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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended September 30, 2011

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For transition period from                  to                 

Commission File Number 001-34593

 

 

OBA FINANCIAL SERVICES, INC.

(Exact Name of Registrant as Specified in Charter)

 

 

 

Maryland   27-1898270

(State or Other Jurisdiction

of Incorporation)

 

(I.R.S. Employer

Identification No.)

20300 Seneca Meadows Parkway, Germantown, Maryland   20876
(Address of Principal Executive Offices)   (Zip Code)

(301) 916-0742

Registrant’s telephone number, including area code

Not Applicable

(Former name or former address, if changed since last report)

 

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

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  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨    Smaller reporting company   x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x.

Indicate the number of shares outstanding of each of the Issuer’s classes of common stock as of the latest practicable date.

4,253,350 shares of Common Stock, par value $0.01 per share, were issued and outstanding as of November 9, 2011.

 

 

 


Table of Contents

OBA FINANCIAL SERVICES, INC. AND SUBSIDIARY

Form 10-Q Quarterly Report

Table of Contents

 

PART I – FINANCIAL INFORMATION

  
  Forward-Looking Statements Disclosure      2   

Item 1.

  Financial Statements   
  Consolidated Statements of Condition (Unaudited) As of September 30, 2011 and June 30, 2011      4   
  Consolidated Statements of Income (Unaudited) for the three months ended September 30, 2011 and 2010      5   
  Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Unaudited) for the three months ended September 30, 2011 and 2010      6   
  Consolidated Statements of Cash Flows (Unaudited) for the three months ended September 30, 2011 and 2010      7   
  Notes to Consolidated Financial Statements (Unaudited)      8   

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      26   

Item 3.

  Quantitative and Qualitative Disclosures about Market Risk      31   

Item 4.

  Controls and Procedures      31   

PART II – OTHER INFORMATION

  

Item 1.

  Legal Proceedings      31   

Item 1A.

  Risk Factors      31   

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      31   

Item 3.

  Defaults Upon Senior Securities      31   

Item 4.

  [Reserved]      31   

Item 5.

  Other Information      31   

Item 6.

  Exhibits      31   

Signatures

     32   

 

1


Table of Contents

Forward-looking Statements

This report, as well as other written communications made from time to time by OBA Financial Services, Inc., and its subsidiary, OBA Bank, (collectively, the “Company”) and oral communications made from time to time by authorized officers of the Company, may contain statements relating to the future results of the Company (including certain projections and business trends) that are considered “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). Such forward-looking statements can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “may,” “potential,” and words of similar meaning. These forward-looking statements include, but are not limited to:

 

   

possible or assumed estimates with respect to the financial condition, expected or anticipated revenue, and results of operations and business of the Company, including earnings growth determined using accounting principles generally accepted in the United States of America (“U.S. GAAP”);

 

   

estimates of revenue growth in retail banking, lending and other areas, and origination volume in the Company’s consumer, commercial, and other lending businesses;

 

   

statements regarding the asset quality and levels of non-performing assets and impairment charges with respect to the Company’s investment portfolio;

 

   

statements regarding current and future capital management programs, tangible capital generation, and market share;

 

   

estimates of non-interest income levels, including fees from services and product sales, and expense levels;

 

   

statements of the Company’s goals, intentions, and expectations;

 

   

statements regarding the Company’s business plans, prospects, growth, and operating strategies; and

 

   

estimates of the Company’s risks and future costs and benefits.

The Company cautions that a number of important factors could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements. Such factors include, but are not limited to:

 

   

prevailing general economic conditions, either nationally or locally in some or all areas in which the Company conducts business, that are different than expected;

 

   

changes in the securities market, the banking industry, or competition among depository and other financial institutions;

 

   

inflation and changes in interest rates, deposit flows, loan demand, real estate values, consumer spending, savings, and borrowing habits which can materially affect, among other things, consumer banking revenues, origination levels in the Company’s lending businesses and the level of defaults, losses, and prepayments on loans made by the Company, whether held in portfolio or sold in the secondary markets, and the Company’s net interest margin and fair value of financial instruments;

 

   

changes in any applicable law, rule, government regulation, policy, or practice with respect to tax or legal issues affecting financial institutions, including changes in regulatory fees, and capital requirements;

 

   

risks and uncertainties related to the Company’s ability to successfully integrate any assets, liabilities, customers, systems, and management personnel the Company may acquire, if any, into its operations and its ability to realize related revenue synergies and cost savings within the expected time frame;

 

   

the Company’s timely development of new and competitive products or services in a changing environment, and the acceptance of such products or services by the Company’s customers so the Company is able to enter new markets successfully and capitalize on growth opportunities;

 

   

operational issues and/or capital spending necessitated by the potential need to adapt to industry changes in information technology systems, on which it is highly dependent;

 

   

changes in accounting principles, policies, guidelines, and practices, as may be adopted by the Company’s regulatory agencies, the Financial Accounting Standards Board (the “FASB”), the Securities and Exchange Commission (“SEC”), and the Public Company Accounting Oversight Board (the “PCAOB”), or changes to the Company’s primary regulator;

 

   

litigation liability, including costs, expenses, settlements, and judgments, or the outcome of other matters before regulatory agencies, whether pending or commencing in the future;

 

   

changes in the quality or composition of the investment and loan portfolios;

 

   

changes in the Company’s organization, compensation, and benefit plans;

 

   

changes in other economic, competitive, governmental, regulatory, and technological factors affecting the Company’s operations, pricing, products, and services; and

 

   

the timing and occurrence or non-occurrence of events that may be subject to circumstances beyond the Company’s control.

 

2


Table of Contents

These forward-looking statements are based on the Company’s current beliefs and expectations and are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond the Company’s control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Readers are cautioned not to place undue reliance on these forward-looking statements which are made as of the date of this report, and except as may be required by applicable law or regulation, the Company assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the PSLRA.

 

3


Table of Contents

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements

OBA Financial Services, Inc. and Subsidiary

Consolidated Statements of Condition (Unaudited)

 

(In thousands, except share data)    September 30,
2011
    June 30,
2011
 

Assets:

    

Cash and due from banks

   $40,639      $32,535   

Federal funds sold

   7,885      5,433   
  

 

  

 

 

   

 

  

 

 

 

Cash and cash equivalents

   48,524      37,968   

Interest bearing deposits with other banks

   9,045      7,058   

Securities available for sale

   33,879      35,828   

Securities held to maturity (fair value of $3,624 and $3,795)

   3,419      3,623   

Federal Home Loan Bank stock, at cost

   2,699      2,987   

Loans

   281,999      281,866   

Less: allowance for loan losses

   2,408      2,246   
  

 

  

 

 

   

 

  

 

 

 

Net loans

   279,591      279,620   

Premises and equipment, net

   6,219      6,285   

Bank owned life insurance

   8,677      8,601   

Other assets

   4,606      4,475   
  

 

  

 

 

   

 

  

 

 

 

Total assets

   $396,659      $386,445   
  

 

  

 

 

   

 

  

 

 

 

Liabilities:

    

Deposits:

    

Noninterest-bearing

   $31,283      $29,468   

Interest-bearing

   239,433      227,563   
  

 

  

 

 

   

 

  

 

 

 

Total deposits

   270,716      257,031   

Securities sold under agreements to repurchase

   18,674      15,566   

Federal Home Loan Bank advances

   27,088      29,618   

Advance payments from borrowers for taxes and insurance

   1,106      1,921   

Other liabilities

   1,354      1,449   
  

 

  

 

 

   

 

  

 

 

 

Total liabilities

        318,938           305,585   
     

 

 

      

 

 

 

Stockholders’ Equity:

          

Preferred stock (par value $.01); authorized 50,000,000 shares; no shares issued or outstanding

        —             —     

Common stock (par value $.01); authorized 100,000,000 shares; issued and outstanding 4,351,200 and 4,602,050 shares at September 30, 2011 and June 30, 2011, respectively

        44           46   

Additional paid-in capital

        41,006           44,419   

Unearned ESOP shares

        (3,379        (3,425

Retained earnings

        39,229           39,141   

Accumulated other comprehensive income

        821           679   
     

 

 

      

 

 

 

Total stockholders’ equity

        77,721           80,860   
     

 

 

      

 

 

 

Total liabilities and stockholders’ equity

      $ 396,659         $ 386,445   
     

 

 

      

 

 

 

See notes to consolidated financial statements.

