UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the quarterly period ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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 Identification No.)
incorporation or organization)
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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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
requirements for the past 90 days.
YES [X] NO[ ]
As of February 5, 1999, there were issued and outstanding 8,793,439
shares of the Registrant's Common Stock.
PART I - Financial Information
Item 1. Financial Statements
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Financial Condition
December 31, June 30,
1998 1998
----------- -----------
(Dollars in thousands)
ASSETS
Cash and cash equivalents ...................................................... $ 13,827 $ 10,960
Investment securities held to maturity, at amortized cost, market value of
$204,825 and $178,743 at December 31, 1998 and June 30, 1998 .............. 204,818 178,310
Mortgage-backed securities held to maturity, at amortized cost, market
value of $162,001 and $208,128 at December 31, 1998 and
June 30, 1998 ............................................................. 160,399 204,452
Loans held for sale ............................................................ 7,549 565
Loans receivable, net of allowance for loan losses of $2,925 and $2,776
at December 31, 1998 and June 30, 1998 .................................... 1,093,415 1,095,287
Premises and equipment, net .................................................... 18,604 18,092
Real estate owned, net ......................................................... 972 1,643
Federal Home Loan Bank of New York stock, at cost .............................. 16,458 15,065
Accrued interest receivable, net ............................................... 8,862 8,723
Goodwill and other intangible assets ........................................... 12,290 13,481
Other assets ................................................................... 5,274 5,360
----------- ------------
$ 1,542,468 $ 1,551,938
=========== ============
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities:
Deposits .................................................................. $ 1,019,705 $ 1,028,100
Federal Home Loan Bank of New York advances ............................... 274,465 230,465
Other borrowings .......................................................... 93,275 131,500
Mortgage escrow funds ..................................................... 9,721 10,534
Due to banks .............................................................. 7,811 12,069
Accounts payable and other liabilities .................................... 3,902 2,886
----------- ------------
Total liabilities ......................................................... 1,408,879 1,415,554
----------- ------------
Guaranteed Preferred Beneficial Interests in the Company's
Junior Subordinated Debentures ........................................ 34,500 34,500
Unamortized issuance expenses ............................................. (1,788) (1,819)
----------- ------------
Net Trust Preferred Securities ............................................ 32,712 32,681
----------- ------------
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Financial Condition (continued)
December 31, June 30,
1998 1998
----------- -----------
(Dollars in thousands)
Stockholders' Equity:
Serial preferred stock, $.01 par value, 7,000,000 shares
authorized, no shares issued .......................................... -- --
Common stock, $.01 par value, 30,000,000 shares authorized,
11,900,000 shares issued, and 8,793,439 and 9,385,988 shares
outstanding at December 31, 1998 and June 30, 1998 (excluding shares
held in treasury of 3,106,561 and 2,514,012 at
December 31, 1998 and June 30, 1998) .................................. 60 60
Additional paid-in capital ................................................ 58,878 58,278
Restricted stock - Management Recognition Plan ............................ (531) (531)
Employee Stock Ownership Plan Trust debt .................................. (3,074) (3,253)
Retained earnings, partially restricted ................................... 75,675 70,781
Treasury stock, at cost, 3,106,561 and 2,514,012 shares at
December 31, 1998 and June 30, 1998 ................................... (30,131) (21,632)
----------- ------------
Total stockholders' equity ................................................ 100,877 103,703
----------- ------------
$ 1,542,468 $ 1,551,938
=========== ============
See notes to consolidated financial statements.
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Income
Three months ended Six months ended
December 31, December 31,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(Dollars in thousands, except per share amounts)
Interest and Dividend Income:
Interest and fees on loans ..................... $ 19,773 $ 18,287 $ 39,972 $ 36,196
Interest on federal funds sold ................. 23 10 26 10
Interest and dividends on investment securities 3,884 2,252 7,672 3,316
Interest on mortgage-backed securities ......... 2,872 4,485 6,120 9,339
----------- ----------- ----------- -----------
26,552 25,034 53,790 48,861
----------- ----------- ----------- -----------
Interest Expense:
Deposits ....................................... 12,506 12,179 25,154 23,855
Borrowed funds ................................. 5,072 4,156 10,585 8,145
Trust Preferred securities ..................... 783 607 1,566 607
----------- ----------- ----------- -----------
18,361 16,942 37,305 32,607
----------- ----------- ----------- -----------
Net Interest and Dividend Income Before Provision
for Loan Losses ................................ 8,191 8,092 16,485 16,254
Provision for Loan Losses ........................... 185 150 360 300
----------- ----------- ----------- -----------
Net Interest and Dividend Income After Provision
for Loan Losses ................................ 8,006 7,942 16,125 15,954
----------- ----------- ----------- -----------
Non-Interest Income:
Service charges ................................ 487 475 1,028 911
Net gain (loss) from real estate operations .... (9) (50) (46) (89)
Net gain on sales of loans ..................... 345 108 762 108
Other .......................................... 89 71 183 159
----------- ----------- ----------- -----------
912 604 1,927 1,089
----------- ----------- ----------- -----------
Non-Interest Expenses:
Compensation and employee benefits ............. 2,117 2,071 4,352 4,144
Net occupancy expense .......................... 319 321 646 616
Equipment ...................................... 414 368 839 726
Advertising .................................... 62 87 138 158
Amortization of intangibles .................... 593 612 1,191 1,228
Federal deposit insurance premium .............. 152 145 311 285
Other .......................................... 887 661 1,739 1,329
----------- ----------- ----------- -----------
4,544 4,265 9,216 8,486
----------- ----------- ----------- -----------
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Income (continued)
Three months ended Six months ended
December 31, December 31,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(Dollars in thousands, except per share amounts)
Income Before Income Taxes .......................... 4,374 4,281 8,836 8,557
Income Tax Expense .................................. 1,556 1,539 3,167 3,129
----------- ----------- ----------- -----------
Net Income .......................................... $ 2,818 $ 2,742 $ 5,669 $ 5,428
=========== =========== =========== ===========
Weighted average number of common shares outstanding:
Basic .......................................... 8,508,098 8,952,994 8,585,774 8,942,102
=========== =========== =========== ===========
Diluted ........................................ 9,115,202 9,705,072 9,221,548 9,671,600
=========== =========== =========== ===========
Net income per common share:
Basic .......................................... $ 0.33 $ 0.31 $ 0.66 $ 0.61
=========== =========== =========== ===========
Diluted ........................................ $ 0.31 $ 0.28 $ 0.62 $ 0.56
=========== =========== =========== ===========
See notes to consolidated financial statements.
