UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) - October 29, 2003
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Commission file number 0-24040
PENNFED FINANCIAL SERVICES, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 22-3297339
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
622 Eagle Rock Avenue, West Orange, New Jersey 07052-2989
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (973) 669-7366
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Item 7. Financial Statements and Exhibits
(c) Exhibits
Regulation
S-K Exhibit
Number Document
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99.1 Press Release dated
October 29, 2003
Item 9. Regulation FD Disclosure
On October 29, 2003, PennFed Financial Services, Inc. (the Company) held
its Annual Meeting of Stockholders. The script of the financial presentation at
such meeting is set forth below.
Item 12. Result of Operations and Financial Condition
On October 29, 2003, PennFed Financial Services, Inc. (the Company) issued
the press release attached hereto as Exhibit 99.1 announcing its first quarter
results.
The press release includes non-GAAP financial measures which exclude the
effect of a non-recurring charge associated with the refinance of trust
preferred securities.
Management uses these non-GAAP financial measures because it believes these
measures facilitate comparisons of the Company's historical financial results.
These non-GAAP financial measures are not prepared in accordance with
generally accepted accounting principles and may be different from non-GAAP
financial measures used by other companies. Non-GAAP financial measures should
not be considered as a substitute for, or superior to, measures of financial
performance prepared in accordance with GAAP.
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PENNFED FINANCIAL SERVICES, INC.
Date: October 29, 2003 By: /s/ Joseph L. LaMonica
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Joseph L. LaMonica
President and Chief
Executive Officer
PennFed Financial Services, Inc.
2002 Annual Meeting
Wednesday, October 23, 2002
SLIDE 1 (COVER SLIDE)
SLIDE 2 (DISCLAIMER)
Before we start, the required disclaimer on forward-looking statements is
presented on the screen.
Now, I would like to begin by discussing some of the highlights of the last
year.
And then I'll turn the podium over to our President and Chief Executive Officer,
Joseph LaMonica, who will report on our first quarter results for Fiscal 2004 as
well as our future plans.
SLIDE 3 (EPS CHART)
After adjusting for a non-recurring charge, which I'll explain in more detail in
just a few moments, earnings per share for fiscal 2003 were $1.97 per share.
Although not the double digit increases that PennFed has seen in the past, we
feel that the 5% increase over fiscal 2002 earnings is very much in line with
expected outcomes under the economic environment experienced during fiscal 2003.
SLIDE 4 (FISCAL 2003)
As stated in the annual letter to stockholders - fiscal 2003 was a challenging
year for financial institutions, including PennFed. However, these are not
unlike challenges we have seen before.
SLIDE 4A (MANAGE BALANCE SHEET GROWTH AND COMPOSITION)
In years past we have talked about our commitment to prudent management of the
growth in PennFed's balance sheet as well as the change in balance sheet
composition. Prudent management also means knowing when not to grow the balance
sheet.
SLIDE 5 (ASSET SIZE)
At June 30, 2003, assets totaled 1.8 billion dollars. With the low interest rate
environment experienced throughout the year, growth in assets in Fiscal 2003 was
not prudent for PennFed. During Fiscal 2003, total assets declined approximately
80 million dollars. Loan originations were offset by the effects of accelerated
prepayments and increased sales of conforming, fixed-rate one- to four-family
mortgage loans into the secondary market. Nevertheless, based upon asset size,
PennFed remains one of the three largest publicly traded thrifts headquartered
in the state of New Jersey.
SLIDE 4A (MANAGE BALANCE SHEET GROWTH AND COMPOSITION)
One-to-four family loan production was healthy in fiscal 2003, with 530 million
dollars in production. However, as a result of the low interest rate
environment, PennFed's one-to-four family mortgage portfolio declined during the
fiscal year. This was partially due to the accelerated prepayments from
refinancing activity.
The portfolio was further reduced by the sale of residential mortgage loans into
the secondary market in an effort to reduce interest rate exposure. During
fiscal 2003, the Company sold 155 million dollars of these loans, recording 1.3
million dollars in gains.
SLIDE 6 (LOAN PORTFOLIO COMPOSITION)
As we look now at PennFed's entire loan portfolio - we continued to see a shift
in the composition. Due to the growth in commercial and consumer loan
originations and with loan sales and accelerated prepayments on the one to four
family loan portfolio, at June 30, 2003 one- to four-family loans comprised 77%
of all loans. Commercial and consumer loans represented 23% of the portfolio. In
Fiscal 1998, commercial and consumer loans accounted for 11% of the loan
portfolio.