 

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Table of Contents

OBA Financial Services, Inc. and Subsidiary

Consolidated Statements of Income (Unaudited)

 

     Three Months Ended
September 30,
 
(In thousands, except per share data)    2011      2010  

Interest and Dividend Income:

     

Loans receivable, including fees

   $ 3,768       $ 3,757   

Investment securities:

     

Interest—taxable

     282         318   

Dividends

     5         7   

Federal funds sold

     29         18   
  

 

 

    

 

 

 

Total interest and dividend income

     4,084         4,100   
  

 

 

    

 

 

 

Interest Expense:

     

Deposits

     756         676   

Federal Home Loan Bank advances

     291         392   

Securities sold under agreements to repurchase

     63         65   
  

 

 

    

 

 

 

Total interest expense

     1,110         1,133   
  

 

 

    

 

 

 

Net interest income

     2,974         2,967   

Less provision for loan losses

     147         158   
  

 

 

    

 

 

 

Net interest income after provision for loan losses

     2,827         2,809   
  

 

 

    

 

 

 

Non-Interest Income:

     

Customer service fees

     91         116   

Loan servicing fees

     9         11   

Bank owned life insurance income

     75         70   

Net gains

     6         25   

Other non-interest income

     30         31   
  

 

 

    

 

 

 

Total non-interest income

     211         253   
  

 

 

    

 

 

 

Non-Interest Expense:

     

Salaries and employee benefits

     1,738         1,461   

Occupancy and equipment

     386         451   

Data processing

     177         159   

Directors’ fees

     80         88   

FDIC assessments

     67         77   

Other non-interest expense

     488         449   
  

 

 

    

 

 

 

Total non-interest expense

     2,936         2,685   
  

 

 

    

 

 

 

Income before income taxes

     102         377   

Income tax expense

     14         125   
  

 

 

    

 

 

 

Net income

   $ 88       $ 252   
  

 

 

    

 

 

 

Basic earnings per share

   $ 0.02       $ 0.06   
  

 

 

    

 

 

 

Diluted earnings per share

   $ 0.02       $ 0.06   
  

 

 

    

 

 

 

Basic weighted average shares outstanding

     4,193,848         4,267,758   
  

 

 

    

 

 

 

Diluted weighted average shares outstanding

     4,193,881         4,267,758   
  

 

 

    

 

 

 

See notes to consolidated financial statements.

 

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Table of Contents

OBA Financial Services, Inc. and Subsidiary

Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Unaudited)

Three Months Ended September 30, 2011 and 2010

 

(In thousands)    Common
Stock
    Additional
Paid-in
Capital
    Unearned
ESOP
Shares
    Retained
Earnings
     Accumulated
Other
Comprehensive
Income
    Total  

Balances at July 1, 2011

   $ 46      $ 44,419      $ (3,425   $ 39,141       $ 679      $ 80,860   

Comprehensive income:

             

Net income

           88           88   

Other comprehensive income, net of tax:

             

Net unrealized gains on available for sale securities, net of tax of $91

              142        142   
             

 

 

 

Total comprehensive income

                230   

Purchase and retirement of 250,850 shares of Company stock

     (2     (3,607            (3,609

Share-based compensation expense

       173               173   

ESOP shares committed to be released (4,629 shares)

       21        46             67   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balances, September 30, 2011

   $ 44      $ 41,006      $ (3,379   $ 39,229       $ 821      $ 77,721   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balances at July 1, 2010

   $ 46      $ 44,759      $ (3,610   $ 38,284       $ 743      $ 80,222   

Comprehensive income:

             

Net income

           252           252   

Other comprehensive income (loss), net of tax:

             

Net unrealized losses on available for sale securities, net of tax of benefit ($54)

              (84     (84
             

 

 

 

Total comprehensive income

                168   

ESOP shares committed to be released (4,629 shares)

       5        46             51   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balances, September 30, 2010

   $ 46      $ 44,764      $ (3,564   $ 38,536       $ 659      $ 80,441   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

See notes to consolidated financial statements.

 

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Table of Contents

OBA Financial Services, Inc. and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)

 

     Three Months Ended
September 30,
 
(in thousands)    2011     2010  

Operating Activities:

    

Net income

   $ 88      $ 252   
  

 

 

   

 

 

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

    

Provision for loan losses

     147        158   

Depreciation and amortization of premises and equipment

     164        139   

Net amortization of securities premiums and discounts

     112        40   

Proceeds from sales of loans held for sale

     307        948   

Originated loans held for sale

     (301     (923

Net gains on sales of loans

     (6     (25

Amortization of net deferred loan fees

     —          (19

Bank owned life insurance income

     (75     (70

ESOP expense

     67        51   

Share-based compensation expense

     173        —     

Amortization of mortgage servicing rights

     3        2   

Amortization of brokered deposit premiums

     3        7   

Changes in other assets and liabilities, net

     (324     408   
  

 

 

   

 

 

 

Total adjustments

     270        716   
  

 

 

   

 

 

 

Net cash provided by operating activities

     358        968   
  

 

 

   

 

 

 

Investing Activities:

    

Principal collections and maturities of securities available for sale

     2,072        2,050   

Principal collections and maturities of securities held to maturity

     202        203   

Redemption of Federal Home Loan Bank Stock, net

     288        278   

Increase in interest bearing deposits with other Banks, net

     (1,987     (2,133

Loan purchases

     —          (4,140

Loan originations less principal collections, net

     (118     (4,007

Purchases of premises and equipment

     (98     (285
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     359        (8,034
  

 

 

   

 

 

 

Financing Activities:

    

Increase (decrease) in deposits

     13,685        (5,111

Increase (decrease) in securities sold under agreements to repurchase

     3,108        (50

Repayment of FHLB advances

     (2,530     (2,529

Net decrease in advance payments from borrowers for taxes and insurance

     (815     (1,049

Purchase and retirement of Company stock

     (3,609     —     
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     9,839        (8,739
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     10,556        (15,805

Cash and cash equivalents at beginning of period

     37,968        36,046   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 48,524      $ 20,241   
  

 

 

   

 

 

 

Supplemental Disclosures:

    

Interest paid

   $ 1,119      $ 1,053   

Income taxes paid

     —          —     

See notes to consolidated financial statements.

 

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Table of Contents

OBA Financial Services, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Business

OBA Bank (the “Bank”) is a community-oriented banking institution providing a variety of financial services to individuals and small businesses through its offices in Montgomery and Howard Counties, Maryland. Its primary deposits are demand and time certificate accounts and its primary lending products are residential and commercial mortgage loans.

In December 2007, the Bank reorganized into a three-tier mutual holding company structure. As part of the reorganization, the Bank converted from a mutual savings bank into a federally chartered stock savings bank and formed OBA Bancorp, Inc., a federally chartered mid-tier stock holding company, and OBA Bancorp, MHC, a federally chartered mutual holding company. The Bank became a wholly-owned subsidiary of OBA Bancorp, Inc. and OBA Bancorp, Inc. became a wholly-owned subsidiary of OBA Bancorp, MHC.

On January 21, 2010, OBA Bancorp, MHC completed its plan of conversion and reorganization from a mutual holding company to a stock holding company. In accordance with the plan, OBA Bancorp, MHC and OBA Bancorp, Inc. ceased to exist as separate legal entities and a stock holding company, OBA Financial Services, Inc. (of which OBA Bank became a wholly owned subsidiary) sold and issued shares of capital stock to eligible depositors of OBA Bank. A total of 4,628,750 shares were issued in the conversion at $10 per share, raising $46.3 million of gross proceeds. Approximately $1.5 million in stock offering costs were offset against the gross proceeds. OBA Financial Services, Inc.’s common stock began trading on the NASDAQ Capital Market under the symbol “OBAF” on January 22, 2010.

In accordance with regulations of the Office of Thrift Supervision, the Bank’s previous primary federal regulator at the time of the conversion from a mutual holding company to a stock holding company, the Bank substantially restricted retained earnings by establishing a liquidation account. The liquidation account is maintained for the benefit of eligible account holders who keep their accounts at the Bank after conversion. The liquidation account is reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder’s interest in the liquidation account. In the event of a complete liquidation of the Bank, and only in such event, each account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the adjusted qualifying account balances then held. The Bank may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount.

Basis of Presentation

The consolidated financial statements include the accounts of OBA Financial Services Inc., and OBA Bank. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and are presented in accordance with instructions for Form 10-Q and Rule 10-01 of the SEC Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation are of a normal and recurring nature and have been included.

Operating results for the three months ended September 30, 2011, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2012 or any other interim period. The consolidated financial statements presented in this report should be read in conjunction with the audited consolidated financial statements and the accompanying notes filed on Form 10-K for the fiscal year ended June 30, 2011.

In preparing the accompanying consolidated financial statements, the Company has evaluated subsequent events through the financial statement issue date. There were no subsequent events identified by the Company as a result of the evaluation that require recognition or disclosure in the consolidated financial statements.

Use of Estimates

In preparing the consolidated financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Statement of Condition and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly sensitive to change in the near term relates to the determination of the allowance for loan losses, values related to the share-based incentive plans, and other than temporary impairment of investment securities.

 

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Reclassifications

From time to time, certain amounts in the prior period financial statements are reclassified to conform with current period presentation. Such reclassifications, if any, have no impact on consolidated net income or stockholders’ equity.

Recent Accounting Pronouncements

Accounting Standards Update 2011-03

In April 2011, the FASB issued Accounting Standards Update 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements. The amendments in ASU 2011-03 improve the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The effective date is the first interim or annual period beginning on or after December 15, 2011. Early application is not permitted. This update is not expected to have an impact on the Company’s consolidated financial statements.

Accounting Standards Update ASU 2011-04

In May 2011, the FASB issued Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with GAAP and IFRSs. The effective date is the first interim or annual period beginning on or after December 15, 2011. Early application is not permitted. This update is not expected to have an impact on the Company’s consolidated financial statements.

Accounting Standards Update ASU 2011-05

In June 2011, the FASB issued Accounting Standards Update 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The amendments improve the comparability, consistency and transparency of financial reporting to increase the prominence of items reported on other comprehensive income. The effective date is the first interim or annual period beginning on or after December 15, 2011. Early application is permitted. This update is not expected to have an impact on the Company’s consolidated financial statements.

 

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NOTE 2 — COMPREHENSIVE INCOME

U.S. GAAP requires that recognized revenue, expenses, gains, and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the Statement of Condition, such items, along with net income, are components of comprehensive income.