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Six months ended December 31,
-----------------------------
1998 1997
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(Dollars in thousands)
Cash Flows from Operating Activities:
Net income ............................................................ $ 5,669 $ 5,428
Adjustments to reconcile net income to net cash provided by
operating activities:
Net gain on sales of loans ............................................ (762) (108)
Proceeds from sales of loans held for sale ............................ 74,873 1,228
Originations of loans held for sale ................................... -- (1,616)
Net gain on sales of real estate owned ................................ (13) (23)
Amortization of investment and mortgage-backed securities
premium, net ........................................................ 193 147
Depreciation and amortization ......................................... 679 643
Provision for losses on loans and real estate owned ................... 401 370
Amortization of cost of stock plans ................................... 1,044 863
Amortization of intangibles ........................................... 1,191 1,228
Amortization of premiums on loans and loan fees ....................... 1,187 480
Amortization of Trust Preferred securities issuance costs ............. 31 10
Increase in accrued interest receivable, net of accrued
interest payable .................................................... (2,241) (3,560)
(Increase) decrease in other assets ................................... 86 (897)
Increase in accounts payable and other liabilities .................... 751 532
Decrease in mortgage escrow funds ..................................... (813) (546)
Increase (decrease) in due to banks ................................... (4,258) 1,071
Other, net ............................................................ 26 --
--------- ---------
Net cash provided by operating activities ............................. 78,044 5,250
--------- ---------
Cash Flows from Investing Activities:
Proceeds from maturities of investment securities ..................... 137,070 125
Purchases of investment securities held to maturity ................... (163,597) (121,200)
Net outflow from loan originations net of principal repayments of loans (60,447) (34,525)
Purchases of loans .................................................... (20,351) (54,687)
Proceeds from principal repayments of mortgage-backed securities ...... 43,879 39,210
Proceeds from sale of loans ........................................... -- 22,231
Purchases of premises and equipment ................................... (1,217) (1,496)
Proceeds from sale of real estate owned ............................... 671 454
Purchases of Federal Home Loan Bank of New York stock ................. (1,393) (2,652)
--------- ---------
Net cash used in investing activities ................................. (65,385) (152,540)
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PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
Six months ended December 31,
-----------------------------
1998 1997
--------- ---------
(Dollars in thousands)
Cash Flows from Financing Activities:
Net increase (decrease) in deposits .................... (6,293) 54,897
Increase in advances from the Federal Home Loan Bank of
New York and other borrowings ........................ 5,775 61,275
Net proceeds from issuance of Trust Preferred securities -- 32,640
Cash dividends paid .................................... (671) (649)
Purchases of treasury stock, net of reissuance ......... (8,603) --
--------- ---------
Net cash provided by (used in) financing activities .... (9,792) 148,163
--------- ---------
Net Increase in Cash and Cash Equivalents ................... 2,867 873
Cash and Cash Equivalents, Beginning of Period .............. 10,960 10,729
--------- ---------
Cash and Cash Equivalents, End of Period .................... $ 13,827 $ 11,602
========= =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during period for:
Interest ............................................... $ 38,692 $ 33,856
========= =========
Income taxes ........................................... $ 3,300 $ 3,484
========= =========
Supplemental Schedule of Non-Cash Activities:
Transfer of loans receivable to real estate owned, net . $ 28 $ 1,502
========= =========
Transfer of loans receivable to loans held for sale .... $ 81,095 $ --
========= =========
See notes to consolidated financial statements.
PENNFED FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The interim consolidated financial statements of PennFed Financial Services,
Inc. ("PennFed") and subsidiaries (with its subsidiaries, the "Company") include
the accounts of PennFed and its subsidiaries Penn Federal Savings Bank (the
"Bank") and PennFed Capital Trust I. These interim consolidated financial
statements included herein should be read in conjunction with the Company's
Annual Report on Form 10-K for the year ended June 30, 1998. The interim
consolidated financial statements reflect all normal and recurring adjustments
which are, in the opinion of management, considered necessary for a fair
presentation of the financial condition and results of operations for the
periods presented. There were no adjustments of a non-recurring nature recorded
during the six months ended December 31, 1998 and 1997. The interim results of
operations presented are not necessarily indicative of the results for the full
year.
When necessary, reclassifications have been made to conform to current period
presentation.
2. Adoption of Recently Issued Accounting Standards
Effective July 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
establishes standards for reporting and display of comprehensive income and its
components. SFAS 130 requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements. The Company is required to classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the statement
of financial condition. The adoption of SFAS 130 did not have an effect on the
Company's financial condition or results of operations.
3. Computation of EPS
The computation of EPS is presented in the following table.