While commercial and consumer loans generally represent higher yielding assets,
we will continue to balance the increased income with the risk inherent in these
type of loans compared to a first lien on a one- to four-family home.
SLIDE 6 (DEPOSIT COMPOSITION)
We have also seen a continued shift in composition on the other side of the
balance sheet -- our deposit mix.
During fiscal 2003, higher costing CDs were allowed to run-off. We felt it was
not a wise business decision to pay the premium rates many of our competitors
were paying.
What is important to note here is the percentage of core deposits - checking,
savings and money market accounts. At June 30, 2003, core deposits represented
over 48% of deposits compared to just under 41% one year earlier.
Core deposits are generally less costly and less sensitive to changes in
interest rates than CDs. By growing the core deposit base, we feel PennFed is
better positioned for the future.
SLIDE 4B (LOW RISK, LOW COST)
With our strong asset quality ratios and low expense ratios, PennFed continues
to be recognized as a low-risk, low-cost provider of diversified financial
services.
SLIDE 7 (LOW RISK LOW COST)
At June 30, 2003 PennFed's non-performing assets as a percentage of total assets
totaled just 9 basis points. Net chargeoffs for the last two fiscal years were
less than 100 thousand dollars. To some, this may seem hardly worth mentioning.
We believe, however, that close management of our risks has and will continue to
serve the Company - and stockholders - well.
Furthermore, we have continued to keep a close rein on expenses and maintain
strong ratios compared to peers.
After adjusting for a non-recurring charge, the expense ratio for fiscal 2003
was 1.5% and our efficiency ratio was 50%.
SLIDE 4C (IMPROVED NON-INTEREST INCOME)
I have spoken to you in the past about our focus on improving non-interest
income.
SLIDE 8 (SERVICE CHARGES AND OTHER INCOME)
I am pleased to note that during fiscal 2003 we saw more than a 50% increase in
service charges and other non-interest income.
Due to the interest rate environment, a significant portion of the growth is
associated with various loan prepayments and / or modifications. However, growth
in service charges was also the byproduct of growth in PennFed's core deposits.
SLIDE 4D (MANAGE CAPITAL)
PennFed has and will continue to aggressively manage capital. One such
management tool is stock repurchase programs.
SLIDE 9 (STOCK REPURCHASES)
We repurchased 600,000 shares of PennFed stock in fiscal 2003 (compared to
500,000 shares repurchased in fiscal 2002). Since becoming a public company in
1994, over 50 percent of the approximately 12 million shares originally issued
have been repurchased.
SLIDE 4E (FISCAL 2003 - TOTAL SLIDE)
In addition to PennFed's fiscal 2003 highlights, I want to discuss two
additional items.
SLIDE 10 (FISCAL 2003)
In my presentation to you today, I've mentioned a "non-recurring" charge.
Let me explain. As reported in June, the Company issued 30 million dollars of
floating rate trust preferred securities. Proceeds were used to substantially
fund the redemption of the 34.5 million dollars of trust preferred securities
issued in 1997, which carried an interest rate of 8.90%. As a result of the
redemption, PennFed recognized a non-recurring expense of approximately 1.5
million dollars, or 14 cents per share, associated with the unamortized issuance
costs related to the redeemed trust preferred securities. We anticipate that
this non-recurring charge will be largely offset in the next fiscal year by the
savings realized due to the reduced interest rate.
The second item regards an increased regulatory burden for public companies.
While sound corporate governance, as well as complete and accurate disclosure
have always been, and will always be priorities at PennFed, the cost of such
compliance continues to significantly escalate. In addition to the
Sarbanes-Oxley Act, we continue to deal with implementation of new accounting
regulations issued by the Financial Accounting Standards Board, ongoing
compliance with Privacy rules, complete implementation of the US Patriot Act...
the list of regulations can go on and on. Continued compliance, while essential
and necessary, will be time consuming and costly.
Let me now turn the presentation over to Joe who will discuss the Company's
results for the first quarter of fiscal year 2004 and our plans for the future.
Joe...
SLIDE 11 (Q1 SLIDE - COVER SLIDE)
Thank you Bill.
And, thank you all again for joining us today.
I want to begin by saying that the challenges that we experienced in Fiscal 2003
continued into our first quarter of fiscal 2004.
SLIDE 12 (QUARTERLY EPS)
As noted in a press release issued this morning, earnings for the 3 months ended
September 30, 2003 are 47 cents per diluted share, down a penny from the 48
cents reported for the June 2003 quarter and down 3 cents from the 50 cents
reported for the quarter ended September 30, 2002.
