Attached files
file | filename |
---|---|
EX-31.1 - EXHIBIT 31.1 - Georgetown Bancorp, Inc. | ex31_1.htm |
EX-32.1 - EXHIBIT 32.1 - Georgetown Bancorp, Inc. | ex32_1.htm |
EX-31.2 - EXHIBIT 31.2 - Georgetown Bancorp, Inc. | ex31_2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
T
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
|
THE
SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended March 31, 2010
OR
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
|
THE
SECURITIES EXCHANGE ACT OF 1934
For the
transition period from _____ to _____
Commission
File Number: 0-51102
GEORGETOWN
BANCORP, INC.
(Exact
name of registrant as specified in its charter)
Federal
|
20-2107839
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
2
East Main Street, Georgetown, MA
|
01833
|
(Address
of principal executive office)
|
(Zip
Code)
|
(978)
352-8600
(Registrant’s
telephone number, including area code)
None
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check whether the registrant: (1) has filed all reports required to be filed
by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes T No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
|
o
|
Accelerated
filer
|
o
|
|
Non-accelerated
filer
|
o
|
Smaller
reporting company
|
T
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No T
Indicate
the number of shares outstanding of the registrant’s common stock, as of the
latest practicable date: Common Stock, $0.10 par value, 2,638,387
shares outstanding as of May 12, 2010.
Form 10-Q
GEORGETOWN
BANCORP, INC.
Table
of Contents
Part
I.
|
Financial Information
|
Page
|
Item
1:
|
Financial
Statements (Unaudited)
|
|
1
|
||
2
|
||
3
|
||
4
|
||
6
|
||
Item
2:
|
||
Operations | 14 | |
Item
3:
|
26
|
|
Item
4:
|
26
|
|
Part
II.
|
Other Information
|
|
Item
1:
|
26
|
|
Item 1A:
|
26
|
|
Item
2:
|
26
|
|
Item
3:
|
26
|
|
Item
4:
|
26
|
|
Item
5:
|
26
|
|
27
|
PART
I—FINANCIAL INFORMATION
ITEM
1. Financial Statements
GEORGETOWN BANCORP, INC.
CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------------------------------
(unaudited)
ASSETS
At
|
At
|
|||||||
March 31,
|
June 30,
|
|||||||
2010
|
2009
|
|||||||
(In
thousands)
|
||||||||
Cash
and due from banks
|
$ | 2,638 | $ | 3,355 | ||||
Short-term
investments
|
3,038 | 8,001 | ||||||
Total
cash and cash equivalents
|
5,676 | 11,356 | ||||||
Securities
available for sale, at fair value
|
11,843 | 9,528 | ||||||
Securities
held to maturity, at amortized cost
|
3,999 | 4,959 | ||||||
Federal
Home Loan Bank stock, at cost
|
3,111 | 3,111 | ||||||
Loans
held for sale
|
1,670 | 269 | ||||||
Loans,
net of allowance for loan losses of $1,680,000
|
||||||||
at
March 31, 2010 and $1,455,000 at June 30, 2009
|
172,077 | 163,825 | ||||||
Premises
and equipment, net
|
4,019 | 4,212 | ||||||
Accrued
interest receivable
|
843 | 714 | ||||||
Bank-owned
life insurance
|
2,521 | 2,414 | ||||||
Prepaid
FDIC insurance
|
668 | - | ||||||
Other
assets
|
1,085 | 803 | ||||||
Total
assets
|
$ | 207,512 | $ | 201,191 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Deposits
|
$ | 139,360 | $ | 141,126 | ||||
Securities
sold under agreements to repurchase
|
395 | 520 | ||||||
Short-term
Federal Home Loan Bank advances
|
12,700 | - | ||||||
Long-term
Federal Home Loan Bank advances
|
33,726 | 40,268 | ||||||
Mortgagors'
escrow accounts
|
496 | 407 | ||||||
Due
to broker for investment purchase
|
1,000 | - | ||||||
Accrued
expenses and other liabilities
|
1,863 | 1,553 | ||||||
Total
liabilities
|
189,540 | 183,874 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders'
equity:
|
||||||||
Preferred
stock, $0.10 par value per share: 1,000,000
|
||||||||
shares
authorized; none outstanding
|
- | - | ||||||
Common
stock, $0.10 par value per share: 10,000,000
|
||||||||
shares
authorized; 2,777,250 shares issued
|
278 | 278 | ||||||
Additional
paid-in capital
|
11,450 | 11,350 | ||||||
Retained
earnings
|
7,832 | 7,228 | ||||||
Accumulated
other comprehensive income
|
152 | 136 | ||||||
Unearned
compensation - ESOP (42,934 and 49,078 shares unallocated
|
||||||||
at
March 31, 2010 and June 30, 2009, respectively)
|
(429 | ) | (491 | ) | ||||
Unearned
compensation - Equity Incentive
Plan (25,000 shares
|
||||||||
unvested
at March 31, 2010)
|
(127 | ) | - | |||||
Treasury
stock, at cost (138,863 shares)
|
(1,184 | ) | (1,184 | ) | ||||
Total
stockholders' equity
|
17,972 | 17,317 | ||||||
Total
liabilities and stockholders' equity
|
$ | 207,512 | $ | 201,191 |
See
accompanying notes to consolidated financial statements.
1
GEORGETOWN BANCORP, INC.
CONSOLIDATED
STATEMENTS OF INCOME
----------------------------------------------------------------------
(unaudited)
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
March 31,
|
March 31,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
(In
thousands, except share data)
|
||||||||||||||||
Interest
and dividend income:
|
||||||||||||||||
Loans,
including fees
|
$ | 2,537 | $ | 2,483 | $ | 7,454 | $ | 7,268 | ||||||||
Securities
|
157 | 194 | 473 | 639 | ||||||||||||
Short-term
investments
|
- | - | 1 | 6 | ||||||||||||
Total
interest and dividend income
|
2,694 | 2,677 | 7,928 | 7,913 | ||||||||||||
Interest
expense:
|
||||||||||||||||
Deposits
|
512 | 721 | 1,665 | 1,937 | ||||||||||||
Securities
sold under agreements to repurchase
|
1 | - | 2 | 2 | ||||||||||||
Short-term
Federal Home Loan Bank advances
|
6 | 4 | 7 | 110 | ||||||||||||
Long-term
Federal Home Loan Bank advances
|
345 | 492 | 1,134 | 1,540 | ||||||||||||
Total
interest expense
|
864 | 1,217 | 2,808 | 3,589 | ||||||||||||
Net
interest income
|
1,830 | 1,460 | 5,120 | 4,324 | ||||||||||||
Provision
for loan losses
|
89 | 4 | 285 | 182 | ||||||||||||
Net
interest income, after provision for loan losses
|
1,741 | 1,456 | 4,835 | 4,142 | ||||||||||||
Non-interest
income:
|
||||||||||||||||
Customer
service fees
|
158 | 146 | 490 | 478 | ||||||||||||
Net
gain on sale of loans
|
47 | 62 | 223 | 62 | ||||||||||||
Net
gain on other secondary market activities
|
70 | - | 70 | - | ||||||||||||
Income
from bank-owned life insurance
|
25 | 7 | 35 | 2 | ||||||||||||
Other,
net
|
10 | 3 | 16 | 9 | ||||||||||||
Total
non-interest income
|
310 | 218 | 834 | 551 | ||||||||||||
Non-interest
expenses:
|
||||||||||||||||
Salaries
and employee benefits
|
872 | 845 | 2,598 | 2,418 | ||||||||||||
Occupancy
and equipment expenses
|
205 | 201 | 586 | 591 | ||||||||||||
Data
processing expenses
|
108 | 94 | 331 | 273 | ||||||||||||
Professional
fees
|
92 | 90 | 299 | 242 | ||||||||||||
Advertising
expenses
|
82 | 70 | 186 | 185 | ||||||||||||
FDIC
insurance
|
57 | 49 | 154 | 97 | ||||||||||||
Other
general and administrative expenses
|
183 | 217 | 570 | 581 | ||||||||||||
Total
non-interest expenses
|
1,599 | 1,566 | 4,724 | 4,387 | ||||||||||||
Income
before income taxes
|
452 | 108 | 945 | 306 | ||||||||||||
Income
tax provision
|
166 | 33 | 341 | 112 | ||||||||||||
Net
income
|
$ | 286 | $ | 75 | $ | 604 | $ | 194 | ||||||||
Weighted-average
number of common shares outstanding:
|
||||||||||||||||
Basic
and diluted
|
2,604,389 | 2,585,918 | 2,595,486 | 2,583,867 | ||||||||||||
Net
income per share:
|
||||||||||||||||
Basic
and diluted
|
$ | 0.11 | $ | 0.03 | $ | 0.23 | $ | 0.08 |
See
accompanying notes to consolidated financial statements.
2
GEORGETOWN BANCORP, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------------------
(unaudited)
Common Stock |
Additional Paid-in |
Retained Earnings |
Accumulated Other |
Unearned Compensation- |
Unearned Compensation- |
Treasury Stock |
Total
|
|||||||||||||||||||||||||
(In
thousands)
|
||||||||||||||||||||||||||||||||
Balance
at June 30, 2008
|
$ | 278 | $ | 11,393 | $ | 6,878 | $ | (19 | ) | $ | (573 | ) | - | $ | (1,184 | ) | $ | 16,773 | ||||||||||||||
Comprehensive
income:
|
||||||||||||||||||||||||||||||||
Net
income
|
- | - | 194 | - | - | - | - | 194 | ||||||||||||||||||||||||
Net
unrealized gain on securities
|
||||||||||||||||||||||||||||||||
available
for sale, net of related
|
||||||||||||||||||||||||||||||||
tax
effects of $114,000
|
- | - | - | 195 | - | - | - | 195 | ||||||||||||||||||||||||
Total
comprehensive income
|
389 | |||||||||||||||||||||||||||||||
Common
stock held by ESOP allocated or
|
||||||||||||||||||||||||||||||||
committed
to be allocated (6,145 shares)
|
- | (30 | ) | - | - | 61 | - | - | 31 | |||||||||||||||||||||||
Balance
at March 31, 2009
|
$ | 278 | $ | 11,363 | $ | 7,072 | $ | 176 | $ | (512 | ) | $ | - | $ | (1,184 | ) | $ | 17,193 | ||||||||||||||
Balance
at June 30, 2009
|
$ | 278 | $ | 11,350 | $ | 7,228 | $ | 136 | $ | (491 | ) | $ | - | $ | (1,184 | ) | $ | 17,317 | ||||||||||||||
Comprehensive
income:
|
||||||||||||||||||||||||||||||||
Net
income
|
- | - | 604 | - | - | - | - | 604 | ||||||||||||||||||||||||
Net
unrealized gain on securities
|
||||||||||||||||||||||||||||||||
available
for sale, net of related
|
||||||||||||||||||||||||||||||||
tax
effects of $9,000
|
- | - | - | 16 | - | - | - | 16 | ||||||||||||||||||||||||
Total
comprehensive income
|
620 | |||||||||||||||||||||||||||||||
Common
stock held by ESOP allocated or
|
||||||||||||||||||||||||||||||||
committed
to be allocated (6,144 shares)
|
- | (31 | ) | - | - | 62 | - | - | 31 | |||||||||||||||||||||||
Restricted
stock granted in connection with equity
|
||||||||||||||||||||||||||||||||
incentive
plan (25,000 shares)
|
- | 130 | - | - | - | (130 | ) | - | - | |||||||||||||||||||||||
Share
based compensation - options
|
- | 1 | - | - | - | - | - | 1 | ||||||||||||||||||||||||
Share
based compensation - restricted stock
|
- | - | - | - | - | 3 | - | 3 | ||||||||||||||||||||||||
Balance
at March 31, 2010
|
$ | 278 | $ | 11,450 | $ | 7,832 | $ | 152 | $ | (429 | ) | $ | (127 | ) | $ | (1,184 | ) | $ | 17,972 |
See
accompanying notes to consolidated financial statements.
