals net interest income divided by average interest-earning assets. |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Six Months | |
| | | Ended March 31, | |
| | | 2014 | | | 2013 | |
| | | Average | | | | | | Average | | | Average | | | | | | Average | |
| | | Balance | | | Interest | | | Yield/Rate (1) | | | Balance | | | Interest | | | Yield/Rate (1) | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | (Dollars in Thousands) | | | | | | | |
| Interest-earning assets: | | | | | | | | | | | | | | | | | | |
| Investment securities | | $ | 85,284 | | | $ | 1,086 | | | | 2.55 | % | | $ | 81,182 | | | $ | 1,028 | | | | 2.53 | % |
| Mortgage-backed securities | | | 41,338 | | | | 676 | | | | 3.28 | | | | 64,883 | | | | 1,178 | | | | 3.63 | |
| Loans receivable(2) | | | 317,585 | | | | 6,305 | | | | 3.98 | | | | 270,611 | | | | 6,388 | | | | 4.72 | |
| Other interest-earning assets | | | 66,093 | | | | 87 | | | | 0.26 | | | | 51,035 | | | | 56 | | | | 0.22 | |
| Total interest-earning assets | | | 510,300 | | | | 8,154 | | | | 3.20 | | | | 467,711 | | | | 8,650 | | | | 3.70 | |
| Cash and non-interest-bearing balances | | | 2,492 | | | | | | | | | | | | 2,558 | | | | | | | | | |
| Other non-interest-earning assets | | | 12,872 | | | | | | | | | | | | 17,527 | | | | | | | | | |
| Total assets | | $ | 525,664 | | | | | | | | | | | $ | 487,796 | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Savings accounts | | $ | 79,396 | | | | 135 | | | | 0.34 | | | $ | 71,314 | | | | 119 | | | | 0.33 | |
| Money market deposit and NOW accounts | | | 102,294 | | | | 172 | | | | 0.34 | | | | 104,512 | | | | 181 | | | | 0.35 | |
| Certificates of deposit | | | 208,814 | | | | 1,448 | | | | 1.39 | | | | 242,528 | | | | 2,057 | | | | 1.70 | |
| Total deposits | | | 390,504 | | | | 1,755 | | | | 0.90 | | | | 418,354 | | | | 2,357 | | | | 1.13 | |
| Advances from Federal Home Loan Bank | | | 340 | | | | - | | | | 0.00 | | | | 359 | | | | - | | | | 0.00 | |
Advances from borrowers for taxes and insurance | | | 2,133 | | | | 2 | | | | 0.19 | | | | 1,853 | | | | 2 | | | | 0.20 | |
| Total interest-bearing liabilities | | | 392,977 | | | | 1,757 | | | | 0.90 | | | | 420,566 | | | | 2,359 | | | | 1.12 | |
| Non-interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Non-interest-bearing demand accounts | | | 2,515 | | | | | | | | | | | | 3,317 | | | | | | | | | |
| Other liabilities | | | 3,905 | | | | | | | | | | | | 3,818 | | | | | | | | | |
| Total liabilities | | | 399,397 | | | | | | | | | | | | 427,701 | | | | | | | | | |
| Stockholders’ equity | | | 126,267 | | | | | | | | | | | | 60,095 | | | | | | | | | |
| Total liabilities and stockholders’ equity | | $ | 525,664 | | | | | | | | | | | $ | 487,796 | | | | | | | | | |
| Net interest-earning assets | | $ | 117,323 | | | | | | | | | | | $ | 47,145 | | | | | | | | | |
| Net interest income; interest rate spread | | | | | | $ | 6,397 | | | | 2.30 | % | | | | | | $ | 6,291 | | | | 2.58 | % |
| Net interest margin(3) | | | | | | | | | | | 2.51 | % | | | | | | | | | | | 2.69 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Average interest-earning assets to average interest-bearing liabilities | | | | | | | 129.85 | % | | | | | | | | | | | 111.21 | % | | | | |
| (1) | Yields and rates for the six month periods are annualized. |
| (2) | Includes non-accrual loans. Calculated net of unamortized deferred fees, undisbursed portion of loans-in-process and the allowance for loan losses. |
| (3) | Equals net interest income divided by average interest-earning assets. |
Provision for loan losses. The allowance is maintained at a level sufficient to provide for estimated probable losses in the loan portfolio at each reporting date. At least quarterly, management performs an analysis to identify the inherent risk of loss in the Company’s loan portfolio. This analysis includes a qualitative evaluation of concentrations of credit, past loss experience, current economic conditions, amount and composition of the loan portfolio (including loans being specifically monitored by management), estimated fair value of underlying collateral, delinquencies, and other factors.