SLIDE 13 (QUARTERLY NET INTEREST MARGIN)
Net interest margin for the three months ended September 30, 2003 was reported
as 2.11%, down from 2.28% for the three months ended June 30, 2003. I must point
out, however, that approximately 15 basis points of the total 17 basis points of
margin compression is attributable to the Company's adoption of Financial
Accounting Standards Board Interpretation No. 46, "Consolidation of Variable
Interest Entities," otherwise known as "FIN 46". Pursuant to FIN 46, the
Company's trust preferred subsidiaries are no longer consolidated and the costs
associated with the related issuance of trust preferred securities are now
reflected as interest expense. Historically, the costs had been categorized as
non-interest expense. There is no overall effect on net income as the decline in
net interest income is offset by a reduction in non-interest expense.
As with most thrifts, compression in net interest margin over the past year is
attributable to accelerated prepayments and lower market coupons. This chart
represents a history of how net interest margin can fluctuate based upon the
interest rate environment. More importantly, it shows that we have seen these
challenges before and have successfully managed them.
SLIDE 14 (Q1 INITIATIVES)
And, as in the past, PennFed is not sitting idle.
SLIDE 14A (GROWING DEPOSITS / EXPANDING BRANCH NETWORK)
We continue to focus on growing deposits and expanding the branch network.
A highlight of the first quarter was the opening of our newest branch, which is
on Chestnut St. in the Ironbound section of Newark. This branch opened in early
September and represents our 22nd location. After being open less than two
months, deposits at this community branch total just under 9 million dollars.
In an effort to grow low cost checking accounts, in early September we launched
a new checking account - Freedom Checking. Freedom Checking is free, with no
monthly service fee and no minimum balance requirement. Response to this product
has been very positive and Freedom Checking accounts are averaging about 3
thousand dollars per account.
SLIDE 14B (IMPROVING ONLINE CAPABILITIES)
With more and more people visiting our website and using online banking, we took
the time to update our website, giving it a new look and making it even more
user friendly than before.
In July, we introduced online applications for consumer loans. Since launching
this initiative, over 100 applications have been submitted on line with an
additional 75 pending.
SLIDE 14C (FOCUS ON COMMERCIAL AND BUSINESS RELATIONSHIPS)
The Commercial and Business Banking Group continue to focus on building
relationships. As an example, we recently extended additional credit to an
existing customer, bringing the total credit extended to them to over 17 million
dollars (of which a portion has been participated out). Under this relationship,
the customer also maintains large deposit balances. Another example is a
customer with commercial real estate loans totaling 4 million dollars as well as
4 million dollars under an accounts receivable financing program. This customer
also has a large deposit relationship with Penn Federal. We continue to look to
bring in new business relationships while focusing on improving current
relationships.
SLIDE 14D (EXPANDING INCOME GENERATION CAPABILITIES)
Another avenue we've pursued is title insurance. Just prior to our fiscal year
end, we received all the approvals and licenses needed and entered into a joint
venture in a title agency. This joint venture enables us to offer additional
services to our customers while providing income for PennFed. Additional new
sources of income continue to be explored as appropriate.
SLIDE 11 (Q1 SLIDE - COVER SLIDE)
For those of you who are interested in more details about our first quarter,
today's press release is available for you at the table outside the room.
SLIDE 15 (OUTLOOK FOR 2004 AND BEYOND)
After speaking with you about our prior year results as well as the first
quarter results, we naturally move on to the outlook for the future.
As you know and as we have reiterated at our annual meetings, PennFed is not a
"glitzy" company. It is, rather, a safe and secure company. We stress to you
that we plan to continue to do what we do best - underwriting prudently,
investing conservatively and expanding sensibly.
Words like safe, secure and sensible should not, however, be confused with
inactive or stationary.
We remain dedicated to creatively, proactively and constantly giving attention
to sound new ideas and initiatives.
SLIDE 20 (INITIATIVES FOR 2004 AND BEYOND)
SLIDE 20A (DELAWARE TO MARYLAND CONVERSION)
If approved the conversion of the Company's charter from Delaware to Maryland
will allow the Company to achieve significant cost savings by no longer having
to pay Delaware franchise taxes.
SLIDE 20B (EXPANSION OF BRANCH NETWORK)
We continue to look for opportunities that compliment or expand our branch
network. As we just mentioned, we saw the opening of our latest branch in the
Ironbound section of Newark - further strengthening a position in that
community.