3
GEORGETOWN BANCORP, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------
(unaudited)
Nine
Months Ended
|
||||||||
March 31,
|
||||||||
2010
|
2009
|
|||||||
(In
thousands)
|
||||||||
Cash
flows from operating activities:
|
||||||||
Net
income
|
$ | 604 | $ | 194 | ||||
Adjustments
to reconcile net income to net cash
|
||||||||
used
by operating activities:
|
||||||||
Provision
for loan losses
|
285 | 182 | ||||||
Accretion
of securities, net
|
(20 | ) | (24 | ) | ||||
Accretion
of deferred loan fees and costs, net
|
(6 | ) | (43 | ) | ||||
Depreciation
and amortization expense
|
265 | 275 | ||||||
Increase
in accrued interest receivable
|
(129 | ) | (101 | ) | ||||
Income
from bank-owned life insurance
|
(35 | ) | (2 | ) | ||||
Share
based compensation expense and ESOP allocation
|
35 | 31 | ||||||
Loans
originated for sale
|
(12,084 | ) | (5,768 | ) | ||||
Principal
balance of loans sold
|
10,703 | 4,934 | ||||||
Net
gain on other secondary market activities
|
(70 | ) | - | |||||
Prepaid
FDIC insurance
|
(668 | ) | - | |||||
Net
change in other assets and liabilities
|
69 | (13 | ) | |||||
Net
cash used by operating activities
|
(1,051 | ) | (335 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Activity
in securities available for sale:
|
||||||||
Maturities,
prepayments and calls
|
3,222 | 3,799 | ||||||
Purchases
|
(4,500 | ) | (2,510 | ) | ||||
Maturities,
prepayments and calls
|
||||||||
of
securities held to maturity
|
968 | 867 | ||||||
Purchase
of Federal Home Loan Bank stock
|
- | (103 | ) | |||||
Loan
principal originations, net
|
(9,538 | ) | (18,806 | ) | ||||
Principal
balance of portfolio loans sold
|
1,007 | - | ||||||
Purchase
of premises and equipment
|
(72 | ) | (74 | ) | ||||
Proceeds
from redemption of bank-owned life insurance
|
112 | - | ||||||
Purchase
of bank-owned life insurance
|
(184 | ) | - | |||||
Net
cash used by investing activities
|
(8,985 | ) | (16,827 | ) |
(continued)
See
accompanying notes to consolidated financial statements.
4
GEORGETOWN
BANCORP, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------
(unaudited)
(concluded)
Nine Months Ended
|
||||||||
March 31,
|
||||||||
2010
|
2009
|
|||||||
(In
thousands)
|
||||||||
Cash
flows from financing activities:
|
||||||||
Net
change in deposits
|
(1,766 | ) | 30,111 | |||||
Net
change in securities sold under agreements
|
||||||||
to
repurchase
|
(125 | ) | (76 | ) | ||||
Net
change in Federal Home Loan Bank advances with
|
||||||||
maturities
of three months or less
|
12,700 | (11,150 | ) | |||||
Proceeds
of Federal Home Loan Bank advances with
|
||||||||
maturities
greater than three months
|
7,000 | 15,500 | ||||||
Repayments
of Federal Home Loan Bank advances
|
||||||||
with
maturities greater than three months
|
(13,542 | ) | (15,140 | ) | ||||
Net
change in mortgagors' escrow accounts
|
89 | 69 | ||||||
Net
cash provided by financing activities
|
4,356 | 19,314 | ||||||
Net
change in cash and cash equivalents
|
(5,680 | ) | 2,152 | |||||
Cash
and cash equivalents at beginning of period
|
11,356 | 5,455 | ||||||
Cash
and cash equivalents at end of period
|
$ | 5,676 | $ | 7,607 | ||||
Supplementary
information:
|
||||||||
Interest
paid on deposit accounts
|
$ | 1,667 | $ | 1,943 | ||||
Interest
paid on borrowings
|
1,170 | 1,661 | ||||||
Income
taxes paid
|
128 | 59 | ||||||
Due
to broker for investment purchase
|
1,000 | - |
See
accompanying notes to consolidated financial statements.
5
GEORGETOWN BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
(1)
|
Basis
of Presentation
|
The
accompanying unaudited financial statements of Georgetown Bancorp, Inc. (the
“Company”) were prepared in accordance with the instructions for Form 10-Q and
with Regulation S-X and do not include information or footnotes necessary for a
complete presentation of financial condition, results of operations, and cash
flows in conformity with generally accepted accounting principles. However, in
the opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the financial statements have
been included. The results of operations for the three- and nine-month periods
ended March 31, 2010 are not necessarily indicative of the results that may be
expected for future periods, including the entire fiscal year. These financial
statements should be read in conjunction with the financial statements and notes
thereto included in the 2009 Consolidated Financial Statements presented in the
Company’s Annual Report on Form 10-K filed with the Securities and Exchange
Commission on September 28, 2009. The consolidated financial statements include
the accounts of Georgetown Savings Bank (the “Bank”) and its wholly owned
subsidiary, Georgetown Securities Corporation, which engages in the buying,
selling and holding of securities. All significant inter-company balances and
transactions have been eliminated in consolidation.
|
(2)
|
Earnings
Per Common Share
|
Basic
earnings per share represents income available to common stockholders divided by
the weighted-average number of common shares outstanding during the
period. If rights to dividends on unvested options/awards are
non-forfeitable, these unvested awards/options are considered outstanding in the
computation of basic earnings per share. Diluted earnings per share
reflects additional common shares that would have been outstanding if dilutive
potential common shares had been issued, as well as any adjustment to income
that would result from the assumed issuance. Potential common shares
that may be issued by the Company relate to outstanding stock options and
restricted stock awards and are determined using the treasury stock
method.
Treasury
shares and unallocated ESOP shares are not deemed outstanding for earnings per
share calculations.
Earnings
per common share have been computed based on the following:
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
March 31,
|
March 31,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Net
income available to common stockholders
|
$ | 286,000 | $ | 75,000 | $ | 604,000 | $ | 194,000 | ||||||||
Basic
common shares:
|
||||||||||||||||
Weighted
average shares outstanding
|
2,638,387 | 2,638,387 | 2,638,387 | 2,638,387 | ||||||||||||
Less: Weighted
average unallocated ESOP shares
|
(44,276 | ) | (52,469 | ) | (46,327 | ) | (54,520 | ) | ||||||||
Add: Weighted
average unvested restricted stock
|
||||||||||||||||
shares
with non-forfeitable dividend rights
|
10,278 | - | 3,426 | - | ||||||||||||
Basic
weighted average common shares outstanding
|
2,604,389 | 2,585,918 | 2,595,486 | 2,583,867 | ||||||||||||
Dilutive
potential common shares
|
---- | ---- | ---- | ---- | ||||||||||||
Diluted
weighted average common shares outstanding
|
2,604,389 | 2,585,918 | 2,595,486 | 2,583,867 | ||||||||||||
Basic
and diluted EPS
|
$ | 0.11 | $ | 0.03 | $ | 0.23 | $ | 0.08 |
Options
for 25,000 shares were not included in the computation of diluted earnings per
share because to do so would have been antidilutive for the three and nine
months ended March 31, 2010.
6
|
(3)
|
Corporate
Structure
|
In
conjunction with its reorganization into the mutual holding company structure,
on January 5, 2005, the Bank (i) converted to a stock savings bank as the
successor to the Bank in its mutual form; (ii) organized the Company as a
federally-chartered corporation that owns 100% of the common stock of the Bank
(in stock form); and (iii) organized Georgetown Bancorp, MHC as a
federally-chartered mutual holding company that owned 57.9% of the Common Stock
of the Company as of March 31, 2010.
|
(4)
|
Recent
Accounting Pronouncements
|
In
December 2009, the FASB issued ASU No. 2009-16, “Transfers and Servicing (Topic
860) - Accounting for Transfers of Financial Assets.” This ASU incorporates SFAS
No. 166, “Accounting for Transfers of Financial Assets – an amendment of FASB
Statement No. 140” (“SFAS 166”), issued by the FASB in June 2009, within the
FASB ASC. This ASU removes the concept of a qualifying special-purpose entity
and establishes a new “participating interest” definition that must be met for
transfers of portions of financial assets to be eligible for sale accounting,
clarifies and amends the derecognition criteria for a transfer to be accounted
for as a sale, and changes the amount that can be recognized as a gain or loss
on a transfer accounted for as a sale when beneficial interests are received by
the transferor. Enhanced disclosures are also required to provide information
about transfers of financial assets and a transferor’s continuing involvement
with transferred financial assets. This ASU must be applied as of the beginning
of an entity’s first annual reporting period that begins after November 15,
2009, for interim periods within that first annual reporting period, and for
interim and annual reporting periods thereafter. The ASC was adopted, effective
January 1, 2010, and did not have any material impact on the Company’s financial
position or results of operation.
In
January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and
Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements.”
The ASU provides amendments that require disclosures of the transfers in or out
of level 1 and 2 inputs and the reasons for the transfers and summary of
activity in Level 3 fair value measurements on a gross basis rather than net. In
addition, the ASU clarifies existing disclosures related to the level of
disaggregation and inputs and valuation techniques. The level 3 activity
disclosures will be effective for fiscal years beginning after December 15,
2010, and for interim periods within those fiscal years. All other disclosures
will be effective for interim and annual periods beginning after December 15,
2009. The ASC was adopted January 1, 2010, where applicable and did
not have a material impact as it required only disclosures which are included in
the Fair Value footnote.
In March
2010, the FASB issued ASU No. 2010-11, “Derivatives and Hedging (Topic 815) –
Scope Exception Related to Embedded Credit Derivatives.” The ASU amends and
clarifies the guidance on how entities should evaluate credit derivatives
embedded in beneficial interests in securitized financial assets. The
updated guidance also eliminates the scope exception for bifurcation of embedded
credit derivatives in interests in securitized financial assets, unless they are
created solely by subordination of one financial instrument to
another. The ASU is effective for interim and annual periods
beginning after June 15, 2010. The Company is currently evaluating
this new ASU, but does not expect it will have an impact on the Company’s
financial statements since at present time the Company is not purchasing credit
derivatives embedded in beneficial interests in securitized financial
assets.