Three months ended Six months ended
December 31, December 31,
--------------------------- ---------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(Dollars in thousands, except per share amounts)
Net income ...................................... $ 2,818 $ 2,742 $ 5,669 $ 5,428
=========== =========== =========== ===========
Number of shares outstanding:
Weighted average shares issued ................ 11,900,000 11,900,000 11,900,000 11,900,000
Less: Weighted average shares held in treasury 2,786,240 2,254,564 2,697,326 2,254,996
Less: Average shares held by the ESOP ........ 952,000 952,000 952,000 952,000
Plus: ESOP shares released or committed to be
released during the fiscal year ... 346,338 259,558 335,100 249,098
----------- ----------- ----------- -----------
Average basic shares ................... 8,508,098 8,952,994 8,585,774 8,942,102
Plus: Average common stock equivalents ....... 607,104 752,078 635,774 729,498
----------- ----------- ----------- -----------
Average diluted shares ................. 9,115,202 9,705,072 9,221,548 9,671,600
=========== =========== =========== ===========
Earnings per common share:
Basic .................................. $ 0.33 $ 0.31 $ 0.66 $ 0.61
=========== =========== =========== ===========
Diluted ................................ $ 0.31 $ 0.28 $ 0.62 $ 0.56
=========== =========== =========== ===========
4. Stockholders' Equity and Regulatory Capital
The Bank's capital amounts and ratios are presented in the following table.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
At December 31, 1998
Tangible capital........................... $116,235 7.60% $22,936 1.50% N/A N/A
Core capital............................... $116,369 7.61% $61,168 4.00% $76,460 5.00%
Risk-based capital......................... $119,047 15.58% $61,114 8.00% $76,393 10.00%
As of June 30, 1998
Tangible capital........................... $108,580 7.09% $22,960 1.50% N/A N/A
Core capital............................... $108,816 7.11% $61,237 4.00% $76,547 5.00%
Risk-based capital......................... $111,262 15.16% $58,705 8.00% $73,381 10.00%
The above table reflects information for the Bank. Savings and loan holding
companies, such as PennFed, are not subject to capital requirements for capital
adequacy purposes or for prompt corrective action requirements. Bank holding
companies, however, are subject to capital requirements established by the Board
of Governors of the Federal Reserve System (the "FRB"). The following summarizes
the Company's capital position under the FRB's capital requirements for bank
holding companies.
To Be Well
Capitalized
For Minimum Under Prompt
Capital Adequacy Corrective Action
Actual Purposes Provisions
---------------- ----------------- ---------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
Stockholders' equity............................. $ 100,877
Add: Qualifying preferred securities........... 29,551
Less: Goodwill.................................. (817)
Deposit premium intangible................ (11,473)
Disallowed servicing assets............... (70)
------------
Tangible capital, and ratio to
adjusted total assets..................... $ 118,068 7.71% $22,958 1.50%
=========== =======
Add: Qualifying intangible asset............... $ 135
-----------
Tier I (core) capital, and ratio to
adjusted total assets..................... $ 118,203 7.72% $45,916 3.00% $76,526 5.00%
=========== ======= =======
Tier I (core) capital, and ratio to
risk-weighted assets...................... $ 118,203 15.68% $30,154 4.00% $45,231 6.00%
=========== ======= =======
Less: Equity investments and
investments in real estate................ $ (50)
Add: Allowance for loan losses................. 2,728
-----------
Total risk-based capital, and ratio
to risk-weighted assets................... $ 120,881 16.03% $60,309 8.00% $75,386 10.00%
=========== ======= =======
Total assets..................................... $ 1,542,468
===========
Adjusted total assets............................ $ 1,530,523
===========
Risk-weighted assets............................. $ 753,858
===========
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The Company's results of operations are dependent primarily on net interest
income, which is the difference between the income earned on its loan,
securities and investment portfolios and its cost of funds, consisting of the
interest paid on deposits and borrowings. Results of operations are also
affected by the Company's provision for loan losses and operating expenses.
General economic and competitive conditions, particularly changes in interest
rates, government policies and actions of regulatory authorities also
significantly affect the Company's results of operations. Future changes in
applicable law, regulations or government policies may also have a material
impact on the Company.
When used in this Form 10-Q and in future filings by the Company with the
Securities and Exchange Commission (the "SEC"), in the Company's press releases
or other public or stockholder communications, and in oral statements made with
the approval of an authorized executive officer, the words or phrases "will
likely result," "are expected to," "will continue," "is anticipated,"
"estimate," "project" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks and
uncertainties, including, among other things, changes in economic conditions in
the Company's market area, financial or legal conditions including changes in
policies by regulatory agencies, fluctuations in interest rates, demand for
loans in the Company's market area and competition, that could cause actual
results to differ materially from historical earnings and those presently
anticipated or projected. The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made. The Company wishes to advise readers that the factors listed
above could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements.
The Company does not undertake -- and specifically declines any obligation - to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
Financial Condition
Total assets decreased slightly to $1.542 billion at December 31, 1998 from
total assets of $1.552 billion at June 30, 1998. Increases due to loan
originations and purchases and purchases of investment securities were offset by
sales of one- to four-family residential loans and principal payments on loans
and mortgage-backed securities. A new strategic initiative was implemented at
the beginning of the fiscal year and focuses on sales of fixed-rate, low coupon,
one- to four-family first mortgage loans into the secondary market. This
strategic initiative is intended to result in an improvement in the Company's
interest rate risk position and the net interest margin and increased
non-interest income.
Total deposits have remained relatively steady since June 30, 1998. Deposits
decreased $8.4 million to $1.020 billion at December 31, 1998 from $1.028
billion at June 30, 1998. Federal Home Loan Bank of New York advances and other
borrowings totaled $367.7 million at December 31, 1998, a $5.7 million increase
from $362.0 million at June 30, 1998.
Non-performing assets at December 31, 1998 totaled $5.6 million, representing
0.36% of total assets, compared to $5.4 million, or 0.35% of total assets, at
June 30, 1998. Non-accruing loans totaled $4.6 million, with a ratio of
non-accruing loans to total loans of 0.42% at December 31, 1998 as compared to
$3.7 million, or 0.34% of total loans, at June 30, 1998. Real estate owned
decreased to $1.0 million at December 31, 1998 from $1.6 million at June 30,
1998.