The Company’s methodology for assessing the adequacy of the allowance establishes both specific and general pooled allocations of the allowance. Loans are assigned ratings, either individually for larger credits or in homogeneous pools, based on an internally developed grading system. The resulting determinations are reviewed and approved by senior management.
The Company determined that a provision for loan loss was not necessary for the three and six month periods ended March 31, 2014. During the quarter ended March 31, 2014, the Company did not record any charge-offs, but did record a recovery of $37,000 relating to a single-family residential loan. For the six month period the Company recorded total charge-offs of $10,000 which were offset by recoveries of $47,000. The Company believes that the allowance for loan losses at March 31, 2014 is sufficient to cover all inherent and known losses associated with the loan portfolio at such date. At March 31, 2014, the Company’s non-performing assets totaled $7.4 million or 1.4% of total assets as compared to $7.0 million or 1.2% of total assets at September 30, 2013. Non-performing assets at March 31, 2014 included $6.9 million in non-performing loans consisting of ten one-to- four family residential loans aggregating $3.4 million, five single-family residential investment property loans aggregating $2.3 million and six commercial real estate loans aggregating $1.0 million. Non-performing assets also included three one-to-four family residential real estate owned properties with an aggregate carrying value of $489,000. The increase in non-performing assets during the six months ended March 31, 2014 was primarily due to the addition of two one-to-four family residential loans in the amount of $1.3 million, and one loan in the amount of $1.5 million (consisting of the consolidation of a group of investment property loans) related to an individual borrower being classified as a troubled debt restructuring (“TDR”), partially offset by a $1.3 million performing TDR loan being placed on accrual status and three single-family loans in the amount of $428,000 and two single-family residential investment property loans in the amount of $465,000 becoming current.
At March 31, 2014, we had $2.1 million of loans delinquent 30-89 days as to interest and/or principal. Such amount consisted of nine one-to-four family residential mortgage loans and one construction loan.
Our total classified loans and real estate owned at March 31, 2014 amounted to $13.9 million as compared to $15.5 million at September 30, 2013. All of such assets were classified “substandard” and consisted of 51 loans and three real estate owned properties. We did not have any assets classified as “doubtful” or “loss” at either of such dates. At March 31, 2014, we also had a total of 12 loans aggregating $10.1 million that had been designated “special mention.” Nine of the loans totaling $8.9 million are related to various real estate development projects with one borrower which were downgraded due to concerns with respect to future cash flows of the involved projects. The remaining four loans in the aggregate of $1.0 million, also related to a single borrower, used to purchase mixed use real property were also downgraded due to concerns of future cash flows. We are in discussions with both borrowers to explore various alternatives available to improve the cash flow situation. At September 30, 2013 we had a total of six loans aggregating $8.9 million to the same borrower whose loans were criticized as “special mention”.
The following table shows the amounts of non-performing assets (defined as non-accruing loans, accruing loans 90 days or more past and real estate owned). At neither date did the Company have any accruing loans 90 days or more past due.
| | | | | | | |
| (Dollars in Thousands) | | March 31,
2014 | | | September 30, 2013 | |
| Non-accruing loans: | | | | | | |
| One-to-four family residential | | $ | 5,838 | | | $ | 4,259 | |
| Commercial real estate | | | 1,028 | | | | 2,375 | |
| Consumer | | | 1 | | | | - | |
| Total non-accruing loans | | | 6,864 | | | | 6,634 | |
| Real estate owned, net: (1) | | | 489 | | | | 406 | |
| Total non-performing assets | | $ | 7,353 | | | $ | 7,040 | |
| | | | | | | | | |
| Total non-performing loans as a percentage of loans, net | | | 2.15 | % | | | 2.15 | % |
| Total non-performing loans as a percentage of total assets | | | 1.33 | % | | | 1.09 | % |
| Total non-performing assets as a percentage of total assets | | | 1.43 | % | | | 1.12 | % |
| (1) | Real estate owned balances are shown net of related loss allowances and consist solely of real property. |
The allowance for loan losses totaled $2.4 million, or 0.7% of total loans and 34.8% of total non-performing loans at March 31, 2014 as compared to $2.4 million, or 0.8% of total loans and 35.5% of total non-performing loans at September 30, 2013.