In April
2010, the FASB issued ASU No. 2010–18, “Effect of a Loan Modification When the
Loan Is Part of a Pool That Is Accounted for as a Single Asset.” The
ASU addresses the diversity in practice on whether a loan that is part of a pool
of loans accounted for as a single asset should be removed from that pool upon a
modification that would constitute a troubled debt restructuring. As
a result of the amendments, modifications of loans that are accounted for within
a pool under the guidance for loans and debt securities acquired with
deteriorated credit quality, would not result in the removal of those loans from
the pool even if the modification of the those loans would otherwise be
considered a troubled debt restructuring. The ASU is
effective for interim and annual periods beginning after July 15,
2010. The Company does not believe this ASU will have an impact on
the Company’s financial statements since at present time the Company is not
purchasing loans.
7
|
(5)
|
Securities
|
A summary
of securities is as follows:
Gross
|
Gross
|
|||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|||||||||||||
Cost
|
Gains
|
Losses
|
Value
|
|||||||||||||
(In
thousands)
|
||||||||||||||||
At March 31, 2010
|
||||||||||||||||
Securities available for
sale
|
||||||||||||||||
Government-sponsored
|
||||||||||||||||
enterprise
obligations
|
$ | 5,500 | $ | 7 | $ | (6 | ) | $ | 5,501 | |||||||
Residential
mortgage-backed
|
||||||||||||||||
securities
|
6,108 | 234 | - | 6,342 | ||||||||||||
Total
securities
|
||||||||||||||||
available
for sale
|
$ | 11,608 | $ | 241 | $ | (6 | ) | $ | 11,843 | |||||||
Securities held to maturity
|
||||||||||||||||
Residential
mortgage-backed
|
||||||||||||||||
securities
|
$ | 3,999 | $ | 168 | $ | - | $ | 4,167 |
Gross
|
Gross
|
|||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|||||||||||||
Cost
|
Gains
|
Losses
|
Value
|
|||||||||||||
(In
thousands)
|
||||||||||||||||
At June 30, 2009
|
||||||||||||||||
Securities available for
sale
|
||||||||||||||||
Government-sponsored
|
||||||||||||||||
enterprise
obligations
|
$ | 1,500 | $ | - | $ | (2 | ) | $ | 1,498 | |||||||
Residential
mortgage-backed
|
||||||||||||||||
securities
|
7,819 | 216 | (5 | ) | 8,030 | |||||||||||
Total
securities
|
||||||||||||||||
available
for sale
|
$ | 9,319 | $ | 216 | $ | (7 | ) | $ | 9,528 | |||||||
Securities held to maturity
|
||||||||||||||||
Residential
mortgage-backed
|
||||||||||||||||
securities
|
$ | 4,959 | $ | 142 | $ | - | $ | 5,101 |
All
residential mortgage-backed securities have been issued by government-sponsored
enterprises.
8
The
amortized cost and estimated fair value of debt securities by contractual
maturity at March 31, 2010 is as follows. Expected maturities will
differ from contractual maturities because issuers may have the right to call or
prepay obligations with or without call or prepayment penalties.
Available for Sale
|
Held to Maturity
|
|||||||||||||||
Amortized
|
Fair
|
Amortized
|
Fair
|
|||||||||||||
Cost
|
Value
|
Cost
|
Value
|
|||||||||||||
(In
thousands)
|
||||||||||||||||
After
1 year through
|
||||||||||||||||
5
years
|
$ | 2,500 | $ | 2,504 | $ | - | $ | - | ||||||||
After
5 years through
|
||||||||||||||||
10
years
|
2,000 | 1,997 | - | - | ||||||||||||
Over
10 years
|
1,000 | 1,000 | - | - | ||||||||||||
5,500 | 5,501 | - | - | |||||||||||||
Residential
mortgage-backed
|
||||||||||||||||
securities
|
6,108 | 6,342 | 3,999 | 4,167 | ||||||||||||
$ | 11,608 | $ | 11,843 | $ | 3,999 | $ | 4,167 |
There
were no sales of securities for the nine months ended March 31, 2010 and
2009.
Information
pertaining to securities with gross unrealized losses aggregated by investment
category and length of time that individual securities have been in a continuous
loss position is as follows:
Less Than Twelve Months
|
Greater Than Twelve Months
|
|||||||||||||||
Gross
|
Gross
|
|||||||||||||||
Unrealized
|
Fair
|
Unrealized
|
Fair
|
|||||||||||||
Losses
|
Value
|
Losses
|
Value
|
|||||||||||||
(In
thousands)
|
||||||||||||||||
At March 31, 2010:
|
||||||||||||||||
Securities available for
sale
|
||||||||||||||||
Government-sponsored
|
||||||||||||||||
enterprise
obligations
|
$ | 6 | $ | 1,494 | $ | - | $ | - | ||||||||
At June 30, 2009:
|
||||||||||||||||
Securities available for
sale
|
||||||||||||||||
Government-sponsored
|
||||||||||||||||
enterprise
obligations
|
$ | 2 | $ | 1,498 | $ | - | $ | - | ||||||||
Residential
mortgage-backed
|
||||||||||||||||
securities
|
5 | 1,455 | - | - | ||||||||||||
Total
temporarily impaired
|
||||||||||||||||
securities
|
$ | 7 | $ | 2,953 | $ | - | $ | - |
At March
31, 2010, two securities classified as available for sale had unrealized losses
with aggregate depreciation of 0.41% from the Company’s amortized cost basis,
which management believes to be temporary and not a result of credit
quality.
9
|
(6)
|
Servicing
|
Loans
serviced for others and mortgage servicing rights
Mortgage
loans serviced for others are not included in the accompanying consolidated
balance sheets. The unpaid principal balances of mortgage loans serviced for
others were $20.6 million and $12.0 million at March 31, 2010 and
June 30, 2009, respectively.
The risks
inherent in the mortgage servicing assets relate primarily to changes in
prepayments that result from shifts in mortgage interest rates. The fair value
of servicing rights was $209,000 at March 31, 2010 and was determined using the
quarterly average 10-year, U.S. Treasury rate plus 5.0%, adjusted to reflect the
current credit spreads and conditions in the market as a discount rate.
Prepayment assumptions, which are impacted by loan rates and terms, are
calculated using a moving average of prepayment data published by the Public
Securities Association.
The
following summarizes mortgage servicing rights capitalized and amortized, along
with the aggregate activity related valuation allowances:
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
March
31,
|
March
31,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
(Dollars
in thousands)
|
||||||||||||||||
Mortgage
servicing rights:
|
||||||||||||||||
Balance
at beginning of period
|
$ | 183 | $ | - | $ | 116 | $ | - | ||||||||
Additions
|
16 | 37 | 97 | 37 | ||||||||||||
Disposals
|
- | - | - | - | ||||||||||||
Amortization
|
(2 | ) | (16 | ) | ||||||||||||
Balance
at end of period
|
197 | 37 | 197 | 37 | ||||||||||||
Valuation
allowances:
|
||||||||||||||||
Balance
at beginning of period
|
- | - | - | - | ||||||||||||
Additions
|
- | - | - | - | ||||||||||||
Recoveries
|
- | - | - | - | ||||||||||||
Write-downs
|
- | - | - | - | ||||||||||||
Balance
at end of period
|
- | - | - | - | ||||||||||||
Mortgage
servicing assets, net
|
$ | 197 | $ | 37 | $ | 197 | $ | 37 |
|
(7)
|
Secured
Borrowings and Collateral
|
Federal
Home Loan Bank advances
At March
31, 2010, all FHLB of Boston advances are secured by a blanket security
agreement on qualified collateral; principally first mortgage loans on
owner-occupied residential property in the amount of $58.8 million,
government-sponsored enterprise obligations with a fair value of $3.5
million and mortgage-backed securities with a fair value of $10.5
million.
Securities
Sold Under Agreements to Repurchase
Securities
sold under agreements to repurchase are funds borrowed from customers on an
overnight basis. The amount of securities collateralizing the agreements to
repurchase remains in securities and the obligation to repurchase securities
sold is reflected as a liability in the consolidated balance
sheets. Securities sold under agreement to repurchase amounted to
$395,000 at March 31, 2010 and are secured by Government-sponsored enterprise
obligations with a fair value of $1.0 million. The weighted average
interest rate on these agreements was 0.50% at March 31, 2010.
10
|
(8)
|
On-Balance
Sheet Derivative Instruments and Hedging
Activities
|
Interest
Rate Risk Management – Derivative Instruments Not Designated as Hedging
Instruments
Certain
derivative instruments do not meet the requirements to be accounted for as
hedging instruments. These undesignated instruments are recognized on
the consolidated balance sheet at fair value, with changes in fair value
recorded in noninterest income.
Derivative Loan
Commitments
Mortgage
loan commitments are referred to as derivative loan commitments if the loan that
will result from exercise of the commitment will be held for sale upon
funding. Loan commitments that are derivatives are recognized at fair
value on the consolidated balance sheet in other assets and other liabilities
with changes in their fair values recorded in other non-interest income. Fair
value is determined using secondary market pricing, including expected normal
servicing rights. In estimating fair value, the Company assigns a probability to
a loan commitment based on an expectation that it will be exercised and the loan
will be funded. The notional amount of mortgage loan commitments was $3.4
million at March 31, 2010 and the fair value of such commitments was an asset of
$35,000.
Forward Loan Sale
Commitments
To
protect against the price risk inherent in derivative loan commitments, the
Company utilizes both “mandatory delivery” and “best efforts” forward loan sale
commitments to mitigate the risk of potential decreases in the values of loans
that would result from the exercise of the derivative loan commitments.
Mandatory delivery contracts are accounted for as derivative
instruments. Generally, the Company’s best efforts contracts meet the
definition of derivative instruments when the loans to the underlying borrowers
close, and are accounted for as derivative instruments at that
time. Accordingly, forward loan sale commitments are recognized at
fair value on the consolidated balance sheet in other assets and other
liabilities with changes in their fair values recorded in other noninterest
income. The notional amount of forward loan sale commitments was $5.1 million at
March 31, 2010 and the fair value of such commitments was an asset of
$15,000.
The
Company estimates the fair value of its forward loan sales commitments using a
methodology similar to that used for derivative loan commitments.
The
following table presents the fair values of derivative instruments in the
balance sheet.
March
31, 2010
|
|||||||||||||
Assets
|
Liabilities
|
||||||||||||
Balance
Sheet
Location
|
Fair
Value
|
Balance
Sheet
Location
|
Fair
Value
|
||||||||||
(In
thousands)
|
|||||||||||||
Derivatives
not designated
|
|||||||||||||
as
hedging instruments:
|
|||||||||||||
Derivative
loan commitments
|
Other
assets
|
$ | 35 | N/A | $ | - | |||||||
Forward
loan sale commitments
|
Other
assets
|
15 | N/A | - | |||||||||
Total
derivatives not designated
|
|||||||||||||
as
hedging instruments
|
$ | 50 | $ | - |
11
The
following table presents information pertaining to the Company’s derivatives not
designated as hedging instruments (in thousands).