The components of other comprehensive income (loss) and related tax effects are as follows:

 

     Three Months Ended
September 30,
 
      2011      2010  
     (In thousands)  

Unrealized gains (losses) on available for sale securities

     233         (138
  

 

 

    

 

 

 

Tax effect

     91         (54
  

 

 

    

 

 

 

Net of tax amount

   $ 142       $ (84
  

 

 

    

 

 

 

Accumulated other comprehensive income consists of the following:

 

     September 30,      June 30,  
     2011      2011  
     (In thousands)  

Unrealized gains on available for sale securities

   $ 1,347       $ 1,114   

Tax effect

     526         435   
  

 

 

    

 

 

 

Total

   $ 821       $ 679   
  

 

 

    

 

 

 

 

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NOTE 3 — SECURITIES

The amortized cost and fair value of securities with gross unrealized gains and losses are as follows:

 

     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair
Value
 
     (In thousands)  

September 30, 2011

          

Securities available for sale:

          

Debt Securities:

          

Residential mortgage-backed securities (1)

   $ 32,370       $ 1,352       $ —        $ 33,722   

Trust preferred securities

     112         —           (5     107   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total debt securities available for sale

     32,482         1,352         (5     33,829   

Equity Securities

     50         —           —          50   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total securities available for sale

     32,532         1,352         (5     33,879   
  

 

 

    

 

 

    

 

 

   

 

 

 

Securities held to maturity:

          

Debt Securities:

          

Residential mortgage-backed securities (1)

     3,419         205         —          3,624   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total debt securities held to maturity

     3,419         205         —          3,624   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total investment securities

   $ 35,951       $ 1,557       $ (5   $ 37,503   
  

 

 

    

 

 

    

 

 

   

 

 

 

June 30, 2011

          

Securities available for sale:

          

Debt Securities:

          

Residential mortgage-backed securities (1)

   $ 34,547       $ 1,116       $ —        $ 35,663   

Trust preferred securities

     117         —           (2     115   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total debt securities available for sale

     34,664         1,116         (2     35,778   

Equity Securities

     50         —           —          50   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total securities available for sale

     34,714         1,116         (2     35,828   
  

 

 

    

 

 

    

 

 

   

 

 

 

Securities held to maturity:

          

Debt Securities:

          

Residential mortgage-backed securities (1)

     3,623         172         —          3,795   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total debt securities held to maturity

     3,623         172         —          3,795   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total investment securities

   $ 38,337       $ 1,288       $ (2   $ 39,623   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

(1) 

All residential mortgage-backed securities were issued by United States government agencies including the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or Government National Mortgage Association. The Company had no private label residential mortgage-backed securities at September 30, 2011 and June 30, 2011 or during the three month periods then ended.

 

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The amortized cost and fair value of debt securities by contractual maturity at September 30, 2011 are as follows:

 

     Available for sale      Held to Maturity  
     Amortized
Cost
     Fair
Value
     Amortized
Cost
     Fair
Value
 
     (In thousands)  

Due after ten years

   $ 112       $ 107       $ —         $ —     

Residential mortgage-backed securities

     32,370         33,722         3,419         3,624   
  

 

 

 

Total

   $ 32,482       $ 33,829       $ 3,419       $ 3,624   
  

 

 

 

At September 20, 2011 and June 30, 2011, the carrying amount of securities pledged to secure dealer and customer repurchase agreements was $24.0 million and $22.9 million, respectively.

Information pertaining to securities with gross unrealized losses at September 30, 2011 and June 30, 2011, aggregated by investment category and length of time that individual securities have been in a continuous loss position, are as follows:

 

     Less than 12 Months      12 Months or More      Total  
     Gross
Unrealized
Losses
     Fair
Value
     Gross
Unrealized
Losses
     Fair
Value
     Gross
Unrealized
Losses
     Fair
Value
 
     (In thousands)  

September 30, 2011

                 

Trust preferred securities

   $ —         $ —         $ 5       $ 107       $ 5       $ 107   

June 30, 2011

                 

Trust preferred securities

   $ —         $ —         $ 2       $ 115       $ 2       $ 115   

At September 30, 2011, the Company’s sole trust preferred security is a variable rate pool of trust preferred securities issued by insurance companies or their holding companies. This position and the related unrealized loss in the trust preferred security is not material to the Company’s consolidated financial position or results of operations. The decline in the fair value of this security has been caused by (1) collateral deterioration due to failures and credit concerns across the financial services sector, (2) the widening of credit spreads for asset-backed securities, and (3) general illiquidity and, as a result, inactivity in the market for these securities. The Company has no intent or requirement to sell this security.

NOTE 4 — CREDIT QUALITY OF LOANS AND ALLOWANCE FOR LOAN LOSSES

Various Company policies, consistent with regulatory guidelines, provide for the classification of loans and other assets that are considered to be of lesser quality as substandard, doubtful, or loss assets. An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those assets characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Assets, or portions of assets, classified as losses are those considered uncollectible and of such little value that their continuance as an asset is not warranted. Since such assets are written off in full, the Company will not have any such loans classified as loss at the end of the reporting period. Assets that do not expose the Company to risk sufficient to warrant classification in one of the aforementioned categories, but which possess potential weaknesses that deserve close attention, are required to be designated as Special Mention.

 

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The Company maintains an allowance for loan losses at an amount estimated to equal all credit losses incurred in the loan portfolio that are both probable and reasonably estimable at the statement of condition date. The Company’s determination as to the classification of assets is subject to review by the Company’s principal federal regulator, the Office of the Comptroller of the Currency (“OCC”). The Company regularly reviews the asset portfolio to determine whether any assets require classification in accordance with applicable regulations.

Management evaluates the allowance for loan losses based upon the combined total of the specific, general, and unallocated components as discussed below. Generally, when the loan portfolio increases, absent other factors, the allowance for loan loss methodology results in a higher dollar amount of estimated probable losses than would be the case without the increase. Generally, when the loan portfolio decreases, absent other factors, the allowance for loan loss methodology results in a lower dollar amount of estimated probable losses than would be the case without the decrease.

Commercial real estate loans generally have greater credit risks compared to one- to four-family residential mortgage loans, as they typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment experience on loans secured by income-producing properties typically depends on the successful operation of the related business and thus may be subject to a greater extent to adverse conditions in the real estate market and in the general economy.

Commercial business loans generally have greater credit risks compared to one- to four-family residential mortgage loans, as they typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment experience on commercial business loans typically depends on the successful operation of the related business and thus may be subject to a greater extent to adverse conditions in the real estate market and in the general economy.

Generally, the Company underwrites commercial real estate loans at a loan-to-value ratio of 75% or less and residential real estate loans are underwritten at a loan-to-value ratio not exceeding 80%. In the event that a loan becomes past due, management will conduct visual inspections of collateral properties and/or review publicly available information, such as online databases, to ascertain property values. The Company may request a formal third party appraisal for various reasons including, but not limited to, age of previous appraisal, changes in market condition, and changes in borrower’s condition. For loans initially determined to be impaired loans, the Company utilizes the ascertained or appraised property value in determining the appropriate specific allowance for loan losses attributable to a loan. In addition, changes in the appraised value of properties securing loans can result in an increase or decrease in the general allowance for loan losses as an adjustment to the historical loss experience due to qualitative and environmental factors.

The loan portfolio is evaluated on a quarterly basis and the allowance is adjusted accordingly. While the best information available is used to make evaluations, future adjustments to the allowance may be necessary if conditions differ substantially from the information used in making the evaluations. In addition, as an integral part of their examination process, the OCC will periodically review the allowance for loan losses. The OCC may require the Company to recognize additions to the allowance based on its analysis of information available to them at the time of their examination.

The components of loans receivable are as follows:

 

      September 30,     June 30,  
     2011     2011  
     (In thousands)  

Commerical business loans

     33,707        36,041   

Commercial real estate

     114,083        108,756   

Construction

     1,000        1,180   

One-to four family residential

     96,254        97,285   

Home equity loans and lines of credit

     36,691        38,329   
  

 

 

   

 

 

 

Loans

     281,735        281,591   

Net deferred commerical loan (fees) costs

     (167     (181

Net deferred home equity costs

     431        456   
  

 

 

   

 

 

 

Loans net of deferred (fees) costs

     281,999        281,866   

Allowance for loan losses

     2,408        2,246   
  

 

 

   

 

 

 

Total loans, net

   $ 279,591      $ 279,620   
  

 

 

   

 

 

 

 

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The following tables present the classes of the loan portfolio summarized by loan rating within the Company’s internal risk rating system:

 

September 30, 2011:           Special                       
(In thousands)    Pass      Mention      Substandard      Doubtful      Total  

Commerical business loans

   $ 29,983       $ 1,921       $ 1,803       $ —         $ 33,707   

Commercial real estate

     103,478         3,678         6,927         —           114,083   

Construction

     1,000         —           —           —           1,000   

One-to four family residential

     95,045         —           1,209         —           96,254   

Home equity loans and lines of credit

     36,691         —           —           —           36,691   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 266,197       $ 5,599       $ 9,939       $ —         $ 281,735   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

June 30, 2011:           Special                       
(In thousands)    Pass      Mention      Substandard      Doubtful      Total  

Commerical business loans

   $ 33,199       $ 1,788       $ 1,054       $ —         $ 36,041   

Commercial real estate

     98,084         3,687         6,985         —           108,756   

Construction

     1,180         —           —           —           1,180   

One-to four family residential

     96,588         —           697         —           97,285   

Home equity loans and lines of credit

     38,329         —           —           —           38,329   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 267,380       $ 5,475       $ 8,736       $ —         $ 281,591   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans are generally placed on non-accrual status when payment of principal or interest is 90 days or more delinquent. Loans are also placed on non-accrual status if collection of principal or interest, in full, is in doubt. When loans are placed on a non-accrual status, unpaid accrued interest is fully reversed and further income is recognized only when full repayment of the loan is complete or the loan returns to accrual status, at which point income is recognized to the extent received. The loan may be returned to accrual status if both principal and interest payments are brought current, there has been a period of sustained performance (generally, six months), and full payment of principal and interest is expected.