Non-interest income. Non-interest income amounted to $413,000 and $574,000 for the three and six month periods ended March 31, 2014, compared to $199,000 and $414,000 for the same periods in 2013. The increase for the 2014 periods was primarily attributed to a $274,000 gain recorded from the sale of private label mortgage-backed securities, which occurred during the second fiscal quarter of 2014.
Non-interest expenses. For the three and six month periods ended March 31, 2014, non-interest expense decreased $160,000 or 5.1% and $125,000 or 2.1%, respectively, compared to the prior year periods. The primary reasons for the decreases were a reduction of FDIC insurance premiums and expenses related to real estate owned recorded during the three and six months ended March 31, 2014.
Income tax expense. We recorded income tax expense for the three and six months ended March 31, 2014 of $157,000 and $341,000, respectively, compared to income tax expense of $186,000 and $537,000, respectively, for the three and six months ended March 31, 2013. The effective tax rate for the three and six months ended March 31, 2014 were 22.7% and 28.1%, respectively, as compared to 93.0% and 65.3% for the same periods in fiscal 2013. The tax expense related to the sale of available for sale securities was reduced by Company’s ability to utilize prior period capital loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s liquidity, represented by cash and cash equivalents, is a product of its operating, investing and financing activities. Our primary sources of funds are from deposits, scheduled principal and interest payments on loans, loan prepayments and the maturity of loans, mortgage-backed securities and other investments, and other funds provided from operations. While scheduled payments from the amortization of loans and mortgage-backed securities and maturing investment securities are relatively predictable sources of funds, deposit flows and loan and securities prepayments can be greatly influenced by market rates of interest, economic conditions and competition. We also maintain excess funds in short-term, interest-earning assets that provide additional liquidity. At March 31, 2014, our cash and cash equivalents amounted to $51.4 million. In addition, our available for sale investment and mortgage-backed securities amounted to an aggregate of $47.4 million at such date.
We use our liquidity to fund existing and future loan commitments, to fund maturing certificates of deposit and demand deposit withdrawals, to invest in other interest-earning assets, and to meet operating expenses. At March 31, 2014, the Company had $20.4 million in outstanding commitments to originate fixed and variable-rate loans, not including loans in process. The Company also had commitments under unused lines of credit of $4.8 million and letters of credit outstanding of $109,000 at March 31, 2014. Certificates of deposit at March 31, 2014 maturing in one year or less totaled $90.6 million. Based upon historical experience, we anticipate that a significant portion of the maturing certificates of deposit will be redeposited with us.
In addition to cash flows from loan and securities payments and prepayments as well as from sales of available for sale securities, we have significant borrowing capacity available to fund liquidity needs should the need arise. Our borrowings consist solely of advances from the Federal Home Loan Bank of Pittsburgh (“FHLB”), of which we are a member. Under terms of the collateral agreement with the FHLB, we pledge residential mortgage loans as well as our stock in the FHLB as collateral for such advances. However, use of FHLB advances has been modest. At March 31, 2014, we had $340,000 in outstanding FHLB advances and had the ability to obtain an additional $196.1 million in FHLB advances. Additional borrowing capacity with the FHLB could be obtained with the pledging of certain investment securities. The Bank has also obtained approval to borrow from the Federal Reserve Bank discount window.
We anticipate that we will continue to have sufficient funds and alternative funding sources to meet our current commitments.
The following table summarizes the Company’s and Bank’s regulatory capital ratios as of March 31, 2014 and September 30, 2013 and compares them to current regulatory guidelines.