Nine
Months Ended March 31, 2010
|
||||||
Derivatives Not Designated As
Hedging Instruments
|
Location of Gain(Loss)
|
Amount of
Gain(Loss)
|
||||
|
|
|
||||
Derivative
loan commitments
|
Net
gain on other secondary
|
|||||
marketing
activities
|
$ | 35 | ||||
Forward
loan sale commitments
|
Net
gain on other secondary
|
|||||
marketing
activities
|
15 | |||||
Total
|
$ | 50 |
|
(9)
|
Fair
Value Measurements
|
The
Company groups its financial assets and financial liabilities measured at fair
value in three levels, based on the markets in which the assets and liabilities
are traded and the reliability of the assumptions used to determine fair value
as follows:
Level l - Valuation
is based on quoted prices in active markets for identical assets or liabilities.
Level l assets and liabilities generally include debt and equity securities that
are traded in an active exchange market. At March 31, 2010, the Company had no
assets or liabilities valued using Level 1 measurements.
Level 2 - Valuation
is based on observable inputs other than Level l 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 - Valuation
is based on unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets or
liabilities. Leve1 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.
All of
the Company’s securities that are measured at fair value are included in Level 2
and are based on pricing models from independent, third party pricing services
that consider standard input factors such as observable market data, benchmark
yields, interest rate volatilities, broker/dealer quotes, credit spreads and new
issue data. There are no liabilities measured at fair value. All of the
Company’s loans that are measured at fair value are included in Level 3 and are
based on the appraised value of the underlying collateral considering
discounting factors, if deemed appropriate, and adjusted for selling costs.
These appraised values may be discounted based on management’s historical
knowledge, expertise or changes in market conditions from time of
valuation.
Assets
measured at fair value on a recurring basis at March 31, 2010 and June 30, 2009
are summarized below.
Assets
|
||||||||||||||||
Level 1
|
Level 2
|
Level 3
|
at Fair Value
|
|||||||||||||
(In
thousands)
|
||||||||||||||||
March
31, 2010:
|
||||||||||||||||
Securities
available for sale
|
$ | - | $ | 11,843 | $ | - | $ | 11,843 | ||||||||
June
30, 2009:
|
||||||||||||||||
Securities
available for sale
|
$ | - | $ | 9,528 | $ | - | $ | 9,528 |
12
The
Company may also be required, from time to time, to measure certain other
financial assets on a nonrecurring basis in accordance with generally accepted
accounting principles. These adjustments to fair value usually result from
application of lower-of-cost-or-market accounting or write-downs of individual
assets. Assets measured at fair value on a non-recurring basis at March 31, 2010
are summarized below. The fair value adjustments relate to the amount of write
down recorded during the three and nine months ended March 31, 2010 on the
assets held at March 31, 2010.
Fair
Value
|
Fair
Value
|
|||||||||||||||||||
Adjustments
|
Adjustments
|
|||||||||||||||||||
For
the Three
|
For
the Nine
|
|||||||||||||||||||
At March 31, 2010 |
Months Ended
|
Months Ended
|
||||||||||||||||||
Level 1
|
Level 2
|
Level 3
|
March 31, 2010
|
March 31, 2010
|
||||||||||||||||
(In
thousands)
|
||||||||||||||||||||
Impaired
loans
|
$ | - | $ | - | $ | 665 | $ | (57 | ) | $ | (24 | ) |
The
following methods and assumptions were used by the Company in estimating fair
value disclosures for financial instruments:
Cash and cash
equivalents: The carrying amounts of cash and short-term investments
approximate fair values.
Securities: Fair
values for the Company's debt securities are based on pricing models that
consider standard input factors such as observable market data, benchmark
yields, interest rate volatilities, broker/dealer quotes, credit spreads and new
issue data.
Federal Home Loan Bank
stock: Fair value is based on redemption provisions of the FHLB of
Boston. The FHLB stock has no quoted market value.
Loans held for sale:
Fair value is based on committed secondary market prices.
Loans: For
variable-rate loans that reprice frequently and with no significant change in
credit risk, fair values are based on carrying values. Fair values
for other loans are estimated using discounted cash flow analyses, using market
interest rates currently being offered for loans with similar terms to borrowers
of similar credit quality. Fair values for impaired loans are estimated using
discounted cash flow analyses or underlying collateral values, where
applicable.
Capitalized mortgage
servicing rights: Fair value is based on a quarterly, third-party
valuation model that calculates the present value of estimated future net
servicing income. The model utilizes a variety of assumptions, the most
significant of which are loan prepayment assumptions and the discount rate used
to discount future cash flows. Prepayment assumptions, which are impacted by
loan rates and terms, are calculated using a moving average of prepayment data
published by the Public Securities Association and modeled against the serviced
loan portfolio by the third party valuation specialist. The discount rate is the
quarterly average 10-year, U.S. Treasury rate plus 5.0% and adjusted to reflect
the current credit spreads and conditions in the market. Other assumptions
include delinquency rates, foreclosure rates, servicing cost inflation, and
annual unit loan cost. All assumptions are adjusted periodically to reflect
current circumstances.
Deposits: The fair
values for non-certificate accounts are, by definition, equal to the amount
payable on demand at the reporting date which is the carrying
amount. Fair values for certificates of deposit are estimated using a
discounted cash flow calculation that applies market interest rates currently
being offered on certificates to a schedule of aggregated expected monthly
maturities on time deposits.
Securities sold under
agreements to repurchase: The fair value estimate of securities sold
under agreements to repurchase approximates carrying value as they mature daily
and bear market interest rates.
Short-term FHLB
advances: The fair value of short-term FHLB advances approximate carrying
value, as they generally immature within 90 days.
Long-term FHLB
advances: The fair value for long-term FHLB advances is estimated using
discounted cash flow analyses based on current market borrowing rates for
similar types of borrowing arrangements.
Accrued
interest: The carrying amounts of accrued interest approximate
fair value.
Off-balance-sheet
instruments: Fair values for off-balance-sheet, credit-related
financial instruments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
counterparties’ credit standing. At March 31, 2010 and June 30, 2009,
the fair value of commitments outstanding is not significant since fees charged
are not material.
13
The
estimated fair values and related carrying amounts of the Company’s financial
instruments at March 31, 2010 and June 30, 2009, are as follows:
March 31, 2010
|
June 30, 2009
|
|||||||||||||||
Carrying
|
Fair
|
Carrying
|
Fair
|
|||||||||||||
Amount
|
Value
|
Amount
|
Value
|
|||||||||||||
(In
thousands)
|
||||||||||||||||
Financial
assets:
|
||||||||||||||||
Cash
and cash equivalents
|
$ | 5,676 | $ | 5,676 | $ | 11,356 | $ | 11,356 | ||||||||
Securities
available for sale
|
11,843 | 11,843 | 9,528 | 9,528 | ||||||||||||
Securities
held to maturity
|
3,999 | 4,167 | 4,959 | 5,101 | ||||||||||||
FHLB
stock
|
3,111 | 3,111 | 3,111 | 3,111 | ||||||||||||
Loans
held for sale
|
1,670 | 1,670 | 269 | 274 | ||||||||||||
Loans,
net
|
172,077 | 172,682 | 163,825 | 163,345 | ||||||||||||
Accrued
interest receivable
|
843 | 843 | 714 | 714 | ||||||||||||
Capitalized
mortgage servicing rights
|
197 | 209 | 116 | 119 | ||||||||||||
Financial
liabilities:
|
||||||||||||||||
Deposits
|
139,360 | 140,728 | 141,126 | 143,018 | ||||||||||||
Securities
sold under agreements
|
||||||||||||||||
to
repurchase
|
395 | 395 | 520 | 520 | ||||||||||||
Short-term
FHLB advances
|
12,700 | 12,700 | - | - | ||||||||||||
Long-term
FHLB advances
|
33,726 | 34,335 | 40,268 | 40,967 | ||||||||||||
Accrued
interest payable
|
118 | 118 | 148 | 148 |
Item 2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
This
document may contain certain forward-looking statements, such as statements of
the Company’s or the Bank’s plans, objectives, expectations, estimates and
intentions. Forward-looking statements may be identified by the use of words
such as “expects”, “subject”, and “believe”, “will”, “intends”, “will be” or
“would”. These statements are subject to change based on various important
factors (some of which are beyond the Company’s or the Bank’s control) and
actual results may differ materially. Accordingly, readers should not place
undue reliance on any forward-looking statements, which reflect management’s
analysis of factors only as of the date of which they are given. These factors
include general economic conditions, trends in interest rates, the ability of
our borrowers to repay their loans, the ability of the Company or the Bank to
effectively manage its growth, and results of regulatory examinations, among
other factors. The foregoing list of important factors is not exclusive. Readers
should carefully review the risk factors described in other documents the
Company files from time to time with the Securities and Exchange Commission,
including Current Reports on Form 8-K.
Except as
required by applicable law and regulation, the Company does not undertake – and
specifically disclaims any obligation – to publicly release the result of any
revisions that 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.
Overview
The
Company’s results of operations depend primarily on net interest and dividend
income, which is the difference between the interest and dividend income earned
on its interest-earning assets, such as loans and securities, and the interest
expense on its interest-bearing liabilities, such as deposits and borrowings.
The Company also generates non-interest income, primarily from fees and service
charges. Gains on sales of loans are additional sources of non-interest income.
The Company’s non-interest expense primarily consists of employee compensation
and benefits, occupancy and equipment expense, advertising, data processing,
professional fees and other operating expenses.
Our
financial performance for the three and nine months ended March 31, 2010
continued to improve, as the Company’s net income increased compared to the same
periods last year. Our improved financial performance continued to be driven by
an expanding net interest margin, primarily due to originations of
higher-yielding commercial loans, a significant portion of which are
collateralized by one-to-four family and multi-family properties, and the
controlling of interest expense. The asset quality of our loan portfolio
remained stable during the quarter. The Company’s earnings were supplemented by
our mortgage banking activities, which are expected to make a significant
contribution to profitability in future periods.
14
Critical
Accounting Policies
Our
critical accounting policies are those that involve significant judgments and
assumptions by management and that have, or could have, a material impact on our
income or the carrying value of our assets. Our critical accounting policies are
those related to our allowance for loan losses and the valuation of our deferred
tax assets. The allowance for loan losses is the amount estimated by management
as necessary to cover credit losses inherent in the loan portfolio at the
balance sheet date. The allowance is established through the provision for loan
losses that is charged against income. Management performs a quarterly
evaluation of the adequacy of the allowance for loan losses. We consider a
variety of factors in establishing this estimate including, but not limited to,
current economic conditions, delinquency statistics, geographic and industry
concentrations, the adequacy of the underlying collateral, the financial
strength of the borrower, results of internal and external loan reviews and
other relevant factors. This evaluation is inherently subjective, as it requires
material estimates by management that may be susceptible to significant
change.
The
analysis has three components: specific, general, and an unallocated
component. The specific component relates to loans that are determined to be
impaired. Impairment is measured by determining the present value of expected
future cash flows or, for collateral-dependent loans, the fair value of the
collateral adjusted for market conditions and selling expenses. The general
component is determined by segregating the remaining loans by type of loan. We
also analyze historical loss experience, delinquency trends, general economic
conditions and geographic and industry concentrations. This analysis establishes
factors that are applied to the loan groups to determine the amount of the
general component of the allowance for loan losses. An unallocated component is
maintained to cover uncertainties that could affect management’s estimate of
probable losses. The unallocated component of the allowance reflects the margin
of imprecision inherent in the underlying assumptions used in the methodologies
for estimating losses in the portfolio. Because of the imprecision surrounding
these factors, we may maintain an unallocated component available for other
factors that is not allocated to a specific loan category.