Stockholders' equity at December 31, 1998 totaled $100.9 million compared to
$103.7 million at June 30, 1998. The decrease primarily reflects the repurchase
of 618,000 shares of the Company's outstanding common stock at an average price
of $14.12 per share and the declaration of dividends, partially offset by net
income recorded for the six months ended December 31, 1998.
Results of Operations
General. For the three months ended December 31, 1998 net income was $2.8
million, or $0.31 per diluted share, as compared to net income of $2.7 million,
or $0.28 per diluted share for the comparable prior year period. For the six
months ended December 31, 1998 net income was $5.7 million, or $0.62 per diluted
share. These results compare to net income of $5.4 million, or $0.56 per diluted
share for the six months ended December 31, 1997.
Interest and Dividend Income. Interest and dividend income for the three and six
months ended December 31, 1998 increased to $26.6 million and $53.8 million,
respectively, from $25.0 million and $48.9 million for the three and six months
ended December 31, 1997. The increases in the current year periods were due to
increases in average interest-earning assets partially offset by decreases in
the average yield earned on interest-earning assets. Average interest-earning
assets were $1.508 billion and $1.514 billion for the three and six months ended
December 31, 1998, respectively, compared to $1.355 billion and $1.320 billion
for the comparable prior year periods. The average yield earned on
interest-earning assets decreased to 7.04% and 7.10% for the three and six
months ended December 31, 1998, respectively, from 7.39% and 7.40% for the three
and six months ended December 31, 1997.
Interest income on residential one- to four-family mortgage loans for the three
and six months ended December 31, 1998 increased $1.1 million and $3.1 million,
respectively, when compared to the prior year periods. The increase in interest
income on residential one- to four-family mortgage loans was due to $115.1
million and $130.6 million increases in the average balance outstanding for the
three and six months ended December 31, 1998, respectively. The increase in the
average balance on residential one- to four-family mortgage loans was partially
offset by a decrease of 42 basis points and 36 basis points in the average yield
earned on this loan portfolio to 6.98% and 7.05% for the three and six months
ended December 31, 1998, respectively, from the comparable prior year periods.
Interest income on investment securities increased $1.6 million and $4.4 million
for the three and six months ended December 31, 1998, respectively, from the
comparable prior year periods. The increase was primarily due to a $99.1 million
and a $126.2 million increase in the average balance outstanding for the three
and six months ended December 31, 1998, respectively, over the comparable prior
year periods. The increase in the average balance on investment securities was
partially offset by a 31 basis point and a 23 basis point decrease in the
average yield earned on these securities for the three and six months ended
December 31, 1998, respectively, when compared to the prior year periods.
Interest income on the mortgage-backed securities portfolio decreased $1.6
million and $3.2 million, or 36.0% and 34.5%, for the three and six months ended
December 31, 1998, respectively, as compared to the prior year periods. The
decrease in interest income on mortgage-backed securities primarily reflects a
$90.5 million and an $89.4 million decrease in the average balance outstanding
for the three and six months ended December 31, 1998, respectively, compared to
the prior year periods.
Interest Expense. Interest expense increased $1.4 million and $4.7 million for
the three and six months ended December 31, 1998, respectively, from the
comparable December 31, 1997 periods. The increase was attributable to an
increase in total average deposits and borrowings, partially offset by a
decrease in the Company's cost of funds. Interest expense also increased due to
the issuance of trust preferred securities (the "Trust Preferred securities") in
October 1997. Average deposits and borrowings increased $147.3 million and
$174.6 million for the three and six months ended December 31, 1998,
respectively, compared to the prior year periods. Trust Preferred securities had
an average balance of $32.7 million for the current year periods compared to
$25.7 million and $12.8 million for the three and six months ended December 31,
1997, respectively. The average rate paid on deposits, borrowings and Trust
Preferred securities decreased to 5.06% and 5.11% for the three and six months
ended December 31, 1998, respectively, from 5.23% and 5.17% for the comparable
prior year periods.
Net Interest and Dividend Income. Net interest and dividend income for the three
and six months ended December 31, 1998 was $8.2 million and $16.5 million,
respectively, reflecting a slight increase from $8.1 million and $16.3 million
recorded in the comparable prior year periods. The increase reflects growth in
the Company's average assets, primarily in investment securities and residential
one- to four-family mortgage loans. The increase in net interest and dividend
income was partially offset by a decline in the net interest rate spread. The
net interest rate spread and net interest margin for the three months ended
December 31, 1998 were 1.98% and 2.21%, respectively, a decline from 2.16% and
2.43%, respectively, for the three months ended December 31, 1997. For the six
months ended December 31, 1998, net interest rate spread and net interest margin
were 1.99% and 2.22%, respectively, compared to 2.23% and 2.50% for the
comparable 1997 period. For the three and six months ended December 31, 1998,
the declines in the net interest rate spread and net interest margin were
partially due to the issuance of the Trust Preferred securities. The declines in
the net interest rate spread and net interest margin were also attributable to
the relatively flat yield curve environment recently experienced in which higher
yielding assets prepaid at accelerated rates and were replaced by lower yielding
loans. Since the Company's liabilities generally reprice more quickly than its
assets, net interest rate spread and net interest margin will likely decrease if
interest rates rise.
Provision for Loan Losses. The provision for loan losses for the three and six
months ended December 31, 1998 was $185,000 and $360,000, respectively, compared
to $150,000 and $300,000 for the comparable prior year periods. The allowance
for loan losses at December 31, 1998 of $2.9 million reflects a $149,000
increase from the June 30, 1998 level. The allowance for loan losses as a
percentage of non-accruing loans was 63.78% at December 31, 1998, compared to
74.18% at June 30, 1998.