| | | | | | | | | | |
| | | | | | | | | To Be |
| | | | | | | | | Well Capitalized |
| | | | | | Required for | | Under Prompt |
| | | | | | Capital Adequacy | | Corrective Action |
| | | Actual Ratio | | Purposes | | Provisions |
| March 31, 2014: | | | | | | | | | |
| Tier 1 capital (to average assets) | | | | | | | | | |
| The Company | | 25.11 | % | | 4.0 | % | | N/A | |
| The Bank | | 17.56 | % | | 4.0 | % | | 5.0 | % |
| | | | | | | | | | |
| Tier 1 capital (to risk-weighted assets) | | | | | | | | | |
| The Company | | 57.39 | % | | 4.0 | % | | N/A | |
| The Bank | | 40.26 | % | | 4.0 | % | | 6.0 | % |
| | | | | | | | | | |
| Total capital (to risk-weighted assets) | | | | | | | | | |
| The Company | | 58.45 | % | | 8.0 | % | | N/A | |
| The Bank | | 41.32 | % | | 8.0 | % | | 10.0 | % |
| | | | | | | | | | |
| September 30, 2013: | | | | | | | | | |
| Tier 1 capital (to average assets) | | | | | | | | | |
| Company | | 12.54 | % | | 4.0 | % | | N/A | |
| Bank | | 11.81 | % | | 4.0 | % | | 5.0 | % |
| | | | | | | | | | |
| Tier 1 capital (to risk-weighted assets) | | | | | | | | | |
| Company | | 26.69 | % | | 4.0 | % | | N/A | |
| Bank | | 25.69 | % | | 4.0 | % | | 6.0 | % |
| | | | | | | | | | |
| Total capital (to risk-weighted assets) | | | | | | | | | |
| Company | | 27.72 | % | | 8.0 | % | | N/A | |
| Bank | | 26.18 | % | | 8.0 | % | | 10.0 | % |
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements, accompanying notes, and related financial data of the Company presented herein have been prepared in accordance with generally accepted accounting principles which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.
Unlike most industrial companies, substantially all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the price of goods and services, since such prices are affected by inflation to a larger extent than interest rates. In the current interest rate environment, liquidity and the maturity structure of the Company’s assets and liabilities are critical to the maintenance of acceptable performance levels.
How We Manage Market Risk. Market risk is the risk of loss from adverse changes in market prices and rates. Our market risk arises primarily from interest rate risk which is inherent in our lending, investment and deposit gathering activities. To that end, management actively monitors and manages interest rate risk exposure. In addition to market risk, our primary risk is credit risk on our loan portfolio. We attempt to manage credit risk through our loan underwriting and oversight policies.
The principal objective of our interest rate risk management function is to evaluate the interest rate risk embedded in certain balance sheet accounts, determine the level of risk appropriate given our business strategy, operating environment, capital and liquidity requirements and performance objectives, and manage the risk consistent with approved guidelines. We seek to manage our exposure to risks from changes in interest rates while at the same time trying to improve our net interest spread. We monitor interest rate risk as such risk relates to our operating strategies. �� We have established an Asset/Liability Committee which is comprised of our President and Chief Executive Officer, Chief Financial Officer, Chief Lending Officer, Treasurer and Controller. The Asset/Liability Committee meets on a regular basis and is responsible for reviewing our asset/liability policies and interest rate risk position. Both the extent and direction of shifts in interest rates are uncertainties that could have a negative impact on future earnings.
In recent years, we primarily have reduced our investment in longer term fixed-rate callable agency bonds and increased our portfolio of step-up callable agency bonds and agency issued mortgage-backed securities. However, notwithstanding the foregoing steps, we remain subject to a significant level of interest rate risk in a low interest rate environment due to the high proportion of our loan portfolio that consists of fixed-rate loans as well as our decision to invest a significant amount of our assets in long-term, fixed-rate investment and mortgage-backed securities held to maturity.
Gap Analysis. The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring a Company’s interest rate sensitivity “gap.” An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that same time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a period of rising interest rates, a negative gap would tend to affect adversely net interest income while a positive gap would tend to result in an increase in net interest income. Conversely, during a period of falling interest rates, a negative gap would tend to result in an increase in net interest income while a positive gap would tend to affect adversely net interest income.