Actual
loan losses may be significantly more than the allowances we have established,
which could have a material negative effect on our financial
results. In addition, the Office of Thrift Supervision (“OTS”), as an
integral part of its examination process, will periodically review our allowance
for loan losses. Such agency may require us to recognize adjustments to the
allowance, based on its judgments about information available to it at the time
of its examination.
Deferred
tax assets and liabilities are reflected at currently enacted income tax rates
applicable to the period in which the deferred tax assets or liabilities are
expected to be realized or settled. As changes in tax laws or rates
are enacted, deferred tax assets and liabilities are adjusted accordingly
through the provision for income taxes. The Company’s base amount of
its federal income tax reserve for loan losses is a permanent difference for
which there is no recognition of a deferred tax liability. However,
the loan loss allowance maintained for financial reporting purposes is a
temporary difference with allowable recognition of a related deferred tax asset,
if it is deemed realizable. The Company exercises significant judgment in
evaluating the amount and timing of recognition of the resulting tax assets and
liabilities. These judgments require projections of future taxable income. These
judgments and estimates, which are inherently subjective, are reviewed
periodically as regulatory and business factors change. The deferred tax assets
are reduced by a valuation allowance when, in the opinion of management, it is
more likely than not that all or some portion of the deferred tax asset will not
be realized.
Comparison
of Financial Condition at March 31, 2010 and June 30, 2009
Total
assets increased by $6.3 million, or 3.1%, to $207.5 million at March 31, 2010,
from $201.2 million at June 30, 2009. The increase in total assets resulted
primarily from an increase in net loans and securities available for sale,
partially offset by a decrease in cash and cash equivalents, as overnight funds
were used to fund loan originations and deposit outflows. Net loans increased
$8.3 million, or 5.0%, to $172.1 million at March 31, 2010, from $163.8 million
at June 30, 2009, primarily due to an $11.2 million, or 26.1%, increase in
commercial loans and a $2.9 million, or 12.6% increase in construction loans,
partially offset by a $5.6 million, or 5.7%, decrease in residential loans.
Investment securities available for sale increased $2.3 million, or 24.3%, to
$11.8 million at March 31, 2010, from $9.5 million at June 30, 2009. Investment
securities held to maturity decreased $960,000, or 19.4%, to $4.0 million at
March 31, 2010, from $5.0 million at June 30, 2009. At March 31, 2010, total
investment securities were comprised of government-sponsored enterprise
obligations and mortgage-backed securities, all of which are guaranteed by
government-sponsored enterprises. As a result, our investment securities
impairment considerations generally related to fluctuations in market interest
rates. At March 31, 2010, no securities were deemed to be other–than-temporarily
impaired. Total interest-earning assets increased $6.3 million, or 3.3%, to
$197.4 million at March 31, 2010, from $191.1 million at June 30,
2009.
15
Loan Portfolio
Composition. The
following table sets forth the composition of our loan portfolio by type of loan
as of the dates indicated.
At
|
At
|
|||||||||||||||
March
31,
|
June
30,
|
|||||||||||||||
2010
|
2009
|
|||||||||||||||
Amount
|
Percent
|
Amount
|
Percent
|
|||||||||||||
(Dollars
in thousands)
|
||||||||||||||||
Residential
loans:
|
||||||||||||||||
One-to-four
family
|
$ | 76,524 | 44.07 | % | $ | 82,140 | 49.73 | % | ||||||||
Home
equity loans
|
||||||||||||||||
and
lines of credit
|
16,583 | 9.55 | 16,592 | 10.05 | ||||||||||||
Total
residential mortgage loans
|
93,107 | 53.62 | 98,732 | 59.78 | ||||||||||||
Commercial
loans:
|
||||||||||||||||
One-to-four
family real estate
|
5,435 | 3.13 | 4,795 | 2.90 | ||||||||||||
Multi-family
real estate
|
13,046 | 7.51 | 8,226 | 4.98 | ||||||||||||
Commercial
real estate
|
24,177 | 13.92 | 21,525 | 13.04 | ||||||||||||
Commercial
|
11,435 | 6.58 | 8,364 | 5.07 | ||||||||||||
Total
commercial loans
|
54,093 | 31.14 | 42,910 | 25.99 | ||||||||||||
Construction
loans:
|
||||||||||||||||
One-to-four
family
|
13,242 | 7.62 | 13,327 | 8.07 | ||||||||||||
Multi-family
|
7,399 | 4.26 | 2,786 | 1.69 | ||||||||||||
Commercial
real estate
|
5,430 | 3.13 | 7,042 | 4.26 | ||||||||||||
Total
construction loans
|
26,071 | 15.01 | 23,155 | 14.02 | ||||||||||||
Consumer
|
405 | 0.23 | 353 | 0.21 | ||||||||||||
Total
loans:
|
173,676 | 100.00 | % | 165,150 | 100.00 | % | ||||||||||
Other
items:
|
||||||||||||||||
Net
deferred loan costs
|
81 | 130 | ||||||||||||||
Allowance
for loan losses
|
(1,680 | ) | (1,455 | ) | ||||||||||||
Total
loans, net
|
$ | 172,077 | $ | 163,825 |
16
Non-performing
Assets. The table below sets forth the amounts and categories of our
non-performing assets at the dates indicated. Delinquent loans that are 90 days
or more past due are generally considered non-performing assets.
At March 31,
|
At June 30,
|
|||||||
2010
|
2009
|
|||||||
(Dollars
in thousands)
|
||||||||
Non-accrual
loans:
|
||||||||
Residential
mortgage loans
|
$ | 785 | $ | 671 | ||||
Commercial
loans
|
- | - | ||||||
Construction
loans
|
- | 66 | ||||||
Consumer
|
21 | - | ||||||
Total
non-accrual loans
|
806 | 737 | ||||||
Loans
greater than 90 days delinquent
|
||||||||
and
still accruing:
|
||||||||
Residential
mortgage loans
|
- | - | ||||||
Commercial
loans
|
- | - | ||||||
Construction
loans
|
- | - | ||||||
Consumer
|
- | - | ||||||
Total
loans greater than 90 days delinquent
|
||||||||
and
still accruing
|
- | - | ||||||
Restructured
loans
|
211 | - | ||||||
Total
non-performing loans
|
1,017 | 737 | ||||||
Real
estate owned
|
66 | - | ||||||
Total
non-performing assets
|
$ | 1,083 | $ | 737 | ||||
Ratios:
|
||||||||
Non-performing
loans to total loans
|
0.59 | % | 0.45 | % | ||||
Non-performing
assets to total assets
|
0.52 | % | 0.37 | % |
Asset
quality continued to be stable, as non-performing assets increased $346,000 to
$1.1 million at March 31, 2010 compared to $737,000 at June 30, 2009. These
balances represented 0.52% of total assets at March 31, 2010 and 0.37% of total
assets at June 30, 2009. At June 30, 2009, there was one restructured loan
totaling $217,000 that was included in the non-accrual loan total. At March 31,
2010, there were no restructured loans included in the non-accrual loan total,
as the aforementioned loan was moved to accrual status based on sustained
performance. The allowance for loan losses was $1.7 million at March 31, 2010,
an increase of $225,000 from June 30, 2009. Loan charge-offs were $71,000 and
loan recoveries were $11,000 for the nine months ended March 31, 2010, as
compared to loan charge-offs of $14,000 and loan recoveries of $8,000 for the
same period in 2009. The allowance represented 0.97% of total loans at March 31,
2010 and 0.88% of total loans at June 30, 2009. The increase was primarily a
result of growth in loans with a higher degree of risk. At these levels, the
allowance for loan losses as a percentage of non-performing loans was 165.19% at
March 31, 2010 and 197.42% at June 30, 2009.
Total
deposits decreased by $1.8 million, or 1.3%, to $139.4 million at March 31,
2010, from $141.1 million at June 30, 2009. The decrease in deposits was
primarily due to decreases in money market accounts and demand deposit accounts,
which were partially offset by increases in NOW accounts, certificates of
deposit and savings accounts. Money market accounts decreased $5.9 million, or
12.8%, reflecting a lowering of interest rates paid. Demand deposit accounts
decreased $1.4 million, or 9.0%, primarily due to internal transfers to the
Company’s new NOW account product. NOW accounts increased $2.5 million, or
21.4%, reflecting activity in the Company’s new NOW account product.
Certificates of deposit increased $1.6 million, or 2.9% and savings accounts
increased $1.0 million, or 9.2%.
Total
borrowings from the FHLB increased $6.2 million, or 15.3%, as short-term
borrowings increased $12.7 million and long-term borrowings decreased $6.5
million. The change in the mix of borrowings reflected management’s efforts to
lower interest expense by taking advantage of low short-term rates.
Total
stockholders’ equity increased $655,000, or 3.8%, to $18.0 million at March 31,
2010, from $17.3 million at June 30, 2009, primarily due to net income of
$604,000. The net unrealized gains on securities available for sale of $152,000
at March 31, 2010 were attributable to changes in market interest
rates.
17
Comparison
of Operating Results for the Three Months Ended March 31, 2010 and
2009
General. Net income for the three
months ended March 31, 2010 was $286,000, or $.11 per basic and diluted share,
compared to net income of $75,000, or $.03 per basic and diluted share for the
three months ended March 31, 2009. The increase in net income was primarily due
to an increase in net interest income and non-interest income, partially offset
by an increase in the provision for loan losses and an increase in non-interest
expense.
Interest
Income. Interest income
increased by $17,000, or 0.70%, to $2.7 million for the three months ended March
31, 2010. The increase in interest income was primarily due to an increase in
the average balance of interest-earning assets of $3.1 million, or 1.6%, to
$192.9 million for the three months ended March 31, 2010, from $189.8 million
for the same period in 2009, partially offset by 5 basis point decrease in the
average yield on interest-earning assets to 5.59% for the three months ended
March 31, 2010, from 5.64% for the same period in 2009.
Interest
income on loans increased $54,000, or 2.2%, to $2.5 million for the three months
ended March 31, 2010. The increase was due to an increase in the average balance
of loans of $3.8 million, or 2.2%, to $171.9 million for the three months ended
March 31, 2010, from $168.2 million for the three months ended March 31, 2009,
partially offset by a decrease in average loan yields of 1 basis point to 5.90%
for the three months ended March 31, 2010, from 5.91% for the three months ended
March 31, 2009.
Interest
and dividend income on investment securities decreased $37,000, or 19.3%, for
the three months ended March 31, 2010, compared to the same period in 2009. The
decrease in interest income was due to a decrease in the average balance of
investment securities of $1.8 million, or 8.7%, to $18.8 million for the three
months ended March 31, 2010, from $20.6 million for the three months ended March
31, 2009 and by a decrease in average investment yields of 43 basis points,
reflecting the lower interest rate market, to 3.34% for the three months ended
March 31, 2010, from 3.77% for the three months ended March 31,
2009.