The performance and credit quality of the loan portfolio is also monitored by the analyzing of the age of the loans receivable as determined by the length of time a recorded payment is past due. The following tables present the classes of the loan portfolio summarized by the past due and non-accrual status:

 

                   90 Days                    Total      Total  
September 30, 2011:    30-59 Days      60-89 Days      and Over      Total             Loans      Non-Accrual  
(In thousands)    Past Due      Past Due      Past Due      Past Due      Current      Receivable      Loans  

Commerical business loans

   $ —         $ —         $ —         $ —         $ 33,707       $ 33,707       $ —     

Commercial real estate

     812         —           459         1,271         112,812         114,083         5,571   

Construction

     —           —           —           —           1,000         1,000         —     

One-to four family residential

     —           —           513         513         95,741         96,254         513   

Home equity loans and lines of credit

     234         75         —           309         36,382         36,691         75   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,046       $ 75       $ 972       $ 2,093       $ 279,642       $ 281,735       $ 6,159   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

                   90 Days                    Total      Total  
June 30, 2011:    30-59 Days      60-89 Days      and Over      Total             Loans      Non-Accrual  
(In thousands)    Past Due      Past Due      Past Due      Past Due      Current      Receivable      Loans  

Commerical business loans

   $ —         $ —         $ —         $ —         $ 36,041       $ 36,041       $ —     

Commercial real estate

     —           327         2,094         2,421         106,335         108,756         5,292   

Construction

     —           —           —           —           1,180         1,180         —     

One-to four family residential

     —           —           —           —           97,285         97,285         —     

Home equity loans and lines of credit

     198         75         —           273         38,056         38,329         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 198       $ 402       $ 2,094       $ 2,694       $ 278,897       $ 281,591       $ 5,292   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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The Bank provides for loan losses based upon the consistent application of the documented allowance for loan loss methodology. All loan losses are charged to the allowance for loan losses and all recoveries are credited to it. Additions to the allowance for loan losses are provided by charges to income based on various factors which, in Management’s judgment, deserve current recognition in estimating probable losses. Management regularly reviews the loan portfolio and makes provisions for loan losses in order to maintain the allowance for loan losses in accordance with U.S. GAAP. The Bank considers residential mortgage loans and home equity loans and lines of credit to customers as small, homogeneous loans, which are evaluated for impairment collectively based on historical loss experience. Commercial mortgage and business loans are viewed individually and considered impaired if it is probable that the Bank will not be able to collect scheduled payments of principal and interest when due; according to the contractual terms of the loan agreements. The allowance for loan losses consists primarily of three components:

 

  (1) specific allowances established for impaired loans (as defined by U.S. GAAP). The amount of impairment provided for as a specific allowance is represented by the deficiency, if any, between the estimated fair value of the loan, or the loan’s observable market price, if any, or the underlying collateral, if the loan is collateral dependent, and the carrying value of the loan. Impaired loans for which the estimated fair value of the loan exceeds the carrying value of the loan do not require specific allowances;

 

  (2) general allowances established for loan losses on a portfolio basis for loans that do not meet the definition of impaired loans. The portfolio is grouped into similar risk characteristics, primarily loan type. The Bank applies an estimated loss rate to each loan group. The loss rates applied are based upon loss experience adjusted, as appropriate, for the environmental factors discussed below. This evaluation is inherently subjective, as it requires material estimates that may be susceptible to significant revisions based upon changes in economic and real estate market conditions; and

 

  (3) unallocated allowances established to provide for probable losses that have been incurred as of the reporting date but are not reflected in the allocated allowance.

Actual loan losses may be significantly more than the allowance for loan losses established, which could have a material negative effect on financial results.

The adjustments to historical loss experience are based on Management’s evaluation of several qualitative and environmental factors, including:

 

   

changes in any concentration of credit (including, but not limited to, concentrations by geography, industry, or collateral type);

 

   

changes in the number and amount of non-accrual loans, watch list loans, and past due loans;

 

   

changes in national, state, and local economic trends;

 

   

changes to other external influences including, but not limited to, legal, accounting, peer, and regulatory changes;

 

   

changes in the types of loans in the loan portfolio;

 

   

changes in the experience and ability of personnel and management in the loan origination and loan servicing departments;

 

   

changes in the value of underlying collateral for collateral dependent loans;

 

   

changes in lending strategies; and

 

   

changes in lending policies and procedures.

The following table summarizes activity in the allowance for loan losses for the three months ended September 30, 2011 and 2010:

 

      Three Months Ended  
      September 30,  
(in thousands)    2011      2010  

Balance at beginning of period

   $ 2,246       $ 1,737   

Provision for loan losses

     147         158   

Charge-offs

     —           —     

Recoveries

     15         30   
  

 

 

    

 

 

 

Balance at end of period

   $ 2,408       $ 1,925   
  

 

 

    

 

 

 

 

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The following table sets forth the activity in and allocation of the allowance for loan losses by loan portfolio class for the three months ended September 30, 2011:

 

(In thousands)    Commerical
business loans
     Commerical
real estate
     Construction      One-to four
family
residential
     Home equity
loans and lines
of credit
    Unallocated     Total loans  

Allowance for loan losses:

                  

Beginning Balance

   $ 383       $ 706       $ 2       $ 528       $ 440      $ 187      $ 2,246   

Charge-offs

     —           —           —           —           —          —          —     

Recoveries

     —           —           —           15         —          —          15   

Provisions

     110         40         —           57         (35     (25     147   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Ending balance

   $ 493       $ 746       $ 2       $ 600       $ 405      $ 162      $ 2,408   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

The following tables present the balance in the allowance for loan losses and the recorded in investment in loans by portfolio class and based on impairment method:

 

                          One-to four      Home equity                
September 30, 2011:    Commerical      Commerical             family      loans and lines                
(In thousands)    business loans      real estate      Construction      residential      of credit      Unallocated      Total loans  

Allowance for Loan Losses:

                    

Ending allowance balance related to loans:

                    

Individually evaluated for impairment

   $ —         $ —         $ —         $ 90       $ —         $ —         $ 90   

Collectively evaluated for impairment

     493         746         2         510         405         162         2,318   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending allowance balance

   $ 493       $ 746       $ 2       $ 600       $ 405       $ 162       $ 2,408   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans receivable:

                    

Ending loan balance

                    

Individually evaluated for impairment

   $ —         $ 6,927       $ —         $ 696       $ —            $ 7,623   

Collectively evaluated for impairment

     33,707         107,156         1,000         95,558         36,691            274,112   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       

 

 

 

Total ending loan balance

   $ 33,707       $ 114,083       $ 1,000       $ 96,254       $ 36,691          $ 281,735   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       

 

 

 

 

                          One-to four      Home equity                
June 30, 2011:    Commerical      Commerical             family      loans and lines                
(In thousands)    business loans      real estate      Construction      residential      of credit      Unallocated      Total loans  

Allowance for Loan Losses:

                    

Ending allowance balance related to loans:

                    

Individually evaluated for impairment

   $ —         $ —         $ —         $ 90       $ —         $ —         $ 90   

Collectively evaluated for impairment

     383         706         2         438         440         187         2,156   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending allowance balance

   $ 383       $ 706       $ 2       $ 528       $ 440       $ 187       $ 2,246   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans receivable:

                    

Ending loan balance

                    

Individually evaluated for impairment

   $ —         $ 6,985       $ —         $ 697       $ —            $ 7,682   

Collectively evaluated for impairment

     36,041         101,771         1,180         96,588         38,329            273,909   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       

 

 

 

Total ending loan balance

   $ 36,041       $ 108,756       $ 1,180       $ 97,285       $ 38,329          $ 281,591   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       

 

 

 

 

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The following tables summarize information in regards to impaired loans by portfolio class for the periods ended September 30, 2011 and June 30, 2011:

 

     At September 30, 2011      Three months ended
September 30, 2011
 
(In thousands)    Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Average
Recorded
Investment
     Interest
Income
Recognized
 

With No Related Allowance Recorded:

              

Commercial real estate

   $ 6,927       $ 7,010       $ —         $ 6,956       $ 166   

One-to four family residential

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total with no allowance recorded

   $ 6,927       $ 7,010       $ —         $ 6,956       $ 166   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With an Allowance Recorded:

              

Commercial real estate

   $ —         $ —         $ —         $ —         $ —     

One-to four family residential

     696         696         90         697         8   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total with allowance recorded

   $ 696       $ 696       $ 90       $ 697       $ 8   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total:

              

Commercial real estate

   $ 6,927       $ 7,010       $ —         $ 6,956       $ 166   

One-to four family residential

     696         696         90         697         8   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 7,623       $ 7,706       $ 90       $ 7,653       $ 174   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

                          For the year  
            ended  
     At June 30, 2011      June 30, 2011  
            Unpaid             Average  
     Recorded      Principal      Related      Recorded  
(In thousands)    Investment      Balance      Allowance      Investment  

With No Related Allowance Recorded:

           

Commercial real estate

   $ 6,985       $ 7,067       $ —         $ 4,452   

One-to four family residential

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total with no allowance recorded