Non-Interest Income. For the three and six months ended December 31, 1998
non-interest income was $912,000 and $1.9 million, respectively, compared to
$604,000 and $1.1 million for the prior year periods. The increase was primarily
attributable to gains on sales of loans of $345,000 and $762,000 for the three
and six months ended December 31, 1998. One- to four-family residential mortgage
loans totaling approximately $48 million and $74 million were sold in the
secondary market during the three and six months ended December 31, 1998,
respectively. Included in the December 31, 1997 periods is a total of $108,000
of net gain on sales of loans, of which $91,000 represents a gain recorded on an
approximate $20 million loan sale undertaken to manage prepayment risk.
Recurring loan sales are intended to enhance the Company's ability to improve
its interest rate risk position, maintain its origination volume profitably,
stabilize net interest margin and increase non-interest income.
Non-Interest Expenses. The Company's non-interest expenses were $4.5 million and
$9.2 million for the three and six months ended December 31, 1998, respectively,
compared to $4.3 million and $8.5 million for the comparable prior year periods.
Non-interest expenses have increased to support the Company's increased lending
volumes and the new Bayville branch which opened in October 1997. Nevertheless,
the Company's non-interest expenses as a percent of average assets declined to
1.16% and 1.17% for the three and six months ended December 31, 1998,
respectively, from 1.21% and 1.24% for the prior year periods.
Income Tax Expense. Income tax expense for the three and six months ended
December 31, 1998 was $1.6 million and $3.2 million, respectively, compared to
$1.5 million and $3.1 million for the three and six months ended December 31,
1997. The effective tax rate for the three and six months ended December 31,
1998 was 35.6% and 35.8%, respectively. The effective tax rate was 35.9% and
36.6% for the three and six months ended December 31, 1997, respectively.
Analysis of Net Interest Income
The following table sets forth certain information relating to the Company's
consolidated statements of financial condition and the consolidated statements
of income for the three and six months ended December 31, 1998 and 1997, and
reflects the average yield on assets and average cost of liabilities for the
periods indicated. Such yields and costs are derived from average daily
balances. The average balance of loans receivable includes non-accruing loans.
The yields and costs include fees which are considered adjustments to yields.
Three Months Ended December 31,
------------------------------------------------------------------------------
1998 1997
-------------------------------------- ------------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate (1) Balance Paid Rate (1)
------------- ---------- -------- ------------- ---------- --------
(Dollars in thousands)
Interest-earning assets:
One- to four-family mortgage
loans................................... $ 985,837 $17,191 6.98% $870,725 $16,101 7.40%
Commercial and multi-family real
estate loans............................ 67,057 1,461 8.71 56,299 1,273 9.04
Consumer loans............................. 61,516 1,121 7.23 43,991 913 8.24
---------- ------- -------- -------
Total loans receivable.................. 1,114,410 19,773 7.09 971,015 18,287 7.53
Federal funds sold......................... 1,802 23 4.99 760 10 5.15
Investment securities...................... 222,623 3,884 6.98 123,488 2,252 7.29
Mortgage-backed securities................. 168,829 2,872 6.80 259,310 4,485 6.92
---------- ------- -------- -------
Total interest-earning assets........... 1,507,664 $26,552 7.04 1,354,573 $25,034 7.39
======= =======
Non-interest earning assets................ 57,558 53,274
---------- ----------
Total assets ........................... $1,565,222 $1,407,847
========== ==========
Deposits and borrowings:
Money market and demand
deposits (transaction accounts) ........ $ 100,741 $ 305 1.20% $ 82,112 $ 248 1.20%
Savings deposits........................... 163,960 716 1.73 166,532 921 2.19
Certificates of deposit.................... 801,244 11,485 5.69 740,914 11,010 5.90
----------- -------- ----------- -------
Total deposits.......................... 1,065,945 12,506 4.65 989,558 12,179 4.88
FHLB of New York advances.................. 281,590 4,245 5.98 205,411 3,190 6.16
Other borrowings........................... 59,807 827 5.41 65,027 966 5.82
----------- -------- ----------- -------
Total deposits and borrowings........... 1,407,342 17,578 4.95 1,259,996 16,335 5.14
Trust Preferred securities................. 32,704 783 9.58 25,662 607 9.46
----------- -------- ----------- ------
Total deposits, borrowings and
Trust Preferred securities.......... 1,440,046 $18,361 5.06 1,285,658 $16,942 5.23
======= =======
Other liabilities.......................... 21,504 21,330
----------- -----------
Total liabilities....................... 1,461,550 1,306,988
Stockholders' equity....................... 103,672 100,859
----------- -----------
Total liabilities and stockholders'
equity ............................. $ 1,565,222 $1,407,847
=========== ==========
Three Months Ended December 31,
------------------------------------------------------------------------------
1998 1997
-------------------------------------- ------------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate (1) Balance Paid Rate (1)
------------- ---------- -------- ------------- ---------- --------
(Dollars in thousands)
Net interest income and net
interest rate spread.................... $ 8,191 1.98% $ 8,092 2.16%
======== ==== ======== ====
Net interest-earning assets and
interest margin ........................ $ 67,618 2.21% $ 68,915 2.43%
=========== ==== =========== ====
Ratio of interest-earning assets to
deposits, borrowings and Trust
Preferred securities.................... 104.70% 105.36%
====== ======
(1) Annualized.