Interest
Expense. Interest expense
decreased $353,000, or 29.0%, to $864,000 for the three months ended March 31,
2010 from $1.2 million for the three months ended March 31, 2009. The decrease
in interest expense was primarily due to an 82 basis point decrease in the
average cost of interest-bearing liabilities, reflecting the maturing of
higher-rate deposits and a shortening of the term of FHLB borrowings, to 2.06%
for the three months ended March 31, 2010, from 2.88% for the same period in
2009 and by a decrease in the average balance of interest-bearing liabilities of
$1.7 million, or 1.0%, to $167.4 million for the three months ended March 31,
2010, from $169.1 million for the same period in 2009.
Interest
expense on interest-bearing deposits decreased $209,000, or 29.0%, to $512,000
for the three months ended March 31, 2010, from $721,000 for the same period in
2009. The decrease was primarily due to a 73 basis point decrease in the average
cost of interest-bearing deposits to 1.68% for the three months ended March 31,
2010, from 2.41% for the same period in 2009, partially offset by an increase in
the average balance of interest-bearing deposits of $2.2 million, or 1.9%, to
$122.1 million for the three months ended March 31, 2010 from $119.9 million for
the same period in 2009.
Interest
expense on FHLB short-term and long-term advances decreased $145,000, or 29.2%,
to $351,000 for the three months ended March 31, 2010, from $496,000 for the
same period in 2009. The decrease was primarily due to a decrease in the average
balance of FHLB short-term and long-term advances of $3.9 million, or 8.0%, to
$44.9 million for the three months ended March 31, 2010 from $48.8 million for
the same period in 2009 and by a 94 basis point decrease in the average cost of
FHLB short-term and long-term advances to 3.13% for the three months ended March
31, 2010, from 4.07% for the same period in 2009.
Net Interest
Income. Net
interest income increased $370,000, or 25.4%, to $1.8 million for the three
months ended March 31, 2010, from $1.5 million for the same period in 2009. The
increase in net interest income was primarily the result of a 71 basis point
increase in net interest margin to 3.79% for the three months ended March 31,
2010, from 3.08% for the same period ended 2009 and by the $4.7 million or
22.8%, increase in net average interest-earning assets to $25.4 million for the
three months ended March 31, 2010, from $20.7 million for the same period in
2009.
Provision for
Loan Losses. The
provision for loan losses for the three months ended March 31, 2010 was $89,000
compared to $4,000 for the three months ended March 31, 2009. The increase was
primarily related to specific reserves for two residential loans and provisions
due to loan growth for the three months ended March 31, 2010. Loan charge-offs
were $4,000 and loan recoveries were $2,000 for the three months ended March 31,
2010, as compared to loan charge-offs of $4,000 and loan recoveries of $3,000
for the same period in 2009.
Non-interest
Income. Non-interest income
increased $92,000, or 41.6%, to $310,000 for the three months ended March 31,
2010, from $218,000 for the same period in 2009. The increase was primarily
related to a $70,000 net gain on secondary market activities for the three
months ending March 31, 2010, representing the increase in secondary market
commitments and related fair value measurements. There was no net gain on
secondary market activities for the three months ending March 31, 2009 based on
immateriality.
Non-interest
Expense. Non-interest expense
increased $33,000, or 2.1%, to $1.6 million for the three months ended March 31,
2010. The increase in non-interest expense was primarily due to an increase in
salaries and benefits, data processing and advertising expense, partially offset
by a decrease in other general and administrative expenses. Salaries and
benefits expense increased $27,000, or 3.2%. Data processing expense increased
$14,000, or 14.8%, for the three months ended March 31, 2010, from the same
period in 2009, primarily due to the addition of services provided, such as
online account opening for both loans and deposits. Advertising expense
increased $12,000 or 15.9%, to $82,000 for the three months ended March 31, 2010
from $70,000 for the same period in 2009. Other general and administrative
expenses decreased
18
$34,000,
or 15.4%, primarily due to a $10,000 recovery pertaining to other real estate
owned for the three months ended March 31, 2010, compared to a $29,000
write-down of other real estate owned for the three months ended
March 31, 2009.
Income
Taxes. The
income before income taxes of $452,000 for the three months ended March 31, 2010
resulted in an income tax provision of $166,000 for the three months ended March
31, 2010, as compared to income before income taxes of $108,000 and a related
income tax provision of $33,000 for the three months ended March 31, 2009. The
effective tax rates for the three months ended March 31, 2010 and 2009 were
36.7% and 30.6%, respectively. The increase in the effective rate for the three
months ended March 31, 2010, compared to the effective tax rate for the three
months ended March 31, 2009 was primarily due to a decrease in the projected
full-year effective tax rate at March 31, 2009 as compared to December 31,
2008.
19
Average Balance
Sheet. The following table sets forth certain information regarding the
Company’s average balance sheet for the periods indicated, including the average
yields on its interest-earning assets and the average costs of its
interest-bearing liabilities. Average yields are calculated by dividing the
interest income produced by the average balance of interest-bearing assets.
Average costs are calculated by dividing the interest expense produced by the
average balance of interest-bearing liabilities. The average balances for the
period are derived from average balances that are calculated daily. The average
yields and costs include fees that are considered adjustments to such average
yields and costs.
At March 31,
|
Three Months Ended March
31,
|
|||||||||||||||||||||||||||||||
2010
|
2010
|
2009
|
||||||||||||||||||||||||||||||
Weighted
|
Average
|
Average
|
||||||||||||||||||||||||||||||
Outstanding
|
Average
|
Outstanding
|
Yield/
|
Outstanding
|
Yield/
|
|||||||||||||||||||||||||||
Balance
|
Rate
|
Balance
|
Interest
|
Rate
|
Balance
|
Interest
|
Rate
|
|||||||||||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||||||||||||||
Interest-earning
assets:
|
||||||||||||||||||||||||||||||||
Loans
|
$ | 175,427 | 5.94 | % | $ | 171,936 | $ | 2,537 | 5.90 | % | $ | 168,174 | $ | 2,483 | 5.91 | % | ||||||||||||||||
Investment
securities (1)
|
18,953 | 3.24 | % | 18,788 | 157 | 3.34 | % | 20,571 | 194 | 3.77 | % | |||||||||||||||||||||
Short-term
investments
|
3,038 | 0.01 | % | 2,173 | - | 0.00 | % | 1,088 | - | 0.00 | % | |||||||||||||||||||||
Total
interest-earning assets
|
197,418 | 5.59 | % | 192,897 | 2,694 | 5.59 | % | 189,833 | 2,677 | 5.64 | % | |||||||||||||||||||||
Non-interest-earning
assets
|
10,094 | 10,011 | - | 11,047 | - | |||||||||||||||||||||||||||
Total
assets
|
$ | 207,512 | $ | 202,908 | 2,694 | $ | 200,880 | 2,677 | ||||||||||||||||||||||||
Interest-bearing
liabilities:
|
||||||||||||||||||||||||||||||||
Savings
deposits
|
$ | 12,052 | 0.19 | % | $ | 12,071 | $ | 5 | 0.17 | % | $ | 10,417 | $ | 3 | 0.12 | % | ||||||||||||||||
NOW
accounts
|
14,455 | 0.56 | % | 12,265 | 13 | 0.42 | % | 9,433 | 3 | 0.13 | % | |||||||||||||||||||||
Money
market accounts
|
40,051 | 1.20 | % | 39,339 | 100 | 1.02 | % | 41,003 | 202 | 1.97 | % | |||||||||||||||||||||
Certificates
of deposit
|
58,121 | 2.69 | % | 58,455 | 394 | 2.70 | % | 59,030 | 513 | 3.48 | % | |||||||||||||||||||||
Total
interest-bearing deposits
|
124,679 | 1.72 | % | 122,130 | 512 | 1.68 | % | 119,883 | 721 | 2.41 | % | |||||||||||||||||||||
FHLB
advances
|
46,426 | 2.88 | % | 44,907 | 351 | 3.13 | % | 48,802 | 496 | 4.07 | % | |||||||||||||||||||||
Repurchase
agreements
|
395 | 0.50 | % | 411 | 1 | 0.97 | % | 416 | - | 0.00 | % | |||||||||||||||||||||
Total
interest-bearing liabilities
|
171,500 | 2.03 | % | 167,448 | 864 | 2.06 | % | 169,101 | 1,217 | 2.88 | % | |||||||||||||||||||||
Non-interest-bearing
liabilities:
|
||||||||||||||||||||||||||||||||
Demand
deposits
|
14,681 | 15,836 | 12,975 | |||||||||||||||||||||||||||||
Other
non-interest-bearing liabilities
|
3,359 | 1,810 | 1,616 | |||||||||||||||||||||||||||||
Total
liabilities
|
189,540 | 185,094 | 183,692 | |||||||||||||||||||||||||||||
Stockholders'
equity
|
17,972 | 17,814 | 17,188 | |||||||||||||||||||||||||||||
Total
liabilities and equity
|
$ | 207,512 | $ | 202,908 | $ | 200,880 | ||||||||||||||||||||||||||
Net
interest income
|
$ | 1,830 | $ | 1,460 | ||||||||||||||||||||||||||||
Net
interest rate spread (2)
|
3.56 | % | 3.53 | % | 2.76 | % | ||||||||||||||||||||||||||
Net
interest-earning assets (3)
|
$ | 25,918 | $ | 25,449 | $ | 20,732 | ||||||||||||||||||||||||||
Net
interest margin (4)
|
3.79 | % | 3.08 | % | ||||||||||||||||||||||||||||
Average
of interest-earning
|
||||||||||||||||||||||||||||||||
assets
to interest-bearing
|
||||||||||||||||||||||||||||||||
liabilities
|
115.11 | % | 115.20 | % | 112.26 | % | ||||||||||||||||||||||||||
(1)
|
Consists
entirely of taxable investment
securities.
|
(2)
|
Net
interest rate spread represents the difference between the yield on
average interest-earning assets and the cost of average interest-bearing
liabilities.
|
(3)
|
Net
interest-earning assets represents total interest-earning assets less
total interest-bearing liabilities.
|
(4)
|
Net
interest margin represents net interest income divided by average total
interest-earning assets.
|
20
Rate/Volume
Analysis. The following table presents the effects of changing rates and
volumes on our net interest income for the periods indicated. The rate column
shows the effects attributable to changes in rate (changes in rate multiplied by
prior volume). The volume column shows the effects attributable to changes in
volume (changes in volume multiplied by prior rate). The net column represents
the sum of the prior columns. For purposes of this table, changes attributable
to both rate and volume, which cannot be segregated, have been allocated
proportionately, based on the changes due to rate and the changes due to
volume.