   $ 6,985       $ 7,067       $ —         $ 4,452   
  

 

 

    

 

 

    

 

 

    

 

 

 

With an Allowance Recorded:

           

Commercial real estate

   $ —         $ —         $ —         $ —     

One-to four family residential

     697         697         90         693   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total with allowance recorded

   $ 697       $ 697       $ 90       $ 693   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total:

           

Commercial real estate

   $ 6,985       $ 7,067       $ —         $ 4,452   

One-to four family residential

     697         697         90         693   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 7,682       $ 7,764       $ 90       $ 5,145   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The following table presents troubled debt restructurings occurring during the three-month period ended September 30, 2011:

 

(In thousands)    Number
of
Contracts
     Pre-Modification
Outstanding
Recorded
Investments
     Post-Modification
Outstanding
Recorded
Investments
 

Troubled debt restructurings:

        

Commercial real estate

     1         3,198         3,198   
  

 

 

    

 

 

    

 

 

 

Total troubled debt restructurings

     1       $ 3,198       $ 3,198   
  

 

 

    

 

 

    

 

 

 

Loans are periodically modified to make concessions to help a borrower remain current on the loan and to avoid foreclosure. Generally, the Bank does not forgive principal or interest on loans or modify the interest rate on loans to rates that are below market rates based on the risks associated with the modified loans. Troubled debt restructurings include deferrals of interest and/or principal payments and temporary or permanent reductions in interest rates due to financial difficulties of the borrower. No loans previously classified as troubled debt restructurings subsequently defaulted. The Company identified no loans for which the allowance for loan losses had previously been measured under a general allowance for credit losses methodology that are now considered troubled debt restructurings in accordance with accounting standards update No. 2011- 02.

NOTE 5 — FAIR VALUE MEASUREMENTS AND DISCLOSURES

Management uses its best judgment in estimating the fair value of the Company’s assets and liabilities; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all assets and liabilities, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sale transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective reporting dates and have not been re-evaluated or updated subsequent to those respective dates. As such, the estimated fair values of these assets and liabilities subsequent to the respective reporting dates may be different than the amounts reported at each reporting date. Accounting guidance related to fair value measurements and disclosures establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

 

          Level 1:      Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
  Level 2:      Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.
  Level 3:      Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

An asset or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

 

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For assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at September 30, 2011 and June 30, 2011 are as follows:

 

000000.00 000000.00 000000.00 000000.00
(In thousands)                            

Description

   September 30,
2011
     (Level 1)
Quoted Prices
in Active
Markets for
Identical
Assets
     (Level 2)
Significant
Other
Observable
Inputs
     (Level 3)
Significant
Unobservable
Inputs
 

Residential mortgage-backed securities

   $ 33,722       $ —         $ 33,722       $ —     

Trust preferred securities

     107         —           —           107   

Equity securities

     50         —           50         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities available for sale

   $ 33,879       $ —         $ 33,772       $ 107   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

000000.00 000000.00 000000.00 000000.00

Description

   June 30,
2011
     (Level 1)
Quoted Prices
in Active
Markets for
Identical
Assets
     (Level 2)
Significant
Other
Observable
Inputs
     (Level 3)
Significant
Unobservable
Inputs
 

Residential mortgage-backed securities

   $ 35,663       $ —         $ 35,663       $ —     

Trust preferred securities

     115         —           —           115   

Equity securities

     50         —           50         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities available for sale

   $ 35,828       $ —         $ 35,713       $ 115   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents a reconciliation of the securities available for sale measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended September 30, 2011:

 

(In thousands)       

Beginning balance July 1, 2011

   $ 115   

Principal repayments

     (5

Unrealized losses included in other comprehensive income

     (3
  

 

 

 

Ending balance

   $ 107   
  

 

 

 

Level 3 securities consist of one trust preferred security at September 30, 2011 and 2010.

 

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Table of Contents

For assets measured at fair value on a nonrecurring basis at September 30, 2011 and June 30, 2011, the fair value measurements by level within the fair value hierarchy are as follows:

 

$00.00 $00.00 $00.00 $00.00
(In thousands)                          

Description

   September 30,
2011
     (Level 1)
Quoted Prices
in Active
Markets for
Identical
Assets
     (Level 2)
Significant
Other
Observable
Inputs
   (Level 3)
Significant
Unobservable
Inputs
 

Impaired loans

   $ 606       $ —            $ 606   
  

 

 

    

 

 

    

 

  

 

 

 

Real estate owned

   $ 105       $ —            $ 105   
  

 

 

    

 

 

    

 

  

 

 

 

 

$0000.00 $0000.00 $0000.00 $0000.00

Description

             June 30,
2011
     (Level 1)
Quoted Prices
in Active
Markets for
Identical
Assets
     (Level 2)
Significant
Other
Observable
Inputs
   (Level 3)
Significant
Unobservable
Inputs
 

Impaired loans

   $ 607       $ —            $ 607   
  

 

 

    

 

 

    

 

  

 

 

 

Real estate owned

   $ 105       $ —            $ 105   
  

 

 

    

 

 

    

 

  

 

 

 

The methods and assumptions used to estimate the fair values included in the above tables are included in the disclosures that follow.

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate fair values at September 30, 2011 and June 30, 2011:

Cash and Cash Equivalents (Carried at Cost)

The carrying amounts of cash and short-term instruments approximate fair value.

Securities Available for Sale (Carried at Fair Value)

The fair values of securities available for sale, excluding trust preferred securities, are determined by matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.

The market for pooled trust preferred securities is inactive. A significant widening of the bid/ask spreads in the markets in which these securities trade was followed by a significant decrease in the volume of trades relative to historical levels. The new issue market is also inactive and no new pooled trust preferred securities have been issued since 2007. Since there were limited observable market-based Level 1 and Level 2 inputs for trust preferred securities, the fair value of these securities was estimated using primarily unobservable Level 3 inputs. Fair value estimates for trust preferred securities were based on discounting expected cash flows using a risk-adjusted discount rate. The Company develops the risk-adjusted discount rate by considering the time value of money (risk-free rate) adjusted for an estimated risk premium for bearing the uncertainty in future cash flows and, given current adverse market conditions, a liquidity adjustment based on an estimate of the premium that a market participant would require assuming an orderly transaction.

 

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Table of Contents

Securities Held to Maturity (Carried at Amortized Cost)

The fair values of securities held to maturity are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1) or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.

Federal Home Loan Bank Stock (Carried at Cost)

The carrying amount of Federal Home Loan Bank stock approximates fair value and considers the limited marketability of such securities.

Loans Receivable (Carried at Cost)

The fair values of loans (except impaired loans) are estimated using discounted cash flow analyses which use market rates at the statement of condition date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying amounts.

Impaired Loans (Generally Carried at Fair Value)

Impaired loans are those for which the Company has measured impairment generally based on the fair value of the loan’s collateral. Fair value of real estate collateral is generally determined based upon independent third-party appraisals of the properties, which consider sales prices of similar properties in the proximate vicinity or by discounting expected cash flows from the properties by an appropriate risk adjusted discount rate. Fair value of collateral other than real estate is based on an estimate of the liquidation proceeds. Impaired loans are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements. The fair value consists of the loan balances net of a valuation allowance.

Foreclosed Assets (Carried at Lower of Cost or Fair Value less Estimated Selling Costs)

Fair values of foreclosed assets are based on independent third party appraisals of the properties or discounted cash flows based upon the expected sales proceeds from disposition of the assets. These values were generally determined based on the sales prices of similar properties in the proximate vicinity. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Mortgage Servicing Rights (Carried at Lower of Cost or Fair Value)

At origination, the Company estimates the fair value of mortgage servicing rights at 1% of the principal balances of loans sold. The Company amortizes that amount over the estimated period of servicing revenues or charges the entire amount to income upon prepayment of the related loan. Due to the small size of the balance of mortgage servicing rights at September 30, 2011 and June 30, 2011, the Company did not perform any further analysis or estimate their fair values. Therefore, the Company has disclosed that the carrying amounts of mortgage servicing rights approximate fair value.

Deposit Liabilities (Carried at Cost)

The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities.

Federal Home Loan Bank Advances (Carried at Cost)

Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms, and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.

Securities Sold Under Agreements to Repurchase (Carried at Cost)

The carrying amounts of securities sold under agreements to repurchase approximate fair value for short-term obligations. The fair values for longer term repurchase agreements are based on current market interest rates for similar transactions.

Accrued Interest Receivable and Payable (Carried at Cost)

The carrying amounts of accrued interest approximate fair value.

 

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Table of Contents

Off-Balance-Sheet Credit-Related Instruments (Disclosures at Cost)

Fair values for off-balance-sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of these instruments is not material.