Six Months Ended December 31,
------------------------------------------------------------------------------
1998 1997
-------------------------------------- ------------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate (1) Balance Paid Rate (1)
------------- ---------- -------- ------------- ---------- --------
(Dollars in thousands)
Interest-earning assets:
One- to four-family mortgage
loans................................... $ 990,783 $34,911 7.05% $860,185 $31,853 7.41%
Commercial and multi-family real
estate loans............................ 65,930 2,895 8.78 56,095 2,534 9.03
Consumer loans............................. 58,984 2,166 7.29 42,283 1,809 8.49
---------- ------- -------- -------
Total loans receivable.................. 1,115,697 39,972 7.16 958,563 36,196 7.55
Federal funds sold......................... 1,021 26 5.01 380 10 5.15
Investment securities...................... 216,862 7,672 7.08 90,690 3,316 7.31
Mortgage-backed securities................. 180,431 6,120 6.78 269,880 9,339 6.92
---------- ------- -------- -------
Total interest-earning assets........... 1,514,011 $53,790 7.10 1,319,513 $48,861 7.40
======= =======
Non-interest earning assets................ 57,997 52,040
------------- -------------
Total assets ........................... $1,572,008 $1,371,553
========== ==========
Deposits and borrowings:
Money market and demand
deposits (transaction accounts) ........ $ 98,171 $ 617 1.25% $ 81,750 $ 496 1.20%
Savings deposits........................... 164,382 1,547 1.87 167,345 1,849 2.19
Certificates of deposit.................... 796,695 22,990 5.72 724,996 21,510 5.89
---------- ------- -------- -------
Total deposits.......................... 1,059,248 25,154 4.71 974,091 23,855 4.86
FHLB of New York advances.................. 272,002 8,251 6.02 205,438 6,381 6.16
Other borrowings........................... 82,169 2,334 5.56 59,305 1,764 5.82
---------- ------- -------- -------
Total deposits and borrowings........... 1,413,419 35,739 5.01 1,238,834 32,000 5.12
Trust Preferred securities................. 32,697 1,566 9.58 12,831 607 9.46
---------- ------- -------- -------
Total deposits, borrowings and
Trust Preferred securities.......... 1,446,116 $37,305 5.11 1,251,665 $32,607 5.17
======= =======
Other liabilities.......................... 22,258 20,425
----------- ------------
Total liabilities....................... 1,468,374 1,272,090
Stockholders' equity....................... 103,634 99,463
----------- ------------
Total liabilities and stockholders'
equity ............................. $ 1,572,008 $ 1,371,553
=========== ===========
Six Months Ended December 31,
------------------------------------------------------------------------------
1998 1997
-------------------------------------- ------------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate (1) Balance Paid Rate (1)
------------- ---------- -------- ------------- ---------- --------
(Dollars in thousands)
Net interest income and net
interest rate spread.................... $16,485 1.99% $16,254 2.23%
======= ==== ======= ====
Net interest-earning assets and
interest margin ........................ $ 67,895 2.22% $ 67,848 2.50%
=========== ==== =========== ====
Ratio of interest-earning assets to
deposits, borrowings and Trust
Preferred securities.................... 104.70% 105.42%
====== ======
(1) Annualized.
Non-Performing Assets
The table below sets forth the Company's amounts and categories of
non-performing assets and restructured loans. Loans are placed on non-accrual
status when the collection of principal or interest becomes delinquent more than
90 days. There are no loans delinquent more than 90 days which are still
accruing. Real estate owned represents assets acquired in settlement of loans
and is shown net of valuation allowances. Restructured loans are performing in
accordance with modified terms and are, therefore, considered performing.
December 31, June 30,
1998 1998
------ ------
Non-accruing loans:
One- to four-family ............................... $3,371 $2,575
Commercial and multi-family ....................... 528 414
Consumer .......................................... 687 753
------ ------
Total non-accruing loans ...................... 4,586 3,742
Real estate owned, net ................................. 972 1,643
------ ------
Total non-performing assets ................... 5,558 5,385
Restructured loans ..................................... 1,397 1,415
------ ------
Total risk elements ........................... $6,955 $6,800
====== ======
Non-accruing loans as a percentage of total loans ...... 0.42% 0.34%
====== ======
Non-performing assets as a percentage of total assets .. 0.36% 0.35%
====== ======
Total risk elements as a percentage of total assets .... 0.45% 0.44%
====== ======
Allowance for Loan Losses. The allowance for loan losses is established through
a provision for loan losses based upon management's evaluation of the risk
inherent in its loan portfolio and changes in the nature and volume of its loan
activity. Such evaluation, which includes a review of loans for which full
collectibility may not be reasonably assured, considers among other matters,
loan classifications, the estimated fair value of the underlying collateral,
economic conditions, historical loan loss experience, and other factors that
warrant recognition in providing for an adequate loan loss allowance.
Real estate properties acquired through foreclosure are recorded at the lower of
cost or estimated fair value less costs to dispose of such properties. If fair
value at the date of foreclosure is lower than the balance of the related loan,
the difference will be charged-off to the allowance for loan losses at the time
of transfer. Valuations are periodically updated by management and if the value
declines, a specific provision for losses on real estate owned is established by
a charge to operations.
Although management believes that it uses the best information available to
determine the allowances, unforeseen market conditions could result in
adjustments and net earnings could be significantly affected if circumstances
differ substantially from the assumptions used in making the final
determination. Future additions to the Company's allowances will be the result
of periodic loan, property and collateral reviews and thus cannot be predicted
in advance. In addition, federal regulatory agencies, as an integral part of the
examination process, periodically review the Company's allowance for loan
losses. Such agencies may require the Company to record additions to the
allowance level based upon their assessment of the information available to them
at the time of their examination. At December 31, 1998, the Company had a total
allowance for loan losses of $2.9 million representing 63.78% of total
non-accruing loans.