For
the Three Months Ended March 31, 2010
|
||||||||||||
Compared
to the Three Months Ended
|
||||||||||||
March 31, 2009
|
||||||||||||
Increase (Decrease) Due to
|
||||||||||||
Volume
|
Rate
|
Net
|
||||||||||
(In
thousands)
|
||||||||||||
Interest-earning
assets:
|
||||||||||||
Loans
|
$ | 56 | $ | (2 | ) | $ | 54 | |||||
Investment
securities
|
(17 | ) | (20 | ) | (37 | ) | ||||||
Total
interest-earning assets
|
39 | (22 | ) | 17 | ||||||||
Interest-bearing
liabilities:
|
||||||||||||
Savings
deposits
|
- | 2 | 2 | |||||||||
NOW
accounts
|
1 | 9 | 10 | |||||||||
Money
market accounts
|
(8 | ) | (94 | ) | (102 | ) | ||||||
Certificates
of deposit
|
(5 | ) | (114 | ) | (119 | ) | ||||||
Total
interest-bearing deposits
|
(12 | ) | (197 | ) | (209 | ) | ||||||
FHLB
advances
|
(40 | ) | (105 | ) | (145 | ) | ||||||
Repurchase
agreements
|
- | 1 | 1 | |||||||||
Total
interest-bearing liabilities
|
(52 | ) | (301 | ) | (353 | ) | ||||||
Change
in net interest income
|
$ | 91 | $ | 279 | $ | 370 |
Comparison
of Operating Results for the Nine Months Ended March 31, 2010 and
2009
General. Net income for the nine
months ended March 31, 2010 was $604,000, or $.23 per basic and diluted share,
compared to net income of $194,000, or $.08 per basic and diluted share for the
nine months ended March 31, 2009. The increase in net income was primarily due
to an increase in net interest income and non-interest income, partially offset
by an increase in non-interest expense.
Interest
Income. Interest income
increased by $15,000, to $7.9 million for the nine months ended March
31, 2010. The increase in interest income was primarily due to an increase in
the average balance of interest-earning assets of $5.7 million, or 3.1%, to
$187.9 million for the nine months ended March 31, 2010, from $182.2 million for
the same period in 2009, partially offset by a 17 basis point decrease in the
average yield on interest-earning assets to 5.62% for the nine months ended
March 31, 2010, from 5.79% for the same period in 2009.
Interest
income on loans increased $186,000, or 2.6%, to $7.5 million for the nine months
ended March 31, 2010, from $7.3 million for the nine months ended March 31,
2009. The increase was due to an increase in the average balance of
loans of $6.6 million, or 4.1%, to $167.1 million for the nine months ended
March 31, 2010, from $160.4 million for the nine months ended March 31, 2009,
partially offset by a decrease in average loan yields of 9 basis points to 5.95%
for the nine months ended March 31, 2010, from 6.04% for the nine months ended
March 31, 2009.
Interest
and dividend income on investment securities decreased $166,000, or 26.0%, to
$473,000 for the nine months ended March 31, 2010, compared to $639,000 for the
same period in 2009. The decrease in interest income was due to a decrease in
the average balance of
21
investment
securities of $2.2 million, or 10.6%, to $18.6 million for the nine months ended
March 31, 2010, from $20.8 million for the nine months ended March 31, 2009 and
by a decrease in average investment yields of 71 basis points, reflecting the
lower interest rate market, to 3.39% for the nine months ended March
31, 2010, from 4.10% for the nine months ended March 31, 2009.
Interest
Expense. Interest expense
decreased $781,000, or 21.8%, to $2.8 million for the nine months ended March
31, 2010 from $3.6 million for the nine months ended March 31, 2009. The
decrease in interest expense was primarily due to a 67 basis point decrease in
the average cost of interest-bearing liabilities to 2.30% for the nine months
ended March 31, 2010, from 2.97% for the same period in 2009, partially offset
by an increase in the average balance of interest-bearing liabilities of $1.9
million, or 1.2%, to $163.0 million for the nine months ended March 31, 2010,
from $161.0 million for the same period in 2009.
Interest
expense on interest-bearing deposits decreased $272,000, or 14.1%, to $1.7
million for the nine months ended March 31, 2010. The decrease was primarily due
to a 61 basis point decrease in the average cost of interest-bearing deposits to
1.83% for the nine months ended March 31, 2010, from 2.44% for the same period
in 2009, partially offset by an increase in the average balance of
interest-bearing deposits of $15.9 million, or 15.0%, to $121.5 million for the
nine months ended March 31, 2010 from $105.6 million for the same period in
2009.
Interest
expense on FHLB short-term and long-term advances decreased $509,000, or 30.8%,
to $1.1 million for the nine months ended March 31, 2010, from $1.7 million for
the same period in 2009. The decrease was primarily due to a decrease in the
average balance of FHLB short-term and long-term advances of $13.9 million, or
25.3%, to $40.9 million for the nine months ended March 31, 2010 from $54.8
million for the same period in 2009 and by a 29 basis point decrease in the
average cost of FHLB short-term and long-term advances to 3.72% for the nine
months ended March 31, 2010, from 4.01% for the same period in
2009.
Net Interest
Income. Net
interest income increased $796,000, or 18.4%, to $5.1 million for the nine
months ended March 31, 2010, from $4.3 million for the same period in 2009. The
increase in net interest income was primarily the result of a 47 basis point
increase in net interest margin to 3.63% for the nine months ended March 31,
2010, from 3.16% for the same period in 2009 and by the $3.8 million, or 17.7%,
increase in net average interest-earning assets to $25.0 million for the nine
months ended March 31, 2010, from $21.2 million for the same period in
2009.
Provision for
Loan Losses. The
provision for loan losses for the nine months ended March 31, 2010 was $285,000
compared to $182,000 for the nine months ended March 31, 2009. The increase was
primarily related to specific reserves for two residential loans and provisions
due to loan growth for the nine months ended March 31, 2010. Loan charge-offs
were $71,000 and loan recoveries were $11,000 for the nine months ended March
31, 2010, as compared to loan charge-offs of $14,000 and loan recoveries of
$8,000 for the same period in 2009.
Non-interest
Income. Non-interest income
increased $283,000, or 51.0%, to $834,000 for the nine months ended March 31,
2010, from $551,000 for the same period in 2009. The increase was partially
related to gains of $223,000 from the sale of $11.7 million in loans, $10.7
million classified as held for sale and $1.0 million from the Company’s loan
portfolio, compared to gains of $62,000 from the sale of $4.9 million in loans
for the same period in 2009. Additionally, the increase was related to a $70,000
net gain on other secondary market activities for the nine months ending March
31, 2010, representing the increase in secondary market commitments and related
fair value measurements. There was no net gain on other secondary market
activities for the nine months ending March 31, 2009 based on
immateriality.
Non-interest
Expense. Non-interest expense
increased $337,000, or 7.78%, to $4.7 million for the nine months ended March
31, 2010, from $4.4 million for the same period in 2009. The increase in
non-interest expense was primarily due to increases in salaries and benefits,
data processing fees, professional fees and Federal Deposit Insurance
Corporation (“FDIC”) deposit insurance expense. Salaries and benefits expense
increased $180,000, or 7.5%, primarily due to higher replacement salaries for
new hires, as well as an increase in the number of employees receiving health
insurance benefits. Occupancy expense decreased $5,000, or 0.7%, to $586,000 for
the nine months ended March 31, 2010. Data processing expense increased $58,000,
or 20.9%, for the nine months ended March 31, 2010, from the same period in
2009, primarily due to the addition of services provided, such as online account
opening for both loans and deposits. Professional fees increased $57,000, or
23.6%, to $299,000 for the nine months ended March 31, 2010, from $242,000 for
the same period in 2009, primarily due to increased costs associated with
compliance with section 404 of the Sarbanes-Oxley Act, related to internal
controls over financial reporting and with legal expense associated with an
employee termination. FDIC deposit insurance expense increased $57,000, or
58.8%, as a result of increases in insurance premium rates. Other general and
administrative expenses decreased $11,000, or 2.0%, to $570,000 for the nine
months ended March 31, 2010, from the same period in 2009.
Income
Taxes. The
income before income taxes of $945,000 for the nine months ended March 31, 2010
resulted in an income tax provision of $341,000 for the nine months ended March
31, 2010, as compared to the income before income taxes of $306,000 and income
tax provision of $112,000 for the nine months ended March 31, 2009. The
effective tax rates for the nine months ended March 31, 2010 and 2009 were 36.1%
and 36.6%, respectively.
22
Average Balance
Sheet. The following table sets forth certain information regarding the
Company’s average balance sheet for the periods indicated, including the average
yields on its interest-earning assets and the average costs of its
interest-bearing liabilities. Average yields are calculated by dividing the
interest income produced by the average balance of interest-bearing assets.
Average costs are calculated by dividing the interest expense produced by the
average balance of interest-bearing liabilities. The average balances for the
period are derived from average balances that are calculated daily. The average
yields and costs include fees that are considered adjustments to such average
yields and costs.
At
March 31,
|
Nine Months Ended March 31,
|
|||||||||||||||||||||||||||||||
2010
|
2010
|
2009
|
||||||||||||||||||||||||||||||
Weighted
|
Average
|
Average
|
||||||||||||||||||||||||||||||
Outstanding
|
Average
|
Outstanding
|
Yield/
|
Outstanding
|
Yield/
|
|||||||||||||||||||||||||||
Balance
|
Rate
|
Balance
|
Interest
|
Rate
|
Balance
|
Interest
|
Rate
|
|||||||||||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||||||||||||||
Interest-earning
assets:
|
||||||||||||||||||||||||||||||||
Loans
|
$ | 175,427 | 5.94 | % | $ | 167,079 | $ | 7,454 | 5.95 | % | $ | 160,433 | $ | 7,268 | 6.04 | % | ||||||||||||||||
Investment
securities (1)
|
18,953 | 3.24 | % | 18,578 | 473 | 3.39 | % | 20,792 | 639 | 4.10 | % | |||||||||||||||||||||
Short-term
investments
|
3,038 | 0.01 | % | 2,283 | 1 | 0.06 | % | 1,009 | 6 | 0.79 | % | |||||||||||||||||||||
Total
interest-earning assets
|
197,418 | 5.59 | % | 187,940 | 7,928 | 5.62 | % | 182,234 | 7,913 | 5.79 | % | |||||||||||||||||||||
Non-interest-earning
assets
|
10,094 | 10,726 | - | 10,845 | - | |||||||||||||||||||||||||||
Total
assets
|
$ | 207,512 | $ | 198,666 | 7,928 | $ | 193,079 | 7,913 | ||||||||||||||||||||||||
Interest-bearing
liabilities:
|
||||||||||||||||||||||||||||||||
Savings
deposits
|
$ | 12,052 | 0.19 | % | $ | 11,513 | $ | 13 | 0.15 | % | $ | 10,216 | $ | 9 | 0.12 | % | ||||||||||||||||
NOW
accounts
|
14,455 | 0.56 | % | 11,054 | 16 | 0.19 | % | 9,309 | 9 | 0.13 | % | |||||||||||||||||||||
Money
market accounts
|
40,051 | 1.20 | % | 41,843 | 333 | 1.06 | % | 37,384 | 637 | 2.27 | % | |||||||||||||||||||||
Certificates
of deposit
|
58,121 | 2.69 | % | 57,110 | 1,303 | 3.04 | % | 48,734 | 1,282 | 3.51 | % | |||||||||||||||||||||
Total
interest-bearing deposits
|
124,679 | 1.72 | % | 121,520 | 1,665 | 1.83 | % | 105,643 | 1,937 | 2.44 | % | |||||||||||||||||||||
FHLB
advances
|
46,426 | 2.88 | % | 40,944 | 1,141 | 3.72 | % | 54,837 | 1,650 | 4.01 | % | |||||||||||||||||||||
Repurchase
agreements
|
395 | 0.50 | % | 490 | 2 | 0.54 | % | 527 | 2 | 0.51 | % | |||||||||||||||||||||
Total
interest-bearing liabilities
|
171,500 | 2.03 | % | 162,954 | 2,808 | 2.30 | % | 161,007 | 3,589 | 2.97 | % | |||||||||||||||||||||
Non-interest-bearing
liabilities:
|
||||||||||||||||||||||||||||||||
Demand
deposits
|
14,681 | 16,510 | 13,544 | |||||||||||||||||||||||||||||
Other
non-interest-bearing liabilities
|
3,359 | 1,599 | 1,467 | |||||||||||||||||||||||||||||
Total
liabilities
|
189,540 | 181,063 | 176,018 | |||||||||||||||||||||||||||||
Stockholders'
equity
|
17,972 | 17,603 | 17,061 | |||||||||||||||||||||||||||||
Total
liabilities and equity
|
$ | 207,512 | $ | 198,666 | $ | 193,079 | ||||||||||||||||||||||||||
Net
interest income
|
$ | 5,120 | $ | 4,324 | ||||||||||||||||||||||||||||
Net
interest rate spread (2)
|
3.56 | % | 3.32 | % | 2.82 | % | ||||||||||||||||||||||||||
Net
interest-earning assets (3)
|
$ | 25,918 | $ | 24,986 | $ | 21,227 | ||||||||||||||||||||||||||
Net
interest margin (4)
|
3.63 | % | 3.16 | % | ||||||||||||||||||||||||||||
Average
of interest-earning
|
||||||||||||||||||||||||||||||||
assets
to interest-bearing
|
||||||||||||||||||||||||||||||||
liabilities
|
115.11 | % | 115.33 | % | 113.18 | % | ||||||||||||||||||||||||||
(1)
|
Consists
entirely of taxable investment
securities.