The estimated fair values of the Company’s financial instruments were as follows:

 

     September 30,
2011
          June 30,
2011
 
     Carrying
Amount
     Fair Value           Carrying
Amount
     Fair
Value
 
     (In thousands)  

Financial assets:

              

Cash and cash equivalents

   $ 48,524       $ 48,524          $ 37,968       $ 37,968   

Interest bearing deposits with other banks

     9,045         9,045            7,058         7,058   

Securities available for sale

     33,879         33,879            35,828         35,828   

Securities held to maturity

     3,419         3,624            3,623         3,795   

Federal Home Loan Bank stock

     2,699         2,699            2,987         2,987   

Loans receivable, net

     279,591         287,268            279,620         288,282   

Accrued interest receivable

     1,188         1,188            1,208         1,208   

Mortgage servicing rights

     85         85            88         88   

Financial liabilities:

              

Deposits

     270,716         272,597            257,031         257,981   

Securities sold under agreements to repurchase

     18,674         18,867            15,566         15,780   

Federal Home Loan Bank Advances

     27,088         30,138            29,618         32,241   

Accrued interest payable

     267         267            276         276   

Off-Balance sheet financial instruments

     —           —              —           —     

NOTE 6 — GUARANTEES

The Company has not issued any guarantees that would require liability recognition or disclosure other than its letters of credit. Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Generally, all letters of credit, when issued, have expiration dates within one year. The credit risks involved in issuing letters of credit are essentially the same as those that are involved in extending loan facilities to customers. The Company generally holds collateral and/or personal guarantees supporting these commitments. As of September 30, 2011, the Company had $421 thousand of outstanding letters of credit. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees. Management believes that the current amount of the liability as of September 30, 2011 for guarantees under letters of credit issued is not material.

NOTE 7 — EMPLOYEE STOCK OWNERSHIP PLAN

Effective January 1, 2010, the Company adopted an Employee Stock Ownership Plan (“ESOP”) for eligible employees. The ESOP borrowed $3.7 million from the Company and used those funds to acquire 370,300 shares, or 8.0%, of the total number of shares issued by the Company in its initial public offering. The shares were acquired at a price of $10.00 per share.

The loan is secured by the shares purchased with the loan proceeds and will be repaid by the ESOP over the 20-year term of the loan with funds from OBA Bank’s contributions to the ESOP and dividends payable on the stock, if any. The interest rate on the ESOP loan is an adjustable rate equal to the lowest prime rate, as published in The Wall Street Journal. The interest rate adjusts annually and is the prime rate on the first business day of the calendar year.

 

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Table of Contents

Shares purchased by the ESOP are held by a trustee in an unallocated suspense account, and shares are released annually from the suspense account on a pro-rata basis as principal and interest payments are made by the ESOP to the Company. The trustee allocates the shares released among participants on the basis of each participant’s proportional share of compensation relative to all participants. Total ESOP shares may be reduced as a result of employees leaving the Company; shares that have previously been released to those exiting employees may be removed from the plan and transferred to that employee. As shares are committed to be released from the suspense account, OBA Bank reports compensation expense based on the average fair value of shares committed to be released with a corresponding credit to stockholders’ equity. Compensation expense recognized for the three months ended September 30, 2011 and 2010 amounted to $67 thousand and $51 thousand, respectively.

Shares held by the ESOP trust at September 30, 2011 and 2010 were as follows:

 

     September 30,  
     2011      2010  

Allocated shares

     32,114         13,886   

Unallocated shares

     337,899         356,414   
  

 

 

    

 

 

 

Total ESOP shares

     370,013         370,300   
  

 

 

    

 

 

 

Fair value of unallocated shares, in thousands

   $ 4,900       $ 3,928   
  

 

 

    

 

 

 

NOTE 8 — SHARE BASED COMPENSATION

In May 2011, the Company’s stockholders approved the OBA Financial Services, Inc. 2011 Equity Incentive Plan (“Plan”) which provides for awards of stock options and restricted stock to key officers and outside directors. The cost of the Plan is based on the fair value of the awards on the grant date. The fair value of restricted stock awards is based on the closing price of the Company’s stock on the grant date. The fair value of stock options is estimated using a Black-Scholes option pricing model using assumptions for dividend yield, stock price volatility, risk-free interest rate, and option term. These assumptions are based on Management’s judgments regarding future events, are subjective in nature, and contain uncertainties inherent in an estimate. The cost of the awards are being recognized on a straight-line basis over the five-year vesting period during which participants are required to provide services in exchange for the awards. A portion of the restricted stock award vesting is contingent upon meeting certain company-wide performance goals.

Shares of the Company’s common stock under the Plan shall be authorized but unissued shares. The maximum number of shares that will be awarded under the plan will be 648,025 shares. Total share-based compensation expense for the three months ended September 30, 2011 was $173 thousand.

Stock Options

The table below presents the stock option activity for the three months ended September 30, 2011:

 

      Options      Weighted
average
exercise
price
     Remaining
contractual
life (years)
 
        
        
        

Options outstanding at June 30, 2011

     —         $ —        

Granted

     260,150         14.81      

Exercised

     —           —        

Forfeited

     —           —        

Expired

     —           —        

Options outstanding at September 30, 2011

     260,150       $ 14.81         9.8   

As of September 30, 2011, the Company had $850 thousand of unrecognized compensation costs related to stock options. The cost of stock options will be amortized in equal annual installments over the five-year vesting period. There were no options vested in the three months ended September 30, 2011. Stock option expense for the three months ended September 30, 2011 was $35 thousand. The grant date fair value of the stock options was $885 thousand.

 

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Table of Contents

The fair value of the Company’s stock options was determined using the Black-Scholes option pricing formula. The following assumptions were used in the formula:

 

Expected volatility

     19.09

Risk-free interest rate

     2.11

Expected dividends

     1.62

Expected life (in years)

     6.50   

Exercise price for the stock options

   $ 14.81   

Fair value of the stock option

   $ 3.40   

Expected volatility — Based on the historical volatility of a peer group of comparable banks as contained in the Keefe, Bruyette & Woods, Inc. Regional Bank Index (KRX) at the time of grant. Due to the recent initial public offering and issuance of the Company’s common stock, the Company’s shares are not actively traded and its volatility is not reflective of an actively traded institution. Therefore, the Company estimates that the expected volatility will equal the peer group of comparable banks’ volatility over the expected life of the options at the time of grant.

Risk-free interest rate — Based on the U.S. Treasury yield curve and expected life of the options at the time of grant.

Expected dividend yield — Based on the Company’s peer group of comparable banks, as contained in the Keefe, Bruyette & Woods, Inc. Regional Bank Index (KRX). The Company currently does not pay a dividend; therefore, the expected dividend yield was weighted for the portion of the life of the options that the Company expects to pay a dividend. The Company estimates that the expected dividend yield will equal the peer group of comparable banks’ dividend yield over the expected life of the options at the time of grant.

Expected life — Based on a weighted-average of the five-year vesting period and the 10-year contractual term of the stock option plan.

Exercise price for the stock options — Based on the closing price of the Company’s stock on the date of grant.

Restricted Stock Awards

Restricted stock awards are accounted for as fixed grants using the fair value of the Company’s stock at the time of grant. Unvested restricted stock awards may not be disposed of or transferred during the vesting period. Restricted stock awards carry with them the right to receive dividends.

The table below presents the restricted stock award activity for the three months ended September 30, 2011:

 

      Service-Based
Restricted
stock
awards
     Weighted
average
grant date
fair value
     Performance-Based
Restricted
stock
awards
     Weighted
average
grant date
fair value
     Total
Restricted
stock
awards
     Weighted
average
grant date
fair value
 
                 
                 
                 

Non-vested at June 30, 2011

     —         $ —           —         $ —           —         $ —     

Granted

     125,175         14.81         111,090         14.81         236,265         14.81   

Vested

     —           —           —           —           —           —     

Forfeited

     —           —           —           —           —           —     

Non-vested at September 30, 2011

     125,175       $ 14.81         111,090       $ 14.81         236,265       $ 14.81   

As of September 30, 2011, the Company had $3.4 million of unrecognized compensation cost related to restricted stock awards. The cost of the restricted stock awards will be amortized in equal annual installments over the five-year vesting period. The vesting of the performance-based stock awards is contingent upon meeting certain company-wide performance goals. If such goals are not met, no compensation cost is recognized and any recognized compensation cost is reversed. Restricted stock expense for the three months ended September 30, 2011 was $138 thousand. There were no shares vested in the three months ended September 30, 2011.

 

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Table of Contents

NOTE 9 — EARNINGS PER SHARE

Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period exclusive of unearned ESOP shares and unvested restricted stock shares. Stock options and unvested restricted stock are regarded as potential common stock and are considered in the diluted earnings per share calculations to the extent they would have a dilutive effect if converted to common stock, computed using the Treasury Stock method. The Company had no potentially dilutive common shares for the three month period ended September 30, 2010.

 

     September 30,  
(Dollars in thousands, except share data)    2011      2010  

Net income

   $ 88       $ 252   

Weighted average number of shares used in:

     

Basic earnings per share

     4,193,848         4,267,758   

Diluted common stock equivalents:

     

Restricted stock units

     33         —     
  

 

 

    

 

 

 

Diluted earnings per share

     4,193,881         4,267,758   
  

 

 

    

 

 

 

Net income per common share, basic

   $ 0.02       $ 0.06   
  

 

 

    

 

 

 

Net income per common share, diluted

   $ 0.02       $ 0.06   
  

 

 

    

 

 

 

 

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Table of Contents
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FINANCIAL REVIEW

The principal objective of this Financial Review is to provide an overview of the financial condition and results of operations of OBA Financial Services Inc., and its subsidiary, OBA Bank. The discussion and tabular presentations should be read in conjunction with the accompanying unaudited Consolidated Financial Statements and Notes.

Overview of Income and Expenses

Income

The Company has two primary sources of pre-tax income. Net interest income is the difference between interest income, which is the income the Company earns on its loans and investments, and interest expense, which is the interest the Company pays on its deposits and borrowings.

Non-interest income is the compensation received from providing products and services and from other income. The majority of the non-interest income is earned from service charges on deposit accounts, bank owned life insurance income, and loan servicing fees. The Company also earns income from the sale of residential mortgage loans and other fees and charges.