Interest Rate Sensitivity
Interest Rate Gap. The interest rate risk inherent in assets and liabilities may
be determined by analyzing the extent to which such assets and liabilities are
"interest rate sensitive" and by measuring an institution's interest rate
sensitivity "gap." An asset or liability is said to be interest rate sensitive
within a defined time period if it matures or reprices within that period. The
difference or mismatch between the amount of interest-earning assets maturing or
repricing within a defined period and the amount of interest-bearing liabilities
maturing or repricing within the same period is defined as the interest rate
sensitivity gap. An institution is considered to have a negative gap if the
amount of interest-bearing liabilities maturing or repricing within a specified
time period exceeds the amount of interest-earning assets maturing or repricing
within the same period. If more interest-earning assets than interest-bearing
liabilities mature or reprice within a specified period, then the institution is
considered to have a positive gap. Accordingly, in a rising interest rate
environment, in an institution with a negative gap, the cost of its rate
sensitive liabilities would theoretically rise at a faster pace than the yield
on its rate sensitive assets, thereby diminishing future net interest income. In
a falling interest rate environment, a negative gap would indicate that the cost
of rate sensitive liabilities would decline at a faster pace than the yield on
rate sensitive assets and may improve net interest income. For an institution
with a positive gap, the reverse would be expected.
At December 31, 1998, the Company's total deposits, borrowings and Trust
Preferred securities maturing or repricing within one year exceeded its total
interest-earning assets maturing or repricing within one year by $24.8 million,
representing a one year negative gap of 1.61% of total assets. At June 30, 1998,
the one year negative gap was 7.28% of total assets. In addition to the newly
adopted strategy of selling fixed-rate, low coupon, one- to four-family first
mortgage loan production into the secondary market, improvement in the negative
gap position from June 30, 1998 reflects the Company's efforts to grow
transaction accounts and take advantage of opportunities to increase medium-term
borrowings.
In evaluating the Company's exposure to interest rate risk, certain limitations
inherent in the method of analysis must be considered. 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 adjustable rate mortgages, have features which restrict changes
in interest rates in the short-term and over the life of the asset. Further, in
the event of a change in interest rates, prepayment and early withdrawal levels
may deviate significantly from those assumed in calculating the gap position.
Finally, the ability of many borrowers to service their debt may decrease in the
event of an interest rate increase. The Company considers all of these factors
in monitoring its exposure to interest rate risk.
Net Portfolio Value. The Company's interest rate sensitivity is regularly
monitored by management through selected interest rate risk ("IRR") measures set
forth by the Office of Thrift Supervision ("OTS"). The IRR measures used by the
OTS include an IRR "Exposure Measure" or "Post-Shock" NPV ratio and a
"Sensitivity Measure." A low Post-Shock NPV ratio indicates greater exposure to
IRR. Greater exposure can result from a low initial NPV ratio or high
sensitivity to changes in interest rates. The Sensitivity Measure is the change
in the NPV ratio, in basis points, caused by a 2% increase or decrease in rates,
whichever produces a larger decline. At least quarterly, and generally monthly,
management models the change in net portfolio value ("NPV") over a variety of
interest rate scenarios. NPV is the present value of expected cash flows from
assets, liabilities and off-balance sheet contracts. An NPV ratio, in any
interest rate scenario, is defined as the NPV in that rate scenario divided by
the market value of assets in the same scenario.
As of December 31, 1998, the Bank's internally generated initial NPV ratio was
10.54%. Following a 2% increase in interest rates, the Bank's Post-Shock NPV
ratio was 8.74%. The change in the NPV ratio, or the Bank's Sensitivity Measure
was 1.80%. NPV is also measured internally on a consolidated basis. As of
December 31, 1998, the Company's initial NPV ratio was 10.92%, the Post-Shock
ratio was 9.04%, and the Sensitivity Measure was 1.88%. Variances between the
Bank's and the Company's NPV ratios are attributable to balance sheet items
which are adjusted during consolidation, such as investments, intercompany
borrowings and capital.
Internally generated NPV measurements are based on simulations which utilize
institution specific assumptions and, as such, generally result in lower levels
of presumed interest rate risk (i.e., higher Post-Shock NPV ratio and lower
Sensitivity Measure) than OTS measurements indicate.
The OTS measures the Bank's (unconsolidated) IRR on a quarterly basis using data
from the quarterly Thrift Financial Reports, coupled with non-institution
specific assumptions which are based on national averages. As of September 30,
1998 (the latest date for which information is available), the Bank's initial
NPV ratio, as measured by the OTS, was 7.66%, the Bank's Post-Shock ratio was
6.28% and the Sensitivity Measure was 1.38%.
In addition to monitoring NPV and gap, management also monitors the duration of
assets and liabilities and the effects on net interest income resulting from
parallel and non-parallel increases or decreases in rates.
At December 31, 1998, based on its internally generated simulation models, the
Company's consolidated net interest income projected for one year forward would
decrease 7.0% from the base case, or current market, as a result of an immediate
and sustained 2% increase in interest rates.
Year 2000
A formal Year 2000 Project Plan (the "Year 2000 Plan") was previously approved
by the Company's Board of Directors. The Board of Directors continues to be
updated on a monthly basis as to the status of all phases, with an independent
verification of progress completed on a quarterly basis. By following the
detailed plan, substantial progress has been made and the Company remains on
target for meeting its commitment to achieving Year 2000 compliance for its
mission-critical systems. The OTS is also reviewing all of their regulated
institutions for Year 2000 preparedness.
The task force, with representatives from all divisions within the Bank, has
completed both the awareness and assessment phases of the Year 2000 Plan. A
significant portion of the renovation phase has been completed. The validation
phase is now the primary focus. All remaining tasks are currently on schedule
for completion in accordance with the Year 2000 Plan. As the Company primarily
runs software purchased from a few key vendors, the task force continues to meet
and work closely with those vendors and suppliers. Systems critical to the
operation of the Company are receiving top priority, with certain of the
mission-critical software elements now compliant. Management expects to have
renovated and tested all necessary systems by no later than June 30, 1999 and
believes that its level of preparedness for the project is appropriate.