|
(2)
|
Net
interest rate spread represents the difference between the yield on
average interest-earning assets and the cost of average interest-bearing
liabilities.
|
(3)
|
Net
interest-earning assets represents total interest-earning assets less
total interest-bearing liabilities.
|
(4)
|
Net
interest margin represents net interest income divided by average total
interest-earning assets.
|
23
Rate/Volume
Analysis. The following table presents the effects of changing rates and
volumes on our net interest income for the periods indicated. The rate column
shows the effects attributable to changes in rate (changes in rate multiplied by
prior volume). The volume column shows the effects attributable to changes in
volume (changes in volume multiplied by prior rate). The net column represents
the sum of the prior columns. For purposes of this table, changes attributable
to both rate and volume, which cannot be segregated, have been allocated
proportionately, based on the changes due to rate and the changes due to
volume.
For
the Nine Months Ended March 31, 2010
|
||||||||||||
Compared
to the Nine Months Ended
|
||||||||||||
March 31, 2009
|
||||||||||||
Increase (Decrease) Due to
|
||||||||||||
Volume
|
Rate
|
Net
|
||||||||||
(In
thousands)
|
||||||||||||
Interest-earning
assets:
|
||||||||||||
Loans
|
$ | 301 | $ | (115 | ) | $ | 186 | |||||
Investment
securities
|
(68 | ) | (98 | ) | (166 | ) | ||||||
Short-term
investments
|
8 | (13 | ) | (5 | ) | |||||||
Total
interest-earning assets
|
241 | (226 | ) | 15 | ||||||||
Interest-bearing
liabilities:
|
||||||||||||
Savings
deposits
|
1 | 3 | 4 | |||||||||
NOW
accounts
|
2 | 5 | 7 | |||||||||
Money
market accounts
|
76 | (380 | ) | (304 | ) | |||||||
Certificates
of deposit
|
220 | (199 | ) | 21 | ||||||||
Total
interest-bearing deposits
|
299 | (571 | ) | (272 | ) | |||||||
FHLB
advances
|
(418 | ) | (91 | ) | (509 | ) | ||||||
Total
interest-bearing liabilities
|
(119 | ) | (662 | ) | (781 | ) | ||||||
Change
in net interest income
|
$ | 360 | $ | 436 | $ | 796 |
24
Liquidity
Management.
Liquidity is the ability to meet current and future financial obligations
of a short-term nature. Our primary sources of funds consist of deposit inflows,
loan repayments and maturities and sales of securities. While maturities and
scheduled amortization of loans and securities are predictable sources of funds,
deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition. The Company recently began
to sell loans to the secondary market and expects to continue to utilize this
strategy in future periods.
We
regularly adjust our investments in liquid assets based upon our assessment of
(i) expected loan demand, (ii) expected deposit flows, (iii) yields available on
interest-earning deposits and securities, and (iv) the objectives of our
asset/liability management program. Excess liquid assets are invested generally
in interest-earning deposits and short- and intermediate-term
securities.
Our most
liquid assets are cash and cash equivalents. The levels of these assets are
dependent on our operating, financing, lending and investing activities during
any given period. At March 31, 2010, cash and cash equivalents totaled $5.7
million. Securities classified as available-for-sale, which provide additional
sources of liquidity, totaled $11.8 million at March 31, 2010. Our policies also
allow for access to the wholesale funds market for up to 50.0% of total assets,
or $103.8 million. At March 31, 2010, we had $46.4 million in FHLB advances
outstanding and $699,000 in brokered certificates of deposit, allowing the
Company access to an additional $56.6 million in wholesale funds based on policy
guidelines.
At March
31, 2010, we had $6.2 million in loan commitments outstanding. In addition to
commitments to originate loans, we had $20.6 million in unadvanced funds to
borrowers.
Related
to our secondary market activities, we had $5.1 million of forward loan sale
commitments at March 31, 2010. These forward loan sale commitments were used to
offset the interest rate risk associated with mortgage loans, which have had
their interest rate locked by our customers. We also had $1.7 million of loans
held for sale.
Certificates
of deposit due within one year of March 31, 2010 totaled $33.3 million, or 23.9%
of total deposits. If these deposits do not remain with us, we will be required
to seek other sources of funds, including other certificates of deposit or other
wholesale funding options. Depending on market conditions, we may be required to
pay higher rates on such deposits or other borrowings than we currently pay on
the certificates of deposit due on or before March 31, 2010. We believe,
however, based on past experience that a significant portion of our certificates
of deposit will remain with us. We have the ability to attract and retain
deposits by adjusting the interest rates offered.
We have
no material commitments or demands that are likely to affect our liquidity other
than set forth below. In the event loan demand were to increase at a pace
greater than expected, or any unforeseen demand or commitment were to occur, we
would access our borrowing capacity with the FHLB and other wholesale market
sources.
Our
primary investing activities are the origination of loans and the purchase of
securities. During the nine months ended March 31, 2010, we originated $53.1
million of loans and purchased $4.5 million in investment securities. We also
sold $11.7 million in residential mortgage loans for the nine months ended March
31, 2010.
Financing
activities consist primarily of activity in deposit accounts, FHLB borrowings
and advances and the sale of residential mortgages. We experienced a net
decrease in total deposits of $1.8 million for the nine months ended March 31,
2010. Deposit flows are affected by the overall level of interest rates, the
interest rates and products offered by us and our local competitors and other
factors. We generally manage the pricing of our deposits to be
competitive.
FHLB
borrowings and advances reflected a net increase of $6.2 million during the nine
months ended March 31, 2010. FHLB borrowings and advances have primarily been
used to fund loan demand and purchase securities.
Capital
Management.
The Bank is subject to various regulatory capital requirements including
a risk-based capital measure. The risk-based capital guidelines include both a
definition of capital and a framework for calculating risk-weighted assets by
assigning balance sheet assets and off-balance sheet items to broad risk
categories. At March 31, 2010, the Bank exceeded all of its regulatory capital
requirements and is considered “well capitalized” under regulatory
guidelines.
The OTS,
as the primary federal regulator of federal savings banks, periodically
recommends certain of those institutions take voluntary steps to reduce risk to
the institutions and the federal deposit insurance fund. In light of the current
economic environment, the OTS requested and the Bank’s board of directors agreed
on October 27, 2009 to certain voluntary constraints on the Bank’s leveraged
growth strategy. The Bank does not expect any of these standards to materially
impair its execution of its business plan. The OTS has agreed to revisit these
voluntary constraints from time to time. The voluntary constraints are as
follows: (i) the Bank will maintain a Tier one (core) capital ratio of at least
7.1%; and (ii) in the event the Tier one (core) capital ratio decreases below
7.5%, the ratio of “high-risk” loans, as defined, to Tier one (core) capital
would not exceed 350%; the ratio of classified assets to Tier one (core) capital
(plus the allowance for loan losses) would not exceed 15%; and the ratio of
nonperforming assets to total assets would not exceed 1.5%. As of March 31,
2010, the Bank’s Tier one capital ratio was 7.81% compared to the requested
target of 7.50%. The Company has $1.1 million of cash available to down-stream
to the Bank to support its future capital needs.
Off-Balance Sheet
Arrangements. For the nine months ended March 31, 2010, we engaged in no
off-balance sheet transactions reasonably likely to have a material effect on
our financial condition, results of operations or cash flows.
25
Item 3.
|
Quantitative
and Qualitative Disclosure About Market
Risk
|
Not
applicable to smaller reporting companies.
Item 4.
|
Controls
and Procedures
|
Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we evaluated the effectiveness of
the design and operation 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 upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that, as of the
end of the period covered by this report, our disclosure controls and procedures
were effective to ensure (1) that information required to be disclosed in the
reports that the Company files or submits under the Securities Exchange Act of
1934, is recorded, processed, summarized and reported, within the time periods
specified in the SEC’s rules and forms; and (2) that they are alerted in a
timely manner about material information relating to the Company required to be
filed in its periodic SEC filings.
There has
been no change in the Company’s internal control over financial reporting during
the Company’s most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
PART
II. OTHER INFORMATION
Item
1.
|
Legal
Proceedings
|
Neither
the Company nor the Bank is engaged in pending legal proceedings material to the
Company’s consolidated financial condition or results of
operations.
Item
1A.
|
Risk
Factors
|
Not
applicable to smaller reporting companies.
Item
2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
|
a)
Not applicable
|
|
b)
Not applicable
|
|
c)
The Company did not repurchase any shares during the quarter ended March
31, 2010.
|
Item
3.
|
Defaults
Upon Senior Securities
|
|
None
|
Item
4.
|
Other
Information
|
|
a) Not
applicable
|
b) There were no material changes to the procedures by which security holders
may recommend nominees to the Company’s board of directors during the period
covered by this Form 10-Q.
Item 5.
|
Exhibits
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley
Act
|
26
GEORGETOWN BANCORP, INC.
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.
GEORGETOWN
BANCORP, INC.
(Registrant)
Date:
May 14, 2010
|
/s/ Robert E. Balletto
|
|
Robert
E. Balletto
|
||
President
and Chief Executive Officer
|
||
(Principal
Executive Officer)
|
||
/s/ Joseph W. Kennedy
|
||
Joseph
W. Kennedy
|
||
Senior
Vice President, Chief Financial Officer and Treasurer
|
||
(Principal
Accounting and Financial Officer)
|
27