The following table sets forth the amounts of our interest-earning assets and interest-bearing liabilities outstanding at March 31, 2014, which we expect, based upon certain assumptions, to reprice or mature in each of the future time periods shown (the “GAP Table”). Except as stated below, the amounts of assets and liabilities shown which reprice or mature during a particular period were determined in accordance with the earlier of term to repricing or the contractual maturity of the asset or liability. The table sets forth an approximation of the projected repricing of assets and liabilities at March 31, 2014, on the basis of contractual maturities, anticipated prepayments, and scheduled rate adjustments within a three-month period and subsequent selected time intervals. The loan amounts in the table reflect principal balances expected to be redeployed and/or repriced as a result of contractual amortization and anticipated prepayments of adjustable-rate loans and fixed-rate loans, and as a result of contractual rate adjustments on adjustable-rate loans. Annual prepayment rates for variable-rate and fixed-rate single-family and multi-family residential and commercial mortgage loans are assumed to range from 7.6% to 46.8%. The annual prepayment rate for mortgage-backed securities is assumed to range from 0.4% to 22.9%. For savings accounts, checking accounts and money markets, the decay rates vary on annual basis over a ten year period.
| | | | | | | | | | | | | | | | | | | |
| | | | | | More than | | | More than | | | More than | | | | | | |
| | | 3 Months | | | 3 Months | | | 1 Year | | | 3 Years | | | More than | | | Total | |
| | | or Less | | | to 1 Year | | | to 3 Years | | | to 5 Years | | | 5 Years | | | Amount | |
| | | | | | | | | | | | | | | | | | | |
| | | (Dollars in Thousands) | |
| Interest-earning assets(1): | | | | | | | | | | | | | | | | | | |
| Investment and mortgage-backed securities(2) | | $ | 3,067 | | | $ | 5,800 | | | $ | 9,699 | | | $ | 11,598 | | | $ | 101,432 | | | $ | 131,596 | |
| Loans receivable(3) | | | 21,199 | | | | 45,134 | | | | 88,344 | | | | 61,723 | | | | 102,063 | | | | 318,463 | |
| Other interest-earning assets(4) | | | 49,772 | | | | - | | | | - | | | | - | | | | - | | | | 49,772 | |
| Total interest-earning assets | | $ | 74,038 | | | $ | 50,934 | | | $ | 98,043 | | | $ | 73,321 | | | $ | 203,495 | | | $ | 499,831 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Savings accounts | | $ | 1,949 | | | $ | 5,304 | | | $ | 10,249 | | | $ | 9,397 | | | $ | 49,086 | | | $ | 75,985 | |
| Money market deposit and NOW accounts | | | 3,895 | | | | 11,685 | | | | 23,287 | | | | 17,515 | | | | 46,013 | | | | 102,395 | |
| Certificates of deposit | | | 26,297 | | | | 64,463 | | | | 64,625 | | | | 47,089 | | | | - | | | | 202,474 | |
| Advances from Federal Home Loan Bank | | | - | | | | 210 | | | | 130 | | | | - | | | | - | | | | 340 | |
| Advances from borrowers for taxes and insurance | | | 1,460 | | | | - | | | | - | | | | - | | | | - | | | | 1,460 | |
| Total interest-bearing liabilities | | $ | 33,601 | | | $ | 81,662 | | | $ | 98,291 | | | $ | 74,001 | | | $ | 95,099 | | | $ | 382,654 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-earning assets less interest-bearing liabilities | | $ | 40,437 | | | ($ | 30,728 | ) | | ($ | 248 | ) | | ($ | 680 | ) | | $ | 108,396 | | | $ | 117,177 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Cumulative interest-rate sensitivity gap (5) | | $ | 40,437 | | | $ | 9,709 | | | $ | 9,461 | | | $ | 8,781 | | | $ | 117,177 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Cumulative interest-rate gap as a percentage of total assets at March 31 , 2014 | | | 7.85 | % | | | 1.88 | % | | | 1.84 | % | | | 1.70 | % | | | 22.74 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Cumulative interest-earning assets as a percentage of cumulative interest-bearing liabilities at March 31, 2014 | | | 220.34 | % | | | 108.42 | % | | | 104.43 | % | | | 103.05 | % | | | 130.62 | % | | | | |
| (1) | Interest-earning assets are included in the period in which the balances are expected to be redeployed and/or repriced as a result of anticipated prepayments, scheduled rate adjustments and contractual maturities. |
| (2) | For purposes of the gap analysis, investment securities are stated at amortized cost. |
| (3) | For purposes of the gap analysis, loans receivable includes non-performing loans and is gross of the allowance for loan losses and unamortized deferred loan fees, but net of the undisbursed portion of loans-in-process. |
| (5) | Cumulative interest-rate sensitivity gap represents the difference between interest-earning assets and interest-bearing liabilities. |
Certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as variable-rate loans, have features which restrict changes in interest rates both on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the table. Finally, the ability of many borrowers to service their variable-rate loans may be adversely affected in the event of an interest rate increase.