The Company has initiated a dialogue with its larger borrowers. All commercial
and multi-family loans have been evaluated for Year 2000 exposure through an
independent review process. As part of the current credit approval process, all
new and renewed commercial and multi-family loans are evaluated for Year 2000
risk. The Company has requested that each of its larger borrowers provide
information regarding the nature of steps being taken by the borrowers to
address their own Year 2000 issues.
Contingency planning is an ongoing process. Members of the task force have
responsibility for identifying a contingency plan for the different areas of
software being tested in the event the Year 2000 Plan is not timely or
successfully implemented. For example, if vendors for certain critical systems
are unable to supply Year 2000 compliant software upgrades, the use of an
alternative vendor would be required to be pursued, at an additional cost to the
Company.
The estimated cost for the Year 2000 effort of $75,000 is unchanged from June
30, 1998. This estimate includes approximately $44,000 of hardware and software
upgrades. The remaining $31,000 is estimated for software program consulting and
remediation. Approximately $13,000 of costs have been incurred to date. This
estimate does not include manpower costs of Company personnel associated with
the task force, who retain their individual operation responsibilities in
addition to Year 2000 duties. The completion date and cost are based upon
management's analysis of the information currently available to it. No assurance
can be given that issues relating to the Year 2000 will not have a material
adverse effect on the Company's financial condition or results of operations.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits, principal and interest
payments on loans and mortgage-backed securities, and borrowings from the FHLB
of New York. While scheduled loan repayments and maturing investments are
relatively predictable, deposit flows and early loan repayments are more
influenced by interest rates, general economic conditions and competition. The
Company has competitively set rates on deposit products for selected terms and,
when necessary, has supplemented deposits with longer-term or less expensive
alternative sources of funds.
Federal regulations require the Bank to maintain minimum levels of liquid
assets. The required percentage has varied from time to time based upon economic
conditions and savings flows. The current required percentage is 4% of net
withdrawable deposits payable on demand or in one year or less and borrowings
payable on demand or in one year or less, both as of the end of the preceding
calendar quarter. Liquid assets for purposes of this ratio include cash, accrued
interest receivable, certain time deposits, U.S. Treasury and Government
agencies and other securities and obligations generally having remaining
maturities of less than five years. All mortgage-backed securities are
includable in liquid assets, as well. The Company's most liquid assets are cash
and cash equivalents, short-term investments and mortgage-backed securities. The
levels of these assets are dependent on the Bank's operating, financing, lending
and investing activities during any given period. At December 31, 1998 and June
30, 1998, the Bank's liquidity ratios were 21.39% and 24.50%, respectively.
The Company uses its liquid resources principally to fund maturing certificates
of deposit and deposit withdrawals, to purchase loans and securities, to fund
existing and future loan commitments, and to meet operating expenses. Management
believes that loan repayments and other sources of funds will be adequate to
meet the Company's foreseeable liquidity needs.
The Company's cash needs for the six months ended December 31, 1998 were
principally provided by proceeds from sales of loans held for sale, proceeds
from maturities of investment securities and principal repayments on
mortgage-backed securities. During this period, the cash provided was used for
investing activities, which included the origination and purchase of loans and
the purchase of investment securities. In addition to cash provided by operating
activities, during the six months ended December 31, 1997 the cash needs of the
Company were principally provided by increased deposits, an increase in advances
from the FHLB of New York and other borrowings and principal repayments of
mortgage-backed securities. Furthermore, during the six months ended December
31, 1997, proceeds from the Trust Preferred securities offering and sales of
loans contributed to meeting the Company's cash needs. The cash was principally
utilized for investing activities, which included the origination and purchase
of loans and the purchase of investment securities.
Current regulatory standards impose the following capital requirements: a
risk-based capital standard expressed as a percentage of risk adjusted assets; a
leverage ratio of core capital to total adjusted assets; and a tangible capital
ratio expressed as a percentage of total adjusted assets. As of December 31,
1998, the Bank exceeded all regulatory capital requirements and qualified as a
"well-capitalized" institution (see Note 4. - Stockholders' Equity and
Regulatory Capital, in the Notes to Consolidated Financial Statements).
PART II - Other Information
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders (Annual Meeting) was held on
October 28, 1998.
(b) Directors elected:
William C. Anderson
Amadeu L. Carvalho
(c) At the Annual Meeting the stockholders considered:
(i) the election of two directors,
(ii) the ratification of the appointment of Deloitte &
Touche LLP as auditors for the Company for the fiscal
year ending June 30, 1999.
The vote on the election of two directors was as follows:
FOR WITHHELD
--------- --------
William C. Anderson 8,412,266 89,070
Amadeu L. Carvalho 8,406,149 95,187
There were no broker non-votes with respect to the proposal.
The vote on the ratification of the appointment of Deloitte &
Touche LLP as auditors for the Company for the fiscal year
ending June 30, 1999 was as follows:
FOR AGAINST ABSTAIN
--------- ------- -------
8,450,513 31,688 19,135
There were no broker non-votes with respect to the proposal.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11: Statement Regarding Computation of Per Share
Earnings.
Exhibit 27: Financial Data Schedule.
(b) There were no reports filed on Form 8-K for the three month
period ended December 31, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PENNFED FINANCIAL SERVICES, INC.
Date: February 12, 1999 By: /s/ Joseph L. LaMonica
-----------------------
Joseph L. LaMonica
President and Chief
Executive Officer
Date: February 12, 1999 By: /s/ Lucy T. Tinker
-------------------
Lucy T. Tinker
Executive Vice President and
Chief Operating Officer
(Principal Financial Officer)
Date: February 12, 1999 By: /s/ Jeffrey J. Carfora
-----------------------
Jeffrey J. Carfora
Senior Vice President and
Chief Financial Officer
(Principal Accounting Officer)