SLIDE 21 (MAP OF BRANCHES)
As we've mentioned in the past, a branch in Union Township is expected to open
in early calendar 2004. This branch will represent our entrance into the Union
County market, which is a natural extension of our branch network.
SLIDE 21A (MAP OF BRANCHES-WITH UNION)
This map shows our concentrated branch network which is situated in 5, soon to
be 6, counties from north east New Jersey to central / southern New Jersey.
SLIDE 20C (EXPANSION OF LENDING MARKET AND CAPABILITIES)
Following on the heels of online applications for consumer loans - we have
completed our testing for online residential mortgage loan applications, which
should be available beginning November 1st.
As another means of expanding our residential market area, we originate in
eastern Pennsylvania and have begun purchasing loans in that state.
With the expansion of the residential market, we are naturally also looking at
expanding the consumer loan market area into Pennsylvania through the use of a
local title agency to handle closings.
In the rising interest rate environment and in response to falling application
levels, we are currently reviewing the offering of new products. For example, we
recently began offering interest only and LIBOR ARM products. We are also
considering offering a program that only requires a 3% down payment. All of
these products can be sold into the secondary market.
We are also examining alternative outlets for the sale of loan products by
establishing correspondent relationships with other institutions.
SLIDE 20D (CONTINUATION OF EXPENSE MANAGEMENT)
And, as you would expect, expense management will continue. No expense savings
measure is too small to ignore. One recent cost savings idea was to use
postcards for pre-approval mailings for consumer loans, versus the more costly
full letter and envelope. Based upon two large direct mailings each year, this
process will save over 30 thousand dollars annually.
With compensation expenses being one of the largest expense areas, staffing
continues to be managed by means of "transferring" staff to areas needed. In
addition, with a decline in application levels, staffing is being reduced
through attrition and the releasing of temporary employees.
The Company's Employee Stock Ownership Plan, established at the time of the IPO,
becomes fully allocated by the end of fiscal 2004. In fiscal 2003, the ESOP cost
the Company 3.1 million dollars, primarily due to the market value accounting
regulations. While the ESOP may be replaced with an alternative benefit, the
expense will be dramatically less beginning July 2004.
Another item to now keep in the forefront is the core deposit premium recorded
at the time Carteret branches were acquired back in March of 1995. This expense
totals 1.8 million dollars a year, but the intangible asset becomes fully
amortized by March 2005.
Alternatives to regular newspaper advertising continue to be evaluated. Most
recently we have used marketing dollars for individual branch promotions,
customer appreciation days, billboards, bus backs and flyers.
Cross selling marketing efforts also continue. For example, our Business
Development Officers follow-up with loan applicants for additional cross-sell
opportunities. In addition, we prepare focused mailings. One instance is
targeting customers who do not have a second mortgage with Penn Federal. By
focusing on our existing customers, we should be more successful and save some
costly advertising dollars.
Another process we have been working towards is image statements for customers.
We are currently preparing to test the process on employee accounts, and expect
to roll-out image statements for all Penn Federal customers by the end of this
calendar year.
As we strive to improve the value of our company -- we continue to adapt and
re-assess our direction, looking for those new ideas and initiatives that enable
us to improve the bottom line.
Admittedly, the current low interest rate environment presents some challenges,
but not unlike challenges we've seen in the past. The Bank has successfully
overcome all types of challenges in its 63 years. While recent EPS growth may
not reflect the growth experienced in the past, PennFed Financial Services, Inc.
is profitable and PennFed equates to a safe and secure investment on which we
continue to pay dividends.
And now, let me turn this presentation back over to our chairman...
At this point, I'd like to take a look at the Company's stock performance.
SLIDE 21
Over the last several years, PennFed's stock price has increased over 100%. Over
the past three years, PennFed's stock outperformed the Nasdaq Bank index, the
S&P 500, the S&P Bank index, and a composite group of stocks. This composite
group represents publicly traded thrifts in the mid-Atlantic region with assets
of 1 to 3.5 billion dollars.
SLIDE 22 (9 YRS EPS)
It was previously mentioned that PennFed continues to be profitable. Since going
public, our compound annual growth rate in EPS over the nine-year period is over
17%.
Clearly, PennFed has generated consistent, solid returns. Under this Board of
Directors and Management team, PennFed will remain a trusted, safe and secure
company.
SLIDE 24 (CLOSING SLIDE)
ANSWER QUESTIONS
At this time we will take your questions. If you would - please state your name
and affiliation.