The Company recognizes gains or losses as a result of sales of investment securities, foreclosed property, and premises and equipment. In addition, the Company recognizes losses on its investment securities that are considered other-than-temporarily impaired. Gains and losses are not a regular part of the Company’s primary sources of income.

Expenses

The expenses the Company incurs in operating its business consist primarily of salaries and employee benefits, occupancy and equipment expense, external processing fees, FDIC assessments, Director fees, and other non-interest expenses.

Salaries and employee benefits expense consists primarily of the salaries and wages paid to employees, payroll taxes, and expenses for stock benefit and compensation plans, health care, retirement, and other employee benefits.

Occupancy expenses, which are fixed or variable costs associated with premises and equipment, consist primarily of lease payments, real estate taxes, depreciation charges, maintenance, and cost of utilities.

Equipment expense includes expenses and depreciation charges related to office and banking equipment.

External processing fees are paid to third parties mainly for data processing services.

Other expenses include expenses for professional services, including, but not limited to, attorney, accountant and consultant fees, advertising and marketing, charitable contributions, insurance, office supplies, postage, telephone, and other miscellaneous operating expenses.

Critical Accounting Policies and Estimates

There are no material changes to the critical accounting policies disclosed in OBA Financial Services, Inc.’s Form 10-K for the fiscal year ended June 30, 2011.

Comparison of Financial Condition at September 30, 2011 and June 30, 2011

Assets. Total assets increased $10.2 million, or 2.6%, to $396.7 million at September 30, 2011 from $386.4 million at June 30, 2011. The increase was primarily due to an increase in cash and cash equivalents and interest bearing deposits with other banks partially offset by a decrease in total securities.

Cash and Cash Equivalents. At September 30, 2011, Cash and cash equivalents increased $10.6 million, or 27.8%, to $48.5 million from $38.0 million at June 30, 2011 primarily due to an increase in total deposits partially offset by a decrease in Federal Home Loan Bank advances.

Loans. At September 30, 2011, total gross loans were $282.0 million, slightly changed from $281.9 million at June 30, 2011. The commercial loan portfolio increased $2.8 million to $148.6 million at September 30, 2011 from $145.7 million at June 30, 2011. This increase was offset by decreases of $1.0 million and $1.7 million in the one-to four-family residential and home equity loans and lines of credit loan portfolios, respectively. For further detail, see “Note 4 – Credit Quality of Loans and Allowance for Loan Losses” in the accompanying financial statements.

 

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Table of Contents

Allowance for Loan Losses.

The following table summarizes activity in the allowance for loan losses for the three months ended September 30, 2011 and 2010:

 

     Three Months Ended
September 30,
 
(in thousands)    2011     2010  

Balance at beginning of period

     $2,246        $1,737   

Provision for loan losses

     147        158   

Charge-offs

     —          —     

Recoveries

     15        30   
  

 

 

   

 

 

 

Balance at end of period

   $ 2,408      $ 1,925   
  

 

 

   

 

 

 

Ratios:

    

Net charge-offs (recoveries) to average loans

     (0.02 )%      (0.04 )% 

Allowance for loan losses to loans

     0.85        0.67   

At September 30, 2011, the allowance for loan losses was $2.4 million compared with $2.2 million at June 30, 2011, and $1.9 million at September 30, 2010. The allowance for loan losses as a percentage of total loans at September 30, 2011 was 0.85% compared to 0.80% at June 30, 2011, and 0.67% at September 30, 2010. Net recoveries as a percentage of average loans were 0.02% for the three months ended September 30, 2011 and 0.04% for the three months ended September 30, 2010. At September 30, 2011, the Bank had $7.6 million in impaired loans as compared to $7.7 million at June 30, 2011. Total impaired loans are primarily made up of two loan relationships with not-for-profit entities that have collateral value well in excess of the loan value. Based on the value of the collateral, no specific allowances are required for these loans. For more information on the loan portfolios see “Loans” in “Comparison of Financial Condition at September 30, 2011 and June 30, 2011.”

Non-performing Assets. Loans are generally placed on non-accrual status when payment of principal or interest is 90 days or more delinquent unless well secured and in the process of collection. Loans are also placed on non-accrual status if collection of principal or interest in full is in doubt. When loans are placed on non-accrual status, unpaid accrued interest is fully reversed, and further income is recognized only to the extent received. The loan may be returned to accrual status if both principal and interest payments are brought current, there has been a period of sustained performance (generally, six months), and full payment of principal and interest is expected. At September 30, 2011 and June 30, 2011, the Company had $6.3 million and $5.4 million in total non-performing assets, respectively. Primarily, these totals represent commercial real estate and one-to four family residential loans. Of the $6.3 million in non-performing assets the Company reported at September 20, 2011, $5.1 million were also troubled debt restructurings.

The following table summarizes non-performing assets as of September 30, 2011 and June 30, 2011:

 

(dollars in thousands)    September 30,
2011
    June 30,
2011
 

Non-performing assets

    

Non-accrual loans:

    

Commerical Real Estate

   $ 5,571      $ 5,292   

One-to four family residential

     513        —     

Home equity loans and lines of credit

     75        —     
  

 

 

   

 

 

 

Total non-accrual loans

     6,159        5,292   

Other real estate owned

     105        105   
  

 

 

   

 

 

 

Total non-performing assets

   $ 6,264      $ 5,397   
  

 

 

   

 

 

 

Asset quality ratios:

    

Non-performing loans to total loans

     2.18     1.88

Non-performing assets to total assets

     1.58        1.40   

 

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The non-performing loans to total loans ratio increased 30 basis points from 1.88% at June 30, 2011 to 2.18% at September 30, 2011 and the non-performing assets to total assets ratio increased 18 basis points from 1.40% at June 30, 2011 to 1.58% at September 30, 2011. Both ratios increased primarily as a result of a single one- to four-family residential loan moving to non-accrual status at September 30, 2011. For further detail, see “Note 4 – Credit Quality of Loans and Allowance for Loan Losses” in the accompanying financial statements.

Troubled Debt Restructurings. At September 30, 2011 and June 30, 2011, the Bank had $6.0 million and $2.8 million of modified loans, respectively, which were considered troubled debt restructurings. At September 30, 2011, the Bank had $730 thousand in one-to four family residential mortgage loans that were considered troubled debt restructurings and $5.2 million in commercial real estate loans that were considered troubled debt restructurings. At June 30, 2011, the Bank had $731 thousand in one-to four-residential real estate loans and home equity loans and lines of credit that were considered troubled debt restructurings and $2.0 million in commercial real estate loans that were considered troubled debt restructures. Of the $6.0 million in modified loans considered troubled debt restructurings, $5.1 million were also non-performing loans. For further detail, see “Note 4 – Credit Quality of Loans and Allowance for Loan Losses” in the accompanying financial statements.

Securities. At September 30, 2011, the securities portfolio totaled $37.3 million, or 9.4% of total assets as compared to $39.5 million, or 10.2% of total assets, at June 30, 2011.

Deposits. At September 30, 2011, deposits increased by $13.7 million, or 5.3% to $270.7 million from $257.0 million at June 30, 2011. Total certificates of deposit increased by $5.0 million, total money market accounts increased by $4.7 million, and total checking accounts increased by $3.9 million.

Borrowings. At September 30, 2011, total borrowings were essentially unchanged from June 30, 2011 having increased $578 thousand, or 1.3%, to $45.8 million. Customer repurchase agreements increased $3.1 million, or 20.0%, to $18.7 million, or 5.9% of total liabilities at September 30, 2011. At September 30, 2011, Federal Home Loan Bank advances totaled $27.1 million, or 8.5% of total liabilities, a decrease of $2.5 million, or 8.5%, from June 30, 2011.

At September 30, 2011, the Company had access to additional Federal Home Loan Bank advances of up to $42.0 million.

Equity. Equity totaled $77.7 million and $80.9 million at September 30, 2011 and June 30, 2011, respectively. The decrease of $3.1 million was primarily the result of the implementation of the Company’s share repurchase program.

Capital and Liquidity. The Company’s goal is to maintain a strong capital position that supports its strategic goals while, at the same time, exceeding regulatory standards. At September 30, 2011, the Company met the definition of a “well-capitalized” institution by exceeding all regulatory minimum capital requirements.

 

     Ratios at        
     September 30,
2011
    June 30,
2011
    “Well-Capitalized”
Minimums
 

Total Capital to risk-weighted assets

     31.72     33.16     10.00

Tier 1 Capital to risk-weighted assets

     30.75     32.26     6.00

Tier 1 Leverage

     19.45     20.81     5.00

The Company’s primary sources of funds are deposits, borrowed funds, amortization and prepayment of loans, maturities of investment securities and other short-term investments, and earnings and funds provided from operations. While scheduled principal repayments on loans are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. In addition, the Company invests excess funds in short-term interest-earning and other assets which provide liquidity to meet lending requirements.

The Company is a member of the Federal Home Loan Bank of Atlanta, whose competitive advance programs provide the Company with a safe, reliable, and convenient source of funds. A significant decrease in liquidity could result in the Company seeking other sources of funds, including, but not limited to, additional borrowings, brokered deposits, negotiated time deposits, the sale of available-for-sale investment securities, and the sale of loans or other assets.

 

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Comparison of Operating Results for the Three Months Ended September 30, 2011 and 2010

General. Net income decreased $164 thousand to $88 thousand for the three months ended September 30, 2011 from net income of $252 thousand for the three months ended September 30, 2010. The decrease in net income was primarily a result of an increase in non-interest expense of $251 thousand and a decrease in non-interest income of $42 thousand.