Net Portfolio Value Analysis. Our interest rate sensitivity also is monitored by management through the use of a model which generates estimates of the changes in our net portfolio value (“NPV”) over a range of interest rate scenarios. NPV is the present value of expected cash flows from assets, liabilities and off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is defined as the NPV in that scenario divided by the market value of assets in the same scenario. The “Sensitivity Measure” is the decline in the NPV ratio, in basis points, caused by a 2% increase or decrease in rates, whichever produces a larger decline. The following table sets forth our NPV as of March 31, 2014 and reflects the changes to NPV as a result of immediate and sustained changes in interest rates as indicated.
| Change in | | | | | | | | | | | | NPV as % of Portfolio | |
| Interest Rates | | | Net Portfolio Value | | | | | | Value of Assets | |
| In Basis Points | | | | | | | | | | | | | | | | |
| (Rate Shock) | | | Amount | | | $ Change | | | % Change | | | NPV Ratio | | | Change | |
| | | | | | | | | | | | | | | | | |
| | | | (Dollars in Thousands) | |
| | | | | | | | | | | | | | | | | |
| 300 | | | $ | 103,083 | | | $ | (38,044 | ) | | | (26.96 | )% | | | 23.27 | % | | | (4.47 | )% |
| 200 | | | | 115,292 | | | | (25,835 | ) | | | (18.31 | )% | | | 24.85 | % | | | (2.89 | )% |
| 100 | | | | 128,204 | | | | (12,923 | ) | | | (9.16 | )% | | | 26.37 | % | | | (1.37 | )% |
| Static | | | | 141,127 | | | | - | | | | - | | | | 27.74 | % | | | - | |
| (100) | | | | 150,899 | | | | 9,772 | | | | 6.92 | % | | | 28.55 | % | | | 0.81 | % |
| (200) | | | | 154,327 | | | | 13,200 | | | | 9.35 | % | | | 28.57 | % | | | 0.83 | % |
| (300) | | | | 156,267 | | | | 15,140 | | | | 10.73 | % | | | 28.47 | % | | | 0.73 | % |
At September 30, 2013, the Company’s NPV was $80.6 million or 13.26% of the market value of assets. Following a 200 basis point increase in interest rates, the Company’s “post shock” NPV would be $55.4 million or 9.84% of the market value of assets.
As is the case with the GAP Table, certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in NPV requires the making of certain assumptions which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the models presented assume that the composition of our interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. Accordingly, although the NPV model provides an indication of interest rate risk exposure at a particular point in time, such model is not intended to and does not provide a precise forecast of the effect of changes in market interest rates on net interest income and will differ from actual results.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of the end of period covered by this report, our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations and are operating in an effective manner.
No change in our internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934) occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 1. Legal Proceedings
The Company is involved in various legal proceedings occurring in the ordinary course of business. Management of the Company, based on discussions with litigation counsel, does not believe that such proceedings will have a material adverse effect on the financial condition or operations of the Company. There can be no assurance that any of the outstanding legal proceedings to which the Company is a party will not be decided adversely to the Company’s interests and have a material adverse effect on the financial condition and operations of the Company.
Item 1A. Risk Factors
Not applicable
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
| (c) | There were no repurchases of common stock by the Company during the quarter ended March 31, 2014. |
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits
| | Exhibit No. | | Description | |
| | 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 Certifications |
-
The following Exhibits are being furnished* as part of this quarterly report:
| | |
| 101.INS | | XBRL Instance Document.* |
| 101.SCH | | XBRL Taxonomy Extension Schema Document.* |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document.* |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document.* |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document.* |
| 101.DEF | | XBRL Taxonomy Extension Definitions Linkbase Document.* |
| * | These interactive data files are being furnished as part of this Quarterly Report, and, in accordance with Rule 402 of Regulation S-T, shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections. |
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.
PRUDENTIAL BANCORP, INC. OF PENNSYLVANIA
| | | |
| Date: May 15, 2014 | By: | /s/ Thomas A. Vento |
| | | Thomas A. Vento |
| | | Chairman, President and Chief Executive Officer |
| | | |
| Date: May 15, 2014 | By: | /s/ Joseph R. Corrato |
| | | Joseph R. Corrato |
| | | Executive Vice President and Chief Financial Officer |