Net Interest Income. Net interest income was unchanged at $3.0 million for the three months ended September 30, 2011 and September 30, 2010. Total interest expense decreased $23 thousand, or 2.0%, for the three months ended September 30, 2011 as the Bank paid off one term Federal Home Loan Bank advance. This was offset by an increase in deposit expense as a result of the continuing money market deposit promotion. Interest and dividend income decreased slightly for the three months ended September 30, 2011.

The net interest margin was 3.52% for the three months ended September 30, 2011 compared to 3.47% for the three months ended September 30, 2010. The improvement was the result of an increase in the yield received on average interest-earning assets and a reduction in the yield paid on average interest-bearing liabilities. Average net interest-earning assets decreased $3.6 million to $335.4 million for the period ended September 30, 2011 compared to $339.0 million for the period ended September 30, 2010 and the yield increased three basis points on those average interest-earning assets. Average interest-bearing liabilities increased $18.4 million to $281.6 million for the period ended September 30, 2011 while the average cost of interest-bearing liabilities decreased 15 basis points.

Interest and Dividend Income. Interest and dividend income decreased $16 thousand to $4.1 million for the three months ended September 30, 2011. Interest income on total investments decreased $38 thousand and was partially offset by increases in interest income on loans and fed funds sold of $11 thousand each.

The average yield on loans decreased three basis points, to 5.33% for the three months ended September 30, 2011 from 5.36% for the three months ended September 30, 2010. Total average loans increased $2.4 million, reflecting an average balance increase in commercial loans of $28.9 million to $145.9 million for the three months ended September 30, 2011 partially offset by a decrease in average residential mortgage loans of $23.5 million, or 19.6%, to $96.5 million and a decrease in average consumer loans of $3.0 million, or 7.3%, to $38.1 million for the three months ended September 30, 2011 as compared to $120.0 million and $41.1 million, respectively, for the three months ended September 30, 2010.

Interest income on securities decreased $36 thousand, or 11.3%, to $282 thousand for the three months ended September 30, 2011 from $318 thousand for the three months ended September 30, 2010, as the average yield on securities decreased 75 basis points to 2.37% for the three months ended September 30, 2011 from 3.12% for the three months ended September 30, 2010, reflecting continued low market interest rates and prepayments of higher yielding securities within the mortgage backed securities portfolio.

Interest Expense. Interest expense decreased $23 thousand, or 2.0%, to $1.1 million for the three months ended September 30, 2011. The Bank paid off one higher cost term Federal Home Loan Bank borrowing. This was offset by an increase in deposit expense as a result of the continuing money market deposit promotion. The average rate paid on deposits decreased two basis points to 1.26% for the three months ended September 30, 2011 from 1.28% for three months ended September 30, 2010.

Interest expense on borrowings decreased $103 thousand, or 22.5%, to $354 thousand for the three months ended September 30, 2011 from $457 thousand for the three months ended September 30, 2010, due to a $9.7 million, or 17.2%, decrease in the average balance of borrowings, primarily in Federal Home Loan Bank advances, as well as a 21 basis point decrease in the average cost of borrowings to 2.96% for the three months ended September 30, 2011 from 3.17% for the three months ended September 30, 2010, reflecting continued low market interest rates and the repayment of higher cost borrowings.

Provision for Loan Losses. The Company’s provision for loan losses for the three months ended September 30, 2011 was $147 thousand, a decrease of $11 thousand, or 7.0%, from the provision for loan losses of $158 thousand for the three months ended September 30, 2010. The provision for loan losses for the three months ended September 30, 2011 included a full recovery on one previously charged-off loan in the amount of $15 thousand. The provision for loan losses also included the effects of a single one-to four-family residential loan, in the amount of $513 thousand, moving to the substandard classification as a result of the loan moving to non-accrual status. For further discussion related to the provision for loan losses, see “Allowance for Loan Losses” in the “Comparison of Financial Condition at September 30, 2011 and June 30, 2011.” For further discussions related to loan portfolio performance, see “Non-performing Assets” in the “Comparison of Financial Condition at September 30, 2011 and June 30, 2011” and Note 4 of the notes to the consolidated financial statements.

 

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Table of Contents

Non-Interest Income. The following table summarizes changes in non-interest income (loss) between the three months ended September 30, 2011 and 2010.

 

      Three Months Ended
September 30,
     Change  
     2011      2010      $     %  
     (In thousands)        

Customer service fees

   $ 91       $ 116       $ (25     (21.6 )% 

Loan servicing fees

     9         11         (2     (18.2

Bank owned life insurance income

     75         70         5        7.1   

Other non-interest income

     30         31         (1     (3.2
  

 

 

    

 

 

    

 

 

   

Non-interest income before net gains

     205         228         (23     (10.1

Net gain on sale of loans

     6         25         (19     (76.0
  

 

 

    

 

 

    

 

 

   

Net gains

     6         25         (19     (76.0
  

 

 

    

 

 

    

 

 

   

Total non-interest income

   $ 211       $ 253       $ (42     (16.6
  

 

 

    

 

 

    

 

 

   

Non-Interest Expense. The following table summarizes changes in non-interest expense between the three months ended September 30, 2011 and 2010.

 

     Three Months Ended
September 30,
     Change  
     2011      2010      $     %  
     (In thousands)        

Salaries and employee benefits

   $ 1,738       $ 1,461       $ 277        19.0

Occupancy and equipment

     386         451         (65     (14.4

Data processing

     177         159         18        11.3   

Directors’ fees

     80         88         (8     (9.1

FDIC assessments

     67         77         (10     (13.0

Other non-interest expense

     488         449         39        8.7   
  

 

 

    

 

 

    

 

 

   

Total non-interest expense

   $ 2,936       $ 2,685       $ 251        9.3   
  

 

 

    

 

 

    

 

 

   

Salaries and employee benefits increased $277 thousand, or 19.0%, to $1.7 million for the three months ended September 30, 2011 from $1.5 million for the three months ended September 30, 2010. The increase is primarily a result of additions to staff and initial grants under the approved equity incentive plan as disclosed in Note 8 of the notes to the consolidated financial statements. Salaries and employee benefits include those additional salaries, as well as, the associated benefits and taxes required. Occupancy and equipment decreased $65 thousand from $451 thousand for the three months ended September 30, 2010 to $386 thousand for the three months ended September 30, 2011. For the period ended September 30, 2010, occupancy and equipment included a one-time charge of $72 thousand primarily to account for escalating lease costs and the opening of one new branch. Data processing expenses increased $18 thousand, or 11.3%, in the three months ended September 30, 2011. This includes standard upgrades to existing systems. Other non-interest expense increased primarily due to increased legal, regulatory, and accounting costs necessary to operate as a public company and increased marketing expenses.

Income Taxes. The Company recorded an income tax expense of $14 thousand for the three months ended September 30, 2011, reflecting an effective tax rate of 13.7%, compared to income tax expense of $125 thousand for the three months ended September 30, 2010, reflecting an effective tax rate of 33.2%. The difference between the effective tax rate and statutory rate is primarily due to the amount of income received from bank-owned life insurance, which is tax-exempt for federal and state tax purposes, relative to total pre-tax income for each period.

 

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Table of Contents
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required, as the Registrant is a smaller reporting company.

 

ITEM 4. CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the participation of the Company’s management, including the President and Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of September 30, 2011. Based on that evaluation, the Company’s management, including the President and Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

During the quarter ended September 30, 2011, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

As of September 30, 2011, the Company was not subject to any legal actions, the outcome of which was expected to have a material effect on our financial condition or results of operations.

 

ITEM 1A. RISK FACTORS

Not required, as the Registrant is a smaller reporting company.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth information in connection with repurchases of the Company’s shares of common stock during the first fiscal quarter of 2012. On May 19, 2011 the Board of Directors authorized the repurchase of up to 462,875 shares, or 10% of the Company’s common stock. The repurchase authorization has no expiration date.

 

Period

   Total Number of
Shares Purchased
     Average Price
Paid per
Share
     Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
     Maximum Number of
Shares That May yet
be Purchased Under
the Plans or
Programs
 

July 1, 2011 though July 31, 2011

     12,500         14.80         12,500         423,675   

August 1, 2011 through August 31, 2011

     46,100         14.42         46,100         377,575   

September 1, 2011 through September 30, 2011

     192,250         14.30         192,250         185,325   
  

 

 

    

 

 

    

 

 

    

Total

     250,850         14.35         250,850         185,325   

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

 

ITEM 4. [Reserved]

 

ITEM 5. OTHER INFORMATION

None

 

ITEM 6. EXHIBITS

The exhibits required by Item 601 of Regulation S-K are included with this Form 10-Q and are listed on the “Exhibit Index” immediately following the Signatures.

 

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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.

 

    OBA FINANCIAL SERVICES, INC.
      (Registrant)
Date: November 14, 2011       /S/    CHARLES E. WELLER
      Charles E. Weller
      President and Chief Executive Officer
   
Date: November 14, 2011       /S/    DAVID A. MILLER
      David A. Miller
      Senior Vice President and Chief Financial Officer

 

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EXHIBIT INDEX

 

Exhibit

Number

  

Description

31.1    Certification of Charles E. Weller, President and Chief Executive Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a).
31.2    Certification of David A. Miller, Senior Vice President and Chief Financial Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a).
32    Certification of Charles E. Weller, President and Chief Executive Officer, and David A. Miller, Senior Vice President and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101    The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Changes in Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements, tagged as blocks of text.

 

33